TRADE UPDATE: Food & Agriculture | August 29, 2023

HIGHLIGHT

• USMCA: USTR initiated the first ever USMCA Rapid Response Labor Mechanism (RRM) panel request regarding the denial of labor rights at a Mexican mining facility in San Martin, elevating an ongoing labor dispute. The announcement follows a USTR request sent to Mexico on June 16, 2023, asking Mexico to review whether workers at the mine operated by Grupo Mexico, producing lead, zinc, and copper in the state of Zacatecas.
• USMCA: The Canadian government announced its participation as a “third party” in the USMCA panel requested by the U.S. concerning Mexico’s biotech measures banning the use of GM corn. Canada cited shared concerns related to Mexico’s non-compliance with USMCA’s Sanitary and Phytosanitary (SPS) provisions.
• WTO: ?Hong Kong formally deposited its instrument of acceptance for the Agreement on Fisheries Subsidies, becoming the 16th WTO member to officially join the agreement. With Hong Kong’s acceptance, the WTO has received nearly 40% of the acceptances needed for the Agreement to enter into force.
• WTO: USTR Ambassador Katherine Tai called for a “fundamental rethink” of WTO reform and affirmed U.S. support for reform across its negotiating and enforcement functions to promote sustainable trade and economic prosperity.
• Trade Policy: A coalition of U.S. food and agriculture groups are asking all 2024 presidential candidates to prioritize new market access trade agreements and reduced reliance on China in their policy platforms. The groups further request that U.S. trade policy balance the need to hold China accountable to its international trade commitments while not adversely impacting U.S. food and agriculture’s largest export market or threatening the domestic producers with new retaliatory tariffs.
• Trade Trends: The WTO’s Goods Trade Barometer indicated signs of a turnaround in the second quarter of 2023, but trade flow increases in Q3 face challenging economic headwinds, including sluggish economic growth in leading economies such as the EU and China.
• BRICS: Leaders of the BRICS countries (Brazil, Russia, India, China, and South Africa), an informal block of emerging economies, extended invitations to Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates to join BRICS. South African President Cyril Ramaphosa made the announcement at the 15th annual BRICS summit in Johannesburg, South Africa.
• Food Security: Ukraine’s exports of grains and other crops dropped significantly in the absence of the Black Sea grain deal that expired last month which renewed global food security concerns. Ukraine exported 3.2 million tons of grains, vegetable oils, and meals in the four weeks through Aug. 15, down from 4.4 and 4.8 million tons in May and June, according to estimates from analyst UkrAgroConsult.

“It is profoundly important that we have a stable economic relationship, which is to the benefit of both our countries and in fact what the world expects of us. We will of course disagree on certain issues, but I believe we can make progress if we are direct, open and practical.” – Commerce Secretary Gina Raimondo, remarks made during visit to Beijing, China

USMCA

Canada joins USMCA dispute panel request on Mexico GM corn restrictions

The Canadian government announced its participation as a “third party” in the USMCA panel requested by the U.S. concerning Mexico’s biotech measures banning use of GM corn for human consumption. “Canada will participate as a third party in the dispute settlement proceedings initiated by the United States under the Canada-United States-Mexico Agreement (CUSMA) regarding the use of genetically engineered corn in tortillas and dough” said Mary Ng, Minister of Export Promotion, International Trade and Economic Development, and Lawrence MacAulay, Minister of Agriculture and Agri-Food in a joint statement.

“Canada shares the concerns of the United States that Mexico is not compliant with the science and risk analysis obligations under CUSMA’s Sanitary and Phytosanitary Measures Chapter. Canada believes that the measures taken by Mexico are not scientifically supported and have the potential to unnecessarily disrupt trade in the North American market. Canada will continue to ensure stability and resilience for Canadian farmers and the agricultural sector for years to come,” the statement continued.

• Recall the Biden Administration requested a USMCA dispute settlement proceeding regarding Mexico’s biotech policies related to genetically modified (GM) corn, having failed to reach an agreement during USMCA technical consultations. “The United States is challenging measures set out in Mexico’s February 13, 2023, decree, specifically the ban on use of biotech corn in tortillas or dough, and the instruction to Mexican government agencies to gradually substitute—i.e., ban—the use of biotech corn in all products for human consumption and for animal feed. Mexico’s measures are not based on science and undermine the market access it agreed to provide in the USMCA,” according to a statement by the Office of the U.S. Trade Representative (USTR). Throughout the request for USMCA technical consultations and the current formal dispute panel, the U.S. maintained that Mexico’s decree, re-issued last February, prohibiting the use of GM corn for human consumption is not based on science and violates USMCA commitments.
• The U.S. process for a USMCA dispute settlement panel to hear the trade partners’ respective arguments and render a decision will likely carry well into 2024, according to trade experts and stakeholders. Should the panel rule in favor of the U.S., Mexico would be directed to revise its disputed biotech policies, or the U.S. would be authorized to impose retaliatory measures such as increased tariffs on imports from Mexico.

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U.S. request first ever RRM panel

The Biden Administration triggered the first ever USMCA Rapid Response Labor Mechanism (RRM) panel request regarding denial of labor rights at a Mexican mining facility in San Martin elevating an ongoing labor dispute at the mine operated by Grupo Mexico. The lead, zinc, and copper mine is located in the state of Zacatecas. Last week’s announcement follows a USTR request ? sent to Mexico on June 16, 2023, asking Mexico to review whether workers at the San Martin mine were being denied the rights to freedom of association and collective bargaining. Mexico obliged the U.S. request, conducting a review in accordance with the USMCA’s 45-day timeline and RRM provisions, ultimately finding no denial of rights.

• USTR Ambassador Katherine Tai lauded the Administration’s commitment to USMCA enforcement stating, “This announcement upholds the Biden-Harris Administration’s commitment to creating a more level playing field for workers to feel empowered and using every enforcement tool at our disposal to safeguard workers’ rights. The RRM has proved to be a critical instrument for defending the free exercise of freedom of association and collective bargaining rights. While we are always open to collaborating with Mexico to find a resolution, our priority is delivering meaningful outcomes for workers.”
• U.S. Labor Department Deputy Undersecretary for International Labor Affairs Thea Lee added, “Today’s action reflects our commitment to seek remedies for workers using all the tools the U.S.-Mexico-Canada Agreement provides... We look forward to working closely with the Mexican government to resolve this complex matter and to reinforce our shared interest in protecting workers’ rights, such as freedom of association and the right to strike.”

BRICS

BRICS expansion contemplated

Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates were extended invitations to join BRICS (Brazil, Russia, India, China, and South Africa), an informal block of emerging economies, said South African President Cyril Ramaphosa at the 15th annual BRICS summit in Johannesburg, South Africa. “We value the interest of other countries in building a partnership with BRICS,” Ramaphosa said. “We have tasked our foreign ministers to further develop the BRICS partner country model and a list of prospective partner countries and report by the next Summit,” Ramaphosa added.

The ambition to expand the 5-country group reflects increasing interest in countering other economic blocs, such as the G7 group, and other western-led arrangements. Talks of expansion also signal limited progress in deepening the existing BRICS alliance according to several outside observers. Since its creation in 2009, over 40 countries have applied to join BRICS. Yet, internal divisions have precluded formal expansion. Brazil and India historically held concerns that expansion would dilute the bloc’s influence while China and Russia viewed BRICS expansion as necessary to elevate the bloc’s influence on global economic, finance, and trade policies. The overt invitation to several new members, notably Saudi Arabia and Iran, suggests alignment of the founding countries on expansion and strengthening the representation of the Middle East and Africa in the bloc.

• Initiated by Russia in 2009, the informal coalition of emerging countries was created to establish a mechanism to counterbalance the global economic influence of the U.S. and other major western countries. Together, the BRICS nations encompass a population of 3.5 billion, accounting for a substantial segment of global emerging markets.

WTO

Hong Kong formally accepts Agreement on Fisheries Subsidies

Hong Kong formally deposited its instrument of acceptance for the Agreement on Fisheries Subsidies, becoming the 16th WTO member to officially join the agreement. Dr. Ngozi Okonjo-Iweala, WTO Director-General, received Hong Kongs instrument from Drew Lai, Acting Permanent Representative.

• “The conclusion of the Agreement on Fisheries Subsidies was a milestone achievement at MC12 as WTO members reinvigorated multilateralism and worked collaboratively to deliver on issues of global importance.nbsp; Now an international financial and trade centre, Hong Kong, China in fact developed from a small fishing village, so fisheries and fishery resources always hold a special place in our heart.nbsp; As a long-standing, staunch supporter of the multilateral trading system, we are pleased to deposit our Instrument of Acceptance today and join the global efforts to operationalise the Agreement, so that it can deliver global benefits for trade, development and the environment,” Lai said.
• Okonjo-Iweala said, “I warmly welcome Hong Kong, Chinas formal acceptance of the Agreement on Fisheries Subsidies. Hong Kong, China is a marine capture producer and a major trader and consumer of fish products. Like all members, it has an important interest in ensuring the sustainability of global fisheries and a healthy ocean ecology. Hong Kong, China thus has much to gain from the entry into force of this historic WTO agreement. I hope that Hong Kong, Chinas leadership in accepting the Agreement will encourage more WTO members, in Asia and around the globe, to follow suit quickly.”

With Hong Kong’s instrument of formal acceptance, the WTO has received nearly 40% of the acceptances needed for the Agreement to enter into force. Acceptances from two-thirds of WTO members are needed for the Agreement to come into effect.

Tai calls for “fundamental rethink" of WTO dispute system

USTR Ambassador Katherine Tai, speaking at the G20 meetings affirmed U.S. support for WTO reform across its negotiating and enforcement functions to promote sustainable trade and economic prosperity. “Our WTO reform agenda includes restoring efficacy to the negotiating arm; promoting transparency and inclusiveness; improving compliance with and enforcement of Members’ WTO commitments; equipping the Membership to address unfair practices and global market distortions, and putting the organization on the footing to promote trade policies that build resilience and address current global challenges,” Tai said in prepared remarks at the Trade and Investment Ministers' Meeting: Multilateral Trade for Global Growth & Prosperity .?

• Specifically, regarding dispute settlement reform, Tai urged a “fundamental rethink of the dispute settlement system, … to ensure that we end the practice of judicial rulemaking.” She emphasized the U.S. submitted over 30 ideas on dispute settlement reform, including on difficult issues such as appeal and review. She urged other WTO members with concerns to contribute additional ideas to find common ground on reform. “If you believe these ideas do not work for you, then please bring new ideas to the discussion. We are approaching these discussions with an open mind on how to address our and our collective concerns,” Tai said.
• Turning the upcoming 13th Ministerial (MC13), Tai urged WTO members to build on the successes of 2022 Ministerial including, “the second phase of the fisheries negotiations, the ongoing e-commerce work program and decision about the e-commerce moratorium, the SPS work program, food security, pandemic response, and WTO reform conversations.”

IPEF

U.S. drops anti-whaling provision in IPEF

The Biden administration has relented in pursuit of including anti-whaling language into the Indo-Pacific trade Economic Framework (IPEF) pact after fierce opposition from Japan according to Financial Times reporting . U.S. trade officials were pressing Japan to support anti-whaling language in the IPEF, Biden’s signature trade deal with 13 Indo-Pacific nations. Contention between the U.S. and Japan over the anti-whaling position threatened progress on IPEF, which the U.S. has targeted for completion of many aspects of IPEF’s four pillars by November. U.S. officials relinquished the anti-whaling provision ambition in preparation for President Biden's meetings and hosting Japanese prime minister Fumio Kishida and South Korean president Yoon Suk Yeol for a trilateral summit hosted at Camp David. Several State Department and White House officials opposed the USTR’s plan over concerns of jeopardizing the U.S.-Japan alliance and Japan’s support for IPEF, according to reports. USTR and Japanese officials did not comment on the matter.

• Recall USTR and the Commerce Department announced a fifth round of IPEF negotiations will take place Sept. 10-16 in Bangkok, Thailand. Leading the U.S. interagency delegation will be Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant USTR for Southeast Asia and the Pacific, and Sharon H. Yuan, U.S. Department of Commerce Counselor and Chief Negotiator for Pillars II-IV, according to a joint USTR and Department of Commerce statement .
• The IPEF negotiating countries, other than the U.S., include Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Notably, India opted out of negotiations on the Trade Pillar.

Trade Policy

Ag groups to Presidential candidates: ?prioritize new trade agreements

A coalition of U.S. food and agriculture groups are requesting 2024 presidential candidates to prioritize new market access trade agreements to ensure “U.S. farmers and ranchers can grow and export enough food, feed, fiber, and fuel to supply the global marketplace” and reduce reliance on China. In a letter to all presidential candidates, the groups further requested that U.S. trade policy balance the need to hold China accountable to its international trade commitments while not adversely impacting U.S. food and agriculture’s largest export market or threaten the domestic producers with new retaliatory tariffs.

Specifically, the letter signatories urged all presidential candidates to include the following in their policy platforms:

• Ensure U.S.-China relations are handled in a manner that holds China accountable yet maintains market access for U.S. agricultural goods.
• Work to diversify export markets for U.S. agriculture.

“Market diversification helps with risk mitigation for US farm goods,” the letter stated. “Opening new markets and growing existing markets for agriculture decreases a reliance upon the Chinese market. Further, international trade is an important diplomatic tool that builds our relationship and good standing with other countries, in turn lessening China’s global influence”, the groups wrote.

The groups further noted that new FTAs, modeled after USMCA, could “protect American workers and the environment, help contain China’s growing geopolitical influence, and open new export markets for our farmers by meaningfully reducing and eliminating tariffs and non-tariff trade barriers.”

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USTR invites comment on Notorious Markets

The Office of the U.S. Trade Representative announced the solicitation of public comments in conjunction with the agency’s 2023 Review of Notorious Markets for Counterfeiting and Piracy (Notorious Markets List). The list identifies examples of online and physical markets that reportedly engage in or facilitate substantial copyright piracy or trademark counterfeiting. The issue focus of this year’s Notorious Markets List will analyze the potential health and safety risks posed by counterfeit goods.

• The review is conducted under the Special 301 program and the authority of the USTR to address practices that have significant adverse impact on the value of U.S. innovation, the agency noted.
• Comments should identify online and physical markets, and “clearly identify the market and the reasons why the commenter believes that the market should be included in the Notorious Markets List.” Public comments will be accepted through the Federal Rulemaking Portal through October 6.

Partisan views on foreign trade widens

Views on the foreign trade as an “economic opportunity” among the two main political parties widened significantly over the past two decades, according to recent Gallup poll analysis. Nearly three-quarters of Democrats view foreign trade as an economic opportunity compared to nearly half of Republicans. Between 2003 and 2013, individuals identifying as Democrats or leaning Democrat increasingly view foreign trade as an economic opportunity, 75% in 20023, up from roughly 50% in 2003, compared to their Republican counterparts at 49% in 2023, creating a substantial partisan gap.

• Gallup noted the “current analysis examined attitudes measured in Gallup polls conducted at roughly 10-year intervals between 2003 and 2023. A prior Gallup analysis, looking at the trend in partisans’ stances on a smaller number of U.S. issues between 2000 and 2017, found many of the same patterns.”
• Other issues beyond foreign trade manifesting significantly increasing political polarization in the last two decades include, federal government power, global warming and the environment, education, abortion, immigration, gun laws, the government’s role in providing healthcare, and income tax fairness.

Food Security

Tai calls Russia to renew Black Sea grain deal

In remarks delivered at the G20 during the Trade and Investment Ministers' meeting, USTR Ambassador Katherine Tai called on Russia to reactivate the Black Sea grain deal, which provides free flow of grain shipments from several Ukraine ports amidst the military conflict in the region. Tai noted in the month since Russia’s withdrawal from the deal, food prices are rising and exacerbating concerns of food security. “The global food price index has seen a steady rise over the past month. Russia’s suspension of the Black Sea Grain Initiative now threatens the food security of the most vulnerable populations around the world. We call on Russia to reverse its decision, to resume negotiations, and to extend, expand, and fully implement the Initiative immediately for the benefit of the millions of people who depend on Ukrainian grain. Beyond this action, Russia must end its unjustified war of aggression against Ukraine and withdraw all of its forces from Ukraine,” Tai said.

• Recall that on July 17 the Black Sea grain deal, first brokered by Turkey and the UN in the wake of the Russian invasion, expired. Russia refused to renew the deal contending the arrangement is lopsided in favor of Ukrainian agricultural exports, citing Western sanctions as hindering Russia’s ability to export agricultural products. Ukraine had exported close to 33 million tons of grain and other foodstuffs since the deal was implemented, according to the UN.

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Ukraine crop exports fall in absence of Black Sea Grain deal

Ukraine’s water-borne exports of grains and other crops dropped significantly in the absence of trade flow protections accorded from the Black Sea grain deal that expired last month according to recent data. Ukraine was only able to export 3.2 million tons of grains, vegetable oils, and meals in the four weeks through August 15, down from 4.4 and 4.8 million tons in May and June—according to estimates from analyst UkrAgroConsult. The steep decline in exports has fueled heightened concerns for global food security and poses another challenge for Ukraine’s economy, despite the? €1-billion support by the EU to develop alternative transportation networks since the start of Russia’s invasion. The U.S. has also leaned in with EU countries to keep grain exports flowing, utilizing the Danube River and other alternative routes. The shift to river routes and other overland transportation routes has created new traffic congestion exacerbated the issue. Transit times have increased fourfold for certain cargoes utilizing the Danube River compared to a month ago to Ukrainian officials.

Trade Trends

Global trade flows improving slightly WTO reports

World merchandise trade “showed signs of a turnaround in the second quarter of 2023, driven by strong automobile production and sales, but further upward momentum in Q3 and beyond may be limited as long as export orders remain weak and may presage the beginnings of an upturn going forward,” according to the latest WTO Goods Trade Barometer . The WTO reported that the “current reading of 99.1 for the barometer index is up from the previous reading of 95.6 from last May and close to the baseline value of 100. This suggests that merchandise trade volume turned up in Q2 after two quarters of decline, but that it remains slightly below trend. Sustained recovery in Q3 and beyond is less than certain as long as the barometer's export orders component (based on purchasing managers' indices) remains weak.”

Other highlights from the latest goods barometer reading:

• “Global import demand remains weak, weighed down by sluggish economic growth in leading economies including the European Union and China. The current results are slightly weaker than WTO's most recent trade forecast issued on 5 April, which projected 1.7% growth in merchandise trade in 2023. However, the target is still attainable if trade growth picks up in the second half of the year as expected.”
• “Most of the barometer's component indices were slightly below trend in their latest readings. These include the export orders index (97.6), the container shipping index (99.5), the air freight index (97.5), and the raw materials index (99.2). The main exceptions were the automotive products index (110.8), which has climbed firmly above trend, and the electronic components index (91.5), which has fallen below trend.”
• “Surging exports of automotive products have contributed to stronger-than-expected GDP growth in Japan in the first half of 2023. Vehicle exports have also been a rare source of strength for the Chinese economy, which has struggled to gain momentum in recent months.”

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