SPEAKERS CONTENTS INSERTS
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73–462 DTP
2001
2001
THE ADMINISTRATION'S PROPOSALS FOR THE FREE TRADE AREA OF THE AMERICAS AND ITS IMPACT ON U.S. AGRICULTURE
HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
MAY 23, 2001
Serial No. 107–9
Printed for the use of the Committee on Agriculture
www.agriculture.house.gov
For sale by the Superintendent of Documents, U.S. Government Printing Office
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Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2250
Mail: Stop SSOP, Washington, DC 20402–0001
COMMITTEE ON AGRICULTURE
LARRY COMBEST, Texas, Chairman
JOHN A. BOEHNER, Ohio
Vice Chairman
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
JERRY MORAN, Kansas
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
GIL GUTKNECHT, Minnesota
BOB RILEY, Alabama
MICHAEL K. SIMPSON, Idaho
DOUG OSE, California
ROBIN HAYES, North Carolina
ERNIE FLETCHER, Kentucky
CHARLES W. ''CHIP'' PICKERING, Mississippi
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TIMOTHY V. JOHNSON, Illinois
TOM OSBORNE, Nebraska
MIKE PENCE, Indiana
DENNIS R. REHBERG, Montana
SAM GRAVES, Missouri
ADAM H. PUTNAM, Florida
MARK R. KENNEDY, Minnesota
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
EARL F. HILLIARD, Alabama
TIM HOLDEN, Pennsylvania
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
LEONARD L. BOSWELL, Iowa
DAVID D. PHELPS, Illinois
KEN LUCAS, Kentucky
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MIKE THOMPSON, California
BARON P. HILL, Indiana
JOE BACA, California
RICK LARSEN, Washington
MIKE ROSS, Arkansas
ANÍBAL ACEVEDO-VILÁ, Puerto Rico
RON KIND, Wisconsin
RONNIE SHOWS, Mississippi
Professional Staff
WILLIAM E. O'CONNER, JR., Staff Director
LANCE KOTSCHWAR, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
KEITH WILLIAMS, Communications Director
(ii)
C O N T E N T S
Clayton, Hon. Eva M., a Representative in Congress from the State of North Carolina, submitted questions
Combest, Hon. Larry, a Representative in Congress from the State of Texas, opening statement
Putnam, Hon. Adam H., a Representative in Congress from the State of Florida, prepared statement
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Smith, Hon. Nick, a Representative in Congress from the State of Michigan, prepared statement
Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
Witnesses
Anderson, Tony, president, American Soybean Association
Prepared statement
Evans, Hon. Donald, Secretary, U.S. Department of Commerce
Prepared statement
Answers to submitted questions
Fogerty, Sarah, Grocery Manufacturers Association of America
Prepared statement
McEvoy, Bruce, representing United Fresh Fruit and Vegetable Association
Prepared statement
Roney, Jack, American Sugar Alliance
Prepared statement
Shaffer, Christopher, Wheat Export Committee
Prepared statement
Veneman, Hon. Ann M., Secretary, U.S. Department of Agriculture
Prepared statement
Answers to submitted questions
Willey, Wythe, National Cattleman's Beef Association
Prepared statement
Zoellick, Hon. Robert, U.S. Trade Representative
Prepared statement
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Answers to submitted questions
Submitted Material
American Forest and Paper Association
Agricultural Coalition on Trade, statement
California Grape & Tree Fruit League, statement
Coalition for Sugar Reform, statement
Fisher, Neal, administrator, North Dakota Wheat Commission, statement
Florida Fruit & Vegetable Association, statement
Rural Coalition; Missouri Rural Crises Center; Federation of Southern Cooperatives/Land Assistance Fund, statement
THE ADMINISTRATION'S PROPOSALS FOR THE FREE TRADE AREA OF THE AMERICAS AND ITS IMPACT ON U.S. AGRICULTURE
WEDNESDAY, MAY 23, 2001
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:03 a.m., in room 1300 of the Longworth House Office Building, Hon. Larry Combest (chairman of the committee) presiding.
Present: Representatives Smith, Moran, Thune, Cooksey, Gutknecht, Ose, Fletcher, Pickering, Johnson, Osborne, Pence, Rehberg, Graves, Putnam, Kennedy, Stenholm, Condit, Peterson, Dooley, Clayton, Hilliard, Holden, Baldacci, Berry, McIntyre, Etheridge, Boswell, Phelps, Lucas of Kentucky, Thompson of California, Baca, Larsen, Ross, Acevedo-Vilá, Kind, and Shows.
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Staff present: William E. O'Conner, Jr., staff director; Tom Sell, Lynn Gallagher, Callista Gingrich, chief clerk, Jason Vaillancourt, Susanna Love, 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 for the review of the administration's proposal for the Free Trade Area of the Americas and its impact on U.S. agriculture will come to order.
It is my pleasure today to welcome our distinguished panel to the Committee on Agriculture for this hearing.
Our witnesses are Secretary of Agriculture Ann Veneman, Secretary of Commerce Don Evans, and the U.S. Trade Representative, Robert Zoellick, each testifying before the committee for the first time. While most of us have had the opportunity to meet privately with these distinguished representatives of the administration, this hearing will provide the opportunity to seek answers to questions many of us have that are related to the Free Trade Area of the Americas.
I was joined by three members of the committee, Mrs. Clayton, Mr. Putnam and Mr. Holden, as well as other Members of Congress, at the Summit of the Americas in Quebec City from April 20 to April 22. It was a worthwhile trip. We met with the President of Colombia, Argentina's Agriculture Minister and Canada's Director General for the Department of Foreign Affairs and International Trade. And of course, we met with the United States delegation and are honored to have them present as our witnesses today.
The committee was represented at the Summit of the Americas for the purpose of discussing the impact of an FTAA on U.S. agriculture with representatives of countries participating in the FTAA negotiations. As I have said on the many past occasions, it is my intention that the committee should be present during all discussions affecting our farmers and ranchers. Issues related to international trade and new trade negotiations in this hemisphere obviously have a direct impact on U.S. agriculture.
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Agriculture trade negotiations are important and offer a great opportunity to level the agriculture playing field, including the elimination of foreign subsidies that put U.S. farmers and ranchers at the significant disadvantage.
I also want to mention that the President sent his 2001 International Trade Agenda to the Congress on May 10 of this year. And it included trade promotion authority, which is very important to U.S. agriculture. Access to markets around the world will remain difficult without it. U.S. agriculture markets are open to imports and our tariffs are low. Agriculture tariffs worldwide average about 62 percent, while U.S. agriculture tariffs are 12 percent. It is to the advantage of U.S. agriculture that we continue to open markets and remove barriers to our agriculture exports through negotiations.
President Bush has said that enactment of trade promotion authority is at the top of his trade agenda and that he has committed to working with Congress on a bipartisan basis so that America can reassert its leadership in the trade arena. Agriculture is an important part of that agenda, and this committee will ensure that agriculture's voice is heard. Remember, those are the voices of farmers and ranchers across the United States.
I would recognize Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. I join you in welcoming Secretaries Veneman and Evans and Ambassador Zoellick to the committee this morning. I look forward to hearing from you.
There are many reasons for the United States to pursue better relations with our neighbors in Central and South America. In our parochial interest in improving conditions for our farmers and ranchers, may or may not be one of them. The most recent analysis of the potential effects of an FTAA on U.S. agriculture was completed 3 years ago. In it, USDA concluded that Free Trade Area for the Americas would slightly increase farm income. But the margin of that increase was so slight, I would argue it is within the margin of error.
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Despite that, I believe that we should continue to work towards a free trade agreement with the 33 other democracies in our hemisphere in the interest of strengthening these democracies and improving cooperation on a variety of issues, including the environment and drugs. Agriculture exports to the FTAA countries, other than Canada and Mexico, were about $4.2 billion last year. We cannot afford to take any of our customers for granted. We have learned that lesson again recently with China's reluctance to follow through on commitments made in our bilateral WTO negotiations.
I look forward to the testimony today, which I hope will give us an appreciation for the potential of a Free Trade Area of the Americas, but also a better understanding of possible problem areas for agriculture. Thank you, Mr. Chairman.
The CHAIRMAN. And without objection, all members' statements will be included as part of the record.
[The prepared statements follow:]
PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Thank you, Mr. Chairman, for holding this hearing today to review the impacts of administration proposals on the Free Trade Area of the Americas agreement. Within many agricultural sectors, our farmers and ranchers produce some of the highest quality, lowest-priced commodities in the world. They also rely heavily on open international export markets for sale of their products. However, trade distorting subsidies and abuse of SPS and intellectual property rights laws often leave U.S. producers at a significant disadvantage. While we must work hard to open borders so we may reap the many benefits of free trade, we cannot allow loopholes and illegal activities to harm American farmers. As we progress in our negotiations on FTAA issues, I hope that the administration and Congress will make this a priority.
Thank you, Mr. Chairman.
PREPARED STATEMENT OF HON. ADAM H. PUTNAM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
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I thank the committee for calling this hearing to review the potential effects of the Free Trade Agreement of the Americas on our Nation's agricultural production and trade policy. International trade agreements have the potential to benefit the U.S. agricultural economy and our trade negotiators efforts toward that end are appreciated. However, all international trade compacts must be carefully examined to determine the implications for U.S. farmers and ranchers, for it is the American agricultural producer who will untimely gain the benefits or bear the costs of our agricultural trade policy.
Many American farmers are faced with competition from countries that enjoy dramatically lower production costs due to lower labor and environmental standards than which our producers must comply. Due to climatic reasons, competition for the fruit and vegetable industry in the U.S. marketplace has historically come from Mexico and Latin America. An FTAA that opens U.S. domestic markets to increased competition from Brazil, Argentina, Chile and other Western Hemisphere countries, many of which can produce goods for a much lower price than domestic farmers, must be carefully considered in order to avoid significant economic pressures on American growers.
The potential for import penetration to vulnerable fruit and vegetable growers could be more pronounced than that imposed by NAFTA, as the FTAA is a regional trade agreement covering many more countries in scope. In general, the North American Free Trade Agreement while benefiting some, has led to a significant loss of market share for many American farmers. An International Trade Commission report indicated that the balance of trade for many farms goods has declined dramatically since the inception of the NAFTA. The $18 million fruit and vegetable juice surplus in 1995 has declined to a to a $48 million deficit today and the American frozen fruit industry has gone from a $9 million surplus in 1995 to a $37 million deficit in 1999.
Before an FTAA agreement is entered into, it must be thoroughly reviewed to ensure that import-sensitive fruit and vegetable producers do not continue to lose ground as a result of hemispheric trade initiatives. To safeguard against significant market losses, special exemptions from tariff phase-outs should be considered for the most import-sensitive U.S. agricultural products.
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It is critical to recognize the importance of equalization tariffs for import sensitive agricultural commodities, many of which have been subject to competition from heavily subsidized or unfair trade practices in the past, and for which our trading partners enjoy lower production costs due to much less stringent labor and environmental standards than those the U.S. views as fundamental requirements. The lifeblood of the multi-billion dollar Florida horticultural industry, for instance, is founded in the equalizing import tariff imposed on many products from countries, like Brazil, whose industries continue to benefit from past dumping and receipt of subsidies, while not incurring the environmental, worker safety, water, welfare, tax, and other costs which American growers must bear.
The specific impact of a tariff reduction on orange juice from Brazil, currently at 7.85 cents per liter, would be severe to Florida citrus growers. Domestic citrus producers have significantly higher production costs and the present tariff is basically equivalent to the difference in the cost of production in the U.S. and Brazil. Even a slight tariff cut would suppress prices to below a breakeven point for domestic growers, rendering production unprofitable, and leading many domestic growers out of business.
Even USDA's Agricultural Outlook Report of April 2000, indicated that the FTAA would have ''. . . major implications for U.S. sugar, peanuts and orange juice. U.S. sugar prices, production, and exports would decline significantly, and imports would increase.'' The report stated, ''Removal of such tariffs would create incentive to import less expensive Brazilian orange juice, which may displace Florida orange juice.''
While the general objectives of balance and comprehensiveness in the FTAA negotiations on agriculture are recognized, I strongly caution against the inclusion of import sensitive fruits and vegetables such as citrus in FTAA negotiations on tariff reductions or elimination. In short, any trade agreement which further reduces U.S. tariffs on products such as orange juice and/or fresh citrus imported from Brazil, beyond the levels bound in the Uruguay Round, will dramatically affect the future viability of the U.S. industry producing citrus for processing and fresh consumption.
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The U.S. fruit and vegetable industry cannot sustain any trade negotiation which does not provide clear-cut safeguards for the highly import sensitive portions of the agricultural industry. I look forward to working with the administration as well as with our trading partners to develop sound and carefully constructed trade policy focusing on economic growth and productivity for all sectors of the U.S. agricultural economy.
The price of Brazilian orange juice in the United States and the commodity futures price of frozen concentrated orange juice (FCOJ) (which is considered one of the most accurate indicators of the U.S. price of wholesale FCOJ) has declined dramatically during the past decade in tandem with the Brazilian expansion.
Brazil has already been found by the United States to have engaged in both sales at less than fair value prices, and receipt of countervail able subsidies. An antidumping order remains in effect on frozen concentrated orange juice from Brazil. In response to petitioner's allegation of sales below cost of production during the 1997/98 administrative review of the antidumping order on FCOJ from Brazil, the U.S. Department of Commerce issued a substantial dumping margin for the four companies covered by the review, and for any exporters not previously reviewed. In addition, in the recent expedited 5-year (sunset) review of the antidumping order on FCOJ from Brazil, Commerce found that dumping would likely continue or recur if the dumping order were revoked, and the ITC determined that, absent the restraining effect of the antidumping duty order, the likely volume of subject imports would be significant and that these imports would have significant adverse price effects, leading to continuation or recurrence of material injury to domestic growers. Thus, the antidumping order on FCOJ remains in effect.
The CHAIRMAN. I would invite our panel to come forward.
The Honorable Ann Veneman, who is the Secretary of Agriculture. The Honorable Don Evans, who in full disclosure, I must say, is also from the 19th district of Texas, and is the Secretary of Commerce. The Honorable Robert Zoellick, the U.S. Trade Ambassador. Welcome to all of you. Please begin when ready and we will start with Ms. Veneman and go in order of the introductions.
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STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
Ms. VENEMAN. I am very pleased today to join Secretary Evans and Ambassador Zoellick to discuss negotiations toward the Free Trade Area of the Americas, or FTAA as it is commonly referred to. When it is completed in January 2005, the FTAA will be a comprehensive free-trade agreement among the 34 democracies in the Western Hemisphere, stretching from the Canadian Arctic to the Tierra del Fuego, Chile.
The FTAA is part of a much broader initiative by leaders of this hemisphere to deal with many of the common issues that all our countries face. That initiative, known as the Summit of the Americas, was launched in Miami in 1994. While the FTAA perhaps is the most widely known component, the Summit process also includes initiatives in other important areas, such as education, justice, transportation, migration and energy, to name a few. The Summit process provides a unique mechanism for the heads of state in our hemisphere to discuss political, economic and social problems in a multilateral and comprehensive way. It brings together democratically elected leaders united in their efforts to promote democracy, human rights and free markets.
The 1998 Summit of the Americas held in Santiago, Chile, launched the formal FTAA negotiations. At the most recent summit meeting in Quebec City last month, the heads of state agreed that the FTAA should be completed by January 2005, and enter into force by the end of that year.
Some of the most important and difficult work is yet to be done. During the next phase of the process, the negotiators will intensify their efforts to narrow differences on a broad range of issues in preparation for the next meeting of trade ministers set for October 2002 in Ecuador.
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From the agriculture perspective, the United States has much to gain from the FTAA and much to lose without the FTAA in light of other preferential agreements in this hemisphere. When completed in 2005, the FTAA will provide U.S. producers and exporters with much greater access to 450 million consumers outside the North American Free Trade Agreement countries, who will have $2 trillion in income. Three countries alone, Argentina, Brazil and Chile, are expected to add over 50 million middle-class consumers by 2006, which is about the population of France. These consumers with rapidly rising disposable incomes represent a strong demand for imported food products.
The FTAA has the potential to significantly expand trade which in turn expands overall economic growth, creates jobs, and boosts consumer buying power. This benefits citizens throughout the hemisphere. And as we have seen from our experience with NAFTA, such an agreement can do much more. NAFTA also reinforced sound domestic, economic policies, increased investor confidence, spurred entrepreneurship and innovation, and encouraged efficiency and transparency in government institutions ultimately strengthening democracy in Mexico. A similar process is already underway in much of Latin America, and would only be reinforced and strengthened by the FTAA.
I should note here that realizing these potential benefits and those from other trade initiatives will require enactment of trade promotion authority. It is for that reason that the President has placed this at the top of his trade legislative agenda.
The agriculture sector will be important both in the development and in the potential success of the FTAA. Preliminary U.S. Department of Agriculture estimates suggest that FTAA could expand our agriculture exports to the hemisphere by over $1.5 billion annually. U.S. gains would come primarily from more open markets for our grains sector, particularly for wheat and feed grains.
We also should see growing exports of horticulture and processed products as the FTAA contributes to greater economic growth throughout Latin America.
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We also should recognize that we will be facing many challenges as in any negotiation of this magnitude. We know that agriculture community has some serious concerns. Some of the countries involved are already competitors. However, U.S. agriculture cannot afford to stand on the sidelines in any trade negotiation in this hemisphere or elsewhere. Our farmers are among the most efficient in the world and our agriculture sector is one of the most export-dependent sectors of the U.S. economy.
Our producers are already missing opportunities in this hemisphere. The Mercosur Countries, that is Argentina, Brazil, Paraguay and Uruguay, Chile, Mexico and Canada have or are negotiating preferential agreements with most of the other countries in the hemisphere. Under the Canada to Chile Free-Trade Agreement, for example, Canadian wheat can enter Chile with lower tariffs than can U.S. wheat. The Andean Countries have reduced their tariffs on oilseeds and products for the Mercosur Countries causing U.S. producers to lose out on these markets. In addition, the European Union already has agriculture trade agreements with Mexico and the Caricom Countries, and now is negotiating with the Mercosur nations as well. Japan too is exploring possible agreements in our hemisphere.
Out of the more than 30 reciprocal trade agreements in the hemisphere, the United States is participant in only one, NAFTA. And while we have had some challenges with NAFTA, it has proved very positive overall for U.S. agriculture. Canada and Mexico are now our second and third largest export markets. And we expect them to buy more than $15 billion worth of our agriculture products this year.
The bold reality is that if all Western Hemisphere countries have preferential agreements among themselves and the United States is not a party to these agreements, U.S. exports to the hemisphere would actually decline, perhaps as much at $300 million annually. We must be a participant and a leader in these important developments in our own hemisphere.
The agriculture negotiations within the FTAA have four basic components: Market access, export subsidies, other trade distorting policies, and sanitary and phytosanitary measures.
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In the market access component there has been no discussion on any specific agriculture products thus far. Our efforts over the next 10 months will be devoted to establishing the methods and procedure that will be used for the product specific negotiations.
Concerning export subsidies, participants have already agreed to their elimination within the hemisphere when the agreement is implemented. However, we still need to reach agreement on how best to deal with subsidies from non-hemispheric suppliers.
Another important component is other trade distorting policies. These include activities related to domestic support, differential export taxes, tax rebates for exported products, State trading enterprises, and other such policies. The United States continues to believe that most of these issues should be addressed in the multilateral fora where disciplines can be imposed on all of our trading partners.
Finally, the discussion of sanitary and phytosanitary measures will center on improving the implementation within the hemisphere of the World Trade Organization SPS agreement. The U.S. has proposed that FTAA countries agree to strengthen their collaboration in the WTO Sanitary and Phytosanitary Committee, as well as in the international standard-setting bodies. We have also proposed activities such as exchanging information on new research and risk assessment procedures, and improved coordination of technical assistance.
As you can see, Mr. Chairman, much hard work lies ahead. We will be consulting with this committee and the Congress, as well as the agriculture community frequently as we proceed with these negotiations. We believe that the FTAA will facilitate the growth in U.S. agriculture trade and in the U.S. economy. Currently, the business of agriculture from production to processing to transportation to marketing generates about 16 percent of U.S. economic activity, and employs almost 23 million U.S. workers in all 50 States.
Over the next decade food consumption in Latin America is expected to surge as a growing middle-class with rapidly rising disposable incomes is able to purchase more and better food. Our producers and processors should have improved access to this expanding market. U.S. agriculture can benefit from the FTAA, as can countries throughout the hemisphere. This is an exciting challenge for us. President Bush said as he was departing for the Quebec Summit last month:
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This third Summit of the Americas will take the next steps in creating an entire hemisphere that is both prosperous and free. It is a great task and an extraordinary opportunity to make the Americas the land of opportunity.
Mr. Chairman, I welcome your guidance and look forward to working with this committee as we move forward in the FTAA process. That completes my statement. Thank you.
[The prepared statement of Secretary Veneman appears at the conclusion of the record.]
Mr. COMBEST. Thank you, Secretary Veneman. Secretary Evans.
STATEMENT OF HON. DONALD EVANS, SECRETARY, U.S. DEPARTMENT OF COMMERCE
Mr. EVANS. Thank you, Mr. Chairman. I am delighted to be here and in the company of my Congressman, Congressman Stenholm, my neighbor in west Texas. Other distinguished members of this committee, I am delighted and honored to be before you today.
I have had the privilege of watching the leaders of this committee over the last number of decades and observing their commitment to the agriculture community, the farmers, the ranchers. In west Texas I know, not only have I seen first-hand not only their commitment, but their deep understanding of this very important issue that we are here to talk about today.
Secretary Veneman, I give you a very sound good review of the administration's perspective of Free Trade Area of the Americas as it relates to agriculture. And I would like to just add a few comments as to the administration working with you on the important initiative of the President and trade globalization, not only here in the hemisphere but around the world. I come here today really understanding the importance of the administration working with this key committee, and all of Congress. Because I am not confused at all about what the Constitution says with respect to your congressional obligation, your Constitutional obligations when it comes to trade policy. So I will be up here on the Hill often talking to you, listening to you, want to know what is on your mind with respect to whether it is FTAA or any other trade liberalization issue that may be before us.
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And there are a number of them, where this is primarily focused on FTAA today. But obviously, we have got other trade initiatives underway with a free trade agreement with Chile, with Singapore, with Vietnam, with Jordan. We have got a lot of issues on the table that Ambassador Zoellick is dealing with. And there will be more. Certainly at the Free Trade Area of the Americas I saw a number of countries that were interested in opening up bilateral trade negotiations. And when the opportunity presents itself, I think we ought to pursue those opportunities. Because as I look at trade liberalization over the last 50 or 60 years, I see nothing but benefits really in the whole for all Americans. I think trade liberalization has continued to improve America's quality of life.
And so when I finally take a step back and look at expanding trade in the hemisphere as well as around the world, and I see even in the last decade it has contributed to 25 percent of our growth. It accounts today for a third of our GDP. It relates to 12 million jobs in America, 750,000 of those jobs are in the agriculture community, both on and off the farm. And so when I see the benefits of trade liberalization I get particularly enthusiastic when I see opportunities like Free Trade Area of the Americas to expand open markets to this hemisphere. I get concerned when I see the rest of the world moving forward and America standing still in this area. There are over 130 preferential trade agreements in the world today. America is a part of two of those. So when I think about what the rest of the world is doing and I look at where we are, I say, shouldn't we be moving more aggressively in the free trade arena.
Which gets me too talking about the importance of trade promotion authority. I think it is a vital tool for the President to have as we move ahead. But we all clearly understand how, as I said at the top of my remarks, it is clear that we need to work closely, and we will work closely with Congress when it comes to trade issues.
I was really moved at Quebec City by watching 34 leaders in the Western Hemisphere come together, all democracies. And we have one that is not a democracy now in the hemisphere. The first time in the history of the world that we could say that there are 34 democratically elected leaders in the Western Hemisphere. And I was even more moved when I looked at the disparity and size of these countries in terms of their economic power and their economic might.
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When I thought about the moral argument for Free Trade in the Americas, I looked at these leaders of these smaller countries and understood clearly what it was they were putting their hope and faith in. And that is a free enterprise system, free trade, opening up markets. Because from my perspective, the way free enterprise system works or the genius of the free-enterprise system or opening up markets work, is that when you open up markets you unleash the genius of the individual and the individual becomes responsible for his actions, and he becomes innovative, and he becomes creative, whatever country that you are in. And when they do that, when individuals do that productivity increases, economic growth increases and you create more jobs, you increase the standard of living in your country. And then ultimately you improve the quality of life.
Now that is what these 34 leaders in the Free Trade Area of the Americas are looking for. They are looking for improving the quality of life of their countries. And so this is something that America can clearly lead on in this very important part of the world. And that is where the President has indicated his focus on the Americas and the Western Hemisphere.
As Secretary Veneman said, I think NAFTA is a good example of the benefits of opening up trade in this hemisphere to the agriculture community. Agriculture trade and exports to Mexico and Canada has increased a lot faster than exports to other parts of the world since NAFTA. So I think we have a living example of an opportunity of the kind of opportunities that we have in the Western Hemisphere.
When I look at tariffs on agriculture around the world and I see we have about a 12 percent tariff. I see the EU has a 30 percent tariff. I see that countries in the WTO have a 60 percent tariff. And then when I see high tariffs throughout the Western Hemisphere. I see opportunities to knock down tariffs, lower tariffs, open up more markets to agriculture. Again specifically, in this hemisphere.
So not only do I see a tremendous economic benefit for this country and the agriculture community to aggressively pursue the conclusion of the Free Trade Area of the Americas by 2005, I also see the opportunity to spread human freedom throughout this hemisphere. I see the opportunity to enrich the lives of those in other countries by expanding their own social freedoms and their own political freedoms, and their own liberties. I think it is a two-for-one. I think not only do you do the right thing for all Americans, by increasing the opportunities for our economy and specifically in this case, our agriculture. But I think we lead the world in the right kind of way by expanding freedom throughout this hemisphere.
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As the President has many times, our most important export that we have is freedom. And it is through opening up markets for the agriculture community that we can expand and export that freedom.
The Commerce Department specifically what, I think our role is, is to work very close, and we do with USTR, and the United States Department of Agriculture. We are a team here. We come to you as a team. We work closely with each other. We talk a lot about the important issues that face us. So we communicate a lot with each other. But in addition to this, as I have mentioned, we are going to talk to you a lot and we want to listen to you and respond to your concerns and your questions.
Within the Commerce Department other than working closely as a partnership with USTR and Department of Agriculture, we have obviously specific roles we play. We have got our advocacy center that is an advocate for farmers and ranchers. And throughout the world we got our trade information center where farmers and ranchers can call in and get export assistance. It is a pretty active center. We get about 700,000 hits on our web site. We handle 80,000 telephone calls this last year. We have foreign commercial service offices throughout the Free Trade Area of the Americas. I saw a number of them in Buenos Aires. I was in Argentina not long ago with the ministerial prior to Quebec City where Ambassador Zoellick was getting together with his counterparts to prepare for Quebec City. But seeing our foreign commercial service office there and their enthusiasm for the opportunities for the American farmer and rancher throughout Latin America was inspiring to me. So our commercial offices are very important. Import administration is very important too, to make sure we are enforcing our trade agreements with other countries.
And then finally, I would talk about quickly just our market access and compliance and other department that we have had, Administration Bureau that we have to make sure markets are opening up to us. And people are in compliance, other countries are in compliance with the trade agreements that we have with them. And they work also hand-in-hand with our Trade Development Bureau which will be and is very active throughout Latin America.
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So anyway, Mr. Chairman, I just wanted to briefly give you my observation of how important trade liberalization is to America, how important Free Trade Area of the Americas is to pushing that agenda forward. The whole world is watching it, WTO is certainly watching it, the EU is watching it. It is important for us to show leadership in moving that along. I think Ambassador Zoellick has done a terrific job of that by setting some pretty firm time tables. And with respect to when we expect results, and when we expect to accomplish it and what along the way between now and 2005. But I conclude my remarks when you think about Free Trade of the Area of the Americas, I am one that is certainly going to think about the 34 democratic leaders in this hemisphere that are leaders of countries of people from all walks of life. And so there is countries that have per capita incomes per year from $500 per year to America where we have $30,000 per year. And it is these leaders throughout this hemisphere that are putting their faith in a free trade, open trade, free enterprise type of relationship throughout the hemisphere to improve the quality of life for their people. Thank you, Mr. Chairman. That concludes my remarks.
[The prepared statement of Secretary Evans appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Secretary Evans. Ambassador Zoellick.
STATEMENT OF HON. ROBERT ZOELLICK, U.S. TRADE REPRESENTATIVE
Mr. ZOELLICK. Well, I would like to thank the chairman and Mr. Stenholm, members of the committee. If I could request that my statement be entered in the record, I would just summarize a few brief points.
The CHAIRMAN. All statements will be included in their entirety.
Mr. ZOELLICK. I particularly appreciate the opportunity to be here with my colleagues and friends, Secretary Veneman and Secretary Evans. As Secretary Evans stated, we have known each other from the past, we have worked together as a team. And it is a delight to be here with him.
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I also want to thank the chairman and Mr. Stenholm for the informal session that you arranged for me with this committee in March. It was an excellent way of getting an early identification of some of the issues of greatest importance to you. And I want to thank you, Mr. Chairman, and a number of the colleagues I see here who joined the President in Quebec City. I think it was a good sign of a bipartisan and executive and congressional interest in what is a very important effort for our hemisphere.
I want to open by underscoring the President's strong interest in the farm trade. And let me say it in a way that I heard it directly. And that is, the first question that he asked me when he interviewed me for my present post related to the farm trade. And he said that it was his most important trade issue. So that certainly had an effect in my thinking. And it is one of the reasons why in my first months on the job I was able to arrange with the help of many of the leaders of the farm community here in Washington sessions with over 40 of the farm groups to try to get their views and concerns.
I also thought it was useful to invite some of the former agriculture negotiators to get a sense from both parties going back a number of administrations to get their feel on the issues.
And one of the things that came loud and clear to me was that while I know, and I am certain you have heard many of the concerns about farmers and ranchers about the trade issue, I also get a sense that they really recognize the critical role of it for their future. One in 3 acres in the United States are planted for export. We sold more than $50 billion of agricultural product last year. It will probably be a little higher this year, about $53 billion. And when you think bout the effect on the farm income, that totals about 25 percent of gross farm income. So it will be hard for our farmers to do very well unless we have open markets.
The other message I got was that the farm groups recognize that the United States is a relatively mature market in agriculture. It is expansion will be largely based on consumption from added population because there is probably only so much all of us can eat. Although some of us test it every day. And so we are likely to get the consumer growth and market potential from overseas. And as the Secretaries of both said, it was a striking fact to me to see that the average tariff bindings on products under the WTO is 60 percent. And as many of you know well and have pointed out to me, the EU still spends about $5 to $6 billion a year on export subsidies. So they are not only paying people to grow it, but then they have to pay people to sell it. And that hurts our farmers and farmers from around the world.
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Now my statement notes some of the specific areas where I have easily been able to make modest progress in the first few months. We made some openings for dried beans in Mexico. And we headed off a border crossing problem for livestock. I had the opportunity not long ago to talk to Mr. Stenholm about the question of continued use of methyl bromide in terms of quarantine and preshipment treatment. And based on that conversation, I have been able to work with my colleagues and those at EPA and OMB to develop what is now a close-to-completion of a rule to permit an open-ended use of methyl bromide, which is a topic that Mr. Stenholm raised some concern for me about.
We have been able early on to organize the Cairns Group and other countries to be able to try to help us in the Codex process. Because all of you are increasingly aware that while part of the issue is market access, an increasingly important one is how we deal with the sanitary and phytosanitary standards. And so if we are going to be effective in dealing with some of the ideas the EU has, we have to organize others on issues like biotechnology.
We have pressed to plan with some success on some of these SPS issues and also on safeguard matters. And as you probably know, we resolved this long-standing bananas dispute that is important to agribusiness.
The reason I mentioned these points and the reason that I think it is important for us to hear you individually and also as a group, is that I think we all recognize that the build the support of the agriculture community for trade it is going to have to be retail, piece by piece, issue by issue, demonstrating that we can deliver on a number of these topics. Because there is a lot at stake.
I have had chance so far to travel to both Latin America and last week to Europe. And it is clear to me that the United States is falling behind. Let me just drive that home with one statistic. The EU now has 27 free trade or special customs arrangements around the world. Twenty of which it has negotiated in the past decade. And it is negotiating 15 more. And as Secretary Evans said, that is out of a total of 130 worldwide. And we are party to two.
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Now those numbers have real effects. Secretary Veneman mentioned one in the case of Chile. As many of you know, there was an effort by the United States in 1994 to say that we and the Mexicans and the Canadians would go ahead with free trade agreements with Chile. Well, the Canadians and the Mexicans did, we did not. And now when I was going down on my way to Santiago and I was talking to some business groups, I found out, as the Secretary said, that our wheat farmers are losing market because they have to pay an extra 8 percent that the Canadians don't. And when we talked to some of the fast-food restaurants we learned that when it comes time to potatoes for making french fries, all those now are starting to come from Canada because of the extra charge that Americans have to pay. As the Secretary also mentioned in the case of the Andean, but it is true with Chile, too, our vegetable oil producers are losing out to the Mercosur Countries. So these failures to move ahead have real effects market-by-market that affect farmers and ranchers in agribusiness.
As my statement has mentioned and as my colleagues have said, we are trying to move ahead globally, regionally and bilaterally. We see a benefit through a competition in liberalization. And this is where the FTAA is particularly important. Number one, it will have some benefits for us in terms of opening the regional market, as Secretary Veneman mentioned and as the chairman noted in his opening comments, and Mr. Stenholm also alluded to. But frankly, it also gets the attention of others around the world. It helps give us leverage when we are trying to move forward in the Global Round. And also in the process helps us build support with some of those countries on the issues like biotechnology or export subsidies. But even within the FTAA we want to keep the pressure on. And that is one reason why we move forward quickly with the free trade agreement with Chile to rectify some of the problems we have already seen, but frankly, to send the message to Latin America as well, which is that we will move forward with those that are ready to move to liberalize. We want to bring everybody along, but we are not going to wait.
Last week I was in Europe trying to give some new momentum to the launch of the WTO Round. I met with the EU commissioners, I met with developed countries, developing countries, had an excellent meeting with the Cairns Group trying to organize our position on some of these WTO issues. And the question that always ask me comes back to you. The question they ask is, will the Congress support the administration in having trade promotion authority so we can move ahead with these deals.
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The key point for me is whatever we try to do in the administration, in the WTO, or the FTAA, or the bilateral agreements depends on a cooperative working relationship with you. Because as Secretary Evans said, you have got the Constitutional authority, we have got the negotiating role. So we have to work together.
So I appreciate your support and I will do my best to earn it. Thank you.
[The prepared statement of Ambassador Zoellick appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Ambassador Zoellick.
One of the things that I never pass up the opportunity to mention, because I think it is critical, I think as a general rule the agriculture sector of the economy has probably been as supportive of trade as any other sector of the economy. But I also must mention that I think that this support is narrowing and I think it is becoming more concerning. And I think a lot of that rests on the concern that groups have about once an agreement is reached the ability to ensure that that agreement is adhered to, and the time that it takes when disputes and facts have arisen for them to be settled. That may or may not solicit comment. I just wanted to make for sure that I didn't pass up the opportunity to mention that. Because I do think it is critical to the ability for the Congress in the future to grant trade authority if one of the strongest sectors that has generally supported trade begins to weaken in its support.
The frustrations are real and they touch a lot of different sectors of the agricultural economy. We became aware of this as we were preparing for the trip up to Quebec. But in 1998 the USDA's Economic Research Service issued a report describing the effect of the FTAA on specific commodities. They concluded that the effect on annual farm income would be very small. Gains would occur for wheat, corn, soybeans and cotton. Little change would be seen for rice, meat and dairy products. And there would be increased competition for U.S. sugar, peanuts and orange juice. What I would ask you is from the 1998 study, in your opinion, are those projections accurate and is it time in fact for that report to be updated?
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Ms. VENEMAN. Mr. Chairman, in fact, the report is in the process of being updated by ERS. And we are looking at changing the baseline for that study. The 1998 study used 1992 as a basis for the projections. So it is time to update that report. And that is in fact being done.
The latest work that was done by ERS was looking at percentage growth in U.S. exports to the region resulting from the FTAA. And that was a projection of 8.4 to 9.2 percent per year.
The CHAIRMAN. When is that report due to be completed, do you know? Just approximately.
Ms. VENEMAN. Hopefully, sometime this fall.
The CHAIRMAN. I think that would be something we would be very interested in seeing.
Secretary Evans, I would like to ask you, what countries in the Western Hemisphere would be opposed to negotiating with the United States if the administration does not have promotion authority?
Mr. EVANS. Mr. Chairman, we are moving forward with one in the Western Hemisphere, which is Chile, which obviously we don't have a trade promotion authority and they are willing to move ahead. We have had others that have indicated that they would like to open up bilateral discussion with us. But I think I would just simply say that many more will be encouraged to open discussions with us with trade promotion authority. I don't have a list. Maybe the Ambassador does of countries that say that they won't open discussions with us without trade promotion authority. But I think with trade promotion authority everybody clearly understands that we could move forward on discussions with more swiftly and reach conclusions quicker then without it, because of the uncertainty that you have at the negotiating table without trade promotion authority.
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I don't have a list of countries that would not talk to us without it, but I know that we would be safe to say that more would be anxious to talk to us with it. It is a very important tool for us to have not only maybe for bilaterals, but certainly for FTAA. I mean, as the Ambassador said, the countries in the Western Hemisphere are anxious when they look at what kind of authority we are going to have when we are sitting at the negotiating table next year faced with some of these targets that we have already set up in order to reach a 2005 agreement.
So those are my general thoughts on it, Mr. Chairman, of my view of import of trade promotion authority.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. Today marks the the fifth administration that I have had the privilege of sitting here and listening to. Every time we talked about trade, agriculture was always in the take-off. But many times we have not been in on the landing.
And I appreciate very much the tone of your testimony today. I think one of the things that we have erred in the past in building too high an expectation for agriculture. And I think the facts bear out what you have stated. And I think we are on much sounder ground. I hope that we will very soon be able to give you trade promotional authority so that we might begin to negotiate away some of the things that bother many of us at this table. The only way we will correct the iniquities and be on level playing field is to negotiate. And I am a true believer that the only way we will get there is by giving you the trade promotional authority. I cannot imagine another country negotiating with us without you have that. And that is something for my colleagues to consider.
Ambassador Zoellick, I want to thank you. You mentioned methyl bromide. We haven't solved it yet. But I very muchly appreciate the attention you have brought within the administration, to EPA, and others on this issue, and how important this issue is to much of our industry and the utilization of this product. And the facts that need to be brought out and then acted upon.
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Secretary Veneman, you testified that we have already agreed to eliminate export subsidies within the hemisphere when the FTAA is implemented. How did the participants define export subsidies, and would they include our export credit guarantee program?
Ms. VENEMAN. I believe export subsidies is defined as they currently are in the agreement on agriculture in the WTO. It would not, under what the current definition, include the export credit guarantee programs.
Mr. STENHOLM. This agreement that then, what if I understood what you said, export credit guarantee programs are not considered to be export subsidies?
Ms. VENEMAN. Some of our trading partners, I believe, do think that they should be counted as export subsidies. It is not anticipated in the definition that the United States has put forward that they would be included as export subsidies.
As you know, in the WTO the export credit guarantees were not negotiated. They were left to be determined in another forum, the OECD. That agreement has not been reached at this point. But in the U.S. proposal export credit guarantees are not considered to be considered to be an export subsidy.
Mr. STENHOLM. What is the status of the OECD negotiations on export credit guarantees?
Ms. VENEMAN. At this point, there has been a paper tabled in the OECD that has not been agreed to by all participants. Specifically, the Canadians have not agreed so there is not an agreement at this point on export credit guarantees and how they will be disciplined.
Mr. STENHOLM. Ambassador Zoellick, many of my constituents support the aggressive use of our trade laws, including safeguards to enforce our rights under trade agreements. In fact, we will hear that concern expressed in the testimony of Mr. Bruce McEvoy in the second panel today. The International Trade Commission recommends extending the wheat gluten quota for 2 years. What does the administration plan to do about the wheat gluten quota?
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Mr. ZOELLICK. First, Mr. Stenholm, let me just add briefly to the comment on the export subsidies, because it relates to an earlier point you made. What we have agreed to since we are earlier in the process is agreement on the principal of eliminating the export subsidies. And that is, as why Secretary Veneman said, the implementation of that still has to be negotiated. But one of the most critical aspect is that it is not just related to export subsidies of countries in the region, it is to try to ban their use by third parties as well. And that brings us right back to the WTO. Because we know the primary user of these is the EU. And so I think one of the most difficult aspects of this negotiation will be how we proceed on that in a fashion where we stop the misuse of those export subsidies by third parties in our hemisphere.
And the reason why I am emphasizing that, just as your comment suggested, is the critical aspect of this is how we try to leverage and use this negotiation in the global talks, and we need the TPA for both.
On wheat gluten, very briefly. As you said, the ITC made a finding on a continuation of that. As you know, we lost a round in the WTO on that. We went back to the ITC to see if we could correct it. The key point here, however, will be that after 3 years that they, other countries, will have a right to retaliate. And in this case, the EU, based on the first WTO finding, has signaled that it will retaliate in the case of corn gluten.
So what the administration is now trying to look at is a way whether we can try to offer some support to the wheat gluten industry while also being consistent with some of the concerns to avoid the problems with corn gluten problem. And that is exactly where we are at this moment.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. Thank you panel for appearing before us today.
Obviously, trade is a very important issue to agriculture. And I am very glad to hear the President and the administration and the emphasis that they are placing on agricultural trade. And I think, Secretary Evans, you mentioned some of the various tariffs we face around the world. The statistics that we have always used from USDA is that the average tariff worldwide on agricultural products is about 50 percent, and the average tariff in this country is about 6 percent. And what we have always argued is, we want to get the same access to markets around the world that other countries have to ours. And in response to that, one of the things I hear people from my State and others who are critics of trade and the impact it has on your cultural say is that we can't trade our way out of low prices. I am curious to know what your reaction is to that.
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Ambassador Zoellick, you had mentioned that we are expecting about $50 billion worth of exports this year, and perhaps pass it at $53 billion in the current year. What is the universe, what is the potential that is out there. And if we are exporting right now about one-third of our agricultural production, what can we hope to achieve in the not-too-distant future if we are able to expand some of our market opportunities? And anybody that would feel inclined to answer that, I would appreciate a response. Do you have any feel for that?
Ms. VENEMAN. We do export projections. But I don't know that we have current projections other than the ones we discussed in response to the chairman's earlier question about what the ERS is doing with regard to the FTAA specifically.
Mr. THUNE. Ambassador Zoellick, any comment on what we might be looking at?
Mr. ZOELLICK. I think the numbers for this year are about $51 billion, or for last year. And projected for $53 billion. But I think this also goes back to one of the chairman's opening questions about this study. One of the problems with all these studies is they tend to be based on a static analysis. They take the market as it exists and they tend to say, OK, if you cut tariffs or you reduce barriers how much added trade. They tend not to work any possibility for growth. And one of the points that I was trying to make in my opening statement is, is that we really want to target in particular some of the parts of the world that are growing in population faster, and those that are likely to grow in income faster. Because that is going to move you to higher value-added production, just as you have in the United States, where people move to grains, to meats, to specialty crops, to the whole series of other types of products as they get at higher parts of the income scale.
So I think part of the challenge here will be being in on the ground floor as these countries start to develop, so you develop the marketing arrangements, the business contacts, but also the rules. Because as many of you pointed out to me, and Ann and I are seeing more and more and more, the battle on this will often be on the rules for sanitary or phytosanitary standards and how you get in. And it is absolutely critical that we do that on a basis that serves the traditions we have had here in terms of some science and reasonable analysis and risk calculation. We have been doing that for a long time, we are careful. But we also have to make sure that others don't use this for protection its purposes. So the way that I see this really are where are the growth markets in the future for agriculture.
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Mr. THUNE. You referenced I think too, Secretary Veneman, and the whole NAFTA trade agreement. And I think arguably if you look at the numbers you would probably have to say that that has been, I think you know in your testimony, success. Although out in agriculture country it is not necessarily viewed that way. I mean, if you poled producers in my State you would probably get a very mixed bag. And we always think it is good if we are exporting to other countries. But when other countries are exporting to us we don't think it is such a good deal.
Are there things that we would do differently in the agreement that is under discussion here from NAFTA that would help us convince producers in this country that it is a good. And I think probably one of the issues that is talked about is enforcement. Are there things that will be uniquely or distinctively from NAFTA that might make this an easier sell in parts of the agricultural world in this country and the United States. And I am thinking of my State as a case in particular, that would make it more possible for us to convince them this is a good thing for them.
Mr. ZOELLICK. It is an excellent question. And it starts out by telling the truth about what has actually worked. People have been talking about what has work for NAFTA. I mean, some of the numbers that I put in my testimony, who would have suggested that you would have had a five times growth of agriculture trade to Canada since the Canada Free Trade Agreement. And about doubling in the case of Mexico. Or more broadly, there was some numbers done actually by the prior administration that didn't come out about you take Uruguay around and NAFTA together, and for the average family of 4, by the time you took the increase of income and the reduction of the taxes for tariffs, it was a gain of $1,300 to $2,000 a year per family. You have all been debating tax cuts here. That is a hefty set of tax cuts in income related to trade and nobody knows about it.
Third, enforcement. And this goes back to the question that both Mr. Stenholm and the chairman mentioned. Part of this goes to anticipation. I reference real briefly the livestock issue with the Mexican border crossing. In part, because again the concern for foot-and-mouth and other issues. We got early wind that the Mexicans were doing some border crossings through their treasury ministry. And Secretary Veneman and I moved quickly to go back to their commerce and other ministries to say, no, can't do this. And so they have adjusted that policy. And so part of it will be the overall enforcement process as well.
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My own point, and just speaking for myself and some of you referenced this, I do think we are going to have to be sensitive to the safeguard issue. And this is always going to be tough because people are going to be wanting to have one market opened and another protected.
But I do think we have to try to be creative on how we deal with this, particularly in some of the specialty crops areas where people are starting to feel this in a different pattern. And the Secretary knows this from her California experience.
Mr. THUNE. I see my time has expired. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman and thank you all for your testimony.
I appreciate the insights you have given us. I had an opportunity 3 weeks ago, to go to South America and visit Brazil and Argentina and Chile. And I have to say at least at this point, I guess it raised more questions in my mind than it solved. From what I could tell, I hadn't paid a whole lot of attention up until now, but it appears to me that Argentina and Chile are very interested in this because they are small countries and they don't have a lot of population. They have got a lot land and a lot of ability to produce. So they are interested in markets. But Brazil, I had an opportunity to visit with some of the senators and that were leaders of their parties in the Parliament. And they are not as enthusiastic about this FTAA. Because I think they are benefiting, from what I could tell, from the Mercosur. Where they are the biggest country and have the most population and want to protect it.
So my concern and just kind of what I know about it now, is how this might play out if we actually make a deal. And what I am afraid of is if the Brazilians hold out, which they appear that they are going to, that we are going to get into a situation where we make a deal, where we lock ourselves into some bad situations, which I think we did in the GATT agreement by letting the Europeans keep their system because we wanted access into their commercial market in Europe so bad. I am particularly concerned about specific commodities like sugar that the Brazilians might want to use their holding out to force us to do something in the area of sugar that will give us even further problems beyond what has been caused by NAFTA.
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Another thing I am concerned about, there is not much of a dairy industry down there in Chile and Argentina at this point. But I think they have part of that country that has an ability to develop a dairy industry like New Zealand has a grass-based industry that will be low cost that could significantly impact our market even beyond what is being impacted by MPC and all of those kind of things. I have found out about the soybean situation, which I know a little bit about. But there is a couple brothers down there that own 2 million acres that they have opened up in the last 10 years. And they are producing 50 bushel soybeans with no fertilizer, very little input costs. They can go over the land one time. They have got 100 feet of top soil on these. Apparently they have access to 8 million acres that are very easily opened. And from what I can tell they can produce soybeans for 3 bucks a bushel. They are paying their farm workers, the lower skilled ones, $5 a day. Their higher skilled farm workers are paying $10 a day. The land they are acquiring for $100 to $200 an acre.
Apparently we have a tariff on soybean oil and I don't know what else. But I think that there is some potential problems for us competing with that kind of a situation. And so I don't know what my question is exactly. I don't know enough about it yet to maybe ask you. But I just am concerned that we be very careful in going ahead with this. Because I think there are a lot of potential problems that could be put upon us. From my perspective right now. I think I see more problems than I see opportunities. In my part of the world my farmers are not wild about getting into anymore trade agreements because of what happened with NAFTA and GATT.
As I said, we have got problems with the sugar situation. We got problems with MPC now coming in around our tariffs. When they ask for something to get done about this, nothing happens. There is legislation that has been put in to solve both of those problems. But in talking to the Ways and Means Committee, I think the Europeans will probably give up their common agriculture policy before we are going to get those bills passed through the Ways and Means Committee.
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I want to register my concerns about that we be careful about how we go about this so that we don't get into situations like we have with some of these other agreements and make the situation even worse American agriculture rather than better. So I don't know if you want to respond. My time is gone. But I didn't mean to filibuster you.
Mr. ZOELLICK. No. The product points in particular were, I mean, extremely useful. That is what helps to get a sense. I mean, I hadn't know about the oilseed production. And so I will check into that in particular. The other ones I had known. But let me take the first part of your statement because I think it is a really important one that I think as we proceed with this I would like to have the committee have a sense of how we have been seeing it.
You are exactly right. Brazil is very cautious. And it is in part because Brazil in some ways was like the United States. It is a big country. And it had a big internal market. And they developed it inside and they kind of got used to it that way, just as the United States did, prior to really World War II. And so right now President Cardoso has tried to move them more in the international system. But he faces opposition just like you would here. And he is going to have a presidential election next year. So that is one of the reasons why they are particularly a little sensitive to it.
They have basically put a lot of their eggs in the basket of Mercosur. But Mercosur has also felt some strains. Because you might have also encountered when you were down there that the Brazilians devalue their currency and it has continued to slip a little bit. The Argentines have their currency linked to the dollar. So the Argentines have got hammered on this. And it is one of the reasons why the Argentines have been a little bit more interested in looking beyond. In fact, they changed their external tariff, frankly, raising some questions about the Mercosur Customs Union.
The Chileans were looking at joining Mercosur. And said, no, we will do a free trade agreement, but we don't want to have those higher external tariffs that they had.
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That is exactly why it is quite important that we get on the scene. Because one of the reasons the Chileans took that view is they felt they actually have an option with the United States. And I think, as I was trying to suggest, we want to try to bring all these countries along. But at the same we are trying to say, if somebody tries to lag too much we have other options.
So rather than have a laggard have a negotiating position that drags us somewhere we don't want to go, we would rather be in a position to say, we will negotiate with those who are willing to liberalize. And if you are going to have to deal with that. And so I think that is the context in which this occurs.
It brings back to one other earlier question, which is, I apologize forgetting who asked this about, who is concerned about trade promotion authority. Well, the Brazilians are the big guys on the block. They always say it. And they say, look, if you guys are really serious, we will start a negotiation. But if you don't have this authority when it comes time to putting the sensitive stuff on the table for you and us, why should we do it if it gets renegotiated.
The best analogy that I can give you, because I know you get this back in your home districts, is frankly, it is often raised by union leaders. And I don't know too many union contracts that go back and allow people to do amendments on them. They vote them up or down.
It is exactly what we are asking for here. Is to have the ability to get the guidance as we go forward, have a lot of interaction, negotiate a deal, and vote it up or down. Because otherwise, we are never going to get these countries to move to the sensitive stage that the final set of days. Because they are afraid it will be reopened.
The CHAIRMAN. Mr. Cooksey.
Mr. COOKSEY. Thank you, Mr. Chairman. I enjoyed your testimony. Your testimony was enlightening. Particularly yours, Miss Veneman. I made a lot of notes.
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I have some questions related to occurrences. Last week I had occasion to meet with a French economist and an American businessman that is in France, and they were both over here. The French economist told me that in January the Euro would quite possibly collapse as a monetary unit over there. If that should happen, how would it affect our international trade agreement, the one agreement we have. How would it affect us in this hemisphere. The second question I have is that I know that a number of countries are utilizing the American dollar, the U.S. dollars, their currency. How does that, and I understand, I have often hit my head, I don't remember who they are. But there are some countries in Central and South America. How will that impact our trade within this hemisphere? And anyone can take the question.
Mr. ZOELLICK. All of us are cautious because we have all been told in talking about currencies for the Secretary of the Treasury. So let me just talk about them in the context of trade. Sort of dodge this a little bit. First on the Euro, what is going to happen on January 1 is they are going to actually move from an accounting device to having coins in pockets and bank notes in wallets. And, frankly, I think that forecast that they gave you is a pretty far-fetched one in terms of the likelihood of any collapse.
In fact, what you have actually seen is the Euro strengthen a little bit over sort of recent months compared to the dollar after it did decline initially. And that is because the United States has been a good place to invest, so people have put capital into dollars.
If it did collapse, just to, I mean, answer the hypothetical, you would have the United States in a worse trading position because our goods would be more expensive than their goods. And that relates to your second question about countries moving towards the dollar. It actually helps us in the sense that we then don't run the risk of devaluations, which end up having countries make their goods more expensive—or make our goods more expensive to theirs. And so, for example, when Brazil devalued, as you would expect, its exports went up because they were cheaper relative to the rest of the world. And the imports came down. So in that sense when countries link to the dollar it is positive.
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The other side of that though is that it all depends on how their currency policies are related to their broader or economic policies. And if their currency policy leads to slower growth, then they are going to buy less. And that is part of what you are dealing with with Argentina today.
The third element, and this goes back to the question we just had a little bit, is what countries sometimes do in that event is they want to raise tariffs. And just again to draw back to the NAFTA example, when the peso collapsed in 1994 one of the reasons why NAFTA was so important was because the Mexicans couldn't do what they did in early eighties, which was to jack up their tariffs again. They were locked in to the tariffs. And the effect of that was quite striking in that it took us 7 years after the 1982, 1983 crisis to get our exports to Mexico back up to the level they had been. It took us 17 months after the 1994 crisis.
And so again, when we are talking about lowering and locking in tariffs, we also have to keep in mind some of the scenarios you are talking about. When things go bad we don't want to have a repeat of a thirties logic. And that is what can happen with some of these countries.
Mr. COOKSEY. Secretary Evans, I was struck by the numbers that you gave off the top of your head, and it is here too in your notes. That the average agriculture tariff is 12 percent the United States 30 percent, the EU 60 percent for the WTO members. Is there any likelihood that the WTO members will reduce that over a period of time?
Mr. EVANS. Well, that is the goal, that is the objective. I know that the two areas that those in Geneva that are working very hard to on the November meeting for the potential of starting a new round in WTO believe they have made significant progress in the areas of services and agriculture. Now the specificity I am not familiar with. But I am assuming that if they are making progress that means that tariffs are coming down. Now I don't know if the Ambassador can shed any light on that or not. But that is the goal of trade liberalization, to bring down these tariffs. And I was struck by it as well to see if we are at 12 percent, I heard a Congressman say 6 percent earlier. Whatever it is, we have got the lowest tariff of anybody around the world. And there are some that are four, five, six, seven, eight, nine times our tariff.
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So that is the goal. I know they are making progress on it in that specific area as they move forward in WTO possible launch. But I don't know. Ambassador, do you know any more specificity?
Mr. ZOELLICK. Just briefly. The 60 percent number is what they call a bound tariff. OK. So some of these tariffs are lower. But it really goes back to your first question. Bound tariff means people could increase if they are under stress to the higher level. Their actual tariffs are often lower. But they are what they call the applied tariff. But they are still pretty darn high definitely compared to ours.
Where we are in the process of trying to launch the Round is to try to refocus on three areas. Export subsidies, where the United States numbers are now about $150 to $160 million. The EU's are still $5 billion to $6 billion. Domestic subsidies with the various rules for those. And whether they go into the various boxes depend on whether they affect production. And market access. And that is the third area that you are talking about. And that I think is a key to moving ahead for us in the Round. We are at a stage now where we haven't launched the Round. But that is the key part of our proposal. And, frankly, this is why I mentioned working with the Cairns Group and others. Other agriculture producers, some of them develop countries like Australia. Some developing countries share that interest. So that is one of our primary goals.
Mr. COOKSEY. Good. Thank you very much. And thank you, Mr. Chairman.
The CHAIRMAN. Mr. Baldacci.
Mr. BALDACCI. Thank you very much, Mr. Chairman. And I want to thank you for your comments in regard to some of the problems that we have been encountering in the agriculture area in terms of enforcement. And think that we need to make sure that these agreements, while they are great and expanding opportunities, that there is some sort of quick response in terms of these trade infractions. So I appreciate those comments.
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I want to thank Ambassador Zoellick for his efforts in regard to the softwood lumber issue and meeting with us earlier in an informal session. And appreciate being able to work with him.
One of the comments I want to make that is in regard to Chile, we had had an anti-dumping case in regard to Chilean salmon that had gone through the Commerce Department, oh, maybe a year or year-and-a-half ago and there was a fine for dumping that was assessed.
And I noticed in reading the report that was put out by the Foreign Trade Barriers, they also mentioned about U.S. exports of fresh and frozen uncooked poultry are effectively blocked from the Chilean market through their inspection requirements. And it talks about the restriction on exporting of fertilized salmon eggs. So I share that with you in your negotiations in the interest of concluding those negotiations, that there is a concern about that.
The only issue I want to ask Secretary Evans about, or whoever is an appropriate response is that in regard to an administration policy of exporting freedom, there has been an issue in the previous Congress in terms of opening up trade with Cuba and opportunities with Cuba. I know that we will probably be looking at voting on having annual trading relationship with China in recognizing that the challenges that that poses. What is the view going to be from the administration in regard to Cuba?
Mr. EVANS. Well, I think that we have made it clear that we are not supportive of the government. We are taking actions that will support the people. There are regulations that are about to be issued with respect to trade of food to Cuba. I think those are scheduled to be released at the end of the month. And there was a question I know that is still that I have not received the answer on. And that is whether or not that includes medicine to Cuba. There was some question as to whether or not it would include both food and medicine or just food. And so I know that we are getting ready to implement the regulations that will deal with the export of food to Cuba. And maybe that will also include medicine.
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Mr. BALDACCI. What is administration's overview or its goals in terms of being able to export freedom to Cuba or any long-term goals being established by the administration or not?
Mr. EVANS. Well, I think again, I think that what I suggested was that they should open up markets around the world that opens up freedom. But you have to have a willing country to begin that effort. And I mentioned in my opening comments, Free Trade Area of the Americas, there were 34 democracies there. And there was one country that was not there because they are not a democracy.
If you have to have somebody willing on the other side. I think it is a constructive step in terms of supporting the people to implement the regulations that will allow the export of at least food to Cuba. And that might also include medicine.
Mr. BALDACCI. And just let me just share with you just maybe a Maine perspective. Maine is positioned where it gets a lot of flights overseas and for refueling and for connections. And because of the inability to be able to handle the airline destinations for Cuba or anywhere else, they end up going across the border into New Brunswick. And then getting the refueling and economic commerce from all of that. And it seems that in a lot of these areas we end up hurting ourselves. And I just share that with you as you begin those discussions and as we in Congress deal with those issues. And I see my time has run out. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Gutknecht.
Mr. GUTKNECHT. Thank you, Mr. Chairman. I want to thank this distinguished panel for coming today. This is a very important issue for American agriculture. And I also want to say that I am one who, I do believe in trade. And if you study the history of wealthy nations, all of the wealthy nations throughout history have been traders. And we have to be part of that world market whether we want to or not.
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But I want to come back to a couple of points that I think are important. And while I certainly want to work with the administration in terms of expanding opportunities not only for agriculture but for all industry here in the United States on a basis to basis of the entire hemisphere here. I think one of the issues was brought up by my colleague from Minnesota. I think it is important. Because as we go forward it is not just important that we negotiate new trade agreements. It is important that we enforce the ones that we have.
There is at least a sense in agriculture, and I happen to share this, that in the last Round, the Uruguay Round, that American farmers really got the short end of the stick. Both on the tariff side as well as export enhancement programs that the European Union and other countries use against us in terms of the trade battles that go on every day. Do you share that view or are we being unreasonable? Because when you look at the tariff numbers that were cited by Secretary Evans, as well as, looking at the export enhancement that is done, subsidies if you will by the European Union, it strikes us that we are really at a very difficult competitive disadvantage in agriculture. Anybody want to tackle that? That is a tough one, I understand.
Mr. ZOELLICK. You are exactly right. This is one of the thankless questions. But just to put a little bit of perspective on it. As you probably know, agriculture really was not very well integrated in the old GATT system. And so part of the challenge at the Uruguay Round was getting it into the system of rules. And to start to do the reductions of in the categories. Now I think the good thing from the United State's point of view was that we did focus on the three categories that I mentioned of export subsidies, market access, and domestic support. And what less that seemed to be so easy. Right now the EU is fighting real hard to change that. Because they are trying to add a bunch of other factors that you see show up in the beef hormones and other rules that sort of move it out of those categories. So the framework is one that should serve our interest if we can keep going with it.
Second, within that structure there were key rules that tended to follow U.S. agriculture policy more than European. And one of those was, you can give payments to farmers but delinquent them from production. And I know that is an ongoing debate here that this committee and others will have. But it was particularly vital given the fact that given our general faith and the competivabilty of American farmers and most crops, the idea that, yes, sometimes you have to help farmers through different difficulties. But let us not do it in a way that opens the door for what the EU has done. Which is to pay these guys to produce a bunch of food efficiently and then have to pay them to sell it. So that was another aspect that I think has some benefits to it.
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The structure of the SPS rules linked to this Codex system are a real winner for us if we can hold that. Because that links it to the science as opposed to some of these other ideas. Now having said that, when I looked at the AMS numbers, Aggregate Measures of Support, you are exactly right. The United States is about $19.1 billion for this yellow box. And Europe and Japan are $35 billion and $50 billion, something like that. Much higher. But, frankly, the challenge now is how do we start to get those down and try. And one of our frankly, our other key negotiating positions is that we need to move those towards more of a parody in position.
Now this is not going to be easy to do. But, frankly, given the structure and given what we have said about American farming, I think it serves our country's interest.
Ms. VENEMAN. If I might just add to what the Ambassador said. I think that we cannot underestimate what we got in the Uruguay Round. As he said, a framework for how we go forward in negotiations. We got the agreement to begin reducing export subsidies. And clearly, we want to see export subsidies go to zero, hopefully, in the next Round. We have disciplines on domestic support. More importantly, we got disciplines on market access so that we used a system of tariffication so that we can now bring those tariffs down over time and get more access. We never had access to the Japanese rice markets before the Uruguay Round. There are numerous other examples where we got access that was never available before.
And as Ambassador Zoellick said, the sanitary and phytosanitary agreement is really one of the great achievements. While we continue to have a number of trade barriers and issues due to the sanitary and phytosanitary type regulations, without the agreement we would have had no way to address these in the WTO. I think it is significant that we now have at least the framework to address these kinds of issues. The rules that require that they be based on sound science.
I just want to comment for a moment on your statement that NAFTA has been something that people have complained about as not being a success. One of the things that has happened with free trade agreements and trade agreements in general, in my view, is that if you have a trade issue with another country you tend to blame it on the trade agreement as opposed to saying, would that trade dispute exist with or without the trade agreement itself. I think we often say that we weren't the beneficiaries of something when, in fact, it would have been no different.
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Let me give you one example. When I was out in California a few years back, the table grape producers were complaining that we lost all this market share to the Mexicans. But in fact, if NAFTA went away and it was all NAFTA's fault according to them, it would have been no different. Because the tariffs were zero before NAFTA and they were zero after NAFTA.
So I think one of the things we have to be careful about is not every trade dispute is the result of a trade agreement. In fact, we have gained a tremendous amount from trade agreements.
Mr. GUTKNECHT. Well, Mr. Chairman, first of all, I want to clarify, I didn't say that about NAFTA. And I do agree with your comments. But the issue though that I did want to bring up though is that we as a country and particularly, your offices, have to do a better job of enforcing the trade agreements we have currently. We have got a problem right now with Canada and dairy policy. And many times our dairy producers feel like they are out there by themselves. Thank you. I yield back.
The CHAIRMAN. Mr. Condit.
Mr. CONDIT. Thank you, Mr. Chairman. And thank all of you for being here today and giving us your time. And it is nice to see you again.
I heard the testimony, and in particularly, Secretary Evans' comments about our objective in trade policies. And he sort of intertwined dialog like a social agenda, political agenda, democracies, humanitarian causes. And those are noble and lofty objectives that we all probably in some way could support. But I have, and I will read later, a list of associations and groups across the country, particularly from the west—California since they are not represented here today on any of these panels other than the Secretary of Agriculture. Many of them supported the NAFTA and fast track agreements, who now have second thoughts. Because they sort of believed they didn't really understand what the objective was in our negotiating trade policy. I direct this more to Secretary Evans, and the other two can respond as well. Is this about business or his this about a social, political agenda? I mean, all the people that are affected by trade policy stand to lose if we don't emphasize this is about business. It is nice to want to help influence social and political policy in other regions of the world. But when you start affecting people's lives and they begin to lose their jobs and their family farms because of it, it is questionable whether that is good policy or not. So guess I just want to hear from the three of you, and particularly, Secretary Evans. What is the objective here? Is this business or is it some other kind of policy?
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Mr. EVANS. Sure, Congressman. Let me say this from the outset. I don't think that you can make any decision that does not go through the prism of is this in the best long-term interest for the general well-being of the American people. I think that is the prism. I think that is the screen every decision should go through.
So as to negotiating trade agreements in the FTAA, every decision with respect to that trade agreement should go through that prism. And when you negotiate agreements it is typically, it is business. What you are trying to do is continue to improve the environment for the American farmer and the American rancher to improve his or her quality of life. What you are trying to do is you are trying to establish an environment where they can improve their own standard of living. And so when you think about free trade agreements, what you are trying to do is open up markets for them where you think they will be competitive, where they can export their products and their goods. And you are trying to get more market access for them. And I think as you look at trade liberalization over the years we are accomplishing that.
I know, because I deal with them every day, there are lots of issues that get raised that are difficult issues to work through. We are working through grapes. We are working through potatoes. We are working through lumber. We are working through sugar. We are working. There are lots of issues to work through. But I think when you think about what I feel like I am doing here, is to make decisions that are in the best long-term interest for the general well-being of the American people.
In sitting down and negotiating a trade agreement you do it in a business-like way. And what you want the outcome to be is a better environment and more market access for your farmers and for your ranchers. All I was suggesting is that results in, that results in exporting freedom. It is the result. It is not the initial objective. It is just they happen to be linked. If you have more economic development and more economic growth and more job creation, then what results is that.
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Part of getting to there is structuring the environment to allow that to happen. And what that means is negotiating agreements that are beneficial, create a better environment for the American farmer and the American rancher in this particular case.
The CHAIRMAN. Mr. Osborne.
Mr. OSBORNE. Thank you, Mr. Chairman. And thank you members of the panel for being here this morning. I had to step out briefly and I hope that this is not a repetitive question.
In view of the tariff differentials, it is my understanding that there is the possibility of carousel legislation. And yet it doesn't seem like we utilize it. European Union obviously has not taken our beef for 12 years in violation of the WTO. Some of the things going on with sugar in Mexico I think are violations of NAFTA. And so why do we just say, well, we have to keep negotiating and maybe these things will get better. Why don't we impose something that has some teeth in it and get on with our business. Anyone of you that would care to respond. Maybe that is too simple a question. It just seems like there ought to be a way to bring people to the table very quickly.
Mr. ZOELLICK. It is an excellent question, Congressman. And the, as you know, what the carousel does is refine our ability to retaliate. So for example, in the beef case, we won a decision in the WTO and won it on appeal. So we have already retaliated. We have already taken an action. And what the carousel does is say, that we can change the list of items to try to increase the overall, set a pain threshold.
Frankly, as I think all of us have said in various types of testimony, it is the law of the land. It is something that my own view is we ought to look at in terms of how we can use in circumstances with the objective of trying to solve the problem, not just trying to add to retaliations. Because each of those end up affecting some other business in the United States that wanted to import that. So the question is, you have to look at it case by case.
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And in the beef case, which the main one you mentioned, is that there is no doubt that the policies of the EU not only violated the WTO, but are very dangerous for the United States. Because it is a question, as some of your colleagues were asking about, about whether they can block imports based on the idea that a hormone is unsafe without meeting the scientific standards. And the WTO said they couldn't.
Now we have been talking with the cattlemen and the meat institute about how to move away from retaliation to some alternative. There has been some different views on that. And this gets caught into the big debate, as you are well aware of, of are you going to get the Europeans to actually change their view on hormones and other issues. Or is it better to try to do with hormone-free beef. And it is a question of how you best try to approach this in marketing.
On top of that, we face the reality, which is that given what happened in mad cow disease and foot-and-mouth disease, the meat market has dropped like a rock in Europe. And that makes it both harder for our guys potentially to get in, and it makes it harder for them in terms of where they open up. So to bring back this to the point of carousel is, is that this is an option on the table that we believe we may under various circumstances use. But at least it is my view that you need to be able to use it as a form of leverage and try to make sure you have talked to the U.S. industry, the Europeans to see how you can try to bring this towards the deal. That is frankly what we did with bananas. I mean, in the sense we used carousel without using carousel.
Now you should just be aware there is another side to this coin. And that is what the Europeans have said is that if we use the carousel, then in cases that they have won against us which they can come back and retaliate against us, that they will no longer hold off. And we have one lurking in the horizon here which—that we have lost once, the Congress fixed. And there is a question of a further ruling this summer dealing with the Foreign Sales Corporation. And the Foreign Sales Corporation is estimated to be about $4 billion. That is not chump change. And so just again, as we think about how we use these things, we have to also recognize how they fit in the other pattern.
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But you are definitely right. It is a tool that we have had on the table. And I would argue we helped used to get the bananas deal done. And I can also assure you we are in contact with various aspects of the beef and meat industry to see what we can do on beef. And, in fact, I raised it with both Commissioner Fishler and Lemea last week before Fishler came here.
Mr. OSBORNE. Well, in conclusion, what I would like to say is that if, if you have an agreement, than it is an agreement. And it seems like it is unilateral. And I don't think we should be in a position where if we are not trading in accordance with rules, then we need to make sure there our skirts are clean in this regard. And but I think if you are going to have a rule and you are going to have a trade agreement, it just seems to me that those things ought to be enforce. It sounds to me like we are doing a lot of dancing right now. The ins and outs much better than I do. But I would really like to encourage you to take some strong consistent action in this regard.
The CHAIRMAN. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman. And I thank all three of you for taking the time to attend this committee hearing. I think many of know that over our past efforts to pass trade legislation on the floor of the House, we really have relied on the support of a lot of our commodity groups. And maybe none more so that the National Cattlemen's Beef Association. And I don't know if you have had the chance to read their testimony, but they have some ideas here that I would just like to have your response from. And one of their statements in their testimony is that discussions continue towards an FTAA by 2005, NCBA's position is clear. We believe that agriculture issues should be addressed in the context of comprehensive, multi-lateral trade negotiations. And we do not support including agriculture as a part of a regional FTAA agreement or negotiations.
In light of that, is the administration anticipating that you would have trade promotion authority for WTO as well as for FTAA that would be independent or do you think that we could meld those together. And what would be your response to the concern of the Cattlemen's Association that they are worried that they FTAA holds very little benefits to them and thus, unless there is progress on the WTO Round they are not really interested in being a part of that.
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Mr. ZOELLICK. Well, Congressman, as usual I think you put your finger on the key issue here. To answer your question first, the trade promotion authority we are seeking would include the authority for the Global Round, the FTAA, as well as bilateral agreements. And it is particularly critical for agriculture for the reason that you mentioned. Most farm groups feel that the biggest bang for the buck is in the Global Round. And so they see the vital need to move forward on that front.
A number of them recognize, and we talked about this just a little bit earlier, about how this can be related in terms of giving us leverage, bringing some of the countries of Latin America more on our side. Secretary Veneman talked about the export subsidies issues. We talked about the SPS issue. So they are clearly interrelated. And as you may already know, our agriculture positions in the FTAA reflect this. And indeed, so the time line that we are thinking about reflects the same thing. Because since we are targeting 2005, we think that is a reasonable time to also be moving along the Global Round.
But so, for example, we have made quite clear in the FTAA that we are not touching our domestic support programs. Because we are not going to disarm those if we are not doing it globally. And so that is one way in which these are linked together. On the other hand, in export subsidies, as Secretary Veneman said, we have agreement on the principal but no export subsidies in the hemisphere. But isn't only for us. That also deals with other third parties in our hemisphere. So how we can try to develop that aspect.
My own view, the third box, the market access works well under any conditions. And it depends, as you know by crop line, and I do think that there may be a little bit more potential in some of the beef as you talked about some of the value added as you get to higher incomes. But that is something we obviously have to talk to the Cattlemen about.
So the key point is, our negotiating strategy and the TPA reflects this integration and how they can try to be mutually supportive.
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Mr. DOOLEY. Thank you. One other issue in the Cattlemen's testimony I thought was interesting. And it gets to the issues that I think, Mr. Zoellick, you and others in the administration have acknowledged that we need to resolve if we are going to be able to maintain a bipartisan coalition for trade promotional authority. And that deals with how we deal with an environment issues. And in their testimony, again this is National Cattlemen's Beef Associations. They state that they would support addressing environmental issues and future negotiations if the objective is to raise environmental standards in other countries up to U.S. levels. Some type of environmental equivalency patterned after current veterinarian equivalency agreements. Monetary incentives, offsetting tariff credits in terms of more favorable terms for countries with more stringent standards or other non trade or restricting mechanisms may deserve consideration during future negotiations.
One of the issues we have to resolve. Because it is not just the environmental community that is necessarily interested in how we can deal with these, but also an industry that is very important to our country's economy and the agricultural economy. The beef industry is interested that we are going to have to have what it appears negotiating objectives and include these environmental concerns. And also they are identifying that there is going to be need for some enforcement mechanisms there. And I don't know if you have any comment on that.
Mr. ZOELLICK. We are trying to support that type of activity as long as it is not protectionist. And there was a phrase in that section you read that said, not trade distorting or stopping or something. And I think that is the key point. And they talked about incentives. I think there are a lot of things that we and others can do to try to improve environmental, labor conditions, other aspects that don't automatically move to stopping trade.
And here I go to your question, Congressman, in terms of are we focusing primarily on business economic interests or a series of other things. One of the challenges if you start to add too many of these other topics, you were talking about sort of the freedom or democracy issue, is that if you start to add some of these other topics people are going to say, well, what are you going to trade form them and how is it going to interfere. So we have to be careful on how that cuts.
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But just to give you a good example of how these can be supportive, is that we and the prior administration have both pushed of fish subsidies globally. Because that is something that is a real problem in terms of environmental concerns. But also leads to better policies in terms of agriculture. It is one of the reasons we have gone after some of the policies in terms of the EU in terms of their, frankly, over growing with their subsidies. There was a question here about softwood lumber that Secretary Evans has been working on. A number of the environmental groups are concerned about the cutting patterns in Canada because of their whole stompage practices.
So I do believe there are a number of win-win interactions here. And, frankly, what we need your help on is kind of broaden the terms of this so that it isn't automatically seen as, if they don't do what we want in environment and labor, we are going to cut off trade.
Because I will tell you, having been in a number of these countries and having the full face of this again last week, that is a killer. We are not going to be successful with that. We have got to figure out some ways to do a win-win solution.
Mr. DOOLEY. Thank you.
The CHAIRMAN. Mr. Rehberg.
Mr. REHBERG. Thank you, Mr. Chairman. And thank you all for being here as well. I appreciate that.
Mr. Zoellick, I heard you mention on a number of occasions reality. And I appreciate that recognition. I am struck by oftentimes you will here from a statistician that if your head is in the oven and your feet are in the refrigerator, on average you feel pretty good.
The reality of it is, let us use Montana as an example. Over the years within my own industry I am told that the impact of Canadian import on average is about 2 percent influence on our markets. The problem is on Montana it is 10 to 15 percent. The reality is, our pocketbook, our inability of our producers to withstand that kind of a hit in an industry where your margin is so slim. In the cases that we know where cheating occurs or that there are imbalances, have you spent much time thinking of some realistic penalties that will go back to the pockets of the producers that are losing. And by of example, I am always intrigued by a labor strike. Because for the greater good of the cause, the employees go out on strike.
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But it seems like they never get a pay raise in proportion to the cost of the strike. And so the trade, the imbalances that exist and the unfairness and the financial cost to the producer, the penalties never seem to go back in proportion to the person that lost. And so I don't, as a Congressman, perhaps look at the greater good of the Nation and its trade position worldwide. I have to look at my individual district, which happens to be the State of Montana. And the individuals who are losing money in trying to figure out not to exacerbate their already unstable financial position.
Have you thought beyond just wanting the esoteric international trade to the point of trying to figure out how to help those individuals that are being financially impacted?
Mr. ZOELLICK. Congressman, one of the challenging things about this job is it gets down really focused on individual problems and in sectors. So, I mean, as I mentioned when I talked with Mr. Stenholm early on about methyl bromide, we are trying to move a solution on that.
You talked—and I know this is one issue of concern in Montana. And particularly, others have mentioned it, the softwood lumber issue, that the Commerce Department is worried about. As you know, we have supported the anti-dumping, countervailing duty actions, which would go to the heart of trying to stop those practices and put additional penalties on those practices.
Now as you may also know, there is an amendment that Senator Byrd passed last year that would have some of the revenues for those practices go back to the parties that were hurt. It is a controversial issue because as you think about it, as you try to figure out how those revenues get distributed, it starts to become an administrative issue. It is the law of the land, as I told the Senator. And so it is on our books for those who would try to pursue it.
But more specifically, I think you are exactly right. And what we are trying to do is find each of these problems and try to work on them. Whether it be the issue of potatoes or softwood lumber. Or in the case of wheat. We have an investigation to the Canadian Wheat Board which is very important for your State given how their pricing practices work. I forgot whether you also I think were in the lamming and sheep. That is an issue where we got a tough issue. And there is put in a 201 action, it is ruled against us. We now have to try to figure out how we are going to try to deal with that industry. We talked about wheat gluten and about how it could come back to corn gluten.
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So a lot of the work of for myself and the 200 people in my office is highly sector-related. And that is actually one of the reasons why it is good to have the three of us together, is that we need to draw on the specialized resources of the Commerce Department and the Agriculture Department, as well, frankly, as people in these industries.
Mr. REHBERG. Thank you.
Mr. EVANS. May I add to that just one comment, Mr. Chairman. Your specific State and I—because he is right. I mean, it really does get down to a specific industry or specific person. Because you are worried about the individuals. And you are worried about, your concern is you should be about the individuals in your own State. Softwood lumber. When we first took that on, I was asking the question, when are we going to have information as to the ongoing import of softwood lumber from Canada. Because the agreement was coming to an end at the end of March. And so they indicated to me, well, we would have information by mid-June. And I said, that is not acceptable. What are we going to do between April 1 and mid-June. So what we did was implement a monitoring system at the border where we get daily information. I get daily information as to softwood lumber activity coming into the United States. The comment was made earlier about, we need to take action and be swift and respond. And so that is what we are doing. I think getting current information as to this particular issue.
Are there other steps we can take? Maybe so. But I do want to make the comment that we are taking whatever steps we can to deal with these issues as quickly and swiftly as we possibly can, including implementing a new style daily record of softwood lumber that is coming into America. And as a result it has given me opportunity to talk to my counterpart up there on a number of occasions, including this morning at 8:30 about this specific issue. Thank you, Congressman.
Mr. REHBERG. And your decision was met with great hardy applause at the log hole in Eureka last week. And I thank you for that. Thank you, Mr. Chairman.
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The CHAIRMAN. Mrs. Clayton.
Mrs. CLAYTON. I am also interested in the softwood lumber process and your work and your interest in that because our farmers and producers, forest products is a substantial part of it. And our labor are trading opportunity to Canada certainly is enhanced, if that can be resolved.
It is good to see all three of you again. I was with the members of the Agriculture Committee that went to Quebec and got to interact with you. And to get sense of both the promise and the problems that you perceive. But as we began to look at trading or developing a trade agreement with FTAA, I am struck by the fact that many of our farmers still with the conflict between—not necessarily a conflict, but more of a priority if they are going to have a trade with the WTO. They want to get that right. And they want to make sure that that is being enforced for their benefit before they are more willing to now go into another agreement. I am also struck with we are going to be writing a farm bill very soon. And the last farm bill we wrote we also placed a large emphasis on the importance on trade, as we should.
But in doing that I think there was an over-selling or reliance on how good that was going to be. And the facts are indeed that about one-third of the agriculture acreage goes into trades. But that increase in trade has not necessarily result in increase in income of our farmers. It is has been a kind of dichotomy with an increase of trade in some instances, with a decrease in commodity prices. Therefore, a decrease in the quality and the income for farm families.
In fact, farmers now are having very, very difficult times. Because of the ride to reason, not just because of trade. Some of the price of the dollar, some terms of the economy and the countries we are dealing with, and some from the lack of enforcement of the agreements we already have. Rather it is the anti-dumping or rather it is an issue of a sanitary rules be disobeyed in those areas.
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Now I am not anti-trade. I want to find a way of how we make this promise a reality. And I think it had so much promise, but the promise had not been the result for farmers that is. In terms of my community, again, we have to be parochial in this because we are representatives. That gives us an obligation to care about those people who we represent.
One of the concerns that you have answered already. But let me just ask the question again. Secretary Veneman, you did answer. I gather that you are now studying with the Economic Research Service, in trying to get an assessment what the potential of the FTAA cost would be. Is that right?
Ms. VENEMAN. That is correct. We are in the process of redoing the ERS study that was done in 1998 to obviously update it because it was based on 1992 figures. So we want to make sure that we have estimates that are based on the most up-to-date information that we possibly can.
But as Ambassador Zoellick said, there is a lot of variables when you make these kinds of predictions. And so I think we need to look at the overall numbers and the potential. I think one of the things that we all talked about in our testimony that is important to re-emphasize is that we stand to lose and our farmers stand to lose if free trade is negotiated, continues to be negotiated all around us and we are losing preferential access to markets as a result. And I think we have certainly laid out some of the examples here today. And that it is important that the United States not be left behind when there are130 free trade agreements around the world and we are only party to two of them. That means we don't have this preferential access and our farmers lose out in terms of opportunity.
Mrs. CLAYTON. One of the trade agreements we do have is WTO, which is a very ambitious one and has great promise. And the question is, how we can enforce that and fairly so that both the rules were to both the countries are developing the trade agreement with. But also to our farmers. And those are issues.
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Mr. Chairman, I need to ask if I can submit additional questions since I won't be able to submit all my questions.
The CHAIRMAN. Certainly.
Mrs. CLAYTON. But may I just ask this question. In terms of the WTO, there is a provision that in our sanitary, phytosanitary standards should be based on scientific evidence. You noted that the European countries have insist on the having new biotech standards with that. In fact, what they are doing right now is saying that our grain and our corn, that generically modified or our beef that it is fed with these grains being, are una