Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.Mexico Sugar Industry Prepared to Retaliate if US Starts Trade Spat
Mexico’s sugar industry is prepared to retaliate if the U.S. starts a trade dispute over the sweetener, said Juan Cortina, president of the Mexican Sugar Chamber, in a telephone interview with Bloomberg from Mexico City.
If the U.S. ends Mexico’s access to the American sugar market, the Mexican industry will “demand” its government to “block all access” to U.S. high-fructose corn syrup (HFCS) — Mexico imported 1.5 million to 1.6 million metric tons of HFCS annually in recent years. New negotiations for a trade suspension agreement between the countries have been stalled because of the change in administration in the U.S., Cortina said.
“Mexico has always complied with all clauses in the suspension agreement” that set quotas and prices for Mexican sugar coming into the U.S., Cortina added, a statement challenged by some in the U.S. sugar industry. The trade suspension agreement came after the U.S. government determined Mexico was flooding the market with sweetener under the North American Free Trade Agreement (NAFTA).
In the original discussions, the U.S. had determined it needed 820,000 metric tons of Mexican imports in 2016/17, with 55% of the shipments allowed for the first six months of the season, or from October through March, Cortina said. However, data in December signaled the U.S. may need only 720,000 mmt, and Mexico had already sent around 380,000 mmt, running ahead of revised requirements, for which discussions are ongoing. New permits will be issued from April for the second tranche of expected exports.
***Icahn Denies Violating Lobbying Law with RFS Proposal
Carl Icahn is denying allegations by the consumer advocacy group Public Citizen that he is acting as an unregistered lobbyist.
In an op-ed in The Hill, Icahn said the group was on a "witch hunt" when it filed a complaint with both the Senate and the House accusing him of violating the Lobbying Disclosure Act in his advocacy in the White House for changes to the Renewable Fuel Standard (RFS).
"Public Citizen’s assertion that I should be required to register as a lobbyist is another gross misstatement of the facts which is similar to much of the 'fake news' that is unfortunately so prevalent today," Icahn wrote. "I have vetted my activities with a number of lawyers and it is clear that no registration is required."
Icahn has called for an investigation to "uncover the dark forces behind this witch hunt," which may be financed by opponents of the administration or supporters of the RFS.
Icahn is the majority owner of the refiner CVR, and he has been calling for changes to the RFS that would shift the compliance obligation away from CVR and other merchant refiners. Public Citizen's complaint alleges that Icahn's pursuit of the change without registering as a lobbyist should be investigated.
Public Citizen fired back late Wednesday. “The fact that Carl Icahn continues to believe that there’s nothing wrong with his inherent conflict of interest is stunning,” Public Citizen energy director Tyson Slocum said in a statement. He added: “It is wildly inappropriate for someone with a significant vested interest in the repeal of a regulation to be appointed as an adviser to the president and then to offer advice on the fate of that regulation.”
Washington Insider: The Border Tax Adjustment
Now that the Affordable Care Act (ACA) replacement has become the center of policy debate almost everywhere, you might expect that attention would turn away from tax or trade policy as a result. Bloomberg says not and emphasizes that it remains at the center of the House GOP proposal to overhaul the tax code.
However, in spite of wide GOP support, the proposal is a “source of disagreement among Republican lawmakers, Bloomberg says. “Senator Tom Cotton, R-Ark., and David Perdue, R-Ga., have previously gone public with concerns, and Senate Finance Committee Chairman Orrin Hatch, R-Utah, lists himself as a skeptic and wants to consider alternatives to it.”
In addition, Sen. Jeff Flake, R-Ariz., told Bloomberg this week, “At first glance, the plan seems simple enough. You tax companies in the U.S. less and tax goods overseas more,” he said. “As it turns out, it's not so easy, we simply do not produce everything we need here in the United States. That's why we trade with other countries.”
Flake’s concern has been shared widely, especially the fear that it would increase domestic prices – and opponents are pushing hard on that argument. Autos are a case in point. Consultant Roland Berger told Bloomberg that the proposal to tax imports would make most US automakers “unprofitable, strain consumers and lead to job losses instead of gains.” Berger is a partner in Wolfgang Bernhart in Munich.
He estimates that the proposal would increase the average cost of a U.S. car by $3,300, prompting a drop in sales and forcing manufacturers to react by shrinking their U.S. workforce. Because parts are sourced around the globe, all automotive companies would be affected, he said.
“Even American manufacturers would lose so much profit in their most important market that they would slide into losses globally,” he said.
In addition, House Republicans were told recently that their tax proposal would violate international trade laws. “This could lead to a disastrous trade war,” a former WTO official told the press. The House plan, a destination-based cash flow tax coupled with border adjustments, is likely to violate rules for both exports and imports, said Jennifer Hillman, a former WTO official and a former general counsel at the Office of the U.S. Trade Representative.
“The enactment of a tax plan that includes provisions that are clear violations of our WTO obligations risks significant litigation, retaliation from our trading partners, possible additional duties on U.S. exports, and carries the potential to start a trade war,” she said.
This is an argument that has drawn attention from many in agriculture who have concerns about the proposal in spite of the industry’s strong export orientation. An official at a major U.S. equipment company emphasized similar concerns earlier this week.
However, CBO released a detailed report this week concluding that the U.S. has the fourth-highest effective corporate tax rate among the Group of 20 industrialized economies, at 18.6%, an expected finding and one of the reasons given for considering the border tax adjustment in the first place. Ahead of the U.S. were Argentina, Japan and the UK, with Argentina’s rate the highest at 22.6%. The lowest G-20 rate was in Italy, at a negative 23.5%.
The effective corporate rate is the rate at which a company is taxed on an investment that will return enough to make the investment worthwhile, the CBO said. It is in contrast to the statutory rate, which is the top corporate rate specified in law.
On that measure, the U.S. ranked first among the G-20 nations, at 39.1%, ahead of Japan's 37% and Argentina's 35% rate. Advocates for overhauling the corporate tax system point to the U.S.’s high statutory rate as evidence that tax policy drives away investment, though large companies rarely pay the rate and instead reduce their tax bills by taking advantage of various tax credits and deductions.
The result is that consideration of the border adjustment tax is unlikely to end in spite of the concerns it generates – but it also means that tax policy will continue to be contentious and difficult for the foreseeable future and should be watched closely by producers as it proceeds, Washington Insider believes.
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