By Megan Cassella | 05/17/2017 10:00 AM EDT
With help from Doug Palmer and Adam Behsudi
LIGHTHIZER'S CAPITOL HILL ROUNDS: Newly minted U.S. Trade Representative Robert Lighthizer is getting some long-awaited face time with lawmakers this week, spending the day today meeting with the House Ways and Means Committee as well as two special negotiating advisory groups in the House and Senate. The meetings, which follow one on Tuesday with the Senate Finance Committee, give the administration a chance to "lay out what their goals are," Finance member Claire McCaskill said after the session Tuesday.
The Missouri Democrat said Lighthizer and Commerce Secretary Wilbur Ross outlined their top goals in the upcoming renegotiation of NAFTA. "They said they wanted to help manufacturing and not hurt the people who are benefiting from NAFTA," she said.
McCaskill described the meeting as "preliminary," with few specifics offered on what form the talks will take - including whether the deal will remain trilateral and when the administration expects to send its formal notification to Congress. Ross said after the Tuesday meeting that the talks with Canada and Mexico to update the 23-year-old agreement are likely to be "long and complicated," though he hastened to add it is still possible to finish talks before the end of the year. But, he said, "who knows the actual outcome?"
A handful of senators, including McCaskill, said they emphasized to the administration that protecting the agricultural industry and market access to Canada and Mexico were top priorities. "We don't want to see ag hurt, and NAFTA by and large has been good for agriculture," said Sen. John Thune, the chamber's No. 3 Republican. He noted there are already some "disruptions in the ag marketplace today because of uncertainty" about where the NAFTA renegotiation is headed.
McCaskill added that the meetings can only go so far to lessen the concerns of lawmakers who are "a little gun-shy" and wary of how often President Donald Trump has changed his mind. "Even though his Cabinet may be expressing A, B or C, we are now being trained to learn that the president could completely contradict them in about 10 minutes." Read more from Pro Trade's Doug Palmer and yours truly here.
IT'S WEDNESDAY, MAY 17! Welcome to Morning Trade, where this week is making us think it must certainly be Friday by now - right? Any trade tips or news out there to keep us going? Let me know: firstname.lastname@example.org or @mmcassella.
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TWO'S COMPANY, THREE'S A CROWD? Several senators indicated after the Finance Committee meeting that while keeping NAFTA a trilateral deal remains the hope, the administration is waiting to see how negotiations go before making any decisions. Sen. Ron Wyden, the ranking member on the panel, indicated he prefers that NAFTA remain a trilateral arrangement, but he said major changes are needed to make the pact live up to promises that Trump made during last year's campaign.
"If NAFTA is the disaster that the president says it is, you can't go about the negotiation process just by proposing tweaks," the Oregon Democrat said. "My sense is you need stronger, more enforceable environmental and labor commitments, updated rules in areas like digital trade ... and new opportunities for American jobs in the future."
CANTWELL PRESSES EX-IM CONCERNS: On a non-NAFTA issue, Sen. Maria Cantwell told reporters she spent most of her time pressing administration officials on the Export-Import Bank "and whether they supported putting someone on there whose main intention was to dismantle the bank."
Ross and Lighthizer "both said that they supported having a functioning bank and a head of the bank who also operated that way," Cantwell said.
Ex-Im supporters are concerned about Trump's decision last month to nominate to the bank's top slot former Rep. Scott Garrett, a conservative Republican who spent his time in Congress railing against the agency. Cantwell said Ross and Lighthizer responded that they "didn't know" Garrett, they were "not familiar" with his positions and that Ex-Im was "not [their] jurisdiction."
"I think I need to send them a follow up," Cantwell said.
** A message from Electronic Frontier Foundation: Trade experts agree that without five simple fixes, Americans will continue to reject new trade deals. Find out how to stop the next trade deal going the way of ACTA and TPP, at https://eff.org/trade. **
WAIT A MINUTE, MR. POSTMAN: Morning Trade is bracing for the administration's final NAFTA notification letter, which could come as soon as today, before Lighthizer leaves Thursday for this weekend's APEC ministerial meeting in Hanoi - though some observers think the letter may not come until next week at the earliest.
When the letter finally does come, there's a possibility it will be much shorter than the eight-page draft POLITICO obtained in March that was chock full of specific negotiating objectives. The missive the Obama administration sent in late 2009 to notify Congress of its intention to negotiate the Trans-Pacific Partnership agreement was a mere two pages. That has prompted some observers to speculate the Trump administration might significantly scale back its letter and wait until later this summer to spell out its specific negotiating objectives. Under trade promotion authority, USTR must give 90 days' notice of its intention to begin negotiations, but it can wait until 30 days before starting talks to publish its negotiating objectives.
HARMONY IN THE PRIVATE SECTOR ON NAFTA PRIORITIES: That's the ultimate goal, at least, of top industry groups in both the United States and Mexico that are planning weekly conference calls and bi-weekly face-to-face meetings to align their priorities ahead of the upcoming NAFTA renegotiation. The idea is to bring groups like the Chamber of Commerce, the National Association of Manufacturers and the American Farm Bureau Federation together with their Mexican counterparts to establish a common agenda before talks begin, said Moises Kalach, a Mexico City-based businessman who leads private-sector engagement with the Mexican government on trade issues.
"You can propose to both governments, and even Canada if it's included: This is what the industry wants, this is what the ag community or the sector wants, and I think it helps a lot," he said, adding that agricultural and manufacturing groups already tend to agree on "90 to 95 percent" of the issues. "It makes it easier when we're aligned, and the private sector tells the governments what we want together in NAFTA."
Kalach said the cooperation is currently much closer between the Mexican and U.S. industries, but that they want to pull the Canadians in closer as well. "We should have done this years back, because if we do this right, when the next - hopefully there's not a next - but when the next renegotiation of NAFTA comes up, you'll have hundreds of different sectors saying, 'We're doing fine and this is working; we don't need many changes,'" he said.
Industries are pushing to mostly maintain the status quo in NAFTA, Kalach added, emphasizing to both governments that they would prefer a few tweaks rather than a broader renegotiation. Some sectors say areas that could use changes include enforcement, which should be tougher, and digital trade and e-commerce, which were not addressed in the original deal.
In the event that government officials attempt to make changes that the industries worry could be harmful - tightening rules of origin, for example - groups are gathering data to be able to point out product by product what the effects would be. Led in part by Herminio Blanco, Mexico's chief NAFTA negotiator, analysts are working to evaluate things like how supply chains would be affected and how much rules of origin can be tightened before they would lose competitiveness compared to other markets, particularly in Asia.
Taking a cue from sugar talks: Industry and private-sector officials are watching ongoing discussions surrounding a sugar dispute between the U.S. and Mexico closely, Kalach added, because they consider those talks a "lab example of how things are going to work" in the NAFTA renegotiation.
"We think it's a first stage of what's coming for NAFTA," he said. "I think it's setting the tone ... and hopefully we can agree to something that benefits both industries, both countries."
CONSERVATIVE GROUPS URGE 'THOUGHTFUL RENEGOTIATION': A coalition of conservative groups including the Club for Growth and FreedomWorks are urging Lighthizer to commit to trade policy liberalization and the opening of international markets, sending a letter this morning warning that pulling out of NAFTA would be a "catastrophic mistake."
"Should USTR pursue a thoughtful renegotiation of NAFTA by strengthening the agreement to lower costs for businesses and consumers, while expanding market access, we stand ready to aid in these efforts," the groups wrote. "Conversely, we will be unable to support efforts to withdraw from, or materially weaken, NAFTA."
ROBERTS: LIGHTHIZER KNOWS WHAT TO DO: Senate Agriculture Committee Chairman Pat Roberts said he is more comfortable with the direction of the administration's trade policy now that Lighthizer is at the helm of the agency that will renegotiate NAFTA and attempt to strike a number of new bilateral trade deals.
"I think Bob Lighthizer knows that we have to sell our product and he also knows that it's just as important to sell things that we grow as it is to sell things that we make. I think there are other folks that have different philosophies on trade, but Bob isn't one of those folks," the Kansas Republican said Tuesday. Roberts participated in Lighthizer's swearing-in ceremony on Monday.
While the current focus is on the renegotiation of NAFTA and trade relations with China, Lighthizer is interested in turning next to Asia and to countries that had been part of the Trans-Pacific Partnership to forge bilateral deals, Robert said in a separate interview later in the day, after a meeting with the new USTR.
Roberts also defended a USDA reshuffle that would downgrade the department's Senate-confirmed rural development undersecretary and create a new undersecretary for trade.
"I know [USDA Secretary] Sonny Perdue feels very strongly that we need an undersecretary for trade more especially at this particular time," he said. "It isn't at the expense of, it's in addition to. ... I can assure you as chairman rural development comes very high."
CANADA DAIRY PROGRAM STILL ON THE RADAR: Roberts on Tuesday also joined with the ranking member on the Agriculture Committee, Sen. Debbie Stabenow, to call on Lighthizer and Perdue to "evaluate all tools" to mitigate the negative impact of a controversial Canadian dairy pricing program.
"As the U.S. considers a renegotiation of NAFTA, it is imperative that America's hard-working farmers and ranchers remain a top priority," the senators wrote in a letter.
U.S. AUTOMAKERS: NAFTA TRADE DEFICIT NOT A CONCERN: The huge auto trade deficit with Canada and Mexico should not be a major cause of concern as the Trump administration seeks to renegotiate NAFTA, the American Automotive Policy Council said in a brief for USTR and the Commerce Department ahead of Thursday's hearing on the causes of significant trade deficits.
"The auto industry represents 22 percent, or nearly $240 billion, of the $1.07 trillion total NAFTA trade, and represents the largest portion of the United States' trade deficit with its NAFTA trade partners," the group said. "But ... conventional trade data fails to capture and account for many of the benefits and factors that completely or largely offset any potential negatives of the auto trade deficit."
For example, many of the auto parts imported from Mexico would cost too much to produce in the United States, the group said. By sourcing components such as wire harnesses, fabric and leather from Mexico, U.S. manufacturers are able to keep costs down, which benefits American consumers and makes the cars more competitive in world markets, the group said. In addition, the 4.4 million cars imported annually from Mexico and Canada contain about 35 percent to 50 percent U.S. content, compared to less than 5 percent for the 4.2 million cars that come from Japan, South Korea and the EU, the group said. "When these [factors] are taken into account, the potential downside of a trade deficit with our NAFTA trade partners is significantly reduced."
SOUTH KOREA: NATURAL GAS IMPORTS WILL REDUCE DEFICIT: The South Korean Embassy, meanwhile, acknowledged in its brief for the hearing that the U.S. trade deficit with South Korea has grown during the first five years of a bilateral trade pact. However, it argued that was due to macro- and microeconomic factors, such as stronger growth in the United States and increased imports of intermediary goods connected to South Korean investments here.
"When we conducted product-by-product analysis to get to the bottom of the main causes of the U.S. trade deficit with Korea, we found out that major U.S. trade deficit items such as automobiles and IT products are non-KORUS FTA items because the tariff rates were already zero or remain unchanged," the embassy said. "Therefore, we came to a conclusion that the KORUS FTA is not the cause of the increase U.S. trade deficit from 2011 to 2016."
That said, the embassy predicted "bilateral trade will become more balanced when Korea begins importing American energy resources, such as shale gas, under long-term contracts starting in 2017, as planned. Moreover, as a major importer of American defense goods, Korea will continue to engage in various cooperation projects."
REPORT: 2016 A BOOM YEAR FOR CHINESE INVESTMENT: U.S.-China two-way foreign direct investment flows reached a record $60 billion in 2016 and was driven almost entirely by Chinese investment in the U.S., according to a new report released today by the Rhodium Group and the National Committee on U.S.-China Relations.
The report found that Chinese FDI in the U.S. in 2016 tripled from the previous year to $46 billion, while U.S. FDI in China remained flat at just a quarter of China's level of investment. However, U.S. firms still have an overall larger investment footprint in China. The cumulative value of U.S. FDI transactions in China since 1990 now exceeds $240 billion, while Chinese companies had invested $110 billion in the U.S. by the end of 2016, according to the report.
Two-way FDI flows are expected to moderate in 2017, with Chinese investment in the U.S. likely decreasing because of capital controls and other short-term factors, the report found.
- The House Ways and Means Committee has scheduled a hearing on its border adjustability tax for Tuesday, POLITICO reports.
- The EU has refused to endorse part of China's "One Belt, One Road" initiative amid concerns it excluded commitments to social and environmental sustainability and transparency, the Guardian reports.
- New Zealand's trade minister says the United States stands to benefit from the ratification of the TPP, even though it is no longer part of the deal, Radio New Zealand reports.
THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: email@example.com and @abehsudi; firstname.lastname@example.org and @mmcassella; email@example.com and @tradereporter; and firstname.lastname@example.org and @jmlauinger. You can also follow @POLITICOPro and @Morning_Trade.
** A message from Electronic Frontier Foundation: Public opposition to trade deals sunk ACTA and TPP. What can restore confidence? The Electronic Frontier Foundation asked trade experts what could fix future trade agreements. They came up with: Publish the proposals. Publish the texts. Have a dedicated transparency officer. Open up proposals to notice and comments and a public hearing process. And open up Trade Advisory Committees to be more inclusive. Read more about how to fix our trade agreements at https://eff.org/trade, or contact EFF's team at email@example.com to discuss these plans in more depth. **
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