Washington Insider -- Thursday

NAFTA Negotiating Objectives

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

NAFTA Renegotiation to Set Tone for Future Deals: Lawmaker

North American Free Trade Agreement (NAFTA) modernization will be a template for other trade pacts, especially in the Asia-Pacific region, House Ways and Means Trade Subcommittee Chairman Dave Reichert, R-Wash., said during his subcommittee's July 18 hearing on the pact's renegotiation.

U.S. withdrawal from the Trans-Pacific Partnership (TPP) has left an "urgent void" in this region, House Reichert argued. He called for a seamless transition to a modernized NAFTA. "The need for modern trade rules is clear particularly in light of our withdrawal from TPP earlier this year," Reichert said. President Donald Trump pulled the U.S. out of the TPP shortly after his inauguration. The remaining 11 TPP countries are looking at ways to revive the agreement without the U.S.

The hearing came a day after the Office of the U.S. Trade Representative (USTR) released negotiating objectives for the NAFTA rewrite. The objectives "set a high and ambitious bar" to address modern trade challenges including inadequate rules on e-commerce and restrictions on the flow of cross-border data, Reichert observed.

However, the subcommittee's ranking Democrat, Rep. Bill Pascrell of New Jersey, said the objectives had "little specificity" and "look like a recycled version of the same old, same old." The negotiating objectives include many of the same policies Trump criticized in the TPP, he added.

The administration's proposal would make improvements in the areas of countervailing duties (CVD) and treatment of state-owned enterprises, but the improvements "are on the margins," Pascrell argued. "Where are the jobs and higher wages this President promised? I see nothing to indicate that these objectives will improve the standard of living in Pittsburgh or Puebla," he asked.

NAFTA should contain strong digital trade provisions, Reps. Erik Paulsen, R-Minn., and Pat Meehan, R-Pa., and certain private sector witnesses argued. Tom Linebarger, chairman and chief executive officer of Cummins Inc., said a modern NAFTA should include provisions enabling cross-border data flows for all types of data.

Such provisions will provide Cummins with the most flexibility to move telematics data between the U.S., Canada and Mexico, Linebarger noted. Telematics includes telecommunications, road transportation technology, electrical engineering and computer science. Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines and engine-related component products.

Others echoed Linebarger's call, including Patrick Ottensmeyer, chief executive officer at railroad holding company Kansas City Southern (KCS). He urged that NAFTA Chapter 11 — containing investor-state dispute settlement procedures (ISDS) — be preserved in any renegotiation to protect KCS's $4.5 billion of investments in Mexico. Rep. Lynn Jenkins, R-Kan., called preserving the ISDS mechanism "one of the most important U.S. negotiating objectives."

In its objectives, USTR said it wants to secure for U.S. investors in NAFTA countries rights consistent with U.S. legal principles and practices, while ensuring that NAFTA country investors in the U.S. "are not accorded greater substantive rights than domestic investors."

USDA Detects 5th BSE Case in Alabama Cow

An atypical case of Bovine Spongiform Encephalopathy (BSE) has been found in an 11-year old cow in Alabama after showing clinical signs and was discovered through routine surveillance at an Alabama livestock market, USDA's Animal and Plant Health Inspection Service (APHIS) announced late Tuesday.

This is the fifth detection of BSE, USDA said, noting that of the four previous U.S. cases, the first was a case of classical BSE that was imported from Canada; the rest have been atypical (H- or L-type) BSE, and the APHIS National Veterinary Services Laboratories (NVSL) determined the cow in question cow was positive for atypical (L-type) BSE.

Classical BSE is the form that occurred primarily in the United Kingdom, beginning in the late 1980’s, and it has been linked to variant Creutzfeldt-Jakob disease (vCJD) in people. The primary source of infection for classical BSE is feed contaminated with the infectious prion agent, such as meat-and-bone meal containing protein derived from rendered infected cattle. Regulations from the Food and Drug Administration (FDA) have prohibited the inclusion of mammalian protein in feed for cattle and other ruminants since 1997 and have also prohibited high risk tissue materials in all animal feed since 2009.

Atypical BSE is different, and it generally occurs in older cattle, usually 8 years of age or greater. It seems to arise rarely and spontaneously in all cattle populations.

Washington Insider: NAFTA Negotiating Objectives

The administration earlier this week published its objectives for the NAFTA negotiations and Informa summarized comments from major ag groups earlier this week. It called reactions to the objectives “largely positive” among ag groups and some lawmakers, but not all. The groups went out of their way to praise past NAFTA benefits and expressed some continued uncertainty about potential changes.

For example, the American Farm Bureau Federation, long a supporter of better market access, said that "NAFTA has helped America’s farmers and ranchers make significant gains in U.S. ag exports to Canada and Mexico,” and that "free trade agreements have a proven track record of boosting revenue for the sector, but that it is vital that we lock in that progress as the first point of the current talks.

The AFBF said there is room for improvement, especially with regard to markets for fruit and vegetables, dairy, row crops and wheat.” It also sees a need for “modern and science-based trade standards.”

The National Cattlemen’s Beef Association was somewhat more direct, commenting that “it is difficult to improve upon duty-free, unlimited access to Canada and Mexico—and we are pleased that the USTR objectives for NAFTA include maintaining existing reciprocal duty-free market access for agricultural goods.”

NCBA said it has been an outspoken supporter of NAFTA because “the terms of the agreement developed Canada and Mexico into two very important export markets for U.S. beef.” The group also has expressed concern that any changes to the terms of NAFTA that impact beef and cattle trade may jeopardize the industry's current access to Canada and Mexico.

The National Association of Wheat Growers comments followed a similar theme. They noted that “our main priority right now is to do no harm to wheat trade." The group said it is pleased that the “objectives” call for maintaining existing reciprocal duty-free market access for agricultural goods and commented that “we can’t afford to risk interrupting that positive relationship with our customers."

USA Rice also pressed the administration to “do no harm.” NAFTA is the reason Mexico is the number one export market for U.S. rice and…”any renegotiation of the deal must not harm these vital markets," the group said.

It said it supported USTR’s objectives regarding enforceable sanitary and phytosanitary measures that build upon obligations of members of the World Trade Organization.

House ag chair Conaway said that “The administration’s objectives for renegotiating NAFTA clearly demonstrate a commitment to protecting existing market access” and that the committee was “looking forward to working closely with the administration to achieve the best deal possible for American agriculture." Also, Senate Agriculture Committee Ranking Member Debbie Stabenow, D., Mich., and Sen. Gary Peters, D., Mich., said, “At a time when many Michigan farmers are struggling with low prices, it is especially critical that any renegotiated agreement not jeopardize access to these important markets for Michigan farmers. However, the two also commented that there are still “several agricultural trade issues with Canada and Mexico that continue to raise concern and could be addressed in the context of an updated agreement.” They listed dairy as an example.

Ways and Means Committee Ranking Member Richard Neal D-Mass., and Trade Subcommittee Ranking Member Bill Pascrell, D-N.J., were more critical of the report and called it “short on specifics and said that it raises more questions than it answers. While they said it lacks an agenda concerning how to “address any issue,” they worried that its promise to “aggressively defend American sovereignty over matters of trade policy,” sounds like the Administration is considering a “far too drastic” response.

Trade Subcommittee Ranking Member Pascrell struck a fairly partisan note, commenting that "We await action from the Trump Administration on currency manipulation and the range of trade issues that have harmed American workers” and called for a more detailed plan.

It is clear that ag groups feel little of the deep antipathy felt by many members of the administration toward NAFTA and trade in general—and, almost every ag group raised specific concerns about ending up with an agreement that is worse than the current one. It is clear that Secretary Perdue and a number of lawmakers see this threat but that USTR Lighthizer may not. So, when actual detailed specifics under consideration under NAFTA begin to be discussed, producers should pay close attention because the sector’s stakes are high as the ag groups correctly perceive, Washington Insider believes.

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