TRADE UPDATE

Food & Agriculture
November 9, 2021

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: A bipartisan group of Senators introduced the American Beef Labeling Act, pushing for revised country of origin labeling laws. The previous law was struck down by the WTO.
    The EU, Japan and South Korea joined with Mexico and Canada telling Congress that the proposed U.S. electric vehicle (EV) tax credits would violate international trade rules and U.S. trade agreements, including the USMCA.
  • U.S. – EU: The U.S. and EU launched a “collaboration platform” to tackle agriculture issues, particularly regarding sustainability and climate change according to a joint statement by U.S. Agriculture Secretary Tom Vilsack and EU Agriculture Commissioner Janusz Wojciechowski.
  • U.S. – China: China opened the website for self-registration of foreign food production facilities that export to China as mandated under Decree 248, which requires all overseas food manufacturers, processors, and storage facilities be registered with the Chinese authorities to export product to China.
  • Section 232: The Biden administration confirmed its intent to strike deals with the U.K. and Japan to remove the Section 232 steel and aluminum retaliatory tariffs similar to the agreement recently announced with the EU.
  • WTO: A European official expressed optimism for positive outcomes at the WTO’s 12th Ministerial (MC12) based in large part on U.S. reengagement with the global trade institution, and the new WTO Director-General Ngozi Okonjo-Iweala and her approach to reinvigorating the preparations for MC12.

“The more the United States stands on the sidelines, the more U.S. companies face competitive disadvantages on their exports to this fast-growing consumer market, and the more American workers pay for the products their families need.”

— American Chamber of Commerce leaders’ statement urging President Biden to join CPTPP

China Trade

  • Last week China opened the website for self-registration of foreign food production facilities that export to China as mandated under Decree 248. The current version of the website is accessible with data field categories in Chinese. The website was specified by the General Administration of Customs of the People’s Republic of China (GACC) in part of its guidance to foreign missions on Decree 248. The Regulations on the Registration and Administration of Overseas Producers of Imported Food (Degree 248) enter into force on January 1, 2022, requiring that all overseas food manufacturers, processors, and storage facilities be registered with the Chinese authorities to export product to China. The measure covers all food products, ranging from meat, dairy, and grains, to nuts, fruits, and condiments, but excludes food additives.
  • China is set to become a larger player in expanding global trade as the world’s largest trade pact, the Regional Comprehensive Economic Partnership (RCEP), will take effect on January 1, 2022. The agreement, which took eight years of negotiation to complete and was signed last November, finally reached the minimum number of signatures needed for implementation. The agreement encompasses 15 total member countries, making up around 30 percent of the world’s population. Bryan Mercurio, an international trade law professor at Chinese University of Hong Kong, said “RCEP could well be most beneficial for three non-Association of Southeast Asian Nations (ASEAN) countries – namely China, Japan and South Korea – as they do not have existing free trade agreements between them.”
  • As noted earlier, 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 (VBP) 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.

Phase One Agreement

  • According to analysis by the Peterson Institute for International Economics, China’s overall Phase One Agreement purchases of U.S. goods (i.e., agriculture, energy, and manufactured goods) are lagging by approximately 40 percent through September 2021. From January 2020 through September 2021, U.S. exports to China of covered products under the agreement were $172.7 billion, compared with a Phase One target of $288.9 billion.
US-China phase one tracker

USMCA

  • Forty House Republicans led by Congressman Earl L. Carter sent a letter to Ambassador Tai and Secretaries Blinken, Raimondo, and Granholm to focus on Mexico’s recent energy policies that favor national corporations and exclude U.S. energy producers. The letter cites increased reports concerning the Mexican government suspending the permits of many U.S.-owned fuel storage terminals, as part of a broader increase in “discriminatory and arbitrary enforcement actions,” against U.S. private sector participation. “[President Andres Manuel López Obrador] and his party have championed regulatory and legislative efforts that have been ruled to be anti-competitive and harmful to the environment by Mexican courts. As such, they are also harmful to U.S. investment, American workers, and the North American commitment to sustainability – all of which are concepts that are protected by the USMCA,” the letter reads.
  • A bipartisan group of four Senators recently introduced the American Beef Labeling Act, pushing for revised country of origin labeling laws, which originally were struck down by the WTO. Sen. John Thune (R-SD) said the bill would require the Office of the USTR to develop a WTO-compliant means of reinstating the Mandatory Country of Origin Labeling (MCOOL) for beef within one year of enactment. The bill also proposes that if the trade representative fails to do so within a year of enactment, then MCOOL would automatically be reinstated for beef. “Transparency in labelling benefits both producers and consumers,” said Thune in a release. “Unfortunately, the current beef labelling system in this country allows imported beef that is neither born nor raised in the United States, but simply finished here, to be labelled as a product of the USA.”
  • The National Cattlemen’s Beef Association (NCBA), largest national association representing U.S. cattle producers continues to oppose MCOOL. “I would say it’s a billion-dollar gamble,” said Kent Bacus,  a senior director with NCBA. “If we are unable to find a trade compliant solution, then we’re going to have to fight it out in the WTO. And meanwhile, Canada and Mexico will probably move forward with retaliation as they are entitled under the WTO decision.” Baucus also emphasized the adverse impact on American producers, “because we export a lot of live cattle to Canada.”
  • The EU, Japan, and South Korea recently joined Mexico and Canada voicing concerns with pending legislation to provide incentives for U.S.-made electric vehicles (EV). Ambassadors from the European Union and many of its member states as well as South Korea, Japan and others in a letter warned Senate and House leadership that the proposed credits would be “detrimental to international automakers and vehicle importers.” “This legislation, if implemented, would violate international trade rules, disadvantage hard-working Americans employed by these automakers, and undermine the efforts of these automakers to expand the U.S. EV consumer market to achieve the Administration’s climate goals,” the ambassadors wrote. Under the current plan, most U.S.-built EVs would qualify for a $7,500 tax credit, and union-built EVs assembled in the U.S. would receive an additional $4,500 in credits. 
  • Earlier Canada and Mexico expressed concerns that the EV incentives could violate the USMCA. Canada’s Minister of Small Business, Export Promotion and International Trade, Mary Ng, noted that  aspects of the EV tax credits under consideration are “inconsistent” with USMCA and “would undermine decades of United States-Canada cooperation to foster a mutually beneficial integrated automotive production and supply chain.” 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.

COVID-19 Developments

  • The U.S. overall trade deficit (i.e., goods and services) widened to $80.9 billion in September, up $8.1 billion from $72.8 billion in August, revised. The 11.2% increase for September in the goods and services deficit reflected continuing deepening of the goods deficit by $8.9 billion to $98.2 billion and an increase in the services surplus of $0.8 billion to $17.2 billion. Year-to-date, the goods and services deficit increased $158.7 billion, or 33.1 percent, from the same period in 2020. Exports increased $274.1 billion or 17.4 percent but were significantly offset by $432.8 billion (or 21.1 percent) increase in imports.
goods and services trade deficit

Section 232 Investigations

  • Last week the Biden administration confirmed interest in striking a deal with the U.K. to remove the Section 232 steel and aluminum import tariffs similar to the agreement announced a day earlier with the EU. “The United States and the United Kingdom are consulting closely on bilateral and multilateral issues related to steel and aluminum, with a focus on the impacts of overcapacity on the global steel and aluminum markets; the need for like-minded countries to take collective action to address the root causes of the problem; and the climate impacts of the sectors,” the Commerce Department said in a statement.  The Biden Administration recently signaled ambitions to work with the EU, UK, and Japan to address the global overcapacity of steel and aluminum, and confront China, the leading global producer of such products.  In conjunction with the Biden Administration’s coalition building efforts, Commerce Secretary Gina Raimondo recently met virtually with her Japanese counterpart to discuss trade and investments issues in the bilateral relationship according to an agency statement.  
Hagiuda Koichi, Japan’s Minister of Economy, Trade and Industry
  • Japan remains eager to strike a deal on Section 232 steel and aluminum tariffs. Hagiuda Koichi, Japan’s Minister of Economy, Trade and Industry, called on the Biden Administration to conclude an agreement to end Section 232 duties imposed on Japanese steel and aluminum. Minister Koichi recently met with Amb. Katherine Tai on the heels of the agreement with the EU to replace the Section 232 tariffs with a tariff rate quota structure. Mr. Hagiuda “strongly requested resolution of the issue of additional duties on Japanese steel and aluminum products,” according to a statement from his office. According to a readout from Tia’s office, the two trade officials discussed “the importance of working together to address issues in the steel and aluminum sectors, including the root causes of non-market excess capacity, before exchanging views on how the U.S. and Japan can cooperate to address market-distorting measures and economic coercion.” Biden Administration officials have indicated interest in securing similar deals with the U.K. and Japan to remove retaliatory tariffs.  
  • The announcement of steel and aluminum tariff talks with the UK and Japan follows immediately on the heels of a U.S. and EU agreement. 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 (i.e., tariff-rate quotas). 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. More details available in a USTR fact sheet on the “arrangements” between the U.S. and EU.
  • Separately, the Department of Commerce’s public comment period regarding the Section 232 investigation into imports of neodymium-iron-boron permanent magnets closes this week on November 12th. 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. – EU

  • The U.S. and EU launched a “collaboration platform” to tackle agriculture issues, particularly regarding sustainability and climate change. “Today we begin a new chapter in EU-U.S. collaboration with a new platform for the U.S. Department of Agriculture and the EU Directorate General for Agriculture and Rural Development to exchange knowledge and information, and to promote mutual understanding and trust, as we work together to address global challenges and achieve common goals,” Agriculture Secretary Tom Vilsack and EU Agriculture Commissioner Janusz Wojciechowski said in a joint statement after meeting in Brussels. The statement continued, “We believe that science and innovation will bring about a more sustainable agriculture. We must work together to devise systems and solutions that are good for agricultural producers, good for consumers, good for businesses, good for our communities, and good for our planet.” “We are reaffirming our mutual commitment to sustainable and climate-smart agricultural production, recognizing that we are both engaged in multiple, effective ways to achieve mutually desired outcomes,” they added.

U.S. – U.K. Trade

  • Senator Rob Portman is visiting the U.K. this week to discuss and push forward a potential trade agreement between the U.S. and U.K. As a former U.S. Trade Representative and current co-chair of the U.K. trade caucus, Senator Portman said that a trade agreement with the U.K. would help in the creation of a future trade agreement with the EU, as well as one potentially with Switzerland and Kenya. He described the U.K. as a “natural first” for a trade agreement, saying that “We have so much in common in terms of our labor market, environmental provisions, and so on, things that normally stand in the way of a trade agreement.” “I think we need to get back in a situation where we are expanding opportunities for our exporters in America,” Portman said.
  • 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. 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.”

CPTPP

  • A group of American Chambers of Commerce leaders are recommending President Biden announce the United States’ intention to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) during his attendance at the Asia Pacific Economic Cooperation (APEC) leaders’ meeting. The Chamber leaders from Vietnam, Malaysia, New Zealand, and Singapore in a joint statement said, “Even after the United States withdrew from the agreement, the remaining countries kept the cornerstones of the agreement intact by including tough rules of origin, reducing tariffs, making supply chains more resilient, and agreeing on accession procedures for new candidates.” Noting that the U.S. may host APEC 2023 meetings the Chamber leaders said next week’s 2021 meetings hosted by New Zealand offers a “rare opportunity for the United States to set the APEC agenda and build consensus on issues that affect U.S. growth, exports, and jobs, as well as influence the region’s trade and sustainability agenda.” They noted that U.S. should engage more deeply in the region, especially given China’s bid to join the CPTPP and the China-led Regional Comprehensive Economic Partnership. “The more the United States stands on the sidelines, the more U.S. companies face competitive disadvantages on their exports to this fast-growing consumer market, and the more American workers pay for the products their families need,” the leaders said.
  • Last month Japan’s foreign minister 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.
  • In recent months, the U.K., China, Taiwan, and South Korea expressed interest or formally  notified their intent to join the CPTPP adding to pressure for the U.S. to reconsider its withdrawal from the then TPP  under President Trump in 2017. Biden Administration officials, including Ambassador Tai have remained non-committal when questioned about the U.S. re-engaging in the CPTPP. Rather she mentioned continued U.S. engagement in the Indo-Pacific region and stressed the importance of the region to U.S. trade. Commerce Secretary Gina Raimondo travels to Asia next week for meetings  with government officials and business leaders in Japan, Singapore and Malaysia yet no indication whether CPTPP will be raised.

WTO

Bernd Lange, chair of the European Parliament’s International Trade Committee
  • A European official expressed optimism for positive outcomes at the WTO’s 12th Ministerial (MC12) based in large part on U.S reengagement with the global trade institution.  “The United States are back on track and that’s a good signal for the WTO,” Bernd Lange, chair of the European Parliament’s International Trade Committee said. He continued, “No doubt, without the commitment by the United States and also a clear common approach with the European Union, there is no engine for the WTO. That’s for sure.” Lange also credited the new WTO Director-General Ngozi Okonjo-Iweala and her approach to reinvigorating the preparations for MC12. “It’s a member-state driven organization, but she uses power as a secretariat to start processes and try to find compromises — a really dynamic person,” Lange said. The U.S.’ reclaiming of a leadership position at the WTO alongside the EU, coupled with Okonjo-Iweala’s efforts, “make me a little bit more optimistic than perhaps some months ago,” he said. 
  • Despite the optimism, large conceptual gaps remain in several MC12 ambitions including harmful fishery subsidies and agriculture negotiations. An anticipated revised text for the fisheries negotiations has stalled over carveouts and subsidies, particularly for developing countries. The U.S. proposal regarding transparency provisions on forced labor, a priority for the Biden administration and Congress has yet to garner consensus among negotiating members. The revised fisheries text is expected early this week.
  • Pressure for a positive outcome on fishery subsidies increased recently as 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 letter concluded urging WTO members to “harness their political mandate to protect the health of the ocean and the well-being of society.”

Ag Economy Barometer

  • The Ag Economy Barometer Sentiment among agricultural producers continued to weaken in October declining 3 points to a reading of 121. The index is the weakest farmer sentiment level since July 2020 when the index stood at 118. Farmers’ increasing concerns with rising input costs and eroding confidence in the financial performance of farming operations continue to drive sentiment downward. In contrast to the the weak overall sentiment producers hold an optimistic view of farmland values, both in the upcoming year and over the next five years.
ag economy barometer