TRADE UPDATE

Food & Agriculture
December 20, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• U.S. – Indo-Pacific: The first round of negotiations for the Indo-Pacific Economic Framework (IPEF) were held in Australia from Dec. 10-15, with the U.S. delegation led by Assistant U.S. Trade Representative for Southeast Asia and the Pacific Sarah Ellerman and Department of Commerce Counselor and Chief Negotiator Sharon H. Yuan. The trade talks drew over 450 officials, focusing primarily on the trade pillar (e.g. fair economy). The U.S. and other members discussed trade facilitation, agriculture, services domestic regulation, and transparency and good regulatory practices. The next in-person negotiating round remains undetermined.
• USMCA: A delegation of high-level Mexican officials traveled to Washington, D.C. last week carrying a proposal to modify the Presidential Decree to ban glyphosate an GM corn imports by 2024. In a joint statement, USTR and USDA revealed that they are reviewing the proposal, yet stressed time was of the essence to resolve the tensions surrounding the decree as several lawmakers and industry groups have urged the U.S. to pursue USMCA consultations, citing the Decree violates Mexico’s trade obligations.
• USMCA: Earlier, Secretary of Agriculture Tom Vilsack announced that the U.S. is positioned to request a dispute resolution panel under the USMCA regarding Mexico’s proposed ban on imports of genetically modified corn. Adding to the U.S. concerns, 24 Senators issued a letter calling on the Administration to pursue “all options” to address Mexico’s looming GM corn ban including a USMCA case.
• WTO: The WTO announced that the United Arab Emirates (UAE) will host the WTO’s 13th Ministerial the week of Feb. 26, 2024. In addition, members agreed that Cameroon will host the 14th Ministerial at a date to be determined.
• WTO: During a periodic review of its trade policy, the U.S. faced criticism from the EU, Russia, and China, the latter of which labeled the U.S. a “destroyer of the multilateral trading system” with regards to alleged breaches in international trade rules, particularly through provisions under the Inflation Reduction Act.
• Section 301: The Office of the U.S. Trade Representative (USTR) announced the extension of Section 301 tariff exclusions (to Sept. 31, 2022) that apply to 352 Chinese products. In a Federal Register notice, USTR noted that the extension “will help align further consideration of these exclusions with the ongoing comprehensive four-year review” of the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.
• U.S. – Africa: During the African Leaders Summit last week, U.S. President Joe Biden and U.S. Trade Representative Katherine Tai emphasized the need for increased investment and trade with African countries to boost ties with trade blocs in the region. Tai met with African Continental Free Trade Area (AfCFTA) Secretary General, Wamkele Mene on the sidelines of the summit. Ambassador Tai and Secretary General Mene signed the Memorandum of Understanding to establish deepened engagement between the U.S. and AfCFTA through quarterly working group meetings bloc.

“Innovative seed technologies continue to assist farmers to produce higher yields of crops on less land. They also enable farmers to produce better, healthier crops that are more resilient to environmental stress. Restricting the use of these technologies will most certainly have negative impacts on sustainability and decrease agricultural efficiency for farmers of both our countries.”

— Bipartisan group of Senators in letter to Amb. Tai and Secretary Vilsack regarding Mexico’s Presidential Decree

U.S. – Indo- Pacific

First round IPEF negotiations held in Australia

• The first round of negotiations for the Indo-Pacific Economic Framework was held in Brisbane, Australia from Dec. 10-15. The U.S. delegation was led by Assistant U.S. Trade Representative for Southeast Asia and the Pacific Sarah Ellerman and Department of Commerce Counselor and Chief Negotiator Sharon H. Yuan.
• Before the start of the negotiations, the U.S. released negotiating documents on the Trade Pillar, outlining issues, such as “trade facilitation, agriculture, services domestic regulation, and transparency and good regulatory practices.” Participants emphasized the need for strong agreements dedicated to “create sustainable and inclusive economic growth throughout the region.” The U.S. also discussed the environment, labor, digital economy, competition policy, and inclusivity during the meetings. Further, the U.S. had released a shared text for Pillar II (Supply Chains) and Pillar IV (Fair Economy: Tax and Anti-Corruption), alongside a conceptual paper for Pillar III (Clean Economy).
  • The negotiations convened over 450 officials from the United States, Australia, Brunei, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Participants are beginning to prepare for additional negotiating rounds for 2023, according to a joint statement by the Department of Commerce and Office of the USTR.
  • The agencies noted, “The United States will continue to engage with IPEF Partners and will participate in additional in-person negotiating rounds in 2023. Additional details regarding the next in-person negotiating round will be shared at a later date.”

USMCA

Mexican and U.S. officials discuss alterations to Mexico’s biotech restrictions

• A delegation of high-level Mexican officials met with USDA Secretary Tom Vilsack and USTR Katherine Tai last week, outlining a proposal to modify the Presidential Decree to ban glyphosate an GM corn imports by 2024. Mexico proposed the exemption of GM corn for animal feed and certain other uses with the possibility of a delay for the ban, according to several sources. Mexican officials also offered to re-evaluate rejections of GM corn traits, another deep concern for U.S. agriculture stakeholders and policy officials.
• In a joint statement, USTR and USDA wrote, “There was candid conversation about our deep concerns around the restrictions of the importation of biotech corn and other biotechnology products stemming amendments to the decree in an effort to address our concerns. We agreed to review their proposal closely and follow up with questions or concerns in short order. There is a joint recognition that time is of the essence, and we must determine a path forward soon.”
  • Attending the meeting was H.E. Marcelo Ebrard Casaubon, Secretary of Foreign Affairs; H.E. Víctor Manuel Villalobos Arámbula, Secretary of Agriculture and Rural Development; H.E. Raquel Buenrostro Sánchez, Secretary of Economy; H.E. María Luisa Albores González, Secretary of Environment and Natural Resources; H.E. Esteban Moctezuma, Ambassador of Mexico to the United States, and Mr. Alejandro Ernesto Svarch Pérez, Federal Commissioner.

Vilsack threatens dispute settlement for GM corn ban

• Prior to the meeting with the Mexican delegation, U.S. Secretary of Agriculture Tom Vilsack announced that the U.S. is positioned to request a dispute resolution panel under the U.S.-Mexico-Canada Agreement (USMCA) in light of Mexico’s proposed ban on imports of genetically modified corn. Secretary Vilsack, ahead of the meeting with Mexican Foreign Secretary Marcelo Ebrard, said that he intended to raise the issue with the Mexican delegation in Washington.
• Secretary Vilsack revealed that if “the proposal doesn’t meet what we think is consistent with USMCA, we will absolutely continue to work with the Office of the U.S. Trade Representative to begin the process of triggering whatever needs to be triggered under USMCA, and that hasn’t changed. It’s not going to change.”

Senators urge action on Mexico’s GM corn ban

• A bipartisan group of over 20 Senators called on the Biden Administration to pursue “all options” to address Mexico looming GM corn ban and hold Mexico accountable under its USMCA commitments. In a Dec. 16 letter addressed to USTR Katherine Tai and USDA Secretary Tom Vilsack, the Senators wrote that Mexico’s planned GM corn ban, “would be detrimental to food security in Mexico, hurt U.S. agricultural sustainability, and stifle future agricultural technology innovations that would benefit both nations. While we appreciate the efforts of USTR and USDA to resolve this issue by engaging with Mexican officials, we also encourage the administration to consider all options available in an effort to hold Mexico to their trade commitments including pursuing a dispute settlement process through USMCA.”
  • The Senators called on USTR to pursue USMCA consultations absent a complete resolution of Mexico’s import ban. “Corn farmers are right now in the process of making planting decisions for next spring, and any additional uncertainty in the market affects their ability to appropriately respond to multiple market signals. If the decree is not completely withdrawn, we ask that your administration initiate a case under USMCA,” the letter stated.
  • Signers of the letter include Sens. John Boozman (R-AR), Debbie Stabenow (D-MI), Chuck Grassley (R-IA), Deb Fischer (R-NE), Michael Bennet (D-CO), Roger Marshall (R-KS), Gary Peters (D-MI), Joni Ernst (R-IA), Dick Durbin (D-IL), Tammy Duckworth (D-IL), Cynthia Lummis (R-WY), Jerry Moran (R-KS), Cindy Hyde-Smith (R-MS), John Barrasso (R-WY), Michael Rounds (R-SD), Josh Hawley (R-MO), Kevin Cramer (R-ND), Mike Braun (R-IN), Bill Cassidy (R-LA), Tim Scott (R-SC), John Hoeven (R-ND), Thom Tillis (R-NC), Roger Wicker (R-MS), Todd Young (R-IN.), John Thune (R-SD) and Rob Portman (R-OH).

AMLO discusses corn ban in morning conference

• Mexican President Andres Manual Lopez Obrador, during a Dec. 9 press conference, reiterated that GM corn for human consumption will be prohibited from entering the country upon implementation of the biotech decree. The president also acknowledged that fodder not directly used for human consumption would be allowed in Mexico. Notably, President Obrador announced that enforcement of the decree would be pushed back by a year for yellow corn related to human consumption and two years for fodder.
• Further, President Obrador called for U.S. health officials to work alongside Mexico’s COFEPRIS to investigate potential health risks associated with human consumption of genetically modified products. In his remarks, President Obrador highlighted Mexico’s self-sufficiency in the production and consumption of white corn and stated that it is within the scope of U.S. producers and the U.S. government to support the growth of native Mexican corn seeds, particularly criollo.
  • However, when asked about substitutes for the blocked yellow corn imports, the president held that Mexico has the capacity to replace the GM products based on Mexico’s abundance of land and resources to produce corn domestically. He stated, “Yes, we have the capacity.” In a translation from Spanish, he continued by stating, “corn is a blessed plant, which also occurs everywhere, it occurs in the coast, it occurs in the mountains, it occurs in the tropics, it occurs in the highlands, it is also native to our country,” which provides Mexican producers with the ability to compensate for the lessened imports.

Grassley calls for action on GM corn ban

• U.S. Senator Chuck Grassley (R-IA), last week, called on the Office of the U.S. Trade Representative to begin the dispute settlement process under the U.S.-Mexico-Canada Agreement (USMCA) regarding Mexico pending GM corn import ban. Senator Grassley stated, “They may think that they’ll be able to talk through this, but they aren’t gonna be able to, they gotta use a sledgehammer: And that’s the dispute process within the USMCA,” continuing with “In other words, quit pussyfooting.”
• In response to growing pressure to act on the proposed Mexican corn ban decree, USTR spokesperson Adam Hodge emphasized that the Administration will “continue to stress the importance of avoiding any disruption in U.S. corn exports to Mexico, including for both feed and human consumption, and adherence to a science- and risk-based regulatory approval process for all agricultural biotechnology products in Mexico.”

Ag group sends letter for dispute settlement

• The National Corn Growers Association (NCGA), on Dec. 14, sent a letter to President Joe Biden, urging the Administration to initiate dispute settlement under the U.S.-Mexico-Canada Agreement (USMCA) should the proposed decree for GM corn import bans remain in place. The letter outlines the urgency of the issue, with U.S. growers currently in the planning process for spring planting.
• Further, in their defense of biotechnology used in corn production, the groups highlighted the review process conducted by the U.S. Food and Drug Administration which negates claims of potential health consequences of GM corn. The writers held that biotechnology products are useful as the modification “saves money, reduces the use of insecticides and lowers carbon emissions,” while allowing “corn growers to plant seeds that are resistant to severe weather conditions caused by climate change.”
  • The growers highlighted the damage that even a partial ban could inflict and cited concerns with the biotech food and feed export applications that are already being delayed and rejected. In the letter, stakeholders emphasized the damage that would be caused to the Mexican economy as well, stating that a ban would “l lead to increased food insecurity in the country – especially among the working class – for whom corn is a major staple.”
• President Biden, President Andrés Manuel López Obrador, and Canadian Prime Minister Justin Trudeau are set to meet in January for a North American Summit. As such, the growers urged the Administration to make the biotech issue a key part of discussions for cooperation during the meeting.

Food Security

Russia criticizes Grain Deal

• Without advances for a deal that would facilitate Russian exports of fertilizer, the country is beginning to resume its critique of the Black Sea Grain Initiative, holding that the agreement poses benefits solely to wealthy nations. Russian Deputy Foreign Minister Sergei Vershinin stated that “grain supplies are still not going to the poorest countries so far,” without “ensuring food security for the neediest countries of Asia, Africa and Latin America first and foremost.” Further, the Deputy Minister held that the grain deal and promise for Russian fertilizer exports are interrelated, with the agreement having “suggested ensuring uninterrupted access of agriculture products and fertilizers from Russia. So far, we have not received any substantial results.” Key to this would be the reopening of a controversial pipeline for ammonia transport from Russia.
  • Concerns for 2023 food security remain present, with the World Food Program stating that in 2022, “There was enough food but at the wrong price and in the wrong place, meaning the poor could not afford it. In 2023, there could be a major food-availability crisis as the global fertilizer crunch, climate shocks and conflict upend food production.”

Increase in U.S. food prices slows in November

• U.S. food prices increased 0.5% in October, the smallest increase since December 2021, yet outstripping the 0.1% increase in the overall Consumer Price Index (CPI). According to the November’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 (BLS), the “The food at home index rose 12.0% over the last 12 months. The index for cereals and bakery products increased 1.1 percent over the year and the index for dairy and related products eased to a 1.1-percentage point increase. In contrast, the index for fruits and vegetables increased 1.4 percent in November, after falling 0.9 percent in October.
  • The price index for food away from home rose 8.5% over the last year, BLS reported. The index for full-service meals rose 9.0% over the last 12 months, and the index for limited-service meals rose 6.7% over the same period.

• Despite overall upticks in food prices, the index also revealed slight declines in beef (0.4%), pork (0.3%), and poultry prices (0.8%). In light of steadying inflation for food commodities, Vice President of Tax, Trade, Sustainability, and Policy Development at FMI, Andy Harig, expressed optimism for the CPI stating recent data “demonstrate[ing] that food price inflation appears to be moderating off this summer’s peaks and moving in a positive direction for American consumers.”

EV Tax Credit

Treasury releases framework for EV credit

• Last week, the IRS and U.S. Department of Treasury outlined requirements for electric vehicles (EV) to receive tax credits under the Inflation Reduction Act. Despite clarifications on procedures for producers and sellers hoping to file for the credit, the specifications do not detail “proposed guidance with respect to the critical minerals and battery components requirements.” The new guidelines for batteries and components are set to become effective Jan. 1, 2023.
• Under the provision, automakers would be eligible to receive up to $3,750 in tax credits should components and critical materials in car batteries be sourced domestically. The legislation would also require manufacturers to produce the final product in the U.S. with a selling value of no more than $80,000 for SUVs and $55,000 for smaller vehicles.
  • Anticipation is building for further details on materials sourcing and credit application given recent tensions between the U.S. and several trading partners over potential breaches to WTO rules and compliance.

Section 301

USTR extends Section 301 tariff exclusions

• The Office of the U.S. Trade Representative (USTR) announced the extension of Section 301 tariff exclusions that apply to 352 Chinese products from December 31, 2022 until September 30, 2023. In a Federal Register notice posted on December 16, 2022, USTR noted that the extension “will help align further consideration of these exclusions with the ongoing comprehensive four-year review” of the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. The exclusions were initially reinstated on March 28, 2022.
  • In early September 2022, the office of USTR confirmed that domestic industries had reported benefiting from the tariffs — prompting the review — and that such tariffs would continue during the review process. USTR noted that presented “interested persons may submit comments on the tariff headings containing these exclusions through the USTR portal in the four-year review, which closes January 17, 2023. Additional information is set out in the following Federal Register Notice.”

Supply Chains

New bill focuses on supply chains

• U.S. Senator Marco Rubio (R-FL) and Representative Ro Khanna (D-CA) introduced a bill to Congress that would seek to build domestic manufacturing for more secure supply chains. The legislation, known as the National Development Strategy and Coordination Act of 2022, would require leaders to submit recommendations for ways in which federal agencies can advance programs for economic development on a periodic basis. The bill represents another recent move to decrease reliance on partners, such as China and move towards near-shoring in production and distribution.
  • In an interview, Representative Khanna held that “For decades, we watched as American industry went offshore, and we basically offered a Band-Aid to communities.”
• Under the provision, leaders of the Departments of Transportation, Energy, Commerce, Labor, Agriculture, and Defense would be required to periodically share concerns and weaknesses within U.S. industries. Panel members would also include the Office of the U.S. Trade Representative, the Director of National Intelligence, the Department of Treasury, the Small Business Administration, and the Federal Reserve.

Clerc appointed CEO of shipping giant Maersk

• Vincent Clerc has been named the next CEO of A.P. Møller-Maersk A/S, taking charge in a period of slowed demand and decreased freight rates amid lower global shipping levels. In light of declining rates, Mr. Clerc stated, “We clearly have to find a new balance in this new market.” Maersk reportedly shipped 30% fewer containers across the Pacific this year. Because of significantly lower shipping volumes, the company is “going through a significant inventory correction in the U.S. and Europe, and we made significant capacity adjustments to our capacity in and out of Asia,” Mr. Clerc explained.
• In looking ahead to 2023, container demand is expected to decline, despite projections for 8% growth in capacity for next year. According to ship owners, companies are considering plans for container-ship demolition to handle the excess capacity.
  • Given current conditions, “It’s unpredictable for our customers and for us, and we will spend some months trying to find what balance should be. But it should be higher than in 2019 given the inflation and higher fuel costs,” said Mr. Clerc.

Trade Policy

Biden seeks to strengthen ties with Africa

• During a summit with African leaders last week, U.S. President Joe Biden promoted increased investment and trade with African countries to boost ties with trade blocs in the region. Further, at the U.S.-Africa Business Forum, the president revealed that “The United States is committed to supporting every aspect of Africa’s inclusive growth and creating the best possible environment for sustained commercial engagement between African companies and American companies.” The President also praised implementation efforts for the African Continental Free Trade Area, which is decreasing trade barriers between African countries in the creation of a common market.
• U.S. Trade Representative Katherine Tai joined the delegation at the Africa Leaders Summit, where she participated in a panel about “The Future of African Trade and Investment Relations with the United States,” alongside President William Ruto of Kenya; Prime Minister Aziz Akhannouch of Morocco; Tony Elumelu, Chairman of the United Bank for Africa; Alfred Kelly, Chairman and CEO of Visa; and African Continental Free Trade Area (AfCFTA) Secretary General, Wamkele Mene. Following the panel, Ambassador Tai and Secretary General Mene signed the Memorandum of Understanding to establish deepened engagement between the U.S. and AfCFTA through quarterly working group meetings.
  • U.S. Secretary of State Antony Blinken praised the initiative, stating, “If we managed to increase our share of imports and exports by just 1 percent, we would generate an additional $34 billion in revenue for Africa, $25 billion in revenue for the United States and create more than 250,000 good paying jobs as a result.”
  • U.S. Secretary of Commerce Gina Raimondo is set to lead a business delegation to the region in 2023 to assess commercial and investment opportunities on the continent.

Vilsack announces climate-smart ag funding

• U.S. Secretary of Agriculture Tom Vilsack, on Dec. 12, announced the rollout of $325 million to fund 71 projects under USDA’s Partnerships for Climate-Smart Commodities. The programs will seek to support small and historically marginalized groups of farmers to invest in climate-smart agriculture. The range for individual funds sans from $250,000 to $5 million, bringing total investments in the program to $3.1 billion.
• One initiative seeks to improve practices for sheep and goat raising under climate-smart foraging. Speaking about the potential for the program, Secretary Vilsack also floated the idea of enforcing climate-smart labeling for qualified products. At the same time, the secretary emphasized the need to provide “true, truthful and not misleading” labeling to ensure compliance and transparency.

WTO

UAE to host MC13, Cameroon to host MC14

• The WTO announced that the United Arab Emirates (UAE) will host the WTO’s 13^th Ministerial the week of Feb. 26, 2024. In a General Council meeting last week, Members agreed to a proposal that the UAE will host the 13^th Ministerial, and that Cameroon host the 14th Ministerial at date to be determined. Both UAE and Cameron were vying for hosting the next Ministerial, generating the balanced outcome.
  • The 12^th Ministerial, held in Geneva, Switzerland last June, was postponed twice due to complications with COVID restrictions and originally to be hosted by Kazakhstan during summer of 2020.

U.S. receives periodic trade policy review

• WTO Ambassador of the People’s Republic of China, on Dec. 14, labeled the U.S. a “destroyer to the multilateral trading system” with a tendency to break the rules. During its trade policy review, the U.S. also faced criticism from the EU and Russia. In the remarks, the Chinese Ambassador reportedly saw “little evidence that President Joe Biden is committed to strengthening the multilateral system after the tumultuous Trump years,” according to PoliticoPro.
• Further, the review revealed that the U.S. “continues to be an active user of anti-dumping (AD) duties,” with the initiation of 178 AD investigations between 2018 and 2021. Along the line of trade policy, multiple ambassadors criticized the U.S. for its “America First” policies and its lack of compliance under WTO dispute settlement processes. Concerns regarding the U.S. Inflation Reduction Act and the related subsidies also came up during the review process, with EU Ambassador João Aguiar Machado stating, “While we welcome the adoption of the Act as a major step in the US’ fight against climate change, we have serious concerns with some of its provisions.”