TRADE UPDATE

Food & Agriculture
September 13, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

SUBSCRIBE

HIGHLIGHTS

  • IPEF: The first IPEF in-person ministerial concluded last week with ministers from the 14 IPEF countries issuing ministerial statements (trade, supply chains, clean economy, and fair economy) outlining negotiating objectives for the framework’s four pillars. U.S. officials lauded the progress made under the framework over the last several months. Commerce Secretary Raimondo noted that “14 countries came together to chart a path forward that will create economic opportunity, improve labor conditions, and promote sustainability for all of our economies.”
  • IPEF: All 14 Indo-Pacific Economic Framework for Prosperity countries joined three of the four pillars during the ministerial. India, as expected, opted out of the trade pillar citing concerns over possible environmental and labor commitments, according to comments by Indian Commerce and Industry Minister Piyush Goyal.
  • Biden Nominees: The Senate Finance Committee last Wednesday voted 27-0 in favor of Doug McKalip’s nomination to serve as Chief Agricultural Negotiator at USTR. The nomination now goes to the full Senate for consideration.
  • Section 301 Tariffs: After receiving hundreds of requests to maintain existing Section 301 tariffs on Chinese goods, the Office of USTR announced section 301 tariffs on China will remain in place as it continues a statutorily required review. The agency reported receiving requests from 358 companies and 76 trade associations for the continuation of the tariffs.
  • U.S. – Taiwan: The House Ways and Means Committee will examine the future of U.S.-Taiwan trade at a hearing scheduled for September 14th. The hearing follows a joint announcement by both countries regarding new trade arrangements under the U.S. – Taiwan Initiative on 21st-Century Trade.
  • Seasonal Produce: A bipartisan group of lawmakers, led by Florida congressional members, have petitioned U.S. Trade Representative Katherine Tai to undertake a section 301 investigation into imports of seasonal and perishable fruits and vegetables grown in Mexico to bring relief to Florida growers.
  • WTO: WTO Director-General Ngozi Okonjo-Iweala characterized trade policy as “part of the solution” to address climate change, especially for vulnerable countries. “I feel trade is part of the solution. You might have financing, but if the trade policies don’t align, you may not be able to get the technologies you need for climate adaptation,” the WTO leader said.

“Generally, my position is, as long as the administration refuses to engage in trade negotiations with other countries, then the other related trade … provisions are in abeyance until we have a trade agreement to discuss.”

— Senator Mike Crapo (R-ID) referring to authorization of trade adjustment assistance in an interview with Inside U.S. Trade

Indo- Pacific Economic Framework

IPEF Ministerial convenes economic ministers from U.S. and 13 Indo-Pacific nations

Gina Raimondo, Secretary, Department of Commerce
  • According to a report released by the Office of the USTR, the U.S., along with its partners in the Indo-Pacific Economic Framework (IPEF) announced their objectives in pursuing future negotiations and trade policies. The Ministerial took place in Los Angeles from Sept 8-9 where U.S. Trade Representative Katherine Tai and Secretary of Commerce Gina Raimondo hosted 13 partners from the Indo-Pacific region.
  • Secretary Raimondo emphasized the overwhelming success of the event, declaring “this week, 14 countries came together to chart a path forward that will create economic opportunity, improve labor conditions, and promote sustainability for all of our economies. Just as importantly, this ministerial gave us an opportunity to show that we can deliver concrete and tangible economic benefits for partner countries while pursuing an inclusive and high standard framework at the same time. I am proud of the progress we’ve made and I’m excited to continue building momentum in this effort.”
  • U.S. Trade Representative Katherine Tai said the IPEF aims to be “a modern economic arrangement” that “delivers broad-based economic connectivity and benefits our workers, combats climate change, builds resilient supply chains and levels the playing field for our companies.” The ministerial meeting resulted in statements on each of IPEF’s four pillars (trade, supply chains, clean economy, and fair economy) that Commerce Secretary Gina Raimondo said “set out the path ahead and enable us to move into a new and more concrete phase of work.” 
    • Pillar I: The Trade Pillar seeks to incorporate practices that benefit workers and promote free and fair trade to drive sustainable economic growth. The pillar also aims to advance food security and sustainable agriculture with a focus on encouraging best practices.
    • Pillar II: The Supply Chain Pillar attempts to consolidate multilateral efforts to prevent future disruptions in supply chain activities and promote resilience in key sectors through increased job and economic opportunities.
    • Pillar III: The Clean Energy Pillar will work to prompt innovation and investment in clean energy resources and bolster cooperation on climate-friendly technologies.
    • Pillar IV: The Fair Economy Pillar targets anticorruption efforts as well as opportunities to prevent tax evasion and enhance transparency.
  • The 14 IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade, according to a USTR readout. 

U.S. secures 12 countries to engage on trade pillar; India opts out

  • All 14 Indo-Pacific Economic Framework (IPEF) for Prosperity countries will engage in three of the four pillars, U.S. officials announced.  Notably, but not unexpected, India declined to engage in the IPEF trade talks, side-stepping potentially tough negotiations on lowering certain trade barriers (tariffs are not a component of IPEF talks), while subscribing to the other three pillars in the areas, including supply chains and clean energy.
    • India stands alone as the only member of the 14-nation Indo-Pacific Economic Framework that did not commit to enhance free and fair trade in the region, according to various reports. Several observers expected India to disengage on the trade pillar, though still disappointing for many U.S. stakeholder groups. 
    • In 2019, India made a similar move in withdrawing from talks under the Regional Comprehensive Economic Partnership (RCEP) pushed by China and representing the world’s largest regional free-trade agreement that includes nearly a third of the global population and gross domestic product. USTR Katherine Tai noted the intentional flexibility of IPEF with countries permitted to select pillars for engagement and emphasized that bilateral trade talks will continue between the US and India.

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.”

U.S. – Taiwan

Ways and Means to explore U.S. – Taiwan trade

  • The House Ways and Means Committee will look at the future of U.S.-Taiwan trade at a hearing scheduled for September 14th. The Administration recently announced the launch of negotiations on a U.S.-Taiwan Initiative on 21st Century Trade. Like other trade deals coming from the Biden Administration, the U.S.-Taiwan initiative will not follow the model of a traditional U.S. free trade agreement, omitting tariff reductions and market liberalization. Rather, the negotiation will focus on trade facilitation, good regulatory practices, anticorruption, small- and medium-sized businesses, science-based agricultural standards, digital trade, labor and environment. The talks will also cover state-owned enterprises and non-market economy policies and practices, areas frequently cited as concerns, specifically with China. The hearing is scheduled for 11:00 am ET in room 1100 Longworth House Office Building. Witnesses are pending.
  • Earlier this year, the U.S. and Taiwan announced terms for negotiating a series of bilateral trade arrangements under the U.S. – Taiwan Initiative on 21st-Century Trade.
    • The trade areas to be discussed are trade facilitation, good regulatory practices, anticorruption, SMEs, agriculture, standards, digital trade, labor, environment, state-owned enterprises, and non-market policies and practices.
    • The U.S. – Taiwan Initiative on 21st-Century Trade is viewed by many as an alternative approach by the Biden administration to deepen 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.

U.S. – U.K.

Kemi Badenoch, Secretary of State for International Trade

Kemi Badenoch named new U.K. Trade Secretary

  • New UK Prime Minister Liz Truss announced last Tuesday the election of Kemi Badenoch as Secretary of State for International Trade and the President for the Board of Trade. Previously, Badenoch worked as the Minister of State at the Department for Levelling Up, Housing, and Communities. She was also previously the Minister of Equalities in the Government Equalities Office between February 2020 to July 2022.
    • The Secretary of State works to secure trade agreements, reduce barriers to market access, encourage economic growth, and support UK business. Badenoch replaces Anne Trevalyn who worked to secure post-Brexit trade deals with Australia and New Zealand, although neither has yet come into force. She also signed a digital trade agreement with Singapore which came into force in June 2022.

U.S. – EU

EU warns EV tax credits may violate WTO

  • In recent communications with Ambassador Katherine Tai, European Commission Executive Vice President Valdis Dombrovskis reiterated the EU’s  concerns that the electric vehicles (EV) tax credit, contained in the Inflation Reduction Act, poses a potential violation of WTO commitments. Dombrovskis noted the EU “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 warned that the revised U.S. EV tax credit likely runs counter to WTO rules, creating new bilateral trade tensions that adversely impact 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. “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.

U.S. – Korea

Katherine Tai, U.S. Trade Representative and Ahn Dukgeun, South Korea’s Trade Minister
  • In addition to the EU, South Korea has characterized the EV tax credit as discriminatory. Last week, South Korean Minister for Trade Ahn Dukgeun met with USTR Katherine Tai to outline the Korean government’s concerns with the new U.S. tax credit that only applies to the purchase of U.S. electric vehicles. Dukgeun said the $7500 tax credit will disadvantage automakers Kia and Hyundai, which do not produce electric vehicles in the United States. The Korean government views the tax credit as violating both the US-Korea Free Trade Agreement and WTO rules.
    • According to a readout from USTR, Ambassador Tai “listened closely to the Republic of Korea’s concerns about the EV provisions of the Inflation Reduction Act of 2022 and the two committed to open an engagement channel on these issues.” “They also highlighted the importance of meaningful action on clean energy technologies to combat the climate crisis while addressing supply chain and security vulnerabilities.”
    • The South Korean Parliament approved a resolution last week, expressing concern about the discriminatory nature of the U.S. tax credit. According to a White House release, Vice President Harris will travel to South Korea later this month.

U.S. – Japan

Japan joins opposition to U.S. EV tax credit

  • Japan has joined South Korea and the EU in lodging concerns about the U.S. tax credit for electric vehicles (EV) that only applies to vehicles that have final assembly in the United States. “While we need to continue to analyze its impact in detail, we are deeply concerned about the measure as Japan and the U.S. are now advancing discussions on more resilient supply chains,” a spokesperson for Japan’s embassy in Washington said. “We also have a doubt about its WTO conformity. We have been conveying our concerns to the U.S. government through all possible channels and will continue to do so along with other partners including EU,” the spokesperson explained.

Biden Nominees

Senate Finance Committee unanimously clears McKalip as USTR Chief Ag Negotiator

  • Last Wednesday, the Senate Finance Committee voted 27-0 in favor of Doug McKalip’s nomination to serve as Chief Agricultural Negotiator at USTR, with one senator not voting. The nomination now goes to the full Senate for consideration.
    • In an opening statement, Senate Finance Committee Chairman Ron Wyden (D-OR), said “McKalip is a strong choice to take on these challenges as our top trade advocate for American agriculture. “He has fans on both sides of this committee, and we expect to work closely with him once he’s confirmed and on the job.”
    • Committee Ranking Member Mike Crapo (R-ID) said that Mckalip “will play a critical role in opening opportunities for our farmers. Our farmers need those opportunities more than ever in the face of record inflation … Although, I am disappointed that the (Biden) administration has not prioritized agricultural market access.”
    • “Today’s unanimous vote by the Senate Finance Committee sends a strong, bipartisan message that Doug McKalip will be an outstanding Chief Agricultural Negotiator in the Office of the United States Trade Representative,” USTR Katherine Tai said following the unanimous vote.  “Doug’s decades of public service and his unparalleled knowledge of agricultural and food security issues will be a major asset to our office as we continue to advance a trade agenda that benefits our farmers, ranchers, and producers.”

Section 301 Tariffs

USTR keeps section 301 tariffs citing strong support for continuation

  • The Office of the U.S. Trade Representative received hundreds of requests from U.S. companies and trade associations to maintain existing Section 301 tariffs on Chinese goods, according to the agency’s recent announcement that those duties will remain in place as it continues a statutorily required review of the its tariff policy. The notice states the tariffs “will remain in effect because at least one representative of a domestic industry which benefits from each action, as modified, has submitted to the U.S. Trade Representative during the last 60 days of such four-year period a written request for the continuation of such action.” The agency received requests from 358 companies and 76 trade associations for the continuation of the tariffs.
    • The USTR notice provided further context on the responses noting that “Representatives of domestic industries reported that they benefit from the trade action in a number of ways.” “For example, representatives of domestic industries reported that the July 6, 2018 action provides an incentive for the Chinese government to stop the harmful policies and practices that are the target of the tariff action. Additionally, representatives stated that the action has allowed them to compete against Chinese imports, invest in new technologies, expand domestic production, and hire additional workers.”
    • USTR said in a statement that the next steps in the four-year review process will be outlined in subsequent notices. The process will include “opening a docket for interested persons to submit comments on, among other matters, the effectiveness of the actions in achieving the objectives of the investigation, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.”

USTR files remand brief on tariffs with Court of International Trade

  • As ordered by the Court of International Trade (CIT), the Office of the USTR filed remand comments regarding Section 301 tariffs imposed on roughly $300 billion worth of Chinese goods initiated under the prior administration. Earlier, the CIT found that USTR had not satisfied its obligations under the Administrative Procedure Act (APA) which governs the process by which federal agencies develop and issue regulations. 
    • In the filing, USTR defended its decision to impose tariffs under lists 3 and 4 after receiving 9,000 public comments on the proposed tariffs. USTR noted that “most comments urging for additional inputs to be removed failed to demonstrate how imposing the additional duties on the input would not be practicable or effective to eliminate China’s acts, policies, and practices or failed to show how imposing the additional duties would cause disproportionate economic harm to U.S. interests.”
    • USTR imposed Section 301 tariffs ranging from 7.5% – 25% on four successive rounds of Chinese products between July 6, 2018 and September 1, 2019.

Seasonal Produce

U.S. lawmakers file petition to protect Florida growers from Mexican seasonal produce imports

  • A bipartisan group of lawmakers—spearheaded by Senators Marco Rubio (R-FL) and Tim Scott (R-SC) and Representative Al Lawson (D-FL)—petitioned U.S. Trade Representative Katherine Tai to investigate the import of seasonal and perishable fruits and vegetables grown in Mexico under government subsidies to bring relief to Florida growers. In a September 8th letter to Ambassador Tai, Senator Rubio and Representative Lawson, joined by over 20 other lawmakers, wrote, “We file this petition, under Section 301 of the Trade Act of 1974, to request the administration to conduct an investigation into the flood of imported seasonal and perishable agricultural products from Mexico.” The lawmakers contend that Mexico’s current export structure undermines the effectiveness of the Biden Administration’s efforts to reinvigorate domestic supply chains, including agricultural supply chains.
  • “The Biden Administration has affirmed its intention to protect and reinvigorate critical supply chains within the U.S., including agricultural supply chains. Mexico’s export targeting scheme, which is affecting U.S.-grown produce during the winter and spring months, is a direct threat to this objective. As this petition discusses, and as various government entities, including the U.S. Trade Representative, have confirmed, seasonal and perishable industries such as Florida’s generally do not enjoy access to trade remedies. The provisions of Section 301 of the Trade Act of 1974, however, are uniquely suited to investigate Mexico’s trade-distorting practices and policies and provide urgently needed relief to Florida’s growers.”
  • The Office of USTR has 45 days from receipt of the request to render a decision.

Food Security

New USDA survey reports steady food insecurity in 2021

  • A new survey released by the U.S. Department of Agriculture found that in 2021, 10.2% of U.S. households experienced food insecurity, driven largely by a lack of resources during some parts of the year. While the total number of food insecure households remained relatively stable from 2020 to 2021, households with no children experienced an increase in food insecurity while several subpopulations, namely Black, non-Hispanic owners and low-income households experienced lower levels of food insecurity than in 2020.
    • Roughly half of the households reporting food insecurity also reported participating in one of the three largest federal nutrition plans within the past month—SNAP, WIC, and the National School Lunch Program.
  • Analysts are attributing the decreasing levels of food insecurity to changes in food assistance programs. However, experts warn that food insecurity could pose a growing issue in the coming months.

President Biden will host a food security summit at a U.N. conference in September

  • Attention to food security issues has risen significantly following Russia’s invasion of Ukraine in early 2022. In May, U.S. Secretary of State Antony Blinken addressed the U.N. in a Food Security Ministerial to discuss current issues that threaten global peace and security. Blinken’s remarks focused on four main suggestions.
    • The need for countries to fill the gaps faced by humanitarian organizations and agencies working to fight food insecurity.
    • The need to address the global fertilizer shortage.
    • The importance of increasing investments in agricultural capacity and resilience.
    • The need to support populations vulnerable to food insecurity and its corresponding impacts.
  • Further, it was recently announced that U.S. President Joe Biden will be hosting a food security summit at the U.N. conference in New York at the end of September. U.S. Ambassador Linda Thomas-Greenfield outlined six key commitments that the U.S. plans to undertake at the conference, including a pledge to reform the U.N. Security Council for better incorporation of diverse populations. The summit reflects an opportunity to address food security issues exacerbated under the Russia-Ukraine conflict with strict adherence to the U.N. Charter.

Trade Trends

U.S. overall trade deficit shrinks again in July

  • The U.S. deficit for goods and services declined sharply (12.6%) in July as exports outpaced imports. The deficit declined to $70.6 billion in July from $80.9 billion in June (revised), shrinking $10.2 billion, according to the U.S. Census Bureau.
    • July exports were $259.3 billion, $0.5 billion more than June exports. July imports were $329.9 billion, $9.7 billion less than June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $8.2 billion to $91.1 billion and an increase in the services surplus of $2.1 billion to $20.4 billion.
    • Year-to-date, the goods and services deficit increased $136.6 billion, or 29.0 percent, from the same period in 2021. Exports increased $286.4 billion or 19.9 percent. Imports increased $423.0 billion or 22.1 percent.
    • For the three-month moving average, the deficit decreased $5.4 billion to $79.1 billion for the three months ending in July. Specifically, average exports increased $2.5 billion to $257.5 billion in July, while average imports decreased $2.9 billion to $336.7 billion in July.

China’s exports slow yet remain higher than pre-pandemic levels

  • China’s exports to the U.S. declined in August for the first time in more than two years, while shipments to Russia surged. China’s exports to the U.S. fell 3.8% in August from a year earlier, the first decline since May 2020. Chinese imports from the U.S. grew only 0.3%, posting a trade surplus of $79.4 billion. Conversely, exports to Russia surged 26.5% as Chinese-produced goods replaced products formerly supplied by the U.S., Europe, and other Western countries prior to imposition of economic sanctions related to the military conflict in Ukraine.

WTO

DG Okonjo-Iweala touts trade policies to address climate change

  • WTO Director-General (DG) Ngozi Okonjo-Iweala characterized trade policy as “part of the solution” to address climate change, especially for vulnerable countries. “I feel trade is part of the solution. You might have financing, but if the trade policies don’t align, you may not be able to get the technologies you need for climate adaptation,” the DG said. “Through trade, we can increase the return on investment and increase the resources available.”
    • Speaking at an event focused on Africa and climate issues organized by the Global Center on Adaptation in Rotterdam, the DG said that international organizations are well-position and should work to address decarbonization for less developed economies to tackle climate change globally. She emphasized the particular importance of climate change mitigation efforts for nations in Africa — including her native country, Nigeria — as the continent already faces significant impacts from climate change.
    • She contended that implementing trade policies with an eye to these challenges can alleviate climate change impacts. “[I]t’s vital that we integrate trade policies into adaptation, to help diversify economies, upgrade and develop new productive capacities. We need to build greater supply chain resilience,” she said. For instance, she added, “Trade is needed to offset the negative agricultural yields shocks by ensuring access to these new technologies — more resistant crop varieties which we talked about, irrigation, and water storage systems.”

Ag Economy Barometer

The Ag Economy Barometer rebounds for second month

  • The August Ag Economy Barometer moved higher to an index reading of 117, improving 14 points from last month’s increase, after 10 months of decline. The August result, however, remains well below the level from the previous year.
    • In August, survey respondents’ biggest concern for the next year included higher inputs costs (53% of respondents). Other concerns included rising interest rates (14% of respondents), input availability (12% of respondents), and lower output prices (11% of respondents). Despite the two-month swing in improving sentiment, all three indices remain well below prior year levels.