SPEAKERS CONTENTS INSERTS
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THE CURRENT STATUS AND FUTURE PROSPECTS OF TRADE BETWEEN THE UNITED STATES AND THE EUROPEAN UNION
THURSDAY, MAY 8, 1997
House of Representatives,
Subcommittee on Livestock, Dairy, and Poultry,
Committee on Agriculture,
Washington, DC.
The subcommittee met, pursuant to call, at 1:00 p.m., in room 1300, Longworth House Office Building, Hon. Richard W. Pombo (chairman of the subcommittee) presiding.
Present: Representatives Goodlatte, Smith of Michigan, Lewis, Hostettler, Blunt, Jenkins, Smith of Oregon [ex officio], Peterson, Johnson, Dooley, Boswell, and Stenholm [ex officio].
Also present: Representative Watkins.
Staff present: Lynn Gallagher; senior professional staff; Pete Thomson, legislative director; Christopher D'Arcy, staff director, Subcommittee on Livestock, Dairy, and Poultry; John Goldberg, professional staff; Brent Gattis, Wanda Worsham, clerk; Callista Bisek, assistant clerk; Andy Baker, minority associate counsel; and Curt Mann, minority staff consultant.
Mr. POMBO. The subcommittee is called to order.
To begin with, I apologize to the witnesses and the people in attendance. We had a vote right at 1 o'clock, and it appears that we are going to have another vote in about a half an hour.
So we will have to recess the committee at that point, and then we will conclude after that vote.
OPENING STATEMENT OF HON. RICHARD W. POMBO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
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Mr. POMBO. Today's hearing marks the first in a series of hearings that I planned for this subcommittee to examine trade issues affecting the commodities under our jurisdiction. Specifically, our purpose this afternoon is to inquire as to the current status and future prospects for trade between the United States and the European Union in the area of livestock, dairy, and poultry products.
It should be noted that there are currently a number of trade disputes between the United States and the European Union, many of which involve livestock, dairy, and poultry matters. However, the disputes between the United States and the European Union involve more than just those issues. They include commodities across the board, such as wine, canned peaches, rice, wheat gluten, the implementation of the Uruguay Round grain tariff commitments, and reduction of export subsidies to name a few.
It is unfortunate that two trading partners and competitors have such significant problems, since agricultural trade between the United States and the European Union is estimated to exceed $15 billion this year.
It would be difficult to overestimate the importance of these matters to America's meat and dairy producers. With a stable American population, and only a modest growth projected in the domestic demand for these items, the export market remains the only real path to increasing American farm income.
World population is now growing faster than ever, and these people will need to be fed. At the same time, rising income levels in Eastern Europe, Asia, and Latin America, mean more money available for food and increasing desire for Western cuisine, including an appetite for meat and dairy products.
Currently, exports account for 30 percent of the U.S. farm cash receipts. This clearly demonstrates the critical importance of opening, maintaining, and expanding U.S. agricultural markets. I agree with Secretary Glickman when he says that exports are the ultimate safety net for U.S. agriculture.
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Few would dispute that the United States is the world's most competitive producer of food and fiber in the world. However, our competitiveness is continually jeopardized by the high levels of import protection and export assistance foreign nations offer to their producers. While American farmers, ranchers, and dairymen can compete and win against any in the world, they are too often pitted against foreign governments, not foreign producers.
Too often the term ''trading partner'' rings hollow when it is clear to all involved that trading adversaries would be a far more fitting description of the nature of our relationship with some countries in certain markets. Equity fairness and the use of sound science need to be the hallmarks of our trade policy. If they are not, then protectionism, stalemate, and stagnation are not far behind.
That is why I am committed to opposing the European Union's ban on beef raised using hormones. Scientific study after scientific study has shown this to be completely safe, and I would predict that if science is the basis, the WTO will soon rule in favor of the United States and sound science.
I am glad to see that, after nearly 3 years of difficult negotiations, we have just concluded an agreement on veterinary equivalency with the European Union, and I commend Paul Drazek and his team for their diligence and their accomplishments.
This agreement provides an overall framework for recognizing as equivalent the veterinary inspection systems of the United States and the European Union. It covers more than 1 1/2 billion in U.S. animal products exported to the European Union, and approximately the same amount in European exports to this country. Hopefully, this agreement will lead to our enhanced and expanded trading opportunities for our red meat industry and will preserve our existing trade in egg and dairy products as well as pet food.
It is very unfortunate that there were some issues left unresolved, specifically with regard to poultry processing standards. This places at risk nearly 55 million in American poultry exports to the European Union. As unacceptable as this situation is, however, it would have been worse still for the United States to have endorsed an agreement based not on sound science but on political science.
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I would hope that an agreement on poultry could be reached, and I am certain that one should be. It is in everyone's interest, especially European consumers, that this be worked out. As this subcommittee works to maintain and expand our trading markets, the mandates of fairness and equity require me to try to ensure that America's producers have at their disposal the tools needed to effectively compete in the international trading arena.
Programs such as Dairy Export Incentive Program, the Export Enhancement Program, the Market Access Program cannot exist in a vacuum. As their name suggests, these programs were designed to help American farmers take advantage of trading opportunities.
These programs exist because of the overly generous levels of support enjoyed by European farmers. American agriculture should not be asked to unilaterally disarm in an area of aggressive international trade.
I look forward to today's testimony. I welcome all of our witnesses and guests here.
At this point, I would like to turn to the ranking member of the subcommittee, Mr. Peterson.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA
Mr. PETERSON. Thank you, Mr. Chairman. I'd like to thank you for holding this hearing to review our current relationship in agriculture and trade with the European Union.
The economic potential of the European market remains as strong as ever for U.S. livestock, dairy, and poultry producers, and it is vital that this committee continue its efforts to ensure that U.S. producers are afforded every opportunity to compete for access to those markets.
It is most appropriate that this committee review recent agriculture trade events between the United States and the European Union at this time. In addition to the new tentative framework agreement on veterinary equivalency, the WTO released yesterday a decision in favor of the United States that the European Union cannot exclude U.S. hormone treated meat from the EU market.
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Events in agricultural trade are happening very quickly, and it is essential that this committee keep pace with these changes to assist U.S. producers in their drive for market expansion overseas.
Since 1992, U.S. animal and animal product producers have faced the possibility that new EU harmonized import controls would prevent them from selling their safe and wholesome animal products in the European market. Under this new veterinary agreement, U.S. producers will be able to preserve the current European market access for certain U.S. animal product exports and gain new opportunities for market share and others.
I would like to begin by commending the U.S. negotiators and the industry representatives involved in the veterinary talks. These talks resulted in a framework agreement that will benefit U.S. dairy, egg, beef, and pork producers, and allow them to compete on a fair and level playing field in the European market.
However, one U.S. industry was not as fortunate. The U.S. poultry industry received assurances from U.S. negotiators that all U.S. producer industries would stick together and reach a single unified agreement with the European Union. In the end, U.S. poultry producers were left out. Now they face the uncertain future of continuous negotiations with the European Union without the full weight and backing of the entire industry.
In Minnesota, which is a big poultry producer, the lack of an agreement on poultry has had a significant negative impact on the local industry. For example, General Foods estimates that they will lose sales from 5- to 15 million pounds of turkey products in the European Union because of this situation.
I am concerned that U.S. Government officials may have handicapped the U.S. poultry industry in the rush to conclude this agreement. However, I recognize that this agreement may provide greater export opportunities for U.S. dairy, egg, beef, and pork industries. And, therefore, I urge this committee and the administration to continue to press for further progress for all U.S. agriculture industries in our relationship with our major trading partners worldwide.
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And I appreciate our witnesses being here today and look forward to hearing about this issue and other important aspects of agricultural trade with the European Union.
And, Mr. Chairman, in addition, if I could, the National Farmers Union is currently developing a marketing cooperative to enable new and existing cooperatives to export to foreign markets, and this will allow producers more direct access in providing high quality products to specific markets.
Thank you, Mr. Chairman.
Mr. POMBO. Thank you.
We are joined by the committee chairman, Mr. Smith, and I will yield to him if he has an opening statement at this time.
The CHAIRMAN. Thank you, Mr. Chairman. Just an observation or two, and I have a statement I'd like entered in the record.
Mr. POMBO. Without objection.
OPENING STATEMENT OF HON. ROBERT F. SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Mr. Chairman, I congratulate you and your committee for continuing the efforts that we have outlined early in the year, that this committee is going to be very aggressive with respect to trade around the world with agricultural commodities from this country, and breaking down barriers and reducing impediments to the entrants of our commodities, including beef, and especially with the European Union.
And I just want to reemphasize some of the I think very important points you made in your opening statement, as well as Mr. Peterson.
All of agriculture, as we ought to be reminded constantly, combines to about $60 billion in export for this Nation and contributes about $26 billion to the balance of trade which few industries in America can point to with that kind of experience.
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The European Union certainly is one of the most important trading partners that we have in the world, evidenced by some $9 billion worth of agricultural exports to the European Union and accepting some $6.3 billion from the European Union, just in agricultural. While our exports are increasing around the world at a more rapid pace than the European Union, I think we are witnessing what is exactly happening there.
And again, I will leave this chart with the committee, but the chart indicates the export subsidies by the European Union of all of their agricultural commodities. That roughly $45 billion, that is in comparison to the United States of about $5 billion.
Because they have domestic supports, they have to have export subsidies to compete. Their domestic support systems are about $5 billion for agriculture, and our domestic support is something in the neighborhood of $200- to $225 million, the point being that they extravagantly support their agricultural systems in the European Union at the cost to their consumers. And with allowing us entrance into that market, we could reduce the cost tremendously to the consumers and the cost of living to members of the European Union.
We are encouraged by, finally, the hopeful agreement on the hormone ban, as well as the veterinary equivalency, which certainly is a step forward, and probably wouldn't have happened had we not had a World Trade Organization, where we, as well as other members of the world trading community, can go for final judgment on some of these issues.
We must continue to try to break down barriers, and I join with the subcommittee chairman in congratulating Mr. Drazek, who has completed these agreements on the veterinary equivalency program, and look forward to cooperating with the Department of Agriculture and the U.S. Trade Representative as we approach these issues, and to announce that this committee will visit Europe in the near future. And we want to take with us the best opportunities we have to, again, represent this country in improving trade and reducing the imbalances that now occur.
Thank you, Mr. Chairman.
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[The prepared statement of Mr. Smith follows:]
PREPARED STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
I congratulate Mr. Pombo, the chairman of the subcommittee, for holding this important hearing. I am confident that he agrees with me that American farmers and ranchers, the most productive in the world, can prosper only where there is free and fair world trade.
In fact, if not for agriculture exports the United States trade deficit would be larger than it currently is. In 1996, U.S. agriculture exports totaled $60 billion and the agriculture trade surplus exceeded $26 billion. There is, nevertheless, ample opportunity for expansion of agriculture trade into the 21st century.
The European Union is one of our major trading partners. U.S. exports to the European Union were $9 billion in 1996 and imports from the European Union totaled $6.3 billion. The average annual growth of U.S. exports to the European Union is about 3 percent, as compared to the average annual growth of more than 7 percent in Latin America and Asia.
European Union expenditures for income support to its producers and for export subsidies greatly exceed those of the United States. For example, in 1996, the European Union spent almost $45 billion for export subsidies and domestic support for agriculture. For the same period the United States spent $5 billion.
Also, there are several areas of dispute between the United States and the European Union, among them the EU's meat hormone ban. I am informed that an interim decision has been reached by the World Trade Organization concerning the beef hormone ban, and I hope that our USDA witnesses will confirm the WTO decision today. This represents a major success for the United States and for the U.S. beef industry. I congratulate all who were involved in this victory. It has been reported that this ban represents a loss of $100 million in red meat exports and probably the loss is more like $250 million annually. I, of course, want to see the details of the WTO decision. This process is not over. There will be comment periods, more negotiations, and the European Union does have the right to appeal the WTO decision. Nevertheless, this is an important milestone and I congratulate all involved.
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The Department has resolved another dispute with the European Union concerning veterinary equivalency systems. I am pleased with the agreement and look forward to new trade opportunities with the European Union as a result.
It is incumbent on the administration, through the U.S. Department of Agriculture and the Office of the Trade Representative, and other agencies of the U.S. Government, to make sure that opportunities exist for trade expansion and that trade disputes are resolved in a timely manner. Agriculture is an extremely important and essential issue to be considered in all trade negotiations and resolutions of disputes.
I welcome all of the witnesses ands especially congratulate Mr. Drazek on the fine job he has done on the veterinary equivalency agreement with the European Union and hope that he is successful in resolving the remaining issues for the United States poultry industry.
Mr. POMBO. Thank you.
If any other members have an have an opening statement for the record, it may included at this point in the record.
[The statement of Mr. Pickering follows:]
"The Official Committee record contains additional material here."
Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman.
I would just ask for unanimous consent that the statement of Mike Rakes, who is with World-Wide Sires, be allowed to be entered in the record. Mr. Rakes was scheduled to testify at the earlier hearing that was scheduled, and unfortunately he couldn't be here today.
Mr. POMBO. Without objection, it will be included in the record.
[The statement appears at the conclusion of the hearing.]
Mr. POMBO. Mr. Boswell.
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OPENING STATEMENT OF HON. LEONARD L. BOSWELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA
Mr. BOSWELL. Thank you, Mr. Chairman. I, too, thank you for conducting these hearings. And I would just submit, with what Mr. Smith has said, we ought to reflect on that a little bit from time to time, on what we are doing in our industry for the balance and for trade.
And I don't know anyone--I've been around this industry for a long, long time, and I don't know anyone who does not support high quality and safe food. We all do. But, we've got a competitive situation. We've got to do the very best we know how to do.
And as I've watched our American producers respond to take advantage of our opportunity to improve the lives of people all over the world, as I've had my opportunities to travel around, it has been a good thing to see.
Whichever spouse, if they want to take the other one out to celebrate their birthday or an anniversary, why it's not unusual that they want to go to--whatever your country, you're going to have a good steak or a good pork chop, or whatever, and high quality American food. And so we must be sure that we don't shoot ourselves in the foot as we go through this process.
And thank you for bringing this to everybody's attention.
Mr. POMBO. Thank you.
At this time, I'd like to recognize our first witness, our colleague who is a returning member to this body, Mr. Wes Watkins from Oklahoma.
Mr. Watkins.
STATEMENT OF HON. WES WATKINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OKLAHOMA
Mr. WATKINS. Thank you, Mr. Chairman.
I'd like to ask that my formal statement be made a part of the record.
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Mr. POMBO. Without objection, it will be included in the record.
Mr. WATKINS. I think you'll find it a very thorough and comprehensive overall summary of this dispute with the European Union.
I'd like to make, if I could, a more abbreviated statement from the heart.
I'd like to thank you and the entire subcommittee for the opportunity to participate in this important hearing. As you know, the European Union's ban on beef treated with the growth producing hormones is a subject very important not only to me, but it goes to the heart of the American agriculture trade policy. And I really appreciate this committee's action.
This was an issue elevated during the campaign that we've got to do something about. It's something I've continued to fight during the 4 months I've been in Congress.
And today I bring the subcommittee good news by the way. This morning there are reports, including the Journal of Commerce, stating that WTO's interim report has ruled in favor of United States, and I have this particular article that just came out this morning. So I believe we are making some headway. And if the Journal of Commerce is correct, this is a major step in opening up your markets to America's cattlemen.
As you know, the European Union has effectively banned all U.S. beef since 1989. This ban was enacted under the guise of public health and an erroneous claim that these hormones are harmful. Let there be no doubt: beef treated with growth producing hormones is safe.
My formal written statement explains how these hormones were proven safe by the FDA, the World Health Organization, the Lamming Commission, and the European Union's scientific conference on growth promotion in meat production.
So why does European Union deny their citizens the right to the most economical, highest quality beef in the world? The answer is simple. They worry that in an open marketplace the European ranchers would be unable to compete with beef from the Union States, Canada, Argentina, and other areas.
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This ban is in direct violation of Uruguay Rounds, which states that countries may set their own health standards, but those standards must be based on sound science. Therefore, the European Union has erected this political and artificial barrier to protect its ranchers from the competition and artificially inflate their prices. This ban has been in place since 1989 and costs American beef producers hundreds of millions of dollars a year.
To illustrate the extremes that the European Union has gone to in dragging out this process, I have enclosed, Mr. Chairman, in my formal statement a time table. It's on page 4 if you'd like to refer to it. I've enclosed that time table showing the European Union's steps to date in this matter. It shows the points at which the European Union thumbed their noses at sound science and violated their own agreements in order to protect their domestic beef markets.
Mr. Chairman, this case is before the WTO in a formal ruling. A more formal ruling is expected any day. And I was excited by the Journal of Commerce report this morning, and I am confident that the dispute settlement panel will rule on the basis of sound science in our favor.
However, we must remain vigilant in this case. It is my understanding that even if the United States wins this case, they can delay it through legal tactics for up to 18 months or so. This foot dragging would only serve to further injure America's livestock interests at a time when they can ill afford it.
Mr. Chairman, this ban must end. The European Union's lack of action in this matter is unexcusable. They have jeopardized trade relations and invite retaliation. Their own scientists tell them that U.S. beef is safe, and yet they refuse to live up to the agreement they have signed. Yet, they continue to insist on dragging this out as long as possible, with the sole effect of hurting American cattlepeople.
Today I, once again, call upon the European Union to drop this ban and open its markets immediately. I also want to urge the World Trade Organization to bring this matter to a quick and just conclusion. Many Americans see this as a case to determine whether our participation in the World Trade Organization is in our national interest.
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In conclusion, Mr. Chairman, it is of utmost importance that this matter be resolved in a favorable manner. The United States has cleared moved into a competitive global economy, and we emphasize that a freer market should exist. We must let our trade competitors know that it is unacceptable for them to violate their agreements.
And I appreciate this committee's efforts in helping get that word and that signal to the European Union.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Watkins appears at the conclusion of the hearing.]
Mr. POMBO. Thank you, Mr. Watkins. I guess the only question that I would have for you is that is it the opinion of your constituents, have they expressed to you that changing this would dramatically help the exports that are coming from your part of the world?
Mr. WATKINS. There is no question. In the southwest part of the United States, like in Oklahoma, in our agriculture industry, our No. 1 industry is the beef cattle industry. And they see these artificial barriers set up, and we know from scientific studies and everything that this is unfair trade practices, that it would help the overall marketing of our cattle.
We are losing an estimation of over $100 million a year in sales that could possibly go into Europe. At least we'd be able to compete for those sales into Europe.
Mr. POMBO. Thank you. I don't believe that there are any other further questions. I would welcome you to sit on the dais for the remainder of the hearing, if you do have the time to do that, and ask unanimous consent of the committee that Mr. Watkins be allowed to sit on the dais.
Without objection, so ordered
Mr. WATKINS. Mr. Chairman, I will take you up on that for a while.
Mr. POMBO. All right. Thank you.
At this point, I would like to call up our first panel of the hearing, Mr. Paul Drazek, Mr. Mark Manis, and Mr. Craig Thorn.
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It's good to see you all again here today. You look a little bit more rested than you did the last time we met, but I look forward to your testimony. Mr. Drazek, if you would like to begin.
STATEMENT OF PAUL DRAZEK, SPECIAL ASSISTANT TO THE SECRETARY OF AGRICULTURE FOR INTERNATIONAL TRADE
Mr. DRAZEK. Thank you very much, Mr. Chairman.
Before I start, I'd like to again introduce my colleagues here, Craig Thorn, who is the chief negotiator in the Foreign Agricultural Service, and Mr. Mark Manis, who is with the Food Safety Inspection Service, and was integral in helping us through the details of this negotiation.
I do have a formal statement that I would like to have submitted for the record. But I won't read the whole thing; I will summarize it right now.
Mr. POMBO. Without objection, your complete statement will be included in the record. If your oral testimony could be held within the 5 minutes, it would be appreciated by the committee.
Mr. DRAZEK. Thank you very much, Mr. Chairman.
And one other thing before I start, I'd also like to thank you again, as I've done before, for postponing this hearing for a month, or whatever it was. The last time it was scheduled was at an awkward time for everyone, and I do appreciate that. We all do.
Mr. Chairman, globally, improved market access, reduced trade barriers, and the quality and competitiveness of U.S. products have made exports of livestock and poultry products true success stories. They have helped lead total U.S. agricultural exports to a new record of nearly $60 billion last year.
The value of U.S. poultry, pork, beef, and variety meat exports increased 8 percent to $6.6 billion in 1996, more than twice the level of 1999.
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In so doing, they have been a major reason for the improvement in the United States' competitive position in world agricultural markets. We have expanded our share of world markets for poultry, beef, and pork in recent years, and by all indications those markets will continue their bullish ways. USDA projects growth in U.S. animal product exports to average seven percent through the year 2000.
What makes these export figures even more impressive is that they were achieved with limited access to the European Union--historically, one of our larger markets.
Mr. Chairman, nowhere are we facing greater challenges on livestock trade policy issues than in our dealings with the European Union. However, with our agreement on veterinary equivalency, we believe we have made an important first step toward resolving some of the key issues. I'd like to spend a few minutes outlining the history of the issue.
Equivalency agreements incorporate the provisions of the Uruguay Round's sanitary and phytosanitary agreement. The underlying premise is that most countries do not have identical sanitary measures. However, although different, those measures can provide a secure level of protection to public and animal health.
Through equivalency negotiations, countries thoroughly review each other's sanitary measures to ensure that the appropriate level of protection is maintained. As a result, equivalency agreements offer the benefits of ensuring safe food while facilitating trade.
On April 30, we reached agreement with the European Union on an overall framework for recognizing as equivalent each other's veterinary inspection systems. This agreement is not a trade agreement in the ordinary sense. Rather, it is a technical agreement on the recognition of veterinary and inspection standards that covers over 40 product groups and over $3 billion in bilateral trade.
The agreement is based on World Trade Organization principles on equivalency and establishes a process for dealing with remaining and newly emerging veterinary inspection problems.
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Mr. Chairman, this is a good agreement, but it did not resolve all of the issues between the United States and the European Union in meat trade. On the positive side, it should open new trade opportunities for red meat and preserve most preexisting trade in products such as pet food, dairy, and egg products. In the short term, we expect the U.S. pork industry to be the largest or biggest beneficiary.
As a result of the agreement, U.S. exporters can pursue sales under the EU's 38,000 ton tariff rate quota for pork loins that was negotiated as part of the Uruguay Round agreement. Unfortunately, we were unable to resolve some key issues in the poultry sector, as others have already commented on.
As a result, the United States could lose up to $50 million in poultry exports. This is completely unacceptable. As Secretary Glickman has said, the European Union's insistence that U.S. poultry comply with every prescriptive EU poultry regulation is out of step with the European Union's trade obligations. U.S. poultry is the safest and most wholesome in the world, and we refuse to lower our standards, which is what we would have to do in order to ship to the European Union.
We will continue to pursue a resolution to these issues under the framework agreement we reached last week. In the meantime, USDA will begin a thorough examination of the EU's poultry inspection system and its ability to meet tough U.S. inspection rules under the new HACCP program.
As of May 1, EU poultry plants are not eligible to ship product to the United States until we are able to conduct appropriate inspections and confirm that the EU system can deliver an appropriate level of protection. We are also working with the U.S. poultry industry to use the full resources of USDA to target opportunities in other markets to make up for lost sales as a result of the European Union's actions.
In addition, there is nothing in the agreement that prevents us from challenging the European Union and the World Trade Organization. I want to assure the subcommittee that we are taking, and will continue to take, strong actions to protect U.S. interests in this area. One livestock issue we have already taken to the WTO is the EU hormone ban. My full statement provides more detail on this issue.
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But since the WTO panel has issued to us its preliminary report, and word of this has been picked up in the media, I should probably just say a word or two about that. I realize my time has expired, but I would like to just finish a comment or two and we'll go on to questions.
Mr. Chairman, I can confirm to you that the WTO panel's preliminary report was delivered to the U.S. Trade Representative's office in Geneva last night. Since it is a confidential document, I am not able at this time to discuss it in any detail. And our lawyers are obviously studying it very carefully.
Furthermore, it would be inappropriate to rush to a conclusion about the outcome of the panel's work on the basis of its preliminary findings. There will no doubt be additional comments to the panel from all parties before its final report is complete next month.
However, we have always felt, and we continue to feel, that the panel will ultimately determine that the EU's hormone ban is inconsistent with its obligations under the WTO sanitary and phytosanitary agreement.
Mr. Chairman, as you can see, we have several major outstanding trade issues with the European Union that affect our livestock sector. We are using all available trade policy tools at our disposal, and we will work relentlessly to ensure the best solutions for the U.S. livestock sector.
Mr. Chairman, I'll stop with that. I would like to say, in conclusion, that I feel very strongly. I'd like to express my appreciation to members of all segments of the U.S. livestock industry who helped us and advised us throughout this process. We rely very heavily on them, and we could not have reached this agreement without their help.
Thank you.
[The prepared statement of Mr. Drazek appears at the conclusion of the hearing.]
Mr. POMBO. Well, thank you very much. Just for the point of clarification, under this agreement, it is my understanding that EU inspectors will be allowed to inspect U.S. plants which are put on USDA lists for export. And it is my understanding that that is reciprocal, that our inspectors will do the same in Europe.
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Is this going to be a 100 percent inspection? What is your understanding at this point of that part of the agreement?
Mr. DRAZEK. Mr. Chairman, we prefer to use the word ''audit'' for these inspections, because what is changing as a result of this agreement is that hence forth the initial listing of U.S. plants will be done by the Food Safety Inspection Service of the Department of Agriculture. They will do the initial inspections and will be listed for export. The list will go to Europe for approval.
At some point in the future, the European Union may audit or inspect individual plants to determine that FSIS is carrying out its function according to its obligations. The same identical situation and system will be put in place for auditing and approvals of EU meat inspections for export to the United States.
Mr. POMBO. Can you explain the 20-day review period and how exactly that will work?
Mr. DRAZEK. Yes. And I didn't fully answer your first question, just to fill that in, that last gap. You asked whether it would be 100 percent inspections. The answer is probably not, but it could be. Just as we would want to be able to inspect 100 percent of any country's facilities shipping to the United States, it could be conceivable that 100 percent inspections would occur by the Europeans. But we don't believe that will happen, especially with respect to red meat.
And your second question was the 20-day review period. That is in the European regulation for acceptance of facilities for export or import into Europe from other countries. There is a system in place that involves approximately 20 or 21 days.
We are going to adopt a mirror system in the United States for approval of European facilities for export to the United States.
Mr. POMBO. As far as the poultry issues, I know that we did not come to complete agreement on that issue, even though I think that there was some progress made in the negotiations. Do we expect further negotiations and the possibility of an agreement on that portion?
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Mr. DRAZEK. We fully intend to continue to press our case in this area, and this framework agreement will provide us the basis to do that. There is a mechanism in the agreement that will allow for continuation of the dialogue that we have embarked upon here.
In addition, we reached an agreement with the Europeans that a study will be performed within the next 6 to 9 months on the use of decontaminants in poultry production. And as a result of that study, we believe that a better basis for a decision in Europe will be available, and we believe they, at that point, will make a decision to pursue legislation to legalize the use of at least some decontaminants. Whether they will at that point conclude that chlorine, which is the key issue here, is safe and legalize that is an open question.
But we think that the process of having this study in place will help us to resolve this problem, and ultimately we do have, as I mention in my statement, the opportunity and the right to pursue this issue in the WTO.
Mr. POMBO. The study that you mentioned, I'm assuming that is a scientific study. Who is going to make the decision as to which scientists are going to conduct that study?
Mr. DRAZEK. There will be a scientific study. It will be a study that will be conducted, or a scientific review. I don't think in 6 to 9 months you can actually conduct a very effective study of anything new. But there will be a scientific review, and it will be conducted by scientists.
The European Union will do it under its system in order to allow it to take that information under advisement under the legal system made available to it to pursue changes in its legislation. They have agreed that the United States will be able to fully participate in that process, so we expect that there will be U.S. scientists involved.
Mr. POMBO. Thank you.
I am going to yield to Mr. Peterson for his questions, and then we will recess very shortly just to give us the opportunity to go vote, and then we will return.
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Mr. Peterson.
Mr. PETERSON. Following up on the chairman's questions, there is going to be this study. Is there any current scientific evidence to corroborate what the Europeans are saying about not using hyperchlorination as an antimicrobial treatment? Is there currently any science that backs up what they are saying?
Mr. DRAZEK. I might just comment and turn to Mark Manis to add in anything that I might leave out. But my understanding is that the use of chlorine in all risk assessments that we have seen demonstrate conclusively that the benefits far, far outweigh any tiny risk there might be from the use of chlorine in poultry processing. And that's what we think a genuine good scientific review would conclude.
Mr. PETERSON. Fine. It's my understanding that even though they object to this, using our system because of using chlorinated water, that I've been informed that there are some poultry plants in the European Union that are using this system currently. Is that correct? And if it is, how can they be successful in denying us if they've got plants that are doing this in their country?
Mr. DRAZEK. Well, that, in fact, is a question that we asked ourselves and then asked them during the discussions. And it was interesting, and it's one of the reasons that we have some questions about the European poultry inspection system, because we concluded that, in fact, the European Commission in Brussels was unaware of the fact that there was chlorine being used in poultry processing facilities in certain member countries. And the UK was one, and we understood also that France was using chlorine, at least for poultry that they exported.
What they told us subsequently was that they have investigated the situation and because they say it's illegal, they have shut those operations down.
Mr. PETERSON. If we lose $50 million worth of exports to the European Union because of this, what is being done to make this up? Specifically, have you got any plans in place yet or----
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Mr. DRAZEK. We have put some thoughts down on a piece of paper, and we have begun the discussions of how we might be able to help the poultry industry with representatives of the poultry industry itself.
I happened to be away for the last 3 days, so we weren't able to sit down and have a meeting. And I believe at least a couple of people, like Jim Sumner from USAPE, is traveling to Asia. But as soon as we can get the players together, we're going to sit down and try to come up with a package of ideas that we think would help promote our products in other markets around the world.
Mr. PETERSON. I'd appreciate having that made available when it becomes available.
Mr. DRAZEK. Yes, sir.
Mr. PETERSON. Some of my constituents raise red deer for meat, and they utilize USDA inspection. And they have been trying to get into the market overseas, and apparently recently they have been informed that the USDA inspected red deer meat would not be allowed into the European Union.
Does this agreement that you just came to do anything to solve this problem with the red deer meat? And if not, what process do we have to go through to get this inspected meat into the market over there?
Mr. DRAZEK. I think I'd like Mark Manis to answer that.
Mr. MANIS. Congressman, that issue, unto itself, didn't come up in negotiations because it is not mandatory inspection under FSIS. What we'll have to do is get back to you with the specifics. All I can say is that in the course of our negotiations that issue, unto itself, was not raised. We'd be happy to examine that further and consult with some of the other agencies in agriculture.
Mr. PETERSON. OK. Well, that has been one of our problems is getting anybody to focus on this. I guess it's kind of a small part of the industry, but it is a growing industry in my State, and I think in other States, and it's something we need to get on top of.
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Mr. DRAZEK. We'll get that information to you.
Mr. PETERSON. Well, I think that's probably all of the burning questions I have right now. Maybe we can get going over to vote.
Thank you, Mr. Chairman.
Mr. POMBO. The committee will recess briefly while we attend to a vote on the House floor, and then we will be right back.
Again, I apologize to the witnesses, but we will return shortly.
[Recess.]
Mr. POMBO. I will call the hearing back to order, if the panel could join us again.
Thank you very much. Mr. Hostettler.
Mr. HOSTETTLER. Thank you, Mr. Chairman.
Mr. Drazek, I just have a couple of questions for you. What will we do if the agreement enters into force on October 1 and we find that the European Union does not confirm the U.S. beef and pork establishments approved by FSIS for export to the European Union, and/or the European Union does not accept U.S. meat exports based on non-economic reasons?
Mr. DRAZEK. That is a very good question, Congressman, and it is one that we gave a lot of thought to toward the end of the negotiations, because we felt that in earlier agreements that initially looked to be very positive and supportive of trade in the end didn't really amount to very much.
And we didn't want that to happen again this time, so we incorporated in the exchange of letters a provision that will allow us to examine the progress of the agreement. And the progress will be measured based on number of facilities that will be able to be listed and the amount of trade that we'll see moving over the course of the first 12 months of the agreement.
So in the end, we'll be able to say or decide whether the Europeans are doing what we think they committed to, and that is to allow the system to work on the basis of equivalency.
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Mr. HOSTETTLER. Will you be starting to put that mechanism in place before October 1, I assume? How will we reduce the amount of disruption in trade?
Mr. DRAZEK. Well, between now and the 1st of October, there will be a number of things that we will have to do to enable our plants to become listed immediately. Some guidelines will have to be prepared by the Food Safety Inspection Service so that our FSIS inspectors will know what facilities will have to do in order to be able to meet the requirements set out in the agreement.
There won't be European requirements, nor will it be pure FSIS requirements. Something in between. And those guidelines will have to be prepared, and facilities who wish to be put on the list will have to make some adjustments in order to be put on the list. All of that can be done between now and October 1, so that we'll be able to present a list to the community almost immediately.
And we will be able to tell fairly soon thereafter whether, in fact, this system is working properly. If it isn't, there is a mechanism in the framework agreement for us to come back and raise questions and deal with those problems.
Again, if after a year of examination of the system we feel that it is not working properly, there are certain things that we can do at that point in time.
Mr. HOSTETTLER. When can meat exports recommence? When can we start again?
Mr. DRAZEK. Actually, there is nothing stopping meat exports today, red meat exports today under the 1992 red meat agreement. That agreement is still in place, and trade will continue to flow from facilities that have been listed or approved for export to Europe under that agreement.
What we are trying to do as a result of this agreement is replace the red meat agreement with one that has substantially fewer additional requirements placed on facilities that wish to export to Europe. And those facilities should be able to start making fewer modifications than they would have had to under the red meat agreement, to begin exporting fairly soon after October 1. I don't know exactly how long it would take, but it would be fairly soon I would think.
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Mr. HOSTETTLER. And just one more question with regard to a point that was made during Mr. Peterson's questioning. The issue of hyperchlorinated facilities in poultry facilities in Europe--I was originally understanding that the reason why there were hyperchlorinated facilities there is for export purposes, meaning that they did not--it was not consumed within the European Union or trade within the European Union, but it was for export purposes.
Is that not accurate now? From what you said earlier, it seems like because they have shut these down supposedly, that in fact there was the use of hyperchlorinated poultry that--consumption or whatever, within the European Union itself. Is that true?
Mr. DRAZEK. Yes. Our understanding is that, in fact, there were facilities within the European Union that were using hyperchlorination for domestic consumption or consumption within the European community. We understand that those facilities have been shut down or at least the use of chlorine has been shut off. What that means for those facilities, I don't know.
But we also understand that France was allowing the use of chlorine in poultry processing as long as the product was exported outside the European community, mainly probably to the Middle East. I don't know what the--if you're asking also whether those facilities have been required to stop using chlorine, I do not know the answer.
Mr. HOSTETTLER. But the ones that were using it for internal consumption were closed as a result of your questioning?
Mr. DRAZEK. That's our understanding. And obviously, we're interested in knowing the answer to that question as well, and we're going to continue to monitor that, because as Congressman Peterson said, it's absolutely correct that if, in fact, chlorine is continuing to be used in Europe, then that is a violation of equal treatment in the WTO.
Mr. HOSTETTLER. Thank you very much. Thank you, Mr. Chairman.
Mr. POMBO. Thank you.
The Chair would recognize Mr. Stenholm, who is the ranking member on the full committee, if he had a statement or any questions he would like at this time.
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Mr. STENHOLM. Thank you, Mr. Chairman. I do have a statement that I would like to have inserted at the appropriate place at the beginning of the hearing and will not take the time today for that, and also some questions I would like to submit to this panel, but will do those in writing also in the interest of time.
Mr. POMBO. Without objection, that will be done.
[The prepared statement of Mr. Stenholm follows:]
PREPARED STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
I would like to thank the chairman and Mr. Peterson for holding this hearing exploring our trade relationship with the European Union. It is important that this Committee continue a vigilance on matters of international trade pertaining to agriculture. Farmers who already rely on export markets for about a quarter of their income may rely on such markets for a third of their income by the time Congress writes the next farm bill.
As Freedom to Farm was passed, sending producers to look for foreign markets, the authorization level for export programs was cut substantially. It was in this context that I urged inclusion of a provision to ensure that, at least in the area of dairy exports, we did not unilaterally disarm our producers. The provision, included as section 148 of the FAIR Act, requires the Secretary of Agriculture to maximize the volume of dairy product exports under the Dariy Export Incentive Program consistent with our WTO obligations.
As our dairy producers face a falling support price, and complete phaseout of the program, the European Union continues to subsidize dairy exports. I understand that the Secretary has recently approved additional DEIP sales and urge him to fully implement DEIP in order to maintain our competitiveness in world markets.
One of the most important principles of the fair trade under the WTO is that sanitary and phytosanitary standards should be based on science. I was pleased to read in the Journal of Commerce today that the WTO panel has reached a decision on the EU's hormone ban, upholding the principle that sanitary standards must be based on scientific principles. Perceptions of safety and what is necessary to achieve it will vary, but we all share the goal of a safe and nutritious food supply.
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International trade and global standardization and harmonization is here to stay. Global misunderstandings or deliberate attempts to create trade barriers via phytosanitary and sanitary requirements will continue. Our Government must remain diligent in representing our domestic industries internationally and remain observant that global marketplace is fair for them.
I look forward to hearing the testimony from today's witnesses. Thank you.
Mr. POMBO. Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman.
I thank you, Mr. Drazek, for coming out today.
I want to get back to the poultry non-agreement almost, to some extent, is that we have in past years exported about $50 million worth and have imported into the United States about $1 million. So it's obvious this is something that is very important to our industry.
I don't fully understand what we agreed to in the interim. Now, is it that we have agreed to allow the European Union to do a study in terms of some antimicrobial treatments, in order to accomplish what?
Mr. DRAZEK. It's probably important to point out, and I haven't done so as of yet, that poultry is part of this agreement. It wasn't excluded. We actually resolved many of the poultry problems with respect to inspection of our facilities for listing of plants or approval of plants for export. But there was one issue that we weren't able to resolve, and that was the use of decontaminants in our poultry production.
Because of that failure to reach agreement, it would conceivably be possible--or I should say despite the fact that we weren't able to reach agreement, it is conceivable, or at least it is theoretically possible, for a facility that can meet European requirements without the use of decontaminants to export to Europe, to be listed and approved for export to Europe.
The problem is that because we have very strict standards in this country on pathogens, it is almost impossible for a processor to do that and still meet our requirements. So the effect of this agreement really is that we are not going to be able to export poultry products to Europe, not so much because Europe has banned it, but because of a requirement that they have in place that we could not accept, would force us to export product that doesn't meet our higher standards. It would force us to export lower quality products.
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Mr. DOOLEY. I understand that. But I don't understand what we're doing to resolve that, because as I understand, most of our domestic HACCP requirements almost require a decontaminant, and most often chlorine treatment in the chillers, is that what are we doing, to solve this issue?
Now, is there a study, in fact, that was a part of the agreement that the European Union is going to conduct with U.S. observers, is what I understand. But does that study, as I understand it, is even going to not even include chlorine as one of the items that is being considered? And if that is the case, what are we accomplishing with even allowing this study to go forward?
Mr. DRAZEK. The study that was agreed to was a proposal put forward by the Europeans I believe because many in Europe understand the importance of the use of decontaminants, and the fact that because of HACCP they will probably have to use decontaminants in the future for export to the United States to meet our requirements.
And they, too, are looking at the possibility of establishing within Europe HACCP-like requirements in the future. I think they understand that decontaminants are going to be required in the future. And so the study itself will perhaps enable them to make the changes to their legislation to legalize the use of some of them.
The issue of whether chlorine will be included in the study has not been resolved yet. We are talking to people within our own industry about that. What we've discussed with the Europeans is allowing the scientists themselves to decide what they will look at in terms of their scientific review of the use of decontaminants. And it is conceivable, and probably likely, that chlorine will be included in some way in this study.
What we did in reaching this agreement was to maintain trade as to the extent that we possibly can, and in a whole range of commodities, expand trade substantially in some commodities. In the case of poultry, we were not prepared to sign an agreement that would have in any way legitimized on the part of the Europeans their argument that chlorine was somehow unsafe.
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Mr. DOOLEY. Where I'm still a little bit unclear is I don't see the pathway to resolution here. Is that if we--as I am not clear yet, in terms of a study that could be being undertaken, which chlorine treatment might not even be a subject there, which we have the vast majority of our industry using, that is a decontaminant. That isn't going to contribute to a resolution, so I see at the end of this period of time here going maybe nowhere.
And then, when do we then try to take this? And what is the plans to take this and elevate this to the WTO as a complaint? I don't understand the pathway to success here.
Mr. DRAZEK. The hope was, obviously, that in the course of these negotiations we would be able to find a solution before having this agreement finalized. We were not able to do that. I think everybody understands that we gave it our best effort throughout this process.
This European Union is, at this point in time, adamantly opposed to the use of chlorine as a decontaminant, apparently more open minded to the use of other decontaminants, which some in our industry have some interest in for the future. We have reserved our rights. There is still the possibility, the prospect of challenging this decision, this requirement by the European community in the World Trade Organization.
And if at the appropriate point in time we think that is the best way to go, we will do it. We have done it in the past, and I think we will be successful in using the WTO in the future. And it's not out of the question.
Mr. POMBO. Just to followup on what Mr. Dooley is asking, and I know Mr. Thorn went through these agreements, do you believe at this point that it is politically possible for the Europeans to come to conclusion on this issue? Or do you think that this study may provide them with the political option that they need?
Mr. DRAZEK. I think that, at this point in time, it is my judgment--and I would say that if I hadn't reached this judgment, I might have taken--or we, as an administration--a different approach to this agreement.
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But it was my judgment, and I think the combined feeling on our side, that politically the European community was not in a position to modify its legislation at this point in time on the use of decontaminants. That the only way that it would be possible for them to do it would be by establishing a scientific review, a good scientific review, to enable them to have a basis to move forward on new legislation.
Mr. POMBO. Thank you.
Mr. Blunt?
Mr. BLUNT. I just have maybe one or two questions and a concern. Did you say earlier, maybe before I got here, am I right in assuming no European product in poultry any kind of similar agent to chlorine involved in it?
Mr. DRAZEK. Well, we were told that during the course of these discussions that at least two member countries of the European community were using chlorine.
Mr. BLUNT. Was Great Britain one of those?
Mr. DRAZEK. Great Britain was one, and France, for export, was another. And we were told that Commission officials in Brussels were unaware of that, that it was in contravention of their law, and that when they discovered it they stopped it. They put an end to it.
Obviously, we're going to followup on that to make sure that that is the case. But it was dismaying, to say the least, to discover that the commission in Brussels was unaware of what was going on with respect to the use of decontaminants or with respect to the inspection system for poultry within the European community itself.
Mr. BLUNT. Is it your belief at this point that the poultry from Great Britain is no longer being sold on the continent? Or they have stopped this process? Or what is your belief on that?
Mr. DRAZEK. We really don't know at this point. We have to assume that since the Europeans have said they've stopped the use of decontaminants in Great Britain that it has stopped. What that means for the poultry facilities themselves, I don't know. It may be that those facilities, without the use of chlorine, would not be able to produce for Europe.
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But on the other hand, it might not be that hard, because unlike here they don't have standards for pathogens. So it may be feasible for them to produce poultry without the use of decontaminants and not have a problem.
Mr. BLUNT. You're trying to determine that they are, in fact, doing that, that they are, in fact, stopping that process for the chicken and the other poultry that is sent into Europe?
Mr. DRAZEK. We were told this about 2 weeks ago, and we will have our embassy look into it.
Mr. BLUNT. You understand the significance of that. You know, if the--England and Great Britain are able to do this and we're not, and this is just another barrier that really has no meaning, it's a big problem. There are few things that would have greater impact on the future of American agriculture, based on the course we're headed on, then whether we open these markets up around the world. I believe you are committed to that.
I do have some concerns about that, and this is one of them. The Canadian situation is another one of them. I can't believe that we lost the argument on the dairy tariffs. And I understand that based on social issues, which I thought were not supposed to be a consideration, the numbers of live cattle going into Canada are embarrassingly low.
I just think we have to be very vigilant on these issues, and these countries have become droit at coming up with reasons that are particularly non-tariff barriers, but we can't even seem to beat the tariff barriers. And I think that can't be allowed to continue, and I'm hopeful you're committed to see that we take a better tact on these in the future.
Mr. DRAZEK. Absolutely, Congressman. I couldn't agree with you more on your points. The fact is--and I've said this already a couple of times--if, in fact, chlorine or other antimicrobial treatments are being used in Europe and not being allowed in production within the United States, or any other country in the world for that matter, for export to Europe, that is a violation of the WTO. And it's something that we would certainly pursue.
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We have been told officially that the facilities that were discovered to have been using chlorine in Europe have been told to cease and desist, but we will follow through and make sure that that is the case.
Mr. BLUNT. On the other issue, I thought social policy under NAFTA was not supposed to be a reason for tariffs. Am I wrong on that, the milk issue, the dairy product issue?
Mr. DRAZEK. I'll make a comment I might live to regret, but my sense is that most tariffs are for social purposes in the end. I mean, that's why people put a tariff in places is to protect an industry from something. But what you're driving at is absolutely correct.
When we believe that a tariff that is in place is excessive or, in the case of NAFTA, all tariffs are supposed to go to zero, to maintain them for a social reason is not consistent with NAFTA in our view. And that was our argument in that case. You're absolutely right.
Mr. BLUNT. Some day when we're on a different topic other than the European Union, I'd like for somebody to explain to me how we lost that case based on NAFTA and based on their arguments on that case. And if you could send somebody by to see me on that, I'd appreciate an explanation of how we could--even the theory on how we lost, that would be helpful to me.
Mr. Chairman, thank you.
Mr. POMBO. I can promise the gentleman that we will be holding a hearing into the NAFTA agreement in the near future, and he will have the opportunity to ask that question.
Mr. Boswell? No questions at this time?
Mr. Lewis?
Mr. LEWIS. Yes. Thank you, Mr. Chairman.
I just want to ask what the situation is on the world market as far as beef is concerned, the concerns about BSE, E. coli. The market is down. Is that part of the reason?
Mr. DRAZEK. Actually, there is widespread concern around the world about food safety. I think we all learned a lesson last year with the outbreak detection of BSE, mad cow disease--not the detection, the connection--possible connection between that disease in the human form and the uproar that that caused. It did spread around the world. It did have a temporary impact.
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But my understanding is--and I'm not an expert on the cattle trade itself--perhaps people from the Cattlemen's Association would be able to better answer the question. But the things that--the situation has dramatically improved for us in the last 6 months or so, with our exports doing very, very well around the world. And I think one reason is because people do trust our product, our system. It is a safe product, and we are very proud of it.
And we work very closely with the industry whenever an issue arises that could cause some problems, whether it's E. coli, or what have you, to reassure consumers all over the world that they can trust our product.
Mr. LEWIS. So at this time, there are not any objections out there that would concern any type of problem like that, E. coli or BSE? I mean, there is just not the concern there now. So the exports are up?
Mr. DRAZEK. Our exports are doing very well around the world, and obviously we are here talking about Europe, where it's a little bit different. We do have beef exports to Europe. We expect in the future to be able to expand those as a result of our efforts on the hormone case, and also as a result of our efforts within this agreement.
But I have to say that while things may appear to be fine today, they might not be fine tomorrow. And we have to be vigilant in making sure that if there is a problem with respect to a disease or a contaminant in product, that we're prepared to respond immediately.
Mr. LEWIS. Great. Thank you.
Mr. POMBO. Mr. Goodlatte?
Mr. GOODLATTE. Thank you, Mr. Chairman. I very much appreciate your holding these hearings, and I am pleased with the progress that has been made in some of the other areas.
But the largest agricultural commodity in my district is turkeys and chickens, poultry. And I am very, very concerned about the lack of an agreement that has been reached.
And I missed some of your comments earlier regarding what you are doing to take this to the next level. But I take it that the agreement to have a scientific review of their practices you hope will lead to a better understanding on their part of our position, and maybe a change in their legislative requirements?
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Mr. DRAZEK. Yes, Congressman. That is our hope. Whether I would say it's our expectation that's what will happen, it might be stretching it a bit. It's our hope that the scientific review that they've agreed to undertake with our full participation will enable them to make a change to their statutes to allow the use of decontaminants.
I think that with respect to some decontaminants, we probably expect that to happen because, quite frankly, we expect that they are going to have to use the antimicrobial treatments in the future in Europe. So yes, that is what we're going to be working toward. We are also going to be continuing to press them on this issue in other fora, and including under the framework agreement itself on this issue.
And finally, of course, we reserve the right in the end, if we decide it's the appropriate thing to do, to go to the WTO.
Mr. GOODLATTE. Do they deny that many of their facilities use chlorine in their process?
Mr. DRAZEK. They did deny it until they discovered that there were, in fact, facilities using it, especially in the United Kingdom. And when that information was presented to the commission, the European Commission, they immediately told us that that is against their law, they weren't aware of it, and they were stopping it.
I don't know how many facilities are involved, but they seem to all be in the United Kingdom, with the exception of some in France that were producing poultry products for export.
Mr. GOODLATTE. Have they actually halted production in those facilities?
Mr. DRAZEK. We're going to check on that. That question came up a little while ago, and we assume that that has happened, because that's what we were told officially had happened. But we will followup on that.
Mr. GOODLATTE. Is there any basis for refusing to shut down our export operations until that is clarified? I mean, if they are in violation of their own laws, why would that be a basis for shutting us out in the meantime?
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Mr. DRAZEK. That is a line that we sort of took with them during the negotiations. But their immediate reaction was no, they can't allow that to happen because the use of decontaminants is prohibited in Europe under their law. Now that they know that there were some that were using it, they are stopping that.
Their reaction was an immediate desire to stop the illegal activity in Europe, not to allow us to ship product until that happened. I think their reaction was it was overnight.
Mr. GOODLATTE. Is there any consideration for filing a WTO complaint about this? Or I know recently there was some discussion about how we might lose such a proceeding. But perhaps this new evidence would suggest that there really is an artificial trade barrier being used here and not a basis that is sound in science or in fact for keeping our poultry out of Europe, if they are following similar practices to what we use in a number of their facilities.
Mr. DRAZEK. Yes. Obviously, if they continue to use, Congressman, decontaminants that are banned on imports, that would be a violation of the WTO national treatment provisions. And that would be a very, very compelling argument in the WTO, and probably a winning argument.
If, in fact, they have stopped the use of decontaminants, then it probably wouldn't help the case. Having said that, as I said earlier, we believe that any risk assessment, and all risk assessments, that would be done on the use of decontaminants would clearly demonstrate, in our view, that the benefits far outweigh any infinitesimally small risk that might be associated with the use of decontaminants.
Mr. GOODLATTE. Are you taking any steps to try to find a replacement for this market? It's about a $55 million market that U.S. poultry producers are losing?
Mr. DRAZEK. Yes, sir. We are working with the industry. I should say that we have made efforts to bring industry representatives in to meet with us to talk about other markets that we might be able to tap into. We are looking at other sanitary and phytosanitary issues and other markets around the world that perhaps we could resolve on their behalf, other programs that the Department of Agriculture might have available in this area to promote or develop new markets around the world.
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The discussions have occurred so far on the phone, mainly because I've been traveling, and the people in the poultry industry that we'd like to have come in to talk to us about this will also be traveling over the course of the next week or so. But when everybody is together, we will be sitting down with industry reps. to work that out.
And I have already promised another member of the subcommittee to provide that information to the subcommittee.
Mr. GOODLATTE. What about the European exports into the United States? I understand they are not very large to begin with. Do you know what the volume is?
Mr. DRAZEK. Mostly, it's pate from France, and I've heard numbers that vary from a little less than a million dollars to maybe $2 million worth of product.
Mr. GOODLATTE. Have we shut that off?
Mr. DRAZEK. That has been stopped since May 1.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. POMBO. Thank you. To the panel, there will be further questions that will be issued in writing. I know Mr. Stenholm had some, and other members of the committee may have some. And you have also agreed to provide information for different members. If you could do that on a timely basis, it would be appreciated.
I will also say to you and the members of the committee that, in the future, we will probably have another briefing as new things happen on this issue in specific. And I know that you've been very good about keeping the committee informed as to what is going on, and I will expect that to continue.
But thank you very much for your testimony.
Mr. DRAZEK. Thank you.
Mr. POMBO. I would like to call up the second panel, Mr. Dean Kleckner, president, American Farm Bureau; Mr. James Hoben, director of export sales for Wampler Foods; Mr. Mark Armentrout, chairman, International Markets Committee, National Cattlemen's Beef Association; Mr. John Hardin, member of the Agricultural Policy Advisory Council and pork producer.
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Mr. BOSWELL. Mr. Chairman, I'd like just to take a personal point, since Mr. Kleckner has come to the table. He comes from Iowa, and we expected a lot from him when he was around. He used to milk the cows and wash out the separator, slop the hogs, and watched all of this grow and change.
And we expected a lot of him and are very proud of him, and we are very pleased that he is the leader of the national representation for the bureau at this time. He is doing a great job, and I just thought I'd take a personal privilege, as he is one of mine, I'm proud of him.
Thank you.
Mr. POMBO. Well, I'm sure you are very proud of him.
I know Mr. Kleckner does have a plane that he needs to catch. I'd like to take this opportunity to welcome him to the hearing and allow him to present his testimony at this time.
Mr. Kleckner.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN FARM BUREAU FEDERATION
Mr. KLECKNER. Thank you very much, Mr. Chairman. And thank you, Congressman Boswell.
I am Dean Kleckner, and I am president of the American Farm Bureau. And I am a corn/soybean/hog farmer from the State of Iowa.
I want to make it clear from the beginning that American Farm Bureau Federation supported very strongly the GATT, the Uruguay Round, the NAFTA. We also strongly supported the MFN now for China as a protection against unreasonable tariffs on U.S. farm products.
In addition, we do support fast track authority for future treaties. Frankly, there is no reason for other countries to negotiate with us unless we have fast track. If I was one of them, I wouldn't negotiate with us without fast track.
Now, to get to the European Union, they are both a competitor and a market, but it is a very protected market, a market hiding behind artificial sanitary and phytosanitary barriers, and a market that too often where consumer hysteria blocks our products.
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Our negotiators tell us, and you heard from Paul Drazek and others previously in other hearings, that dealing with the agreement, dealing with the European Union to try to negotiate an agreement requires a great deal of patience. Negotiating with the European Union seems to be an endless cycle. An example is the 3 years' negotiations with the veterinary equivalence, and an even longer standing beef hormone debate.
I do applaud also our negotiator, Secretary Glickman, of course, for his perseverance, and certainly Paul Drazek and his team for their recent tough stance on these issues. It is a great disappointment on the poultry issue, and I won't go into that because that has already been talked about, but we are deeply disappointed.
We still believe the European Union continues to demand changes in the U.S. process that are not consistent with science and do not recognize the equivalency of our standards.
This is very important, I think. As in any trade agreement, there is a letter of what is said and the spirit of what is intended. We intend to judge the outcome of this agreement, the veterinary equivalence agreement, by both. And if we see expanded trade with Europe, as indicated by increased sales of U.S. meat products, then that is an indication of success.
Let me list just five of our concerns with the European Union. There is a disunity within the Union. Commission negotiators are provided a set of directions and all too often have to go back to check with those 15 member countries for further authorities. Frankly, they need to have a European fast track authority like we have. That might speed it up some.
The CAP reform, how it is reformed and expansion of the membership--and that apparently is coming. That must be monitored closely.
My third point is consumer hysteria as a trade restraint. In Europe, and I have European farming friends and they tell me that there is a lack of consumer confidence over there in the central as well as the individual member state governments, and they seem to use that to deny access to our products.
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The fourth area is a lack of compliance with the international treaties. There is a number of examples of that.
And the fifth concern that we have--as they expand their membership from those 6 to 10 countries that are now talking with them about coming in, it has the potential to further complicate their ability to implement and negotiate trade agreements.
United States farmers, as a whole, are satisfied with the Freedom to Farm Act. We've had a year of generally better prices and growth in export sales. Some farmers, though, are still questioning if our trade agreements are really working.
I think many farmers, gentlemen, do believe our export numbers, which tell us that the agreements are working. But I still have to spend a lot of my time defending our trade agreements, and it's difficult for me because there is no good excuse that I have found for the long battles we're fighting with the European Union over beef and dairy, on poultry products, and subsidized grain and wheat gluten. And I could go on.
The loss of the Canadian debate over dairy and poultry products has also increased farmer skepticism over the whole country about trade agreements. In addition, we continue to be extremely concerned over how quality products of biotechnology will be received or denied entry into the European Union. The long list of trade issues with the European Union is clearly unacceptable under the terms of our trade agreements.
I heard the earlier testimony and the talk from Congressman Watkins and from Paul Drazek. I expect many of those that will follow will go into details. You have in my prepared longer statement a partial list of our concerns.
I'm going to ask a question, and then I'm going to answer it. Are there any answers to all of these trade disputes with the European Union? I don't see, gentlemen, any simple solutions to many of these disputes, because they are just an extension of the European Union's internal problems.
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To keep our agriculture industry competitive, we must continue to challenge the European Union on these and other issues. The USDA and USTR must have adequate financial resources to continue on with their fight for opening and expanding markets. Trade agreements have got to be monitored and enforced.
I do applaud Ambassador Barshefski for her move to designate an ambassador for agriculture, the deputy ambassador. But that's just a temporary use of title granted by the State Department.
We believe there should be a permanent position of deputy for agriculture, so that they're not at the mercy of personnel changes or administration changes. And that is something this committee can do something about, in my view. We need to have fully funded trade promotion and market development programs like MAP and DEIP and EEP, and some of those, that compete with Europe and other global competitors.
And finally, and I'll conclude, the USDA must maintain a strong presence in Brussels and Geneva and in the foreign agricultural posts in the EU member countries as well as around the world. And they're beginning to be trimmed back, if I'm not mistaken.
As Government leads in a proper manner, rest assured that farmers will continue to feed the world, and given a fair chance at international markets, we will prosper.
Thank you very much.
[The prepared statement of Mr. Kleckner appears at the conclusion of the hearing.]
Mr. POMBO. Thank you, Mr. Kleckner.
We're going to break from protocol, because I know that you are probably going to have to go, if any of the members have questions that they would like to ask quickly of Mr. Kleckner at this point they may do so.
I know that there are some questions. I have some questions that I would like to ask the Farm Bureau, and we'll be submitting those to you in writing and would hope to have an answer back.
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One question I would like to ask you now is that I think all of us can attest to the fact that our farmers are weary of some of these trade agreements. You mentioned that in your testimony. And I would I guess put it this way. How can we help you in making this work better, so that the farmers have faith in those agreements, so that they're getting something out of them?
Mr. KLECKNER. You're certainly right, Mr. Chairman. The figures show things are working pretty well. There is increased trade, increased exports, not all of it due to the trade agreements, but certainly some of it is, more I think with Mexico than we think about, because in my view NAFTA kept trade flowing when their economy went on the tank that wouldn't have kept flowing, wouldn't have been flowing without NAFTA. And we really don't think about that.
But I think we have to do a better job of monitoring and following through with Canada. It is terribly harmful--I know we're talking about Europe, but we lost the panel there concerning dairy and poultry and eggs. I don't understand either why we did.
But I think from the President right on down, President Clinton, Charlene Barshefski, you as leaders in the Congress, need to pursue that issue in a public way. And when we see that as farmers, I think ah ha, they know there is something wrong, and then we're more willing to say, ''continue the fight.''
Right now, I almost think it's a tougher sell in the country on trade, expansion of trade, NAFTA, whatever. I'm worried about the 1999 negotiations with the GATT. We certainly need the fast track before we do any of this.
But I worry about up and down the country roads of Iowa, California, every State in the union, because the fire isn't quite there that ought to be there. And some of that lack of fire is unwarranted by us farmers, but some is warranted because we don't perceive government broadly as pursuing the issue enough to get the agreements to work better than they're working.
Mr. POMBO. Well, I would suggest to you that by keeping your membership educated, motivated, and very vocal on these issues, it gives those of us Members of Congress that represent farm districts the cover that we need to be much more vocal here.
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I thank you for your testimony. If you can stay with us, it would be appreciated, but I understand that there is a time constraint.
The committee is going to have to recess briefly. We do have a vote on the floor right now. We will return as soon as we can.
Mr. KLECKNER. Thank you, Mr. Chairman. I do have to go. I have an agreement with United. When I'm late, they don't wait, that's--I'm heading for Dulles airport. But thank you very much.
Mr. POMBO. Same deal I've got.
[Recess.]
Mr. POMBO. Again, I apologize to the witnesses for the delay in the hearing, but we're back now. So if the panel can rejoin us.
And Mr. Hoben, if you are ready, go ahead.
STATEMENT OF JAMES HOBEN, DIRECTOR OF EXPORT SALES, WAMPLER FOODS
Mr. HOBEN. Thank you.
Mr. Chairman and members of the committee, we thank you for the opportunity to come and speak. I have requested my complete written testimony be submitted, and that I'll summarize and try to keep the comments brief.
My name is Jim Hoben. I'm the director of export sales at Wampler Foods in Broadway, VA. And the National Turkey Federation and the National Broiler Council has asked me to speak on their and the member's behalf.
It's my pleasure to be here to represent this group. I've been in agribusiness, and particularly poultry exports, for over 23 years. Briefly, Wampler Foods operates both slaughter and further processing plants in the States of Virginia, West Virginia, Pennsylvania, and North Carolina.
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We're the second largest turkey producer and the seventh largest poultry producer in the United States. And a significant amount of what we produce is exported and has been exported to Europe for quite some time.
The marketing relationship that was being used for Europe continued until last month. As of April 1, 1997, our Government, the USDA, said that it could no longer certify our operations as meeting the EU inspection in veterinary requirements.
Last year, 1996, the United States exported to the European Union 40,000 metric tons of poultry valued at over $54 million. This was made up predominantly of chicken, which was 32,000 tons; and 6,400 tons of turkey products.
Since the EU poultry producers are hampered by high feed costs, cost of labor, expensive land, and burdensome taxes, poultry exports to world markets can only be accomplished through export subsidies or so-called export restitutions generously granted by the EU countries; and in the case of France, by their own national government.
Poultry imports and consumption to Europe would be significantly higher if import opportunities were accorded to them. The European Union has distorted world trading patterns of poultry since 1962, the year the Common Agricultural Policy was initiated by then the EEC.
When the European Economic Community's CAP was finally unified years later, the high guaranteed price of poultry generated an unacceptable high level of chicken inventories in Europe, and that's when the subsidies began so that they could export that product to the rest of the world.
So given the situation in the European Union, there were very obviously and very strong forces aimed at stopping, or at least reducing to a trickle, the imports of poultry. Well, it took the European Union 34 years, but it has now accomplished its intent to stop poultry imports from the United States.
We are now all painfully aware that late on April 30, the overtime due date for the negotiations to conclude, the United States and the European Union reached a framework agreement on equivalency of each other's inspection program and veterinary requirements.
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A final agreement is expected to be ratified by EU members before October 1.
The problem, as others have mentioned, is that U.S. poultry was not fully included in that agreement. Earlier this year, we, the poultry industry, were told by the USDA that negotiations would be tough, vigorous, and that our Government would not back down when negotiations got rough.
This get-tough approach was very encouraging to those of us in the poultry industry because previous multilateral trade negotiations under GATT had failed to result in fair poultry trade with the European Union.
Nonetheless, despite the buildup of the get tough policy, the skeptics in our own industry were once again proven to have a very valid basis for their ongoing doubts about trade negotiations with the European Union because poultry, as we've said before, is not a part of the final agreement.
The European Union will not certify U.S. plants as equivalent. And therefore, no U.S. poultry products are being shipped today to the European Union, nor will they be in the foreseeable future.
We do appreciate the hard work of our Government trade negotiators and realize in the end that the blame does not lie on this side of the Atlantic. A couple of questions that I'd like to propose and then give our thoughts of the answers.
The questions now before our industry and the Government, we feel, are four-fold.
What, if anything, could have been done differently to have better prevented poultry from being excluded from the final agreement?
What can be done from this point forward to reestablish U.S. poultry exports to the European Union?
How can our Government and industry work together to replace these lost markets?
And what steps are we taking to ensure our problems with the European Union are not repeated with other trading partners?
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With respect to the first question, we suggest that earlier identification of the problem areas and better intelligence of the European Union's real concerns may have led to a more favorable outcome for poultry.
Throughout the 3-year talks, the United States remained steadfast that equivalency must be based on sound scientific demonstrated principles, not a step by step, prescriptive, do as we say methods that may or may not result in wholesome products.
The Europeans object to our use of anti-microbials, such as chlorinated water, even though such usage is common in many poultry plants in the United Kingdom and certainly other EU member countries.
Anti-microbials, such as chlorinated water, are an important tool in enhancing and better assuring food safety. Scientific studies have demonstrated the safety and effectiveness of the methods employed by the United States in improving the microbiological profile of poultry products.
The European Union has offered no scientific evidence to justify their demands, nor have they offered any scientific measures that their poultry regulations produce a superior product.
With respect to the second question of what can be done to reestablish poultry trade with the European Union, we offer two recommendations. We urge our negotiators to aggressively pursue for poultry a favorable resolution with the European Union.
This pursuit must be based on science, as required by the Uruguay Round. We believe the Europeans are being very arbitrary and not fully recognizing the intent of the provisions of equivalency in the WTO agreement on sanitary and phytosanitary measures.
In the meantime, the U.S. poultry exporters have lost markets valued at more than $50 million, as has been mentioned earlier. The industry obviously will be devoting considerable time and energy to finding replacement markets.
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But we believe there is an appropriate role for our Government to partner with the industry to identify and open these markets.
In the long run, though, the most important result of these negotiations may be the answer to the fourth question--how do we prevent a repeat episode?
USDA strongly recommends--indeed, virtually requires--chlorine in chillers to comply with the USDA system. Yet, the USDA was not able to prevail with the Europeans that our system and products are indeed as wholesome or more so than theirs.
United States poultry companies want pathogen reduction and want the HACCP Inspection Program to work, but we cannot stand idly by if the regulations undermines our ability to export.
We recommend that the USDA develop an explanation of how and why our program is the most appropriate course and be better prepared to deal with problems that challenge our system when they arise in the future.
In conclusion, Mr. Chairman, we realize there's no one simple, single action that we can offer this afternoon to resolve this unfortunate situation for the industry.
However, I can assure you that our industry is ready and willing to work with you, your committee, the U.S. Department of Agriculture, and the U.S. trade representatives, and any other Government agency to bring about a prompt and successful resolution.
We appreciate the opportunity to bring these comments to you.
[The prepared statement of Mr. Hoben appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Armentrout.
Mr. BOSWELL. Mr. Chairman?
Mr. POMBO. Mr. Boswell.
Mr. BOSWELL. Would it be out of order for us to ask a question or two now and maybe apply it to all three of them because of other extenuating circumstances, or do we need to stick on our regular track?
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Mr. POMBO. With the consent of the committee, I know Mr. Boswell does have another engagement that he has to get to, I will allow him to ask a couple of questions of the panel out of turn.
Mr. BOSWELL. Thank you. I'll be very short. We do appreciate that you've went to a lot of effort to come and prepare to what you've done today and we've had lots of interruptions.
But I have, from my constituency, a lot of contact from the cattle producers and the pork producers and others, probably more heavier in those first two, and I wonder if I could just inquire of any of you--I notice we have a cattleman and a pork producer coming up here, and I've read some of your comments.
But this agreement, what's the impact? I want to ask you three questions and you can answer it any way you want. Does this agreement in any way impact upon your organization's position on the Fast Track? We heard some strong statements by Mr. Kleckner.
And Mr. Hardin, I think you indicate in your statement, your written statement, that the U.S. pork industry is--will be required to do some things not supported by science in order to export to the European Union, and I'm curious what--if you might elaborate just a little bit on that.
And you can maybe do it in your written statement for later if you want to. How will the pork producer respond if the European Union, through whatever means, continues to further restrict imports of our product from the United States?
Mr. ARMENTROUT. On behalf of the beef industry, our position on fast track has been that we are in favor of opening trade opportunities for America's beef producers. However, we had a number of concerns relative to the agreements which we were already party to.
Some issues with regard to NAFTA, with trade between the United States-Canada and United States-Mexico. There has been an ITC hearing going on about that trade. We are eagerly anticipating the results of that.
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With regards to the GATT agreement and the WTO, certainly the resolution of the hormone issue and this inspection equivalence issue had a lot to do with the development of our position. We are glad to see the resolve that this administration has shown in making tough negotiations and making our trading partners live up to their commitments.
That would tend to increase our desire to work for fast track authority.
Mr. HARDIN. I'll try to be very brief.
With regard to the fast track, while we haven't seen what the specific proposal is, we would be strongly in favor of continuing that negotiating authority. We believe we're the lowest cost producer of high quality pork in the world.
And we can only benefit from that not only in terms from additional improvements in market access and sanitary and phytosanitary agreements, but particularly with further reductions in the export subsidies that our European competitors use to stay in markets when they otherwise wouldn't be competitive.
With regard to the question about what I would call equivalence plus, the additional things that we have to do in order to export into the Union, we're willing to do those in the short run in order to gain access to the market.
But we would insist that, over time, we reach a scientific resolution as to whether or not they're really required. I don't think that they can stand the light of true scientific test, but we're going to find that out.
For instance, in just one issue, we've already excised over 31,000 hog hearts without finding a single case of erysipelas, and the Europeans are asking us to do a few more. So we'll do whatever it takes.
I've been following these issues for more than 10 years, really since the time when they delisted all the U.S. plants on your third question. I guess, like Eisenhower used to say, ''Trust, but verify.'' And I think the agreement that Mr. Drazek and others have negotiated has a sequence of steps where each side can prove that it really wants this agreement to go forward.
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And if they don't, we would expect the Government of the United States to do whatever they can to make certain, through the WTO, that these agreements are followed.
Thank you.
Mr. BOSWELL. Thank you, Mr. Chairman.
I trust it's OK. I can expect it will be an open door if I want to contact you and talk to you in the future, but thank you very much.
And thank you, Mr. Chairman. I appreciate it.
Mr. POMBO. Thank you.
Mr. Armentrout.
Mr. ARMENTROUT. Yes, sir?
Mr. POMBO. If you would like to give your testimony. And we all have a copy of your written testimony, so if you could summarize that and go ahead.
STATEMENT OF MARK ARMENTROUT, CHAIRMAN, INTERNATIONAL MARKETS COMMITTEE, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. ARMENTROUT. All right. Thank you very much, Mr. Chairman.
My name is Mark Armentrout. I'm a beef producer from Alpharetta, GA. I am chairman of the National Cattlemen's Beef Association's International Markets Committee, and we certainly appreciate the opportunity to come and testify here today.
I will deviate from those written comments on a couple of issues here. We are very pleased to see that we have been able to reach an inspection equivalence agreement with the European Union.
Even though that was not a major issue for the beef industry in terms of our trade with the European Union at this point in time, we felt it was critical that the United States show tough resolve in its negotiating position because of what we knew was coming down the road, namely the hormone case.
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The indications that we have today that we have been vindicated in our position by the WTO panel is very gratifying. It is an endorsement of our position. It is a reassurance to our trading partners throughout the world that what we have been saying about U.S. beef with regards to its safety and its wholesomeness is true.
That excites us. We realize that we are still some time away from actually shipping product into the European Union, but that remains our goal. We will work with our negotiators to gain access to that market. We realize that one of the options that the European Union has is to pay compensation.
That is not acceptable. We feel that the European consumer should have the opportunity to decide whether she wants to purchase high quality U.S. beef and beef products, and it's not the role of her government to decide that something which has been proven by science to be safe and wholesome should not be afforded the opportunity for her family to consume.
The issue of food safety is a major issue for beef producers throughout the world. We are very vigilant in our procedures on the ranch, in the feed lot, in the plants to make sure that we have a safe, wholesome product.
We are free of BSE. We will do everything that we can working with this public/private partnership of the industry and the USDA to make sure that this product is available to consumers throughout the world and deliver it to them.
We look forward to working with USDA, FSIS in implementing these inspection programs for consumers throughout the world.
Thank you for the opportunity to come. I'll be glad to answer any questions which you might have.
[The prepared statement of Mr. Armentrout appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Hardin.
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STATEMENT OF JOHN HARDIN, AGRICULTURAL POLICY ADVISORY COUNCIL
Mr. HARDIN. Thank you, Mr. Chairman.
I am John Hardin, a past president of the National Pork Producer's Council; a grain and hog producer from Danville, IN and also a former chairman of the U.S. Meat Export Federation.
Per your request, I'll make just some summary comments and then answer any questions, if you have them.
On behalf of the National Pork Producers Council, I want to thank you, Mr. Chairman, and the subcommittee for holding these hearings and providing our organization with an opportunity to participate. I want to commend Ambassador Barshefski and Secretary Glickman and their staffs, particularly Paul Drazek, for their very hard work in reaching a veterinary equivalence agreement with the European Union.
Make no mistake about it--our problem exporting meat to the European Union has always been a trade issue, not a food safety matter. The United States has the most comprehensive and effective system of food safety management in the world. The wholesomeness of the U.S. food supply is second to none in the world.
Over the 10-year period from 1987 through 1996, the United States imported $3 billion in pork from the European Union, 26 times the $113 million we exported. This situation resulted in large part because it was very difficult for U.S. plants to get approved for export to the European Union.
We also had European Union veterinarians in our plants imposing the European Union's third country meat directive against us as a non-tariff trade barrier. And I would also offer that it seemed to follow an ebb and flow pattern.
When prices were very high, we seemed to negotiate and move forward. When it was on an economic basis, likely the trade wouldn't happen. When our prices got cheap, the standard suddenly seemed to rise. And it was a very effective way of getting the job done.
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Our intention has never been to close off our market to the European Union. Rather, we have sought fair access to their market. We don't need and don't want protection. While the United States is currently the world's second largest exporter of pork behind Denmark, the overwhelming consensus is that we will soon be No. 1.
The U.S. pork producers are the lowest cost producers of safe, high quality pork. And as the European Union export subsidies are reduced per the WTO agreement, the U.S. cost advantage over Denmark is increasing.
Without question, U.S. pork producers are better off with the April 30 agreement than they were beforehand. The framework equivalence agreement strips away much of the nonscientific trade impeding aspects of the third country meat directive.
The role of European Union inspectors will be to spot check the FSIS system. And in some instances, the spot check or audit may entail a review of a U.S. meat facility which FSIS has already approved.
The USDA has assured us that the process applied by the FSIS to European Union establishments will be equivalent to that applied by the European Union to the U.S. establishments. We expect significant volumes of U.S. pork to be exported into the European Union by the end of this year.
There is a tariff rate quota for hams, loins, and tenderloins which we expect to fill the vast majority. I'd note here that that tariff rate quota is still less than 10 percent of what was to be the minimum access for pork into the European Union.
But because of the 1993 Blair House Agreement, we have taken that lower number. We'll also ship some pork for variety meats as well as some for further processing.
Under the agreement, the United States reserves its ability to delist European Union meat plants and halt imports of meat from the European Union until a final comprehensive agreement is executed. In the past, the United States has unilaterally extended recognition to EU products while attempting to negotiate equivalence agreements.
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We urge the United States to monitor very closely the compliance of the European Union with the terms of this agreement. And the United States should not grant equivalency to the European Union until USDA has completed verification of veterinary delivery systems in the European Union.
With greater transparency, reduced tariffs, minimum market access per the new WTO, sanitary measures are often the barrier of choice when countries want to protect their domestic producers. Indeed, compliance with sanitary and phytosanitary obligations is vitally important to agricultural trade.
And to the extent that U.S. trading partners breach those obligations, the harm suffered by U.S. exports is immeasurable. Market access is denied, trade expansion is limited, and U.S. agricultural exports are threatened.
We believe that in executing this agreement, the United States has sent a clear message to our trading partners that insists on a rules based, science supported approach to agricultural trade.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Hardin appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
I thank all of the panel for their testimony.
Mr. Hoben, you talked about in your statement that the subsidies to the European poultry industry. Could you elaborate somewhat on what kind of a subsidy they have, and how that is delivered?
Mr. HOBEN. Well, it's my understanding that it's a subsidy that I think my counterpart just mentioned, that they have a program where--to make it feasible for them to be competitive in the world markets, that there are direct and indirect compensations to the European producers so that they can sell their products to what they consider third countries outside the EEC.
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Mr. POMBO. Mr. Hardin, along the same lines, and I know you have a lot of experience in this area, how does that, as far as a cost advantage what are we paying here, what is the farmer getting here for their product versus what is the farmer getting in Europe for their product on some of the different commodities?
Mr. HARDIN. Well, of course, that varies from time to time. But the number that sticks in my mind, the European Union has gone from $2.1 billion in export subsidies for meats--that would include beef and pork--to about $1.7 billion by the end of this current round of GATT agreement.
It drops about $400 million. It's a very substantial number. It allows them to be competitive in markets for us like Japan in the way they mix products and selectively use export restitution. And they've also held their market in Korea far better than they ever could have without the use of the export restitution.
Mr. POMBO. That's on an export subsidy. What about a subsidy on domestic consumption within Europe?
Mr. HARDIN. We will have to get back to you because I don't have knowledge of where that is today.
Mr. POMBO. I would be interested in that. And if you could provide that for the record and the committee exactly what the subsidy is, what difference it makes in their price. I do know that they heavily subsidize on exports.
But I would be interested in finding out how it is on the domestic market and how that affects our ability for our producers to compete exporting into their market.
Mr. HARDIN. Mr. Chairman, my understanding of how they have managed that is much the same as section 22 producers in this country. Outside of this tariff rate quota, we used to be working with a 55 percent tariff. And you just keep out competitive product, and then you just allow the market to rise rather than give direct subsidies through the common agricultural policy.
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If the facts are different, we will respond to you in any case in writing.
Mr. POMBO. Thank you.
Again to Mr. Hoben, you mentioned problems with other countries--a possibility of this leading to problems with other countries because of this barrier that they've put in place on the way that we do things here.
Could you elaborate somewhat on that, what the possible problems that could arise with other countries?
Mr. HOBEN. Well, Mr. Chairman, the concern that we have is that most countries in the rest of the world that have a basic agricultural industry--and of course, I'm speaking of poultry--that they want to protect which typically has a higher cost of production than we do--we, the United States, is the lowest cost producer of poultry in the world.
To the point that we can deliver product to most any country around the world cheaper than they can produce it domestically, most countries want to maintain that domestic production. So, in order--if they can't be competitive in a true economic sense, then they have to erect barriers.
The concern is that what we feel is an artificial trade barrier, basically the concern over chlorine, if other countries who would like to create a barrier who haven't been able to create a barrier see this as an opportunity that if the Europeans can keep the U.S. poultry out on a chlorine issue, why couldn't we.
So the concern is that if we allow what we all seem to agree is a non-tariff trade barrier to successfully keep poultry out of Europe, what's to stop it from keeping it out of China or Russia or the Philippines or Korea? That's the concern.
Mr. POMBO. Mr. Armentrout, you talked somewhat about the trade agreements in general that--and their impact on the cattle industry or the beef industry.
I would like to give you the opportunity to expand upon that somewhat other than what you gave in your oral testimony as to how the agreements that are currently in place, how they impact cattle industry in their trade with the European community.
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Mr. ARMENTROUT. Under the Uruguay Round of GATT, we have a 10,000 metric ton quota for high quality beef into the European Union. This year, because of some inclusion of other countries in the European Union, that has jumped up to an 11,200 ton quota.
We are sending high quality beef into Europe under that, but it has to be certified as hormone free. We feel that the biggest market for U.S. beef in Europe is in variety meats, and that's not covered by quota. So it's very important to us that we have access in order to get those variety meats into Europe.
Then in the 1999 round of negotiation of the WTO, we will certainly be pushing to expand that 10,000 metric ton quota with the European Union.
Mr. POMBO. Now you say that the greatest market is in variety meats. Is that because it's not covered by the quota, or is it because that's where the demand is?
Mr. ARMENTROUT. There is demand, but it's also the fact that it's not covered by a quota.
Mr. POMBO. And what happens if you would exceed the 10,000 metric ton quota?
Mr. ARMENTROUT. There is a tariff that would be placed upon that product. I don't know the specific tariff number. And it would make it less cost competitive to receive that product into Europe.
Mr. POMBO. Thank you.
Mr. Johnson.
Mr. JOHNSON. Mr. Chairman, sorry I got here a little late in listening to some of the other testimony.
Just a quick question about some of the pork import/exports. And I thought I read yesterday that the president in Mexico talked about the possibility of Mexican pork coming here. Anybody address that?
Mr. HARDIN. My answer may be incomplete, but I'll tell you what I know.
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Mr. JOHNSON. All right.
Mr. HARDIN. Under the concept of regionalization, the state of Sonorra has been found to be hog cholera free. And through a long period of time, we have been assured that pork from that state can be isolated from the rest of Mexico.
There may be another state in the far south--but that can be isolated from the rest of Mexico to make certain that that pork meets our health and safety standards. And it's sort of one of those give and take situations where, in order to followup with the concept of regionalization, that that pork could come to the United States.
We suspect it may come into some of the border towns for ethnic foods, cuts prepared in ways that would be appropriate for south of the border cooking.
Mr. JOHNSON. Any ideas on quantities or impact yet on----
Mr. HARDIN. We think it will be relatively minimal and certainly far less than we'll be exporting to Mexico.
Mr. JOHNSON. You've all talked about the non-tariff tariffs, the need to get fast track. Other things that you've thought about that we might do that might help you? Obviously you all had praise for USDA, the trade negotiator moving as fast as they can, and you turn around and see new non-tariff or new ways of hoops for us to jump through.
Any suggestions that you've thought of that we might be able to be more helpful in knocking down the new hoops before they pop up for you?
Mr. HARDIN. Well, I know it's very difficult in an era when we're trying to balance budgets.
But when we think about reprioritizing the funds that are directed toward agriculture, as we've gone away from directly supporting agricultural production, if we think in terms of how we're going to expand economic well being for America's producers, one of the keys is going to be to expand exports.
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And there are at least two situations that I would speak to very directly. One is the funding for the Foreign Agricultural Service, particularly in terms of gathering intelligence and being able to respond very quickly to some very creative ways that our exports are blocked.
And quite frankly, another one that's not so politically popular in this town is the the MAP program. It's been my experience that some of these funds, or at least the Foreign Market Development funds, not specifically MAP funds, are often used as extenders for U.S. Government staff in gathering intelligence and doing the sort of nitty-gritty work that it takes to expand markets that goes well beyond any advertising.
And I think obviously, if MAP goes forward, there will need to be controls in place so that they're directed in the right way.
But again, I think we not only need to think about cutting the budget, which we all speak to and understand the need for the long term economic health of the country, but a conscious investment in things that make a difference for our economy as we reprioritize the funds that are left.
Mr. JOHNSON. Thank you, Mr. Hardin. I notice you didn't say cutting pork in the budget. Thank you very much. I appreciate that.
Mr. HARDIN. Ours is lean these days.
Mr. ARMENTROUT. I would echo John's comments. Also, I certainly appreciate the efforts of individual, and Paul Drazek has been mentioned a number of times today as being very instrumental in this.
We can't allow ourselves to become totally dependent upon an individual. We have to have a framework and a team of people that can carry on when very capable people like Paul decide to take other opportunities that open up to them. And we need to make sure that we have a framework in place to look at these issues because they will continue to come up.
We're scratching the surface right now with the European Union with big issues. Once we get beyond these, there's a number of smaller issues. But they're still very important to the producers who are affected by that. That's one thing.
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The other thing in this Market Access Program--as long as we attempt to cover the broad picture of agriculture, and as long as we want to support our bigger goals and aims, then it's certainly appropriate to say that programs such as MAP is an investment for all of the country and for agriculture as well.
And by the private sector, the beef industry using its check off dollars and matching those with Government dollars, and with private sector dollars from our packer and trader members, we're able to go in and, in a very cost efficient manner, increase export opportunities.
Mr. JOHNSON. Well, we have Packers, as you know, in our district in Green Bay and northeast Wisconsin, the Packers who actually got their name from meat packers.
Mr. ARMENTROUT. That's right.
Mr. JOHNSON. We appreciate very much your remarks.
Thank you very much, Mr. Chairman.
Mr. POMBO. Thank you.
Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Pombo.
Mr. Hoben, I just wanted to revisit this whole issue of decontaminants and actually chlorination or chlorinated--what percent of the domestic industry is using chlorine in their processing of poultry now in terms of plants? Is it widespread?
Mr. HOBEN. I would say it's close to 100 percent. Some of the ethnic processes of poultry--I'm trying to think of--Kosher processing may not. But I would say otherwise 99 percent of chicken and turkey are using chlorine in their process.
Mr. DOOLEY. So in essence then, unless we get the European Union to modify their present position to allow chlorination, is that if they do not make that modification, then we would actually be required to, if we wanted to export into the EU poultry, really require modification on almost all of our processing of poultry products in order to export into the European market?
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Mr. HOBEN. Correct. If they were not to modify their stand, we would have two choices. As was mentioned before, we'd have to lower the standard or the quality of the product that we produce by subtracting the anti-microbials.
But on the other hand, that's not what we want and that's not the direction that the USDA is going with the HACCP program. We're trying to make a better product. We'd have to make a worse product to meet their standard.
Mr. DOOLEY. The other thing I thought was kind of interesting--when we were going through the Uruguay Round debate in Congress and with this passage, one of the things that posed the greatest problem to a lot of my colleagues was the whole issue of the WTO and that some people felt that we were potentially exceeding too much influence and power to that.
But if this agreement holds, the preliminary agreement, it appears--your announcement on the beef hormone--it appears that the WTO might in fact be one of the most positive aspects of that Uruguay Round because it does provide us with a form that can break the logjam.
Because how long have we been trying to resolve this hormone ban in Europe?
Mr. ARMENTROUT. Nine years.
Mr. DOOLEY. Nine years. And I think that's something that a number of my colleagues need to fully appreciate is that what the WTO provides to this country, which is willing to be I think most often intellectually consistent in basing our decisions on science is that we finally have a body, an international body, that might provide us with the tools to resolve some of these issues.
And hopefully, we will not be a position where we have to resolve the issue of chlorine through a WTO arbitration--or WTO panel. But at least we have that tool that's available.
The other thing I'd like to just touch on just briefly is that I want to thank all of you for your comments in terms of this fast track authority and very strong comments that you made in terms of support because this is going to be a tough battle on the Hill and we're going to need a lot of help from you, and as well as Mr. Kleckner of the American Farm Bureau indicated, their support for it.
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And Mr. Hardin, I think you made a point there that not everybody understands what fast track is all about. And I think both of you--and Mr. Armentrout, you talked about the quota issue is the only way that this country can participate in the next round of the WTO that can expand upon those quotas or can eliminate some of those tariff areas is by the President and the administration having the fast track authority to participate.
And people need to fully understand that if we do not give that authority, we are not a player on behalf of U.S. farmers in that next round, which is the only reason that we're moving as much product as we are throughout the world. And I just want to say I really appreciate your positive support for those, and we look forward to continued work with you on that--on those issues.
Mr. POMBO. Thank you.
I'd like to thank the panel for your testimony, for answering the questions. There may be further questions that will be presented to you in writing. If you could answer those on a timely basis, the committee would be greatly appreciative.
I'd like to call up the third panel. Mr. Linwood Tipton, International Dairy Foods Association; Mr. Len Condon, vice president for international trade of AMI; and Mr. Peter Vitaliano, director of trade and policy and economics, National Milk Producers Federation.
And while you're coming up here and sitting down, I'd like to thank you for sticking with us all day and again apologize to you for the delay in getting you up here. I know that this has been a long day for all of you, but I greatly appreciate it.
And Mr. Tipton, if you're ready, you can begin.
STATEMENT OF E. LINWOOD TIPTON, PRESIDENT AND CEO, INTERNATIONAL DAIRY FOODS ASSOCIATION.
Mr. TIPTON. Thank you very much, Mr. Chairman. And I appreciate the opportunity to make a few comments. I will greatly summarize my comments, and I know you'll publish them in the record.
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I have three issues that I wanted to talk briefly about, one of which is the European Union's import licenses on cheese and the difficulties that we're encountering with those. Second is the equivalency of their inspection agreements that have been reached and a few comments about that.
And the third is more on the European Union's overall policy and the direction that they seem to be heading with respect to their dairy policies in the future and some of our concerns about that.
With respect to the import licenses for cheese, there has developed, since the completion of GATT, a very restrictive system of granting import licenses for cheese. They basically are issuing them on a quarterly basis with no assurance that you will get another import license the next quarter.
And there's no guarantees as to whether or not the quantities in which you are asking for or needing will be granted in the license. As a result, it makes it virtually impossible to enter into any kind of long range, or longer range, more than a quarter, of supply arrangements to any of the markets over there.
And this has become a very significant problem. There is a market, and I have had the opportunity to do with respect to some pizza cheese that has been virtually precluded from entering the market as a result of this. In fact, our companies have pretty much given up on trying at this point.
The second thing is on the equivalency of the inspections. We appreciate very much the work that has been done and the fact that we can again ship products. We were among others who had products at the port ready to go that had to be held and could not be shipped and ultimately we were able to.
However, the system that has been worked out is potentially and probably very intensive paperwork and intensive--we've got a lot of difficulties with it. Plus, the somatic cell count that they're insisting on continues to be below that in the United States and has no impact on healthfulness of the product at those levels.
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And we would very much like to see this effort continued and get a longer range solution to this problem. We're thankful that we can at least make some shipments. And the USDA is beginning an inspection system to determine the equivalency, and we appreciate that.
But we think it still needs a lot more work to get it to the point that it should be.
The last point I wanted to make was relative to the European Union's dairy policy. The United States has a great opportunity in the world market of being a major supplier of dairy products. Probably not to the European Union to any great extent, but to other countries.
And at the present, and for some long period of time, the European Union has been subsidizing exports to such an extent that the world market has been greatly depressed as a result of those subsidies.
And it's our opinion that if those European subsidies did not exist, that the United States would be a major supplier, probably in third position, in supplying dairy products in the world after New Zealand and Australia.
They probably have a lower cost situation than we have in the United States. But they are also not producing sufficient quantities to supply the world markets, and particularly not sufficient quantities to supply many of the eastern developing countries.
So we think there's a great opportunity, but that opportunity probably will not be realized so long as the European Union subsidizes exports. They are, as a result of budgetary constraints, are cutting back on the government subsidies that they are utilizing.
However, they're looking at another system or other systems which would really be a producer of subsidy. In essence, it would be a system of discriminatory pricing with a lower price being applied to world market--to the exports and a higher price being applied domestically and blending those two prices together to the farmers in Europe.
The effect of that, however, would be to continue to depress the world market prices probably to a level that would be below the cost of production in the United States and would make it very difficult for the United States' industry to become a major supplier.
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So we would urge the committee to continue to scrutinize this and make sure that they aren't allowed to do this.
Mr. POMBO. Thank you.
[The prepared statement of Mr. Tipton appears at the conclusion of the hearing.]
Mr. Condon.
STATEMENT OF LEN CONDON, VICE PRESIDENT FOR INTERNATIONAL TRADE, AMERICAN MEAT INSTITUTE
Mr. CONDON. Thank you, Mr. Chairman. I'll just submit my testimony for the record and just try to quickly summarize it.
I appreciate the opportunity to be here today to share with you AMI's views on the current status and future prospects for trade between the United States and the European Community in poultry and livestock products.
Regrettably, the current status of and prospects for trade in livestock and poultry products between the United States and European Union are not bright. European Union producers are generally very well protected compared with their U.S. counterparts. They enjoy generous price support systems and benefit from significant subsidies to encourage exports of their over-production.
Notwithstanding these basic facts, the European Union export subsidy reduction commitments made in the Uruguay Round, along with the eastward expansion of the European Union, will require significant reductions over time in the amount of support and protection provided to EU livestock and poultry producers.
However, it appears that the European Union is committed to supporting domestic livestock and meat prices at levels which exceed world prices, thereby continuing a need for protection from imported competition.
In the short and intermediate term, underlying farm policy factors will continue to discourage EU policy makers from implementing actions to facilitate meat imports. Lagging beef demand and swelling intervention stocks, a direct result of widespread concern regarding the safety of European beef, currently exacerbates the situation in Europe.
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But against this backdrop, the EU and U.S. veterinary officials have been attempting to conclude a veterinary equivalence agreement. AMI supports the broad objective of full equivalence between the veterinary inspection programs of the United States and the European Union.
We look forward to the day when meat and poultry products inspected and passed by USDA will be automatically eligible for export to Europe, and items produced and approved in EU establishments will be eligible for import into the U.S. market with no special, additional assurances required.
The United States and many of the EU members states operate meat inspection systems considered to be among the best in the world. Our respective programs are administered by professional veterinarians generally regarded as the most competent in the international food safety field.
In short, there are far more similarities in our meat and poultry inspection policies and programs than there are differences. Given that fact, it is unfortunate that we have had great difficulty in resolving narrow but deeply held differences on a relatively limited set of technical issues.
In fact, the merits of the draft framework agreement, the virtually completed focal point of this negotiation, have been largely overshadowed by the controversy created by differences over significant but narrow technical issues.
The draft framework represents an excellent system of rules and procedures designed to establish guidelines for establishing equivalence between the United States and the European Union in veterinary inspection matters. Moreover, it could serve as a model for other agreements between the United States or the European Union and other parties.
We appreciate the patience and perseverance of the interagency team involved in this long and difficult endeavor. Despite our disappointment that the agreement does not immediately resolve to our complete satisfaction all of the issues, we believe the agreement represents progress towards resolving U.S.-EU differences and will result in increased export opportunities for red meat processors.
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Accordingly, AMI endorses the administration's decision to enter into this agreement. AMI is disappointed that the agreement will not result in resumption of poultry shipments to the European Union which were halted on April 1.
We find it incomprehensible that the processing techniques widely used in the United States and required by our export customers throughout the world are incompatible with current EU standards. Therefore, the provision in the agreement requiring a scientific study to assess various food safety processing techniques is critical.
We believe that study should be carried out on an expedited basis, and we look forward to the results of that study.
As I noted early in my testimony, the long term goal of the United States' meat packing industry has been, and still is, a United States-European Union agreement which provides for full mutual recognition of each other's meat and poultry inspection systems.
Until that goal can be achieved, the basis upon which U.S. meat and poultry packers and processors and their EU counterparts are evaluated should be the same.
Finally, Mr. Chairman, we cannot help but note the irony of us complaining about the various devices the European Union uses to limit its meat imports while some Members of Congress are, at the same time, supporting a measure which would be very similar in nature.
The Meat Import Labeling Act of 1997 would require country of origin labeling for imported meats and meat products as well as meat food products containing imported meat ingredients. The clear objective of this proposed legislation is to restrain U.S. imports of livestock and meat, particularly from Canada.
In that regard, it is important to point out that the United States exported $3 billion worth of beef and beef variety meats during 1996, and over $1 billion in pork and pork variety meats. Canada is our second largest export market for beef and pork, accounting for about 10 percent of our total exports.
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Our Nation now earns more dollars exporting meat than it spends importing it. And our trade surplus and red meat is expected to continue to grow.
With the U.S. cattle and hog industry becoming increasingly dependent on export markets, it would be exceedingly shortsighted for us to embrace a poorly disguised non-tariff trade barrier designed to inhibit U.S. meat imports that could serve as an attractive model for foreign interest groups committed to reducing U.S. meat exports for their market.
That concludes my statement, Mr. Chairman. Thank you.
[The prepared statement of Mr. Condon appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Mr. Vitaliano.
STATEMENT OF PETER VITALIANO, DIRECTOR OF TRADE POLICY AND ECONOMICS, NATIONAL MILK PRODUCERS FEDERATION.
Mr. VITALIANO. Thank you, Mr. Chairman. I appreciate the opportunity to testify on behalf of National Milk Producers Federation on this important issue. I ask my statement be included in the record.
The 15-member European Union is the largest milk producer in the world. And the United States is the largest single country producer of milk in the world. Normally we would expect to see a lot of dairy trade between two giants, so to speak. But in fact, that trade is quite limited.
It's been largely one way. The EU export statistics list about $30 million of dairy products imported from the United States in 1996 and about $723 million of EU dairy exports to the United States, more than 20 times. Given that the European Union is a higher cost milk producing country, it is very clear that there are other forces than purely market forces that work determining that trade.
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As the U.S. dairy industry becomes more export oriented and is turning its attention internationally, realizing that we need to find international markets to supplement our domestic market, it is turning attention to markets including the European Union as potential export markets to develop.
After all, the European Union is the world's largest consumer of dairy products. But as it looks to that market and others, it faces a number of trade barriers. And I know many of the witnesses have discussed those at great length. Dairy is no exception.
On the recent veterinary equivalency, National Milk also appreciates the successful efforts of the USDA, the FDA, Paul Drazek and his group, to obtain an arrangement with the Europeans to permit the signing of dairy export certificates, and therefore to continue U.S. dairy export shipments to the European Union.
However, National Milk Producers Federation feels that the differences between the EU and U.S. systems with respect particularly to somatic cell and bacterial plate count requirements represent differences strictly in food quality issues and not food safety.
The FDA also supports this position. The European Union, however, continues to treat this as a food safety issue. And we figure that, therefore, on a long term basis, a costly self-certification system such as was agreed is not the best long term solution, and we need to work toward establishing complete equivalency.
We face some more traditional market access barriers. The access barrier on cheese exported to the European Union that Mr. Tipton alluded to is one that concerns us as well. A little bit more background. The United States specifically negotiated with the European Union for the concessions on low in quota duty rates for two types of cheeses: pizza cheese, which is a special type of mozzarella; and cheddar cheese, which is sort of the flagship U.S. cheese product.
When the European Union implemented the licensing systems for that however, the problems that Mr. Tipton alluded to came out and we found that U.S. exporters for which, in a sense, those concessions were negotiated, and in the case of pizza cheese, for which we felt the United States had actually a unique product, came about.
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And for all practical purposes, no trade is taking place. We think this a major problem. The details are in my statement. There's also a question of whether or not the EU member country customs are actually enforcing a particular product definition that, for all practical purposes, was designed for the U.S. type product.
We're working with USDA on this issue. We've been working with them over a year, and we think this is an important one to resolve. We also share concerns about the export subsidies. That is, the major distortion. The EU's export subsidies on dairy products is the major factor that distorts world dairy markets.
It has allowed that relatively high cost industry to capture over half of world markets over the past years. The WTO agreement on agriculture and the subsidy reduction disciplines that contains have started the process of winding down those subsidies, and the EU market share is starting to decline, as it should.
However, because of the pressure, particularly on their subsidy reduction commitments on cheese, the most binding one for the European Union, their flagship export product, so to speak, there are pressures developing internally for them to circumvent it.
This two pricing export pooling proposal that Mr. Tipton alluded to that's on the horizon is a great concern. We call it the ''B quota'' proposal. It's our understanding that the commission does not want to do that at the moment, but that they may very well be pressured by their industry.
However, there is a more immediate problem in the area of export subsidy circumvention that is going on in the European Union that is also a great concern. And this has to do with an arrangement they have called inward processing and it affects processed cheese.
Essentially the European Union exports processed cheese with their subsidies. I think about a third of all of their exports, somebody once told me, are processed cheese. Since January, the European Union has adopted a new program whereby cheese is not counted fully as cheese if it's processed.
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But part of it, if not all of it, is considered to be either butter or skim milk powder and counted against that part of their subsidy reduction commitment. And the European Union has a lot more flexibility there. The net result of this program is to allow the European Union to subsidize more product than they would otherwise.
We consider it a clear circumvention of their export subsidy reduction commitments driven purely by the pressure that they are under the WTO commitments. We also are concerned about the further negotiations. Nineteen ninety-nine is not that far along.
And we're hearing a lot of talk from the European Union that their dairy industry is not willing to do any more and is going to be very, very difficult to work with in those negotiations. So the time is certainly now to start preparing for those and to take a tough position into the WTO.
Thank you, Mr. Chairman, for this opportunity. I'd be happy to answer questions.
[The prepared statement of Mr. Vitaliano appears at the conclusion of the hearing.]
Mr. POMBO. Thank you.
Now what you were just talking about with them counting processed cheese as butter, how do they do that?
Mr. VITALIANO. Well, the export subsidy reduction commitments for dairy were on four separate product lines: butter, skim milk powder which we call nonfat dry milk, cheese, and then there's a basket category of other dairy products.
It's our understanding that since the cheese is the real binding one, they really are having to cut back there. They're saying how can we essentially shift our export subsidy notifications from this short category to other categories where we have more flexibility.
It is a fact that processed cheese is manufactured by combining a certain amount of natural cheese with supplemental butter fat and nonfat milk solids including skim milk powder. And they're just saying we're going to declare this as not cheese anymore.
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We're going to count this as maybe a little bit of cheese, but butter and skim milk powder. It's simply been an administrative decision.
Mr. POMBO. Should they label it as not cheese?
Mr. VITALIANO. That's a good question. I think it's a more straightforward issue that the product, when it's exported, is exported as cheese under the customs category of cheese. And it's our feeling that, if that's the form the product is exported, that's how it ought to be counted.
And we think that the WTO disciplines are very clear cut in that. I've had one reading from a USDA official who's knowledgeable on that, and he feels that that's exactly the way it is. It's a clear circumvention.
Mr. POMBO. Mr. Tipton, you talked about the import license on cheese. Could you explain to me a little bit how that works?
Mr. TIPTON. Well, in order to ship to the European Union, you must have a license to bring the product in. They require that the licenses are held by European companies so they're not granted to a U.S. company or somebody outside of the Union.
They're granted to companies within the Union. So to ship there, you must have a broker that's within the Union.
Mr. POMBO. So if an American company wants to ship over there, they have to form a partnership with somebody there?
Mr. TIPTON. That's correct.
And then the second part of it, as I commented, is that they only issue the licenses for very short periods, quarterly. And there's no consistency to whether or not you will continue to get a license or not and the quantities that would be permitted under your license.
So it's virtually impossible to do any commercial business with those strictures.
Mr. POMBO. Is there justification for them not renewing a license? Is there quota on licenses?
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Mr. TIPTON. There's not a quota on the license, simply a quota on the quantity of cheese that they are required to import or permit to be imported. But there's not a quota on the licenses per se. They obviously can't license more than is permitted to be imported.
Mr. POMBO. Are you familiar with anyone who did not have their license renewed from one quarter to the next?
Mr. TIPTON. Peter may know better than I. I know there's a couple of companies who were trying to introduce product. Pizza cheese is a slightly different product than the mozzarella that we use in the United States for cheese.
And there is a demand for mozzarella in Europe because it has certain characteristics that the pizza cheese in Europe does not. And so there were some companies who attempted to get licenses. I don't think they ever got a license. And therefore, I don't think they were extended.
Mr. VITALIANO. If I can add to that, Mr. Chairman.
We have some details on that in our statement. Indeed, the license applications are only quarterly, whereas a lot of business relationships really need to be done on a much longer term basis. Any individual applicant can apply for only one quarter of the available calendar quarterly allocation.
And I don't think it's a question so much of being denied licenses as having those licenses diluted. Because you can apply for a license for a particular quantity, but the way those are granted by the European Commission is they take all of the applications and they could--the total allocations could be terribly over subscribed.
And if there is over subscription, they simply dilute on a pro rata basis everybody's application down. So you could apply for 100 tons, and I think there was at least one instance where there was a 50 fold over subscription, and so the license came back for 2 tons.
And 100 tons would be a paying proposition. You could get an adequate freight rate for that. But 2 tons? It's not worth doing. On top of that, you have to post a very, very exorbitant performance bond that, with a very tight performance requirement in terms of days or weeks to deliver, is almost at risk every quarter that you have it of losing, of forfeiture.
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And so it's just been set up to the point where it's virtually unworkable for serious commercial export development.
Mr. POMBO. So this is, in effect, a non-tariff trade barrier?
Mr. VITALIANO. We consider it as such. And I notice, although it's still confidential and we've not seen it, the recent successful WTO panel decision on the banana case also involves discriminatory EU import licensing system.
And we'd be very interested to read that case to see if that ruling may have some application here. We've spoken to EU officials, and they justify it by they want the system to be wide open and available to everybody so that they cannot be accused of discrimination.
But in fact, they are operating the system in a way that benefits only the EU brokers who can broker the licenses. And in fact, the actual shipments that take place are done through, our understanding, assembly of large numbers of very small licenses by people who do not intend to ship against them.
Mr. POMBO. Is this a widespread practice for them to issue licenses for different products? Are you familiar with other products that you would have to get a license to import?
Mr. VITALIANO. I believe that's the case. I'd defer that question to Mr. Condon who has dealt with the European Union over at USTR for very many years.
Mr. CONDON. We have a 10,000-ton quota on high quality beef that was mentioned earlier that's licensed by the commission also.
Mr. POMBO. Is that divided up?
Mr. CONDON. Apply for the licenses, yes.
I don't think it's a widespread practice, but it is used in at least two commodities that I'm aware of, beef and cheese.
Mr. POMBO. And have the livestock industry, the beef industry, had the same kind of problems with this licensing arrangements that these gentlemen describe?
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Mr. CONDON. There have been problems. There have been some problems in that arrangement, but not the same kind of problems. And that 10,000-ton quota was something that we negotiated and obtained in the Tokyo Round, so that goes back to 1979.
In most years, we hadn't filled the quota, 10,000 tons. And in more recent years, it's been a problem with hormones. We can't get our hormone beef in. So the quota hasn't been--generally has not been over subscribed.
In the mid-eighties, we were discussing with the EU Commission a different system of granting the licenses, and there were some administrative problems. But I'd say generally speaking here, the problems we had in beef were different than the problems they've referred to here.
Mr. POMBO. Mr. Tipton, you also talked about a so-called blend price where they take domestic price, export price, and blend that together for the price that the farmer gets. Is it your understanding that that is currently legal to do under the GATT agreement?
Mr. TIPTON. We believe it is. However, we have legal opinion to that effect as well. However, there have been no WTO cases on it, so it's probably something that we'll ultimately get resolved in the courts possibly if they continue to proceed with it.
We are very much concerned that Canada has recently implemented a similar type program and is precedent setting, we are fearful. And we are very hopeful that the administration will take a good hard look at that and take some action against Canada.
Canada is not currently shipping any of their lower class milk. I think they call it 5A, if I'm not mistaken, or something. But whatever their lower class is that falls into this export category, they're not shipping that--any of those products to the United States.
They are shipping them to other countries, including Mexico, where we are competing. And it has the same effect. Canada--smaller country, smaller quantities, of course, than the European Union, but it would have exactly the same effect.
And we think it's really important and would be very hopeful that you all would exercise a great deal of oversight in watching this development as other countries attempt to do it. And hopefully the administration will take on the Canadian situation very soon.
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Mr. VITALIANO. If I may add to that, Mr. Chairman.
National Milk also feels very strongly that the Canadian system which is in place, whereas the European Union's is kind of waiting in the wings--in fact, the European Union is watching the Canadian situation very closely and very clearly has indicated that if Canada is prevented from doing what it is now doing in the WTO, that will very likely give them the ammunition to sort of hold the line with their own industry.
Whereas, if Canada is continued to permit it, we're likely to see it in the European Union. We think this is one where a WTO challenge is definitely needed. The New Zealand government is closely examining that, and it's our understanding is on the verge of taking their own action.
But a position by the U.S. Government in support of that or initiating a challenge would be very, very helpful.
I will amend Mr. Tipton's statement a little bit because I believe that Canada is actually using their special pooling class, as they're called, to export some dairy products to the United States. It's not a lot.
They have an aged cheddar quota that's in the 5D category. And we're seeing some competition with UHT milk in the Puerto Rican market that I'm quite sure is--benefits from this.
In terms of the GATT legality, the WTO disciplines on subsidies clearly specify that a producer financed subsidy, if you actually have a levy or what we call an assessment and collect that money from producers to subsidize exports, that is clearly a prohibited category or a category that's to be disciplined.
Canada had such a system, notified it under the WTO. Once they implemented the agreement, they converted it to this special pooling class specifically to continue their exports but to just rejigger it legally into a category they claim as immune.
It's the same system. It does the same thing.
Mr. POMBO. Yes.
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Mr. VITALIANO. But it's one of those WTO legal things that is not quite as clear cut. We think it's the same thing. We think it's circumvention. And hopefully the U.S. administration will be aggressive on that.
Mr. TIPTON. Mr. Chairman, I may have misspoken. I'm told I may have said that we thought it was GATT legal. It is GATT illegal from our viewpoint. I'm sorry.
Mr. POMBO. I'm sure that as this committee proceeds with the oversight responsibility in different areas including this one particular area, that the expertise that has been brought forward by the witnesses at today's hearing will be greatly appreciated and that we will have the opportunity to call on all of you again in certain circumstances for information and testimony into exactly what's going on.
It's been a very interesting hearing. Unfortunately, it was broken up by several votes. I apologize to all of you again for the delay in concluding this hearing. But I know that my colleagues will have further questions for you.
Mr. Peterson said that unfortunately he had a commitment that he had to run out, but he did have questions that he would like to submit to you. So if you can answer those in a timely basis for the committee, it would be greatly appreciated.
Thank you very much for your testimony.
Mr. TIPTON. Thank you, sir.
Mr. VITALIANO. Thank you, Mr. Chairman.
Mr. POMBO. The hearing is adjourned.
[Whereupon, at 5:19 p.m., the subcommittee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
STATEMENT OF HON. WES WATKINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OKLAHOMA
Mr. Chairman, I would like to thank you and the entire subcommittee for allowing me the opportunity to participate in this hearing concerning the current status and future prospects of trade between the United States and the European Union. This is a matter of great importance to the economic welfare of America's beef producers, and also a matter of great personal interest to me.
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It would be difficult to overstate the importance of the United States relationship with the European Union. Overall, I believe this relationship to be healthy and of great benefit to both parties. However, in recent years there have been several contentious trade issues which threaten to undermine the overall strength of this partnership. One particular issue which is of great concern to me is the European Union's continued ban on hormone treated beef. Numerous scientific studies have found these growth-producing hormones to be safe, and therefore this ban is a violation of the Uruguay Round Agreements to the General Agreement on Tariffs and Trade. This ban has been in place for over 8 years and has cost American cattlemen hundreds of millions of dollars.
As just about any cattleman will tell you, properly administered growth-producing hormones can be a valuable tool in improving quality, increasing yield, and reducing costs. Hormones are used on almost two-thirds of all cattle and about 90 percent of the cattle on feedlots. Growth-producing hormones are helpful because they lower the amount of feed necessary to produce an equivalent amount of meat. This is especially important in light of the increasing price of cattle feed during the past several years. These hormones are also beneficial to ranchers because they increase the mass and improve the quality of the beef.
Let there be no question, beef treated with growth-producing hormones is safe. These hormones have withstood intense scrutiny and extensive testing by the Food and Drug Administration's veterinary drug approval process. To test the safety of these hormones, the FDA requires the product's sponsor to administer the hormones and then show that the residual levels of hormone meet the strict standards set by the World Health Organization. For the synthetic hormones trenbolone, zeranol, and melonomic gesterate, these standards are even stricter and require the animal to pass a toxicological screening. These hormones, with the exception of MGA which is a feed additive, are all administered through implants placed behind the animal's ear. This portion of the animal is discarded at slaughter so that there is never the chance of consumers being subjected to the concentrated levels of hormones surrounding the implant.
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However, the safety of these implants is not only confirmed by the United States but by scientists around the world, including the European Union. The European Commission's Lamming Committee found in 1982 that the natural hormones estradiol, progesterone, and testosterone ''would not present any harmful effects to the health of the consumer when used under the appropriate conditions as growth promoters in animals''. In 1995 the Codex Alimentarius Commission of the World Health Organization also confirmed the safety of growth-producing hormones and established international standards for their use. In December 1995, the EU's own Scientific Conference on Growth Promotion in Meat Production found that ''there is no evidence for possible health risks to the consumer due to the use of natural sex hormones for growth promotion,'' and that there ''are no indications of a possible human health risk from the low levels of covalently-bound residues of trenbolone''.
As impressive as the FDA's testing procedures and the numerous international reports are, there is an even simpler way to prove the safety of these growth producing hormones. That way is simple, practical experience. For decades, Americans have been eating beef treated with these natural and synthetic growth-producing compounds without any consequences. There are not thousands of American children running around with grotesque birth defects due to hormone treated beef, as some of the European fear mongers would have you believe. Instead, Americans are fortunate enough to enjoy the highest quality beef in the world. Yet despite the millions of people worldwide who enjoy American beef and their own scientists who agree that these hormones are safe, the European Parliament voted unanimously in January of 1996 to uphold the ban.
It is clear that the European Union's ban on beef treated with growth-producing hormones is in violation of the WTO Agreement on Sanitary and Phytosanitary Standards. The SPS Agreement states that nations may establish their own food safety regulations but these regulations must be based on sound science and may not be used as a non-tariff barrier to restrict trade. It leaves one to wonder how the European Union can maintain this ban when it is clear that all the scientific evidence indicates that these growth-producing hormones are safe?
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The only feasible answer is that the ban has little to do with public health and a great deal to do with economics. In the mid—1980's high domestic price supports along with high tariffs created large surpluses of beef in the European Commonmarket which were tremendously expensive to maintain. Making matters worse, the EC practice of providing generous export subsidies became extremely expensive as ranchers tried to sell these surpluses overseas. Therefore, European policy makers were anxious to find a measure which would protect their domestic markets from foreign competition and ensure high prices for European producers in their home markets. With these high prices within the European Union, there can be no doubting why the EU is so steadfast in keeping the higher quality and lower cost of the American cattlemen out of their markets.
This ban was originally implemented in 1989 and has cost America's cattle producers hundreds of millions of dollars annually. To illustrate the extremes the EU has gone in dragging out this process, I have enclosed a timetable showing the European Union's steps to date in this matter. It shows the points at which the EU thumbed their noses at sound science and violated their own agreements, in order to protect their domestic beef markets. It also shows the four years that passed from 1991—95 while the United States waited for the establishment of a strong dispute resolution process, like the WTO, to have their case heard.
Despite the strength of the United States case, the final resolution of this matter could still be a ways off. The WTO's Dispute Settlement Panel was supposed to issue its interim report by April 1, 1997. This date was then pushed back to the last week in April or the first week in May. To date the WTO has not issued its finding, but it is expected any day.
Even if the United States wins its case before the DSP, as it should, this fight will likely continue for some time to come. As the chart indicates, the EU will still be able drag the ban out for another 18 months by appealing the decision and stalling in the implementation negotiations. This foot dragging would only serve to further injure America's livestock industry at a time when they can ill afford it.
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In conclusion, it is of the utmost importance that this matter be resolved in a favorable and expeditious manner. The United States has clearly moved into a competitive global economy. America's farmers and ranchers are heading in a direction of freer markets and reduced Government assistance. Therefore it is a time of great uncertainty for many of them. It is imperative that as we move into these uncharted waters, the United States Government maintain a strong presence to ensure that our farmers and ranchers have a level playing field to compete on. The Congress and the Office of the United States Trade Representative also need to assure farmers and ranchers that trade negotiations are completed in a fair and timely manner. We must let our trade competitors know, that it is unacceptable for them to violate their agreements.
TIMELINE OF THE EUROPEAN UNION'S BAN ON GROWTH-PRODUCING HORMONES
1980. A health scandal in Italy, caused by the illegal use of banned hormones, raises concerns regarding the safety of beef treated by safe, legal hormones.
July, 1981. The European Community Council calls for a EC Commission report on the safety of estradiol, progesterone, testosterone, trenbolone, and zeranol to be published by July, 1984. The Commission established the Scientific Working Group on Anabolic Agents in Animal Production comprised of 22 European scientists and Chaired by Dr. G.E. Lamming.
1982. The Lamming Committee's interim report finds that estradiol, progesterone, testosterone ''would not present any harmful effects to the health of the consumer when used under the appropriate conditions as growth promoters in farm animals,'' and that they would need additional time to establish a finding on the safety of trenbolone and zeranol.
1985. High domestic price supports among EC countries and high import tariffs create excessive supplies of beef. The EC's generous export subsidies became expensive to maintain as member nations sought to move this surplus on the international market. European policy makers were therefore supportive of any measure which would keep out foreign competition.
October, 1985. The European Parliament adopted a resolution stating that there was insufficient evidence to prove the safety of the hormones. The EP called for a ban on beef treated with synthetic hormones and the authorization of natural hormones only for therapeutic purposes.
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December, 1985. The European Council banned the use of synthetic hormones in all circumstances and natural hormones for all but therapeutic purposes.
September, 1986. The United States raises the question of the hormone ban before the Committee on Barriers to Technical Trade of the General Agreement on Tariffs and Trade.
1987. Bilateral negotiations between the United States and the EC achieve no significant progress and end with the EC blocking the United States' request to refer the matter to a committee of technical experts. Also in 1987, the Lamming Committee's report which was never adopted by the EC is published in the journal, The Veterinary Record.
June, 1987. The World Health Organization's Joint Food and Agriculture Organization on Food Additives reported that growth producing hormones, when used properly, ''are unlikely to pose a hazard to human health.
November, 1987. The EC agrees to delay implementing the ban until January 1, 1989.
January 1, 1989. The EC implements the ban and the United States swiftly retaliated by imposing tariffs equivalent to prohibiting $100 million in EU agricultural products.
January 1, 1995. The Uruguay Round Agreements of the GATT are implemented, thus establishing the World Trade Organization. The Uruguay Round Agreements also included the Agreement on Sanitary and Phytosanitary measures, which requires that any such ban be based on principles of sound science.
July, 1995. The Codex Commission ruled, despite strong opposition from the EU, that maximum residue limits were not necessary for natural hormones and the Commission accepted limits on residual synthetic hormones. The Codex Commission found that the growth producing hormones were indeed safe.
December, 1995. The EU's Scientific Conference on Growth Promotion in Meat Production found that for natural hormones, ''there is no evidence for possible health risks to the consumer due to the use of natural sex hormones for growth promotion.'' The Conference also found that ''There are, at present, no indications of a possible human health risk from the low levels of covalently-bound residues of trenbolone.''
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January 18, 1996. Despite the findings of the EU Scientific Conference on Growth Promotion in Meat Production, the Codex Commission, the FDA, and the Lamming Commission, the European Parliament voted unanimously to maintain the ban on growth producing hormones.
January 26, 1996. The United States requested consultations before the WTO. These consultations were not able to resolve the matter.
May 8, 1996. The United States requested the formation of a Dispute Settlement Panel. The panel met to discuss the matter in October and November, 1996 and February, 1997. The panel's interim report is due at the beginning of May and the final report should follow about a month later.
United States Department of Agriculture Fact Sheet Chronology of the European Union's Hormone Ban. January, 1997.
Hanrahan, Charles. The European Union's ban on Hormone Treated Meat. CRS Report 96—122, February 8, 1996.
The European Commission Directorate-General for Agriculture. Scientific Conference on Growth Promotion in Meat Production. December 1, 1996.
STATEMENT OF PAUL DRAZEK, SPECIAL ASSISTANT TO THE SECRETARY FOR TRADE
Mr. Chairman, members of the subcommittee, I am pleased to come before you today to discuss the status of livestock products trade with the European Union.
Exports of Livestock Products Show Strong Growth.I'd like to spend a few minutes reviewing the export performance of livestock products overall. Last year, the value of poultry, pork, beef and variety meat exports increased 8 percent to $6.6 billion, and were twice the 1990 level. Strong sales of poultry and pork led the way. Poultry exports, at $2.5 billion, jumped nearly $500 million, 23 percent, due mainly to the strength of the Russian market, which increased its purchases by $306 million for a total of $913 million. The Department estimates that poultry exports in 1997 will increase another 8 percent.
U.S. pork exports have more than tripled since 1990. For 1996, pork exports increased 20 percent and exceeded the $1 billion mark. USDA projects that pork exports in 1997 will increase by about 44 percent, in large part as demand from Japan increases dramatically due to reduced supply from Taiwan caused by the recent outbreak of foot and mouth disease there.
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This year, beef exports will account for about 7 percent of U.S. production, up from 4 percent in 1990. Due to lower prices, the value of beef exports declined 8 percent to $2.4 billion; however, exports increased in volume, from 595,000 tons in 1995 to 611,000 tons in 1996. On a volume basis, beef exports have shown steady growth since 1990, rising nearly 75 percent since then, and are projected to increase one percent this year.
Variety meat exports took a slight turn upward in 1996 to $714 million. Total beef variety meat exports were $617 million, 86 percent of total variety meat exports. Exports of variety meat have nearly doubled since 1990, and USDA expects the growth to continue in 1997, although at a lower rate due to smaller supplies.
U.S. dairy product exports declined about 7 percent in 1996, due mainly to limited supplies and weak international demand.
What makes the livestock export figures even more impressive is that they were achieved with limited access to the EU market--historically one of our larger markets. While U.S. livestock product exports were growing rapidly around the globe, exports to the 15 countries that make up the EU dropped from $140 million in 1986 to $102 million in 1996. While beef and pork exports rose modestly, variety meat exports suffered the greatest decline--from $109 million in 1986 to roughly $20 million in 1996. Poultry exports showed the greatest increase over the past 10 years, rising from $11 million in 1986 to nearly $55 million in 1996. And now, of course, all of our livestock, poultry and dairy exports to the EU have been affected as the result of technical issues on veterinary equivalence, to which I now turn.
U.S.-EU Veterinary Equivalence Negotiations. Nowhere are we facing greater challenges on livestock trade policy issues than in our dealings with the EU. However, with our agreement on veterinary equivalency, we believe we have made an important first step toward resolving some of the key issues.
Equivalency agreements incorporate the provisions of the Uruguay Round's Sanitary and Phytosanitary Agreement. The SPS agreement states that countries may enter into bilateral agreements that recognize the equivalency of specific sanitary or phytosanitary measures. The underlying premise is that most countries do not have identical sanitary measures. Although different, those measures can provide a secure level of protection to public and animal health. Through equivalency negotiations, countries thoroughly review each others' sanitary measures to ensure that the appropriate level of protection is maintained. Equivalency agreements ensure food safety while facilitating trade.
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On April 30, after several years of negotiation, we reached agreement with the EU on an overall framework for recognizing as equivalent each other's veterinary inspection systems. This agreement is not a trade agreement in the ordinary sense. Rather it is a technical agreement on the recognition of veterinary and inspection standards that covers over 40 product groups and over $3 billion in bilateral trade. The agreement elaborates on World Trade Organization principles on equivalency of meat inspection standards and establishes a process for dealing with remaining and newly emerging veterinary inspection problems.
Mr. Chairman, this is a good agreement, although not perfect. On the positive side, this agreement should open new trade opportunities for red meat, and preserve most pre-existing trade in products such as petfood, dairy and egg products. In the short-term, we expect the U.S. pork industry to be the biggest beneficiary. As a result of the agreement, U.S. exporters can pursue sales under the EU's 38,000-ton tariff-rate quota for pork loins that was negotiated as part of the Uruguay Round Agreement.
On the negative side, we were unable to resolve all the poultry issues. As a result, the United States could lose up to $50 million in annual poultry meat exports. This is completely unacceptable. As Secretary Glickman has said, the EU's insistence that U.S. poultry comply with every prescriptive EU poultry regulation is out-of-step with the EU's trade obligations. U.S. poultry is the safest and most wholesome in the world, and we refuse to lower our standards in order to ship to the EU.
The United States will continue to pursue a resolution to these issues under the framework agreement reached last week. In the meantime, the United States will begin a thorough examination of the EU's poultry inspection system and its ability to meet tough U.S. inspection rules under the new Pathogen Reduction/Hazard Analysis and Critical Control Point Program. As of May 1, EU poultry plants are not eligible to ship product to the United States until we are able to conduct appropriate inspections and confirm delivery of its appropriate level of protection.
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So where do we go from here? Even as we begin plant-by-plant inspections for poultry in Europe, we intend to continue to work to reach an acceptable resolution in the coming months, working through the framework agreement.
We're also working with the U.S. poultry industry to use the full resources of USDA to target opportunities in other markets to make up for sales lost as a result of the EU's actions. In addition, there is nothing in the agreement that prevents us from challenging the EU in the WTO. I want to assure the Committee that we are taking and will continue to take strong actions to protect U.S. interests in this area.
EU Hormone Ban.One livestock issue that we have already taken to the WTO is the EU hormone ban. Although I'm sure the Committee is familiar with this longstanding issue, I'd like to take a few moments to bring you up-to-date.
On January 1, 1989, the EU implemented a ban on imports of red meat from animals treated with growth-promoting hormones, cutting off U.S. beef exports valued at about $100 million annually. Most of this (80 percent) was offal for human consumption.
Following years of unsuccessful bilateral discussions, and unproductive WTO consultations in March 1996 (where we were joined by Canada, Australia, and New Zealand), the WTO formed a dispute settlement panel after a U.S. request. The panel consists of three members agreed to by both parties: Thomas Cottier, Switzerland, as chairman; Peter Palecka, Czech Republic; and Jun Yokota, Japan.
Last fall, there were two panel meetings, as provided for in the Dispute Settlement Understanding. In October, Canada also requested a panel to examine the EU's ban. The panelists are the same as for the U.S.-requested panel, and the two panels have shared information, but they are legally separate.
In February, the panel met again, this time with five technical experts appointed by the panel to provide guidance for both the U.S. and Canadian panel proceedings. The meetings were helpful in giving the panel members a much better sense of the scientific, as well as legal, issues involved, and in debunking most of the EU's evidence.
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On March 28, the WTO panel issued the descriptive section of its report. The interim ruling is expected this month.
The United States maintains that the EU's ban ignores a vast body of scientific evidence that the veterinary drugs in questions are safe when used in accordance with good animal husbandry practices. The safety of the drugs has been confirmed by the Codex Alimentarius Commission (a food standards body sponsored jointly by the World Health Organization and Food and Agriculture Organization), as well as by the EU's own scientists--both the Lamming Committee, convened in 1982, and the EU's Scientific Conference on Growth Promotion in Meat Production in late 1995. EU Commissioner of Agriculture Franz Fischler, however, has continued to publicly rule out an end to the hormone ban, stating that economic, environmental and consumer concerns must be considered in addition to the scientific evidence. The EU Council and the European Parliament have also taken this position--a position that we find indefensible.
EU Dairy Policy. Despite the growing presence of international competitors, primarily Australia and New Zealand, the EU accounts for between one-third to 40 percent of world trade in dairy products. The EU maintains this market share in large part due to its generous use of export subsidies that are needed to move the EU's high-cost products on to world markets.
Only about 1 percent of U.S. dairy production is currently exported. Much of this is facilitated through the Dairy Export Incentive Program. The DEIP's principal focus has been to further the U.S. trade policy strategy of opposing EU subsidies and the unfair trade practices of other competitor nations that impede U.S. dairy product exports.
DEIP allocations for the July-June 1996/1997 year are available for sales to 112 countries totaling 100,222 metric tons of nonfat dry milk, 97 countries totaling 9,971 metric tons of whole milk powder, 111 countries totaling 38,611 metric tons of butterfat, and 109 countries totaling 3,669 metric tons of cheese. All of these allocations are the maximum amounts permitted to the United States under the Uruguay Round export subsidy schedule.
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As part of our GATT implementation efforts, we are closely monitoring a recent EU regulation that allows the butter and nonfat dry milk components of certain processed cheese to count against the EU's export subsidy schedules for these components rather than against its cheese schedule. The EU is rapidly approaching the limits for subsidized exports of cheese, in contrast to the NDM and butterfat categories where there are ample balances. By implementing this regulation, the EU relieves pressure on its more limiting export subsidy volume limitations for cheese by counting the components against its butter and NDM schedules where there is ample room.
We are concerned that this action appears to be designed to allow the EU to evade its Uruguay Round export subsidy commitments for cheese. We raised this issue at the WTO Committee on Agriculture meeting in Geneva on March 13—14, 1997. We were pleased that our concerns were shared by the delegations from Australia, New Zealand, Canada, Argentina, and Mexico.
The EU rejected the U.S. allegation that their action is a circumvention of Uruguay Round export subsidy disciplines but promised to provide additional information on this scheme. The issue will be taken up more fully at the next Committee meeting in June or September.
Mr. Chairman, as you can see, we have several major outstanding trade issues with the EU that affect our livestock products sector. We are using all available trade policy tools at our disposal, and will work relentlessly to ensure the best resolution for the American livestock sector.
Even with these problems, poultry and livestock exports continue to show remarkable growth. Increased market access, reduced trade barriers and high-quality U.S. products continue to make the livestock sector one of the shining performers in the overall U.S. agricultural export picture.
That concludes my statement, Mr. Chairman. I will be pleased to answer any questions.
TESTIMONY OF LEONARD W. CONDON, VICE PRESIDENT, INTERNATIONAL TRADE, AMERICAN MEAT INSTITUTE
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I am Leonard Condon, vice president for international trade, American Meat Institute. I appreciate the opportunity to be here today to share AMI's views on the current status and future prospects for trade between the United States and the European Union in livestock and poultry products. AMI is a national trade association representing the packers and processors of 70 percent of the Nation's beef, pork, lamb, veal and turkey production, and their suppliers across America.
Regrettably, the current status and prospects for trade in livestock and poultry products between the United States and the European Union are not bright. European Union producers are generally very well protected, compared with their U.S. counterparts. They enjoy generous price support systems and benefit from significant subsidies to encourage export of their over-production.
In that connection, a common standard for comparing the value of Government support and protection to producers is the producer subsidy equivalent created and reported yearly by the Paris-based organization for economic cooperation and development. The OECD estimates that in 1995, 64 cents of every dollar received by EU beef and veal producers was a direct result of Government-provided support and protection. For U.S. cattlemen, Government support/protection accounted for about 5 cents of every revenue dollar received in 1995. For poultry similar comparisons are 28 percent for EU and 5 percent for U.S. growers. For pork, the gap is less pronounced--9 percent for EU hogmen, vs. 5 percent for their U.S. counterparts.
Notwithstanding these basic facts, EU export subsidy reduction commitments made in the uruguay round, along with the eastward expansion of the European Union, will require significant reductions over time in the amount of support and protection provided to EU livestock and poultry producers. However, it appears that the EU is committed to supporting domestic livestock and meat prices at levels which exceed world prices--thereby continuing a need for protection from imported competition.
In the short and intermediate term, underlying farm policy factors will continue to discourage EU policy makers from implementing actions to facilitate meat imports. Lagging beef demand and swelling intervention stocks--a direct result of widespread concern regarding the safety of European beef--currently exacerbate this situation.
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EU intervention stocks of beef at the beginning of 1996 totaled 8,810 tons. Largely due to the announcement last march regarding bovine spongiform encepholopathy, intervention stocks by the end of last year had climbed to 417,932 tons. These large freezer stocks of beef have negative price implications for all EU livestock and poultry producers. And finding markets for these huge intervention stocks of beef present a formidable challenge to EU officials.
Against this backdrop, EU and U.S. veterinary officials have been attempting to conclude a veterinary equivalence agreement. AMI supports the broad objective of full equivalence between the veterinary inspection programs of the United States and the European Union. We look forward to the day when meat and poultry products inspected and passed by usda will be auto-matically eligible for export to Europe, and items produced in approved EU establishments will be eligible for import into the U.S. market, with no special additional assurances required. We recognize that the free movement we envision will require a higher degree of mutual confidence, cooperation and communication between our veterinary inspection officials.
The United States and many of the EU member states operate meat inspection systems considered to be among the best in the world. Our respective programs are administered by professional veterinarians, generally regarded as the most competent in the international food safety field.
In short, there are far more similarities in our meat and poultry inspection policies and programs than there are differences. Given that fact, it is unfortunate that we have had great difficulty in resolving narrow, but deeply-held, differences on a relatively limited set of technical issues
In fact, the merits of the draft framework agreement--the virtually completed focal point of this negotiation--have been largely overshadowed by the controversy created by differences over significant, but narrow, technical issues. The draft framework represents an excellent system of rules and procedures designed to establish guidelines for establishing equivalence between the U.S. and the EU in veterinary inspection matters. Moreover, it could serve as a model for other agreements between the U.S. or the EU and other partners. We appreciate the patience and perseverance of the USTR, USDA, HHS and Commerce Department officials who have been involved in this long and difficult endeavor.
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More generally, we commend the administration for its untiring efforts to reach an equitable, trade facilitating equivalence agreement. However, the ultimate success of any bilateral negotiation depends on the willingness of both sides to compromise. While the EU's interest in an equivalence agreement may have been high when it originally proposed this initiative, it is clear that the EU commission's flexibility to negotiate such an agreement became more limited as concerns within Europe about the safety of their domestic meat supply increased. This shifting EU attitude contributed to the difficulty of satisfactorily resolving all of the technical issues.
Despite our disappointment that the agreement does not immediately resolve to our complete satisfaction issues like the need for incising pig hearts, the need for a veterinarian to conduct ante-mortem inspection, and the acceptability of wooden pallets, we believe that agreement represents progress toward resolving U.S.-EU differences and will result in increased export opportunities for red meat processors. Accordingly, ami endorses the administration's decision to enter into the agreement.
AMI is disappointed that the agreement announced April 30, 1997, will not result in the resumption of poultry shipments to the EU which were halted on April 1. We find it incomprehensible that processing techniques widely used in the united states, and required by export customers throughout the world to ensure the production of safe and wholesome poultry are incompatible with current EU standards. Therefore, the provision in the agreement requiring a scientific study to assess various food safety processing techniques is critical. We believe that study should be carried out on an expedited basis, and we look forward to the results of that study. American poultry, like American red meat, complies with the strictest food safety standards.
As I noted early in my testimony, the long-term goal of the U.S. meat packing industry has been, and still is, a U.S.-EU agreement which provides for full mutual recognition of each other's meat and poultry inspection systems. Until that goal can be achieved, the basis upon which U.S. meat and poultry packers and processors and their EU counterparts are evaluated should be the same.
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For more than 2 decades, USDA has applied the concept of equivalence in determining compliance by EU meat packing plants with U.S. meat inspection requirements. The EU has yet to adopt this principle in evaluating U.S. plants. The result is that EU plants have a greater chance of meeting our more flexible standards than U.S. plants have of meeting the very precise EU standards. Indicative of this inequity, more than 150 EU beef and pork slaughtering plants may ship to the united states. Only 8 U.S. beef and pork slaughtering establishments are eligible to ship product to the EU. We strongly urge the EU to adopt the more constructive U.S. approach. If the EU will not or can not fulfill its obligations in this regard, we should adopt the EU approach.
TESTIMONY OF MARK ARMENTROUT ON BEHALF OF THE NATIONAL CATTLEMEN'S BEEF ASSOCIATION
I am, Mark Armentrout, chairman of the National Cattlemen's Beef Association's International Markets Committee from Alpharetta, Georgia. I am president of Mill Park Feedlot, Inc., a 5,000-head capacity custom cattle feedlot in Oakland, Iowa, a past president of the Georgia Cattlemen's Association and serve on the Executive Committee of the U.S. Meat Export Federation.
On behalf of NCBA, we commend Congressman Pombo and this subcommittee for holding hearings to address European trade issues that have long been major concerns for the beef industry. The U.S. beef industry has essentially been shut out of the European market since 1988 through the use of non-tariff trade barriers. These barriers are not based on sound science but on pseudo science, and are in clear defiance of provisions approved during the Uruguay Round Agreements of the GATT. These barriers have been, and must continue to be, challenged through tough direct negotiations by the U.S. Trade Representative and the U.S. Department of Agriculture.
NCBA fully supports the veterinary equivalency agreement reached by the U.S. and European Union late last week. The U.S. and the EU developed a framework agreement that provides useful elaboration of the World Trade Organization principles on equivalency of meat inspection standards and establishes a process for dealing with remaining and newly emerging veterinary inspection problems. Finalizing an equivalency agreement with the EU sends a message to the rest of the world that U.S. meat producers demand science-based arrangements. We place the utmost importance on the sanitary and phytosanitary agreement executed in the Uruguay Round.
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NCBA commends Ambassador Barshefsky, Secretary Glickman and their respective staffs of dedicated professionals for persevering during a very contentious round of negotiations with the Europeans regarding inspection equivalency. We wish to publicly thank the Administration and those Senators and Congressmen who persistently wrote letters of support and sponsored aggressive legislation during this very trying time. The U.S. Government's actions mark an important chapter in the ten year long dispute over inspection differences between the EU and the U.S. Reaching an agreement on the remaining equivalency issues existing between the U.S. and European inspection systems for red meat enhances this victory. The red meat sector of U.S. agriculture will no longer be subjected to arbitrary EU plant inspections, but will be qualified to export to the EU based upon approval by USDA's Food Safety and Inspection Service.
Failure to reach a veterinary equivalence agreement would not only have continued the disruption of U.S. exports, but it could have set a precedent for other countries throughout the world to close their markets to the U.S. using trade barriers thinly disguised under the veil of pseudo-science. Prior to 1988, over 400 U.S. beef and pork facilities were certified to export to the EU. The EU subsequently de-listed all U.S. facilities under the pretense that the U.S. facilities didn't meet EU meat inspection standards. After the U.S. filed its second 301 petition, the EU agreed to settle the case stating that both regulatory systems basically provide equivalent safeguards against public health risks. Prior to last week's agreement, the EU had over 150 beef and pork slaughtering establishments approved to ship to the U.S. In contrast, the U.S. had only eight beef and pork facilities that can ship to the EU.
This is a significant win for U.S. beef producers. This agreement paves the way for two-way equivalency and opens up more opportunities to expand U.S. meat exports. We are hopeful that this agreement will provide momentum for a successful resolution to remaining beef trade issues. Resolving the EU ban on U.S. beef is the next primary target. In place since 1989, the EU ban on the sale and import of meat products produced using growth promotants has prevented the sale of U.S. beef and variety meats in Europe. Prior to the ban, the value of variety meat exports to Europe totaled at least $100 million in sales each year. Scientific evidence clearly shows growth promotants used by the U.S. beef industry pose no danger to human health. The WTO dispute-settlement panel to resolve this case is expected to issue an interim ruling as early as this week. The USTR must continue to devote the necessary resources to this case to assure a ruling favorable to the U.S. beef industry.
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NCBA supports the recent action by the U.S. Government to resolve these issues because it sends a strong message to all trading partners that trade access issues must be resolved on science rather than political motivations. The safety and quality of U.S. meat production depends on science-based inspection systems, not politically motivated, arbitrary standards. We must live by science-based agreements if the global trading system is to work. NCBA promotes international trade agreements that are fair and truly reciprocal to expand U.S. cattle and beef markets around the world.
Gaining access to international markets is only the first step in expanding export demand. Continued support for USDA's export programs, including the Market Access Program is critical to strengthening U.S. beef exports and countering increased funding by international competitors for international market development. The international market is the fastest growing segment of demand for U.S. beef. During 1996, beef exports accounted for approximately eight percent of total U.S. tonnage production and nearly 13 percent of the value for all beef sales. The U.S. became a net beef exporter on a value basis during 1991 and beef export tonnage has nearly equaled imported tonnage during the past two years. This success story in beef exports is directly attributable to increased access to international markets gained through negotiations and market development initiatives funded by MAP and it's predecessor programs.
Continuing, possibly even expanding, MAP funding will be increasingly important as additional trade barriers are resolved and access to international markets is achieved. The EU, even under the Uruguay Round Agreement, maintains a ten-to-one advantage over the U.S. in the use of export subsidies. During 1995, the EU allocated more than $9 billion to subsidize agricultural exports, and during 1994—95, the EU and other foreign competitors also devoted more than $600 million for market development. Maintaining MAP funding at $90 million during the FY 1998 budget/appropriations process is critical to maintaining U.S. competitiveness in the expanding global market.
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MAP is a cost-share program that helps American farmers and ranchers promote their products overseas and compete with foreign subsidized commodities. It is an essential element of the Nation's overall agricultural trade policy. During 1996, farm exports reached a record $60 billion which resulted in a U.S. net trade surplus of nearly $30 billion in agriculture and accounted for approximately one-third of domestic agricultural production. Exports generate billions of dollars in additional tax revenues as a result of direct and indirect economic activity and provide additional jobs throughout the economy.
Currently every $1 billion in U.S. agricultural exports creates as many as 17,000 new jobs--in production, processing, marketing and shipping, as well as in other industries that supply goods and services related to agriculture. Agricultural exports support more than one million jobs in the U.S.--jobs that pay an average 15 percent more than the hourly wage in the rest of the economy.
The corporate welfare tag attached by some to the MAP program is a bum rap. The MAP program has been reformed and is specifically targeted towards small businesses, farmer cooperatives and trade associations. MAP is administered on a cost-share basis, with American farmers, ranchers and other participants required to contribute up to 50 percent towards the program's cost. During 1996 the beef industry contributed nearly $9 million in producer funds to develop international markets, including nearly $1 million dollars to improve consumer confidence for U.S. beef products in Japan. Beef industry dollars invested in international markets alone exceeded MAP expenditures for international meat market development. NCBA urges continued funding for the MAP program at $90 million or more.
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 and potential Fast Track legislation to negotiate with Chile, and possibly other trading partners. Thank you for your leadership in these issues and the opportunity to present these thoughts.
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STATEMENT OF E. LINWOOD TIPTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, INTERNATIONAL DAIRY FOODS ASSOCIATION
Mr. Chairman and members of the subcommittee, I am E. Linwood Tipton, president and c.e.o. of the International Dairy Foods Association. I appreciate the opportunity to appear before you today to present the views of IDFA and its constituent organizations on the current status and future prospects of trade between the United States and the European Union in dairy products. IDFA is a trade association with three constituent organizations, which represent the processors, manufacturers, and distributors of dairy products. Within IDFA, the Milk Industry Foundation represents processors of 85 percent of the fluid milk and fluid milk products consumed in the United States; the National Cheese Institute represents manufacturers of 80 percent of the cheese consumed; and the International Ice Cream Association represents manufacturers and distributors of 85 percent of the ice cream and ice cream-related products consumed in the United States.
As you may know, the European Union is the world's largest producer and largest consumer of dairy products. However, access to the EU market is severely restricted, and its high subsidy programs significantly distort production levels, prices and trade patterns. Although the United States imports substantially more dairy products from the EU than the EU imports from the United States, IDFA is optimistic that if market forces were allowed to dictate world trade, the U.S. dairy industry would enjoy a much higher share of both the EU and world markets. For that reason, we support continued efforts to move all governments towards policies that allow for greater market orientation.
EU Import Licensing Requirements for Cheese. One consequence of the Uruguay Round of GATT negotiations was successful negotiation of EU minimum access commitments for cheese imports, with special provisions for the categories of pizza cheese and cheddar cheese. Nevertheless, the implementation of these concessions through unrealistic import licensing rules and procedures have undermined the value of these concessions to the U.S. dairy industry.
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The cheese import licensing system established by the EU has complex rules which benefit EU brokers of import licenses rather than commercial suppliers of cheese. Import licenses are subject to allocation on a quarterly basis with no assurance of access during subsequent quarters. The application and decisionmaking process starts anew with each quarter. This effectively blocks the development of long-term supply relationships. Moreover, applications for import licenses must be accompanied by substantial performance security deposits--roughly equivalent to 35 percent of the imported product value in the case of pizza cheese, for example. Quantities authorized under license may or may not bear any commercially reasonable relationship to the quantities applied for. Yet failure to import the product in the quantities authorized prior to the last day of the quarter results in forfeiture of the security deposit, regardless of the commercial circumstances. Transferability of the licenses has in practice benefited license brokers in the EU, but not U.S. suppliers.
IDFA members who attempted to develop business relationships with EU customers have been so frustrated they have abandoned earlier attempts to supply the EU market.
In short, the access the U.S. cheese industry thought it gained in the Uruguay Round has been effectively undermined by the unworkable import licensing scheme which the EU is administering. The EU should not be allowed to prevent meaningful access, on real-world commercial terms, to U.S. suppliers of cheddar and pizza cheese.
Equivalency of Dairy Inspection Systems. One topic you will hear much about today is the EU implementation of its Council Directive 92/46 concerning food safety standards and inspection requirements for dairy, meat, poultry, fish and egg products. After 3 years of discussions and negotiations, a comprehensive agreement with the EU on the equivalency of U.S. inspection systems still eludes us. As of last month, the EU is proceeding with implementation of its standards. The most significant issues of contention affecting U.S. dairy exports involve plate count and somatic cell count standards, with the EU imposing more restrictive ceilings than those enforced by the United States.
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U.S. food safety standards for dairy products are based on sound science, and result in a healthy and safe milk supply. The more restrictive standards being imposed by the EU are, in our view, nothing more than technical barriers to trade.
IDFA appreciates the efforts of U.S. Government officials to establish stopgap measures that would allow for U.S. dairy exports to certify their compliance with the excessive EU standards. We are concerned, however, about the increased paperwork, bureaucracy, and costs of compliance that are involved in this response to the EU Directive. Moreover, our exporters willingness to protect their sales by complying with the EU requirements should not be construed as recognizing the legitimacy of the underlying standards. Notwithstanding the successful identification of an interim arrangement for resuming trade in dairy products, we urge the Administration to continue to press for resolution of this dispute at its more fundamental level by reaching an equivalency agreement.
EU dairy policy reform. As evident from the inspection equivalency dispute, changes in EU regulations and policies may purportedly be aimed at regulating the internal market but nevertheless disadvantage legitimate U.S. commercial interests. Later this year, the EU will be considering changes in the Common Agricultural Policy, including dairy policy. It is imperative that the U.S. Government pay close attention to any and all changes under consideration. We must do our best to ensure that any potential changes to the EU dairy policy do not disadvantage U.S. dairy industry interests--whether the changes affect access to EU markets, competition with EU products in foreign markets, or general distortions in world market conditions caused by EU policies.
We are particularly concerned about pockets of European interest in the establishment of a new export class for pricing dairy exports below internal market prices. This is sometimes referred to as a B Quota proposal. Such a move would artificially expand EU milk production, depress world market prices, and take competitive sales opportunities on the world market away from more efficient dairy producers, including those in the United States. We strongly oppose the EU milk pricing policy moving in this direction, and believe it would be inconsistent with the Uruguay Round disciplines on export subsidies.
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We can appreciate the EU interest in pursuing increased opportunities in world markets, particularly in developing countries where rising living standards facilitate increased sales of nutritious food products. Competition for such sales, however, must be based on fair competition. We vigorously oppose any steps to increase subsidized exports through schemes such as two-tiered or export class pricing.
Moreover, the United States must not allow enlargement of the EU to jeopardize U.S. economic interests. As central and eastern European countries, for example, become members of the EU, U.S. market access must not be adversely affected. The EU must not be allowed to undermine its WTO concessions and commitments in favor of internal expansion.
Continuing multilateral reform in the WTO. Finally, the United States and the EU must continue the process of international reform started by the GATT Uruguay Round Agreements. The disciplines and commitments embodied in the Uruguay Round Agreement on Agriculture were an important first step, but only a modest step, towards free and open world markets. As you know, the greatest resistance to a more ambitious result came from the EU. As the WTO community prepares for continuing the process of reforms by resuming negotiations in 1999, the EU must be at the table participating fully and constructively. We must do all we can to make sure that competing priorities (such as EU enlargement) do not become an excuse for the EU to delay or water down the necessary momentum towards an open and free trading system for agriculture.
Conclusion. Mr. Chairman, IDFA commends you for your interest in international trade issues affecting the U.S. dairy, livestock and poultry sectors. The U.S. dairy industry--producers and processors alike--is working hard to promote consumption of U.S. dairy products. These promotion activities are paying off. But the real opportunities for long-term growth are not in the U.S. market, but in world-wide markets. With Federal reform of milk marketing orders, elimination of dairy price supports, and less Government regulation of the dairy business in the United States, the U.S. dairy industry must have access to international markets, now more than ever before, in order to realize its competitive potential.
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IDFA looks forward to working with the Congress and the Administration to strengthen opportunities for the U.S. dairy industry in international markets.
STATEMENT OF JAMES R. HOBEN, DIRECTOR OF EXPORT SALES, WAMPLER FOODS, BROADWAY, VA
Mr. Chairman and members of the subcommittee: Good afternoon. U.S. poultry producers/processors appreciate the opportunity to share our views with you.
I am James R. Hoben, director of export sales for Wampler Foods, Broadway, VA. The National Turkey Federation and the National Broiler Council have asked me to speak on their behalf. It is my privilege to be here today to represent a part of agribusiness that has been my career for more than 23 years, having international marketing responsibilities essentially all of that time.
Wampler Foods is one of the top U.S. poultry companies with four broiler slaughter plants and four turkey slaughter plants. In addition, we have two further processing poultry plants. Our operations, both slaughter and further processing poultry plants, are in the states of Virginia, West Virginia, Pennsylvania, and North Carolina. We are the second largest turkey company and the 7th largest poultry company in the United States. A significant portion of Wampler Foods' production is marketed to foreign buyers.
HISTORY. In 1956, when the first broilers were exported to Europe, the predecessor company to Wampler Foods was there and involved. The first shipment of broilers was for $1.2 million which was financed under Title I of P.L. 480. Exports to the Common Market countries grew dramatically from 4 million pounds in 1956 to just West Germany to 427 million pounds to all six of the European Economic Community countries in 1961. Over the years since the mid-fifties, customers in the European Union have been very significant buyers of our company's products.
That marketing relationship continued until last month. As of April 1, 1997, our Government, USDA, said it could no longer certify our operations as meeting the EU inspection and veterinary requirements for poultry. Thus, our exports to the 15 countries in the EU stopped.
TRADE DATA. Last year, 1996, the United States exported to the European Union almost 40,000 metric tons of poultry valued at $54.6 million, according to USDA's Foreign Agricultural Service data (Tables 1 and 2). Of the 40,000 metric tons, about 32,000 tons were chicken, 6,400 tons turkey, and 1,300 prepared poultry products. Of the $54.6 million, $42 million was chicken, $9.6 million turkey, and $2.9 million prepared poultry products.
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Total imports of broilers and turkeys into the European Union last year were an estimated 140,000 tons and 22,000 tons, respectively, for broilers and turkeys (Table 3). Thus, of the total 162,000 tons for these two types of poultry, the United States supplied a significant share.
At the same time the European Union is a major poultry exporter to world markets, supplying an estimated 865,000 tons of broilers and turkey in 1996 (Table 4). Since EU poultry producers are hampered by high feed costs, costly labor rates, expensive land, and burdensome taxes, poultry exports to world markets can be accomplished only by exports subsidies, or so-called export restitutions, generously granted by the EU, and in the case of France, the national government.
Poultry consumption would be significantly higher in the EU if prices for chicken and turkey were more favorable to consumers. At the same time, U.S. poultry exports to the European Union would be several times the $54.6 million if there was, in fact, freer and more fair trading rules.
TRADE DISTORTION. The EU has been distorting world trading patterns of poultry since 1962, the year the Common Agricultural Policy was initiated by the European Economic Community. When the European Economic Community's CAP was finally unified years later and the high guaranteed prices for poultry generated unacceptably high levels of chicken inventories, the EEC began to subsidize these surpluses on to the world market. And, the world trading pattern for poultry was even further distorted as a result.
Of course, if a country or group of countries is producing a surplus of product that requires costly export subsidies to remove from its domestic market, the last interference it wants to see in this scheme is imports. So, given the situation in the European Union, there were very obvious and very strong forces aimed at stopping, or at least reducing to a trickle, imports of poultry. It took the EU 34 years, but it has now accomplished its intent to stop poultry imports from the United States.
US/EU NEGOTIATIONS AND FALLOUT. We are now all painfully aware that late on April 30, the overtime due date for negotiations to conclude, the United States and the European Union reached a framework agreement on equivalency of each others inspection programs and veterinary requirements. A final agreement is expected to be ratified by the EU's member states before October 1, 1997. Thus, two-way trade in livestock products, egg and egg products, pet food, dairy, and certain other products was saved from a dramatic disruption.
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Missing from the agreement was one very noticeable exception, at least from our perspective. The problem with the agreement is that U.S. poultry was sacrificed. More specifically, all other animal agricultural products will be moving toward freer trade with the EU, while U.S. poultry exports are halted. Earlier this year we were told by USDA that negotiations would be tough, vigorous, and that our Government would not back down when the negotiations got rough. In fact, on January 17 USDA notified the EU that in the event no equivalency agreement can be reached, EU plants wishing to export to the United States must have standards and procedures which ''specifically adhere to and meet U.S. regulatory requirements.'' This ''get tough'' approach was very encouraging to those of us in the poultry industry, because previous multi-lateral trade negotiations under GATT had failed to result in fair poultry trade with the EU. We hoped that finally we would see negotiations successfully concluded for all American animal agriculture, especially for poultry that had been basically ignored in the previous multilateral trade agreements under GATT. Nonetheless, despite the build-up of ''getting tough,'' the skeptics in our business were once again proven to have a very valid basis for their on-going doubts about trade negotiations with the EU. Because poultry is not part of the agreement, the EU will not certify U.S. poultry plants as equivalent; therefore, no U.S. poultry products are being shipped to the EU, nor will there be any exports for the foreseeable future.
As our joint poultry industry statement explained following the conclusion of negotiations, we are extremely disappointed at the decision of the European Union to slam the door shut on our poultry exports. We see the unreasonable and unyielding stance of the European Union during trade talks as nothing more than a blatant attempt to restrict competition from U.S. poultry companies in Europe. We appreciate the hard work of our Government's trade negotiators and realize in the end the blame lies not on this side of the Atlantic.
We will have to work doubly hard to build other export markets to compensate for the loss of the EU market. It is not an easy task to find a new home for more than $50 million worth of poultry. The preferred resolution, of course, would be to re-establish the EU as the market for our $50 million worth of poultry and to build this amount to an even higher level that would reflect a freer, more fair trading environment.
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On top of disappointment with the outcome of the negotiations, we were curiously annoyed, but not surprised, by the EU's reaction to the poultry trade situation. Rightly so, USDA has said EU poultry exports to the United States are halted until the EU demonstrates that its poultry plants wishing to export to the United States meet our inspection system. In reaction, the EU called the USDA move ''unjustified'' and ''unfair.'' Further, the EU has reiterated its threat to file a complaint with the World Trade Organization. The EU is apparently saying, on one hand, that their poultry inspection system is at least equivalent to ours, but on the other hand, saying our system is not equivalent to theirs. We know they have no scientifically-based pathogen reduction program, nor HACCP inspection system. We also know we have the highest quality, most wholesome poultry in the world, and have the testing data to document this conclusion.
QUESTIONS. The questions now before our industry and government are four fold: What, if anything, could have been done differently to have better prevented poultry from being excluded from an agreement?
What can be done from this point forward to re-establish U.S. poultry exports to the EU?
How can government and industry work together to replace these lost markets?
What steps are we taking to ensure our problems with the EU are not repeated with our other trading partners?
With respect to the first question of concluding a bi-lateral agreement that included poultry, we suggest that earlier identification of the problem areas and better intelligence of the EU's real concerns may have led to a more favorable outcome for poultry. For 3 years the US/EU negotiations continued as each side grappled with the how to meet their international commitment to recognize equivalency of inspection programs, sanitary systems, and veterinary requirements. Throughout the talks the United States remained steadfast that equivalency must be based on sound, scientifically demonstrated principles, not on step-by-step prescriptive, do-as-we-say methods that may or may not result in wholesome products.
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The Europeans objected to our use of anti-microbials, such as chlorinated water, even though such usage is common in many poultry plants in the United Kingdom and certain other EU member countries. Anti-microbials, such as chlorinated water, are an important tool in enhancing and better assuring food safety. Scientific studies have demonstrated the effectiveness of methods employed by the U.S. industry in improving the microbiological profile of poultry products. Studies have also demonstrated the safety to humans of using chlorinated water in poultry processing plants and that the risk, if any, is overwhelmingly outweighed by the benefits to humans. Everyday hundreds of millions of people drink chlorinated water and most swimming pools rely upon chlorine to improve sanitation.
U.S. poultry is the safest and most wholesome in the world, as Secretary of Agriculture Dan Glickman recently re-affirmed. We will not lower our high standards of wholesomeness, quality, and sanitation to meet the out-of-step, prescriptive EU poultry regulations. The EU has offered no scientific evidence to justify their demands, nor have they offered any scientific measurements that their poultry regulations produce a superior level of wholesomeness. The program being dictated by the EU leaves wholesomeness to chance; we cannot afford that luxury.
With respect to the second question of what can be done to re-establish poultry trade with the EU, we offer two recommendations. We urge our negotiators to aggressively pursue for poultry a favorable resolution with the European Union. This pursuit must be based on science, as required in the Urugary Round Agreement. We believe the Europeans are being very arbitrary, and not fully recognizing the intent of the provisions on equivalency in the WTO's agreement on sanitary and phytosanitary measures. If the EU is not held to this standard, where is the leverage to find a successful resolution in the next negotiation?
In the meantime U.S. poultry exporters have lost a market valued at more than $50 million. Industry obviously will be devoting considerable time and energy to finding replacement markets. We believe there is an appropriate role for our Government to partner with the industry to identify and open these markets.
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In the long run, though, the most important result of these negotiations may be the answer to the fourth question: How do we prevent a repeat of this episode? After all, there is no point in negotiating trade agreements like NAFTA and the Urugary Round if we then allow our trading partners to continue to erect non-tariff trade barriers on arbitrary pretenses. One of the primary reasons we lost the EU market is that our Government created the most stringent processing inspection system in the world and then failed to successfully defend that system with a trading partner. USDA strongly recommends--indeed, virtually requires--chlorine in the chillers to comply with this system. Yet, USDA was not able to prevail with the Europeans that our system and products are indeed as wholesome or more so than theirs. U.S. poultry companies want the Pathogen Reduction/HACCP Inspection Program to work, but we cannot stand idly by if the regulation undermines our ability to export. We recommend USDA develop an explanation of how and why our program is the most appropriate course and be better prepared to deal with problems that challenge our system when they arise in the future.
CONCLUSION. Mr. Chairman, there is no one simple, single action that I can offer this afternoon to resolve the very unfortunate situation for our industry. However, I can assure you that our industry is ready and willing to work with you and your committee, the U.S. Department of Agriculture, the U.S. Trade Representatives office, and other Government agencies to bring about a prompt and successful resolution.
STATEMENT OF DEAN R. KLECKNER, PRESIDENT, AMERICAN FARM BUREAU FEDERATION
Thank you, Mr. Chairman, for the opportunity to provide testimony for this important hearing. I am Dean Kleckner, president of the American Farm Bureau Federation, the Nation's largest general farm organization representing more than 4.7 million member families. I am pleased to have this opportunity to discuss with you our concerns and hopes for future trade between the United States and the member countries of the European Union.
I want to make it very clear that the American Farm Bureau Federation is a strong supporter of freer and more open trade. We worked hard to secure passage of the Uruguay Round of the General Agreement on Tariffs and Trade as well as the North American Free Trade Agreement. We also strongly support MFN for China as a protection against unreasonable tariffs for U.S. products. In addition, we support fast track authority for the negotiation of future treaties. Fast track is critical to future negotiations especially in the 1999 renegotiation of the agriculture agreement of the Uruguay Round and for adding other nations to NAFTA. There will be no reason for other countries to take us seriously in these negotiations if we do not have fast track in place.
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The European Union is both a competitor and a market. However, it is a very protected market, a market hiding behind artificial sanitary and phytosanitary barriers; and a market in which consumer hysteria blocks our products. Even with the many existing barriers that the EU currently uses we must look to the EU not only as it is today with 15-member countries but as a much larger trading unit as it expands its membership into Eastern Europe.
Our trade negotiators tell us that negotiating an agreement with the EU often requires a great deal of patience. And then at the end of the day, the deal may be totally different than what was agreed to at the beginning. It seems that many agreements with the EU are just not honored. We find that negotiations with the European Union are not negotiations with a single unit, but one body with 15 heads often pulling in different directions and causing changes in agreements after the fact. Maybe what is needed is fast track for all the EU negotiators.
Negotiating with the EU seems to be an endless cycle, as seen with 3 years of negotiations over veterinary equivalence and the long-standing beef hormone debate. I applaud our negotiators for their perseverance and Secretary Glickman, along with his team of negotiators led by Paul Drazek, for their recent tough stance on these issues.
We are pleased with the agreement on the framework for recognizing veterinary inspection equivalency. This involved 3 years of difficult negotiations. However, all of this effort is somewhat overshadowed by the failure to make sufficient progress on the poultry issues.
It is a great disappointment that the EU has not been able to recognize that the poultry industry's decontamination method and inspection system for poultry in the U.S. is as safe as their own. The establishment of the framework for continued negotiations provides hope that a successful conclusion can be reached which will allow for expanded U.S. poultry exports.
We still believe the EU continues to demand changes in the U.S. process that are not consistent with science and do not recognize the equivalency of our standards.
As in any trade agreement, there is the letter of what is said and the spirit of what is intended. We intend to judge the outcome of this agreement by both. And, if we see expanded trade with Europe as indicated by sales of U.S. meat products, that will be an indication of success.
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Let me list some of our concerns with the EU:
Disunity within the Union: As I mentioned earlier, the Commission negotiators are provided a set of directions and all to often must go back to the 15-member states for further authorities. It is not unusual for agreements to be reached and then have individual member countries refuse to implement the agreement, as is the case with Bt corn.
Central Agricultural Policy reform: How the CAP is reformed in expansion of EU membership must be monitored closely. This is an ideal opportunity for the EU to disguise export subsidies in the form of producer protection and environmental payments. How will CAP intervention prices, export subsidies and high import protection be handled with enlargement is a major question mark.
Consumer hysteria as a trade restraint: Lack of consumer confidence in the central as well as individual member state governments seems to be used as an excuse to deny access to U.S. products. It is difficult to understand using the mad cow scare as a reason to prohibit U.S. products when the disease is not found in our country.
Lack of compliance with international treaties: This body is well aware of the fact that there are many cases of unwillingness by the EU to comply with existing trade agreements.
The EU has agreed to enter into membership with the six to 10 countries of Central and Eastern Europe. The Visegrad countries of Poland, Hungary, the Czech Republic and Slovakia are not expected to gain membership until 2002. This will not only have a huge impact on their overall Government budget, but also has the potential to further complicate the EU's ability to implement and negotiate trade agreements.
U.S. farmers, as a whole, are satisfied with the Freedom to Farm Act of 1996. With the expectation of freer markets for our products our farmers are looking toward more trade as part of a new safety net. While having just experienced a year of generally better prices and growth in export sales, farmers are still questioning if our trade agreements are really working. Many farmers do believe the export numbers, which tell us these agreements are working, but I spend a lot of time defending our trade agreements, knowing that there are no good excuses for the long battles we are fighting with the EU over beef, dairy and poultry products as well as subsidized grain and wheat gluten problems. The loss of the Canadian debate over dairy and poultry products has increased farmer skepticism in our trade agreements. We are extremely concerned over how quality products of biotechnology will be received or denied entry into the EU.
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How do we explain to producers a three-year battle toward equivalency in meat slaughter and processing facilities while saying that the fight is not over a safe end-product? Why do we have to expend 3 years worth of valuable USDA resources to prevent a trade war when our agreements were clearly being circumvented?
The long list of trade issues with the EU is clearly unacceptable under the terms of our trade agreements. While I expect that many who will testify before you today will go into details, I will list some of the major ones for the record. They are:
Ban on all U.S. beef produced with growth promotants, although all recognized scientific bodies have determined that they provide no risk to human or animal health (this debate has been ongoing since 1980);
Inability, after 3 years of negotiation, to reach a framework agreement of veterinary equivalence for poultry products into the EU markets;
Distorting subsides and practices in the wheat gluten trade;
Trade-distorting subsidies on wheat to protect domestic markets;
Failure to abide by commitments for the importation of rice;
Lack of assurance for long-term access for U.S. wine;
Ban on fur from animals caught in legheld traps;
European banana import regime now being resolved by the WTO;
Bovine genetic trade constraints which differ between member states;
State trading practices of some member countries are trade-distorting and create unfair monopolies;
Unscientific barriers to genetically engineered products; and
Individual member states declaring bans on genetically modified products such as Bt corn when an agreement has been reached with the Union.
Are there any answers to all these trade disputes with the EU? I do not see any simple solutions as many of the disputes are an extension of the EU's internal problems.
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To keep our agricultural industry competitive we must continue to challenge the EU on these and other issues. USDA and the USTR must have adequate financial resources to carry on the fight for opening and expanding markets.
Trade agreements must be monitored and enforced. The American Farm Bureau Federation has been concerned for some time about the level of attention and commitment by the U.S. Trade Representative's office toward our issues and has called for a deputy ambassador for agriculture.
I heartily applaud Ambassador Charlene Barshefsky in her move to designate ambassador for agriculture. This is a granting of use of the title by the State Department, not a permanent position.
We believe that there should be a permanent position of deputy ambassador for agriculture, not one which is at the mercy of personnel changes or changes in administrations. A deputy ambassador for agriculture at USTR and continued close coordination with USDA are critical for successful long-term agriculture trade and expanding market access.
We must also have strong and fully funded trade promotion and market development programs such as the Market Access Program, the Foreign Market Development Program, the Dairy Export Incentive Program and the Export Enhancement Program to compete with the Europeans and other global competitors.
Finally, USDA must maintain a strong presence in Brussels and Geneva and in Foreign Agricultural Service posts in EU member countries, as well as around the world. FAS' help is needed to deliver information on U.S. consumer acceptance of genetically modified organisms and the safety of the U.S. food supply to EU consumers.
This Congress and President Clinton must lead. As Government leads, rest assured that farmers will continue to feed the world, and given a fair chance in international markets, we will prosper.
TESTIMONY OF MIKE RAKES, VICE PRESIDENT OF PLANNING AND DEVELOPMENT/AREA DIRECTOR OF MARKETING WORLD-WIDE SIRES
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Thank you Mr. Chairman for the opportunity to testify before the Subcommittee on Livestock, Dairy and Poultry on veterinary restrictions the European Union places on U.S. products exported into Europe. World-Wide Sires represents six farmer-owned cooperatives and exports semen to Europe, Asia, Africa, Australia and New Zealand.
The National Association of Animal Breeders, the national trade association for artificial insemination, has 25 members which account for 95 percent of the dairy cattle semen sales in the United States. These organizations, both private and farmer-owned, are very competitive in the field. These companies have been the major suppliers of genetics, especially dairy genetics, to the world for the last 25 years. USAI companies sold $200 million worth of frozen cattle semen in 1996, of which $59 million were exports.
With the privatization and growth of breeding in emerging and developing countries, the potential market for U.S. genetics is estimated at more than $2 billion annually. The country with the best genetics in the world only has 10 percent of this market. This growth has been stymied by non-tariff trade barriers and veterinary restrictions in lucrative markets like the European Union and Canada.
International organizations such as the European Union profess their belief in the principles of international economic integration and free trade. However, despite this movement toward integration, a strong network of protectionism still exists in the form of subsidies for domestic industry and barriers to foreign competition. The result is that American companies are often forced to expend excessive resources when trying to enter new markets and compete globally.
The U.S. Artificial Insemination industry experienced consistent growth in the EU since 1985 in both dollars and units of semen sold. The only exceptions were 1991, when the EU imposed health regulations which restricted our market access and again in 1996, when they initiated general trade barriers.
What is the cost of EU veterinary requirements? First the U.S. industry had to spend approximately $10 million to get into compliance with the EU. This included changes to our physical facilities. We had to create separate housing, collection and storage for product shipped to the EU. These separate centers need to be inspected annually by a Federal veterinarian. Other countries do not have this same requirement. Every shipment in California must be inspected and sealed by a Federal veterinarian at the expense of World-Wide Sires.
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Then we have variable costs such as testing fees, bull housing and additional veterinary costs above the diagnostic costs. World-Wide Sires spends $1 million a year on these expenses and our Cooperative members probably spend $400,000 a year. The entire USAI industry spends approximately $2 million annually to meet EU requirements. Some of these costs are passed on to our customers in the EU and the rest are absorbed by the U.S. companies.
Because of these expenses, our product is often priced 50 percent higher for farmers in the EU versus a similar domestically priced product. In markets were U.S. companies have relatively free access, we find that our market share is approaching 30percent. In countries with a monopolistic, controlling regulatory environment we barely showup on the radar screen. For example, in Ireland and Germany, large dairy markets, the United States has 2 percent of the semen market.
The EU has several reasons for restricting the import of semen for so called health reasons. One category is that U.S. bulls which are IBR positive cannot have their semen exported to the EU. This restriction is in place despite the face that IBR semen can be tested free and the EU is not IBR free. This is just one example of veterinary requirements which are really non-tariff trade barriers.
The EU veterinary requirements far exceed the requirements of U.S. domestic programs.
The U.S. genetics industry has always been focused on the best quality, disease-free genetics for U.S. producers. The export market is a more recent development and it is inconceivable that the genetics of our company and those of our competitors meet U.S. standards but require extensive testing to be acceptable to European authorities.
If the policies and practices cited in this testimony continue to prevail, the United States will find itself shut out of emerging markets in Eastern Europe, Central Asia, the former Soviet Union and many middle income developing countries. Many of these emerging, privatizing countries are modeling their agricultural reforms on the basis of the European Union's Common Agricultural Policy and on the basis of European agricultural industry models in general. Their ultimate goal is admittance into the European economic Union. This has already created problems for U.S. companies in some of the markets like Hungary, Czech and Poland.
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These trade barriers also increase the cost of semen for American farmers. The more units our industry exports, the lower our production costs, the lower the per unit cost to American farmers. World-Wide Sires markets semen from our cooperative members which provides a return to U.S. producers who own the bull.
The veterinary restrictions of the European Union have greatly diminished the export market for U.S. semen in the last 10 years. We would love to find a way to access this market again. However, we are equally concerned about the policies we see emerging in Poland, Czech and Hungary as these countries prepare for membership in the EU. If the U.S. Government and industry does not draw a line in the sand we will see a continued decrease in our market share and increased AI costs to American producers.
"The Official Committee record contains additional material here."