Washington Insider -- Friday

NAFTA Talks Could Wrap Up Soon

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

EPA's Pruitt Signals No Apparent Let Up In RFS Waivers

EPA has received some 30 requests from refiners for waivers of meeting requirements under the Renewable Fuel Standard (RFS), according to agency administrator Scott Pruitt.

The agency received a batch of requests for exemptions for RFS requirements this year, Pruitt told lawmakers, after having received a wave of those requests from small refiners last year.

The waivers have become a source of contention in the US biofuel industry, with refiners welcoming the actions and citing the costs to the industry from trying to meet the requirements. But biofuel proponents have complained about the waivers as the numbers approved by EPA have grown considerably compared to what historically has been the level of waivers granted each year. And biofuel backers note the requests are coming even as refiners are reporting hefty to record profits.

Senators Propose Modifications to ARC Program

Changes to the Ag Risk Coverage (ARC) program that started in the 2014 Farm Bill are being proposed by two lawmakers with an eye on the next version of the U.S. farm bill that the House and Senate are currently developing.

Sens. John Thune, R-S.D., and Sherrod Brown, D-Ohio, on Wednesday released their proposed improvements to ARC, with changes including the way the county revenue guarantee is calculated and to the payment trigger.

The bill would utilize a plan previously released by Thune to calculate payments based on a county’s physical location. The measure would also cap reference prices at either the current level or no more than the 10-year average price for a commodity.

Adjusting ARC to have a coverage level of 90% instead of the current 86% is another provision, and it would also use a three-year average price with a 10-year average market price as a floor for calculating ARC payments. Plus, the plan would also use a crop insurance trend-adjusted yield factor to calculate the ARC benchmark yield.

The package would include an 80% "T-yield" for substitute yields if historical yields are missing or lower than 80%, versus the current T-yield substitution factor is 70%.

Unlike the House farm bill, the Thune/Brown plan would keep the Individual ARC option for producers. Plus, the plan would also include an adjustment factor that could be used to calculate ARC wheat payments, when needed.

However, no information is yet available on the cost for the option which could loom large in the farm bill process.

Washington Insider: NAFTA Talks Could Wrap Up Soon

Bloomberg reported this week that President Trump said NAFTA talks are “doing very nicely,” as negotiations between ministers from the U.S., Mexico and Canada “ramp up in Washington in a redoubled push for a deal.”

Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland both attended meetings Tuesday, Wednesday and Thursday at the U.S. Trade Representative’s Office in Washington.

The sides have picked up the pace in recent weeks, though “the goal is unclear,” Bloomberg said. The U.S. has mused about a deal “in principle” but Mexico says it’s seeking a comprehensive agreement to update a 24-year-old deal. “Meanwhile, Trump’s latest comments are a mixed signal, saying talks are going well but also that he is reserving judgement."

Under optimistic conditions, negotiators have a 75% chance of reaching a deal soon, Moises Kalach, the trade head for the Mexican business chamber said on Tuesday. An agreement on an updated NAFTA agreement could be reached in the next 10 days, he said.

If no deal is reached in the coming days, it could make sense to put negotiations on hold until the end of the year or early 2019, given the presidential election in Mexico in July and the U.S. congressional midterm vote in November, Kalach said.

Negotiating teams have agreed on nine or 10 more topic areas that are ready for ministers’ review and approval, Kalach said — but wide differences remain on some of the toughest issues, such as tightening up the rules of origin for cars and their components, aimed at boosting American manufacturing but that could upend existing supply chains.

Canada’s Freeland said Tuesday’s talks focused on automotive rules of origin -- a crucial sticking point, which she sees as the linchpin to a deal and noted that negotiators have been having constructive talks on the subject for some time, moved ahead in part due to some creative thinking put forward by the U.S. side last month. Conceding that “there are other issues that still need to be resolved,” she maintained that “we think a win-win-win agreement is possible.”

This week’s talks were expected to cover the most ground since the final official negotiating round in Mexico City in early March, according to a preliminary agenda obtained by Bloomberg. Topics include automotive rules, agriculture, and legal and institutional matters such as dispute settlement mechanisms.

In the meantime, the New York Times is focusing on what it calls “another, potentially insurmountable obstacle ahead, and that is getting the administration’s deal through Congress.”

That may not be so easy—depending on what the agreement eventually says, NYT says. On Wednesday, lawmakers from both parties expressed skepticism about the Trump administration’s negotiations and whether any deal that Trump reaches could be approved by the current Congress.

In recent weeks, U.S. Trade Representative Robert Lighthizer has told members of Congress that he could take a more aggressive and potentially painful approach to ensure that the president’s deal is passed. He has warned congressional Republicans about the possibility of withdrawing from NAFTA altogether if they refuse to vote for it.

Those warnings have not been well received among congressional Republicans, the Times said. Farm and border-state Republicans are already deeply unsettled by the president’s tariff threats on China, which has resulted in a tit-for-tat by Beijing that would hurt exports from their communities, including agricultural products like soybeans, pork and wheat. They would probably rebel if he moved to undermine NAFTA, which has become a crucial economic engine for those states, the Times said.

Senator John Cornyn, R-Texas, and majority whip, made clear that the Senate would not simply rubber-stamp any deal that Mr. Trump’s trade team strikes and lamented that the administration had kept lawmakers largely in the dark.

“I regret that the administration has not been communicating very well what they are negotiating and I hope they come up with something that we can pass out of here, because I think NAFTA is pretty important,” Cornyn said.

If the president were to carry through on a threat to withdraw from the deal to force a vote in Congress, lawmakers could fight back, congressional aides said. They could pass legislation that alters the president’s authority to impose tariffs and other trade measures — or create laws to more clearly define the process for the United States to leave trade agreements.

Top Republicans in the House also expressed trepidation on Wednesday about a NAFTA resolution. For example, Representative Kevin Brady, R-Texas, and the chairman of the Ways and Means Committee, said that the likelihood of such a deal passing in the House “depends on the quality of the agreement.”

Brady, a staunch ally of Trump during the tax overhaul last year, has been critical of the president’s tariff threats. He said that he had encouraged Trump to deliver an agreement that bolstered American jobs, exports and economic growth.

We will see. Trade deals affect very large, important markets and failure to adequately protect access there is likely to cause deeper political wounds than some in the administration seem to appreciate. This is a fight with huge stakes that producers should watch very carefully as it proceeds, Washington Insider believes.

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