TRADE UPDATE

Food & Agriculture
December 13, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

  • U.S. – Indo-Pacific: U.S. Trade Representative Katherine Tai and Japanese Ambassador to the U.S. Koji Tomita, on Dec. 9, announced that the official amendment to beef safeguard provisions under the U.S.-Japan Trade Agreement (USJTA) will be effective on Jan. 1, 2023, to ensure the competitiveness of U.S. ranchers in the market.
  • WTO: Last week, the WTO ruled that the U.S. imposition of Section 232 tariffs on imported steel and aluminum products under former President Trump violated U.S. free trade obligations. The Biden Administration rejected the WTO’s ruling and said the Section 232 tariffs will remain, contending the WTO’s ruling is erroneous because national security issues are outside of the WTO’s purview and reinforce the need to reform the WTO dispute settlement system.
  • USMCA: On Dec. 9, several U.S. lawmakers sent a letter to the Office of the U.S. Trade Representative, urging Ambassador Katherine Tai to press Mexico for compliance to biotechnology commitments under the United States-Mexico-Canada Agreement (USMCA).
  • USMCA: Executive Secretary of the Commission for Biosafety and Genetically Modified Organisms (CIBIOGEM in Spanish), Alejandro Espinosa Calderón, last week, specified that GM corn products, including “chips, glucose, food starch or high fructose cannot be imported,” according to La Jornada.
  • U.S. – China: Last week, China extended an exclusion for its Section 301 tariff on U.S. whey, set at 25% during the Trump Administration, according to a report by USDA’s Foreign Agriculture Service.
  • Supply Chains: According to the Pacific Merchant Shipping Association, the ports of New York and New Jersey replaced Los Angeles as the busiest in the country, while the ports of Savannah, Houston, and Charleston experienced higher levels of import containers through September of this year.

Upcoming Event: NCFAR Lunch-N-Learn, Dec. 16 – U.S. Agriculture Trade & Competitiveness

CRA’s Michael Anderson will moderate a panel discussion with USDA experts on the importance of USDA research to the U.S. agricultural trade at NCFAR’s Lunch-N-Learn at 11 a.m. EST on Dec. 16. Please visit the NCFAR website to learn more and register to attend.

“These WTO panel reports only reinforce the need to fundamentally reform the WTO dispute settlement system. The WTO has proven ineffective at stopping severe and persistent non-market excess capacity from the PRC and others that is an existential threat to market-oriented steel and aluminum sectors and a threat to U.S. national security.”

— Office of U.S. Trade Representative’s response to WTO ruling on Section 322 tariffs

U.S. – Indo- Pacific

IPEF negotiations kick off in Australia

  • Members of the Indo-Pacific Economic Framework, on Dec. 10, convened in Brisbane, Australia to commence first-round negotiations on the initiative. The conversations center around the four pillars of IPEF, including fair trade; supply chains; clean energy, decarbonization, and infrastructure; and tax and anti-corruption. According to White House officials, topics such as trade facilitation and agriculture have received “real consensus” for discussion.
  • Ahead of the negotiations, Australia and the U.S. released a joint statement in which officials stressed their commitment to “deepening cooperation, bilaterally and with regional partners and institutions, to ensure an Indo-Pacific region that is free, open, stable, peaceful, prosperous, and respectful of sovereignty.” Further, the countries voiced concern about rising instability in the region due to China’s growing influence. As such, the leaders reiterated the importance of Taiwan’s independence and openness to trade, with commitments for “enhancing economic, social, and people-to-people ties with Taiwan.”
  • Further, the officials committed to continue support for the Association of Southeast Asian Nations (ASEAN) to deepen ties in the region and “support their economic, climate, energy infrastructure, and security cooperation priorities.” With regards to IPEF negotiations, the officials emphasized the need to focus on ICT infrastructure with transparency, free trade, and open supply chains as top priorities.
    • IPEF participants include the U.S., Australia, Brunei Darussalam, Fiji India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam.

Beef Safeguard protocols to be effective Jan. 1

Koji Tomita, Ambassador Extraordinary and Plenipotentiary of Japan to the U.S.
Koji Tomita, Ambassador Extraordinary and Plenipotentiary of Japan to the U.S.
  • U.S. Trade Representative Katherine Tai and Japanese Ambassador to the U.S. Koji Tomita, on Dec. 9, announced that the official amendment to beef safeguard provisions under the U.S.-Japan Trade Agreement (USJTA) will be effective on Jan. 1, 2023. In her comments, Ambassador Tai stated, “The new beef safeguard agreement will ensure that America’s farmers and ranchers can continue to meet Japan’s strong demand for high-quality U.S. beef.”
  • The agreement follows the signing of a June 2 protocol earlier this year with the aim of revising the beef safeguard measure under USJTA. The changes will increase predictability for U.S. beef exporters to Japan with a reduction in safeguard duties on U.S. imports to the country. Under the provision, Japan would be able to impose temporarily high tariffs on beef imports if:
    • U.S. imports exceed the original beef safeguard trigger level under USJTA
    • The aggregate volume of U.S. beef imports and the original signatories of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) exceed the CPTPP safeguard
    • U.S. imports exceed previous beef import levels from the year before
  • Japan is the second-largest export market for U.S. beef, with over $2.4 billion in beef exports to the country in 2021.

USMCA

Representatives urge Tai to reinforce USMCA obligations

Congressman Dan Kildee (D-MI)
Congressman Dan Kildee (D-MI)
  • On Dec. 9, U.S. Representatives Adrian Smith (R-NE), Dan Kildee (D-MI), and several other lawmakers sent a letter to the Office of the U.S. Trade Representative, urging Ambassador Katherine Tai to press Mexico for compliance to biotechnology commitments under the United States-Mexico-Canada Agreement (USMCA). Among their claims, the representatives hold that the Mexican government “has not maintained a science-based biotech regulatory system for the past four years,” which is having adverse effect on North American supply chains. Namely, the proposed decree on a 2024 GM corn ban risks increased inflationary pressure on food potentially exacerbating food insecurity in both the U.S. and Mexico.  
    • The bipartisan group of 24 lawmakers further wrote, “Ignoring Mexico’s disregard for its (U.S.-Mexico-Canada Agreement) commitments send a signal to our other trading partners that they may take similar actions without repercussions.” “Improved dispute settlement provisions were a major reason for the overwhelming congressional support for the USMCA. For the reasons stated above we ask you to take enforcement action without delay.”
    • Moreover, the representatives highlight the potential implications that such a ban could have in other industries, including “cotton, canola, and soybeans products” which could face inconsistent regulations and barriers in the Mexican market. The policy could also bleed into other countries’ regulations as well, according to the representatives. As such, they hold that the measure would widely disrupt the ability of U.S. farmers to “sustainably feed the world.”
    • Fellow signatories include Reps. Arrington (R-TX), Buchanan (R-FL), Danny Davis (D-IL), DelBene (D-WA), Estes (R-KS), Evans (D-PA), Ferguson (R-GA), Hern (R-OK) Kelly (R-PA), Kind (D-WI), Kustoff (R-TN), LaHood (R-IL), Carol Miller (R-WV), Murphy (R-NC), Panetta (D-CA), Pascrell (D-NJ), Plaskett (D-VI), Jason Smith (R-MO), Sewell (D-AL), Smucker (R-PA), Suozzi (D-NY), and Mike Thompson (D-CA).

Mexico offers to delay GM corn ban

  • Last Wednesday, Mexico’s Economy Minister Raquel Buenrostro said President Andres Manuel Lopez Obrador suggested that Mexico delay the GM corn ban one year to 2025 from the scheduled January 2024 implementation date. According to Reuters, Mexican officials are crafting a modification and clarification to the existing Presidential Decree calling for the ban of glyphosate and import GM. “Right now, we are working here within the government to make this new decree and present it,” Buenrostro said at a news conference in Mexico City.

Calderón emphasizes GM ban on fructose

  • Executive Secretary of the Commission for Biosafety and Genetically Modified Organisms (CIBIOGEM in Spanish), Alejandro Espinosa Calderón, last week, issued a set of comments about the scope of the proposed ban for GM corn imports in Mexico. In his remarks, Calderón held that the decree results from “a request from the same people, from the Mexican countryside and from the scientists” who oppose the use of transgenic corn seeds and glyphosate. He also clarified that the ban is intended to affect “human food use of the grain, but not for livestock or industrial use.”
  • Further, Calderón specified that GM corn products, including “chips, glucose, food starch or high fructose cannot be imported,” according to La Jornada. His stance largely stems for the desire to prioritize the health of Mexican citizens “without being contaminated” by decreasing reliance, particularly in the context of climate change.

Ag groups speak against Mexican corn decree

  • In light of recent statements released by the Mexican government regarding the proposed ban on imports of genetically modified corn, agriculture groups and leaders have begun to raise claims about potential breaches to the U.S.-Mexico-Canada Agreement (USMCA). With the decree enactment approaching, U.S. farmers are beginning to plan for the 2024 seed composition and planting season.
  • Andy Jobman, a corn and soybean farmer in Nebraska, expressed concern for the Mexican policy change, stating that his growers are “really great at producing white corn. To all of a sudden pull the plug on that– it’s not like you can flip these supply chains on and off with a switch. These markets took years to develop. You lose those markets and it’s really hard to get them back.” According to Vice President of Market Development at the Iowa Corn Growers Association, Grant Menke, roughly 18% of yellow and white food-grade corn was shipped to Mexico alone in 2021.
  • Further, groups in other agriculture industries are beginning to show concern for the proposed decree, holding that such a motion would set unfavorable precedence for other U.S. agriculture sectors wishing to export to the Mexican market moving forward. In particular, Executive Vice President of the National Milk Producers Federation Jaime Castaneda noted, “Obrador keeps talking about health for Mexican consumers without any scientific basis.”

U.S. – China

China extends tariff exclusion for U.S. whey

  • Last week, China extended an exclusion for its Section 301 tariff on U.S. whey, set at 25% during the Trump administration. According to a report by USDA’s Foreign Agriculture Service, a total of 11 agriculture products, including shrimp for animal cultivation, whey for feed, alfalfa, and six hardwood products are covered in the tariff exclusion announcement by China, issued on Nov. 28. The exclusion was the 7th since China imposed retaliatory duties in response to U.S. Section 301 tariffs. The current exclusions are effective until May 31, 2023.

Food Security

FAO report reveals risk to carbon-rich soil

  • The United Nations’ Food and Agriculture Organization recently released a report surrounding the risks posed to carbon-rich black soils worldwide due to changes in land use, unsustainable farming, and pesticide saturation. According to the report, “Most of the black soils have lost half of their soil organic carbon stocks and suffer from moderate to severe erosion processes, as well as nutrient imbalances, acidification, compaction and soil biodiversity loss.”
  • Carbon-dense black soils “are considered essential to the global food supply,” storing critical nutrients and fertility to support crop growth. Specifically, black soils have been widely used in the cultivation of cereals, tuber crops, oilseed, pastures, and forage systems.” The report outlines two key objectives with recommendations for farmers, academia, and governments worldwide:
    • “Preservation [of] natural vegetation on black soils such as grasslands, forests and wetlands”
    • “Adoption of sustainable soil management approaches on cropped black soils”

EV Tax Credit

Tai reiterates concern for EV tax dispute

  • U.S. Trade Representative Katherine Tai, last week, noted that the Biden administration is working to resolve tensions surrounding contention over the Inflation Reduction Act. At a meeting with the Women’s Foreign Policy Group, Ambassador Tai revealed that the Administration is “taking Europe’s concerns very seriously and you heard the big boss say that himself last week.” While Tai did not outline the specifics of resolution talks, she revealed that “It’s a whole-of-government process. Treasury has a piece. We’ve got a piece.”
  • Further, the ambassador referenced a USTR proposal to create a “green steel club” with the EU which would impose duties on imports produced with high carbon emissions. The measure presents an attempt to mend previous conflicts between the U.S. and Europe over the steel and aluminum industries. According to Tai, the club would “ensure access to our markets is premised on not contributing to the overcapacity that is causing our producers and our workers to struggle to even survive,” while promoting the development and use of cleaner technologies.
    • The U.S. Department of Treasury is expected to announce a decision regarding the specifications of the EV tax credit and other similar programs by Jan. 1, 2023.

Supply Chains

Transports costs and supply constraints continue to decline

  • Transport costs continued to decline in November, according to the most recent Logistics Managers’ Index (LMI). Warehouse costs also declined, though less sharply, along with a lower Logistics Managers’ Index, suggesting lessening U.S. supply-chain pressures. Rising interest rates, a consumer shift to services from goods purchases, and slowing global economic trade are cited as primary factors. The LMI fell to 53.6 in November, the lowest since April 2020.

MNEs shift exports to East Coast ports amid strikes

  • Global companies are beginning to shift their shipments to East Coast ports due to uncertainties with supply chain bottlenecks amid strikes as well as quickly changing dynamics towards Chinese production. According to the Pacific Merchant Shipping Association, the ports of New York and New Jersey replaced Los Angeles as the busiest in the country (in terms of number of imported containers). Further, both ports in Los Angeles and Long Beach reached historically low shipment levels, with their overall shares of containerized cargo having dropped for the first ten months of 2022 at a cumulative 25% of measured weight.
    • In contrast, the ports of Savannah, GA, Houston, and Charleston, SC experienced higher levels of import containers through September of this year. There has also been an uptick in warehouses and other infrastructure to railroads and logistics companies to expand shipping capacity in the Southeast region.
  • Despite efforts to mitigate supply chain risks posed at West Coast ports, sea-based shipments face higher costs and lead times, on average, when traveling routes through the Panama Canal and up the East Coast. Executive Director of the Port of Los Angeles, Gene Seroka commented on the issue, expecting a permanent loss of 5% of overall cargo out of the total 21% decrease from August to November.

Port of Savannah to increase shipping capacity

  • The Port of Savannah based in Georgia is set to begin renovations for expanded container capacity for more efficient loading and offloading procedures. The port is a key point of transport for agricultural exports, such as poultry, moving through the U.S. The project aims to increase flexibility and optimize the cargo-shipping process throughout the area.
  • GPA Executive Director Griff Lynch noted that “The realignment is part of a broader effort to transform the terminal into an all-container operation, shifting most breakbulk cargo to the Port of Brunswick.”

U.S. overall trade deficit widens in October

  • The U.S. deficit for goods and services rose 5.4% in October as imports increased and the pace of exports declined. The deficit for goods and services expanded to $78.2 billion in October, up $4.0 billion from $74.1 billion in September (revised), the second consecutive month of widening, according to the U.S. Census Bureau. Additional details released by the Census Bureau:
    • October exports were $256.6 billion, $1.9 billion less than September exports. October imports were $334.8 billion, $2.2 billion more than September imports. The October increase in the goods and services deficit reflected an increase in the goods deficit of $6.1 billion to $99.6 billion and an increase in the services surplus of $2.1 billion to $21.4 billion.
    • Year-to-date, the goods and services deficit increased $136.9 billion, or 19.9 percent, from the same period in 2021. Exports increased $415.3 billion or 19.8 percent. Imports increased $552.2 billion or 19.8 percent.
    • The average goods and services deficit increased $2.5 billion to $72.7 billion for the three months ending in October. Average exports decreased $1.4 billion to $258.9 billion in October. Average imports increased $1.1 billion to $331.6 billion in October.
    • Exports of foods, feeds, and beverages increased $0.5 billion, with soybeans exports increasing $1.6 billion.

USDA maintains consistent grain and oilseed projections

  • The U.S. Department of Agriculture, on Dec. 9, released a report on World Agricultural Supply and Demand Estimates in which most projections for crop production and usage remained unchanged from its prior estimates. Specifically, soybean supply remained consistent with November projections, with corn predicted to have lower exports and higher ending stocks of 75 million bushels. The agency noted higher U.S. prices and strong competition in the global marketplace as key reasons for the decreased U.S. corn exports.
    • Similarly, the report predicts lower global wheat supplies with higher global trade in the industry. In the wheat estimates, Argentina’s production forecast reflects decreased harvested area and yield due to dry weather conditions. Canada is also expected to see a 1.2-million-ton reduction.

Trade Policy

House selects Ag Committee leader

Congressman Glenn Thompson, (R-PA)
Congressman Glenn Thompson, (R-PA)
  • Last week, the House steering committee selected Rep. Glenn Thompson (R-PA) to chair the Agriculture Committee, replacing former committee leader David Scott (D-GA). Following his appointment, Chairman Thompson stated that “The political landscape in Washington may be fractured, but as Chairman, I will prioritize the needs of our producers and rural communities — the backbone of this country.”
    • Regarding the farm bill, Rep. Thompson has revealed several of his priorities. Namely, he has labeled nutrition as a key concern, emphasizing the need for education and increased productivity for consumers. He also emphasizes the need for a review the “integrity of the [U.S. SNAP] program to make sure it’s not abused.”
    • Further, the representative seeks to offer a forum for farmers to voice their concerns. He has also proposed allocating a portion of funds from the Inflation Reduction Act for the development and implementation of climate-smart agriculture. The representative defined the U.S. industry as centered around science, technology, and innovation. In addition to provisions under the farm bill, Rep. Thompson also plans to ask for an audit of the program for Partnerships for Climate-Smart Commodities.

WTO

WTO rules against U.S. Section 232 tariffs

  • Last week, the World Trade Organization ruled that the U.S. imposition of Section 232 tariffs on imported steel and aluminum products under former President Trump violated U.S. free trade obligations. In a dispute settlement panel report, the three-person panel found that, “based on the evidence and arguments submitted in this dispute, that the measures at issue were not “taken in time of war or other emergency in international relations within the meaning of Article XXI(b)(iii) of the GATT 1994.” “Therefore, the Panel finds that the inconsistencies of the measures at issue with Articles I:1 and II:1 of the GATT 1994 are not justified under Article XXI(b)(iii) of the GATT 1994.”
    • In 2018, under President Trump, the U.S. imposed additional import tariffs of 25% for steel and 10% for aluminum under national security concerns outlined in Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862). The complaints were brought by China, Norway, Switzerland and Turkey. Similar cases brought by India and Russia are still pending.

U.S. objects to WTO section 232 ruling

  • A USTR spokesperson confirmed the U.S. takes deep issue with WTO ruling on Section 232 tariffs and will not remove the tariffs. “The United States strongly rejects the flawed interpretation and conclusions in the World Trade Organization (WTO) Panel reports released today, regarding challenges to the United States’ Section 232 measures on steel and aluminum brought by China and others,” Assistant U.S. Trade Representative Adam Hodge said in a statement.
    • “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO member to respond to a wide-range of threats to its security,” Hodge said.
    • “These WTO panel reports only reinforce the need to fundamentally reform the WTO dispute settlement system. The WTO has proven ineffective at stopping severe and persistent non-market excess capacity from the PRC and others that is an existential threat to market-oriented steel and aluminum sectors and a threat to U.S. national security. The WTO now suggests that the United States too must stand idly by. The United States will not cede decision-making over its essential security to WTO panels.”
    • “The Biden administration is committed to preserving U.S. national security by ensuring the long-term viability of our steel and aluminum industries, and we do not intend to remove the Section 232 duties as a result of these disputes.”

González calls for further trade action to address food insecurity

Anabel González, Deputy Director-General, World Trade Organization
Anabel González, Deputy Director-General, World Trade Organization
  • Deputy Director-General of the WTO, Anabel González, at the Agri-Food Business event on Dec. 8, emphasized the need to strengthen the rules-based trading system for agricultural supply chain resilience. The Deputy Director General pointed to pressures, including insecurity from COVID-19, the war in Ukraine, rising inflation, and climate change as key causes for food insecurity in the global economy.
  • Among her remarks, the Deputy Director-General praised the outcomes of the MC12 conference which include:
    • Declaration on the emergency response to food insecurity
    • Promised support to food purchases under the World Food Program
    • Declaration on Sanitary and phytosanitary (SPS) measures
  • DDG González also highlighted concerning trends of export restrictions for food and fertilizer products since the beginning of the war in Ukraine, urging governments to adopt provisions established under the MC12 and continue with the liberalization of agricultural trade.

WTO Ag Committee group meets on food security

  • The WTO’s newly established working group on agriculture, on Dec. 7, met to discuss a work program aimed at addressing food security concerns of LDCs as mandated by the 12th Ministerial Conference (MC12). During the meeting, participants worked to establish a questionnaire to evaluate challenges of LDCs and Net Food-Importing Developing Countries (NFIDCs).
    • Australia, Brazil, China, Costa Rica, India, Uruguay and the U.S. contributed to the development of the questionnaire which comprises of seven questions and closes final responses on Feb. 3, 2023.

Ag Economy Barometer

The Ag Economy Barometer holds steady in November

  • The November Ag Economy Barometer remained unchanged from the prior month at an index reading of 102. The stable sentiment follows recent months of decline, and farmer sentiment remains well below the level from the previous year and mirrors lower levels observed in late 2015 and early 2016.
    • Rising interest rates and high input and farm operating costs continue to weigh adversely on farmer sentiment, according to November’s survey conducted by Purdue University and the CME Group.
    • In response to higher energy prices, 27% of survey respondents indicated changes to farm operations, including greater use of solar panels and strategic fuel contracting. Additional overall changes to farming operation included reduced tillage, lower nitrogen applications, and reduced crop drying.