By Adam Behsudi | 05/18/2017 10:23 AM EDT
With help from Doug Palmer, Megan Cassella and Jason Huffman
ADMINISTRATION TO PRESS SEND ON NAFTA LETTER: The Trump administration is expected to send to Congress this morning a final letter notifying lawmakers that it intends to open trade talks with Canada and Mexico in an attempt to renegotiate NAFTA, according to an administration official and congressional aides.
The letter would come just a day after U.S. Trade Representative Robert Lighthizer, who was sworn in Monday, concluded two days of meetings with the Senate Finance and House Ways and Means committees, as well as separate special trade advisory groups comprised of lawmakers from both chambers. Lighthizer leaves for Vietnam today to attend a meeting of Asia-Pacific Economic Cooperation trade ministers.
Sending the letter triggers a 90-day consultation period that must conclude before negotiations can officially begin -- a process set out under the 2015 Trade Promotion Authority legislation that gives the White House the ability to fast-track passage of the deal in Congress. The administration is required to submit more detailed negotiating objectives 30 days prior to the start of the talks. An eight-page draft of the notification letter emerged in March, but congressional aides told Morning Trade that a final version circulated this week was only a page long, prompting some lawmakers to request more detail on some points.
Commerce Secretary Wilbur Ross, who also attended the Capitol Hill meetings, told reporters late Wednesday afternoon that they had "made a lot of progress in getting toward the 90-day letter," but he said it was up to Lighthizer to announce when it would be sent. The timing of the letter would mean that NAFTA talks could start right after Aug. 16 at the earliest.
IT'S THURSDAY, MAY 18! Welcome to Morning Trade, where your host is wondering if NAFTA talks will see a reprisal of the dreaded TPP "stakeholder day." Got any news to share? Let me know: firstname.lastname@example.org or @abehsudi.
CRAPO VOUCHES FOR SCOTT GARRETT: Former Rep. Scott Garrett, Trump's pick to lead the Export-Import Bank, has picked up the endorsement of Senate Banking Committee Chairman Mike Crapo, support that will certainly help him in what has become a controversial bid to win Senate confirmation to lead the export credit agency.
The decision to nominate Garrett, a New Jersey Republican who spent his time in Congress railing against the bank, to Ex-Im's top slot has ignited criticism from supporters of the agency, who worry he might try to hamstring the bank from within. Some Democrats, including Sen. Sherrod Brown, the ranking member of the Banking Committee, are pushing the administration to move Garrett to a general position on the board of directors rather than take the chairman slot.
"I've heard that talk, but I'm not doing that, and I'm not encouraging or participating in any way," Crapo told Morning Trade. "The president has made the nominations, I'm going to move the nominations."
The Idaho Republican added that he also supports former Rep. Spencer Bachus, Trump's pick for another open seat on the board of directors. "As soon as we get the new paperwork I would intend to move as quickly as we can," Crapo said.
ARE YOU READY FOR SOME TRADE DEFICITS?! The witness list for the Commerce Department's hearing today on trade deficits includes some of the usual suspects: domestic manufacturers, industry groups, think tanks and labor groups. One notable exception: the National Football League.
The NFL's comments threaten to lay bare another trade rift with Canada that could be scooped up in the impending NAFTA renegotiations. The organization is using the hearing to fight back against a Canadian decision that the NFL says prevents it from generating revenue from its Canadian copyright license of the Super Bowl in the same way as other Canadian copyright owners. In 2015, the Canadian Radio-television and Telecommunications Commission upheld a "simultaneous substitution" program requiring U.S. broadcast signals to be replaced with local Canadian signal when airing the same program. The Super Bowl, however, was carved out of the ruling, which allowed Canadians to view U.S. advertisements.
"As an initial matter, Canada's action clearly warrants inclusion in the Omnibus Report on Significant Trade Deficits," the NFL states in its comments. "In addition, if Canada persists in its discriminatory conduct, the NFL urges the administration to exercise the full complement of U.S. rights under NAFTA."
WHAT DOES ALL THE RUSSIA DRAMA MEAN FOR TRADE? For a policy area that already creeps along at what seems like glacial speed, the fast and furious distractions of Trump's mounting Russia drama and any other coming crises could slow down his trade promises, according to some lawmakers.
"I think the difficulties in the White House make it more difficult to pursue every agenda," Rep. Sander Levin said Wednesday after a meeting with U.S. Trade Representative Robert Lighthizer.
"Yes. Oh yeah. For sure," said Rep. Richard Neal, the top Democrat on House Ways and Means. "Look, trade agreements take years generally to be worked out. The environment's going to make it harder to concentrate, that's for sure."
"It'll probably make it a lot more difficult for Mr. Lighthizer," said Rep. Bill Pascrell, the top Democrat on the Ways and Means Trade Subcommittee. But Pascrell didn't seem to think the White House controversies would have that much impact on NAFTA, as long as lawmakers get a good notification letter, which he thought might not come immediately but rather within the next two weeks. "I don't feel that yet, but I have faith in this guy," he added, referring to Lighthizer.
Rep. Dave Reichert, chairman of the W&M Trade Subcommittee, skirted the question. "I can only tell you that what I heard today was a positive message of teamwork, transparency and looking forward to creating trade agreements that create jobs and strengthen the economy." Read more here from POLITICO's Nancy Cook and Burgess Everett on how Trump's scandals threaten the GOP agenda.
CONFLICTING SUGAR FORECASTS: House Agriculture ranking member Collin Peterson said he expects a deal soon to resolve the U.S.-Mexico sugar trade dispute, based on his talks with Commerce Secretary Wilbur Ross and Agriculture Secretary Sonny Perdue. "They're not that far apart," he told reporters Wednesday.
But an industry source told POLITICO a different story. "The impression I got is the parties are pretty far apart," the source said. "I don't think a breakthrough is imminent." The U.S. is standing firm on its proposal to set a new standard for raw sugar as it tries to reach an agreement with Mexico that would stave off steep duties on imports from south of the border, said industry sources who are closely following the talks.
The U.S. position: The Trump administration wants all raw sugar Mexico ships north of the border to be defined by a polarity level, a measure of refining purity, of 99.2 or below. Anything above that would qualify as refined sugar. The current suspension agreements set a 99.5 threshold on raw sugar. The U.S. is also pushing for the deal to require that 80 percent of Mexican sugar imports be raw and 20 percent refined, sources said. That would be a shift from the 53-47 raw/refined percentage split in the current arrangement. Still unclear is whether a revised deal would set new prices for Mexican raw and refined sugar imports or expand quota access for other countries that export sugar to the U.S.
U.S. refiners have argued that a new standard and ratio are necessary to prevent Mexican producers from circumventing the suspension agreements and flooding the U.S. market with sugar that is technically raw but needs little to no refinement for end use. Refiners say the current situation has led to a shortage of raw supply and a glut of refined product.
WYDEN: W.H. TO PUT CURRENCY PROVISIONS IN NAFTA 2.0: Lawmakers on both sides of the aisle - and both sides of the Capitol - said a trio of meetings with Lighthizer and Ross held Wednesday produced few specifics in terms of negotiating objectives. But the trade officials did indicate that currency is a priority, said Sen. Ron Wyden, the ranking member of the Finance Committee who met with the duo on both Tuesday and Wednesday.
Lighthizer made it clear he considered currency "a NAFTA issue," Wyden said, adding that the newly minted USTR "saw that there might be an opportunity to coming up with a model statute on currency that could be applicable generally." Mexico and Canada have not been targeted for currency practices, but including such provisions in NAFTA could open the door to inserting the same statutes into future trade agreements, including with China and other Asian nations.
"He said they're interested in thinking about it as a model for currency as it relates to trade," Wyden said. Asked whether the idea would be to address currency manipulation, he responded: "I'm going to let him flesh this out, but certainly that's what the members have been concerned about."
** 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. **
Over on the House side, Pascrell said he also raised the currency issue, but got no firm commitments. Levin said rules against currency manipulation should be included in NAFTA "as a beginning step," even though it's not a major issue with Canada and Mexico right now.
Not rocking the boat: There were few other areas that lawmakers addressed directly, with most commenting after the meetings that Lighthizer and Ross were more focused on hearing their concerns. Reichert, a free trader whose home state of Washington is the top exporter in the country, said the "good news" he heard in the meeting was "that the intention of the administration is to make this a seamless process without interrupting current flow of activity between the countries."
Other lawmakers, most notably Republicans who largely support free trade, also offered praise for what they saw as an administration unwilling to disrupt trade relations as they currently exist. "Glad to hear USTR Lighthizer and Sec Ross say their approach to NAFTA renegotiating is 'first do no harm,'" Sen. John Cornyn, the chamber's No. 2 Republican, tweeted after the meeting.
But Sen. Ben Cardin, the ranking member of the Senate Foreign Relations Committee, noted that the administration cannot yet be sure just how much the pact will change. "It's difficult to control it once it starts," Cardin said. "I think that each country's going to bring difficult issues to the table. It's hard to say it'll be tweaks: It's in the eyes of the beholder as to how significant it is."
LEVIN THREATENS DEM NAFTA SUPPORT OVER MEXICAN LABOR CONCERNS: Levin said any new NAFTA deal must address shortcomings in Mexico's labor protections or there won't be Democratic support for the agreement. "If there isn't a dramatic change in the reality ... there will not be Democratic support for NAFTA," he told reporters after the Ways and Means meeting with Lighthizer and Ross.
Pascrell echoed Levin's concerns and said he hoped Lighthizer was willing to lean hard on Mexico to make long-awaited improvements. "The Mexican workers are probably as worse off as anybody else in the world, and we've got to have an enforcer," Pascrell said.
Democrats charge that Mexican government policy is aimed at keeping wages low in order to attract foreign investment. They also complain that it is virtually impossible for Mexican workers to form independent unions in the export sector and that the Mexican government and employers dominate the labor board structure, which oversees and enforces labor laws. Read the full story here.
ADMINISTRATION WILL TRY FOR TRILATERAL FIRST: Lighthizer and Ross told the House Ways and Means Committee they would try to ensure that NAFTA remains a three-way deal between the United States, Canada and Mexico, instead of splitting it into separate bilateral pacts. But "they made it clear if they are not successful on the trilateral front, they will move to a bilateral negotiation," Neal said.
DEFAZIO PRESSES LUMBER, TRUCKING CONCERNS: Rep. Peter DeFazio told reporters after a meeting of the House Advisory Group on Negotiations that he pressed the administration officials to get rid of Chapter 19 of the NAFTA agreement because Canada has successfully used the provision in the past to challenge anti-dumping and countervailing duties imposed by the United States on softwood lumber -- a salient issue in light of the new AD/CVD investigation underway at the Commerce Department against the woody imports.
"Secretary Ross acknowledged that's a real problem, and he wants to work on that," DeFazio said, adding he also got a sympathetic ear when he raised concerns about trucking provisions of the NAFTA agreement that opened the U.S. market to Mexican truckers, who many members of Congress believe should not be on American roads. "He said we will see what we can do" to make improvements, the Oregon Democrat said.
DeFazio, the ranking member of the House Transportation and Infrastructure Committee, said the administration also welcomed his request that it protect "Buy American" rules for transportation projects in NAFTA. "They indicated that's something they want to enhance in other areas and protect where we've got it," he said.
SWEDEN TAKES THE LEAD IN TRADE FACILITATION: Roughly three months after the Trade Facilitation Agreement entered into force at the end of February, the World Trade Organization established a committee this week focused on helping members, particularly developing countries, with issues that arise during the deal's implementation and enforcement. At its inaugural meeting, WTO members elected Daniel Blockert, Sweden's ambassador to the WTO, to chair the committee. After four years, the committee will review the TFA, which aims to streamline the movement of goods across borders to make it quicker, easier and cheaper. Read more here.
U.S. ETHANOL CHALLENGED ON TWO TRADE FRONTS: New rules Brazil announced this week could slow the flow of U.S. ethanol into the country, but an even bigger challenge may be coming next month, said Ed Hubbard, general counsel for the Renewable Fuels Association. That's when Camex, Brazil's foreign trade authority, is expected to hold a hearing to consider separate proposals by the country's two biggest sugarcane and ethanol industry groups to apply a tariff on U.S. ethanol of 16 percent or 20 percent. RFA, Growth Energy and the U.S. Grains Council have been girding for battle for months, warning in a letter to Camex Executive Secretary Tatiana Rosito last year that either tariff would amount to "an unfair and illegal barrier to trade."
Brazil has been America's largest ethanol export competitor for years, but the recent rise in cane sugar prices has caused the country's producers to focus instead on the sweetener. The result has turned the South American nation into the U.S. ethanol industry's largest export market. It accepted 720 million liters of U.S. ethanol in the first quarter of 2017 - a fivefold increase - worth $363 million, per Reuters. The news service reported on Monday that Brazil will require all buyers of imported ethanol to maintain minimum stock amounts, a mandate that will make it hard for smaller traders that don't have the infrastructure needed to store the fuel.
Another trade trouble spot for U.S. ethanol: China was on pace to become a massive export market for U.S. producers, but it has been closed off almost completely since Jan. 1, when it increased its tariff on U.S. fuel ethanol from 5 percent to 30 percent, said Tom Sleight, CEO of the U.S. Grains Council. "You can speculate a lot of reasons for why this happened," Sleight said, mentioning greater trade tensions between the two economic powerhouses. "There is certainly a strong motivation to use ethanol in China, especially given the air pollution problem, and they were buying a lot. The volume went up quickly."
China's tariffs are within World Trade Organization limits, Hubbard said, so there is little for U.S. producers to challenge. He said producers can only hope that Iowa Gov. Terry Branstad, Trump's nominee for ambassador to China, can talk to Chinese President Xi Jinping once he is confirmed. "We've heard they have a good relationship," Hubbard added. The Senate is expected to hold a cloture vote on Branstad's nomination today.
- Canadian Foreign Minister Chrystia Freeland heads to Mexico to discuss NAFTA renegotiations, Reuters reports.
- The head of a top Mexican business lobby group said fears have faded over NAFTA's collapse, Reuters reports.
- New Zealand wants to avoid a major rework of the TPP to avoid a lengthy renegotiation, Nikkei Asian Review 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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