TRADE UPDATE

Food & Agriculture
January 18, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: Senate and House leadership requested Ambassador Tai ensure USMCA enforcement on multiple agriculture trade concerns with Mexico, including biotech approvals, dairy restrictions, bans of glyphosate and GM corn, and potato import restrictions.
  • U.S. – China: USDA Secretary Vilsack said China is “about $16 billion light” on Phase One purchase commitments and the U.S. will seek to hold China to fully meeting obligations under the Phase One trade deal. Separately a USDA report estimates U.S. agriculture export losses exceeded $27 billion under the trade war over U.S. Section 232 steel and aluminum tariffs.
  • Section 232: The U.S. and Japan launched negotiations to resolve the tariff dispute over Section 232 steel and aluminum tariffs, while the start of U.K. talks remains unclear.
  • Biden transition : Robert Califf, President Biden’s nominee to head the Food and Drug Administration (FDA), advanced in the Senate, while USDA Secretary Vilsack confirmed a nominee for USDA Under Secretary for Trade is winding through the vetting process.
  • WTO : A contingent of republican House Members are requesting USTR to pursue a challenge at the World Trade Organization (WTO) regarding India’s wheat and rice subsidies.

“Why not the U.K. yet? I think my response is [that] it’s a matter of pragmatism.” “But certainly, the U.K. is very much on our minds, and I am confident that we will take this up when the time is right.”

— Ambassador Katherine Tai responding to scheduling of Section 232 steel and aluminum tariff talks

USMCA

  • Senate Finance Committee leadership sent a letter to Ambassador Tai urging the Biden administration to ensure USMCA enforcement on multiple agriculture trade concerns with Mexico.  Chairman Ron Wyden (D-OR) and Senator Mike Crapo (R-ID), ranking member on the committee, sent the letter ahead of the Deputy trade officials meeting between Deputy USTR Jaymie White and Mexico’s Under Secretary for International Trade, Luz Maria de la Mora.  In the letter, Wyden and Crapo noted the following concerns:
    • “Potatoes: Mexico limited U.S. imports to a sliver of only 26 kilometers below the border. Although Mexico claims to be making progress, the ban is now two decades old. Mexico must promptly end this non-scientific ban to comply with USMCA commitments.”
    • “Biotechnology: Despite agreeing to swiftly consider approval requests for biotechnology products through a transparent and science-based process and ensure its food safety measures are supported by science, Mexico has failed to properly consider or approve applications for innovative U.S. biotech products. The Mexican government’s only decision, in fact, was to issue a rejection that lacked the appropriate science-based justification. In addition, Mexico announced its intention to eliminate biotech corn for human consumption by 2024, a troubling step that would adversely impact access to the largest U.S. export market for corn.”
    • “Dairy: A USMCA panel found that Canada’s policy of reserving portions of its dairy tariff-rate quotas for domestic producers violated its commitments on market access, and Canada must bring itself into compliance by February 3, 2022. USTR must scrutinize the implementation of this decision, as well as Canada’s implementation of its other USMCA commitments on milk pricing and export surcharges.”
  • Representative Kevin Brady (R-TX) the leading republican on the House Ways and Means Committee, sent a similar message via letter to Ambassador Tai ahead of the meeting between Ambassador White and Under Secretary De la Mora.  Brady wrote that Mexico “remains in violation of its USMCA commitment to promptly consider applications for innovative U.S. agricultural biotechnology products and support all approval decisions with scientific evidence.” 
  • A USTR readout from the meeting between Deputy USTR White and Under Secretary Del la Mora indicated that Ambassador White “highlighted science- and risk-based regulatory approaches in agriculture, and the approval of agricultural biotechnology products that can help farmers meet sustainable production goals; enhanced trade facilitation efforts” among other U.S. concerns in the bilateral trade relationship.
U.S. and Mexico Deputies USMCA meeting
U.S. and Mexico Deputies USMCA meeting
  • Canada announced it will join Mexico’s request for a USMCA dispute panel regarding the U.S. interpretation of USMCA’s automotive rules of origin.  The announcement was expected as Canadian officials have voiced concerns for several months on the U.S. interpretation of the provisions in the USMCA.  Canadian International Trade Minister Mary Ng said, “Canada, Mexico and the United States would all benefit from certainty that USMA is being implemented as negotiated, and Canada is optimistic that a dispute settlement panel will help ensure a timely resolution of this issue.” Ng emphasized that a dispute settlement panel could issue a ruling as early as the summer of 2022.
  • Earlier this month, Mexico said it will request a USMCA  dispute settlement panel challenging the U.S. interpretation of the trade deal’s rules of origin for automobiles. Mexican officials indicted the action was necessary given earlier consultations failed to resolve the differences between the U.S. and Mexico. “The United States imposes requirements that are inconsistent with the USMCA on automotive producers in order to calculate the Regional Value Content of passenger vehicles, light trucks and their parts,” Mexico’s Ministry of Economy said in a statement. A USTR spokesperson said, “We are reviewing Mexico’s request to establish a panel and remain confident that the U.S. interpretation of the automotive rules of origin is consistent with the USMCA.”
  • The USMCA raises the regional content requirement for passenger vehicles to 75% from around 62% under the NAFTA. After a phase-in period that ends in 2023, only vehicles that meet the content requirements will have duty-free access to the United States. Mexico and the U.S. disagree on the treatment that can be given to certain materials or parts from outside the region in calculating regional content of vehicles. Canada earlier echoed similar concerns and may join Mexico in formally challenging U.S. application of auto rules of origin provisions under the USMCA.  This is the first dispute settlement case filed by Mexico under the USMCA.
  • With the proposed U.S. electrical vehicle (EV) tax credit stalled in the Senate, trade tensions with Mexico and Canada on the issue have taken a back seat to other USMCA concerns. Mexican and Canadian trade officials have warned they would act against the EV tax credits, which they contend violate USMCA. The EV tax credits are part of the Build Back Better Act, which passed the House in late 2021, and would provide up to $12,500 in tax credits for buying an electric vehicle, including $4,500 if a vehicle is assembled at U.S. plants with unionized labor and $500 if it has at least 50 percent domestic content and U.S.-made battery cells. Starting in 2027, credits would only be available for vehicles assembled in the United States.

China Trade

  • U.S. agriculture export losses exceeded $27 billion under the trade war over U.S. Section 232 steel and aluminum tariffs, according to a USDA study. USDA’s Economic Research Service (ERS) estimates that retaliatory tariffs caused a reduction of more than $27 billion (or annualized losses of $13.2 billion) in U.S. agricultural exports, with the largest decline in export losses occurring for exports to China. ERS found that soybeans accounted nearly 71 percent or $9.4 billion of the total export losses, followed by sorghum (over 6 percent or $854 million in annualized losses), and pork (nearly 5 percent or $646 million in annualized losses). ERS noted that U.S. agricultural exports to China significantly rebounded following the Phase One Agreement entry into force yet after the first year of the deal, U.S. market share remained below pre-retaliatory tariff levels.
US ag exports to China 1999-2022

Phase One Agreement

  • Commenting on China’s agriculture purchases under the Phase One trade deal, USDA Secretary Tom Vilsack said China is “about $16 billion light” on the commitments, and that Ambassador Katherine Tai will certainly press the Chinese officials to meet all of the commitment under the trade pact. “Making up that $16 billion deficit over the course of the next several years and also working on those sanitary and phytosanitary barriers that still exist in the Chinese relationship that they agreed to remove … All of these steps China can take — and needs to take — to live up to this ‘phase one’ agreement are important and we’re going to continue to press China on the need for complete enforcement and complete implementation,” Vilsack said speak at the American Farm Bureau’s annual convention.
Shu Jueting, spokesperson, China’s Commerce Ministry
  • The Chinese government expressed optimism that the U.S. could foster conditions to expand trade cooperation, though Chinese purchases of U.S. goods under the Phase One agreement are falling short of the quantitative targets. Commerce Ministry spokesperson Shu Jueting said in a news conference that, “Since the agreement came into effect, China has worked hard to overcome multiple adverse factors caused by the impact of a pandemic, the global recession and supply chain disruptions, and pushed for the implementation of the deal from both sides.” Shu continued, “We hope the United States could create a favorable atmosphere and conditions for both sides to expand trade cooperation,” and noted that the U.S. and China trade teams are maintaining communications.
  • Biden administration officials have repeatedly said they aim to hold China accountable for meeting its commitments under the Phase One agreement. At a recent agriculture convention, Dan Whitley, Administrator for USDA’s Foreign Agricultural Service Administrator said the U.S. will hold China fully accountable to meeting its purchase commitments under the Phase One deal. He characterized the two-year mark of the trade pact as a “soft end” and U.S. exporters are eager to build on the expanded exports under the agreement.

COVID-19

  • U.S. import prices increased 10.4 percent in 2021, the largest increase in 14 years, confirming sustained inflationary pressures on the U.S. economy.  The Labor Department’s recent monthly report indicated that import fuel prices, which jumped 62.7 percent in 2021, accounted for the majority of increased import prices. The price indexes for petroleum and natural gas also rose over the past year, advancing 62.0 percent and 86.9 percent, respectively.
  • U.S. export price increases were similarly strong in 2021, with export prices increasing 14.7 percent, the largest increase since the series launched in 1984. Agricultural export prices increased 21.7 percent in 2021, the largest annual increase since 2007. Prices for nonagricultural exports increased 13.8 percent.

Section 232 Investigations

  • Last week the U.S. and Japan  launched negotiations to resolve the tariff dispute over Section 232 steel and aluminum tariffs. The U.S.-Japan Business Council (USJBC) issued a statement welcoming the talks to address global steel and aluminum overcapacity and U.S. tariffs on Japan’s steel and aluminum imports. “The U.S.-Japan Business Council welcomes the agreement between the United States and Japan to start consultations on steel and aluminum overcapacity and urges the U.S. government to swiftly rescind the Section 232 tariffs on Japan.”  The statement continued, “The U.S.-Japan Business Council has been steadfastly opposed to the Section 232 tariffs from day one, given the significant negative economic impact felt here in the United States by both industry and consumers, the integrated automotive industry and its global supply chain, and the broader U.S. and Japanese economies. The swift removal of these Section 232 tariffs will allow our countries to refocus on important issues of mutual interest, particularly related to economic security, supply chains, and the clean energy transition. The U.S.-Japan Business Council looks forward to continuing to work with both the U.S. and Japanese governments to advocate for a mutually beneficial economic relationship.”
Katherine Tai, US Trade Representative
Katherine Tai, U.S. Trade Representative
  • U.K. and other stakeholders are clamoring for USTR to commence talks on Section 232 tariffs, with the agreement steel and aluminum TRQs in effect for the EU.  Leading into the new year, U.K. officials expected talks to commence soon, however, Katherine Tai’s recent remarks placed that timeline in question. “Why not the U.K. yet? I think my response is [that] it’s a matter of pragmatism,” she said responding to a question during a speaking engagement at the Institute of International and European Affairs meeting in Dublin.  Tai continued, “It took us six months to conduct these negotiations with the EU. We have formally started our consultations on [Section 232 steel and aluminum tariffs] with Japan as of the second half of December, and we just need to have a process that makes sense,” she said. “But certainly, the U.K. is very much on our minds, and I am confident that we will take this up when the time is right.”
  • As reported earlier, Several U.S. and foreign automakers are opposing potential imposition of tariffs on neodymium magnets, currently under consideration through a Section 232 investigation at the Department of Commerce.  The neodymium magnets are used in electric vehicles, as well as defense applications like fighter aircraft, naval ships and missile systems, and increasingly essential magnets are also components in wind turbines, computer hard drives, audio equipment and magnetic resonance imaging equipment.
  • The Commerce Department launched a Section 232 investigation into certain magnets last September as part of the Biden Administration’s 100-day supply chain review. Under Section 232, Commerce’s Bureau of Industry and Security (BIS) examines whether certain imports pose a risk to national security and whether the U.S. should impose tariffs or other import restrictions on the imports, in this case neodymium magnets to safeguard national security. The BIS has 270 days ending on June 18 to conclude its investigation, which is subsequently delivered with recommendations to President Biden. Under the Section 232 statute the President has 90 days to announce what policy action, if any, to pursue.

Section 301 Investigations

  • As noted earlier, several lawmakers are developing a Dear Colleague Letter on Section 301 tariffs to USTR calling for the renewal and expansion of the Section 301 tariff exclusion process. According to sources, the draft letter highlights a long-held view by many lawmakers that the tariffs, imposed by the Trump administration on hundreds of billions of dollars’ worth of Chinese goods, are harming many U.S. businesses struggling amid a pandemic that has affected supply chains around the world. “We applaud your recent announcement of a new exclusion process and appreciate your willingness to consider additional exclusion processes,” the draft letter states, referring to USTR’s decision to restart the process of evaluating requests for products to be exempted from the duties. The letter notes the restart of “a limited number of expired tariff exclusions is an important first step to help workers in industries that have limited, if any, alternative sourcing options as they continue to struggle through the pandemic and supply chain disruptions.”  “That process, however, is too narrow, opening only 1 percent of the original exclusion applications for reconsideration.” The letter calls on USTR to “immediately expand its exclusion process in order to support American workers, businesses, and our economic recovery.”

Seasonal Produce

  • The U.S. International Trade Commission (USITC) released its investigative reports delivered to USTR last month regarding import competition of cucumbers and squash (Cucumbers: Effect of Imports on U.S. Seasonal Markets, with a Focus on the U.S. Southeast, and Squash: Effect of Imports on U.S. Seasonal Markets, with a Focus on the U.S. Southeast). The USITC found that absent “above-average increases” in U.S. imports of cucumbers from Mexico between 2008 and 2020 and in U.S. imports of squash between 2009 and 2019, import prices of each would have been higher, leading to greater domestic consumption and “increased U.S. production, revenue, and operating income” between 2015 and 2020, according to USITC statements on the cucumber and squash investigations. 
  • In December of 2020, USTR requested the USITC investigate imports of cucumbers and squash and the effect of these imports on the domestic seasonal markets. The Section 332 investigations (i.e., monitoring investigation) examine  monthly price trends, including analysis and comparison of the prices of domestically produced products and imported products. The investigative requests from USTR followed a letter from then Georgia Senators Kelly Loeffler and David Perdue, requesting import monitoring actions on cucumbers and squash imports from Mexico under Section 332 of the of the Tariff Act of 1930, arguing the rapidly rising Mexican import market share and declining U.S. prices.   
  • The requested “monitoring” investigations on imports of cucumbers and squash were preceded by a similar USTR request regarding imports of strawberries and bell peppers as part of the Trump administration’s Seasonal Produce Plan. Several trade experts have indicated that information obtained in the monitoring investigations may form the basis for launching import restrictive policy actions (e.g., section 201 global safeguard investigation).  Mexican officials and lawmakers have expressed concern that the reports could “encourage the adoption of policies or measures that affect Mexican exports.”

Biden Transision

Dr. Robert Califf, FDA Commissioner nominee
  • President Biden’s nominee to head the Food and Drug Administration (FDA), Robert Califf, advanced in the Senate last week. By a vote of 12-8, the Senate HELP Committee advanced Califf’s nomination to lead FDA, the top leadership position for an agency on the front lines of tackling the COVID pandemic.  FDA also plays a leading role in regulating the manufacturing and processing of agriculture and food products.  In opposition were Senators Bernie Sanders (I-VT) and Maggie Hassan (D-NH), and six Republicans, Bill Cassidy (R-LA), Mike Braun (R-IN), Roger Marshall (R-KS), Tim Scott (R-SC), Tommy Tuberville (R-AL) and Jerry Moran (R-KS). Senator Rand Paul (R-KY) did not vote.
  • A former cardiologist, Califf previously served as FDA commissioner for a year toward the end of the Obama administration and is presently a professor of medicine at the Duke University School of Medicine, where he previously served as Vice Chancellor and founded the Duke Clinical Research Institute, and also works as Head of Clinical Policy at Verily Life Sciences.  President Biden nominated Califf last November after a lengthy search as progressive Democrats expressed concerns with potential nominees, including Califf, with potentially strong ties to large pharmaceutical companies.
  • Last week Agriculture Secretary Tom Vilsack confirmed the Biden administration is presently vetting a potential nominee for Agriculture Under Secretary for Trade. No further details were provided. Elaine Trevino, Biden’s nominee for the Chief Agriculture Negotiator role at USTR awaits scheduling of a Senate Finance Confirmation hearing.  Additionally, the nominations of María Pagán’s and Christopher Wilson, for Deputy USTR roles, are presently blocked at the Senate Finance Committee by Senator Mike Lee (R-UT) over concerns with the Biden administration’s position on IP waiver at the WTO regarding Covid vaccines.

Indo- Pacific Framework

  • USDA Secretary Vilsack said the Biden administration is pushing to open markets and reduce barriers to U.S. agricultural exports throughout Asia and the Indo-Pacific in order to move away from U.S. reliance on China’s market. He noted the administration’s pursuit of an Indo-Pacific Economic Framework, with recent engagement by Commerce Secretary Raimondo and USTR Katherine Tai meeting with several Asian leaders in the region.
  • Industry stakeholders and trade observers are eager for more details from the Biden administration regarding the Indo-Pacific Framework, especially in light of rejecting calls for the U.S. to reconsider joining the CPTPP.  Sen. Chris Coons (D-CA) recently cast his support for the Indo-Pacific Economic Framework and emphasized the opportunity to address climate change.  Coons acknowledged the blueprint for a trade agreement is presently unclear and acknowledged the Biden administration is resolutely focused on the domestic economy, the global pandemic, and several foreign policy matters pushing attention toward new trade agreements down the policy priority ladder.  Coons noted that achieving an Indo-Pacific trade deal will depend on the “bandwidth and the bipartisan support for making it ‘yes,’ and I’m continuing to work on that.”

U.S. – EU

  • U.S. dairy interests won a favorable U.S. District Court ruling permitting general use of Gruyere.  The U.S. District Court for the Eastern District of Virginia determined gruyere had become a common generic name for U.S. cheese consumers, disagreeing with Swiss and French producers whose use of the term gruyere is protected throughout the EU and Switzerland.  “The record evidence provides overwhelming evidence that cheese purchasers in the United States understand the term GRUYERE to be a generic term which refers to a type of cheese without restriction as to where that cheese is produced,” the ruling stated.
  • EU officials expressed deep disappointment with the Court’s decision and will appeal.   European Commission spokeswoman Miriam Garcia Ferrer said,  “Labeling rules and intellectual property are territorial.” “So, gruyere – the term gruyere – is a protected European Union geographical indication. It’s also protected as a geographical indication in Switzerland. And the name is protected in the European territory as well as in the territory of those third countries with whom the European Union has an agreement on geographical indications.”  She continued, “Unfortunately, the U.S. has a different approach, so we still have to engage to see whether we could find solutions in the case of problems,” she added.
  • The decision highlights the deep chasm between the U.S. and EU approaches to protecting geographical indications. U.S. dairy producers argue that the EU pursues an aggressive protection of generic cheese, limiting competition and protecting EU producers. In contrast, the EU defends its approaching arguing that protected products are distinct and have historical processes that make them so.

U.S. – U.K. Trade

  • Texas Representative Kevin Brady, a member of the Ways and Means Committee, attested to bipartisan congressional support for new trade agreements with the U.K. and Europe during a Washington Post Live event. Representative Brady additionally noted that “there’s opportunities in Kenya” and bipartisan support for WTO reforms. This eagerness for increased U.S. participation in international trade agreements stems from “bipartisan momentum from the new U.S. Mexico Canada agreement,” according to Brady.
  • Negotiations on a bilateral free trade agreement with the United Kingdom are indefinitely on hold. According to a prior statement by Ambassador Katherine Tai, “The FTA is on pause, but the conversations have not paused.” Tai emphasized how the bilateral relationship needs realignment following Britain’s decision to leave the EU. Tai characterized the present bilateral trade relationship akin to the breakup of a personal relationship. “You know, maybe we all have this experience in life. When you have friends who are couples and they split up right? You have to realign your relationships a little bit,” she said. It is important for the United States to respect the “dynamics” around Brexit, she added.

U.S. – India

  • India has agreed to allow U.S. pork imports for the first time. USDA Secretary Vilsack and Ambassador Tai announced the latest advancement in the strengthening of U.S.- India trade relations, following the U.S.-India Trade Policy Forum meeting, which took place in New Delhi in November 2021. “@SecVilsack and I are very happy with India’s agreement to allow U.S. pork imports for the first time,” tweeted Ambassador Tai. “This is great news for our producers as we continue to strengthen our trade relationship with India – thank you @PiyushGoyal for facilitating this important development.” In November of 2021, India and the U.S. also agreed to expand trade of some agricultural products, including U.S. cherries, alfalfa and distiller dried grains as well as Indian mangoes, grapes, shrimp and water buffalo meat. The two sides also discussed U.S. interest in supplying ethanol to India and speeding up phyto-sanitary work to allow more agricultural imports for both countries, including U.S. pork and Indian table grapes. Additionally, the U.S. and India spoke on the possibility of restoring India’s trade benefits under the U.S. Generalized System of Preferences (GSP). In the 2021 fiscal year the U.S. exported over $1.6 billion worth of agricultural products to India.

WTO

Rick Crawford, Congressman (R-AR)
Rick Crawford, Congressman (R-AR)
  • Several lawmakers are adding their support for requests to USTR to pursue a challenge at the World Trade Organization (WTO) regarding India’s wheat and rice subsidies. Representative Rick Crawford (R-AR) and Tracey Mann (R-KS) and 26 of their Republican House signed a letter to USTR Katherine Tai and USDA Secretary Tom Vilsack urging the Biden administration to pursue tools at the WTO regarding India’s wheat and rice subsidies. The lawmakers wrote, “American commodity producers are operating at a clear disadvantage to their competitors, primarily from India, where the government is subsidizing more than half of the value of production for rice and wheat, instead of the ten percent allowable under WTO rules.” The letter concluded, “Considering India’s activity, we encourage you to initiate the WTO litigation process through a request for consultations.”
  • The House lawmakers’ letter follows a letter from Senator John Boozman, (R-MT) and 17 other Republican colleagues delivering the same message to Secretary Vilsack and USTR Tai in December urging USTR to purse WTO action on India’s wheat and rice subsidies. The Senators called on USTR to “swiftly initiate the WTO litigation process through a request for consultations.”
  • U.S. engagement on restoring the defunct WTO appellate body remains a “secondary” policy priority, according to recent remarks by Ambassador Katherine Tai. Major business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, have called for USTR to begin negotiations aimed at restoring the appellate body. At a recent speaking engagement, Tai said the U.S. “vision” for reforming the dispute settlement function is based on three ideas: that the system should actually help resolve disputes between members; that it should support the negotiating and monitoring functions of the WTO, instead of “stifling” them; and that it should not depend entirely on litigation.
  • Tai emphasized that WTO reform conversation needs to be expanded beyond the appellate body to the overall dispute settlement system. Just as the WTO needs to evolve, so does the dispute settlement system. She suggested that WTO members need to decide what they want from a dispute settlement system.
  • The Swiss government invited WTO ministers to meet virtually later this month on the sidelines of the World Economic Forum (WEF) meetings, January 17-22. Swiss Federal Councilor Guy Parmelin invited WTO ministers to gather virtually on Jan. 21 to discuss the status of WTO negotiations and potential next steps as rescheduling the 12th Ministerial remains in limbo. Earlier, India lobbied for a virtual WTO ministerial gathering focused exclusively on the organization’s pandemic response package and specifically on the proposed waiver of some WTO intellectual property (IP) obligations related to distribution of Covid vaccines. WTO member countries remain sharply divided on the IP waiver issue, stalling negotiations.