TRADE UPDATE

Food & Agriculture
December 7, 2021

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA: Mexico is weighing all legal actions, including retaliatory tariffs on U.S. products in response to proposed U.S. electric vehicle (EV) tax credits which Mexico considers “discriminatory” and if passed by Congress, a violation of USMCA.
• U.S. – China: Two House Members introduced legislation that mirrors an earlier Senate bill to counter China’s “most egregious” trade practices by “modernizing” U.S. antidumping and countervailing duty laws. The legislation is intended to mitigate “country hopping” and address China’s unfair subsidies in other countries, not addressed in existing U.S. trade remedy laws.
• CPTPP: The Biden administration is forging ahead with ambitions to establish an Indo-Pacific framework by early 2022, rather than re-engage in the Comprehensive Agreement for Trans-Pacific Partnership (CPTPP), though details on the framework remain scant. Meanwhile, Thailand joined a growing list of countries with ambitions to join the CPTPP, noting that CPTPP talks are in the “best interest of the Thai people.”
• WTO : Rescheduling of the WTO 12th Ministerial remains in limbo as many members demurred on a proposal for March of 2022, expressing preference to reassess the global pandemic and other factors in the new year after the holidays.

“Let us aim to finish pandemic response and fisheries … And let us agree that ministers should be able to finalise them without physical presence.” “Seven billion people are waiting for us on TRIPS and pandemic response. And 260 million people are waiting for us on fisheries subsidies.”

— WTO Director-General Ngozi Kokonjo-Iweala pressing WTO leaders for progress on negotiations amidst cancelation of the WTO’s 12th Ministerial Conference

China Trade

• Representatives Terri Sewell (D-AL) and Bill Johnson (R-OH) introduced legislation that mirrors an earlier Senate bill to counter China’s “most egregious” trade practices by reforming U.S. anti-dumping and countervailing duty (CVD) laws. The legislation would “modernize” anti-dumping and countervailing duty protections to “prevent China’s circumvention of U.S. laws and penalize repeat offenders by expediting successive investigations to stop country hopping and duty evasion,” Sewell said during a Ways & Means trade subcommittee hearing on China’s “unfair” trade practices. The legislation dubbed, “The Level the Playing Field Act 2.0” would give Commerce the authority to apply CVD law to subsidies provided by a government to a company operating in a different country” in an effort to address Chinese Belt and Road Initiative subsidies. “These are common-sense bipartisan solutions to protect American workers and get tough on China’s anti-market practices,” Sewell added. The legislation follows on the heels of Ambassador Tai’s statement for that the Congress and administration must consider “new tools” to address China’s systematic unfair market and trade behavior disadvantaging U.S. workers and industries.
• The bill’s co-sponsor Rep. Johnson said, “For far too long, China and its communist regime have taken deliberate steps to hurt American workers and the American economy by dumping steel, aluminum, and other products on the global markets with no repercussions. That must end.” The bill mirrors earlier drafted legislation by Senators Rob Portman (R-OH) and Sherrod Brown (D-OH) to address China’s pernicious trade practices to skirt U.S. trade laws, particularly in the areas of steel overcapacity and production. Senator Brown, in a joint statement announcing the legislation noted “For too long, trade cheats have shuttered plants across our state, put Ohioans out of work, and distorted global markets.” “This bipartisan legislation will strengthen our trade remedy laws, make clear the U.S has the tools to fight back against these harmful practices and will help keep Ohio workers on the job.”
• With less than a month until implementation of China’s new food regulations (e.g. Decrees 248 and 249) on January 1, 2022, USDA published updates on the scope of products (e.g. HS codes) and other clarifications on the Decrees. More details in the USDA report, “China: Decree 248 HS Codes Published in GACC Single Window.” U.S. industry stakeholders have expressed frustration regarding the short implementation time frame and lack of necessary details in conjunction with the new import guidelines. China’s Degree 248 mandates that all overseas food manufacturers, processors, and storage facilities be registered with the Chinese authorities to export product to China.” Multiple countries, 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. Several of these countries and the U.S. have requested that China delay the food-import measures for “at least 18 months. China has not responded to the extension request at this writing.

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.

USMCA

• Mexico is weighing retaliatory tariffs or other legal actions in response to proposed U.S. electric vehicle (EV) tax credits which Mexico considers “discriminatory.” Mexican Economy Minister Tatiana Clouthier said, “In the past we have imposed tariffs and we would have to do or propose something very important and strategic for those products, in those places where it hurts them … so that the consequences can be felt,” Clouthier said in a news conference. Clouthier said this was “not a desirable” course of action yet emphasized that Mexico would do everything in its power to safeguard its automotive industry, which directly employs around one million people. She noted in prepared press remarks that, “Additionally, we believe that this tax credit proposal would reduce the competitiveness of the North American automotive sector compared to other regions of the world and would go in the opposite direction to the efforts we have been making with the United States government …to strengthen regional [supply] chains…”. Clouthier, in previous comments characterized the proposed legislation as “totally contrary to free trade,” and noted that such protectionist policies would backfire, including igniting further immigration. 
• Canada has also expressed serious 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.” Other trade partners, namely the EU, Japan, and South Korea have voiced concerns with the proposed EV credit scheme. 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.
• As part of the Build Back Better Act, the Congress is considering a new $12,500 tax credit that would include $4,500 for union-made U.S. electric vehicles. Under a House proposal a $12,500 credit after 2027 would apply only to U.S. built vehicles. The Senate is expected to vote on the bill as early as the week of Dec. 13, according to The Hill.

COVID-19

• The OECD reported that G20 merchandise trade growth slowed significantly in the third quarter of 2021, although at record high levels due in part to strong commodity prices. Surging shipping costs and a recovery in travel spurred faster growth in trade in services, with exports for the G20 nearing 2019 levels. In Q3 2021 trade in goods for the G20 stabilized at a record high, following four quarters of sustained growth. G20 merchandise exports and imports increased by 0.9% and 0.4% in Q3 2021 compared with the previous quarter. This represents a marked slowdown compared to the first half of the year, when rising commodity prices boosted the value of traded goods. Sustained demand for electronics and high energy prices continued to play a role in Q3 2021, while overstretched semiconductor supply-chains weighed on trade in vehicles and parts.

Section 232 Investigations

• Turkish producers and American importers of Turkish steel are challenging a ruling by the U.S. Court of Appeals for the Federal Circuit concerning the implementation and legality of Trump era Section 232 steel tariffs on Turkey. On March 8, 2018, the Trump Administration issued a 25 percent steel tariff on all countries except Canada and Mexico under Proclamation 9705, followed by an increase to 50 percent specifically for Turkey on August 10, 2018, under Proclamation 9772. Turkish producers and American importers argued against this increase to 50 percent under Proclamation 9772, and U.S. Court of International Trade agreed with the plaintiffs, saying time limits in Section 232 limited the president’s power to increase the tariff from 25 percent to 50 percent. However, the U.S. Court of Appeals for the Federal Circuit reversed the decision, ruling the 50 percent tariff was part of an ongoing plan that did not require new investigations. The Turkish producers and American importers hope that utilizing earlier Supreme Court rulings on Section 232 will show that it does not grant those powers to the executive due to restrictions built into Section 232. If the Supreme Court does not reverse the Federal Circuit ruling, the challengers will have to pay $54 million in unpaid duties.
• According to U.K. trade minister Ms. Mordant, the rumors circulating that the U.S. is linking the elimination of steel and aluminum tariffs on Brexit and Northern Ireland resolutions is baseless and a false narrative. Earlier the Financial Times reported that issues surrounding the Irish Border and post-Brexit U.K.-EU relations were threatening talks to eliminate the U.S. steel and aluminum tariffs, something the U.S.  has already done for tariffs against the EU. Ms. Mordant said the Financial Times report “might be true in terms of how some people in the US feel, but it is a false narrative. These are two entirely separate issues.” International Trade Secretary Anne-Marie Trevelyan will hold talks with her American counterparts this week to discuss trade issues that involve the steel and aluminum tariffs, among other topics.
• 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

• In addition to increased trade opportunities between India and the U.S. following the first U.S.-India Trade Policy Forum, the two countries have also come to an agreement on digital service taxes. The U.S. will agree to suspend its final outstanding Section 301 investigation into digital service taxes, which follows the suspension of investigations on five European countries as well as Turkey. India will agree to eliminate their digital service taxes, though unlike the other agreements the transition period given to India is longer. The transition period will begin April 1, 2022, and end March 31, 2024, compared to the other agreements where the transition period will begin January 1, 2023, and end December 31, 2023.

CPTPP

• Continuing to resist the chorus of calls from U.S. industry and several members of Congress, along with foreign leaders, to join CPTPP, the Biden administration announced it will rather forge an “Indo-Pacific economic framework” focusing on the digital economy, supply chains and climate change, among other areas. Commerce Secretary Gina Raimondo characterized the framework as a “coalition of democracies” that she says the U.S. plans to formally launch in early 2022. The U.S. “wants to and will play a much greater role in the economies of the entire Indo-Pacific region,” Raimondo said. During her first visit to the region, Raimondo said the administration envisions an economic framework that “could be even more robust in some ways than the traditional free trade agreement because it will allow us to discuss principles and look at issues that are so relevant now as we build back after the pandemic.” She noted such a framework could focus on semiconductors, the digital economy and clean energy, but also allow countries to solve broader challenges, such as global supply chains. 
• Both Secretary Raimondo and Ambassador Katherine Tai, in recent trips to Asia, raised the concept of an Indo-Pacific framework with government leaders in Japan, South Korea, and others. Raimondo rejected the notion that U.S. would consider joining CPTPP, highlighting the Biden administration is looking forward and not interested in joining the agreement as it “was conceived in 2016.”
• Details regarding the structure of an Indo-Pacific framework remains a significant question for stakeholders and observers. Raimondo has characterized the framework as a series of partnerships that would function like a coalition of democracies. Yet in the absence of further details several sources questioned whether a non-traditional trade pact could serve as a real alternative to a more comprehensive free trade agreement backed by many U.S. lawmakers and industry groups.
• Regarding the Indo-Pacific agreement announced by the Biden administration, former Senate Finance Committee Chair, Senator Chuck Grassley, said he’s open to such an endeavor as an alternative to joining CPTPP.  Speaking to reporters, Grassley said, the Indo-Pacific framework “sounds like something we should be doing, particularly if it’s ganging up on China,” emphasizing that TPP, the predecessor to CPTPP was designed to curb China’s global influence.
• Separately, a bipartisan bill in the House could serve as a “blueprint” for Congress and the Biden administration to enhance trade leadership in the Indo-Pacific region. The legislation calls for swift renewal of Trade Promotion Authority and negotiations to improve and potentially join the CPTPP. Representatives Darin LaHood (R-IL) and Carol Miller (R-WV) say their “U.S. Trade Leadership in the Indo-Pacific and China Act” (H.R.  6114) also would direct the Office of the U.S. Trade Representative to submit a report to Congress on its long-term trade plan for China and to share documents on its evolving Indo-Pacific strategy. The U.S. Trade Leadership in the Indo-Pacific and China Act would direct the administration to “consider the merits of negotiating entry” into CPTPP “with improved standards” or a “similar plurilateral agreement,” as well as other high-standard bilateral trade deals. The proposed legislation further outlines priority areas for future U.S. trade talks in the Asia-Pacific region: the free flow of commerce; enhanced market access; the elimination of tariff and non-tariff barriers; intellectual property rights; workers’ rights; the environment; digital trade; and state-owned enterprises.

• Thailand joined a growing list of countries with ambitions to join the Comprehensive Agreement for Trans-Pacific Partnership (CPTPP). Rachada Dhnadirek, Thailand’s Deputy Government Spokeswoman indicated that Thailand’s leadership considers pursuing efforts to join CPTPP is “in the best interest of Thai people,” according to Reuters. She added that Thailand’s government compiled public opinions and recommendations from its National Assembly and would “prepare counter measures” for those who would be affected by CPTPP membership. Dhnadirek noted that CPTPP “had both benefits and negative aspects that required careful consideration,” and that “some terms could be negotiated before joining.” “The plan will definitely be proposed to the cabinet to get Thailand to join the negotiations,” Dhnadirek said.
• 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. Singapore recently urged the Biden administration to pursue CPTPP membership or at a minimum ensure that the U.S. plans to forge an “Indo-Pacific economic framework” t be an “equally substantial alternative” to CPTPP. “The U.S. cannot afford to be absent from the region’s evolving economic architecture,” Singapore Deputy Prime Minister Heng Swee Keat said according to the report. “It is just as, if not more, important for the U.S. to be economically engaged,” he added. “If not through the CPTPP, then it must have an equally substantial alternative.” Heng expressed concern that substantially greater U.S. engagement in the region is required to achieve such a framework, activities the U.S. has only recently undertaken.

U.S. – EU

• According to EU trade chief and Executive Vice-President Valdis Dombrovskis, the EU has experienced a “breakthrough year” with the U.S. He points to the suspensions on a number of trade disputes such as aircraft subsidies and steel and aluminum tariffs, as well as increased cooperation in enhancing digital trade and technological growth and in combating non-market economies. While some trade irritants remain, such as the Biden Administration’s “Buy American” agenda to push federal agencies to buy from U.S. suppliers, Dombrovskis said “There are clearly things to watch, but what I can say is that we are now engaging constructively so I am confident we are able to address any issues or concerns that are coming.” The EU will continue discussions with U.S. counterparts, such as through European Commissioner Executive Vice-President Margrethe Vestager coming to the U.S. this week, as well as Dombrovskis planning a visit in half a year to take stock and decide next steps on trade.

U.S. – U.K. Trade

• Last week USDA today confirmed it has amended import regulations, known as the “small ruminant rule,”  to allow increased imports of lamb from the U.K. starting January 3, 2022. The rule change follows on meetings between U.K. Prime Minister Boris Johnson and President Biden to reduce certain barriers to trade in agriculture products between the two countries. The U.K. government estimates the change could be worth some £37 million in the first five years of trade. U.K. International Trade Secretary Anne-Marie Trevelyan, praised the announcement, saying the “fantastic news brings U.K. farmers a step closer to putting their first-class lamb on American menus for the first time in more than 20 years.” She continued, “The U.K. exported £436.4 million worth of lamb to the world last year and over £29 million worth of meat to the U.S. We want those numbers to grow and this win will help achieve that.”
• 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.”

WTO

• Several WTO ministers are still assessing the best opportunity for rescheduling the 12th Ministerial (MC12) in 2022, though a group of countries have suggested early March of 2022.  Stemming from a recent heads-of-delegation meeting, the majority of participants expressed a preference to reassess the global pandemic and other factors in the new year after the holidays. Trade ministers of Kazakhstan, Uganda, Australia and Barbados proposed holding the postponed 12th ministerial conference in the first week of March 2022, “if conditions allow.” Despite the uncertainty of rescheduling MC12, Members agreed to push forward on outcomes for several key priorities, including a proposed IP waiver, harmful fishery subsidies, and agriculture negotiations. WTO Director-General Ngozi Okonjo-Iweala implored members to press forward stating, “Let us aim to finish pandemic response and fisheries by end February. And let us agree that ministers should be able to finalise them without physical presence,” she said. “Seven billion people are waiting for us on TRIPS and pandemic response. And 260 million people are waiting for us on fisheries subsidies.” She encouraged members to work toward clean texts that could be finalized – or, ideally, merely approved – by ministers remotely if need be.
• As reported earlier, MC12 was postponed due to restrictions on travelers from Africa following the discovery of the fast-spreading omicron coronavirus variant. WTO Director-General Okonjo-Iweala at the time 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 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 at the time said they would continue with meetings planned for the weekend. However, the postponement raises practical 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.   In the case of agriculture negotiations, for example, 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.