Tax cuts | North Korea | NAFTA 2.0 | HHS Sec. Price | Shipping waiver | Tyson Foods | Russia & election meddling | U.S., Mexico water deal | EPA mulls policy shift | U.S.-U.K. trade tiff | Markets
— Tax cuts/reform now enters the hard stage of filling in the details and congressional passage. Portions of a tax reform effort were unveiled Wednesday by President Donald Trump and GOP congressional leaders, including lower taxes on corporate profits, incentives for business investment, fewer and lower individual income tax brackets and the end of estate taxes, with the goal of boosting economic growth and benefiting middle-income families. Link to article.
— Lawmakers focus on North Korea. The Senate Banking, Housing and Urban Affairs this morning holds a hearing on enforcing sanctions on North Korea as the U.S. tightens the economic vise. Among the latest developments is the Treasury Department’s blacklisting, announced Tuesday, of eight additional North Korean banks and 26 North Korean individuals who were determined to be acting as representatives of North Korean banks. One sanctioned bank was determined by the United Nations in 2013 to facilitate transactions on behalf of North Korean weapons proliferation efforts.
— NAFTA 2.0 update. Negotiators finished a chapter on expanding small- and medium-sized business access to markets and made advances on digital commerce, U.S. Trade Representative Robert Lighthizer and his Canadian and Mexican foreign counterparts said as the third round of talks completed in Ottawa. Lighthizer said contentious issues remain for the fourth round Oct. 11 – 15, when the NAFTA negotiators meet in Washington. “We will have extensive challenges to overcome,” Mexican Economy Minister Ildefonso Guajardo said.
U.S. officials did offer text on seasonal safeguards for agriculture, which could block Mexican produce imports during certain times of the year. Produce growers in states such as Florida and Georgia have called for safeguards for their sector, which they say has been badly damaged by an influx of Mexican fruit and vegetables. The proposal addresses lingering complaints about dumping by Mexican producers. Mexico is vigorously opposed to the change.
Labor issues. The U.S. also received pushback from Mexico over a proposal the U.S. Trade Representative’s Office reportedly put on the table to press Mexico to raise its minimum wages and make other labor law changes. Canadian Foreign Affairs Minister Chrystia Freeland would only say that she would not comment on disagreements “the Mexicans and Americans might have with one another.” She added, though, that Canada wants a NAFTA labor chapter “to address the very legitimate concerns of Canadian workers that trade agreements can sometimes expose Canadian workers to competition with workers who function in an environment of lower labor standards and lower environmental standards.” Among Canada’s labor concerns are right-to-work laws in U.S. states it says have weakened or bankrupted unions.
Details are awaited on key issues like arbitration in trade disputes and U.S. content requirements in automobiles. U.S. officials have discussed their views on these topics, but the Office of the U.S. Trade Representative (USTR) hasn’t finalized proposals on these issues because the U.S. has faced strong opposition from business groups and lawmakers in Washington. Canada wants to keep the arbitration panels in NAFTA, with reports that Canadian negotiators are prepared to walk away from the talks over dispute-settlement mechanisms — in particular Chapter 19. Canadian Foreign Minister Chrystia Freeland said the country’s negotiators “have been very clear” to their counterparts about the importance it places on Chapter 19. “Canada is absolutely committed to defending it,” she said.
Lighthizer said wrapping up the talks by the end of the year was still “realistic,” but added that “there is a process to clear things, which does take time” and that the U.S. aims to suggest language on issues such as dispute arbitration at the next round, in early October.
— Price is not right. President Trump told reporters he is “not happy” with HHS Secretary Tom Price, who has come under scrutiny for his use of a private jet, per a pool report. “We’ll see,” Trump said when asked if he would fire Price.
— Trump waives Jones Act for Puerto Rico. President Trump has waived the Jones Act, a shipping law that allows only American-owned and operated ships to carry goods and passengers to and from U.S. ports, for Puerto Rico. Press Secretary Sarah Sanders made the announcement on Twitter. The act was waived for Texas and Florida after Harvey and Irma to open up ports for resources.
President Donald Trump touched on the issue earlier this week, noting industry objections as a factor in the situation. “Well, we’re thinking about that, but we have a lot of shippers and a lot of people and a lot of people who work in the shipping industry that don’t want the Jones Act lifted,” Trump said. “And we have a lot of ships out there right now.”
Background. The protections for U.S. carriers are in the law known as the Jones Act, and the Department of Homeland Security hasn’t waived the act for Puerto Rico as it did a few weeks ago for Texas and Florida after those states were hit by hurricanes. Crowley Maritime Corp., which benefits from the Jones Act protections, says it has a steady pipeline of goods arriving at San Juan’s port, where hundreds of shipping containers have been piling up because trucks can’t carry them to inland points. More cargo ships are arriving in the coming days, along with tankers with desperately needed fuel, shipments that will raise the pressure to clear distribution channels on the island.
— Tyson agrees to settlement for 2014 discharge incident. Tyson Foods has agreed to pay a $2 million fine to the federal government and make a $500,000 community service payment for an accidental discharge at its poultry complex in Monett, Missouri, that occurred in 2014. Link to details.
— The Russian campaign to influence the U.S. election has drawn the focus on Facebook, but it may have used Twitter even more extensively, reports note. The company is to brief staff members of the Senate and House intelligence committees today.
— Mexico, U.S. reach new water deal. Officials with the U.S. and Mexico announced an agreement at a Santa Fe, N.M. water conference to help preserve the Colorado River, the Associated Press reported. Under the agreement, the U.S. will spend $31.5 million in water conservation projects in Mexico and any water saved would then be split between the two countries and environmental projects. The river supplies water to about 40 million people and 6,300 square miles of farmland in the U.S. alone.
— EPA is considering a policy shift within the next few months that would allow all domestically produced biofuel to count toward annual biofuel compliance quotas, according to media reports. That would lower costs for refiners but come at the expense of corn farmers. The change would increase the number of available compliance credits, making them cheaper for refiners. The EPA could issue the proposed rule change in the next few months.
The potential policy change could allow an extra billion gallons or more of biofuel each year to qualify toward a U.S. mandate. The potential change would increase the number of available compliance credits available, likely making them cheaper for refiners, such as Valero Energy Corp. and Carl Icahn’s CVR Energy Inc., Bloomberg News reported.
At issue is the treatment of exported biofuel, which is primarily corn-based ethanol. Under current regulations, each gallon of ethanol produced in the U.S. generates a tradable “renewable identification number,” or RIN, that can be used to prove compliance with annual biofuel quotas. But a RIN must be withdrawn if that gallon of ethanol is exported. Because imported ethanol is blended into the fuel supply, credits associated with the use of those foreign supplies qualify for compliance. Adding exports into the equation would make it easier for refiners to meet the government mandate and cut the premium that RINs provide some ethanol producers.
Background. The EPA proposed a requirement that refiners and importers blend in 15 billion gallons of corn-based ethanol and other conventional renewable fuels next year. The industry exported about 1.2 billion gallons of ethanol last year, government data show. Allowing those gallons to count toward U.S. quotas would effectively shave approximately 8% off next year’s proposed quota and dampen demand for higher ethanol-gasoline blends that have helped companies comply with the rules. To make the policy shift, the EPA might formally propose it and give the public a chance to weigh in. The action could be timed to coincide with a decision not to shift the burden for complying with the program, a shift Icahn favors.
— Theresa May has threatened a trade war with the U.S. after it slapped punitive tariffs on Bombardier’s British-built aircraft. She also warned that long-term partnership with the government is being “undermined by this behavior.” May has appealed directly to President Trump to intervene in the dispute, which has dented her hopes of signing a post-Brexit free trade deal with the U.S.
— Other items of note include:
- Fallout from a U.S. decision to place punitive import duties on a new Bombardier Inc. jetliner is growing as the UK criticizes the action. Link
- India slashed its duty drawback rates in a move expected to raise expenses for apparel exporters. Link
- China is delaying enforcement of sweeping new controls on food imports following complaints that they would disrupt trade. Link
- Monsanto Co is developing what it hopes will be North America’s fastest-maturing corn despite a global grain glut. Link
- U.S. trucking companies say they are seeing the strongest upturn in demand in more than a decade. Link
- USDA Secretary Sonny Perdue is slated to discuss the trade agenda for agriculture at an event organized by the Washington International Trade Association on Oct. 4.
— Markets: The 10-year Treasury yield rose to 2.348%, the highest in two months, as President Donald Trump promoted what he called “the largest tax cut” in U.S. history. U.S. equities surged on hopes that the cuts will become law this year, but congressional hurdles and the legislative calendar are daunting. West Texas Intermediate was at $52.73 a barrel, the highest level in more than five months.
