Washington Insider -- Wednesday

Intensifying Budget Fight

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

US, Canada & Mexican Ag Ministers Commit to Keeping Markets Open

Keeping markets open and transparent for continued growth in agricultural trade between the U.S., Canada and Mexico is a key for the future, according to a statement released after the top agricultural officials from the three countries met in the U.S.

The statement. Canadian Minister of Agriculture and Agri-Food Lawrence MacAulay, Mexican Secretary of Agriculture, Livestock, Rural Development, Fisheries and Food Jose Calzada and USDA Secretary Sonny Perdue met June 19-20 in Georgia, the first such meeting between the three officials. Following is the statement issued after the conclusion of the meetings:

“Our three nations are connected not only geographically, but through our deeply integrated agricultural markets. Our trading relationship is vital to the economies - and the people - of our respective countries. We are working together to support and create good jobs in all three countries. We share a commitment to keeping our markets open and transparent so that trade can continue to grow. That mutual commitment was reaffirmed in our discussions this week.

“The North American Free Trade Agreement has greatly helped our respective agricultural sectors as well as our consumers who have benefitted from an ever-growing variety of safe, affordable food products all year around. While even the best trading partnerships face challenges from time to time, our agricultural differences are relatively few in the context of the $85 billion in agricultural trade that flows between our three nations each year.

“Over the years, the United States, Mexico, and Canada have also worked collaboratively to protect plant and animal health, conduct joint research, and share best practices. These efforts have helped to eradicate several pests and diseases from the region, differentiating us from the rest of the world. Our three countries remain committed to continued collaboration to ensure a safe and reliable regional supply chain that makes the North American agriculture sector more competitive.

“Our visit to Georgia fostered the mutual understanding and personal relationships that will help North American agriculture thrive, improve our regional partnership and collaboration, and strengthen our trading relationship.”

The officials met against a backdrop of negotiations for a NAFTA 2.0 agreement that will start in late August amid discord between the three over dairy trade issues between the U.S. and Canada tensions between the U.S. and Mexico which have prompted Mexico to seek to diversify its sources for agricultural products. The statement, not surprisingly, does not address those friction points which will be among the key issues the NAFTA 2.0 negotiations will address.

Commerce's Ross Downplays 2017 NAFTA 2.0 Wrap Up

Negotiations on the "NAFTA 2.0" are not likely to be wrapped up in 2017 despite a desire by all three parties to make that happen, according to U.S. Commerce Secretary Wilbur Ross.

"In an ideal world, we'll try to get it done by the end of this calendar year," Ross told reporters during the SelectUSA Investment Summit. "That would be a record speed for any big trade negotiation, so I don't know whether we'll be able to do that, but we are certainly mindful of the calendar and the fact that the calendar is fundamentally not our friend."

Mexico has been pushing to get the talks concluded as quickly as possible, eyeing their presidential elections in 2018 as a key reason to push ahead. Plus, Ross also pointed to the U.S. mid-term elections in 2018 and the expiration of Trade Promotion Authority (TPA) next year as factors to get the talks done sooner rather than later.

However, the delay in getting U.S. Trade Representative Robert Lighthizer in place kept the formal negotiation launch on hold, Ross observed, as the talks now cannot take place until late August.

As for who will take the lead in the talks, Ross signaled Lighthizer has the statutory responsibility but the complexity of the talks means more will play key roles. "We all feel this is a sufficiently complicated process that we're going to bring as many intellectual resources to bear on it as we can," Ross pledged.

USDA and Secretary Sonny Perdue will be in an advisory role in the talks, telling Bloomberg News that agriculture is "fairly content" with NAFTA except for some "irritants" on issues like sugar and dairy.

In talks today with his Mexican and Canadian counterparts, Perdue said the U.S.-Mexico sugar deal will be discussed and also other trade matters. The message to Canada, Perdue said, is "If you have a supply management system, the supply has to be managed," adding they have created "a glut on the market."

Meanwhile, the U.S. National Governors Association (NGA) will hold their annual summer meetings about one month before the NAFTA 2.0 talks get underway. And the confab will feature new attendees in the form of regional leaders from Canada and Mexico, according to NGA Executive Director and CEO Scott Pattison.

Aiming to have more influence over U.S. processes in the talks, Pattison said, "I think there will be a lot of discussion of not only trade generally but NAFTA in particular."

Washington Insider: Intensifying Budget Fight

The Hill is reporting that Republicans on the House Budget Committee seemed close to rolling out their 2018 budget resolution, but now have fallen into discussions about increasing defense spending beyond the administration’s proposed $54 billion boost. This is leading to an impasse between defense hawks and deficit hawks, The Hill says.

The fight has forced the committee to postpone the rollout of its 2018 budget resolution, a key element in moving Trump’s legislative agenda forward.

The House GOP may have the opportunity to settle on a strategy when it meets for its weekly policy discussion today, a meeting that will focus on budget and appropriations.

House GOP staff says it would be “a very strong possibility” that the defense cap proposed in the House budget resolution would be higher than Trump’s request of $603 billion for the next fiscal year. In his budget proposal, Trump cut $54 billion from nondefense discretionary spending to pay for the new defense spending.

Defense hawks such as Sen. John McCain, R-Ariz. and House Armed Services Committee Chairman Mac Thornberry, R-Texas want to go further and have called for $640 billion in defense spending.

Rep. Tom Cole, R-Okla., a House Budget Committee member close to GOP leadership, thinks there’s a good chance the number will be bigger than Trump's request. “I think the defense number could easily be more, because we have a lot of folks that think we could go further,” he said.

Members of the conservative House Freedom Caucus, however, bristle at the idea of spending an additional $37 billion on defense and potential increases to non-defense spending without finding additional cuts elsewhere.

“Conservatives are willing to entertain the idea of voting for higher spending levels on discretionary spending if we can get the right kind of reconciliation instructions,” said Rep. Jim Jordan, R-Ohio., a Freedom Caucus member.

The reconciliation instructions in question would mandate that congressional committees achieve certain spending cuts, a vehicle to push for deeper reforms. And those reforms, Jordan said, would be enough of an achievement to persuade Freedom Caucus members to swallow increases on both defense and nondefense discretionary spending even if they increase the deficit in the short run.

"Either that, or leadership can do what they’ve done the last six years, which is wait until Sept. 30 at 11:59 p.m. and negotiate a bad deal,” he said.

During his campaign, Trump promised not to allow cuts to Medicare or Social Security, entitlement programs that congressional Republicans see as major sources of potential savings. Tax hikes would violate a pledge signed by almost every House Republican not to create new taxes.

The remaining sources of spending, welfare programs such as Supplemental Nutrition Assistance Program, commonly known as food stamps, and Temporary Assistance for Needy Families, were already slashed in Trump’s proposal, making more savings painful and difficult to find.

The Budget Committee had set its sights on unveiling the resolution this week, but may now delay it until next week or even after the Fourth of July recess, which could gum up the tight legislative agenda.

Without a budget resolution in place, appropriators cannot go about the business of doling out spending authority to the government. Congress must pass its spending bills by the end of September if they want to avoid a government shutdown.

Alternatively, Congress could pass a continuing resolution to keep the government funded at 2017 levels, but that would preclude any defense increases, as well as spending authority for Trump’s other priorities, such as building a border wall.

On top of all that, without a budget resolution conferenced between the House and Senate, Republicans will not be able to put in place a special procedure that circumvents the Senate filibuster, which they will need in order to pass tax reform.

House Minority Leader Nancy Pelosi, D-Calif., slammed her Republicans colleagues for failing to produce a budget resolution “Almost five months into the Trump administration, House Republicans still haven’t met their most basic responsibility to pass a budget,” Pelosi said.

“The House GOP is now months behind the statutory budget deadline, deeply divided but unwilling to abandon their budget giveaways to the richest few," she said.

So, the budget fight is as bitter as ever, largely pitting Republicans against each other. This generally bodes ill for groups pushing for reforms of taxes and many other policies — and certainly is a fight producers should watch closely as it proceeds, Washington Insider believes.

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