Washington Insider --Monday

NAFTA and Why It Isn't Dead Yet

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

Agriculture Opens FY 2020 With Solid Rise In Exports

U.S. agricultural exports improved to $12.08 billion in October, up from $10.3 billion in September, and the highest since they were $12.08 billion in November 2018, according to USDA’s Latest U.S. Agricultural Trade Data update.

However, they were below the October 2018 mark of $12.16 billion. Imports, meanwhile, were at $10.92 billion, up from $10.08 billion in September, marking an eight straight month at $10 billion or more. They were just slightly ahead of the year-ago mark.

The result is a trade surplus of $1.17 billion, down from the year-ago mark of $1.26 billion, but up from just $219.8 million in September. October and November tend to be the strongest two months for U.S. agricultural exports each FY, while imports have tended to peak in the March-May period.

Imports have been at $10 billion or more in all but two months since October 2017. During FY 2019, which ended with a trade surplus of $4.6 billion, the smallest since FY 2006, only October and November saw the trade surplus above $1 billion and there were three monthly deficits registered, including a record monthly deficit of $865 million in April.

USDA forecasts FY 2020 ag exports will rise to $139 billion versus the FY 2019 result of $135.5 billion, while imports are seen at a record $132 billion, taking out the prior record registered in FY 2019 of $130.9 billion. That is forecast to leave a trade surplus of $7 billion. But with imports maintaining a solid pace, the USDA forecast is far from certain at this point.

FERC Approves Two More Tariff Amendments In Another Bid To Boost Midwest Propane Supplies

Two oil pipeline tariff amendments aimed at boosting propane supplies to the Midwest were approved by the Federal Energy Regulatory Commission (FERC). ONEOK North System and Enterprise EU Products Pipeline Company said they received requests from shippers for the changes after the start of the alternative dispute resolution (ADR) process initiated by FERC in November, the regulator said. The action was to “alleviate propane pipeline constraints in Midwest states,” FERC said.

Relative to ONEOK, FERC cleared a revised pipeline transportation capacity allocation policy allowing shippers to transfer allocated capacity to other shippers through the end of this month, and to receive credit to their allocation history for barrels moved by replacement shippers.

In the Enterprise TE case, the company is extending emergency transportation service of propane to the Midwest region. The Enterprise TE action will continue until canceled or modified by Enterprise TE, FERC said. “FERC continues to monitor the Midwest propane situation, and the ADR process is continuing,” the regulator noted.

Washington Insider: NAFTA and Why It Isn’t Dead Yet

Bloomberg is reporting this week that uncertainty remains about the proposed new North American Trade deal and why the “original NAFTA” isn’t dead and gone in spite of numerous administration pledges to wipe it out.

In the 2016 campaign, candidate Donald Trump frequently pledged to renegotiate and terminate the deal “if we don’t get the deal we want.” The 1994 agreement included the U.S., Canada and Mexico and was intended to phase out tariffs on most goods to create “the world’s largest free-trade zone,” and to “triple trade among the signatories.”

Negotiations over a replacement deal were underway for more than 13 months in 2017 and 2018, and the three countries have agreed to modest changes to NAFTA and a new name, the U.S.-Mexico-Canada Agreement. However, the changes have still not been implemented, Bloomberg says.

In fact, the original deal is still in effect, covering most of the $1.25 trillion in annual trade among the three countries while leaders work on the USMCA. The administration “never actually pulled the U.S. out of NAFTA,” Bloomberg says.

A year ago, the three countries signed a new pact and Mexico’s Senate ratified it in June. President Trump has been pressing the U.S. Congress to approve it but House majority Democrats are seeking changes, including stronger enforcement of the stepped-up labor and environmental provisions. Canada’s Parliament has held off on ratifying the deal as talks continue.

Bloomberg says that the reason why the administration disliked the agreement so much was that it integrated North American supply chains in auto manufacturing and other industries and removed barriers to foreign investment and cross-border trade in services—and so was blamed for “increasing the U.S. trade deficit and sending manufacturing jobs to Mexico.”

Though economists argue over NAFTA’s actual impacts, most objective studies have found it didn’t cause major aggregate job losses in the U.S., but also “didn’t significantly boost U.S. GDP. Bloomberg and others note that NAFTA did need updating although the deal which had been in place since 1994 “couldn’t have anticipated e-commerce and digital trade.”

Now, while the administration says the proposed new agreement is “altogether different”—many agree that it is quite similar. Even fellow Republicans such as Senate Finance Chairman Chuck Grassley, R-Iowa, believe that “95% of the new deal is the same as NAFTA,” Bloomberg says.

Some industries would notice changes, however. For example, automakers would require more vehicle components to be made in North America with a portion made by workers earning an average of at least $16 per hour.

In addition, Canada agreed to allow more imports of U.S. dairy products and both Canada and Mexico would increase the value of goods that can be imported duty-free.

Bloomberg cites the U.S. International Trade Commission finding that the new deal would boost U.S. trade with Mexico and Canada by about 5% overall, resulting in a 0.35% GDP increase in its sixth year. It would also boost U.S. workers’ annual incomes by an average of $150 and increase employment by 0.12%, or roughly 176,000 jobs.

Bloomberg adds that the deal also would “benefit businesses by providing increased certainty about the future, especially because it would largely exempt Canada and Mexico from future auto tariffs.”

So, it appears that the deal “has momentum” but still faces hurdles. U.S. Democrats have pushed for changes on pharmaceuticals, environmental protections, labor and enforcement of the accord and have especially focused higher wages for Mexico to reduce pressure on U.S. companies to move across the border.

However, there is growing concern that Mexico will come up short on the reforms expected of it, which include independent labor courts and the right to elect union representatives.

Mexican officials say they’re near a deal but have balked at proposals such as unannounced labor inspections that they say would infringe on their sovereignty. As negotiations drag on, other sticking points have emerged, including the agreement’s liability shield for tech companies and the required use of North American steel and aluminum in vehicles. The administration is pushing Congress to ratify the deal by year’s end.

So, we will see. These talks involve high stakes for U.S. producers who have long invested in building access to growing markets across the region. Certainly, they should be watched closely by producers as they proceed, Washington Insider believes.

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