Washington Insider-- Tuesday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Congress Should Act Early to Avoid Last-Minute Debt-Limit Theatrics, Says Lew

Treasury Secretary Jack Lew has called on lawmakers to raise the country's borrowing limit and avoid playing politics when the U.S. government's credit rating is at stake later this year.

The Treasury is unlikely to need its debt ceiling raised until October or November, according to a Congressional Budget Office analysis. However, U.S. lawmakers have struggled to raise the debt limit since Republicans won control of the House in 2010, a struggle that brought the country near the brink of default in both 2011 and 2013.

Senate Majority Leader Mitch McConnell, R-Ky., has pledged there will be no default or government shutdown this time around. Beginning work early on the inevitable debt-ceiling vote will go a long way toward allowing him to fulfill that promise.

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Canada Remains Steadfast in Vow to Retaliate Against U.S. COOL Law

Canadian Prime Minister Stephen Harper last week again emphasized that Canada is serious when it says it will retaliate in an ongoing trade war with the United States over country-of-origin labeling (COOL) rules for meat. Speaking last week at an event in Saskatchewan, Harper predicted retaliation will become essential at some point in the dispute.

"We are prepared to retaliate at a point in time," the prime minister said. "Obviously we don't want to retaliate in a way that would endanger our wider trade interests, but I will say that at some point, retaliation becomes essential."

U.S. COOL rules require all meat packages to identify where the animal was born, raised and slaughtered. Canada says it is poised to impose retaliatory tariffs on a range of U.S. products, including pork, beef, wine and orange juice, if it wins the next appeals round at the World Trade Organization and the United States doesn't adjust its rules.

A WTO ruling regarding U.S. COOL rules is expected in late April or early May. If the United States loses the appeal, as many expect, a 60-day negotiation period would commence before Canada and co-plaintiff Mexico would be permitted to impose sanctions. For its part, Mexico also will be preparing a separate set of sanctions on U.S. imports that it could impose due to a continuing disagreement regarding cross-border trucking (see longer item below).

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Washington Insider: Trucks and Trade Policy

The Teamsters union has long hated the idea of allowing Mexican trucks to deliver imported Mexican goods all the way to their destinations in the U.S. interior and recently brought a new lawsuit to re-close the border -- the continuation of a very old fight.

The union's suit would block a U.S. concession to Mexico under the North American Free Trade Agreement that was to phase in beginning in 1995 and be fully implemented by 2000. The government of Mexico is upset by the Teamsters' action and is arguing that it damages the economics of trade for both countries, according to Luis de la Calle, a former senior trade official and partner with De la Calle, Madrazo y Mancera, an international trade consultancy firm.

"Mexico has immediate retaliation rights," de la Calle noted, based partly on his experience as one of the Mexico's chief NAFTA negotiators. "The first time the Teamsters blocked the entrance of trucks, in compliance with NAFTA, Mexico made a huge mistake in not immediately going to a (trade dispute resolution) panel."

In its current lawsuit, the Teamsters are arguing, as they have before, that a U.S. study on Mexican trucking safety provided insufficient assurance of the safety of long-haul operations from Mexico throughout the United States. However, observers note that the earlier U.S. pilot program found that the 15 Mexican carriers that operated in the U.S. interior had roughly the same safety record as U.S. and Canadian carriers.

The pilot program, which ran for three years ---- from Oct. 14, 2011, through Oct. 10, 2014 ---- allowed Mexico-registered motor carriers to operate throughout the United States. Participating carriers and drivers had to comply with all applicable U.S. laws and regulations, including those concerned with motor carrier safety, customs, immigration, vehicle registration and taxation, and fuel taxation.

The program was an interim step toward fulfilling the U.S. NAFTA commitment. The Obama administration had started and then cancelled a similar pilot program in 2009 after political resistance to the program mounted. In response, Mexico imposed $2.4 billion annually in retaliatory tariffs on U.S. agricultural and manufacturing goods, but lifted these after the pilot program was allowed to begin.

"What the NAFTA agreement says is that the United States has to give Mexican companies international treatment -- conducting inspections and granting permits -- the same way they would any other U.S. firm," de la Calle said. "We are not asking for preferential access; we are asking for non-discrimination."

De la Calle believes a U.S. decision to again close the border to Mexican trucks threatens its credibility with other participants in the 12-country Trans-Pacific Partnership trade negotiations. "If the United States is unable to honor its commitments in NAFTA, what kind of assurance will countries like Japan have that it will honor its commitments in the TPP?" de la Calle asked. "They will not have any credibility in their commitments."

For years, the U.S. trucking industry and a few environmentalist supporters who oppose most truck traffic have worked to keep the United States from fulfilling its NAFTA obligations, a protectionist posture that has, as De la Calle noted, the potential to undercut U.S. trade negotiations. This case, together with efforts by other highly protectionist U.S. industries have cost the United States significantly in terms of a weakened position in the ongoing trade talks, costs that clearly affect agriculture.

The new case ups the ante. There is little doubt that a new shutdown of otherwise eligible Mexican truck traffic across the border has the potential to both cause new sanctions and intensify trade tensions already festering on this issue for more than a decade.

Clearly, U.S. inability to fulfill its NAFTA obligation would be yet another trade embarrassment that would take on added importance and should be watched carefully by producers as it proceeds, Washington Insider believes.

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(GH/CZ)

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