TRADE UPDATE

Food & Agriculture
October 5, 2021

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • U.S. – China: U.S. tariffs on imports from China will remain, USTR Katherine Tai said, as the Biden administration plans to “build on” existing tariffs and confront Beijing for failing to fulfill its obligations under the Phase One Agreement. Tai said she will engage with her Chinese counterpart to assess China’s performance under the Phase One Agreement. In a speech designed to unveil the results of the Biden administration long-anticipated “top-down” review of China policy, Tai said a Phase Two agreement was not practical but the U.S. would use all available tools to address China’s non-market trade practices.
  • USMCA:  A group of House lawmakers sent a letter to Department of Homeland Security Secretary Mayorkas requesting an “immediate report” on the agency’s plan for operationalizing new border procedures for the reopening of the U.S.-Canada border. The lawmakers noted the economic and social cost of continued closure of the U.S.-Canada land border and that further delays will extend ongoing harm to businesses and people who rely on an open border.
  • U.S. – U.K.: U.K. Foreign Secretary Liz Truss said during the Conservative Party’s annual conference that a trade agreement between the U.S. and U.K. is not the “be all end all” of trade agreements.
  • Section 301: Ambassador Tai announced plans to restart a product-exclusion process for Section 301 tariffs on products from China as part of the Biden Administration’s China policy.
  • WTO: WTO Director-General Ngozi Okonjo-Iweala delivered a sobering message to heads of delegation that unless member countries confront their inability to reach consensus and make progress in critical negotiations that the 12th Ministerial Conference (MC12) “will be a failure.”  One observer noted the message was a “wake up call” for WTO members with less than two months until MC12 meetings in Geneva, Switzerland.

“Our objective is not to escalate trade tensions or double down on the previous administration’s flawed strategy.” “At the same time, where China continues to pursue its unfair and coercive practices, we will use the full range of our tools to ensure that the U.S.-China relationship works for American workers.”

— Ambassador Katherine Tai revealing Biden administration’s China trade policy in speech at CSIS

China Trade

Ambassador Katherine Tai, U.S. Trade Representative
  • U.S. tariffs imposed on imports from China will remain, Ambassador Katherine Tai said, as the Biden administration plans to “build on” existing tariffs and confront Beijing for failing to fulfill its obligations under the Phase One Agreement. “I think it’s going to be important to review China’s performance with China, and that’s going to be the critical first step in my mind,” Tai said of the two-year deal. Tai stressed the importance of the U.S.- China bilateral trade relationship stating, “We know that this is one of the most consequential relationships of our time, so it is worth our taking the time to get it right.” Industry groups for several months have urged the Biden administration to remove the U.S. section 301 tariffs covering nearly $370 billion in imports from China, and address China’s retaliatory tariffs.
  • Tai’s comments were delivered in a highly anticipated speech designed to outline the Biden administration’s long awaited “top-down review” of the U.S. China trade policy inherited from former the Trump Administration and to set the tone for Biden’s plans to press Beijing on tariffs, trade commitments and other economic issues between the two nations. Tai emphasized the need for a constructive dialogue between the U.S. and China. “Our objective is not to escalate trade tensions or double down on the previous administration’s flawed strategy.” “At the same time, where China continues to pursue its unfair and coercive practices, we will use the full range of our tools to ensure that the U.S.-China relationship works for American workers.”
  • In a USTR fact sheet released in conjunction with Tai’s speech, USTR noted these actions are the “initial steps” to “re-align our trade policies” towards China and noted the following priorities:
    • First, we will discuss with China its performance under the Phase One Agreement. China made commitments that do benefit certain American industries, including agriculture that we must enforce.  President Biden will continue to promote our economic interests – and build confidence for American industry. 
    • Second, while pursuing Phase One enforcement, we will restart our domestic tariff exclusions process to mitigate the effects of certain Section 301 tariffs that have not generated any strategic benefits and raised costs on Americans. We will ensure current Section 301 tariffs align appropriately with our economic priorities like boosting American workers’ wages and job opportunities, securing the resilience of critical supply chains, sustaining our technological edge, and protecting our national security interests. 
    • Third, we continue to have serious concerns with the PRC that were not addressed in the Phase One deal, specifically related to its state-centered and non-market trade practices including Beijing’s non-market policies and practices that distort competition by propping up state-owned enterprises, limiting market access, and other coercive and predatory practices in trade and technology. 
    • Lastly, we know that we cannot do it alone. We will continue consulting and coordinating with allies and partners who share our strong interest in ensuring that the terms of competition are fair, work collectively to set the rules of the road for trade and technology in the 21st century, and strengthen the global market for our workers and businesses. 

Phase One Agreement

  • Ambassador Tai said she would start immediate trade talks with her Chinese “counterpart” to discuss China’s performance on the Phase One Agreement. She noted that the U.S. continues to have “serious concerns with China’s state-centered and non-market trade practices that were not addressed in the Phase One deal.” Tai added, “As we work to enforce the terms of Phase One, we will raise these broader policy concerns with Beijing.” She also criticized the previous administration’s “Phase One” deal for failing to significantly change China’s trade practices that hurt the U.S. economy. “Even with the Phase One agreement in place, China’s government continues to pour billions of dollars into targeted industries and continues to shape its economy to the will of the state – hurting the interests of workers here in the U.S and around the world,” Tai said, and specifically mentioning Chinese government activity in the steel and the solar energy sectors that have disadvantaged these sectors in the United States.
  • According to August 2021 Census data, U.S. agricultural exports under the phase one agreement to China totaled $17.8 billion. This compares to a needed pace of $20.2 billion in agriculture exports for the year 2 goal to be reached. Cumulative agriculture phase one product exports to China in the 8 months of 2021 presently are 12% below the pace estimated to meet 2021 purchase commitments under the deal. In a year-over-year comparison, China has closed the gap considerably from a 42% lag in August 2020 to 12% presently.

USMCA

Secretary of Homeland Security, Alejandro Mayorkas
  • A group of congressmen sent a letter to Secretary Mayorkas discussing the economic effects of keeping the U.S.-Canada border closed, as well as a plan for operationalizing new border procedures for the reopening of the border. The group, which consisted of members from border states, stressed the benefit that a safe reopening plan would have for commercial traders. They warned that the lack of a plan is “a major problem for members of the commercial trade sector.” The land border restrictions were “delaying the usual $1.7 billion in products that cross the U.S.-Canada border daily.” The group also described the movement of people for non-commercial trade reasons as an economic driver that is also being limited.
  • No significant updates on the USMCA complaint by U.S. energy company Talos Energy Inc. filed under the USMCA over the Mexican government’s move to give authority over a major oil field to state-controlled Petróleos Mexicanos (PEMEX). According to Talos, the Mexican Energy Ministry (SENER) failed to demonstrate that it considered “the principles of economy, competitiveness, efficiency, legality, transparency, best practices of the industry and the best use of hydrocarbons,” as required under Mexican regulations in making its decision. The Talos’ complaint constitutes the first step under USMCA’s investment chapter requesting consultations though does not presently form the establishment of a dispute panel.
  • Mexico and Canada earlier requested consultations with the U.S. over the interpretation and application of USMCA auto rules of origin, which stipulate 75% North American content is required for a vehicle receiving designation of originating from North America. Mexico and Canada disagree over the U.S. interpretations of the new rule. They cite differing methodologies to measure the exact percentage of the regional value content of the vehicles, potentially leading to confusion between the countries and among auto companies. Luz María de la Mora Sánchez, Under Secretary for Foreign Trade in Mexico’s Economy Secretariat, said that the dispute “is not only about Mexico.” “This is about the three countries, because the three of us are integrated and we produce together. So whatever happens to one company in one country will affect the rest.” De la Mora emphasized that Mexico will “work very hard” to seek an understanding via the process with the U.S. but didn’t rule out the possibility of a dispute panel. 

Section 301

  • USTR will “build upon” the existing Section 301 tariffs on Chinese goods, according to comments from Ambassador Tai in a highly touted speech on the Biden’s administration’s China trade policy. Tai said that “Section 301 is a trade enforcement tool. It is a very, very important tool.” She added, “We will look at all available tools in addressing our concerns and ensuring that we are able to defend the interests of the American economy.” She avoided addressing the speculation that USTR was considering a new Section 301 investigation on China’s unfair subsidies, potentially setting the stage for new tariffs or a recalibration of the existing tariffs covering nearly $370 billion of Chinese goods.
  • The Office of USTR also announced plans to restart a product-exclusion process for Section 301 tariffs on products from China. In a speech at CSIS on the Biden Administration’s China policy, Ambassador Tai said the U.S. would start a “targeted tariff exclusion process” and that USTR would keep open options for additional exclusions in the future.
  • Chinese officials are urging the Biden Administration not to pursue a new U.S. Section 301 investigation into China’s subsidy practices, a move that would further strain trade ties. Chinese Ambassador to the U.S. Qin Gang said, “To be frank, the difficulties and uncertainties in China-U.S. trade and business cooperation are not from the Chinese side.” “We want to do more business with you, but the problem is how can we be allowed to do business as usual?” He highlighted the phase one trade deal and that “China has been faithfully implementing the agreement despite the pandemic and has made positive progress in enhancing [intellectual property rights] protection and expanding market access of agricultural products and the financial sector,” as illustrative of China’s commitment to improving the bilateral trade relationship. In contrast he noted the U.S. has put “more than 900 Chinese entities on various lists of restrictions. This has directly affected Chinese companies’ ability and willingness to purchase from the US and has had a negative impact on the implementation of the agreement.”
  • USTR announced it will once again extend Section 301 product exclusions on the 99 specific medical products from China. The previous extension would have ended September 30th, and the new extension will now last until November 14th. USTR considers this an interim extension, as it focuses on reviewing public comments concerning a longer extension. This longer extension of Section 301 exclusion would be for another six months if USTR decides to continue the longer extension.

Section 232 Investigations

European Commission Executive Vice President and Trade Commissioner, Valdis Dombrovskis
European Commission Executive Vice President and Trade Commissioner, Valdis Dombrovskis
  • European Commission Executive Vice President and Trade Commissioner Valdis Dombrovskis said on recently that the European Union (EU) is looking very closely at Section 232 steel and aluminum tariff deals that the U.S. made with Canada and Mexico as a framework for a potential deal between the U.S. and the EU. While not getting into specifics on which aspects of the previous tariff deals the EU was focusing on, the Canada and Mexico deals removed the metal tariffs and subsequent retaliatory tariffs, but they agreed to a strict monitoring regime to ensure that imports do not surge beyond historic volumes. If the imports are found to be exceeding historic volumes, the tariffs could be reimposed. Dombrovskis said that in addition to the Canada and Mexico deals, that the EU was open to considering different ideas for tariff resolution. Dombrovskis emphasized that time was running short to reach an agreement by the end of November, when the EU is poised to double its retaliatory tariffs if no deal is reached.
  • As reported earlier, the Biden administration initiated a Section 232 investigation on imports of neodymium-iron-boron permanent magnets over national security concerns last Friday. Secretary Raimondo said in a statement, “The Department of Commerce is committed to securing our supply chains to protect our national security, economic security, and technological leadership.” “Consistent with President Biden’s directive to strengthen our supply chains and encourage investments to shore up our domestic production, the Department initiated a Section 232 investigation on imports of NdFeB permanent magnets to determine whether U.S. reliance on imports for this critical product is a threat to our national security.” The announcement marks Biden’s first Section 232 investigation, but a more targeted application of the “national security” provision int the Trade Expansion of 1962, after six Section 232 investigations under the prior administration.  Neodymium magnets are made of rare earth elements and used to make critical infrastructure components, military systems, magnetic resonance imaging machines, computer parts and car engines, among other products. As noted in the Federal Register notice, Commerce is inviting public comment on the investigation.
  • Section 232 authority was rarely used prior to President Trump, who initiated six Section 232 investigations – steel, aluminum, autos and auto parts, transformers, uranium ore, titanium, and vanadium. Of the six products, only vanadium was not found to threaten national security according to the Department of Commerce reports. In 2018, the Trump administration-imposed tariffs of 25% and 10% on steel and aluminum imports, respectively, but declined formal action the other investigated imported products.

COVID-19 Developments

  • The advance international trade deficit in goods increased to $87.6 billion in August from $86.8 billion in July as imports increased more than exports.  Exports of goods for August were $149.0 billion, $1.1 billion more than July exports. Imports of goods for August were $236.6 billion, $1.9 billion more than July imports.

U.S. – U.K. Trade

U.K. Foreign Secretary, Liz Truss
  • U.K. Foreign Secretary Liz Truss said during the Conservative Party’s annual conference that a trade agreement between the U.S. and U.K. is not the “be all end all” of trade agreements. The former trade minister emphasized that the U.K. “want to see them out there,” referring to the U.S. trade position. Ms. Truss also highlighted the importance of negotiating trade deals with developing countries, both for the U.K. and its allies, saying that to do so would help both countries and give developing countries other trade opportunities separate from authoritarian countries.
  • President Biden and U.K. Prime Minister Johnson, met recently in Washington, DC to express mutual ambitions to continue working toward deeper trade ties, including a bilateral trade pact, but no specific timing for formal trade talks were given. Johnson acknowledged that the Biden administration is focused on domestic policies, the economic recovery and controlling the pandemic, but said the U.K. stands ready to reengage on formal trade talks. Johnson also reported that the U.S. agreed to lift a ban on lamb imports from the United Kingdom. Johnson told reporters, “I can tell you today that what we are going to get from the United States now is a lifting of the ban, the decades-old ban — totally unjustified and discriminating against British farmers — the ban on British lamb.” Johnson emphasized that lifting the import ban was illustrative of important “incremental steps on trade” while the Biden administration has paused pursuit of new trade agreements.
  • The dimming prospects of restarting U.S.-U.K. trade talks has prompted U.K. officials to examine alternative plans to deepen trade ties between two countries. In a move that would mark a re-orientation of trade away from Europe, The Financial Times reported that UK ministers were exploring applying to join USMCA. “There are a variety of different ways to do this,” one senior government figure said. “The question is whether the US administration is ready. The ball is in the US’s court. It takes two to tango.” USTR did not comment, and Representative Brendan Boyle (D-PA) severely questioned the notion of the U.K. joining USMCA. According to the Irish Times, Boyle said, “I have never heard of it and it has never been discussed once in the Ways & Means Committee.”
  • In addition to the USMCA, U.K. officials are reportedly examining whether the U.K. could deepen trade ties with the U.S. via the CPTPP. The U.K. applied to join the CPTPP earlier this year, while the Biden administration recently mentioned possible consideration of exploring entrance into the CPTPP.
  • Another hurdle to restarting U.S.-U.K. trade talks are increasing tensions over Northern Ireland. Nancy Pelosi recently warned there will be no trade deal between the UK and U.S. if Brexit tensions between Britain and the EU damage peace in Northern Ireland. Pelosi told the Chatham House think tank during a visit to London that her comment was “not a threat, it’s a prediction.” Pelosi also met U.K. Prime Minister Boris Johnson in Downing Street, just days before the prime minister is set to meet U.S. President Joe Biden in the White House. Ambassador Katherine Tai continues to reiterate that USTR is assessing the progress of previous negotiating rounds under bilateral trade talks with the U.K. and Kenya that started under the Trump Administration.

U.S. – EU Trade

  • The inaugural meeting of the United States–European Union Trade and Technology Council (TTC) met to discuss and establish “common principles to update the rules for the 21st century economy.” Attending were U.S. Co-Chairs, Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo, and United States Trade Representative Katherine Tai, and EU Co-Chairs European Commission Executive Vice Presidents Margrethe Vestager and Valdis Dombrovskis. Ambassador Tai emphasized during the meeting that the TTC is an important platform for assuring that the United States and the EU “remain global leaders in technology and innovation, projecting our shared democratic values internationally, and protecting fundamental labor rights.” Secretary Blinken noted the United States and EU represent two of the world’s largest economies and, thus, “have a unique ability to help shape the norms, the standards, the rules that will govern the way technology is used, the technology that affects the lives of virtually all of our citizens. We have an ability to set the pace, to set the standard.” 
  • At the conclusion of the meetings the U.S. and EU issued a Joint Statement reaffirming TTC’s objectives: to coordinate approaches to key global technology, economic, and trade issues; and deepen transatlantic trade and economic relations, basing policies on shared democratic values.  As a result of this first meeting the U.S. and EU announced close coordination on a set of critical economic and technology issues, including:

    Global trade challenges and addressing non-market, trade distortive practices:  Seek to strengthen U.S.-EU competitiveness and technological leadership by developing common strategies to mitigate the impact of non-market practices at home and in third countries and by working to avoid new and unnecessary barriers to trade, especially in products and services derived from emerging technologies. The U.S. and EU also intend to use various tools to protect workers and labor rights, combat forced and child labor, and consult on relevant trade, climate, and environmental issues.

Other topics of collaboration discussed were semiconductor supply chains, investment screening, export controls, and artificial intelligence.  No details were provided on timing for the next meeting.

CPTPP

  • Ambassador Tai was non-committal when questioned about the U.S. warming to the concept of entering or re-engaging in Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) during the speech on China trade policy. Rather she mentioned continued U.S. engagement in the Indo-Pacific region and stressed the importance of the region to U.S. trade.
  • Taiwan became the latest country seeking to join the CPTPP. Taiwan’s formal application to join the CPTPP was sent to New Zealand, the depositary for the agreement comes one week after China announced its application. Taiwanese Economy Minister Wang Mei-hua Taiwan has been making preparations to join CPTPP. Wang noted that China’s “sudden” move to join the CPTPP will certainly raise attention to China’s trade policies and practices, which Wang said don’t align with free market and economic principles. She further suggested China may not meet CPTPP’s high standards and that “friction” exists between China and some CPTPP member states. Taiwan’s is the third country, after the UK and China, in the past few months to seek membership in the CPTPP.
  • China’s formal request to join CPTPP in the past few weeks has heightened deep concerns over China’s aggressive trade and economic influence in the region. Senators Carper and Cornyn said the development was “troubling” and doubled down on their call for the U.S. to reconsider joining CPTPP. “For quite some time, we have been warning about China’s subtle yet deliberate moves to join the CPTPP – the very trade pact crafted to counter China’s trade influence that the United States mistakenly walked away from,” the two senators said in a statement. “We’ve long believed that United States trade leadership is critical for our country’s economy and national security – and it’s clear that China is not waiting to assert itself in the region. The U.S. cannot afford to continue waiting in the hallway – we must get our seat back at the table to re-engage our Asia Pacific allies in trade.”
  • Sen. Rob. Portman (R-OH) raised concerns of China potentially joining CPTPP and its impact on other key U.S. trade partners. He warned that CPTPP countries should “recognize the dangers of doing a trade agreement with an anti-free market, techno-nationalist country like China.” Portman noted he was “very worried” about the implications of China’s accession to CPTPP for USMCA. According to Article 32.10.5 of the USMCA, USMCA members may terminate the agreement if another enters into a free trade agreement with a “non-market” country. Portman continued, we “cannot lose all the gains we made in USMCA to support American farmers, workers, and businesses.” “So I hope the administration is working closely with Mexico and Canada to protect USMCA.”

U.S. – Vietnam

  • The U.S. and Vietnam reached an agreement on Vietnam’s timber practices. USTR announced the resolution of the U.S. concerns about Vietnamese timber practices, concluding a Section 301 investigation and determining that trade remedies are not warranted. USTR Katherine Tai said in statement, “I commend Vietnam for its commitment to address our concerns regarding the importation and use of timber that is illegally harvested or traded.” “With this Agreement, Vietnam will provide a model — both for the Indo-Pacific region and globally — for comprehensive enforcement against illegal timber.” She noted that the U.S. “looks forward to working with Vietnam to deepen collaboration and information exchange,” including through a Timber Working Group established by the agreement. USTR launched a Section 301 investigation into Vietnam’s timber practices in the Trump administration last October but held the results of the investigation given transition to a new administration and USTR.

Biden Transition

  • USTR Deputy U.S. Trade Representatives, Jayme White and Sarah Bianchi have officially joined USTR, as Ambassador Katherine Tai gradually builds her top leadership team. Recently Jayme White was confirmed by an 80-18 vote in the Senate. Sarah Bianchi was confirmed a day after White’s confirmation by a vote of 85-11. White’s portfolio includes the Western Hemisphere, Europe, the Middle East, labor and environment.  Bianchi takes on the portfolios for Asia, Africa, investment, services, textiles and industrial competitiveness.
  • The two other Deputy USTR nominees, María Pagán, ambassador to the World Trade Organization, and Christopher Wilson, chief for intellectual property, are awaiting scheduling of a confirmation hearing. As reported earlier, President Biden intends to nominate Elaine Trevino to serve as Chief Agricultural Negotiator at the Office of USTR. Ms. Trevino presently serves as the president of the Almond Alliance of California, a trade association that “advocates on regulatory and legislative issues in areas of international trade, food safety, water quality and availability, crop protection, air quality, worker safety, supply chain and feed quality,” the White House said in the announcement. Trevino is a former deputy secretary at the California Department of Food and Agriculture, where she was responsible for the oversight of international export and trade programs. She is also a member of the Agriculture Department’s Agriculture Policy Advisory Committee. The White House statement noted, “As the leader of an organization that advocates for California’s leading agricultural export, Elaine understands tariff and nontariff barriers to trade and the importance of maintaining America’s strong trade agreements and global positioning.” The statement added that Trevino has experience addressing retaliatory tariffs, technical sanitary and phytosanitary barriers as well as port congestion and supply chain disruptions.

WTO

Ngozi Okonjo-Iweala, WTO Director-General
  • The U.S. notified the WTO that its 2019-2020 marketing year agriculture subsidies were slightly below the $19.1 billion limit under WTO rules, yest still a new high. In its latest notification, the U.S. also reported $13.2 billion in non-product-specific support and $1.5 billion in product-specific support. Overall, the U.S. said it spent nearly $33 billion on agricultural trade-distorting subsidies from Oct. 1, 2019, until Sept. 30, 2020.  The elevated subsidies were generated under the Trump Administration to offset the China’s retaliatory tariffs on U.S. food and agriculture products in response to the nearly $370 billion in U.S. tariffs against China under Section 301 authority. The Trump administration provided farmers with $12 billion in 2018 and a $16 billion aid package in 2019 to counteract China’s retaliatory tariffs.
  • Reports out of Geneva indicate WTO Director-General Ngozi Okonjo-Iweala told heads of delegation that unless member countries confront their inability to reach consensus and make progress in critical negotiations that the 12th Ministerial Conference (MC12) “will be a failure.” With less than two months until MC12, Ngozi Okonjo-Iweala painted a sobering picture and realities of achieving positive outcomes at MC12. According to an official in Geneva, the WTO leader issued a “sober” message, and said ‘At this rate we’re not going to do it. And not doing it should really not be considered by anyone to be an option.” The official noted the message “was the wake-up call that the DG delivered to the members. And no one likes a wake-up call.” 
  • As noted earlier, India and several developing countries from Africa and the Caribbean last week proposed revised carveouts to the fisheries subsidies text that exemplify the continuing WTO divide on ambitions to curb harmful subsidies. The divide, largely on developing and developed countries lines, rests largely on special and differential treatment for developing countries, the later seeking latitude and exemptions for their nascent or smaller fishing industries. For example, in the latest proposal India proposed removing any time and geographic limit in the text’s exception to subsidy prohibitions for artisanal and subsistence fishers as well as the prohibition on certain subsidies that contribute to overfishing. Rather, India seeks a provision for self-determination on overfishing. Several African countries proposed a de minimis threshold in place of the artisanal fishing exemption, arguing such a provision provided more balance to the existing negotiating text.
  • The U.S., EU and several other developing countries generally oppose special carveouts in the fisheries negotiations. The fisheries talks are a critical component of MC12 agenda. Countries involved in the talks have said they want a deal finalized before MC12 on November 29th. It’s unclear whether the most recent developing country proposals will widen or close the gap in the current fisheries talks.
  • The WTO has decided to hold their ministerial conference (i.e. MC12) in-person, formally sending a letter inviting representatives to Geneva with some restrictions. According to the letter, each country’s delegation size will be limited to just four representatives, and each meeting will only be able to include two of those four representatives. The current details surrounding the meeting could still change though depending on how the COVID-19 pandemic evolves. The uncertainty of the global pandemic, which remains uncontained in many countries and new surges of COVID variants may complicate the planned in-person MC12 meetings in Geneva, Switzerland during Nov. 30th thru December 3rd. The primary outcome WTO leaders are expecting will revolve around fishery subsidies, responding to the pandemic and mitigating its impact on global trade, and agriculture subsidies and transparency, according to reports.