TRADE UPDATE

Food & Agriculture
May 10, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

“With respect to the real pain and the real anxieties that people here – Americans, but actually people in large swaths of the world right now are confronting with rising prices – what I would say is this: Yes, we need to be looking at our economic policy tools across the board. You want to look at tariffs? Sure, let’s look at tariffs.”

— Ambassador Katherine Tai speaking at a Milken Institute event

USMCA

Congressman Brian Higgins (D-NY)

Canada’s Underused Housing Tax proposal may violate USMCA

  • In a letter to Ambassador Katherine Tai, Representative Brian Higgins (D-NY) highlighted his concern regarding Canada’s proposed Underused Housing Tax. The proposal, which “would enact a 1% tax on the value of non-resident, non-Canadian owned residential real estate that is defined as vacant or underused,” may violate USMCA as many American homeowners of Canadian property would not qualify for exemption from the tax. According to Congressman Higgins, “any restriction of property ownership on the basis of nationality violates the bedrock non-discrimination principles of the United States-Mexico-Canada Agreement (USMCA).” As such, the representative urged U.S. Trade Representative Tai to raise this issue during her visit to Canada. Previously, U.S. representatives drew attention to Canada’s Underused Housing Tax during the House Committee on Ways and Means Hearing on the Biden Administration’s 2022 Trade Agenda.

USMCA rapid-response mechanism vital trade policy tool

  • USTR’s top labor policy official indicated there will be “frequent” use of USMCA’s rapid-response mechanism going forward, signaling that more labor cases are likely to arise. “I can say with great confidence that these two cases will be far from the last,” said Josh Kagan, Assistant U.S. Trade Representative for Labor. “I think the focus on business accountability, the ability to harness a narrow tool for specific violations and the agility to respond both rapidly and frequently are important lessons that we should seek to incorporate moving forward,” Kagan said, speaking at a virtual event hosted by Texas A&M University’s Bush School of Government & Public Service. He noted the two recent labor cases involving the GM and Tridonex auto plants in Mexico illustrate the effectiveness of the rapid-response mechanism (i.e., both cases resolved without imposing tariffs) and that USTR is looking at how to include its basic concept of the mechanism in U.S. trade policy moving forward.

Ambassador Tai flies to Canada

  • During her trip to Ottawa, U.S. Trade Representative Katherine Tai met with Canada’s Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng to discuss USMCA, worker-centered trade, and environmental standards. Additionally, Ambassador Tai “stressed the importance of Canada fully meeting its USMCA commitments, including its allocation of dairy tariff-rate quotas and home-shopping” and “expressed concern about Canada’s proposed digital service tax and Underused Housing Tax,” according to a USTR readout of the trip. While in Canada, Ambassador Tai also spoke to reporters about the U.S. and Canada’s shared concern regarding Mexico’s energy policy. The Ambassador noted she and her Canadian counterpart “are looking at all options” to address the situation.

China Trade

Congressman Bob Menendez (NJ-D)

Sen. Menendez releases new China-focused bill

  • While delivering a speech to the American Leadership Initiative, Chairman of the Senate Foreign Relations Committee Bob Menendez (D-NJ) introduced the Economic Statecraft of the Twenty-First Century Act. The legislation is meant to complement the China competition bill that has just entered the congressional conference process.
    • “Twenty years ago, the common consensus was that by joining the international economic order, China would adopt principles of economic liberalization and personal freedom. But unfortunately, that hasn’t happened. Instead, they are using their economic integration to pressure the developing world to choose between our system and our values of self-determination, respect for human rights, and openness – or theirs: of authoritarianism, repression, and censorship,” Chairman Menendez said. “It is time to have coordination. We need a new, whole-of-government approach. One rooted in the emerging geopolitical realities of a world more connected yet more complex than ever. And that’s exactly what my bill, the Economic Statecraft for the Twenty-First Century Act, will do.”
    • The bill is divided into two parts: “Confront” and “Compete” and establishes a plan to “outcompete China in five strategic domains of the 21st century – infrastructure, energy, technology, international financial institutions, and global resilience.”

COVID-19

Ambassador Tai open to “all tools” to counter inflation

  • In conversation with Marketplace Senior Editor Kai Ryssdal, U.S. Trade Representative Katherine Tai said the Administration would consider “all tools” available, including tariff reductions, to address rising inflation in the U.S. “With respect to the real pain and the real anxieties that people here – Americans, but actually people in large swaths of the world right now are confronting with rising prices – what I would say is this: Yes, we need to be looking at our economic policy tools across the board. You want to look at tariffs? Sure, let’s look at tariffs,” said the Ambassador. “But also, let’s look at monetary policy, fiscal policy, let’s look at tax policy. All of these tools you need to look at.” She went on, “whatever sets of tools that we deploy to address the challenge we have right now we have to deploy with a view to the medium term. And we need to make sure whatever we do right now, first of all, is effective and, second of all, doesn’t undermine the medium-term design and strategy that we know we need to pursue.” Ambassador Tai’s comments come at a time of pressing need to alleviate rising consumer prices in the U.S.
Ambassador Katherine Tai and Kai Ryssdal discuss trade at Milken Institute event
  • Previously, the IMF published their findings on inflationary pressures from the military conflict in Ukraine stating, “War-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected last January.”

Trade deficit surges in March

  • The U.S. trade deficit widened sharply in March to a record $109.8 billion as strong import demand for computers, vehicles, oil, and other goods outpaced increasing exports. According to the Census Bureau, the trade imbalance for goods and services increased 22.3%, as imports rose by 10.3% to $251.5 billion, compared with a 5.6% increase in exports to $241.7 billion.
  • The average goods and services deficit increased $9.3 billion to $96.3 billion for the three months ending in March. Year-over-year, the average goods and services deficit increased $28.3 billion from the three months ending in March 2021.
    • Average exports increased $4.5 billion to $231.7 billion in March.
    • Average imports increased $13.7 billion to $328.0 billion in March.
  • The March trade deficit of $109.8 billion is more than double the trade deficit in 2019, which lead into the global pandemic and economic upheavals of COVID-19.

Food Security

Vegetable oil supply issues

  • The world is experiencing global supply shortages and price increases of vegetable oil. Several recent events, including the Russia-Ukraine conflict, drought, and the introduction of new restrictive trade policies, have led to the perfect storm of conditions, keeping vegetable oil prices high (up 30% since February). “Everything that could go wrong has gone wrong in terms of supply,” said Joe Glauber, a senior research fellow at the International Food Policy Research Institute (IFPRI). According to a report by Agri-Pulse, Mr. Glauber also highlighted Indonesia’s recent ban of palm oil exports as a major contributing factor, increasing already elevated vegetable oil prices and causing a 7.5% jump in the price of palm oil.

Supply Chains

Supply chain delays reach new records

  • New data from the Institute for Supply Management (ISM) indicate intensifying supply chain delays and strains on U.S. manufacturing. ISM reported the delivery of production average at 100 days, a new high dating back to 1987 when the dataset was first recorded. Similarly, the average commitment time for capital expenditure increased to 173 days, matching the highest on record. 
    • Transportation and shipping delays are compounded by worker recruitment challenges, further exacerbating manufacturing activities for many industries. Nearly 34% of the ISM survey’s respondents that are actively hiring indicated difficulty filling vacancies, up from 28% a month earlier.

Indo- Pacific Economic Framework

Jacinda Ardern, Prime Minister of New Zealand

New Zealand to confirm IPEF participation

  • At a New Zealand – U.S. Business Summit, New Zealand Prime Minister Jacinda Ardern noted she will soon confirm her country’s participation in the Biden Administration’s Indo-Pacific Economic Framework, “along with a number of others.” “IPEF is not a traditional trade negotiation but it does have a trade element,” said the PM. “Digital trade is proposed as part of the agenda. It is important for New Zealand to be part of any conversation where future rules for digital trade are on the table. We have always been challenged by our distance from major markets and our small scale. Digital offers opportunities to shrink those disadvantages.” Prime Minister Arden also highlighted the framework’s focus on climate and supply chain resiliency as elements of critical importance to New Zealanders.

President Biden to unveil IPEF during Japan trip

  • Japanese Ambassador Tomita Koji said of President Biden’s upcoming trip to Japan, “I’m expecting the visit will also coincide with the formal launch of the Indo-Pacific Economic Framework initiative by the United States.” He went on, speaking at a Center for Strategic and International Studies (CSIS) event, “We are now trying to flesh out the ideas to be contained in this initiative. This is also a very important initiative for the creation of a free and open Indo-Pacific.”

Ukraine

Push to lift tariffs on Ukrainian goods

  • In response to the economic devastation caused by Russia’s assault on Ukraine, the United Kingdom announced it would “cut tariffs on all goods from Ukraine to zero.” Likewise, the European Commission has proposed legislation “to suspend for one year import duties on all Ukrainian exports to the European Union.” Now, U.S. politicians and industry actors are posing the question: Should the U.S. do the same?
  • The U.S. Chamber of Commerce uploaded a post, calling on the Biden Administration to pursue tariff removal. “Removing tariffs on all imports from Ukraine would have little discernible effect on the U.S. economy. However, it would serve as an act of goodwill to Ukrainian workers, farmers, and companies for whom international trade ties can be a lifeline,” wrote Chamber of Commerce International Policy Coordinator Mary Kate Carter. According to the U.S. Census Bureau, Ukraine exported $1.9 billion dollars in goods to the U.S. in 2021, “less than 0.1% of all U.S. imports but approximately 2.8% of Ukraine’s total exports.” The Chamber post goes on to argue that eliminating the tariffs on Ukrainian imports would act as a symbol of the U.S.’ commitment to supporting Ukraine during this time of need.

Countries continue imposing export restrictions in wake of Ukraine conflict

  • Countries initiated 21 new trade measures, mostly trade restrictions, in April, according to an indicator published by the United Nation’s International Trade Center (ITC).
  • The ITC reported that trade measures, mostly export restrictions, reached 98 measures in April, in response to Russia’s invasion of Ukraine. “More than 60% of the measures apply to exports. Almost all measures restrict trade, …” “Fifty-four percent of measures are export restrictions or bans, while 27% of measures are import restrictions or bans. Most measures apply to other types of goods including energy, industrial, and consumer products.” Some measures apply specifically to food products or goods that can be used by the military, according to the UN’s ITC.

U.S. – Russia

Congressman Marco Rubio (R-FL)
Congressman Marco Rubio (R-FL)

Legislation to embargo Russian ag introduced

  • Senator Marco Rubio (R-FL) released a new bill titled the Protecting American Food Producers from Russia’s Market Distortions Act. The legislation, which aims to target Russia following the country’s invasion of Ukraine, “would prohibit the importation of Russian agricultural products, raw materials, and food — including beef, pork, poultry, fruits, vegetables, fish, seafood, cheese, and milk — until certain conditions are met.” Commenting on the release of his new bill, Senator Rubio noted “For nearly a decade, Russia unfairly punished American producers, and it is time to level the playing field. A war criminal such as Putin should not be allowed to have an unfair advantage over American food producers.”
    • In 2014, “Russia imposed a similar embargo on American products in response to U.S. sanctions,” which were ordered after Russia invaded the Crimean Peninsula.

U.S. bans Russian ships

  • The White House released a proclamation, announcing President Biden’s decision to “prohibit Russian-affiliated vessels from entering into United States ports.” The proclamation went into effect on April 28th. “This is yet another critical step we are taking in concert with our partners in the European Union, United Kingdom and Canada in further to deny Russia the benefits of the international economic system that they so enjoyed in the past,” the President said. According to Politico, the prohibition of Russian vessels is largely a symbolic action as “Russian-flagged ships account for less than 1 percent of cargo that arrives at American ports.”

Section 301 Investigations

Biden Administration commences Section 301 review

  • USTR issued a notice that the Biden Administration has started its four-year review of the China Section 301 tariffs. According to a USTR press release, the first step in the process is “to notify representatives of domestic industries that benefit from the tariff actions of the possible termination of those actions and of the opportunity for the representatives to request continuation.  If a request for continuation is received, USTR will conduct a review of the tariff actions.”
    • 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 the congressionally mandated review. 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 review process, which has just official commenced, will 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.

Chinese officials comment on 301 tariffs

  • “During the past few years, the facts have proved that a tariff war cannot solve the U.S. trade issues. It will only drive up the inflation and increase the cost of living for ordinary American consumers and families,” Chinese Embassy Spokesperson Liu Pengyu said about the Trump-era Section 301 tariffs placed on a wide array of Chinese goods. The Chinese Embassy, which rarely shares public statements, highlighted China’s perspective on the tariffs amid growing conversation regarding their review. Another representative from the Embassy Lyu Jiang called the tariffs “an act of protectionism.” “To our regret, it seems to me that the strategic trust between our two sides is waning, and we have to re-build and fix this strategic trust between our two sides,” Lyu said. “One of the main reasons that this trust is weakened or lost is because the current and the previous administrations of the U.S. has defined China as U.S.’s strategic competitor and even a rival.”

 Special 301 Report on Intellectual Property Protection and Enforcement

  • USTR released its annual Special 301 Report aimed at analyzing the status of intellectual property (IP) rights of the U.S.’ trading partners. Commenting on the release of the report, Ambassador Tai noted the importance of strong IP rights globally, “Intellectual property-intensive industries support more than 60 million jobs – from the independent inventor just starting out to the documentary filmmaker studying critical social issues.  We need robust protection and enforcement in foreign countries to protect these individuals, their livelihoods, and ensure they can fairly compete in the global marketplaces” According to USTR, key elements of the report include:
    • Suspension of Ukraine’s 301 review,
    • Instatement of an Out-of-Cycle Review of Bulgaria,
    • Confirmation that the U.S. will continue to support a waiver of IP protections for COVID-19 vaccines under the WTO TRIPS Agreement,
    • Record that “United States is closely monitoring China’s progress in implementing its commitments under the United States-China Economic and Trade Agreement,”
    • A status update on the advancement of IP protection by several U.S. trading partners, and
    • Concern with “the European Union’s aggressive promotion of its exclusionary geographical indications (GI) policies.”

Section 232 Tariffs

USITC Section 232 tariff investigation

  • In addition to the Section 301 review, the U.S. International Trade Commission (USITC) announced it will also investigate the effects of active Section 301 and Section 232 tariffs on U.S. industries. “The Commission was directed to conduct this investigation, Economic Impact of Section 232 and 301 Tariffs on U.S. Industries, Inv. 332-591, as part of the Omnibus Appropriations Act, which was signed into law on March 15, 2022.” Following the investigation, the USITC will create a report that comprises:
    • “background information on the Section 232 and 301 tariffs and an overview of the tariffs that were in effect as of March 15, 2022; and
    • an economic analysis of the impact of these tariffs on U.S. trade, production, and prices in the industries most affected by these tariffs.”
  • The USITC will conduct a public hearing in connection with the investigation, beginning at 9:30 a.m. on July 21, 2022. Information regarding the hearing will be posted on the Commission’s website no later than June 21st. The USITC will deliver the report to Congress by March 15, 2023. 

U.S. – U.K.

George Eustice, U.K. Secretary of State for Environment, Food, and Rural Affairs

Hope for a U.S. – U.K. trade deal

  • During his trip to the United States, U.K. Secretary of State for Environment, Food, and Rural Affairs George Eustice met with U.S. Secretary of Agriculture Tom Vilsack. Straying from the usual cautiousness surrounding discussion of a U.S. – U.K. trade agreement, Secretary Eustice kept an optimistic view for the future of the two countries’ trade relationship. “The long and short of it is (British Prime Minister Boris Johnson) and the UK government are still very keen to progress a UK-U.S. trade agreement,” he noted. Secretary Eustice said that during his trip he raised the “longer-term objective to have a UK-U.S. free trade agreement, according to a video message released by his office,”
    • Despite the Biden Administration’s persistence that a trans-Atlantic trade deal is not a priority at this point in time, the U.K. continues to press for eventual formal negotiations. U.S. Stakeholders remain hopeful that the U.K.’s resolve will lead to a trade deal later down the road.
    • Testifying before a House subcommittee, Secretary Vilsack highlighted his talks with Secretary Eustice as proof of the Biden Administration’s seriousness towards trade and promoting U.S. ag. “I can tell you that I have had more conversations on trade, more conversations with ag ministers across – in fact, yesterday, with Ireland and the UK. We’re doing more trade missions,” said Secretary Vilsack, responding to a congressman’s comments.

U.S. – EU

Jose Fernandez, Under Secretary of State for Economic Growth, Energy, and the Environment

Upcoming TTC meeting

  • The U.S. and the European Union will convene their second Trade and Technology Council (TTC) meeting on May 15th-16th in France. According to Under Secretary of State for Economic Growth, Energy, and the Environment Jose Fernandez, the meeting will be used as an opportunity to “chart a way forward,” following Russia’s invasion of Ukraine and subsequent food security and supply chain issues. “I think that those conversations, those kinds of results, those kinds of bridges that we build, I think they’re going to get stronger as we go on,” said the Under Secretary. “I think we’re only seeing the tip of the iceberg here. We’ve got a lot more to do. Russia’s aggression has only uncovered the reasons why our relationship, why our joint shared future, is so important.” The May 15th and 16th discussions between the U.S. and EU are intended to cover issues and goals related to supply chains, semiconductors, and tech standards, in addition to the Russia – Ukraine conflict.

U.S. – Kenya

USTR to lead broad-based delegation to Kenya

  • USTR announced plans for a U.S. delegation to “meet with Kenyan government officials to explore opportunities for enhanced trade and investment engagement across a wide range of topics.” The “broad-based” delegation will include officials from USTR as well as the State, Commerce, Labor, and Agriculture departments. USTR said the goal is to improve the two countries’ relationship “in a manner that benefits workers, attracts investment, and promotes regional economic integration. The U.S. team will seek to collaborate with their counterparts on ways to generate inclusive economic growth in pursuit of those shared objectives.” The plans follow on recent discussions by USTR Katherine Tai and her Kenyan counterpart, Cabinet Secretary Betty Maina, during which they agreed to “pursue deepening the United States-Kenya trade relationship.”

WTO

Image from the WTO

WTO publicizes TRIPS waiver compromise

  • WTO Director-General Okonjo-Iweala released the TRIPS waiver compromise regarding COVID-19 vaccine IP protections agreed upon by the Quad (the EU, India, South Africa, and the U.S.). A WTO news item on the release notes, “In their discussions, the Quad adopted a problem-solving approach aimed at identifying practical ways of clarifying, streamlining and simplifying how governments can override patent rights, under certain conditions, to enable diversification of production of COVID-19 vaccines.” The text allows eligible members to grant usage of patented COVID-19 vaccine IP without the consent of the patent holder.
    • Following the publication of the compromised text, U.S. Ambassador to the WTO María Pagán released a statement affirming the Administration’s support for the agreement. “For nearly a year, the United States, as part of its comprehensive effort to end the pandemic, has worked constructively with other WTO Members to facilitate discussions and bridge differences that might lead to an outcome on intellectual property that can achieve consensus across the 164 Members of the World Trade Organization to help end the pandemic. In the days ahead, as part of the Biden-Harris Administration’s goal to get as many safe and effective vaccines to as many people as fast as possible, we look forward to continuing our engagement with members of Congress and stakeholders as all WTO Members consider the text released by the WTO Director-General,” said the Ambassador.

Anticipating a streamlined MC12

  • The WTO’s 12th ministerial will occur amid compounding crises next month in Geneva. Speaking to the heads of WTO member delegations, Director-General Okonjo-Iweala emphasized MC12 will not be an ordinary ministerial, given the circumstances, but still “should not simply be a talk shop.” Instead, the DG expressed her hopes for MC12 to take a “streamlined, business-like” structure, noting the creation of a WTO pandemic response strategy, fisheries subsidies, agriculture, and WTO reform progress as potential deliverables. “Regarding MC12, the Director-General said, the goal “is to show we have an organisation that is part of the solution to the polycrisis we face,” alluding to simultaneous global crises in the economy, the environment, public health, and security. She reiterated that in the five weeks before MC12, she stood ready to work with members to find compromises,” according to a WTO news item.

Members focusing on MC12 deliverables

  • With nearly a month until MC12, WTO member countries are refining deliverables, with an IP waiver and food security gaining potential momentum. Both areas are measures of the WTO’s response to the pandemic, though the IP waiver provisions for vaccines has been debated for many months. Food security, has gained heightened attention following Russia’s invasion of Ukraine, which has disrupted global food supplies, particularly grains and edible oils. Other likely deliverables, including the long-sought agreement on limiting fisheries subsidies, appear to be losing ground as members prepare for a “streamlined, business-like” MC12. WTO officials have been playing down expectations, considering the unabated geopolitical tensions surrounding Russia’s invasion of Ukraine and lingering issues associated with the pandemic.

Ag Economy Barometer

The Ag Economy Barometer rebounds modestly

  • The Ag Economy Barometer rebounded 8 points to a reading of 121 in April. A more optimistic view of future conditions driven by strong commodity prices pushed the sentiment measure higher, though concerns with rising input costs continue to weigh on farmers’ sentiment.  Rising prices for major commodities, especially corn and soybeans, led to a modestly improving financial outlook according to the survey results.
  • Conversely, rising input costs remain the paramount concern for farmers, followed by the availability of inputs. In April, 42% of respondents rated input costs as top concern and 34% of respondents indicated difficulty in acquiring inputs (herbicides, machinery parts, fertilizer, etc.) for their farming operations.