TRADE UPDATE

Food & Agriculture
December 6, 2022

By Michael Anderson, Vice President of Trade and Industry Affairs

HIGHLIGHTS

• U.S. – Indo-Pacific: Last week, a group of U.S. Senators wrote a letter to President Biden, calling for increased consultations with Congress before proceeding with further trade and investment measures. The Senators emphasized the power of the legislature to enforce commerce initiatives and cited IPEF as a key area for collaboration between the branches moving forward.
• USMCA: President Andres Manuel López Obrador announced further clarifications to the proposed GM corn ban, holding that the provision will apply directly to human consumption with exceptions for animal feed. The President also floated the idea of a potential extension until the ban’s enforcement to assess “health concerns.”
• U.S. – China: The Information Technology & Innovation Foundation (ITIF) issued a report urging Congress to expand Section 337 of the 1930 Tariff Act to better address the unfair trade practices China uses to capture market share in advanced industries.
• EV Tax Credit: With tensions rising over the EV tax credit in the U.S. Inflation Reduction Act, French President Emmanuel Macron recently met with President Biden to discuss the future of the transatlantic trade relationship and means to avoid proposed EU subsidies for the automotive industry.
• Supply Chains: On Dec. 2, President Biden signed a bill that would enforce the negotiation of objectives between railroads and unions to avoid a strike. The measure serves to prevent disruptions that could hinder key shipments of agricultural products across the United States.
• WTO: Director-General of the WTO Ngozi Okonjo-Iweala, on Dec. 1, addressed the Trade Facilitation Committee, praising efforts to strengthen supply chains across borders and calling for a ramp-up in digital trade elements.

“There is no question that comprehensive free trade agreements that include reciprocal tariff reductions and dispute resolution mechanisms must be approved and implemented by Congress. However, there appears to be a misunderstanding as to whether an agreement like IPEF, which aims to regulate foreign commerce and reshape international trade flows, requires similar approval. It does.”

— Bipartisan Senate Finance Committee letter to President Biden

U.S. – Indo- Pacific

Senators call for consultations under IPEF

• Last week, a bipartisan group of Senators on the Senate Finance Committee wrote a letter to President Biden, calling for efforts to address “digital trade and the strengthening of supply chains; [President Biden’s] objectives in the clean and fair economy pillars; and the ways in which these efforts might support U.S. workers and U.S. jobs” through the Indo-Pacific Economic Framework (IPEF). In the document, the senators claim that initiatives, such as IPEF, require approval by Congress due to its implications on foreign commerce and international trade. Thus, the members made three requests to the Administration:
  • Consult Congress to build bipartisan support for measures under IPEF
  • Increase transparency with the public and relevant stakeholders
  • Work with Congress for effective implementation
• The letter, led by Senate Finance Committee chair, Senator Ron Wyden (D-OR) and ranking Member Michael Crapo (R-ID), precedes the first-round negotiations of the agreement set to take place in Brisbane, Australia.  

USTR announces IPEF stakeholder listening sessions

• The Office of USTR will hold two public stakeholder listening sessions for the IPEF for the upcoming negotiating round in Brisbane, Australia. According to a USTR press release, the listening sessions are scheduled for Dec. 6 (location to be determined) and Dec. 13 in Brisbane amidst the in-person negotiations that commence on Dec. 10. The Commerce Department will also be participating in the negotiating round and the listening sessions. Further details, including registration, are noted below:

• The USTR announcement noted that the U.S. launched the IPEF with Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam last May. Additionally, that “The IPEF will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies.” The 14 IPEF partners represent 40 percent of global GDP and 28 percent of global goods and services trade.

USMCA

AMLO discusses provisions of corn ban

• President Andres Manuel López Obrador announced, in a press statement on Nov. 29 that the proposed ban on genetically modified (GM) corn would be enforced with a particular focus on human consumption. In this, the provision could also be enforced with the inclusion of final products made with GM yellow corn inputs. The president also revealed that corn imports would need to undergo inspections by COFEPRIS—Mexico’s national health regulator—to ensure compliance on an annual basis.
• Given recent pressure from the U.S., President Obrador also noted that the administration “offered to extend the term to two years, in the case of yellow corn used for (livestock feed).” In this, the president extended a proposal to delay the implementation of the ban while experts conduct additional investigations into the health implications of GM products.
  • However, the official did not reveal whether the previous assertion of a 50% cut in U.S. yellow corn imports by 2024 will be realized.

Vilsack calls on Mexico to resolve GM corn import ban

• Earlier Secretary of Agriculture Tom Vilsack warned Mexican President López Obrador that “absent acceptable resolution” regarding Mexico’s plan to prohibit U.S. GM corn imports, “the U.S. Government would be forced to consider all options, including taking formal steps to enforce our legal rights under the USMCA.” Speaking with the Mexican President last week, Vilsack emphasized the policy to phase out imports of GM corn and other biotech products would cause “massive” economic harm to both countries and that “We must find a way forward soon,” according to a USDA press release.
  • Vilsack acknowledged “some progress was made” to resolving the issue during the discussion, yet time is running short. Vilsack struck a more positive tone concluding that “We expect to have a proposal from the President’s team soon and we will evaluate closely. While we do not have a solution in hand, we will continue to engage with Mexico on this important issue.”  

Amb. Tai discusses ag trade with Secretary Buenrostro

• U.S. Trade Representative Katherine Tai, on Dec. 1, met with Mexican Secretary of Economy Raquel Buenrostro to discuss the future of the bilateral economic relationship under USMCA. During the discussion, Amb. Tai “reiterated the importance of the full implementation of the USMCA’s prohibition on the importation of goods made with forced labor” and emphasized the need to address ongoing concerns related to provisions in Mexico’s energy sector as well as environmental laws surrounding fisheries. Further, the ambassador explicitly aired her concerns regarding the proposed corn decree, calling for measures to avoid “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,“ according to a statement by USTR.

U.S. – China

Expanding section 337 to address China’s unfair trade practices

• The Information Technology & Innovation Foundation (ITIF) issued a report, urging Congress to expand Section 337 of the 1930 Tariff Act to better address the unfair trade practices China uses to capture market share in advanced industries. In the report, ITIF contends that “the new Washington consensus is that China is a threat, Chinese government trade policy actions are mostly unfair and predatory, and [China] is moving away, rather than toward, its WTO obligations.” The U.S. has pursued both offensive and defensive responses, but the former’s focus on boosting U.S. competitiveness “will ultimately be insufficient by itself” and the latter’s emphasis on inflicting pain on Beijing to spur policy changes is ineffective because “China is too powerful now” to yield to unilateral U.S. measures and multilateral efforts will be less effective, while other trade partners view China as “an economic opportunity too important to give up.”
  • In contrast, the ITIF argues for revised U.S. policy that would “implement a new set of trade defense instruments” that limit the benefits China gains from its unfair trade practices. ITIF contends that application of existing Section 301 tariffs of late is a blunt and overly broad policy instrument.  Rather, Congress should amend Section 337 to create a more effective tool for targeted exclusion orders against imports of goods and services from firms in non-market, non-rule-of-law economies (e.g., China). The report notes that presently Section 337 is largely used to litigate intellectual property rights violations but was created to address unfair foreign trade practices and should therefore be used “much more vigorously” going forward.

Raimondo discusses U.S. – China trade

• U.S. Secretary of Commerce Gina Raimondo, on Nov. 30, discussed the current state of U.S. – China trade, highlighting the increase of security and human rights concerns in the People’s Republic. In her remarks, the secretary stated, “China today poses a set of growing challenges to our national security. That is a fact. It’s deploying its military in ways that undermine the security of our allies and our partners and the free flow of global trade.”
• She continued by claiming that “it’s very clear China’s leaders don’t plan to pursue political and economic reform and are instead pursuing an alternative vision of their country’s future — a vision of increasing the role of the state in society and the economy, of constraining the free flow of capital and information and decoupling economically in a number of areas.” In this, Secretary Raimondo reiterated her concerns about China’s militarization of new technologies and its economy. She highlighted three U.S. sectors that could be subject to controls in response to Chinese aggression:
  • Advanced computer technologies (microelectronics, quantum information systems, and artificial intelligence)
  • Biotech and bio manufacturing
  • Clean energy technologies
• At the same time, Raimondo clarified that the U.S. still seeks to maintain a degree of economic integration with China, as opposed to complete decoupling. U.S. agricultural exports are set to reach $36 billion in 2022. Raimondo called for motion on the private sector front to encourage cooperation with China, while ensuring national security and economic growth.

Food Security

Global food prices stabilize in November

• The Food and Agriculture Organization’s (FAO) Food Price Index averaged 135.7 points in November, nearly unchanged from October, only slightly higher (0.3 percent) than 12 months earlier. Decreases in the price indices for cereals, dairy and meat in November nearly offset increases in vegetable oils and sugar, according to FAO. Other highlights from the report include:
  • The Vegetable Oil Price Index “averaged 154.7 points in November, up 3.4 points (2.3 percent) after declining for seven consecutive months. The increase was driven by higher international palm and soy oil prices, more than offsetting lower rapeseed and sunflower oil quotations.” 
  • The Cereal Price Index “averaged 150.4 points in November, down 1.9 points (1.3 percent) from October, but still 9.0 points (6.3 percent) above its value a year ago. World wheat prices registered a 2.8-percent decline during the month of November, mostly driven by the rejoining of the Russian Federation in the Black Sea Grain Initiative and the extension of the agreement, subdued import demand for supplies from the United States of America due to uncompetitive prices, and greater competition in global markets with increased shipments from the Russian Federation.”
  • The Dairy Price Index “averaged 137.5 points in November, down 1.7 points (1.2 percent) from October, marking the fifth consecutive monthly decline, but remained 11.6 points (9.2 percent) above its value a year ago.”
  • The Meat Price Index “averaged 117.1 points in November, down 1.1 points (0.9 percent) from October, also marking the fifth consecutive monthly decline, but remained 4.6 points (4.1 percent) above its value a year ago.“

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EV Tax Credit

President Macron meets with Biden over U.S. – EU tensions

• French President Emmanuel Macron met with President Joe Biden last week to discuss the future of the transatlantic trade relationship with mention of concerns surrounding the country’s EV tax credit under the Inflation Reduction Act (IRA). President Macron previously accused the U.S. of enforcing a protectionist approach that puts European car manufacturers at a significant disadvantage in the marketplace, calling on the EU to address competitiveness measures.
• Further, White House spokesperson John Kirby acknowledged that the meeting was integral in highlighting “a foundational component of this administration’s approach to foreign policy and that’s through alliances.” The comment follows an earlier meeting between U.S. Trade Representative Katherine Tai and French Economy Minister Bruno Le Maire in which the pair “emphasized the importance and strength of U.S.-French cooperation on a range of important trade-related issues,” with a particular focus on the IRA.
• Following his discussion with President Macron, Biden noted that the U.S. is “going to continue to create manufacturing jobs in America but not at the expense of Europe,” emphasizing his commitment to the bilateral relation. The French president reiterated the optimism, stating, “Everything that is absolutely decisive, because as a matter of fact, we share the same vision and the same willingness.”
  • EU Commission Executive Vice President Margrethe Vestager also emphasized the need for open markets, calling on the EU to “revamp globalization” in a way that avoids a “tit-for-tat” situation with the U.S.

U.K. calls for softened interpretation of EV tax credit

• The EV tax credit issue has been of particular concern to the U.K. as well, with Trade Secretary Kemi Badenoch having raised the topic during several meetings with U.S. officials in mid-November. In her remarks at the Cato Institute, Secretary Badenoch stated that “the substantial new tax credits for electric cars not only bar vehicles made in the U.K. from the U.S. market, but also affect vehicles made in the U.S. by U.K. manufacturers.”
  • Relatedly, the country’s Society of Minor Manufacturers and Traders (SMMT) commented on the “uneven competitive environment,” urging the rollout of government subsidies to U.K. industries affected by the provision.

EU pushes for industry subsidies

• German Economy Minister Robert Habeck recently revealed concrete steps by the European Union to plan for the deployment of state subsidies that would be administered to producers sourcing from domestic suppliers and manufacturers. The measures, which seek to respond to the subsidies provided in the U.S. Inflation Reduction Act, represent a key play by Europe in the electric vehicles industry. Minister Habeck revealed that “There are a lot of ingredients in the market, and they are now being quickly put together into a response plan, into a future industrial plan for Europe.”
• While the provisions would promote an outwardly “Buy European” approach, Habeck reiterated his commitment to WTO guidelines. “I will make no secret of the fact that WTO-compatible ‘local content’ can also be part [of the EU’s response to the Inflation Reduction Act],” he said.

Supply Chains

Rail strike averted

• On Dec. 2, President Joe Biden signed a bill to enforce negotiating objectives among railroads and unions to avoid a strike that would disrupt supply chains for key shipments and agricultural products across the U.S. Before the legislation’s introduction, four of the 12 unions had held out on the ratification of a pending agreement, citing concerns with paid sick days.
  • Earlier, the Senate voted 80 to 15 on the legislation to impose a tentative contract deal reached in September on a dozen unions representing 115,000 workers who could have gone on strike on Dec. 9. The House approved the legislation a day prior, which enacts new contracts providing railroad workers with a 24% pay increases over five years from 2020 through 2024, immediate payouts averaging $11,000 upon ratification and an extra paid day off.

• In the past few weeks, facing a potential railroad strike, President Biden had called for Congress to finalize a rail agreement that would prevent an industry strike before the Dec. 9 deadline. The push for action followed the pressure of over 400 groups, calling for Congressional intervention to prevent a strike that could halt transport of key fuel and food shipments across the U.S. Secretary of Labor Marty Walsh, Secretary of Transportation Pete Buttigieg, and Secretary of Agriculture Tom Vilsack had also called for action to address the rail issue, citing concerns with supply chain and transportation disruptions.  
  • The President commented on the potential devastation that would follow a rail pause, stating that “without freight rail, many U.S. industries would shut down … Communities could lose access to chemicals necessary to ensure clean drinking water. Farms and ranches across the country could be unable to feed their livestock.”

Trade Trends

U.S. good trade deficit expands on increased imports

• The U.S. trade deficit in goods increased for the second consecutive month, propelled largely by increasing imports in October. The monthly advanced goods trade deficit increased 7.7%, from $91.9 billion to $99.0 billion in October as both exports declined and imports surged, according to the U.S. Census Bureau. Exports of goods for October were $173.7 billion, $4.7 billion less than September exports. Imports of goods for October were $272.7 billion, $2.4 billion more than September imports.

USDA cuts 2023 export projections

• The U.S. Department of Agriculture is forecasting U.S. agriculture exports to total $190 billion for the 2023 fiscal year with $199 billion in projected imports. Estimates are down $3.5 billion from previous export forecasts in August, driven largely by decreases in exports for soybeans, cotton, and corn.

• At the same time, the U.S. saw increased exports in beef, poultry, and wheat. Grain and feed exports are expected to hit $46.2 billion, down $300 million from past estimates. Primary decreases in grain and feed products are driven by cuts in corn, sorghum, and rice exports.

Trade Policy

Portman and Coons seek trade package this year

• Senators Rob Portman (R-OH) and Chris Coons (D-DE) are spearheading efforts for the passage of a targeted trade package before year-end. In an op-ed, published in The Hill last Friday, the Senators are calling on Congressional colleagues to move trade legislation that would authorize President Biden to pursue comprehensive free trade negotiations with the U.K., Kenya, Taiwan and Ecuador.
• “We know that in Congress, it’s often easier to kick the can down the road another year — or five. But on trade, the stakes for our economy are too high, and the time is ripe for bipartisan progress right now,” the Senators wrote.
• The Senators continued, “The consequences of failing to open new markets for U.S. exporters, help workers hurt by trade, fight unfair trade practices, and reauthorize expiring trade benefit programs all adds up to two things: fewer good jobs for American workers and weakened U.S. influence around the world.”
• The envisioned legislation would also renew Trade Adjustment Assistance, the Generalized System Preferences, and the Miscellaneous Tariff Bill, other trade programs that both parties have struggled to find common ground on the details and timing of renewing.

Department of Transportation rejects ag trucker proposal

• On Nov. 28, the U.S. Department of Transportation rejected a petition set forth by agricultural groups to realize an exception to trucking rules that would allow agricultural truckers to drive longer shifts. The proposal sought “approval for drivers, after 10 consecutive hours off duty, to drive through the 16th consecutive hour after coming on duty, and to drive a total of 15 hours during that 16-hour period.” However, the department concluded that such an exception would not meet necessary safety standards for enforcement.
  • Current policies require livestock haulers to follow standard trucking hours with 14 hours on duty, 11 of which could be spent driving, unless within 150 air-miles of the livestock origin or destination.

WTO

WTO convenes Trade Facilitation Committee

• On Dec. 1, Director-General of the WTO Ngozi Okonjo-Iweala addressed the Trade Facilitation Committee, praising efforts to strengthen supply chains across borders and calling for a ramp-up in digital trade elements. In her remarks, DG Okonjo-Iweala highlighted the critical role that e-commerce has played in providing “access to global trade for millions of small businesses, including businesses owned by women,” particularly during the pandemic. In this, she emphasized the need for uninhibited digital trade to allow SMEs to be “better integrated into global trade through pre-arrival processing, expedited shipments, and e-commerce.” She left the discussion having made several recommendations:
  • To focus on reviewing progress in technical assistance for members with upcoming category C provisions;
  • For developers and donors to provide flexibility for participating members; and
  • To invest in efforts to “address the lagging rate of implementation of LLDCs” in addition to LDC needs.