TRADE UPDATE

Food & Agriculture
January 3, 2023

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • U.S. – Indo-Pacific: IPEF negotiations, covering three of the four pillars: Pilar II (Supply Chains), Pillar III (Clean Energy), and Pillar IV (Anti-Corruption and Tax), are scheduled to take place from Feb. 8-11 in India. There is no word on the next round of talks regarding the trade pillar.
  • USMCA: The Biden Administration announced its intentions to expand consultations with Canada regarding disputes over current dairy policies, stopping short of requesting a dispute settlement case. Ambassador Katherine Tai noted that “We remain very concerned by Canada’s refusal to honor USMCA commitments,” with dairy policies that effectively “deny U.S. workers, farmers, producers, and exporters the full benefits of market access they were initially promised.”
  • Biden Nominees: After a flurry of political brokering, two long-standing Biden agriculture and trade nominees were confirmed in the Senate during the lame duck session after several senators lifted their holds. The Senate confirmed Alexis Taylor as Under Secretary for Trade at the U.S. Department of Agriculture on Dec. 21, and Doug McKalip as Chief Agricultural Negotiator at the Office of the U.S. Trade Representative was confirmed the following day. Taylor and McKalip were nominated by President Biden on May 13 and June 8, respectively.
  • Biden Nominees: Alexis Taylor was sworn in on Dec. 29 as the second Under Secretary for Trade and Foreign Affairs at USDA, according to a recent USDA press release.
  • WTO: Director-General Okonjo-Iweala indicated disappointment on the WTO’s progress this year at MC12 and other activities. In the final General Councill meeting of 2022 she noted the WTO has “a lot of ground to cover and will have to intensify our efforts when we return from the winter break.” Among the core challenges to address, she listed “economic slowdown, food and energy crises, climate change, and persistent development challenges” under which “the WTO cannot afford to stand aside.”

“He’s ready for the big job ahead to address key issues like food affordability, lowering costs for farmers, and busting through trade barriers to support American ag exports. I’m looking forward to seeing what he accomplishes as the chief agricultural negotiator.”

— Senator Ron Wyden commenting on confirmation of Doug McKalip as USTR Chief Agricultural Negotiator

U.S. – Indo- Pacific

IPEF negotiations scheduled for India

  • Negotiators are set to travel to India in February to continue discussions about the Indo-Pacific Economic Framework (IPEF), according to a press release from the U.S. Department of Commerce. The meetings are scheduled to take place from Feb. 8-11, with a focus on three of the four pillars: Pilar II (Supply Chains), Pillar III (Clean Energy), and Pillar IV (Anti-Corruption and Tax). Details for further negotiations of Pillar I (Trade) have yet to be announced.
    • “The ministers had productive discussions on the economic benefits of IPEF membership and reaffirmed their collective commitment to pursue an inclusive high-standard economic agreement that will enhance the economic competitiveness of all of the IPEF partners’ economies,” the Commerce Department revealed.

USMCA

USTR raises case against Canadian dairy

Mary Ng, Minister of International Trade, Export Promotion, Small Business, and Economic Development, Canada
  • The Office of the U.S. Trade Representative, on Dec. 20 announced its intentions to expand consultations with Canada regarding disputes over current dairy policies. Ambassador Katherine Tai noted that “We remain very concerned by Canada’s refusal to honor USMCA commitments,” with dairy policies that effectively “deny U.S. workers, farmers, producers, and exporters the full benefits of market access they were initially promised.” The U.S. has yet to request dispute settlement procedures on the issue but has demonstrated willingness to take action should dairy policies continue without changes.
  • However, Canadian Trade Minister Mary Ng revealed that “Dispute settlement panels have repeatedly confirmed that our supply management system is in line with our international trade obligations,” rejecting the notion that the country’s dairy policies have breached any component of the U.S.-Mexico-Canada Agreement (USMCA).
  • USTR Katherine Tai said in press release, “We remain very concerned by Canada’s refusal to honor USMCA commitments,” “Rather than work toward meeting its obligations, Canada persists in implementing new dairy policies that are inconsistent with the USMCA, and which continue to deny U.S. workers, farmers, producers, and exporters the full benefits of market access they were initially promised. We remain steadfast in our commitment to use all tools available to enforce our trade agreements and ensure that our dairy industry can offer a wide range of high-quality American products to Canadian customers.”
  • Agriculture Secretary Tom Vilsack, in the same USTR press release said, “Canada remains in violation of its commitments under the USMCA by not removing its trade restrictions on American dairy producers.” “Obtaining access to the Canadian market for U.S. producers and exporters is an important priority for this administration, and the U.S. Department of Agriculture and the Office of the U.S. Trade Representative will continue to work in lockstep and use every tool at our disposal to achieve market access.”
    • Recall that the U.S. first requested dispute settlements under USMCA in 2021, which resulted in a ruling that favored U.S. claims. The Biden Administration has since initiated a dispute settlement consultation period which is set to be extended further into 2023. Key among its concerns is that “Canada applies different criteria for calculating the market share of different segments of applicants, and Canada is failing to allow importers the opportunity to fully utilize TRQ quantities,” according to USTR.

Trudeau confirms attendance for leader summit

  • Canadian Prime Minister Justin Trudeau announced that he would be attending the Jan. 10 North American Leaders Summit in Mexico City. The prime minister noted that, among other items, the summit will involve discussions on the “electric vehicle supply chain, competitiveness, climate change and the environment, migration, diversity and inclusion, health, and security,” according to PoliticoPro. Specifically, the leaders intend to address the U.S. Inflation Reduction Act, Mexican energy and biotech corn regulations, and measures to ensure North American competitiveness on the global market.

Biden Nominees

McKalip and Taylor confirmed

Alexis Taylor, USDA Under Secretary for Trade, Doug McKalip, USTR Chief Agricultural Negotiator
  • Last week, two long-standing Biden agriculture and trade nominees were confirmed after several senators lifted their holds. The Senate confirmed Alexis Taylor as Under Secretary for Trade at the U.S. Department of Agriculture on Dec. 21 and Doug McKalip as Chief Agricultural Negotiator at the Office of the U.S. Trade Representative was confirmed the following day. Taylor and McKalip were nominated by President Biden on May 13 and June 8, respectively.
  • According to reports, the impasse on Taylor’s confirmation was resolved when Senator Joni Ernst (R-IA) reportedly agreed to lift her hold on another nominee provided that Senator Bill Hagerty (R-TN) lifted his hold on Taylor. Further, Senator Dan Sullivan (R-AK) also released his hold on Taylor enabling a Senate vote. 
  • With regards to McKalip, Senator Hagerty (R-TN) lifted his hold after having discussed his opposition to strict regulations on the walking horse industry with officials from USDA. Senator Bob Menendez (D-NJ) also lifted his hold on McKalip following a discussion with U.S. Trade Representative Katherine Tai on Dec. 21. According to a spokesperson from USTR, “During his monthslong quest to address concerns regarding USTR’s accountability, Sen. Menendez has been laser focused on finding a path forward to increase transparency and is pleased to have received a commitment to achieve that goal.”
    • In a statement, USTR Katherine Tai lauded the development and McKalip’s qualifications stating, “Since he was nominated to be USTR’s Chief Agricultural Negotiator in June 2022, Doug McKalip has generated broad, bipartisan support from Members of Congress, governors, and state agriculture commissioners – as well as strong endorsements from key stakeholders. His decades of public service, including his time at USDA as a trusted advisor to Secretary Vilsack, makes him uniquely qualified to take on this important role.”
    • Senator Debbie Stabenow (D-MI)¸ Chairwoman of the Senate Committee on Agriculture, Nutrition, and Forestry commented on the breakthrough in the confirmations, “It’s long overdue that these critical positions at USDA and the Office of U.S. Trade Representative are filled with Senate confirmed nominees.” “Doug McKalip has proven that he is ready for the essential task of growing new markets abroad and protecting our producers from unfair trade practices. I am glad my colleagues and I could come together to confirm these outstanding nominees,” Stabenow said.
    • Senator Boozman (R-AR), Ranking Member of the Senate Agriculture, Nutrition and Forestry Committee added, “Two more key appointments for agriculture were confirmed in the closing hours of the session. As the chief agricultural negotiator at USTR, Doug McKalip will work hand in hand with recently confirmed Undersecretary Alexis Taylor to ensure America’s farmers and ranchers have fair access to the world’s markets. I am confident he will be a strong advocate for America’s farmers and ranchers.”
  • Additionally, Dr. Jose Esteban was confirmed to serve as Under Secretary for Food Safety at USDA. Esteban takes over the nation’s highest food safety position after serving as chief science officer for USDA’s Food Safety and Inspection Service (FSIS). President Biden nominated Esteban on Nov. 15, 2021. The Senate Committee on Agriculture, Nutrition and Forestry held his confirmation hearing on Sept. 27, 2022.

EV Tax Credit

U.S. makes concessions to European demands

  • The Biden Administration, last week, announced a system to allow for flexibility in the EV tax credit under the Inflation Reduction Act, according to a white paper released by the U.S. Department of Treasury. The measure will review foreign candidates for benefits under the tax credit provided that they originate from countries with a free trade agreement with the U.S. However, recipients of the full tax credit must conduct final assembly of the vehicles in the U.S., Canada, or Mexico. The department is expected to provide further details on the provision in March of 2023.
  • Based on current standards, the Treasury Department has listed the following manufacturers as potential recipients of the credit: Ford Motor Company, Nissan North America, Rivian Automotive, LLC, and Stellantis N.V. Eligible producers to receive the full $7,500 credit per vehicle must meet the following requirements:
    • Final assembly took place in North America; and
    • Retail price does not exceed $80,000 for vans, SUVs, and pickup trucks or $55,000 for other vehicles
  • The change in policy seeks to dispel trade tensions with European partners, many of which have voiced concerns regarding the discriminatory nature of the tax credit as it pertains to competitiveness in the U.S. market. Recall that in early December, Treasury released a framework for the EV credit. Under the provision, automakers would be eligible to receive up to $3,750 in tax credits should components and critical materials in car batteries be sourced domestically.

U.S. good trade deficit drops sharply on lower import demand

  • The U.S. trade deficit in goods decreased sharply in November, propelled largely by decreasing imports. The monthly advanced goods trade deficit decreased 15.6% from $98.8 billion to $83.3 billion in November as both imports and exports declined, according to the U.S. Census Bureau. Exports of goods for November were $168.9 billion, $5.3 billion less than October exports. Imports of goods for November were $252.2 billion, $20.8 billion less than October imports.

Farmers see high commodity prices

  • Farmers, ranchers, and agriculture companies have been seeing large upticks in cash flow, due to recent price increases in U.S. commodities. According to forecasts by the U.S. Department of Agriculture, net farm income in the U.S. is projected to reach $160.5 billion for 2022. The forecast also projects overall earnings for U.S. farmers to rise 14%. At the same time, many growers have experienced larger challenges this year, fueled by droughts and other climate uncertainties. Climbing interest rates combined with demand for agricultural products have the potential to raise expenses for farmers in equipment purchases and maintenance as well as other input costs.
    • Head of investor relations at Deere & Co., Brent Norwood, held that “It’s going to take a couple of growing seasons to ease the tight supply,” particularly with uncertain grain shipments from the Ukraine region.

U.S. beef exports boom to East Asia

  • According to a report by the U.S. Department of Agriculture, U.S. exports of beef to East Asia are set to hit a record for 2022. Through September, the U.S. shipped roughly $6.6 billion of beef to South Korea, China, Hong Kong, Japan, and Taiwan, marking a 22% increase from 2021. Both the value and overall volume of beef products have increased, with key drivers being the support of growing middle-class consumers and flexible e-commerce retail in the region.
  • Of these statistics, South Korea became the most valuable destination for U.S. beef exports in both 2021 and 2022. FAS reports that “After 10 years of a South Korea-U.S. Free Trade Agreement, tariff rates for beef products such as boneless beef, fresh, chilled, or frozen, sit at 10.6%.” Further, the U.S. is now negotiating a bilateral pact with Taiwan which would encompass additional measures to encourage beef exports to the country. Although rising beef prices in East Asia remain a concern, FAS reported optimism for growth in the region. “In spite of supply chain disruptions for U.S. fresh or chilled beef, longer shipping times, and higher costs, import demand for beef products should remain steady,” FAS noted.

Egg prices uptick amid Bird Flu

  • The U.S. has reported significant outbreaks of an avian influenza, killing millions of chickens and turkeys in 2022. Egg prices in the Midwest have experienced large increases in price, rising over 30% from January to December, outpacing increases in several other agricultural commodities. According to USDA, over 40 million egg-laying chickens have died this year in the outbreak, alone. The 5% decrease in supply of egg-laying chickens has contributed to the tight egg supply and high prices experienced in the market so far.

Supply Chains

U.S. limits imports from three companies with forced labor allegations

  • U.S. Customs and Border Protection announced last week the barring of imports from three companies with alleged forced labor abuses among North Korean workers. The companies in question, Jingle Trading Ltd., Rixin Foods Ltd, and Zhejiang Sunrise Garment Group Co., are now operating under sanctions imposed by a 2017 law for the forced labor complaints.
    • Assistant commissioner at CBP, AnnMarie Highsmith, asserted that “CBP is committed to keeping America’s supply chains free of goods produced with forced labor and to eliminating this horrific practice,” continuing, “Legally and morally, we cannot allow these goods into our commerce.”

Tariffs to resume on infant formula

  • Tariff exemptions on infant formula entering the U.S expired on Jan. 1 following months of shortage in domestic supply. In the summer of 2022, Congress announced the suspension of tariffs to meet excess demand, with President Joe Biden having signed the Bulk Infant Formula to Retail Shelves Act in October. The provision waived duties for formula base powder used to produce infant formula in the U.S. through the end of the year.
  • Senior Vice President for Trade with the National Milk Producers Federation, Shawna Morris, expressed the dairy industry’s support for the extension and subsequent expiration of the suspension, noting that current efforts seek to turn a “unique crisis into a long-term path toward a permanent, unnecessary influx of imports into the U.S.” Production of formula has largely recovered since the onset of shortages, with the U.S. Census Bureau reporting a 147% uptick in formula imports by volume in October from last year, and 291% rise based on value.

Trade Policy

Rep. Scott to Chair Ag Committee

David Scott, Representative of Georgia’s 13th district
David Scott, Representative of Georgia’s 13th district
  • U.S. Representative David Scott (D-GA) was selected to continue his Chair position on the House Agriculture Committee. Following the vote, Rep. Scott stated, “Under my leadership, I believe we have accomplished important groundwork leading into the 2023 Farm Bill and I am looking forward to working across the aisle to ensure that we are doing our best to meet the needs of producers and consumers in this important legislation.”
    • The vote follows past criticism of fellow Democrats in the House, several of which voiced concern about his ability to push the Democrat agenda.

Trade adjustment included in omnibus

Ron Wyden, U.S. Senator for Oregon
Ron Wyden, U.S. Senator for Oregon
  • Before its passage on Dec. 23, the omnibus spending package was altered to include a year-long extension on trade assistance programs for displaced workers, a shift driven largely by outsourcing in the job market. While the formal renewal of the Trade Adjustment Assistance program had been stagnated throughout much of 2022, Senate Finance Chair Ron Wyden (D-OR) revealed that he had “fought to ensure the omnibus renewed funding for trade assistance, and I look forward to working with my colleagues to improve the program as part of a long-term package that addresses other expired trade initiatives as well.”
    • With the extension in place, Democrats hold that the measure will help “workers succeed and have the skills to run the manufacturing facilities that will be the backbone of a durable American economy.”
  • Further, calls in both chambers can be heard for expanded action on the trade front for 2023. Representative Adrian Smith (R-NE) recently highlighted concerns regarding the “little action” undertaken by the Biden Administration to advance trade initiatives. In his comments, Rep. Smith stated, “Our wanting to talk about TPA and get it done … puts the pressure on the administration to tell us what they want, rather than just to be so quiet about it.” Further, Smith emphasized the need for a level playing field with increased access for the U.S. into markets of close trading partners to settle the current “imbalance.”

Restoring free trade recommendations by departing lawmakers

  • Retiring lawmakers Sen. Pat Toomey (R-PA) and Rep. Ron Kind (D-WI) issued a report outlining recommended steps to restoring U.S. trade leadership and curtailing damaging use of Presidential tariff authority.  The report, “How to Save Trade:  Five Bipartisan, Bicameral Trade Policy Recommendation for the 118th Congress, outlined the following steps:
    • Aggressively Work to Conclude Comprehensive Free Trade Agreements—inclusive of Market Access—with U.S. Allies; Reject So-Called “Sole Executive Agreements”
    • Clarify the Legal Process for Withdrawal from Free Trade Agreements Renew & Strengthen Trade Promotion Authority
    • Rein in Executive Abuse of Tariff Authorities, including Section 232
    •  Support Efforts to Positively Reform the World Trade Organization; Reaffirm the United States’ Commitment to the WTO
  • In the report, both lawmakers lamented the U.S. is “falling behind the rest of the world in securing new trade agreements,” particularly in Asia where China is “displacing” the U.S. as the largest trade partner.  They concluded that “Congress should direct the U.S. Trade Representative (USTR) pursue negotiations with countries where an FTA is quickly achievable, such as the UK and Kenya, and consider rejoining the CPTPP pending modifications that could win bipartisan congressional support.”
  • Toomey and Kind, strong supporters of free trade during their tenures in the Senate and House of Representatives, respectively, noted, “We have spent our careers advocating for freer trade because it leads to greater economic prosperity, disproportionately benefits lower-income Americans, enhances our security ties to friendly nations, and is morally right.”

WTO

WTO rejects U.S. national security defense

Algernon Yau, Secretary for Commerce and Economic Development, Hong Kong
Algernon Yau, Secretary for Commerce and Economic Development, Hong Kong
  • The WTO recently rejected the U.S.’s claims to national defense in navigating its trade agenda, stating that the country has breached international trade rules on several occasions. Most recently, the organization ruled against the U.S. in a case requiring products made in Hong Kong to be labelled as “Made in China” before being sold in the U.S. Similarly, a couple weeks ago, the WTO also ruled against the Trump Administration’s steel and aluminum tariffs under the defense of national security concerns.
  • Following the tariff ruling, U.S. Trade Representative Katherine Tai noted that the WTO was on “very, very thin ice” with the U.S. Along this line, USTR spokesperson Adam Hodge declared that “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement, and the WTO has no authority to second-guess the ability of a WTO Member to respond to what it considers a threat to its security.”
  • In response to the U.S.’s opposition to the recent decision, Hong Kong’s Secretary for Commerce and Economic Development Algernon Yau upheld the WTO announcement, declaring the U.S. a rule breaker. “The revised origin marking requirement is politically motivated and a vain attempt to interfere with Hong Kong’s internal affairs through weaponizing trade. The U.S.’ despicable intent and ulterior motives will neither stand nor be accepted by the international community,” he stated.
    • Bernd Lange Chair of the EU Parliament’s International Trade Committee deemed the U.S. response to WTO rulings as “incomprehensible,” and emphasized the need “to have an honest discussion with the U.S. if they are moving away from a rules-based trading system, and if and how we can rescue the existing system.”

DG Okonjo-Iweala wants to put WTO “back on track”

Ngozi Okonjo-Iweala, Director-General of the WTO
Ngozi Okonjo-Iweala, Director-General of the WTO
  • Director-General of the WTO, Ngozi Okonjo-Iweala, during the final meeting of the WTO’s General Council for 2022, voiced disappointment in the progress achieved since the 12th Ministerial Conference (MC12) earlier this year. With MC13 scheduled to take place in Abu Dhabi in February 2024, the Director-General emphasized that the organization has “a lot of ground to cover and will have to intensify our efforts when we return from the winter break.” Among the core challenges to address, DG Okonjo-Iweala listed “economic slowdown, food and energy crises, climate change, and persistent development challenges” under which “the WTO cannot afford to stand aside.”
  • Further, the DG highlighted the need to appoint chairs for WTO negotiations on agriculture and fisheries subsidies in 2023. Members at the meeting also agreed to push the MC12 deadline for making a judgement about the potential extension of the TRIPS Decision. Additionally, Ambassador Didier Chambovey announced his intention to convene an informal meeting on WTO reform on development issues in February.

WTO projects weakened trade activity

  • On Dec. 22, the WTO released its Services Trade Barometer, projecting weakened services trade for the first few months of 2023, following softer activity this month. The barometer has a baseline of 100 but fell to 98.3 in October. Amid slowing economic activity, the barometer recorded strong performance scores in financial services (107.8), passenger air transport (105.2), and ICT services (103.2). However, the index also revealed lower scores in construction services (92.9), container shipping (92.8), and services on the Purchasing Managers’ Index (91.1).
  • Although trade in world services surpassed pre-pandemic levels in Q2 of 2022, levels in the last two quarters of the year reveal moderation, with commercial services leveling out since the beginning of the year. The leveled trend is expected to hold into 2023, due in part to “declining growth prospects in major service industry economies.”