Washington Insider -- Thursday

By DTN's Washington Insider

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

EPA's Wheeler Talks E15, Small Refiner Waivers in Senate Hearing

The issue of small refiner waivers of obligations under the Renewable Fuel Standard (RFS) is an issue that EPA is examining, but the agency has little leeway on that front, according to acting EPA Administrator Andy Wheeler.

EPA will follow congressional intent when it comes to administering the RFS, and Wheeler told lawmakers the agency would provide "more transparency" in issuing those waivers.

Sen. Joni Ernst, R-Iowa, told Wheeler the aggressive use of the waivers by EPA has resulted in the annual 15 billion gallon mandate for ethanol being lowered by around 1.5 billion gallons. She called on Wheeler to reallocate those waived qualities for small refiners to larger ones. However, Wheeler countered. "Part of the intent of Congress was to grant the waivers and there was not a provision for reallocating that." While saying the agency needs to find a way to address reallocations, "we are confined by the law."

On year-round sales of E15, Wheeler was unable to commit that the action would be taken, an interesting position given that President Donald Trump last week said such a move was coming "soon."

"We are looking at that issue," Wheeler said, but noted there are still questions on whether EPA has the authority to take such a step via regulation.

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US-Japan Trade Talks In Washington

The first round of high-level U.S.-Japanese talks aimed at increasing “free, fair and reciprocal trade” between the two countries will begin on Aug. 9, U.S. and Japanese officials said this week.

However, Reuters reported that Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura said the talks are not a prelude to a two-way free trade agreement between the two countries. He further said Japan does not intend to set any numerical targets on Japanese exports or imports to reduce trade friction.

Japan is likely to continue pushing for exemptions from the steel and aluminum tariffs that the Trump administration imposed in the name of national security and is also expected to warn the U.S. against imposing tariffs on autos and auto parts.

The meeting could set up a discussion between Trump and Prime Minister Shinzo Abe if they are able to meet on the sidelines of the UN General Assembly in September, observers note.

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Washington Insider: NAFTA Talks Focus on Mexico, Shut Out Canada

It is not easy to understand just what is going on with the NAFTA talks these days. It appears that in a somewhat strange development given the broad, North America-wide focus of the deal, Canada has been rebuffed recently in attempts to engage with U.S. Trade Representative Robert Lighthizer as talks have been held between the Trump administration and Mexico, Bloomberg reported this week.

The report says that the Canadian negotiating team, led by Foreign Minister Chrystia Freeland, has been told that Lighthizer is focusing on negotiations with Mexico and “isn’t interested in engaging with Canada at the moment.” Bloomberg credited the National Post newspaper with the initial report on the situation.

Freeland traveled to Mexico last week, a trip that was motivated in part by the U.S. decision to isolate Canada, Bloomberg said. While Mexico and Canada have repeatedly emphasized the need to keep the deal between all three countries, negotiating with Mexico and then Canada would be in keeping with President Donald Trump’s preference for striking bilateral agreements.

“The Trump administration has clear frustrations with the Canadian government’s approach to the NAFTA modernization, and we’re now seeing it play out in front of our faces,” Adam Taylor, principal and co-founder at trade advisory firm Export Action Global said. “We’ve seen virtually overnight Mexico and the U.S. are moving forward and Canada looks left behind and then forced into a position where it has to make a significant set of concessions just to be readmitted to the talks, it seems.”

Alex Lawrence, a spokesman for Freeland, said Canada is committed to modernizing NAFTA while standing up for Canadian interests. “We will continue to work toward a good deal for Canada,” he said.

While Trump in the past year repeatedly talked about how difficult Canada and Mexico have been since negotiations began last August, he has had more positive things to say about Mexico recently.

Although the three nations remain far apart on a few major points, Trump said earlier this month he’s heading toward a “dramatic” deal with Mexico and that he may prioritize a bilateral deal with America’s southern neighbor over Canada. Commerce Secretary Wilbur Ross said Monday negotiations with Mexico are going well and may be close to wrapping up.

Lighthizer told a U.S. Senate committee last week that the US is in the closing stages of finishing a new NAFTA deal with Mexico next month, and said that would spark Canada to sign on to the agreement.

“My hope is that we will before very long have a conclusion with respect to Mexico and that as a result of that Canada will come in and begin to compromise. I don’t believe that they’ve compromised the same way the United States has or Mexico has,” Lighthizer told senators.

Mexican Economy Minister Ildefonso Guajardo will be in Washington for more meetings with Lighthizer today and Friday following up on a trip last week. Freeland traveled to Mexico July 25 but hasn’t met with Lighthizer since mid-June. She’s due to be in Singapore this week for annual Association of Southeast Asian Nations meetings, according to a statement from her office. Lawrence said the trip has been “long planned and is an important part of Canada’s focus on deepening ties with our Asian trade and security partners.”

So, we will see. The Lighthizer strategy to push Canada may well lead to stronger Canadian concessions, but there would seem to be some risks involved — and, if it comes to that, a bilateral treaty is far less than one for the North American region, in spite of what some administration officials have said.

It will be a pity if NAFTA turns out to exclude markets that it formerly included, many of which are important and reliable. Obviously, USDA Secretary Perdue has a strong interest in both the outcome of these talks and the strategies used and its possible implications for future ag trade deals. USDA staff are heavily involved with these negotiations, of course, and would seem to have an important task in insuring that USTR and the administration focuses on maintaining and increasing U.S. producer access to important NAFTA markets, as well as others around the globe, Washington Insider believes.

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