TRADE UPDATE

Food & Agriculture
May 23, 2023

By Michael Anderson, Vice President of Trade and Industry Affairs

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HIGHLIGHTS

  • U.S. – Taiwan: U.S. officials announced an “early harvest” on several components of the U.S.-Taiwan Initiative on 21st Century Trade negotiations. According to a USTR readout, U.S. and Taiwanese officials concluded chapters on customs administration and trade facilitation, good regulatory practices, services domestic regulation, anti-corruption, and small- and medium-sized businesses. Agriculture and other components remain on the negotiating table.
  • IPEF: USTR reported that IPEF talks in Singapore (May 8-15) yielded “strong progress” on a wide range of issues on each of the framework’s four pillars. No further details on negotiating outcomes were provided. Meanwhile, U.S. officials are setting high expectations for the upcoming IPEF ministerial in Detroit, MI. The Office of the USTR and the Commerce Department issued a statement that included: “The Detroit ministerial will be an important opportunity for ministers to review the current progress in the four pillars of the framework.”
  • U.S. – China: According to recent analysis by the Peterson Institute for International Economics (PIIE), China continues diversifying its import sources, lessening dependence on U.S. exports. “US exports are falling farther and farther behind foreign peers also selling into the Chinese market. Once major US manufacturing exports—like automobiles and Boeing jets—have all but disappeared. Semiconductor sector sales tailed off in 2022 and may not return, because of new U.S. export control policies. U.S. services exports plunged during the pandemic and have not yet come back,” according to PIIE.
  • Ukraine: Last week the Black Sea Grain Initiative was extended for an additional two months, to July 18, permitting Ukrainian grain to transit through the blockaded Black Sea to foreign markets. Turkish President Recep Tayyip Erdoğan announced the extended deal via tweet, and it was confirmed by Ukrainian Deputy Prime Minister Oleksandr Kubrakov in another tweet.
  • USMCA: Last week, Canada reported productive discussions with Mexico regarding the ongoing USMCA energy dispute. Canada’s Minister of International Trade Mary Ng expressed optimism about the discussion and stated that Mexico is proactive around issues involving Canadian investments in the energy sector.
  • USMCA: Mexico’s Ministry of the Economy warned that it is preparing to file a case with USMCA’s Trade Facilitation Committee, claiming that U.S. border inspection delays violate USMCA. Mexico’s Ministry of the Economy reported that inspections at the U.S.-Mexico border are resulting in delays ranging from eight to 27 hours. Mexico alleges that such delays are resulting in millions of dollars in losses for both U.S. and Mexican firms.
  • WTO: India is likely to challenge the EU’s proposed Carbon Border Tax Mechanism (CBAM) at the World Trade Organization (WTO) citing concerns the border measure would be a “trade barrier that would hit not only Indian exports but also of many other developing countries,” according to Reuters. India’s contemplated WTO action comes as the EU plans to implement a 25-30% tariff on imports of carbon intensive goods such as steel, cement, aluminum, iron ore, etc.
  • Biden Nominees: The Senate Agricultural Committee unanimously (23-0) cleared former Representative Xochitl Torres Small, President Biden’s nominee to serve as the next USDA Deputy Secretary of Agriculture, last week under a roll call vote. Torres Small’s nomination now moves to the full Senate for consideration.

“Like any other agreement, the USMCA isn’t worth the paper it’s printed on without meaningful compliance and enforcement…We need to resolve these issues not only to fulfill the potential of our North American relationship, but also, and perhaps most importantly, to prove that we can do it.”

–Suzanne P. Clark President and CEO, U.S. Chamber of Commerce remarks at the North American Business Summit references current USMCA disputes on dairy, auto rules of origin, and energy

U.S. – Taiwan

U.S. and Taiwan reach early harvest on trade negotiations

  • Last week USTR announced achieving an “early harvest” on several components of the U.S.-Taiwan Initiative on 21st Century Trade negotiations. According to a USTR readout, U.S. and Taiwanese officials concluded chapters on customs administration and trade facilitation, good regulatory practices, services domestic regulation, anti-corruption, and small- and medium-sized businesses. “This accomplishment represents an important step forward in strengthening the U.S.-Taiwan economic relationship,” U.S. Trade Representative Katherine Tai said. “It demonstrates how we can work together and advance mutual trade priorities on behalf of our people. We look forward to continuing these negotiations and finalizing a robust and high-standard trade agreement that tackles pressing 21st century economic challenges,” USTR reported.
    • Remaining components for negotiations include agriculture trade, removing discriminatory barriers to trade, digital trade, labor, environmental standards, ways to address distortive practices of state-owned enterprises, and non-market policies and practices. The American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States are facilitating these negotiations.  The U.S. – Taiwan Initiative on 21st Century Trade omits negotiations on tariff reductions.

USMCA

Mexico expected to file complaint over border inspections

  • According to a statement by Mexico’s Ministry of the Economy, inspections at the U.S.-Mexico border are resulting in delays ranging from eight to 27 hours. Mexico alleges that such delays are resulting in millions of dollars in losses for both U.S. and Mexican firms. These delays follow the implementation of new policies by the Texas state government beginning on May 8th. The increased border inspections aimed at preventing human smuggling coincide with the expiration of Title 42.
  • Mexico plans to submit the case to USMCA’s Trade Facilitation Committee, claiming that the inspections violate the USMCA, according to reports.

Proposed legislation in Mexico to limit penalties in trade disputes

  • The Government of Mexico has proposed new legislation that aims to limit the amount Mexico must provide in indemnities following arbitration in trade disputes. The legislation would effectively make it so that Mexico is only liable to pay indemnities up to an amount set in their own legislation.
  • This legislation has the potential to impact future dispute settlement proceedings in USMCA as well as other trade agreements Mexico is involved in. If enacted, the legislation could be challenged under Chapter 31 of the USMCA according to sources familiar with legislation.

Mexican officials maintain decree not disrupting trade flows

  • Since issuing a new Decree in February to prohibit us of GM corn for masa and tortilla, Mexican officials have maintained the policy does not adversely impact U.S.- Mexico corn trade. Mexican Undersecretary of Foreign Trade Alejandro Encinas Najera, in recent correspondence with Deputy USTR Jayme White and Chief Agriculture Negotiator Doug McKalip, stressed that Mexico does not believe trade is being affected, according to Agri-Pulse. “The decree bans the use of genetically modified corn for masa and tortilla,” he said. “The foregoing does not represent any (effect on} trade or imports since, among other reasons, Mexico is self-sufficient in the production of GMO-free white corn. What this is about is consolidating said sovereignty and food security in relation to a staple product in the culture of Mexicans.”
    • Recall that on March 6 the U.S. requested USMCA technical consultations with Mexico on the decree which bans the 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. USTR continues to assess the information generated during the technical consultations and evaluate the potential for filing a dispute settlement request.
    • 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.”

Progress on USMCA energy dispute

  • The Canadian government released a readout stating that Canada’s Minister of International Trade Mary Ng and Mexico’s Secretary of Economy Raquel Buenrostro had a productive discussion about ongoing energy disputes at the North America Semiconductor Conference in Washington, D.C. Minister Ng expressed optimism about the talks and stated that Mexico was proactive in issues involving Canadian investments in the energy sector.
  • Last July, the U.S. and Canada both requested trade-dispute settlement talks through the USMCA, alleging that Mexico’s energy policies were violating the USMCA. The USTR specifically challenged Mexican measures which were viewed as placing U.S. firms at a disadvantage to the Mexican state-owned power company Comision Federal de Electricidad. Canadian complaints are aligned with those of the U.S.

U.S. – China

China decreasing U.S. import dependence

  • According to recent analysis by the Peterson Institute for International Economics (PIIE), China continues diversifying its import sources, lessening dependence on U.S. exports. “US exports are falling farther and farther behind foreign peers also selling into the Chinese market. Once major US manufacturing exports—like automobiles and Boeing jets—have all but disappeared. Semiconductor sector sales tailed off in 2022 and also may not return, due to new US export control policy. US services exports plunged during the pandemic and have not yet come back,” according to the PIIE report.
  • Regarding agriculture trade, the authors noted, “even where US exports appear to be doing alright—US farm sales to China in 2022 hit record highs—worrying signs have emerged. Much of the agriculture gains were not the result of increased shipments but simply higher prices and concerns over global food insecurity associated with the Russia-Ukraine war. Furthermore, Chinese buyers are diversifying toward other suppliers, while the US agricultural sector remains highly dependent on the Chinese market for its exports.” In the analysis, PIEE concluded that China is becoming less dependent on American farmers, but U.S. export dependence on China remains high.”

Indo-Pacific Economic Framework

“Strong progress” in Singapore

  • U.S. officials reported that, “the U.S. delegation successfully led in-depth discussions with IPEF partners in Singapore from May 8-15 on Pillars I (Trade), II (Supply Chains), III (Clean Economy), and Pillar IV (Fair Economy) where the IPEF partners continued to make strong progress on a wide range of issues across the four pillars.” No further details on negotiating outcomes were provided.
    • The Office of USTR and Commerce Department stated that the “U.S. delegation was co-led by Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting), and Sharon H. Yuan, U.S. Department of Commerce Counselor and IPEF Pillars II-IV Chief Negotiator.”

Expectations building for Detroit ministerial

  • The Office of USTR and Commerce Department issued a statement stating, “The Detroit ministerial will be an important opportunity for ministers to review the current progress in the four pillars of the framework (Trade; Supply Chains; Clean Economy; and Fair Economy) and provide direction to negotiators as they work to make concrete progress as quickly as possible.” The statement comes on the heels of the third round of IPEF negotiations recently concluded in Singapore. The 14 IPEF countries continued to make strong progress across all four pillars, according to the joint statement.
    • Recall the U.S. will host delegates from 13 IPEF countries in Detroit, MI on May 27th. U.S. Commerce Gina Raimondo and U.S. Trade Representative Katherine Tai announced the ministerial meeting in a joint statement.
    • The 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.

November timeline for IPEF deal?

  • U.S. negotiators have set an ambitious timeline to complete the IPEF negotiations by November 2023 in conjunction with the APEC Leaders’ Summit. However, other IPEF country officials have emphasized while working expeditiously is beneficial for several reasons – including avoiding complications associated with elections in some IPEF countries in 2024 – the timeline is a U.S. proposal only. Other IPEF members note securing concrete and substantial outcomes are a priority over specific end dates for the negotiations.

Trade Policy

Bill introduced to protect common food names in trade

Congressman Dusty Johnson (R-SD)
  • The Safeguarding American Value-Added Exports Act, referred to as the “SAVE Act”, was introduced in Senate and House committees by a bipartisan group of legislators. The bill aims to protect the use of common food names in international trade. Geographical indicators, frequently utilized by the European Union, restrict the use of food and drink names such as parmesan, champaign, and bologna.
  • According to a statement by Representative Dusty Johnson (R-SD), these “unfair trade practices have the potential to block United States agricultural products from being sold in international markets.” Senator Thune (R-SD) echoed this sentiment stating, “By exploiting valid geographical indication protections, global competitors have for decades tried to limit competition, block imports, and restrict American-made products from being able to use common food and beverage names.”

Ukraine

Black Sea grain deal extended

  • According to a tweet by Turkish President Recep Tayyip Erdoğan, the Black Sea Grain Initiative has been extended for an additional two months. Ukrainian Deputy Prime Minister Oleksandr Kubrakov confirmed the extension in a tweet, stating the deal has been extended until July 18th. Recall that the Black Sea grain deal permits Ukrainian grain to transit through the blockaded Black Sea to foreign markets. Under the initial agreement, more than 30 million metric tons have been successfully shipped out of the conflict area.
    • United Nations Secretary-General António Guterres lauded the development stating, “I welcome this decision.” “The continuation is good news for the world.” Guterres continued, “These agreements matter for global food security. Ukrainian and Russian products feed the world.”
  • Russia agreed to extend the deal despite its demands not being met. Russia continues to call for the removal of barriers to its own exports of grain and fertilizer. While Russian exports of grain and fertilizer are not subject to sanctions, Russia claims that restrictions on its payments, logistics, and insurance industries serve as obstacles to shipments.
UN Secretary-General António Guterres and President Recep Tayyip Erdoğan
Photo: © UNIC Ankara/Levent Kulu

WTO

India to challenge EU carbon border tax

  • India is likely to challenge the EU’s proposed carbon tax at the WTO, citing concerns over the potential impact on its economy, according to Reuters. “In the name of environment protection, EU is introducing a trade barrier that would hit not only Indian exports but also of many other developing countries,” a top Indian official was quoted in Reuters.
    • The EU’s proposed measure would tax goods imported into the EU under the Carbon Border Adjustment Mechanism (CBAM), where a fee is imposed based on the carbon emitted from production of the imported good. CBAM is designed to promote environmental stewardship and balance the playing field for EU industries that already adhere to stringent emission regulations.
    • India’s contemplated WTO action comes as the EU plans to implement a 25-30%  tariff on imports of high carbon goods such as steel, cement, aluminum, iron ore, etc.

Biden Nominees

Torres Small nomination advances to full Senate

  • Last week the U.S. Senate Agriculture Committee recommended Biden nominee, Xochitl Torres Small to serve as the next USDA Deputy Secretary of Agriculture. Committee Chair Debbie Stabenow (D-MI) and Ranking Member John Boozman (R-AR) made the announcement following a committee business meeting. She received unanimous, bipartisan support (23-0) under a roll call vote by the Agriculture, Nutrition, and Forestry Committee. Torres Small’s nomination now moves to the full Senate for consideration.
  • In the announcement, Chairwoman Stabenow (D-MI) said, “Ms. Torres Small has a proven track record and a wide-ranging background that make her an ideal candidate to help lead the nearly 100,000 public servants at USDA. Ms. Torres Small is deeply committed to food and farm policy and understands the needs of rural America. I am pleased that we are making progress advancing her nomination, and I look forward to working with my colleagues to see her confirmed as soon as possible.”
  • Ranking Member Boozman (R-AZ) added, “Xochitl Torres Small is well-qualified to serve as deputy secretary at USDA. She has shown herself to be a thoughtful leader while overseeing the rural development mission, and I believe those qualities will be an asset in this new role. Additionally, it will be beneficial for committee members to have someone who has served in Congress, who understands our role, as the second in charge at USDA. I encourage the Senate to move swiftly to confirm her as deputy secretary.”
    • Recall that last February, President Biden announced his intent to nominate Xochitl Torres Small to serve as Deputy Secretary of Agriculture. Prior to her current USDA position, Torres Small was a Member of Congress, serving New Mexico’s second congressional district. Torres Small was a member of the House Agriculture Committee and the House Armed Services Committee, and Chairwoman of the Oversight, Management, and Accountability Subcommittee of the House Homeland Security Committee. She was the first woman and first person of color to represent New Mexico’s second congressional district, according to a White House statement.