TRADE UPDATE: Food & Agriculture February 7, 2023

HIGHLIGHTS?????????????????

• USMCA: The Biden Administration lodged a second USMCA dispute panel request regarding U.S. complaints that Canada is unfairly manipulating dairy quotas in violation of USMCA and impeding U.S. access to key parts of the Canadian market. Despite a favorable ruling in an earlier USMCA dispute panel, the U.S. contends that Canada has not sufficiently modified its application of the dairy TRQs to bring the country into full compliance with its commitments under USMCA.
• USMCA: During the Senate Agriculture Committee hearing on the 2023 Farm Bill, several members of the committee urged the Biden Administration to initiate a USMCA dispute settlement panel in response to Mexico’s proposed GM corn ban, expressing frustration with progress on resolving the matter.
• U.S. - China: Secretary Blinken canceled a long-awaited meeting with China to discuss the country’s unfair trade practices as tensions escalated last week with the discovery of China’s military surveillance balloon in U.S. airspace. Prior to the meeting cancellation, a bipartisan group of Senators in a letter to Secretary Blinken and Secretary of the Treasury Janet Yellen, called on the Biden Administration to hold China accountable for its unfair trade practices and human rights abuses.
• WTO: Switzerland became the first WTO member country to formally submit its acceptance of the WTO’s new Agreement on Fisheries Subsidies, setting a pathway for the agreement to enter force once two-thirds of WTO members officially confirm their support. WTO Director-General Okonjo-Iweala lauded the development stating, “Switzerland's action will create real momentum for more WTO members to formally accept the Agreement.”
• U.S. - Japan: Last week, the U.S. and Japan completed the third round of trade discussions under the bilateral Partnership on Trade. According to a USTR readout, during the talks the two countries discussed specific initiatives and efforts, including, labor, the digital economy, trade collaboration, and concerns with non-market and trade-distorting practices of third countries.

USMCA

Senate Ag Committee Members express frustration with lack of resolution to Mexico’s GM corn ban

Several members of the Senate Agriculture Committee urged the Biden Administration to initiate a USMCA dispute settlement panel in response to Mexico’s proposed GM corn ban. The comments were expressed during last week’s committee’s hearing: Farm Bill 2023: Trade And Horticulture. USDA Undersecretary of Trade and Foreign Agricultural Affairs Alexis Taylor acknowledged the importance of this issue and assured members that the Biden Administration continues to actively and productively engage with Mexico to work towards a resolution. Taylor stressed that Mexico’s proposed corn ban departs from science-based trade policy, the foundation of the international trading system. While Taylor did not provide a timeline for resolving the dispute, she reiterated that the U.S. reserves the right to resort to formal trade dispute settlement under USMCA.

• Earlier Under Secretary Taylor and USTR Chief Agricultural Negotiator, Doug McKalip traveled to Mexico to respond to Mexico’s proposed revision to the decree to ban GM corn imports and other products. In a joint statement by USTR and USDA, Under Secretary Taylor and Ambassador McKalip acknowledged Mexico’s efforts to address U.S. concerns, yet said, the “changes are not sufficient and Mexico’s proposed approach, which is not grounded in science, still threatens to disrupt billions of dollars in bilateral agricultural trade, cause serious economic harm to U.S. farmers and Mexican livestock producers, and stifle important innovations needed to help producers respond to pressing climate and food security challenges.”

USTR initiates second dispute panel on Canada’s dairy TRQs

U.S. is calling for a second dispute panel under the U.S.-Mexico-Canada Agreement (USMCA) to adjudicate again on U.S. complaints that Canada is unfairly manipulating dairy quotas in violation of USMCA, impeding U.S. access to key parts of the Canadian market. “Although the United States won a previous USMCA dispute on Canada’s dairy TRQ allocation policies, the Canadian government’s revised measures have not fixed the problem,”?Ambassador Katherine Tai said in a statement. “With this panel request, we are utilizing our available tools to enforce our trade agreements and ensure that U.S. workers, farmers, processors, and exporters receive the full benefits of the USMCA. Canada made commitments to the United States in the USMCA, and the Biden-Harris Administration is ensuring that they honor those commitments,” Tai said.

• USDA Secretary Tom Vilsack, commenting on the U.S. panel request said, “Canada is a valued and important trading partner, but they continue to fall short of their USMCA obligations by denying U.S. dairy producers and exporters fair access to the Canadian market.” Vilsack continued, “This panel request is necessary to ensure Canada honors their commitments as they relate to dairy, and so American producers have greater export opportunities as intended."

Despite winning an early USMCA dispute panel ruling on the matter, the Biden Administration contends that Canada did not sufficiently modify its application of the dairy TRQs to bring the country into full compliance with its commitments under USMCA.

U.S. dairy stakeholders laud USTR’s decision

Several dairy groups and lawmakers voiced strong support for the Biden Administration’s action requesting a second USMCA dispute panel regarding Canada’s dairy policies. House Agriculture Committee Republicans tweeted, “Pleased to see @AmbassadorTai take action to ensure U.S. dairy producers have free and fair market access under the #USMCA. Canada must be held accountable if they continue to blatantly violate the tariff-rate quota provisions outlined in the agreement.” In parallel, House Agriculture Committee Democrats tweeted, “We support this request for a second panel to address Canada’s unfair dairy trade practices. USMCA was established to ensure fair trade, and Canada is not upholding their end of the bargain. This reluctance to come into compliance is hurting US dairy farmers. Thank you to Ambassador Tai for her continued commitment to guaranteeing that American farmers have access to foreign markets and our trading partners are operating in good faith.”

• We are “very grateful to (U.S. Trade Representative Katherine) Tai … for moving forward with this enforcement action against Canada, the resolution of which is a critically important matter for U.S. dairy producers and processors, said Michael Dykes, President and CEO of the International Dairy Foods Association.”
• “Canada’s TRQ allocation system is not only a violation of USMCA — it directly harms American dairy farmers, processors, and other workers by unfairly restricting access to their market,” said Jim Mulhern, President and CEO of the National Milk Producers Association.
• “The U.S. dairy community greatly appreciates the Biden Administration’s decision to prioritize steps to address Canada’s USMCA violations,” said Krysta Harden, President and CEO of the U.S. Dairy Export Council. “Unfortunately, Canada has shown a pattern of not living up to the dairy commitments it has made in trade agreements. As long as they continue to drag their feet, we’ll continue to work with USTR and USDA to fight back, and propose retaliatory action if necessary.”
• “Additional market access into Canada is an important part of USMCA. International trade is key to economic growth and stability for dairy farmers and processors. Edge and our farmers appreciate USTR’s commitment to holding Canada to the agreement and giving the U.S. dairy community greater export opportunities as intended,” said Brody Stapel, President of the Edge Dairy Farmer Cooperative.

U.S. lodges second USMCA Labor Dispute on Mexican manufacturer

Last week Ambassador Katherine Tai announced the Administration is requesting Mexico investigate alleged violation of workers’ rights, including denial of the right of free association and collective bargaining, at the VU facility in Piedras Negras. “A core tenet of the Biden Administration’s worker-centered trade policy is ensuring workers’ right to organize and collectively bargain without fear of retribution or intimidation,” Tai noted in a USTR press release. “Despite this facility taking positive actions in 2022, some of the failures we identified previously appear to be recurring.” Last September USTR announced the successful resolution of the first petition, but two Mexican labor unions allege workers’ rights are being denied again.

In the USTR press release, U.S. Secretary of Labor Marty Walsh said, “This is the second time in less than a year we’ve received allegations of workers’ rights violations by VU Manufacturing. The Biden Administration is unrelenting in its efforts to champion workers’ rights to organize and bargain collectively, here and abroad.” “The Rapid Response Mechanism addresses real workplace issues and helps to get the parties to do what they should, which is to resolve issues in good faith at the bargaining table.”

• Last month two Mexican labor organizations, La Liga Sindical Obrera Mexicana and Comité Fronterizo de Obreras filed a petition under USMCA’s the rapid response mechanism alleging that workers at the VU automotive components facility in Piedras Negras are being denied the right of free association and collective bargaining.
• Under USMCA provisions, Mexico has 10 days to agree to conduct a review and 45 days to complete the review. In addition, as directed by USTR, the Treasury Department will suspend the final settlement of customs accounts related to entries of goods from the VU facility.?

U.S. – Indo-Pacific

Biden Administration plans IPEF conclusion in 2023

No significant updates on IPEF since a State Department official confirmed the Biden Administration plans to conclude IPEF this year, along with the Americas Partnership for Economic Prosperity (APEP), though the former is much further behind schedule. Secretary Fernandez will reportedly play a large role in APEP negotiations, while the Commerce Department and Office of USTR are leading IPEF work.

As noted earlier, the first IPEF round was held in Australia last December. India will host a special round of IPEF talks, Feb. 8-11, according to a press release from the U.S. Department of Commerce. The meetings will focus on three of the four pillars: Pillar II (Supply Chains), Pillar III (Clean Energy), and Pillar IV (Anti-Corruption and Tax). India opted out of Pillar I (Trade). The Department of Commerce last week released additional details on activities surrounding the talks.

• In preparation for the round in New Delhi, the Commerce Department is holding a virtual stakeholder listening session on February 1. India will be holding stakeholder sessions during the special round in New Delhi. Commerce’s virtual session is on February 1. The registration deadline for participation in the session is January 31. Registration must be sent to [email protected] with the subject line “Department of Commerce IPEF Listening Session.”
• The Indian government plans to hold a stakeholder listening session on February 9, followed by a stakeholder reception Interested participants also should email [email protected] to receive the registration information package.

Last May the U.S. launched Indo-Pacific Economic Framework with Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. The Commerce Department noted 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.”

• “The IPEF features four pillars: (I)?Trade; (II)?Supply Chains; (III)?Clean Economy; and (IV)?Fair Economy. On September 9, 2022, the United States and IPEF partners issued ministerial statements outlining the scope of future negotiations for the Pillars of the IPEF.”

Section 301

USTR Extends 301 Tariff Exemptions

Last week, The Office of the U.S. Trade Representative (USTR) announced the extension of existing exclusions from Section 301 tariffs on 81 medical care products from China. The tariff exclusion on the COVID-related products from China was otherwise set to expire on February 28 and now extended through May 15. The extension affords USTR additional time (75 days) to collect public comments in the agency’s assessment to potentially grant a 6-month extension on the tariff exclusions beyond the May 15 date. The deadline for submitting public comments to USTR is March 7.

Trade Policy

Updated Congressional trade committee rosters

Last week, the House Ways and Means Committee rounded out its subcommittee leaders and membership. Congressman Adrian Smith (R-NE) will remain as trade subcommittee lead for Republicans, while Congressman Earl Blumenauer (D-OR) continue as lead for the Democrats.

• In a statement, Trade Subcommittee Chair Adrian Smith (R-IN) highlighted reauthorization of Miscellaneous Tariff Bills (MTB) and General System of Preferences (GSP) legislation as an immediate priority. The full subcommittee rosters are available for the majority and the minority membership.

Senate Finance Committee Ranking Member Mike Crapo (R-ID) announced Senators Marsha Blackburn (R-TN), Ron Johnson (R-WI), and Thom Tillis (R-NC) will join the Republican roster of the committee. The Democratic membership will remain the same as in the 117th Congress. The leadership of the panel also remains the same, with Senator Ron Wyden (D-OR) serving as Chair alongside Ranking Member Crapo.

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CRS report – 2023 Congressional trade policy considerations

Last week the Congressional Research Service (CRS) released a summary review of U.S. trade policy in 2023.The report covers multiple issues in 2023 including, new trade agreements, U.S.-China trade, Trade Promotion Authority, and overall U.S. trade flows. CRS listed potential legislative activity in the 118th Congress that Members may engage on include:

• Congress’ role in trade policy vis-à-vis the executive, including on issues such as tariffs and trade agreements;
• U.S. trade policy’s historic focus on liberalizing markets to promote economic prosperity, and how best to shape trade policy to realize congressional priorities;
• U.S. leadership in global trade, including in the WTO, and in cooperation with others;
• U.S. trade relations with major economies, and options to address concerns such as statist and unfair practices;
• Trade issues regarding technology and innovation, labor, energy, the environment, supply chain resiliency and diversification, and economic development;
• Enforcement of FTAs (e.g., USMCA); prospects for new agreements; alignment of executive trade initiatives with congressional aims; and
• The effectiveness of the current U.S. trade and investment policy toolkit in protecting the U.S. economy from unfair practices and preserving national security.

U.S. - China

Senators urge Biden Administration officials to hold China accountable

In a letter to U.S. Secretary of State Antony Blinken and Secretary of the Treasury Janet Yellen, 14 senators urged the Biden Administration to hold China accountable for its unfair trade practices and human rights abuses. In the letter the Senators wrote that China “has a long history of unfair trade practices and industrial espionage, which has caused immense harm to American workers and our economy. Over the last several decades, the PRC has engaged in a methodical campaign to steal American intellectual property and research, often redirecting the acquired technologies to military ends.” The bipartisan group of Senators applauded USTR’s use of section 301 tariffs on certain products made in the PRC to counter China’s “unreasonable” and “discriminatory” non-market practices, but said much more needs to be done.

• The letter comes in advance of Blinken’s and Yellen’s upcoming visits to the People’s Republic of China (PRC). Their major concerns include unfair trade practices, human rights violations, and increasing aggression in the Indo-Pacific region. However, last Friday, Secretary Blinken announced cancelation of the highly-anticipated trip to China following the discovery of a Chinese surveillance balloon in U.S. airspace, that was subsequently shot down by the U.S. military. “The PRC’s decision to take this action on the eve of my planned visit is detrimental to the substantive discussions that we were prepared to have,” Blinken said, noting the Biden Administration is still open to engagement with China when the time is right.

U.S. - Japan

U.S. and Japan conclude 3rd round Partnership on Trade talks

Last Friday, the U.S. and Japan completed the third round of trade discussion under the bilateral Partnership on Trade. According to a USTR readout, during the talks the two countries discussed specific initiatives and efforts, including:

• Labor?–?Engaged in planning for the?agenda and timing of the first meeting of the Task Force on?the Promotion of Human Rights and International Labor Standards in Supply Chains, and other issues related to forced labor.
• Digital Economy?– Discussed continuing to coordinate efforts to respond to several third-country regulations that present concerns in light of our shared commitments to harnessing the opportunities of the digital economy in a way that supports the interests of users and providers.
• Deepening Collaboration– Shared?proposals on potential new?approaches?in several areas of trade-related collaboration.
• Third-Country Issues?– Exchanged information on shared concerns about the non-market and trade-distorting practices of third countries and discussed concrete follow-up activities.?

Other?bilateral trade issues discussed included “regulatory transparency, ensuring a level playing field for certain products and services, increasing Japan’s use of ethanol, and issues related to the Inflation Reduction Act,” USTR reported.

The Partnership on Trade aims to “strengthen the United States-Japan trade relationship by advancing bilateral collaboration on trade-related topics and issues of common interest, as well as to securing regular, ongoing engagement to address bilateral trade issues.” The initiative was?launched?in November 2021.

U.S. - India

India slashes tariffs on pecan imports from the U.S.

On February 1st, India released its proposed annual budget, which showed it would cut tariffs on pecans by 70 percent, dropping the tariff from 100 percent to 30 percent. In a statement, Senator Jon Ossoff (D-GA) explained the significance of this change: “India’s high pecan tariffs have prevented Georgia pecan exports to this market of more than one billion consumers. Today I can announce that after a year of painstaking diplomacy, the Indian government will cut that tariff by 70%.” Ossoff worked with both U.S. trade negotiators and Indian government officials to secure improved market access for pecans. This change is particularly important for Georgia, as Georgia produces roughly one-third of American pecans.

U.S. - Kenya

U.S. and Kenya launch conceptual trade discussions

This week, U.S. and Kenyan officials meet for conceptual discussions under the Strategic Trade and Investment Partnership (STIP) in-person. During the meetings in Washington, DC (Feb. 6-10), officials will launch negotiations on “high-standard commitments in order to achieve meaningful outcomes,” according to a USTR press release. The U.S. delegation will be led by Assistant USTR Connie Hamilton and will include representatives from several other government agencies. Potential focus areas of discussion may include: (1) agriculture, (2) anti-corruption, (3) digital trade, (4) environment and climate action, (5) good regulatory practices, (6) micro, small, and medium size enterprises, (7) protecting worker’s rights and protections, (8) supporting the participation of women, youth, and others in trade, (9) standards collaboration, (10) trade facilitation and customs procedures, and (11) services domestic regulation, topics that were outlined for public comment in an August 5, 2022 Federal Register notice by the Office of USTR.

• Last July, USTR Katherine Tai and then-Kenyan Cabinet Secretary Betty Maina?launched the U.S.-Kenya STIP?on committing to pursuit of enhanced engagement leading to high standard commitments in a wide range of areas. The goal of STIP is to “increase investment; promote sustainable and inclusive economic growth; benefit workers, consumers, and businesses (including micro-, small-, and medium-sized enterprises); and support African regional economic integration.”?
• Separately, the International Trade Administration has scheduled an “executive-led business development trade mission to Kenya” at the end of March. The trade mission is scheduled in conjunction with the annual U.S.-East Africa Trade and Investment Forum’s AmCham Business Summit in Nairobi (March 29-30).

Trade & Economic Trends

Global economic growth to slow in 2023

The International Monetary Fund (IMF) estimates that global growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. The IMF’s January 2023 World Economic Outlook Update reported the 2023 forecast is ”0.2 percentage point higher than predicted in the October 2022 World Economic Outlook but below the historical average of 3.8 percent.”

Factors contributing to slowing global economic activity include, rising interest rates and the war in Ukraine which continues to weigh on economic activity, and China’s recent reopening suggesting a faster-than-expected recovery. The report noted that “global inflation is expected to fall to 6.6 percent in 2023 and 4.3 percent in 2024, still above pre-pandemic levels.”

• U.S. economic growth is projected to slow to 1.4% in 2023 and 1.0% in 2024, compared to 1.2% (2023) and 1.4% (2023) for all advanced economies.

Food Security

Global food prices continue declining in January

• The?Food and Agriculture Organization’s (FAO) Food Price Index averaged 131.2 points in January, falling a modest 1.1 points or 0.8 percent compared to December. January’s price index decline marks the 10th consecutive month of receding prices and has declined 28.6 percentage points (17.9 percent) since the peak level in March 2022. Decreases in the price indices for vegetable oils, dairy and sugar lead the price decline, according to FAO. Other highlights from the report include:
• The?Vegetable Oil Price Index?“averaged 140.4 points in January, down 4.2 points (2.9 percent) month-on-month and standing nearly 25 percent below its level a year ago. The decrease reflected lower world prices of palm, soy, sunflower seed and rapeseed oils. In January, international palm oil prices dropped for the second consecutive month, largely weighed by subdued global import demand, as major importers replenished their stocks during the past few months.”?
• The?Cereal Price Index?“averaged 147.4 points in January, up fractionally (0.1 percent) from December and 6.7 points (4.8 percent) above its level one year ago. Among the major cereals, world prices of rice and maize rose, while those of barley and wheat fell in January. International rice prices increased by 6.2 percent month-on-month, influenced by tighter availabilities, a strong local demand in some Asian exporting countries and exchange rate movements.”
• The Dairy Price Index?“averaged 136.2 points in January, down 2.0 points (1.4 percent) from December, hitting its lowest level in 12 months. The decline in January reflected lower international prices of butter and milk powders. World butter prices fell for the seventh consecutive month, underpinned by subdued import demand for long-term supplies at prevailing prices, stemming from market expectations for prices to fall further and increased supplies from Oceania.”
• The?FAO Sugar Price Index?“averaged 115.8 points in January, down 1.3 points (1.1 percent) from December, marking the first decline after sharp increases registered in the previous two months. The January decline in international sugar price quotations was mainly triggered by the good harvest progress in Thailand and favorable weather conditions benefiting sugarcane crop development in key growing areas of Brazil.”

WTO

Switzerland first to accept new Agreement on Fisheries Subsidies

Last month, Switzerland formally submitted its acceptance of the WTO’s new Agreement on Fisheries Subsidies, setting a pathway for the agreement to enter force once two-thirds of WTO members officially confirm their support. WTO Director-General Okonjo-Iweala lauded the development stating, “I am very grateful to Switzerland for its leadership in being the first WTO member to submit its instrument of acceptance of the historic new Agreement on Fisheries Subsidies. Switzerland's action will create real momentum for more WTO members to formally accept the Agreement. Given that the landmark agreement was adopted during the 12th Ministerial Conference in 2022 held in Geneva, the location of the WTO, Switzerland is a fitting pioneer in the acceptance process, allowing the WTO to finally deliver our contribution to safeguarding global fish stocks and the livelihood and food security of millions of people worldwide.”

• Swiss Minister Guy Parmelin, Head of the Federal Department of Economic Affairs, Education and Research, who led the formal WTO submission said, “Switzerland is the first WTO member to ratify the Agreement on Fisheries Subsidies. The prohibition of harmful marine capture subsidies is a major contribution of the multilateral trading system towards achieving the UN's sustainable development goals.”
• The agreement resulted from negotiations during the WTO's 12th Ministerial Conference (MC12) held in Geneva on 12-17?June 2022. According to the WTO, “the Agreement on Fisheries Subsidies sets new binding, multilateral rules to curb harmful subsidies, which are a key factor in the widespread depletion of the world's fish stocks. In addition, the Agreement recognizes the needs of developing and least-developed countries (LDCs) and establishes a Fund to provide technical assistance and capacity building to help them implement the Agreement.”

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China blasts U.S. appeal of WTO ruling on national security defense

In response to the U.S. appeal on the WTO’s ruling that U.S. section 232 tariffs violated WTO commitments, China charged the U.S. was destroying the multi-lateral trading system and placing itself outside the bounds of the WTO. “The U.S. seems to indicate that it will refuse to comply with the result of any proceedings in which it has invoked a security exception,” China charged in a recent Dispute Settlement Body meeting according to reports. “These troubling behaviors of the U.S. have clearly depicted an image of the U.S. as a unilateral bully, a rule breaker, and a supply chain disruptor,” China added.

The U.S. recently appealed the WTO’s dispute panel ruling regarding the use of the national security provisions of section 232 to impose steel and aluminum tariffs. In lodging the appeal, the U.S. noted, “adjudicating questions of national security in the WTO is not only incompatible with the purpose of the WTO, a trade organization, but will not advance WTO members’ shared interests in the WTO as a forum for discussion and negotiation.” With a non-operational WTO dispute settlement appellate body, the appeal is suspended indefinitely or what experts characterize as “appealing into the void.”

• As a reminder, the WTO recently rejected the U.S.’s claims to national defense in navigating its trade agenda, stating that the United States had breached international trade rules when employing additional steel import tariffs under then President Trump, utilizing section 232 tariff authority and on the bases that surging steel imports were a threat to national security. The WTO panel ruled that the U.S. had not shown such imports were threatening national security.
• Following the WTO ruling, U.S. Trade Representative Katherine Tai noted that the WTO was on “very, very thin ice” with the U.S. Along this line, USTR spokesperson Adam Hodge declared that “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement, and the WTO has no authority to second-guess the ability of a WTO Member to respond to what it considers a threat to its security.”