TRADE UPDATE

Food & Agriculture
September 26, 2023

By Michael Anderson, Anderson Global Trade, LLC

HIGHLIGHTS

• IPEF: IPEF countries continue to “make progress towards high-standard outcomes” in the three pillars of the framework, according to a joint statement from the Office of the USTR and Department of Commerce. IPEF members recently concluded a fifth round of talks in Bangkok, Thailand. Unlike the text for the supply chain pillar, texts for the trade, clean economy, and fair economy pillars are not yet public.
• U.S. – Mexico: The Border Trade Alliance, a nonprofit dedicated to promoting trade between the U.S. and Mexico, has sent a letter to Secretary of Homeland Security Alejandro Mayorkas urging the U.S. government to collaborate with Mexico and address trade disruptions at the Bridge of the Americas in El Paso, TX, and another bridge at Eagle Pass, TX.
• WTO: China appealed the WTO dispute panel ruling in the case brought by the U.S. regarding China’s retaliatory duties in response to U.S. section 301 tariffs. In the absence of a functioning appellate body, China’s action effectively pushes the case into a legal void.
• WTO: Ukraine requested WTO dispute consultations with Hungary, Poland, and Slovakia regarding import bans on grains and other agriculture products. Ukraine contends the border measures imposed by Hungary, Poland, and Slovakia are inconsistent with certain WTO General Agreement on Tariffs and Trade (GATT) provisions and aspects of the Agreement on Agriculture.
• China: China added 15 products to, and removed 14 products from, the scope of food and agriculture products under decree 248, which requires production facility registrations for all food imports. The changes affect dairy products, poultry products, fruit and vegetable juice, canned fruit, aquatic products, sweets, and chocolates, according to USDA reporting.
• GSP: Bipartisan support for GSP renewal was evident during last week’s House Ways and Means Committee hearing. However, Members disagreed on approaches to reforming the expired trade preference program. Chairman Jason Smith (R-MO) noted GSP reform should consider digital trade provisions, better reflect the shift to more resilient and diversified U.S. supply chains, and avoid benefitting, through inputs, non-GSP countries. Several Democrats said GSP reform should include workers’ rights, environmental protections requirements for beneficiary countries, and updated rules of origin.
• Trade Trends: The U.S. current-account deficit narrowed by $2.4 billion, or 1.1%, to $212.1 billion in the second quarter, the Commerce Department reported. The $2.4 billion narrowing of the current account deficit was propelled in part by an expanded surplus in services.
• Trade Policy: USTR Katherine Tai called for WTO reform that reflects the modern realities of global commerce and climate change, noting the U.S. supports ongoing WTO reform that remains adaptable to the fluid environment of the global trading system. In her remarks, Tai said the appellate body system has “suffered from a lack of restraint” and “systematically overreached to usurp the role of Members themselves to negotiate and create new rules.”

“To put it bluntly, if the United States does not take a bolder approach, we risk becoming spectators as our partners work among themselves and with China to strengthen supply chain connectivity and regional economic integration.”

—Asia Society report, “Jump-starting U.S. Trade and Economic Engagement in the Indo-Pacific”

IPEF

IPEF round five yields progress, trade pillar text not yet public 

• IPEF members recently concluded a fifth round of trade talks in Bangkok, Thailand, continuing to “make progress towards high-standard outcomes” in the three pillars of the framework. The Office of the USTR and Department of Commerce issued a joint statement stating, “Building on the discussions that took place during the fourth negotiating round in Busan, South Korea, in July 2023, the IPEF partners continued to make progress on negotiations towards high-standard outcomes under Pillars I (Trade), III (Clean Economy), and IV (Fair Economy). Officials also continued discussions on the next steps for the proposed IPEF Supply Chain Agreement (Pillar II) following the substantial conclusion of negotiations in May and public release of the text on September 7.” 
• Notably the texts for the trade, clean economy, and fair economy pillars are not yet public. Like prior rounds, the U.S. delegation was co-led by Sarah Ellerman, Assistant United States Trade Representative for Southeast Asia and the Pacific and IPEF Pillar I Chief Negotiator, and Sharon H. Yuan, U.S. Department of Commerce Counselor and IPEF Pillars II-IV Chief Negotiator. 
• Recall the fourth negotiating round was held in Busan, South Korea, from July 9-15, 2023. On May 27, the U.S. hosted delegates from 13 IPEF countries in Detroit, MI, for the IPEF ministerial led by Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai. Prior rounds were held in Brisbane, Australia (round one, Dec. 10-12, 2022), followed by a special negotiating round on Pillars II-IV in New Delhi, India (Feb. 8-11, 2023), Bali, Indonesia (round two, Mar. 13-19, 2023), and Singapore (round three, May 8-15, 2023). 
• The IPEF negotiating countries, other than the U.S., include Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Notably, India opted out of negotiations on the Trade Pillar. 

U.S. – Mexico

Border Trade Alliance writes letter urging U.S. government action on border disruptions

• The Border Trade Alliance, a nonprofit dedicated to promoting trade between the U.S. and Mexico, has sent a letter to Secretary of Homeland Security Alejandro Mayorkas urging the U.S. government to collaborate with Mexico and address trade disruptions at the Bridge of the Americas in El Paso, TX, and another bridge at Eagle Pass, TX. Recent surges in migrants have caused strain on border infrastructure and created significant stoppages for international trade between Mexico and the U.S.
  • The Border Trade Alliance urged Mayorkas to “quickly collaborate with your counterpart in Mexico to seek a solution to the ongoing disruptions at the United States Mexico border caused by recent migrant surges that are placing significant strain on staff resources and infrastructure.”
  • The letter further states that “cargo operations at the Bridge of the Americas in El Paso, Texas have been closed to accommodate migrant processing, and migrant surges have prompted a closure at an Eagle Pass, Texas international bridge, raising concerns of similar service interruptions at international bridges and ports of entry border wide. The BTA reiterates its position that bridge and port of entry closures should be avoided at all costs. Such actions lead to shipping delays, increased costs, and an overall degradation of the powerful binational trade relationship between our two nations.”

Greg Abbott declares “invasion” at the border to justify Texas’ border security operations

• In an effort to justify Texas’ border security operations, Texas Governor Greg Abbott “officially” declared an invasion at the border on social media platform X, formerly known as Twitter. Abbott has faced lawsuits questioning the constitutionality of his border initiatives due to the erection of buoys in the Rio Grande. The Department of Justice contends that this violates the Rivers and Harbors Act. Abbott’s declaration of an invasion is meant to justify Texas’ actions as constitutional since the state is “protecting its own territory against invasion by the Mexican drug cartels.”

China

China extends exclusion of retaliatory tariffs on sorbitol

• On Sept. 13, 2023, China’s Ministry of Finance extended the section 301 retaliatory tariff exclusion for sorbitol imports. The decision extends the retaliatory tariff exclusion period for a total of 124 U.S. commodities until Apr. 30, 2024. The affected agriculture-related products include the food additive D-Glucitol (sorbitol), according to a USDA report. This is the sixth time that China has extended the tariff exclusion period for sorbitol. The U.S. was the second largest supplier of sorbitol to China, with imports reaching $1.4 million in 2022.

China revises decree 248 product list

• China’s General Administration of Customs of the People’s Republic of China (GACC) added 15 products and removed 14 to the scope of food and agriculture products under decree 248. The changes affect dairy products, poultry products, fruit and vegetable juice, canned fruit, aquatic products, sweets, and chocolates, according to USDA reporting. The decree 248 revision occurred between Apr. 19, 2023, and Sept. 12, 2023. The PRC has not notified these changes to trade partners, USDA noted.
• USDA emphasized that “before shipping, exporters should verify that their production or cold storage facilities are fully registered with GACC. If a product from an improperly registered facility arrives in China, or a product is shipped/produced before GACC approves the registration, the exporter should expect that it will be detained at port. If a shipment is detained, please refer to the instructions in Clearing Detained Shipments Unofficial Guidance.”
  • Recall the Regulation and Administration of Overseas Manufacturers of Imported Food (“Decree 248”) took effect on Jan. 1, 2022. The regulation stipulates that overseas food manufacturing, processing, and storage facilities are required to register with the General Administration of Customs of China (GACC) to export food products to China.

WTO

China appeals WTO ruling on section 232 retaliatory tariffs

• As expected, China appealed the dispute panel ruling in the case brought by the U.S. regarding China’s retaliatory duties in response to U.S. section 301 tariffs. China’s action, termed by several trade experts as “appealing into the void,” effectively place the case in limbo given the absence of a functioning WTO appellate body. As noted by the WTO, “Given the ongoing lack of agreement among WTO members regarding the filling of Appellate Body vacancies, there is no Appellate Body Division available at the current time to deal with the appeal.” In the appeal notification, China contends that a Member self-declaration of safeguard disciplines should not go unchecked and that further due process to settle disagreements on what constitutes a safeguard are warranted. China further noted that in the absence of an operating appellate body, “China will await further instructions from the division, when it may eventually be composed, or the Appellate Body, regarding any further steps to be taken by China in this appeal.”
  • The full panel report, “China — Additional Duties on Certain Products from the United States” (DS558), was issued on Aug. 16, 2023, and China’s appeal was circulated to WTO members on Sept. 20, 2023.

Ukraine initiates WTO consultation on grain import bans

• Last week, Ukraine requested WTO dispute consultations with Hungary, Poland, and Slovakia regarding the import bans by the three trade partners on certain agricultural products, including grains, from Ukraine. In the request, Ukraine contends the border measures imposed by Hungary, Poland, and Slovakia are inconsistent with certain WTO General Agreement on Tariffs and Trade (GATT) provisions and aspects of the Agreement on Agriculture.
  • Ukraine’s action marks the first formal step under the WTO dispute settlement process that could lead to formation of a dispute settlement panel to adjudicate the complaint. Consultations provide a time-limited opportunity for involved parties to discuss the issue and secure a satisfactory solution without proceeding further with litigation. After 60 days, if consultations have failed to resolve the dispute, Ukraine may request adjudication by a panel.

AGOA

South Africa to host AGOA forum

• Last week, USTR Ambassador Katherine Tai and South African Minister of Trade, Industry and Competition Ebrahim Patel announced that the Government of South Africa will host the 20th U.S.-sub-Saharan Africa Trade and Economic Cooperation Forum (AGOA Forum) in Johannesburg, South Africa from Nov. 2-4, 2023. Tai lauded the development stating, “The AGOA Forum is an opportunity for the United States to build upon the success of the Africa Leaders Summit and further our economic partnership with AGOA countries. As President Biden has said, the future is Africa. I look forward to visiting South Africa in November to discuss our shared priorities, reaffirm the Administration’s commitment to the continent, and discuss opportunities to make AGOA more transformative as we deepen our trade and investment relations with the sub-Saharan African countries.”
• Ebrahim Patel added, “We look forward to welcoming a senior delegation from the United States and a number of countries in sub-Saharan Africa. AGOA has helped to promote the export of African goods to the United States, and we believe there is scope to deepen its impact on African industrialisation. An extension of AGOA beyond 2025 will promote inward investment in Africa and provide benefits to both the United States and African countries. It will cover 54 countries and 1.4 billion people.”
  • The AGOA forum convenes “the governments of the United States and AGOA-eligible countries, as well as representatives from key regional economic organizations, the private sector, civil society, and labor. Over the course of the event, participants will engage in discussions on how to strengthen trade and investment ties between the United States and sub-Saharan Africa and how to promote resilient, sustainable, and inclusive economic growth and development. The Forum will also feature the ‘Made in Africa Exhibition’ which will showcase regional value chains on the continent,” the announcement noted.

Trade Policy

Tai, WTO reform must address modern challenges

• Speaking at the Center for Strategic and International Studies, USTR Ambassador Katherine Tai called for WTO reform that reflects the modern realities of global commerce, climate change, and current economic challenges. She noted the U.S. supports ongoing WTO reform that should remain adaptable to the fluid environment of the global trading system. She noted the upcoming WTO Ministerial in February 2024 is a critical starting point and not a final destination on the path to reforming the global trade institution. She emphasized reform should include greater transparency and include more focus on environmental challenges for WTO members.
• Regarding WTO dispute settlement reform, Tai reaffirmed the long-held U.S. position supporting a reformed fully operational system, including an appeal process. She noted the process and action of the appellate body has veered from its original mandate, increasingly reflecting a litigation forum rather than an opportunity to resolve disputes through dialogue and fairness. “The system has also suffered from a lack of restraint. The Appellate Body systematically overreached to usurp the role of Members themselves to negotiate and create new rules. And in so doing, it undermined the ability of all Members to defend their workers from harmful non-market policies,” Tai said. She offered the follow parameters in reforming the appellate body system:
  • “We should make practical and appropriate alternatives to litigation—like good offices, conciliation, and mediation—real options for the entire WTO membership.
  • We should ensure that dispute panels address only what is necessary to resolve the disputes and resist the urge to pontificate. And any corrections to reports or decisions must be limited to addressing egregious mistakes.
  • We should end judicial overreaching and restore policy space so that Members can regulate and find solutions to their pressing needs, such as tackling the climate crisis or defending their workers’ interests from non-market policies.”

Supply Chains

U.S. diversifying, not cutting China out of supply chains

• China will continue to play an important role in supply chains for critical minerals, essential products ranging from EV batteries to solar panels, as the U.S. seeks to diversify sourcing to meet its economic security and climate change goals, said a senior Biden Administration official. “This is not about China. We are perfectly happy to work with them on this and right now we purchase many of the minerals from Chinese companies. It’s about diversifying,” said Jose Fernandez, the State Department’s Under Secretary for Economic Growth and the Environment. He continued, “The world needs them to be involved — the broader picture is climate change, and we’re not going to solve the climate crisis without the involvement of the PRC [People’s Republic of China].”
• Fernandez emphasized that “China is the second-largest economy in the world, a major trading partner of the U.S. We will continue working with them while pursuing our interests and protecting our companies and criticizing them when we feel they should be criticized.”
  • Fernandez leads the Minerals Security Partnership (MSP), which “aims to accelerate the development of diverse and sustainable critical energy minerals supply chains through working with host governments and industry to facilitate targeted financial and diplomatic support for strategic projects along the value chain. MSP partners include Australia, Canada, Finland, France, Germany, India, Italy, Japan, Norway, the Republic of Korea, Sweden, the United Kingdom, the United States, and the EU,” according to the State Department.

Generalized System of Preferences (GSP)

Bipartisan GSP renewal support; differences over GSP reform

• During last week’s Ways and Means Committee hearing on GSP, several Members of both parties expressed support for GSP renewal yet offered different views on details of GSP reform. Chairman Jason Smith (R-MO) expressed support for an updated GSP and referenced possible digital trade provisions ensuring any GSP renewal better reflect the shift to more resilient and diversified U.S. supply chains. “In addition to bringing more of our supply chains home, we want to strengthen trade relations in our backyard. Currently, U.S. content is not counted towards the rule-of-origin regional requirements under the GSP, like it is under the African Growth and Opportunity Act trade preferences and USMCA. Our trade policy should support American jobs at every opportunity,” Smith said.
• Several Democrats, led by Representative Earl Blumenauer (D-OR), indicated GSP reform should include worker rights, environmental protection requirements for beneficiary countries, and updated rules of origin, given the increasing pattern of inputs from non-GSP countries qualifying for duty-free status. Blumenauer added that Trade Adjustment Assistance (TAA) reauthorization and reform should be part of the GSP renewal package. Witnesses for the hearing and links to statements are noted below:
  • Ed Gresser, Vice President and Director for Trade and Global Markets, Progressive Policy Institute
  • Randall Spronk, Pork Producer, Former President, National Pork Producers Council
  • Fabian Garza, Vice President of Operations, Black Diamond Equipment
  • Nigel Cory, Associate Director, Information Technology & Innovation Foundation
  • Roy Houseman, Legislative Director, United Steel Workers
• Recall the U.S. House Ways and Means on Sept. 20, 2023, held a hearing titled “Reforming the Generalized System of Preferences to Safeguard U.S. Supply Chains and Combat China.” The Generalized System of Preferences (GSP) provides, “nonreciprocal, duty free treatment for certain U.S. imports from eligible developing countries. GSP is the largest and oldest U.S. trade preference program. Established by the Trade Act of 1974, GSP promotes economic development by eliminating duties on thousands of products when imported from one of 119 designated beneficiary countries and territories,” according to the Office of USTR. The GSP program expired on Dec. 31, 2020. The leading import sources for prior imports under GSP authority include Thailand, Indonesia, Brazil, Cambodia, and the Philippines.
  • Last June, Blumenauer introduced a trade and worker legislative package to increase U.S. competitiveness. The American Worker and Trade Competitiveness Act would reauthorize the expired GSP, Trade Adjustment Assistance (TAA), and the Miscellaneous Tariff Bill (MTB). The legislation calls for updates to all three trade programs, including retroactively renewing GSP through 2026 and excluding finished goods from MTB eligibility. Further, the bill includes new criteria regarding labor, the rule of law, human rights, and the environment that countries must abide by to receive duty-free access to the U.S. market.

Section 301

CRS issues updated section 301 summary

• The Congressional Research Service (CRS) released an updated summary of the section 301 exclusion process. In the report, CRS provides a historical review of the tariff exclusion process and data on exclusions granted and denied. “Through January 2020, the USTR received a total of 52,746 new exclusion requests, pertinent to all actions. Of these, 6,804 (13%) were granted and 45,942 (87%) were denied,” the report indicated. The analysis continued, “the USTR also issued extensions to certain exclusions. They applied to about 52 (of the 99) HTSUS subheadings and 516 (of the 2,129) specially prepared product descriptions. These extensions expired or are set to expire in December 2023.”
• In May, on the 4-year anniversary of section 301 tariffs, USTR initiated the statutorily required review of Section 301 measures associated with the investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.
  • Recall earlier this month the U.S. Trade Representative’s Office announced the extension of 352 reinstated exclusions and 77 Covid-related exclusions to the Section 301 tariffs on Chinese products while also continuing its statutory four-year review of the tariffs. The tariff exclusions are being extended until Dec. 31, 2023. They were previously set to expire Sept. 30, 2023.

Trade Trends

Current account deficit narrows

• The U.S. current-account deficit narrowed by $2.4 billion, or 1.1 percent, to $212.1 billion in the second quarter, the Commerce Department reported. The $2.4 billion narrowing of the current-account deficit was propelled in part by expanded surpluses in services and in primary income that were mostly offset by an expanded goods deficit. The Commerce Department noted that, “Exports of goods and services to, and income received from, foreign residents decreased $7.8 billion to $1.15 trillion in the second quarter. Imports of goods and services from, and income paid to, foreign residents decreased $10.2 billion to $1.36 trillion. Exports of goods decreased $29 billion to $497.6 billion, and imports of goods decreased $17.1 billion to $772.8 billion.”
  • Imports of goods decreased $17.1 billion to $772.8 billion and exports of goods decreased $29 billion to $497.6 billion The fall in two-way trade flows “reflected a decrease in industrial supplies and materials, primarily petroleum and products.” Regarding services trade, exports “increased $4.7 billion to $247.3 billion, reflecting increases in travel, mainly other personal travel, and in other business services, mostly professional and management consulting services. Imports of services decreased $5.5 billion to $175.7 billion, reflecting decreases in transport, mostly sea freight transport, in other business services, mostly technical, trade-related, and other business services, and in travel, mainly other personal travel.”
  • The current-account is the broadest measure of trade and income flows between the U.S. and the rest of the world, a measure monitored by economists for trends in domestic production and income.