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EUROPE
WEDNESDAY, MARCH 18, 1998
House of Representatives,
Committee on Agriculture,
Washington, DC
The committee met, pursuant to notice, at 10:04 a.m. in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith, (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Doolittle, Goodlatte, Pombo, Canady, Smith of Michigan, Everett, Lucas, Lewis, Bryant, Foley, Moran, Blunt, Thune, Jenkins, Cooksey, Stenholm, Brown, Condit, Peterson, Dooley, Clayton, Minge, Pomeroy, Holden, Bishop, Berry, McIntyre, Stabenow, Etheridge, Johnson, and Boswell.
Staff present: Paul Unger, majority staff director, Lynn Gallagher, senior professional staff, Jason Vaillancourt, Callista Bisek, Andrew Baker, and Wanda Worsham, clerk.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN Good morning everyone. This hearing will come to order. I have an opening statement as does Mr. Stenholm and then we will hear from our honored guests.
One year ago today, the committee held a hearing entitled ''Agricultural Trade into the 21st Century.'' The Secretary of Agriculture testified about the challenges that lay ahead for U.S. agricultural exports, and the need to continue the reform process begun in the Uruguay Round.
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The focus of today's hearing is to provide an opportunity for the administration to discuss its preparation for the new round of multilateral agricultural trade negotiations in the WTO and major issues that may be included in those negotiations.
I want to welcome Secretary Glickman, a former member of this committee, and Ambassador Scher to the committee as well.
This is a very important issue we're discussing. The future of the United States farmers and ranchers depends in great part on the rules of worldwide agricultural trade. The 1999 WTO negotiations will be the battleground for writing those rules for the 21st century.
I also want to welcome our other witnesses. Mr. Stenholm and I determined that a series of four hearings on the 1999 WTO negotiations will be held. After hearing from the administration, the witnesses for this hearing will focus on trade with Europe.
In subsequent hearings, our witnesses will focus on agricultural trade issues with countries in Asia, Africa and the Middle East, and the Western Hemisphere.
For American farmers and ranchers, trade is the essential part of their livelihood. Currently, exports account for 30 percent of United States' farm cash receipts. We produce much more than we consume in the United States, therefore exports are vital to the prosperity and success of U.S. farmers and ranchers.
Last year, 1997, U.S. agricultural exports totaled over $57 billion and the agricultural trade surplus approached $22 billion. The future holds greater promise for agricultural exports as world income and economic growth expand. Higher incomes for consumers means improved and diverse diets, which in turn, result in a greater demand for meat, fruit, vegetables, and other high value products.
The United States' farmers and ranchers are the most productive in the world and have been successful because of this productivity and because of trade agreements, such as the Uruguay Round and the North American Free Trade Agreement. This success has been tempered due to significant barriers to trade, such as import restrictions, non-tariff barriers, and outrageously high export subsidies.
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For instance, in 1997, the United States spent in direct payments to farmers as well as export subsidies, in the neighborhood of $5.3 billion. At the same time, in the same year, the European Union spent for the same purposes $46.8 billion.
The 1999 WTO negotiations offer a platform for further reduction and barriers to trade and further expansion of agricultural trade opportunities. The Agriculture Committee will be working closely with the administration, both the U.S. Department of Agriculture, and the U.S. Trade Representative, to achieve these goals.
I do not believe that the 1999 WTO negotiations should be a forum to renegotiate the gains achieved in the 1994 Uruguay Round agreement. Instead, we want to move forward with liberalization of worldwide agriculture trade.
However, the administration must review the agreements made in the Uruguay Round to determine whether countries are meeting their commitments and whether the provisions of the round are working. I especially want to mention the dispute settlement reforms of the Uruguay Round. In the cases of beef hormones and bananas, the dispute settlement reports highly favorable to the United States were received. The WTO appellate body then affirmed those decisions.
However, no action has been taken by the European Union to implement these decisions and there's no indication that any action is underway. Is there a problem with dispute settlement process? This delay and avoidance of compliance is very troubling and may indicate either a poor dispute settlement system, or a breakdown in the process. The 1999 WTO negotiations can provide a unique opportunity for United States' agriculture to further reduce tariffs, open new markets, and address unfair trade practices around the world.
Specifically, among the issues likely to be on the 1999 WTO negotiating agenda are several that were not addressed effectively—or at all—during the Uruguay Round. These include trade in biotechnology products, the operations of state training enterprises, and commodity preferences.
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Other items on the agenda will include administration of tariff rate quotas and use of safeguards for specific commodities. I would like to see improved access for U.S. agricultural exports. I'd like to see non-tariff barriers eliminated and growth and expansion of our agricultural trade, because it's good for the United States' farmers and ranchers, and all who contribute to providing food for people of our country and for the world.
So Mr. Secretary and Mr. Ambassador, I thank you for coming to the Agriculture Committee and I appreciate your thoughts to these concerns of mine and to others of this committee. At this point, I'd like to recognize the gentleman from Texas, our ranking member,
Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. And I commend you for holding this hearing and the continued emphasis that you are placing on agricultural trade. I, too, would like to welcome Secretary Glickman, Deputy Secretary Rominger, and Ambassador Scher to the committee this morning. You will be the key leaders of our agricultural team in the negotiations and I look forward to your testimony.
This hearing is especially timely. Two years ago, Congress promised farmers and ranchers new market opportunities around the world in exchange for their safety net. So far, Congress has not delivered. I'm very disappointed that we have not passed the fast track legislation which is essential for participation by United States negotiators in negotiations that we are here to discuss today.
Mr. Chairman, I look forward to following your continued leadership to see what can be done to get the House leadership to bring this very important issue to the floor.
Soon we will be voting the final meetings of the international monetary fund in order to contain crises such as the current one in Asia. In doing so, it is worth keeping in mind while our agricultural exports to Europe have increased almost 30 percent over the past 10 years, our exports to Asian and Latin America have more than doubled.
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Several weeks ago, Under Secretary Shumacher told us about the great work your department has been doing with export credit guarantees in Asia. Without IMF backing, local banks would have been unable to participate in the credit guarantee program, a program which has enabled the United States to maintain market share worth $12 billion annually.
I commend you for the foresight you have shown in responding quickly to the Asian crisis. And now it is up to the Congress to show the same foresight needed to contain the crisis and prevent it from spreading to other important markets for United States agriculture. Europe has been an important partner in international organizations, including the IMF and the WTO. As the two largest importers and exporters of agricultural products, the United States and the EU will be the most important players in the next round of agriculture negotiations.
While the EU has indicated some willingness to reform its common agricultural policy, we seem to be moving further apart on sanitary and phytosanitary issues and on the rules to govern biotechnology.
I was encouraged to learn that these issues will be an important part in the bilateral dialog that we have undertaken with the European Union.
Ambassador Scher, I encourage you to make sure that agriculture is fully included in the dialog.
Likewise, I encourage an aggressive approach on the part of USDA with regard to trade. If we are to win the full trust of farmers and ranchers for trade initiatives such as fast track, we must continue to demonstrate that trade works for agriculture.
For example, the Dairy Export Incentives Program should be fully implemented as provided under the farm bill. And we must let all Europe know that we expect full implementation of dispute resolution panel decisions on bananas and beef hormone.
Thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentlemen. All statements from members will be included in the record.
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[The prepared statements of Members follow:]
STATEMENT OF HON. HELEN CHENOWETH
Thank you Mr. Chairman. I appreciate the committee for holding this hearing to review the 1999 Multilateral Negotiations on Agricultural Trade with Europe.
Mr. Chairman, I am in favor of trade which is fair and free for all parties involved. I believe we need to reinforce the trend toward greater integration of U.S. markets into foreign markets.
Facilitated trade agreements to promote investment and employment in the economy is vital to a country's survival. The strong export performance of U.S. goods must create incentives for resources, labor and capital.
Mr. Chairman, a new round of multilateral negotiations for agriculture is set to begin in 1999. It is clear that the objective of the negotiations should be to continue the process of agricultural trade reform begun in the Uruguay Round Agreement.
Continuing the process of reform must entail revisiting the issues of market access, export subsidies, high tariffs for agricultural products and domestic support that were essential to the Uruguay Round. Additionally, efforts must be made to settle the sanitary and phytosanitary disputes.
Mr. Chairman, it concerns me greatly to learn that the European Union subsidies in 1997 were about eight times larger than United States domestic and income support for farmers.
It is clear that the European Union provides domestic support and export subsidies to a broader range of products, including grains, dairy products, meat, poultry and eggs, and fruits and vegetables. This is disturbing.
These trading practices in the European Union are not fair to the American farmer and rancher. In Idaho, the farmers and ranchers have experienced negative impacts on their agricultural markets.
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The time has come to protect America's jobs and interests. I look forward today to hearing from our panels of witnesses to better understand the U.S. strategy for the 1999 Multilateral Negotiations on Agricultural Trade with Europe.
Thank you Mr. Chairman.
STATEMENT OF HON. JERRY MORAN
Mr. Chairman, I first want to thank you for conducting this hearing on what is one of the most important issues for the future of agriculture—trade. The last round of GATT negotiations brought many changes to farmers on both sides of the Atlantic. As payments decline under our current farm program, the importance of this round of negotiations will continue to climb.
Kansas producers have long been able to compete successfully with farmers from around the world, but as we all know, our farmers can not compete with foreign governments. This is where the U.S. Government must step in and forcefully negotiate on behalf of all of agriculture. One point that is important to remember is that the U.S. negotiators should indeed be negotiating for all of agriculture. We cannot afford to trade away one crop for another during the next round of negotiations.
The U.S. wheat industry is a good example of an industry that might feel they have been traded away. Money appropriated by Congress to promote U.S. wheat exports has not been spent in the last 2 1/2 years. The U.S. essentially does not compete in world flour markets any more. The European Government decided it wanted to compete in those markets while the U.S. did not. When the U.S. Government does not want to compete, the farmer loses. This is a situation that must be addressed.
I am also concerned about beef exports. The initial WTO rulings are in our favor and I support the findings. However, I remain concerned that in the end, we still will not be able to export beef to Europe. While we must continue to push the beef case, the United States should try to examine the compensation system during the next round of negotiations. What do we really gain if we win the case, but are still excluded from the market we are trying to enter?
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Again, I thank the chairman for conducting this hearing and look forward to hearing from the witnesses.
STATEMENT OF HON. JOHN THUNE
Mr. Chairman, I commend you for calling this very important hearing and I thank all the witnesses for being here today to provide their insight.
The Federal Agriculture Improvement and Reform Act of 1996 (the 1996 farm bill) set American agriculture on a path toward flexibility in production and a market-oriented supply and demand structure. Aside from production flexibility, passage of the farm bill phases out commodity price supports over 7 years. In exchange for the phase out of price supports, producers were assured of an enhanced global marketplace.
We have given producers the flexibility they were seeking. However, we have not yet provided a global marketplace in which American producers compete on a level playing field with foreign producers. Multitudes of trade barriers exist in a number of countries preventing the free flow of international commerce. It is essential that we reduce or eliminate tariffs and subsidies that decrease market opportunities for U.S. exports or unfairly distort agriculture markets. Additionally, the United States must develop, strengthen, and clarify rules and dispute settlement mechanisms in order to eliminate unfair or trade-distorting activities of foreign governments and unjustified trade restrictions.
Clearly, Americans can not consume all that we produce. Production from more than one-third of harvested acreage is exported, including an estimated 55 percent of wheat, 35 percent of soybeans, and 18 percent of corn. All of these exports generate economic activity in the non-farm economy as well. It has been estimated that for each dollar received from agricultural exports in 1996, $1.38 was generated in supporting activities to produce those exports. Agricultural exports generated an estimated 895,000 full-time civilian jobs, including 562,000 jobs in the non-farm sector. While the United States generally has a negative trade balance, the agriculture sector consistently registers a large export surplus.
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There are roughly 5.7 billion people in the world, and by 2005, there will be more than 6.5 billion. Today, 95 percent of the population lives outside the United States; in the future, this figure will be even greater. Clearly, foreign markets represent the future of American agriculture. The 1999 round of the WTO multilateral trade negotiations can be a foundation for creating a world market free of non-tariff trade barriers and in which American agriculture can compete fairly.
The CHAIRMAN. And if members will allow me, we'll ask the Secretary and his folks to step forward. Mr. Secretary, we're delighted to have you here, as well as Mr. Rominger and Ambassador Scher. We think that you have done an admirable job of leading this country towards better and more open trade and we'd like to have your assessment of this past year and what we can expect, especially with your thoughts about the review of the WTO in 1999.
Thank you for coming, Mr. Secretary.
STATEMENT OF HON. DAN GLICKMAN, SECRETARY, U.S. DEPARTMENT OF AGRICULTURE
Secretary GLICKMAN. Thank you very much, Mr. Chairman, Mr. Stenholm, my former colleagues, I appreciate being here.
I appreciate by the way the very hard work that Ambassador Scher—I think it's helped us immeasurably to have a key person at USTR who is onboard in terms of agricultural issues, in terms of highlighting the issues.
And I want to thank you and Mr. Stenholm and members of this committee for your support in passage of the administration's IMF funding request and through help in this area. I think it's made a big difference.
My message this morning is simple. We need to continue the work that began with the North American Free Trade Agreement, the Uruguay Round, and other recent trade initiatives. And we need to maintain the momentum of U.S. leadership of the trade reform agenda.
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I'd like to start this morning by giving a quick overview of the current situation for agricultural trade. The overall trend on exports is positive.
Despite some current problems, we expect exports of $56 billion this fiscal year, our third highest level ever. Over the past several years, we have moved from levels in the low $40 billion range to the upper $50 billion range and we continue to achieve one of the largest positive trade balances of any sector, well in excess each year of $20 billion.
Furthermore, even though the dollar value of exports is down a bit this year, the total volume of commodities exceeds last year's level, so the amount of product we're moving is actually increasing even though the prices have caused the total amount to fall a bit from last year.
But let's be frank. Current commodity prices are not what we'd like them to be, particularly the livestock area and in wheat. Nor are our fiscal 1998 exports where we would like them to be. A number of factors have come together to interrupt temporarily the steady growth of exports. In addition to the financial crisis in Asia which was our largest growing market, about 40 percent of all our agriculture exports, we have seen several successive years of record production in China.
We have seen the emergence of new competition. For example, Argentina has made infrastructure improvements which make it a year around factor in wheat and corn markets, rather than a seasonal exporter. And reflecting the healthiest economy in the world, our strong dollar puts us at a disadvantage vis-a-vis our friends in Australia, Canada, and the European Union. The growth of exports, however, in light of your opening statement, is that this is the highest priority of the department, that is to move exports as part of the safety net. We are using all of our tools at our disposal to maintain and where possible to increase markets.
A key centerpiece of this is the GSM–102 credit program. We are using it to provide the liquidity and the trading system necessary to maintain our Asian markets. In Korea, approximately $620 million in sales have already taken place under the $1.1 billion allocation of GSM–102 credits we announced at the turn of the year.
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Just yesterday, we announced $325 million of those credits operational which, if the sales go through, will put us at about $100 million from complete usage of that $1.1 billion allocation. Under Secretary Schumacher, Administrator Hatamiya and General Sales Manager Chris Goldthwait were in Korea, seeking out what their needs are vis-a-vis our total amount as well a as commodity by commodity allocation. In Indonesia, we have a $400 million allocation in place and we are also proposing to use PL–480, title I. We have proposed a $25 million allocation to cover wheat, soybeans, and rice.
Let me give you one example how GSM has worked to the benefit of U.S. producers. Fifty-six percent of the hides and skins produced in the United States are exported.
Korea is far and away the largest export market, with 40 percent. In early December, hide prices averaged roughly $81 per hundredweight, but once the currency crisis took hold, the prices plunged to $57 per hundredweight by the end of January. Within a week after the department announced a GSM program for hide exports to Korea, prices rose to $67 per 100 weight.
There is other positive news as well. For example, rice prices have held up relatively better than those of commodities, and we are looking at increases in rice exports to 2.7 million tons, some 17 percent higher than a year ago. And that is before the full effect of recent trade policy successes, like expanded access to the European market under the TRQ agreement.
In addition, soybean oil exports are up over 27 percent over last year. Geographically, we are seeing the results of our NAFTA agreement in expanded trade with Canada and Mexico. Despite the occasional problems in our trade with our two neighbors and those are differences are real ones that I'm sure will come up today, we are looking at record exports to each country this fiscal year.
While the export numbers for fiscal 1998 are not as high as we would like, I'm confident that the downturn is a temporary phenomenon. It is one we are fighting to turn around as quickly as we can. We recognize that in the advent of the 1996 farm bill, exports form a very key part of our safety net to producers.
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Now, let me comment quickly on some of our trade policy and issues, which Ambassador Scher will have much more to comment on than I will. Recently trade agreements have opened up in many areas new opportunities for American farm and food products. From rice, to beef, to pork, to poultry, to fruits and vegetables, U.S. producers across the country are benefitting from expanded access in countries and markets around the world.
Let me give you two examples. The Plains Cotton Cooperative Association in Lubbock, TX is a good example of the importance of trade agreements. Five years ago, this cooperative exported virtually no cotton to Mexico. As a result of NAFTA, Mexico lowered its cotton duties and is improving its transportation infrastructure to handle the increased volume of trade.
Now, Mexico is our largest cotton export market. And Plains Cotton Cooperative Association sells about $50 million of cotton to Mexico, one-third of its total exports.
So combined with an aggressive trade policies, the big agreements pave the way for smaller successes.
Let me give you one, the Japanese wood products market. In 1990 and 1996, the United States and Japan reached bilateral agreements that improved access for U.S. value-added wood products. As a result of these two agreements, the U.S. producers expanded their sales. A Portland, OR company, Willamette Industries, now sells $14 million worth of these products to Japan, a 600 percent increase during the 7-year period.
Ondo & Company, another U.S. producer based in Kirkwood, WA, increased sales to Japan 20-fold to over $14 million. So there are successes.
Yet at the same time, we recognize there are many challenges. We continue to monitor how other countries are implementing the Uruguay Round agreements and we have not been slow in using the dispute settlement process of the WTO. Of the more than 30 complaints filed, more than a third have involved agriculture and we have scored some victories, such as the recent decision against the EU hormone ban, upheld by the WTO's appellate body this year.
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Friday's announcement that the EU intended to do yet another risk assessment on the safety of the use of hormones to promote animal growth is deeply disappointing to those of us who believe in the integrity of our trade agreements. The EU position runs contrary to all our expectations on compliance with scientifically accepted sanitary and phytosanitary measures, and we will not stand by to watch this to take place without action and I'm sure that Mr. Scher will talk about this.
It is time for the EU officials to explain precisely how and when they will implement the WTO recommendation to remove the hormone bans. We will continue to press them on this.
I should mention that the EU Council on Ag Ministers voted unanimously on Monday to approve the veterinary equivalency agreement we negotiated last year.
This has been a long time in coming and we still have some work to do to implement it on both sides. But it appears that finally our meat plants will be able to gain approval for export to the EU through FSIS rather than through EU inspections.
The U.S. Trade Representative and USDA have also used the WTO process to convince countries to reach favorable settlements without having to proceed all the way through the panel process. We just concluded an understanding under which the Philippine Government agreed to reform the way it administers TRQ's that have severely restricted access for U.S. pork and poultry meat.
We are currently challenging the way Canada subsidizes dairy exports and Japan's varietal testing program for horticultural products. We also insist that countries wanting to enter the WTO first undertake a serious commitment to trade reform, just as we did successfully with Taiwan last month.
One of the most important initiatives of the administration's trade agenda is continuing the global reform process begun in Uruguay Round. Just 2 weeks ago, I met with the agriculture ministers of the OECD, the Organization of Economic Cooperation and Development.
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At the conclusion of the meeting, the ministers pledged to pursue further substantial progressive reductions in farm subsidies and import protections.
I know that you are going to Europe soon and meeting with some of these same folks. I think your trip is highly important in terms of dealing with a variety of these issues. Here in the United States, planning is underway for the next round of multilateral trade negotiations set to begin late next year. We will be consulting with you and with our agricultural advisory committees and several others on priorities.
Several issues still stand out. We need to make substantial further reductions in tariffs.
Agriculture tariffs worldwide still average about 56 percent, while our own tariffs are about 5 percent, on average. TRQ's, tariff rate quotas, should be substantially increased or effectively eliminated by cutting the out of quota duty. Exporting countries should further cut or eliminate export subsidies. Export subsidies are probably the most trade destroying measure in agricultural markets and there is no good economic rationale for them. Our objective should be their complete elimination.
The next agreement should discipline the activities of state trading enterprises. We have been seeking greater transparency in the operation of these entities, both import and export monopolies, through the WTO working party on state trading enterprises.
The negotiations should impose tighter disciplines to prevent countries from circumventing their trade commitments through disguised tariffs and non-tariff measures, or technical measures such as unnecessarily rigid labeling requirements.
And finally, the parties should reaffirm, more clearly define, and tighten rules on sanitary and phytosanitary measures to ensure fair competition while maintaining the rights of countries to use legitimate measures to protect public health and safety. We want to make sure science, not internal politics or protectionism, is the basis for public, animal, and plant rules.
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In this regard, I've just been informed that the EU has put off indefinitely the vote on GMO varieties of corn and therefore, the potential of that is that the United States will not ship corn to the EU in 1998. Again, this concerns me very much, because I think that there's no question that under internationally scientifically accepted sanitary and phytosanitary measures, that movement is unacceptable on their part.
When we enter the new round of agriculture talks, the process of global trade reform must not come to a halt. We are beginning to explore with our WTO partners ways to continue implementing tariff and export subsidy cuts and other measures. Even as we work on new disciplines that will need to be negotiated. No stopping and waiting for a new change to emerge. No pause is our position.
We have a lot of work to do globally, regionally, and bilaterally, enforcing existing agreements, opening new markets, and leveling the playing field. The trade policy successes of the past few years have brought new opportunities to agriculture.
Opportunities are measured the only way that counts, in dollars coming home to America's farmers. And the opportunities are bright because over the next 20 years will we expect the world's population to double. The opportunities are outside the United States. We've got to be in a position to take advantage of them. And thank you very much.
The CHAIRMAN. Thank you very much, Mr. Secretary.
Mr. Ambassador, do you have a statement?
STATEMENT OF PETER L. SCHER, SPECIAL TRADE NEGOTIATOR FOR AGRICULTURE, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Mr. SCHER. Mr. Chairman, thank you.
Congressman Stenholm, members of the committee, I appreciate the opportunity to join Secretary Glickman and Deputy Secretary Rominger to be here today to discuss the administration's preparations for the next round of multilateral negotiations.
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Before I begin, let me also say that it's obviously quite an honor for me to work under the leadership of Secretary Glickman and his team, as well as Ambassador Barshefsky who is in Latin America today advancing our interests in that region.
So Mr. Chairman, let me be brief, because I think Secretary Glickman delivered the most important points, and the message that he delivered was very clear.
Trade agreements are working for U.S. agriculture. The efforts of this administration and previous administrations with the support of bipartisan Congresses to open foreign markets for our products are paying off.
The export numbers that the Secretary talked about reflect the efficiency and the competitiveness of U.S. agriculture. It is fair to say that when U.S. agriculture can compete fairly overseas, we more than hold our own.
But clearly, we still have a long way to go. We recognize that in fact, even before the negotiations for the Uruguay Round were concluded that more needed to be done to reform world agricultural trade. This is why we insisted on another round of multilateral talks to begin in 1999.
Mr. Chairman, I see our task for these negotiations for next year as threefold. First, we need to solidify and reinforce the gains made in the Uruguay Round, with regard to the dispute settlement process and the sanitary and phytosanitary agreement.
Second, we must follow through on the down payment we made in the Uruguay Round to continue the market opening reform of the world agricultural trading system.
Finally, as you indicated Mr. Chairman, we must address the new, more sophisticated trade barriers that countries are erecting, such as those which threaten trade and the products of biotechnology.
Let me just comment quickly on two of the areas as I indicated that I think we need to reinforce the gains we've made in the Uruguay Round which are working for U.S. agriculture. First, the dispute settlement process is working for U.S. agriculture. Prior to the Uruguay Round countries faced little costs if they refused to honor their trade obligations. There was no enforcement mechanism.
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Today, in cases where countries are not living up to their commitments, there's a framework in which countries can pursue their rights. The United States has not been shy in using this process. We've brought good cases to the WTO, and we've scored significant victories.
In fact, we have brought more cases than any other country, and we are winning more cases than any other country.
As Secretary Glickman and members of the committee have pointed out, the most recent panel decision on the EU's ban on the sale of American beef, because of the use of growth promoting hormones, was found to clearly violate the EU's obligations under this SPS agreement.
This decision is important from two perspectives. First, it demonstrates that the WTO dispute settlement system can handle complex and disputes over food safety and health. It also clearly demonstrates that in the 10 years since the EU has had this ban in place, it has not been able to come up with a credible scientific basis for this ban.
It's important to remember the EU's members. Some people in the EU would have you believe that the panel simply said, ''Go out and perform a new risk assessment.''
That is not what they said.
Both the panel and the appellate panel were very clear that there is no scientific justification for this ban. If the EU believes that we're going to wait around for another 12 or 14 months while they try to concoct a new risk assessment, they're sadly mistaken and actions will follow.
It is critical to the credibility of the entire multilateral trading system that countries respect the decisions of the WTO and keep their commitments.
Next, let me focus just for a second on the issue of sanitary and phytosanitary barriers. As we've negotiated trade agreements that reduce the traditional tariff barriers, sanitary and phytosanitary barriers become more visible, more relevant, and frankly, to countries simply seeking to block our access, too attractive.
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This agreement has been a key tool to influence the decision of many of our trading partners. Japan's removal of restrictions on imports of U.S. tomatoes and a recent agreement with Chile to allow the importation of U.S. wheat and citrus products are recent examples of how we've used this agreement to benefit our interests.
But clearly more work is needed to be done and countries need to understand that they have obligations. The Secretary mentioned the disturbing news about the EU's decision to put off the vote on the GMO's varieties. If I might add one point to that, this is in light of the EU's own scientific committee over a month ago passing judgment on these varieties and saying that there's no scientific basis to block these products.
In fact, if I can quote from the commission and the scientific committee's own press release, they said, ''There is no evidence that placing on the market of three modified maizes and modified . . . would cause adverse affects on human or animal health and the environment.''
This is what the commission said. This is what the commission's own scientists said. It's time to comply with the decision and the EU's obligations under the SPS agreement.
Let me go on to just briefly touch on a couple of the areas that we'll focus on in the next round of negotiations. As you mentioned, Mr. Chairman, there are a number of issues, including the administration of TRQ's commodity preference. I'd like to just mention four areas which I believe are key.
First, the areas of market access is extremely important. We continue to face high tariffs overseas. We need to bring down across the board reductions to benefit U.S. producers.
Export subsidies are another area that we will focus on in hte next round. We need to build on the progress we've made so far in reducing export subsidies if we're going to create a more level playing field for U.S. agriculture.
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State trading enterprises are also a key area. The many members of this committee are very concerned about them because they can distort and frequently operate behind a veil of secrecy.
We need to address those, put more disciplines in on the operation of state trading enterprises, and make sure that they are operating in a transparent way.
Particularly as we begin to bring countries like China and Russia into the WTO, this issue becomes even more important.
Finally, the issue of biotechnology is particularly important to our farmers and ranchers. They must have on access to the technology which will allow them to be more productive, and we need to be sure that countries have policies in place to promote the use of these technologies, not discourage them.
Mr. Chairman, let me make one final point, in conclusion. I often hear people blame trade agreements as the cause of trade problems. I have to disagree with that argument. It fails to recognize that we already have the most open market in the world.
The objective of trade agreements is to open new markets and to create new opportunities for our products and our services.
This is why we cannot shrink from the challenges of the global economy. There is nothing more that our competitors around the world would love to see than for us to stay on the sidelines and to engage in an endless debate on the merits of trade. Because while we are doing this, they are moving ahead. They are writing trade agreements to benefit their producers at the expense of ours. We need to stay in the game.
I look forward to working with you, Mr. Chairman, members of the committee, Secretary Glickman, and his extremely talented team, as we seek to forge new partnerships and create new opportunities for American agriculture.
Thank you.
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The CHAIRMAN. Thank you, Mr. Ambassador.
Mr. Rominger, do you have a statement or comment?
Mr. ROMINGER. No, sir.
The CHAIRMAN. Both are excellent statements and it brings me to a direct question for you, Mr. Secretary. Even though I tried to outline this hearing as as a discussion of WTO and Europe and the EU, I must ask you will the administration submit fast track legislation to Congress this year?
Secretary GLICKMAN. I would ask Ambassador Scher to answer the question. [Laughter.]
The reason why I say that is because the President is obviously still committed to fast track. I think the passage of the IMF funding request is something that is more immediate in terms of the needs to deal with the Asian crisis. But I know that the President is still committed to the fast track authority and I'd ask him—Ambassador Scher may know more about this than I do.
The CHAIRMAN. Mr. Scher, the President seemed very committed to fast track and the fact is, what we're seeing everyday now is the increasing compelling need to have this authority. What's clear right now is that we don't have the consensus in the House of Representatives, at least, to pass the fast track bill and what we are doing is working with you and with other Members of the House to try to develop that consensus so that we could not only submit a bill, but submit a bill that can pass.
Mr. SCHER. We are still very committed to it. We need it.
The American farmers need it, and I think it's fair to say that when we have some level of confidence that we will get a bill passed, we will be up here pushing that bill very aggressively.
We want to work with you and with other members of the Congress to determine what kind of bill can pass the Congress. That's the ultimate question we have to ask.
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The CHAIRMAN. If we showed you the votes, would the administration would submit the fast track?
Secretary GLICKMAN. I think if the administration saw that it had the votes to pass the bill, it would be very supportive of moving forward.
The CHAIRMAN. OK. Thank you.
Mr. Secretary, again, a little bit off the track, but essential. I want you to explain to members and to the press why it's important to have IMF funding if indeed we are going to use GSM–102 credit lines to countries.
Secretary GLICKMAN. The credit lines that we provide, which are the heart of our export assistance right now, are based upon frankly commercial bank loans being available to countries and/oor importers, to buy our products. And in order for those products to move, you need to have a currency stabilization and economic reforms where the bank loans can be made under legitimate normal banking procedure.
And the IMF allows us to go in, provide that currency stabilization and those domestic policy reforms necessary that banks will then lend money that we can then provide credit guarantees on.
These are commercially available transparent non-subsidized loans that we guarantee, but we can't provide that assistance unless a country is able or the importer is able to repay the money and the IMF assistance is necessary for us to provide that kind of economic stability to do that.
Without that, the credits will not go forward in many cases.
The CHAIRMAN. Thank you. And give me the direct example of South Korea.
Secretary GLICKMAN. Without question. First of all, the Koreans have told us that this massive credit assistance that we have provided to them was necessary in order to basically be a key point of their economic stability during the last several months.
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IMF assistance through Korea has reduced tariffs and other sorts of arrangements which have allowed us to go in and offer our products without the kind of very negative import restrictions that Korea has added in years past. Those credit assistances probably would not have taken place without the IMF programming.
The CHAIRMAN. All right. So in a word, without IMF funding, that reinstates the legitimacy of the governments, in this case of Southeast Asia, our opportunity to use credits as an incentive to buy American agricultural products would not have been available?
Secretary GLICKMAN. That's correct. And 40 percent of our sales go to Asia.
The CHAIRMAN. My time is up, but we'll start possibly on a second round. I'm going to identify members as usual as they have attended the committee meeting.
Mr. Stenholm.
Mr. STENHOLM. The commissioned report by USDA's Agricultural Research Service dated December 1997, Europe Situation Outlook, page 13, indicates that lower prices may cause Europe difficulty in meeting its subsidy commitment levels for beef, olive oil, cheese, and other milk products.
Has the European Union met its Uruguay Round commitments to reduce subsidy levels for all commodities up to the present? And if not, please explain where they have not.
Secretary GLICKMAN. The answer is yes, but we are looking at a couple of cases. One of them is cheese and one of them is beef where there is some question as to whether they've met their commitments and we are examining that right now. In the other areas, we believe they have met their commitments. It doesn't mean we agree with the subsidies, but they should continue to be——
Mr. STENHOLM. They have met their commitments in all but the beef and the cheese area?
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Secretary GLICKMAN. That's right. And we're looking at that right now.
Mr. STENHOLM. You're looking at that?
Secretary GLICKMAN. Right.
Mr. STENHOLM. Has the European Union met its reporting requirement to the WTO with regard to those subsidy commitment levels?
Secretary GLICKMAN. The report is 3 months late; it was 3 months late last year.
Mr. STENHOLM. I don't believe they've reported anything yet this year, have they?
Secretary GLICKMAN. That's correct.
Mr. STENHOLM. What are we doing to kind of help them along with doing what they're supposed to do?
Secretary GLICKMAN. It has been raised several times with the WTO. In fact, one of the things we do in the committee on agriculture which is actually meeting today in Geneva is use this as an opportunity to raise these issues and work with other countries to—to point out these failures to comply with this requirement.
I'll be honest with you, there's not an enforceable mechanism and this is one of the things we need to look at in 1999. How do we improve and strengthen the notification requirements for subsidies for state trading for all the things that member countries are obligated to notify the WTO before they do.
So at this point, we can continue to push them, along with other countries, and make sure they know we're aware that they have not done this, and we expect them to comply with their obligations.
Secretary GLICKMAN. I would also point out Deputy Secretary Rominger is going to be in Dublin next week for the Irish farm forum where we have many if not most of the European ag ministers or deputy ministers to be, and this will be on our agenda as well.
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Mr. STENHOLM. As you all are well aware, this is one of the things that is particularly frustrating to our producers when we see agreements and then we see the weaving and bobbing and ducking and all of the things that the others do without us seeming to be able to do anything about it. And that's where I appreciate your answer as saying in the next round we have got to look at a little more enforcement mechanisms, or otherwise, it creates ongoing problems.
The cost of expanding the European Union to include Central and Eastern European countries could add 5 to 6 percent to the cap budget. But the changes proposed so far by the EU under Agenda 2000 would not untie compensatory payments from production. Are we satisfied with the direction of agenda 2000?
Mr. STENHOLM. Go ahead.
Secretary GLICKMAN. No, I wouldn't say we're satisfied with the direction. I think the EU and Commissioner Fichler have laid out some good goals, but the question is: how do you implement those goals?
And I think as you point out, the expansion of the European Union into East Central and Eastern Europe is one of the critical factors that we're going to have to. It's going to be hanging over the next round of negotiations address.
What's interesting in looking at this is watching and seeing how the EU's going to manage to expand into Central Europe. This expansion is expected to add 50 percent to its agriculture area, and it's going to add 100 percent to its agriculture labor force.
Right now, the EU's spending over half its budget on CAP. They have these internal pressures which are saying at the same time that they're trying to move to a single currency and keep their budgets under control, they have these internal pressures.
At the same time, we have to keep the external pressure up, not only in the United States, but also working with the CAIRNS group and other countries around the world that are demanding that the EU reform its CAP and move its farmers to a more market-based, market-oriented system.
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We're clearly not there yet and I think it's going to more slogging to get there.
Mr. SCHER If I just may add one point. First of all, any step by the EU towards agriculture reform is a step in the right direction and I think that Mr. Fichler is attempting to move it in the right direction, but it's something that we've got to look very carefully at in the next round as well.
I must tell you that while I take—I make a lot of public comment as well about the EU, this is almost an impossible animal to manage. It's a confederation of totally sovereign and independent countries who have a long history of economic and political and military warfare against each other. So you have countries with diametrically different positions on almost every issue.
And agriculture's probably the most complicated one of all. But for Fichler to try to bring some sort of handle over the Germans and the French and the Italians and the Greeks is like it takes not only the wisdom of Solomon, but every other religion in the world to try to do. [Laughter.]
Secretary GLICKMAN. We have to keep the pressure on them, but also recognize that from a political perspective, he is in a rather tongue tied position sometimes because of the confederation arrangement.
That's what makes it so difficult for us when we find out that let's say one country like the French are blocking biotech approval of our corn products when maybe the majority of the countries thinks it's a pretty good idea.
It is just tough.
Mr. STENHOLM. Mr. Secretary, some of us believe that you meet all the qualifications that you just mentioned as necessary in order to——
[Laughter.]
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Secretary GLICKMAN. Thank you.
Mr. STENHOLM. And we encourage you and remain behind you, but what I would like to say, I would hope that we do not dismiss lightly the chairman's comments a moment ago regarding votes and the fast track and that you will take that very seriously, because I think we—we may have a real opportunity here with the Chairman's leadership and I hope you do not take that lightly, but proceed accordingly.
Secretary Glickman. Thank you.
The CHAIRMAN. Thank you gentlemen.
Mr. STENHOLM. Mr. Chairman, may I submit for Mr. Thompson a set of questions in writing for the record at this point?
The CHAIRMAN. Without objection, so ordered.
Thank you gentlemen, let me interrupt proceedings for just a moment to—and by the way, Mr. Secretary, don't make excuses for the European Union, please, but you likely noted that members of the British House of Commons are in the room and likely you were being kind with those comments. I appreciate that.
At this point, I'd like to, and am honored to, welcome a group of distinguished members of the British House of Commons, the Agricultural Select Committee.
They are here in the room and seated and Chairman Peter Luff. Please, ladies and gentlemen, stand up so we can see you.
[Applause.]
Secretary GLICKMAN. Mr. Chairman, if I may make one quick comment.
The CHAIRMAN. Just a minute, Mr. Secretary.
Secretary GLICKMAN. OK, Thank you. [Laughter.]
The CHAIRMAN. Ms. Fiona Jones, Mrs. Sally Keeble, Ms. Diana Organ, Mr. Andrew George, Mr. John Hayes, Mr. Austin Mitchell, and Mr. Mark Todd. We welcome you here and please don't take notes and take them home with you. [Laughter.]
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Now, Mr. Secretary, you wanted to say——
Secretary GLICKMAN. I just wanted to say that among the countries in the confederation of the EU, one of our closest cooperators are the British, and I had a——
[Laughter.]
And it's true. And it's true, and I met in Paris with Jack Cunningham, the U.K. agriculture minister who, by and large, is a partner with us on our views on agricultural reform and I thought I ought to state that for the record.
The CHAIRMAN. And that is true, Mr. Secretary, and I appreciate your saying that. Britain has always been, while a part of the European Union, the most open country for trade, as a country, within the European Union and that's true. Thank you for mentioning that.
Mr. EWING. Thank you, Mr. Chairman, and I appreciate your holding this hearing. I think it's extremely important.
Mr. Secretary, Mr. Ambassador, whomever, in February there was an article in the Wall Street Journal talking about new trade negotiations which would exclude any agricultural issues from those negotiations.
I introduced in the Congress H. Con. Res. 213 expressing the role of what would be the role if approved by the Congress of our concern about negotiations with the Europeans without including agricultural issues.
Because of the tremendous amount of exports from this country and the importance of agricultural issues to exclude them we feel would be improper and certainly very damaging to our agricultural economy.
Is the administration willing to give us assurances that there won't be such an agreement that would exclude agricultural issues?
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Mr. SCHER. I read the article also, and I thank you for the opportunity to answer the question.
Let me give you just a brief background and then answer your question directly.
Earlier this year, Sir Leon Brittan, who is trade minister for the European Commission, proposed this initiative to deepen our economic and trade relationship. We have viewed this in the administration as an important initiative to consider from two perspectives, both from the perspective of our overall trade relationship as well as our agricultural relationship.
This is a very important market for U.S. agriculture producers. We not only export in excess of $8 billion worth of agricultural exports. We enjoy a $2 billion surplus. But also in light of all these problems we have to find any opportunity to address these problems.
Now, let me say first of all, the EU has not contemplated nor are we even considering the notion of a free trade agreement. There is a discussion of an initiative. Ambassador Barchefsky has been clear to the European Union from the beginning that we cannot move forward on any proposal that does not address agriculture.
I don't know how more plain I can be.
Certainly, there would be people in the European Union who don't want to address agriculture, but from our perspective, we cannot envision a trade initiative with Europe that doesn't address agriculture issues.
Now, what I would like to point out is when you think about the agriculture issues we have with Europe right now, they're sort of two baskets. One are these CAP reform issues is likely to be more appropriate for a multilateral negotiation in 1999 when we have other countries on our side.
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But you have these underlying regulatory problems which are harming our access to their market. Those are issues that we believe are appropriate to address and can provide real opportunities if we can achieve them and those we're looking at.
This is very much in the preliminary stages and we're consulting with those groups. In fact, I believe there was a briefing for this committee staff last week, but we have not even formally responded to the EU yet. But yes, it's something we're considering, and yes, agriculture has to be included.
Mr. EWING. Well, Thank you, Mr. Ambassador.
That's reassuring and certainly we'd be very supportive of that policy by the administration. Mr. Secretary, you mentioned that—and I hope the press doesn't pick up on it when the corn prices fall 50 cents—that we are going to maybe have shipment of corn to Europe this year because of the genetically modified issue. Would you address that a little more?
Secretary GLICKMAN. Wait. There seems to be some confusion here. We now have word—is this an accurate statement?
[Simultaneous discussion.]
Secretary GLICKMAN. I want to clarify this, we now have word that all three corn varieties were approved by the EU, so I don't know where our information came from.
Mr. EWING. But would you state that again so that the press may pick up on it and corn prices——
Secretary GLICKMAN [continuing]. And they're giving me one of these, so I think they heard that.
Mr. EWING. That's totally different news.
Secretary GLICKMAN. And it shows you sometimes that you have to wait until you get all the information in.
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Mr. EWING. Well, Thank you very much, and thank you for clarifying that, and my time's up and I'm going to stop while I'm ahead. Thank you. [Laughter.]
Secretary GLICKMAN. And you did that.
Mr. EWING. I'd be quick to take the credit for it. Thank you.
The CHAIRMAN. You just changed the price of corn in America by $2.
Mr. Brown.
Mr. BROWN. Thank you, Mr. Chairman. And pursuing to some degree the questions—the area opened up by Mr. Ewing, Ambassador Scher, I note that you did in your own statement refer to the importance of biotechnology and the impact that it could have on American trade. At least one of our witnesses in a further panel has made note of that also and indicated that the harmonization of national regulatory procedures offers a potential for greatly enhancing trade in agricultural products.
I didn't note any comments in your statement,
Mr. Secretary, on this subject, but it seems to me that this matter ought to be a matter of high priority. That is, we should be working in our research and development and in the regulatory efforts necessary to bring these new products into commerce with our European allies and any other countries that are involved.
Would you agree with this and do you think we could—or are we actively participating in such activities?
Secretary GLICKMAN. Yes. First place, is that a lot more of our research is being focused in providing assistance in the biotech and bioengineering area. We have it in the soybean area, as you know, it's been one of the primary areas where biotech is being used both domestically and internationally. This is a very high priority for the United States. There is no way to feed the world in a sustainable way without using biotechnology.
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It's ironic indeed that the green movement in Europe, which is largely the one kind of arguing against this move, does not recognize that to feed a doubled world population in 20 years without using biotechnology, you would have to do it in a very unfriendly way environmentally and there is probably no way to increase yields to the point where we need to without using biotechnology.
When I was in Europe last week, this was one of the points we talked about. How do we get consumers in the world and how do we get governments in the world to talk about these issues in a scientifically objective dispassionate way? And you may recall that I went to the world food summit 2 years ago and talked about this issue and there was a counter news conference against me where people involved in some of these movements took off all their clothes and threw I think it was ungenetically modified seeds at me to make a point. [Laughter.]
The CHAIRMAN. You're lucky that's all they threw at you. [Laughter.]
Secretary GLICKMAN. But this is an issue that somehow we have to, in addition to doing the research, do a better job of convincing people that not going down this road would be very harmful in terms of the environment and in terms of feeding a hungry world.
Mr. BROWN. Well, I should point out and as you well know, we were aware of the population trends and the need to increase agricultural production to keep up with that a generation ago. That was the genesis of the green revolution which was was done by conventional, not biotechnology, methods. And what we have today is a vast new opportunity to enhance production using the latest scientific procedures. And we need to make a redoubled effort to assist the rest of the world to both recognize and participate in this, because it—if biotechnology can enhance productivity around the world without regard nearly so much to climate and soil conditions and other things of that sort.
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The modifications can take advantage of that or take cognizance of that in increasing productive—productivity in arid land, such as deserts of the Middle East. And we need to use that as a link to the scientific communities and the agriculture communities of these other countries.
Mr. SCHER. May I make one additional in point? As you look at countries like China which with their growth population and their economic development, they now have nearly a quarter of the world's population. Yet they have less than 7 percent of the world's arable land. For us to be able to help China feed its population and for China to feed its population, we simply have to have access to these technologies. There's no greater priority, in the agricultural trade area and we work closely everyday with Secretary Glickman and his team on this.
The news is not all bad. There are countries all over the world that are approving these technologies in Japan, in Canada, in Egypt, and in Latin America. The amount of increase that's now being devoted to genetically modified organisms is increasing.
We have to deal with these regulatory processes particularly in places like the EU where the politicians like to ignore the science. And if we stick to the science, I think we can not only win on this issue, but we can also convince people in Europe and around the world that there's an important use for these technologies.
Mr. BROWN. Well, I should just make this concluding statement that the pessimists of 30 or 40 years ago that said that agriculture could never keep up with the needs of an expanding population were wrong, and they were wrong because of the efforts of the scientists, both in terms of better varieties and other practices, and now genetically modified strains to actually do the job of enhancing productivity.
The CHAIRMAN. Thank you gentlemen.
Mr. Lucas.
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Mr. LUCAS. Thank you, Mr. Chairman, and I can't help but think of the chairman, the ranking member, and your comments earlier of a slightly different nature, but back to the point in a moment.
Certainly, we all agree here about the importance of export growth and how that's the direction that we have to go to to improve our market prices. But I must offer an observation, Mr. Secretary, on the question when I interact with my producer constituents out in western Oklahoma, they time and time again express great concern—dissatisfaction might be the better phrase—with the Department's reluctance to use EEP to counter what they believe to be competitive subsidization of wheat in the world markets.
And they view—my constituents do—the unwillingness to use this program as in effect weakening its effectiveness, both in its ability to deter unfair market practices or to gain or—or access or grow access to the market, I guess I should say.
So my question on behalf of my folks in western Oklahoma, Mr. Secretary, do you foresee using EEP for this year?
Secretary GLICKMAN. Well, let me first say that we view the prime—the cornerstone—of our export assistance programs to be the GSM programs. And we will use that as aggressively as we need to use it, and in as great a quantity as there is demand out there in order to ensure sales of American products.
Now, let me tell you—first of all, I met with the wheat growers and I promised them that this issue would continue to be raised in an interagency basis. Not only wheat, but wheat products like wheat flour and I wouldn't rule it out. And they made a—they clearly made a case for it and there's no question as I mentioned at the beginning that livestock products and wheat are the two areas of agriculture that have suffered the most in the price decline.
There have been others that have not done well, but here's what—here's what the current thinking is, and that is, if we were to resume the use of export subsidies for wheat under today's market prices, then it is likely that the EU would increase its subsidies.
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Other exporting countries like Argentina, which have had big crops, would further reduce prices to match or reduce or undercut us. And what happens then is that there would be downward pressure on world prices and there would be no net price increase for U.S. farmers.
What would happen is the benefits would go to foreign consumers, not U.S. farmers in order to get this done. The other concern is that whether the EEP bonus sales would be replaced by additional shipments of Canadian wheat coming into the United States to make up that difference. Now, I recognize, however, that EEP is an appropriate tool to use under certain market conditions and the use of EU subsidies on wheat, while still too high—and we need to get that reduced—is within the agreements that they have with us.
I'm trying to get them to reduce their subsidies and the use of EEP, which is a bonus situation, is a direct subsidy. And so what I'm trying to figure out is how we can move more wheat in the market without sending a contradictory message of what we're trying to do to the rest of the world, and do some good for farmers.
The point is that I want to get prices up, not down. That's the key here, and that EEP would have had the reverse effect and that's why we have been slow to use it up until now.
Mr. LUCAS. I appreciate that, Mr. Secretary.
Of course, I think the concern of the folks in the field out there is that with the challenges faced in the—in the eastern Asian communities, that that will impact that buying power, the value of the currency of our competitors in the wheat market around the world, be it Canada, or Australia, New Zealand, wherever. And that they will be compelled to work more aggressively to maintain their market share or try and increase their market share aided by the lower value of their currency.
And there's some real concern about where that's going to place——
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Secretary GLICKMAN. And if they do that, if they use their subsidies aggressively, then we will meet that threat. But the point is right now, I don't want to engage in a situation which will further lower prices.
That's what concerns me about this.
And the other thing I might just add, I'm just—the GSM program is—I guess it was an old movie with Annette Funicello, the Big Kahuna—the GSM program is the Big Kahuna of the U.S. power, because no other government can even begin to match our ability to use the full faith and credit of our treasury, the strongest nation in the world, to guarantee these loans.
Mr. LUCAS. Thank you, Mr. Secretary. Would you also say that some of the most spectacular successes we've made in recent years have actually come in the form of the requirements the IMF has placed on a number of countries for access to the international capital pool, the success in Indonesia, Korea, and those kind of places?
Secretary GLICKMAN. That is correct.
Mr. LUCAS. With that in mind, when we—I have of course the honor of serving on the Agriculture Committee, but I also have the challenge of being a member of the Banking Committee, and when the IMF funding authorization language passed through a few days ago, I added language in the Banking Committee to encourage—to come as close to requiring as I possibly could our representatives involved in that effort to encourage that it be a policy of IMF and that we continue to reduce trade barriers against ag products and ag commodities.
I hope, Mr. Secretary, that you would agree that in the world economy we face the challenges we face that we have to reach out and use every tool available to us, whether it is through this committee or other committees that we as members serve on to try and add language that helps encourage the promotion of these markets that we promised our producers back home.
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Secretary GLICKMAN. I certainly agree with what you've said. The only way to get binding reductions in tariffs is through bilateral and multilateral trade agreements, but as an objective of any kind of assistance, we ought to try to be reducing tariffs and trade restrictions and——
Mr. LUCAS. But in the overall package, we have an opportunity to influence how funds are loaned out or other programs are administered, when we can help encourage the opening of markets, which benefit people in those countries as well as U.S. agricultural producers, we need to do that whenever our opportunities are.
Secretary GLICKMAN. Yes.
Mr. LUCAS. I hope you'd agree, sir.
Secretary GLICKMAN. I agree.
Mr. LUCAS. Thank you, Mr. Secretary, Mr. Chairman.
The CHAIRMAN. Thank you gentlemen.
Mr. Peterson.
Mr. PETERSON. Thank you, Mr. Chairman. Thank you for calling this hearing and your leadership on this, and thank you, Mr. Secretary and Mr. Ambassador, for your testimony.
What I need to talk to you today is, you know, we up in northwestern Minnesota and northeastern North Dakota are experiencing some of the effects of the farm bill that we passed in 1996. Mr. Stenholm touched on this.
We've had a situation which I think you're aware of where we had a crop loss in small grains in the last 5 years in a row, and while there's some positive aspects to the 1996 farm bill, the flexibility and less regulation, myself, Representative Pomeroy, and others were concerned that we were giving up disaster protection and not really fixing the crop insurance system in a way that we thought was adequate.
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And unfortunately, some of our concerns have now come true. I was at a meeting last weekend held by some of my State legislatures and farm leaders up in my district where we had 900 people show up at the meeting and they're telling me that 20 to 25 percent of our small grain producers are not—probably not going to be able to farm this year. There's questions about whether land is actually going to be farmed. It is an extremely serious situation.
And the real problem for me is that I go these meetings and I don't have any answers for them. Now, we appreciate, you know, Ken Ackerman came up and met with us. We appreciate that. We appreciate your staff trying to work with us on trying to figure out what to do. But the bottom line is so far we haven't been able to come up with any answers.
Right now, I just want to put you on notice. We are working on a bill, Representative Pomeroy and I, to try and add on to the disaster bill that's coming through next week to see if we can get some help to try to address the problems out there.
But what's happened is, these people have eaten up their equity because they lost money 5 years in a row. The crop insurance system, the way it works is every year that you have a loss you get less than you cover, so now they can only cover half of the costs of their inputs. The bank—and they no equity and the bank is saying, well, if you can only have a $60 coverage for your crop, and you're putting $120 in the ground, we can't let you go in the field. And we don't have any mechanism to help them.
We're really in a Catch 22. I thought this was risky, us getting into this business of putting these folks into the world market without any bottom protection and I think it's proving out that that's the case.
Now, we're one little pocket of the country. I think there's other places in the country where this could happen as well, so we have to come up with some way to address this kind of a situation where these people—through no fault of their own—are into this situation.
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You know, we've been growing wheat for 100 years in this area. The problem is being caused not by weather but really by the scab disease problem, which we also appreciate a lot of you helping us get the money for research and we will get this figured out. But in the meantime, we've got to figure out how to keep this part of the world afloat so that we can produce in the future.
And I don't have the answers. And people out there are saying, well, what does the Federal Government want us to do? Do they want us to turn this back into a buffalo province as some people have suggested where we have urban people come out and drive through the countryside and watch the buffalo and see the songbirds?
You know, I mean, that's the kind of questions I'm getting. I had one farmer stand up and say, you know, maybe our best alternative is to get ourselves declared a native species. Maybe then the Federal Government will then actually do something to come to our aid. These people are very frustrated. And I'm frustrated as their Representative, not having answers to these questions.
So I had to get that off my chest and we appreciate you working with us and hope that you can see fit to help us if we can come up with some——
Secretary GLICKMAN. I have some comments. I faced similar issues when I went down to the Southeast this last week when they had some peach damage freeze because they had repeated damage and then you had your actual production history yields going down, down, down, and then the crop insurance has less and less value to it.
And of course, we have all these actuarial soundness requirements in the program but clearly, where you have areas that have suffered repeated disasters, crop insurance has not worked very well, and the question is how we deal with that without converting it back into the strictly disaster-type program. And obviously, you need some sort of a mix or balance in certain areas.
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Mr. PETERSON. Well, we look forward to working with you, and I guess the question I had was, one of the things that was handed out at the meeting—and I meant to follow this up, but there's so many things going on that I haven't been able to—was that the wheat growers were handing out some information where the Europeans apparently are—I don't know if this is all over the European Union or if it's only France or where it is—but apparently are paying their wheat producers $172 an acre before they even plant a crop.
So they get $172 Government direct subsidy, plus they get the value of their crop. Now, that really gets our folks upset when our Federal Government is saying to them we can only give you $60 or $70 crop insurance coverage and we're entering into these trade agreements and that we have apparently agreed to assist them whereby the Europeans can give their farmers this much money for their wheat production and we can't do anything to help our people.
And the last—I know I'm taking a little bit of time—but you're going to hear this afternoon that I'm going to be on national television in Canada and again tomorrow morning. I have a little part of my district that is now asking to secede from the United States because of—not because of this, but because of a fishing dispute with Canada.
It's a long complicated thing and Ambassador Scher and I are going to talk about this, but I also have people up there that are, you know, saying to us—you know, that they feel like they're being forgotten. And I just need to bring you that message and there's a lot of frustration and if we can do anything to—if you can help us, we would sure appreciate it, because we need it. Thank you.
The CHAIRMAN. Mr. Smith, from Michigan.
Mr. SMITH of Michigan. Thank you, Mr. Chairman.
Mr. Scher, you said earlier that you would assure that agriculture not be excluded from any transatlantic trade talks. However, as a farmer and a member of this committee, I'm disappointed that this administration has not been more adamant in sending a message that not only will agriculture be included, but agriculture should be a priority in any of these talks.
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As our guests from England leave today, we welcome you certainly and again, as I look at what's happening in this country and the prices that our farmers are receiving, it seems to me that U.S. agriculture has suffered from the European restrictions on the importation of American food and fiber goods.
Agriculture is America's largest industry. Many farmers and ranchers are experiencing significant financial pressures, which is why fairness in agriculture trade must be an absolute—not only a requirement but a priority in any talks, whether they be transatlantic trade talks or in expanded NAFTA negotiations.
At a time when the American farmer is seeing lower profits because of reduced exports to Asia, I suggest it is even more important that this administration be more clear that export promotion and fairer agriculture trade is a national priority if we expect our food and fiber to continue to be readily available at reasonable prices to the American consumer.
Mr. Secretary, Mr. Scher, let me ask you a yes or no question. If prices of our export goods were lowered by 10 percent would we expand the amount of goods we export? It's rhetorical, so the answer is yes. So my question to you is, I suggest we not simply brag on the amount of our exports, but I think the real key here, as far as the survival of American agriculture, is what price are we receiving from those export—those goods, those commodities that we're exporting?
Can you give me a rundown of the commodity prices over the last 2 or 3 years as far as the prices that we have charged for those commodities in——
Secretary GLICKMAN. Well, these are world market prices.
Mr. SMITH of Michigan. Is it going up or down is my question.
Secretary GLICKMAN. Well, overall in the 3 years, it's up in soybeans. It went way up in wheat, but now it's back down again. I can't tell you where it is compared to 3 years ago, but it's been a very volatile up and down market in wheat. It is probably up slightly in corn.
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Livestock, pork prices are at the lowest level in a generation, if not more. Beef prices compared to 3 years ago are probably lower. You know, I can get you that chart of individual commodity.
Mr. SMITH of Michigan. Mr. Secretary and Mr. Scher, I'm just suggesting that that has got to ultimately be one of our goals, is to export as much as we can at as high a price as we can and not simply say that the price we get for those commodities is out of our jurisdiction and somehow is a magic world price.
And so I suggest to you that that's got to be one of the factors that is put into our evaluation of success in agriculture.
Secretary GLICKMAN. I would point out that in the last fiscal year, we had some of the highest prices in modern history and it did affect our export numbers up.
But part of the way to benefit farmers more is to try to make sure that we benefitted from the export of value added products. That's the critical importance of livestock exports.
Mr. SMITH of Michigan. Well, I think for Mr. Scher's appreciation of my feeling on that, I think we really messed up on the limitations that we placed on ourselves, both in the Uruguay Round with the amount of value added that we can export.
So our limitation is now, I think, a significant drawback. Let me ask you a question on trade negotiations. Working on Social Security, I have come to become—I've become friends with some of the officials down in Chile. Talking to some of those officials, they suggest to me that the trade negotiations—that they're ready to sign a trade agreement with the United States.
But the United States, in effect, walked out on that trade agreement at the last minute because this administration said we can't conclude a trade agreement until we have fast track. And I would like to hear your response to that. I would like to encourage you to move forward with finalizing those kind of trade agreements, bringing in—bringing in the information to the appropriate committee.
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Certainly this committee and other committees of Congress encourage you to move ahead with some of those trade agreements that we can pass through this Congress even without fast track. Would you react to that?
Mr. SCHER. Sure. I don't know who the officials you spoke to are, but let me just say that the last three Presidents, Clinton, Bush, and Reagan, have all committed to a free trade agreement with Chile. In fact, by the end of this year, we're the only country in the Western Hemisphere not to have a free trade agreement with Chile.
There's nothing more than we would like to be able to do than to be able to conclude it. We have not been able to conclude it because we don't have any authority to conclude and frankly the negotiators that we deal with in Chile are not going to conclude it. They're not going to make the type of political decisions that they have to make to open their market, unless they know we have the authority to implement it. So I don't think there's any lack of will on our part.
Mr. SMITH of Michigan. OK, then that's a different story than what I heard. And I am glad to meet with you to tell you who they are.
Mr. SCHER. No I understand. Absolutely.
Mr. SMITH of Michigan. And what I hear you saying is that they will not conclude an agreement unless we have fast track. It's them and not us. Is that what I hear you saying?
Mr. SCHER. That is exactly correct.
Mr. SMITH of Michigan. That's very much different than what my understanding is. So maybe we can clear that up. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, gentlemen.
We have two votes. We'll continue questioning until the last minute and will members want the Secretary and Ambassador to remain? Or can members that have not asked questions give them to the Chair and then to the Secretary for answers? Is that reasonable? We have two more panels.
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Anybody object to that method? All right.
Now, Mr. Johnson.
Mr. JOHNSON. Thank you, Mr. Chairman. First of all, I appreciate your commitment to bringing the attention to agriculture and especially in light of the next trade rounds. And while the 1997 agriculture exports have been slightly behind the previous years, the exports for agriculture certainly outpaced all other segments of the export economy.
And we look at trade from the national perspective it's easy to see our interests are served when we are as we're doing now are reduced to—work to reduce the barriers and remove these distortions from global trade in a fair and consistent manner. And by working to reduce the tariff and non-tariff barriers, we're creating a better climate for products to compete and eventually create a better price for the products.
We know that 96 percent of the world's population is outside of our borders. The market's becoming more mature, gaining only four to five percent a year. The argument about expanding global trade sounds great, of course, and we win, and we're the efficient producers and for the most part, our producers subscribe to this belief.
They adopt the efficient practices. They're committed to the reduction of international trade barriers. Some of the farmers in my state who are supportive of trade though have one other view. For example, dairy farmers supportive of international trade and removal of trade barriers, but they prefer to start with the removal of domestic barriers, such as the northeast dairy compact and then move on to international trade barriers.
These domestic trade barriers not only remove the U.S. dairy industry from competing in the global economy, but they shift the domestic industry away from areas that normally would be efficient areas to produce.
I also would like to at this point cite the Secretary's speech—and I have a copy for it—at Harvard University earlier this year on domestic dairy policies and I encourage you to continue to push for this national dairy policy, one that removes domestic trade barriers and prepares the industry to compete, as you're trying to do on this global scale.
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In that end, in the competition, I also sent you a letter and some of my colleagues did, just recently regarding the dairy export incentive program. The funds from the canceled or unshipped orders to fill new orders.
Could you comment on this? Have these funds from the de-programmed been reprogrammed?
Secretary GLICKMAN. I'd ask Chris Goldthwait. Chris is the head of our Commodity Credit Corporation and he'd be able to comment, so why don't you come up here so they can hear.
Mr. GOLDTHWAIT. Thank you, Mr. Secretary. We have met several times with the representatives of the dairy industry to discuss this proposal. We're looking at it very, very carefully. I think a key element in our review will be whether in the next few days when we receive the EU's report on its use of export subsidies, it in fact shows that they have, as was indicated earlier, gone over their annual tonnage limits.
That would be an important consideration as we review this question by the industry.
Mr. JOHNSON. So it's in the works?
Mr. GOLDTHWAIT. It is under review, and we're looking very seriously at it.
Mr. JOHNSON. I would like to ask you, Mr. Secretary, and maybe Ambassador Scher too, but coordination between departments as I understand not only USDA and USTR are involved in coordinating international trade, but the Departments of State, Treasury, Commerce are playing a role in building the global relationships.
Secretary Albright at the State Department's been actively working. What efforts are made to coordinate these resources?
Secretary GLICKMAN. Go on.
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Mr. SCHER. Sure, that's a good question.
We've been working for the last year to improve coordination. I deal everyday with people from Secretary Glickman and his team, Paul Drasek, and Under Secretary Schumacher, along with the other people on his staff.
We have informal processes in which we get together to discuss issues and develop strategies.
We also have formal processes. We're using the trade policy review group within the administration to work closely with the State Department. Where appropriate, we work with the FDA, EPA, the Treasury Department, the White House. If in fact this news is correct that the corn varieties were approved, I can tell you that is a result of what has been over the last 10 days an extraordinary interagency process to put pressure on EU countries to approve these varieties.
So I think we have made strides. There's always more work we can do and we'll continue to try to improve that process.
Mr. JOHNSON. Thank you very much. I see we're getting close to time.
Secretary GLICKMAN. I just would say that having somebody at USTR who is the agricultural focus, I mean, it just makes a monumental difference.
The CHAIRMAN. I agree. We should have three more like him.
Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman.
Just one question. Mr. Secretary, Mr. Ambassador, I appreciate your being with us today. There's been some legislation introduced that would require country of origin labeling for meat and meat products as well as for fruits, vegetables, and other commodities. I guess I'm curious to know what your opinion is, if these types of proposals were enacted, would they present significant barriers to international trade and agriculture?
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And second, as a followup question, would our producers be disadvantaged in that other countries might refuse to trade with the United States for fear that there would be a competitive disadvantage in the U.S. marketplace?
Secretary GLICKMAN. Yes, we haven't taken a formal position on the country of origin labeling. There are proposals to encourage ''Made in USA'' type of labeling by some of the livestock people, which we have basically said we think is a good thing.
In fact, some people in your State, I think, led the effort on this kind of thing. I think country of origin labeling, it's not an all one-sided proposition, given our emphasis on exports. And you have to make sure you think through all the consequences of that act to see if it would be used as a way to bar our exports in the process.
And Ambassador Scher I know has been working on this.
Mr. SCHER. Well, the only thing I'd say is that we have two objectives here that arise from this issue. One is, we do need to maintain consumer confidence about products in the United States. One of the concerns that I have is whether or not a label that simply says ''Made in the USA'' or ''Made in Chile'' or ''Made in Mexico'' really tells the consumer anything.
It doesn't tell them how it was produced. It doesn't have any scientific basis behind the health or safety of that product. And so, if our objective is to maintain consumer confidence in agricultural and food products, I think we have to look at whether or not that product actually does that. We also need to determine what the impact is on our products going into other countries.
There have been other countries which have basically started anti-import campaigns. Korea had one in the past to encourage consumers not to buy American exports. You know, I think we need to just think through the implications for going down that road, and we're doing that within the administration.
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Mr. THUNE. You know, but there's no formal administration position on it. It's a widely held view—as you know—in my State that if there were a labeling process out there, that the consumers in this country would be brand loyal. I mean, that it would increase the consumption of U.S. produced agricultural product, particularly with respect to beef. But I was curious if——
Secretary GLICKMAN. So much of imported beef, of course, is processed.
Mr. THUNE. Right.
Secretary GLICKMAN. And it's in cans of soup and in beef stew and in that kind of thing. But there is no formal position. Where it's a complicated issue and obviously I'd like to increase the amount of U.S. goods that are purchased here and abroad, everywhere. But I think Ambassador Scher's correctly put his finger on some of the concerns.
Mr. THUNE. Mr. Chairman, most of my questions have been discussed previously, so I will yield back the balance of my time.
The CHAIRMAN. Thank you.
Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman, and I want to compliment both you, Secretary Glickman, as well as you, Ambassador Scher, for what I think has been the good work that USDA has done and USTR and in moving agriculture forward. I think our ag trade numbers are testament to some of your success and with some of the recent agreements in terms of our success in the WTO with the hormone issue. And hopefully, what was announced today in terms of the GMO corn varieties, these are important issues to us.
But I do have one concern I'd like to raise is that as we're moving forward and to maximize our opportunities in the international market place, our domestic policies also have to be consistent with that objective.
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And I will just say that I am concerned as it relates to dairy that there is consideration to be—to put in a temporary price war, emerging price war, which I think is inconsistent with again moving our dairy industry forward in a manner that we can become increasingly competitive in the international market place.
And I'd also say is that, you know, moving in a direction to facilitate more compacts to be utilized in the United States is also a policy that will lead to the balkenization of the dairy industry in the United States and also, I think, further impede market forces from playing in the dairy industry, which one again, I think, from—might have some very, very short term benefits.
But I question that.
But it is without question from a long term prospective, it is going to preclude the United States' dairy industry from capitalizing on the international opportunities in dairy foods products, which are unquestionably going to be significant.
And so I just—as we move forward on the milk marketing order reform and specifically any consideration of a temporary emergency price war, I think is really counterproductive, certainly when you look at it in international market opportunities.
Secretary GLICKMAN. I'd just say that the proposal on the floor is in rulemaking now, so the matters are being discussed in accordance with the appropriate process.
On the compact issue, I will tell you that the Northeast compact under its own terms expires when we finish our milk marketing order process. There are attempts to restructure compacts in other areas, but that would require Congressional approval and that is something that you—we will obviously be in further contact with.
The CHAIRMAN. Thank you, gentlemen.
Secretary GLICKMAN. Thank you, sir.
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The CHAIRMAN. Mr. Secretary, Mr. Ambassador, Mr. Deputy Secretary. I'm about to announce a return to the next two panels at 1:30, but before I do, are there people who are testifying in the next two panels that either have to catch an airplane at 1:30 or an afternoon meeting would inconvenience you?
If not, then we will recess until 1:30 this afternoon.
[Recess]
The CHAIRMAN. Good afternoon. We'll resume the hearing. Calling Mr. Dana Hauck, Mr. Jack Hay, Mr. Ryland Utlaut, Mr. Elwood Kirkpatrick, and Mr. Mark Berg.
Let's start with Mr. Hauck.
STATEMENT OF DANA R. HAUCK, CHAIRMAN, INTERNATIONAL MARKETS COMMITTEE
Mr. HAUCK. Yes, thank you, Chairman Smith. And also the committee for holding hearings regarding issues to be addressed in the 1999 round of multinational negotiations.
The National Cattlemen's Beef Association commends your continuing efforts to improve the export outlet for U.S. agricultural products.
I am Dana Hauck. I am a beef producer from Delphus, KS, and chairman of NCBA's international markets committee. And I would request that my full written testimony be entered into the record.
The CHAIRMAN. Without objection, all your testimony will be entered into the record.
Mr. HAUCK. Thank you, Mr. Chairman.
In 1997 beef exports accounted for approximately 8 percent of total U.S. production and 12 percent of beef's total wholesale value. The European Union is a market of developed countries representing approximately 350 million consumers with middle class lifestyles and sizable disposable consumer incomes.
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Still, the EU persists in maintaining a protectionist attitude relative to its agricultural sector. It is our hope that the 1999 round of negotiations will help the EU approach agricultural trade in a manner consistent with its standing as a group of developed nations.
One of the underlying premises of the 1996 Freedom to Farm bill was that aggressive pursuit of growing export markets would be a critical strategy to replace the safety net of traditional farm programs. We appreciate the efforts of those members of this committee who worked hard to secure adoption of fast track, to achieve the goals set forth in freedom to farm, and we look forward to working with the leadership of this committee to expand support among members of Congress, both on and off the committee.
The primary purpose of my testimony is not to question whether the Europeans are protectionist. They are. And it is not to debate whether fast track negotiation authority is critical to U.S. leadership in the 1999 round. It is. The primary focus of my testimony will be is the WTO dispute settlement process going to survive?
NCBA supports the WTO in free trade. The frustration among many cattlemen is that the EU is undermining the current system using stall and delay tactics and that the United States does not have the will to retaliate or to demand enforcement.
Many are asking why the United States continues to participate in a system that does not provide a clear and prompt resolution to trade disputes. This grim loss of confidence, increasing distrust, and dissatisfaction has resulted in declining grassroots support for trade and trade negotiations in general.
The EU's commitment to the WTO is being tested by their reaction to the recent WTO ruling on the EU beef hormone ban. A WTO dispute settlement panel and the appellate body ruled that the hormone ban is in violation of the WTO agreement.
The EU's response as was noted this morning has been to announce intentions to initiate yet another risk assessment and this blatant stonewalling is unacceptable and begs for aggressive and decisive action, especially since the EU is quick to insist on compliance with WTO rulings when they fall in their favor.
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The EU must bring its policies regarding beef hormones into compliance for a science based WTO guidelines by eliminating the ban. If they do not, the full force of WTO's enforcement measures must be applied.
NCBA encourages continued coordinated efforts and pressures from Congress and the administration, such as House Concurrent Resolution 212, to assure that the EU lives up to its responsibilities. NCBA also urges that Congress and the administration closely monitor the veterinary equivalency agreement approved by EU ministers just 2 days ago on March 16 to assure that it is completely implemented within the 90 day period, as agreed.
Access to the European beef market is the ultimate objective, and compensation is not an acceptable alternative. The NCBA urges Congress to coordinate with USDA to assure that adequate resources are allocated to negotiating other veterinary agreements.
Concerning needed trade actions, NCBA urges USDA to immediately allocate an additional $400 million for GSM credit guarantee resources targeted for exported beef and other value added meat products.
Likewise, we urge the administration to approve the IMF funding package and continue pressuring the Asians to improve access for U.S. products into markets and countries receiving IMF and GSM assistance.
Finally, the most direct way for U.S. agricultural interests to meet the challenge presented by EU expansion and initiatives is by negotiating further multilateral liberalization in the 1999 WTO round and by engaging our neighbors in the Western Hemisphere in broad based fast track authority is a prerequisite for serious U.S. participation. The United States must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiating authority. I will appreciate the initiatives you've undertaken. Without fast track authority, we'll lose our initiative in gaining access to these emerging markets and enforcing these agreements.
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Thank you very much for the opportunity to present this information.
The CHAIRMAN. Thank you very much.
Mr. Hay.
This gentleman, I want to be sure, Mr. Stenholm, you understand comes from Oregon, so his testimony is going to be very important. [Laughter.]
STATEMENT OF JACK HAY, COMMISSIONER, OREGON WHEAT COMMISSION
Mr. HAY. My testimony is not biased, but it tends to be that way.
Mr. Chairman, members of the committee, thank you very much for inviting me to testify on international trade agreements that may affect wheat farmers.
By way of an introduction, my farm is located about 100 miles east of The Dalles, OR. The farm size is 2,400 acres. That's not the total acres. The total size is closer to 4,000. I'm a small farmer. I farm with my wife, Sally, and do most of the work myself.
There's a keen interest in export business in Oregon. We really export almost 100 percent of our crop.
As an average for the Pacific Northwest, we're looking at upwards of 85 percent. So some is used domestically.
Most of us look at in my community look at the export markets as virtually being all loaded on the boat, headed for Asia and the Middle East.
And so we are keenly focused on the export component in our marketing strategy is pretty important to us. We certainly would like to look for a level playing field and we are somewhat disappointed in the process of the GATT talks, but we feel that that whole process at least put us at the table.
Clearly, I think it's in U.S. wheat's best interest to move forward as fast as we can in ending the present fast track authority. We think it's paramount to be in the discussions and be involved and and present and expand on several major points.
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But to bring that to a current supply demand situation in the Pacific northwest, this year, we will probably carryover at least 30 percent of our crop. So the supplies are becoming burdensome. Nationally, it isn't faring much better. I imagine some wheat's going to go into feed use. As you see, I'm not reading the testimony directly, but sort of expanding upon it in different ways.
We've done some analysis with another farmer from Sherman County that you may be aware of in your district. His name is Tom McCoy. And he did a study and he's got his Ph.D. from Stanford and he did his study about European exports. Over the last 20 years, clearly European exports have grown to the magnitude now that that their exports equal one-third of the total U.S. wheat crop.
So we feel that that's become a burden on the world market. They're getting paid to do it. The current subsidy at EU's price in U.S. dollars is 56 cents. You can see dramatic increases in yield.
The European Community has increased in yields by 75 percent. They've actually put in more acreage and the total production is up to 80 percent.
The U.S. production has increased 10 percent in that same time frame. This increase in production can be only reflected in one way and that is that
European farmers are being paid to grow it and the U.S. farmer has been lagging behind.
I'll refer back here since we're concerned so much with time to the legislative actions now at this point. Again, we'd like to have fast track authority.
We'd like to see export promotion programs used to the fullest possible extent. That is, those programs that are outlined in the 1996 farm bill.
The legislative actions also include fund the important discretionary export programs, like P.L. 480, title I, and foreign market development programs. These programs are always under fire. It's difficult to continue to get the administration to develop. The oversight is and scrutiny is well deserved, but we need to move forward at any opportunity, rather than react after the fact.
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We need to refund the $18 billion to restore the International Monetary Fund. I should like to say at this point that we certainly appreciate the administration's willingness to act fast in launching
GSM's and restoring and shoring up our Asian markets with working through the International Monetary Fund. That seems to be a critical question as to credit creditworthiness, which the Secretary expanded on this morning.
That whole process is very important to us, so the International Monetary Fund as a tool is critical to U.S. wheat producers.
We'd like to see the approval of H.R. 276 and S. 1413, the sanctions reform bill. Sanctions represent 11 percent of the total the total international export market that we are excluded from.
In the testimony, what I refer to export enhancement program, you'll notice that within the confines of that program that the Europeans also compete aggressively against the STE's. In their competition with the STE's, even in sanctioned markets where we're excluded from those markets, they drive down the world price.
In the Secretary's testimony this morning, he also referred referred to I believe the price fluctuations and the EU-CEC and Chicago Exchange, and that's easy to track. All you have to do is take a look at what the Europeans are getting in restitutions for export subsidies. And you can see the Chicago price go up or down as a reflection of that activity.
The other thing we need to do and was addressed earlier this morning is we need to be concerned about research programs through the agricultural research service. The President's budget proposal includes a reduction in the agricultural research budget, produces in large part, five complementary programs, research activities. The State of Oregon producers paid out about $1 million last year in research activities alone. It's compounded throughout the northwest certainly, and most states have a research program.
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These are all complementary to activities that ARS does. It is very important to us that these programs be continued. The problem is that if they're cut back, it's hard to restore the research that's been going on.
You just can't turn on and off research projects. And it jeopardizes the investment that producers have already made.
So these are long term activities and they need to have some form of continuity. So we'd like to see Congress restore the ARS budget to certainly at least year's level.
The administrative action. I have a list of items here on the back page and it includes the aggressive use of the export programs which I've already talked about, rather than that includes EEP and GSM, P.L. 480. In some markets in the Middle East, we've missed opportunities to compete with the Europeans.
If you buy the argument for wheat, Mr. Secretary said that it buys down the price, with our duties and carry-overs I wouldn't worry too much about the price. It's going to go down because people are going to have to market before harvest.
Well, we need to sell that stuff and if we could compete and using export enhancements, we should do that. We should take that risk. And American farmers want to take that risk. We've lost value added sales, and clearly, I think there's a lot of romance with value added products and the Europeans are heavily subsidizing flour sales.
Later on, we'll have some flour people discussing that particular issue. And what I've been looking at is the focused targeted marketing that the Europeans use. And this particular sale that comes to mind, on a Friday, they raised the restitution levels from $12 to $28 for the weekend. And then gave the purchasing country the weekend to approve it.
Now, how is anybody going to compete over the weekend? It is amazing. And then they lowered it back to $18 on Monday. So it seems to be that it's pretty focused.
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Other issues that we'd like to have the administration move on is remove China's non-tariff trade barriers. We know that's an ongoing issue. We're very frustrated with the process. It's a process in that we used to be singular to the Pacific northwest, but now it's affected the whole United States.
TCK is a fungus that has been reported on my particular farm. I've never seen it. It's never impacted the producers of Oregon, Washington to any great extent at all. It's been a non-issue for 20 years and we're really tired of discussing it.
The problem now is that India and Brazil pick up on that argument as well. So it's a trade barrier that materializes anytime a country, I think, wants to have a convenient excuse.
Of course, we talked earlier about we're going to have a full price disclosure with the STE's. I think that's paramount for Canada and the Unitd States to properly evaluate what their doing in world markets. Here again, the STE's focus on conquer and divide. There was a sale not too long ago, about a year ago, that comes to mind to Mexico in which Canada offered a $15 a ton discount below the U.S. price. We can't ship wheat from Amarillo to Juarez competitively to Canadian wheat coming from Vancouver. It makes you wonder how how all that can be fair and above board certainly.
We'd like to have the administration ease sanctions on the export of food and medicine to Iran.
We'd like to have the administration increase wheat by nations to Cuba and North Korea. We'd like to fully fund wheat and production research at last year's levels, and that would be through the agriculture research service.
Mr. Chairman, I want to thank you for your foresight and leadership on trade issues. This committee this committee needs to step into the breach left by the USDA and the administration. Through your actions, I hope the budget priorities will be related, export tools utilized to the fullest possible extent, and the production of aiding in research will be fully funded.
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Thank you very much.
The CHAIRMAN. Thank you very much, Mr. Hay.
Mr. Utlaut.
STATEMENT OF RYLAND UTLAUT, PRESIDENT, NATIONAL CORN GROWERS ASSOCIATION
Mr. UTLAUT. Thank you, Mr. Chairman. My name is Ryland Utlaut. I raise corn, soybeans, and wheat on a farm near Grand Pass, MO.
I serve as president of the National Corn Growers, and we too appreciate this opportunity to visit about the reform of agricultural trade with Europe.
U.S. corn farmers are efficient, productive, and competitive in world markets. Exports of corn and corn products exceed the value of any other single agricultural commodity. Nonetheless, trade barriers and competitors export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production.
U.S. policy must clearly and consistently promote fair and open trade to assure U.S. corn and its products full access to world markets. This is our objective for the new round of multilateral trade negotiations in the WTO. Specifically, we want the next round of negotiations to build on the progress of the Uruguay Round.
The agreed upon disciplines in the area of market access, export subsidies, internal support, and sanitary and phytosanitary measures should all be expanded and strengthened. The market access provisions at the Uruguay Round required that non-tariff measures be replaced by bound tariffs. Once bound, a tariff cannot be increased without compensation from other countries.
The EU agreed to limit the protection applied on grain products, but the bulk of our corn exports to the EU still go to Spain and Portugal under the EU enlargement agreement that established minimum imports of corn and feed grains. Further tariff reductions will be necessary if U.S. corn is to have meaningful access to all EU markets.
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In contrast, the European Union is the primary market for corn glutton feed and corn glutton meal. There is no tariff on these two corn products.
Relatively high European grain prices make U.S. corn glutton very competitive in European feed rations.
In the WTO, the other nations agreed to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. The SPS provisions have led to a number of disputes within the European Union. The trade situation for corn is complicated by the status of products enhanced through biotechnology.
In the EU, biotech products are subject to multiple regulations. First, imports of grain must be approved by the environment committee, DG XII. The ethical regulation, EEC 90/220 also covers production of biotech crops in the European Union. Biotech corn used in processed food products must be cleared through novel food regulations.
Novel foods require food labels, but the EU has not determined how to implement labeling. Under 90/220, a shipment of grain containing transgenic corn cannot be imported into the EU unless each variety of transgenic corn in the shipment has been approved. To date, only one corn had been approved. Three other varieties have been waiting for approval, which we were saying this morning.
These products were grown in the United States last summer and were marketed through normal commercial channels. The prices for these varieties and our corn supply has precluded any exports of whole corn to the EU so far this year. The products pending approval should be approved should have been approved last fall, but instead, at the last minute, they were referred for additional scientific review.
The scientific panel issued an unqualified approval of the safety of these products last month. The article 21 committee on the European Union voted on those products as we understand today, and according to the Secretary's announcement this morning, we've cleared an important hurdle. Perhaps we will be able to resume shipments to the EU, which last year totaled about 60 million bushels.
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The confusion of this morning highlights the need for harmonized standards for biotechnology. The unreasonable delays in Europe are especially frustrating to national corn growers. Our members have readily adopted biotech seed technology as an environmentally friendly and cost effective option to control insects, pests, and weeds.
We are confident that the approval process in the United States ensures the safety of the products in food in the environment and in our fields. We respect our customers right to establish standards for products of biotechnology, but we cannot allow tardy, arbitrary, and unsubstantiated health and safety claims to prevent access to European markets.
The EU approval process must be rational and predictable. Companies seeking approval of new products should have a reasonable explanation expectation that their application will be considered in a timely manner.
It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data requirements review and approval. Alternatively, mutual recognition of approvals.
At a minimum, the approval process must be rational and predictable and must occur within a reasonable amount of time. Anything else or less will continue to subject the products of biotechnology to arbitrary restrictions.
Although our testimony has focused on the European Union, there was a time not long ago when the Soviet Union was one of our largest customers. Today, exports of corn to Russia and the other nations of the former Soviet Union constitute a fraction of our corn exports. This area has the potential to increase coarse grain production and compete with U.S. exports.
On the other hand, these countries could increase grain consumption and return to the United States for a reliable supply of feed grains. Either outcome is possible and will most likely depend on the economic stability of their agricultural sectors. Our objective for future discussions is to add these countries to the WTO will be to assure the greatest possible market access and adoption of foreign of market oriented foreign programs.
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In conclusion, let me say we'd like to reiterate our objective that the U.S. policy be clear and consistent and promote fair and open trade to assure U.S. corn and its products full access to world markets.
Thank you for this opportunity to express our views.
The CHAIRMAN. Thank you very much.
Mr. Smith may want to introduce our next panel member.
Mr. SMITH of Michigan. If you if you look at back in history, then you look at Mr. Kirkpatrick, who has probably guided the milk industry in Michigan for as long as I was milking cows and as long as my kids were milking cows. If you look at somebody that has been tremendously enthusiastic about expanding export trade for our dairy industry and been a leader and hopefully an innovator in how we expand that trade, then it's Elwood Kirkpatrick. So I would welcome him.
Mr. KIRKPATRICK. Thank you very much.
The CHAIRMAN. Welcome, Mr. Kirkpatrick.
STATEMENT OF ELWOOD KIRKPATRICK, CHAIRMAN, U.S. DAIRY EXPORT COUNCIL, AND FIRST VICE-PRESIDENT, NATIONAL MILK PRODUCERS FEDERATION.
Mr. KIRKPATRICK. Thank you. Mr. Chairman and members of the committee, I am Elwood Kirkpatrick, a dairy farmer from Michigan. I appreciate the opportunity to testify before the committee today.
I serve as chairman of the U.S. Dairy Export Council and first vice-president of the National Milk Producers Federation. The U.S. Dairy Export Council is an independent membership organization whose mission is to assist U.S. dairy product suppliers to increase the volume and value of their exports. The National Milk Producers Federation is the national farm commodity organization that represents dairy farmers in the dairy cooperative marketing association they own and operate throughout the United States.
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The U.S. dairy industry has a large and growing stake in export sales. More than 80 percent of the world's total consumption of dairy products occurs beyond the borders of the United States. The long term economic well-being of the U.S. dairy industry depends on our ability to supply the world's consumers consistently and effectively.
The major limitation on the ability of U.S. dairy products to compete in world markets is our inability to match the heavily subsidized prices offered by the European Union. Reducing the EU's use of dairy subsidies must be the first priority in any new multilateral negotiations on agriculture trade.
The U.S. dairy industry must increase dairy exports in the year 2000 and beyond when the dairy price support program is scheduled to end. After that time, the milk prices received by U.S. dairy farmers will be directly affected by prevailing world prices of dairy products.
Absent dairy price supports after the year 2000 only 20 months from now U.S. milk producers face a very different market environment. The changing situation highlights the importance of developing export markets today. The United States alone among dairy exporting nations has the land base and productive capacity to increase output.
While milk from New Zealand and Australia can be priced below the average price in the United States, those nations are unlikely to produce the increased volume of dairy product demand that most analysts will be that we will see in the next decade. Absent EU dairy subsidies, world dairy prices would be profitable for U.S. suppliers.
Dairy farmers also face increased competition from imports. The Uruguay Round GATT agreement requires the United States to progressively open domestic markets to foreign suppliers. For example, cheese imports into the United States under the tariff rate quota will grow by more than 25 percent between the year 1993 and the year 2000 to permit imported level of some 313 million pounds.
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To compete effectively against these imports, the U.S. industry must maintain high quality standards, match the varieties offered in the supermarket, and be price competitive.
Goals for the U.S. Government policy.
I have four basic recommendations for dairy trade policy.
First, work to reduce EU dairy subsidies. Subsidies paid by the European Union are by far the single largest price depressing force influencing world dairy prices. Compared to the EU's export subsidies, the U.S. dairy export incentive program assistance to U.S. exports is small and in terms of price distortions, insignificant.
In fact, the United States can subsidize only one percent of the volume of cheese that the EU is permitted to export through subsidies. In one study, we've estimated the potential impact on U.S. dairy exports if the EU subsidies were eliminated. We found that eliminating EU subsidies could create $1 billion of new market opportunity for commercial dairy export sales. The United States is likely to be a major beneficiary.
Second, fully utilize the limited subsidies available to the United States. The Dairy Export Incentive Program is very important to U.S. dairy farmers as they increasingly work to develop export markets to keep the dairy industry stable and strong. Maximum use of DEIP is necessary for market development in the face of massive presence of subsidized European products.
While the U.S. Department of Agriculture has operated the DEIP effectively so far this year, a modification is needed. Specifically, the Department of Agriculture should immediately reprogram 40,000 dairy export incentive program tons that never left the United States because of canceled sales. This the reprogram can the reprogramming can be accomplished within the Department of Agriculture. Quick action is critical because dairy farmers are facing the possibility that there will be no DEIP tonnage available for non-fat, dry milk exports for the four months remaining in the current GATT year ending June 30.
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Third, prevention prevent circumvention of WTO rules by the EU and other competitors. In particular, the United States should vigorously challenge the EU's inward processing system and insist that the system be dismantled. Under this circumvention scheme instituted in early 1997, powdered milk and butter fat subsidies are used in Euro cheese subsidies for processed cheese export. This scheme is roughly equivalent to using grain export subsidies to export chicken products using the rationale that chicken products are the result of feed consumed.
Also, the United States should pursue to a successful conclusion the challenge to the Canadian export pooling system. If Canadian price pooling system is allowed to stand, it will likely have an affect on future EU ag policy decisions.
And fourth, enforce existing trade rules governing market access. The U.S. dairy industry has experienced significant problems with EU's choosing impact licensing system. While it seems quite open to any domestic party, it created enormous difficulty for any supplier hopefully hoping to sell any significant quantity of dairy products.
U.S. cheese manufacturers are effectively blocked by selling to EU customers by an amazingly complex set of rules. Perhaps the worst feature of the European system is the over issuance of cheese import licensing, thereby causing very small portions to be licensed to any one individual or firm.
Mr. Chairman, the dairy industry appreciates the oversight and support the committee has provided. We look forward to working with the committee to improve the dairy trade outlook, and I would be happy to answer any questions.
Thank you, sir.
The CHAIRMAN. Thank you. Thank you very much.
Mr. Berg, with the American Soybean Association.
STATEMENT OF MARK BERG, PRESIDENT, AMERICAN SOYBEAN ASSOCIATION
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Mr. BERG. Thank you, Mr. Chairman and members of the committee. I am Mark Berg, a soy and corn farmer from Trip, SD. I currently serve as president of the American Soybean Association. ASA represents 31,500 producer members on national issues of importance to all U.S. soybean farmers. We appreciate the opportunity to appear before you today.
We commend you, Mr. Chairman, for scheduling hearings on U.S. objectives for the next round of multilateral negotiations at this time. Hopefully, our statements today will make clear the importance of further liberalizing world agricultural trade and strengthen Congressional support for moving fast track status for future trade agreements.
In the interest of time, I will summarize my written statement. As we approach the 21st century, by far the most significant trend for agriculture is the rapid growth of the world's population. Some 5.8 million people today, the global population is projected to expand by nearly 50 percent to 8.5 billion in the year 2030. Demand for food is expected to more than double by mid-century.
The next round of multilateral trade negotiations will have a substantial influence on the ability and preparedness of agriculture industries in major producing and exporting countries to respond to growing world food needs.
If importing nations are willing to increase access to their markets and accept crops and products which introduce new technologies, exporting nations respond by gearing up the production export capabilities.
However, if protectionism and resistance to new technologies prevents significant trade liberalization in the next round, an important opportunity to move toward greater global food security will be lost.
The U.S. soybean industry has taken this long term view in defining two key objectives for the next WTO round. First, we need to eliminate tariffs and government sponsored export incentives to create a level playing field for trade and oilseeds and oilseed products.
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Second, we need to achieve global acceptance of science based standards for trade in crops and products to rise from biotechnology. Achieving both of these objectives in the next round is essential if we are to maximize our ability to meet global food needs in the next 30 years.
The European Union and the member states will play a critical role in determining whether and to what extent the world community agrees to both of these goals.
Although the EU is a significant agriculture exporter, it maintains protectionist and other restrictive policies which provide an excuse for other countries to oppose opening their own markets.
If the EU continues to resist major changes in these policies, it is doubtful sufficient pressure can be brought to adopt meaningful trade liberalization in the next round.
The EU's common agriculture policy remains tied to supporting production, restricting imports and subsidizing exports of specific grain and oilseed crops and process products, including vegetable oil.
These policies create distortion in the production of certain crops which, in turn, force distortions in trade.
As a result of the increased oilseed production in the 1980's, the United States filed petitions against the EU oilseed regime which resulted in negotiations in the Blair House agreement in November 1992, during negotiations under the Uruguay Round.
Under Blair House, the EU agreed to restrict its total area of subsidized oilseed production, which has slowed the expansion of EU vegetable oil exports.
The U.S. soybean industry is very opposed to reconsidering the Blair House agreement. Under the Uruguay Round itself, the United States and other exporting countries continue to reduce the U.S.A. export subsidies for sales of certain commodities and products, including vegetable oil.
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Since the EU is still permitted to sell about 1 million tons of rapeseed oil per year at less than its production cost because of high producer payments, the U.S. soybean industry would strongly support eliminating direct and indirect export subsidies, for oilseeds and oilseed products in the next round.
On the import side, the EU buys about $2 1/2 billion worth of U.S. soybeans and soybean meal per year. Access for our soybean oil is restricted by variable import duty. The U.S. also maintains a tariff on imported soybean oil currently at 19 percent.
The U.S. soybean industry supports eliminating all tariffs, export incentives, and differential export taxes, to create a global level playing field for oilseed and oilseed products.
To reduce future outlays due to enlargement, the EU is currently considering to further reform the common agriculture policy on the so-called Agenda 2000 process. Under Agenda 2000, guaranteed support price for oilseed production would be reduced by about a third and set at the same level as the support price for grains.
This would likely reduce EU oilseed production in most growing areas.
It is not clear today what, if any, impact the Agenda 2000 proposal would have on an EU cap reform prior to the next round of WTO negotiations. We can only hope that cost considerations will push the EU to accept the level playing field concept as an efficient model for its agriculture industry.
Our second keen objective in the next WTO round is achieving global acceptance of science-based standards for trading crops and products derived from biotechnology. Since genetically modified varieties of soybeans, corn, cotton were first commercially produced in 1996, the sanitary and phytosanitary agreement included in the Uruguay Round does not sufficiently reference biotech crops and products.
In the 2 years since the so-called GMO's or genetically modified organisms were introduced, the United States has led the effort to ensure that regulations are based on sound science and that trade barriers will not restrict access for biotech crops and products that are substantially similar.
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Unfortunately, unrelated food safety concerns in the EU have affected consumer acceptance of food products that may contain biotech-derived ingredients.
Interest in wanting to know whether biotech products are present has led to efforts to require labeling based on genetically modified protein or DNA.
How the EU deals with labeling and biotech products is expected to have a major impact on the regulation of biotech crops and products in other countries. Anti-science activists are pushing even more restrictive policies which would require advance approval for each shipment of biotech crops and products in negotiations on the bio-safety protocol under the UN convention on bio biological diversity.
Convincing the EU of the responsibility on this issue is a major task facing both our Government and our agriculture industry. One initiative currently being advanced by various EU officials is to reconcile differences between the United States and the European Union on various trade issues through negotiations and bilateral free trade agreement. It is critical the United States insist that agriculture be included in any bilateral negotiations with the EU
Issues affecting other sectors are undoubtedly important, but none is as essential as resolving current impediments to efficiently producing food in the next century.
In conclusion, Mr. Chairman, the U.S. soybean industry sees the next round of WTO negotiations as an important opportunity to fully liberalize trade in oilseed and oilseed products to set common standards for both trade and biotech crops and products. These are not idealistic goals on one industry's wish list. They are imperative if the world community is going to come to grips with how it will it feed itself in two or short decades.
Thank you again for the invitation to participate in this hearing, Mr. Chairman, and I'm open to all questions.
The CHAIRMAN. All right, I thank you very much and I thank all you gentlemen for excellent statements. Mr. Kirkpatrick, may I say to you that it's been a long time since I've listened to a dairy association representative testify that the future lies really in in export for the dairy industry and does not come here suggesting we raise the base price of milk or we go back to the to the subsidy idea always coming to the Government.
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You've got a positive position. I appreciate that very much.
Mr. KIRKPATRICK. Thank you. I think you put us in that position at the last farm bill. [Laughter.]
The CHAIRMAN. We'd like for you to stay put. [Laughter.]
Mr. Kirkpatrick, you mentioned a 40,000 ton item with DEIP. Mr. Stenholm and I have discussed that here. We are in the process of developing a letter to go downtown to the administration to make sure that those that that's reprogrammed, as you suggested.
Mr. KIRKPATRICK. We appreciate that.
The CHAIRMAN. Thank you.
Mr. KIRKPATRICK. Thank you.
The CHAIRMAN. I'm under the impression that about 14 percent of our beef production in the United States is exported, up from almost zero in 1980, as I recall. There have been those, as you know, in our industry who criticized NAFTA and the WTO. But the facts are, I think, and you correct me please, Mr. Hauck, I believe without that 14 percent export, we would have the equivalent of about a 10 percent reduction in the price of live animals which is about $100 a head. Do those numbers make some sense to you?
Mr. HAUCK. Yes, Mr. Chairman, they do.
I believe this past year was actually closer to 12 percent of the total wholesale value of beef products that were relied upon exports.
Along those lines, as you have mentioned, there are some within ours try that have been somewhat critical of the North American Free Trade Agreement as well as WTO. If you look back approximately 10 years ago, the pre-NAFTA days, I believe it will become apparent from an agricultural standpoint, we've more than doubled our trade balance in that period of time. As I've often heard it said in relation to cattle themselves and also meat products, if we were to build a fence around the United States and measure that volume of product which left the country and that which came in, we have been far better off since North American Free Trade Agreement.
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The CHAIRMAN. I think it's important to tell that story. As you know, there's a residual opposition to fast track and even to IMF funding because in certain parts of our country if you have a bad market, you want to blame NAFTA.
We've certainly had some problems identified with Canada and Mexico, which you've identified, and others with livestock as well. But I don't think that ought to deny us the opportunity to look at the total picture and say that the export is essential to production and to farmers and ranchers in this country.
Mr. HAUCK. The National Cattleman's Beef Association would certainly concur with those comments, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. Stenholm.
Mr. STENHOLM. I want to commend each of you for your very excellent testimony pointing out the importance of exports, talking about the problems we are experiencing in the world market, emphasizing what this Congress, this committee needs to do in order to make sure that American agricultural will have an opportunity to compete in that international marketplace. You've given us a good road map. I want to take about a minute to make you aware of a tremendous problem that is about to happen to us because as you talk about the need of the export enhancement program, the beef program, the market access program, having the United States Government stand shoulder to shoulder with our producers in IMF, GSM funding, et cetera, we're about to make a mistake with all of the right reasons for making it.
We all know that we can't get our products to market without good transportation, good highways.
There's too many of our colleagues that do not fully understand that if we vote for full ISTEA funding, if we vote for all of what is being asked of which we've agreed to live under the budget, we're going to live within the caps. If we spend all of the money on highways, there will be nowhere close to the amount of money you have asked for. There will not even be money for us to maintain a level of funding in these areas. I hope that farm groups all over this country and other groups will understand and will help us to make difficult decisions.
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I think you have outlined some awfully important priorities for agricultural. I agree with you, but we can see all of the potential, for us, funding in some of these areas completely evaporated if we do not have a full and fair discussion of the priorities and necessities including how much we need to spend on highways and transportation and ports and locks and all of the things that are so important to us. We can't do it in a vacuum. We've got to look at it within the confines of it and still agree that keeping a balanced budget is important for our country.
I use this as an opportunity for you and each of the associations and the people that you represent to take a look at this debate and then advise and counsel with Members of Congress as to whether you think, and how you think, we ought to approach this budget.
The CHAIRMAN. I thank the gentleman. We have a vote. We'll recess for a few minutes, and we'll call the next panel immediately upon return. Thank you.
[Recess]
The CHAIRMAN. We now welcome our next panel: Miss Carolyn Gleason representing Chiquita Bananas, Miss Linda Fisher, vice-president of government affairs with Monsanto, Mr. Daniel Amstutz, president and CEO of North American Export Grain Association. I started with Mr. Amstutz about 1983, I believe, on this committee. He was then with the Reagan administration. Mr. Rick Roth, the sugarcane farmer from Belgrade, FL; Mr. John Gillcrist, president of Milling Company, Kansas City, MO. Welcome all of you. Miss Gleason, please, we'd like to hear from you.
STATEMENT OF CAROLYN B. GLEASON, TRADE COUNSEL, CHIQUITA BRANDS INTERNATIONAL
Ms. GLEASON. Good afternoon, Mr. Chairman, other members of the committee. My name is Carolyn Gleason, and I'm here, yes, in my capacity with Chiquita to talk about the WTO and its role in U.S. efforts to reduce European agricultural barriers, with a special emphasis on the lessons being learned from the WTO banana case. As this morning's General Commerce reported, this is a case that is no longer just about bananas. It's widely considered a test of EU commitment to the WTO disputes settlement system and, by extension, a measure of whether that system will be able to deliver trade relief for American agriculture. It's become a test of the EU system largely by reason of its place in the WTO. The banana case is the first successful WTO legal ruling against EU agricultural policy, and so is the first major test of EU willingness to abide by its WTO obligations in the area of agriculture. To date, signals out of Europe on this issue are not promising, but the EU Commission has issued a so-called reform proposal that would actually increase discrimination and restriction in the banana sector, not decrease it.
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In furtherance of that proposal, the commission is now actively exploring every possible legal and procedural avenue to evade compliance including actively recruiting the Latin American co-complainants to, in effect, buy into the proposed illegalities. This EU response to the case, you have to say, is reminiscent of pre-WTO days when the EU routinely blocked and ignored panel reports. Its non-compliance threatens to destroy the system then, and I think easily can do so again, unless it's checked.
As we learned under the old GATT system, it doesn't really matter how specific and comprehensive our multilateral substantive disciplines are on agriculture if our major agricultural trading partners do not have the resolve to observe them. Before we turn to the visionary goals of 1999, our most immediate priority should be to ensure through hard, verifiable dispute settlement successes that the EU and our other major agricultural partners intend to honor the WTO obligations that are now in place.
Because the EU is showing a contrary intention in this first WTO ruling against it, one of two things will need to happen before we gain confidence that the system works: Either the EU member states will replace the proposal that's now on the table with one that is WTO consistent, or the EU will need to be forced into full compliance through WTO procedures including WTO retaliation. Based on the commission's actions to date, the latter looks to be the likelier scenario. If at the end of the EU's so-called ''reasonable period of time to implement,'' the EU is not in full conformity on bananas, sanctions will need to be taken for the sake of the entire system. If we relent in this first case in which EU resolve is being tested, it will bless EU non-compliance and all the other cases right on down the line, once again rendering the system ineffective. After American agriculture gains reasonable confidence, the system is capable of delivering relief and actions involving our principal adversaries, attention will need to shift to issue of how best to hasten that process of relief.
This is an issue that is not presently envisioned for the 1999 exercise, but it should be. As the dispute settlement system now stands, the procedures can take entirely too long, especially for small sectors of American agriculture, and often function to the advantage of the offending party, not the injured one.
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Again, take the banana case. WTO consultations in that case began in February 1996.
Full WTO compliants, assuming it occurs, will not be in place until January 1999 at the earliest, or more than 3 years after the proceedings began.
Throughout this 3-year period, damages to U.S. interest have greatly compounded; conversely, unfair advantages for EU firms have soared. Both the injuries suffered and the advantages gained are irreversible. The WTO delivers relief solely on a going-forward basis. It makes no allowances for back damages. On the other hand, offending parties like the EU know well that by dragging the procedures into the slowest possible timetable, they will suffer no adverse consequences. Whatever the legal cost to the EU of resisting compliance, those costs have been dwarfed by the hundreds of millions of dollars in additional unfair commercial benefits accruing to EU interest over this period. This slow process of securing compliance isn't just a systemic inequity.
It is also a disincentive for American agriculture to even seek dispute settlement relief. One partial solution may be to shorten the dispute timetable, particularly as it relates to the losing party's reasonable period of time to implement. A losing party should not have the right to continue inflicting injury for 15 months after the WTO has ruled that violations are present. Unless corrections are taken to hasten the process of compliance, U.S. agricultural sectors suffering serious injury may not survive long enough to benefit from the relief finally granted.
Mr. Chairman, WTO dispute settlement is essentially the only remedial tool available to American agriculture for reducing foreign barriers including those being practiced in Europe. We have no choice but to make it work. The system will not have the broad-based credibility it needs unless we establish a feasible model for strict WTO compliance in the banana case and insist on that very same standard in the other agriculture cases right behin us. Thank you, Mr. Chairman, for this opportunity to testify.
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The CHAIRMAN. Thank you very much.
Ms. Fisher.
STATEMENT OF LINDA FISHER, VICE-PRESIDENT, GOVERNMENT AND PUBLIC AFFAIRS, MONSANTO CO.
Ms. FISHER. I'm Linda Fisher, and I'm vice-president for government and public affairs for the Monsanto Co. I appreciate the opportunity to testify before you today on the trade issues, and I really compliment your leadership in focusing particularly on the European Union. As you know, over the next 50 years, the world's population is expected to grow significantly. Most all of this population growth is going to be in developing countries where many of the world's most fragile natural resources exist. In order to meet the needs of this population, food production is going to have to triple over this period of time.
Biotechnology offers the potential to gain tremendous agricultural productivity and enhance nutrition with environmentally sustainable farming practices. Already we are offering new tools. We are gratified that farmers have adopted Monsanto's technology so quickly, and we believe it's a testament to two things: First, that the biotechnology really does work, and second, that farmers understand that technology is what is going to keep them competitive in the global marketplace. We are committed to making this technology broadly available to all farmers in the varieties that they want from seed companies that they trust. But meeting the increased global food demand requires a trade policy which enables all agricultural interest to meet the challenges we face.
United States agriculture could be derailed in its effort to help meet the world's food needs by trade barriers. What is worrisome is that even after the last global trade agreement which reduced many trade barriers, countries are still using other means to impede trade. Clearly, there are nations using non-tiered trade barriers that are not scientifically based to slow down trade in agricultural commodities and foods that have been developed through biotechnology. If this situation is not addressed and non-tied trade barriers are allowed to proliferate, such barriers will have a chilling effect on the biotech industry. Nobody wins in this situation, and we cannot let it happen. Turning to the specific trade problems Monsanto has faced in the EU, there are three of general concern. First of all, the operation of the European Union approval process for products of agricultural biotechnology. Secondly, the labeling of the products produced through this technology, and third, the public acceptance of biotechnology, which in many ways may be the most difficult issue of all.
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I will first begin with the EU approval process. Without question, the operation of the relevant EU regulatory systems dealing with ag-biotechnology is causing us significant problems.
The numbers tell the story. Until today, the regulatory system in Europe had produced just five agriculture biotech products and the current system had not, in fact, approved a product in over a year.
However, either through the luck of the Irish or the hard work of a lot of members in the House and Senate in talking with the Prime Minister of Ireland when he was here yesterday, just this morning the EU did, in fact, approve four products of biotechnology. It is important to note, however, that the regulatory reviews on these products had been completed well over a year ago, and it was still only today that we received these approvals. Particularly troublesome is the fact that the approval process continues to change. As discussed in the previous panel this morning, late last year the European Commission sent the corn product dossiers through yet another technical review causing a three-month delay. Both European Union and United States industry leaders have urged the European commission to make the biotechnology product approval process more predictable and more transparant, as we currently experience in the process with USDA, FDA, and EPA in this country. Through the TransAtlantic business dialogue, which is a 3-year old United States-European Union Government industry effort to reduce trade barriers, industry has made a few recommendations. The first is that clarity and consistency be incorporated into the regulatory programs. Second, that a common road map for regulatory approvals be adopted. Third, that data requirements used for review and approval of products be harmonized worldwide and fourth, that common timelines for decision making be used to the maximum extent possible. The goal of all of these recommendations is to reduce trade barriers by having compatible, predictable and transparent regulatory approval programs on both sides of the Atlantic.
The second issue is product labeling, which is a matter of ongoing debate in Europe and one which has significant potential impact on trade. In the United States, food labels are used to inform consumers of nutritional and safety differences in the food they eat. Foods produced through biotechnology are not singled out as specific category for labeling. The policy debate in Europe is based on the use of the label to inform consumers of the presence of a product of biotechnology regardless of whether the food is different from a safety or nutritional standpoint.
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Monsanto fully supports the science-based approach of fool labeling used by the FDA. While we recognize that local labeling programs can be used to provide information to consumers as is the case in Europe, such information and process labeling can't be allowed to create nonscience-based segregation requirements in a commodity crop market that would lead to trade disruption.
The third and the final point is the public awareness and confidence in biotech. Broad acceptance of biotechnology requires that consumers be given relevant and accurate information about the food they eat. Public confidence in the regulatory system is also important in gaining acceptance of biotech. In the end, gaining broader public acceptance naturally means less chance of trade issues. We are committed to providing consumers with information about our products and about our technologies.
In summary, Mr. Chairman, Monsanto appreciates your interest in reducing all trade barriers around the globe. As you meet with your European colleagues, I urge you to raise the issues that I've discussed in my testimony. It's important to engage in a useful dialogue and to seek meaningful change in the EU regulatory system to make it operate successfully and to seek ways to build public awareness and confidence in biotechnology. In terms of the upcoming WTO round focusing on agriculture, we would ask the United States to address the issues of biotechnology to achieve this greater degree of transparency and harmonization in every country's regulatory regimes.
One final thought, Mr. Chairman.
Agriculture's future also depends on a very strong research program. I want to take this opportunity to tell you that we at Monsanto very strongly support the new research bill that's currently working its way through Congress. I thank you for the opportunity today to talk with you, and I'd be happy to answer any of your questions.
The CHAIRMAN. Thank you very much.
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Mr. Dan Amstutz, who is chief negotiator in the GATT, anything wrong with the GATT is your fault.
Mr. AMSTUTZ. Except, Mr. Chairman, my tenure ended with the end of the Reagan administration.
The CHAIRMAN. You didn't get into the WTO?
Mr. AMSTUTZ. I got into the beginning of the proposal, but not the end of it.
The CHAIRMAN. Thank you for the clarification.
STATEMENT OF DANIEL G. AMSTUTZ, PRESIDENT & CEO, NORTH AMERICAN EXPORT GRAIN ASSOCIATION
Mr. AMSTUTZ. Mr. Chairman, my name is Dan Amstutz. I'm president and CEO of the North American Export Grain Association, NAEGA, the Export Grain and Oil Seed Industry Association of America. It's a pleasure, Mr. Chairman, to appear before you and members of the committee. I will give a very brief summary of my full statement. Even though the subject of this hearing pertains to Europe, the operable word is multilateral, in that it is difficult to imagine how a meaningful negotiation on agricultural trade can be conducted merely between the United States and the countries of Europe.
Virtually all of the issues that should be addressed must be done in a multilateral setting and in a comprehensive manner. For instance, how could the United States and the European Commission discuss export subsidies if the countries that employ state trading enterprises, STE's, are not part of the negotiation.
We believe the subjects of export subsidies must be linked in all future negotiations, and of all of the important areas of negotiation and agriculture none is more important than this.
Other issues of a multilateral nature that apply to our trade relations with the countries of Europe are tariff reductions. The conversion of non-tariff barriers to tariffs was a positive step, but there are too many cases where tariffs are too high. Tariff rate quotas must be addressed. There should be greater transparency in how they are handled so that objectives of fairness and competition can be more fully realized. Domestic support levels will most surely be a topic of negotiation. An important world map was created during the Uruguay Round with the introduction of the concept of decoupling, that is, separating payments to farmers from production and marketing decisions and freedoms. This concept should be continued.
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There are two general subject areas that require more attention in forthcoming negotiations than they received in the Uruguay Round. These are food safety issues and food security issues. The question of GMO approvals is probably the most pressing food safety subject. It is one which the United States could and should negotiate with the EC in Japan now. Currently there is no global body that has either the capability or the authority to make recommendations on the safety aspects of GMO's.
Nonetheless, GMO developments are moving very rapidly. Technological know-how has advanced to the point where new products are being announced almost daily. Rapid scientific developments, and profit motive combined to make speedy introduction of new GMO products an inevitability. The GMO subject is one of food safety in its broadest sense. It is scientific. It is emotional. It is political. The practical question we face is what can be done quickly to ensure that the scientific analysis of new GMO products is done speedily and objectively, and, at the same time, the emotional or so-called consumer and political, or so-called environmental issues, are addressed as well.
NAEGA is interested in the products the GMO seeds, grains and oilseeds and their products for consumption, not in the seeds themselves.
To address the need for expeditious approval of new GMO products, NAEGA has proposed that the E.C., the United States, and Japan create an ad hoc bioscientific group to speedily and objectively analyze the food safety aspects of GMO grains and oilseeds for consumption. The E.C., the United States, and Japan would each have a small number of representatives in this group, perhaps three, with unquestioned scientific credentials. This group would have czarist-type authority. It would set criteria and manage the analysis of new GMO products, both for the group and for the countries they represent. Each group, country, would withhold approval until and unless the group approves. This would force the United States, the E.C., and Japan always to act in tandem so there would be no production of product before it is salable.
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A small group such as this could expedite decision making, since it is representative of the most sophisticated export-import and consumption markets in the world. One can easily conclude that the rest of the world will follow the group's recommendations. By keeping it small, there would be a minimum of bureaucracy and the plan could be quickly implemented.
Food security issues are those sanitary questions which the SPS agreement in the Uruguay Round began to address. They range from fungi such as TCK and corn weevil to, the weed seeds such as ragweed and Johnson grass, to microtoxins. Much more must be accomplished in this area. The U.S. has ongoing phytosanitary problems with various countries of Europe as well as other areas of the world. Greater clarification in definitions of SPS terms, and the growing realization that there is no such thing as zero risk, will help alleviate contentious trade problems.
NAEGA believes that global markets for farm products can grow dramatically in the new millennium.
But this can only happen if more wealth is generated in more countries more rapidly than is currently happening. It is only through trade liberalization that this increase in buying power, thisexpansion of the markets of the world will result. Growth in global marks is what multilateral trade rounds is all about. For those desired market developments to occur, we must be able to commence comprehensive multilateral negotiations quickly. Congress holds the key to this treasure chest of opportunity. The key is fast track trading authority so that the United States can be engaged, and so that the United States can provide leadership in this very important undertaking for the well-being of American agriculture. And, Mr. Chairman, I want to conclude by saying that my industry applauds the efforts you're making to keep fast track on the table. We wish you well. Nothing this Congress can do in the field of trade and agriculture is more important than this. Thank you.
The CHAIRMAN. Thank you very much.
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Mr. Roth.
I didn't know you sold sugarcane in America?
Mr. ROTH. As a matter of fact, we're the largest sugarcane manufacturer in the United States.
STATEMENT OF RICK ROTH, SUGARCANE GROWERS COOPERATIVES
Mr. ROTH. Thank you, sir, for the opportunity to participate in this important hearing. My name is Rick Roth. I'm a third-generation sugarcane farmer from Belgrade, FL. We proudly farm in an area called the Everglades agricultural area. I'm on the board of directors of the Sugar Cane Cooperative of Florida.
Our co-op was formed in 1961 by family farmers fighting to be among the most efficient in the world.
I'm proud today to represent the views of not only the Sugar Cane Growers Cooperative of Florida, but also the American Sugar Alliance. That is a national coalition of growers and processors of sugar beet, sugarcane and corn sweeteners of which the co-op is a member.
The farmers of my co-op have been successful. We have become some of the most efficent sugar farmers in the world, just like the other efficient American farmers testifying today, we have had to raise our yields and lower our costs in order to survive.
American sugar farmers are efficient by world standards, with costs of production well below the world average, despite our high Government-imposed costs for food safety and worker and environmental protections. A recent study shows that fully two-thirds of the world's sugar is grown at a higher cost than in the United States. Because we are efficient, American sugar farmers support the goal of genuine global free trade in sugar. We cannot, however, support the negotiating goal of free trade at any cost.
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I would like to focus on two major concerns for the next trade round and make several recommendations on how to deal with these concerns.
Concern No. 1, the current level of Government support for farmers varies tremendously among countries. Among developed countries, the key example of direct subsidy is a European Union, appropriately the focus of today's hearing. A massive Government price support program, with a price support 40 percent higher than the United States has transformed the EU from the world's second biggest importer in the seventies to the world's leading producer and exporter of sugar in the nineties. These generous price supports generate such large subsidies that the EU uses export subsidies to dump millions of tons of sugar on the world market each year, severely depressing the world price for sugar. The EU's subsidy programs constitute the most trade-distorting practice in the world sugar market.
Among developing countries, our concern is also indirect subsidy. Developing countries dominate the world sugar market producing more than two-thirds of the world's sugar. Most do not have or do not enforce the kind of cost and standards on foreign chemical use, worker safety, and social benefits, or on environmental protections that American sugar farmers must deal with every day.
Concern No. 2, the Uruguay Round of the GATT virtually had no effect in reducing the disparities in government support or trade distortions in the world sugar market. The Uruguay Round used a formal approach that had all countries making the same percentage cuts in their price supports, export subsidies, and import barriers regardless of how high or how low these levels were to begin with. The exception was developinging countries, which either were required to make no cuts at all or only had to make smaller cuts over a longer phasing period.
Like most developed countries, the EU did not have to reduce its price support level at all and was required to make only a minor reduction in its subsidized exports. Meanwhile, American farmers of sugar and all program crops unilaterally disarmed the drastic cuts in farm programs in the 1996 farm bill.
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Developing countries' practice of allowing their farmers to operate completely unfettered by government standards was, in effect, rewarded in the Uruguay Round. In addition, the trade distorting practices of state trading enterprises found in many sugar producing countries were completely ignored.
To address these concerns, I would like to make four recommendations for the U.S. negotiators in the next trade round.
No. 1, elimination of export subsidies, the most trade distorting of all practices and of state trading enterprises, they must be given top priority in the next trade round.
No. 2, the United States should not reduce its Government programs any further until other countries have complied with the Uruguay Round commitments and reduced their programs to our level.
No. 3, the wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade round and addressed in a manner that ensures that global standards rise to our developed-country levels rather than fall to the developing-country levels.
And finally, No. 4, we can address the huge disparities in supports among nations and United States unilateral concessions to our advantage only if we follow a flexible request-offer strategy in the next round. This rigid one-size-fits-all approach, which was followed in the Uruguay Round, is inappropriate for the world agricultural market in general and for sugar in particular. With the old formula approach, we may lower the playing field for the world's farmers, but we not level the playing field.
In conclusion, Mr. Chairman, I'd like to thank you for the opportunity to participate in this timely hearing. I would like to submit a more detailed version of my testimony for the record, and I welcome any questions. Thank you.
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The CHAIRMAN. Thank you, and your statement will be placed in the record.
Mr. John Gillcrist, who is president of the Bartlett Milling Company in Kansas City.
Mr. Gillcrist.
STATEMENT OF JOHN GILLCRIST, PRESIDENT, BARTLETT MILLING CO.
Mr. GILLCRIST. Thank you, Mr. Chairman.
I'm John Gillcrist, president of the Bartlett Milling Co.in Kansas City, MO. We operate two flour mills in Coffeyville, KS; and Statesville, NC. I'm here on behalf of Millers National Federation, the Trade Association of U.S. Wheat Flour Industry.
You've received my full statement. The following remarks are a summary of that statement. Agriculture, and flour milling specifically, is something we excel at. The United States used to be the world leader in export flour.
In the 1950s and 1960s, we had 50 to 60 percent of the world's export market in flour. That changed with the subsidies associated with Europe's common agricultural policy in the 1970's.
In this particular chart, this depicts the EU flour exports and the U.S. flour exports.
Unfortunately, we're the blue line on the chart from 1966 forward. By 1987, the United States was down to 25 percent of the world market in flour. By 1997, we are down to just 7 percent of the world market and rapidly approaching zero. In meantime, the EU share has risen to 64 percent, 13 percent of that share gained since the implementation of the U.R. just 2 years ago. The Uruguay Round of GATT fell far short of facilitating a subsidy-free trade environment for wheat flour.
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In short, there are major loopholes in the agreement which negatively impact U.S. milling.
Production at my Coffeyville, KS, flour mill and export mill declined from 3 million in 1993 to just half a million in 1997. The employment at that rural facility dropped from 50 people to 17 people, a terrible blow to the local economy. Other export mills in Kansas, Oklahoma, Missouri, Nebraska, and Colorado have suffered similar losses in export grind.
In January, I let 24 employees go at Coffeyville.
It's very difficult to explain to these hard-working men and women why they lost their jobs. They lost their jobs not because Bartlett can't compete with the European mills, but because Bartlett and other export millerscan't compete with the foreign government. In fiscal year 1996, the USDA estimated that the EU spent over $9 billion on agriculture export subsidies, as compared to $792 million spent by the U.S. Government the same year. I can't explain to our employees why our Government hasn't been there for them.
This administration needs to take an immediate and aggressive action to fight blatantly predatory practices by the EU and others. In the short term, the administration needs to use all the trade policy tools available just to keep the United States from being completely driven from the flour export markets prior to the completion and implementation of the next WTO agreement. In the long run, the United States needs to negotiate an agreement where trade is based on real, not artificial, economic advantages.
We propose that an international zero-for-zero agreement be achieved. Zero-for-zero refers to zero subsidies and zero tariffs on wheat flour and its byproducts, negotiate the elimination of subsidies and tariffs.
We also propose a subsidy-free zone in the Western Hemisphere. The agreement would prohibit countries in the Western Hemisphere from trade in flour and wheat products with countries which continue to subsidize.
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Neither of these outcomes can be achieved without the authority of fast track. We fully support giving the administration the authority to continue these vital talks. The EU and other nations have blatantly violated the intent and the spirit of the U.R. agreement through excessive aggregated subsidies and artificial price manipulations. In fact, the EU subsidized 100 percent of wheat flour exports in 1997, exports that grew 36 percent in just the past year.
U.S. flour exports have fallen 65 percent since the implementation of the Uruguay Round 1995.
The United States is more efficient than any country in the world in flour milling, more efficient than France, more efficient than Turkey, more efficient that Argentina, more efficient than Japan.
Yet Japan and Turkey, importers of wheat, will likely export more flour this year than the United States. If this administration fails to take immediate and aggressive action, then the game is over. Europe wins, we lay off more skilled labor in the rural communities where our mills and elevators are located, and we retreat from something we do better and more cost effectively than anyone else in the world. Thank you.
The CHAIRMAN. Thank you very much, Mr. Gillcrist. That's a powerful statement.
Ms. Gleason, why should we, as a country, enter the 1999 agriculture negotiations in the WTO if, by that time, we have not resolved the banana and the hormone question? It seems to me, as you pointed out and I agree, this international agreement is of no worth whatsoever if we don't have finalizations, and we haven't had them. So why should we begin to review our international trading agreements when we haven't resolved these two issues?
Ms. GLEASON. You asked the question that I think needs to be asked by the agricultural community generally by this administration. It makes little since to embark on a new round of negotiations for substantive disciplines when the present ones, which are barely dry, aren't being observed. Let's establish to our reasonable satisfaction that these obligations are going to be honored before we dive into a new set of disciplines.
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The CHAIRMAN. Exactly, and your point, to shorten the timetable of dispute resolutions, is a good idea But, if we haven't accomplished those two goals before we start talking about shortening dispute resolutions, it seems to me we've wasted our time.
Ms. GLEASON. That's right. The sequence must be get full WTO compliance in the cases that are now being litigated. Thereafter, if we can, if the 1999 exercise enables this, shorten the process so that compliance doesn't cripple the litigant before relief is supplied.
The CHAIRMAN. Thank you.
Miss Fisher, we continually hear from the European Union that they want to label GMO, genetically modified organism treated goods. And as you know, we went through this segregation thing with them, and they backed away.
Finally, they went wanted to segregate all our corn or wheat or whatever. But they want to label, and we've been going around and around with them, I and this committee and the Department of Agriculture. What is your opinion about labeling GMO products in Europe?
Ms. FISHER. Mr. Chairman, we believe that any labeling program needs to be scientifically based in the United States. Basically the program laid out by the FDA is required to label only when there's a nutritional and safety difference in the food product. That's the position that we have supported. Europe has pursued a labeling program based on providing information to consumers, and our chief concern with any program that is designed to just provide information is that it not lead to any kind of segregation that has no science or safety base to it.
The CHAIRMAN. I understand. I think the United States has accepted that. I think you reinforced that today. Thank you very much. There was some confusion about that.
Ms. FISHER. I think it happened during the hearing.
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The CHAIRMAN. Well, that's nice to know. We have a lot of influence, don't we?
Ms. FISHER. Yes, you do.
The CHAIRMAN. So I'm asking you, if everything was labeled GMO, will it make any difference in 1 year, or for that matter, 2 weeks?
Ms. FISHER. That is a good question.
Right now under the European Directive 90/220, there is labeling on the bulk shipments of soy beans that are going into Europe, and there's some voluntarily labeling programs that many of the food processing companies have undertaken. And basically, as I understand it, some of them have labeled process foods with a statement that says, ''made through the tools of modern biotechnology.'' Thus far, with that kind of labeling, we have not seen much change in consumer attitude. That, of course, is very important to us.
The CHAIRMAN. Well, I'm pleased that you have recognized some general problems that you had in Britain and you are correcting those. I thank you for doing that.
Mr. Stenholm.
Mr. STENHOLM. Listening to your testimony and the previous panel, that sort of reminded me that we got a problem and we're trying to decide how to deal with the European Union, and the choices are, is it death by hanging, by lethal injection, or by some other method? Everybody talks about the problem and what the administration should do. My question to you is what are some of the things we might consider doing if you were in the position to make recommendations as to how we might deal better with these problems with the European Union? What would you suggest we do?
Mr. AMSTUTZ. We made a proposal, actually, the first time last week and again here in this testimony.
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Mr. STENHOLM. I'm sorry. I didn't hear your testimony.
Mr. AMSTUTZ. We think it's practical to address this GMO approval problem because we recognize it's not only a scientific problem. It's an emotional problem, and it's political. And probably because, to quote the chairman, because they did have a milk problem, because they did have a problem with beef, there's greater sensitivity over there. We've suggested that the EC and the United States and Japan—the largest import-export consumption markets in the world, the most sophisticated—create an ad hoc bio-scientific group comprised of perhaps three unquestioned experts from each of those entities.
They sit down and work out the criteria on the safety of these GMO products, and we're talking here grains and oilseeds, for consumption. It is simply focused, and we truly believe this is an avenue that can be approached.
Most of us in this room agree with this whole concept of equivalences. Let's develop these equivalences for approval of new products. But, invariably, one country in trumpeting equivalences in the other country is saying, ''You've got to do it the way we do it.'' That's the equivalent, and whenever there is a very sensitive subject, there's a resistance to doing that. That's why we say, ''Let's get these three most sophisticated consumption countries together to do this''
We think that if this scientific part of this subject can be handled expeditiously and with a small group it could, we think it's logical that we could think in terms of two thing. First, the rest of the world accepting the conclusions of this ad hoc group, and that secondly, and more importantly, perhaps, from the standpoint of immediate problems, some of these emotional and political concerns being at least dramatically reduced because there would no longer be scientific arguments.
Most people think this whole process is very short-lived. In three or four years, we'll have all this behind us. The dilemma is how do we deal with this in three or four years and keep trade flowing?
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We cannot segregate product. There's some that dream that we can, but commercially, we cannot. Some people mistakenly equate handling grain on an identity preserved basis with segregation. There's a difference. We cannot have rigid labeling. We can have labeling that says it may contain GMOs, and we all agree we have do keep the trade flows moving.
Perhaps this idea we throw out is not the best in the world, but it's a thought to get us off this impasse we've been involved in for quite some time.
Mr. STENHOLM. That's a very constructive suggestion for the GMOs, the genetically engineered products. What about flour?
Mr. GILLCRIST. I think, Congressman, its much more basic in flour than that. We, the Europeans, the EU specifically have been so successful in their strategies over the past decade of bobbing and weaving and skirting the intent of the trade agreements that they have taken——
Mr. STENHOLM. What would you recommend—if you were in a position to do something about it, what would you do?
Mr. GILLCRIST. It's very simple. If it's not done on flour immediately then we lose our markets. It has EEP, immediately. That's the short term. In the long term, it has to be negotiations that will eliminate the subsidies. Anything else short of that is not going to work with the Europeans. They've been rewarded for their strategies for years.
Mr. STENHOLM. So, immediately, we need a new program?
Mr. GILLCRIST. It has to be started immediately. Yes, sir. In the absence of that, we're out of the business. We're down to 7 percent last year and less than that already now. This industry is really—the Europeans are holding the next two or three nails in their hand ready to drive them into this coffin.
Mr. STENHOLM. Sugar, short term.
Mr. ROTH. To be honest with you, I think the sugar industry has been way out in front and done a lot of things to make the sugar program the way you want it to be, more of—we've taken off the production controls. We've actually lowered the price. We've done a lot of things in the EU they still have not done. I think like Mr. Gillcrist is saying——
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Mr. STENHOLM. How do we get the EU's attention?
Mr. ROTH. I think quite honestly we're going to have to start being a lot tougher in our negotiating posture. What we're saying is—what they're wanting to do with us is play the game of us all lower the playing field like this. They're getting much higher export subsidies and other type programs. We're saying we cannot live with that.
They have got to come not only fulfill the gap requirements as these other people have mentioned, but they have to come forward and begin to lower beyond those gap requirements before we do anything else.
I think the position that they believe that we hold in the United States is that we're going to unilaterally continue to disarm. I think our position has to be that we have already done such and now it is their turn. We need to have time.
What I have a hard time understanding, sir, in this country we continue to increase production costs. Just the latest issues are the Food Quality Protection Act, food safety guidelines through the Food and Drug Administration and also increases in the minimum wage.
Surely this committee has to acknowledge that the day could possibly come when the United States is not the lowest cost producer of food in the world, and, therefore, it is essential that in this next trade round that these foreign producers must come up to our standards. They must play the game the way we're playing it. We have to wait on them. We have to say if you want more access to our markets, you're going to have to get to the level where we are.
We are not going any further by ourselves.
The CHAIRMAN. You can't see this. I carry this around the world with me. On the right, you see the bright red. That's the European Union total subsidies to their—domestic as well as export—the export subsidies are in the blue. They total $46 billion. The other mark is ours, our domestic subsidies internally. You can't see the export line because it's almost invisible it's so small. The domestic subsidies are $5.3 billion, $46 billion against $5.3 billion exactly.
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That identifies exactly what we're all talking about here, I think. It also challenges us when we meet again in 1999 that we've got to take care of this disparity. By the way, our $5.3 billion is phasing out by the year 2002. If you remember, that's the Freedom to Farm bill.
Mr. Ewing.
Mr. EWING. I wonder if Mr. Stenholm would yield.
Mr. Stenholm, does it go with being chairman that they always have some kind of a chart? You remember the past chairman.
Mr. STENHOLM. I made the same observation on this side. It must be something in the water.
Mr. EWING. They do tell a story. Thank you, Mr. Chairman.
Mr. Roth, I think you mentioned that the European Union was far more generous in their sugar program than the United States. Could you elaborate just a little bit on that?
Mr. ROTH. Yes, sir. I'll mention four major points. The first one I've already mentioned, 40 percent higher before gap. That's 31 cents wholesale refined beet sugar versus 22 cents beet sugar in the United States. Second, they continue to have strict production controls. These, sir, are instrumental in helping us to remove production controls and coping with domestic competition in this country. They have massive export subsidies and other subsidies, as the Chairman has mentioned, while we do not have any subsidy in sugar for these reasons.
More importantly, their program is actually frozen until the year 2001, while our prices have been lowered 6 percent by the forfeiture penalty in the sugar program, and our imports have been increased by that same forfeiture of penalty, 20 percent to 1.5 million short tons. That's 20 percent over the gap minimum. So we're doing more than the gap, and they haven't even done the gap yet.
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Mr. EWING. Well, I think you and I would agree that we did go a long way in reforming our sugar program, and sugar farmers are pretty efficient in the United States. Cost of production is well below the world average. And the only reason that we don't compete openly without any restriction at the border really comes back to these subsidies because much of the sugar in the world is produced under a subsidy commission. Is that correct?
Mr. ROTH. Yes, sir. As Mr. Gillcrist stated here, we feel like as sugar farmers that we can compete with anybody in the world, but we cannot compete with foreign producers. As I mentioned, with those prices, the EU is paying farmers to overproduce 5 to 6 million tons per year. This surplus is sold at any price on the world market. So, what we need is producers, and that's part of the reason that
I mention the fact of increasing costs. I mention to Congressman Foley, who I think is doing an excellent job on Florida's behalf, that we're really happy to make changes in the farm programs but you guys have got to make the changes on the cost side of the ledger. And the bottom line is, is you have to reduce these costs.
Mr. EWING. What you've said deals—do you deal in cane sugar?
Mr. ROTH. Yes, sir, that's correct.
Mr. EWING. It would apply basically to cane or to beet sugar?
Mr. ROTH. Yes, sir, it would. The bottom line like the agricultural—Mr. Gillcrist said we have to do away with these trade distorting practices and until we do that, we have to maintain policy in a sugar program that prevents this dumping. As a Florida producer of other commodities, I have to tell you that antidumping is a very important concept in Florida because of tomato production. We feel very strongly that the United States has really abandoned the Florida tomato producer. We think that food security should be as high an issue in this country as it is in Europe, for example. We got to make sure we're protecting our farmers and allow them to produce on a level playing field.
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Mr. EWING. You feel that while we certainly have to continue to seek changes in our trading partners, particularly the European Economic Community, it is really a race to see whether the change comes first where our producers are overcome with this type of competition?
Mr. ROTH. I hope that's not the case. I hope that the trade negotiation in the next round will see—what our argument is in our area against the [North American] Free Trade Agreement is that you have to solve some of the NAFTA problems before you go on to the freed trade.
We agree 100 percent with everybody that's testified today that we've got to be in the hunt, we've got to be at the table. The bottom line is, its not at any cost. We want the administration and Congress to stand behind the American farmers and say, ''We want—we're going to do what's right and fair for everybody. We are going to lower trade barriers in the world but not at the cost of running American farmers out of business.''
Mr. EWING. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chaiman.
Mr. Fisher I appreciated your testimony. I'm sorry I couldn't hear you deliver it, but I did have a chance to read it. We had a chance to meet with some of the folks who were there, I did, with the TransAtlantic business dialogue of policy network the other day and heard their strong interest in moving forward with TransAtlantic marketplace, their new initiative there.
They also delivered the message that they would like to see agricultural excluded, and obviously we're very pleased that the administration said that is not something they would consider.
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I'm wondering is there another alternative?
When we look at some of the greatest problems we're facing in agriculture and moving products into Europe, it really gets into the GMO's, some of the food safety, veterinarian equivalencies, and a whole host of issues that I put in the category in the end that we might look at as harmonization of regulations.
Is it possible to move forward with a European-United States dialog that would be focused strictly on that, that wouldn't necessarily—that could be separated somewhat from agriculture, that we might be able to move forward to try and resolve some of those disputes that might benefit agriculture in the United States that doesn't necessarily—is not impeded by some of the bigger issues which are also a legitimate concern, as the subsidies and the export subsidies which are going to be very difficult to resolve?
Ms. FISHER. Let me say definitely I think you could split off the pesticide, the biotechnology regulatory regime, and the other sanitary, phytosanitary issues that are causing people so much heartache. There is a TransAtlantic business dialog group that is focused specifically on the GMO-related issues. I think that, to pick up on something that Mr. Stenholm asked earlier, I really think the administration, who has been very helpful on these issues, can and should continue to make harmonization a priority.
I will tell you having been in the regulatory agencies before, it is a real challenge to make resources available to focus on harmonization issues, and that's why I think the Congress can be particularly helpful because the agencies USDA, FDA, and EPA have a lot of people beating on them to do a lot of things, and it's important that they hear the harmonization really is critical.
Mr. DOOLEY. Guess that really gets—and Mr. Stenholm's comment is that in order to elevate this and to put in place, I guess, a more clearly defined process where we could determine whether or not we're moving forward, is there a specific action that you would think this committee could take or is there something the administration should take to, you know, formalize this process a little more? I remember when you were in here in your other capacity when you testified, we talked about some of these same issues then. I guess we're making more progress, but it doesn't appear nearly as significant as some of us like and I'm wondering what are we going to do to expedite this.
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Ms. FISHER. I think making it a priority and keeping the administration focused on it and letting people know that it is important to Members of the committee is definitely helpful. What has changed, and its come up a little bit, is clearly these issues have become a lot more political, and there's a lot more public acceptance issues and industry Monsanto and some of the other companies involved in biotechnology have started to get much more active in trying to deal with European public acceptance, which we're hopeful will create more of a warmer political climate, if you will, to get these approvals moving.
But I definitely think the administration can stress the importance of making the regulatory programs transparent, predictable, take steps to harmonize both the data that's generated and the data review process and, again, really focus on that. I think hearing from this committee is important.
Mr. DOOLEY. Mr. Roth, I can't remember, in the fast track debate, was your association in support of the fast track authority to the President?
Mr. ROTH. I think we were against it on the basis that—let me qualify that. Yes, the cane industry, which I'm part of, was holding back asking for some of the recommendations that we were asking for to mitigate and resolve some of the problems. The beet industry was in support of that.
Mr. DOOLEY. I really have a tough time with that position because you spent a good part of your testimony talking about the EU subsidies as being the greatest threat to EU members and the profitability of your organization.
Mr. ROTH. Yes, sir.
Mr. DOOLEY. Now, how do you expect us to make any improvements in reducing that disparity and subsidies if we're not at the table joining with Australia and New Zealand standing up against the EU and putting pressure on them to do a better job in reducing these? I just don't get it.
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Mr. ROTH. Well, it's a good question. I guess it goes back to the politics a little bit. The bottom line is we believe that no agreement—I mean, having an agreement that's bad needs to be turned down as opposed to going with any agreement.
Mr. DOOLEY. We don't even have a chance to get an agreement.
Mr. ROTH. That's the point. The point of the politics is, is that we—see in Florida, we've already suffered in other industries and to some degree sugar, with the side agreements and all that, we were scared——
Mr. DOOLEY. So what you're telling me is——
Mr. ROTH. Let me tell you what I'm telling you.
Mr. DOOLEY. You're telling me that you want to maintain the status quo which is——
Mr. ROTH. We're not. What we're saying is we want the negotiator to take a strong position and pretend like he's representing the United States of the America instead of Mexico which is what they did in NAFTA. We're not saying we're against free trade.
Everything I've said today is that we're for free trade. As a matter of fact I'll go so far as to say yes. Someday hopefully we'll get to a point that we have true global free trade, and the United States will start exporting sugar. How can I export sugar when the EU is dumping it?
Mr. DOOLEY. How can you get the subsidies reduced if we don't have a seat at the table?
Mr. ROTH. We are all for a seat at the table.
The CHAIRMAN. I thank you for yielding.
Mr. Roth, if you knew that in the negotiations on fast track that your Member of Congress would have the last look at the last agreement before it was ever initialed, so nothing in the middle of the night could take place in the back room nor could any agreement be reached that your Member representing you did not know about, and then had the opportunity to oppose it or to support it, would that be enough cover for you to support fast track?
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Mr. ROTH. Let me answer it this way. I think the sugar industry in the NAFTA agreement was—went through that process and when some concessions were made, they agreed to support NAFTA.
I think our position is still the same, is, ''Yes, we understand that you cannot artificially protect American farmers.'' We're not asking for artificial protections. We're asking for don't give us away in the name of free trade. We're totally for free trade.
The CHAIRMAN. Then you would then go to your Congressman, Mark Foley, and say, ''Now, we want you to support fast track because now you have the opportunity before any agreement is ever penned, to review it, to identify the problems if there are any, and to oppose it or support it. It will be different than any other authorization of fast track historically.'' Could you do that, or would you do that?
Mr. ROTH. I guess I'd have to say hypothetically, yes.
The CHAIRMAN. Don't hypothetical me.
I'm saying under those circumstances where you would have the last opportunity to see the agreement, Mr. Foley would and all of us, would if it was good for agriculture to support it or not, we'd vote against it.
Mr. ROTH. Clearly, yes, sir, I could.
The CHAIRMAN. OK. Thank you very much.
Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman.
Today has been of a kind of long day for you. You're tough. You just stay right in there, don't you? The votes and everything, some of the things I wanted to share earlier I think I'll save for another day. I would like to have a short dialogue about the flour and the millers and the bakers and so on, and I want to make a comment.
Can you share with us what kind of quality of grains that you demand for your milling?
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Mr. GILLCRIST. High quality.
Mr. BOSWELL. Well, is that——
Mr. GILLCRIST. Uruguay Round wheat, particularly.
Mr. BOSWELL. Is that No. 1?
Mr. GILLCRIST. Milling quality, yes, sir.
Mr. BOSWELL. So there's——
Mr. GILLCRIST. Same quality wheat that we use for domestic bread production goes into export farm production.
Mr. BOSWELL. That's what I wanted to hear because I have some appreciation for what the qualities are for some of those European millers and bakers and—so they're not——
Mr. GILLCRIST. The U.S. produces a very high quality export flour product comparable to the bread products in the United States.
Mr. BOSWELL. Is this premium grain that you're——
Mr. GILLCRIST. Premium grain, yes, sir.
Mr. BOSWELL. Are you paying a premium for it?
Mr. GILLCRIST. We pay the same price for the milling quality of wheat whether it's export or domestic. I qualify that. That's principally what the case is in most of what are termed the interior mills in the Midwest because that's where we're sourcing our wheat.
Mr. BOSWELL. So the producers are getting a premium for what you use?
Mr. GILLCRIST. Absolutely.
Mr. BOSWELL. That's good to hear. Thank you. I'm glad to know that. That's good to hear.
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You've said some startling things here today that will cause us a little discussion around here.
Just over the last days when we had an IMF meeting here in this room and, they don't always agree. In this case, they were in agreement. Mr. Greenspan made some pretty straightforward questions. I think that's the imminent danger right now, Greenspan, Glickman. I'm thinking in terms of our producers or our farmers in the sense of what we're looking at right now this—we're here to talk about the European thing today. I guess I'll save this for later. I've given this a lot of thought, Mr. Chairman, and I think that's our imminent danger right now, today or at least in the short term. I don't know if anybody agrees with me or not, but that's kind of the way I feel. I hope we get a chance to amongst ourselves, if nobody else, just to talk about this one of that days. I ask you to orchestrate that if you would.
The CHAIRMAN. I think we can talk about it any time, even now.
Mr. BOSWELL. Yes. Well, the day's long, and don't you have something else at 4 o'clock?
The CHAIRMAN. That's true. That's 10 long minutes away.
Mr. BOSWELL. Well, whatever. A guy by the name of Borlaug, Dr. Borlaug, Nobel Peace Prize winner. Does anybody know who that is? Well there was a food prize that one of the food companies was handling a few years ago and he decided not to do it anymore, and I happen to be in a position in our State and we—around this table and we pride ourselves in agricultural and so on. A question came up with one of our prominent citizens of this table. So we generated private funds with this individual, and we got some corporate funds involved in it. It's operated much on the same principals as the Nobel Peace Prize. I'm glad that's going on in the United States. I only say this because I'm talking about Mr. Borlaug. He got the Nobel Peace Prize because of his work in foods as you remember, and he got the World Food Prize, Peace Prize and the World Food Prize for his work in the same area and is continuing to work there.
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So when a guy like that speaks, you kind of listen sometimes. He said it took 10,000 years to get this population situation we're at now. While we're able to produce and feed people and comments, Mr. Chairman, about people if they're well fed, they're easy to get along with. I think we all would appreciate that.
Anyway, in the next very few years, the very few years, some say 20, some say 40, that demand is going to double. So these discussions about GMO and all this, we've got a lot—I think we've got a short time to move a long way. We've got a big demand coming on in agriculture in a very short time.
I'm not going to ask you to solve it for us today or anything like that, but it's just something that—I get this windshield time, this large district
I drive around in back in Iowa to think about some of these things once in a while. We've got to—and the challenge of the imminent thing that's on us in that sense and then get to thinking about our producers and back it up to the other subject I want to talk to you about with you, Mr. Chairman, when we get time, this IMF thing and what happens if those markets or those economies. It's an interesting time to leave, Mr. Chairman. I guess I'll just stop there. It was just comments. I wasn't really asking questions on that. This IMF thing is concerning.
The CHAIRMAN. I appreciate your thoughts. We don't need to discuss that at this point. I think to reiterate what most everybody is knowledgeable about trade and what's happening around the world, it simply is without the IMF, we can't use the tools that we have here GSM–102 and 103. It's $18 billion which is a lot of money, but it doesn't leave this country. It returns interest, in fact, and it's a revolving fund. It must be paid back. So the IMF has never failed.
I think Members sometimes have a wrong view of what the IMF is like. Are we shipping money over to Indonesia, so if Indonesia fails, have we lost it? No.
Anyway, just quickly, Mr. Amstutz.
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Mr. AMSTUTZ. Mr. Chairman, may I just make a comment because it has to do with what you and Mr. Boswell, Mr. Dooley and Mr. Stenholm are saying. It's sort of an historical statement. You were kidding me at the beginning of this section of the hearings of my involvement with the last trade round. You know when we wrote the U.S. position on trade in 1986, one of the four or five things we said we had to accomplish was harmonizing all animal implanted health matters.
Now during the Uruguay Round we made good progress on many of those, but we made the least on that one of harmonizing. We really do have to attack it.
Mr. Dooley, we can address part of it with the European Community now as it relates to GMO products, and we really don't need any fast track authority for that. We desperately need fast track authority for a multitude of things. Norm Borlaug was sitting at this table. It's my privilege to know him a little bit over the years. He would be the first to say that there is no such thing as zero tolerance for Johnson grass or ragweed. It just doesn't exist.
Maybe we'll all have to enlist Norm Borlaug to do some of our ag negotiating for us.
The CHAIRMAN. Very quickly, Mr. Roth, tell me if you know what is the subsidy in the European Union for sugar.
Mr. ROTH. Yes, sir. As I mentioned earlier it's 40 percent higher than the United States. And for wholesale refined beet sugar, it's 31 cents a pound versus 22 cents in the United States.
The CHAIRMAN. It's 31 cents a pound?
Mr. ROTH. Yes, sir, it's very complicated than A, B, and C sugar, but, yes, 31 cents.
The CHAIRMAN. What is the subsidy for wheat flour in the European Union?
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Mr. Gillcrist The most recent award was for 900,000 metric tons on February 2 at—I believe this is true—at $28 per metric ton.
The CHAIRMAN. That was the subsidy?
Mr. GILLCRIST. That was the subsidy.
The CHAIRMAN. Twenty-eight dollars per metric ton?
Mr. GILLCRIST. Yes, sir.
The CHAIRMAN. By the way, Mr. Amstutz, I think your idea of pulling in EU and Japan and the United States is right and, especially if you narrow the subject matter and so you don't have to take it before 122 nations. You take it before the most developed nations and the great consumer producers.
Mr. STENHOLM. We were dealing in hypotheticals a moment ago, and I would just like to pose a hypothetical not to be answered, but something that I've wondered now for many, many years as we've had these discussions and frustrations with the European Union.
I wonder what would happen if we in the United States would find something we believe was wrong with the genetic makeup of French wine——
The CHAIRMAN. Oh, no, no, no.
Mr. STENHOLM. And we—I didn't yield to the Chairman. He can speak any time he wants to.
I just wondered what would happen since we talked about economic and scientific and political, and I recognize the difficulties that our fellow arbatariums in other countries have in dealing with the political, but sometimes you have to deal with political. I just have always wondered what would happen if we would find something wrong with French wine and would ban all shipments of French wine to the United States until we satisfied ourselves that there was no health concern with French wine versus California, Oregon, Iowa, Illinois or Texas. I just wonder what would happen in the political climate in these discussions?
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The CHAIRMAN. Don't all answer at one time.
Does anybody else have a question? Mr. Dooley.
Mr. DOOLEY. I need just a little more clarification, Mr. Gillcrist, just in terms of, I don't understand what's accounting for the United States having a greater problem with the sale of flour today than we did pre-Urguay Round because we didn't even see a rationing down of the amounts of subsidies on a volume basis greater in the EU than we did in the United States. Are we at a greater disadvantage now because they are targetting more of their export credits strictly at flour?
Mr. GILLCRIST. Through agregation. They've shifted subsidies from wheat to flour.
Mr. DOOLEY. So they've pretty much adopted a policy that they're going to——
Mr. GILLCRIST. Value added process.
Mr. DOOLEY. Value added process.
Mr. GILLCRIST. Absolutely.
Mr. DOOLEY. And put all of their export subsidies there?
Mr. GILLCRIST. Absolutely. Couple that with the lack of any EEP at all to the U.S. flour industry which had been there for a handful of years prior to the implementation of the Urguay Round.
Mr. DOOLEY. The next round of negotiations it would make sense for us, in terms of the export subsidies, limit them not only by commodity but also by class so we would prevent that from happening.
Mr. GILLCRIST. Absolutely. Absolutely.
Mr. DOOLEY. Thank you very much. I appreciate that.
The CHAIRMAN. If you're still alive in the next round.
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All right. Thank you very much, ladies and gentlemen. It's been most informative, and thank you, members. This hearing is adjourned.
[Whereupon at 4:00 p.m. the committee adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Dana R. Hauck
Thank you Chairman Smith and the committee for holding hearings regarding issues to be addressed in the 1999 round of multinational negotiations on agricultural trade scheduled in the World Trade Organization. NCBA commends your continuing efforts to improve the export outlook for U.S. agricultural products. I am Dana Hauck, a beef producer from Delphos, KS, and chairman of NCBA's International Markets Committee.
Expanding access to international markets is critical to the economic growth of U.S. agriculture. For our industry alone, 1997 beef exports accounted for approximately 8 percent of total U.S. production and 12 percent of beef's total wholesale value.
The European Union is a market of developed countries representing approximately 350 million consumers with middle-class lifestyles and sizable disposable consumer incomes. Still, the EU persists in maintaining a protectionist attitude relative to its subsidized agricultural sector's inefficiencies. It is our hope that the 1999 round of negotiations will help the EU approach agricultural trade in a manner consistent with its standing as a group of developed nations.
There is general agreement that future growth in trade and access to emerging markets is important to the future well-being of U.S. agriculture. One of the underlying premises of the 1996 Freedom to Farm bill was that aggressive pursuit of growing export markets would be critical as part of the strategy to replace the safety net of traditional farm programs. Secretary Glickman has been quoted as saying, ''for American agriculture, it is export or die.''
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We appreciate the efforts of those members of this committee who worked hard to secure adoption of fast track negotiating authority to ensure the necessary tools were in place to achieve the goals set forth in Freedom to Farm. We look forward to working with the leadership of this Committee to expand support among Members of Congress both on and off of the Committee.
The primary purpose of this testimony is not to question whether the Europeans are protectionist with respect to agriculture—the fact they are is quite clear. It is not to debate whether fast track negotiation authority is critical to maintaining U.S. leadership in the 1999 round of WTO trade negotiations, or for gaining access to emerging markets—it is. The primary focus in this testimony will be: is the WTO dispute settlement process going to survive?
NCBA supports the WTO and free trade. Not in a starry-eyed, ideal-driven manner, but because cattlemen understand that the growth market for agricultural products is beyond U.S. borders. We need enforceable global trading rules that grant market access, settle disputes on the basis of science and reduce tariffs. But, the perception among many cattlemen is that the EU is undermining the current system and have perfected the stall and delay tactic with immunity. Our frustration is the perception that the U.S. does not have the will to retaliate or to demand enforcement subject to repercussions.
Cattlemen, as do most Americans, expect to experience the rewards of winning when they are declared the winners, just as we are expected to be good losers. Many are asking why the U.S. continues to participate in a system that does not provide a clear and prompt resolution to trade disputes. This growing loss of confidence, increasing distrust and dissatisfaction has resulted in declining grassroots support for trade and trade negotiations in general.
EU Ban on Beef Hormones. The WTO Annex 2: Understanding on Rules and Procedures Governing the Settlement of Disputes clearly states, ''the prompt settlement of situations. . . is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members.'' Further, article 21 of the same document states, ''prompt compliance with recommendations or rulings of the Dispute Settlement Board is essential in order to ensure effective resolution of disputes to the benefit of all Members.''
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The EU's commitment to the WTO is being tested by their reactions to recent WTO rulings that went against their position on the EU banana policy and the EU beef hormone ban. In the EU beef hormone case, a WTO dispute settlement panel and the Appellate Body ruled that the hormone ban is not based on sound science or supported by the risk assessments that have been conducted. Both bodies have found the hormone ban to be in violation of the WTO agreement.
The EU's response has been to announce intentions to initiate yet another risk assessment, despite the fact they have been conducting beef hormone risk assessments for over 5 years without being able to show credible evidence of risk. This blatant stonewalling is unacceptable and begs for aggressive and decisive action to address their blatant disregard of the WTO trade rulings and policy, especially since the EU is quick to insist on compliance with WTO rulings when they fall in their favor.
The integrity and validity of the WTO as a dispute settlement body requires that WTO members promptly comply with recommendations and rulings of the dispute settlement process. The EU must bring its policies regarding beef hormones into compliance with science-based WTO guidelines.
If they do not, the full force of WTO's enforcement measures must be applied. NCBA urges continued, coordinated efforts and pressure from Congress and the administration to assure that the EU lives up to its responsibilities, and applauds recent introduction of H. Con. Res. 212 and S. Con. Res. 74 supporting U.S. beef producers' access to the European market. These resolutions also state the WTO rulings find the EU ban on U.S. beef is not based on valid science and serves as a non-tariff trade barrier that does not comply with global trading rules.
Closely related resolutions, H. Con. Res. 213 and S. Con. Res. 73 are also strongly supported by the U.S. beef industry. These resolutions express the sense of Congress that the EU unfairly restricts imports of U.S. agricultural products and that the elimination of such restrictions should be a top priority in trade negotiations with the EU.
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A recent proposal from the EU not only omits agricultural trade restrictions as a top priority, it entirely eliminates agricultural issues as a topic of discussion. NCBA strongly supports the position of Congress as stated in the resolution that the U.S. should not engage in any trade negotiations with the EU that undermines the ability of the U.S. to achieve the elimination of unfair restrictions on agricultural exports to the EU.
EU Veterinary Equivalency. In a separate, but closely related issue, on April 30, 1997 the United States and the EU agreed, in principal, on red meat inspection standards for trade, resolving some EU nontariff trade restrictions under its Third Country Directive. The United States negotiated with the EU for more than 3 years to establish an inspection equivalence agreement for a number of agricultural sectors including meat, poultry, dairy, and pet food. The EU had maintained that, in a number of key areas, U.S. safety and inspection procedures were not equivalent to EU procedures. This position was not based on sound science but on political science, and therefore functioned as a nontariff trade barrier depriving the U.S. access to a large export market.
The veterinary equivalency agreement creates a framework to resolve other trade problems, and helped establish science-based inspection standards as the basis for trade agreements. The agreement was originally scheduled to be implemented during October 1997, but the EU reverted to stall and delay tactics and did not meet the deadline. USDA Secretary Dan Glickman met with EU Agricultural Commissioner Franz Fischler during January 1998 to urge implementation of the agreement. Fischler has since said that he expects the agreement to be voted on during the March meeting of EU farm ministers. When the agreement is implemented, U.S. processors will be qualified to export to the EU based upon USDA's inspection and approval rather than subjected to arbitrary EU plant inspections.
NCBA urges that full access to the EU beef market be facilitated as soon as possible. Congress and the administration must cooperate and devote adequate resources to assure resolutions to these issues that are favorable to the U.S. beef industry. Access to the European beef market is the ultimate objective and compensation is not an acceptable alternative.
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Additional Veterinary Agreements. The EU is already the world's largest trading bloc and is poised for major expansion during the next few years. Through its association agreements, the EU has already secured a significant advantage in the emerging markets of Central and Eastern Europe for its exporters. NCBA and other meat industry organizations have repeatedly requested that USDA enter negotiations to establish veterinary agreements with Central and Eastern European countries to facilitate access for U.S. meat products. Recent communications from U.S. market development staff indicate that importers in the Czech Republic (just one of many examples) want to import U.S. meat products, but are unable to because there is no veterinary agreement between the U.S. and Czech authorities.
USDA has claimed that not enough resources are available to form a team dedicated to negotiating veterinary agreements to facilitate U.S. participation in emerging markets. The Canadian government more than one year ago added an additional team of veterinarians dedicated to developing veterinary agreements. Consequently, Canada has established a presence and is developing customer loyalty in emerging international markets (including Central and Eastern Europe, China and Latin America) where the U.S. is unable to participate. NCBA urges Congress to coordinate with USDA to assure that adequate resources are allocated to negotiating veterinary agreements.
Other Trade-Related Actions Needed. Increase GSM Funding: Before the main impact of the Asian financial crisis became evident, Korea was the fourth largest export market for beef and beef variety meats. During 1997, exports of these products to Korea totaled more than $300 million, an increase of more than 18 percent compared to 1996. NCBA is confident that Korea remains a long-term growth market for beef that is being disrupted by short-term currency fluctuations and financial circumstances.
Swift, decisive and bi-partisan action will be required to minimize effects of the Asian financial crisis on the U.S. beef industry and the broader U.S. agricultural economy. NCBA and other meat industry representatives met with USDA officials early in the crisis to request that GSM funds be made available for credit guarantees to Asian customers. The industry's original request was for $500 million in credit for exports of beef and pork to Korea. USDA subsequently allocated $100 million to beef, pork, poultry and horticultural products out of a total $1 billion GSM funding for Korea. Another $1 billion of GSM funding was made available to other Asian countries.
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All GSM credit guarantees made available for meat was immediately exhausted. It is NCBA's understanding that the Korean government requested most of that allocation for beef and other value-added meat products. NCBA urges USDA to immediately allocate an additional $400 million for GSM credit guarantee resources targeted for export of beef and other value-added meat products. Australia recently announced a credit guarantee program for Korea, and other competitors are sure to follow. Increasing the allocation for GSM credit guarantees now will build additional loyalty among Korean customers and increase future U.S. market share.
Approve IMF Funding Package: IMF-led financial assistance plans in Thailand, Indonesia and Korea are critical to the success of GSM credit guarantee packages. The impact of the Asian financial crisis on U.S. agricultural exports will depend on the success of IMF efforts to stabilize the Asian economies and bring about structural reforms and trade liberalization as called for by the IMF and World Bank reform packages. In the short term, the IMF-mandated trade and investment reforms will help stabilize the Asian banking system and help ensure the financial stability. In the long term, IMF-mandated structural reforms will help ensure economic growth and greater access to those markets through liberalized trade measures and policies.
The IMF plans to improve financial stability help make it possible for importers from Asian countries to utilize the GSM export guarantee program. The IMF plan, combined with the GSM export credit guarantees, will enable the U.S. to keep servicing those markets thereby ensuring that the U.S. is seen as a reliable supplier of agricultural products, including beef. Without the IMF package, the GSM credit program would be of little use in helping resolve the Asian economic crisis.
NCBA urges the administration to continue pressuring the Asian countries to improve access for U.S. products into markets in countries receiving IMF and GSM assistance. We have provided a list of access issues and tariff rates in each of the affected countries to USDA and Treasury officials and to Congressional agricultural committee staff. Some will likely question and criticize U.S. assistance to Asian businesses. It is important that Congressional leaders and U.S. business interests work to educate the public that this assistance—i.e., these long-term loans—is designed to alleviate short-term credit shortages.
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Experience suggests these type of loans have an excellent record of being repaid with interest. It is also important for the public to understand that, by including in these plans efforts to eliminate restrictive trade barriers for U.S. agricultural products, we not only increase demand for our goods, but we also can benefit consumers in the affected countries by providing a greater supply of food at a lower price.
Reinstate Fast Track Negotiation Authority: The EU has entered into negotiations with Mexico (the second largest export market for U.S. beef during 1997) and with MERCOSUR for free trade agreements. The U.S. currently has an advantage in Mexico because of the NAFTA, but negotiations with MERCOSUR are hampered due to lack of fast track negotiation authority. The most direct way for U.S. agricultural interests to meet the challenge presented by EU expansion and initiatives is by negotiating further multilateral liberalization in the 1999 WTO round and by engaging our neighbors in the Western hemisphere in broad based negotiations—as in the case of NAFTA—which can go beyond what can be agreed to multilaterally. Fast Track authority is a prerequisite for serious U.S. participation.
Only 4 percent of the world's population lives within U.S. borders. Population demographics suggest that the U.S. generally, and agriculture specifically, need to aggressively prepare to seize opportunities to market products in countries with younger, fast-growing populations with increasingly disposable incomes. A recent independent analysis of potential export markets indicates that of approximately $10 trillion projected to be added to world GDP during the next decade, 48 percent will occur in Asia and 23 percent will occur in Europe, followed by 19 percent in the U.S. Access to emerging markets in regions of economic growth will be critical to expanding global demand for U.S. agricultural products.
IMF stabilization packages and GSM credit guarantees will help reduce the impacts from the Asian financial crisis on U.S. agriculture. But even with these measures fully funded and in place, it is likely that U.S. agricultural exports to the Asian region during the next several years will decline.
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USDA is now projecting a 5 percent decrease in the value of total U.S. beef exports during 1998. Declines of 10 percent and 25 percent are projected for Japan and Korea, respectively. USDA now projects 1998 fed-cattle prices to increase only 3 percent above the 1997 average of $66.10/cwt.—down from earlier projections of a 10 percent price increase.
Realistically, it will take 2 to 5 years for the Asian economies to recover. In the case of Mexico, U.S. beef exports declined by approximately 60 percent during 1995, the first year after devaluation of the peso. Beef exports to Mexico recovered part of that loss during 1996 and, during 1997, U.S. beef exports to Mexico were on target to reach record levels. Recovery in Asia will depend on the willingness and political ability of the various governments to implement economic reforms—closely associated with the willingness of international lenders to extend credit—and the extent to which competitive devaluation of international currencies continues.
An additional key to sustaining export market growth is gaining and maintaining access to emerging international markets in Europe and Latin America. Access to these markets will be increasingly critical to help off-set expected declines in historically important Asian export markets. The U.S. must continue to be aggressive in gaining access to new markets around the world. Fast track authority is a critical element of that strategy.
The United States must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. NCBA appreciates the initiatives that have been undertaken to gain access to international markets and to resolve lingering issues that restrict the ability of the U.S. beef industry to offer its products to international consumers. Without fast track authority, the U.S. will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.
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The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the U.S. addresses other trade issues, including accession of China to the WTO, resolving a host of access issues with the European Union and passing Fast track legislation to provide authority to negotiate additional trade agreements. Thank you for the opportunity to present this information.
Statement of Ryland Utlaut
Thank you Mr. Chairman. My name is Ryland Utlaut. I raise corn, soybeans and wheat on our farm near Grand Pass, MO. I serve as president of the National Corn Growers Association (NCGA). We appreciate the opportunity to present our ideas for further reform in agricultural trade with Europe.
U.S. corn farmers are efficient, productive and competitive in world grain markets. Exports of corn and corn products exceed the value of any other single agricultural commodity. Nonetheless, trade barriers and competitors' export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. U.S. policy must clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. This is our objective for the new round of multilateral negotiations on agricultural trade in the World Trade Organization.
Specifically, we want the next round of negotiations to build on the progress of the Uruguay Round Agreement on Agriculture. The agreed upon disciplines in the areas of market access, export subsidies, internal support and sanitary and phytosanitary measures should all be expanded and strengthened. Each is relevant to a discussion of our trade relationship with the European Union.
Market Access. The market access provisions of the Uruguay Round Agreement on Agriculture required that nontariff measures be replaced by bound tariffs. Once bound, a tariff cannot be increased without compensating other countries. The European Union agreed to limit the protection applied on grain products, but the bulk of our corn exports to the EU still go to Spain and Portugal under the EU enlargement agreement that established minimum imports of corn and feed grains. Further tariff reductions will be necessary if U.S. corn is to have meaningful access to all EU markets.
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In contrast, the European Union is the primary market for corn gluten feed and corn gluten meal. There is no tariff on these two corn products. Relatively high European grain prices make U.S. corn gluten very competitive in European feed rations.
Export Subsidies. European export subsidies have cheapened grain on world markets. Even though the Agreement on Agriculture established maximum ceilings on the quantity of exports subsidized and on budgetary outlays, low-quality European feed wheat continues to displace corn in several markets. One of our goals in the next round of negotiations is to reduce export subsidies further.
Internal Support. Internal supports can distort world markets by encouraging overproduction or inducing production of specific commodities. Reform of the EU Common Agricultural Policy (CAP) in 1992 promised to reduce competition on world markets, especially for grains. The high administered prices were reduced or eliminated. With lower prices farmers were expected to move to less-intensive production and to increase domestic feed use of grain. New set-aside requirements would further reduce grain production by limiting the area planted.
Now the EU is considering another round of CAP reform as part of Agenda 2000. These reforms could have a very different effect on total grains and oilseed production. The proposed reforms would eliminate mandatory set-aside requirements and provide greater flexibility through the establishment of a non crop-specific compensatory payment. These changes are expected to increase EU grain and oilseed production and net exports of grain. The CAP reforms of Agenda 2000 would contribute to lower world grain prices and lower income for U.S. farmers.
The United States must insist that internal support be shifted to programs that do not lead to overproduction. Producers in the EU should be encouraged to make production decisions based on market forces rather than on the Common Agricultural Policy. A market-oriented CAP will be even more critical as additional countries with huge production capacity join the EU.
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Sanitary and Phytosanitary Measures. Under the WTO, member nations agree to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. The SPS provisions have led to a number of disputes with the European Union. The trade situation for corn is complicated by the status of products enhanced through biotechnology.
In the EU biotech products are subject to multiple regulations. First, imports of grain must be approved by the Environmental Committee, DG XI. The applicable regulation, EEC 90/220 also covers production of biotech crops in the EU. Biotech corn used in processed food products must be cleared through Novel Foods regulations. Novel Foods requires food labels, but the EU has not determined how to implement labeling. The EU is also considering a Novel Feeds regulation—in the meantime, some member countries require a feed safety review.
Under 90/220 a shipment of grain containing transgenic corn cannot be imported into the EU unless each variety of transgenic corn in the shipment has been approved. To date, only one corn variety has been approved in the EU. Three other varieties have been awaiting approval for more than a year. These products were grown in the United States last summer and were marketed through normal commercial channels. The presence of these varieties in our corn supply has precluded any exports of whole corn to the EU so far this year.
The products pending approval should have been approved last fall, instead, at the last minute, they were referred for additional scientific review. The scientific panel issued an unqualified approval of the safety of the products last month. The Article 21 Committee of the European Commission should vote on those products today. Hopefully, the approval process will be completed in the next month and the United States will be able to fill much of the remaining quota for Spain and Portugal.
The unreasonable delays in Europe are especially frustrating to the NCGA. Our members have readily adopted biotech seed technology as an environmentally friendly and cost-effective option to control insect pests and weeds. We are confident that the approval process in the United States ensures the safety of the products in food, in the environment and in farmers' fields. We respect our customers' right to establish standards for products of biotechnology, but we cannot allow tardy, arbitrary and unsubstantiated health and safety claims to prevent access to European markets. The EU approval process must be rational and predictable. Companies seeking approval of new products should have a reasonable expectation that their application will be considered in a timely manner.
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Switzerland has also imposed restrictions on imports of transgenic corn. There the restrictions apply to both corn and processed corn products. Consequently, Switzerland recently refused a shipment of corn gluten meal from the United States. The Swiss action highlights the need for an international process to approve products of biotechnology. A patchwork approval process is unworkable and will severely restrict trade in corn and other commodities if action is not taken soon.
It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data requirements, review and approval or, alternatively, mutual recognition of approvals. At a minimum, the approval process must be rational and predictable and must occur within a reasonable time frame. Anything less will continue to subject the products of biotechnology to arbitrary restrictions
Other European Nations. Although our testimony has focused on the European Union, there was a time not that long ago when the Soviet Union was one of our largest customers. Today exports of corn to Russia and the other nations of the former Soviet Union constitute a fraction of our corn exports. This area has the potential to increase coarse grains production and compete with U.S. exports. On the other hand, these countries could increase grain consumption and return to the United States for a reliable supply of feed grains. Either outcome is possible and will most likely depend on the economic stability of their agricultural sectors. Our objective for future discussions to add these countries to the WTO will be to assure the greatest possible market access and adoption of market-oriented farm programs.
Other nations such as Turkey, Poland and Cyprus are members of the WTO and have expressed an interest in joining the European Union. These countries have been important customers for U.S. corn. Maintaining these markets will be critical to our acceptance of EU expansion. Hungary has also expressed an interest in joining the EU. With Hungary our concern is whether corn production would artificially increase because of the Common Agricultural Policy.
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Conclusion. We want to reiterate our objective that U.S. policy clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. Thank you for this opportunity to express our views.
Statement of Elwood Kirkpatrick
Mr. Chairman and members of the committee, I am Elwood Kirkpatrick, a dairy farmer from Michigan. I serve as chairman of the U.S. Dairy Export Council and first vice-president of the National Milk Producers Federation. The U.S. Dairy Export Council (USDEC) is an independent membership organization whose mission is to assist U.S. dairy product suppliers to increase the volume and value of their exports. The National Milk Producers Federation (NMPF) is the national farm commodity organization that represents dairy farmers and the dairy cooperative marketing associations they own and operate throughout the United States.
I appreciate the opportunity to testify before the committee on the subject of 1999 multilateral negotiations on agricultural trade, with a focus on trade between the U.S. and Europe. I bring to the committee my perspective, as a milk producer and dairy cooperative president, on the importance of fair trade in international markets.
The U.S. dairy industry has a large and growing stake in export sales. More than 80 percent of the world's total consumption of dairy products occurs beyond the borders of the United States. The long term economic well-being of the U.S. dairy industry depends on our ability to supply the world's consumer consistently and effectively. From 1990 to 1996, U.S. dairy exports grew in value from $314 million to almost $750 million. As a percentage of total world dairy exports, U.S. exports increased from 4.4 percent of world trade in 1990 to about 8 percent in recent years. The U.S. Dairy Export Council is intent on making the United States a larger force in international dairy marketing through marketing assistance and trade policy. USDEC's Export Plan aims to facilitate an increase of more than 40 percent in dairy export volume by the year 2001.
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The major limitation on the ability of U.S. dairy products to compete in world markets is our inability to match the heavily subsidized prices offered by the European Union. Reducing the EU's use of dairy subsidies must be the first priority in any new multilateral negotiations on agricultural trade.
Need To Increase Dairy Exports. The U.S. dairy industry must increase dairy exports in the year 2000 and beyond, when the dairy price support program is scheduled to end. After that time, the milk prices received by U.S. dairy farmers will be directly affected by prevailing world prices of dairy products. Absent dairy price supports after the year 2000—only 20 months from now—U.S. milk producers face a very different market environment and that situation highlights the importance of developing export markets today.
Production trends. Milk production in the United States grows about one to two percent annually, with productivity gains, measured by milk output per cow, of two or more percent tempered by slight decreases in cow numbers. Total U.S. milk production in 1997 is estimated to be about 155 billion pounds.
Consumption. In 1997, the average American consumed 4.1 pounds of butter, 28.6 pounds of cheese, 24.2 pounds of ice cream and other frozen dairy products, 8.1 gallons of whole milk, and 16.2 gallons of lowfat and nonfat milk. Total consumption of milk products has increased almost 12 percent since 1980, and the trend of increased demand directly coincides with the creation of the national dairy promotion program in 1983. As strong as this growth has been, U.S. dairy farmers have the ability to supply much more if markets can be cultivated.
Export sales. While economic problems in various parts of the world have tempered U.S. dairy export sales trends recently, long-term market growth is promising in Mexico, Japan, Korea, South America and the Middle East, where per capita dairy product consumption is low today.
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Import competition will grow. The Uruguay Round GATT agreement requires the United States to progressively open domestic markets to foreign suppliers. For example, cheese imports into the United States under the Tariff Rate Quota (TRQ) will grow by more than 25 percent between 1993 and the year 2000, to a permitted import level of some 313 million pounds. To compete effectively against these imports, the U.S. dairy industry must maintain high quality standards, match the varieties offered in the supermarket, and be price competitive.
The United States will be competitive in undistorted world dairy markets. The productivity of American dairy farms and processing plants has increased rapidly and is expected to continue to grow. The United States, alone among dairy export nations, has the land base and productive capacity to increase output. While milk from New Zealand and Australia can be priced below the average price in the United States, those nations are unlikely to produce the increased volume of dairy product demand that most analysts believe we will see in the next decade. Absent EU dairy subsidies, world dairy prices could be profitable for U.S. suppliers.
Today's export market development activities are essential for the stability and profitability of the U.S. dairy industry in the future. For this reason, the U.S. dairy industry is working at every opportunity to remove unfair trade practices of other nations that undercut our market development efforts.
Goals for U.S. Government policy. Last year, the dairy industry provided general and preliminary comments that outlined objectives for the next round of world trade talks. NMPF President Tom Camerlo, IDFA's CEO Linwood Tipton, American Dairy Products Institute President Larry Claypool and I sent a letter to Secretary Glickman and U.S. Trade Representative Charlene Barshefsky giving our initial views on objectives. We urged USDA and USTR to place emphasis on the following issues:
Ensure compliance with Uruguay Round commitments; seek elimination of export subsidy; gain greater access for U.S. dairy products; impose greater transparency and stronger disciplines on state trading enterprises; require elimination of internal agricultural supports in concert with phase-out of U.S. supports.
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Within these general recommendations, we can make some specific additional comments relative to negotiating objectives applicable to the EU.
Reduce EU dairy export subsidies. The European Union is the world's major subsidizing exporter of dairy products and subsidies paid by the European Union are, by far, the single largest price-depressing force influencing world dairy prices.
Under its WTO commitments, in the year 2000, the EU will still be permitted to subsidize the export of 400,000 metric tons of butter fat, 290,000 metric tons of nonfat dry milk, 360,000 metric tons of cheese, and 953,000 metric tons of other dairy products. These subsidies (called export restitutions) depress world prices and displace U.S. exports to many third countries.
Compared to this arsenal of export subsidies, the U.S. Dairy Export Incentive Program assistance to U.S. exports is small and, in terms of price distortions, insignificant. In fact, the United States can subsidize only one percent of the volume of cheese that the EU is permitted to export through subsidies.
In 1996 and again in 1997, the U.S. Dairy Export Council and National Milk Producers prepared an estimate of the potential impact on U.S. dairy exports if the EU subsidies were eliminated. The impact would vary dramatically by world region, from a negligible impact in North Africa or the Middle East, to an estimated 50 percent cut-back in EU export sales in Asian markets. In total, the study found that eliminating EU subsidies could represent more than $1 billion of new market opportunity for commercial dairy export sales, with the United States likely to be the major beneficiary.
Fully use the limited subsidies available to the United States. The Dairy Export Incentive Program (DEIP) is very important to U.S. dairy farmers as they increasingly work to develop export markets to keep the dairy industry stable and strong. Maximum use of DEIP is necessary for market development in the face of the massive presence of subsidized European products. While the U.S. Department of Agriculture has operated the DEIP effectively so far in this year, a modification to the program is necessary at this time. Specifically, the Department of Agriculture should immediately re-program DEIP tonnage reported to the WTO as exported, but never left the United States because of a cancelled sale.
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The United States should abide by agreed-to limits on DEIP under the GATT agreement. However, the United States should export all the tonnage reported to the WTO as having been exported. Over 40,000 tons of nonfat dry milk exports were reported to the World Trade Organization (WTO) as receiving DEIP bonuses but, in fact, never left the United States due to customer cancellations.
This re-programming can be accomplished within the Department of Agriculture. Quick action is critical because dairy farmers are facing the possibility that there will be no DEIP tonnage available for nonfat dry milk exports for the 4 months remaining in the current GATT year. The United States cannot build a world reputation as a reliable supplier if the DEIP is shut down for 4 months.
Further, unless the milk powder is exported through the DEIP, it will likely end up in Commodity Credit Corporation (CCC) inventory and CCC acquisitions of milk powder cost substantially more than DEIP awards. Recently, CCC has purchased some 2 million pounds of nonfat dry milk weekly, acquiring about 25 million pounds since January 1. If milk prices weaken this spring, the volume of CCC purchases may rise without action to reprogram the tonnage associated with cancelled DEIP sales.
NMPF and USDEC, as well as the Alliance of Western Milk Producers and the DEIP Coalition support this proposal.
Prevent circumvention of WTO rules by competitors. Two significant attempts by other nations to circumvent WTO dairy export limits have been identified over the past year. One involves the EU and the other involves Canada but has significant implications for the EU's Common Agricultural Policy.
The United States should vigorously challenge the EU's inward processing system and insist that the system be dismantled. Under this circumvention scheme instituted sometime in early 1997, powdered milk and butter fat subsidies are used in lieu of cheese subsidies for processed cheese exported under the EU's inward processing arrangement. This scheme is roughly equivalent to using grain export subsidies to export chicken products, using the rationale that chicken products are the result of feed consumed. Such policies undermine export subsidy disciplines to which WTO member countries have agreed.
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The United States should pursue to a successful conclusion the challenge to the Canadian export price pooling system. If the Canadian price pooling system is allowed to stand, it will likely have an effect on future EU agricultural policy decisions
Canada substituted an export price pooling system for a direct assessment program that generated export subsidies. While the Canadians have argued that the structure of the program has changed so substantially as to be exempt from the export subsidy limitations established by the WTO, the argument is flimsy at best. We hope and expect that the Canadian system will be modified through the U.S. challenge now headed through the WTO dispute resolution process. Without decisive action, other nations may adopt similar circumvention tactics. The U.S. dairy industry would be particularly hard hit if the EU established special export quotas (B quotas) to impel additional exports.
Enforce existing trade rules governing market access. Two examples illustrate how negotiated access gains can be thwarted by less-than-enthusiastic implementation.
Overhaul the EU's cheese import licensing system. The EU's cheese import licensing system, while seemingly quite open to any interested party, creates enormous difficulty for any supplier hoping to sell any significant quantity of dairy products. U.S. cheese manufacturers are blocked from selling to EU customers by an amazingly complex set of rules. In fact, it is tempting to speculate whether these rules were established for the sole purpose of disrupting any potential long-term business relationship between U.S. suppliers and European customers.
Perhaps the worst feature of the European system is the over-issuance of cheese import licenses. When applications exceed eligible import volumes, the EU allocates the permitted imports for each license on a pro rata basis. The pro rata allocation coupled with easy transferability of licenses has resulted in a brisk secondary market for cheese licenses. The over-subscription is not a small matter. Frequently the applications total 100 or more times the permitted import volume, with brokers aggregating the tiny quantities for sale to importers. This system is not what was envisioned during Uruguay Round negotiations.
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Demand that the EU comply with its obligation to import agreed upon products. Due to misclassification by import inspectors, the United States is losing out on sales to EU customers under a pizza cheese tariff rate quota. This TRQ was negotiated in the Uruguay Round to permit access for a type of pizza cheese able to be produced only in the United States under a patented process. Although the TRQ was negotiated on an MFN basis, it was the result of bilateral discussions between the EU and the United States. The volume under this TRQ grows to 5,000 metric tons by the end of the Uruguay Round implementation period.
To date, the United States has yet to supply product under this TRQ, but the EU continues to report filling the import volume. This contradiction suggests that either misclassified product is entering Europe under this TRQ or customs agents are unable to monitor and enforce shipments of technically specified products. The latter alternative is very troubling, as the future of international trade in dairy products lies, in part, in the ability to supply highly specific products that match food ingredient needs of overseas customers.
Mr. Chairman, the dairy industry appreciates the oversight and support the committee has provided. We look forward to working with the committee to improve the dairy trade outlook. I will be happy to answer any questions.
Statement of Carolyn B. Gleason
Good afternoon, Mr. Chairman and members of the committee. My name is Carolyn Gleason. I am here today in my capacity as trade counsel for Chiquita Brands International to discuss the WTO and its role in U.S. efforts to reduce European barriers to trade in agriculture, with particular emphasis on the lessons being learned from the WTO banana case.
The WTO banana case is no longer considered a case that is just about bananas. It has come to be a test of EU commitment to the dispute settlement system and, by extension, a measure of that system's efficacy and timeliness in reducing barriers to trade in agriculture.
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The case is a test of EU commitment to the WTO process largely because it is the first successful WTO legal challenge against EU agricultural policy. As such, it is the first demonstration of EU willingness to abide by its WTO obligations in the area of agriculture and a harbinger of other cases to come. Early indications out of Europe on this issue are far from promising.
Until recently, whenever European officials promised to abide by their WTO obligations in the banana case, the complaining parties were inclined to be hopeful. If there were ever an easy agricultural case in which the EU could come into WTO compliance, it would be this one. A substantial majority of EU member states favor banana reform. To USTR's great credit, all of the many WTO rulings rendered against the banana regime are clear and comprehensive. There are more WTO rulings against this policy than ever before rendered in the history of the GATT and WTO. Virtually all of the rulings have been thoroughly litigated, including before the Appellate Body, leaving no room for misinterpretation. Moreover, there are several other WTO members besides the United States pushing for reform. You might think that under this totality of circumstances, the Community would feel bound at least in this first case to proceed in good faith to implement its WTO obligations.
Its response to date can hardly be considered good faith. The EU Commission has issued a reform proposal that promises to increase discrimination and protectionism in the sector, not decrease it. In support of that proposal, the Commission is now exploring every possible legal and procedural avenue to avoid compliance, including actively recruiting the Latin American complaining countries to buy into the proposed illegalities.
This EU response is reminiscent of pre-WTO days, when the EU routinely blocked and ignored panel rulings in the area of agriculture, rendering the old dispute settlement system largely ineffective. The consequences of routine noncompliance for today's system are no less significant. As the Journal of Commerce recently noted, the United States-European Union spat over preferential banana imports to Europe has gone beyond a mere flagrant violation of international trading rules. The EU's refusal to obey a World Trade Organization order to scrap the banana policy is putting the entire trading system in peril.
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Perhaps more than with any other issue, the question of whether rulings will be properly implemented by our key trading partners, in particular the EU, is central to an assessment of whether WTO will be effective in reducing barriers to trade in agriculture. As the old GATT system made clear, WTO substantive disciplines in the area of agriculture, however specific or comprehensive they may be, mean little if our principal trading partners do not have the resolve to abide by them. Hence, before we turn to the visionary goals for 1999, our most immediate priority should be to ensure through actual dispute settlement successes that the EU and our other major agricultural partners intend to honor the WTO obligations that are already in place.
Because the EU is showing a contrary intention in this first test of its WTO commitment, one of two things will need to happen to gain comfort that the system works. Either the EU member states must overturn the new banana proposal and replace it with one that ensures strict WTO-consistency, or the EU will need to be forced into full compliance through recourse to established WTO procedures, including WTO retaliation. Based on the EU's response to date, the latter appears to be the likeliest scenario. As has been the case so often in the past, we may well find in this and future cases that the EU's unwieldy system of government and unfailing inclination toward agricultural protectionism are only surmountable under threat of sanctions.
If the EU in the banana case fails to comply as of the established deadline (January 1, 1999), decisive WTO sanctions will need to be taken, not just for the sake of the banana case, but for the entire system. If the United States relents in this first case in which EU resolve is being tested, it will pave the way for EU non-compliance in all other cases down the line, once again eroding the multilateral system.
USTR recognizes the larger systemic implications of the banana case and is actively taking steps to convey an appropriately serious message throughout Europe. This committee is encouraged to reinforce that message during its upcoming visit to Brussels and in the months leading up to the deadline for EU compliance. Until we can show a well-established track record of WTO dispute settlement successes against our most frequent adversary in the area of agriculture, the EU, the U.S. agricultural community is not likely to view the WTO system as a viable, effective tool for removing barriers to trade.
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Once American agriculture gains confidence that the system is capable of delivering relief in actions involving its principal adversaries, attention will need to shift to the issue of how best to hasten that process of relief. This is an issue that is not presently envisioned for the 1999 exercise, but should be. As the dispute settlement system now stands, the procedures can take too long and often function to the advantage of the offending parties, not the injured ones.
The banana case is again illustrative. WTO consultations in that case began in February of 1996. Even with aggressive litigation on the part of USTR and the other complainant governments, full WTO compliance, assuming it occurs, will not be in place until January 1999—3 years after the dispute settlement proceedings first began. If retaliation procedures are necessary, that timetable may require further extension.
Throughout this 3-year dispute settlement period, damages to U.S. commercial interests have greatly compounded. Conversely, unfair commercial advantages for EU multinational banana firms have soared. Both the injuries suffered and advantages gained are irreversible. The system does not make allowances for restitution or back damages. The injured parties are never made whole. Hence, irrespective of how healthy those injured parties might have been at the outset, once a foreign government subjects them to substantial market losses, and corrective action is denied for multiple years (such that all losses in the interim must be absorbed), those injured parties in virtually all instances will find it hard to survive.
On the other hand, certain offending parties (and in particular the EU) know well that by forcing the procedures into the slowest possible timetable (in our case, 3 years), they will suffer no adverse multilateral or commercial consequences. To the contrary, they properly figure that their domestic interests will enjoy nothing but commercial gains as the WTO timetable drags on. Thus, in our case, the EU knew that even if it lost on appeal, EU commercial interests would ultimately be served by the time delays associated with appealing 19 findings of law, most of which appellate claims were frivolous and contrary to well-established GATT and WTO rulings. Whatever the legal costs to the EU of that and other delays associated with resisting compliance, those costs have been dwarfed by the multi-millions of dollars in additional unfair commercial benefits irreversibly accruing to EU interests.
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This timetable and relief structure is not just a systemic inequity. It is a disincentive for American agriculture, most of which is comprised of relatively small sectors, even to request dispute settlement relief.
One partial solution may be to shorten the dispute settlement timetable, particularly as it relates to the losing party's right to a reasonable period of time to implement. Although the WTO system is still young, many believe its procedural rules automatically confer to the losing party the right to delay compliance for 15 months. Arbitration rulings in both
Japan. Taxes on alcoholic beverages and bananas have supported this view. If this is so, even though a winning party's rights have been adjudged to be violated by the WTO, the losing party is still entirely at liberty to continue violating those rights and inflicting injury for at least 15 months until compliance is required. Under this reading, because back damages are never recoverable, the winning party remains the loser. Contrast this approach with the system established under the Canada Free Trade Agreement, which was much friendlier to the winning party. There, once a favorable ruling was issued, a mutually satisfactory resolution had to be reached quickly within 30 days, or the winning party was entitled to retaliate until the dispute was resolved by agreement. American agriculture—which normally engages in dispute settlement as the complainant, not the respondent—would be far better off with a system more closely resembling this latter approach.
Another possible reform option, this requiring more in the way of innovative thought, would be to insert into the process improved disincentives for delay and obstruction. This might entail imposing additional relief obligations for undue delays associated with coming into compliance. Alternatively, it might be necessary to clarify that retaliation can be taken on the basis of aggregate injury suffered from the moment the offending policy goes into effect, an approach that may improve the system's incentive to come into early compliance. Unless corrective measures of this or some other sort are taken to shorten the process and better encourage prompt compliance, agricultural sectors and firms suffering dire injury from unlawful foreign barriers may not survive long enough to benefit from the relief finally granted.
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With the effective loss of section 301 relief, WTO dispute settlement is essentially the only remedial tool available to American agriculture (and other U.S. sectors of trade) for reducing foreign barriers to trade. We have no choice but to make the system work. By establishing a highly visible model for strict WTO-compliance in the banana case, and by insisting on that same standard in the Beef Hormone Case and other key agricultural cases to come, we will be giving the system the broad-based credibility it needs as we move into the 1999 exercise. Later, by introducing rules to accelerate the dispute settlement timetable for securing compliance, the system can be made more effective and accessible for all U.S. farm sectors, large and small, in need of trade remedy assistance.
Statement of Linda J. Fisher
Monsanto applauds your interest in trade issues and compliments the leadership of the committee on holding this particular hearing that is focused on the European Union.
Before I address the EU trade issues that are important to U.S. agriculture, I would like to talk about Monsanto Company and its views about meeting the world's future food and fiber needs. Over the next 50 years the world's population is expected to grow significantly. Most all of this population growth will be in developing countries where many of the world's most fragile natural resources exist. Food production will need to triple over this time period. However, the world has a finite amount of arable land and water resources which require better agricultural efficiency.
To meet the challenge of feeding the world's growing population, we either have to dramatically increase productivity or put vast amounts of additional land in agricultural service, inevitably causing damage to the environment in an irreparable way by ripping up fragile lands and rainforests. Biotechnology offers the potential to gain tremendous agricultural productivity and enhance nutrition with environmentally sustainable farming practices. First introduced commercially in 1996, over 15 million acres of biotechnology crops containing Monsanto's technology were harvested in the United States in 1997, and we expect that number to more than double in l998.
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Monsanto has spent hundreds of millions of dollars to develop biotech crops, and plans to continue these investments into the future in order to deliver new and more exciting types of technologies to met the world's food needs in sustainable and environmentally responsible ways. Already we are offering farmers new tools. We are gratified that farmers have adopted Monsanto technology so quickly. It's a testament to two things: (1) that the technology really works and (2) that farmers understand that technology is what will keep them competitive in the global marketplace. We are committed to making this technology broadly available to farmers, in the varieties they want, from the seed companies they trust. However, if the agricultural biotechnology industry does not move forward, our farmers lose, environmental quality loses and the contribution biotechnology can make to increase food production is lost.
But meeting the increased global food demand requires a trade policy which enables all agricultural interests to meet the challenges we face. United States agriculture could be derailed in its effort to help meet the world's food needs by trade barriers. What is worrisome is that even after the last global trade agreement which reduced many trade barriers, countries are using other means to impede trade.
Clearly there are nations using non-tariff barriers to trade, that are not scientifically-based, to slow-down trade in agricultural commodities and foods that have been developed through biotechnology. If this situation is not addressed and non-tariff trade barriers are allowed to proliferate, such barriers will have a chilling effect on the biotech industry which continues to spend millions and millions of dollars for the research and development effort needed to bring these new products into the marketplace. Nobody wins in this situation so we cannot let this happen.
Turning to the specific trade problems Monsanto has faced in the EU, there are three general areas of concern. They are: (1) the operation of the EU approval process for products of agricultural biotechnology, (2) the labeling of products produced through this technology, and (3) the public acceptance of biotechnology, which may ultimately be the most difficult trade issue of all.
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EU Approval Process. Let me first discuss the EU regulatory situation. Without question, the operation of the relevant EU regulatory systems dealing with agricultural biotechnology is causing significant problems. The numbers tell the story. The regulatory system in Europe has approved just five agriculture biotech products, and the current system has not produced a single product approval in well over a year. By way of comparison, over thirty products have been granted full approval by the appropriate U.S. regulatory agencies. The pending corn product approvals in Europe are a good example. Although, the regulatory reviews on these products have been complete for well over a year, and the system has not yet issued the final approvals. Worse yet, the approval process continues to change. Late last year the European Commission sent the corn product dossiers through yet another technical evaluation, causing a 3-month delay. Both EU and U.S. industry leaders have urged the European Commission to make the biotechnology product approval process more predictable and transparent, as we currently experience with the USDA, FDA, and EPA approval processes in the United States.
The TransAtlantic Business Dialog (TABD), a 3-year-old U.S.-EU Government/Industry effort to reduce trade barriers has focused on this as a key issue. The TABD industry group has made four detailed recommendations: (1) that clarity and consistency be incorporated into the respective regulatory programs, (2) that common ''roadmap'' for regulatory approvals be adopted, (3) that common data requirements be used for review and approval of products involved in transatlantic trade, and (4) that common timelines for decision making be used to the maximum extent possible. The goal of all of these recommendations is to reduce trade barriers by having compatible, predictable and transparent regulatory approval programs both sides of the Atlantic. There is also an EU Commission proposal under discussion to enhance the New TransAtlantic Marketplace which currently does not include agriculture. Monsanto feels strongly that agriculture should play a prominent role in any such initiatives and we fully support the efforts of the EU Commissioner Sir Leon Brittan and U.S. Trade Ambassador Barshefsky in these discussions.
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Product Labeling. Product labeling is a matter of ongoing debate in Europe, and one which has significant potential to impact trade. In the United States, food labels are used to inform consumers of nutritional and safety differences in foods they eat. Foods produced through biotechnology are not singled out as a specific category for labeling. The policy debate in Europe is based on the use of the food label to inform consumers of the presence of a ''product of'' biotechnology, regardless of whether the food is different from a safety or nutritional standpoint.
Monsanto fully supports the science-based approach to food labeling used by the U.S. FDA. While we recognize that local labeling programs can be used to provide information to consumers, as is the case in Europe, such ''information'' and process labeling must not be allowed to create non-science based segregation requirements in commodity crop markets that will lead to trade disruption and significant cost increases for consumers.
A true free trade market would create the opportunity for product offerings which meet specific consumer needs without dictating those conditions and costs unfairly to all consumers. It is very important that labeling programs be science-based and non-discrininatory and not impose trans-boundary trade barriers.
Public Awareness and Confidence in Biotechnology. On the final point, broad acceptance of biotechnology requires that consumers be given relevant and accurate information about the foods they eat. We are committed to providing consumers with information about our products and technologies. Public confidence in the regulatory system is also important in gaining acceptance of biotechnology. Communicating about biotechnology requires the efforts of the technology companies, the food companies and the governments. In the end, gaining broader public acceptance naturally means less chance of trade issues.
As you know, the demands of the public for products can obliterate trade barriers more effectively and efficiently than any TABD group, lobbyist campaign or political horse trading. It is important that you consider the need for public acceptance as you examine the question of potential trade issues between the United States and EU on biotechnology.
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In sum, Mr. Chairman and distinguished members of this committee, Monsanto appreciates your interest in reducing all types of trade barriers around the globe. I know you and other Members of this committee are going to Europe in the near future to have a dialogue on trade problems. I urge you to raise the issues I have outlined in my testimony. Most important, as you and your colleagues participate in this exchange, it is critical that you work with your European counterparts to seek meaningful change in the EU regulatory system to make it operate successfully and to seek ways to build public awareness and confidence in agricultural biotechnology.
One final thought, Mr. Chairman, and it involves the upcoming WTO round focusing on agriculture. Agriculture's future depends on two broad policy objectives-more research and free trade.
I know the House Agriculture Committee is working with the Senate Committee on Agriculture, Nutrition, and Forestry to hammer out a new research bill. We strongly support that overall effort. Concerning free trade, we ask the U.S. to focus on the upcoming WTO agriculture trade round and fight for total elimination of all types of trade barriers during these negotiations. More specifically, concerning biotechnology, we must have a greater degree of transparency and harmonization in every nation's regulatory regimes.
Non-tariff barriers to trade—be they in the form of sanitary or phytosanitary measures, product regulations, technical barriers or ineffective protection for intellectual property—present major obstacles to expanding U.S. agricultural trade. We are particularly concerned about the pending Biosafety Protocol which is being negotiated by the 160 countries which have ratified the Biodiversity Convention. If passed in its present draft, the Protocol would have a significant negative effect on trade of products produced through agricultural biotechnology. Some of these issues may have to be addressed in the WTO round.
This concludes my remarks. I would like to submit for the record as an attachment to my testimony a short paper outlining Monsanto's suggested changes in our global trading rules that would impact agricultural biotechnology. Thank you, Mr. Chairman and I would be happy to answer any questions you and others on the committee may have.
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Public Comments Of Monsanto Company
Monsanto is a technology-driven life sciences company with established products in the agriculture, nutrition, and healthcare markets. With research and manufacturing facilities in over 100 countries and net sales in excess of $9.2 billion, we are firmly integrated into the world trading system. Our global presence and operations give rise to global interests and concerns. We fundamentally support improved market access and freer trade, and oppose the proliferation of trade barriers. We have long supported the progress of the General Agreement on Tariffs and Trade, and its progeny the World Trade Organization (WTO), in eliminating tariffs and quantitative restrictions on trade. As these barriers have been eliminated, however, the obstacles presented by non-tariff barriers have taken on increased importance.
The trade agreements concluded during the Uruguay Round of multilateral trade negotiations (WTO Agreements) mark the first successful attempt to establish binding rules prohibiting non-tariff barriers. Since their creation in 1994, these Agreements have been used to eliminate a number of non-tariff barriers affecting trade. Although these early successes are notable, non-tariff barriers—be they in the form of sanitary or phytosanitary measures, product regulations, or ineffective protections for intellectual property—continue to present major obstacles to trade.
I. Goals and Objectives for Future Trade Negotiations
Although the WTO Agreements have substantially enhanced our ability to compete globally in existing markets and to create new markets for our products, there remains considerable room for improving the implementation and enforcement of existing trade rules. Across WTO Agreements there is a fundamental need for greater transparency and harmonization in national regulatory regimes. In addition, ambiguities as to the appropriate legal standards to be applied to certain key emerging trade issues, as well as ambiguities arising under individual WTO Agreements, hinder the effectiveness of the WTO framework.
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Improve Transparency in National Regulatory Regimes
Perhaps the most practically significant principle of the WTO Agreements is transparency in product regulations and specifications. Both the Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures require WTO Members to make product regulations and standards readily available to interested parties. These provisions, as well as similar provisions in the other WTO Agreements, reflect the principle that foreign exporters should be able to determine easily the precise requirements and specifications their products must meet. In the absence of transparency, product regulations and specifications constitute formidable barriers to trade in agricultural goods. Unpublicized regulations make compliance more a matter of luck than planning. Moreover, lack of transparency obscures the scope, purpose and impact of potentially legitimate regulatory measures and product specifications, making it difficult for Members to understand measures which may appear to violate WTO obligations. The absence of transparency greatly reduces, if not completely nullifies, the benefits flowing from the WTO Agreements.
Despite the principle's prominent role in the WTO Agreements, transparency remains an elusive goal. We would like to see all Members adhere to their WTO obligations by introducing measures to improve the transparency of their regulatory processes. When implementing such measures, WTO Members should respect three objectives:
Publication: At its core, the principle of transparency requires that product regulations and testing procedures be reduced to tangible form and made accessible to interested parties.
Participation: The process through which regulatory measures are drafted and adopted should be open to participation by interested parties, regardless of their nationality. Providing all interested parties a forum in which to voice their opinions makes implementation of discriminatory measures less likely.
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Rationalization: The number of agencies participating in the drafting and implementation of regulatory measures should be streamlined to facilitate monitoring. In the United States, for example, numerous Federal agencies are involved in issuing and enforcing a complex web of regulations and specifications related to agricultural products. Although the process is open to input from the private sector and regulations are published timely, the complexity of the process detracts from its openness and makes active participation difficult.
Harmonize National Regulatory Regimes
Harmonization of national regulatory regimes offers the potential for greatly enhancing trade in agricultural products. By eliminating redundancies in product testing and inspections, compliance costs can be dramatically reduced and savings passed along to consumers. Lower costs will also enhance our ability to enter new markets and distribute our products to the benefit of our consumers.
We are not advocating reduced product standards; the quality of our products and the health and safety of our consumers are our highest priority. Rather, we believe that where proven international standards exist they should be uniformly adopted. Monsanto supports special testing requirements where they are necessary to address unique environmental demands and concerns of sub-populations. These situations, however, should be treated as the exception rather than the rule.
Harmonization efforts are already well underway with the European Union. The United States-European Union Mutual Recognition Agreement covering pharmaceuticals, medical devices, recreational craft, telecommunications equipment, and certain information technology products requires both sides to accept each other's products and manufacturing processes without additional testing. In addition, the proposed United States-European Union Veterinary Agreement requires both the United States and Europe to accept each other's veterinary standards as providing equivalent protection, thus facilitating $3 billion in trade in meat and other animal products. In the biotechnology sector, the United States and the European Union have formed a working group to begin work on mutual recognition of safety assessments and sharing of safety data. We strongly encourage such efforts, and would like to see similar measures and negotiations initiated with other countries. In particular, we urge that the United States aggressively pursue harmonized standards and regulations in international standard setting organizations, such as the Codex Alimentarius, and in regional and bilateral trade discussions.
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Resolve Legal Ambiguities on Key Issues
On a number of key issues, the applicable WTO legal standards remain ambiguous. These ambiguities have severe implications for agricultural trade, as well as the development of the biotechnology industry.
For example, some WTO Members have sought to distinguish between products based on production methods or processes rather than on differences in product characteristics. Although production or processing methods do not necessarily change a food's quality, safety, or nutritional value, these countries assert that labels are necessary to protect consumer preferences.
Labeling based on production or processing methods and not on scientific criteria can create consumer fear and confusion by raising unwarranted questions about safety and by exploiting consumer misconceptions. We appreciate and will comply with the decision by some Members to require such labeling based on public interest; however, we believe that a labeling requirement should be based on determinations of substantial equivalence and not simply on particular process methods. We urge the United States to remain firm in its position that products should not require labeling unless there are scientifically established issues of safety, a significant change in nutrients or composition, or a change in identity.
Another potential issue that does not appear to be adequately addressed by the existing legal regime is posed by complete governmental bans. Specifically, if a country refuses to allow either domestic or foreign parties to undertake the commercialization of a new product within that country when such product has been approved and accepted by other Members, what legal standards will the WTO apply in analyzing the reasonableness of the government action?
Timely resolution of these issues, will dramatically benefit U.S. agricultural by ensuring market access and protecting consumer faith in advanced agricultural products. We strongly urge the United States to assert its position on these issues in negotiations with its trading partners and in appropriate international organizations looking at these issues.
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Clarify National Obligations Under the SPS Agreement
Health and safety measures based on phantom risks and popular misinformation stifle innovation and hinder our ability to bring new, beneficial products to market. Health and safety measures are the primary source of agricultural non-tariff trade barriers. As of June 1996, the U.S. Department of Agriculture had developed a list of 315 technical barriers to agricultural trade in 63 countries, over 90 percent of which were measures covered by the SPS Agreement.
As a company that is committed to, and commercially invested in, robust, sustainable biodiversity, we are strong supporters of the SPS Agreement. The SPS Agreement strikes the necessary balance between necessary health and safety measures and the enforcement of trade obligations. We recognize and support the right of countries to determine their own levels of human, animal, and plant protection. Countries must not be permitted, however, to circumvent their obligations under international trade agreements by disguising protectionist measures as health and safety regulations. The Agreement's basic tenets—which call for measures to be transparent, consistent with international norms, and based on risk assessments and scientific principles—ensure that health and safety measures are narrowly tailored to achieve their goals without jeopardizing governmental power to impose appropriate health and safety measures.
We urge the United States to resist pressures to weaken the SPS Agreement. The United State must stress to its trading partners the importance of science and risk assessment in the shaping of health and safety measures. They often provide the only means of distinguishing between legitimate measures adopted to protect environmental integrity or human, plant, or animal health and measures adopted solely for the purpose of providing protection to domestic industries.
Not only should the SPS Agreement not be weakened, we advocate strengthening the Agreement by resolving ambiguities arising from the application of its provisions, including:
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Risk Tolerances: Countries are likely to disagree over what constitutes an acceptable level of risk. In the Beef Hormone Decision, the WTO rejected the European Union's overbroad zero risk option, but failed to articulate a general standard. If WTO Members were allowed to adopt something close to a zero risk option, the effectiveness of the SPS Agreement could be severely reduced.
The Appropriate Standard of Review: The issue of how much deference should be shown determinations of WTO Member governments under the SPS Agreement has not been resolved. In the Beef Hormone Decision, the WTO Appellate Body held that there must be an objective relationship between a health or safety measure and the underlying risk assessment. The Body did not, however, elaborate on the test to be employed to determine whether an objective relationship exists.
Inconclusive Scientific Research: The underlying facts in the Beef Hormone case were very favorable to the challengers of the European ban. The European Union was unable to point to conclusive scientific evidence that the hormones at issue posed any risk to human health. Evidence in future cases is unlikely to be so clear-cut. A much harder case will be presented when scientific research is inconclusive. Precisely how the WTO resolves such cases will have important implications for the Agreement's value as a remedy for non-tariff barriers.
Ensure Adequate Intellectual Property Protection for Agricultural Products Produced Through Biotechnology
The Agreement on Trade Related Aspects of Intellectual Property Protection (TRIPs Agreement) is a significant step for international intellectual property protection. Through its implementation by WTO Members, it raises the minimum level of intellectual property protection internationally. Yet ambiguity remains an issue under the TRIPs Agreement as well. Article 27 of the TRIPs Agreement allows WTO Members to exclude from patentability protection, among other things: (i) inventions of plants and animals . . . and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes; and (ii) inventions whose exploitation would prejudice ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment.
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As the Beef Hormones Case demonstrated in the SPS Agreement context, countries may be inclined to erect barriers motivated by consumer preference and irrational fears, rather than legitimate science. The same risks could exist under TRIPs should countries be allowed to interpret article 27 to make protecting consumer preference analogous to protecting human life, and thereby to deny patentability to advanced agricultural products—a key group of export products for the United States.
Exacerbating this situation is the fact that developing countries can delay implementation of TRIPs' provisions for up to 11 years—depending on their development status—under the Agreement's transitional provisions. To the extent these countries are not bound by other effective intellectual property agreements, they remain relatively free to deny companies adequate intellectual property protection.
Seek More Timely Compliance With WTO Rulings
The WTO dispute settlement system is a major improvement over the previous GATT system. During its first 3 years, the WTO system has proven itself effective in adjudicating complex trade disputes between WTO Members. Unlike the GATT system, rulings of the WTO panels and the Appellate Body are legally binding, with WTO members normally given 15 months to implement final decisions.
Despite the system's success in adjudicating disputes and rendering legally binding decisions, experience suggests that foot dragging in implementing WTO rulings may be a problem. In a number of high profile cases, U.S. trading partners have shown a reluctance to implement WTO rulings within the normal implementation period. This practice, if allowed to continue, may shake Member confidence in the enforceability of WTO obligations and thereby erode the integrity of the trading system. We would like to see a more aggressive U.S. position requiring timely compliance with WTO determinations.
II. U.S. Domestic Action in Preparation for 1999
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We believe that the United States must assume a prominent role in future trade negotiations affecting agricultural products. Meaningful U.S. participation depends on the administration's ability to conclude negotiations that will survive Senate ratification, as well as the U.S. ability to take an aggressive posture in addressing foreign barriers to agricultural products.
Active Participation in New Trade Negotiations and the Importance of Comprehensive Fast Track Authorityq02
The WTO Agreement on Agriculture provides for multilateral negotiations on agriculture beginning in 1999. If the United States is to take a leadership role in those negotiations, it must begin building a consensus for its agricultural agenda. This process must begin by providing the administration with comprehensive fast track authority. Comprehensive fast track authority is imperative to the United States' ability to take an active role in negotiations. U.S. trading partners generally view fast track authority as a prerequisite to trade negotiations with the United States because it ensures that Congress will not later alter the bargains struck.
We generally oppose alternatives to comprehensive fast track authority, such as limiting the authority to agreements covering specific sectors. Such proposals fail to provide U.S. negotiators with the flexibility necessary to attain meaningful liberalization. Trade gains are most likely to occur in the context of broad multilateral trade negotiations. Complex negotiations require give and take across sectors. Meaningful compromises by our trading partners will be much harder to attain if negotiations are conducted on a sector-by-sector basis.
Getting Our Own House In Order
Getting our own house in order by 1999 with respect to implementation of the WTO Agreements will strengthen the U.S. negotiating position in agricultural talks by permitting a more aggressive pursuit of the U.S. agenda. This process should begin with an assessment of U.S. implementation of, and compliance with, the various WTO Agreements. For example, the Government Accounting Office (GAO) recently issued a report analyzing the U.S approach to foreign SPS measures. The report concluded that the United States lacks an integrated approach and recommended that the relevant government agencies work together to streamline the process of identifying, analyzing, and, where necessary, addressing foreign measures. We believe that a similar process looking at U.S. implementation and compliance with WTO obligations would identify issues that should best be addressed before the negotiations begin, to prevent them from detracting from U.S. negotiating strength.
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Generally, we are very pleased with the progress toward free trade achieved during the Uruguay Round. The WTO Agreements, in just 3 years, have proven their worth in eliminating non-tariff trade barriers; but 1999 and a new round of multilateral trade negotiations in agriculture will be quickly upon us. As the world's most productive and efficient agricultural producer, the United States stands to gain more than any other country from the elimination of foreign trade barriers to agricultural products. To do so, the United States must plan for and actively participate in the negotiations.
Statement of Daniel G. Amstutz
My name is Daniel G. Amstutz. I am president and chief executive officer of the North American Export Grain Association (NAEGA). NAEGA was established in 1912. It is the association of North American grain and oilseed exporters and interested parties whose purpose is to promote the export of grains and oilseeds from the United States.
We welcome this opportunity to appear before the committee and discuss issues to be addressed in the new round of multilateral negotiations on agricultural trade scheduled to begin in 1999. Even though the subject of this hearing pertains to Europe, the operable word is multilateral in that it is difficult to imagine how a meaningful negotiation on agricultural trade could be conducted merely between the United States and Europe. Virtually all of the issues that should be addressed must be done in a multilateral setting and in a comprehensive manner.
For instance, how could the United States and the European Commission discuss export subsidies if the countries that employ state trading enterprises are not part of the negotiation? We believe the subjects of export subsidies and STEs must be linked in all future negotiations, and of all the important areas of negotiation in agriculture, none is more important than this one. Two years ago we appeared before this committee and addressed the STE question and its relevance in any discussion of export subsidies. What we said then continues to be pertinent today:
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The monopolistic nature of state trading enterprises enables them to operate in a non-transparent manner and permits the manipulation of prices and hidden subsidization on sales to those markets which are competitive. Examples of this can be cited by raising questions that only the STEs can answer. For example, have the sales prices of the Australian Wheat Board and the Canadian Wheat Board to destinations such as Iran and Iraq been the same (for the same periods and same qualities) as to destinations such as Egypt and Morocco? Using revenues generated from higher price sales to less competitive markets to subsidize lower price sales to more competitive markets is no less a form of subsidization than the Export Enhancement Program, which is a target of Australian and Canadian criticism.
To eliminate the means of subsidizing or manipulation, as well as the act of it, the structure of the industry in all countries must be negotiable. In this regard it seems to us that real transparency can be achieved only if monopoly status is eliminated and a true competitive environment is permitted to exist.
Other issues of a multilateral nature that apply to our trade relations with Europe (including the European Union, Central and Eastern Europe and the former Soviet Union) are:
Tariff reductions. The conversion of nontariff barriers to tariffs during the Uruguay Round was a positive step but there are too many cases where tariffs are too high. Comprehensive negotiations to significantly lower tariffs should be an important U.S. objective.
Similarly, tariff rate quotas (TRQs) need to be addressed. There should be greater transparency in how they are handled so that objectives of fairness and competition can be more fully realized.
Domestic support levels will most surely be a topic of negotiation. An important road map was created during the Uruguay Round with the introduction of the concept of decoupling; that is, separating payments to farmers from production and marketing decisions and freedoms. This concept of so-called green boxes should be continued. Incidentally, because of the passage of the FAIR Act here in 1996 and the continued reform of the CAP in the European Union (EU), the issue of domestic support should not be a contentious one between the U.S. and the EC. According to drafts I have seen of Agenda 2000, the EC plan is to reduce the intervention price for cereals in the EU by 20 percent, a one-step move, in the year 2000. This would place it at 95.35 ECU per ton vs. the current level of 119.19 ECU.
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There are two general subject areas which require more attention in forthcoming multilateral negotiations than they received in the Uruguay Round. These are:
Food safety issues; Food security issues.
The question of GMO approvals is probably the most pressing food safety subject. It is one which, in the opinion of NAEGA, the U.S. could and should negotiate with the EC and Japan now.
Currently there is no global body that has either the capability or the authority to make recommendations on the safety aspects of GMOs. Nonetheless, GMO developments are moving very rapidly; technological know-how has advanced to the point where new products are being announced almost daily. In the U.S., as soon as companies think FDA approval will be forthcoming, the seed is marketed and farmers buy it. Rapid scientific developments and profit motive combine to make speedy introduction of new GMO products an inevitability. The GMO subject is one of food safety in its broadest sense. It is scientific/emotional/political. The practical question we face is: What can be done quickly to ensure that the scientific analysis of new GMO products is done speedily and objectively, and at the same time the emotional (consumer) and political (environmental) issues are addressed.
NAEGA is interested in the products of GMO seeds, grains and oilseeds for consumption, not the seeds themselves. In this context we know:
Segregation is not commercially possible. Suppliers and users of grains and oilseeds for consumption must be able to use may contain language in any labeling requirement. There is no substitute for this. Trade flows must remain open.
To address the need for expeditious approval of new GMO grains/oilseeds and their products, NAEGA has proposed that the EC, the U.S., and Japan create an ad hoc bioscientific group (BSG) to speedily and objectively analyze the food safety aspects of GMO grains and oilseeds for consumption. The EC, the U.S. and Japan would each have a small number of representatives in this group, perhaps 3, with unquestioned scientific credentials. This group would have czarist-type authority. It would set criteria and manage the analysis of new GMO products, both for the group and for the countries they represent. Each BSG country would withhold approvals of new GMO products until and unless the BSG approves. This would force the U.S./EC/Japan always to act in tandem (so there would be no production of product before it is salable).
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A small group such as this could expedite decision-making, and since it is representative of the most sophisticated export, import and consumption markets in the world, one can easily conclude that the rest of the world will follow the group's recommendations. By keeping it small there would be a minimum of bureaucracy and the plan can be quickly implemented.
This trilateral, objective, scientific approach would make it easier for the EC to deal with the political questions in EU member states, and the objectivity of the BSG should allay most emotional concerns. Since the BSG would be dealing only with grains and oilseeds (and their products) for consumption, it would not be saddled with all of the sanitary baggage that is associated with the meat business or the environmental problems the seed interests have. And logic says we only need a vehicle for dealing with this subject for several years, after which the world will be accustomed to and accepting of these products.
Food security issues are those sanitary and phytosanitary (SPS) questions which the SPS Agreement in the Uruguay Round began to address. They range from fungi (e.g., TCK, Karnal Bunt) to weed seeds (e.g., ragweed) to mycotoxins. Much more must be accomplished. For instance:
The term scientific is not defined in the agreement. This leads to different interpretations and arguments.
The agreement affirms the right of each government to choose its level of protection, including zero risk if it so chooses. NAEGA feels that the application of a zero risk level should be invoked rarely, such as situations where human health or life is directly threatened.
The agreement requires governments to base their SPS restrictions on a risk assessment study, but it does not provide any specific guidelines as to the methodology to be employed in conducting these studies.
The U.S. has ongoing phytosanitary problems with various countries of Europe, as well as other areas of the world. Greater clarification in definitions of SPS terms and a growing realization that there really is no such thing as zero risk will help alleviate contentious trade problems.
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NAEGA believes that global markets for farm products can grow dramatically in the new millennium, but this can only happen if more wealth is generated in more countries more rapidly than is currently happening. It is only through trade liberalization that this increase in buying power, this expansion of the markets of the world, will result. Growth in global markets is what multilateral trade rounds are all about. For those desired market developments to occur, we must be able to commence comprehensive multilateral negotiations quickly. Congress holds the key to this treasure chest of opportunity. The key is fast-track trading authority so that the U.S. can be engaged, and provide leadership in this very important undertaking for the well-being of American agriculture.
Statement of Rick Roth
Thank you, Mr. Chairman, for the opportunity to participate in this important hearing. I am Rick Roth, a third generation sugarcane farmer from Belle Glade, Florida.
I am on the Board of Directors of the Sugarcane Growers Cooperative of Florida. Our co-op was formed in 1961 by family farmers striving to be among the most efficient in the world.
I am accompanied today by Jack Roney, director of economics and policy analysis for the American Sugar Alliance, of which my cooperative is a member. The ASA is a national coalition of growers and processors of sugar beets, sugarcane, and corn sweeteners. Mr. Roney will assist me on any of the more technical questions you might ask.
I am proud today to present the views not only of the Sugarcane Growers of Florida, but also of the American Sugar Alliance.
I would like to provide some background on the United States' role and standing in the world sugar economy and on U.S. sugar policy's effect on American consumers and taxpayers and discuss the U.S. sugar industry's goal, concerns, and recommendations for the next round of World Trade Organization multilateral negotiations, with special focus on the European Union.
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Background on U.S. Sugar Industry Policy
Size and Competitiveness. Sugar is grown and processed in 17 States and 420,000 American jobs, in 40 States, are dependent, directly or indirectly, on the production of sugar and corn sweeteners. The United States is the world's fourth largest sugar producer, trailing only Brazil, India, and China. The European Union (EU), taken collectively, is by far the world's largest producing region. It benefits from massive production and export subsidy programs.
Despite some of the world's highest government-imposed costs for labor and environmental protections, U.S. sugar producers are among the world's most efficient. According to a study released in 1997 by LMC International, of Oxford, England, American sugar producers rank 19th lowest in cost among 96 producing countries, most of which are developing countries. According to LMC, fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States.
Because of our efficiency, American sugar farmers would welcome the opportunity to compete against foreign farmers on a level playing field, free of government subsidies.
Unfortunately, the extreme distortion of the world sugar market makes any such free trade competition impossible today.
World Dump Market. More than 100 countries produce sugar and the governments of all these countries intervene in their sugar markets in some way. The most egregious, and most trade distorting, example is the EU. The Europeans are higher cost sugar producers than we are but they enjoy price supports that are 40 percent higher—high enough to generate huge surpluses that are dumped on the world sugar market, for whatever price they will bring, through an elaborate system of export subsidies.
World trade in sugar has always been riddled with unfair trading practices. These practices have led to the distortion in the so-called world market for sugar. These distortions have led to a disconnect between the cost of production and prices on the world sugar market, more aptly called a dump market. Indeed, for the period of 1984–85 through 1994–95, the most recent period for which cost of production data are available, the world dump market price averaged just a little more than 9 cents per pound raw value, barely half the world average production cost of production of over 18 cents. (See chart, attachment A.)
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Furthermore, its dump nature makes sugar the world's most volatile commodity market. Just in the past two decades, world sugar prices have soared above 60 cents per pound and plummeted below 3 cents per pound. Because it is a relatively thinly traded market, small shifts in supply or demand can cause huge changes in price.
As long as foreign subsidies drive prices on the world market well below the global cost of production, the United States must retain some border control. This is our only response to the foreign predatory pricing practices that threaten the more efficient American sugar farmers.
The reformed sugar policy of the 1996 farm bill does retain the Secretary of Agriculture's ability to limit imports, and also provides a price support mechanism, though only when imports exceed 1.5 million short tons. We are currently only 240,000 tons above that critical trigger level.
Sugar Reforms. The 1996 farm bill drastically changed U.S. sugar policy, as it did other commodity programs. All American farmers, including sugar farmers, now face a less certain future, with less government intervention, higher risk, and the prospect of lower prices.
There were six major reforms to U.S. sugar policy in the 1996 farm bill:
1. Marketing allotments eliminated. With no production controls, we now have a domestic free market for sugar. Less efficient producers are more likely to go out of business; more efficient producers are free to expand. Just last month the only sugarbeet processing company in Texas announced it is closing, ending sugarbeet production in that State, because of low returns.
2. Guaranteed minimum price eliminated. Sugar is the only program crop that has lost the guarantee of non-recourse loans and a minimum grower price. Sugar producers will have access to non-recourse loans only when imports exceed 1.5 million short tons.
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3. Minimum imports effectively raised. Under the Uruguay Round of the GATT, the United States was required to import no less than 1.256 million tons of sugar per year. The non-recourse loan trigger of 1.5 million tons effectively raises our import minimum to that level, a unilateral increase of 20 percent .
4. Marketing tax raised. The special marketing assessment, or tax, sugar producers must pay to the government on every pound of sugar was raised by 25 percent, to 1.375 percent of the loan rate on every pound produced. This added burden on sugar farmers will generate about $40 million per year for the U.S. Treasury, with all this money earmarked for Federal budget deficit reduction.
5. Forfeiture penalty initiated. To discourage forfeiture of loans to the government when non-recourse loans are in effect, and to raise even more money for the U.S. Treasury, a 1-cent per pound forfeiture penalty was initiated. This can have the effect of about 6 percent lower returns to producers than before the penalty went into effect.
6. Commitment to further reductions. A provision called ''GATT Plus'' requires that the United State will reduce its sugar supports further if, and when, foreign countries surpass their Uruguay Round commitments, as the U.S. has done.
Effect on Consumers. American consumers and food and candy manufacturers benefit from high-quality, dependable, reasonably priced supply of sugar. Consumer prices in the United States are fully 32 percent below the developed-country average, according to a world survey by LMC International. Compared with consumers worldwide, and taking varying income levels into account, LMC found that in terms of minutes worked to purchase one pound of sugar, American consumers are the second lowest in the world, trailing only the tiny country of Singapore. (See charts, Attachments B and C.)
Consumer Cost Myths. The food manufacturer critics of U.S. sugar policy repeatedly point to a severely flawed 1993 General Accounting Office study that estimated a consumer cost of U.S. sugar policy at $1.4 billion per year. Experts at the U.S. Department of Agriculture have twice vilified this flawed report, as have noted academicians. More recently critics are citing a Public Voice update, which mimicked the faulty methodology of the GAO report and dropped this supposed cost to $1.2 billion.
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Both of these absurd studies assumed that: (1) All U.S. sugar needs could be supplied from the world dump market at a price well below the world average cost of production; (2) We could fulfill our needs from this thinly traded, highly volatile world market without that price increasing at all; and (3) Every penny of the food manufacturers' and retailers' savings from the lower dump market sugar prices would be passed along to consumers.
For reasons I have already outlined, it is clear that if the United States destroyed its sugar industry and shifted all its demand for sugar to the thinly traded world dump market—which would increase demand on that market by about 50 percent—the price would skyrocket, as it has in the past with far smaller surges in offtake.
To address the third and most outrageous of these assumptions, one need only examine price behavior of the past year, or the past decade. History shows absolutely no passthrough.
No Passthrough to Consumers. Since farm bill reforms went into effect in October 1996, both raw cane and wholesale refined beet sugar prices to producers have dropped dramatically, wholesale refined prices by a whopping 12 percent. But at the retail level, not even the price of sugar on the grocery shelf has dropped at all. And prices for sweetened products, such as candy, cereal, ice cream, cakes, and cookies have all risen by 2 to 4 percent. Looking back to price changes since 1990, the story remains the same: producer prices down, but consumer prices for sugar and products up. (See charts, attachments D and E.)
Effect on Taxpayers. Not only has U.S. sugar policy been run at no cost to the government since 1985, but since 1991 it has been a revenue raiser. The marketing assessment burden on sugar farmers will generate an estimated $288 million for Federal budget deficit reduction over the 7 years of the 1996 farm bill.
Sugar and the European Union
Huge Disparities, Huge Distortions. As recently as the early 1970's the European Union was the world's second leading importer of sugar. For several years now, however, the EU has been the world's leading producer and exporter of sugar. All of this sugar has been produced and exported with the benefit of generous government programs, and has substantially depressed world sugar prices.
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European sugar producers are less efficient than American producers. But their level of government support is far higher. As the attached table (Attachment F) indicates, European producers enjoy: (1) A price support level that is 40 percent higher than American sugar farmers'; (2) A minimum price guarantee, which American sugar farmers do not; (3) Export subsidies, which American sugar farmers do not; and (4) A host of other subsidies not available to American sugar farmers.
Subsidies this high induced European sugar producers to increase production so dramatically that the EU rapidly made the transition from importer to exporter. After covering their cost of production on domestically sold sugar, EU producers dump their surpluses on the world market for whatever price they will bring—even when the world price is less than half their cost of production. These dump supplies severely depress the world price. EU subsidized exports, which run around 5 to 6 million tons per year, constitute the most trade-distorting practice on the world sugar market.
Sugar and the Uruguay Round
Little Effect on World Sugar Policies. More than 100 countries produce sugar and all have some forms of government intervention. Unfortunately, these policies were not significantly changed in the Uruguay Round Agreement (URA) of the GATT.
The agreement failed to reduce the European Union's lavish price support level and requires only a tiny potential drop in their massive export subsidies.
Developing countries, which dominate world sugar trade, have little or no labor and environmental standards for sugar farmers, have no minimum import access requirements, and often have high import tariffs. Nonetheless, developing countries were put on a much slower track for reductions, or were exempted altogether.
Important players such as China and the former Soviet republics are not GATT members, and need to do nothing.
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State trading enterprises (STE's) that are prevalent in sugar-producing countries were ignored.
Furthermore, many countries have not yet even complied with their URA commitments.
U.S. Sugar Surpasses URA Requirements. The United States is one of only about 25 countries that guarantees a portion of its sugar market to foreign producers and can be proud that it has far surpassed is URA commitment on import access. The URA required a minimum access of 3 to 5 percent of domestic consumption. The United States accepted a sugar-import minimum that amounts to about 12 percent of consumption. In practice, U.S. imports the past 2 years have averaged 24 percent—double the promise we made in the GATT, and about six times the global GATT minimum.
All this sugar imported from 41 countries under the tariff-rate quota enters the United States at the U.S. price, and not at the world dump price. Virtually all this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon, and Taiwan) that lack Generalized System of Preferences (GSP) status pay a duty, and that is quite small, about 0.6 cents per pound.
The United States calculated its above-quota tariff rate in the manner dictated by the URA. These tariff levels are totally GATT consistent, and are dropping by 15 percent, as we promised they would in the Uruguay Round.
U.S. Sugar Industry's Free Trade Goal Because of our competitiveness, with costs of production well below the world average, the U.S. sugar industry supports the goal of genuine, global free trade in sugar. We cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free trade environment.
We were the first U.S. commodity group to endorse the goal of completely eliminating government barriers to trade at the outset of the Uruguay Round, in 1986. We understand we are the first group to endorse this same goal prior to the start of the 1999 multilateral trade round. We described our goals and concerns to the administration in a letter last May to Trade Representative Barshefsky and Agriculture Secretary Glickman. A copy of that letter is attached to this testimony (attachment G).
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The U.S. sugar industry does not endorse the notion of free trade at any cost. The movement toward free trade must be made deliberately and rationally, to ensure fairness and to ensure that those of us who have a global comparative advantage in sugar production are not disadvantaged by allowing distortions, exemptions, or delays for our foreign competitors.
To achieve a free trade transition process that is rational and fair, we offer the following concerns and recommendations.
Concerns Regarding the 1999 Trade Round
Export Subsidies. The most distorting practice in world agricultural trade is export subsidies. In the world sugar market, subsidized exports by the EU alone amount to as much as a fourth of all the sugar traded each year.
Export subsidies provide countries the mechanism to dispose of surpluses generated by high internal production subsidies. In the absence of export subsidies as a surplus-removal vehicle, countries would have to reduce their production supports.
The Uruguay Round did not significantly reduce the amount of sugar sold globally with export subsidies.
State Trading Enterprises. STE's are quasi-governmental, or government-tolerated organizations that support domestic producers through a variety of monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrangements, and other strategies. These practices were ignored in the Uruguay Round, but are, unfortunately, common in the world sugar industry. Major producers such as Australia, Brazil, China, Cuba, and India have sugar STE's, but were not required to make any changes in the Uruguay Round.
Compliance with Past Agreements. While the United States has far surpassed its Uruguay Round commitments, many other countries have yet to even minimally comply. Numerous examples exist where export subsidies, internal supports, and import tariffs for many crops are not in compliance with GATT. A key example in sugar is the Philippines' failure to lower its import tariffs.
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In the NAFTA, Mexican sugar producers are casting doubts on the validity of the sugar provisions, 3 years after the agreement's inception, and have slammed the door on imports of U.S. corn sweeteners with duties as high as 100 percent.
Widely Varying Levels of Support. Unilateral reforms to U.S. agriculture policy in the 1996 farm bill far exceeded U.S. commitments made the year before in the Uruguay Round. Furthermore, developing countries, which dominate world agricultural trade and particularly sugar trade, were subject to a slower pace of reductions, if any.
As a result, the United States is way out in front of the rest of the world in removing its government from agriculture and has placed its farmers in a domestic free market situation. This gap makes American farmers uniquely vulnerable to continued subsidies by foreign competitors.
In sugar, two examples come to mind: (1) The EU sugar support price is approximately 40 percent higher than the stand-by U.S. support price. The Uruguay Round's formula-driven percentage reductions in support levels do not reduce the gap between the EU and the United States. at all. (2) Actual U.S. sugar imports the past 2 years have been nearly double the 1.26-million-ton minimum import commitment the United States made in the Uruguay Round and about six times the URA global minimum.
It is key that American farmers not be penalized for attempting to lead the rest of the world toward free agricultural trade. American farmers must be given credit for the reforms they have endured.
Labor and Environmental Standards. The gap in government standards—and resulting producer costs—between developed and developing countries is well documented and immense. In sugar, the gap is particularly pronounced because, while the EU and the U.S. are major players, production and exports are highly dominated by developing countries, especially in the cane sector.
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For example, the LMC International survey of global production costs revealed labor costs—per worker, per day—in Malawi, ostensibly one of the world's lowest cost producers, to be a mere one-hundredth of the average wages paid to sugarcane workers in Hawaii.
Sugar producers in Florida, and every sugar-producing State in America, comply with the world's highest standards for environmental protection—at a price. For example, the Everglades Forever Act (EFA) mandates that Florida farmers pay at least $232 million in taxes for Everglades preservation activities—on top of the many costs borne by farmers to monitor and clean water leaving farm areas. In Hawaii, extremely high environmental compliance costs have been a factor in driving two-thirds of the State's sugar growers out of business in the past 10 years. In many developing countries, by contrast, sugar mills face no restrictions, or no enforcement of restrictions, on the quality of water or air emissions.
American sugar farmers are proud to raise sugar with the highest possible regard for workers and the environment. But we should not be penalized in multilateral trade negotiations for providing these costly protections. And foreign countries that do not provide such protections should not be rewarded.
If we are attempting to globalize our economy, we should also globalize our food safety and worker and environmental protection responsibilities.
Formula Driven Trade Strategy. For the many reasons I have outlined, the rigid, formula-driven, or one-size-fits-all, approach for trade concessions does not work for agriculture in general, or for sugar in particular. Pursuing this approach would:
Fail to reduce the gap in supports between countries—lowering the playing field, but not leveling it;
Again give developing countries a free ride;
Further diminish our negotiating leverage, which was severely reduced through our unilateral concessions in the 1996 farm bill.
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To date, we have led the world in trade barrier reductions and we can only hope the rest of the world will follow our example.
We can turn our unilateral concessions to our advantage only if we follow a request/offer strategy. Essentially, we provide foreign countries the incentive to reduce their government programs by promising to reduce ours further when, and only when, they have reduced their export subsidies, internal support, import tariffs, and STE or similar practices to our levels.
Recommendations for the 1999 Trade Round
To address these concerns, I would like to make four recommendations for U.S. negotiators in the next trade round.
1. Elimination of export subsidies, the most trade distorting of all practices, and of state trading enterprises, which were ignored previously, must be given top priority in the next trade round.
2. The United States should not reduce its government programs any further until other countries have complied with their Uruguay Round commitments and have reduced their programs to our level.
3. The wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade round, and addressed in a manner that ensures global standards rise to developed-country levels, rather than fall to developing-country levels.
4. We can address the huge disparities in supports among nations and turn the United States' unilateral concessions to our advantage only if we follow a flexible, request/offer type of strategy in the next trade round.
In conclusion, Mr. Chairman, thank you for convening this timely and important hearing. U.S. agriculture is extremely vulnerable as we approach the next trade round. If we negotiate carefully and rationally, however, there is enormous potential for responsible American producers such as myself, and many others, to compete and prosper in a genuine free trade environment, free from the need for government intervention. Thank you for the opportunity to participate.
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"The Official Committee record contains additional material here."
Statement of the National Pork Producers Council
This statement is submitted on behalf of the National Pork Producers Council. NPPC applauds Chairman Smith and the committee for their interest in United States-European Union trade issues. Domestic pork producers are deeply concerned about the current state of pork trade between the United States and the EU Specifically, as a result of the EU's reluctance to recognize principles of equivalence and live up to its bilateral and multilateral commitments to the United States with respect to pork, for U.S. pork producers, trade with the EU has been reduced to a ''one-way street.''
At the current time, the EU is voting on the veterinary equivalence agreement. The EU needs to approve and implement the agreement without further delay. In the absence of full implementation—and, hence, equivalence—the U.S. must review EU facilities, member state by member state, to ensure accordance with agricultural trade standards. These types of strong measures are needed to restore equivalence and fairness in U.S.-EU meat trade.
The U.S. Pork Industry is Important to the Domestic Economy and Exports are Important to the U.S. Pork Industry
NPPC is a national association representing producers in 44 affiliated States who annually generate approximately $11 billion in farm gate sales. According to a recent Iowa State study conducted by Otto and Lawrence, the U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 billion annually in total economic activity.
Pork is the world's meat of choice, representing 44 percent of daily meat protein intake in the world. As a result of recent trade liberalization, U.S. pork producers have capitalized on pork's global popularity. Indeed, 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. The U.S. pork industry exported over one billion dollars of pork for the first time in 1996, and explosive export growth continued in 1997. Given this trend, the U.S. pork industry strongly supports further trade liberalization measures, as trade agreements like NAFTA and the Uruguay Round have permitted U.S. pork producers to exploit their comparative advantage in international markets.
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In fact, the United States is uniquely positioned to reap the benefits of liberalized world pork trade. While the U.S. currently is the world's second largest exporter of pork behind Denmark, the overwhelming consensus within the industry and among analysts is that the United States will soon be the number one pork exporter in the world. U.S. pork producers are the lowest cost producers worldwide, and the U.S. cost advantage over Denmark, the U.S. pork industry's major competitor, is increasing.
The markets of the EU member states hold great potential for U.S. pork exporters, as these markets have the highest per capita consumption of pork and pork products in the world. Even so, EU pork producers are relatively high-cost producers, which means, in turn, that U.S. producers have a significant cost advantage in Europe. This fact is reflected in figures for 1997, which show that U.S. producers shipped approximately $20 million in pork exports to the EU even though only a few plants were certified to export. By contrast, Denmark annually sells $300 million in pork to the United States. If the EU maintains an open and equivalent trading system, U.S. pork exports to Europe will soar to over $100 million, thus restoring somewhat the balance in U.S.-EU pork trade.
There is a Long History of Meat-Related Trade Disputes Between the European Union and the United States
The EU's unreasonable and unjustified practices that limit U.S. pork exports are well-known to the U.S. Government. In fact, EU efforts to restrict imports of pork and beef have been the subject of several trade disputes and numerous rounds of consultations and negotiations. In 1990, for example, the U.S. industry filed a section 301 case challenging the EU's Third Country Meat Directive, an EU regulation that operates as a de facto ban on imports by imposing unreasonable and unscientific meat inspection and certification requirements on imported meat. The action resulted in a meat agreement reached in 1992 that was never fully implemented by the EU. More recently, in response to a challenge by the United States, a WTO panel ruled that the EU's imposition of a ban on hormone-treated beef was not based on sound science and therefore unlawful.
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Notably, the U.S. response to these practices has included more than just negotiated bilateral agreements. For example, in 1991, Senator Daschle introduced an amendment that called for reciprocal retaliation on EU meat imports. Similarly, President Clinton acknowledged the seriousness of U.S.-EU meat trade issues in his 1992 campaign document Putting People First, in which he pledged to ''pry open closed markets, including the support of reciprocal retaliation against the European Community unless the EC removes its ban on U.S. pork.'' Thus, the United States has recognized that the EU's unwillingness to play by the rules on issues affecting meat trade has called for aggressive responses.
The EU Continues to Resist Implementing its Bilateral and Multilateral Commitments on Pork
Unfortunately, even in the face of these measures, the EU continues to resist U.S. efforts to negotiate a workable solution to U.S.-EU meat trade issues. Nothing illustrates this problem more dramatically than the history of the negotiations on the U.S.-EU veterinary equivalence agreement. After years of negotiating on plant inspection equivalency and regionalization, and after significant concessions by the United States on this latter issue, United States and EU negotiators reached a bilateral understanding in May of 1997. However, the EU once again failed to implement its equivalency obligations by repeatedly delaying implementation of the equivalency agreement.
This agreement was due to be implemented on October 1, 1997, and was expected to end the longstanding conflict between the United States and the EU over the Third Country Meat Directive. Notably, while the agreement was not a ''pure'' equivalence agreement, U.S. meat producers viewed it as a workable agreement that would lead to the resumption of significant levels of U.S. meat exports to the EU. Specifically, implementation of the agreement would mean that U.S. meat producers would no longer be subject to the vagaries of the EU plant inspection system, but, rather, would be qualified to export to the EU based on the approval of the U.S. Food Safety and Inspection Service (FSIS). The EU's delay in implementing the agreement is particularly troubling in light of its repeated promises to do so.
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Initially, the EU sought to portray the delay in implementation as an administrative issue. It quickly became clear, however, that the EU was unwilling to implement the agreement until the U.S. provided further assurances concerning the ''regionalization'' by the United States of animal diseases in the EU. Regionalization is important to the EU because certain regions in EU member states have rampant animal health problems such as BSE and hog cholera that preclude the EU from exporting meat from these regions to the United States and elsewhere.
The United States has worked tirelessly on developing a regionalization process that is acceptable to both parties. In November, the United States published a proposed rule on animal disease in the Federal Register, anticipating that the EU would vote to implement the equivalence agreement shortly thereafter. Notwithstanding its earlier support for the rule, the EU characterized the proposed rule as ''incomplete and totally unacceptable.'' The EU's concern with the proposed rule, however, resulted in large part from its own failure to provide animal health data requested by the United States. A November 1997 letter sent by the U.S. Secretary of Agriculture to the EU Agriculture Commissioner on the regionalization issue underscores that the shortcomings in the proposed rule are largely the fault of the EU.
Unfortunately, the United States' efforts to finally resolve the regionalization issue to the EU's satisfaction have resulted in concessions that are troubling to the U.S. pork industry. The industry understands that the United States and the EU have concluded an agreement on regionalization that precludes U.S. agriculture's right to ''notice and comment'' on certain changes made by the USDA concerning EU animal health designations.
The U.S. meat industry is reluctant to meet EU demands on regionalization when the EU has not yet implemented the veterinary equivalence agreement. Indeed, U.S. pork producers are concerned that the EU will never fully and fairly implement the agreement. Rather than implementing the agreement, the EU appears more interested in inventing new ways to restrict U.S. pork exports. For example, the EU currently is attempting to further restrict pork imports by ''gerrymandering'' the definition of pork that is eligible to be shipped into the EU's pork tariff rate quota (TRQ). The EU now claims that only whole boneless hams (and not three-piece hams) qualify as boneless hams under ''product group 2'' for purposes of the pork TRQ. This constitutes circumvention of the EU's Uruguay Round commitments. It is no coincidence that those few U.S. pork plants approved to ship under the Third Country Meat Directive are shipping large volumes of three-piece hams.
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In addition, the EU is now claiming that the United States does not properly test for residues. It is true that the United States does not require testing for certain residues because years of testing have shown that these residues do not pose a problem in the United States. The EU, however, apparently is attempting to use this issue—one that it has been aware of for several years—to suggest that the U.S. meat inspection system is suspect and that U.S. meat is unsafe. In fact, an EU report on U.S. residues calls for a cut-off of U.S. meat exports by May if this issue is not resolved. The EU's concern about these residues, however, is not based on sound science, underscoring the conclusion that the EU is searching for additional ways to restrict U.S. pork exports.
The United States Must Take Aggressive Measures to Respond to the EU's Recalcitrance on Meat Trade
It is clear from these facts that the EU's dilatory and unjustified tactics with respect to U.S. meat exports have not subsided despite exhaustive efforts by the United States to appease the EU and develop mutually acceptable solutions. The unfortunate result is that meat trade across the Atlantic is one-sided. Accordingly, the United States must ensure that strong measures remain available to secure the EU's commitments on meat trade, or alternatively, to respond to the EU's failure to open its market. If the United States is successful on this front, the gains to U.S. pork exports could be significant.
In this vein, there are several avenues available to the United States to address these issues and offset the negative impact of the EU's practices on U.S. pork exports. First, the United States should be prepared to respond in the event that the EU again fails to implement the veterinary equivalence agreement. Although the EU may approve the agreement at the March Council of Agriculture Ministers meeting, approval and implementation of the agreement are two different things; without implementation of the agreement, there is no equivalence. Thus, in the absence of implementation, the United States must apply U.S. standards to the EU. This can only be accomplished through a complete meat inspection audit by the USDA of each EU member state on the basis of U.S. inspection standards. Senators Daschle and Grassley have initiated a letter in the Senate asking for a complete audit of the EU meat inspection system in the event the EU does not fully implement the agreement.
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Assuming that the EU does, in fact, implement the agreement, the United States also should conduct a similar audit, if, after the first year of operation, the EU is found not to be in compliance with the agreement. Unfortunately, the possibility that the EU will never fully and fairly comply with the veterinary equivalence agreement is a very real concern given the history on equivalence issues between the EU and the United States.
In addition, the United States must obtain a satisfactory solution to the EU's attempts to re-define the pork TRQ and ban U.S. pork exports on the basis of residue testing concerns. It makes no sense for the EU to implement the agreement only to abrogate the right of the U.S. pork industry shortly thereafter by cutting off U.S. meat exports on the basis of alleged residue concerns. In so doing, the United States must send a strong message that it will no longer tolerate the EU's repeated efforts to preclude U.S. pork—pork that is the safest in the world—from competing in its markets.
Finally, Danish and Belgium meat processors have requested that the EU create a new quota for imported pork for further processing in the EU and re-export to third country markets. Pork imported under this quota would be in addition to imported pork allowed under the existing quota. EU meat processors requested the new quota principally for unprocessed hams, which the United States can deliver to the EU for approximately 50 percent of the EU price. This additional quota would benefit the United States because it would open up an important market for hams that often are in oversupply, and, at the same time, benefit EU processors and pork shipments to third country markets. Further, the current TRQ is small, emphasizing the need to open up every available avenue for U.S. pork exports to the EU. Thus, there are clear benefits to be gained by supporting the request for the additional TRQ. NPPC therefore asks that the United States use all resources to encourage the EU to approve the request, and, in so doing, to ensure that all FSIS-approved plants are eligible to ship product into this new quota.
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Statement of California Cling Peach Growers Advisory Board
The following written statement is submitted on behalf of the California Cling Peach Growers Advisory Board and the industry's Trade Policy Task Force in connection with the House Agriculture Committee's review of the 1999 WTO Multilateral Negotiations on Agricultural Trade, particularly focusing on Europe.
The California Cling Peach Growers Advisory Board is a non-profit quasi-governmental association representing all 750 cling peach producers and five cling peach processors in the State of California. Virtually all of the United States' production of cling peaches is found in California. Over 95 percent of that production is used for processing, the primary product being canned peaches. California canned peaches are sold domestically, their largest single market, and to export markets in the Pacific Rim, Canada, and elsewhere. The Board's primary role is to assist the U.S. industry in the development of these domestic and export markets. The industry's Task Force has assumed the special role of assisting the Board in addressing the industry's long-standing dispute with Europe.
The California cling peach industry has the unfortunate distinction of having the longest-standing section 301 case now pending before the U.S. Government. The case concerns illegal EU canned peach subsidies. Despite nearly two decades of seeking relief from the EU's excessive and irrational canned peach regime in both formal and informal trade settings, California cling peach growers and processors have yet to receive relief. Not only has there been no relief, EU aid over this period to its canned peach industry has actually increased.
Because past bilateral and multilateral efforts, including a GATT action, have been unable to resolve this long-standing dispute with the EU, the California cling peach industry is skeptical that a new round of WTO multilateral trade negotiations in agriculture in 1999 will deliver anything positive to its producers and processors. Unless there is closure on current trade disputes, the United States may well be put in the compromising position of negotiating away U.S. tariffs in exchange for solutions to prior disputes that our trading partners were obliged to resolve long ago.
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II. The European Union Continues to Subsidize its Canned Peach Producers and Cause Significant Trade Distortions Despite the Explicit Terms of a GATT Panel Decision and Bilateral U.S.-EU Canned Fruit Accord.
Seventeen years ago, California canned peach producers and the United States government sought to stop the EU from disrupting the global market for canned peaches by challenging EU canned peach subsidies in GATT dispute settlement. The United States won the case. The GATT panel found that EU peach processing subsidies nullified and impaired tariff concessions granted by the EU on canned fruit products. Following that victory, a U.S.-EU bilateral Canned Fruit Accord (CFA) was negotiated in 1985, under which the EU committed to discontinue subsidies to EU canned peach processors. U.S. canned peach producers believed that with the bilateral agreement in place, EU trade disruption would cease. This has not happened. To the contrary, EU trade disruption in the peach sector has become far worse. The California industry and U.S. Government have now developed irrefutable evidence that the bilateral agreement has failed to discipline EU canned peach subsidies and that the EU regime is causing a significant erosion of the U.S. industry's competitive position.
A. EU Subsidies to Its Canned Peach Sector Exceed on an Annual Basis the U.S. Industry's Total Farm-Gate Value.
Based on recently obtained data from The EU Commission, Europe is subsidizing its canned peach producers with between $161 million and $213-million annually, an annual funding level that greatly exceeds the total farm-gate value of California cling peaches and far exceeds the level of funding going to every single U.S. farm sector. Data compiled with the assistance of the U.S. Department of Agriculture show that the bilateral agreement has not reduced EU aid levels as intended. Despite specific EU aid commitments given to the United States under the CFA, EU aid levels have regularly exceeded those committed levels in violation of that agreement in each of the last 5 years for which data are available by an aggregate amount of $64 million.
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In addition, the EU has circumvented the agreement by offering a new form of subsidy—withdrawal aid—which is not disciplined by the CFA. Withdrawal aid has been so substantial that EU peach growers have made money by growing for withdrawal, dumping their excess peaches in waste pits, and collecting the EU payment. In Greece, where the excesses have been the greatest, Greek growers have dumped up to 66 percent of their annual production, or between 300,000 to 600,000 metric tons of peaches annually, in withdrawal pits.
B. The Excesses in EU Aid Have Led to Chronic EU Overproduction and Exports, Chronic EU Price Undercutting, and Global Displacement of U.S. Canned Peaches.
Numerous USDA-prepared charts, copies of which are attached, demonstrate that the U.S. industry has to a growing extent been seriously harmed and prejudiced by EU canned fruit subsidy excesses and violations. Data likewise show that the U.S. industry has suffered a deterioration of its competitive relationship with the EU, despite the recommendation of the 1984 Canned Fruit GATT panel that that relationship be restored to pre-subsidy conditions.
The EU data show that since the bilateral agreement was struck:
EU canned peach production and exports are substantially up, consistent with the upward trend in increasing EU subsidy levels. Canned peach production in Greece, the biggest player, has nearly doubled in the last 10 years, from 198,000 metric tons in 1987 to 330,000 metric tons in 1996.
EU cling peach fresh production has grown even more, from 170,000 metric tons in 1986 to 750,000 metric tons in 1996, a direct result of withdrawal aid. Greek growers now have so many peaches in the ground that they are dumping them in waste pits the size of football fields and are being paid market prices by the EU to do so.
The world market share of Greece and other EU canned peach producers is also increasing. Today, the EU accounts for over 70 percent of total world canned peach exports.
With excessive EU aid creating chronic overproduction, the Greeks have been able to significantly undercut California canned peach prices in all world markets by margins of 50 percent or more.
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As a result, both California canned peach exports to all export markets (most notably Japan and Canada) and California domestic sales have been displaced. In contrast, California exports to the EU market—once our industry's largest export outlet—are now nonexistent.
The evidence is unmistakably clear that as EU aid levels have risen, so too has Greece's export dominance, with corresponding harm to the U.S. industry.
III. Bilateral and Multilateral Efforts to Correct the Problem Have Failed to Achieve Reforms.
The EU has resisted all efforts by the U.S. Government and by other non-EU peach producing countries to correct its canned fruit practices. Numerous U.S. bilateral interventions, of which there have been dozens (many at very high levels), more formal trade remedy proceedings under Section 301, a successful GATT dispute settlement action, and several rounds of threatened Section 301 retaliation have yet to provide relief. An intervention in February 1997 involving six producing countries has likewise not moved the EU to address the problem.
The EU's long-awaited fruit and vegetable reforms of the Common Agricultural Policy (CAP) are also not the answer. Reform measures are being made slowly over a six year phase-in period, during which aid levels remain significant, and harm to the U.S. industry continues. CAP reform also covers only one part of the EU canned peach regime—withdrawal aid—and does not discipline the processor aid/ minimum grower price (MGP) scheme or sugar rebate program. Finally, CAP reform does not address the canned fruit regime's pervasive fraud and abuse, which the EU Commission itself has documented. EU Auditors' Reports in 1989 and again in 1995 document fraud and overpayments in both the processor aid and withdrawal subsidy premiums. Despite these admissions, the EU has ignored numerous U.S. Government requests for evidence that steps are being taken to correct program abuses.
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IV. A High-Priority U.S. Government Strategy is Needed for Resolving the Trade Disruption Being Caused by EU Canned Peach Subsidies.
Almost every other non-EU canned peach producing country has taken successful import relief actions against the Greeks and other EU canned peach producing countries to protect their domestic industries.
Over the last year and a half, the industry has worked hard to make its case to USTR and others in the administration that the EU regime is irrational and in violation of our bilateral agreement. Ambassador Barshefsy has personally acknowledged that the EU regime is an inequity and that the Commission is again providing excessive financial aid to the point where the EU's share of the world market continues to increase while that of the market oriented producers continues to decrease.
USTR has pledged to our industry and to many in Congress that they will work hard to fix the problem. We are counting on that commitment to find a solution. We have explored with the U.S. Government WTO dispute settlement, section 301, and other remedial avenues, including other WTO venues before which to take our concerns. The U.S. Government recently joined eleven other affected countries in protesting the EU canned fruit regime in the WTO Committee on Agriculture. We are hopeful that the good offices of the Chairman of the WTO Committee on Agriculture and the protests of eleven other WTO-member countries in addition to the United States will create the pressure and leverage needed to force EU reforms. If not, another more forceful strategy will need to be pursued.
At this juncture, before undue energies are applied to the 1999 exercise, we are in urgent need of a decisive U.S. Government strategy for delivering relief in the context of the present. We ask the committee's help in encouraging this.
V. U.S. Agriculture Sectors Need Assurances that Current Trade Agreements are Being Honored Before Attention is Turned to a New Multilateral Trade Round.
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The direction the U.S.-EU canned fruit dispute takes will have important implications well beyond the canned fruit sector. Not only is the U.S.-EU canned fruit dispute instructive on how the multilateral trading system and our own U.S. trade laws have been unable to correct inequities between trading partners, it also helps demonstrate how the EU, the U.S. Government's most frequent adversary on agricultural issues, continues to increase its protection for domestic industries despite Uruguay Round reform.
The United States should be able to secure relief for an aggrieved U.S. industry under compelling circumstances, like ours, that include:
a favorable GATT ruling and a bilateral agreement,
irrefutable evidence that an established agreement is not working and that the regime has led to destructive trade consequences for the California industry,
acknowledgement by the administration that the EU's regime is an inequity that needs to be corrected, and
recognition even by the EU Commission that the system needs reform and is fraught with fraud and abuse,
If the present system will not deliver relief under these conditions, its effectiveness must be questioned. Moreover, if the present system is ineffectual at its foundation, refinements to that system in 1999 are of equally questionable value.
The California cling peach industry is seeking evidence that existing trade agreements work before it will endorse the U.S. Government venturing forward in pursuit of new agreements for agriculture. As the EU dispute demonstrates, new agreements will be of dubious consequence if existing ones are not being honored.
We ask the committee for its help in sending this message and in urging that a high-priority U.S. Government strategy be developed to reverse the ongoing harm being caused to our industry from EU canned peach subsidies before attention turns to a new multilateral round of negotiations in agriculture.
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Statement of Sunkist Growers
Sunkist Growers commends the committee for conducting this oversight hearing concerning the state of agricultural trade between the United States and our European trading partners.
Until the early 1970's, Sunkist Growers successfully exported substantial volumes of fresh California/Arizona-origin citrus fruit into markets in Europe. This trade virtually ended when the European Community (EC) imposed a discriminatory tariff preference scheme on citrus fruit imports which gave preferred Mediterranean basin countries, notably Morocco and Algeria, up to an 80 percent discount from the common external tariff applied to citrus fruit, while at the same time imposing up to a 20 percent duty on American oranges. This discriminatory policy continues to have a particularly adverse effect on our summer and winter orange shipments.
Despite a favorable opinion rendered by the GATT dispute resolution process and in subsequent direct negotiations with European trading partners efforts by the U.S. Government have proven unsuccessful in achieving remedy to this blatantly unfair trade practice. These conditions have effectively removed us from competition in Europe. Expansion of the E.U. to include Sweden, Norway, Finland, Austria et al. has extended the damage and consequent competitive difficulties confronting U.S. citrus fruit in these markets.
It is estimated that if the U.S. could obtain equal treatment for fresh orange, lemon and grapefruit exports to the markets of the European Union, exports would increase by $5 million to $25 million in the first 2 years.
We appreciate the consideration of these matters by the committee in its work to help shape the trade agenda for the WTO agricultural trade negotiations scheduled to commence next year.
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If we can provide any additional assistance to the committee or clarification concerning these matters, please don't hesitate to contact us.
"The Official Committee record contains additional material here."
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