TRADE UPDATE

Food & Agriculture
July 19, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

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HIGHLIGHTS

  • USMCA: President Biden and Mexican President Lopez Obrador (AMLO) met at the White House last week to discuss collaborating on “full implementation” of USMCA, advancing energy investment, modernizing border infrastructure, and reducing inflation through trade facilitation.” President Lopez Obrador called for lowering tariffs to combat food inflation though no mention of tariffs in the official joint statement. Separately, the U.S. and Mexico announced a resolution to the U.S. labor complaint regarding a Panasonic auto parts plant in Reynosa, Tamaulipas.
  • U.S. – Kenya: Ambassador Katherine Tai and her Kenyan counterpart, Secretary Betty Maina, launched the United States-Kenya Strategic Trade and Investment Partnership (STIP), last week. The trade ambition will include “High-standard commitments” in areas such as agriculture, digital trade, climate change action, and trade facilitation” and will be negotiated as those issues can have progress “right away.” Some stakeholders noted while a positive development, STIP falls short of a comprehensive trade agreement addressing market access and tariffs reductions.
  • Biden Nominees: In a letter to Doug McKalip, President Biden’s nominee for a top trade position at USTR, over 20 Republican Senators urged McKalip to “become an advocate within the Office of the United States Trade Representative for the prioritization and inclusion of market access commitments as part of U.S. trade discussions.” Several lawmakers are concerned the President’s trade policy omits tariff negotiations, such as in the Indo-Pacific Economic Framework, disadvantaging U.S. exporters’ global competitiveness.
  • WTO: The WTO ruled in Canada’s favor to retaliate against the U.S. imposed countervailing duties on imported supercalendered paper. U.S. duties no longer apply, but Canada has argued that it should be granted a retaliation award in the event the duties are reimposed by the U.S. USTR took issue with the decision noting that Canada “may never experience any economic effect whatsoever, given that the United States removed the challenged measure years ago.”
  • Trade Remedies: The U.S. International Trade Commission (USITC) voted against duties on imports of urea ammonium nitrate (UAN) solutions from Russia and Trinidad and Tobago. In a negative determination, the USITC found no “injury” to U.S. producers from imports of UAN fertilizer from Russian and Trinidad and Tobago, closing the door on potential higher tariffs on UAN imports ranging from 17% – 130%.

“The United States-Mexico-Canada Agreement enhances the free flow of goods without barriers, which promotes innovation that boosts productivity and increases resilience, helping both countries fight inflation and supporting families.”

— Joint Statement by Presidents Biden and Lopez Obrador from their July 12th meeting in Washington, DC.

USMCA

Biden and AMLO meet at the White House

  • On July 12th, President Biden and Mexican President Lopez Obrador (AMLO) met for the second time during Biden’s term to discuss collaborating on “full implementation” of USMCA, advancing energy investment, modernizing border infrastructure, and reducing inflation through trade facilitation. The joint statement issued after the meeting touches on these points but does not mention elimination of tariffs, which was discussed by AMLO during the meeting when he stated, “even though USMCA has made progress for the elimination of tariffs, there are still some others that could be immediately suspended.”
President Lopez Obrador and President Joe Biden
  • Regarding supply chains and inflation, the leaders noted, “Increasing inflation impacts the well being of families in both our countries, and requires strong, immediate, and concerted action. That is why we have committed to jointly combat inflation by accelerating the facilitation of bilateral trade and reducing trade costs. The United States-Mexico-Canada Agreement enhances the free flow of goods without barriers, which promotes innovation that boosts productivity and increases resilience, helping both countries fight inflation and supporting families.
  • The meeting’s purpose was to reaffirm the “broad and deep cooperation and commitment to building a more prosperous and secure future for the people of North America.”

The U.S. and Mexico have resolved third USMCA labor dispute

  • The U.S. and Mexico announced a resolution to the U.S. filed labor complaint regarding a Panasonic auto parts plant in Reynosa, Tamaulipas. Using the USMCA’s rapid response mechanism (RRM), USTR asked Mexico to review the auto production facility in Mexico over concerns about workers being denied freedom of association and collective bargaining rights. The company has agreed to remove the previous union and abandon the agreement signed with that union. The Mexican union Sindicato Nacional Independiente de Trabajadores de Industrias y Servicios (SNITIS) is now recognized as the workers’ bargaining representatives.

U.S. – Kenya

Trade partnership launched with Kenya

USTR Katherine Tai and Kenyan Trade Secretary Betty Maina
  • Ambassador Katherine Tai and Kenyan Ministry of Industrialization, Trade, and Enterprise Development Cabinet Secretary Betty Maina launched the United States-Kenya Strategic Trade and Investment Partnership (STIP), last week. The announcement follows meetings in Geneva that were reported in an earlier edition of Trade Update (June 21st). “High-standard commitments” in areas such as agriculture, digital trade, climate change action, and trade facilitation will be negotiated as those issues can have progress “right away,” according to a USTR senior official.
    • On agriculture, the senior official cited that “to facilitate agricultural trade irrespective” of market-access, topics such as sustainable practices, science-based standards, and biotechnology will be part of the discussions. Biotechnology is one of the biggest divisions between the U.S. and Kenya on agriculture. Kenya currently has a 2012 ban on imports of GM food and feed. More details on Kenya’s food and agriculture import regulations contained in a  USDA report published last week.
    • The STIP does not include any market access provisions featured in comprehensive trade agreements.  Several lawmakers and industry stakeholders continue to press the Biden administration to pivot negotiating on market access, which is also not included in IPEF. A USTR spokesperson stated that “we haven’t ruled out doing a more comprehensive negotiation, but our goal right now is to really  expand our bilateral economic relationship with sort of a modern, tailored, Kenya-centric approach.”
    • Some stakeholders see the bilateral “Trade and Investment Partnership” as lowering trade policy ambitions, foreclosing the possibility of securing the market-opening free-trade agreement the U.S. and Kenya had committed to seek during the Trump administration. In contrast, House Ways and Means Committee Chairman Richard Neal (D-MA) argued that the new initiative “will lay the groundwork for a comprehensive free trade agreement that includes market access, builds off AGOA, and complements both regional and continental integration.” “Kenya has shown a willingness to deepen its economic ties with the United States, and we should embrace it,” Neal said.
    • In 2020, Secretary Maina and then-USTR Robert Lighthizer announced plans for an FTA and both countries engaged in two rounds of trade talks, before talks paused after former President Trump left office. Since then, the Biden administration has declined to resume bilateral trade talks for an FTA.

Section 301 & 232 Tariffs

Biden administration wrestles with China tariff strategy

  • Still no announcement from the Biden administration as deliberations continue regarding lifting tariffs on China to tackle inflation. In the most recent news, Commerce Secretary Gina Raimondo confirmed the administration is heavily weighing its tariff policy options. “We are looking at it. In fact, the president has asked us on his team to analyze that. And so we are in the process of doing that for him and he will have to make that decision,” Raimondo told CNN during a recent interview. 
  • Several reports have suggested President Biden’s 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. – China

China extends retaliatory tariff exemption for sorbitol

  • According to a USDA report, China’s State Council Tariff Commission (SCTC) “extended the Section 301 retaliatory tariff exclusion period for sorbitol and other select non-agricultural U.S. commodities. The exclusion was set to expire on June 30 but has now been extended until February 15, 2023. The USDA report contains an unofficial translation of the announcement and links to reports of other retaliatory tariff exclusions announced by the SCTC on U.S. products.
    • USDA noted that, “This is the fourth time that China has extended the tariff exclusion period for sorbitol. The United States was the second largest supplier of sorbitol to China, with import value reaching $691,000 in 2021, according to China Customs statistics. Germany was the largest supplier of sorbitol to China with exports valued at $2.52 million in 2021.”

Infant Formula

House votes to lift infant formula tariffs

Congresswoman Suzan DelBene (D-WA)
  • Last Friday the House voted overwhelmingly (421-2) to temporarily lift tariffs on imported infant formula. The Formula Act, introduced by Rep. Suzan DelBene (D-WA), Earl Blumenauer (D-OR), John Larson (D-CT), and Dan Kildee (D-MI ) would temporarily lift tariffs on imported infant formula through December 31st. “By removing tariffs on foreign formula that meets FDA safety standards, the Formula Act will make it easier and more affordable for parents to feed their babies,” DelBene said in a pre-vote floor speech. “Around the country 74 percent of formula shelves are empty and in my home state of Washington, we are one of 10 states where over 90 percent of shelves are empty,”  she continued.
    • According to a one-page summary of the bill distributed by Blumenauer and DelBene, “infant formula faces a substantial tariff when imported from countries without a Free Trade Agreement or that are not part of a preference program.” “As infant formula is imported into the United States during this period of an infant formula shortage, tariffs will increase the cost of the formula by approximately 27% on average.”
    • Other original cosponsors of the legislation include Adrian Smith (R-NE), Terri Sewell (D-AL), Brad Schneider (D-IL), and Jimmy Panetta (D-CA).The Senate is expected to quickly take up the bill, according to DelBene’s office.  

Indo- Pacific Economic Framework

Senior officials meet in Singapore

  • Delegates from all 14 of the partner countries part of IPEF met for the first official meeting of the Framework. Senior officials with expertise in each of the four pillars were present in Singapore. In a statement by USTR, it was noted that “with over 100 delegates and 65 virtual delegates, the countries have positive and productive discussions on the envisioned substance within the Framework and will continue to engage intensively in the coming months.”

IPEF Ministerial in July says Malaysian trade official

Mohammed Azim Ali, Malaysia’s Senior Minister and Minister of International Trade & Industry
  • Malaysia’s trade minister, Mohammed Azim Ali, tweeted that the first IPEF ministerial would be held July 26-27. The Office of the U.S. Trade Representative and the Commerce Department have not confirmed the information. Ali said he “Had extensive discussions with @mitimalaysia’s senior officials ahead of the upcoming Indo-Pacific Economic Framework (IPEF) Ministerial meeting set for 26-27 July. Deep dived on all four Pillars of the Framework, namely, trade, supply chain, clean economy and fair economy.” As noted above, Senior officials from all 14 IPEF participants met in Singapore on last week to discuss the framework’s four pillars ahead of the ministerial.  

Biden Nominees

GOP senators press USTR nominee to change course on trade deals

  • Doug McKalip, who is Biden’s nominee to be the next chief agricultural negotiator for the office of the U.S. Trade Representative, is getting pressure from Republican lawmakers to advocate for a change of course at the agency. In a letter to McKalip, led by senators John Boozman (R-AR), ranking member of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry  and U.S. Senator Tim Scott (R-SC) and joined by 19 other colleagues, the senators urged McKalip to “become an advocate within the Office of the United States Trade Representative for the prioritization and inclusion of market access commitments as part of U.S. trade discussions. Our farmers and ranchers are facing uncertain times due to the immense pressure of an exponential increase in input costs. Greater access to international markets for products we export would help alleviate some of that pressure.”
    • Earlier in a letter signed by over 90 food and agricultural industry stakeholders sent to Senate Finance Committee leadership urging swift action on McKalip’s nomination, the groups urged consideration of market access.  The groups said, “We believe that Mr. McKalip has the experience and expertise to reduce foreign trade barriers, secure greater market access for U.S. products…”
    • The Biden administration continues to resist calls from Congress and farm groups to negotiate new trade agreements, and declined to re-engage on the CPTPP (formerly TPP) and previously launched negotiations under the Trump administration with Kenya and the U.K.

Supply Chains

Ocean freights costs continue to ease from peak levels

  • The cost for transpacific ocean freight eased again last month though costs remain above pre-pandemic historical levels. The Baltic index for shipping routes China to West Coast, eased to below $10,000 per forty-foot equivalent (FEU), which had peaked at over $20,000 in late last year.

Trade Remedy Actions

USITC votes against additional duties on  imported fertilizer

  • The U.S. International Trade Commission (USITC) voted against duties on imports of urea ammonium nitrate (UAN) solutions from Russia and Trinidad and Tobago. In a negative determination, the USITC found no “injury” to U.S. producers from imports of UAN fertilizer from Russian and Trinidad and Tobago, closing the door on higher duties that the Department of Commerce calculated based  on illegal subsidies and dumping allegations by the U.S. industry.  Under U.S. trade law, the USITC is charged with determining whether an industry is “injured” by alleged dumped or subsidized imports, while the Department of Commerce determines the potential level of additional duties (i.e., tariffs) to impose under an affirmative injury ruling.
    • More details on the USITC vote pending at time of this writing. Notably, the two countries at issue account for more than 80 percent of U.S. imports of UAN fertilizer, the most common type of nitrogen fertilizer. The American Farm Bureau Federation estimates about 25 percent of U.S. fertilizer operating costs are due to UAN solutions.
    • Commerce’s announced calculated duties should the USITC vote been affirmative ranged from about 17 to 130 percent on imports from Russia and about 113 percent from Trinidad and Tobago. The U.S. imported more than 1.8 million short tons of UAN from the two countries last year, with Russia accounting for more than half.

U.S. – Russia

Agriculture commodities not the target of U.S. sanction on Russia

  • The Department of Treasury’s Office of Foreign Assets Control (OFAC) released a food security fact sheet on Russian sanctions and agricultural trade and an amended General License (GL) 6B to broaden the scope of the authorizations relating to transactions involving agricultural and medical products. The Department’s press release emphasized that “[a]gricultural and medical trade are not targets of the sanctions imposed by the United States on Russia for its unjustified war against Ukraine.”
    • OFAC also released a July 14th fact sheet to further clarify that agricultural commodities (including fertilizer), agricultural equipment, or medicine are not the target of U.S. sanctions on Russia. The fact sheet details the authorization granted associated with the sanctions, including the transactions involving exportation of agricultural commodities and fertilizers to/from or transiting Russia. 

WTO

Canada granted the right to retaliate on future U.S. imports if needed

  • The WTO ruled in Canada’s favor to retaliate against the U.S. as needed due to a dispute in which the U.S. imposed countervailing duties on imported supercalendered paper. U.S. duties no longer apply to supercalendered paper from Canada, but Canada has argued that it should be granted a retaliation award in the event the duties are reimposed by the U.S. The decision includes a formula the arbitrators determined would correctly calculate the level of nullification or impairment suffered by the Canadian market and the appropriate level of retaliation.
    • Global Affairs Canada said that the decision “establishes recourse for Canada should the U.S. apply WTO-inconsistent methodology again to determine countervailing duties in the future.”
    • USTR, in a statement, blasted the decision noting that “Canada is not currently suffering any economic harm from the disputed conduct, and may never experience any economic effect whatsoever, given that the United States removed the challenged measure years ago.  Canada’s pursuit of this arbitration under these circumstances is a further demonstration of a broken system that emboldens Members to litigate for the sake of litigation instead of helping Members resolve disputes.”