Washington Insider -- Friday

Tax Fight Clock Running

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

Agriculture Groups Discuss Priorities for NAFTA Talks

The upcoming renegotiation of the North American Free Trade Agreement (NAFTA) should not entail tradeoffs that give up U.S. agricultural market access in exchange for gains in other sectors of the American economy, a broad array of representatives of U.S. agriculture told the House Agriculture Committee in a July 26 hearing.

Concerns have been voiced privately to the administration, National Oilseed Processors Association (NOPA) President Thomas Hammer told lawmakers. Agricultural groups fear that U.S. negotiators could make concessions on agriculture to get better terms for U.S. goods exports given the administration's policy focus on rectifying the U.S. trade deficit in manufactured goods.

The current NAFTA duty-free tariff terms for soybeans/products should be preserved in the renegotiation set to start in mid-August, Hammer argued, adding Mexico is the top U.S. export market for soy meal and soyoil.

One exception to the largely pro-NAFTA testimony came from Reggie Brown, executive vice president of the Florida Tomato Growers Exchange, who also testified on behalf of the Florida Fruit and Vegetable Association. NAFTA has significantly harmed Florida growers of tomatoes, grapes, watermelons and asparagus, Brown said.

"A certain level of angst" associated with renegotiating the terms of the pact was acknowledged by panel Chairman Michael Conaway, R-Texas, but he said lawmakers and the administration would guard against reversing any gains in the existing deal.

Any renegotiation of NAFTA needs to ensure more predictability and transparency, former USDA Secretary Tom Vilsack, now representing U.S. dairy interests, told the panel. Plus, the effort needs to reduce tariffs on U.S. dairy exports. Canadian officials are forcefully defending their Class 7 program for ultra-filtered milk and supply management program, which sets production quotas and restricts imports to stabilize farmers’ incomes. Canada argues these policies are not the cause of the U.S.’s milk oversupply problem. House Agriculture Committee ranking member Collin Peterson, D-Minn., predicted they could represent a potential rift in the coming talks, arguing the Canadians “are going to defend this no matter what.”

Japan Safeguard Tariffs on Beef Triggered by Imports: USMEF

Japan will increase its duties on imports of frozen beef from countries it does not have an economic partnership agreement (EPA) with to 50% from the current 38.5% after trade data showed shipments during April-June exceeded the trigger level under "safeguard" mechanisms, according to the U.S. Meat Export Federation (USMEF).

Japanese trade data for June pushed the April-June import total above the safeguard trigger level by just 113 metric tons, according to USMEF, putting the duties in place on frozen beef through the rest of Japan's fiscal year – through March 31, 2018. This marks the first time the duties have been triggered since August 2003.

Japan's government is explaining the action to the U.S. and other countries, Finance Minister Taro Aso told reporters, and said he was ready to discuss the matter at a high-level economic dialogue with Vice President Mike Pence later this year if requested.

The impact to Japanese consumers should be "limited," according to farm minister Yuji Yamamoto as frozen beef accounts for about 20% of total Japanese beef imports.

"USMEF recognizes that the safeguard will not only have negative implications for US beef producers, but will also have a significant impact on the Japanese foodservice industry," explained USMEF President and CEO Philip Seng. "It will be especially difficult for the gyudon beef bowl restaurants that rely heavily on Choice U.S. short plate as a primary ingredient. This sector endured a tremendous setback when U.S. beef was absent from the Japanese market due to BSE, and was finally enjoying robust growth due to greater availability of US beef and strong consumer demand."

Washington Insider: Tax Fight Clock Running

Bloomberg is reporting this week that the House seems set to leave for its August recess without having taken the first essential step to overhauling the U.S. tax code: agreeing on a 2018 budget resolution.

Continuing disputes among House Republicans over spending levels and the controversial border-adjusted tax proposal are preventing Speaker Paul Ryan, R-Wis., from winning enough support to schedule a floor vote on the budget that a House panel approved last week, Bloomberg says. With members planning to leave Washington Friday for a five-week recess, the lack of a budget is raising doubts that a tax rewrite, one of the President’s top priorities, can get done this year, or even before the 2018 elections.

“Clearly, no budget, no tax reform,” said the House’s chief tax writer, Representative Kevin Brady, R-Texas.

While Ryan has abandoned his original plan of completing by August a tax overhaul that would slash individual and corporate rates, he still had hoped to have at least an agreed-upon budget by now, Bloomberg says.

The budget is a key part of the reconciliation process, which Republicans want to use to enact a tax code revamp without Democratic support. The House and Senate previously approved a detail-free 2017 budget resolution that they intended to use to repeal the 2010 health-care law with only Republican votes.

Senate Republicans, who’ve been focused on that repeal effort for months, have said they’ll wait to see what the House does with the 2018 budget resolution.

House conservative leaders say they fear they’ll be forced to vote to advance the budget vehicle for tax changes without knowing tax-plan details, setting up a repeat of Congress’s troubled efforts on health care. They’ve called for deep tax cuts to be paid for by reductions in spending, rather than solely by raising new revenues through limits on deductions, exemptions and credits.

“What you hear from people who aren’t there yet on the budget is I’d like to see the tax bill,” said Representative Tom Cole, R., Okla., who’s a member of the Budget committee.

Representative Mark Meadows, R-N.C., chairman of a caucus of about three dozen conservatives, told reporters this month that his members need to see more than $200 billion in entitlement cuts required as part of any final tax bill. However, the moderate Tuesday Group has said $200 billion in cuts is too much.

Some GOP conservatives are also demanding that leaders use the budget to rule out the use of a border-adjusted tax. This proposal, which is endorsed by Ryan and Brady, would replace the 35 percent corporate rate with a 20% levy on imported goods, while exempting exports. However, it has been under severe attack by retailers and other industries that rely on imported goods and criticized by White House officials and Senate Republicans.

During the House Budget committee vote last week, conservative Mark Sanford, R-S.C., attempted to offer an amendment to the budget that would have blocked the eventual tax bill from including a border-adjusted tax. Committee Chairman Diane Black, R-Tenn., wouldn’t allow the committee to vote on the amendment.

The budget technically sets the top-line amounts for 12 annual spending bills. Rep. Mike Simpson, R-Idaho, said one way to jump-start its progress would be to pass those spending bills separately. That would at least take disputes over next year’s military and domestic spending off the negotiating table.

Now, however, Steve Bell, a senior adviser at the Bipartisan Policy Center and former staff director for Senate Budget Committee’s Republicans, pegged the chance of Congress adopting a 2018 budget resolution this year at no more than 30%.

“Right now, it’s my impression that they don’t have the votes in the House, and they are far, far, far away from getting anywhere in the Senate,” Bell said of a fiscal 2018 budget resolution.

If Republicans can’t agree on a budget, tax overhaul efforts would be dead unless the Senate can get Democratic support. That’s unlikely if the legislation includes tax cuts for top earners.

Rep. Mark Walker, R-N.C., chairman of the conservative Republican Study Committee, said that Ryan had told him he was confident the House budget could be ready for a full vote the first week of September. Meadows told reporters that his faction wasn’t part of any deal to bring up the budget in September. A House leadership aide was unaware of a plan to vote on the budget that week.

Nonetheless, a statement about the progress of ongoing tax discussions between congressional leaders and White House officials is expected before week’s end, Brady said after a meeting of the so-called Big Six Wednesday. Areas of agreement among House, Senate and White House leaders could be highlighted in the statement, which would likely be more than the one page outline that the White House released in April, but shorter than draft legislation, according to a person familiar with the negotiations.

So, now the headlines concern health care, but up next will be equally contentious issues concerning spending, taxes and other issues—all significantly important and deserving of close attention as the debates proceed, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com