Washington Insider -- Friday

Pressure for Infrastructure Initiative Details

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

Trump Floats Idea of Bilateral Trade Deals if NAFTA Talks Fail

Taking the stance that it is "possible we won't be able to make a deal, and it's possible that we will," President Donald Trump said it is "absolutely" possible the U.S. could pursue individual trade deals with Canada and Mexico in the event the NAFTA 2.0 talks do not reach a successful conclusion.

"It's possible we won't be able to reach a deal with one or the other. But in the meantime we'll make a deal with one," Trump said ahead of his session with Canadian Prime Minister Justin Trudeau. "We'll see what happens with NAFTA. But I've been opposed to NAFTA for a long time in terms of the fairness of NAFTA," Trump said. "I said we'll renegotiate. And I mean, I think Justin understands this, if we can't make a deal, it'll be terminated and that'll be fine. They're going to do well. We're going to do well."

Yet in Mexico on Thursday, Trudeau and Mexican President Enrique Pena Nieto pledge unity on the NAFTA framework.

US Livestock Producers Would Agree On KORUS Positives

A report from the U.S. ag attache in Seoul details that the U.S. already faces lower import duties on shipments of pork and beef into South Korea as a result of KORUS, putting the U.S. at an advantage over both the European Union (EU) and Australia on beef. Plus, expansion of the U.S. hog herd is boosting U.S. competitiveness along with favorable duty treatment via KORUS. "U.S. pork has enjoyed increasing market share in 2017 thanks to a five percent increase in its pork production over the 2016 level," the attache said.

"The market share of U.S. pork has jumped from 29.9% in 2016 to 32.2% in 2017." On beef, the report stated, "Also, the increased price competitiveness of U.S. beef, coupled with lower duties coming from the KORUS Free Trade Agreement, will further enhance the competitiveness of U.S. beef in 2017 as well as 2018. Consequently, Post is lifting its 2017 beef import estimate and is forecasting 2018 imports marginally above this year’s forecast."

Washington Insider: Pressure for Infrastructure Initiative Details

Well, the political wars over economic policy seem to be getting more confusing. There is very tough talk by the administration about NAFTA, the tax reform initiative is ever more complex and the auto industry is worrying more about a possible NAFTA loss. In addition, Bloomberg is reporting this week that Democrats say they are frustrated by lack of progress on the infrastructure plan.

Bloomberg says the “House Democrats want legislative action -- not more hearings -- to address the needs of the nation’s infrastructure.”

“We can do this in a bipartisan way, but all we’re doing is talking,” ranking member Peter DeFazio, D-Ore., said. “That’s all we are doing is just talking while the country crumbles,” he told the House Highways and Transit subcommittee hearing this week.

The concern arises, Bloomberg says, because Republican leaders are waiting on the administration for a proposal with details. Democrats say they are frustrated since the White House has not provided any recent public updates or details of its promised $1 trillion infrastructure proposal.

The subcommittee hearings could be a chance to prepare in advance to the administration’s guidance, subcommittee Chairman Sam Graves, R-Mo., told the press. “Obviously this is an administration priority and we’re going to wait for them to come forward with their ideas and their priorities,” Graves said.

However, part of the difficulty can be seen from disagreement among committee members over how to fund infrastructure upgrades. Democrats like DeFazio and the subcommittee’s ranking member, Del. Eleanor Holmes Norton, D-D.C., want to see more direct federal investment. The White House has talked sufficiently about infrastructure, Norton said, but she wants to see a commitment to addressing the country’s serious infrastructure needs. “Let’s get some money on the table,” she said.

“One of the key components is that we have to figure out a long-term funding stream,” said full-committee Chairman Bill Shuster, R-Pa., “I’m open to everything,” he emphasized. Shuster and other Republicans are interested in pursuing public-private partnerships and infrastructure asset recycling, as funding “tools.”

Shuster also discussed asset recycling, selling or leasing airports and other public facilities to the private sector to raise money for projects which should be considered as part of any infrastructure funding plan, he said.

“Public-private partnerships aren’t a silver bullet, but it’s a hell of a good tool to have in the tool bag, and there’s some new ones out there that we ought to be looking at,” he said. Shuster reported that the committee has been working with the Trump administration on an outline and principles for the $1 trillion infrastructure plan and hopes the White House will release it soon.

As for timing, a crowded legislative agenda has complicated the bill’s outlook. “Puerto Rico, Florida and Texas really messed up the schedule in the House and then obviously the tragedy in Las Vegas. Hopefully we’re going to start getting back on track. I don’t have a good answer,” Graves said.

It is clear that the tough negotiations over NAFTA, along with the tax reform proposals are the main fights just now. Bloomberg says that the auto sector is increasingly alarmed over the administration’s efforts to overhaul NAFTA, with North America’s top parts supplier warning an expected push to increase content requirements in cars could result in a “lose-lose” situation.

Changes to rules of origin, which govern what share of a car must be sourced from NAFTA countries for the vehicle to receive the trade pact’s benefits, threatens to add both complexity and costs, said Don Walker, chief executive officer of Magna International Inc. “If the required content to hit the threshold for a NAFTA vehicle is too high, people may say, ‘Look, it’s just too difficult, it’s too high, so we’ll just ship the vehicles in.” In that case, “they pay the duty, and it’s a lose-lose.”

The fourth round of negotiations over the North American Free Trade Agreement began this week, with signals mounting that the U.S. is putting potentially deal-breaking proposals on the table. The U.S. Chamber of Commerce and Mexico’s auto industry group already have come out against an anticipated proposal for U.S.-specific content requirements. Introducing such a rule, or raising NAFTA-made content requirements from today’s 62.5%, could risk disruption to the auto industry’s vast supply chain.

Administration officials tended to downplay NAFTA worries by U.S. groups. “We will get increased percentages in the rules of origin, and I think you’ll find that the car companies will adapt,” U.S. Commerce Secretary Wilbur Ross said. He did not elaborate on any details of U.S. specific trading partner impacts.

Well, there are growing concerns about potential market damage from NAFTA changes, as well as the potential holdups in infrastructure investment, along with the need to pay for potential tax changes, among other stumbling blocks. These often reflect the potential for significant impacts on agriculture and other important industries, and the debates should be watched closely by producers as they proceed, Washington Insider believes.

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