TRADE UPDATE

Food & Agriculture
January 25, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

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HIGHLIGHTS

  • USMCA: Mexico’s National Council of Science and Technology cut its recommendation for maximum glyphosate imports by half this year, taking a step closer to the Mexico Decree that calls for banning the use of glyphosate by 2024. Separately, several environmental organizations sent a letter urging President Biden to elevate climate change diplomacy with Mexico, including using all available tools under USMCA.
  • U.S. – China: Testifying before the House Agriculture Committee, Agriculture Secretary Vilsack emphasized the Biden administration is working with China to address its shortcomings in agriculture purchases and sanitary and phytosanitary commitments, among others, under the Phase One trade agreement.
  • U.S. – EU: EU trade chief Valdis Dombrovskis expressed deep concern that the proposed U.S. tax credit for electric vehicles (EV), which the EU views as violating trade commitments, is still under consideration based on recent remarks by President Biden.
  • Section 232: The U.S. and U.K. have commenced discussions on steel and aluminum tariffs and global overcapacity to find a mutual resolution for the Section 232 tariff dispute. Japan entered negotiations with the U.S. earlier this month, and the EU concluded an agreement to suspend tariffs that became effective January 1, 2022.
  • Section 301: Over 130 Members of Congress sent a bipartisan letter to Ambassador Tai calling on the Biden administration to renew and expand the Section 301 tariff process to tackle supply chain issues and provide tariff relief as inflationary pressures in U.S. economy mount.
  • Biden transition: Secretary Tom Vilsack again confirmed the Biden administration is vetting an unnamed person for the USDA Under Secretary of Trade position, which has been underway “for a considerable period of time” owing to the complexity of the process.
  • WTO: WTO Ministers from 28 countries convened a virtual meeting last week agreeing to forge ahead on key issues, including the WTO’s pandemic response package and an agreement to curb harmful fisheries subsidies, as rescheduling of the 12th Ministerial remains uncertain.

“The implications for global trade, if governments start getting too much into industrial policy, could be quite significant.” “It’s understandable to see people trying to near shore or onshore some of their supply chains. But I would caution that we not take this too far.”

— WTO Director-General Okonjo-Iweala speaking at the World Economic Forum

USMCA

  • Mexico announced action to move a step closer to the Decree issued in late 2020 to eliminate use of glyphosate by 2024.  Last week Mexico’s National Council of Science and Technology (CONACYT), cut its recommendation for maximum glyphosate imports by half this year, urging agriculture businesses to take steps to reach a government target of phasing out the herbicide completely by 2024. CONACYT advised a maximum import quota of 8.26 million kg for formulated glyphosate, and 628,616 kg for the more concentrated technical glyphosate, which it said are half the amounts it recommended last year. “This action moves forward the process to gradually eliminate glyphosate that will culminate in 2024 with its total ban,” CONACYT said in a statement, noting that alternatives exist for weed management.
  • On December 31, 2020, Mexican President Lopez Obrador issued an executive decree calling for the phase out of glyphosate and GMO corn by 2024, based on a drive in Mexico to achieve food self-sufficiency without using toxic chemicals, a policy supported by many environmental and food safety groups in Mexico.
  • President Biden faces increasing pressure to hold Mexico to its commitments to reduce greenhouse gas emissions. Last week, ten environmental organizations signed a letter sent to the White House, addressing climate diplomacy between the two countries. “We urge you to further elevate climate change in all U.S. government engagement with Mexico, including but not limited to using all available tools under the U.S.-Mexico-Canada trade agreement (USMCA),” the letter states. The correspondence goes on to admonish a current proposal to modify the Mexican constitution, which would “prioritize the dispatch of electricity from fossil fuel plants owned by the Federal Electricity Commission (CFE).” Due to the close political, economic, and geographic relationships between the U.S. and Mexico, environmentalists fear the proposed Mexican constitution modification will “undermine the clean energy transition of key productive sectors in the North American economy.” This fear has thus prompted a heightened sense of concern from environmental groups, urging the Biden admiration to act under USMCA.
  • As noted earlier, 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 CUSMA 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.
  • 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.

China Trade

  • Relations between the United States and China are set to remain strained, which could prompt Beijing to continue diversifying its imports of agricultural goods and keep America’s share low, according to a report by Fitch Solutions. The report notes that China may continue to limit soybean and other agricultural purchases from the U.S. as geopolitical tensions persist. The research suggested that Brazil would benefit from China’s purchase diversification, with its share in the Chinese market poised to stay elevated and could rise further for some commodities such as meat and cotton.
  • During testimony before the House Agriculture Committee, last Thursday, Agriculture Secretary Vilsack responded to several questions on the China agriculture trade relationship. In response to a question from Rep. Tracey Mann (R-KS) on how the Biden administration plans to hold China accountable for unfair trade, Secretary Vilsack noted that 2021 was record year for agricultural exports, propelled largely by China. He emphasized the Biden administration is engaged in an ongoing discussion with China about their purchasing deficiencies and sanitary and phytosanitary commitments.

Phase One Agreement

  • President Biden commented on his desire to ease China tariffs during a news conference at the White House this week. “I’d like to be able to be in a position where I could say they’re meeting their commitments, or more of their commitments, and be able to lift some of them,” Biden responded to a question on U.S.-China trade relations, “but we’re not there yet.” The Biden administration continues to press China to meet their purchasing commitments under the Phase One agreement. Gary Locke, former Washington State governor and U.S. Ambassador to China noted that “unless there’s a signal, a clear change of behavior — commitments by the People’s Republic of China on these tough economics and trade policies — I think it would be very hard for the Biden administration to reduce or eliminate those tariffs.”
  • According to reports, the White House is under increasing pressure to show its willingness to punish China for not fulfilling its commitments under the Phase One agreement, which was negotiated two years ago and went into effect in February 2020. Some observers suggest the Biden administration must walk a fine line between pursuing punitive countermeasures and encouraging China to continue meeting all its purchase commitments, and other aspects of the agreement.
  • China’s imports from the U.S. were less than 60% of the deal’s target, according to Bloomberg analysis.
  • Commenting on China’s agriculture purchases under the Phase One trade deal, USDA Secretary Tom Vilsack said China is “about $13 billion short” on the commitments, and that Ambassador Katherine Tai will certainly press the Chinese officials to meet all of the commitments under the trade pact. At the American Farm Bureau’s annual convention Vilsack noted that eliminating the 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.”
  • Biden administration officials have repeatedly said they aim to hold China accountable for meeting its commitments under the Phase One agreement. Dan Whitley, Administrator for USDA’s Foreign Agricultural Service 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” as U.S. exporters are eager to build on the expanded exports under the agreement.

COVID-19

  • Pressure on global supply chains eased slightly in recent months, but remains at a historically lofty level, based on input shortages as measured by the Purchasing Managers’ Index (PMI).  In 2021, delivery times increased nearly four-fold, and January 2022 began with many companies reporting severely constrained output and input costs, dramatically rising to their highest levels in 10 years, injecting additional uncertainty in delivery of manufacturing inputs.

Other

  • Last week USDA Secretary Tom Vilsack issued a summary of 2021 achievements in creating “better markets” for U.S. agriculture.  Highlights regarding agriculture trade, exports, and market access include:
    • The United States exported a record $172.2 billion in farm and food products in fiscal year 2021, up 23 percent from 2020. Our top 10 markets all saw gains and China regained its spot as our largest market, with a record $33.4 billion in agricultural purchases – nearly double the 2020 total. Worldwide exports of many U.S. products, including corn, soybeans, beef, and horticultural products also set new records.  
    • Producers, processors, exporters, and rural communities have all benefited, with every $1 billion in U.S. agricultural exports stimulating another $1.14 billion in domestic economic activity and supporting more than 7,700 full-time civilian jobs. That means exports support more than 1.3 million American jobs, not just on the farm but also in related industries such as food processing and transportation. 
    • The Foreign Agriculture Service (FAS) lead USDA’s efforts to secure new market access for U.S. pork to India, poultry to Venezuela, and apples and pears to Argentina, among others. In addition, FAS helped: preserve access to the Mexican market for $3.6 billion in processed food products; reopen the $46 million market for seafood in Indonesia; protect the $62 million market for beef to Egypt; preserve access to Brazil’s market for $35 million of U.S. milk products, $7 million of beef, and $9 million of seafood; and ensure continued access for $79 million in veterinary products to Ukraine.

Section 232 Investigations

Anne-Marie Trevelyan, U.K. Secretary of State for International Trade
  • The U.S. and U.K. have commenced discussions on global steel and aluminum overcapacity to find a mutual resolution for Section 232 disputes. Secretary of Commerce Raimondo, Ambassador Tai, and U.K. Secretary of State for International Trade Trevelyan met virtually last week, discussing U.S. Section 232 tariffs on U.K. imports and U.K. retaliatory tariffs on U.S. exports to the U.K. “They agreed that, as the United States and the United Kingdom are close and long-standing partners, sharing similar national security interests as democratic market economies, they can partner to promote high standards, address shared concerns and hold countries that practice harmful market-distorting policies to account,” according to a U.S.-U.K. joint statement on the issue. Following the introduction of these tariffs, the EU and U.K. established retaliatory tariffs on several U.S. goods. In October of 2021, the U.S. and the EU reached an agreement, restoring U.S.-EU market-oriented conditions. Now, long-awaited talks with the U.K. have also begun.
  • Two weeks earlier, 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.”

Section 301 Investigations

Congressman Ron Kind (D-WI)
  • The long-expected bipartisan letter on Section 301 tariff exclusions was sent last week to Ambassador Katherine Tai. The letter calls on the Biden administration to renew and expand the Section 301 tariff process to tackle supply chain issues and provide tariff relief as inflationary pressures in U.S. economy mount.  Reps. Ron Kind (D-WI), Darin LaHood (R-IL), Suzan DelBene (D-WA), and Jackie Walorski (R-IN) were joined by 137 other lawmakers on the letter. The letter referenced Trump-era tariffs on imports from China as harming many U.S. businesses struggling amid a pandemic that has affected supply chains around the world. However, the lawmakers emphasized their support for “tough and effective action to address China’s unfair trade practices.” The letter noted 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 “expand its exclusion process as quickly as possible to give American workers, businesses, and families badly needed economic relief.”
  • Regarding the letter, Rep. Ron Kind stated, “Many of these tariffs are continuing to harm Wisconsin businesses, especially our small and medium sized enterprises, and putting additional economic stress on families by driving up the price of many products.” “That’s why today I joined my colleagues on both sides of the aisle in urging USTR to expand its exclusion process as quickly as possible to provide badly needed relief for workers, businesses, and families across the state.”
  • Rep. Jackie Walorski noted the need for tariff relief and a transparent exclusion process stating, “As America counters the Chinese government’s unfair trade practices, it’s essential that we defend American workers, manufacturers, farmers, and consumers. A robust and transparent Section 301 exclusion process delivers vital relief to hardworking Hoosiers and Americans across the country and expanding the current process would empower Americans to succeed today and in the years ahead.” “I’m proud to help lead this bipartisan effort to support our workers and businesses, and I will continue to push for policies that level the playing field and equip Americans to compete in the global market.”

Biden Transition

  • Anticipation is building for the Biden administration to announce a nominee for USDA’s Under Secretary for Trade.  Secretary Tom Vilsack again, during a Congressional hearing, confirmed the administration is vetting an unnamed person for the position.  Vilsack noted the complexity of the process, stating the vetting process has been underway “for a considerable period of time,” owing to a “very complex set of business relations” of the person and they’re currently working through potential “ethics problems” with the person’s financial investments.
  • Separately, 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 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 an IP waiver at the WTO regarding Covid vaccines.

Indo- Pacific Economic Framework

  • At a hearing by the Foreign Affairs Asia, the Pacific, Central Asia subcommittee, several lawmakers and trade experts called on Biden trade officials to take meaningful and swift action in the Indo-Pacific region, including through a digital economy initiative. “A bold, meaningful and impactful and inclusive Indo-Pacific Economic Framework with a strong digital pillar could go a long way in reasserting U.S. leadership and influence in the region,” Wendy Cutler, a former USTR negotiator said as a hearing witness. “But time is of the essence. We need to move now to help shape the economic future of the region or risk becoming observers, as others do.” The Biden administration to date has provided limited detail on the Indo-Pacific Economic Framework (IPEF) initiative, which Ambassador Tai and Commerce Secretary Raimondo have discussed with trading partners including South Korea, Singapore, New Zealand, Australia and Japan. Commerce Department and USTR officials are expected to unveil more details on IPEF in the next several weeks, which Raimondo has signaled will address the digital economy, global supply chains, and climate change issues, among other ambitions.
  • Charles Freeman, U.S. Chamber of Commerce (USCC) senior vice president for Asia, noted the significance of the digital economy in relation to the roll out of the Indo-Pacific Economic Framework at a Chamber of Commerce virtual event pertaining to Trade, Security, and AI. “A digital agreement should be fundamental — and as the administration rolls out its economic framework with respect to the Indo-Pacific, a digital agreement has to be front and center in that effort,” remarked Freeman. The USCC senior vice president also emphasized the importance of the Indo-Pacific Economic Framework in terms of strengthening U.S. trade presence in Asia as China continues to become more competitive in the region.
Ambassador Tai and Minister Yeo meet to discuss IPEF
  • South Korean Minister for Trade Yeo Han-koo and USTR Katherine Tai met virtually to discuss the strengthening of U.S.-South Korea trade relations under the Indo-Pacific Economic Framework (IPEF), prior to the South Korean minister’s in-person visit next week. Few details regarding the nature of a renewed U.S.-South Korean partnership under IPEF have been released. Anticipation builds around the framework as more Asian countries express interest.

U.S. – EU

  • EU trade chief Valdis Dombrovskis warned his U.S. counterpart Katherine Tai during a call last week on the proposed U.S. tax credit for electric vehicles (EV). Dombrovskis said the proposal could “potentially discriminate between domestic and foreign car manufacturers.” Last fall the EU ambassador, Stavros Lambrinidis, in a letter to congressional leaders, argued that the proposed tax credit would violate U.S. international trade commitments.
  • The EV tax credits, as part of the Build Back Better legislation, hit a brick wall in December, lacking support from key Democrats, including Joe Manchin (D-WV).  However, last week at a White House news conference, Biden indicated ambitions to break up the roughly $2 trillion Build Back Better agenda into smaller parts that would be easier to pass. That would include about $500 billion in climate proposals. In the call, which according to reports was “friendly and detailed,” Dombrovskis and Tai also discussed WTO negotiations and preparations for the second meeting of the Trade and Technology Council (TTC), scheduled for this spring.
  • EU officials confirmed they will appeal the U.S. District Court’s recent ruling permitting general use of Gruyere, a significant win for U.S. dairy interests.  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 added, “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.”

U.S. – U.K. Trade

  • 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. – Africa

Congressman Richard Neal (D-MA)
  • In a letter addressed to International Trade Commission Chairman Jason E. Kearns, House Ways and Means Committee Chairman Richard E. Neal (D-MA) requested the U.S. International Trade Commission (USITC) to “conduct an investigation and provide a report on the [African Growth and Opportunity Act (AGOA)] program in general and its usage.” AGOA, which was originally enacted in 2000, aims to promote economic growth and foster trade between the U.S. and Africa, allowing certain goods from eligible African states duty-free access to the U.S. market. “The report should also provide industry case studies to better understand the relative competitiveness of each sector and its impact on workers, economic development, and poverty reduction,” wrote Neal. The congressman’s letter demonstrates the House Ways and Means Committee’s continued interest in U.S.-Africa trade.

WTO

  • WTO Ministers from 28 member countries convened a virtual meeting to forge ahead on key agenda issues – principally regarding the WTO’s pandemic response package and an agreement to curb harmful fisheries subsidies – and call for a “pragmatic” approach to conclude negotiations as possible. “Ministers supported the continuation of work on all issues under negotiation with a view to achieving tangible results as soon as possible and underlined their readiness to intensify negotiations building on progress realized so far,” Swiss Federal Councilor Guy Parmelin remarked. Parmelin, who extended the invitation on the sidelines of the World Economic Forum continued, “Given the uncertainties about the timing and format of MC12, many favored a pragmatic approach to conclude negotiations on a given issue if sufficient progress has been achieved.”
  • Ambassador Katherine Tai was one of several key trade officials who attended the meeting. During the conversation, “Ambassador Tai highlighted the WTO’s important role in facilitating a robust global economic recovery from the pandemic and finding pragmatic solutions to increase vaccine production,” according to a readout from the Office of the U.S. Trade Representative. Tai also said the discussion focused on “the path forward for ministerial engagement in 2022.” Ambassador Tai urged WTO leaders and global trade leaders to think anew, “I think that it is time for us to acknowledge that our goal really shouldn’t be to try to go back to the way the world was, say in 2019, but to take lessons, very hard earned lessons, very painful lessons that we have experienced over the past two years and take this opportunity to build toward something that is different and better.” She continued, “This is an opportunity and a time to think and act boldly,” she continued. A global, worker-centric trade policy focuses on a high standard of living, transparency, inclusiveness and competitiveness. The object is “not just to generate wealth and income but to improve the lives of people.”
  • The Ottawa Group held a virtual meeting last week focused on WTO reform and next steps. The group agreed to elevate efforts with other WTO members to restore a fully functioning WTO dispute-settlement system, according to a readout from Canada, the leader of the group. The group also discussed the priority outcomes for the 12th Ministerial, particularly on trade and health, fisheries subsidies and agriculture. “We are focused on advancing key WTO initiatives and maintaining momentum concerning trade and health, fishery subsidy negotiations and WTO reform to support a strong, sustainable and inclusive global economic recovery from the COVID-19 pandemic,” Canadian International Trade Minister Mary Ng said in a statement.
  • Led by Canada, the Ottawa Group is comprised of 14 likeminded WTO Members (Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore, Switzerland and the United Kingdom), aspiring to help WTO Members address specific challenges in the multilateral trading system. The group aims, through a bottom-up process, to “contribute ideas and analysis towards achieving meaningful, realistic and pragmatic reforms to the WTO over the short, medium and long term.”