TRADE UPDATE

Food & Agriculture
November 30, 2021

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: Mexico has begun regulatory work to permit increased access to U.S. fresh potato exports following the Mexican supreme court’s ruling lifting legal challenges to increased shipments from the U.S. Separately, the Canadian Food Inspection Board announced the suspension of all fresh potato products from Saint Edward’s Island to the United States following the discovery of the potato wart on two different farms on the island.
• U.S. – China: U.S. agricultural exports under the Phase One agreement to China totaled $24.7 billion in October compared with a needed pace of $29.3 billion for the year 2 goal to be reached. Under the present pace China’s agriculture purchases are 16% below the deal’s 2021 purchase commitments.
• U.S. – India: India and the U.S. agreed to expand trade of some agricultural products, including U.S. cherries, alfalfa and distiller dried grains as well as Indian mangoes, grapes, shrimp and water buffalo meat. The actions stem from recent talks under the Trade Policy Forum and Ambassador Katherine Tai’s visit to India.
• WTO : The WTO’s 12th ministerial conference (MC12) was postponed due to certain travel restrictions following the discovery of the fast-spreading omicron coronavirus variant from Africa. Despite the postponement of MC12 WTO negotiations will continue and delegations should be “empowered” to push forward, according to WTO Director-General Okonjo-Iweala.

“There is huge potential for growth between our two economies in areas like the digital economy, services, health-related trade, and even agriculture.”

— Ambassador Katherine Tai commenting on bilateral relationship with India

China Trade

• The House Ways & Means trade subcommittee Chair Earl Blumenauer (D-OR) announced a committee hearing on how to protect domestic interests facing what the U.S. calls unfair Chinese trade practices. The hearing, titled “supporting U.S. workers, businesses and the environment in the face of unfair Chinese trade practices,” is scheduled for Dec. 2^nd at 10:00 am ET. Among many China-related trade issues likely to be addressed during the hearing are: Chinese subsidy practices, forced labor concerns and a proposed outbound investment review process. Witnesses were not announced at time of this writing.
• With nearly a month until implementation of China’s new food regulations (e.g. Decrees 248 and 249) on January 1, 2022, U.S. industry stakeholders are increasingly perplexed with lack of clarity on product coverage and implementation procedures. Degree 248 mandates that all overseas food manufacturers, processors, and storage facilities be registered with the Chinese authorities to export product to China. Several countries have requested that China delay the food-import measures for “at least 18 months.” Seven economies, including Australia, Canada, the European Union and Switzerland, expressed their concerns with Decree 248 and 249, requiring sweeping new registration, inspection and labeling requirements food imports. 

Phase One Agreement

• U.S. agricultural exports under the Phase One agreement to China totaled $24.7 billion in October. This compares to a needed pace of $29.3 billion in agriculture exports for the year 2 goal to be reached. Cumulative agriculture Phase One product exports to China in the 10 months of 2021 presently are 16% below the pace estimated to meet 2021 purchase commitments under the deal, according to analysis from the Farm Bureau. In a year-over-year comparison, China has closed the gap from a 28% lag in October 2020 to 16% presently.

• According to updated 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 October 2021. From January 2020 through October 2021, U.S. exports to China of covered products under the agreement were $186.2 billion, compared with a Phase One target of $352.2 billion. The agreement spells out specific purchase commitments by China for 2020-2021, suggesting that the final purchase tally will result in China falling short of its commitments.

USMCA

• Mexico continues to move forward with preparation to allow increased imports of U.S. fresh potatoes, according to industry sources. Recently Mexico published new phytosanitary requirements for U.S. potato imports and released an operational work plan, according to reports. The actions stem from a recent Supreme Court ruling in Mexico overturning prior legal challenges that have lasted a decade or more to block expanded importation of U.S. potatoes over concerns with disease and pests. Mexico currently only allows U.S. potatoes to be sold within 26 kilometers of the U.S.-Mexico border. Kam Quarles, President of the National Potato Council, estimates that a fully opened Mexico market could provide an additional $150 million of U.S. exports annually compared to current levels of $50 million annually.
• Last week the Canadian Food Inspection Board announced the suspension of all fresh potato products from Saint Edward’s Island to the U.S. This follows the discovery of the potato wart on two different farms on the island. The potato wart is a fungus that is very easily transmitted, and while presence of a potato wart does not pose a threat to human health or food safety, it does decrease yield on farms. Prior to the announced suspension, the National Potato Council, along with 13 other organizations, wrote a letter to USDA Secretary Vilsack requesting assistance in preventing imports of potatoes from the island. The U.S. notified Canada that it would take action to block imports if no measures were taken within Canada. Secretary Vilsack said of the deal “We look forward to working with the Canadian Food Inspection Agency as they delimit the infestation and trace the sources so that appropriate mitigation measures can be imposed and trade restrictions relaxed.”
• No significant updates from the first North American Leaders’ Summit hosted recently by President Biden at the White House. Initial readouts from the meeting indicated the leaders agreed to develop a supply chain working group, but details on other complex cross-border issues, including trade, remain scant. “We can meet all of the challenges if we just take the time to speak with one another,” Mr. Biden said during the meeting.  Trade irritants regarding U.S. proposed electric vehicle tax credits and Mexico’s lack of biotech approvals, if discussed, were not mentioned by the leaders or other public reports on the discussions.

COVID-19

• The advance international trade deficit in goods decreased to $82.9 billion in October from $97.0 billion in September as exports increased more than imports. The monthly trade deficit shrank by $14.1 billion or 14.6% after reaching a peak in September. Exports of goods for October were $157.4 billion, $15.3 billion more than September exports. Imports of goods for October were $240.3 billion, $1.1 billion more than September imports.

• USDA released its projections for 2022 food price, estimating an increase of 2.0% to 3.0% in the range of the average annual inflation rate, 2%, over the past 20 years. The largest retail price increases in 2022 are expected to come in retail meat and poultry and in fresh vegetables, ranging from 2% to 3%. During the twelve months ending in October 2021, retail food prices increased 5.4%, fueling fears of sustained inflationary pressure in the U.S. economy. 

Section 232 Investigations

• More specifics on the steel export quota allocations for EU countries were recently released, with Germany and the Netherlands having received a substantial number of the quotas. The arrangement by country also provides favorable tariff-rate quota (TRQ) agreements for Austria and Sweden. As the largest exporter of steel within the EU, Germany received the right to export 907,803 mt of products from the total EU number of 3.33 million mt. The Netherlands, which hosts a large steel mill that traditionally exports to the U.S., was given the second largest export allocation at 507,598 mt. Italy, which is the second largest EU steel producer, was given a relatively smaller export allocation at 360,477 mt. “The split up is a simple calculation which brings the TRQ closer to the traditional EU export flows to the United States (per Member State),” said a spokeswoman for European Steel Association Eurofer.
• As noted earlier, the U.S. has begun consultations with Japan to resolve the Section 232 dispute steel and aluminum tariff dispute. Both countries also aim to “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,” according a Japanese official.
• Separately the Commerce Department reported that, “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. 

Section 301 Investigations

• The U.S. has announced that it has reached an agreement with Turkey over the treatment of Digital Service Taxes (DSTs). Under the agreement, Turkey will remove its DSTs prior to the implementation of Pillar 1 of the OECD’s agreement on global taxation. These are the same terms that the U.S. reached with several European countries last month. In return, the U.S. will terminate its already suspended duties of Turkish imports levied under a Section 301 investigation. USTR will continue to implement the agreement even with the ending of the Section 301 investigation.

U.S. – EU

• As noted earlier, the WTO ruled in favor of the EU on the issue of U.S. tariffs on Spanish olives. The tariffs, imposed in 2018, caused exports of Spanish olives to fall 60%. The ruling found that the U.S. had imposed illegal anti-subsidy duties and had acted inconsistently with the implementation of the olive tariffs. European Commission’s trade chief said Valdis Dombrovskis said following the ruling said “These duties severely hit Spanish olive producers, who saw their exports to the U.S. fall dramatically as a result. We now expect the U.S. to take the appropriate steps to implement the WTO ruling, so that exports of ripe olives from Spain to the US can resume under normal conditions.” Under WTO rules the U.S. appeal the ruling, though the WTO lacks an operational appellate body, thus “appealing into the void.” Trade experts familiar with the issue suggest that such action would likely result in the imposition of retaliatory tariffs.

U.S. – U.K. Trade

• USTR remains silent on potential timing and scope of resurrecting bilateral trade talks with the U.K., which were commenced under the previous administration. Ambassador Tai stated earlier in the year that USTR was reviewing progress of the five rounds of negotiations under the Trump administration and discerning how to realign the talks with President Biden’s trade agenda focused on an inclusive, worker-centered trade policy.
• Earlier, 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.”

U.S. – India

• India and the U.S. agreed to expand trade of some agricultural products, including U.S. cherries, alfalfa and distiller dried grains as well as Indian mangoes, grapes, shrimp and water buffalo meat. The two sides also discussed U.S. interest in supplying ethanol to India and speeding up phyto-sanitary work to allow more agricultural imports for both countries, including U.S. pork and Indian table grapes. In a joint statement issued after the first U.S.-India Trade Policy Forum meeting in four years in New Delhi, Ambassador Katherine Tai and India’s Minister of Commerce and Industry Piyush Goyal agreed to use the “revitalized” forum to rapidly engage on new trade concerns as they arise and plan to evaluate progress on a quarterly basis. The two countries also discussed the possibility of restoring India’s trade benefits under the U.S. Generalized System of Preferences (GSP). “The forum heralds a new beginning in India-U.S. trade partnership,” Goyal said in a tweet after the meeting. “The Ministers expressed an intent to continue to work together on resolving outstanding trade issues as some of these require additional engagement in order to reach convergence in the near future,” the statement from Tai and Indian Minister of Commerce and Industry Piyush Goyal said.

WTO

• The World Trade Organization’s 12th ministerial conference (MC12) was postponed due to restrictions on travelers from Africa following the discovery of the fast-spreading omicron coronavirus variant, according to news over the weekend out of Geneva. Deputy Director-General Anabel Gonzalez said on Twitter that “The full membership is behind the decision of the General Council Chair” and the director-general, Ngozi Okonjo-Iweala, to postpone. WTO Director-General Okonjo-Iweala tweeted, “Regret the difficult decision to postpone the @WTO 12th Ministerial Conference due to the new Omicron COVID-19 variant. Disappointing as that is, the health of our members & staff comes first! Equity in treatment of all members is paramount! Regardless, negotiations continue!” The WTO’ first Ministerial in over four years was scheduled for Nov. 30 – Dec. 3 in Geneva, Switzerland with limited in-person attendance.
• Despite the postponement of MC12 due to travel restrictions imposed owing to a new coronavirus variant, WTO negotiations will continue, and delegations should be “empowered” to push forward according to WTO leaders. Director-General Okonjo-Iweala said, “This does not mean that negotiations should stop. On the contrary, delegations in Geneva should be fully empowered to close as many gaps as possible,” she told members. “This new variant reminds us once again of the urgency of the work we are charged with.” WTO members, “pledged to continue working to narrow their differences on key topics like the WTO’s response to the pandemic and the negotiations to draft rules slashing harmful fisheries subsidies.” According to WTO officials the chairs of ongoing negotiations said they would continue with meetings planned for the weekend. 
• The postponement raises several questions regarding the momentum and pressure to achieve compromises and resolves differences on agriculture negotiations, harmful fishing subsidies, and talks on a proposed waiver of some elements of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) or COVID-19-related products, major agenda items for MC12.  President Biden on Friday urged other countries to throw their support behind a TRIPS waiver for vaccines. “I call on the nations gathering next week for the World Trade Organization ministerial meeting to meet the U.S. challenge to waive intellectual property protections for COVID vaccines, so these vaccines can be manufactured globally,” Biden said in the statement. “I endorsed this position in April; this news today reiterates the importance of moving on this quickly.” 
• Rescheduling of MC12 in 2022 remains unclear, but indications suggest that it is planned for some time in June 2022. It is also speculated to be hosted in Nur Sultan, Kazakhstan, which was originally scheduled to host the ministerial meeting in June 2020. At that time, Kazakhstan was grappling with the economic upheaval and health concerns of the rapidly spreading COVID-19 pandemic, forcing the Kazakhstan government to pull out of hosting MC12.

• Prior to postponement of MC12, a revised text for agriculture negotiations was released by the Chair, Gloria Peralta (Cost Rica), which drew opposing reactions from several members countries. The U.S., EU and Cairns Group of countries led by Australia praised the Chair’s second revised draft text, while many developing countries, especially India, accused Ambassador Peralta of alleged biases by denying the mandated outcome on the permanent solution to public stockholding programs for food security. India alleged that the Chair was promoting the interests of aggressive farm exporting countries, according to sources familiar with the discussions. Costa Rica is a member of the Cairns Group of farm exporting countries.  
• Further, a sharp divide remains on the special and differential treatment. domestic support, market access and transparency, the core issues of the Cairns Group, U.S. and EU  on the one side, and supporters of a permanent solution for public stock holding programs, the special and safeguard mechanism for developing countries and demands for addressing the historical asymmetries on the domestic support, on the other.