TRADE UPDATE

Food & Agriculture
March 15, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: Some members of Congress are expressing disappointment in Canada’s proposed dairy tariff rate quota (TRQ) modifications following a USMCA panel ruling. Rep. Elise Stefanik (R-NY) wrote USTR’s Ambassador Tai a letter, urging her to reject the proposed changes.
• U.S. – China: Congress could reach a reconciliation between the two China competition bills, the House’s America COMPETES Act and the Senate’s Innovation and Competition Act (USICA), by Memorial Day, said Representative Earl Blumenauer (D-OR). The two bills both aim to enhance American competitiveness amidst increasing anti-competitive Chinese market practices.
• U.S. – Russia: President Biden called on congress to revoke Russia’s PNTR status in an announcement, declaring new punitive actions the U.S. will take against Russia in response to the country’s invasion of the Ukraine. Meanwhile, following Russia’s suspension of fertilizer exports, U.S. Congressmen Sen. Marshall and Rep. Mann introduced legislation to waive AD/CVD tariffs on U.S. fertilizer imports.
• Indo-Pacific Economic Framework: USTR posted a request for comments on the proposed Fair and Resilient Trade pillar of the Indo-Pacific Economic Framework (IPEF). USTR said it seeks “U.S. interests and priorities, in order to develop U.S. negotiating objectives and positions and identify potential partners.” The comment window closes April 11th.
• WTO : Ukraine requested the WTO reassess Russia’s involvement in the global trade body, including considering removal for abandoning the basic principles of the WTO. Several other members, including the U.S., U.K., and Canada, have also called for expulsion of Russia from the WTO.

“Putin and his government must pay a severe economic and diplomatic price for his invasion of Ukraine, and we will continue to partner with other WTO Members to further isolate and ostracize Russia in multilateral institutions.”

— Ambassador Katherine Tai

USMCA

More opposition to Canada’s proposed dairy TRQ changes

• Several U.S. politicians have begun to express their disappointment in Canada’s proposed dairy tariff rate quota (TRQ) modifications. Congresswoman Rep. Elise Stefanik (R-NY) wrote USTR’s Ambassador Tai a letter, urging her to reject the proposed changes. Canada’s proposal, according to Rep. Stefanik, comes “nowhere close to providing American dairy producers with the market access they were promised under USMCA.” The congresswoman argues Canada’s proposed policy changes would only minutely change the country’s method for dealing with dairy imports, leaving the system unfair and unequitable. “Canada’s proposal still excludes key food and agriculture supply chain participants in Canada, such as retailers that may have a strong interest in importing U.S. dairy products,” she continued. With her rejection of the Canadian proposal, Rep. Stefanik joins several U.S. dairy industry leaders who have also publicly renounced the proposed dairy TRQ changes.
  • Earlier Canada released its proposed policy changes in response to a USMCA panel ruling in favor of the U.S. complaint that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas (TRQs) for the exclusive use of Canadian processors. The changes, which propose to allocate shares of TRQs to “processors and distributors on a market share basis” instead of just “processors on a market share basis,” are currently available for public comment.
  • The U.S. dairy industry flatly rejected the Canadian proposal and asked the administration to press Canada for a revamped solution. “We urge the administration to demand that Canada go back to the drawing board until it can genuinely deliver on providing the U.S. dairy industry the full benefit of USMCA,” said Jim Mulhern, president and CEO of National Milk Producers Federation (NMPF).

China Trade

Competition bill expected by Memorial Day

• During a virtual event hosted by the American Economic Liberties Project, House Ways & Means trade subcommittee Chair Earl Blumenauer (D-OR) said, “I think Memorial Day is absolutely something that we can achieve,” referring to the completion of congressional negotiations on the anti-China competition bill. The democratic representative went on to clarify, “We’ve identified a handful of issues where we have major disagreements with the Senate, but these are not new issues.” Earlier, sources confirmed the anti-China bill has been delayed due to increased focus on legislation targeting Russia for its invasion of Ukraine.
• Congress must work to reach a compromise between the House’s America COMPETES Act and the Senate’s Innovation and Competition Act (USICA). The two bills both aim to enhance American competitiveness in the face of anti-competitive Chinese action through investment in semiconductor chips, supporting supply chains and manufacturing, conducting scientific research, and enforcing targeted anti-China measures. Major differences between the two pieces of legislation include the present language regarding Section 301 exclusions and the prioritization of research funding, among other distinctions.

Administration warns China against selling critical technologies to Russia

• Secretary of Commerce Gina Raimondo said the U.S. would punish Chinese companies that go against U.S. export restrictions on Russia, in an interview with the New York Times. Russia “is certainly going to be courting other countries to do an end run around our sanctions and export controls,” said Secretary Raimondo, but if the U.S. discovers a company, such as the Semiconductor Manufacturing International Corporation (based out of Shanghai), is selling them chips, the U.S. “could essentially shut SMIC down because we prevent them from using our equipment and our software.” The stern warning references the U.S. and its allies’ joint-effort export controls on the movement of critical technologies to Russia. Stopping the flow of chips and other advanced technologies has become a critical priority as part of the international efforts to hinder Russia’s military.

COVID-19

U.S. trade deficit climbs to new high

• The monthly U.S. trade deficit increased 9.4 percent in January to a record $89.7 billion, as U.S. exports declined, and imports surged to record highs.
• January exports were $224.4 billion, $3.9 billion less than December exports. January imports were $314.1 billion, $3.8 billion more than December imports. The January increase in the goods and services deficit reflected an increase in the goods deficit of $7.1 billion to $108.9 billion and a decrease in the services surplus of $0.6 billion to $19.2 billion.
• Year-over-year, the goods and services deficit increased $24.6 billion, or 37.7 percent, from January 2021. Exports increased $29.9 billion or 15.4 percent. Imports increased $54.4 billion or 21.0 percent.

Trade Agenda

USDA announces remaining 2022 trade missions

• At the Commodity Classic in New Orleans, Secretary Vilsack revealed the locations and dates of four additional USDA trade missions set to take place this year. “Each year, the Foreign Agricultural Service’s international team of marketing and trade experts pinpoint new and growing global markets that offer top-notch prospects for U.S. exporters, then, during our trade missions, we help those exporters – of everything from gourmet food products, to biofuels, to fresh produce, to livestock genetics – connect with prospective customers and establish or expand their international footprint. And the results speak for themselves,” said Sec. Vilsack, commenting on the success of past USDA trade missions. The remaining USDA 2022 trade missions include:
  • London, United Kingdom: June 20-23
  • Manila, Philippines: July 18-21
  • Nairobi, Kenya (including buyers from across East Africa): Oct. 31-Nov. 3
  • Madrid, Spain (including buyers from Portugal): Nov. 29-Dec. 3
• Notably the inclusion of the UK and Kenya, trade partners with which the U.S. conducted trade negotiations under the previous administration, are likely targets for opening to U.S. agriculture exports, though less ambitious than a comprehensive trade agreement.

2022 Trade Policy Agenda and 2021 Annual Report

• USTR released the President’s 2022 Trade Policy Agenda and 2021 Annual Report, which underlines the Administration’s 2021 trade-related accomplishments, “including USTR’s work to promote sustainable environmental practices in trade policy, enforce existing agreements, improve the resilience of global supply chains, and combat the COVID-19 pandemic,” in addition to sharing how President Biden plans to move his trade goals forward in 2022.
• A factsheet on the Trade Agenda lays out the key elements of the President’s 2022 trade policy will include:
  • Standing up for Workers’ Rights
  • Accelerating Decarbonization and Promoting Sustainable Environmental Practices
  • Supporting U.S. Agriculture
  • Bolstering Supply Chain Resiliency
  • Combatting the COVID-19 Pandemic
  • Re-Aligning the U.S.-China Trade Relationship
  • Engaging with Key Trading Partners and Multilateral Institutions
  • Promoting Confidence in Trade Policy Through Enforcement
  • Broad Engagement with Stakeholders to Facilitate Inclusive, Durable Trade Policy and Promote Equity
• Regarding agriculture, the Biden Administration will seek to create new opportunities for farmers and industry actors, using existing Free Trade Agreements (FTAs) and Trade and Investment Framework Agreements (TIFAs).
  • “In 2021, U.S. agricultural domestic exports reached $177 billion and created an estimated $202 billion in additional U.S. economic activity, for a total U.S. economic output of $379 billion,” according to the report. Despite challenges posed by the COVID-19 pandemic, agriculture producers “maintained high levels of efficiency and productivity.”
  • USTR plans to further advance American agriculture by continuing to open export markets, promoting trade through bilateral and regional activities, and enforcing trade agreements for agriculture, among other methods.
• Agriculture is a major facet of President Biden’s worker-centered trade policy. For this reason, the Administration has pledged to continue to push for more open trade in the agricultural sector in 2022. USTR’s efforts in 2022 will mirror and build upon the Administration’s efforts in 2021. In making this point, President Biden’s Trade Agenda highlighted its major agricultural trade successes of 2021, which include:
  • “Conclud[ing] negotiations with the United Kingdom (UK) and European Union on tariff rate quota (TRQ) commitments;”
  • The Government of India “allow[ing] imports of U.S. pork;”
  • “The Government of Vietnam announc[ing] reductions in the tariff rates for frozen pork, corn, and all classes of wheat;”
  • “The Philippines lower[ing] its tariff rates on imported fresh, chilled, and frozen pork and increased quota volumes for imports of such products, and lower[ing] its tariffs on certain chicken and turkey products;”
  • “Clarify[ing] Colombia’s certificates of origin accompanying U.S. corn exports to Colombia;” and
  • Colombia finding its “implementation of a safeguard [on the import of U.S. milk powder] was not justified.”

Agriculture Exports

U.S. ag exports to Mexico hit new high

• U.S. agricultural product exports to Mexico surged to new records in 2021, as Mexico surpassed Canada to become the No. 2 market for U.S. agricultural exports after China, the USDA’s Foreign Agricultural, Foreign Agriculture Service reported. USDA noted, “The highly integrated and complimentary nature of U.S.–Mexico food and agricultural supply chains ensured that record trade was observed across all product categories.”
  • In 2021, bilateral trade totaled $66 billion, posting a 15-percent decline in the trade deficit to -$13 billion. U.S. agricultural and related product exports to Mexico increased 42 percent to a record high of $27 billion.

Supply Chains

Rethinking supply reshoring

• The World Bank issued a report, warning that efforts by developed countries to relocate supply chains to their domestic market on the heels of the COVID-19 pandemic could contribute to a rise in poverty worldwide. The report notes that global supply chains have helped to lift people in middle- and low-income countries out of poverty in recent decades by integrating them into global trade. Further, the economists producing the report suggest integration into the global economy, along with fortifying supply chains against economic shocks and climate change, would benefit both developing and developed nations alike. “While there is no sign, yet that reshoring is happening on a large scale, the economic modeling in the report found that policies that are supportive of, not hostile to, trade could prove critical to strengthening the recovery from the pandemic and supporting greater diversification,” the economists said.

U.S. – Russia

President Biden calls to end Russia’s PNTR status

• Coordinating with the G7 and other NATO allies, President Biden announced he would take steps to end permanent normal trade relations (PNTR) with Russia. “Revoking PNTR for Russia is going to make it harder for Russia to do business with the United States.  And doing it in unison with other nations that make up half of the global economy will be another crushing blow to the Russian economy that’s already suffering very badly from our sanctions,” he said to the press.
• Prior to the President’s remarks, lawmakers removed the provision to revoke Russia’s PNTR status from their Russia-focused bill. With President Biden’s support of the PNTR provision, Speaker Pelosi announced the revocation of Russia’s PNTR will be reincluded in the bill.
• In the same speech, President Biden affirmed that the U.S. and its allies are “also taking a further step of banning imports of goods from several signature sectors of the Russian economy, including seafoods, vodka, and diamonds.”

Lawmakers seek waiver process for fertilizer duties

• In the wake of Russia halting fertilizer exports, Sen. Roger Marshall and Rep. Tracey Mann are introducing legislation to create a waiver regarding existing antidumping and countervailing (AD/CVD) duties on U.S. fertilizer imports. The duties have effectively stopped U.S. imports of phosphate fertilizer from Morocco and Russia, and the Commerce Department is expected to issue final rulings later this year on duties for urea ammonium nitrate (UAN) from Russia and Trinidad and Tobago. 
  • Farm input costs continue to rise as the U.S. economy bounces back from the global pandemic. “Fertilizers and other inputs have been at an all-time high, and the war in Ukraine promises to drive up the price of products even more,” said National Corn Growers Association President Chris Edgington.
  • Fertilizer costs are projected to increase 80% this year, according to a study by Texas A&M University’s Agricultural and Food Policy Center, released prior to the Russian invasion of Ukraine.

Section 232 Investigations

Cost burden of Section 232 tariffs

• In a report created by the American Action Forum, two researchers, Tom Lee and Jaqueline Varas identified the economic impact of Section 232 steel and aluminum tariffs over the course of 2021. According to Lee and Varas’ data, Section 232 tariffs added an additional cost burden of $1.9 billion to steel imports, $618.6 million to aluminum imports, $421.0 million to derivative steel articles imports, and $241.6 million to derivative aluminum articles imports, totaling the additional cost burden for Section 232 tariffs at roughly $3.2 billion.

U.S. – U.K. tariff talks continue

• No significant update on U.S. – U.K talks on resolving the Section 232 tariff disputes. Secretary of Commerce Raimondo, Ambassador Tai, and U.K. Secretary of State for International Trade Trevelyan have met virtually, 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.

Section 301 Investigations

Section 301 Investigation delayed

• After months of deliberation, the Biden Administration has decided against launching a new Section 301 investigation at this time. An industry source and American Enterprise Institute senior fellow Derek Scissors confirmed USTR, Commerce, Treasury, and White House officials met to discuss a range of issues, including Section 301 tariffs on Chinese goods. At their meeting, the officials concurred to delay Section 301 investigations, according to Inside U.S. Trade. “I do think there has been progress since last fall. I think the substance has advanced, but the political decisions haven’t moved,” said Mr. Scissors.

Biden Transition

María Pagán confirmed by Senate for WTO Ambassador

• Ms. Pagán will serve at USTR’s Geneva Office as Deputy United States Trade Representative, following the Senate vote (80-19) that confirmed her for the position. Winning the 60-vote super majority, Pagán will move into the Geneva-based position with only two months before the 12^th WTO ministerial, which will be held the week of June 13^th. 
• Ambassador Tai showed her support for Ms. Pagán in a statement released by USTR, “María’s experience will be a major asset in Geneva as the world considers how to drive the World Trade Organization and the global trading system to better serve the needs of workers, families and open, competitive economies while also defending the values of the free world. I congratulate María on her confirmation and look forward to working together as she takes on this new and exciting position.”
  • Prior to the Senate vote, Ms. Pagán was approved by the Senate Finance Committee last November but had been blocked for official confirmation by Senator Mike Lee (R-UT) over the U.S. position on a waiver of certain WTO intellectual property protections related to COVID-19 vaccination access and distribution.
  • Passing the Senate, María Pagán will fill the WTO Ambassador position for the first time since Biden took office in 2020.

Durkin named AUSTR for WTO and multilateral affairs

• The Office of USTR selected Andrea Durkin, a former USTR negotiator, as Assistant U.S. Trade Representative for World Trade Organization and multilateral affairs, according to sources.  Durkin will be responsible for “trade negotiations and U.S. policy coordination regarding matters before the WTO including the operation of various WTO committees related to subsidies, technical barriers to trade, customs/trade facilitation and other subject areas,” USTR spokesman Adam Hodge said in a statement. Durkin previously worked at USTR from 2001 to 2004, serving as director for multilateral trade and environment policy and head of Central America.

Indo- Pacific Economic Framework

USTR invites comments on IPEF

• USTR posted a request for comments on the proposed Fair and Resilient Trade pillar of the Indo-Pacific Economic Framework. The request, which will close a month after its publication date, aims to gauge “U.S. interests and priorities, in order to develop U.S. negotiating objectives and positions and identify potential partners.” In line with the Biden Administration’s objective of establishing “worker-centered” trade, the Trade Policy Staff Committee (TPSC) invites comments on the issues “USTR should address in the negotiations” of the trade pillar of the IPEF. The request for comments identifies these issues as:
  • “General negotiating objectives for the proposed agreement.
  • Labor-related matters.
  • Environment and climate-related matters.
  • Digital economy-related matters.
  • Agriculture-related matters.
  • Transparency and good regulatory practice issues.
  • Competition-related matters.
  • Customs and trade facilitation issues.
  • Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations.
  • Other measures or practices, including those of third-country entities, which undermine fair market opportunities for U.S. workers, farmers, ranchers, and businesses.”
• Notably, USTR added in its notice, “the Administration is not seeking to address tariff barriers.” The deadline for submission is April 11.

Senate hearing on Indo-Pacific trade

• The Senate Committee on Finance publicized it will hold a hearing “on the Promise and Challenge of Strategic Trade Engagement in the Indo-Pacific Region” on Tuesday, March 15^th. The hearing is expected to focus on the Indo-Pacific Economic Framework and will feature Sharon Bomer Lauritsen, Principal of AgTrade Strategies, Emma Llansó, Director of Free Expression Project at the Center for Democracy and Technology, Kelly Ann Shaw, Former Deputy Assistant to the President for International Economic Affairs, and Michael Wessel, U.S.-China Commissioner, as witnesses.

U.S. – Africa

The future of U.S. – Africa trade

• The African Growth and Opportunity Act (AGOA), originally enacted in 2000 with the goal of boosting U.S. – sub-Saharan African trade, is set to expire in 2025. With the approaching end to AGOA, several politicians and academics have posed questions about the future of the U.S. and Africa’s economic partnership. Most recently, the Center for Strategic and International Studies (CSIS) released a brief calling for the enhancement of the U.S. – Africa trade and the renewal of AGOA.
• Presently AGOA provides preferential treatment to African countries that have “demonstrate[d] progress toward market liberalization and improve[d] the rule of law, human rights protections, and core labor standards.” But much has changed since the original implementation of AGOA. Increasing Chinese influence in the area, COVID-19, and the mobile telephone revolution have resulted in a dramatically new economic landscape in the region.
• Moving forward, U.S. politicians must decide the next steps for U.S. – Africa trade and how those steps relate to AGOA. According to CSIS, simply letting AGOA expire without something new in place would be “catastrophic,” as “the continent is set to become one of the largest regional markets of the twenty-first century.”

U.S. – EU

TTC has a role to play in the Russia-Ukraine conflict

• At a World Trade Center event, EU Ambassador to the U.S. Stavros Lambrinidis noted the Trade and Technology Council (TTC) as a key avenue for coordinating measures, such as export control, against Russia for its attack on Ukraine. “When it came to imposing export controls in Russia now … the alliance that we’d already built in this trade and technology discussion was critical in ensuring that every player that is important in this field could simply pick up the phone, have the conversation and make it, done,” said the Ambassador. His statement refers to a collaborative effort between the U.S. and allies, restricting the flow of critical technologies to Russia.
• TTC efforts may not stop at coordinating export controls. DigitalEurope, an organization that represents Europe’s digital technologies industry, recently released a letter, urging officials to recognize cybersecurity threats posed by Russia. In their letter DigitalEurope articulated “Setting international cybersecurity standards should be a priority, first and foremost in the EU-US Trade and Technology Council.”

 Decarbonization to be a pillar of U.S. – EU partnership

• At a Center for Strategic and International Studies virtual event, Dutch member of the European Parliament Mohammed Chahim discussed potential steps forward for the U.S. and EU in advancing global climate action. “We should work together to create an international carbon accounting standard,” said Chahim. According to the European Parliament member, the worldwide standard should rely on “scientific analysis” and could be prompted via U.S. – EU – Canada cooperation. Chahim’s comments highlight a pattern seen in U.S. – EU policy conversations, characterized by repeated mention of sweeping, ambitious climate action proposals.  Future trade partnerships between the U.S. and EU are likely to feature a strong green element.

U.S. – U.K. Trade

U.S.-U.K. trade talks still “on pause”

• No significant updates since on U.S. – U.K. trade talks since Ambassador Katherine Tai stated the bilateral trade negotiations, which commenced under the Trump Administration, are still “on pause.”
  • Ambassador Tai did, however, affirm USTR is very keen on “enhancing our trade relationships and our collaboration with our partners in the U.K. and Kenya.” How the U.S. plans on going about trade-related conversations with the U.K. and Kenya remains unclear.
  • Ambassador Tai went on to say, “in terms of what form [British and Kenyan collaboration] will take and whether it conforms to exercises and vehicles that are familiar to us, I’m going to leave that open, but our focus really is on how to be most effective and being good partners in advancing ourselves into a really strong economic recovery by working together.”
• Meanwhile U.K. officials are posturing for trade negotiations with the Biden Administration to commence after the U.S. midterm elections later this year. “We hope that may be after the midterms, when they want to pick up and talk about those federal-level bits of an FTA, we stand ready to carry on those conversations,” Secretary of State for International Trade Anne-Marie Trevelyan said recently. In the interim, U.K. officials are focusing on state-level negotiations, laying the regulatory groundwork for a future bilateral trade agreement. The U.K. has already secured new trade agreements with New Zealand and Australia, launched negotiations with India, and requested entry into the CPTPP.

WTO

Ukraine calls for Russia’s removal from WTO

• Ukraine has requested the WTO’s Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) to reassess Russia’s involvement in the WTO, according to reports. An official for the Ukraine thanked the TRIPS Council for suspending Russian inclusion in the group and called on other WTO members to completely end engagement with the country. One trade official indicatedUkrainian argued, “the Russian Federation has clearly abandoned the basic principles and values that the GATT and the WTO have promoted for almost 80 years since the end [of] World War II. Ukraine does not see how members can conduct economic relations with the Russian Federation within the WTO on a business-as-usual basis in the present circumstances.” Many WTO member countries, such as the U.S., U.K., and Canada, have also called on the WTO to break its neutrality and remove Russia as a member.

Quad discussions on TRIPS suspended

• Discussions on the intellectual property rights component in the WTO’s response to the pandemic were apparently temporarily suspended among the Quad members (U.S., EU, India, and South Africa). While bilateral discussions continue, it remains unclear when the Quad discussions will resume. Several other member countries have expressed concerns with the lack of transparency regarding the Quad deliberations.
  • The temporary TRIPS waiver seeks to suspend certain provisions in the TRIPS Agreement relating to copyrights, industrial designs, patents and protection of undisclosed information for ramping up the production of diagnostics, therapeutics and vaccines across countries in combating the COVID-19 pandemic.