Washington Insider -- Tuesday

The Congressional Budget Crunch

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

USTR to Release NAFTA Negotiating Objectives Next Week

Negotiating objectives for the North American Free Trade Agreement (NAFTA) will be published by the Office of the U.S. Trade Representative (USTR) July 17.

Under provisions of the 2015 trade promotion authority (TPA), USTR is to publish its objectives for the trade negotiations 30 days prior to their start. That tentatively could take place August 17.

USTR released an eight-page draft letter in March that outlined broad objectives for the negotiations, but has been meeting with lawmakers and taking public feedback on the coming negotiations in the interim.

The March draft letter outlined areas where the administration would focus on for the negotiations, and that letter changed versus the version that was sent to Congress to officially notify them of the intent to renegotiate the 23-year-old trade deal.

The administration moderated its tone on NAFTA in the notice sent to Congress compared to the draft letter circulated in March, mostly taking out some of the harsher rhetoric and appearing to give U.S. negotiators a little more flexibility as the talks progress. Most observers think the letter formally notifying Congress of the intent to negotiate NAFTA reflected the involvement of USTR Robert Lighthizer who has sounded less strident on trade issues than other officials speaking on trade matters before Lighthizer was in place at USTR.

Trump Repeats Vow to Pull Out of NAFTA Barring "Full" Renegotiation

The U.S. will pull out of NAFTA if there is not a "total renegotiation" of the trade deal with Mexico and Canada, President Donald Trump said in his weekly presidential address. Reiterating a view expressed by candidate Trump, he pledged he will "not allow other nations to take advantage of us any longer."

That stance is why the U.S. is pushing for a total renegotiation of the pact, he noted. "And if we don't get it, we will terminate — that is, end NAFTA forever," Trump said.

Washington Insider: The Congressional Budget Crunch

The Hill is reporting this week what almost everybody knows—that the Congress is returning now to face enormous political and procedural problems concerning its agenda and the heart of these centers around the budget.

Congress has just three legislative weeks before the August recess and one month after that before an impending government shutdown and debt ceiling breach, “not to mention the small matters of healthcare and tax reform, which are all tied in some way to the budget,” The Hill says. “There are a lot of moving parts,” Brookings Institution budget expert Molly Reynolds said. She is certainly correct.

To begin with, neither the House nor the Senate’s budget committees have unveiled their budgets, which set the spending levels for the next fiscal year. The problem is division within the Republican caucus, which is being pulled in opposing directions by defense hawks, deficit hawks and moderates.

The House Budget Committee, which has twice delayed marking up its resolution, had agreed on spending $621 billion on defense and $511 billion on other areas. Both totals were higher than the administration-proposed caps of $603 billion for defense and $462 billion for nondefense.

To pay for some of those higher spending levels, the committee would cut $150 billion in mandatory spending over the next decade.

But even as moderate Republicans balk at those cuts, the conservative House Freedom Caucus says they don’t go far enough. That group wants $200 billion in cuts — mostly from welfare and anti-poverty programs, The Hill says.

“The Republicans just don’t quite agree on what they want to do,” said Reynolds. “They don’t agree on how much they want to spend, and they don’t agree on what they want the reconciliation instructions to look like, so until they resolves some of those issues they won’t get to the part where they start negotiating with the Democrats.”

Republicans don’t need Democratic support to pass a budget resolution, which can be approved on a majority vote and cannot be filibustered. But they will need eight Democratic senators to overcome a filibuster when it comes to passing spending bills or a continuing resolution necessary to keep the government from shutting down in October.

The situation is further complicated by GOP plans to repeal and replace the current health care program. The majority also hopes to pass tax reform through special budget reconciliation rules that would allow major legislation to avoid a Senate filibuster, The Hill says. Republicans are using the 2017 budget reconciliation for Affordable Health Care Act repeal, and plan on using the 2018 reconciliation to pass tax reform.

That means that the healthcare debate has to end before the House and Senate finalize their coordinated budget resolutions, which has to happen before the tax reform process can kick off.

“I think from the beginning it seemed optimistic that we were going to see regular order pursued this year given the tight schedule and how much of the legislative schedule is being consumed by healthcare and tax reform,” said Romina Boccia, a budget expert at the Heritage Foundation.

The Senate’s continuing struggle to complete work on healthcare threatens to push everything back. If GOP lawmakers fail to pass a healthcare bill and the tax cuts associated with it, they may want to try to pass some of those cuts in tax reform. That would require them to rewrite the reconciliation instructions for 2018.

Adding pressure to the situation are two big, looming deadlines: the potential government shutdown when spending authority runs out at the end of September, and the debt ceiling.

Though the debt ceiling is not technically part of the budget process, it is a legal limit on how much Congress can borrow to pay the bills already authorized. And while voting to raise it is a politically unpopular move in both parties, failure to do so could result in a catastrophic U.S. debt default.

There, too, conservatives are determined to use the must-pass debt-ceiling vote to institute some sort of spending or regulatory reforms. Democrats have demanded a “clean lift,” but may use the vote to extract their own concessions from Republicans.

In previous years, the debt ceiling vote was folded into wider, last-minute spending deals. The mid-October estimate for when the debt limit will hit this year seems to augur a similar approach this time around.

“The debt limit in particular is a highly unpopular thing so the extent to which lawmakers can bury it in some other bill helps when they put out their press releases about why they did what they did,” said Boccia.

“I predict that we’re going to see a big budget deal in September as the deadline for a potential government shutdown is looming and the Treasury is screaming bloody murder that the debt ceiling needs to be raised,” she added.

Until that point comes and Republicans turn to Democrats to negotiate a bipartisan deal, as they did in May for the 2017 fiscal year, Democrats seem delighted at the GOP infighting.

So, we will see what happens. Clearly, the agenda is extremely fragile now and the stakes are very high and involve many items of great interest to agricultural producers, including proposed rewrites of important trade agreements; debates producers should watch closely as they proceed, Washington Insider believes.

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