TRADE UPDATE

Food & Agriculture
May 31, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: The U.S. has for a second time requested consultations with Canada under the USMCA dispute settlement mechanism regarding its dairy TRQ administration. USTR called Canada’s latest dairy TRQ modifications new restrictions on U.S. dairy products.
• Indo-Pacific Economic Framework: China reacted to the U.S. launch of IPEF and announcement of the initial 12 countries questioning whether the U.S. was “politicizing, weaponizing, and ideologizing economic issues and coercing regional countries to take sides between China and the U.S. by economic means?” Meanwhile, Fiji announced plans to join the IPEF.
• U.S. – China: A report by the U.S.-China Economic and Security Review Commission warned that China’s pursuit of investments in U.S. agricultural assets may provide undue leverage over U.S. supply chains.
• U.S – EU: The U.S. and EU reported they are looking for ways to coordinate trade policy tools against China’s non-market practices. On the U.S. side, section 301, antidumping, and countervailing duty laws were mentioned as tools to combat China.
• WTO: With less than two weeks before the WTO’s 12th Ministerial Conference (MC12), further progress on negotiations regarding WTO reform and the COVID-19 intellectual property waiver, both primary agenda items, have stalled. Food security has emerged as another key agenda item for MC12.

“I would say we are about one-third of the way toward an actual free-trade agreement with Japan already because of that phase-one agreement.”

— Senator Robert Portman commenting on potential next steps to build on IPEF

USMCA

U.S. again challenges Canadian dairy TRQ

• The U.S. has for a second time employed the U.S.-Mexico-Canada Agreement’s dispute settlement mechanism to request consultations with Canada over what USTR is calling new restrictions on U.S. dairy products. In the request USTR said it’s “challenging Canada’s dairy tariff-rate quota (TRQ) allocation measures, which deny allocation access to eligible applicants, including retailers, food service operators, and other types of importers, and imposes new conditions on the allocation and use of the TRQs.” The U.S.  is also “challenging Canada’s failure to fully allocate its annual dairy TRQs; Canada is instead parceling out a few months’ quota at a time,” USTR said. “Through these measures, Canada undermines the market access that it agreed to provide in the USMCA.” The action follows an initial consultation request earlier in 2022 under USMCA’s dispute settlement mechanism regarding Canada’s implementation of USMCA’s dairy provisions.
  • Ambassador Katherine Tai said in a statement, “We communicated clearly to Canada that its new policies are not consistent with the USMCA and prevent U.S. workers, producers, farmers, and exporters from getting the full benefit of the market access that Canada committed to under the USMCA.” Tai continued, “We will continue to work with [the Agriculture Department] to ensure that our dairy industry can bring a wide range of high-quality American products to Canadian customers.”
  • Tai expressed disappointment that Canada has decided to “expand” its dairy TRQ restrictions despite an earlier ruling that the country’s policies violated USMCA. The Biden administration and the U.S. dairy industry rejected Canada’s earlier plan to change its system to comply with USMCA, but Canada has proceeded with implementation.
  • USDA Secretary Tom Vilsack said, “Canada has failed to honor and implement its USMCA commitments by removing the trade restrictions that disadvantage and deter U.S. dairy producers and exporters from enjoying real and meaningful access to the Canadian market. Obtaining that access remains a top priority for the Administration and we are considering all options available to achieve this objective.”
• On May 16^th Canada published a notice that it had removed allocation holder pools under all dairy TRQs, and that selected distributors are eligible under the Industrial Cheeses TRQ. An action that the Biden administration and dairy stakeholders said was non-compliant with USMCA. In January, a USMCA dispute ruled in favor of the U.S. complaint that Canada is breaching its USMCA commitments by reserving most of the in-quota quantity TRQ in its dairy for the exclusive use of Canadian processors.

Senator Tim Kaine (D-VA) suggests expanding USMCA

• Kaine suggested at a hearing he chaired relating to the upcoming Ninth Summit of the Americas that President Biden should investigate expanding USMCA to more countries in Latin America. He considered discussing if existing U.S. trade agreements in the region could be incorporated into USMCA to bring their standards up to date. Brazil, Ecuador, and Uruguay desire a free trade agreement with the U.S., similar to what Colombia and Peru have in place. As medical equipment and supplies are deemed important to national security, Kaine says it would make sense to ensure they are made within a country that has a free trade agreement with the U.S. if these cannot be made domestically.
  • Eric Farnsworth, Vice President of the Council of the Americas, told Kaine at the hearing that the U.S. could incentivize USMCA to encourage governments in the region to improve their record on economic and democratic practices.
  • The State Department coordinator for the summit, Kevin O’Reilly, shared the agenda for the meeting at the hearing which largely leaves out topics related to trade. The agenda includes strengthening health systems; addressing climate change by encouraging the use of clean energy; expanding internet access and crafting regional principles to guide its use; and adopting an action plan to encourage the development of strong and inclusive democracies.

U.S. – China

China strategy is about ensuring a rules-based order

• Secretary of State Antony Blinken laid out a highly anticipated announcement about U.S. policy towards China on Thursday. Ahead of the remarks, senior administration officials told reporters that, “We don’t seek to contain or inhibit China’s legitimate development goals or market-based industry, but what we are focused on is engaging with our allies and partners to ensure that China plays by the same rules as everyone else.” Blinken covered rules such as not tilting global markets in China’s favor through industrial subsidies, market-access barriers, and the use of forced labor. “We want trade and investment as long as they’re fair and don’t jeopardize our national security,” asserted Blinken.
  • Blinken noted implications for the U.S. business community stating, “to understand the price of admission to China’s market must not be the sacrifice of our core values or long-term competitive and technological advantages.” American companies have previously asked the Biden administration to ease trade tensions and revoke tariffs imposed under Trump. 

Report reveals Chinese threat to U.S. agriculture

• The U.S.-China Economic and Security Review Commission published a report that analyzes the challenges facing China’s agriculture sector. The report found that Chinese agricultural vulnerability has driven Beijing’s interest in U.S. agricultural assets – which includes sometimes stolen intellectual property. The report states that “Chinese theft of U.S. agricultural IP threatens U.S. competitive advantage in crop development and agriculture technology innovation,” and this threat “will continue to disadvantage homegrown innovation necessary for the U.S. to stay competitive in the agriculture sector.” To address food security, China illicitly acquires genetically modified seeds to “jumpstart China’s own development of such seeds,” which would “deprive U.S. companies of revenue.” Additional key findings of the report include:
  • Chinese access to U.S. agricultural intellectual property could erode U.S. competitiveness in agricultural technology supporting food production.
  • Further consolidations and investments also could increase China’s leverage and access to sensitive information critical to national security. As an example, a Chinese company’s acquisition of Smithfield Foods caused other consolidations.
  • China’s illicit acquisitions of GM seeds has provided a jumpstart to China’s own development of such seeds, deprives US companies of revenue, and offers an opportunity to discover vulnerabilities in US crops.
  • Foreign-owned land near military installations may require additional monitoring. As more Chinese investors purchase land, including for agricultural use, CFIUS has an opportunity to safeguard vital military assets.
• The U.S.-China Economic and Security Review Commission was created to “monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.” 

Invitation to extend cooperation on export controls on China

• The chief of the Bureau of Industry and Security (BIS) wants to extend cooperation on a new export control regime aimed at preventing China from acquiring U.S. technology through its civil-military fusion strategy. Although the idea is “nascent at this time,” the approach should be similar to the cooperation the U.S. took with its allies to prevent Russia from using U.S. technology in its invasion of Ukraine. The Under Secretary of Commerce for Industry and Security, Alan Estevez, said “We need to take those partnerships that we just solidified, those 37 nations and whoever else wants to join that club and build what I call the new export regime, the digital export regime for the 21st century and protect our technology and the technology of our allies from going into China’s civil-military fusion where the military is pre-eminent in that fusion and stop them from using our technology against us.”
  • BIS imposed a series of export controls on Russia that included a foreign direct product rule to prevent Russia from obtaining U.S. technology or products of U.S. technology in response to the Russian invasion of Ukraine. The U.S. was initially joined by the EU, Australia, Canada, Japan, and the U.K. The coalition has since been joined by Korea, New Zealand, Iceland, Liechtenstein, Norway, and Switzerland.

COVID-19

Goods trade deficit shrinks in April

• The international goods trade deficit was $105.9 billion in April, declining $20.0 billion, or nearly 16% from $125.9 billion in March, according to the Census Bureau. The April deficit contraction retraced the jump experienced in March,  which brought the balance back to the level in February. In April, exports of goods were $173.9 billion, $5.2 billion more than March exports. Imports of goods for April were $279.9 billion, $14.8 billion less than March imports.  The April trade balance for goods and services is scheduled for release on June 7^th.

Goods Trade Barometer flat due to geopolitical events

• The latest WTO’s Goods Trade Barometer currently sits at 99.9, just slightly below the baseline value of 100. The WTO reported that “The latest outlook scales back the earlier optimism in the barometer from February, which suggested that trade might have been approaching a turning point, with stronger growth expected in the near future.”  The WTO cited the conflict in Ukraine, triggering sharp rises in food and energy prices, spurring reductions in real incomes and lower economic growth, along with COVID related lockdowns as suppressing a higher index reading.  
  • The Goods Trade Barometer is a composite leading indicator providing real-time information on the trajectory of merchandise trade relative to recent trends ahead of conventional trade volume statistics. Readings of 100 indicate growth in line with medium-term trends; values greater than 100 suggest above-trend growth while values below 100 indicate the reverse. 

Supply Chains

The Uyghur Forced Labor Prevention Act set to begin next month

• The U.S. Customs and Border Protection (CBP) issued new letters to importers last Wednesday advising to “be proactive and closely review their supply chains” ahead of the new enforcement rules set to go into effect on June 21^st. The Uyghur Forced Labor Prevention Act (UFLPA), signed into law last December, directs CBP to presume that all goods from the Xinjiang region in China are made with forced labor and, accordingly, are banned from importation under Section 307 of the Tariff Act of 1930. In the letters, CBP said they must “apply due diligence, effective supply chain tracing, and supply chain management measures to ensure that such imports are free from any goods mined, produced, or manufactured wholly or in part with forced labor from the People’s Republic of China, especially from the XUAR,” yet there were no further specifics on these measures. The new guidance has experienced pushback including a public comment that the update “while providing some answers, raised some questions,” and it would be “understandable if importers can’t comply since they don’t know – still – what they have to comply with.”
  • The law has previously sparked criticism from importers when the timeline for the enforcement strategy was released stating they needed more time to adjust to the new rules of the act.
  • The CBP will hold webinars to provide an overview and explain the implementation of the act on June 1^st, 7^th, and 16^th.

Food Security

India restricts sugar exports days after restricting wheat exports

• India has imposed restrictions on sugar exports for the first time in six years by capping exports at 10 million tons for this season. According to sources, the government states this decision is to maintain domestic availability and keep prices stable. India is the world’s biggest producer of sugar and second largest exporter. The move follows a similar action on wheat exports. “The government is worried about food inflation, and that’s why it is trying to ensure that enough sugar remains in the country to cater to the festival season,” said a Mumbai-based dealer with a global trading firm.
  • The country, the world’s biggest sugar producer and the second-largest exporter (Brazil top exporter), has contracted around 8.5 million tons for sending abroad in the 2021-22 season, which started in October. Of that, around 7.1 million ton has been shipped. India consumes 2-2.5 million tons of sugar a month.

Government of Mexico removes tariffs to fight good price inflation

• The Government of Mexico (GOM) has announced plans to mitigate rising food prices and scarcity.  The plan calls for a six-month suspension of import tariffs on 21 staple items and five basic commodities for food processing. Titled “Paquete Contra la Inflacion y la Carestia (PACIC)”, the plan also includes steps to support increased production of grains by subsistence farmers, including bolstering fertilizer production for use by small producers. 
  • Food products include corn oil, paddy rice, tuna, pork, poultry, beef, onions, jalapeno peppers, dry beans, eggs, bathroom soap, tomatoes, milk, lemons, apples, oranges, sliced bread, potatoes, pasta for soup, sardines, and carrots 
  • Inputs include corn flour, wheat flour, white corn, sorghum, and wheat. More details available in USDA GAIN report.
• In conjunction with the plan, President López Obrador announced that the Mexican Government has reached an agreement with the private sector to ensure a fair price for the basic food basket (dry beans, rice, vegetable oil, eggs, sugar, etc.). López Obrador stated, “A decision was taken to act on food-related issues – convincing, persuading, calling on producers, distributors, and retailers to act together (with the government), without coercive measures. It is not about price controls, it is an agreement, an alliance to guarantee that the Basic Basket has a fair price.”

Indo- Pacific Economic Framework

IPEF not likely to include tariff cuts

• USTR’s general counsel, Greta Peisch, stated that instead of traditional market access for countries a part of IPEF, the benefits would likely come as “incentives and opportunities.” One of the ongoing criticisms of the framework has been its lack of traditional market access goals, questioning whether the countries involved will meet the standards without benefits for being involved, including from members of Congress. As an example, Peisch said an incentive could look like ensuring access for products that live up to certain commitments. Because U.S. tariffs “are already quite low” Peisch indicated that “the tariff advantage that is present right now is much greater than the cuts” in a traditional trade agreement.
  • When asked of the likelihood of cutting tariffs for countries in IPEF, Peisch said, “In looking at this framework and what we’re trying to achieve, we wanted to look past tariffs and think about what kind of incentives, what kind of market opportunities – market access – can we provide through other means. And that’s a question that we’re still taking a look at.” In addition, she remarked that, “we wanted to think outside the box and think about setting up incentives and opportunities that are more aligned with these goals that we’re trying to achieve – around labor, around environment and other issues of importance to the IPEF members.”
  • Peisch also said that the incentives would not include exceptions from certain U.S. trade laws such as the U.S. did with Canada and Mexico during the USMCA talks concerning a Section 232 investigation on automobiles.
  • The White House announced in Tokyo that a dozen countries will be the initial members in the Indo-Pacific Economic Framework (IPEF). The members, including the U.S., are Australia, Brunei, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The IPEF is led by the U.S. and is to re-establish an economic and trade policy approach in the fastest growing region in the world to counterbalance the influence of China.

Beijing’s response to IPEF

• Wang Wenbin, China’s foreign ministry spokesperson, asked “Is the U.S. politicizing, weaponizing, and ideologizing economic issues and coercing regional countries to take sides between China and the U.S. by economic means?” Beijing sees IPEF as an attempt to force a choice between countries or shake up supply chains and warned that this “will only inflict grave consequences on the world, including the U.S. itself.” Trade relations between the U.S. and China continue to sour as their competition for influence over trade in Asia grows more intense. 
  • Experts predict that “we’ll see China redouble efforts to strengthen existing trade relationships in the region and continue to bolster its own influence out of concern that a primary motivation of the U.S. is to marginalize them or somehow limit their ability to operate the way they want to in the region.”

Fiji joins IPEF

• Fiji has become the newest country and the first Pacific Islands nation to join IPEF in an announcement on last Thursday. National Security Advisor Jake Sullivan said in a statement of the decision that “Fiji will add vital value and perspective to IPEF, including on our efforts to tackle the climate crisis and build a clean economy that creates good paying jobs.” This announcement occurs days before China’s foreign minister lands in the country. The decision as well gives the Biden administration some relief over its competition with Beijing for influence in the Pacific. “IPEF now reflects the full regional diversity of the Indo-Pacific, with members from northeast and southeast Asia, South Asia, Oceania, and the Pacific Islands,” says Sullivan.

12 Indo-Pacific Countries to initially join IPEF

• As reported earlier, President Biden announced that a dozen countries will be the initial members in the Indo-Pacific Economic Framework (IPEF). The members, including the U.S., are Australia, Brunei, India, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The participating nations account for 40 percent of the world economy and seven members are also a part of ASEAN. The anticipated news was released in conjunction with President Biden’s meetings over the weekend with President Yoon Suk Yeol, South Korea’s new president, and Japanese Prime Minister Fumio Kishida.
  • President Biden, in announcing the participating countries during his visit to Tokyo said, “We’re writing the new rules for the 21st-century economy.” “We’re going to help all of our country’s economies grow faster and fairer.”
  • The White House announcement noted that “U.S. foreign direct investment in the region totaled more than $969 billion in 2020 and has nearly doubled in the last decade, and we are the leading exporter of services to the region, helping fuel regional growth. Trade with the Indo-Pacific supports more than three million American jobs and is the source of nearly $900 billion in foreign direct investment in the United States.”

U.S. – Japan

Japan FTA politically feasible

• Senator Robert Portman (R-OH) suggested that a free trade agreement (FTA) with Japan is politically viable after the establishment of IPEF. Speaking on Bloomberg TV, the former U.S. Trade Representative said a comprehensive FTA with Japan would be feasible given the existing phase-one agreement negotiated under the prior administration. “I would say we are about one-third of the way toward an actual free-trade agreement with Japan already because of that phase-one agreement,” said Portman.  Portman suggested that an FTA with Japan was politically viable and “would then put us in a much stronger position in the Indo-Pacific area and we could start having agreements with some of the smaller countries, as well, like Malaysia or Vietnam.”
  • Portman noted he has urged the Biden administration to make trade deals with more partners.  He cited multiple rounds of negotiations with the U.K. under the Trump administration as any “easy” starting point for other trade deals, and that Japan “should be right up there. And if that were done, it would really make a big impact in terms of our economy and in terms of our footprint in the Asia-Pacific area.” 
  • The Biden administration to date has consistently eschewed resurrecting former FTA talks or initiating new trade pacts that involve market access and other provision associated with FTAs.

Ukraine

Russia to allow export of food from Ukraine if sanctions lifted

• Russia stated on Wednesday that it was willing to open humanitarian corridors in the Black Sea for Ukrainian ships carrying grain but that the “removal of sanctions” on Russian exports and financial restrictions must be lifted first. Ukraine’s Black Sea ports have been blocked since Russia launched its war in Ukraine in February. Due to soaring food prices tied to the war in Ukraine, European countries have called on Russia to “end the blockade of Ukrainian Black Sea ports and to allow for food exports” in the draft conclusions for the upcoming European Council summit.

Section 301 Investigations

Bipartisan Senate group, “Don’t lift tariffs on Chinese goods”

•  A May 25^th letter to Biden authored by senators from both parties oppose the removal of Section 301 tariffs on goods from China and that the enforcement of the phase-one deal with Beijing should come first. The Biden administration has publicly signaled a desire to lift the tariffs. The letter states that “rolling back tariffs on China would undermine the U.S. position in negotiations, expose many U.S. companies and workers to a sudden flood of imports, and signal to China that waiting out the U.S. is preferable to changing their non-market behavior or complying with the Phase One Agreement.” The senators write that it would be “counterproductive to lift or erode the Section 301 tariffs, especially in the hopes that China will somehow become more cooperative on other issues.” Further, a product-exclusion process for goods hit by tariffs should be limited, as it would “make it more difficult for the U.S. to exercise the leverage needed to address the acts, policies, and practices which necessitated the tariffs in the first place.” The senators argue instead to use the enforcement tools provided in the phase-one deal to show the U.S. is “serious about rectifying its violations.”
  • The appeal includes Republican Senators Rob Portman (OH), Mike Braun (IN), Rick Scott (FL), Kevin Cramer (ND) James Inhofe (OK) and Mitt Romney (UT) and Democrats Elizabeth Warren (MA), Bob Casey (PA) and Sherrod Brown (OH).

Agriculture groups call for tariff relief

• A day after the bipartisan senate group letter opposing lifting tariffs a coalition of agricultural groups wrote a letter to U.S. Trade Representative Katherine Tai to “suspend, reduce, or eliminate all remaining Section 232 and Section 301 tariffs in return for commitments from other countries to suspend commensurate retaliatory tariffs that have adversely affected our industry and America’s farm families.” The letter states that eliminating or reducing Section 232 and Section 301 tariffs would increase market access for U.S. crops as well as decrease the costs of fertilizer, agricultural chemicals, and other products. The businesses in the industry have been affected by multiple obstacles including the lingering effects of the pandemic, supply chain issues, and inflation related to the Russian invasion of Ukraine.

USTR extends tariff exclusions for medical-care products

• In a notice, the Office of U.S. Trade Representative has extended exclusions, which cover 81 medical-care product types, from Section 301 tariffs. The notice states that “in light of the continuing efforts to combat COVID-19, the U.S. Trade Representative has determined that a 6-month extension of the 81 COVID-19 related product exclusions is warranted.” The exclusions were originally granted in December 2020 with an original extension granted in November 2021 to be expired on May 31^st.

Section 232 Tariffs

Section 232 tariffs to be lifted from Ukrainian steel

• Secretary of Commerce Gina Raimondo announced the temporary suspension of 232 tariffs on Ukrainian steel. The tariffs are to be lifted for one year, according to a Department of Commerce press release. Steel is a major industry in Ukraine, “employing 1 in 13 Ukrainians with good paying jobs.” The announcement follows a substantial push from politicians and industry groups, urging the Biden Administration to show American support for Ukraine through tariff reductions.
  • “Steelworkers are among the world’s most resilient—whether they live in Youngstown or Mariupol.  We can’t just admire the fortitude and spirit of the Ukrainian people—we need to have their backs and support one of the most important industries to Ukraine’s economic well-being.  For steel mills to continue as an economic lifeline for the people of Ukraine, they must be able to export their steel.  Today’s announcement is a signal to the Ukrainian people that we are committed to helping them thrive in the face of Putin’s aggression, and that their work will create a stronger Ukraine, both today and in the future,” said Secretary Raimondo in a statement on the suspension of 232 tariffs.

USITC Section 232 tariff investigation

• As noted earlier, the U.S. International Trade Commission (USITC) announced it will 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 of:
  • “Background information on the Section 232 and 301 tariffs and an overview of the tariffs that were in effect as of March 15^th, 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^st, 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^th, 2023. 

U.S. – U.K.

U.K. forging trade deals with states, Indiana first

• With the Biden administration pausing on free trade agreement (FTA) talks, the U.K. is pursuing trade and economic deals with some U.S. states.  The U.K. and Indiana announced signing a “trade and economic development Memorandum of Understanding,” according to the U.K. Department of International Trade (DIT). The MOU is aimed at deepening economic ties between the two countries and removing trade and investment barriers for businesses, said U.K. Minister for International Trade, Ranil Jayawardena, according to Inside U.S. Trade. Jayawardena said the U.K. was taking a “twin-track approach” on U.S. trade talks, prioritizing state-level arrangements while a more comprehensive FTA is on hold.  Jayawardena emphasized the agreement will “really help increase that bilateral trade even further, particularly by seeking to bulldoze some of those market access barriers that get in the way.” Those barriers “are controlled, quite a lot of the time, by state governments in the American context and, of course, by the Department of International Trade in the UK.” 
• Separately, last week Sen. Mike Lee (R-UT) spearheaded a resolution, which passed the Senate, that calls on the U.S. to negotiate an FTA with the U.K.

U.S. – Russia

U.S. sanctions on Russia likely long-term

• U.S economic sanctions against Russia over its invasion of Ukraine must continue even after the war ends, said U.S. Commerce Secretary Gina Raimondo.  Speaking at the World Economic Forum in Davos, Switzerland, Raimondo said of Russia, “They need to be denied the benefits of the global economy and the global economic order for a long time.” She added, “These export controls, they are not going away anytime soon.” She acknowledged while premature to comment on the outcome of the military conflict in Ukraine, the Biden administration strategy includes ensuring Russia pays a “serious long-term price” for the invasion of Ukraine. Raimondo noted, “War is no longer just about tanks and military equipment. Ground Zero is technology,” she said on the panel. “The United States is hobbling Putin’s ability to conduct war by denying technology, semiconductors.”

U.S. – EU

U.S. and EU intend to coordinate action against China

• The U.S. and EU are looking for ways to coordinate trade policy tools against China’s non-market practices. Dan Mullaney, the assistant USTR representative for Europe and the Middle East, stated that Section 301 of the 1974 Trade Act is one tool to possibly be used on the U.S. side, but it was unclear if the EU had similar legislation for a coordinated tariff action to occur. Mullaney says of coordinated action that “It’s easier to be supportive of European use of some of their tools and vice versa, if you have some level of confidence that you are not going to be hurt by the tool yourself,” addressing concerns from U.S. business groups of negative collateral effect on tariff action. This idea follows the joint statement about China’s non-market practices that emerged from the recent U.S.-EU Trade and Technology Council (TTC) meeting. Other tools that Mullaney said were being considered are anti-dumping and countervailing duties that both the U.S. and EU have and the developments of an anti-coercion instrument and foreign subsidies instrument on the EU side.

WTO

Difficulty with WTO reform

• With less than two weeks before the start of the WTO’s 12^th Ministerial Conference (MC12), negotiations have dragged in regard to talks on reforming the organization. Unlike the e-commerce moratorium, the debate is about what reform should look like, not whether it will happen. Broad consensus on the reform includes emphasizing that reform for the WTO is needed and that the process is open, transparent, and inclusive of the interests of all members.
• During a recent informal General Council meeting, there were two significant different positions on outlining the process of reform. Members like the U.S., the EU, Canada, and other developed countries, although also including some developing nations, support a streamlined language on reform that does not “prejudge” the outcome of reform discussions. The other position is composed of India, South Africa, and their allies where they argue in favor of a prescriptive text that highlights development, “policy space,” and existing rights in the language.
• India states that it wants the language to be “consistent with the principles and objectives of the multilateral trading system as set out in the Marrakesh Agreement Establishing the World Trade Organization” which founded the organization in 1995. The U.S. and others state that this framework would prioritize specific issues which would narrow the options and scope for reform.
• In contrast, the WTO dispute settlement language is largely agreed to in the outcome document. The document reads, “We acknowledge the challenges and concerns with respect to the dispute settlement system including those related to the Appellate Body, recognize the importance and urgency of addressing those challenges and concerns, and commit to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by MC13.”

WTO e-commerce moratorium debate continues

• Consensus on extending the e-commerce moratorium has not yet been reached with the two positions being mostly composed on the same two groups on the reform debate. The U.S. and other Western countries want a permanent extension on the moratorium while India and South Africa oppose extending the moratorium citing concerns of loss of revenue and that now would not be an ideal time to renew the moratorium due to uncertainty about what constitutes e-commerce transmission. These countries also call for a “revitalized” multilateral work program on e-commerce. The e-commerce tax moratorium has been in place since 1998 and has been extended at every ministerial conference to date. Under the moratorium WTO members may not impose customs duties on electronic transmissions.

WTO Agriculture Plan B text issued by Okonjo-Iweala

• WTO Director-General Ngozi Okonjo-Iweala disseminated an alternative text or “Plan B” text regarding agriculture, trade, food security and World Food Program food purchases exemptions for the MC12 with less than two weeks to go. The draft declaration on trade and food security includes lowered ambitions and greater flexibility for least developing countries.  The text appears to avoid concrete moves on several controversial agriculture areas, including public stockholding (PSH).  Several developing countries seemed frustrated that a permanent solution on PSH, cotton and proposed language on domestic support are not being concretely addressed at the MC12. “The WTO does not work for addressing the concerns of the poorest and developing countries and we feel cheated,” according to source familiar with the debate.

Brazil suggests WTO Ministerials to be annual

• Brazil formally proposed that the ministerial conferences shift to an annual schedule rather than every two years, beginning in 2023. Due to pandemic disruptions, it has been more than four years since the last ministerial conference was held in Buenos Aires. The rationale for this suggestion is “not necessarily to make decisions or deliver on big packages, but rather to exchange views on world trade and the multilateral trading system, debate short and long-term issues and solutions, and provide complex ongoing negotiations, with guidance and political drive.” WTO Director General Ngozi Okonjo-Iweala has previously made the same suggestion.

Divide deepens on TRIPS waiver

• The divide over the draft “TRIPS COVID-19” continues as developing and developed countries tussle over specific text in the “COVID-19 “document.  At the informal TRIPS Council meeting last week, Council Chair Ambassador Lansana Gberie of Sierra Leone addressed numerous questions on the significance of revisions to certain text proposed by the U.K. and Switzerland while members were focused discussing the working document, according to reports.  The Chair’s outcome document-revision has inserted “patent” instead of “patented,” according to reports.  Gberie noted that the outcome document that he had issued contains minimal textual changes as compared to the one issued by Director-General Ngozi Okonjo-Iweala following meetings with the Quad, emphasizing that it remains the basis for negotiation.  Developing countries are voicing criticism of Gberie for allowing the U.K. and Switzerland to make textual changes in the “TRIPS COVID-19” draft outcome, while denying eligible developing countries from including their proposed changes in the text, according to reports.
  • Earlier, China told WTO members it will decline to pursue the flexibilities afforded to developing countries under the TRIPS COVID-19 vaccines proposal – setting the stage for advancing text-based negotiations. However, China tied its position to refrain from using the flexibility to remove the criteria of export share to define eligible members contained in the text. Ambassador Li Chenggang, China’s trade envoy, said China hopes “our positive movement could be reciprocated with the same level of pragmatism and flexibility from other major stakeholders, so that an outcome that benefits developing members and LDCs in genuine need could be reached at an earliest date before MC12.”
• Last month 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.