Washington Insider - Monday

More Trade Policy Tensions

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

Biofuels Issues See More Talk on Capitol Hill

Congressional contacts continue to signal a biodiesel tax incentive extension is likely, but they discount staffer talk about moving to a producer credit. Senate Finance Chairman Orrin Hatch, R-Utah, would revive the lapsed credit for blenders of biodiesel in a tax-extenders bill. Derek Theurer, an aide to Sen. Bill Cassidy, R-La., said at an event this week that Finance panel members still are considering moving it to a producer credit. But veteran Capitol Hill contacts say the Trump administration already has made its views known in opposition to any such change, and there is not widespread support in Congress.

Meanwhile, Sen. John Barrasso, R-Wyo., a top Renewable Fuel Standard (RFS) foe, continued to push for RFS reforms. "If a refinery goes bankrupt because of a system that the government put in place after the refinery was built, that’s not a system that’s worked. So we need to modernize and modernize this to take into account where we are today with the technology and the vehicles and the amount of fuel being consumed," he told Politico, adding "[Sen. John Cornyn, R-Texas, is] leading the efforts to develop this bipartisan reform bill that all the stakeholders can support and then once that’s introduced the committee is going to give it serious consideration."

Japan Signals They Will Push Ahead With TPP-11

While signaling Japan will "examine" comments by President Donald Trump to CNBC that he would be open to rejoining the Trans-Pacific Partnership (TPP) agreement if it can be significantly improved, several Japanese officials have commented their focus now is on implementation of the TPP-11 agreement – dubbed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – first said Deputy Chief Cabinet Secretary Yasutoshi Nishimura. However, he noted, "We will consistently explain to Washington that the TPP will work in favor of the American economy and employment, and urge its return to the deal."

Washington Insider: More Trade Policy Tensions

Well, President Trump is back from his trip to Davos where he made a major presentation that reporters said did not break much new trade or economic policy ground. He is now preparing for his State of the Union speech on Tuesday.

One interesting development did attract press attention last week, though, and that was discussions of much more vital global markets. A number of analysts are now suggesting that global markets have turned around now and that economic growth is much more widespread--modest, but widespread, Bloomberg says.

The group also points out that Europe is approaching the next stop in its global market-opening drive aimed at countering a U.S. “protectionist tilt.” Top officials from the European Union will meet with the Mercosur group of Argentina, Brazil, Paraguay and Uruguay this week to gauge the prospects for a “free-trade deal that would follow groundbreaking commercial pacts with Japan and Canada,” Bloomberg says.

The EU-Mercosur talks began almost two decades ago, faltered and were re-started in 2010. President Trump’s move into the White House a year ago with his “America First” agenda prompted an EU push to wrap up the negotiations, which advanced before getting hung up last month over the politically sensitive issues of agriculture and cars.

“Our aim is to conclude a very ambitious trade agreement between us and Mercosur in the coming weeks,” EU Trade Commissioner Cecilia Malmstroem said in an interview in Brussels last week. “We aim to finalize this very soon because the clock is ticking.”

EU policymakers are seeking to keep markets open worldwide in the face of Trump’s anti-globalization stance and to underscore the bloc’s continuing commercial clout as the UK prepares to leave. In addition to building on existing European free-trade pacts with partners that also include Singapore, Vietnam and South Korea, a deal with Mercosur would give the EU political momentum as it gears up for talks with Australia and New Zealand.

The U.S. threat to the global order in place since the end of World War II was highlighted last week when Trump invoked rarely used “safeguard” rules to impose tariffs on U.S. imports of solar panels and washing machines, Bloomberg said.

With EU-Mercosur trade worth almost 85 billion euros ($105 billion) in 2016, a market-opening agreement would be among Europe’s biggest. The meeting on Tuesday will be at ministerial level, giving both sides a chance to make political concessions that would embolden the negotiators.

However, there are still bumps to be worked out. Mercosur says an EU offer to open further its agricultural markets, including for beef, is inadequate. Malmstroem’s team in December proposed to let Mercosur export to the bloc at reduced duties an extra 70,000 metric tons of beef, 600,000 tons of ethanol and 100,000 tons of sugar annually.

“If we don’t get a significant agricultural offer, we cannot achieve this agreement,” Rigoberto Gauto Vielman, Paraguay’s ambassador to the EU, told the European Parliament’s trade committee on Jan. 23 in Brussels. Europe must do more to ensure a “fair and reasonable” accord, he said.

The EU counters that its farm offer is generous and Mercosur must agree to open its markets more to European cheeses, cars and car parts.

European agricultural producers’ interests, traditionally a touchy issue in Brussels, may be even more so now because Ireland is concerned about the potential impact of the UK’s planned exit from the EU on Irish beef exports. Mercosur already accounts for around three-quarters of EU beef imports and focuses on pricier cuts.

“The moment is quite difficult for Europe in terms of beef,” Sandra Gallina, the chief EU negotiator with Mercosur, told European lawmakers last Tuesday. “Our partners are very well aware that there is a Brexit going on and that beef from Ireland may be impacted, so I want to say this is perhaps not the best of moments to go after such a deal.”

Pekka Pesonen, secretary general of Copa-Cogeca, the main European farm-lobby group, told reporters on Jan. 24 that a Mercosur-EU accord could cost farmers in Europe billions of euros and that “we would reject any concessions at this stage.” Malmstroem played down the deadlock over agriculture, saying farmers’ interests have long kept international trade negotiators at the table longer.

“They are always the last to remain,” she said. “They are difficult, but I hope they are surmountable.”

So, we will see. Many U.S. producer groups are nervous already about EU and Latin American efforts underway to open ag markets while the U.S. remains on the sideline—and are especially worried about the NAFTA talks. As always, the groups will parse the SOU talk for hints of policy commitments that could increase market access and also support beneficial policies in the coming farm bill debate. This will be yet another week of high level, high tension policy discussion that producers should watch closely as they proceed, Washington Insider believes.

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