Washington Insider - Thursday

Back to Trade Worries and NAFTA

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

Grassley, Others Mum on the 'Pot of Money' For Ag Re: NAFTA

If Sen. Chuck Grassley, R-Iowa, got an answer to his question on whether there is a "pot of money" being put together for agriculture in the event that the NAFTA 2.0 talks fail, his office has not indicated whether he got an answer on the issue. He and other members of the Senate Finance Committee met with U.S. Trade Representative Robert Lighthizer Tuesday.

Grassley's office said the Iowa Republican “pressed Ambassador Lighthizer about seasonality of crops issues and intellectual property provisions being negotiated in the ongoing NAFTA renegotiation.” USTR spokeswoman Amelia Breinig said, “Ambassador Lighthizer met with Republican members of the Senate Finance Committee to brief them on the NAFTA negotiations and other trade matters and to discuss issues of concern to them. He has had similar sessions with Republicans and Democrats on the Ways and Means and Finance Committee.”

Cotton Would Return To Farm Bill Commodity Title via Disaster Package

The $81 billion disaster aid package introduced by the House Monday evening contains a provision that would make cotton growers eligible for the safety net programs for covered commodities under the commodity title of the 2014 Farm Bill.

The language makes seed cotton growers eligible for the Price Loss Coverage (PLC) or Ag Risk Coverage (ARC) programs. The bill sets a reference price of 36.7 cents per pound for "seed cotton," which the bill defines as "unginned upland cotton that includes both lint and seed."

Those electing to enroll in the PLC or ARC program option would also be deemed ineligible for the Stacked Income Protection Plan (STAX).

Washington Insider: Back to Trade Worries and NAFTA

While almost everyone is focused on taxes, Bloomberg is back on NAFTA and is reporting that a threatened U.S. exit is now viewed as an “increasingly likely scenario” for the new year by the pro-trade business community, “even as red state governors rush to defend the pact.”

“There is a sense in the business community that it's gotten very serious and very perilous,” Maryscott Greenwood, Canadian American Business Council Chief Executive Officer, told Bloomberg.

The pro-trade business community will crank up the volume in 2018 to make sure that policymakers understand the stakes, she said. Republican lawmakers and governors are also sounding alarm bells, with Senator Jeff Flake, R-Ariz., warning that exiting NAFTA would erase much of the recent positive GDP growth and add to demands for increased farm subsidies.

“You'll see an intensified effort to spell out in a very specific sector-by-sector basis the negative impact in the U.S.” from a NAFTA withdrawal, Greenwood told Bloomberg.

The administration can start withdrawing by giving six month’s notice under Article 2205 and can pull the U.S. out after six months, she said. However, pro-trade lawmakers and the U.S. business community are looking at how to prevent a U.S. exit and how to respond if the administration pulls the trigger.

Sen. Ron Johnson, R-Wis., recently said that Trump is “getting enough feedback that he realizes that it would be really bad for the American economy if we let NAFTA lapse.” But Johnson also said that pro-trade forces can't let up in making the case for free trade.

Johnson's remarks came on the same day that NAFTA negotiators wrapped up an intersessional meeting in Washington where they did not advance on the major issues threatening the negotiations, which include a proposed sunset clause. At the meeting's conclusion, Mexico's chief NAFTA negotiator Kenneth Smith Ramos tweeted that the Mexico sent the U.S. a “clear message” that to advance the toughest issues Mexico needs the U.S. to advance Mexican priorities in the talks.

Agriculture, cars, and textiles would be the sectors most affected by a NAFTA pullout, Michael Wilson, a former Canadian ambassador to the U.S. said. “Those are three sectors that the average Joe or Jane will feel quite directly,” he told a Center for Strategic and International Studies event.

Republican senators from farm states, including Senate Agriculture Committee Chairman Pat Roberts, R-Kan., and Sen. Deb Fischer, R-Neb., are warning the president that pulling the plug on NAFTA would devastate rural communities, which helped propel Trump to the White House. Trump met with a group of Republican senators on NAFTA recently and suggested that the group reconvene after the new year, a White House official told Bloomberg.

The point of maximum danger for U.S. withdrawal is after the Jan. 23-28, 2018 Montreal round, Bloomberg said. Heading into the round, the countries remain far apart on several U.S. proposals that have been labeled as unworkable by Mexico and Canada as well as the U.S. business community.

These include: adding a provision that would end NAFTA after five years unless all three parties agree to keep it: cutting back government contract opportunities for Mexican and Canadian companies; eliminating or scaling back dispute resolution mechanisms; and rewriting automobile rules of origin to require that 50% of a car's components be made in the U.S. and 85% from North America.

Compromise is possible but only if the U.S. abandons its “my way or the highway approach” in the negotiations, former Mexican ambassador to the U.S. Arturo Sarukan said at a Center for Strategic Studies event recently. “They really want some of these big changes that they are asking for and that Canada and Mexico are choking on. If they can't get them, they will likely pull out,” a private sector source said. “It's going to be incredibly disruptive,” he said, speculating that it could spook investors if “for the first time they begin to absorb the radical changes the Trump administration seeks in economic relationships.”

The president appears to view the withdrawal notice as an “Art of the Deal” ploy to get concessions, several private-sector sources said. And, questions of whether the president has unilateral authority to end “congressional-executive agreements” like NAFTA would raise constitutional issues.

Assuming the negotiations move past the January round, the parties want to wrap up talks by March to avoid having negotiations run too close to Mexico's July 1 presidential elections and the U.S. midterm elections. The informal March target date is widely viewed as too ambitious given the wide gaps among the parties.

Heading into the new year, the “very real danger is we're trusting everything to the patience of the President,” Daniel Ujczo, an international trade lawyer specializing in Canada-U.S. issues at Dicksinson Wright, LLPC in Ohio told Bloomberg. “My biggest fear is we're going to run out of time,” with the March target, he said. “We're not talking about ways of reaching an agreement. We're just declaring everything a red line,” he said.

So, no one is sure what will happen in the NAFTA talks next year, but it seems that the administration is seriously inclined toward withdrawal. That would imply a number of serious negative impacts that at least some administration officials seem not to understand--and which U.S. firms and governors will work hard to explain and which USDA needs to become more active in describing. Certainly, this is a fight producers should watch closely as it intensifies, Washington Insider believes.

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