TRADE UPDATE

Food & Agriculture
November 16, 2021

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • USMCA: President Biden will host Canadian Prime Minister Trudeau and Mexican President Lopez Obrador Wednesday, November 18, for the first North American Leaders’ Summit since 2015.
  • U.S. – China: President Biden and President Xi Jinping will meet virtually this week to discuss ways to “responsibly manage the competition” between the two countries, among other topics. Trade and tariff issues are not expected to be raised.
  • U.S. – EU: The EU Foreign Affairs Council met recently to discuss multiple issues surrounding EU trade and  touted accomplishments in the U.S. – EU bilateral trade relationship including,  the termination of U.S. “Section 301” investigations into digital services taxes of some Member States, and … the announcement of the removal of certain U.S. tariffs on EU steel and aluminium products.
  • Section 232: Commerce Secretary Gina Raimondo and Ambassador Katherine Tai will travel to Tokyo to launch negotiations with Japan to resolve Section 232 national security tariffs imposed on Japanese steel and aluminum.
  • WTO: APEC ministers called for concrete outcomes, including reducing harmful fishing subsidies, at the WTO’s 12th ministerial meeting (MC12) at the end of November.

““It would make some difference. Tariffs do tend to raise domestic prices.”

— Treasury Secretary Janet Yellen responding to questions on whether the Biden administration might lift some tariffs on China to ease inflation

China Trade

Xi Jinping, President of China
Xi Jinping, President of China
  • The third meeting between President Biden and President Xi Jinping will occur Monday, November 15. As stated earlier in a press release, the Biden Administration outlined the general focus of the virtual meeting, stating that “the two leaders will discuss ways to responsibly manage the competition between the United States and the PRC, as well as ways to work together where our interests align.” Both leaders also sent letters to the National Committee on U.S.-China Relations discussing the meeting, with President Xi Jinping saying, “Whether our two countries, … can handle our relations well bears on the fundamental interests of the two countries and peoples, and matters to the future of the world,” while President Biden stressed the importance of cooperation in tackling COVID-19 and the climate crisis. Trade and tariff issues are not expected to be raised during the summit.
  • China recently opened the website for self-registration of foreign food production facilities that export to China as mandated under Decree 248. 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.”

Phase One Agreement

  • According to analysis by the Peterson Institute for International Economics, China’s respective purchases for agriculture, energy, and manufactured goods through September 2021 are lagging purchase targets for the second year of the phase one agreement. The year-to-date gap in agriculture is the lowest at 18% of the target, compared with 41% and 62% for manufactured goods, and energy, respectively.

USMCA

  • On November 18th, President Biden will host Prime Minister Trudeau and President López Obrador at the White House for the first North American Leaders’ Summit since 2015. The White House says that “During the Summit, the United States, Mexico, and Canada will reaffirm their strong ties and integration while also charting a new path for collaboration on ending the COVID-19 pandemic and advancing health security; competitiveness and equitable growth, to include climate change; and a regional vision for migration.” This was followed by “Strengthening our partnership is essential to our ability to build back better, to revitalize our leadership, and to respond to a widening range of regional and global challenges.”

COVID-19 Developments

  • U.S. consumer prices increased 6.2 % in October, the highest in three decades according to the Bureau of Labor, deepening inflationary pressures in the U.S. economy. The price increases were pervasive, beyond consumer durables and energy, with the some of the highest increases in the Meat, Poultry, and eggs sector.
  • At the global level, food prices continue to surge. The FAO Food Price Index (FFPI) averaged 133.2 points in October 2021, up 3.9 points (3.0 percent) from September and 31.8 points (31.3 percent) from October 2020. After rising for three consecutive months, the FFPI in October stood at its highest level since July 2011. The latest month-on-month increase was primarily led by continued strength in the world prices of vegetable oils and cereals.

Section 232 Investigations

  • The U.S. stated it would begin consultations with Japan in an attempt to resolve the Section 232 dispute. This announcement comes after a meeting between Hagiuda Koichi, Japan’s Minister of Economy, Trade and Industry, and Ambassador Katherine Tai following the Section 232 resolution between the U.S. and EU. These new consultations would “address global steel and aluminum excess capacity, take effective measures to ensure the long-term viability of our steel and aluminum industries, and find solutions to strengthen our democratic alliance.” Specific concerns include “the application of Section 232 measures, trade flows, and the sufficiency of actions that address steel and aluminum excess capacity,” with potential solutions providing an opportunity to “promote high standards, address shared concerns, including climate change, and hold countries like China that support trade-distorting non-market policies and practices to account.” This statement preceded a visit to Japan by Secretary Raimondo and Ambassador Tai’s trip to Japan to discuss a potential Section 232 resolution.  
  • “The United States and the United Kingdom are also 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 U.K. and Japan to address the global overcapacity of steel and aluminum, and confront China, the leading global producer of such products. 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.” 
  • 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.

Section 301 Investigations

  • The Office of the U.S. Trade Representative (USTR) will again extend Section 301 product exclusions for imports from China of medical care products needed to address the COVID-19 pandemic. The 99 exclusions were published on December 29, 2020, and were scheduled to expire on November 14, 2021. The current extension applies in two phases. First, in order to provide a transition period, USTR is extending all of the 99 exclusions scheduled to expire on November 14, 2021, through November 30, 2021. As of December 1, 2021, USTR will extend product exclusions on only 81 medical care products, as set forth in Annex B of USTR’s announcement. These extensions will expire on May 31, 2022.

U.S. – EU

  • The EU Foreign Affairs Council met recently to discuss multiple issues surrounding EU trade. One major component of the discussions was U.S.-EU trade, with results mainly focused on the gains both the U.S. and EU have seen in the past year. Touted accomplishments include “setting up of the Trade and Technology Council, the ceasefire in the Airbus/Boeing dispute, the termination of US “Section 301” investigations into digital services taxes of some Member States, and … the announcement of the removal of U.S. tariffs on EU steel and aluminum up to previous trade levels,” with the ministers calling for continued intensive engagement with the Biden Administration. The ministers also met informally with Ambassador Tai, with the positive agenda including “the EU-US TTC, the situation ahead of the 12th WTO Ministerial Conference and the need to settle the ongoing disputes definitively.”
  • As noted earlier, 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. “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

  • Four leading members of the U.S. House of Representatives released a statement calling on the U.K. to end its threats to suspend the Northern Ireland Protocol of the EU Withdrawal Agreement. The statement, led by House Foreign Affairs Committee Chair Gregory Meeks, discusses the positives of the Northern Ireland Protocol, and the potential ramifications if abandoned. It states that “The Northern Ireland Protocol was a significant achievement during the volatile Brexit process, and its full implementation is critical for ensuring Brexit doesn’t undermine decades of progress toward peace on the island of Ireland.” Later, it is stated that “In threatening to invoke Article 16 of the Northern Ireland Protocol, the United Kingdom threatens to not only destabilize trade relations, but also that hard earned peace.”
  • Senator Rob Portman visited the U.K. recently to discuss and push for 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.

U.S. – India

Indian Commerce Minister, Piyush Goyal
Indian Commerce Minister, Piyush Goyal
  • USTR announced reconvening the Trade Policy Forum (TPF) with India to facilitate trade and investments besides increasing cooperation in the agriculture sector and intellectual property rights. Ambassador Tai will hold meetings next week with Indian Commerce Minister Piyush Goyal. The two-day meetings will begin November 22. Ambassador Tai will travel to India for the TPF, which remained dormant the last four years, and to potentially discuss outcomes for the WTO’s 12th ministerial conference.

CPTPP

  • At the Asia Pacific Economic Cooperation (APEC) summit, Chinese President Xi Jinping announced pledges tied to numerous economic reforms. These pledges are widely seen as part of China’s push to join the CPTPP, and a way to more closely adhere to CPTPP guidelines. Some key parts of his statement, delivered via recorded video message, include a commitment to work together on COVID-19 issues, a need to pursue greater green transition, and actively promote greater innovation. On Xi Jinping’s commitment to greater economic openness and cooperation, he said that “We should advance trade and investment liberalization and facilitation, keep industrial and supply chains stable and functioning, and promote the orderly flow of resources and inputs to boost economic recovery and achieve interconnected development.” He continued saying “In the course of RCEP implementation and CPTPP negotiation, China will continue to shorten the negative list on foreign investment, promote all-round opening-up of its agricultural and manufacturing sectors, expand the opening of the service sector, and treat domestic and foreign businesses as equals in accordance with law.”
  • As noted earlier, 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 have 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, Ambassador Tai 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 this week for meetings with government officials and business leaders in Japan, Singapore and Malaysia yet no indication whether CPTPP will be raised.

WTO

  • Ministers from the 21 Asia Pacific Economic Cooperation (APEC) countries called for curbs on harmful fishing subsidies at the WTO’s 12th Ministerial, according to a communique. The APEC ministers met virtually last week for the 2021 meetings hosted by New Zealand. The APEC ministers said they would engage at the WTO’s 12th ministerial meeting (MC12) at the end of November to modernize trade rules and deliver concrete results. They called for WTO countries to negotiate effective curbs on harmful fisheries subsidies at the meeting in Geneva. “We recognise the need for a meaningful outcome on agriculture at MC12, reflecting our collective interests and sensitivities, with a view towards achieving substantial progressive reductions in support and protection,” in line with previous WTO mandates, the ministers said. The APEC ministers further noted support meaningful WTO reform stating, “We continue to support the ongoing and necessary reform work to improve the WTO’s functioning, including the importance of making progress on enhancing transparency to support its monitoring and negotiating functions.” 
  • Ambassador Katherine Tai urged WTO member countries to thoroughly assess their expectations on modernizing the WTO and be prepared to invest in their visions. Speaking at roundtable discussion last week, Tai said, “Let’s have the conversation about this 26, 27-year-old institution and talk about where you feel like it’s coming up short.” “But also bring your vision for what you would like to be different about it and be prepared to back it up and prepared to fight for the vision of the WTO that you want,” she added. Tai’s comments are notable as the Biden administration has elevated messaging on the positive functions of the WTO and taking a more pro-active stance on WTO reform.  Tai has also called for improvements in the monitoring function of the WTO, particularly more timely and clear notifications on trade and subsidy practices.
  • Regarding the dispute settlement process, Tai has articulated some U.S. requested changes, including addressing judicial overreach, reducing the amount of time it takes to litigate disputes and creating more latitude to settle disputes outside the traditional protracted dispute settlement structure. Tai said, “What I have articulated is a vision for a more agile and more flexible and more effective dispute settlement system.” “Whether or not the Appellate Body fits in and what it looks like and, you know, who is on it, is a secondary issue.”
  • A cross-section of U.S. industry sectors sent a letter to Ambassador Katherine Tai following her remarks affirming the U.S. commitment to the WTO and to securing positive outcomes at the upcoming 12th Ministerial Conference (MC12). The letter, which was also signed by the American Farm Bureau Federation, the Business Roundtable, the National Foreign Trade Council, the U.S. Council for International Business and several other groups, reads in part:
    • “A successful MC12 will require urgent U.S. leadership to secure concrete deliverables that advance U.S. interests and competitiveness in areas such as fisheries, domestic regulations, agriculture, e-commerce, trade facilitation and pandemic response. Such results will demonstrate that the WTO can produce meaningful outcomes and can set a foundation for future reforms and commitments. Outcomes that weaken WTO rules, however, such as by undermining longstanding disciplines on subsidies, electronic transmissions or intellectual property, would instead weaken core WTO principles and commitments as well as support for the institution.”

      The letter also emphasized the need to address dispute settlement and the Appellate Body:
    • “WTO dispute settlement holds parties to their commitments. Reforming the WTO dispute settlement system will require the United States to offer concrete and detailed proposals that address longstanding process and appellate body overreach concerns to enable the system to resolve disputes efficiently and effectively. The United States has successfully used WTO dispute settlement to challenge WTO violations without resorting to unilateral measures that draw retaliation and tit-for-tat escalation. Reforming and restoring the system will support U.S. interests and can hold WTO members accountable to their commitments.”

Ag Economy Barometer

  • The Ag Economy Barometer Sentiment among agricultural producers continued to weaken in October declining 3 points to a reading of 121. Increasing concerns with rising input costs and eroding confidence in the financial performance of farming operations continue to drive sentiment downward. Farmers are increasingly wary of a potential cost-price squeeze on their operating margins. Over half (51%) survey respondents expect input prices to rise 8% or more in the upcoming year and one-third expect those prices to rise by 12% or more. Surging prices for fertilizer, up 130% compared to a year earlier according to one measure, were particularly concerning.  Other rising input costs include seed, pesticides, and machinery repairs and ownership costs.