USMCA: Canada will challenge U.S. antidumping and countervailing duties on Canadian softwood lumber, claiming they violate U.S. commitments under the U.S.-Mexico-Canada Agreement. “Canada will always defend its softwood lumber industry, the workers, and the communities it supports,” according to a statement announcing the action.
USMCA: According to reports, the Biden administration rejected a request to investigate alleged labor rights violations under USMCA surrounding a contract legitimization vote earlier this summer at a Mexican subsidiary of U.S. firm BBB Industries. The U.S. and Mexico have resolved four prior labor rights cases brought under the USMCA rapid-response mechanism, avoiding tariffs or other border measures. A fifth case remains under review by Mexico.
U.S. – EU: European Commission Executive Vice President Valdis Dombrovskis repeated a warning that the U.S. electrical vehicle tax credit posed a potential violation of WTO commitments. Dombrovskis said, “that discriminating against EU manufacturers makes it much more difficult for them to contribute to the electrification of vehicles in the U.S., reduces the choice of U.S. consumers when they wish to buy electric vehicles.”
WTO: More than 120 WTO members again proposed restarting the nomination Appellate Body (AB) process, with several members noting the 2024 deadline for a newly reformed dispute settlement system agreed to by ministers during the WTO’s 12th ministerial conference in June. In contrast, three Republican Senators penned a letter to USTR Katherine Tai urging the U.S. to continue denying new AB panelists.
IPEF: The first Indo-Pacific Economic Framework (IPEF) ministerial will be held this week (September 8-9) in Los Angeles, according to a Department of Commerce statement. 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.
“The Appellate Body is not only harmful, it is also corrupted by CCP [Chinese Communist Party] influence.”
— Republican Senators Grassley, Rubio, and Cotton in a letter to Katherine Tai urging USTR to continue blocking WTO appellate body appointments
USTR declined to pursue a USMCA labor complaint against a Mexican auto parts facility
The Biden administration will not initiate an investigation into alleged labor rights violations under USMCA as requested in a joint complaint lodged last month. The Interagency Labor Committee for Monitoring and Enforcement, co-chaired by the Office of the U.S. Trade Representative and the Labor Department, decided not to move forward with a request to review concerns about a union contract legitimization vote earlier this summer at a Mexican subsidiary of U.S. firm BBB Industries, according to reports. According to the USTR spokesman, the petition failed to provide “sufficient and credible evidence of a denial of rights that would enable the invocation of the enforcement mechanism.”
The labor complaint was filed by Rethink Trade and the Mexican union Sindicato Nacional Independiente de Trabajadores de Industrias y de Servicios Movimiento in August, alleging 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 was complicit with management. While the 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.
The U.S. and Mexico have resolved four earlier casesbrought under the USMCA rapid-response mechanism, without bans on any goods from the facilities in question. A fifth caseremains under review by Mexico.
Canada lodges USMCA complaint on U.S. lumber duties
Canada will challenge U.S. antidumping and countervailing duties on Canadian softwood lumber, claiming they violate U.S. commitments under the USMCA. “Canada will always defend its softwood lumber industry, the workers, and the communities it supports. Taking legal action under CUSMA represents another step in Canada’s ongoing defence of its forestry sector,” Canadian International Trade, Export Promotion, Small Business, and Economic Development Minister Mary Ng said in a statementannouncing the challenge. “Our government has been consistent in expressing a willingness to work with the United States toward a negotiated solution to this long-standing trade issue that would allow a return to predictable cross-border trade in softwood lumber,” the statement continued.
At issue are the results of third antidumping and countervailing duty administrative reviews conducted by the U.S. Commerce Department’s International Trade Administration. The reviews, which concluded in August, decreased the duties charged to Canadian exporters.
The complaint is one of many in a long line of softwood lumber-related disputes between the two trade partners and one of many to be litigated under Chapter 10 of USMCA. Chapter 10 lays out trade remedies rules and a dispute settlement mechanism that allows parties to request a binational panel to review trade remedy determinations.
Under a Chapter 10 challenge, the next step is requesting a binational panel review. Once that is filed, Canada will have 30 days to file its formal complaint. A panel decision is due 315 days after a panel review request.
U.S. – Mexico food safety talks focus on information exchange and cooperation
U.S. Food and Drug Administration (FDA) and its regulatory counterparts in Mexico — the Federal Commission for the Protection from Sanitary Risks (COFEPRIS) and the National Service of Agro-Alimentary Health, Safety and Quality (SENASICA) — gathered last week for the second annual Food Safety Partnership (FSP) Meeting as part of ongoing efforts to help ensure the safety of food imported from Mexico and to advance protections for consumers in both countries. “We are building on the long-standing partnership for the U.S. and Mexico to work together to contain outbreaks of foodborne illness and lessen consumer exposure to foodborne hazards. As we approach the 200th anniversary of U.S.-Mexico relations, keeping this partnership strong is more important than ever,” said Frank Yiannas, the FDA’s deputy commissioner for food policy and response.
“Our food supply is global, and no single country can achieve its food safety goals alone. Our shared goal is to proactively use modern technologies, tools and approaches to help protect the global food supply.” Mexico is a primary supplier of fresh fruits and vegetables to the U.S. FDA data shows that about one-third of all agency-regulated human food imported into the U.S. is from Mexico, including 60% of our fresh produce imports.
Additionally, during this year’s meeting, the FDA, SENASICA, and COFEPRIS reviewed Produce Safety Rule (PSR) trainings they had facilitated, including those with cilantro growers in Puebla, avocado growers in Jalisco, and bulb onion growers in Chihuahua. The three agencies also worked with EMEX, a mango association, to conduct three PSR trainings for mango producers in Sinaloa, Nayarit, and Jalisco.
U.S. – China
USTR invites comments on China’s WTO compliance
No significant updates since The Office of the U.S. Trade Representative posted a request for public comments on 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 that 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 October 12th; the deadline for submitting responses to written questions is October 26th.
In last year’s report, USTR found that China failed to meet many of its WTO obligations, and new tools are needed 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 worldwide, particularly in industries targeted by China’s industrial plans.”
China’s non-tariff barriers are a significant impediment to U.S. ag exports
While China’s economy has expanded to become one of the largest U.S. agricultural products markets, U.S. exporters could significantly enhance export sales by removing 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. The study found that removing those barriers would boost China’s pork imports by 117% in the first year and 402% in five to 10 years.
Other impacts of 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. The study says that the differences between Chinese domestic and foreign prices are relatively small.
U.S. – EU
EU warns EV tax credits may violate WTO
In a virtual meeting with USTR Katherine Tai, European Commission Executive Vice President Valdis Dombrovskis reiterated the EU’s concerns that the U.S. electrical vehicle tax credit posed a potential violation of WTO commitments. Dombrovskis “recalled that discriminating against EU manufacturers makes it much more difficult for them to contribute to the electrification of vehicles in the U.S., [and] reduces the choice of U.S. consumers when they wish to buy electric vehicles,” according to a readout from the European Commission (EC). The readout further noted the EC “has welcomed” the Inflation Reduction Act as an essential step in countering climate change — but warned that a discriminatory measure could impede that progress. “[W]hile the EU aims to cooperate closely with the U.S. in climate action, green measures should not be designed in a discriminatory, WTO-incompatible way,” the EC stated.
Previously, the EC has warned that the revised U.S. tax credit for electric vehicles (EV), contained in the Inflation Reduction Act, likely runs counter to WTO rules creating 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. The bill requires that electric vehicles contain a battery built in North America with minerals mined or recycled on the continent.
Last month EU Director General for Trade Sabine Weyand reaffirmed the EU concerns stating the legislation’s “Domestic content requirements are discriminatory, and 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.”
U.S. – Brazil
U.S. and Brazil have “reaffirmed” commitments to reduce trade barriers
The Commerce Department’s International Trade Administration (ITA) announced the results of a July 21 U.S.-Brazil Commercial Dialogue plenary, the country’s 20th. In a joint statement, the trade partners reiterated a shared commitment to increase investment and cooperation in enhancing bilateral trade flows. In the statement, ITA Under Secretary Marisa Lago and Brazil’s economy minister, Paul Guedes, outlined four “key accomplishments” since the partnership’s formation in 2006. These include technical discussions on trade facilitation, developing standards and reference material for biodiesel and bioethanol, collaboration to “reduce the time needed to obtain patent and trademark protection,” and creating a “Trade in the Digital Economy Working Group.”
“Looking ahead, the U.S. Department of Commerce and Ministry of Economy teams reaffirmed their commitment to working together to prevent, reduce and remove non-tariff barriers to trade with the goal of growing bilateral trade and investment,” the statement reads.
The United States and Brazil’s two-way trade in goods registered a new record between January and June 2022, reaching $44.4 billion for the first half of the year, according to the U.S. Census Bureau, up from $33.6 billion in 2021 over the same period. In 2021, the United States exported $46.9 billion of goods to Brazil, making it the 9th largest export destination for U.S. products.
UN index of food costs declines for the fifth consecutive month
The Food and Agriculture Organization’s (FAO) Food Price Index declined 1.9% or 2.7 points in August to 138.9 points. Despite the latest decline, the index remained 10.1 points (7.9 percent) above its value a year ago. According to the FAO, all the five sub-indices of the FFPI fell moderately in August, with monthly percentage declines ranging from 1.4 percent for cereals to 3.3 percent. Other highlights from the report include:
The Vegetable Oil Price Index “averaged 163.3 points in August, down 5.5 points (3.3 percent) month-on-month, pushing the index value slightly below its year-earlier level. The continued decline of the index was driven by lower world prices of palm, sunflower and rapeseed oils, which more than offset higher soy oil quotations. International palm oil prices fell for the fifth consecutive month in August, driven by increasing export availabilities from Indonesia, mainly thanks to lower export taxes, as well as seasonally rising outputs in Southeast Asia.”
The Cereal Price Index “averaged 145.2 points in August, down 2.0 points (1.4 percent) from July, but still 14.8 points (11.4 percent) above its August 2021 value. In August, international wheat prices fell by 5.1 percent, marking the third consecutive monthly decline, driven by improved production prospects, especially in Canada, the United States of America and the Russian Federation, and higher seasonal availability as harvests continued in the northern hemisphere as well as the resumption of exports from the Black Sea ports in Ukraine for the first time in over five months of interruption.”
The Meat Price Index “averaged 122.7 points in August, down 1.8 points (1.5 percent) from July, also marking the second consecutive monthly decline from an all-time high reached in June 2022, but it remained 9.3 points (8.2 percent) above its corresponding value a year ago. In August, international quotations for poultry meat fell, driven by lower import purchases by leading importers and somewhat elevated global export availabilities.”
The Dairy Price Index “averaged 143.5 points in August, down 3.0 points (2.0 percent) from July, marking the second consecutive monthly decline, but still 27.3 points (23.5 percent) above its value a year ago. In August, international price quotations for butter and milk powders declined, principally due to weaker demand for spot supplies from most leading importers, as inventories remained adequate to cover their immediate needs. Market expectations for increased supplies from New Zealand in the new production season also weighed on international prices, notwithstanding milk production tracking lower in several key producing regions, including Western Europe and the United States of America.”
Erin Collier, an economist at the FAO, emphasized that despite the declining trend, “Food prices are still really high.” “Our point of concern is the fact that cereals, which have been a main driver of these price increases, remain very high,” Collier said in an interview with Bloomberg TV.
Section 301 Tariffs
Raimondo confirms White House decision still examining options on China tariffs
Commerce Secretary Gina Raimondo confirmed that the White House continues to weigh potential actions on China tariffs, and no decision has been made. “He is trying to balance the benefit to inflation from cutting the tariffs against potential harm to U.S. labor,” Ms. Raimondo said in an interview with the Wall Street Journal. “I know he’s looking at it. He takes it incredibly seriously.” Responding to a question on specific policy action and timing, Raimondo said, “It all depends on exactly how it is done and on which products…but I think there is merit to it,” Ms. Raimondo said Monday. “That decision is with the president himself. We have briefed him a number of times.”
For several months President Biden was expected to announce a revamped China tariff policy. Still, recent tensions, including China’s recent war games near Taiwan and U.S. lawmakers’ visits to Taiwan, have dampened expectations for an announcement anytime soon.
Stakeholders are anticipating a new China tariff strategy in conjunction with USTR’s 4-year review of Section 301 tariffs results. An announcement of the continuation or removal of List 1 tariffs was expected around July 5, ahead of the fourth anniversary of the tariffs. However, to date, USTR has still made no formal announcement, and the tariffs remain in effect. Several domestic producers and other groups have argued for the continuation of the tariffs. A second comment solicitation on the List 2, 3, and 4A tariffs remains open until August 22nd. 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 scheduled to expire on 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
According to a statement, the Department of Commerce and Office of the USTR confirmed that the Indo-Pacific Economic Framework (IPEF) ministerial will be held in Los Angeles on Sept. 8-9. 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 and 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 anti-corruption.
U.S. – Japan
Tai and Nishimura discuss trade and IPEF
Last week, USTR Katherine Tai and Japan’s new trade and economy minister, Yasutoshi Nishimura, met to discuss several U.S. and Japanese bilateral trade and economic issues. According to a USTR readout, the officials discussed progress on labor, digital trade, and “cooperation on third-country practices of concern,” among other issues that were the focus of meetings last week during the second round of the U.S.-Japan Partnership on Trade. The leaders also “reaffirmed ongoing collaboration to address non-market policies and practices, including economic coercion, and shared commitment to respect internationally-recognized worker rights, including eradicating forced labor.” They also discussed the IPEF ministerial, set to take place Sept. 8-9 in Los Angeles.
Container ship backlogs at LA ports continue to decline
The number of container ships headed for the California ports of Los Angeles and Long Beach — a traffic jam that once symbolized American consumer vigor during the pandemic — declined to the lowest level since the bottleneck started to build two years ago. According to data from the Marine Exchange of Southern California & Vessel Traffic Service Los Angeles and Long Beach, eight vessels were in the official queue as of late Monday. That’s an all-time low, officials said in a statement, down from a record of 109 set in January and about 40 lined up a year ago. As a result, LA port officials want ships that diverted around the congestion to return.
USDA forecasts decline in Ag exports in FY 2023
The USDA has raised its forecast for ag exports in fiscal year 2022 to $196 billion but also predicted that the value of overseas shipments will fall in FY 2023. U.S. agriculture exports are expected to decline to $193.5 billion in FY 2023 – about 1.2% – as the value of sales to foreign buyers of commodities like cotton, beef, corn, wheat, and sorghum falls, according to USDA’s latest quarterly forecast. While the value of exports of commodities like soybeans and horticultural products will rise in FY 2023, declines in meat and grain will result in an overall decline. Other key projections from USDA for FY 2022 inlcude:
The FY 2022 estimates for agricultural exports are up $5.0 billion from May to $196.0 billion, led by increased livestock, poultry, and dairy exports.
Total imports in FY 2022 are expected to be $11.5 billion more than the May forecast and $28.7 billion more than FY 2021. If realized, the 18-percent jump in FY 2022 import values would be the largest year-over-year percentage increase since FY 2011.
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 the 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. The trade gap is the lowest since October 2021.
Members express optimism for AB reform
At a recent Dispute Settlement Body (DSB) meeting, more than WTO 120 members again proposed restarting the nomination AB process, with several members noting the 2024 deadline for a newly reformed dispute settlement system agreed to by ministers during the WTO’s 12th ministerial conference in June. Despite the long-held U.S. concerns with the AB system, the block of members reiterated their support of that effort, and several members confirmed reform discussions are proceeding. “We acknowledge the challenges and concerns with respect to the dispute settlement system including those related to the Appellate Body, recognize the importance and urgency of addressing those challenges and concerns, and commit to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024,” the MC12 outcome document reads.
In recent months, the U.S. has supported and engaged in dispute settlement reform discussions to develop a system that “reflects the real interests of Members,” as the U.S. “The United States supports WTO dispute settlement reform and is working to achieve durable, lasting reform,” a U.S. delegate said in a previous DSB meeting. “The first step towards reform is to better understand the interests of all Members in WTO dispute settlement. A true reform discussion should aim to ensure that WTO dispute settlement reflects the real interests of Members, and not prejudge what a reformed system would look like.” “The United States is prepared for continued and deepened engagement with Members on that important issue,” the delegate added.
Republican Senators urge continued blocking of appellate body members.
Separately and on the 5th anniversary of the U.S. blocking appellate body (AB) appointments, Senate Republicans Chuck Grassley (IA), Marco Rubio (FL), and Tom Cotton (AK) are urging USTR to continue denying new AB panelists. In a letter sent to Katherine Tai, the Republican senators called the AB “harmful” and “corrupted” by Chinese influence. “The Appellate Body is not only harmful; it is also corrupted by CCP influence. WTO rules require Appellate Body members to be ‘unaffiliated with any government,’ yet Chinese nationals are allowed to become members. The Chinese Communist Party’s complete control of power in the PRC means it can coerce and intimidate any PRC national into following its will,” they wrote. They continued, “As you may know, the United States has blocked new members to the appellate body since 2011, when the Obama Administration blocked an appointment, citing the WTO’s failure to protect American interests,” they wrote. “The Trump Administration followed in this tradition. This rare bipartisan agreement was the result of a clear and consistent pattern of the WTO intentionally undermining American sovereignty, while enriching the Chinese Communist Party (CCP).”
The senators further noted, “The trade laws of the United States have been subject to more challenges than any other WTO Member and roughly a quarter of all disputes involve U.S. trade policy. The variety of ways in which the Appellate Body has failed to live up to its intended purpose was cataloged in a 2020 report by the Office of the U.S. Trade Representative (USTR).”
In 2017, under the Trump administration, USTR began blocking AB nominations, ultimately leading to the loss of a quorum and the dissolution of the AB in December 2018. Since then, several WTO members have proffered alternative approaches to resolving appeals of WTO member disputes with insufficient support to replace the current, non-operational structure. At a recent WTO Dispute Settlement Body meeting, the U.S. confirmed it supported dispute settlement reform and “is working to achieve durable, lasting reforms,” with other members voicing optimism about the direction of reform discussions.