TRADE UPDATE

Food & Agriculture
July 26, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: The U.S. announced it has requested consultations with Mexico over the country’s energy policies, due to several violations of USMCA. Canada also moved to request USMCA consultations on Mexico’s energy sector policies. Separately, USTR has lodged a 5th USMCA labor complaint with Mexico, alleging working rights violations at the Manufacturas VU facility in Piedras Negras, State of Coahuila.
  • U.S. – Canada: Senators Bob Menendez (D-NJ) and John Thune (R-SD) are urging the Biden administration to pursue negotiations with Canada on a softwood lumber trade agreement to lower existing tariffs and ease inflationary pressures on U.S. housing affordability. Canadian officials raised the notion of lower lumber tariffs earlier this month on the sidelines of the recent USMCA free trade commission meetings.
  • Biden Nominees: The Senate Finance Committee hearing to consider Doug McKalip’s nomination as the next chief agricultural negotiator for the office of the U.S. Trade Representative is July 28th at 10:15 a.m.
  • U.S. – U.K.: The United Kingdom announced another state-level trade arrangement, this time with North Carolina, as the U.K. remains eager for the Biden administration to reconsider comprehensive trade talks.
  • WTO: Several WTO members, including the U.S., the EU and the Cairns Group, are contending that now is the opportune time to pick back up the failed negotiations on agriculture talks at MC12. The countries are recommending that agriculture talks need a novel approach, looking at the “big picture” to move forward.

“The state-level work which I’ve been proud to help lead during my time at the Department for International Trade is complementary to, not a replacement for, an ambitious free trade agreement with the US.” “The MOUs the UK has sought out are to “deepen” the relationship “in order to enhance trade relations.”

— UK Trade Minister, Penny Mordaunt, remarks regarding UK trade arrangement with North Carolina

USMCA

The U.S. and Canada request consultations over Mexico’s energy policy

U.S. Trade Representative, Katherine Tai
  • The U.S. announced it has requested consultations with Mexico over the country’s energy policies, due to several violations of USMCA. A senior USTR official told reporters that “Looking broadly at these issues, we’ve seen a move away from adherence to the USMCA commitments that they made just a few years ago, and so what we’re asking for is for a return back to compliance with those obligations.” One aspect of the complaint involves the Mexican government’s action of a 2021 amendment to the country’s electricity law that prioritizes government-run electricity plants over “cleaner,” privately run plants, according to USTR.
  • Ambassador Katherine Tai noted, “We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA. These policy changes impact U.S. economic interests in multiple sectors and disincentivize investment by clean-energy suppliers and by companies that seek to purchase clean, reliable energy. We have tried to work constructively with the Mexican government to address these concerns, but, unfortunately, U.S. companies continue to face unfair treatment in Mexico. We will seek to work with the Mexican government through these consultations to resolve these concerns to advance North American competitiveness.”
  • In addition to provisions in the deal’s chapters on market access, investment, and state-owned enterprises, USTR asserts that Mexico is violating provisions on “administrative proceedings” in the deal’s chapter on publication and administration, alleging the Mexican government “is not administering its laws in a consistent, impartial, and reasonable manner,” as stated in the request.
    • As a response to the U.S.’ request for consultations, Mexican President Lopez Obrador said “Ooh, how scary,” which is a reference to a Mexican song, during a morning press conference.
    • Canada has requested their own consultations with Mexico about the issue. A spokeswoman for Mary Ng, Tai’s counterpart, said “Canada has consistently raised its concerns regarding Mexico’s change in energy policy. We agree with the United States that these policies are inconsistent with Mexico’s USMCA obligations.”
    • The U.S. and Mexico will enter consultations within 30 days of the U.S. request. If the consultations fail to produce a resolution within 75 days of the request, the U.S. can call for the establishment of a panel, as expressed in USMCA.
    • U.S. energy stakeholders expressed staunch support for the U.S. action. American Clean Power, a federation of renewable energy companies, joined the American Petroleum Institute — the major U.S. trade association for the oil and gas industry — in welcoming the request.
    • “Today’s announcement by the Biden administration represents a significant step forward in addressing Mexico’s alarming energy sector policies, which not only violate the country’s commitments under USMCA, but also undermine the integration of North American energy markets and jeopardize our shared climate goals,” ACP CEO Heather Zichal and API President and CEO Mike Sommers said in a statement.

U.S. lodges 5th USMCA labor complaint

  • Last week USTR announced a fifth labor complaint with Mexico under USMCA’s rapid response mechanism, alleging worker rights violations. USTR Katherine Tai announced a complaint centered on the denial of worker rights and free association at the Manufacturas VU facility in Piedras Negras, State of Coahuila. The request follows a petition filed by two Mexican labor organizations, La Liga Sindical Obrera Mexicana and Comité Fronterizo de Obreras.
    • Mexico has ten days to agree to conduct a review. If it agrees to review the petition, Mexico then has 45 days to complete it. While the investigation is underway, the Treasury Department will suspend the final settlement of customs accounts related to entries of goods from the VU facility.

U.S. – Canada

Senator John Thune (R-SD)

Senators urge softwood lumber tariff cut

  • Sens. Bob Menendez (D-NJ) and John Thune (R-SD) are calling on Ambassador Katherine Tai to resume negotiations with Canada on a softwood lumber trade agreement to lower existing tariffs and ease inflationary pressures. In a letter to Ambassador Tai and Commerce Secretary Gina Raimondo, Senators. Menendez and Thune, both members of the Finance Committee, said that an agreement to provide tariff relief would help consumers faced with increasing home building and housing costs. “The sharp increase in softwood lumber prices, on top of high inflation and supply chain challenges, has only further added to residential construction costs,” the senators wrote.
  • “Addressing lumber trade inefficiencies would help reduce unnecessary financial pressures on the US housing market, and we urge the US Trade Representative to prioritize a new softwood lumber agreement between America and Canada.” The senators are urging the Biden administration to prioritize “an expeditious final determination and implementation of the tariff reductions,” in the context of housing affordability.
    • Earlier on the sidelines of the USMCA Free Trade Commission, Canadian Trade Minister Mary Ng pressed for the Biden administration to eliminate U.S. tariffs on Canadian softwood lumber exports to fight domestic inflation. “I think something that could easily be done here is to lift the tariffs on softwood lumber,” Ng said speaking after a meeting with the National Association of Home Builders. “They are keen to see us make some progress here because they are dealing with affordability prices for American families.”
    • While U.S. officials indicated a willingness to negotiate a settlement to the longstanding softwood lumber dispute, Ambassador Tai said the U.S. is waiting for Canada to come to the negotiation table. Commerce earlier this year issued a preliminary determination to reduce tariffs on Canadian softwood lumber imports. Tai added, “Our priority has always been ensuring that U.S. softwood lumber producers can compete on a level playing field.” “Subsidized lumber and dumped imports undermine their ability to compete fairly.”

U.S. – China

Trade provisions dropped from China competition bills

  • Congressional deliberations on the China competition bills, despite significant progress towards reconciling the House and Senate provisions, appear headed for an indefinite impasse.  Senate leadership is prioritizing legislation in support of the domestic semiconductor manufacturing, dropping other trade provisions on import tariff relief, low-value import rules, supply chain improvements, forced labor, and other trade-related issues. Lawmakers are now hoping to get the bill to the president’s desk within a matter of weeks. Sen. Chuck Grassley (R-IA) told reporters that the final bill will not include the trade title in USICA or the trade provisions in the House’s America COMPETES Act.
    • According to reports, the trade provisions could be added to another legislative vehicle or incorporated in a standalone bill later this year. However, prospects for such action, particularly ahead of an anticipated contentious mid-term election, remain quite uncertain.

U.S. – Africa

DG Okonjo-Iweala on U.S. trade policy towards Africa

  • During a roundtable on U.S.-Africa policy that was hosted by the House Foreign Affairs Committee, WTO Director-General Ngozi Okonjo-Iweala told lawmakers that the U.S. “needs to move away from an aid mindset to a trade and investment mindset.” In addition, the DG mentioned how China is gaining on engagement with countries on the continent, noting that China has overtaken the U.S. as an importer and as a destination for African exports. Yet, she expressed that African countries would still be open to more U.S. engagement.

U.S. – U.K.

Penny Mordaunt, UK Minister of State for International Trade

UK signs an MOU with North Carolina

  • An MOU on trade relations between the UK and North Carolina went into effect last week, focusing mainly on the “transition to a clean energy economy.” This is the second MOU the UK has signed with a U.S. state, with the first being Indiana. Penny Mordaunt, the UK Minister of State for International Trade, wrote in her op-ed that, “The state-level work which I’ve been proud to help lead during my time at the Department for International Trade is complementary to, not a replacement for, an ambitious free trade agreement with the US.” An MOU is not a trade agreement or legally binding. The MOUs the UK has sought out are to “deepen” the relationship “in order to enhance trade relations.”

The U.K. announced that Oklahoma and South Carolina will be the next two states for an MOU. Earlier in the year, the UK signed a trade arrangement with the state of Indiana, its first state-level deal.

U.S. – Cuba

Amendment to finance U.S. agricultural sales to Cuban importers supported

  • House Foreign Affairs Committee Chair Gregory Meeks (D-NY) and Rules Committee Chair Jim McGovern (D-MA) issued a statement in support of an amendment to an appropriations bill that would allow Treasury to suspend rules against extending credit to Cuban importers of U.S. agricultural goods. The rationale is that the amendment will “create thousands of farm jobs in the United States while providing desperately needed food at lower cost for the Cuban people.”
    • Last May, agriculture exports to Cuba decreased by 14.5% compared to May 2021.

U.S. – Nicaragua

Raw cane sugar from Nicaragua revoked from quota imported to the U.S.

  • Upon releasing the list of countries that will receive shares of the U.S. tariff-rate quota on raw cane sugar for fiscal year 2023, Nicaragua was removed as a reaction to the “dramatic democratic backsliding” and “unchecked corruption” by the country’s ruling couple, President Daniel Ortega and his wife, Vice President Rosario Murillo. Exports of sugar to the U.S. are only worth $61 million of the total $4.6 billion of exports. However, Eric Farnsworth, Vice President of the Council of Americas, said that the move is “a big deal.”
    • Back in June, Nicaragua was not invited to participate in the Summit of the Americas and is not a part of the Americas Partnership for Economic Prosperity.

Infant Formula

President Biden signs bill lifting infant formula tariffs

  • President Biden last week signed Congressional legislation temporarily reducing tariffs on certain infant formula products through December after the Senate joined the House in passing the bill.
    • 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.

Indo- Pacific Economic Framework

First IPEF Ministerial

  • The Biden administration will conduct a virtual ministerial for the 14 countries participating in the Indo-Pacific Economic Framework (IPEF) on July 26th. Ambassador Katherine Tai and Commerce Secretary Gina Raimondo will host the U.S.-led meeting. Ms. Tai will lead discussions on the trade pillar of the IPEF, while Ms. Raimondo is responsible for talks on supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption.
    • In advance of the meeting, over 100 civil society organizations sent a letter to the President Biden urging U.S. officials to increase transparency and public participation in the IPEF talks. “A transparent and participatory negotiating process is critical to ensuring the best possible outcomes from IPEF or any other future trade negotiations, such as the recently announced Americas Partnership for Economic Prosperity.” The organizations warned that the current closed, non-transparent negotiating process excludes public input, which was a sore point in the Trans-Pacific Partnership talks for many groups. The organizations further called  on the administration to revamp the corporate advisory system with an on-the-record public process, including public hearings, to formulate U.S. positions and obtain comment on draft and final U.S. negotiating text, as well as consult and engage with Congress throughout the process.

Biden Nominees

Doug McKalip, nominee for USTR Chief Agricultural Negotiator

McKalip Senate hearing set for July 28th

  • The Senate Finance Committee hearing to consider Doug McKalip’s nomination as the next chief agricultural negotiator for the office of the U.S. Trade Representative is July 28th at 10:15 am EST.  McKalip is likely to face several questions on the Biden administration’s trade policy that intentionally has eschewed pursuit of comprehensive trade agreements, including tariff reductions.
    • Notably over 20 Republican lawmakers, led by senators John Boozman (R-AR) and Tim Scott (R-SC) recently penned a letter to McKalip, urging 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 some lawmakers and farm groups to negotiate new trade agreements, and has 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 decline

  • Costs for primary U.S. and EU shipping routes with China continued a downward trajectory, according to latest data for containerized shipping rates yet remain well above pre-pandemic levels.

Trade Remedy Actions

USITC votes against additional duties on  imported fertilizer

Senator Roger Marshall (R-KS)
  • As reported last week, 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 Russia and Trinidad and Tobago, closing the door on higher duties that the Department of Commerce calculated, ranging from 13% – 130%, based  on illegal subsidies and dumping allegations by the U.S. industry. 
  • Several lawmakers and agriculture industry leaders lauded the outcome. Senator Roger Marshall (R-KS) praised the USITC’s determination ending the threat of duties on imports of urea ammonium nitrate fertilizer from Russia and Trinidad and Tobago. He is also calling for a reversal of the duties that USITC and the Commerce Department put on phosphate fertilizer imports from Morocco. “The Biden Administration needs to take a look at phosphate-based fertilizers from Morocco now,” Marshall said in a tweet. “Duties on some of our most reliable trading partners is the last thing we need amid record inflation.”
    • “This comes as a welcome relief,” said National Corn Growers Association President Chris Edgington. “We have been sounding the alarms and telling the ITC commissioners that tariffs will drive up input prices to even more unaffordable levels for farmers and cripple our supply. I am so glad they listened.”
    • American Soybean Association President Brad Doyle also welcomed the news. “ASA has expressed concerns with fertilizer prices and availability for over a year,” Doyle said. “Today’s ruling by the ITC against the imposition of final duties on imports of UAN from Trinidad and Tobago and Russia will provide much-needed relief from tariffs for U.S. soybean growers and farmers across the country. We thank the ITC for considering the impact on farmers in their determination, and ASA will continue to advocate for the removal of tariffs.”

WTO

U.S. and other members urge renewed agriculture negotiations

  • After proving unable to agree to work program at MC12 for the agriculture negotiations, several WTO members are contending that now is the opportune time to pick back up the failed negotiations on agriculture talks. At WTO agriculture negotiation meetings last week many members – including the U.S., the EU and the Cairns Group recommended that agriculture talks need a new approach, looking at the “big picture” to move forward, if they are to address challenges like climate change and food insecurity.
    • The chair of the WTO Agriculture Committee, Costa Rican Ambassador Gloria Abraham Peralta, supported the ambitions and has advocated for new strategies and rethinking approaches to issues and noted that in her time as chair the status quo of members’ positions has remained largely unchanged despite numerous meetings, submissions, and consultations.
    • Several WTO members lamented the lack of progress at MC12 on an agriculture work program, according to reports. Several members noted MC12 illustrated the need for a new approach. The Cairns Group proposed that the negotiations should no longer be conducted in “silos” and that members should identify common concerns across issues. This could be informed by bringing in experts from other organizations, the group added, according to the official. The U.S. argued that the agriculture talks have “faltered” for years, according to another official. It echoed the call for an approach that included issues like climate change and food security, but also called for any new negotiating approach to be pragmatic.
    • The next meeting for agriculture negotiations is yet unscheduled and historically the WTO operates with a very modest schedule in August. A potential “retreat” in September may be the next gathering related to the agriculture negotiations.