SPEAKERS CONTENTS INSERTS
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ECONOMIC SANCTIONS AND THE EFFECT ON U.S. AGRICULTURE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
JUNE 9, 1999
Serial No. 10626
Printed for the use of the Committee on Agriculture
COMMITTEE ON AGRICULTURE
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LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
Page 3 PREV PAGE TOP OF DOCMICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
Page 4 PREV PAGE TOP OF DOCLEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
C O N T E N T S
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, prepared statement
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Hilliard, Hon. Earl F., a Representative in Congress from the State of Alabama, prepared statement
Stabenow, Hon. Debbie, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
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Amstutz, Daniel G., president and chief executive officer, North American Grain Export Grain Association, Inc.
Cleberg, Harry, president and chief executive officer, Farmland Industries, Inc.
Eizenstat, Hon. Stuart, Under Secretary, Economics, Business, and Agricultural Affairs, U.S. Department of State
Glickman, Hon. Dan, Secretary, U.S. Department of Agriculture
Hillman, David, vice-president, Arkansas Farm Bureau Federation
Nethercutt, Hon. George E. Jr., a Representative in Congress from the State of Washington
Pine, Roger, president, National Corn Growers Association
Sims, Wes, National Farmers Union
Sneary, Loy, U.S. Rice Producers and U.S.A. Rice Federation
Yost, Mike, president, American Soybean Association
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Cooksey, Hon. John, a Representative in Congress from the State of Louisiana, letter of July 2, 1999 to Secretary Glickman
ECONOMIC SANCTIONS AND THE EFFECT ON U.S. AGRICULTURE
WEDNESDAY, JUNE 9, 1999
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to notice, at 10:01 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Boehner, Ewing, Goodlatte, Smith, Lucas of Oklahoma, Chenoweth, Hostettler, Moran, Thune, Jenkins, Cooksey, Calvert, Gutknecht, Riley, Walden, Simpson, Ose, Stenholm, Condit, Peterson, Dooley, Clayton, Minge, Hilliard, Pomeroy, Holden, Bishop, Baldacci, Berry, Goode, McIntyre, Stabenow, Etheridge, Boswell, Phelps, Lucas of Kentucky, and Hill.
Staff present: Tom Sell, deputy staff director; Lynn Gallagher, senior professional staff; Greg Zerzan, associate counsel; Jason Vaillancourt; professional staff; Callista Bisek, scheduler/clerk; Wanda Worsham, chief clerk, and Andy Baker, minority consultant.
The CHAIRMAN. The hearing will come to order.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
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The CHAIRMAN. I appreciate everyone being here today.
I am pleased to welcome all of our committee's witnesses to this hearing on the effect of sanctions on U.S. agriculture.
Today the committee will hear from the Secretary of Agriculture, Dan Glickman, and Under Secretary of State for Economics, Business, and Agricultural Affairs, Ambassador Stuart Eizenstat.
This is Ambassador Eizenstat's first appearance before this committee. He will be moving over to the Treasury Department, subject to his confirmation by the Senate. We wish him well and hope that he will remember agriculture in his new position.
The use of economic sanctions is a subject that has captured the attention of all of us who are interested in the prosperity of our farmers and ranchers. We all can agree with the President's statement that food should not be used as a tool of foreign policy, and I especially welcome the administration's April 22 announcement regarding lifting of certain economic sanctions.
Food should not, under most circumstances, be used as a weapon. Such a policy ends up hurting our farmers and ranchers and all involved in agriculture production, processing, and distribution.
There are three things that can happen when agriculture sanctions go into effect; none of them are good. Exports go down; prices go down; and farmers and ranchers lose their share of world markets.
In 1980, the Soviet grain embargo was one example of the effects of sanctions on U.S. agriculture. Wheat sales were lost, and France, Canada, Australia, and Argentina stepped in and sold wheat to the former Soviet Union.
I believe it is time for a review of the agricultural sanctions policy of the United States. There are several bills that have been introduced regarding this subject. Mr. Ewing and Mr. Dooley are deeply involved in proposing such legislation.
Page 8 PREV PAGE TOP OF DOC It is my judgment that, at the very least, agriculture commodities, including food, feed, and fiber, should be excluded from all future sanctions, and credit guarantees should be allowed for these commercial sales. Exceptions should be provided to the President for cases of national emergency.
The administration has addressed in some part to the six countries that are affected by U.S. trade sanctions. U.S. agricultural exports to Iran, Libya, Sudan, will be determined under the licensing system proposed on April 28. Commercial sales of food to Iraq are permitted under the UN Security Council resolution providing an exchange of oil for food. Cuba is covered by the President's January 1999 announcement regarding the sale of food and agriculture to independent, non-governmental entities. Exports of commercial goods, including food to meet basic human needs, are allowed to North Korea. In fact, the United States has promised donations of 600,000 tons of food aid to North Korea for this year.
We ought to ensure that food and agriculture are not included in any future sanctions or embargoes. I hope that Congress will act soon to reform our sanctions policies. Nevertheless, the administration has an opportunity to open markets for U.S. agriculture by quickly issuing the regulations to implement its April 28 announcement.
According to USDA, the impact of the sanctions currently in place has lost agriculture sales at least $500 million per year. I urge the administration to issue these regulations as soon as possible and in a form that can be implemented quickly by U.S. agricultural exporters.
Again, I appreciate all of our witnesses attending today, and I will recognize Mr. Stenholm for any opening comments he might make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Page 9 PREV PAGE TOP OF DOC Mr. STENHOLM. Thank you, Mr. Chairman; and thank you for calling this hearing today to examine the effects of sanctions on U.S. agriculture. And I think that almost all of us here in the room today would agree that the effects have not been positive ones.
USDA's conservative estimate is that agriculture has lost $500 million in 1996 because of sanctions. That is not to say that all sanctions should be prohibited. We probably all agree that if faced with a choice between using an effective multilateral sanctions regime or using military force to accomplish our foreign policy goals, we would prefer multilateral sanctions.
The problem is that we have often been unable to agree with our allies on a multilateral sanctions regime and have instead resorted to ineffective unilateral sanctions that changed trade patterns but do not change the behavior of the targeted country.
The administration's most recent statement on sanctions policy correctly notes that food and other human necessities should not be used as tool of foreign policy, except under extraordinary circumstances. It also states that before we implement unilateral sanctions, we should ensure that they will contribute to U.S. foreign policy goals, and that the cost to U.S. interests are minimized.
I would like to focus for a moment on the cost of sanctions to U.S. agriculture. In its recent publication on sanctions, CBO downplays the costs of sanctions, stating that immediate costs to businesses and workers directly affected by sanctions appears great to them, but that benefits to other sectors of the economy will generally offset all of the loses they incur.
Applying the CBO analysis to the $500 million of lost agriculture sales in 1996 that I referenced a moment ago, it is difficult to find the benefits to other sectors referred to by CBO. This is because the $500 million is a net figure that has already taken into account any such benefits. The gross amount of the loss in 1996 was $1.3 billion. USDA reduced that amount by about two-thirds to account for the trade diversion to third-country markets. For example, if we do not sell wheat to Iran, Australia will. As a result, the amount of Australian product that goes to Iran will not be available for sale in other markets, generating an opportunity for U.S. sales in those markets. That $500 million net amount is not an offset. It is a loss to the American economy.
Page 10 PREV PAGE TOP OF DOC CBO acknowledges in its report that there may be other cost consideration, but glosses over the issue. In agriculture, those other cost considerations are the long-term damage to our creditability and reputation. Our use of such sanctions undermines our creditability when we urge food-importing nations to rely on the marketplace to feed their people. Sanctions also undermine our reputation as a reliable supplier to our regular customers, creating opportunities for competitors such as Canada, the European Union, and Argentina to gain long-term market share. These are the other cost considerations that are not included in the $500 million that we know we lost in 1996 alone.
The CBO report also fails to address the cumulative fact of losses due to sanctions. For over 35 years, we have foregone sales of rice and pork to Cuba, once a major market for these products. This failed policy that has allowed Thailand and China to take the rice market and Denmark and the Netherlands to take the pork market in Cuba.
Today I am adding my name to the list of over 130 current cosponsors of H.R. 1644, Congressman Serrano's Cuban Food and Medicine Security Act of 1999, and I encourage my colleagues to join me in supporting this change to allow sales of food and medicine to Cuba.
Cuba is also an excellent example of why we need to enact reform legislation that improves the way we make decisions to impose unilateral economic sanctions. I believe that the Crane-Dooley sanctions reform bill will do just that, and I encourage my colleagues to join in cosponsoring that bill.
Again, thank you, Mr. Chairman, for holding this very important hearing today.
The CHAIRMAN. Thank you, Mr. Stenholm.
And as usually is the case, without objection, all statements of our colleagues on the committee will be entered into the record, as well as any additional information that witnesses wish to provide beyond their statements.
Page 11 PREV PAGE TOP OF DOC [The prepared statements of Messrs. Barrett, Hilliard, and Ms. Stabenow follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Today, the members of the Committee on Agriculture will receive testimony regarding economic sanctions and the effect on U.S. Agriculture. I want to thank Chairman Combest for his continued leadership in this very important issue that faces our Nation's producers. It is very important that we strive to promote agriculture trade and strengthen the American family farm and ranch. As always, I would like to welcome Secretary Glickman to our committee. Mr. Secretary, it is a pleasure to have you here today.
The current stresses on our agricultural sector are affecting the financial situation of our farmers and ranchers today more than ever. Commodity prices are reaching record lows, especially corn, wheat, cotton, and soybeans. As we have painfully re-learned again in the past 18 months, our commodity prices are directly affected by supply/demand conditions. Specifically, the Asian financial crisis and the limitations on exports due to U.S. Government sanctions on a number of countries are having adverse effects on U.S. agricultural exports.
I am especially concerned about the effect of sanctions on U.S. agricultural trade. If we are in the business of selling our agricultural products to the world, why are we telling approximately two-thirds of our potential customers to go somewhere else? Trade sanctions are ineffective and only hurt American farmers and ranchers.
I commend the administration with its recent action that lifted sanctions on Libya, Sudan, and Iran. However, it is critical that the administration be more aggressive in helping U.S. farmers develop and maintain markets.
Congress' intent with the passage of the Freedom to Farm bill was USDA's full utilization of all tools available to enhance sales and discourage unfair competition. In order for the current farm bill to be successful, farmers must have a highly aggressive and focused export policy.
Page 12 PREV PAGE TOP OF DOC As a committee, our members have expressed concern with trade sanctions in the past. Increasingly, more and more Members of the House of Representatives have come to realize the financial downside to economic sanctions. It is especially evident in agriculture that we must continue to open markets for our agriculture commodities.
It is important that we continue to review this very important issue as our producers face extremely low commodity prices. I look forward to hearing testimony from each witness present today.
PREPARED STATEMENT OF HON. EARL F. HILLIARD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALABAMA
Thank you Mr. Chairman. I want to commend you on calling this important hearing today.
The policy of this country has been to impose unilateral sanctions against countries with which we have differences, these sanctions for the most part have been a complete, across the board, ban on trade or exchange in all areas.
I have seen first-hand that the practice of imposing unilateral sanctions, in the hope of crippling the leadership of a country failed. In most instances, those very leaders are the last to feel the impact of sanctions. Due to the enormous amount of power amassed by the heads of enemy states, the sanctions have a debilitating effect, not on the leadership, but on the citizens.
I have observed during my participation on several congressional delegations that sanctions have truly hurt the country itself, and not the leadership.
In the context of this hearing today, Mr. Chairman, the U.S. policy of sanctions has had a devastating effect on the agriculture community. in conversations with the representatives from the farming community in my district, as well as farm groups around the country, I have been told in no uncertain terms that sanctions are hurting America's farmers.
Page 13 PREV PAGE TOP OF DOC I visited Cuba early this year, and that country is dying to buy wheat and other agriculture products from this country. I think that you will find a similar urgency to purchase agricultural staples from American farms in most nations that are currently under U.S. sanctions.
In addition to the economic impact on America's farmers. The policy of denying food, and medicine to a country we have political disputes with is harming innocent people. many of the citizens of the countries under sanctions are suffering from malnutrition and poor health because of unilateral sanctions.
Mr. Chairman, I can agree with suspending arms sales to countries that we have sanctions against; however, I am completely against using agricultural products as tools of sanctions. At a time when American farmers struggling to make ends meet, limiting their ability to sell products to countries in need only increase their financial problems.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. Chairman, I am pleased to have the opportunity to participate in today's Agriculture Committee hearing that will review the effect of economic sanctions on U.S. Agriculture. This is an issue of great concern to me. The future of our Nation's agricultural economy will rely on global trade. Recent sanctions, that are politically important and necessary, nonetheless have closed markets for U.S. agriculture and hurt our farmers and ranchers.
Today's witness list is impressive. Representative George Nethercutt will testify in the first panel. Secretary Glickman, I appreciate you coming to today's hearing to discuss such an important issue. I also welcome Under Secretary Stuart E. Eizenstat. Several commodity groups that have been hurt by recent sanctions are here to present their concerns, which I am eager to hear. I am also looking forward to hearing testimony from the Farm Bureau and the National Farmer's Union. These groups will provide this committee with a perspective from the field.
Page 14 PREV PAGE TOP OF DOC I am encouraged that all of these groups have been brought together to find a solution to this problem. Economic sanctions are an important foreign policy tool, however, as a Nation we must remember the impact this tool has on our domestic economy, particularly on agriculture. My priority as a member of this committee is to be the guardian of our Nation's farmers. I am hopeful that today's hearing will keep our farmers' and ranchers' welfare as a priority as we analyze the impact of economic sanctions.
The CHAIRMAN. At this time, I'd like to introduce and invite our first witness, our colleague from the fifth district of Washington, the Honorable George Nethercutt.
I welcome you, and proceed, please.
STATEMENT OF HON. GEORGE R. NETHERCUTT, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
Mr. NETHERCUTT. Thank you very much, Mr. Chairman, and members of the committee. I appreciate very much the opportunity to appear here today to testify in support of a very clear review of the American sanctions policy that has existed in this country from many years.
I am very familiar with each and every member who is seated here today, and I know that each of you care deeply about American agriculture and what happens to American agriculture.
And I am grateful to you, Mr. Chairman, and certainly to Mr. Stenholm and every member here for holding this hearing, and addressing this very critical issue.
I am a member of the Appropriations Committee and and I proudly serve on the Agriculture Subcommittee.
Page 15 PREV PAGE TOP OF DOC Yesterday we had the agriculture appropriations bill on the floor of the House, and we had an interesting debate, not only yesterday on the floor, but also in the full committee a couple of weeks ago, talking about an amendment that I introduced that mirrors H.R. 212. It is a bill that I have introduced that will allow sanctions to be removed on all countries on which they currently exist, in the areas of food and medicine.
We had an interesting debate in the full committee, as I said, a couple of weeks ago on an amendment which would have been included in the agriculture appropriations bill, which would have done thatjust thatlifted unilateral agricultural sanctions on all countries. Sanctions would be subject to reimposition in the event that the President, felt that lifting those sanctions would pose a national security risk for the United States.
H.R. 212 deals only with lifting sanctions on food and medicine. It doesn't provide any Government guarantees or any other credit programs that are currently available to other nonsanctioned countries, but it would allow direct sales. And I think it is a bill that is worthy of this committee's careful analysis. I know many of you are already cosponsors on H.R. 212.
And Mr. Serrano and I had a good debate about this bill on the floor yesterday. We think alike on this issue, as this agriculture appropriations bill came to the floor. And I respect his position and his outlook on this issue which I think is critically important to American agriculture.
Mr. Chairman, I do have a statement that I have prepared and presented to the committee. I would hope that it would be made a part of the record. And I just want to make a few comments before answering any questions the committee may have.
I think we are missing a huge opportunity for those States that produce agriculture and produce agriculture for export. And I have a self-serving interest in this case because Washington State exports about 90 percent of the wheat that we produce. We have the potential to have a pea market for peas and lentils in Cuba which Mr. Stenholm mentioned. We used to have a great relationship with Iran as a purchaser of our wheat. We don't have that now because of the imposition of the unilateral sanction.
Page 16 PREV PAGE TOP OF DOC It is not only beneficial to the American agriculture economy in my part of the country, but it is humane that we not use food as a weapon. We should allow medicine to be transported into these countries. These states may have dictators and people with whom we disagree violently on the issue of public policy, as they relate their policies to their own people. But using food and agriculture and medicine as a weapon is not the right policy.
We have about a $6 billion opportunity if we lift sanctions on these countries on which we currently have sanctions.
When the 1994 Arms Export Control Act required that Congress impose sanctions on Pakistan and India when they conducted nuclear testing, what that meant to my State was a $40 million loss of the sale of wheat. I offered an amendment that lifted those sanctions. We did it through the appropriations process, and then it was completed through the other options, through other opportunities in the legislative process, and those sanctions were lifted. I talked to the Ambassador to Pakistan the next day, and the Ambassador said, ''Instead of tendering 300,000 metric tons, 200,000 to the United States and 100,000 to Australia, we are going to add another 100,000 metric tons and we are going to have a 300,000-metric-ton sale that goes to the United States.'' And my State benefited about $40 million in connection with the lifting of those sanctions. The market is about a $6 billion market for our country in agriculture.
But second of all, we lessen competition through sanctions and that is what it really does to our farmers. In the single purchaser desks in Australia and Canada, they can go to a country that is sanctioned and charge a higher commodity price because they don't have any competition from American farmers. And so, since we can't compete in that marketin those markets in which we compete with Canada and Australia, for examplethey, then, have the opportunity to undercut us because they have been able to charge higher prices in those sanctioned countries as they trade with them, and we can't trade with them. So it is a distinct disadvantage to our farmers.
Page 17 PREV PAGE TOP OF DOC Another point I want to make to the committee is this: We are always under pressure, as people who care about agriculture or taxpayer dollars that go to farmers. I hear it among my urban friends in the Congress. ''You are giving more money? You want to give more money to the farmers?'' Well, lifting sanctions is a free market way that we don't have to come to the Congress and say, ''Because of depressed markets, because of depressed competition, we need to assist our farmers. Because of disasters, we need to assist our farmers through Federal taxpayer assistance.'' So lifting sanctions is clearing consistent with a free-market approachto a freer market approach to American agriculture. And yet, we presently shut off markets that our farmers are really very anxious to deal in.
So H.R. 212 is called the Freedom to Market Act, and I am here pitching it to you because I think it makes good sense. It lifts sanctions; it opens markets; but it still protects the national security interests of the country, to the extent that the President feels it is necessary to reimpose a waiveror as I should say, exercise a waiver and reimpose the sanctions for national security purposes.
But I am hard-pressed to conclude that any countrywhether it is Iran, Iraq, or any other terrorist regimeis going to shoot grain back at Americans; they are not going to do it. Nor will they punish us with medicine.
But if we deal with these countries in an open fashion, export our agriculture commodities to them, the American farmer benefits, and the people of these countries benefit as well.
So I thank you for having this hearing. I hope you will consider very seriously reporting out a bill that lifts sanctions. Our Congress, our country, needs to have this very serious debate. And I am delighted the President has taken steps, and this administrationSecretary Glickman, Mr. Eizenstat, and otherswho see the wisdom of lifting sanctions. And, frankly, I think the President's proposal is a good first start, but we need to codify this so that it is not going to be frustrated by the bureaucracy of government. On a case-by-case basis, the lifting of sanctions to the Sudan and Libya and Iran is a good step, but it is going to take some bureaucratic determinations that slow down the relationship between the farmer and the purchaser. So I applaud the administration, but I also think that the Congress needs to act to pass legislation that changes the sanctions policy for our country forever, to the better, to the assistance of agriculture and to the assistance of the agriculture economy.
Page 18 PREV PAGE TOP OF DOC With that, Mr. Chairman, I will stop and answer any questions that you may have.
[The prepared statement of Mr. Nethercutt appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Nethercutt.
Are there questions of our colleague from any of the members of the committee?
Mr. POMEROY. Mr. Chairman, Mr. Nethercutt, I want to thank you for your leadership on these issues. It has been consistent, and we have appreciated it. I think it serves some value.
I am very troubled with the debate on agriculture issues that occurs within our respective caucuses. Goodness knows, we have them in the Democratic caucus, and we see them in the majority conference. Yesterday, as the agriculture appropriations bill, for example, was considered, we have seen you and the other agriculture appropriators so diligently fight the many amendments to cut that budget. And then we hear about a big conference where this matter is all discussed, and then see agriculture members, authorizers, agriculture appropriators vote to reduce the spending on agriculture by $102 million. Deeply distressing to me at a time when agriculture is in such hurt.
We see this bill of yourswhich I really like and intend to supportand at the same time, the chairman of the International Relations Committee has a bill, H.R. 1835, that would virtually make it impossible to ship any food to North Korea. So we have, again, a dispute within the conference.
And what I want your thought on, Mr. Nethercutt, is how do you see that dispute unfolding?
Page 19 PREV PAGE TOP OF DOC I think that the trouble with sanction reform, generally, is that we can all agree sanctions are bad and you shouldn't use food as a weapon. And then you get to dealing with a particularly unsavory potential customer like North Koreaand they are unsavory; they are unstable; they are a sick country, badly ledand at that point in time, the tendency to move a bill like Chairman Gilman's becomes greater. In other words, the general gives way to the particular, and you still have the sanction in place.
Do you see the Republican conference, the majority conference, reaching a position on North Korea food aid and one that would bind all members, like apparently they were bound on the appropriations vote?
Mr. NETHERCUTT. Well, Mr. Pomeroy, thanks for the question. And I appreciate your commitment in agriculture. I mean there is nobodyyou and I have worked together, and there is nobody that I have greater respect for in terms of the commitment to agriculture, and so the question is a fair one.
I will just say, as a member of the Agriculture Appropriations Subcommittee, I will be on the conference committee that deals with agriculture spending, and so I am pleased to have a chair at the table. And I think that our conference will be supportive of agriculture, as will the Democrats on the subcommittee as well.
So I think we will get to the issue that we had to deal with yesterday, I think in a balanced budget environment, we have to be careful how we spend money, and we can't afford to waste any. And so I think that is the attempt that our conference was expressing yesterday, is to make sure that we don't waste money, that we don't overspend on the agriculture budget.
With respect to coordination and determination of the issue of international relations versus agriculture, that is a very difficult one. I have fought that in the Agriculture Appropriations Subcommittee in terms of this particular sanctions relief amendment. There was objection raised that it is authorizing on an appropriations bills as begrudgingly, I admit. But on the other hand, we have to force this issue. And I think if there are enough of us, Democrats and Republicans, who care deeply about a policy that says sanctions are wrong, as it relates to food and medicine, then I think we will eventually prevail.
Page 20 PREV PAGE TOP OF DOC I was in South Korea a month or so ago, and you are right; North Korea is a terrorist regime. But we are giving them food right now. We are giving them food; the taxpayers are paying to send food aid to North Korea, in connection with other issues that relate to nuclear development.
So my argument is, let's let them purchase our food. We are going to give it to them anywaythe taxpayers are. Isn't it better to have us get that food as directly as we can to the people of North Korea?
It is a difficult solution to try to ponder and figure out. And my sense is, and I am probably going to get some people mad at me on the international side, but I think it is terribly complicated that whole international relations arena. I guess I am more simple focusedor simple minded. I think we ought to have an agriculture policy that is clear, and have to get the food where it ought to be. And we have to just keep pushing the Democrats and Republicans, alike.
Mr. POMEROY. I appreciate the gentleman's response. And I think that if agriculture members, Republican and Democrats, stand together and fight this bill, H.R. 1835, which I expect is going to be marked up in the International Relations Committee within the next few weeks. This isn't a hypothetical concern; it is coming down the track fast. If we can stand together, I am pretty sure we can beat that bill. If we don't stand together, I am pretty sure it could go.
I thank the gentleman.
Mr. NETHERCUTT. Thank you.
The CHAIRMAN. Do any other members have any questions for our colleague?
Mr. Nethercutt, thank you very much for attending, and we appreciate it.
Page 21 PREV PAGE TOP OF DOC Mr. GUTKNECHT. Mr. Chairman, I don't have a question so much, but I do want to thank Congressman Nethercutt for his leadership on this.
And some of usand I think, Mr. Pomeroy, you were there as wellyesterday, we were invited to a breakfast of the Farm Cooperative Group, and perhaps, Mr. Pomeroy, you missed the first comment, butand I hope I am quoting accurately. I know I am quoting, but I want to make sure that I am as accurate as I can. But one of the people who introduced the discussion yesterday started with a conversation that: We cannot print enough money to solve all of the problem of agriculture. So as you go forward on the conference committee, we all recognize in a balanced budget environment it is going to be very, very difficult to meet all of the legitimate needs of the American people and American farmers. But the unvarnished truth about our agricultural economy is we cannot eat all that we can grow. And we have to export, and we have to look for those market opportunities, and that clearly is a legitimate responsibility of this Government and this Congress.
I will tell you that I have been working, and my staff has been working, and I would like to encourage other members on this committee to work with the administration on what I describe as a world food treaty. I believe that we ought to be working with our counterparts in other parliaments and in other governments around the world to make it clear that food should never be used as a political weapon. I think there is something fundamentally immoral to saying to a country, ''We will not even sell you food at any price.''
And so I think this is a small step in the right direction. And I can report that we have had members of the Canadian Parliament as well as members of the German Bundestag who are aware of the efforts to try and create some kind of world food treaty. Last year, for example, a number of people were promoting the idea of a world treaty as it relates to land mines, and perhaps there is some reason to do that, but it seems to me, particularly this committee and this Congress, could help provide some leadership beyond what you are doing. And I really do you applaud what you are doing, George, and I want to do everything I can to help this bill ultimately pass and become part of public policy.
Page 22 PREV PAGE TOP OF DOC But I think the next step ought to be, we ought to be promoting, here in the United States and around the world, the basic notion that food should never be used as a political weapon. And I would hope that we can all work together on that, on a bipartisan basis, because I think poor people win, hungry people win, and American farmers win if we begin to recognize that we can't eat all that we can grow, and we should never deny people the ability to buy the product that we can grow so abundantly here in the United States.
Mr. POMEROY. Will the gentleman yield?
Mr. GUTKNECHT. Yes.
Mr. POMEROY. I think the gentleman's comments about food as a weapon are absolutely on point. It is very well stated.
To address, though, as a committee, the problems facing U.S. agriculture, I am very pleased to see the unity on sanctions. I just think we have to keep it in perspective. We are talking about being shut out of six countries; we are partially in three of those. The total purchasing power of those potential markets is less than 2 percent of world agriculture marketsgreater for wheat, which is very important to me, potentially 10 percent; so it is significant.
We need to take action in these areas, but sanctions, alone, is not going to be restore health to agriculture. Sanctions, alone, far from restoring health, is not going to preserve some of the family farmers we care about trying to make it to another crop year. That is going to take dollars.
The potential market of the agricultural exports that we are talking about by the Foreign Agricultural Service estimates is $500 million in 1996. Now we cut $100 million in direct spending on agriculture on the floor of the House last nightone step forward, two steps back. I think that much of thethere is no question about the sponsors seriousness of purpose and genuine concern about sanctions as a policy issue. He has been a real leader, second to none in the Congress. On the other hand, someand I am not saying anyone on this committeebut some glom onto the sanctions issue as an excuse for not devoting adequate resources to agriculture. And, basically, it is kind of a bait and switch; they say, ''Well, forget about farm spending; we are going to talk about sanctions. Everything is going to get well.'' It isn't; 2 percent of the world's potential food imports, potential $500 million market impact in 1996, that is not enough. We are going to have to, also, dig into the very tight budget, but make sure agriculture gets its fair share.
Page 23 PREV PAGE TOP OF DOC I yield back.
Mr. GUTKNECHT. Reclaiming my time, if I could just, Mr. Chairman, and members.
I think the issue is not just about the 2 percent that we are talking about that we are currentlythat may be ineligible to buy American-grown food and fiber. I think it sends a very bad signal to the rest of our potential trading partners, that we may ultimately say to them, ''We won't buy and sell to you, based on whatever political things may happen in your particular sovereign, territory.'' And so, I mean it may seem like a relatively small section, but it seems to me if you compare us to grocery storeif we say to certain customers, ''We are not going to sell to you''what kind of a message does that send to the rest of our potential customers?
So I think while this may not involve that many countries and that much trade today, I think by the symbolism of this act, I think takes us a long ways down the road.
Mr. NETHERCUTT. May I just take 30 seconds, Mr. Chairman, just to respond? It is a great debate. I have enjoyed listening to it.
The $500 million, in terms of loss, I think is way understated, because the agriculture economy is more than just dollars in the farmers' pocket. The farmer, then, buys from the implement store and buys seed and the groceries, and the rural America, then, prospers.
I also know that when cut off a market, as we did in 1980 with the Soviet Union, you pay a lot of time and effort to get it back again. So this islifting sanctions is only a first step. We need to get to earn those markets back, and that takes time. So, long term, in my judgment, it has got to be a good solution, but it is a good signal to the farmer that we care deeply about opening more markets to them to sell to.
The CHAIRMAN. The gentleman's time has expired.
Page 24 PREV PAGE TOP OF DOC Mr. SMITH. I am going to try to do this in 60 seconds, because I think it is important we get our witnesses and get their ideas and thoughts.
But, George, first, congratulations.
Mr. Pomeroy, I hope we don't stay too long on the $100 million reduction in the agriculture budget, agriculture appropriations bill yesterday. A couple of things: One is the appropriations bill yesterday is $150 million more than it was a year ago when we passed it. Second, we put $600 billion in the budget. The challenge is going to be what is the best way to spend that over the next several years to make sure that we don't lose our agriculture industry.
On this subject and on this issue, it seems tremendously important that it issanctions do not accomplish what many people in the past thought they accomplished. Canada is filling the gap to Cuba. When we cut off food, there are countries that continually do an end run; in fact, some of our food ends up in those countries that we have sanctions on. It is an ineffective policy decision that ends up hurting our economy, hurting our farmers.
And I yield back the balance of my time.
The CHAIRMAN. The Chair appreciates all comments.
Mr. Nethercutt, thank you very much for moving this issue forward. You have been a leader in it; thank you for that, your help to this committee, on the Agriculture Appropriations Subcommittee, and we appreciate your attendance this morning.
Mr. NETHERCUTT. Thank you, sir.
The CHAIRMAN. The Chair would like to now invite our first panel of witnesses to come to the table. The Honorable Dan Glickman, Secretary of the Department of Agriculture, and the Honorable Stuart Eizenstat, the Under Secretary of State for Economics, Business, and Agricultural Affairs at the U.S. Department of State.
Secretary Glickman, please proceed at will.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
Page 25 PREV PAGE TOP OF DOC
Secretary GLICKMAN. Thank you; thank you very much, Mr. Chairman. It is always a joy to come back to the place I have sat for 18 years and see a lot of my friends.
I am also honored to be here with Under Secretary Eizenstat. I would like to note for the record, as you know, Mr. Eizenstat has been nominated to be the Deputy Secretary of the Treasury. And this morning we gave him a Secretarial Friend of Agriculture Award for his advocacy on behalf of America's farmers and ranchers while ambassador to the EU, while at the State Department andactually it is a little bit of a downpayment on getting the Treasury Department to be cooperative with the Agriculture Department when he is over there as well. [Laughter.]
He has been a very strong advocate for American agriculture, and we know that that will continue, and we wanted to note for the record what he has done for it.
The CHAIRMAN. Mr. Secretary, if you would just indulge me because you were unfortunately not here for my opening statement which I will be glad to give you a copy. But I had made mention of the fact that we knew that Under Secretary Eizenstat was moving on to other things and mentioned the fact that we were certainly glad that he would be remembering agriculture in his new position.
Secretary GLICKMAN. Well, now he will have it on his wall to remember. [Laughter.]
First of all, let me just make a couple of quick comments. Several weeks ago, the President announced that the United States will exempt commercial sales of agricultural commodities and products, medicine, and medical equipment from future unilateral economic sanctions, unless he finds that it is in the national interest to include such items due to compelling circumstances.
Page 26 PREV PAGE TOP OF DOC This is a significant change in U.S. unilateral economic sanctions policy, and it has important implications for American agriculture. While the policy does not mean automatic approval of agricultural sales, it does place the presumption on the side of approval, and it gives U.S. producers and exporters an opportunity to compete in more markets.
The new policy will permit licensing of commercial sales for exports to countries where unilateral economic sanctions are now in effect. And this change would largely affect the countries of Iran, Libya, and Sudan because sales of certain items are already conditionally licensable for Iraq, North Korea, and Cuba.
We are working to implement these changes as quickly as possible. In conjunction with the Treasury Department, we are developing licensing criteria consistent with standard industry practice to guide this review. And I am sure Mr. Eizenstat will be talking about the specifics of the policy. We are working with the Departments of State, Commerce, and Treasury to develop precise definitions of the products to be covered. The policy changes will cover agricultural commodities and products, medicine, and medical equipment.
This important step toward sanctions should help boost U.S. agricultural exports of largely bulk commodities such as wheat, corn, rice, and vegetable oil. We estimate that our producers may sell an additional 500,000 to 1 million tons in exports of both wheat and corn as a result of this change in policy. In addition, some of these countries were once major markets to U.S. rice, and we hope our rice producers will recapture some of these lost sales.
For example, Iran, a nation of 60 to 70 million people, represents around a $3 billion food market. Two decades ago, with only about half of its current population, Iran was the largest customer for American rice and one of the biggest for American wheat. Now our producers will have the opportunity to recapture that share of this particular market.
I am notgiven the fact that there are votesI am not going to finish the rest of the statement on sanctions because I think that it can appear in the record. But I think it is important, as was talked about before, with farm prices still low and global demands still soft, this new sanctions policy could not have come at a better time for our farmers and ranchers, and that we are removing one of the impediments and the handicaps from potentially lucrative markets.
Page 27 PREV PAGE TOP OF DOC If I might mention just quickly, Mr. Chairman, a couple of related issues. One is that agricultural exports are down sharply in value the last 3 years. We estimate that this year, they are in the neighborhood of about $49 billion, as you know. In fact, while the value is down on a volume basis, they are, in fact, up a little bit over a year ago, and this is largely due to price. We do believe, however, that this has bottomed out, and there will be some modest recovery of exports in the next fiscal year. There has been a recovery in Korea and Indonesiawe made our first commercial sales this past year. And so we are very hopeful on the export side of the picture.
In the area of food aid, we are providing 10 million metric tons of food aid this year, three times what we had done last year, and three times the average of the last 5 years. That includes 5 million metric tons of wheat under the President's Wheat Initiative 3 million metric tons of wheat to Russia. And this is going smoothly, those particular transfers. And, with respect to North Korea, we have provided 400,000 tons of food through the World Food Program.
Just two other quick items, since I don't get before this committee all that often. I thought I would mention to you, Mr. Chairman, that you have had great interest in the Disaster Program payments. Yesterday, I went to the Kansas City office which distributes the Crop Loss Assistance Programs; about 75 percent of the Program payments have gone out as of last nightabout $1.5 billion out of $1.9 billion. The people in Kansas City have done an outstanding job, along with all the county and State offices. And we know we have had some discussions about the difficulty getting these payments out. There are three quarters of it out, and they are moving. And so I am comfortable with the pace now of the process and how it is moving. And on Monday, USDA will begin sending dairy payments out under the $200 million provision of the Emergency Aid Program.
As you may know, we were sued in the State of New Mexico by some dairies who say that our programs were targeted toward small- and medium-sized producers. These were larger operations who said that was unfair, discriminating, and perhaps unconstitutional because we provided payments on the first 26,000 pounds of milk that were produced. We have not been enjoined from getting those payments out. We intend to start those payments out on Monday as well.
Page 28 PREV PAGE TOP OF DOC So I thought I would mention those other things as well, since I have had the opportunity to come before this committee.
And I thank you very much.
[The prepared statement of Secretary Glickman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Secretary.
And I will say, from the report back from the field, and at the percentage of the payments was substantially higher than most people had anticipated. I will assure you was very welcome news with the farmers that I have spoke with.
Mr. Under Secretary, we have probably about 5 minutes before we would have to go vote. Would you prefer that we go do that now or take your statement? What would be your preference, sir?
Mr. EIZENSTAT. I think I could give the bulk of my statement in 5 minutes, but I don't want to pressure on the votes, so I would leave it to your discretion, Mr. Chairman.
The CHAIRMAN. Thank you.
In order to make sure we have ample time without feeling like you are rushed, the Chair would announce a brief recess. We will vote as quickly as possible and return.
Thank you very much.
The CHAIRMAN. I reconvene the hearing.
Mr. Eizenstat, please feel free to proceed.
STATEMENT OF STUART E. EIZENSTAT, UNDER SECRETARY FOR ECONOMICS, BUSINESS, AND AGRICULTURAL AFFAIRS, U.S. DEPARTMENT OF STATE
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Mr. EIZENSTAT. Thank you, Mr. Chairman.
Let me start on a personal note. My first involvement with this series of issues came during my time in the Carter White House when, in 19791980, we were involved in the grain embargo on the Soviet Union for its invasion of Afghanistan. That experience has had a lasting impact on my thinking, as I remember watching Argentina and other countries fill the gap left by our embargo.
For 2 years now, this administration has been working to improve the way we use sanctions as a foreign policy tool. We want to ensure that when we do use them, sanctions are carefully targeted to advance our policy goals, while minimizing the burdens they impose on other U.S. interests. Last July, the President stated that food should not be used as a tool of foreign policy, except under the most compelling circumstances. And then we follow that up with this statement last month announcing that the administration will generally exempt commercial sales of agricultural commodities and products, medicines and medical equipment from future unilateral sanctions where we have the discretion to do so. This can potentially mean improvement of some $500 million in bulk commodity sales.
It has been implemented, Mr. Chairman, and, members of the committee, as part of our overall approach to sanctions reform and not directed at any specific country. In fact, the national security and foreign policy concerns that originally led to the imposition of comprehensive sanctions on the countries involved still pertain.
What has changed is our calculation of the impact of including food and medicine in unilateral on our overall policy objectives. Sales of these products generally, Mr. Chairman, and, members of the committee, do not enhance a country's military capacity or their support for terrorism. On the contrary, funds, for example, spent on food and medicine are, therefore, not available for other less desirable uses. Our purpose in applying sanctions is to influence the behavior of regimes, not to deny people basic human needs.
Page 30 PREV PAGE TOP OF DOC The change approved by the President, as Secretary Glickman indicated, does not provide for the automatic approval of agricultural and medical sales. Instead, it shifts the presumption and favor of such sales, and contracts will still have to pay us through a policy filter. There will be no U.S. Government funding, financing, guarantees, or other support of these sales, because we believe it would be inappropriate for these countries, in light of their continuing conduct, to benefit from such taxpayer-financed programs. We will continue, of course, to monitor that to see the impact.
As the President noted, there are circumstances under which we will not allow commercial sales of food, medicine, and medical equipment. These circumstances, for example, might include where we have armed conflict with the particular country, or where the regime would seek to use food and medical items as a tool of internal policy, or whether the regime would derive an unjustifiable economic benefit.
The House is currently considering several pieces of legislation dealing with the use of agriculture as a tool of sanctions. Our view on these is clear; in general, food, medicine, and medical equipment should not be used as a tool of foreign policy, absent compelling circumstances. Because there are clearly some circumstances under which some exports would be inappropriate, however, the President must have sufficient flexibility to tailor our response to the specific situation in which we must deal. This flexibility should also include the ability to impose a licensing regime on sales where such a requirement is appropriate.
In our proposal for broader sanctions reform, we have stressed that this sort of flexibility should be provided through the inclusion of national interest waiver authority. While we don't believe that legislation is necessary to put these principles in effect, as the President's own decision of April 28 indicates, the Agricultural Trade Act of 1999, introduced by Senator Lugar on the Senate side as S. 566, seems to have made a good faith effort to meet these standards.
Page 31 PREV PAGE TOP OF DOC These and other bills in both the House and the Senate, including legislation introduced by Representatives Nethercutt, Ewing, Paul, Rangel, Serrano, deal with the more narrow issue of agricultural sanctions reform. Other legislation, notably that were introduced in the House by Representatives Crane and Dooley and in the Senate by Senator Lugar, deal with the broader issue of overall sanctions reform. We do not believe that the narrower agricultural bills, even if they meet our general criteria, should be seen as a substitute for broader sanctions reform.
Mr. Chairman, we have suggested an approach to the broader issue of sanctions reform that we believe would be both productive and acceptable and achieve the essential objective of providing discipline on the use of sanctions by both the Congress and the executive branch. While many of our ideas are similar to those in the Crane and Lugar bills, we have emphasized two main points.
First, those bills need fewer procedural hurdles. Legislation which would impose inflexible procedural hurdles on the President undercut sanctions reform; and, second, and of even greater importance, is the need for broad national interest waiver authority. Our experiences with Helms-Burton, the Iran-Libya Sanctions Act, and the Glenn amendment only served to underscore the need for this waiver authority.
We are committed to continuing to work with the Congress, with you, Mr. Chairman, and your committee, to craft an approach to sanctions reform that can be supported by both the executive and legislative branch. We would like to see acceptable legislation pass this Congress.
Thank you very much.
[The prepared statement of Mr. Eizenstat appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Secretaryboth Mr. Secretaries.
Page 32 PREV PAGE TOP OF DOC I would ask this to either or both, whoever would seem might be the most informed or capable of answering.
When will the regulations be issued that would be governing the criteria which was announced on the 28th?
Mr. EIZENSTAT. Yes, sir; we have been hard at work on that, and we expect by the end of this month, by the end of June, that they will be completed. They are in their final form now and just making the last rounds.
The CHAIRMAN. How will the regulations define an ''agricultural commodity''?
Mr. EIZENSTAT. That is one of the issues that we are looking at, the question of whether certain products should be included or excluded, whether they are commodities, whether are considered a food for ingestion. There are a variety of issues, and that, as well as the issue of how we can make the actual licensing procedures as non-bureaucratic and as efficient as possible, are the two remaining issues. And, again, we hope to conclude that by the end of this month.
The CHAIRMAN. Are you considering the 1978 Agriculture Trade Act, which has a definition, as the basis for defining an agriculture commodity?
Mr. EIZENSTAT. Well, as recently as this morning, Secretary Glickman and I met to discuss this issue. And if I may say, it is an enormous privilege for me to be sitting next to someone that I have respected for over 20 years in Washington and has been a great Secretary of Agriculture. But we talked about that very issue. We are looking at a variety of definitionswhat the Department of Agriculture considers a ''bulk commodity'' and how different statutes view ''bulk commodities.''
The President's basic position was that starvation should not be a matter of foreign policy, but we also have to look at how that fits into particular bulk commodities, some of which may not actually be ingested as a food.
Page 33 PREV PAGE TOP OF DOC The CHAIRMAN. In regard to the credit issue which you had mentioned, that the U.S. Government will not fund or subsidize credit for any commercial sale but that a private bank could extend a letter of credit, but not a Government entity. Under USDA Credit Guarantee Program, private banks do extend letters of credit. Will USDA Credit Guarantee Programs be allowed?
Mr. EIZENSTAT. Well, when the U.S. Government issues a credit guarantee for a commercial sale of food or anything else to a foreign buyer and that buyer defaults, the U.S. taxpayer is then stuck with the bill. If that foreign buyer is in an embargoed country, Mr. Chairman, or even part of a government of an embargoed country, then, U.S. taxpayer money would potentially be at stake.
At the same time, we are going to continue to monitor the situation that you raised, to see what happens with respect to our competitors, and determine what we should do in the future. But our current position is that anything that issues a credit guarantee would be considered a U.S. assistance and be currently inappropriate under our policy.
But, again, this is something we will continue to monitor.
Secretary GLICKMAN. Mr. Chairman, if I could make a comment. We have talked about this. We have indicated that the guarantees under the GSM Program are not subsidies; they are market rate programs that have are made on a commercially available basis. The U.S. Government, of course, does provide a full-faith credit of our country behind these programs, but they are done at market rates, so there is no subsidy involved in the credit programs.
And we have also indicated that we want to work with Treasury and State, in terms of making judgments as to whether the sales can go forward to meet the competitive threats that other countries will come in without the use of these credits, and we have just agreed that we would continue to monitor this issue, as time goes forward.
Page 34 PREV PAGE TOP OF DOC The CHAIRMAN. Not trying, obviously, to pin you down on this, but it would be my interpretation, Secretary Glickman, that under the definition of ''subsidy'' then, GSM funds would be allowed?
Secretary GLICKMAN. Well, I was going to say we don't consider it a subsidy from the standpoint of trade policy of the World Trade Organization. But the fact is that, obviously, the Government is involved, in terms of essentially backing the loans. So I can't tell you from a legal definition whether there is subsidy or not. I am just saying from a trade purpose, we don't consider it a
The CHAIRMAN. I think it would have to be very well defined, obviously, in the regulations so that there is not that ambiguity of what is or is not a subsidy, or how it might or might not be able to be used.
Mr. EIZENSTAT. If I may just respond in addition, Mr. Chairman.
The CHAIRMAN. Please.
Mr. EIZENSTAT. We have taken the position in a variety of fora that GSM is not a subsidy in certain contexts. But the President's statement was that there would be no U.S. Government funding, financing, guarantees, or other support. So even though it might be considered a subsidy, there is still an issue of whether it would fit into that broader proscription.
And, again, we will continue to monitor the situation.
The CHAIRMAN. And would you expect that that would be clearly defined at such time toward the end of June when those regulations were issued?
Mr. EIZENSTAT. Well, I am not sure if that particular issue will be defined, but it is something that we will continue to monitor.
The CHAIRMAN. Mr. Stenholm.
Page 35 PREV PAGE TOP OF DOC Thank you both very much.
Mr. STENHOLM. Mr. Eizenstat, the administration has indicated that there are statutory impediments blocking any further subsidy changes in the current policy towards Cuba. Would you be in favor of legislation that would remove these statutory barriers?
Mr. EIZENSTAT. No, sir. We have taken a position that, on January 5, the President decided to relax the standards for the sale of food to Cuba, such that they could be provided to private entities. We believe that that can be done within the terms of the embargo on Cuba, which has been in existence since the early1960's, without violating any of the statutory requirements of either the Helms-Burton Act or the Cuban Democracy Act of 1992.
And we would like to see what impact the President's January 5 change will make. We have just issued regulations in the middle of May to effectuate those. We hope that that will provide the ability to help the Cuban people obtain food and to help our farmers at the same time. But at this point, that is as far as we are prepared to go.
Mr. STENHOLM. Secretary Glickman, in response to the licensing in which, as I understand it, that under the new licensing program to Cuba, U.S. farmers must sell to an independent entity, what are these independent entities? How many are there? And, how many sales do you anticipate occurring under the licensing system that has been described?
Secretary GLICKMAN. There are small stores, small independent operators, small businesses in Cuba. Anything else would be government-controlled.
How many there are, I am not sure. It is a small opening; it is not going to be a material opportunity at this stage, but it does open the door and allows the ability of the U.S. agriculture products to begin coming in, but it is small.
Mr. STENHOLM. It sounds like it will be very small. [Laughter.]
Page 36 PREV PAGE TOP OF DOC Let me make an observation here now in regard to this whole question of sanctioning. And I commend the administration for making the moves that you have made. In my opinion, you are moving in the right direction.
When we get into the subsidy question, though, and whether or not a GSM Lending Program is a subsidy, et cetera, and then we get into some of the previous comments regarding budget, we run right smack-dab into the problem of us selling anything in the world market when we are competing with other countries who are subsidizing their agriculture to the extend that they are.
And this makes it very difficult for us, if we are going to interpret sanctions relief as that we are going to sell. But if we will not allow our producers to use the same tools that are available to others, then it is going to be very difficult for us to sell to anybody.
We had a little of this discussion yesterday, also, on the floor. There was an attempt to eliminate the Market Access Program funds. It didn't do very well, fortunately, which showed the overwhelming majority of Congress felt that that was a very poor effort. But it needs to be acknowledged, as we talk about this subject, for all, particularly those, Secretary Eizenstat, those of you at State, to understand that we are talking about some very serious competition from other countries.
As the last information I have, 1997, other countries, government spending was about $300 million. We were proposing $90 million yesterday. Industry funding, which is sort of a black mark on our own industryindustry funding in foreign countries is about $600 billion to our about $175 millionI said billion. Then, when you get into export subsidies, the European's, alone, spend $7 billion a year making sure that their farm commodities get sold. And at some point in time, that has to change, or otherwise the farm bill that we are operating under, the so-called ''Freedom to Farm'' in the international marketplace, it becomes rather a joke. And it is a very serious joke to our producers because it is very difficult. I don't care whether you are building widgets or raising wheat, if you are competing with others who are able to use those tools, then it is going to be very difficult for you to sell your widgets.
Page 37 PREV PAGE TOP OF DOC And I think as we progress in this, working with the administration, it is going to be extremely important that we continue to educate the general population that we have serious subsidy competition. And whether it is on sanctions and sanctions relief, if we are going to sell, then I think we are going to have to give a lot of thought to exactly under what policies will we be allowed to sell. Or, otherwise, we are not going to make any sales.
Mr. EIZENSTAT. Mr. Stenholm, I, first, want to assure you that we at the State Department are just as aware as our friends at the Agriculture Department of the ferocious competition for agricultural markets and the level of subsidies. I was ambassador to the EU for 2 1/2 years and I know the tremendous amount of export subsidies they provide. Indeed, half the whole EU budget is for agricultural price and export supports.
Second, as the Departments of Agriculture and State and the rest of the administration is preparing for the Seattle WTO Ministerial, literally one of our very, very top goals overall is to eliminate export subsidies and to dramatically reduce internal subsidies, because we feel that we are at a competitive disadvantage.
We were disappointed that the European Union and their so-called Agenda 2000 Budget Exercise a couple of months ago didn't go further. They have made some modest changes which were welcomed, but not nearly far enough.
And so we have really made this one of our very top priorities for the next WTO round.
Mr. STENHOLM. I am very glad to hear that, and I mean no disparagement to you or any current occupant of the State Department. I just make an observation. I have been here around this dais for 20 years; I have heard that same statement made by previous State Departments in previous administrations. And when the plane finally lands, we have always found that there are other interests, particularly at State, that supersede the interest of doing what you have just stated. I believe you that this year, and I believeand I have noticed with the work of Charlene Barshevsky and Secretary Glickman that I believe things are different now. And I certainlyit goes without saying that every member of this committee, both sides of the aisle, want to stand shoulder to shoulder with you in seeing that that be accomplished.
Page 38 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Moran.
Mr. MORAN. Mr. Chairman, thank you.
Under Secretary Eizenstat, I am very interested in what Mr. Stenholm had to say concerning the European Community and their subsidization. Your indication that combatting that circumstance is a top priority, what is it that the U.S. Government, the Department of Agriculture, the Department of State, what is it that you do to win this battle with the European Community?
Mr. EIZENSTAT. Well, a number of things: First of all, on a bilateral basis, we are constantly working with those members of the European Union, for example, the UK and others, the Dutch, who are strongly opposed to the high level of subsidies that the EU provides, largely because of the French and a couple of other countries. So we try to work bilaterally to encourage those countries that are already favoring a similar attitude to make their position known.
Second, during the German presidency of the EU, which is going on until the end of this month, we work very directly with them to encourage them and other like-minded countries to try to cut back on the level of export subsidies and internal price support for farmers.
Now we did that for a couple of reasons. First, because if they don't reign in their own spending, then the enlargement of the EU which we so strongly favor to include central and eastern European countries like Poland and the Czech Republic and Hungary will be delayed because the cost of including them, under the current agriculture budget, is unsustainable, and the EU knows that.
We also work with them in trying to shape what the agenda will be for the new WTO round, the broad-based round that we will commence in November. Ambassador Barshefsky, Secretary Glickman, and our department are trying to work to fashion an agenda item that will make sure that this issue of agricultural export subsidies is on the agenda as one of the issues that needs to be dealt with.
Page 39 PREV PAGE TOP OF DOC And then last, as a followup to the Uruguay Round, there is a requirement that this year, 1999, the issue of agriculture should be negotiated even in advance of the commencement of a new round. And that is a recognition that while we made a beginning of it when we had the Uruguay Round and I was in Brussels as ambassador to the EU at the time of the end game when Micky Kantor helped negotiate that. It was the first time that we brought agricultural subsidies inside the WTO, literally the first time. Industrial tariffs have been on the ticket going back to the Tokyo Round, but not agricultural issues. So we have now got it firmly in the WTO; we are rallying other countries around the world. We are saying to developing countries of the so-called G77 that ''If the EU continues to have these high subsidies, that you will be disadvantaged in your capacity to export because you will have to raise your budgets.'' So we are literally going on a worldwide effort to try to deal with this.
And my last pointI think at the end of the day, the thing that will be most effective is not only this sort of coordinated strategy we are doing around the world, but that the EU simply can't afford to continue the level of subsidies that they have. Again, it is literally half of their overall some $80 to $100 billion budget. And that is unsustainable, and particularly unsustainable as they try to expand to include agricultural countries like Poland which have a very heavy agricultural sector.
Mr. MORAN. I have had this discussion with USDA officials, and what I think we need to do is hasten the day in which they no longer can afford. And I think the question I have raised with Secretary Glickman, generally around the use of the Export Enhancement Program, is, what do we do to hasten the day that economically, the European Community can no longer afford to subsidize to the degree that they do?
I am all in favor of the jawboning of highlighting the issue of bringing the rest of world community to bear, but I am hopeful that there will be some economic incentive for the European Community sooner, rather than later, to end the trade practices that they have.
Page 40 PREV PAGE TOP OF DOC Secretary GLICKMAN. If I just may mention, the numbers. Europeans are responsible, according to us and the OECD in Europe, for 83.5 percent of all export subsidies. The United States is responsible, according to this chart, for 1.4 percent of the export subsidies. Now we do try to match them in terms of the GSM Program, which is not counted as a subsidy because they are at market rates.
And I have said before that I will use that program to the maximum that we are able to use it. And there really are no practicable limits other than the CCC borrowing authority, because that is what we have as our, so-to-speak, ''weapon'' to be competitive with the EU in world markets. And that is something that we should use to the fullest extent that we can.
Mr. MORAN. Mr. Secretary Glickman, are you satisfied with the U.S. response on the beef hormone issue? The $203 million and how it is targeted? Has it been targeted?
Secretary GLICKMAN. We haven't released it yetwe haven't put a final group of sanctioned items yet on the list, but I am satisfied with the way it is going, and I am satisfied with how the WTO process is working. And we have won that race, and it has been affirmed three times. And we cannot let this issue go without exercising our full rights under that decision.
Mr. MORAN. And we have established the right amount? The $203, and we will
Secretary GLICKMAN. I think we have said about $202 million.
Mr. MORAN. My final question, Mr. Chairman.
I was pleased to have the administration announce the lifting of sanctions against the four countries, particularly Iran4 million metric tons of wheat imported. That is 40 percent of our Kansas wheat harvest if we were successful in obtaining that business.
What has been the response from those countries? What has happened since the administration announced that? And I missed part of Chairman Combest's dialog on assistanceexport assistanceand whether we are going to be able to utilize various programs to sell. And I heard the discussion about the importance that we don't sell unless we do. Where are we? What was their response? And what happens next?
Page 41 PREV PAGE TOP OF DOC Mr. EIZENSTAT. Congressman Moran, Iran's response was not negative per se in any way. What they said is, ''Well, we shouldn't only be in the position of buying U.S. products. There should be reciprocity. And if the U.S. expects us, Iran, to buy U.S. goods, then they should be buying ours as well.''
There is now a formal application that has been made to OFAC and Treasury for a license, and that is by a U.S. entity for the sale of commodities, and that is being reviewed at this time.
Mr. MORAN. Mr. Secretary, I would be delighted to have a copy of your pie chart. It would replace my bar graph in my office that shows what the European Community does versus what we do, that in many ways to me justifies what we do for agriculture in our country. So if I could have a copy, I will get it blown it up, and we will hang it on the wall as well.
Secretary GLICKMAN. We will blow it up for you. [Laughter.]
Mr. MORAN. Thank you, Mr. Secretary. Thank you, Mr. Chairman. [Laughter.]
The CHAIRMAN. In recognizing Mr. Pomeroy, Mr. Secretary, I would say that I certainly commend the way the Department has used the GSM Program. I think you have been very aggressive in it. I think there have been some very positive actions taken.
Mr. POMEROY. Thank you, Mr. Chairman.
I am delighted to have this particular panel. These two individuals have provided wonderful public service to this country, and it is an honor to have you here.
Secretary Eizenstat, you haven't had the chance to be in this committee room nearly as often as Secretary Glickman. You remind me of the utility ballplayer that plays any position on the field and keeps winning the golden glove. It is amazing, your record. In particular, I will just cite the Holocaust victims recovery that you have played such a integral role in achieving, relative to Swiss bank accountsan amazing outcome for a very thorny assignment.
Page 42 PREV PAGE TOP OF DOC We look forward to your new leadership at the Treasury.
Mr. EIZENSTAT. Thank you.
Mr. POMEROY. In that regard, the administration's announcement offers hope of new markets. But if the implementation is not correctly done, it will only be a press release and nothing real. The competitive arena for international sales is intense.
As Mr. Stenholm has noted, we are dealing with heavily subsidizing competitors, and either a bureaucratic process in the approval of particular certifications or other rigmarole that ultimately attended to the implementation of this program will basically not make those markets available, in effect, even though they might, theoretically.
Would you comment on activity you might take that will make sure it is, in fact, competitive? That it will work?
Mr. EIZENSTAT. Yes, but first, I appreciate very much your thoughtful comments at the beginning and had hoped, actually, you might end at that point but I will be glad to respond to the rest of your point. [Laughter.]
We literally, within the next few days, will be looking at the kind of licensing regime for this policy. And we are very cognizantand, chairman, you raised this point in one of your questions as well. We are very cognizant of the fact that if we tie this process up in too much red tape, in terms of the licensing process, that it can undercut the very purposes of this. So we are trying to make this as, I would say, efficient, non-bureaucratic, streamlined, and effective as possible.
We are working with the Department of Agriculture, with OFAC at Treasury, and, of course, at the State Department to come up with a process that while, in fact, met those criteria. And I hope that you will be pleased with what will come out very shortly.
Mr. POMEROY. Do you have an evaluation of whether or not sales will be possible without credit guarantees underlying those transactions?
Page 43 PREV PAGE TOP OF DOC And either Secretary might speak to this.
Mr. EIZENSTAT. We certainly hope that they will. We think we have a very efficient and effective agricultural sector. But, again, this is the issue that we will continue to monitor.
Secretary GLICKMAN. The pending application is not one that gives them credits. But I think we have to be honest and recognize that given the competitive world out there, and many places can't sell to without the credits. But I don't think that all sales have to be with credits either.
Mr. POMEROY. I just look at the experience we had with South Korea in the dip of their financial crisis. We wouldn't have made the sales without the GSM financing credits, credits that ultimately won't cost the Treasury.
If you compare that economy to the North Korean economy, if South Korea has trouble getting credit under PIN grain transactions, North Korea is a basket case. And they clearly will have even a greater difficulty, I believe, without financing, that a prospect of financing, we are going to have some trouble.
Secretary GLICKMAN. If I could say, a country like North Korea, it will be many, many, many years before they will ever be able to pay under any circumstances for what they are getting from us, that is why the assistance to date has been through the World Food Program and the Public Law 480 and the like. But I think you have to divide the world between those countries who are clearly not creditworthy at all and won't be able to buy anything from us for a long time, and I expect North Korea is in that category
Mr. POMEROY. My time is running out, and on this.
Mr. EIZENSTAT. May I just respond to that?
Mr. POMEROY. Sure.
Mr. EIZENSTAT. First, with respect to North Korea, actually going back to 1996, we have licensed a number of sales and donations to North Korea. And the Secretary is quite right; their capacity to purchase is severely limited, but we have been able to license a number of donations, and we have been able to get food there.
Page 44 PREV PAGE TOP OF DOC Also, we have spoken, prior to the President's announcement of April 28, with both the rice and wheat associations, and they believe they can be competitive with traditional letters of credit from commercial banks. But, again, as Secretary Glickman and I have both said, this is something that we will continue to monitor.
Mr. POMEROY. My time is up, Mr. Chairman. I do have a final question right on this point, and it ought to be able to be answered quickly.
The CHAIRMAN. The gentleman is recognized.
Mr. POMEROY. Thank you.
It relates to the implementation of sanctions automatically imposed under the Arms Export Control Act to India and Pakistan for their nuclear testing last summer. We did a 1-year waiver that allowed a GSM Program to be used to make a critically important wheat sale to Pakistan last year.
Mr. Secretary Glickman, do you have an evaluation, in terms of when Congress needs to pass something again this year, so that the transactions to Pakistan might not be interrupted?
I guess either one of you can speak to it, who has knowledge on the topic.
Mr. EIZENSTAT. Thank you, with the Secretary's permissionwhat is now called ''Brownback II'' was added last evening to the DOD appropriations bill in the Senate, unlike Brownback I, which was a 1-year authority, this would, in effect, suspend and lift sanctions for a 5-year period, with respect to India and Pakistan.
In addition, the House International Relations Committee has approved legislation to extend the original Brownback amendment by 1-year.
We do have some concerns, and we oppose the total lifting and the Brownback II amendment, as it was introduced, because of its broader implications, in terms of proliferation policy. What we do favor is having waiver authority, full and permanent waiver authority, for all of the Glenn sanctions, with respect to India and Pakistan. And, in addition, we need to address the underlying Pressler and Symmington amendments sanctions on Pakistan.
Page 45 PREV PAGE TOP OF DOC We would be pleased to work with the Congress on the best and most appropriate ways to do this, but we favor the type of position that is closer to the House International Relations Committee, and that would give us the waiver authority for all of the Glenn sanctions, which we do not have in the new Brownback amendment, and Brownback II.
Mr. POMEROY. Thank you.
The CHAIRMAN. Mr. Smith.
Mr. SMITH. Thank you, Mr. Chairman.
One question that I wonder, in terms of the whole effort on licensing. And the requirement, as I understand it, the administration announced that it be private recipients and not simply go to Government. On some of these countries involved, are we familiar with the structure of whether it is State trading organizations or whether it is the State receiving those shipments, or whether these countries are going to be able to comply with that requirement?
Secretary GLICKMAN. Let me say that they can go to state trading enterprises, as long as I think the languages are not coercive or they are not involved in human rights abuses. And I think we can identify who those are.
Mr. EIZENSTAT. Yes, sir; the Secretary is quite right. They can go to peristylar organizations, as long as they are not associated with the cohesive organizations of the State, and we believe that in many of the countries there are such institutions to whom sales can be made.
Mr. SMITH. Now am I incorrect here? That one criterion that will be used to decide whether or not to approve an export license under the changed policy is that sales must be made to non-government entities? And so, specifically, whether it is Iran, or Libya, or Sudan
Mr. EIZENSTAT. No, sir; that is with respect to Cuba. That is the January 5 announcement with respect to Cuba.
Page 46 PREV PAGE TOP OF DOC This is a broader announcement, and the April 28 does permit sales, both to private entities and to State entities, so long as the State entities aren't associated with the cohesive organizations of the Statefor example, an arm of the police.
Mr. SMITH. How is the U.S. Government involved in extending food aid to Sudan and North Korea? Which programs or resources of the Department and the U.S. Agency for International Development are used or tapped for this?
Secretary GLICKMAN. Sir, for North Korea, we provide food assistance through the World Food Program, a large effort that we are involved with, as are a lot of other countries, and that is done through our 416(b) of Public Law 480 program. To date, we have donated this year roughly 400,000 tons of food to North Korea through that program.
Mr. EIZENSTAT. We also do provide foodwe have gotten food into Sudan through A.I.D. programs and agricultural programs. We are supplying, in certain areas of the Sudan, food to the people of that country.
Mr. SMITH. So, Mr. Eizenstat, and, Mr. GlickmanMr. Eizenstat, I think you heard you say that you are reevaluating the licensing procedure to try to speed it up, to try to assure that it doesn't inhibit sales. Are you considering the possibility of doing something other than a case-by-case? Is it possible to have the kind of criteria available that these exporters can meet? I mean, with the change in price so fluctuating, it seems to me that we are going to put our exporters at a disadvantage if there is any significant delay in allowing that export, or at least contracting for that export.
Mr. EIZENSTAT. Two things, Congressman Smith; first, just to give you the actual figures on Sudan. Last year, we donated $380 million of U.S. food to Sudan, which is a substantial amount. So that both helped the people and our farm community here.
With respect to your specific question, we are trying to find the most effective, most efficient licensing process consistent with our overall sanctions policy. We are looking for ways to be non-bureaucratic, to make it easier for exporters to involve themselves in this process without having to constantly come back on a license-by-license basis. But we need to balance that off against some of our foreign policy interests, and that is one of the things that we are looking at now.
Page 47 PREV PAGE TOP OF DOC I do hope and do believe that we will have a process that our farm community and our agricultural exporters will view as non-bureaucratic and efficient.
Mr. SMITH. Have you analyzed or estimated? Or do you have targets in terms of a 3-day turnaround time or a 6- or 7-day turnaround? Have you analyzed what is necessary in order to allow our exporters to compete and make timely contracts? Do you have a target?
Mr. EIZENSTAT. We don't necessarily have a target for a number of days, but we have met with agricultural groups to ask them what they need to be competitive. What type of a licensing regime they feel would be most effective and would allow them to be competitive. And that will certainly be given a great deal of weight.
Mr. SMITH. But isn't timeliness the overwhelming key to the success of whether or not this is going to work or not?
Mr. EIZENSTAT. Absolutely. We will put a process in that will be very timely and that will not lead to lengthy delays.
Mr. SMITH. Is this less than a week or more than a week?
Mr. EIZENSTAT. I don't want to put a timeframe on it at this point. But, again, I am hopeful that the process we come up with will be one that you and the agriculture communitywith whom, again, we are very closely working with on thiswill feel that meets all their needs.
Mr. SMITH. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. DOOLEY. Thank you, Mr. Chairman.
And I just thank the ranking member, too, Mr. Stenholm, for suggesting that any member of this committee ought to be a cosponsor of the Crane-Dooley broader sanctions reform bill that Mr. Eizenstat has referred to. And so all of you that are still here today, I would encourage you to take a look at that.
Page 48 PREV PAGE TOP OF DOC Mr. Eizenstat, I appreciate all the work that you have done and the administration has done, in terms of moving us forward on a better sanctions of policy.
But I would like to focus a little bit on some of the outstanding concerns that we have yet to be able to resolve, because I really think that we are so close, we ought to be able to get the administration on board and consistent with the legislation that we have introduced in the House, as well as Senator Lugar in the Senate.
And I guess my concern is ona couple of questions is, I think I understand a little bit of the issue around national emergency versus national interests. But I would also be interested in knowing, of any of the sanctions that we have imposed during the Clinton administration, what of those would not have been covered under a national emergency waiver authority that we would have granted the President?
Mr. EIZENSTAT. OK. Let me explain to you the concerns we have with the bill that you are the coauthor of.
First, let me say that there are many elements in it, as in the Lugar bill in the Senate, with which we agree the general thrust of bringing some rationality to sanctions, to sort of look before you leap, to try to put things through a filter and look at costs and gains, to review on an annual basis whether a particular sanction is still effective, the whole issue of contract sanctity. Many of the things that you have are very much worthwhile.
I would like to make three points, and I will be very clear and very direct, because I think we are at an advance stage and we don't need to foxtrot.
The first is we want to make sure there is an appropriate balance between what Congress does in legislating for its own constraints and what it does with respect to the executive branch. You are, by definition, a legislative body, and so when you try to restrain your own sanctions actions, that can be superseded either by a rules change or by the next billit could be on child labor abuses; it could be on trafficking and womenand simply say, ''Notwithstanding any other act of Congress, the following sanction will go into effect.'' And there is nothing to bar that at all.
Page 49 PREV PAGE TOP OF DOC Mr. DOOLEY. Just
Mr. EIZENSTAT. Excuse me, if I may. It is useful; I am not suggesting at all that it is not useful for Congress to speak. I am simply saying it is an absolute constraint. Likewise, therefore, the constraints on the President should be symmetrical. That is to say the President should haveit is one thing to say to the President, ''We hope you will do the following.'' It is another one to be as the legislation is, completely prescriptive. We don't have the capacity, as not being a legislative branch, to ignore that if the national interests requires.
Second, there are in the bill a whole host of procedural barriers to the President acting on any sanction. For example, you have to provide 45 days' notice in advance of any sanction. Well, just imagine if you are trying to freeze an asset of a countrySerbia or Iran or any other rogue nation that suddenly does something we don't likeand one of the weapons we want to have is freezing their assets in the United States. We have used that time and time and time again. If you have to give 45 days' public notice in The Federal Register, obviously, that country will be able to rearrange its affairs to make it difficult for us to do that. Now, yes, there is a national security waiver, but you have got so many procedural hurdles with so many requirements for the President to act, that it really is a tremendous constraint. So if you can make those procedural hurdles less onerous.
And, third, and most importantand I must say, this is one thing I have said to Senator Lugar time and again. [Laughter.]
If you can build into your bill a stand-alone national interest waiver section so that the President, if he finds it in the national interest can give you reasons why he would waive the particular sanctions, that would go a very long way to ease our concerns. Now this is not novel.
Section 3 of Helms-Burton has national interest waiver authority. Sections 9(c) and 4(c) of the Iran Libya Sanctions Act have them, and we have used 9(c) in a recent case to leverage action by the EU and Russia on tightening their exports controls. We used title 3 waiver authority of Helms-Burton to get the Europeans to take a tougher position on the democratization in Cuba and to say that they will not increase their trade and political relations with Cuba unless there are concrete changes in human rights and democracy.
Page 50 PREV PAGE TOP OF DOC That provision is the single-most important thing that can be done to make this bill much more compatible. It is not difficult, and you don't even have in your bill national security authority. You only have it with respect to the procedural barriers.
What we are saying is, as in Helms-Burton, as in ILSA, and what wasn't in the Glenn amendment, is for, goodness sakes, give the President the discretion to have the authority to waive these sanctions if he feels it is in the national interest to do so.
Mr. DOOLEY. On the 45-day advance notice as it pertains to the freezing of assets, we have a specific clause which gives the President the ability to waive that 45-day reporting requirement as it deals with that asset forfeiture and freezing of assets. I guess I am unclear on why that doesn't address your concerns.
Mr. EIZENSTAT. First of all, in your bill and in the Lugar bill, there are about three different standards used for the procedural hurdles. For contract sanctity, there is one; for the notice provision, there is another; for the sunset, there is a third. So there is a lack of symmetry.
Second, national security authority we think is a very high standard. It is a verywe have always considered that to mean
Mr. DOOLEY. The authority in the bill is national interest, as it states.
Mr. EIZENSTAT. In some of the provisions and not in others.
Mr. DOOLEY. Well, on the asset forfeiture, it is national interest.
Mr. EIZENSTAT. And with respect to that, again, the more times you make the President have to issue particular waiver authorities, the more difficult.
But, again, let me come backso we don't lose our sense of priorities on thiswe would like to have as few procedural hurdles as possible. If there are procedural hurdles, certainly national interest is a better test than national security.
Page 51 PREV PAGE TOP OF DOC But the overriding concern is to put in a stand-alone provision on this, with an opt-out by Congress under conditions which we have suggested. And in the introduction to your bill, it says, ''Congress should * * *.'' in future legislation, put in this kind of national interest waiver. So you have already recognized the need; what we are saying is, make that ''Congress shall do so * * *,'' with the right, obviously. Since you are a legislative body, if you would have to opt-out, there are certain ways to do it.
Mr. DOOLEY. I will wait.
The CHAIRMAN. Thank you very much.
Mr. COOKSEY. Thank you, Mr. Chairman.
Mr. Eizenstat, a crystal ball question: When will the realities of globalization and the information age overcome evenand, indeed, overwhelmEurope and now the EU's tradition of their continued political decision to provide 84 percent of the subsidies, as Secretary Glickman stated?
Mr. EIZENSTAT. First of all, I think that that reality has begun to dawn on them, and I will say two examples, both of which I will want to say are inadequate, but they are at least the beginning. First, that in 1993, they agreed to any restriction on export subsidies and internal supports, which they did in the Uruguay Round negotiations.
Second, they exercised that they have just gone through, only 6 or 8 weeks agothey have called it ''Agenda 2000.'' It is how they prepare their budget for the enlargement that the EU will have over the next 5 years for central European countries, many of whom are large agricultural countries. Now the Germans, to their creditand the Dutch and the British and many other countries; I would say, frankly, if there were majority voting, a majority wanted very deep cuts in those subsidies, because they recognize that, (a) they can't afford them internally as part of their own budget, and (b) that it will delay the time when they can incorporate it and enlarge it to include these central European countries if they have to come under the common agricultural policy. I mean the cost will be astronomical. It can double the budget.
Page 52 PREV PAGE TOP OF DOC So they made modest changes. And, again, the French, in particular, objected to the deep cuts that the Germans and others wanted to make.
I believe that the enlargement process will be one thing that will bring reality home. I believe that that will be case. I also hope that our WTO process, where, again, we are making this one of our very top priorities, to achieve an elimination of export subsidies worldwide, will do so.
And, third, I am hopeful that our diplomatic efforts to get developing countries, as well as countries like Australia and New Zealand who are suffering because of these subsidiesit is not only ourselves; it is other major agricultural exporters. But if we can get the developing countries to recognize that the EU subsidies directly implicate their capacity they export, then we will have a very, very strong group of countries as we go into the WTO process for this round.
Mr. COOKSEY. Let me ask this same question: When will these same realities of globalization and the information age make U.S. agricultural sanctions on rogue nations meaningless?
Mr. EIZENSTAT. Well, I will take a stab at that, and then I will let Secretary Glickman do it.
I think that what the President did on April 28 is a recognition that what globalization means is substitution. Globalization means we don't have a monopoly on wheat; we don't have a monopoly on corn; we don't have a monopoly on basic commoditiesrice and other productsthat they can be substituted. And that is one of the fundamental reasons why the President made this announcement on April 28.
Secretary GLICKMAN. Two thingsone, I am going to go back to your other question.
The Europeans have a little bit of an advantage in the trade world because they have colonial relationships with 30 or 40 countries, or possibly 50 countriesAfrica, Asia, and Latin Americaand so they are able to, in a sense, develop relationships historically that we have not been able to.
Page 53 PREV PAGE TOP OF DOC We are making a conscience, deliberate effort, especially in Africa and Latin America, to develop these relationships and so that they understand that these European subsidies reduce their income, because they compete with them at lower prices than they should, and that in turn hurts them. In fact, they hurt them more than they hurt us, but they hurt us as well. And those ties, those relationships, are critically important, in terms of the next round at WTO and other trade negotiations, where they will be used to keep these ties pretty historical around the world. And I think that we are beginning to have an impact on that as well.
I alsojust to answer the last question, recall a former Member of Congress, a famous Member from Mr. Gutknecht's State, Senator Hubert Humphrey, once said, ''We should sell anything to anybody that they can't shoot back at us.'' And I think the President believes that as well.
Mr. COOKSEY. Sure, and I think that is a good policy.
Mr. EIZENSTAT. But may I make two other points?
Mr. COOKSEY. Sure.
Mr. EIZENSTAT. Because I think this European issue is really worth looking at, and we can all take tough positions on it, but we have to face a couple of realities which I learned when I was over there.
The first is, just politically, the percentage of farmers in some of the key countries is a much larger percentage of their population than it is of ours. It is up to 10 percent in some countries.
Second, some of the countries, including France, look at their farm policy as not only an economic and political, but as a social policy. That is, there is a conscience effort to try to keep people on the farm and to avoid an exodus of people from the farm into urban areas. And so they are willing to pay a very stiff price.
Now one of the points that we have made, however, is it is one thing for them to pay that stiff price internally. If they want to price their own food out of competitiveness, that is one thing. But it is quite another to do it on exports and, in effect, distort the world market for agriculture and force our taxpayers and the taxpayers of other countries to have to pay for that social policy.
Page 54 PREV PAGE TOP OF DOC Mr. COOKSEY. And could I ask one other question, Mr. Chairman?
And I would almost prefer, Mr. Secretary, a written response. I hope that my first two questions were enlightened in the context of the economy we are in today, and this seems like it is going in the other direction.
But I have a lot of meetings with farmers. A lot of my farmers and their spokesmen in my district would like to return to parity supports, and some want to return to price supports with target prices for cotton, for example. In fact, the Louisiana legislature last week passed a resolution which asked President Clinton to support a return to parity supports. That is 1911 and 1915.
What is this administration's position on parity supports, commodity price supports, income supports? Will the administration support a return to parity supports or commodity supports? If so, why? If not, why not?
Secretary GLICKMAN. OK; it is a very complicated question, butand I will try to give you a greater response in writingbut, I do think that there are gaps in the 1996 farm bill that need to be filled. Loan rates were capped, and I, frankly, think that they need to be uncapped and float with some historical average. I think that would help our producers. And there are other things in that bill that I would like to see.
But we made a decision back in the mid1980's that we were going to move towards allowing commodities to float with world prices, and then we would provide some additional help from the Government on top of that. Only as long as the Government would get out of the business of micro-managing agriculture.
What your problem is, is that if you support commodities at too high of a level, you must come in and restrict supply, as it is happened to Europeans. They support prices that are very high eye level, but they don't necessarily restrict supply. They have to subsidize their exports in order to move their commodities, which hurts other people in the world.
Page 55 PREV PAGE TOP OF DOC We used to have the ability to restrict supply, through our supply managing programs, but now, we are just doing that in wheat. We produce maybe 10 or 11 percent of the world's wheat. It is hard to do it on your own. You shoot yourself in the foot if you restrict it here and nowhere else. But to go back to the old days of agriculture means a much more Government interventionist force in agriculture, where you are telling farmers what, when, how, and where to produce their commodities. And that is a different direction than we have been doing. Given the nature of the world, I don't think we can ever go back. Saying that, I do think we can make some improvements in the safety net under the existing programs.
Mr. COOKSEY. Do you think there is anyone in Washington that is smart enough to go back to those days? Or do you think there is anyone in Washington that thinks they are smart enough to go back?
The CHAIRMAN. While the Chair would allow the gentleman to answer the question, time has expired.
Mr. COOKSEY. Thank you.
Secretary GLICKMAN. I don't know if I am smart enough
The CHAIRMAN. I want to hear the answer to this. [Laughter.]
Secretary GLICKMAN. Collectively, we are smart enough to work on these problems together. [Laughter.]
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Mr. Chairman, I have no questions; thank you.
The CHAIRMAN. Thank you.
Mr. EWING. Thank you, Mr. Chairman, and thank you for holding this hearing.
Page 56 PREV PAGE TOP OF DOC Secretary Glickman, good to see you again.
A quick question. Have we determined what the policy on loan deficiency payments are going to be? And when could we expect that announcement?
Secretary GLICKMAN. There will be announcement in the next few days. And let me just say, because I expected this question to be asked, let me make a couple of comments here.
One, I have received dozens of letters and calls from Members of Congress saying the current system is unfair and inequitable. You have differences in the loan deficiency payments between counties, between States, that people are trucking grain across State lines, crossing bridges, just to get a higher price in other parts of the country. And it is true. Part of it is we never expected to have 2 million LDP payments when we passed the 1996 farm bill. Fortunately, Stu, you don't have to worry about this particular problem, which is a serious and a difficult one. So we do need to make changes.
However, to make the changes that are needed to make the program more equitable will mean some people will win, and some people will probably lose. And in order to minimize large numbers of people losing, you canand I think we have done already internallyconstructed a program where there are way more winners than loser in that process. And when I say ''winners'' and ''losers,'' I mean people who do not suffer as a result of reduction of their LDP. There is a significant fiscal cost. My guess is upwards of $400 million to do that, which indicates to you that this would probably result in a rather generous addition to, overall, to farm income, as a result of making these changes. And we are now working to see whether those dollars are available, because I do not want to make the change if it is going to result in large numbers of people being hurt in that particular process.
The third thing we have to figure about is timing and the scope of what we are talking about. We are already harvesting wheat, and, on the other hand, we are not going to be harvesting our corn, soybeans, until much later in the year. And we have got to figure out whatever we do on timing, it has got to make sense in order to give people adequate notice.
Page 57 PREV PAGE TOP OF DOC There has also been concern about the need to have some sort of public comment in this process. Our lawyers tell me that we don't have to have public comment because it is not a formal rulemaking procedure, and these are operational decisions of the Commodity Credit Corporation, but it is a fairly significant modification of the program. As long as commodity prices remain at certain levels, these operational problems are going to be very serious, indeed. The complexity of it has taken me longer than I would like to have it, but in the next few days we will decide which road we think we are going to go down and we will notify you immediately.
Mr. EWING. Well, Mr. Secretary, I know it is a difficult problem, and it is the basic safety net that we have out there right now for grains, particularly. And I would hope that before it is set in concrete, that the leadership here in the Congress, on the agricultural side, will have some opportunity to review what is happening and at least comment, even if it is not required.
Mr. Eizenstat, I am pleased with your comments that increasing exports and reducing export subsidies is a policy that we think means a lot to American farmers. I think many farmers in my State would a lot rather sell it than get Government payments, though they certainly are not opposed to Government payments, particularly if they can't sell it. And then the President's announcement on April 28 and his release, dealing with review of the sanctions and lifting of sanctions. And those please me very much.
In your testimony, though, you made some comments about a couple of pieces of legislation. One, H.R. 17, which seemed to be a little out of sync with our policy of less sanctions, a little more consultation with the Congress on sanctions, and creating a policy that makes more sense to American farmers.
And I just wondered if you would comment on that.
Mr. EIZENSTAT. Yes, sir; thank you.
And I appreciate very much the spirit in which you have authored H.R. 17. But we do have some very real concerns about them. And I mentioned earlier that S. 566 on the Senate side is more in the spirit of some of the principles that we have. If I may just mention a few concerns we have with H.R. 17.
Page 58 PREV PAGE TOP OF DOC First, that it requires a presidential report to Congress on any selective embargo of agricultural products. Second, it establishes procedures that would require congressional approval, or potentially disapproval, of the reported embargo. It is unclear, as well, as what happens if Congress doesn't act at all. Does the sanction stay in effect? Does it not stay in effect? And, in addition, it requires that the sanctions terminate on a date certain, regardless of the changes in the behavior or policies of the sanctioned country. And we have always felt that, in terms of the end date for sanctions, they ought to be performance-based, rather than terminate on a particular time. And if I may say, in terms of Congressman Dooley's legislation, what we favor instead of a sunset saying, for example, a sanction will end 1 year or 2 years after the date, is to require the Presidentand we are perfectly willing to do this to annually review outstanding sanctions and report to the Congress on whether that particular sanction still has any import, whether it is doing the job effectively, and if not, then the President should, in effect, not pursue it. That, to us, is more performance-based rather than time-based.
And if I may just take this opportunity to go back again and mention, with respect to Congressman Dooley, the key for us is stand alone national interest waiver authority.
But those are the concerns on H.R. 17, and we certainly will be more than willing to sit down with you and work with you.
Mr. EWING. We want to do that. I wouldand you probably know this alsobut the H.R. 17 was basically the policy of this Nation from 1985 to 1994, was part of the Export Administration Amendment Act. That bill expired, but the reason it was allowed to expire was not because of the sanctions provision. And I would just say that while it is a small thing, 29 major agricultural organizations in this country strongly support it, and I can assure you, also, that many of our farmers, if they aremay not be politically potent anymore if they are not 10 percentbut they strongly support doing something about embargoes and sanctions. It is a big concern to agriculture and to producers across this country, that they are used in the game of international diplomacy. Many times they feel, rightly or wrongly, without real concern for what it does to them and in their lives.
Page 59 PREV PAGE TOP OF DOC And we will be very glad to work with you.
Mr. EIZENSTAT. Well, let me just say, Congressman Ewing, that it is not a small thing at all, the 29 agricultural organizations support this. I have taken very seriously that portion of my title that says ''and agricultural affairs.'' I meet on a very regular basis with agricultural groups, including on this issue.
Second, the President's own decision of April 28 was very strongly guided by the kinds of recommendations that Secretary Glickman and the Department of Agriculture made, and that we at the State Department made, about the fact that these food sanctions are largely counterproductive. They give the dictators an argument to say, ''You are starving our people.'' They don't effectively implement our foreign policy in most instances, because they don't really help a country support terrorism or buy a weapon of mass destruction, and, indeed, just the opposite. They can drain money away by purchasing our products from worse uses. So that is the whole thesis of the President's decision.
The concern we have with H.R. 17 is that it tries to codify here certain rigidities that we are concerned about, and the President does need some flexibility in this area. And, again, we certainly will try to work with you.
Mr. EWING. I appreciate your views and your points, sir. Thank you.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Phelps.
Mr. PHELPS. Thank you, Mr. Chairman. I also commend you on this valuable hearing, especially being a new member, I am awed by the presence of two outstanding officials that conduct our activity internationally as well as domestically.
Forgive me if I am asking a questionI haven't been here for all of the discussionthat has already been asked. But in lieu of the announced exemptions from sanctions, how are we going to monitor what we have in place to know whether these food shipments allowed under these new sanction exemptions, who do they reach?
Page 60 PREV PAGE TOP OF DOC You mentioned to political dictators, and so forth, who could take advantage. Do we have a way to monitor and knowing if they are supporters of ours or have reached corrupt officials or military operations?
Either one of you or both?
Mr. EIZENSTAT. The answer is, yes, we do.
Mr. PHELPS. Is there something you can explain about what that system
Mr. EIZENSTAT. Well, I prefer not to go into detail openly, but we certainly have, I think, adequate intelligence capacity and on-the-ground resources, and there are often in these countries NGO's as well from whom we get much information.
Secretary GLICKMAN. I might add, we are providing about about a billion dollars worth of food assistance to Russia this year. And we have a major effort between USDA, international development of the nonprofit organizations, our intelligence community, and Russian Government officials to make sure that this food doesn't end up in the hands of organized crime, or that it is not being re-routed into other countries. So far it has proven to be fairly successful. I mean, I can't tell you there aren't some holes in it; I don't know that. But, by and large, we have a very strong oversight on this particular issue.
Mr. PHELPS. Thank you.
May I askI know it has to be generalthe reason I asked the question, in traveling in my district and just knowing the background on concerns from farmers, a lack of people outside of the farm community, too, it just seems like there is a dilemmaand I am sure you are frustrated in dealing with this in your capacityis that, on one hand, people want, especially farmers, the sanctions lifted, more lucrative trade, and don't penalize us for international diplomacy that Mr. Ewing pointed out. Then, on the other hand, oh, be sure this doesn't get in the wrong hands. Being if we are making money or it betters our economy, there are equally those citizens that are concerned about that. So I know balancing all of these concerns is why we are glad you have the job. [Laughter.]
Page 61 PREV PAGE TOP OF DOC Let me just ask one other question. What is the general outlook on the commodity low prices right now? What do you seehow many months ahead do you see us pulling out of this? Or, leveling off at the same pace? Or, what can we expect?
Secretary GLICKMAN. I think our exports have bottomed out, and I think there will some improvement next year. The volumes are actually pretty good; it is the value that is not so good.
Corn volumes are doing well. And some countries seem to be coming back; Korea, for example. We have made commercial sales to Indonesia for the first time in several months. And Under Secretary Schumacher just came back from Mexico where the markets look pretty good. I would say that it is going to be a recovery, but slower than is expected.
Internationally, price wise, we have had 3 record years of world grain production. In 1996, 1997 and 1998, each were record years over the previous year. You don't want to wish bad weather on everyone, but we have hador anyoneleast of all us, but we have 3 wonderful years of production, and this year looks pretty good as well. When you take that, and you combine that with more tepid or weaker demand than we saw 4 or 5 or 6 years ago, there are going to be continuing problems and stress in terms of agricultural prices. And so, other than our domestic programs, that is why we are pushing food assistance as much as we can.
We have had three times the level of food aid than we have had in recent years, using our GSM programs as much as we possibly can. The current farm bill, while it has some holes in it, by and large has provided a lot of payments to producers$15.3 billion this year.
And we need to work with Congress and see if there are is a way that we can improve the farm safety net as well.
Mr. PHELPS. Thank you for that response.
Just one last comment rather than a question.
Page 62 PREV PAGE TOP OF DOC I would be remiss if I didn't say I wanted to promote to you the importance of the development and utilization of ethanol. You talk about corn prospering and corn farmers, we hope you join us in the contacting of and discussing with EPA some of their errors and views that might be a little more lucrative for ethanol, and we would appreciate that.
Secretary GLICKMAN. Thank you; we will.
The CHAIRMAN. Mr. Hill.
Mr. HILL. No questions.
The CHAIRMAN. Mr. Dooley I believe had something he would like to pursue.
Mr. DOOLEY. Yes; and I appreciate theI think I am getting a better understanding of some of the concerns, Mr. Eizenstat. And I think we ought to be able to work these things out.
Now, the other issue, though, relates to the parity. And I guess I am between the congressional and executive branch, and I guess I am a little unclear in terms of how you could establish anymoreyou can't establish anymore, I guess, restrictions on Congress, so are you saying that we shouldwould not be, if we modified the national interestwouldn't that address, then, the parity issue with the executive branch?
Mr. EIZENSTAT. I think that the best way to deal with it actually would be to change ''shall'' to ''should,'' and that would give the President a direction without being overly prescriptive. And I would
Mr. DOOLEY. Why would you need both, though? If you have the national interest exemption, why would you need both?
Mr. EIZENSTAT. Because one deals with procedural hurdles to even do sanctions. The other gets to the end of the process where you have determined, as we did under ILSA, that, in fact, Po Pols investment did implicate and it was violative of the Iran-Libya Sanctions Act. It was an investment over $40 million in the oil sector. We then had to decide, do we actually employ the waiver that was given, or do we employ the sanction?
Page 63 PREV PAGE TOP OF DOC And so it had nothing to do with the procedural issues leading up to it; it was the actual final substantive decision of making this tough balance, and having that national interest waiver was very important in our decision.
Also, I would say that, in terms of having these various procedural barriers and then putting, whether it is national interest or national security waivers, it establishes a dynamic in which our capacity to often work with the country and that it is targeted as different. The very fact that you have to go through that process can, itself, be difficult.
So, to the extent that you can be discretionary, with respect to the presidency, these are the things that you should take into account. That would be helpful.
But, again, the single-most important thing is standalone national waiver authority.
Mr. DOOLEY. And I guess my last question: I would still, thoughis there an example of an Executive decision to impose a sanction that would have been precluded by the legislation that I am
Mr. EIZENSTAT. Yes, sir; I am not at all sureand I hate to answer hypotheticalsI am not at all sure that we could have issued title III Helms-Burton waivers if the standard was national security, because that really means the question of a possible invasion or our own military strength or whatever.
National interest provides a much broader array of balancing, in terms of being able to take into account foreign policy considerations, in general. We have always interpretedand not just this administration, previous administrationsthat when you have a national security test, that is a very high burden that gets to the military side of things, and, therefore, it is much more restrictive.
And, again, I think title III would be one example.
Mr. DOOLEY. All right; thanks.
Page 64 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Ose, did you have any questions to the panel?
Mr. OSE. No, sir.
The CHAIRMAN. Mr. Minge.
Mr. MINGE. I would just like to ask quickly, is there any calculation that has been made as to the amount of trade that we actually lose because of the sanctions, as opposed to trade that we might not actually lose as a country, because we simply have, let's say, the Australians shipping to a location, and then we are shipping to whatever location the Australians are then not serving?
And I am not implying that these sanctions are of no consequence or importance; I certainly am not. But just some sort of an analysis by an economist of offsetting considerations that might result in a less significant impact?
Secretary GLICKMAN. Yes; I understand your question. I can't go into the displacement factors and I can tell you that our folks tell me that it is about $500 million worth or it is about 1 percent of our agriculture exports. But I can't answer the other question; that is a much broader question. I don't know.
Mr. MINGE. And another reason I raise this is that another committee here, Mr. Chairman, has taken issue with the sanction or the drive that many of us have participated in to end the sanctions and gotten something I think from GAO that claims that the effect of sanctions to the American economy is really di minimis, if not beneficial, and I am troubled by the fact that we are working across purposes here in the House of Representatives with some of our colleagues pressing the other analysis.
Secretary GLICKMAN. Well, I think the CBO differs from the GAO, and we differ with that as well. So, we will get you that CBO; I know that you don't otherwise have it.
Page 65 PREV PAGE TOP OF DOC Mr. MINGE. Yes. Thank you very much.
I have no further questions.
Mr. EIZENSTAT. I would just say that the six countries involved, with respect to the President's announcement, import about $6.3 billion, or did in 1996; that was the last year we had figures. It was about 2 percent of world trade in agricultural commodities.
The CHAIRMAN. Is the gentleman finished?
Mr. MINGE. Yes. I yield back the balance of my time.
The CHAIRMAN. The Chair would like to thank our witnesses for attending.
Secretary Eizenstat, good luck to you.
Mr. EIZENSTAT. Thank you, Mr. Chairman.
The CHAIRMAN. We welcome you back at any time.
Secretary Glickman, you are always welcome here.
Secretary GLICKMAN. Yes, sir.
The CHAIRMAN. I appreciate very much your time and interest.
And the committee will stand in a brief recess to catch this vote.
The CHAIRMAN. We will reconvene the hearing and invite our second panel to join us at the table.
Daniel Amstutz is from Washington, DC, president and CEO of North American Export Grain Association; Mr. H.D. Cleberg, from Kansas City, KS, president and CEO of Farmland Industries; Mr. Mike Yost, from Murdock, MN, is president of American Soybean Association; Mr. Roger Pine, from Lawrence, KS, is president of the National Corn Growers; and Mr. Loy Sneary, from Bay City, TX, is Texas Rice Council, and he is also representing the U.S. Rice Producers Association and U.S. Rice Federation.
Page 66 PREV PAGE TOP OF DOC Mr. Amstutz, we will begin with you, and if we could take the testimony in the order of introduction.
We appreciate very much your being here today, and please proceed.
STATEMENT OF DANIEL G. AMSTUTZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NORTH AMERICAN EXPORT GRAIN ASSOCIATION, INC.
Mr. AMSTUTZ. Thank you, Mr. Chairman.
My name is Dan Amstutz. I am president and CEO of the North American Export Grain Association. The acronym is NAEGA. We are the Nation's exporters of grains and oilseeds.
I ask, Mr. Chairman, that my full statement be made part of the record, and I will deliver a summary.
At the World Food Summit in November 1996, the United States said that its role in helping achieve world food security was, among other things, to provide a reliable supply of food to the world market. This is an admirable goal, and NAEGA enthusiastically endorses it. But the United States is not fulfilling it and has not done so over the course of the last 30 years.
Few in the world will question that the United States is the most reliable source of supply. But because of our penchant for imposing unilateral economic sanctions, we are not regarded as reliable suppliers. The cost of lost export opportunities because of these policies is difficult to overstate. Others have talked of it amounting to billions of dollars, and we would not dispute that.
The record of the imposition of unilateral sanctions in agriculture is well documented. In the 1970's, because of a perceived shortage, the United States announced an export embargo on soybeans. High prices effectively rationed usage, so the embargo was never actually implemented. Nevertheless, countries dependent on imported oilseeds learned how tenuous the supply availability was from the United States, and they adopted policies that would make them more self-sufficient and less dependent on the United States for supplies. As a result, production in and exports from the Southern Hemisphere began increasing. U.S. policy was the stimulant for the development of this new competitive force.
Page 67 PREV PAGE TOP OF DOC This unfortunate page of history was followed by the embargo on grain exports to the Soviet Union in 1980, in retaliation for the Soviets' invasion of Afghanistan. The embargo did not create grain shortages in the Soviet Union. It generated windfall opportunities for other exporting countries and even, Mr. Chairman, windfall profits for the Soviet Union. It is estimated that because of the decline in market prices following the imposition of the embargo, the Soviets saved $250 million by buying from suppliers other than the United States. The episode was another chapter in the book that says the United States is not a reliable supplier.
The United States has employed agriculture embargoes for both economic and foreign policy reasons. Friend and foe alike have been targeted. To repeat, we may be a reliable source of supply, but it is a matter of record that we have not been reliable suppliers.
And, Mr. Chairman, just 2 days agoMonday of this weekI met with a representative from the Government of Japan. He briefed me on Japan's priorities for the upcoming WTO negotiations. High on the list was their perception of food securityfood security, through the eyes of a net importing country such as Japan. The free translation of the Japanese position on food security is that exporting countries' export restrictions or prohibition measures should be more disciplined under WTO rules.
Mr. Chairman, there is no question but what American policies on unilateral sanctions have influenced the position of Japan going into these upcoming negotiations.
We are pleased that the Congress is addressing the question of economic sanctions. It was my pleasure to appear a year ago before Mr. Ewing's subcommittee in support of H.R. 3654. And we support the various sanctions reform measures that are being worked on in the Congress this year.
NAEGA is pleased that the administration has recently taken a more reasonable approach on sanctions, particularly those relating to Iran, Libya, and Sudan. These and the other three countries on the six-nation sanctions listCuba, North Korea, and Iraqare significantly important importers, accounting for about 14 percent of world rice imports, 10 percent of world wheat imports, 5 percent of world vegetable oil imports, 5 percent of barley imports, and 3.5 percent of world corn imports. Unilateral U.S. sanctions on exports to these countries have not affected their ability to secure supplies, so it is the American farmers who have been the losers.
Page 68 PREV PAGE TOP OF DOC It is regrettable that regulations to implement these policy changes have still not been released. We fear that the regulations, when they are promulgated, will insist on the consummation of a completed sale prior to requesting an export license. Such an approach would create great price change risk for exporters unless license approvals would be granted immediately upon filing. A protracted license approval process would most likely result in no business being done. The most workable system would be to grant licenses to do specific business. Some would call these ''hunting licenses.'' We have offered our services to the administration to work with it to formulate acceptable language to implement this approach, but our offer has not been accepted.
Global demand for farm products is rising. The outlook for growth in grain and oilseed usage is particularly promising. We can easily see annual world trade for wheat and corn each reaching the 150-million-ton level relatively early in the 21st century. If the United States is deemed a reliable supplier, it is a conservative estimate to say that the U.S. share of this wheat trade will be about 2 billion bushels and our share of corn exports about 3 billion bushels. In each instance, that is about twice what our current exports are. It is difficult to overstate the importance to American farmers of such growth in world demand. And, in addressing the ''unreliable supplier'' stigma, Congress will help make these estimates a reality.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Amstutz appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Amstutz.
STATEMENT OF HARRY CLEBERG, PRESIDENT AND CHIEF EXECUTIVE OFFICER, FARMLAND INDUSTRIES, INC.
Page 69 PREV PAGE TOP OF DOC Mr. CLEBERG. Thank you, Mr. Chairman, and members of the committee, for the opportunity to appear before you today and for holding this hearing on this very important matter.
My name is Harry Cleberg, and I am president and chief executive officer of Farmland Industries. Farmland Industries is today the Nation's largest farmer-owned cooperative.
The issue of trade sanctions and embargoes and their effects on American agriculture has been debated far too long. It is time to do something now to ease the burden of unilateral economic sanctions on American agriculture by exempting commercial sales of all food, fiber, fertilizer, and other agricultural commodities from future unilateral sanctions. There needs to be a review of existing unilateral economic sanctions and a sunsetting of the sanctions when they are found to be ineffective or no longer needed. Additionally, there needs to be a provisional framework for considering future sanctions.
The use for unilateral economic sanctions by our Government has been a recurring disaster for American farmers, ranchers, and agribusinesses. From the soybean embargo in the early 1970's to the grain embargo of the 1980's, to the unilateral economic sanctions placed on more than 70 countries worldwide, sanctions and embargoes have continually stifled American farmers, ranchers, and, yes, agribusinesses. Unilateral economic sanctions result in lost sales, lost market share, increased competition, and certainly damage to our reputation as a reliable supplier.
Trade embargoes and unilateral economic sanctions have done little to forward the United States' foreign policy agenda. Instead they have subsidized our competitors, removed markets from our producers, damaged both our producers' livelihoods and thousands of people employed in exporting agricultural products, and most damaging of all, have tarnished the United States' reputation as a reliable supplier of quality agricultural products.
Page 70 PREV PAGE TOP OF DOC Today, sanctions against Sudan, North Korea, Libya, Iran, Iraq, and Cuba amount to, as we have heard before, substantial amounts of our market needs.
The inclusion of agricultural products in trade sanctions is seriously counterproductive, given the nature of most agricultural products, as replaceable commodities in the world market. When we cannot fill orders from international customers for non-market reasons such as unilateral sanctions, other very willing suppliers easily step in to fill their orders. Sometimes our competitors respond to our unilateral sanctions by adding production capacity to the overall economy. As a result, production in areas outside of the United States, especially in South America, has increased substantially during recent years to address international and domestic demands and concerns of overly depending on the United States for food.
Mr. Chairman, we believe we should examine what the benefits, the effects, and potential consequences our unilateral economic sanctions policy have on our producers and the offending country before applying economic sanctions.
If this approach is taken, I believe the U.S. Government may be more prudent and unwilling to use agriculture as part of its actions. We must remember in the price-sensitive commodity markets, the consequences of such sanctions are felt immediately, and their long-term effects are felt for several months, and then sometimes, as we have stated before, for years to come.
A positive sign was the administration's recent announcement regarding changing in sanctions policy for food and medicine for selected countries. This is a good first step, but this effort must be implemented promptly and pursued further. We encourage the administration to issue these regulations as quickly as possible.
Since commodity markets are very competitive, we need to be able to access these markets with the same ease as our competition.
We hope that the regulations, when issued, will not impose burdensome licensing requirements. This means any licensing or applications process needs to be as passive as possible or even nonexistent. We have found that licensing is a time-consuming, expensive, and unpredictable process. Any requirement that individual sales be licensed will make calculations of storage, interest, shrinkage, shipping, and legal fees very difficult. Delays result in lost sales, uncertainty as to whether a license will actually be granted would continue to stigmatize the American farmer as an unreliable supplier. With an individual licensing regime, American farmers are hardly near a level playing field with our competitors.
Page 71 PREV PAGE TOP OF DOC We support certainly the actions that are taking place here, such as H.R. 1244 or Senate version S. 757. This legislation, we think, certainly moves us into the right direction.
But, in conclusion, I would like to thank you for giving me the opportunity to appear here today on this important issue. I would like to also express my gratitude to you and the members of the committee who have taken the steps to sponsor sanctions reform legislation in this Congress.
Many of these measures would assist our farmers and our ranchers to be truly long-term, sustainable players that we think is so important, not only for this country, but for the rest of the world.
[The prepared statement of Mr. Cleberg appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Cleberg.
STATEMENT OF MIKE YOST, PRESIDENT, AMERICAN SOYBEAN ASSOCIATION
Mr. YOST. Good afternoon, Mr. Chairman and members of the committee.
I am Mike Yost, a farmer from Murdock, MN. I currently serve as the president of the American Soybean Association. We appreciate the invitation to appear before this committee today.
ASA commends you, Mr. Chairman, for your leadership in addressing this very important issue of U.S. unilateral economic sanctions. As you know, exports are extremely important to the American soybean farmer. We export every other row of soybeans we produce, either in the form of whole beans or soybean products.
Page 72 PREV PAGE TOP OF DOC Mr. Chairman, the use of unilateral economic sanctions by our Government has been a recurring nightmare for soybean producers and all of U.S. agriculture for nearly three decades. Every year, these actions deny U.S. farmers, processors, and exporters access to multibillion dollar markets. In a report completed last August, ASA determined that restrictions on exports to Iran, Iraq, Libya, Sudan, Cuba, and North Korea totaled $554 million annually for soybeans and soybean products, alone. With world demand and farm prices at historic lows, these lost market opportunities only worsen the current crisis in our farm economy.
Even more damaging than the losses of annual sales to certain countries, unilateral sanctions establish the reputation of U.S. as an unreliable supplier. The willingness of the U.S. Government to restrict agriculture exports has encouraged other countries to make long-term plans to secure their food import requirements from other suppliers.
The restrictions in agriculture exports, due to supply shortages imposed by Presidents Nixon and Ford in the 1970's, sent shockwaves through the countries that had become dependent on the United States as the supplier of basic food products, including soybeans. Within a few years, major importers led by Japan initiated a long-term investment program to develop the agricultural potential of South American countries; 25 years later, Brazil is our chief competitor for the global soybean market.
The Soviet grain embargo of the early 1980's demonstrated the U.S. willingness to restrict the exports of farm products for foreign policy reasons. In the last decade, the United States has repeatedly resorted to unilateral economic sanctions in an effort to punish the behavior of various foreign governments. The use of sanctions has only accelerated efforts by many food importing countries, not just the intended targets, to make themselves independent of the United States as a supplier.
Mr. Chairman, the ASA would like to take this occasion to express the support of H.R. 817, the United States Agriculture Trade Act of 1999, introduced by Representative Ewing in February.
Page 73 PREV PAGE TOP OF DOC In ASA's view, this legislation represents a positive step towards reforming U.S. policies governing unilateral economic sanctions. It would force the administration to asses and publicly state the likely impacts that a particular unilateral economic sanction would have on U.S. agriculture and to the extent to which the United States would be displaced by other suppliers to the sanctioned country.
Another positive feature of this legislation is the fact that it would not impose export licensing requirements on commercial sales of agricultural products. ASA strongly supported the administration's decision on April 28 to lift unilateral sanctions on the sales of food and medicine to Iran, Libya, and Sudan.
However, we do not support establishing an export licensing requirement as a kind of ''halfway house'' between sanctions and unrestricted commercial sales. Such a requirement would move our Government into direct control of international commodity transactions.
I would note, Mr. Chairman, that H.R. 817 would not exempt agricultural sales and humanitarian donations from unilateral sanctions imposed prior to the date of enactment. ASA believe that the exemption should apply retroactively as well as prospectively. If the President decides to waive the exemption and continue the restriction on agriculture exports, he could be required to report to Congress on the reasons and the likely impacts of maintaining the sanction.
Before concluding, Mr. Chairman, I would like to also comment briefly on the provisions of H.R. 817 which addressed U.S. objectives for the next round of multilateral trade negotiations on agriculture. ASA and most of U.S. agriculture are very supportive of getting these talks underway this fall in Seattle with trade negotiating authority in place. We also strongly endorse the principle that the WTO should encourage countries to treat foreign buyers no less favorably than domestic buyers of a commodity or product. We cannot expect importing countries to guarantee access to their markets if we are not willing to guarantee access to our supplies.
Page 74 PREV PAGE TOP OF DOC Another priority identified in H.R. 817 is eliminating nontariff barriers to meeting the world's food needs through biotechnology. The U.S. soybean industry has been working on gaining international approvals for biotech crops since the first commercial varieties were planted in 1996. After initially approving the varieties of genetically-enhanced soybeans and corn that year, the European Union has failed to develop a transparent, timely, and science-based process for reviewing and approving the applications for additional variety. During the same period, a disinformation campaign by extremist groups has inflamed food safety concerns among consumers and the European press, encouraging food manufacturers to sell products that are guaranteed not to contain genetically-modified ingredients. In April, several major food chains in the United Kingdom announced they will now sell only products that do not contain biotech ingredients.
While these are private-sector actions, they reflect the complete failure of the EU and member State governments to establish clear and credible food safety regulations based on the broad body of scientific evidence. If U.S. exports agricultural products to the European countries decline as a result of either Government or private-sector actions, the EU should be held fully accountable.
At the same time, our administration must be proactive in defending genetically-enhanced crops and products from attacks that have no foundation in scientific fact. This is particularly true in the case of the regulatory agencies that have reviewed the scientific evidence and approved production and commercialization of biotech crops. The USDA, EPA, and the FDA must speak clearly and consistently on this issue; otherwise, we will lose creditability with consumers and jeopardize the bright future of this new technology.
Again, I would like to thank you for the opportunity to speak to you in front of this committee. And I would be happy to answer any questions.
[The prepared statement of Mr. Yost. appears at the conclusion of the hearing.]
Page 75 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you, Mr. Yost.
Mr. Pine, please proceed.
Mr. YOST. Thank you.
STATEMENT OF ROGER PINE, PRESIDENT, NATIONAL CORN GROWERS ASSOCIATION
Mr. PINE. Thank you, Mr. Chairman, and members of the committee.
My name is Roger Pine; our family farms near Lawrence, KS where we raise corn, soybeans, wheat, and turf grass on our farm. I appreciate the opportunity to appear before you to discuss the importance of trade sanction reform for U.S. agriculture.
I am testifying today as president of the National Corn Growers Association, which represents more than 30,000 members in 47 States.
U.S. corn farmers are efficient, productive, and competitive in world grain markets. Ten years ago, the United States controlled almost 80 percent of world corn exports; last year our share was only 53 percent. Although we export additional corn as high-fructose corn syrup, corn gluten food and meal, as meat and poultry, and in countless other value-added products, weak export performance contributes to the low prices that plague producers today.
NCGA policy supports fair and open global trade to assure U.S. corn and its products full access to world markets. Trade barriers and export subsidies by competitors prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production.
Unfortunately, our Government's actions have also limited our trade potential. On far too many occasions, the United States has imposed unilateral economic sanctions that restrict exports and deny U.S. farmers access to markets around the world, seriously jeopardizing our reputation as a reliable supplier.
Page 76 PREV PAGE TOP OF DOC The United States has used unilateral sanctions more than any other nation. Not all sanctions restrict agricultural trade, but all unilateral actions undermine the economic relationships between the United States and our customers. Sanctions that include food and feed most directly diminish U.S. farmers' income. And I offer two examples.
Cuba is subject to multiple sanctions that limit trade. Early this year, the President announced his intention to authorize commercial sales of food and agricultural products to independent non-governmental entities in Cuba. But these potential sales are seriously limited by licensing rules and expensive shipping constraints. If trade were truly open, corn exports to Cuba could exceed 1 million metric tons, with the potential to grown to 3 million metric tons annually.
During the first 9 months of the 199495 marketing year, the United States exported more than 0.5 million metric tons of corn to Iran. Then, in May of 1995, by Executive order, the sanctions on Iran were tightened, and we lost our 15th largest customer for U.S. corn exports.
The President announced that licensing policies will be modified to allow the export of agricultural commodities and products to Iran, Libya, and Sudan. Although this new policy represents a move in the right direction, the case-by-case review of every sale will significantly diminish the opportunity for corn sales to Iran.
These are only two markets, but sales of an additional 60 million bushels to Cuba and Iran would increase U.S. corn exports by more than 3 percent from the projected levels this marketing year. These markets will be supplied by our competitors because U.S. policy does not allow U.S. farmers to participate. The modest efforts to begin opening these markets will not add to farmers' incomes this year because, quite frankly, the cautious approach will not increase total corn exports. The U.S. Government must allow U.S. farmers to sell in all markets that are available to our competitors without burdensome restrictions. This simple step will help bolster commodity prices at a time when producers most desperately need higher prices.
Page 77 PREV PAGE TOP OF DOC The damage from unilateral sanctions is much more destructive than the loss of individuals markets. If a country contemplates increasing livestock or poultry production but fears that the United States will shut off the feed source, then that country must either maintain domestic feed production or limit the amount of meat and poultry produced. In either case, U.S. sanctions policies encourage the use of trade-distorting programs in every country that is unwilling to trust the United States as a reliable supplier of food.
To avoid this perception, Congress must exempt commercial sales of food, feed, and other agricultural products from unilaterally imposed sanctions. Then, U.S. exporters will have to rebuild relationships with former customers and will have to convince those customers that the United States can be a reliable supplier.
Thank you for allowing me to present the views of the National Corn Growers Association on this important issue.
[The prepared statement of Mr. Pine appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Pine.
STATEMENT OF LOY SNEARY, ON BEHALF OF THE U.S. RICE PRODUCERS ASSOCIATION AND USA RICE FEDERATION
Mr. SNEARY. Yes, sir, Mr. Chairman, and members of the committee.
My name is Loy Sneary; I am a rice farmer and cattle rancher from Bay City, TX, and I am pleased to be here today to testify on behalf of both the U.S. Rice Producers Association and the USA Rice Federation. Together, our organizations represent all U.S. rice producers, millers, marketers, and allied businesses. Both organizations welcome the opportunity to present their views on this important matter of sanctions policy at this very timely hearing.
Page 78 PREV PAGE TOP OF DOC We strongly support the efforts of Congress and the administration to review America's trade sanctions policy and urge that food and agricultural products be exempted from sanctions.
Exports are vital to the U.S. rice industry's survival. Roughly 40 percent or more of our annual production must be shipped overseas if we are to stay in business. Therefore, the imposition of unilateral sanctions should be avoided. There is no question that America's rice producers have been hurt severely by trade sanctions. We developed, and then have been denied, export markets for 2 million tons of ricethat is equivalent to 75 percent of current exports and nearly one-third of the rice grown in this country last year.
In order to compete in the global marketplace, we must prove to international buyers that we are dependable suppliers. Such perceptions are easily destroyed when food is used as a political weapon. Sanctions force our customers to turn to other suppliers for their rice import requirements. It is our view that unilateral sanctions primarily injure those who impose them.
Now the first time the United States imposed such a restrictive trade policy was towards Cuba in 1963. Cuba bought over one-half of our total rice exports at that time. We lost our largest commercial market, and Fidel Castro still rules in Cuba.
There is also little evidence that sanctions have advanced our policy objectives in Iraq or Iran. Sanctions also continue to force Iran to rely on non-U.S. rice suppliers. Those are largely Asian exporters of lower quality rice.
Largely due to market development efforts by our industry and trade associations, U.S. exports to Iran reached over 200,000 metric tons in 1994. U.S.-recognized brands were becoming reestablished; however, the following year, the administration imposed sanctions on U.S. trade with Iran.
Mr. Chairman, it appears to us to be foolish to spend so much money and so much time to rebuild a market, only to once again see it eliminated for no apparent benefit. Even if we have serious objections to Iranian policies, the result of our action is the forfeiture of a market to our competitors, lost economic activity and foreign exchange for the United States, and the squandering of otherwise successful market development efforts.
Page 79 PREV PAGE TOP OF DOC And like Iran, Iraq was once a thriving market for high-quality U.S. rice. Through major industry market development efforts and Government sales programs, this market became a yearly market for 350,000 metric tons of U.S. rice during the 1980's. This one market accounted for 10 to 15 percent of total U.S. rice exports. And it was lost when the United Nations imposed sanctions on trade with Iraq during the Persian Gulf War.
Now although we sell rice to over 100 countries in the world, many of these are smaller buyers. There are only a few commercial markets for large volumes of high-quality rice. U.S. rice prices have already plummeted to record low levels this year. In fact, prices for the 1999 rice crop are projected to drop by 30 percent, compared to last year.
Trade sanctions that reduce the opportunities for farmers to market their crop only exacerbate the already dismal situations. Sanctions prevent our best customers from buying our products. We make the observation that ''freedom to farm'' without ''freedom to market'' is not acceptable for rice producers or the rice industry.
Cuba, Iran, and Iraq once accounted for the use of about 2 million tons of rice a year, and we would like the opportunity to start the process of redeveloping these markets, and especially in Iran and Cuba, just as soon as possible. If our Nation supports the idea of free trade for all nations, truly our own farmers deserve the same right.
Thank you again for the opportunity to share the rice industry's views with this committee.
And, Mr. Chairman, I commend you in the leadership that you have taken, as well as the whole committee, to bring this issue to the forefront. And if those of us in the production of agriculture and the rice industry can be of any assistance, we would look forward to working with you.
[The prepared statement of Mr. Sneary appears at the conclusion of the hearing.]
Page 80 PREV PAGE TOP OF DOC The CHAIRMAN. Thank you, Mr. Sneary, and all of the witnesses.
All supporting documentation and complete statements will be made a part of the record.
Have any of you, as individuals, or the associations that you represent, been contacted by USDA, the Department of Treasury, or the Department of State in regard to suggestions relative to the regulations for the April 28 announcement on trade sanction reform?
Mr. SNEARY. The Rice Producers Association and the Rice Federation have been contacted.
The CHAIRMAN. And did you provide suggestions or recommendations?
Mr. SNEARY. Yes, sir; we have had an opportunity to do that. And both the associations are currently working on providing that kind of information.
Mr. AMSTUTZ. The grain exporters have not been contacted. We have made contact with the administration as long ago as several months ago, giving some recommendations and offering our assistance in working with them on developing licensing methods, but we have not had a response.
Mr. CLEBERG. It is my understanding that at Farmland, we have been contacted by Treasury and that we have responded on those issues.
Mr. YOST. The American Soybean Association has not been contacted, but we are very supportive of what has been done.
Mr. PINE. The National Corn Growers have not been contacted.
The CHAIRMAN. I have always felt that if we are the only producer of a product, and we impose a sanction, it may obviously have some impact. But if we are not, and unfortunately in agriculture we are not, the country that the sanction is to be imposed on receives no downside. We are penalized as a reliable trader, and our farmers or and all U.S. producers are the ones that suffer. Maybe those should be considered agricultural sanctions rather than sanctions on some other country.
Page 81 PREV PAGE TOP OF DOC All of you have talked about, to some degree or another, in your statements the implication that this has had beyond the very recognizable amount of commodities that have not been able to be sold under sanctions. That it has ramifications and it affects us as a reliable trader. The discussion has been and will continue to be, particularly from the opponents of what we are trying to do, that markets are made up in other areas because we are selling to someone else because another country is selling to the country that we have a sanction on, and that is a little difficult to get a handle on. But I think it is important as well, while it may be it difficult to get a handle on, the long-range ramifications, as all of you have mentioned, about the fact that it has hurt our reliability as a trader. And, consequently, it may have hurt us in many other areas as well.
Do you think that it is possible, if we can alleviate the sanctions problem, as far as the reliability implications, that we might be able to regain markets that we have lost, if we can send a very clear signal?
Mr. AMSTUTZ. Mr. Chairman, there is no question in my mind that I think we can regain these markets, because remember one very important fact. We continue to be the most reliable source of supply, more reliable than any other exporting country. And that is enormously important. And if we can couple with that the fact that we would become reliable suppliers, I am totally confident we can regain these losses. The efforts underway here in the Congress are very important to this end.
Mr. CLEBERG. There is another factor that is taking place that makes this even more important. Through seed development, genetics, and so on, we are able to now better differentiate our products, our commodities, into more specific types of products that unique needs exist around the world, and was indicated earlier in one of the testimonies here that market development activity to move into that differentiated area is very costly. And that is where some real income opportunity does exist for this country and for American farmers. And so that has kind of added additional dimensions to this issue.
Page 82 PREV PAGE TOP OF DOC Mr. YOST. We also think that lifting unilateral sanctions seems very positive in this area, coupled with the fact that we definitely have to guarantee foreign buyers the equal access as domestic buyers have to our supply. It is imperative.
Mr. PINE. I would agree with what Mike said, and I think that to regain the confidence of our customers is not going to be a 5-minute job. I think that is going to be a period of time. But if they do become convinced that we are serious about leaving the trading alone so that we can work with them and be a steady supplier, I am convinced that we can regain those markets, and it will be a tremendous improvement for those of us in agriculture.
Mr. SNEARY. Mr. Chairman, as far as the rice industry is concerned, as I alluded to, the major markets that we have lost due to sanctions were markets that we developed, we, as producers, with our check-off dollars, along with the assistance of the United States Government to develop those markets. We, in fact, had folks that were in the field that developed a preference for our product in many of those countries, and I think that the answer, at least as far as the rice industry is concerned, is that, yes, it would take us a while to get those folks back on board. But we would look forward to the opportunity to get with our old trading partners in those countries, because we do feel that we would have a real opportunity. And, as I also testified, this year is very critical for the U.S. rice industry, and any opening of trading policy for any of those countries could have some very immediate effects and be positive for the rice industry.
However, I think that it is going to take the resolve, once again, of you and the other members of this committee to show that the Congress does mean what they say when you, hopefully, can get these sanctions lifted and that we don't have these types of sanctions imposed in the future on agricultural products.
The CHAIRMAN. I think it needs to be a very definitive policy change so that there is a recognition that, in fact, we have made a change, rather than just tweaking it.
Page 83 PREV PAGE TOP OF DOC Mr. SNEARY. It needs to be a complete overhaul; yes, sir.
The CHAIRMAN. Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman.
I would like to personally welcome Mr. Cleberg and Mr. Yost, who I have worked with in the past and had a chance to visit them both in Kansas City. And, of course, Mr. Yost is one of the people in my district that keeps me on my toes, and I appreciate that.
I would like to ask about the importance of credit and guarantees and various other ways that we have tried to make sure that our sale of products overseas ought to be working in these countries where we have had sanctions.
Just take Cuba as an example. If we could end all of the limits on trade with Cuba, as it applies to agricultural products, but we still were not offering some of the financial incentives that we offer in much of the rest of the world, with respect to trade, would we have done enough?
I am just interested in your responses or comments on that.
Mr. CLEBERG. Well, my views on that is, from a marketing standpoint, we need the tools that exist and are regularly used in international commerce to develop these things and to have a marketer'sand I am talking about a farmer's productshands tied behind their backs because of one regulation or another is a real challenge.
Regardingyou mentioned Cubaand I will be candid enough to say that in my personal opinion, the policy that we have had in place with Cuba for the last 25 years has perpetuated just exactly what Castro has wanted in Cuba. And had we changed our policy long ago, that regime would be totally different than it is today. And so I think that is the best example of basically a failure of recognizingand the world is changing that might ever exist in sanction is right here under our nose.
Page 84 PREV PAGE TOP OF DOC Mr. YOST. Just to add to that, the use of GSM 102 and 103 credits have been very critical to soybean exports in the past couple of years. And I don't know specifically about Cuba, but we feel quite confident that it would be critical in the success of getting our products into countries like Iran.
Mr. MINGE. The second question I would like to bring up goes beyond sanctions, and it takes up some of the comments that were made earlier this week in Minnesota both when the USDA and the USTR's office had representatives for a hearing on trade.
And the concern that I have is that often we are exporting into an international market which is sort of a dump market, where other countries are sending their surplusesand I suppose the European Union has been our nemesis in this respect, more than almost any other country.
Is there anything that you can recommend to us to try to deal with this problem of world market prices that seems to plummet or are so volatile that they have left us at the mercy of either global over-production, or currency fluctuations, or economic problems such as we have experienced in Southeast Asia in the last 2 or 3 years?
Mr. AMSTUTZ. This is perhaps an oversimplified answer to a very good question, but I think the point is very important.
It is fact that every year millions and millions of people around the world enjoy the benefits of farm products less than they would like, and the problem is economic; the problem is the ability to pay for food and fiber. Nothing this Nation or any other nation can do is more important, in my judgment, than continuing global efforts to liberalize trade, to develop economies more rapidly than will be developed otherwise, and to increase demand. And so this question that we used to call ''fast track'' and now we call ''trade negotiating authority''is enormously important. By engaging in multilateral trade liberalizing negotiations, by generating a much more rapid economic expansion around the world, we will see demand balloon. I am confident of that. And that, over time, will correct these problems.
Page 85 PREV PAGE TOP OF DOC In the meantime, as Secretary Glickman said during his testimony in response to a question, we have had three successive years of bumper production around the world. Demand in the immediate future doesn't grow large enough to absorb all of that without a decline in prices and without imposition of unfair trade practices by some countries such as the subsidizing efforts of the European Community.
But if we can address this question of expediting rapid economic expansion and give the administration trade negotiating authority, I am confident that we will sit here 5 years from now wondering if we can produce enough for this growing market around the world. I am that confident of it, and so I think this trade negotiating authority that is in the hands of the Congress, that Congress is empowered to grant, is very important.
Mr. MINGE. Thank you.
I yield back the balance of my time.
The CHAIRMAN. Thank you.
Let me ask one other question, in regard to your opinion. I recognize that we have not seen the final regulations yet, but under what has led us to this point, with the administration's proposal on the 28th of April, do you believe that there will be any substantial change in the amount of exports of foods or agricultural products, primarily to Iran, Libya, or Sudan?
Mr. CLEBERG. Yes; speaking on behalf of our company, we really do. And we have discussions underway already on those two particular areas. And so we think definitely there would be an impact, a very positive impact, as the outgrowth of that.
The CHAIRMAN. Any others?
Mr. PINE. I think our organization is concerned about some of the restrictions that will still be involved, and that there may be some improvement, but not what we would like to have.
Page 86 PREV PAGE TOP OF DOC Mr. YOST. We feel that there will be additional sales of soybeans products to Iran. We are concerned about the licensing requirements.
Mr. SNEARY. And we in the rice industry, also, Mr. Chairman, are concerned about the licensing and the whole procedure. We do feel as though there are some opportunities there, even in this crop year, for trade with Iran.
However, the licensingjust as the soybean folks and I suppose every other commodity is concernedis that if there could be an expeditious way of licensing so that we don't have to wait, whatever a waiting period would be, in order to get that license. If a trade needs to be made, our competition is in the global market, and if we are going to be able to go toe to toe with our competition, if there is an opportunity to make a trade or a deal with Iran, we would like to have the authority to do that immediately.
Mr. AMSTUTZ. The potential for business is very good, based on recent years' imports by just these three countries: Iran, Libya, and the Sudan. They could take this year 7 to 10 million tons of wheat, 2 million tons of corn, 500,000 tons of soybean oil.
Key is the licensing requirements, and they have to be such that the market can work. And we are concerned about that and appreciate your concern.
The CHAIRMAN. Thank you all very much for your input and we may be dealing with this subject again. Hopefully, it will get fixed. We are very interested in following up with the regulations, as they are proposed, and as we move forward with this.
Not everyone is of the same opinion about this subject as we are. But I think that agriculture, as a whole, is very supportive of the change in sanctions policy. We hear that everywhere we go, by every group, and I think that is going to be very beneficial in letting Members of Congress know how significant and important this is to agriculture. While agriculture is in a depressed state in most areas, maybe now is our good opportunity to do that, and we might get more attention that we would at other times.
Page 87 PREV PAGE TOP OF DOC Thank you for your time and for coming and for your information you have shared with us.
I would now invite our third panel to the table. Mr. David Hillman, vice-president of the Arkansas Farm Bureau Federation, from Almyra, AR, and he is representing the American Farm Bureau Federation; and Mr. Wes Sims, who is president of the Texas Farmers Union, from Sweetwater, TX. He is also representing the National Farmers Union.
And we will start with Mr. Hillman and then go to Mr. Sims.
STATEMENT OF DAVID HILLMAN, VICE-PRESIDENT, ARKANSAS FARM BUREAU FEDERATION, ON BEHALF OF THE AMERICAN FARM BUREAU FEDERATION
Mr. HILLMAN. Thank you, Mr. Chairman.
Mr. Chairman, my name is David Hillman; I am vice-president of Arkansas Farm Bureau, also a fourth generation rice, soybean, and wheat farmer from Almyra in Arkansas County. And I appreciate this opportunity that I have today to come and testify before this committee.
Until recently farmers and ranchers had been denied access to five export markets; namely, Cuba, Iran, Libya, North Korea, and Sudan. Recent changes by the administration have allowed us to replace this ban with a licensing requirement for these three countries. Additional changes were also announced by the administration with regard to export sales to Cuba. These changes are not expected to result in significant commercial sales to these countries.
We understand that commercial sales of food, and medicine, and medical equipment are now eligible for exemption from sanctions to these three countries; however, as was discussed earlier here today, these exemptions will not affect all agricultural products. And I submit to you that all of us farmers are in this game together.
Page 88 PREV PAGE TOP OF DOC Also, we understand that the new policy will require exporters to obtain an exporting license, covering a specific already negotiated sale. Each export request will be reviewed on a case-by-case basis. This new policy is unnecessary and cumbersome. In fact, the practical application of obtaining a license to export to these nations will hinder our ability to trade with them.
As with most markets, agriculture export transactions are driven by the global supply and demand for commodities. But, unlike other markets, agriculture exports are affected by sudden changes in supply brought on by unforeseen events such as adverse weather or natural disasters or sometimes manmade causes.
The requirements to obtain this export license for sales to Iran, Libya, and Sudan will, therefore, greatly hamper, if not eliminate entirely, our ability to export agriculture commodities to these countries.
I liken it to a town that has two stores. Both of them have the same products for sale at relatively the same prices; one of them you have to stand in a long line to get checked out, and then when you get there, they will decide whether they are going to sell it to you or not. The other one doesn't have a line. You go up there, and when you pick up the product that you are going to have the ability to buy it. Now which one would you buy that product from?
Buyers of our exports recognize this uncertainty, and they are certain to take advantage of it, as are our competitors. They are going to exploit every advantage that they could in order to sell their product instead of ours. In short, the new policy does not completely resolve the issue of U.S. producers being viewed as unreliable suppliers. Nor does it assist U.S. farmers and ranchers in regulating lost export markets.
The administration must grant unrestricted access to all agriculture markets without an added step of obtaining a license in order to reverse the unreliable supplier image that has been caused by these unilateral sanctions.
Page 89 PREV PAGE TOP OF DOC The future of American agriculture depends on unfettered access to foreign markets. Especially today, with agricultural exports projected to decline more than $2 billion from 1997 levels, due to the Asian financial crisis, and actions such as embargoes or sanctions or Government-controlled approval of exports. This does long-term harm to our farmers and to our agriculture community.
The Farm Bureau has a longstanding policy opposing artificial trade, such as artificial trade constraints such as sanctions. We believe that opening trading systems around the world and open engagement with our trading partners are the most effective means of achieving international harmony and economic stability.
We need to look only 90 miles south of the U.S. border to see the effect of our U.S. sanctions policy. Several Farm Bureau members recently participated in an agriculture trade exploratory mission to Cuba. It was strikingly obvious during that trip that U.S. sanctions on this tiny island nation have not had an impact in ending Castro's influence.
It is time that we lifted these unilateral sanctions on agriculture exports and stop making our producers pay the price for this Government policy.
The United States has an unprecedented opportunity to promote its values throughout the world by peaceful engagement. Enabling our producers to engage in trade with these nations, not withdrawing behind sanctions and embargoes, is the best way to achieve this change. Lifting unilateral sanctions and replacing them with administratively onerous licensing regulations is not a commercially viable alternative.
Thank you for your time, and I will take any questions at the proper time.
[The prepared statement of Mr. Hillman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Hillman.
Page 90 PREV PAGE TOP OF DOCSTATEMENT OF WES SIMS, ON BEHALF OF THE NATIONAL FARMERS UNION
Mr. SIMS. Mr. Chairman, I am Wes Sims. I am a lifetime farmer and rancher from Sweetwater, TX, and I am also president of Texas Farmers Union.
It is my pleasure to appear before the committee to represent the views of the 300,000 farmers and rancher members of the National Farmers Union on the issue of trade sanctions and their impact on the Nation's agricultural producers.
Mr. Chairman, our organization appreciates the bipartisan leadership you and many of your House and Senate colleagues have demonstrated concerning the imposition of unilateral economic sanctions and trade restrictions on U.S. agricultural commodities and food and fiber products. These activities can be directly identified with the important progress achieved over the past year concerning trade sanctions.
We believe these actions have provided some hope among farmers and ranchers that the effect of U.S. unilateral trade actions will be more fully considered before they are put in place, and existing sanctions will be modified to allow the sale of farm products.
Last year's exemption of agriculture products from sanctions imposed on India and Pakistan resulted in the immediate sale of wheat to Pakistan and the ability to continue our agricultural trade relationship with this important customer.
A Senate task force on sanctions was also established last year. Its job was to consider the effectiveness of unilateral trade actions in furthering U.S. policy objectives overseas and to think about modifications to the sanctions policy that would increase flexibility if changes are needed. Although the task force failed to endorse any specific policy recommendations, the group's discussions helped us understand sanctions limited foreign policy achievements, and probably more importantly, the negative domestic effect on America's farmers and ranchers.
Page 91 PREV PAGE TOP OF DOC Within the last month, the Clinton administration announced that it is relaxing administratively-imposed sanctions on Iran, Libya, and Sudan. Although future sales opportunities for agricultural and medical products to these countries will be considered on a case-by-case basis, the new policy provides an opening to grant an export license that could result in the sale of about $500 million worth of agricultural products to Iran somewhere down the road.
Sanctions affect farmers and ranchers in ways that have the following short-and long-term consequences. No. 1, U.S. sales opportunities are reduced, causing generally lower commodity prices and producer incomes. No. 2, inventories of those commodities increase in the United States, resulting in longer-term, surplus-caused price pressure. And, No. 3, reduced U.S. competition in sanctioned markets provides other suppliers the opportunity to gain overall market share at the expense of U.S. producers. In many instances, other suppliers gain the ability to extract higher than normal returns from those sales, through discretionary pricing in markets where the U.S. producer is not a competitor, and that gives them a distinct advantage in the other markets where they can sell it cheaper.
Mr. Chairman, more must be done if the United States is to fully capitalize on the revised sanctions conditions as part of our foreign policy strategy. We must recognize the limitations of certain trade restrictions in a globally competitive marketplace.
First, legislation should be adopted exempting agriculture commodities and products from existing and future unilateral economic sanctions imposed by either Congress or an administration, except under the direst of circumstances.
Second, regulations governing commercial, guaranteed credit, and humanitarian transactions should be clarified and applied in a consistent manner concerning all countries.
Third, the United States should undertake aggressive actions to restore the market potential and our reputation as a supplier in those markets where sanctions have been imposed.
Page 92 PREV PAGE TOP OF DOC Finally, while farmers and ranchers appreciate and support the recent developments that seem to have reduced the negative impacts of sanctions, we know that this issue is neither the sole nor the most significant cause of this terrible economic crisis that is being faced by our farmers and ranchers in America today.
The U.S. Department of Agriculture has estimated the annual cost to producers of the current economic sanctions at approximately $500 million a year, or slightly over 1 percent of the depressed value of projected U.S. agricultural exports, and net farm income, also. About one-half of those losses come from the wheat sector. It has suffered significant market losses due to the Asian economic crisis, unfair export competition, and an increased level of imports from Canada. Unfortunately, even if the current sanctioned market damage could be repaired, even those producers of agriculture commodities that have suffered the greatest markets losses, would not be restored to a position of long-or short-term economic sustainability.
Let me say it plainly. If the magic sanctions wand could be waived, and all the damage done to American farmers and ranchers could be salvaged, very few dollars would be seen in the American producer's pocket.
Additional farm policy changes are required if America is to regain an acceptable level of economic stability for producers in rural communities. These include the creation of an effective risk management and income safety net for farmers and ranchersand these are two separate issues; the establishment of a fair and level playing field in the global agriculture trade agreements; and a commitment to achieving and maintaining competition among food chain participants, both domestically and internationally.
I would like to note that last month the leadership of 29 national farm and commodity organizations, which was addressed by one of the Congressmen earlier today, as they gathered in St. Louis, MO, for the Agriculture Summit of 1999, agreed, and I want to quote, ''U.S. exports of food, fiber, and food and fiber products should not be used as the subject of sanctions.''
Page 93 PREV PAGE TOP OF DOC We support the bipartisan legislative efforts to resolve several of the issues raised in this testimony. In fact, Mr. Chairman, the National Farmers Union has endorsed Senator Lugar's bill, the Agriculture Trade Freedom Act, S. 566, which will amend the Agriculture Trade Act of 1978, to exempt agriculture commodities, livestock, and value-added products from unilateral economic sanctions.
Mr. Chairman, I thank you for the opportunity to appear here today, and I would attempt to answer any question you might have for me.
[The prepared statement of Mr. Sims appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Sims.
I want to ask you questions that I asked to the previous panel, in regard to your associations having been or not been contacted by Treasury, USDA, or State, in regard to the upcoming regulations and your suggestions?
Mr. SIMS. I believe we have been contacted by twoState and USDA.
The CHAIRMAN. Mr. Hillman?
Mr. HILLMAN. No, sir; we have not been contacted.
The CHAIRMAN. Do you both feel that it would be necessary for there to be an availability of credit programs, that are available to other trading partners, under sanctions reform in order to be able to realize the greatest benefit of removing sanctions, or of sanctions reform?
Mr. SIMS. I believe, if I understand your question, I believe it would be essential.
I heard a lot ofthe issue was raised numerous times about the EU and the advantage that they take by subsidizing their producers, and their export is a lot more. But there is a whole lot more involved than that to our disadvantage. Pricethat is the big thing. And these countries that are controlled by these totalitarian systemsand they got the weak economies and the weak people, and there is no human rights. Some of those countries pay as cheap as 7 cents a hour. That is an unlevel playing field. The fact that they have no child labor and safety standardsand my children worked on my farm all the years they grew up, and they are very productive. We did not deprive them of the opportunity of education, or church, or community involvement. But those children that are taken from the opportunity to be children or into schools, when those nations that use those for that cheap labor, once again, a big advantage in cheap production and then the lack of environmental rules and regulations. The same withI live in Texas; I am very familiar with Mexico, and I have traveled extensively in Mexico. And I used DDT when I was a young man. I used lots of it; it works. And they have those advantages in those areas.
Page 94 PREV PAGE TOP OF DOC So there is lots of areas where there has to be a level playing field created for our producers if we are going to have the opportunity to survive.
And, Mr. Chairman, I come from the same part of the country that you do, where cotton is king. I know that the only other thing we can raise is my county is cattle. And we are really in danger of losing our cotton industry in my area of west Texas because of the unfair advantages that these nations take over our producers.
I know that is a long answer; I am sorry.
The CHAIRMAN. That is all right.
Mr. Hillman, what do you think about the credit opportunities?
Mr. HILLMAN. I would say that it would be helpful, but not necessarily essential to have those credit opportunities.
And since I was talking about stores today, let me tell you a little bit of story to kind of illustrate that.
The town I live closest to is Almyra, and we got 311 people there and one store. And the big town close to us is Stuttgart, AR, which has about 10,000 people, and they have a Wal-Mart and stores and several different grocery stores.
The town, Almyra, cannot compete with them on prices, so they do it by giving credit, where you can pay your bill once a month. And so I find myself going to that store where I can just run in and show them what I got, and walk out the door.
So, I think countries are that way, also. If you have a place where you know you can go and get credit and not have to pay for it right at that particular time, it is a whole lost easier to go ahead and buy something from that country.
The CHAIRMAN. Does that grocery store ship up here you think? The one that sells on credit? [Laughter.]
Mr. HILLMAN. They are going to check your credit out first, but they sure will. [Laughter.]
Page 95 PREV PAGE TOP OF DOC The CHAIRMAN. That is all right. I would hope that they would. [Laughter.]
They are still in business aren't they?
Mr. SIMS. In my family, we own two retail businesses on the little squareSweetwater, TX, is the county seat. Across from the sheriff's office are two stores. And let me tell you, all the stores in my town is hurting, not just my wife and daughter-in-law's two stores. But it, and the reason they are hurting so badly is because of the economy of our agricultural producers in our county. So we do credit, too.
But the biggest thing that is affecting our rural community are tax-based. Our schoolswe are laying off school teachers this year, trying to do it through attrition. But we got real problems out there is rural Texas and all of rural America.
The CHAIRMAN. You are preaching to the choir about that.
Mr. MORAN. Only, Mr. Chairman, to make certain that the witnesses understand that I am part of the choir. Where I come from, small towns, too. The largest city in my district is 42,000 people, 66 counties, 56,000 square miles, and we face exactly what you described and the survival of rural communities and their way of life. And a lot of that has to do with whether or not farmers and ranchers are making a living.
I am sorry I missed a good portion of your testimony.
I wondered if either one of you had any thoughts about the European Community and the beef hormone issue? And whether or not we, as the Federal Government, the Department of Agriculture, and the Department of State, are responding correctly in our reaction to the inability to export American beef to the European Community?
Mr. HILLMAN. Sir, in my opinion, you have done what you can do. I am not involved necessarily myself in the beef industryexcept I sure do like to eat itbut this is a bogus issue, in my opinion, that they have, and they are using that as a way to try to keep our beef out of their market. And I think that we have finally done what needs to be done, and I hope that we keep our knees locked on this issue, and go forward with it, and carry it out all the way.
Page 96 PREV PAGE TOP OF DOC Mr. SIMS. I am a beef producerhave been a lifetime. I know that we need to be careful when we start imposing on a nation's sovereignty because I believe in protecting ours, but I have always wondered sometimes why we can't produce beef that could be competitive with what they demand for their market, to take that issue away from them or make it more apparent that they are only using it for an excuse not to buy our product or allow our products in.
You all are probably doing as good a job as you can do under the circumstances. I really don't have any criticism.
The CHAIRMAN. Thank you, Mr. Moran.
Gentlemen, thank you very much for your patience and waiting out for the other witnesses and panels and the votes, and I appreciate your being here and your interest and support in this subject.
The Chair would seek unanimous consent, without objection, to allow the record of today's hearing to remain open for 10 days to receive additional materials and supplementary responses from witnesses to any questions posed by members of the panel. Without objection, it is so ordered.
This hearing is adjourned.
[Whereupon, at 1:35 p.m., the committee adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Hon. George R. Nethercutt, Jr.
Mr. Chairman, members of the committee, thank you for the opportunity to address the impact of unilateral trade sanctions an U.S. agriculture. I appreciate the interest this committee has shown on this issue that is so critically important to American farmers.
A number of measures have been introduced this Congress to modify our sanctions policy, including legislation to provide clear mechanisms for the consideration of future sanctions. While Congress should seek to avoid the pitfalls of sanctions in the future, we also have a responsibility to correct the wrongs of our current sanctions policy.
Page 97 PREV PAGE TOP OF DOC I have introduced H.R. 212, the Freedom to Market Act, to provide a mechanism for immediate sanctions relief and I appreciate the cosponsorship of a number of members of this Committee. My legislation targets those sanctions that are particularly burdensome and indefensiblethose on food and medicineand prohibits all such unilateral sanctions, subject to a national security waiver from the President. The Department of State has indicated that such a national interest waiver is essential to allow continued flexibility in our sanctions policy. While I have great difficulty envisioning a situation where the prohibition of food and medicine sales is advantageous, my legislation preserves that option for the President. This legislation allows our farmers to have equal access in markets where our allies have gladly replaced us as a supplier of food and would lift sanctions on such countries as Iran, Iraq, Libya, Sudan, North Korea and Cuba. While these states may not be friends of the United States, we should discard the illusion that prohibiting the sale of food and medicine weakens these regimes in any way. As Under Secretary Eizenstat has said, funds spent on agricultural commodities are not available for other less desirable uses. I was pleased to see the Clinton administration's tacit endorsement of such legislation in the recent dramatic shift in economic sanctions policy. The details are still being finalized, but some sales of food and medicine to Iran, Sudan and Libya will now be permitted. But even as this is a move forward, it is very slight progress, for the Office of Foreign Asset Control will still review sales to these states on a case-by-case basis.
Agricultural exporters seeking to develop a long-term relationship will be hard pressed to do so if the bureaucracy of the Treasury Department must consider each and every sale. Such reviews are not much different than the individual review of sensitive technology exports that are now required by various Federal agencies. But while I support reviewing items with a potential dual-use application that could threaten our national security, I fail to understand the implicit danger of exporting wheat. If exports to these states are to flourish, we must move away from the negative presumption in current policy. Unilateral sanctions on food and medicine, whether subject to a case by case review or not, are based on the notion that our national interests somehow benefit by the denial of food. Our default policy should permit food and medicine sales unless evidence to the contrary, on a case-by case basis, shows a need to exercise a national security waiver. A recent CBO study on this issue concluded that sanctions have had a negligible effect on the overall U.S. economy. Given the size of the American economy, losses by some exporters may seem negligible. But specific sectors of the economy feel very acutely the effects of sanctions. The agricultural community is particularly reliant on exports and smaller international markets mean lower prices for our producers. In 1996, the untapped agricultural market in unilaterally sanctioned states was worth more than $6 billion according to USDA, and the demand touches every U.S. agricultural sector, with a potential for sales of corn, rice, wheat, vegetable oils, meat products, sugar and milk.
Page 98 PREV PAGE TOP OF DOC The enormous market potential was demonstrated following the recent Presidential decision on Iran sanctions, allowing an American exporter to bid on a $500 million sale of wheat and sugar. Similarly, last year, when the Congress passed legislation lifting sanctions on Pakistan, our wheat farmers were rewarded with a substantial sale. These examples suggest that the USDA estimate that lost exports by sanctions amounted to only $500 million is extremely conservative. These markets are particularly significant when one looks at severely depressed prices throughout commodity markets. Congress recently approved an emergency spending measure for farmers, but I believe that simply expanding the available export market will help to make such aid less necessary. Under Freedom to Farm, we promised our producers that the Federal Government would get out of their way and would allow market forces to guide agriculture. I see the lifting of unilateral sanctions as an essential element of that promise we made in 1996. If the Federal Government continues to artificially distort international markets with sanctions, we are not providing farmers with a level playing field.
Beyond the immediate costs of lost sales due to sanctions are the opportunity costs. The President's Export Council concluded that unilateral sanctions create advantages for foreign competitors, magnify uncertainty about the availability of U.S. goods and raise questions about the reliability of our suppliers. Wheat farmers in my district are still feeling the consequences of the short-sighted grain embargo of the Soviet Union in 1980, as the United States has yet to reclaim the market share we once held. Our agricultural competitors are consistent in not sanctioning food and buyers seeking stable supplies are less likely to buy from the United States.
I would also point to an important and little realized consequence of our sanctions policy. Single-desk exporters in Canada and Australia can presently take advantage of lessened competition brought by the removal of U.S. traders to charge higher-than-prevailing market rates. Competitors can then underbid the U.S. in other foreign markets, where the U.S. legally can try to compete. In effect, our sanctions policy denies our farmers access to both markets. It should not be the policy of the U.S. Government to deny sales of food and medicine to any country. A growing recognition of the significant economic and humanitarian costs of our policy is leading Members to reevaluate such sanctions. Several weeks ago, the House Appropriations Committee voted on an amendment to repeal such sanctions and the Senate Agriculture Committee has passed a bill to the same effect. The momentum is building to open these essential markets and I am hopeful that we can get this done in the 106th Congress. I appreciate the work and attention of the Members of this important issue and thank you for the opportunity to testify this morning.
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Statement of Hon. Dan Glickman
Mr. Chairman, members of the committee, I am pleased to appear before you accompanied by Under Secretary of State Stuart Eizenstat to discuss sanctions and their effects on U.S. agricultural trade.
REFORM OF U.S. SANCTIONS POLICY
Mr. Chairman, several weeks ago, President Clinton announced that the United States will exempt commercial sales of agricultural commodities and products, medicine, and medical equipment from future unilateral economic sanctions, unless the President finds that it is in the national interest to include such items due to compelling circumstances. This is a significant change in U.S. unilateral economic sanctions policy and it has important implications for American agriculture. While this new policy does not mean automatic approval of agricultural sales, it places the presumption on the side of approval and gives U.S. producers and exporters an opportunity to compete in more markets.
The new policy will permit licensing of commercial sales for exports to countries where unilateral economic sanctions are now in effect. Because under current policy, sales of certain items are already conditionally licensable for Iraq, North Korea, and Cuba, this change would affect only Iran, Libya, and Sudan.
We are working to implement these changes as quickly as possible. In conjunction with the Department of Treasury, we are developing licensing criteria consistent with standard industry practice to guide this review. These criteria will be designed to facilitate trade while encouraging that sanctioned governments do not gain unjustified or unwarranted benefits. Sales must be at prevailing market prices and sales generally will be restricted to non-government entities or government procurement bodies not affiliated with coercive organs of the state. However, sales to some quasi-governmental organizations could be authorized provided they are not affiliated with coercive organizations.
Page 100 PREV PAGE TOP OF DOC This policy change will cover agricultural commodities and products, medicine and medical equipment. We are working with the Departments of State, Commerce, and Treasury to develop precise definitions of the products to be covered.
This important step toward sanctions reform should help boost U.S. agricultural exports of largely bulk commodities such as wheat, corn, rice, and vegetable oil. We estimate that our producers may sell an additional 500,000 to 1 million tons in exports of both wheat and corn as a result of this change in policy. In addition, some of these countries were once major markets for U.S. rice, and we hope our rice producers will re-capture some of these lost sales.
For example, Iran, a nation of 6070 million people, represents around a $3-billion food market. Two decades ago, with only about half its current population, Iran was the biggest customer for American rice and one of the biggest for American wheat. Now our producers will have the opportunity to recapture their share of that market.
Mr. Chairman, the Clinton administration is committed to the reform of U.S. sanctions policies. We need to ensure that unilateral economic sanctions to the extent they exist, are effective; that the costs to U.S. interests are minimized; and that they contribute to U.S. foreign policy goals.
The changes we are discussing today follow through on the President's belief that agricultural commodities and other human essentials should not be used as instruments of foreign policy, absent compelling circumstances.
When it comes to monitoring rogue nations and combating international terrorism, we will continue to be as vigilant as ever. But we have found too often that sanctions on agricultural products and medicine have no influence on the behavior of governing regimes. Instead, they may harm innocent and poor citizens, who may be denied basic tools of survival.
And, of course, sanctions can have negative economic effects here at home. American agricultural export shares in these markets are frequently captured by our global competitors. Just as innocent people abroad should not be punished for the policies of their governments, there is no reason why American farmers should be punished either.
Page 101 PREV PAGE TOP OF DOC With farm prices still low and global demand still soft, this new sanctions policy could not have come at a better time. Our farmers are hurting, and they deserve every opportunity to reach out to as many potential consumers as possible around the world.
They produce the very best food that the world has to offer, and we cannot afford to handicap them by ceding potentially lucrative markets to our global competitors.
"The Official Committee record contains additional material here."
Statement of Stuart E. Eizenstat
Mr. Chairman, members of the Committee, I am pleased to have this opportunity to appear before you to discuss our view of the relationship between agricultural commodities and products and unilateral economic sanctions.
EASING SANCTIONS ON FOOD AND MEDICINE
For 2 years, the administration has been working to improve the way we use sanctions as a potential tool of foreign policy. We want to ensure that, when we do use them, sanctions are carefully targeted to advance our foreign policy goals while minimizing the burdens they impose on other U.S. interests. We have hadand continue to haveextensive discussions of these issues with the Congress with the goal of achieving comprehensive sanctions reform by both Congress and the executive branch.
On July 23, 1998, the President stated that ''food should not be used as a tool of foreign policy except under the most compelling circumstances.'' Just over a month ago, on April 28, 1999, the President announced that the administration will generally exempt commercial sales of agricultural commodities and products, medicines and medical equipment from future unilateral sanctions, where we have the discretion to do so. The Administration will also extend this policy to allow commercial sales of food, medicine, and medical equipment to currently embargoed countries where such sales are currently not permitted.
Page 102 PREV PAGE TOP OF DOC What is this worth to American farmers? The Department of Agriculture has estimated that those countries subject to existing sanctions on sales of food and medicineCuba, Iraq, North Korea, Libya, Iran and Sudanimported some $6.3 billion of agricultural commodities in 1996, or roughly 2 percent of world trade. If U.S. exporters were as competitive in those markets as they are in the larger world market, and if those countries chose to purchase from the United States, potential sales would amount to approximately $500 million, primarily in bulk commodities such as wheat, corn, feeds and fodders, rice and vegetable oils.
Why this change now? It has been implemented as part of our overall approach to sanctions reform and is not directed at any specific country. In fact, the national security and foreign policy concerns that originally led to the imposition of comprehensive economic sanctions on these countries still pertain. What has changed is our calculation of the impact of including food and medicine in unilateral sanctions on our overall policy objectives. Sales of food, medicine, and other human necessities do not generally enhance a country's military capacities or support terrorism. On the contrary, funds spent on food and medicines are not available for other, less desirable uses. Our purpose in applying sanctions is to influence the behavior of regimes, not to deny people their basic human needs.
The change announced by the President does not provide for the automatic approval of agricultural and medical sales. Instead, it shifts the presumption in favor of approving such sales. Contract will still have to pass through a policy filter. To guide the case-by-case review process, we are developing country-specific licensing criteria based on the principle that the sanctioned governments should not reap unjustified economic benefit from the adjustment to our sanctions policy. All sales will have to be conducted at prevailing market prices; in other words no USG subsidization. Sales will be restricted to non-government entities or government procurement bodies not affiliated with the coercive organs of the state. Thus, licensing commercial exports of agricultural commodities and products, medicine and medical equipment on a case-by-case basis to parastatals and government purchasing agencies could be authorized.
Page 103 PREV PAGE TOP OF DOC Let me emphasize: there will be no USG funding, financing, guarantees or other support of these sales because we believe it would be inappropriate for these countries, in light of their continuing conduct, to benefit from such taxpayer-financed programs.
To whom does this change apply? The United States prohibits or restricts the commercial sale of agricultural commodities and products, medicine and medical equipment to six countries: Cuba, Iran, Iraq, Libya, North Korea and Sudan. Several exceptions to the restrictions are already in force:
Commercial sales of food to Iraq are permitted under UNSCR 986 (the oil-for-food program) and subsequent resolutions extending and expanding that program.
Applications for commercial sales of humanitarian items to North Korea are reviewed on a case-by-case basis. Since 1996, we have approved several licenses for U.S. companies to broker the commercial sale to the DPRK of corn, wheat, rice and sugar.
The sale of medicine, medical supplies and equipment to Cuba is governed by the 1992 Cuban Democracy Act. Such sales are permitted subject to specified conditions and end-use verification to guard against diversion to prohibited purposes or users, which are reflected in current Treasury OFAC and Commerce regulations. With respect to agricultural commodities, Mr. Chairman, as you know we have authorized the sale of food and agricultural inputs to private entities in Cuba, pursuant to the President's January 5 announcement.
When the President imposed additional sanctions against Serbia, we ensured that those measures were consistent with his April 28 announcement.
There have been no such exceptions or allowances with respect to U.S. trade and investment embargoes affecting Iran, Libya and Sudan. The USG has though, through its foreign aid policies, sought to respond to the humanitarian crisis involving the people of southern Sudan by financing the purchase of bulk grains and other humanitarian items for distribution by relief agencies outside the purview of the Sudanese Government. Indeed, humanitarian donations of articles intended to relieve human suffering are allowed with respect to all these countries.
Page 104 PREV PAGE TOP OF DOC As the President noted, there are circumstances under which we would not allow commercial sales of food, medicine, and medical equipment. Such circumstances might include, for example, armed conflict involving the United States or its allies; or instances where the regime would seek to use such food and medical items as a tool of internal politics, for example, by denying food and medicines supplied to the general population while diverting them to its armed forces or its political supporters; or where the regime or its officials would derive an unjustifiable economic benefit from these imports.
This House is currently considering several pieces of legislation dealing with the use of agriculture as tool of sanctions.
The administration's view is clear. We believe that, in general, food, medicine and medical equipment should not be used as a tool of foreign policy absent compelling circumstances. Because there clearly are circumstances under which such exports would be inappropriate, however, the President must have sufficient flexibility to tailor our response to the specific situation with which he must deal. This flexibility should also include the ability to impose a licensing regime on sales where such a requirement is appropriate. In our proposal for broader sanctions reform, we have stressed that this sort of flexibility should be provided through the inclusion of national interest waiver authority. While we do not believe that legislation is necessary to put these principles in effectwitness the President's decision of April 28S.566, the Agricultural Trade Act of 1999 introduced by Senator Lugar, seems to have made a good faith effort to meet these standards. We believe that that bill should be incorporated into a broader sanctions reform package.
The Freedom to Market Act (H.R. 212) introduced by Representative Nethercutt would require the GAO to undertake a comprehensive review of all existing sanctions. It would prohibit restrictions on the export (including financing) of food and other agricultural products, medicines or medical supplies as part of any policy of existing or future unilateral sanctions unless the President determines and so reports to the Congress that that national security interest so requires. Many of the provisions of that bill we believe would be inappropriate. We would not, for example, favor legislation that would require the U.S. taxpayer to fund sales to terrorism list countries. We also believe that any sanctions legislation should include national interest rather than national security waiver authority.
Page 105 PREV PAGE TOP OF DOC The Selective Agricultural Embargoes Act (H.R. 17) introduced by Representative Ewing would require the President to report to the Congress within 5 days after the imposition of an embargo on an agricultural commodity that is not part of a comprehensive embargo. If the Congress enacts a joint resolution of approval, the embargo would terminate on the earlier of the date determined by the President or one year after the date of enactment of the joint resolution. If the Congress passes a joint resolution disapproving the embargo, it will terminate within 100 days from date of imposition. The provisions of the bill would not apply during any period in which the U.S. is in a state of war declared by Congress, or national emergency declared by the President.
The Ewing bill, which has already passed this Committee, would have essentially no impact on current policy. All current restrictions imposed unilaterally on the export of agricultural commodities (North Korea, Iran, Libya, Sudan, Cuba, Serbia) are applied as part of comprehensive embargoes and thus are not affected by the bill's provisions. The provisions of the bill do not apply if the President has declared an national emergency which is precisely the way that most discretionary unilateral sanctions are imposed. In addition, the Administration would oppose any provision which requires a joint resolution of approval of a Presidential recommendation. The Administration would also oppose any provision which would require that sanctions automatically be terminated at some future date certain irrespective of whether the behavior that led to the imposition of the sanction has ceased. Sanctions measures should be performance rather than time bound.
Section 4 of H.R. 817, the United States Agricultural Trade Act, also introduced by Mr. Ewing deals with the question of economic sanctions. Section 4 would exempt from unilateral sanctions PL 480, Section 416 of the Agricultural Act of 1949, programs administered through Section 1113 of the Food Security Act of 1985 and commercial sales involving agricultural commodities, including fertilizer, unless the President determines it is not in our foreign policy or national security interest, and so reports to Congress. Section 5 of that legislation dealing with Congressional oversight and consultation on agricultural trade negotiations, would appear to impermissibly intrude on the President's constitutional powers in the areas of foreign affairs and diplomatic negotiations.
Page 106 PREV PAGE TOP OF DOC These and other bills in both the House and Senate, including the legislation introduced by Representatives Ewing, Nethercutt, Paul, Rangel and Serrano deal with the more narrow issue of agriculture sanctions reform. Other legislation, notably that introduced in the House by Represenative Crane and in the Senate by Senator Lugar deal with the broader issue of overall sanctions reform. We do not believe that the narrower agricultural bills should be seen as a substitute for broader sanctions reform.
As you know, Mr. Chairman, we have suggested an approach to the broader issue of sanctions reform that we believe would be both productive and acceptable and achieve the essential objective of this legislation, that is to impose improved discipline on the use of sanctions by both the Congress and the Executive Branch. While many of our ideas are similar to those in the Crane and Lugar bills, we have emphasized these two main points: first, we need fewer procedural hurdles. Legislation that would impose inflexible procedural hurdles on the President undercuts the idea of sanctions reform. Second, and of even greater importance, is the need for broad national interest waiver authority. Our experiences with Helm-Burton, ILSA and the Glenn Amendment sanctions only serve to underscore the need for this authority.
We are committed to continuing to work with the Congress, Mr. Chairman, to craft an approach to sanctions reform that can be supported by both the Executive and Legislative Branches. We would like to see acceptable legislation pass this Congress.
Statement of Daniel G. Amstutz
My name is Daniel G. Amstutz. I am president and chief executive officer of the North American Export Grain Association (NAEGA). NAEGA was established in 1912. It is the association of North American grain and oilseed exporters and interested parties whose purpose is to promote the export of grains and oilseeds from the United States. We welcome the opportunity to appear before the committee
Page 107 PREV PAGE TOP OF DOCto discuss the impact of economic sanctions on U.S. agriculture.
At the World Food Summit in November 1996, the United States said that its role in helping achieve world food security was, among other things, to provide a reliable supply of food to the world market. This is an admirable goal and NAEGA enthusiastically endorses it. But the U.S. is not fulfilling it and has not done so over the course of the last 30 years. Few in the world will question that the U.S. is the most reliable source of supply. But because of our penchant for imposing unilateral economic sanctions, we are not regarded as reliable suppliers. The cost of lost export opportunities because of these policies is difficult to overstate. Others have talked of it amounting to billions of dollars, and we would not dispute that.
The record of the imposition of unilateral sanctions in agriculture is well-documented. In the 1970's, because of a perceived shortage, the U.S. announced an export embargo on soybeans. High prices effectively rationed usage so the embargo was never actually implemented. Nevertheless, countries dependent on imported oilseeds learned how tenuous supply availability was from the U.S. and they adopted policies that would make them more self-sufficient and less dependent on the U.S. for supplies. As a result, production in and exports from the Southern Hemisphere began increasing. U.S. policy was the stimulant for the development of this new competitive force.
This unfortunate page of history was followed by the embargo on grain exports to the Soviet Union in 1980, in retaliation for the Soviets' invasion of Afghanistan. The embargo did not create grain shortages in the Soviet Union, it generated windfall opportunities for other exporting countries, and was another chapter in the book that says the U.S. is not a reliable supplier. The U.S. has employed agriculture embargoes for both economic and foreign policy reasons. Friend and foe alike have been targeted. To repeat, we may be a reliable source of supply but it is a matter of record that we have not been reliable suppliers.
Page 108 PREV PAGE TOP OF DOC We are pleased that the Congress is addressing the question of economic sanctions. It was my pleasure to appear a year ago before the Subcommittee on Department Operations, Nutrition and Foreign Agriculture in support of the Selective Embargoes Act of 1998, H.R. 3654. It would have required the approval of both Houses of Congress if the President would decide to impose an agriculture-specific embargo on a foreign country. It represented a positive approach to the problem of unilateral economic sanctions.
NAEGA supports S. 566, which Senator Lugar introduced in the Senate on March 8, 1999. It would exempt commercial sales of U.S. agricultural products from current or prospective unilateral economic sanctions unless the President determines they are required for foreign policy or national security purposes. In this event, the President must report to Congress on the reasons sanctions should apply to agricultural products. The report would include assessments of: (1) the importance of the sanctioned country as a market for U.S. agricultural commodities; (2) the impact of the sanction, and of retaliation by the sanctioned country, on exports of U.S. agricultural commodities; (3) the effect of the sanction on the income of U.S. agricultural producers; (4) the extent to which foreign suppliers would replace U.S. suppliers; and (5) the effect of the sanction on the reputation of U.S. producers as reliable suppliers.
It would require that the consequences and impact of current and new unilateral sanctions on U.S. agricultural producers and on the sanctioned country be fully considered and reported to Congress. This thorough and public assessment would make it more difficult to impose sanctions on agricultural exports, but it would not prevent them. Nonetheless, we think it is a move in the right direction.
NAEGA is pleased that the Administration has recently taken a more reasonable approach on sanctions, particularly those relating to Iran, Libya and Sudan. These, and the other three countries on the six-nation sanctions list (Cuba, North Korea and Iraq), are significantly important importers, accounting for about 14 percent of world rice imports, 10 percent of world wheat imports, 5 percent of world vegetable oil imports, 5 percent of barley imports, and 3 1/2 percent of world corn imports. Unilateral U.S. sanctions on exports to these countries have not affected their ability to secure supplies, so it is American farmers who have been the losers.
Page 109 PREV PAGE TOP OF DOC On April 28, the President announced policy changes that generally exempt food, medicine and medical equipment from trade embargoes. The tenets of the decision are:
The administration will exempt commercial sales of food, medicines and medical equipment from unilateral sanctions regimes, unless the President determines that our national interest requires otherwise;
Such sales will be permitted only to non-government entities or to governmental procurement bodies not affiliated with the coercive organs of state;
No U.S. Government funding, financing or guarantees in support of sales to terrorist countries is allowed.
It is regrettable that regulations to implement these policy changes have still not been released. It is our understanding that it may not be until the end of this month2 months after the policy decision was madebefore anything is forthcoming. We fear that the regulations will insist on the consummation of a completed sale prior to requesting an export license. Such an approach would create great price change risk for exporters unless license approvals would be granted immediately upon filing. A protracted license approval process would most likely result in no business being done. The most workable system would be to grant licenses to do specific business. Some would call these ''hunting licenses.'' We have offered our services to the Administration to work with it to formulate acceptable language to implement this approach but our offer has not been accepted.
Global demand for farm products is rising. The outlook for growth in grain and oilseed usage is particularly promising. We can easily see annual world trade for wheat and corn each reaching the 150 million ton level relatively early in the 21st century. If the U.S. is deemed a reliable supplier, it is a conservative estimate to say that the U.S. share of this wheat trade will be about 2 billion bushels and our share of corn exports about 3 billion bushels. In each instance that is about twice what our current exports are. (And, for wheat, it is nearly equal to current total U.S. production.) It is difficult to overstate the importance to American farmers of such growth in world demand. And, in addressing the ''unreliable supplier'' stigma, Congress will help make these estimates a reality.
Page 110 PREV PAGE TOP OF DOC That concludes my statement, Mr. Chairman, I will be happy to answer any questions.
Statement of David Hillman
Mr. Chairman, members of the committee, I am David Hillman, vice-president of the Arkansas Farm Bureau and a fourth generation rice, soybean and wheat farmer from Almyra in Arkansas County. I appreciate the opportunity to testify before you today on the important issue of sanctions reform and the effect on the U.S. agricultural economy as a result of the administration's move to lift economic sanctions that had been placed on Iran, Libya and Sudan.
The American Farm Bureau represents over 4.8 million member families in the United States and Puerto Rico. Our members produce every commodity grown in America and depend on access to customers around the world for the sale of over one-third of our production. Until recently, U.S. farmers and ranchers have been denied access to five export markets due to unilateral economic sanctions: Cuba, Iran, Libya, North Korea and Sudan. Recent changes by the administration have replaced the ban in place for three of these countries with licensing requirements on individual export transactions to Iran, Libya and Sudan. Additional changes were announced by the administration on January 5 and implemented on May 10 for export sales of food to Cuba. These changes in sanctions policy for food exports to Iran, Libya, Sudan and Cuba are not expected to result in significant commercial sales.
Farm Bureau has longstanding policy opposing artificial trade constraints such as sanctions. We believe that opening trading systems around the world and open engagement with our trading partners are the most effective means of achieving international harmony and economic stability.
Farm Bureau believes that all agricultural products should be exempt from embargoes and unilateral sanctions, except in the case of armed conflict. Should trade embargoes or restrictions be declared in case of armed conflict, the embargo or sanction should apply to all trade, technology and exchanges. An embargo should not be declared without the consent of Congress.
Page 111 PREV PAGE TOP OF DOC Moreover, the threat of embargoes or other restrictions adversely affects markets and is an inappropriate tool in the implementation of foreign policy. If an embargo is enacted, farmers should be compensated by direct payments for any resulting losses.
Finally, all export contracts calling for delivery of agricultural commodities or products within nine months of date of sale should never be interfered with by the U.S. Government, except following an embargo consented to by Congress. This sanctity of contracts is essential to maintain the reputation of the United States as a reliable supplier.
Regarding the recently announced changes to sanctions policy for Iran, Libya and Sudan, we understand that commercial sales of food, medicine and medical equipment are now eligible for exemption from sanctions to these nations. However, we note that this exemption does not affect all agricultural products.
Moreover, we understand that the new policy will require exporters to obtain an export license covering a specific, already-negotiated sale. Each export request will be reviewed on a case-by-case basis.
This new policy, as structured with the need to obtain a license for each export transaction, is unnecessary and cumbersome. In addition, it does not signal automatic approval of food sales and does not provide certainty to U.S. producers wishing to compete in these previously closed markets. In fact, the practical application of obtaining a license to export to these nations will hinder our ability to trade with them.
As with most markets, agricultural export transactions are driven by the global supply and demand for commodities. Unlike other markets, however, agricultural exports are affected by sudden changes in supply brought about by unforeseen events, such as adverse weather conditions and natural disasters. The dynamic nature of global agricultural transactions, coupled with this uncertainty and the abundant supply of commodities worldwide, underscores the need for timely execution of contractual export sales. The requirement to obtain an export license for sales to Iran, Libya and Sudan will, therefore, greatly hamper, if not eliminate entirely, our ability to export agricultural commodities to these countries.
Page 112 PREV PAGE TOP OF DOC Moreover, buyers of our exports recognize the uncertainty and delays associated with export licensing by the U.S. Government. They are keenly aware that certain transactions may be significantly delayed or denied and will therefore prefer to purchase their imports from our competitors. Our competitors are certain to exploit these factors to their advantage and edge out U.S. exporters.
In short, the new policy does not completely resolve the issue of U.S. producers being viewed as unreliable suppliers, nor does it assist U.S. farmers and ranchers in regaining lost export markets. The administration must grant unrestricted access to all agricultural markets, without the added step of obtaining a license, in order to reverse the unreliable supplier image caused by unilateral sanctions.
Economically speaking, this change in policy is not expected to increase overall export sales for U.S. farmers. Recent import data for Iran, Libya and Sudan reflect that these countries principally import wheat and coarse grains. However, U.S. exporters are not projected to benefit from near term purchases of these imports because traditional suppliers are likely to continue to supply product to these markets. For example, Australia is currently the dominant supplier of wheat to Iran, followed by Canada. Whereas Iran is expected to import more wheat next year due to a reduced crop, it is expected to look to traditional suppliers to meet its wheat needs. The same can be expected of Libya and Sudan. Average imports of wheat by these three countries exceeded 7,000 metric tons in recent years. U.S. exporters could be expected to reap a portion of these imports if they were able to compete without burdensome administrative requirements such as licensing.
Regarding soybean purchases, Iran sources its purchases of soybean meal and soybean oil solely from South America. A significant portion of these products was purchased from Argentina and some from Brazil. Brazil is expected to become the principle supplier of soybean meal and soybean oil to Iran due to diplomatic problems between Iran and Argentina, and the cost of Brazilian soybean meal which is significantly cheaper than U.S. meal.
Page 113 PREV PAGE TOP OF DOC Even if U.S. exporters were able to overcome the extra hoops created by the licensing policy and successfully complete export sales to Iran, Libya or Sudan, our competitors, particularly for wheat, would likely reciprocate by undercutting U.S. exports to other destinations. Consequently, the conclusion of most market analysts is that any short-term export gains that might be realized under the changed policy could result in weaker subsequent sales to other markets.
We note that one of the motivating factors for the recent change in the administration's policy to these nations was a pending sale of agricultural exports of wheat, rice, soybean meal, corn, soybean oil and sugar to Iran. This sale, as with any other potential sale, is on hold until the regulations for the changed policy are published. We understand that regulations to permit sales to Iran, Libya and Sudan will not be made available for several weeks. Once these regulations are published, potential exporters will be required to present negotiated sales for licensing approval, which could take months to complete. In short, the administrative environment of this new policy is not conducive to timely, contractual export sales.
The future of American agriculture depends upon unfettered access to foreign markets. Especially today, with agricultural exports projected to decline more than $2 billion from 1997 levels due to the Asian financial crisis, any action such as an embargo, sanction or government controlled approval for exports does direct and long-term harm to farmers and the agricultural economy.
The cost to American farmers resulting from sanctions and embargoes is high. According to USDA, the Soviet grain embargo of the early 1980's cost the United States about $2.3 billion in lost farm exports and government compensation to American farmers.
When the United States cut off sales of wheat to protest the Soviet invasion of Afghanistan, other suppliersFrance, Canada, Australia and Argentinastepped in. These countries expanded their sales to the Soviet Union, ensuring that U.S. sanctions had virtually no economic impact on the target country.
Page 114 PREV PAGE TOP OF DOC Not only do unilateral sanctions inflict no economic damage on the target country, they often result in little change in the foreign policy actions of that nation. Our competitors in these markets rub their hands with glee when the United States imposes unilateral sanctions. They are quick to expand their sales and take over the U.S. share in these foreign markets. Moreover, U.S. producers are branded unreliable suppliers and lose access to important markets for decades to come. Unilateral sanctions on agricultural exports must end.
In addition, unilateral sanctions are often counterproductive because target nations use images of suffering, innocent civilians to depict the United States as cruel and vindictive, thereby discouraging other nations from following suit.
As you are well aware, the Congressional Budget Office (CBO) recently conducted a study on the economic impact of unilateral sanctions on the U.S. economy. The CBO concluded that such sanctions ''can be costly for individual U.S. businesses that lose out when markets adjust to accommodate new trade flows.'' The CBO also noted, however, that the overall cost of unilateral sanctions is negligible because the Nation's total levels of trade and investment do not change as a result of sanctions.
We believe that this study underestimated the significant impacts on a sector-by-sector basis, particularly the devastating decline in loss of exports for U.S. agriculture. As a result of unilateral sanctions, over 14 percent of our rice market, 10 percent of our wheat market, 5 percent of our vegetable oil market, 5 percent of our barley market and 4 percent of our corn market have been taken off the table. This loss of market access is not ''negligible.'' Given today's low commodity prices and declining agricultural exports, we simply cannot afford to have our access to export markets cut off.
It should be noted that when any type of sanction or embargo is imposed, either political or trade related, agriculture is the sector that is often the first to be hit in retaliation. To make matters worse, customers lost due to unilateral sanctions are very hard to win back. A case in point is the growth of soybean production in South America, primarily Brazil, as a result of embargoes in the 1970's and 1980's. In the mid1970's, very few soybeans were raised in South America. Today, they produce two-thirds of what the United States produces. This huge leap in soybean production can be directly attributed to world buyers desiring a stable supply of soybeans.
Page 115 PREV PAGE TOP OF DOC Several Farm Bureau members recently participated in an agricultural trade exploratory mission to Cuba. It became very apparent during that trip that the Castro regime has had an oppressive effect on the Cuban economy. It was also strikingly obvious, however, that U.S. sanctions on this tiny island have not had any impact in ending Castro's influence. U.S. unilateral sanctions on trade with Cuba have now been in effect for more than three decades with no tangible results. Meanwhile, leading agricultural economists predict that U.S. exports to Cuba could reach $1 billion annually if the sanctions were lifted. Cuban citizens are hungry for U.S. products and want to engage with Americans in trade. It is time that we lift unilateral sanctions on agricultural exports and stop making our producers pay the price.
The United States has an unprecedented opportunity to promote its values throughout the world by peaceful engagement. Enabling our producers to engage in trade with these nations, not withdrawing behind sanctions or embargoes, is the best way to achieve change. Lifting unilateral economic sanctions, and replacing them with administratively onerous licensing regulations, is not a commercially viable alternative.
Thank you for the opportunity to speak on behalf of American agriculture.
Statement of Wes Sims
Mr. Chairman, Mr. Ranking Member, members of the committee, I am Wes Sims, a farmer and rancher from, Sweetwater, TX, and president of the Texas Farmers Union. It is my pleasure to appear before this committee to represent the views of the 300,000 farmer and rancher members of the National Farmers Union on the issue of trade sanctions and their impact on this nation's agricultural producers.
Mr. Chairman, our organization appreciates the bipartisan leadership you and many of your House and Senate colleagues have demonstrated concerning the imposition of unilateral economic sanctions and trade restrictions on U.S. agricultural commodities and food and fiber products. These activities can be directly identified with important progress achieved over the past year concerning trade sanctions. We believe these actions have provided some hope among farmers and ranchers that the effect of U.S. unilateral trade actions will be more fully considered before they are put in place, and existing sanctions will be modified to allow the sale of farm products.
Page 116 PREV PAGE TOP OF DOC Last year's exemption of agricultural products from the sanctions imposed on India and Pakistan resulted in the immediate sale of wheat to Pakistan and the ability to continue our agricultural trade relationship with that important customer. A Senate task force on sanctions was also established last year. Its job is to consider the effectiveness of unilateral trade actions in furthering U.S. policy objectives overseas and to think about modifications to the sanctions policy that would increase flexibility if changes are needed. Although the task force failed to endorse any specific policy recommendations, the group's discussions helped us understand sanctions limited foreign policy achievements, and probably more importantly, the negative domestic effect on American farmers and ranchers.
Within the last month, the Clinton administration announced that it is relaxing administratively imposed sanctions on Iran, Libya and Sudan. Although future sales opportunities for agricultural and medical products to those countries will be considered on a case-by-case basis, the new policy provides an opening to grant an export license that could result in the sale of about $500 million worth of agricultural products to Iran somewhere down the road.
Sanctions affect farmers and ranchers in ways that have the following short- and long-term consequences: (1) U.S. sales opportunities are reduced, causing generally lower commodity prices and producer income; (2) Inventories of those commodities increase in the U.S., resulting longer-term, surplus-caused price pressure; and (3) Reduced U.S. competition in sanctioned markets provides other suppliers the opportunity to gain overall market share at the expense of U.S. producers. In many instances, other suppliers gain the ability to extract higher-than-normal returns from those sales through discretionary pricing in markets where the U.S. producer is not a competitor.
Mr. Chairman, more must be done if the U.S. is to fully capitalize on the revised sanctions conditions as part of our foreign policy strategy. We must recognize the limitations of certain trade restrictions in a globally competitive marketplace.
Page 117 PREV PAGE TOP OF DOC First, legislation should be adopted exempting agricultural commodities and products from existing and future unilateral economic sanctions imposed by either Congress or an administration, except under the direst of circumstances.
Second, regulations governing commercial, guaranteed credit and humanitarian transactions should be clarified and applied in a consistent manner concerning all countries.
Third, the U.S. should undertake aggressive actions to restore the market potential and our reputation as a supplier in those markets where sanctions have been imposed.
Finally, while farmers and ranchers appreciate and support the recent developments that seem to have reduced the negative impact of sanctions, we know that this issue is neither the sole, nor the most significant cause of the economic crisis faced by farmers and ranchers today.
The U.S. Department of Agriculture has estimated the annual cost to producers of the current economic sanctions at approximately $500 million per year or slightly over one percent of the depressed value of projected U.S. agricultural exports, and net farm income this year. About one-half of those losses come from the wheat sector. It has suffered significant market losses due to the Asian economic crisis, unfair export competition, and an increased level of imports from Canada. Unfortunately, even if the current sanctions market damage could be repaired, even those producers of agricultural commodities that have suffered the greatest market losses would not be restored to a position of short or long-term economic sustainability. Let me say it plainly: if the magic sanctions wand could be waived, and all the damage done to American farmers and ranchers could be salvaged, hardly a dollar would be seen in the American producer's pocket.
Additional farm policy changes are required if America is to regain an acceptable level of economic stability for producers and rural communities. These include:
Page 118 PREV PAGE TOP OF DOCThe creation of an effective risk management and income safety net for farmers and ranchers;
The establishment of a fair and level playing field in global agricultural trade; and
A commitment to achieving and maintaining competition among food chain participants domestically and internationally.
I would like to note that late last month the leadership of 28 national farm and commodity organizations gathered in St. Louis for the Agricultural Summit of 1999. At this summit, all producer groups agreed, and I quote, ''U.S. exports of food, fiber, and food and fiber products should not be used as the subject of sanctions.''
We support the bipartisan legislative efforts to resolve several of the issues raised in this testimony.
Mr. Chairman, Mr. Ranking Member, I thank you for the opportunity to appear before this committee and look forward to responding to any questions you or your colleagues may have.
Statement of Roger Pine
Mr. Chairman, members of the committee, my name is Roger Pine. We raise corn, soybeans, wheat and sod on our family farm near Lawrence, KS. I appreciate the opportunity to appear before you to discuss the importance of sanctions reform. I am testifying today on behalf of the National Corn Growers Association (NCGA), which represents 30,000 members in 47 States. I currently serve as president of the NCGA.
U.S. corn farmers are efficient, productive and competitive in world grain markets. Ten years ago the United States controlled almost 80 percent of world corn exports, last year our share was only 53 percent. Although we export additional corn as high fructose corn syrup, corn gluten feed and meal, as meat and poultry and in countless other value-added products, weak export performance contributes to the low prices that plague producers today.
Page 119 PREV PAGE TOP OF DOC NCGA policy supports fair and open global trade to assure U.S. corn and its products full access to world markets. This is our objective for the new round of multilateral negotiations on agricultural trade in the World Trade Organization. Trade barriers and competitors' export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. Unfortunately, our own Government's actions have also limited our trade potential. On far too many occasions, the United States has imposed unilateral economic sanctions that restrict exports. These sanctions comprise a complex web of restrictions and legal impediments that deny U.S. farmers access to markets around the world and seriously jeopardize our reputation as a reliable supplier.
The United States has used unilateral sanctions more than any other nation. Not all sanctions restrict agricultural trade, but all unilateral actions undermine the economic relationships between the United States and our customers. Sanctions that include food and feed most directly diminish U.S. farmers' income. I offer two examples:
Cuba is subject to multiple provisions of six separate laws enacted between 1961 and 1996 that impose sanctions limiting trade. A total embargo was authorized in the Foreign Assistance Act of 1961. The Cuban Democracy Act of 1992 limited terms for donations and exportation of food and medicine and generally prohibited export licenses to Cuba. Early this year, the President announced his intention to authorize commercial sales of food and agricultural products to independent non-governmental entities in Cuba, including religious groups and Cuba's emerging private sector, such as family restaurants and private farmers. But these potential sales are seriously limited by licensing rules and expensive shipping constraints. If trade were truly open, corn exports to Cuba could easily exceed one million metric tons, with the potential to grow to three million tons annually.
During the first nine months of the 1994/95 marketing year, the United States exported more than a half-million metric tons of corn to Iran. Then in May 1995, by Executive order, the sanctions on Iran were tightened and corn exports stopped. Even without access to U.S. corn for the full marketing year, Iran ranked 15th among all corn customers that year. The following year, with sanctions in place, that export market was eliminated for U.S. corn farmers. On April 28, 1999 the President announced that licensing policies will be modified to allow the export of agricultural commodities and products, medicine and medical equipment to Iran, Libya and Sudan. Although the recently announced policy represents a move in the right direction, the case-by-case review of every sale will significantly diminish the effect of the new policy. Consequently, we have yet to see one sale of corn to Iran.
Page 120 PREV PAGE TOP OF DOC Cuba and Iran are only two markets, but sales of an additional 60 million bushels to these countries would increase U.S. corn exports by more than three percent from the projected levels for this marketing year. These markets will be supplied by our competitors because U.S. policy does not allow U.S. farmers to participate. The modest efforts to begin opening these markets will not add to farmers' incomes this year because, quite frankly, the cautious approach will not increase total corn exports. The U.S. Government must allow U.S. farmers to sell in all markets that are available to our competitors without burdensome restrictions. This simple step will help bolster commodity prices at a time when producers most desperately need higher prices.
The damage from unilateral sanctions is much more destructive than the loss of individual markets. Every country has the responsibility to ensure its citizens basic food security through national policies that encourage the production or importation of adequate food supplies. Because the United States is the largest corn supplier in the world, we naturally prefer that countries rely on corn imports to meet their food and feed needs. If a country contemplates increasing livestock or poultry production but fears that the United States will shut off the feed source, then that country must either encourage domestic feed production or limit the consumption of meat and poultry. In either case, U.S. policy that relies on economic sanctions to address foreign policy concerns has the effect of distorting trade to every country that is unwilling to trust the United States as a reliable supplier of food.
To avoid this perception, Congress must exempt commercial sales of food, feed and other agricultural products from unilaterally imposed sanctions. In addition, the U.S. Government should weigh the cost to our own economy before imposing unilateral sanctions around the world. Even when the sanctions are eventually lifted, U.S. exporters will have to rebuild relationships with former customers and will have to convince those customers that the United States can be a reliable supplier.
Page 121 PREV PAGE TOP OF DOC Thank you for allowing me to present the views of the National Corn Growers Association on this important issue.
Statement of Loy Sneary
Mr. Chairman and members of the committee, my name is Loy Sneary. I am a rice farmer and cattle rancher from Bay City, TX, and I am pleased to be here today to testify on behalf of both the U.S. Rice Producers Association and the USA Rice Federation. Together our organizations represent all U.S. rice producers, millers, marketers, and allied businesses.
Both organizations welcome the opportunity to present their views on this important matter of sanctions policy at this very timely hearing. We strongly support the efforts of Congress and the Administration to review America's trade sanctions policy and urge that food and agricultural products be exempted from sanctions.
Exports are vital to the U.S. rice industry's survival. Roughly 40 percent or more of our annual production must be shipped overseas if we are to stay in business. While we cannot avoid the trade distorting impact of all geopolitical events nor control the impact of weather on U.S. rice sales abroad, the imposition of unilateral sanctions should be avoided. Such actions are like shooting yourself in the foot to hurt your enemy.
There is no question that America's rice producers have been hurt severely by trade sanctions. We've developedand then been deniedexport markets for 2 million tons of rice, equivalent to 75 percent of current exports and nearly one-third of the rice grown in this country last year.
The U.S. rice industry spends millions of producer, industry and Government funds annually to open and develop markets throughout the world. Often times it takes years to open a market and many more years to develop the market into a long-term commercial buyer. We must convince buyers in a market that we have a quality product that meets specific consumer taste preferences. Most importantly, we must prove to international buyers that we are a dependable supplier. Such perceptions are easily destroyed when food is used as a political weapon and future sales are hindered or prohibited altogether through the imposition of unilateral economic sanctions.
Page 122 PREV PAGE TOP OF DOC Sanctions force our customers to turn to other suppliers for their rice import requirements. We lose a market, which reduces foreign exchange earnings, we tarnish our reputation as a dependable supplier, and we cede the market completely to our competition. In other words, it is our view that unilateral sanctions primarily injure those that impose them.
The first time the United States imposed such a restrictive trade policy was toward Cuba in 1963. Cuba had become a top quality market for over half of our total rice exports at that time. As a result of trade sanctions, Cuba became a market for cheap, low quality Asian rice. Not only did we lose our largest commercial market, it is also debatable whether these trade sanctions have contributed significantly toward meeting U.S. foreign policy goals. Fidel Castro still rules in Cuba.
There is also little evidence that sanctions have advanced our policy objectives in Iraq or Iran. Such actions may have actually hindered them. There is ample evidence that the people and businessmen in these countries would like to renew ties to the U.S. Sanctions primarily injure those that are in favor of free trade and renewed relations with the Western world, not those that disdain the U.S. Government.
The President of Iran was elected by a 70 percent popular vote, much to the chagrin of the religious zealots who presently control the country. Since food, especially rice, is such a sacrosanct item in Iran, opening this market for U.S. rice exports would support their president's recent efforts to open a dialogue with the West. Continuing to restrict food sales would seem to play into the hands of our opposition. Sanctions also continue to force Iran to rely on non-U.S. rice suppliers, largely Asian exporters of lower quality rice.
By the end of the 1970's Iran was a market for as much as 20 percent of all U.S. rice exports. Sales were halted in 1979 when the Iranian leadership halted imports of U.S. products. The strong taste preference for U.S. rice and resourceful traders allowed us to again recapture a large share of this 700,000 MT market at the beginning of this decade. Largely due to market development efforts by our industry and trade associations, U.S. exports reached over 200,000 metric tons by 1994. U.S. recognized brands were becoming re-established.
Page 123 PREV PAGE TOP OF DOC All of this was occurring despite the fact that the U.S. continued to prohibit any importation of Iranian goods into the United States. We already had one type of sanctions imposeda ban on U.S. imports of Iranian products. This should have discouraged Iran from importing American products since it reduced their ability to buy from us. With import bans already limiting Iran's ability to earn foreign exchange, the need to impose sanctions on U.S. exports to Iran seems questionable. The latter was in effect a sanction on U.S. exporters, and in turn on the entire rice industry. The following year, however, the Administration imposed sanctions on U.S. trade with Iran.
Mr. Chairman, it appears to us to be foolish to spend so much time and money to rebuild a market, only to once again see it eliminated for no apparent benefit. Even if we have serious objections to Iranian policies, the result of our actions is the forfeiture of a market to our competitors, lost economic activity and foreign exchange for the U.S., and the squandering of otherwise successful market development efforts. The ban on Iran's exports to the U.S. should have been a sufficient message. The truth of the matter is that neither the ban on their exports nor the sanctions on our exports have hurt anyone except the private sector in both countries.
Like Iran, Iraq was once a thriving market for high quality U.S. rice. Through major industry market development efforts and Government sales programs this market became a yearly market for 350,000 metric tons of U.S. rice during the 1980's. This one market accounted for 10 to 15 percent of total U.S. exports for most of the decade. It was lost with the eruption of the Persian Gulf War in the late 1980's and the subsequent imposition of United Nations sanctions on trade with Iraq.
Although the U.S. sells to over 100 countries in the world, many of these are smaller buyers. There are only a few commercial markets for large volumes of high quality rice. In the face of the current sanctions on our major markets, our industry was spared disaster last season due largely to purchases of U.S. rice by countries that suffered from reduced crops brought about by El Nino. It is not expected that these El Nino markets will be in the market for U.S. rice again this year. As a result of this expectation, increased domestic and world rice production, and rocketing expected ending stocks of rice, U.S. rice prices have already plummeted to record low levels this year.
Page 124 PREV PAGE TOP OF DOC In fact, according to the U.S. Department of Agriculture's May 12 World Agricultural Supply and Demand Estimates Report, U.S. rice prices for the 19992000 crop are projected to average between $6.00 and $7.00 per hundredweight. This compares to average prices for the 19981999 crop between $8.55 and $8.75 per hundredweight, and represents a reduction in prices of almost 30 percent. Trade sanctions that reduce the opportunities for farmers to market their crop only exacerbate the already dismal situation.
The stated intention of the current farm bill, entitled Freedom to Farm, was to give the farmer the right to select what crop to grow and to give farmers more control over the marketing of their crops. At the same time, Government price supports were substantially reduced. Sanctions prevent our best customers from buying our products. Many rice farmers have made the observation that Freedom to Farm without Freedom to Market is not a good deal for rice producers or the rice industry.
Our industry was pleased to learn on April 28 that the Administration was moving to ease restrictions on trade with Iran, Sudan and Libya. While we applaud the administration for its direction, a definitive plan of action is needed for eliminating these sanctions entirely. In the interim and in view of the continual decline in rice prices, we ask the Administration to expeditiously finalize the new regulations defining the conditions under which trade can occur, and we strongly urge that these be conducive to commerce and not a burdensome export licensing scheme.
We were also pleased with the administration's announced sale of 48,000 tons of rice to Russia. We commend Secretary Glickman for this aggressive use of the Department's authorities and encourage the Department to work with the Russians to complete the purchase of the remainder of the authorized 100,000 tons as soon as possible. It is the type of action that we will need more of in the months ahead if rice producers are to be expected to survive the current crisis facing them. These actions will also help to shield the milling industry from the worsening situation that has forced the closure of several of our rice mills in recent years.
Page 125 PREV PAGE TOP OF DOC In addition, we commend Congress and the Administration for their actions in supporting trade policy that opened up the market for U.S. rice in many countries through the WTO process. NAFTA was also helpful in encouraging the development of Mexico into a premier market for U.S. rice. The added sales brought about through these new markets are, however, far less than the sales lost through the of sanctions imposed on Cuba, Iran, and Iraq.
These three markets account for the use of about 2 million tons of rice a year. While trade sanctions have closed these markets to us for some time, we would like the opportunity to start the process of re-developing these markets (i.e. Iran and Cuba) as soon as possible. Once this is attained, please allow us to maintain what is developed by discontinuing the use of unilateral sanctions. If our Nation supports the idea of free trade for all nations, truly our own farmers deserve the same right.
Thank you for the opportunity to share the rice industry's views with the Committee on this very important issue.
Statement of Harry Cleberg
Thank you Mr. Chairman and members of the committee for the opportunity to appear before you today and for holding this hearing on this very important matter. My name is Harry Cleberg. I am the president and chief executive officer of Farmland Industries, Inc. Farmland Industries is the Nation's largest farmer-owned cooperative. Founded in 1929, we are a federated co-op of over 1,700 cooperative partners and over 600,000 farmer-owners who make up the Farmland Cooperative System. We have major business units in crop production, meats, grain, feeds, petroleum, and transportation. Focused on meeting the needs of tomorrow's consumers, Farmland has adopted business strategies to meet the demands of global consumers as a producer-owned cooperative.
The issue of trade sanctions and embargoes and their effects on American agriculture has been debated for far too long. It is time to do something now to ease the burden of unilateral economic sanctions on American agriculture by exempting commercial sales of all food, fiber, fertilizer, and other agricultural commodities from future unilateral sanctions. There needs to be a review of existing unilateral economic sanctions and a sunsetting of the sanctions when they are found to be ineffective or no longer needed. Additionally, there needs to be a procedural framework for considering future sanctions.
Page 126 PREV PAGE TOP OF DOC The use of unilateral economic sanctions by our Government has been a recurring disaster for American farmers, ranchers, and agribusiness. From the soybean embargo in the early seventies to the grain embargo of the eighties to unilateral economic sanctions placed on more than 70 countries world-wide, sanctions and embargoes have continually stifled American farmers, ranchers and agribusiness' well-being. Unilateral economic sanctions result in: (1) lost sales, (2) lost market share, (3) increased competition, and (4) damage to our reputation as a reliable supplier.
Trade embargoes and unilateral economic sanctions have done little to forward the U.S. foreign policy agenda. Instead they have subsidized our competitors, removed markets from our producers, damaged both our producers' livelihoods and the thousands of people employed in exporting agricultural products, and most damaging of all have tarnished our reputation as a reliable supplier of quality agricultural products.
Today, sanctions against Sudan, North Korea, Libya, Iran, Iraq, and Cuba account for approximately 10 percent of the world's wheat markets, 14 percent of the world's rice markets, 5 percent of the world's barley markets, and 5 percent of the world's vegetable oil markets. Even worse, the recent proliferation of sanction initiatives from the Congressional and executive branches, on some of our major customers, risks serious backlash against American farm exports. Most of our leading foreign competitors have not joined these actions, leaving American farmers and American workers standing alone to pay the price.
AGRICULTURAL COMMODITIES ARE REPLACEABLE
The inclusion of agricultural products in trade sanctions is seriously counterproductive given the nature of most agricultural products, as replaceable commodities in the world market. When we cannot fill orders from international customers for non-market reasons such as unilateral sanctions, other very willing suppliers easily step in to fill their orders. Sometimes our competitors respond to our unilateral sanctions by adding production capacity to their overall economy. As a result, production in areas outside of the U.S., especially in South America, has increased substantially during recent years to address international and domestic demands and concerns of overly depending on the U.S. for food.
Page 127 PREV PAGE TOP OF DOC Consequently, U.S. sanctions policy places a burden on American exporters to search for alternative markets and discount their products. With fewer countries and consumers to market to, we face the burden of having to try to sell our product to fewer buyers. Strangely, this creates a distorted market for products that has a downward pressure on agriculture pricesthus, making the product cheaper for the country we have sanctioned.
Mr. Chairman, we should examine what the benefits, effects and potential consequences of our unilateral economic sanctions policy have on our producers and the offending country before applying economic sanctions. If this approach is taken, I believe the U.S. Government may be more prudent and unwilling to use agriculture as part of its action. We must remember in the price sensitive commodity markets, the consequences of such sanctions are felt immediately and their long-term effects are felt for several months and sometimes years on the farm.
While the well-being of our farmers is a paramount concern, we should not forget that we are talking about denying the sales of food, feed, fiber, and other agricultural commodities that are essential for life. Looking at a list of the more than 70 countries subject to some form of economic sanctions, you can easily see that these nations have some of the lowest standards of living and have populations that suffer from malnutrition. Food and agricultural products are not good foreign policy tools to use to encourage certain behavior. Further, some countries with economic sanctions from the U.S. that are not open democracies offer their people little or no recourse to change policy.
A positive sign was the administration's recent announcement regarding changes in sanctions policy for food and medicine for selected countries. This is a good first step, but this effort must be implemented promptly and pursued further. We encourage the Administration to issue these regulations as quickly as possible.
Page 128 PREV PAGE TOP OF DOC Since commodity markets are very competitive, we need to be able to access these markets with the same ease as our competitors. We hope that the regulations, when issued, will not impose burdensome licensing requirements. This means any licensing or application process needs to be as passive as possible or even non-existent. We have found that licensing is a time-consuming, expensive and unpredictable process. Any requirement that individual sales be licensed will make calculations of storage, interest, shrinkage, shipping, and legal fees very difficult. Delays result in lost sales, and uncertainty as to whether a license will actually be granted would continue to stigmatize the American farmer as an unreliable supplier. With an individual licensing regime, American farmers are hardly near a level playing field with our competitors.
Additionally, while the Government can remove certain export controls, it is important to note that without some of the most basic trading tools, international commerce is extremely difficult. In which case, the GSM program is essential in facilitating trade while promoting the development of recipient countries and bolstering the overall economy of these countries.
I am very supportive of this Committee, Congress, and the Administration on passing sanctions and embargo reform legislation for agriculture products. Even if this legislation passes, it is impossible to ignore the need for overall sanctions reform to remove the stigma that we are a difficult trading partner. A very sound proposal in Congress is the Enhancement of Trade, Security, and Human Rights through Sanctions Reform Act (H.R. 1244 or the Senate version S. 757). This legislation is clearly the most comprehensive proposal to reform prospective economic sanctions. The bill establishes a procedural framework for consideration of future U.S. unilateral economic sanctions, requiring assessment of whether a proposed sanction is aimed at a clearly defined and realistic policy objective, and an assessment of economic costs to U.S. agriculture and industry. Past experience has demonstrated that unilateral economic sanctions are an ineffective foreign policy tool.
Page 129 PREV PAGE TOP OF DOCCONCLUSION
In conclusion, I would like to thank you for giving me the opportunity to appear here today on this important issue. I would also like to express my gratitude to you and the members of the committee who have taken the steps to sponsor sanctions reform legislation in this and previous Congresses. Many of these measures would assist our farmers in being more competitive in the world market by removing a serious impediment. Again, thank you and I would be happy to answer any questions.
Statement of Mike Yost
Good morning, Mr. Chairman. I am Mike Yost, a soybean and corn producer from Murdock, MN. I currently serve as president of the American Soybean Association. ASA represents 32,000 producer members on policy issues important to all U.S. soybean farmers. We very much appreciate the invitation to appear before you today.
As we approach the opening of the next round of WTO trade negotiations at the Seattle Ministerial this November, it is difficult to recall a similar occasion when the benefits of trade liberalization faced greater challenges. The European Union is refusing to accept WTO rulings on the safety of hormone-treated beef, preferring to sacrifice access to foreign markets for its own exports. Developing countries are trying to adopt trade-restrictive agendas through international conventions held under U.N. auspices. At home, concerns over low labor and environmental standards in less developed countries continue to block approval of trade negotiating authority.
For U.S. agriculture, the cost of failing to move the trade liberalization agenda forward is unacceptable. Ninety-six percent of the world's population live outside our borders. Our own industry depends on foreign markets to import nearly 50 percent of annual U.S. soybean production. With an additional 2.6 billion consumers forecast by the year 2030, gaining increased access to global markets is critical for U.S. agriculture.
Page 130 PREV PAGE TOP OF DOC ASA has been actively preparing to help shape U.S. negotiating priorities for the next round. We have worked through the American Oilseed Coalition (AOC), which includes the National Cottonseed Products Association, the National Oilseed Processors Association, the National Sunflower Association, and the U.S. Canola Association, to establish objectives specific to the U.S. oilseed industry. We have also participated in the Seattle Round Agriculture Committee (SRAC) in setting more general goals. These recommendations of the AOC and the SRAC are attached to the written copies of my statement.
I would like to summarize our positions in three key areas, Mr. Chairman, and then comment briefly on the need to address trade in the products of agricultural biotechnology. First, in the area of market access, we strongly support eliminating all tariff and non-tariff barriers to trade in oilseeds and oilseed products. Our industry pursued this zero-for-zero goal since the last year of the Uruguay Round negotiations,
including during the APEC forum discussions. We are prepared to give up remaining U.S. duties and compete on a truly level playing field.
Asking importing countries to further open their markets raises concerns about whether the U.S. will be a reliable supplier. Our track record over nearly three decades is a string of unilateral economic sanctions and embargoes imposed for short supply and foreign policy reasons. While these actions have been unsuccessful and only benefited our competitors, neither Congress nor the administration has been willing to renounce their future use. Until we provide unrestricted access to our supplies of agricultural products, importing countries will continue to resist efforts to increase access to their markets. We believe ''access-for-access'' through supply assurances would be a ''win-win'' for U.S. producers, and should be a key priority for the next WTO round.
The second area is the use of export subsidies. As you know, Mr. Chairman, the U.S. has hardly used the volume and outlay allowances provided under the Uruguay Round Agreement for the Export Enhancement Program. Since 1994, over $2.0 billion in EEP authority has been provided in the administration's budget, but not utilized, either for EEP or for other export assistance programs. During the same period, the EU has extensively used export restitution payments for sales of wheat, wheat flour, vegetable oil, and other farm products. ASA believes that all export subsidies should be eliminated in the next round, including government export incentives such as Differential Export Taxes.
Page 131 PREV PAGE TOP OF DOC With regard to export credit programs, we do not support waiting to make changes in the operation of U.S. export credit guarantee programs until the next WTO round. Rather, we support continuing the effort to work out an acceptable compromise on export credits in the OECD. If the United States waits until the next round to make changes in export credit programs, we feel we will run the risk of having export credits wrongly treated ass export subsidies and therefore made subject to elimination.
In the area of domestic support, ASA supports modifying the ''blue box'' created in the Uruguay Round for programs tied to production controls. The U.S. eliminated its own ''blue box'' programstarget prices, deficiency payments, and set-asidesin the 1996 FAIR Act. However, the EU is proposing through its Agenda 2000 reforms to substantially increase producer support under the compensatory payment plan
With regard to further reductions in the AMS, ASA does not believe further equal percentage reductions from the 198688 base established in the Uruguay Round would achieve sufficient reform in the EU's domestic support program. Even after achieving the 20 percent reduction required in the Uruguay Round, the EU's AMS will remain more than three times that of the U.S. We believe one of the goals of the United States should be to transition countries to providing an increased proportion of total domestic support given to agriculture in the ''green box'' decoupled form, as the United States already has done under the FAIR Act.
Before concluding, Mr. Chairman, I would like to express our growing concern with the deteriorating environment for trade in the products of agricultural biotechnology. Finding an appropriate way to address this issue and obtain global agreement on how to harmonize biotech trade is a top priority for ASA for the next WTO round.
As you may be aware, the European Union has not approved any applications for importing biotech varieties of corn, soybeans or cotton produced in the U.S. since 1996. In the interim, the EU has announced and implemented a regime for labeling products that contain and do not contain biotech ingredients, but has not decided whether certain ingredients will not have to be labeled. They have also not decided what if any threshold to apply to the presence of biotech ingredients. With no clarification forthcoming from the Commission, the private sector in the EU is taking matters into its own hands. Five major UK food retailers announced last month they will source only non-biotech products. And the British Medical Association issued a report, based on no scientific evidence, questioning the adequacy of the scientific reviews used to approve biotech crops, and calling for restrictions on foods containing biotech ingredients.
Page 132 PREV PAGE TOP OF DOC In our view, the EU regulatory agencies which have failed to develop timely and transparent product approval and labeling regulations should be held accountable for any reduction in U.S. exports to European countries caused by these private sector actions. In addition, our own regulatory agencies must forcefully defend the scientific reviews on which they have based decisions to approve biotech varieties for commercial production and consumption. In recent weeks, there has been no response from USDA or EPA in news stories reporting the BMA charges. While it is not appropriate for regulators to be advocates, it is critical that they respond clearly and in a timely manner to unfounded attacks by seemingly credible sources that publicly question their credibility.
That concludes my statement, Mr. Chairman. I will be glad to respond to any questions you may have.
July 2, 1999
HON. DAN GLICKMAN
U.S. Department of Agriculture
Washington, DC 20250
DEAR SECRETARY GLICKMAN:
On June 9, you testified before the House Committee on Agriculture concerning economic sanctions. At that time I asked you for a written response to my question: ''What is this administration's position on parity supports, commodity price supports, income supports? Will the administration support a return to parity supports or commodity supports? If so, why? If not, why?'' As of today, I still have not eceived an answer.
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Many farmers in my district have asked me what future farm policy is expected from the administration. They need to know this in order to make decisions and plan ahead for their farming operations. With the current financial crises facing agriculture, it is important that this particular information reach my farmers as soon as possible. Could I please receive an answer within 10 days?
Thank you for your time. I look forward to hearing from you.
Member of Congress
The Department did not respond to Dr. Cooksey's letter in time for printing.