TRADE UPDATE: Food & Agriculture | July 11, 2023

HIGHLIGHTS

• USMCA: Ambassador Katherine Tai discussed USMCA’s ongoing implementation issues with Mexican Economy Secretary Raquel Buenrostro and Canadian Minister of International Trade Mary Ng during last week’s USMCA Free Trade Commission meetings in Cancun, Mexico. Tai further raised concerns over a recent surge in steel and aluminum exports, while Buenrostro emphasized that use of the Rapid Response Mechanism should only be a last resort in addressing allegations of labor rights abuses.
• U.S.–China: Treasury Secretary Janet Yellen’s recent meetings with Chinese officials to ease bilateral economic tension were “direct, substantive and productive,” according to a U.S. Department of Treasury press release . Yellen’s two-day trip is the second by a Biden Administration official aimed at improving lines of communication and easing tensions between the U.S. and China.
• IPEF: Ahead of the fourth round of IPEF negotiations in Busan, South Korea this week, civil society groups requested more transparency in the IPEF process, specifically requesting “immediate release” of the Supply Chain Pillar text, according to Inside U.S. Trade.
• Ag Economy: The June Ag Economy Barometer improved 17 points to a reading of 121 after a sharp drop in May, according to Purdue University and the CME Group. The rebound in farmer sentiment in June was principally driven by enhanced optimism regarding future economic farm conditions, following sharp declines in commodity prices.
• Trade Policy: On July 10, the House Ways and Means Committee held a field hearing titled “Trade in America: Agriculture and Critical Supply Chains – Kimball, Minnesota.” The hearing took place at Schiefelbein Farms in Kimball, Minnesota, according to a House Committee advisory .
• Supply Chains: Russian officials said there is no decision yet on whether to support extension of the Black Sea grain deal set to expire on July 17. The UN has pledged to undertake every effort to secure continuation for the deal that permits Ukrainian grain to transit through the blockaded Black Sea to foreign markets.
• WTO: Last week Japan joined other leading marine fish catch producers in affirming support for the Agreement on Fisheries Subsidies. This puts the total number of WTO members accepting the agreement at over one-third of what is needed for it to become effective.

?“We know that a decoupling of the world’s two largest economies would be disastrous for both countries and destabilizing for the world. And it would be virtually impossible to undertake.” - Treasury Secretary Janet Yellen, statement following a visit to Beijing, China

USMCA

Tai discusses USMCA implementation with counterparts

During last week’s U.S.-Mexico-Canada Agreement (USMCA) Free Trade Commission meeting, Ambassador Katherine Tai discussed ongoing USMCA implementation issues with Mexican Economy Secretary Raquel Buenrostro and Canadian Minister of International Trade Mary Ng. The annual meeting held this year in Cancun, Mexico is required under the rules of the USMCA.

• In the meeting with Buenrostro, Tai “stressed the importance of Mexico fully meeting its USMCA commitments, including those related to certain of Mexico’s energy measures, enforcement of its fisheries-related environmental laws, and biotechnology measures. In addition, Tai raised concerns about regulatory uncertainty facing U.S. electronic payment services providers in Mexico and Mexico’s spectrum fee methodology,” according to a USTR readout . Additionally, Tai highlighted U.S. concerns with the recent surge in steel and aluminum products from Mexico. The two trade officials agreed to “intensify their engagement” on the issue ensuring adherence to the 2019 Joint Statement by the United States and Mexico on Section 232 Duties on Steel and Aluminum .
• Buenrostro emphasized the importance of a “reasonable and good faith” use of the USMCA’s Rapid Response Labor Mechanism contending the measure be a last-resort resource which does not supplant but reinforces national institutions. Buenrostro further emphasized labor dispute complaints should be fully substantiated and address action post-USMCA implementation.
• In a separate meeting with Ng, Tai emphasized “the need for Canada to fully meet its USMCA commitments, including on home shopping. In addition, she urged Canada to refrain from imposing a digital services tax while the OECD process continues this year," according to a USTR readout . The two trade officials “agreed to working together to address shared goals of combatting forced labor and strengthening North American supply chain security and competitiveness. They also acknowledged the importance of ongoing consultations under the USMCA on certain Mexican energy and biotech measures,” the readout noted.

The depth to which Tai directly addressed thorny issues surrounding formal USMCA disputes, including Mexico's biotech corn and energy policies, or Canadian dairy access, remains unclear. Several U.S. stakeholders raised expectations the meetings might directly address ongoing disputes regarding biotech, energy, and dairy TRQs. Prior to the meetings, a USTR spokesperson acknowledged the formal disputes were important issues and not disconnected from the Free Trade Commission meetings but highlighted that the actual USMCA consultation discussions were the primary venue for addressing the issues, according to Reuters.

U.S.–China

Yellen concludes “productive” talks in China, U.S. not decoupling

U.S. Treasury Secretary Janet Yellen returned from two-days of meetings with Chinese officials that she characterized as “direct, substantive and productive.” Yellen’s trip follows within a month of Secretary of State Anthony Blinken’s highly publicized visit with Chinese Premier Xi Jinping in efforts to ease tensions between the U.S. and China. “The U.S. and China have significant disagreements. Those disagreements need to be communicated clearly and directly. But President [Joe] Biden and I do not see the relationship between the U.S. and China through the frame of great power conflict,” Yellen said in a press conference . The talks come in the wake of China’s decision to put export controls on two key metals used in semiconductor production, gallium and germanium.

• Yellen emphasized that in her discussions with Chinese Premier Li Qiang, Vice Premier He Lifeng and other senior officials she “made clear that the United States is not seeking to decouple from China.” “There is an important distinction between decoupling, on the one hand, and on the other hand, diversifying critical supply chains or taking targeted national security actions,” she said.
• Other topics Yellen raised in the meetings included Russia’s invasion of Ukraine, human rights, healthy economic competition, and tackling climate change.
• Yellen stopped short of confirming the two countries would continue with recurring meetings, yet acknowledged the meetings were a “step forward.” “Even where we don’t see eye-to-eye, I believe there is clear value in the frank and in-depth discussions we had on the opportunities and challenges in our relationship, and the better understanding it gave us of each country’s actions and intentions. Broadly speaking, I believe that my bilateral meetings – which totaled about 10 hours over two days – served as a step forward in our effort to put the U.S.-China relationship on surer footing.”

IPEF

Stakeholders call for release of IPEF supply chain text

As the fourth round of IPEF negotiations commenced in Busan, South Korea over the weekend, a cadre of civil society groups requested more transparency in the IPEF process, specifically requesting release of the supply chain text (Pillar 2), according to Inside U.S. Trade. In a letter last week, more than a dozen civil society groups from IPEF countries called for “immediate release of the negotiating texts,” arguing that such action was agreed to in previous talks in Detroit, MI. “We have previously objected to the lack of transparency in the IPEF negotiations and called for the immediate release of the negotiating texts. The promises of this agreement are not matched with a commitment to transparency in the process to allow civil society to be able to see what is being negotiated.”

The letter continued, “It is crucial to ensure that constituencies, including parliaments and civil society organisations, have ongoing access to the latest IPEF texts to allow opportunities for ongoing and informed input. The need to release what was agreed in Detroit, before legal scrubbing and certainly before it is signed, is even more pressing given Ministers ‘committed to operationalizing this landmark Agreement as soon as practicable’. The rush towards implementation needs to be tempered by the transparency, inclusivity, fairness and collaborative approach that you say is a hallmark of the outcome.” The letter concluded, “As discussions progress on the other aspects of the agreement, including on critical issues like digital trade and climate change, it is essential that proposals, negotiating texts and related documents are released publicly in advance of each negotiating round. This includes announcing upcoming rounds with sufficient time for broad public stakeholder engagement.”

• Last month USTR confirmed the U.S. interagency delegation for the fourth IPEF round of trade talks in Busan, South Korea from July 9-15 would be co-led by Sarah Ellerman, IPEF Pillar I Chief Negotiator and Assistant United States Trade Representative for Southeast Asia and the Pacific (Acting), and Sharon H. Yuan, U.S. Department of Commerce Counselor and Chief Negotiator for Pillars II-IV.
• Recall that on May 27 the U.S. hosted delegates from 13 IPEF countries in Detroit, MI for the IPEF ministerial led by Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai. Prior rounds were held in Brisbane, Australia (round one, Dec. 10-12, 2022), followed by a special negotiating round on Pillars II-IV in New Delhi, India (Feb. 8-11, 2023), Bali, Indonesia (round two, Mar. 13-19, 2023), and Singapore (round three, May 8-15, 2023).
• The IPEF negotiating countries besides the U.S. include Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Notably, India opted out of negotiations on the trade pillar.

CPTPP

Ukraine submits request to join CPTPP

Last week, Ukraine submitted a formal request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP ) to New Zealand, according to multiple reports. New Zealand, which coordinates the depositary responsibilities for CPTPP, confirmed receiving Ukraine’s request on May 5. Members of the CPTPP are scheduled to Meet on July 16, when Ukraine’s bid will likely be discussed. Japanese Revitalization Minister Shigeyuki Goto, confirming Ukraine’s request, said that Japan, an original CPTPP member, must “carefully assess whether Ukraine can fully meet the high levels of the deal,” according to Reuters reporting . Ukraine joins the UK, China, Taiwan, Ecuador, Costa Rica, and Uruguay, seeking to join the 11-country trade agreement. To date, only the UK’s request has been formally accepted.

Trade Policy

Congressional field hearing on agriculture and critical supply chains

On July 10th, the House Ways and Means Committee held a field hearing titled “Trade in America: Agriculture and Critical Supply Chains – Kimball, Minnesota.” The hearing took place at Schiefelbein Farms in Kimball, Minnesota and commenced at 2:30 PM, according to a House Committee advisory . Schedule witnesses were:

• Don Schiefelbein, Past President, National Cattlemen’s Beef Association
• Tom Bakk, Former Member, Minnesota State Legislature
• Carolyn Olson, Vice President, Minnesota Farm Bureau Board of Directors
• Brad Vold, Owner, Dorrich Dairy
• Gary Wertish, President, Minnesota Farmers Union

The hearing is a part of a series of field hearings announced by Ways and Means Committee Chairman Jason Smith (R-MO) on issues ranging from trade, small businesses, and agriculture. The hearing can be streamed here: https://waysandmeans.house.gov .

Supply Chains

Russia non-committal as grain deal expiration looms

Russian officials said there is no decision yet on whether to support extension of the Black Sea grain deal set to expire on July 17. The United Nations (UN) has pledged to undertake every effort to secure continuation for the deal that permits Ukrainian grain to transit through the blockaded Black Sea to foreign markets. “We have not yet officially announced the decision, we will announce it in a timely manner,” Russian spokesman Dmitry Peskov said, according to Reuters. “There is still time to fulfill that part of the agreements that concerns our country. Until now, this part has not been completed, and, accordingly, at the moment, unfortunately, there are no particular grounds for extending this deal,” he continued. Russian officials previously indicated they don’t see an extension of the deal necessary and have frequently complained of existing barriers imposed on exports of Russian fertilizers and other products.

• Recall in mid-May that Turkish President Recep Tayyip Erdo?an and UN officials confirmed the most recent extension (60-days) of the Black Sea Grain Initiative . Under the initial agreement, more than 30 million metric tons have been successfully shipped out of the conflict area. Russia agreed to extend the deal despite its demands not being met. Russia continues to call for the removal of barriers to its own exports of grain and fertilizer. While Russian exports of grain and fertilizer are not subject to sanctions, Russia claims that restrictions on its payments, logistics, and insurance industries serve as obstacles to shipments.

Food Security

Existing export restrictions compromising food trade flows despite declining export restrictions

A recent WTO report indicates that remaining export restrictions on food, feed, and fertilizers are “compromising the predictable flow of food” in international markets and contributing to price volatility amidst global concerns regarding food affordability. The WTO Trade Monitoring Report on G20 trade measures , released on July 4, indicates that the war in Ukraine, COVID-19 after-effects, extreme weather, and high food and energy prices continue to cause uncertainty in global trade.

“Although many of these restrictions have been lifted, including by several G20 economies, and the introduction of new measures has declined over the review period, globally more than 60% of these export restrictions remain in place with serious implications for food security, especially in developing and least-developed countries. The G20 economies must lead by rolling back export restrictions and ensure the free flow of trade,” the WTO reported in a joint statement with the OECD and UNCTAD, which simultaneously issued a Monitoring Report on investment measures.

• WTO Director-General Dr Ngozi Okonjo-Iweala said, “The trade disruptions caused by the shocks of the past three years have pushed economic security to the forefront of policy discussions. Yet what we have seen over this period is that open global trade, anchored in the multilateral trading system, is a powerful force for economic security, enabling WTO members to better produce and access food, medical supplies, and other essentials.”
• She continued, “It is welcome that G20 economies have been taking more steps to facilitate imports, underscoring how trade is a tool to push back against inflationary pressures. I call on them to show leadership by continuing to reduce the number and trade coverage of export restrictions, particularly on food, feed and fertilizers, to help dampen the price volatility that makes life harder for people around the world.”

Trade Trends

Trade deficit in goods and services narrows in May

●???????The goods and services deficit registered $69.0 billion in May, down $5.5 billion (or 7.3%) from $74.4 billion in April, the Census Bureau reported last week. The narrowing of the monthly trade imbalance was propelled by receding import demand as the value of imported goods fell to the lowest level since October 2021. The May decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.8 billion to $91.3 billion and an increase in the services surplus of $0.7 billion to $22.3 billion. Additional details released by the Census Bureau :

• May exports were $247.1 billion, $2.1 billion less than April exports. May imports were $316.1 billion, $7.5 billion less than April imports.
• Year-to-date, the goods and services deficit decreased $101.7 billion, or 22.8 percent, from the same period in 2022. Exports increased $48.0 billion or 3.9 percent. Imports decreased $53.7 billion or 3.2 percent.
• Year-over-year, the average goods and services deficit decreased $22.9 billion from the three months ending in May 2022. Average exports increased $0.3 billion from May 2022 while average imports decreased $22.6 billion from May 2022.

WTO

Japan formally accepts Agreement on Fisheries Subsidies

Last week Japan joined other leading marine fish catch producers in affirming support for the Agreement on Fisheries Subsidies, pushing the total number of countries formally adopting the agreement to over one-third of required participants for the agreement to enter into force.

• Ambassador Kazuyuki Yamazaki of Japan, who presented the instrument of acceptance to WTO Director-General Ngozi Okonjo-Iweala, stated, “This Agreement was passed by the Diet with unanimous approval. This is an expression of our strong determination as a country surrounded by the sea and historically familiar with fishery resources, and as a promoter of a multilateral trade system, to work together as one to ensure food security and achieve sustainable fisheries based on rules.”
• “Japan will never stop moving forward. We still have two significant goals ahead. One is to bring the Agreement into force by MC13 (13th Ministerial Conference), and the other is to conclude the second wave negotiation by MC13. Japan will reach out to other Members to accelerate the ratification process and constructively engage in the future negotiations including the upcoming fish week next week,” he said.
• In receiving the formal acceptance, DG Okonjo-Iweala said: “I welcome Japan's formal acceptance of the Agreement on Fisheries Subsidies. This significant step forward holds great importance considering Japan's status as a prominent fishing nation and as a steadfast supporter of the WTO and the multilateral trading system. As we continue to navigate the challenges posed by overfishing and the depletion of fish stocks, the active participation of Japan and the wider WTO membership will be crucial.”

The WTO indicated Japan's instrument of formal acceptance is the 12th instrument received and that acceptances from two-thirds of WTO members are needed for the Agreement to come into effect.

Ag Economy Barometer

Ag Barometer rebounds in June

The June Ag Economy Barometer improved 17 points to a reading of 121 after a sharp drop in May, according to Purdue University and the CME Group. The rebound in farmer sentiment in June was principally driven by enhanced optimism regarding future economic farm conditions, following sharp declines in commodity prices manifested in the prior month’s survey.

• Rebounding optimism for improved financial conditions in the next year strengthened as 20% of respondents said they expected their financial condition to improve over the next year, compared to just 13% respondents in the May survey. Meanwhile 32% expect their farm’s financial situation to decline over the upcoming year, compared to 44% who responded that way in May.