TRADE UPDATE – APRIL 11, 2023

TRADE UPDATE

Food & Agriculture

April 11, 2023

By?Michael Anderson , Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA :?USMCA technical consultations on Mexico’s GM corn policy continue as U.S. corn exporters and industry stakeholders anxiously monitor signals from USTR. More than 30 days have passed since USTR’s?request ?for technical consultations.
• USMCA :?The U.S. and Mexico concluded a plan to address union violations at a Mexican auto parts facility after Mexico investigated the U.S. complaint and found that the workers were not being allowed to freely associate. The Mexican government committed to a?remediation plan ?through the end of September to address labor rights violations.
• U.S. – Moldova :?The U.S. and Moldova agreed to expand bilateral trade under the Moldova – U.S. Joint Commercial Commission (JCC). The U.S. agreed to consider expanded usage by Moldova of the U.S. General Systems of Preference (GSP) in exchange for increased market access for U.S. beef exports and tractors, according to a?joint statement .
• Trade Policy :?In a?speech ?at American University Washington College of Law, Ambassador Katherine Tai said the Biden Administration was writing a “new story on trade, one that makes us more resilient, our economy more sustainable, and our results more inclusive.” She argued that while the traditional approach of liberalization and tariff reductions has led to economic growth and prosperity for some, it has also contributed to rising inequality.
• WTO :?The U.S. and five other countries submitted a “counter-notification ” at the WTO contending India’s rice and wheat subsidies vastly exceed allowable limits. Led by the U.S., the countries contend that India significantly under-reported the value of its market price support (MPS) for rice and wheat producers.
• WTO :?The U.S. will formally sign and support the WTO’s?Agreement on Fisheries Subsidies ?on Tuesday, Apr. 11, according to a USTR notification. The official acceptance will be signed by Ambassador Katherine Tai and?presented ?to WTO Director-General Ngozi Okonjo-Iweala, during her visit to Washington, D.C.
• IPEF :?The Commerce Department?announced ?the third negotiating round of the Indo-Pacific Economic Framework (IPEF) will be held May 8-15 in Singapore. Sarah Ellerman, Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting), will lead the negotiations on the trade pillar. Further details regarding round three negotiations will be provided at a later date, Commerce reported.

“We are writing a new story on trade, one that makes us more resilient, our economy more sustainable, and our results more inclusive. Whether you have a college degree or not, whether you have five employees or five hundred, whether you are a small dairy farmer in Wisconsin or a steelworker in Pennsylvania – trade should work for more Americans and help build the economy from the bottom up and the middle out. This is our worker-centered approach to trade, and it is at the heart of everything we are doing.”

–Remarks by Ambassador Katherine Tai at American University Washington College of Law

USMCA

USMCA TECHNICAL CONSULTATION ON MEXICO’S GM CORN CONTINUE

• U.S. corn exporters and industry stakeholders are anxiously monitoring signals from USTR on outcomes or progress regarding the technical consultations on Mexico’s biotech ban. Just over a month has passed since the U.S. requested technical consultation with Mexico and several industry groups and lawmakers have expressed concern that U.S. move swiftly to a dispute panel should technical consultations stall or gain little traction. Under USMCA provisions, the U.S. and Mexico have 30 days after receipt of the technical consultations request to meet, “with an aim of resolving the matter cooperatively with 180 days of the request if possible.” USMCA further provides that the complaining party (e.g., U.S.) could “cease technical consultations,” reverting to a dispute settlement procedure “following the meeting.”
• In recent Congressional testimony Secretary Vilsack confirmed consultations were underway with Mexico. He stopped short of providing details but emphasized that Mexico continues to purchase U.S. corn and that U.S. officials will continue to emphasize the importance of a science-based trading system under the USMCA in talks with Mexico.
• Recall that on March 6, The Office of the USTR?announced ?requesting formal technical consultations with the Government of Mexico under the?Sanitary and Phytosanitary Measures (SPS) Chapter ?of the USMCA. The consultations focus on Mexico’s policies and measures surrounding agricultural biotechnology products, including the recently revised Decree to ban certain GM corn imports. In announcing the action, Ambassador Katherine Tai said, “The United States has repeatedly conveyed our serious concerns with Mexico’s biotechnology policies and the importance of adopting a science-based approach that complies with its USMCA commitments,” Ambassador Tai continued,?“Mexico’s policies threaten to disrupt billions of dollars in agricultural trade and they will stifle the innovation that is necessary to tackle the climate crisis and food security challenges if left unaddressed. We hope these consultations will be productive as we continue to work with Mexico to address these issues.”

U.S. AND MEXICO SETTLE LABOR CONCERNS AT AUTO PLANT

• Recently the U.S. and Mexico concluded a plan to address union violations at a Mexican auto parts factory, following a complaint?the U.S. lodged under the USMCA’s labor provisions. After Mexico investigated the U.S. complaint and found that the workers were not being allowed to freely associate, the Mexican government committed to an extensive?remediation plan, ?including sanctioning officials or firms that intimidate workers. In a statement announcing the action by Mexico, USTR Katherine Tai said, “Through concrete, measurable commitments, this course of remediation seeks to remedy serious violations of workers’ rights at the Manufacturas VU facility,”?Tai continued, “The harm from these violations is ongoing, which is why the United States will closely monitor the plan’s implementation.?I want to thank the Government of Mexico for its commitment to workers’ rights and to bringing this facility into compliance with Mexico’s labor law.”
• Under the?remediation plan , Mexico will, among other things:
• Initiate sanctions proceedings against individuals, labor organizations, or companies found to have violated Mexican law in connection with this matter;
• Link the Administrative findings of violations with proceedings in Mexican courts by filing the evidence gathered and findings made during the Government of Mexico’s review of this matter with the courts;
• Invite the local Judicial Power in Coahuila, as well as other judicial authorities from across the country, to participate in training on collective bargaining issues;
• Ensure that complaints about anti-union threats and violence are properly investigated and addressed by the relevant authorities;
• Conduct workers’ rights training at the Manufacturas VU facility and monitor the facility with regular inspections;
• Ensure Manufacturas VU makes – and abides by – a public, written statement committing to respect the rights of freedom of association and collective bargaining;
• Ensure U.S.-based company executives visit the facility to further assure workers of these commitments;
• Ensure the company takes appropriate action – including termination – against human resource staff found to have violated workers’ rights;
• Ensure the company restructures its human resources department with new personnel who commit to not discriminate or engage in favoritism among unions; and
• Ensure the company will not impede La Liga Sindical Obrera Mexicana’s (LSOM’s) attempts to restore or exercise their right to represent workers for purposes of bargaining at the facility.
• Recall that on January 30, 2023, USTR alleged that workers at the Manufacturas VU auto parts plant in Piedras Negras were being denied the right to free association and collective bargaining, utilizing USMCA labor provisions to request Mexico investigate workers’ rights issues at the auto plant.

U.S. – MOLDOVA

U.S. AND MOLDOVA AGREE TO EXPAND BILATERAL TRADE, INCLUDING FOR U.S. BEEF AND TRACTORS

• Under the Moldova – U.S. Joint Commercial Commission (JCC), officials from both countries recently met to outline steps to deepen the bilateral economic and trade relationship. According to a?joint statement , “Both sides?reviewed the importance of transparent and predictable regulatory practices and committed to the continued recognition of international standards and nondiscriminatory policies in order to develop bilateral commerce and expand trade.”
• The two sides agreed to resolve existing trade issues, including leveling the playing field for imports of large tractors from the United States and developing an audit system to facilitate access for U.S. beef into the Moldovan market, according to USTR. For its part, the U.S. committed to examine requests from Moldova to expand its Generalized System of Preferences (GSP) benefits, including to Moldovan agricultural products with export potential, contingent on reauthorization of GSP benefits by Congress.
• The joint statement further noted that, “The delegates also reviewed priority reforms and plans to create a favorable business environment in Moldova, in particular through simplifying procedures and regulations, with the goal of improving Moldova’s attractiveness as a destination for foreign investment. The United States welcomed Moldova’s commitment to strengthen the rule of law and fight against corruption and acknowledged the importance of transparency and predictability. The delegates also discussed the benefits derived from strong intellectual property rights protection and enforcement, which are essential elements for stimulating the growth of Moldova’s digital economy and information technology sector, including through prioritization of cybersecurity and critical information technology infrastructure.”
• The JCC was led by Deputy Prime Minister, Minister of Economic Development and Digitalization, Dumitru Alaiba, and?Deputy U.S. Trade Representative, Jayme White.

TRADE TRENDS

U.S. TRADE DEFICIT EXPANDS IN FEBRUARY

• The U.S. trade balance in goods and services registered -$70.5 billion in February, up $1.9 billion or 2.7% higher than in January. The February increase in the goods and services deficit reflected an increase in the goods deficit of $2.7 billion to $93.0 billion and an increase in the services surplus of $0.8 billion to $22.4 billion. Additional details released by the Census Bureau:
• February exports were $251.2 billion, $6.9 billion less than January exports. February imports were $321.7 billion, $5.0 billion less than January imports.
• Year-to-date, the goods and services deficit decreased $35.5 billion, or 20.3 percent, from the same period in 2022. Exports increased $49.5 billion or 10.8 percent. Imports increased $14.0 billion or 2.2 percent.
• The average goods and services deficit increased $3.3 billion to $68.8 billion for the three months ending in February. Average exports decreased $0.3 billion to $252.7 billion in February. Average imports increased $3.0 billion to $321.5 billion in February. Year-over-year, the average goods and services deficit decreased $15.7 billion from the three months ending in February 2022.

WTO REPORT PREDICTS SUBPAR TRADE GROWTH IN 2023

• Last week, the WTO released a report entitled?Global Trade Outlook and Statistics. ?According to the report, merchandise trade volumes would increase by a “subpar” 1.7% in 2023. This growth rate falls well below the 12-year average growth rate of 2.6 percent. In a statement, WTO Director-General (DG) Ngozi Okonjo-Iweala stated, “Trade continues to be a force for resilience in the global economy, but it will remain under pressure from external factors in 2023.”
• The report mentions several factors contributing to the slower than average growth, including the war in Ukraine, persistent high inflation, tighter monetary policy, and financial market uncertainty. In 2023, trade growth is expected to rebound to 3.2 percent.

AG EXPORTERS FACE INCREASED COMPETITION IN FOREIGN MARKETS

• USDA’s Economic Research Service released a report (U.S. Export Competitiveness in Select Crop Markets ) concluding that while the U.S. continues as the world’s largest supplier of corn, tree nuts, and cotton, other countries emerged as the leading suppliers of wheat, soybean oilseed and other agriculture products.
• “Over the last decade, the United States lost its position in the global wheat market as the European Union (EU), Russia, and Ukraine gained market shares. Similarly, Brazil and Argentina continue to pose a challenge to U.S. soybean exports. For instance, since 2021, Brazil has been the largest exporter of soybean oilseed. The United States’ involvement in trade agreements, particularly with emerging markets, contributes to its export competitiveness. However, from 2012 through 2020, the United States did not establish any new free trade agreements (FTAs), potentially limiting U.S. export opportunities in some emerging markets while other competitors signed multiple FTAs during that same period,” the report noted.
• Contributing to U.S. agriculture exporters’ global competitiveness, the authors noted that the U.S. has not “signed new free trade agreements (FTA) from mid-2012 to 2020 has limited the U.S. presence in emerging economies such as those in Africa.”

FOOD SECURITY

GLOBAL FOOD PRICES CONTINUE DECLINING FOR THE 12TH?CONSECUTIVE MONTH

• The Food and Agriculture Organization’s (FAO)?Food Price Index ?averaged 126.9 points in March, falling 2.1 percent compared to February. March’s price index capped a year-long downward trend of receding prices and has declined 32.8 percentage points (20.5 percent) since the peak level in March 2022. Decreases in the price indices for cereals, vegetable oils and dairy were the primary drivers and offset rising prices for sugar and meat, according to FAO. Other highlights from the report include:
• The Vegetable Oil Price Index “averaged 131.8 points in March, down 4.1 points (3.0 percent) from February and standing as much as 47.7 percent below its level a year ago. The decrease in the index was the net result of lower soy, rapeseed and sunflower oil quotations more than offsetting higher world palm oil prices. After falling for three consecutive months, international palm oil prices rebounded in March.”
• The Cereal Price Index “averaged 138.6 points in March, down 8.2 points (5.6 percent) from February and 31.6 points (18.6 percent) below its level one year ago. This month’s decrease reflects a fall in international prices of all major cereals. International wheat prices fell the most, by 7.1 percent, driven by ample global supplies and strong competition among exporters. The extension of the Black Sea Grain Initiative, allowing Ukraine to continue to export from its Black Sea ports, also contributed to the decline.”
• The Dairy Price Index “averaged 130.3 points in March, down 1.1 points (0.8 percent) from February and standing 15.6 points (10.7 percent) below its level in the corresponding month a year ago. The decline in March was driven by lower price quotations for cheese and milk powders, while butter prices increased. The decline in the international price quotations for cheese was underpinned by slower purchases by most leading importers in Asia amid increased export availabilities, including inventories, in leading exporters.”
• The FAO Sugar Price Index “averaged 127.0 points in March, up 1.8 points (1.5 percent) from February, marking the second consecutive monthly increase and reaching its highest level since October 2016. The increase in prices mostly resulted from concerns over lower global availabilities of sugar in the 2022/23 season, following declining production prospects in India, Thailand and China.”

U.S. – INDO- PACIFIC

SINGAPORE TO HOST IPEF ROUND THREE TALKS IN MAY

• The Commerce Department?announced ?the third negotiating round of the Indo-Pacific Economic Framework (IPEF) will be held May 8 – 15 in Singapore. The agency outlined that the U.S. delegation for the third round will be “led by Sharon Yuan, Commerce Department Counselor and Chief Negotiator for Pillars II-IV, and Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting).” Further details regarding round three negotiations will be provided at a later date, according to the announcement.
• Recall that in late March, the Office of USTR recently released?summaries ?of the tabled negotiating texts from the most recent IPEF round on Pillar I (Trade). The released text coincided with bipartisan frustrations expressed during the recent Congressional hearing on the President’s 2023 trade agenda.The Biden Administration has indicated ambitions to achieve “early harvests” on certain components of the IPEF text before an agreement on the entire Framework is reached. Several reports confirmed that the U.S. and other IPEF countries aim to finalize the deal during this calendar year.
• IPEF ?negotiating countries besides the U.S. include Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. Notably India opted out of negotiations on the trade pillar.

SUPPLY CHAINS

WEST COAST PORT WORK DISRUPTIONS ADVERSELY IMPACTING AG EXPORTS

• The work stoppage late last week at the ports of Los Angeles and Oakland disrupted agriculture exports to the vital Asia-Pacific market and elevated uncertainty as the ports and unions continue protracted negotiations on a new labor agreement.According to a statement released by the Pacific Maritime Association (PMA), which represents global ocean carriers, the International Longshore and Warehouse Union workers ceased labor activity, effectively closing terminals at both ports, the largest port complex in the U.S. PMA contends that “This latest work action comes three weeks after ILWU Local 13 in Southern California stopped complying with a contract provision providing employers the right to assign staggered shifts during meal periods. These actions undermine confidence in West Coast ports. The health of the Southern California and state economy depend on the ability of the ports of Los Angeles and Long Beach to stem this market share erosion.”
• Officials for the unions reported the cessation of worker activity late last week was due to thousands of union workers attending a monthly membership meeting on Thursday and observance of the Easter holiday weekend, according to press reports.
• Commenting on the situation, Executive Director of the Agriculture Transportation Coalition Peter Friedmann said that shipments arriving to “closed terminals will create massive disruption, as storage must be found, rental paid for the chassis, trucks, and then additional trucking hired to get the containers back to the terminals when they reopen.” Friedman continued, “US agriculture’s largest international markets are in the Asia Pacific: Korea, Japan, China, Vietnam,” Friedmann said. “The most direct and fastest route from U.S. agriculture origins is by truck or rail to the West Coast gateways, then straight across the Pacific to those customers. U.S. ag faces extremely competitive global sourcing competition so must be faster and less expensive to keep our markets,”?Friedmann said according to Agri-Pulse.

TRADE POLICY

AMBASSADOR TAI CRITICIZES TRADITIONAL U.S. TRADE POLICY

• In a?speech ?at American University Washington College of Law, Ambassador Katherine Tai was critical of “traditional” U.S. trade policy. She argued that while the traditional approach of liberalization and tariff reductions has led to economic growth and prosperity for some, it has also contributed to rising inequality. Additionally, Ambassador Tai discussed the role traditional trade policies played in the loss of U.S. manufacturing jobs and the dominance of China in certain industries.
• “Prosperity without inclusiveness contributed to rising inequality and wealth concentration,” Tai said. “Trade also played a role in shipping jobs overseas, which decimated manufacturing communities. And our supply chains became more dispersed and fragile,” she added.
• Tai emphasized, “Whether you have a college degree or not, whether you have five employees or 500, whether you are a small dairy farmer in Wisconsin or a steelworker in Pennsylvania — trade should work for more Americans and help build the economy from the bottom up and the middle out. “This is our worker-centered approach to trade, and it is at the heart of everything we are doing.”
• Ambassador Tai went on to outline the Biden Administration’s approach to trade: “We are investing in American communities. We are writing a new story on trade, one that makes us more resilient, our economy more sustainable, and our results more inclusive.”
• Ambassador Tai emphasized that despite taking a different approach, the Biden Administration has successfully secured increased market access. She cited increased market access for U.S. rice, wheat, corn, shellfish, and beef exports to the EU; beef and ethanol to Japan; pork and pecans to India; and potatoes to Mexico.
• Ambassador Tai highlighted the Biden Administration’s efforts on IPEF: “Trade should work for the common good and help set responsible standards on labor, the environment, and other priorities that reflect American values. It should also promote fair and healthy cooperation that lifts up workers and communities, and that is the focus for IPEF.”
• Ambassador Tai also emphasized the importance of enforcing obligations under existing trade agreements, with particular attention devoted to USMCA. She mentioned efforts to enforce Mexican labor standards, dairy access in Canada, as well as concerns with Mexico’s energy sector and agricultural biotechnology policies.

WTO

U.S. AND FIVE OTHER COUNTRIES CHALLENGE INDIA’S RICE AND WHEAT SUBSIDIES

• Last week, the U.S., Australia, Canada, Paraguay, Thailand and Ukraine submitted a “counter-notification ” at the WTO contending that India significantly under-reported the value of its market price support (MPS) for rice and wheat producers. “It appears that India provides market price support for rice and wheat vastly in excess of what it has reported to the WTO,” the countries said in a?communication ?to the WTO Committee on Agriculture. “India’s apparent MPS for rice appears to have been over 78 percent of the value of production in each of the last seven years for which India has notified data,” the countries wrote.
• According to WTO Commitments, India may provide subsidies equal to no more than 10 percent of the total value of crop production. In 2022, India reported dispensing $7.55 billion in support to rice farmers last year, a figure equivalent to 15.2% of its overall value of production. However, the six countries in the counter-notification contend that India has subsidized a much larger portion of the value of production for rice and wheat. Between the 2014/15 and 2020/21 marketing years, the market price support as an estimated percentage of the value of production for rice has ranged from almost 79% to almost 94%, and the MPS for wheat has ranged from 65% to over 83%, according to the counter notification.

U.S. WILL SIGN WTO FISHERIES AGREEMENT

• The U.S. is expected to formally sign and support the WTO’s?Agreement ?on Fisheries Subsidies on Tuesday, April 11, according to a USTR notification. The agreement was concluded at last year’s 12th?Ministerial after nearly 20 years of negotiations. The official acceptance will be signed by Ambassador Katherine Tai and?presented ?to WTO Director-General Ngozi Okonjo Iweala, during her visit to Washington, DC this week for World Bank and International Monetary Fund meetings. Switzerland, followed by Singapore were the first WTO member countries to formally sign the agreement earlier this year.

AG ECONOMY BAROMETER

THE AG ECONOMY BAROMETER RETREATS AGAIN IN MARCH

• The March Ag Economy Barometer slid 8 points to a reading of 117, declining for the second consecutive month, according to Purdue University and the CME Group. The weakening of farmer sentiment in March was largely driven by weakening commodity prices (e.g., wheat, soybeans, and corn), entrenched concerns with rising input costs and rising or high interest rates. March’s sentiment level parallels the index level in early 2022, which hovered around 113-125 points.
• Higher input costs remain the leading concern going forward according to 34% of respondents, which has declined since peaking at 53% of respondents in mid-2022 yet remains the leading concern in 2023.
• Turmoil in the U.S. banking sector with several highly publicized regional bank failures (e.g., Silicon Valley Bank) in mid-March and signals that the Federal Reserve would continuing to raise interest rates, weighed heavily on farmers’ financial concerns. Fully one-quarter of survey respondents in March listed rising interest rates as a top concern, compared with 14% in mid-2022.