U.S. – China: Congress continues to pressure the Office of the U.S Trade Representative (USTR) to address China’s unfair trade practices, specifically medical device manufacturing. Senators Tom Carper (D-DE) and Todd Young (R-IN) on Thursday sent a letter to Ambassador Tai urging USTR to take “action to prevent China from deploying unfair practices that threaten jobs in the medical device manufacturing industry.”
USMCA: State and Provincial agriculture leaders from the USMCA countries announced the formation of a working group to tackle biotech-related trade barriers and promote science-based agricultural regulations during the Tri-National Accord meetings last week. Canada and Mexico expressed concerns regarding pending Senate and House legislation that prescribes potential incentives for U.S.-made electric vehicles (EV) that could violate the USMCA agreement.
Section 232: The U.S. and EU agreed to resolve the ongoing Section 232 steel and aluminum transatlantic tariff dispute. Under the agreement, the U.S. will establish a tariff-rate quota system, allowing a certain amount of tariff-free EU steel and aluminum imports. In return the EU agreed to suspend current retaliatory tariffs and a scheduled tariff increase on January 1, 2022, on $4 billion in U.S. exports.
WTO: A collection of nearly 300 scientists published a letter calling on WTO members to deliver an “effective” and “transparent” agreement to rein in harmful fisheries subsidies.
“We fully expect this agreement will provide relief in the supply chain and drive down cost increases.”
— Gina Raimondo, Commerce Secretary on U.S. – EU agreement on Section 232 steel and aluminum tariffs
Senators Tom Carper (D-DE) and Todd Young (R-IN) on Thursday sent a letter to Ambassador Tai urging USTR to take “action to prevent China from deploying unfair practices that threaten jobs in the medical device manufacturing industry.” The policy being focused on is China’s recently implemented volume-based procurement system. This system allows local governments in China to negotiate lower prices for medical device imports. The senators state that “The VBP distorts the Chinese medical device market, which in turn undermines the sustainability of U.S. exports and American jobs.” The introduction of the new system threatens to undermine a previously relatively balanced trade relationship, with $6 billion of U.S. exports being threatened.
Earlier, multiple lawmakers introduced legislation to counter China’s concerning economic practices. Reps. Ami Bera (D-CA) and Ann Wagner (R-MO) unveiled a bill that would establish an interagency task force to craft and implement a government strategy to counter what they call China’s “coercive economic measures.” The U.S. has “seen the People’s Republic of China (PRC) Government increasingly use nefarious and coercive economic practices to punish countries, private entities, and organizations for pursuing policies that Beijing deems counter to its interests,” Rep. Bera said in a statement. “As China continues to threaten our partners in the Indo-Pacific and our own national security and economic well-being with its coercive measures, the U.S. government needs to better understand Beijing’s tactics.” The legislation would direct the Biden administration to establish within 180 days of the bill’s enactment an interagency task force charged with providing a host of information about China’s “economic coercion” practices as well as U.S. responses to these actions. The task force would include the U.S. Trade Representative, according to the “Countering China Economic Coercion Act.”
Canada and Mexico expressed concerns regarding potential incentives for U.S.-made electric vehicles (EV) that could violate the USMCA agreement. In a letter to U.S. House and Senate leaders, Canada’s Minister of Small Business, Export Promotion and International Trade, Mary Ng, wrote that some aspects of the proposed legislative EV tax credits under consideration “would undermine decades of United States-Canada cooperation to foster a mutually beneficial integrated automotive production and supply chain” and would hurt industry in the U.S. as well as in Canada. Ng characterized the proposals as “inconsistent” both with USMCA and World Trade Organization commitments. Mexico’s Secretary for Economy, Tatiana Clouthier, also expressed “strong concern” about the provisions in the House Ways & Means proposal on final assembly in the U.S. and requirements for 50 percent U.S.-made content and U.S.-made battery cells.
Under the Senate Finance Committee’s proposal, if final assembly of a vehicle took place within the U.S., a $2,500 tax credit would become available. Another $2,500 tax credit would become available if final assembly took place at “a facility represented by a U.S.-only based labour organization.” Under the House proposal. $4,500 credit would become available if final assembly takes place at a U.S. facility with a collective bargaining agreement; a $500 credit if an EV includes at least 50 percent “U.S. content in component parts” and has U.S.-made battery cells; and a provision that would make U.S. assembly a precondition for full value of credits as of 2027, according to Canada’s letter of concerns.
On the heels of the Tri-National Accord meetings, U.S., Canadian and Mexican agriculture officials announced formation of a working group to tackle biotech-related trade barriers and promote science-based agricultural regulations. The annual meeting, this year hosted in Arlington, VA by the National Association of State Departments of Agriculture (NASDA), brings state and provincial agriculture leaders together to discuss trade and other agriculture issues among the North American trade partners. NASDA said in a statement, “recent decisions by Mexico’s federal government to impose arbitrary prohibitions on agricultural biotechnology and certain pesticides.” NASDA noted the Tri-National Accord has “a longstanding commitment among the senior state and provincial agricultural officials of Canada, the United States, and Mexico to work together collaboratively on agricultural trade and development issues.”
Last month Mexican regulatory authorities rejected a new variety of GMO corn for the first time amidst growing frustrations from U.S. industry over lack of biotech approvals in Mexico. In the denial of the GMO trait application, Mexico’s Federal Commission for the Protection against Sanitary Risk (COFEPRIS) rejected Bayer’s permit for a new GMO corn variety, based on a “precautionary principle,” noting the new seed variety was designed to tolerate weed-killer glyphosate, a widely used herbicide considered dangerous by COFEPRIS. The decision by COFEPIRS was not released publicly but was confirmed by Bayer and other sources familiar with the issue.
The Census Bureau reported the advance international trade deficit in goods increased to $96.3 billion or 9.2% in September from $88.2 billion in August as exports decreased and imports increased. The international trade deficit was $96.3 billion in September, up $8.1 billion from $88.2 billion in August. Exports of goods for September were $142.2 billion, $7.0 billion less than August exports. Imports of goods for September were $238.4 billion, $1.1 billion more than August imports.
On October 21st the U.S. announced it would no longer implement planned Section 301 tariffs against Austria, France, Italy, Spain, and the U.K. This development was in response to these five European countries agreeing to remove digital service taxes that they currently have in place against large U.S. technology firms. The U.S. has conditioned this continued suspension of tariff implementation on the grounds that the five European countries follow through with their tax changes. The tariffs would have covered $3.0 billion worth of imports and the increased price would have cost Americans $739.5 million annually.
As reported earlier, several Senate Democrats are calling for imposition of Section 301 duties on all imported finished personal protective equipment (PPE) to facilitate greater domestic production. In a letter to Ambassador Tai, the senators said that Section 301 tariffs should be imposed on all imported finished PPE and key raw material inputs, including single-use N95 and KN95 masks, reusable and surgical masks and surgical gowns. “Rather than providing relief to Chinese-made products, we should invest in and support our domestic manufacturers,” the senators wrote. The letter was led by Sens. Sherrod Brown (D-OH) and Tammy Baldwin (D-WI) according to a press release. The Senators’ request comes as the Biden administration has re-opened the Section 301 tariff exclusion process under its realigned China trade policy announced by Ambassador Tai earlier this month.
USTR’s tariff exclusion process for Section 301 tariffs against China remains open for comment until December 1st, according to the USTR announcement. The resurrected tariff exclusion process was a major tenant of USTR’s newly revealed China trade strategy, announced last week by Ambassador Tai. Of the more than 2,200 product exclusions that were granted by USTR during the Trump administration, only 549 (or 25%) were ultimately extended beyond their initial expiration date. With the exception of exclusions related to the COVID-19 pandemic (see below), all of these product exclusions have now expired.
Section 232 Investigations
The U.S. and EU agreed to a tariff-rate quote system and suspension of EU retaliatory tariffs to resolve the ongoing Section 232 steel and aluminum transatlantic tariff dispute. Expectations were high for an agreement going into the G20 meetings and ahead of a self-imposed deadline of December 1st. Under the agreement, the U.S. will maintain the EU steel and aluminum tariffs but will allow a certain amount of steel and aluminum produced in the EU to enter U.S. markets tariff-free. In return, the EU will suspend existing retaliatory tariffs. The deal also avoids the EU’s delayed hike in retaliatory tariffs on January 1, 2022, originally scheduled for June 1st on $4 billion in U.S. exports to Europe, countering the Trump-era Section 232 steel and aluminum tariffs.
A USTR fact sheet on the “arrangements” between the U.S. and EU noted the following “general principles”:
Replacement of Section 232 tariffs with tariff-rate quota (TRQ). The United States will replace the existing tariffs on EU steel and aluminum products under Section 232 with a TRQ under Section 232. Under the TRQ arrangement, historically-based volumes of EU steel and aluminum products would enter the U.S. market without the application of Section 232 tariffs to meet the demands of downstream users.
Agreement to cooperate in trade remedies and customs matters and development of additional actions. Both sides agreed to expand their coordination involving both trade remedies and customs matters, and to meet regularly to consult and develop additional actions to address non-market excess capacity in these sectors.
Negotiation of global steel and aluminum arrangements that restore market-oriented conditions and address carbon intensity. The U.S. and EU resolved to negotiate future arrangements for trade in the steel and aluminum sectors that take account of both global non-market excess capacity as well as the carbon intensity of these industries. The U.S. and the EU agreed to form a technical working group to enhance their cooperation and facilitate negotiations on these arrangements and will invite like-minded economies to participate in the arrangements.
Lifting of the EU’s retaliatory tariffs and suspension of disputes before panels of the World Trade Organization. The EU will suspend the additional duties imposed on U.S. goods, and the U.S. and the EU agreed to suspend the disputes they have initiated against each other regarding the U.S. Section 232 measures and the EU’s additional duties in light of the arrangements for moving forward.
U.S. and EU leaders amplified the importance of the announcement to transatlantic trade relations and impacted industry stakeholders. Ambassador Katherine Tai said the agreement demonstrated the Biden Administration’s goals of rebuilding relations with allies and the Administration’s commitment to preserving the long-term viability of our critical industries, protecting American jobs, and meeting the economic and environmental goals shared by the United States and European Union by tackling the carbon intensity of those products. European Trade Commissioner Valdis Dombrovskis confirmed the deal in a tweet, “We have agreed with [the U.S.] to pause our steel & aluminium (232) trade dispute and launch cooperation on a Global Arrangement on Sustainable Steel & Aluminium.”
Commerce Secretary Gina Raimondo said the agreement would maintain the tariffs but would allow limited amounts of EU imports to enter the U.S. tariff-free. Raimondo confirmed the EU would drop retaliatory tariffs in return and emphasized the pact would ease supply-chain pressure and high prices, amidst increasing complaints from downstream steel and aluminum users and several lawmakers, exacerbated by surging demand for consumer durables and surge in U.S. economic activity. “We fully expect this agreement will provide relief in the supply chain and drive down cost increases,” Raimondo said. “Of course it is also good for the American manufacturers who use steel and aluminum in their products.”
The United Steel Workers Union (USW), which advocated for leaving the Trump-era Section 232 tariffs untouched, publicly supported the arrangement, along with other industry groups. The USW said, “This new agreement, which will maintain but modify Section 232 measures on steel and aluminum from the EU, will create a framework that will ensure U.S. domestic industries remain competitive and able to meet our security and infrastructure needs,” the group said. The deal also provides “a much-needed opportunity to address the non-market predatory practices of China and other countries that have distorted global markets,” USW said. The American Iron and Steel Institute (AISI) said the “Proper implementation and enforcement of the TRQ will be crucial to ensuring that the new measures are effective in meeting these critical objectives.” AISI’s statement further noted the next steps are to “work on a common action plan for challenging non-market industrial policies and other government interventions that fuel overcapacity in steel. We urge the U.S. and EU to take active steps to hold China and other countries that employ trade-distorting policies to account.”
Separately, the Department of Commerce opened the public comment period through November 12th regarding the Section 232 investigation into imports of neodymium-iron-boron permanent magnets. The Commerce Department announced the Section 232 investigation in September following the Biden administration’s June 100-day supply chain review report, which identified neodymium, a rare earth mineral produced in large part in China, as a key supply chain vulnerability and recommended the agency consider launching a Section 232 investigation. The investigation could lead to tariffs or other import restrictions on magnets used in a variety of military and civilian applications, including fighter jets and electric vehicles.
U.S. – U.K. Trade
Alongside the agreement to resolve the Section 232 tariff dispute between the U.S. and EU, the U.S. and U.K. will continue talks in order to resolve the dispute between the two countries. Gareth Stace, director general of U.K. Steel, said that “Whilst it is promising to see the US take steps to open up access to its steel markets again, there is significant concern that UK producers have been left behind in this process and continue to wait for their own deal.” Stace went on to explain how U.K. steel exports to the U.S. halved following the implementation of tariffs. U.K. International Trade Secretary Anne-Marie Trevelyan tweeted “We welcome the Biden administration’s willingness to work with us to address trade issues relating to steel and aluminium. It is encouraging the US is taking steps to de-escalate this issue.”
While U.S. – UK trade talks are on hold, Senator Mike Lee (R-UT) has asked the Senate to pass his resolution supporting a free trade agreement between the U.S. and U.K. Senator Lee has pushed for the bilateral trade agreement for many years, citing both national benefits for the agreement and state level benefits for Utah, with the U.K. being Utah’s largest export market. During his speech he discussed the historical special relationship between the U.K. and the U.S. and spoke of the benefits of continued cooperation. He called for future negotiations between the two countries to work on continuing the trade talks started under the Trump Administration and to focus on “clear opportunities for both countries to further strengthen economic ties.”
U.S. – Dominican Republic
Several Democrats are requesting the Biden administration investigate potential forced labor activities in the Dominican Republic regarding sugar cane production. Representative Earl Blumenauer (D-OR), Chairman of the House Ways and Means Subcommittee, issued a statement on behalf of the lawmakers which said, “Disturbing news reports have recently detailed appalling conditions under which sugarcane workers of Haitian-Dominican descent continue to live and labor to produce sugar in the Dominican Republic for US consumption.” “These reports are deeply alarming and necessitate a swift and thorough investigation,” the statement continued. The group noted that over 10 years ago, a labor submission under the Dominican Republic- Central America Free Trade Agreement (CAFTA-DR) requested that the U.S. government investigate human trafficking, forced and child labor, hazardous working and living conditions and other labor rights violations in the Dominican sugar industry.
Last week, in reference to the recent application by China for CPTPP membership, U.S. Meat Export Federation’s senior vice president for the Asia-Pacific Joel Haggard discussed the potential impact this would have on the red meat trade. While multiple countries have signaled interest in or have already applied for joining the CPTPP, China’s entry specifically would bring major gains to CPTPP member countries. “China is already the world’s largest meat importer, and the market still has enormous potential for growth, so its application for membership holds significant appeal for prospective suppliers,” Joel Haggard said, with specific benefit for CPTPP countries being lower tariffs, especially for countries like Canada and Mexico that are not in any FTA with China. Joel Haggard emphasized that “At the end of the day, China will have to address these market access demands from all members and for all commodities of interest.”
As reported earlier, Japan’s foreign minister has called on the U.S. to join the CPTPP in a move that he says would support stability in the Indo-Pacific region. The minister said, “It’s important for the U.S. to be engaged in creating regional economic order, including by returning to [the negotiating table for] the TPP,” in a video message to an event hosted by the Japan Center for Economic Research and Japan Institute of International Affairs.
South Korea was the most recent country expressing interest in joining the CPTPP, adding to the growing list of countries. South Korea’s trade minister, Yeo Han-koo, discussed the country’s possible future within the CPTPP, stating that the government is “seriously and actively considering” joining the free trade deal. If South Korea were to join, it would boast the third largest economy in the agreement, behind Japan and Canada. This discussion follows the recent formal applications of the U.K., China, and Taiwan.
Ambassador Tai’s recent comments were non-committal when questioned about the U.S. warming to the concept of entering or re-engaging in the 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.
The WTO’s fisheries negotiations chair, Santiago Wills (Colombia) will delay the release of the revised draft, citing positive discussion and space needed to capitalize on the present momentum. “I have received encouraging news that, through member-led discussions, headway is being made in bridging solutions amongst positions,” Wills said in a statement. “Given this, it would be beneficial to allow members more time to capitalize on this progress. I would like to use the meeting with members on Friday to instead give delegations the opportunity to share information on work they have been doing and to report on my own work.” Carveouts and subsidies, particularly for developing countries, remain the major obstacle to achieving progress. The U.S. proposal regarding transparency provisions on forced labor, a priority for the Biden administration and Congressman has yet to garner consensus among negotiating members. The timing of release the next revised text remains unclear.
Separately, a group of nearly 300 scientists called on the WTO to deliver an “effective” and “transparent” agreement to rein in harmful fisheries subsidies. In a letter published in Science magazine, the scientists wrote, “Sustainably managed wild fisheries support food and nutritional security, livelihoods, and cultures. Harmful fisheries subsidies — government payments that incentivize overcapacity and lead to overfishing — undermine these benefits yet are increasing globally.” The group of scientists from 46 different countries across five continents emphasized the “World Trade Organization (WTO) members have a unique opportunity at their ministerial meeting in November to reach an agreement that eliminates harmful subsidies.” The letter concluded urging WTO members to “harness their political mandate to protect the health of the ocean and the well-being of society.”