Washington Insider -- Monday

TPP Parties Release Text

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

GOP Panel Leaders Signal Agreement on Some Permanent Tax Extenders

Permanent tax extender possibilities remain a priority for top congressional Republicans, including new House Ways and Means Committee Chairman Kevin Brady, R-Texas, and Senate Finance Committee Chairman Orrin Hatch, R-Utah.

Meanwhile, talks on how to best handle the more-than-50 expired tax breaks and benefits are underway. "I think we can get it done," Hatch said when asked about the likelihood of extending some extenders permanently. Brady told his Ways and Means Republicans that he, too, would push permanency for some extenders after his selection as the committee's new chairman was formally ratified by the House Republican Conference early Nov. 5.

The House has already passed four bills with permanent extender provisions, including two sponsored by Brady. One would make permanent the tax credit for businesses' research and development activities (HR 880), and the other would permanently extend the state and local sales tax deduction for individual income taxpayers (HR 622). Besides the permanent research and development tax credit and the sales tax deduction bills, the House has passed permanent expensing under tax code Section 179, permanent provisions tied to charitable donations and permanency for the five-year recognition period for built-in gains of S corporations.

Ways and Means has reported five other tax extender bills that have yet to advance to the House floor, including a measure to permanently extend accelerated expensing through bonus depreciation (HR 2510). That legislation is sponsored by Rep. Pat Tiberi, R-Ohio, who challenged Brady for the chairmanship.

Hatch's panel has advanced a two-year extenders renewal covering this year and next year. That package has not yet made it to the Senate floor, and reports have surfaced that extenders could move with highway legislation (HR 22) that the House and Senate will soon conference, or as part of a spending bill for Fiscal Year 2016 that is expected to come together in December. Hatch previously said several options remain on the table, including one- or two-year renewals. Some chatter has noted a possible three-year extension, which would shift the debate on extenders into the first year of the next president's term.

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ERS: ‘Paid Lunch Equity’ Provision Driving Up School Lunch Prices

The average prices paid for National School Lunch Program lunches by students not receiving free meals grew an average of around 2.5% to almost 7% depending on the region, the Economic Research Service (ERS) reported.

The prices charged for student lunches began rising faster after the Paid Lunch Equity provision was implemented for the school-lunch program. The provision requires school districts to ensure that average revenue per paid lunch plus the USDA-paid lunch reimbursement is greater than or equal to the USDA reimbursement for free lunches and was to be implemented gradually.

Paid lunch prices increased an average of 6.8% for school districts in the Southwest and 4.8% in districts in the Mid-Atlantic between the 2010/11 and 2011/12 school years. Rural districts saw an average school lunch price increase of 4.7% compared with 3.4% observed among city school districts, over the same period, ERS reported.

The USDA-sponsored study of school lunch data did not compare school-lunch participation rates directly with school lunch price fluctuations, but other research indicates that some families participate less in the school lunch program when prices go up.

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Washington Insider: TPP Parties Release Text

Last week, the administration published what it called the "nearly final version" of the Trans-Pacific Partnership agreement. If you wondered why it has taken so long, a part of the delay can be explained simply by the scope and magnitude of the deal. It includes a preamble and 30 chapters that cover more than 1,120 pages along with market access schedules and 61 side letters between the U.S. and other TPP nations.

Among the side letters are three bilateral "consistency plans" on labor rights that the U.S. has negotiated with Brunei, Malaysia and Vietnam, each of which explicitly states they are subject to dispute settlement processes. The TPP governments also separately released a "joint declaration" on currency manipulation, which consists of commitments not to devalue their currency for competitive purposes, as well as transparency requirements.

While Inside U.S. Trade (IUST) has published details about the current text, it notes this is not the final legally scrubbed version and is subject to review and authentication "of English, Spanish and French Versions."

Under the President's Trade Promotion Authority, the administration must release "the text of the agreement" before he signs the deal or actually submits the agreement implementing bill. The current state of play is that the president has formally notified Congress of his intent to sign the agreement, but the earliest that can happen is Feb. 3, 2016, Inside U.S. Trade concludes.

In addition to its 30 chapters, the final TPP text also includes various market access schedules that define the tariff concessions the countries have made. For example, the U.S. tariff schedule for the agreement describes the differing concessions made to the 11 other TPP countries in separate columns. The U.S. initially took the position that it would negotiate on market access only with the TPP countries with which it does not already have an FTA including Brunei, Japan, New Zealand, Malaysia and Vietnam. However, it ended up also making concessions on items like sugar to Australia and Canada, IUST notes.

TPP countries also published the lists of exceptions that they have secured to the TPP agreement's market-opening commitments on services, investment and rules on state-owned enterprises. These exceptions are known as "non-conforming measures" and are contained in four annexes.

Annex I and II cover non-conforming measures on services and investment writ large, Annex III covers non-conforming measures for financial services and Annex IV covers non-conforming measures for state-owned enterprises. The TPP text carves out a number of "Non-Conforming Activities" for the two economies where such entities play a major role: Malaysia and Vietnam.

Mexico also has a number of exceptions in the energy and banking sectors. Vietnam secured a total of 14 such exceptions to the state-owned enterprises chapter, some of which are broad and apply to all such firms, while others are specific to given entities such as the Vietnam Oil and Gas Group and its subsidiaries. A number of banking and financial institutions are also covered by the exceptions.

The United States, by contrast, has taken only three non-conforming measures to the state-owned enterprises chapter, including one that would safeguard its ability to create a "national infrastructure bank" in the future.

A number of the side letters also relate to how TPP will coexist with bilateral free trade agreements already in place between the U.S. and TPP parties. For example, some of them specifically state that the relevant TPP obligation will prevail over the FTA obligation covering the same issue.

Another notable side letter is one the U.S. negotiated with Australia establishing that, upon the request of either party after the ninth year of entry into force of the agreement, the parties "shall consult on global supply and demand conditions for sugar to consider the possibility of modifying market access commitments for sugar [...]."

Anyone who thinks this battle is nearly over and that the agreement's path to approval will be peaceful probably is not paying attention. For example, Senator Orrin Hatch, R-Utah, generally a strong trade supporter, told the press that the deal's intellectual property protections for biologic drugs may need to be renegotiated. In addition, Hatch told the Global IP Summit recently hosted by the US Chamber of Commerce that he was reserving judgment on the TPP as a whole.

In addition, House Ways & Means Committee Democrats, who tend to be highly skeptical of trade deals, also are not too happy and are planning a series of weekly hearings on specific issues throughout the review period, ranking Member Sander Levin D-Mich., announced Wednesday.

Clearly, the administration has its work cut out for it as it deals with critics from both sides of the aisle on this incredibly complicated deal, but it still says it is optimistic, buoyed by access to details about expected benefits including improved market access and enhanced sales while opponents continue to argue generalities. It likely will need its full arsenal of political and economic tools in this bitter fight, Washington Insider believes.


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(GH/SK)