Washington Insider -- Monday

New Trade Excitement

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

US, China Reach Cease Fire on Trade

The dinner meeting between President Donald Trump and Chinese President Xi Jinping resulted in the U.S. committing to not increasing tariffs on $200 billion in Chinese goods on January 1 while China committed to make purchases of U.S. agriculture, energy and industrial products.

The two sides would "immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture," the White House said. "Both parties agree that they will endeavor to have this transaction completed within the next 90 days."

However, statements in the press by Chinese officials and reports in Chinese media on the meeting did not acknowledge that 90-day period. The U.S. had been poised to increase tariffs on $200 billion in Chinese goods to 25 percent from an initial 10 percent level.

The 90-day time frame given by the U.S. means the talks would wrap up around March 1, just before China’s annual national legislative session. The U.S. is demanding sweeping changes in China’s trade policy, which some observers believe the Communist government might find politically difficult to enact and impossible to enforce.

"China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries," the White House said in a statement. "China has agreed to start purchasing agricultural product from our farmers immediately."


EPA Sets Final 2019 Biofuel, 2020 Biodiesel Levels

Final levels for the Renewable Fuel Standard (RFS) relative to 2019 biofuel and 2020 biomass-based biodiesel (BBD) have been announced by EPA, with only a minor increase for cellulosic ethanol compared to the levels the agency proposed in June.

Relative to the levels finalized for 2018, EPA said, "the 2019 volume requirements for advanced biofuel and total renewable fuel would be higher by 630 million gallons. Approximately 130 million gallons of this increase would be due to the increase in the projected production of cellulosic biofuel in 2019 relative to 2018. The cellulosic biofuel volume is 37 million gallons greater than the proposed cellulosic biofuel volume for 2019."

The result is that the total renewable fuel level finalized for 2019 is 40 million gallons higher than the proposed level.

Reflecting the fact that BBD helps meet the advanced biofuel requirement, EPA said, "Given current and recent market conditions, the advanced biofuel volume requirement is driving the production and use of biodiesel and renewable diesel volumes over and above volumes required through the separate BBD standard, and we expect this to continue."

EPA also noted issues with Renewable Identification Number (RIN) market, referencing the October 9 directive from President Donald Trump to undertake rulemaking that "would change certain elements of the RIN compliance system under the RFS program to improve both the RIN market transparency and overall functioning of the RIN market."


Washington Insider: New Trade Excitement

It turns out there was considerable excitement at the G-20 session in Argentina this week after all. Bloomberg says that the U.S., Mexico and Canada signed a new regional trade accord that would need Congressional approval and would give Congress as few as six months to pass a new deal.

In addition, the New York Times said on Sunday that the U.S. and China agreed to a “truce in their trade war and to hold off on new U.S. tariffs while China purchases more American products.” The two also “set the stage” for more painstaking negotiations to resolve deeply rooted differences over trade.”

President Trump told the press that he will soon tell Congress of his plans to terminate the existing North American Free Trade Agreement (NAFTA), a move that would give lawmakers a six-month window to ratify a new regional trade pact signed on Friday between the U.S., Canada and Mexico Bloomberg reported.

“I will be formally terminating NAFTA shortly,” President Trump told reporters late Saturday aboard Air Force One as he returned from the Argentine summit. This would be so” Congress will have a choice” between the new deal, known as the USMCA or potentially

The threat, if enacted, would effectively remove a safety net from under the new trade pact’s journey through Congress, Bloomberg said. Even though it was signed by leaders, the deal still needs to be ratified by lawmakers in the three countries to go into effect. In the U.S., it will almost certainly be taken up by the next Congress, where Democrats will have a majority in the House starting in January. Some Democrats are warning they may not be satisfied by the terms.

For example, on Sunday on CNN’s “State of the Union,” Senator Sherrod Brown, D-Ohio, a fierce NAFTA critic who has said he worked with the administration in re-negotiating the deal, didn’t answer how he’d vote on it but said “the work’s not done yet” and there’s still an opportunity to ask Mexico to strengthen labor requirements.

The deal doesn’t go far enough to protect the “dignity” of jobs and labor conditions and “doesn’t live up to the promise the president said of a renegotiated NAFTA,” Brown said.

Senator Mark Warner, D-Va., said the process will be more complicated than a simple approval of the new deal to replace NAFTA.

“Congress has a right to come in and review, whether it’s labor, whether it’s environmental, whether the deal is actually better,” Warner told CBS on Sunday. “These are all open questions, and I think you’ve already seen pushback from folks on both sides of the aisle.”

Warner said he was “not ready at all at this point” to say how he’d vote on the pact.

Trump’s statement may also be a bluff – or prove harder than he thinks. Under terms of the existing 1994 NAFTA pact, the president can give six-months’ notice of withdrawal, though it’s not binding. U.S. lawmakers have, however, said Congress would still need to repeal NAFTA's legislation to fully kill it.

Trump, Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto signed an authorization for the deal on Friday morning in Argentina on the sidelines of the G20, with their ministers signing it shortly after.

Trump announced his intentions on NAFTA hours after meeting with Chinese President Xi Jinping for dinner in Buenos Aires and reaching a truce in their escalating trade war.

“We get rid of NAFTA,” Trump said. “It’s been a disaster for the United States. It’s caused us tremendous amounts of unemployment and loss and company loss and everything else.”

Some U.S. lawmakers, both Democrats and Republicans, have called for changes to the new regional pact inked on Friday, though Trump’s staff has expressed confidence it will pass.

“The negotiations are not going to be reopened, right? The agreement’s been signed. We still have to put together an implementing bill, so there are things that we can do,” U.S. Trade Representative Robert Lighthizer told reporters Friday in Buenos Aires. He said he was in talks already with Democrats, and appeared unfazed. “We’ll get the support of a lot of Democrats, a very high number of Democrats. Absolutely, just no doubt about it.”

Earlier on Friday, President Trump expressed optimism about getting the deal blessed by U.S. lawmakers. “I look forward to working with members of Congress,” he said. “It’s been so well reviewed I don’t expect to have much of a problem.”

Nancy Pelosi, D-Calif., the Democratic leader in the House, called the agreement “a work in progress” in a statement released on Friday evening. “We are waiting to see enforcement provisions relating to workers and the environment,” she said.

Andres Manuel Lopez Obrador took office as Mexico’s president on Saturday; his Morena party, which with its allies holds a majority in Mexico’s Senate, could also seek revisions. Incoming Mexican Foreign Minister Marcelo Ebrard, hosting a dinner for American visitors at Lopez Obrador’s inauguration, declined to comment on the news Saturday night.

In Canada, Prime Minister Justin Trudeau has a majority in the House of Commons, leaving a clear path to pass a deal, but faces an election in October.

So, we will see. Overall, with the divided leadership in the U.S. Congress, it seems that there will be considerably more work to be done before the “new NAFTA” is completed and regarding a solid, new U.S.-China deal. Clearly, the truce with China is good news, although finishing up on an agreement likely will take a very considerable amount of future work to complete, Washington Insider believes.


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(GH/BAS)