Washington Insider -- Monday

Worries About Mexican Trade Retaliation

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

Court Rules Against EPA Interpretation Used to Temper 2014-2016 RFS Levels

EPA's stance that they reduced Renewable Fuel Standard (RFS) mandated volumes under the program in a rule promulgated in 2015 on 2014-2016 biofuel requirements (and 2017 biodiesel) due to insufficient demand being the same as insufficient supply was rejected by the U.S. Court of Appeals for the DC Circuit.

Americans for Clean Energy and aligned petitioners claimed EPA erred in how it interpreted "inadequate domestic supply" waiver provisions in the RFS statute, according to the Court. "We hold that the 'inadequate domestic supply' provision authorizes EPA to consider supply-side factors affecting the volume of renewable fuel that is available to refiners, blenders, and importers to meet the statutory volume requirements," the Court said. "It does not allow EPA to consider the volume of renewable fuel that is available to ultimate consumers or the demand-side constraints that affect the consumption of renewable fuel by consumers."

Based on that view, the Court said they granted Americans for Clean Energy petition and "vacate EPA’s decision to reduce the total renewable fuel volume requirements for 2016 through use of its 'inadequate domestic supply' waiver authority, and remand the rule to EPA for further consideration in light of our decision."

The Court also said they reject "EPA’s attempt to bootstrap the definition of 'renewable fuel' into a boundless general waiver authority." While EPA contended the phrase in the statute referring to renewable fuel that "is used" does "not mean that biofuel transforms into renewable fuel only when it is actually pumped into gas tanks." The Court pointed to the following argued by Americans for Clean Energy contention that "term ‘used’ merely defines the qualifying uses to which the biofuel may be put."

However, the Court rejected other petitioners arguments as the court said EPA does not have to address which companies bear the obligation for complying with the program in annual rules and it upheld EPA's separate waiver to reduce cellulosic requirements. Plus, the court said EPA does not need to consider the amount of leftover renewable identification numbers (RINs) from prior years when it sets future volumes. Further, the court also determined EPA has the right to set biofuel requirements even if they miss the statutory deadline to do so.

US Beef Industry Expresses Concerns on Amendments to KORUS

The call by the Trump administration to address issues under the U.S.-Korea free trade agreement (KORUS) is raising concern from the U.S. beef industry that they could lose benefits they have gained from the trade deal.

"Under KORUS, the U.S. beef industry has seen an 82 percent increase in annual sales to South Korea, from $582 million in 2012 to $1.06 billion in 2016," officials from the National Cattlemen's Beef Association, North American Meat Institute and U.S. Meat Export Federation said in a letter to U.S. Trade Representative Robert Lighthizer and USDA Secretary Sonny Perdue.

"Simply put, KORUS created the ideal environment for the U.S. beef industry to thrive in South Korea," the lawmakers said. "We would not support any changes in the terms of the KORUS that would jeopardize either our market share or the significant investment that has been made in rebuilding Korean consumer confidence in the safety, quality and consistency of U.S. beef."

Washington Insider: Worries About Mexican Trade Retaliation

There is more than a little anxiety in ag trade circles as discussions regarding NAFTA get underway, Bloomberg says. As a result, USDA Secretary Sonny Perdue has weighed in with his view that trade tensions are unlikely to drive Mexico to abandon the U.S. as a supplier of corn and soybeans.

“I did not get any indication that they're seriously considering that,” Perdue told the press on Friday’s conference call when asked if Mexico planned to buy more corn and soybeans from Brazil and Argentina. He spoke after meeting with Mexican Agriculture Secretary Jose Calzada Rovirosa in Merida, Mexico, ahead of the negotiations that are set to begin Aug. 16.

Mexico earlier launched talks with other major corn-exporting countries after threats by President Trump that he would withdraw from NAFTA. “While they may feel they need to say they're looking elsewhere, we have great history and relationships and supply chains they hope won't be disrupted,” Perdue said.

The U.S. has a “corner store” location and “frankly we will continue to take advantage of that,” Perdue said. It also has a “productive and logistical advantage” that rivals such as Brazil and Argentina cannot match, he added.

At a July 26 House Agriculture Committee hearing, Floyd Gaibler, director of trade policy & biotechnology at the U.S. Grains Council, said the council had “strong but unconfirmed evidence” that Mexico is slated to purchase seven to eight cargoes of corn from South America beginning in August and September. He said U.S. corn exports to Mexico have declined 7 percent by value since the start of the year.

Perdue was also asked how the administration planned to balance the concerns of agriculture with manufacturers. While the agriculture sectors both in the U.S. and in Mexico have “benefited tremendously” under NAFTA, U.S. manufacturing has not, he noted. President Donald Trump is “very rightly” concerned about that, he said.

“How we reconcile those two concerns will remain to be seen,” Perdue said, adding that the hope is to “do it without diminishing the beneficial impact that NAFTA has had on the agricultural sector.” More education is needed on how many manufacturing jobs are created by agricultural production, he said.

The administration also understands that not all agricultural sectors have benefited equally from NAFTA, Perdue said when asked about the dumping of Mexican fruits and vegetables. There is some overlap in growing seasons between Mexico and South Florida, he said.

Florida fruit and vegetable producers have complained that Mexican producers have flooded the market with unfairly low priced tomatoes, bell peppers, and cucumbers, among other commodities. The administration would welcome ideas from this sector on what could be done to ameliorate the situation, according to Perdue.

The administration is also working on a legal guest worker program for Mexican citizens, Perdue said, adding that he did not expect this to be addressed in the NAFTA talks.

Perdue is right to be concerned that more than a few of the beneficial trade arrangement now in place under NAFTA could be rattled by insensitive diplomacy—as has been the case in the recent past. In fact, some of the agricultural provisions in the current agreement were negotiated only with difficulty and could be upended significantly if the upcoming negotiations are not conducted with these fully in mind.

Secretary Perdue is a long-time expert in international trade, and he is right to emphasize that the comparative advantage of US products in Mexico is very significant. But, Floyd Gaibler also is a long time trade expert and the Council has an extensive and able staff in Mexico – and his danger signals need to be taken very seriously. In general, the upcoming NAFTA talks are potentially very important to U.S. producers and should be watched closely as they proceed, Washington Insider believes.

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