SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC THE ADMINISTRATION'S PREPARATIONS FOR THE 1999 WORLD TRADE ORGANIZATION MINISTERIAL
WEDNESDAY, JUNE 23, 1999
House of Representatives,
Committee on Agriculture,
The committee met, pursuant to call, at 10:05 a.m., in room 1300, Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Barrett, Boehner, Ewing, Smith, Lucas of Oklahoma, Hostettler, Chambliss, Moran, Thune, Cooksey, Gutknecht, Riley, Walden, Ose, Hayes, Stenholm, Peterson, Dooley, Clayton, Minge, Hilliard, Pomeroy, Holden, Bishop, Baldacci, Berry, Goode, Stabenow, Etheridge, Boswell, Lucas of Kentucky, and Hill.
Staff present: William E. O'Conner, staff director; Lynn Gallagher, senior professional staff; Wanda Worsham, clerk, Greg Zerzan, associate counsel; Callista Bisek, Jason Vaillancourt, and Andy Baker.
OPENING STATEMENT OF HON. LARRY COMBEST, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
The CHAIRMAN. The hearing of the House Committee on Agriculture on the administration's preparations for the 1999 WTO Ministerial will come to order.
We appreciate all of those who came today. I want to quickly introduce some people who are in the audience who have a great deal of interest in this. We appreciate their attendance. Susan Combs, my commissioner of agriculture in Texas; Bill Lyons, Jr., the secretary of Food and Agriculture for the State of California; and Dr. Martha Roberts, deputy commissioner of Agriculture in the State of Florida. We welcome you to our hearing today.
Page 2 PREV PAGE TOP OF DOC On behalf of the committee, I am pleased to welcome all of the witnesses to this hearing on the administration's preparation for the 1999 World Trade Organization Ministerial. We will hear from Secretary of Agriculture Dan Glickman and U.S. Trade Representative, the Honorable Charlene Barshefsky. While Ambassador Barshefsky has briefed Members most recently on the negotiations on accession of China to the WTO, this is her first official appearance before the committee. Madam Ambassador, you are very welcome to the committee, as is certainly our former colleague and friend who spends a great deal of time up here, the Secretary of Agriculture. It is my pleasure to welcome her to the committee. I am certain that we will see much more of Ambassador Barshefsky and Ambassador Peter Scher, who is also in attendance today, as preparations for the upcoming WTO negotiations continue.
For American farmers and ranchers, trade is an essential part of their livelihood. They produce much more than is consumed in the United States. Therefore, exports are vital to their prosperity and success.
This year, USDA estimates that agricultural exports will be $49 billion, but this figure is more than $10 billion lower than the value of U.S. agricultural exports in 1996. Our agriculture trade balance for 1999 is estimated to be $11 billion, the lowest since 1987. There are several reasons for these lower numbers: Lower commodity prices around the world, reduced volume of exports and the Asian financial crisis. For years, U.S. agriculture has provided a positive return to our balance of trade. In order to continue this positive balance, to improve upon it, markets around the world must be open to our agricultural exports. Our agricultural markets are open to imports and our tariffs are low. Agriculture tariffs worldwide average about 50 percent, while U.S. agricultural tariffs are less than 10 percent. It is to the advantage of U.S. agriculture that we continue to open markets and remove barriers to our agricultural exports. Goals for these negotiations include a decrease in agricultural tariffs, reduction of export subsidies, discipline of state trading enterprises for imports and exports, and certainly that science, not protectionism, is a basis for worldwide trade rules.
Page 3 PREV PAGE TOP OF DOC Those of us interested in promoting U.S. agriculture around the world believe our farmers and ranchers can do better in world markets, but unless we break down barriers, expansion of U.S. agriculture trade will be slowed down even more than it has over the past 3 years.
These WTO agriculture trade negotiations should open markets around the world and create new opportunities for U.S. farmers and ranchers. Today the administration will explain its preparations to achieve these goals, and I would recognize now Mr. Stenholm for any comments that he might make.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman, and thank you for holding this hearing today to review the administration's preparation for the next round of WTO negotiations on agriculture, set to begin in about 5 months.
I was very pleased to receive the May 11 letter from the 69 member Seattle Round Agricultural Committee, which includes most of the commodity groups that will be represented at least in the audience here today. The Seattle Round Agricultural Committee identified 14 objectives to the next round, and at the top of its list is conclusion of the rounds with a single undertaking that encompasses all sectors. In other words, no early harvest.
That means that once the round has begun, we work until agreement can be reached on all sectors, rather than carving out agreements on less controversial sectors and leaving agriculture behind. One need look no further than the remarkable agreements of GATT and the WTO for trade and industrial goods to see that agriculture is not likely to be the sector that would be harvested early. Since the end of World War II, eight rounds of negotiations have reduced the average bound tariff on industrial goods from 40 percent to 4 percent. Meanwhile, bound agricultural tariffs remain an average of over 40 percent.
Page 4 PREV PAGE TOP OF DOC The question for agriculture is, how do we catch up? What incentive do our trading partners have to complete negotiations on agriculture if we are willing to first conclude agreements in sectors that are most important to them?
In last Friday's Congress Daily, Ambassador Barshefsky was quoted as saying there was an emerging consensus for a 3-year limit on the next round, and that a single undertaking may well be appropriate, but I won't make that decision until I know what the agenda is.
I agree that 3 years should be enough time to than included the Seattle round, but I hope we will not agree to a time frame that will compromise the progress we are making in agricultural trade. When President Clinton addressed the WTO ministerial in Geneva in May of last year he proposed that even before negotiations near conclusion, WTO members should pledge to continue making annual tariff and subsidy reductions in agriculture, ensuring there is no pause in reform. If we are to gain commitments from our trading partners to reduce agricultural tariffs and subsidies before the Seattle round nears conclusion, I suggest we make it clear that agriculture is a U.S. priority that must be addressed first.
In his May 1998 WTO statement, the President also addressed the need to develop rules rooted in science that will encourage the full fruits of biotechnology. In a recent paper entitled ''Agricultural Biotechnology and the New Round of WTO Negotiations'' the Biotechnology Industry Organization, commonly known as BIO, argues that existing WTO rules, such as the SPS agreement and the agreement on technical barriers to trade, TBT, already covered the biotechnology products and these existing results could be supplemented with interpretive notes to address trade issues such as lengthy EU approval process for genetically modified organisms.
I recommend the BIO paper to my colleagues and to our friends from the administration as a good starting point in our preparation for the upcoming negotiations on biotechnology. Whether we clarify existing rules or agree to a new rule for biotech, our opponents will attempt to expand those rules to allow for measures that are not science-based. On this point we must remain united. WTO member countries must continue to base regulations on scientific principles and a science-based assessment of risk.
Page 5 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Any statements by Members may be included at this time.
[The prepared statements of Members follow:]
PREPARED STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Today, the members of the House Committee on Agriculture will receive testimony reviewing the administration's preparation for the new round of multilateral trade negotiations regarding agriculture, scheduled to begin in the 1999 World Trade Organization Ministerial.
I would like to thank Chairman Combest for his persistent leadership on the very important issue of world agriculture trade. I would also like to thank Members of the Full Committee for their support and patience as we address the Administration's preparation for the 1999 round of trade negotiations.
All of us should worry that the free trade argument has lost some of its luster. There are concerns that we will pass protectionist legislation for the steel industry, which can only mean retaliation on U.S. agriculture. And that is only the beginning. As we prepare for the Seattle round of the WTO, we must keep that issue in mind. After the White House failed to support passing fast tracka ''yes'' vote that was difficult for a number of members on this committee on both sides of the aisle, we now have President Clinton renewing a call for fast track authority to negotiate trade agreements. In his recent address to University of Chicago graduates, the President urged fast track negotiating authority. The President certainly talks a good game, but this is not more than lip service. Are we going to wait until the end of the session when fast track does not do any good? I certainly urge Secretary Glickman and Ambassador Barshefsky to have a better game plan for the Seattle Round of negotiations.
Article 20 of the 1994 Uruguay Round Agreement on Agriculture
Page 6 PREV PAGE TOP OF DOCcalls for the continuing improvement of world agriculture trade in 1999. It more specifically states that member countries of the World Trade Organization recognize that the long-term objective of reducing trade-distorting support and protection of agriculture. I see agriculture exports as a crucial source of income for United States Agriculture. I feel that both the House and Senate Agriculture Committees should carefully examine the present condition of agriculture trade.
In examining the condition of world agriculture trade, it is important to realize the impacts of exports on U.S. agriculture. Although the first two quarters of the 1999 agriculture trade balance reveal a net export increase of $500 million, the recent trend of decreasing U.S. agriculture exports should be of great concern.
During the 1999 World Trade Organization negotiations, several issues should be addressed to improve the condition of agriculture trade.
Mr. Chairman, I have two issues that I feel are very important. One, the age-old question of State Trading Enterprises and two, the rules for trade regarding bio-engineered products. I feel that each of these issues should be carefully considered and examined in today's hearing.
In reviewing my home State of Nebraska, competition among suppliers for world agriculture products is increasing. For our farmers, ranchers, and food processors to compete successfully, we need to have fair trade and fair access to growing global markets. As one of the Nation's leading producers and exporters of agriculture products, the continued improvement of fair trade and fair access for Nebraskan agriculturists is crucial. Improvements in trade and market access are vital for Nebraska's farmers.
It is my opinion that international markets represent a large growth point for American agriculture. By shuffling restrictions and allowing increased fair trade, we will be able to increase the income of many
Page 7 PREV PAGE TOP OF DOCAmerican producers.
Mr. Secretary, Ambassador Barshefsky, and Members of the Committee, we must push for the continued improvement in the Global Market. Today we should examine each of the issues I mentioned and work to improve the relations of agriculture trade.
Again, I want to thank you, Mr. Chairman, for holding this hearing on the future of world agriculture trade. I look forward to hearing testimony from each witness panel.
PREPARED STATEMENT OF HON. CHARLES T. CANADY , A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Mr. Chairman, Ambassador Barshefsky, Mr. Secretary thank you and I appreciate the efforts of this Committee, the Office of the U.S. Trade Representative and the Department of Agriculture to focus on international trade issues as we begin preparations for the multilateral negotiations of the World Trade Organization. I would particularly like to thank Ambassador Barshefsky for holding the U.S. Trade Representative WTO Listening Session on June 4 in Lakeland, FL part of the 12th Congressional District which I represent. This was an important opportunity to hear from growers and affected members of the agricultural community whose existence, to a large degree depends on the positions taken and agreements reached by the United States in WTO negotiations. By considering the concerns of these agricultural producers, I believe that you will be better prepared for the next round of multilateral negotiations, and understand the challenges growers face competing in the world market. My comments today reflect the concerns expressed by growers at that WTO Session.
Trade issues in the upcoming WTO Ministerial will have a dramatic effect on producers of specialty crops such as fruits and vegetables grown in Florida. Mr. Chairman, Florida currently ranks fifth in the Nation in crop cash receipts. While we have an unique opportunity to provide enhanced export markets for high quality fruits, vegetables, and other seasonal crops, our producers often must compete against low-priced, often subsidized products from Latin America, Europe and elsewhere. Too often free trade is not fair trade because our agricultural producer are asked to compete with countries who do not face the enormous regulatory, environmental and labor restrictions imposed on U.S. farmers.
Page 8 PREV PAGE TOP OF DOC While we applaud the general objectives of the WTO negotiations, we must recognize that previous agreements reached under the Uruguay Round Agreement and under the North American Free Trade Agreement have lead to increased competitive pressure based largely on the this inequitable set of circumstances. Hence, Florida agricultural growers have concerns that a new round of WTO negotiations may lead to further reductions in import sensitive tariffs, and further denigration of market shares. We urge that inequities in prior agreements be addressed, and that trade dispute resolutions be enforced before new agreements are entered into. U.S. negotiators should seek to improve upon market access provisions and safeguards by pressing for WTO reforms that finally reflect import-sensitive agricultural interests.
Any agreement should be based on a ''request and offer'' approach to tariff negotiations rather than a ''formula reduction'' approach as utilized in the Uruguay Round. Formula reduction approaches, which required across the board tariff cuts of 15 percent, did not protect import -sensitive U.S. agricultural products. Specialty crops have unique considerations that should be dealt with through specific measures including workable price-based safeguards, rapid and effective dispute resolution, adherence to science-based sanitary and phytosanitary issues and equivalency requirements.
I respectfully request that U.S. negotiators carefully consider and fully acknowledge the seriousness of this issue and the great economic stakes involved for Florida, and American agricultural producers as a whole, as they enter into the WTO Ministerial trade talks. I also ask the comments expressed at the WTO Listening Session in Winter Haven be included as part of the record.
PREPARED STATEMENT OF HON. HELEN CHENOWETH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO
Mr. Chairman, thank you for holding this hearing to review the Administration's preparation for the 1999 World Trade Organization Ministerial. This hearing is very welcomed, and I thank all the witnesses.
Page 9 PREV PAGE TOP OF DOC A new round of multilateral trade negotiations will be launched in Seattle, Washington, when trade ministers of the WTO countries meet November 30 through December 2, 1999. It is clear that the objective of the negotiations should be to continue the process of agricultural trade reform begun in the Uruguay Round Agreement.
Continuing the process of reform must entail revisiting the issues of high tariffs, market access, export subsidies, and domestic support that were essential to the Uruguay Round. Additionally, efforts must be made to settle anti-dumping rules, sanitary and phytosanitary disputes, dispute settlement and technical barriers to trade.
Mr. Chairman, we need to compensate U.S. exporters for markets lost to unfair foreign competition. According to the Idaho Grain Producers Association, the GSM 102 and 103 credit programs have been very effective in maintaining market share in many countries around the world, especially in Asia. Without an aggressive export policy, such as the GSM 102 and 103 credit programs, the Idaho grain producers struggle to survive.
I am in favor of trade that is fair and free for all parties involved. I believe we need to reinforce the trend toward greater integration of U.S. markets into foreign markets. Facilitated trade agreements must promote investment and employment in the United States. Also, the strong export performance of United States's goods must create incentives for resources, labor and capital. The time has come to protect America's jobs and interests.
PREPARED STATEMENT OF HON. DEBBIE STABENOW, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I appreciate the opportunity to participate in today's hearing on the administration's preparation for the 1999 World Trade Organization Ministerial. I would like to thank Chairman Combest and Ranking Member Stenholm for convening on such an important issue for agriculture. I would like to take this opportunity to welcome all of today's witnesses; their expertise will benefit our discussion. However, I would like to extend a special welcome to Secretary Dan Glickman and to the Honorable Charlene Barshefsky, U.S. Trade Representative. Furthermore, I would to extend a warm Michigan welcome to Mr. Elwood Kirkpatrick, president of the Michigan Milk Producers Association. He will be testifying today on behalf of the National Milk Producers Association.
Page 10 PREV PAGE TOP OF DOC The scope of today's hearing is broad. I am sure we will not cover all the important issues. I hope the agriculture committee will continue to hold hearings on this issue. I am concerned about the fate of agriculture at the WTO Ministerial and I welcome today's opportunity to raise a few issues. Only two sectors have a clear mandate to continue WTO negotiations and one of them is agriculture. Nonetheless, Director General of the WTO, Mr. Rugierro, has stated that agriculture can not be a predominant issue during the next Round. Furthermore, there is the ongoing debate regarding the scope of the next Round. Arguments have been made for both sectoral negotiations or a multisectoral negotiation. The fate of agriculture will be determined by the scope of the next Round and I would like to hear from the administration today how they intend to protect the interests of U.S. agriculture. I would like the various commodity groups represented here today to inform me on their opinion of how the scope of the next Round can impact U.S. agriculture.
A specific issue in which I am particularly interested is the treatment of bio-engineered products. As we all know, trade in bio-engineered products is the fastest-growing and most controversial, new technology in agriculture. However, there are no clear WTO rules in the current WTO accords that govern the trade of bio-engineered products. Some argue that the current WTO agreements on sanitary and phytosanitary (SPS) measures and on technical barriers to trade (TBT) should be expanded to cover bio-engineered products. I would like to hear the opinions from today's panel regarding this ongoing debate. Biotechnology is critical for the future of agriculture and I believe a viable solution to the treatment of the bio-engineered products by the WTO should be a top priority for the next Round.
Once again, I would like to thank all of today's witnesses for being here today. I look forward to their expert testimony.
The CHAIRMAN. The first panel is at the table. Again for introduction's sake, the Honorable Dan Glickman, Secretary of the U.S. Department of Agriculture, the Honorable Charlene Barshefsky, U.S. Trade Representative, the Honorable Peter Scher, Special Trade Negotiator for Agriculture, USTR. I notice that Deputy Secretary Rominger is accompanying Secretary Glickman.
Page 11 PREV PAGE TOP OF DOC Secretary Glickman, please proceed.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
Secretary GLICKMAN. Thank you very much, Mr. Chairman, Mr. Stenholm. With me of course is Deputy Secretary Rominger, Gus Shumacher, our Under Secretary for Farm and Foreign Agricultural Services, and other folks with the Department are with us.
I would first like to say that we are indeed fortunate to have the USTR team that we have. Not only is Charlene Barshefsky a tenacious advocate for ensuring fairness for American workers, but she is a tenacious advocate for ensuring fairness for American farmers, and her Ambassador for Agriculture, created for the first time in this administration, Peter Scher, has been a tireless advocate for the interests of American agriculture, and how critically important it is that someone within USTR, actually doing our negotiating, is a person whose focus is agriculture. I think it is the first time ever that has happened. It has made a big difference. We would like to think we operate in terms of, intellectually in terms of developing ideas in partnership with USTR, but they are the ones who are actually on the ground negotiating, and I think that their leadership has been critical and will remain critical as we go to the next WTO round.
I have learned in my experience in over 4 years in this job what trade means to U.S. agriculture's bottom line. Early on we had a record $60 billion of agricultural exports, in 1996, and, prices in the countryside, farm prices, reflected those higher numbers.
In the last year and a half, we have seen a steep drop in the value of agricultural exports, not so much in the volume. Although that has remained pretty constant, but the value has come down significantly. As a result of 3 years of record worldwide production, 1996, 1997, 1998, record production, in 1999 it looks like another record year in the world, coupled with the crisis in the Asian financial markets, agricultural exports plummeted and farm prosperity took a nose-dive.
Page 12 PREV PAGE TOP OF DOC The key lesson from both the good and bad periods of the last 4 years is the critical significance of trade to our farm economy, and the corollary of that is the need for a sufficient safety net beyond just trade when times are bad. But the fact is that over the long term, trade is the linchpin of our agricultural economy. We obviously have to do other things like, have appropriate domestic policies. But the fact is that one-quarter of U.S. agriculture production is exported, and if the farmers are going to continue to prosper, we must look to the global economy to provide new markets.
That means we need a free and fair trading system and reliable markets. Just look at the facts. Since 1960, tariffs worldwide have fallen by 90 percent, while global trade has grown by 1,500 percent. World economic production has quadrupled while per capita income has more than doubled. The true test came in 1997 and 1998 when 40 percent of the world's economy stumbled badly. We are not out of the woods yet, but we are seeing positive signs in the economies of South Korea and Thailand, without any retrench into protectionism.
In his last State of the Union address, the President called on the nations of the world to tear down barriers, open markets and expand trade. He also said we must ensure that ordinary citizens in all countries actually benefit from fair tradethat includes the United States as well. Nowhere is this more important than in agriculture. That is why the United States has developed a bold agriculture agenda for the new round that includes one, the elimination of export subsidies which makes for unfair trade practices and depress world commodity prices for all producers. No. 2 we must further reduce worldwide tariffs, which average 50 percent on agricultural goods in other parts of the world. No. 3 we must expand market access by raising the ceilings on tariff rate quotas, only as an interim measure as we try to phase them out over the long run. Fourth, we must open up the operations of state trading enterprises, making them more transparent so that they face the same risk in the marketplace as private traders. This is a particular problem as we deal with the Canadian wheat board. Five is facilitating trade and new technology products, including biotech. And six is we must ensure the continued effectiveness of the rules governing sanitary and phytosanitary measures so that sound, impartial science prevails, and so nations cannot mask protectionism behind unvalidated, secretive studies.
Page 13 PREV PAGE TOP OF DOC In my own opinion, and Charlene can perhaps give her own thoughts on this, is the last two points I mentioned. The biotech issue and the sanitary and phytosanitary issue, will become perhaps the most difficult of all stumbling blocks for agriculture in the next round.
Since I first outlined these goals to the committee 15 months ago, USDA has sought advice and ideas from all aspects of our agricultural industry as we refine our trade policy goals for the next round. For example, tomorrow representatives from USDA, USTR and the State Department will be in Indianapolis for the fourth of 12 regional WTO listening sessions scheduled to gather public comments on the upcoming trade round and goals for agriculture. We have heard from farmers and ranchers, processors, exporters and State and local Government officials. The testimony has been thoughtful and ample.
Under Secretary Shumacher told me at this upcoming listening session tomorrow, that we expect about 600 people have signed up for that meeting. The testimony we have heard so far has reflected a general support for the trade agenda but a real desire for a more level playing field in the world trading environment. This and the remaining sessions will help broaden our understanding our trade policies that must be effective in helping us increase our agricultural exports.
We will continue to work through the Agricultural Policy Advisory Committee and the five technical advisory committees on trade to gather advice on the United States' negotiating strategy. We announced the committee members earlier this month, and there will be six meetings with these committees leading to the Seattle Ministerial in November.
One area where we need to work together closely is domestic support. We need to reduce trade distorting subsidies and the United States has led the way in creating policies that minimize effects on world markets. But we also have more work to do in creating a safety net of farm support that helps our farmers weather the cycles of agriculture. Matching these two goals, which is minimizing market distortion while supporting the rural sector, will require creativity and sound tactical planningsince we are likely to have to deal with writing a new farm bill before the results of the upcoming negotiations are implemented.
Page 14 PREV PAGE TOP OF DOC I might add parenthetically, we also have to deal with one of the most difficult principals we face from the EU, that has been continually, which is dealing with the issue they call multifunctionality. It basically means that rural and farm programs serve many functions and one of them is to preserve people on the land, notwithstanding what its effects may be on trade or market distortions. We believe that that policy is wrong, but we also recognize that it is appropriate for every country to have policies that protect and promote their rural and farm sectors, but do it in a non-trade distorting way.
As we plan our negotiating strategy, we are consulting with other countries. While we have many allies in our quest for freer and fairer world agricultural trade, there is, of course, considerable opposition. There are powerful forces who see agricultural trade not as a win-win situation, but as a zero sum game where the exporter wins and the importer loses. Many nations protect their domestic producers by blocking access to their markets with tariff and non-tariff barriers. So that is obviously another key point.
Let me just talk quickly about China. Charlene Barshefsky, Peter Scher and their team deserves particular praise for what they did during the recent negotiations on sanitary and phytosanitary measures with China. They are the ones that got that done. China's accession to the WTO would hasten its integration into the world economy and complement our efforts to maintain stability in the Pacific by linking China's economy more closely with the rest of the world.
We believe that China's accession to the WTO would be a win for everyone. For the United States, the benefit is obvious; a more level playing field in the world's largest market and greater consistency in a market that has been fairly erratic. A sound agreement with China will open Chinese agricultural markets to U.S. exporters, strengthen the world trading system and give farmers and agricultural interests in this country stronger protection against unfair trade practices and import surges. The principles of the WTO, which are transparency, fair trade practices, peaceful settlement of disputes and the rule of law, are those we hope to advance in China and worldwide.
Page 15 PREV PAGE TOP OF DOC Since one in five people in this world live in China, our trade relationship with the Chinese people becomes very important. With rising incomes, China will be a growing customer for agricultural products for years to come, and notwithstanding their desire to be self-sufficient, the fact of the matter is they cannot be self-sufficient for everything in the years to come, particularly as they move to a more industrialized society.
Last year China was the fourth largest market for U.S. agriculture products, buying more than $3.3 billion worth of soybean, soybean oil, cotton, hides and skins, and a variety of other U.S. products. We believe this trade can and will expand significantly if we reduce trade barriers between China and the United States.
China is also one of our most able competitors and a net agricultural exporter, with steady record increases in grain production, plentiful grain stocks, and ample opportunity to further increase yields. As the world's largest producers of farm products, the United States and China need to work together to promote an open and fair world trading system. The U.S. will work with China to build a strong trading partnership, but the timing of China's accession is up to China.
Mr. Chairman, everyone in this room knows the importance of trade to U.S. agriculture. In the past year we have been sobered by a global financial crisis that devastated many of the emerging Asian economies and softened demand in Russia, one of the world's most important markets for meat. Up until last year, and for the past few years, the largest export item of the United States to Russia was chickens. Roughly 35 percent of all our exports to Russia was in poultrymaking that market an example of one that has taken an enormous hit because of their economic problems. While we are seeing some strengthening in the Asian economies, we continue to face global oversupply of many commoditieswhich sent prices plunging to their lowest levels in years. We have learned that our farmers cannot rely exclusively on trade as their only safety net, but we must continue our efforts to reform world agricultural trade so they have more new open markets as well.
Page 16 PREV PAGE TOP OF DOC As the President said earlier this month in Chicago, ''We ought to continue to expand trade, we ought to enforce our agreements more vigorously, but I do not believe a country with 4.5 percent of the world's people can maintain its standard of living if we don't have more customers.''
To realize the potential of the global marketplace we have a lot of work ahead of us. We must construct a world trading system where every producer gets a fair shake, and where all products, goods and services, are traded freely across oceans and continents. The next round of the WTO negotiations will be a turning point and we will be working hard to help American agriculture realize that potential.
Just to add two points. In mid-July I will go to Vancouver to meet with my Quint partners. This is an agriculture meeting of the United States, Canada, Australia, New Zealand and the EU, to talk about ways that we can deal with agricultural strategy in the next round of the WTO. Early next week, Ambassador Scher and I are going to Paris to have quiet, bilateral meetings with French agricultural leadership on issues of follow-up to the G8 meeting. In particular as they relate to WTO concerns and relate to biotechnology and sanitary and phytosanitary measures. So we intend to take an active, aggressive role in dealing with these issues the best we can before the next round of the WTO.
Let me finally just say again, I don't think there has ever been a USTR that has been more engaged in opening up world markets for agriculture and other products than the team we have got here. In the dictionary you look up the world tenacious, Charlene's picture is there. The point of all of this, while these are complicated issues and we are dealing with political theory somehow based on the economic rationalization of how everybody's own country is doing economically, Charlene, Peter and others have and continue to fight the good fight to break down unfair trade barriers.
Thank you very much, Mr. Chairman.
Page 17 PREV PAGE TOP OF DOC [The prepared statement of Secretary Glickman appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Secretary. The tenacious Ambassador Barshefsky.
STATEMENT OF HON. CHARLENE BARSHEFSKY, U.S.TRADE REPRESENTATIVE
Ms. BARSHEFSKY. Thank you very much, Mr. Chairman, Mr. Stenholm, members. Let me say it is a great pleasure to appear before you. With me, of course, is Ambassador Scher and his entire team at USTR. Let me also, if I might, return the compliment to Dan Glickman, to Gus Shumacher, Rich Rominger and their entire team.
We have never had as cooperative and as close a day-to-day working relationship with USDA as has been forged these last several years. We are very grateful for it, and very, very grateful for Dan Glickman's leadership.
This is a very timely hearing. A new round of global trade negotiations is set to begin this winter when the United States hosts and chairs the WTO Third Ministerial Conference in Seattle. Agriculture, and I want to assure you, Mr. Chairman and Mr. Stenholm and the committee, agriculture is at the heart of this agenda. We are now developing negotiating objectives in consultation with Congress and other interested parties. My testimony will review our broad goals, place the round in the context of our work over the past 6 years, and outline the process by which we are developing detailed objectives.
American farmers are the most competitive and technically advanced in the world, producing far more than we can ever eat. We have an opportunity, indeed we must, export to the 96 percent of humanity that lives beyond our borders, and with one in three farm acres now producing for foreign markets, we must export to remain profitable at home.
These realities are the foundation of our agricultural trade policy. Under the President and the Vice President and Secretary Glickman, our work has covered five broad areas. We have sought to, first, reduce tariffs and other barriers to trade; second, ensure that sanitary and phytosanitary standards are based on science; third, reduce foreign export subsidies and trade distorting domestic supports; fourth, show greater transparency and fairness in state trading, and last, help guarantee that farmers and ranchers can use safe modern technology, in particular biotechnology, without fear of trade discrimination.
Page 18 PREV PAGE TOP OF DOC The foundation of this work is its direct benefit to our agricultural producers, but each item on this agenda is also rooted in a broader humanitarian vision. More open markets give customers more diverse supplies of food, help guarantee food security, and prevent famine during natural disaster. Ending export subsidies will ensure fairness for American farmers, but also for farmers in developing countries whose governments lack the resources to fight back. As we ensure respect for science in food safety and biotechnology, we protect public health and reduce the pressure on land, water and wildlife habitat.
In cooperation and consultation with the committee and many Members of Congress, we have come a long way toward these goals. With the passage of NAFTA in 1994, we won preferential access to our immediate neighbors. As a result, our agricultural exports to Mexico have increased 70 percent. Our exports to Canada are up sharply as well. Together, these two countries, with a total population of 120 million people, now buy over one-quarter of all of our agricultural exports and provide American farmers with at least a partial shield against overseas economic crisis.
We have also negotiated bilateral agreements worldwide in a very large range of commodities, from beef in Korea, apples and cherries in China, tomatoes and apples in Japan, almonds in Israel, a veterinary equivalence agreement with the EU, citrus and other fruits in Brazil, Chile, Mexico and elsewhere, and a broad agricultural agreement with Canada concluded just last December. And with the completion of the Uruguay Round in 1995, after 47 years of developing the trade
system, we began to bring agricultural trade under fair and internationally accepted rules.
In that agreement, we lowered tariffs and are on track to eliminate most quantitative restrictions. We reduced trade distorting subsidies. We ensured that all WTO members, 110 at the time, but 134 now, would use sanitary and phytosanitary standards to protect human, animal and plant health, rather than to bar imports. We won consensus on a built-in agenda that ensured further market openings in agriculture and services negotiations to begin at the end of this year. At the same time, USDA and FDA are intensifying food inspection at the border here to not only maintain but improve our own food safety standards. This is especially important as imports have risen in recent years to ensure that the American public will have the world's safest food supply as we get the benefits of open trade.
Page 19 PREV PAGE TOP OF DOC With all of these agreements complete, we have followed up through vigorous monitoring and enforcement of commitments, including 13 separate WTO cases on dispute settlement in agriculture and retaliation against the European Union when it failed to comply on bananas, and we will retaliate at the end of July if they do not comply with their obligations on beef. When WTO members refuse to play by the rules, and thus far only the European Union, and only agriculture has refused to play by the rules, they will pay a heavy price.
Today American farm and ranch families face a far more open and fair international market than they did 6 years ago, but the situation, as you know, is still very, very serious with respect to market access. As we look ahead, therefore, to a new round, broadly speaking, our goals will include reducing tariffs, improving the administration of tariff rate quotas, eliminating entirely export subsidies, reducing trade distorting domestic supports, stronger disciplines in the activities of state trading enterprises, and guarantees that decisions on new technologies, including biotech, will be made on scientific grounds through transparent non-politicized regulatory processes.
We are now developing specific objectives through consultations with Congress, agricultural producers and commodity groups and other interested parties. We have published a number of Federal Register notices seeking comments on the full range of the agenda for the next round. We are conducting hearings all around the country under the trade policy staff committee rubric. We are also getting out of Washington as well to hold, with USDA in the lead, a series of listening sessions in which senior USTR and agriculture officials will hear directly from farmers, ranchers and others. We have already held meetings in Florida, Minnesota and Tennessee, and another session in Indianapolis, as Dan Glickman has said, and then we will go to Texas, California, Washington, Delaware, Vermont, Iowa, Nebraska, and Montana. Our specific negotiating objectives will flow from these consultations and consultations with you, Mr. Chairman and members. But let me just mention two key areas the round will have to address in some detail.
Page 20 PREV PAGE TOP OF DOC First, reform of the European Union's common agricultural policy. The Common Agricultural Policy, the CAP, includes $60 billion in trade distorting subsidies and 85 percent of the world's agriculture export subsidies. That is to say, 85 percent of all agricultural export subsidies notified to the WTO are European agriculture subsidies. The comparable figure for the United States is 2 percent.
Reform of this extraordinarily distortive policy on agriculture is a very high priority. We are working with our trading partners around the world, not only the CAIRNS group, but our Latin American trading partners and our African trading partners, for the elimination of export subsidize and a particular targeting of European export subsidies.
Export subsidies, as you know, in particular place an immense and unfair burden on farmers all around the world, but particularly in developing countries that cannot possibly compete with these kinds of financial incentives. The round offers an opportunity for significant change, including the reduction of border trade barriers, domestic supports linked to production, and, again, the elimination of export subsidies.
A second focus though will be new technology, such as biotechnology. These can develop strains of plants resistant to drought and disease, improve yield and thus reduce world hunger while easing the pressure on land, water and wildlife. American farmers must not suffer trade discrimination as a result of adopting scientifically proven techniques with these benefits. But we recognize that biotechnology raises some concerns about potential unintended effects. This is especially true in Europe where a highly politicized, non-transparent regulatory process governs decisions on biotechnology. This has led to a serious lack of confidence in European food safety by European consumers, with, of course, the collateral damage to United States agricultural exports.
These are fears which we must address squarely through the adoption of transparent, scientifically based, fully accessible regulatory procedures.
Page 21 PREV PAGE TOP OF DOC Finally, let me say a word about WTO accession and regional trade initiatives. These have been a very significant part of our trade policy, as you know, with substantial benefits, helping us to set precedents and develop consensus on major issues for the round.
With respect to accessions to the WTO, 30 economies are now applying to enter the WTO, including many of the world's transitional economies; that is, the former Soviet republics as well as Indochina, and large countries, such as China. In each case, we require full acceptance of the sanitary and phytosanitary agreement, the complete renunciation of export subsidies, improved transparency in any existing state trading arrangements, and significant market opening through, for example, the reduction of tariffs and other barriers.
Our regional initiatives, the Free Trade Area of the Americas talks, the Transatlantic Economic Partnership with Europe, APEC in Asia, and the President's Economic Partnership with Africa, all offer similar opportunities to build consensus on goals and eliminate disputes early.
In the Transatlantic Economic Partnership, for example, we just agreed yesterday in Bonn to open a pilot project on biotechnology with Europe in order to enhance transparency and the accessibility to Europe's regulatory process under which we will try to establish common data requirements for biotech approval, and parallel procedures for the acceptance of biotech products.
In the Free Trade Area of the Americas, we have already won an understanding on the abolition of export subsidies and we are holding similar discussions on export subsidies with our African and Asian partners.
In summary, in the past 6 years, our bipartisan agricultural trade policy has created markets for American farmers and ranchers, reduced abuse of subsidies and helped promote the use of science to ensure food safety, consumer protection and fair trade. But the next round offers us a chance to go much, much further and we need to go much further. In the months ahead, we will consult closely with you as we develop the detailed objectives that best serve our Nation's agricultural interests, the world's prospects for food security and the future of our farmers and our ranch families.
Page 22 PREV PAGE TOP OF DOC Thank you very much.
[The prepared statement of Ms. Barshefsky appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ambassador. I want to join with the Secretary in his note of admiration for you. I think you have set the standard by which all trade ambassadors will be judged. You have done a remarkable job. I appreciate very much your office's inclusion of this committee as your work continues in a lot of areas. I have said for some time I think one of the most challenging and probably threatening problems in our trade policies is the lack of adherence in the past in many areas to trade agreements once they have been reached. If that continues to be the case, those people who are in fact so strongly supportive of trade will lose confidence in an agreement that has been reached. I know how tenacious you have been in your efforts in regard to bananas and to the beef question, and, again, I admire you for doing that. I totally support you for doing that, and we will stand, certainly I will, very strongly in support of those activities in the future because I think they are critical to future trade opportunities.
The work you have done with China up to this point with the briefings we have received has been phenomenal. I also want to make for certain that we don't go without highly recommending Ambassador Scher's work. It has been fabulous as well. I think we have a wonderful team, Mr. Secretary. I will just say the safety net is on its way. We are moving in that direction.
Let me go to a question first, Mr. Secretary, relative to the scoring of AMTA payments, and particularly the advanced or supplementary AMTA payments which we made in the last year.
In the Uruguay Round, domestic support or assistance to farmers was disciplined. Spending in countries was placed in three boxes. The green box was minimally trade distorting programs; the blue box was supply/control programs, and the amber box was the trade distorting programs. Programs in the amber box must be below specific levels, and the programs in the other boxes were not limited. It has consistently been the case, the negotiating policy, that while we want to see an end to domestic subsidies that distort world markets, countries have the right to support and assist their farmers in ways that do not distort trade. This important principle has guided U.S. agricultural policy throughout the nineties. Briefings by USDA personnel seem to indicate that there is a departure from that long held position. Now USDA is saying that you intend to place the AMTA supplemental payments in that amber box, despite the fact that they were made after the production year, could have no effect on producer's planning decisions, and that the original AMTA payments were not in the amber box. How do you square that?
Page 23 PREV PAGE TOP OF DOC Secretary GLICKMAN. I would ask Joe Glauber with our Chief Economist's office. But let me say this initially, one is that our internal support ceiling for 1998 was approximately $21 billion. Even with increased LDPs and market loss payments, our notification will likely total $10 to $12 billion, which is far under our ceiling.
The CHAIRMAN. Our ceiling for this year is $19 billion, and we are already at $12 billion.
Secretary GLICKMAN. Your specific question is despite the fact that the AMTA payments are considered green, the market loss payments provided last year do not meet the rather narrow criteria laid out for agriculture. Perhaps Mr. Glauber can address that specifically.
Mr. GLAUBER. First let me say the regular AMTA payments, because they are based on fixed production without regard to price or income, they are definitely under the narrow criteria laid out by the WTO considered green and we declared them green from 1996 on. Now, we are currently submitting our 1997 notification, that is payments that we made in 1997. We will do 1998 about this time next year.
What the WTO requires us to do, within 30 days or so of a new program, if it is a new green box program, is to declar it to the WTO. At the time last fall when the supplemental bill came through, we looked at the language in the act for the AMTA supplementals, and it was a very close call we felt. I mean, they were definitely based on fixed production and fixed yields, fixed area, but the fact that they were tied to market loss, lower prices and lower incomes, they fall out of the narrow criteria that is in the annex 2.
Now, because they are based on fixed production, there is still a question of whether or not they qualify for a blue box treatment, which again would be exempt from the AMS. That we don't have to do until next year when we notify. But we felt they fell out just on the margin of the narrow green box criteria.
Page 24 PREV PAGE TOP OF DOC You might add the reason we did that, as much as anything else, is the sort of precedent that that sort of action could have perhaps created. If after the fact the United States went forward and said those are green box, the fear is that any other country could start dumping a lot of income support to farmers whenever prices were low, and declare those as green.
Effectively, what happens is it is done in an ad hoc manner. That has no effect on production decisions that had already been made. But if that is done in a fairly systematic way, and farmers can come to assume that they will get large income support payments whenever prices are large, it does have a production supporting effect.
We were worried that this would cause a dangerous precedent for some of our competitors and then the fact that this thing fell out of the narrow criteria of the green box, we felt it was best not to declare them green box, particularly since we are well within our ceilings.
The CHAIRMAN. I think the precedent which is established in this is a decision of the Congress in the future of a way to deliver assistance funds during depressed pricing or disaster areas. Obviously it could be impacted. But I understand what you have said. I don't necessarily agree that that should have been the decision, but it was strictly based on all of the criteria that had been established in the past for the AMTA payments, and nothing changed. All of the payments made in that one supplemental again, in order to provide some disaster assistance, was done specifically based on the normal course of AMTA payments. It was just a change, as you know, in that percentage.
But as well, let me go to the GSM 102. Has the administration altered its determination that credit guarantee programs, such as GSM 102, are not considered subsidies? Earlier this month during the committee hearing on sanctions you made it clear that GSM 102 was not considered a subsidized program. However, USDA has described this program as one that may be considered by some countries as an export subsidy.
Page 25 PREV PAGE TOP OF DOC Secretary GLICKMAN. We do not consider this a subsidy. There is no change in commercial credit.
The CHAIRMAN. In the fact that we are looking at another year where more than likely we are going to have to provide some assistance, and, again, my understanding is you mentioned a $21 billion ceiling last year, we are at a $19 billion now, $12 billion of that is used, that leaves $7 billion. There are some people already talking in terms of excess of that amount for some kind of assistance. I would just caution as we go down that track, because that makes the challenge of balancing the method by which we provide assistance. I mean, there are some very significant and very obvious ways that that can be approached that would be a violation or have to be considered. But in the fact that, again, it had absolutely nothing to do with price, it had absolutely nothing to do with the amount that a farmer would plant, other than speculation for the future, I would like to be on record in the fact that I am concerned about the precedent that that may set for the future as we begin to try to look at ways we might be able to assist farmers.
Secretary GLICKMAN. I think that is a fair point, and we will need to work with you under the presumption there will be additional assistance this year. I will have to go back to the EU situation in terms of their CAP reform efforts. I was recently in Ireland where I spoke with some folks about how we really don't want to cap these things as blue box. We really want to count them as amber or green. We face the situation where the EU is prone to put things into categories which ought not to be there. So this is, in a sense, a competitive problem as well. You are right, we have to work together on how these programs are defined to make sure they are permissible.
The CHAIRMAN. Ambassador Barshefsky, will the administration submit fast-track legislation to Congress this year?
Ms. BARSHEFSKY. Mr. Chairman, we have been working closely with the Senate Finance Committee at this point, which has been looking in a serious fashion at a more comprehensive trade bill to include fast track as well as other pieces of legislation. We think that that is the most productive basis on which to proceed, and we will continue to work with the Senate Finance Committee.
Page 26 PREV PAGE TOP OF DOC The CHAIRMAN. Your answer, I want to make sure my assumption is correct, the administration would support a bigger package? I do know that discussion has been ongoing.
Ms. BARSHEFSKY. Certainly.
The CHAIRMAN. It will have a number of trade items in it?
Ms. BARSHEFSKY. Certainly, yes.
The CHAIRMAN. Do you see a magic time frame for this?
Ms. BARSHEFSKY. Certainly action by the Senate Finance Committee sooner rather than later would be desirable. We had some early hope that it might act as early as very early this spring. That time period lapsed, but Senator Roth has indicated that they would like to move forward, and we are urging them to do so.
The CHAIRMAN. Thank you very much, Ambassador.
Mr. STENHOLM. Building on that last question, I join in the accolades of the Ambassador and Secretary Glickman and all of your teams and the job that you have been attempting to do on behalf, and have done, on behalf of American agriculture.
The team that has been talked about is extremely important, but it is also important that the congressional team be on board and supportive of you. I understand your reluctance to directly answer the chairman's question, and I think that that is something that the administration is going to have to face up to, because I know it has to be embarrassing for you, Mrs. Barshefsky, to be entering the Seattle Round on behalf of the most populous Nation on Earth, and one of our future is dependent upon much of the outcome of these negotiations, for you not to have the negotiating authority that fast track would give you has got to be embarrassing. You didn't say that. I am saying that for you, because I see it. I think a lot of Members of Congress have got to start facing up to that.
Page 27 PREV PAGE TOP OF DOC I hope that we can find a way to bring fast track authority so that you will have it going into this year's negotiation. I hope we do not succumb to those that say we have to wait until the 2000 elections and the new administration. If we do that, then I think the Congress has to take the responsibility for that and the outcome that goes with this.
What are some of the other things that Congress, this committee, which I think we are ready to stand shoulder to shoulder with you on some of these tough issues, what are some of the other things that you would perhaps like to suggest to us for including on the agenda?
Ms. BARSHEFSKY. I think, Mr. Stenholm, that it will be very important for us to work very closely with the committee. Once our listening sessions are complete and our hearings are complete around the country and we have a very detailed, in-depth sense of not only the major topic headings for negotiation, but all of the various concerns, we would want to very much come back to the committee, perhaps executive session might be most appropriate initially, and literally bring, if you will, an outline of what we think each specific objective should be in each area, and then make sure that the committee feels comfortable with that approach, make sure that the committee feels we are on the right track, because the first rule of negotiation is you have to know what you want and we need to know very specifically what it is we want and what we think will produce the best results for more open agricultural markets around the world.
I think this committee's support of a detailed agenda will be very important. I don't expect you to sign on to an agenda before we come back to you with very specific goals and objectives. Then I think we would very much like to engage the committee, frankly, in a tactical discussion of how best to achieve those goals and objectives.
The issue of single undertaking plays into this tactical objective in the following respect: Before we will agree to the notion of a single undertaking, I think it is very important we know what the full scope of the negotiating agendas. We want to always be sure that there is enough play on the table at any given point in time so as to maximize our progress in agriculture. That is absolutely a goal.
Page 28 PREV PAGE TOP OF DOC But consider for a moment the example of the Uruguay Round where almost 8 years elapsed from beginning to end, during which there was no global agricultural liberalization because every single issue, however minor and untradeable for agriculture, had to be resolved before agriculture could be announced.
I don't think we want to get in that situation again. So I think once we know our agenda in agriculture and the full scope of what we think will be on the table, we will want to also engage the committee in a tactical discussion on the question of single undertaking and how best to achieve our goals in agriculture.
We keep an open mind on the question of single undertaking, but I don't want to commit to a process before I know what the full agenda is.
Mr. STENHOLM. I can't argue with that. One of the things that I hope we can avoid this time, and that we can't avoid after the last negotiations, and this is speaking from a congressional standpoint, the 199596 farm bill was passed without giving any serious thought to the boxes, to what others are doing, to any of these things. As we all know, it was for a 20 seconds review of history, this committee didn't write that farm bill either. It was written on philosophical grounds that ignored these boxes and the questions that the chairman asked today, which I think are very relevant and need to be considered, and the Congress needs to consider the answer to that question as we decide what to do to continue to help our farmers work our way through the disaster that we now find ourselves in. We have got to look not only at the current problem, but we have to look at how it fits with the negotiating strategy we are going to be taking, which you have in fact very eloquently pointed out something of which I believe I speak for every man and woman on this committee, that we will stand ready to work shoulder to shoulder with you in Wisconsin in which we have never done in the past, because we have not been allowed to. That is I guess the final point, why you do get the accolades from this committee, why you did get from this committee the team that I am talking to now, when you brought the accession agreement for China. We all, bipartisanly, kept looking for the hook as to what is wrong with this. We haven't found it yet. But we have got to find ways to work ourselves through some of these difficult exterior problems that we have got, and the best way to do that is to keep the team that you have assembled, that you have working with each of you here today, and to find ways to work with this committee in a bipartisan way.
Page 29 PREV PAGE TOP OF DOC I know without even having to be said, this committee is going to be extremely interested in working with you every step of the way in sending the right message to those you are negotiating with that this round is going to be different.
Again, just for rhetorical comment, I would point out to my colleagues that unless we can find a way, working with the administration, to give you the negotiating authority, it will be very difficult to achieve in 3 years that which you have set out to do. It will be very difficult. And if that is true, it is going to have some very negative effects on American agriculture. Therefore, it is up to us to find ways to do this, and we look forward to working with you.
Thank you all for being here this morning.
Mr. BARRETT [presiding]. Chairman Combest has advised we will try to keep the hearing going rather than break at this point. So those of you that are still here need to be advised that the vote is on the rule on the Transportation appropriations bill.
Madam Ambassador, I also want to add my compliments to those that have been already expressed. I think you, along with Peter Scher, have done an amazing job, an extraordinary job. I recall, Mr. Stenholm referred to the briefing and Mr. Combest referred to several briefings. I recall the briefing that you provided the committee on the China accession to the WTO. If you recall specifically one of the questions that was asked, what did you have to give up, what did we give up, for you to negotiate to this agreement? And your answer was absolutely nothing, zero, which made an enormous impression on a lot of people. So thank you very much for what you folks have done and what you will continue to do.
Ms. BARSHEFSKY. You are very kind to say it, but I want to underscore, I think probably the most important point is that the China agriculture negotiation was absolutely a 100 percent team effort between USDA and USTR. Our teams, Peter, Gus, Rich, everybody, Isi , were living in China a lot more than they were living here. We took not a single step without USDA, and vice versa. This has been a totally coordinated effort. Dan and I spent many, many, many hours on the phone on this to make sure we were always on the right track, double-checking, rechecking, because we have to do this accession right. It is too big, it is too important, it will set precedents for other countries like Russia, Ukraine, other countries whose accessions are also pending. We have to know it lays a solid foundation for the next round.
Page 30 PREV PAGE TOP OF DOC So we have worked very, very hard, both Dan and I, to make sure there is no daylight between USTR and USDA on this issue.
I think that that kind of activity really does produce results. So I just wanted to be sure that you and the committee were fully aware of this.
Mr. BARRETT. The speed of the leader is the speed of the gang. It is too bad it couldn't have been concluded at that point.
Ms. BARSHEFSKY. I think in the not too distant future, I hope.
Mr. BARRETT. I must run, but, Mr. Secretary, I am concerned about genetically modified foods. Did you see the current copy of The Economist? Great front page.
Secretary GLICKMAN. Both the editorial and the article are quite comprehensive, and some of the best analysis I have read in a long time on this.
Mr. BARRETT. I am concerned about what is happening in Britain and now spreading into Europe. I believe that the Department'S Biotechnology Advisory Board is going to be composed of 25 individuals.
Secretary GLICKMAN. At least 26 I think. That is in the process of going through review right now. That will also include government representatives like USTR.
Mr. BARRETT. I am concerned it not be filled up with some of the sustainable agriculturists, the environmentalists, Greenpeace, et cetera. Can you give me some assurance you are going to have some scientifically-based individuals?
Secretary GLICKMAN. If the committee is not viewed as fair and impartial, then it will have no value. So it is our goal to make sure that the composition of scientists, of people in agri-business, farmers and ranchers, have a heavy component in this process. You do need to have people involved in other perspectives, whether they come from the social science perspective or other areas as well. But our goal is to make it fair and balanced.
Page 31 PREV PAGE TOP OF DOC Mr. BARRETT. Have you considered bringing on someone from the National Institutes of Health?
Secretary GLICKMAN. It is possible. I don't know. OSTP will be there from the White House, Office of Science and Technology Policy.
Mr. BARRETT. Thank you, Dan. Thank you, Mr. Secretary.
The CHAIRMAN. Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman. I would like to add my comments to those of Chairman Combest in terms of the work that you have done, all four of you, and certainly on behalf of American agriculture, you are owed a deep debt of gratitude. I would like to thank at least two of the members there for coming and dancing with Lina and Tina and participating in some of the activities in southwestern Minnesota that have brought your work right out into the countryside and let people know the caliber of individuals that are representing us in the world marketplace.
Secretary GLICKMAN. I hope for the full record you will let people know who Lina and Tina are.
Mr. MINGE. They have some photographs with you that I know they are very proud of. I am not sure if you are.
I would like to turn to another dimension of this, and that is the problem of currency fluctuations. We have seen here in the last several years a strong American dollar that has emerged, and it is almost like placing a discount on the prices that American farmers hope they would receive in the international marketplace because relative to the other major exporting countries, for the commodities that are important for much of the Midwest, we are 10, 15, 20, maybe even 30 percent above them in our relative currency values compared to where we may have been a decade or more ago.
That is not to say that this will always be a strong dollar and a weak rial or Canadian dollar, whatever it might be, but I certainly think it is something that haunts us today.
Page 32 PREV PAGE TOP OF DOC I would like to ask first, is there anything that you see that we can add to our agenda that would address the currency problem? And if we can't add it on the international agenda, how can we work together to make sure on the domestic side we recognize that problem?
The second thing I would like to bring up is this question of surpluses that we have internationally relative to demand. I certainly agree that we have excellent, tremendous in fact, export opportunities, and that we are a very low cost producer. But at the same time, I see that when demand slips or when additional production is brought on line elsewhere in the world, the price is highly volatile and we seem to have a high elasticity of price and the consequences that our farmers may be selling more, but if they are not making a profit on what they are selling, it is sort of a hollow victory. It is almost as it if they would be better off if they are losing something on every bushel they sell.
As much as trade is our objective, it is not our sole objective. I would say our bottom line objective is being able to support ourselves on the farms so as we enjoy these trade opportunities, we also enjoy a reasonable standard of living. So it is these two questions about currency and in dealing with the problems of surplus and volatility.
I would ask both you, Mr. Secretary, and you, Ms. Barshefsky, if you could comment on that.
Ms. BARSHEFSKY. If I might just start by passing the buck a tiny bit on the issue of currency fluctuation. It has been administration policy from day one that issues with respect to currency fluctuation and exchange rates not be addressed by other agencies, apart from the Treasury Department or the President, and that position has been rigorously enforced, if you will, and appreciated by those of us in the Cabinet, because even offhand comments can move markets and create situations that one might wish to avoid.
Certainly I think that the currency fluctuation problem is one that has been brought to our attention and to the Treasury Department's attention by a number of Members of Congress, both in the House and in the Senate, because of concerns that fluctuations can, for example, erode the value of tariff concessions previously made, and the example often used is the case of Canada, where the situation has from time to time been acute.
Page 33 PREV PAGE TOP OF DOC But I believe it is accurate to say it has been the policies expressed by Secretary Rubin that currency fluctuations are a function of the market, and that intervention in that area would probably produce more harm than good. But I would be pleased to pass your remarks on to the Secretary of the Treasury. I don't believe that I am comfortable in going further than what I just said on that issue.
Mr. MINGE. I would just like to reemphasize that and point out from the reading that I have done in agricultural literature, it appears that Brazil can now hope to show a profit or can produce soybeans at $4 a bushel, and they are considering bringing hundreds of thousands of additional acres of land into production, and what does this do to our opportunities where we believe ourselves to be the lowest cost producer, and especially if they are using chemicals or if they don't have to observe some environmental and conservation practices that we think are important to protect the quality of water in our country.
Secretary GLICKMAN. I would say several things. One, that is the reason we have had counter cyclical farm bills in the past. You try to provide some cushion when things get tough. In fact, I think Congress has recognized that. Even in the 1996 farm bill, you provided a counter cyclical cushion in disaster assistance last October, not part of the farm bill. It was separately provided, and Mr. Combest said you may be considering something else this year to deal with that. But that is one way of dealing with that issue.
We no longer as part of domestic farm policy have supply management. It is hard to do anyway with the world being such a massive place. You would have to get everybody cooperating with you to have a market impact. That used to be a tool available to us, but in a globalized economy where other people are producing, it is very difficult to do.
I do agree that in a globalized economy with fewer trade barriers there are great opportunities, but it also creates opportunities in more volatile markets too. Volatility can be a curse as well as an opportunity. If you are not very well capitalized, volatility is sometimes not an appreciated situationwhereas stability is more appreciated. Of course, our previous farm bills were based upon stability and certainty rather than volatility.
Page 34 PREV PAGE TOP OF DOC But I would have to say this, we have used our GSM programs to record levels. We are at record levels of world food aid, 10 million metric tons this year versus 3 million metric tons last year. We still have some tools available and we are going to use all we can.
Mr. MINGE. I appreciate that, and I would close by saying the impact on the beginning farmers, the younger farmers, is the most dramatic, because their capitalization does not give them the strengths typically to withstand the volatility that we have experienced here in the last 3 or 4 years.
Ms. BARSHEFSKY. If I might, with the chairman's permission, just respond for one moment on your question of surplus, just in the following sense. One of the reasons we are focusing very heavily on the elimination of export subsidies is that export subsidies, as you know, increase production when otherwise production would have been non-economic, and, because of that, exerts a price depressant effect on every ton sold in global markets, particularly with respect to commodity products and fungible goods. So the elimination of export subsidies, elimination of trade distorting domestic supports where supports are tied specifically to production, I think will help, if not eliminate, at least mitigate the question of overcapacity that exists right now, that, coupled with increased market access opportunities, whether in China or elsewhere, we hope will help to begin to alleviate the problem of surplus capacity.
The CHAIRMAN. The gentleman's time has expired. Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman, for holding this hearing, and to Secretary Glickman and Ambassador Barshefsky, I add my praise for your attentiveness to this committee and to us as members, whichever side of the aisle we are on, on important issues that are important to America.
Mr. Secretary, you have spoken out publicly many times. I would certainly appreciate your comments in regard to the set-asides, if you could make that point out there in rural America, because many of our constituents think that is a real easy answer, and I don't think it is an easy answer. I agree with you in this world it will not work probably again. The more you get that message out, the easier it will be for us to discuss other opportunities.
Page 35 PREV PAGE TOP OF DOC Secretary GLICKMAN. The only way set-asides work in a globalized world is if everybody participates, and we know
Mr. EWING. We are pretty sure that will not happen.
Secretary GLICKMAN. That is pretty sure not to happen.
Mr. EWING. Ambassador Barshefsky, you are familiar with the 70 different agricultural organizations that are part of the Seattle Round Agricultural Committee. What is your feeling about their suggestions for that round?
Ms. BARSHEFSKY. I think they have made a number of very good and very thoughtful suggestions. Indeed we have a meeting with their representatives this afternoon to go through some of the papers that they have provided and some of the ideas that they have provided. I think by and large, their suggestions are very much in line with our own thinking, and we think it is extremely important that the agricultural groups, the various commodity groups and so on, try and formulate a common position. This has also, as you know, not always been the case, leading to negotiators that are seeking goals, not necessarily full in tune with what farmers and ranchers believe would be in their best interests.
So we think this is a very positive development, and, as I say, we happen to be meeting with them this afternoon.
Mr. EWING. I am prepared to introduce a resolution codifying, it is not of course binding, what they are suggesting, and would appreciate any input you could have after your meeting to see that maybe we are all on the same page.
Ms. BARSHEFSKY. We would be delighted.
Mr. EWING. In an effort to move that forward.
Ms. BARSHEFSKY. We would be delighted to work with you.
Mr. EWING. Thank you. Do you think China is using some of the conflicts between us, the bombing and of course the espionage and the problems, to back away from the commitments they made here in Washington?
Page 36 PREV PAGE TOP OF DOC Ms. BARSHEFSKY. No. I think it is too early to say that China is backing away to any extent with respect to those commitments. I think certainly the political atmosphere between the two countries remains strained, although I do think it was quite significant that China did publish large parts of the Pickering Commission's statement with respect to the accidental bombing of the Chinese embassy in Belgrade. I think it is significant they also provided an oral summary of the Pickering explanation, which was quite thorough and quite accurate. While China has not fully accepted the explanation, it has also indicated that it wishes to continue talking.
So I think we have seen some improvement in the rhetoric, some improvement in attitude. I do believe that at some point China will reengage. With respect to WTO those talks, as you know, stopped when the unfortunate incident happened. I do think they will reengage.
I don't think it will be too far away, although I can't say when that might be. I do think they have their own internal coordination yet to do with respect to the bombing incident, as well as with respect to other issues. Once we have reengaged with them, I think we will know the extent to which they are firmly adhering to the April agreement reached when premier Zhu Rongji was here. They certainly know we will not tolerate backsliding on the part of China. We wish, of course, to resolve the remaining issues that are outstanding. I don't think those will be too difficult to resolve, although I don't want to understate their complexity. They are still very complex. Then I think we will be able to move forward.
Mr. EWING. That is good news. I would say to you there are many of us in the Congress who support strongly bringing China into the WTO. If we can be a resource to help you in your job, you should be in touch with us. You should ask us to do what we can, and we will certainly pick up that load and do it.
Ms. BARSHEFSKY. I appreciate that.
Page 37 PREV PAGE TOP OF DOC Mr. EWING. There has been some talk that some of the food importing countries have suggested that sanctions should be on the table in the next round. What is your position on that and what to you think the administration's view would be if that were the case?
Ms. BARSHEFSKY. The issue arises as follows: There has been some discussion about whether greater discipline can be imposed with respect to sanctions, that is, unilateral sanctions, for reasons unrelated to trade on agricultural exports, for example. I think this is an issue we want to discuss first with the committee before we embarked on any generalized discussion with our trading partners.
I do think that the sanctions review generally the administration has had in place has been a very important point of administration policy. That is, I think it is very important that we not embark on policies that are effectively ''stop or I will shoot myself'' policies. You think we have to be very, very careful that when we take action, it is because of an extraordinary overriding national interest, which are not routine events, as you can imagine, or because we believe that those sanctions will produce the intended effect on the partner against which the sanctions are imposed.
But to sanction foreign countries for some temporary cathartic benefit, but for no real alteration in behavior, seems to us generally to be a counterproductive policy.
Mr. EWING. Thank you very much. My time has expired.
The CHAIRMAN. Mr. Pomeroy.
Mr. POMEROY. Mr. Chairman, thank you. I want to pursue your excellent question relative to the amber box treatment of the disaster bill passed last fall.
It seems to me as though we chase a very flawed policy when we embrace some kind of unilateral good conduct approach to trade, hoping others will follow. As the Ambassador notes, our support is 2 percent in terms of export support for agriculture, compared to 85 percent of the export subsidies nationwide; 2 percent U.S. subsidizing agriculture, 85 percent of the export subsidies backstopping the agricultural exports of our competitors.
Page 38 PREV PAGE TOP OF DOC Under these circumstances to have an after the fact disaster measure passed to help our farmers deemed to be some kind of price subsidy, export subsidy, because potentially over the long haul, this could be interpreted as support for farmers so maybe they will plant more wheat because they all know they will get bailed out in the fall. That is wrong. That is flawed logic. It is terrible. What is more, it has put us in a more difficult position, I believe, to move that kind of support in place in the future and have it treated differently, to have it treated green box treatment. What is more is we try to drive Europe into changing their export structure so that it is income support for people living on the farm as opposed to price subsidies which hammer our exports. This is precisely the way we want to drive them, and we have just deemed it to be amber, therefore, something that would be a problem.
I would urge the Department to work with USTR in revisiting that call. It strikes me as awful. I am very surprised by it.
Secretary GLICKMAN. The deputy and I were just talking about this issue, and we need toperhaps Joe might talk about it, but I want to look at it a little more in the decision-making process within the Department itself as to this nature. I agree with you, I think USTR should be involved in this effort as well, however they are not in the business of developing farm programs. This is every bit as much a key in terms of how they negotiate agriculture policy as anything else. The decision was sound practice and based upon the annex requirements of WTO, but I do think it is worth looking into it.
Mr. POMEROY. The mission of the Department was it was a close call. Let me tell you, in this day and age, the close call does not benefit the U.S. farmer.
Secretary GLICKMAN. Again, I think the decision was made on good policy, but I think it is a subject that needs to have a very thorough review at all levels within USDA and USTR.
Mr. POMEROY. There are several areas to cover. First, I have the greatest respect for Ambassador Barshefsky, Ambassador Scher, Secretary Glickman. Clearly, I think your negotiating style is manifested in the terms of the China accession to the WTO. Quite frankly, the thing that it has given North Dakota agriculture such heartache is the terms of the Canadian Free Trade Agreement embodied in the North American Free Trade Agreement, which you basically inherited, you didn't negotiate. I think that the stark difference between the two shows that you all have done the job for U.S. agriculture. On the other hand, we still have a trade policy that embraces those earlier flawed agreements and is giving us all kinds of problems.
Page 39 PREV PAGE TOP OF DOC Mr. Secretary, you indicate that irrespective of what happens on trade, we need some kind of safety net for farmers. I would like you to quickly respond to Chairman Lugar's suggestion that crop insurance reform be basically funneled into additional AMTA support. Forget about structural improvements to crop improvements.
Secretary GLICKMAN. I haven't seen the details of his particular proposal, so I don't want to characterize it with a broad brush. I don't think his proposal represents the fundamental structural change to farmers and ranchers' problems that are needed. It may address one issue of trying to improve the crop insurance program, but I don't think it is a fundamental answer.
Mr. POMEROY. Actually, I think it isn't even an attempt to address crop insurance, just more income support out there for a brief period of time.
Secretary GLICKMAN. It is trying to address risk management, and encouraging farmers to take advantage of risk management tools. But it is an incremental solution.
Mr. POMEROY. The Department is four square behind additional improvements to crop insurance?
Secretary GLICKMAN. We are.
Mr. POMEROY. Moving on, you indicate full use of food aid programs. I would suggest that as we look at the awful horrors in Kosovo with literally an entire growing season blown away by Milosevic, there will be substantial food aid, and Congressman Moran and I, and Smith and others, would be very interested in dry edible bean assistance into Kosovo.
Secretary GLICKMAN. I would say that we have actively engagedthat we are providing about 15,000 tons a month into the region, and we will increase that if the logistics are there to do it and we are working with AID. Gus Schumacher has been actively engaged in the interagency effort. We have the food.
Page 40 PREV PAGE TOP OF DOC Now that the war is over, it may provide us greater opportunities to provide aid in the place that we couldn't provide beforehand. So we will continue to push that forward.
Mr. POMEROY. My time is rapidly running out.
I would just note, and you don't need to respond, U.S. barley looks like planting is going to be down about 25 percent at least; this raises the prospect we are going to have subsidized European barley imports into this country at a time when our markets are so closed and their subsidies so pervasive, supporting their export product, that really is an intolerable condition and one that I hope you would respond to.
Ms. BARSHEFSKY. If I might just say, you will recall that we had a barley shipment problem to California.
Mr. POMEROY. Yes, ma'am.
Ms. BARSHEFSKY. And we and USDA got on it right away. Europe stopped. We are watching this very closely because we are concerned that Europe not begin to redirect barley here.
Mr. POMEROY. Great.
The final comment I would have involves the agreement that the administration was able to extract from Canada regarding stated intentions on their wheat exports into our country. As the marketing year comes to a close, it appears as though they have blown right through what they projected as export limits, exceeding in fact, in the case of wheat, by 25 percent, exceeding the durum projection about 40 percent, this wheat pouring into our country at a time when our farmers can't haul wheat to the elevator and get their price of production.
So I think it clearly raises the prospect that there is something funny going on within the Canadian Wheat Board and raises to an urgent imperative this effort to get transparency in terms of how they are pricing.
Page 41 PREV PAGE TOP OF DOC Ms. BARSHEFSKY. If I might just take one moment to respond if I could.
Mr. POMEROY. That is fine.
Ms. BARSHEFSKY. I do think actually the pace of other spring wheat imports continues to be within the projections. Barley continues to be within the projections. Our problem is on durum. Durum looks to us to be certainly ahead of the projections.
Now, the Canadians told us they were going to reduce their acreage devoted to durum production by 30 percent in the coming marketing year. Of course, the marketing year ends in July in the coming marketing year, and we are going to watch that closely. I did just recently see the Canadian trade minister; we went over the numbers indicating that we were very, very concerned about the durum situation.
In addition, USDA and Customs are now, as you know, finalizing the computer programming that will allow Customs to provide both value and pricing data on individual shipments of Canadian wheat to the United States. And I mean, for the first time, once that computer reprogramming has been done, we will be able to more closely analyze on a transaction-by-transaction basis the pricing practices of the Canadian Wheat Board.
And I think with those data, we will be able to move forward on the problem more vigorously.
Mr. POMEROY. I think that is very, very important. On the other hand, I hope there is a very vigorous discussion because of the way they blew through the projection.
The. CHAIRMAN. The gentleman's time has expired.
Mr. SMITH. Mr. Chairman. Thank you for holding the meeting. Witnesses, thank you for being here.
Page 42 PREV PAGE TOP OF DOC Following up on Mr. Pomeroy's dry edible beans, the problem with the auctioning in Mexico, and especially on black navy beans, and to date the delay of the auction has cost over $2 million. Are you doing something about it?
Secretary GLICKMAN. I think Gus is aware of this.
Mr. SCHUMACHER. I have been working on thisif I may, Mr. Secretary, I have been working with him; we discussed this with you directly. We went down to Mexico; the deputy and I raised it. I called him yesterday. I think there is going to be some movement. I am going to call them back and hope to get movement on Friday. I will call you back right after that, Mr. Smith, and other Congressmen and Senators interested in that important TR concern.
Mr. SMITH. Sort of another parochial question that affects a lot of us is lambAustralian, New Zealand, it was about 9 months ago that the 201 investigation was filed. Is the administration going to do something, and if so, when?
Ms. BARSHEFSKY. The administration is looking at a variety of remedy options, as you know. Although the International Trade Commission ruled unanimously there was a threat of future injury, their remedy recommendations split with three commissioners on one remedy proposal, two on another, a third on yet another.
So the administration has been looking at that range of options, looking at additional options, and I would expect the President to make a decision shortly.
Mr. SMITH. Shortly, as in the next couple of weeks, you think?
Ms. BARSHEFSKY. Oh, yes, certainly.
Mr. SMITH. Let me move into the retaliation. In terms of maybe our most-looked-at experience with bananas, the retaliation of those limiting products that come in, have we traced how effective that retaliation is in terms of other countries' selling the same or substitute products and then they just import it from the offending countries?
Page 43 PREV PAGE TOP OF DOC Have we looked at the increased price that our consumers pay because of this retaliation? It seems to me that we need to consider other avenues, other areas to enforce WTO agreements.
Ms. BARSHEFSKY. Let me say first off that, as you know, we tried for 20 months to engage the European Commission in a negotiated resolution of bananas. We were urging the negotiated solution despite the fact
Mr. SMITH. And we don't even grow many bananas in this country, so how much does it impose on our consumers, has the export of those products that we have embargoed really reduced their total exports?
Ms. BARSHEFSKY. Let me say, in any event, we have tried to negotiate a solution. When we put together the retaliation list, we made sure of two things, first off, that there would be adequately available domestic and other imported sources for any product put on the retaliation list so that, for example, if Europe was the sole supplier of
Mr. SMITH. I hate to interrupt, because I appreciate what you are saying, but has it increased the price to our consumers of those products? Do we know that or not?
Ms. BARSHEFSKY. I don't believe we know that, but certainly not that we have heard by way of letter, for example.
Mr. SMITH. Do we know whether or not the exporting countries have reduced their exports of that list product?
Ms. BARSHEFSKY. Yes, absolutely. Because the duties imposed are 100 percent, I think further proof of the fact that the retaliation has bitten, is that for the first time the European Commission has actually put forward proposals to us as a basis for resolving the banana dispute. They had previously refused for over 20 months to do that. So plainly the retaliation is having some bite. And we will be discussing the European's proposals with them shortly.
Page 44 PREV PAGE TOP OF DOC Mr. SMITH. I see Elwood Kirkpatrick, a friend of the Michigan dairy farmers, and he is going to be on the next panel to testify. But export subsidies are very common in the dairy trade and the current WTO agreement permits almost 60 percent of the dairy world trade to be subsidized on a milk equivalent basis. The EU accounts for 72 percent of the subsidies; we account for about 3 percent.
Are the dairy and the dairy subsidies going to be a significant part of the next round?
Ms. BARSHESKY. Absolutely, yes.
Mr. SMITH. Let me ask a question that I think I might have a different view than some of the members that have spoken on the committee, and, that is, individual subsidies by a government to their farmers to make sure their farmers stay in business. Which, to me, ultimately puts our farmers at a competitive disadvantage if we don't do the same, or some substitute subsidy to farmers; namely, if a country gives those farmers free land so that they don't have to pay off the principal and interest, so that they don't have to pay property taxes, it allows that farmer in that country to produce and sell his products at a lesser cost simply because of the input.
If another country has an AMTA agreement that they totally pay their farmers AMTA-type payments, and it is more than ours, then eventually we are going to have to protest, because these kinds of subsidies are ultimately export subsidies.
And as we review Europe and the history of Europe and their determined effort to keep their agriculture producing in their countries, it is obvious already they are going to do everything they can from end runs to anything else. But if we discount and don't take into consideration direct subsidies of free land, free fuel, whatever, big rebates on their taxes, it seems to me that ultimately we are leaving the gate open for these other countries to subsidize their farmers in a way that ultimately is going to be a competitive disadvantage for our farmers.
Page 45 PREV PAGE TOP OF DOC Secretary GLICKMAN. I don't think any country in the world is going to get out of the business of providing help to their farmers.
Mr. SMITH. Right, and no country is not going to subsidize, but should we consider them in our evaluation of export subsidies?
Secretary GLICKMAN. Here is the problem. If you look at the panoply of ways we have to help our own farmers, we have a myriad of things that we do that theoretically somebody could make a tangential argument that relates to our total production and, therefore, our ability to export. So, if a farmer has clean air, he may be able to produce better yield; and therefore, if we have better clean air policies, is that a subsidy? It gets to the point of ridiculousness.
So what you have to do is focus on those things that directly affect the ability to export overseas at reduced prices so that you compete directly and unfairly in that process. And I mean, this is something that we and Charlene are going to work on as we go to the next round. You can go so far that nobody would ever agree to restricting the sovereign right of a country.
Mr. SMITH. Right. But, Mr. Secretary, still, Europe artificially setting high prices that are paid to the farmers, using tax dollars and then having export subsidies is not significantly different than having that low price and adding a supplemental payment to that farmer.
Secretary GLICKMAN. I think it is significantly different, Mr. Smith.
Mr. SMITH. It still is going to be the same effect as the exports.
Secretary GLICKMAN. I would disagree with you there.
Mr. SMITH. All right.
Page 46 PREV PAGE TOP OF DOC Thanks, Mr. Chairman.
The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. Well, I want to add my compliments and appreciation for both of the teams, not only their scope and their compliments, but their style as well. I was privileged, when our ambassador for trade was in China, to get an appreciation for her intensity and her involvement in making sure that issues there were negotiated.
If I understand, agriculture indeed is one of the three agenda items we know will be there, but it is not yet determined what, how comprehensive we may be in agriculture or if we may indeed add other sectors to that. Those are still open questions, I gather; is that correct?
Ms. BARSHEFSKY. Certainly, the close of the Uruguay Round mandated that agriculture and services negotiations would resume at the end of this year.
Mrs. CLAYTON. Okay.
Ms. BARSHEFSKY. We are looking with other trading partners to see what else might be added to round out that agenda more fully. Some have suggested industrial tariff reductions overall; some have suggested nontariff barriers. There are range of issues that are looked at, some of which may be fully ripe for negotiation, to throw into the pot with agriculture and services, some of which may just require a forward work plan and negotiation at some future date. And all of that is in the process of being sorted out now.
Mrs. CLAYTON. Well, I guess I wanted you to comment perhaps on vulnerability of having several sectors to go to at the same time. If there needs to be, you know, winners and losers or trading between sectors, what is your preference in that?
Ms. BARSHEFSKY. Well, in any negotiation, you always have to have enough on the table to trade. And certainly, that will be acutely the case for agriculture, which is a difficult sector. Many countries, not just Europe but I am thinking also Japan, Korea, are very resistant to change in agricultural trade policy; and so there does need to be enough on the table in other areas as well to allow governments to move forward and make necessary changes in agriculture.
Page 47 PREV PAGE TOP OF DOC Our only concern is that the overall negotiating agenda not be so enormous, so huge, involving every WTO agreement negotiated previously, that we end up with another 10-year round or 8-year round. Our farmers can't afford to have no progress on market access in the intervening years. We need a round that is shorter in time, that is manageable in scope, but still allows us to create an environment in which maximum movement can be made by all countries on agriculture.
Mrs. CLAYTON. I just want to make a comment about domestic support, and I am evolving, as I understand it, but I certainly have an appreciation of the impact that trade has on our farmers' ability to be profitable and to grow. Indeed, one-fourth of your potential of farming is your market outside the United States, obviously that is enormous. But nevertheless, there is a relationship between your domestic policies and your opportunity not only in subsidy, but into the profitability.
And part of the current policy impact is that we are indeed reducing a lot of our commodities. We are growing from pillar to pillar and post to post, as they say, and as a result, our farmers are not intentionally encouraging them to overproduce, but they have enormous inventory; and at the same time, they have a price suppression nationwide in The Economist in the other countries, so they are not able to buy them.
So help me understand how in that kind of scenario where either by a lack of initiative or anticipation of the markets in economywe are now stuck with large volumes of inventory that me must give away, the Government must buy and give away; and I encourage that because I want my farmers to be profitable. But as you begin to think about public policy, they have to work hand in hand.
Trade gives us the opportunity and farmers are looking forward to that; and we want them to have all of the market we can. But at the same time, if that new stage where they are playing is not fully understood, and we as a government are not able to support them in that transition, and if we support them too much, it is counted as a subsidyno one thought that theI am not even sure the AMTA payments were ever thought to be a subsidy; they were thought to be a transitional payment until people got into the free market, because this worldwide economy was now the place where farmers could grow and prosper. But in the interim, we have this world situation that we have to adjust.
Page 48 PREV PAGE TOP OF DOC So what should we be doing as policymakers to make that balance as we go, because I don't see any way out other than to give morewe can call it whatever we want, ''disaster payments,'' whatever. We are paying more now through the Government than we have ever paid in agriculture, and yet agriculture, the Government is supposed to be out of agriculture. Hey, look at the monies we are paying, and yet our farmers are suffering. So it can't just be money. There must be some structural relationship that we must anticipate and work hand in hand; and I wouldeither one of you, I would appreciate an answer.
Secretary GLICKMAN. This is a very good question. It is a very deep question, and it relates to the structure of agriculture over the last few decades. It also relates to trade and some structural questions of productivity and technology, which have allowed people to produce a lot more things with a lot less input. It has created more production, there is a limit to what the world can absorb. In some sense, we have been hoisted on our own petard by our productivity both here and around the world.
It does lead one to believe that you have a pretty significant domestic safety net to cope with when times in the world aren't cooperative. That is one of the things that we continually work together on.
The other thing it shows is that farmers and ranchers must be dealing more than just the production of bulk commodities, because there is just not enough income alone in the production of the raw commodities. They must be participating in the value adding up of those commodities, because that is where the profit is to be made in this changed world. And that is one of the reasons why we have to have open trade, to be able to get these processed and value-added commodities into world markets.
Mrs. CLAYTON. Ambassador.
Ms. BARSHEFSKY. I don't think I have much to add, except to say that I do think reform of the agricultural policies of the countries that tend to contribute most heavily to overproductionEurope and to some extent in Asia, Korea, for examplewould be a helpful addition to what Dan Glickman has just indicated.
Page 49 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman. And I too want to join my colleagues in commending both the USDA and certainly USTR and Ambassador Barshefsky and Mr. Scher for the great work you have done, not only on behalf of all of agriculture, but particularly in California agriculture.
Ms. Barshefsky, I would be interested, in light of the President's comments when he was in Europe in the last couple of days, where he alluded to a process where we would try to engage in some talks prior to a WTO decision in order to try to depoliticize some of the issues andparticularly related to the beef hormone and the bananas is what he alluded to.
But I am a little bit unclear in terms of what should we expect as we encounter additional problems related primarily to biotechnology and GMO product acceptance there. Is thata lot that is involved, embracing the WTO process and the negotiations, is to ensure that these issues would be resolved around scientific grounds. And should we be concerned that what the President's committing to could actually interject a greater degree of politics that could be of some concern to U.S. agriculture?
Ms. BARSHEFSKY. I actually think just the opposite, Mr. Dooley.
What the President was making clear is that the depoliticalization that has to occur must occur on the European side. You have on the biotech side in Europe an approval process that is completely nonfunctional. It has broken down, almost irreparably so. It is highly politicized, nontransparent, inaccessible. Even basics like data requirements are not clear and are not fully spelled out at the beginning of the process. No time limit set by Europe's own regulations has ever been met in consideration of biotechnology products. Decisions slated for 90 days are now taking 18 months.
Page 50 PREV PAGE TOP OF DOC So the President's comments, most particularly, were geared toward letting Europe know that consumer confidence, credibility of the food supply and food safety will never come about in Europe without an approval process that is nonpolitical, science-based, fully transparent; and that is not the system that currently exists in Europe.
One of the reasons we were very insistent that biotechnology be in the trans-Atlantic economic partnership was to begin to get a grip on the politicized nature of Europe's process and to try and turn that around through various means. I think it will take some time, but I think the President is most deeply concerned that science be the basis for decisionmaking, and in that way, regaining of consumer confidence in the safety of European food supply.
Mr. DOOLEY. Did you, Dan, want to answer?
Secretary GLICKMAN. No.
Mr. DOOLEY. Just on a more parochial issue, some of the fresh fruit growers in the Central Valley had been following with interest some of the issues related to going to the CODEX standard on harmonization, and especially with respect specifically in Taiwan, there was an understanding that we were going to be implementing that at the end of this year. And we have heard that Taiwan has made a unilateral decision to implement this maybe as early as July 1 of this year, which poses some potential vulnerability to U.S. producers that might have been using some products that might not have been covered under the CODEX standards in this production year.
Obviously, their interests would be that we would be consistent with the end of this year original agreement there, and I was interested if you have been involved in that.
Ms. BARSHEFSKY. Yes, we have. We and USDA have worked quite closely together on this issue, as well as with the Taiwanese, so that U.S. exports of food and vegetables will not be affected. And USDA just returned from meetings in Taiwan; I think some progress was made there. Theythe Taiwans have agreed to accept exports that meet the CODEX standards, where Taiwan doesn't have the standard.
Page 51 PREV PAGE TOP OF DOC Now, that is OK as far as it goes, but it doesn't go far enough. I think USDA has now proposed that Taiwan accept products that meet U.S. standards in cases where neither a Taiwan nor CODEX standard exists. That issue will be discussed further.
Some of our people and USDA folks will be seeing the Taiwanese at the APEC meetings next week, and this will be discussed further.
Mr. DOOLEY. Justand this is more of a general comment than specific, and it is probably not necessarily consistent with the majority of the members of the committee, but Mr. Smith mentioned the issue of the lamb imports; and I appreciated your comments in terms that there were different remedies that were being considered.
My interest iswhen we have, as we move into this next round of WTO, and we have some countries which are clearly allies of ours in the United States in terms of reducing the level of export subsidiesthat we sometimes seem to challenge some of our friends almost as aggressively, if not more so, than some of the folks that are most difficult. And in case of lamb, I have been made aware of a proposal that I think New Zealand and Australia are floating, that rather than placing quotas on their importation of product in the United States is there an alternative that they can invest significant sums of money to on a promotional program to increase the consumption of lamb in the United States, which would have maybe a similar financial benefit to U.S. producers and at the same time, you know, maintain a relationship with a very strong ally of the United States as we move into this WTO agreement. I am interested if USDA or USTR was giving serious consideration to this type of approach.
Ms. BARSHEFSKY. Well, I think that it is fair to say that we have been giving consideration and are still giving consideration to a wide range of approaches, but I would make one general comment.
We have a situation here where private parties utilized U.S. trade laws, brought their case, and in a situation rather unusual for the International Trade Commission, received a unanimous determination in the affirmative with respect to the threat of future injury should lamb imports continue on their present trajectory.
Page 52 PREV PAGE TOP OF DOC And then, also, in an unusual situation, while the relief may have differed commissioner by commissioner, all six commissioners proposed that, in fact, relief be granted.
So on the one hand, there is no question that Australia and New Zealand are critical allies of the United States. And there is no question that the United States policy these past 6 1/2 years has been one substantially favoring free trade over any form of import protection.
But in this case, where domestic industry has decisively won the case that it brought, a case brought in an independent agency, not politicized, then I think it is incumbent on the administration to think carefully through the remedy options and to look out for the interests of American producers, particularly inasmuch as our trade laws don't contemplate public interest or national security waivers, but instead, are concerned about the health and vitality of our domestic industries.
Having said that, we have been taking quite some time on this decision which, as you may know, is long overdue now, because we were weighing what we believed the most appropriate and least trade restricting remedy would be.
Mr. DOOLEY. Just from a public policy standpoint, I just question whether or not we adopt a policy which will continue a trend and that doesn't result in increased consumption of a product, which we might embrace if we do embark on a quota-based approach to this.
The CHAIRMAN. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. And let me associate myself with those who have already said thank you for holding these hearings and thanks to the Secretary and the Ambassadors for their jobs and the tremendous team they have put together.
Let me also commend the administration for making what I think are some very inroads into this whole area of biotechnology and agriculture and making that an important focus during these negotiations. I think biotechnology holdscertainly bioengineered crops hold some tremendous potential for our farmers where they are disease, drought, cold and pest resistant. But they also hold some tremendous challenges as we look to the future of agriculture in this country and certainly around the world as we move to feed the world population.
Page 53 PREV PAGE TOP OF DOC But as you have already indicated, we have to change the attitude among some of our trading partners about these important advances in agriculture if we are going to crack those markets.
But let me take just a moment, if I may, and be a little more specific about the farmers in my State and in my district, because the Secretary has visited my district on a number of occasionsto thank you for that. It has very important to them. You met with the farmers.
And let me say that North Carolina is one of the most diversified agriculture States in the country. It ranks in the top five. And as you met with them, Mr. Secretary, I want to talk about one commodity for 1 minute, tobacco, because tobacco farmers and growersyou made a good-faith effort as you met with them to let them know you wanted to help them, and I thank you for that.
But with that said, there is some irrefutable evidence that the administration's tobacco policies have absolutely hurt our farmers and their communities, and tobacco farmers and quota holders have loss more than 35 percent of their income in the past 2 years just in that commodity.
There was a report put out in North Carolina in the last 2 weeks that the farmers' income in North Carolina is down $1 billion in the last year, and that is not all tobacco, it is pork, it is beef and the other commodities that we have talked about this morning. And the administration has said their fight is not with the farmer, but that they want to support the farmers and the quota holders.
And I want this morning to ask both of you to turn that rhetoric on our farmers into some action. And let me tell you how I would like for you to do that, because as we approach the new round of trade talks and we discuss the possibility of China becoming a part of the WTO, our farmers deserve to be represented at the table just like every other farmer, the declining U.S. consumption of tobacco, and we knew that was going to happen as a result of making sure that children don't have access to it, and I happen to be a big supporter of that, no question about that, but these ongoing wars certainly have had an impact on our farmers.
Page 54 PREV PAGE TOP OF DOC And let me say up front they pay their fair share of taxes, and more in many cases, and we now have an obligation, I think, to make sure they have access to the international markets, just like our pork producers, our beef producers, our soybeans, our wheat, et cetera, et cetera.
And as trade talks on agriculture proceed, let me ask you to do three things, if you will, No.1, honor the letter and spirit of the law and not go beyond the restrictions in current law regarding Government promotion of tobacco overseas. There are no restrictions on Government officials working to knock down trade barriers related to tobacco nor any other product.
No. 2, recognize that the future of U.S. tobacco farmers, if there is going to be a broad future, is really dependent on the international markets and that the administration has an obligation to help our farmers to remove unfair trade barriers around the world. I say that because there are a number of countries that I visited, and visited with their officials, who have monopolies set up just to protect their interests, because it is tremendous cash for those governments.
Three, ensure that tobacco farmers have fair access to the China market as a condition of U.S. support for China's induction into the WTO. For years, China has imposed some phoney phytosanitary restrictions on U.S. tobacco leaf, and these restrictions must be removed if our farmers are going to have any kind of decent access into that market.
And I would ask that you just comment briefly, if you would, on that. All we are asking is to be treated fairly just like we do all other commodities.
Secretary GLICKMAN. What I can comment on a little bit has to do with some of the class I and class II issues thatworking phase 1 and phase 2 issues, perhaps Gus might want to talk about that briefly; I really can't comment too much on the international trade issues as they affect tobacco.
Page 55 PREV PAGE TOP OF DOC Mr. SCHUMACHER. We are talking to many of your commissioners, of course. I have been down to North Carolina many times with your distinguished Commissioner Graham, and what we are going to try and simplify, as your commissioners send up their request for assistance, in implementing certainly phase 2, to make that as simple as possible working with our attorneys. And I will make sure, when we have those commissioners up, that we will be coordinating closely with you and other key Members of Congress interested in how this is going to be implemented. We want to be fair and simple to implement phase 2.
Mr. ETHERIDGE. Good. Thank you.
Ms. BARSHEFSKY. Let me just say with respect to the trade issues of course, we do not in any way hamper or prevent foreign governments from undertaking help measures that they deem appropriate with respect to tobacco products, but what we do demand is nondiscrimination; we don't want to be treated differently from everybody else. And that has been the basis on which we have proceeded, not just with China, but with Taiwan and many other countries around the world, that is, to remove the discriminatory aspects of the trade while not in any way impeding government views or activities with respect to health and safety issues.
Mr. ETHERIDGE. Fair enough. Thank you, Mr. Chairman. I yield back.
The CHAIRMAN. Thank you, Mr. Etheridge. The Ambassador and the Secretary need to try to leave at 12:15, which would be perfect, since we have three Members who have not questioned the witnesses. If we hold within that 5-minute period, we are going to get you out on time.
Mr. BALDACCI. Thank you very much, Mr. Chairman and Mr. Stenholm for holding these hearings and your leadership on these issues. I am going to sort of cut to the chase because I am not going to be the one to tell you what a great job you folks have been doing; because all politics is local, and the issues that are confronting Maine, in particular, have been left unresolved. And this is my third term in Washington.
Page 56 PREV PAGE TOP OF DOC We have had one particular issue on bulk easements which has been going through the WTO, and as you go towards those negotiations, I think it would be imperative to make sure that you expedite these actions, because if you or anybody else would like additional trade agreements to be established, I think we will only look to see how these ones aren't working very well; and presently for those Members who aren't familiar, the truckload of potatoes going north needs provincial and Federal support on the Canadian side, while we do not offer the same restrictions on our side.
And I would like to know what we are doing about the bulk easement issue and to see when we can expect some results about that. That is the first question.
Ms. BARSHEFSKY. Let me just say that the bulk easement question is complicated by the fact that each of the Canadian provinces applies the same discriminatory rules against each other as they apply against the United States. This has been one of the complicating factors in resolving this issue.
As you know, we reached a very comprehensive agricultural market access agreement with Canada. Potatoes was not resolved in that agreement, although both we and USDA tried mightily to do that. There was a meeting last week between the United States and the Canadian potato industry members, along with the governments, in trying to see if there is some way to pursue this and some of the other issues.
I would be happy to give you a fuller read-out of that meeting by the people who attended it.
Mr. BALDACCI. And I would appreciate that in a timely fashion.
The other issue is the discount rate with the Canadians. And while we understand monetary policies outside of GATT or NAFTA or any Canadian agreement, if there is any type of discussion with your negotiations when countries are deliberately maintaining a monetary policy which maintains a large discount rate for the advantages of trade, that we ought to have at least some mechanism that would review those monetary policies.
Page 57 PREV PAGE TOP OF DOC There are policies that we establish in our country evaluations, go between or below a certain floor, just to make sure that things areother communities are treated equally. And it just seems to me that there has been an active interest on the Canadian side to maintain a discount rate that has really been disproportionate for a very long period of time, and has a certain trade advantage to it that we don't have any policies to review to make sure that in fact there is not any influence being exerted in a way that does not sort of play by the same rules as it is being established. And I don't know what you can do about that, but I would suggest that you include that in your discussions.
The last issue is the fast track issue, and it has been raised by the chairman and the ranking member, and I think in the agricultural community there is a tremendous amount of support for moving on trade legislation. But I want to caution you and the leadership of this committee that it is not unanimous on this committee, and until some responses are given to the issues that have lain on your doorsteps for many years, I would be very reluctant to add any more horror stories to the number of horror stories that we already have.
Thank you very much, Mr. Chairman and Mr. Ranking Member. I yield back the balance of my time.
The CHAIRMAN. Thank you very much.
Mr. PETERSON. Thank you, Mr. Chairman. I apologize for not being able to be with you, but we have been in an interesting markup over at the Veterans' Committee, it went longer than we thought. I appreciate your holding this hearing, and I don't know exactly what has gone on before. But I just want to make a couple of points.
You know, we up in the northern part of my district continue to have terrible problems, to the point where I don't know what to do about it anymore.
I got a statistic yesterday. We have 5,500 farmers left up there, which is probably a third of what we had 10 years ago, and now they are telling me that 40 percent of them are or 2,500 are going to exist by September, they think. And I frankly, after analyzing this, lay a lot of the blame on our trade agreements; you know, we have gotten ourselves into a situation where these farmers are taking all the risk, have no downside protection, which is part of the problem with Freedom to Farm not having a safety net. But we just don't have any upside potential, and I really think it is getting into this world market, and the Europeans subsidizing and all that sort of thing.
Page 58 PREV PAGE TOP OF DOC So I just cannot support fast track under the way that we have done it in the past, because we have gotten burned. We have gotten burned in the GATT agreement, we got burned in NAFTA. And I think you have got and we have got significant problems passing fast track, because you have got a lot of opposition now from Members of Congress in agricultural districts, because we have gotten burned on these agreements.
And so my suggestion, and I tried to do this last year on an amendment towards the end of the session, was to
try to change the process within Congress. And I would again appeal to the people in the audience and others that are interested that this is a way that we can withmaybe break this impasse to elevate the Agriculture Committee in this process so that we have equal standing with the Ways and Means Committee.
I think this is a legitimate request, because trade has become, if not the most important, almost the most important thing to agriculture; and I really think that we need to be there at the table in a more significant way than we are now.
And if we can get thatand it can't just be window dressing; I think it needs to be a change in the rules of the House so that we are a part of the process and that we have that equal standing, and I, for myself, would like to see us go even further and have some kind of a veto power where you would come back to us with these agreements before you sign off on the final situation. And I am just responding, for my constituents, because they are very gun-shy of this whole situation because their back is up against the wall.
So I know you don't have a lot of control over that and Secretary Glickman doesn't, if we can get some support from outside, I think there is some support within the Congress, within the institution to look at that. I know the chairman of the Ways and Means Committee is not enamored with this, but there are other people high up in the committee that are not necessarily opposed, and it may be one way that we can get the fast track thing broken loose.
Page 59 PREV PAGE TOP OF DOC But I recognize that you have been trying to address these concerns. You have put a special person in place for agriculture, and we appreciate that. And I think you are doing a much better job than we were doing some years ago. But from my own point of view, don't think it is enough, and I would like to see us more involved. So I just throw that out again.
I am going to probably to make an attempt, if we ever have a vote on fast track, to make those changes, and I would welcome anybody out in the audience that is willing to work with us on that to contact some of us that are working on this.
So thank you for being with us today, and I appreciate everything you are doing and everything that the Department is doing. We know it is a tough job and that you are working hard on it. But it has really gotten to be a critical situation for these farmers in some parts of the country that are really up against the wall, and I don't have the answers. I am tired of going home and going to meetings and saying, you know, I don't know what the answer is; and if you know what it is, I would like you to tell me, because there is so much hurt going on out there that it is hard to even believe.
And there have been some responses, the Secretary has been good in listening to us and trying to respond, and there have been problems getting all of that accomplished, but it is not enough; and what is being talked about now in the Congress is not going to be enough. And I don't know exactly what we do. But we can't continue to make it worse; that is, I guess, my bottom line point.
So, again, thank you, Mr. Chairman, and thank you for being with us.
The CHAIRMAN. Ms. Stabenow.
Ms. STABENOW. Yes, thank you.
I appreciate very much these hearings. This is a very, very important topic to Michigan agriculture, as well as American agriculture. And I want to welcome, on the next panel, Elwood Kirkpatrick, the Michigan Milk Producers president. We are so pleased you are here representing the National Milk Producers Federation, and we appreciate your testimony.
Page 60 PREV PAGE TOP OF DOC Just a comment to follow-up on my colleague, because we all know that we have serious, serious issues on behalf of American farmers that they are addressing; and I am concerned that as we look at only two sectors we have a clear mandate to continue negotiations we have already talked about under the WTO, and one is agriculture.
But I am concerned that the director general of WTO has stated that agriculture cannot be allowed to become the predominant issue of the next round. And he added, we cannot give the impression the success or failure depends only on agricultural issues. And I guess as someone who hopes that we do have serious focus and a large focus on agricultural issues, I would like to know how comprehensive you believe the next round should be. And could you explain how agriculture could not be a main focus if there are relatively few other sectors that are included in the negotiations?
Ms. BARSHEFSKY. Let me just say that the comments made by the director general are not particularly relevant since he is no longer director general of the WTO. We are in the process, as you may know, of choosing a new director general.
I hope that will be sorted out in the not-too-distant future. Necessarily, agriculture will be a key focus on the next round. That is not simply the United States' position. It is a position of a group of agriculture exporting nations. It is the position of the Latin American countries. It is the position of the sub-Saharan African countries, all of which believe that agricultural trade distortion must be dealt with and must be dealt with effectively lest their own and our own comparative advantage can't be exercised fully in a more open market.
With respect to the comprehensiveness of a round, I think that we will work with the committee as we formulate a broad-based agenda. Certainly there will be more on the negotiating table than just agriculture and services; I would suspect probably industrial tariffs, nontariff barriers, some other areas that are fairly meaty will also be on the table. But we want to ensure at the end of the day that the round is sufficiently manageable that it can be concluded within a reasonable period of time, so that our farmers don't have to wait 8 or 10 years for relief through further market opening abroad, but instead can get enhanced benefits fairly early on.
Page 61 PREV PAGE TOP OF DOC Ms. STABENOW. One other question. I would first say that we don't have 8 or 10 years in agriculture.
Ms. BARSHEFSKY. Correct. I still agree with you on that.
Ms. STABENOW. Let me ask you, regarding enforcement, once we have these agreements in place, no one disagrees that the current dispute settlement mechanism is a significant improvement over the old GATT system; however, we still have many disputes, and our industries are using significant resources to combat circumvention and protectionism abroad.
What can be done to ensure that countries will abide by their commitments in the next WTO round?
Ms. BARSHEFSKY. Well, I think that the dispute settlement system has thus far actually been working very, very well. To put it another way, I would not use the current disputes with Europe on beef and on bananas as an indication that the system is broken. These are the only two cases in which the losing party has refused to comply, there is no other case, and there are over 180 pending and resolved; no other case in which a losing party in any country, any sector, has refused to comply with their obligations, including the United States.
I think what we see here with Europe is a continuation of perhaps a 30-year pattern. Europe has never complied with panel rulings, including under an old GATT system in the agricultural sector, owing in part to the political sensitivity to the sector and perhaps other factors. In the case of Europe, therefore, and bananas, we exercise our full rights to retaliate. And Europe is now indicating they may wish to come to the table to try and resolve the issue.
And in the case of beef, if the current situation is maintained, we will also retaliate against Europe, and that will probably hit roughly late July after all of the WTO arbitral processes on the amount of the retaliation are completed.
Page 62 PREV PAGE TOP OF DOC I do think, by and large, the system has worked very, very well to protect U.S. interests, its length, I don't think is undue, given the length of typical trade litigation in the United States. Certainly it has run, generally speaking, quite efficiently. There will be a few improvements in it that we will want to pursue this year, as well as in the next round, but I think, by and large, we have been very pleased with the way it has worked.
As I said in my testimony, however, if countries fail to comply with panel rulings, as in the case of Europe on bananas and beef, they will pay a heavy price; we will absolutely exercise our right to retaliate.
Secretary GLICKMAN. If I can just say, there are a few exampleswe, of course, mentioned the hormone case we won. Japan's varietal testing requirements we have won. Tomatoes we have won. Korea shelf-life requirements. Korea's onerous testing and inspection system. There are a variety of things that we have actually won in the agriculture field.
Ms. BARSHEFSKY. If I might say, apart from the agriculture field, of the 24 cases that we have brought and that have gone through the system, we have won 22 of 24. This is a tribute to the litigiousness of American society, I think.
Ms. STABENOW. Thank you.
The CHAIRMAN. Thank you, Ms. Stabenow.
Mr. Stenholm had a follow-up he would like to make, if you could bear with us.
Mr. STENHOLM. I just want to briefly say in comment to my colleague, Mr. Peterson, I wish he could have here to hear your earlier answer to my question, Ms. Barshefsky; I feel he would have felt a little bit better about the prospects of having the kind of process he wants, his constituency wants and we all want, and I believe we are going to get in a partnership with a Secretary and with this committee.
Page 63 PREV PAGE TOP OF DOC Also, in response to Mr. Dooley's question and your answer, yes, Australia and New Zealand are our friends. But when your friends increase by 50 percent the amount of product they are sending in at a time when your prices are going down, at a time currencies are changing, friends acknowledge that and do not do that which was done, which caused the ITC to unanimously make a nonpolitical decision.
And this is the kind of negotiation and the answer you gave to Mr. Dooley for which we are anxiously awaiting an answer from the President, so that we can get on with the future of that industry. But we have to recognize that reciprocity means reciprocity. And I am so glad to hear your answer to Ms. Stabenow, this is the kind of leadership that we have needed on behalf of American agriculture, to convince those who would use every available technique to benefit their producers legally, as well as illegally, now that we are beginning to call their hand.
That is why it is so important for us to move forward, give you the negotiating authority and realize these past mistakes, we can't undo those unless we negotiate a better deal. That is what you are here today to talk about and why I appreciate it.
Ms. BARSHEFSKY. Thank you.
The CHAIRMAN. Thank you both very much, all of you, and those who came with you. There may be some additional questions that others might have that we would submit. Thank you for the work you are doing and the time you took. It was a pleasure to have you here.
Ms. BARSHEFSKY. Thank you very much.
The CHAIRMAN. Now I would like to invite our second panel of witnesses to come to the table, Mr. Curtis Griffith who is a cotton producer from Morton, TX, and who is testifying on behalf of the National Cotton Council; Mr. Elwood Kirkpatrick, president of the Michigan Milk Producers Association, from Novi, MI, on behalf of the National Milk Producers Federation; Mr. Montgomery Winkler from Fillmore, CA, on behalf of Sunkist Growers; Mr. John Hardin, Jr., from Danville, IN, on behalf of the National Pork Producers Council; Mr. Mike Yost, president of the American Soybean Association of Murdock, MN; Mr. Alan Albright, who is vice chairman for the International Markets of the National Cattlemen's Beef Association of Lytton, IA.
Page 64 PREV PAGE TOP OF DOC I appreciate all of you coming today, and if we would accept the testimony in the order of the witnesses introduced. We will start with my constituent and my good friend, Curtis Griffith.
STATEMENT OF CURTIS GRIFFITH, COTTON PRODUCER, ON BEHALF OF THE NATIONAL COTTON COUNCIL
Mr. GRIFFITH. Thank you, Mr. Chairman, other members of the committee. I am Curtis Griffith, a cotton producer and ginner from Lubbock and Morton, TX. I am here on behalf of the National Cotton Council, the central organization of the U.S. cotton industry. I appreciate the opportunity to present views on the upcoming rounds of WTO negotiations.
International trade is extremely important to the U.S. cotton industry, including raw cotton, cotton textiles and cotton seed and its products. In a typical year about 40 percent of the U.S. cotton crop is exported. A growing portion of U.S. cotton textile products are also exported due in large measure to NAFTA. On the other hand, our textile industry is also under siege from a virtual flood of cotton textile imports, primarily from Asia, due to that region's ongoing financial crisis.
The arena in which the U.S. cotton industry competes is rife with domestic and trade policy distortions. In Pakistan, India, and China, and to a lesser degree, Egypt, cotton and cotton textile production are cornerstones of economic development and social stability and are a primary source of hard currency. These countries use complicated tax rebate schemes, export controls, tax exemptions, centralized buying and selling, and export requirements to ensure the competitiveness of their cotton and textile industries. In Uzbekistan and West Africa the export of the raw product is paramount and also important to their currency reserves.
We are supportive of U.S. efforts to enter into trade agreements that will benefit the U.S. cotton industry. Some fundamental goals must be achieved, however, if agreements under the new round of WTO negotiations are to be of significant benefit to the U.S. cotton industry.
Page 65 PREV PAGE TOP OF DOC For example, WTO disciplines must address downstream subsidization of cotton textiles, particularly by developing countries and particularly by those that engaged in centralized control of their cotton sector. Worldwide trade and raw cotton remain stagnant, while trade in cotton products continues to grow.
We see increasing concentration of both raw cotton and cotton textile production in the same countries. The so-called Big Seven now account for about 80 percent of world cotton production and 70 percent of world cotton mill use. I should note that five of those seven are considered to be developing countries, thereby receiving preferential treatment. Those countries often subsidize their textile sectors, subsidization that usually starts at the farm level, and several, including China and Uzbekistan, are not currently members of the WTO.
The new round of negotiations must level the playing field and make all countries abide by the same rules with respect to subsidies and other policy distortions, including developing countries. This is especially important with respect to economic sectors in which a developing country is already highly competitive, such as cotton and textile production.
It is imperative that the United States retain the ability to enter into beneficial regional trading arrangements. Such arrangements offer the best means for the U.S. textile industry to compete with Asian textiles. For example, we estimate that legislation which would provide access for Caribbean apparel containing U.S. fiber, yarn and fabric would increase consumption of U.S. cotton by about 1 million bales annually.
Science-based, transparent, enforceable rules governing trade in genetically enhanced products is an essential component of the new WTO agreement. Without meaningful rules governing trade in biotech, fear mongering and thinly disguised protectionism is likely to take over.
We must ensure that this promising and environmentally sound technology is not sidetracked by unreasonable trade rules. We urge our negotiators to continue to push for increased market access for our products and an end to nontariff trade barriers.
Page 66 PREV PAGE TOP OF DOC Until these objectives are achieved, however, the United States must preserve important export programs in order to compete with treasuries of our competitors. We urge continued support for programs such as the Export Credit Guarantee and the Market Access Program which help promote exports of our agriculture products. Programs such as these are not trade distorting and fully comply with WTO principles.
The importance of the upcoming round of negotiations is heightened by the incomplete accession negotiations with China. The terms of China's accession to the WTO are critical to the U.S. cotton industry, given that China is both the world's largest producer and consumer of cotton.
The initial reaction of the cotton industry has been favorable to the reported terms of an agreement on raw cotton and cotton seed access with China, but China has not yet agreed to a 10-year phaseout of U.S. textile import quotas consistent with the terms granted to all other WTO signatories. Given the significant illegal transshipment of Chinese textile products into the United States, it is essential that U.S. textile import quotas applicable to China be phased out over a 10-year period from the date of China's accession to WTO.
We are also awaiting the final terms of China's domestic policy commitments. Government control and manipulation of cotton and their textile production and trade is evident throughout the Chinese system. Any agreement must require China to reform its agriculture policies and its downstream subsidization of textiles prior to WTO accession.
In conclusion, I would observe that although the upcoming round of WTO negotiations is very important, U.S. agriculture is facing a serious economic crisis right now. As you know, prices in relative terms are at 40-year lows. U.S. agriculture exports have been greatly reduced and farm income for 1999 is currently projected to be 27 percent below the previous 5-year average. Promises of future gains in market access and increased demand are important, but do not address the short-term economic crisis; the pressing need for short-term assistance for the U.S. cotton producer and U.S. agriculture in general cannot be overstated.
Page 67 PREV PAGE TOP OF DOC The Council deeply appreciates your interest in restoring funding for cotton's WTO-consistent step 2 program before the beginning of the 1999 marketing year. And we hope you and your colleagues can develop a plan to address the short-term economic needs of agriculture in general.
Thank you for the opportunity to present the comments on behalf of the U.S. cotton industry, we look forward to working with the committee on the upcoming round of negotiations and developing a response to the current economic crisis.
[The prepared statement of Mr. Griffith appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Kirkpatrick.
STATEMENT OF ELWOOD KIRKPATRICK, PRESIDENT, MICHIGAN MILK PRODUCERS ASSOCIATION, ON BEHALF OF THE NATIONAL MILK PRODUCERS FEDERATION
Mr. KIRKPATRICK. Good afternoon, and thank you, Mr. Chairman.
I am Elwood Kirkpatrick, a dairy producer from Michigan. I am president of Michigan Milk Producers Association, a cooperative of more than 2,300 dairy producer members in Michigan. Today I am also representing the National Milk Producers Federation, on which I serve as the vice-president. I am pleased to appear before this committee today to testify with respect to the upcoming multilateral negotiations and other issues in the World Trade Organization.
Let me start by underlining the importance of the U.S. dairy industry and U.S. agriculture on the economy as a whole. Dairy is the second largest agriculture commodity sector in the United States and generates farm income in excess of $20 billion per year and retail expenditures of about $70 billion a year. Despite its domestic size, the industry is a relative newcomer to international trade. Yet our export share has been growing in recent years.
Page 68 PREV PAGE TOP OF DOC One of the primary reasons for U.S. dairy's slow and difficult emergence internationally has been the fact that dairy is one of the world's most protected and subsidized industries. For example, the European Union, Canada and Japan, some of the most important dairy markets, are able under their WTO commitment to impose tariffs at a rate of over 100, 300 and 500 percent, respectively, compared to less than 100 percent in the United States.
This is just a sample of the huge disparity between the United States and its major trading partners. No one disagrees with the achievements of the Uruguay Round agreement on agriculture. Nevertheless, the Uruguay Round ultimately amounts to just a starting point for a long process for agriculture trade liberalization, especially in dairy. As stated before, the Uruguay Round left many major trade barriers in place, effectively erected certain new barriers and resulted in a very skewed trading environment. Today's trade distortions reflect the widely different levels of support and protection bestowed on dairy industry by the various WTO member governments back in the mid1980's.
Mr. Chairman, I cannot stress enough to this committee and the administration that U.S. dairy producers support of the next round of WTO multilateral negotiation is conditional on whether these disparities are addressed. We are aware that the U.S. dairy industry has much to gain from successful negotiations, but it could lose its future growth capacity if an incomplete or poorly balanced agreement results. The elimination of export subsidies is categorically the first and utmost priority for dairy farmers in America. We strongly believe that it should also be the U.S. priority for the upcoming WTO round.
With no significant progress in reducing and/or eliminating export subsidies, U.S. dairy farmers would not be able to support further liberalization in market access, domestic support or any other negotiating sector. If the next round does away with export subsidies, then and only then would U.S. producers support working with negotiators in creating real access through meaningful reduction of ordinary tariffs and harmonization of in and out of quota tariffs. We would also seek the absolute elimination of all remaining non-tariff measures.
Page 69 PREV PAGE TOP OF DOC I would like to briefly go over some of the most important issues and recommendations for the upcoming multilateral negotiations. Number one, all remaining use of dairy export subsidies must be eliminated by date certain with no more than a few, up to 5 years.
European export subsidies are indisputably the primary factor that keeps world dairy prices depressed below domestic prices and prevents the expansion of sustainable commercial U.S. dairy exports.
No. 2, tariff and equities must be addressed prior to making any further multilateral tariff reductions and/or market access liberalization. Except for over quota tariffs on dairy products, tariff levels in the United States are generally low. It is unacceptable that ordinary tariffs average over 30 percent in many countries, while in the United States they average less than 5 percent. With respect to over quota tariffs, Canada, the European Union and Japan maintain tariffs that range from 100 percent to 500 percent for such basic dairy products as butter, milk powder and cheese.
No. 3, we seek greater disciplines or domestic supports while ensuring that the EU does not significantly exceed that in the United States. Overly generous domestic support programs have created continued dairy surpluses in the EU and Canada which then drive the continued heavy use of export subsidies and/or circumvention of the formal commitments. We support the U.S. Government position to tighten rules on domestic support to ensure that such programs do not encourage excess production that distorts trade.
No. 4, improve the transparency of both export and import state enterprises and impose disciplines on trade distorting effects as has previously been discussed.
The WTO-SPS agreement we feel should not be renegotiated. There will be attempts to renegotiate it to include social and economic considerations, and we do not believe that is in the best interests of our industry. The U.S. dairy industry strongly encourages the termination of the new round negotiation in no more than 3 years. Finishing negotiations by 2002 would allow countries to make necessary internal changes to accommodate the new agreement.
Page 70 PREV PAGE TOP OF DOC Finally, let me reiterate the U.S. dairy farmers are prepared to do their part to accomplish further trade liberalization in world trade. However, the dairy industry is adamant about what our priorities should be. First and foremost, eliminate export subsidy. Second, subsequent to a successful agreement on export subsidies, we would engage in negotiations on market access that first level the playing field between the United States and Canada. We do agree and support moving forward and giving the President the authority for fast track.
Thank you very much.
[The prepared statement of Mr. Kirkpatrick appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, sir. Mr. Winkler.
STATEMENT OF MONTGOMERY K. WINKLER, ON BEHALF OF SUNKIST GROWERS
Mr. WINKLER. Chairman Combest, I am Monte Winkler. I own and operate a family citrus farm in Ventura County, CA. My family has grown citrus since the late 1800's. We produce oranges, lemons and avocados, sold both domestically and in the export markets. I market my citrus through Sunkist Growers and my avocados through Calavo.
From my perspective as a citrus farmer, the three biggest difficulties confronting our export efforts for citrus fruit are: One, maintaining strong science-based sanitary and phytosanitary policies; two, effect a significant reduction of tariffs; and three, reform the administration of tariff rate quotas, restricting market access for our products.
The successful resolution of the SPS issues has become, for us, the linchpin for market access for our fruit in key overseas markets. The most recent and most vivid demonstration of this was a successful conclusion in April of the SPS citrus trade agreement for providing U.S. citrus farmers with market access to China. This was achieved only after years of scientific exchanges that built common understanding and confidence that the fresh citrus fruit exported from the United States to China would be pest and disease free and present no health risk to Chinese consumers.
Page 71 PREV PAGE TOP OF DOC Ultimately, China subscribed to science-based SPS policies. Science prevailed over arbitrary protectionist motivated obstacles to trade. That experience demonstrates why the United States at the WTO must be insistent that the SPS agreement of the Uruguay Round not be opened up to weakening amendments.
Furthermore, it should be understood that success in negotiating market opening agreements like the one with China is rendered completely meaningless if our domestic production areas in California, Arizona, Texas, Florida and other agricultural states, are overrun by exotic pests and diseases which result in justifiable quarantines by our trading partners. Indeed, we are experiencing increasing incidents of exotic pests and disease infestation that have entered our production areas from outside U.S. borders. Today this is the greatest threat to the well-being of our industry in the United States and the greatest problem we face in accessing and maintaining foreign markets.
Last year, for example, in California, we suffered 26 infestations of exotic and destructive fruit flies. This resulted in extensive quarantine, expensive pest eradication efforts, and the denial of market access for our fruit from San Diego, Orange and Riverside Counties by key trading partners, Korea, Taiwan, Australia, and New Zealand.
While an issue of domestic concern, I note it here because it has far-reaching impact on our international trading position. These conditions are symptomatic of the consequences of reduced budgets, restricted resources and limited manpower allocation by Federal agencies responsible for assuring our national phytosanitary security and preventing exotic pests and diseases from entering our country.
In Southern California and elsewhere, commercial smuggling of contraband produce is rampant, posing a tremendous risk of pest and disease infestation. As these infestations become more common, our trading partners begin to lose confidence in our ability and assurances of our Government and agencies that guarantee phytosanitary safety of our products. Resource reductions of Federal inspection and enforcement agencies have taken a toll, and we farmers are now paying the price. This is a problem we urge the committee to thoroughly examine and remedy.
Page 72 PREV PAGE TOP OF DOC Also unjustifiably high tariffs and protectionist administration of TRQs continue to undermine the competitive position of U.S. fruit in many key foreign markets. To illustrate, in Korea our fresh fruit oranges face 74.5 percent duty out of quota, 50 percent in quota. The duty on lemons and grapefruits is 42 percent.
Meanwhile, U.S. duty on Korean citrus is less than 2 cents per kilogram. Additionally, Korea has granted the exclusive license to import citrus under its quota volume to the control of the Korean citrus growers, our competitors, with a clear conflict of interest.
Also in Japan, we face upwards of a 38 percent duty on naval oranges; Taiwan, 40 percent. Thailand, oranges, 51 percent, 56 percent for lemons. In India, 51 percent for lemons and grapefruit.
We ask our government's negotiators at the WTO to press for harmonization of citrus tariffs by our trading partners with those of the United States, and we urge an opening of the tariff rate quota system to plurality of import license holders.
Mr. Chairman, I appreciate the opportunity to share these concerns.
[The prepared statement of Mr. Winkler appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Winkler. Mr. Hardin.
STATEMENT OF JOHN HARDIN, JR., ON BEHALF OF THE NATIONAL PORK PRODUCERS COUNCIL
Mr. HARDIN. Thank you, Mr. Chairman. I am John Hardin, a pork producer from Danville, IN. I very much appreciate the opportunity to be here today to testify on behalf of U.S. pork producers and express our views on the upcoming WTO round.
Traditional trade negotiating authority must be renewed. NPPC is cochairing the Agricultural Trade Coalition, which is comprised of 80 agricultural organizations representing all 50 States. We urge the Congress and the administration to work together in a bipartisan manner to get traditional trade negotiating authority renewed before the upcoming WTO ministerial meeting in Seattle.
Page 73 PREV PAGE TOP OF DOC The scope of the WTO negotiations should be broad. The agenda for the new trade round negotiation should be comprehensive. Some of our most important negotiating partners, including the European Union, Japan and South Korea, will be reluctant participants when it comes to agriculture. Only in the context of a large package of agreements and concessions will they be able to accept an ambitious outcome on farm trade. A sectoral approach will not work for agriculture.
There should be a single undertaking in the negotiations. Traditionally multilateral negotiations have not been concluded until agreement at the end of a trade round through a single undertaking covering all areas. This approach was devised to force negotiators to finish their work in the most sensitive areas or risk overall failure. The approach was essential for agriculture in the Uruguay Round.
While most other countries are calling for a single undertaking approach, some U.S. officials have talked about sector by sector negotiations and an early harvest for areas where negotiations can be completed more quickly. We believe that such an approach would be disastrous for U.S. agriculture.
Tariff reductions must be accelerated. Notwithstanding the progress made in the Uruguay Round, tariffs on agricultural products remain very high. U.S. agricultural tariffs, which average only about 5 percent, are dwarfed by the agricultural tariffs in some other nations, which can average as high as 50 percent.
Agricultural tariffs must be lowered from these high levels on an accelerated basis. A date certain needs to be set by which all tariffs will be reduced to zero. Subsidies should be eliminated. The elimination of all subsidies is a top priority for the U.S. pork producers in the upcoming trade negotiations.
The sanitary and phytosanitary agreement should not be reopened. The pork industry does not support the opening of the SPS agreement for further negotiation in the next trade round.
Page 74 PREV PAGE TOP OF DOC Pork country priorities: Two priority areas in the upcoming negotiations for the U.S. pork industry will be, one, greater market access in Japan, our highest priority; and, secondly, the elimination of European Union pork subsidies. The largest exporter of pork in the world is Denmark. That country is the world's leading exporter for one simple reason, subsidies, which are more than 15 times those in the United States by OECD calculations.
While the next round is the appropriate forum to eliminate EU pork subsidies, much can be done right now to assist the U.S. pork industry in offsetting the unfair advantages the EU has. Pork was prominently featured on the preliminary retaliatory list on the beef hormone matter. Pork should be the centerpiece of a final retaliation list. As detailed in my written statement, canned ham should not be the chief pork product used for retaliation. Rather, ribs and other pork products should be blocked.
Although the EU exports virtually no beef or poultry to the United States, during the last 5 years every EU country with the exception of Greece and Luxemburg has exported pork to the United States.
On the other hand, the EU pork market has basically been closed to the U.S. industry for over 10 years as a result of the EU's third country meat directive. The regulation, which affects U.S. beef, pork, and poultry bound for the EU, does not enhance the safety of U.S. meat and poultry as the EU claims. Under this system, EU inspectors determine on the basis of arbitrary factors such as the color of plant walls whether a U.S. plant is qualified to export to the European Union.
The random enforcement of this regulation has resulted in a complete cutoff of U.S. poultry exports and has reduced to a trickle U.S. pork and non-hormone beef exports from a few token plants. Ironically, it is widely known that a majority of the EU meat plants do not meet the third country meat directives.
The EU, led by Denmark, recently approved without scientific basis a ban on the use of many antibiotics in livestock feeds. The Danes, the EU's largest pork producer, know that this antibiotic will ensure that U.S. pork or poultry, for that matter, will never be sold in the European Union. The ban becomes effective as to all member states on July 1. A strong response to the EU's treatments of U.S. pork exports is long overdue and should not wait until the next trade round.
Page 75 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement of Mr. Hardin appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Hardin. Mr. Yost.
STATEMENT OF MIKE YOST, PRESIDENT, AMERICAN SOYBEAN ASSOCIATION
Mr. YOST. Good afternoon, Mr. Chairman. On behalf of the American Soybean Association, I would like to thank you for this opportunity to appear before the committee.
As we approach the opening of the next round of the WTO trade negotiations at Seattle this November, it is difficult to recall a similar occasion when the benefits of trade liberalization faced greater challenges. 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 the annual U.S. soybean crop. With an additional 2.6 billion consumers forecast by the year 2030, gaining increased access to global markets is critical for U.S. agriculture.
ASA has been actively preparing to help shape U.S. negotiating priorities for the next round. We have worked through the American Oil Seed Coalition, which includes the National Cotton Seed Products Association, the National Oil Seed 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 Agricultural Committee in setting more general goals. The recommendation of both these groups are attached to written copies of my statement.
I would like to summarize our positions in three key areas and then comment on the need to address trade in the products of agricultural biotechnology briefly.
Page 76 PREV PAGE TOP OF DOC First in the area of market access, we strongly support eliminating all tariff and non-tariff barriers to trade in oil seeds and oil seed products. Our industry pursued this zero for zero goal since the last year in the Uruguay Round of negotiations. 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 concern about whether the United States will be a reliable supplier. Our track record is a string of unilateral economic sanctions and embargoes.
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 United States has hardly used the volume and outlay allowances provided in the Uruguay Round Agreement for the export enhancement program. Since 1994, only 2 billion in EEP authority has been provided in the administration's budget but not utilized, either for EEP or other export assistance program. During the same period, the EU has used export restitution payments. ASA believes that all export subsidies should be eliminated in the next round, including government export incentives such as differential export taxes.
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 in the export credits in the OECD. If the United States waits until the next round to make changes in the export credit programs, we feel we will run the risk of having export credits wrongly treated as an export subsidy 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 programs, target prices, deficiency payments and set-asides in the 1996 FAIR Act. However, the EU is proposing through its agenda 2000 reforms to substantially increase producer support under the compensatory payment plan.
Page 77 PREV PAGE TOP OF DOC With regard to further reductions in AMS, ASA does not believe further equal percentage reductions from the 198688 base established in the Uruguay Round would achieve sufficient reform in the U.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 United Staes. We believe one of the goals of the United States should be to transition countries to providing an increased proportion of the total domestic support given to agriculture in the green box, coupled form, as the United States has already done under the FAIR Act.
Before concluding, Mr. Chairman, I would like to press 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.
The European Union has not approved any applications for importing biotech varieties of corn, soybeans or cotton produced in the United States since 1996. In the interim, the United States has announced and implemented a regime for labeling products that contain or 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 and the EU is taking matters in its own hands. Five major U.K. 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 scientific reviews used to approve biotech crops and calling for restrictions on foods containing biotech ingredients.
In our view, the EU regulatory agencies, which have failed to develop timely and transparent product approval in labeling regulations, should be held accountable for any reduction in U.S. exports to European countries caused by these private sector actions.
Page 78 PREV PAGE TOP OF DOC In addition, our own regulatory agency must be forcefully defending the scientific reviews on which they base decisions to approve biotech varieties for commercial production and consumption. While it is not appropriate for regulators to be advocates, it is critical they respond clearly and in a timely manner to unfounded attacks by seemingly credible sources that publicly question their credibility.
[The prepared statement of Mr. Yost appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, sir.
STATEMENT OF ALAN ALBRIGHT, VICE CHAIRMAN FOR INTERNATIONAL MARKETS, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. ALBRIGHT. Thank you, Mr. Chairman and members of the committee, for allowing me on behalf of the National Cattlemen's Beef Association to give testimony regarding issues to be addressed in the 1990 round of the WTO negotiations.
I am a crop producer. My name is Alan Albright, and I am an owner and operator of a private 2,000 head feedlot in western Iowa. I am vice chairman of the NCBA's International Markets Committee and have served on the board of the U.S. Meat Export Federation for 10 years. I have been on trade missions to Asia twice and to Mexico once.
My testimony today will include the official NCBA position on trade issues as well as some of my own thoughts and perspectives that are consistent with NCBA policy.
Beef and pork producers have always had freedom to farm as well as freedom to fail. We add value to grain produced by our neighbors by feeding it through livestock. Exports of meat and grain make sense for the United States, a country that has only 4 percent of the world's population, but a large share of the world's agricultural production.
Page 79 PREV PAGE TOP OF DOC Exports of beef have helped to make up the slack of decreasing demand for beef at home. The U.S. Meat Export Federation, the foreign marketing arm for the red meat industry, has worked hard to promote our product in a young, fast growing overseas markets. Beef exports now account for over 12 percent of the value and 8 to 9 percent on a tonnage basis of what we produce.
One of the underlying premises of the 1996 farm bill, the Freedom to Farm bill, was aggressive pursuit of growing exports markets would be critical to replace the safety net of traditional farm programs. There must be follow through by Congress and the administration on this obligation. Success of the Seattle Round means that the United States must take the high road to expanded exports and freer trade and less dependence on Government assistance.
The pending agreement with China looks to be a good one. Hopefully it will set new precedents for tariff reduction and market access for all the WTO countries to follow in November.
The NCBA supports three process objectives for the negotiations as follows: Establishment of a 3-year goal for conclusion of the negotiations; no product or policy exceptions; conclusion with a single undertaking that encompasses all sectors.
The overall objective of the U.S. trade policy should be to maintain an increased access to existing markets for U.S. beef and to gain access in emerging markets while decreasing trade distorting subsidies.
NCBA supports the following specific points to be addressed during the Seattle Round of the WTO. Number one, prevent the EU from rolling back progress made during the previous GATT agreement; ensure that science remains the only basis for resolving SPS issues; protect science-based technologies and establish transparent science-based rules, eliminate state trading entities, negotiate reduction and eventual elimination of price distorting price supports and export subsidy programs; and the last one is establish a target date for reducing all tariffs to zero. Until elimination of duties can be accomplished, continued tariff reduction and expand trade rate quotas to permit continued growth in exports.
Page 80 PREV PAGE TOP OF DOC In my mind, the last point is the most critical and will do the most good to help producers in the short run. It is crucial in markets that we open markets like Japan, Korea and China, which we still face a 40 percent tariff for beef going into those countries. This is way too high.
Price drives effective demand for our product. If one looks at Mexico, you can see what the effect of eliminating tariffs of 20 to 25 percent did in that market after NAFTA was initiated. On this chart here, 1993 was the year that NAFTA was signed. In 1994, the first year after NAFTA, we had a 66 percent increase in exports to Mexico. The next year was a 50 percent devaluation of the peso in Mexico, which is like a 50 percent tariff. And then in 1996, we had a 74 percent increase, 1997, a 72 percent increase, in 1998, a 30 percent increase, and in 1999, we are up 16 percent. So you can see the effects of what happens when you reduce and eliminate tariffs, and we look for this same thing to happen in the Asian markets.
The demons of protectionism are rising, the storm clouds of unrest include calls for dumping suits and blockading borders as a result of low prices for agricultural commodities. The current definition of dumping under WTO rules does not make sense for agricultural commodities like beef, because one of the criteria for filing a dumping case is that the commodity must be sold below the cost of production in the importing country. I can testify to you that I sold several agricultural commodities below my cost of production during 1998, not because I wanted to, but because that is what the price the market offered to me was. By WTO definitions, I can be considered to be dumping. I sold cattle for 57 cents this past year. I have sold hogs for 11 cents. I sold beans for $4.35. I did not sell below the cost of production because of any predatory behavior or with any intention to monopolize or to drive any of my competitors out of business. It was just a reality of the marketplace.
Under the WTO current rules, U.S. dumping suits have been filed against Canada and Mexico in the past year and in return the Mexican producers have filed dumping cases against us. The bottom line is these cases will cost the beef industry scarce resources to defend without addressing the basic supply and demand causes for low prices, and I believe that figure is $1.5 million for us to defend ourselves. The definition of dumping should be narrowed to exclude below cost of production definition for agriculture products.
Page 81 PREV PAGE TOP OF DOC Among the strengths of the current WTO system is there is a well-defined process for initiating a case and determining the final rules. The strict science-based rules established for resolving these issues is another major strength. The primary weakness of the current system is that the absence of an enforcement mechanism to ensure compliance once the ruling is issued. The United States has been unfairly locked out of the European beef market for more than 10 years by a thinly veiled trade barrier commonly referred to as the EU hormone ban. The United States has followed the dispute settlement process for 3 years now and the EU has until July 13 to offer an acceptable resolution to this matter or trade retaliation begins. Let me state that no one wins trade wars and that our preference is for access.
All we ask for is Europe to give their consumers a choice. Labeling our beef as a product of the United States is a concession that our negotiators have offered to the EU with no success. If Europe continues to thumb their nose at this science-based process, the whole WTO may be in jeopardy of losing its credibility.
The Seattle Round will be a defining moment for all world agricultural trade. U.S. producers demand that Congress and the administration develop a unified strategy for the Seattle Round and engage the opposition. Fast track negotiating authority must be a part of this strategy. We look forward to working with you as the November round approaches.
Thank you for this opportunity to present this information.
[The prepared statement of Mr. Albright appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Albright, and all of you for your testimony. Any parts of it which you have that you did not in fact read into the hearing record will be made a part of your testimony.
Are your groups or yourselves participating in the listening sessions that are ongoing in various parts of the country that are sponsored by the USTR?
Page 82 PREV PAGE TOP OF DOC Mr. YOST. We are.
Mr. ALBRIGHT. The NCBA is in all of them.
The CHAIRMAN. That is very important. I would encourage each of you to participate. Several of you mentioned, obviously, the need for trade. Some of you specifically mentioned new rounds of fast track authority. As, I hope, that begins to move through the process, we would certainly encourage you to work with your associations and your members in letting the appropriate elected representatives that may be representing your membership know about your interest in seeing that move forward.
I would ask each of you to briefly respond to this question, if you could.
What do you think is the most important or the highest priority that we should have going into the WTO negotiating round?
Mr. GRIFFITH. Mr. Chairman, from the cotton perspective on it, our primary issue is that we recognize what cotton is and its industrial nature and that we recognize that not only are we dealing with an agricultural product, we are dealing with a textile issue as well. In particular in bringing China into the WTO negotiations, if we don't keep that paramount and realize what China's textile production can do to not only our markets inside the United States, but do to our markets we have traditionally exported raw cotton into, we are going to end up in a much worse situation than where we are today.
Mr. KIRKPATRICK. From the dairy industry's point of view, the elimination of export subsidies certainly is a priority issue to us. We believe that it should be a broad-based negotiation, but as far as dairy is concerned, the elimination of export subsidies is a priority before we move on to much else, because European Union continues to subsidize to the extent that it maintains world prices at a very low level, and we cannot compete on a free market basis with that.
Mr. WINKLER. For the citrus industry, I would say probably tariff reductions would be certainly number one and certainly the phytosanitary regulations are important too.
Page 83 PREV PAGE TOP OF DOC Mr. HARDIN. If I might, Mr. Chairman, obviously in the pork industry, we need better access and a change in the gate price system in Japan. But globally, for agriculture, the reduction of export subsidies will have a greater impact on farmers around this world than almost anything else we can deal with. That $60 billion that the European Union is transferring to producers effectively reduces the income of the rest of the world's farmers by at least $60 billion.
Mr. YOST. We believe very strongly that market access is the key issue. Not only market access for foreign markets for U.S. soybean farmers, but also foreign buyers get access to our supply, the same access that domestic buyers have, so trade is a two-way street.
Mr. ALBRIGHT. As far as the cattlemen are concerned, there is probably two answers to that, a short-term and a long term answer. The short term would be like my chart suggests here that lowering tariffs will increase trade significantly, so that would be the short-term answer. The long-term answer would be the decreased export subsidies, which tend to lead to the underlying cause of overproduction.
The CHAIRMAN. Thank you. I think probably one of the most challenging areas we are going to be confronted with as we move into this round is the whole area of biotechnology and exactly how we deal with that. Could you give me sort of a general response, again this would be to each of you, as to what you think our negotiating objectives should be in regard to biotechnology?
Mr. GRIFFITH. Primarily from a personal perspective on this, dealing not just with cotton, but with everything that we try to produce, the major issue is let's keep it on a science-based perspective. Don't let them utilize the whole issue of biotech is purely a trade restriction that we can't get around. That is what we apparently have been dealing with with the EU. I am afraid we are going to be facing it with other countries. If we can get some kind of international coordination so scientists in all those countries agree on what works, what doesn't, and what the true risks, if any, exist, let's get that on the table and not have it be something discussed as in effect a trade barrier that has nothing whatsoever to do with the underlying technology.
Page 84 PREV PAGE TOP OF DOC Mr. KIRKPATRICK. I think we would agree as well to stick with the SPS standards. That will keep it as scientifically based as we possibly can.
Mr. WINKLER. Yes, I will agree with that. Preeminence of science is the most important thing for us, as opposed to political decisions.
Mr. HARDIN. This is a choir that has a chorus, I think, Mr. Chairman. The idea that products that are traded are safe for human consumption, again, keeping it science-based, trying to keep social considerations out of that issue. I think if you want to really get technical, the process by which the CODEX and OIE reach decisions probably could help them be quicker in reaching some sort of scientific consensus than what we now have. But that is still the key.
Mr. YOST. We think a timely and transparent approval process is the key based on sound science, and hopefully it would be dual approval process moving forward like in this country and the European Union at the same time.
Mr. ALBRIGHT. We in the beef industry have had a unique perspective. We have been fighting this hormone issue for 10 years now, and we have won it. We went through the process and won it about three or four different ways. So it is frustrating on that basis. But we continue to look at science to be the answer to this thing. We really don't want retaliation as an end result, but we want access to that market. We will still keep science as a basis.
The CHAIRMAN. Singing not only from the same song book but from the same page is sometimes helpful, because it does show unity. Mr. Minge.
Mr. MINGE. Thank you, Chairman Combest.
First, I would like to express my appreciation that Mike Yost is here, an outstanding farm operator in my congressional district. I am proud that you and two other panel members have ties to that part of Minnesota.
Page 85 PREV PAGE TOP OF DOC I would like to start first by asking you, Mr. Yost, with reference to soybeans. I have heard a fair amount of comment back in our area of concern about Brazil, that Brazil can break even or Brazilian producers can break even at possibly $4 a bushel on producing soybeans, that they can double the acreage committed to producing soybeans, that their yields have gone up 35 to 40 percent over the last decade, and all of these trade opportunities sort of have a double-edged side to them, and one of those cutting edges is the risk that we face that with the commitment that our Nation has to certain environmental standards and other cost-adding features of producing in America, that we may not see the opportunity in the long run that has been so important as we have worked in the last, let's say, 10 years in promoting opening markets and promoting our products.
I am just wondering what analysis you or the American Soybean Association has of this possible risk, not possible, this very real risk that we face as we go into this yet greater drive for opening markets?
Mr. YOST. Well, we have recognized for a long time, Congressman Minge, that South Americans are world class competition, and they have room to expand. Whether they are the lowest cost producers or not is up to debate, but clearly they are a world class competitor in the soybean market. We have no choice but to compete with them in the world market place. We raise 48 percent of the world's soybeans and have 4.6 percent of the world's population, so we have to compete with them.
I think we have to look back a little bit at some public policy that helped them start their industry and kept them going down there. That includes the past embargoes we had. I know in the seventies, because of a short supply situation we had an embargo and that encouraged the Japanese to invest heavily down there. That is why we have been so adamant against trade embargoes in this country. I think it also points out the fact that supply control probably won't work for soybeans. In the past three crop seasons, we have increased production in this country by 11 million metric tons, where the South Americans have increased it by 14 million metric tons.
Page 86 PREV PAGE TOP OF DOC Lastly, I think it shows the need for the marking loan, because the marking loan does give us some income protection for producers in this country, but it doesn't give any price floor to our South American competitors. The long and short, they are here to stay, we are here to stay, and it is going to be tough competition.
Mr. MINGE. One other point that I would like to raise with the entire panel is the same issue I raised with the Secretary and the U.S. Trade Representative, and that is what do we do about exchange rates, currency fluctuations, and volatility in terms of trying to make sure that our American producers are not hung out to dry at a time when U.S. consumers, who enjoy this strong dollar, are buying foreign cars and stereos and everything else, computers. Is there any advice that you have for us as we pursue the trade negotiation side of opportunities to try to recognize the risks of our producers, and whether it be a safety net or whether it be some other approach to dealing with this, that tries to take some of the risk out of the price volatility and out of the exchange rate features of international trade?
I will just mention as an aside, yesterday I talked to a rural electric group of young people, or a group of young people brought out by the Rural Electric Association. One person raised their hand and said why don't we buy all of the leftover soybeans, I don't want to use soybeans as illustrational, all of the leftover soybeans and make soy diesel, and that way we always know that we have a use for this farm crop that is an industrial use and we have such a phenomenal need for petroleum products in this country and we are importing them? Why don't we did that? I said it is a good idea. It is more complicated, because we have people from Texas, for example, that feel the production of petroleum products is also important.
So I would just like to throw this sort of problem or dilemma out and if you have a quick response from your various groups, I am interested in what the response is.
Mr. GRIFFITH. A quick response, not necessarily a very detailed one, but we are very cognizant of the risks of currency fluctuation. It is very much an issue on the farm level because we have seen, as you mentioned, great benefits to a large part of the American society from a strong dollar, and yet agriculture suffers because of it, because in effect we are now raising our prices to our consumers across in other countries. However, having said that, I am not sure that we can build into our trade negotiations very much that helps us deal with that, unless we have the safety net proposal as something that might be workable, if the Government is willing from a fiscal perspective to be ready whenever we do see those kinds of massive shifts in the valuation of our currency to step up and in effect feed some money right down into that farm sector.
Page 87 PREV PAGE TOP OF DOC I would like to see that flexibility, but I don't know whether or not we are going to be able to get that kind of thing worked through, realizing it is not just going to affect the United States, but there are going to be a lot of other countries that are going to be able to potentially make the same kind of arguments.
Mr. KIRKPATRICK. I don't know that we would have the total solution to that, but I think one of the issues has to be kept in mind through the negotiation, and that is the fluctuation of currency as compared to the tariffication when in the process of setting tariffs. Possibly you can counter some of it in that effort.
Mr. WINKLER. Yes, we have seen a strong dollar and a weak dollar. I think our industry probably at this point would be more concerned about access. If we can get access to their markets, we will work with the other problems.
Mr. HARDIN. The question you pose is very difficult. From the days of Bretton Woods we have attempted to manage this over the last 55 years, and nothing has really worked very well. I would offer to your young producers that, one, these things do self-correct because they create inflation in The Economist that have low valued currencies. We went through that in this country. We have always been through the cycle of paying the price of being very high valued in the early years of the Carter administration.
So I would exercise great caution in advocating any change, other than something that might be worked through Treasury and the President.
Mr. YOST. Well, we don't have any major answer for that good question, but we do have a couple ideas, and one of them is that we have been using a lot of GSM 102 credits for soybeans for the past couple of years. We think it would be helpful to have an account for some of these foreign buyers to help insulate them against all of these fluctuations.
Mr. ALBRIGHT. I don't see any magic bullet in attesting the exchange rate problems. As we move into a global economy and global market, I can see this problem probably magnifying itself as we depend more than global markets. One of the ways would be if we had a way to get the tariffs down when the exchange rate went against us. I don't know how that would work.
Page 88 PREV PAGE TOP OF DOC The other thought was that maybe risk management by producers would help to offset problems with exchange rate fluctuations.
Mr. MINGE. Thank you, Mr. Chairman.
The CHAIRMAN. Let me ask you one other thing, just to get your thoughts on this. Under the current WTO agreements, there is really not a penalty if someone violates an agreement. The response or the penalty is that those who receive a ruling adverse to their position have to change their position and eliminate barriers. We are seeing, as you know, in the banana and beef cases, only after years of fighting those, the only response left is to impose some type of retaliation.
In your opinion, should there be a penalty built into the future WTO agreement so that there is something to expedite or some pain to be inflicted if one is on the losing end of a settlement?
Mr. GRIFFITH. Mr. Chairman, I think your magic word is ''expedite.'' I don't know whether penalties are necessarily the answer or not, but I think we have to come up with some sort of tool to move the resolution of these various disputes along much faster than what we have been able to achieve up to now. From a producer's perspective, if we are seeing another trading competitor violate our trading rules, the fact that we may reach some resolution on that 5 years from now doesn't do very much to help my cotton price. We need to be able to work these things out on a much, much more rapid time frame.
Mr. KIRKPATRICK. I guess our industry would concur with your thought that there should be some penalty involved if you get a ruling unfavorable to what you are operating under. The other comment I would like to make in this area, Ambassador Barshefsky had indicated that things were working pretty well and we were winning the dispute settlement.
The CHAIRMAN. I agree. But the dairy industry has been in a round with Canada, and we have got even a favorable ruling, at least initially, but we spent three-quarters of a million dollars getting there and about 2 or 3 years time. So I am not totally agreeing that that process is working as good as it could.
Page 89 PREV PAGE TOP OF DOC Mr. WINKLER. Well, like the others, we in the citrus industry with the EU went to the dispute settlement and won, and they thumbed their nose at us. I don't know what the answer is, but we have to have something, some kind of retaliation ability if it is going to do us any good. We can't send in the Marines, I guess.
The CHAIRMAN. Well, we might.
Mr. HARDIN. That is taking trade wars to new heights, sir. This is fairly complex, and having been involved in these issues since the mid-eighties, we are certainly well in advance of where we were under the GATT. The issue as far as, to me, is that we do follow through with retaliatory tariffs to get the other side to come to the table. I would hope it would be faster, but I would caution all of us, and the pork industry with a penny a pound tariffs is wide open, but getting these things through Congress, there are sovereignty issues if you speed the process up too much. I hate to say that, but we have got to have an agreement that in the end the Senate will confirm.
So, but again, I think we follow through with retaliatory tariffs and make the other side come to the table is the only way we can come forward with this.
Mr. YOST. From our perspective, I think expedite is the key word. I know back in the eighties we were involved in a 301 case which resulted in the Blair House agreement, and it took 5 and 6 years for that to be done. That is one reason why producers are so skeptical of some of these trade agreements, because the resolution process does take so much time and people do a lot of business in the interim.
Mr. ALBRIGHT. As you know, the beef hormone case was brought about in January 1996 and it is still not resolved. The problem is that there is no incentive for an early settlement, no pain there. So they drag it out and drag it out and drag it out. Then when the final ruling comes and you have retaliation, you really don't want retaliation, you want the access. So the retaliation needs to be painful enough that the party that is retaliated against complies. I am not sure where we are there in the beef hormone thing. You say $200 million, and it seems like when you put those retaliations on, they find ways around them.
Page 90 PREV PAGE TOP OF DOC One of the thoughts of the beef industry was that maybe the retaliation should have a carousel effect so that maybe 6 months or a year you will hit one product and then change it, would kind of have a devastating effect on business overseas, in Europe especially.
The CHAIRMAN. Well, it is the expedition that we are trying to get to. I don't know how to get there. That is the problem. If there is no pain involved in implementing a WTO decision and somebody could just keep on violating it, then there is no incentive for them not to. It is not the penalty I am looking for as much as it is the process in which we get to the final solution. Unfortunately, I think in a case of retaliation, even the retaliation itself is sometimes a political tool. Do you think it is fair to say there are some who would like to see a lot more punitive retaliation taken that maybe is overruled by others. But there has to be a deterrent, if you will, to WTO violations. I don't know what that is. What we are looking for is how do we improve the system over what we have today.
I appreciate again very much all of you being here and your patience in waiting through this. Your input is extremely helpful. We would expect we will have that opportunity and look forward to it again in the future.
We call now our third panel to the table. Ms. Carolyn Gleason, senior partner, McDermott, Will & Emery; Ms. Susan Keith, senior director of public policy, National Corn Growers Association; Mr. Jack Roney, director of economics, American Sugar Alliance; Mr. Alan Tracy, president, U.S. Wheat Associates; Mr. Al Christopherson, president, Minnesota Farm Bureau; and Mr. Leland Swenson, president, National Farmers' Union.
As we have been doing, we will proceed in receiving your testimony in the order of your introduction, starting with Ms. Gleason when she is ready.
STATEMENT OF CAROLYN GLEASON, SENIOR PARTNER, McDERMOTT, WILL & EMERY
Page 91 PREV PAGE TOP OF DOC
Ms. GLEASON. Good afternoon, Mr. Chairman. My name is Carolyn Gleason. I am with the law firm of McDermott, Will & Emery and have been asked to address the subject you were just discussing, and that is WTO dispute settlement, including the ways in which these procedures can be improved for American agriculture going into the new round.
U.S. farm groups care about this subject and have identified it as an area where reforms are needed for two reasons: One is that they are one of the most active users of the system and need it to work. The other is that thanks to bananas and beef, they have become wise to the fact that the system is not working exactly as promised.
Because of WTO shortcomings and EC procedural gimmickry, these two cases each have been pending for more than 3 1/2 years. Even as they finally have come to an end, the EC has continued, true to its old pattern, to refuse to come into compliance with both rulings. In each instance, U.S. recourse to WTO retaliation has been necessary. And even now with retaliation a reality in bananas, and a near reality in beef, the EC is publicly saying it will never lift its ban on beef, and in the banana case continues to put forward WTO-incompatible settlement proposals.
Secretary Glickman recently summarized American agriculture's dissatisfaction with these case results by saying that the WTO system is too cumbersome, too long, and of dubious value if a member can opt out of compliance at the end of it all. These same frustrations have led the Seattle Round Agricultural Committee, representing, as you know, over 70 U.S. agricultural interests, to call for dispute settlement reforms in the new round that will ensure, one, an accelerated resolution of trade disputes, and, two, prompt enforcement of WTO rulings.
The system's greatest impediment to accelerated procedures is one you have mentioned, and that is that relief is not accorded to the winning party as of the date of the breach or even as of the date of the ruling. Under the present system, litigated relief is not accorded until at the earliest the losing party's so-called reasonable period has expired, which is ordinarily 15 months following approval of the WTO ruling.
Page 92 PREV PAGE TOP OF DOC I was just reminded by someone who knows this area well that approval of the WTO ruling is not the date of actual issuance of the ruling. It comes some months after that. To make matters worse, because winning parties have no right to scrutinize compliance during the implementation stage, losing parties at the end of that period can claim they are in compliance, even if they are not, even if the world knows they are not, as a way of further prolonging the review procedures.
That long authorized delay in relief has become an extraordinary gift to the losers. In bananas, for example, by not authorizing relief until 18 months after the EC was found to be breaking the law, the WTO effectively legitimized an additional $270 million in injury to U.S. interests that will never be recovered. In beef the unrecoverable post-ruling injury figure will probably be a comparable amount.
The optimal way to accomplish accelerated relief is to mandate that it be due on or around the date of the WTO ruling. This far better approach is one that has already been successfully used in other international trade agreements. NAFTA is an example.
If this approach were tried but resisted by the WTO membership, then at a minimum something will have to be done to shorten substantially the present WTO timetable. Short of restructuring the WTO due date, the surest way to satisfy U.S. agriculture's call for accelerated procedures is to shorten the implementation period, the so-called ''reasonable period.''
Considerably less than 15 months, perhaps half that period should be considered the norm.
Certain other stages of the current WTO schedule can be modestly shortened to save time. There is no reason, for example, why a member must wait for two DSB meetings before a panel is established. Front-end time savers like these, though, shouldn't be allowed to compromise the quality-control stages of the proceedings, nor should they be seen as a way of simply offsetting the requests by other members to extend the dispute settlement period. And I can assure you that proposals to that effect are actively under consideration in the DSU review.
Page 93 PREV PAGE TOP OF DOC If relief can't be made to coincide with the date of the ruling, then the fundamental U.S. objective going into the new round should be to materially shrink, not simply hold even, the existing WTO frames. Agriculture's second reform objective, prompt enforcement, has become a large issue thanks to Europe. Europe's noncompliance in the beef and banana cases together with its pre-WTO record of noncompliance have raised the question of whether EC will ever be prepared to come into good-faith compliance with the dispute settlement ruling.
You heard Ambassador Barshefsky this morning say, as she has said before in the press, that Europe continues perhaps a 30-year pattern of refusing to accept panel decisions, a practice she describes in the press as ''exceptionally debilitating going into Seattle.''
The American Farm Bureau and many others take the position that in order to prevent the EC from destabilizing the WTO, the United States should take all WTO-consistent recourse possible to induce EC compliance. Since the only WTO authorized tool for reversing noncompliance is retaliation, they fully support its use in the banana and beef cases.
They have also come to believe, though, that static retaliation is not enough with Europegiven Europe's suggestion that it may continue to avoid compliance in both cases, even with retaliation in effect. In the near term, several leading farm groups support the only real option available for strengthening the inducement to comply, which is to rotate the so-called ''carousel.'' That is to say, the retaliation targets would be rotated at regular intervals without changing the overall level of WTO-authorized retaliation.
In the longer term, one further means of strengthening the enforcement of retaliation, as I have already mentioned, is to change present procedures to enable relief or retaliation to accrue as of the date of the WTO ruling.
With the effective loss of section 301, WTO dispute settlement is essentially the only remedial tool available to American agriculture for resolving major export market conflicts. We have no choice but to make the system work. Agriculture's objective in this area deserves close committee attention and priority because however the WTO may be improved in the new round for agriculture, those improved rules will only be as good as the system in place to enforce them.
Page 94 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement of Ms. Gleason appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ms. Gleason.
STATEMENT OF SUSAN KEITH, SENIOR DIRECTOR OF PUBLIC POLICY, NATIONAL CORN GROWERS ASSOCIATION, ON BEHALF OF ROGER PINE, PRESIDENT, NATIONAL CORN GROWERS ASSOCIATION
Ms. KEITH. Thank you, Chairman Combest, Mr. Stenholm, I am Susan Keith. I am the senior director of public policy for 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 feed and meal, as meat and poultry and countless other value-added products, weak export performance contributes to the low prices that plague producers today.
Trade barriers and export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. NCGA wants the next round of negotiations of the WTO to build on the progress of the Uruguay Round Agreement on agriculture, specifically we need to expand and strengthen the agreed-upon disciplines in the areas of market access, export subsidies, internal support and sanitary and phytosanitary measures.
Despite the progress of the Uruguay Round, agriculture continues to be one of the most protected sectors; tariffs and, in some countries, import licenses are manipulated to keep U.S. corn out when grain supplies are abundant and to allow imports in time of shortages. This restricted access denies U.S. producers the opportunity to develop new demand. The United States is left to supply the residual feed needs of the importing country.
Page 95 PREV PAGE TOP OF DOC The European Union is an example of a market that is utilizing high tariffs to keep foreign grain out. Although the EU agreed to reduce tariffs under the Uruguay Round, the existing tariffs are still too high to allow meaningful access, except for feed grains imported by Spain and Portugal under the EU enlargement agreement. Admittedly, there are current restrictions on the export of some bio tech corn to the EU, but further tariff reductions would be necessary if U.S. corn is to have meaningful access to all EU markets.
China views the United States as a residual supplier of corn, importing when supplies are low, but most of the time denying access to their vast market.
Although U.S. producers appreciate the occasional boost in demand, we also know that the additional price volatility is harmful in the long run. We want the opportunity to compete in every market around the world and trust, when the negotiations to bring China into the WTO are finalized, the United States can export corn to China year in and year out.
Export subsidies have cheapened grain in world markets and made it more difficult for unsubsidized grain to compete. Even though the agreement on agriculture established maximum ceilings on the quality of exports subsidized and on budgetary outlays, subsidized European wheat continues to displace corn in several markets.
One of our goals in the next round of negotiations is the elimination of direct export subsidies. Internal support or domestic farm programs can distort world markets by encouraging production of specific commodities in quantities that exceed market demand. Generally, NCGA supports market-based agriculture policy. However, recent price declines for corn and most other commodities have cautioned us to carefully consider the need for farm programs that provide a minimal level of support.
The Marketing Assistance Loan Program for corn establishes a national loan rate significantly below the cost of production. The relatively low loan rate should not encourage production, but with current low prices, it is becoming an important component of producer's income.
Page 96 PREV PAGE TOP OF DOC Trade negotiation should not reduce the minimal support provided by this domestic program; likewise, the Federal Crop Insurance Program should encourage producers to ensure adequate revenue to avoid devastating losses without artificially stimulating production. We cannot abandon the safeguards that are essential to the competitiveness of U.S. producers.
Finally, on the sanitary and phytosanitary measures, under these measures, the members agree to eliminate import restrictions based on arbitrary and unsubstantiated health and safety claims. The trade situation for corn is complicated by the status of products enhanced through biotechnology.
In the European Union, biotech products are subject to multiple regulations. First, imports of grain must be approved in regulation 9220, biotech corn used in processed food products must be cleared through novel food regulations which require food labeling that is yet to be defined.
The EU is also considering a novel feed regulation; in the meantime, some member countries require a food safetya feed safety review. Under 9220, a shipment of grain containing biotech corn cannot be imported into the EU unless each transgenic event in the shipment has been approved.
Last year, the United States loss approximately $200 million of corn exports to the EU, because of unwarranted delays in the EU approval process. This year exporters have been reluctant to bid U.S. corn for shipment to the EU because some of the corn produced in the United States last year has not been cleared for import into the EU.
U.S. corn farmers have readily adopted biotech seed technology as an environmentally sound and cost-effective option to control insect, pests and weeds. We are confident that the approval process in the United States ensures the safety of the products in food and in the environment and in farmers' fields. We respect our customers' rights to establish standards for products of biotechnology, but we cannot allow tardy, arbitrary and unsubstantiated health and safety claims to deny access to important markets.
Page 97 PREV PAGE TOP OF DOC The WTO must provide for review of products of biotechnology that is scientific, risk-based, rational and predictable. Companies seeking approval of new products should have a reasonable expectation that applications will be considered in a transparent and timely manner. Producers should have a reasonable expectation that grain from seed approved for use in the United States will not be subject to barriers aboard.
It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data, review and approval, or alternatively, mutual recognition of approvals. At a minimum, the approval process must be rational and predictable and must occur within a reasonable amount of time. Anything less will continue to subject the products of biotechnology to arbitrary restrictions.
In conclusion, U.S. policy must clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets.
[The prepared statement of Mr. Pine, presented by Ms. Keith, appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ms. Keith.
STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS, AMERICAN SUGAR ALLIANCE
Mr. RONEY. Thank you. Mr. Chairman, I am Jack Roney, chief economist for the American Sugar Alliance. The ASA is the national coalition of growers, processors and refiners of sugar beets, sugarcane and corn for sweetener. I would like to highlight my written testimony with an emphasis on export subsidies.
The ASA endorses the goal of genuine global free trade for sugar. We have endorsed this goal since the start of the Uruguay Round in the GATT in 1987. We are a member of the Seattle Round Agriculture Committee of more than 70 organizations calling for the elimination of barriers to agriculture trade in the next round. We want global free trade in sugar because U.S. sugar and corn sweetener producers are efficient by world standards.
Page 98 PREV PAGE TOP OF DOC Our cost of production per pound of sugar is well below the world average, and that is despite some of the world's highest Government-imposed costs for labor and environmental protection. We welcome the opportunity to compete on a genuine level playing field. Until we achieve free trade goal however the United States must retain at least its minimal sugar policy.
Subsidized dump-market sugar must not displace efficient American producers. Foreign subsidies so distort the world sugar markets that prices on the dump market have recently fallen below 5 cents a pound, barely one-fourth the world average cost of producing sugar. Export subsidies are paramount among these trade distorting practices with two unfortunate consequences: Number one, export subsidies enable countries to maintain high price supports, because they provide a way to dispose of the production surpluses that high-priced supports generate, that is, by dumping these surpluses on foreign markets; number two, export subsidies force other countries to maintain strict import barriers to prevent subsidized surpluses from replacing domestic production.
The European Union's monstrous production and export subsidy system enables it to transform itself from one of the world's largest sugar importers to the world's biggest sugar exporter. The EU export subsidy program is the single most trade-distorting price-depressing practice in the world of sugar.
Export subsidies and other barriers to world sugar trade must be eliminated. With genuine global free trade, inefficient subsidized producers will drop out, the world price will rise to reflect the actual costs of producing sugar and American sugar farmers will be ready, willing and able to compete.
The path to free trade, however, is a perilous one. In 1994, the NAFTA was an important regional step towards free trade, but Mexico's failure to comply with key provisions on sugar and corn sweeteners continues to cause enormous problems today and has left many American farmers skeptical about the wisdom of entering into new agreements.
Page 99 PREV PAGE TOP OF DOC In 1995, the Uruguay Round Agreement on agriculture was a step in the free trade direction, and in the case of sugar, a very small step, but many nations have not yet complied with even their minimal commitments.
In 1996, the Freedom to Farm bill was a giant unilateral step toward free trade for the United States, but American negotiators have loss much of their leverage for future negotiations, foreign governments have not followed our lead and gotten out of their agricultural markets, and American farmers have been left without a safety net while subsidized farmers in the European Union and elsewhere continue to overproduce and continue to dump.
The challenges to carve a path to free trade that is bounded by fairness is hard to do when most of the rest of the world is playing by different rules than we play by. Three-fourths of the world's sugar is produced by developing countries. These countries were either excluded altogether from Uruguay Round disciplines or they were put on a much slower track towards reform. Furthermore, these countries operate with little or no government-imposed costs for protecting their workers and their environment.
The biggest, developed country sugar producers don't play by our rules either. The EU's massive production and export subsidies were barely touched in the Uruguay Round. The other big, developed country sugar producer, Australia, regulates its market with a massive monopolistic State trading enterprise and has a number of subsidy programs for its sugar producers that are were untouched in the Uruguay Round.
Based on our experience with past agreements, we have five recommendations for future trade negotiations. Number one, the United States must not forge any new trade agreements nor reduce its government programs any further until other countries have fully complied with the Uruguay Round and with the NAFTA as the United States has done. No. 2 the United States must not reduce its support for agricultural programs particularly for import-sensitive crops such as sugar any further until other countries have reduced their supports to our level. The U.S. and any other country that has surpassed its Uruguay Round committees should be given credit for doing so before being required to make further cuts in the next round.
Page 100 PREV PAGE TOP OF DOC No. 3, elimination of export subsidies in the state trading enterprises must be given top priority in the next trade round.
No. 4, the wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade line. We must provide incentives and penalties to ensure global standards rise to developed country levels rather than fall to developing country levels.
No. 5, with regard to future tariff reductions, the traditional flexible request-offerer type of negotiating strategy must be followed in the next trade round, rather than the rigid across-the-board formula approach that was used in the Uruguay Round.
This is the only way to recognize the enormous diversity and varying sensitivities among agriculture industries and commodity markets.
In conclusion, Mr. Chairman, U.S. agriculture is extremely vulnerable as we approach the next trade round. Foreign countries retain export subsidies and other trade-distorting practices that we do not. If we are reckless, we risk inverting American agriculture into a Rust Belt.
If we negotiate carefully and rationally, however, there is enormous potential for responsible American producers to compete and prosper in a genuine free trade environment, free from the need for Government intervention.
[The prepared statement of Mr. Roney appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
STATEMENT OF ALAN TRACY, U.S. WHEAT ASSOCIATES
Page 101 PREV PAGE TOP OF DOC Mr. TRACY. Mr. Chairman, Mr. Stenholm, U.S. Wheat Associates represents wheat producers in 19 States. Our goal is to increase world wheat consumption and the U.S. market share. I thank the committee for the opportunity to comment on a subject of immense importance to the Nation's wheat producers, who rely on exports for nearly half of their income.
U.S. Wheat Associates brought the wheat industry together in March to develop a clear, written position for entering the WTO negotiations in order to speak with a unified voice on world trade issues. Our paper, Issues and Strategies for U.S. Wheat Producers for the Upcoming World Trade Organization Negotiations, will not be officially approved until next month, but I do wish to share it with the committee. I think you will find it quite consistent with the positions of most other major trade-oriented agricultural organizations.
I would like to focus on the trade-distorting practices of state trading enterprises, particularly the exporting monopolies of the Canadian Wheat Board and the Australian Wheat Board. This is a complex topic that is not widely understood.
Imagine being in a business where your largest competitor is at no risk of operating at a loss. That is the situation in which U.S. wheat producers find themselves, as monopoly sellers, with no profit or loss accountability, the boards utilized all or market-driventhey price their wheat at significantly different prices in different markets.
U.S. Wheat Associates has substantiated many reports of many price offers and sales by the Canadian Wheat Board and the Australian Wheat Board, offering wheat at discounts from $7 to $10 per ton below U.S. prices for comparable wheat at the time of the offer or sale. In a bulk product like wheat, that is often enough to tip the sale.
The boards use their monopoly position to deliberately undercut market prices or provide quality incentives in order to penetrate markets; whenever they do that, they are not only competing unfairly with our producers, they are cheating their own producers of a fair price for that grain. No U.S. exporter can sell wheat on a continuing basis at a price below its replacement costs, but their supply monopolies allow them to undercut world prices and pass that cost back to their producers.
Page 102 PREV PAGE TOP OF DOC A recent study indicates that Saskatchewan wheat farmers received from 50 cents to 75 cents less per bushel for their spring wheat and durum than North Dakota and Montana farmers received for comparable wheat at the same time. The study indicates that the U.S. system is more efficient in terms of shipping and handling, but it is also clear that the CWB price discounting results in lower returns to the Canadian producer. It also reduces returns to U.S. producers and it serves to distort market prices for all producers.
The CWB is able to partially offset its price discounts by charging premiums in captive markets such as Iran, Sudan or Cuba. Whenever the United States is absent from a hard wheat market, Canada is the only other major supplier, which gives the CWB plenty of leeway to set prices whenever they choose to.
Hopefully, forthcoming Department of Treasury regulations on licenses for U.S. exports to Iran, Sudan and Libya will allow us to compete in those markets. We urge the Congress, however, to act promptly to exempt U.S. food exports from all peacetime sanctions, including the restrictions on such exports to Cuba. That action would not only give us some meaningful new sales opportunities, it would also make it harder for the CWB to charge premiums on those currently captive markets that it can use to undercut us in other hard-won markets, such as Guatemala, Colombia, the Philippines and Taiwan.
Both the Canadian and Australian Wheat Boards are touting recent reforms; however, neither board has erased its mandate to account as a monopoly single-desk exporter. The CWB recently changed its board of directors to include 10 of the 15 members as elected grower-officials; however, it is still illegal for Canadian producers to sell wheat outside of the CWB monopoly.
The Australians ''reformed'' their wheat board into the Australian Wheat Board, Ltd. The AWB will no longer formally be a part of the Australian Government and the government will not guarantee its borrowings.
Page 103 PREV PAGE TOP OF DOC These changes do not reform the basic monopoly practice in either country. Their producers are still at the mercy of their boards, and calling their practices ''just another way of doing business'' as they often do, does not disguise their market manipulation. There is no internal competitive system at work within a country applying a monopoly board system. The STE sells at whatever price they choose, and the producer gets what is left, without benefit of the competitive factors that should impact profit or loss or logistics or handling efficiency.
We see strong support for true reform of the CWB among producers in western Canada. Such sentiments should allow Canada's WTO negotiators to accept new disciplines on STEs, or as we prefer to call them, state-sponsored export monopolies. Australia will also need to live up to their pro-trade rhetoric by agreeing to allow their own farmers to sell to whomever they choose.
Mr. Chairman, as you can see, we feel that the boards are unfair and market distortive. They are relics of a different era that cry out for elimination or at least the discipline of competition for their supplies. This trade round can be the beginning of the end, we hope, for the export monopoly positions of the boards. We are concerned, as our paper lays out, about a number of issues such as the Agenda 2000 in Europe, the GMO controversy, export subsidies, domestic supports and trade restrictions. In order to begin work on such a vital and broad agenda, we urge this committee's strong, bipartisan support for trade negotiating authority.
The only reason to oppose TNA is if you are satisfied with the status quo. I assure you that the U.S. wheat industry is not happy with the status quo, and we strongly support your granting the administration this necessary authority.
Thank you very much.
The CHAIRMAN. Thank you very much.
[The prepared statement of Mr. Tracy appears at the conclusion of the hearing.]
Page 104 PREV PAGE TOP OF DOC The CHAIRMAN. Mr. Christopherson
STATEMENT OF AL CHRISTOPHERSON, PRESIDENT, MINNESOTA FARM BUREAU, ON BEHALF OF THE AMERICAN FARM BUREAU FEDERATION
Mr. CHRISTOPHERSON. Thank you. I am Al Christopherson, the president of the Minnesota Farm Bureau Federation and member of the board of directors of the American Farm Bureau. I own and operate nearly 1,800 acres on a family farm that raises hogs, corn, soybeans and wheat. And most of all, I appreciate the opportunity to share some comments with you today.
The United States has an unprecedented opportunity at the Seattle ministerial to shape the WTO negotiations which will influence agricultural trade for decades to come. The U.S. food and agriculture community is approaching the Seattle Round as a unified front by forming the threat of an agriculture coalition of over 70 associations and companies from producer to processor.
The board of directors of the Farm Bureau has formally adopted the SRAC policy positions as our negotiating objectives. Regarding objectives for the Seattle Round, Farm Bureau supports expediting action on the next round for agriculture and the WTO. We must begin the negotiations and conclude them by the end of 2002 to ensure that our producers gain increased market access in a timely manner.
Second, we support a single undertaking for the next round wherein all negotiations conclude simultaneously.
Third, we must call for the elimination of export subsidies by all WTO member countries.
Fourth, we believe that the new negotiations must include a recommitment to binding agreements to resolve SPS issues based on scientific principles in accordance with the WTO SPS agreement. The provisions of the WTO SPS agreement are sound and do not need to be reopened.
Page 105 PREV PAGE TOP OF DOC Fifth, the next round should result in tariff equalization and increased market access by requiring U.S. trading partners to eliminate tariff barriers within specific frames.
Sixth, we must impose disciplines on state trading enterprises that distort the flow of trade in world markets. Every effort should be made to craft an agreement that sheds light on the pricing practices of STEs and end their discriminatory practices.
Seventh, we must ensure market access for biotechnology products produced from Genetically Modified Organisms commonly called GMOs.
We understand that the administration is currently considering a proposal to create a working party on biotechnology in the WTO. We do not support the creation of a WTO working party on biotechnology as we believe it would sideline the issue when it is better to include GMO issues on the negotiations from the very beginning.
Next, we must end the use of all nontariff barriers to trade. Provisions to address nontariff barriers should be written into the new agreement on agriculture.
Finally, our negotiators must make changes to trading practices that would facilitate and shorten the dispute resolutions procedures and processes. Regarding China's accession to the WTO, we need China to accede before the ministerial conference to ensure that China is bound to the new provisions that will be negotiated in the next round.
Every effort should be made by the administration to conclude the final elements of China's accession package and by Congress to grant NTR and permanent NTR to China to ensure that U.S. agriculture and other sectors benefit from this substantive agreement.
In summary, the United States has tremendous opportunity to shape the agenda for the next round and should demonstrate to the world that we are committed to opening new markets, including China, for U.S. agriculture. Given the economic turmoil being experienced in many of our important export markets, the launching of new negotiations to further open markets has never been more important.
Page 106 PREV PAGE TOP OF DOC Thank you very much.
The CHAIRMAN. Thank you very much.
[The prepared statement of Mr. Christopherson appears at the conclusion of the hearing.]
The CHAIRMAN. Mr. Swenson.
STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL FARMERS UNION
Mr. SWENSON. Thank you, Chairman Combest and Congressman Stenholm and Congressman Minge. It is an honor to be here. And first of all, let me recognize your commitment to spend the time you have today, the number of testifiers you have had; and I will try to keep my comments very short so you can get to what questions you may want to ask, considering that you have my written testimony, I think, for review.
I would like to offer this, and that is that as we approach the Seattle Round, I think it is important to remember the decisions made and how they impact producers. A lot of times we have emphasis on trade, but we look at the level of traders, rather than looking at how it impacts producers.
We can take a look at a number of points that have been raised at this hearing, and I think it should be the focus to be addressed at the next Seattle Round. How we deal with currency fluctuations, not ones that occur 3 to 4 to 5 percent range, because of the normal changes in the global economy, but those that will occur to be in the 40, 50, 60 percent range, because of political decisions made in some countries, that have come back to be economically devastating to U.S. producers, and how are we going to deal with that either on a global basis, or what structure do we have to deal with that domestically if we are the country that has producers that are impacted in specific commodities?
I think we also need to address aggressively the timely and workable dispute resolution process. It has been anabsolutely been a failure. And the trade agreement is perceived by many producers to be a failure, because we have not had a timely and workable dispute resolution process; and farmers pay the price because of lower prices. We need to also make sure in the trade agreements as to how it affects the right of domestic policy.
Page 107 PREV PAGE TOP OF DOC I believe that we have seen a change in our domestic policy, in relation to the trade agreements, that has lowered farm income, the inability to be flexible because of changes in lack of demand on a global basis, but it has also then resulted in the fact that we have seen greater concentration unfold in agriculture.
There is a lot of talk about price transparency. Let us make sure that we not only look it on the STE basis, but let us look at it on a private-sector basis as well. More and more producers in this country, not just in livestock, but in grains as well, are finding themselves with a smaller portion of the market really setting the price discovery system in our structure of markets.
So I share those concerns with you and also the fact that as we take a look at the Seattle Round, if we want to be visionary, I think the vision leads us to the fact that we have to look at labor, environmental, health and safety standards as part of the discussion, because as we see what has happened with the GMOs and within the phyto sanitaries, if we are not willing to now look at the next step, we will have those issues come back and affect us as producers in a political arena as great as what we have seen happen in phyto sanitary.
I think we also have to look at how will we provide the ability for producers to be compensated for helping reduce worldwide greenhouse gas emissions; will that be on the global basis or will it be a domestic policy and will we have a right to do that?
In closing, the Farmers Union will oppose if the United States attempts to sacrifice the sugar, the peanut, the tobacco program, that I believe has served our producers well, served our consumers well, just on the altar of free trade for the next step. We would also strongly oppose the right of Congress to deal with disasters that exceed levels that are compensated through risk management programs that may affect agriculture from time to time. And I have heard discussions that they may be on the table for elimination.
We cannot give up our leadership role in global agriculture, but we also need to make sure that family farmers and ranchers are a viable part of their communities and have an economic opportunity to survive.
Page 108 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement of Mr. Swenson appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Swenson.
Let me just make a comment relative to your comment, Mr. Swenson, about disasters. We can't eliminate future Congress' ability to deal with disasters. I have commented a number of times, I think the fact we have to have disaster bills shows an inadequacy of the program. What I want to do is strengthen the program so that it is so good that you don't have to worry about having disaster programs in the future.
I had mentioned earlier to Ambassador Barshefsky, and I said it to her privately; I said it a number of other times; and I feel very strongly about it and some of you have touched on it today, that one of the biggest threats to trade policy is our inability to make certain that agreements are adhered to. You have a certain group of people who are going to be against fast track or trade agreements under any circumstances. But you take the people who are for it, and if they have confidence in the agreement, then they are going to lose any confidence if agreements are not adhered to and, therefore, support for fast track. I think you lose then your public support for trade.
So I think it is one of the most critical areas that we have to make certain that we deal with. And I have and I will continue to applaud Charlene Barshefsky for the work that I am aware she is doing in this area, because there are obviously some limitations.
Ms. Gleason, I appreciated the direction of your testimony. Obviously this is something you have looked into a great deal and I would agree that certainly there needs to be some renegotiations of the time frames involved.
What do you think about a penalty proposition, to be incurred on the party that a dispute goes against, when they are not responding in an appropriate time fashion?
Page 109 PREV PAGE TOP OF DOC Ms. GLEASON. If I may, let me ask you to help me better understand how you would conceptualize a penalty. Do you mean by that, relief that would accrue earlier; or do you mean that not only would the winning party be able to rebalance interests if there wasn't relief, but they would be able to do something in addition to that?
The CHAIRMAN. Yes, in addition to. And I don't know how you would impose that and I don't know for certain on whom, but I think there has to be some incentive for someone to move rapidly.
I like your idea of basically, of going back to the date in which the discussion was begun. We need something that puts real teeth into this?
The retaliation basically is all we have now and no matter how selective one can be in retaliation, we are affecting some American jobs. If a product is sold in this country, then there are some Americans who are affected by that. So if we retaliate on one product that is being imported from some other region of the world because of some third product which we are trying to get at, somebody here is affected. Retaliation may not always be a fair response to a trade dispute.
Ms. GLEASON. Right. I am four-square beyond the notion that there needs to be built into the system disincentives to violate, international disciplines. Our multilateral system has never in its 50-year history been premised on that notion, as you know. When it was created, it was seen as, in effect, a diplomatic context, not a judicial one.
We are creeping incrementally towards a judicial approach, which I think is ir reversible. With that, over time, I think its membership will come to accept that since you were not according relief as of the date of the breach, there needs to be some additional benefit accorded to the winner. A penalty assessed on the loser would make the system better approximate the whole of the injury suffered. So, I endorse the concept. As you well know, it will face extraordinary resistance among the WTO membership.
Page 110 PREV PAGE TOP OF DOC The CHAIRMAN. Getting there exactly and how you put that in place is going to be the challenge. But it almost seems today that it is set up for someone to try to take advantage of.
Ms. GLEASON. No question about it.
One possibility for assessing the penalty is, in the retaliation stage, when you calculate damage suffered by the injured party, why shouldn't it be assessed as of the date of the breach? Why should it be only an annual calculation? If you take the example of bananas, and the situation is no different on beef, the damage assessed was $200 million annually, but the practice has been in effect since 1993, so you are talking about damage to U.S. interests in excess of $1 billion.
Why shouldn't there be some ability to rebalance on that basis?
The CHAIRMAN. Yes, I think those are very good suggestions in regards to how we may want to try to get there. But I do think there has to be some change, and as you say, the difficulty is going to be in coming to that agreement.
Let me just ask you very quickly, Ms. Keith, and let tell you where we are. We have a series of votes and rather than holding you, what we would like to do is try to wrap this up and let you go. We will conclude the hearing before I have to leave for votes. I will recognize Mr. Minge in just a moment, and then we can conclude with him. We may have some additional questions we need to ask of you, but I will, in deference to your time, let you go in just a minute.
You had made some comments in regard to the fact that you want to provide protection, but at the same time you don't want to make it such an incentive that you encourage production for a market that doesn't exist.
Should we go back to acreage production controls?
Ms. KEITH. Absolutely not. Acreage production controls did not work. We can track corn production much more closely to yield, which is weather related, rather than the size.
Page 111 PREV PAGE TOP OF DOC It is simply a very failed policy and farmers, if they like anything, it is the flexibility that they have under the FAIR Act.
The CHAIRMAN. Thank you.
Mr. MINGE. Thank you again, Mr. Chairman. And again I would like to just express my pride that there are two people from southwestern Minnesota on this panel, Mr. Christopherson, speaking on behalf the American Farm Bureau, and Mr. Swenson, who unfortunately has strayed away from our area, but his heart is still there, as we know.
As I think all of you know and, Mr. Chairman, as you know, I have been a supporter of the trade initiatives that we have taken, and I certainly have supported ridding ourselves of the sanctions that have affected our ability to sell to certain markets and continue to affect our ability in the handful of countriesto affect sales that would be important to American farmers. And I, too, believe that we should go ahead with the accession of China to the WTO, but I am very troubled by the current state of the farm economy and some of the implications that that has for the future of our farmers and ranchers in America.
And as I visit with farmers in our area, I sobered by the fact that if you are going to play in an international market or participate in an international market, you have to have the tools and the time and expertise to participate in such a way that you can and handle the risks; and I think we are expecting an awful lot of the typical American farmer to think not only is he an expert on agronomy, animal husbandry, mechanics, and just bookkeeping, but also marketing and international finance.
It certainly exceeds, I think, the skills and the talents of almost any of us in Congress, perhaps everyone in Congress, and I am concerned that as we move ahead, we have to move ahead with a balanced approach. And a balanced approach includes some of the things I know the American Farm Bureau has pressed fortax reform, regulatory reform, which did not come as part of AMTA, or if it did, it was only to a far lesser extent than was expected as a part of the bargain.
Page 112 PREV PAGE TOP OF DOC And I am wondering, as we move ahead with this continued interest in trade, what else do you see as being a part of the equation of making sure that our typical American farmer continues to farm and that somehow that farmer is not a victim of globalization, but instead, a beneficiary of globalization? And I am interested in the views of any of you on the panel, but I know Mr. Christopherson and Mr. Swenson represent two farm organizations of general membership, as opposed to a specific commodity.
And if I can start with you, and then if I can still stay here before this votes takes place, pass this on to the rest of you.
Mr. CHRISTOPHERSON. Thank you, Congressman Minge.
Certainly we have to recognize that I think agriculture is different from what it was 5 years, 10 years, 15 years ago, et cetera. I think the market and the world markets are a given, based upon some of the things that you have heard here today with regard to the amount of production we have and the population that is in the world or not in the United States, as an example.
But I think the key element here is a safety net, something that we as farmers can utilize, recognizing that we are really just as dependent upon markets as we have always been. It is just that we need to finish the debate on the 1996 farm bill. There were several things in the 1996 farm bill that really were left undecided, never really were accomplished, and part of that was the dealing with risk, certainly price risk, yes, yield risk, yes, all of those types of things; and then as you had alluded to earlier, the removal of the sanctions, or in other words, help the U.S. farming industry to achieve some of those or access to some of those markets. And trade sanctions is not a help in terms of access to world markets.
Mr. SWENSON. Well, thank you, Congressman Minge, and Chairman Combest. I will try to be very brief and very direct.
First of all, I think it has to take a multifaceted approach. I commend the chairman and his leadership on risk management, and we look forward to working on that issue; it is a critical issue and it has got to serve agriculture well, not only from the commodities covered, levels covered, rates covered; we have to take a look. And when you talk about domestic programs, farmers like the marketing flexibility, but we need to strive right now for some equalization in the rates.
Page 113 PREV PAGE TOP OF DOC We are seeing right now where with there is cost subsidization in wheat producers, corn producers that are receiving the AMTA, and the case of AMTA-plus. And now taking a higher LDP available through the soybean rates, we have to look at some adjustments in those equalizations of rates so that we do plant for the market. Market signals are being distorted right now because of the inequities in the equalization of rates.
And we have a program we will work with you outside of this spectrum on how we think that can be done. I think, in the area of assessments of penalties, we have got to have a time frame, and they have got to be assessed when a country doesn't comply. And we have got to recoup the costs, not just for the Government treasury, but we believe that we can pass that out through the Trade Adjustment Assistance Act back to those that are impacted. Beef producers have been impacted, pork producers have been impacted, sheep producers have been impacted, and yet we haven't found a mechanism under the trade by which to compensate them.
The Trade Adjustment Assistance Act available to business and to employees that lose their job can be structured to fit agriculture and, I believe, should be put in place. I think the other area we have got to take a look at in the level field, when you take a look at chemicals used in Canada and the production of wheat, wheat moves across a border into the United States; they use chemicals banned in the United States, purchased at a lower cost than the chemicals purchased in this country. How do you equalize that?
I think it comes back to the currency fluctuation, how do we put a variable tariff, or whatever it may be, especially when variances hit a certain difference. But they impact producers, they impact producers firsthand.
The CHAIRMAN. The Chair, without objection, will keep the record of today's hearing open for 10 days to receive additional materials, supplementary or written responses from witnesses to any questions posed by members of the panel and upon the conclusion of the questions of the gentleman, Mr. Minge, the hearing is adjourned.
Page 114 PREV PAGE TOP OF DOC [Whereupon, at 2:20 p.m., the committee was adjourned, subject to th call of the Chair.]
[Material submitted for inclusion in the record follows.]
Statement of Hon. Dan Glickman
Mr. Chairman, members of the committee, I am pleased to join Ambassador Barshefsky to discuss the new round of multilateral trade negotiations on agriculture under the World Trade Organization (WTO).
IMPORTANCE OF TRADE TO U.S. AGRICULTURE
In my 4 years as Agriculture Secretary, I have learned anew what trade means to U.S. agriculture's bottom line. Early in my tenure, agricultural exports totaled nearly $60 billion annuallya record. That was a period of prosperity for our nation's farmers and ranchers. But in the last year and a half, we have seen a steep drop in the value of agricultural exports. As a result of three years of record worldwide production coupled with the crisis in Asian financial markets, agricultural exports plummeted, and farm prosperity took a nose dive.
The key lesson, from both the good and bad periods of the last four years, is the critical significance of trade to our farm economy. We obviously have to do other things toowe cannot live and breath trade and neglect domestic policies. But the fact is that one quarter of U.S. agriculture production is exported. If our farmers are going to continue to prosper, we must look to the global economy to provide new markets.
That means we need a free and fair trading system and reliable markets. Do not take my word for it, look at the facts. Since 1960, tariffs worldwide have fallen by 90 percent while global trade has grown 1,500 percent. World economic production has quadrupled, while per capita income has more than doubled.
The true test came in late 1997 and 1998 when 40 percent of the world's economies stumbled badly. We are not out of the woods yet, but we are seeing positive signs in the economies of South Korea and Thailand, without any retrenchment into protectionism.
Page 115 PREV PAGE TOP OF DOC In his last State of the Union address, President Clinton called on the nations of the world to tear down barriers, open markets, and expand trade; he said ''we must ensure that ordinary citizens in all countries actually benefit from trade.''
U.S. GOALS FOR AGRICULTURE
Nowhere is this more important than in agriculture. That is why the United States has developed a bold agricultural agenda for the millennium round that includes:
We want to eliminate export subsidies, which make for unfair trading practices and depress world commodity prices for all producers.
We must further reduce worldwide tariffs, which average 50 percent on agricultural goods in other parts of the world.
We need to expand market access by raising the ceilings on tariff-rate quotas, only as an interim measure as we try to phase them out over the long run.
We must open up the operations of State Trading Enterprises so that they face the same risks in the marketplace as private traders.
We must facilitate trade in new technology products, including biotechnology.
We must ensure the continued effectiveness of the rules governing sanitary and phytosanitary measures, so that science prevails and nations cannot mask protectionism behind unvalidated, secretive studies.
Since I first outlined these goals to the committee fifteen months ago, we at USDA have sought advice and ideas from all aspects of our agricultural industry as we refine U.S. agricultural trade policy goals for the next round.
For example, tomorrow, representatives from USDA, USTR, and the State Department will be in Indianapolis for the fourth of twelve regional listening sessions scheduled to gather public comments on the upcoming trade round and the goals for agriculture. We have heard from farmers and ranchers, processors, exporters, and state and local government officials. Their testimony has been thoughtful. The testimony we have heard so far has reflected a general support for our trade agenda, and a real desire for a more level playing field in the world trading environment. This and the remaining sessions will help broaden our understanding about trade policies most effective in helping increase U.S. agricultural exports.
Page 116 PREV PAGE TOP OF DOC We continue to work through the Agricultural Policy Advisory Committee and the five Agricultural Technical Advisory Committees for Trade to gather advice on the U.S. negotiating strategy. We announced the new committee members earlier this month, and we have scheduled meetings with all six committees over the next several months leading into the Seattle ministerial in November.
One area where we need to work together closely is domestic support. We need to reduce trade-distorting subsidies, and the United States has led the way in creating policies that minimize effects on world markets. But we also have more work to do in creating a safety net of farm support that helps our farmers weather the cycles of agriculture. Matching these two goals, minimizing market distortion and supporting the rural sector, will require creativity and sound, tactical planning, since we are likely to have to deal with writing a new farm bill before the results of the upcoming negotiations are implemented.
As we plan our negotiating strategy, we also are consulting with other countries. While we have many allies in our quest for freer and fairer world agricultural trade, there is, of course, considerable opposition. There are powerful voices who see agricultural trade not as a win-win situation, but as a zero-sum game where the exporter wins and the importer loses. Many nations protect their domestic producers with artificial supports and block access to their markets with tariff and non-tariff barriers.
Everyone will benefit if the most populous country in the world participates in the new round. China's accession to the WTO would hasten its integration into the world economy and complement our efforts to maintain stability in the Pacific by linking China's economy more closely with the rest of the world's.
China's accession to the WTO would be a win for everyone. For the United States, the benefit is obviousa more level playing field in the world's largest market and greater consistency in a market that has been fairly erratic. A sound agreement with China will open Chinese agricultural markets to U.S. exporters, strengthen the world trading system, and give U.S. farmers and agriculture-related industries stronger protection against unfair trade practices and import surges. The principles of the WTOtransparency, fair trade practices, peaceful settlement of disputes, the rule of laware those we hope to advance in China and worldwide.
Page 117 PREV PAGE TOP OF DOC Since 1 in 5 people live in China, our trade relationship with the Chinese people becomes very important. With rising incomes, China will be a growing customer for agricultural products for years to come. Last year, China was the fourth largest market for U.S. agricultural products, buying more than $3.3 billion worth of soybeans and soybean oil, cotton, hides and skins, and a wide variety of other products, including meats, fruits, and vegetables. We believe this trade could expand significantly if we reduce the trade barriers between China and the United States.
China is also one of our most capable competitors and a net agricultural exporter, with steady, record increases in grain production, plentiful grain stocks, and ample ability to further increase yields. As the world's largest producers of farm products, the United States and China need to work together to promote an open world trading system. The United States will work with China to build a strong trade partnership, but the timing of China's accession is up to China.
Mr. Chairman, everyone in this room knows the importance of trade to U.S. agriculture. In the past year, we've been sobered by a global financial crisis that devastated many of the emerging Asian economies and softened demand in Russia, one of the world's most important markets for meat. While we are seeing some strengthening in the Asian economies, we continue to face global oversupply of many commodities that sent prices plunging to their lowest levels in years. We have learned that our farmers cannot rely on trade as their only safety net, but we must continue our efforts to reform world agricultural trade so they have new, more open markets.
As President Clinton said earlier this month in Chicago, ''We ought to continue to expand trade. We ought to enforce our agreements more vigorously. But I do not believe that a country with 4.5 percent of the world's people can maintain its standard of living if we don't have more customers.''
Page 118 PREV PAGE TOP OF DOC To realize the potential of the global marketplace, we have a lot of work ahead of us. We must construct a world trading system where every producer gets a fair shake and where all products, goods and services are traded freely across oceans and continents.
The next round of WTO negotiations will be a turning point, and we will be working hard to help American agriculture realize that potential.
Statement of Charlene Barshefsky
Chairman Combest, Congressman Stenholm, members of the committee, thank you very much for inviting me to testify on our agricultural trade agenda.
This is a timely hearing. A new Round of global trade negotiations is set to begin this winter, when the United States hosts and Chairs the World Trade Organization's Third Ministerial Conference in Seattle, and agriculture will be at the heart of this Round's agenda. A successful conclusion promises American farm and ranch families significant new opportunities and stronger guarantees of fair treatment in world markets, together with better prices for consumers.
We are now developing negotiating objectives, in consultation with Congress, farm and ranch organizations, consumers, the food industry and others interested in agricultural policy and trade. Thus, I am pleased to appear before the committee today. My testimony will review our broad agricultural trade goals, place the Round in the context of the progress we have made in the past six years, and outline the process by which we are developing detailed objectives.
AGRICULTURAL TRADE GOALS
Mr. Chairman, American farmers are the most competitive and technically advanced in the world, producing far more than we can ever eat. Thus we have the opportunity to export to the 96 percent of humanity that lives beyond our borders; and with one in three farm acres now producing for foreign markets, we must export to remain profitable at home.
Page 119 PREV PAGE TOP OF DOC These realities are the foundation of our agricultural trade policy. Under President Clinton and Vice President Gore, our work has covered five broad areas. We have sought to:
reduce tariffs and other barriers to trade;
ensure that sanitary and phytosanitary standards are based on science;
promote fair trade by reducing foreign export subsidies and trade-distorting domestic supports;
ensure greater transparency and fairness in state trading; and
help guarantee that farmers and ranchers can use safe modern technologies, in particular biotechnology, without fear of trade discrimination.
The foundation of this work is its direct benefit to our agricultural producers. But each item on our agenda is also rooted in a broader humanitarian vision.
As American producers benefit from open markets, consumers abroad have more diverse supplies of food, helping guarantee food security and prevent famine during natural disasters.
As we reduce export subsidies, we ensure fairness for American farmersand for farmers in developing countries whose governments lack the resources to fight back.
And as we ensure respect for science in food safety and biotechnology, we protect public health and reduce pressure on land, water and wildlife habitat.
ADMINISTRATION AGRICULTURAL TRADE RECORD
These goals have been based upon a bipartisan consensus for open and fair markets in agriculture dating back to the initiation of the Uruguay Round negotiations in the 1980's. Under the Clinton administration, the results of our work have been substantial.
Opening World Markets. With the passage of the North American Free Trade Agreement in 1994, we won preferential access to our immediate neighbors. As a result, our agricultural exports to Mexico have grown from $3.6 billion in 1993 to $6.1 billion in 1998, a 70 percent increase, and exports to Canada from $5.3 billion in 1993 to over $7 billion in 1998. Together, these two countrieswith a total population of 120 millionnow buy over a quarter of our agricultural exports and provide American farmers with at least a partial shield against overseas economic crisis.
Page 120 PREV PAGE TOP OF DOC We have also negotiated bilateral agreements worldwide, in a very large range of commodities. Some examples include beef in Korea; apples and cherries in China; tomatoes and apples in Japan; almonds in Israel; a veterinary equivalence agreement with the European Union addressing sanitary issues blocking US live animal and animal products; citrus and other fruits in Brazil, Chile, Mexico and other countries; and the broad agricultural agreement with Canada concluded last December.
And with the completion of Uruguay Round in 1995, after forty-seven years of developing the trade system, we began to bring agricultural trade under fair and internationally accepted rules, in each area crucial to American agriculture:
We lowered tariffs and are on track to eliminate most quantitative restrictions.
We reduced trade-distorting subsidies.
We ensured that all WTO members110 at the time, 134 todaywould use sanitary and phytosanitary standards to protect human, animal and plant health rather than to bar imports.
And we won consensus on a ''built-in agenda'' that would mandate further negotiations in agriculture, as well as services, beginning in 1999.
At the same time, our colleagues at the FDA and the Department of Agriculture are intensifying food inspection at the border, to not only maintain but improve our food safety standards. This is especially important as imports have risen in recent years, to ensure that the American public will have the world's safest food supply as we get the benefits of open trade.
Enforcement. With these agreements complete, we have spent considerable time monitoring and enforcing compliance.
In most cases, our trading partners have met their obligations. However, for those cases in which they have not, the U.S. has used the strong dispute settlement mechanism to ensure that WTO members meet their commitments or suffer a penalty for failure. To be specific, we have used the dispute settlement mechanism in the past four years to enforce the Agriculture and SPS Agreements in thirteen separate cases from fruit sales to Japan, to pork in the Philippines, dairy in Canada, and of course the still unresolved banana and beef cases with the European Union.
Page 121 PREV PAGE TOP OF DOC The banana and beef cases are especially important, since they concern fundamentally important principles and precedents. They are the only two casesin agriculture or any other fieldin which defendants have refused to implement panel results. The banana case is the first test of dispute settlement in the General Agreement on Trade in Services; in beef, we are addressing respect for internationally recognized agricultural science. And both involve the confidence we and our public have that our trade partners will live by the results of WTO panel decisions. We expect full implementation of each decision and are taking measures to ensure it, beginning with our authorized retaliation of $191.4 million in the banana case and on the completion of arbitration with a similar retaliation for beef. When members refuse to live by the rules, they will pay a price.
AGRICULTURAL TRADE POLICY AND THE RURAL ECONOMY IN 1999
Before I turn to our agenda for the Round, let me say a few words about the importance of our trade initiatives in the context of the situation many farm families face today.
In the past year, a series of unpredictable eventsfinancial crisis overseas, natural disasters at home, and a boom in world productionhave placed many rural communities in great financial stress. The combined effect on American agricultural exports has been severe, with total exports dropping from over $60 billion in 1996 to $52 billion last year.
No farmer could foresee these eventsas Vice President Gore said to the Farm Journal conference earlier this spring:
''Anyone who has spent any time on a farm knows that both the beauty and the tragedy of the land is that it follows a rhythm far beyond our ability to predict or control.''
Trade policy forms part of a comprehensive response to this crisis. First, together with the domestic assistance measures undertaken by our colleagues at the Department of Agriculture, and the work of the Treasury Department to support IMF packages aimed at hastening economic recovery overseas, our bilateral trade agreements have created new markets which relieve some of the pressure on farm and ranch families.
Page 122 PREV PAGE TOP OF DOC To cite one especially important example, since our agreement with Canada gave Montana, North Dakota and Minnesota farmers access to the Canadian rail system, over 303,000 tons of wheat and barley have moved through Canada. That compares to virtually nothing last year. And the total has the potential to grow rapidlysince Canada has also now, as the agreement required, recognized fourteen U.S. states as free of karnal bunt, eliminating testing and certification regulations in grain. And with 26 states now able to ship feeder cattle to Canada under new animal health regulations, over 51,000 head of cattle have moved north in the 199899 marketing year.
At the same time, we have opposed protectionist responses to the financial crisis overseas, notably legislation imposing quotas on steel imports. Such a response would violate our WTO commitments, and likely result in a cycle of protection and retaliation that would claim victims in American farm communities.
THE NEW ROUND
Altogether, then, through the Uruguay Round, our bilateral and regional agreements and enforcement, we have created a foundation of commitments to open markets and respect science. American farm and ranch families face a far more open and fair international market than they did 6 years ago.
But we are very far from done. In the next decade, we can and should go well beyond the achievements of the 1990's, to make trade more open for our farmers and ranchers; encourage the most advanced and environmentally friendly agricultural technologies; and ultimately to increase the world's food security. And this brings me to the agenda for the new Round, set to begin when we host the WTO's Third Ministerial Conference in Seattle this November.
GOALS AND DEVELOPMENT OF NEGOTIATING OBJECTIVES
Broadly speaking, in this Round our goals will include:
Page 123 PREV PAGE TOP OF DOC improving administration of tariff-rate-quotas;
eliminating export subsidies;
reducing trade-distorting domestic supports;
stronger disciplines on the activities of state trading enterprises; and
guarantees that decisions on new technologies (such as biotechnology) will be made on scientific grounds through transparent regulatory processes.
In each of these areas, we are developing specific goals through consultations with Congress, agricultural producer and commodity groups and others interested in the Round. We have published, for example, notices in the Federal Register seeking public comment on agricultural and other policy goals in the Round, and are holding hearings on the WTO agenda through the Trade Policy Staff Committee nationwide.
We are also holding a series of Listening Sessions with the Department of Agriculture focusing specifically on agriculture. These began early this month and will continue through July. In these sessions, senior USTR officials and agricultural negotiators have traveled to Winter Haven, Florida; St. Paul, Minnesota; and Memphis, Tennessee to hear directly from farmers, ranchers, agribusiness on the agenda that will help them most. Another session will take place tomorrow in Indianapolis, Indiana. In the weeks ahead, we will hold Listening Sessions in Austin, Texas; Sacramento, California; Richland, Washington; Nebraska; Newark, Delaware; Burlington, Vermont; Des Moines, Iowa; and Bozeman, Montana.
Our specific negotiating objectives will flow from these consultations, as well as from discussions with Members of Congress, industry leaders and others. Thus, at this point, it is premature to discuss the precise goals we will set. However, I would like to discuss two key areas the Round will address in some more detail.
Common Agricultural Policy Reform
First, inevitably, a central focus of the next Round will be reform of the European Union's Common Agricultural Policy.
Page 124 PREV PAGE TOP OF DOC The Common Agricultural Policy (CAP), including $60 billion in trade-distorting subsidies and 85 percent of the world's agricultural export subsidies, is certainly the largest single distortion of agricultural trade in the world, and may well qualify as the largest distortion of any sort of trade.
Reform is in everyone's interest. The combination of high tariffs and subsidies make European consumers pay prices far above the world market rate for food. Export subsidies in particular place an immense and unfair burden on farmers in other countries, especially developing countries in Africa, Asia, Latin America and elsewhere.
While many European governments recognize that reform is essential, internal reforms have brought only minor change in the past two decades. The ''Agenda 2000'' package adopted by the EU in March is no exception, and in fact represented a retreat from a set of reforms advocated by EU Agriculture Ministers. Clearly, international efforts to bring significant change, including reduction of border trade barriers, domestic supports linked to production, and elimination of export subsidies through the new Round are essential.
A second key focus will be new technologies such as biotechnology.
Biotechnology has immense potential to develop strains of plants resistant to drought and other natural stresses, to improve yields, and thus to reduce hunger worldwide while easing pressure on land, water and wildlife. American farmers, as leaders in the biotechnology industry, must not suffer trade discrimination as a result of adopting scientifically proven techniques with these benefits.
However, we also recognize that biotechnology also raises some public and consumer concerns about potential unintended effects. This is especially true in Europe, where politicized and non-transparent regulationnot only in biotechnology but elsewherehave led to serious policy mistakes and fears about food safety.
Page 125 PREV PAGE TOP OF DOC These are fears we must address squarely, through transparent, scientifically based, and accessible regulatory procedures. Such procedures should reveal any potential threats, while allowing farmers, consumers and the environment to win the maximum potential benefit of these techniques. Through the Transatlantic Economic Partnership discussions with the EU, we have agreed to establish a pilot project to enhance transparency and access to regulatory procedures, under which we will strive to agree on common data requirements for the acceptance of biotechnology products.
As we develop our negotiating objectives, we are also setting precedents and developing consensus through WTO accession processes and the regional trade initiatives we have begun in each part of the world. Let me begin with the accessions.
The WTO now has 134 members. But outside the system, unaccountable to its rules on market access and standards, remain about 1.5 billion peopleabout a quarter of world population. Thirty economies are now applying to enter the WTO, including some of the world's largest nations and traders.
Our goal, ultimately, is to bring all these into the system, on commercially meaningful grounds. In each case, we are requiring high standards in agriculture, including immediate acceptance of the Sanitary and Phytosanitary Agreement, renunciation of export subsidies, improved transparency in any existing state trading arrangements and significant market-opening measures. This has intrinsic benefits for American producers in each individual market, and also helps establish precedents and foundations for broader application in the Round.
Since December, we have completed three accessions (Kyrgyzstan, Latvia and Estonia), finished our bilateral negotiations with Taiwan, and made significant progress with nine other economies: Albania, Armenia, China, Croatia, Georgia, Jordan, Lithuania, Moldova and Oman. In the case of China, which is of course the largest prospective new economy in the WTO, while some services and rules issues remain for discussion, agricultural negotiations are complete and include a very strong set of commitments in market access, renunciation of export subsidies, tariff-rate quotas and other issues.
Page 126 PREV PAGE TOP OF DOCROLE OF REGIONAL TRADE INITIATIVES
At the same time, we are working with other trade partners to build consensus and eliminate such disputes as may exist early. The regional trade initiatives we have opened in each part of the world, in addition to their significant potential trade benefits to farmers and ranchers, play an essential role in this process. Several especially significant examples are as follows:
Western Hemisphere: Talks aimed at creation of the Free Trade Area of the Americas began in Miami last fall. By the end of 1999, they are scheduled to complete an ''Annotated Outline'' of a prospective agricultural chapter of the final agreement. This process will help us build consensus among Western Hemisphere democracies for our goals in the Round, and has already won consensus for elimination of export subsidies in this hemisphere.
Asia-Pacific: Asia-Pacific Economic Cooperation (APEC) meetings have allowed us to work toward consensus on issues with our Pacific trading partners. Next week, for example, I will travel to Auckland, New Zealand, for a Ministerial Conference at which I will address issues such as tariff reduction, export subsidy elimination and others.
Europe: In the Transatlantic Economic Partnership, one of the seven areas of concentration is agriculture, with a special focus on biotechnology. Our goal here is to increase European transparency and work toward development of a sound, transparent regulatory system that will allow timely approval of scientifically proven biotechnology products for the European market. As noted above, during the US-EU Summit this week we reached agreement on a pilot project to help develop such a system.
Africa: The President's Economic Partnership with Africa has allowed us to engage African countrieswhich make up 38 of the WTO's 134 membersin a fundamentally improved way. We view agriculture, and in particular elimination of export subsidies, as an area of common interest with Africa, as developing country farmers are more disadvantaged by export subsidies than any other farmers.
Page 127 PREV PAGE TOP OF DOC In summary, Mr. Chairman, our agricultural trade policy throughout the Clinton administration has created markets for American farmers and ranchers; reduced distorting subsidies; and helped promote the use of science to ensure food safety, consumer protection and fair trade.
The next Round offers us a chance to go further in all these areas. In the months ahead, we will consult closely with you, along with agricultural, consumer and other groups, on the detailed objectives that will serve our nation's agricultural interests best. At the same time, through bilateral negotiations, WTO accessions and our regional initiatives, we will set the precedents and develop the international consensus necessary to ensure successful negotiations.
Although American agricultural producers are living through a very difficult period, when we look ahead, I believe our farm and ranch families can see a very good future. We can realize very significant opportunities through trade in the next three years. These will combine with policies our colleagues at USDA and in the administration as a whole are advancing at homean improved safety net; lower interest rates; a better infrastructure; investments in scientific research and rural education. Thus, we can help make sure that America's farmers and ranchers will be able to make the most of their talent and get the full benefit of their hard work; and that their families continue to enjoy a good life on the land.
Statement of Al Christopherson
Mr. Chairman, members of the committee, I am Al Christopherson, president of the Minnesota Farm Bureau Federation and a member of the board of directors of the American Farm Bureau Federation. I own and operate nearly 1,800 acres on a family farm that raises hogs, corn, soybeans and wheat. I appreciate the opportunity to testify before you today regarding the upcoming World Trade Organization (WTO) Ministerial Conference and our specific negotiating objectives for agriculture in the Seattle Round and China's accession to the WTO.
Page 128 PREV PAGE TOP OF DOC 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. Agriculture is one of the few U.S. industries that consistently runs a trade surplus, posting a positive balance of trade every year since 1960. The U.S., along with agriculture, must be at the negotiating table in the next WTO round in a meaningful way, with trade negotiating authority, to ensure that this trade surplus continues.
The ability of U.S. agriculture to gain and maintain a share of global markets depends on many factors, including obtaining strong trade agreements that are properly enforced, enhancing the administration's ability to negotiate increased market access for U.S. agriculture and building in the necessary changes to the WTO dispute settlement process to ensure timely resolution of disputes.
When Congress passed the 1996 Freedom to Farm Act, it phased out farm price supports, making U.S. agriculture more dependent on the world market. American farmers and ranchers produce an abundant supply of commodities far in excess of domestic needs and their productivity continues to increase. Exports are agriculture's source of future growth in sales and income.
As you are well aware, U.S. agriculture is reeling from low commodity prices. Given an abundant domestic supply and a stable U.S. population rate, the job of expanding existing market access and opening new export markets for agriculture is more important than ever. Agriculture's trade surplus will not continue if we are relegated to the sidelines as new negotiations in agriculture commence.
Moreover, global food demand is expanding rapidly and more than 95 percent of the world's consumers live outside U.S. borders. Despite significant progress in opening U.S. markets, agriculture remains one of the most protected and subsidized sectors of the world economy. In addition, U.S. agricultural producers are placed at a competitive disadvantage due to the growing number of regional trade agreements among our competitors.
Page 129 PREV PAGE TOP OF DOC U.S. leadership of the global trade liberalization agenda has paid off for American agriculture. If the United States now leaves it to others to form new trade pacts and write future rules for trade, U.S. producers, processors, and exporters will be severely disadvantaged in the competitive marketplace of the 21st century. We are counting on this administration and Congress to ensure that U.S. farmers and ranchers have a significant place at the negotiating table, armed with the tools they need, including trade negotiating authority.
THE WTO MINISTERIAL CONFERENCE
The United States will host its first ever WTO trade ministerial in December of this year. This ministerial will serve as the kickoff for the new negotiations on agriculture and other sectors in the WTO. As the host country for this ministerial, the United States and its trade policies will be in the spotlight. We have before us an unprecedented opportunity to shape the WTO negotiating agenda which will influence agricultural trade for decades to come. This is also our chance to showcase U.S. agricultural strengths and highlight our ability to export high quality agricultural products to destinations around the world. Given the economic turmoil being experienced in many of our important export markets, the launching of new negotiations to further open markets and promoting U.S. agriculture on the world stage have never been more important.
THE SEATTLE ROUND AGRICULTURAL COMMITTEE (SRAC)
The U.S. food and agricultural community is approaching the Seattle Round as a united front by forming an agricultural coalition of over 80 associations and companies to prepare for these negotiations. This coalition, the Seattle Round Agricultural Committee or SRAC, was formed in January of this year and represents U.S. agriculture from producer to processor. The SRAC has published its policy positions on the negotiating objectives for agriculture (see attachment) and is planning events for the Seattle Ministerial that will showcase U.S. agriculture. The board of directors of the American Farm Bureau Federation has formally adopted the SRAC policy positions as our negotiating objectives. In addition, our organization plays a pivotal role in the SRAC by serving as the chair of its meetings.
Page 130 PREV PAGE TOP OF DOCOBJECTIVES FOR THE NEXT ROUND
Higher living standards throughout the world depend upon mutually beneficial trade among nations. We urge that trade policies be developed that promote growth in world trade.
To this end, U.S. negotiators must comprehensively address high tariffs, trade-distorting subsidies, and other restrictive trade practices in the new round of negotiations on agriculture.
Farm Bureau supports expediting action on the next round for agriculture in the WTO. Our market is the most open in the world. We cannot sit idly by while our competitors trade openly in our market, but deny us access to their markets on equal terms. We must begin the negotiations and conclude them as early as possible to put U.S. agricultural producers on a level playing field with the rest of the world. To this end, we have set a goal to complete the agricultural negotiations by the end of 2002 to ensure that our producers gain increased market access in a timely manner.
Second, we support a single undertaking for the next round wherein all negotiations conclude simultaneously. This format would prevent other countries from leaving the difficult agricultural negotiations until the bitter end while cherry picking the easier negotiations in other sectors. We believe that a short timeframe for the next round, coupled with a single undertaking approach, will prevent long drawn out negotiations that become too complicated to conclude expeditiously.
Third, we must call for the elimination of export subsidies by all WTO member countries. Our producers cannot compete against the mountain of spending by our primary competitors, such as the European Union (EU). The EU spends in excess of eight times the level of domestic and export subsidies as the United States. Data from the U.S. Department of Agriculture and the European Commission show that total EU domestic and export subsidy expenditures for 1997 exceeded $46 billion compared to $5.3 billion spent by the United States. This level of spending distorts world trade and undermines U.S. producers' competitiveness in vital export markets.
Page 131 PREV PAGE TOP OF DOC Fourth, we believe that the new negotiations must include a recommitment to binding agreements to resolve sanitary and phytosanitary issues based on scientific principles in accordance with the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement). The provisions of the SPS Agreement are sound and do not need to be reopened. The United States has successfully litigated several SPS cases that underscore the strength of this agreement. Cases have now been tried that set precedence in each of the three areas of the SPS Agreement. For example, the successful U.S. litigation of the EU beef ban strengthens the provisions regarding human health, the Japan varietal testing case underscores aspects regarding plant health, and the Australia salmon case bolsters the animal health text of the SPS Agreement. Any change to the SPS Agreement would expose the sound scientific principles now embedded in its provisions - changes that the EU would relish making to restrict rather than facilitate trade.
Fifth, the next round should result in tariff equalization and increased market access by requiring U.S. trading partners to eliminate tariff barriers within specified time frames. Our producers compete openly in their own domestic market with their foreign competitors, but are shut out of export markets due to prohibitively high tariffs. We need to correct this imbalance for our farmers. All WTO member countries should reduce tariffs, both bound and applied, in a manner that provides commercially meaningful access on an accelerated basis.
Sixth, we must impose disciplines on state trading enterprises (STEs) that distort the flow of trade in world markets. Every effort should be made to craft an agreement that sheds light on the pricing practices of STEs and ends their discriminatory practices. Our producers have lost too many sales in third country markets due to the noncompetitive, nontransparent operations of STEs.
Seventh, we must ensure market access for biotechnology products produced from genetically modified organisms (GMOs). Significant delays and a lack of transparency in the regulatory approval process for GMOs in the EU have heightened the need for science based, transparent provisions governing bioengineered products. We cannot continue to be held hostage to the EU's nontransparent, discriminatory procedures that deny market access for our GMO products.
Page 132 PREV PAGE TOP OF DOC We understand that the administration is currently considering a proposal to create a working party on biotechnology in the WTO. Creating a working party would sideline this important issue in the WTO at a time when we should be negotiating how to ensure market access for GMO products. In addition, it is not certain that the working party will reach a concensus in a timely fashion, thereby further delaying a resolution on biotechnology in the WTO. Therefore, we do not support the creation of a WTO working party on biotechnology as we believe it is better to include GMO issues in the negotiations from the very beginning. Instead, we support a legal interpretation of the WTO SPS Agreement to formally acknowledge that this agreement covers biotechnology products. Such an interpretation would prevent a formal opening of the SPS Agreement, thereby avoiding a renegotiation of its sound provisions.
Next, we must end the use of all nontariff barriers to trade. There are several practices that have been employed by our trading partners to shut out competition in their domestic markets. These practices include, but are not limited to, domestic absorption requirements, discriminatory licensing procedures, price bands, and the administration of tariff rate quotas (TRQs) that prevent true competition. Provisions to address these and other nontariff barriers should be written into the new agreement on agriculture.
Finally, our negotiators must make changes to trading practices that would facilitate and shorten dispute resolution procedures and processes. The process for a WTO dispute settlement case typically runs three years, if the WTO ruling is implemented. We have seen in both the EU banana and EU beef cases that compliance is not always assured. Our trading partners cannot be allowed to unilaterally weaken the very principles that we negotiated in the Uruguay Round Agreement. The expedited dispute settlement process for perishable agricultural products outlined in the WTO Dispute Settlement Understanding should be modified to allow the procedure to be used if the aggrieved party requests it. Currently, the WTO requires that both parties in a case agree to use this procedure. As a result, it has never been used. This simple change should be enacted promptly. Doing so would address the fundamental problem of a dispute settlement procedure that requires too much time and prevents market access for several marketing seasons before a resolution is reached.
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CHINA'S ACCESSION TO THE WTO
The future holds great promise for U.S. agricultural exports to China if the recently concluded agricultural provisions are adopted as part of China's accession to the WTO. American Farm Bureau estimates that our exports to China will grow from $1.7 billion today to over $3 billion if China's accession is granted. We urge the administration to complete this important accession agreement quickly and ask Congress to support both normal trade relations (NTR) with China and permanent NTR for China.
The WTO accession agreement is critically important to the entire U.S. agricultural sector. Significant tariff reduction commitments were made by China in that agreement. Specifically, China agreed to cut tariffs on most meat products to 12 percent from 2045 percent, on cheese to 12 percent from 50 percent, on tobacco to 10 percent from 40 percent and on several fruits and nuts to 10 percent. The average tariff on agricultural imports into China will drop to 17.5 percent from as high as 65 percent. These concessions will represent a true market opening for U.S. agricultural exporters and will have a significant positive effect on U.S. farm income at a time when farm receipts are declining rapidly.
Concerning tariff rate quotas (TRQs), China agreed in its accession agreement to establish TRQs for wheat, corn, rice and cotton. To ensure market access for these commodities, the United States negotiated specific licensing arrangements that guarantee our producers the right to import. As you know, China currently exercises considerable market control over these commodities through existing state trading enterprises. However, China has agreed to reserve portions of the proposed TRQs for wheat, corn, rice and cotton for licensed traders and to relinquish unfilled TRQ quantities to such traders by a certain date in the quota period each year once it joins the WTO. Finally, China agreed to remove the TRQ on soybeans, barley and certain vegetable oils and to phase-out its TRQ on soybean oil.
Page 134 PREV PAGE TOP OF DOC Reforming China's market control over certain grain products through its STEs would greatly benefit U.S. agricultural producers. Without the rules of the WTO to govern its practices, China will continue to provide significant support to its domestic grain producers. If China does not accede to the WTO, China's practices of government intervention in domestic production and marketing of grains and the release of large quantities of excess grain onto global markets with substantial export subsidies will go unchecked and will continue to disadvantage our producers. However, if China joins the WTO, it will end its use of export subsidies and will implement specific transparency disciplines on its pricing practices.
In addition to its WTO accession commitments, China has agreed to immediately eliminate SPS barriers to trade for U.S. exports of wheat, citrus, meat and poultry products. This bilateral SPS commitment reflects China's willingness to make the necessary market opening concessions to become a WTO member.
We need China to accede to the WTO before the WTO Ministerial Conference commences to ensure that China is bound to the new provisions that will be negotiated on agriculture in the Seattle Round. Every effort should be made by the administration to conclude the final nonagricultural elements of China's accession package and by Congress to grant NTR and permanent NTR to China to ensure that U.S. agriculture, and other sectors, benefit from this substantive agreement.
In summary, we support liberalization in global agricultural markets that will result in true reform of the current trading regime and bring about fair trade for our producers, but would oppose environment and labor provisions that are trade restricting rather than trade facilitating. The United States has a tremendous opportunity before it to shape the agenda for the next round and should seize this chance to demonstrate to the world that we are committed to opening new markets, including China, for U.S. agriculture. Given the economic turmoil being experienced in many of our important export markets, the launching of new negotiations to further open markets has never been more important.
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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. 96 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.
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.
Page 136 PREV PAGE TOP OF DOC 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.
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.
Page 137 PREV PAGE TOP OF DOC 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 138 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.
Statement of Curtis Griffith
Thank you Mr. Chairman. I am Curtis Griffith, a cotton ginner and producer from Lubbock, TX, and I am providing this testimony on behalf of the National Cotton Council, the central organization of the U.S. cotton industry. The Council represents the interests of all seven cotton industry segmentsproducers, ginners, warehousers, cooperatives, merchants, oilseed crushers and textile manufacturers. For several years I have been involved in trade related issues for the Council. Currently, I serve as a member of the Council's Policy Advisory Committee on Trade.
I would like to thank the committee for affording us the opportunity to present our views on the upcoming round of multilateral trade negotiations under the auspices of the World Trade Organization. International trade and the treaties that govern it are extremely important to the U.S. cotton industry. The United States typically exports between 6 and 8 million bales of cotton annually, accounting for about 40 percent of our total production. Exports of cottonseed and its products exceeded $90 million in value in 1997/98, and this excludes the value of food exports prepared using cottonseed oil.
Page 139 PREV PAGE TOP OF DOC Our domestic textile industry is the market for about 11 million bales, approximately 60 percent of our annual production. Investments in state of the art technology, greater efficiencies and NAFTA have greatly improved the competitiveness of the U.S. textile industry, to the extent that about 40 percent of U.S. textile production is currently exported. But our textile industry now finds itself under siege from a flood of cheap cotton textile imports, primarily from Asia due to that region's ongoing financial crisis. Whereas the textile industries of some Asian countries were only 20 percent export-driven pre-crisis, many are now exporting upwards of 80 percent of their textile production. In 1998, imports surged to 65 percent of total U.S. consumption as Asian textile producers, faced with depressed home markets, dumped surplus production onto the U.S. market.
Somewhat unique among major agricultural commodities, cotton is primarily an industrial raw product, not a foodstuff. As such, the environment in which we compete is shaped not only by the agricultural policies of our competitors, but also by their textile and apparel policies. WTO agreements on agriculture and on textiles and apparel are equally important to the future of our industry. Carefully crafted trade agreements can be of significant benefit to the U.S. cotton industry. It is imperative that the new round of negotiations under the WTO ensure our industry greater market access and an enhanced ability to combat the unfair trade practices of our competitors.
As an industry, we are committed to finding new markets for our products through trade negotiations and new trading arrangements. The U.S. cotton industry has benefited significantly from the North American Free Trade Agreement. Imports of cotton textiles from the NAFTA/ Caribbean region have grown rapidly and are blunting some of the growth in textile imports from China and the Far East. Cotton textile imports from Mexico and CBI countries are about 3 times more likely to be composed of U.S. cotton than textiles imported form other sources. These regions are importing U.S. products such as yarn, fabric and cut apparel pieces, finishing the products and shipping them back into the U.S.
Page 140 PREV PAGE TOP OF DOC With the current economic crisis facing U.S. agriculture, we cannot afford to be cautious in our approach to international trade and exploiting new market opportunities. With the passage of the 1996 farm bill, government support for production agriculture was decoupled and phased down. Moreso than any time since the 1930's, market signals dictate cropping decisions. Expected returns and the amount of capital put at risk in growing competing crops are the primary factors motivating planting decisions. Increasing the demand for U.S. cotton and cotton textiles through beneficial trade agreements is one of the most important ways to ensure the financial health of the U.S. cotton farmer and of the U.S. cotton industry as a whole.
The U.S. cotton industry will be irreparably harmed if we fail to move forward with trade agreementswe will be edged out in important markets as the heavily subsidized cotton and textiles produced by our competitors capture market share; we will see imported textile and apparel products capture an ever-larger share of the U.S. market; and
we put our technological advances and investment at risk if we cannot ensure trade in genetically modified agricultural products is governed by fair, science-based standards.
The U.S. cotton industry competes in an international arena rife with domestic and trade policy distortions. Many of our competitors treat cotton and cotton textile production as linchpins of economic development and social stability. These countries pursue grossly distorting domestic and trade policies designed solely to ensure the competitiveness of their cotton and textile operations, totally divorcing production from market signals. Most of our primary competitors have adopted a centrally controlled approach to cotton and textile production. Through the use of state trading enterprises and other means to exert a substantial amount of control over the price and flow of cotton, these countries devote considerable resources to making certain their cotton textile products are competitive on a worldwide basis.
The competitiveness of the U.S. textile industry is best assured by obtaining trade reciprocity from other textile-producing countries; by developing international trading rules that limit the use of subsidies and other policies to distort international trade in textiles; and by entering into regional trade agreements that offer the opportunity to improve our competitiveness.
Page 141 PREV PAGE TOP OF DOC The U.S. cotton industry is a staunch supporter of fast-track authority. Our experience with NAFTA and our view of developing economies worldwide convinces us that beneficial trade agreements are vital to the long-term economic health of the U.S. cotton industryfrom cotton producer to textile manufacturer. We must be aggressive in obtaining such agreements.
We are optimistic that the new round of negotiations will provide an impetus to increase worldwide demand for our products, provided that a number of concerns of the U.S. cotton industry are addressed. I will quickly summarize the most significant issues confronting U.S. cotton in the international trade arena.
Downstream subsidization of cotton textiles, particularly by developing countries, and increased trade in cotton products that unfairly compete in the U.S. market is an overriding concern for our industry.
Worldwide, trade in raw cotton remains stagnant, while trade in cotton products continues to grow. We see a continuation of the trend toward consolidation of raw cotton and textile production in the same countries. The so-called ''Big7'' countries now account for 75 to 80 percent of both world cotton production and world cotton mill use. I must note that six of the ''Big7'' are considered to be developing countries. These countries often engage in significant subsidization of their textile sectorssubsidization that often starts at the farm level. Developing countries are turning their attention to ensuring that they can produce low-priced cotton textiles. One of the primary targets for those textiles is the U.S. market.
Developing countries are not held to the same standards with respect to the subsidization of agriculture or of manufacturing. The new round of negotiations should level the playing field and make all countries abide by the same rules with respect to subsidies and other policy distortions. This is especially important with respect to economic sectors in which a particular developing country is already highly competitive.
Page 142 PREV PAGE TOP OF DOC Given this economic environment and the policies of many of our Asian competitors, it is imperative the United States retain the ability to enter into beneficial regional trading arrangements and aggressively pursue such agreements. Regional trade arrangements are often the best means available to the U.S. textile industry to compete with low-cost imported Asian textiles.
The need for science-based rules for trade in genetically modified agricultural commodities and products is imperative.
The Council has been actively involved with other commodity groups, technology companies and the administration in developing a strategy to include discussions on rules governing trade in biotech products in the upcoming WTO round. Given the importance of genetically enhanced products to farmers, processors and consumers, trade in these biotech products must be governed by uniform, transparent, science-based regulations.
Currently, the European Union is using its product approval process and consumer-right-to-know requirements as a basis to create trade barriers. In the absence of harmonized rules governing trade in GMOs, U.S. exports of cotton, corn, oilseeds and their products will continue to be disrupted by delayed approval processes and discriminatory, non-science based labeling requirements.
Without meaningful rules governing trade in GMOs, fear-mongering and thinly-disguised protectionism may take over. Yet, these products offer many of the production and environmental benefits the world has said it wants. We must ensure this promising and environmentally sound technology is not side-tracked by unreasonable trade rules.
We urge our negotiators to continue to push for increased market access for our products and an end to non-tariff trade barriers.
The Uruguay Round agreement began the process of limiting governmental expenditures on agricultural support. There is much room for improvement. The Council supports strong rules restricting the use of export subsidies and calls for more rigid application of those rules to developing countries. Our competitors should have to match the dramatic reductions the United States has made in limiting governmental support for agriculture.
Page 143 PREV PAGE TOP OF DOC Further, the WTO should do a better job of regulating the state trading of agricultural commodities, which is often simply a disguised form of direct subsidization. If the agricultural reforms undertaken in the Uruguay Round Agreement on Agriculture are to be meaningful, the abuse of state trading must be curtailed.
Given that subsidies still exist and that many countries remain heavily involved in their agricultural sectors, the United States should preserve important U.S. export programs as long as they are necessary to compete with the treasuries of our competitors.
It is our understanding that negotiations concerning the export credit guarantee program are ongoing in various international forums. This is a valuable program for U.S. agriculture and is fully consistent with the principles of the WTO. We should not allow countries that utilize every loophole available to export their agricultural products to limit our use of this legitimate, effective export enhancement program.
We also urge continued support for programs such as the Market Access Program which help promote exports of our agricultural products. Programs such as these are not trade distorting and fully comply with WTO principles.
The importance of the upcoming round of negotiations is heightened by the incomplete accession negotiations with China. The terms of China's accession to the WTO are critical to the U.S. cotton industry, given that China is both the world's largest producer and consumer of cotton. Furthermore, China is a primary offender of U.S. rule- of-origin laws, illegally transshipping vast quantities of textile and apparel products into the United States. The outcome of the accession negotiations will have a significant impact on the future of the U.S. cotton and cotton textile industries. The National Cotton Council has monitored China's WTO accession talks since their inception and has on previous occasions communicated the U.S. cotton industry's interests to the U.S. Trade Representative and to the U.S. Department of Agriculture.
In April, the United States and China were on the verge of an agreement that would have led to the United States supporting China's bid to join the WTO. The complete agreement did not happen, but substantial progress, particularly on agriculture, was made. The initial reaction of the cotton industry has been favorable to the reported terms of an agreement on raw cotton and cottonseed access with China.
Page 144 PREV PAGE TOP OF DOC China has apparently agreed to implement a tariff rate quota system for imports of raw cotton as follows:
Initial cotton quota size
743,000 metric tons (3.4 million bales)
Growth by 2004
894,000 metric tons (4.1 million)
Over Quota Duty
starts at 76 percent and decreases to 40 percent
Although the U.S. cotton industry sought open access for raw cotton exports, the 3.4 million bale tariff rate quota that is being discussed is close to the highest level of cotton imports ever purchased by China. And that TRQ is slated to grow to over 4 million bales by 2004. This access level is a significant improvement over the current import restrictions being imposed by China.
Without strict rules and transparency, there are reasons to be concerned about market access commitments from China. Access to raw cotton imports should be open to all mills, whether state-owned or the so-called joint-venture mills. The Chinese government has, in the recent past, used changes in cotton inspection rules, cotton quality checks, and other non-tariff mechanisms to restrict imports.
The discrepancy between market access for state-owned and joint-venture mills raises questions as to the true degree of market access being offered. Discriminatory access for raw cotton may also prove injurious to U.S. textile mills.
It is our understanding that the current proposal under consideration would provide for total market access for cottonseed oil, with adequate provisions to prevent China from using sanitary and phytosanitary rules as a non-tariff trade barrier. The cotton industry would support such an arrangement.
Page 145 PREV PAGE TOP OF DOC Reports indicate that China has agreed that no subsidies would be available for cotton exports after joining the WTO. Although the cotton industry supports this position, we have concerns about what China deems to be export subsidization and how this negotiating position can be harmonized with China's current significant level of export subsidization.
Although China has maintained and continues to maintain trade distorting internal supports for cotton, it has also been reported that the Chinese have submitted a very low number for their internal support. The cotton industry has received very little in the way of concrete information on Chinese proposals with respect to their internal cotton support mechanisms.
It is important that the Council be kept abreast of what agricultural policies China is prepared to notify to the WTO, what level of support for cotton is claimed by China and how that level of support is calculated. The U.S. cotton industry has agreed to abide by the Uruguay Round Agreement and its controls and limitations on internal agricultural support. China's obligations under the WTO must be consistent with the commitments made by the United States and other major agricultural interests under the Uruguay Round agreement. In its comments submitted in 1997 concerning the WTO accession negotiations, NCC stated the following: *China should not be allowed into the WTO until it agrees to comply with the Uruguay Round GATT Agreement on Agriculture. Under that agreement, members accepted disciplines on domestic support for agricultural production (using a 1986-88 base period) and on export subsides for agricultural commodities (using a 1986-90 base period). It is important that U.S. negotiators bring China into the Uruguay Round Agriculture Agreement and ensure that China complies with the disciplines established in that document.*
Government control and manipulation of cotton and textile production and trade is evident throughout the Chinese system. Any WTO accession agreement must take this into account and force China to reform its agricultural policies and its downstream subsidization of textiles prior to accession.
Page 146 PREV PAGE TOP OF DOC United States exporters doing business in China often face serious barriers that hamper smooth business transactions. It is important that the accession agreement address normal terms of doing business in China, including: (1) allowing the use of commercially developed sales contracts; (2) allowing parties to business transactions to seek alternative means to resolve disputes through recognized international rules for the trade of cotton; (3) adoption of universal standards for the classification of cotton and (4) revising Chinese regulations, requirements and commercial laws so that standard banking systems and practices may be used and so that parties may begin to take advantage of commercial advances such as electronic funds transfers.
Textile quotas on imports into the United States will be completely eliminated by the year 2005 as a part of the Uruguay Round Textile Agreement. Signatories to that agreement agreed to phase out the application of their textile import quotas over a period of 10 years. The ten year phase-out was important in order to give domestic textile operations the ability to adjust to increased competition.
Likewise, in order to be able to adjust to increased competition from Chinese textile imports, the WTO arrangement with China should provide for a similar, ten-year textile quota phase-out, consistent with that agreed to by other WTO signatories. China has the largest textile and apparel complex in the world. As a consequence, it also has the most comprehensive quota coverage of any country and it is the only country to fill virtually all of its quotas each year. Given the already significant transshipment of Chinese textile products into the United States, it is essential to the health and welfare of the U.S. cotton and cotton textile industries that textile import quotas applicable to China be phased out over a ten year period.
It is also important to have an effective safeguard mechanism after the 10-year quota phase out.
CURRENT CONDITIONS IN U.S. AGRICULTURE
The upcoming round of WTO trade negotiations are very important, but U.S. agriculture is facing severe economic stress today. Prices are at levels that , in relative terms, are lower than they have been in the last 40 years and relief is not in sight. Promises of future gains in market access and increased demand do nothing to address the economic crisis facing U.S. agriculture today. The pressing need for short-term assistance to the U.S. cotton producer, and to U.S. agriculture in general, cannot be overstated.
Page 147 PREV PAGE TOP OF DOC Though much of the U.S. economy escaped relatively unscathed by the Asian economic crisis and enjoys continued prosperity, U.S. agriculture and the U.S. cotton industry were not so fortunate. The Asian economic crisis has manifested itself in depressed commodity prices and increased levels of textile imports. Both results have robbed the U.S. cotton industry of profitability. Without a proper response from the U.S. government, our industry, along with U.S. agriculture in general, will be decimated as farmers and allied sectors are increasingly unable to meet financial obligations. The U.S. government needs to react and re-instate cotton's GATT-consistent Step 2 program before the beginning of the 1999 marketing year, which starts August 1, 1999. Other steps necessary to bridge this short-term meltdown of U.S. agriculture must be taken, and taken quickly. We appreciate the efforts of the committee in this regard.
Many producers started this production cycle without adequate financing. If price or other income prospects do not improve soon, they may be unable to secure the remainder of the financing they need to finish out their crops correctly. Make no mistake, U.S. agriculture is in serious condition.
Thank you for the opportunity to present these comments on behalf of the U.S. cotton industry. We look forward to working with Congress and the administration on the upcoming round of negotiations and in addressing agriculture's current problems.
Statement of Elwood Kirkpatrick
Good afternoon Mr. Chairman and subcommittee members. I'm Elwood Kirkpatrick a dairy producer from in Michigan. I am the President of Michigan Milk Producers Association, a cooperative with more than 2,300 dairy producer members in Michigan. Today I'm also representing the National Milk Producers Federation (NMPF), which I serve as the first vice-president. NMPF with headquarters in Arlington, VA is the national voice of nearly 60,000 dairy producers on Capitol Hill and with government agencies. NMPF develops and carries out policies to advance the interest of U.S. dairy producers and the cooperatives they collectively own. I am pleased to appear before you today to testify with respect to the upcoming multilateral negotiations and other issues in the World Trade Organization.
Page 148 PREV PAGE TOP OF DOC The U.S. dairy industry is the second largest agricultural commodity sector in the United States, and generates farm income in excess of $20 billion per year and retail expenditures of about $70 billion a year.
WORLD DAIRY TRADE STILL HIGHLY DISTORTED
The industry is a relative newcomer to international trade, and such trade is still modest in comparison to the size of the domestic market. In 1998, we imported about 3.5 percent of our total supply, on a milk equivalent basis, and we exported about the same percentage of our domestic milk production. Our export share has been growing in recent years, but this status reflects dairy's slow and difficult emergence internationally from being one of the world's most protected and subsidized industries.
For example, the European Union, the world's largest dairy market, is able under its WTO commitments to impose tariffs at a rate of about 100 percent for the foreseeable future against all but very limited quantities of cheese, an important U.S. dairy export product. Canada, our largest trading partner just to the north, and with whom the U.S. has concluded three major trade agreements in the recent past, will be similarly able to impose tariffs on U.S. cheese at a 245 percent rate. For butter the equivalent tariff rates are 127 percent for the EU and 300 percent for Canada. Japan, which, as a major net importer of dairy products, has relatively open markets for certain products, may hold the record tariff for a dairy product. It has a WTO final bound tariff for butter that represents a rate equivalent to more than 500 percent of world prices.
The outcome of these distortions exacerbated by the financial crisis in Asia, Russia, Brazil and elsewhere, is a situation where world dairy prices are well below U.S. domestic prices. And this is despite the fact that the U.S. dairy industry is one of the world's most efficient and low cost producers, at the production, processing, distribution and retailing levels.
Page 149 PREV PAGE TOP OF DOCRECENT INDUSTRY PROGRESS AND ACCOMPLISHMENTS IN EXPORT MARKETS
We recently finalized 1998 year-end numbers for the U.S. dairy export industry and found that despite the financial meltdown in parts of Asia and the continuing after-shocks of the Brazilian currency crisis in Latin America, we did better than we might have expected. In fact, overall dairy exports, on a milk-equivalent basis, were up between one and two percent. For some products, the increases were significantly greater.
In Japan, for instance, ice cream exportsthe highest of our high value productswere up 26 percent over the previous year and cheese exports were almost 20 percent higher than 1997. In Korea, a country badly shaken by the Asian financial crisis, whey protein exports were up almost 20 percent over 1997.
Mexico imported 11 percent more cheese in 1998 and China and Mexico joined Japan in increasing their imports of American ice cream. While the bottom line increases in these exports are important, even more important is the fact that these are all value-added, non-commodity products.
THE NEW WTO ROUND
The Uruguay Round (UR) Agreement on Agriculture made an important start in addressing this situation. Some export subsidies were identified and brought under effective disciplines for the first time. Non-tariff trade barriers were converted into tariffs, and all tariffs were bound and partially reduced. Some domestic supports were also subject to reduction disciplines, and the ability of countries to use sanitary and phytosanitary (SPS) measures as arbitrary trade barriers was curtailed by requiring that such measures be based on sound science.
Nevertheless, the Uruguay Round ultimately amounts to just a starting point of a long process for agriculture trade liberalization, especially in dairy. It left many major trade barriers in place, effectively erected certain new barriers and resulted in a very skewed trading environment. It leaves U.S. dairy exporters facing a set of trade barriers and distortions that continue to reflect the widely different levels of support and protection bestowed on their dairy industries by the various WTO member governments back in the mid1980's.
Page 150 PREV PAGE TOP OF DOC These imbalances must be addressed at the start of the new round of WTO negotiations in agriculture if those negotiations are to have any positive impact for the U.S. dairy industry. The U.S. dairy industry support of the next round of WTO multilateral negotiations is conditional on whether these disparities are addressed. We are aware that the U.S. dairy industry has much to gain from successful negotiations, but it could lose its future growth capacity if an incomplete or poorly balanced agreement results.
Dairy farmers strongly believe that the U.S. priority for the upcoming WTO negotiations should be first and utmost eliminating export subsidies. With no significant progress in addressing export subsidies, U.S. dairy farmers would not be able to support further liberalization in market access or domestic support.
If the next round focuses on eliminating export subsidies, U.S. producers would support working with U.S. negotiators in creating real access through meaningful reduction of ordinary tariffs and harmonization of in and out of quota tariffs. We would also seek the absolute elimination of all remaining non-tariff measures.
NMPF's specific recommendations for components of the U.S. negotiating mandate for agriculture are as follows:
All remaining use of dairy export subsidies must be eliminated by a date certain, within no more than a few years.
Export subsidies continue to be a major factor in world dairy trade. When the current WTO agriculture agreement is fully phased in next year it will still permit almost 60 percent of projected dairy world trade to be subsidized. Furthermore, these remaining subsidy allowances are distributed very unevenly: on a milk equivalent basis, the EU will account for fully 72 percent of these subsidy allowances, Central and Eastern Europe an additional eleven percent, while the U.S. will represent just three percent of them. Viewed on this scale, the U.S. has virtually eliminated its use of export subsidies, while European countries will remain almost the sole authorized users.
Page 151 PREV PAGE TOP OF DOC The use of export subsidies is the primary factor that keeps world dairy prices depressed below domestic prices and prevents the expansion of sustainable, commercial U.S. dairy exports. If subsidies are not eliminated, or if the new agreement calls for an extended phase-out period, U.S. dairy farmers will not support further liberalization on other areas such as market access.
In addition, current WTO disciplines on dairy export subsidies are being circumvented, most notably by Canada. At the request of NMPF, the U.S. Dairy Export Council and the International Dairy Foods Association, the U.S. has challenged Canada for exceeding its Uruguay Round dairy export subsidy commitment levels. A WTO dispute settlement panel recently ruled strongly in favor of the U.S. on this challenge. We must strengthen the current rules to prevent circumvention of export subsidies in the next round.
The elimination of export subsidies is critical to the future of trade in dairy. Therefore, the potential for circumvention of future agreements is enormous. It is essential that we strengthen the rules of the Dispute Settlement mechanisms to avoid the creation of a flood of new systems once the elimination of export subsidies has been reached.
Tariff inequities must be addressed prior to making any further multilateral tariff reductions or other market access liberalization
Except for over-quota tariffs on dairy products that are subject to tariff-rate quotas (TRQs) as a result of the Uruguay Round tariffication exercise, tariff levels in the United States are generally low. Certain other countries, however, impose relatively high tariffs on dairy products, even ordinary tariffs. For instance, ordinary tariffs for several dairy products average over 30 percent in Brazil, Korea, Philippines, Thailand and many other countries. With respect to over-quota tariffs, the range spread from 100 to 500 percent for such basic dairy products as butter, milk powder and cheese in Canada, the European Union, Japan, Norway and Korea. Over-quota tariffs on these same dairy products range from 50 to 100 percent in the United States.
Page 152 PREV PAGE TOP OF DOC Given this situation, NMPF believes that over-quota tariffs on dairy products subject to TRQ's must be harmonized in the next WTO negotiations through immediate reduction to some maximum bound level, prior to making any further reductions. Ordinary dairy tariffs should similarly be reduced and bound immediately at some lower level that would provide the U.S. with reciprocal market access in other countries.
U.S. dairy farmers can not accept further revisions to market access lacking a commitment to eliminate export subsidies. Neither can dairy farmers support changes to current tariffs that would allow new access to the U.S. market while reducing only the unnecessarily-excessive portion of extreme tariffs elsewhere, thus providing no new U.S. export access.
In order for U.S. dairy producers and their cooperatives to continue their support for the concept of free trade, the U.S. government, working through the WTO, needs to work to promote fair trade. Future trade negotiations cannot result only in unilateral concessions made by our government; any further opening of our market must be matched with enforceable and usable access to even more protected markets, such as Canada, the European Union and Japan.
Seek greater disciplines on domestic supports while ensuring that EU supports do not significantly exceed that in the United States.
Overly generous domestic support programs have created continued dairy surpluses in the EU and Canada, surpluses which then drive the continued heavy use of export subsidies and/or circumvention of formal subsidy commitments. Recently, the European Council decided to expand EU milk production quotas and to put off dairy reform until at least 2005. This action, or inaction, by the EU has made it unacceptable for the U.S. dairy industry to consent to elimination of support programs in the United States, while the EU continues to heavily subsidize its domestic production.
We support the U.S. government position to tighten the rules on domestic support to ensure that such programs do not encourage excess production that distorts trade. However, we strongly believe that disarmament can not be unilateral. Moreover, we cannot afford to abandon U.S. dairy farmers at the mercy of European government outlays. We also strongly believe the right of governments to support their farmers in ways that do not distort trade.
Page 153 PREV PAGE TOP OF DOC Improve the transparency of both export and import state trading enterprises (STE's) and impose disciplines on the trade-distorting effects of STE's.
United States dairy farmers are very concerned with the ability of single desk sellersgovernment or privateto price discriminate, keep their transactions non-transparent, and transfer the financial risk to farmers and/or government. Similarly, import single desk buyers, including STE's, can provide de facto barriers to imports through such devices as restrictive licensing requirements and mark-ups.
NMPF favors negotiation of new commitments that would require increased transparency in the operations of both export and import STE's as well as disciplines on the activities of STE's that truly distort trade.
THE WTO SPS AGREEMENT SHOULD NOT BE RENEGOTIATED.
NMPF strongly supports maintaining intact the current WTO Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures. The agreement currently requires all such measures to be based solely on sound science. Given the current disputes between the U.S. and the EU over beef hormones and biotechnology, we anticipate there will be a strong move to reopen this agreement to include additional criteria for standards such as social and economic considerations. Inclusion of these types of criteria would turn back the clock and permit SPS measures to once again be imposed as arbitrary trade barriers.
With regard to the new WTO negotiations themselves, NMPF supports structuring the negotiations as a single undertaking encompassing all sectors, as opposed to a sector-by-sector approach. And it strongly supports renewal as soon as possible of the fast-track negotiating authority to achieve a timely outcome that further reduces distortions to international dairy and agricultural trade.
SCOPE AND TIMING OF THE NEGOTIATIONS
The U.S. dairy industry supports and urges the U.S. government to pursue a comprehensive round of negotiations that include issues and economic sectors of importance to such a key players as the EU, Japan, and the developing countries. Without the pressure of the benefits that accrue from gains in non-agriculture trade in the next round, entrenched interests, hostile to freer and fairer trade, could seriously undermine any progress. We need to understand the principle of the Peace Clause and to what extent it forces countries to negotiate.
Page 154 PREV PAGE TOP OF DOC Because of the Peace Clause, the U.S. dairy industry strongly encourages the conclusion of the new round of negotiations in no more than three years. Finishing negotiations by 2002 would allow countries to make necessary internal changes to accommodate the new agreement.
Finally, let me reiterate that U.S. dairy farmers are prepared to do their part to accomplish further trade liberalization in world dairy trade. However, the dairy industry is adamant about our priorities. First, the industry fervently believes that we must first level and foremost eliminate export subsidies before engaging in any other negotiations. Second, following a successful agreement on export subsidies, we would require a level playing field on market access between the U.S. and the EU, Canada, Japan and others. Ambassador Peter Scher recently stated ''our greatest challenge is to ensure that as trade grows and becomes more important to our economy and daily lives, that the public will continue to support trade''. We agree! U.S. dairy farmers are ready to support FAIR trade. However, for as long as we have disparities and the lack of commitment from Europe, we can't successfully educate our producers in supporting trade liberalization.
The next round will not be an easy task. In fact, it will require from the U.S. government energetic and forceful leadership to bring consensus, while defending U.S. interests.
Thank you for the opportunity to testify. I will be happy to answer any questions.
Statement of Carolyn Gleason
Mr. Chairman and Members of the committee, my name is Carolyn Gleason, I am a senior partner with the law firm of McDermott, Will & Emery, a member of the U.S. Agricultural Policy Advisory Committee, and an active private sector counsel for U.S. food and farm interests in the multilateral dispute settlement system.
Page 155 PREV PAGE TOP OF DOC Most recently, for the past several years, I have been Chiquita's trade counsel in the numerous GATT and WTO dispute settlement proceedings involving the EC's Banana policy. For the reasons discussed below, the Banana action, together with the WTO Beef action immediately following it, have shaken the confidence of American farm groups in the WTO dispute settlement system, spurring their joint call for systemic reforms going into Seattle.
U.S. AGRICULTURAL CASES IN THE NEW WTO
U.S. agriculture is one of the most active users of the WTO dispute settlement system. The United States has brought 19 agricultural cases, representing almost 40 percent of the U.S. cases brought, and has third-party rights in 5 others.
Some of these cases were resolved relatively quickly in the consultation stage of the WTO procedures. Examples are the disputes over Hungarian export subsidies, Philippine pork and poultry tariff-rate quotas, and Korean shelf-life rules. While these matters demonstrated that the new WTO system can be effective in resolving certain potentially nettlesome agricultural disputes, they have still not inspired wide-spread optimism in the system among U.S. farm groups. This is because the vast majority of U.S. agricultural cases are still going through the WTO procedures and have yet to yield tangible relief.
The Banana and Beef cases are the first of these to run the full length of the WTO procedures. As important, they are the first WTO legal rulings against EC agricultural policies. For U.S. farm groups, the EC has a special role in the success or failure of the multilateral system. The EC is the largest WTO member, the largest trading bloc for American agriculture, and the most frequent source of agricultural trade tensions. Because American farmers credit the EC with ruining the old GATT system by its acts of obstruction, they view Europe's response to the Banana and Beef rulings as an early litmus test for whether the new WTO system will be any better at protecting U.S. farm interests than the old one was.
Sadly, as we near the end of both actions, the EC has given no reason to believe that it will be. Because of shortcomings in the new WTO rules and EC procedural gimmickry reminiscent of the old GATT days, each of those cases has suffered a litigation and implementation schedule more than three and a half years in length. The steps involved have been more exhausting and costly for U.S. interests than any one could have imagined when the new WTO Dispute Settlement Understanding was concluded in 1994. Worst of all, as those procedures have finally come to an end, the EC has again remained true to its old pattern by refusing to come into compliance with both rulings. In each instance, U.S. recourse to WTO-authorized retaliation has been necessary. Even now, with retaliation a reality in Bananas and a near-reality in Beef, the EC is publicly saying that it will never lift its ban on beef and, in the banana case, continues to put forward WTO-incompatible settlement proposals.
Page 156 PREV PAGE TOP OF DOC Secretary Glickman recently summarized American agriculture's dissatisfaction with these case results by saying that the WTO system is too cumbersome, too long, and of dubious value if a Member can opt out of compliance at the end of it all. These same frustrations have led the Seattle Round Agricultural Committee, representing over seventy U.S. agricultural interests, to call for dispute settlement reforms in the new round that will ensure an accelerated resolution of trade disputes and the prompt enforcement of WTO rulings. Neither of these interrelated objectivesaccelerated dispute settlement procedures and prompt enforcementwill be possible without ambitious U.S. measures and reform proposals leading up to the new round.
ACCELERATED DISPUTE SETTLEMENT PROCEDURES
The single most illogical aspect of WTO dispute settlementand the greatest impediment to good-faith, expedited proceduresis that relief is not accorded to the winning party as of the date of the breach or even as of the date the ruling is approved by the WTO. Under the present system, relief is not forthcoming until, at the earliest, the losing party's ''reasonable period of time to implement'' has expired, which is customarily set at fifteen months following approval of the WTO ruling. Only a very few cases under the WTOSalmon being the most notable onehave been able to overcome the burden of proof necessary to shrink that implementation grace period to something less than 15 months. To make matters worse, because winning parties have no right to scrutinize compliance during the implementation stage, loosing parties at the end of the implementation period may claim they are in compliance, even if they are not, as a way of further prolonging the review procedures. In short, because there is no penalty for doing otherwise, the losers are free to delay relief by dawdling their way through the procedures, appealing every possible issue, insisting upon the longest possible implementation period, and continuing even thereafter to contest their compliance obligations.
Page 157 PREV PAGE TOP OF DOC That long, authorized delay in relief has become an extraordinary gift to the loosing party. Take the example of the Banana case, where the WTO found that annual harm to U.S. interests was in the amount of $191.4 million. By not authorizing relief until18 months after the EC was found to be breaking the law, the WTO effectively legitimized an additional $270 million in injury to U.S. interests that will never be recovered. The unrecoverable post-ruling injury figure for Beef may not be much different from this.
American agriculture has not accepted the argument that a 15-month grace period is a necessary safety net in the event that the United States is required in the future by the WTO to change its trade or other legislation. U.S. agriculture is statistically far more likely to be a complainant than a respondent in dispute settlement procedures. Hence, it will always opt for procedural acceleration and an otherwise offensive, rather than defensive, reform posture in this area.
For American agriculture, the optimal way to ensure that relief is accelerated is to mandate that it be due on or around the date of the WTO ruling. This is a fair and rational juridical approach; a loosing party should not be allowed to continue impairing the interests of another Member for months on end even after it has been found responsible for that impairment. Moreover, relief that coincides with the date of the ruling is an approach that has already been used successfully in other international trade agreements. Under NAFTA dispute settlement, for example, the winning party is entitled to rebalance interests if there is no satisfactory settlement reached within 30 days of the ruling.
If this approach were put forward by the United States, but rejected by the WTO membership in the new round, then, at a minimum, something will have to be done to shorten substantially the present WTO timetable. As Secretary Glickman has said, the current two-and-a-half to three-and-a-half year timeframe is entirely too long to be of much help to American agriculture.
Page 158 PREV PAGE TOP OF DOC Short of restructuring the relief due date, the surest way to satisfy U.S. agriculture's call for accelerated procedures is to shorten the implementation period. One way of accomplishing this might be to shift the burden of proof to the losing party to demonstrate why it should not be held to the most accelerated possible domestic procedures for purposes of coming into compliance. In any case, a period of considerably less than 15 months should be considered the norm. A losing party that insists on 15 months to implement is likely in most cases to be able to implement in half that period.
Certain other stages of the current WTO schedule can be modestly shortened to save time. There is no reason, for example, why a Member must await two DSB meetings before a panel is established. While there are a few other such examples, front-end time-savers like these should not be allowed to compromise the quality-control stages of the proceedings. American agriculture gains little by eliminating the descriptive portion or interim report from the dispute settlement procedures, which steps are often necessary for purposes of ensuring a well litigated case. Moreover, time-savers sought at the front end of the proceedings should be considered additional to, not in lieu of, a compressed implementation period, which is where U.S. agriculture's primary grievance lies. Likewise, they should not be seen as a way of simply offsetting the request by other Members to extend the dispute settlement period by requiring a second round of compliance review procedures (i.e., consultation, panel review, and appellate procedures) before recourse to retaliation can be taken. For the sake of agriculture, America's most active user of the system, the U.S. objective going into Seattle should be something far more ambitious than a desire merely to hold even the WTO timeframes that are now in practice for case resolution.
Thanks to Europe, U.S. agriculture's second dispute settlement objective of prompt enforcement, while closely tied to the first, has become a separately identifiable source of frustration. Europe's non-compliance in the Beef and Banana cases, coupled with its pre-WTO record of non-compliance, have served to raise the question of whether the EC will ever be prepared to come into good-faith compliance with a dispute settlement ruling. Ambassador Barshefsky summarized that frustration recently in saying that ''Europe continues perhaps a 30-year pattern of refusing to accept panel decisions,'' a practice she said that is 'exceptionally debilitating'' going into Seattle.
Page 159 PREV PAGE TOP OF DOC Because retaliation itself provides no relief to the aggrieved U.S. industry, it offers no substitute for prompt enforcement. Ultimately, unless the EC, the WTO's largest member, agrees to honor WTO rulings, the WTO system will become as discredited as the GATT system was before it. It is no excuse that Europe's institutional and political structure have always made EC compliance especially difficult. Europe committed to overcome those difficulties when it signed the WTO Agreements in Marrakesh.
Today, with the continuing crisis in global commodity markets, American farm groups are less prepared than ever to allow Europe to destabilize the new WTO system, leaving no viable avenue of relief in the event of a major trade conflict. The American Farm Bureau and many others take the position that in order to avoid that result, the United States should take all WTO-consistent recourse possible to induce EC compliance. Since the only WTO-authorized tool for reversing noncompliance is retaliation, they fully support its use in the Banana and Beef cases.
They have come to believe, however, that static retaliation is not enough with Europea view provoked by Europe's continuing indication that it may avoid compliance in both cases even under force of retaliation. In the near-term, they support the only real option available for strengthening the inducement to comply, which is to rotate the ''carousel.'' Under this approach, the retaliation targets would be rotated at regular intervals without changing the overall level of retaliation. These rotations would help increase internal EC pressure to come into compliance while remaining entirely consistent with WTO law. They could be done at any time under existing U.S. trade authority. The American Farm Bureau, the National Cattlemen Beef Association, the American Meat Institute, Chiquita Brands and others have requested that the carousel approach be put into practice in the Beef and Banana cases. They urge the committee to help ensure that result not only for the sake of the injured U.S. industries, but for the good of the multilateral system.
Page 160 PREV PAGE TOP OF DOC In the longer-term, the only other means of strengthening the force of retaliation to counteract persistent EC non-compliance is to alter the timing of retaliation, as discussed above. That is, by changing present procedures to enable relief or retaliation to accrue as of the date of the WTO ruling, the system would be far better structured to encourage early compliance by the EC and other losing parties.
With the effective loss of Section 301, WTO dispute settlement is essentially the only remedial tool available to American agriculture for reducing foreign barriers to trade. The U.S. government and agricultural community have no choice but to make the system work. By pursuing new-round improvements to accelerate the dispute settlement timetable and by increasing pressure for prompt and full compliance through carousel retaliation and other means, the WTO system can be made more credible, effective, and accessible for all U.S. farm sectors. These changes deserve close committee attention and priority, because however the WTO may be improved in the next round for agriculture, those improved rules will only be as good as the system established to enforce them.
Statement of Montgomery K. Winkler
Chairman Combest, Mr. Stenholm, members of the committee, I am Montgomery Winkler, and I own and operate a family citrus farm in Ventura County, California., where my family has grown citrus since late in the last century. We produce oranges, lemons and avocados sold both domestically and in export markets. I market my citrus through Sunkist Growers and my avocados through Calavo.
To begin, I would like to commend the committee for conducting this oversight hearing to identify the issues which farmers and ranchers consider to be of highest priority to our national agricultural interests as we prepare for the next round of talks in the WTO. Those negotiations will define terms and conditions of international trade in agricultural commerce for the next decade and beyond. Export markets are, as other speakers have noted, critically important to American farmers and ranchers. In our industrycitrusone-third of our production is sold in foreign markets. But the export sales success of marketing organizations like Sunkist Growers, a farmer-owned cooperative of which I am a member, is not achieved overnight and like our orchards, must be constantly tended and maintained.
Page 161 PREV PAGE TOP OF DOC The three biggest difficulties confronting our export efforts and which we hope will be given priority attention by our country's negotiators at the upcoming WTO Round are (1) the need to maintain strong, science-based sanitary and phytosanitary policies (SPS) and (2) affect a significant reduction of tariffs, and (3) reform the administration of tariff rate quotas confronting our products abroad.
Prior to the Uruguay Round and successful adoption of the SPS Agreement, there existed no effective international rules to distinguish trade-protectionist measures from legitimate import restrictions aimed at assuring food safety and preventing the spread of pests and diseases. With the requirement that SPS import restrictions and regulations be based upon demonstrable and sound science, at least these trade distorting inequities were effectively addressed in the SPS Agreement, a hallmark achievement of the Uruguay Round and for U.S. policymakers at that time.
Since then, we have witnessed time and again the resolution of SPS issues as the linchpin for market access for our fresh citrus fruit. This experience is not unique to citrus exports but is common to all agricultural commodities seeking markets abroad.
Most recently, USDA and USTR successfully negotiated an historic market access and SPS agreement for the U.S. citrus industry with People's Republic of China. In our view that agreement is a model for the preeminence of science based policy decisions on SPS matters. The agreement with China, signed during Premier Zhu Rongji's visit to Washington two months ago, was the result of several years of scientific informational exchanges that established a common understanding and confidence that the fresh citrus fruit exported from the U.S. to markets in China would be pest and disease free and present no health risk to Chinese consumers. Additionally, China agreed to reduce its tariffs on citrus from 40 percent to 12 percent over the next five years, further improving competitive prospects for direct U.S. citrus fruit exports. The China market promises in time to become a major market for U.S. citrus.
Page 162 PREV PAGE TOP OF DOC Based upon our experience in seeking to overcome SPS obstacles to trade in markets around the world, including China, we believe it is imperative that sound science be maintained as the exclusive basis for sanitary and phytosanitary policymaking. Every effort must be made to resist the adoption of policies that seek to dilute the scientific foundation of the SPS Agreement as adopted in the Uruguay Round. It would be a grave mistake to permit the so-called ''opening up'' of the SPS Agreement to weakening amendments that permit other than sound science to shape SPS policy.
The clear objective of our nation's trade policy initiatives and efforts within the WTO is to overcome obstacles to international commerce and open new markets for U.S. exports.
But the success of these efforts will be meaningless if our domestic production areas in places like California, Texas, Arizona, Florida and other agricultural states are legitimately quarantined from exporting produce to markets of increasing incidents of exotic pest and disease infestations in our production areas.
Scientifically-based phytosanitary concerns are rightfully a legitimate basis to impose quarantines and other trade restrictions on the importation of agricultural products like fresh citrus fruit into markets around the world. Today, the greatest uncertainty and threat to the well-being of our industry in the U.S. is the growing incidence of alien invasive species and exotic pests and diseases entering our domestic production areas from outside the U.S. Last year in California we suffered 26 infestations of various species of destructive fruit fly, (Mediterranean, Mexican, Oriental and Olive) none of which are indigenous to the U.S. The result extensive quarantines, expensive pest eradication efforts and the denial of market access for our fruit produced in San Diego, Orange and Riverside Counties, by key trading partners Korea, Taiwan, Australia and New Zealand. Florida similarly suffered multiple and extensive fruit fly infestations last year with similar impacts.
Page 163 PREV PAGE TOP OF DOC While this is an issue of domestic concern, it has far reaching ramifications for our international trading position. Our industry is greatly concerned that these conditions are symptomatic of the consequences of reduced budgets, constricted resources and limited manpower of Federal agencies responsible for preventing exotic pests and diseases from entering our country. The volume of imported fresh produce into the U.S. has tripled in the past four years. In Southern California and elsewhere in the U.S., the commercial smuggling of non-inspected produce has become rampant. Whole truckloads are covertly transported across borders and into the United States. It is this fruit that poses the greatest risk of pest and disease infestation.
While our success in gaining market access for our exports can be celebrated as a consequence of the SPS Agreement; our agricultural products can likewise be quickly and justifiably denied market access under the terms of that same Agreement when exotic pests and disease detections occur in our production areas. As such occurrences become more common, our trading partners will begin to lose confidence in the ability and assurances of our government and its inspection agencies like APHIS/PPQ to guarantee the health and safety of our products. When that happens, American agricultural is out of the export business.
If we are to remain competitive in international markets with U.S.-origin agricultural products, we urge the Congress to focus on this problem and dedicate more resources to meeting these national phytosanitary security needs. Budget cuts and downsizing of enforcement agencies like APHIS have taken a toll and we're now paying the price.
TARIFFS AND TARIFF RATE QUOTAS
Mr. Chairman, the second issue I would like to briefly mention is the need to affect a significant and accelerated reduction in tariffs and reform the administration of tariff-rate quotas (TRQs). To illustrate our competitive difficulties in foreign markets, let me simply note that our fresh oranges face a 74.5 percent duty into Korea and an in-quota duty of 50 percent. Korean tariffs on lemons and grapefruit is 42 percent with other specialty citrus fruit facing a competition stifling 153.6 percent out-of-quota tariff. Meanwhile Korean citrus has access to the U.S. market for less than 1 percent ad valorem duty (2 cents per kilogram).
Page 164 PREV PAGE TOP OF DOC The administration of tariff rate quotas (TRQs) has also functioned to the disadvantage of our competitive efforts in some foreign markets, most notably Korea. Under its quota system, the Korean government has granted the exclusive license to import the entire citrus quota volume to the control of the Korean citrus growers association, who are our competitors and not an objective party. This has resulted in non-competitive practices in the administration of the import quota for citrus and to the detriment of our export marketing efforts in that country.
Despite our long presence in the Japanese market, our citrus still faces upwards of 38 percent duty for fresh sweet Winter oranges (navels) and 20 percent for our Summer oranges (Valencias). In Taiwan we are confronted by a 40 percent duty for our fresh citrus exports. In Thailand we face a 51 percent duty on oranges and 56 percent duty on lemons and grapefruit. Having exhausted its various and protracted appeals at the GATT and WTO, India recently removed its special import license requirement for the importation of lemons, Mandarin oranges and grapefruit while, nevertheless, maintaining a 51 percent duty. India continues to deny market access for sweet oranges of the navel and Valencia varieties. Even in the European Union (EU) importers of our oranges and lemons pay upwards of a 22.33 percent duty while competing Mediterranean citrus producers receive an 80 percent discount on that duty, putting us at a competitive disadvantage.
In seeking remedy, we urge the U.S. government to press our trading partners to harmonize their citrus tariffs with those of the United States and to open up their tariff rate quota systems to a plurality of import license holders.
Mr. Chairman, I hope my testimony as an American citrus farmer provides you and the committee with at least a brief summary of the issues of priority concern to many in our industry as you undertake to shape the agenda for the WTO Round. Thank you for this opportunity to share these views with the committee.
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Statement of Roger Pine
Mr. Chairman, members of the committee, my name is Roger Pine. Our family farms near Lawrence, Kansas where we raise corn, soybeans, wheat and turf grass. I appreciate the opportunity to appear before you to present our suggestions for further reform in agricultural trade. I am testifying today as president of the National Corn Growers Association (NCGA), 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 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.
Trade barriers and export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. NCGA policy supports fair and open global trade to assure U.S. corn and its products full access to world markets. The United States must clearly and consistently promote further liberalization in agricultural trade. NCGA wants the next round of multilateral negotiations on agricultural trade in the World Trade Organization to build on the progress of the Uruguay Round Agreement on Agriculture (URAA). Specifically, we need to expand and strengthen the agreed-upon disciplines in the areas of market access, export subsidies, internal support and sanitary and phytosanitary measures.
Market Access. The market access provisions of the Uruguay Round Agreement on Agriculture required that non-tariff measures be replaced by bound tariffs, and that tariff levels be reduced. Nonetheless, agriculture continues to be one of the most protected sectors, with relatively high tariffs on many agricultural products. U.S. corn exports face prohibitive tariffs around the world. In other countries, import licenses are manipulated to keep U.S. corn out when grain supplies are abundant and to allow imports in times of shortages. This restricted access denies U.S. producers the opportunity to develop new demand, leaving the United States to meet residual needs of the importing country. This role as a residual supplier contributes to lower U.S. corn prices.
Page 166 PREV PAGE TOP OF DOC The European Union (EU) is an example of a market that utilizes high tariffs to keep foreign grain out. Although the EU agreed to reduce tariffs under the URAA, the existing tariffs are still too high to allow meaningful access, with the exception of feed grains imported by Spain and Portugal under the EU enlargement agreement. Admittedly, there are current restrictions on the export of some biotech corn to the EU, but further tariff reductions will be necessary if U.S. corn is to have meaningful access to all EU markets.
China views the United States as a residual supplier of cornimporting when supplies are low, but at most times denying access to their vast market. Although U.S. producers appreciate the occasional boost in demand, we also know that the additional price volatility is harmful in the long run. We want the opportunity to compete in every market around the world and trust that when the negotiations to bring China into the World Trade Organization are finalized, the United States can export corn to China year in and year out.
Export Subsidies. Export subsidies have cheapened grain on world markets and made it more difficult for unsubsidized grain to compete. Even though the Agreement on Agriculture established maximum ceilings on the quantity of exports subsidized and on budgetary outlays, low-quality European feed wheat continues to displace corn in several markets. One of our goals in the next round of negotiations is the elimination of direct export subsidies.
Internal Support. Internal supports can distort world markets by encouraging production of specific commodities in quantities that exceed market demand. Generally, NCGA supports market-based agricultural policy and efforts to reduce supports that lead to excess production. However, recent price declines for corn and most other commodities have cautioned us to carefully consider the need for farm programs that provide a minimum level of support.
The marketing assistance loan program for corn establishes a national loan rate significantly below the cost of production. The relatively low loan rate should not encourage production, but with current low prices, it has become an important component of producers' income and a considerable expense in terms of government outlays. Trade negotiations should not reduce the minimal support provided by this domestic program.
Page 167 PREV PAGE TOP OF DOC Likewise, the Federal crop insurance program should encourage producers to insure adequate revenue to avoid devastating losses without artificially stimulating production. We cannot abandon the safeguards that are essential to the future competitiveness of U.S. producers.
Sanitary and Phytosanitary (SPS) Measures. Under the WTO, member nations agree to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. The trade situation for corn is complicated by the status of products enhanced through biotechnology.
In the European Union, biotech products are subject to multiple regulations. First, imports of grain must be approved by the Environmental Committee, DG XI. The applicable regulation, EEC 90/220 also covers production of biotech crops in the EU. Biotech corn used in processed food products must be cleared through Novel Foods regulations. Novel Foods requires food labels, but the EU has not determined how to implement labeling. The EU is also considering a Novel Feeds regulationin the meantime, some member countries require a feed safety review.
Under 90/220, a shipment of grain containing biotech corn cannot be imported into the EU unless each transgenic event in the shipment has been approved. Last year, the United States lost approximately $200 million of corn exports to the EU because of unwarranted delays in the EU approval process. This year, exporters have been reluctant to bid U.S. corn for shipment to the EU because some of the corn produced in the United States last year has not been cleared for import in the EU.
The unreasonable delays in Europe are especially frustrating to NCGA. Our members have readily adopted biotech seed technology as an environmentally friendly and cost-effective option to control insect pests and weeds. We are confident that the approval process in the United States ensures the safety of the products in food, in the environment and in farmers' fields. We respect our customers' right to establish standards for products of biotechnology, but we cannot allow tardy, arbitrary and unsubstantiated health and safety claims to deny access to important markets.
Page 168 PREV PAGE TOP OF DOC The WTO must provide for reviews of products of biotechnology that are scientific, risk-based, rational and predictable. Companies seeking approval of new products should have a reasonable expectation that applications will be considered in a transparent and timely manner. Producers should have a reasonable expectation that grain from seed approved for use in the United States will not be subject to barriers abroad.
It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data requirements, review and approval or, alternatively, mutual recognition of approvals. At a minimum, the approval process must be rational and predictable and must occur within a reasonable time frame. Anything less will continue to subject the products of biotechnology to arbitrary restrictions
We want to reiterate our objective that U.S. policy clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. Thank you for this opportunity to express our views.
Statement of Janet A. Nuzum
The International Dairy Foods Association (IDFA) is a trade association representing the interests of the U.S. dairy industry in both national and international policy. Our members include milk processors and dairy product manufacturers, dairy foods marketers and distributors of a variety of products, including milk, cream, yogurt, dairy-based dips, cheese, and ice cream and frozen novelties, as well as their suppliers. IDFA is an umbrella organization for three constituent associations: the Milk Industry Foundation, whose members process 85 percent of the fluid milk and milk products consumed in the United States; the National Cheese Institute, whose members manufacture 80 percent of the cheese consumed nationwide; and the International Ice Cream Association, whose members manufacture 85 percent of the ice cream and related frozen desserts consumed in the United States. IDFA member companies, which total nearly 600, range from single plant operations of family-run businesses to publicly traded corporations with facilities across the United States and abroad. As Vice President and General Counsel of IDFA, I am responsible for the associations' international issues, including trade policy.
Page 169 PREV PAGE TOP OF DOC IDFA supports policies that open markets and expand trade in dairy products and dairy-containing foods. Although the U.S. market continues to be the largest market for our products, opportunities for growth of dairy product sales are largely abroad. For this reason, the upcoming round of multilateral trade negotiations in the World Trade Organization (WTO) is critical for the future of our industry.
The U.S. dairy industry has placed a high priority on the preparation for, and outcome of, this next round of trade talks. IDFA is actively engaged in a number of private sector initiatives to support the success of the upcoming WTO round. On behalf of IDFA, I serve on the steering committee of the U.S. Alliance for Trade Expansion (for short, ''US-Trade''), a broad-based coalition of U.S. agriculture, consumer, manufacturing, retailing and service organizations promoting the benefits of the WTO and a rules-based trading system. US-Trade was formed earlier this year to build public awareness of the benefits of international trade and the WTO. Last month, a letter of introduction and copy of US-Trade's Statement of Purpose and Core Principles was distributed to all Members of Congress (see attached copy). We have an active agenda that includes Congressional outreach, public events and communications efforts around the United States, as well as outreach to the international community. We look forward to working with this committee and other Members of Congress in increasing public awareness of the benefits of international trade to American families and communities.
IDFA is also actively involved in the Seattle Round Agricultural Committee (SRAC), a coalition of organizations in the U.S. agricultural community working to ensure a successful WTO Ministerial in Seattle. In addition to developing broad policy negotiating objectives supported by 74 agricultural organizations, SRAC is planning program events that will take place in conjunction with the WTO Ministerial in Seattle. We welcome the active participation by Members of Congress, particularly those on this committee, in the events we hope to sponsor in Seattle, and will keep you and your staff informed as our plans progress.
Page 170 PREV PAGE TOP OF DOC As you can see, the private sector is already busy preparing for the upcoming WTO Ministerial, and we applaud the committee for recognizing the importance of these negotiations by holding this hearing today.
OVERVIEW OF DAIRY INDUSTRY NEGOTIATING OBJECTIVES
The upcoming round of WTO negotiations presents an important opportunity for strengthening the multilateral trading system and opening international markets to more equitable trade in agricultural products. The Uruguay Round Agreements made important advancesparticularly in agricultural trading rulesbut much remains to be done to achieve truly open markets in all countries and sectors. IDFA urges the United States to take an aggressive and ambitious posture in this next round of trade talks. Recent actionsor, more accurately, non-actionsby the European Union (EU) on their Agenda 2000 reforms make clear the need for strong agricultural trading rules in the WTO. To achieve strong international rules will require strong U.S. leadership. The following negotiating objectives represent high priorities for the U.S. dairy industry in this upcoming round of agricultural negotiations:
Elimination and prohibition of all export subsidies
Elimination and prohibition of all trade-distorting domestic subsidies
Commercially meaningful reduction of tariffs with tariff elimination as the ultimate objective
Administration of tariff and tariff-rate quota regimes in a manner which is simpler and more commercially meaningful
Strengthened rules to prohibit nontariff barriers to trade and ensure market access
THE NEGOTIATING PROCESS: DEADLINE, SCOPE, STRUCTURE
IDFA supports a 3-year deadline for the upcoming round of negotiations. We believe this is both necessary and achievable.
Page 171 PREV PAGE TOP OF DOC A 3-year deadline is necessary to generate and sustain strong support from the private sector. Businesses cannot be expected to set a high priority on a slow negotiating process ending 6 or 8, or possibly more, years from now. Such distant results will not generate the commitment and enthusiasm that is needed for successful U.S. leadership.
A 3-year deadline is achievable because the framework for further negotiations has already been established in the Uruguay Round Agreements. Some skeptics say that agricultural discussions are always politically difficult and likely to drag on and languish to the eleventh hour. However, in this case, we are starting with a strong framework already in place, and preparatory steps are being taken in advance of the launch of negotiations. Furthermore, the expiration of the ''peace clause'' (scheduled to expire at the beginning of 2004 under current WTO rules) should provide further incentive for concluding the agricultural discussions by 2003.
IDFA strongly supports the upcoming round to be a comprehensive set of negotiations including the built-in agenda, industrial tariffs, plus any other subject which offers the likelihood of producing agreement within the 3-year negotiating period. Within the scope of agricultural discussions, we support comprehensive coverage of all commodities and sectors, and all countries. There should be no exceptions from coverage, rules or disciplines. With respect to sectors outside of agriculture, we welcome discussions on any subject that moves multilateral rules and disciplines towards open markets, provided that the subject offers realistic prospects for consensus within the 3-year period. Subjects that are not yet ripe for serious international negotiations within this timeframe should not be added to the agenda, as they will jeopardize our ability to achieve success. The challenge, of course, is being able to identify the ideal mix of subjects that will provide a balance of vested interests and provide the necessary critical mass for a strong package of results.
As do most members of the U.S. food and agricultural community, IDFA supports a negotiating process which concludes with a single undertaking, not ad hoc or sector-by-sector agreements. This is extremely important for meaningful results in the agricultural area, as WTO members with very high agricultural support and protection (such as the European Union) will likely need to obtain concessions in other (non-agricultural) areas to balance the concessions they must make in agricultural reform. Segregating issues or finalizing agreement on certain issues ahead of others would lose the leverage and balance we will need for a successful comprehensive result. Moreover, if we commit to a reasonably short period of negotiation, such as 3 years, then no one sector or subject would need to wait an unreasonable period of time for implementation through a single undertaking.
Page 172 PREV PAGE TOP OF DOCAGRICULTURAL EXPORT SUBSIDIES
Elimination and prohibition of all agricultural export subsidies is our single highest priority for this next negotiating round. Export subsidies artifically distort world market prices and rob market share away from more efficient producers. This is particularly true in the dairy sector, where the extensive export subsidies of the European Union have enabled its dairy products to capture over 40 percent of world dairy trade. Without export subsidies, world market dairy prices would be higher and more efficient dairy producers, including the U.S. dairy industry, would enjoy a higher share of international markets.
Although the Uruguay Round Agreement on Agriculture provides important new limits on agricultural export subsidies, the permissiveness of export subsidies in the agricultural sectoras opposed to the prohibition on export subsidies in the non-agricultural areais no longer justified. Export subsidies for any product, agricultural or non-agricultural, should be prohibited. We strongly urge the adoption of WTO rules to eliminate all export subsidies within 5 years of the Uruguay Round commitments. After that, there should be no differentiation between rules on agricultural export subsidies and non-agricultural export subsidies. Moreover, it is important that the next schedule for elimination of export subsidies be rigorous, providing for continuous, progressive reductions. Therefore, we propose elimination of the current rules which authorize carryforward, swing, or rollover of unused export subsidies from one year to the next. These rules allow countries such as the European Union to perpetuate and even increase export subsidies through creative management schemes. We need to ensure that all WTO countries are consistently reducing export subsidies over time.
Domestic support. With respect to the agricultural rules on domestic support, IDFA supports continued reduction and elimination of all trade-distorting domestic supports. Domestic support policies which artificially stimulate or restrict production, or ensure inefficient production, can have significant effects on international market conditions. Without equally strong WTO rules on domestic support as on export subsidies, our foreign competitors will likely just shift their policy instruments and continue to impose distortions on world market conditions. With respect to the existing ''peace clause,'' that insulates certain subsidy programs from countermeasures, we support its scheduled expiration at the end of 2003 and non-renewal.
Page 173 PREV PAGE TOP OF DOC Market access. Of course, elimination of subsidies alone is not enough to achieve open world markets. Much more needs to be done to remove tariff and other nontariff barriers and improve market access. One particular problem in the dairy sector is the existence of extremely high tariffs in certain countrieswhich are in some cases a consequence of the tariffication of import quotas at the conclusion of the Uruguay Round. Greater harmonization and reduction of these high tariffs are necessary at an early stage, in order to close the huge gaps among different countries' levels of protection. However, achieving a fair and commercially meaningful result may require a multi-faceted approach.
In principle we support a formula approach to tariff cuts, rather than a request-and-offer approach (which enables high peaks in protection to slip off the negotiating table), however, we do not recommend a simple, uniform formula cut for all products and all countries. For example, reducing a 200 percent tariff in half to 100 percent is not the same as reducing a 10 percent tariff in half to 5 percent. The first example may cut the tariff in half, but does not provide any meaningful access in economic terms. Complete tariff elimination on all products for all countries, of course, would solve this problem. For this reason, IDFA supports the eventual elimination of all tariffs.
Recognizing that there are different ways to work towards eventual elimination of all tariffs (including elimination of tariff-rate quotas), we have several suggestions for approaching tariff negotiations, at least with respect with agricultural product tariffs.
First, we urge the immediate elimination of all in-quota or lower-tier tariffs on products subject to tariff-rate quotas. This should be easy to achieve, as after all, the true means of border protection for products subject to tariff-rate quotas is through the over-quota tariff.
Second, we urge substantial, rapid reduction of high tariffs (including over-quota tariffs) towards a more harmonized level, to be followed by progressive reduction, aimed at eventual elimination of all tariffs. We suggest that these tariff reductions be implemented by means of harmonizing formula cuts (i.e., higher tariff rates would be required to be cut at faster rates than lower tariff rates). This approach would be fairer to those countries whose markets are already less protected, and reduce the degree of inequities and gaps in current regimes. We are currently analyzing different rates of tariff protection on dairy products, and will be offering more specific recommendations on the most desirable size and pace of tariff cuts as we identify them.
Page 174 PREV PAGE TOP OF DOC Third, we urge the elimination of special safeguard duties, which are unduly complicated and only provide additional layers of protection. We also urge the simplification of tariffs and tariff-rate quotas by converting all specific tariff rates and combination tariff rates to straight ad valorem rates. Dairy tariffs consist of a dizzying array of both specific (i.e., a certain number of cents or dollars per unit volume) and ad valorem (i.e., a certain percentage of the import value) rates with many products consisting of a combination of both at the same time! This is a common tactic for countries who wish to mask extra protection, and should be simplified in the next round.
Finally, we urge the promulgation of stricter obligations to administer tariff-rate quotas (while they continue to exist), in a manner that actually provides effective and commercially realistic market access. This means the elimination of burdensome or commercially unmeaningful requirements.
Market access does not mean only tariff barriers. Nontariff barriers to trade must also be eliminated. Of particular concern is the increasing use of labeling requirements and sanitary regulations to impose restrictions which are not related to legitimate health and safety concerns. The basic principles of the WTO Agreement on Sanitary and Phytosanitary Measures which insist on sound science and risk assessment should be effectively upheld and enforced. Burdensome and unjustified labeling requirements or other technical barriers, whether aimed at genetically modified organisms or country-of-origin attributes, must be prohibited. Technical barriers to trade threaten to be increasingly used as tools of protectionism as tariff barriers move towards elimination. We must ensure that WTO rules and enforcement mechanisms do not allow the instruments of protectionism simply to shift from one form to another.
State trading enterprises. Briefly, on the subject of state trading enterprises (STE), the dairy industry supports strengthened disciplines in the WTO, including transparency rules, to ensure that import STE's do not inhibit market access and that export STE's do not engage in trade-distorting practices
Page 175 PREV PAGE TOP OF DOC Bipartisan support for WTO negotiations. IDFA commends this committee for its continuing interest in agricultural trade policy and in expanding opportunities for U.S. exports of agricultural products. We would like to emphasize the need for your leadership in re-building bipartisan support in the Congress for trade agreements, and in particular for re-enactment of ''fast track'' trade negotiating authority. The success of the next round of WTO negotiations depends on strong U.S. leadership. The fact that the United States will be hosting the very Ministerial Conference that will launch these negotiations provides an excellent opportunity for U.S. leadership, but that platform would be much stronger if the Congress and the White House would agree on a legislative approach to renewing fast-track trade negotiating authority.
IDFA has been, and continues to be, a strong supporter of the renewal of trade negotiating authority, whether it is called ''fast track'' or ''traditional'' trade negotiating authority. We stand ready to assist you in efforts to re-build a bipartisan consensus on trade negotiations and negotiating authority. It is critically important that the world trading community understand that the United States is seriously and strongly committed to a multilateral trading regime that is comprehensive, effective, and market-oriented.
Thank you for the opportunity to present these views.
Testimony of the USA Rice Federation
The USA Rice Federation is the Nation's largest rice association, representing all segments of the U.S. rice industry. The Federation's charter members are the USA Rice Council, U.S. Rice Producers' Group and the Rice Millers' Association. Through these organizations, Federation membership encompasses U.S. rice producers who grow 80 percent of America's rice crop; farmer-owned cooperatives and privately owned mills comprising virtually all of the U.S. rice milling industry, with members in Arkansas, California, Florida, Louisiana, Mississippi, Missouri, and Texas; and a wide range of allied businesses in these and other states. The diversity and scope of this association permits it to provide a view common to all aspects of the industry, and to the vast majority of its participants.
Page 176 PREV PAGE TOP OF DOC The rice growers and processors of the USA Rice Federation believe in a free market system void of obstacles to open and unfettered trade. We believe the importers and consumers in each market worldwide should be free to choose the type of rice which best fits their individual needs. Whether it be long grain or short grain, paddy rice or milled rice, aromatic or sticky varieties, the consumer, not domestic politics, should determine rice purchases.
In this light, it is the position of the USA Rice Federation that tariffs on the importation of all types and forms of rice should be reduced to zero, allowing free trade worldwide of rice. We strongly support the Clinton administration's goal in the next round of multilateral trade negotiations to reduce tariffs. Some rice importing Nations' bound tariffs on rice imports are over 100 percent and others maintain schemes such as price bands, which hamper trade. U.S. rice exports are substantially disadvantaged as compared to rice from certain other supplying nations that participate in preferential tariff arrangements, which may favor one type of rice over another, or prevent trade in one or more types of rice.
The USA Rice Federation's producers and millers also support the elimination of all non-tariff barriers, and that all countries be required to address sanitary, phytosanitary and bio-engineering issues on a strictly scientific basis, not influenced by public or social policy matters.
The USA Rice Federation is an active participant in the Seattle Round Agricultural Committee (SRAC), and endorses the fourteen point WTO policy statement that the committee sent to the president in May 1999. In particular, we believe it necessary to have a single undertaking that encompasses all sectors if substantial improvement in access to agricultural export markets is to be achieved in this round. And it is important to conclude the upcoming negotiations in a timely manner that will provide opportunities for America's farmers trying to compete in a global marketplace under our freedom to farm policy. We also find that state trading enterprises substantially distort market opportunities and should be eliminated or subject to disciplines that ensure operational transparency, the end of discriminatory pricing practices, and competition. We are encouraged by the widespread support the SRAC policy statement has in the U.S. agricultural community.
Page 177 PREV PAGE TOP OF DOC In addition to the SRAC broad guiding principles, we would like to take this opportunity to highlight several specific rice trade issues to be resolved in the next round.
The European Union (EU) is one of the largest single markets for the U.S. rice industry, worth over $156 million. It is also one of the most challenging due to European policies which reflect the high degree of protectionism in the EU. As part of the Uruguay Round Agreement, the EU moved away from variable levies on grains, including rice, bound parboiled rice tariffs, eliminated the costly long grain rice subsidies in Europe, and implemented a concept known as the margin of preference (MOP). The United States sought to protect its traditional trade with Europe in the face of growing pressure from Asian countries. The Europeans feared the language of the MOP would lead to false invoicing, and subsequently did nothing. After losing a WTO panel dispute and much negotiation, the EU put forth a system called the cumulative recovery system (CRS). Despite misgivings about its usefulness, the United States agreed to a trial period of one year. The system proved unpopular on both sides of the Atlantic, and led to an unexpected increase in high cost Asian specialty rice at the expense of some U.S. rice exports. The USA Rice Federation worked with USDA to assure the termination of the CRS at the end of the trial period in December 1998, and to put in its place a temporary compromise reference system which lowered the duty paid by 8 percent from the pre-CRS reference levels. The USA Rice Federation will continue to work with USDA to secure the concessions of the Uruguay Round Agreement. As well, this industry will work with relevant U.S. government agencies to seek an elimination of the various import structures and trade distorting bilateral/multilateral side agreements, and will strive for the EU to accept a single tariff for all types of rice from all origins, at a level which will encourage, not inhibit trade.
Japan is another top market for the U.S. rice industry, but this country's state trading regime limits the U.S. rice industry's access to Japanese rice consumers. In addition, prohibitively high tariffs applied on rice imports outside the state-controlled minimum access quota effectively prevent additional access for U.S. and other origin rice. Japan's rice tariff, for example, represents a levy of nearly $3,000 per metric ton. U.S. rice for export averages $350 to $500 per metric ton, so the current tariff practically multiplies the rice by a factor of 10.
Page 178 PREV PAGE TOP OF DOC United States rice exports to many Latin American countries are constrained by a variety of high tariffs, price bands, non-tariff barriers, restrictions on credit, unsound phytosanitary concerns and preferential trade agreements in the region. U.S. rice exporters, for example, sold nearly 600,000 metric tons of U.S. rice to Brazil last year when that country's arbitrary ban on the use of export financing was temporarily lifted. The ban has been reinstated by Brazil's central bank, and the zero tariff preference granted to rice from Argentina and Uruguay under the Mercosur trade pact effectively keeps U.S. rice out of this valuable market. Unjustified phytosanitary restrictions often stop U.S. paddy rice exports at the border in Mexico, Honduras, the Dominican Republic and other countries. These restrictions usually have no basis in sound science and cost U.S. rice exporters tens of thousands of dollars in demurrage charges and potentially millions in lost sales. If the U.S. rice industry could compete on a level playing field in Latin America, export sales to this promising region could expand substantially. In recent years, sales to Latin America and the Caribbean have grown to account for approximately forty percent of U.S. rice exports, primarily on a paddy rice basis. While many foreign countries prohibit the export of unprocessed paddy rice, the USA Rice Federation and the U.S. rice industry believes that foreign buyers should have the right to choose the type and form of rice which best fits their individual needs. The Federation has worked in conjunction with the U.S. Department of Agriculture to service these valuable export markets for rough rice through a variety of promotion and trade relations efforts. Further trade liberalization in the Americas through the next WTO round will be extremely beneficial to the U.S. rice industry.
Finally, as an association which represents all facets of the US rice industry, the USA Rice Federation is concerned with the movement in many key markets to allow regulatory and trade policies to be affected by social and political issues. We believe that the consumer will chose the product he/she wishes to consume, but that any regulation of the flow of goods from one country to another should be based on sound and nonpartisan science principles. Our farmers produce some of the best rice in the world, and we seek a level playing field on which they can sell their product. With nearly half of U.S. rice production exported annually, America's rice farmers support the United States' aggressive and active participation in the upcoming round with the goal of substantially increasing market opportunities.
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Statement of Bill Zech
On behalf of the California Asparagus Commission, I am pleased to provide comment on our industry's position in a new trade round.
The U.S. is the third largest producer of fresh asparagus in the world, with over 93 thousand metric tons produced last year. China is the world's largest producer of fresh asparagus followed by Peru.
Our industry is vitally interested in trade and very committed to pursuing international markets with a bold export strategy. Currently we export to over 15 countries. However, in spite of improvements made in the last trade round, there remain many obstacles to the export of our product.
Tariffs. The California asparagus industry believes very strongly that tariffs and tariff-rate quotas on asparagus should be eliminated. The U.S. has a tariff on fresh asparagus but for practical reasons only on product entering from Mexico and that tariff is being phased out. Asparagus from Chile and Peru enter duty free under special programs.
While we continue to export to certain European countries, the current tariff is over 11 percent. Even after full implementation of the Uruguay Round, the tariff will remain over 10 percent.
In one of our best markets, Switzerland, our product is restricted under a tariff-rate quota for 6 weeks during the spring when Swiss asparagus is being harvested. During this period an advisory committee appointed by the Swiss government meets one month prior to the restricted period and establishes quotas for each of the six weeks from May 1 to June 15. Imports during this period face a tariff of 7.8 Swiss Francs per kg (or approximately $2.19 per pound) which essentially prices U.S. asparagus out of the market. This trade barrier reduces our opportunities for U.S. growers to export to the Swiss market.
Page 180 PREV PAGE TOP OF DOC Export Subsidies and Domestic Support. As you are well aware, the U.S. government does not provide support for asparagus or other vegetables. However, this is not the case in the European Union where the fruit and vegetable industry received in 1997 over $5.5 billion.
As new trade negotiations get under way, our industry urges the U.S. to take a position to eliminate both export subsidies and domestic support. There is no way that U.S. agricultural producers can continue to compete in the long run against competitors who receive such high levels of public subsidies. Only when agriculture is completely free of government payments can trade between the countries become truly fair.
Transparency. The U.S. asparagus industry has not been able to determine the exact subsidies which the European Union (EU) provides its asparagus industry. This is because the EU reports only on its aggregated support to the fruit and vegetable industry. Such reporting allows the EU to increase support to a commodity so long as the overall reduction in agriculture meets the goals established in the recent trade round.
It is puzzling to our industry how our negotiators can enter multilateral trade discussions when levels of support for individual crops are not known. The domestic asparagus industry urges our trade officials to obtain individual crop information from the EU as soon as possible in preparation of further negotiations on the reduction and/or elimination of subsidies in a new trade round.
Phytosanitary Problems Our industry continues to face phytosanitary problems in a number of foreign markets. For example, in March of this year we had hoped to make some substantial sales to Taiwan. However, Taiwanese plant protection officials have advised us that our product cannot enter the country because of a concern over the burrowing nematode. We have provided data to the country that this is not a problem in California and this has been supported by evidence supplied by a U.S. Department of Agriculture Animal and Plant Health Inspection Service (APHIS) risk assessment. We are still awaiting action by the Taiwanese government.
Page 181 PREV PAGE TOP OF DOC We are aware that Taiwan has applied for membership in the World Trade Organization (WTO), and we support the country's accession. However, we remain somewhat concerned
that even those countries who are WTO members sometimes do not act quickly enough to resolve phytosanitary problems.
A reasonable time period for the resolution of such disputes would be helpful not only to our industry but to agriculture as a whole. If scientific data is provided to a foreign government and time limits are imposed on the review of that material, this would ensure that phytosanitary barriers are not being used to stop or delay our exports.
In summary, the California asparagus industry advocates and urges your support for the elimination of tariffs, export subsidies and domestic support, and a reasonable time frame for addressing phytosanitary measures.
Thank you for this opportunity to provide comment on behalf of the California asparagus industry.
Statement of Joel Nelsen
Thank you for the opportunity to present the views of the U.S. Citrus Science Council with respect to the next multilateral round of World Trade Organization (WTO) negotiations. I am Joel Nelsen, and I serve as co-chair of the U.S. Citrus Science Council. The U.S. Citrus Science Council represents virtually the entire citrus industry in California and Arizona.
At the present time, the citrus industry exports approximately $700 million of citrus every year. These sales are essential to the economic health of the industry. The citrus industry is desirous of, and committed to, working with USDA and USTR in order to increase our export sales. The future of the U.S. industry will depend on such sales.
Having said this, I want to focus on the Sanitary and Phytosanitary (SPS) Agreement, and U.S. activities pursuant to the SPS. The SPS Agreement is a very ambitious undertakingone which was strongly supported by U.S. agricultural interests as the U.S. worked to make it part of the Uruguay Round. As you are hearing today, there is still widespread support for the underlying tenets of the Agreement. However, as we all know, there have been ''bumps in the road.''
Page 182 PREV PAGE TOP OF DOC In recent comments to an agricultural group in Washington, DC, Secretary Glickman noted the importance of SPS issues:
Sanitary and phytosanitary matters will be the biggest negotiating item on the agenda of the upcoming round of agricultural trade talks. If ignored, the issue could easily lead to tit-for-tat retaliation, going against the interests of consumers and producers. It also could thwart advances in other trade issues as well.
Based on the recent experience of the citrus industry, we would concur that SPS issues have tremendous importance for the future of trade between the world's countries. The issues are exceedingly complex and, in many ways, much more subtle than relatively straightforward topics such as tariff reductions and government subsidies.
While the U.S. Citrus Science Council is not at this time advocating changes in the SPS Agreement, my main message today is this: vastly increased resources need to be dedicated to the interpretation and implementation of the SPSboth here in the U.S., and jointly, by all
member countries of the WTO. Without such a dedication, the promise of the SPS will never be realized.
Furtherand of great importancewithout such a dedication of resources, mistakes canand most likely willbe made. These mistakes will be extremely costly for U.S. agriculture. Diseases or pests will, unintentionally, be permitted to enter the U.S. And, we will never be able to eradicate them. These mistakes will be made as a result of haste to reach a decision on a requested import, or as a result of political pressures getting ahead of the work of the scientists.
The SPS is essentially a framework for a new approach to sanitary and phytosanitary issues
(at least, the approach is new for some of our trading partners). But, the Agreement is stated in broad concepts. Very few, if any, of the details have been filled in. WTO member countries do not currently agree on what many of the terms and provisions of the SPS mean. As written, the SPS looks to the International Plant Protection Convention (IPPC) to conduct much of this discussion and fill in the missing definitions, criteria, procedures, etc. However, the IPPC process can take many years.
Page 183 PREV PAGE TOP OF DOC Therefore, consideration should be given to ways to speed up this process. Further, the long, hard hours of discussion and negotiation that are needed to reach agreement on these critical aspects of the SPS must be invested by all WTO countries.
A commitment by all WTO member countries to dedicate the resources to working out universally accepted interpretations and implementing standards, criteria and methodologies quite possibly would also assist in reducing the number of issues which are being referred to the Dispute Resolution process. As Secretary Glickman also said in his recent remarks, the Dispute Resolution process is not working, and there is a very real need to find ways to improve that process.
Further, the development of definitions, standards, criteria and methodologies to implement the SPS would help to insure that our trading partners are not throwing up unsubstantiated roadblocks to new imports into their countries.
Looking close to home first, we believe that, first and foremost, the United States, at USDA, must put in place essential procedures and regulations for implementation of the SPS Agreement. This, unbelievably, has never been done. Instead, USDA often ''makes up the rules'' as it goes along. The effort to define and set procedures for implementation of the SPS must be undertaken in cooperation with the U.S. grower community, as well as with other interested groups.
The fact that this effort has not yet been addressed in the U.S. has led to two significant problems: (1) there is a lack of confidence within the U.S. grower community in the agency's activities; and (2) it must be very confusing to our potential trading partners as to exactly how the decision-making process here in the U.S. is conducted.
The lack of confidence with respect to sanitary and phytosanitary issues which is developing in the grower community is also due to our experience with exotic pest invasions. These invasions are increasing at an alarming rate, and it does not appear that USDA has the means to control or limit them. This is very frightening to U.S. growers. Under these circumstances, the grower community is questioning why we are opening our doors to the potential for even greater problems from exotic pest invasions, by considering imports of commodities from areas of the world with known serious plant diseases or pests.
Page 184 PREV PAGE TOP OF DOC Last fall, USDA took the commendable step of asking a group of its peersthe National Plant Boardto carry out a review of USDA's activities in the area of plant protection, in light of the new responsibilities placed on the agency due to the trade agreements negotiated in the 1990's. The end result of this review effort, a written report, has just been finalized. The report is quite detailed and extremely thoughtful. It was prepared in large part by plant protection officials in the various statesthe folks who must deal with exotic pest invasions on a daily basis. We believe the report identifies many changes and improvements that are needed at USDA. The agency needs the resources to initiate and make these changes starting immediately.
In addition to allowing the agency to reinstate its credibility with the U.S. grower community, these changes need to be made so that the U.S. can go to other WTO countries and advocate, based on a solid foundation, adherence to the SPS Agreement.
I would like to note a few specific issues which are of particular concern to members of the U.S. Citrus Science Council. The SPS Agreement refers to the concept of pest-free or disease-free areas, or areas of low pest or disease incidence. These terms are understood to be applicable to large, geographically distinct regions. These concepts are vital to the U.S., since we are such a geographically diverse nation.
However, we believe more work is needed to achieve agreement among WTO members on the exact parameters and implications of these concepts. We believe there is considerable justification for not extending these concepts beyond their historical application. Specifically, we question whether these concepts should ever be applied on a geographically limited, field-by-field basis.
Further, we are gravely concerned about recent proposals of USDA to rely on complicated, untested plans ''version of so-called systems approaches'' which purport to protect U.S. agriculture from products grown in other areas of the world that have, and historically have had, relatively significant populations of exotic plant diseases and pests. We do not believe the negotiators of the SPS (nor Congress when it enacted the Plant Quarantine Act of 1912, for that matter) ever intended to encourage the export of fresh produce from growing areas with historical populations of serious plant pests and/or diseases.
Page 185 PREV PAGE TOP OF DOC There are very good reasons to rely on the concept of a pest or disease-free area (or an area of low incidence of pests and diseases). Mother Nature is far more complicated than we should assume we understand. Fresh produce is just thatfresh, unprocessed commodities where living things can and do live. In our haste to ''show the way'' to the rest of the world to open new trade opportunities, we must not become careless about things about which we know little.
The SPS Agreement also places extraordinary importance on and confidence in an analytical tool known as a Risk Assessment. The use of Risk Assessments in the area of plant health is a relatively recent development. It appears to us the U.S. is trying to be in the forefront of use of this tool, and we have no quarrel with this. However, we believe a tremendous amount of scientific and analytical work must be done before this analytical tool can be applied to growing situations where a plant disease(s) or pest(s) exists.
Most U.S. growersindeed, many of the rest of usare unable to comprehend the vocabulary or methodology of a Risk Assessment. We suspect many of our friends in other countries are unfamiliar with this tool as well. First and foremost, international standards for the preparation of a Risk Assessment must be developed. These standards must establish that Risk Assessments have to be prepared in such a way that they can be replicated by others with expertise in the Risk Assessment discipline.
In summary, let me again thank you for listening to our views on the next round of multilateral negotiations. Opening the doors for increased trading opportunities is extremely important for the U.S. citrus industry. However, as with most things in life, the issue is not black-and-white. We must insure that our trade in fresh produce is safe trade.
The best way to insure this, we believe, is to work with the other members of WTO to establish internationally accepted standards for the types of data, testing, methodologies and Risk Assessment efforts that will be applied to the consideration of new movements of fresh produce. In order to achieve this goal, we need to first reach agreement here at home on those standards and criteria for decision-making. And, again, vastly increased Federal Government resources need to be dedicated to this extremely important task.
Page 186 PREV PAGE TOP OF DOC Again, thank you for this opportunity to express these views of the U.S. Citrus Science Council.
Statement of Karen Reinecke
On behalf of the U.S. pistachio industry, I am pleased to provide comment on U.S. objectives in a new multilateral trade round. Our industry is comprised of pistachio growers from California, Arizona and New Mexico.
My comments will be brief and will cover the following subjects:
Reduction of Tariffs
Elimination of domestic support and export subsidies and
Mislabeling of Exports
In general, our industry supports many of the goals already announced by the administrationa 3-year round, elimination of export subsidies and non-tariff barriers, and the reduction of tariffs.
Raw Pistachios. An important trade obstacle facing our industry are the tariffs on raw and value-added pistachios. Though very few countries in the world produce and export pistachios (the major exporters are Iran and the United States), many countries nonetheless maintain high tariffs. For example, India's tariff on raw pistachios is 45.6 percent, and South Korea and some of the other Asian nations have tariffs over 50 percent.
Roasted Pistachios. While the U.S. pistachio tariffs on raw and roasted are minimal (the U.S. tariff on roasted pistachios is free for GSP and other countries with special tariff treatment and only one cent per kilogram for other countries), U.S. pistachio exporters face much stiffer duties in some of our leading markets. For example, in Europe the tariff for roasted pistachios is 12 percent (to be reduced only to 10.2 percent by 2001).
Page 187 PREV PAGE TOP OF DOC European Union Tree Nut Subsidies. The industry is also concerned over the subsidies which the European Union (EU) has made available to the nut industry. In 1999, for example, the EU provided its nut producers over $110 million. Subsidies of this size encourage production and processing and provide yet another obstacle to the U.S. industry which receives no government support. This subsidy has actually increased since the Uruguay Round, a multilateral round that was to eliminate export and domestic subsidies. We urge complete elimination of these subsidies in the new trade round.
Labeling. Finally, the industry wishes to comment on mislabeling of products in export markets. Our industry is currently aware of situations in China, Germany and Israel where some consumer packages of pistachios have been found to be labeled as U.S. pistachios but which actually contained Iranian nuts. As I am sure you know, over the last year the EU halted imports of Iranian pistachios, and Israel began inspection of Iranian nuts, because of excessive levels of aflatoxin. The possibility that consumer packages of Iranian pistachios containing aflatoxin are labeled a U.S. product would have a devastating impact on our exports to these countries and on the industry as a whole. While we do not know the extent of this problem, our industry, nonetheless, is very concerned that the mislabeling may undo the progress we have made in our overseas markets.
Since we are entering a new multilateral trade round we urge our government to take the lead and negotiate a country of origin agreement for the purpose of eliminating country of origin marking fraud.
Thank you again for receiving the views of the U.S. pistachio industry.
Statement of Tom Avinelis
Thank you for the opportunity to provide comment on behalf of the California Olive Association on U.S. objectives in a new multilateral trade round. Our association is comprised of olive growers and processors, and production averages from 85,000160,000 tons per year. There are approximately 1,200 growers with orchards ranging from 5 acres to 1,000 acres in size.
Page 188 PREV PAGE TOP OF DOC Over 85 percent of the California olive crop is processed as black ripe olives. The remainder is processed into various specialty styles. Olives not used for canning generally go into olive oil production.
Production of olives alternates from year to year, and in order to assure that it is a reliable supplier, the industry carefully manages its marketing of olives to prevent any spikes in supply or in olive prices. Thus, California olives are readily available year round in grocery stores. However, our supplies for the food service industry have been disrupted due to increased imports of smaller black olives at prices that cannot be matched by the domestic industry.
Almost all of the California-style black olives imported into this country come from the European Union (EU), primarily from Spain. In fact, these imports now have about 50 percent of the food service industry.
NO U.S. TARIFF REDUCTIONS UNTIL EU SUBSIDIES ARE ELIMINATED
In 1997, the EU provided a $2.5 billion subsidy to its olive oil industry. The chart attached to my testimony details how the funds were used. This sum is in addition to the approximately $2.5 billion subsidy which the EU provides its fruit and vegetable producers, a portion of which goes to olive producers.
Further, last July, the EU approved a new subsidy program for the olive sector which is effective for the next three marketing years. Our industry was astonished to learn about this program. We believed that after the Uruguay Round there was going to be a reduction in subsidies, and our members do not understand how this could have happened. It appears our negotiators allowed Europe to reduce tariffs but create new subsidies where there had been none before.
Under the new subsidy program, Spain will receive in the 1988/1999 marketing year a subsidy of approximately 7.5 cents per pound ($/Euro rate of l.08) on 226,000 tons of table olives. This practically covers the entire harvest which is estimated at 238,000 tons. This new subsidy for Spanish table olives is approximately $37.4 million.
Page 189 PREV PAGE TOP OF DOC The U.S. olive industry is a small one but has made gains over the last decade. However, in the face of such tremendous competition from the EU, the domestic olive industry may not be sustained for a very long period unless real efforts are made to curtail these excessive support programs by the EU. Our industry very strongly urges our negotiators to push for total elimination of subsidies in the new multilateral trade round.
TARIFFS SHOULD BE MORE SYMMETRICAL
There is a great disparity between olive tariffs in the U.S. and those of many of the other WTO countries. When negotiating tariff reductions either in the new multilateral trade round or in the Free Trade Area of the Americas (FTAA), the California olive industry urges our representatives to provide some symmetry in the approach to reduction of tariffs. Certainly, with regard to the European Union, the U.S. tariff should not be reduced in light of the subsidies which the EU receives for its olive industry.
The domestic olive industry is not fully certain it has been able to obtain full information on subsidies which the EU provides its olive producers although considerable time has been spent in this endeavor. Further, the information that is available does not explain how the subsidies are meted out and used.
In summary, our industry is very concerned over the large subsidies granted to the European olive industry, some of which are new since the Uruguay Round was implemented, and the lack of transparency on the part of the EU. Our domestic industry over the last few years has spent considerable sums of money in modernization costs and in insuring that our product is the safest in the world. All these efforts have been paid by our growers, not our Federal Government.
In addition to all of the subsidies the EU provides, the fruits and vegetable sectors also have the benefit of a safeguard when the EU determines that too many imports are entering.
Page 190 PREV PAGE TOP OF DOC The EU policy is outrageous, and our government should not allow subsidies of this magnitude to continue. These subsidies should be eliminated immediately.
The FTAA holds great promise for the California olive industry if the negotiations provide us with early access to the Western Hemisphere markets. However, it will not help our industry if we remove all olive tariffs for entering these markets and Spain is permitted to maintain its subsidies. Spain's use of its subsidies to gain entry into the Latin American markets will diminish our opportunities to make inroads there.
Further, to negotiate meaningfully, information about trade barriers and any inconsistent WTO trade practices must be made available and discussed with U.S. agricultural organizations. Our industry, for one, would appreciate USTR and USDA holding a briefing session to inform us of the data that has been gathered on the trade activities of the Western Hemisphere countries and the proposals being considered.
The California olive industry requested that California-style black olives from Spain be added to the U.S. retaliation list in both the banana and beef hormone cases. We believed that the huge subsidies accorded by the EU which have helped the Spanish producers to make tremendous inroads in the U.S. food service sector should have been a decisive factor in deciding whether to add these olives to the retaliation lists. However, olives did not make either of the lists.
Our industry believes that USTR should make public its reasons for selection or non-selection of a product to retaliation lists.
In summary, our members respectfully request that our trade negotiators carefully consider these issues as they undertake further agricultural reform in a new trade round and in the FTAA.
Thank you for the opportunity to provide the views of the California olive industry.
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Statement of David Moore
Western Growers Association (WGA) appreciates the opportunity to provide comment on objectives our members believe the administration should seek in a new multilateral trade round.
WGA is a 3,300 member agricultural trade association organized in 1926, and our members grow, pack and ship more than half of the Nation's fresh fruits, vegetables and nuts. WGA represents over 90 percent of the fresh vegetables and about 60 percent of the fresh fruit and nuts grown in Arizona and California.
These statistics indicate why WGA continues to be interested in U.S. trade policy and where the next multilateral trade round may lead.
ELIMINATION OF DOMESTIC SUPPORT AND EXPORT SUBSIDIES
WGA's No. 1 priority in a new trade round is the elimination of domestic and export subsidies.
The U.S. fruit and vegetable industry is a fully market-oriented industry. For that reason, our industry strongly supports the elimination of domestic support and export subsidies in the next round. During the Uruguay Round deliberations, we were advised that such subsidies would be eliminated, and we waited patiently the outcome of the Round. Such was not the case, however, and our industry is still having to contend with billions of dollars of government funds to European fruit and vegetable growers. Our sources in Europe inform us that there is a $2 billion subsidy to the fruit and vegetable sector which includes $55 million in export refunds, a new $2 billion subsidy for rural development for fruits and vegetables, and an Improvement Fund of $1.5 billion for fruits and vegetables. This is over $5.5 billion per year plus billions in subsidies for the EU olive and wine industries. This insidious subsidization must stop. How does our Federal Government expect us to effectively compete?
Page 192 PREV PAGE TOP OF DOC The Uruguay Round provided WTO member countries six years in which to reduce agricultural dependence on government support. By the end of the next round, almost a decade will have elapsed since WTO agricultural reform began. This is certainly sufficient
time for countries, including the EU, to eliminate governmental subsidies. The end to such subsidies is WGA's principal interest and number one priority in the new round.
We are further troubled by shifting subsidies and even increases in some of these subsidies since the implementation of the Uruguay Round. As you make decisions on this issue in the upcoming negotiations, WGA strongly urges that you consider the U.S. fruit and vegetable industry and the impact of your decision on this important sector of our agricultural economy.
TRANSPARENCY OF ALL SUBSIDIES
WGA supports full transparency in WTO operations and in WTO member country reports on domestic and export subsidy programs
As I have mentioned above, the EU provides tremendous subsidies to its fruit and vegetable sector. However, because in the Uruguay Round subsidy reductions in agriculture could be aggregated it is impossible to get specific information on the EU's support for individual fruits and/or vegetables unless there is a specific line item in the EU budget. For example, if our broccoli industry wants to know the subsidy to European broccoli producers, this information is not available. How can we invest in the future if we do not know the subsidies our competitors are reaping?
Such information is necessary to help our growers/exporters assess the European market, and the new round should include requirements for governments to provide more specificity in reporting their levels of support to individual crops before we start negotiations.
ELIMINATION OF EU ENTRY PRICE SYSTEM
WGA calls for elimination of the EU Entry Price System for Fresh Fruits and Vegetables.
Page 193 PREV PAGE TOP OF DOC The European Union's reference price system for fruits and vegetables was tariffied in the Uruguay Round. Like the reference price system, the new entry price system provides protection to certain fruits and vegetables during principal marketing periods. The system allows a tariff equivalent duty (formerly called the variable duty), a maximum tariff equivalent if imports are below a certain price, and a special safeguard (additional duty) when imports exceed certain levels. Such a system ensures that a number of the EU's fruits and vegetables are fully protected from any normal price fluctuations in the international market.
WGA was astounded when the U.S. agreed to convert the reference price system to a new entry price system. Unlike U.S. fruit and vegetable exports, when the 17 fruits and vegetables (See attached list) covered by the entry price system in the EU enter the U.S., they enter either at no tariff or a very small tariff with no fear of an automatic increase because of a safeguard program.
When the Administration continues to urge us to export but allows disadvantages such as EU subsidies and the automatic safeguard system, then it becomes increasingly impossible to reach the administration's objectives.
WGA calls for additional information on activities and funding of EU Producer Organizations.
The EU has established producer organizations which receive funding from grower members and from the European Union. It is our understanding that the Producer Organizations (POs) have an operational fund which receives matching contributions from the EU. These funds are a subsidy from the European Commission and amount to 4 1/2 percent of the POs turnover, within an overall ceiling of 2 1/2 percent of the combined turnover of all POs.
If a particular commodity is part of a universal PO which deals with other fruits and vegetables, it is impossible to determine what assistance this particular segment might receive through the PO.
Page 194 PREV PAGE TOP OF DOC WGA urges our negotiators to obtain full information on the extent of assistance to fruit and vegetable growers through European Union POs prior to entering into negotiations with the EU in a new multilateral trade round.
NO PEACE CLAUSE EXTENSION
WGA requests Peace Clause not be extended.
We lost discipline in the Tokyo Round when we surrendered the ability to bring a countervailing duty case without having to show injury caused by harmful subsidies. Prior to this action, the private trade had some recourse against foreign countries' high subsidies.
In the Uruguay Round, we agreed to a Peace Clause in which WTO countries would not bring any countervailing duty cases or WTO disputesettlement complaints against each other for a nine-year period. We do not understand how such language could have been accepted in the face of such insidious practices by the EU. WGA strongly urges our trade policy officials not to extend the Peace Clause in the new multilateral trade round.
EFFECTIVENESS IN TARIFF REDUCTIONS
WGA urges symmetry in tariff eliminations where possible.
The U.S. tariffs on fruits and vegetables are among the lowest in the world and WGA believes in general that all tariffs should be eliminated in all WTO countries.
Accusations of trade-offs are rampant during trade negotiations. While we want to believe that our trade policy officials are negotiating each tariff as fairly as possible, we have seen examples in previous negotiations of gross unfairness. For example, it is difficult for an industry to understand why the U.S. would eliminate its tariff and allow another country to maintain a tariff of 2550 percent with a phase-out in 10 years. This is especially difficult to understand when the foreign country may not even grow the crop. While WGA supports elimination of fruit and vegetable tariffs, if this cannot be achieved in a new round, WGA urges our trade negotiators to approach tariff reductions so that there is some form of symmetry in the results of the decision making process. For example, it does not make any economic sense to reduce a country's tariff when the imported crop is being highly subsidized by the foreign country. Even with reductions in tariffs for both the importing and exporting country, the country with the subsidy will still derive more benefit from this type of approach. The end result of this exercise in agricultural reform should be reductions that are fair to both sides.
Page 195 PREV PAGE TOP OF DOC Further, reductions in tariffs should be valid and not phantom reductions. This means that not only the bound rate but the currently applied rate should be addressed when reductions are made. If the applied rate is not addressed, then in some cases the reductions are meaningless.
STRENGTHENING OF SANITARY AND PHYTOSANITARY MEASURES
WGA supports consideration of a time limit for resolution of
In spite of the Uruguay Round Agreement on Sanitary and Phytosanitary Measures (SPS), a number of countries continue to impose phytosanitary measures which are questionable and lack a basis in sound science. Addressing and resolving these issues takes considerable time.
WGA is advised that some WTO members wish to reopen the SPS Agreement. While our Association understands the U.S. concern that any reopening of the Agreement may be aimed at weakening the language, nonetheless it appears that imposition of a time frame for resolving phytosanitary problems is necessary. We have noted that in some cases even when the requested scientific data is provided, foreign countries delay making a decision. We believe that imposing a deadline, except perhaps in the most complicated cases, on countries to settle phytosanitary problems is a reasonable request. If the petitioning country requires a dispute settlement panel, the panel can decide if the case is complicated.
RESOURCES TO IMPLEMENT AGREEMENTS
WGA supports adequate funding for Federal agencies (APHIS) implementing certain trade agreements.
It is vitally important that the administration give full consideration to the human and fiscal resources our various Federal agencies will need to implement trade agreements. Each new agreement brings on more and more responsibilities, and funding in many cases is not provided. For example, WGA has worked closely with the U.S. Department of Agriculture Animal and Plant Health Inspection Service (APHIS) and has noted the tremendous expansion of duties for the agency since the North American Free Trade Agreement and the Uruguay Round were approved. When trade is opened, there are increasing demands for additional personnel to provide the scientific expertise needed to respond to the increasing number of both export and import petitions. It is necessary, therefore, that adequate funding be made available to ensure timely responses to sanitary and phytosanitary requests.
Page 196 PREV PAGE TOP OF DOC HARMONIZATION OF LABELING REQUIREMENTS
WGA supports harmonization of country of origin labeling.
Our trading partners, especially in developed country markets, continue to require country of origin marking. With GMO issues, food safety, and other labeling concerns, WGA has adopted a policy that advocates harmonization of labeling issues among the WTO countries. Some of our trade officials claim that if the U.S. adopts country of origin labeling then our trade partners will insist on the same practice in their countries. However, almost all of our fruit and vegetable markets require country of origin labeling, and the result is that our exports are treated unfairly. The U.S. appears to be the only developed country that has not adopted country of origin labeling. Therefore, the U.S. should raise this issue in the WTO and take the lead in harmonizing all labeling requirements.
CLARIFICATION OF WTO DISPUTE SETTLEMENT PROCESS
WGA supports clarification and strong enforcement of Dispute Settlement decisions.
WGA was pleased that the Uruguay Round Agreement included a mechanism for settling disputes among WTO countries. However, as we have seen, some of the panel decisions have been challenged which have led to prolonged and as yet unsettled final action. The challenges appear to be the results of varying interpretations of the Dispute Settlement Understanding.
WGA applauds the action USTR took in the banana case principally because it required the EC to comply with a WTO decision. In the new round, we urge the U.S. to solicit clarification of the dispute settlement process with strong enforcement language and compliance deadlines.
CONCLUDING A NEW TRADE ROUND IN 3 YEARS
WGA supports a 3-year trade round
Ambassador Barshefsky recently noted that the actual negotiating in the Uruguay round was completed in three years. Since efforts are now being made to consolidate the U.S. negotiating objectives in a new round, we believe that future negotiations could well be completed in a 3-year time span and support the administration's recommendation.
Page 197 PREV PAGE TOP OF DOCMARKET ACCESS FOR GMOS
WGA supports transparency in GMO approval process and
market access for GMOs.
WGA is aware that the President's advisory committee on trade, ACTPN, is currently formulating a position for the U.S. to take in the Ministerial Conference in November on the biotechnology issue. The Association is very concerned that the EU's approval system for biotechnology products, referred to as genetically modified organisms (GMOs), appears to be a very political process and one that is not transparent.
WGA is following the GMO issue closely and asks that our negotiators take a position to ensure that genetically modified organisms are accorded market access in all WTO countries and that the process for approval of GMOs is fully transparent. However, the priority of removing subsidies should not become secondary to the GMO issue. The GMO issue should be addressed in the SPS.
STATE TRADING ENTERPRISES
WGA supports full disclosure by STEs as trade round negotiations begins.
As stated earlier, WGA believes that there should be more transparency in the WTO and that each country's reports on its government's involvement in any aspect of agriculture should be fully responsive. State Trading Enterprises (STEs) by their very name involve government management and/or expenditures. WGA believes that the STE's should be required to provide complete information on government involvement as the trade round begins and that strict discipline should be imposed on STE operations.
On behalf of Western Growers Association, I want to thank you again for providing our association the opportunity to comment. I will be glad to respond to any questions you may have.
Page 198 PREV PAGE TOP OF DOCTestimony of Alan Albright
Thank you Mr. Chairman for allowing me, on behalf of the National Cattlemen's Beef Association, to give testimony regarding issues to be addressed in the 1999 round of negotiations on agricultural trade scheduled for the November World Trade Organization (WTO) meeting.
I am Alan Albright, a crop producer and owner of a 2000 head private feedlot in western Iowa. I am the vice chair of NCBA's International Markets Committee, and have served on the Board of the US Meat Export Federation for 10 years. I have been on two trade missions to Asia and one to Mexico. I feel that my perspectives as a beef producer and my experience in trade qualify me to represent the industry and speak on this issue. My testimony includes the official NCBA position on trade issues as well as some of my own thoughts that are consistent with NCBA policy and what I believe is best for the industry.
Importance of trade. Beef and pork producers have always had the freedom to farm as well as freedom to fail. We add value to grain produced by our neighbors by feeding it through our livestock.
Livestock producers are becoming increasingly dependant on the rest of the world to buy our products. Exports of meat and grains make sense for the US, a country that has only 4% of the world's population, but a large share of the world's production agriculture. Exports of beef have helped to take up the slack of decreasing demand for beef at home. We, as industry, have worked hard to promote beef exports which now account for over 12 percent of the value of each fed steer sold in the US today. On a tonnage basis, we export 89 percent of what we produce.
During 1998, the year of the Asian economic recession, was the first time more than one million metric tons of US beef and beef variety meats have been exported. This was an increase of 4.75 percent on a volume basis. As an industry, we have grown exports of beef and beef variety meats from about one-half billion dollars twenty years ago, to approximately $3 billion today. During the first quarter of 1999, beef exports increased 10.3 percent on a volume basis compared to the same time a year earlier.
Page 199 PREV PAGE TOP OF DOC The Seattle Round of world trade talks will be the defining moment for all world agriculture trade. The US Meat Export Federation, the foreign marketing arm for the red meat industry has worked hard to promote our product in the young, fast growing, overseas markets. In spite of record US meat exports from the efforts of groups like this, prices for all US agricultural products remain very weak.
Past GATT and WTO rounds have traded agricultural priorities for other priorities and left our crop and livestock producers facing high tariffs and a host of non-tariff trade barriers in overseas markets while opening our markets to imports. One of the underlying premises of the 1996 Freedom to Farm bill was that aggressive pursuit of growing export markets would be a critical strategy to replace the safety net of traditional farm programs. The pursuit of export markets includes bringing down trade barriers and this must be a successful part of the next round.
Success of the Seattle Round means that the US must take the high road to expanded exports and freer trade, and less dependence on government assistance; failure to do this will take us down the road of protectionism, isolationism, trade wars, agricultural surpluses, and costly government farm programs. The near-agreement with China, which is contingent upon approval of permanent Normal Trading Relations, looks like a good start to reducing trade barriers. If the agreement with China can be finalized it will set a new precedence for all of the WTO countries to follow in November. The China agreement would allow for:
A bilateral Sanitary/Phytosanitary agreement for China to accept all USDA approved processing plants as eligible to ship to China. This bilateral agreement has been finalized, but its impacts will depend on finalization of the overall trade package with China. The proposed overall package would allow for the following with respect to the beef industry: duties on certain beef items to decline from 45 percent to 12 percent over a 5-year period a commitment not to subsidize domestic agricultural products U.S. investment in distribution, wholesaling, retailing, and transportation
Page 200 PREV PAGE TOP OF DOCOBJECTIVES FOR THE 1999 WTO NEGOTIATIONS
NCBA, in conjunction with nearly 60 other agricultural and food sectors, expressed support for launching a comprehensive round of multinational trade negotiations in an April 1, 1999 letter to the President of the United States. The group specified three process objectives for the negotiations, as follows: establishment of a 3-year goal for concluding negotiations; adoption of the Uruguay Round framework for the 1999 agricultural negotiations so there are no product or policy exceptions; conclusion with a single undertaking that encompasses all sectors
NCBA and the U.S. beef industry believe that the overall policy objective for U.S. trade is to maintain and increase access to existing markets for U.S. beef, beef by-products, cattle, semen and embryos, and to gain access in emerging markets for these products. NCBA and other meat industry groups support the following specific points to be addressed during the 1999 round of WTO negotiations:
Prevent the EU from rolling back progress made during the previous GATT agreement. Enforcement of the strict science-based trading rules established in the Uruguay Round Agreement on Sanitary and Phytosanitary Measures (the SPS Agreement) is critical to continued expansion of U.S. beef exports.
Ensure that science remains the only basis for resolving SPS issues. To ensure this outcome, the red meat industry does not support opening the SPS Agreement for further negotiation in the next trade round.
Protect scientifically approved technologies, such as Genetically Modified Organisms (GMOs) and beef growth promotants that enhance production efficiency or food safety by establishing transparent, science-based rules.
Negotiate elimination of State Trading Entities (STEs) and increased access to wholesale and retail trade in importing countries (especially relevant in China, Australia and Canada).
Page 201 PREV PAGE TOP OF DOC Negotiate reduction and eventual elimination of production-distorting price supports and export subsidy programs. In addition, stricter disciplines and tougher enforcement mechanisms should be established to prevent the emergence of new schemes to circumvent WTO rules.
Negotiate continued reduction of tariffs and expansion of Tariff Rate Quotas (TRQs). Existing duties in key export markets such as Japan and Korea must be reduced significantly. Establish a target date for reducing all tariffs to zero. Until this elimination of duties can be accomplished, expand existing tariff rate quotas to permit continued growth in exports. Country-specific targets must be established for these broad objectives and NCBA is currently coordinating beef industry efforts to establish specific targets and guidelines.
In my mind, the last point is the most crucial. US beef entering many markets for US beef in Asia (Japan, Korea, and China) still faces a 40 percent tariff. This is way too high. Price still drives the effective demand for our product. If one looks at Mexico, you can see what the effects of eliminating tariffs of 20 to 25 percent did in that market after NAFTA was initiatedeven with the 50 percent devaluation of the peso in late 1994. While we have done well in the Asian countries, I conclude that tariff reduction must be one of the main keys to exporting more red meat to countries with high tariffs.
Definition of Dumping. The beef industry is driven by supply and demand and these forces determine the market price for beef. Market-driven industries traditionally run in cycles, and most beef producers periodically sell below the cost of production (at a loss) during the low-price/high production periods of the cattle cycle. These periods of cyclical low prices and producer losses in the beef industry meet the definition of dumping under current WTO rules even in the absence of evidence of predatory behavior, intention to monopolize, or any other intentional efforts to drive competitors out of business.
Producer unrest has resulted from low prices for agricultural commodities and the demons of protectionism are rising in this country and worldwide. The storm clouds of unrest include calls for dumping suits, blockading borders and other retaliatory measures to restrict trade. The current definition of dumping under WTO rules does not make sense for commodity markets like beef because one of the criteria to file a dumping case is that the commodity must be sold below the cost of production in the importing country.
Page 202 PREV PAGE TOP OF DOC Most beef producers, during periods of low-price/high-production do sell at a loss or below their cost of production. I can testify that I sold several agricultural commodities below my cost of production during most of 1998, not because I wanted to, but because this is the price that the market gave me. By WTO definitions I can be considered to be dumping during these periods of low prices even though I had no intention of doing so. I can absolutely state that I did not sell below the cost of production because of any predatory behavior or with the intention to monopolize, or to drive any of my competitors out of business.
Under the current WTO definition of dumping, suits were filed against Canada and Mexico in 1998 and in return, Mexican feeders and processors filed a dumping case against the United States. These cases were the outcome from cyclically low market prices related to supply and demand and had nothing to do with predatory behavior, monopoly practices or the intention of beef producers in one country to drive other producers out or business. The bottom line is that these cases will cost the beef industry scarce resources to defend without addressing the base cause of low prices. The definition of dumping should be narrowed to exclude future periods of cyclical low prices.
MAINTAIN INTEGRITY OF THE WTO AND THE DISPUTE SETTLEMENT PROCESS-FORTRESS EUROPE:
Among the strengths of the current WTO system is that there is a well-defined process for initiating a case and for determining the final ruling. The current system is much improved from its GATT predecessor in this respect. The strict science-based rules established for resolving these issues is another major strength of the current dispute settlement process.
The primary weakness of the current system is the absence of an enforcement mechanism to assure compliance once the ruling is issued. The US has been unfairly locked out of the European beef market for more than 10 years by a thinly veiled trade barrier commonly referred to as the EU hormone ban.
Page 203 PREV PAGE TOP OF DOC The US has followed the dispute settlement process for three years now, and the EU has until July 13 to offer an acceptable resolution to this matter or trade retaliation begins. Let me state that no one wins trade wars and that our preference is for access. All we ask is for Europe to give their consumers a choice. Labeling our beef as a product of the US is an acceptable concession that our negotiators have offered to the EU with no success.
The same concerns exist whether they relate to beef raised with naturally occurring growth promotants, or BT corn, or Roundup-ready soybeansall technologies that that have been proven safe. The European response raises the question, ''what do we do with a country that has agreed to a set of rules on trade, refuses to live by them, but expects other countries to comply?'' NCBA supports the WTO and free trade because we realize that with only 4 percent of the world's population, and highly productive agriculture, exports are our future. If Europe continues to thumb their nose at this science based process, the whole WTO may be in jeopardy of losing its credibility.
It is clear that Congress and the Administration do not have a unified strategy to systematically attack the trade problems of US agriculture as part of the upcoming negotiations. The inability to secure approval of ''fast track'' continued negotiating authority in the 105th Congress is evidence to the lack of a unified strategy. Agricultural producers are justifiably concerned about sending a team to the negotiating table that has a more consistent track record of in-fighting among Congressional and Administrative ranks rather than engaging the opposition.
The U.S. must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. Without fast track authority, the U.S. will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.
The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the U.S. addresses other trade issues, including accession of China to the WTO, resolving a host of other access issues with the European Union and passing regulatory authority legislation to provide continuing authority for negotiating additional trade agreements. Thank you for the opportunity to present this information.
Page 204 PREV PAGE TOP OF DOC
Statement of the Queensland Sugar Corporation
My name is David J S Rutledge. I am chief executive of the Queensland Sugar Corporation in Australia. I am pleased to have this opportunity, at the time that the committee is considering the U.S. agriculture trade agenda in the lead up to the forthcoming round of World Trade Organisation discussions due to commence with the Seattle WTO Ministerial meeting.
The Queensland Sugar Corporation is a body corporate established by the Queensland Parliament in 1991. Its operations are funded by Queensland's raw sugar producers from the proceeds of the sale of raw sugar. It receives no financial support from the government either directly or indirectly (in the form of a guarantee or otherwise). The Queensland Sugar Corporation is responsible for the marketing of Queensland's entire raw sugar production to both domestic and export customers. This represents approximately 95 per cent of Australia's sugar production, approximately 85 per cent is exported, the balance is sold to the Australian domestic market at export parity prices. The Queensland Sugar Corporation has no responsibility for marketing the sugar produced in the state of New South Wales.
AUSTRALIA IS A MARKET-ORIENTATED SUGAR PRODUCER
The Australian sugar industry is entirely dependent on world market values for its entire raw sugar production, expected to be 5.5 million metric tonnes raw value in the 1999 harvest. The only exception to this is the industry's quota access to the U.S. market which receives payment at the U.S. domestic price.
A series of policy changes, introduced since 1989, have removed domestic price supports for producers and resulted in their being market responsive and self-reliant:
first, the domestic white sugar market was deregulated
at the same time, the embargo on sugar imports was lifted and the tariff on imports has been eliminated
Page 205 PREV PAGE TOP OF DOC all domestic and export sales of Australian raw sugar are priced in relation to the world market sugar price established through the New York Board of Trade's No. 11 raw sugar contract
in 1993, the Commonwealth and Queensland state governments as part of a package to reduce the level of tariff offered a one-off Sugar Industry Infrastructure Program to the industry. A condition of the provision of government funds (MD26 million) was that they be matched by industry funds. The sugar industry contributed (LJSD48 million) almost twice the level of government funds to the infrastructure projects. The projects included the development of irrigation infrastructure, drainage management facilities to mitigate the damage caused by floods and the extension of cane railways. All funds have been allocated, the majority of projects have been completed and the remainder are either nearing completion or are scheduled to be completed by 30 June 2000. It is important to note that use of all these facilities is on a user pays basis.
in July 1997, the tariff on raw sugar imports was removed (placing Australia well ahead of its WTO Uruguay round obligations) and a policy introduced to price domestic sales of raw sugar at export parity levels. The industry received no compensation to offset the effect of these policy changes
finally regulations controlling the production of cane have been reduced. Production decisions are solely a matter for negotiation between cane growers and the mills to which they supply cane.
THE AUSTRALIAN SUGAR INDUSTRY - SOME FACTS
the sugar industry has more than 6,500 individual family-owned farms
the Australian industry has grown by more than 40 per cent since 1989, during a period when government support of the industry has been progressively removed
despite being a developed country paying high input costs for labour and meeting very strong environmental standards, Australia is ranked the world's 7th lowest cost cane producer
Page 206 PREV PAGE TOP OF DOC the industry has contained its costs by achieving high rates of productivity growth in all areas of activity field, factory and marketing
underlying these productivity gains is a strong focus on industry wide research and development activities
the Australian sugar industry is internationally competitive
The Federal Government as part of the Agriculture Advancing Australia package provides relief from natural disasters and structural adjustment assistance (which includes interest loan and payment assistance) to Australian agricultural producers. This support is provided through budgetary outlays. No price support or consumer transfers are involved. The scheme falls under
the WTO Agreement on Agriculture as green box and is minimally trade or production distorting.
AUSTRALIA IS SEEKING A MORE OPEN AND FREE WORLD SUGAR MARKET
In brief, Australian sugar producers are seeking further gains in the three pillars of the Uruguay Round Agreement on Agriculture-reduced domestic support, reduced export subsidies and improved market access.
1. Reduced domestic support. Achieving further reductions in domestic price support in sugar producing countries is the highest priority. There should be further substantial reductions in the level of price support measures. At the very least price supports should be replaced by measures which do not distort production, consumption or trade patterns.
In the Uruguay Round Agreement reductions in domestic price supports were modest for sugar. The potential gains for sugar were heavily diluted by the impact of the aggregation process. In the forthcoming round commitments must be achieved on a commodity-by-commodity basis to ensure meaningful gains are achieved for sugar.
2. Reduced export subsidies. Achieving further reductions in export subsidies (with an aim of eliminating these subsidies)on a disaggregated basis is also a very a high priority. As was the case with the implementation of domestic price support commitments, the EU avoided the implementation of meaningful reductions
Page 207 PREV PAGE TOP OF DOCin export subsidies for sugar by the aggregation of its export subsidy commitments.
3. Improved market access. Seeking improved market access is an important priority for the Australian sugar industry. Improved market access will flow in part from the application of meaningful reductions in domestic price supports and reduced export subsidies. However, to ensure pressure is placed on all aspects of trade distorting sugar policies it is important that commodity-by-commodity gains are made on market access.
Of particular importance to the Australian sugar industry are:
Increase the level of tariff-rate quota access
Reduce both bound and applied tariffs
Eliminate special safeguard mechanisms
Reduce tariff differentials between sugar and alternative sweeteners.
DOES GOVERNMENT INTERVENTION DISTORT THE WORLD MARKET?
Yes. Around 110 countries produce sugar. Government intervention affects production, consumption or trade in most of these countries. Australia is one of the few countries that does not control the price of domestic sugar. Studies by the USDA and others conclude that the world sugar price is lower than it would otherwise be without government policy intervention. The three major offending economies are Japan, the EU and the United States.
Australian producers were also concerned about the possibility of large flows of sugar into the Australian domestic market from the EU and other regions after policy changes. However, competitive pricing policies have prevented this from occurring. Anti-dumping rules of the WTO would also allow remedial action to be taken. In addition, the EU has an obligation to reduce the volume of its subsidized exports under the Uruguay Round Agreement.
STATE TRADING ENTERPRISES (STES)
Over the past few years, concerns have been raised about the activities of exporting STEs. STEs are covered under Article XVII of GATT, which ensures that STEs conform to the WTO rules of nondiscrimination in trade. The issue should not be about STEs per se, but about their activities and whether or not those activities are in contravention of trade rules. It is therefore important that STEs are considered on a case by case basis.
Page 208 PREV PAGE TOP OF DOC The QSC's marketing activities do not contravene any of the WTOs trade rules. All of Australia's sales are made on a competitive basis. The prices received reflect competitive market levels at any given time and location.
DISPELLING ISSUES COMMONLY RAISED ABOUT STES IN RELATION TO THE QSC
1. The QSC does NOT receive government subsidies to enable it to trade unfairly
The QSC receives no financial support from the Australian government; Queensland raw sugar producers fund it in total.
2. The QSC's activities are open and transparent they do not enable cross-subsidisation.
The QSC does not disclose its transaction prices any more than any international sugar trader does. As is normal commercial practice, individual transaction information is held in confidence between buyers and sellers.
The QSC's financial position is fully disclosed in its annual report.
The QSC enters into long term supply agreements with several of its customers. There are no constraints on other sugar traders from entering similar agreements.
3. Single desk selling does NOT contravene trade rules
The world market for raw sugar is highly competitive.
The QSC has to compete in all market places to secure sugar sales (with the exception of the US market, which is governed by an import quota).
Single desk selling enables the industry to take a coordinated marketing approach. This approach to marketing and the establishment of long term customer relationships are the reasons the single desk is seen as the most appropriate marketing mechanism for the Queensland sugar industry. Producer returns are enhanced through careful commercial operations and effective risk management activities. These activities are commercial best practice. They are not in contravention of the WTO's trade rules.
Page 209 PREV PAGE TOP OF DOCTHE NEXT WTO ROUND OFFERS A CHANCE FOR REFORM
The WTO round of trade negotiations scheduled to commence in Seattle provides an excellent opportunity for the US to press for and achieve further significant gains in agricultural trade reform. The negotiations provide a chance to move farmers worldwide off traditional forms of support and begin to expose them to market realities.
The Australian experience shows that it is possible for producers to be competitive in the world sugar market without government assistance. Trade and agriculture, elsewhere in the world are beginning to be reformed. There are no compelling reasons why sugar policies should not be subject
to the same processes. We believe that moving towards a market-orientated sugar program would link production decisions to market signals and encourage increased innovation, productivity and efficiency in the world sweetener industry.
This approach for sugar is consistent with the approach to the broader agricultural agenda pursued by the US since the conclusion of the Uruguay round and advocated by Ambassador Barshefsky (USTR), in her testimony (June 24, 1999) to the Senate Committee on Agriculture, and by Secretary of Agriculture Glickman, in his statement to your Committee on June 23, 1999.
Testimony of Jack Roney
Thank you, Mr. Chairman, for the opportunity to participate in this important hearing. I am Jack Roney, director of economics and policy analysis for the American Sugar Alliance (ASA). The ASA is the national coalition of growers, processors, and refiners of sugarbeets, sugarcane, and corn for sweetener.
The ASA has long endorsed the goal of global free trade because U.S. sugar and corn sweetener producers are efficient by world standards and would welcome the opportunity to compete on a genuine level playing field. Until that free trade goal is achieved, however, the United States must retain at least the minimal sugar policy now in place to prevent foreign subsidized, dump market sugar from unfairly displacing efficient American producers. This policy was substantially modified by Congress in the 1996 farm bill, but remains highly beneficial to American taxpayers and consumers.
Page 210 PREV PAGE TOP OF DOC While the ASA supports the goal of free trade, we have serious concerns about past agreements and about the structure of future multilateral or regional trade agreements. Listed below are our specific recommendations regarding negotiations of the World Trade Organization, followed by some background on the United States' role and standing in the world sugar economy and our evaluation of the effects of past multilateral and regional trade agreements on the world sugar market and on our industry. We have also provided some specific information on the significant role export subsidies play in the world sugar market.
U.S. agriculture is extremely vulnerable as we approach the next trade round. If we are reckless, we risk converting American agriculture into a Rust Belt. If we negotiate carefully and rationally, however, there is enormous potential for responsible American producers to compete and prosper in a genuine free trade environment, free from the need for government intervention.
RECOMMENDATIONS FOR FUTURE WTO NEGOTIATIONS
The 1999 World Trade Organization (WTO) Ministerial will play a pivotal role in establishing the scope, parameters, and goal of the next multilateral trade round. Shaped by our experience and by the specific failures of past agreements, described later in this paper, the following are the ASA's recommendations for the Ministerial.
1. Compliance. Compliance with past agreements, in particular, the Uruguay Round Agreement (URA) of the WTO and the North American Free Trade Agreement (NAFTA), must be achieved before the United States forges any new agreements. The United States, and any other country that has surpassed its URA commitments, should be given credit for doing so before being required to make further cuts in the next trade round.
2. Catch-up. The United States must not reduce its support for agricultural programs, particularly for import-sensitive crops such as sugar, any further until other countries have reduced their support to our level.
Page 211 PREV PAGE TOP OF DOC 3. Export subsidies/STE's. Elimination of export subsidies, the most trade distorting of all practices, and of state trading enterprises (STE's), which were ignored previously, must be given top priority in the next trade round.
4. Labor and environmental standards. The wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade round, to provide both incentives and penalties that ensure global standards rise to developed-country levels, rather than fall to developing-country levels. Nearly three-quarters of the world's sugar is produced in developing countries.
5. Negotiating strategy. With regard to future tariff reductions, the traditional, flexible, ''request/offer'' type of negotiating strategy must be followed in the next trade round, rather than the rigid, across-the-board, formula approach that was used in the URA. This is the only way to recognize the enormous diversity, and varying sensitivities, among agricultural industries and commodity markets.
88Background on U.S. Sugar Industry, Policy
Size and Competitiveness. Sugar is grown and processed in 17 states and 420,000 American jobs, in 40 States, are dependent, directly or indirectly, on the production of sugar and corn sweeteners. The industry generates an estimated $26.2 billion in economic activity annually. A little more than half our sugar is produced from sugarbeets, the remainder from sugarcane. More than half our caloric sweetener consumption is in the form of corn sweeteners.
The United States is the world's fourth largest sugar producer, trailing only Brazil, India, and China. The European Union (EU), taken collectively, is by far the world's largest producing region. It benefits from massive production and export subsidy programs.
Sugar is an essential food ingredient and the U.S. sugar producing industry is highly efficient, highly capitalized, and technologically advanced. It provides 260 million Americans most of sugar they demand, in 45 different product specifications and with ''just-in-time'' delivery that saves grocers and manufacturers storage costs.
Page 212 PREV PAGE TOP OF DOC Roughly 1520 percent of U.S. sugar demand is fulfilled by duty-free imports from foreign countries, making the U.S. one of the world's largest sugar importers. Many of the 41 countries supplying our sugar are developing economies with fragile democracies and they depend heavily on sales to the United States, at prevailing U.S. prices, to cover their costs of production and generate foreign exchange revenues.
Despite some of the world's highest government-imposed costs for labor and environmental protections, U.S. sugar producers are among the world's most efficient. According to a study released in 1997 by LMC International, of England, and covering the 6-year period ending in 199495, American sugar producers rank 19th lowest in cost among 96 producing countries, most of which are developing countries. According to LMC, fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States.
During the last 3 years studied, 1992939495, the United States became the lowest cost beet sugar producer in the world. American corn sweetener producers are also the lowest cost of all caloric sweeteners in the world, and always have been the lowest cost producer of corn sweetener.
Because of their efficiency, American sugar farmers would welcome the opportunity to compete against foreign farmers on a level playing field, free of government subsidies and market intervention. Unfortunately, the extreme distortion of the world sugar market makes any such free trade competition impossible today.
UNIQUE CHARACTERISTICS OF THE WORLD SUGAR MARKET
There are a number of unique characteristics to the world sugar market, which trade negotiators must take into account in future multilateral deliberations.
World Dump Market. More than 100 countries produce sugar and the governments of all these countries intervene in their sugar markets and industries in some way. These unfair trading practices have led to the distortion in the so-called ''world market'' for sugar, and to a disconnect between the cost of production and prices on the world sugar market, more aptly called a ''dump market.'' Indeed, for the period of 198485 through 199495, the most recent period for which cost of production data are available, the world average cost of producing sugar is over 18 cents, while the world dump market price averaged barely half thatjust a little more than 9 cents per pound raw value. (See chart, Attachment A.)
Page 213 PREV PAGE TOP OF DOC Volatility. Furthermore, its dump nature makes sugar the world's most volatile commodity market. Because it is a relatively thinly traded market, small shifts in supply or demand can cause huge changes in price.
During the period 196595, the average deviation from trend for raw sugar prices was nearly 50 percent, more than double the average deviation for corn and almost double that of wheat.
Just in the past two decades, world sugar prices have soared above 60 cents per pound and plummeted below 3 cents per pound.
Other Factors. Aside from the highly residual and volatile nature of the world sugar price, there are a number of factors that set sugar apart from other program commodities. These unique characteristics should be taken into account before sugar is lumped in with other commodities for across-the-board policy reforms.
Lack of Concentration. World grain exports are overwhelmingly dominated by a small number of developed countries, but sugar exports are far more dispersed, and dominated by developing countries. This makes the playing field among major grain exporters comparatively level and policy reform relatively less complicated than for sugar.
The world wheat and corn markets, for example, are heavily dominated by a handful of developed-country exportersthe United States, the European Union, Australia,
and Canada are four of the top five exporters of each. The top five account for 96 percent of global corn exports and 91 percent of wheat exports.
The top five sugar exporting countries, on the other hand, account for only two-thirds of global exports and three of these are developing countries. The top 19 sugar exporters account for only 85 percent of the market, and 16 of these are developing countries. (See charts, Attachments B & C.)
Developing Country Dominance. Developing countries account for 73 percent of world sugar production, and 69 percent of both exports and imports. Developing countries were virtually ignored in the Uruguay Round of reductions in barriers to agricultural trade, and impose far lower costs on their producers for labor and environmental protections. (See charts, Attachments D-F)
Page 214 PREV PAGE TOP OF DOC Grower/Processor Interdependence. Grain, oilseed, and most other field-crop farmers harvest a product that can be sold for commercial use or stored without any further processing. Sugarbeet and sugarcane farmers harvest a product that is highly perishable and of no commercial value until the sugar has been extracted. Farmers cannot, therefore, grow beets or cane unless they either own, or have contracted with, a processing plant. Likewise, processors cannot function economically unless they have an optimal supply of beets or cane. This interdependence leaves the sugar industry far less flexible in responding to changes in the price of sugar or of competing crops.
Multi-Year Investment. The multimillion-dollar cost of constructing a beet or cane processing plant (approximately $300 million), the need for planting, cultivating, and harvesting machinery that is unique to sugar, and the practice of extracting several harvests from one planting of sugarcane, make beet or cane planting an expensive, multiyear investment. These huge, long-term investments further reduce the sugar industry's ability to make short-term adjustments to sudden economic changes.
High-Value Product. While the gross returns per acre of beets or cane tend to be significantly higher than for other crops, critics often ignore the high cost associated with growing these crops. Compared with growing wheat, for example, USDA statistics reveal the total economic cost of growing cane is nearly seven times higher, and beet is more than five times higher. With the additional cost for processing the beets and cane, sugar is really more of a high-value product than a field crop.
Inability to Hedge. The 1996 Freedom to farm bill made American farmers far more dependent on the marketplace. Growers of grains, oilseeds, cotton, and rice can
reduce their vulnerability to market swings by hedging or forward contracting on a variety of futures markets for their commodities. There is no futures market for beets or cane. Farmers do not market their crop and can neither make, nor take, delivery of beet or cane sugar. The hedging or forward contracting opportunities exist only for the processorsthe sellers of the sugar derived from the beets and cane. These marketing limitations make beet and cane farmers more vulnerable than other farmers to market swings.
Page 215 PREV PAGE TOP OF DOCU.S. SUGAR INDUSTRY'S FREE TRADE GOAL
Because of our competitiveness, with costs of production well below the world average, the American Sugar Alliance supports the goal of genuine, global free trade in sugar. We cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free trade environment.
We were the first U.S. commodity group to endorse the goal of completely eliminating government barriers to trade at the outset of the Uruguay Round, in 1986. We understand we are the first group to endorse this same goal prior to the start of the 1999 multilateral trade round.
The ASA does not endorse the notion of free trade at any cost. The movement toward free trade must be made deliberately and rationally, to ensure fairness and to ensure that those of us who have a global comparative advantage in sugar production are not disadvantaged by allowing distortions, exemptions, or delays for our foreign competitors, as we are experiencing under the current agreement.
SUGAR AND THE URUGUAY ROUND AGREEMENT
Little Effect on World Sugar Policies. More than 100 countries produce sugar and all have some form of government intervention. Unfortunately, these policies were not significantly changed in the Uruguay Round Agreement (URA) of the WTO.
The URA inadequately addressed, or ignored:
Compliance. Many countries have evaded or not yet even complied with their URA agricultural commitments. In sugar, for example, the EU has managed to isolate most of its sugar export subsidy program from URA disciplines. The Philippines has yet to meet its requirements for increasing minimum access levels to its sugar market.
It was revealed at a WTO Analysis and Information Exchange Group meeting Geneva in September 1998, nearly four years since the inception of the URA, that a mere 17 of the 132 member nations have fulfilled all their notification requirements on domestic support, export subsidies, and market access. One must wonder how we can monitor compliance with WTO-mandated reductions in agricultural policies when the vast majority of countries will not even acknowledge which policies they have in place.
Page 216 PREV PAGE TOP OF DOC Export Subsidies. The most distorting practice in world agricultural trade is the export subsidy. Export subsidies provide countries the mechanism to dispose of surpluses generated by high internal production subsidies. In the absence of export subsidies as a surplus-removal vehicle, countries would have to reduce their production supports. With export subsidies in place, countries can move surpluses into markets where they do not belong and depress market prices. Other countries are forced to respond with import barriers. In the world sugar market, subsidized exports by the EU alone amount to about a fifth of all the sugar traded each year.
The URA did not significantly reduce the amount of sugar sold globally with export subsidies. The agreement failed to reduce the European Union's generous price support level and requires only a tiny potential drop in its substantial export subsidies.
State Trading Enterprises (STE's). STE's are quasi-governmental, or government-tolerated organizations that support domestic producers through a variety of monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrangements, and other strategies. These practices were ignored in the Uruguay Round, but are, unfortunately, common in the world sugar industry. Major producers such as Australia, Brazil, China, Cuba, and India have sugar STE's, but were not required to make any changes in the URA.
Developing-Country Producers. Developing countries, which represent nearly three-quarters of world sugar production and trade, have little or no labor and environmental standards for sugar farmers, have no minimum import access requirements, and often have high import tariffs. Nonetheless, developing countries were put on a much slower track for reductions, or, in the case of the least developed countries, were exempted altogether from URA disciplines.
WTO Non-Members. Important sugar-producing and importing countries such as China and the former Soviet republics are not WTO members, and need to do nothing under the URA. Yet, these countries represent some 40 percent of global sugar imports and 20 percent of production.
Page 217 PREV PAGE TOP OF DOC Labor and Environmental Standards. The gap in government standardsand resulting producer costsbetween developed and developing countries is well documented and immense, but was ignored in the URA. In sugar, the gap is particularly pronounced because, while the EU and the U.S. are major players, production and exports are highly dominated by developing countries, especially in the cane sector.
Social Standards Gap. The differences in labor and environmental standards between developed and developing countries are wide. American sugar producers operate with the highest possible regard for workers and the environment. But we should not be penalized in multilateral trade negotiations for providing these costly protections. Foreign countries that do not provide such protections should not be rewarded. If we are attempting to globalize our economy, we should also globalize our worker and environmental protection responsibilities. If markets are to be liberalized, standards must be harmonized.
In the next trade round, access to developed countries should be conditioned on developing countries' achievement and enforcement of higher labor and environmental standards. Such an incentive system could help ensure that the next trade round results in a race to the top, in protection of workers and the environment, rather than a race to the bottom.
Widely Varying Levels of Support. Unilateral reforms to U.S. agriculture policy in the 1996 farm bill far exceeded U.S. commitments made the year before in the Uruguay Round. Furthermore, developing countries, which dominate world agricultural trade and particularly sugar trade, were subject to a slower pace of reductions, if any.
As a result, the United States is way out in front of the rest of the world in removing its government from agriculture and has placed its farmers in a domestic free market situation. This gap makes American farmers uniquely vulnerable to continued subsidies by foreign competitors.
It is key that American farmers not be penalized for attempting to lead the rest of the world toward free agricultural trade. American farmers must be given credit for the reforms they have endured.
Page 218 PREV PAGE TOP OF DOC U.S. Sugar Surpasses URA Requirements. The United States is one of only about 25 countries that guarantees a portion of its sugar market to foreign producers and it has far surpassed its URA commitment on import access. The URA required a minimum access of 35 percent of domestic consumption. The United States accepted a sugar-import minimum that amounts to about 12 percent of consumption. In practice, U.S. imports in 1994/95 and 1995/96 averaged 24 percentdouble the promise we made in the URA, and about six times the global URA minimum.
All this sugar imported from 41 countries under the tariff-rate quota (TRQ) enters the United States at the U.S. price, and not at the world dump price. Virtually all this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon, and Taiwan) that lack Generalized System of Preferences status pay a minuscule duty of 0.625 cents per pound.
The United States calculated its above-quota tariff rate in the manner dictated by the URA. These tariff levels are totally WTO consistent, and are dropping by 15 percent over the 6-year transition period, as we promised they would in the Uruguay Round. This duty is frozen in the year 2000 and must not be reduced further until foreign countries have complied with their URA requirements, as the U.S. has done.
U.S. Sugar Policy Reforms. U.S. sugar policy was unilaterally and substantially reformed in the 1996 farm bill, far in excess of URA commitments. The key reforms: (1) Production controls (''marketing allotments'') were eliminated. (2) Government-provided non-recourse loans, or a government-guaranteed minimum price, are conditional and no longer guaranteedunlike all other U.S. program commodities. This ensures long-standing Congressional intent that U.S. sugar policy be run at no cost to the U.S. Treasury. (3) The minimum import level, already about four times the minimum required by the URA, was effectively raised another 20 percent. (4) Sugar producers' burdensome and discriminatory marketing assessment tax was raised 25 percent, increasing expected annual revenues to the U.S. Treasury from U.S. sugar policy to about $40 million. (5) A 1-cent per pound penalty was established to discourage government loan forfeitures. (6) The U.S. committed to further support price reductions when
Page 219 PREV PAGE TOP OF DOCother countries surpass their URA requirements, as the U.S. has done, and achieve levels equal to ours.
The reformed sugar policy of the 1996 farm bill does retain the Secretary of Agriculture's ability to limit imports, and also provides a price support mechanism, though only when imports exceed 1.5 million short tons. The 199899 sugar import quota is already below that critical trigger level.
Playing Field Lower, But Not More Level. The URA's formula-based approach called for across-the-board percentage reductions, regardless of the original level of price support, import barrier, or export subsidy. Countries with the most egregious barriers can maintain their advantage throughout the transition process. For example, if one country's price support were 40 percent higher than another's, and both reduced by the URA-mandated 20 percent, the 40 percent advantage would remain in placethe playing field has been lowered, but not leveled.
Furthermore, the United States far surpassed its URA commitments, unilaterally dismantling its already minimal commodity program in the 1996 farm bill, while many other nations with higher levels of government intervention have yet to even minimally comply. This has tilted the playing field even further to the disadvantage of efficient American farmers.
Formula Driven Trade Strategy. For the many reasons outlined above, the rigid, formula-driven, or one-size-fits-all, approach for trade concessions does not work for agriculture in general, or for sugar in particular. Pursuing this approach would: (1) Fail to reduce the gap in supports between countrieslowering the playing field, but not leveling it; (2) Again give developing countries virtually a free ride; (3) Further diminish U.S. negotiating leverage, which was severely reduced through our unilateral concessions in the 1996 farm bill.
To date, U.S. agriculture has led the world in trade barrier reductions and we are disadvantaged as long as the rest of the world fails to follow our example.
Page 220 PREV PAGE TOP OF DOC Special Import Safeguards. The URA did provide some special import safeguards for sugar in the event of a world price collapse. Such a price collapse has occurredcurrent world prices are at a 14-year low of less than 5 centsand these price-triggered safeguards are proving valuable to prevent dump market sugar from entering the U.S. market. These safeguards must be retained, and should be strengthened, in the next trade round.
SUGAR AND THE NAFTA
The ASA is concerned that before the United States embarks on another multilateral trade round we must be cognizant of serious problems that remain with our primary regional trade agreement, the North American Free Trade Agreement (NAFTA). Evasion of NAFTA rules and violation of international trade rules by our North American trading partners have left many American sugar producers with a distrust of trade agreements and a serious reticence about entering into new ones.
Canada. Sugar trade between the United States and Canada, which imports about 90 percent of its sugar needs, was essentially excluded from the NAFTA. U.S.-Canadian sugar trade is governed mainly by the U.S.-Canada Free Trade Agreement and by the WTO.
Currently, entrepreneurs based in Canada are threatening the integrity of U.S. sugar policy by circumventing the tariff-rate quota with a new product referred to in the trade as ''stuffed molasses''a high-sugar product not currently included in U.S. sugar TRQ classifications. USDA has estimated imports of this product could add about 100,000 tons of non-quota sugar to the U.S. market per year. That amount could grow if this loophole is not closed, further harming U.S. sellers of refined sugar and possibly threatening the no-cost operation of U.S. policy.
Mexico. Mexico had been a net importer of sugar for a number of years prior to the inception of the NAFTA. Nonetheless, the NAFTA provided Mexico with more than three times its traditional access to the U.S. sugar market during the first six years, 35 times its traditional access in years 714, and virtually unlimited access thereafter.
Page 221 PREV PAGE TOP OF DOC These provisions were negotiated by the U.S. and Mexican governments and contained in President Clinton's NAFTA submission to the U.S. Congress, which Congress approved in November 1993. The sugar provisions, as altered from the original NAFTA text, were critical to the narrow Congressional passage of the NAFTA.
Nonetheless, Mexico is now undermining the integrity of the NAFTA by claiming the sugar provisions are somehow invalid. This questioning by Mexico has bred deep feelings of distrust in trade agreements among many American sugar producers.
In addition, Mexico has not complied with a NAFTA requirement to phase out its tariffs on U.S. high-fructose corn syrup (HFCS). Instead, Mexico raised its tariffs on HFCS imports to levels approaching 100 percent. Mexico may also be violating international trade rules by sanctioning a restraint of trade agreement among Mexican sugar producers and soft drink bottlers to slow the pace of substitution of HFCS for sugar in Mexican soft drinks. (The ASA has filed a paper with USTR on this subject, ''Initiation of Section 302 Investigation on Mexican Practices Affecting High Fructose Corn Syrup,'' June 19, 1998.)
"The Official Committee record contains additional material here."