Washington Insider - Wednesday

The Pitfalls of Pulling Out of NAFTA

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

US ITC Finds Argentine, Indonesian Biodiesel Imports Harm US Producers

Evidence of injury to the U.S. biodiesel industry from imports of biodiesel from Argentina and Indonesia is enough for the U.S. International Trade Commission (USITC) to make affirmative determinations in its final phase of antidumping and countervailing duty investigations into the products.

The USITC "has made affirmative determinations in its final phase antidumping and countervailing duty investigations concerning biodiesel from Argentina and Indonesia," the agency said in a bulletin.

The panel voted 4-0 on the matter in a meeting today. Chairman Rhonda Schmidtlein, Vice Chairman David Johanson, and Commissioners Irving Williamson and Meredith Broadbent voted in the affirmative.

Given the affirmative determinations, USITC said the U.S. Department of Commerce will issue countervailing duty orders on imports of this product from Argentina and Indonesia.

USITC will make its final report on their investigation public January 11, 2018.

Canada Begins Initial Effort for Trade Agreement with China

“While in Beijing, Premier Li and I had discussions on a range of issues, from growing trade and investment, to combating climate change, to the importance of free expression,” Canadian Prime Minister Justin Trudeau said in a statement released by the Canadian government. “I look forward to continuing discussions towards a comprehensive trade agreement, which will open up greater opportunities for people on both sides of the Pacific.”

The proposed free trade agreement was one of the main topics when Trudeau met with Chinese Premier Li Keqiang Monday in Beijing. However, no official statement was made regarding the beginning of talks about a new trade agreement. A Canada-China trade agreement would take years to unfold — the China-Australia Free Trade agreement came into force only after a decade of talks.

Washington Insider: The Pitfalls of Pulling out of NAFTA

Whatever happens with NAFTA, there has been a very great deal of talk, along with some increasingly hard feelings involved for quite a while now. Just as ag groups seem increasingly dug in against possible exits from NAFTA, the administration, including the President, say they will hold a big meeting on the topic. Still, Congress seems to be joining the increasingly “hard feelings” crowd, insisting they will have an important role to play in the outcome.

There are some facts and mechanics involved, a number of experts told Bloomberg recently. The NAFTA withdrawal provision is not automatic, although the agreement says that a party “may” withdraw after six months notice, trade attorney Yohai Baisburd with Dentons USA LLP, told Bloomberg. Still, legal scholars differ on whether the president has the independent authority to exit NAFTA without an express grant from Congress, he said.

Invoking an Article from the basic agreement is not a guarantee that the U.S. would formally be withdrawn, Sen. Chuck Grassley, R-Iowa, told farm broadcasters last month. But invoking the article would be a “significant signal” that the administration is serious about this, Grassley said.

Article 2205, which is often described as a controlling authority is strictly a notice provision with no details on what would happen after notice is given, according to Canadian attorney Peter Glossop, an analyst on trade and investment issues at Osler, Hoskin & Harcourt LLP. It is clear that a U.S. withdrawal would not revoke the agreement between Canada and Mexico, he said.

Another complication is what happens to the previous U.S.-Canada Free Trade Agreement, he said. Parts of the U.S.-Canada FTA were suspended when NAFTA took effect. Other parts of the FTA have continued, he said.

“I think it's overly simplistic to think that the whole thing just evaporates into a puff of smoke,” Glossop said. He likened the situation to a “zombie NAFTA” where parts could continue while others would be clearly dead. An Osler trade brief said businesses should take steps now to assess potential implications of a NAFTA withdrawal notice and have a Plan B in place.

The idea that invoking withdrawal threats would squeeze concessions out of Mexico and Canada has been widely rejected, Senate Agriculture Committee Chairman Pat Roberts R-Kan., told Bloomberg, adding that the path the administration is taking is “fraught with a lot of danger.”

“If the administration follows through on its threats to withdraw from NAFTA, the giant sucking sound would be the air going out of the economy of rural America as farmers and ranchers take a major financial hit,” Randy Spronk, a hog farmer from Edgerton, Minn., said.

NAFTA has many congressional supporters, particularly among Republicans and border state lawmakers Sen. Pat Roberts, R., Kan., told Bloomberg after speaking at a U.S. Chamber of Commerce event recently. One avenue Congress could take if the President withdraws is to legislatively block the use of federal funds to implement the withdrawal. But this approach could raise constitutional questions regarding the executive branch's exercise of its foreign affairs power, he said.

A withdrawal would likely trigger massive lobbying by U.S. companies to keep their part of NAFTA in U.S. law, Roberts said. When that Pandora's Box is opened, some of the more controversial proposals might also see the light of day, including special protections for tomato growers in Florida and country-of-origin labeling on beef, he said.

Despite Article 2205, there are constitutional arguments that the president does not have sole authority to withdraw from trade agreements, one trade analyst told Bloomberg. Business and/or agricultural groups may challenge it, the analyst said. “There are all sorts of discussion going on around that,” he added.

Because international trade is an area of shared constitutional authority, some could argue that Congress must have a role in any decision to withdraw, a Recent Congressional Research report said. Others suggest, however, that the president has exclusive constitutional authority to communicate with foreign nations, it said.

Still, NAFTA critic Lori Wallach, Public Citizen Global Trade Watch director, told Bloomberg that it was “fanciful thinking” that the administration would back down from the changes it was demanding. “There's either going to be major changes or there is going to be no NAFTA,” she said.

So, we will see. NAFTA markets are real and important, while the anti-NAFTA arguments seem somewhat hazy and entirely theoretical. But, that doesn’t mean they do not have the power to build political power. Certainly, this is yet another debate producers should watch closely as it proceeds, 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