TRADE UPDATE: Food & Agriculture | October 10, 2023

HIGHLIGHTS

• USMCA: Canada called for a complete revocation of U.S. duties after a binational panel found inconsistencies in part of a determination to apply trade remedy duties on Canadian lumber. “Canada is pleased that the NAFTA dispute panel agrees that the U.S. dumping determination is inconsistent with U.S. law. These duties are unwarranted — the only fair outcome is for the United States to revoke all duties on Canadian softwood lumber without further delay,” Canada’s International Trade Minister Mary Ng said in a statement following the ruling.
• USMCA: The U.S. and Mexico announced resolution of another USMCA labor dispute involving denial of worker rights filed under USMCA’s Rapid Response Labor Mechanism (RRM). The announcement follows a request by a Mexican labor union to review concerns that workers were being denied free association and collective bargaining at the Grupo Yazaki auto components facility in León, Mexico.
• IPEF: U.S. officials will participate in a sixth IPEF negotiation round occurring in Kuala Lumpur, Malaysia from Oct. 15-24, 2023, the Office of USTR and Department of Commerce announced . The talks will focus on advancing negotiations related to outcomes under Pillars I (Trade), III (Clean Economy), and IV (Fair Economy). The Office of USTR will host a virtual stakeholder listening session on Oct. 10, 2023. An in-person listening session in Malaysia is planned for Oct. 19, 2023. Registration and more details are available here .
• WTO: The WTO reported that Japan is contributing 55,934 Swiss Francs to support the engagement of officials from least-developed countries (LDCs) in a second wave of negotiations to curb harmful fisheries subsidies. The contribution is provided by Japan to the WTO Fisheries Subsidies Trust Fund which was created in May 2019 at the request of the WTO’s LDC members.
• U.S. - EU: U.S. and EU leaders are likely to announce an interim deal at the U.S.-EU Summit on Oct. 20, 2023, to partially address the Global Steel and Aluminum Arrangement (GSA). The interim deal would avoid re-imposition of Trump-era tariffs on billions of dollars of transatlantic trade when the tariff moratorium expires at the end of this month.
• U.S.-U.K.: U.S. and U.K. trade officials will expand trade negotiations aiming to conclude a new “foundational” bilateral trade agreement, according to Politico. The agreement’s scope will extend beyond issues under negotiations in IPEF, potentially tackling challenging trade issues such as agriculture. The negotiations will start this month, with both U.S. and U.K. trade officials aiming to substantially conclude the agreement in the spring of 2024.
• Trade Policy: A group of 11 Republican lawmakers sent a letter to Commerce Secretary Gina Raimondo, questioning the agency’s methodology resulting in a 53% countervailing duty rate on phosphate fertilizer imports from Russia. “A 53.29% duty will have a detrimental impact on both the price and availability of phosphate fertilizer for American farmers, compromising productivity and competitiveness as well as global food security,” lawmakers wrote. Commerce had previously calculated a 19% duty on phosphate fertilizer imports.

“We do not tolerate companies that use forced labor, that abuse the human rights of individuals in order to make a profit. The Department of Homeland Security and its partners across the Biden-Harris Administration will continue to prosecute these companies, fight for the rights of the abused, and work towards the elimination of Uyghur forced labor in the People’s Republic of China.” - Secretary of Homeland Security Alejandro N. Mayorkas

USMCA

Panel splits on U.S. lumber duties, Canada calls for duty revocation

A binational panel affirmed several provisions of the Commerce Department’s actions imposing antidumping duties on softwood lumber imports from Canada. Yet, they found the provision on export taxes inconsistent, asking the agency to re-examine the provision. “Commerce sought to impose a burden not found in the plain language of the statute,” the 5-member panel wrote. The panel directed the agency to reconsider its deduction of export taxes, which were implemented to offset alleged unfair Canadian lumber subsidies.

Canada has called for a complete revocation of U.S. duties in the decades-long dispute on Canadian lumber. “Canada is pleased that the [North America Free Trade Agreement] dispute panel agrees that the U.S. dumping determination is inconsistent with U.S. law. These duties are unwarranted — the only fair outcome is for the United States to revoke all duties on Canadian softwood lumber without further delay,” Canada’s International Trade Minister Mary Ng said in a statement following the ruling. Ng further stated that the U.S. anti-dumping duties are “unjust and illegal” and disruptive to integrated supply chains.

• The duties are the legacy of a decades-long trade dispute over the structure of Canada's timber sector that could not be resolved when a quota agreement expired in 2015. U.S. producers say Canada unfairly subsidizes its lumber sector.
• Recall that Canada challenged the U.S. duties on Canadian softwood lumber under the North American Free Trade Agreement (NAFTA) Chapter 19 after the Commerce Department set a duty rate of 7.99% on Canadian softwood lumber imports last July, down from 8.59%. The action follows January’s preliminary results of Commerce’s fourth administrative review of anti-dumping and countervailing duty orders. The U.S. has imposed import duties on Canadian imports since 2015 when a softwood lumber agreement between the two countries expired.
• Under NAFTA dispute settlement provision, the Commerce Department has until Jan. 12 to respond to the panel’s request regarding its pricing methodology and treatment of export taxes.

U.S., Mexico resolve another auto facility labor dispute

Last week, the U.S. and Mexico announced an agreed course of remediation to resolve another USMCA labor dispute involving denials of worker rights, reaching an agreement under the Rapid Response Labor Mechanism (RRM). The announcement follows a request by a Mexican labor union for review regarding concerns that workers were being denied free association and collective bargaining at the Grupo Yazaki auto components facility in León, Mexico.

• “I am thrilled by this positive outcome for workers at Grupo Yazaki. This resolution is yet another example of the Biden-Harris Administration’s steadfast commitment to defending labor rights and putting workers first, especially in the autos sector. Working with Mexico to swiftly resolve concerns raised by Mexican workers through the USMCA Rapid Response Labor Mechanism is a key part of promoting fair competition and a race to the top,” said USTR Ambassador Katherine Tai.
• Labor Department Deputy Undersecretary for International Affairs Thea Lee added, “Today’s resolution has ensured that workers at Yazaki’s 58 locations in Mexico are aware of their labor rights. We will continue to work closely with the Mexican government to find creative paths so that every worker’s voice is heard, respected, and valued, and workers fully understand their union voting rights.”

Under the course of remediation, actions by the Government of Mexico and Grupo Yazaki include:

• Grupo Yazaki posted a neutrality statement on its North American website and distributing physical copies across its facilities in Mexico, including at Planta León, affirming its commitment to safeguarding the right to freedom of association and sharing an internal hotline for workers to submit concerns related to their labor rights;
• The Government of Mexico and the International Labor Organization delivered trainings on freedom of association and collective bargaining rights at the facility for workers, for company representatives, and union representatives; and
• The Government of Mexico posted a statement in the Planta León facility explaining that dissemination of misinformation during union democracy votes is considered an irregularity and should be reported to government authorities.

USMCA Summary Report, CRS

The Congressional Research Service (CRS) released an overview of the USMCA, three years into the trilateral agreement going into force. The report , written for Members of Congress, documents the political and legal foundation of the USMCA, from the end of the North American Free Trade Agreement (NAFTA) to the ratification and implementation of USMCA. Specific provisions and chapters of the agreement, including compliance, enforcement, rules of origin, agriculture, dispute settlement, anti-corruption, labor rights, and others are cataloged and examined.

The report concludes by noting issues of consideration for lawmakers three years into the agreement. “Key issues for Congress include how well USMCA is meeting expectations, the enforceability of USMCA commitments, particularly labor provisions, the role of the Congress and the President in trade negotiations, and how the agreement may affect broader U.S. relations with Canada and Mexico. Now that the agreement has been in force for over three years, other issues of interest to Congress may include evaluating implementation of the agreement and ongoing disputes, assessing USMCA in the context of North American competitiveness, and assessing broader economic relations in the Western Hemisphere,” the report stated. Issues specifically raised included:

• Congressional Oversight Role
• Agreement Compliance
• Economic and Broader Considerations
• Sixth Anniversary Review of USMCA

IPEF

Malaysia to host IPEF round six talks

A U.S. delegation will travel to Kuala Lumpur, Malaysia, from Oct.15-24, 2023 for the sixth negotiating round of the Indo-Pacific Economic Framework for Prosperity (IPEF), the Office of USTR and Department of Commerce announced last week. With the text of Pillar II (supply chains) substantially concluded, the IPEF partners will focus on advancing negotiations related to outcomes under Pillars I (Trade), III (Clean Economy), and IV (Fair Economy). Like prior rounds, the U.S. delegation was co-led by Sarah Ellerman, Assistant United States Trade Representative for Southeast Asia and the Pacific and IPEF Pillar I Chief Negotiator, and Sharon H. Yuan, U.S. Department of Commerce Counselor and IPEF Pillars II-IV Chief Negotiator.

In preparation for the 6th round talks in Malaysia, the Office of USTR will host a virtual stakeholder listening session on Oct. 10, 2023. An in-person listening session in Malaysia is planned for Oct. 19. Registration and more details available here .

• Recall the fifth negotiating round was convened in Bangkok, Thailand, from Sept. 10-16, 2023, preceded by the fourth negotiating round held in Busan, South Korea, from July 9-15, 2023. 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, other than the U.S., include Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. Notably, India opted out of negotiations on the Trade Pillar.

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Tai leads “productive” virtual IPEF ministerial

Last week, Tai hosted IPEF Ministers to advance negotiations on Pillar I (Trade). “The ministers used this meeting as an opportunity to reaffirm the partners' shared goals regarding Trade Pillar negotiations. Conversations among the ministers were productive in advancing negotiations, and all partners remained eager to make significant progress by the end of the year,” according to a USTR readout.

Trade Policy

Republican lawmakers ask Commerce to examine fertilizer duties

A group of 11 Republican lawmakers, let by Senator Roger Marshall (R-KS) and Representative Tracey Mann (R-KS), penned a letter to Commerce Secretary Gina Raimondo urging the agency to “reevaluate the data” employed to derive a 53% countervailing duty rate on phosphate fertilizer imports from Russia. “A 53.29% duty will have a detrimental impact on both the price and availability of phosphate fertilizer for American farmers, compromising productivity and competitiveness as well as global food security,” lawmakers wrote in letter . “We are concerned that the Department erred by basing this substantial decision on a small, unrepresentative data set,” states the letter, signed by three senators and eight House members. While we certainly do not want foreign governments to distort trade with the United States, it is preeminently important to ensure that our methodology is accurate and fair. We urge you to reevaluate the data at issue in this case,” the letter said.

Recall that last May, as part of the Administrative Review, Commerce published a preliminary determination proposing to increase the duty from 9.19% to 53.29% on the phosphate imports from Russia. “Existing duties have already shifted trade flows away from the largest sources and restricted access. Meanwhile, these major supplying countries continue to provide phosphate fertilizer, unencumbered, at a lower cost, to markets like Brazil that directly compete with American farmers. Should this preliminary rate be finalized at 53.29%, American farmers will likely lose access to yet another source of imported phosphate fertilizers,” the lawmakers contended.

WTO

Japan gives over 55,000 Swiss France supporting LDCs participation in fisheries subsidies negotiations

Japan is contributing 55,934 Swiss Francs ($61,705) in 2023 to support the engagement of officials from least-developed countries (LDCs) in the second wave of negotiations to curb harmful fisheries subsidies. The contribution is provided by Japan to the WTO Fisheries Subsidies Trust Fund that was created in May 2019 at the request of the WTO’s LDC members, the WTO reported.

• “Japans donation will continue to strengthen the participation of LDCs in these negotiations ahead of the upcoming 13th Ministerial Conference in February 2024. A shared global effort is required to build on last years landmark Fisheries Subsidies Agreement by disciplining subsidies that contribute to overfishing and overcapacity. It is critically important to ensure LDCs voices are well represented in the discussions,” said WTO Director-General Ngozi Okonjo-Iweala.
• Japanese Ambassador Kazuyuki Yamazaki added, “Fisheries subsidies disciplines are crucial for our future marine resource sustainability and food security. With aiming of concluding the second wave negotiations at the 13th Ministerial Conference, full engagement from all WTO members, including LDCs, is highly important.”

Japan’s donation builds on prior financial support of approximately 763,000 Swiss Francs ($841,726) to the WTO Fisheries Funding Mechanism assisting developing and LDC members implement the Agreement on Fisheries Subsidies adopted at the 12th Ministerial Conference in June 2022.

• Recall that Article 7 of the Agreement stipulates the creation of a funding mechanism to “provide targeted technical assistance and capacity building to help developing and least-developed country members with implementation.” The fund is operated by the WTO with partner organizations, namely the Food and Agriculture Organization (FAO) of the United Nations, the International Fund for Agricultural Development, and the World Bank Group.

U.S. - EU

EU, U.S. pursuing interim steel pact as deadline approaches

U.S. and EU leaders are anxiously pursuing an interim deal on steel and aluminum trade to avoid re-imposition of Trump-era tariffs on billions of dollars of transatlantic trade. White House European Commission officials plan to announce the provisional agreement that would partially address the Global Steel and Aluminum Arrangement (GSA) at the U.S. - EU Summit, scheduled for Oct. 20, 2023. The interim deal would allow both sides more time to close gaps and challenges in concluding a GSA to address excess global steel and aluminum capacity.

• Recall the White House recently announced that President Joe Biden will meet with European Council President Charles Michel and European Commission President Ursula von der Leyen on Oct. 20, 2023. “The leaders will review the strong cooperation between the United States and the European Union, including our shared commitment to support Ukraine as it defends its sovereignty and to impose costs on Russia for its aggression,” according to a White House statement. “They will advance US- EU efforts to accelerate the global clean energy economy based on secure, resilient supply chains, and will continue cooperation in critical and emerging technologies, including digital infrastructure and artificial intelligence. They will also review joint activities to strengthen economic resilience and to address related challenges.”
• Last August, EU and U.S. officials affirmed intensified discussion on concluding an agreement prior to the Oct. 31, 2023 deadline. Absent a deal by Oct. 31, the moratorium on Trump-era tariffs and EU retaliatory measures would automatically return on more than $10 billion of exports. The GSA aims to resolve the transatlantic trade tensions emanating from Section 232 steel and aluminum tariffs imposed in 2018 under then President Trump, citing national security concerns. Two years ago, the Biden Administration brokered an agreement with the EU to pause tariffs and retaliatory measures as an effort to find a permanent solution.

U.S. - U.K.

U.S., UK to pursue foundational trade agreement

U.S. and UK trade officials will commence expanded trade negotiations aiming to conclude a new “foundational” bilateral trade agreement, according to Politico reporting. The agreement’s scope will extend beyond issues under negotiations in IPEF, potentially tackling challenging trade issues such as agriculture, labor rights, the environment, supply chains, regulation of services, digital trade documents, and others. The agreement will omit market access (i.e. tariff reductions), consistent with the Biden’s Administration policy of eschewing comprehensive free trade agreements.

• The negotiations will commence in earnest this month with both U.S. and UK trade officials aiming to substantially conclude the agreement in the spring of 2024, ahead of elections in both countries. Initially framed as the U.S.-UK Trade Partnership Forum (TPF), the U.S. and UK “will seek to negotiate a new, foundational trade agreement to create a permanent mechanism to coordinate and cooperate on trade policy issues of mutual interest and to further deepen existing trade ties,” Politico reported.

During the past few years, the UK has remained poised to pursue a trade agreement with the Biden Administration, while aggressively pursuing new trade agreements with other trade partners and formally entering the CPTPP. In the interim, the UK has pursued U.S. state-level Memorandum of Understandings (MOUs) with six U.S. states, the most recent with Washington State.

• Presently, the UK has inked MOUs with Indiana, North Carolina, South Carolina, Oklahoma, Utah, and Washington State representing collectively ￡5.1 billion worth of U.K. imports in 2022. The UK Government is further pursuing additional pacts with other states including Florida, Texas, California, Colorado, and Illinois. In 2022, U.S. goods and services trade with the UK totaled an estimated $295.6 billion in 2022. Exports were $158.2 billion; imports were $137.4 billion. The U.S. goods and services trade surplus with the UK was $20.8 billion in 2022, according to USTR.

Trade Trends

Overall trade deficit shrinks in August, approaching 3-year low

The goods and services deficit registered $58.3 billion in August, down $6.4 billion (nearly 10%) from $64.7 billion in July, approaching a 3-year low, according to the Census Bureau. The downturn in the monthly trade imbalance was propelled by rising exports as the value of imported goods slowed, as demand for consumer goods and capital softened. The August decline in the goods and services deficit reflected a decrease in the goods deficit of $5.5 billion to $84.5 billion and an increase in the services surplus of $1.0 billion to $26.2 billion. Additional details released by the Census Bureau :

• August exports were $256.0 billion, $4.1 billion more than July exports. August imports were $314.3 billion, $2.3 billion less than July imports.
• Year-to-date, the goods and services deficit decreased $137.6 billion, or 20.7 percent, from the same period in 2022. Exports increased $22.0 billion or 1.1 percent. Imports decreased $115.6 billion or 4.3 percent.
• Year-over-year, the average goods and services deficit decreased $11.0 billion from the three months ending in August 2022. Average exports decreased $8.4 billion from August 2022. Average imports decreased $19.4 billion from August 2022.
• Framed in the context of a three-Month moving averages, the average goods and services deficit decreased $2.8 billion to $62.2 billion for the three months ending in August. Average exports increased $2.7 billion to $251.9 billion in August. Average imports decreased $0.1 billion to $314.1 billion in August.

Notably the bilateral merchandise-trade deficit with China narrowed about $1.3 billion to a five-month low of $22.7 billion. China’s share of U.S. goods imports fell to the lowest level since 2005 in the 12 months through August, averaging 14.2% over that period, according to Census Bureau reporting.

Food Security

Global food prices stabilize in September

The Food and Agriculture Organization’s (FAO) Food Price Index averaged 121.5 points in September 2023, virtually unchanged from August suggesting a pause in trending price declines over the past several months. The September overall index registered as much as 38.3 points (24.0 percent) below its peak reached in March 2022, but 14.6 points (10.7 percent) below the level a year ago. Declines in the price indices for vegetable oils, dairy, and meat were counterbalanced by increases in price for sugar and cereals, according to the FAO. Other highlights from the report include:

• The FAO Vegetable Oil Price Index “averaged 120.9 points in September, down 5.0 points (3.9 percent) from August, marking the second consecutive monthly decline. The fall in the index was driven by lower world prices across palm, sunflower, soy and rapeseed oils. International palm oil prices continued to decrease in September, chiefly underpinned by seasonally elevated production in major producing countries in Southeast Asia.”
• The Dairy Price Index “averaged 108.6 points in September, down 2.6 points (2.3 percent) from August, marking the ninth consecutive monthly decline, and as much as 34.1 points (23.9 percent) below its value in the corresponding month last year. International prices across all dairy products declined in September, principally underpinned by lacklustre import demand for spot- and near-term deliveries amidst ample stocks in leading producing regions, despite an upsurge in demand towards the end of the month for some dairy products in Southeast Asian countries.”
• The FAO Meat Price Index “averaged 114.2 points in September, down 1.2 points (1.0 percent) from August, marking the third consecutive monthly decline, and 6.1 points (5.0 percent) from its value a year ago. International pig meat prices fell, underpinned by weak import demand from leading importing countries, especially China, and ample global export availabilities. World poultry meat prices also dropped, reflecting abundant supplies in leading global suppliers, especially Brazil.”
• The Cereal Price Index “averaged 125.0 points in August, down 0.9 points (0.7 percent) from July and standing 20.6 points (14.1 percent) below its value a year ago. International wheat prices fell by 3.8 percent, mostly reflecting higher seasonal availability from ongoing harvests in several leading exporters in the northern hemisphere. International coarse grain prices also declined in August by 3.4 percent. Maize prices fell for the seventh consecutive month, hitting their lowest value since September 2020, underpinned by ample global supplies from a record harvest in Brazil and the start of the harvest in the United States of America.”
• The FAO Sugar Price Index “averaged 162.7 points in September, up 14.5 points (9.8 percent) from August, marking the second consecutive monthly increase and reaching its highest level since November 2010. The hike in prices mostly stemmed from increasing concerns over a tighter global supply outlook in the upcoming 2023/24 season. This mainly reflects early forecasts pointing to production declines in key sugar producers, Thailand and India, due to drier-than-normal weather conditions associated with the prevailing El Ni?o event.”

Ag Barometer

Ag Barometer weakens further in September

The September Ag Economy Barometer went down for the second consecutive month, falling 9 points to a reading of 106, according to Purdue University and the CME Group. Weaker farmer sentiment in September was principally driven by declining crop prices, increasing prices for farm machinery and other production inputs, coupled with rising interest rates. The majority of respondents (60%) expect further interest rate hikes in the next year.

• Concerns with higher input costs and interest were reported as a leading concern by 32% and 25% survey respondents, respectively. Concerns regarding weakening crop prices, an ongoing trend the past several months, registered as number three concern, or 22% of respondents, up from 20% in August.
• In contrast, producers remain somewhat optimistic of improving farmland values over the next year. The expectations for higher farmland values, both in the short term and long term, climbed to an index of 126 and 153, respectively, in the September survey.