Washington Insider -- Wednesday

US-South Korean Summit, Trade

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

EPA, Army Corps of Engineers Seek to Rescind WOTUS Rule

Rescinding the waters of the United States, or WOTUS, rule is being proposed by the U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers.

The new proposed rule would rescind the WOTUS rule, also known as the Clean Water Rule, and "re-codify the regulatory text" that was in place before the WOTUS rule was adopted in 2015. "We are taking significant action to return power to the states and provide regulatory certainty to our nation's farmers and businesses," EPA Administrator Scott Pruitt said. "This is the first step in the two-step process to redefine 'waters of the U.S.' and we are committed to moving through this re-evaluation to quickly provide regulatory certainty, in a way that is thoughtful, transparent and collaborative with other agencies and the public."

EPA and the Corps have been reaching out to stakeholders to discuss what a revised rule might look like. In mid-April, EPA met with state and local officials in Washington, D.C., to outline plans for replacing the rule.

EPA has completed the proposed rule to rescind WOTUS and it will be published in the Federal Register with a 30-day comment period.

Reaction has been largely predictable, with farm-state lawmakers welcoming the move and environmentalists critical of the plan.

"WOTUS has never been about clean water, it was about feeding the Obama EPA's insatiable appetite for power. Well that ends now," House Agriculture Committee Chairman Mike Conaway, R-Texas, said.

However, Conaway said lawmakers still need to keep focused on the issue to make certain agriculture interests are not continuing to be affected by the WOTUS rule, urging the Corps and the U.S. Department of Justice to "re-evaluate and revise their enforcement of the Clean Water Act and WOTUS to ensure we protect our farmers and ranchers from onerous fines and penalties that threaten their way of life." He added he expected the Trump administration will "get it right" when it comes up with the new rule.

From the environmentalist side, Howard Learner, executive director of the Environmental Law and Policy Center said, "This foolish rollback of clean water standards rejects years of work building stakeholder input and scientific data support, and it imperils the progress for safe clean drinking water in the Midwest."

Key will be what the administration's proposal to replace WOTUS and that is still a work in progress. Easy forecast is that it will be less stringent than the current WOTUS rule. But this, like the WOTUS rule itself, will likely end up in court. But even before that, a finalization of the rule to rescind WOTUS will also be a legal target. Bottom line: The battle over WOTUS is not over, but at least one potential action is at hand.

Agriculture at Center of Latest Budget Situation

Agriculture spending is at the center of what has become a protracted effort by House Republicans to produce a budget resolution that would aid the party in being able to use reconciliation to move major legislative efforts forward with only a simple majority vote.

At issue is cuts totaling $50 billion from mandatory programs under the purview of the House Agriculture Committee. Chairman Mike Conaway, R-Texas, has repeatedly argued his panel needs to exempt from finding savings under that potential $50 billion reduction. The overall cuts in the budget would total $200 billion over 10 years, but even that figure is in question, according to some.

The situation has already resulted in House Budget Committee Chairwoman Diane Black, R-Tenn., shelving introducing the budget resolution in the committee this week for a vote Thursday. Resistance from Conaway and House Energy and Commerce Committee Chairman Greg Walden, R-Ore., have kept Black from being able to seal a deal to move the resolution ahead.

While contacts indicate Black insists she has the votes, she is unwilling to move ahead until she can convince committee chairs to come up with the extra $50 billion in spending reductions.

But Conaway, whose committee is in the process of writing the next farm bill, argues his panel can ill afford to make any reductions at this stage. "I've been making our case as to why leaving us alone ... makes the most sense for the struggles that we face during the farm bill and ... the horrible circumstances that production agriculture finds itself in right now," Conaway recently stated.

But even the $200 billion may not be enough, according to House Freedom Caucus Chairman Mark Meadows, R-N.C. He has proposed $295 billion in cuts over 10 years that he insists moderates will agree to or be comfortable with. "There was never agreement on $200 billion," Meadows told reporters. "That was an offer put out there."

Given the financial woes facing U.S. agriculture in the form of low prices for commodities and the prospect of hefty production for corn and soybeans, Conaway said he believes he has a good case for keeping his panel from taking additional cuts before completing the farm bill. He knows his panel will be under pressure to produce savings when it writes the plan under a still-to-be-determined baseline that will most certainly not provide him with the same level of funding.

Washington Insider: US-South Korean Summit, Trade

Bloomberg is reporting while North Korean threats may top the agenda when South Korean President Moon Jae-in meets President Donald Trump later this week, the President's call to renegotiate the "job-killing" Korea-U.S. Free Trade Agreement will be difficult to ignore.

That is especially true since the U.S. Commerce Department and the Office of the U.S. Trade Representative are due to submit their omnibus report on trade deficits by June 29, coinciding with the two leaders' meeting.

Bilateral trade and U.S. exports of goods and services increased from 2011-2015, but the administration has focused on the $27.7 billion trade deficit in goods that the U.S. has with South Korea.

It also will be President Moon's first summit with a foreign leader and he is planning to have more than 50 business leaders in tow. Whether trade issues are officially on the table or not, those business leaders will be meeting with their U.S. counterparts and plan to make investment pledges during the trip, analysts say.

South Korean officials are tight-lipped about whether the issue of the free trade agreement will surface. But if it does, South Korea won't be the one to advance it, Kim Hyung-joo, research fellow at the Seoul-based LG Economic Research Institute, said.

He added that, "Korea won't act rashly. Since the U.S. is the one applying pressure, the important thing is to play defense rather than bring up the items (to renegotiate in the FTA)," Kim told Bloomberg, suggesting that the discussion might take place after the North American Free Trade Agreement and U.S.-China trade talks unfold.

He said he thinks Korea's Cabinet may wait and act cautiously, with the prime minister urging preparations in the event of a renegotiation. "Korea is not as good at negotiations as the U.S. is," Prime Minister Lee Nak-yeon said during his confirmation hearing last month. "If we enter a situation in which the U.S. leads the renegotiation, there's a possibility to be attacked where we are weak."

Whenever the issue does surface, Moon may agree with Trump to rehash parts of the agreement, since both countries' economies have been restructured in the past 10 years. During his election campaign this spring, Moon said KORUS could be updated to correct "toxic" clauses disadvantageous to South Korea, but he still hasn't detailed how those clauses should be addressed.

In a phone call last week, South Korean Finance Minister and Deputy Prime Minister Kim Dong-yeon told U.S. Treasury Secretary Steven Mnuchin that the Korean government would work to mitigate trade imbalances and hold consultations on pending issues, according to the finance ministry.

A public-private group of trade experts said South Korea should brace for bad news from the omnibus report. Last week, they urged Korea to persuade the Trump administration that KORUS had a limited negative effect on the trade deficit and jobs in the U.S., adding that 70% of South Korea's exports to the U.S. are components and intermediate products, not consumer goods.

The Korea Economic Research Institute estimates that South Korea could see export losses of up to $17 billion over five years under a renegotiated trade pact. However, U.S. exporters would be hit harder than their Korean counterparts if tariffs were raised, said Kim Ba-woo, senior researcher at the Korea Institute for Industrial Economics and Trade. "For Korea, even the nullification of KORUS would be beneficial in the short run, and the effect of a renegotiation will be limited," he told Bloomberg. Most tariffs are already lowered, and Korea's pre-FTA tariffs were higher than those of the U.S. The institute urged South Korean industries with large trade imbalances to prepare for possible new trade barriers.

Whether trade reaches the Moon-Trump table, the numerous business leaders accompanying Moon to meet with U.S. counterparts intend to make their priorities known. The companies will make investment pledges during the trip, which may assuage Trump, who wants to create more jobs for Americans, according to the Korea Chamber of Commerce and Industry.

It's also a tricky moment for Samsung and LG, which U.S. home appliance maker Whirlpool Corp. accused of illegally undercutting the prices of their washing machines. The U.S. International Trade Commission is investigating the case, with both companies denying the claims.

So, the initial fight that was expected to be with Mexico but may have moved to South Korea, where geopolitical problems abound and the United is working to shore up local defenses, especially aimed at North Korea. Thus, the upcoming Korean talks will assume an enhanced importance and should be watched closely by producers as they proceed, Washington Insider believes.

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