Washington Insider -- Thursday

What About NAFTA?

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

Trump Pledges Relief in Canada Dairy Trade Dispute

President Donald Trump promised dairy farmers his administration would intervene to restore exports of American milk in the Canadian market.

Trump on Tuesday responded to appeals for help from the dairy industry during an event in Wisconsin, where he also renewed his complaints about the North American Free Trade Agreement (NAFTA). Trump's comments came on the heels of a joint letter by Wisconsin Gov. Scott Walker and New York Gov. Andrew Cuomo on April 18 calling on the president to take aim at Canada's dairy trade policies.

Trade groups for U.S. dairy farmers have complained that a policy rolled out in Canada recently violates the trade agreement by creating incentives for Canadian processors to use local supplies. U.S. farm groups say that effectively blocks American dairy exports, adding to a glut of milk on the American side of the border.

"We're going to call Canada and we're going to say 'What happened?'" Trump said during an appearance at a Snap-On Tool plant in Kenosha. The president said the administration is going to "call Canada" and "get a solution, not just the answer." Trump said that the Canadian dairy policy was “very, very unfair” to US dairy producers. “It’s another typically one-sided deal against the U.S., and it’s not going to happen for long,” Trump said.

The Canadian dairy industry is implementing a new pricing program and "national ingredients strategy" that allows Canadian cheese-makers to buy certain ingredients at the lowest world market price, a policy that is effectively pricing out US exports of ultra-filtered milk. Industry groups say the policy has already led to farmers in Wisconsin losing contracts with major U.S. dairy processors that ship the products north of the border to be made into cheese — and they want the administration to retaliate against the measures and challenge them at the WTO.


Trump Administration Seeks Public Comment on Trade Deficits

Public comment is being sought for an upcoming report President Donald Trump is expected to use in attacking significant trade deficits, according to notices from the Commerce Department and Office of the U.S. Trade Representative (USTR).

Commerce and USTR will hold a hearing May 18 regarding practices by trading partners that lead to US trade deficits. Information from the comments and hearing will be combined in a report to the president, according a Federal Register notice published April 17.

Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Switzerland, Taiwan, Thailand and Vietnam have been singled out by the administration for their trade deficits in goods with the US.

The president and his trade advisers have indicated the administration intends to get tough with certain countries that refuse to alter their trading practices with the U.S. Trump signed an executive order March 31 calling for the report and promising to investigate and punish trade abuses. Commerce Secretary Wilbur Ross March 30 said the “measured, analytical” approach of the study would inform presidential decisions. The study is expected at the end of June.

Meanwhile, the “persistent U.S. deficit in goods trade” with North American Free Trade Agreement (NAFTA) partners Canada and Mexico is driving the push to renegotiate the deal, according to a recent letter to Congress sent by acting USTR Stephen Vaughn.

Washington Insider: What About NAFTA?

While there seemed to be a softening of the President’s anti-trade stand recently, Bloomberg is reporting this week that it is hard to know what he has in mind—and even harder to find groups or legislators who want the 1994 deal left as is.

Bloomberg notes that Congressional support for new trade agreements has eroded over the past two decades since many believe they have hurt U.S. competitiveness. Environmental groups, especially, argue that the environmental side deal negotiated alongside NAFTA was largely ineffective, particularly in preventing environmental degradation in Mexico.

Ben Beachy, senior policy adviser for the Sierra Club’s Responsible Trade Program, told Bloomberg that despite the deal’s language, “not once has the U.S. used these trade deals to bring a case against a trade partner for environmental violations, despite documented evidence of illegal logging, rollbacks of environmental protections, and other abuses.”

Sen. Sherrod Brown, D-Ohio, who has blamed NAFTA for eroding Ohio’s manufacturing base, told Bloomberg he is “absolutely” receptive to reopening the deal but remains skeptical of Trump’s motives. One obvious fix, Brown said, would be to strengthen mechanisms to resolve trade disputes, but he noted many companies are wary of giving over such authority to international entities.

Brown applauded the new president’s decision to pull the U.S. out of the Trans-Pacific Partnership, a deal which included attempts to address some of NAFTA’s perceived flaws. Still, Brown criticizes these deals on the grounds that “None of these trade agreements have both stronger rules and stronger enforcement together,” he said.

At the same time, “Trump’s tough talk on NAFTA and his move to quash the TPP have put some Republicans in the Senate in a bind, Bloomberg says. This includes some in the Republican leadership including Sens. John Barrasso, R-Wyo., and John Thune, R-S.D.

Nevertheless, few Republicans, including Sen. John McCain, R-Ariz., have vowed to fight Trump’s pledge to renegotiate NAFTA directly. McCain has argued that “the facts clearly show that “NAFTA has delivered enormous economic benefits to the citizens of his home state since it went into effect in 1994. In just two decades, Arizona’s exports to Canada and Mexico have increased by $5.7 billion, or 236%,” McCain said.

Sen. Pat Roberts, R-Kan., thinks that part of the challenge is that trade deals are an “easy target for critics as well as supporters. Most trade agreements I’ve worked on have been overcriticized—and they’ve been oversold,” Roberts said at the recent Senate Finance Committee confirmation hearing for Robert Lighthizer, the administration’s U.S. Trade Representative nominee.

Sen. Maria Cantwell, D-Wash., the top Democrat on the Senate Energy and Natural Resources Committee, points to incremental progress that has advanced labor and environmental protections since NAFTA, such as the 2009 deal between the U.S. and Peru which included an environmental chapter that addressed illegal logging as well as illegal trade in wildlife,” Cantwell told Bloomberg.

A draft notice leaked in March suggested a more modest retooling of the deal may be in the offing, although the White House sought to downplay the letter from Acting U.S. Trade Representative Stephen Vaughn on the grounds that it doesn’t accurately reflect the administration’s latest positions.

But Bloomberg noted that the letter read a little like a measured defense of NAFTA, noting that trade between the three nations has tripled from $293 billion to $1.07 trillion in goods since 1993. Canada and Mexico are among the largest export markets for manufacturing and the first and third largest markets for agricultural goods,” the letter said.

And, Bloomberg sees other obstacles to a full-blown renegotiation of NAFTA in the form of significant demands by Canada and Mexico to bolster protections for their own industries. Mexico has signaled “it may seek to broaden negotiations to include security, counter-narcotics, and transmigration issues,” according to a Feb. 22 Congressional Research Service report, which raised the prospect of Mexico withdrawing from NAFTA “if the negotiations are not favorable” to its own interests.

Somehow lost in the debate, say backers of the trade deal, is the success of NAFTA in largely eliminating what were once substantial trade barriers to U.S. exporters seeking access to markets in Mexico. Before NAFTA, about 60 percent of U.S. farm exports to Mexico required import licenses, a trade barrier essentially lifted by the agreement. NAFTA also eliminated or phased out tariffs in Mexico that were significant barriers to U.S. imports there.

In addition, Bloomberg notes “many analysts say Trump overstates the degree to which trade deals have closed U.S. factories, noting other factors including increased efficiency that also reduced demand for jobs in the sector. The output per hour for all manufacturing workers has increased by more than 2.5 times since 1987, according to the National Association of Manufacturers.

So, we’ll see. As in other aspects of economic policy, Congress is unlikely to take the lead on trade policy ahead of the administration, which includes some who are strong opponents of trade deals. Clearly, Agriculture Secretary nominee Perdue will have a fight awaiting him as he attempts to steer the trade debate to the benefit of his sector, Washington Insider believes.

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