Washington Insider-- Wednesday

Looking Toward USMCA

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

Groups Urge Scale Back of EV Provisions in House Infrastructure Plan

A late push was made by a coalition of ag and other groups on electronic vehicle (EV) provisions in the $1.5 trillion House infrastructure package. The groups warned that the package's increase on limits on electric vehicle (EV) credits and expansion of EV infrastructure like charging stations.

They argue the provisions benefit “a small and affluent segment of the driving public, at additional cost to all other Americans.” They argue the expansion of the current EV tax credit, establishing of a new credit for used EVs, incentivizing states to “allow utilities to force all ratepayers to fund the buildout of electric charging infrastructure that only a few will utilize.”

Plus, they point out that EV owners do not pay into the Highway Trust Fund. “Congress should maximize investment dollars in infrastructure that benefit all Americans, not a small subset of the automobile fleet,” the letter stated.

The American Farm Bureau Federation, American Petroleum Institute, and Agricultural Retailers Association are among those signing the letter.

Meanwhile, the White House threatened a veto of the legislation.


Farm Groups Ask For More Funding On Inspectors

In a letter Monday to congressional appropriations committees, several U.S. farm groups warned the decline in cargo imports and international travel have significantly reduced collections of the user fees funding Customs and Border Protection Agriculture Quarantine Inspection at U.S. ports of entry.

The shortfall is estimated to total $630 million through Fiscal Year 2021. “It is inconceivable that Congress would risk widespread damage to U.S. agriculture and the overall economy by not funding these inspections,” the organizations said in the letter.

The House Appropriations Committee next week will start its appropriations process, with the ag spending plan up first with action on July 6 at the subcommittee level and July 9 at the full committee.

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Washington Insider: Looking Toward USMCA

Certainly, there is a lot going on in the area of trade policy these days, including the implementation of the U.S.-Mexico-Canada Agreement (USMCA), which replaces the North American Free Trade Agreement.

Bloomberg notes that the deal goes into effect July 1 following “13 months of diplomatic negotiations, plus further political wrangling in Washington.” It calls the NAFTA replacement a vehicle for “modest changes in some areas, significant additions in others and a new name.”

The report points out that NAFTA guided trade among the U.S., Canada and Mexico for more than 26 years, starting in 1994. It succeeded in phasing out tariffs on most goods, creating what was for a time the world's largest free-trade zone and “gradually tripling trade among the three countries.”

And, it integrated North American supply chains in auto manufacturing and other industries and removed barriers to foreign investment and cross-border trade in services, Bloomberg said.

The report argues that while the administration sees the new agreement is “altogether different,” and claims credit for ending “the terrible NAFTA,” and believes that the USMCA will be “fantastic for all!” Still, even fellow Republican, Senate Finance Chairman Chuck Grassley, R-Iowa, said 95% of the new deal “is the same as NAFTA.”

Bloomberg's analysis is that in spite of the USMCA's similarities to the earlier NAFTA, “some industries will notice changes,” and it describes a few. For example, for automakers, new rules 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 will allow more imports of U.S. dairy products while both Canada and Mexico will increase the value of goods that can be imported duty-free.

And, Bloomberg notes that now, “internet platforms can't be held liable for third-party content, and companies can't be required to store their data locally – and Canada is also increasing its copyright protection term.

In retrospect, Bloomberg notes that while the administration insists that NAFTA was “the “worst deal in U.S. history,” and blamed it for increasing the U.S. trade deficit and sending manufacturing jobs to Mexico, that argument will continue for some time in the future. It comments that “most objective analyses conclude that NAFTA didn't cause major aggregate American job losses but also didn't significantly boost U.S. gross domestic product."

Now, the USMCA is expected to boost U.S. trade with Mexico and Canada by about 5% overall, the U.S. International Trade Commission says. It also expects the deal will result in a 0.35% GDP increase in its sixth year—and will increase U.S. workers' annual incomes by an average of $150 and employment by 0.12%, or roughly 176,000 jobs.

The President, however, has said the pact could bring more than 1 million jobs to the U.S., far beyond other estimates.

Not everyone agrees, Bloomberg notes and cites an International Monetary Fund assessment that criticized the deal on the grounds that it will reduce the country's “welfare” (a measurement of consumption) by $794 million, while boosting Canada's by $734 million and Mexico's by $597 million – “relatively small” effects at the aggregate level, but likely sufficient to provide grounds for continued debate.

Just implementing the deal will benefit some businesses by providing increased certainty about the future, especially because it largely exempts Canada and Mexico from future auto tariffs. The deal won't, however, stop the U.S. from reviving tariffs on Canadian aluminum that American officials say are necessary to respond to an oversupply from the north.

The deal was in limbo for months as U.S. opposition Democrats successfully negotiated several changes before ratifying it. The revised agreement removes a loophole in NAFTA that allowed any country to object to the formation of enforcement panels and it adds new labor provisions, including a labor-specific dispute panel system and an inter-agency committee to monitor labor rights in Mexico.

Democrats also succeeded in removing a provision that would have guaranteed 10 years of data protection for biologic drugs.

It is clear that the deal is massive, composed of 34 chapters and 12 side letters. It does retain most of NAFTA's chapters making notable changes to market access provisions for autos and agriculture products, to rules such as investment, government procurement, and intellectual property rights, and to labor and the environment. New issues, such as digital trade, state-owned enterprises, and currency misalignment are also addressed.

So, we will see. There was a great deal of political concern that the administration would merely scrap NAFTA in spite of its benefits for many producers, including agriculture. That anxiety likely will abate – although the eventual implementation likely will include numerous fights and more than a little uncertainty.

Still, the concept of a free-flowing North American market is preserved, and modernized. Certainly, the devil is in the details and these should be watched closely as they are increasingly defined and made operational, Washington Insider believes.


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