TRADE UPDATE Food & Agriculture June 22, 2021 Provided by CRA HIGHLIGHTS • U.S. – China: Reporting out on a recent virtual meeting of Asia-Pacific ministers, USTR Katherine Tai said the trade relationship with China has a “significant imbalance” and the Biden administration is committed to leveling the imbalance. • U.S. – USMCA: Canada announced it has requested a dispute settlement panel against U.S. safeguard tariffs imposed by the Trump Administration on solar products from Canada. Separately the Biden Administration is reviewing adding Paris Agreement obligations to the USMCA. • U.S. – EU: The U.S. and EU agreed to suspend for 5 years retaliatory tariffs in the dueling WTO disputes over civil aircrafts subsidies removing EU countermeasures on several U.S. food and agriculture products. • U.S. – U.K.: The U.S. and U.K. agreed to similar deal as the EU for a 5-year suspension on civil aircraft tariff measures over subsidies for Airbus and Boeing. • WTO: WTO Members’ frustrations are elevated in the fisheries talks over the special carve-outs extended to ten major subsidizers for continuing with their industrial-scale of fishing outlined in the chair’s consolidated draft text. Quote: “Compromises are made in any trade deal, and the TPP was no different.” “But to even have a shot at writing the rules, you need a seat at the table. Right now, the United States is waiting in the hallway.” (Senator Tom Carper, Washington Post opinion piece on CPTPP) China Trade • The trade relationship with China has a “significant imbalance” and the Biden administration is committed to leveling it, USTR Katherine Tai said prior to a virtual meeting of Asia-Pacific ministers. The recent call was the third between senior officials in recent weeks, after China’s Vice Premier Liu He earlier spoke with Tai and Treasury Secretary Janet Yellen, prior to the recent G-7 and EU Summits. 1 • As noted earlier, the Senate passed The American Innovation and Competitiveness Act last week. The $250 billion act is meant to mainly counter China’s growth by furthering the infrastructure and technology of the U.S. The bill was passed 68-32, with senators from both parties praising the bill. Senate Majority Leader Chuck Schumer said, “Passing this bill— now called the U.S. Innovation and Competition Act—is the moment when the Senate lays the foundation for another century of American leadership.” The bill, which includes increased National Science Funding and semiconductor production investment, heads to the House of Representatives. USMCA • Canada announced it has requested a dispute settlement panel against U.S. safeguard tariffs imposed by the Trump Administration on solar products from Canada. “These tariffs are unwarranted and damaging to the global competitiveness of our long-established, secure and deeply integrated supply chains,” said Canadian International Trade Minister Mary Ng. “As we build back better from the challenges of the COVID-19 pandemic and urgently address climate change, Canada and the United States must be aligned and work together on the development of sustainable and equitable energy transitions and clean energy innovation,” she continued. Under the timeline provided in the USMCA, the dispute settlement panel report would be expected early next year. Exports of solar products from Canada to the United States have dropped by some 82 percent since the safeguard tariffs were imposed in 2018, according to Ottawa. • The Canadian government and Canadian lumber producers have expressed desire for the U.S. to remove anti-dumping and countervailing duties against Canadian lumber imports. The combined duties are currently around 9% of the value of each import, with the prices paid having gone up since the recent increase in lumber prices. The Commerce Department is planning on doubling these duties to 18% by the end of the year. With the high tariff costs being paid by Canadian lumber producers, they have pushed to be repaid the billions of dollars’ worth of duty payments. While the Canadian government wants the tariffs removed, the Biden Administration has stated they believe the Canadians aren’t interested in a new arrangement, according to sources. • Last week, USMCA trade partners held the inaugural meeting of the Environment Committee. According to a joint statement, “The meeting included a fruitful discussion on the progress and challenges in implementing the environmental obligations since the Agreement’s entry into force on July 1, 2020. The Parties also shared how they have each raised public awareness of issues related to Chapter 24 implementation. The Committee emphasized the importance of sharing information and fostering public participation in the implementation of Chapter 24 for future public engagement.” • The Biden Administration is reviewing adding Paris Agreement obligations to the USMCA. Earlier on Thursday, June 17, a USMCA environmental committee held a virtual meeting where the topic of including Paris Agreement obligations was discussed. Assistant U.S. Trade Representative for Environment and Natural Resources Kelly Milton said, “We are certainly continuing to analyze whether adding the Paris agreement to the list of multilateral environmental agreements in USMCA would in fact make a positive contribution to addressing the climate crisis”. Both House Democrats and Canadian officials have expressed a willingness to adopt the obligations. • The Biden Administration has announced its intent to nominate former Senator Ken Salazar to serve as ambassador to Mexico. He was a leading candidate for the ambassadorship according to sources. Salazar served as a senator from Colorado from 2005 to 2009, and as interior Secretary during the Obama Administration. The White House press release noted that Salazar is a native of Colorado, Salazar is a fifth- generation rancher in Colorado’s San Luis Valley. He currently is a partner at WilmerHale, an American law firm and the founder of the firm’s Denver office. He represents clients on energy, environment, natural resources and Native American Ken Salazar, Nominee, Ambassador to Mexico matters. • As reported earlier, the Office of USTR and the Labor Department the U.S. will pursue a USMCA labor complaint against an auto plant in Mexico for alleged workers’ rights violations, based on an earlier request from the AFL-CIO. Last month the AFL-CIO filed a complaint under USMCA’s rapid-response 2 mechanism against Tridonex, an auto parts factory in the Mexican state of Tamaulipas. The labor group asserts that the firm is denying workers free association and collective bargaining rights. After reviewing the complaint, USTR and the Labor Department determined sufficient credible evidence of worker violations existed and now is formally asking Mexico to review the allegations. According to a USTR statement, “Mexico has 10 days to agree to conduct a review and, if it agrees, 45 days from today to remediate.” USTR touted the decision as “the second time ever, and the second time in the past month” that the Biden administration has put USMCA’s labor dispute tools to use, “demonstrating the Biden- Harris Administration’s commitment to labor enforcement.” The first complaint initiated in May targeted a General Motors facility in Mexico for workers’ violations. • The Mexican Economy Ministry responded to the U.S. complaint and indicating it would review with the Mexican Labor Ministry whether workers' rights were being violated. "The Mexican government is committed to guaranteeing compliance with USMCA and recognizing workers' rights in Mexico and in North America," the Economy Ministry said in a statement released on twitter. COVID-19 Developments • According to a report released by the Food and Agriculture Organization of the United Nations, global food trade is set to have a “resilient” 2021 year. The report notes that food trade flows reached new highs during the COVID-19 pandemic, performing better than the broader merchandise sector. The current forecast for 2021 global food trade is set to be at $1.72 trillion, a 12 percent increase from 2020. Much of the growth is fueled by demand in East Asia, with China’s recovering livestock sector covering much of this. The report also highlighted how cereal production should experience moderate growth for a third consecutive year, with the bulk of the foreseen growth coming from corn. Global corn production is projected to increase by 3.7 percent in 2021. • Globally, food and agricultural exports grew by almost $52 billion from 2019 to 2020, with developing countries accounting for 40 percent of this increase, the report found. Global output for most major food commodities is expected to increase in 2021. Forecasts show global meat output, for instance, is set to grow by 2.2 percent in 2021, a reflection of an “anticipated rebound” in meat production in China as a result of large investments in “enhancing meat value chains and biosafety,” according to the report. World fish output is expected to expand as well, by 1.5 percent. Section 232 Investigations • The U.S. and European Union pledged to address steel and aluminum global overcapacity, including removal of U.S. section 232 tariffs, by the end of the year. This timing would coincide with the reimposition of increased EU tariffs against the U.S. section 232 tariffs. The U.S. and EU said in a joint statement last week, “We will engage in discussions to allow the resolution of existing differences on measures regarding steel and aluminum before the end of the year.” The two sides agreed more is required to finds solutions to the steel and aluminum tariffs, given the priority during the talks last weekend was to solve the aircraft dispute, according to European Commission President Ursula von der Leyen. The U.S. and EU established a working group to address the tariffs and discuss the steel overcapacity issue with the goal of eliminating the duties by December. • Prior to departing to join President Biden at the EU Summit in Brussels, Tai said she expressed optimism that the U.S.