Trade

trade

ASA Positions

Trade Expansion (Senate Finance and House Ways & Means Committees, Agriculture Committees)

  • Work with the New Administration and Congress to ensure continued positive trade with China and NAFTA partners. Provide insight and assistance during renegotiations of current trade agreements.
  • Enhance S. trade relations with Asia-Pacific countries including through bilateral or multilateral free trade agreements.
  • Improve the timeliness and predictability of regulatory approvals for new biotech traits by China and the EU.
  • Develop low-level presence (LLP) policies that facilitate trade and innovation in biotech products.
  • Support a doubling of funding for the Foreign Market Development program and the Market Access Program.
  • Support global food security provisions in the next farm bill that provide USDA and the U.S. agriculture industry a central role in developing and implementing international agricultural development programs.

NAFTA

As of the end of January, six rounds of NAFTA negotiations have been concluded with the seventh round currently taking place at the end of February. The three countries chose to extend the NAFTA negotiations until March for a total of eight rounds. The United States and Mexico have been pushing for a quick conclusion especially given Mexico’s 2018 Presidential elections set to occur in July and the U.S. midterm elections in November. Canada has been more reticent to move quickly. The three countries have been struggling to make substantive progress however we did see positive movement in the 6th round. However, there are still outstanding issues across NAFTA including in the agriculture chapter.

The proposals the U.S. has tabled, including a five-year sunset provision after which each country would have to vote to remain in NAFTA, are especially problematic because they lack certainty and undermine the outcomes of the agreement as negotiated. The U.S. has also pushed for revisions to rules of origin, caps on government procurement, and the elimination of dispute settlement. All of these proposals are considered non-starters for Canada and Mexico and finding compromise has been difficult.

The rhetoric being used by President Trump, Secretary Ross and Ambassador Lighthizer that if the U.S. cannot get a good deal in NAFTA 2.0 then the U.S. will have to pull out of the agreement, coupled with the proposals tabled by the U.S., are making for a very dangerous outcome. If the U.S. cannot negotiate a NAFTA 2.0 that can be agreed to by all three countries and passed through the U.S. Congress, it is likely the Trump Administration will pull out of the existing agreement. The Trump Administration has made it clear that they do not think the current NAFTA agreement is worthwhile, so maintaining NAFTA in the wake of a NAFTA 2.0 failure is not an option. This would leave pulling out of NAFTA as the only alternative.

Agriculture Proposals

The U.S. has tabled several topics that Canada and Mexico describe as poison pills such as a sunset provision in NAFTA after 5 years. Provisions like this are creating an atmosphere of uncertainly and mistrust within the negotiations. In the Agriculture sector there are two such provisions including eliminating Chapter 19 of NAFTA which provides the dispute settlement mechanisms, the Investor State Dispute Settlement mechanism and the “Review and Dispute Settlement in Antidumping/Countervailing Duty Matters Chapter”. There is also a proposal to change trade remedy law by re-defining domestic industry on a regional or seasonal basis, making it easier for all three nations to impose anti-dumping duties on imports of many types of produce.

Chapter 19

Chapter 19 of NAFTA has provided U.S. food and agriculture exporters an effective tool to hold Mexican [and Canadian] anti-dumping (AD) and countervailing duties (CVD) investigators and administrators accountable through an effective appeals process that can overturn egregious AD and CVD findings and keep markets open for U.S. products. Because of these provisions, U.S. industry sectors, including beef, pork, chicken, corn syrup, apples, and other exported U.S. products, have succeeded in getting unlawful threats to their market access struck down.

Without such dispute-resolution mechanisms, U.S. companies would be forced to contest AD and CVD determinations in lengthy and potentially unreliable Canadian and Mexican court proceedings. Unfortunately, World Trade Organization processes are not a meaningful alternative as they are unduly lengthy and political, and they do not provide for restitution of AD/CVD duties found to be applied improperly.

The application of the dispute settlement provisions under Chapter 19 has been fair and well-reasoned, with 80 percent of panel decisions being unanimous. In addition, home country representations on panels are strong, meaning home countries retain a high degree of national control—higher than the dispute mechanisms in any other U.S. trade agreement.

Regional/Seasonal Anti-Dumping

The United States also tabled a provision to change trade remedy law by re-defining domestic industry on a regional or seasonal basis, making it easier for all three nations to impose anti-dumping duties on imports of many types of produce. Such a change in trade remedy law in NAFTA would set a precedent that could be seized upon by trading partners across the globe to pursue the same or similar provisions in trade agreements to protect their regional or seasonal agricultural interests, which could threaten consistent, duty-free access for agricultural products to Mexico and Canada.

While recent reports suggest that the United States intends to apply this provision to fruits and vegetables only, Mexico and Canada would likely use this provision to limit exports of a wide variety of agricultural exports from the United States, either by explicitly expanding the change in trade remedy procedures to apply to major U.S. exports, or by retaliating against our products when Mexican or Canadian fruit and vegetable exports are restricted by the imposition of anti-dumping duties by the United States.

The NAFTA negotiations remain contentious as President Trump as well as Secretary Ross and Ambassador Lighthizer have all either threatened to pull out of NAFTA or suggested that if a better deal cannot be reached they would initiate a pull out of NAFTA. This rhetoric is concerning and largely unhelpful as USTR works to make strides in a variety of areas. It also casts a shadow as to whether the White House really wants the NAFTA 2.0 negotiations to succeed.

MAP/FMD

ASA supports the doubling of funding for the Market Access Program and the Foreign Market Development Program to $400 million annually for MAP and for $69 million annually for FMD, with the increases phased in as part of the next Farm Bill. In July ASA learned that a previously unenforced CBO rule which states that any program mandatorily funded at under $50 million annually will lose base line at the sunset f the program is going to be enacted in the Trump Administration. As such FMD will not have a baseline in the next Farm Bill. This means the Agriculture Committees will need to restore funding for the FMD program in the next Farm Bill as well as seek funds to increase the program. To provide mandatory funds for the FMD program that will not sunset it needs to be funded at $50 million annually or more. The House Ag Committee is proposing to roll the MAP, FMD and TASK (Technical Assistance for Specialty Crops) into one export promotion program to utilize the MAP baseline to restore the lost FMD and TASK baseline. The individual language of each program would be maintained, and each program would receive its current funding allocation.

KORUS

In August 2017, USTR opened renegotiations of the KORUS agreement. Washington officials are facing resistance from their South Korean counterparts as they look to adjust the five-year old deal. South Korea has indicated that they will not agree to any proposed changes without first examining the cause of the trade imbalance. They have also made the decision to keep the KORUS reauthorization limited. It will not be a comprehensive renegotiation and is not likely to include changes in agriculture.

President Trump remains focused on the need to reduce the United States’ overall trade deficit and has repeatedly called for reworking the deal to address the roughly $28 billion trade deficit in goods between the two countries.

Asia Pacific Trade

TPP

On October 5, 2015 negotiators on the Trans-Pacific Partnership (TPP) completed the deal. Passage of Trade Promotion Authority (TPA) in the summer of 2015 set the rules for how TPP and any future free trade agreement will be considered. However, opposition to TPP from both Democrats and Republicans kept the Bill from being sent to Congress for consideration under the Obama Administration.

On January 23, 2017 President Trump formally withdraw the U.S. from the TPP deal. However, the other 11 countries in TPP continued to move forward without the U.S. and in January they reached a final agreement for closing the TPP 11 agreement. The new agreement establishes the Comprehensive and Progressive Trans-Pacific Trade Partnership (CPTPP). Following the announcement of the CPTPP President Trump made comments at the Davos Economic Forum that the U.S. might consider reentering TPP is it was renegotiated. While there is no active strategy behind the President’s comments, ASA and the U.S. Food and Ag Trade Dialog has sent a letter to the Administration offering support for the U.S. reconsideration of TPP.

Japan

With the U.S. pulling out of TPP much of the U.S. conversation has been looking to whether bilateral trade agreements in the Asia Pacific are possible, specifically with Japan. ASA met with the Japanese embassy in September 2017 to discuss current relations. Japan is a part of the TPP 11 without the U.S. however they continue to encourage the U.S. to return to the agreement. In the interim the U.S. and Japan have been having discussion through an economic dialog led by Vice President Pence. This dialog has not included the possibility of a Japan-U.S. FTA. However, Japan and the U.S. are having discussions on some agriculture issue related to the TPP including issues surrounding beef imports to Japan.

Section 232

On February 17, 2018, the Commerce Department released the reports on its investigations on imported steel and aluminum under Section 232, recommending that tariffs be placed on both. The White House will now decide whether to put the recommended tariffs in place. The White House at 90 days from January 15 to decide. ASA is concerned about the potential for retaliation from the Chinese in response to these tariffs, should they be imposed. Section 232 does not only apply to China; however, it would hit China the hardest given the amount of steel they export to the U.S. and other countries whose end products are imported into the U.S. We have also heard directly that China has threated to retaliate against

U.S. soybeans if the U.S. goes after Chinese steel. This is a very worrisome situation and ASA has been in constant contact with USDA, USTR, Treasury and Commerce about the negative implications of this action and has sent several letters to the administration.

Issues Background

The U.S. Department of Commerce is undergoing a Section 232 investigation regarding steel and aluminum. Section 232 investigations are initiated to determine the effects of imports of any articles on U.S. national security. In this case, the Commerce Department is determining the effect of steel imports on the national security. Generally, steel products fall into one of the following five categories (including but not limited to): Flat products, long products, pipe and tube products, semi-finished products, and stainless products. Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862) authorizes the Secretary of Commerce to conduct these comprehensive investigations. The Secretary initiated the investigation on steel imports considering the large volumes of excess global steel production and capacity. Steel is used in a variety of commercial, infrastructure and defense applications. By law, the Secretary of Commerce has 270 days to present the Department’s findings and recommendations to the President. Within 90 days after receiving the report from the Secretary, if the Secretary finds that an import threatens to impair U.S. national security, the President shall determine whether he concurs with the Department’s finding and, if so, the nature and duration of the action that must be taken to “adjust” the imports of the article and its derivatives so that such imports will not threaten to impair the national security. Under Section 232, the President has broad power to impose trade remedies such as tariffs and quotas.

On steel:

  1. A global tariff of at least 24 percent on all steel imports from all countries, or;
  2. A tariff of at least 53 percent on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100 percent of their 2017 exports to the United States, or;
  3. A quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the United States.

On aluminum:

  1. A tariff of at least 7.7 percent on all aluminum exports from all countries, or;
  2. A tariff of 23.6 percent on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100 percent of their 2017 exports to the United States, or;
  3. A quota on all imports from all countries equal to a maximum of 86.7 percent of their 2017 exports to the United States.

Section 301

Section 301 of the Trade Act of 1974, gives the U.S. Trade Representative broad authority to respond to a foreign country’s unfair trade practices. If USTR makes an affirmative determination of actionable conduct, it has the authority to take all appropriate and feasible action to obtain the elimination of the act, policy, or practice, subject to the direction of the President, if any. The statute includes authorization to take any actions that are within the President’s power with respect to trade in goods or services, or any other area of pertinent relations with the foreign country.

In August the U.S Trade Representative Robert Lighthizer formally initiated an investigation of China under Section 301 of the Trade Act of 1974. The investigation will seek to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce. The initiation follows President Trumps’ Memorandum on August 14, 2017 instructing the U.S. Trade Representative to consider the possible initiation of an investigation.

The Chinese Embassy in Washington DC has expressed specific concern to ASA with regards to the Section 301 investigation and indicated that is the 301 investigation moves forwards and a determination against China is made they would be forced to retaliate against the U.S. and soybeans are a likely target.

Since this investigation was initiated ASA along with other U.S. Food and Ag trade dialog members have been devising a strategy for engaging with USTR on this issue.

Low Level Presence (LLP)

Countries that export and import biotech crops have different regulatory systems, resulting in asynchronous approvals. As a result, there can be delays of two years or more between the time a biotech trait is approved in an exporting country and its approval in a major foreign market. Since most countries with regulatory approval systems apply a “zero tolerance” for the presence of an unapproved trait, cargoes containing even a trace can be rejected, resulting in significant losses to the exporter. However, biotech companies are increasingly anxious to bring new traits to market, and are developing and implementing limited, stewarded launches prior to approval in all foreign markets. This raises the potential for error and liability.

The ultimate solution to these delays and risks would be a global agreement to synchronize approvals, or “mutual recognition agreements” under which importing countries would accept a decision to deregulate a trait in an exporting country. These approaches appear unlikely to be accepted soon. A workable alternative would be for governments to agree to accept a commercially feasible Low Level Presence (LLP) for a trait approved in an exporting country but not in importing countries. The grain trade indicates an LLP of 5%, for example, could be achieved under current marketing practices. In addition, if a country preferred, it could implement some other “trade facilitating measure” that would not set a threshold level for LLP but would otherwise accommodate the presence of an unapproved trait in a shipment.

The U.S. Government is participating with other exporting and importing countries in a Global Low Level Presence Initiative (GLI), with the goal of reaching an agreement on how to address the issues of synchrony and LLP on a global basis.

 

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