Washington Insider -- Friday

NAFTA Prospects

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

More on Possible Tariff-Related Aid to US Ag Sector

Sen. Chuck Grassley, R-Iowa, said Wednesday that the Trump administration could rely on the Commodity Credit Corporation (CCC) and related authorities (Section 32, etc.) to shield farmers from the effects of any tariffs imposed by China.

“I’ve had conversations with people in the administration that thought if there were ever tariffs imposed that the income coming from the tariffs could be used for that purpose,” Sen. Grassley said. Meanwhile, concluding talks to update the North American Free Trade Agreement (NAFTA) would be the best way to offset tariffs on US agriculture goods, according to Senate Agriculture Chairman Pat Roberts, R-Kan.

He told U.S. Trade Representative Robert Lighthizer that an announcement of a deal on NAFTA would ease concerns about retaliatory tariffs resulting from trade enforcement actions. Such an announcement would trigger sales of Kansas wheat to Mexico, he said, adding that Argentina is supplying Mexico with wheat and Brazil is supplying corn. Lighthizer said an agreement might be able to be reached within weeks, Roberts said. Negotiations with Mexico are closer to being concluded than with Canada, which “is a different equation,” Roberts said.

Roberts also called for the U.S. to rejoin what is now the 11-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Sen. John Cornyn, R-Texas, said this trade pact, which is advancing without the US, was the best instrument to counter China. But he noted that passing any trade agreement in the current Congress would be a heavy lift. Meanwhile, Roberts and other lawmakers will discuss the problem of retaliatory tariffs on US agriculture products at the White House.

USDA's Perdue: Negotiation Best Way on China Trade Situation

Negotiations with China will be the best option for calming US-China trade tensions, but if they fail USDA stands ready with funds to help US ag producers soften the impacts a full-blown trade war would bring, Agriculture Secretary Sonny Perdue told the Senate Appropriations Ag subcommittee.

"China is a key market for U.S. agriculture, but China’s unfair trade policies, including for agriculture, have undermined fair trade and the global trading system. The President is taking steps to address those policies," Perdue said.

Should China take retaliatory actions that harm U.S. agriculture, the Trump administration "stands ready to defend agricultural producers who may be harmed. As we take a stronger approach to the way we handle trade as a nation, President Trump has directed me to use all of my authorities to ensure that we protect and preserve our agricultural interests."

Perdue also noted he reserves the ability to deploy funding made available in the recently passed government-spending bill if necessary to mitigate trade impacts.

Washington Insider: NAFTA Prospects

There is plenty of talk in the national media this week about trade policy and the basic principles as well as potential negotiating strategies. In a more down-to-earth look, the New York Times says the administration is pushing hard to reach a NAFTA deal by the beginning of May.

However, the main point of the story was that the “timeline could be complicated by its refusal to budge from contentious proposals” aimed at bringing manufacturing back to the United States.

The administration has not significantly softened its position on rules that automakers would need to meet to qualify for zero tariffs under NAFTA the Times says. While the administration has removed a requirement about the percentage of a car that must be made in the United States, it has added other rules that North American automakers say could be costly and complicated to meet.

The proposal is throwing a wrinkle into recently revived talks with Canada and Mexico, which had begun to show signs of movement after months of stalled negotiations. But after high-level talks concluded last week, officials on both sides see the administration’s goal of announcing a deal in principle as early as this week as “too ambitious.”

Some in the administration had been pushing for an announcement to coincide with the president’s trip to Peru this weekend to attend the Summit of the Americas, where President Trump was expected to appear alongside leaders from Canada and Mexico. However, the White House announced that the president was canceling his trip to focus on the escalating conflict in Syria. “Now, negotiators say they are pushing to conclude the agreement by May,” the Times stated.

Trump administration officials are eager to conclude negotiations quickly, largely because they must secure a deal by May to meet all of the necessary deadlines to have their revised NAFTA agreement approved by the current Republican-controlled Congress. Some trade advisers say the possibility of Democrats retaking the majority in the House in November’s midterm elections could put congressional approval of Trump’s NAFTA deal at risk, given that many Democrats oppose NAFTA.

Mexico is also facing a presidential election July 1 that could complicate talks by bringing a different political party into power. Trump administration trade advisers are also enmeshed in an escalating conflict with China that threatens to become a trade war.

Early this week, the president said the United States was “fairly close” on a NAFTA deal--but he also reiterated his threat to withdraw from the pact if a new agreement is not reached.

The administration’s desire to quickly resolve NAFTA could give Canada and Mexico more leverage. Trade experts say a NAFTA deal seems more likely than it has in months, since the United States is at least offering different proposals. But, larger concessions will need to be made to reach a deal, the Times said— and those could come in the final moments.

Antonio Ortiz-Mena, a former Mexican diplomat in the United States, said he believed a deal would be possible in the coming weeks if negotiators were prepared to compromise. However, he said, “I think the biggest threat to NAFTA is the United States overplaying its hand and not being flexible enough.”

The NAFTA provision regarding automobiles has been among the most contentious, given Trump’s focus on the car industry and its importance to all three nations’ economies.

American negotiators have dropped an earlier demand that half of the value of an automobile be made solely in the United States to qualify for NAFTA’s zero tariffs. Instead, they are asking for an unspecified percentage of each vehicle to be made by workers earning at least an average wage rate for the North American industry, to be recalculated each year. According to preliminary calculations, that wage could be approximately $16 to $17 an hour.

However, other parts of the proposal are unchanged, or add layers of rules, which could be subject to a periodic review, for example every five years. Car companies would have three years to work on redesigning their supply chains before the rules went into effect.

The United States also appears to be largely standing firm on other contentious issues, including rules for government purchases, methods of settling trade disputes and a provision under which NAFTA would automatically expire every five years, unless the countries voted to reapprove it.

The Trump administration has said those changes are necessary to revive American manufacturing and undo incentives that encourage companies to move their factories to low-cost countries like China and Mexico. Company representatives counter that the use of global supply chains has now become the norm in many industries, and without the ability to source products from around the world, American companies would simply not be able to compete.

So, we will see. Clearly, the trade tensions with China have brought large numbers of companies and lobbyists into the NAFTA debate as well—and the global trade policy debate has become more than expected. This is a fight that is important to ag and which producers should watch very 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