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50–383 CC







JUNE 25, 1998

Serial No. 105–58

Printed for the use of the Committee on Agriculture
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ROBERT F. (BOB) SMITH, Oregon, Chairman
    Vice Chairman
RICHARD W. POMBO, California
NICK SMITH, Michigan
FRANK D. LUCAS, Oklahoma
RON LEWIS, Kentucky
ED BRYANT, Tennessee
RAY LaHOOD, Illinois
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ROY BLOUNT, Missouri
JOHN R. THUNE, South Dakota


    Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SAM FARR, California
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VIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
JAY W. JOHNSON, Wisconsin

Professional Staff

PAUL UNGER, Majority Staff Director
DAVID G. DYE, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
VERNIE HUBERT, Minority Counsel

BILL BARRETT, Nebraska, Chairman
    Vice Chairman
FRANK D. LUCAS, Oklahoma
JOHN R. THUNE, South Dakota
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DAVID MINGE, Minnesota
MIKE McINTYRE, North Carolina
BOB ETHERIDGE, North Carolina
JAY W. JOHNSON, Wisconsin


    Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, opening statement
    Minge, Hon. David, a Representative in Congress from the State of Minnesota, opening statement
    Smith, Hon. Robert F. (Bob), a Representative in Congress from the State of Oregon, opening statement
    Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas, opening statement
    Hill, Hon. Rick, a Representative in Congress from the State of Montana
    Schumacher, August Jr., Under Secretary, Farm and Foreign Agricultural Services, U.S. Department of Agriculture
Prepared statement
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House of Representatives,
Subcommittee on General Farm Commodities,
Committee on Agriculture,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:32 a.m., in room 1302, Longworth House Office Building, Hon. Bill Barrett (chairman of the subcommittee) presiding.
    Present: Representatives Combest, Lucas, Chambliss, Moran, Thune, Smith [ex officio], Minge, John, Johnson, Stenholm [ex officio].
    Also present: Representative Pomeroy.
    Staff Present: Mike Neruda, subcommittee staff director; Vernie Hubert, minority counsel/legislative director; Anne Simmons, minority staff consultant; Callista Bisek, assistant clerk; and Colby Marshall.
    Mr. BARRETT. The hearing will now come to order.
    Today members of the General Farm Commodities Subcommittee and other Agriculture Committee members will receive testimony concerning the administration's use of agricultural export programs and other trade policy concerns. As always, we welcome Under Secretary Schumacher to our subcommittee. Mr. Schumacher, it is a pleasure to have you back today and also your colleagues as well.
    Without question, the current stresses of the world economic situation are affecting our United States agriculture. Commodity prices are lower, especially for wheat. Commodity prices are affected by world economic and supply demand conditions. Specifically, the Asian financial crisis and the limitations on exports due to U.S. Government sanctions on 70 countries or so is having an adverse effect certainly on our U.S. agricultural exports. These problems are being compounded by the current administration's lack of a direct, decisive and focused export policy for our agricultural programs. This includes a lack of administration support for fast-track negotiating authority.
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    The USDA maintains a number of export programs intended to meet a variety of U.S. export objectives. The President's budget for fiscal year 1999 proposed that several of these programs be cut. Of these programs, the Export Enhancement Program, GSM Export Credit Guarantees, P.L.–480, Title I and the Foreign Market Development/Cooperative Program are ones that are targeted. These programs represent the majority of our export initiatives.
    Given the situation facing our farmers, it is imperative that the administration should be doing more as opposed to less in the area of exports. It is necessary that the administration be more aggressive in helping farmers develop and maintain markets.
    Congress's intent with the passage of the Freedom to Farm bill was USDA's full utilization of all tools available to enhance sales and discourage unfair competition. In order for the farm bill to be successful, farmers must have a highly aggressive and focused export policy. When President Clinton was trying to get congressional support for WTO implementation legislation, he promised the agricultural members that he would use all agricultural export tools and EEP to the maximum. If there is some disillusionment in the agriculture, both on the Hill and out in the country, I would argue that it is due to the lack of the administration's commitment to use all of our trade tools.
    I do commend Agriculture Secretary Dan Glickman for his formulation of the Commodity Action Plan. Even though I personally do not support all of the points in the Secretary's plan, I do applaud his initiative to pursue trade options for our producers.
    Mr. Under Secretary, I note with interest 4 years ago former Representative Jill Long, a member of this committee at that time by the way; and my colleague from Nebraska, Douglas Bereuter, and a number of the rest of us cosponsored legislation that the administration refused to support at that time urging the administration to do essentially the same thing that the Secretary is now asking authority to do with unused EEP money. The Long-Bereuter legislation would have allowed shifting funds from EEP to other ''green-box'' programs.
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    Because of budget scoring, we would now be sitting on hundreds of millions of more dollars today if the administration had supported this proposal 4 years ago. Regretfully at that time another of our Agriculture Committee alums, Mr. Panetta, who was then head of OMB, told this committee that the Clinton administration would not allow the agricultural industry to bank its GATT-imposed export subsidy reductions into other Federal agricultural programs.
    The Export Enhancement Program, a program which has generally generated more than its share of interest since the 1985 farm bill, is of critical importance to the members of this subcommittee. I felt that the Secretary's points on EEP are tepid at best. I strongly urge the Department to continue to push for wheat flour EEP. It was a great disappointment that the administration's Trade Policy Review Group disapproved the Secretary's efforts to get wheat flour approved for EEP. The Export Enhancement Program is a policy tool that can be very effective for wheat flour.
    Mr. Schumacher, I hope that you report back to the Secretary of this Member's strong continued support for that program.
    This hearing will discuss the administration's use of agricultural export programs. Testifying today will be Congressman Rick Hill and Under Secretary Gus Schumacher, and I do look forward to their possible differing perspectives on agricultural export programs.
    I now yield to the ranking member, Mr. Minge.
    Mr. MINGE. Thank you, Mr. Chairman. I do appreciate your calling this hearing. I think that it is very important that we in the House Agriculture Committee devote our time, energy and resources to examining what it will take to make sure that agriculture continues to receive fair treatment in the American economy.
    I resent and take serious issue with the comments that are critical of the Clinton administration with respect to trade. The Clinton administration has been supporting very aggressively the International Monetary Fund, most-favored nation status for China, fast track, NAFTA, GATT and a variety of other trade initiatives. I think that it is unfair and it is at variance with the record to criticize the Clinton administration in this respect. We have found that a majority of the members of this committee apparently were against fast track. How can we as a committee criticize the administration on this unless we are more forthcoming about our own positions?
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    There is a discharge petition that is being filed today and all Members will have an opportunity to signal their supported for the International Monetary Fund if they so wish. This is a top priority for American agriculture, and I urge all of my colleagues after this hearing is concluded to go over to the House floor and sign that discharge petition. We should show our commitment to supporting international trade.
    I am also disappointed that this committee has not held a single hearing on the state of American agriculture and the performance of agriculture under the 1996 farm legislation. We have had 51 committee and subcommittee hearings in this Congress, and nary a one has examined what has happened to American agriculture under the so-called Freedom to Farm legislation.
    I think that a review of the performance of that legislation is long overdue. I know that in the upper Midwest, particularly the Red River Valley area, we have thousands of farmers that are in the process of leaving farming. What is happening to these farmers is something that we should be very keenly concerned about.
    Trade opportunities are important, but that is only a part of the story. Do we have a program that we expect to be administered with a staff that is being savagely cut? We ought to be looking into that. What is happening on the appropriations side? And we certainly cannot accuse the Clinton administration of cutting appropriations for American agriculture. We in Congress control the purse strings. It is we in Congress that determine how much is available to our agencies.
    Similarly, we have not looked at whether or not the transition payments are effective, and I submit that the transition payments have been going largely for the benefit of landownership, not the producers, and the consequence is that we are paying billions upon billions of dollars out for the benefit of landownership when we could be using that money for counter-cyclical farm programs which give farmers the tools that they need to manage risk.
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    I think that it is important that this subcommittee and this committee begin to address these matters, and so even though it is important that we have this trade hearing, I feel that it is far too narrow an agenda and we should start looking at the state of American agriculture and start determining what we as Members of Congress can do to try to respond to the crisis out there in addition to trade. And I submit that there are a range of things that we can do and that although the EEP is one tool that we may have some differences with the administration over, there are many, many others.
    I would note with concern that this Congress has not yet acted on legislation that would roll back any untoward embargo of Pakistan with respect to wheat. We could do that immediately, and I urge that that legislation be reported to the floor so we do it immediately.
    Similarly, I note with concern that this Congress has been considering legislation that would impose further trade sanctions and other circumstances on different parts of the world. Certainly we as Americans wish to stand up for our principles, and we ought to stand up for our principles, but we must recognize that American agriculture suffers when we do so unilaterally and we should not make American agriculture take the pressure for our efforts that are often unsuccessful to try to influence domestic affairs in other countries.
    We need to be more protective of American agriculture and we need to stand up for American agriculture, and I have heard members of this committee severely criticize this administration and past administrations, and then go to the floor and vote for trade restricting legislation. We cannot afford to do this any longer.
    I looked forward to the testimony from our colleague from Montana and to the testimony from the administration.
    Mr. BARRETT. I thank the gentleman for his opening statement and now yield to the chairman of the Agriculture Committee, Mr. Smith of Oregon.
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    The CHAIRMAN. I thank you, Mr. Chairman, and welcome Mr. Schumacher and Mr. Goldthwait, and of course Congressman Hill.
    I suppose before we start shouting at each other with shrill voices, we ought to recognize that we all need to be a part of what everybody understands is a very stressful condition in the country, especially with commodity prices as they are.
    It is a natural tendency to lash out at someone else and blame someone else for the problems that we face in agriculture. But just to correct the record, let me suggest to Mr. Minge that we passed the sanctions program which was attached to the Agriculture Appropriations bill yesterday, and I know that he voted for that bill. So it is on its way.
    That is lifting sanctions for food as a part of the sanctions offered by the Clinton administration on Pakistan and India, and I think that is going to be very important to us in agriculture.
    I have talked with the ranking member of the committee, and I have agreed with him that we should hold a hearing on the general conditions of agriculture in July and I have promised him a hearing. Mr. Minge, I think that was at your request, so that is being done.
    I want to thank you, Mr. Chairman, for holding this hearing. As everyone knows, there has been a great emphasis by this committee on exports and international trade, and of course it is not without notice that 30 percent of U.S. farm cash receipts come from international trade. Therefore, it is critical that we and the administration support our producers in international trade. Now, we need to not only let the administration know of our concerns, and we need to let our colleagues know of our concerns about IMF, about fast track, about now normal relations with China, as we have changed its name rather than most-favored nation, and as well as lifting sanctions for Pakistan and for India.
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    We have some of the lowest trade tariff barriers in the United States of any country in the world, and yet we face huge barriers from other countries to our products. Just to name one that we are all familiar with is a 300 percent tariff on dairy goods, poultry and dairy products going into Canada, a 300 percent tariff barrier which we will try to correct in the 1999 review of the Uruguay Round.
    I want to congratulate the administration on its work to challenge foreign trade practices that violate international agreements and adversely effect U.S. agricultural products and exports. We must not only send a clear message that these types of barriers are unacceptable, but we must seek to eliminate these practices so that U.S. farmers and ranchers can export without restraint.
    It is imperative that we push for removal of agricultural commodities from sanctions, and we are doing that, of course. Our agricultural producers feed the world, but we are being stopped at the door by poor foreign policy choices. We must change those. In 1996 the U.S. Government made a deal with farmers and ranchers of America, we know about that. We returned control of farming and ranching operations to producers in exchange for reduction in direct Government financial support, as well as exchange of the idea that markets are the No. 1 fundamental policy that should be followed and should be the opportunity of the administration and of Government and of the Congress.
    So I want to welcome Mr. Schumacher, whom I have worked with in the past, and congratulate him and USDA on their efforts with regard to GSM credit guarantee programs. We know that they are making a great effort in Southeast Asia, especially in South Korea. We know that there has been success in Mexico with IMF, and without a strong, financially grounded country, we can't use GSM–102 and 103 loans. They don't meet the guaranteed programs, so those two issues go together, IMF and GSM–102 and 103. You can't separate them one without the other.
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    So now it is time to follow through with the promises that we made to the farmers and ranchers of this country. I invite you to a press conference which will be held at 12:30 in HC–5, where Mr. Stenholm and I and the leadership of this Congress and all of you are invited, and I hope you attend. We will stand up and say these are the international trade programs that we believe are necessary for farmers and ranchers in America that ought to be passed today, and I mention them, IMF, lifting sanctions, normal relations with China and fast track, and I hope you attend.
    Thank you, Mr. Chairman.
    Mr. BARRETT. Thank you, Mr. Chairman.
     The Chair now recognizes the ranking member of the Agriculture Committee, Mr. Stenholm, for an opening statement.
    Mr. STENHOLM. Thank you, Mr. Chairman. I have been attending the hearing concerning the implementation of FQPA and the concerns that production agriculture and consumers of this country have with the safety of our food supply.
    We pointed out there that we have the most abundant quantity, the best quality, the safest food supply at the lowest cost to our people of any country in the world. That is a given fact, but we have to make it better and that is what we are about in there. And one of the concerns expressed by Deputy Secretary Rominger was that budget concerns, that many of the needs that we have in implementation of FQPA are not going to be adequately addressed in the appropriation bill now going through the Congress. And the spirit of bipartisanship prevails there, and something that the chairman has already spoken to is that we have to roll up our sleeves and make sure that we give the tools to those that we entrust with the power to make the decision to keep us in the position in which we are.
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    I look forward to joining with the chairman today at noon to emphasize the four legs of an absolutely important part of agricultural policy, and that is the export market, and I will join with the chairman and the administration in looking at the sanctions question to begin recognizing that sanctions in which we withhold food products to various nations for whatever policies we need to accomplish, if they are done unilaterally only end up shooting the American producer, whether farmer or rancher or other producer of commodity, and something that we need to have a third debate about, and we join in a bipartisan way to have this debate, and I think we are going to see some legislative resolution thereof.
    We have an immediate need, and that is IMF. The chairman and I agree on full funding for IMF if we are going to continue to have excellent utilization of the GSM programs, which Mr. Schumacher will talk about, and I commend him and the Secretary highly for their utilization of those programs, to understand that we can't do that without money.
    I like the new term ''normal trade relations'' rather than MFN. Somebody finally came up with something, Mr. Chairman, because most favored nation is hard to sell to anyone concerning China. But normal trading relations again, if we choose to do something in this country unilaterally that our friends and allies do not follow, we do irreparable harm to our own producers.
    And fast track, the fourth leg of the stool, all of these have to happen, but some have to happen before others. But they all have to happen.
    I want to say, Mr. Chairman, publicly thank you for agreeing to hold the hearing, and Mr. Minge was very instrumental in pointing out the need of having a hearing in which the Agriculture Committee would look at the state of agriculture. It is not a pretty picture. We are having some difficult times. Wheat prices are hitting home personally as well as all across this country. We have other concerns that need to be addressed. We have terrific drought in multiple States and disease problems.
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    We have a lot of things that we can talk about, and the proper role of this committee has always been oversight. I very much appreciate the chairman agreeing to this because I think it can be very timely, and perhaps very helpful to working with the administration in coming about with a resolution of some of these problems.
    But trade, Mr. Chairman, and Mr. Barrett, I commend you for this hearing today because we do need to have oversight. We do need to get the best ideas and suggestions. Sometimes we have differences of opinion. That is what our political process is all about, and we have differences of opinion between the cattlemen and the sheepmen and the cotton farmer and the wheat grower, and every once in a while the mesquite tree growers of West Texas and the tree growers of Oregon.
    In that spirit I hope all members of this committee will join with us today because we have got to take our challenges one step at a time, and trade is absolutely critical to us. And just as we have again yesterday some interesting discussions with folks, both sides of the aisle, who happened to disagree with the importance of EEP and MAP, Market Access Programs, we just have got to continue to educate the general public what we are talking about is allowing our producers to compete in a level playing field. If our government does not stand shoulder to shoulder with our producers, we are going to lose, and it is important on these issues that we stand shoulder to shoulder with our producers as a committee in a bipartisan way, and I commend the chairman for his leadership in that endeavor and look forward to rolling up my sleeves and working with him.
    Mr. BARRETT. I thank the gentleman for that statement. I now recognize Mr. Hill, our colleague from Montana.
    Mr. HILL. Thank you, Mr. Chairman. I want to thank you and the ranking member and all of the members of the committee for holding this important hearing and allowing me to testify today on behalf of Montana agriculture. The issue of expanding export opportunities for Montana farming and ranching families is increasingly important as we venture into the next century.
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    As you are aware, Mr. Chairman, wheat, barley and cattle prices are at or near their lowest in years. Agriculture serves as Montana's backbone. It is our largest industry and it is the key to the very fabric of Montana's rural communities. But it continues to be jeopardized by low prices, high costs, lack of cash flow and declining exports. For example, Montana's exports fell for the first time in 1997 by 5 percent. But the biggest issue in Montana is low prices. Every day I hear from farmers on the Hiline of Montana who are very concerned about the impending financial crisis which may to lead to record foreclosures. It is not just the farmers and ranchers and their families who are going to suffer. It is the implement dealers, the small banks, and the local businessmen who also feel the impact of record low grain prices and the potential drought that we are experiencing this summer.
    Farmers have mobilized, asking Congress and the Clinton administration to address their concerns. In fact hundreds of farmers have gathered twice in the Sweetgrass, MT area, which is on the border between Canada and the United States, to gain the attention of the Congress and the administration. It was not just a protest about grain prices, even though those prices are below the cost of production, and it was not just a protest about unfair trade, even though the Canadian Wheat Board is dumping grain into the United States. It was a protest about the administration in Washington and the Federal Government in Ottawa that seemed to turn their backs on producers.
    Just recently, Montana's leading farm organizations, including Montana's Grain Growers, Farmers Union, Farm Bureau, Grain Elevator Association, National Farmers Organization, the northern Plains Resource Council and the Montana Department of Agriculture and others, convened to find consensus on what the Federal Government ought to do to help Montana agriculture.
    This historic meeting yielded many ideas from such a divergent group of interests. With the belief that agriculture in the northern Plains will suffer a serious crisis if something is not done and done soon, they found common solutions with a common cause. With that vision they found many reasonable solutions, both long and short term. One of those solutions that applies to today's purpose is the call for the Clinton administration to pursue aggressive trade policies to benefit Montana agriculture in our rural communities.
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    This call is within the context of what Montana's commodity producers have experienced since the Canadian/United States trade agreement. Every day they see more Canadian grain and cattle coming over the border, and very little of the same products going over to their northern neighbor. The Canadian Wheat Board denies dumping of Canadian grain, yet it still refuses to open its books for inspection by the General Accounting Office. Meanwhile, the Canadian Government is thumbing its nose on our stockgrowers by retaining roadblocks to our livestock that is headed north.
    The Northwest Pilot Project, which once held great promise by promoting more reciprocal cattle trade between Montana and Alberta, has failed because the Canadian Government has come up with more regulations to keep out U.S. cattle. It is little wonder why many Montana rank and file farmers and ranchers remain opposed to fast track trade authority. They fear that the Clinton administration will sell them down the river with yet another agreement which opens our markets and mainly benefits foreign producers.
    Like many in the agriculture community, I believe that expanded exports are one of the keys to our future success. Future trade negotiations such as the next round of WTO must promote agriculture and trade for U.S. producers and correct the deficiencies of past trade agreements. But future trade negotiations are long term solutions. With grain stocks continuing to pile up in Montana's elevators, we need to act. The administration must utilize our existing trade authorities to reduce our grain stocks, which allow prices to move higher.
    The Export Enhancement Program has been vastly underutilized. In 1996, the administration used $5 million for agriculture exports. In 1997, they did not use the program and so far this year the administration has announced its intention to use EEP for 20,000 tons of poultry and 30,000 tons of barley. But as Montana's grain producers have repeatedly stated, with over $150 million of EEP authority, this is simply not good enough, particularly when our export levels and net farm incomes are dropping. I hope the Clinton administration will use other programs such as the Marketing Access Program and the Cooperator Program, export credit guarantees and the Food for Peace initiative to help benefit producers. I understand that it has a Commodity Action Plan, and I hope this translates into action that increases incomes for farmers and ranchers.
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    The Congress and the administration must work together on unilateral sanctions on foreign countries. Too often, food is used as a weapon, but you can never achieve peace on policies which lead to empty stomachs abroad and empty wallets at home.
    The Congressional Research Service estimates that over 70 countries are subject to U.S. sanctions. Sanctions against Cuba, Iran, North Korea and Libya alone cost U.S. producers over $350 million a year. I am not suggesting that we not hold these countries responsible for their actions, but we must closely examine whether sanctions will have their intended purpose. If we continue to lose market share to our competitors, we will make a bad situation even worse.
    I am pleased to say that we are making progress in this area with yesterday's passage of the agriculture appropriations package. Within this bill, language allowing Pakistan and India to continue to buy U.S. grain was adopted and will soon be signed by the President. I understand that it is also in the Senate bill. I am proud to be an original cosponsor of that legislation, and I look forward to addressing this on a larger scale.
    Mr. Chairman, these are complex issues and they certainly deserve a bipartisan solution. All of us share the goal of protecting American agriculture, so we must work together to find common solutions similar to what my constituents are doing in Montana. They deserve nothing less than immediate action and hopefully this hearing will yield such immediate action.
    Thank you for allowing me to testify.
    Mr. BARRETT. We thank you for that statement. Are there questions from the subcommittee for Mr. Hill?
    Mr. MINGE. Mr. Hill, I certainly appreciate your being here this morning. I know that your frustration with our import of Canadian wheat is one that is shared by our colleagues from North Dakota and northwestern Minnesota, and I expect other wheat producing areas. I also appreciate the call for bipartisanship at the end of your statement.
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    I would just like to emphasize that many of the problems with NAFTA that I agree with you plague American agriculture are problems that we ought to recognize have a fairly bipartisan nature as well.
    I arrived here in 1993. The Clinton administration arrived here in 1993, and NAFTA was already negotiated and there was precious little opportunity that we had to renegotiate that without upsetting what we were told was a settled agreement which came from the prior administration of President Bush.
    So I would urge that as we proceed with our consideration of the problems that we face in American agriculture, that we be fair to the current administration, just as we would like to have each other be fair to one another as we proceed to analyze some of these very difficult problems in agriculture.
    I would also like to ask you, you had a very broad group of organizations that met in Montana to discuss the farm problems. Was there anything other than trade that was identified as an appropriate response to the problems that wheat farmers are facing in Montana?
    Mr. HILL. Yes, there was. One of the proposals that they endorsed, and I have a bill that I have submitted to extend the Marketing Assistance Loan Program, for example, to allow people to have more time to market programs, to deal with market conditions.
    They called for revisions in the Crop Insurance Program, which I think need to be made. We have two problems here. We have situations where markets break down and impact prices and we also obviously have weather conditions, and farmers have no ability to deal at least within their own farm or their own operation with those kinds of risks, and I think we need to give them risk management tools or modify our risk management tools to allow them to manage those sorts of risks. We need to make revisions in those areas, and they certainly agree.
    With regard to trade, I am reminded during the fast track debate that I took phone calls from constituents in my State, and I remember one woman who called in and said I want the congressman to vote against fast track because I think the trains are going too fast already.
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    But the sense in Montana is that fast track is a train coming down the track at them. They believe that the past authorities led to trade agreements that when they interlocked with one another worked to their disadvantage.
    You are right, NAFTA was negotiated before the Clinton administration came to office, but keep in mind in agriculture NAFTA did nothing, it just incorporated with Canada the U.S. trade agreement. It really is the interlocking of the GATT agreement and the NAFTA agreement that has created the problems that we have in the northern tier.
    Our inability to deal with dumping of grain, our inability to deal with unfair trading practices that might arise from the Canadian Wheat Board, and the fact that cattle move freely south and are almost impossible to move north, and we have barriers to sheep and cattle and even hogs. There are limits and restrictions on moving of barley. The head of the Barley Association tried to move a truck of barley through Sweetgrass and it had to be approved by the equivalent of the Secretary of Agriculture in Ottawa before that load could go through. There is not reciprocity.
    Mr. MINGE. I would like to return to my question.
     Other things that were recommended by this meeting, and I take it Market Assistance Program, you mean the Marketing Loan Program?
    Mr. HILL. Yes.
    Mr. MINGE. There has been a proposal that many of us have been advancing that the time for the Market Loan Program be extended from 9 months up to 15 months or longer?
    Mr. HILL. That is correct.
    Mr. MINGE. You are urging that on this committee?
    Mr. HILL. I am.
    Mr. MINGE. Crop insurance, I think we have had several proposals to strength crop insurance, and we need to continue to work on that.
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    Was there any discussion of the loan rate?
    Mr. HILL. Yes, there was.
    Mr. MINGE. Was there any recommendation that the loan rate be increased?
    Mr. HILL. Yes.
    Mr. MINGE. What was the level that was recommended?
    Mr. HILL. There was not a specific level recommended. They just recommended that there be an increase. If I could go back to the crop insurance program, one of the problems that we have experienced in Montana, and I know that you are aware of this, is that we don't have a lot of alternative crops, and we have tried to promote diversity. And one of the problems with the crop insurance program which was identified by this group was the fact that if you wanted to plant a crop where there may not be any history in that county, you can't insure at a sufficient level to cover production costs. Because of that people can't get a loan to plant, so we don't have diversification occurring, which is obviously one of the things that we want to have people do. That is another revision that I would urge the committee to examine with regard to the Crop Insurance Program.
    Mr. BARRETT. Thank you.
    Mr. Smith.
    The CHAIRMAN. I understand the concern with NAFTA that you have experienced in Montana, that we experience on every border State practically, and after there was a Republican who ran for President and a Ross Perot who ran for President opposing NAFTA, it is no wonder people are worried about NAFTA and blame the agreement for many of the problems that we have, which are not accurate frankly in many cases.
    But with respect to fast track, and in order to protect you and Mr. Minge and Mr. Stenholm and all of the rest of us, I have asked Ms. Barshefsky and the administration to give us the same kind of opportunity that the Ways and Means Committee has to review any agreement that fast track might encourage, be brought along as the agreement was being formed, and for the Agriculture Committee to be able to see the agreement prior to the time it was penned into final form, giving agriculture for the first time the opportunity to say this is wrong, or giving agriculture the opportunity to say this was not formed in the back room. It was not formed in the middle of the night. We weren't traded out again as we perceived that we have been traded out in the past, and therefore the agriculture members could have the chance to review the program. Now, we have not had a direct answer to that as yet.
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    However, I do believe with your concerns and many of ours, that this would relieve many members' concerns, especially on the Agriculture Committee and in communities around the country that an agreement by this administration with another country would have finally the support of Agriculture before it was finally signed.
    Would you agree with something like that?
    Mr. HILL. Mr. Chairman, let me applaud you first of all for suggesting that. One of the concerns about fast track obviously is the fact that Congress votes up or down on the final product, and there is a sense that the people are not represented in the development of that product. Clearly the proposal that you have made would allow for the representatives of the people in agriculture to be part of that process as it moves forward and to have input into that, and I would applaud you on that and I do believe that would go a long way in ensuring producers that it is important for us—obviously the problem that we have with our trade agreements now are not going to be solved if we don't negotiate new ones or modify the ones that we have. But there is considerable distrust out there in agriculture with regard to the importance that agriculture receives in those negotiations, and that is one way to alleviate the concerns.
    The. CHAIRMAN. I thank the gentleman.
    Mr. BARRETT. I thank you.
    Mr. Stenholm.
    Mr. STENHOLM. Thank you, Mr. Chairman. The last exchange is very, very important because all of us have to change some of our mindsets to solve these problems.
    This is where I am very happy to join the chairman in attempting to educate all of us in agriculture. If we are going to complain about GATT and NAFTA and things that have been negotiated in the last 10 years that have not been helpful to agriculture, the only way we change it is to have fast track authority to send our negotiators back to the table and do that which we want them to do. It is that simple. I wish we could explain that in ways in which more of our producers can understand. I have given about all of the hide that I can give for my country because of NAFTA. When you have the 800-pound gorilla by the name of Ross Perot running and carrying three counties in my district, that tells you what kind of political price I paid for the support of NAFTA, but I still support it, and I think more and more will come to find out that NAFTA, improved upon, is going to be in the best interest of producers in Texas and all over the country.
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    I want to commend the chairman for one other thing that he has done in his tenure, and that is to lead six delegations, either individually or collectively, to all parts of the world attempting to find some answers and let other parliamentarians in other parts of the country know and understand a little bit better the frustrations that producers in America have with some of the policies that they have. And the only way you can do that is to go there and talk to them and receive them when they come here, but yet that gets criticized. In our political campaigns often those who do that get criticized.
    The chairman and I hope that everyone that has gone with him will not be criticized because that is the only way we will get the answers and be able to negotiate, and I commend the chairman for his suggestion that Ms. Barshefsky has indicated considerable interest and support thereof. This is critical. If we are going to get the trust back with some producers, it is up to us on this committee to do it. Stop pointing the fingers at others. Let us say let us draft the legislation. And as far as fast track is concerned, I defy anyone to find any other way to deal with changing that which we do not like that which others are doing, other than to go to the negotiating table.
    One little interesting piece of trivia and irony, I remember it was Chairman Stenholm and Ranking Member Smith on the Livestock, Dairy, and Poultry Subcommittee. It has a nice ring to it when I say it that way, but that is all I can say, and I just enjoy saying that, but when we talk about EEP and DEIP, do you remember all of the problems that we had with butter? We had more butter. Butter was coming out the gazoo. We couldn't deal with it. It was a terrific problem.
    On all of the evening news the night before last, we now have a shortage of butter. And guess what, some of the folks are complaining that it was DEIP that caused the problem; that because we sold that which we had in surplus to people that need it and we used the DEIP, now we are being criticized for doing that. A little education for some folks in there that talk about the market system, and it is one again, Mr. Chairman, which I commend you for holding this hearing and I look forward to a couple of other hearings in July when we can get down to some of the suggestions.
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    Mr. Hill, there is a lot of support for your bill in the Market Access Loan and some of these programs.
    There is a lot of attention focused on [year 2000], and that is a very serious problem. But [year 2000] plus 2 is a problem, too, that we in production agriculture need to look at, and that is what happens after the Freedom to Farm, the transition payments play out. And it is not too early for us to be beginning to dialogue and answer these questions, and that is what the chairman is setting the stages for.
    And the state of agriculture, we know how bad it is, the drought and what have you. It is also important to start taking constructive ideas and some of the suggestions in response to Mr. Minge's questions you gave today, and I look forward to working with you and others regarding a solution thereof.
    Mr. BARRETT. I thank the gentleman from Texas and without any further questions, if there are none——
    Mr. POMEROY. Mr. Chairman, I have a few questions.
    Mr. BARRETT. The Chair recognizes Mr. Pomeroy.
    Mr. POMEROY. First of all, I thank the chairman for inviting me as a non-member of the subcommittee to participate and for being allowed to ask a question. I thank the gentleman for his testimony and share his great anxiety about what is happening in production agriculture in the northern Plains. We are in a world of hurt, and when you see trade tools not being utilized to their fullest, it is a great concern.
    On the other hand, looking at the totality of the—I think it is important not to look for strawmen to blame all of the problems on, but to look at what we have to do to help production agriculture. I think the lessons being learned in Montana and North Dakota are important to the entire country because other areas are going to get hit with what we are sooner or later. We were the first to go into the tank with difficulty in production and prices that don't cover production costs. We really need to assess the full structural farm programs. Trade, absolutely and everything else besides, including marketing loans and how these transition payments are working in light of the challenges farmers face when everything goes wrong at once.
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    Mr. Chairman [Smith], I understand that some headway has been made on this matter for a hearing in July.
    The CHAIRMAN. That is correct.
    Mr. POMEROY. I appreciate you moving forward to have that hearing, and I want to approach it not in terms of some blame game of which party you can blame the tough times in the northern Plains on, but a bipartisan, clear-eyed look at whether or not we have left enough of a safety net to keep family farmers on the farm when all hell breaks loose, which is what the situation is facing Mr. Hill's constituents and mine.
    In that context the only question that I have for you is relative to this export enhancement issue. I wish that there was more aggressive use of the Export Enhancement Program.
    I do recognize that there is some risk that might precipitate a trade war and our treasury for agricultural export support is going to be outmatched by the greater sums particularly Europe is prepared to spend on their exports.
    To what extent do you think the Export Enhancement Program can get ourselves out of the situation that we are in with prices being so woefully inadequate?
    Mr. HILL. The amount of dollars involved in the Export Enhancement Program are small relative to the trade in gain. The ability to have dramatic impact is probably small. Certainly at the end of the year if those dollars are rolled into one of the other export programs to allow us to use it in some fashion that did not necessarily undermine price, I think that would be one alternative.
    I would just comment, this whole matter about who is to blame, markets go up and markets go down, and part of it is the fact that we are dealing with that.
    I do want to point out and, Mr. Pomeroy, you and I were very involved in the fast track debate last fall, and we pressed the administration very hard to do some certain things, and among those was to conduct an audit of the Canadian Grain Board to find out what is really going on there, to find out to what degree are they undermining our markets, competing unfairly and dumping grain. And there are some other matters with regard to reciprocity in livestock at the border that ultimately are involved in what we call the Northwest Pilot Project.
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    The administration made some commitments that they would work in a voluntary nation of origin labeling, at least examine that and see whether that had some value in terms of promoting the franchise value of U.S. produced livestock.
    I would just point out to you that we have seen little performance in any of those areas, and it is very difficult for me, one who wants to support trade, to support giving the administration authority when in our discussions just months ago they made commitments to us on actions that they would take that we have seen little performance on. And that doesn't give my producers in Montana very much confidence that we can trust the administration to give agriculture the prominent consideration it will in future trade agreements.
    So we need to use every tool that we have at this point. EEP is just one of those tools, and I think it will—it could have a positive impact, properly managed and properly used.
    Mr. POMEROY. I agree with the gentleman's statement. I flat out agree with every word that you just said.
    One of the commitments that I received from the administration at the time I came on board in favor of fast track, a position which I hold today independent of any collateral agreements which might have been made, was that there would be an audit of the Canadian Wheat Board, a full audit, interim and final payments. The Canadians have stiffed us on the final payments, and the audit has not been conducted. We cannot stand for that. That is per se demonstration that they are subsidizing their farmers and flooding their wheat south on a subsidized basis, and the government of the United States of America cannot even get an audit performed because they will not let us look at the interim and the final payment.
    Now, I just think it is a national travesty that we have not had the ability, the will to get that done. I also think that it is a travesty that the Canadians are subsidizing their product and their conduct is absolute demonstration of that fact. The USTR made an unequivocal promise in writing and they have yet to deliver, and I am pretty upset about.
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    Mr. BARRETT. We thank you, our colleague from Montana, and we appreciate your testimony.
     We will now go to our second panel headed by the Honorable Gus Schumacher, Under Secretary, Farm and Foreign Agricultural Services at USDA.
     Gus, your statement will be made a part of the record, and I believe you are to be assisted by Mr. Chris Goldthwait, who is General Sales Manager, and Randy Weber, Associate Administrator for the Farm Service Agency.
    Mr. SCHUMACHER. Thank you very much. Before I start, I would like to acknowledge Randy Weber. Randy Weber started working for the old ASCS in 1960, and he has worked for us for 38 years. He started in Decatur, KS and he is retiring July 3. This is his last hearing and his last week. He has dedicated his life to serving American family farmers. He has counseled many Under Secretaries and many Secretaries in that extraordinary 38 years of service, and I want to commend Randy on an absolutely outstanding job.
    Mr. BARRETT. As I said to you earlier, Randy, anybody from Kansas can't be all bad.
    We, too, wish you well. You have exercised some outstanding leadership on a nonpartisan basis. You have served both administrations over the years. You have been extremely helpful to Members of the House through these many years, and you are going to be missed. We wish you well.
    Mr. Schumacher.
    Mr. SCHUMACHER. Some of the discussion on wheat—Randy is from Kansas and he is an expert on this and will counsel us well during the hearing today.
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    Just a very short statement, Mr. Chairman.
     Just a couple of weeks ago I went with Secretary Glickman up to North Dakota and Minnesota and joined Mr. Pomeroy and many others. Over 1,500 and ranchers turned out, and it was very clear while overall, the overall economy is performing very well, agriculture is under stress and in some States under considerable stress. Yesterday, I was in Minnesota talking to quite a few different groups, including the Farm Credit System, the Federal Reserve which represent the 11 States out there, and I will report some of that during my question and answer period.
    Certainly these declining commodity prices are taking their toll particularly, as Mr. Pomeroy and Mr. Minge know, on the northern Plains. Kansas wheat last week was below $3 a bushel, the first time since 1991. In the northern Plains, farm income has dropped sharply due to 3 straight years of record and near-record wheat production and declining exports. You see the record production on the chart to my right here of, particularly, wheat and coarse grains and soybeans are picking up as well, and repeated years of sustained crop losses due to corn.
    But it goes beyond the northern Plains. If you look at the total crop acreage, about 325 million acres, two-thirds are corn, beans and wheat. The economists project net cash farm income for wheat growers down 40 percent compared to the last 5 years average.
    On corn and beans, we are looking at a decline of 30 percent compared not just to the big prices of 1996, but looking back 5, 6, 7 years, and I have some documentation that I obtained yesterday, Mr. Chairman and Mr. Minge, from the Farm Credit System which indicates, and I will share that when I have some time to make some copies, that corn, wheat and beans, it is not attractive coming up for 1998. It is going to be very difficult not just in the northern Plains, but as it perks down into heartland America. That could turn on a weather crisis, but right now we are seeing big crops of coarse grains in the European Union. China has some record crops coming up, some very strong crops in Argentina and Brazil, and of course our own crops look very strong coming up this year.
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    With the Asian problem continuing to affect us, the yen didn't look great yesterday, we don't see a lot of demand. We heard from Mr. Hill and some of the questions, we do need to strengthen the safety net. Since the 1996 farm bill, the administration has brought to Congress some of the needs for strengthening some of the deficiencies, providing the safety net during low prices, and Secretary Glickman has offered a number of suggestions to do repair work on the farm bill.
    We are using our administrative authority, both internationally and domestically, to the greatest extent practical, and appreciate some of the comments about what Chris and others have done on the international side, and we have asked Congress to provide additional flexibility. However, we need a little more work, and we will come to that in a few minutes.
    We feel that with the farm bill, you and your colleagues in Congress have certainly provided farmers flexibility, and we have heard a lot of positive response to the Farm bill on the production side.
    What we are missing is the marketing flexibility both on the international side and the domestic side, and we will come to that in the discussion.
    I was very pleased to hear yourself, Mr. Chairman, Chairman Smith and Mr. Stenholm talk about the importance of the fast track, the IMF, the normal trade relations with China, and the work that we are doing together to cure that problem with the Arms Export Control Act on sanctions in India and Pakistan. I was particularly pleased to see that get reported out yesterday. We support those four issues, and the President signing the research bill a few days ago emphasized that very much. It is not the policy of this administration to use food as a weapon to influence other nations. It is simply not the policy of this administration.
    Let me just touch briefly, and then I will look forward to questions. We face a triple challenge, as I indicated. Asia export competition due to large world supplies, and of course the stronger U.S. dollar, Canada and Australia have much weaker currencies. Nevertheless, our exports we anticipate, and knock on this good wooden table, to be about $55 billion this year, and part of this is our Western Hemisphere, and particularly Mexico. Mexico and Canada together, NAFTA, which we project to be about $13 billion in exports this year, and what is fascinating about that to us is that Japan is down about $10 billion, and this is certainly a reversal of fortune from 3 or 4 years ago when Japan was our strongest export market. We have really had a major change. Mexico has become very, very strong. Canada has become a little stronger.
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    We seem to be able to work out, by and large, our problems with Mexico. And the result is we have roughly $6 billion in agricultural exports to Mexico. They were here for the BNC. We have a good working relationship with them in agriculture, and particularly heartland products, wheat, corn, sorghum and meats and fruits. We don't seem to be able to work out our problems with Canada. Mr. Pomeroy and Mr. Minge and I have discussed it, and others on the majority side. We simply have been unable to work out with Mexico our problems with potatoes, dairy, the Northwest Pilot Program, the wheat audit and some of the end-use certificates. We have some work to do. We have a lot more work to do with Canada. Part of that I think, as is Mr. Stenholm's view, we must get fast track. With fast track we can begin to put some of these things back on track again.
    Let me just touch briefly on our export strategy, and the hearing is on exports today. We have been very aggressive in using the tools that we have at our disposal. I was very pleased that the President was able to come to the WTO, and what we were basically able to do was turn the May meeting into an agricultural WTO. The Secretary is with the President this week in China, and that is a very important visit and we are actively engaged in the FTAA and APEC. We have used all of the tools that you have given us as aggressively as we can to support our exports. We have talked about GSM. We have been very aggressive. We have nearly doubled GSM, and that has been helpful in Korea. Certainly our colleagues here today from Australia were grouchy about that, and they certainly reflected that, but we are going to stay the course. We think that it is the right tool, and we think with the IMF support we will continue to use those tools. They are GATT legal and they are the right tools at the right time, and we will continue to be aggressive in that area. We have some modifications which we can discuss to the GSM to make it a better tool, and I will ask Chris to touch on that.
    On the MAP, we are pleased that Congress passed the full authorization of $90 million. Why is that important? I saw in Europe last week when I was discussing National Grains Council, and that is the wine issue. This is not a hearing on wine, but I saw that the EU is now going to put $1.5 billion in further subsidies into wine. It is probably GATT legal, but it doesn't send the right signal because the press reported that the reason for the extra subsidies is because of the impact of New World wines, American, Australian, New Zealand, Argentina and Chile, are making on the European consumer. The Europeans happen to like our wines and the New World wine exporters. They are putting in another $1.5 billion in subsidies to protect their wine growers against our competitive, good tasting, fairly priced wine. That is not the way that we need to proceed with our colleagues in Europe.
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    I will be having further discussions not only on export restitutions, and I am going to raise this wine issue again. That does bother me and that does resonate in California and other places, and I am very concerned about that.
    On the DEIP issue, I certainly welcome Mr. Stenholm's comment on that. I have been getting letters criticizing our active use of the DEIP in butter, but that was the right tool to use at the right time, and if we can help our dairy farmers, that is what the programs that you have authorized are to do.
    Finally, let me talk about the issue which has been raised extensively this morning and that is the Export Enhancement Program. It is an important tool in our arsenal and we will certainly use it when conditions warrant. We are prepared to employ export subsidies when needed to protect U.S. producers from unfair trading practices, as Secretary Glickman's targeted reactivation of EEP in barley and poultry indicate.
    Let me take a couple of minutes because it is an important issue for this committee and for Americans farmers. Perhaps no program generates as much debate today as reactivating the EEP to subsidize sales of U.S. wheat. Certainly it was raised with Mr. Pomeroy and his colleagues. We had a number of discussions with Senators. It is very active.
    First, let me say that the elimination of export subsidies is one of the principal U.S. objectives for the next round of the multilateral agricultural trade negotiations, and we are going to work very aggressively toward that end when negotiations begin in 1999.
    Our analysis of global market conditions leads us to believe that the reinstitution of the EEP for wheat at this time would not help farmers where it counts: with higher farm gate prices. Indeed it could lead and there is a debate on this, to some softening in world wheat prices because of the high production in many parts of the world, as our European, Canadian and Australian friends and competitors, use export subsidies or discretionary pricing practices to lower their prices to stay competitive, especially Australia and Canada with the lower exchange rates have a bit of an advantage to stay competitive with the EEP subsidized U.S. wheat price. The decline in world wheat prices could ultimately result from EEP use that would lead to lower world prices and exports of corn and other coarse grains, which we will have likely a very strong crop this year if the weather continues, as apparently is anticipated. We expect wheat EEP to result in only a modest increase in U.S. wheat exports as subsidized U.S. sales largely displace possibly anticipated unsubsidized U.S. sales in targeted markets.
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    There is a debate on this, and we are very welcome to discuss this in detail. Our economists and our analysts feel that this would be the result of EEP, and this is why we have proposed flexibility. We will certainly use EEP, as I indicated in Europe last week, for self defense. No question about that. And the Congress has passed the full authorization of $50 million which will give us that ability for self defense.
    However, one possibility, as you indicated 4 years ago, and we are certainly asking again, is to give us some flexibility to use EEP in different ways, as an export subsidy when conditions warrant, or alternatively for food aid and other export programs. We believe that purchasing wheat and other commodities for food aid would allow us to increase total shipments of wheat overseas where simply awarding EEP bonuses would not.
    Now this is also important as we look at Indonesia, Pakistan, Sri Lanka, North Korea and others. We have historically gone back 50 years to 1954 with Gwynn Garnett's Cooperator Program and P.L.–480, where we have used our surpluses in helping people overseas. Foreign policy is very important right now in Indonesia as they are going through this transition to democracy. We have the difficulties in Pakistan and North Korea. We need to have a little more flexibility. We are pretty tapped out in title I and title II. A little support would help farmers and would help us conduct good farm policy and help us achieve stability internationally.
    So we think that we need it both ways. We will use it for self defense, but we think that we need a little flexibility as well.
    Mr. Chairman, we believe long term opportunity exists for U.S. products overseas. Our export programs continue to be an important tool. We are working as hard as we can to keep those movements overseas. We need a little more flexibility domestically which was discussed a little bit earlier this morning.
    Thank you very much. I am sorry that I went on a little bit longer, but I feel strongly about these issues.
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    [The prepared statement of Mr. Schumacher appears at the conclusion of the hearing.]
    Mr. BARRETT. We thank you for those comments.
    I indicated earlier, Mr. Under Secretary, that I was interested in the Commodity Action Plan as proposed by USDA, and I was especially intrigued talking about EEP with the proposal called EEP Pro as a risk offset. Can you describe it very briefly, what markets and what is the current status?
    Mr. SCHUMACHER. Chris has been working very hard on this, and I am going to ask Chris to explain it in a few sentences.
    Mr. GOLDTHWAIT. This was one of the things we thought represented an imaginative use of the EEP authority that would get us into some new markets where perhaps we do not participate today because in fact in many cases sanitary and final sanitary restrictions make buyers reluctant to take shipments from the U.S. Some of these are phony science, others are legitimate concerns.
    The idea was that we would provide a bonus or I should say a standby bonus that would offset any losses that an exporter might face if indeed a cargo was rejected at the point of destination.
    To be quite frank, our exporters when we began to talk about this idea in some detail with them had some reservations about it, and they thought that it ran a risk of encouraging more phony science, more of the kinds of problems that we had wanted to overcome.
    However, we have been working on some alternative mechanisms that we think will get us to the same place again using our existing authorities. And while we don't have all of the details of that worked out yet, I expect that within the next few weeks we will be able to come back to the committee and tell you exactly how we intend to implement this idea.
    Mr. BARRETT. It is still then in the formula 2 stage, hasn't actually been implemented, but you think it will be?
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    Mr. GOLDTHWAIT. That is correct. Particularly after some meetings that we had earlier this week on the concept, I think we are making good progress.
    Mr. BARRETT. In which markets do you see this being used?
    Mr. GOLDTHWAIT. We see it being used in a variety of markets where there have been, shall we say, reluctance to take U.S. commodities because of SPS issues. Unfortunately, one of the initial markets was India for U.S. wheat where there have been a series of questions about various pests in U.S. wheat.
    Another market where there is some potential is Brazil, where we have overcome some obstacles, like the TCK issue, but there remain some smaller questions about pests.
    We think it could also be used in demonstrating quality of U.S. commodity to buyers, particularly private sector buyers.
    Mr. BARRETT. While on that subject, what is the current status of the EEP initiative in barley? Where are we now?
    Mr. GOLDTHWAIT. The barley has basically been done. It went very quickly. We authorized 30,000 tons and 25,000 tons was used for shipments to Cyprus within about 3 days of us making that initiative operational.
    Mr. BARRETT. Good. I also am very intrigued and interested in using surplus EEP funds for other purposes, and going back to my opening statement, Mr. Under Secretary, share with me a little insight on what happened?
    It seems to me that this is the same proposal that we had 4 years ago in the Long-Bereuter initiative, and what has caused the change of heart? Is that a fair question? What has happened in the 4 years? It looks like we are doing exactly the same thing in this initiative as we attempted 4 years ago, and so what has changed?
    Mr. SCHUMACHER. I started in August 1994 and so I am not quite sure about the Long-Bereuter bill. And of course Jill Long is a distinguished Under Secretary and we work very closely together, and so I will ask her when I get back today.
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    When I came on board, Mr. Moos was very aggressive in working with Chris and defending our interest on EEP. There were a number of meetings every day. Then things changed. We got very tight on wheat and the Europeans started taxing exports. There is no need to use EEP when the Europeans are taxing exports. That is not a good use of American taxpayers' money.
    Coming up to my confirmation last summer, it became very active again when Mr. Goldthwait and I informally discussed that with certain people, and that made my confirmation hearing a very lively confirmation hearing because we felt then it was a sensible approach to give us the flexibility, and in fact right now I wish we had it because we could really work a little harder in getting wheat into foreign markets using P.L.–480. We feel that we could use another million tons internationally on wheat, and that would be a one-for-one moving overseas whereas the EEP, it is comparing the old blunderbuss versus a laser.
    We think that the flexibility would give us a laser approach in getting wheat moved conditionally and moved out of the northern Plains, out of Kansas, out of the wheat areas into where we really need it given the basic so far restraint by the EU. They are using export restitutions.
    I am going over to Europe next week to work with them because they have increasing inventories that we want to monitor very, very carefully and counsel. We should not have them aggressively start exporting. We will watch that carefully.
    Mr. BARRETT. It is an interesting idea and I supported it then and I certainly support it today. I hope that we see something positive.
    Mr. SCHUMACHER. We would like to work very closely with your committees and also in the Senate to see if we can have a little more flexibility on that because I think one of the things that we could do fairly immediately which would assist wheat growers to move our product internationally, and it is very consistent with the WTO commitments.
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    I emphasize again we need it for foreign policy as well. We need to encourage democracy in many of these countries, and one way to do it is to make sure that food prices and food availability is there for people going through a difficult time.
    Mr. BARRETT. Thank you, Gus.
    Mr. Minge.
    Mr. MINGE. Mr. Schumacher, I am very glad that you are here this morning, and Mr. Goldthwait and Mr. Weber.
    I share your interest and the Chair's interest and I believe this committee's interest, the administration's interest in expanding export opportunities.
    One thing that troubles me is that we are still our largest market. That is, the domestic market is by far and away the largest market for American agricultural product, and we are a residual supplier in virtually every country in which we export. They prefer to buy locally. Some countries actually have ratios that they will not exceed. They will not import more than a certain percentage of their foodstuffs, and if they are enjoying a good year in terms of production or if the economies contract, as we are seeing in Southeast Asia, those markets then become very undependable.
    I am concerned about anything that we might be able to do to increase the dependability of those foreign markets so we do not have the spikes and we don't have the precipitous drops in demand that can lead to very dramatic changes in price here domestically and the untoward effects of those prices.
    Rather than asking you to comment on that, I would like to make that as a statement and ask you, you mentioned that you were with the Secretary in North Dakota, I believe, 2 weeks ago. You were in Minnesota yesterday, and as my opening statement indicates, I am very concerned about the state of the farm economy, and I am very concerned that it will not be until sometime next month that we will have our first oversight hearing on the state of the farm economy and the domestic programs.
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    I would like to ask if you have had a chance to discuss with farmers, with lenders, with FSA officials the state of the agricultural economy in the upper Midwest and the northern Plains?
    Mr. SCHUMACHER. Yes. As I said in my statement, I am very concerned. It is not a pretty picture, and I think it is going to be getting worse, Mr. Chairman. Certainly Mr. Pomeroy and I met with over 1,500 farmers and they were very, very concerned in the northern Plains, but that was intensified with a series of meetings with bankers, but these are pretty conservative bankers, Farm Credit System, the Federal Reserve and others, and I will share this with you. In the 11-bank St. Paul region, they are very, very nervous and getting increasingly nervous as they are looking at the creditworthiness of their clients. They think that things will get very tricky indeed come September/October. The caveat was weather. It is always the caveat. Hopefully the drought which has effected Mr. Stenholm's State will get solved with some of the rains coming, but if it gets into the heartland agriculture of Oklahoma and Kansas, that could be very interesting. But right now the corn has pretty wet feet, and a little warmth would help it. They are looking at a little larger corn crop if the normal weather patterns persist.
    They were talking the same discussion this morning, what could be done fairly immediately, things like the flexibility on the Export Enhancement Program for food aid and the marketing loan extensions, some of the credit changes and others. Their analysis shows loan problems picking up in the 11-State area, not just in the high plains but coming down a little deeper, and that is what worries us a lot.
    Mr. MINGE. Let me ask you if the current farm program from 1996 is adequate to deal with the problems that we are seeing here in 1998 for the American agriculture?
    Mr. SCHUMACHER. As I said in my statement, production flexibility is warmly welcomed. We have some issues on crop insurance that we need to fix.
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    But as I said, we need additional flexibility on the marketing side. We have talked extensively this morning about food aid, but we also need some flexibility on extending the marketing loans. There is a problem with railroads. There is going to be big crops and there are going to be problems getting that straightened out.
    For example, the credit restrictions, including the lifetime ban. The disaster assistance for livestock. We have talked about crop insurance. The big one will be uncapping the marketing loan rates. We don't think that is going to have an impact on supply, but the combination of extending the loan rates and uncapping them will give our farmers, plus the flexibility nationally, the flexibility to get through the next 2 or 3 years until Asia turns up again and we get back on track with our export markets.
    Mr. MORAN. Thank you.
    Mr. BARRETT. Mr. Moran.
    Mr. MORAN. Thank you for holding this hearing and, Under Secretary Schumacher, thank you for being here. I have great respect for you and your opinions. I was pleased to read Pro Farmer this morning and see what you had to say yesterday in regard to exports and the future trade situation that we face. I was glad to know that there is positive news perhaps down the road in your opinion.
    Mr. Weber, congratulations on your service and best wishes in your retirement. My only regret is that you are not returning to northwest Kansas but going to Arizona. I would be glad to have you back in your home State, particularly in my district, with advice from time to time.
    I have a number of questions regarding particularly the Export Enhancement Program as it relates to wheat and flour. I am glad to see Mr. Schumacher's prognosis that the future may be brighter than the current state of affairs. My bankers are telling me the difficult times are here. Land values are beginning to come down. Cash flow is an immediate problem, and it seems to me that we keep delaying any kind of potential solution. The idea that you want to change the language for the use of EEP funds has appealed to me, but it seems like sooner rather than later would be better, and we don't have the luxury of waiting when wheat problems are what you have described them, storage is at capacity, rail transportation is a difficult situation, and harvest is occurring in the Midwest.
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    The time for USDA and congressional action is today, not tomorrow, and so I look forward to working with you to speed up the process and find solutions. I think this is a serious situation that we face, and timing is awfully important in light of harvest, transportation and storage.
    I have been reading about the Department's position with regard to EEP, and I understand some of the arguments. I have a concern, for example, when you say that EEP can be used in response to unfair trade practices. It seems to me that kind of thought, although I agree with it, excludes the idea that we are going to respond to continual subsidization. To me this chart that we have talked about which shows the European Community assisting agriculture with $47.7 billion and ours is $5.3 billion, to me that is sufficient reason to claim an unfair trade practice and not to limit the use of the Export Enhancement Program or whatever tool you decide the Export Enhancement Program ought to be.
    We don't have the luxury of saying that EEP isn't perfect and then doing nothing. It is time for us to find how to improve the Export Enhancement Program if that is necessary.
    So my message to USDA would be please consider that unfair trade practice to include that tremendous difference in that bar graph that the European Community has just in general, subsidization of agriculture and their exports.
    We have now appropriated as a result of yesterday's action, and the Senate did so earlier, $550 million, and so Mr. Hill's mention of $150 million this morning, Congress has taken steps to fully fund in a GATT legal way $550 million towards the Export Enhancement Program. So I think we are giving you greater opportunity to use this.
    You indicate in your testimony that elimination of export subsidies is a principal objective. That is a wonderful objective. Do you not think that the Export Enhancement Program has a role to play?
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    I do not understand how we anticipate that the European Community is going to reduce their subsidization if we don't use EEP or a program like that to get their attention. It is great for us to talk about fast track and negotiations, but what is it that causes the European Community to quit doing what they are doing or other countries as well?
    Mr. SCHUMACHER. Certainly the Secretary stepping up to the plate on the barley issue, we have not noticed much more barley coming into the country after that unfortunate incident. That 30,000-ton shipment did cause great pain in the northern Plains. We acted promptly. We acted aggressively, and I think we operated effectively on that.
    We are monitoring the EU very, very carefully. As I said earlier, I am going over again next week and having further discussions with them. They have a big barley crop and a big coarse grain crop, and they are rebuilding inventory. We are watching, for example, on set-asides. The French want to set set-asides at zero. I think it should be 15 percent.
    They cannot continue to distort markets by operating a cap that depends on extorting world markets. We mentioned the wine. The EEP for wheat, the $550 million is resonating in Europe. That gives us a good tool. If they begin to crank up those subsidies in the fall, we are going to say diplomatically, this is not a good idea to crank up their subsidies for wheat and coarse grain. But the $550 million in Europe, as I said yesterday and today, we have a self defense and we will use it if necessary.
    Chris, would you like to expand on that?
    Mr. GOLDTHWAIT. I believe that the action of both houses of Congress in fully funding the $550 million EEP appropriation is extremely important because that does send a signal to the Europeans that we now have funds to back up our exports in the event that we do need them.
    Mr. Fischler, the agricultural commissioner, has said that he does not want to see a subsidy war. I don't think that we do either, and nothing could be more damaging than for us to gather to subsidize to the point where we kept pulling world prices down, down, down. No one wants that, and so I hope that the full funding to which Secretary Schumacher just alluded is going to in effect give us some leverage with the EU to prevent them from departing from the relatively restrained posture with export subsidies that we have seen in the past year or so where even though the actual subsidy levels may have been a little higher than we think were warranted, the quantity of grain that they subsidized into world markets was restrained. So that is what we want to encourage them to continue to do.
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    Mr. MORAN. I made the mistake of talking longer than I was able to listen, and I hope we have a second round of questions. I would like to talk about the procedures. It appears that USDA has somewhat changed their opinion to EEP. I would like to know the interagency discussions. Who is making decisions, who is responsible for a yes or no decision on EEP. And in your testimony, Secretary Schumacher, you talk about EEP for wheat. I would like to know about what happened to EEP for flour.
    Thank you, Mr. Chairman.
    Mr. BARRETT. Hopefully we will have a second round.
    Mr. John.
    Mr. JOHN. Gus, thank you for appearing. Mr. Chairman, thank you very much for holding this hearing.
    I would like to take off and go one step further than my friend from Kansas. Mr. Moran asked about wheat and flour and you may ask why would someone from Louisiana be concerned about that.
    The district that I represent borders the Gulf of Mexico, and I have been in contact with the different ports that dot the Gulf of Mexico and they are very, very concerned about the EEP Program that the bagged wheat flour used to participate in. Over the last 3 years we have lost over $1.5 million metric tons of bagged wheat in exports throughout the world. And what that has done is actually let the EU come in and actually bite into a little bit of that business that we had.
    Specifically, you used the barley situation where you came in with the 30,000 tons, I'm not sure exactly. How would it differ from a wheat EEP Program to get to the same means there? Can you just elaborate on that a little bit?
    Mr. SCHUMACHER. Both Louisiana and Kansas are interested in wheat flour. It is quite interesting, so can I address that?
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    Mr. JOHN. They grow it in his place and we ship it out of my place.
    Mr. SCHUMACHER. The barley was a specific incident of barley turning up with a very, very heavy subsidy and we acted very promptly to that. Frankly, we feel that there is a case to be made for wheat flour. And we have taken that before the Trade Policy Review Group some months ago and last year, and we did not—we were unable to sustain our position.
    As the chairman knows, I have been fairly aggressive on these matters, but I was not able to sustain the Trade Policy Review Group to let us move forward on wheat flour. You are absolutely correct. The European Union has captured larger and larger amounts of the wheat flour market internationally. That has pulled some mills in your State and some warehousemen in your State. It has diminished the economic activity. We still have this under active consideration.
    We are probably going to be taking this up again because it is an important issue, and as these circumstances change internationally on wheat and wheat flour. As I said, we will use it. We have tried to make a good case, and we will continue to press that case in the Trade Policy Review Group and hope to get a favorable answer in the not-too-distant future.
    Mr. JOHN. Thank you for that answer. I have a letter that I signed with my two Senators, Senator Landrieu and Senator Breaux, to my concerns about the effects of wheat flour, and I would like to present that to you.
    [The letter appears at the conclusion of the hearing.]
    Mr. SCHUMACHER. We would appreciate receiving it, and I will take both of your concerns up.
    Mr. JOHN. The Congress just this week put a stamp and underscore and emphasis with the appropriation of those kinds of monies, that they are interested in using them to combat these types of situations, and this is not an everyday occurrence. We don't want to use this recklessly because it is very serious, as Chris talked about with the world prices, but I think there is a time and place for it, and this may warrant it with the situation as serious as it is today. It not only affects producers, but it also comes back and affects the longshoremen and the folks who bag it and put it on the barges and ship it out to wherever it is going.
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    Mr. SCHUMACHER. As I said earlier, we feel the EU has been fairly restrained to the wheat itself, but they have not been so restrained on the wheat flour, and that is causing pain in Kansas and Louisiana.
    Mr. BARRETT. Thank you, Gus.
    Mr. Chambliss.
    Mr. CHAMBLISS. Thank you, Mr. Chairman.
    We grow enough wheat in Georgia to fill maybe one grocery shelf with bread, but we sure want these folks to grow plenty of it because it tastes good.
    Speaking of wheat, I am a little bit concerned about the situation involving the sanctions on Pakistan. I heard a figure this morning that 80 percent of the wheat grown in the northwestern part of the United States is sold to Pakistan, and you know here we are in the middle of a farm crisis all over agriculture country from east to west and north to south, and it is kind of disconcerting to my farmers to read about their colleagues in the northwestern part of country who are growing wheat who are having to face this problem of an unusual weather year, but even though they fight through the weather problem, when they harvest their crop, 80 percent of their market is all of a sudden dried up because of these sanctions.
    I hope that you are being a strong advocate to the lifting of those sanctions and we can get this wheat going to the folks that will buy it, and hopefully it will help their economy from the standpoint of feeding their people so they will be in a better mood and will work harder to get their economy back on track.
    I heard you say and I think I know why you say it, you say it in a different context from what I want to talk about it. You say that it is not the policy of this administration to use food as a tool in negotiation, and that is from a humanitarian perspective, and you might want to rethink that and we might ought to use food as a tool of negotiation.
    The reason that I say that is the crops that we grow in this country, again from coast to coast, are the highest quality of agricultural products grown anywhere in the world, and our products are in demand worldwide, but yet we do such a poor job, in my opinion, in negotiating trade agreements with other countries, that other countries, our trading partners, wind up being the beneficiaries and our farmers are the ones who wind up getting hurt.
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    And here we are in the midst of trying to make a decision on fast track, and yet you go to my farmers and try to explain to them why fast track is a good idea and they know that their toughest competitor is coming out of Mexico with a cheaper product because of chemicals that they can use that we can't use, because of labor issues that are facing us that they don't have to face down there, and there are just any number of other parts of the country that are facing that same dilemma with respect to the trade agreements that we have negotiated.
    So again I hope that as we move forward in the area of expansion of trade, and we have got to do that for the long run, for the health and safety of agricultural products certainly, I hope that we will make a more concentrated effort to benefit our farmers both short term and long term.
    My only question is—I can't have you here testifying without asking you about my peaches going to Mexico, and we have talked about this many times, but I haven't had an opportunity to converse with you lately on it. Has there been any recent movement on that stalemate?
    Mr. SCHUMACHER. Certainly we have a very good relationship with Mexico. It is far better than with Canada agriculturally. We talk the whole peach issue in terms of the APHIS protocol with California, and that seems to be moving along with the protocol. What we need to do is have your growers and Commissioner Ervin work with us on the protocol for Georgia peaches on the discussions we have had in two or three hearings. There has to be some further discussion on the exact disease requirements. There can be protocols worked out. California is a little more advanced than Georgia right now. We have that on track and I will continue to work with you on that issue.
    Mr. BARRETT. Let me shift the focus for a moment to food aid. I would like to talk about wheat some more, but I want to give Mr. Moran a chance also. I have felt that the P.L.–480 program is so very important in expanding our exports all over, and historically I think P.L.–480 was so very important in the transition in Eastern Europe and Russia, et cetera. What is the focus right now of the program?
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    Mr. SCHUMACHER. We were very pleased with the budget that the House passed yesterday on title I, title II and title III, and I want to thank the Congress for that good budget.
    Mr. BARRETT. And that was a little higher?
    Mr. SCHUMACHER. It was a little higher, but I think it is important. There are needs out there. I am going to ask Chris to expand on where we see those being allocated and why we think additional flexibility in certain areas is also very much needed.
    Mr. BARRETT. And I am also interested in knowing under title I how much is unallocated.
    Mr. GOLDTHWAIT. As of the moment we have allocated the full available resources for fiscal year 1998. There are a couple of agreements which have not yet been signed, and there is always a chance some of the funding may need to be reallocated as we get into the last 3 months of the fiscal year.
    With respect to the focus of the program and the needs that are out there, I think the best example of why we need some additional flexibility on food aid funding is what is currently happening in Indonesia. Indonesia was not a food aid recipient in fiscal year 1997. Had not been a food aid recipient for a number of years, had in effect graduated from that situation except for a very small number of direct feeding programs that the AID was running and the World Food Program was running there.
    Suddenly we see there is a large import requirement by Indonesia and they are back in the situation of not—of being at risk, that they cannot fully fund their import needs on a commercial basis, and the food assistance that we have now allocated in fiscal year 1998, about $50 million, and what Japan and a couple of other countries have provided is going to be very helpful, if not critical, to them as they try to turn their economy around and get back on a growth pattern, as they also begin the difficult tasks of democratization.
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    I think that illustrates why we need to have some flexibility in our food aid authorities and why we can't always necessarily anticipate where the next need is going to come from. We have also been very, very fortunate in that over the past 2 or 3 years the crops in Africa have been relatively good. Africa in terms of food security and environmentally is the most vulnerable continent. We need to be able to respond to these unanticipated, if not emergency, critical needs.
    Mr. BARRETT. Do you have any idea how much wheat is being shipped under the P.L.–480 program?
    Mr. GOLDTHWAIT. In fiscal year 1998, I believe the figure is 1.6 million tons.
    Mr. SCHUMACHER. This would make quite a difference particularly if we could move some of the wheat from Oregon and Washington that is being impeded right now until we get the sanctions bill changed. It would be helpful to have that flexibility. They are hurting out there, and we need some help for them.
    Mr. BARRETT. Thank you very much. Mr. Minge?
    Mr. MINGE. Mr. Weber, I suspect that this is your last opportunity to appear before a House committee, and I would like to ask you—first, I would like to thank you for the job that you have done, and others here are very appreciative of that and it has been stated.
    I would like to ask if you see that your agency has had the resources to administer the 1996 farm legislation and if you have any recommendations to this subcommittee, because it is the subcommittee of oversight for the general farm commodity programs, and that is sort of the heart of the old ASCS and still a very important part of the responsibility.
    Mr. WEBER. Thank you, Mr. Minge. I appreciate your comments.
    Certainly Gus has pointed out that we are very concerned about some safety net issues. One of those that we are concerned about is with regard to uncapping the loan rates. We believe that this is one level of safety net that would be very helpful to producers. Simply uncapping the loan rates would increase them. The wheat loan rate would go up by 60 cents. We don't believe that would have a significant market impact, but it would certainly provide producers with marketing flexibility.
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    One of the things that we see happening this year with regard to even the $2.58 per bushel loan that we have in many parts of the United States, especially in soft white wheat and soft red wheat, and in some parts of hard red winter, we have market prices below the loan rate. But what we see happening, there is a concern, by raising the loan rate there is a concern that we would get the grain under loan and it would be isolated from the market and have a negative impact on the market.
    What we are finding is for every three bushels that is going into the program this year, two bushels of the loan deficiency payment is being used. What this allows producers to do is simply to take whatever the loan deficiency payment is for a year and forfeit their right to take the loan, so it leaves the commodity available to the market, but yet the producers are able to reap some benefit when you have low market prices, and we believe this is a very good tool, a very effective tool.
    Mr. MINGE. In a slightly different vein, I have had an opportunity to visit many of the Farm Service Agency offices in the second district of Minnesota, and in talking with the folks in those offices I have discovered that they are putting in long hours. Often they are working overtime and they are not even reporting it. You may find that unsettling, but I would say it is also a mark of the pride that they have and the traditions of their offices.
    I would like to ask if you see any personnel problems or otherwise because of the staffing levels that have been mandated and if you have any recommendations to Congress in this respect, and I am not asking you to go down to OMB and get clearance and I am not asking you to somehow speak out of school, but if you have any advice because we are concerned about the morale and the work of the Farm Service Agency offices at the local level and we support their work.
    Mr. WEBER. I am glad that you brought that up. As you well know, the agency, for over the past 5 years, has been taking some fairly large cuts in employment, and rightfully so. Certain local activity and activity has fallen.
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    However, I think with these cuts, and especially of concern is funding not being allocated for common computer programs that we hoped would be able to help us out in this downsizing effort. Unfortunately, that does not appear to be coming, and as a result, with the pending economic situation we have out there in the country, with more loan activity on commodities as well as credit, it is getting to the point where it is very difficult for our county offices in the field to be able to get the work done and to deliver the service that farmers have become used to getting from FSA and its predecessor agencies.
    Mr. MINGE. Thank you very much.
    Mr. SCHUMACHER. If I can just followup on that.
    Mr. BARRETT. Yes.
    Mr. SCHUMACHER. I am very concerned about that. As the commodity prices decline, the pressure on our offices in the countryside rises. We would not like to have to lay off anybody else. We feel that we need our people there. We need our offices through the difficult transition period. Plus the difficulty of not getting the computer, so we don't have the technology we need and we don't have the staff.
    Carolyn Cooksey is here and has counseled me on our credit programs. We need to service our farmers and make new loans and work with the socially disadvantaged people, plus all of the new activity as we get new farmers coming in for counseling on how to handle the LDPs. We are getting some forfeitures. I am very concerned and share Mr. Minge's concern of how we handle this double whammy of cuts in S&E accounts and the lack of funding for the common computer environment. It is extremely difficult, and I would like to work with you closely to get some of this resolved.
    Mr. BARRETT. Thank you, and I appreciate those comments and I agree, and perhaps it is time that we take another look at downsizing out in the country. There is a lot of pressure out there.
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    Mr. Thune, I believe you missed the first round. The floor is yours.
    Mr. THUNE. Thank you, Mr. Chairman. Mr. Moran was waiting to ask more questions, so I am sorry to interrupt the sequencing.
    President Clinton recently met with the Prime Minister of France and discussed the lack of approval of biotech corn products. And as you know, we have lost $250 million in corn sales to Spain and Portugal due to nonapproval of these types of products. Do you know what was the outcome of last week's meeting on this?
    Mr. SCHUMACHER. My understanding is that this was a very vigorous discussion, and I understand the French Prime Minister came up to Congress, and I don't know whether that was raised with him, but certainly the President did take this up in a vigorous fashion. From what we are hearing, and we have not had confirmation, is that there seems to be some progress on this. We want to see if we cannot get this done very quickly and see if there can be some resolution to this issue.
    On Monday I will give you a call if you would like me to let you know of any further progress.
    But it is very unfortunate that these products which are so beneficial to these American family farmers are being taken up by corn and bean growers and are being approved here and many other countries, but in Europe they still have difficulties in getting the approval process, and particularly France seems to have put a last minute glitch in this that makes all of us very uncomfortable. We need to get this back on track. These products are in great demand here and worldwide, and I feel very passionate about this because Secretary Glickman and I visited SIMIT, which is the corn and wheat research group in Mexico which does such extraordinary work and got Norman Borlaug the Nobel Prize.
    The role of biotechnology in agriculture is critical, not only for our own farmers but for those farmers in developing countries. Norman Borlaug once said if we had to use the technology of the sixties for the farming of the nineties, we would need 3 times the land area here and overseas especially, and that does not conform with our need to do more sustainable farming here and overseas. This is something that I feel very passionate about. It is something that I have worked very, very hard on and I will work harder with your question next Tuesday in Brussels.
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    Mr. THUNE. I am sure that all of the ground has been covered with respect to the Export Enhancement Program so I won't belabor that, but we are interested in what can we do to further enhance our ability to export. In an agricultural economy right now, which in my State is not unlike that in the State of Kansas or Nebraska, which is very much in the doldrums and a lot of producers struggling with prices being what they are and looking for ways in which we can improve prices.
    Just out of curiosity, and I suspect that this is ground that you have covered, and I apologize if it is, but what are you doing in terms of dialogue with the Canadian government?
    Mr. SCHUMACHER. We have had extensive discussions and I will State them for the third time. It is important.
    We seem to be getting on well with Mexico. We are not getting on very well with Canada. We have not made progress on the Northwest Pilot Program, the audit of the Canadian Wheat Board. But it is wider than that. Potatoes, dairy, poultry, access to the grain infrastructure, the end use certificate issue, the audit of the Canadian Wheat Board, some of the vegetable issues with horticulture in Vancouver, access on an equivalent basis on cattle and other livestock, we simply are not making the progress that we need. We need fast track to make some of that progress, but we need to ratchet it up even further.
    I am going to visit Canada and see if we can get some dialogue going on getting the same kind of dialogue we have with Mexico, which is $6 billion in exports. We seem to work it out. I can't seem to work it out with Canada, and we are going to make a much great effort with Ms. Barshefsky and Ambassador Chare and I to push that a little harder. Our trade is up 8 percent even with the low Canadian dollar. But on these critical commodities, we are not making the progress that we need to make.
    Mr. THUNE. That is a source of great frustration to producers as well.
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    I see that my time has expired. I thank you, Mr. Chairman.
    Mr. BARRETT. Mr. John.
    Mr. JOHN. No questions.
    Mr. JOHNSON. No questions.
    Mr. BARRETT. Thank you. Mr. Moran, your day has come.
    Mr. MORAN. I appreciate Mr. John feeling our pain in Kansas in regard to flour, and I would like to know how we can help. Under Secretary Schumacher, you indicate that you are willing to make this case again. You want to fight this issue of EEP on wheat flour, and I would like to know how we can help.
    Part of what I was interested in learning in this hearing that I have not been able to explore is who is making these decisions? You talk about—I call it an interagency group. You talk about the Trade Policy Group. Who are those people? What is their perspective? If wheat flour is a good example, what issues are we having to overcome in order to get this group's consent? And as I understand the law, the Secretary has the authority, but the administration has put this group in place. How does this relate to the Secretary's ability to make a decision? What are the hurdles? Who can we do to help? What case needs to be made, and then I am interested in knowing whether USDA has changed their position with regard to EEP? I have had many conversations with individuals from USDA over the year and a half that I have been here, and it has generally been we agree with you. We have problems with our interagency group in getting approval, and the USDA response has been more the one that you espoused today about concern about lowering the commodity prices on the world market.
    So is there a changing opinion within USDA in regard to EEP; and, second, how does this process work and what do we do to help?
    Mr. SCHUMACHER. On the Trade Policy Review Group, this was set up in 1962 under the Trade Expansion Act when President Kennedy was President. The purpose for that was to coordinate our international economic policy, particularly on trade as an impact trade. They wanted to make sure that what one agency was doing wasn't running counter to another agency, and that was set up and incorporated into the Special Trade Representative's office, and they shared that meeting. It looks at all of our trade policy and not just on agriculture.
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    So when we propose initiatives as we have discussed here, we have to take them before—for example, the barley had to go before them and that was well received and we moved very promptly on that issue because the case was very, very clear on that issue. We made the case on wheat flour several times. I can't discuss who was on each case of the case, but Chris and I made a vibrant and articulate case for wheat flour, and we were not successful.
    As I said to Mr. John, we will continue to make that case. We have lost market share on wheat flour, and that is because of the heavy subsidies by the EU on their value added.
    We have discussed the EEP for wheat. I don't want to take any more time with that to keep going over that issue. The use of EEP for wheat at this time for the three or four reasons that I have articulated would not be the best way of handling it under the current restitutions in the EU. That could change.
    We will certainly be aggressive in self defense, but we feel right now the best way to do it is to take the available money in that and push the flour—sorry, the wheat into international food aid markets.
    I want to add one more additional thing. On the Long-Bereuter bill that was put up, my understanding, Mr. Chairman, the reason that did not go very far was because that would require us to transfer the GATT required savings over and above, and so that would have been very difficult for us to do, whereas the proposal that we were discussing this morning would be taken within the GATT ceilings, and so there is a substantial difference. Certainly I would be pleased to discuss that.
    Mr. GOLDTHWAIT. I think one of the principal differences between how we look at the world flour market and the world wheat market, if we were to use EEP for flour, we believe all of those sales would be additional. It would be 100 percent market gain.
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    In the case of wheat, we think what we would really be doing is pushing the trade around from one place into another place. We think that while we might gain in some markets, we might lose just about as much in other markets because of the reactions of our competitors, and that is one of the big differences that I think is important to note there.
    Mr. MORAN. Mr. Chairman, may I followup?
    Mr. BARRETT. Go ahead.
    Mr. MORAN. Thank you very much.
    Who is on the Trade Policy Group? Who are the members and has the USDA position changed over time in the last year or so in regard to use of EEP for wheat?
    Mr. SCHUMACHER. I think there is something like 13 or 14 members, all of the major—we have quite a chart here. Why don't I give you this chart. There seems to be 16 members: Commerce, Agriculture, State, Justice, Defense, Interior, Transportation, Energy, Human Services, EPA, OMB, Council of Economic Advisors, IDCA, National Security Council and the International Trade Council.
    Mr. MORAN. Enough blame to go around.
    Mr. SCHUMACHER. We have been successful in a number of instances, and I am very pleased about that. We will continue to press on the flour.
    Mr. MORAN. Thank you.
    Mr. GOLDTHWAIT. I think that our view of the use of the Export Enhancement Program for wheat is one that does shift with our analysis of the world market conditions at a particular moment in time. Again our read of the situation today, when the quantity of subsidized grain that the EU is putting into the world market is down from what it was in past years, suggests to us that the risk of pulling down world prices is greater today than maybe it was 2, 3 years ago, let's say 3 years ago when we were back in the period most recently using EEP for bulk grains.
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    One of the factors that is important is that under the current domestic farm legislation, our prices are less insulated from world prices than they were before, and so if you do pull world prices down by putting more subsidized grain into world markets, that has a backlash effect on our domestic market prices that is faster and larger than it used to be.
    So these are the kinds of things that we look at. Now, as Secretary Schumacher said, we can envision conditions where we might again have to use the program in self defense, and that is why we still need it as a tool.
    Mr. MORAN. Mr. Goldthwait, is it safe to assume that although you have asked for wheat flour EEP, you have not asked this interagency group for wheat EEP?
    Mr. GOLDTHWAIT. That is correct.
    Mr. MORAN. Thank you. Thank you, Mr. Chairman.
    Mr. BARRETT. Mr. Johnson.
    Mr. JOHNSON. First of all, I want to commend the USDA for the DEIP program authorizing the additional 30,000 tons under the program, and yesterday of course we in Congress approved the Market Access Program again. But I am wondering since both of you have traveled around the world, how does the rest of the world look at us now when we are continuing to have this internal squabble over our antique milk pricing policy that in effect is pitting region against region so we are creating our own internal trade barriers inside this country, and we are in turn asking other countries to reduce or eliminate their real or artificial trade barriers. When they look at this, what is the effect that you hear from the rest of the world?
    Mr. SCHUMACHER. We have not had many comments as I have traveled around. There is some grouchiness about the DEIP from Australia and New Zealand and to a lesser extent Europe. But I have not heard much discussion on—our discussions internally between different regions. They are mainly fussing at us about using the DEIP to the maximum extent possible, and frankly we think that was the right thing to do. We were aggressive, and I think it had the right impact.
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    Now there are people writing saying give us authority to import butter. I don't think that is a very good idea. The market will work itself out, but we used the right tool at the right time and for the right program and it worked.
    Mr. JOHNSON. But the internal squabbling in this country between States doesn't help us in terms of marketing overseas, does it?
    Mr. SCHUMACHER. I have not heard much concern when I have traveled around the world. Mr. Smith was in New Zealand and Australia. I don't know whether he picked up any discussions on that. In my day-to-day discussions here and internationally, I have not heard many comments. They are mainly concerned about how we are going to use the DEIP and how that affects markets.
    Mr. JOHNSON. Thank you, Under Secretary Schumacher.
    Thank you, Mr. Chairman.
    Mr. BARRETT. Mr. Moran, would you care to proceed into your sixth round?
    Mr. MORAN. Based upon the way that you have asked that question, and having been married for 14 years, I know the answer you would like, and so I would decline to do so. Thank you.
    Mr. BARRETT. I thank the gentleman very much.
    Mr. SCHUMACHER. I would be very pleased to visit with Mr. Moran and have further discussions. We know Kansas very well, and I have great respect for Mr. Moran, and I would like to come up and visit.
    Mr. MORAN. Mr. Under Secretary, you have made the offer to come to Kansas, and I would love to explore that with you.
    Mr. SCHUMACHER. Decatur County. Let's do that in July when we get the harvest over.
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    Mr. MORAN. That is the best tine.
    Mr. BARRETT. On behalf of Mr. Minge and other members of the subcommittee, we are grateful to you folks for accommodating us. It is a pleasure to welcome you back any time.
    Mr. Weber, best wishes.
    Mr. WEBER. Thank you.
    Mr. BARRETT. Under Secretary Schumacher, come back and see us.
    Mr. SCHUMACHER. Thank you. We are going to work very, very hard with you and Mr. Minge and others on the committee to see if we can't get some things changed and improved.
    Mr. BARRETT. The Chair will seek unanimous consent to allow the record of today's hearing to remain open for 10 days to receive additional material and supplementary written responses from any witness to any question posed by a member of the panel.
     Without objection it is so ordered.
    This hearing is adjourned.
    [Whereupon, at 12:37 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
    [Material submitted for inclusion in the record follows:]
Statement of August Schumacher, Jr.
    Mr. Chairman, members of the subcommittee, thank you for the opportunity to appear before you today to review the administration's use of agricultural export programs and the status of our actions to respond to problems in the agricultural sector.
    Just 2 weeks ago, I accompanied Secretary Glickman on a trip to North Dakota and Minnesota, where we met with more than 1,500 farmers and ranchers. During that trip it became clear that while overall, the U.S. economy is performing extremely well, sectors of agriculture are under stress, and in some states, considerable stress.
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    Declining commodity prices are taking their toll on farmers, particularly farmers in the northern Plains, where wheat accounts for roughly 45 percent of the value of all agricultural production. Last week, the Kansas City market for wheat dropped below $3 per bushel for the first time since 1991. Farm income in the northern Plains has fallen sharply due to declining exports, three straight years of record and near-record world wheat production, and repeated years of sustained crop losses.
    Since the signing of the 1996 farm bill, the administration has brought to Congress' attention the legislation's deficiencies in providing a safety net during times of low prices, and we have offered a number of suggestions to fix them. A number of these proposals were included in the President's budget, in addition the Secretary's Commodity Action Plan outlines some of the administrative actions we are taking. We are developing additional proposals as well that we hope to discuss with the committee in the near future.
    One key area where we are focusing our efforts is exports. The U.S. Department of Agriculture currently estimates fiscal year 1998 exports at $55 billion—$2.3 billion lower than 1997 sales and $4.8 billion below the 1996 record.
    However, there are some bright spots in the export picture. We are seeing strong gains in exports to our North American Free Trade Agreement partners, Mexico and Canada, up 19 percent and 8 percent, respectively, over 1997. We also expect increases to South and Central America and the Caribbean—our exports to Latin America are up nearly 18 percent over 1997. However, these success have not been enough to overcome the decline in exports to Asia.
    There is an important lesson in the current difficulties we face: Trade can take farm incomes and U.S. agriculture to new heights. But trade is not always predictable. This year our producers face a triple challenge: weak demand in Asia, increased export competition due to large world supplies, and a strong U.S. dollar. Our once strong, vibrant markets in Asia have turned sluggish due to the financial crisis affecting the region. Major competitors around the world have produced bumper crops. Our strong currency is making our products less price-competitive in overseas markets, particularly in many Asian markets where currency has devalued. Competitor currencies have also fallen, especially those of Australia and Canada.
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    Over the years, Congress has given USDA a number of program tools and we are using them as aggressively as we can to support U.S. agricultural exports to Asia and around the world. I would like to bring the Committee up-to-date about the steps USDA has taken to support agricultural exports.
    In response to the Asia crisis, we made available $2.4 billion in export credit guarantees in fiscal year 1998 to countries in Asia. U.S. exporters have registered sales of over $1.1 billion in that region. We could not have gone forward with our export credit guarantee programs for exports to these important markets without the work of the International Monetary Fund. The quick action of the IMF in negotiating stabilization packages in several Asian markets gave us the assurance that the credits by U.S. banks that we were guaranteeing would be repaid when they fall due. It is crucial that we support the efforts of the IMF and we urge Congress to approve the full IMF funding request.
    Overall, we have announced export credit guarantees of nearly $5.8 billion for fiscal year 1998, up from $3.9 billion at this time a year ago. This includes several new allocations or increases, now operational, that were anticipated in the Commodity Action Plan. Through June 15, U.S. exporters registered sales valued at $2.9 billion, more than in all of fiscal year 1997. Using these credits, exporters have registered sales of 3.2 million tons of wheat and flour, 4.0 million tons of feed grains, 3.2 million tons of vegetable oil, 1.7 million tons of soybeans, and nearly 1.6 million bales of cotton so far in fiscal year 1998.
    Our export credit guarantee program has proven to be the right tool at the right time. These programs have allowed U.S. exports to continue to move to the troubled Asian markets and have supported exports to other markets as well. The GSM authority allows us to extend additional credit to creditworthy banks, and we continue to review our export credit programs to develop ways to increase program usage. One idea we are considering is to use GSM–102 to match the so called national account credit guarantee windows of our competitors, under which they sometimes cover 100 percent of the face value of a transaction.
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    We also are looking into possible changes in the Suppliers Credit Guarantee Program to make it a more effective marketing tool. We just completed a survey of U.S. exporters, foreign buyers, and our overseas agricultural attaches for their suggestions. We are looking at program modifications now, including possibly increasing the portion of the transaction that is covered by guarantees.
    Obviously of great concern to U.S. farmers is the loss of the availability of our export credit guarantee programs to support exports to India and Pakistan as a result of the sanctions provisions of the Arms Export Control Act. Legislation now before Congress would exempt our export credit guarantee programs from those sanctions. President Clinton supports this legislation, which would further separate agricultural trade from America's non-proliferation efforts. Pakistan, in particular, is an important market for U.S. agriculture—our third largest market for wheat and our top market for white wheat.
    More generally, the Clinton Administration supports the goals of sanctions reform legislation to encourage due deliberation in sanctions policy-making, taking into account all U.S. commercial interests and other considerations. We support the intent of legislation such as H.R. 3654 that recognizes the particular vulnerability of agricultural commodities trade when sanctions are imposed, and we believe that it is inappropriate to single out agricultural commodities as the subject of an embargo. It is the policy of this administration not to use food as a weapon to influence other nations.
    We are always looking for opportunities to expand U.S. agricultural exports to new markets. On June 3, President Clinton signed a determination to continue to waive the Jackson-Vanik for Vietnam. Continuing of the Jackson-Vanik waiver allows credit guarantees to be available with respect to export sales to Vietnam and we would consider making available assistance under title I of P.L. 480.
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    EEP remains an important tool in our arsenal, and we will use it when conditions warrant. We reserve the right-as do all countries-to self-defense. In fact, it is our duty to protect our producers and exporters from unfair trade conditions. We are prepared to employ export subsidies when needed to protect U.S. producers from unfair trading practices-as Secretary Glickman's limited re-activation of the EEP for poultry and barley demonstrates. On May 22 USDA reactivated the EEP to announce a 20,210-ton allocation of frozen poultry to six countries in the Middle East (Egypt, Lebanon, Jordan, Oman, United Arab Emirates, Yemen). This initiative will partially compensate our poultry industry for markets they have lost in Europe because of our continued lack of agreement on veterinary equivalency for poultry products. To date, no sales have been made under this initiative. And on May 27 we announced an EEP initiative for 30,000 tons of barley to Algeria, Cyprus, and Norway. This use of the EEP was in response to the European Union's sale of heavily subsidized barley into the United States. To date, 25,000 tons of U.S. barley have been sold under this initiative. In both these instances, EEP is being used in a measured, targeted way to address unfair trade practices.
    Perhaps no program generates as much debate today as reactivating the EEP to subsidize sales of U.S. wheat. First, let me say that the elimination of export subsidies is one of the principal U.S. objectives for the next round of multilateral agricultural trade negotiations, and we will work toward that end when negotiations begin next year.
    But let me address the issue more directly. Our analysis of global market conditions leads us to believe that the reinstitution of the EEP for wheat at this time would not help U.S. farmers where it counts—with higher farmgate prices. Instead, it could lead to a number of outcomes that are only marginally helpful or even detrimental to American farmers.
    First, it could lead to a further softening of world wheat prices as our European, Canadian, and Australian competitors use export subsidies or discretionary pricing practices to lower their prices to stay competitive with the subsidized U.S. price. Because the European Union has a policy of disposing of its surplus production on the world market with subsidies, and the Canadian and Australian Wheat Boards have mandates to market all of the grain that their farmers deliver by way of their single-desk selling systems, all three of these competitors have the ability and incentive to lower their export prices to whatever level is necessary to meet these mandates.
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    Second, our analysis projects that a full scale EEP for wheat would lead to only a relatively slight, temporary increase in average domestic wheat prices. Moreover, the decline in world feed wheat prices ultimately resulting from EEP would lead to lower world prices and exports of U.S. corn and other feed grains.
    Third, we would expect a wheat EEP to result in only a modest increase in total U.S. wheat exports as subsidized U.S. sales largely displace anticipated unsubsidized U.S. sales in targeted markets. We estimate that an EEP initiative subsidizing the export of about 18 million metric tons, our WTO subsidized quantity limit in 1997–98, would lead to a little over one million tons in new sales. That is to say, we would have to subsidize a very large portion of our total exports in order to achieve only modest additionality.
    Fourth, the lowering of world prices will make the U.S. market even more attractive to imports from Canada. Finally, we could expect a net loss in foreign exchange earnings as a result of the lower world prices.
    In short, the small gains to be made in domestic prices and U.S. exports would be largely offset by the effect EEP would have on the world market price and U.S. import levels. EEP would do little to address the underlying cause of current low grain prices. Today's low prices are primarily a result of abundant exportable supplies and weak demand in importing countries. Expanding production has intensified competition among exporters for a world market largely devoid of import demand from China and the former Soviet Union.
We are exploring other ways to use EEP funds for purposes other than strictly buying down the price of the commodity in question. We intend to propose legislation that would allow unused EEP funds to be redirected and spent on food aid at the end of each fiscal year. This would be an adjunct to the budget proposal for the authority to carry forward EEP balances into future fiscal years. Earlier, we had proposed using EEP as a risk offset. This alternative presents practical implementation challenges that must be addressed. We continue to work on these challenges and to look for other ways to use EEP in a manner that would minimize its disruption of world markets.
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    Another important tool we have is the DEIP, which we continue to use to the fullest extent authorized by law. USDA has authorized sales of nearly 30,000 additional tons under the DEIP to account for tonnage awards that were previously reported to the World Trade Organization (WTO) but never actually exported. Under this 30,000 ton reallocation, over 4,087 tons of nonfat dry milk sales have been awarded. Total 1997–98 DEIP sales include nearly 119,000 metric tons of nonfat dry milk, whole milk powder, cheese, and butter fat—up from about 75,000 tons at this time last year.
    Other important tools are our market development programs. On June 11, USDA announced its 1998 allocations of the full $90 million appropriated for MAP to 64 U.S. trade organizations for export promotion activities in international markets. Last September, USDA announced the 1998 program level of $33.5 million to 27 U.S. trade organizations for export promotion activities under the FMD Program.
PUBLIC LAW 480 (P.L. 480)
    Let me also mention our food aid programs. USDA is making full use of the money appropriated by Congress for Public Law 480 Title I funding to ship about 1.5 million metric tons of wheat and other commodities in fiscal year 1998. We also are considering ways to increase the use of commodity sales proceeds for market development in promising markets. We are working with the U.S. Agency for International Development (USAID) to ensure that the non-governmental organizations that participate in Titles II and III of P.L. 480 are aware of our current wheat situation.
    One of our most important trade policy efforts is the passage of fast track legislation. As the President has consistently stated, fast track is an important trade policy tool and the administration is committed to securing fast track authority. We intend to continue to work with the Congress on a bipartisan basis to build the necessary consensus to assure passage. At the same time, we are going to move ahead with a comprehensive trade agenda that seeks new opportunities for U.S. agriculture around the world. On March 18, Secretary Glickman testified to the Committee about our preparations for the next round of multilateral agricultural trade negotiations. In addition to the reduction or elimination of export subsidies that I mentioned earlier, we will be pushing for strong disciplines on state-trading enterprises (STE's), such as the Canadian and Australian Wheat Boards. In our view, STE's need to be put at risk in the marketplace by eliminating their import and export monopolies or by imposing other meaningful disciplines.
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    We also continue our efforts to resolve bilateral trade issues. After several years of effort, USDA succeeded this spring in removing TCK as a barrier to U.S. wheat exports to Brazil. We are now working closely with Brazilian plant protection officials to demonstrate that the three remaining diseases of concern to Brazilian authorities do not present a risk to that country's wheat production. Just three weeks ago, a team of Brazilian experts visited Washington and Kansas to review technical evidence that should enable Brazil to lift its ban on U.S. wheat.
    Mr. Chairman, despite the downturn in exports this year, we continue to believe that opportunity exists for U.S. agricultural products. Our export programs continue to be an important tool to help American farmers compete in global markets and we are using the full range of our authorities to help American family farmers during these difficult times.