SPEAKERS CONTENTS INSERTS
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CURRENT AGRICULTURAL TRADE ISSUES WITH CANADA
GENERAL FARM COMMODITIES
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
OCTOBER 8, 1998
Serial No. 10566
Printed for the use of the Committee on Agriculture
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COMMITTEE ON AGRICULTURE
ROBERT F. (BOB) SMITH, Oregon, Chairman
LARRY COMBEST, Texas,
BILL BARRETT, Nebraska
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, California
BOB GOODLATTE, Virginia
RICHARD W. POMBO, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
RON LEWIS, Kentucky
HELEN CHENOWETH, Idaho
JOHN N. HOSTETTLER, Indiana
ED BRYANT, Tennessee
MARK FOLEY, Florida
SAXBY CHAMBLISS, Georgia
RAY LaHOOD, Illinois
JO ANN EMERSON, Missouri
JERRY MORAN, Kansas
Page 3 PREV PAGE TOP OF DOCROY BLOUNT, Missouri
CHARLES W. (CHIP) PICKERING, Mississippi
BOB SCHAFFER, Colorado
JOHN R. THUNE, South Dakota
WILLIAM L. JENKINS, Tennessee
JOHN COOKSEY, Louisiana
CHARLES W. STENHOLM, Texas,
Ranking Minority Member
GEORGE E. BROWN, Jr., California
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
SCOTTY BAESLER, Kentucky
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
SAM FARR, California
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
Page 4 PREV PAGE TOP OF DOCVIRGIL H. GOODE, Jr., Virginia
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
JAY W. JOHNSON, Wisconsin
LEONARD L. BOSWELL, Iowa
PAUL UNGER, Majority Staff Director
GREG ZERZAN, Chief Counsel
STEPHEN HATERIUS, Minority Staff Director
VERNIE HUBERT, Minority Counsel
SUBCOMMITTEE ON GENERAL FARM COMMODITIES
BILL BARRETT, Nebraska, Chairman
LARRY COMBEST, Texas
JOHN A. BOEHNER, Ohio
FRANK D. LUCAS, Oklahoma
SAXBY CHAMBLISS, Georgia
JO ANN EMERSON, Missouri
JERRY MORAN, Kansas
JOHN R. THUNE, South Dakota
Page 5 PREV PAGE TOP OF DOCJOHN COOKSEY, Louisiana
DAVID MINGE, Minnesota
BENNIE G. THOMPSON, Mississippi
MIKE McINTYRE, North Carolina
DEBBIE STABENOW, Michigan
BOB ETHERIDGE, North Carolina
CHRISTOPHER JOHN, Louisiana
JAY W. JOHNSON, Wisconsin
C O N T E N T S
Baldacci, Hon. John Elias, a Representative in Congress from the State of Maine, prepared statement
Barrett, Hon. Bill, a Representative in Congress from the State of Nebraska, opening statement
Johnson, Hon. Jay W., a Representative in Congress from the State of Wisconsin, opening statement
Minge, Hon. David, a Representative in Congress from the State of Minnesota, opening statement
Peterson, Hon. Collin C., a Representative in Congress from the State of Minnesota, opening statement
Page 6 PREV PAGE TOP OF DOC Pomeroy, Hon. Earl, a Representative in Congress from the State of North Dakota, opening statement
Smith, Hon. Nick, a Representative in Congress from the State of Michigan, prepared statement
Smith, Hon. Robert F. (Bob), a Representative in Congress from the State of Oregon, prepared statement
Thune, Hon. John R., a Representative in Congress from the State of South Dakota, opening statement
Buell, Homer, president-elect, Nebraska Cattlemen
Hill, Hon. Rick, a Representative in Congress from the State of Montana
Johnson, Karl, past president, National Pork Producers Council
Karst, Herb, president, National Barley Growers Association
Lee, Alan, chairman, North Dakota Wheat Commission
Westhoff, Patrick, program director, Food and Agricultural Policy Research Institute
Chretien, Raymond, Ambassador of Canada, letters to Mr. Barrett and submitted material
Page 7 PREV PAGE TOP OF DOC Janklow, Hon. William J., Governor, State of South Dakota, letter of October 7, 1998 to Mr. Barrett
National Potato Council, submitted comments
CURRENT AGRICULTURAL TRADE ISSUES WITH CANADA
THURSDAY, OCTOBER 8, 1998
House of Representatives,
Subcommittee on General Farm Commodities,
Committee on Agriculture,
The subcommittee met, pursuant to call, at 10:45 a.m., in room 1300, Longworth House Office Building, Hon. Bill Barrett (chairman of the subcommittee) presiding.
Present: Representatives Thune, Minge, McIntyre, Johnson.
Also present: Representatives Smith of Michigan, Peterson, Pomeroy, and Baldacci.
Staff present: Lynn Gallagher, senior professional staff; Pete Thomson, legislative director; Mike Neruda, subcommittee staff director; Andrew Baker, minority associate counsel; and Wanda Worsham, clerk.
OPENING STATEMENT OF HON. BILL BARRETT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BARRETT. The hearing of the Subcommittee on General Farm Commodities will come to order.
Today, the members of the subcommittee and other Agriculture Committee members will receive testimony reviewing current United States-Canada agricultural trade concerns. I want to thank the members of the subcommittee, as well as members of the full committee, for their continued interest in these very important issues. I also want to thank Chairman Bob Smith for his continued interest in matters of trade and his continuing efforts on behalf of U.S. producers in regards to our trade relations with Canada.
Page 8 PREV PAGE TOP OF DOC The current stresses on the world economic stage are affecting United States agriculture. There is no question about it. Commodity prices are affected by world economic and supply conditions. Specifically, the Asian financial crisis and the limitations on exports due to U.S. Government across-the-board trade sanctions are having adverse effects on U.S. agricultural exports. In addition, worldwide record production and the strong U.S. dollar are creating financial problems similar to those faced by our producers in the 1980's.
And as I have said before, these problems are being compounded by the current administration's lack of a direct, decisive and focused export policy for our agricultural products. This includes the administration's lack of support for fast track negotiating authority.
Largely because of these administration policies, combined with agricultural trade policies of Canada, our producers now find themselves in the situation of across-the-board low commodity prices. This is especially acute along the border States with Canada, but States as far south as Oklahoma are feeling the direct effect of cross-border trade policies. And now we have a responsibility to our producers to find some solutions.
Our Canadian neighbors are not without sin in these border irritants. It is not hard to name the concerns our producers have with Canada, starting with the policies of the Canadian Wheat Board and continuing with the U.S. producers' lack of access to Canadian markets, whereas the Canada beef industry benefits from being able to freely market slaughter cattle and beef in the United States.
I talked with Secretary Glickman on Tuesday about concerns that he expressed on holding this hearing today as consultations with Canada were commencing today in Montreal. During that conversation, I wished the Secretary good luck in his latest efforts to engage in intensive discussions with the Canadian Government covering a wide range of issues affecting farmers and ranchers in both countries.
Page 9 PREV PAGE TOP OF DOC We need to talk through those issues with Canada, but we have been talking for years. Now, we need some concrete results. Even though I don't completely agree with all the actions taken by particular States in these past few weeks, I certainly believe that their actions have finally got the attention of Canadian officials, which I believe is the first positive step toward eventual resolution of these issues.
It is important that our producers have a forum to express their concerns about Canadian trade policies. That is the purpose of this important hearing today. It is my view that we must keep the trade doors open with Canada. Regretfully, it has been our experience that Canadian officials will delay, obfuscate and otherwise prolong any decisions and actions that would facilitate fair and open trade across the border.
The types of trade practices Canada is now engaged in must not be allowed to continue. These actions could set dangerous precedents for a full range of U.S. agricultural products traded internationally.
That is why I introduced, along with a number of my colleagues, a House Resolution expressing concern with respect to barriers between the United States and Canada with regard to certain agricultural products. This resolution states that the Secretary of Agriculture should analyze trade between the United States and Canada with regard to a number of agricultural products, including beef, beef cattle, wheat, barley, and report the findings to the House and the Senate Agriculture Committees.
At this time I would like to yield to the ranking member of the subcommittee, the gentleman from Minnesota, Mr. Minge.
OPENING STATEMENT OF HON. DAVID MINGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. MINGE. Thank you, Mr. Chairman, for scheduling this hearing. I have a written statement that I will submit for the record, and otherwise I would like to try to allow the maximum time for my colleagues and witnesses to address this.
Page 10 PREV PAGE TOP OF DOC I would simply like to say in concluding that this is a very delicate matter, not only because we have trade negotiations that are commencing today with Canada in Montreal, but also because the United States is an exporter of agricultural commodities, and we must make sure that our conduct with respect to our dispute with Canada is one that overall benefits this country as we move into the next century and seek to make sure that our producers are treated fairly both with respect to imports and with respect to the global economy overall.
Thank you very much.
Mr. BARRETT. Thank you, Mr. Minge.
Several members of the committee have asked to make opening statements and the Chair is allowing it today. And at this point I would like to recognize the gentleman from South Dakota, Mr. Thune, for purposes of an opening statement.
OPENING STATEMENT OF HON. JOHN R. THUNE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA
Mr. THUNE. Thank you, Mr. Chairman for holding this hearing. I think it is very timely and hopefully a good follow-up to a meeting that we had last week at USDA where I think weat least I hope we finally got their attention on this subject.
As you alluded to in your opening statement, we are suffering an economic disaster in farm country today due to low prices, the effects of which I think are going to be very long felt and we probably are just seeing the tip of the iceberg today. I expect that as low prices continue, that we will see the loss of many family farms. A lot of our independent producers will be forced to go out of business.
I think most of us agree, a lot of factors are causing low pricesbut in the end, I think one of the reasons that we are having the problem that we are today is because we are not competing on a level playing field with our neighbors.
Page 11 PREV PAGE TOP OF DOC I am glad to hear that USDA and our trade representatives are engaged in conversations with the Canadians right now, because this all sort of got started due to a lack of attention on the part of our Federal officials, and that is what prompted our States to act. Our Governor in South Dakota, Governor Janklow, just got fed up with the fact that the Canadians were requiring a number of tests on product moving in their direction, and a lot of these nontariff barriers continue to be imposed, making it more difficult for our producers to compete on a level playing field.
I have a list of particulars here, a bill of particulars from our Governor in South Dakota, specific instances, specific violations, specific grievances which he believes need to be addressed, and which I would like to submit, as well a letter from the Governor for the record, and I would like to have it submitted and hope that some of these issues can be addressed on a point-by-point basis.
Mr. BARRETT. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. THUNE. And I want to give the Governors credit. I happen to think what they did was important in drawing attention to this issue, and that is why I think today and last week we had meetings which hopefully will yield some results.
There are also a number of other efforts going on out there due to, I think, what has been a lack of attention on the part of the administration. There is a group called the R-CALF [Ranchers-Cattlemen Action Legal Foundation] group which is organizing an attempt to bring an action through the International Trade Commission, R-CALF is a group of cattlemen from border States, as well as our State of South Dakota and surrounding States.
I think it is very important that we do, through all these various mechanisms, address this issue directly today, because if we don't, these tensions are going to continue to escalate. My fear is that if we don't have some sort of a diplomatic confrontation or showdown with the Canadians on these issues, that we are going to have a vigilante showdown out there, and I think that would be a big mistake.
Page 12 PREV PAGE TOP OF DOC I do think it is important for us as Members of Congress to give greater attention to this issue as well, and to see that we are taking every step possible to address what I believe are unfair trading practices. Whether they are in violation of the North American Free Trade Agreement remains to be seen, I suppose, but I think there are some things that clearly are.
I would hope that in the process of reviewing this issue and working with Canadian officials, our Governors, the Congress, USDA, and the U.S. Trade Representative's office, that we will be able to see some results, because if we don't, there will be no confidence on the part of our producers, and I am afraid this situation is going to worsen, and that we are going to see a worsening of prices as a result.
I want to thank you again for holding this hearing today. I look forward to hearing the testimony from the witnesses and to engage in some dialog with them, and I think it is unfortunate that the administration is not here. However, I know they are doing what we asked them to do last week, and we need to be updated on a periodic basis on their progress and specific actions to address a lot of these grievances.
So I thank the Chair, and I would yield back and look forward to the hearing today.
Mr. BARRETT. I thank the gentleman.
Mr. BARRETT. The Chair recognizes the gentleman from Minnesota, Mr. Peterson.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. PETERSON. Thank you, Mr. Chairman, and thank you for calling this hearing. I think that it is good perhaps for us to have a discussion on some of these issues, and I think there are some legitimate issues that need to be investigated, but I think we also need to kind of step back and think about where we have been.
Page 13 PREV PAGE TOP OF DOC I am one of those that led the anti-NAFTA effort here in the House, and I hate to tell you that I told you so. But a lot of these problems we are now facing, anybody that supported NAFTA should have seen that we are going to end up in this kind of a situation. And I think that some of the issues that have been raised, I think frankly we will lose if we get into a dispute panel situation because of the kind of agreement that we entered into.
We lost a dispute now in Canada on dairy, which there is no reason in the world we should have lost it. They clearly are in violation of everything we are trying to do, and they are protecting their dairy industry in Canada, and we lost because of the kind of agreement that we entered into. We have the same situation in some of the agreements that we made with the GATT agreement and the current regime that we are under with the WTO.
I hope that what we can get out of this hearing is to focus on making the issues that we legitimately have a chance to do something about. But I hope that the other thing that could come out of this discussion, and I hope discussions that we can have over the next number of months will culminate in this committee having more to say in these trade negotiations, because if the Agriculture Committee was at the table, I don't think we would be in these kinds of problems.
When we got the vote on fast track a couple of weeks ago, I offered to try to offer an amendment in the Rules Committeeit was rejectedto give the Agriculture Committee the same power, the same standing in the fast track process that the Ways and Means Committee has. My bottom line is I am for fast track, but it has got to be with the Agriculture Committee being at the table. This is exactly, what is going on here today, is exactly why the Agriculture Committee needs to be at the table.
I think in the end they are not going to pass fast track without our support on the Agriculture Committee, and I think we have a good chance of getting this done. Fast track was set up in 1974 under a whole different situation. When we were negotiating trade agreements then, we were only looking at specific tariffs and schedules. We were not negotiating the kind of trade agreements we negotiated with NAFTA and GATT.
Page 14 PREV PAGE TOP OF DOC I would argue that the fast track situation is outdated, outmoded. It needs to be looked at in the context of where we are today, and it needs to be looked at in the context of what is important to them in this institution. For the Agriculture Committee not to be at the table as a whole partner in this is just ridiculous, because agriculture is just an important part of our trade community, and I just hope that all of us would keep this in mind as we move ahead and as we look at this issue.
But I think it is unfortunate that we are in this situation. I sympathize completely with the producers in my district, in North Dakota, Minnesota and Montana. They are extremely frustrated and they deserve to be. You can't last for long, you can't survive in this kind of a climate, but, frankly, it is not all the Canadians' fault. The Europeans are much more at fault than the Canadian farmers are.
I would suggest maybe if we can figure out a way to do this and make allies of the Canadian farmers, we might be better off than making enemies out of them. If you go across the border and talk to these Canadian farmers, they are in as big a trouble as those producers are, the ones in the United States. They are not getting rich, and with the value of their dollar over there, and that is a lot of what is driving this, they got a 60 cent dollar in Canada; combined with the NAFTA agreement, it is no surprise what is going on.
So, again, there are some legitimate issues. I think we ought to focus on those and we ought to try to get some kind of a regime that we can live with. We got the Canadians to agree to a 1.5 million metric ton limit at one time, and they kind of tried to stay within that. If we can get them to keep it at that level, I think it would be good.
But, we also I think need to step back and look at how we got here, and hopefully we won't make these kind of mistakes again in the future, and when we go ahead with these trade agreements, we do it in a way that the agriculture is at the table, and we don't have to have these kind of hearings and have this kind of a situation.
Page 15 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. BARRETT. Thank you, Mr. Peterson.
The gentleman from North Dakota, Mr. Pomeroy.
OPENING STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH DAKOTA
Mr. POMEROY. I want to thank the chairman for having this hearing. This is a very important hearing. And it is a chaotic time in Congress, to say the least, but I really appreciate you keeping your eye on the ball and moving forward with this hearing.
I think it is pretty clear that the Canadian Free Trade Agreement, the reincarnation of the Canadian Free Trade Agreement in the North American Free Trade Agreement sold out the interests of grain growers along the northern tier States especially. Since I have been in Congress, I have tried to address the problem of the treaty which has allowed a flood of Canadian imports.
The negotiated limits in 1994 were very important and very helpful in terms of calming what was becoming at that time a very volatile situation. Unfortunately, what we believed would be an ongoing limit relative to our future trading relations has been characterized by our Canadian friends as a 1-year limit, and we are seeing the import levels go dramatically above that 1.5 million metric ton limitation.
In fact, last year imports reached their third highest level ever, 1.736 million metric tons. Now, I think we again are at a volatile point. I think we are at this point for several reasons. The level of Canadian imports, which I just mentioned, is again on the rise, and again moving fast prior to these agreed limits; the low prices which are plaguing our farmers and are literally going to drive a number of them out of business, off the farm, and they may be the third or the fourth generation of their family line. In this low price environment, not all of this can be laid on Canadian wheat by any means, as the testimony indicates, but it has certainly left a gaping wound into which these Canadian imports represent a healthy dose of salt being vigorously rubbed there.
Page 16 PREV PAGE TOP OF DOC Another dimension, I guess, I think in terms of volatility, is the utter absence of reciprocal treatment. Our North Dakota Governor told me that from time to time you will have Canadian trucks bringing cattle down, overweight for our North Dakota road restrictions. In an effort to accommodate, we will allow those trucks to unload some of the cattle to get their weight in line, and we can't then haul those Canadian cattle back north to bring them back to where they came from. They are stuck here because of the utter absence of reciprocal treatment along the border.
Now, this is again a finger in the eye from our long-standing ally. I mean the Canadian conduct here is, I think, aggressive, unfortunate, and it has exacerbated tensions which would be on the rise anyway.
Finally, we have got a wheat pricing mechanism that we don't understand. There is a monopoly in the Canadian Wheat Board. We don't know how they arrive at the prices that are paid to Canadian farmers. I strongly suspect that there is a subsidy. I strongly suspect that there is an inappropriate subsidy in there.
The U.S. Trade Representative, responding to pressure from my office, agreed to seek an audit of the Canadian Wheat Board, straight up, Big Five accounting firm audit to catalog the full range of payments made by the Wheat Board to Canadian farmers. If they don't have transparency in their pricing system, let's look at the books, find out the basis for what they pay in Canadian funds.
The Canadian Government could just as well have told us to go to hell. It was utterly intransigent. They refused to allow that audit. Now, that kind of treatment from our major trading partner obviously only deepened the level of irritation and the concern on this problem.
The resulting protests that you have seen along the border from North Dakota farmers, Montana farmers, are not surprising in light of these circumstances. And I have said many times it takes a lot of anger and irritation to get a Scandinavian North Dakotan protester. It is not in our nature. But they have protested. They protested constructively and utterly peacefully, and they have made their point, very forcefully and effectively.
Page 17 PREV PAGE TOP OF DOC As a result of those efforts by farmers taking matters into their own hands, the State governments of the region have also responded. I particularly commend Governor Janklow in South Dakota for leading the way in what is now, has been a multi-State response, imposing some of the vigorous inspections that we ourselves have been subjected to in trying to bring agricultural items north. And so today's negotiations by our governments with Canada and the United States are the result of the action of the State governments in response to the actions by the farmers themselves.
I can only say about these discussions between our governments, it is about time. I think the lesson we can draw from this is that there is an upper limit. There is an upper limit to the market disruption that would be tolerated under the North American Free Trade Agreement, under any trade agreement, frankly. But regardless of the stark terms of the treaty, there is an upper limit to the market disruption that the political system is just going to endure, and in our case, we are at the limit. In our case, we are past the limit.
I read a Canadian official in a newspaper saying this is about a 5-week problem, we have got to get the U.S. elections out of the way and this is all going to go away. Well, if I would try and have any message for the Canadians this morning, it is this is not going away. This is not going away. We are past the point of tolerance at the level of Canadian imports. We have to try and find a way to accommodate each other.
But we have the peace cards, we hold the peace cards celebrating the longest unguarded border between dear friends in the world. We want to continue in the vein of our friendship, not continue in the trend of recent trend irritation, and the Canadians are going to have to move to improve this situation. We have to have movement so that we can get off this point of trade crisis, back to the point of reasonable trade accommodations between two of the closest allies in the world.
I thank the chairman.
Page 18 PREV PAGE TOP OF DOC Mr. BARRETT. Thank you, Mr. Pomeroy.
Mr. Johnson, do you have something you want to put into the record?
OPENING STATEMENT OF HON. JAY W. JOHNSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN
Mr. JOHNSON. Yes, Mr. Chairman, thank you. First of all I want to thank you for having this hearing. I really appreciate it. And I am a little hoarse today, so I thankfully won't make a long statement.
But I do have some important things that I think ought to be submitted, a personal statement for the record regarding the upcoming talks with Canada and NAFTA and GATT, and also a copy of a letter sent by the Wisconsin and Vermont congressional delegations to Ambassador Barshefsky and Agriculture Secretary Glickman requesting a review of the agricultural dairy trade issues.
I have also a report issued by Dairy Farmers of Canada, which recommends Canadian trade negotiating strategies for the dairy negotiations during the next round of trade talks with the United States. This is the report. It is rather thick, but I would like it to be included in the record. It has 99 separate de facto subsidies in the U.S. dairy industries, including water management subsidies, that leaves me concerned about the stance of Canadian negotiators and the implications for any progress during this next round of trade talks. And I just think it is important that we have this in the record.
And I also have another concern, moving to my State potato council. I have some comments made by the National Potato Council in preparation for U.S. negotiating objectives in the upcoming trade talks. If I may submit that, along with my statement for the record, I would appreciate that.
Mr. BARRETT. If there is no objection, these items will be made a part of the record.
Page 19 PREV PAGE TOP OF DOC Mr. JOHNSON. Thank you, Mr. Chairman.
[The information appears at the conclusion of the hearing. The report issued by the Dairy Farmers of Canada is on file with the committee.]
Mr. BARRETT. If there are any statements by Members they may be included at this time.
[The prepared statements of Chairman Smith, Messrs. Smith of Michigan, Minge, and Baldacci follow:
STATEMENT OF HON. ROBERT F. (BOB) SMITH
Mr. Chairman, I congratulate you on holding this hearing on U.S. trade with Canada. Issues related to agricultural trade between our country and Canada have been under discussion by many of us over the past several months.
We recognize that when calculating all trade between the U.S. and Canada, that Canada is our single largest trading partner. In 1997, total two-way trade in goods and services was almost $1 billion per day. For agricultural trade, the U.S. imports approximately $600 million more than it exports to Canada. This balance was changed in recent years, mainly due to the increase in Canadian exports of grain and beef.
There is no question that there are trade disputes between the United States and Canada. I am encouraged that Secretary Glickman and Ambassador Barshefsky announced that there would be extensive discussions on several of these matters. It is my hope that these discussions will include matters related to the Canadian Wheat Board, the Canadian cattle industry, and the Northwest Pilot Project, as well as other matter related to potatoes and other fruits and vegetables.
While we have issues that divide us, there are also issues of mutual concern we must discuss before the 1999 WTO negotiations. These include the WTO dispute settlement process (Canada joined the U.S. in challenging the EU ban on meat products using hormones and the EU has not implemented the decision) and ensuring use of scientific standards for access to foreign markets. Our differences on matters related to access for U.S. commodities such as dairy, poultry, and eggs, must also be discussed.
Page 20 PREV PAGE TOP OF DOC The witnesses in this hearing will have an opportunity to identify problems related to agricultural trade and identify solutions to these problems. This information should be transmitted to Secretary Glickman and Ambassador Barshefsky.
Thank you, Mr. Chairman, for holding this hearing. It can be a first step in the resolution of agricultural trade issues between the United States and Canada.
STATEMENT OF HON. NICK SMITH
Thank you, Chairman Barrett, for holding this important hearing on current trade issues with Canada and their implications for American agricultural economy. When Congress passed the 1996 Freedom to Farm Act we agreed to phase out domestic agricultural studies and allowed farmers greater latitude to plant as the market dictated.
Today, American agriculture is second to none. We have the best farmers, land, climate, and infrastructure in the world. Wherever we are able to break down trade barriers and compete on a level playing field we stand to gain. Eliminating other nations' agricultural trade distorting practices should be a high priority for further trade negotiations.
Agricultural trade is very important to my State of Michigan. Last year Michigan ranked 18th among all 50 States in the value of its agricultural exports. The State's exports reached an estimated $1.2 billion in 1996, up from $743 million in 1993. These exports help boost farm prices and income, while supporting about 19,000 jobs both on and off the farm, in food processing, transportation and manufacturing. Exports are increasingly important to Michigan's agricultural and statewide economy. As a percentage of farm cash receipts, the State's reliance on agricultural exports has risen from 22 percent to 34 percent since 1993.
American agriculture overall is more than twice as reliant on foreign trade as the U.S. economy as whole. The United States exports approximately 30 percent of all agricultural production, with much of it going to Canada. Since 1989 when the Free Trade Agreement was implemented, total bilateral agri-food trade has nearly tripled, totaling $14.7 billion in 1997. There is no doubt that agriculture's future is tied to trade.
Page 21 PREV PAGE TOP OF DOC While agricultural trade between our two countries continues to increase, there are a number of problem areas. U.S. imports of Canadian wheat and barley continue to increase and are a source of concern to U.S. producers who see them resulting from the ability of the Canadian Wheat Board to discriminate on the basis of price in U.S. markets.
Another area of concern is the U.S.-Canadian cattle and beef trade. Since the late 1980's, U.S. imports of Canadian live cattle have been increasing, while beef export have been decreasing. Trade barriers to live cattle and beef have been virtually eliminated, but health regulations and nonreciprocal beef grading arrangements (in Canada) prevent markets from being fully integrated. Finally, Canada continues to discriminate against U.S. dairy and poultry imports while at the same time unfairly subsidizing Canadian dairy exports.
I look forward to hearing from the witnesses today and I thank you once again for holding this hearing.
STATEMENT OF HON. DAVID MINGE
Thank you, Mr. Chairman, for holding this hearing. It is extremely timely given that, as we speak, United States negotiators are meeting with their Canadian counterparts in Montreal on the agricultural trade issues that we will discuss today. While we will not have the benefit of the administration's viewpoint, as I believe most of us agree that it would be inappropriate for the administration to comment on these issues in the midst of the negotiations, I think it will be extremely valuable to hear the concerns of U.S. producers who will be affected by the negotiations.
Trade with Canada
As you know, Canada has been a steadily growing market for U.S. agriculture under the Free Trade Agreement. U.S. farm and food exports have increased an average of more than 8 percent a year from 199096. U.S. exports to Canada reached a record $6 billion last year, an increase of more than 60 percent since 1990. Fresh and processed fruits and vegetables snack foods, and other consumer foods account for close to three-fourths of U.S. sales. U.S. exports of bulk, intermediate, and consumer-oriented products to Canada all set records last year, with new value highs for corn, soybean meal, and many other products. Before the 1989 FTA with Canada, U.S. products generally accounted for less than 60 percent of total Canadian agricultural imports. U.S. products now make up around two-thirds of total value, as the U.S. share has trended upward at the expense of other suppliers because of lower tariffs and preferential U.S. access under the Free Trade Agreement.
Page 22 PREV PAGE TOP OF DOC Bilateral Issues
With the increase in trade under the Free Trade Agreement have come many points of irritation.
In 1996, the first North American Free Trade Agreement dispute settlement panel reviewed the higher tariffs Canada is applying to its dairy, poultry, egg, and barley products, which were previously subject to nontariff barriers before implementation of the Uruguay Round. The panel ruled that Canada's tariff-rate quotas are consistent with the NAFTA, leaving in place tariffs of over 350 percent on some dairy products. Meanwhile, Canada continues to pool dairy prices to subsidize exports, and has failed to meet its Uruguay Round commitment to open a 64,500 ton tariff rate quotas for fluid milk. In defense of itself, Canada asserts that the quota is being filled because it allows Canadian consumers to make purchases of milk in the United States, and transport it back to Canada. U.S. Trade Representative Charlene Barshefsky is currently challenging Canada on both issues in the World Trade dispute settlement case.
Another bilateral issue is the dramatic increase in dairy imports of Canadian live cattle, while sanitary barriers prevent exports of U.S. feeder cattle to Canada. Although we began working with the Canadians on the Northwest Pilot project many years ago, Canadian importers continue to complain that red tape is interfering with implementation of the program. In response, U.S. cattlemen have sought to protect themselves through measures such as country-of-origin labeling and recent actions filed by R-CALF. R-CALF is raising legitimate questions with regard to Canadian sales of live cattle in the Unites States, and I look forward to discussing some of the economics of this issue with the witnesses who will be before us today. Specifically: what is the effect of lower feed costs in Canada or Canadian producers' costs of production?
Page 23 PREV PAGE TOP OF DOC Wheat
We have a similar situation in the wheat trade. Increased imports of Canadian wheat due to a variety of factors, including possible price discrimination by the Canadian Wheat Board have prompted U.S. producers to ask legitimate questions about the operation of the board, and to request monitoring of such imports. And yet, Canada wants to limit the scope of a proposed audit of the board. Meanwhile, bogus phytosanitary barriers continue to block U.S. grain exports to Canada. Implementation of a pilot project for grain has been stalled by Canada's requirements that tests be conducted on all wheat shipments showing them to be free of karnal bunt, and that such shipments be accompanied by a certification that it originated in a TCK smut-free area.
As our negotiators discuss these issues in Montreal, I hope that there are Canadian officials here in Washington listening to the testimony of the producers who have come here to express their concerns about our trade relationship with Canada. This is a valuable relationship between two countries that share the longest unguarded border in the world. It is a relationship worth protecting and, more importantly, worth improving.
Canada must understand:
That milk sales to Canadian visitors in the United States cannot satisfy a commitment to permit a limited amount of sales of U.S. milk in Canada.
Those 350 percent tariffs on dairy products are simply inconsistent with free and fair trade.
That state-controlled monopolies must be willing to provide more transparency to avoid suspicion of price discrimination; and that sanitary and phytosanitary measures must be based on science.
Thank you Mr. Chairman for holding this very timely hearing. I look forward to continuing our work together on United States-Canada trade issues to try to bring more fairness to our very important trading relationship with Canada.
Page 24 PREV PAGE TOP OF DOCSTATEMENT OF HON. JOHN ELIAS BALDACCI
Chairman Barrett, members of the subcommittee, I want to thank you for scheduling this hearing to review current U.S. agricultural trade issues with Canada and for allowing me to add my thoughts about Maine, potatoes, and Canada.
The potato industry in Maine and across the country has faced adverse economic impacts from imports of low-priced, subsidized fresh and processed Canadian potatoes.
You will hear today from four panels who bring expertise in a variety of agricultural commodities. I will confine my remarks to what I know best, the impact on Maine's farmers of action taken by federal and provincial governments in Canada.
About 2 years ago, the Foreign Agricultural Service of the U.S. Department of Agriculture released a report ''Review of the Canadian Support Programs for the Potato Sector'' which was requested by Maine delegation .
The report provided, yet again, the examples of barriers to Canadian markets and subsidies to Canadian producers.
During the last flare-up of the trade issue, I heard firsthand from Maine farmers. Let me quote from one. ''The many years of subsidies in Canada, both provincial and federal, have allowed Canadian growers to keep their debt and cost of production lower than U.S. growers. These subsidies are now being reduced but the long-term impact will be felt for years.''
Sixteen years ago, a Senate subcommittee held a hearing that covered this topic. The problems created by Canadian policies and practices that were pointed out then are still around now.
With government help, or the lingering effects of that help, the industry on Prince Edward Island has undergone a dramatic expansion. And it is Maine farmers who are suffering as a result of that expansion.
One set of numbers points out how the problem has affected Maine. In 1980 there were 218,000 acres planted to potatoes in Maine, New Brunswick, and PEI; 108,000 of those were in Maine. This year nearly 230,000 acres planted to potatoes; about 110,000 acres in Prince Edward Island. In 18 years Maine's share dropped from about half to about a third. Expansion on PEI accounts for the balance of the difference.
Page 25 PREV PAGE TOP OF DOC The industry in Maritime Canada has been steadily stealing market share from Maine. It is undercutting Maine prices and moving into Maine's traditional markets.
At the same time, Canada and the provinces have erected import barriers that make it difficult if not impossible for Maine growers to ship their production north.
Canada restricts international trade of bulk potatoes. The importers have to request and receive ministerial exemptions before being able to import potatoes in bulk. Maine growers are unable to easily supply the spot market in Canada.
The deck is stacked and the Canadians have the stronger hand. Growers in Maine are frustrated. They are trying to adapt to changing times and changing markets. But they look at trade agreements and they see problems created by their Federal Government. They feel neglected. Farmers are wondering who is on their side, who in Washington is working to find solutions to those problems.
I hope that this hearing can provide some insight to those who right now are in Montreal working to develop a solution to create fair trade for farmers, to restore their faith in government and allow them to move confidently into the future.
Mr. BARRETT.With that, the Chair thanks Congressman Hill for his patience. I recognize the gentleman from Montana. You may proceed.
STATEMENT OF HON. RICK HILL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MONTANA
Mr. HILL. Thank you, Mr. Chairman. Thank you for holding this hearing and thank you for allowing me to testify on this important subject. The issue of U.S.-Canadian agricultural trade is of paramount importance to the farmers and ranchers in my home State of Montana, who, like many others, are experiencing some of the lowest prices for their products since the Great Depression.
I am also pleased to be joined today by my fellow Montanan and president of the National Barley Growers Association, Herb Karst.
Page 26 PREV PAGE TOP OF DOC Resolving these controversies has the potential of elevating prices our farmers and ranchers receive while creating a level playing field along our northern border. It is important to note that I support the principles of free trade. However, I have a serious concerns with the implementation of NAFTA. Many of these concerns are addressed in my bill, the FARMS Act, but I appreciate the opportunity to discuss these issues before the subcommittee today.
Mr. Chairman, as I travel throughout farm and ranch country in Montana, and particularly during the August district work period, I hear almost universal concern about the lack of reciprocal and fair agricultural trade with Canada. Farmers along the hi-line in Montana constantly see truck after truck carrying cattle and grain pouring across the Montana border, but our producers do not have similar access to the Canadian markets.
In 1995 Canada shipped approximately 1.3 million live cattle into the United States, compared to 25,000 U.S. cattle exports to Canada. In 1996 it was 1.2 million Canadian imports, compared to 24,000 American exports to Canada. In 1997 Canadian cattle imports into our borders were 1 million, compared with about 27,000 U.S. cattle exports to Canada. And so far in 1998 Canada has imported about 830,000 live cattle into the United States, compared to approximately 30,000 U.S. cattle exports to Canada. That means that our cattle exports to Canada represent about 4 percent of our what Canadians ship into our borders.
As a result of this trade imbalance, cattlemen in the northern plains, called R-CALF, have banded together to try to force the International Trade Commission to act on this imbalance, and I support their effort.
Mr. Chairman, our cattle ranchers do not have a level playing field with their Canadian counterparts. First, Canadian cattle enter our markets as domestic cattle since they have access to the USDA grading system. This is a masquerade that needs to be changed.
American cattle destined for Canada must go through an extensive process filled with hurdles: From the point of shipment, all cattle must be tested for brucellosis, for tuberculosis and anoplasmosis and blue tongue. This represents an additional cost of $25 per head. Then the cattle must go to a registered feed yard and they must receive 30 days of antibiotic treatment. Cattle coming into the United States don't go through any testing or any quarantine.
Page 27 PREV PAGE TOP OF DOC In addition, Canada imposes a $24 fee for the first feeder and $1.25 per additional animal, while the United States imposes just a $1 feet per every feeder. At a truckload of 70 feeder cattle, U.S. producers will pay $112 per truck versus $70 a truck for Canadian cattle. Obviously, the feedlot operator and the packer don't bear this cost. Producers bear the cost. They bear it in lower prices. Similar hurdles like I have just described also exist for swine and sheep producers.
There are many other instances where Canada imposes unfair requirements to stifle opportunities for our grain producers. For example, on June 16 Canada began requiring a phytosanitary test on feed barley entering Canada after a rally took place in Sweetgrass, MT. This new test added about $35 per truck load and imposed additional and unnecessary time delays on U.S. producers. The Canadian Government has not yet provided a reason for the sudden imposition of this new, costly requirement.
Although not as extensive as cattle testing, the Canadian Government requires all U.S. wheat and barley to be certified as karnal bunt free at the point of shipment. This costs, on average, 35 cents a bushel. Canadians also considered imposing tests for blue smut. America does not require any test whatsoever on grain imports. In addition, Canadian producers can use pesticides and herbicides that are deemed to be illegal but can still export that grain into our market. Again, this creates an unlevel playing field.
Recent producer rallies not only have the attention of Congress, but Governors. Last week the Governors of Montana, Idaho, Wyoming, North Dakota, South Dakota, Nebraska and Minnesota met with Agriculture Secretary Glickman after they imposed stringent inspections on trucks entering from Canada. At the eleventh hour and almost a year after they made commitments to myself and the gentleman from North Dakota, Mr. Pomeroy, the Clinton administration finally decided to sit down with the Canadian Government to address those concerns.
As a result, the Governors have given the administration 90 days to negotiate tangible results. And I hope that the administration will allow these Governors an opportunity to be there alongside them to negotiate with the American trade representatives regarding our concerns.
Page 28 PREV PAGE TOP OF DOC Mr. Chairman, as I stated before, this is a real problem and it is on both sides of the border. I am proud to be joined by Canadian Member of Parliament Jake Hoeppner in my effort to bring trade reciprocity and price transparency to our borders. I met with Jake almost a year ago to discuss what we could do together to benefit our producers. At the time he handed me this large binder which I have before me, the details of how the Canadian Wheat Board is in direct violation of the NAFTA agreement.
In a recent press releaseand I would point out incidentally, that Mr. Hoeppner is a grain producer on the Canadian sidebut let me quote from his recent press release: ''Since my election in 1993, I have been claiming that the Canadian Wheat Board must become more transparent and accountable to its producers and trade partners. This concern is further supported by new documentation that has been provided to me recently, suggesting the possible dumping of large shipments of off-board Canadian grain into the U.S. market. Both the Canadian and American agriculture industries need transparency and accountability to provide a fair and level playing field.''
Mr. Chairman, there are a number of things that Congress can do to provide a level playing field:
Above all, require the Clinton administration to negotiate fair price reporting and transparency for grain and cattle imports. Until that is accomplished, I advocate returning back to pre-NAFTA cattle and grain import quotas.
We should utilize our Export Enhancement Program to export grain and to recover our lost market share. Due to the economic sanctions on countries like North Korea, Libya, Cuba, Sudan, Iran, we have lost 11 percent of the world wheat market. The per bushel impact is estimated at over 42 cents per bushel for this year and will be nearly 60 cents per bushel for the coming market year.
Mr. Chairman, I support mandatory country-of-origin labeling for beef and lamb products. If we can require labels telling us how to cook a hamburger, then we should certainly require a label telling customers and consumers where the hamburger came from.
Page 29 PREV PAGE TOP OF DOC Mr. Chairman, we can require the Canadian Wheat Board to open up its books for inspection. To date, they have rebuffed the General Accounting Office requests. We need to subject the Canadian Wheat Board to U.S. anticompetition laws due to its monopoly.
Mr. Chairman, we can eliminate Canadian access to the USDA U.S. grading system for live cattle and carcasses that enter the United States. This masking of Canadian cattle as domestic cattle is unacceptable and should be eliminated.
Mr. Chairman, we could confirm our pesticide and herbicide registration laws with Canada so we have more common sense application of those laws. We can eliminate the phytosanitary restrictions such as the ones I recently discussed on feed barley and wheat.
Mr. Chairman, these are some of the many items that the Clinton administration and Congress can adopt to help level the playing field.
In conclusion, I commend you for initiating this dialog in the Congress. The benefits of reciprocal trade will lift all boats. Until our producers can compete on a level field, we must act to protect them from unfair, predatory practices from our Canadian neighbors. I look forward to working with you and the other members of the committee and Members of Congress and the Clinton administration to accomplish these goals.
Thank you, Mr. Chairman.
Mr. BARRETT. Thank you, Mr. Hill.
Have you seen any bright spots?
Mr. HILL. Well, there isn't a lot of optimism, Mr. Chairman, along the northern tier these days in agriculture, and probably that is the most discouraging thing that I can say. I don't think anybody believes that these lowest prices are temporary. I think that they believe that disruption can occur in the world market, and I think coupled with the exploitation of the situation by our Canadian neighbor competitors, they don't have a lot of hope right now.
Page 30 PREV PAGE TOP OF DOC Mr. BARRETT. Any bright spots for wheat or barley? Do you see any changes?
Mr. HILL. Obviously, the exports to Canada in feed barley are up, there is no question about that, and I think that is a bright spot, although I am not convinced yet that the producers believe that that is going to be translated into higher prices. These are extraordinarily low prices, and to a great extent that is going to be governed by the currency differential with Canada.
Mr. BARRETT. Thank you.
Mr. Pomeroy, any questions?
Mr. POMEROY. No questions. I agree with every word of your statement, and thank you for setting forward some of the particulars in such a thoughtful fashion. I also think your own ongoing discussions with your Canadian counterpart could be very helpful. Maybe this is a matter where legislator-to-legislator there will be some further headway than there has been government-to-government in a more conventional way.
Mr. HILL. As you know, Chairman Smith has been calling for a summit with Canadian producers and U.S. producers, provincial governments, government leaders and Governors, as well as representatives of agriculture and trade, and I think that is a good idea.
I think that we do have a shared pain here. Producers on the Canadian side are experiencing some of the same problems that producers on our side are, and they realize that in essence what is occurring now with unfair trade is that the Canadian Government is contributing to the cannibalizing of this market. It is destroying producers on both sides.
We have a common enemy and that is, as was pointed out earlier, the European Community and others where we need to be fighting to open markets. That is why I agree with the statement you made earlier, and that is that the Canadian Government has to understand that there is a tolerable disruption that can occur here, and regardless of what the trade agreements say, they need to understand that if they continue to persist in the way they are persisting, it is going to poison the well for future trade agreements and our ability to negotiate future trade agreements that will benefit both Canadian producers and U.S. producers.
Page 31 PREV PAGE TOP OF DOC So what is extremely important, I think, is for us to focus on our common interests, and we can do that through meetings and with negotiations and again agree to go after what is the common enemy, which are those governments that are unfairly subsidizing both production and exports.
Mr. POMEROY. Amen.
Mr. BARRETT. Mr. Thune, any questions?
Mr. THUNE. Yes, thank you, Mr. Chairman.
Let me just say, too, that I appreciate the work that Congressman Hill is doing, and not being a direct border State, but because our Governor started all of this, we have been kind of involved in it from the get-go.
I am just curious as to what your thought is, I mean we have the specific list of what we consider to be grievances, the quarantines on their side of the border, and a lot of the testing. You addressed price transparency, the Canadian Wheat Board, things we think are all unfair trading practices and things in which I hope we can get some results through the negotiation process with the Canadians.
But the other question I think that has been raised here, and that is in these things I think probably, at least I would hope we can see some progress on, but the broader question of the upper limit. Is there an upper limit to what we can allow? Even in my State of South Dakota, which is one State removed from the Canadian border, there isn't anybody in our State who would agree that NAFTA has been a good thing, because all they see are the trucks coming across the border with Canadian tags, coming down through Highway 85 and other places in our State.
But in the interest of a long-term, relationship with the Canadian Government, do you think we could negotiate some upper limit on the number of cattle, some upper limit on the amount of wheat that can come in here?
Page 32 PREV PAGE TOP OF DOC And in fact it is probably notI mean, there is nothing in NAFTA that would allow for that. With the exchange rate situation being what it is, they have a distinct advantage right now in the trade relationship.
But in the interest of preserving the long-term viability of this trading relationship, do you think that we might be able to negotiate some upper limit, some upper ends in terms of what is allowable as far as imports?
Mr. HILL. You know, as you know, Mr. Thune, the problem when you are trying to negotiate is you have to try to negotiate from an equal footing. And the problem with the NAFTA agreement is that it doesn't give our negotiators an equal footing.
That is one of the reasons why I think it would be helpful if Congress made a strong statement with regard to what we think the outcome ought to be, to demonstrate to the Canadian Government at least there is a political will in Congress for some resolution of the issues that you have just described. That is the concern that I have.
I think in the past when we had quotas on grain, it was because we had a bargaining position that allowed us to impose those quotas, and now we don't have that flexibility. The one thing that is occurring right now is the Canadians have actually come to the table, because of the actions of the Governors and our own administration. Attention has been gained because of the actions of the Governors, but I don't think we would be here if it wasn't for that.
I hope that the producers in Montana don't have to stand at the border at Sweetgrass every Friday afternoon stopping trucks in order to get the attention of Congress and the administration that this is a serious problem. So what I am hopeful is that the Canadian Government understands is that if we can't reach an accommodation, that there is a political will in the Congress to push the administration towards that.
That is why I think Congress ought to talk about directing the administration to look at imposing quotas. Again, what the problem is is that this trade agreement, the elevation of the Canadian-U.S. trade agreement into the NAFTA agreement overlaid with the GATT agreement doesn't give us much strength in our bargaining.
Page 33 PREV PAGE TOP OF DOC Mr. THUNE. Well, I think what is useful and helpful in all this is that not only did we get the attention of the Canadian Government, and they have to understand it is serious business for us and we are not going to stand idly by and watch all our farmers go out of business, but the other up side of it all is we got the attention of our government.
I don't think our Federal Government has looked at the realm of trade issues. Agriculture just doesn't show up on the radar screen. And I think on both sides of the border we have to understand how critical it is that we resolve these issues, because I think there are some tremendous long-term consequences if we don't.
Mr. HILL. I think, Mr. Thune, that there is some complacency on the part of the administration with regard to agriculture, because food exports have been up during this era of prosperity. Mr. Pomeroy and I brought these issues to the attention of the administration during the discussions involving the fast track legislation a year ago, and tried to explain to them how important and how urgent this problem was. We predicted what was going to happen.
Grain prices are almost half of what they were. Cattle prices have dropped by 15 cents, by 20 percent or better since then, and still the administration has I think neglected the seriousness of the situation. Now, of course, it is translating into serious economic impacts on the whole region, your State, my State, Mr. Pomeroy's State.
I would just comment that the problem is unique to us in the sense, particularly in Montana and western North Dakota this is true, our producers are captives of a transportation system, and when the Canadians export into that market and clog our transportation system and fill up our elevators, we can lose a whole season. There are areas of Montana right now at any place basically you can't deliver wheat to an elevator. There is no place to put it. There is no place to ship it.
Page 34 PREV PAGE TOP OF DOC Prices are in free-fall. But frankly there is hardly any market in certain areas, and that is creating tremendous concern out there not only for the agriculture producers but the communities they live in, and the main street businesses as well.
Mr. THUNE. Well, I think in the old Dakota Territory days we would have gotten this fixed a lot sooner. Right, Earl?
Mr. BARRETT. Mr. Hill, we thank you.
Mr. HILL. Thank you, Mr. Chairman.
Mr. BARRETT. We have Dr. Pat Westhoff, program director for international affairs, Food and Agricultural Policy Research Institutes better known as FAPRI.
Thank you for joining us, Dr. Westhoff. Please proceed when you are ready.
STATEMENT OF PATRICK WESTHOFF, PROGRAM DIRECTOR, FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE
Mr. WESTHOFF. Thank you, Mr. Chairman, for the opportunity to appear before the subcommittee to provide some perspectives on U.S.-Canadian agricultural trade and U.S. agricultural markets. I am here today on behalf of FAPRI, the Food and Agricultural Policy Research Institute. FAPRI is a joint effort of researchers at the University of Missouri and Iowa State University. Other members of a broader FAPRI consortium include Texas A&M University, the University of Arkansas, and Arizona State University.
Our mission at FAPRI is to provide decisionmakers with objective analysis of issues related to food, agriculture and natural resources. FAPRI does not take policy positions, and nothing I say today should be interpreted as endorsing any particular position. And if I make any mistake in that regard, I will attribute it to my own days working as a Senate staffer, and I will try and watch myself. We have stayed in business these past 15 years because we work hard to provide useful information without taking sides in policy arguments.
After Japan, Canada is the second leading destination for U.S. agricultural exports, and the United States imports more agricultural products from Canada than from any other single country. Since NAFTA took effect in 1994, U.S.-Canadian agricultural trade increased in both directions, which is shown in table 1 in my testimony.
Page 35 PREV PAGE TOP OF DOC United States agricultural exports to Canada increased from $5.3 billion in calendar year 1993 to $6.8 billion last year. In spite of reduced U.S. exports to many other markets, the value of U.S. agricultural exports to Canada actually increased during the first 7 months of 1998 compared to the same period of last year.
United States imports of Canadian agricultural products have increased more rapidly, from $4.6 billion in 1993 to $7.4 billion last year. The United States had a positive agricultural trade balance with Canada between 1993 and 1995 and a negative trade balance with Canada in 1996 and 1997 and the first 7 months of 1998.
Changes that have occurred in the U.S.-Canadian trade since 1993 cannot and should not all be attributed to NAFTA or to any other single cause. Exchange rates, weather, policy changes, and world market conditions are just some of the many factors that have had an effect on U.S.-Canadian trade. For example, the significant reduction in the value of the Canadian dollar that has occurred in recent months and the last several years has made it easier for Canadians to sell their products here and tougher for our us to sell our products in Canada.
In early September we prepared an update of our baseline for the U.S. agricultural economy. Based on information available at that time, we estimated season-average farm prices for the current marketing year of $2.69 per bushel for wheat, $2.05 per bushel for corn, and $5.34 per bushel for soybeans. The current cash price in many cases is even lower.
Why are prices so low? Put simply, we have a lot of supplies in the world and not enough demand. Table 2 on page 3 of my testimony shows what has happened to U.S. production, trade and prices for wheat, corn, soybeans and barley since grain prices peaked 3 years ago.
For all of these four crops, production has increased, with corn and soybean production growing the most. In part, this can be attributed to improved growing conditions, as 1995 yields were very low because of flooding and a variety of other problems. However, two other factors also played a role:
Page 36 PREV PAGE TOP OF DOC First, the 1996 farm bill eliminated annual acreage reduction programs and contributed to an increase in planted area. Second, and probably more important, the sharp increase in market prices that occurred in the mid1990's in response to tight supplies encouraged producers here and in other countries to expand production.
The latter point is very important. U.S. grain exports are substantially lower now than they were 3 years ago. Some of the weak world export demand for U.S. grain can be explained by the Asian financial crisis. Also important, however, is the increase in competitive supplies in the world markets, as farmers in other countries increased their production in response to high prices of the mid1990's. So far, there has not been an equivalent negative production response to recent lower prices.
What role have imports of Canadian grain had in depressing U.S. markets? Consider the wheat numbers shown in table 2. Between 1995 and the current marketing year, most of the $1.86 per bushel drop in U.S. wheat prices can be attributed to a 366 million bushel increase in U.S. wheat production and a 143 million bushel reduction in U.S. wheat exports. A 22 million bushel increase in U.S. wheat imports, almost entirely from Canada, certainly has not helped U.S. wheat prices, but it is a much smaller factor than increases in U.S. production and foreign wheat production and weak demand around the world. U.S. prices for wheat and other commodities are determined in a global market.
Canadian imports are not really a factor for corn and soybeans. For barley, current projections indicate that U.S. barley imports may actually be lower this year than 3 years ago. So it is hard to blame imports for the sharp decline in barley prices since 1995.
And the last thing I can tell is very similar stories about U.S. livestock markets. Since Nebraska steer prices averaged $76 per hundredweight in 1993, U.S. beef production has increased by 2.8 billion pounds. Even though U.S. beef exports have increased dramatically over the same period, more beef is being put on the domestic market. As a result, we currently project that Nebraska steer prices will average below $63 per hundredweight this year, as shown on table 3 on page 4 of my testimony.
Page 37 PREV PAGE TOP OF DOC The U.S. imports large numbers of Canadian cattle, and those numbers have increased in recent years. Nevertheless, the increase in live cattle imports from Canada only accounts for about 5 percent of the increase in U.S. beef production between 1993 and 1998.
The case of pork is similar, except that the production increase and price decline has mostly happened in just the last year. Since 1993 the increase in live hog imports from Canada has been dramatic, accounting for a third or more of the increase in U.S. pork production.
While increased imports of Canadian animals may have contributed to the reductions in livestock prices, most of the increase in U.S. meat supplies can be attributed to increased production from animals born and raised in this country. Large increases in average slaughter weights have been an important contributing factor.
While the pace of export growth has definitely slowed because of the Asian crisis and other problems, meat exports remain well above levels of just a few years ago. Still, larger supplies mean that overall per capita consumption of beef, pork, chicken and turkeys has increased by more than 7 pounds in the last 5 years, with most of the increase occurring in this year alone.
In conclusion, Mr. Chairman, U.S.-Canadian agricultural trade is important to both countries, and it has been growing in both directions. U.S. producers are certainly affected by imports of Canadian agricultural products, but other factors appear to be far more important in explaining the current weakness in U.S. markets.
In closing, Mr. Chairman, I would like to thank you for the opportunity to address the committee. I would welcome any questions.
[The prepared statement of Mr. Westhoff appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Dr. Westhoff.
Page 38 PREV PAGE TOP OF DOC In your opinion, is the Canadian Wheat Board practicing price discrimination with regard to wheat?
Mr. WESTHOFF. That is something we have not been asked to look at, Mr. Chairman, and it is obviously a very important question. It is frankly one that, you know, I think merits a full discussion, and we would be happy to look at it for you if you like, but I don't think I have an opinion to offer at this time.
Mr. BARRETT. Not a personal opinion?
Mr. WESTHOFF. Not a personal opinion.
Mr. BARRETT. Then would you submit a statement in writing?
Mr. WESTHOFF. We would do that, yes, sir.
Mr. BARRETT. Thank you very much. You did state that the increase in live cattle imports from Canada accounts for about 5 percent of the increase, I believe, in our U.S. beef production between 1993 and 1998. Isn't a 5 percent increase a major problem for U.S. producers? Can you embellish on that a little?
Mr. WESTHOFF. It definitely makes a difference, and I don't want to imply that it doesn't make a difference. The only point I was making, it is relatively small compared to the total. We have some people that have been trying to look at this question more in depth, and I can submit some further estimates of just how much difference it can make on prices, if you would be interested.
Mr. BARRETT. If you would, please.
Mr. POMEROY. I thank you for your testimony. Did you do an analysis, did your analysis include a review of the nitty-gritty of what it takes to get a truck load of ag product, be it grain, or for that matter cattle, up into the Canadian market versus what they experience coming down into our market?
Page 39 PREV PAGE TOP OF DOC Mr. WESTHOFF. That is obviously something that is quite important, Mr. Pomeroy. We have not attempted to look at those sorts of issues.
Mr. POMEROY. Your testimony, which I think is balanced and generally accurate, I mean, it does note free flow of trade north and south and all of that. In this respect, that may be contrary to that basic premise in your testimony. Would you acknowledge that?
Mr. WESTHOFF. I would acknowledge that we are not trying to explain whether the trade that occurs is free trade or not free trade. What we can explain is that the flow has occurred and what has happened over the last few years.
Mr. POMEROY. You indicated in response to the chairman's question that you really don't have an assessment in terms of whether or not there is a price subsidy occurring within the Wheat Board's pricing practices; is that correct?
Mr. WESTHOFF. That is correct.
Mr. POMEROY. Is the lack of transparency or absence of transparency in the way that pricing mechanism works the basis for your not being able to have an opinion on that?
Mr. WESTHOFF. I would certainly agree that it is difficult to make an assessment without data.
Mr. POMEROY. Would it seem reasonable to you that an audit of that internal stream of payments to Canadian farmers might be helpful in terms of determining the fairness of the pricing or whether or not there was any subsidizing that occurred?
Mr. WESTHOFF. I would agree that ways of providing information in a way that helps us understand better how products are priced would be very important in making an assessment of whether or not there is price discrimination or whether there are other practices occurring.
Page 40 PREV PAGE TOP OF DOC Mr. POMEROY. Now, does FAPRI ever have audits by the GAO or other types of audits in terms of how you are spending the Federal dollars through your institution?
Mr. WESTHOFF. Yes, we have.
Mr. POMEROY. Generally speaking, is it your institution's approach that you have nothing to hide, there is nothing wrong with an audit?
Mr. WESTHOFF. That would be true, Mr. Pomeroy.
Mr. POMEROY. It has been my experience with audits, as well. I used to audit the insurance companies as an insurance commissioner. So when the Canadian Wheat Board utterly refuses to allow an audit to go forward, to me that is Exhibit A that there must be subsidizing practices occurring therein.
I am not asking you to comment from an academic standpoint, but if there is nothing to hide, what is the problem with the audit, particularly one that is presented by the United States Government and would comport in all respects with their auditing practices?
Finally, you do note that while the biggest dimension in the price collapse that we are seeing in grain and livestock is not Canadian-related, it has been Canadian-influenced, the wheat industry. What is the trend line? Did you notice any long-term trend lines going back not just before NAFTA, but even going back before the Canadian Free Tree Agreement, in terms of grain exports from Canada into United States, and in livestock?
Mr. WESTHOFF. Sir, the increase in Canadian trade predated the NAFTA agreement, no question about that. There has been a number of trends in exports of Canadian products to the United States, for several different prices between both cattle and wheat.
Mr. POMEROY. And if you would go further back to the pre-Canadian Free Trade Agreement, the trend line probably would have quite dramatic increases?
Mr. WESTHOFF. Yes, sir.
Page 41 PREV PAGE TOP OF DOC Mr. POMEROY. I don't have any further questions.
Mr. BARRETT. Thank you.
Mr. THUNE. Mr. Westhoff, you conclude in your written testimony, I think I am quoting here, U.S. producers are certainly affected by imports of Canadian agricultural products, but other factors appear to be far more important in explaining the current weakness in U.S. markets.
Are the impacts of Canadian imports equally distributed across all regions of the United States, or might your analysis represent an average, belying a greater impact on upper Midwestern States that are closer to the border with Canada?
Mr. WESTHOFF. Yes. I am talking about averaging facts on the country as a whole, and I would agree areas closer to the border would have larger impacts than the rest of the country.
Mr. THUNE. You indicated, too, and I think it is producers that have suggested this, too, that significantly devaluing the U.S. dollar would solve some of our trade problems. In your judgment, what effect is the exchange rate situation having on us?
Mr. WESTHOFF. We have not quantified exactly. I will tell you another 30 percent change in the value of the Canadian dollar since 1991 makes a very big difference in the relative competitiveness of the producers in the two countries.
If you look at the changes in cattle prices, for example, between 1993 and today, our prices have fallen very dramatically in U.S. dollar terms, and Canadian prices have fallen by a similar amount measured in U.S. dollars. Measuring it in Canadian dollars, it has been much more modest, because of the changes in values of the two currencies.
Mr. THUNE. Thank you. I thank the Chair.
Mr. BARRETT. Thank you very much, Dr. Westhoff. We appreciate your sharing with us.
Page 42 PREV PAGE TOP OF DOC I would like to exercise the prerogative of the Chair and suggest that the final two panels be combined. I believe we have two witnesses in panel 3 and two in panel 4. If you wouldn't mind, please join each other at the table.
We have Mr. Allen Lee, chairman of the North Dakota Wheat Commission from Berthold, ND. Mr. Herb Karst is the president of the National Barley Growers Association from Sunburst, MT.
We have a constituent of mine from Rose, Nebraska, president-elect of the Nebraska Cattlemen, Mr. Homer Buell. And representing the National Pork Producers Council from Mankato, MN, Mr. Karl Johnson, past president of the Pork Producers Council. Nice to have you back before this subcommittee Mr. Johnson.
STATEMENT OF ALAN LEE, CHAIRMAN, NORTH DAKOTA WHEAT COMMISSION, BERTHOLD, ND
Mr. LEE. Mr. Chairman, members of the Subcommittee on General Farm Commodities, thank you for this opportunity to appear before you. It is very important that we are able to voice our concerns with what is going on in Canada. My name is Alan Lee, as you stated. I am chairman of the North Dakota Wheat Commission. I am also a durum wheat farmer, in North Dakota, and about 45 miles from the Canadian border.
As has been stated many times today, U.S. wheat prices are down and at the lowest prices since 199091, and our farmers in our area and all over are extremely scared and frustrated. Part of this frustration has been demonstrated by the border demonstration that you talked about, and also our Governors' action which has been trying to draw some attention to this problem that we are having.
Many factors have contributed to the world and the U.S. supply and demand levels that have brought prices to these depths. Some are within our control, others are not. But Canadian trading practices, both in our domestic market and also in our competing export markets, have certainly played a major role when it comes to the situations for hard red spring wheat and durum wheat, which are specialty wheats and they have specialty purposes.
Page 43 PREV PAGE TOP OF DOC For background information, the United States is going to produce 480 million bushels of hard red spring wheat this year and 141 million of durum. Most of this production is going to occur in North Dakota, Montana, Minnesota and South Dakota. Just across the border, Canada is going to produce an estimated 584 bushels of spring wheat and 213 million bushels of durum. I include these comparisons because it is important to realize that while the United States is a major exporter of all classes of wheats, Canada is the dominant player in the global market when it comes to spring wheat and durum.
So what is Canada doing with all the spring wheat and durum? Our export records indicate that they are targeting the United States. Since 199798, we were their No. 2 export markets, and since slated to become the number one export market.
Durum imports from Canada reached 16 million bushels in 199798. It is the highest level since 1994, when quotas were imposed as a result of the section 22 trade investigation. Spring wheat imports are 48 million bushels as, compared to 50 million bushels in the previous marketing year and 33 million bushels in 199596.
It is obvious that these imports have a price damaging effect, when one considers the Canadian durum imports accounted for about 25 percent of the 199798 domestic durum consumption in the United States, and 18 percent of our spring wheat.
This situation becomes a self-fulfilling prophecy. Over the years, the Canadian Wheat Board has argued that the U.S. processors need its durum, so Canada has shipped durum to the United States in increasing amounts since the United States-Canada Trade Agreement which went into effect in 1989 and 1990. Prior to that, it was practically zero.
United States durum prices have declined. Farmers consequently reduced their acreage. It is just becoming a downward spiral. This, in turn, lowered average production levels from the pre-Free Trade Agreement days, and pretty soon our U.S. pasta manufacturers were becoming dependent upon a foreign government for their source of raw material. Tariff-rate quotas, which were implemented again in 1994 and unofficially enforced through 1996, helped reverse this trend by cutting the levels in half.
Page 44 PREV PAGE TOP OF DOC This year North Dakota alone is going to produce 97 million bushels of durum wheat. And according to NDSU, our university, the crop quality analysis, 47 percent of that is the No. 1 durum and 22 percent of it is a No. 2 amber durum. So we have a plentiful supply of good quality durum which is needed to satisfy the baking industry.
In the United States we don't have a history of allowing one business to monopolize an industry. If you look at the scrutiny that Microsoft right now is undergoing with this Windows 98, they are under extreme pressure because of their monopolistic attitudes and our U.S. Government is trying to limit that.
In our free trade agreements, U.S. negotiators have tolerated predatory pricing practices of both the Canadian and the Australian Wheat Boards. As the sole exporter of their respective wheats, and it is strictly a monopoly, these boards can and do offer different prices to different customers, and potentially these prices serve to help eliminate some of the competition. In this case it is my neighbors and myself.
On the U.S. Wheat Board, when we have a board of directors meeting with our overseas directors as to why we are losing market share in countries like the Philippines and Latin America and in Africa, they used to be nearly 100 percent spring wheat markets, nearly two years ago they were very good markets for us, and it is like time and time again, there is a discounted price offered from the Canadian Wheat Board, like here they have a standing offer of $7 a ton and a bonus delivery and also other bonuses that they offer.
If the Canadian Wheat Board is relying on price discounts and other secretive practices to capture market share in other countries, it is reasonable to believe that the Canadian Wheat Board is pulling the same techniques in our own domestic market. We may never know for certain, because they resist all efforts to disclose their prices.
The United States Export Enhancement Program has been fingered for raising U.S. wheat prices above world wheat and in effect serving as a magnet to Canadian imports. However , the program has now been idle since 1995, yet Canadian imports continued to escalate.
Page 45 PREV PAGE TOP OF DOC Canadian wheat moves through the United States with no special requirements other than an end-use certificate, such as my own wheat does. Yet Canada maintains an extensive system of hurdles to prevent U.S. wheat from moving north. The most recent addition was in 1996, when Canada began requiring that all wheat shipments from the United States that passed through Canada by rail be tested for karnal bunt.
The United States exports no wheat to Canada, but the requirements affect U.S. exports to other countries that travel through the Great Lake ports and the St. Lawrence Seaway. North Dakota and Montana wheat also travels through Canada to reach the Pacific Northwest via the Canadian Pacific Soo railroad.
Canada wants sampling and testing of U.S. wheat regardless of the area of origin, and despite extensive screening for karnal bunt across the United States since 1995. The Northern Plains region of the United States has tested negative for the disease all 3 years of the survey. It is pretty frustrating to me as a producer that the United States Government accepts the Canadian assertion that it is free of all the diseases, and yet stands by and allows us to have to jump through all of these hoops.
In addition, Canadian wheat is allowed to come to the United States even though it is been treated with crop protectants that our own U.S. Government won't allow us to use. Either Canadian grain shipments should be inspected at all points of access into the United States, or Canada should have to demonstrate through an extensive sampling program like ours that it is free of these diseases and these prohibited chemicals.
U.S. wheat producers aren't the only ones paying the bill for the Canadian Wheat Board's trading practices. U.S. taxpayers are also footing the bill through loan deficiency payments to U.S. farmers as a result of low commodity prices.
In closing, I would like to say that the Canadian Wheat Board and other state trading enterprises must be in the next round of World Trade Organization negotiations, but in the meantime we urge your support of a more immediate solution. A growing number of our producers who are protesting on the border are urging to have a tariff-rate quota at the border, and they want to set it at zero number of bushels.
Page 46 PREV PAGE TOP OF DOC U.S. wheat producers would like to be a part of the solution of the United States-Canada trade problems. But until we discuss the fundamental differences in our open system and Canada's closed system and how Canada is going to change to meet its obligations as an ally, as a neighbor, as our trading partner, Canadian access to the U.S. wheat market should be restricted. Otherwise, Canadians are going to continue to undermine our basic agricultural production system until they eliminate the competition. I don't want to see us be eliminated.
[The prepared statement of Mr. Lee appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Lee.
I would like to recognize Mr. Karst of the Barley Growers.
STATEMENT OF HERB KARST, PRESIDENT, NATIONAL BARLEY GROWERS ASSOCIATION, SUNBURST, MT
Mr. KARST. Thank you for the opportunity to appear before the committee this hearing. I am Herb Karst, a wheat, barley, and canola farmer from northern Montana, president of the Barley Growers. I am proud to have with me at the hearing this morning, today as well, Larry McGuire of the Western Canadian Wheat Growers and Brian Krist of the Alberto Barley Commission who have jointly presented with me the results of a United States-Canada grain summit that took place a couple of weeks ago that brought together producers from both sides of the border.
And many of my comments today are a reflection of the outcome of that summit, of which we had unanimous consent of the participants on some of the actions that were necessary to resolve our conflicts.
This hearing today is very vital. I think most farmers see this issue as very simple. They can understand a period of both low prices with oversupplies, and our export markets in Asia, surely due to the poor currency, but they are frustrated with the fact that the European Union, one of our major competitors, is using export subsidies of up to $75 a metric ton to capture prime markets to the rest of the world.
Page 47 PREV PAGE TOP OF DOC But what aggravates and irritates U.S. producers most is that in spite of these low prices, we are seeing an increasing amount of wheat and barley imports from Canada, as that state trading enterprise uses its discretionary price availabilities to clean out its own burdensome stocks in our barley malting plants and our wheat flour mills.
Producers along the northern tier are angry and they are seeking answers. They rightfully resent the trade agreement that allowed this trade imbalance and speculate on whether our own market-oriented grain policy can survive an assault by our trade competitors, the European Union, and state trading enterprises, like the Canadian Wheat Board, who both show little signs of moving towards an open market policy of their own.
That is one of the simple parts, however, for them to understand. But it is also imperative, as we press others, to eliminate the trade distorted subsidies. We realize it requires negotiations between governments, and this is when producers begin to remember past agreements and turn to other alternatives. In order to generate confidence in a trade negotiating process, it is important for the executive and legislative branches of government to offer more than words to producers.
The agricultural sector must be involved in any future trade negotiations. Chairman Smith's effort to place agriculture's legislative leaders with the negotiating people at key points in the process is a step in the right direction, and he and the other members of the committee are to be commended for standing up for agriculture. Hopefully that language can be included in the next round of trade negotiations.
In the interim, there are several complex and largely unilateral things that needs to be addressed. If the problems of export subsidies and marketing monopolies vanished overnight, U.S. farmers would be still be facing some cross-border issues that do much to fuel the current economic crisis and protest. The first of these is transportation.
The barley-producing regions of our country are served by only one or the other of our western railroads. And the rail rates to ship barley to the Pacific Northwest are narrowly double that paid by our Canadian friends. Additionally, the Canadian farmer can move his grain to market in trucks that legally carry 30 percent more payload than is authorized in U.S. highways.
Page 48 PREV PAGE TOP OF DOC The Canadian grain can be moved to key U.S. markets by water, while the Jones Act restrictions effectively rule out that form of shipment for U.S. grain. We also lack competitive equality with our Canadian producers in the area of pesticides. Our pesticide registration process is slow and cumbersome, and, as a consequence, products like Achieve, a wild oat herbicide that is effective and inexpensive and routinely used by our Canadian producers is not yet labeled for use here.
Imagine the frustration of U.S. producers in seeing the grain growing with that product flowing right past their driveways while they can't use it on their own farms.
This slow registration process also creates a pricing discrepancy. Consider the fact that Asset, a competing wild oat herbicide, is priced at $14.75 per acre in the United States, but available in Canada for 8.25. And Hoelon, Fargo, and Avenge are similar wild oat control chemicals that are higher in the United States than in Canada.
As EPA and its Canadian counterpart begin to work together to make our regulatory systems work compatibly, barley growers would urge the EPA to eliminate the chemical inequities listed above that directly impact the competitiveness of our U.S. barley farmers.
Finally, while we have seen some U.S. feed barley moving into Alberta feedlots in recent months, and we hope nothing resulting from the current conflict does anything to jeopardize that important new market, the Canada Wheat Board's control over the Canadian food market, over the railcar allocation, the licensing of grain handling facilities and varieties prevents U.S. farmers from really having meaningful access into the Canadian system.
U.S. farmers face the ultimate dilemma of lacking the price flexibility to move grain into export markets, given the fully commercial restraints on our exporters who simply have no way to compete with the European subsidies and the competition we face from a state trading enterprise that, in one public statement 3 years ago, admitted that it had the flexibility to price in order to maintain market share.
Page 49 PREV PAGE TOP OF DOC I think it is evident from the recent news reports that action is needed to respond to the rising tide of discontent in farm country. I trust that my comments today provide some perspective on what actions may be taken to allow our Nation's farmers to compete in a fair and open market. Thank you.
[The prepared statement of Mr. Karst appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you.
I would like to recognize Mr. Buell, president-elect of the Nebraska Cattlemen.
STATEMENT OF HOMER BUELL, PRESIDENT-ELECT, NEBRASKA CATTLEMEN, ROSE, NE
Mr. BUELL. Chairman Barrett and members of the subcommittee, it is indeed a pleasure for me to be here today. As Chairman Barrett mentioned, I am serving as president-elect of the Nebraska Cattlemen. My brother Larry and I and our families own and operate a cow-calf, stocker and feedstock operation in the hills of north central Nebraska.
On behalf of the Nebraska Cattlemen membership, I appreciate that you have scheduled this hearing on an issue that is of such concern to myself and other producers in Nebraska. Mr. Chairman, I plan to summarize my remarks in order to allow you time for questions. I would ask that my full written statement be included in the record.
Mr. BARRETT. Without objection so ordered.
Mr. BUELL. We are in the middle of a crisis in agriculture. As I talk to my neighbors, you can sense frustration and despair with the current conditions in the beef cattle industry. Banks in our area are reporting that as many as 20 percent of the cattlemen in Nebraska could go out of business. There is a great deal of unrest in many parts of the United States as a result of the impact of liberalized trade agreements, including a petition to the International Trade Commission seeking relief from Canadian imports of live cattle and beef.
Page 50 PREV PAGE TOP OF DOC The Nebraska Cattlemen supports this action as a means to assure that international trade laws are being adequately enforced. Canada has throughout recent history been a significant trading partner with the U.S. in cattle and beef. From 1985 through 1997, beef and cattle imports from Canada increased by over 1.2 billion pounds. During the same time frame, U.S. beef exports from Canada have increased by 257 million pounds.
While the United States is a net exporter of beef and live cattle and beef byproducts on a value basis, in 1997 we imported 6 pounds of beef from Canada for every 1 pound of beef exported in return. Our balance of trade with Canada is a very important issue to cattle producers in Nebraska and across the United States.
The Nebraska Cattlemen supports free trade, but to be effective, international trade policies must also be fair. In my testimony, I will elaborate on a few issues that must be addressed. The country of origin labeling, use of the USDA grade shield on imported beef products for imported live cattle, and the need for more timely import/export trade information.
A great deal of discussion has been given to the topic of import or country of origin labeling on imported beef products. These issues have arisen for many reasons, not the least of which are food safety concerns and extremely burdensome supplies of beef and competing meat in the United States and world marketplace.
Another important factor is that during times of large beef supplies, many Nebraska producers continue to see Canadian trucks with market-ready cattle entering Nebraska's processing facilities. Once nonretail products like these enter the United States, they are considered domestic products and counted in domestic production figures.
As imports increase without a way to differentiate beef products from true domestic products, it becomes more difficult to accurately estimate changes in U.S. beef production from year to year.
Page 51 PREV PAGE TOP OF DOC Another concern among beef producers in Nebraska is that this imported product, now considered to be domestic production, is eligible to be graded under the USDA Federal beef grading program. This program is administered by the USDA's agricultural marketing service under authority granted by the Agricultural Marketing Act of 1946. Since imported beef products are no longer labeled as the country of origin, they become eligible for grading under this 1946 act.
USDA choice is recognized to be the standard of quality around the world. This recognition of quality is based to a significant degree on the effect of U.S. beef producers to improve the quality of their beef products. These efforts have created here brand equity on the USDA grade shield that is today also made available to the beef products imported and processed in the United States.
If the U.S. beef industry is to remain a leader in production of high-quality beef, producers must be assured that only U.S. beef production is eligible for the USDA grade shield.
The last thing that I am going to touch upon is import and export reporting. The absence of accurate and timely data from the U.S. trade sector has been a source of long-term frustration throughout the beef industry. Generally, import data is fairly timely. Different agencies have reports either weekly or every other week. Unfortunately, export data is offered on a much less timely basis.
Nearly 2 years ago, USDA published an advance notice of public rulemaking on a proposal to require mandatory reporting of export sales of meat and meat products. The comment period of this rule closed February 12, 1997, but a final rule has yet to be published. But we understand that a final rule is said to be in approval channels at USDA. We have not been made aware of its contents.
It is our hope that USDA would require mandatory reporting of export information on all meat products and this information be made public within one week of the end of the week for which an export certification was issued.
Page 52 PREV PAGE TOP OF DOC I would like to thank the subcommittee for asking me to testify today, and I would certainly be happy to answer any questions.
[The prepared statement of Mr. Buell appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you, Mr. Buell.
The Chair recognizes Mr. Johnson.
STATEMENT OF KARL JOHNSON, PAST PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL, MANKATO, MN
Mr. JOHNSON. Chairman Barrett and members of the subcommittee, my name is Karl Johnson. I am a past president of the National Pork Producers Council, NPPC, and currently served as the chairman of NPPC's Trade Committee, and I am chairman-elect of the U.S. Meat Export Federation. My brother Paul and I run a family-owned farrow-to-finish hog operation near Mankato, MN.
I am testifying on behalf of NPPC. I would like to thank the subcommittee for the opportunity to address you on an issue of great importance to the U.S. pork industry. U.S. pork production levels are skyrocketing. If we maintain our current pace, U.S. industry will slaughter 100 million hogs in 1998. Unfortunately, this record production has weakened hog prices.
Prices this past September dipped below $30 per hundredweight and were at the lowest levels in September since 1972. Another record production year is expected in 1999, making exports more important than ever to our industry. The U.S. pork industry has reaped tremendous benefits from recent trade agreements. Since 1995 when the Uruguay Round Agreement went into effect, U.S. exports to the world have increased by approximately 61 percent in volume terms and 84 percent in value terms from the 1994 levels.
This would have not happened without NAFTA and other trade agreements. Recent statistics for 1998 show this upward trend continuing. Despite the instability of the Asian economies, our exports for the first 7 months of this year have increased 27 percent in volume and 7 percent in value over the same period last year. U.S. exports to Canada have increased pursuant to NAFTA in both volume and value terms. But while the United States remains a net pork importer from Canada, the trade gap is being narrowed. Between 1992 and 1997, U.S. pork exports to Canada increased by 300 percent, while pork imports from Canada remain fairly constant.
Page 53 PREV PAGE TOP OF DOC Currently Canada is the fourth largest U.S. pork export market, with over 90 percent of their imported pork originating in the United States. Over 10 years ago, the National Pork Producers Council filed a countervailing duty petition with the U.S. Government against Canada hog imports because of Federal and provincial subsidies in Canada. The U.S. Government conducted an investigation and levied countervailing duties on the Canadian hog imports to offset the Canadian subsidies. Subsequently, the Canadian subsidies were reduced to such a point that the United States no longer imposes any kind of countervailing duties.
The countervailing order on hog imports remains in place and is reviewed annually by the U.S. Department of Commerce. And if the Canadians increase these subsidies above the current minimal levels, U.S. will again levy countervailing duties.
With record hog slaughter in the United States this year, the importation from Canada has become a political issue. Canadian hogs are imported in the United States for various reasons, which include the reduction of certain subsidy programs in Canada, the resulting reduction in the countervailing duty, and the decline of the Canadian dollar against the U.S. dollar. However, the reduction of Canadian subsidy programs and the relative value of currency do not explain the entire increase in imports.
While Canada produces only 16 million hogs a year, the inherent problem is their processing facilities. Canada maintains less than one-third of the number of federally inspected meat packing plants than does the United States. The U.S. industry has undergone a substantial confirmation in the area of production line speed over the last few years. Current technology allows U.S. plants to operate at line speeds of up to 1300 carcasses per hour. And most of these plants are located in the upper Midwest States where they can compete directly with Canada for Canadian hogs.
The bottom line is that U.S. pork producers have benefitted in the past and will benefit even more in the future from international trade. While the thought of promoting exports and banning imports might have some appeal to some, it is a policy that cannot succeed. The fact that the United States has a trade deficit in hogs/pork with Canada means little as long as the trade deficit is engendered by natural market forces and not by subsidization or other unfair means.
Page 54 PREV PAGE TOP OF DOC We are aware of problems faced by producers in other sectors of U.S. agriculture. Our further action at the border will be unproductive and provoke Canada into retaliating against our exports. Canada has been a solid trading partner and should not be cast as a demon merely for political advantage. The cost to U.S. agricultural and the U.S. economy as a whole could potentially be disastrous.
In conclusion, Mr. Chairman, I would like to commend you, Mr. Minge, a majority of the members of this subcommittee, and the House Agriculture Committee for the courageous vote recently on renewing fast track negotiating authority. You and the other members stood up for American farmers and ranchers in a time when we needed it most.
Your votes should prove to your farmers back home and in the world market that America is not afraid to compete. I would be willing to answer any questions on my testimony, and thank you for the opportunity.
[The prepared statement of Mr. Johnson appears at the conclusion of the hearing.]
Mr. BARRETT. Thank you very much, Mr. Johnson.
Karl, do you know the status of the Canadian Food Agency's proposed legislation involving rabies? Where are we now?
Mr. JOHNSON. I don't know what the status is. This is a point of contention we have with them not recognizing our regionalization and our States to give pork in because of it, but I don't have any idea what the current status is, Mr. Chairman.
Mr. BARRETT. You indicated in your trade outlook that the Canadians have the ability to retaliate, perhaps in a trade war, et cetera. Is that a major concern to you? Is that on the front burner?
Mr. JOHNSON. We are concerned, I am personally very concerned that we allow the markets to be opened, and the pace that the U.S. pork industry is going, we need to have every available export market that we can. I think that it is very important that we don't show signs that we are going to shut down any availability and give our current customers bad ideas. I think that we have seen in the past, and this has happened perhaps, we lose markets more than we gain.
Page 55 PREV PAGE TOP OF DOC Mr. BARRETT. In your opinion, is this something that could very well happen?
Mr. JOHNSON. In my opinion, that is something that could very well happen.
Mr. Lee, I am going to preempt my colleague, Mr. Pomeroy, whoI appreciate his perseverance in asking about an audit. Let me ask you the same question. What is the condition of the audit? Is there anything underway, can you share with us?
Mr. LEE. To the best of my knowledge, the audit is at a standstill. We have talked to USDA and the USTR's office, and they made requests and have been virtually nowhere. So it isI am not sure it is a dead issue. Probably we will be pursuing it, but we don't see any action coming.
Mr. BARRETT. How about the Canadian pilot project for grain; what is happening there?
Mr. LEE. It looks to me, from our perspective, it looks more like a showpiece. In other words, the Canadians will allow our grain in; however they won't be allowed to go in under the regular markets; they go in as classes of feedwheat.
Mr. BARRETT. Have you seen any improvement in access because of it?
Mr. LEE. No, we really haven't. I guess our elevator tried to get some durum in through one of their mills a year ago and we couldn't get through all the hoops.
Mr. BARRETT. That paints a pretty bleak picture as well?
Mr. LEE. In that particular case, we did have a good sale to them. They needed some of the durum. We did have a decent sale, but we couldn't get the cars across.
Mr. BARRETT. Do you have an opinion about the administration's interest in self-initiation of 201?
Page 56 PREV PAGE TOP OF DOC Mr. LEE. I think it would be difficult to manage.
Mr. BARRETT. Can you elaborate just a bit?
Mr. LEE. Well, until we get into their books so we can prove damagesand we can'tI mean, we have got all the threats but we don't have any solid information.
Mr. BARRETT. Again going back to the audit?
Mr. LEE. Going back to the audit. And you have to be able to prove damages to make 201 win.
Mr. BARRETT. Thank you.
Herb, the Canadian Wheat Board, I think, is coming under increasing criticism not only from the United States, but I think there are some Canadians who criticize it as well.
Mr. LEE. Their own producers, yes.
Mr. BARRETT. Yes. Some of those provinces are raising a little Cain as well. Is there a real solution to a monopoly of the Canadian Wheat Board, for Canadian producers wanting a freer border?
Mr. LEE. I guess if the Canadian Wheat Board was told to go away and so it was totally a market-oriented system, yes. My problem would be if they are allowed to choosein other words, they can have the Canadian Wheat Board if they want it, and have the open market if they want itI don't think it would be beneficial to us or even fair. So I think, yes, if the Canadian Wheat Board became price transparent so they couldn't just come in and voluntarily cut us at any point they want.
We have absolutely no idea what they sell their grain for. And our U.S. wheat people overseas, like I said in my testimony, time and again come back and say Canadians have got a standing offer for $7 a ton less, and there are countries that are $10 a ton, which is a substantial amount of money.
Page 57 PREV PAGE TOP OF DOC Mr. BARRETT. Mr. Karst, would you care to answer that?
Mr. KARST. I think that is really important. I think two things are happening, though. I think the Canadian producers, including my colleagues here from Canada that are with me, are putting the wheat board under increasing scrutiny from their own farmers. I think in these times of poor prices and the willingness of the wheat board to match European prices and our subsidiesand their subsidies in our foreign market, that iswe have no access to the Canadian producers to say why are we doing this.
I mean, Mr. Pomeroy referred to subsidies. But I think what is really important to remember is that these are the fellows, my Canadian friends, who are paying some of the subsidies to move Canadian products into those foreign markets, and it is driving their farmers broke, right along the same time as driving our farmers broke.
So I think the cooperative effort that we are starting to engage in with farmers on both sides of the border probably has the best chance of succeeding in making the Canadian Wheat Board stop its power play and its willingness to survive only because it is a national institution that seems to want to protect its own self-interest.
Mr. BARRETT. Thank you. I noticed with particular interest your comments about the differential in transportation costs, and you cited railroads and even water; I think you touched on the Jones Act. In my first couple of years here, I introduced a bill to try to take care of that particular situation. I got beat up so badly by the Maritime Union, it wasn't funny. The bill, of course, never went anywhere, and it doesn't seem to ever go anywhere; although, there is another one floating around here, I guess, today. But we have had some severe problems in Nebraska and Kansas and with our railroads.
Has that been a problem for you up there, specifically Burlington?
Mr. KARST. Yes, we aremuch of the northern tier of the United States is served only by the Burlington Northern/Sante Fe; and being a captive shipper to that railroad, obviously, there is little incentive to price either to our benefit or to provide service to our benefit. Grain can't be transported to our export markets, except by Burlington Northern, and so they know that we have to wait untilat their convenience and their price.
Page 58 PREV PAGE TOP OF DOC I think that moving towards competitive access with Canada could do a lot to provide the CP as a meaningful competitor to the Burlington Northern for the benefit of our producers, the way that Burlington Northern is providing a benefit to the Canadian producers at the present time.
Mr. BARRETT. I had a meeting yesterday with Union Pacific people and they convinced me at least that some major improvement has been made and they are struggling to come back to where they should be. I was rather impressed with the report they gave me.
I was interested in your comments regarding the USDA grade shield. Are there other countries, other than Canada, that are slipping in under that provision; or do you know?
Mr. BUELL. As far as I am aware of, just Canada that comes in, and those cattle are considered domestic production and then are graded with our USDA grade shield.
Mr. BARRETT. One quick item. Years ago it was pretty unusual for Canadian cattle to come down as far as Nebraska. What is the primary reason that they are coming 1,400 miles now?
Mr. BUELL. It is my understanding they can come down into Nebraska, and with that added value that they receive from the grade shield as well as the difference in currency value, they can receive, on a carcass basis, up to $20, $100 added value, and that is why they are coming.
Mr. BARRETT. So the grade shield is a factor there as well?
Mr. BUELL. I certainly believe so.
Mr. BARRETT. OK, thank you very much.
Page 59 PREV PAGE TOP OF DOC Mr. POMEROY. I began by wanting to candidly express my disappointment with the Pork Producers' testimony. One of the reasons it is hard for agriculture here, because we are so often not in a united fund. Now I believe that it is a fair assessment in relative terms that the Canadian issues, in the context of the overall market situation facing pork, may not be quite as severe as those facing other commodities; that is, in light of the growth, significant growth in the export-import markets and efforts I have been a part of, frankly, to include pork export opportunities elsewhere in the world.
So it is not helpful to have you opine about actions taken by other commodities, because they view their situation very seriously. Now, I doubt that 10 years ago the wheat producers would initiate your countervailing duty action against Canada, would be jumping up and down saying don't excite our Canadian friends. You are doing what you had to do. These other commodities are doing what they have to do. They are not jeopardizing the import.
And I really take vigorous exception to your testimony in this respect. I have worked with pork. We had a disagreement ultimately on fast track. I was for fast track when I thought we were going to get an agreement to the wheat growers, and that fell apart in the partisan charade in a vote here a week ago. I wasn't for it. But, you know, having worked as closely and having the high regard for your commodity and for the organization that I do, I just think your testimony is offensive.
The questions that I have of the other members, Mr. Leeand I would let the record reflect that Mr. Lee is a leader in the North for being an excellent farmer and a leader on behalf of the commodities, particularly including durum. Mr. Lee made an important point when he was testifying; that there are geographic impacts that are not uniform, and so the trade-distorting market disruption impact can hit one region harder than another just as a matter of geography.
Your testimony seems to imply the same might be true of wheat class or specific subcommodities type. Would you care to expand on that?
Page 60 PREV PAGE TOP OF DOC Mr. LEE. Well, when you look at the overall picture, the Canadians will say they are just the tail on the dog. We are only 5 percent of the world market or something. So they point to the total volume of wheat, 1 billion-plus bushels that we export, and so in the total volume they are insignificant. But in our particular classes, they are the major class. They, in other words, workwe are competing head to head with the Canadians on spring wheat and durum all over the world. And we are getting our legs chopped off from underneath us. So it is a subclass durum and spring wheat. Our feeling is it shouldn't be recognized with all the other classes of wheat when it comes to these particular issues.
Mr. POMEROY. It doesn't take a lot of import levels just to totally blow this smaller subclass away?
Mr. LEE. Right. If you take the overall picture, yeah, they are small. When you take our subclasses of wheat, it is very important, and they are larger than we are. So we would like it bigger.
Mr. POMEROY. As a farmer, are you getting your production costs back in market prices presently?
Mr. LEE. No, we are a long ways from it. I sold my barley, quite a bit of my barley a $1.20 bushel. This past year it was $2.86 I sold it for last year. A year ago, I got $4.75 to $5 last year for my durum wheat. This year, the average price will be $3.20 a bushel.
Mr. POMEROY. A Canadian farmer can bring his product intowith the Canadian Wheat Board?
Mr. LEE. The wheat board.
Mr. POMEROY. An important distinction: The Canadian Wheat Board can bring their product into our market and sell it at this time at severely depressed prices. Does it raise questions in your mind as to whether there must be some subsidizing activities occurring to make that venture profitable?
Page 61 PREV PAGE TOP OF DOC Mr. LEE. Something has to be occurringwhether they are subsidizing the freight rates or however they are doing it, inadvertently, Canadian farmers are suffering just as bad as we are. How much worse, I am not sure. There has to be something going on. There is no way that our domestic markets should be buying Canadian durum right now. Our bins are running over, and there is no reason, unless they are getting a definite price break, that they should be considering Canadian durum.
Mr. POMEROY. A question for Mr. Karst. You alluded to it in your testimony, this whole notion of shipping. Now, if you wanted to call product into Canada, to avail yourself of their transportation network to get your product to the market ultimately on the west coast, could you?
Mr. KARST. It would be very, very difficult because of the licensing of the infrastructure, of the elevator system, the primary elevator system. Any product I ship north would have to be identity-preserved and then, because about half of the railcar fleet in Canada is owned by the Government of Canada, it is very, very difficult to obtain railcars for the shipment as well.
Mr. POMEROY. So among the areas where there is utter lack of reciprocity, irrespective of volumes of import activity, they can use our transportation system but we can't use theirs?
Mr. KARST. Very, very difficult for us to use their transportation system; yes, sir.
Mr. POMEROY. Thank you.
Mr. BARRETT. Thank you.
Mr. THUNE. Thank you, Mr. Chairman.
I direct this to either or both Cattlemen and Pork Producers Council. But, Mr. Buell, you indicated in your written testimonyand we are all well aware of the efforts here in the Congress on labeling and price reporting provisionsthose have been struck from an appropriations bill. There are a number of livestock producers in my State for whom this is a very important issue.
Page 62 PREV PAGE TOP OF DOC I am just wondering what your thought is with respect to country of origin labeling and what impact that might have on price. With respect to the price that is being paid to cattle producers, is this the single most important issue? Is this the best way that we can help the livestock industry?
Mr. BUELL. I think it is an important issue, and I do think when you lookthere are some health concerns as far as beef safety. I do think with U.S. cattle, we have worked hard in this country to give that added value. And I think if the consumer out there knows that that is U.S. beef, it will add some value. I think that there are other ways, other things that can be done in relation to this issue, which will add more value to our product; one being equal access to go across those borders; that is, freely going north as coming south; to look at the subsidies that might be going on up there in Canada; and to also address the USDA grade shield and the way it is being used by these imported products coming into the United States. I think country of origin labeling is important, but not any more important than addressing some of these other issues.
Mr. THUNE. One of the arguments that has been made against country of origin labeling is that the potential increased costs associated with that, as other countries retaliate and so forth, will be passed on to our producers in the form of lower prices; is that a concern?
Mr. BUELL. That is not a concern to me. I think I would like to have other countries know that that is USDA grade or USDA U.S. beef, and the value can also be realized in those other countries as well.
Mr. THUNE. You mentioned the USDA grade shield. As I understand, there are at least six drugs prohibited from use in the United States which are not prohibited from use in Canada, and I can't even pronounce all of them, but four of which are said to cause cancer in humans, and two of them to seriously reduce a person's options for the treatment of infection.
Page 63 PREV PAGE TOP OF DOC When you talked about the U.S. grade shield and some of the product that comes into this country, do you perceive a public health safety issue there that is associated with the use of the drugs that they have that we are not able to use?
Mr. BUELL. There certainly could be. When you go acrossrealize when you go across borders and you have different countries, there are going to be different laws and regulations. But the fact that we cannot use certain drugs. The fact that we cannot do certain things, can also add costs, which I think was mentioned earlier in some of the testimony today. And if they have advantages because of certain ways that they can do things and what drugs they can use, then that once again unlevels the playing field, and possibly there could be health concerns, I am sure.
Mr. THUNE. Well, it is one of the things that is mentioned in the letter from our Governor. He mentions the public health issue and enumerates 11 specific items where he thinks we are operating at an unfair disadvantage with the Canadians, many of which have been touched on today. And I hope again these are things that can be addressed in the context of some of these negotiations that are going on right now.
Let me just ask one other question with respect to the negotiations that are going on today. What is your hopeand anybody can answer this, I supposewhat do you hope that we can accomplish through the negotiations that are underway?
Mr. BUELL. I would hope that the things I have mentioned earlier, that we can have equal access, that cattle can move just as freely going north across the border as they do coming south. I would hope that the USDA grade shield, which we have brand equity in the United States, cannot be used on cattle imported into this country. And then I would hope that if it is found that there are subsidies that give unfair advantage to Canadian products, then that would in some way be changed, or there would be countervailing duties.
Mr. KARST. I would like to add to that. I think it is very important that we continue to emphasize the thought put forward by Mr. Peterson, I believe, that Canada, as we enter into new trade talks, Canada has a vested self-interest to make sure these trade issues are solved so we can enter on a united front to attack some of the European policies that are the larger enemy. So why irritate us now with actions of the wheat board and the way that they are doing things, when they may jeopardize future trade agreements?
Page 64 PREV PAGE TOP OF DOC Mr. JOHNSON. I would certainly echo those comments. I think it is time that we really expand our thought process beyond just a bilateral situation, to try to enter the world market as a North American agreement. I think that the pork producers of both Canada and Mexico should meet on a routine basis with the U.S. pork producers. And we feel that is a very, very attainable goal over the next several years to be a force in the world market, as the EU has tried to now make it a world market.
Mr. THUNE. Mr. Lee, anything to add to that?
Mr. LEE. We got the reciprocity with chemicals. We have got all of these issues we would like to get through. And I think those are some of the faster ones they can resolve, so I hope they would take the simple ones first and get them out of the way, without then hanging up for months on some simple issues that should be fairly easily resolved.
So I think if we can get our act together, we can go to the world as a unified market and be a real force, but right now we are just beating each other up and there is no point in that.
Mr. THUNE. I thank you. I hope that it is successful. I don't think that any of the Governors want, as a long-term practice, to have to spend their resources stopping trucks at the border. So I hope these discussions yield some results and some of these issues at least can be addressed, so that we can go on to the broader issues.
And would the Chairman indulge me one last question?
Do you all see anything specificallyand we talked about labeling and price reportingbut from the aspect of Congressional action, anything that Congressoversight like what we are doing todaycan do to see that our trade policies are being enforced and apply additional pressure to the administration to get up there and have these discussions with the Canadian Government? Anything in terms of specific legislation?
Mr. KARST. I think it is extremely important, the thought put forward by many people today, that we have to view the Canadian Wheat Board as anticompetitive, and bring it under our anticompetition laws. If there is a way to do that, to address the problems of foreign monopolies disrupting the U.S. marketplace, then I think we have to use our competition laws to do so.
Page 65 PREV PAGE TOP OF DOC Mr. LEE. I guess I would echo Mr. Peterson's wish that we get to see that agriculture gets a recognizablea good seat at world trade talks. I think that is of utmost importance that we get in there. I would also like to see some good thought put into it before we get there; you know, a good long-term negotiator put in place. And I think that is part of this congressional oversight committee's job.
Mr. BUELL. The only thing I would addand I think we have to have trade, it is needed to make our industry be viable, we need to export cattlebut I think the role here would be to make sure that we are treated fairly in any kind of negotiations and any kind of trade laws that we have. It is never going to be a perfect world and we have got different laws, we have got different taxes, but the Congress should make sure that we are treated fairly and then, where laws are in place, that those laws are abided by.
Mr. JOHNSON. Again, I would echo the comments of my predecessors here and my colleagues, that we need to make sure that we are at the table; that we do expand the opportunity for U.S. agriculture to trade in the world markets. I think thisI always said that the United States has a very, very good agricultural production. We need to get that production into the world market, and I think that you and Congress can help us do that as much as anyone.
Mr. THUNE. I appreciate the remarks of the panel, and would simply add that as we discuss trade issuesand I think we worked hard, this committee worked hardto see that the fast track legislation that we voted on last week continued agricultural safeguards that will strengthen the negotiating of agriculture. I hope that we never take agriculture for granted in future trade discussions.
So I thank the Chair and I thank the panel.
Mr. BARRETT. I thank the gentleman. I too thank the panel. It was very interesting testimony. As you know, your written testimony will be made a part of the permanent record. I would also like to insert at this point an opening statement by Chairman Bob Smith, who was unable to be with us today, but this will remain part of the permanent record as well.
Page 66 PREV PAGE TOP OF DOC The Chair would 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 witnesses to any questions posed by any member of the panel.
Without objection, so ordered. This hearing of the Subcommittee on General Farm Commodities is now adjourned.
[Whereupon, at 12:36 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Hon. Rick Hill, a Representative in Congress from the State of Montana
Thank you, Mr. Chairman, for holding this hearing and for allowing me to testify on this very important subject. The issue of United States/Canadian agricultural trade is of paramount importance to the farmers and ranchers in my home State of Montana, who are experiencing some of the lowest prices since the Great Depression. I'm also pleased to be joined by my fellow Montanan and president of the National Barley Growers Association, Herb Karst.
Resolving these controversies has the potential of elevating prices our farmers and ranchers receive while creating a level playing field along our northern border. It's important to note that I support the principles of free trade, however I have serious concerns with the implementation of NAFTA. Many of those concerns are addressed in my FARMS Act, but I appreciate the opportunity to discuss these issues before the subcommittee.
Mr. Chairman, as I travel throughout farm and ranch country in Montana, particularly during the August district work period, I hear almost universal concern over the lack of reciprocal and fair agricultural trade with Canada. Farmers along the hi-line in Montana constantly see truck after truck carrying cattle and grain pouring across the Montana border, but our producers do not have similar access to Canadian markets. In 1995, Canada shipped 1.3 million live cattle into the United States, compared to 25,000 U.S. cattle exports into Canada. In 1996, 1.2 million of Canadian cattle imports came to the United States compared to 24,000 American cattle exports into Canada. In 1997, Canadian cattle imports into our borders were 1 million compared to 27,000 U.S. cattle exports into Canada. So far in 1998 alone, Canada has imported 830,000 live cattle to the United States compared to approximately 30,000 U.S. cattle exports into Canada. That means our cattle exports into Canada represent just 4 percent of what Canadians ship into our borders. As a result of this trade imbalance, a group of cattlemen in the northern plains, called R-CALF, have banded together to help force the International Trade Commission to act. I support their effort.
Page 67 PREV PAGE TOP OF DOC Mr. Chairman, our cattle ranchers do not have a level playing field with their Canadian counterparts. First, Canadian cattle enter our markets as domestic cattle since they have access to the USDA grading system. This is a masquerade that must be changed. American cattle destined for Canada must go through an extensive process filled with hurdles: From the point of shipment, all cattle must be tested for brucellosis, tuberculosis, anoplasmosis and blue tongue. This represents an added $25 per head. Then the cattle must go to a registered feedyard and receive 30 days of antibiotic treatment. Cattle coming into the United States will not go through any testing or quarantine.
In addition, Canada imposes a $24 fee for the first feeder and $1.25 per additional animal, while the United States imposes just a $1 fee per every feeder. At a truckload of 70 feeder cattle, U.S. producers must pay $112 per truck versus $70 for Canadian cattle. Obviously, the feedlot operator or packer doesn't bear this costproducers bear the costs in lower prices. Similar hurdles like I have just described also exist for swine and sheep producers.
There are many other instances where Canada imposes unfair requirements to stifle opportunities for our grain producers. For example, on June 16, 1998 Canada began requiring a phytosanitary test on feed barley entering Canada after a rally took place in Sweetgrass, MT. This new test added $35 per truck load and imposed additional and unnecessary time delays. The Canadian Government has not provided a reason for the sudden imposition of this new requirement.
Although not as extensive as cattle testing, the Canadian Government requires all U.S. wheat and barley to be certified as karnal bunt free at the point of shipment. These costs are substantial and incorrect. It is virtually impossible to export American malt barley and milling wheat into Canada due to its marketing system. Canada is also considering imposing tests for other smuts. America does not require any tests whatsoever for grain imports. In addition, Canadian producers can use pesticides and herbicides that are deemed illegal but can still export that wheat into our markets. Again, this creates an unlevel playing field.
Page 68 PREV PAGE TOP OF DOC Recent producer rallies not only have the attention of Congress, but of Governors as well. Last week, the Governors of Montana, Idaho, Wyoming, North Dakota, South Dakota, Nebraska and Minnesota met with Agriculture Secretary Glickman after they imposed stringent inspections on trucks arriving from Canada. At the eleventh hour and almost a year after they made commitments to myself and my distinguished North Dakota colleague, Earl Pomeroy, the Clinton administration has finally decided to sit down with the Canadian Government to address our concerns. Mr. Chairman, I ask unanimous consent to enter their specific concerns into the record. As a result, the Governors have given the administration 90 days to negotiate tangible results. I would hope that the Administration allows those Governors an opportunity to negotiate along side of American trade representatives with their concerns.
Mr. Chairman, as I stated before, this is a real problem on both sides of the border. I'm proud to be joined by a Canadian Member of Parliament, Jake Hoeppner, in my effort to bring trade reciprocity and price transparency to our borders. I met with Jake almost a year ago to discuss what we can do together to benefit our producers. At the time, he handed me a large binder which I have here before me detailing how the Canadian Wheat Board is in direct violation of NAFTA. In a recent press release, Jake stated:
''Since my election in 1993, I have been claiming that the Canadian Wheat Board must become more transparent and accountable to its producers and trade partners. This concern is further supported by new documentation that has been provided to me recently, suggesting the possible dumping of large shipments of off-board Canadian grain into the U.S. market. Both the Canadian and American agriculture industries need transparency and accountability to provide a fair and level playing field.''
Mr. Chairman, there are a number of things we can do to provide a level playing field:
Above all, require the Clinton administration to negotiate fair price reporting and transparency for cattle and grain imports. Until that is accomplished, I advocate returning back to pre-NAFTA cattle and grain quotas.
Page 69 PREV PAGE TOP OF DOC Utilize our export enhancement program to export grain and recover our lost market share. Due to economic sanctions on countries like North Korea, Libya, Cuba, Sudan, Iran, we have lost 11 percent of the world wheat market. The per bushel impact is over 42 cents per bushel for this past year and will be nearly 60 cents for the current marketing year.
Mandatory Country-of-Origin labeling for beef and lamb products. If we can require labels telling us how to cook a hamburger, we can certainly require a label telling consumers where their hamburger came from.
Require the Canadian Wheat Board to open up its books for inspection. To date, they have rebuffed the General Accounting Office's requests. Subject the Canadian Wheat Board to U.S. anti-competition laws due to its monopoly.
Elimination of Canadian access to the USDA grading system for live cattle and carcasses entering the United States. This masking of Canadian cattle is unacceptable and must be eliminated.
Conform our pesticide and herbicide registration laws with with Canada's more common-sense laws.
Eliminate phytosanitary restrictions such as the one I recently discussed on feed barley and wheat.
Mr. Chairman, these are just some of the many items the Clinton administration and the Congress can adopt to level the playing field.
In conclusion, I commend you for initiating this dialogue in the Congress. The benefits of reciprocal trade will lift all boats. Until our producers can compete on a level playing field, we must act to protect them from unfair, predatory practices from our Canadian neighbors. I look forward to working with you, other distinguished colleagues and the Clinton administration to accomplish these goals.
Page 70 PREV PAGE TOP OF DOCTestimony of Herb Karst
Thank you for the opportunity to appear before the subcommittee this morning. I am Herb Karst, a barley and wheat farmer from Montana and currently president of the National Barley Growers Association.
The current conflict in agricultural trade between the United States and Canada is both simple and complex. To most farmers, it seems so basic. They can understand this period of low prices when they see US production high and our export markets in Asia shrinking due to the currency crisis in that part of the world. And they realize that the European Union, one of our major competitors, is using export subsidies of up to $75 per metric ton to capture other prime markets in South America, the Middle East and North Africa. But most aggravating to them is the fact that even with these low prices, imports of barley and wheat from Canada continue to increase as that country seeks a non-subsidized, currency-rich market to clear it stocks of grain. They are being told by the U.S. Government that even the appropriated dollars for the Export Enhancement Program would not be effective in combating European subsidies since at the same time the Canadian Wheat Board uses its discretionary pricing abilities to clean out its own burdensome grain stocks in the barley malting plants and wheat flour mills of the United States. They see correctly that the low prices are a result of too much grain but question the equity in seeing Canada's surplus production piled on top of ours. This is not the market rationing available supplies, rather it is a monopoly dominating a free market place to its own advantage.
My fellow barley farmers are angry and seek answers. They resent the trade agreements that allowed such an inequity and wonder if our market oriented, domestic grain policy can survive this assault by our trade competitors who show little sign of being market oriented in their sales policies. They see all of these actions as being unfair competition and a cause of their present financial distress.
But the issue is also complex, for even if the problems of export subsidies and marketing monopolies were to vanish, the US farmer is facing some cross border issues that are less transparent and yet add so much fuel to the current economic crisis in our Northern Tier States.
Page 71 PREV PAGE TOP OF DOC The first of those issues is transportation. The barley producing regions of our country are served primarily by one of two western rail lines. Nearly all are captive shippers without rail competition. Rail rates to ship barley to the Pacific Northwest are nearly double what is paid by Canadian producers to ship to Vancouver. Additionally the Canadian farmer can move his grain to market in semi-trucks which can legally carry nearly 35 percent more payload than is authorized on U.S. highways. And finally, Canadian grain can move to US markets on the water, while the Jones Act has effectively ruled out that form of shipment for US grain to US markets.
Second, the U.S. producers lack competitive equality with their Canadian neighbors in the use of pesticides. The registration process in the United State for new farm chemicals is slow and expensive. As a consequence the product such as Achieve, a wild oat herbicide, which is both cheap and effective, and has been routinely used to assist the production of Canadian barley, is still not labeled by the EPA for use here. A secondary problem of this slow registration process is that without competition from other herbicides, a chemical company can then charge more for the fewer choices left for the U.S. farmer. Consider the fact that the Asset, another wild oat herbicide is priced at $14.75 an acre in the United States while it is available for $8.25 across the border. Or Hoelon, still one more wild oat control chemical, is $14.65 per acre here and $8.12 in Canada. Fargo and Avenge also have pricing discrepancies based on national boundaries. Yet these chemicals, which are sold in Canada but do not carry an EPA registration number on their label, cannot be imported even though the chemistry and formulation are identical.
A third issue is the adoption of new technologies in alternative crops. While our Canadian competitors have been producing herbicide resistant canola for three years with much of that production destined for the U.S. market, our own farmers still have not been received clearance to plant that same commodity.
Page 72 PREV PAGE TOP OF DOC Finally, the Wheat Board has control over the Canadian domestic food market, over the allocation of rail cars, and over the licensing of both grain handling facilities and varieties of grain. All of that monopolistic control means ultimately that U.S. farmers have access to few marketing opportunities in Canada.
So the ultimate dilemma facing U.S. agriculture is this: We lack the pricing flexibility to move grain into export markets given the fully commercial restraints on our U.S. exporters. They simply have no way to compete with export subsidies. And domestically, we face competition from a state trading enterprise which, in a public statement a few years ago, arrogantly proclaimed that it had the flexibility to be as competitive as necessary to maintain its market share. We must get the world to accept greater disciplines on both state trading and on export subsidies. Until that happens, and just as the United States refused to accept subsidized barley from the European Union, we must also insist that all trades by the Canadian Wheat Board are at market prices. We must further insist that their monopoly status does not give them priority in our marketplace. To be able to trade in future deliveries with no risk in acquiring supplies is simply corporate price fixing. Surely our anti-competition laws should apply to foreign as well as domestic impediments to free and open marketing. Neither U.S. nor their own Canadian producers are well served by pricing secrecy.
Clearly U.S. farmers also need to be able to avail themselves of efficient production aids and transportation systems if we are to remain competitive. I caution both our rail and chemical companies to provide U.S. farmers with more lucrative pricing options lest the current inequities ultimately lead to more regulation. I further urge Congress and the EPA to consider the merits of harmonizing our chemical registration process with that of Canada.
I think it is evident by the news reports of the recent weeks that actions are needed soon to quell the rising tide of discontent with U.S. agricultural trade polices. I trust that my comments today provide some perspective on what actions may let our farmers compete fairly and finally realize the benefits that both trade agreements and our market based farm programs promised.
Page 73 PREV PAGE TOP OF DOC
Testimony of Karl Johnson
Chairman Barrett, Congressman Minge, and members of the subcommittee, my name is Karl Johnson. I am a past president of the National Pork Producers Council (NPPC) and currently serve as the chairman of NPPC's Trade Committee. This year, I will also become the chairman of the U.S. Meat Export Federation. My brother and I run a family-owned, farrow-to-finish hog operation in Mankato, Minnesota. We also grow corn and soybeans. I am testifying today on behalf of the NPPC, its 44-member State organizations and America's pork producers. I would like to thank the subcommittee for the opportunity to address an issue of great importance to the U.S. pork industry.
The National Pork Producers Council is dedicated to enhancing the opportunity for success of each participant, regardless of size, in the U.S. pork industry. Our fellow producers are our utmost concern. However, we have long recognized that no one sector of the pork value chain can be successful for long without the others. Therefore, all of our decisions are made with the total industry in mind. That's the perspective I to bring to this hearing.
STATE OF THE INDUSTRY
According to a recent Iowa State University study, the U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 billion annually in total economic activity. U.S. pork producers use 1.065 billion bushels of corn annually, valued at $2.558 billion. Feed supplements and additives represent another $2.522 billion of purchased inputs from suppliers that help support U.S. soybean prices, the U.S. soybean industry, local elevators and transportation services based in rural areas. In short, pork helps maintain a strong U.S. agricultural economy.
Page 74 PREV PAGE TOP OF DOC The U.S. pork production levels are skyrocketing. If we maintain our current pace, the U.S. pork industry will slaughter a record 100 million hogs in 1998. Unfortunately, this record production has weakened hog prices. Prices in September dipped below $30 per hundredweight and were at the lowest levels in September since 1972. Another record production year is expected in 1999 making exports more important than ever.
EXPORTSTHE LIFEBLOOD OF OUR INDUSTRY
From the standpoint of exports, pork is even more valuable to the U.S. economy. The U.S. pork industry has reaped tremendous benefits from recent trade agreements. Since 1995, when the Uruguay Round Agreement went into effect, U.S. pork exports to the world have increased by approximately 61 percent in volume terms and 84 percent in value terms from 1994 levels. This would not have happened without NAFTA and other trade agreements. These dramatic increases were especially notable in Japan and Mexico, two nations with whom the United States successfully negotiated greater market access under the Uruguay Round and NAFTA, respectively. U.S. pork now has over 95 percent of the Mexican pork import market and in 1997 Mexico was the pork industry's second most important market behind Japan in terms of value.
Recent statistics for 1998 show this upward trend continuing. Despite the instability of the Asian economies, our exports for the first seven months of this year have increased 27 percent in volume and 7 percent in value over the same period of time last year. However, should the trend in Asia continue and if Russiaour third largest export marketslip further into financial instability, our export outlook could be precarious.
According to a study conducted by CF Resources, Inc., exports were so important to the industry in 1997 that cessation of exportsdue for example to an embargo or animal disease outbreakwould have caused cash hog prices to plummet by $15.73 per head. Research conducted by the Economic Research Service (ERS) of USDA indicates that for each dollar of value-added agricultural exports such as pork, $1.63 in additional U.S. economic activity is generated. Moreover, ERS calculates that every billion dollars in pork exports creates an additional 23,000 new jobs in the U.S. economy. Export-related jobs pay higher than average wages, providing good-paying jobs for American workers in rural and urban areas throughout the nation.
Page 75 PREV PAGE TOP OF DOC Secretary Glickman has said ''either we export or we die.'' He is right. In the U.S. economy at large, agriculture is the number one positive contributor to the U.S. trade balance. American agriculture is more than twice as reliant on foreign trade as the U.S. economy as a whole, with exports currently accounting for an estimated 30 percent of agriculture's cash receipts. We have a mature market for pork and other agricultural products in the United States. However, the other 96 percent of the world, which lives outside our borders, is experiencing rapid economic growth. The first thing that people do when they move up from poverty is upgrade their diets. Simply put, without stable and expanding international markets, pork producers will lose billions of dollars in the short term and could lose their comparative advantage in the long run.
Make no mistake about it, the data confirm the experience of my family and other producers across our great nation: America's pork producers significantly benefit from international trade. We are the lowest cost producer of the safest, highest quality pork in the world. We are positioned to surpass Denmark as the number one exporter of pork to the world within the next few years. However, we understand that free trade is a two-way street. We as producers realize that you cannot be a net exporter to every country at all times. We must practice what we preach: open markets and the acceptance of fairly-traded imports.
It should be hardly surprising that pork producers have led the charge on renewing fast track trade negotiating authority, on fully funding the International Monetary Fund, and reforming U.S. sanctions law. These matters are critically important to pork producers because they provide stability in markets, keep markets growing and open new markets to our exports.
CANADAAN IMPORTANT TRADE PARTNER
U.S. pork exports to Canada have increased pursuant to the NAFTA (and previously under the United States- Canada Free Trade Agreement) in both volume and value terms. While the United States remains a net pork importer from Canadaa much smaller country that exports a high percentage of its productionthe trade gap is being narrowed. Between 1992 and 1997, U.S. pork exports to Canada increased by 300 percent to 46,628 metric tons, while pork imports from Canada remained fairly constant at just over 350,000 metric tons.
Page 76 PREV PAGE TOP OF DOC In 1997, Canada was the third largest export market for the U.S. pork industry. Currently, Canada is the fourth largest U.S. pork export market and at 28,707 metric tons is up 10 percent over the comparable seven-month period of 1997.
Martin Rice, the executive director of the Canadian Pork Council, indicated earlier this year that the amount of pork imported by Canada is rising at a rapid pace. The bulk of the growth has been in unprocessed pork, primarily from the United States from which over 90 percent of our pork imports now originate. The United States, on the other hand, accounts for approximately 50 percent of the Canadian pork exports. This is a significant decline from the 76 percent of the export market the United States made up in 1991.
Over 10 years ago, the National Pork Producers Council filed a countervailing duty petition with the U.S. Government against Canadian hog imports because of Federal and Provincial subsidies in Canada. The U.S. Government conducted an investigation and levied countervailing duties on the Canadian hog imports to offset the Canadian subsidies. Subsequently, the Canadian subsidies were reduced to such a point that the United States no longer imposes any countervailing duties.
The countervailing duty order on hog imports from Canada remains in place. The order is reviewed annually by the U.S. Department of Commerce. If the Canadians increase subsidies above current de minimis levels, the United States will again levy countervailing duties.
With record hog slaughter in the United States this year, the importation of hogs from Canada has become a political issue. Canadian hogs are being imported into the United States for various reasons which include: the reduction of certain subsidy programs in Canada and the resultant reduction in the countervailing duty; the precipitous decline of the Canadian dollar against the U.S. dollar; and, the ability of U.S. plants to bid more for hogs than their Canadian counterparts which lag in production efficiency.
Page 77 PREV PAGE TOP OF DOC Because Canada ended subsidies such as the Crow Pass which facilitated east-west movement of grain and trade, Canadian agricultural products, including hogs and pork, are now moving south in much great numbers.
Since 1992, when one U.S. dollar was worth between 1.15 and 1.25 Canadian dollars and the present time when the U.S. dollar has surged in value to over 1.5 in value vis-a-vis the Canadian dollar, U.S. imports of Canadian hogs have increased from 670,000 head to an anticipated 5 million head this year.
However, the cessation of Canadian subsidy programs and the relative value of currencies do not explain the entire increase in imports. While Canada produces only 16 million hogs per year, the inherent problem is their processing facilities. Canada maintains less than one-third of the number of federally inspected meat packing plants than does the United States. Moreover, the sales revenue generated by these packing plants is dramatically different. In 1995, Canada generated approximately 9.6 billion Canadian dollars worth of meat while the United States generated 69.5 Canadian dollars.
The U.S. industry has undergone a substantial transformation in the area of production line speed over the past few years. Current technology allows plants to operate at line speeds at up to 1300 carcasses per hour. Many of the newest plants have this technology and most are located in the upper Midwest states where they can compete directly with Canada for Canadian hogs. Only three of the 37 U.S. plants have smaller capacities than Canada's largest plant. Thirteen U.S. plants have at least twice the capacity of Canada's largest. While the majority of the U.S. plants run at double shifts, none are double shifted in Canada. In fact, when comparing the top 16 U.S. companies with the entire Canadian packing system, the weekly capacity of the top U.S. packers is almost six times greater.
The packing plants in the United States not only mean added dollars to the economy, but they also mean more U.S. jobs. Our plants employ around 140,000 more people than the Canadian packing plants. This translates to roughly $3.8 billion more in the pocketbooks of American workers each year.
Page 78 PREV PAGE TOP OF DOC The bottom line is that U.S. pork producers have benefited in the past, and will benefit even more in the future, from international trade. While the thought of promoting exports and banning imports might have appeal to some, it is a policy that cannot succeed. The fact that the United States has a trade deficit in hogs/pork with Canada means little as long as that trade deficit is engendered by natural market forces and not by subsidization or other unfair means.
The National Pork Producers Council does not believe that the recent actions along the U.S./Canadian border will be advantageous to agriculture, foreign relations or trade in any way. In fact, these demonstrations of frustration over low commodity prices directed at Canada may be to our disadvantage to the extent that they invite copy-cat actions and undermine our massive share of the global market in agriculture.
We do not deny that there are agricultural trade issues with Canada that require attention. For example, pork producers have been trying, without much success, to get the Canadian Government to regionalize U.S. states on the basis of their status on pseudorabies virus (PRV). Canada has prohibited the importation of hogs from the United States for slaughter in Canada because of the presence of PRV in some areas of the United States. Many states in the U.S. have eradicated this disease, however, and NPPC has argued that such states should be eligible to export hogs to Canada for slaughter.
We are aware of problems faced by producers in other sectors of U.S. agriculture. We believe these problems need attention and suggest that the United States and Canada hold an agricultural trade summit and begin to resolve these issues. Further action at the border will be unproductive and will provoke Canada to retaliate against our exports. Moreover, other nations are likely to copy our actions, thereby endangering U.S. exports, the longer we let this situation fester. We have Canada's attention, let's talk to resolve these issues. We should be working together with our neighbors, not against. NPPC meets twice a year with its Canadian counterparts and has made great strides in narrowing the differences between producers in the two nations.
Page 79 PREV PAGE TOP OF DOC Moreover, the United States and Canada should set their collective sights much higher than resolving bilateral agricultural trade issues. Without question, we are moving to a single North American market. Whether we in agriculture like it or not, we will have to work closely with the Canadians. At the government level, NPPC believes that the United States and Canada should be working together more to open foreign markets and move low-cost, high quality North American agricultural exports.
Canada has been a solid trading partner and should not be cast as a demon merely for political advantage. The costs to U.S. agriculture and the U.S. economy as a whole could potentially be disastrous.
In conclusion, Mr. Chairman, I would like to commend you, Mr. Minge and the majority of the members on this subcommittee and the House Agriculture Committee for their courageous vote recently on renewing fast track trade negotiating authority. You and the other Members stood up for America's farmers and ranchers at a time when we needed it the most. Your votes should prove to your farmers back home and to the world market that America is not afraid to compete. Our products, goods and services are the best the world has to offerand fast track will only be advantageous to the U.S. economy. NPPC and the Agriculture Coalition for Fast Tracka group of 80 food, fiber and agribusiness organizationsplan to redouble our efforts on fast track so as to bring a successful resolution in the spring. Full IMF funding and sanctions reform continue to be top priorities for the NPPC as well. We continue to urge Congress to approve the full $18 billion to the IMF this session.
Statement by Homer Buell
Chairman Barrett and members of the subcommittee, my name is Homer Buell. I am currently serving as the president-elect of the Nebraska Cattlemen, the State association for Nebraska's largest agricultural industry. As my curriculum vitae states, my brother Larry and I and our families own and operate a cow-calf and stocker operation near Rose in north central Nebraska. On behalf of the Nebraska Cattlemen membership, I appreciate that you have scheduled this hearing on issues that are top-of-mind concerns among producers in Nebraska.
Page 80 PREV PAGE TOP OF DOC When you talk to cattle producers and others in agriculture, they are clearly despondent and frustrated. They watch as Canadian import numbers increase, and then watch several more trucks loaded with Canadian fed cattle arrive in Nebraska for slaughter. They ask questions regarding, with the low fed cattle prices in the United States today, how can the Canadians afford to ship cattle 1,2001,400 miles to be slaughtered in Nebraska? Do monetary policies or subsidies offset at least a portion of the transportation costs? Or, do the United States and Canada really implement their trade agreements differently?
The United States is recognized as the largest beef producing country in the world, representing 35 percent of world beef production in 1996. We are also a world leader in beef exports, ranking second to Australia with 28 percent of all world beef exports in 1996. The U.S. primarily exports higher-valued cuts of beef and veal.
The United States is also the largest single-country beef importer. The U.S. annual quantity share of the world fresh beef import market averaged 16.5 percent between 1980 and 1994. Beef imported to the United States is primarily lower quality, manufacturing-grade (ground) beef.
In an attempt to summarize this trade data, I offer the following. The United States is a net importer of live cattle from Canada and Mexico, a net importer of beef from Canada, and a net exporter of beef to Mexico.
Canada has throughout recent history been a significant trading partner with the United States in cattle and beef. In fact, USDA data in the table below comparing U.S. and Canadian beef imports and exports during the time period 19851997 shows very interesting trends.
Beef Imported from Canada
1985: 460 million lbs. 1997: 1,675 million lbs. Percent change: + 364 percent
Page 81 PREV PAGE TOP OF DOC Total U.S. Beef Imports
1985: 2,619 million lbs. 1997: 3,775 million lbs. Percent change: + 144 percent
Beef Exported to Canada
1985: 25 million lbs. 1997: 282 million lbs. Percent change: + 1,128 percent
Total U.S. Beef Exports
1985: 413 million lbs. 1997: 2,326 million lbs. Percent change: + 563 percent
While the U.S. beef industry is a net exporter of beef, live cattle, beef by-products and hides on a value basis, in 1997 the United States imported 6 pounds of beef from Canada for every 1 pound of U.S. beef exported in return. Our balance of beef trade with Canada is a very important issue to cattle producers in Nebraska and across the United States.
This increase in imports and exports in part is due to changes as a result of the implementation of the United States/Canada Free Trade Agreement in 1989 and the 1994 North American Free Trade Agreement that eliminated most tariffs on trade in live cattle, beef and beef by-products. But there is a great deal of unrest in many parts of the United States as a result of the impacts of liberalized trade agreements, including petitions to the International Trade Commission seeking relief from Canadian imports of live cattle and beef. The Nebraska Cattlemen Board of Directors recently voted to support these petitions as a means of assuring that our international trade laws are being adequately enforced.
The Nebraska Cattlemen supports free trade, but to be effective, international trade policies must also be fair. In my testimony today, I will elaborate upon several issues that we believe must be addressed to make trade with Canada both free and fair. These issues include: country of origin or import labeling; use of the USDA grade shield on imported beef products or imported live cattle; the need for more timely import/export trade information; and allowing U.S. cattle to cross the border into Canada more freely.
Page 82 PREV PAGE TOP OF DOC Import or Country of Origin Labeling. Significant discussion has been given to the topic of import or country of origin labeling on imported beef products. These issues have arisen for many reasons, not the least of which are food safety concerns and extremely burdensome supplies of beef and competing meat in the U.S. and world marketplace. But another important factor is that, during times of large beef supplies, many Nebraska producers continue to see Canadian trucks loaded with market ready cattle entering Nebraska processing facilities.
I also realize that import meat labeling, along with mandatory price and volume reporting requirements, were recently stricken from the Senate version of the Agricultural Appropriations bill by House conferees. The Nebraska Cattlemen remain supportive of both measures, and encourage this Committee to restore these two important measures as soon as possible.
The following is an overview of various laws with respect to the labeling of imported food products. The lions-share of the information below was taken from a May 2, 1997 CRS Report for Congress, 97508 ENR, authored by Geoffrey S. Becker.
Tariff Act of 1930. Under Section 304 of the Tariff Act of 1930 as amended, every item imported into the United States must be conspicuously marked in English to indicate to the ultimate purchaser its country of origin. The U.S. Customs Service, who administers the Tariff Act, defines the ultimate purchaser as the last U.S. person who will receive the imported product in the form in which it was imported. If products are imported in retail-ready packaging, then the retailer who offers the product to consumers is considered the ultimate purchaser.
If the imported product is destined for a U.S. processor or manufacturer where it will undergo ''substantial transformation'' (as determined by Customs), then that processor or manufacturer is considered the ''ultimate purchaser.'' Certain imported items are considered exempt from these labeling requirements, namely those products found on the J list [section 1304(a)(3)(J)]. The J list includes a substantial number of agricultural products, including imported beef products. This exemption dates back to the 1930's, and has remained relatively unchanged since that time. When imported, the immediate containers for these products must be labeled as to their country of origin. Customs has also determined that products offered loosely from a bin (i.e., grapes at the grocery store) are not required to be labeled. On the other hand, products that are repackaged (tomatoes repackaged under cellophane) are required to be labeled.
Page 83 PREV PAGE TOP OF DOC Meat and Poultry Inspection Programs. USDA's Food Safety and Inspection Service (FSIS) is responsible for the safety, wholesomeness, and labeling requirements for all meat and poultry products imported to the United States for human consumption. The Federal Meat Inspection Act (21 U.S.C. 601 et seq.) and the Poultry Products Inspection Act (21 U.S.C. 451 et seq.), require that the country of origin appear in English on the immediate containers of all meat and poultry products entering the United States. Country of origin labeling must also appear on all individual, retail-ready packages of imported meat products and on imported bulk products, such as carcasses or boxed-beef destined for further processing in the United States. However, once these non-retail items enter the United States, they are considered by FSIS to be domestic products.
When they are further processed in USDA-inspected meat or poultry establishments, imported beef products are no longer required to be labeled as to their country of origin. USDA has considered tasks such as cutting a larger piece of meat into smaller pieces to be substantial transformation, and the resulting product is not required to be marked as to country of origin. A key point to note is that, although country-of-origin labeling is not required by USDA after an imported item leaves the processing plant, the Department has the discretion to permit labels to cite the country of origin if requested to do so by the processor. This includes recognizing that the United States is the product's country of origin.
Conflicts between Interpretations by Customs and USDA. Although meat imports are required to comply with meat inspection regulations listed above, they are also required to comply with the Tariff Act of 1930 mentioned earlier. In conversations with USDA and Customs officials, CRS found Customs interpretations of substantial transformation to be much more stringent than those actions required by USDA to avoid country of origin labeling. The report also indicates that administration officials acknowledge a conflict exists between the two requirements. Customs officials note that if their substantial transformation test were applied more rigorously to meat and poultry products, it is likely that imported meat products that were simply cut or ground into hamburger would continue to be required to be labeled as to their country of origin. They continued by stating that such labels are required on other processed or repackaged food products that contain imported agricultural commodities, but that USDA-inspected products have rarely been challenged.
Page 84 PREV PAGE TOP OF DOC Use of the USDA Grade Shield on Imported Beef Products. Under the interpretations made above with respect to labeling requirements for beef imported into the United States, the lack of a designation as to the country of origin represents only the beginning of the problem. Once non-retail beef products enter the United States, they are considered domestic products, and counted in domestic production figures. As imports increase without a methodology by which to differentiate these products from true domestic product, it becomes more difficult to accurately estimate changes in U.S. beef production from year to year, which is especially important at times when production numbers are high and beginning to drop.
Another concern among beef producers in Nebraska is that this imported product, now considered to be domestic production, is eligible to be graded under the USDA Federal Beef Grading Program. This program is administered by USDA's Agricultural Marketing Service (AMS) under authorities granted by the Agricultural Marketing Act of 1946 (7 U.S.C. 16211627). Since imported beef products are no longer labeled as to their country of origin, they become eligible for grading under the 1946 Act.
Grading nomenclature such as USDA Choice is recognized as a standard of quality around the world. This recognition of quality is based, to a significant degree, on the efforts of U.S. beef producers to improve the quality of their beef products. These efforts have created a certain degree of brand equity in the USDA grade shield that today is also made available to beef products imported and processed in the United States. If the U.S. beef industry is to remain a leader in the production of high quality beef, producers must then be assured that only U.S. beef production is eligible for the USDA grade shield.
The Nebraska Cattlemen urge this committee and Congress to reconsider import labeling laws, as well as those provisions of law that allow the USDA grade shield to be used on imported beef products or live cattle imported for slaughter.
Import/Export Reporting. The absence of accurate and timely data from the U.S. trade sector has been a source of long-term frustration throughout the beef industry. Information inequities provide a competitive disadvantage for the U.S. beef industry relative to other major beef exporting countries and contribute to an information disadvantage for cattle producers relative to packers.
Page 85 PREV PAGE TOP OF DOC Generally, import data is fairly timely. Live cattle import figures are provided every other week by the USDA/Animal Plant Health Inspection Service, while the Commerce Department's Customs Service issues it import Quota Threshold Status Report on a weekly basis.
Unfortunately, export data is offered on a much less timely basis, often encompassing up to 8 weeks between reports. Nearly 2 years ago, USDA published an advanced notice of public rulemaking on a proposal to require mandatory reporting of export sales of meat and meat products. The comment period on this rule closed February 12, 1997,
but a final rule has yet to be published. While we understand that a final rule is said to be in the approval channels at USDA, we have yet to be made aware of its contents. It is our hope that USDA will adhere to its original proposal, mandating reporting of export information for all beef, veal, pork, lamb, chicken, turkey and their respective products inspected for export. This information should be made public within 1 week of the end of the week for which and export certification was issued.
Movement of Cattle into Canada. Efforts to illustrate how difficult it is to ship cattle and other agricultural products into Canada have been the focus of significant press coverage recently. Elected officials, as well as farmers and ranchers and their families, have been actively involved in these
The Nebraska Cattlemen would primarily address two issues in this area. First, efforts to ship U.S. feeder cattle into Canada have not been successful. Efforts are underway in the northwest to facilitate this program, but little progress to date has been noted. The second issue is consistent with what has happened in several states to the north of Nebraska. Questions have been raised about the use of certain animal health products, legal in Canada but not in the United States, and the importation of live cattle and/or beef from Canada. Although the list of unapproved animal health products would be short, this is
Page 86 PREV PAGE TOP OF DOCan issue that should be reviewed.
In closing, I would once again like to thank you, Chairman Barrette, and members of the committee for holding this important hearing. I hope that my testimony today helped shed light on several critical beef industry issues, including import meat labeling; the use of the USDA grade shield on imported beef products; the need for timely import and export information; and, facilitating the shipment of feeder cattle to Canada. This concludes my prepared statement, and I would be happy to answer any questions.
Statement of Patrick Westhoff
Thank you, Mr. Chairman, for the opportunity to appear before the subcommittee to provide some perspectives on U.S.-Canadian agricultural trade and U.S. agricultural markets. I am here today on behalf of FAPRI, the Food and Agricultural Policy Research Institute. FAPRI is a joint effort of researchers at the University of Missouri and Iowa State University. Other members of a broader FAPRI consortium include Texas A&M University, the University of Arkansas, and Arizona State University.
FAPRI's mission is to provide decision makers with objective analysis of issues related to food, agriculture, and natural resources. FAPRI does not take policy positions, and nothing I say today should be interpreted as endorsing any particular position. We have stayed in business these past 15 years because we work hard to provide useful information without taking sides in policy arguments.
U.S.-CANADIAN AGRICULTURAL TRADE SINCE 1993
After Japan, Canada is the second-leading destination for U.S. agricultural exports, and the United States imports more agricultural products from Canada than from any other country. Since the North American Free Trade Agreement took effect in 1994, U.S.-Canadian agricultural trade increased in both directions, as shown in Table 1.
Page 87 PREV PAGE TOP OF DOC U.S. agricultural exports to Canada increased from $5.3 billion in calendar year 1993 to $6.8 billion last year. In spite of reduced U.S. exports to many other markets, the value of U.S. agricultural exports to Canada actually increased during the first seven months of 1998 when compared to the same period last year.
U.S. imports of Canadian agricultural products have increased even more rapidly, from $4.6 billion in 1993 to $7.4 billion in 1997. The United States had a positive agricultural trade balance with Canada between 1993 and 1995; it had a negative agricultural trade balance with Canada in 1996, 1997, and the first 7 months of 1998.
Changes that have occurred in U.S.-Canadian trade since 1993 cannot all be attributed to NAFTA or to any other single cause. Exchange rates, weather, policy changes, and world market conditions are just some of the many factors that have had an effect on U.S.-Canadian trade. For example, the significant reduction in the value of the Canadian dollar that has occurred in recent months has made it easier for Canadians to sell their products here and tougher for us to sell our products in Canada.
CANADIAN IMPORTS AND U.S. CROP MARKETS
In early September, FAPRI prepared an update of its baseline projections for the U.S. agricultural economy. Based on information available at that time, FAPRI estimated season-average farm prices for the current marketing year of $2.69 per bushel for wheat, $2.05 per bushel for corn, and $5.34 per bushel for soybeans. Current cash prices are even lower.
Why are prices so low? Put simply, we have a lot of supplies and not enough demand. Table 2 shows what has happened to U.S. production, trade, and prices for wheat, corn, soybeans, and barley since grain prices peaked three years ago.
For all four of these crops, production has increased, with corn and soybean production growing the most. In part, this can be attributed to improved growing conditions, as 1995 yields were low because of flooding and a variety of other problems. Two other factors also played a role:
Page 88 PREV PAGE TOP OF DOC First, the 1996 farm bill eliminated annual acreage-reduction programs, and thus contributed to an increase in planted area.
Second, the sharp increase in market prices that occurred in the mid1990's in response to tight supplies encouraged producers here and in other countries to expand production.
That latter point is very important. U.S. grain exports are substantially lower now than they were three years ago. Some of the weak export demand for U.S. grains can be explained by the Asian financial crisis. Also important, however, is the increase in competitive supplies in world markets, as farmers in other countries increased their production in response to the high prices of the mid1990's. So far, there has not been an equivalent negative production response to recent lower prices.
What role have imports of Canadian grain had in depressing U.S. markets? Consider the wheat numbers shown in table 2. Between 199596 and the current marketing year, most of the $1.86 per bushel drop in U.S. wheat prices can be attributed to a 366 million bushel increase in U.S. wheat production and a 143 million bushel reduction in U.S. wheat exports. A 22 million bushel increase in U.S. wheat imports (almost entirely from Canada) certainly has not helped U.S. wheat prices, but it is a much smaller factor than increases in U.S. and foreign wheat production and weak demand. U.S. prices for wheat and other commodities are determined in a global market.
Canadian imports are not really a factor for corn and soybeans. For barley, current projections indicate that U.S. barley imports may actually be lower this year than they were three years ago, and so it is hard to blame imports for the sharp decline in barley prices.
CANADIAN IMPORTS AND U.S. LIVESTOCK MARKETS
Similar stories can be told about U.S. livestock markets. Since Nebraska steer prices averaged $76 per hundredweight in 1993, U.S. beef production has increased by 2.8 billion pounds. Even though U.S. beef exports increased dramatically over the same period, more beef was put on the domestic market. As a result, FAPRI currently projects that Nebraska steer prices will average below $63 per hundredweight this year (see table 3).
Page 89 PREV PAGE TOP OF DOC The United States imports large numbers of Canadian cattle, and those numbers have increased in recent years. Nevertheless, the increase in live cattle imports from Canada only accounts for about 5 percent of the increase in U.S. beef production between 1993 and 1998.
The case of pork is similar, except that the production increase and price decline has mostly happened in just the last year. Since 1993, the increase in live hog imports from Canada has been dramatic, accounting for a third or more of the increase in U.S. pork production.
While increased imports of Canadian animals may have contributed to reductions in livestock prices, most of the increase in U.S. meat supplies can be attributed to increased production from animals born and raised in this country. Large increases in average slaughter weights have been an important contributing factor.
While the pace of export growth has definitely slowed because of the Asian crisis and other problems, meat exports remain well above levels of just a few years ago. Still, larger supplies mean that overall per-capita consumption of beef, pork, chicken, and turkeys has increased by more than 7 pounds in the last five years, with most of the increase occurring this year alone.
U.S.-Canadian agricultural trade is important to both countries, and it has been growing in both directions.
U.S. producers are certainly affected by imports of Canadian agricultural products, but other factors appear to be far more important in explaining the current weakness in U.S. markets.
In closing, Mr. Chairman, I would like to thank you for the opportunity to address the Committee, and I would welcome any questions.
Page 90 PREV PAGE TOP OF DOC
Testimony of Alan Lee
Mr. Chairman and members of the Subcommittee on General Farm Commodities, thank you for the opportunity to talk to you today about some of our on-going trade concerns with Canada. My name is Alan Lee. I am chairman of the North Dakota Wheat Commission, representing an estimated 23,000 wheat producers in our State. I raise durum wheat on our fourth generation farm near Berthold, ND, which is only 43 miles south of the Canadian border.
As you know, U.S. wheat prices are at some of the lowest levels since 199091 and American wheat producers are frustrated. Many factors have contributed to the world and U.S. supply and demand levels that have brought prices to these depths. Some are within our control; others are not. Canadian trading practices have certainly played a major role when it comes to the situations for hard red spring wheat and durum, which are specialty wheats with specialty purposes.
For your background, the United States produced an estimated 480 million bushels of hard red spring wheat this year and 141 million bushels of durum. Most of this production occurred in North Dakota, Montana, Minnesota and South Dakota. Just across the border, Canada has produced an estimated 584 million bushels of spring wheat and 213 million bushels of durum.
I include these production comparisons because it's important you know that while the United States is the major exporter in terms of all wheat, Canada is the dominant player in the global market when it comes to spring wheat and durum. This is true not only because of Canada's larger production of these two classes, but also because of the country's small population and corresponding lack of domestic demand.
So what does Canada do with all this spring wheat and durum? Export records indicate that Canada has been increasingly targeting the United States as a market for these wheat classes, so much so that in 199798 the United States was the second largest export market for both Canadian spring wheat and durum.
Page 91 PREV PAGE TOP OF DOC The volume of Canadian wheat shipments to the United States has also been on the rise. Durum imports from Canada reached 16 million bushels in 199798, the highest level since 1994 when quotas were imposed as a result of a section 22 trade investigation. Spring wheat imports were at 48 million bushels, compared to 50 million the previous marketing year and 33 million in 199596.
It's obvious that these imports have a price damaging effect, when one considers that Canadian durum imports accounted for 25 percent of 199798 domestic durum consumption, as estimated by USDA, and 18 percent of domestic spring wheat demand.
The situation becomes a self-fulfilling prophecy. Over the years, the Canadian Wheat Board has argued that U.S. processors need its durum. Canada shipped durum to the United States in increasing amounts after the United States-Canada Trade Agreement when into effect in 198990. U.S. durum prices declined as a result and U.S. farmers reduced the acreage they planted to durum. This, in turn, lowered average production levels from pre-Free Trade Agreement years, and pretty soon U.S. pasta manufacturers were becoming dependent upon a foreign government for their raw material.
Tariff-rate quotas, implemented in September 1994 and unofficially enforced through 1996, helped reverse this trend by cutting import levels in half. As the graphs attached to my statement indicate, prices recovered and durum plantings have also been strengthening.
This year North Dakota alone produced 97 million bushels of durum wheat. According to North Dakota State University crop quality analysis, an estimated 47 percent (45 million bushels) is grading either No. 1 or No. 2 Hard Amber Durum (HAD). Another 22 percent (21 million bushels) is grading No. 12 Amber Durum (AD). In addition, the U.S. Desert Southwest produced another 33 million bushels, nearly all of which should be of milling quality. The United States has produced the quantity and quality needed to satisfy domestic pasta industry demands and will continue to do so if we can prevent Canada from overtaking this industry.
Page 92 PREV PAGE TOP OF DOC In the United States, we don't allow one business to monopolize an industry. Look at the scrutiny that Microsoft has endured with its release of Windows 98. Yet, in our ''free'' trade agreements, U.S. negotiators have tolerated the predatory pricing practices of both the Canadian and Australian Wheat Boards. As the sole exporter of their respective wheats, these boards can and do offer different prices to different customers. Eventually, these practices serve to eliminate the competitionin this case, that's U.S. farmers, my neighbors and me.
The European Union is fairly forthright with its export subsidies. Yet, time and time again, U.S. Wheat Associates' regional and country directors cite discounted price offers and bonus deliveries from the Canadian Wheat Board as the reason for lost salesin the Philippines, in Latin America and in Africa. If the Canadian Wheat Board is relying on price discounts and other secretive practices to capture market share in other countries, it's reasonable to believe that the CWB is employing these same techniques in our domestic market. We may never know for certain since the Canadian Wheat Board refuses to disclose its prices.
The United States' own Export Enhancement Program has often been fingered for raising U.S. wheat prices above world wheat prices and in effect serving as a magnet to Canadian imports. However the program has now been idle since 1995, yet Canadian imports have continued to increase, as have our stocks, and prices have plummeted.
While Canadian wheat moves to and through the United States with no special requirements other than an end-use certificate, Canada maintains an extensive system of hurdles to prevent U.S. wheat from moving north. The most recent addition was in 1996 when Canada began requiring that all wheat shipments from the United States be tested for karnal bunt.
The United States exports almost no wheat to Canada, but the requirements affect U.S. exports to other countries that travel through Canadian Great Lakes ports and the St. Lawrence Seaway. North Dakota and Montana wheat also sometimes transit through Canada to reach U.S. Pacific Northwest ports when shipped via the Canadian Pacific (former Soo Line) railroad.
Page 93 PREV PAGE TOP OF DOC Canada wants sampling and testing of all U.S. wheat, regardless of the area of origin and despite extensive screening for karnal bunt across the United States since 1995. The Northern Plains region of the United States has tested negative for the disease all three years of the survey. It frustrates our producers that the U.S. Government accepts Canada's assertion that it is free of these crop diseases when no proof has been provided. In addition, Canadian wheat is allowed into the United States even though its been treated with crop protectants that our own U.S. Government agencies won't allow. Either Canadian grain shipments should be inspected at all points of access into the United States, or Canada should have to demonstrate through an extensive sampling program like ours that its wheat is free of diseases and prohibited chemicals.
U.S. producers were recently excited about a sizeable shipment of U.S. barley being destined for Canada, but it too has been held up at the border for phytosanitary certification. Canada doesn't need tariffs or quotas to limit future barley exports because Canadian officials have already ensured that no customer will want to endure needless sampling and inspections that are cost and time prohibitive. The unjustified inspections are trade barrier enough.
U.S. wheat producers aren't the only ones paying the price for the Canadian Wheat Board's trading practices. U.S. taxpayers have also been footing the bill through loan deficiency payments to U.S. farmers as a result of low commodity prices.
The Canadian Wheat Board and other State Trading Enterprises must be disciplined in the next round of World Trade Organization (WTO) negotiations. In the mean time, we urge your support of a more immediate solution. A growing number of U.S. producers want a tariff-rate quota at the border and they want the allowable number of bushels to be zero.
U.S. wheat producers want to be part of the solution to United States-Canada trade problems. But until we discuss the fundamental differences in our open system and Canada's closed system, and how Canada is going to change to meet its obligations as an ally, neighbor and trading partner, Canadian access to the U.S. wheat market should be restricted. Otherwise, the Canadians will continue to undermine our basic agricultural production system until they have indeed eliminated the competition.
Page 94 PREV PAGE TOP OF DOC Thank you for the opportunity to appear today. I'll be happy to answer your questions at the appropriate time.
"The Official Committee record contains additional material here."
EMBASSY OF CANADA
501 Pennsylvania Avenue, N.W.
Washington, D.C. 20001
November 2, 1998
The Honourable Bill Barrett
General Farm Commodities Subcommittee
United States House of Representatives
2458 Rayburn House Office Building
Washington, D.C. 20515-2703
DEAR CHAIRMAN BARRETT,
I am writing in response to certain comments and allegations made at the October 8, 1998 hearing of the Subcommittee on General Farm Commodities on current Canada-U.S. agricultural trade issues. I would be grateful if you would reproduce this letter and its attachments in the Congressional Record.
References were made at the hearing to a ''flood'' of imports of Canadian agricultural imports generally. Canada-U.S. agricultural trade is increasing in both directions at a similar rate. As you know, the U.S. population is nearly ten times that of Canada. Nevertheless, agricultural trade has traditionally been in balance in total value terms and only recently shifted in Canada's favour. As a result, Canadian per capita consumption of U.S. agricultural products ($216 in 1997) remains almost seven times that of U.S. per capita consumption of Canadian agricultural products ($31 in 1997).
Page 95 PREV PAGE TOP OF DOC It is important to situate Canada-U.S. wheat trade in the broader context of our two-way trade in agricultural products, which in 1997-98 included the export of over one million tonnes of U.S. corn to Canada. Also within the grains and oilseeds sector, the United States exports significant quantities of soybean meal and, more recently, feed barley to Western Canada. Although not commonly recognized, these U.S. commodities tend to move north on the very trucks that haul Canadian products south.
It was alleged at the hearing that the Government of Canada has been intransigent with regard to an audit of the Canadian Wheat Board (CWB) requested by the United States Trade Representative. In fact, the Canadian Government responded on June 5, 1998 to the audit request, agreeing to an audit of CWB sales of durum wheat to the U.S., to be conducted in accordance with the findings and recommendations of the 1993 FTA Panel on this subject. The U.S. Administration has since chosen not to proceed with such an audit of the CWB.
It was also alleged that the CWB refuses to allow an audit. In addition to any audits conducted under NAFTA, the CWB is subject to an annual external audit conducted in accordance with generally accepted accounting standards, as is usual for corporations. I enclose a copy of the CWB's most recent annual report, which includes, on page 28, an assessment of the CWB's financial statements by the accounting firm Deloitte, Touche and Tohmatsu International.
It was further alleged that CWB operations include some sort of subsidy. Neither Canada nor the CWB subsidizes the export of wheat or any other grain. As you know, the CWB has been investigated on various occasions by U.S. agencies, including the U.S. International Trade Commission and the U.S. General Accounting Office. These investigations have failed to find any basis for allegations of unfair trading of Canadian grain or impropriety concerning the CWB's pricing behaviour. U.S. millers import Canadian wheat for a number of reasons, some of which are summarized in the brochure attached to my letter of October 6, 1998 (copy attached). These include reliability of supply, uniformity of quality and inherent milling characteristics.
Page 96 PREV PAGE TOP OF DOC In terms of government support for the wheat sector, data for 1997 published by the OECD indicate that U.S. domestic support accounts for 32 percent of the value of wheat production, compared to 10 percent in Canada. This translates to a support level of $52 in the U.S. and $11 in Canada on a per tonne basis. Both U.S. figures exclude the substantial increase in farm subsidies just included in the fiscal 1999 appropriations process.
The Memorandum of Understanding (MOU) on Canadian wheat exports negotiated for 1994-95 was also misrepresented at the hearing. A reading of the MOU will confirm that its duration was for one year only. By its very terms it has had no effect since its expiration in September 1995.
While U.S. agricultural exports to Asia have declined sharply over the past year, exports to Canada continue to increase. During the first 7 months of 1998, U.S. agricultural exports to Canada were 13 percent higher than during the same period in 1997. Canada thus represents one of the fastest growing markets for U.S. agricultural exports.
A number of comments and allegations concerning Canadian certification and inspection requirement for cattle and grain were also made at the hearing. In view of the technical nature of the issues raised, these are addressed in detail in the attached response from the Canadian Food Inspection Agency.
Canada and the United States are extremely fortunate to have a unique bilateral relationship that reflects many generations of successful partnering on numerous fronts. Fostering the exemplary Canada-U.S. relationship requires that we all pay attention to facts and detail.
I am available to discuss all these matters with you at your convenience and Embassy officials are available to discuss them with your staff. I believe that a clear and accurate understanding of both the facts and the respective positions of our two nations is key to resolving our differences. I trust that this letter and its attachments will contribute to that end.
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c: The Honourable Dan Glickman
The Honourable Charlene Barshefsky
EMBASSY OF CANADA
501 Pennsylvania Avenue, N.W.
Washington, D.C. 20001
October 6, 1998
The Honourable Bill Barrett
General Farm Commodities Subcommittee
United States House of Representatives
2458 Rayburn House Office Building
Washington, DC 20515-2703
DEAR CONGRESSMAN BARRETT,
In recent years, Canada-U.S. wheat trade has been the subject of some discussion in the United States, including in the U.S. Congress. Last month, this issue was used in an attempt to to justify the restrictions imposed on Canadian livestock and grain by Governor Janklow of South Dakota.
Page 98 PREV PAGE TOP OF DOC The attached brochure is intended to address U.S. concerns and facilitate a better understanding of the issues. It situates wheat in the broader context of our two-way trade in agricultural products, including the million tonnes of U.S. corn that Canada buys each year. It notes that imports of Canadian wheat account for only 5% of average U.S. wheat use and explains the benefits that U.S. millers derive from blending Canadian wheat with U.S. wheat. It also points out that the United States imports more durum wheat in the form of pasta from third countries than it does in the form of bulk durum from Canada, and that the value of U.S. exports of pasta and pasta products to Canada is roughly equivalent to the value of durum wheat the U.S. buys from Canada. I believe you will also find the brochure to be of interest with respect to the concerns about access and price that have been reported in the press.
Canada and the United States must continue to work constructively to address the difficult problems facing farmers on both sides of the border. Your staff should not hesitate to call Marvin Hildebrand, First Secretary (Agriculture), at 682-7787, if you require more information. I would also be happy to speak to you by telephone or meet with you, should you so desire.
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CANADIAN CERTIFICATION AND INSPECTION REQUIREMENTS FOR CATTLE AND GRAIN
For some time, the health status of the U.S. cattle herd has not been equivalent to that of Canada. Whereas Canada's cattle herd has been free of brucellosis since 1985, and is so recognized by the United States Department of Agriculture (USDA), vaccination for brucellosis is still widely practised in the United States, where an effort to eradicate this disease is still ongoing. Canada is also free of anaplasmosis, a disease that occurs in many parts of the United States. And while Canada has had only two occurrences of tuberculosis since 1990, a U.S. tuberculosis eradication program is ongoing, with new occurrences of the disease still being detected in the United States.
Page 99 PREV PAGE TOP OF DOC Canada's import health certification requirements for cattle from the United States reflect these and other differences in the health status of the Canadian and U.S. cattle herds. The requirements depend, among other things, on the class of animals being imported, the season of import and the state of origin of the cattle. As a result, not all cattle entering Canada require the level of testing suggested at the October 8, 1998 hearing.
In the case of animals entering Canada as ''restricted feeders'', Canadian regulations were recently amended as part of the Northwest Cattle Pilot Project, a cooperative effort to facilitate the export of U.S. cattle to Canada. During the fall and winter shipping season, qualifying states can export their animals to Canada with no pre-export testing for any disease and no endorsement of the export certificate by USDA. In lieu of testing, animals being exported are required to be treated for anaplasmosis post importation and to remain at an approved Canadian location until the treatment has been completed.
In the case of traditional feeder steers and spayed heifers exported to Canada during the fall shipping season from northern states with a low risk of bluetongue infection, Canada requires a negative pre-export test only for tuberculosis and anaplasmosis.
The fees charged by Canadian and U.S. agencies to cover the cost of import inspections of feeder animals are roughly equivalent. For an average load of eighty feeder animals, total USDA import inspection charges are US$80, while the Canadian charge is C$120 (US$78) for restricted feeders and C$130 (US$85) for traditional feeders.
In addition to the import inspection fees levied by Canada on U.S. cattle, USDA assesses a fee for export certification. For a load of 80 feeder animals, this fee is US$290more than three times the Canadian fee of C$l44 (US$94) to certify a similar shipment of Canadian animals to the United States. This significant difference creates an obvious impediment to the competitiveness of U.S. feeders in the Canadian market. In order to increase that competitiveness and in recognition of the equivalent health status of ''restricted feeder'' animals, Canada has exempted shipments of these animals certified by an accredited U.S. veterinarian from the requirement for USDA export certification.
Page 100 PREV PAGE TOP OF DOC The situation with regard to phytosanitary requirements for grains is not unlike that of cattle. Again, certain diseases exist in the United States which do not exist in all of Canada (e.g. Karnal bunt and flag smut) or in individual Canadian provinces (e.g. dwarf bunt). Shipments of wheat and barley exported to Canada must therefore be accompanied by the necessary phytosanitary certification indicating freedom from the relevant diseases. Depending on the results of science-based risk assessments, this certification is issued on the basis of either area freedom or sampling and laboratory testing.
Canada's phytosanitary requirements for the import of grain are not new, having been put in place originally in 1976 for dwarf bunt and flag smut and in 1996 for Karnal bunt. Canada has not recently implemented any new requirements affecting wheat or barley exported from the United States, as alleged at the hearing, and has no plans to implement any such requirements. On the contrary, Canadian regulations have been amended in recent years with the express purpose of easing existing requirements whenever technical considerations permit. Canada's requirements pertaining to Karnal bunt have been modified twice since the disease was first discovered in the U.S. in 1996, largely on the basis of the results of the annual USDA Karnal bunt survey. At present Canadian officials are awaiting receipt of the 1998 Karnal bunt survey and, upon analysis of its results, Canada may again be in a position to amend its requirements in a way that further facilitates the import of U.S. grain.
Additional efforts intended to improve access for U.S. grain to Canada have been underway for some time. Discussions are ongoing to facilitate the shipment of U.S. wheat to Canadian country elevators and to simplify the in-transit movement of grain through Canada by rail. These projects are intended to introduce less stringent requirements for grain moving from Montana, Minnesota and North Dakota, based on its freedom from diseases of concern.
CANADA-U.S. WHEAT TRADE: THE FACTS
Page 101 PREV PAGE TOP OF DOC Canada and the United States enjoy the largest two-way trading relationship in the world. It includes a mutually beneficial flow of agricultural products, driven by comparative advantage, geography, demographics, and other factors. Grains are just one component of this vast and diverse exchange.
Total bilateral agri-food trade has nearly tripled since the Free Trade Agreement (FTA) was implemented in 1989, totalling $14.7 billion in 1997. Historically trade in agricultural products, as well as overall trade in goods and services, has been roughly in balance. However, Canada's per-capita consumption of U.S. agricultural products ($216 in 1997) is much greater than U.S. per-capita consumption of Canadian agricultural products ($31 in 1998).
In recent years Canada-U.S. wheat trade has been the subject of some controversy in the United States. This brochure provides various trade statistics and other factual information to facilitate a better understanding of the relevant issues.
One of these issues is whether there is any restriction on the volume of Canadian wheat exports to the U.S. There is not. A one-year bilateral agreement, which effectively limited the volume of Canadian exports to 1.5 million tonnes, expired as scheduled in September 1995. Since that time, there has been no restriction, explicit or implicit, on the volume of Canada-U.S. wheat trade in either direction.
Canada-U.S. trade in grain and grain products includes an extensive range of commodities and products.
While Canada has a surplus with the U.S. in overall grain trade, the U.S. enjoys a trade surplus in corn, soybean meal, and other grain and oilseed products. Canadian imports of U.S. corn have been increasing over the past decade, and are expected to total a record
1.3 million tonnes in 199798.
The United States and Canada are the world's largest and second-largest wheat exporters. Canada exports more than 70 percent of its wheat production, of which the vast majority goes to offshore markets.
Page 102 PREV PAGE TOP OF DOC More than 95 percent of Canada's wheat is produced in Western Canada. In the three crop years to 199697, Canadian wheat production averaged 25.9 million tonnes annually, of which 18.5 million was exported and 2.5 million was consumed domestically as food. The balance was used domestically for feed and other purposes.
The majority of Canadian wheat export sales are to markets in the Asia-Pacific region and in Latin America.
Using a recent three-year average, these regions accounted for more than 60 percent of total wheat exports. They were followed by Africa (13 percent) and the Middle East (11 percent). The U.S. accounted for roughly 8 percent of Canadian wheat exports during this three-year period, ranging from 6 to 9 percent on an annual basis.
U.S. millers import Canadian wheat with specific quality characteristics and blend it with U.S. wheat to achieve desired results.
Use of the Export Enhancement Program (EEP) from 1985 to 1995 altered traditional wheat trade patterns and introduced many U.S. processors to Canadian wheat. They continue to value access to Canadian wheat for various reasons, including product cleanliness, uniformity of quality (within and among shipments), and reliability of supply.
From 199495 to 199697, annual U.S. imports of Canadian wheat averaged 1.7 million tonnes, or 5 percent of average U.S. domestic use of 33.9 million tonnes.
The U.S. imports a number of Canadian wheat classes for various end uses, including several milling wheat classes, durum wheat, and feed wheat.
Canadian wheat fills a market niche in the U.S., where it is typically blended with U.S. wheat. Blending by U.S. millers adds value to both countrieswheats because it optimizes inherent qualities and enhances performance in some baked goods.
Various properties of Canadian wheat enhance U.S. wheat consumption. For example, Canada Western Extra Strong wheat is uniquely suited as a blending wheat to increase gluten strength. It can be an especially effective complement to U.S. wheats in the production of flour used to serve the growing number of in-store bakeries and other frozen dough operations.
Page 103 PREV PAGE TOP OF DOC Most Canadian wheat exported to the U.S. is shipped by rail directly to processors, with relatively little delivered to northern-tier elevators in Montana and North Dakota.
Most Canadian wheat shipped to the U.S. moves by rail to destinations well beyond the Northern Plains. The top importing states are Minnesota, New York, Illinois and Ohio, which together account for well over half of total U.S. imports. From 199495 to 199697, only 4 percent of U.S. wheat imports from Canada was shipped to Montana or North Dakota.
Durum and Pasta
It is not commonly known that U.S. durum import statistics include durum products such as pasta. In recent years, more durum has been imported in the form of pasta than in the form of bulk durum.
U.S. Department of Agriculture durum import statistics include bulk, unprocessed durum and durum products such as pasta. Imports of pasta and other durum products, when measured in durum equivalent, accounted for 53 percent of total durum imports between 199495 and 199697. During this period, bulk durum imports averaged 274,000 tonnes, compared to 303,000 tonnes in the form of durum products.
U.S. imports of durum have been driven partly by declining domestic production of No. 1 and No. 2 grade durum, the grades required by the U.S. pasta industry.
From a high of 78 percent in 1990, the proportion of U.S. durum production grading No. 1 or No. 2 declined to a low of 36 percent in 1997, and averaged 56 percent during this period.
As a result, the U.S. has been in a deficit position for milling-quality durum in each crop year since 199091. This, along with consistent access to Canadian durum, has resulted in regular imports from Canada.
Page 104 PREV PAGE TOP OF DOC U.S. durum production more generally has not kept pace with domestic consumption. In particular, U.S. milling-quality durum output is below domestic requirements.
U.S durum consumption has more than doubled over the past 20 years. At the same time, U.S. durum production has not shown a long-term increase. As U.S. production and consumption have converged, imports of both pasta (mainly from Italy) and bulk durum from Canada have increased.
U.S. Pasta Imports Have Increased Damatically in Recent Yyears.
Since 1993, U.S. pasta imports have increased by an average of 12 percent per annum. The annual value has risen from $163 million in 1993 to $252 million in 1997.
Italy supplied about two-thirds of U.S. imports during this period, followed by Turkey with an 8 percent share. Ranking third, Canada's share of U.S. pasta imports was 6 percent during this period.
The value of U.S. exports of pasta and pasta products to Canada is roughly equivalent to the value of U.S. durum imports from Canada.
U.S. processors add value to Canadian wheat, thereby contributing to U.S. employment and other economic benefits. Much of the U.S.-produced pasta is then exported and, in several years, the value of U.S. pasta exports to Canada alone has exceeded the value of U.S. durum imports. From 1993 to 1997, pasta exports to Canada averaged $67.9 million, compared to an average value of U.S. imports of durum from Canada of $69.5 million.
Other Aspects of Canada-U.S. Wheat Trade
Canada and the U.S. have many common interests related to agricultural trade liberalization, and can better advance them by working together.
Canada anticipates continued cooperative work with the U.S. on various trade fronts. For example, Canadian farm income continues to suffer due to grain export subsidies, and Canada will continue to press for their elimination.
Page 105 PREV PAGE TOP OF DOC There is no restriction on the volume of U.S. wheat exports to Canada. U.S. wheat can and does access Canadian markets, duty free, as economics warrant.
U.S. wheat exports to Canada totalled 118,000 tonnes in 199697. Canadian and U.S. officials are currently working to simplify access to Canadian elevators for U.S. wheat growers.
The Canadian Wheat Board (CWB) has marketed grain around the world for more than 60 years on behalf of Canadian farmers. Neither Canada nor the CWB subsidizes the export of wheat or any other grain.
Western Canadian wheat and barley exports are marketed by the Canadian Wheat Board, established in 1935. The CWB markets grain on behalf of western Canadian farmers, disbursing the returns from grain sales to growers in an equitable fashion.
In 1995, Canada eliminated its subsidy on rail freight rates for grain to inland and terminal destinations. Producers now pay the full cost of transportation.
The CWB endeavours to secure the highest possible prices for Prairie farmers from all available markets. Accordingly, CWB sales to the U.S. maximize overall returns to producers, while responding to the needs of buyers in the U.S.
A 1990 report by the U.S. International Trade Commission (USITC publication 2274) examined the conditions of competition between the Canadian and U.S. durum wheat industries. Among its conclusions:
''[R]elatively higher prices of durum in the United States compared with the world markets, and the demand for high quality durum by U.S. millers, appeared to have made the U.S. market relatively more attractive to Canadian exports.'' (p. xi)
''There was no consistent price difference between like qualities of U.S. and Canadian-produced durum that explained the growth of durum imports from Canada between 198689. However, available supplies of high grade durum wheat in the United States and Canada affect prices and flows of durum wheat.'' (p. ix)
Page 106 PREV PAGE TOP OF DOC Periodic investigations of the CWB by the U.S. International Trade Commission and the U.S. General Accounting Office have failed to find any basis for allegations of impropriety concerning the CWB's pricing behaviour.
CWB operations comply with all Canada's international trade obligations, including those under NAFTA and the WTO Article XVII (state trading) guidelines and requirements. A 1996 U.S. General Accounting Office report (GAO/NSAID9694) noted that U.S. government officials acknowledged that they did not have any evidence that the CWB was violating existing trade agreements (p. 8).
An independent audit of the CWB was commissioned jointly by Canada and the U.S. in 1993 following a Dispute Settlement Panel under the Canada-U.S. Free Trade Agreement (FTA). A small number of durum sales (1 percent of volume) not in compliance with the FTA occurred shortly after implementation, and was related to the usual process of adjustment to a new trade agreement. Apart from this, the audit found the CWB to be in full compliance with the FTA.
Canadian Embassy / Ambassade du Canada
501 Pennsylvania Avenue, NW
Washington, D.C. 20001
1.All dollar figures are in U.S. dollars.
2.MT - metric tonnes
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