TRADE UPDATE

Food & Agriculture
June 21, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: Mexico announced it has accepted the fourth U.S. request to investigate a claim filed under the USMCA’s rapid response labor mechanism regarding worker rights at an auto parts plant facility in Frontera, Coahuila.
  • China: Senate and House leaders discussed “slimming down” the scope of the China competition bills (i.e., America COMPETES Act and U.S. Innovation and Competition Act) to facilitate reconciliation and a vote before the July 4th congressional recess. Separately, Senator Rob Portman (R-OH) suggested including provisions to renew Trade Promotion Authority (TPA) in the bills may break the gridlock over the current trade provisions.
  • Supply Chains: President Biden signed the The Ocean Shipping Reform Act of 2022 (OSRA), shortly after passing the House. The law is designed to relieve supply chain bottlenecks and crackdown on ocean carriers by boosting U.S. agricultural exporters’ access to cargo containers to export their products.
  • U.S. – Kenya: The U.S. and Kenya have agreed to discuss areas of cooperation to deepen economic engagement in key areas including agriculture, digital trade, and climate change, USTR announced during the WTO Ministerial meetings in Geneva, Switzerland last week. USTR emphasized the discussions are not a resumption of an FTA negotiations conducted under the previous administration.
  • WTO: The WTO produced an MC12 package of outcomes that included a pared-down agreement on fisheries subsidies, an extension of the e-commerce moratorium, a pandemic response text alongside a decision to allow intellectual property rights flexibility for COVID-19 vaccines, a food security text, a commitment to exempt World Food Program purchases from export restrictions and the launch of WTO reform discussions.

“The outcomes demonstrate that the WTO is in fact capable of responding to emergencies of our time.” “They show the world that WTO members can come together across geopolitical fault lines to address problems of the global commons and to reinforce and reinvigorate the institution.”

— WTO Director-General Ngozi Okonjo-Iweala during the MC12 Closing

USMCA

First-ever Submission on Enforcement Matters against the U.S. moves forward

  • The Secretariat of the Commission for Environmental Cooperation (CEC) has recommended a “factual record” into the U.S. on its enforcement of environmental laws and protection of the endangered North Atlantic right whale. This follows the filing of the first-ever complaints against the U.S. in October 2021 by the environmental nonprofit Oceana who claims multiple U.S. government entities are failing to uphold laws that protect the whale from vessel strikes and fighting gear entanglements. The three-member CEC will now review the secretariat’s recommendation and vote within 60 days if a factual record should be conducted by the secretariat. The three-member council includes the head of the U.S. Environmental Protection Agency and the counterparts from Canada and Mexico.
    • Under USMCA Article 24.27, “Any person of any Party” may file a submission to the CEC “asserting that a Party is failing to effectively enforce its environmental laws.”

Mexico accepts another review of labor conditions

  • Mexico announced last Wednesday that it has accepted the fourth U.S. request to investigate a claim filed under the USMCA’s rapid response labor mechanism. The U.S. asked Mexico two weeks ago to review whether workers at another auto parts plant facility are being denied rights. The facility is located in Frontera, Coahuila and is owned by global carmaker Stellantis. The request was sent when it was found that there was “sufficient credible evidence of a denial of rights enabling the good faith invocation of enforcement mechanisms” after the Interagency Labor Committee for Monitoring and Enforcement (ILC) received a petition that workers were being denied the right of free association and collective bargaining.
    • USTR has directed the Treasury Department to suspend the sale of all unsold entries of goods from the plant until the USTR can notify otherwise.
    • Mexico has 45 days from June 6th to complete a review and report the findings to the U.S.
    • If Mexico finds that there was a denial of rights, the two parties would enter talks on remediation. If not, the U.S. could request a USMCA panel to review the case.
  • Mexico recently agreed to investigate the labor allegations in the third USMCA labor complaint at a Panasonic auto parts plant in Reynosa, Tamaulipas. In a statement, Mexico said the government would “review the case to determine whether or not there is a denial of labor rights in accordance with the provisions” of USMCA. Mexico has 45 days from May 18th to complete a review and report the findings to the U.S. The alleged labor violations come from a petition from the Mexican union SNITIS stating that the facility denied workers the right to free association and collective bargaining.

Section 301 & 232 Tariffs

Still no final decision on lifting of tariffs

  • “The President is discussing with his team on ensuring that tariffs are aligned with our economic and strategic priorities, such as safeguarding the interests of workers and critical industries, advancing our national security, and not unnecessarily raising costs on Americans,” according to a White House spokesperson. The White House has held at least three meetings of senior economic officials in recent weeks in addition to one-on-one meetings with the Treasury and Commerce chiefs to try to decide how to handle the tariffs imposed on goods from China by the previous administration. An anonymous National Security Council official stated that “This is not a binary lift all tariffs or don’t – it’s about what industries make sense and what don’t.”

U.S. – China

Discussion of “slimming down” China-focused competition bills

  • In an effort to get the China competitiveness package to be voted on before the 4th of July, House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) have met to discuss “slimming down” the scope of the conference committee and trimming down the problematic parts of the two bills to reconcile them. They have instructed committee chairs to speed up the talks and cut what cannot be reconciled.
    • Democrats are optimistic that reconciling the two versions will happen before the holiday, but Republicans are less hopeful. House Foreign Affairs Chair Gregory Meeks (D-NY) said the negotiations are “slowly starting to pick up now, and so that gives me hope on our side that we’re going to get some things together.” Sen. John Cornyn (R-TX) stated, “I’m a little worried that the longer the conference goes on, that we’re not going to be able to complete the work here before August.”

Portman suggests renewing TPA could close gap on China competition bills

Senator Robert Portman (R-OH)
  • While Congress struggles to reconcile the trade provisions in House-passed America COMPETES Act and the Senate’s U.S. Innovation and Competition Act, Senator Rob Portman (R-OH) contends proposals to renew the Trade Promotion Authority (TPA) may break the gridlock between House and Senate conferees charged with reconciling the two China-focused competition bills.
    • Portman last week said conferees are “at loggerheads” over the trade provisions in the two competition bills, in part, due to the House version calling for expansion and extension of Trade Adjustment Assistance (TAA), which is typically paired with TPA. Senator Portman suggested including a “limited TPA” might deliver a “potential breakthrough” in the current impasse, if  “we can have this moment where we are saying ‘OK, we are willing to extend … existing Trade Adjustment Assistance but do it in a way where we have also trade enhancement with it, as we always have done.’” Portman indicated  that Sen. Chris Coons (D-DE) will collaborate with him on a proposal that would provide new authority to the president to negotiate plurilateral agreements at the WTO. Portman, a former U.S. Trade Representative, said the proposal represents a form of TPA that would provide the president with the authority to negotiate a free trade agreement with the United Kingdom — long a priority for both senators.

“Refined proposal” on outbound investment draft

  • Sens. Bob Casey (D-PA) and John Cornyn (R-TX) have a new modified proposal to screen outbound investments from the U.S. into the Chinese economy that is hoped to be included in a broader competitiveness package focused on China. The provision would force American investors and firms to disclose new investments in certain Chinese sectors, such as semiconductors, batteries, and pharmaceuticals and would dramatically expand U.S. government oversight of investments American companies make in foreign countries. The modifications from the original bill include leaving the designation of the oversight panel up to the president, rather than USTR, and extending jurisdiction of the bill so that all transaction of funding new facilities like factories, joint ventures that involve technological transfers, and capital investments in Chinese startups and technology firms must be reviewed.

More guidance on Uyghur act issued

  • Customs and Border Protection (CBP) issued guidance for the Uyghur Forced Labor Prevention Act (UFLPA) that went into effect this week. 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. The new law will give importers who have goods detained at the border no more than 30 days to prove that they are not made with forced labor.
    • Domestic manufacturers who support the act have applauded the guidance. The National Council of Textile Organizations said, “Given the pervasiveness of horrific forced labor practices in Xinjiang associated with the cotton and apparel supply chain, it’s critical that we fully and effectively enforce this important law.”

Supply Chains

Ocean shipping reform becomes law

  • President Biden signed the maritime reform bill into law just days after being sent to his desk by Congress. The bill was passed by the Senate in March and was passed by the House in a vote of 269 to 42 early last week. The Ocean Shipping Reform Act of 2022 (OSRA) is designed to relieve supply chain bottlenecks and crackdown on ocean carriers by boosting U.S. agricultural exporters’ access to cargo containers to export their products. The bill grants the Federal Maritime Commission (FMC) significantly more authority for extensive rulemaking and potential crackdowns, rewriting ocean shipping law for the first time since 1998.  It also would require ocean carriers to report to the FMC their total import/export tonnage for each calendar quarter and it would prohibit carriers from unreasonably declining opportunities for U.S. exports.
    • The new law was applauded universally by industry stakeholders and Congressional leaders. “Exorbitant shipping fees are driving up costs for small business and consumers while leaving urgently-needed products to wait on the dock,” House Speaker Nancy Pelosi (D-Calif) commented.
    • “Apple growers and businesses have been advocating for substantial changes to the ocean shipping laws….” “Congress has been spending a lot of time fighting, as we see in the daily news, so it’s heartening to see them come together, iron out differences, and do something positive for U.S. agricultural exports,” said Jim Bair, President and CEO of the U.S. Apple Association.
    • Steve Lamar, CEO of the American Apparel and Footwear Association said, “The bill will directly address price gouging in the ocean shipping industry, which played a large role in the empty shelves, late deliveries, and increased prices American consumers have faced during the past year, and will protect American companies from predatory practices that threaten their businesses.”
    • Dan Maffei, chairman of the FMC said, “I am bullish on the bill restoring credibility to the supply chain.” “In terms of detention and demurrage (D&D) charges, [the bill] gives us the authority we need.”
    • Sens. Amy Klobuchar (D-MN.) and John Thune (R-SD) first introduced the Ocean Shipping Reform Act in February 2022. It was passed by the Commerce Committee on March 22. The Senate unanimously passed the legislation on March 31, and it passed the House on June 13.

U.S. port cargo movements surge in May

  • The ports of Long Beach, Los Angeles, and Virginia posted near record levels of containerized cargo movements entering the traditional peak summer season. With more inbound freight from China after easing COVID restrictions in Shanghai and other ports areas, and traditional uptick in seasonal goods (e.g., back-to-school items), the ports are expecting continuing high levels of cargo movement. In May, the Port of Los Angeles handled just under 970,000 units of cargo, the port’s third-busiest month on record. Long Beach processed 890,989 units in May, its second-busiest to date.

Summit of the Americas

Pledge on agricultural trade released

  • Several days after the conclusion of the summit, Argentina, Brazil, Canada, Mexico, and the U.S. have pledged to protect and expand agricultural trade to strengthen global food security. In the “Summit of the Americas Agriculture Producers Declaration,” the group writes that, “We intend to maintain or expand the fair and open trade of agricultural commodities, in line with existing domestic policies and international obligations and standards,” adding, “We will work towards the objective of substantial progressive reductions in support, resulting in fundamental reform.” Actions include to promote “best practices to boost crop yields, agricultural production, and trade” and to “Maximize food supplies and improve trade and transportation of food within world markets.”

Indo- Pacific Economic Framework

USTR Tai elaborates on IPEF elements

  • U.S. Trade Representative Tai acknowledged recently in a dialogue hosted by the Washington International Trade Association (WITA) that by summer there is likely to be “a more formalized convening” regarding IPEF with the hopes of being able “to deliver along the way, as opposed to holding everything together until everything comes together at the end.” The ambassador reiterated that IPEF goes beyond a traditional trade pact and is a holistic economic approach where “trade is an important part but not the only part.” When asked for priorities in the trade pillar, USTR Tai stated that she “doesn’t want to put [her] thumb on the scale before we have brought our trading partners to the table.”
    • Traditional enforcement mechanisms will still have a place, according to USTR Tai, and that during negotiations “there will be concessions and commitments that we make to each other” and that “those, if they make sense, can be suspended through a traditional dispute settlement mechanism.” The administration is actively thinking and already trying new ways, such as in the U.S.-Peru FTA, of holding the participants accountable to ensure integrity in an agreement.
    • Ambassador Tai noted that “with this next generation of trade engagement” the administration’s approach is to focus on an incentive structure that brings confidence back to the global economy. “Incentives can be created through sticks but also with carrots,” stated Tai.
    • In addition, USTR Tai highlighted the fact that tariffs cuts remain unlikely and instead there will be an effort to identify tools that will boost supply chain resilience. As it was stated in the conversation, the average bound MFN rate for the U.S. is 2.3%, and because of that “there is not a lot for us to further give” in this realm.

U.S. – Kenya

USTR Katherine Tai and Cabinet Secretary Betty Maina in Geneva for MC12

U.S. and Kenya revisit trade talks

  • Early last week, U.S. Trade Representative (USTR) Katherine Tai and Kenyan Ministry of Industrialization, Trade, and Enterprise Development Cabinet Secretary Betty Maina met during the WTO’s 12th Ministerial Conference (MC12) to revisit trade talks. The U.S. and Kenya have agreed to discuss areas of cooperation to deepen economic engagement in key areas including agriculture, digital trade, and climate change. In a statement, USTR announced that, “They discussed a number of issues where the United States and Kenya could develop an ambitious roadmap for enhanced cooperation and, where appropriate, explore negotiating high-standard commitments.” However, a USTR official said the newly announced discussions were not a resumption of the free trade agreement (FTA) negotiations. The ministers “agreed to meet again in the coming weeks” to announce further courses of actions.
    • The Biden administration has consistently declined to resume talks for a possible FTA that began in 2020 with then-USTR Robert Lighthizer.

U.S. – UK

Override of NIP not to threaten U.S.-UK trade talks

  • Boris Johnson’s proposal that would allow the UK to unilaterally rewrite parts of the Northern Ireland Proposal (NIP) would not harm trade relations with the U.S., according to White House spokesperson Karine Jean-Pierre. She was asked if this move would be an impediment for the U.S.-UK trade discussions for this week in Boston to which she responded, “No, I don’t believe it will be.” “We recognize there have been challenges over the implementation of the NIP,” she stated, adding that the U.S. urges the UK and the EU “to return to talks to resolve these differences.”
    • Renegotiating or eliminating the protocol has been controversial, including House Speaker Nancy Pelosi (D-CA) who previously warned that a U.S.-UK FTA would not happen if the UK went through with undermining the NIP.
    • The NIP is the legal instrument that governs trade in goods in relation to Northern Ireland post-Brexit. When Brexit occurred, it was seen as important to maintain the Good Friday Agreement which aims to avoid a ‘hard’ land border between Northern Ireland and the Republic of Ireland. As a result, Northern Ireland is part of the EU’s single market, creating border checks between the UK and Northern Ireland.

Ukraine

U.S. to help export Ukrainian grain via Poland

  • President Biden announced that the U.S. will build temporary silos on Poland’s border with Ukraine to facilitate the export of grain as part of his plan to address rising food prices occurring across the U.S. In a speech at the AFL-CIO convention in Philadelphia last Tuesday, Biden said “We’re going to build silos, temporary silos in the borders of Ukraine, including in Poland. So we can transfer [grain] from those cars into those silos into cars in Europe and get it out into the ocean, and get it out across the world. But it’s taking time.”
    • Biden echoed Ukraine’s concerns about shipping grain through the Black Sea, as he stated that the grain would be “blown out of the water” by Russia’s naval blockade.

Russia’s invasion has cost $4.3 billion to Ukraine’s food sector

  • Ukraine has suffered $4.3 billion in damage to farmland, machinery and livestock as a result of Russia’s invasion, according to the Kyiv School of Economics. Russian forces have destroyed agriculture infrastructure hubs, looted or destroyed large quantities of  grain and food stocks, and continues to block Ukraine’s ports, cutting off a key source of revenues and worsening a global food crisis that may spur millions of people to migrate, according to the report
    • Farmland in frontline and formerly occupied areas face a high risk of pollution caused by mines which “imposes a mortal threat to Ukrainian farmers during the field works,” the report said, estimating that $436 million may be needed for demining.
    • The authors calculate that 5.7 million poultry have died due to the war, while $613 million worth of grain has been stolen from occupied regions of Ukraine and sent to Russia. “Farm animals are dying directly because of the hostilities and because of the farmers’ inability to either access the farm or get animal feed and provide animals with needed veterinary support and care,” the report said.
    • Nearly a quarter of the total — $926 million — accounts for damage done to farm machinery due to military activity and occupation, the authors.  They note that roughly half of the “already immense” destruction from the war comes from pollution caused by mines and unharvested crops.
    • Russia is using food security as an economic weapon, according to Tymofiy Mylovanov, a former minister and a president of Kyiv School of Economics. “They are trying to take over farmland for people to collaborate,” he said in an interview. “They are moving crops away. They are taking food which otherwise would have been consumed in those areas and they’re moving it to Russian areas.”

Section 301 Tariffs

Legislation invokes review of tariffs impact on inflation

  • No significant developments section 301 tariffs since Congresswoman Stephanie Murphy (D-Fl) introduced legislation, Repeal Tariffs to Reduce Inflation Act of 2022, that would require the Treasury Department – in coordination with USTR and the U.S. International Trade Commission – to prepare the report within 60 days and to submit it to the House Ways and Means and Senate Finance Committees. “My bill requires the federal government to assess whether US tariffs imposed on a wide range of imported products are a factor contributing to elevated inflation,” Murphy, a member of the House Ways and Means Committee said. “If the answer is yes, as both common sense and basic economics strongly suggest, the federal government should act to repeal or reduce those tariffs in order to provide price relief to the American public.”  

WTO

Ngozi Okonjo-Iweala, WTO Director-General
Ngozi Okonjo-Iweala, WTO Director-General

WTO delivers modest set of outcomes from MC12

  • After nearly a week of tense meetings, including an extension of nearly two days for negotiations, the WTO produced a package of outcomes that included a pared-down agreement on fisheries subsidies, an extension of the e-commerce moratorium, a pandemic response text alongside a decision to allow intellectual property rights flexibility for COVID-19 vaccines, a food security text, a commitment to exempt World Food Program purchases from export restrictions and the launch of WTO reform discussions. The first WTO ministerial in five years opened Sunday and included two days of negotiations lasting well into the nights and early mornings before a closing  ceremony early last Friday morning.
  • Before MC12 opened, WTO Director-General Okonjo-Iweala said she would consider MC12 a success if it could deliver one or two results. Instead, WTO members succeeded to deliver outcomes, that though short of the ambitions in the original texts, produced at least one element from each of the major issues – pandemic response and TRIPS waiver, fisheries subsidies, the three agriculture-related texts, the e-commerce moratorium and WTO reform. Ngozi Okonjo-Iweala called the final package “unprecedented” in breadth and demonstrates that “the WTO is in fact capable of responding to emergencies of our time.” A brief summary of the outcomes in the major MC12 agenda items are summarized below.

Agriculture

  • Heading into MC12, agriculture negotiations centered on food security, the World Food Program (WFP), and an agriculture work program on subsidies and other disciplines. Only two of the three of the original agriculture texts moved forward – the food security text and the WFP exemption. WTO members reached consensus on a provision to ensure the WFP can source products from countries, despite any export bans or restrictions. The agreement will facilitate the U.N.’s humanitarian response to food insecurity in procuring food that face trade barriers. On food security, the WTO approved a broad statement on the important role trade plays in global food security. The statement does not preclude countries from imposing export restrictions on food products but discourages such policies and reiterates the WTO principle that any such measures be temporary. The third element on the agriculture work program was besieged by a proposal led by India to lift restrictions on public stockholding, causing the agenda item to eventually be eliminated from the final package of outcomes.

Fishing subsidies

  • The fisheries subsidies agreement, nearly 20 years in the making, was eventually less ambitious than the original text yet moved to prohibit subsidies contributing to overcapacity and overfishing in three categories:
    • Subsidies that contribute to illegal, unreported, and unregulated fishing;
    • Subsidies for the fishing of an overfished stock; and
    • Subsidies that contribute to overcapacity or overfishing, such as for upgrading vessels, reducing cost of fuel, reducing labor costs, and propping up prices paid for fish.
  • The biggest unresolved divergences were on artisanal fishing, where some members wanted 12 nautical miles to be the limit for subsidies for small-scale fishers while others, specifically India, preferred 200 nautical miles and how long members would have to eliminate harmful subsidies, with the broad consensus being between 5 to 7 years, but India held out for a 25-year transition period.

TRIPS waiver

  • The final text outlining additional TRIPS waiver provides flexibilities for developing countries in securing COVID vaccines. The agreement allows eligible members to grant usage of patented COVID-19 vaccine intellectual property without the consent of the patent holder. Developing countries have struggled to procure COVID vaccines at the same pace as developed countries, a circumstance that some argue has hampered the global containment of the pandemic. The TRIPS waiver is part of the WTO’s larger response to the pandemic agreed on at MC12.
    • Perhaps the biggest contention was between the U.S. and China regarding a footnote requested by the U.S. to exclude China. China opposed the exclusion in writing yet said it would comply in principle. In the end, the footnote was softened to acknowledge China’s pledge of compliance.

E-commerce moratorium

  • On another closely watched issue, WTO Members agreed to maintain the moratorium on the imposition of customs duties on electronic transmissions (i.e., e-commerce) until 31st March 2024 or until MC13, whichever is earlier. Under the adopted statement, the General Council will hold periodic reviews on matters such as the impacts of the Work Program on Electronic Commerce. As part of the deal, members agreed to intensify discussions regarding the moratorium, which was first put in place in 1998, during the early years of the internet and before e-commerce transactions were commonplace.
    • Several developing countries entering MC12 opposed the extension citing a lost source of national revenue for their economies.

WTO reform

  • WTO members also formally agreed to launch a broad-based work program to discuss reform of WTO, which was created in 1995, as critics have said the global trade body has not kept pace with world developments. Though loosely structured, the reform program specifically will address the dispute settlement system, which the U.S. has long cited as broken and has blocked the Appellate Body judge appointments rendering the appeal process as nonoperational. While WTO member have voiced a plethora of opinions and strategies regarding reform, the agreement signals the first concrete step for WTO members to engage systematically in approaching reform. USTR Ambassador to the WTO Maria Pagán expressed optimism with the agreement saying, “There is no one way of doing reform.” “I have interests that I want to explore and to push and other countries have different interests that they want to explore and push.”