TRADE UPDATE

Food & Agriculture
August 9, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: Canada plans to challenge U.S. duties on Canadian softwood lumber that date back to the Trump administration, despite lower duties recently issued by the Commerce Department in the agency’s recent third administrative review.
  • USMCA: Separately, a U.S. trade group and Mexican labor union jointly filed a labor complaint under the USMCA labor rapid response mechanism, alleging that a rigged union election was held at Mexican firm Reynosa BBB Industries. The U.S. government has 30 days to determine whether sufficient evidence warrants activation of the Rapid Response Mechanism and push for consultations with Mexico.
  • IPEF: A group of democratic lawmakers sent a letter to Katherine Tai and other administration officials expressing deep concerns regarding President Biden’s approach to pursuing trade-related agreements with partners in the Indo-Pacific and Latin America which avoid consultation and approval by Congress.
  • Biden Nominees: The Senate Finance Committee vote on the nomination of Doug McKalip is scheduled for September 7th , according to the Committee’s website. During his confirmation hearing, McKalip spent the majority of his time responding to criticisms from republican senators regarding the Biden administration’s trade policy that eschews pursuit of new free trade agreements and market access goals.
  • U.S. – Taiwan: Visiting Taiwan last week, House Speaker Nancy Pelosi (D-Calif) suggested a bilateral trade deal was achievable. The visit provoked a strong reaction from China which launched a series of military exercises in the region.
  • WTO: WTO Deputy-Director General Angela Ellard assured members that WTO leadership will convene a meeting with the transformation committee which is overseeing organizational reforms to the Secretary’s office being implemented by McKinsey & Company. The move responds to increasing concerns from WTO staff over the proposed restructuring plan by McKinsey and its implementation.

“The administration’s many public declarations about the proposed IPEF process seem to indicate that it plans to negotiate a binding agreement while circumventing congressional input, authority, and approval.”

— Letter from nine Congressional Democrats to USTR Katherine Tai and other administration officials

USMCA

U.S. trade group and Mexican union file USMCA labor complaint

  • Under the USMCA labor rapid response mechanism, Rethink Trade and the Mexican union Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento filed a complaint charging that a rigged union election was held at Mexican firm Reynosa BBB Industries. The two groups contend that BBB Industries was the setting of a USMCA-required union contract “legitimation” vote in early July that was rigged by the incumbent Confederación de Trabajadores de México (CTM) union in complicity with management. While CTM union prevailed, the total number of votes cast significantly exceeded the number of eligible workers according to a list that the incumbent union had put together. While 2,741 individuals were qualified to vote, 3,158 votes were cast, according to the complaint. The U.S. government now has 30 days to determine if there is enough evidence to activate the Rapid Response Mechanism and then ask Mexico to review these allegations.
    • BBB Industries de Mexico is a subsidiary of BBB Industries LLC, an auto parts firm based in Alabama. BBB Industries remanufactures auto parts (e.g., aftermarket starters, alternators, hydraulic steering systems, and brake calipers). The firm started manufacturing in Mexico in 1998 and now operates four plants in Reynosa, Tamaulipas with about 3,000 workers.

Canada to challenge U.S. lumber duties

Mary Ng, Canadian Minister for International Trade
  • Canada plans to challenge U.S. duties on Canadian softwood lumber that date back to the Trump administration, despite lower duties recently issued by the Commerce Department in the agency’s recent third administrative review. “Canada is disappointed that the United States continues to impose unwarranted and unfair duties on Canadian softwood lumber,” Canadian Trade Minister Mary Ng said in a statement. “While the duty rates will decrease from the current levels for the majority of exporters, the only truly fair outcome would be for the United States to cease applying baseless duties to Canadian softwood lumber.”  The Commerce Department set a new combined anti-dumping and countervailing duty rate of 8.59 percent for most companies, down from the current rate of 17.91 percent.
    • Minister Mary Ng has pressed for the Biden administration over the past few months 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.
    • While U.S. officials had 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. Tai continued, “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.”
    • Reacting to Canada’s announcement to pursue a USMCA complaint, Andrew Miller, chair of the U.S. Lumber Coalition and CEO of Stimson Lumber, said in a statement, “The benefit of the trade cases against Canada are clear, trade law enforcement boosts American manufacturing and results in more U.S. lumber being produced by U.S. workers to build U.S. homes.”
    • The origin of the bilateral lumber trade dispute goes back several decades as the U.S. has charged Canada with unfairly subsidizing domestic softwood lumber exports, a charge Canada rejects. The current tariffs went into effected during the Trump administration after U.S. and Canadian negotiators could not strike a deal to extend the agreement that expired late in the Obama administration.

Ukraine

First grain exports leave Odesa

  • The first ship carrying 26,000 metric tons of Ukrainian corn has departed from the port of Odesa. Since late February, shipments from Ukraine were blocked from leaving ports by Russia. Ukraine’s infrastructure ministry stated that 16 additional ships are expected to leave the port and are waiting their turn. In a statement, Secretary of State Antony Blinken said of the event that, “We again commend the United Nations and Turkey for mediating the diplomacy that resulted in today’s significant step, which raises hope of bringing the millions of tons of grain stuck at Ukraine’s ports to those facing food insecurity around the world.”
    • The shipment comes as Russia and Ukraine reached an agreement in late July to reopen seaports and guarantee safe passage of ships in the Black Sea. Both signed individual deals with the U.N. and Turkey, but not with each other. Within 24 hours of signing the agreements, Russia struck Odesa with missiles.

Indo-Pacific Economic Framework

Democratic Lawmakers question approach on IPEF and excluding Congress

Representative Rosa DeLauro (D-CT)
  • A group of democratic lawmakers, led by Representative Rosa DeLauro (D-CT), sent a letter to Katherine Tai raising concerns about President Biden’s approach to pursuing trade-related agreements with partners in the Indo-Pacific and Latin America that skirt Congress.  In the letter, also addressed to Commerce Secretary Gina Raimondo, Secretary of State Anthony Blinken, and National Security Advisor Jake Sullivan, the lawmakers said that while they support the President’s “worker-centered trade policy” as part of the Indo-Pacific Economic Framework (IPEF) and the Americas Partnership for Economic Prosperity (APEP), they expressed concern with the approach that avoids congressional consultation and approval. They noted the administration’s approach to pursuing IPEF and APEP “mark a significant and concerning expansion” of the attempts by several recent administrations to use bilateral, issue-specific executive agreements to evade Congress’ constitutional authority to regulate foreign commerce and avoid public scrutiny.
    • The lawmakers urged the White House to “consider the lessons of past trade negotiations that too often were conducted in secret.” They highlighted that IPEF and APEP “were both announced abruptly without robust consultation with Congress or stakeholders or a mandate from Congress.”  The lawmakers urged the administration to recalibrate its IPEF and APEP approach to include partnership with Congress and the public, and outside stakeholders to provide “the opportunity to weigh in at the outset on proposals for specific negotiation objectives and … draft text.”
    • Joining the letter were Senators Bernie Sanders (D-VT), Elizabeth Warren (D-MA), and Representatives Tim Ryan (D-OH), Peter DeFazio (D-OR), Lloyd Dogget (D-TX), Robert Scott (D-VA), James McGovern (D-MA), and Janice Schakowsky (D-IL).

Agriculture to be “integral” in IPEF trade pillar

  • Doug McKalip, nominee for the next chief agricultural negotiator for the office of the USTR, responded to post-hearing questions for the record from the Senate Finance Committee last week. Sen. Sherrod Brown (D-OH) asked about potential IPEF benefits to which McKalip responded that “agriculture will be an integral component of IPEF’s trade pillar, and developed in a way that creates economically meaningful, equitable, and durable market access for American producers across the United States.” In addition, McKalip said that the benefits “would include the pursuit of high-standard commitments from IPEF members to advance the implementation of science-based policies and improve transparency in the development of import rules and regulations, to reduce longstanding impediments to safe, wholesome U.S. agricultural products.”

U.S. – China

U.S. exports to China decelerate modestly

  • U.S. exports to China averaged about $11.94 billion per month in the first half of this year, down slightly from the record-setting average pace of $12.62 billion in all of 2021. These data suggest a limited trade flow impact from China’s zero-covid policy and overall economic slowdown on China’s demand for U.S. products.
    • Additionally, the prices U.S. importers paid for Chinese goods increased just 3.6 percent over the same 12-month period, the Labor Department reported. These prices were 0.2 percent lower in June, and flat the prior month suggesting a modicum of recent import price stabilization. In the first half of 2022, U.S. imports from China averaged $45.29 billion per month compared to $42.08 billion per month for the same 6-month period in 2021, despite the U.S. tariffs that remain in place on some $370 billion worth of Chinese goods.

U.S. – Taiwan

Pelosi talks U.S.-Taiwan trade deal during visit

  • During her visit to Taiwan House Speaker Nancy Pelosi (D-Calif) suggested a bilateral trade deal with the island nation was achievable. Pelosi’s statement calling for a bilateral free trade appears have angered China even more than her decision travel to Taiwan. Following her meeting with Taiwan President Tsai, Ms. Pelosi told reporters that their discussion included trade. “We talked about a trade agreement that might be possible and soon.”
    • The Biden Administration has launched trade discussions with Taiwan with lower ambitions relative to a comprehensive bilateral FTA.
    • Observers note a U.S. trade agreement with Taiwan would certainly escalate tensions with China, which considers Taiwan a run-away province and part of China. Taiwan is not part of the Indo-Pacific Economic Framework, even though the IPEF will not be a traditional FTA. Many members of Congress support a bilateral trade deal with Taiwan.

Section 301 & 232 Tariffs

Biden administration wrestles with China tariff strategy

  • Trade stakeholders are eagerly awaiting the results of USTR’s statutory 4-year review of the Section 301 tariffs. An announcement of the continuation or removal of List 1 tariffs was expected around July 5, ahead of the four-year anniversary of the tariffs, but to date USTR has still made no formal announcement and the tariffs remain in effect. Several domestic producers and other groups have argued for continuation of the tariffs. A second comment solicitation on the List 2, 3, and 4A tariffs remains open until Aug. 22, and another comment opportunity is expected to open sometime after that date for public comment on the case for removing the tariffs.
    • As a refresher, USTR announced its long-awaited review of the Section 301 tariffs on List 1 and 2 goods from China, which are currently scheduled to expire July 6 and Aug. 23, respectively. Requests to continue these tariffs may be submitted by representatives of domestic industries that benefit from them (1) between May 7 and July 5 for List 1 goods and (2) between June 24 and Aug. 22 for List 2 goods. 
  • Additionally, President Biden continues to weigh the administration’s options on section 301 tariffs, particularly those imposed on consumer goods, National Security Council Spokesman John Kirby said in recent weeks. “He wants a review of the tariffs that are in place to make sure that they are aligned with our strategic economic priorities, that they’re in our best national interests, and quite frankly, the best interests of the American people, but he hasn’t made a decision,” Mr. Kirby said.
  • 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.

AGOA – Africa

U.S. to host AGOA ministerial in December

  • U.S. Trade Representative Katherine Tai will host an African Growth and Opportunity Act (AGOA) ministerial meeting here in Washington on December 13th, according to a USTR statement. The AGOA ministerial will focus on expanding trade and investment with the sub-Saharan African countries participating in the trade preferences program, along with implementation of AGOA. “USTR intends to share perspectives on key issues impacting U.S.–African trade as well as other multilateral trade issues.”
    • The December 13th ministerial will be held on the sidelines of the US-Africa Leaders’ Summit announced earlier by President Biden. According to the U.S. Census Bureau, total two-way goods trade with sub-Saharan Africa totaled $44.9 billion in 2021, a 22 percent increase from $36.8 billion in 2019. U.S. outward foreign direct investment stock in sub-Saharan Africa stood at $30.31 billion in 2021, a 5.3 percent decrease from 2019.

Trade & Economic Trends

U.S. overall trade deficit shrinks again in June

  • The U.S. deficit for goods and services declined 6.2% in June as exports outpaced imports. The deficit declined to $79.6 billion in June from $84.9 billion in May, shrinking $4.9 billion, according to the U.S. Census Bureau.
    • June exports were $260.8 billion, $4.3 billion more than May exports. June imports were $340.4 billion, $1.0 billion less than May imports. The June decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.9 billion to $99.5 billion and an increase in the services surplus of $0.3 billion to $19.9 billion. Year-to-date, the goods and services deficit increased $134.1 billion, or 33.4 percent, from the same period in 2021. Exports increased $246.2 billion or 20.0 percent. Imports increased $380.3 billion or 23.3 percent.

IMF forecasts slowing global economy

  • The International Monetary Fund (IMF) lowered its projections for global economic activity in 2023. In the most recent World Economic Outlook report, the IMF noted, “The baseline forecast is for growth to slow from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage point lower than in the April 2022 World Economic Outlook. Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States.

U.S. – Kenya

USTR requests public comments on Kenya

  • USTR is currently seeking public comments to inform a “roadmap” on the recently announced U.S.-Kenya Strategic Trade and Investment Partnership (STIP). According to the Federal Register notice issued by USTR, public comments should be issued “on matters relevant to specified trade areas, including U.S. interests and priorities, in order to develop objectives and positions for enhanced engagement and subsequent negotiation.” USTR also asks that small businesses identify themselves as such in their comments. Comments are due by Sept. 16th.
    • Announced on July 14th and reported in an earlier edition of Trade Update (July 19th), the U.S.-Kenya STIP will negotiate “high-standard commitments” in areas such as agriculture, digital trade, climate change action, and trade facilitation. The STIP does not include any market access provisions featured in comprehensive trade agreements.

U.S. – Nicaragua

Ambassador nominee supports removing Nicaragua from CAFTA-DR

  • Hugo Rodriguez, the president’s pick to serve as ambassador to Nicaragua, said during his confirmation hearing  two weeks ago that “Removing Nicaragua from CAFTA-DR is a potentially very powerful tool and something we have to seriously consider.” This was in response to Sen. Marco Rubio (R-FL) asking, “Is Nicaragua a free nation? And if they’re not … should we continue to provide the preferential trade benefits that CAFTA provides to free nations?” Rodriguez said that if were to be confirmed, he would support working with USTR and other agencies to “bring about a change in direction in Nicaragua.”
    • As reported in the Nicaraguan newspaper Confidencial, Nicaraguan Foreign Minister Denis Moncada said in a statement that, “The Government of Nicaragua, in use of its faculties and in exercise of its national sovereignty, immediately withdraws the approval granted to the candidate Hugo Rodriguez” due to his “disrespectful and interfering statements.”

U.S. – UAE

UAE open to an FTA with U.S.

  • The UAE has a goal of reaching 90% of global trade within the next five years, which is why, according to UAE Trade Minister Thani Al Zeyoudi, the UAE has “had a very aggressive plan to sign at least eight agreements in the next 12 to 18 months.” Of a U.S. FTA, Al Zeyoudi said that “We do understand that the current administration [is reluctant], but we can come back to it anytime.”
    • The UAE has recently signed FTAs with India, Israel, and Indonesia.
    • The UAE is also the number one U.S. export market in the Middle East, importing $17 billion worth of American goods in 2021.

COVID-19

Global food prices drop sharply in July

  • The Food and Agriculture Organization’s (FAO) Food Price Index averaged 140.9 in July, down 13.3 points (8.6 percent) from June, the fourth consecutive monthly decline, though still 16.4 points (or 13.1 percent) above its value one year earlier. The steep decline was principally due to declines in the vegetable oil, cereals price indices, while prices for dairy, sugar and meat declined less precipitously, according to the FAO. Other highlights from the report include:
    • The Vegetable Oil Price Index “averaged 171.1 points in July, down 40.7 points (19.2 percent) and marking a 10-month low. The sharp drop was driven by falling world prices across palm, soy, grapeseed, and sunflower oils. 
    • The Cereal Price Index “averaged 147.3 points in July following a fall of 19.1 points (11.5 percent) from June but remained 21.0 points (16.6 percent) above its July 2021 value. International prices of all the cereals represented in the index fell. Leading the decline, world wheat prices fell by as much as 14.5 percent in July, partly in reaction to the agreement reached between Ukraine and the Russian Federation to unblock Ukraine’s main Black Sea ports.”
    • The Meat Price Index “averaged 124.0 points in July, down 0.6 points (0.5 percent) from June, marking the first month-on-month decline following six consecutive monthly increases. In July, world quotations for ovine meat dropped steeply, due to increased export availabilities from Australia amid high slaughter and expectations of increased lamb supplies, faced by lower import demand.”
    • The Dairy Price Index “averaged 146.4 points in July, down 3.8 points (2.5 percent) from June, but still 29.7 points (25.4 percent) above its value in July of last year. International quotations for skim milk powder registered the steepest decline, followed by those of butter and whole milk powder, principally reflecting lackluster market activities in Europe due to the summer holidays.”

Biden Nominees

Committee vote on McKalip nomination set for early September

  • The Senate Finance Committee vote on the nomination of Doug McKalip is scheduled for September 7th  at  10:00 am, according to the Committee’s website.  Mr. McKalip’s nomination hearing was held on July 8th. A majority of the confirmation hearing was spent with McKalip contending that he would be able to increase market access for U.S. farm goods without negotiating new free trade agreements. Several  republican senators in particular were critical of the Biden administration’s trade policy which purposefully declines new free trade agreement negotiations and omission of market access ambitions in the Indo-Pacific Economic Framework.
    • McKalip responded to Republican senators’ criticisms by stating that “I think the reason that [farmers] associate those three letters –  FTA or free trade agreement – with market access is they look back at past performance and what that has done for them.” He continued, “In my role as chief agricultural negotiator, it will be to give them the kind of market access that they are expecting they need regardless of what the title at the top of the document says. I wouldn’t be interested in [this job] if I didn’t think I could make a difference for farmers.”
    • On IPEF, McKalip said that he will push for trade to be “a much larger percentage of the results” compared to other pillars.

WTO

WTO Members assured transparency in structural reforms

  • Recently, WTO Deputy-Director General Angela Ellard assured members that WTO leadership will convene a meeting with the transformation committee which is overseeing the organizational reforms to the Secretary’s office, being implemented by McKinsey & Company, according to reports by Washington Trade Daily. WTO staff are increasingly concerned over the proposed restructuring plan by McKinsey and its implementation. Ms. Ellard outlined the forthcoming restructuring steps and actions at the WTO’s Committee on Budget, Finance and Administration. She also assured members that she will convene another discussion on the strategic vision of Director-General Ngozi Okonjo-Iweala’s administration.
    • According to reports, the Director General aims to create a new Strategic and Planning Unit, though the purpose of such a unit remains unclear. Ms. Ellard said, “at our last meeting, several Members requested a briefing session with the Transformation Office,” adding that “I am pleased to inform you that we plan to organize such a session soon,” perhaps after summer break. Ms. Ellard said that “since  [May 30th] the focus of the transformation work has been on the third wave of work, which is ongoing and relates to data, technology and innovation.” The so-called third wave of reforms, involves two phases – “data, technology and innovations” and “the strategic direction and foundational structure.”

Ag Economy Barometer

The Ag Economy Barometer improves modestly

  • The July Ag Economy Barometer inched higher to an index reading of 103, improving 6 points after 10 months of declines. The July results, though breaking through the 100-point index level, is still 23-24% lower than a year earlier. Farmers reported persistent concerns regarding higher input prices (42% of respondents), lower crop prices (19% of respondents), rising interest rates (17% of respondents) and availability of inputs (15% of respondents) as adversely impacting farming operations. 
    • Notably, rising input costs are compelling some producers to reconsider their crop planting mix in the coming year. Roughly one out of four (24%) of crop producers indicated they will switch their crop mix in 2023 because of rising input costs according to the July survey. In the prior month’s survey (June) 19% of producers said they planned to make changes to their crop mix.