TRADE UPDATE

Food & Agriculture
August 30, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

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HIGHLIGHTS

  • IPEF: The Indo-Pacific Economic Framework (IPEF) ministerial will be held in Los Angeles on Sept. 8-9, according to a statement by USTR and the Commerce Department. “During the Ministerial, Secretary Raimondo and Ambassador Tai will convene meetings with ministers to continue active discussions in each of the four pillars: trade; supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption,” the agencies reported.
  • USMCA: Trade officials from the U.S., Canada and Mexico commenced an initial technical-level meeting on the U.S. complaint regarding Mexico’s energy policies. Deputy U.S. Trade Representative Jayme White and Mexican Under Secretary for International Trade Luz Maria de la Mora were scheduled to participate in the meeting.
  • HLED: U.S. and Mexican officials will meet under the High-Level Economic Dialogue (HLED) forum in mid-September to discuss a range of bilateral economic issues and opportunities for cooperation. According to USTR, the HLED “advances strategic economic and commercial priorities for Mexico and the United States to foster economic development and growth, promote job creation, enhance competitiveness, and reduce poverty and inequality in both countries.
  • U.S. – Japan: A second meeting of the U.S.-Japan Partnership on Trade occurred virtually last week, covering digital economy issues, future collaboration, and non-market practices, among others. The Partnership was launched in November, 2021 with an initial focus on third country concerns, cooperation in regional and multilateral trade-related fora, addressing labor and environment-related priorities, a supportive digital ecosystem for all, and trade facilitation, among other issues.
  • WTO: The recent WTO agreement on reducing harmful fisheries subsidies would generate a modest 4 percent increase in global fish stocks, according to a recent academic study. The researchers previously estimated a more comprehensive agreement that eliminated all harmful subsidies could increase global fish stocks by 12.5 percent by 2050.

“We’re going to go back to doing things the way we did them before,…building out the partnerships with the allies and the strategic partners and setting up a model, an alternative model, a model that promotes the right decision-making where, you know, you are rewarded for promoting sustainable worker standards and environmental standards.”

— USTR Katherine Tai addressing omission of market access in IPEF, during appearance in Des Moines, Iowa

USMCA

Technical talks on USMCA energy dispute begin

  • Last week trade officials from the U.S., Canada and Mexico commenced an initial technical-level meeting on the U.S. complaint regarding Mexico’s energy policies. Mexican Economy Minister Tatiana Clouthier confirmed the three countries would begin consultations on the disputes, according to a report by the Spanish-language news site Dinero en Imagen. The Mexican Economy Ministry’s international legal officer Orlando Pérez will lead Mexico’s delegation, Clouthier said. Deputy U.S. Trade Representative Jayme White and Mexican Under Secretary for International Trade Luz Maria de la Mora also are scheduled to participate in the meeting.
    • On July 20th the U.S. announced it has requested consultations with Mexico over the country’s energy policies, alleging 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.
    • 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.

HLED

U.S. and Mexican economic dialogue meeting set for mid-September

  • Under the auspices of the High-Level Economic Dialogue (HLED) forum, U.S. and Mexican officials will meet, likely September 12th, to discuss a range of bilateral economic issues and opportunities for cooperation. According to USTR, the HLED “advances strategic economic and commercial priorities for Mexico and the United States to foster economic development and growth, promote job creation, enhance competitiveness, and reduce poverty and inequality in both countries. HLED collaboration centers around four thematic pillars:
    • Pillar I – Building Back Together;
    • Pillar II – Promoting Sustainable Economic and Social Development in southern Mexico and Central;
    • Pillar III – Securing the Tools for Future Prosperity; and
    • Pillar IV – Investing in Our People.
Marcelo Ebrard, Mexico’s Foreign Minister
  • Mexican Foreign Minister Marcelo Ebrard confirmed Mexico City will host the meetings and U.S. Secretary of State Antony Blinken is expected to attend, along with other U.S. officials. Ebard indicated the two sides had made progress in their efforts under the dialogue in “strategic” sectors including semiconductors, electric vehicles and medical equipment as well as other “priority areas,” according to a report.
    • The HLED was established during the Obama administration in 2013, suspended during the Trump administration, and recently reconstituted by the Biden administration.  The forum allows the countries to cooperate on efforts such as building supply chain resiliency; promoting economic development in southern Mexico and Central America; developing a “safe and secure digital space”; and building a competitive, inclusive workforce, according to a White House statement issued last September.

USTR Actions

Call for public comments on Russia’s WTO compliance

  • USTR is currently seeking public comments to inform its annual report to Congress on Russia’s WTO commitments. This year’s report is the first since the invasion of Ukraine. USTR is required to submit a report annually on the extent to which Russia is implementing the WTO Agreement, including the Agreement on the Application of Sanitary and Phytosanitary Measures and the Agreement on Trade Related Aspects of Intellectual Property Rights, as well as the country’s progress toward acceding to and implementing the Information Technology Agreement and the Government Procurement Agreement. If USTR finds areas of non-compliance, the agency must describe in the report the actions it plans to take to encourage Russia to improve its implementation and/or increase its accession efforts.
    • Written comments are due to the Trade Policy Staff Committee by Sept. 21, according to the Federal Register notice. The committee will hold a virtual public hearing on Oct. 4.
    • Russia joined the WTO in 2012, and has since faced USTR concerns over violations, including in the 2015 report in which Russia annexed the Crimean Peninsula from Ukraine and the 2021 report following Russia’s imposition of agricultural import bans and strategic substitutions.

U.S. – China

USTR invites comments on China’s WTO compliance

  • The Office of the U.S. Trade Representative is requesting public comments  China’s compliance with its WTO obligations in conjunction with its annual report to Congress. According to the Federal Register notice comments are due by September 28th.  In the notice the agency noted the Trade Policy Staff Committee (TPSC) “will foster public participation via written questions and written responses relating to the written comments received by the TPSC rather than an in-person hearing. The TPSC will pose questions on the comments by Oct. 12; the deadline for submitting responses to written questions is Oct. 26.
    • In last year’s report, USTR found China failed to meeting many of its WTO obligations and that new tools were need to address the issue.  “China has not moved to embrace the market-oriented principles on which the WTO and its rules are based, despite the representations that it made when it joined 20 years ago,” said Ambassador Katherine Tai. “China has instead retained and expanded its state-led, non-market approach to the economy and trade. It is clear that in pursuing that approach, China’s policies and practices challenge the premise of the WTO’s rules and cause serious harm to workers and businesses around the world, particularly in industries targeted by China’s industrial plans.”

China’s non-tariff barriers significant impediment to U.S. ag exports

  • While China’s economy has expanded to become one of the largest markets for U.S. agriculture product, U.S. exporters could significantly enhance exports sales with removal of China’s non-tariff measures. USDA estimates that U.S. exports of pork, wheat, corn and many other products could accelerate significantly absent existing non-tariff impediments. Specifically, a study by the Economic Research Service estimates that domestic pork prices in China exceed the international price by 200% to 300% because of existing barriers. Removing those barriers would boost China’s pork imports by 117% in the first year and 402% in five to 10 years, the study found.
    • Other impacts from removing China’s non-trade barriers: Corn imports increase nearly 13% in the first year and 91% in five to 10 years. Beef imports rise 25% in the first year and 46% in five to 10 years. Wheat imports jump 48% in the first year and 249% in five to 10 years. The study didn’t address soybeans and cotton. In those cases, the differences between Chinese domestic and foreign prices are relatively small, the study says.

Ukraine

Ukraine’s food exports halved since Russian invasion

  • Since the Russian invasion of Ukraine (Feb. 24th), exports of key agricultural commodities have fallen by almost half compared to the same period in 2021, according to Ukraine’s agriculture ministry.
    • Ukraine’s agricultural exports between Feb. 24 and Aug. 15 this year fell to 10 million tons from around 19.5 million in the same period last year or nearly 50%, the ministry reported.
    • The 2022 grain harvest in Ukraine is forecast to fall to around 50 million tons from a record 86 million tons in 2021.
    • From Feb. 24 to Aug. 15 this year, Ukraine has exported 3.8 million tons of corn, 1.4 million tons of sunflower seeds, almost 1 million tons of sunflower oil and around 640,000 tons of wheat, the ministry data showed.

Section 301 Tariffs

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

  • The Biden administration has paused any action on revamping the China tariff policy as tensions with the country have escalated in recent weeks, including China’s recent war games near Taiwan and House Speaker Nancy Pelosi’s visit to Taiwan. “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 the Biden administration has 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. 

Indo- Pacific Economic Framework

IPEF Ministerial confirmed for September 8-9

  • The Department of Commerce and Office of USTR  confirmed the Indo-Pacific Economic Framework (IPEF) ministerial will be held in Los Angeles on Sept. 8-9, according to a statement. In the statement the agencies reported, “The first in-person Ministerial builds on the constructive virtual meetings with 13 Indo-Pacific partners held this year before and after President Biden officially launched the IPEF to develop a high-standard and inclusive economic framework that will fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the region.” The statement continued, “During the Ministerial, Secretary Raimondo and Ambassador Tai will convene meetings with ministers to continue active discussions in each of the four pillars: trade; supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption.
    • USTR Katherine Tai leads the IPEF trade pillar; ministerial co-host Commerce Secretary Gina Raimondo steers the other three, on supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption.
    • At the IPEF ministerial, participants likely will issue ministerial statements outlining which issues each of the four IPEF pillars will cover, as well as which of the 14 parties will take part in which pillars. A country can take part in any or all of the pillars but must take on all the commitments of each one it joins. The four pillars cover trade, supply chain resiliency, decarbonization and clean infrastructure, and tax and anticorruption.

Business group launches IPEF task force

  • The recently formed American Association of the Indo-Pacific announced creation of a task force aimed at ensuring “binding and meaningful” outcomes from the IPEF, according to Inside U.S. Trade. It’s the IPEF task force’s mission is “to secure a binding and meaningful IPEF by bringing forward proposals, insights, perspectives, and best practices from the American business community in the region,” Jackson Cox, the group’s interim president said. Jackson noted that the task force will have four working groups, on trade, supply chains, digital policy, and clean energy, decarbonization and infrastructure, essentially aligning with the IPEF four pillars. The task force is comprised of 15 firms, including Micron, Intel, eBay, Citi and Apple, as well as the American Chambers of Commerce from Vietnam, Singapore, Thailand, Malaysia, Japan, Philippines, Indonesia, India and Australia.

U.S. – Japan

Yasutoshi Nishimura, Japan’s Trade and Economy Minister

Discussion on trade and supply chains between the U.S. and Japan

  • Last week, the second meeting of the U.S.-Japan Partnership on Trade occurred virtually and included topics such as digital economy issues, future collaboration, and non-market practices. The two sides “focused on continuing to coordinate efforts to respond to several third-country regulations that present concerns in light of our shared commitments to harnessing the opportunities of the digital economy,” but further details about “third-country regulations,” were available. Commerce Secretary Gina Raimondo and Japan’s new trade and economy minister, Yasutoshi Nishimura, met for the first time last Thursday while U.S. and Japanese counterparts continued dialogues. Raimondo and Nishimura also discussed IPEF and promoting semiconductor supply chains.  
    • The two leaders discussed “ongoing work and support for the Indo-Pacific Economic Framework for Prosperity (IPEF) and U.S.-Japan cooperation on common bilateral goals, under the Japan-U.S. Commercial and Industrial Partnership (JUCIP) as well as the Economic Policy Consultative Committee (EPCC, or Economic “2+2”), “according to a readout from the Commerce Department.

Supply Chains

Container shipping costs continue to decline

  • A closely watched benchmark for container shipping costs between the U.S. and Asia declined to $4,949 per 40-foot container, the first time the index was below $5,000 since December 2020.  Industry observers expect shipping rates to fall further as container trade capacity is predicted to outpace demand for the remainder of 2022. However, container spot rates will likely remain above pre-pandemic levels through the rest of 2022 owing to the continued pressures and uncertainty in global supply chains.

Trade & Economic Trends

The July goods trade deficit continues declining trend

  • The monthly advanced goods trade deficit declined 9.7%, from $98.6 billion to $89.1 billion in July as the decline in imports outpaced decline in exports. Exports of goods for July were $181.0 billion, $0.4 billion less than June exports. Imports of goods for July were $270.0 billion, $9.9 billion less than June imports.

Goods Trade Barometer shows “stagnating” global trade growth

  • The WTO’s Goods Trade Barometer, which currently sits at 100, is stable and improved slightly from the prior reading but indicates slowing growth in global trade flows. “Global goods trade continued to grow in the second quarter of 2022, but the pace of growth was slower than in Q1 and is likely to remain weak in the second half of the year,” according to the WTO.  The WTO reported that trade growth slowed to 3.2 % in Q1 and reported “uncertainty has increased due to ongoing Ukraine war, rising inflationary pressures.”
    • As noted by the WTO, “The Goods Trade Barometer is a composite leading indicator for world trade, providing real-time information on the trajectory of merchandise trade relative to recent trends. The latest reading of 100.0 coincides exactly with the baseline value of the index, indicating on-trend trade expansion.”

Global manufacturing activity contracting

  • The Purchasing Managers Index (PMI) fell in August for the U.S., Europe and Asia, confirming a weakening global economy.  The slowdown in manufacturing activities likely reflects surging prices and the war in Ukraine. The latest PMI data showed that U.S. business activity contracted for a second-straight month in August, falling to the weakest level since May 2020. Activity in Asia slumped, and output in the euro-zone also fell as record energy and food inflation constrained demand and confirming concerns of a potential recession.

WTO

WTO agreement on fisheries subsidies delivers modest increase in fish stocks

  • Researchers at the University of California, Santa Barbara (UCSB) estimate the recent WTO agreement on reducing harmful fisheries subsidies would generate a modest 4 percent increase in global fish stocks. “We’re seeing a relatively small effect,” said Kat Millage, a project researcher in UCSB’s Environmental Markets Lab.  The agreement delivered at the WTO’s 12th Ministerial in June was less robust than the draft agreement in the months leading into the Ministerial in Geneva. The UCSB research team had previously estimated a more comprehensive agreement that eliminated all harmful subsidies could increase global fish stocks by 12.5 percent by 2050. The end result was estimated to restore 35 million more metric tons of fish in the ocean and 3 million more tons of fish being caught every year, the UCSB team said.
  • The fisheries subsidies agreement, nearly 20 years in the making, was eventually less ambitious than the original text yet moved to prohibit 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 biggest unresolved divergences were on artisanal fishing, where 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.