Washington Insider -- Tuesday

New NAFTA Concerns

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

US Dairy Industry Urges Japan Not To Cave Under EU Pressure

The U.S. dairy industry has urged Japan not to cave under pressure and allow the European Union to monopolize a long list of common food names, which is being discussed as part of a free trade agreement negotiation between the partners.

In a Sept. 28 letter addressed to Japan’s Minster of Agriculture, Forestry and Fisheries Ken Saito, dairy groups commended Japan on its Geographic Indicators (GI) review process, but also urged Japanese officials to proceed with caution as they consider the EU’s proposed list of GI. The letter was signed by the National Milk Producers Federation (NMPF), the International Dairy Foods Association (IDFA), and the U.S. Dairy Export Council (USDEC).

Wholesale acceptance of the EU’s proposed GI list would “unfairly” limit the ability of U.S. and other nations’ cheesemakers to do business in Japan and it would have a negative impact on Japanese consumers and producers, said Tom Vilsack, USDEC President and CEO.

“We urge Japan to consider the confusion, marketplace disruptions and inflated prices that would ensue by restricting common cheese names as the EU desires,” Vilsack said in a statement on September 28.

Bipartisan Bill Seeks To Tighten Regulation of Imported Organics

The National Organic Program (NOP) would receive a significant budget increase and an updated monitoring system under a bipartisan bill introduced by House Agriculture Committee members, Reps. John Faso, R., N.Y., and Michelle Lujan Grisham, D., N.M.

The Organic Farmer and Consumer Act would be aimed at ending import fraud in organics and give USDA's NOP “the authority necessary to crack down” on these imports for years to come, Grisham said in a September 28 press release.

Legislators request a NOP budget of $15 million for Fiscal 2018, up from $9.1 million. They seek an increase to $24 million by Fiscal 2023. Those funds would be used to bolster trade monitoring and data collection systems to ensure "full traceability without unduly hindering trade."

Industry groups support the legislation, saying protecting the integrity of organic products is essential. "Our farmers have to have a level playing field, and organic consumers have to be able to trust that they are getting what they pay for when they buy organic," said Laura Batcha, CEO and executive director of the Organic Trade Association.

Tues. Oct. 3 Washington Insider: New NAFTA Concerns

U.S. officials involved in NAFTA negotiations are “making proposals on battleground issues that Canada and Mexico would never agree to, intensifying doubts of reaching compromise on their tight timeline,” according to Bloomberg.

The details focus on U.S. proposals in several specific areas, including government procurement, textiles and fresh produce—areas “seen by Canadian and Mexican governments as red-line issues with little or no hope of agreement,” officials said.

Bloomberg also noted that the “last round of talks that ended Wednesday in Ottawa took on a more negative tone at times compared with previous sessions,” again citing the officials.

The group concludes that the U.S. stance “sets up a showdown in the next negotiating session in Washington from Oct. 11-15.” The officials cited expect the U.S. will present contentious proposals on automotive rules of origin - the share of a car that must be made in the three countries to get NAFTA’s tariff-free benefits - and on an overall U.S.-specific content requirement. They expect those will also be essentially impossible for the other countries to accept.

However, the U.S. Trade Representative’s office, which is leading the U.S. NAFTA negotiations, has not yet responded to requests for comment.

The administration has made cutting the trade deficit as the top-line goal of a NAFTA re-negotiation. Auto manufacturing is the main source of America’s $64 billion goods gap with Mexico. The administration launched the revamp in August by warning that a revised version of the deal that underpins $1.2 trillion of trade annually must have better terms for American workers and industries.

The President has repeatedly threatened to pull out of NAFTA, saying in April that he was “psyched” to terminate the deal but reconsidered after Canada and Mexico asked him to renegotiate instead. Commerce Secretary Wilbur Ross reiterated that threat earlier this month.

U.S. Trade Representative Robert Lighthizer told reporters last week that “significant progress continues to be made” in areas including competition, state-owned enterprises, digital trade and telecommunications. But he said “there is an enormous amount of work to be done, including on some very difficult and contentious issues.” Also, the goal of reaching a deal this year is "very, very optimistic" and will be "very, very difficult," Lighthizer said. "But there are reasons to do it. So when there are reasons to do it, we have a lot of motivation."

The parties are aiming to secure a deal before the political calendar fills up next year with presidential elections in Mexico, congressional mid-terms in the U.S. and provincial votes in Ontario and Quebec.

Bloomberg’s report included several fairly specific areas of conflict. On government procurement, for example, Bloomberg reports that the U.S. is proposing to cap its market for contracts at a dollar-for-dollar level with the combined Canada-Mexico market, according to the three officials. That would mean the total value of contracts the Canadians and Mexicans could access, together, couldn’t exceed the total value that U.S. firms could win in those two countries, the officials said.

This could effectively leave the two with less access to U.S. procurement than some other countries, Bloomberg concluded.

Also, the U.S. wants to essentially open so-called “seasonal products,” such as fruit, to dispute-resolution mechanisms that would be expected to lead to disputes with U.S. growers and possibly tariffs, which could hinder Mexican exports.

The officials likened the potential fallout to the case of Boeing Co.’s challenge against Canadian-owned Bombardier Inc., which led to imposition of preliminary duties on Tuesday by the U.S. Commerce Department and will put a chill on the aerospace sector.

If one of the three countries were to walk away from talks, a next step would likely be issuing a six-month notice of withdrawal from the pact, though that wouldn’t guarantee an exit. Steps after that get murky - trade powers in the U.S. are divided between the executive branch and the U.S. Congress. An attempted U.S. exit could trigger political and legal battles.

Mexico and Canada have said they want a modernized NAFTA and have downplayed administration threats. “As the negotiations move forward, it is important we have the will to table positions that encourage constructive discussions," Mexican Economy Secretary Ildefonso Guajardo told reporters Wednesday.

The third round of talks ended with an agreement on a NAFTA chapter related to small- and medium-sized businesses. The duty imposed on Bombardier while talks took place hung over the final day of discussions, with Canadian Foreign Minister Chrystia Freeland calling the U.S. “a protectionist administration” in relation to the issue, Bloomberg said.

It is too early to conclude that the talks are in danger or not, given the rhetoric being employed. It is clear that the nature of the integration of the three North American economies is likely to change—but just how and how much remains to be seen. Certainly, the talks should be watched especially closely as they proceed, Washington Insider believes.

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