TRADE UPDATE: Food & Agriculture March 14, 2023

HIGHLIGHTS

• USMCA: USTR announced a 7th labor complaint under USMCA’s Rapid Response Labor Mechanism, requesting Mexico review whether workers at a Unique Fabricating facility in Santiago de Querétaro, Mexico, are being denied the rights of free association and collective bargaining
• USMCA: Canada requested formal consultations under USMCA over concerns regarding Mexico’s biotechnology policies, joining the U.S. which formally requested USMCA technical consultations with Mexico regarding its biotech corn ban.
• U.S. – China: China delisted nearly 240 food and agriculture products subject to production facilities registration for imported products required under Decree 248. According to a USDA report, “The removed products include many fresh and dried vegetables, spices/seasonings, select grains and oilseeds, dried beans and lentils, coffee and cacao. Low lactose infant formula was added to the list.”
• Trade Policy: President Biden announced new members of the Advisory Committee for Trade Policy and Negotiations (ACTPC). The panel members represent business, agricultural, organized labor, and environmental groups, and provide overall policy advice to the U.S. Trade Representative regarding the Administration’s trade policy including trade negotiations.
• U.S. – Brazil: Ambassador Tai and Brazilian officials met last week to discuss increased bilateral engagement, according to a USTR readout. The officials agreed to enhance bilateral trade relations and promote more “resilient supply chains, spur invest [sic] in clean technologies, promote the rights of workers, and create shared prosperity.”
• WTO: Japan announced it will participate in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), joining over 50 other WTO member countries seeking an interim dispute settlement option in the absence of an operating appellate body. The MPIA was constructed to provide an alternative dispute mechanism in the absence of a functional appellate body. The U.S. presently does not participate in the MPIA.

?“Clearly, what the president of Mexico has done is not based on science itself. It’s not consistent with USMCA, it’s not consistent with what the rest of the world knows about biotechnology. We have a responsibility not to wink and nod, but to basically stand up to that principle.” – USDA Secretary Tom Vilsack commenting on the U.S. request for technical consultations on Mexico’s biotech corn ban

USMCA

USTR lodges 7th USMCA labor complaint

Invoking USMCA’s Rapid Response Labor Mechanism, last week the Office of USTR has requested Mexico review whether workers at a Unique Fabricating facility in Santiago de Querétaro, Mexico, are being denied the rights of free association and collective bargaining. The complaint follows a petition filed by several Mexican labor organizations. Announcing the action, Ambassador Katherine Tai stated, “The USMCA's Rapid Response Labor Mechanism is an important tool to defend workers' rights and helps us advance a worker-centered trade policy around the world.”?“We look forward to working with the Government of Mexico to promptly address these issues as we pursue a shared goal of raising labor standards and creating a race to the top in trade.”

• U.S. Labor Secretary Marty Walsh added, “Labor provisions in the U.S-Mexico-Canada Agreement and Mexico’s 2019 labor reform are intended to address allegations like those cited in this case.”?“The government of Mexico has indicated their support for full implementation of the labor reform. We look forward to working together to address the issues in this case.”
• In connection with the request, US Trade Representative Katherine Tai has directed the Treasury Secretary to suspend the liquidation for all unliquidated entries of goods from the Unique Fabricating facility. According to the USTR announcement, Mexico has ten days to agree to conduct a review and, if it agrees, 45 days from today to complete the review.

?

Canada requests consultations with Mexico over biotechnology concerns

Canada requested formal consultations under USMCA over concerns regarding Mexico’s biotechnology policies, according to reports. Canada’s action came one day after the U.S.’ request for USMCA technical consultations with Mexico regarding its biotech corn ban. All three USMCA partners are now “parties” to the USMCA consultation mechanism. While Canada is not a major corn exporter, Canada is concerned about restrictions placed on agriculture produced with biotechnology.

Recall that on March 6, The Office of the USTR announced requesting formal technical consultations with the Government of Mexico under the Sanitary and Phytosanitary Measures (SPS) Chapter of the USMCA. The consultations focus on Mexico’s policies and measures surrounding agricultural biotechnology products, including the recently revised Decree to ban certain GM corn imports. In announcing the action, Ambassador Katherine Tai said, “The United States has repeatedly conveyed our serious concerns with Mexico’s biotechnology policies and the importance of adopting a science-based approach that complies with its USMCA commitments,” Tai continued,?"Mexico’s policies threaten to disrupt billions of dollars in agricultural trade and they will stifle the innovation that is necessary to tackle the climate crisis and food security challenges if left unaddressed. We hope these consultations will be productive as we continue to work with Mexico to address these issues.”

Separately, following USTR announcement of technical consultations broad coalition of agriculture and bioscience stakeholders sent a letter to President Biden expressing appreciation for the Administration’s move to USMCA technical consultation and efforts over the prior months to seek a diplomatic solution. “We support your administration’s request for consultations with Mexico regarding its treatment of agricultural biotechnology and denying the use of certain crop protection tools, to provide a framework and timeline to resolve this issue” the letter said. “We look forward to these consultations beginning promptly.”

U.S. – China

China removes products from Decree 248 requirements

Last month China delisted nearly 240 food and agriculture products subject to production facilities registration for imported products. According to a USDA report, “The removed products include many fresh and dried vegetables, spices/seasonings, select grains and oilseeds, dried beans and lentils, coffee and cacao. Low lactose infant formula was added to the list.” See list of removed products here: https://gain.fas.usda.gov/Download.aspx?p=2011&q=34bb44ca-0cfb-4945-8ca6-eaa4526dd58a

• The Regulation and Administration of Overseas Manufacturers of Imported Food (“Decree 248”) took effect on January 1, 2022. The regulation states that overseas food manufacturing, processing, and storage facilities are required to register with the General Administration of Customs of China (GACC) to export food products to China.

U.S. – Brazil

U.S. and Brazil commit to strengthening trade ties

Last week Ambassador Katherine Tai traveled to Brasilia, meeting with Brazil’s Vice President and Minister of Development, Industry, Foreign Trade and Services Geraldo Alckmin and Minister of Foreign Affairs Mauro Vieira to discuss increased bilateral engagement, according to a USTR readout of the meetings. According to a statement, both parties emphasized their support for “inclusive growth that protects the environment and promotes sustainability,” Trade officials noted there is interest in revitalizing the bilateral Agreement on Trade and Economic Partnership. The U.S. and Brazilian officials agreed to strengthen and deepen bilateral trade relations and directed their technical teams to develop a work program “that can help create more resilient supply chains, spur invest in clean technologies, promote the rights of workers, and create shared prosperity,” according to USTR. Ambassador Tai hopes to convene a meeting before the end of this year.

U.S. – Indo-Pacific

IPEF trade pillar round two set for Indonesia

U.S. trade officials are in Bali, Indonesia this week conducting the second round of IPEF talks on Pillar I (Trade). The U.S. delegation, led by USTR, joined by Department of Commerce and other agency officials is “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, Department of Commerce Counselor and Chief Negotiator for Pillars II-IV,” according to a USTR and Commerce Department statement. The agencies noted that additional details regarding the Indonesia negotiating round will be provided at a later date.

Last December, the first round of IPEF trade talks were held in Brisbane, Australia. The first round of talks on IPEF Pillars II-IV were recently held in New Delhi, India.

President’s FY 2024 Budget

Funding increases proposed for USTR and IPEF

President Biden’s $6.9 trillion fiscal year 2024 budget, released last week, calls for additional financial support for the Office of the U.S. Trade Representative (USTR) with additional funding for IPEF, the Administration’s signature trade initiative to counterbalance China’s growing economic influence in the region.

• For the Office of USTR, $77.78 million, or an increase of $1.87 million is requested in 2024. The nearly $78 million budget allocation is comprised of $62.87 million available directly to USTR, with the remaining $15.0 million allocated through the Trade Enforcement Fund. Ambassador Katherine Tai stated, “Our Fiscal Year 2024 Budget will allow us to implement the Biden-Harris Administration’s vision to use trade to pursue resilient, sustainable, and inclusive economic growth, while increasing America’s competitiveness on the global stage.” ?
• Regarding IPEF, The International Trade Administration (ITA), sub-agency under the Department of Commerce would receive $3 million specifically in support of ITA’s engagement on IPEF, in addition to $420 million for ITA’s Global Markets program. ITA is also allocated $17 million to support U.S. export competitiveness and to counter unfair trade practices by China.

Trade Trends

U.S. trade deficit expands in January

The U.S. trade balance in goods and services registered -$68.3 billion in January, up $1.1 billion or 1.6% higher than in December. The January increase in the goods and services deficit reflected a decrease in the goods deficit of $0.6 billion to $90.1 billion and a decrease in the services surplus of $1.7 billion to $21.8 billion. Additional details released by the Census Bureau:

• January exports were $257.5 billion, $8.5 billion more than December exports. January imports were $325.8 billion, $9.6 billion more than December imports.
• Year-over-year, the goods and services deficit decreased $19.2 billion, or 21.9 percent, from January 2022. Exports increased $30.2 billion or 13.3 percent. Imports increased $11.0 billion or 3.5 percent.
• The average goods and services deficit decreased $3.0 billion to $65.4 billion for the three months ending in January. Average exports increased $0.3 billion to $252.8 billion in January. Average imports decreased $2.7 billion to $318.2 billion in January. Year-over-year, the average goods and services deficit decreased $16.0 billion from the three months ending in January 2022.

Global trade flows slowing WTO reports

World merchandise trade growth appears to have lost momentum in the fourth quarter of 2022 and is likely to remain weak in the first quarter of 2023, according to the latest WTO Goods Trade Barometer. The WTO reported that the “overall barometer index continues to point to weakening trade growth in volume terms after falling to 92.2, down from 96.2 in the previous release and well below the baseline value of 100.”

• The WTO highlighted that “The volume of world merchandise trade was up 5.6% in the third quarter of 2022 compared to the same quarter in the previous year. Meanwhile, cumulative year-on-year growth for the first three quarters of 2022 stood at 4.4%, above the WTO's forecast released last October of 3.5% for the whole year.”

Trade Policy

U.S ranks 9th in sustainable trade index

The latest edition of the Sustainable Trade Index (STI) ranked New Zealand and the U.K. as the top two economies regarding sustainable trade, while the U.S. ranked nineth. The STI measures an economy’s readiness and capacity to participate in the global trading system in a manner that supports the long-term goals of economic growth, societal development, and environmental protection. The 2022 STI ranked New Zealand first based on its robust performance in all three pillars (economic, societal, and environmental). Though ranking seventh in the Economic pillar, New Zealand ranked first in both the Societal and Environmental pillars. In contrast, the U.S. ranked nineth overall, scoring 4th in the Economic pillar, 7th in the Societal pillar and 19th in the Environmental pillar.

• This index, produced by Hinrich Foundation in collaboration with the Institute for Management Development (IMD), employs 70 indicators grouped into three pillars: economic, societal, and environmental to analyze “the intersection of international trade and sustainability.” The index covers 30 economies, including members of the Asia-Pacific Economic Cooperation (APEC), Canada, Chile, Mexico, Peru, Russia, and the United States (US). It includes Ecuador, and the United Kingdom (UK) as they are applicants for membership to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

President appoints trade advisory panel members

New members of the President’s Advisory Committee for Trade Policy and Negotiations (ACTPN) were announced last week by the White House. The panel members represent business, agriculture, organized labor, and environmental groups and provide overall policy advice to the U.S. Trade Representative regarding the development, implementation, and pursuit of the Administration’s trade policy. The new members are:

• Revathi Advaithi - Chief Executive Officer of Flex
• Manish Bapna - President and CEO of the Natural Resources Defense Council (NRDC)
• Timothy Michael Broas - Senior of Counsel at the law firm Wilson, Sonsini, Goodrich, & Rosati
• Thomas M. Conway - International President of the United Steelworkers (USW) union
• Erica R.H. Fuchs - Professor in the Department of Engineering and Public Policy at Carnegie Mellon University
• Marlon E. Kimpson - partner with Motley Rice LLC, Marlon E. Kimpson
• Ryan LeGrand - President and CEO for the U.S. Grains Council
• Kerman Maddox - President and majority owner of K&R Hospitality
• Sean M. O’Brien - Teamster and General President of the International Brotherhood of Teamsters
• Javier Saade - Managing Partner of Impact Master Holdings, Venture Partner at Fenway Summer
• Shonda Yvette Scott - Founder and CEO of 360 Total Concept Inc.
• Elizabeth Shuler - President of the AFL-CIO
• Nina Szlosberg-Landis - Director on the Raleigh-Durham Airport Authority Board
• Wendell P. Weeks - Chief Executive Officer of Corning Inc.

In a statement, Ambassador Tai lauded the development stating, “Developing a worker-centered trade agenda means bringing together a range of perspectives and backgrounds to design and implement our policies. The Advisory Committee for Trade Policy and Negotiations is an important forum to guide USTR’s work and ensure that the benefits of trade are equitably distributed across our economy and to all people. President Biden has nominated a diverse group of men and women that will help us carry out his vision for sustainable, inclusive and durable trade policy in 2023 and beyond. I congratulate the members on their appointments and look forward to working with them.”

• According to its?charter: “[t]he Advisory Committee for Trade Policy and Negotiations is a statutory non-discretionary trade advisory committee established to provide overall policy advice to the United States Trade Representative on matters arising in connection with the development, implementation, and administration of the trade policy of the United States including: (1) negotiating objectives and bargaining positions before entering into trade agreements; (2) the impact of the implementation of trade agreements; (3) matters concerning the operation of any trade agreement once entered into; and (4) other matters arising in connection with the development, implementation, and administration of the trade policy of the United States.”

Supply Chains

Supply chain pressures fall to pre-pandemic levels

As measured by the New York Federal Reserve, the Global Supply Chain Pressure Index dipped into negative territory ( -0.26) reaching negative territory for the first time since the fall of 2019. The latest index reading, “suggest that global supply chain conditions have returned to normal after experiencing temporary setbacks around the turn of the year,” according to the New York Federal Reserve. Supply chain pressures peaked at 4.31 in December 2021, according to the index.?

Ukraine

Discussions continue regarding renewal of the Black Sea grain deal

Last week United Nations (UN) Secretary-General António Guterres and Ukrainian President Volodymyr Zelenskyy called for the extension of a deal with Russia, set to expire on March 19th, which permitted Ukrainian grain to transit through the blockaded Black Sea to foreign markets.

• “I want to underscore the critical importance of the rollover of the Black Sea Grain Initiative on 18 March and of working to create the conditions to enable the greatest possible use of export infrastructures through the Black Sea, in line with the objectives of the initiative,” said Guterres. He continued, “Exports of Ukrainian — as well as Russian — food and fertilizers are essential to global food security and food prices.”
• President Zelenskyy commented, “Today, we are interested in ensuring that there is no hunger in the world. And our common policy is to continue the operation of the ‘grain corridor.”

Russia has expressed dissatisfaction with the deal, claiming that the extension of the deal must be accompanied by a reduction in the barriers faced by its own agricultural exports. Although Russia's food and fertilizer exports are not subject to sanctions, Russia claims that restrictions on its payments, logistics and insurance industries serve as an obstacle to shipments.

Earlier Ukraine’s Deputy Minister of Restoration Yuriy Vaskpov stated that Ukraine is calling for at least a one-year extension of the deal. In addition, Ukraine wants the extension to include the ports of Mykolaiv. The current deal includes three Ukrainian ports: Chornomorsk, Odesa and Yuzhny/Pivdennyi. There are currently 26 ships stuck in Mykolaiv. If the ports of Mykolaiv are added to the deal, Ukraine’s capacity to export would increase from 6 million tons per month to 8 million tons.

WTO

Japan joins interim appellate body

Last week, the Japanese Cabinet approved Japan’s participation in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), joining over 50 other WTO member countries seeking an interim dispute settlement option in the absence of an operating appellate body. "As an interim measure until the dispute settlement function is restored, the Japanese government decided to join the MPIA," Japan's economy ministry reported, referring to the MPIA.

• In?April 2020, some WTO members launched the MPIA as an interim response to the impasse of the appellate body. While the U.S. has declined to join the MPIA, 52 countries and regions, including the European Union, Australia, Brazil, Canada, China, Singapore, and New Zealand have joined MPIA.
• The MPIA was constructed to provide participating WTO members a mechanism to resolve disputes by using arbitrations, instead of appealing to the non-operational appellate body (e.g. “appealing into the void”). The appellate body was rendered non-operational in December 2020 after the U.S. blocked the appointment of the remaining Appellate Body positions, effectively dissolving the appeals function of the WTO.

Ag Economy Barometer

The Ag Economy Barometer retreats in February

The February Ag Economy Barometer slid 5 points to a reading of 125, reversing two consecutive months of improvement. The weakening of farmer sentiment in February was largely driven by entrenched concerns with rising input costs and, increasingly, the risk of declining output prices and rising interest rates. February’s sentiment level parallels the index level in early 2022, which hovered around 125 points. 2022 low point and significantly below the peak observed in late 2020, according to the index’s producers.

• Lower commodity prices and high operating costs remain a top concern for producers in the months ahead. Nearly one-fifth (18%) of respondents indicated lower output prices were a major risk, compared with 8 percent in the September survey. Concerns with rising interest rates are increasing as well. In February, nearly one-fourth of survey respondents (24%) chose rising interest rates as a key concern, up from 22% in the last two months and up from just 14% who cited interest rates as a top concern last summer.
• Optimism over increasing agriculture exports continued a long-term decline, reaching a new low. In the 2022 survey, over 70% of respondents reported they expected exports to increase in the upcoming five years, the highest percentage since the beginning of the survey in 2019. Only 33% of respondents in the February survey expect rising agriculture exports in the next five years.