Washington Insider -- Friday

Washington Insider New NAFTA Faces Congressional Headwinds

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

Uncertainty Thrown Back Into US-China Talks

Mild optimism with talks next week in China between top officials and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin was replaced by pessimism on Thursday.

The situation started when National Economic Council head Larry Kudlow told Fox Business Network, "There is a pretty sizable difference to go" before getting an agreement with China.

Then CNBC reported that an unnamed "senior administration official" said the meeting expected between President Donald Trump and Chinese President Xi Jinping in late February may not take place. The official said things were fluid and that the talks next week could still take place.

Kudlow then again took to the airwaves with a follow-up session with Fox Business Network, telling them Trump "does expect to meet with Xi but when is totally up in the air. At some point they will meet, but that is off in the distance at the moment."

But markets had already been spooked -- from U.S. commodity futures markets to the U.S. equity markets.

Later, President Donald Trump waded into the issue. Asked by reporters at a White House event if he would still meet with Xi yet this month, Trump said, "No," and said the meeting was "unlikely." However he did not rule out a meeting at a later day, but said nothing had been set.

The situation cast a pall over markets who have been very volatile when it comes to the U.S.-China situation. They have rallied sharply when positive comments come from the administration or Chinese officials about the trade situation. As was evidenced Thursday, they quickly hit the sell button if comments take on a negative tone.

The "long road" description echoes comments from USDA Secretary Sonny Perdue last week at the National Cattlemens' conference. As reported by DTN, Perdue said any agreement ultimately created between the two countries would have to go through normal Congressional approval, and would have to contain regulatory mechanisms to insure China adheres to intellectual property protections that have been one of the key sticking points for the U.S.

Dairy Groups Back Changes To Section 232 Tariff Authority

Support for a bipartisan bill that would introduce changes to the president's authority to impose Section 232 tariffs, including greater say for Congress on such actions, was voiced by the National Milk Producers Federation (NMPF) and U.S. Dairy Export Council (USDEC).

The groups urged Congress to pass the Trade Security Reform Act (TSRA), sponsored by Reps. Ron Kind, D-Wis., and Jackie Walorski, R-Ind., and Sens. Rob Portman, R-Ohio, and Doug Jones, D-Ala.

It is similar to a competing bill, the Bicameral Congressional Trade Authority Act, which is also backed by Kind and a separate group of lawmakers, including Reps. Mike Gallagher, R-Wis., Darin LaHood, R-Ill., and Jimmy Panetta, D-Calif., and Sens. Pat Toomey, R-Pa., and Mark Warner, D-Va.

TRSA would clarify how national security grounds used to justify Section 232 tariff actions are verified. Rather than the process being solely managed by the Department of Commerce as is currently the case, a national security threat would have to first be investigated and verified by the Department of Defense (DoD). If a threat is found, the president would be presented with a report detailing DoD's findings and could choose whether or not to ask Commerce to develop a recommended trade response.

The legislation would also expand Congress' authority to disapprove Section 232 actions via a joint resolution -- that power only currently exists for actions targeting oil imports. Consultations with Congress would also be required throughout the Section 232 process.

Fri. Feb. 8 Washington Insider New NAFTA Faces Congressional Headwinds

The New York Times is reporting this week that although President Trump lauded his new trade agreement with Canada and Mexico in his State of the Union address and urged Congress to pass the revised pact, the deal is currently imperiled in Congress. Both Democrats and Republicans say it has little chance of passing without significant changes.

Democrats say the proposed U.S.-Mexico-Canada (USMCA) deal does not go far enough to protect workers and the environment, while Republicans say it goes too far in restricting trade, particularly in the auto sector.

This stalemate has some business leaders increasingly worried that the administration lacks a winning strategy to move the revised agreement through a divided Congress -- in a year when a prolonged government shutdown has further eroded what little inclination Democrats and Republicans had to work together on large pieces of legislation.

"Partisan rancor has made it more difficult to see any kind of major legislation move forward, including on trade," said John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce.

Senator Patrick Toomey, R-Pa., said late last week that he was "doubtful" that the deal would pass Congress given the concerns from both sides of the aisle.

"It's hard for me to see how it's a priority for [House Speaker] Nancy Pelosi to give Donald Trump what would be his biggest economic policy victory, certainly since tax reform," said Mr. Toomey, one of Mr. Trump's most vocal critics on trade.

Privately, some congressional Democrats remain hopeful that the agreement can pass, particularly if negotiations with the administration continue to fly under the radar. Trump must still submit the agreement -- along with legislation laying out how it would be put in place -- to Congress.

Toomey said he could not support the deal without "significant" changes in the implementing legislation. The new agreement inhibits free trade, he said, citing new wage requirements on automobile manufacturing as a particular concern.

Many Republicans, including Toomey and Ron Johnson, R-Wis., the chairman of the Senate Homeland Security and Governmental Affairs Committee, say they want the White House to remove steel and aluminum tariffs on Canada and Mexico since the administration has reached a deal with the two countries.

However, the administration has so far refused to budge on the metal tariffs and has instead threatened to withdraw from NAFTA to try to force Congress to approve the new deal. A formal notice of withdrawal would give Congress six months to pass the pact or potentially return to a pre-NAFTA trading system with higher tariffs and more restrictive trade barriers.

Republicans are warning that such a move most likely falls outside President Trump's authority and would only reduce the chances of Congress passing the USMCA. Republican strategists say that unless Trump agrees to compromise, he will most likely face defeat.

"The president has two options on this trade deal: the honey or the hammer," said Antonia Ferrier, a Republican strategist with Definers Public Affairs and a former aide to the Senate Majority Leader Mitch McConnell, R-Ky. Trump, she said, could bargain with Pelosi or withdraw from NAFTA. "Neither are great options," she said, "which is why there's so much skepticism that USMCA will even happen."

Democrats -- including populists who tend to side more with Trump than Toomey on trade issues -- say they are open to working with the administration to improve and pass the agreement. Party leaders have had productive discussions with U.S. Trade Representative (USTR) Robert Lighthizer to reinforce the need for negotiators to secure additional labor and environmental protections before any floor vote.

While Trump had long threatened to rip up NAFTA, the business community and many Republican lawmakers pushed to keep it intact, insisting that doing away with the pact would ultimately hurt the United States economy. The new deal, which was agreed to in September, primarily updates NAFTA but contains some new provisions, including requiring higher wages at automakers and greater ability to sell dairy products in Canada.

Toomey said he is working on bipartisan legislation that would curtail Trump's ability to impose tariffs on the basis of national security -- which the president used to justify the steel and aluminum tariffs -- without congressional approval. The president would almost certainly veto such a measure.

So, we will see. The North American markets covered in NAFTA are certainly important to U.S. agriculture so producers should watch closely as this replacement trade deal is debated, Washington Insider believes.

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