TRADE UPDATE: Food & Agriculture | June 6, 2023

HIGHLIGHTS

• USMCA: The U.S. requested USMCA dispute settlement consultations with Mexico regarding its agriculture biotech policies, including prohibiting GM corn imports. Three months after the U.S. requested a technical consultation, U.S. officials have now elevated the issue to a dispute settlement mechanism contending Mexico’s policies, “are not based on science and threaten to disrupt U.S. exports to Mexico.”
• USMCA: USTR requested Mexico investigate alleged workers’ rights violations at a Draxton facility in Irapuato, Guanajuato, the ninth such action invoked under USMCA’s Rapid Response Labor Mechanism. In a statement , Ambassador Katherine Tai said, “This second self-initiated request under the USMCA shows that the Biden-Harris Administration is laser-focused on using trade to empower workers.”
• U.S. – China: Over 40 Members of Congress sent a letter to USDA Secretary Tom Vilsack and Ambassador Katherine Tai requesting engagement with Chinese counterparts to encourage them to “quickly honor” a 2020 agreement on U.S. poultry exports. The Members stated that China has stopped adhering to the agreement and is not lifting export restrictions on states which have eliminated an avian flu outbreak.
• CRA Competitiveness Paper: CRA has just released a new report, Trade Agreements and U.S. Competitiveness, revealing the United States is falling behind its competitors in reducing global trade barriers. The report tracks trade agreements since 2010 and shows that several nations have outpaced the U.S. in the creation of new bilateral and multilateral trade arrangements, including China, Japan, the European Union, and Canada. At the same time, U.S. trade partners are pressing forward with new trade agreements, risking diminished American economic competitiveness and investment opportunities in critical regions around the world. The report comes days after the U.S. Department of Agriculture announced a lowered forecast for U.S. agricultural exports, increasing the size of the projected agricultural trade deficit by $3.5 billion.
• IPEF: During the recent IPEF ministerial in Detroit, Indonesia issued a proposal that critical mineral issues be included in the IPEF Trade Pillar, according to Indonesian news service Bizlaw.id . Indonesian officials reported that the Ministers of seven Association of Southeast Asian Nations (ASEAN) member countries present at the ministerial support the proposal, along with Australia.
• U.S.–U.K.: U.K. Prime Minister Rishi Sunak will meet with President Biden this week to discuss bilateral economic relations, among other topics . Ahead of the visit, several Members of the House introduced legislation granting the President, in consultation with Congress, the power to negotiate and enter into a comprehensive free trade agreement (FTA) with the U.K. Titled the “Undertaking Negotiations on Investment and Trade for Economic Dynamism (UNITED) Act”, the bill would require the Administration to launch FTA talks within 180 days of passage to address “tariff and nontariff barriers affecting any industry, product, or service sector.”
• U.S.–Taiwan: The U.S. and Taiwan officially signed the recently concluded “early harvest” aspects of a trade deal made through the U.S.-Taiwan Initiative on 21st Century Trade. The deal includes chapters on customs administration and trade facilitation, good regulatory practices, services domestic regulation, anti-corruption, and small- and medium-sized businesses, according to a USTR announcement .
• WTO: The WTO released in-person registration information for the upcoming Trade and Environment Week (June 12-16). In a statement the WTO said, “This event serves as a forum where government officials, business representatives, international organizations, academics, and civil society convene to discuss ways to make global trade more sustainable.”

"We fundamentally disagree with the position Mexico has taken on the issue of biotechnology, which has been proven to be safe for decades. Through this action, we are exercising our rights under USMCA while supporting innovation, nutrition security, sustainability, and the mutual success of our farmers and producers.” - USDA Secretary Tom Vilsack on USMCA dispute settlement consultations with Mexico

USMCA

U.S. requests USMCA dispute settlement on Mexico’s GM corn decree

The U.S. has formally requested dispute settlement consultations with Mexico through USMCA because of, “Mexican measures concerning products of agricultural biotechnology.” The issue dates to a 2020 decree by Mexican President Andrés Manuel López Obrador to phase out genetically modified corn entering Mexico. This decree threatens one of the top U.S. corn export markets.

• USTR Ambassador Tai stated, “The United States has repeatedly conveyed its concerns that Mexico’s biotechnology policies are not based on science and threaten to disrupt U.S. exports to Mexico to the detriment of agricultural producers, which in turn can exacerbate food security challenges. Mexico’s biotechnology policies also stifle agricultural innovation that helps American farmers respond to pressing climate challenges, increase farm productivity, and improve farmers’ livelihoods.” She went on to state, “We will continue to work with the Mexican government through these consultations to resolve our concerns and help ensure consumers can continue to access safe and affordable food and agricultural products.”
• Agriculture Secretary Tom Vilsack expressed, “USDA supports success for all farmers, and that means embracing fair, open, science- and rules-based trade. In this spirit, the USMCA was written to ensure that producers in all three countries have full and fair access to each other’s markets." He further said that,“We fundamentally disagree with the position Mexico has taken on the issue of biotechnology, which has been proven to be safe for decades. Through this action, we are exercising our rights under USMCA while supporting innovation, nutrition security, sustainability, and the mutual success of our farmers and producers.”

Industry groups applauded USTR’s action, moving a step closer to dispute panel proceedings while Mexico asserts the new decree has no commercial impact to U.S. exporters.

• National Corn Growers Association President Tom Haag said ,“Mexico’s actions, which are not based on sound science, have threatened the financial wellbeing of corn growers and our nation’s rural communities. We are deeply appreciative of Ambassador Katherine Tai and USTR for moving this process forward and thankful for the efforts of (Agriculture) Secretary Tom Vilsack and members of Congress for standing up for farmers in such a meaningful way.”
• The U.S. Grains Council issued a statement expressing appreciation for USTR’s decision contending, “The decree violates Mexico’s obligations to use science and risk-based policies to regulate biotechnology in a transparent way and threatens the mutually beneficial trading relationship our two countries have had for decades. The U.S. Grains Council strongly supports the U.S. government’s action today…and we appreciate U.S. Secretary of Agriculture Vilsack for always insisting that genetically modified crops are science-based, sound and safe.”
• In contrast, Mexico has asserted the decree, revised earlier this year to limit importation of GM corn to use for masa and tortilla production, presents no commercial harm to current bilateral trade and that Mexico is self-sufficient in white corn used in tortilla production. Mexico contends that the decree actually, “encourages Mexico to preserve planting with native seeds, which is done in compliance with the USMCA's environmental regulations,” according to a Reuters report.

Lawmakers reiterate concerns with Mexico’s biotech policies

Last Thursday, one day prior to USTR’s announcement of a formal USMCA dispute with Mexico, over 60 lawmakers sent a letter to Ambassador Katherine Tai reaffirming a request for a formal trade dispute with Mexico regarding Mexico’s decree to ban GM corn and other biotech policies. Rep. Adrian Smith (R-NE), chairman of the Ways and Means Trade Subcommittee, and Rep. Michelle Fischbach (R-MN) who spearheaded the letter were joined by 62 colleagues calling for U.S. officials to invoke dispute settlement action since prior technical consultations did not yield changes in Mexico’s policies. The lawmakers wrote, “Given Mexico’s lack of meaningful action to correct this issue, it is time to fully utilize the tools you have under USMCA to hold Mexico accountable to its commitments. We urge you to immediately proceed with a formal USMCA dispute to stand up for the livelihoods of American farmers.”

• The letter was signed by Ways and Means Committee Chairman Jason Smith and Reps. Alford, Allen, Armstrong, Arrington, Bacon, Baird, Banks, Bost, Buck, Bucshon, Carey, Cline, Comer, Crawford, Davidson, De La Cruz, Ellzey, Emmer, Estes, Ezell, Feenstra, Finstad, Fitzpatrick, Flood, Fry, Sam Graves, Grothman, Guest, Guthrie, Hern, Hinson, Houchin, Jackson, Dusty Johnson, Mike Kelly, Trent Kelly, Kustoff, LaHood, Letlow, Luetkemeyer, Mann, McCaul, Mary Miller, Max Miller, Miller-Meeks, Murphy, Newhouse, Nunn, Pence, Rose, Austin Scott, Smucker, Stauber, Strong, G.T. Thompson, Timmons, Van Duyne, Wagner, Waltz, Wenstrup, and Yakym.

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U.S. invokes ninth USMCA review of workers’ rights

Last week, USTR self-initiated a request for Mexico to review whether workers’ rights were being denied at a Draxton facility in Irapuato, Guanajuato. The action, invoked under USMCA’s Rapid Response Labor Mechanism (RRM) marks the ninth such request and only the second self-initiated action. In a statement , Ambassador Katherine Tai said, “This second self-initiated request under the USMCA shows that the Biden-Harris Administration is laser-focused on using trade to empower workers. The RRM is an effective enforcement tool to ensure that workers at the Draxton facility can freely exercise their rights without intimidation, harassment, or the fear of retribution. We look forward to working with the Government of Mexico to promptly address these concerns.” The statement further noted that, “In connection with the U.S. request, Ambassador Tai has also directed the Secretary of the Treasury to suspend the liquidation for all unliquidated entries of goods from the Draxton Irapuato facility.”

• Recall that only a week earlier USTR initiated the eighth labor rights review with Mexico regarding the conditions at a rubber tire facility run by Goodyear. This was the eighth time the U.S. had invoked the USMCA’s rapid response labor mechanism and the third time it had done so this year.

Competitiveness Paper

CRA has just released a new report, Trade Agreements and U.S. Competitiveness, revealing the United States is falling behind its competitors in reducing global trade barriers. The report tracks trade agreements since 2010 and shows that several nations have outpaced the U.S. in the creation of new bilateral and multilateral trade arrangements, including China, Japan, the European Union, and Canada. At the same time, U.S. trade partners are pressing forward with new trade agreements, risking diminished American economic competitiveness and investment opportunities in critical regions around the world. The report comes days after the U.S. Department of Agriculture announced a lowered forecast for U.S. agricultural exports, increasing the size of the projected agricultural trade deficit by $3.5 billion. Key findings from the analysis include:

• While the U.S. has completed four trade agreements since 2010, including the modernization of an existing agreement, China has entered 10 new agreements and updated two agreements, Japan has entered seven, the EU has entered eight, and Canada has entered nine.
• Several key U.S. trade partners are outpacing the U.S. in the benefits of their trade policies, with the EU and China experiencing lower tariffs and other reduced trade barriers on an estimated $557 billion and $1,151 billion in total trade, respectively, compared with the U.S.’ $245 billion.
• Regional trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are particularly powerful tools to accelerate and deepen economic influence and integration of the signatory countries. Despite this, reconsideration of the prior Administration’s withdrawal from CPTPP has been rejected.
• Shifting U.S. trade policy to open foreign markets fosters U.S. global competitiveness and encourages American participation in rule setting for international trade, in turn securing benefits for the U.S. economy, American workers, and consumers.

Indo-Pacific Economic Framework

Indonesia seeks critical mineral provision in IPEF

During the recent IPEF ministerial hosted by U.S. officials in Detroit, Indonesia’s Coordinating Economic Minister Airlangga Hartarto, issued a proposal that critical mineral issues be included in the Pillar I (i.e. trade) of IPEF, according to Indonesian news service Bizlaw.id . Indonesian officials reported that the ministers of seven Association of Southeast Asian Nations (ASEAN) member countries present at the ministerial support the proposal, along with Australia. USTR’s official views are not publicly available and it's unclear whether the proposal would entail a new negotiating component for the trade pillar.

• Recall that trade Ministers from 13 IPEF countries convened in Detroit recently on the sidelines of the APEC meeting to continue negotiations on the limited agreement. USTR released a joint statement on the Trade, Clean Economy, and Fair Economy pillars noting Ministers agreed to, “seek to develop new and creative approaches to trade and technology policies that advance a broad set of objectives and that fuel economic activities and generate investments; promote resilient, sustainable, and inclusive economic growth and development; and benefit workers, consumers, Indigenous Peoples, local communities, women, and companies, including micro-, small-, and medium-sized enterprises (MSMEs).”

U.S. – U.K.

U.K. Prime Minister Rishi Sunak to visit Washington, D.C.

President Biden will meet with Prime Minister Sunak this week on June 7th and 8th. The White House issued a statement which highlighted how the heads of state will discuss shared efforts between the U.S. and U.K. to bolster their national security and economic relationship.

• This engagement comes in the wake of recent legislation introduced by Rep. Adrian Smith (R-NE) and Rep. Jim Himes (D-CT) in the House which would allow for the President, in consultation with Congress, to negotiate and enter a comprehensive trade agreement with the United Kingdom.

• Titled the “Undertaking Negotiations on Investment and Trade for Economic Dynamism (UNITED) Act”, this legislation is a companion bill to legislation originally introduced in March by Senators Chris Coons (D-DE) and John Thune (R-SD). The UNITED Act would require the Administration to launch FTA talks within 180 days of passage to address “tariff and nontariff barriers affecting any industry, product, or service sector,” according to the text.

U.S. – China

China pushes back against joint U.S.-EU statement

China has pushed back against the U.S.-EU Joint Statement of the Trade and Technology Council (TTC). This statement was made in tandem with the TTC Ministerial which took place in Lule?, Sweden from May 30-31st. This was the fourth TTC Ministerial since its inception in 2021.

• China was upset with direct references to China’s use of non-market policies and, “amplification of Russian disinformation narratives about the war,” outlined in the joint statement.
• Chinese Foreign Ministry spokeswoman Mao Ning stated that, “China is a victim of disinformation, and China is highly concerned about non-market economic practices. If the U.S. and EU really care about these issues, they should start with themselves,” according to a Politico report.
• Some other outcomes from the Ministerial included progress on aligning sustainable trading practices and AI standards between the U.S. and EU. These developments can be seen in the joint statement .

Raimondo reiterates optimism on meeting with Wang

U.S. Commerce Secretary reiterated her optimism about the May, 25th meeting she had with Chinese Commerce Minister Wang Wentao. While at the TTC Ministerial in Sweden, Secretary Raimondo said the meeting, “was a candid, direct, productive exchange where we tackled head on some of our issues related to economic coercion and other irritants,” according to Politico.

• Secretary Raimondo and Minister Wang had met in Washington, D.C. to discuss the commercial relationship between the two countries. The Commerce Department released a statement calling the meeting, “candid and substantive.” According to the readout, the discussion focused on potential areas of cooperation in trade and investment between the U.S. and China and involved Secretary Raimondo raising concerns about the, “recent spate of PRC actions taken against U.S. companies operating in the PRC.” It further stated that this meeting served to, “maintain open lines of communication,” between the countries.

Members of Congress call on USTR, USDA to confront China on poultry agreement

On May 25th, Rep. Barry Moore (R-AL), Rep. Abigail Spanberger (D-VA), and 41 other Members of Congress sent a letter to Agriculture Secretary Thomas Vilsack and USTR Ambassador Katherine Tai requesting engagement with, “Chinese counterparts and encourage them to quickly honor,” a 2020 agreement on U.S. poultry exports. The letter stated that this agreement adopted a, “policy of regionalization,” in the event of an avian flu outbreak in a U.S. state. In the event of an outbreak the resumption of imports and exports are to resume, “90 days post-virus elimination.” The letter goes on to state that China has stopped adhering to the agreement and is not lifting export restrictions on states which have eliminated avian flu outbreaks.

U.S. – Taiwan

U.S. and Taiwan sign first agreement in new trade framework

Last week U.S. and Taiwanese officials officially signed the trade deal made through the U.S.-Taiwan Initiative on 21st Century Trade. Sarah Bianchi, the deputy USTR, was at the signing.

China called on the U.S. to stop official contact with Taiwan on Thursday prior to the signing.

• This development comes following the announcement made by USTR on May, 18th that an “early harvest” had been reached on several components of the U.S.-Taiwan Initiative on 21st Century Trade negotiations. This included chapters on customs administration and trade facilitation, good regulatory practices, services domestic regulation, anti-corruption, and small- and medium-sized businesses.

U.S. – EU

EU weighs in on tin mill steel tariffs

Last week the EU sent a letter to Commerce Secretary Gina Raimondo asserting that additional duties on imports of tin mill products could run afoul of WTO rules. The EU expressed concerns with antidumping investigations on Germany and the Netherlands that could lead to additional duties on tin mill imports. Specifically noted was that additional exporting countries under investigation in effect, “bears the de facto characteristics of a safeguard investigation.” The EU further stated, “It is difficult to conceive that all eight supplying countries dump their products on the US market and also cause injury to the domestic industry. This wide geographical scope of the investigation casts doubts on the DOC’s standard of initiation of anti-dumping investigations.” The EU supported its contention noting that the eight countries under investigation account for 88% of U.S. imports in 2022 and, when combined with Japan (presently subject to anti-dumping tariffs), that share climbs to 96%.

• Earlier this year, U.S. tin mill steel producer Cleveland-Cliffs and the Steelworkers Union filed anti-dumping complaints on imports of tin mill steel products from Canada, China, Germany, Netherlands, South Korea, Taiwan, Turkey and the United Kingdom, seeking additional duties to offset alleged unfair import pricing for the product.
• Recall that several industry tin mill steel user groups, led by the Can Manufacturers Institute, sent a letter to President Biden and Secretary Raimondo urging the Administration to avoid imposing additional import duties that would lead to higher cost for downstream manufactures and consumers for a range of products—from canned foods to aerosol spray products. Citing a Consumer Brands Association study, the group argued that the proposed duties, “would raise the cost of canned foods and everyday household products by up to $0.58 per can.”

Trade Policy

USDA Japan trade mission

This week USDA Undersecretary for Trade and Foreign Agricultural Affairs (FAS) Alexis Taylor will lead a trade mission to Japan from June 5-8. Japan is the fourth-largest market for U.S. food and agricultural exports. “As one of the world’s leading economies, Japan is an important market for US food and agriculture exports. It is an incredible honor to lead this delegation as we work to expand our bilateral trade relationship even further,” Undersecretary Taylor said. Trade mission participants will visit with company and government officials in Tokyo and Osaka to better understand market conditions and investigate potential business opportunities.

• According to USDA, in 2022 U.S. food and agricultural exports to Japan totaled $14.6 billion, with exports of soybeans, dairy and other products reaching new highs. The United States is vital to ensuring food security in Japan, with nearly a quarter of all Japan’s food and agricultural imports coming from U.S. exporters. The delegation includes a robust representation of the US agriculture sector, including businesses, state departments of agriculture and commodity groups, according to USDA.
• USDA’s Foreign Agricultural Service earlier this year conducted trade missions to the Netherlands (April 17-20) and Panama and CAFTA- DR countries (March 19-23).

USDA Trade Forecast

USDA agricultural trade forecast lowered

The USDA has updated its forecast for 2023 agricultural exports to $181 billion from a $184.5 billion estimate made in February. This constitutes a $3.5 billion reduction from the agency’s February forecast. The update was made in the quarterly Outlook for U.S. Agricultural Trade released on May 31st.

• In the report, USDA stated it was expecting stronger exports of soybeans, cotton, and dairy. The reduction in the export forecast was largely due to weakened predictions for exports of wheat, corn, and beef.
• The U.S. is now forecast to export $14.5 billion worth of corn, $2.1 billion less than the USDA agencies were predicting in February. The reason for this drop is due to competition with Brazil, which has recently started to plant its second corn crop, according to AgriPulse.

Trade Trends

Global trade flows slowing WTO reports

World merchandise trade growth remained “depressed in the first quarter of 2023” and may presage the beginnings of an upturn going forward, according to the latest WTO Goods Trade Barometer . The WTO reported that the, “value of the barometer index rose to 95.6 in the latest reading — up from 92.2 in March — but remained well below the baseline value of 100, suggesting a below-trend stabilization and the beginnings of an upturn in merchandise trade volumes.” The barometer authors cautioned that an uptick in goods trade is likely to face an uneven path given the present set of mixed signals.

• The WTO highlighted that, “The automotive products index (110.8) has risen firmly above trend on the back of strong sales in the United States and Europe. The highly predictive export orders index (102.7) has also returned above trend after a dip following the outbreak of war in Ukraine. In contrast, the indices representing container shipping (89.4), air freight (93.5) and electronic components trade (85.2) all continue to signal weakness. The index of raw materials trade (99.0), meanwhile, finished just below trend. The combination of strong positive and negative indicators makes the short-term outlook less certain than usual.”

WTO

Trade and Environment week registration open

The WTO’s fourth Trade and Environment Week (which will be held from June 12 to 16) will focus on collective and collaborative approaches to addressing climate change. “This event serves as a forum where government officials, business representatives, international organizations, academics, and civil society convene to discuss ways to make global trade more sustainable,” the WTO reported in a statement. The event is open to the public and in-person registration is available.

• According to the WTO, “The Trade and Environment Week 2023 provides a unique platform to discuss, maximize synergies, hear from leading experts, and gather successfully implemented good practices. This week-long event encourages the exchange of concrete ideas to enhance sustainability in global trade and is a unique opportunity to integrate discussions across various policy areas. It aims to enhance collaboration, effectively respond to present-day challenges, and underscore the WTO's contribution to facilitating the development of international trade practices that are environmentally friendly, sustainable, and beneficial for all.”