Washington Insider-- Tuesday

Outlook for TPP Approval

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

Argentina’s Macri to Cut Soy Export Tax to 30 percent, End Corn, Wheat Export Taxes

Argentine President Mauricio Macri said on Dec. 14 he will sign a decree to eliminate export taxes on wheat and corn and reduced the export tax on soybeans to 30% from the current 35%.

Macri pledged the steps during the campaign for president and it appears he is making good on the pledges with the actions today. Macri said he would sign the decree by Dec. 15 that would eliminate the corn and wheat export taxes and trim the soybean export tax.

“Today, as I promised during the campaign, I am betting on the farm sector’s ability to increase production,” Macri said at a meeting of farmers in the town of Pergamino. “As soon as I land in the capital city, I will sign the decree. There are no more excuses to not produce more.”

“No longer will the debate be planted in terms of the industrial sector versus the farm sector, or the farm sector versus the country,” Macri said. “It’s the farmers and the country.”

The tax agency, known as AFIP, estimates that as much as $11.4 billion of soybeans, corn and wheat are being held by farmers waiting to be sold. Export tariffs were increased in the past decade under former presidents Nestor Kirchner and his wife Cristina Fernandez de Kirchner in a bid to boost government revenue.

Farmers have been hoarding grains as a protest to the farm policies of the former administration and the currency controls put in place. The government has tightly controlled the peso exchange rate, currently at 9.77 per dollar, compared with a black market rate of about 14.86. Macri also pledged during the campaign to let the peso float and have a single exchange rate.

Indications are the wheat and corn export taxes would end immediately, but the reduction in the soybean export tax had been expected to start in 2016.

USDA in its Dec. 9 Supply/Demand report raised its forecast for Argentine wheat exports by 1 million tonnes “based on the expectation that the new government will reduce export restrictions.”

The taxes on beef, wheat and corn were previously 15%, 23% and 20%, respectively.

Argentine grain and oilseed exports have totaled $17.9 billion so far this year, the lowest for the period since 2009, according to data compiled by exporters.


China Launches New Yuan Exchange Rate Index

China has launched a new trade-weighted yuan exchange rate index, according to the China Foreign Exchange Trade System (CFETS), a unit of the People’s Bank of China (PBOC).

The CFETS yuan index contains 13 currencies with the U.S. dollar given a weighting of 26.4%, the euro at 21.39% and the yen 14.68%, according to reports. The weightings in the index appear to reflect trade relations with various countries, but some reports noted the weighting of the dollar is relatively low given the fact the US currency is used in the settlements of a large share of non-Chinese-US trade.

CFETS said the index was at 102.93 on Nov. 30, up 2.93% from its starting point of 100 at the end of 2014. Over that time, the yuan has declined 3% against the U.S. dollar but is up 10% compared to the euro and is essentially flat compared to the yen, according to Reuters.

The yuan should remain largely stable in the medium- to long-term, the PBOC said. “Referring to a basket of currencies does not mean to peg to the basket,” the PBOC stated. “While market entities should not peg (yuan) to the dollar from now on but to refer to a basket of currencies, it takes time for them to get accustomed to the new situation.”

China continues to take steps that are viewed as trying to get the yuan a more independent currency and to try and lessen the role that the U.S. dollar plays relative to the yuan’s value. The yuan already struck a fresh four-and-a-half-year low to open the week on the development.

Washington Insider: Outlook for TPP Approval

Much of the press buzz this week concerns the new Paris Climate Agreement, but there is a lot more going on. For example, the proposed budget fight is still white hot as the clock continues to tick down. And, Senate Majority Leader Mitch McConnell R-Ky., is pushing to keep the White House from sending a proposed TransPacific trade deal to Congress until after next year’s elections.

McConnell previously supported the President’s proposal for fast track authority, but now is indicating serious reservations that the 12-nation Trans-Pacific Partnership (TPP) can win approval just now. Clearly, McConnell’s advice would mean bitter medicine for the president, as well as a very large risk given political opposition to the deal from both Democratic and GOP candidates, the Hill reported this week.

As might be expected, the White House and press secretary Josh Earnest downplayed the significance of McConnell’s comments. “It is possible for Congress to carefully consider the details of this agreement and to review all of the benefits…without kicking the vote all the way to the lame duck period,” he added.

Under the terms of fast-track trade legislation, the earliest Obama could sign the agreement is Feb. 4. The White House would then need to work with congressional leaders set a date to introduce the trade bill, triggering a 90-day clock for both chambers to pass it.

“Once that is done, we are going to urge Congress to get started on the process of getting this passed and approved,” he said.

Text of the overall agreement was just released last month, and major business associations that often support trade deals have yet to embrace the TPP.

Tobacco producers and pharmaceutical companies have been working hard to preserve their current protections. Tobacco is a key player in Kentucky, McConnell’s home state, while Senate Finance Committee Chairman Orrin Hatch, R-Utah, has bitterly criticized the pharmaceutical provisions. Many Democrats and labor unions have said the agreement does not go far enough to enforce environmental provisions and workers’ rights.

Still, the Hill says sources close to the trade debate described McConnell’s comments as likely a negotiating ploy rather than an effort to kill the deal. They see the effort as one to buy time to work out an accommodation with pharmaceutical and tobacco companies short of renegotiating the entire deal.

“It’s a real game of chicken and McConnell is saying to the White House, ‘we know that you’re thinking that you want to move quickly, but that’s not going to happen,’” the Hill said.

Obama is trying to use his bully pulpit to rally support, observers note. He discussed the proposed deal with leaders from the TPP nations at an economic summit last month in the Philippines and delivered a speech plugging it in Malaysia. The President also has enlisted large corporations to back the agreement, such as AT&T, Microsoft and Archer Daniels Midland. But major Washington trade associations that have pull on Capitol Hill, such as the U.S. Chamber of Commerce and the National Manufacturers Association, have not publicly backed it.

“I think broadly the TPP has the full weight of a broad set of the business communities behind it,” Xerox CEO Ursula Burns said, according to Reuters. “Slowing down, in our opinion, doesn’t bring a lot to the table at all.”

So, we will see. In spite of reservations by McConnell and Hatch about these constituent concerns and the concerns of some of the majority’s more fractious members, a strong trade plank is central to the GOP’s economic policy structure. Whether this will be sufficient to support an achievement that would advance the fortunes of the President remains to be seen. In the meantime, it is not surprising to find a “ticking time bomb” or two buried deep in any advice the White House receives from the majority on the issue.

At the same time, the TPP has vast implications for a future US geopolitical role in the Pacific, as was recognized when the GOP first proposed the deal years ago. Thus, it appears that there is strong support for the “Pacific engagement strategy,” even though there will be bitter fights over the tactics. The deal is potentially very important to producers, and should be watched carefully as the coming floor debate unfolds, Washington Insider believes.

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