Washington Insider -- Friday

NAFTA Hurdles Remain for U.S. and Canada

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

USDA Continues To Be Pressed On How It Calculated Farmer Aid Payments

Questions continue to be raised by some sectors of US agriculture regarding the aid payment levels the agency announced in August. USDA Secretary Sonny Perdue said at a USDA event Wednesday that "if you look at where tariffs were enforced and where we had shipped corn, that is how the calculations came out." He said USDA used “calculations that are known to economists that will calculate the tariff damages,” adding the numbers were “affirmed” by the White House Council of Economic Advisers and Office of Management and Budget (OMB).

Perdue said USDA will be “as transparent as possible” in responding to requests on specifics about the payment rates. “On the face of it, I can see why corn farmers would say, ‘Why this, why that for soybeans?’ — yet that was the determined amount of tariff damage,” Perdue told reporters.

Some additional information could be revealed next week as USDA Chief Economist Rob Johansson is set to testify before the Senate Ag Committee in a hearing on agricultural trade.

Perdue said Johansson played a key role in the payment rates. “Dr. Johansson has tried to explain it to me a number of times,” he said of the methodology.

Trump Continues to Signal More China Tariffs Likely; China Pledges Retaliation

The comment period on tariffs that would be put in place on another $200 billion in Chinese goods ended Thursday, and President Donald Trump said Wednesday the U.S. will keep pushing on China.

"We have done very well in our negotiations with China, but we are not prepared to make the deal they would like to make," Trump said in a session with GOP lawmakers. The U.S. is already taking in "billions of dollars of taxes coming in from China," he noted, adding that there is the potential for "billions and billions of dollars more."

Trump further noted the U.S. is "doing very well in our discussions with China. We are doing, maybe more importantly, very well with respect to China. But hopefully that will all work out in the not-too-distant future."

For its part, China warned they will retaliate if the U.S. goes ahead with additional tariffs on Chinese goods. "If the United States, regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures," Commerce Ministry spokesman Gao Feng said at a news conference. Plus, China will adopt measures to help Chinese or foreign firms that are impacted by new tariffs, he noted.

"China is confident, capable and able to maintain steady and healthy development of the Chinese economy," Gao stated.

Washington Insider: NAFTA Hurdles Remain for U.S. and Canada

Well, there’s numerous debates on ag policy issues these days as the fiscal year winds down. For example, the New York Times highlights the resumption of talks by the United States and Canada to salvage the North American Free Trade Agreement. However, the Times says that “a quick resolution seemed unlikely amid tension between President Trump and Prime Minister Justin Trudeau of Canada.”

The President described the talks as “intense,” and accused Canada of “taking advantage” of the United States. And, he continues to assert that the United States “does not need Canada” to remain in the agreement — a point a number of others dispute.

Trudeau, for his part, said that Canada would insist on certain safeguards because Trump “doesn’t always follow the rules.” The Times said that it “was evident that a lack of trust between the officials was one factor hindering the talks.”

There are several “big obstacles” to agreement, the Times said. Among these is the independent dispute resolution system that Canada wants to retain but the administration doesn’t. That system allows Canada to appeal punitive duties that the United States imposes on Canadian products, like lumber, as a penalty for subsidizing and dumping products into the American market.

The provision was eliminated in the agreement the United States reached with Mexico, but the Canadians have insisted that it is necessary to protect industries from biased rulings in the United States. In a Wednesday interview, Trudeau described such a mechanism as a “red line” for his country because it “ensures the rules are actually followed. We know we have a president that doesn’t always follow the rules as they’re laid out.”

Trudeau’s barb followed a barrage of criticism in the last week from Trump, who has accused Canada of unfair trade practices and threatened to cripple its automobile industry with tariffs. The president also repeated his threat to remove Canada from a revised NAFTA and move ahead with just Mexico.

Like Trump, Trudeau also made clear that Canada was willing to walk. “We’re not going to accept that we have to sign a bad deal just because that’s what the president wants,” he said.

After earlier discussions between Canada and the United States ended without a deal, Trump informed Congress that he would move ahead with a trade pact with Mexico and give Canada the chance to remain in a revised NAFTA “if it is willing.” Canada now has until the end of September to reach its own agreement with the United States, allowing the three-country pact to stay intact.

While deep divisions remain, Trudeau did suggest some flexibility on a crucial issue for the President – access to Canada’s dairy market. That industry is heavily protected and the President has made opening it to U.S. exports a top priority. Trudeau signaled on Wednesday that there could be room for compromise.

But Canada also has its own demands, including retaining exceptions that would limit foreign ownership of cultural industries, like movies and TV networks — provisions Trudeau has said are critical to protect his country’s sovereignty.

Chrystia Freeland, Canada’s foreign minister, said on Wednesday that her team of trade negotiators worked throughout the weekend in the hope of finding common ground on the remaining issues. After a morning meeting with Robert E. Lighthizer, the United States Trade Representative, she said that she was encouraged by the tone of the talks.

The Trump administration has opposed the investor-state dispute settlement provision over concerns that it takes power out of the hands of elected governments and puts it in the hands of private sector lawyers who sit on a tribunal and determine whether countries are treating foreign investors fairly.

However, the United States has never lost a case filed by investors, the Times said, but Canada and Mexico have lost cases filed by American corporations like Cargill and Archer Daniels Midland.

While Canadian leaders have cast nullifying the dispute settlement provision as a dealbreaker, some trade experts believe that Canada would be willing to let go of it in exchange for other concessions from the United States.

Despite the sticking points, the Times said that it is unclear whether the United States could actually move ahead without Canada or withdraw from NAFTA entirely.

Republicans and Democrats in Congress have insisted that Canada must be included in a final deal. Since Congress is unlikely to vote on such an agreement until next year, and Democrats could win control of the House or, possibly, the Senate, Trump may need to heed to the concerns of lawmakers.

“Trump is relying on bluster and bullying in a desperate attempt to get Congress to swallow his half-baked deal,” said Senator Ron Wyden, D-Ore., ranking member on the Finance Committee. “You can’t fix NAFTA without fixing issues with Canada.”

So, we will see. In spite of the administration’s suggestion that NAFTA could exclude Canada, it is the second largest “goods” trading partner with imports of $282.3 billion worth in 2017, including a broad array of ag products. While it is less important than China for some products, it is extremely important overall and would be severely missed if access now provided by NAFTA were restricted, Washington Insider believes.

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