TRADE UPDATE

Food & Agriculture
February 28, 2023

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: Agriculture Secretary Tom Vilsack confirmed new conversations with Mexico regarding biotech issues will “begin very soon,” potentially setting the stage for formal USMCA consultations. “This is not a situation that lends itself to compromise. And the reason it doesn’t is, from our perspective, you’re talking about a fundamental principle of our trade, which is you need a science-based, rules-based system. And if you begin to inject things that are not scientific, it’s a very slippery slope,” Vilsack said at the USDA’s Agriculture Outlook Forum.
• USMCA: USTR unveiled the USMCA Free Trade Commission decision on North American competitiveness to coordinate North American efforts to maintain regional trade flows during emergency situations. The Commission will also establish a working group under the subcommittee to develop a shared understanding of what constitutes critical infrastructure priorities.
• IPEF: The second round of trade talks on the IPEF Pillar I (Trade) is set for March 12-19 in Bali, Indonesia, according to a joint statement by USTR and the Department of Commerce. Sarah Ellerman, Chief Negotiator and Assistant USTR for Southeast Asia and the Pacific (Acting), will lead the U.S. delegation on the trade pillar.
• Trade Trends: USDA forecasted a record $14.5 billion agricultural trade deficit for fiscal year 2023. Projected imports remained at the previous forecast of $199 billion, however, projected exports were reduced by $5.5 billion to $184.5 billion. The U.S. has historically posted agricultural trade surpluses.
• U.S. – Russia: The White House announced major new economic sanctions against Russia including higher tariffs worth $2.8 billion on 100 Russian metals, minerals, and chemical products and a 200% tariff on Russian aluminum under Section 232. The new sanctions, announced on the one-year anniversary of Russia’s invasion of Ukraine, also include stronger export controls.
• WTO: WTO members endorsed chairs for seven core WTO bodies, including the current Dispute Settlement Body Chair Ambassador Athaliah Lesiba Molokomme of Botswana, who is nominated to head the important General Council in place of the outgoing chair Ambassador Didier Chambovey of Switzerland. The new chair for the WTO’s Dispute Settlement Body will be Ambassador Petter Ølberg of Norway.

“Our priorities have changed — our priorities are small business, working-class Americans and farmers over big corporations. These huge companies that get big tax advantages and have very good trade policies that have allowed them to invest billions in China and overlook Americans while they reap all these tax benefits — that’s something we’re going to be looking into.”

–Representative Jason Smith (R-MO), Chairman House Ways & Means Committee

USMCA

Bilateral conversations on Mexico GM corn decree soon

• During USDA’s annual Agriculture Outlook Forum last week, Secretary Vilsack confirmed new conversations with Mexico regarding biotech issues will “begin very soon.” In response to questions on Mexico’s GM corn import ban, Vilsack said absent a resolution on the issue, the U.S. is prepared to pursue a “formal process” under USMCA. Vilsack continued, “This is not a situation that lends itself to compromise.” “From our perspective, you’re talking about a fundamental principle of our trade…which is you need a science-based, rules-based system. And if you begin to inject things that are not scientific, it’s a very slippery slope,” he emphasized.
  • Separately, USTR Chief Agricultural Negotiator, Doug McKalip said Mexico appears “interested in finding a solution” to concerns expressed by U.S. officials with Mexico’s GM corn. “I think they’d like to avoid going to a dispute panel,” McKalip said speaking to reporters on the sidelines of the USDA’s Agriculture Outlook Forum. McKalip emphasized that the U.S. is not asking for new commitments from Mexico, but rather compliance with the obligations it already agreed to under the USMCA. He further noted that absent a diplomatic solution, “all options are on the table,” a likely reference to dispute proceedings under USMCA.
  • USDA Trade Undersecretary Alexis Taylor added that Mexico’s GM corn ban strikes at a foundational trade principle of science-based policy. “There is a principle issue here,” Taylor told reporters. “A science-based trading system is what the global trading system is built on, and it is certainly what the USMCA is built upon.” Taylor continued, “When it comes to the safety of different types of genetically modified corn, soybeans or other commodities, she argues “the science is the same. And we fundamentally and very strongly believe that.”
• Recall that Mexico released a new decree on Feb. 13 addressing the GM corn ban, superseding the 2020 decree. Effective immediately, the new decree maintains the prohibition of the use of GM corn for human consumption, in products such as flour, dough, and tortillas. In contrast to the 2020 decree, the new decree allows the use of GM corn for industrial use for human consumption and animal feed while Mexico seeks to pursue self-sufficiency in all corn consumption needs.
  • U.S. Secretary of Agriculture Tom Vilsack expressed dissatisfaction with the new decree: “The U.S. believes in and adheres to a science-based, rules-based trading system and remains committed to preventing disruptions to bilateral agricultural trade and economic harm to U.S. and Mexican producers…We are carefully reviewing the details of the new decree and intend to work with USTR to ensure our science-based, rules-based commitment remains firm.”

New USMCA emergency response panel established

• USTR unveiled the USMCA Free Trade Commission decision on North American competitiveness to coordinate North American efforts to maintain regional trade flows during emergency situations. The move, announced by USTR last week, will also establish a working group under the subcommittee to develop a shared understanding of what constitutes critical infrastructure priorities.
  • “The COVID-19 pandemic exposed serious gaps in our three countries’ responses to trade flow disruptions during emergencies, as well as our understandings of what constitutes critical infrastructure priorities,” Ambassador Tai commented. “Our increasingly integrated supply chains depend on the shared maintenance of North American trade flows, especially in light of the supply chain disruptions caused by Russia’s unjust and unprovoked invasion of Ukraine, as well as continuing challenges posed by non-market actors,” she added.
  • According to USTR, the Free Trade Commission “establishes a trilateral Sub-Committee on Emergency Response under the USMCA North American Competitiveness Committee to coordinate North American efforts to maintain regional trade flows during emergency situations. In addition, the Decision creates a Working Group under the Sub-Committee to develop a shared understanding of what constitutes critical infrastructure priorities. USTR will lead coordination of both the Sub-Committee and Working Group in partnership with technical experts from U.S. government agencies with emergency response and critical infrastructure expertise.”  

U.S. – Indo- Pacific

IPEF trade pillar round two set for Indonesia

• Last Friday, the of Office of USTR announced the second round of talks on the IPEF Pillar I (Trade) is set for March 12-19 in Bali, Indonesia. The U.S. delegation, led by USTR, joined by Department of Commerce and other agency officials will be “led by Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting), and Sharon H. Yuan, Department of Commerce Counselor and Chief Negotiator for Pillars II-IV,” according to a USTR and Commerce Department statement. The agencies noted that additional details regarding the Indonesia negotiating round will be provided at a later date.
• Last December, the first round of IPEF trade talks were held in Brisbane, Australia. The first round of talks on IPEF Pillars II-IV were recently held in New Delhi, India.

IPEF diversification opportunity for U.S. agriculture via Trade Pillar

• Speaking at an agriculture industry policy conference, Doug McKalip, USTR’s Chief Agricultural Negotiator, said U.S. official view IPEF’s trade pillar as an opportunity to diversify U.S. food and agriculture exports in the Asia- Pacific region. McKalip highlighted a few key initiatives of focus for USTR regarding agriculture trade.
  • Ensure regulatory transparency and predictability
  • Governments in the framework apply and adhere to science-based policy and regulations
  • Develop clear licensing processes
  • Transparent system-based audits and regionalized approach
  • Sustainability approach that promotes flexibility acknowledging that no one approach fits all markets

Trade Trends

USDA forecasts record agricultural trade deficit for fiscal year 2023

• In its quarterly report, USDA forecasts a record $14.5 billion agricultural trade deficit for fiscal year 2023. Projected imports remained at the previous forecast of $199 billion; however, projected exports were reduced by $5.5 billion to $184.5 billion. The U.S. has historically posted an agricultural trade surplus. In recent years, this surplus has decreased in size, with fiscal year 2019 and 2020 experiencing small deficits.
• Decreases in exports are not concentrated in one commodity, but rather spread out over a variety of agricultural products. The largest decreases in exports are projected for corn, sorghum, and soybeans. Compared to the November forecast, corn exports are down $1.9 billion, sorghum exports are down $800 million, and soybean exports are down $800 million.
• The decrease in exports and increase in imports can be partially attributed to the strength of the U.S. dollar. China is predicted to maintain its position as the top export market for U.S. agricultural products.

• Senator John Boozman (R-AR), Ranking Member of the Senate Committee on Agriculture, said the forecasted agricultural trade deficit reflects the Administration’s need to reengage on trade policy. “Global agricultural markets are highly competitive. Our farmers and ranchers need the Administration to actively engage and aggressively advocate for them on the world stage.”” Our producers deserve an Administration that is focused on, and serious about, opening new markets, expanding existing ones and ensuring our trade partners are following the rules of our agreements. With the continuance into the next crop year of record high input costs and rising interest rates, reduced global trade of U.S. produced agriculture and food products only worsens the economic standing of farmers and ranchers,” Boozman said in a statement.
  • Boozman added, “U.S. farmers have been able to point to their positive trade balance in agriculture as a source of pride for the better part of the last 50 years as they worked to feed, clothe and fuel the world. The negative trade balance of a record $14.5 billion projected today is disappointing to see, but unfortunately not surprising given the lack of attention the Biden Administration has placed on trade. Global agricultural markets are highly competitive.”

Strong U.S. dollar double edge sword in agriculture trade balance

• USDA Chief Economist Seth Meyer noted the strong U.S. dollar was a headwind for increasing U.S. agriculture exports. “When we think about exports, those commodities are priced in dollars. The dollar is expensive. It makes folks wanting to buy commodities from us, [it] makes it look more expensive,” Meyer said during the USDA Agriculture Outlook Forum. Meyer said the flip side is that a strong U.S. dollar affords U.S. consumers more buying power, making imported goods relatively cheaper, including agriculture products such as fruits and vegetables. “If we see the dollar weakened a little bit, we may see a little bit of rebalancing between our exports and our imports,” Meyer added.
  • In fiscal 2017, the U.S. posted a $17.6 billion agricultural trade surplus as recently as fiscal 2017 before posting deficits in fiscal 2019 ($1.3 billion) and 2020 ($3.7 billion), before rebounding to surplus levels in 2021 ($8.4 billion) and in 2022 ($2.4 billion).

Global trade resilient despite war in Ukraine

• On the one-year anniversary of Russia’s invasion of Ukraine, global trade has remained resilient despite the ongoing war. According to a report released by the WTO, growth in global trade has exceeded both the April 2022 WTO trade forecast of 3% and other more pessimistic projections. Ukraine’s exports decreased 30% in 2022 in value terms. Products most affected by the war included wheat, maize, sunflower products, fertilizer, fuels and palladium; however, trading partners were able to find alternative sources for these products to fill the gaps left by the conflict.
  • In a statement, WTO Chief Economist Ralph Ossa stated “Global trade has held up well in the face of the war in Ukraine. Despite the devastation we have seen one year on, trade flows remained open. We have not seen the worst predictions foreseen at the onset of the war. Sharply higher food prices and supply shortages have not materialized thanks to the openness of the multilateral trading system and the cooperation governments have committed to at the WTO.”

Trade Policy

GSP countries urge congress to renew GSP

• In a letter, the Alliance of GSP Countries urged Congress to pass legislation to renew the Generalized System of Preferences (GSP). GSP, a program that gives preferential treatment to developing and under developed countries, lapsed over two years ago in December 2020. The letter points of the benefits of GSP for both recipient countries and the United States.
  • Alliance of GSP countries include Algeria, Argentina, Bolivia, Brazil, Cambodia, Ecuador, Egypt, Fiji, Georgia, Indonesia, Kazakhstan, Kyrgyzstan, Lebanon, Moldova, Mongolia, Myanmar, North Macedonia, Nepal, Paraguay, Philippines, Serbia, Sri Lanka, Thailand, Tunisia, Ukraine and Yemen.

Wilson to lead USTR’s Japan, Korea, and APEC Affairs office

• Last week, Ambassador Katherine Tai named Christopher Wilson to serve as the Assistant USTR for Japan, Korea and APEC Affairs. The Office of Japan, Korea, and APEC Affairs covers U.S.-Japan bilateral trade issues, monitors Korea’s implementation of its commitments under the U.S.-Korea Free Trade Agreement, as well as ensuring Korea’s compliance with various bilateral trade agreements and developing U.S. trade priorities under the Asia-Pacific Economic Forum. Mr. Wilson most recently served as assistant USTR for South and Central Asia. He joined USTR in 2000.
• USTR also announced that, with Wilson’s appointment, Brendan Lynch will serve as the Acting Assistant United States Trade Representative for South and Central Asia. This appointment will take effect on March 13, 2023.

U.S. – Russia

New sanctions on Russia, including higher tariffs announced

• The one-year anniversary of Russia’s invasion of Ukraine, the White House announced major new economic sanctions against Russia including higher tariffs worth $2.8 billion on 100 Russian metals, minerals and chemical products and a 200% tariff on Russian aluminum under Section 232. The new sanctions also include stronger export controls aimed at preventing U.S. semiconductors from being sold to Russia by restricting exports to both Russian and third countries, including companies in China, according to a White House fact sheet.
• The sanctions are being taken in coordination with G7 partners. “We will continue to work with our allies and partners to use all economic tools available to us to disrupt Russia’s ability to wage its war and degrade its economy over time, the White House noted. G7 leaders have agreed to the creation of an Enforcement Coordination Mechanism, to be chaired by the United States in the first year, according to the fact sheet.
• Following the White House announcement to hold Russia accountable for its invasion of Ukraine, Ambassador Katherine Tai released the following statement, “Over the last year, President Biden has worked with our Allies and partners to support Ukraine and impose strict costs and sanctions on Russia for its aggression against Ukraine. As part of that effort, today President Biden announced additional tariff increases on a variety of goods from Russia worth approximately $2.8 billion. Acting for a second time in the last year under the authority of the Suspending Normal Trade Relations with Russia and Belarus Act, President Biden raised tariffs on most metal and metal products – doubling them from 35% to 70% and targeting a crucial revenue generating sector of the Russian economy. President Biden also increased tariffs on additional Russian products to 35%, including chemicals and minerals. These actions are complemented by tariff increases on Russian aluminum that are being implemented pursuant to Section 232 of the Trade Expansion Act of 1962, as amended.
  • “These actions are carefully calibrated to put economic pressure on Russia while minimizing costs to U.S. consumers. As President Biden said in Poland earlier this week, the United States and our Allies and partners will hold accountable those who are responsible for this war. Today’s actions demonstrate our resolve in doing precisely that.”

Ukraine

Black Sea Deal renewal uncertain

• On the one-year mark of the Russian invasion of Ukraine, global commodity stakeholders are closely watching the risks of not renewing the Black Sean initiative, which expires March 19. Under the deal brokered among Ukraine, Russia, Turkey and the United Nations, Ukraine ships agriculture commodities through a specific shipping corridor to global markets. The fragile diplomatic agreement has allowed key food supplies to leave Ukraine despite war-time supply disruption in the region.
  • As the expiration dates approach, Russian officials again have again raised the demand for sanctions relief in exchange for agreement renewal. Several U.S. lawmakers and officials see removal of sanctions as a non-starter. “Sanctions lifting should not be on the table given the continued, prolific attacks against Ukrainians,” Senator Jack Reed (D-RI), chair of the Senate Armed Services Committee, according to Politico reporting. “I hope [the deal is] continued but we can’t let the pressure up on Russia,” Reed emphasized.

U.S. – Cuba

Commerce accepting Cuba export licensing comments

• In a recently published Federal Register notice, the Commerce Department’s Bureau of Industry and Security (BIS) is soliciting public comments on the effectiveness of licensing procedures for the export and reexport of agricultural commodities to Cuba. BIS said it will include a description of any received comments in its biennial report to the Congress, as required by the Trade Sanctions Reform and Export Enhancement Act of 2000. The comment period closes March 20.
  • As reported earlier, Senator Wyden (D-OR) previously sponsored legislation to lift the economic embargo on Cuba and he indicated he plans to discuss this initiative to support Cuban small business with fellow lawmakers in the coming weeks.

U.S. – Brazil

Bill reintroduced to suspend Brazilian beef imports over safety concerns

• Senators Jon Tester (D- MT) and Mike Rounds (R-SD) recently reintroduced a bipartisan bill to temporarily suspend U.S. imports of Brazilian beef imports to examine such imported products’ impacts on food safety and animal health. “Folks shouldn’t have to worry about whether the products they buy at the grocery store are safe to eat, and that’s why we need to halt Brazilian beef imports until Brazilian producers can prove that their products meet our health and safety standards,” Tester said.
  • Senator Rounds (R-SD) emphasized that “Producer’s livelihoods are being compromised by Brazilian beef imports that fail to meet our country’s food safety and animal health standards, as Brazil has a history of failing to report, in a timely and accurate manner, diseases found in their herds.” “This poses a significant threat to both American producers and consumers. Consumers should be able to confidently feed their families beef that has met the rigorous standards required in the United States. Our bipartisan legislation would make certain Brazilian beef is safe to transport and eat before it is brought into our markets, neutralizing Brazil’s deceptive trade tactics.”The bill would create a “working group to determine if Brazilian beef and poultry are up to U.S. quality standards,” according to a joint statement. The Senators initially introduced the bill in November 2021 after Brazil detected two cases of atypical bovine spongiform encephalopathy (BSE) or “mad cow disease” earlier that year.
  • Separately, Brazil last week confirmed halting beef exports to China after confirming a case of mad cow disease northern state of Para, according to Carlos Favaro, Brazil’s Agriculture minister. China is export market for Brazilian beef and established protocols for suspending beef exports after grappling with two prior BSE cases in 2021.

U.S. – Pakistan

U.S. and Pakistan promise to increase engagement on agricultural and digital trade

• This week, the U.S. and Pakistan concluded their 9^th meeting as part of the U.S. – Pakistan Trade and Investment Framework (TIFA). The meeting included top officials from both countries, with leadership by U.S. Trade Representative Katherine Tai and Pakistan’s Minister for Commerce Syed Naveed Qamar. According to  a joint statement, topics of discussion included various trade and investment related issues, including agriculture, digital trade, intellectual property protection, labor rights, and good regulatory practices. The U.S. and Pakistan agreed to increase engagement on these key issues.

Supply Chains

Labor agreement at West Coast ports remains elusive

• Contract negotiations continue with signs of little progress for a new labor pact at West Coast ports, 10 months since the prior contract expired (July 1). Easing pressure on cargo volumes and falling shipping costs have somewhat diminished the urgency of a new contract according to observers. Port officials and the Biden Administration were looking for a new contract by now between the workers’ International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), which acts as a broker for more than 70 terminal operators and ocean carriers. “I wish this negotiation was done, but there’s a lot of issues out there they want to get through,” commented Labor Secretary Marty Walsh. One of the sticking points centers on balancing the right of West Coast ports to pursue automation of cargo handling versus worker guarantees. The talks cover more than 22,000 dockworkers at 29 ports stretching from California to Washington state.
  • Meanwhile, union representatives and companies operating at East and Gulf Coast ports from Maine to Texas are starting negotiations for a new agreement to replace the current pact which expires on Jun. 30. Last week, the National Retail Federation (NRF) urged the ILWU and PMA to begin talks immediately on replacing the current contract to avoid worsening backlogs from robust consumer demand colliding with COVID-19-related labor, equipment, and facility shortages.
  • “Both parties should attempt to reach a contract well before expiration for the benefit of the national economy and to provide the needed certainty to all the stakeholders in the supply chain that rely on the U.S. West Coast ports. We would further ask that you issue a statement committing to the commencement of meaningful negotiations now, and to commit to continue negotiating and working without interruption, even if negotiations extend beyond the June 30 contract expiration,” NRF President Matthew Shay said in a letter to the PMA and ILWU leaders.

WTO

WTO designates new chairs

• Last week, WTO members endorsed a new slate of chairs for core WTO bodies, with the current Dispute Settlement Body Chair Ambassador Athaliah Lesiba Molokomme of Botswana being nominated to head the important General Council in place of the outgoing chair Ambassador Didier Chambovey of Switzerland. The new chair for the WTO’s Dispute Settlement Body is slated to be Ambassador Petter Ølberg of Norway.
  • Other appointments include Ambassador Einar Gunnarsson of Iceland as the new chair for the Doha rules negotiating body, Saudi Arabia’s trade envoy to the WTO Ambassador Saqer Abdullah Almoqbel will chair the Trade Policy Review Body, while Nigerian trade envoy Ambassador Adamu Mohammed Abdulhamid will chair the Council for Trade in Goods. Ambassador Tsvetelina Georgieva Dimitrova of Bulgaria will chair the Council for Trade in Services. The WTO’s TRIPS Council will be chaired by Thai Ambassador Pimchanok Pitfield, replacing the outgoing chair Ambassador Lansana Gberie of Sierra Leone.
• The appointed chairs still require formal approval, expected at the General Council meeting on March 6.