TRADE UPDATE

Food & Agriculture
September 20, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • IPEF: Biden administration trade officials praised the outcomes of the recent IPEF ministerial as laying pivotable groundwork for negotiations. Ambassador Tai remarked, “Taken together, the components of the trade pillar will promote a race to the top for all, strengthen our supply chains and spur cooperation that supports durable growth. No further details on timing of official negotiations.
  • USMCA: The U.S. and Mexico announced a resolution to another case filed under the USMCA rapid-response mechanism, following Mexico’s actions to protect worker rights at an auto-parts facility in Piedras Negras. The outcome marks the fifth time the two countries have resolved a labor dispute complaint before invoking other trade measures such as import restrictions or tariffs.
  • Biden Nominees: The long-awaited confirmation hearing for Alexis Taylor is scheduled for this week, September 20th. Ms. Taylor is President Biden’s nominee for Under Secretary for Trade and Foreign Agricultural Affairs, at the U.S. Department of Agriculture.
  • Supply Chains: Late last week, President Biden reached an agreement with freight rail companies and unions to prevent an economically damaging strike and avoiding potentially costly disruptions to food and agriculture supply chains, including the upcoming fall harvest.
  • U.S. – EU: Ambassador Katherine Tai and EU Executive Vice President Valdis Dombrovskis “agreed to cooperate on addressing electric vehicle tax credit provisions in the U.S. Inflation Reduction Act which the EU deems discriminatory.” Japan and South Korea have also voiced concerned that the tax credits violate U.S. trade commitments at the WTO.
  • WTO: In a joint statement, G7 trade ministers called for WTO reform, including the implementation of a fully functioning dispute settlement system by 2024. In the statement, the ministers committed to “revive and reform the rules-based multilateral trading system with the WTO at its core.”

“The Biden Administration’s unsatisfying new trade approach focuses on working groups, frameworks, and dialogues.” “But that’s not enough. The U.S.-Taiwan Initiative on 21st Century Trade is welcome, but it’s not enough.”

— Rep. Kevin Brady (R-TX), comments during House Ways and Means hearing on U.S.-Taiwan trade relations

Indo- Pacific Economic Framework

U.S. trade officials laud IPEF ministerial success

  • Ambassador Tai and other Biden administration trade officials praised the outcomes of the recent IPEF ministerial as laying pivotable groundwork for negotiations. Ambassador Tai remarked, “Taken together, the components of the trade pillar will promote a race to the top for all, strengthen our supply chains and spur cooperation that supports durable growth. This framework will be a model for the rest of the world to follow. It will unlock enormous economic value for our region. And we will develop these pillars with input and discussion from stakeholders, trading partners, and Congress. The [Indo-Pacific Economic Framework for Prosperity] is our commitment to the region and its people; that the United States will fight for the common good to ensure that the next generation inherits a better world.” 
    • Countries “are now really comfortable and excited about the model,” and are eager for the U.S. to be more active in the region, Deputy US Trade Representative Sarah Bianchicommented following the conclusion of the IPEF Ministerial in Los Angeles. “There’s just a view that if we can do an executive agreement that we all sign on to, that it really will be durable and lasting and won’t have to go through some of the more political aspects of our system,” she said.
    • Commerce Secretary Gina Raimondo said that there’s no consensus yet on when IPEF would complete negotiations on its four tracks but added that the countries are on a “really aggressive timeline,” and that it would be positive if the IPEF pillars were agreed to by November 2023 when the U.S. hosts the Asia-Pacific Economic Cooperation (APEC) forum.
    • Several reports suggest the next ministerial will likely be held in January 2023, preceded by a senior official-level meeting focused on mapping expected to be held in November. According to officials, draft negotiating texts are in the early stages with more substantive text likely available leading up to the next ministerial. Officials also expect deeper stakeholder engagement heading into the next ministerial.
    • The ministerial took place in Los Angeles from Sept 8-9 and resulted in statements on each of IPEF’s four pillars (trade, supply chainsclean 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.” 

USMCA

U.S. and  Mexico resolve another labor rights complaint

  • Last Wednesday, the U.S. and Mexico announced a resolution to another case filed under the USMCA rapid-response mechanism, following Mexico’s actions to protect worker rights at an auto-parts facility in Piedras Negras. USTR had filed a request on July 21, asking Mexico to review labor practices at a facility by operated by Manufacturas VU. Following a review of that request, Mexico took several actions, including a “supervised union representation election,” in which workers approved an independent union, according to the statement issued by USTR.
    • “Rapidly resolving this matter again demonstrates the Biden-Harris Administration’s success putting trade policy into action,” USTR Katherine Tai said in a statement announcing the resolution.  As a result of Mexico’s actions, the U.S. said it agreed that “there is no ongoing denial of rights” related to its request, according to the statement.  The case marked the fifth time the U.S. has invoked the rapid-response mechanism—and the fifth time the two countries have resolved concerns without bans on any goods from the facilities in question.
    • Department of Labor Secretary Marty Walsh praised the outcome stating, “Workers at Manufacturas VU Auto Components facility now have a union – chosen through a fair election – with whom they are consulting as they prepare for negotiations for their first collective bargaining agreement.” “The Department of Labor commends the government of Mexico’s efforts, and we look forward to continuing our collaboration to promote respect for workers’ freedom of association and collective bargaining rights.”

U.S. – ASEAN

PAN Sorasak, Cambodia’s Minister of Commerce

AEM-USTR Consultation hosted in Cambodia

  • On September 18th, ASEAN Member States and the United States Trade Representative met for the Association of Southeast Asian Nations Economic Ministers (AEM) consultations. The meeting was co-chaired by U.S. Trade Representative Katherine Tai and Minister of Commerce of the Kingdom of Cambodia PAN Sorasak.
  • In a press briefing with the U.S. Trade Representative, Ms. Tai expressed anticipation for the consultation’s outlook for the U.S. trade agenda to support economic growth in the region. The consultation follows commitments made earlier this year to continue cooperation under the ASEAN-U.S. Trade and Investment Framework Arrangement in areas, such as labor standards and environmental protections.
  • According to a joint statement, the consultation revealed the progress made in post-COVID recovery efforts and emphasized the need to continue strong rebounds. However, participants revealed deep concerns about tensions in the geopolitical landscape with a focus on risks to food security, supply chain disruptions, energy security, and rising inflation.
    • The meeting emphasized the “importance of multilateralism, adherence to international law, and respect for sovereignty in contributing to global and regional peace, stability, and prosperity.”
    • Promising steps have been undergone to increase multilateral cooperation, including a new initiative proposed by President Biden at the 9th U.S.-ASEAN Summit to expand the U.S.-ASEAN Strategic partnership. Next steps will be discussed at the 10th U.S.-ASEAN Summit in November.

U.S. – China

China-led SCO bloc expands trade in national currencies

  • The Shanghai Cooperation Organization (SCO) issued a declaration on Friday September 16th, agreeing to increase the use of national currencies in cross-border trade. The movement demonstrates an effort to reduce reliance on the U.S. dollar and other Western currencies. SCO countries include China, India, Russia, and Pakistan, with Iran vying for entry.
    • A large driver for the declaration lies with Moscow’s desire to move away from the U.S. dollar after Western sanctions had been imposed for the war in Ukraine. Recently, Russian gas producer Gazprom announced that oil trading from China would be paid with a half-half split between rubles and Chinese yuan—a transaction previously dominated by euros and dollars.
Qin Chang, China’s Ambassador to the U.S.

Chinese Ambassador call for deeper ties on ag technology

  • As two major agriculture countries, China and the U.S. should build deep cooperation in agricultural technology, climate action and sustainable development. “I believe as China pursues high-quality development, our demand for technology and services in agriculture green development will become as strong as that for agriculture products,” said Chinese Ambassador Qin Gang as reported by China Daily. “Our market will remain open and we will continue to share the huge opportunities with American farmers, ventures, institutions, and the companies who want to collaborate with China,” said Qin. Qin added that “We have seen that American farmers and agriculture business need China, benefit from China, and look forward to greater engagement with China.” Last April Qin visited several U.S. farming operations during a three-state tour of the American Midwest.

U.S. – Taiwan

Ways and Means explores the future of U.S. – Taiwan trade

  • On Wednesday, September 14th, the House Ways and Means Committee held a hearing in which representatives discussed the opportunities and challenges surrounding a potential U.S.-Taiwan initiative to strengthen bilateral trade and investment. The hearing follows an earlier announcement by the U.S. and Taiwan regarding terms for negotiating a series of bilateral trade arrangements under the U.S. – Taiwan Initiative on 21st-Century Trade. While lawmakers expressed support for the Biden Administration’s framework proposals, committee members of both parties called for a binding trade agreement to strengthen bilateral relations with Taiwan and spur the creation of similar agreements among other countries as well.
  • Testimonies for the hearing were provided by four key witnesses:
    • Ms. Bonnie Glaser, Director of the Asia Program, The German Marshall Fund of the United States
    • Mr. Mark Wu, Independent Expert, Professor of Law & Faculty Director for the Fairbank Center for Chinese Studies, Harvard University
  • Notably, speakers focused on the structure and goal of an FTA with Taiwan, the potential effects of the agreement on U.S.-China relations, and the benefits for both countries. The witnesses testified for the negotiation of a U.S.-Taiwan initiative that would follow an unconventional structure, omitting tariff reductions and market liberalization with provisions for a market access plus strategy. Such measures would include components for labor rights protections, cybersecurity, good regulatory practices, anticorruption, small- and medium-sized businesses, science-based agricultural standards, digital trade, labor, and the environment.

Ukraine

Ukraine updates agriculture shipments under UN deal

  • A total of 165 ships with 3.7 million tons of agricultural products have shipped from Ukraine under a deal brokered by the United Nations and Turkey to unblock Ukrainian sea ports, the Ukrainian Infrastructure Ministry reported over the weekend. The ministry said 10 ships with 169,300 tons of agricultural products are due to leave Ukrainian Black Sea ports on Sunday.
    • In August, Ukraine’s Agriculture Ministry reported exports of key agricultural commodities were down by almost half since the Russian invasion (Feb. 24th) compared to the same period in 2021. At that reporting, Ukraine’s agricultural exports between Feb. 24 and Aug. 15, 2022 fell to 10 million tons from around 19.5 million in the same period last year or nearly 50%, the Ministry reported. The Ministry further reported that the 2022 grain harvest in Ukraine is forecast to fall to around 50 million tons from a record 86 million tons in 2021.

Supply Chains

Biden avoids strikes in tentative deal with railroad unions and companies

  • On Thursday, September 15th, President Biden reached a tentative agreement with freight rail companies and unions to prevent an economically damaging strike. Based on the agreement, railroad workers will benefit from higher pay and more flexible schedules with labor wages increasing by a total of 24% over five years.
    • The deal is “a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years. These rail workers will get better pay, improved working conditions, and peace of mind around their health care costs: all hard-earned,” said President Joe Biden in an official statement.
    • Farm groups applauded President Biden’s successful negotiation with labor unions to disband threats of a strike.  Brooke Appleton, Vice President of Public Policy at the National Corn Growers Association, commented that “Rail is an essential piece of the agricultural supply chain, particularly as we approach harvest season, so any disruption to rail services would have a negative and lasting impact on our growers.”
    • The development quelled the threat of strikes, providing a modicum of relief for agricultural suppliers, many of whom rely heavily on rail transport for distribution of their products. Further, consumers avoid the substantial inflation in food prices that would ensue with rail strikes. Not only would consumer prices for food rise, but prices charged by farmers would decrease for crops due to a lack of buyers.
  • Earlier last week, rail carriers halted new shipments of ammonia (a fertilizer component) in anticipation of the potential worker strike. According to The Fertilizer Institute, over 50% of fertilizer is shipped in the U.S. via rail. Concerns rose among agricultural shippers regarding additional disruptions in supply chains, especially considering the upcoming harvest season during which farmers use rails to transport a significant amount of agricultural goods.
    • The halt on ammonia was lifted on last Thursday, but Chris Glen, a spokesman for The Fertilizer Institute, said that there would “be some lag time as those delayed shipments move through the system and things ramp back up to full force again.”

Container delays rising at key ports.

  • Newly released data by one of the world’s largest ocean freight carriers for container shipping suggests dwell times for intermodal container trade are staying steady or rising at key import and export port facilities in the United States. In particular, dwell times time for container movements have increased at the port of Los Angeles, CA and to a lesser extend Savannah, GA.
  • The rising delays are particularly acute at the LA port complex (e.g., Los Angeles and Long Beach, CA), the busiest port area in the U.S. Nearly 80% of shipping containers are waiting more than five days on average to make their rail connections — a significant increase from the beginning of the year, according to data from the Pacific Merchant Shipping Association.

U.S. – EU

U.S. and EU agree to address EV tax credit concerns

  • During meetings of the G7 trade ministerial, Ambassador Katherine Tai and EU Executive Vice President Valdis Dombrovskis “agreed to cooperate on addressing electric vehicle tax credit provisions in the U.S. Inflation Reduction Act which the EU deems discriminatory,” according to a statement from the Commission.
  • In the past several weeks, 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.
    • 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

Korea shares EU concerns over EV tax credit

  • South Korea has also voiced deep concerns, labeling the EV tax credit as discriminatory. Recently, 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.”

Biden Nominees

Alexis Taylor, Biden nominee for Under Secretary of Trade, USDA

Confirmation hearing scheduled for Alexis Taylor

  • The Senate Agriculture, Nutrition and Forestry Committee will hold a confirmation hearing on September 20th for Alexis Taylor, President Biden’s nominee for Under Secretary for Trade and Foreign Agricultural Affairs, U.S. Department of Agriculture. In a Committee press release, Chairwoman Debbie Stabenow (D-MI), and Ranking Member John Boozman (R-AR), announced that, in addition to Alexis Taylor, two other nominees will be vetted by the Committee: Dr. Jose Emilio Esteban, to be Under Secretary of Agriculture for Food Safety and Mr. Vincent Garfield Logan, to be a Member of the Farm Credit Administration Board, Farm Credit Administration.
  • President Biden announced his intent to nominate Taylor to the top trade position at USDA on May 13th.  A White House press release at the time detailed Ms. Taylors’ experience as follows:
    • Alexis Taylor serves as Director of the Oregon Department of Agriculture (ODA), having served since her appointment by Oregon Governor Kate Brown in December 2016. As Director, Taylor works to promote and regulate agriculture and food, upholding ODA’s mission to ensure healthy natural resources, environment, and economy for Oregonians now and into the future at the forefront.
    • Prior to her appointment as Director of ODA, Ms. Taylor oversaw the U.S. Department of Agriculture’s (USDA) Farm and Foreign Agricultural Services (FFAS). Before joining USDA, she worked for several Members of Congress. Taylor is an Iowa native who moved to Oregon after working for 12 years in Washington D.C. with a focus on U.S. agricultural and trade policy. She is a graduate of Iowa State University and grew up on her family farm in Iowa, which has been in her family for more than 160 years. While still in high school, she enlisted in the U.S. Army Reserves. During her junior year in college her army reserve unit was deployed to Iraq, where she served one tour with the 389th Combat Engineer Battalion. While no longer an active reservist, Taylor continues to advocate for veterans.

Section 301 Tariffs

USTR keeps section 301 tariffs citing strong support for continuation

  • No significant updates since the Office of the USTR announcement that Section 301 duties on China 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.”

Seasonal Produce

Industry group responds to lawmakers’ petition to investigate Mexican seasonal produce imports

  • The Fresh Produce Association of the Americas (FPAA) pushed back against the recent request by over 20 lawmakers for the USTR to utilize section 301 authority to investigate seasonal produce imports from Mexico. In a press release, FPAA said Mexico’s market growth is attributable to U.S. produce suppliers seeking out fresh and flavorful varieties and pinned Florida’s agricultural shortcomings on poor innovation, destructive weather events, and an underused clean energy sector. “American consumers are already struggling with inflationary pressures, and the trade actions sought by the Florida Congressmen will further exacerbate them if tariffs are imposed to increase the cost and reduce the availability of fresh produce,” FPAA noted.
    • FPAA is an industry group that coordinates Mexican imports for 125 American companies. The association responded to the petition and accused the representatives of “repeated attempts to foment political discord, undermine the U.S. Mexico Canada Agreement, and negatively impact consumers.”
  • As reported earlier, 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.

Trade Trends

U.S.  trade deficit declines, driven by slowing imports

  • U.S. Imports fell in July for the second month in a row amid weak consumer confidence and inflationary pressures, according to recent surveys. Although the U.S. trade deficit has narrowed in recent months, it remains wide by historical comparison. Before the Covid-19 pandemic, the trade deficit hovered for years between $40 billion and $50 billion a month.

Beef exports rise to the fifth-largest month on record

  • The demand for American beef has seen large upticks in 2022 with July exports reported to have surpassed $1 billion for the sixth time this year. Japan sits at the top of U.S. trading partners in beef exports with the highest volume, while South Korea claims the highest value of beef imports. Eased COVID restrictions have aided the growth in beef exports, leaving room for expansion in the market.
    • “Exports have also benefited from a partial rebound in the foodservice sector, but this recovery is far from complete,” said USMEF President and CEO, Dan Halstrom.

WTO

G7 trade minister support WTO reform

  • In a joint statement, G7 trade ministers called for WTO reform, including the implementation of a fully functioning dispute settlement system by 2024. In the statement, the ministers committed to “revive and reform the rules-based multilateral trading system with the WTO at its core.”  “The WTO needs to reflect our shared values such as openness, transparency, fair competition, and the rule of law,” the statement continues. “We will work together with the aim of improving the WTO rulebook and reforming the WTO in order to achieve these goals.” The ministers said that they “stand behind the vision that our global trade rulebook must enable economic transformation, promote sustainable, inclusive, and resilient growth, and be responsive to the needs of people globally. We will work together with our partners in developed and developing countries towards realizing this vision for all and we will defend against any attempt to undermine it.”
    • The G7 countries were hosted in Neuhardenberg, Germany on September 15th. The G7 countries are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, along with participation by the European Union.

India Pressured on agriculture policy

  • The U.S., EU and eight other countries criticized India for its alleged “lack of full transparency in taking recourse to the Bali decision” on public stockholding (PSH) programs for food security at a recent WTO Agriculture Committee meeting. In response, India expressed willingness to engage with the ten countries bilaterally but not in a plurilateral format, according to reports. The block of ten countries (Australia, Canada, Japan, Paraguay, Thailand, Uruguay, the United States, Brazil, New Zealand and the EU) requested that India enter into consultations over its PSH programs on grounds that there is lack of transparency in terms of India’s implementation of such programs at various levels in the country. U.S. officials first raised the issue with India last March, leading into the 12th Ministerial in June.
    • The ten countries raised the issue under paragraph six of the Bali ministerial decision on PSH programs, which says “a developing Member benefiting from this Decision shall upon request hold consultations with other Members on the operation of its public stockholding programs notified under paragraph 3.a” concerning those members that exceeded their de minimis level.