TRADE UPDATE

Food & Agriculture
July 5, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: President Biden and Mexican President Andres Manuel Lopez Obrador will meet July 12th at the White House to discuss “global challenges, such as food security, and discuss joint competitiveness initiatives, such as work being undertaken in the U.S.-Mexico High-Level Economic Dialogue.”
  • Section 301 Tariffs: Expectations are swelling that the Biden administration may lift a narrow set of tariffs on Chinese imports this month. According to reports, the Biden administration’s revamped China tariff approach may include lifting a narrow set of tariffs on Chinese imports to ease inflationary pressure and initiating an investigation into to China’s state subsidies, opening the door for new tariffs.
  • Russia: President Biden issued a proclamation on Monday to raise tariffs on approximately $2.3 billion worth of Russian goods to 35% covering more than 570 product groups. The move came on the heels of the G-7 summit focused largely on increasing pressure on Russia over its ongoing war with Ukraine.
  • Taiwan: Taiwan and the U.S. trade officials launched talks on the U.S.-Taiwan Initiative on 21st-Century Trade to explore avenues of deepening U.S. – Taiwan trade ties, according to USTR. Several stakeholders view the talks as an alternative approach by the Biden administration to deepening trade ties with Taiwan in lieu of negotiations on a comprehensive free trade agreement or Taiwan’s participation in the Indo-Pacific Economic Framework.
  • WTO: During one of the first post-MC12 meetings of the WTO’s Agriculture Committee, several countries criticized India for its wheat export ban as it compounds tenuous global food supply chains. India maintains that the measure is necessary for domestic food security. The WTO’s food security declaration does not include specific obligations from members but countries pledged to ensure ongoing “resilience of global markets for food and agriculture.”

“The goal must be to continue delivering results for people around the world. I am confident that this brick-by-brick approach will establish a solid foundation to support a reinvigorated WTO well into the future.”

— WTO Director-General Ngozi Okonjo-Iweala reflecting on the success of MC12.

USMCA

Biden and AMLO to meet at White House

President Biden and Mexican President Andres Manuel Lopez Obrador are scheduled to meet July 12th at the White House to discuss bilateral issues such as “their efforts to address global challenges, such as food security, and discuss joint competitiveness initiatives, such as work being undertaken in the U.S.-Mexico High-Level Economic Dialogue,” according to a statement. Mexico’s energy policies, a likely subject of discussion, have been the center of a variety of complaints by industry stakeholders and lawmakers.

Section 301 & 232 Tariffs

Lawmakers call on Biden to ease tariffs on trucking and shipping parts

Abigail Spanberger, Congresswoman (D-VA)
  • Reps. Abigail Spanberger (D-VA) and Kim Schrier (D-WA), with four other House Democrats, are calling on President Biden to “ease U.S. tariffs on goods that impact shipping and transportation costs here in America.” In a letter, the lawmakers referenced “Sec. 301 tariffs as contributing to supply chain challenges for American businesses and driving up costs for American consumers.” 
    • “Shortages of shipping containers and chassis are among the challenges contributing to rising shipping and transportation costs. Several ports and railyards across the country have reported chassis shortages, which delay containers from being mounted on trucks then transported to the shipper and receiver,” the letter said. The other House Representatives joining the letter are Marilyn Strickland (D-WA), Chrissy Houlahan (D-PA), Susan Wild (D-PA), and Scott Peters (D-CA).

Biden may lift tariffs this month

  • The Biden administration is likely to lift a narrow set of tariffs on Chinese imports this month, according to Politico. While details are not public, officials familiar with the discussions indicated that the revised approach to the inherited Trump-era section 301 tariffs on China could involve multiple components.
    • The administration could lift tariffs on a narrow set of consumer goods (e.g., bicycles) to ease inflationary pressures and respond to advocates for tariff removal.
    • Opening a new section 301 exclusion process, allowing stakeholders impacted to petition for tariff relief is also under consideration. Earlier this year USTR granted tariff relief for 352 types of imports from China, but industry groups and lawmakers have urged USTR to expand the exemptions. Ambassador Katherine Tai has consistently characterized the tariffs as leverage with China, which she said the U.S. must not forgo.
    • Additionally, USTR may initiate a new section 301 investigation around concerns with China’s subsidies of key competitive sectors, such as high-tech sectors (e.g., semiconductors and lithium batteries) that unfairly disadvantage foreign competition. A section 301 investigation could pave the way for new tariffs on such sectors in an effort to level the playing field for American firms to counter China’s subsidization practices.

U.S. – Russia

Biden announces raised tariffs on Russia

  • At the G-7 summit that focused on increasing pressure on Russia for the ongoing war with Ukraine, President Biden issued a proclamation to raise tariffs on $2.3 billion worth of Russian goods, consisting of more than 570 product groups, to 35 percent. The White House said that other G-7 members are also set to hike tariffs on Russian goods. Ambassador Tai said in a statement, “We look forward to working with Congress to enact legislation that will allow the proceeds of the tariffs we are raising today to be used to help Ukraine. This will send an important message to Russia that it will have to pay for the costs of its war.” This follows Congress’ approval of legislation back in April to revoke normal trade relations with Russia, which gives Biden the ability to raise tariffs on Russian goods.
    • The list of Russian products now facing higher U.S. duties include steel and aluminum; minerals, ores, and metals; chemicals; arms and ammunition; wood and paper products; aircraft and parts; and automotive parts.

Treasury imposes new sanctions on 70 entities

  • The new sanctions that were announced last week target Russia’s defense industrial base, according to the Treasury Department. Of the 70 entities, it includes State Corporation Rostec, which is a “massive Russian state-owned enterprise formed to consolidate Russia’s technological, aerospace, and military-industrial expertise,” as well as 29 Russian individuals.
    • In addition, the U.S. will ban Russia gold imports. “As announced at the G7 Summit, the U.S. is joined in taking action against Russian gold, the country’s biggest non-energy export, by the UK, Canada, and Japan.”

G-7 members to set price cap on Russian oil exports

  • Leaders of the G-7 have agreed to task top officials with developing a plan to set a price cap on Russian oil to reduce a key source of revenue for the Russian invasion of Ukraine. The details for the price cap plan have not been released yet. In a statement it was announced that, “Following the leaders’ direction today, the Treasury Department will work expeditiously with our counterparts in G-7 countries, and other global allies and partners, to advance this effort.”

U.S. – China

Senator Mitch McConnell (R-KY)

McConnell threatens to stall USICA

  • As House and Senate conferees work on the final version of legislation to counter China’s trade practice, Senator Mitch McConnell laid down a marker on the China bill moving forward.  “Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill,” Sen. McConnell issued in a tweet. Sen. McConnell’s position could jeopardize Democrats plans for reconciling the two China competition bills.  For many weeks, nearly 100 conferees have struggled to reach consensus on reconciling the bills, including the trade provisions. Democratic leaders, House Speaker Nancy Pelosi (D-Calif) and Senate Democratic Leader Chuck Schumer (D-NY), have targeted for Congress to complete  the legislation in July and send to President Biden before the August congressional recess.

This year’s G-7 communiqué focuses mostly on China

  • The three-day G-7 Summit concluded with a 28-page communiqué that emphasizes and calls out China’s coercive economic, forced labor, and debt practices and includes an action to formulate a coordinated response among G-7 members against China’s economic policies. “We will build a shared understanding of China’s non-transparent and market-distorting interventions and other forms of economic and industrial directives,” as written in the joint statement, “We will then work together to develop coordinated action to ensure a level playing field for our businesses and workers, to foster diversification and resilience to economic coercion, and to reduce strategic dependencies.” This year’s communiqué mentions China by name 14 times, compared to only being mentioned four times in the statement last year.
    • Zhao Lijian, a spokesperson for the Chinese Foreign Ministry, said of the joint statement that it had “once again used its summit communiqué to promote a narrative of ‘democracy versus authoritarianism,” and that the group “grossly interfered in China’s internal affairs; attacked and smeared China; and incited confrontational sentiments.”

Uyghur act currently in effect

  • Customs and Border Protection (CBP) issued guidance for the Uyghur Forced Labor Prevention Act (UFLPA) that went into effect last month. CBP said that importers should have sourcing documents ready for every material in their products’ supply chain. High-risk sectors should have flow charts showing every step in the production process.
    • 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.”
    • 50% of the world’s supply of polysilicon came from the Xinjiang region last year, which is a concern for the solar industry who have been preparing for the implementation of UFLPA. “I think we’re looking at a range of possibilities that go from a minimal impact… to a very significant impact and that all depends on the details,” says a senior policy analyst at Clean Energy Associates.
    • 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.

U.S. – Taiwan

John Deng, Taiwan’s Minister-Without-Portfolio

U.S. – Taiwan launch trade initiative

  • Taiwan and the U.S. trade officials commenced talks under a new trade initiative last week.  Deputy U.S. Trade Representative Sarah Bianchi and Taiwan Minister-Without-Portfolio John Deng held the inaugural meeting of the U.S.-Taiwan Initiative on 21st-Century Trade to explore avenues of deepening U.S. – Taiwan trade ties. According to USTR, Bianchi and Deng discussed developing a roadmap for negotiations on “agreements with high-standard commitments and economically meaningful outcomes.” The commitments will cover a number of trade areas, including trade facilitation, regulatory practices, agriculture, anti-corruption, small- and medium-sized enterprises, digital trade, labor, environment, standards, state-owned enterprises and non-market policies and practices. “The United States and Taiwan have a long-standing trade and investment relationship rooted in shared values,” Ms. Bianchi commented. “This initiative will unlock market opportunities, promote innovation and create inclusive economic growth for our workers and businesses.” 
    • The U.S. – Taiwan Initiative on 21st-Century Trade is viewed by many as an alternative approach by the Biden administration to deepening trade ties with the island nation in lieu of negotiations on a comprehensive bilateral free trade agreement or Taiwan’s participation in the Indo-Pacific Economic Framework.

New bill that would overhaul U.S. policy toward Taiwan

  • As noted earlier, Senate Foreign Relations Committee Chairman Sen. Bob Menendez (D-NJ) and Sen. Lindsey Graham (R-SC) have introduced the “Taiwan Policy Act of 2022,” a bill that would overhaul U.S. policy toward Taiwan. Key provisions include measures designed to increase economic cooperation, support Taiwan’s inclusion in international organizations, and deter Chinese aggression against Taiwan. The bill calls for USTR to “resume meetings under the United States and Taiwan Trade and Investment Framework Agreement with the goal of reaching a bilateral free trade agreement with Taiwan.”

The May goods trade deficit shrinks modestly

The monthly advanced goods trade deficit declined 2.2%, from $106.7 billion to $104.3 billion in May. Exports of goods for May were $176.6 billion, $2.0 billion more than April exports. Imports of goods for May were $280.9 billion, $0.4 billion less than April imports, according to the Census Bureau.

FAO releases report on global commodity markets

  • Trade policy tools are an important factor for agriculture commodity supply chains which are facing increasing shocks according to an annual report produced by the Food and Agriculture Organization (FAO) of the United Nation.  The State of Agricultural Commodity Markets (SOCO), covers emerging developments,  long-term trends and structural changes in food and agricultural markets.  The report noted that, “trade, originally viewed as purely economic exchange, has today become an essential tool used to advance economic, social and environmental outcomes.”  The FAO noted that the outbreak of COVID-19 severely tested the global agrifood systems and demonstrated that “global trade in food and agricultural products proved to be remarkably resilient to the disruptions caused by the pandemic.”  The report noted the impact of the invasion on Ukraine as yet another shock and the benefits of trade.
    • The military conflict in Ukraine is “affecting a region of significant importance for global food security and nutrition. With the situation protracting, there is much uncertainty around Ukraine’s ability to farm, harvest and trade crops in both the current and upcoming agricultural seasons. For trade, the impending risk of fragmenting global food and agricultural markets poses additional threats to world food security,” the report said.
    • “When comparative advantage plays out in the global market, trade benefits all countries. Lowering tariff barriers and reducing trade costs can promote trade and economic growth. Both multilateral and regional trade agreements can facilitate the process of making trade an avenue for growth but the gains of trade are distributed unevenly,” the report noted. 

Supply Chains

Congressman John Garamendi (D-CA)

Bill introduced to increase U.S. agricultural exports

  • Considered a companion measure to the Ocean Shipping Reform Act that was recently signed into law, Reps. John Garamendi (D-CA) and Jim Costa (D-CA) introduced the “American Port Access Privileges Act” last Wednesday. If passed, this bill will give ships arriving at U.S. ports preferential treatment in lines if they agree to take containers full of foreign-bound U.S. goods or pledge to make stops at more than one U.S. port. The legislation is aimed to give a boost to U.S. agricultural exports who have struggled to get containers on outbound vessels. The statement on the new proposal says it would establish a “secondary berthing preference” to “reward ocean carriers that serve both importers and American exporters by moving those vessels to the front of the queue for unloading and loading.”
    • The Ocean Shipping Reform Act of 2022 (OSRA) which was signed into law last month 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. 

New measures proposed for forced labor in seafood industry

  • The National Oceanic and Atmospheric Administration (NOAA), an agency within the U.S. Department of Commerce (DOC), has proposed two new measures to strengthen its ability to counter forced labor in the seafood supply chain. A senior official at NOAA stated that the agency is “committed to strengthening the suite of tools [they] use to combat all forms of illegal, unreported, and unregulated (IUU) fishing and counter the use of forced labor in the seafood supply chain.” This action is part of the broader National Security Memorandum to address IUU fishing that Biden has recently issued. The memo directs agencies to seek additional transparency with respect to IUU fishing as part of the ongoing WTO negotiations on fisheries subsidies.
    • The first proposal involves broadening the scope of activities that can be considered under the High Seas Driftnet Fishing Moratorium Protection Act. Nations would be identified for IUU fishing if pervasive and persistent fishing in waters occur under the jurisdiction of a nation without authorization. Any fishing with forced labor will be considered as IUU fishing, regardless of jurisdiction.
    • The second proposal seeks to expand the information foreign fishing vessels must submit when requesting entry into U.S. ports, which NOAA says would allow them to fully implement the Port State Measures Agreement.

Transpacific shipping rates ease, still at historical levels

  • Long-term ocean freight rates for containers that transport between China and the U.S. West Coast are higher than spot prices for the first time since April 2020. The average price for long-term contracts — on shipments moving in about three months or more — was 2.7% higher on average than the cost for short-term movement on transpacific routes, according to freight market-analytics firm Xeneta. Present container shipping rates (long term contract) from China to U.S. West Coast are about $7,980,  more than double the $3,070 paid a year ago. Meanwhile, short term prices are at almost $7,770 — a 47% increase from a year ago.

Indo- Pacific Economic Framework

Report recommends governing council for IPEF success

  • IPEF should include a formal administrative structure offering “clear form and function,” according to a new report from the Center for Strategic and International Studies. The report authors recommend that the U.S. create an IPEF Coordinating Council, “a new administrative body” that could become “the most effective way for the Biden administration to ensure that the IPEF succeeds.”  The report, which focuses on the four IPEF pillars, noted that in the trade pillar analysis the “administration’s ongoing reluctance to pursue market access” creates a “burden” for the U.S. to entice trade partners to pursue central tenants of the framework, such as environmental sustainability.

U.S. – UK

Portman & Coons introduce 5-year TPA bill to pursue UK FTA

  • No significant updates since senators Portman (R-OH) and Coons (D-DE) introduced a bill to provide the president with Trade Promotion Authority (TPA) for a five-year period. Titled the “Securing Privileged Economic, Commercial, Investment, And Legal Rights to Ensure Longstanding Atlantic Trade and Investment Opportunities and Nurture Security, Happiness, Innovation, and Prosperity Act,” or the “SPECIAL RELATIONSHIP Act,” for short, the bill would provide limited authority for the President to pursue a UK trade pact. The Senators said in announcing the bill, “We need to get back into the business of expanding trading relationships around the world so we can export more American-made products and create jobs here at home. Reaching a bilateral trade agreement with the United Kingdom will benefit U.S. workers and businesses and strengthen the economic and security ties between our two countries.”
    • Senators Portman and Coons are co-founders and co-chairs of the Senate UK Trade Caucus and have long pushed for reinvigorating FTA talks with the UK.  Five rounds of bilateral negotiations were conducted under the prior administration.

Ukraine

Damages and losses of agriculture sector already in billions

  • In two new reports from the Kyiv School of Economics, it is estimated that Ukraine’s agriculture sector has already suffered a total of $27.6 billion in damages and losses. The estimates are conducted using models from the United Nations’ Food and Agriculture Organization. Roman Neyter, the lead author of the two analyses, says “It is unclear how much longer farmers can stay in business, as their resources dwindle and profits disappear.”  Several key findings of the report include:
    • $4.3 billion in damages which includes $2.1 billion in farmland and unharvested winter crops; $926 million machinery; $272 million in storage facilities; $136 million of livestock; $613 million in stored outputs, $120 million of inputs; and $89 million in of perennial crops.
    • $23.3 billion in losses which includes $9.6 billion in crop losses due to lower output; $682 million in livestock losses due to lower production; $89 million in perennial crop losses due to lower output; $11.9 billion in crop losses due to logistics disruption; and $859 million in losses due to higher production costs.

U.S. – Colombia

Biden to avoid revisiting bilateral FTA with President-elect Petro

Gustavo Petro, who will be the country’s first leftist leader, has previously indicated a desire to renegotiate the bilateral FTA which he has said has impoverished Colombian farmers. According to a senior U.S. official, the Biden administration is open to discussing trade issues with the incoming government but wants to avoid reopening the agreement. He stated, “We want to start a conversation to say: How can we build on [the FTA] without reopening and going through very painful and challenging negotiations that for us have a huge congressional equity?” The Biden administration would like to use the trade deal “as a foundational document upon which we can address” other issues.

WTO

India confronted over wheat export ban

  • During one of the first post-MC12 meetings of the WTO’s Agriculture Committee, India was criticized for its wheat export ban that was implemented two months ago. The U.S., the EU, Canada, Japan, and Brazil called India out for its policy that they say has further disrupted agriculture supply chains and markets. The issue was raised when discussing implementation of the food security declaration that was agreed to during MC12. India still insists that the measure is necessary for domestic food security.
    • India banned wheat exports on May 13th to control rising domestic prices amid concerns over output being affected by global supply shortages as a result of the Russian invasion of Ukraine.
    • The WTO’s food security declaration does not include specific obligations from members but they pledge to ensure ongoing “resilience of global markets for food and agriculture.”