Policy Updates: U.S. Unveils Dairy, Auto Proposals in NAFTA 2.0 Talks; Aggressive Positions on Other Topics

Posted on 10/16/2017 5:41 AM

NAFTA 2.0 | Cabinet meeting | Disaster relief | Dicamba | Health care | Markets

NAFTA 2.0 update.

  • USTR Lighthizer takes aggressive approach in negotiations. The hardline stance is reportedly getting a lot of pushback from Canadian and Mexican trade officials. USTR held a late Sunday afternoon USTR briefing for cleared advisers. Also, reports note that Japanese officials are also bewildered about the Trump administration's trade policies, beginning with the pullback from the Trans-Pacific Partnership (TPP) agreement. Meanwhile, Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso will confer today in Washington for the second meeting of the new bilateral economic dialogue between the U.S. and Japan. Japanese officials are attempting to try to get President Trump to rejoin the TPP.
  • U.S. unveils dairy proposal in NAFTA 2.0 talks; Canadian industry opposes. In an expected move, U.S. trade officials on Friday released a proposal to reverse a Canadian pricing program that has negatively impacted some U.S. dairy exports to Canada. The text demands that Canada eliminate an industry pricing classification that lowered domestic prices for certain milk protein concentrate products to the minimum global price. The move is seen as a direct threat to Canada’s supply management system. It does not include any language on market access, as those provisions will be negotiated separately. Also as expected, the proposal was aggressively opposed by Canadian dairy producer lobbyists. The Class 7 milk category was created to encourage Canadian cheesemakers to use up excess Canadian product, resulting from increased butter production as domestic demand increased. In August, Canadian Foreign Minister Chrystia Freeland said that any effort to undermine Canada's supply-managed sectors would be a red line in the NAFTA2.0 talks.
  • U.S. produce proposal falls flat with Mexico. The head of Mexico’s main agriculture group stressed that a produce proposal the U.S. introduced last month gets a hard “no” from the Mexican government and private sector. The proposal would create a new antidumping procedure for seasonal products, making it easier for American growers to make the case that Mexico is selling produce at unfair low prices when crops like strawberries or tomatoes are in season in a particular region. Mexico's position is that “for no reason would we accept the seasonality clause,” Bosco de la Vega, president of Consejo Nacional Agropecuario, said at a NAFTA roundtable held Friday in Washington, D.C, with U.S. agriculture organizations. He urged U.S. agriculture industry leaders to bolster their opposition in an effort to influence negotiations. Some producers growers in the southeastern region of the U.S. support the provision, but West Coast growers are worried that if it becomes part of any approved NAFTA 2.0, it could lead Mexico and Canada to retaliate and not be worth the change. The only effect the proposal would have, if enacted, Bosco de la Vega said, “is that my associates in Mexico will ask for seasonality in grains, soy, corn, meat and all the products that affect the Mexican industry.”
  • U.S. proposes major tightening of auto rules of origin. U.S. trade officials proposed to significantly tighten the rules of origin for automobiles and to put in place a new domestic content provision. The proposal, widely anticipated, mandates that 50% of the parts of a car come from the U.S. in order to be eligible for NAFTA benefits, and 85% come from any of the three NAFTA countries. The current NAFTA says 62.5% must come from a NAFTA country in order to qualify for reduced tariffs and does not include any U.S.-specific requirement. Trump administration officials maintain that tighter rules are needed in order to reduce the trade deficit, especially with Mexico. "If we don't fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the trade imbalance," Commerce Secretary Wilbur Ross wrote in an op-ed last month.

Cabinet meeting today. President Trump called a Cabinet meeting for Monday. On the agenda: tax reform, immigration and disaster relief. The disaster relief discussion will like possible budget offsets for the next aid package, the first time offsets have been discussed thus far on that topic – see next item.

Trump wants budget offsets for more disaster relief, including cuts to USDA conservation programs. The Trump administration wants Congress to come up with $5.6 billion in spending cuts to pay for any future disaster relief, according to a letter from OMB Director Mick Mulvaney to House Appropriations Chairman Rodney Frelinghuysen (R-N.J.). Mulvaney stressed that the reductions “are not intended to offset” any recently passed emergency funding for Texas, Florida and Puerto Rico. Rather, the cuts to conservation programs at USDA, loan programs for advanced-technology vehicles at the Energy Department and training and employment services at the Labor Department could be used in future talks,” he wrote in the letter.

The House last week passed another installment of emergency funding for Puerto Rico, and Congress is expected to move an even larger relief package as part of a forthcoming budget bill. So far, disaster-related relief has tallied about $51 billion.

EPA, Monsanto, BASF announce steps to curb dicamba drift. Monsanto Co., BASF Corp. and Dupont agreed to limits on a pesticide linked to some crop damage. EPA announced Friday that the agency reached a resolution with companies that sell new formulations of the herbicide dicamba. The manufacturers have agreed to list their weedkillers — Monsanto's XtendiMax, BASF's Engenia, and Dupont's FeXapan — as “restricted use” pesticides — only certified applicators with dicamba-specific training can handle the products. The agreement comes after complaints were filed to state agriculture agencies this summer, alleging that the pesticide drifted away from its intended target and damaged crops in neighboring fields.

The manufacturers insist that the new herbicides, sold for the first time this year, are not to blame for the damage. The problem lies in the misuse of pesticides— spraying at the wrong time of day, or with the wrong nozzle, for example— and not because their product is defective, company representatives say. Ty Vaughn, Monsanto's global regulatory lead, said that based on lessons learned from the 2017 season and "the science behind our low-volatility dicamba ... we are confident the required training and record keeping can address the main causes of off-target movement." “We want to stress how important it is that farmers use products approved by the EPA for use over the top of dicamba-tolerant crops, and use them in accordance with all label requirements,” he added, according to a statement. Link to Monsanto statement.

EPA comments. The agreement actions “are the result of intensive, collaborative efforts, working side by side with the states and university scientists from across the nation who have first-hand knowledge of the problem and workable solutions,” EPA Administrator Scott Pruitt said. “Our collective efforts with our state partners ensure we are relying on the best, on-the-ground, information.”

The agreement also requires farmers to:

  • Keep records on the use of the products;
  • Lower the maximum wind speed for applications from 15 miles per hour to 10 mph; and
  • Reduce the window of time during which the products can be applied.

Arkansas received the highest number of complaints of dicamba damage. The state's plant board has proposed a ban on the herbicides after April 15 of next year. A public hearing for the proposal is set for Nov. 8.

Trump's red line on health-care changes. President Donald Trump will reject any attempts by Congress to reinstate subsidy payments to insurers that he said Thursday night he will end — unless he gets one of his priorities, such as ObamaCare repeal or funding for a border wall, according to OMB Director Mick Mulvaney. The Office and Management (OMB) leader called the cost-sharing reduction payments “corporate welfare and bailouts for the insurance companies.”

Other items of note:

  • Tax reform timeline. Treasury Secretary Steven Mnuchin said he’s still aiming for tax reform to reach President Trump’s desk in December so that work can begin on housing finance — “We’re not going to leave Fannie and Freddie in conservatorship for the next four years,” he said — and financial regulatory reform.
  • Carbon rule published. EPA’s proposed repeal of the Clean Power Plan is in today’s Federal Register, launching a 60-day comment period. It notes the regulation overstepped EPA’s authority by requiring fuel shifting for compliance and must be revoked in full.
  • Bipartisan Senate group bashes proposed biodiesel cuts. A bipartisan group of at least 25 senators — led by Heidi Heitkamp (D-N.D.), Roy Blunt (R-Mo.), Patty Murray (D-Wash.)and Chuck Grassley (R-Iowa) — today are sending EPA Administrator Scott Pruitt a letter urging him to reverse course on proposed cuts the advanced biofuel volume for 2018 and his intention to hold biomass-based diesel volume stagnant for 2019. “The industry is poised for growth, in accordance with the intent of the law, if EPA sends the market signals with increased volumes. Reducing volumes and especially those RVOs that were previously finalized is disruptive, unprecedented, and very troubling,” the letter said.
  • RFA report: RIN prices do not hurt gas prices. The Renewable Fuels Association (RFA) in a report argues that a jump in prices for credits under the Renewable Fuel Standard had little impact on gas prices. The report confronts arguments from oil refiners that volatility in the market for Renewable Identification Numbers (RINs) drive up gas prices, and thus EPA should act to reduce those costs. "This analysis demonstrates that EPA’s efforts will have no impact on consumer gasoline prices," RFA CEO Bob Dinneen said in a statement. "If finalized, however, these proposals will have a decidedly negative impact on the U.S. ethanol industry by artificially cannibalizing demand." Link to report.
  • Trump administration confirmations. According to the Partnership for Public Service, the Senate has confirmed roughly 142 political appointees out of the 602 key jobs throughout the government. Meanwhile, Politico reports that White House Chief of Staff John Kelly has granted Cabinet officials new autonomy to select top political appointees, citing 10 interviews with White House officials and advisers close to the administration.
  • White House nominates Bierman for USAID post. Brock Bierman, a former official in the George W. Bush administration, will be nominated to be USAID’s assistant administrator for Europe and Eurasia, the White House said on Friday. In 2007, Bush nominated him to be FEMA’s rural advocate.
  • NAFTA. The Wall Street Journal editorial board says a withdrawal from NAFTA would be an economic blunder of historic proportions. Link.
  • Trade policy confab. Council on Foreign Relations will hold a symposium beginning this morning on "The United States and World Trade: Future Directions." World Trade Organization Director-General Roberto Azevedo will speak.
  • Feinstein gets a challenger. California state Senate leader Kevin de León, who pushed climate legislation and an extension of the state’s cap and trade program through his chamber, announced a primary bid against Sen. Dianne Feinstein (D-Calif.).
  • Global food shortage. Land O’ Lakes CEO Chris Policinski will join Purdue University President Mitch Daniels and Catholic Relief Services CEO Sean Callahan for a discussion about the looming global food shortage. The session takes place this afternoon in West Lafayette, Indiana.
  • Social Security checks to rise 2% in 2018, the biggest increase since 2012. The average check will go up $27 a month after a cost-of-living adjustment meant to keep up with higher prices. The cost-of-living adjustment (COLA) covers more than 61 million Social Security beneficiaries and more than 8 million recipients of Supplemental Security Income benefits. Some people get both. The boost is the highest since a 3.6% bump in 2012. The average monthly Social Security payment is $1,258, or about $15,000 a year. The rate of the increase is tied to the Consumer Price Index, an inflation gauge.

Markets. Oil futures were sharply higher this morning as Iraqi forced entered the oil city of Kirkuk, taking territory from Kurdish fighters and raising concerns over exports from OPEC's second-largest producer.

Despite $600 billion in uninvested funds, private-equity players are reluctant buyers with stocks at current levels. The quarter just ended saw the lowest level of leveraged buyouts — $10.8 billion — in more than seven years, according to Rich Peterson, principal analyst at S&P Global Market Intelligence.

Mnuchin: Global economy has potential for more than 4% growth. “Global growth has taken hold more broadly over the past year. Yet we remain far from our true potential,” Treasury Secretary Steven Mnuchin said in an IMFC statement during the IMF meetings, posted on Treasury’s website.

Yellen notes biggest surprise of 2017 was lack of Inflation, but says it is coming. The lack of inflation was “the biggest surprise in the U.S. economy this year,” Federal Reserve Chair Janet Yellen said at an event in Washington D.C. on Sunday. Her “best guess” is that consumer prices will soon accelerate after a period of surprising softness. European Central Bank President Mario Draghi and Bank of England Governor Mark Carney agreed with that assessment. Excluding food and energy, so-called core prices rose 0.5% in September, below an estimate of 0.6%.


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