SPEAKERS CONTENTS INSERTS
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THE HASS AVOCADO PROMOTION,
RESEARCH, AND INFORMATION ACT OF 1999
LIVESTOCK AND HORTICULTURE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
APRIL 13, 2000
Page 2 PREV PAGE TOP OF DOCSerial No. 10647
Printed for the use of the Committee on Agriculture?
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
BILL BARRETT, Nebraska,
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH-HAGE, Idaho
JOHN N. HOSTETTLER, Indiana
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
KEN CALVERT, California
Page 3 PREV PAGE TOP OF DOCGIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
GREG WALDEN, Oregon
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
Page 4 PREV PAGE TOP OF DOCCHRISTOPHER JOHN, Louisiana
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
Subcommittee on Livestock and Horticulture
RICHARD W. POMBO, California, Chairman
JOHN A. BOEHNER, Ohio,
BOB GOODLATTE, Virginia
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
HELEN CHENOWETH-HAGE, Idaho
JOHN N. HOSTETTLER, Indiana
Page 5 PREV PAGE TOP OF DOCBOB SCHAFFER, Colorado
KEN CALVERT, California
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
COLLIN C. PETERSON, Minnesota,
Ranking Minority Member
TIM HOLDEN, California
GARY A. CONDIT, Pennsylvania
CALVIN M. DOOLEY, California
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
KEN LUCAS, Kentucky
C O N T E N T S
Pombo, Hon. Richard W., a Representative in Congress from the State of California, opening statement
Calvert, Hon. Ken, a Representative in Congress from the State of California, prepared statement
Cunningham, Hon. Randy ''Duke,'' a Representative in Congress from the State of California, prepared statement
Page 6 PREV PAGE TOP OF DOC Holzworth, David A., U.S. general counsel, Chilean Exporters Association and the Chilean Fresh Fruit Association
Wolk, Charley, chairman, California Avocado Commission
Bolger, Rt. Hon. James B., Ambassador of New Zealand
Browne, Michael, president, Fresh Directions, Intl., Ventura, CA, statement
Fresh Produce Association of the Americas, Nogales, AZ, statement
Guizar, Emilio, president, Diversified Avocado Products, statement
Mendez Sanchez, Jesus, chairman, board of directors, Mexican Avocado Growers and Exporters, statement
Ruiz Ferro, Julio Cesar, agriculture minister, Embassy of Mexico, statement
THE HASS AVOCADO PROMOTION, RESEARCH AND INFORMATION ACT OF 1999
THURSDAY, APRIL 13, 2000
House of Representatives,
Subcommittee on Livestock and Horticulture,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:12 a.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Page 7 PREV PAGE TOP OF DOC Present: Representatives Goodlatte, Everett, Hostettler, Calvert, Gutknecht, Riley, Peterson, Condit, Dooley, Berry, McIntyre, Stabenow, Etheridge, Boswell, and Lucas of Kentucky.
Staff present: Christopher D'Arcy, staff director, Subcommittee on Livestock and Horticulture; Wanda Worsham, chief clerk; R. Bryan Daniel, Brent Gattis, Callista Bisek, Andy Johnson, and Andy Baker.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. POMBO. We are going to call this hearing to order. This meeting of the Subcommittee on Livestock and Horticulture to receive testimony on the review of H.R. 2962, the Hass Avocado Promotion Research and Information Act of 1999, will come to order. I would like to welcome our first panel here this morning to testify on the legislation. Mr. Charlie Wolk, chairman of the California Avocado Commission who is accompanied by Mr. Tom Bellamore, and Mr. Michael McLeod. We also have Mr. David Holzworth, who is the U.S. general counsel for the Chilean Exporters Association, Chilean Fresh Fruit Association. I welcome you all here this morning for this hearing on this very important legislation.
If there are any statements for the record, they may be included at this point in the record.
[The prepared statement of Messrs. Cunningham and Calvert follow:]
PREPARED STATEMENT OF HON. RANDY ''DUKE'' CUNNINGHAM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Chairman Pombo, Ranking Member Peterson, members of the subcommittee, I want to join my colleagues here today in strong support of the Hass Avocado Promotion, Research and Information Act of 2000 (H.R. 2962).
Page 8 PREV PAGE TOP OF DOC This legislation will establish a Federal promotion program for Hass avocados that is paid by growers and importers who benefit most by increased avocado sales. The program will not be financed by American taxpayers. There is no better way for us to help our farmers then to give them the tools they need to help themselves.
San Diego's North County, which includes my district, is the No. 1 avocado producing area in America. And avocados have had a tremendous impact on our community's customs and culture. The section of Interstate 15 that runs north from my Escondido district office is called the ''Avocado Highway'' because of the ''forests'' of avocado trees that you can see as you drive along. One of the most frequent quotes you will hear in San Diego's North County this Earth Day will be ''Trees Supply Oxygen. Really Good Trees Supply Oxygen and Avocados.''
And Americans love avocados. On most of our national holidays and celebrations, such as the Fourth of July, Cinco de Mayo, Memorial Day, Labor Day, and Super Bowl Sunday, Americans make and enjoy the most popular use of the avocadoguacamole.
Now while I could share with you my favorite avocado recipes, this hearing is about a promotional marketing program. California has had a successful avocado marketing program for 20 years. However, recent changes to the American avocado market, and imports from Mexico, have created the need for a Federal promotion program.
This legislation will establish a self-help promotion program to provide California's 6,000 Hass avocado growers, and hundreds of international importers, a level playing field to share as partners in developing the American market for avocados.
It establishes a 12-member Hass Avocado Board to administer the funds collected under this Act. Both domestic growers and importers of Hass avocados will be represented on this board, which will distribute funds for several important common purposes:
to conduct new activities for generic advertising and promotion of avocados,
Page 9 PREV PAGE TOP OF DOC to develop new markets,
and to perform research on the sale, distribution, use, quality and nutritional value of avocados.
The bill establishes a process by which Hass avocado farmers and growers could assess upon themselves, through a checkoff program used by many other agricultural producers, a fee for avocado research and marketing programs. Upon approval by Congress and a majority vote by farmers and importers, the bill would establish an initial assessment of 2 1/2 cents per pound on both domestic producers and importers. It would raise about $10 million annually. This funding will preserve and strengthen the economic viability of the entire avocado market, including producers and others who market, process, and consume Hass avocados.
Mr. Chairman, members of this subcommittee, I urge you to support this legislation.
Let us give our growers and importers the tools they need to expand our Nation's avocado market. As a long time consumer and supporter of California's avocado growers, I look forward to working with you to pass this important legislation.
PREPARED STATEMENT OF HON. KEN CALVERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
I am pleased to present the Hass Avocado Promotion, Research and Information Act to this subcommittee. This legislation will provide California's 6,000 Hass avocado growerswho produce all of the Hass avocados grown in the United Stateswith a new self-help mechanism to enhance their national marketing efforts.
This act will allow avocado growers to fund and operate a coordinated marketing effort to expand domestic and foreign markets. The maintenance and expansion of existing markets and the development of new markets for Hass avocados, is critical to preserving and strengthening the economic viability of the domestic avocado industry for the benefit of growers, and others who market, process and consume Hass avocados.
Page 10 PREV PAGE TOP OF DOC The legislation will not be funded by tax dollarsthe bill simply creates a mechanism for Hass avocado growers to assess themselves. In addition, importers of Hass avocados into the United States would participate in the funding plan by paying the same assessment as U.S. growers. Thus, importers would pay their fair share in helping to expand the consumer market from which they already benefit. At present, the national marketing of avocados is paid entirely by California avocado growers through assessments collected by the California Avocado Commission.
The Commission, which was originally established under California State law in 1978, operates a highly successful national promotion program that has steadily improved the position of avocados in the U.S. market. In 1988, an estimated 32 percent of U.S. households bought fresh avocados compared to 41 percent in 1995a growth well beyond the increase in number of U.S. households. Avocados have held their attraction numbers at 40 percent or more in U.S. households, but a very solid market development effort by California growers at the consumer level may not be adequate to offset the onslaught of ever-increasing Hass avocado imports.
Without an expanded national avocado promotion program, imports will continue to supply a larger share of the U.S. avocado market, and undermine U.S. production. However, this bill offers a ''win-win'' proposition to domestic growers and importers, who can work in partnership to increase the market for avocados and avocado products.
The bill contains an up-front referendum, so avocado growers have a voting process to formally decide whether to implement this new national promotion program. In this referendum, growers and importers will determine whether they choose to assess themselves 2 1/2 cents per pound to create a promotion program that reaches a larger consumer audience. The funds generated by this legislation will be administered by a 12-member Hass Avocado Board that would be comprised of both domestic grower and importer representatives.
California Hass avocado growers found it necessary to ask Congress to enact enabling legislation to tailor a promotion program that meets their unique circumstance that all the commercial Hass production in the United States occurring in one single state, and the levels of imports are escalating. They examined the generic promotion provisions contained in the 1996 farm bill and determined that the language of the bill was defective in placing the assessment on first handlers rather than the assessment being paid by the producer, and collected and remitted by the first handler.
Page 11 PREV PAGE TOP OF DOC Furthermore, it was apparent that the existing, fully operational commodity promotion programs have their own unique authorizing statue. It made sense to craft implementing legislation in order to continue to make use of a successful State-administered nationwide promotion program, and to ensure that importers pay their fair share of the cost of promoting their product in the U.S. market. As a result, today we are considering H.R. 2962, as revised to accommodate many of the suggested changes recommended by USDA's Agricultural Marketing Service.
The Hass Avocado Promotion Act will build demand for Hass avocados at a time when the domestic industry is facing challenges and change. With imports increasing rapidly, new demand is needed to maintain market stability and value. As pointed out in the testimony provided by the General Counsel for the Chilean Fresh Fruit Association, the Chileans openly admit and ''anticipates that the U.S. market share of Chilean Hass avocados will increase in the next few years.'' The Chileans also tout the phenomenal growth of its fruit and vegetable exports to the United States. These points clearly underscore the need for this Agriculture Committee to ensure that importers pay the same assessment that our own U.S. growers have been willing to pay for years.
There is a serious crisis in farm country that demands our immediate attention. We in Congress need to be responsive in these difficult times. I am happy to offer this legislation aimed at avocados that is cosponsored by my California colleague Representative Gary Condit.
I ask my colleagues on this subcommittee for their support in advancing this vital legislation for Hass avocado growers and California agriculture.
Mr. POMBO. I would like to start with Mr. Wolk if you are ready. We would like you to contain your oral remarks to 5 minutes. Your entire testimony will be included in the record. You may begin.
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STATEMENT OF CHARLEY WOLK, CHAIRMAN, CALIFORNIA AVOCADO COMMISSION
Mr. WOLK. Thank you, Mr. Chairman, and members of the subcommittee. On behalf of the California 6,000 avocado growers in the California Avocado Commission, I wish first to commend the staff of this subcommittee and other Committee on Agriculture members, especially Representative Calvert and Representative Condit, who have worked very hard in the last 8 months in crafting the provision of the bill. The bill will create a national promotion order that will be funded by all the parties that benefit from the sale of Hass avocados in the U.S. domestic market. I think it is important to note that, as you know, avocados are not a subsidized crop and with the ever-increasing imports coming into our domestic market, this bill will provide a mechanism so that everyone who benefits is able to pay for the development of the market.
You know that there are other commodities that already have programs: beef, cotton, dairy, eggs, fluid, milk, soybeans, pork, honey, mushrooms, and watermelon already have a mechanism to build consumer demand, and we are asking the Congress to give us the same opportunity to build that demand in the marketplace, again, because the ever-increasing entry of imported production from offshore into the market.
California has a long history of having grower-funded programs for market development and the Avocado Commission is one of them, and we are very, very proud of the record of what we have accomplished in building consumer demand with value.
But the offshore supplies again are increasing. There is, in 1998, the last year we have data on, offshore entry into the market was about 100 million pounds, essentially about one third of the California crop. And again, we believe that a national promotion order will enable to put in place the mechanisms to build consumer demand, and that it will be shared fairly by all producers, including those offshore.
Page 13 PREV PAGE TOP OF DOC The avocados are enjoyed essentially throughout the country. They are part of a healthy diet and again, if there is not a maintenance and a building of demand, the economic viability of the marketplace will deteriorate to the demise of both California producers and offshore producers.
The key elements of the bill will have a 12-member board. It will be representatives of both domestic producers and importers. It will make provisions for developing new advertising and promotion programs. Also, it has the ability to conduct research on sale distribution and nutritional value of avocados. It will have an up-front referendum for both producers and importers and an initial assessment rate will be 2 1/2 cents per pound.
Again, this would give us a pooled resource so that we have the critical mass in order to be able to conduct a successful program. There has been question of why we didn't choose to have the generic program and essentially, it is two points. Number one, the generic legislation provides that the assessment would be paid by the first handlers as opposed to the other programs where the assessment is paid by the producers or the importers and the handlers are only the collection agency. If the handlers pay the money, then they end up having the votes on board.
The other thing is that the program would be written by the Secretary of Agriculture with a possibility without true regard for what the growers and the producers wanted to have in their program.
Essentially, when our commissioners looked at the alternative of using the generic act was just not appropriate for our needs, and as you know, all the commodities fight for a share of the consumer stomach. We need this program to, again, to muster the resources so that all of the people benefitting from domestic sales of Hass avocados, which are produced only commercially in California. Everybody has got to pay, and I might, in closing, that in actuality, when you look at the marketplace, the provisions, so that everybody pays is actually in the best interest of the two major importers into the U.S. market now, Chile and the Mexican producers. Again, I ask for your support in passing this bill to give us the tools we need to protect the market.
Page 14 PREV PAGE TOP OF DOC [The prepared statement of Mr. Wolk appears at the conclusion of the hearing.]
Mr. POMBO. Thank you. Mr. Holzworth.
STATEMENT OF DAVID A. HOLZWORTH, U.S. GENERAL COUNSEL, CHILEAN EXPORTERS ASSOCIATION AND THE CHILEAN FRESH FRUIT ASSOCIATION
Mr. HOLZWORTH. Thank you, Mr. Chairman, members of the subcommittee, for this opportunity to testify on behalf of the Chilean Exporters Association and its promotional arm here in the United States, based in Sacramento, CA, Chilean Fresh Fruit Association.
I think there is much that the producers and exporters from Chile have in common with the producers of Hass avocados in California, and other parts of the United States, although predominantly in California. Chile and California share a great many things, including very similar climates, complementary growing seasons, that is, winter in Chile when it is summer in California and vice versa, and this similarity of climates and complementarity of growing seasons has allowed for some interesting developments in the fruit markets over the last few years.
We have had substantial experience with promoting Chilean fruit worldwide, not only in the United States, and the complementarity of the seasons has worked well in creating a continuity of supply in the marketplace that has benefited both the producers from the southern hemisphere as well as the producers from North America. All of the promotional efforts of the Chilean Exporters Association and the Chilean Growers have been voluntary and they have been voluntary generally in cooperation with producers in the United States. There has been a tremendous development, for example, in the sale and consumption of table grapes from California and Chile that has been enhanced by the complementarity of the growing seasons and the coordination of certain efforts, all voluntary among the groups.
Page 15 PREV PAGE TOP OF DOC Likewise, there has been a tremendous increase in kiwi production and consumption in the United States, and again, this has resulted from cooperative, not mandatory, efforts between the two countries and their shippers and handlers.
We are opposed to the current version of House bill 2962, because we think the mandatory approach to it will not give the benefits, promotional benefits, that can be obtained through voluntary cooperation between the producers and growers and exporters in Chile and their counterparts in California, and the reason why is that H.R. 2962, as it is presently drafted raises substantial concerns of fairness and substantial trade concerns, including whether it is compliant with WTO.
We would strongly urge that if the mandatory approach is to be taken that the legislation more appropriate is the generic legislation because of the procedural safeguards that it contains. We don't have any concerns, in particular, about the current California Avocado Commission, but we do not know 3, 5, 10 years from now, whether the commission will be constituted, the same people and the same members and the whole point of having procedural safeguards in a mandatory program is to assure that through time that there won't be any misuse or undue dominance of a board by any particular group, and for this reason there are very substantial safeguards written into the generic legislation that we do not see in the current version of the proposal by the California Avocado Commission.
Where were those procedural safeguards to be taken into account? I think there might be some basis for discussion between the growers in Chile and in California on how best to implement. The trends have shown that the production, in fact, increasing from outside the United States and the total volume consumed in the United States of Hass avocado in the next 3 to 5 years is more likely than not to be the majority of it being produced from overseas. That would mean that there would be a majority volume coming from overseas, but the board contained or constituted by H.R. 2962 would still be dominated and controlled exclusively by domestic producers.
Page 16 PREV PAGE TOP OF DOC We think that raises substantial trade concerns. We are not however opposed to looking into a cooperative effort and to working with the California Avocado Commission, and this committee to design legislation that will meet the important procedural safeguards that we think need to be applied.
I am certainly open to any questions from the committee, and I thank you again for the opportunity to testify here today.
Mr. POMBO. Thank you.
[The prepared statement of Mr. Holzworth appears at the conclusion of the hearing.]
Mr. POMBO. I thank the panel for their testimony. I would like to recognize the chief sponsor of the legislation, Mr. Calvert, for his questions.
Mr. CALVERT. Thank you, Mr. Chairman, and thank you for holding this hearing today.
Mr. Wolk, Mr. Holzworth just stated in his testimony that the Chilean importers believe that voluntary contributions to a promotion program rather than mandatory assessments are the best way to achieve the overall objective of promoting and increasing avocado sales. I find that kind of hard to believe because we have a problem called the ''free rider syndrome.'' I kind of like ''voluntary.'' This weekend I am going to have to fill out my income tax and send in a check. I wish we could vote on a voluntary income tax. I will be there for you, Mr. Chairman, I know you will be there for me too. But I find that difficult that you are going to get universal appeal out of that, whether or not people are going to contribute or not. There is really no reason to chip in, isn't that true, Mr. Wolk, if you have a free rider problem in a voluntary contribution program? Do you have any comment about that?
Mr. WOLK. Yes, I do. First of all, just for background, I have been president of the California Food Growers Association, and we attempted to get a State marketing order in order to do essentially the same thing, get everybody to contribute and we did it on a voluntary basis to get it started, and I was very frustrated personally to find growers, and some of them, substantial growers in sweet persimmons would compliment the association on the job they were doing. And when I asked them if they wanted to join in with us to help support market development, they would just laugh and said no, why should I, you all are doing it yourself, so I am not going to play.
Page 17 PREV PAGE TOP OF DOC It is the same thing that we have had from other offshore producers. The Chileans had offered to make a voluntary contribution, but the California growers, our budget this year is $14 million, and people want to talk about doing a smaller number, and we cannot get the critical mass, not only in my personal judgment and in the judgment of the other commissioners, without mandatory contributions from everyone who benefits from the U.S. market.
Mr. CALVERT. Obviously, it is clear to me why this bill is important to the California 6,000 avocado growers, but I would like to follow up. If you could provide this subcommittee with some greater insight into California growers, who came to the conclusion that a new national Hass Avocado Promotion Program was vital to the future of the U.S. avocado industry, why do you think this is such a vital thing?
Mr. WOLK. I have been involved with the Avocado Commission for over 20 years about, and we had years when the California crop was very near what we have product available in the marketplace now. And it just simply will not sustain itself without more resources being expanded and directed to expand the marketplace, expand the demand. We have one very nice thing in the market in that we don't have a saturated market. There is plenty of market potential in the domestic market. It is just that we don't have enough resources.
Mr. CALVERT. Thank you. Thank you, Mr. Chairman.
Mr. POMBO. The chief cosponsor of the legislation, Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman. First of all, let me thank the panel for being here this morning and all the work they have done on that. I would like to, if I can, zero in on Mr. Holzworth and your comments based on your statement that assessment on imports would be unconstitutional under the Chilean law. Are you suggesting that Chile is challenging all existing promotional programs that assess imports?
Mr. HOLZWORTH. We have had a great deal of experience in working with the California Kiwi Fruit Commission, for example, over the last 4 or 5 years under a similar check-off program. One of the concerns that rises from the point of view of Chile is that because it is a very definitely free-market, oriented country, mandatory programs do raise constitutional problems in Chile in terms of compliance. It is an unresolved issue.
Page 18 PREV PAGE TOP OF DOC We prefer to work cooperatively with our California counterparts on a voluntary basis if possible, but if we get into a mandatory program, then our main objective is to assure that the mandatory program has complete procedural safeguards and that, to pick up a phrase from Congressman Calvert, it is a kind of tax and we want to make sure that it is taxation with representation, and it is to the representation part that we are predominantly concerned, because if the representation continues to be dominated domestically, but the volume in the market, majority comes from imports, then there has to be a procedural safeguard in the regulation to meet constitutional muster. I think that allows for a switch-over in the constitution of the controlling board.
Mr. CONDIT. I think this is correct. In 1996, you had similar oppositions to the Kiwi Fruit Promotion Program; is that correct?
Mr. HOLZWORTH. We had similar opposition and then we worked with the California Kiwi Fruit Commission to resolve most of the issues.
Mr. CONDIT. You are not opposed to that now? It is working now?
Mr. HOLZWORTH. The California Kiwi Commission has not yet decided to ask for a referendum on that particular program, and the program, as you know, doesn't go into effect until there is a referendum of the producers and growers. We are working cooperatively with California Kiwi Fruit Commission, though, on a voluntary basis, as we are with the California Avocado Commission.
Mr. CONDIT. Mr. Wolk, could you just be, I think you probably did this, but if you could just, for the panel, give us a specific explanation of how the collection process works, the charges that this is done unfairly to the Chileans, if you could just tell us, in a short term, how it works collecting the fee.
Mr. WOLK. Yes, I read the Chilean testimony. They allege that there is an advantage to a California producer because of the time line to pay the assessment, because it is a producer assessment, and the mechanism is such that that simply is not true. When a California producer delivers his fruit to the packing house, the California producer never sees the money that is paid to the assessment. The handler keeps the money out of the payment to the producer. In fact, I would argue that the offshore producer has a greater advantage because there is a time line before the money is taken out of their money. So the statement that the California producer would get an advantage on the interest of the money of their assessment is simply not true.
Page 19 PREV PAGE TOP OF DOC Mr. CONDIT. Thank you. Mr. Chairman, that concludes my questioning to the panel.
Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. As a cosponsor of the legislation, I am very supportive of its intent and objectives, but I do have some concerns that I would like to get ironed out, I guess, in terms of some of the concerns that the Chilean exporters brought up. And I guess, you know, as a farmer who participates in some of these mandatory marketing programs, I think it has to be mandatory, but how do you respond toI think one of the concerns has some relevance in terms of if we are having the importers pay a mandatory fee, we have a board which is going to be, for all intents and purposes, controlled by domestic producers. And you have this counter-cyclical selling of avocados, obviously, Chilean are going to come in the opposite time of the year.
How do we assure there is equity in terms of the contributions that are being made by the importers are going to be invested in a manner in which they are going to see a commensurate return on their contributions? What assurances can we give to them that, you know, that these dollars aren't going to be spent primarily to promote California Hass avocados, and there is really not going to be the assurance that the investment they are making into the fees is going to be used in the off-season for the domestic product?
Mr. WOLK. Well, I don't know of any other way to say this, but I fear that they don't understand market development. We have gone through this with them but just spending California money. When we looked at spending a little bit over here and the crop would go down and the value would go up, and we wouldn't spend any money, and we have been extremely successful to many of the other boards because we work on building demand year round, and it doesn't make any difference whether it is Chilean avocados, Mexican avocados, California avocados.
Page 20 PREV PAGE TOP OF DOC You are successful when you have a steady program that builds not only consumer demand, but consumer demand with value. And just to illustrate that point, one of the measures of market success is what they call household penetration, how many households in the United States consume avocados. And in 1988, our penetration was a little bit over 32 percent.
In the late 1990's, 1997 and 1998, we have been consistently over 40 percent. Two of those years had 42 percent of household penetration of people consuming Hass avocados, and so to say that, or to look at it that offshore money would be spent when their fruit are coming in the market is actually to their detriment. You have to focus and orchestrate a program that builds consumer demand with value over time and that works for everybody.
Mr. DOOLEY. I understand that, but I guess I am little bit worried about a precedent as one who is a very strong advocate of expanding trade. If we go down this path, let us use Mexico as an example, and we export a significant amount of beef or pork into Mexico, Mexico producers of pork or beef producers decide they want to put a mandatory assessment program, also requiring fees by U.S. imports into that area, they put together a board in Mexico that is dominated by domestic producers, and they also have the ability to ensure that the promotion of all beef sold in Mexico by this board that has been put up could be done under also a State of origin, this is Mexican product and yet it is being funded by a lot of dollars that are coming in because of U.S. exports into that. Are we in any jeopardy of creating a precedent with the road we are going down here?
Mr. WOLK. In my opinion, we are not, but I might defer to Mr. McLeod to answer that because he has more experience with other Federal promotion orders that I don't have, and I would defer to Mike to comment on that.
Mr. MCLEOD. Yes, Mr. Dooley, that is a fair question. The first program that ever assessed imports was a flora board program, which was enacted in 1981, which I had the pleasure of working on. At that time that was a new precedent, and so it was determined that as long as we were completely fair with imports, that there was not a trade problem, and the first principle that has to be adhered to is that the assessment rate has to be exactly the same and, of course, this bill meets that test.
Page 21 PREV PAGE TOP OF DOC Mr. DOOLEY. Mr. McLeod, did that promotion or program allow for State of origin labeling?
Mr. MCLEOD. No, it did not.
Mr. DOOLEY. So there is a fundamental difference between that and what we are proposing here in terms of that and in terms of promotion?
Mr. MCLEOD. I wouldn't characterize it a fundamental difference, but the other seven promotion programs that currently exist also assess imports, and it is true that they don't credit money back to the State and allow a reference to a State of origin. But the important point is that as long as you maintain basic fairness, which is the same rate of assessment, some representation on the board and a right to vote in the referendum, that has always been determined to meet all of our obligations of fairness.
In fact, the counsel for the Chileans mentioned our trade obligations, the national treatment issue. We researched that issue very thoroughly back in October and submitted a legal opinion to the committee and really, in order, to be in compliance with our trade obligations and not run afoul of the national treatment principle in GATT, all we have to do is to apply the same rate of assessment because, remember, these programs are not in any way regulating the sale of a commodity within the country. They are not restricting or in any way regulating the sale or distribution or transportation of the product.
So we feel that the fact that we would allow the money credited back to the State to reference California avocados is not a violation of any trade obligation that we have, and furthermore, the program is supervised by the Department of Agriculture, and they are very scrupulous in making sure that none of the assessment funds that are collected for any of these programs can make any derogatory reference to any other commodity or any other brand and that they can't violate the other provisions of the law.
So I would say that any concerns about the importer being mistreated is certainly misplaced in the Department of Agriculture and the experience we have had with them.
Page 22 PREV PAGE TOP OF DOC Mr. DOOLEY. Mr. Holzworth, if you want to respond, I think there has to be mandatory assessment in order to deal with the free rider issue, and I think that is the only way you can also ensure equity in this, but do you have some specific suggestions that, you know, in terms that could address some of these, the point we have been talking about here in terms of what couldI guess meet some of the concerns of your constituencies?
Mr. HOLZWORTH. Certainly, and we have a model, basically, for how to work this out, the experience gained in working with the California Kiwi Fruit Commission, and we also have a model on the basis of the generic authorizing language in the Agricultural Reform Act and to the extent this bill can move more toward that model which and basically, the key issues are, and I think you have hit on them, I think 85 percent of the funds under H.R. 2962 can be paid back to the State commission and can have a labeling attachment to it.
The second major point is how the votes are cast in the referendum. Most marketing orders have a volume of sales basis for waiving the votes. This one, if I am reading it correctly, has a one producer one vote rule which greatly stacks the votes in favor of the domestic producers and handlers. There is also no provision in this bill to allow for the constitution of the board to shift as the volume of sales in the marketplace shifts, either increasing domestic representation of domestic sales go up or increasing importer representation and import sales go up.
I think there are ways to work this out, and as a practical matter about 90 percent, as I understand it, of avocados from outside the United States are handled by these same companies, mostly in California, that handle California Hass avocados, and there has been a great synergy in imports and domestic sales complementing one another to build the overall market to have a continuous availability of the product, which is the key point to increasing sales from both domestics and imports as that availability, because I think if we focus on the generic legislation as a model and we deal with the representation issues and the way the referendum mechanism works, we go a long way toward making sure there is procedural fairness that will not only satisfy WTO GATT concerns, but will also satisfy legitimate concerns under the Commerce Clause and the U.S. Constitution.
Page 23 PREV PAGE TOP OF DOC Mr. DOOLEY. Thank you. I am very supportive of this legislation, but I think we need to give some attention to it, to what I would consider technical modifications that could ensure that this is, without any question, GATT compatible. I actually think it will, in the longer term issue of the Avocado Commission in putting this thing together and making sure we see this enacted into law at a very early date.
Mr. CALVERT. If the gentleman would yield, certainly I would work with you between now and the full committee markup. I hope we can move this bill hopefully as it is today and hopefully work on that at a later day. Thank you.
Mr. POMBO. Do any of the members of the committee have any additional questions of this panel?
Mr. POMBO. I would like to thank the witnesses for your testimony in appearing before the committee today. The record will remain open for 10 days to accept statements and any additional information that may be required for the hearing. And the hearing portion of today's proceedings is adjourned and you are dismissed.
[Whereupon, at 10:45 a.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Charley Wolk
Mr. Chairman and members of the subcommittee: On behalf California's 6,000 avocado growers, and the California Avocado Commission, I want to commend the staff of this subcommittee and other House Agriculture Committee members, especially the staff of Rep. Calvert and Rep. Condit, who have worked so diligently over the last eight months in crafting the provisions of H.R. 2962, the Hass Avocado Promotion, Research and Information Act of 2000.
This legislation will create a national promotion, research and information program for Hass avocados that will be funded by all parties that benefit from sales of Hass avocados in the U.S. consumer market. We hear a lot about the crisis in agriculture and it is real. In the avocado sector we have been victimized by recently escalating imports, with no relief in sight other than an expanded effort to further promote domestic avocado consumption. While other commodity sectors of the U.S. agricultural economy are eligible for additional farm assistance, we know that our options are few, so at this pointthe future of the U.S. avocado industry rests on H.R. 2962, as it is currently crafted.
Page 24 PREV PAGE TOP OF DOC We come to you today with this proposal aimed at creating a new mechanism for U.S. Hass avocado growers to help themselves without costing taxpayers any money. We strongly support this industry-financed promotion program for Hass avocadosa commodity that is grown commercially only in the State of California.
Like other producers who have successful national promotion programs, including those for beef, cotton, dairy, eggs, fluid milk, soybeans, pork, honey, mushrooms, and watermelons, producers of Hass avocados are seeking a new vehicle for expanding the consumer market for avocados. A nationwide promotion program would provide the avocado industry with the means to market avocados to a much wider consumer audience, and build demand at a time when the aggregate supply of avocados is rapidly increasing.
California has a long history of state marketing programs for its many diverse agricultural commodities. In fact, the avocado industry has long benefitted from an innovative state grower-funded program administered by the California Avocado Commission.
In recent years, however, increasing imports are supplying a larger share of the U.S. consumer market. In 1998, import levels reached 100 million pounds, or nearly one-third the size of U.S. avocado production. If not offset by increased demand, this rapid escalation of supply will lead to market instability. Given this dynamic, it is only fair that the cost of a national promotion program be shared fairly among importers and domestic producers.
The Hass Avocado Promotion Act is a self-help national checkoff program that will allow avocado growers to fund and operate a coordinated marketing effort to expand the domestic market. The avocado promotion program will be operated at no cost to the Federal Government and will be funded by U.S. Hass avocado growers and Hass avocado importers.
Hass avocados are an integral food source in the United States and are a valuable and healthy part of the human diet. Avocados are enjoyed by millions of persons every year for a multitude of every day and special occasions. The maintenance and expansion of existing markets and the development of new markets and uses for Hass avocados is needed to preserve and strengthen the economic viability of the domestic Hass avocado industry for the benefit of producers and the benefit of other persons marketing, processing and consuming Hass avocados.
Page 25 PREV PAGE TOP OF DOC The key elements of this avocado promotion legislation include: (1) a 12-member Hass Avocado Board comprised of both domestic producers and importers; (2) new programs for the advertising and promotion of avocados to develop new markets; (3) research on the sale, distribution, use, quality or nutritional value of avocados; (4) an up-front referendum of producers and importers during a 60-day period preceding the effective date of the Secretary of Agriculture's implementing order; and (5) an initial assessment rate on Hass avocados of 2 1/2 cents per pound.
This legislation provides California's 6,000 Hass avocado growers with the ability to achieve together that which would not be possible alonethe establishment of a national program to enhance avocado marketing and consumption. Pooled industry resources create the potential for an impact much greater than what would be possible through a solely State-funded program.
We are well aware that the 1996 farm bill also provides an opportunity to create a commodity promotion program administratively through the U.S. Department of Agriculture. However, this approach also means that USDA officials would write the rules that must meet the needs of avocado growers.
Unfortunately, the generic promotion statute is totally subjective as to whether the Secretary of Agriculture would issue a proposed order for a new national promotion program for Hass avocados. It also is totally discretionary as to when an order would be issued, and more significantly, the order can be written to comply with the wishes of USDA officials rather than the growers and importers who would pay the assessment.
There is a fundamental problem with the generic statute that makes it inoperable for the domestic avocado industry. The statute states that with respect to an agricultural commodity produced in the United States, the assessment is to be paid by the first handlers. This is contrary to the practice of most other commodity promotion boards and the existing California state program for avocados. In these other checkoff programs, the assessment is paid by the producer, but collected and remitted by the first handler. Thus, under the principal that those who pay the assessment get the opportunity to vote in the referenda and sit on the governing board, first handlers, rather than producers, would vote in the referendum under the generic statute.
Page 26 PREV PAGE TOP OF DOC All existing fully operational commodity promotion programs have their own distinct authorizing statute. In fact, most national checkoff programs would never have been established if each commodity group had not been able to have a statute to tailored to suit its individual needs. Clearly, each agricultural commodity is unique. This is especially true in the case of Hass avocados, where all U.S. production is in one Statethe State of Californiaand there is already in existence a very effective state promotion program. With imports of Hass avocados rapidly increasing, and importers not contributing to the national promotion effort from which they benefit, it is vital that U.S. avocado growers have a program tailored to meet their needs.
Agricultural commodity promotion programs are a proven means of increasing market share for commodities. The Hass avocado growers in my state want to have a program that will help increase their market share of the consumer food dollar. California's Hass avocado growers have made extensive efforts over the last two years to unify the industry, which has resulted in the development of this highly supported national promotion program. The value of domestic Hass avocado production in 1999 was $329 milliona substantial market that could be even greater if properly promoted.
This national avocado promotion program is an opportunity for Congress to help an agricultural industry create increased economic activity and job opportunities, with no expenditure of tax dollars. We ask for your support in approving this important legislation.
Testimony of David A. Holzworth
The Chilean Exporters Association (CEA) is a trade association comprised of Chilean fruit exporting companies. The CEA's membership accounts for approximately 85 percent by volume of fresh fruit exports from Chile A list of the association membership is attached as Exhibit A.
Page 27 PREV PAGE TOP OF DOC. In conjunction with Fedefruta, a trade association of Chilean fruit growers, CEA directs generic promotional programs worldwide for Chilean fruit. In the United States the generic promotional activities are coordinated through the Chilean Fresh Fruit Association (CFFA). During the 199899 shipping season, the CFFA directed the generic promotional, advertising and public relations activities to support the marketing of approximately 520,119 tons of Chilean fresh fruit in the United States. During the 1999 shipping season, 33,284 tons of Chilean Haas avocados were supported by a generic promotional program, part of which was jointly developed, with the California Avocado Commission. CFFA anticipates that the U.S. market share of Chilean Haas avocados will increase in the next few years.
The CFFA and its predecessor, the Chilean Winter Fruit Association, began voluntary generic promotional programs for Chilean fruit in 1980, and have executed a program during each shipping season since then. For the ten calendar year period from 1989 to 1999, Chilean fresh fruit and vegetables exports worldwide have increased from 831,015 tons to 1,543,508 tons. The United States market accounts for about 517,627 tons.
To achieve this phenomenal growth, the CFFA and its counterparts in other world markets have relied exclusively on voluntary contributions to fund their programs. CFFA programs have never been funded by mandatory assessments.
We oppose passage of H.R. 2962, a mandatory check-off promotion for Haas Avocados for the following five reasons:
1. The proposed mandatory promotional program is unnecessary to achieve legitimate marketing objectives;
2. The proposed mandatory promotional program would be ineffective in achieving legitimate marketing objectives;
3. The proposed mandatory promotional program is inherently biased against imported avocados;
Page 28 PREV PAGE TOP OF DOC 4. The proposed mandatory promotional program violates the First Amendment and the Foreign Commerce Clause;
5. The proposed mandatory promotional program contravenes international principles of free trade embodied in the General Agreement on Tariffs and Trade;
Each of these inherent flaws in the proposed legislation is described in detail below.
1. The proposed mandatory promotional program is unnecessary to achieve legitimate marketing objectives.
Last season CFFA coordinated its promotional activities for avocados in the U.S. market with the California Avocado Commission (CAC). The CFFA and the CAC jointly developed, funded and executed a promotional program. The CFFA portion of the program was funded, on a voluntary basis because Chilean law prohibits mandatory contributions to promotional programs. The program was developed and executed on a partnership basis with both parties to the program having an equal say in the important aspects of the program. The program, as executed was successful in promoting and increasing avocado sales.
There is no substantive difference in the objectives of the voluntary program and the stated objectives of the proposed mandatory program. Both programs are intended to increase demand for avocado by generic promotion of the product. The CFFA continues to be committed to the development and expansion of the voluntary program. In view of the success of the voluntary program in meeting its initial objectives, there is no need for a mandatory program.
2. The proposed mandatory promotional program would be ineffective in achieving legitimate objectives.
Past experience with mandatory promotional programs teaches that such programs can only be successful if a general consensus exists within the affected commodity group to participate in and support the program. No such consensus exists for the proposed order. It is an inevitable consequence that adoption of the order will lead to litigation, international trade disputes and, ultimately, failure and withdrawal of the order. In the process, substantial amounts of time and resources will be required to monitor and resolve these disputes.
Page 29 PREV PAGE TOP OF DOC The marketing objectives and the market for domestic avocado producers in the United States are not necessarily the same as the marketing objectives or the market for imported avocados.
When a board and a budget is completely controlled or dominated by domestic producers, it may be tempted to use promotional funds obtained from importers to achieve marketing objectives in the domestic season at the expense of the import season. Each marketing group should have the ability to promote their own marketing objectives appropriate to their own markets. Proportional board representation and allocated seasonal budgets based on contributions would be more likely to achieve that objective. H.R. 2962 does not contain the necessary safeguards to prevent potential misallocation or biased allocation of funds.
For example, H.R. 2962 provides for transfers of a substantial amount of revenue to the California avocado board, which is also expressly authorized to spend that revenue promoting product labeled as California avocados.
3. The proposed mandatory promotional program is inherently biased and discriminates against imported avocado.
The inherent and systematic bias of the legislation against imported avocados is evident throughout the bill, but is most obvious in the provisions for adoption of the order, composition of the board, voting procedure for adoption of assessments and subsequent referenda. These systematic biases that discriminate against imported avocados render the legislation invalid under the foreign commerce clauseAs noted below, the mandatory order may also be subject to challenge under the Interstate Commerce Clause, Equal Protection Clause, and Separation of Powers principles.
of the U.S. Constitution and the principles of the General Agreement on Tariffs and Trade.
In general, H.R. 2962 provides for perpetual control and dominance of the governing board by domestic producers and handlers regardless of whether such producers or handlers represent a majority of market sales.
Page 30 PREV PAGE TOP OF DOC To avoid such a potential for abuse, the generic statutory authority provision for promotional commodity orders contained in the Agriculture Reform Act at 515(b)(2)(D) requires proportional representation for domestic and imported product:The text of the generic authorization provisions of the Agriculture Reform Act was proposed by USDA, and was specifically designed to meet international trade concerns as well as achieve compliance with Constitutional limitations. As a practical matter, the generic provisions are much more likely to address fairness and equality concerns and thereby facilitate a more harmonious and efficient promotional order.
(D) Geographical Representation.To insure fair and equitable representation of the agricultural commodity industry covered by an order, the composition of each board shall reflect the geographical distribution of the production of the agricultural commodity in the United States and the quantity or value of the agricultural commodity imported into the United States.
The composition of the proposed national Haas avocado board does not require proportional representation for imported avocado. On the contrary, the proposed order precludes proportional representation for imported avocado. On its face, the proposal is discriminatory, and therefore invalid.
The proposed regulation also deviates from the reapportionment requirement contained in section 515(b)(3) of the Agriculture Reform Act. Section 515(b)(3) requires a promotional board to be reapportioned periodically to reflect changes in distribution of production. H.R. 2962 creates a mechanism that practically perpetuates control by domestic producers regardless of how much of the market is domestically sourced.
Under H.R. 2962, the assessment on imports is collected by the U.S. Customs Service upon entry into the United States. The assessment is initially set at $0.025 per pound, and may not exceed $0.05 per pound.
Page 31 PREV PAGE TOP OF DOC This mechanism, especially in view of the stacked voting in favor of domestic producers, can operate either as a disguised tariff or as a trade barrier. The importer is required to pay the assessment before a sale is made. In other words, the importer must advance cash to pay the assessment before imported avocado can move into the channels of United States commerce. These advance charges must of necessity, be financed at additional interest cost since no sales have yet occurred to generate the revenue for payment.
The domestic producer, in contrast, may pay the assessment up to sixty days after a final sale has occurred. This mechanism means that domestic producers will have an advantage, measured by the interest value of the funds advanced, over importers. It also means that domestic producers may default on assessments, but importers never will. Thus, any collection costs incurred by the board will be incurred solely because of domestic defaults, but the costs of collection will be spread over domestic and importer assessments.
Since the board is controlled by domestic producers, the assessment can be set at the higher end of the limit in years when returns are most favorable to domestic producers and at the lower limit in years when returns are least favorable to domestic producers. The reverse is also true. The domestic producers could set an assessment at a level that would greatly diminish returns to importers, but have little effect on their own returns.
A generic promotional program only makes sense if it can be demonstrated that the program actually increases returns to growers in excess of the burden imposed by expenditures for the promotion. There is not sufficient data from the voluntary program to show that a generic program would achieve such results.
A voluntary program, in contrast to a mandatory order, provides the foreign grower flexibility to monitor the results achieved by the program and adjust the spending accordingly. A mandatory program may have the effect of driving the foreign grower out of the market because it only diminishes returns. In that case, the assessment operates as a kind of unauthorized tariff and a barrier to international trade.
Page 32 PREV PAGE TOP OF DOC 4. The proposed mandatory promotional program violates the First Amendment and the Foreign Commerce Clause.
H.R. 2962 violates the Foreign Commerce Clause of the U.S. Constitution because it discriminates against and unfairly burdens foreign commerce.In addition to the Foreign Commerce Clause, HR 2962 also violates the Import-Export Clause, the Interstate Commerce Clause, the Equal Protection Clause and the Separation of Powers principle. See, e.g. Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456 (1981); Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 350 (1977); Philadelphia v. New Jersey, 437 U.S. 617 (1978). In many respects, the restrictions of these other Constitutional provisions overlap with the restrictions imposed by the Foreign Commerce Clause which are discussed in this section.
The Separation of Powers principle at issue here arises from the control exercised over a regulatory function by a private board, especially when that function affects interstate and foreign commerce. The principles involved have been articulated by the Supreme Court in Bowsher v. Synar, 106 S.Ct. 3181 (1986), Immigration and Naturalization Service v. Chadha, 462 U.S. 919 (1983) and Buckley v. Valeo, 424 U.S. 1 (1976). The commentors reserve their rights to challenge the legality of any final order on these additional grounds.
The proposed order unlawfully subjects imported avocados to mandatory assessments, but without proportional representation on the board that imposes the assessments and controls the expenditure of the collected funds. Equally important, H.R. 2962 will inevitably create conflict with our trading partners.
The Foreign Commerce Clause of the U.S. Constitution authorizes Congress, not a board dominated by private citizens of one State, ''[t]o regulate Commerce with foreign Nations.'' Article I, 8, cl. 3. The Framers of the Constitution were convinced that ''in order to succeed, the New Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the states under the Articles of Confederation.'' Wardair Canada, Inc. v. Florida Department of Revenue, 477 U.S. 1, 9, 106 S. Ct. 2369, 91L. Ed.2d 1 (1986), citing Hughes v. Oklahoma, 441 U.S. 322, 32526, 99S. Ct. 1727, 60 L. Ed. 250 (1979). See also Western Oil & Gas Ass'n v. Cory, 726 F.2d 1340, 1342 (9th Cir. 1984), aff'd per curiam, 471 U.S. 81, 105 S. Ct. 1859, 85 L. Ed.2d 61 (1985).
Page 33 PREV PAGE TOP OF DOC Moreover, ''there is evidence that the Founders intended the scope of the foreign commerce clause to be ... greater [than the scope of the interstate commerce clause].'' Id. The interstate commerce clause of the Constitution grants Congress the power to ''regulate Commerce ... among the several States.'' Art. I, 8, cl. 3. The Supreme Court has referred to both the foreign and interstate commerce clauses as ''dormant'' or ''self-executing,'' because state regulation which violates these clauses will be found to be invalid, even in the absence of specific federal government action to disapprove the state action. See, e.g., Wardair, 477 U.S. at 9. What is barred to the states by the Constitution cannot be delegated by Congress to a board of private citizens drawn entirely from one of the states, especially when that board would exercise power over interstate and foreign commerce.
As a result, ''[i]t is a well-accepted rule that state restrictions burdening foreign commerce are subjected to a more rigorous and searching scrutiny [than state restrictions burdening interstate commerce].'' South-Central Timber Development Inc. v. Wunnicke, 467 U.S. 82, 100, 104 S. Ct. 2237, 81L. Ed.2d 71 (1984). See also Japan Line Ltd. v. County of Los Angeles, 441 U.S. 434, 446, 99 S. Ct. 1813, 60 L.Ed. 336 (1979). This principle would, of course, imply an even higher level of scrutiny when the restrictions are to be imposed by a non-governmental body dominated by interests from a single state in competition with the imported commodity subject to regulation.
The Supreme Court has held that state and local charges affecting foreign commerce are invalid if they (1) create a substantial risk of conflicts with foreign governments or (2)undermine the ability of the Federal Government to ''speak with one voice'' regulating commercial affairs with foreign states. Japan Line, 441 U.S. at 44649; see also Wardair, 477 U.S. at 9; New Orleans Steamship Ass'n v. Plaquemines Port, Harbor & Terminal District, 874 F.2d 1018, 102223 (5th Cir. 1989), cert. denied, 110S. Ct. 2172 (1990). The same analysis would apply to charges imposed on foreign commerce by a board composed of private citizens.As noted above, the national board would be dominated and controlled by the same companies that currently dominate and control the California board.
Page 34 PREV PAGE TOP OF DOC
In Japan Line, the Supreme Court invalidated an ad valorem property tax which California political subdivisions (including the County of Los Angeles) imposed upon Japanese cargo containers used in international commerce. The Court emphasized the need for ''Federal uniformity,'' since ''[f]oreign commerce is pre-eminently a matter of national concern.'' 441 U.S. at 448. If the County of Los Angeles and other state political subdivisions were allowed to impose such a tax on foreign commerce, the Court reasoned, international disputes over tax apportionment formulae could arise. Foreign nations could retaliate against the state-imposed tax, burdening American commerce as a whole, not just that from California. Other states might follow California's example, thereby creating a host of inconsistent tax schemes undermining this nation's ability to regulate foreign commerce uniformly. 441 U.S. at 45051. See also Barclays Bank International Ltd. v. Franchise Tax Board, Cal. Ct. App. 3d (No. C003388, Nov. 30, 1990) (applying Japan Line and Wardair to invalidate California's unitary taxation of foreign multinationals as illegal under the foreign commerce clause).
The concerns which caused the Supreme Court to invalidate the California property tax in Japan Line apply with greater force to H.R. 2962. Though national in force and effect, H.R. 2962 would authorize a commodity group in a single state to establish controls over the importation of a commodity nationwide, essentially conferring on the California dominated board the power to control foreign commerce in the commodity.
H.R. 2962 also deviates from the standards for implementing such orders, in the future, for other fruit commodities that may be competing with avocados for market share. Federal uniformityor, the ability of the Nation to speak with one voice in the area of foreign commerceis destroyed by one quasi-governmental agency, a board of private citizens from a single state, vested with virtually unfettered power to act independently to discriminate against and burden foreign commerce. The undue and discriminatory burden which the avocado board could impose on imported product is clear from the radical divergence between the legislative standards set forth in Subtitle B of the Agriculture Reform Act for other commodities and the provisions of H.R. 2962 under subtitle D.
Page 35 PREV PAGE TOP OF DOC 5.The proposed mandatory promotional program contravenes international principles of free trade embodied in the General Agreement on Tariffs and Trade.
H.R. 2962 violates a basic principle of the GATT, the ''national treatment'' provision, by treating imported product less favorably than domestic product:
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.
GATT Art. III:4.
Panels of international law experts, convened under the dispute settlement procedures of GATT, have frequently and vigorously applied the national treatment principle to strike down governmental or subgovernmental practices of GATT contracting parties. In United States-section 337 of the Tariff Act of 1930, Panel Report (23 November 1988), BISD 36S/, the European Economic Community (EEC) challenged the United States' application of section 337 of the Tariff Act of 1930. The EEC contended that this provision, which provides a remedy for enforcing private intellectual property rights against imported goods, violated article III:4 because it provided more favorable procedural treatment to domestic goods. The GATT panel agreed with the EEC and struck down the U.S. law. The U.S. has proposed the modification of Section 337 to bring it in conformity with GATT Article III. 55 Fed. Reg.3503 (Feb. 1, 1990).
In so doing, it stated unequivocally:
The panel noted that, as far as the issues before it are concerned, the ''no less favourable'' treatment requirement set out in article III: 4, is unqualified. These words are to be found throughout the General Agreement and later agreements negotiated in the GATT framework as an expression of the underlying principle of equality of treatment of imported products as compared to the treatment given either to other foreign products, under the most favoured nation standards, or to domestic products, under the national treatment standards of article III. The words ''treatment no less favourable'' in paragraph 4 call for effective equality of opportunities for imported products in respect of the application of laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products.
Page 36 PREV PAGE TOP OF DOC Id. at 51 (emphasis added).
Perhaps the most important principle established in the Tariff Act case, was that ''[i]n the panel's view enforcement procedures cannot be separated from the substantive provisions they serve to enforce.'' 5.10 This principle applies here, because the procedures for electing and constituting the board are inherently biased against imported commodities even though the monetary assessment is levied against domestic and foreign commodities. In the panel's words, ''[i]f the procedural provisions of internal law were not covered by article III:4, contracting parties could escape the national treatment standard by enforcing substantive law, itself meeting the national treatment standard, through procedures less favorable to imported products than to like products of national origin.'' 5.10
In United States-Taxes on Petroleum and Certain Imported Substances (''U.S. Superfund Tax case''), Panel Report (17 June 1987), BISD 34S/136, a GATT panel again applied article III to invalidate a U.S. law which conflicted with GATT. Canada, the European Economic Community, and Mexico challenged the validity of the U.S. ''superfund'' tax on petroleum and certain imported substances. The U.S. conceded that it applied the tax to imported petroleum at a rate higher than that applied to the like domestic product and thus discriminated against imports. Accordingly, the panel found a prima facie case of nullification and impairment by the U.S. of its GATT obligations to other GATT contracting parties. Id. at 155. The U.S. modified its law to remove the discrimination against imports. See Omnibus Budget Reconciliation Act of 1990, Pub. Law No. 101508.
The differential between the tax imposed on domestic and imported petroleum in the Superfund case amounted to U.S. dollar 0.0002 per litre. That differential is less than the interest effect of requiring importers to pay promotional fees cash-in-advance at the time of entry as compared to the yet-to-be-determined time and manner of collection from domestic producers.
Page 37 PREV PAGE TOP OF DOC GATT panels have likewise not hesitated to strike down discriminatory programs by subnational governments. In Canada -Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, Panel Report (22 March 1988), BISD 35S/37, a GATT panel held that discriminatory practices by Canadian provincial liquor boards violated articles II, III and XI. Similarly, in Canada-Measures Affecting Trade in Gold Coins, a GATT panel held that the province of Ontario's exemption of the Canadian maple leaf gold coin from a sales tax, while subjecting South African Krugerrands to the tax, violated article III. In both cases, the respective Canadian provinces changed or are changing their practices to conform with the GATT rulings. GATT Activities 1985 at 37 (coins) and 6 BNA Int'l Trade Rptr. 24 (Jan.4, 1989) (liquor boards).
Just as in the Panel Reports above, Other GATT panels applying Article III include: Canada - Administration of the Foreign Investment Review Act, Panel Report (7 February 1984), BISD 30S/140 (invalidating Canada's Foreign Investment Review Act, which conditioned foreign investments upon the purchase of Canadian goods, as a violation of Article III:4); Japan - Customs Duties, Taxes and Labeling Practices on Imported Wines and Alcoholic Beverages, Panel Report (10 November 1987), BISD 34S/83 (invalidating, as a violation of Article III:2, a complex system of Japanese duties and requirements which discriminated against imported alcoholic beverages); European Economic Community - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, Panel Report (14 December 1989), BISD 36S/ (invalidating, as a violation of Article III:4, an EEC program providing EEC animal feed processors certain preferences when purchasing domestic animal feeds); EEC - Measures on Animal Feed Proteins, Panel Report (14 March 1978), BISD 25S/49 (invalidating, as a violation of Article III:1, 4 and 5, EEC purchasing requirements for domestic non-fat dry milk when animal feed proteins are imported). For a discussion of earlier GATT panel reports also applying Article III, see Jackson, supra, 8.2.
Page 38 PREV PAGE TOP OF DOC H.R. 2962 constitutes an evident violation of GATT article III:4, the national treatment principle. That discrimination occurs as a result of authorizing the levy and expenditure of assessments by a private board on which imported commodities do not have proportional representation.
This discrimination is underscored by generic authority, in the Agriculture Reform Act of 1996, of fair and equitable legislative standards for mandatory promotional orders for imported commodities that are substantially different than the standards contained in H.R. 2962 for avocados. The generic standards were certainly drafted with GATT considerations in mind, whereas H.R. 2962 was evidently drafted without regard for GATT principles.
''[W]here there is an infringement of the obligations assumed under the General Agreement, the action is considered prima facie to constitute a case of nullification or impairment'' of GATT obligations. Annex to 1979 Understanding on Dispute Settlement, BISD 26S/216, quoted in U.S. Superfund Tax case, supra Panel Report at 155. A prima facie case establishes a presumption which has ''in practice operated as an irrefutable presumption.'' Id. at 158. Evidence attempting to justify the discriminatory action is not allowed.
In the U.S. Superfund Tax case, the U.S. conceded that it applied the tax to imported petroleum at a rate higher than that applied to the like domestic product and thus discriminated against imports. Nevertheless, the U.S. attempted to justify the discrimination by contending that the differential was so small that the commercial effects were insignificant. Id. at 140.
The panel reviewed the full GATT history on this issue, including all prior cases, and rejected the U.S. position. It refused to examine the submissions of the parties on the trade effects of the tax differential. Id. at 159. Likewise, there is no possible justification, applying GATT principles, to warrant the blatantly discriminatory representational provisions of H.R. 2962.
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H.R. 2962 is unnecessary to achieve legitimate marketing objectives. It is inherently flawed in concept and could lead to abuses in execution. In general, mandatory promotional orders do not efficiently or fairly achieve legitimate marketing needs. H.R. 2962 deviates from fundamental requirements of free trade and abandons necessary procedural safeguards contained in generic legislative authority already in place.
"The Official Committee record contains additional material here."