TRADE UPDATE – MARCH 21, 2023

TRADE UPDATE

Food & Agriculture

March 21, 2023

By?Michael Anderson , Vice President of Trade and Industry Affairs

HIGHLIGHTS

• USMCA :?Mexico expressed concerns with the recently proposed “Product of USA” labeling rule stating, the “proposal, even when it is a voluntary claim, could have implications for discriminating against Mexican exports of live animals and meat products, and would reopen unfortunate incentives for setback, inconsistency and opposition to the obligations of the World Trade Organization to comply with the ruling in the case of country-of-origin-labeling in meat products, of which Mexico reserves its rights.”
• Section 232 and 301 Tariffs :?U.S. imports shoulder the cost of Section 232 and 301 tariffs according to a?report by the U.S. International Trade Commission (ITC) . The report, requested by Congress, analyzed the economic impact of Section 232 and 301 tariffs on U.S. industries, concluding that “U.S. importers bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs,” and that import prices for the affected goods increased by nearly 1% for each 1% increase in tariffs from 2018 to 2021.
• U.S. – Kenya :?USTR?announced ?that the U.S. and Kenya will meet in-person in Kenya, Apr. 17-20, to launch negotiations under the bilateral Strategic Trade and Investment Partnership (STIP) to convene “conceptual discussions” on agriculture, anti-corruption, digital trade, and environment and climate action, among other topics.
• Trade Policy :?Ambassador Katherine Tai will appear before the?Senate Finance Committee ?this Wednesday, and before the?House Ways and Means Committee ?this Friday, to discuss the Biden Administration’s trade agenda. Expected topics include nascent talks between the U.S. and EU on a critical minerals agreement, bilateral initiatives with Taiwan and Kenya, and the ongoing Indo-Pacific Economic Framework agreement negotiations, according to observers.
• Ukraine :?The?Black Sean Grain Initiative ?was extended 120 days following tense negotiations in which Russia threatened only a 60-day extension. The deal, brokered by the United Nations and Turkey, will allow Ukrainian grain exports to pass through the blockaded Black Sea region.
• WTO :?WTO Director-General (DG) Okonjo-Iweala challenged member countries to elevate the importance of addressing food insecurity in next year’s 14th Ministerial (MC14). “It has become a WTO imperative to contribute to solutions to food and energy insecurity, the climate crisis, sustainability issues, pandemic preparedness, economic recovery and persistent developmental challenges,” the WTO leader said.

“History would show that labor and environmental issues have been elevated because of trade agreements, and it would be a lost opportunity if we just sit on the sidelines and watch other countries engage while the playing field continues to tilt against us.”

–Representative Adrian Smith (R-NE) commenting in a Bloomberg interview

USMCA

LAWMAKERS VISIT MEXICO, URGE USMCA COMPLIANCE

• A bipartisan congressional delegation of Members of the House Ways and Means Committee traveled to Mexico last week, meeting with Mexican President Andrés Manuel López Obrador to urge Mexico’s compliance with the USMCA. Led by Representative Jason Smith (R-MO), Chairman of the Ways and Means Committee, the lawmakers informed President López Obrador that the U.S. expects Mexico to fully comply with its USMCA obligations, specifically related to biotech corn and other products. In a statement, Chairman Smith said, “The Ways and Means delegation and President López Obrador discussed the role Mexico can continue to play in reshoring key supply chains from China to North America and recognized the significance of Mexico’s recent commitment to fulfill its USMCA obligation by joining the United States in banning imports made from forced labor.” Other Members of the delegation included Representatives Carol Miller (R-WV), Michelle Fischbach (R-MN), Beth Van Duyne (R-TX), Mike Carey (R-OH), Kelly Armstrong (R-ND), Terri Sewell (D-AL) and Jimmy Panetta (D-CA).

MEXICO VOICES CONCERNS WITH PRODUCT OF USA PROPOSED RULE

• In response to USDA’s proposed?Product of USA rule , Mexico’s Agriculture Minister said the “proposal, even when it is a voluntary claim, could have implications for discriminating against Mexican exports of live animals and meat products, and would reopen unfortunate incentives for setback, inconsistency and opposition to the obligations of the World Trade Organization to comply with the ruling in the case of country-of-origin-labeling in meat products, of which Mexico reserves its rights.”
• Earlier in the week, the U.S. Department of Agriculture (USDA)?announced ?a proposed new labeling regulation regarding the use of “Made in the USA” labeling for certain products. The regulation pertains to meat, poultry and egg products that are born, raised, slaughtered and processed in the United State the U.S., may then be labeled “Made in the USA.” Under current regulations, beef products imported from other countries, but that are processed in the US, may fall under the “Made in USA” label. Public comments on the voluntary rules will be open for 60 days.

TURKEY

TURKEY LIFTS AG EXPORT BANS

• USDA?reported ?that Turkey has removed remaining restrictions on exporting “certain agricultural products, including red meat, tomatoes, some pulses, and sunflower oil.” Last year Turkey’s Ministry of Agriculture & Forestry imposed export bans on select agricultural items to counter rapidly rising food inflation. The easing of food export restrictions suggests some relenting of concerns with global food scarcity and call by international leaders, such WTO Director- General Okonjo-Iweala for countries to avoid protectionist measures that would exacerbate already tenuous global food supply chains.

U.S. – KENYA

U.S. AND KENYA TO CONVENE TRADE TALKS IN APRIL

• U.S. and Kenyan officials will meet in-person in Kenya (April 17-20) to launch negotiations under the bilateral Strategic Trade and Investment Partnership (STIP), USTR?announced ?last week. In accordance with “conceptual discussions” held earlier, the U.S. and Kenya will discuss agriculture, anti-corruption; digital trade; environment and climate action; good regulatory practices; micro, small and medium size enterprises; protecting worker’s rights and protections; supporting the participation of women, youth and others in trade; standards collaboration; trade facilitation and customs procedures and services domestic regulation under the STIP arrangement.
• The STIP negotiations omit market address (tariff reductions) unlike prior trade negotiations for a bilateral free trade agreement started under the prior Administration. Assistant USTR for Africa,?Connie Hamilton ?will lead the U.S. delegation, accompanied by representatives from several other U.S. government agencies.

U.S. – INDO- PACIFIC

USTR INTRODUCES MORE IPEF TEXTS IN INDONESIA

• Last week U.S. trade officials introduced negotiating text on labor, environment, technical assistance, and digital trade during the second round of IPEF talks on Pillar I (Trade) in Bali, Indonesia. According to?reports , IPEF countries discussed their views on the proposed negotiating texts and conducted further discussions on previously tabled texts (i.e. trade facilitation, agriculture, transparency, good regulatory practices, and services domestic regulations) first raised in Brisbane, Australia during the initial round.
• In Bali, the U.S. delegation was led by USTR’s 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.
• 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.

TRADE POLICY

BURDEN OF SECTION 232 AND 301 TARIFFS FELL ON U.S. IMPORTERS

• Last week, the U.S. International Trade Commission (ITC) released a?report ?detailing the economic impact of Section 232 and 301 tariffs on U.S. industries. According to the report, the burden of both Section 232 and 301 tariffs fell upon U.S. importers in the form of higher prices. “U.S. importers bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs,” according to the ITC report. The agency found that import prices for the affected goods increased by nearly 1 percent for each 1 percent increase in tariffs during the period from 2018 to 2021.
• The report concluded that the section 301 tariffs reduced steel imports while raising prices. “Across all sectors that include products covered by section 301 tariffs, the Commission’s model estimates that tariffs decreased imports from China by 13 percent on average during 2018 to 2021,” the report said. “Meanwhile, the tariffs increased the price of domestically produced products and the value of domestic production by 0.2 percent and 0.4 percent on average, respectively, during the period. Compared to observed trends, the estimated impacts of the tariffs appear to explain a relatively large portion of the recent changes in import values of these products.”
• Recall that during the Trump Administration additional tariffs were placed on nearly $300 billion worth of Chinese goods. These tariffs were imposed under Section 301 of the 1974 Trade Act and under Section 232 of the 1962 Trade Expansion Act. These duties have remained in place during the Biden Administration. USTR is currently conducting a review of the Section 301 tariff measures.

TAI TESTIFYING ON PRESIDENT’S TRADE AGENDA

• Ambassador Katherine Tai will appear before the?Senate Finance Committee ?this Thursday, March 23 and Friday, March 24, before?House Ways and Means Committee ?to discuss the Biden Administration’s trade agenda. Anticipated topics will include nascent talks between the U.S. and EU on a critical minerals agreement, bilateral initiatives with Taiwan and Kenya and the ongoing Indo-Pacific Economic Framework agreement negotiations, according to observers.

U.S. LEADS IN HARMFUL TARIFFS

• The latest edition of the Sustainable Trade Index (STI) reported the U.S. leads in the amount of “harmful tariffs” compared to other major trading nations, with 4,957 tariffs compared to 2,434 for India, the next highest ranked country. China, the world’s “largest trading nation has one-sixth of the harmful U.S. tariffs,” according to the report.
• According to the report authors, “The US maintains a wide swath of tariffs on imports, including even American autos made in China as well as metals, machinery, footwear, textiles, and tech products. China in comparison has one-sixth the US level at 777, according to GTA [Global Trade Alert]. India, Japan, Russia, and the UK are also among the big enforcers of harmful tariffs.”
• The STI, 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).

FOOD SECURITY

INCREASE IN U.S. FOOD PRICES CONTINUES IN FEBRUARY

• U.S. food prices increased 0.4% in February, after rising 0.5 percent in January according to the Bureau of Labor Statistics (BLS). According to the February?Consumer Price Index , prices for food consumed at home increased 0.4% and prices for food consumed away from home increased 0.3%, driven largely by increases in meat and poultry prices. Although monthly increases in grocery prices have been moderating since prices jumped 1.3% in July. Grocery prices rose 0.5% in December and 0.4% in January.
• According to the BLS report, the food at home index rose 10.2 percent over the last 12 months. The index for cereals and bakery products rose 14.6 percent over the 12 months ending in February. The remaining major grocery store food groups posted increases ranging from 5.3 percent (fruits and vegetables) to 12.4 percent (other food at home).
• The index for food away from home rose 8.4 percent over the last year. The index for full-service meals rose 8.0 percent over the last 12 months, and the index for limited-service meals rose 7.2 percent over the same period.

UKRAINE

BLACK SEA GRAIN DEAL EXTENDED 120 DAYS

• Russia has agreed to renew the Black Sea grain deal for 120 days, after Russia threatened to support only a 60-day extension, half of the proposed extension by the United Nations (UN) and Turkey who brokered the original deal. The Black Sea grain deal allows Ukrainian grain to transit through the blockaded Black Sea to foreign markets.
• Turkish Defense Minister Hulusi Akar?said in a?statement , “We started negotiations with the idea of extending the grain corridor for another 120 days in line with the initial version of the agreement.” He continued “The continuation of this is important. In this sense, we will continue our contacts about 120 days instead of two months.”
• “I welcome the agreement by all parties to continue the Black Sea Grain Initiative to facilitate the safe navigation of export of grain, foodstuffs and fertilizers from Ukraine,”?United Nations Secretary-General António Guterres?said. “The initiative demonstrates the importance of discreet diplomacy in finding multilateral solutions.” The UN?said ?it “remains fully committed” to the?Black Sea Grain Initiative , and efforts to facilitate the export of Russian food and fertilizer related to the initiative. “The extension is good news, because the agreement is vital,” said WTO Deputy Director-General Jean-Marie Paugam.
• Russian Deputy Foreign Minister Sergei Vershinin emphasized Russia’s dissatisfaction with the country’s inability to export fertilizer under a separate deal that was signed along with the initiative in July. Russia has continued to emphasize that barriers to its own food and agricultural exports have not been sufficiently addressed. 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.

UKRAINE’S TRADE DEFICIT SOARING

• While Ukraine’s grain exports are flowing intermittently via the Black Sea grain deal, the invasion by Russia has severely hampered exports of other goods, contributing to a widening trade deficit. As reported by the?Brookings Institute , vital imports continued during the invasion sustaining the economy, but declining exports, an important financial ballast for the Ukrainian economy are raising concerns for many observers. The trade deficit contributes to a significant imbalance in the government’s enlarging gap in expenditures compared with revenue. Prior to the Russian invasion, Ukraine was a leading global source for iron, steel, ores, electrical machinery and industrial equipment.

WTO

PROGRESS ON FOOD SECURITY FOCUS OF MC13

• WTO Director-General (DG) Okonjo-Iweala challenged member countries to elevate the importance of addressing food insecurity in next year’s 14th Ministerial (MC14). “It has become a WTO imperative to contribute to solutions to food and energy insecurity, the climate crisis, sustainability issues, pandemic preparedness, economic recovery and persistent developmental challenges,” the WTO leader said.
• Ambassador Alparslan Acarsoy (Turkey), Chair of the Agriculture Committee said that addressing food security was a “top priority” and that WTO members “are very much committed to food security as part of the agricultural reform process.” Ambassador Acarsoy urged WTO members to “turn these words into action” now rather than waiting for next year’s ministerial. “We will need to be ready to demonstrate that trade in food and farm goods can contribute to a sustainable, secure food future,” he said.
• The WTO’s thirteenth ministerial conference, which is set to be held in Abu Dhabi in February 2024, must contribute to addressing food insecurity and other challenges, the Director-General told a 28 February informal meeting of Heads of Delegations in Geneva.

WTO TARGETS PLASTICS TRADE TALKS FOR MC13

• Trade talks on reducing plastic waste gained momentum last week as several?WTO members ?are pushing for progress on the initiative and inclusion in next year’s MC13. Additionally, the U.S. announced joining the endeavor. The initiative, known as the Informal Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade, is facilitated by the United Kingdom, Colombia and Australia. Under the current work program, participating countries aim to develop concrete, pragmatic, and viable solutions for reducing plastics pollution and lessen environmental impact. Participating countries will further examine viable approaches to plastic alternatives and substitutes as well as the utilization of technologies to address plastic pollution. MC13 is slated to take place in Abu Dhabi, United Arab Emirates, during the week of February 26, 2024.