TRADE UPDATE

Food & Agriculture
May 2, 2023

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: The U.S. and Mexico resolved a labor complaint involving worker rights disputed under the USMCA’s rapid response labor mechanism, making it the eighth facility where the U.S. has successfully employed the USMCA provision to “benefit workers,” according to a USTR press release.
• USMCA: With the 30-day threshold for USMCA technical consultation passed on the Mexico biotech policy to ban GM corn, a top Mexican agriculture official said Mexico’s decree to ban GM corn imports for certain uses “does not affect U.S. corn producers in any way.”
• U.S. – China: China made an additional 18 food and agriculture products subject to production facilities registration for imported products under Decree 248. The move involved mostly dairy products, fruit and vegetable juice, and fruit products, according to a USDA report.
• Trade Policy: The Biden Administration doubled down last week on its new approach to U.S. trade policy, eschewing tariff reductions to pursue a more worker-centric trade negotiating framework with greater emphasis on the environment and resilient supply chains. National Security Advisor Jake Sullivan said, “The era of after-the-fact policy patches and vague promises of redistribution is over. We need a new approach.” Sullivan noted the prior approach of tariff concessions dominating trade negotiations was no longer viable.
• WTO: The Biden Administration affirmed its support for the WTO but noted serious challenges lay ahead and reform of the institution remains critical. National Security Advisor Jake Sullivan said the U.S. is working with other “WTO members to reform the multilateral trading system so that it benefits workers, accommodates legitimate national security interests, and confronts pressing issues that aren’t fully embedded in the current WTO framework, like sustainable development and the clean-energy transition.”
• WTO: Meanwhile the U.S. blocked, for the 65th time, a request by over 120 WTO members to fill the vacancies on the defunct appellate body. The U.S. contends that significant reform of the dispute settlement system to ensure transparency and adherence to the WTO principles should precede any actions to consider pursuing the prior two-tier dispute settlement system.
• IPEF: Ahead of the third round of IPEF trade talks next week in Singapore, Ambassador Katherine Tai dismissed the notion that IPEF conflicts with other agreements in the region, such as the Regional Comprehensive Partnership (RECP) promoted by China. “The unifying theme in the IPEF engagements go to economic issue areas and topics, where by collaboration the United States and these partners in the Indo-Pacific can promote more resilient, more sustainable, and more inclusive economies,” said Tai.

“We do intend to pursue modern trade agreements. But to define or measure our entire policy based on tariff reduction misses something important. Asking what our trade policy is now – narrowly framed as plans to reduce tariffs further – is simply the wrong question. The right question is: How does trade fit into our international economic policy, and what problems is it seeking to solve?”

–National Security Advisor Jake Sullivan speaking at the Brookings Institute

USMCA

USMCA Labor Case Resolved

• Last week the U.S. and Mexico resolved another worker rights dispute lodged under the USMCA’s rapid response labor mechanism, making it the eighth facility where the U.S. has successfully employed the USMCA provision to “benefit workers”, according to a USTR press release. The dispute involves a Unique Fabricating facility in Santiago de Querétaro, where workers were denied their rights to freedom of association and collective bargaining, according to the U.S. Trade Representative’s Office. As a result of the resolution, the Secretary of the Treasury will resume liquidation of entries of goods from the Unique Fabricating facility.
  • “This matter demonstrates both the United States and Mexico’s commitment to ensuring workers can exercise their rights to freedom of association and collective bargaining,” said Ambassador Katherine Tai. “We commend the Government of Mexico and the company for their efforts to quickly resolve this matter.” Deputy Undersecretary for International Affairs at the Labor Department, Thea Lee said, “The U.S. Department of Labor appreciates the Government of Mexico’s focus on employer neutrality in its review.” She continued, “Workers and unions need to have confidence that they can exercise their fundamental labor rights without interference from their employers.”
  • On February 2, 2023, a Mexican union, Sindicato Nacional de Trabajadores de la Transformación, Construcción, Automotriz, Agropecuaria, Plásticos y de la Industria en General, del Comercio y Servicios, Similares, Anexos y Conexos del Estado de Querétaro, (“Ángel Castillo Reséndiz” or “Transformation Union”) filed a USMCA rapid response mechanism petition regarding Unique Fabricating. The petition alleged that workers at one of the Unique Fabricating automotive components facilities in Santiago de Querétaro are being denied the rights of freedom of association and collective bargaining. 

Mexican ag official, GM corn ban has no effect on U.S. producers

• Mexico’s biotech decree to prohibit GM corn imports for certain uses “does not affect U.S. corn producers in any way,” said Victor Suarez, Mexico’s Deputy Agriculture Minister contradictory the U.S.’ claims. “It is the U.S.’ own agricultural and trade policies, as well as its food development model, which distorts prices and creates gaps between small-scale producers and large transnationals,” Suarez added, according to a Reuters article.
• Suarez, a vocal critic of modern agriculture contended that the U.S. requests for technical consultations under USMCA regarding the decree are motivated by protecting “seed, agrochemical, and other food-producing oligopolies” and that not all U.S. growers agree with the U.S. position on the decree. U.S. officials have maintained that Mexico’s biotech policies are not supported by science and a violation of Mexico’s commitments under USMCA.
  • Recall that on March 6 the U.S. requested USMCA technical consultations with Mexico on the decree which bans importation of GM corn for human consumption in the use of flour and dough for masa and tortillas. In February Mexico issued a new decree that narrowed the 2019 decree to temporarily permit GM corn imports for animal and industrial uses.
• Over a month has passed since the U.S. requested technical consultation with Mexico and several industry groups and lawmakers have expressed concern that the U.S. should move swiftly to a dispute panel should technical consultations stall or gain little traction. Under USMCA provisions, the U.S. and Mexico have 30 days after receipt of the technical consultations request to meet, “with an aim of resolving the matter cooperatively with 180 days of the request if possible.” USMCA further provides that the complaining party (e.g., U.S.) could “cease technical consultations,” reverting to a dispute settlement procedure “following the meeting.”
• U.S. officials are “assessing” Mexico’s comments under the technical consultations according to a statement by USDA Undersecretary for Trade and Foreign Agricultural Affairs Alexis Taylor, according to Agri-Pulse. Taylor provided no indication on the status of the consultations or potential for requesting a dispute settlement action. She emphasized that the U.S. remains confident in its position in the dispute stating, “science is on our side.”

U.S. – China

China adds ag products to Decree 248 requirements

• Last month China added several food and agriculture products to the list of goods subject to production facilities registration for imported products under Decree 248. According to a USDA report, China added 18 products affecting dairy products, fruit and vegetable juice, and fruit products. See list of products here: https://gain.fas.usda.gov/Download.aspx?p=2064&q=8c1f1bb9-beb1-4172-9da4-91d3e5e303c8.
  • The Regulation and Administration of Overseas Manufacturers of Imported Food (“Decree 248”) took effect on January 1, 2022. The regulation states that overseas food manufacturing, processing, and storage facilities are required to register with the General Administration of Customs of China (GACC) to export food products to China.

CPTPP

China pushes for CPTPP admission

• Chinese officials are elevating their push for China to join the Comprehensive Progressive Trans-Pacific Partnership (CPTPP) to expand its integration in the region. “China is willing to join the CPTPP … and has the capability to fulfil relevant obligations,” contends Wang Shouwen, a Vice-Commerce Minister and China’s international trade negotiator, as reported in the South China Morning Post. “We hope that all 11 member countries can support our joining.”
  • China applied for CPTPP membership over 2 years ago with scant evidence that China is advancing through the process. In contrast, the U.K. filed its CPTPP application three months after China but appears to be next in line to the join the trade pact.
  • Recall that in 2016, then President Trump withdrew the U.S. from the Trans-Pacific Partnership (TPP), after which the remaining countries forged ahead to conclude the agreement. The agreement was renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and includes 11 countries in the Asia-Pacific region (New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, and Viet Nam). CPTPP countries account for approximately 13 percent of world GDP – worth a total of $10.6 trillion.

Trade Policy

Biden Administration has not sworn off market liberalization

• “The era of after-the-fact policy patches and vague promises of redistribution is over. We need a new approach,” said National Security Advisor Jake Sullivan, referring to the Biden Administration’s current trade policy approach. Sullivan, in remarks delivered at the Brookings Institution on renewing American economic leadership, said the decades-long approach to trade based largely on tariff liberalization misses more important economic imperatives. “We have not sworn off market liberalization. We do intend to pursue modern trade agreements. But to define or measure our entire policy based on tariff reduction misses something important,” Sullivan said. He continued, “Asking what our trade policy is now—narrowly framed as plans to reduce tariffs further—is simply the wrong question. The right question is: how does trade fit into our international economic policy, and what problems is it seeking to solve?
  • Sullivan highlighted the Indo-Pacific Economic Framework (IPEF) endeavor with thirteen countries that focuses on enhancing labor protections, resilient supply chains, fighting corruption, and open and safe digital infrastructure as a counter model to “simply bringing down tariffs.” Sullivan contended that IPEF, if in place during COVID would have allowed countries to better weather the supply chain upheavals and respond more quickly.

Food Security

G7 Ag Ministers call for Black Sea grain deal extension

• At the recent Group of Seven (G7) summit, leaders called for the “extension, full implementation and expansion” of the Black Sea grain deal to ensure Ukrainian grain transport through the Black Sea, the group’s agriculture ministers said in a communique. During a two-day meeting in Miyazaki, Japan, the G7 agriculture ministers said they “recognised the importance” of the deal, and that “We strongly support the extension, full implementation and expansion of (the Black Sea Grain Initiative) BSGI.” “We condemn Russia’s attempts to use food as a means of destabilisation and as tool of geopolitical coercion and reiterate our commitment to acting in solidarity and supporting those most affected by Russia’s weaponisation of food,” the communique said.

Trade Trends

U.S. goods trade deficit shrinks on declining import demand

• The U.S. trade deficit in goods decreased $6.4 billion in February, propelled decreasing imports. The international trade deficit registered at $84.6 billion in February compared with $92.0 billion in February, an 8.1% decline. Exports of goods for March were $172.7 billion, $4.9 billion more than February exports. Imports of goods for March were $257.3 billion, $2.5 billion less than February imports.

USTR

USTR designates AUSTR for small business

• The Office of USTR announced last week the designation of Sushan Demirjian as the new Assistant U.S. Trade Representative for Small Business, Market Access and Industrial Competitiveness. She has served at USTR since 2007, most recently as the acting AUSTR for Small Business, Market Access and Industrial Competitiveness.
  • “Sushan is a proven advocate for our nation’s small businesses and a key part of our effort to innovate across trade policy,” said Ambassador Katherine Tai. “Her work will be central to building trade policy that promotes a resilient, sustainable and equitable economy at home, and strengthens supply chains for the U.S. and world economy. I thank her for leading the Small Business, Market Access, and Industrial Competitiveness office on an interim basis and look forward to working with her as we follow through on President Biden’s pledge to build our economy from the bottom up and middle out.”
  • The Office of Small Business, Market Access, and Industrial Competitiveness develops, negotiates, and implements U.S. trade policy related to market access for American manufacturers, and helps ensure that USTR’s trade policy efforts address activities focus on opportunities and challenges facing small businesses. The office works closely with other USTR offices to address key tariff and non-tariff barriers affecting U.S. industrial goods, including through the negotiation, implementation, monitoring and enforcement of trade agreements.

Indo-Pacific Economic Framework

IPEF ambitious schedule will continue

• Ambassador Tai confirmed that the upcoming trade talks in Singapore are indicative of an ambitious schedule to move forward on IPEF. The Singapore negotiations will be the third round in the last five months, and Tai noted USTR plans a similarly aggressive timeline through the end of the year. Tai emphasized that IPEF, unlike other trade negotiations, are focused on upfront capacity building and trade facilitation, particularly for developing countries, rather than after the agreement is concluded.
• Ambassador Tai dismissed the notion that IPEF conflicts with other agreements in the region, such as the Regional Comprehensive Partnership (RECP) promoted by China. “The unifying theme in the IPEF engagements go to economic issue areas and topics, whereby collaboration, the United States and these partners in the Indo-Pacific can promote more resilient, more sustainable and more inclusive economies,” Ms. Tai told reporters. She continued, “In that sense, I do not see this as being in conflict with other types of arrangements.”
  • Recall the Commerce Department announced the third negotiating round of the Indo-Pacific Economic Framework (IPEF) will be held May 8 – 15 in Singapore. The agency outlined that the U.S. delegation for the third round will be “led by Sharon Yuan, Commerce Department Counselor and Chief Negotiator for Pillars II-IV, and Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting).”The Department of Commerce and USTR announced two listening sessions ahead of the third round of IPEF talks in May. The first listening session will be hosted virtually by the two agencies on May 3. The second session will be held in-person on May 11 in Singapore.
  • IPEF negotiating countries besides the U.S. include Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Notably India opted out of negotiations on the trade pillar.

WTO

U.S. remains committed to WTO

• “The Biden Administration is still committed to the WTO and the shared values upon which it is based: fair competition, openness, transparency, and the rule of law. But serious challenges, most notably nonmarket economic practices and policies, threaten those core values,” said National Security Advisor Jake Sullivan. Sullivan continued, “So that’s why we’re working with so many other WTO members to reform the multilateral trading system so that it benefits workers, accommodates legitimate national security interests, and confronts pressing issues that aren’t fully embedded in the current WTO framework, like sustainable development and the clean-energy transition. Sullivan’s WTO comments were part of a broader speech on U.S. economic leadership delivered last week at the Brookings Institution.

U.S. holds firm against AB nominations

• Last week the U.S. denied another request by over 120 WTO members to begin filling the vacant positions on the Appellate Body (AB). According to reports, the U.S. held firm to its previously stated position that significant reform of the WTO’s dispute settlement process is a top priority that best serves members in a transparent and timely manner, which may include revisiting the veracity of the present two-tier system. Despite the U.S. position, nearly 30 WTO member countries expressed support for the WTO’s two-tiered dispute settlement system to ensure stability and predictability of the multilateral trading system. The U.S. action last week was the 65^th time blocking a request by other WTO countries to resurrect the AB by filling the current vacancies. Several member countries are increasingly concerned with the growing divide between the current AB reform discussions and uncertainty of reverting to the existing two-tier system, or possibly abandoning an AB function.
  • Recall in December 2019, the AB ceased to function when the U.S. blocked the nominations of AB panelists to replace the final AB adjudicators as their terms had expired. The U.S., going back to the Bush Administration, began blocking appointments of the 7-member AB over concerns with several aspects of the system including judicial over-reach, protracted legal decisions, and others. The culmination of U.S. concerns was lodged during the Trump Administration in a 174-page report on the AB, inventorying the U.S. concerns with and failures of the AB system.