TRADE UPDATE

Food & Agriculture
April 19, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: The USMCA’s Commission for Environmental Cooperation (CEC) recommended developing a factual record on Mexico’s alleged “failure to enforce its environmental laws for the critically endangered vaquita porpoise.” The action follows up on the Biden Administration’s intent to request USMCA consultations with Mexico for its failure to enforce environmental laws designed to prevent illegal fishing, which allegedly has led to the near extinction of the vaquita.
  • U.S. – China: China made a another large purchase of U.S. corn, totaling their procurement at over 2.1 million metric tons reported just this month. Meanwhile, U.S. senators prepare to drop a new bill aimed at addressing illegal and unfair Chinese fishing practices.
  • Indo-Pacific Economic Framework: IPEF continues to receive amble feedback from lawmakers as industry actors and politicians grow antsy with the Administration’s prolonged delay in delivering concrete details regarding the Framework. Several members of congress are calling for the inclusion of market access and enforcement measures under IPEF.
  • U.S – Russia: Several agribusinesses continue exporting goods, such as farm machinery and seeds, to Russia despite the country’s invasion of Ukraine. Arguing the need to maintain trade with Russia due to food security concerns, these companies have become a target for criticism, highlighting the precarious nature of economically isolating Russia amid rising food supply concerns.
  • WTO: WTO economists released a grim image of trade for 2022 and 2023 due to “compounding crises,” exacerbating supply chain issues. As such, the WTO, along with IMF, WFP, and World Bank, urgently call on the international community to address food security concerns.

“History teaches us that dividing the world economy into rival blocs and turning our backs on the poorest countries leads neither to prosperity nor to peace.” “The WTO can play a pivotal role by providing a forum where countries can discuss their differences without resorting to force, and it deserves to be supported in that mission.”

— WTO Director-General Ngozi Okonjo-Iweala

USMCA

CEC recommends factual record on the vaquita porpoise

Image of the vaquita porpoise from the CEC
  • Following up on a USMCA enforcement matter submission, regarding Mexico’s alleged “failure to enforce its environmental laws for the critically endangered vaquita porpoise,” the Secretariat of the Commission for Environmental Cooperation (CEC) recommended developing a factual record on the issue. The CEC is a commission under the USMCA that works to address environmental concerns. Prior to the CEC announcement, the Biden Administration said it would request USMCA consultations with Mexico for its failure to enforce environmental laws designed to prevent illegal fishing, which allegedly has led to the near extinction of the vaquita.

Mexico commits to market access for U.S. potatoes

  • As reported earlier, the U.S. and Mexico reached an agreement on Mexican market access for U.S. fresh potatoes, following meetings in Mexico. After over a decade long dispute, Mexico will open its market to U.S potatoes by May 15th. USDA Secretary Tom Vilsack and his Mexican counterpart, Victor Villalobos announced that the United States and Mexico have concluded all necessary plant health protocols and agreed to a final visit by Mexican officials in April that finalizes expanded access to the entire Mexican market,” according to USDA news release on the agreement.
    • The National Potato Council has noted that “Mexico is the largest export market for U.S. potatoes and products valued at $394 million in 2021. Despite the restriction to the 26-kilometer border region, Mexico is the second-largest market for fresh potato exports, accounting for 124,449 metric tons valued at $60 million in 2021. The U.S. potato industry estimates that access to the entire country for fresh U.S. potatoes will provide a market potential of $250 million per year, in five years.”

China Trade

China continues strong U.S. corn purchases

  • The USDA announced China purchased more than 1 million metric tons of U.S. corn, adding to its previous large purchase of 1.1 million metric tons as the Russian invasion of Ukraine continues to impact grain exports from the Black Sea region. Last week’s report shows that China committed to purchase 1,020,000 tons of U.S. corn. The purchase includes 680,000 tons for delivery in the current marketing year and 340,000 tons for the 2022/2023 marketing year, which begins Sept. 1. In a previous announcement, USDA reported China bought 1,084,000 metric tons of U.S. corn, 676,000 metric tons of which are meant to be delivered during the 2021/2022 marketing year.
    • Several analysts noted the conflict in Ukraine is compelling China to secure corn from other producers. “It’s evidence that China is getting concerned about the global supply of corn,” Arlan Suderman, a chief commodity expert at StoneX Group, said Monday. “Ukraine is no longer available for them – at least as long as this war continues, and as long as Ukrainian ports are blocked.” Mr. Suderman noted China’s preferred supplier of corn is the Ukraine, but the country’s exports are all but shut down because of the Russian invasion, leading Chinese buyers to replace that lost supply with U.S. corn.

Senators target China’s fishing industry

Senator Wyden, Senator Merkley, and Ambassador Tai tour a commercial fishing vessel in Oregon
  • During a meeting with Ambassador Tai in Oregon, Senator Ron Wyden (OR-D) gave the U.S Trade Representative an overview of a forthcoming piece of legislation meant to “create more transparency around foreign seafood subsidies and combat the use of forced labor on fishing vessels,” according to a Politico report. “The fact is the Chinese are doing everything possible to trample on anything resembling a free and fair market,” Senator Wyden said. “That’s what we’re going to focus on as it relates to fishing.” Additionally, the bill will provide USTR with “tools to address harmful subsidies through the World Trade Organization.” A timeline on the bill has yet to be revealed but Senator Wyden indicated the legislation would be released soon.

COVID-19

PIIE forecasts less economic growth

  • Analysts at the Peterson Institute for International Economics (PIIE) downgraded their prediction of global economic growth for this year and the next.  “The US GDP forecast for 2022,” which is currently predicted to be 3 percent growth, “is about 1½ percentage point lower than the forecast presented last October,” according to a PIIE press release. The economic analysis notes supply chains issues, COVID-19, steep energy prices, and the Ukraine-Russia conflict as contributing factors to waning global economic vitality. The experts also assert, “In the United States, GDP growth last year pushed the economy beyond its productive capacity, and inflation reached its highest level since the early 1980s. Underlying demand remains strong, bolstered by consumers making up for lost ground and savings accumulated during the pandemic.” One PIIE analyst, Karen Dynan warned readers that “recession risks are elevated given geopolitical developments and the potential for inflation to continue to surprise to the upside, which might induce an even more abrupt tightening of monetary policy.”
Table from PIIE Presentation by Karen Dynan

Food Security

U.S. food prices on the rise

  • The U.S. Bureau of Labor Statistics (BLS) released its most recent Consumer Price Index data, indicating a 1% increase in food prices for March and 8.8% increase in food prices over the course of the last 12-month period. Increases in food prices in the U.S over the past year, both for food at home (+10%) and away from home (+6.9%), “saw the largest 12-month increases since 1981,” according to released data. “Those rising prices are inflicting pain across the board: from farmers paying higher production costs; to families buying groceries.” Similar price increase trends can be seen in other commodity groups. The average price increase for all U.S. goods was 1.2% in March and 8.5% over the past 12 months.

Trade Agenda

USTR’s Equity Action Plan

  • In accordance with the Biden Administration’s pledge to promote worker-centered trade, USTR released its Equity Action Plan, which aims to consider gender and racial equity during the pursuit of new trade policy actions. Some action areas USTR will pursue with the implementation of its Equity Action Plan include:
    • “Annual public updates on strategies and activities;
    • Strengthening data to consider and improve the distributional effects of trade;
    • Advisory committee administration, including questions posed to cleared advisors, training, and guidance; and
    • Expanded and consistent USTR engagement with underserved and marginalized communities.”
  • “USTR’s Equity Action Plan will help ensure our worker-centered trade policy emphasizes the values of equity, inclusion, and results,” said Ambassador Tai. “When our trade policy is more equitable, we help all of our workers, producers, and businesses grow, compete, and innovate in the global marketplace. USTR is proud to join departments and agencies across the Biden-Harris Administration in developing equitable policies that fulfill the President’s Executive Order and his vision for a federal government that improves the lives of every human being.”

Supply Chains

Texas border truck inspections cause supply chain disruptions

  • Earlier this month Texas Governor Greg Abbott instated new inspection regulations on all trucks crossing the border from Mexico to Texas, including commodity-carrying vehicles that haven already been inspected by U.S. Customs and Border Patrol. The governor has since received criticism from industry groups, which claim the new inspections are causing supply chain issues for their products. North American Meat Institute (NAMI) President and CEO Julie Anna Potts released a statement on the situation, “It’s unacceptable for trucks carrying food and other important commodities to wait hours at the U.S.-Mexico border. It can present food safety challenges and it’s not fair to the drivers who are instrumental in keeping food on our plates.”
  • Likewise, President of The Fresh Produce Association of the Americas Lance Jungmeyer addressed Governor Abbott with a similar sentiment in a letter, highlighting the damage the new border regulations are causing the produce industry. “Unfortunately, delays from DPS inspections mean that up to 80% of perishable fruits and vegetables have been unable to cross daily. This is causing losses of millions of dollars a day for employers and employees who have been idled,” said Mr. Jungmeyer.
  • Truckers, U.S. Customs and Border Protection, and industry groups alike have all called Governor Abbott’s order redundant and unnecessary. The complainants now must wait and see if the republican Governor will ease his border regulations and alleviate the pressure placed on these critical food supply chains.

Controversial supply chain review legislation up for conference

  • As the China competition bill continues to move forward towards a formal conference, several U.S. lawmakers continue to push for the inclusion of a supply chain review bill that proposes a controversial outbound investment review process. According to Inside U.S. Trade, the legislation “would create the interagency Committee on National Critical Capabilities, chaired by the Office of the U.S. Trade Representative, which would be tasked with reviewing outbound investments in critical industries to certain foreign markets and be enabled to block some transactions.” Originally introduced by Senators John Cornyn (TX-R) and Bob Casey (PA-R), the National Critical Capabilities Defense Act did not make it into the Senate’s USICA. Despite this, a companion bill was included in American COMPETES Act. Now, members of congress must decide if the provision will be included in the final trade title of the China competition bill.

Ukraine

Ukraine’s corn exports could fall by 15 million metric tons

  • Ukrainian officials estimate the country’s 2021/2022 corn exports could total 17 million tons, down from 23.1 million tons the previous year.  Roman Rusakov, Ukraine’s Deputy Agriculture Minister, added that 2021/2022 sunflower oil exports could total 3.4 million tons, down from 5.3 million tons the previous year.
    • Earlier, Ukrainian agriculture consulting group UkrAgroConsult projected that Ukrainian farmers would likely produce just 19 million metric tons of corn this year, down from 42 million last year. Wheat production this year is expected to be about 19.8 million metric tons, the group said. USDA has estimated Ukraine’s 2021 wheat production at 33 million metric tons. The group said the projections were averages between the best case and worse case scenarios.

Indo- Pacific Economic Framework

Bipartisan support for market access to be included in IPEF

  • Eleven members of congress, from both sides of the aisle, advocated for deeper trade ties between the U.S. and Indo-Pacific in a letter addressed to USTR’s Ambassador Katherine Tai. The lawmakers encouraged Ambassador Tai to put market access back on the table during her IPEF negotiations, citing the reduction of tariffs barriers as the best approach to increase American competitiveness in the Indo-Pacific region. “America’s limited participation in agreements or frameworks involving Indo-Pacific nations means that the next generation of commercial rules and standards governing trade with Asia are increasingly being written without American input,” wrote the lawmakers. To reverse this trend, the policy makers contend, USTR and the DOC must “work to secure enhanced market access for American exporters in ASEAN Member States.”

Engagement not enforcement, key to durable trade policy

  • Ambassador Tai, referring to the Indo-Pacific Economic Framework (IPEF) and other trade initiatives, said the U.S. is focused on engagement to secure more durable trade arrangements. Tai contended that enforcement or binding mechanisms in trade deals are not always effective. “At the end of the day, I think that we’re going to find the most and the strongest durability in our trade policies is where you’re able to have the engagement to have a meeting of the minds around those things that the parties want to do together.” In some cases, she said, traditional trade agreements have had “what looks like ironclad commitments on paper” but “one of the parties didn’t actually really mean to deliver.”  USTR Tai, speaking during a recent visit to as semiconductor facility near Portland, OR, however, emphasized that the IPEF’s ultimate design is still subject to feedback “from our stakeholders, from the members of congress and from our partners.”
    • Previously, Deputy USTR Sarah Bianchi has said the IPEF would include “binding” trade commitments. Now, it remains unclear if participating countries will seek a dispute settlement mechanism as part of IPEF. While USTR officials have made clear that IPEF is not a traditional FTA, some stakeholders are calling for IPEF to include enforceable provisions (e.g., labor and environment).

Lawmakers push for stronger labor standards under IPEF

  • In a letter written to Secretary of Commerce Raimondo, Senators Elizabeth Warren (MA-D) and Bob Casey (PA-D) urged the Secretary to revise the Department of Commerce’s (DOC) approach to their pillars of the IPEF and include a strengthened approach to worker-centered trade. The senators expressed their concern that Secretary Raimondo has “not articulated how this framework will help U.S. workers – instead, [she has] noted the enthusiastic reception from foreign trading partners, who might benefit from IPEF’s focus on stabilizing offshore supply chains, as opposed to investing in manufacturing those products here in the U.S.” They go on to elaborate on their worries that the Department of Commerce’s current approach will “include” trading partners with low labor and environmental standards, while giving them “flexibility” to not improve their treatment of these vital issues.” Senator Warren and Casey’s comments highlight a feeling of apprehension among lawmakers, regarding the Administration’s lack of clarity on how it will incorporate and enforce high worker and environmental standards in the new framework.

U.S.-ASEAN Summit underpins Indo-Pacific strategy

  • The White House announced that President Biden will host the leaders of the Association of Southeast Asian Nations (ASEAN) for a two-day special summit aimed at strengthening U.S. ties with the region. The summit, scheduled to start on May 12th, is part of the Administration’s Indo-Pacific strategy to counter China’s growing influence in the region. “It is a top priority for the Biden-Harris Administration to serve as a strong, reliable partner in Southeast Asia,” White House spokesperson Jen Psaki said in a statement. “Our shared aspirations for the region will continue to underpin our common commitment to advance an Indo-Pacific that is free and open, secure, connected and resilient,” she said.

U.S. – Russia

The future of Russian agribusiness

  • The debate surrounding the continued presence of agribusinesses in Russia grows as politicians and companies attempt to find a balance between their efforts for global food security and economically isolating Russia. Despite the heavy sanctions placed on Russia and the international business community’s coordinated withdraw from the country, several agribusinesses continue to trade with Russia. These companies, such as the Chinese chemical and seed company Syngenta, argue that supplying Russia with critical agricultural machinery and products is “the humanitarian thing to do,” according to recent reports. The U.S. company Corteva made a similar public statement, noting that it delivered “necessary products” to Russian farmers but “all further activities in Russia and Belarus have been suspended.” U.S. and EU politicians have remained critical of these actions but further restrictions on agribusinesses have not yet been implemented.

Section 232 Investigations

Beverage industry urges repeal of Section 232 tariffs to fight inflation

  • The U.S. beverage industry alone has paid more than $1.4 billion in tariffs, since Section 232 tariffs on aluminum were imposed nearly four years ago, according to research commissioned by the Beer Institute. “With the cost of gas and groceries at record highs, American families and businesses are feeling the strain under the high costs of living. This new research shows the tariffs on aluminum continue to push up prices on American consumers and businesses,” said Jim McGreevy, president and CEO of the Beer Institute. “The fastest way to alleviate these high prices on American businesses and families is to repeal the tariffs.”
  • The research, conducted by HARBOR Aluminum, found that between the implementation of Section 232 aluminum tariffs on March 23, 2018 and Feb 28, 2022, “the U.S. beverage industry paid $1.416 billion in Section 232 tariffs on 7.1 million metric tons of aluminum. Of that amount, only $111 million (8 percent) went to the U.S. Treasury. HARBOR Aluminum estimates U.S. rolling mills, U.S. smelters and Canadian smelters received $1.305 billion (92 percent) of the total by charging end-users – such as U.S. brewers – a tariff-burdened price regardless of whether the metal was meant to be tariffed based on its content or origin. “
    • HARBOR Aluminum also estimated that in 2021 alone, “the U.S. beverage industry paid $463 million in Section 232 tariffs. Of that $463 million, only $15 million (3 percent) went to the U.S. Treasury, while $448 million (97 percent) went to U.S. rolling mills, U.S. smelters and Canadian smelters.”
    • The Beer Institute points to tariffs as principal drivers of inflation in the industry. Rolling mills and smelters are including the tariffs in their prices – regardless of whether the metal is subject to Section 232 tariffs. Furthermore, many other users of aluminum are being charged a higher price for the metal, driving up the cost of doing business in the U.S. and making consumer goods more expensive.

Section 301 Investigations

Trump-era China tariffs set for review

  • The first round of Section 301 tariffs imposed under the former Trump Administration on Chinese imports are approaching their four-year mark in July, triggering a congressionally mandated review. The Section 301 tariffs will expire four years from the time they were imposed unless the Office of the U.S. Trade Representative has analyzed their effectiveness. That evaluation must happen within 60 days of their potential expiration. The Biden Administration has kept the Section 301 tariffs as leverage over China to meet its purchase targets and other commitments in the Phase One trade deal, according to many trade experts.
    • The pending review process may compel the Biden Administration to seriously consider the status of the tariffs and their effectiveness going forward. The review will likely provide industry groups and other interested parties a fresh opportunity to pressure USTR into rolling back the trade penalties, or at least expanding its plans to offer exclusions.

Biden Transition

Senators call on Biden to fill agricultural trade vacancies

  • As noted earlier, Senators Debbie Stabenow (MI-D), Chairwoman of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, John Boozman (AR-R), Ranking Member, and Mike Crapo (ID-R), Ranking Member of the Senate Committee on Finance, sent a letter to President Biden calling for the swift nomination of a candidate to serve as the Chief Agricultural Negotiator at USTR and a candidate to serve as the Undersecretary for Trade and Foreign Agricultural Affairs at USDA. The Senators wrote, “Global agricultural markets are highly competitive. Every day, new trade barriers against American agricultural products are being devised to limit our access. We need strong advocates who understand the needs of American farmers, ranchers, and foresters, and will represent their best interests on the world stage.”

U.S. – EU

Next TTC meeting to focus on supply chains

  • European Commission Executive Vice President Margarethe Vestager told reporters the next Trade and Technology Council (TTC) meeting, which is set to take place near Paris on May 15-16, will focus on the topics of misinformation and supply chains. “One of the things where we would like to increase our ambitions would be on misinformation [and] disinformation to see how to make sure that we are prepared for that side of the war and the Russian aggression – to learn from it and to be better prepared in the future,” she said. And a “Second example of an increased focus could be on supply chains,” the Executive Vice President added. “To try to align our analysis and to figure out how to help each other out – not only on a rainy day but also in a crisis situation like the one we’re in right now. Because some of the supplies, for instance, of raw materials they risk being seriously disturbed.” Ms. Vestager’s comment come as little surprise after the U.S. Department of Commerce’s recent request for public comments on supply chain resiliency for the TTC’s Secure Supply Chains Working Group.

EU Commission pursues expanded geographical indication protections

Janusz Wojciechowski, EU Commissioner for Agriculture
  • A recent proposal by the EU Commission would revise its system of geographical indications (GI) protections with the goal of “ensuring effective protection” of intellectual property rights in the EU – including via a new “efficient registration processes” and “increasing the uptake of GIs” for agricultural products, wine, and spirits to help support the bloc’s rural economy, according to the proposal. “Geographical indications represent the wealth and diversity of our European culinary heritage,” EU Commissioner for Agriculture and Rural Development Janusz Wojciechowski said in a statement when the proposal was introduced. “By proposing today, a strengthening and further harmonization of our legal framework, we want to boost the production of traditional quality products.” The Commission outlined what it described in a statement as “a first-ever framework to protect the intellectual property for craft and industrial products that rely on the originality and authenticity of traditional practices from their regions.” The proposal could protect products such as Porcelaine de Limoges, Solingen cutlery, and Boleslawiec pottery, and benefit small craftsman, guilds, and other small and Medium Enterprises (SME), according to EU officials.

WTO

Republican lawmakers push for transparency on TRIPS Waiver

  • In a letter addressed to President Biden, 51 republican members of the House of Representatives expressed their concern over recent reports that Ambassador Tai reached a deal on the WTO TRIPS Waiver without consulting congress. The representatives argue “The reported “compromise” neither protects the interests of the United States nor the patients in the developing world who depend on American-designed and American-made medicines” and thus, they suggest the President should do everything he can to make sure the deal is not finalized. The members of Congress further contend “The reported agreement allows any government or company to copy state-of-the-art American technology, inevitably ensuring that it falls into the hands of Russia, China and other adversaries that threaten the United States and our allies.”
  • Following a WTO announcement that the U.S., EU, India, and South Africa reached a deal on the Trade Intellectual Property Rights (TRIPS) agreement, which corresponded with the release of a leaked text on the same issue, U.S. policymakers expressed their concern over the lack of congressional oversight during the TRIPS compromise process. Since then, GOP members of congress introduced legislation that would require USTR to consult with congress on negotiations to modify or suspend WTO trade agreements.
  • The legislation, dubbed the Protecting American Innovation Act, was introduced by a group of republican politicians led by Ways and Means Trade Subcommittee Republican Leader Adrian Smith (NE-R) and Health Subcommittee Republican Leader Vern Buchanan (FL-R). Commenting on the new legislation Representative Smith said, “The United States can and should help increase global access to COVID-19 vaccines, but we also have a duty to protect the hard work, investment, and intellectual property of American innovators.” He went on, “Unfortunately, President Biden has failed to defend American interests as negotiators look for ways to vaccinate the world, and I have serious concerns about the precedent that could be set by simply handing over the keys to America’s innovation engine. Rather than taking political shortcuts and throwing IP protections out the window, let’s focus on lowering the true barriers to access – technical expertise, shortage of raw materials, and supply chain infrastructure – to get these vaccines to every corner of the world.”

WTO economists release 2022 and 2023 trade projections

  • “The organization now expects merchandise trade volume growth of 3.0% in 2022—down from its previous forecast of 4.7%—and 3.4% in 2023, but these estimates are less certain than usual due to the fluid nature of the conflict,” a WTO press release stated, referring to 2022 and 2023 trade prospects following Russia’s invasion of Ukraine. The WTO also cited Chinese COVID lockdowns and other supply chain constraints as contributors to the projected decrease in global trade. WTO Director-General Okonjo-Iweala commented on the dreary projections, urging countries to keep trade open during this time of need. “This is not the time to turn inward. In a crisis, more trade is needed to ensure stable, equitable access to necessities. Restricting trade will threaten the wellbeing of families and businesses and make more fraught the task of building a durable economic recovery from COVID‑19,” she said.

Call for action on food security

  • In a joint statement released by the WTO, IMF, WFP, and World Bank, the leaders of these international institutions highlighted rising food prices as a result of “compounding crises.” They “call on the international community to urgently support vulnerable countries through coordinated actions ranging from provision of emergency food supplies, financial support, increased agricultural production, and open trade.” The statement continues, “We also urge the international community to help support urgent financing needs, including through grants. This should include financing of immediate food supplies, safety nets to address the needs of the poor, and for small farmers facing higher input prices. We also urge all countries to keep trade open and avoid restrictive measures such as export bans on food or fertilizer that further exacerbate the suffering of the most vulnerable people. It is especially important not to impose export restrictions on humanitarian food purchases by the UN’s World Food Program.”

MC12 in doubt over Russian invasion of Ukraine

  • Uncertainty continues regarding the World Trade Organization’s 12th ministerial conference or MC12 scheduled for June 12th-15th due to Russia’s continuing war against Ukraine. Several countries are pushing to exclude Russia from negotiating key decisions – and even from participating in MC12 – which would further complicate holding the meetings as scheduled.
  • During an informal General Council meeting two weeks ago, GC Chair Ambassador Didier Chambovey of Switzerland said, “delegations stressed that MC12 should be a streamlined, business-like Conference.” He indicated that “it is foreseen that the Conference begins with a short opening ceremony on Sunday, 12 June, in the afternoon, without a debate, and then moves on to business from 13 until 15 June.” However, he did not elaborate on what he meant by “a streamlined, business-like Conference.”