TRADE UPDATE

Food & Agriculture
October 11, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• U.S. – Mexico: Mexican Treasury Secretary Rogelio Ramírez de la O on October 3rd announced the imposition of export restrictions through the Opening Agreement Against Inflation and Scarcity (APECIC). According to the provision, beans and white corn will be among 24 products that the Mexican government and business leaders have agreed to restrict to boost national production.
• U.S. – Mexico: On October 3rd, a coalition of North American food and agriculture groups released a study conducted by World Perspectives, Inc., outlining the effects of a proposed ban on genetically modified (GM) corn in Mexico. The study estimates the impacts of the ban on producers and consumers in both the U.S. and Mexico.
• U.S. – China: In an October 4th letter, more than 170 business groups petitioned the Office of the U.S. Trade Representative to extend Section 301 tariff exclusions on Chinese goods with expirations set for November and December. The group also asked USTR to consider a “more robust exclusions process” for all products under Section 301 tariffs.
• U.S. – Kenya: The recently elected president of Kenya, William Ruto announced on October 4th the end to the country’s ban on genetically modified crops. This is a hopefully positive sign for U.S. – Kenya Strategic Trade and Investment Partnership negotiations.
• WTO: The WTO cut trade expectations for 2023, revealing projections no higher than 1% growth in global trade for 2023 given pressures from high energy prices, rising interest rates, the lingering impacts of Covid-19, and uncertainties about Chinese manufacturing output.

“While other countries around the world — including and especially China — continue to pursue new trade opportunities, President Biden is pursuing “frameworks” in the Indo-Pacific and Americas. Whatever their potential merit, these frameworks are no substitute for trade agreements.”

— Representative Adrian Smith (R-NE) in a piece for The Hill on the Biden administration’s economic and trade policy initiatives

U.S. – Indo- Pacific

Malaysia to become 9th member of the CPTPP

• While the Biden Administration prepares to start negotiations on the Indo-Pacific Economic Framework (IPEF), Malaysia has ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to become the 9th representative of the 11-member pact. The United States is not a member of CPTPP, putting the country at a competitive disadvantage in Malaysia despite the ambitious provisions laid out in the IPEF initiative. Under the CPTPP, Malaysia’s total exports are expected to increase to $655.9 billion by 2030. 
  • “The CPTPP also broadens Malaysia’s access to new markets such as Canada, Mexico and Peru, which are not covered by any existing free trade agreement, providing access to a wider range of high-quality raw materials at competitive prices and increases the country’s attractiveness as an investment destination,” according to the Ministry of International Trade and Industry.  
• Members of the CPTPP include Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. However, both Chile and Brunei have yet to ratify the agreement. 
• In response to ongoing questions regarding the Biden Administration’s trade agenda for the short-term, particularly with countries in the Indo-Pacific, U.S. Trade Representative Katherine Tai reiterated the potential for the Indo-Pacific Economic Framework (IPEF) to further economic integration efforts. “While it will include some traditional trade agreement elements, there are also separate pillars dedicated to supply chains and decarbonization. It will also include provisions on infrastructure and tax and anti-corruption. Simply put, it will be a model to address the real challenges we face today,” she said last week.
  • In her remarks, Ms. Tai emphasized the U.S. government’s commitment to the “corrective phase of globalization,” the goal of which “is to focus on the individual, the human being, the worker, the community, which forms really the human component of our economy.” “It’s about creating a trade framework that doesn’t continue to pit our workers against the workers of our trading partners.”

U.S.-Taiwan Relations

• In late September, House Republicans introduced a companion bill to the Senate’s Taiwan Policy Act which, among many other actions, would express support for Taiwan’s inclusion in IPEF and allow for the negotiation of a free trade agreement. According to Rep. Mike Gallagher (R-WI), the legislation is meant to increase support for the Pacific Island to deter a possible invasion from China. The House text was not available at the time of writing, but the Senate text specifically stated that the challenges of reaching an agreement on “agricultural standards” must not stand in the way of a bilateral agreement, noting recent progress on beef and pork. Members did not appear to include extending the Trade Promotion Authority for negotiations with Taiwan in either bill.

U.S. – Mexico

Mexican economy minister resigns amid energy dispute

• Tatiana Clouthier, Economy Minister of Mexico officially resigned last week, citing the current energy dispute between the U.S. and Mexico as a key driver. Former Minister Clouthier had reportedly announced her intention to step down to President Andres Manuel López Obrador in September upon the condition that the energy disagreement became costly for Mexico.
  • “Like in the game, one needs to know when to retire,” Clouthier revealed in a statement in July.
• Ms. Clouthier assumed office as Mexico’s Economy Minister in January 2021. Prior to her role as minister, Ms. Clouthier was a member of the Mexican Congress where, from 2018 to 2020, she served as deputy coordinator of the MORENA caucus.
• On October 6^th, the Mexican government announced that Raquel Buenrostro would be the new Economy Minister. She is currently head of the Tax Administration Service.

Mexico initiates Export Bans 

• Mexican Treasury Secretary Rogelio Ramírez de la O on October 3 announced the imposition of export restrictions in response to rising food prices. The initiative, known as the Opening Agreement Against Inflation and Scarcity (APECIC), compliments the earlier Package Against Inflation and Famine (PACIC) which was announced last May. According to the provision, beans and white corn will be among 24 products that the Mexican government and business leaders have agreed to restrict in an effort to boost national production. The document, extending through February 2023, will also suspend import regulations for participating companies under a Single Universal License. 
  • As such, Ramírez de la O revealed that the Mexican government seeks to “suspend the review of any regulation that is considered to prevent or make the importation and entry of food or its movement within the country more expensive.” 
• Mexico is allowed to restrict exports of food products provided that it follows the applicable requirements under USMCA Article 3.5. Suspending import regulations only for specific companies that agree to restrict exports is not explicitly covered in that section of the agreement. Export restrictions are ordinarily supposed to last no more than six months.

GM Corn Ban Study Released

• On October 3^rd, a coalition of North American food and agriculture groups released a study conducted by World Perspectives, Inc., outlining the effects of a proposed ban on genetically modified (GM) corn in Mexico. The study projected extensive damage to the U.S. and Mexican economies, U.S. producers, Mexican consumers, and livestock and processing industries in both countries. The report followed welcome comments from Secretary Vilsack in which he pledged “necessary and appropriate steps” to increase the pressure on Mexico should the ban be enforced. However, he stopped short of pledging to support dispute settlement litigation under USMCA or the WTO if the pressure fails to bring Mexico into compliance with its SPS and TBT commitments under those agreements. 
  • “Like any other North American sector, agriculture must continue to innovate to meet 21^st-century challenges. That is why we believe in science-based agricultural policies that improve agricultural production and sustainability” said President of the National Agricultural Council of Mexico Juan Cortina in response to the report’s findings. 
• According to the study, an imposed ban on GM corn would result in food price increases across the board, with the average cost of corn rising 19% and tortillas by 16%. Implications would extend beyond the corn industry with spillovers affecting the poultry and pork industries which rely on the use of corn and related products for animal feed. Stakeholders are also voicing concerns related to food insecurity and the added pressure to supply chains between the countries. This issue has only been exacerbated by the war in Ukraine and would impose undue burdens on both the U.S. and Mexican economies. 
• Mexico’s biotechnology policies also received scrutiny in Geneva, during Mexico’s regular Trade Policy Review at the World Trade Organization (its most recent TPR was in 2017). The meeting minutes will be published in November.

Mexico issues warning to Tai on Section 301 Probe 

• Mexico’s former Minister of Economy Tatiana Clouthier sent at the end of September a letter to U.S. Trade Representative Katherine Tai, warning against unilateral actions set forth in the potential Section 301 investigation on seasonal produce from Mexico. In the letter, Ms. Clouthier pointed to the investigation’s violation of USMCA and the risks posed to the U.S.-Mexico agricultural trade relationship should the Office of the USTR proceed. Further, Clouthier continued by suggesting that the countries explore “appropriate channels” to address the issue, such as filing a dispute through the World Trade Organization or under USMCA. 
  • A spokesperson from USTR confirmed receipt of the letter and said that the office would consider Ms. Clouthier’s message in its review of the petition. A coalition of 24 agricultural and retail groups also voiced their opposition to the investigation with concerns about possible disruptions to agricultural markets and risks of retaliation. 
• 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 8^th 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 Office of USTR has until October 23^rd to render a decision.

USTR and Mexico extend energy talks

• Officials from the Office of the U.S. Trade Representative on October 3^rd announced the extension of trade talks with Mexico beyond the initial consultation period which was originally capped at 75 days. Stakeholders have seen slight signs of progress with Mexican regulators addressing backlogs on permits and Mexican courts suspending some contention rules. Specifically, the U.S. is also discussing claims under USMCA provisions about market access and investment, import and export market restrictions, and the chapter on state-owned enterprises.
  • In light of productive discussions with the Mexican government, a USTR spokesperson said that “We hope to maintain this positive momentum to resolve these concerns raised by U.S. energy producers and to advance North American competitiveness.”
  • Further, Mexico’s Finance Ministry tweeted that the countries would continue to work towards “mutually satisfactory” solutions.
• In July, the USTR requested dispute settlement consultations with Mexico under claims that President Andres Manuel López Obrador’s energy policy violated the USMCA. Complaints from the U.S. and Canada pertain to hindrances in granting permits, a Mexican law seeking to increase state control over the electricity sector, and other provisions that put U.S. and Canadian firms at a competitive disadvantage.

Food Security

IMF releases food security reports

• On September 29^th, the International Monetary Fund (IMF) released a paper discussing the global food crisis, the effects of policy responses, and the role of the IMF. The document outlines the upward trend in food insecurity experienced at the global level since 2018, though the number of food insecure people has remained flat since 2009. The trend has worsened in 2022 with the invasion of Ukraine exacerbating the problem. See chart below:

• The IMF included several key recommendations: 
  • Adequately and rapidly support households vulnerable to food insecurity through international humanitarian assistance, backed by the full funding of the WFP, and effective fiscal policy measures at the domestic level;
  • Maintain open trade, including at the intra-regional level, to allow food to flow from surplus areas to countries in need, which urgently requires the phasing out of export bans by major food producers; 
  • Increase food production and improve distribution, including through ensuring adequate access to fertilizers and other inputs; and
  • Invest in climate-resilient agriculture for longer-run sustainability. 

FAO market monitor outlines global pressures on rising food prices

• Along this line, the UN Food and Agriculture Organization’s (FAO) Agriculture Market Information System market monitor details the underlying causes of rising food prices, highlighting that global food prices have fallen back to pre-war levels but face pressure due to low stock-to-use ratios, high energy and fertilizer prices, weather, and continued damage from the Ukraine war. Food price inflation is becoming a pressing concern, with most countries having experienced 10 to 30 percent increases over the previous year. 

• The report follows a recent interview between Maximo Torero Cullen, Chief Economist of the United Nations Food and Agriculture Organization (FAO), and F&D’s Bruce Edwards regarding the impact of wheat and fertilizer supply shortages on the rising prices and increased food import bills for vulnerable countries. 
  • “In the 62 most vulnerable countries in the world, we are talking about a roughly $25.4 billion increase in the food import bill compared to last year. And this is affecting 1.7 billion people,” said Mr. Cullen. “I wouldn’t say we are in a food crisis right now. I think we have a very serious food access problem. If things get worse, and we have a food access and a food availability problem, then we will be in a very bad situation.”

Trade Trends

U.S. trade deficit shrinks for fifth consecutive month

• The overall U.S. trade deficit (goods and service) narrowed by $3.1 billion, or 4.3% from a month earlier, to $67.4 billion the Commerce Department reported last week. The August trade balance was the fifth month in a row of a narrowing deficit and the smallest in more than a year. Abating demand for imports, rising interest rates, and inflationary pressures are contributing to the shrinking deficit. Additionally, consumers are shifting spending to services and experiences after more than a year of robust demand for goods.
  • Despite the positive trend, year-to-date, the goods and services deficit increased $132.3 billion, or 24.4 percent, from the same period in 2021.
  • In August, exports increased $329.8 billion or 19.9 percent. Imports increased $462.1 billion or 21.0 percent. August exports were $258.9 billion, $0.7 billion less than July exports. August imports were $326.3 billion, $3.7 billion less than July imports.
  • The August decrease in the goods and services deficit reflected a decrease in the goods deficit of $3.4 billion to $87.6 billion and a decrease in the services surplus of $0.4 billion to $20.2 billion.

Supply Chains

Container ship voyages canceled with lessened demand

• Trans-Pacific shipments via container ships are experiencing a sharp decline, with rates dropping 75% from levels one year ago. The transportation industry is adjusting to the drop in demand with efforts to cancel orders with vendors and cut inventories. The global decline in demand draws from increasing inflationary pressure accompanied by high interest rates as well as factory shutdowns in China.
• Trade patterns are showing a drastic shift with reduced sailing trips in September. Carrying capacity accommodated by Pacific ship operators was reportedly down 13% last month from a year earlier, according to providers from the Xeneta and Sea-Intelligence. Further, there have been 61 cancellations in scheduled shipping trips from Asia entering the U.S. for two weeks following October 3^rd—40 scheduled to the U.S. West Coast and 21 to the U.S. East Coast. This marks a sharp contrast from past years in which shipping cancellations at this time averaged two to four sailings per week.
  • Europe is also experiencing a decline in maritime shipping rates. “In the first week of October, one-third of previously announced capacity will be blanked and for the second week, it will be around half,” noted Chief analyst at Xeneta Peter Sand. “The downturn pace in recent weeks has been very fast and it looks like carriers misread the low volumes of a nonexistent peak season.”
• The Mediterranean Shipping Co. voided a few recent shipments, including a six-ship service to Los Angeles and Long Beach from China. According to a customer notice, the suspension was attributed to “significantly reduced demand for shipments into the U.S. West Coast during the past weeks.” This would remove close to 12,000 containers of capacity per week from trans-Pacific trade.
• Although freight rates on key shipping routes still hover above pre-pandemic levels, experts are predicting that overcapacity in container shipments will continue to be a pressing issue in the next couple of years. Projections for capacity increases are slated for 4% this year, 8.8% in 2023, and 9.7% in 2024, according to shipping advisor Braemar PLC.  A key issue of overcapacity pertains to efforts by operators to undercut competitors, putting pressure on freight rates. As such, global shipping prices have been showing consistent declines throughout the year with costs of shipping containers from Shanghai to Los Angeles reportedly down by 73% compared to last year.

U.S. – South Korea

Heightened tensions with Seoul over EV tax credit

• South Korea and the U.S. are facing increasing tensions in the bilateral relationship, principally due to concerns over the EV tax credit provision of the U.S. Inflation Reduction Act. According to an official from the Korean embassy, “the public anger in Korea is severe,” with connections to protectionist policies under the previous administration. “Both governments recognize that the issue dragging on too long is harmful to the bilateral relationship and that there must be a solution to this issue sooner than later to rebuild the trust between the two countries.”
• Korean officials are speaking against the discriminatory nature of the provision and the threat it poses to promises made by the U.S. in existing agreements as well as during Vice President Kamala’s Harris’s recent visit with Yook Suk Yeol, President of the Republic of Korea in Seoul. During the meeting, the leaders “pledged to continue to consult as the law is implemented.” The disagreement comes at a pivotal time with both countries seeking to strengthen bilateral ties related to security and the economy.
  • When discussing South Korean responses to the bill, the embassy official revealed that, while no formal steps have been taken, “Korea may become less enthusiastic in accepting the U.S. priorities to set higher labor and environmental standards and helping sell them to other participants, in particular, to the developing countries” should the provision remain unchanged. 
• The Treasury Department recently called for public feedback on the effective ways in which to implement the policy and released a fact sheet with additional information about the implementation process. 
• Several U.S. trading partners, including South Korea, the EU, and most recently, China have voiced concerns regarding the implications of the U.S. electric vehicles (EV) tax credit, citing the discriminatory nature of the provision and the potential violations it poses to WTO rules. 
  • 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.
• In a speech at a Roosevelt Institute event on progressive industrial policy, Ambassador Tai acknowledged that policies like the Inflation Reduction Act may “cause anxiety” among trading partners (most likely a reference to the EV tax credit provisions). 

U.S. – China

Business groups push for extended Section 301 tariffs on China

• On October 4^th, more than 170 business groups petitioned the Office of the U.S. Trade Representative to extend Section 301 tariff exclusions on Chinese goods with expirations set for November and December. The Biden administration has maintained the Section 301 tariffs imposed on Chinese goods by the previous presidency, and USTR in March reinstated 352 exclusions through the end of 2022, after which the tariffs would be reimposed on currently excluded products. In an October 4^th letter to USTR Katherine Tai, the group called for both the 352 exclusions as well as those imposed on 81 medical-care products to be extended as soon as possible, allowing for companies to “plan accordingly.”
  • “As American businesses continue to face high inflation, ongoing supply chain challenges, and new COVID variants, we urge USTR to provide additional relief by promptly renewing all the exclusions which are set to expire this year,” the letter outlines. 
• The group also asked USTR to consider a “more robust exclusions process” for all products under Section 301 tariffs. “As long as the section 301 tariffs remain in place, there should be a fair, transparent, and robust exclusions process available so that American businesses can apply for targeted relief.”

Proposed trade amendments for national defense bill

• Senators Chris Coons (D-DE) and Todd Young (R-IN) on September 29^th, submitted an amendment that would add the “Countering Economic Coercion Act of 2022” to the current defense bill under consideration in the U.S. Senate. The provision would enable the president to modify duties or tariff-rate quotas on a U.S. trading partner if that nation was being economically targeted by foreign adversaries. The proposal was unsurprisingly criticized by the United Steelworkers due to concerns that it would be too easy for the president to lower duties.
  • The amendment would allow the President to reduce duties and modify tariff rate quotas in response to economic coercion against that trading partner (it would not apply to antidumping or countervailing duties).
• Senate Finance Committee member James Lankford (R-OK) is pushing to reduce U.S. reliance on China in the rare earth supply chain. The senator on September 21^st proposed new provisions to the defense bill that would prioritize initiatives with “reliable trading partners,” namely Australia, India, and Japan as members of the Quadrilateral Security Dialogue.
  • Senator Lankford also submitted an amendment encouraging the Office of the U.S. Trade Representative to work alongside the FDA to report on pharmaceutical imports from China.
• Further, Senator Marsha Blackburn (R-TN) proposed the “Say No to the Silk Road Act” on September 29 which would require officials to submit reports on China’s digital currency. The reports would serve two goals:
  • The first would assess the impacts on the U.S. from “trade enforcement actions relating to the digital yuan.”
  • The second would gauge how the use of the digital yuan in other countries could impact U.S. agreements for trade and investment with other nations.
• Senators Jeff Merkley (D-OR) and Marco Rubio (R-FL) also recently proposed the “China Censorship Monitor and Action Group” which would involve monitoring by organizations, including the Office of the USTR, to identify and address efforts by the government of the People’s Republic of China to censor or intimidate U.S. companies, citizens, or other entities.
• Other amendments have been proposed in the context of increasing aggression by China towards Taiwan, with provisions to signal U.S. support of the Pacific Island and encourage supply chain resilience for American manufacturing in the region. Additionally, recent amendments seek to build and strengthen trade ties in the Western Hemisphere.
  • Debate on the National Defense Authorization Act is expected to resume in October with votes slated to take place following midterm elections in November.

UN council rejects debate on Xinjiang labor and rights abuses

• The UN Human Rights Council last week voted against a Western-led proposal to discuss alleged labor rights abuses in Xinjiang China. The vote follows an August 31^st report released by the UN High Commissioner for Human Rights (UHCHR), claiming that the Chinese government had committed crimes against humanity in its treatment of Muslim minorities in Xinjiang. Using this report as a basis, the U.S., Britain and supporting countries proposed to hold a debate regarding the human rights violations in Xinjiang. However, the proposal was struck down with 19 states dissents, 17 assents, and 11 abstentions. This vote was the second time this motion has been denied. 
  • Following the vote, Executive Director of the Uyghur Human Rights Project Omer Kanat said, “The road to justice is never an easy one,” and “the Chinese government’s singular goal has been to silence even a discussion of the issue—we cannot allow this to happen.”
• According to a report released by the U.S. Department of Labor, China continues to produce higher volumes of goods using forced labor than any other country in the world. The document outlines the use of forced and child labor under unsafe working conditions for employees producing counterfeit goods in Chinese factories, violating “local or international environmental, health, and safety standards.” Abuses outlined in the report include imprisonment, torture, rape, forced sterilization and persecution, among others. A large portion of these violations to worker rights are concentrated in the solar industry and battery production.
• Further, China ranks number one on the list for Victims of Trafficking and Violence Protection Act of 2000 (TVPRA) for inputs and number four for downstream goods.
  • The Bureau of International Labor Affairs (ILAB) seeks to combat forced labor in supply chains from Xinjiang China with collaboration by the U.S. Department of Labor and the U.S. Departments of State, Treasury, Commerce, and Homeland Security, and the Office of the U.S. Trade Representative in the release of the 2021 report.

U.S. – EU

U.S. and EU initiate discussions ahead of third TTC ministerial

• According to a leaked document from the European Commission, the U.S.-EU Trade and Technology Council has efforts underway to address the possible outcomes of the third TTC ministerial meeting in early December. Current areas under consideration include artificial intelligence, semiconductors, connectivity infrastructure in developing countries, digital platforms, and clean technology.
• BusinessEurope also identified export controls as an area of development for the parties, stating that “a coordinated approach in the multilateral context and concrete actions to reduce costs for transatlantic operators is key, by the promotion of best practices, including in the licensing process.”
• Despite progress in discussions between the U.S. and the EU, Nonresident Senior Fellow with the Atlantic Council’s Europe Center Tyson Barker noted that both countries appear to have lost “a little bit of momentum” since the council’s last meeting in May.
  • Barker attributed part of the slowdown to the EU’s frustration with the U.S. EV tax credit. However, officials identify the TTC as a means for both “the sprint and the marathon” in addressing long-term and immediate initiatives.
• The discussions follow a September meeting in which senior U.S. and EU trade and labor officials met virtually with union and business leaders to discuss worker concerns under the auspices of a new dialogue established by the U.S.-EU Trade and Technology Council (TTC).

Neal calls for U.S. – EU trade talks 

• Along these lines, House Ways and Means Chairman Richard Neal (D-MA) called for the prioritization of free-trade negotiations between the U.S. and the EU. In a meeting with Bloomberg News, Neal acknowledged the ongoing challenges in the bilateral relationship, citing complaints by the European Commission with regards to clean-energy tax credits in the Inflation Reduction Act which disproportionately discriminate against car manufacturers outside of the U.S. When discussing his hope for agreements with the EU and others, Representative Neal used the USMCA as an example that could serve as a template for the U.S. to renew discussions with Europe, though he made no mention of the challenge that the EU would have in adopting the enforceable SPS-plus provisions of the USMCA. 
  • Neal also expressed interest in encouraging the administration to host trade talks with Kenya, claiming, “We want some entry into Africa for a lot of different reasons, not the least of which we think that it could be a valuable partner in democracy as well as economic policy.”

U.S. – Kenya

Kenya ends ban on GM crops

• Recently elected president of Kenya, William Ruto announced on October 4^th the end to the country’s ban on genetically modified crops. The statement follows growing pressures to increase crop resilience against pests and severe drought conditions.
  • In a tweet, Ruto held that, in lifting the ban, “We are adopting emerging and new alternatives to farming that will ensure early maturity and more production of food to cushion millions of Kenyans from perennial famine.”
• The U.S. has been making noticeable strides in building the bilateral relationship with Kenya which was the only African country willing to negotiate a “model FTA” with the Trump Administration. The U.S. has put that FTA on ice, but last month, U.S. Trade Representative Katherine Tai led a delegation to Kenya to attend President Ruto’s inauguration. And on September 3, U.S. Secretary of State Antony Blinken thanked Ruto for his support of the UN Security Council’s denunciation of Russia’s claimed annexation of areas in Ukraine. Further, in July, Ms. Tai announced a deal to strengthen agricultural trade between Kenya and the U.S. by addressing non-tariff barriers. The agreement outlines “high-standard commitments” in areas such as agriculture, digital trade, climate change action, and trade facilitation that will be negotiated “right away,” according to a USTR senior official. Finally, the United States and Kenya launched the U.S. – Kenya Strategic Trade and Investment Partnership in July.
• Mr. Ruto is Kenya’s fifth president, assuming office in September after a close election. During his inauguration, the president pledged to make the country’s police financially independent from the president’s office and redeclared his commitment to transition Kenya’s energy sector to 100% clean sources by 2030. His platform resonates with the country’s underemployed youths and the families affected by poverty and governmental corruption.

Biden Nominees

Senator Menendez holds update on McKalip nomination

• Senate Finance Committee member Bob Menendez’s (D-NJ) request to instate an inspector general at USTR was recently added as a proposed amendment to the national defense bill to “bring about a more transparent, accountable, and effective trade policy.” Mr. Menendez has worked to incorporate the request for an inspector general since 2020, with his last proposal having been stripped from the final version of a China-focused competition package.
• Last month, Mr. Menendez placed a hold on the nomination of Doug McKalip to serve as chief agricultural negotiator in the Office of USTR considering his broader concerns with “oversight” and “transparency” at the Office of USTR, rather than Mr. McKalip’s qualifications to serve as the chief agricultural negotiator.
• Earlier this year, Senator Menendez joined five other Senators in a letter to Ambassador Katherine Tai, asserting the USTR had failed to consult Congress properly in activities with WTO members over a “compromise outcome” on intellectual property rights in conjunction with distribution of COVID-19 vaccines. Senator Menendez has also sought placement of an inspector general at the agency, having voiced concerns about agency oversight.  In 2020 Menendez said, “an agency led by a Senate-confirmed appointee tasked with carrying out decisions affecting every worker, business and consumer in this country is currently operating without one of the most effective guardrails we have against overreach.”
  • The letter expressed the need for transparency in the context of future frameworks and potential trade agreements, stating that “We want to ensure that this failure to consult properly with Congress will not be replicated in other areas, particularly as the Administration seeks to launch new trade negotiations under the auspices of the Indo-Pacific Economic Framework, pursue multilateral and plurilateral negotiations at the WTO, and engage in bilateral discussions with countries such as the United Kingdom.”

Trade Policy

Blinken optimistic about trade and investment under APEP initiative

• U.S. Secretary of State Antony Blinken, in his recent trip to Chile, expressed support for the development of the Americas Partnership for Economic Prosperity (APEP) as a way to boost trade and investment opportunities in Chile and other countries in the region. President Biden announced the initiative at the Summit of the Americas conference in June, but has yet to release further details for the provision and the key partners it seeks to incorporate. 
  • In a statement in Santiago, Blinken revealed that the administration is “looking forward to working with Chile on this initiative” with the partnership focusing “on things like building strong supply chains in the Western Hemisphere.”
• According to a press conference on October 5^th, Blinken commended the increase in bilateral trade between the U.S. and Chile since the initiation of the free trade agreement in 2004, noting that more might be on the way. The secretary is also visiting Colombia and Peru with hopes to take advantage of the “tremendous opportunity” poised to strengthen relations in the region. 
• During his visit, Secretary Blinken also spoke with Chilean President Gabriel Boric regarding the future of U.S.-Chile relations. Following the meeting, Blinken addressed his perspective on U.S. trade, stating, “We need partnerships. We need cooperation. We need collaboration. And that starts with the closest of our partners like Chile. That’s the way we see the world. That’s the way we’re trying to make progress for our own people, but also for people throughout the hemisphere, and I think that’s something that was very much reflected in the conversation that I was very, very pleased and appreciative of having with President Boric today.”
• As such, the APEP initiative will be focused on “laying the foundation for economic growth from the bottom up and the middle out” with the goal of increasing digital connectivity, supply chain resilience, and investment opportunities. It will focus on five pillars:
  • Reinvigorating regional economic institutions and mobilizing investment.
  • Making more resilient supply chains.
  • Updating the basic bargain.
  • Creating clean energy jobs and advancing decarbonization and biodiversity.
  • Ensuring sustainable and inclusive trade.

Senate Agriculture Leaders call for additional risk management by USDA

• Bipartisan members of the Senate Agriculture Committee on October 4^th called for the expansion of federal risk management tools to cover additional commodities and specialty crops in response to inflationary pressures on U.S. farmers. In the document, Senate Agriculture Chair Debbie Stabenow (D-MI) and member John Boozman (R-AK) emphasized the importance of the role for increased risk management in order to offset high costs of fuel, fertilizer, and other inputs for agricultural production in the U.S.
  • In their argument, the Senators noted that “margin protection in the form of crop insurance is readily available for dairy, cattle, and swine livestock producers as well as a select number of crops in certain geographic areas across the country.” The pair held that expanding margin protection insurance programs for additional commodities and specialty crops “would allow producers the opportunity to familiarize themselves with these tools and better manage production cost risks by next fall.”
  • To accelerate the expansion of risk management tools, the USDA would operate through the Federal Crop Insurance Corporation (FCIC)

Nebraska Representative slams Biden Administration’s approach to trade

• Representative Adrian Smith (R-NE) on October 4^th contributed to an opinion piece for The Hill to speak out against the Biden administration’s economic agenda and lack of trade policy initiatives, citing “historic inflation; regulatory overreach [that] has led to record-high energy prices; and Democrats’ crippling tax agenda threatens investment and opportunity.” In his statement, Representative Smith alluded to the recent “breakdown of U.S.-UK trade negotiations” at the recent UN meeting between President Biden and U.K. Prime Minister Liz Truss in which PM Truss announced that an FTA between the countries would be unlikely in the short- to medium-term.
  • Rep. Smith continued by underlining the limited impact of current frameworks, iterating the urgent need to capitalize on new trade initiatives given recent moves by China and other countries to pursue trade opportunities.

Representatives draft letter to GAO on farmland investment

• On October 3^rd, Glenn “GT” Thompson, Republican Leader of the House Committee on Agriculture, and James Corner, Republican Leader of the House Committee on Oversight and Reform, led 128 of their colleagues to send a letter to Comptroller General Gene Dodaro at the U.S. Government Accountability Office (GAO). The document asks the GAO to conduct a survey analyzing the impacts of foreign investment in U.S. farmland on national security, food security, and trade.
• The letter begins by outlining the top investors with stakes in U.S. farmland—chiefly from Canada, Germany, and the U.S. with growing investments from countries, such as China and Saudi Arabia. To date, some states have imposed restrictions on foreign ownership of farmland with concerns over decreasing availability of agricultural land, threats to national security, and foreign control over areas with key contributions to food production and food security in the U.S. As such, the letter asks that the GAO conduct a study to collect data about the known extent of foreign investment in U.S. agricultural land with provisions for improving policies related to national security and disclosure requirements in this area.

McCaul threatens Commerce probe should GOP take House majority

• Representative Michael McCaul (R-TX) announced at an Atlantic Council event on October 3, his intention to open a 90-day investigation into the Bureau of Industry and Security with regards to export controls should the House flip to a Republic majority following midterms. McCaul alleges that the agency has failed to adequately prevent sensitive U.S. technology from flowing to adversaries like China.
  • In his statements, the representative denounced the Department’s “blatant attempt to not live up to their responsibility to follow the 2018 [Export Control Reform] law by identifying foundational technology.”
• Mr. McCaul currently serves on the Foreign Affairs Committee in the House. The U.S. Chamber of Commerce recently expressed its endorsement of Mr. McCaul to represent the Tenth District of Texas, citing his position as a pro-business candidate with aims to support policies fostering economic growth, job creation, and fiscal responsibility.

WTO

WTO cuts trade projections for 2023

• The WTO on October 5^th, revealed projections of a mere 1% growth in global trade for 2023 given pressures from high energy prices, rising interest rates, the lingering impacts of Covid-19, and uncertainties about Chinese manufacturing output. The organization also estimated that international goods shipments are expected to rise by 3-5% this year.
• In this, WTO Director-General Ngozi Okonjo-Iweala identified a “multipronged crisis” facing the global economy. “Monetary tightening is weighing on growth across much of the world, including in the United States. In Europe, high energy prices are squeezing households and businesses. And in China, COVID-19 outbreaks continue to disrupt production and ordinary economic life,” she revealed at the WTO headquarters in Geneva. The Director-General also highlighted the serious risk of food insecurity and debt concerns among countries, particularly in low-income developing areas.
• Further, WTO economists revealed new projections for global GDP growth at 2.8% this year and 2.3% next year, 3.2% less than predicted for 2023 in April. Rising food and energy prices due to the war in Ukraine coupled with the decreased export volumes from the Black Sea region are contributing to the lower figure. At the same time, Director-General Okonjo-Iweala noted that “Most regions are set to register faintly positive export growth in 2023, with the exceptions of Africa and the Middle East, where export growth is projected to turn negative after growing strongly this year on the back of heightened demand for oil.”

WTO considering formal reform talks

• The WTO is beginning to discuss the formalization of conversations about the reform process for organizational oversight, according to Inside U.S. Trade. The U.S. has been a long-standing supporter of reform, but no concrete priorities have been established for conducting the reform process. The WTO reform process officially launched following the 12^th ministerial conference in June with Swiss General Council Chair Didier Chambovey engaged in discussions about next steps.
• Ambassador Chambovey expressed the need for a “top-down” process under the General Council. Upon discussions in Geneva last week, Chambovey revealed an October-November timeline to schedule a meeting to “set a collective vision on how to proceed with WTO Reform and identify cross-cutting issues.”
  • Based on member feedback, Director-General Ngozi Okonjo-Iweala suggested the combination of a top-down and bottom-up process for reform to be most in line with conflicting demands. At the same time, both the Director-General and the Chair acknowledged member hesitation to wait for a large reform package.
• According to a MC12 outcome document, several trade ministers have committed to “conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024.” Among the priorities for reform are dispute settlement, development, monitoring function, and negotiations. Further, several ambassadors “stressed that development should be at the center of WTO Reform.”

Congress and the WTO

• Chairman Richard Neal (D-MA) of the House Ways & Means Committee led a delegation to Geneva this week with the goal to deepen connections with trading partners, emphasizing support for the WTO, and highlighting issues like labor, the environment, and women’s economic empowerment. 
• Relatedly, Senator Ed Markey (D-MA) introduced a bill that would direct the administration to engage in consultations with OPEC countries on the group’s practices. Should those consultations fail, the legislation directs the Administration to initiate WTO dispute settlement cases. The legislation mentions export restraints that are unjustifiable under the GATT (presumably Article XI) but otherwise does not specify the obligations that OPEC members may be violating.

Ag Economy Barometer

The Ag Economy Barometer retreats slightly in September

• The September Ag Economy Barometer dipped slightly to an index reading of 112, declining 5 points from last month’s increase, and after 2 months of improvement. The September result remains well below the level from the previous year.
  • In September, survey respondents’ biggest concern for going forward included higher input costs. Other concerns included rising interest rates that are dampening interest in investing in new farm equipment, input availability, and softening land values.