The U.S. and Mexican governments reached a new agreement to significantly shift their sugar trade mix, but U.S. sugar producers have failed to endorse the deal, leaving question marks over whether it could still sour broader trade relations.

U.S. Commerce Secretary Wilbur Ross said the “agreement in principle” with Mexican Economy Minister Ildefonso Guajardo calls for Mexico to reduce the share of refined sugar in its exports to the United States, while increasing the share of raw sugar.

He said Mexico met nearly every request by the U.S. sugar industry to fix problems with a 2014 sugar trade agreement.

“Unfortunately, despite all of these gains, the U.S. sugar industry has said it is unable to support the agreement in its present form,” Ross said without elaborating on their objections.

He added that the agreement would go through a final drafting stage in which he hoped that the U.S. producers could come on board with it.

Asked how long this would take, Ross said, “It should be days, not weeks or months.”

The deal cut by Ross and Guajardo leaves Mexico’s overall access to the U.S. sugar market unchanged but refined sugar must fall to 30 percent of overall imports from Mexico from a previous limit 53 percent.

It also lifts the U.S. price paid for Mexican raw sugar to 23 cents per pound from 22.25 cents, while, the price for refined sugar will rise to 28 cents per pound from 26 cents.

These prices exclude shipping and packaging costs, the Commerce Department said in a summary.

An agreement was expected to help avoid potential retaliation from Mexico on imports of U.S. high-fructose corn syrup, a trade battle that would heighten U.S.-Mexico tensions as both countries along with Canada prepare to begin renegotiating the 23-year-old North American Free Trade Agreement in August.

Ross on Monday extended the deadline for the negotiations by 24 hours to complete what he called “final technical consultations” for a deal.

Sources on both sides of the border said on Monday that the U.S. sugar industry had added new demands outside of the terms agreed on earlier in the day by the two governments.

U.S. refiners have complained that high-quality Mexican raw sugar was going straight to sugar consumers, rather than passing through U.S. refineries.

The deal would mark the culmination of a years-long dispute between the countries over sugar, after U.S. groups three years ago asked the government for protection from dumping of subsidized imports from Mexico.

In 2014, the U.S. government slapped large duties on Mexican sugar but hammered out a deal with Mexico that suspended those levies. Factions of the U.S. industry have said that the deal has failed to eliminate harm from Mexican imports.

The U.S. industry involved in the dispute include a coalition of cane and beet farming groups as well as ASR Group, the maker of Domino Sugar that is owned by the politically connected Fanjul family.

ASR and fellow cane refiner Imperial Sugar, owned by commodities firm Louis Dreyfus Company BV, have said they are being starved of raw supplies under the current deal.

They have asked the U.S. government to terminate the pact.

The latest talks began in March, two months after U.S. President Donald Trump took office vowing a tougher line on trade to protect U.S. industry and jobs.
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Qatar’s currency came under pressure on Tuesday as Gulf Arab commercial banks started holding off on business with Qatari banks because of a diplomatic rift in the region.

Banking sources said some banks from Saudi Arabia, the United Arab Emirates and Bahrain delayed letters of credit and other deals with Qatari banks after their governments cut diplomatic ties and transport links with Doha on Monday, accusing Qatar of backing terrorism.

Saudi Arabia’s central bank advised banks in the kingdom not to trade with Qatari banks in Qatari riyals, the sources told Reuters. The central bank did not respond to a request for comment.

Qatar has dismissed the terrorism charge and welcomed a Kuwaiti mediation effort. Doha, the world’s biggest liquefied natural gas exporter, says it has enough reserves to support its banks and its riyal currency, which is pegged to the dollar.

Qatari banks have been borrowing abroad to fund their activities. Their foreign liabilities ballooned to 451 billion riyals ($124 billion) in March from 310 billion riyals at the end of 2015, central bank data shows.

So any extended disruption to their ties with foreign banks could potentially threaten a funding crunch for some Qatari banks. Banks from the UAE, Europe and elsewhere have been lending to Qatari institutions.

Gulf banking sources, who declined to be named because of political sensitivities, said Saudi Arabian, UAE and Bahraini banks were postponing deals until they received guidance from their central banks on how to handle Qatar.

“We will not take action without central bank guidance, but it is wise to evaluate what you give to Qatari clients and hold off until there is further clarity,” said a UAE banker, adding that trade finance had stalled for the time being.

The sources said the UAE and Bahraini central banks had asked banks under their supervision to report their exposure to Qatari banks. The UAE and Bahraini central banks did not reply to requests for comment.

Reserves

With an estimated $335 billion of assets in its sovereign wealth fund and its gas exports earning billions of dollars every month, Qatar has enough financial power to protect its banks.

“We are watching the financial sector very closely. If the market needs liquidity, the central bank will definitely provide liquidity,” a Qatari central bank official told Reuters.

Nevertheless, losing some of their foreign business links could be uncomfortable for Qatari banks because they have been expanding their loans faster than other banks in the six-nation Gulf Cooperation Council. To fund this, they have been seeking loans and deposits from the rest of the GCC.

Among large banks, Doha Bank and Qatar Islamic Bank (QIB) are the most exposed to GCC deposits, with QIB obtaining a quarter of its deposits from the GCC, said Olivier Panis, analyst at Moody’s Investors Service.

“We need to look into the maturity of those deposits but if they’re short-term deposits, this could expose the banks rapidly to reduced confidence from GCC institutions,” he said.

Doha Bank and QIB did not respond to requests for comment.

Because of such worries, the Qatari riyal fell in the spot market on Tuesday to 3.6470 against the U.S. dollar, its lowest level since June 2016, although it later rebounded to 3.6405, almost equal to its official peg of 3.64.

It also fell slightly in the one-year forwards market, where traders bet on rates 12 months from now.

The riyal’s drop “is based on speculation,” the Qatari central bank official said, adding Doha had a “huge cushion” of foreign currency to support the riyal if necessary.

A commercial banker in fellow GCC state Kuwait, which did not sever diplomatic ties with Qatar, said on Tuesday that business with Qatari institutions was continuing as normal.

But there were signs that Qatar’s financial ties might be damaged well beyond the Gulf. Some Sri Lankan banks stopped buying Qatari riyals, saying counterpart banks in Singapore had advised them not to accept the currency.

In Egypt, which also cut diplomatic and transport ties with Qatar, some banks resumed dealing in Qatari riyals after halting trade on Monday, but others appeared to be continuing to limit transactions with Doha.

Banks reducing their business with Qatar could lose out financially, but the damage looks likely to be relatively minor.

Panis at Moody’s estimated under 2 percent of Saudi banking sector assets were related to Qatar and the figure was around 5 percent for Bahrain, while the UAE’s exposure was also small.

 
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Cities are pushing back on the possibility of losing millions of dollars in U.S. anti-terrorism grants under President Donald Trump’s spending plan — the third straight White House that has moved to cut the funding.

The proposed budget would cut cash for the program from $605 million to nearly $449 million for the fiscal year beginning Oct. 1 and require cities such as New York, Los Angeles and Las Vegas to pay 25 percent of the grants.

The administration says it is proposing the cost-share system, similar to other grant programs, to “share accountability” with states and cities.

But lawmakers and local officials argue that reducing funding for the Urban Area Security Initiative would undercut efforts to maintain safe communities. Cities have spent the money on command centers, active-shooter training and personnel to patrol airports, transit hubs and waterways.

Big cities have been down this road before, with funding fluctuating over the years.

President George W. Bush created the grant program after the Sept. 11, 2001, attacks, but scaled it back in his second term. President Barack Obama’s proposed 2017 budget suggested slashing the funding from $600 million to $330 million.

In each instance, local politicians reacted with outrage and questioned the wisdom of taking away money in the fight against terrorism. This year, Congress ignored Obama’s guidance and increased funding by $5 million.

But some cities that have received grants in previous years have not spent all the money, another reason the White House says the changes are needed.

The proposed cuts came a day after the deadly Manchester, England, concert bombing and the same day authorities in Las Vegas tried to ease concerns about the city being targeted in a recent Islamic State propaganda video. It encouraged knife and vehicle attacks and featured images of Sin City, Times Square in New York and banks in Washington, D.C.

Law enforcement officials in Orlando, Florida, told a congressional committee weeks after a nightclub became the site of the worst mass shooting in modern U.S. history that central Florida had missed out on needed training and opportunities to buy equipment because it had not made the cut to receive funding.

Grants are awarded to the highest-ranked urban areas on a list determined by risk of terrorist threats based on past plots or a known presence; whether its infrastructure is a valuable target; and the consequence of an attack on the population, economy or national security.

Last year, the 29 highest-ranked metro areas that applied for a grant received funding.

The Las Vegas area has spent the money on training and equipment for bomb and hazardous-material squads along with computer software and hardware at a law enforcement command center.

Las Vegas received almost $3 million in fiscal year 2016. Irene Navis, planning coordinator and assistant emergency manager in Nevada’s Clark County, said the area would be able to meet the proposed 25 percent cost-share requirement.

“Fortunately, not one agency is going to get the whole amount; it’s split up,” Navis said. “So, for one agency, it might be that they get $25,000 for equipment and the match is really small. Agencies that get a large amount of money, that’s something that they would have to consider. But, in general, in our urban area, it would not be a problem.”

U.S. Rep. Dina Titus, a Democrat whose district includes the Las Vegas Strip, called the funding change a “pay-to-play scheme.”

“It is unimaginable that the administration believes southern Nevada’s security will be improved by cutting vital programs that protect residents and travelers in our community,” she said.

But the government questions why state and local governments aren’t spending all the money if it’s so important.

“The federal government cannot afford to over-invest in programs that state and local partners are slow to utilize when there are other pressing needs,” according to a written justification from the Trump administration.

The office of Sen. Chuck Schumer, the New York Democrat who has sparred with Obama and Trump on the grants, says that because of government procurement rules, it can take time for cities and states to spend the money. But he says that does not mean they have not allocated the money or don’t need it.

New York City received the largest grant last year at more than $178 million, followed by Chicago, Los Angeles and Washington, D.C.

“America’s cities are critical partners in the fight against terrorism — and taking away this funding would undermine the national priority to secure the homeland,” Los Angeles Mayor Eric Garcetti, a Democrat, said in a statement.
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Global airlines made a full-throated defense of globalization on Monday at their largest annual gathering, vowing not to give up on climate change agreements and calling for a swift resolution of a diplomatic rift threatening air travel in the Middle East.

Missing from the general meeting of the International Air Transport Association in Mexico was Qatar Airways Chief Executive Officer Akbar Al Baker. Usually a star of the show, he appeared to have left the summit amid a dispute between Arab powers.

Asked about Saudi Arabia and Bahrain’s move to ban Qatari planes from their airports and airspace, IATA Director General Alexandre de Juniac called for openness.

“We would like borders to be reopened, the sooner the better,” he told reporters, expanding on earlier remarks in the opening session.

“Aviation is globalization at its very best,” he had told executives from IATA’s more than 200 airlines. “As aviation’s leaders, we must bear witness to the achievements of our connected world.”

Qatar Airways could not be reached for comment.

The Arab rift was a stark reminder of the political risks to the airlines, which have run up healthy profits even as the global consensus they rely upon comes under the threat of nationalist and protectionist political currents.

Forecasting a third straight year of robust earnings, IATA raised its 2017 industry profit outlook on Monday to $31.4 billion, up from a previous forecast of $29.8 billion.

The IATA also raised its outlook for 2017 industry revenue to $743 billion from $736 billion on expectations that the global economy will post its strongest growth in six years.

The forecast underscored a new golden age for airlines’ profitability even as carriers scramble to meet fast-changing electronics restrictions, pressure to limit emissions and unprecedented scrutiny on social media over their every mistake.

A United Nations representative urged airline leaders to stand by an industry emissions accord known as CORSIA even as U.S. President Donald Trump breaks with a climate pact struck in Paris last year.

“We need to promote implementation of this historic agreement,” said Olumuyiwa Benard Aliu, president of the U.N.’s International Civil Aviation Organization.

IATA’s de Juniac said the airlines would hold fast to their commitments.

“The very disappointing decision of the U.S. to withdraw from Paris is not a setback for CORSIA,” he told the meeting.  “We remain united behind CORSIA and our climate change goals.”
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The U.S. government is investigating complaints that air bag control computers in some Jeep Liberty SUVs can fail, preventing the air bag system from operating properly in a crash.

The probe covers about 105,000 of the vehicles from the 2012 model year.

The National Highway Traffic Safety Administration says in documents posted Monday that it has received 44 complaints about the problem involving a computer that detects crashes and controls air bag deployment. No related injuries have been reported.

Many drivers told the agency that an air bag warning light came on. In some cases the problem was corrected by replacing the computer, while others kept driving their SUVs with the light on.

 
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On the border of China and Kazakhstan, an international free trade zone has become a showpiece of Chinese President Xi Jinping’s signature Belt and Road initiative to boost global trade and commerce by improving infrastructure and connectivity.

Chinese state media are filled with stories about the stunning success of Horgos, the youngest city of China’s new Silk Road. Last month at China’s Belt and Road Summit — its biggest diplomatic event of the year — promotional videos about Horgos’ booming economy ran on a loop at the press center.

But Chinese business owners and prospective investors who had recently visited the China-Kazakhstan Horgos International Border Cooperation Center (ICBC), told Reuters they were disappointed by the disconnect between the hype and reality.

Rather than the vibrant 21st century trading post of Beijing’s grand vision, Horgos is instead developing a reputation as China’s very own tax haven.

“We were so unimpressed by what we saw that after looking around for three hours, we turned around and drove eight hours straight back to Urumqi,” said a businessman from the capital of China’s far western region of Xianjiang, who only wanted to give his surname, Ma, due to the sensitivity of the topic.

Several business owners echoed complaints about poor design and low visitor numbers made by Ma, who visited Horgos to investigate the viability of opening a high-end clubhouse.

“You’ve got Kazakh farmers walking around with plastic bags full of cheap Chinese T-shirts and you want me to open a club for government officials and businessmen to meet inside the zone — which, by the way, you can’t drive your car into and doesn’t have any five-star hotels?” Ma said.

On the Chinese side of the border there are five malls selling cheap consumer goods, though traders complain there are not enough visitors.

“Sometimes I’ll sit here for a whole day and not make a single sale,” said Ma Yinggui, 56, who has a market stall selling clothes. “Some Kazakhs are rich but most are poor. They come and haggle over a 20 yuan [$2.93] T-shirt.”

More than five years after the 5.3-square-kilometer trade zone opened, much of the Kazakh side remains empty.

Only 25 of the 63 projects on the Kazakh side have investors, according to Ravil Budukov, ICBC press secretary on the Kazakh side. About 3,000 to 4,000 people enter from Kazakhstan each day and around 10,000 from China, he added.

The Xinjiang and Horgos governments declined to make officials available for comment to Reuters for this article.

Huang Sanping, a senior Xinjiang government official, told Reuters at a news conference in Beijing that he had just returned from a visit to Horgos, a city “performing extremely well. It’s full of vitality and flourishing.”

China’s tax haven

Beijing has bestowed numerous tax breaks and preferential policies on Horgos hoping to stimulate growth in this strategic border town in Xinjiang, a key link on the new Silk Road between China and Central Asia, where the government says it is battling to defeat Islamist extremism.

According to Horgos’ tax bureau, 2,411 companies registered in Horgos last year, taking advantage of five years of no company tax, and a further five years paying half rate.

At least half those companies are registered in Horgos solely for tax purposes, estimates Meng Shen, director of Chanson & Co, a boutique investment bank in Beijing.

Chinese celebrities are opting to register production companies in Horgos and an increasing number of financial services and IT companies are also registering there, according to Guan Xuemei from Shenzhou Shunliban, a tax advisory firm that recently opened an office there.

But with no obligation to operate from Horgos or even in Xinjiang, it is unlikely this policy will create jobs or bring money to what has long been an economic backwater, say experts.

“In theory this is a good policy because it aims to stimulate the local economy,” said Shen. “But Beijing didn’t think through the fact lots of companies wouldn’t actually want to operate from Horgos, which is very far away from China’s economic centers.”

Those who do trade in the “free trade zone” find they face restrictions from both sides.

The Russian-led Eurasian Economic Union (EEU) — of which Kazakhstan is a member — limits traders from the Kazakh side to importing up to 50 kg (110 lbs) of any goods per month duty-free.

China bans imports of many food products — the Kazakh goods most desired by Chinese consumers worried about food safety at home — and caps traders from taking more than 8,000 yuan ($1,175) worth of goods out each day.

“The EEU is a significant barrier because Russia and Kazakhstan and other Central Asia countries want to develop their own industries, they don’t want to constantly rely on cheap Chinese goods,” said a former Chinese government official turned businessman, who spoke on the condition of anonymity.

Mao Shishi, 44, who currently raises cattle in nearby Qingshuihe, wants to import wool and wild herbs used in traditional Chinese medicine from Kazakhstan to China through Horgos.

“I’m watching and waiting for any policy changes. Right now we can’t import lamb, fish or wild herbs into China,” Mao said.

Logistics thoroughfare

Plans to develop a parallel special economic zone in Khorgos — as it is known on the Kazakh side — as a logistics hub appear to be having more success.

Trade volumes are skyrocketing at the Khorgos Gateway dry port in Kazakhstan, where container freight is lifted off Chinese trains and onto Kazakh ones because of different gauge rail tracks.

“According to our plans, this year we are going to trans-ship around 100,000 TEUs, five times more than we are doing now,” said Asset Seisenbek, head of the commercial department at Khorgos Gateway, referring to “twenty-foot equivalent units,” an industry measure based on standard shipping container sizes.

Electronics giants HP and Foxconn both ship goods through the dry port, which is faster than sea freight but cheaper than air cargo. One container sent by sea to Europe is about three times cheaper than rail, while air freight is between five to 10 times more expensive, according to Seisenbek.

Last month, China’s COSCO Shipping and Lianyungang port took a 49 percent stake in Khorgos Gateway — which Seisenbek sees as an opportunity to attract more Chinese business.

This sort of investment is what Horgos/Khorgos should hang its hat on, according to Ma, the businessman underwhelmed by the international free trade zone.

“The free trade zone doesn’t need to be that successful if the intercontinental trains and roads take off,” he said. “In the grand scheme of things, that’s the main role for this part of the world.”
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The productivity of American workers was flat in the first three months of this year, while labor costs rose at the fastest pace since the second quarter of last year.

Productivity growth was zero in the January-March quarter after rising at a 1.8 percent annual rate in the fourth quarter, the Labor Department reported Monday. It was the weakest performance since productivity had fallen at a 0.1 percent rate in the second quarter of last year but an improvement from an initial reading of a 0.6 percent decline.

Productivity, the amount of output per hour of work, has been weak through most of the current recovery. Many analysts believe finding a way to boost productivity growth is the biggest economic challenge facing the country, but there is no consensus on the cause of the slowdown.

Labor costs rose at a 2.2 percent rate after having fallen at a 4.6 percent rate in the fourth quarter. It was the fastest gain since April-June of last year.

The revision in first quarter productivity had been expected because of the revision to first quarter gross domestic product, the economy’s total output of goods and services. The government initially reported that GDP had risen by a tepid 0.7 percent rate in the January-March perio. But that was revised to show a slightly better reading of a 1.2 percent gain. The boost in output led to the better reading for productivity.

Since 2007, productivity increases have averaged just 1.2 percent. That’s less than half the 2.6 percent average annual gains turned in from 2000 to 2007, when the country was benefiting from increased efficiency from greater integration of computers and the internet into the workplace.

Rising productivity means increased output for each hour of work, which allows employers to boost wages without triggering higher inflation.

The effort to boost productivity back to the levels since before the Great Recession will likely be a key factor in determining whether President Donald Trump will achieve his goal of boosting overall growth from the weak 2.1 percent average seen since the recession. The economy’s potential for growth is a combination of increases in the labor force and growth in productivity.

During the campaign, Trump pledged to double growth to 4 percent or better. Trump last month released a budget that projects faster economic growth will produce $2 trillion in deficit reduction over the next decade but that forecasts expects growth to rise over the next few years to a sustained pace of 3 percent annual gains.

 
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Diversification is a growing trend in some sectors of the agriculture industry. Some winemakers in the northwestern state of Oregon are branching out into marijuana as a new business venture. Faith Lapidus reports.
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The Trump administration is considering possible sanctions on Venezuela’s vital energy sector, including state oil company PDVSA, senior White House officials said, in what would be a major escalation of U.S. efforts to pressure the country’s embattled leftist government amid a crackdown on the opposition.

The idea of striking at the core of Venezuela’s economy, which relies on oil for about 95 percent of export revenues, has been discussed at high levels of the administration as part of a wide-ranging review of U.S. options, but officials said it remains under debate and action is not imminent.

The officials, speaking on condition of anonymity, told Reuters the United States could hit PDVSA as part of a “sectoral” sanctions package that would take aim at the OPEC nation’s entire energy industry for the first time.

Complicating factors

But they made clear the administration is moving cautiously, mindful that if such an unprecedented step is taken it could deepen the country’s economic and social crisis, in which millions suffer food shortages and soaring inflation. Two months of anti-government unrest has left more than 60 people dead.

Another complicating factor would be the potential impact on oil shipments to the United States. Venezuela is the third largest oil supplier for the U.S. after Canada and Saudi Arabia. It accounted for 8 percent of U.S. oil imports in March, according to U.S. government figures.

“It’s being considered,” one of the officials told Reuters, saying aides to President Donald Trump have been tasked to have a recommendation on oil sector sanctions ready if needed. “I don’t think we’re at a point to make a decision on it. But all options are on the table. We want to see the bad actors held to account.”

The U.S. deliberations on new sanctions come against the backdrop of the worst protests faced yet by socialist President Nicolas Maduro, who critics accuse of human rights abuses in a clampdown on the opposition.

Since Trump took office in January, he has stepped up targeted sanctions on Venezuela, including on the vice president, the chief judge and seven other Supreme Court justices. He has pressed the Organization of American States to do more to help resolve the crisis.

While Trump has taken a more active approach to Venezuela than his predecessor Barack Obama, he has so far stopped short of drastic economic moves that could hurt the Venezuelan people and give Maduro ammunition to accuse Washington of meddling.

The two administration officials said the United States is also prepared to impose further sanctions on senior officials it accuses of corruption, drug trafficking ties and involvement in what critics see as a campaign of political repression aimed at consolidating Maduro’s rule.

Oil sanctions big step

But broad measures against the country’s vital oil sector, for which the United States is the biggest customer, would significantly ratchet up Washington’s response. The United States has imposed sectoral sanctions against Russia’s energy, banking and defense industries over Moscow’s involvement in Ukraine’s separatist conflict.

The officials declined to specify the mechanisms under consideration and said the timing of any decision would depend heavily on developments on the ground in Venezuela.

Possibilities could include a blanket ban on Venezuelan oil imports and preventing PDVSA from trading and doing business in the United States, which would have a severe impact on PDVSA’s U.S. refining subsidiary Citgo.

A more modest approach, however, could be to bar PDVSA only from bidding on U.S. government contracts, as the Obama administration did in 2011 to punish the company for doing business with Iran. Those limited sanctions were rolled back after the 2015 international nuclear deal with Tehran.

The Venezuelan government and PDVSA did not respond to requests for comment.

U.S. officials recognize, however, that oil sanctions on Venezuela could exacerbate the suffering of the Venezuelan people without any guarantee of success against Maduro, who accuses Washington and Venezuelan opposition of fomenting an attempted coup.

Given the potential for regional spillover, any decision on oil sanctions would require consultation with Venezuela’s neighbors, the officials said.

“The concern we have is that it will be a very serious escalation,” one official said. “We’d have to be prepared to deal with the humanitarian consequences of essentially collapsing the government.”
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The restaurant business can cause serious heartburn. It’s a mixed salad of bureaucracy, money, and paperwork that keeps some chefs from ever selling that first plate of food. But there may be hope as “restaurant incubators” offer chefs an alternative menu for success. Arash Arabasadi reports from Washington.
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