TRADE UPDATE

Food & Agriculture
August 16, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

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HIGHLIGHTS

  • U.S. – Taiwan: The U.S. will move ahead with deepening trade ties with Taiwan despite escalating tensions with China. A top White House official confirmed the administration will proceed with The U.S. – Taiwan Initiative on 21st-Century Trade despite strong objections from China, which does not recognize Taiwan as a sovereign nation. “We’re developing an ambitious roadmap for trade negotiations which we intend to announce in the coming days,” the official said.
  • Section 232 tariffs: Several House lawmakers re-introduced The Bicameral Congressional Trade Authority Act to provide greater Congressional oversight and authority of Section 232 actions. The legislation would require congressional approval of tariffs imposed for national security reasons under Section 232 of the Trade Expansion Act of 1962.
  • Section 301: A White House decision on China tariffs appears on hold given rising tension in the U.S. – China relationship. China’s recent war game activities in the Taiwan strait, on the heels of House Speaker Nancy Pelosi’s visit to Taiwan, are compelling recalibration by Biden administration officials on the expected revamped China tariff strategy.
  • U.S. – EU: The EU warned the revised U.S. tax credit for electric vehicles (EV), contained in the Inflation Reduction Act, violates WTO rules and could adversely impact the U.S. – EU relationship beyond trade, including joint efforts to address climate change.
  • USMCA: The U.S. is unlikely to challenge Canada’s recently announced temporary gun import ban. USMCA Article 32.2, known as the “essential security” provision, allows a partner “to apply measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.”
  • WTO: WTO Director-General Okonjo-Iweala implored embers to accelerate the MC12 agreement on curtailing fishing subsidies to restore and protect global fishing stocks. “I want to underscore how important it is that the Agreement enters into force quickly. “There is no time to waste,” she said.

“This Administration is not afraid to stand up to China.” “We’re not sitting around waiting for China to change.” “We’re engaging from a position of strength – by investing in American workers and infrastructure. And I am committed to using every tool at my disposal to hold China accountable.”

— USTR Katherine Tai speaking at the United Steelworkers union annual convention

USMCA

Canada’s handgun import ban unlikely to be challenged

  • With the Trudeau government imposing a temporary ban on handgun imports, the U.S. is unlikely to challenge that ban under USMCA. Under Article 32.2 of the trade agreement, the “essential security” provision allows a USMCA member “to apply measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.” Speaking on the situation, the spokesperson for the National Shooting Sports Foundation (NSSF) in the U.S. said, “NSSF holds little confidence that the Biden administration would act in the interest of the firearm industry. This president labeled gun manufacturers as ‘the enemy’ during the Democratic primary in his run for office and has since used every opportunity to vilify and marginalize this Constitutionally-protected industry.”
  • Canada is the third largest export market for U.S. exports of handguns, composing of about $20-$25 million in value.

Canada to challenge U.S. lumber duties

  • No significant updates since first report that Canada plans to challenge U.S. duties on Canadian softwood lumber that date back to the Trump administration. “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.
    • 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.”
    • 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 effect 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.

USTR Actions

Ambassador Tai speaks to powerful union, will hold China accountable

  • In her speech addressed to United Steelworkers, one of the country’s most powerful labor unions, USTR Katherine Tai said “Worker-centered trade starts with workers at the table. But it’s got to be more than that. We also need your substantive input. And, most importantly, you need to see your impact.” During her remarks at the convention in Las Vegas, Tai promised workers that she is “committed to using every tool at [her] disposal to hold China accountable” for harmful trade practices. Furthermore, she stressed that “We are learning lessons from TPP, and we are putting our worker-centered trade policy into action. Because of that, tariff elimination is not on the table.”
    • Tai noted China’s pattern of unfair trade policies, such as flooding the market, have adversely impacted U.S. industries from steel to solar panels. Tai emphasized that the Biden Administration is “turning the page on the old play book.” She noted that years of negotiations and trade disputes were ineffective in changing China’s action nor led to meaningful reform. “We’re not sitting around waiting for China to change,” Ms. Tai said. “We’re engaging from a position of strength – by investing in American workers and infrastructure
    • Steelworkers President Tom Conway introduced Tai and commented “that’s why we work so hard at getting people into an office, where you end up with a friend like that, who has a mindset like that, who respects the union and talks to the union.”

Tai to pitch administration’s trade agenda in Iowa

  • USTR Katherine Tai will visit Iowa this week to make the case that the Biden administration is expanding foreign market access for U.S. farmers and ranchers. Ambassador Tai will be accompanied by USDA Secretary Tom Vilsack and Rep. Cindy Axne (D-IA) in the farm state for a “series of events” to highlight success stories and “discuss how the Biden Administration’s trade agenda can deliver inclusive economic growth to all communities.” Tai is expected also to highlight IPEF, a key trade policy administration priority.

U.S. – China

Pelosi’s Taiwan visit has ‘complicated’ Chinese relations

  • In an interview with Bloomberg TV, Commerce Secretary Gina Raimondo commented on the current state of U.S.-China relations following House Speaker Nancy Pelosi’s (D-CA) high-profile trip to Taiwan. Raimondo said, “The geopolitical situation with China is complicated. Candidly, right now, after Speaker Pelosi’s visit to Taiwan, it’s particularly complicated.” With Biden still contemplating the decision to lift the Section 301 tariffs, Raimondo also stated in her interview that, “at this moment, it’s harder, but I am hopeful that we will get beyond that and get back to a place where we can have more of those discussions.”

U.S. – Taiwan

Kurt Campbell, Deputy Assistant to the President

U.S. forges ahead to deepen trade ties with Taiwan

  • “We’ll continue, consistent with our One China policy, to deepen our ties with Taiwan, including through continuing to advance our economic and trade relationship,” Kurt Campbell, Deputy Assistant to the President and coordinator for the Indo-Pacific, told reporters last week despite rising tensions with China. “For example, we’re developing an ambitious roadmap for trade negotiations which we intend to announce in the coming days,” Campbell continued.  
  • The statements were issued as China conducted military exercises in the Taiwan straits and issued strong objections to the U.S. or any other country engaging in direct negotiations with Taiwan. “The United States should prudently handle trade and economic ties with Taiwan to avoid sending a wrong message to Taiwan separatists,” Chinese Commerce Ministry spokesman Gao Feng said earlier this summer when the 21st Century trade initiative was announced.
    • 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.
    • The trade initiative was announced last month when 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.

Section 232 Tariffs

Congressman Mike Gallagher (R-WI)

Bill re-introduced to provide great Congressional oversight of Section 232 actions

  • House Ways & Means members Reps. Ron Kind (D-WI), Don Beyer (D-VA), Mike Gallagher (R-WI) re-introduced The Bicameral Congressional Trade Authority Act to provide greater Congressional oversight and authority of Section 232 actions.  “The previous administration’s misguided use of Section 232 tariffs threatened our nation’s standing abroad and the success of Wisconsin workers, families, and farmers,” Kind said in a statement last week. “We need to make sure there are more guardrails in place for future administrations and assert the trade authorities that belong to the Legislative branch as stated by the Constitution.”
    • The legislation would require congressional approval of tariffs imposed for national security reasons under Section 232 of the Trade Expansion Act of 1962 and would apply to any future Section 232 actions as well as those taken in the past four years, according to a statement issued by Kind’s office. The legislation would also claw back current executive powers under Section 232 by transferring national security investigatory authority from the Commerce Department to the Defense Department, according to the statement.
    • The proposal mirrors a Senate bill of the same name, first introduced by Sens. Pat Toomey (R-PA) and Mark Warner (D-VA) during the Trump administration and reintroduced in Oct. 2021, in response to the former administration’s prolific use of Section 232 as well as Section 301 of the Trade Act of 1974 as  a tariff and trade policy tool.
    • Representative Gallagher (R-WI) argued the legislation was needed to restore authority Congress had ceded to the executive branch. “From spending to trade, Congress has surrendered too many authorities to the executive branch. This bill helps reverse that trend by restoring Congress’ voice in the tariff process, particularly when it comes to what constitutes actual threats to our national security under Section 232,” he said in the statement.
    • Rep. Don Beyer (D-VA) said, “Section 232 national security tariffs have historically been imposed sparingly and strategically. The previous administration’s wanton use of this unilateral authority showed the need for Congress to reassert its constitutional prerogatives to provide oversight of U.S. trade relations.”  Beyer noted the legislation would preclude White House “abuse” of national security authorities and associated tariffs.

Section 301 Tariffs

White House decision on China tariffs delayed as China-Taiwan tensions escalate

  • China’s recent war game nears Taiwan, on the heels of House Speaker Nancy Pelosi’s visit to Taiwan, are compelling  recalibration by Biden administration officials on the expected revamped China tariff strategy. President Biden’s contemplated removal of tariffs or potentially imposing others on China appears sidelined for now given the increasing political sensitivities, according to several reports.
    • “The president had not made a decision before events in the Taiwan Strait and has still not made a decision, period. Nothing has been shelved or put on hold, and all options remain on the table,” said White House spokesperson Saloni Sharma. “The only person who will make the decision is the president – and he will do so based on what is in our interests.”
  • For the past several months Biden administration have wrestled with a China reformulated tariff strategy as stakeholders await 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. 
  • 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.

Indo- Pacific Economic Framework

Don Farrell, Australian Minister for Trade and Tourism

In-person ministerial planned for September

  • Australian Trade Minister Don Farrell spent last week in the U.S. for meetings with USTR Katherine Tai and Commerce Secretary Gina Raimondo to speak on trade issues and discuss “shared priorities” for IPEF. In an interview with Inside U.S. Trade, Farrell said “his key message to U.S. counterparts was to assure them that Australia fully supports the IPEF negotiations and the Biden administration’s efforts to re-engage in the Indo-Pacific.” In addition, he also told the news source that “ministers planned to meet on Sept. 9 in Los Angeles” for the launch of IPEF. USTR and the Commerce Department have not confirmed the meeting.
  • According to a readout from USTR on the meeting, “They welcomed the ongoing positive and constructive work to develop the Indo-Pacific Economic Framework for Prosperity.” Ms. Tai “reaffirmed the United States’ goal to pursue a high-standard framework that advances resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness.”

IPEF tool to reset labor standards, says Tai

  • The IPEF will allow the U.S. to collaborate with allies to set the standards for trade instead of China, said USTR Katherine Tai in speech before the United Steelworkers union. She continued noting that IPEF can facilitate U.S. leadership in the region to set “standards on labor, the environment, and other priorities that reflect American values.”

Supply Chains

Cargo demand abating in second half

  • U.S.  ports are predicted to see slowing inbound cargo volumes in the second of half of the year as inflation pressures and rising interest rates tamper import demand. However, 2022 is on track to post the busiest year for imports due to the strong demand in the first half, according to the National Retail Federation’s (NRF) Global Port Tracker, developed with Hackett Associates. The U.S. is projected to handle 26.3 million units of retail imports this year, 2% more than 2021, which was a record. “Retail sales are still growing, but the economy is slowing down and that is reflected in cargo imports,” said Jon Gold, the NRF’s vice president for supply-chain and customs policy.  Strong first-half inbound cargo volumes were also propelled by earlier than usual retailers stocking up on seasonal items and preparing for holiday sales to avoid another logistics crisis from impacting the busiest part of the retail calendar.

Trade & Economic Trends

U.S. agriculture exports on pace for another record year

  • U.S. agricultural exports in fiscal year (FY) 2022 are forecast at a record $191.0 billion, up $7.5 billion from the February forecast, according to USDA’s latest analysis.  The increasing strength of agriculture exports is led by increases in corn, cotton, and soybeans. Corn exports are forecast $2.2 billion higher to $19.1 billion due to record volumes and higher unit values, USDA said. Additional exports projections for specific sectors include: 
  • Overall grain and feed exports are projected $3.8 billion higher at $46.7 billion, with gains across all commodities except rice. Cotton exports are forecast at a record $9.0 billion, up $1.0 billion from the previous forecast, driven by higher unit values.
  • Soybean exports are projected up $1.0 billion to a record $32.3 billion as higher volumes more than offset lower unit values.
  • Total oilseed and product exports are forecast $700 million higher to a record $44.3 billion.
  • Overall livestock, poultry, and dairy exports are projected to increase by $1.2 billion to $40.4 billion, with gains across all major commodities except pork.
  • Beef and veal exports are projected to increase by $700 million on higher unit values as demand in East Asia is expected to remain firm. 

U.S. – EU

EU warns EV tax credits may violate WTO

  • The EU warned the revised U.S. tax credit for electric vehicles (EV), contained in the Inflation Reduction Act, likely runs counter to WTO rules and would create new bilateral trade tensions, adversely impacting collaborative U.S. and EU efforts to address climate change. “We are deeply concerned with the domestic content and local assembly requirements in the current proposed text of the electric vehicle tax credit,” said Miriam García Ferrer, a spokesperson for the European Commission, according to reports. “The current design of the electric vehicle tax credit is therefore clearly discriminatory, favoring certain mineral resource-rich countries, North American battery production and car assembly, to the detriment of EU products exported to the U.S.”
    • Under the Inflation Reduction Act, a tax credit of up to $7,500 could be granted to lower the cost of an electric vehicle. To qualify, the bill requires that electric vehicles should contain a battery built in North America with minerals mined or recycled on the continent.
    • The EU comments were reported as legislation moved through Congressional approval last week. The Act passed the Senate on August 7th (50-51) and the House last Friday, 12th (220-207). President Biden is expected to sign the legislation this week.
  • Most recently, EU Director General for Trade Sabine Weyand reaffirmed the EU concerns stating the legislation’s “Domestic content requirements are discriminatory, and the risk hindering the roll-out of EVs,” she wrote in a tweet. EU Ambassador to the United States Stavros Lambrinidis called the requirement “a potential new and significant transatlantic trade barrier” in a separate tweet. “We hope that all elements that discriminate against EU car manufacturers in this important bill will be removed.”
  • Conversely, Canadian Minister for International Trade Mary Ng lauded the North American content requirement in the EV tax credit language, saying the “legislation recognizes the Canada-United States integrated supply chain, by giving tax incentives for the purchase of electric vehicles made in North America.” “North America led the auto industry in the 20th century, and it will lead the transition to electric vehicles in the 21st century,” she continued. “As our workers build electric vehicles and batteries right here in Canada, we will create more good stable jobs and help make life more affordable.”

WTO

Okonjo-Iweala pushing for fisheries subsidies deal implementation within a year

  • WTO Director-General Ngozi Okonjo-Iweala called on member countries to accelerate the MC12 agreement on curtailing fishing subsidies to restore and protect global fishing stocks.  “I want to underscore how important it is that the Agreement enters into force quickly. Given the critical state of the ocean, there is no time to waste,” she said, according to a copy of her remarks. “I believe that with Members’ commitments, it is absolutely doable for this agreement to enter into force in less than one year. The two to three years we normally have for these agreements to enter into force–we are trying to break that record and have it done in under a year.” She added that “personally, we’re pushing this with as many heads of state and government as we can.”
    • Typically, implementation and entry into force of new agreements at the WTO can span two to three years. The Director-General urged members not to let the process drag on for this agreement. The fisheries agreement will enter into force after two-thirds of WTO members have submitted their articles of acceptance.
    • The fisheries subsidies agreement, reached during MC12 meetings entails prohibiting certain 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 WTO issued a report – Implementing The WTO Agreement On Fisheries Subsidies: Challenges and Opportunities for Developing and Least-Developed Country Members – last month on implementing the MC12 fisheries agreement.
    • Both Director-General Ngozi Okonjo-Iweala and her Deputy Angela Ellard have urged WTO member to reinvigorate negotiations on unresolved divergences not secured at MC12 on harmful fishing subsidies.  Namely on artisanal fishing limitations and timelines. During MC12 negotiations 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.