Let’s Talk “Trade And …”

By Shawn Marie Jarosz, TradeMoves, and the TradeMoves’ Team

Importers and exporters alike know that cross-border supply chains are often impacted by changes in trade policy and domestic legislation – both by the United States as well as its trading partners. Deciphering which areas may impact import-export operations can be tricky. In this article, the TradeMoves’ team has curated three policy areas to watch – specifically, trade and… human rights, the environment, and health & wellbeing.

Trade and… Human Rights

Human rights issues are becoming increasingly linked to trade policy. In recent years, both labor standards and forced labor issues have come into the global spotlight. Importers and exporters must be aware of labor regulations and work to prevent instances of forced labor and labor rights violations in their supply chains.

As a U.S. importer, due diligence is key. U.S. law requires importers to take appropriate steps to ensure goods are not sourced or processed “in whole or in part” using forced labor. U.S. Customs and Border Protection (CBP) detains hundreds of shipments a year, allowing importers three months to provide proof that goods were not produced using forced or child labor.[i] Detentions are based on CBP-issued withhold release orders (WROs), which can be specific to products from a specific manufacturer, region, or country. A list of all WROs can be found here. If your imported goods are subject to a WRO, be ready to show CBP that forced or child labor was not used to produce the goods. Current WROs on agricultural goods include tomatoes, tea, and garlic from China, cotton from China and Turkmenistan, and palm oil from Malaysia.

As part of due diligence, CBP expects industry to have visibility into their supply chains beyond their tier 1 and tier 2 suppliers. The U.S. Department of Labor provides resources, such as the List of Goods Produced by Child Labor or Forced Labor, to aid importers in this area. Best practices beyond a comprehensive supply chain profile include: a written code of conduct to be shared with suppliers that aligns with International Labour Organization guidelines, third party audits of the supply chain, relevant business document such as contracts, and methods to monitor compliance and address non-compliance by employees or suppliers.[ii] At times it may be difficult for CBP to trust audits as certain areas, like the Xinjiang region of China, restrict access for independent investigations.

The United States is not the only country concerned with violations of labor and human rights in global supply chains. Other countries are also working to eradicate the use of forced labor to harvest and produce goods. For example, the United Kingdom currently enforces the Modern Slavery Act of 2015, which requires transparency into supply chains for imported goods.[iii] Additionally, important markets like Canada, Australia, and the European Union are in the process of strengthening their forced labor laws and enforcement mechanisms to prevent goods produced using forced labor from entering their borders.[iv],[v], [vi] Scrutiny by governments, paired with strong public interest, means companies need to ensure supply chain visibility as far back as the seed or origin of the inputs.

Importers should also be aware of other labor concerns. Newer trade agreements, like the United States-Mexico-Canada Agreement (USMCA), include language designed to promote better labor standards and ensure that labor complaints are properly investigated and resolved.[vii] We expect future trade deals to include similar enforcement provisions to ensure that workers around the world are treated fairly, and level the playing field on trade.

Trade and… the Environment

Climate change continues to be a driving force behind countries’ domestic and foreign policy decisions. The United Nation’s Intergovernmental Panel on Climate Change (IPCC) released a report on 7 August 2021 stating that “human influence has caused widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.”[viii] Trade policy has increasingly become a tool of choice for policymakers to address climate change.

Multiple countries are considering carbon border adjustment mechanisms to address climate change. The goal is to prevent “leakage”, which occurs when companies offshore their production to countries with lenient environmental regulations. The European Union has proposed a plan which calls for EU importers to “buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules.”[ix] A carbon border adjustment tax has also been introduced in the U.S. Senate. The “Fair, Affordable, Innovative, and Resilient Transition and Competition Act” proposes flat fees on certain carbon-intensive industries like the steel, iron, and coal sectors.[x] Other major markets like Canada and Japan are planning similar initiatives.[xi] Climate-related policies will continue to impact cross-border trade, including agricultural trade.

The “EU Green Deal” is the European Union’s attempt to update Europe’s regulatory policies for food to make it the first climate-neutral continent by 2050. Through the “Farm to Fork” initiative, the European Union hopes to “obtain ambitious commitments from third (non-E.U.) countries in key areas such as animal welfare, the use of pesticides, and the fight against antimicrobial resistance.”[xii] The EU will work to enhance sustainability and safety standards on agricultural goods which could have an impact on U.S. agriculture exporters in the future.

In addition to unilateral actions proposed and underway, multilateral initiatives are helping countries achieve environmental goals. At the World Trade Organization (WTO), 18 countries including the United States have been negotiating an Environmental Goods Agreement since 2016 which would eliminate tariffs for all WTO members on many important environment-related products to help facilitate more global clean energy.[xiii] On a plurilateral level, the United States Mexico Canada Agreement (USMCA), which went into effect in July 2020, takes unprecedented action in its Environment chapter to protect wildlife and monitor endangered flora and fauna in the three North American markets.[xiv]

Trade and… Health & Wellbeing

Mandatory front-of-pack nutritional labeling (FOPNL) is increasingly common in many markets.[xv] Operationally, these labeling regimes encompass many approaches as there is currently no global guidance on simplified nutrition labeling requirements. There is concern that without a clear, harmonized approach, FOPNL schemes are becoming barriers to trade.

FOPNL systems vary both in design and content. Some flag “high” content of nutrients linked to poor health and others evaluate and summarize the nutritional quality of products overall.[xvi] For example, several countries in South America – including Mexico, Chile, Ecuador, and soon, Colombia – require traffic light logos or stop signs which act as warning labels for consumers to avoid certain foods if products are high in calories, sugar, sodium, and/or fat.[xvii] The growing momentum, compounded by the diversity in FOPNL options, has created a disharmonized regulatory environment that generates problems for manufacturers and consumers alike.

For the food industry, the unnecessarily diverse approaches force them to cater to different labeling requirements in different markets, creating concerns over unjustified barriers to trade. Whereas FOPNL was once considered primarily an issue impacting only “junk foods”, the food and agriculture sector is seeing products, like almonds with some salt, or cheese, now labeled with stop signs. In May, the United States voiced concerns at the WTO Committee on Technical Barriers of Trade that Mexico’s new FOPNL system is “more trade restrictive than necessary” to meet health objectives.[xviii] Further, FOPNL schemes can lead to scope creep and regulatory add-on effects, such as “junk food” taxes, marketing restrictions, and sales bans for certain foods.

For consumers, the absence of a global standard has created a regulatory environment where FOPNLs can be confusing and unhelpful. The various competing FOPNL schemes do not necessarily help consumers understand labels or how different foods contribute to a well-rounded diet. Instead, consumers may be overloaded with information, and find it difficult to compare products.[xix] Apart from the operational obstacles, there is a significant knowledge gap around FOPNL schemes.[xx] Despite their growing use, we lack enough research on the extent to which FOPNL systems influence consumer behavior.

For consumers, the absence of a global standard has created a regulatory environment where FOPNLs can be confusing and unhelpful. The various competing FOPNL schemes do not necessarily help consumers understand labels or how different foods contribute to a well-rounded diet. Instead, consumers may be overloaded with information, and find it difficult to compare products.[xix] Apart from the operational obstacles, there is a significant knowledge gap around FOPNL schemes.[xx] Despite their growing use, we lack enough research on the extent to which FOPNL systems influence consumer behavior.

Policy makers increasingly understand the need for labeling regimes that promote healthier consumption without inadvertently creating barriers for industry and consumers alike. The decision by the Codex Alimentarius Commission – part of the FAO/WHO Food Standards Program – to discuss global FOPNL guidelines, as well as other initiatives within the World Health Organization, are helpful starts. Looking ahead, a possible global approach on FOPNL should seek to outpace the rate of individual markets’ FOPNL implementation.

Trade and…

International trade has always been about the movement of goods and services across national borders. The intersection of trade with human rights, environmental concerns, and health and wellness adds complexity and operational challenges that companies of all sizes need to be aware of, engage in discussions with stakeholders, and contribute commercially viable and consumer-minded solutions to ensure global value chains that provide enhanced transparency and traceability on how and where food is grown and processed, and knowledge for consumers to make informed decisions for their diets.

About the Author:

Shawn Marie Jarosz is chief trade strategist at TradeMoves LLC, which she launched in 2006 to serve food and agriculture clients with their global trade priorities and initiatives. Her tenure in international trade spans more than 25 years managing global sourcing/supply strategies and customs issues on behalf of companies of all sizes and trade priorities for U.S. industry associations. Jarosz is delighted to be speaking at the 10th anniversary Women in Agribusiness (WIA) Summit in September 21-23, 2021 in Minneapolis, and would like to give a shoutout to the TradeMoves’ team -- Andrew Polinski, Colleen Cosey, and Leonardo Boccalon -- for their assistance in writing this article.

ENDNOTES:

[i] “Federal Efforts to Prevent Imports Produced Using Forced Labor From Entering the US.” Government Accountability Office (16 June 2021).

[ii] “Responsible Business Practices on Forced Labor Risk in the Global Supply Chain.” U.S. Customs and Border Protection (17 August 2018).

[iii] Modern Slavery Act 2015: Section 54. UK Public General Acts (2015).

[iv] “Canada announces new measures to address human rights abuses in Xinjiang, China.” Government of Canada (12 January 2021).

[v] Customs Amendment (Banning Goods Produced by Uyghur Forced Labour) Bill 2020. Australia Foreign Affairs, Defence and Trade Legislation Committee (June 2021).

[vi] “New EU guidance helps companies to combat forced labour in supply chains.” European Commission (13 July 2021)

[vii] Villarreal, M. Angeles and Cathleen D. Cimino-Isaacs. “USMCA: Labor Provisions.” Congressional Research Service (8 January 2021).

[viii] “Climate Change 2021 The Physical Science Basis Summary for Policymakers.” Intergovernmental Panel on Climate Change (6 August 2021).

[ix] “Carbon Border Adjustment Mechanism: Questions and Answers.” European Union (14 July 2021).

[x] “Coons: US could move ‘first’ on carbon border adjustment.” Inside US Trade (3 August 2021).

[xi] Environmental Goods Agreement. WTO (2016).

[xii] Farm to Fork Strategy, European Union, (May 2020).

[xiii] Environmental Goods Agreement.

[xiv] Benefits for the Environment in the United States-Mexico-Canada Agreement, USTR (2020).

[xv] Pan American Health Organization (2020).

[xvi] Kanter, Vanderlee, & Vandevijvere. “Front-of-package nutrition labelling policy: global progress and future directions.” Public Health Nutrition (2018).

[xvii] Decreto Ejecutivo 1395. Oficina del Presidente Constitucional de la Republica del Ecuador (30 October 2008)

[xviii] Esposito, A. “Mexico's new warning labels on junk food meet supersized opposition from US, EU.” Reuters (2020).

[xix] Marie, A. and Jones, Huckel, & Labonte. “Global Governance of Front-of-Pack Nutrition Labelling: A Qualitative Analysis.” Nutrients (2019).

[xx] Kanter, Vanderlee, & Vandevijvere. “Front-of-package nutrition labelling policy: global progress and future directions.” Public Health Nutrition (2018).