Washington Insider - Friday

Vacancies in Key USDA Positions

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

Farm Income Situation a Concern for USDA Officials

USDA Secretary Sonny Perdue warned in his comments at USDA's Outlook Forum that a projected drop in farm income this year is "not a path to prosperity." He said the "conditions are tough right now, but the good news is our farmers and ranchers are tougher." Meanwhile, USDA Chief Economist Rob Johansson said farm bankruptcy rates remain far below the 1980s although debt levels are rising near those last seen 30 years ago.

In recent years, there have been 2.4 bankruptcies for every 10,000 farms, down from 23 per 10,000 farms in 1987, Johansson said. But Johansson noted interest payments have been rising as a share of net farm income and there also has been significant restructuring of loans. "More borrowers are finding it hard to maintain payments on both operating and real-estate loans," he said. This area surfaced as a key concern ahead for attendees at the USDA confab, based on our extensive conversations outside of the meeting rooms.

Indonesia Will File WTO Complaint on US Biodiesel Import Duty

Indonesia will pursue a complaint at the WTO over the antidumping and countervailing duties announced by the U.S. on imports of biodiesel from the country, according to their trade ministry. "The antidumping duty and countervailing duty decisions against Indonesian biodiesel together represent a clear abuse of the trade-remedy laws," Indonesia's Trade Ministry said in a statement.

Further, the ministry said the U.S. is using the same methodology that was used by the European Union (EU) on the matter which the WTO has found was in violation of EU commitments. That has Indonesian officials confident their challenge of U.S. duties will be successful. The U.S. industry has insisted that the way the U.S. has pursued the matter is different than the EU route.

Meanwhile, final antidumping duties announced by the U.S. Department of Commerce on imports of biodiesel from Argentina and Indonesia are "arbitrary and illegal," according to the Argentine Chamber of Biofuels (CARBIO). "These anti-dumping duties confirm the total closure of the American market for at least five years, with a very high impact on the entire Argentine soybean chain," CARBIO President Luis Zubizarreta said in a statement. The group expects the Argentine government will head to the WTO to "reverse these measures as soon as possible," the statement said. There have been no imports of biodiesel from Argentina since at least August, according to Energy Information Administration (EIA) data. The U.S. Department of Commerce announced antidumping duties of 92.52% to 276.65% on imports of biodiesel from Indonesia.

Washington Insider: Slow Walking NAFTA

Bloomberg is reporting this week that it is looking “increasingly likely NAFTA talks will extend beyond a March target, meaning negotiators will have to deal with the added political uncertainty of a Mexican election campaign.

Thorny issues such as content rules for cars remain unsolved as negotiators prepare to meet from this week through March 5 in Mexico City for the seventh round.

When negotiations began six months ago, politicians expressed optimism they could reach a deal by the end of 2017. They later pushed the goal to March -- a deadline that now looks almost impossible. With the U.S. complaining that progress on its demands is too slow, President Donald Trump’s threat to exit the pact is still weighing heavily over the discussions.

“The round in Mexico is very important, because it will give an idea if we can advance technically, and if the political can support that and put us on a path to resolving the differences,” said Juan Pablo Castanon, the head of the Mexican chamber of commerce. “The negotiations should take as much time as is necessary.”

Negotiators have finished work on three issues and could wrap up five to seven more this round out of a total of about 30, according Castanon. Despite progress in modernizing the 24-year-old agreement, there has been little or no movement on controversial and politically-charged U.S. proposals that Canada and Mexico say would hurt their economies.

Still, Bloomberg says that “political will has been building to extend the talks.” Mexican Economy Minister Ildefonso Guajardo has signaled that his government is willing to negotiate through July’s presidential election, even though teams are working on an accelerated timeline to avoid that scenario.

NAFTA negotiators have wanted to avoid clashing with the Mexican election, given that trade can be a lightning rod for voter anger over their economic situation. Adding to the uncertainty, leftist frontrunner Andres Manuel Lopez Obrador has indicated lukewarm enthusiasm for the accord and there’ll be a five-month transition period before outgoing Mexican President Enrique Pena Nieto hands over power to the new government.

Trump said last month that he could be “flexible” on the timetable for NAFTA talks given Mexico’s vote, a position Canadian Foreign Minister Chrystia Freeland has supported.

The nations began renegotiating NAFTA in August at the initiative of the United States. The President called NAFTA “responsible for hundreds of thousands of Americans losing manufacturing jobs.”

Now, the administration wants to raise the minimum content that a typical car must have to benefit from NAFTA’s tariff exemptions to 85% from 62.5%. He also wants to add a “U.S.-specific requirement” of 50%.

Automakers warn the plan would upend supply chains. Canada has put forward its own ideas on how to calculate value, including giving more credit for driverless and electric cars, plus research and development work. U.S. Trade Representative Robert Lighthizer at the last round called Canada’s proposal “vague” and argued it would reduce the share of a vehicle made within the region.

While Mexico’s automobile association opposes a higher content rule, Guajardo has signaled government support for stronger requirements in order to reach a broader NAFTA deal.

The U.S. midterm elections in November also loom large and supporting trade agreements can be perilous for politicians seeking re-election. If the Republicans lose control of the Senate or House, it could be harder for the administration to win congressional support for a new deal. Trump must also seek renewal by June 30 of his authority to seek so-called fast-track approval in Congress of trade deals, though the president isn’t expected to be denied an extension.

The atmosphere around NAFTA has also been impacted by a Commerce Department recommendation released this month to impose steep curbs on imports of aluminum and steel. While the president’s final decision is still pending, it was the strongest indication yet that the White House intends to follow through with protectionist threats.

Tensions already have been growing between the U.S. and Canada. Lighthizer has complained about Canada launching a wide-ranging World Trade Organization dispute with the U.S. over how it applies countervailing and anti-dumping duties.

One possibility for getting a deal by the end of March would be reaching an agreement in principle and letting technical negotiations continue from there, David MacNaughton, Canada’s ambassador to the U.S., said earlier this month.

“There are still four or five sticking points,” he said. “If we roll up our sleeves and work hard on them, we can at least get to the point where we’ve got an understanding, whether it be an agreement in principle or whatever it is, which would then allow technical people to work on.”

Across agriculture and among Congressional leaders, there seems to be increasing awareness of the importance of the Agreement and the need to strengthen rather than threaten it--but that view is far from unanimous among U.S. officials. So, we will see. In general, the negotiator’s willingness to let the talks drag more than expected is probably not good news and should be watched closely by producers as the talks proceed, Washington Insider believes.

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