Washington Insider -- Friday

Three-Party NAFTA's Not Dead Yet

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

RIN Trading Limits Mulled by Administration

The White House is said to be mulling putting restrictions on trading of biofuel credits – known as renewable identification numbers (RINs) – as part of a package of biofuel reforms that would include year-round sales of E15.

The focus is on preventing companies from amassing credits and driving up prices, according to a report from Reuters. The report indicated that the number of RINs a dealer can hold could be capped at 120% of their annual compliance obligations. Further, the plan could also see restrictions put on certain parties from holding RINs more than 30 days.

The RIN trading restrictions would be part of a plan that reports indicate the administration wants to unveil ahead of the November elections in a bid to boost chances for Midwest Republican lawmakers.

The effort is also expected to include a waiver of the Reid vapor pressure requirements that would allow for E15 fuel to be sold year-round – something US biofuel backers have been calling for and something oil industry and refiner interests have fought. The report noted that President Donald Trump could announce he is directing EPA to come up with a rule to allow year-round E15 sales during a campaign-type trip to Iowa next month.

WTO Members Focus on US Farmer Aid Effort

Questions about the Trump ag trade aid plan, including how long it will run and concerns about its potential to affect global commodity markets, were on display during a World Trade Organization (WTO) Committee on Agriculture meeting held this week.

The plan unveiled this summer by USDA to aid U.S. ag producers was aimed providing up to $12 billion to address negative effects of new retaliatory tariffs. The program consists of three facets: The Market Facilitation Program (MFP) which provides payments to producers of commodities hit by the new duties; a Food Purchase and Distribution Program to buy up to $1.2 billion in commodities targeted by retaliation; and the Agricultural Trade Promotion Program (ATP) providing $200 million to help develop new markets for US ag products.

USDA has announced the initial phase of MFP payments are expected to total $4.7 billion, with a potential second round to be announced in early December if needed.

The primary concerns voiced by WTO members centered on the methodology used to craft the trade aid program, how long it will run and its compliance with U.S. WTO obligations.

Australia questioned whether the U.S. accounted for producers who redirected exports to different markets because of new tariffs and whether it could confirm aid provided to such producers would not be used to subsidize those exports.

The US responded that “trade diversion does not necessarily mean no damages" and sought to assure other members the aid program is short-term, directed only at mitigating the impact of retaliatory tariffs for 2018 crops and livestock and not intended to subsidize exports or become a public stockholding food program.

China and New Zealand expressed concern that due to the aid program, the U.S. risks exceeding its aggregate measurement support (AMS) entitlement limit of $19.1 billion annually required under WTO's Agreement on Agriculture.

WTO notifications on the supports are forthcoming, the U.S. noted, adding the programs and support provided by them will not lead the U.S. to exceed its AMS limit.

Washington Insider: Three-Party NAFTA’s Not Dead Yet

Well, U.S. aggies are fully caught up in the U.S.-Canada trade fight and the generally glum outlook for ag exports now in most quarters. However, there’s at least one fairly new theme — Bloomberg says “NAFTA’s not dead yet for Canada if U.S.-Mexico deal moves ahead.”

The logic is complex, but Bloomberg says it sees some signs of life. For one, Trudeau is downplaying the urgency of latest deadlines in negotiations, the report says. And, it thinks, Congress could resist the administration’s bid to pursue only a bilateral pact.

Still, the Trump administration is set to push forward a Mexico-only NAFTA update as officials from Washington and Ottawa remain at loggerheads despite weeks of face-to-face negotiations to keep the three — country deal. This impasse raises fears the U.S. will leave Canada, its biggest export market, out of the renegotiated bloc, resulting in potential barriers for more than $500 billion in annual cross-border trade.

The U.S. is planning to publish the text of its bilateral trade accord with Mexico today, which will likely exclude Canada, Bloomberg says. But it notes that Prime Minister Justin Trudeau doesn’t sound fazed.

“We will keep working on a broad range of alternatives, a broad range of paths are ahead of us,” he said Wednesday. “We’re going to keep focusing on trying to get to the right deal for Canadians.”

In its coverage, Bloomberg lists “some of the options for the northern nation to preserve its regional trading ties.” The first is that Canada could still join before the deal is signed by Nov. 30, when the current Mexican president leaves office.

The countries are in a hurry because, under U.S. trade law, the text of a deal needs to be published 60 days before it can be signed. If Congress turns a blind eye to fudging certain rules, they may be able to. “We’re going to go ahead with Mexico. If Canada comes along now, that’d be the best. If Canada comes along later, then that’s what’ll happen,” U.S. Trade Representative Robert Lighthizer said Tuesday.

Some interpreted his comments as a reprieve for U.S.-Canada talks, and “it looks like Canada bought itself a few more weeks,” Bloomberg thinks — but that patience will not be infinite at either White House or in Congress,” according to trade lawyer Dan Ujczo, at Dickinson Wright. “It will be procedurally difficult to shoe-horn Canada in,” he said.

The second option is that Congress could intervene. The U.S. began NAFTA renegotiation by triggering a congressional process for a three-country deal. It’s hoping to use that same track to now advance a two-country deal, something key lawmakers have warned won’t fly. That might force President Donald Trump to restart the process, or see Congress simply balk and tell the administration to come back when it has a deal that includes Canada.

John Cornyn, R-Texas, the second-ranking Senate Republican, believes it may violate U.S. trade law to try and ram forward with a two-country deal. “That is a really big concern in terms of us getting something approved over here,” he said Wednesday.

A third possibility is a separate deal, an idea floated by Lighthizer. This might be accomplished by a “pivot” to separate talks with Canada once the deal with Mexico is approved. “Hopefully, we’ll end up with something with Canada. If not, we’ll have to do it in a separate deal as soon afterwards as we can,” he said on Tuesday. President Trump regularly says he prefers bilateral deals, but that could mean restarting the Congressional clock.

Then, Bloomberg says, it is possible to envision “something else.” Amid all this wrangling, the original NAFTA remains on the books. It’s unclear if, or when, the administration will give the required six months’ notice to withdraw from that trade deal, or if it would actually follow through. If that is attempted, yet another fight could loom on Capitol Hill — the U.S. has never quit a major trade deal, and there’s uncertainty over administration powers to do so.

For example, Bloomberg says the administration might be able to pull out of the deal, but Congress would need to repeal BAFTA’s enacting legislation. If it doesn’t, Canada would still have some form of the original NAFTA to rely on.

So, we will see. It seems clear now that as the US ag sector contemplates the end to part or all of NAFTA, its path to global export growth seems increasingly uncertain—a development that translates directly to significant uncertainty across the sector. This is a fight producers should watch very closely as it intensifies, Washington Insider believes.

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