TRADE UPDATE

Food & Agriculture
November 15, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• U.S. – Indo-Pacific: Last week, representatives from the U.S. and Taiwan met in New York to discuss opportunities for strengthened trade and economic ties under the U.S. – Taiwan Initiative on 21st Century Trade. Officials from Taiwan’s Executive Branch praised the steps under the initiative to boost competitive investment, lower costs for exporters, and promote the involvement of SMEs in the international market.
• USMCA: U.S. Deputy Secretary of State Wendy Sherman visited Mexico’s new Secretary of Economy Raquel Buenrostro last week to build on initiatives established at the High-Level Economic Dialogue (HLED) and prepare for the American Leaders’ Summit in December.
• Food Security: U.S. food prices increased 0.6% last month, according to the October’s Consumer Price Index (CPI). Prices for food consumed at home increased 0.7% and 0.9% for food consumed away from home. The overall CPI increased 0.4%.
• U.S. – China: U.S. President Joe Biden, on Nov. 14, met with Chinese President Xi Jinping for the annual G20 leaders meeting to discuss “fair trade” in the context of Taiwan. During the meeting, President Biden distinguished competition from conflict and urged President Xi to “maintain open lines of communication” in the bilateral relationship.
• Supply Chains: The Brotherhood of Maintenance of Way Employees (BMWED), on Nov. 9, announced a delay in a potential strike, moving the decision from the original November deadline after midterms elections to Dec. 9 of this year. The move pushes back a potential rail strike, providing more time for BMWED to consider the tentative contract agreement.
• WTO: WTO Director-General Ngozi Okonjo-Iweala highlighted the important role that international trade and investment would play in the adoption and implementation of climate-smart policies. Okonjo-Iweala’s remarks were delivered at the Global Investment and Trade for Climate Transformation Forum on the sidelines of the recent COP27 conference in Egypt.

“Well, in this time and age, great changes are unfolding in ways like never before. Humanity are confronted with unprecedented challenges. The world has come to a crossroads. Where to go from here — this is a question that is not only on our mind but also on the mind of all countries.”

— President Xi during a bilateral meeting with President Biden on U.S. – China relations.

U.S. – Indo- Pacific

U.S. and Taiwan hold trade talks

• Last week, representatives from the U.S. and Taiwan met in New York to discuss opportunities for strengthened trade and economic ties under the U.S. – Taiwan Initiative on 21^st-Century Trade. China has publicly expressed its opposition to the trade discussions with concern regarding Taiwan’s perceived sovereignty. Speaking on behalf of the Chinese Embassy, Liu Pengyu commented that, “China is always against any country negotiating economic and trade agreements of sovereign implication or official nature with China’s Taiwan region.”
• Officials from Taiwan’s Executive Branch praised the steps under the initiative which will “establish a fair and competitive investment and trade environment, help exporters to reduce operating costs and promote small and midsize enterprises to expand into the international market,” according to the Wall Street Journal.
• The initiative is similar to the Indo-Pacific Economic Framework in that the agreement follows an unconventional format with emphasis placed on trade facilitation, regulatory practices, reducing non-tariff barriers, and digital and agriculture trade.
  • President of the U.S. – Taiwan Business Council Rupert Hammond-Chambers commented on the progress, stating, “What we’ve got here is a big shift in attitude at the Trade Representative’s office to lean into the relationship. That’s a big win.”

Janet Yellen to visit India for closer ties

• Secretary of the Treasury Janet Yellen, last week, travelled to India for meetings addressed at strengthening ties between the countries. The U.S.’s approach to India’s relationship with Russia during the war has seen a notable shift, with officials clarifying, “The focus isn’t who else India talks to, it’s how India interacts with the United States.”
• Secretary Yellen and Finance Minister Nirmala Sitharaman participated in the U.S. – India forum on economic and financial relations. In her remarks, the secretary discussed friend-shoring, describing a shift of supply chains away from China to other U.S. allies. “The United States is pursuing an approach called ‘friend-shoring’ to diversify away from countries that present geopolitical and security risks to our supply chain,” she said. “To do so, we are proactively deepening economic integration with trusted trading partners like India.” Similarly, government representative Amitabh Kant explained the importance of “American companies [finding] alternative places for supply chains “in light of “the breakdown of supply chains across the world.”
• The U.S. is currently India’s largest trading partner, despite the country’s abstention from the Trade Pillar of the Indo-Pacific Economic Framework. “Both countries are turning inward. India is turning inward, the U.S. is turning inward quite substantially,” according to Senior Fellow Arvind Subramanian from the Peterson Institute for International Economics. Although tariff reduction is not currently under discussion with India, Secretary Yellen affirmed that the administrations are exploring other “trade facilitation” measures to address non-tariff barriers.
  • Minister Sitharaman highlighted the potential for growth in the bilateral relationship built on “respecting the differences” between both nations. Along this line, Secretary Yellen noted that “Our strong trade, investment, and people-to-people ties make the bilateral economic and financial relationship a critical element of that partnership.”

U.S. – China

Biden agrees to trade talks with China

• U.S. President Joe Biden, on Nov. 14, met with Chinese President Xi Jinping for the annual G20 leaders meeting to discuss “fair trade” in the context of Taiwan. In a statement, Biden revealed his intentions for the meeting to “lay out what … each of our red lines are — understand what he believes to be in the critical national interest of China, what I [believe] to be in critical national interest of the United States.” Prior to the discussion, the leaders spoke of the importance of ongoing negotiations and open dialogue.
• During the meeting, President Biden emphasized that the U.S. would continue to compete with China through domestic investments and alignment with allies. However, the president also distinguished competition from conflict and urged President Xi to “maintain open lines of communication.” Further, President Biden called for cooperation on issues, such as “climate change, global macroeconomic stability including debt relief, health security, and global food security.”
  • Both leaders also highlighted the importance of the relationship between the U.S. and the PRC, encouraging mechanisms, including joint working groups.
• Additionally, the U.S. President discussed topics of interest, including PRC human rights violations in Xinjiang, Tibet and Hong Kong. Biden also acknowledged the growing tensions over Taiwan and pressed President Xi to resolve cases for Americans that are “wrongfully detained or subject to exit bans in China.” Lastly, the leaders agreed that nuclear war should never be enacted, especially in the context of the Russia-Ukraine war. Although the meeting demonstrates a step towards diplomacy, Biden affirmed that he is “not willing to make any fundamental concessions.”
  • U.S. Secretary of Treasury Janet Yellen spoke ahead of the meeting, urging the leaders to “stabiliz[e] the relationship and tr[y] to get it on a better footing while recognizing that we have a whole range of concerns, and we would like to address those.” U.S. Secretary of State Antony Blinken will visit China to continue discussions between the countries.

USMCA

U.S. Deputy Secretary of State visits Mexico for trade talks

• U.S. Deputy Secretary of State Wendy Sherman visited Mexico last week to build on initiatives established at the High-Level Economic Dialogue (HLED) and prepare for the American Leaders’ Summit in December. Ms. Sherman met with Mexican Secretary of Economy Raquel Buenrostro, where the pair discussed the importance of bilateral security initiatives. The Deputy Secretary also met with Mexican Foreign Minister Marcelo Ebrard to discuss opportunities for strengthened supply chains in North America, strategies to address fentanyl-prevention, and promotions for continued investment in advanced manufacturing. Deputy Secretary Sherman also expressed support for Mexico’s assistance at the U.N. to promote stability in Haiti.
  • On Nov. 7, U.S. Secretary of Commerce Gina Raimondo spoke to Minister Buenrostro over a phone call to discuss cooperation on strengthening regional markets and nearshoring of U.S. business operations to Mexico.

U.S. – Ukraine

U.S.  and Ukraine begin to discuss post-war trade

• Officials from the U.S. and Ukraine met last week to discuss plans for bilateral trade following the war with Russia. During a meeting at the U.S. Chamber of Commerce, Ukrainian Ambassador to the United States, Oksana Markarova revealed Ukraine’s hope for the “U.S. to be one of the key partners in not only the after-war rebuilding, but in general.” Ukraine’s First Deputy Prime Minister Yuliia Svyrydenko met with both U.S. Secretary of Commerce Gina Raimondo and U.S. Trade Representative Katherine Tai last week to discuss next steps.
• The countries have since established the U.S. – Ukraine infrastructure task force, consisting of the Department of Commerce, the Department of Transportation, and the Ukrainian Ministry of Infrastructure. The task force reiterates the U.S.’s continued support to Ukraine in the war and will contain provisions to facilitate private sector support for the reconstruction effort.
  • Secretary Raimondo emphasized the essential function of reconstruction in “Ukraine’s prosperity and national security” and praised the Department of Commerce’s efforts to “help lead the U.S.-Ukraine Infrastructure Task Force, which will facilitate the collaboration necessary to build a safe and resilient Ukraine.”

U.S. – Russia

Commerce revokes Russia’s market economy status

• The Department of Commerce’s International Trade Administration (ITA) announced that it was revoking Russia’s status as a market economy (ME) and reclassifying the country as a non-market economy (NME) for antidumping (AD) proceedings. The ITA’s decision may lead to higher import duties on Russian products subject to AD investigations effective November 1, 2022.
  • In the revocation decision,  the ITA found that extensive government involvement in the economy has led to distorted prices and costs in Russia that do not accurately reflect whether Russian companies are fairly pricing imports into the U.S. Specifically, “an in-depth analysis of research from impartial, third-party sources” found “extensive backtracking” by Russia on issues such as currency convertibility, how wages are determined, the climate for foreign investment, government control of the means of production, and government control over firm business decisions.
  • “As a result of today’s decision, in future cases involving imports from Russia, Commerce will apply an alternative methodology to calculate the AD duties on imports from Russia, using market-based prices and costs from a country at a comparable level of economic development that produces comparable merchandise,” the ITA announcement continued.
• Tim Brightbill, Partner at Wiley Rein, expressed support for Commerce’s decision, noting that “The non-market forces underpinning Russia’s economy have become even more apparent following Russia’s unprovoked invasion of Ukraine.” As such, the “only logical decision” is to remove Russia’s “market economy” status. The decision to grant or remove “market economy” status is dependent on several key factors:
  • Extent of government control over the country’s currency
  • Wage rates
  • Product prices
  • Allocation of resources
  • Means of production
  • Openness to foreign investment
• In effect, Russia’s reclassification as a “non-market economy” would call for restructuring of U.S. duties on Russian imports. Simply put, Commerce would use prices from another country, instead of Russia’s own prices, to determine whether duties may be imposed. This generally results in higher duties for the country under review. Earlier this year, the U.S. also removed Russia’s status as a “most-favored nation” for trade.

Section 301

Comment period on section 301 tariffs opens

• USTR will begin accepting comments this week (Nov. 15) on section 301 tariffs as part of a statutory review.  Last week, the agency posted the list of questions for public comment regarding USTR’s ongoing four-year review of the Section 301 investigation on China. Stakeholder input on the following issues is requested:
  • The effectiveness of the tariffs in obtaining the elimination or counteraction of China’s predatory IP practices
  • Other actions that could be taken to achieve the objectives, including measures against other products and services
  • The effects of the tariffs on:
    • The U.S. economy and consumers
    • Domestic manufacturing, including capital investments, domestic capacity and production levels, industry concentration, and profits
    • U.S. technology, including leadership and development
    • U.S. workers, including employment and wages
    • U.S. small business
    • U.S. supply chain resilience
  • Goals of U.S. critical supply chains outlined in Executive Order 14017
  • Whether the tariffs have resulted in higher additional duties on inputs used for additional manufacturing in the U.S. than the additional duties on particular downstream products or finished goods incorporating those inputs
• The comment period will close on Jan. 17 according to the  Federal Register notice.

Food Security

U.N. works to boost exports of Russian fertilizer

• U.N. Under Secretary General for Humanitarian Affairs Martin Griffiths, immediately following Russia’s agreement to rejoin the Black Sea Grain initiative, expressed his “[commitment] to removing the remaining obstacles to the exports of Russian food and fertilizer.” Although Russia did not issue formal conditions for its rejoining of the initiative, the government has continually pushed for easier export processes of Russian fertilizer.
• While the U.N., Turkey, Ukraine, and Russia signed the grain initiative earlier this year, the countries simultaneously agreed to allow free exports of Russian fertilizers. However, Russia currently lacks terminals to load ammonia onto ships, instead relying on pipelines to ports in Ukraine, Estonia, Latvia, and other Baltic countries. The EU does not have official sanctions placed on Russian fertilizers, but effectively limits exports of ammonia through sanctions placed on certain owners of Russian fertilizer companies.
  • Nitrogen products, including those in fertilizer, are experiencing price increases due to high natural gas costs. While many countries will be able to afford the higher prices or find substitutes, onlookers have expressed concern for countries, particularly in Africa, which lack the monetary flexibility to cope with the inflationary pressures.

EU and allies to boost Ukraine grain exports

• President of the European Commission, Ursula von der Leyen, announced an initiative on Nov. 11 to provide aid of €1 billion to protect secure routes for Ukraine’s agricultural exports. Of this package, €250 million will be released immediately to streamline cross-border flows via Solidarity Lanes. The funding will further seek to repair and develop road and railway freight infrastructure for the country.
  • Outside of the initial stimulus, international development banks will provide funding, including the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank Group.

Increase in U.S. food prices slows in October

• U.S. food prices increased 0.6% in October, the smallest increase since December 2021 compared with 0.4% increase in the overall Consumer Price Index (CPI). According to the October’s Consumer Price Index  prices for food consumed at home increased 0.7% and for food consumed away from home prices  increased 0.9%.
  • According to the Bureau of Labor Statistics, the “The food at home index rose 12.4 percent over the last 12 months. The index for cereals and bakery products increased 15.9 percent over the year and the index for dairy and related products rose 15.5 percent. The remaining major grocery store food groups posted increases ranging from 8.0 percent (meats, poultry, fish, and eggs) to 15.4 percent (other food at home).”

Trade Trends

U.S. cotton yields exceed expectations

• Cotton forecasters recently raised their projections for cotton yields, with the U.S. Department of Agriculture estimating U.S. production of 14 million bales, up from the previous forecast of 12.5 million bales. However, Texas yields have experienced a 57% decrease due to a 55% decrease in harvested acreage. Upticks in cotton production have seen large swings in Mississippi, Arkansas, North Carolina, and Georgia.
  • Due to increased production estimates and lowered demand from China, cotton futures have dropped 2.5% this month, showing a relatively consistent decline since mid-August.

Supply Chains

Rails to delay strikes

• The Brotherhood of Maintenance of Way Employees (BMWED), on Nov. 9, announced a delay in potential strikes from the original November deadline after midterms to Dec. 9 of this year. As such, BMWED alongside the BRS Union will wait to take further action should the BLET and SMART-TD Unions ratify the tentative agreement. However, should the two unions fail to ratify the proposal, BMWED’s “status quo period” will end at the same time as the two fellow rails. The union has listed its reasoning for the decision, holding that the extended deadline will provide ample time to educate members of Congress on issues, such as sick leave, following midterm elections.
• The BMWED also held that threats to delay or cancel operations would unnecessarily “[cause] international economic harm to their customers and the U.S. economy.” At base, the union’s key concern pertains to a penny increase in sick leave pay of every dollar recorded in railroad profits, assuming full participation of union members. The union also urges Congress not to intervene unless on the behalf of workers’ demand for better sick leave policies.

Supply chain disruptions abate in October

• A survey of business owners indicates an easing trend regarding supply chains disruptions, according to a recent report by the National Federation of Independent Business. The report indicates that while 31% of owners reported that supply-chain disruptions have had a significant impact on their business and another 31% said the effect was moderate, the lowest response on “Significant” and “Moderate” impact since April’s report.

Food security concerns with threats to supply chains

• President and CEO of the Fertilizer Institute, Corey Rosenbusch, has expressed concerns regarding fertilizer distribution given disruptions in supply chains, including low water levels on the Mississippi and the continued threat of a rail strike. “The ag economy is strong. The fertilizer industry is strong. It’s just the volatile events that you wake up to each week that are scary,” he said.
• The threat of cancelled shipments is particularly serious for the transportation of ammonia which cannot be allowed to be halted in cargo holds for long periods of time. The time lags of the issue are also pressing the issue due to insufficient storage capacity to meet long-term needs. “For every day that we’re not able to ship product, it takes five to seven days to catch up,” Rosenbusch explained.

U.S. – EU

Brussels shoots down German request for TTIP

• Last week, a spokesman for the German government called on the EU to rekindle discussions with the U.S. regarding the Inflation Reduction Act. The Transatlantic Trade and Investment Partnership (TTIP) suffered a significant breakdown in 2016 amidst opposition from Germany and former President Trump. However, the European Commission has pushed back on the request, holding that “Reviving the TTIP negotiations is not on the agenda.”
• Instead, representatives have expressed hope for conflict resolution during the third Trade and Technology Council (TTC) to be held in December. “Folks are interested in whether the TTC can yield meaningful results in the first instance — there is skepticism on that front — rather than launching another platform,” said the Marjorie Chorlins, Senior Vice President of the Europe Department at the U.S. Chamber of Commerce.

Trade Policy

Biden signs national security memo on ag

• President Biden, on Nov. 10, signed the National Security Memorandum-16 (NSM-16) aimed at protecting food and agriculture sectors. The document outlines protocols to make the U.S. “better prepared for threats that may harm the health of crops and livestock and cause shocks to the cost or availability of food.” In particular, the initiative will seek to identify and prevent cyberattacks and threats to companies and organizations operating across agricultural sectors. The provision will also provide training and educational materials for agricultural workers across the U.S.
• U.S. Secretary of Agriculture Tom Vilsack conceded that such attacks are a “new reality” for agriculture producers and distributers, increasing urgency for additional protections in the industry. Agriculture and related industries comprise roughly five percent of annual U.S. gross domestic product. NSM-16 adds to existing initiatives under the administration to strengthen agricultural supply chain resilience. Key elements of the memorandum are as follows:
  • Identify threats to the industry with a renewed focus on cyber threats, the climate crisis, and procedures to mitigate risks/vulnerabilities to current systems.
  • Strengthen partnerships to enhance the workforce by redefining critical labor force infrastructure and promoting “relevant education at all levels.”
  • Enhance preparation and response through the standardization of reporting protocols, enhancement of the National Veterinary Stockpile, and development of the National Plant Disease Recovery System.
• The initiative also calls for the Department of Homeland Security to “produce a comprehensive risk assessment for the food and agriculture sector” within the next year.

Vilsack promotes climate-oriented agriculture tool

• U.S. Secretary of Agriculture Tom Vilsack, on Nov. 11, announced the implementation of the Climate Innovation Hub, an online tool for international collaboration on climate among small farmers. The program will share research and knowledge between users to address gaps in funding and supply. “We are anxious to expand existing international programs and initiatives working with USAID to support climate adaptation and resiliency among vulnerable countries and producers,” he said.
• The program will follow a three-pronged approach in collaboration with USAID. As such, the key focuses will aim to use “adaptation, action and innovation to close the productivity gap.” The secretary also highlighted the successes of Innovation Sprints as private-public partnerships that seek to support and fund climate-smart agriculture. Current initiatives seek to scale agroforestry, plant 250 million trees by 2025, and enforce climate resilience in soil.
  • Ongoing projects are intended to produce “high value commodities” and “demonstrate the credibility of climate-smart practices,” according to Secretary Vilsack.

House Ag Committee sees changes following midterms

• Midterm elections marked a significant shift in the composition of representatives on the House Agriculture Committee. Namely, Sean Maloney (D-NY), who previously led the political committee for Democratic appointments to the committee, lost in his race against Republican candidate Mike Lawler. Other losing candidates include Rep. Al Lawson (D-FL), Rep. Cindy Axne (D-IA), and Rep. Mayra Flores (R-TX). On the other hand, returning committee members include Rep. Abigail Spanberger (D-VA), Rep. Angie Craig (D-MN), Rep. Sanford Bishop (D-GA), Rep. Sharice Davids (D-KS), Rep. Don Finstad (R-MN), Rep. Tom O’Halleran (D-AZ), Rep. Jahana Hayes (D-CT), Re. Josh Harder (D-CA), and Rep. Kim Schrier (D-WA).

Rep. Buchanan calls for trade deals

• U.S. Representative Vern Buchanan (R-FL) has announced his intention to pressure the Biden Administration to consider negotiations for trade deals with allies Kenya, Taiwan, and the U.K. should he be appointed head of the Ways and Means Committee. In his remarks. Rep. Buchanan highlighted the relationship between commercial opportunities and security initiatives, stating “There’s a lot of reasons why we need to be in the trade business.”
• Further, Buchanan cited USMCA as a “prototype” for other FTAs. The representative also discussed his views on China and pledged to probe the country’s theft of intellectual property in addition to its breach of purchase agreements should he lead the committee in the House.
  •  “There’s no sense of fairness with the Chinese in terms of trade deficits and trade balances, and we’ve got to get what makes a little bit more sense,” he said.

Vilsack discusses ag at COP27 conference

• U.S. Secretary of Agriculture Tom Vilsack travelled to the COP27 conference in Egypt last week to discuss connections between agricultural innovation and climate change. Along this line, the Agriculture Innovation Mission for Climate initiative is set to announce additional commitments from $4 billion to $8 billion for funding aimed at agriculture research and corresponding technology innovations.

WTO

WTO DG identifies trade as key component of climate action

• During a Global Investment and Trade for Climate Transformation Forum on the sideline of the recent COP27 conference in Egypt, Director-General of the WTO Ngozi Okonjo-Iweala highlighted the important role that international trade and investment would play in the adoption and implementation of climate-smart policies.  In this, she held that “Climate change adaptation requires significant infrastructure investment to increase resilience and reduce vulnerabilities, and the transition to a low-carbon global economy will generate enormous investment, employment, and growth opportunities.”
• Along this line, UNCTAD Secretary-General Rebecca Grynspan discussed the relative decline of new climate change investment projects over the past two quarters. She further emphasized the need to ramp up funding, particularly in developing nations. As such, trade could contribute to the maintenance of a policy environment that allows for flows of capital needed for international investment in climate initiatives.
  • Similarly, Executive Director of the ICT, Pamela-Coke-Hamilton, emphasized the importance of SMEs in the transition to a low-carbon economy. While climate change is disproportionately impacting developing countries, “by extension, it’s going to have even more negative impact on small businesses, so this year, we determined that there needed to be a presence and advocacy for their voices to be heard,” she said.