Washington Insider -- Thursday

Pressure Increasing on NAFTA

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

Biofuel Policy Battles Continue

The battle over year-round sales of E15 continues, with biofuel backers pushing for action that has been promised but not yet delivered by the Trump administration, while backers are making clear their opposition.

While welcoming the signals from the administration that they are ready to lift the Reid vapor pressure restriction on sales of E15 in summers months, Sen. Chuck Grassley, R-Iowa, told reporters Tuesday it's time to "fish or cut bait" on the topic. "Either do it or get off the pot," he added.

As for the potential that year-round E15 sales could be part of a broader announcement, Grassley said that should not happen. "Ag has already given enough,” Grassley said. "The president is so involved with this issue, wants to be involved, feels a sense of obligation to agriculture and to ethanol and the clean environment and everything that goes with it -- good paying jobs in rural America."

However, the American Petroleum Institute (API) and American Fuel and Petrochemical Manufacturers (AFPM) reiterated their opposition to the move in a September 25 letter to President Donald Trump. "Such an approach is insufficient for refiners and inconsistent with your long-standing commitment to finding a solution that meets the needs of both the biofuels and refining industries," the letter said. "We urge you to not move forward."

As has been the case in the past, API and AFPM called for "meaningful reforms to the Renewable Fuel Standard (RFS), labeling them "integral in any discussion about E15." The reforms sought are "corresponding reductions of mandated biofuel volumes. The groups said that "more E15 could be forced into the market, increasing the risk of consumer misfueling."

While EPA has cleared E15 for use in 2001 and newer automobiles, the groups said "nearly three out of every four cars on the road today are not designed for E15, and several automakers have said that E15 could void car warranties." They also pointed to issues with older cars, motorcycles, boats, lawnmowers and power equipment engines as additional reasons not to allow year-round E15 sales.

"Refiners have engaged in a constructive and proactive approach to find workable reforms to the RFS," the groups said. "We remain committed to the goal of consensus reforms that that can and should work for all RFS stakeholders including consumers, farmers, biofuel producers, and refinery workers across the country."

Lighthizer Somber On Chance of US/China Solution Anytime Soon

U.S. Trade Representative (USTR) Robert Lighthizer continues to be pessimistic about any short-term deal with China on several contentious issues, noting that years of failed negotiations have led to little results for U.S. companies and farmers.

“So we have changed the paradigm and the paradigm is that we have tariffs in place,” Lighthizer said at the Concordia Summit on the sidelines of the UN General Assembly in New York.

Lighthizer said China has offered too little, too late relative to U.S. demands over the years that Beijing improve intellectual property practices, pull back policies that require U.S. companies to hand over valuable technology and further open its market.

As an example, Lighthizer noted China’s granting of new market access to U.S. beef as the result of the 100-day action plan with China that was launched in the early days of the Trump administration. “They promised to give that precisely 10 years ago. They said we will give you this in response to another dialogue. Ten years later it’s still nothing and they finally give it to us,” he said. “This is exactly why you can’t do this."

Washington Insider: Pressure Increasing on NAFTA

The Washington Post is reporting this week that among all the highly toxic fights underway over the Supreme Court nomination, administration trade policy, the farm bill, spending bills and others, the administration's hopes for scoring a pre-midterm win by reworking the North American Free Trade Agreement are "circling the drain."

The reason for the downbeat report is the fact that major sticking points still divide the countries — including access to Canada's dairy market and the fate of a dispute resolution process — and officials on both sides acknowledge they aren't close to resolving them, the Post says.

For example, U.S. Trade Representative Robert Lighthizer said Tuesday that the Trump team is prepared to forge ahead alone with Mexico. But that approach invites both political and procedural problems, the Post argues.

Top congressional Republicans, whose support the administration will need to ratify a tweaked agreement, oppose leaving Canada behind. “Everyone’s desire is for this to be a three-country agreement,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, told reporters on Tuesday “That still is the top priority for everyone — Canada, the U.S., Mexico as well—and lawmakers.”

Business and labor groups have become increasingly united in demanding that policymakers keep all three countries in the fold. Americans for Farmers and Families — a coalition that includes the U.S. Chamber of Commerce, the National Corn Growers Association and the Retail Industry Leaders Association — has been leading a Twitter push for preserving the pact, the Post says.

In addition, it’s not clear the administration team could fast-track congressional approval for a Mexico-only deal. It is intending to rely on “trade promotion” authority to submit an agreement for an up-or-down vote on Capitol Hill.

When it invoked that process at the start of NAFTA talks last year, the administration pledged to include both neighboring countries in the final package, so some trade experts say a two-way agreement wouldn’t qualify.

The Post cites Jennifer Hillman, a former U.S. trade negotiator who now teaches at Georgetown University, who said this week, “…still don't see how U.S.-Mexico can be signed by Trump given that required 90 day notification of intent to enter negotiations clearly specified negotiations with both Canada and Mexico to 'modernize' NAFTA."

Hillman concludes that the administration last spring told lawmakers “unequivocally that we’re negotiating with Canada and Mexico. The whole point of putting them on notice was to give them a chance to object.”

She thinks that the administration has been pushing to wrap up its work by Sunday “in part to conform to the schedule for fast-track consideration in Congress. The administration wants to start that clock by Sunday to ensure that Mexican president Enrique Peña Nieto can sign the deal before handing power over to his successor on Nov. 30.

“If we push it beyond that date, then we have a new negotiation with [incoming Mexican president Andres Manuel] Lopez Obrador and we don’t know where that would go at all,” Lighthizer said. “It would be unfair to all the people that have been involved — certainly the U.S. workers, farmers and ranchers — to start a new negotiation with a new president of Mexico.”

Regardless, the Post concludes that “Congress is unlikely to vote on any trade deal this year. Once the agreement is signed, the International Trade Commission has 105 days to prepare a required evaluation of the likely consequences. Brady, whose panel has jurisdiction over trade, said it would be difficult for Congress to act even in a lame-duck session.”

In this context, two U.S. trade experts offered a word of advice to Canada in a POLITICO op-ed Tuesday: Do nothing.

“The most Trump can do without congressional action would be to produce a kind of strange status quo — what you might call a ‘Zombie NAFTA,’ in which the U.S. formally abandons its participation in the pact while U.S. tariff laws remain in place, continuing to provide the original NAFTA trade benefits to Canada and Mexico,” write Roosevelt Institute fellow Todd Tucker and Vanderbilt Law School professor Timothy Meyer, who represents plaintiffs suing the administration over steel tariffs. “While [Canadian prime minister Justin] Trudeau may feel that Trump is giving him an offer he can’t refuse, the truth is, the Canadians are in a very strong position to ignore it.”

“Still don't see how U.S.-Mexico can be signed by Trump given that required 90 day notification of intent to enter negotiations clearly specified negotiations with both Canada and Mexico to "modernize" NAFTA, Hillman told the paper. Bilateral deal is NOT modernization of NAFTA and not consistent w/notice, she argued.

So, we will see. All these fights are becoming increasingly bitter as stakes increase and pressure on the North American business model continues to grow. Certainly, the disputes are important and should be watched closely as they evolve, Washington Insider believes.

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