Washington Insider -- Thursday

Pushback on Anti-NAFTA Rhetoric

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

Grain Co-Op Sues Over Sugar Ethanol

Last year, USDA was required to sell some of the sugar it acquired under the federal price support program to ethanol plants. One of the larger buyers of surplus government sugar was a company called Aventine Renewable Energy that operates an ethanol plant in Aurora, Neb. As a result of the purchase, Aventine now finds itself the defendant in several lawsuits.

Local corn farmers, some of whom are represented by the Aurora Cooperative Elevator Co., say that when Aventine bought 660 million pounds of surplus government sugar last year and converted it to ethanol, it was violating an agreement to use locally sourced grain as the exclusive feedstock at the plant. Aventine denies wrongdoing and claims to have abided by its contract with local corn farmers. The company added that it likely will use up all the surplus sugar by next month and is contracting with local farmers –– but not the co-op –– for corn supplies after that.

The requirement that USDA sell surplus sugar to ethanol producers was part of the 2008 farm bill. The fact that legal actions have been initiated as a result of the program underscores yet again how unintended consequences can seep into the legislative processes.

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U.S. Dairy Export Council Steps Up Criticism of Geographical Indications

The U.S. Dairy Export Council (USDEC) is stepping up its opposition to the inclusion of the European Union's system of Geographical Indications (GIs) in a potential EU-U.S. trade deal. However, during a stakeholders' meeting this week on the Transatlantic Trade and Investment Partnership (TTIP), farmers on the other side of the Atlantic not only defended Europe's GIs, but also once again insisted that GIs must be included in a deal in order for it to get done.

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USDEC says that while 95% of the EU's GI products do not pose a problem, the bloc's approach to also protect some common food names, such as feta, parmesan, munster and gorgonzola constitutes "a lingering issue" in talks. The U.S. organization is proposing that Europe adopt compound names for its protected cheeses as a compromise position. Thus names like Gouda Holland or Brie de Melun would be protected but the names gouda and brie would be considered generic and thus unprotected.

European farmers are not buying that suggestion, once again confirming that Geographical Indications could prove to be one of the most intractable sticking points in the TTIP talks.

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Washington Insider: Pushback on Anti-NAFTA Rhetoric

In a statement many trade advocates say is long overdue, Assistant U.S. Trade Representative for Trade Policy and Economics Douglas Bell told a conference at the Peterson Institute for International Economics recently that experience with the 20-year-old North American Free Trade Agreement (NAFTA) is useful in current trade talks, including the Trans-Pacific Partnership (TPP).

Bell said he thinks the earlier agreement allowed the United States a way to become part of increasingly complex supply chains. For example, today more than half the value of U.S. imports from Mexico and Canada is actually composed of U.S. content, he told the group. And, in the future a critical factor for pursuing the TPP is the opportunity to place the United States in a more prominent position vis-á-vis product supply chains in Asia. "It's an important consideration," he noted.

The TPP also would provide an opportunity to update NAFTA in several areas, including labor and environment, intellectual property and new rules on state-owned enterprises, Bell said. TPP countries are also devoting a lot of effort on negotiations regarding rule of origin, which Bell said would have an enormous effect on the quality of the agreement.

The United States runs a "considerable surplus" in services trade with the NAFTA countries, Bell said. "When we assess the gains of these types of agreements and the opportunities [they present] for the United States, services is an important part of that."

Gary Hufbauer, senior fellow at the Peterson Institute, discussed a policy brief, "NAFTA at 20: Misleading Charges and Positive Achievements," that provided information countering some of the long-standing criticisms of the 1994 agreement. For example, while NAFTA opponents argue that the growing U.S. bilateral trade deficit with Mexico was fueled by NAFTA, Hufbauer argued that the deficit was mainly the result of the growing imbalance between income and spending with the United States, and that the Mexican peso crisis and resulting reforms also were important contributors.

According to Hufbauer, U.S. agricultural exports to Mexico expanded after NAFTA but did not boost migration as some had expected. The rapid growth of U.S. corn exports doesn't align with increases in illegal immigration, he said.

Bell said the policy papers present "thoughtful, rational" discussion of the gains and challenges of trade agreements, while avoiding "excessive exuberance and exaggeration." He expressed the view that they will make important contributions to the policy debate.

At the same conference, Jaana Remes, a partner at the McKinsey Global Institute, said despite NAFTA, Mexico hasn't raised its average productivity in 30 years. She observed that while closer North American integration has dramatically improved the performance of some industry segments, the productivity gap between modern and traditional businesses in Mexico is widening. Absent an increase in productivity, Mexico's growth will slow further to 2% per year, she said in her presentation of the results of a McKinsey Global Institute report.

Given all the political gridlock affecting the U.S. and global economies now, the rise in global protectionism and the stagnation of the president's trade agenda is a major weakness in the U.S. ag outlook. Today, large chunks of the Democratic leadership openly oppose trade negotiations and blame many of the recent economic ills on previous deals. The administration's support for essential fast track authority has been pallid and Republicans have been reluctant to fill that political void. Anti-trade rhetoric has been brutal, and is likely responsible for at least part of the growing anti-trade view.

This is bad news for agriculture with its saturated domestic markets and reliance on access to developing country markets for growth. So, while it is unlikely that the Peterson Institute conference and Ambassador Bell's statement will affect the political discourse immediately, academic and industry studies that carefully shoot down some of the less responsible trade critics are a good thing and should be watched carefully by producers as the debate continues, Washington Insider believes.


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