Washington Insider -- Wednesday

More Optimism on Ag Trade

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

Renewed Focus on CRP as Acreage Limit Looms

The venerable Conservation Reserve Program (CRP) is emerging as a focal point in the coming farm bill debate on several fronts – from policy to budget savings.

Renewed focus on increasing Conservation Reserve Program (CRP) acres. Sen. John Thune, R-S.D., introduced another CRP-related bill, calling for 30 million acres to be enrolled — an increase of 6 million acres on the current cap. Thune also wants more flexibility on the use of the land, including the ability to graze cattle and harvest cover vegetation.

Under the 2014 Farm Bill, lawmakers gradually reduced the level of acreage allowed in the CRP to 24 million in Fiscal 2017 and Fiscal 2018.

House Agriculture Committee ranking member Collin Peterson, D-Minn., said in a February hearing that he would like to see the program cap set at least to 35 million acres, though he also wants the farm bill to address paperwork and other burdens to farmers enrolled in CRP.

"CRP is a popular program in South Dakota, but due to expiring contracts, the state is expected to lose 57% of its existing CRP acres over the years covered by the 2018 Farm Bill,” Thune, a member of the Senate Agriculture Committee, said in a statement. “After receiving feedback from stakeholders throughout South Dakota, it was clear that we needed to make some changes. I look forward to continuing the conversation on these and other proposals as debate on the next farm bill continues to get underway.”

Thune earlier this year proposed creating the Soil Health and Income Protection Program (SHIPP) that would offer three- to five-year options to farmers and allow them to enroll their least-productive acreage into the effort in return for a rental payment and additional crop insurance assistance. Perhaps key, Thune has signaled he wants the SHIPP effort to be budget neutral, but has not yet received a score from the Congressional Budget Office (CBO).


Commerce Sec. Ross: Congress Slowing Down NAFTA Renegotiation Process

Congress is slowing down the process of renegotiating the North American Free Trade Agreement (NAFTA) with Mexico and Canada, Commerce Secretary Wilbur Ross said on Fox Sunday Futures.

"Bad trade deals shouldn't be allowed to sit," Ross remarked. "The longer they sit there, the more they are to our disadvantage. So it's quite unfortunate that the way Congress has been working has been to slow-walk these activities."

Under fast track/trade promotion authority (TPA) procedures, the administration must submit a notice to Congress of its intent to enter into trade negotiations. The notice triggers a 90-day consultation period with Congress and interested parties before negotiations can begin. Following TPA procedures will ensure that the trade deal eventually negotiated will be subject to an up or down congressional vote with no amendments.

"We need Congress's permission to enter the formal 90-day letter into the records so that we can begin the formal negotiations," Ross argued. The administration wanted to get the notice before the two-week congressional recess but was unable to meet that goal. “We hope to get it done as soon as possible after" Congress returns the week of April 24, he said. The administration has submitted a draft notice to the trade oversight committees.

The process has been “frustratingly slow,” Ross noted. The delay in moving forward the nomination of Robert Lighthizer to be U.S. Trade Representative (USTR) is “not helpful,” he added. The nomination has been slowed by Senate Finance Committee Democrats who insist his past work for foreign governments necessitates a waiver of restrictions imposed by the Lobbying Disclosure Act of 1995. Democrats on the panel have told Chairman Orrin Hatch, R-Utah, their support for Lighthizer was contingent on passage of the Miners Protection Act, which would shore up health care and pension funds for miners.

When asked about the status of NAFTA talks April 10, White House spokesman Sean Spicer called for Lighthizer's confirmation. “USTR drives that and so our focus is getting that done and it'll be ready to go,” he said, referring to the Office of the US Trade Representative, which Lighthizer will head if confirmed.

“We still have an official 90-day notification that we have to give Congress,” Spicer said relative to the NAFTA negotiation process. Once Lighthizer is confirmed, “we probably will be ready to announce a better work plan on that,” he said, but cautioned the administration is not there yet.

Washington Insider: More Optimism on Ag Trade

Last week, the administration held a trade summit with China’s political leader and a number of top officials. The talks were reported to be serious and were characterized as “modestly encouraging.” In fact, the summit itself was a welcome sign for agricultural groups who feared that recent campaign rhetoric might mean disruptions in access to important overseas ag product markets in China and elsewhere.

Moreover, this week, Informa Economics is reporting that a draft notice of North American Free Trade Agreement modernization objectives has been provided by the administration and that it gives Mexico “the negotiating room needed to move forward.”

The notice was leaked at the end of March and includes many of the issues Mexican trade officials and experts have cited as potential negotiating points – including rules of origin, intellectual property rights, and labor and environmental issues.

In fact, some Mexican experts called the draft notice “a serious document with a very positive tone.” For example, Beatriz Leycegui, former undersecretary for foreign trade in the Calderon administration and partner at SAI Consulting said. "It opens windows more than closes doors, and demonstrates that there is a willingness to have an agreement that will modernize NAFTA."

Press reports generally noted that the notice is “a move away” from campaign rhetoric, especially the repeated claim that NAFTA might be completely abandoned.

By contrast, the draft lays out specific issues on trade in goods and services, customs, government procurement, digital trade and other issues that the U.S. would like to modify in the current agreement. Such an approach has met with support from top Mexican officials, who agree that issues such as electronic commerce and the full incorporation of labor and environmental chapters into the agreement would serve Mexico, the U.S. and Canada.

"We do not shy away from modernizing NAFTA and making it better," said Luis Videgaray, the foreign minister, speaking at the Mexican Embassy in Washington last week. "The world has changed in the last 20 years and we have learned a lot about trade between the three countries."

While Mexican officials – including Videgaray – have argued that the country would be willing to consider abandoning NAFTA if the terms are made too harsh, Mexico’s close relationship with the U.S. makes such a development difficult to imagine, according to Christopher Wilson, deputy director of the Mexico Institute at the Wilson Center. "Mexico talked about being able to deal with the destruction of NAFTA to have leverage in negotiations," Wilson said. "Access to the U.S. market is a top tier priority. It is incredibly important, given that Mexico sends 80% of its exports to the U.S. market."

Harmonizing regulations is one proposed-change area that was identified as key priority by Leycegui. "If the proper incentives are there through harmonization or through mutual recognition of standards and sanitary measures, it will diminish the cost of doing trade and will increase small and medium enterprise participation,” Leycegui observed. “This draft notice addresses those issues which are important in order to diminish the cost of trade.”

Still, the publication of the draft does not mean that there is not work remaining to be done. For example, eliminating the antidumping and countervailing duty dispute settlement mechanism found in Chapter 19 of the NAFTA agreement is also a part of the draft plan but it does not suggest an alternative. That raises questions for Mexico, according to Luis de la Calle, a former undersecretary for international business negotiations at the Economy Ministry in the Fox administration. He noted that while the draft notice is generally consistent with the free trade objectives laid out in the trade promotion authority passed in 2015, there is no guarantee that the official U.S. notice will take the same tone.

“This is not going to be a final list,” de la Calle said. "Mexico and Canada should react only to final objectives published under the Trade Protection Authority 30 days before the negotiations and they should also publish their own lists." he said.

Well, it is far too soon to conclude that trade access across North America will actually be improved, or whether the criteria the administration has relied upon to find fault with “old NAFTA” will set the tone in the end. And, there are numerous policy considerations that could make a new deal difficult, including the tax policies under consideration that would impose extensive border tax adjustments.

So, there likely will still be plenty of tough trade policy fights to keep Secretary Nominee Sonny Perdue busy when he finally appears although, for those who like to read between the lines, it seems that ag trade prospects are a bit brighter than they formerly appeared, Washington Insider believes.

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