Washington Insider -- Monday

Continued Uncertainty About Trade Policy

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

Ag Lawmakers Remind Administration's Budget Proposal Is Just That

There are concerns in farm country about President Donald Trump's proposed 21% cut in USDA discretionary spending for Fiscal 2018, which begins October 1. Farm-state lawmakers, including House Agriculture Chairman Mike Conaway, R-Texas, and Rep. Rodney Davis, R-Ill., have been quick to point out that the budget is merely a wish list from the president and Congress will have final say in what 2018 funding looks like when they craft appropriations bills.

Rep. Collin Peterson, D-Minn., the ranking Democrat on the Agriculture Committee, said the good news is Trump's budget will be ignored, "as it should be," but not before he jabbed the president for having a lack of understanding of rural America.

The proposed budget from the administration may not even get a vote in Congress which would be similar to the past eight years where the administration-proposed budget did not receive much if any consideration on the Hill.

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Trump Should Move Carefully on Trade: Former Trade Official

Care and diligence should be exercised by the Trump administration as it contemplates changing existing trade pacts or entering into new ones, former assistant U.S. Trade Representative Wendy Cutler said March 15.

The Trump administration should not act as hastily in changing the North American Free Trade Agreement (NAFTA) as it did with the decision to withdraw from the Trans-Pacific Partnership (TPP) pact, Cutler argued. "Take the time to review the agreement, understand what's in it, understand what progress has been made, and understand implementation problems. But do a thorough assessment," she said. "I would urge them to understand what Canada and Mexico committed to TPP before they go to the table and develop their own negotiating positions."

Cutler spoke in Seoul alongside her former trade negotiation counterpart, Kim Jong-hoon, on the fifth anniversary of the U.S.-Korea Free Trade Agreement (KORUS) — which she helped negotiate. The Trump administration has criticized the deal due to the US' deficit in bilateral goods trade, which has led to the Koreans' unease over the deal's potential renegotiation.

Trade deficits are not accurate measures of a trade agreement's effectiveness as they are usually due to macroeconomic influences, Cutler noted. "In the case of Korea and the U.S., the growing trade deficit has more to do with the different levels of economic growth than anything related to the trade agreement," she added.

With pressure to conclude the high-stakes KORUS agreement in less than a year, Cutler recalled that the original agreement failed to pass Congress in 2007, and negotiations broke down several times. However, in 2010, the sides concluded a supplemental negotiation, which addressed the concerns of automakers in the U.S. and pork producers in Korea.


Washington Insider: Continued Uncertainty About Trade Policy

Robert Lighthizer, nominee for U.S. Trade Representative (USTR), had his nomination hearing and during the week ag trade policy was discussed at a White House meeting. Still, it suggests that the situation with NAFTA is continuing to evolve and that the administration is still debating its strategy for those talks.

With the confirmation of agriculture's top trade official, former Georgia Governor Sonny Perdue, yet to come, conflicting reports about the trade positions of top Mexican political prospects continue to surface, along with ag group wish lists for better trade access, especially for dairy and poultry products from Canada. In addition, the produce industry is pressing for curbs on imports of vegetables from Mexico. Bloomberg reports that fruit & vegetable exporters say that "NAFTA certainly has not been beneficial to the fresh produce industry in this country," and many of them are calling for withdrawal from the pact.

Movement on the imports issue is its very early stages, Bloomberg says. The Florida winter vegetable industry was one of the most outspoken agricultural critics of NAFTA when it was negotiated over two decades ago.

Agricultural exports to Mexico climbed considerably after NAFTA went into effect, but so did U.S. exports of dairy, grains and meat, including pork. "We find ourselves a little bit of an island in the agriculture sector," Lynn Rundle chairman and chief executive officer of J&J Family of Farms, told Bloomberg. "For the corn and the meat guys, Mexico is the number-one export market," Rundle noted. "We're all in agriculture, but it's like apples and oranges." he quipped.

Mexico has invested heavily in vegetable production, according to USDA. Florida and Mexico historically compete for the U.S. winter and early spring market. In 1996, after NAFTA entered into force, the Commerce Department suspended an antidumping investigation of fresh-market tomatoes from Mexico and entered into a suspension agreement with Mexican growers. The agreement set a minimum price covering fresh-market tomato imports from Mexico.

However, U.S. industry says it has not benefited from the suspension agreement since Commerce lacks the resources to properly enforce it—and the agreement is now in litigation before the US Court of International Trade. Stronger enforcement of trade agreements is expected to be a high priority for the administration, as Lighthizer made clear during his nomination hearing last week.

So, ag advocates are examining all available signals regarding the emerging trade policies, especially NAFTA, even to the point of following closely the comments of trading partners. For example, Canadian Prime Minister Justin Trudeau recently attracted attention by suggesting that he still believes President Trump's promise on NAFTA, and that adjustments in the Canada-U.S. trading relationship will be minor.

The prime minister's remarks came in an interview with NBC's Tom Brokaw. The prime minister told Brokaw he takes the president at his word and that when they met at the White House, Trump spoke of making only minor tweaks to the trade relationship with Canada and more significant changes with Mexico.

"We've got auto parts crisscrossing the border six times before they end up in a finished product," Trudeau said. "You've got over $2 billion a day going back and forth. So making sure that the border is … secure but also smooth in its flow of goods and people is essential to good jobs on both sides of the border."

At the same time, Mexico's Agriculture Ministry says it is speeding up efforts to diversify food trade beyond the U.S., and Mexican companies are starting to explore other markets. He said Mexico seeks reciprocity with the U.S. on trade of sugar and high fructose corn syrup, and that it would not be fair if reciprocity is not honored—and, that talks on agricultural trade with Brazil and Argentine are very advanced. He also said that Mexico may buy yellow corn, soybeans and rice from other sources this year, as well as wheat from Canada, Russia and Europe and pork from Denmark and dairy from New Zealand.

So, even now, the administration's trade and immigration policies appear to be weighing heavily on potential trade policies, especially with Mexico. As a result, converting current attitudes into a deal that protects and expands U.S. markets there and elsewhere will be a challenge to new ag sec and the administration; one producers certainly will want to watch closely in coming months, Washington Insider believes.


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