Washington Insider - Tuesday

NAFTA Danger Zone Nears as Key Talks Resume

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

US ITC: US Producers Materially Injured By Chinese Aluminum

A "reasonable expectation" that the U.S. aluminum industry is being materially injured by imports of Chinese alloy aluminum sheet was found by the International Trade Commission (ITC), according to a preliminary determination that was published in the Federal Register January 22.

The aluminum sheet is allegedly subsidized by the Chinese government and sold in the U.S. at less than fair value (LTFV), the ITC said. The regulator will schedule for the final stage of its investigation if the Department of Commerce upholds the preliminary finding.

US Beef Group Urges USDA to Keep Ban on Brazilian Beef

While USDA officials are still mulling over the possibility of lifting the ban on Brazilian beef imports, one U.S. beef industry group has questioned the safety of Brazilian meat imports and is now putting pressure on USDA to keep the restriction into place.

Because of concerns related to food safety, the United States Cattlemen's Association (USCA), which represents cow-calf producers, backgrounders and feedlot operators, has vowed to oppose reopening of trade with Brazil and is now urging USDA to keep the restriction on Brazilian beef.

In a Jan. 18 letter addressed to Carmen Rottenberg, the acting deputy under secretary for food safety at USDA’s Food Safety and Inspection Service (FSIS), the group urged Rottenberg to keep the ban in place and asked USDA to provide it with information on a host of food safety practices related to meat imports coming from Brazil.

Washington Insider NAFTA Danger Zone Nears as Key Talks Resume

Bloomberg is reporting this week that administration efforts to tie NAFTA talks to a Mexico wall may create a new “danger zone.” The group says the talks are entering a pivotal moment as the U.S. turns up the pressure on Canada and Mexico to radically alter the trade pact in favor of American interests.

In the run-up to the sixth round of talks that are now underway in Montreal, there’s been plenty of saber-rattling and posturing from the three countries, Bloomberg says. Through it all, a somewhat consistent pattern emerged: U.S. President Donald Trump kept threatening to withdraw from the pact while Canada and Mexico suggested they’d bring fresh thinking to the table to try to resolve some of the touchiest issues. The question now is whether they can move forward fast enough to salvage the deal before electoral politics overwhelm the agenda later this year.

“We’re reaching the danger zone right now,” said Stephen Moore, a visiting fellow at the Heritage Foundation who was an economic adviser to President Trump during the 2016 campaign. “This is a pretty important meeting, because if there’s still no progress, the White House could become very frustrated and just throw up their hands and say, ‘We’re pulling out.’"

The latest session to revamp the North American Free Trade Agreement began Sunday in Montreal and is scheduled to last through Jan. 29, making it the longest round yet. Talks have continued despite the U.S. government shutdown that’s consumed Washington.

The 24-year-old trade pact is a linchpin for the US, Canada and Mexico, which trade more than $1 trillion in goods annually. Any of the three can quit after six-months’ notice, though President Trump is the only one to regularly threaten to give it.

President Trump has lately tied the talks to his push for a border wall with Mexico, while the U.S. is also growing impatient with Canada’s perceived unwillingness to compromise. At the same time, there are pro-NAFTA signals coming from the administration, including Agriculture Secretary Sonny Perdue who said last week that Trump shares his view that NAFTA has benefits for U.S. farmers.

The Montreal round is likely to feature more substantial discussion on the five “poison pills” from the US, particularly autos, Brett House, deputy chief economist at Scotiabank, said, adding mounting pressure from NAFTA supporters in the U.S. is a signal that Canada and Mexico’s strategy is working.

“Rather than the notion where we’re getting to some kind of point where Canada and Mexico are over a barrel and have to blink, I actually think we’re seeing the beginning of fruit from the approach they’ve both taken so far,” House said.

There are signs of possible progress, as well. Mexico hinted it could bend on automotive rules, one of the most explosive issues, while also saying that officials agree broadly on 40 percent of the pact. Canada, meanwhile, has said it will bring “new ideas” to the talks, and that several topics, known as chapters, are close to being concluded, even as Canadian officials said the chance of a U.S. exit is seen as increasing.

Bloomberg emphasized that there are a handful of key disputes over U.S. demands, including autos, where the U.S. wants to raise the amount of a car that must be built in the three countries to be traded under the deal. Another hot button issue includes adding a sunset clause to terminate the pact after five years unless all three countries agree to renew it.

“It’s very important to continue to make progress both with the United States and with Canada,” Mexican Finance Secretary Jose Antonio Gonzalez Anaya said last week. “Mexico will not pay for a wall. It’s not a negotiation stance for Mexico; it’s an issue of national sovereignty and dignity.”

Canada’s chief central banker said the ongoing talks are already hurting business investment. “I would believe that it would be net negative for both Canada and for the United States, but to actually quantify that is very difficult,” Governor Stephen Poloz said. Prices for consumers would rise and it would reverse the “income effect” that free trade deals create by boosting purchasing power, he said.

Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo will hold talks in Toronto on Monday. The two ministers along with U.S. Trade Representative Robert Lighthizer are scheduled to meet on the closing day of round six, while the seventh session of talks is set for February.

A major looming risk to the negotiations is the political calendar. Mexico holds a presidential election July 1 and U.S. congressional midterms take place in November. Trump indicated this month that he could be flexible with talks ahead of the Mexican election -- and then repeated his threat to withdraw if he can’t reach an agreement that’s “fair” for America.

Well, the good news seems to be that there are additional voices speaking up in favor of ag trade, but the bad news seems to be that the threats continue to persist. So, we will see. These talks will continue to be extremely important for producers and should be watched closely as they continue, Washington Insider believes.

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