Washington Insider -- Wednesday

Trade Issues Abound

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

Food, Agricultural Organizations Ready to Work on NAFTA Modernization

Eagerness to work with the Trump administration to modernize the North American Free Trade Agreement (NAFTA), while preserving and expanding the gains achieved to date is the focus of January 23 letter sent to President Donald Trump by a group of 133 organizations and companies in the food and agriculture sector.

"U.S. food and agricultural exports have produced a trade surplus for nearly 50 years," the letter notes. "Consistent growth over this period resulted in over $130 billion worth of exports, which created $423 billion in U.S. economic activity in 2015."

In the 20 years since NAFTA was implemented, the market integration it fostered helped quadruple the value of U.S. food and agricultural exports to Canada and Mexico, the letter noted. "With a few key sector exceptions that still require attention, North America intraregional food and agriculture trade is now free of tariff and quota restrictions...," the letter said. "Because of these market access gains, the food and agricultural sectors of the North American region have become far more integrated."

Evidence of the tighter integration can be seen in "rising trade in agricultural products and substantial levels of cross-border investment in the agriculture and food sectors." the letter said, adding "we look forward to working with your Administration on reducing the non-tariff trade barriers that continue to inhibit our exports to the North American marketplace, as well as to addressing the remaining tariffs impeding access for some US export sectors."


Australia Leading Push for TPP without US

Australia pushing for a Trans-Pacific Partnership (TPP) accord that does not include the U.S. after President Donald Trump removed the U.S. from the deal.

Prime Minister Malcolm Turnbull said he discussed the deal on Monday night with Japanese counterpart Shinzo Abe, and held talks with the leaders of New Zealand and Singapore. Steven Ciobo, Australia's trade minister, told ABC Radio a TPP without the U.S. was "very much a live option."

"We are all of us working to see how we can ensure we maintain this momentum toward open markets and free trade," Turnbull said today in Sydney. "Losing the United States from the TPP is a big loss — there is no question about that — but we are not about to walk away from our commitment to Australian jobs."

Odds of a TPP sans the U.S. faces hurdles without the large American market, as it would be hard to get member countries to agree to the same access as decided under the TPP, trade policy analysts note.

Japan currently is not considering a TPP without America, Deputy Chief Cabinet Secretary Koichi Hagiuda said in Tokyo. Japan and the US account for more than 75% of the gross domestic product among member countries.

Washington Insider: Trade Issues Abound

No one should be surprised that the new administration is pulling back from the Trans-Pacific Partnership (TPP), but now that the President he has signed such an order, there ever more widespread comment on what it may mean.

For example, the New York Times editorial on Tuesday said that "Mr. Trump's big complaints about trade deals is that other countries are cheating the United States. His charges don't stand scrutiny."

For example, the Times says that much if the U.S. trade deficit with Mexico and Canada is a result of imports of oil and gas. If those basic commodities are excluded, American trade with them has been pretty balanced in recent years, according to a 2015 Congressional Research Service report.

The Times concludes that the protectionism Mr. Trump proposes assumes that trade provides no benefits. In fact, it brings Americans cheaper goods and drives innovation, the Times says.

This is an argument we are likely to hear elaborated for some time in the future, especially as additional reform packages are developed in the Congress and elsewhere. For example, there is a "reform package developed by House Republicans for a corporate tax overhaul, including a border tax adjustment measure that would effectively subsidize exports and tax imports. However, this approach would likely drive Mexico to adopt similar measures, according to Luis de la Calle, the former undersecretary for international business negotiations under the Vicente Fox (2000-2006) administration, Bloomberg says.

"If the U.S. wants to move to this new border tax approach, Mexico and Canada would have to do the same," De la Calle told Bloomberg, noting that both countries are the largest U.S. trading partners. "We will know whether that is the case once the administration moves that bill, but we have to prepare for that scenario."

The Republican House corporate tax overhaul proposal would lower the corporate tax from 35% to 20% and apply the tax on the basis of where the product is consumed rather than produced. It additionally would refund the tax for exports, but charge it for imports, as a way of encouraging U.S. exports and making domestic production more competitive.

De la Calle cautioned that the focus on Mexico has a broader purpose—a warm up for a new corporate tax regime that could still have unintended consequences in Mexico and elsewhere." He argues that Trump's push toward broader tax reform in the US and is using international trade as a scapegoat for difficult negotiation in Congress," De la Calle told the press. "It will have a significant impact on the U.S. economy and economies all over the world," he said.

If the trading partner pushback were not a great enough concern by its self, Informa Economics is reporting that President Donald Trump's pick for USTR represented the Brazilian government during an ethanol trade dispute with American industry three decades ago. The Wall Street Journal thinks this could "complicate his confirmation." The Journal likely is right.

Robert Lighthizer, a longtime partner at Skadden, Arps, Slate, Meagher & Flom LLP, signed an agreement for his firm to work for a part of the Brazilian Ministry of Industry and Commerce on a dispute involving the ethanol trade, he reported in a "U.S. lobbying disclosures." Senate Democrats are now flagging this work as a potential concern, suggesting that it "would appear to conflict with a 1995 law that does not allow people who have represented foreign governments to become a U.S. trade representative or deputy U.S. trade representative."

It is unclear whether issue will explode or be handled via the committee process. For example, Congress has occasionally provided waivers for Cabinet-level nominees who might otherwise be disqualified with U.S. law as was done for Charlene Barshefsky, former President Bill Clinton's pick for trade representative, in 1997. She was given a waiver and went on to serve in the post.

Well, we always knew that trade policy would be exceedingly complex politically, with consequences, intended or unintended, that are both deep and wide. For example, a key concern for some is the question of how the U.S. pull-back in the Pacific will be exploited by China and how the administration will handle that concern in the future.

So, trade will be at least as toxic in the future as it has been in the past; this is an issue that should be watched carefully by producers in spite of its extreme complexity, Washington Insider believes.

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