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ASIA AND THE PACIFIC
TUESDAY, MAY 12, 1998
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 9:30 a.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Smith of Michigan, Lewis, Moran, Pickering, Thune, Stenholm, Peterson, Dooley, Clayton, Minge, Pomeroy, Stabenow, and Johnson.
Staff present: Paul Unger, majority staff director; Lynn Gallagher, senior professional staff; Gregory Zerzan, associate counsel; John Goldberg, professional staff; Jason Vaillancourt; Vernie Hubert, minority counsel/legislative director; Andrew Baker, John Riley, and Callista Bisek, Wanda Worsham, clerks.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. This hearing will come to order. Good morning, all. I have a short statement. Mr. Stenholm has a statement. After that, we will get immediately to our witnesses.
Earlier this year, Mr. Stenholm and I determined that a series of four hearings on the 1999 WTO negotiations should be held. Our first hearing was held on March 18, at which time Secretary of Agriculture Glickman and Ambassador Scher, from the Office of the U.S. Trade Representative, both testified. Additionally, that hearing focused on trade with Europe and our other witnesses discussed specific agricultural trade issues with the European Union.
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That hearing, we thought, was very productive. Secretary Glickman and Ambassador Scher put forth the administration's goals for the 1999 World Trade Organization's negotiations for agriculture. Both cited the need for further reductions in tariffs—worldwide tariffs average 56 percent, U.S. tariffs average 5 percent—and reduction or elimination of export subsidies. Other goals include rigorous disciplines on state trading enterprises, improved rules on sanitary and phytosanitary measures to ensure fair competition, and access for U.S. farmers and ranchers to the technology that allows them to be more productive.
Our other witnesses supported that agenda and provided the committee with additional suggestions.
Most of the witnesses appearing before the committee to discuss agriculture trade issues between the United States and Europe also raised the issue of fast track. The Cattlemen's Association, the Oregon Wheat Commission, the American Soybean Association, et cetera, all mentioned the need for fast track.
By the way, for the record and without objection, I want to introduce a letter I just received from several of the agricultural organizations in this country, including the Farm Bureau, the Soybean Association, the Wheat Growers, Barley Growers, Cattlemen, Corn Growers, Cotton Growers, Oilseed Processors, Pork Producers, Sunflower Association, asking for several items to be passed by this Congress.
Their No. 1 issue is fast track. The Congress would like to see fast track passed. Agriculture would like to see fast track passed. I think we are urging now the administration to bring forward fast track so we can act on it. Without objection, I want to enter this letter into the record.
[The letter appears at the conclusion of the hearing.]
The CHAIRMAN. There are many, many more agricultural associations supporting fast track than I have even mentioned. I believe it is imperative that the administration come forward with such a proposal. I intend to continue my efforts, and I know Mr. Stenholm joins me, to make sure that this is a top priority with this administration.
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Our hearing today will look at U.S. trade with countries in Asia and the Pacific region. The major issues between the United States and our trading partners in this region include sanitary and phytosanitary measures that are often used as nontariff trade barriers; state trading enterprises, as I mentioned; and improved access to markets in this region. For many of the countries in the Asia-Pacific region of the world, the United States shares goals of elimination of export subsidies and domestic support programs that distort worldwide agriculture trade.
The importance of agricultural trade in the Asia-Pacific region is best seen by looking at the United States exports to Japan. In 1997, Japan imported $15 billion worth of U.S. agricultural products. That is approximately 26 percent of all U.S. agricultural exports for 1997. The entire Asia-Pacific region accounted for $27 billion worth of U.S. agricultural exports. The simple fact is that the Asia-Pacific region accounted for 47 percent of all U.S. agricultural exports, which certainly explains the reasons why the Asia-Pacific region is so important to U.S. farmers and ranchers.
For American farmers and ranchers, trade is an essential part of their livelihood. Currently exports account for 30 percent of the U.S. farm cash receipts. We produce more than we consume in the United States. Therefore, exports are vital to the prosperity and success of U.S. farmers and ranchers. Last year, 1997, U.S. agricultural exports totaled over $57 billion and the agriculture trade surplus approached $22 billion.
The future holds great promise for agriculture exports as world income and economic growth expand. Higher incomes for consumers mean improved and diverse diets, which in turn result in a greater demand for meat, fruits, vegetables, and other high value products. Overall, the United States agricultural exports to Asia tripled from 1986 to 1997, growing at a rate of 24 percent per year.
However, the temporary financial crisis in several Asian countries has caused a lower demand for U.S. agricultural exports. In fact, the U.S. Department of Agriculture estimates about a 10 percent decline in 1998 of U.S. agricultural exports to this region. Nevertheless, it is expected that when these countries begin to improve economically and begin to stabilize, U.S. agricultural exports will respond, as they did in Mexico.
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The 1999 WTO negotiations offer a platform for further reduction in barriers to trade and further expansion of our agricultural trade opportunities. The Agriculture Committee will be working closely with the administration, the U.S. Department of Agriculture and the U.S. Trade Representative to achieve these goals.
The 1999 WTO negotiations can provide a unique opportunity for United States agriculture to further reduce tariffs, open new markets, and address unfair trade practices around the world. Specifically, among the issues likely to be on the 1999 WTO negotiating agenda are several that were not directly addressed, or addressed at all, in the Uruguay Round. These include trade in biotechnology products and the operations of state trading enterprises. Other items on the agenda for 1999 could be the administration of tariff rate quotas and the use of safeguards for specific commodities.
Personally, I would like to see an improved access for agricultural exports. We would all like to see nontariff trade barriers eliminated. We want to see growth and expansion of our agricultural trade because it is good for the United States farmers and ranchers, and it is good for the world because we produce the most efficient, low-priced food and commodities in the world.
I want to mention just one or two items I would like to add to this statement. This committee has literally moved halfway around the world attempting to bring down barriers and expand our agricultural exports. As a committee, we can be prideful of the success that we have had.
Just to name a few success stories, especially in Asia, we have had an opportunity to visit in the Philippines and were directly responsible for $40 to $80 million of increased pork and poultry trade with the Philippines. Our friends from Australia are difficult to deal with, and our friends from New Zealand are here, so I can say that. We did and were able to introduce, of all things, an opportunity to sell almonds to Australia, in fact, $10 million worth of almonds. Not bad.
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We have been in South America, in Mexico and in Asia. While we were in Asia, we were asking, of all things, that the Thais reduce their tariffs on potatos. Their tariffs on potatos are 51 percent. We send a lot of potatos to Thailand, even in the face of a 51 percent tariff. We asked them to reduce their tariffs to 40 percent, will be an improvement. In India, we are also asking that the license procedures and the high tariffs that India uses against our products, especially for potatos, be reduced, and we anticipate that will happen.
We have had successes all across the world. I am proud of this committee and proud of its efforts to continue to press for trade in this country and in the world.
I am delighted now to recognize the ranking member of this committee, the gentleman from Texas.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. Thank you for your continued leadership in the area of trade, and particularly agricultural trade.
I could not agree more with you on the need of passing fast track legislation as soon as possible. Somehow, some way, we are going to have to get more of us to understand that the whole question of fast track is whether or not we are going to have United States negotiators in position at the next WTO round to address additional questions that come up to negotiate away trade barriers. That is extremely important.
Two years ago farmers and ranchers gave up their safety net in exchange for a promise that has so far gone unfulfilled. The Speaker has promised a vote this summer on IMF funding. I hope he will give us a chance to vote on fast track, too. Last week, as you pointed out, 72 agricultural organizations sent a letter to the Speaker urging him to meet his commitment to vote on IMF funding as soon as possible. For the sake of farmers and ranchers and others, working men and women who depend on exports for their livelihood, I hope that vote occurs before the July 4 recess.
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Under Secretary Schumacher and General Sales Manager Chris Goldthwait have done an outstanding job at USDA to minimize the impact of the Asian crisis with export credit guarantees. Without IMF backing, local banks in Asia would have been unable to participate in the export credit guarantee program which has enabled the United States to maintain a market share worth $12 billion annually.
I commend you, Mr. Chairman, for your leadership on IMF funding as well, and I look forward to the hearing you have scheduled for the 21st of this month with Secretary Rubin, Chairman Greenspan and Deputy Secretary Rominger. Likewise, I commend USDA for its aggressive approach on trade. If we are to win the full trust and support of farmers and ranchers in the United States for trade initiatives such as fast track, we must continue to demonstrate that trade works for agriculture.
The Department's response to our bipartisan DEIP letter was particularly gratifying, and resulted in an additional 30,000 tons of authorized sales. In addition, targeted use of EEP could send an important message that the United States will stand up and fight for our farmers and ranchers.
An area of particular concern to farmers in my district is China's WTO accession bid. I strongly believe that the best way to improve our relationship with China is through engagement and China's eventual accession to the WTO. However, China must only be admitted on a commercially viable basis.
In the face of wheat prices that have fallen $2.50 in 2 years since we passed Freedom to Farm, the Chinese continue to block imports of U.S. wheat due to bogus phytosanitary concerns. China has also made available for sale 1.4 million bales of cotton at prices far below its cost, and restricted raw cotton imports three times during the last year. And other countries, those who profess to believe more strongly than the United States their belief in freer and fairer trade, continue to allow their producers to ship into the United States under a relatively free and unhindered basis at times in which our own markets are saying, ''Enough is enough.''
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I couldn't agree more with the Chairman's strong assertion of getting a vote on fast track; somehow, some way these are things that can and must be negotiated away. But until that time, it is important that we do everything under the letter of the law to stand with our producers in all areas, including sanitary and phytosanitary. As we have seen over the last few days, the question of food safety has now arisen again. This is an area, too, in which producers all over the world have a vested interest in seeing that we come up with a system that will protect consumers, because producers absolutely recognize that the consumer is always right. If we are in fact going to maintain as free and open a market as possible, we have got to deal with these questions and deal with them in a fair and substantive way.
As we consider China's bid for WTO accession we must also determine whether China is ready to play a positive role in the next round of WTO negotiations. Some of their actions of late indicate at least a question mark there, but that is something that needs to be talked about and worked out.
Again, thank you, Mr. Chairman, for giving us a chance to focus our attention today on the issues that we must be prepared to deal with as we enter trade negotiations on agriculture with our fast-growing Asian trading partners as well as our friends around the world. All of us recognize that in a world in which the population is growing, the future of agriculture producers is in making sure that the consumers have an opportunity to purchase that which we produce. It has to be done in the spirit of negotiations. That is where fast track and IMF are critically important to us.
The CHAIRMAN. I thank the gentleman for that excellent statement. All other statements will be entered as a part of the record.
[The prepared statements of Mr. Barrett and Mrs. Chenoweth, and Mr. Smith of Michigan follow:]
STATEMENT OF HON. BILL BARRETT
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Thank you Mr. Chairman for holding this very important hearing.
The current Asian financial cirisis has certainly thrown the spotlight on U.S. agriculture exports to the Asia-Pacific region. There has been a tremendous amount of media attention devoted to the Asian market situation—everything from Wall Street's concerns to the long-term political effect on those Pacific Rim nations undergoing stress.
A discussion of the 1999 multilateral negotiations cannot be seen in a vacuum. The importance of the overlying financial crisis in many Asian economies cannot be underestimated. The success or failure of these economies to recover will have a direct effect on our agricultural outlook. There is a critical need for these economies to recover—and to recover as quickly as possible.
Taken as a group, USDA forecasts FY 1998 agricultural exports to Asia at $20.7 billion, down 10 percent from last year. This decline reflects the impact of the region's financial crisis.
However, as important as the financial crisis is to understanding our current trade numbers in Asia, the issues of U.S. agricultural trade with Asia and the Pacific cannot be easily compressed into a few cogent facts. It is true that the Asian economic problem in some key nations has the potential to effect the entire region. But it can be argued that there are other reasons that Japan, for instance, has a stagnated trade posture with the U.S. Because of the critical important of that Asian powerhouse to our agricultural economy, all efforts to break down technical trade barriers must be negotiated.
For my District of Nebraska, the countries of the Pacific Rim are critical to my producers' economic health. The United States exports a wide range of agricultural products to this region. Corn tops the list, followed by red meats (primarily beef and related products). For example, the top three importers of U.S. corn since 1994 have been Japan, Taiwan, and Korea—all Asian countries.
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In fact, most of the major agricultural commodities grown or produced in Nebraska have major markets in Asia. Therefore, for Nebraska's farmers and ranchers, it is of utmost importance that the 1999 multilateral negotiations be successful in reducing high tariffs and promoting market access for our agricultural commodities in Asia and the Pacific.
Of particular interest to me has been the state trading enterprises (STEs) which dominate agricultural trade in the Asia-Pacific region. The Australian Wheat Board and the New Zealand Dairy Board are major players in the world market. I had the opportunity to travel to Australia and New Zealand and talk first hand with officials in both countries regarding their trading practices. Both nations are working toward more transparencies in their trading practices. We can continue to work with both nations in breaking down some of the barriers that these enterprises have fostered throughout Asian markets. State trading also remains a key focus of our discussions with China.
I am also concerned about the technical barriers to trade which are increasingly being used to adversely affect U.S. agricultural trade. The U.S. faces substantial technical barriers to trade in China, Korea, and Taiwan. And, most importantly, Japan's technical barriers must come down.
I look forward to the testimony today on this most critical subject for America's long-term agricultural economic outlook.
STATEMENT OF HON. HELEN CHENOWETH
Thank you Mr. Chairman. I appreciate the committee for holding this hearing to review the 1999 Multilateral Negotiations on Agricultural Trade with Asia and the Pacific.
I would like to welcome Mr. Mark Dunn, a constituent of mine, and director of governmental affairs at the J.R. Simplot Company.
I am happy to have Mr. Dunn here with us today, and I look forward to hearing from him.
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A new round of multilateralnegotiations for agriculture is set to begin in 1999. It is clear that the objective of the negotiations should be to continue the process of agricultural trade reform begun in the Uruguay Round Agreement.
Continuing the process of reformmust entail revisiting the issues of high tariffs, market access, export subsidies and domestic support that were essential to the Uruguay Round. Additionally, efforts must be made to settle anti-dumping rules, sanitary and phytosanitary disputes, dispute settlement and technical barriers to trade.
Mr. Chairman, China has banned imports of wheat from the Pacific Northwest since 1972. China claims that the crop is tainted with tilletia controversa kuhn (TCK) fungus. I was happy to learn that the Chinese authorities have agreed to review new scientific evidence that recently proved instrumental in persuading Brazil to accept shipments of Northwest wheat.
The time has come to open the markets for American agricultural exports, and provide for a level playing field. The facilitated trade agreements with Asia and the Pacific must promote investment and employment in the United States. The strong export performance of United States goods must create incentives for resources, labor and capital.
Mr. Chairman, Asian markets for U.S. agricultural exports have almost tripled from fiscal year 1986 to fiscal year 1997 (from $8.7
billion to $23.1 billion), growing at a 24 percent annual rate. Although the U.S. Department of Agriculture forecasts FY 1998 agriculture exports to Asia at $20.7 billion, down 10 percent from last year, I believe we must be committed to an aggressive U.S. export policy. I support the market oriented 1996 farm bill and want U.S. agriculture to continue producing to meet market signals and demands.
Secretary Glickman recently stated that the GSM-102 program has been a two-way economic lifeline between the U.S. and Asia—helping maintain our exports while enabling folks in the region to buy U.S. food and fiber. I agree with the Secretary and believe exports are the ''ultimate safety net'' for U.S. farmers.
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Mr. Chairman, we need to compensate U.S. exporters for markets lost to unfair foreign competition. According to the Idaho Grain Producers Association, the GSM 102 and 103 credit programs have been very effective in maintaining market share in many countries around the world, especially in Asia. Without an aggressive expert policy, such as the GSM 102 and 103 credit programs, the Idaho grain producers will not survive.
I am in favor of trade which is fair and free for all parties involved. I believe we need to reinforce the trend toward greater integration of U.S. markets into foreign markets. As such, the time has come to protect America's jobs and interests.
I look forward today to hearing from our panels of witnesses to better understand the U.S. strategy for the 1999 Multilateral Negotiations on Agricultural Trade with Asia and the Pacific.
Thank you, Mr. Chairman.
Kill "The Official Committee record contains additional material here."
The CHAIRMAN. I would like to go directly to our witnesses, but first I would like to introduce to the committee and to the public my good friend, Ambassador John Wood, who just walked in.
Welcome, Mr. Ambassador.
Here with us will be Mr. Mark Dunn, who is director of governmental affairs, J.R. Simplot Company, representing the American Potato Trade Alliance today; Mr. Tommy Funk, cotton producer from Sebastian, TX, representing the National Cotton Council. Welcome. Mr. Elwood Kirkpatrick, chairman of the U.S. Dairy Export Council. And Sir Dryden Spring we welcome especially, who is chairman of the New Zealand Dairy Board, as well as our friend Mr. Warren Larsen, who is the CEO of the New Zealand Dairy Board.
You will be fascinated that these people are all sitting at the same table, I am sure. But indeed we want to welcome our New Zealand friends especially, who have come a long way and we are anxious to hear from them. We will go in the order of introduction, if you don't mind.
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Mr. Dunn, thank you for coming here. My long time friend, Mr. Dunn, was raised in a beautiful part of the world, a place called Burns, OR, by the way, which is my home as well. Mark, welcome.
STATEMENT OF MARK DUNN, DIRECTOR OF GOVERNMENTAL AFFAIRS, J.R. SIMPLOT COMPANY, REPRESENTING THE AMERICAN POTATO TRADE ALLIANCE
Mr. DUNN. Thank you, Mr. Chairman.
Good morning, Mr. Chairman and members of the committee. My name is Mark Dunn, I am director of governmental affairs for the J.R. Simplot Company. The Simplot Company is a privately held agribusiness operating in 23 States with headquarters in Boise, ID. I am here today, however, representing the American Potato Trade Alliance, or APTA.
APTA is a coalition of the three main segments of the U.S. potato industry, including U.S. potato growers, represented by the National Potato Council and several State grower and industry organizations; major U.S. potato processor companies, including Simplot, Lamb-Weston, McCain Foods and Nestle's; and U.S. quick service restaurant chains, such as McDonald's and Tricon, which includes Pizza Hut, Taco Bell and Kentucky Fried Chicken. These restaurant chains are major purchasers of U.S. frozen fries domestically as well as in our export markets.
APTA was created about a year ago as a cooperative effort among these U.S. potato industry sectors. Our goal is to address market access issues affecting U.S. exports of frozen french fries and other processed potato products. Through this combined effort, we felt APTA could be more effective than the individual industry groups in three areas: first of all, achieving more immediate reductions in trade barriers for french fries; second, encouraging the improvement of foreign infrastructure affecting the sales of potato products; and, third, impacting legislation and trade policy issues.
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As an immediate goal, APTA members are seeking reductions in tariffs and other market access barriers in the important Asian Pacific markets of China, Indonesia, the Philippines and Thailand, as well as in Mexico and India. These markets are considered some of our industry's most promising growth markets for U.S. frozen potato exports, and except for India, of course, are members of APEC.
Although the focus of my comments today is on APTA's goal of achieving tariff reductions in the Asian Pacific countries through the APEC tariff liberalization initiative, the U.S. potato industry's interests in multilateral reform expand well beyond this. Two other issues are the need for more transparency under the Uruguay Round sanitary and phytosanitary agreement and our industry's long-standing concerns over global market access constraints and subsidies.
In the area of sanitary and phytosanitary issues, we have seen that many countries are moving all too slowly to undertake required risk assessments and pest risk analyses to justify their SPS constraint measures. We would also like to see additional reductions in various domestic subsidies which have not been ''green-boxed'' under the last round.
For APTA, the 1999 round of multilateral trade negotiations in agriculture is only one step in a series of trade negotiating opportunities that together can achieve the tariff reductions and market liberalization we are seeking in key Asian Pacific countries. We caution the administration not to wait for the 1999 exercise, but to pursue aggressively ongoing market liberalization opportunities for frozen potato products at every available opportunity.
In APEC, we urge the U.S. Government to vigorously support processed foods as a sector for early voluntary tariff elimination among the APEC countries and to include processed potato products in any U.S. Government-backed proposal. APEC countries last year purchased nearly 80 percent of all U.S. frozen processed potatos, which accounted for 1.5 billion pounds of potatos grown by U.S. farmers or an estimated 10 percent of the U.S. crop.
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Most APEC countries, including the priority economies of China, Indonesia, Thailand and the Philippines, continue to have high tariffs which especially prejudice our high-quality, premium-priced U.S. potato products. For example, both Thailand and China impose tariffs, import tariffs and taxes which, when combined, exceed 85 percent of the FOB price, essentially doubling the price of U.S. fries before even taking into account shipping costs. Reduction of these tariffs would significantly increase U.S. exports, to the benefit of U.S. farmers, processors and quick service restaurants that continue to expand in these markets. Reductions would undoubtedly benefit consumers, too, especially in Thailand, where they have had an impact based on the economic downturn.
WTO accession negotiations with China and dispute settlement procedures against India's balance of payment restrictions offer two other opportunities prior to 1999 to achieve tariff liberalization in two of APTA's priority countries, China and India. On multiple occasions, APTA has made representations to the USTR and USDA requesting that frozen potato products be considered priority items for tariff reductions. China's 25 percent tariff on frozen potato products and 17 percent value-added tax, which is applied twice on frozen potato imports, are significant barriers to trade in China. We are anxious to see what China's next tariff offer on potato products will be.
In short, progress in these regional and bilateral settings could ensure more rapid progress in tariff reductions, market access and SPS areas than can be achieved in the 1999 multilateral negotiating process. If the Uruguay Round is any indication of the resistance we face, it is clear that sectoral and smaller bilateral and regional agreements will be needed to establish a core of support before WTO member countries, and developing countries in particular, agree to further liberalization in the area of agriculture. Accordingly, we ask this committee for its help in urging USTR and USDA to aggressively use these upcoming forums leading up to the 1999 exercise to achieve tariff reductions and market access liberalization for potato products.
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Finally, while we urge cost-cutting measures through trade negotiations, we also encourage domestic cost-cutting, and we would urge the House to promptly enact Senate bill 414, the Senate-passed bill, to make some needed reforms in ocean shipping practices. The U.S. Department of Agriculture study determined that current practices increase our shipping costs by 18 percent.
In closing, I would like to thank the committee, and in particular the chairman, for making expanding foreign trade a priority for this committee. If you are successful, you can do more to benefit the economic condition of the American farmer than almost anything we can think of. On behalf of the potato industry, we thank you very much.
[The prepared statement of Mr. Dunn appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman. Now, to introduce Mr. Funk, Mr. Stenholm.
Mr. STENHOLM. Thank you, Mr. Chairman. There was a time in my acquaintance with you, Mr. Chairman, that when you spoke of Burns, OR, I really doubted whether there was such a place or that anybody was from Burns. But now, having been there and done that, I acknowledge that Burns, OR and Ericksdahl, TX, make up in quality what we lack in quantity of people. I am delighted to meet another real person from Burns, Mr. Dunn.
I am also delighted to welcome a fellow Texan. Mr. Tommy Funk has been a leader of cotton for as long as I have been involved in cotton. We appreciate your leadership. We appreciate his service on the National Cotton Council, and also acknowledge that he comes from the same area as a previous Agriculture Committee chairman, Kika de la Garza. That is Mr. Funk's home territory.
Tommy, welcome.
STATEMENT OF TOMMY FUNK, COTTON PRODUCER, REPRESENTING THE NATIONAL COTTON COUNCIL
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Mr. FUNK. Mr. Chairman, Congressman Stenholm, thank you for those kind remarks. Thank you for the opportunity to testify on the World Trade Organization and trade issues in the Asia and Pacific region. I am pleased to present the views of the National Cotton Council on the important matters you are considering today.
International trade and the treaties that govern it are extremely important to U.S. cotton. The United States exports between 6 to 8 million bales annually, about 40 percent of annual cotton production. About 11.5 million bales, or 60 percent of annual production, is sold to domestic textile mills. But that industry must compete with the equivalent of 8 million bales of cotton textile imports, or almost 50 percent of cotton textile and apparel products purchased at retail by U.S. consumers.
Cotton is an industrial raw product, and as such, our international markets are linked to the agricultural policies of our competitors and to their textile and apparel policies. As an industry, we are committed to finding new markets through trade negotiations and new trading arrangements. We were the first organization to promote exports in a cooperative program now known as FMD. We are proud of our activities conducted under the market assistance or MAP program.
The Asia-Pacific region is of great significance to the U.S. cotton industry. Countries such as South Korea, Indonesia, Japan, Taiwan and Thailand are major purchasers of U.S. raw cotton. These countries, joined by India and Pakistan, also export textile and apparel products to the United States in competition with domestic manufacturers. China can be a major customer, but is always a major competitor, both for raw cotton and textile and apparel products.
Most of these countries are considered to be developing countries and have been given special treatment under the WTO. Most of these countries' governments are heavily involved in their cotton and textile trade policies. The problem with many of these countries, and particularly China, is that they tend to control their cotton economy and directly link that sector to textile production and textile exports. That tie and that control must be removed.
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China must make the most change. Its cotton and textile economy must move towards market orientation. Any WTO agreement with China that falls short of that will send shock waves through the U.S. cotton and textile industry. China is demonstrating its lack of concern with trading rules. The recent subsidized export of about 1 million bales of cotton, its new restrictions on cotton imports, and the complete lack of transparency in its trading regime indicate China is a long way from adhering to commonly accepted WTO principles. These actions are injuring U.S. cotton producers.
Mr. Chairman, I will quickly summarize our overall trade policy goals and primary concerns within the WTO context. First, we must maintain and expand export markets for raw cotton. The WTO negotiations should lead to greater market access and should help protect our industry from artificial market disruptions.
Second, when the phaseout of textile quotas mandated in the Uruguay Round is complete, the U.S. textile industry must be fully competitive with imported products. Regional trade arrangements like NAFTA and CBI parity offer great potential to enhance U.S. textile competitiveness and the use and demand for U.S.-produced cotton.
Third, the countries that compete with us, particularly those that ship us that 8 million bales worth of textiles, must open their markets to textile competition.
Fourth, we have to deal with the trade policies of the People's Republic of China by requiring market access, elimination of domestic and export subsidies, and insisting on transparent rules. The current situation is causing havoc for the U.S. cotton industry.
Fifth, it is very important that countries that have made cotton and synthetic fiber production and textile policies a fundamental part of their national economic policy not be given another free ride in the WTO negotiations.
And, sixth, we need transparent, science-based rules which lead to the timely approval of trade in genetically enhanced products.
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Mr. Chairman, I want to conclude by giving you a status report about U.S. cotton producers. Prices are as low as they have been in quite some time. Financing was very, very tough this year across the Cotton Belt. Next year it could be nonexistent for a significant percentage of cotton farmers because current market prices are below cost.
I urge the members of this committee to work together to move forward on some very important initiatives that will help producers cope with these hard times. We need a strong agricultural research bill this year. We also need to ensure that the Market Assistance Program is not taken away at a time producers need export promotion the most.
USDA made GSM credit guarantees available to key cotton customers in Asia. We would like Congress to work with USDA to improve GSM and to perhaps urge them to reactivate the GSM 5 direct credit program. These programs benefit U.S. farmers and exporters. They are not bailing out foreign countries.
Additional funding for the International Monetary Fund, which could keep us from losing crucial Asian markets, should be approved. We need to see aggressive progress on trade agreements and on trade bills like CBI parity legislation. Fast track authority will help provide that progress.
Mr. Chairman, I truly appreciate the opportunity to appear before you today. I am glad you are holding this hearing. I urge this committee to push agriculture's agenda. We can avoid another farm crisis by being imaginative and aggressive now.
Mr. Chairman, that concludes my testimony. I will be pleased to respond to questions at the appropriate time.
[The prepared statement of Mr. Funk appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman. I appreciate his statement very much. I think we are right down the line with him. The importance of research, of the Market Access Program, of fast track, GSM 102, 3 and 5, and IMF are all priorities of this committee. I appreciate you, sir, mentioning them. I also appreciate you coming to this committee in tough times for cotton and not having your hand out, saying, government, give us another subsidy, please. Thank you for not doing that.
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Congressman Nick Smith is going to introduce the next gentleman. Mr. Smith.
Mr. SMITH of Michigan. Mr. Chairman, I was thinking that in the last testimony, you could substitute a lot of commodity names for cotton because we have that plight, and I suspect Elwood Kirkpatrick might have some comments similar as far as dairy and what is happening there.
Elwood Kirkpatrick is an old friend. In addition to being chairman of the Dairy Export Council, he is chairman of the U.S. Agricultural Technical Advisory Committee for Trade. He is president of the Michigan Milk Producers, vice president of the National Milk Producers.
Maybe as important as everything else as far as credibility for me, he is a real farmer. I suspect, Elwood, you didn't milk the cows this morning, but I wouldn't be surprised if you milked them yesterday morning. Elwood Kirkpatrick is a good testifier. Elwood.
STATEMENT OF ELWOOD KIRKPATRICK, CHAIRMAN, U.S. DAIRY EXPORT COUNCIL AND FIRST VICE PRESIDENT, NATIONAL MILK PRODUCERS FEDERATION
Mr. KIRKPATRICK. Mr. Smith, Mr. Chairman, and members of the committee, I am Elwood Kirkpatrick and I am a dairy farmer from Michigan. I serve as chairman of the U.S. Dairy Export Council and vice chair of the National Milk Producers Federation.
The U.S. Dairy Export Council is an independent membership organization that assists U.S. suppliers to increase the volume and value of dairy exports. The U.S. Dairy Export Council was established by Dairy Management, Inc., to strengthen dairy export market development efforts.
The National Milk Producers Federation is the national farm commodity organization that represents dairy farmers and the cooperative marketing associations they own and operate throughout the United States.
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I do appreciate the opportunity to testify today. The United States is new to world dairy markets. Understandably, the U.S. dairy industry continues to focus on the domestic market in light of strong demand for dairy products here. Nevertheless, the long-term economic well-being of the U.S. dairy industry will be enhanced by supplying international consumers consistently and effectively. In that context, Asian markets are very important to our future growth.
If I may summarize from my testimony before the committee in March, the dairy industry has established goals for the next WTO round. They are to ensure compliance with the Uruguay Round commitment, seek elimination of export subsidies, gain greater access for U.S. dairy products, impose greater transparency and stronger disciplines on state trading enterprises, and require elimination of international agricultural supports in concert with the phaseout of U.S. supports. I want to emphasize the point made at the earlier hearing. Reducing the EU's use of dairy subsidies must be first priority in any new multilateral negotiations on agricultural trade.
Mr. Chairman, let me take a minute to tell the committee about the steps the dairy industry has taken to develop export markets. The Dairy Export Council provides market development activities, conducting market research, providing trade support and market penetration assistance, developing trade leads, and directly facilitating trade between U.S. suppliers and foreign buyers.
In addition, USDEC operates eight country offices, including five in Asia. USDEC manages offices in Japan, Korea, Thailand, and two in China, one in Hong Kong, the other in Shanghai. These offices provide trade leads, in-country market information, and onsite assistance to U.S. exporters.
In 1998 dairy farmers, through the 15 cent per hundredweight promotion checkoff, provided USDEC with about $8 million of our funding. An additional $1 million is generated through membership fees paid by dairy cooperatives, processors and exporters. USDEC also uses about $2 million of Federal funds received through the Market Access Program to stretch the farmer and membership funds and reach deeper into markets. I urge the committee to continue supporting the Market Access Program, and specifically to see that that program is adequately funded both in the budget resolution and later in the agriculture appropriations bill.
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Asian countries are vitally important to the U.S. dairy industry because they import about one-third of the U.S. cheese exports, almost one-third of the U.S. nonfat dry milk exports, and more than half of our whey products.
Japan and Korea are the two fastest growing markets for U.S. cheese. United States sales to Japan almost tripled from 1991 to 1997, while U.S. cheese sales to Korea skyrocketed, increasing from a minimal 227 metric tons in 1991 to 4,800 metric tons in 1997. Asian countries are expected to represent 50 percent of the world whey imports by the year 2000. Japan, the Southeast Asian nations and other Asian countries will represent 75 percent of lactose imports by 2000. In 1995 alone, Japan bought more than 50 percent of our lactose exports.
I would like to say a few words in support of IMF funding. The United States should not be shortsighted in dealing with the temporary financial problems of nations such as Indonesia that are a major market for U.S. agriculture products. In general, U.S. agriculture interests are best served by allowing the IMF to address the financial problems in Asian economies and protect the U.S. position in important, fast growing markets.
Frequently cited export statistics understate the importance of the Asian markets to U.S. agriculture. Asia is an important market for the entire U.S. agriculture industry and is a destination for about 40 percent of U.S. agriculture exports. Moreover, the Asian economies are interdependent. A serious crisis in Indonesia could translate into a crisis in South Korea, Malaysia, Japan or elsewhere. Each of these countries represents a promising export market for U.S. agricultural goods.
Both the National Milk Producers Federation and USDEC strongly support and urge members of this committee and the entire House to work to enact legislation to replenish the IMF and help stabilize the Asian economic situation.
Another program important to the dairy industry's Asian market growth is the Dairy Export Incentive Program. Maximum use of DEIP is necessary for market development in the face of the massive presence of subsidized European products.
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I was very pleased to learn on May 7 that Secretary Glickman had announced that 30,000 additional metric tons of DEIP shipments would be available to the dairy industry. This volume is available currently because it was reported to the WTO as exported but never left the United States. This action will mean an additional $50 million of dairy export sales, according to the Department's estimate.
Again, I thank the committee for their oversight. I will attempt to summarize.
We are in support of greater transparency in STEs, both in importing and exporting STEs, and we feel that this issue needs to be addressed in the next talk, the next negotiations.
Regarding negotiations with China and its entry into the WTO, we had emphasized the need for China to dismantle its import STEs. There are indications that earnest negotiations leading to China's WTO accession may be underway after much delay. Hopefully progress can be made by the time President Clinton visits China next month.
Mr. Chairman, I hope I have helped the committee understand a few of the points. First, Asian nations are good customers for U.S. dairy companies, and the dairy industry, assisted by the U.S. Dairy Export Council, we are working diligently to make them even better customers for U.S. products. Second, the government can assist their efforts in a few but very important ways through full funding of the Market Access Program, full use of DEIP, and vigorous efforts in trade negotiations.
I do appreciate the opportunity to testify before the committee today. We also are on record as supporting fast track authority. Thank you.
[The prepared statement of Mr. Kirkpatrick appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you, Mr. Kirkpatrick, especially your point about IMF. Too many of our colleagues do not understand that without a stable monetary system, we cannot use GSM 102, 103, 105, our loan programs.
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Therefore, for instance, South Korea, I just have a note this morning that agricultural farm export sales under the credit guarantee program are up 50 percent. South Korea is up to $1.5 billion in purchases using GSM. We couldn't use GSM until the IMF had straightened out the monetary system in South Korea. So we have got to make that transition apparent to our colleagues who are worrying about funding IMF. I thank you for that point very much.
Sir Dryden Spring is with us, as well as Mr. Larsen. We are pleased again, may I say, to welcome you here. These gentlemen offered us great hospitality in New Zealand when the committee visited New Zealand, and we enjoyed that. We hope we can return just a small part of that.
New Zealand and the United States agree on many things, including opening up the European Union to trade. We do disagree on some items, and I am sure we will hear about that. We are delighted to have you here, Sir Dryden Spring.
STATEMENT OF DRYDEN SPRING, CHAIRMAN, NEW ZEALAND DAIRY BOARD, ACCOMPANIED BY WARREN LARSEN, CHIEF EXECUTIVE OFFICER, NEW ZEALAND DAIRY BOARD
Mr. SPRING. Thank you, Mr. Chairman, members of the committee. Like Mr. Kirkpatrick, I am a dairy farmer who didn't milk his cows this morning. I am also chairman of the New Zealand Dairy Board. The New Zealand Dairy Board is the chief exporter of dairy products from New Zealand. It is one of the leading exporters of dairy products in the world.
I think that most of you are broadly familiar with the New Zealand dairy industry so I won't dwell on it now. My written testimony describes in some detail our industry. What I want to do this morning is to focus on how New Zealand and the United States can work together to make dairy markets easier and more desirable places to do business for the producers of both countries.
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The subject of international trade negotiations is of vital importance to the New Zealand Dairy Board, given that exports, unsubsidized exports, are the reason for our being. With around 95 percent of our total dairy production being exported, trade negotiations are also a key matter for the wider New Zealand economy, as they are for the U.S. economy.
The foreign exchange earnings of both of our countries depend to a significant extent on agricultural exports. For example, 20 percent of New Zealand's total exports come from the dairy industry. Both our countries recognize that many trade barriers remain to be dealt with and we typically stand shoulder to shoulder in confronting them.
By bringing agriculture within the multilateral trade rules for the first time, the Uruguay Round made a good start in addressing trade barriers of concern to us. For example, we welcomed the introduction of disciplines on export subsidies and the improvements in market access, small though they were, made in some countries. But we must look ahead.
Unfortunately, a host of restrictions on international dairy trade still exist. In fact, the dairy sector remains the most protected of all agricultural sectors in the international economy. The distortions are of such magnitude that it is difficult to talk of an international dairy market. Rather, there is a series of markets, each with its own regulatory regime, often with prices above those ruling elsewhere, protected from outside competition by restrictions on imports.
Consider the main features of dairy markets as we experience them daily around the world. Firstly, export subsidies continue to be the dominant factor in determining export prices. We face competitors every day of the year who get more revenue from export subsidy payments than they do from customers.
Second, access to world markets continues to be impeded or blocked by high tariffs, small quotas, and domestic content requirements, to name but a few barriers. We face highly complex systems for administering those modest amounts of tariff quota access that are available.
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Third, farmers in many countries continue to receive high levels of income support which inevitably increases the local price of milk. This creates fierce opposition by local producers and many policymakers to imports.
No wonder, then, that the New Zealand Dairy Board considers that there is a great deal to be done in the next negotiating round. We want to see substantial forward movement in all areas where restrictions remain. We want to work closely with the U.S. dairy industry and the U.S. Government to achieve that objective, because we believe it will be more effective if we present a common approach to those who would seek to slow the pace of trade liberalization or, even worse, to try and stop it altogether.
So we will continue to stay in touch with your dairy producer and processor leaders, to share information with them and to develop our policy thinking together in the lead-up to the next agricultural round. We are already working together fruitfully in the WTO's Dispute Settlement Body in regard to Canada's special milk classes export subsidy program.
Our objectives for the next agricultural negotiations are very similar to those of your own dairy industry. For example, we want significant improvements in market access. To do that, the process of tariffication must be taken to the next level. Not only do we want to see tariffs reduced across the board but very high peak tariffs must also be dealt with, because tariffs on dairy products of 200, 300, or even 500 percent plus are common.
Depending on the reduction formula chosen in the next round, it could be many years before trade could possibly occur out of those sort of tariffs. That is why we favor the search for an agreement on a maximum tariff. In addition, we want to see the expansion of tariff quota volumes as well as simpler, more transparent methods of tariff product administration.
We also want to see a meaningful reduction in domestic subsidies to farmers. In this regard, may I say that we admired the steps taken in the 1996 FAIR Act to phase out the dairy price support program. That will do much to increase the international competitiveness of your dairy producers. It is the sort of policy that other governments would do well to emulate if they want to strengthen their agricultural sectors and enable them to be able to compete at home and abroad.
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We know that the matter of state trading enterprises is on your mind. We agree that the rules of STEs could do with some strengthening and that greater transparency is desirable. We are working with you on these matters in the WTO Working Party on STEs in Geneva. As a farmer cooperative with no government involvement, we have nothing to hide or fear from greater transparency. Let's work on STEs together, but let's focus our efforts on where they are really needed, on those STEs which distort markets by controlling import access.
Last but not least, we want to see the elimination of export subsidies, an ambitious goal, perhaps, but nonetheless crucial for improving the prosperity of all whose livelihoods depend on the world market. We admired the leadership the United States showed on this issue in the Uruguay Round. I regret to say, however, that since then we have had more reason to criticize than admire what you have done with the Dairy Export Incentive Program.
We were pretty disappointed at the decision taken last week by the administration to allow the rollover of significant DEIP volumes from previous years. This hurts us in practice and in principle. Obviously we will be hurt by competition from additional subsidized product, but there is also a wider issue involved.
Since the Uruguay Round, New Zealand and the United States have stood together in opposing the desire of the Europeans to preserve the rollover option. Up till now, the United States has maintained that rollover is against the spirit, if not the letter, of the Agriculture Agreement. The recent decision of the EU to use rollover on some nondairy products was a provocation, but one that all who oppose the use of export subsidies should rise above. I am afraid that the reputation of the United States as a leading defender of the Uruguay Round disciplines and as a leader of the crusade against export subsidies is today a little less shiny for having taken this decision for the sake of short-term expediency.
There is much at stake in the next round of international trade negotiations. We all know in our country that to succeed, the negotiations need the strong leadership of the United States. We are heartened by the strong positive attitude being shown by the United States dairy industry towards those negotiations, and particularly heartened, Mr. Chairman, by your comments and Mr. Stenholm's comments, because strong U.S. leadership will be crucial to a successful WTO round. We hope that the Congress will be able to support you and support the administration with the passage of fast track legislation in the future. Then let's work together toward the further liberalization of international dairy trade.
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Thank you, Mr. Chairman.
[The statement of Mr. Spring appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you, Sir Dryden, very much. I quickly want to comment that having visited with a lot of farmers and ranchers in New Zealand, you have come a long way in New Zealand in 10 years. They, to the man and woman, evidenced their great concern about separating themselves from any government subsidy or export subsidy; and to the man or woman, say that is the best thing that ever happened to us, that we survived, we are better for it. So New Zealand has come a long way, has come further than the United States, I might add, but we are getting there. We are phasing out our subsidies, so we are getting there.
I also want to mention and appreciate New Zealand joining us in the WTO panel with Canada. That is a situation which should not occur, 300 percent subsidies for dairy, chicken and eggs in Canada. I think the Canadians were shocked they were on the panel.
We will join you and you will join us in the 1999 WTO agricultural negotiations for the review. I might add, as well, that New Zealand and Australia and the United States joined together with other countries in the Cairns group which was successful in the Uruguay Round. We hope to join again, and I know we can count on New Zealand.
Mr. Ewing, do you have questions of the panel?
Mr. EWING. Thank you, Mr. Chairman.
I would like to take a few seconds of my time here to give you the credit not only for this hearing and other hearings, but for your leadership on trade. It is truly been outstanding. You have shown a greater leadership in this area then we have had in I think many years, and certainly should be congratulated, for it is one of the most important things we can do to be sure that American agriculture is strong and secure and be sure that our Freedom to Farm legislation has the best chance of working. I just want to say that publicly. You have been an outstanding leader on it, and this hearing is just another indication of that leadership.
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I had a couple of questions. First on the cotton issue, Mr. Funk, with the cotton producers, that is a very excellent name in agriculture in central Illinois where we used to have the Funk Seed Company, which was a real leader in the field of seed corn particularly, and other seeds.
But in the cotton industry, we don't grow a lot of cotton in my area of the world. The depressed price, is it because of lack of markets overseas, particularly, or does some of that deal with the excess production here in this country, or could you enlighten us a little more on that?
Mr. FUNK. Yes, sir. I don't think we could single out any one factor. I think it is a series of things. Obviously, when you have a country like the People's Republic of China that last year imported about a 1.8 million bales of U.S. cotton, and this year they turned around and announced a tender, where they are going to export in the first tender 1.8 million bales, and possibly another tender, that in and of itself has a tremendous effect on our markets.
Although I might not be able to quantify it exactly, I would say that probably 3 to 4 cents of our market decline could be attributed to that. The Asian situation I think has had some effect, although it has not been as great as what we thought because of USDA's use of GSM funds. There has not been the cancellation of sales contracts in Asia that we had anticipated.
But it just seems like that there is a series of things that have depressed cotton prices now down to levels that we haven't seen in a long, long time. I can remember selling cotton for 60 cents back in the sixties, in the seventies.
Mr. EWING. Is production up generally, though? I know in certain areas people were moving from other crops, peanuts to cotton. Cotton was very profitable a few years ago. Did total production go up for American cotton?
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Mr. FUNK. I think it was up in past years. But the initial planting intentions for this year show cotton plantings down about 12 percent across the Nation. With these kind of prices, you see cotton producers going to other crops, and that is what the Freedom to Farm Act has allowed, is that flexibility to go to other crops. So it means corn.
Mr. EWING. Thank you.
Mr. Dunn, I am interested in your discussion of export of potato products, particularly to Asia. Is that the biggest market, foreign market for potato products, frozen potato products?
Mr. DUNN. Congressman, that is the fastest-growing market area that we see developing in the world, based on the projections of our customers, the fast food chains, who see a doubling of their stores in that part of the world within the next 5 to 8 years. So that is why we are focusing on that region.
Mr. EWING. Do the fast food chains that are developing in Asia, do they first have to buy Asian potatos or can they always import what they want from America? How does that work?
Mr. DUNN. Generally speaking, there are not local potatos grown in most of those countries, so nearly all of the potatos are imported.
Mr. EWING. And so it is actually an introduction of another production to the people in those countries?
Mr. DUNN. That is correct.
Mr. EWING. Yes. My time is up. Thank you very much. Thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman.
Mr. Dooley.
Mr. DOOLEY. Thank you, Mr. Chairman. I thank all the witnesses, and I especially appreciate the constituency and the support for fast track, as well as for the funding of IMF. Hopefully we will see Congress take some action on both of those issues in the near future because of their obvious importance to agriculture.
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I have just one question, and that is, when we made some of the reforms in our farm programs in order to make them more market oriented, I think most of us would agree that that is also providing the appropriate signals to producers, again to improve on efficiencies and productivity which will allow us to be competitive in the international marketplace.
And I guess, Mr. Kirkpatrick, I would like to direct a question to you; not only are you in a unique position as being on the U.S. Dairy Export Council, as well as being a vice president of the National Milk Producers Federation. Do you have any concerns that some of the increasing interest in compacts will have an adverse impact on the dairy, U.S. dairy industry's ability to be as competitive in the international marketplace?
Are you concerned that the compacts are really leading to somewhat of a Balkanization of the U.S. dairy industry that is in some ways insulating it from market pressures? And as a follow-up on that, would an arbitrary price floor that also distorts market signals also have an adverse impact on the U.S. dairy industry moving forward to maximize their long-term interests in the international marketplace for dairy products?
Mr. KIRKPATRICK. I am certain I could get into difficulty with one segment of the industry or the another by answering that question, but I will attempt it. It appears like in the United States, the eastern part of the United States has somewhat higher cost of production than the western part of the country, for whatever reason, whether it is climate or efficiencies of scale or whatever.
So there is a fairly strong feeling within the industry that in the eastern part of the United States, the compact is an attempt to make those markets or those producers viable for the local markets. Now this is a fluid market. It does not affect much of the product that we would export, but it could hold some producers in business longer than they might otherwise. So I think that is one of the issues.
I really don't think, other than maintaining maybe some additional production, I don't think it has too much impact on the export part of the industry.
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Mr. DOOLEY. Are you, though, concerned about some proposals to expand the compacts even into, you know, south of the eastern part, New York talking about joining Pennsylvania, in fact, some of the larger milk groups. You also have talk about, in the South, the creation of compacts. Isn't this something that the industry should be concerned with? While it is primarily fluid—I mean it is pretty hard to, I think, make the argument that if you see a continued proliferation of these, that it does not impact some of the manufacturing products, that is, what we are going to be exporting.
Mr. KIRKPATRICK. I guess you could say that. I think probably if I were to look at the industry, probably the Southeast, the condition in the Southeast, as far as supplying fluid markets, it is probably a little more critical than the Northeast, to be truthful. Their competitiveness or their cost of production appears to be higher. Their decline in milk production is more rapid than it has been in the Northeast. So I guess—and, you know, I don't have policy on what I am answering. It is kind of my own opinion. But the southeastern part of the United States is probably hurting more even than the Northeast.
Mr. DOOLEY. Okay.
The CHAIRMAN. I thank the gentleman.
The gentleman from Michigan, Mr. Smith.
Mr. SMITH of Michigan. It is always been easier for me to suggest that agriculture wasn't properly represented in many of our trade negotiations and contracts. Maybe all of you, anybody that has got a reaction to this, are some of our problems with the state trading enterprises or the restrictions that have evolved with phytosanitary restrictions that have been conjured up by some of these countries, I see that partially as a problem with the way that we wrote the trade agreement.
Do you agree that as we start new WTO negotiations, it seems very important that we start specifically identifying the kind of language that is going to help protect against these kind of artificial restrictions? Or I call them artificial restrictions. Do you see our problems in our negotiations in the past as a lack of agricultural knowledge or maybe a lack of agricultural representation, or just maybe an oversight to—that is understandable based on the information that was available at the time? Any comments from any of the panel? And thank you all for being here.
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Mr. KIRKPATRICK. I would comment just from the dairy industry side of it, I think we have been as an industry very slow in being involved in exports. And we did not provide our government with proper information pertaining particularly to dairy, and that is part of the role of the U.S. Dairy Export Council now, is to be involved in trade planning for future negotiations so that we can specifically be of assistance to our government that we had not been in the past.
Mr. SMITH of Michigan. Mr. Dunn, before I ask you, maybe we can also throw into the mix the lack of our ability or the restrictions on increasing our value added or processing to maximize our jobs. But, Mr. Dunn, any comments you might have, how we approach—what we did wrong and how we approach the next round?
Mr. DUNN. Well, I would say that there is probably a little blame to go around for everyone. I can tell you that from the standpoint of the potato industry, we were disappointed with some of the outcomes that you have mentioned. Partially as a result of that, it was the impetus to get us motivated to come together as a coalition and to become involved in those issues. So regardless of what happened in the past, we hope to rectify that in the future and intend to be pretty actively involved in supporting these sorts of discussions in the future.
Mr. SMITH of Michigan. And is your industry in shape now, as some of these talks have already started, and they are going to be more aggressive, I would suggest, next year. Are you set now and comfortable in our agricultural representation or how the potato industry is going to have their input?
Mr. DUNN. We are certainly engaged with the USTR and USDA in promoting discussions that will hopefully result in reducing some of these barriers to trade.
Mr. SMITH of Michigan. Mr. Funk.
Mr. FUNK. I think one of the concerns for the cotton industry in all of these negotiations is that, not only from an agricultural production standpoint, but a lot of the countries we are negotiating with also use cotton as a value added product, i.e. textile products, and then they come back into the United States. And that has always been a concern of ours, is that those countries control not only the production but the exporting of textile products. Especially in the case of China and any accession of China to WTO, we need to address that.
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Mr. SMITH of Michigan. Sir Dryden, or Mr. Larsen, any comments?
Mr. SPRING. I guess the only comment that I could make is that it seems to me that your producers seem to be pretty well organized from the outside and have a pretty big influence on what the policy is.
Mr. SMITH of Michigan. I thought they were really organized 3 years ago, though.
Mr. Chairman, I guess my concern is and my experience is that agriculture too often has been shortchanged in these negotiations, as the seemingly more powerful industrial segment of our society has put pressures for giving advantages or fewer disadvantages to export their wares and goods, and too often we have sacrificed trade-offs for agriculture in an effort to appease maybe the higher contributors to politicians or what would seem to be more influential at the time.
So I hope we will continue to insist that we have the kind of agricultural input to insist that agriculture get a fair shake this next go round.
Thank you.
The CHAIRMAN. I thank the gentleman. Coming from Michigan, are you suggesting that automobiles are higher priority than agriculture?
Mr. SMITH of Michigan. No, Mr. Chairman. I was suggesting, like Elwood's answer, I don't want to offend anybody. But I think agriculture has been given a back seat, if you will, in terms of being given priorities, and if we expect our agricultural industry—I know this is a long answer, but if we expect our agricultural industry in this country to survive in the face of what other countries are doing to try to protect their agriculture and subsidize their agriculture, I think we have got to be much more conscious maybe than we have in the past in making sure that our trade contracts and agreements tend to strengthen our ability to export without tariffs and without restrictions.
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Don't ask me another question.
The CHAIRMAN. I promise you, I won't.
Sir Dryden Spring, quickly, what is New Zealand's dairy market share of the world dairy trade?
Mr. SPRING. Mr. Chairman, we produce 2 percent of the world's milk, but less than 5 percent of the world's milk is traded internationally. We have a market share of somewhere around 30 percent. Australians, I think about 10. The other 60 percent then is occupied by those who use export subsidies. The biggest of course is the European Union, which for many years has been dominant with huge use of export subsidies. But I think it is important to recognize that during the last 12 months, the need for skim milk powder has been greater than the export subsidy on skim milk powder out of the European Union.
The CHAIRMAN. I was trying to make Mr. Kirkpatrick's point, on being late to the table, but to the table with respect to dairy exports. Let's see, there are 3 million people in New Zealand, 3.5 million, something like that?
Mr. SPRING. Yes, sir, 3 million people.
The CHAIRMAN. I might point out that the United States has 7 percent of the world's market, and we only have 275 million people.
Mr. Johnson from Wisconsin.
Mr. JOHNSON. Thank you, Mr. Chairman.
I appreciate those questions about the dairy. And I guess a couple of questions both to Mr. Dunn and Mr. Kirkpatrick, because we are talking about what we can do in 1999 and in the next round of trade negotiations. I am wondering what, if you have any specific suggestions, what this committee and Congress can do in any specific ways before we get to the 1999 round of talks to put us in a better position, that we can be, as you have suggested we ought to be, more effective in making agriculture better positioned for increased export markets.
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Mr. Kirkpatrick.
Mr. KIRKPATRICK. I think a couple of areas are fairly critical. I mentioned that we should ensure compliance with the Uruguay Round commitments. But I think in the 1999 discussions we must continue to put emphasis on the European Union to reduce, continue to reduce the subsidy reduction that started in the last round, because we are not close to a level playing field yet, and the European subsidies have a very drastic effect on reducing world market prices in dairy products.
I think Sir Dryden would agree with me on that, and that is a very critical issue. I think state trading enterprises issues are critical, both in import and export STEs. I think those need to be addressed as much as we can. And I guess one—and this may be a little selfish when I look to my left, but the market access funds have been very useful in helping our industry move ourselves into place as an exporter. Certainly we are behind but attempting to catch up, and those market access funds have been very helpful in us, allowing us to further work in export and development.
Mr. JOHNSON. So suggesting at least keeping or expanding the access market funds?
Mr. KIRKPATRICK. Absolutely, yes.
Mr. JOHNSON. Mr. Dunn.
Mr. DUNN. I would tend to agree with those suggestions. Additionally, I suggest that we would press through the APAC tariff liberalization, through WTO access negotiations with China, and through WTO dispute settlement with India over a balance of payment to restrictions, are just a couple of other options we might take a look at, as well as, you know, just the fact that this committee would continue to press the USTR and USDA on an ongoing basis.
Mr. JOHNSON. Sir Dryden, I am just wondering then, you seem a little critical of the Dairy Export Incentive Program, and I am wondering if you see this as a wedge issue in other areas that you pointed out you are standing shoulder to shoulder with the United States, particularly dealing with the European Union and Canada. This is minor, major? How do you term this, in terms of it is not going to put a wedge between the shoulder-to-shoulder help with the United States at all in dealing with both Canada and the Europeans, is it?
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Mr. SPRING. Well, I think it is important to recognize that the DEIP program is morally no better than the European export subsidy program. There is a difference in scale, but the principle is still the same and the effect is just the same. Mr. Kirkpatrick commented that the use of export subsidies depresses international prices below what they would otherwise be. He is absolutely correct.
Let me tell you what has already happened as a result of last week's decision to roll over. A long-standing customer with whom we have continuing supply agreements, normally we negotiate three monthly pricing contracts, and with whom we were in negotiations, has concluded a price at a rather low level for one month only. Once they heard of the announcement of 30,000 extra tons of milk powder, they said we will get it cheaper as this product flows onto the market.
So the market seems to have moved down, it was by about $100 a ton over the last week, as a result of that decision. But there really is an even bigger threat and issue, and it is this: That if the United States is entitled to roll over and use subsidized export provisions from previous years, so is the European Union, and the problem is that they have hundreds of thousands of unused milk powder tons and several hundred thousand unused butter tons.
So our concern is, once the line is broken, then it is much easier for those who have much bigger volumes to move much higher levels of export support given to their producers who want to take advantage of the same game. That is our real concern with the Canadian special milk classes, of course. If their principle is accepted, there is nothing to stop the Europeans adopting it, and then the Uruguay Round agreement has no meaning. It is a useless agreement because it can just be broken.
Mr. JOHNSON. I don't want to get into a long argument, because we don't have much time, about who has the moral high ground on this, but I think Mr. Kirkpatrick has a brief response.
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Mr. KIRKPATRICK. I would like to make a brief comment when we are talking about rollover. I interpret rollover somewhat differently than Sir Dryden does. We have unused DEIP allocations that went unspent and unused. We did not roll those over. What has currently been the 30,000 tons that we are talking about, were sales that we reported as sales and they did not move. They didn't leave the United States. They were sold; for some reason, they were not delivered.
These are what we were given credit for allowed to go and sell them. The unused items from year to year, we did not get a rollover on those, so there is a little difference. And by the way, our DEIP program was on the table and wide open in the GATT round.
Mr. JOHNSON. Thank you very much. Thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman.
May I also point out that the cap of $100 million was a negotiated GATT agreement, Mr. Kirkpatrick, and we had used in the past, in some years, not more than $20 million. Compared to the volume in dairy trade, that is infinitesimal.
I understand Sir Dryden's point, and certainly, as we have discussed before, the DEIP issue as well as many others, will be discussed in 1999. But at this point, from our point of view, it is GATT acceptable and GATT legal as a result of the Uruguay Round.
Mr. Thune from South Dakota.
Mr. THUNE. Thank you, Mr. Chairman, members of the panel. I happen to be of the view that free, open and fair international trade is one of the most important things that we can do to improve prices and incomes for our agricultural producers; however, in my State of South Dakota there are a good number of producers, as well as other parts around the country, I might add not cotton producers in South Dakota, but in areas like wheat and cattle, who are very skeptical of both the ability of the United States to negotiate in the best interest of agricultural producers and also of the willingness of other countries to abide by the terms of the trade agreements.
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I guess I would just pose a question to whomever would be willing to respond on the panel: What can Congress and the administration do to change this perception in terms of the view that is out there, I think that is a very prevailing view, as I said, in South Dakota and I suspect in other parts of the country as well, that the United States is not in a good position to be able to negotiate effectively and have the ability to enforce any agreements that are like that?
Anybody want to venture?
Mr. KIRKPATRICK. I will attempt it, and I don't think I am qualified, but certainly our trade negotiators, our government agencies and the industry need to unite together, put their heads together to bring the expertise from a particular commodity to the table and use that expertise to understand how our negotiations may affect our particular industries. That is why I am fairly critical of our dairy industry that we weren't there in the past to do this. I think we are going to be in the next round, and I think this will be helpful.
We also need the cooperation of the government and the negotiators, but that has not really been lacking when we have been there with expertise. I think it is the industry expertise that is probably needed, and then some real emphasis on clarity. In negotiations sometimes I think that they have written some agreements less than necessarily clear, and it leads to interpretation and legal battles. The dollars that we are going to spend on this Canadian issue, it is going to cost the industry $300,000 or $400,000, maybe more, just in this trade dispute. And Sir Dryden is probably going to put the same thing in to battle it out in the panel. That is kind of costly for an industry.
Mr. THUNE. Anybody else have a comment on that?
Mr. FUNK. I would just comment that from my personal perspective, I own and operate a cotton gin and grain elevator on the United States-Mexico border, and I think NAFTA and our successful negotiation of NAFTA with Mexico has been a very bright spot for U.S. agriculture. I know there are a lot of concerns by various commodity groups, but I would say from my perspective, in general, that agreement has been very successful for U.S. agriculture.
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Cotton, we used to export 100,000 to 150,000 bales of cotton to Mexico. We are now exporting 700,000 to 800,000 bales to Mexico. And grain, practically 100 percent of the grain sorghum that we ship out of our elevator is going to Mexico.
Mr. THUNE. Is it a fairly widely held view among cotton producers that that is the case? I mean, you don't have that perception problem that other commodity groups do in terms of, you know, how these trade agreements are working? Do you have any sort of——
Mr. FUNK. Specifically NAFTA?
Mr. THUNE. Well, yes, NAFTA probably as much as any, at least, you know, where I come from.
Mr. FUNK. Yes, I would say as far as NAFTA that cotton producers have been well served by that agreement. We do have some concerns about the WTO negotiation. And I would just make the comment that when the FAIR Act was passed in 1995, that that was—that was one of the aspects of it, that we would phase out subsidies. But, on the other hand, we were going to increase agricultural research, and that is a critical issue that I hope this committee will address, and market access into China, and transparency of trading rules, and those things, as well as risk management and other things, that we told producers we are going to do this to help you make the transition. And I get the feeling sometimes in the country and talking to producers they don't feel like that has been forthcoming in the 1995 farm act.
Mr. THUNE. I don't have much time left. But just as a quick followup, because, again, I think the impression is that we haven't been able to enforce the agreements like we should. In terms of the new round, as we head into it, a question I would have is, are there things that you see in terms of trade dispute mechanisms or remedies that, you know, you would like to see included in any new negotiated trade agreements to which the United States might be a party?
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Mr. FUNK. I think from cotton's standpoint, and just as one example, the textile industry has a great deal of concern about intellectual properties. They develop new processes and fabrics and things like that, that too soon they see coming back into the United States from Hong Kong, other countries, Bangladesh, Pakistan. So I think that would be one concern of the textile industry in any trade negotiation, that those intellectual properties are protected and enforced.
Mr. THUNE. All right. Again, to me it seems at least that enforcement is a major factor in all of this, and even as it pertains to the hormone ban and the successful result that we got there in seeing that it is carried out has been provided for in some of those agreements.
I thank the chairman and yield back.
The CHAIRMAN. I thank the gentleman.
Mr. Funk, you will be, I am sure, pleased to know that the research bill will be voted upon today in the Senate and will be before the House very shortly. It includes the $2 billion, plus an additional $600 million added in the conference committee. It is a very strong position for agricultural research in this country.
Mr. Pickering.
Mr. PICKERING. Thank you, Mr. Chairman.
I would like to ask just one quick question as we talk about Asia and opening markets and creating greater opportunities for American agriculture. Specifically I would like to focus on China, and Mr. Funk, I would like to ask you a question.
You mentioned earlier China's possible accession to the WTO. There is a bill introduced by Mr. Bereuter, and as we come up to the perennial debate in Congress on China MFN, there are a number of us, myself included, who would like to try to find a more productive framework that would link the revoking or the appeal of China MFN to their joining or making progress of joining us assenting to the WTO.
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Have you had a chance to review that legislation, and would you support it? And if anyone else on the panel would like to comment?
Mr. FUNK. Well, I think our perception is that it is an interesting concept. We have not been able to study it and determine what all of the ramifications of such legislation would be, so at this point I don't believe we would have a specific comment on that.
Mr. PICKERING. Mr. Funk, could I ask you to review that legislation and then get back to the committee your views on that legislation as soon as possible, because I do think it gives new incentives that if China were to make progress or to join the WTO, then we would link a positive action. We would promise that we would take out the China MFN process on the annual basis, which in my view has become a counterproductive exercise.
It would change the incentives, give them a positive carrot, that if you join the WTO, and that is our best chance to get the rule of law, to have a multilateral process instead of a bilateral and to increase our leverage to get them to open up the state-owned entities and to make sure that we do, in fact, make the progress for U.S. agriculture that I think is possible.
And then it would have credible incentives on the other side, too, that we would have a snapback provision, but it would only be to the Uruguay Round, which on average I believe is 4 to 7 percent. So it is not the type of nuclear approach of just simply withdrawing complete MFN status, which they realize is not a credible threat. We know that it is not credible. This has become, in my view, a hollow threat and a hollow debate, and we need to find a more productive framework as we go forward into the future.
So I would appreciate the Cotton Council looking at that legislation, as we go to that debate, to have your views. And if there is anybody else on the panel who would like to address this question, as well, I do believe this is the most important trade policy with the greatest possible opportunity for us any time in the near future. Is there anyone else who would like to comment?
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Thank you, Mr. Chairman.
Mr. EWING [presiding]. Thank you, Mr. Pickering. That is indeed an excellent bill.
Mr. PICKERING. Mr. Ewing is also an original sponsor, so we would—Mr. Ewing, I think that you would agree that we would like the comments as soon as possible.
Mr. EWING. We welcome your input on that issue, because I think it is the right direction that we should be moving and should be making that discussion here. The gentlelady from Michigan, Ms. Stabenow. You are recognized.
Ms. STABENOW. Thank you, Mr. Chairman.
First I want to welcome my friend Elwood Kirkpatrick from Michigan, who has led the Michigan milk producers for years, and I appreciate your being here. Good to see you. Good to have you with us.
A question in general for the panel, as we look at the negotiations and the meeting taking place this week to prepare for negotiations: In general, what are your feelings, pro and con, about agriculture negotiations going on separately versus having the agriculture interests tied into a broader set of negotiations, as we look at the multilateral round and hooking agriculture into other issues? What would you see? Is that something that shows any possibility for promise, or is that something that would be full of negatives for you? I guess I would like your reaction to that question.
Mr. KIRKPATRICK. I would respond, as far as our industry is concerned, we would want to be a part of total negotiations rather than just specific agriculture. We think we end up losers if it is only agriculture.
Ms. STABENOW. Is that in general felt by the panelists, or does someone have a different view of that?
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Mr. SPRING. No, I don't have a different view. Speaking as an outsider, I don't think there is any reason to believe that the Europeans are going to be any different in the next round than they were in the last round. And I think that you are going to have to have as much leverage by having a broad-based round, because I don't think there is any doubt at all that pressure from other sectors in the European Union which were pro the agreement had a significant effect in getting European agriculture to the point of accepting an agreement.
I think we are going to need every single one of those pressures again this time to make some real progress. There is absolutely no sign of significant reform in agriculture coming out of the European Union. Commissioner Fishler has advanced what I gather are real revolutionary proposals to reform the cap, that are nothing like you have done here, and nobody agrees with him. So it is not going to be an easy nut to crack. It is going to need a broad based-approach.
Ms. STABENOW. Is that the general view? Yes?
Mr. FUNK. I think I would tend to agree with the gentleman from New Zealand, although there are—in cotton there is some linkage to the general negotiations. I think by keeping agriculture separate, you tend to bring more people from agriculture into the loop and the negotiation and have a stronger position in the negotiation. So I think we would be more comfortable keeping them separate.
Ms. STABENOW. Okay. Anyone else?
The second question I would ask relates to at this point in time any additional steps. My colleague, my friend from Wisconsin talked about efforts you would like to see the Congress taking as we go into the WTO next round. As we look at USDA, the USTR, are there additional steps that are not happening now, that you need to have happen in order to be in the best position? Does anyone have thoughts?
Mr. FUNK. I would just comment, we would stand on our testimony as we presented it today. We have a great deal of concern about the accession of China to the WTO, and the fact that they are such a large player in the world today that any actions that they take can have major repercussions, and what we are seeing today in cotton is a good example of that. As long as they are a state-run government, they tend to look at agriculture as just a tool in their overall trade policy, and there is no transparency to other trading partners as to what is going on in that country.
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Mr. KIRKPATRICK. I might comment that we have structures established to provide industry input. I mean we have the ATACs and the APACs, and I think as we lead up to this round, it is probably fairly critical that we maintain those as active committees to provide the industry with means to input into the preparation for the negotiations. So I just encourage an active committee effort. I think that will probably serve us as well as anything. Thank you.
Ms. STABENOW. Thank you.
The CHAIRMAN [presiding]. Thank you very much.
There are state trading enterprises and there are state trading enterprises. For instance, Canada has a state trading enterprise for wheat. China has state trading enterprises which hold trade in the dark room, which nobody can understand. New Zealand has changed its state trading enterprise.
Would you explain, Sir Dryden, how that has happened and how your state trading enterprise is somewhat different, although we still have some criticism of it?
Mr. SPRING. Certainly, Mr. Chairman, and thank you for the opportunity. The New Zealand Dairy Board is mandated under legislation to control exports from New Zealand. It can either export itself, which it does in the main, or it can mandate others to export, which it also does.
However, that is—and that is how it is classified as a state trading enterprise. On that one tier in the WTO definition, it is technically classified as a state trading enterprise. However, the practical stretch of the New Zealand Dairy Board is that there is no other government participation, no support, no financial assistance and no government direction.
The board itself is owned by the cooperatives, so it is indirectly owned by the New Zealand dairy farmers, and it operates as any other commercial organization does. It is a mechanism which allows a very small country like New Zealand to build a business which can be competitive internationally.
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I note that here in the United States, the Dairy Farmers of America in economic size is approximately twice the size as the New Zealand Dairy Board. To me, the critical issue is not so much with a state trading enterprise technically as a state trading enterprise or not, but to what extent it is subsidized or contributes to the distortion of trade.
The New Zealand dairy market, domestic market, although small, is totally open. There are virtually—there are no restrictions. Tariffs exist on I think one product, and that is a very small tariff, so the market is open and free. There is no government support, direct or indirect. And the New Zealand dairy industry had PSE of one, according to the OECD analysis.
So we think that our system suits us. It certainly, I don't think, by any stretch of the imagination can be described as trade-distorting. The government has been progressively moving to ensure that the board itself and the industry is free and fit to face the world. And, indeed, we are currently discussing with the government how we might further develop the way in which we operate to avoid criticism from your friends, among others.
The CHAIRMAN. Well, I appreciate that effort. As we have discussed at length, you know our position should never be to argue about how you market, as long as there is a transparency. Because you would in that light, without any kind of government connection, be like ADM or Cargill or Farmland in that respect, that what we do here in trade is open every day to disclosure of markets. That is all that we should or could, I think, request of you.
Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman. I would just followup on the gentleman's statement relative to state trading enterprises, specifically the point you talk about, state trading enterprises as a monitoring mechanism as opposed to state trading enterprises as a vehicle to infuse subsidies.
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I believe, in fact, that that is the case with the Canadian Wheat Board. An audit which shall be forthcoming, conducted by the U.S. Trade Representative in our office, I think will detail precisely the interim payment as well as the final payment and show, I think, rather conclusively the subsidized edge our Canadian friends have had relative to their wheat exports, including an alarming rate of exports into our country.
I want to divert from the topic at hand just for a moment, because many of your statements talk about the importance of the Asia markets relative to us. This really may be a bit of an advance on the hearing that the chairman has called for next week on the relevance of IMF replenishment relative to U.S. agriculture exports.
But I think as we look at the potential for the 1999 WTO round and knocking down trade barriers and capturing markets which we are unfairly held out of presently, we certainly shouldn't take our eye off the ball of markets that we have established, markets that are doing well, markets that are important to us, markets that are growing and have great future potential. And that is Asia, and that is an Asia at risk without an IMF standing ready to provide the security in the financial turmoil they have come through, and may have more to deal with.
Just to note, 47 percent U.S. agriculture exports sold to Asia; five of the top 8 markets for U.S. agriculture are in Asia. Now while the chairman's support for IMF is very clear, there has been a loud, strong voice for Congress taking the responsible action, others in the majority leadership unfortunately are playing unrelated games with this issue.
I want to ask each of the United States representatives on the panel, how critical to your interest do you believe it is for this Congress, this Congress to replenish IMF? Starting with Mr. Dunn.
Mr. DUNN. From our standpoint it is very important. As I mentioned in my testimony, APAC countries last year purchased 80 percent of all U.S. frozen processed potatos, which accounted for 1.5 billion pounds, and that is expected to double in the next five to eight years if things go as we would like. So IMF is extremely important in making that happen.
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Mr. FUNK. Sir, I couldn't agree with you more. And I just want to say that we thank the chairman for his active participation. Asia is a proven market for us. They have been a good customer of ours. They are obviously going through some financial turmoil now. And I think, all things being equal, they would like to stay a good customer of the United States through this difficult time.
Mr. KIRKPATRICK. I would comment also, as I did in my testimony, on the critical issue of IMF funding. Certainly the Asian market is very important to the U.S. dairy industry. We are supporting the efforts of restoring the funding and the IMF efforts. We think that Asia, in particular, it doesn't only affect one country. They are fairly well linked together, the economies, and if one tumbles, it could have major effects on many of the countries that we export to.
Mr. SPRING. If I can comment from the perspective of an outsider and say how much, in the part of the world we live in, we admire the strong support the United States gives to the IMF and the pretty powerful and positive influence that the IMF can have. I think you have to look at Latin America today as a very good example of that.
But I think there are two roles, and something like the Asian crisis, firstly, that the cash availability to help through a difficult period is one thing and that is important; but even more important is that at that time the opportunity exists, given the right sort of leadership, for macroeconomic changes which are entirely positive. I think you are going to see that come out of this present Asian crisis. So I would say anything you can do to support the IMF like you are doing is a very, very useful position.
Mr. POMEROY. I yield back, Mr. Chairman.
The CHAIRMAN. I thank the gentleman, and I might point out, and he would agree with me, that the leadership of both parties here is lacking. On his side, the leadership is lacking on fast track. On our side, the leadership is lacking on IMF. He and I agree that we should pass both, and this committee I think by large agrees with that idea.
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Any further questions of this panel?
If not, thank you, gentlemen. It has been very informative. And for those from New Zealand, you have traveled a long way. I offer you a warm welcome, again, and a safe trip home.
Now, panel No. 2: Mr. John Hardin, Mr. Bob Anthony, Mr. John Long and Mr. Terry Wolf. Gentlemen, good morning, thank you again for your patience.
First, we have Mr. John Hardin, who is the past president of the National Pork Producers. Mr. Anthony is the chairman of American Poultry International, representing the Broiler Council. Mr. John Long is chairman of the American Oilseed Coalition; and Mr. Terry Wolf, a corn producer and representing the Feed Grains Council.
Gentlemen, welcome. Mr. John Hardin, past president of the National Pork Producers Council.
STATEMENT OF JOHN HARDIN, PAST PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL
Mr. HARDIN. Thank you, Mr. Chairman. With your permission, I will summarize my comments and submit the testimony for the record.
The CHAIRMAN. Without objection, so ordered.
Mr. HARDIN. I am a hog farmer from midwestern Indiana and a former chairman of the United States Meat Export Federation. And I also represent the pork industry on the APAC. I want to thank you very much for inviting the National Pork Producers Council to present its testimony.
I want to say that it is well known that our organization has been strongly supportive of fast track. I testified in the Senate in favor of greater funding for IMF, and that those are cornerstones of anything that we move forward on. For Mr. Ewing's benefit, I think he is also aware that we are in support of H.R. 1712, and we think that the legislation you brought forward is very constructive.
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If I can, I will focus my comments on some specific trade issues we have in Asia. In fact, in 1997, five of our top 10 export markets for pork were in Asia. Pork is a particularly strong export industry. Recently compiled export statistics for 1997 show an 11 percent increase over 1996 in terms of volume and a 5 percent increase in value. These figures are consistent with the overall trend through the nineties which shows a 210 percent increase in the value of U.S. pork exports from 1990 to 1996, and these are largely in response to trade liberalizing agreements like the Uruguay Round and NAFTA.
Although our industry has always been export oriented, current market conditions make us more heavily dependent on exports than we have ever been before. If we maintain our current pace of production, the U.S. pork industry will slaughter a record 102 million hogs in 1998. Unfortunately, this record production, combined with weak export demand, has resulted in the plummeting of hog prices, which is making it difficult for many of our producers to recover their costs.
Before outlining the areas that should be addressed in the context of the negotiations, let me highlight two success stories for the U.S. pork industry as a result of bilateral negotiations with our Asian trading partners.
Early this year, agreements were reached with both Taiwan and the Philippines that are expected to significantly increase market access for U.S. pork exports. Although it is too soon to tell what the precise impact of these agreements will be, early indicators are promising. Even in the face of the current economic turmoil, the long-term potential for export growth vis-a-vis Taiwan and the Philippines is significant.
Our prospects in the Philippines, however, will be significantly enhanced if tariffs are lowered even further in the next round of the WTO negotiations. I want to take this opportunity on behalf of U.S. pork producers to thank those individuals that were instrumental in reaching the Taiwan and Philippine accords, especially Chairman Smith and Representatives Barrett and Pombo. In addition, we are grateful to Ambassador Barshefsky, Secretary Glickman, Special Ambassador Peter Scher and Paul Dkrazek, Gus Schumacher and Lon Hatamiya at USDA for their efforts in these matters.
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Right now the highest priority on our Asia-Pacific agenda is China, which is the world's largest pork consuming nation. Unfortunately, the level of market access that is currently afforded our pork exports to China is unacceptable. High tariffs, an expensive and discriminatory value-added tax, and a complicated licensing regime are making market access for U.S. pork extremely difficult.
The United States has worked hard to negotiate reforms in China, leading China to reduce tariffs to almost half their previous level. In addition, China has undertaken a 1-year experimental program that certifies U.S. meat establishments to export to two qualified Chinese importers. This pilot program, however, has resulted in only minimal amounts of trade and, simply put, the program is not working.
Measures must be undertaken to result in more meaningful access to China. First, China must lower its meat tariffs to single digit levels and eliminate the discriminatory value-added tax. Second, China must move to a systemwide certification of all USDA-approved meat establishments. These reforms must be implemented in combination, as neither measure by itself will lead to any real opening of the Chinese meat market.
Outside of China, the U.S. pork industry has some real concerns about the situation now developing in South Korea, a growing market for U.S. pork exports for several years, with U.S. exports increasing by almost 500 percent in value from the period of 1995 to 1997. Since the onset of the Asian financial crisis, however, U.S. exports to South Korea have come to a grinding halt. Unfortunately, pork exports from other countries appear poised to fill the gap.
For example, Denmark is shipping substantial volumes of pork bellies to South Korea at very low prices and on very favorable terms. Based on data that I can verify, in mid-March Danish pork prices were 20 percent higher than U.S. pork prices on a carcass basis. I don't understand how that allows for the Danes to compete with lower prices than us.
We understand that the USTR has raised the issue of unfair pricing Danish pork with the Danish Government, and we hope that we will get a return to fair pricing. We also hope that in the 1999 WTO negotiations the United States will further press for reductions in South Korea's tariffs. However, any progress at the WTO will be undermined unless these other practices I have described are addressed.
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In addition, in South Korea we have the problem of them increasing exports of pork to Japan. There are a couple of things that are going on that are clearly in violation of Japanese law. Pork that is being shipped frozen from Korea is being thawed in Japan and sold as fresh chilled product. In addition, Korean pork is being sold as Japanese pork. Both of these things are clearly in violation of their laws.
With respect to Vietnam, the U.S. pork industry has great interest in exporting to this market. The Vietnamese Government is hostile to pork imports and virtually no pork is imported. Tariffs are high, requisite import licenses are difficult to obtain, and state trading is rampant. Before according Vietnam preferential tariff benefits, the United States should force Vietnam to make commitments to reduce and eventually eliminate these market access problems.
We have similar problems in Thailand. Like other countries in Asia, Thailand is a huge-pork consuming nation, but extremely high tariffs, 53 percent ad valorem on pork imports, have precluded the importation of pork from the United States. The effect of these tariffs is exacerbated by a pork license fee and an 11 percent value-added tax. We ask that the United States make every effort to address these issues in the 1999 negotiations.
Finally, we ask your help in addressing market access problems with Australia. As you may well know, Australia essentially maintains a de facto ban on U.S. pork exports on the theory that it protects them from certain animal diseases. Yet, contrary to Australia's commitments undertaken as a signatory to the Uruguay Round in the sanitary and phytosanitary agreement, there is absolutely no scientific basis for Australia's concerns.
Australia's behavior toward pork exports is disturbing. Australia's reliance on these types of unscientific barriers suggests that they are politically rather than scientifically motivated. At the same time, Australia is following the lead of South Korea in increasing its pork exports to various Asian markets. Australia's barriers to U.S. pork must be addressed in the ongoing bilateral negotiations and through the WTO.
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In summary, domestic pork producers have an ambitious Asia-Pacific trade agenda. Given the long-term potential of Asian markets, and given the U.S. pork industry's proven track record of capitalizing on export opportunities, we believe our agenda merits the full attention of this committee and the United States Government. We greatly appreciate, Mr. Chairman, your help in keeping U.S. pork exports at the forefront of global trade and agriculture.
Thank you.
[The prepared statement of Mr. Hardin appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you, Mr. Hardin. We were in Australia last year, December of last year. We raised this pork question with every person we came in touch with. As you well know, they have changed their inspection system and they are now reviewing this whole question of pork.
I think it behooves all of us to keep the pressure on Australia not to use this as a sanitary prohibition against pork imports; that if we are going to, indeed as we are taking substantial amounts of sheep products, of beef products from Australia, they have no business putting up a sanitary prohibition to pork. We need to keep on top of that issue. I thank you.
Mr. HARDIN. Thank you for those comments.
The CHAIRMAN. Yes, sir.
Mr. Pickering is going to introduce Mr. Anthony.
Please, Mr. Pickering.
Mr. PICKERING. Thank you, Mr. Chairman. It is with great pleasure that I introduce a good friend and a great Mississippian, Bob Anthony, who has been a leader in opening markets around the world for poultry and for broilers.
It is hard to imagine, but in Mississippi our No. 1 trading partner now is Russia. Who would have thought 10 years ago that this would even be possible? But as we have seen with the collapse of communism and the freedom throughout that region, it has opened potential markets and new opportunities for us and now Russia is our largest trading partner.
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So what I hope in the not too distant future is that we will see a Mississippi chicken in every Chinese pot. Mr. Hardin, maybe some Mississippi pork and barbecue on every corner. We will know that freedom has come to China when that occurs.
It is with great pride that I introduce Mr. Anthony. He is the chairman of American Poultry International, Ltd., a Jackson, MS, exporting company. He has been the National Broiler Marketing Association general manager from 1970 to 1978. He is a graduate of Mississippi State University. He and his wife Tiny Belle have just a tremendous family with four children and five grandchildren. He is a great man, friend and leader for America and for Mississippi agriculture. Mr. Anthony.
STATEMENT OF BOB M. ANTHONY, CHAIRMAN, AMERICAN POULTRY INTERNATIONAL, LTD., REPRESENTING THE NATIONAL BROILER COUNCIL AND THE NATIONAL TURKEY FEDERATION
Mr. ANTHONY. Thank you, Congressman Pickering, Mr. Chairman and members of the committee, I appreciate the opportunity of being here this morning. We in the poultry industry express appreciation for being able to share our views on this very important round of negotiations that we are approaching for Asia and for the Pacific Rim, extremely important.
I am chairman of American Poultry International in Jackson, MS, but I have been asked today to speak on behalf of the National Turkey Federation as well as the National Broiler Council. It is my privilege to speak today on this subject that you are considering, because this is the area, the focus of my life for the last 30, 40 years, that being international trade. I am happy to be here.
To give you a little better perspective of where I come from, API is a Mississippi exporting company, exporting meats and particularly chicken, catfish and other items, but we are also an export management company that currently manages American Poultry USA Inc. which is a Webb-Pomerene exporting association and one that is very much involved in international markets around the world, as well as in the Asia and the Pacific Rim markets. We are pleased to be here.
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These two organizations work very close together. All of the owners of APUSA are members of the National Broiler Council and the Turkey Federation, and these organizations, put together, represent about 90 percent of the production of broilers in the United States. As the foreign or export markets have grown, and currently it is 18 percent for broilers, 18 percent of the total production of broilers is exported, and 11 percent of all the turkeys produced and marketed is for export, that compares to 5 years ago where the broiler export was only 6 percent of its production for the industry and turkey was only 4 percent.
Asia is of tremendous importance to the poultry industry. It will recover from the current economic flu, we believe, and when it does, we think that the future is very bright for not only poultry but for all of agriculture. Last year the United States exported about three-quarters of a billion dollars worth of poultry to the Far East, down a little now, but we are confident that it will come back.
While Asia is not the No. 1 market for poultry today—Russia holds that position—we believe that Asia has the very definite potential to be the No. 1 and to be by far the largest market for the production of broilers and turkeys from the United States. We have very little more to give away in the way of concessions, tariff concessions, et cetera, as an industry and as agriculture, so we believe it very important that we use and confront unfair trade practices with all the direct action that we possibly can muster to offset unfair trade advantages that are still being used to a great degree by our foreign competition.
We are gratified that the Secretary just recently reinstituted the Export Enhancement Program. We believe that that is a tool that can be used as leverage to help get the attention of our competition around the world and to help bring them into line as far as removal of unfair trade restraint. I particularly liked his message when he said, ''Erect unfair trade barriers and expect consequences.'' I hope that he means that, because without being adversarial, it is important that we be very, very strong in our negotiations. The 20,000 tons of export enhancement that is going to the Middle East very soon will help. I can imagine what we are going to hear from the Europeans when the reaction comes back from them.
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We believe, also, that this area of phytosanitary restrictions on trade is something that must be borne down on very hard. We are pleased that the Secretary has established what he has termed a senior level steering group that will deal with this. It appears that it might have some real strength and depth. Time will tell. But that is an area that most of the countries, the potential markets, do a great job of stonewalling. It needs a great deal of forceful attention we hope that it will get. The next round of negotiations cannot continue to tolerate these invisible stonewalls based on—the stonewalling that is not based on science but based primarily and totally on protectionism.
Ninety-six percent, Mr. Chairman, you indicated earlier, in another approach, but 96 percent of the consumers of the world are outside the United States. It is extremely important that this committee and this industry work very hard in the upcoming rounds. We stand ready to help and to do what we can to give assistance for the successful round. Thank you.
[The prepared statement of Mr. Anthony appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman very much. We will stand with him in that respect.
Mr. John Long is chairman of the American Oilseed Coalition. Mr. Long, welcome.
STATEMENT OF JOHN LONG, CHAIRMAN, AMERICAN OILSEED COALITION
Mr. LONG. Thank you, Mr. Chairman. I certainly appreciate this opportunity to appear before you today, and very much appreciate the leadership and the focus that you and your committee are putting here on international trade.
I am a farmer from South Carolina. I produce soybeans, cotton, wheat, corn and beef cattle. Today I am appearing before you on behalf of the American Oilseed Coalition, or AOC, which includes both producer and processor organizations representing soybeans, canola, sunflower and cottonseed. The value of U.S. oilseed, oil and meal production exceeds $31 billion annually, and exports have reached the $10 billion mark. Continued growth for our industry depends on our continued ability to export.
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Since the conclusion of the Uruguay Round, the AOC has been promoting the level playing field initiative, or LPF. The LPF simply calls for the elimination of all barriers to trade in oilseeds and oilseed products globally. The momentum behind the LPF was given a boost in November 1997 when the APEC ministers approved oilseeds and oilseed products as one of the 15 sectors for eventual trade liberalization. A commitment to liberalization by APEC members would certainly help to launch the LPF as one of the key initiatives in the 1999 negotiations.
The agenda for the 1999 negotiations on agriculture should model the Uruguay Round agreement. That is, market access, export subsidies, and domestic support.
In the area of market access, we need to continue to bring down tariffs and open up markets. Negotiations on tariffs should follow the formula approach. As a general rule, this approach worked well with the Uruguay Round and would be worthwhile to pursue in 1999. However, in the case of prohibitive 200 to 300 percent tariffs, we may want to consider negotiating a maximum tariff rate.
Export subsidies were significantly reduced in the Uruguay Round. Our objective in the 1999 negotiations should be to continue the reductions, and we would urge the United States to set as its objective elimination of export subsidies by the end of the implementation period of the next WTO round.
In the area of domestic support, perhaps the most significant goal for the 1999 negotiations could be protecting the integrity of the so-called Green Box, that is, the rules for determining which domestic support policies are not trade distorting and are therefore exempt from the reduction commitments. In our view, the Green Box is sufficiently large to allow for environmental, social or other policies as long as they are not tied to production.
Other issues that will be important for the U.S. oilseed industry in the 1999 negotiations are the agreement on sanitary and phytosanitary measures, rules for trade in agricultural products containing genetically modified organisms, the treatment of developing countries, and reform of antidumping measures.
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With respect to products containing genetically modified organisms, the lack of internationally accepted scientific standards or guidelines hampers the effectiveness of the SPS agreement and other WTO rules. An early start to a discussion of the GMO issue is needed to ensure that the international trade rules for GMOs are set by the WTO and not by environmental treaties or agreements such as the U.N. Biosafety Protocol.
As part of the process of negotiating reforms in other countries, we must be willing to accept additional reforms in U.S. policies. For instance, this may include further reductions in the U.S. soybean oil tariff.
In our view, global trade liberalization for oilseed products can only be achieved through the WTO process, and China needs to be a part of that process. We also firmly believe that to be successful for U.S. agriculture, the 1999 negotiations should not be limited to agriculture and one or two other sectors but should cover all sectors.
We live in a global economy where sectors and countries are interconnected. We cannot isolate some from others, either countries or sectors, and still achieve our objective of global trade liberalization.
In the last few years, we have seen progress in some countries in reducing government support in the oilseed sector. An agreement on the LPF initiative in the 1999 negotiations would consolidate the progress we have made to date and level the playing field for the U.S. oilseed industry in the global market.
However, before we begin the 1999 negotiations, we must pass fast track. Without fast track, we are severely handicapped, and the United States will eventually forfeit its leadership roles in world trade and in the WTO. We urge the Congress and the administration to get together and pass fast track legislation as soon as possible.
In conclusion, Mr. Chairman, I would simply say we have Freedom to Farm. To make that work we need freedom to export. Thank you again. I will be glad to respond to questions at the appropriate time.
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[The prepared statement of Mr. Long appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much for an excellent statement. I am pleased that you raised genetically modified organisms as an issue for the 1999 review, because it is essential to not only expediency of product but of also to environmentalists who ought to be supporting GMOs and are opposing them. It is such a mystery to me in Europe how the Green Party opposes GMOs, which means that you are going to use more of the things they detest on the ground than you would with using GMOs. Anyway, we need to get to that. It is an educational issue for sure. Thank you, Mr. Long.
Mr. Ewing is going to introduce Mr. Wolf.
Mr. EWING. Thank you, Mr. Chairman.
Terry, welcome to Washington again. It is good to see you here. It is a real pleasure for me to introduce Terry Wolf, who is here today on behalf of the U.S. Feed Grains Council. Terry is a corn and soybean farmer from central Illinois, the 15th district of Illinois, Homer, IL, where if it quits raining we are going to put things in the ground and not grow them in the sack. I am sure you would second that. I hope all your crops are in before you came out here or at least all your corn is in before you came out here. Welcome, Terry. Thank you for the good work you are doing on behalf of the corn and soybean producers in America.
STATEMENT OF TERRY WOLF, REPRESENTING THE U.S. FEED GRAINS COUNCIL
Mr. WOLF. Thank you very much. By the way, the corn is up, Tom. I would like to thank you all for the opportunity to testify here today on behalf of the U.S. Feed Grains Council.
This private, nonprofit corporation brings together over 100 producer groups and agribusinesses to invest, with government, in global export market development. With operations in 80 countries, the Council is the only organization developing export markets specifically for U.S. corn, sorghum and barley.
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Based on strategic assessments, we concentrate most of our program in Asia, where the Council has 37 years of hands-on expertise. Last year the top three U.S. export markets for corn were Japan, Taiwan and Korea. Our customers there bought 1 billion bushels of U.S. corn, equivalent of the Nebraska crop, plus 42 percent of the U.S. sorghum exports and 36 percent of the U.S. barley exports.
We see Asia continuing as the largest and most promising region for exports of U.S. feed grains. The large population base, long-term potential for continued economic growth and shifts in consumer food preferences will generate opportunities for all U.S. agriculture exports, even though exceptionally high economic growth rates may cool off somewhat.
Further advances in trade negotiations are critical to achieving these markets. The Uruguay trade agreement has already brought significant advantages to U.S. producers. With the WTO, global agriculture trade achieved at least some discipline. Now we have some rules and a forum for creating new rules.
We are seeing practical benefits. As countries meet WTO commitments to reduce trade barriers, U.S. grain producers have growing sales and developing export opportunities where they didn't exist before. Countries like Morocco, Tunisia, Korea and the Philippines are buying more U.S. grains, and markets like Pakistan and India are progressing towards purchases.
I want to make it clear that we are not complaining about the WTO. We are saying we need for it to do more. The progress made in the Uruguay Round did not solve all the problems, and new barriers have arisen since 1994.
As new trade talks begin, the Council recommends that the U.S. agricultural agenda focus on four areas: improving market access, reducing domestic supports, eliminating export subsidies, and creating international standards for sanitary and phytosanitary measures.
Market access is our largest constraint in Asia, where some tariffs range from 50 to 100 percent on field grains and co-products. Dramatically reducing tariffs could help markets like the Philippines move from current corn imports of 20 million bushels to purchases of over 60 million bushels per year. This is ultimately a win-win situation, more exports for U.S. producers and better diets for Philippine consumers.
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Tariff rate quotas need to reflect true consumption needs. Some Asian countries have TRQs too small to allow their grain users to import grains economically. Additional tariff-free access must be granted. Competitive feed products need equal or similar tariffs. Some Asian countries with high tariffs on imported corn also have very low tariffs on other grains and substitute commodities.
In Japan and in Korea, negotiators need to look at channeling rules that require grains to follow very specific channels to be imported. Any corn imported outside of that system is taxed at a prohibitive level. Another problem is the application of domestic value-added taxes to imported feed grains. The WTO's national treatment provision requires importing countries to treat imports the same as domestic products. Some Asian countries impose value-added taxes equally on domestic grains and imports, then give unofficial rebates to end users to buy domestic grains.
We need to end export subsidies. The Council recommends the complete abolition of export subsidies by 2000 as an up-front commitment to continue progress in this area. I would like to note that the Cairns group of agriculture exporters has also called for their abolition.
We must also look at domestic procurement policies which act as de facto export subsidies. At least two Asian countries have exported grains at prices below their cost of production. Currently this kind of export subsidy is not subject to reduction commitments under the WTO.
Another Asian problem is the use of quasi-governmental state trading enterprises to market grain, another de facto export subsidy that operates by pooling prices, cross-subsidizing commodities, and long-term supply arrangements. These mechanisms are not addressed by the current WTO agreement on export subsidies.
I am submitting for the record the Council's policy on state trading enterprises and on the People's Republic of China's accession to the WTO.
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[The letter appears at the conclusion of the hearing.]
Mr. WOLF. Our third concern is the need to restrict internal support measures. The last round of trade negotiations failed to define reduction commitments effectively for domestic support measures.
Many Asian countries still encourage self-sufficiency in production, discouraging imports and ignoring economic realities. The result is grain production where it would not occur without Federal Treasury payments. Trade talks need to examine more carefully what constitutes a domestic support measure. The list of Green Box allowable subsidies needs to be reduced.
Further, by encouraging excess domestic production, government procurement policies also produce periodic export dumping. In more and more cases, subsidies intended to assist domestic producers are distorting export markets in which the United States competes.
Finally, the negotiations need to harmonize sanitary and phytosanitary standards. When the WTO provided for countries to restrict market access to protect human, animal or plant life based on scientific principles, it did not establish any system for agreeing on those principles. The international regulations that exist today are not automatically accepted in WTO disputes. The result is the growth of phytosanitary barriers that are actually designed to prevent trade. United States feed grains exports face these barriers on a daily basis.
The next WTO agreement should provide for establishing harmonized health standards for agriculture that are similar to the harmonized standards other industries enjoy. The Council advocates the use of CODEX, OIE, and IPPC as the accepted international standard setting organizations for human, animal and plant health, respectively.
The SPS committee in Geneva has begun its initial reform process this year. The Council has commented on the SPS process and looks forward to quick implementation of steps to expedite the standard setting and dispute settlement mandate of that committee.
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We believe the WTO system has accentuated the positives and negatives in different agricultural systems. When Brussels announces restitution awards, it affects Brazilian and U.S. barley prices faster than before. Beijing's procurement price for Chinese corn affects the Chicago Board of Trade quicker than ever. While this system has succeeded in reducing export impediments, it has also accentuated the need for immediate policy reform in additional areas.
We have gained dramatically from the WTO's trade liberalization. But with access and opportunities we never had before and a need to rely on the marketplace that we haven't seen in over 60 years, U.S. producers now see more clearly how international policies on market access, export subsidies, internal supports and phytosanitary regulations are producing serious trade distortions in agriculture.
The Uruguay Round did not produce comprehensive agricultural reform despite its advances. Now we need prompt, thorough agricultural reform in the new trade negotiations.
Thank you very much.
[The prepared statement of Mr. Wolf appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much for a good statement.
Especially, Mr. Long and Mr. Wolf, I would only point out Mr. Stenholm and I as well as several Senators have just written a letter of May 8 to the President pointing out that nontariff barriers like not adopting agricultural biotechnology will cost us $200 million this year. We asked the President to raise this question on May 18 with the United States-European Union summit as well as the upcoming G–8 summit which will be held shortly. We hope we have this on his front page as he addresses world leaders.
Our committee was just in Europe, and I might report to you that we were in Bonn, Berlin, Brussels and Paris, stressing the use of GMOs especially and their tariff barriers to our products. I called them isolationists. They didn't like that much. But they are close to it. We pointed out to them that frankly, why don't you allow the consumer to make the choice as to the question of biotechnology, agricultural biotechnology.
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We will discuss with them labeling, but we raised the issue that in the United Kingdom they have identified tomato paste with these words, ''made under process using modern biotechnology.'' The report was that after that was identified, it made no difference in the sales of tomato paste. In fact, tomato paste sales went up.
So we are suggesting to them some sort of an agreement that we might raise with them on this question of biotechnology programs, where we could agree that it would not be negative and then let the buyer determine. Let the consumer determine which product that he or she wants from the store and get the government out of the business.
Mr. Stenholm, do you have any questions?
Mr. STENHOLM. Each of you talked considerably about the sanitary and phytosanitary nontariff trade barriers which keep raising their head to be a terrific burden for our products moving out. We experience some of the same things here in the United States.
Do you believe that in the current rules and regulations that have been negotiated there are ample ways to deal with this, or does this need to be on the table for the next WTO round in a substantive way? Do we already have the rules and regulations in place, and it is just that we are not following them because of the political implications? Or do we really need to put this on the table?
Mr. WOLF. I think we need to put it on the table and address it, because it has really popped up in the last few years and it has become the new barrier, so we need to really address it effectively. We have had problems with corn, with giant ragweed in Poland, just one example. They have been over here many times. It is just one thing that we can't deal with under the current rules. We need to address it. It is a growing problem.
Mr. LONG. Thank you, Congressman Stenholm. I certainly agree with that statement. You know, I think when these initial rules were developed, GMOs weren't even on the playing field. They were on the horizon and we knew about them but they weren't in the marketplace. Certainly that has changed everything under the SPS agreements from our viewpoint, particularly in the soybean industry. I think it needs to be on the table.
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There is coming up a triennial review of the SPS agreement. I think Mr. Wolf mentioned it. That would probably be a good time for us to try to introduce something regarding the GMO issue so it can begin to be discussed, and by the time we get to the WTO negotiation, it would have already been introduced in some form.
Mr. HARDIN. Mr. Stenholm, I think I would like to make a little differentiation here with the first criterion and a number of other things that stayed off the table in the last round. There are some real dangers for us. I would strongly endorse ways to tighten up the dispute resolution system. I think we are in a process where we are still figuring out how we come to closure on the science.
I would highlight one case that we are in the midst of with the European Community right now on their asking us to accept some animal health rules that we are not comfortable with. Yet I will point out that, hog cholera being one of the issues, that we supported imports of pork from Sonora, Mexico, because it met sound science.
There are a number of forces both in this country and around the world that would like to see the SPS agreement opened up to make it an even greater barrier. Whatever we do in this area has to be done with great discretion.
Mr. ANTHONY. I would agree generally that this is an area that probably there has been the least amount of progress in as far as the world trade agreements are concerned. Whether the rules are there to solve it or not, they are not working. We need an in-depth analysis and a look-see at why they are not working and a further effort to try to assure that they work, because I believe this to be the major or the biggest obstacle to a level trading field. And the poultry industry is certainly suffering from that in the European Union now.
Mr. WOLF. Regarding GMOs, I think when we go through this round, we have to be foresighted enough to visualize what it is going to look like in 5 and 10 years, because we see major changes coming with GMOs in corn alone. It is going to change the whole dynamics of the industry and the world market. So we can't look at where we are at today. We have to look at where we are going to be.
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Mr. HARDIN. Mr. Stenholm, if I might just add as a corn and soybean raiser as well as a pork producer, again we need to differentiate between the science-based aspects of are these products safe and whether or not the current rules are sufficient to do that, but whether or not what follows on and how we settle these disputes and how quickly people come to the table and agree on the science are very serious issues for the future.
Mr. STENHOLM. That is very true. We are also now domestically involved in the implementation of the Food Quality Protection Act in much the same environment that we are discussing internationally. It is absolutely imperative that you and the associations and producers that you work with engage with consumers. Whether it is GMOs or agriculture technology in general, some have a mind set that we can produce in abundance food to feed the world without technology. It cannot be done, yet there are those that sincerely believe it can be done.
If we allow this discussion to go on in a vacuum, without listening to the consuming side in meaningful ways, we are going to have domestic and international problems.
Mr. Chairman, a moment ago you made a correct observation that we have the leadership on the House minority opposed to fast track, while the majority is opposed to IMF. We have a difficult time getting a majority of the House Agriculture Committee to agree with the general direction that you have brought here today. Therefore, we have a tremendous educational opportunity to answer these questions so that we might domestically address our problems, and so that we will have a little more credibility internationally. We have got a real challenge.
The CHAIRMAN. So true. Just one comment, gentlemen. In trying to deal with in this case of the EU on GMOs, I think we have got to be sensitive to what they are going through. As you may know, they don't trust their governments and they don't trust science. So it is hard to find some kind of common denominator with them since neither one seems to be reliable to them.
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The situation is simply that when they see genetically modified organisms, after living through BSE and going through that trauma, they just are wild in their opposition. So we have got to understand where they are coming from so that our position can be positive, recognizing their political situation. That is why I come back to this question of the consumer, because if you don't trust the government and you can't trust science, let's trust the consumer and give the consumer the right kind of information. Hopefully we can work through language that can satisfy the Europeans, identifying biotechnology as we did in tomato paste or some other way that will allow them politically to withdraw from their opposition to Round-up ready soybeans, BT corn and later many, many other opportunities.
Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman, and thank you to the panel for your discussion. I think we are all on the same page and singing the same song. Your support for fast track and IMF are very important. Your groups are very important in helping us achieve those goals. We have to continue to work at that.
It is my understanding that while the negotiations in the next round will begin in 1999, we really don't have any idea of when those might be concluded, when we might have all the improvements that all of us would like to see in our trade policy. The only question I would have is, do you have any particular advice that would be easy for us in this committee to support and follow in the interim period when we are going to have to try and make agriculture profitable for American farmers and ranchers? Any of you?
Mr. HARDIN. I can respond first of all, without a stable monetary system we are really in trouble, so obviously hopefully we can move forward on IMF. I know how difficult that is for you.
And having listened to the responses of the first panel, and having spent an inordinate amount of time in Geneva in 1991 and 1993, I guess I would also allow for the comment in addition to the market promotion funds, that foreign market development funds are often an extension for both the Feed Grains Council and the U.S. Meat Export Federation, and they are often used as extenders of U.S. Government employees. I remember going in to see the Minister of Agriculture in Japan. At MEF, we followed in the Danish Ambassador. It is really important that we give the Foreign Agricultural Service the tools to do their job however they can, while we are basically fighting the guerilla tactics now, waiting on the battle plan for the next big war.
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Certainly those are two issues that are very critical in my mind.
Mr. ANTHONY. Mr. Ewing, I believe that we must immediately pass fast track. The IMF needs attention badly. These are immediate things that will save us in the interim. And the market development programs and market access programs that have been funded at nominal amounts certainly need to be continued for the short term. These aren't necessarily long terms but they get us to a long-term solution, in my judgment.
Mr. LONG. I could only agree with that, Mr. Ewing, and point out that those along with several other factors are outlined in the letter that the chairman, Mr. Smith, entered into the record at the beginning of the hearing, and certainly hope everybody will look at that. If we can get support on all those issues, that will help us quite a bit.
Mr. WOLF. I would just like to echo some comments that were made earlier in the first panel. I think farmers in general are very enthused about Freedom to Farm, the opportunities that presents. I think the key things that we need are support with research and market development. The research has been a tough road. I think the foreign market development has been a real challenge. I think these are small investments in light of the money that we are replacing in subsidies. We really need to focus on improving those so we can be competitive.
Mr. EWING. Thank you. I yield back my time.
The CHAIRMAN. Thank you. Just one addition to that point, Mr. Wolf. Mr. Stenholm has made the point earlier that the Freedom to Farm bill was a contract with agriculture to move away from subsidies and to free up the choices of farmers to plant and produce anything they desired. Yet farmers are not capable of producing markets.
Farmers, therefore, need assistance. That is why we have really pushed trade, international trade, because that is our responsibility. It is not our responsibility, as we passed in the FAIR Act, to support farm decisions and farm commodities. It is our responsibility to expand international trade. That is why we are all agreeing that that is the emphasis of this committee and this country, as it should be.
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Mr. Stenholm, do you have any final comments?
Mr. STENHOLM. In the research bill we have a wonderful opportunity. The Senate will take the agricultural research bill to the floor. It will pass overwhelmingly. The Chairman is going to make the supreme effort to get it up here, hopefully early this week. But all of us in agriculture need to contact the leadership of the House to ask that the bill be promptly considered.
For the first time in my legislative career we have a substantial amount of money, $1.8 billion budgeted for nutrition, of which $1.2 billion will be directed to production agriculture uses. Agriculture research will help us with the GMO questions, crop insurance and the Fund for Rural America will give us some of the tools we need to maintain competitiveness in a nonsubsidized agriculture. It is being overlooked by some that this is a coalition of consumer and producer groups that are behind this legislation. So I would hope that all of agriculture would talk to those who may have differing views of this legislation. This bill must pass the House and Senate, and go to the President for his signature.
The CHAIRMAN. I thank the gentleman. That will be the last word. Thank you, gentlemen, very much. It has been helpful and informative. Thanks for your continued assistance. This hearing is adjourned.
[Whereupon, at 12:20 p.m., the committee was adjourned, subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Testimony of B.M. ''Bob'' Anthony
Good morning. U.S. poultry producers/processors and exporters appreciate the opportunity to share our views with you on the critical international trade issue of the next round of multilateral trade negotiations (MTNs) and the role Asia and the Pacific will play in these talks.
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I am Bob Anthony, chairman of American Poultry International, Ltd. I have been asked to speak on behalf of the National Turkey Federation and the National Broiler Council. It is my privilege to be here today to represent a part of agribusiness that has been my career for 40 years and much of that time international marketing has been the focus of my work responsibilities.
To help you better understand my perspective permit me to very briefly explain my organization. American Poultry International, Ltd. (API) is a Mississippi exporting company, exporting frozen meats, predominantly frozen poultry and some catfish. Further, API is an export management company, now under contract to manage the business of American Poultry U.S.A. Inc. (APUSA), a Webb-Pomerene exporting association. APUSA is owned by 17 major broiler and turkey producing companies throughout the Southeastern United States. We market throughout the world, including the Asian countries. All of the owners of APUSA are also members of the National Broiler Council or the National Turkey Federation.
The two associations, National Turkey Federation and National Broiler Council, represent companies that produce and process over 90 percent of the poultry in the United States. As the export market share for U.S. poultry has grown, now at 18 percent of total broiler sales and 11 percent for turkey sales, both associations have become more active in international trade issues. As recent as 5 years ago exports accounted for 6 percent of broiler marketings and 4 percent for turkeys. So, we are especially pleased to provide our input today.
Asia is of tremendous importance to U.S. poultry exporters and, after the region recovers from its ''economic flu,'' should become even more important in the future. Last year the United States exported poultry and eggs valued at $726 million to Asia, a decrease of 7 percent from the 1996 level. For the first 2 months of 1998, U.S. poultry and eggs exports to Asia are off more than 30 percent.
Although Asia is not currently the largest market for U.S. poultry exports, it clearly has in the long-run the greatest potential to become the largest. Even with the economic downturn in the region, Asia was the second largest export market for broilers and turkeys. With last year's loss of the $50 million European Union market, it is doubly important that we restore the Asian market to full health as soon as possible and that other markets expand as fully as possible.
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If any negotiations are to be fruitful, each side must have something to give in return for something desired. As a result of the previous round of MTNs, U.S. agricultural import duties were significantly reduced. The United States has little more to offer in the way of greater access to our markets. Thus, one of the few remaining points of leverage is to confront unfair trade practices with direct actions that will help offset unfair advantages used by our foreign competitors.
It was gratifying last week when Secretary of Agriculture Dan Glickman announced that USDA will begin using the Export Enhancement Program (EEP) to indemnify U.S. exporters for lost sales due to specific injurious trade barriers. The first initiative in reactivating the EEP is for the sale of broilers to the Middle East. Secretary Glickman said the U.S. poultry exporters have lost sales due to the lack of a veterinary equivalency agreement with the European Union (EU). We like the Secretary's message: ''erect unfair trade barriers, expect consequences.'' We understand the program will first be used to support the sale of about 20,000 metric tons of broiler exports to markets in the Middle East. The product would be whole birds. The EU is a major supplier of whole broilers to the Middle East, having displaced U.S. poultry in that market through the use of export subsidies.
As the Secretary explained, the EEP is a critical tool in the U.S. trade arsenal and one that should be used in more creative ways. One creative plan announced by the Secretary would allow USDA to use EEP funds to insure exporters against losses when selling to a market where there is a high risk the cargo could be rejected because of a dispute over quality standards. Such a program could reassure ''nervous exporters'' who move into markets that now are considered untouchable because they pose too great a risk of rejection due to strict or unpredictable import requirements.
As I noted, broiler exporters are pleased. At the same time, I believe it is fair to note that turkey producers and exporters are sustaining economic hardships and suffering from unfair market barriers erected by the European Union and the international trade practices a number of other trading partners. The turkey industry gratefully acknowledges the domestic initiatives USDA has undertaken to offset the loss of the EU market, but it is our sincere hope that as USDA moves more commodities through the interagency approval process for EEP that turkey products also will be given full consideration and approval.
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An active and aggressive export enhancement program will give other members of the World Trade Organization a strong reason to come to the negotiating table to discuss in good faith how to create a more open and fair trading environment for agriculture and food around the world.
We were also pleased last week to see U.S. Trade Representative Charlene Barshefsky and Secretary Dan Glickman form a senior-level steering group to address foreign sanitary and phytosanitary (SPS) trade issues that unfairly restrict U.S. agricultural exports. This steering group will have representatives from USTR, USDA, and Food and Drug Administration, the Environmental Protection Agency, and the Department of State. The group will coordinate broad policy guidance on priority foreign SPS measures that are inconsistent with the World trade Organization Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) and have substantial policy and trade implications for U.S. agricultural exports.
As this committee is aware, certain members of the WTO are unfortunately stone-walling their reductions in import duties and quotas with ''invisible'' SPS requirements. Many countries, as a result of the last round, have replaced much of their import barriers with a system of import tariffs. The next round of negotiations cannot continue to tolerate these invisible stonewalls that are not based on science, but on outright protectionism. One of the greatest challenges for the next round of MTNs will be to have countries agree to fixed and significant reductions in these tariffs. Despite the challenge, these reductions must be a top priority.
More than 96 percent of the world's consumers are outside our borders and we are willing and able to provide them with U.S. poultry products. The new farm act fosters a favorable environment for greater market-orientation and flexibility for crop producers. An improved global trading game on a more level playing field will permit the new farm act to truly succeed.
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It is critically important, we believe, for the administration and the Congress to recommit their support for programs that will ensure the viability and competitiveness of U.S. agriculture. Steps that can be taken to boost agricultural exports, including poultry and other major commodities are as follows:
Fast track trade negotiating authority should be approved by Congress in 1998
Legislation to replenish the International Monetary Fund should be immediately passed by the Congress
At least $30 million should be appropriated for the Foreign Market Development Program to allow continued operation at the current level
Funding to allow the Market Access Program to operate at its current level of $90 million should be approved
A budget baseline for the Export Enhancement Program should be supported by both the administration and Congress and unused funds should be shifted to other WTO-legal export promotion programs
These actions are supported by U.S. agriculture almost unanimously across the board because they are fundamental to success in the export arena.
USDA's Economic Research Service has projected that U.S. broiler exports in the year 2007 will be 53 percent greater than in 1997 and turkey exports 50 percent in the year 2007 than there were last year. These projections assume access for foreign markets will improve over the next decade. We are optimistic that the next round of MTNs can be successful and lead to an improved trading environment. In fact, given the opportunity, we believe we can prove the USDA projections to be modest. U.S. poultry producers have an impressive track record of efficiency and competitiveness. This solid record gives us confidence that as trade barriers are reduced and access to foreign markets is increased, we will continue to bolster the U.S. agricultural economy and contribute to an improved balance of payments. These achievements cannot, however, be gained without this committee's leadership and support.
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Mr. Chairman, U.S. poultry producers/processors and exporters appreciate the opportunity to share our thoughts and recommendations with you and your committee. We look forward to working with you and other government officials to help make the next round of multi-lateral trade negotiations as successful as possible, especially for the important and increasingly important region of Asia and the Pacific. With this committee's leadership and continued support we can expand our markets with stable relationships founded on consistent, fair rules of trade. We know the task may be lengthy and may be more difficult than previous rounds of multilateral trade negotiations. Nonetheless, with your help we are anxious to get started on this path.
Testimony of Tommy Funk
Mr. Chairman, thank you for the opportunity to testify before this committee today on the World Trade Organization and trade issues in the Asia and Pacific region. I am Tommy Funk, a cotton producer from Harlingen, Texas. I am a past President of the National Cotton Council, a member of the Federal Agricultural Policy Advisory Committee, and a member of the Council's Policy Advisory Committee on Trade.
Trade and US Cotton. International trade and the treaties that govern it are extremely important to U.S. cotton. The United States exports between 6 to 8 million bales annually, about 40 percent of annual cotton production. Our domestic textile industry serves as the market for about 11 1/2 million bales, or 60 percent of annual production. But that industry must compete with the equivalent of 8 million bales of cotton textile imports—or almost 50 percent of our domestic textile market.
Carefully crafted trade agreements can be of benefit to our industry. The Uruguay Round agreement forced a lot of adjustment by our raw cotton and particularly our textile sectors. But we are adapting. It is our hope that a new round of negotiations under the WTO will give our industry greater market access and the ability to combat unfair trade practices of our competitors.
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Cotton is an industrial raw product. As such, our international markets are linked not only to the agricultural policies of our competitors, but also to their textile and apparel policies. WTO agreements on agriculture and on textiles and apparel are equally important to the future of our industry.
As an industry, we are committed to finding new markets through trade negotiations and new trading arrangements. The U.S. cotton industry has benefited significantly from the North American Free Trade Agreement. Imports of cotton textiles from the NAFTA/Caribbean region are surging and tending to blunt growth in textile imports from China and the Far East. Approximately 80 percent of the cotton textiles imported into the United States from the NAFTA/CBI region are of U.S. origin, compared to only 20 percent of cotton textiles imported from the Far East.
We know that carefully crafted trade agreements can result in increased consumption of U.S. cotton, cottonseed, cotton textiles and their products.
Cotton farmers cannot afford to be cautious in their approach to international trade and new market opportunities. With the passage of the 1996 farm bill, government support was decoupled and phased down. So, more than ever before, cropping decisions turn on profitability expectations for alternative crops. The spread between the expected selling price and the cost of production and how much capital must be put at risk to obtain the expected return are the primary factors motivating planting decisions. Selling cotton and cotton textiles into international markets is one of the more important ways to generate the necessary demand to increase margins for U.S. cotton.
Mr. Chairman, we have a lot to lose if we fail to move forward with trade agreements:
we will be edged out in important markets if we cannot get their first with the best product and the best value; and
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we put our technological advances and investment at risk if we cannot ensure trade in genetically modified agricultural products will be governed by fair standards.
The U.S. fiber and textile industries can best combat imports by convincing other textile-producing countries to provide trade reciprocity by opening their markets to U.S. cotton textile exports; by developing international trading rules that prevent the use of subsidies and other policies to distort international trade in textiles; and by entering into regional trade agreements that improve competitiveness.
The cotton industry supports fast-track authority, not as a means to obtain free-trade conditions, but rather as a means to enable our government to enter into trade agreements that will benefit the long-term economic health of the U.S. cotton industry—from cotton producer to textile manufacturer. Our experience with NAFTA and our view of the developing economies worldwide convinces us we must be aggressive in obtaining beneficial trade agreements.
I can quickly summarize our overall trade policy goals and primary concerns within the WTO context:
1. We must maintain or grow export markets for raw cotton. The WTO negotiations should lead to greater market access, should help protect our industry from artificial market disruptions and, due to the demand generated by liberalized trading rules, help maintain domestic production of cotton.
2. When the Uruguay Round mandated phaseout of the multi-fiber arrangement is complete, the U.S. textile industry must be fully competitive with imported products. In other words, our textile industry must be extremely efficient.
3. The countries that compete with us, particularly those that ship us that 8 million bales worth of textiles, must once and for all open their markets to textile competition.
4. Regional trade arrangements offer great potential to enhance U.S. textile competitiveness and the use and demand for U.S. produced cotton.
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5. We have to deal with the trade policies of the People's Republic of China—they are causing havoc for the U.S. cotton industry; and
6. It is very important that countries that have made cotton and textile policies a fundamental part of their national economic policy not be given a free ride in the WTO negotiations.
Focus on Asia. The Asia and Pacific region is of great significance to the U.S. cotton industry. Countries such as South Korea, Hong Kong, Indonesia, Japan and Taiwan are major purchasers of U.S. raw cotton. Those countries, joined by India and Pakistan also compete in our textile and apparel market with domestic manufacturers. And China can be a major customer, but is always a major competitor.
Most of these countries are considered to be developing countries and have been given special treatment under the WTO. And most of these countries are heavily involved in their cotton and textile trade policies, dictating rules of trade in order to ensure their textile and apparel manufacturing is competitive in the U.S. market.
Before I list our overall WTO priorities in more detail, I would like to review a few immediate concerns we have in Asia.
As you know, the People's Republic of China has been seeking admission to the WTO for sometime now and we have closely monitored those negotiations. The terms of any WTO accession agreement between the United States and China will have a tremendous impact on the future of the United States cotton and cotton textile industries.
It is our understanding China has not made any meaningful offers on market access for raw cotton. In fact, China has recently instituted new and restrictive limits on raw cotton imports.
China's recent policy actions leave us questioning how serious they are about WTO admission or whether they believe they will not have to make significant policy reforms to gain membership.
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Among its recent actions:
China has made available for export (either through sale or barter arrangements) approximately 1.4 million bales of cotton at prices that are below its cost.
China announced restrictions on raw cotton imports three times during the last year, demonstrating clearly its intent to restrict market access.
China has announced reductions in the purchase price for mills to purchase cotton produced in the Xinjiang province (the cotton had already been purchased from producers, therefore, any reduction in price results in losses that are borne by the central government).
China has announced a program to refund the 13 percent value-added-tax (VAT) mills pay on cotton produced in the Xinjiang province.
China's Tax Bureau has reportedly increased the tax rebate for textile exports from 9 percent to 11 percent (this rebate is only available on textile exports, not on textiles used domestically).
Since 1997, China has kept its domestic cotton price well in excess of world price (and even U.S. price) levels, encouraging domestic production in the face of burgeoning stock levels.
These actions demonstrate a complete lack of discipline over agricultural subsidies and programs. China followed a course that caused a huge growth in stocks and is now subsidizing the export of those stocks, depressing markets and costing U.S. growers millions of dollars.
The fundamental problem in China is that it completely controls its cotton economy and directly links that sector to textile production and textile exports. That tie and that control must be removed. Their cotton and textile economy must move to the market. Any agreement that falls short of that will send shockwaves through the U.S. cotton and textile industry.
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China does not want to provide real market access for our cotton and they certainly do not want to face textile competition within their borders. In earlier correspondence with the Trade Representative's Office we outlined our goals for the WTO negotiations as follows:
ensure that China alters its economy significantly, moving from a centrally-planned non-market economy to an economy based more on free-market principles;
ensure that China provides real market access for cotton textile imports at reasonable tariff levels;
seek unrestricted access for raw cotton exports into China with such access being shared in a meaningful manner with non-state trading enterprises;
ensure that China brings its agricultural policies into conformity with the Uruguay Round Agricultural Agreement and otherwise institutes free market reforms in agriculture;
work to improve substantially the protection of intellectual property rights in China, particularly the rights of cotton textile manufacturing concerns in patterns, fabric, designs and trademarks;
ensure that China adopts a transparent trading scheme, eliminating non-tariff trade barriers and agreeing to comply with international sanitary and phytosanitary standards;
ensure that China adopts a harmonized and open trading regime for all oilseeds (including palm);
Ensure that China will:comply fully with trade agreements to which it is a signatory, including textile agreements; adhere to the provisions of the WTO concerning export subsidization and dumping; and abandon its export performance-linked trade and investment laws;
Ensure that terms of trade in China more closely resemble normal commercial practices, including having a truly and freely convertible currency, having access to a court system in order to settle disputes, adopting international banking standards, comporting with standard export payment practices and procedures and participating in international dispute settlement agreements, such as those providing for arbitration of disputes involving shipments of raw cotton; and include in any agreement a special product-sector safeguard provision outside the general safeguard mechanisms of the WTO which permits countries to act to restrain imports from the PRC in certain situations.
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Properly negotiated, a WTO agreement would limit China's ability to carry out the level of agricultural and value-added subsidization they are apparently willing to do in order to draw down their cotton stocks and keep their textile mills competitive in world markets. It should be noted that despite China's attempts to lower the cost of their domestically-produced fiber, world prices have fallen even faster. The government's attempts to implement effective policy have been hampered substantially.
Cotton has double duty to pull in China. The link between cotton and textile policy in China is central to a successful negotiation for NCC. Also, polyester production has skyrocketed in China as the government is trying to find a more stable source of fiber for its mills. U.S. negotiators, both at USTR and at the Department of Agriculture are aware of the importance of the negotiations to U.S. cotton and our fundamental positions.
The Council supports the administration's request to replenish the borrowing authority for the International Monetary Fund. Agriculture has a lot at stake in this crisis. I don't know the ins and outs of all of the debate over IMF. I do know that Asia buys over $25 billion of U.S. agricultural products every year—including 2.5 million bales of cotton, not counting China. If they can't afford to buy our products, their financial crisis will turn into our financial crisis. IMF funds and economic conditions on those funds can go a long way toward stabilizing the suspect Asian economies. This assistance will enable these countries to utilize our GSM 102 credit guarantees. Without it, our exports will go down.
Mr. Chairman, the recent actions of the U.S. Department of Agriculture in responding to the Asian financial crisis will pay significant dividends to the U.S. agricultural sector. The early announcement of significant export credit guarantee allocations to the Asian region, along with the excellent follow-up by the Foreign Agricultural Service in the crucial markets, have helped make U.S. agricultural exports the most competitive product available in many of those markets. Our competitors are working to catch up.
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The Department's prompt, decisive action has put us ahead of the curve. We applaud their actions, but must stress the importance of continuing what has been started. Some of these countries are having a more difficult time than others in getting their economic situation turned around. We have recommended additional incentives under the export guarantee program in order to ensure the crisis there does not injure our producers to a significant degree. These changes include 100 percent guarantees in some markets, relaxation of fees and renewed emphasis on a supplier credit program.
Objectives for WTO 1999. We did not get a bad deal in the Uruguay Round, but we need more. We must work again to level the playing field. If we are to survive with decreased government assistance and liberalized markets, we must force our competitors to give just as much.
Mr. Chairman, I suspect that the U.S. level of support for domestic agriculture is well below our Uruguay Round imposed caps. I further suspect not every other signatory has chosen to unilaterally contribute quite as much to the full liberalization of agriculture as has the United States. At least one goal of this round must be to ensure those that signed onto the Uruguay Round have complied with its provisions. Those that did not sign on should get no advantages from having waited to discipline their agricultural sector.
Cotton's other objectives for a new round of trade negotiations include:
Competitors should be required to further discipline domestic and export subsidies for agriculture; Countries must grant meaningful market access for raw cotton, cottonseed oil, meal and cotton textiles. We must be cautious in evaluating market access proposals. It is becoming apparent that to China, for example, market access means buying world-priced cotton but restricting its use to textile processing strictly for export. That is not true market access. Countries such as India offer great market potential for U.S. textile exports, if we could only force open their market. Mr. Chairman, these countries insist on wide-open access to the U.S. textile market, but manage to faithfully avoid reciprocity.
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Countries must provide transparency and workable rules governing their trade policy. These should include the adoption of standard commercial practices (such as arbitration, standards for letters of credit and other common terms of trade), as well as meaningful access to real courts.
China must be made to reform its economic structure before it can obtain the benefits of the WTO.
Our competitors must be forced to break the link between fiber and textile and apparel capacity and national policy objectives—this includes achieving disciplines on state trading enterprises. Many of these countries have used the cloak of their developing country status to shield themselves from compliance with international trading standards. Mr. Chairman, these countries export textile and apparel products to the United States in excess of $25 billion annually. We cannot allow them to have special and differential treatment under international rules when they are so competitive in our market.
Our negotiators need to make more progress on phytosanitary issues and on real protection for intellectual property.
It is critically important that we develop a science-based, timely approval process for trade in genetically modified organisms. These products offer true hope for a modern, highly productive yet environmentally sensitive agriculture—but countries that ought to know better have opposed their introduction without any scientific basis. If the WTO is to be worth the effort, it must grapple with and solve this major impediment to modern agriculture.
Mr. Chairman, I have briefly relayed to you why trade is important to us; our philosophy that we must get ever more aggressive in our approach to trade; and our concerns with China and our WTO objectives.
I want to conclude by giving you a status report about the U.S. cotton producer. Now that prices have fallen—and they are as low now as they have been in quite sometime—the U.S. cotton producer has discovered his Federal safety net is laid on the ground—not suspended above it. Financing was very, very tough this year across the cotton belt. Next year, it could be non-existent for a stunningly high percentage of cotton farmers.
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Prices are below costs. Financing is disappearing. And cotton producers are getting desperate. I urge the members of this committee to work together to move forward on some very important initiatives that will help producers cope with these hard times.
We need a strong agricultural research bill this year, along with the additional funding for research that has been included in the Conference Report. We also need to ensure that yet another tool to help farmers, the Marketing Assistance Program, is not taken away at a time producers need export promotion the most.
Additional funding for the International Monetary Fund, which could keep us from losing crucial Asian markets, should be approved. We leave it to your discretion whether changes in the IMF need to be made, but quite frankly, those changes are not as important to farmers as the red ink that is starting to pour over their balance sheets. Finally, we need to see aggressive progress on trade agreements and on trade bills like CBI parity legislation. Fast track authority will help provide that progress.
With the FAIR Act, we made a fundamental change in our agricultural economics. To make that change work, there must be all out efforts in research, in trade, in marketing, in risk management and in regulatory reform.
From my perspective—from what I hear on the turnrow—cotton producers are not seeing the effort or results they believe they need. They are seeing their funds being devoted to other projects—worthwhile projects to be sure—but not projects that can directly help relieve the financial bind occurring in rural America.
Mr. Chairman, I truly appreciate the opportunity to appear before you today and I am glad you are holding this hearing. I urge this committee to push agriculture's agenda—kick up some dust. We can avoid another farm crisis by being imaginative and aggressive now.
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Statement of Mark Dunn
Good morning Mr. Chairman and members of the committee. My name is Mark Dunn. I am the director of governmental affairs for J.R. Simplot Company, a potato processing company in Boise, Idaho. I am here today representing the American Potato Trade Alliance or APTA.
APTA is a coalition of the three main sectors of the U.S. potato industry including:
(1) U.S. potato growers represented by the National Potato Council and several state grower and industry commissions; (2) major U.S. potato processor companies, including J.R. Simplot, Lamb-Weston, McCain Foods and Nestle's which companies process and export frozen french fries and other processed potato products; and (3) U.S. Quick Service Restaurant chains, such as McDonalds, Tricon (Pizza Hut, Taco Bell and Kentucky Fried Chicken), which restaurant chains are major purchasers of U.S. frozen fries domestically and in export markets.
APTA was created in June 1997 as a cooperative effort among these U.S. potato industry sectors to address market access issues affecting U.S. exports of frozen french fries and other processed potato products. Through this effort of combining resources and competitive pressures, APTA could be more effective than the individual sectors in:
(1) achieving more immediate reductions in trade barriers for U.S. french fries and other processed potato exports;
(2) encouraging the improvement of foreign infrastructure affecting sales of U.S potato products; and
(3) impacting legislation and trade policy issues that affect U.S. processed potato products.
As an immediate goal, APTA members are seeking reductions in tariffs and other market access barriers in the important Asian Pacific markets of China, Indonesia, the Philippines and Thailand, and in Mexico and India. These markets are considered some of our industry's most promising growth markets for U.S. frozen potato exports, and except for India, are members of the 18 countries in the Asia-Pacific Economic Cooperation or APEC group.
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Although the focus of my comments today is on APTA's goal of achieving tariff reductions in the Asia-Pacific countries through the APEC tariff liberalization initiative, through the 1999 multilateral agricultural negotiations, and through other available forums, the U.S. potato industry's interests in multilateral reform expand well beyond this. Two other issues are the need for more transparency under the Uruguay Round sanitary and phytosanitary agreement and our industry's long-standing concerns over global market access constraints and subsidies.
In the area of sanitary and phytosanitary (SPS) issues, we have seen that many countries are moving all too slowly to undertake required risk assessments and pest risk analyses to justify their SPS constraint measures and that such countries are reluctant in the interim to adopt internationally recognized standards that would open the market for trade. We are hopeful that greater transparency and clarity in defining a country's obligations to support their SPS measures with science, including the establishment of reasonable, clear time limits for completing risk assessments, can be achieved in the 1999 round.
We would also like to see additional reductions in various domestic subsidies, which have not been green-boxed under the last round.
For APTA, the 1999 round of multilateral trade negotiations in agriculture is only one step in a series of trade negotiating opportunities that together can achieve the tariff reductions and market liberalization we are seeking in key Asian Pacific countries. We caution the administration not to wait for the 1999 exercise, but to pursue aggressively ongoing market liberalization opportunities for frozen potato products through APEC tariff liberalization, through WTO accession negotiations with China, and through WTO dispute settlement with India over balance of payment restrictions.
In APEC, we urge the U.S. Government to vigorously support processed foods as a sector for early voluntary tariff elimination among the APEC countries and to include processed potato products in any U.S. government-backed proposal. APEC countries last year purchased nearly 80 percent of all U.S. frozen processed potatos, which accounted for 1.5 billion pounds of potatos grown by U.S. farmers or an estimated 10 percent of the U.S. crop. Most APEC countries—including the priority economies of China, Indonesia, Thailand and the Philippines—continue to have high tariffs, which particularly prejudice our high-quality, premium-priced U.S. potato products. For example, both Thailand and China impose import tariffs and taxes which, when combined, exceed 85 percent of the FOB price—essentially doubling the price of U.S. fries before even taking into account shipping costs. Reduction of these tariffs would significantly increase U.S. exports to the benefit of U.S. farmers, processors and Quick Service Restaurants that continue to expand in these areas. Such reductions would undoubtedly benefit consumers too, especially in Thailand where consumer incomes are depressed resulting from Asia's recent economic downturn. While we understand that any tariff reductions undertaken by the APEC countries outside the multilateral forum will likely have to be done on a most-favored-nation basis and offered to all WTO members, even those outside APEC, we believe that the volume of U.S. exports to these APEC markets is so substantial that even with free riders U.S. french fry exports will benefit. However, while we vigorously support early (that is before 1999) APEC tariff liberalization, we also realize the benefit of an APEC agreement as the basis for a larger multilateral tariff agreement undertaken and completed as part of the 1999 exercise.
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WTO accession negotiations with China, and dispute settlement procedures against India's balance of payment restrictions, offer two other opportunities prior to 1999 to achieve tariff liberalization in two of APTA's priority countries (( China and India. On multiple occasions, APTA and other U.S. potato industry groups have made representations to USTR and USDA requesting that frozen potato products be considered priority items for tariff reductions in the context of China's WTO accession. China's 25 percent tariff on frozen potato products and 17 percent value-added tax, which tax is applied twice on frozen potato imports, are significant barriers to trade in China. We are anxious to learn what China's next tariff offer on potato products will be, and we urge the U.S. Government to stand strong in its commitment to achieve a reduction to 10 percent or below.
The WTO dispute settlement case against India's balance of payment (BOP) import licensing restrictions may offer an opportunity not only to achieve elimination of India's restrictive import licenses, but also to negotiate tariff reductions. We have made this point to USTR and USDA. If tariff concessions are negotiated with India as part of or following the dispute settlement case, we urge that frozen processed potato products be included.
In short, progress in these regional and bilateral settings, could ensure more rapid progress in tariff reductions, market access, and phytosanitary and sanitary areas than can be achieved in the 1999 multilateral negotiating process. If the Uruguay Round is any indication of the resistance we face, it is clear that sectoral and smaller bilateral and regional agreements will be needed to establish a core of support before WTO member countries, and developing countries in particular, agree to further liberalization in the area of agriculture. Accordingly, we ask this committee for its help in urging USTR and USDA to aggressively use these upcoming forums leading up to the 1999 exercise to achieve tariff reductions and market access liberalization for potato products in our priority markets.
Finally, as we push for Asian Pacific cost reductions through trade negotiations, we also encourage continued domestic cost cutting. We urge the House to promptly enact S. 414, the Senate passed bill, to make some needed reforms in ocean shipping practices which would be a good first step in putting us on a more equal footing with our competitors. A United States Department of Agriculture study determined that current practices increase our ocean shipping costs by 18 percent.
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Statement of John Hardin
Chairman Smith, members of the committee, my name is John Hardin. I am here on behalf of the National Pork Producers Council, a national association representing 44 affiliated States that annually generate approximately $11 billion in farm gate sales. On behalf of NPPC, let me say how pleased we are that this committee has made the 1999 WTO negotiations—and Asia-Pacific trade in particular—a priority for 1998. Notwithstanding the uncertainty caused by the current economic crisis in Asia, for pork, the Asia-Pacific region has tremendous long-term potential. In fact, in 1997, five of the top ten export markets for U.S. pork were in Asia. Asian countries are the most populous in the world, and pork is their meat of choice. This is why we believe that the committee should devote a substantial amount of time to resolving trade issues with countries in this region.
It might be helpful to start out by giving you an update on the current state of our industry. According to a 1997 Iowa State University study conducted by Otto and Lawrence, the U.S. pork industry supports an estimated 600,000 domestic jobs and generates more than $64 billion annually in total economic activity. U.S. pork producers consume 1.065 billion bushels of corn annually, valued at $2.558 billion. Feed supplements and additives represent another $2.522 billion of purchased inputs from U.S. suppliers that help support U.S. soybean prices, the U.S. soybean industry, local elevators and transportation services based in rural areas. In short, pork helps maintain a strong U.S. agricultural economy.
From the standpoint of exports, pork is even more valuable to the U.S. economy. In the first year after the Uruguay Round Agreement was implemented, worldwide U.S. pork exports increased by approximately 45 percent in volume terms and 75 percent in value terms from 1994 levels. Measured over the period 1990 to 1996, the export value of U.S. pork increased by more than 210 percent. These increases were especially notable in Japan and Mexico, two nations with whom the United States successfully negotiated greater market access under the Uruguay Round and NAFTA, respectively.
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Recently compiled statistics for 1997 show that this trend is continuing. Figures for 1997 reflect an 11 percent increase in pork exports over 1996 in terms of volume, and a five percent increase in value terms.
Right now, the U.S. pork industry's production levels are skyrocketing. If we maintain this pace, the U.S. pork industry will slaughter a record 102 million hogs in 1998. Unfortunately, however, this record production, combined with weak export demand, has resulted in the plummeting of hog prices that is making it difficult for many producers to recover their costs. This situation makes us more heavily dependent on export trade than ever before.
The export focus of the U.S. pork industry is the main reason that NPPC, through the Ag Coalition for Fast Track, has been one of the most ardent supporters of renewal of fast track trade negotiating authority. The United States needs this authority to stay at the head of the trade negotiating table. The longer the United States goes without this authority, the more we will be precluded from taking an aggressive stance in the 1999 agriculture negotiations.
Notwithstanding the absence of fast track, I am happy to be able to report on a few success stories that the U.S. pork industry has had in working out trade issues with two key Asian trading partners, the Philippines and Taiwan. Through bilateral negotiations, Taiwan has agreed to lift its ban on U.S. pork exports, to immediately establish a ''downpayment'' in the form of an interim quota for U.S. pork only, and to eventually bring its tariffs to manageable levels in conjunction with its accession to the WTO. The United States also reached an agreement with the Philippines that requires this country to implement its Uruguay Round TRQ commitments, which it has long been resisting through various circumvention tactics.
I want to take this opportunity today to extend the thanks of U.S. pork producers to representatives Smith, Barrett, and Pombo, as well as Ambassador Barshefsky, Secretary Glickman, Special Ambassador for Agriculture Peter Scher, and Paul Drazek, Gus Schumacher, and Lon Hatamiya at USDA for their efforts in these matters. Although it is too soon to tell how significant the impact of these agreements will be, the U.S. industry is very optimistic that its exports to Taiwan and the Philippines will increase substantially as a result. Indeed, the number of inquiries from Taiwanese importers has increased dramatically since the signing of the agreement. Although there is still some uncertainty in these markets due to the financial turmoil in Asia, the long-term prospects for U.S. pork exports to both Taiwan and the Philippines are favorable. With respect to the Philippines, we believe that the further lowering of tariffs in the next WTO round will be necessary in allowing us to fully capitalize on the opportunities in the Philippines market.
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Right now, however, the highest priority on our agenda, by far, is China. China is the world's largest pork-consuming nation, accounting for approximately 50 percent of the total pork consumed annually in the world. In the view of the U.S. pork industry, the level of market access currently provided by China to U.S. pork exports (as well as beef and poultry) is unacceptable. High tariffs and an expensive value-added tax that discriminates against imports make access extremely difficult. These tariff barriers are exaggerated by China's complicated licensing regime.
As you know, the United States, through USDA and the USTR, has been working with China to ameliorate these problems through a number of reforms. In this context, China has lowered its pork tariffs to almost half their previous levels. In addition, China has undertaken a one-year experimental program that certifies certain U.S. meat establishments to export to two qualified Chinese importers. However, these reforms, and the pilot program, in particular, are not working. Only a minimal amount of trade has resulted since they were implemented.
The U.S. pork industry has identified specific changes that could lead to more meaningful market access in China, and we seek the help of the United States government in pursuing these changes. First, despite China's initial effort to lower tariffs in 1997, these tariffs are still excessively high and impede trade. Therefore, we ask that China lower its meat tariffs to single-digit levels and eliminate the discriminatory value-added tax. Second, China must move to a system-wide certification of all USDA-approved meat establishments. The U.S. pork industry believes that it has demonstrated to Chinese quarantine officials that the HAACP inspection system is safe and that our rules are uniformly enforced. Thus, there is no science or health-based reason for China not to accept our pork.
All this being said, we recognize that China is not yet a WTO member. U.S. pork producers support China's accession to the WTO, but only if it makes major progress in opening its market to U.S. pork. In this regard, we believe that H.R. 1712—introduced by representatives Bereuter (R-NE) and Ewing (R-IL)—is a good way to encourage China's accession to the WTO. Through the use of snapback tariffs, the bill provides an effective remedy in the event that China fails to extend adequate trade benefits to U.S. goods or resists reforms needed to accede to the WTO.
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The last point that I will make regarding China is that the reforms we have proposed must be implemented together. Only through a combination of tariff and non-tariff-based measures will there be any meaningful improvement in the level of U.S. pork trade with China. Neither measure by itself is enough to achieve the meaningful market access that we seek.
Let me mention a few concerns that the U.S. pork industry has with its other trading partners in the Asia-Pacific region.
South Korea raises a particularly complex set of problems for U.S. pork exporters. This country has been a significant and growing market for U.S. pork exports for several years. Since the 1995 settlement of the section 301 case on pork sausages, and since Korea's implementation of its Uruguay Round commitments on pork, U.S. exports to Korea have exploded, increasing by approximately 500 percent in value terms during the period 1995–1997 compared to the preceding three-year period.
The position of U.S. pork exports in South Korea is quickly being eroded. Since the onset of the Asian financial crisis, U.S. exports to South Korea have come to a grinding halt. Although pork and beef combined received some assistance in the form of GSM export credit guarantees, this aid was not enough to keep U.S. pork flowing to South Korea. Unfortunately, pork exports from other countries appear poised to fill the gap.
Denmark, for example, has shipped substantial volumes of pork bellies to bonded warehouses in South Korea. Danish exporters are selling the bellies at very low prices (up to $600 a ton less than U.S. prices) and on favorable credit terms. The price of the Danish bellies and the financing offered by the Danes belie current market conditions in Korea. Moreover, the cost of producing pork in Denmark is significantly higher than the cost of producing pork in the United States, suggesting that Danish pork is being sold in South Korea at unfairly low prices. Additional volumes of dumped Danish pork in South Korea are expected. Further, rumors abound that the South Korean government soon will recertify the Netherlands for export. The Netherlands, which suffers from a serious outbreak of hog cholera, undoubtedly will sell pork at giveaway prices in order to buy market share. Like Denmark, the cost of producing pork in the Netherlands is significantly higher than the cost of producing pork in the United States. NPPC appreciates that the USTR recently has raised this issue with the Danes and we are hoping for a return to normal prices sometime in the near future.
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Our troubles in continuing to ship pork to Asian markets also are being exacerbated by certain policies of the South Korean government. It is our understanding that South Korea has targeted its pork sector for export to Japan. South Korean pork exports to Japan are increasing exponentially, taking away Japanese market share from U.S. exports, as the USDA's Economic Research Service already has recognized. To make matters worse, we also believe that South Korean pork in Japan is not being origin-marked in accordance with Japanese law. Moreover, it is our understanding that ''fresh chilled'' South Korean pork exports to Japan are being frozen and thawed once they arrive in Japan.
These practices are troubling. Japan consistently has been the leading export market for U.S. pork, and even so, market access has been hindered due to the uncertainty created by Japan's pork import safeguard. As a result of South Korea's entry into the market, a crisis is now looming for the U.S. pork industry in Japan.
Fortunately, in the specific context of the 1999 WTO negotiations, the solution for U.S. pork in South Korea is simple: tariffs must be further lowered from their current levels. It is important to recognize, however, that any progress at the WTO will be inconsequential unless South Korea's economic problems, including the unfair pricing of imported pork, are addressed and its targeting of pork exports to Japan is curtailed.
With respect to Vietnam, the U.S. pork industry has great interest in exporting to this market, and demand is growing for virtually all categories of pork. The Vietnamese government, however, is hostile to pork imports, and virtually no pork is imported. Tariffs are high and import licenses, which are a prerequisite for importing pork, are very difficult to obtain. State trading enterprises complicate this problem.
In the context of ongoing bilateral negotiations with Vietnam, the United States has requested significant reductions in the tariffs on both fresh and frozen pork and processed meats. Although we support this effort, like the situation with China, tariff reforms alone are not enough. Progress must be made in making customs regulations more transparent and in eliminating non-tariff impediments to market access. The United States has an ideal opportunity to address these issues in the context of the ongoing discussions on Vietnam's MFN status. Before according Vietnam preferential tariff benefits, the United States should force Vietnam to make commitments to reduce, and eventually eliminate, these market access problems.
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We are having similar problems in Thailand. Like other countries in Asia, Thailand is a huge pork-consuming nation, but extremely high tariffs (53 percent ad valorem) on pork imports have precluded the importation of pork from the United States. The effect of the tariffs is exacerbated by a ''license fee'' applied to pork on a per kilogram basis as well as an 11 percent value-added tax. These conditions leave little room for progress in Thailand vis-a-vis U.S. pork exports. We ask that the United States make every effort to address them in the 1999 WTO negotiations.
Finally, we ask your help in addressing market access problems with Australia. Australia essentially maintains a de facto ban on U.S. pork, allegedly to control for the transmission of certain animal diseases. Yet there is no scientific basis underlying Australia's concerns. For example, Australia claims that imported pork potentially could transmit pseudorabies virus—or PRV—to domestic livestock. PRV, however, is transmitted through contact with positive live hogs rather than through pork. In fact, Canada, which is PRV-free and a large pork-producing and exporting nation, does not attach any appreciable risk of PRV transmissibility to domestic livestock from imported pork.
Given Australia's leading role in the Cairns group, its behavior toward pork imports is disturbing. Australia's reliance on these types of unjustified scientific barriers suggests that they are politically rather than scientifically motivated. As such, they contravene Australia's Uruguay Round commitments to follow sound scientific principles. These practices are coming at the expense of the U.S. pork industry, which is losing market share to imports from Canada and Denmark. At the same time, Australia is following the lead of South Korea and increasing its pork exports to various Asian markets. Again, it is the U.S. pork industry that is being harmed as a result. Australia's barriers to U.S. pork must be addressed in ongoing bilateral negotiations with Australia and through the WTO negotiating process. As an outspoken advocate of free trade in agriculture, Australia should be called on to set a better example.
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Mr. Chairman, as you can see, the Asia-Pacific trade agenda for domestic pork producers is an ambitious one. Given the long-term potential of Asian markets, and given the U.S. pork industry's proven track record of capitalizing on export opportunities, we believe our agenda merits the full attention of this committee and the United States government. We greatly appreciate your help in keeping U.S. pork exports at the forefront of global trade in agriculture.
Statement of Elwood Kirkpatrick
Mr. Chairman and Members of the committee, I am Elwood Kirkpatrick, a dairy farmer from Michigan. I serve as chairman of the U.S. Dairy Export Council and first vice president of the National Milk Producers Federation.
The U.S. Dairy Export Council (USDEC) is an independent membership organization whose mission is to assist U.S. dairy product suppliers to increase the volume and value of their exports. Dairy Management Inc., the farmer-funded generic promotion and research group representing the national producer checkoff, created USDEC to strengthen export market development efforts. The Council offers a wide range of services and benefits to 100 percent of the nation's dairy farmers and companies processing well over 80 percent of the nation's milk.
The National Milk Producers Federation (NMPF) is the national farm commodity organization that represents dairy farmers and the dairy cooperative marketing associations they own and operate throughout the United States.
I appreciate the opportunity to testify before the committee on the subject of 1999 multilateral negotiations on agricultural trade, with a focus on trade between the United States and Asia. I previously testified before the committee concerning U.S.-EU trade issues. And, I commend the committee, and you, Mr. Chairman, for this hearing on the importance of more open trade in international markets.
The U.S. dairy industry is developing a global market orientation
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The United States is the world's largest single producer of cow's milk, with substantial potential to increase output to meet domestic and world customers on a consistent, year-around basis. Due to cost efficiencies on farms and in processing plants, the U.S. dairy industry is well positioned to out-compete most supplying nations.
The United States is late coming to the world dairy market, and the primary focus of the U.S. dairy industry continues to be the domestic market. Our focus is understandable in light of the strong demand for dairy products here in our own country. However, the long term economic well being of the U.S. dairy industry depends on our ability to supply domestic and international consumers consistently and effectively. Throughout the U.S. dairy industry there is an emerging recognition that we will progressively be selling to a global marketplace.
This trend can be seen in U.S. trade statistics. As a percentage of total world dairy exports, U.S. exports increased from 4.4 percent of world trade in 1990 to about 8 percent in recent years. Asian markets are very important to our future growth, as I will discuss in a few minutes.
If I may summarize from my testimony before the committee in March, the dairy industry has established goals for the next WTO round. These are: Ensure compliance with UR commitments; Seek elimination of export subsidies; Gain greater access for U.S. dairy products;
Impose greater transparency and stronger disciplines on state trading enterprises; Require elimination of internal agricultural supports in concert with the phase-out of U.S. supports.
With respect to future WTO negotiations, I want to emphasize the point made at the earlier hearing: the major limitation on the ability of U.S. dairy products to compete in world markets is our inability to match the heavily subsidized prices offered by the European Union. Reducing the use of dairy export subsidies by the EU and other countries must be a major priority in any new multilateral negotiations on agricultural trade. Other priorities include gaining further access to foreign dairy markets and reducing domestic government supports.
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Role of USDEC in facilitating dairy exports. Mr. Chairman, I want the committee to have a clear understanding of the efforts the dairy industry has undertaken to develop and maintain export markets.
The U.S. Dairy Export Council is a significant force in market development activities, conducting market research, providing trade support and market penetration assistance, developing trade leads, and directly facilitating trade between U.S. suppliers and foreign buyers.
To facilitate dairy export sales, USDEC operates eight country offices, including five in Asia. USDEC manages offices in Japan, Korea, Thailand and two in China (in Hong Kong and Shanghai). These offices provide trade leads, in-country market information, and on-site assistance to U.S. exporters encountering difficulties in rules, regulations and local customs.
Dairy farmers pay most of the funding for USDEC's efforts, from the 15-cent per hundredweight promotion check-off they pay. In 1998, this farmer-funded contribution to USDEC amounts to about $8 million dollars. Additional funding is generated through the membership fees paid by dairy cooperatives, processors, exporters, and companies who realize their business will grow as dairy exports increase.
While this funding is fundamental to USDEC's mission, the Federal funds received through the Market Access Program allow the farmers' dollars to stretch and reach deeper into foreign markets. I urge members of the Agriculture Committee to continue their support for the Market Access Program, and specifically to see that the program is properly funded, both in the budget resolution you will soon consider and, later, in the Agricultural appropriations bill.
Asian markets are important to the U.S. dairy industry. Asian markets are vitally important for future growth of the U.S. dairy industry: together with South America, Asian markets are very promising. Asian countries import about one-third of U.S. cheese exports, almost one-third of U.S. nonfat dry milk exports and more than half of our whey product exports,
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Japan and Korea are two of the fastest growing markets for U.S. cheese during the 1990's. U.S. sales to Japan almost tripled (from 2,367 metric tons in 1991, to 6,002 metric tons in 1997), while U.S. cheese sales to Korea skyrocketed, increasing from a minimal 227 metric tons in 1991 to 4,800 metric tons in 1997.
The United States and the European Union are the largest suppliers of whey and lactose, with each accounting for just less than one-third of world trade in each product. The U.S. share will increase while the EU share will decline. Sales to Asia will be important to bolster this trend. For whey, Asian countries are expected to represent 50 percent of world whey imports by the year 2000. Japan, the ASEAN nations and other Asian countries will represent 75 percent of lactose imports by the year 2000. In 1995, Japan alone accounted for more than 50 percent of the U.S. lactose exports.
IMF funding. The United States should not be shortsighted in dealing with the temporary financial problems of nations, such as Indonesia, that are major markets for U.S. agricultural products. In general, U.S. agricultural interests are best served by allowing the IMF to address the financial problems in Asian economies and protect the U.S. position in important and fast growing markets.
Frequently cited export statistics understate the importance of the Asian markets to U.S. agriculture. Asia is an important market for the entire U.S. agricultural industry and is the destination for about 40 percent of U.S. agricultural exports. Moreover, the Asian economies are interdependent. A serious crisis in Indonesia could translate into a crisis in South Korea, Malaysia, Japan, or elsewhere, and each of these countries represents a promising export market for U.S. agricultural goods.
For dairy products, the impact of a continued economic crisis will vary by product. Generally, higher value retail and foodservice products will be affected most significantly by the financial crisis.
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Both NMPF and USDEC strongly urge members of this committee, and members of the entire House of Representatives, to work closely with the administration to enact legislation to replenish the IMF and help stabilize the Asian economic situation.
Dairy Export Incentive Program (DEIP). The Dairy Export Incentive Program (DEIP) is very important to U.S. dairy farmers as they increasingly work to develop export markets to keep the dairy industry stable and strong. Maximum use of DEIP is necessary for market development in the face of the massive presence of subsidized European products.
While the U.S. Department of Agriculture has generally operated the DEIP effectively in the past, a modification to the program is necessary at this time, and the Department has made it. I was very pleased to learn on May 7 that Secretary Glickman had announced that 30,000 additional metric tons of DEIP shipments would be available to the dairy industry. This volume is available currently because it was reported to the WTO as exported, but never left the United States. This action will mean an additional $50 million of dairy export sales, according to the Department's estimates.
This action is critical because dairy farmers are facing a situation wherein there would be no DEIP tonnage available for nonfat dry milk exports for the remaining months in the current GATT year ending June 30, 1998. The United States cannot build a world reputation as a reliable supplier if the DEIP is shut down for months at a time.
This action by the Department is timely because the EU is ignoring the implicit year-by-year phase down limits agreed to in the WTO, while the United States has held to informal annual limits on DEIP exports. Even though the dairy industry has not asked for reprogramming of unused DEIP program authority—a ''carry over''—USDA officials have been concerned about what the EU might do if the United States took any steps toward exceeding an informal annual limit.
That concern should have evaporated on April 28, when the EU released its long-overdue report on export subsidy use during the year ending June 30, 1997. That report shows that the EU has substantially exceeded its annual export subsidy limitations for beef and wine by 10 percent, by 40 percent for rice exports, and has specifically justified the excess by reference to carry-over. The EU has repeatedly and unequivocally stated that it will exceed the annual limits whenever necessary.
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I want to point out that the Department's action is completely consistent with the Report language written by this committee to accompany passage of the 1996 Farm Bill, expressing the intent of Congress that the DEIP be fully utilized consistent with WTO commitments. Again, I thank the committee for its oversight and leadership.
Developing new markets in Asia. USDEC has been interested in finding new avenues to introduce U.S. dairy products to Asian consumers and food industries. Last year, USDEC agreed to work with a private voluntary organization interested in undertaking a project in Indonesia. A component of this project involved the local sale of about 1,500 metric tons of nonfat dry milk to a milk processor. The milk powder would be made available through USDA's Food for Progress program. The project would allow direct contact between a U.S. supplier and end-user in Indonesia, outside the DEIP program. These are exactly the types of business relationships USDEC is attempting to foster, to prepare the U.S. dairy industry for market competition in the future. We were hopeful that a successful project in Indonesia would be a template for other projects in other countries, or to be replicated in Indonesia. With the deepening financial problems in Indonesia, we were encouraged that USDA would approve this project.
We were extremely disappointed to see the project proposal rejected. Worse, even today we have no clear explanation as to why the project was unacceptable. With the administration's rhetoric encouraging the dairy industry to develop business in the hard-hit Asian economies, and in Indonesia specifically, it is difficult to believe that our country target was wrong. The Indonesian milk plant had agreed to pay the cost of transporting the milk, removing one obstacle. Our requests for a definitive explanation have gone unanswered.
State Trading Enterprises. One of the dairy industry's objectives for the next WTO round of negotiations is to impose greater transparency and stronger disciplines on state trading enterprises (STEs). State trading enterprises—government firms and private firms to which governments grant exclusive privileges to import or export products—have many opportunities to engage in activities that distort international markets. Import STEs often impose barriers to market access. Export STEs can provide de facto subsidies to export sales and create barriers to market access by other countries.
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It is important that the next round of WTO negotiations in agriculture address the need to provide greater transparency regarding the operations of agricultural STEs. It is also important to achieve effective WTO rules and disciplines to ensure that state trading does not distort international trade to the detriment of U.S. exporters of dairy and other agricultural products.
This objective is not just directed at the New Zealand Dairy Board. The Canadian Dairy Commission (CDC) is another important export STE. Import STE's that are important in world dairy markets include Mexico's CONASUPO and Japan's Agriculture and Livestock Industries Corporation (ALIC).
The US dairy industry is interested in transparency and accountability—to be able to monitor and quantify the degree of market interference stemming from monopoly powers, and to minimize that interference over time. We are hopeful that WTO rules will limit abuses by import STEs.
China WTO Accession. China is a major potential market for a variety of agricultural products, including dairy. There are indications that earnest negotiations leading to China's WTO accession may be underway, after much delay, and could show progress by the time President Clinton visits China next month.
We in the dairy industry are cautiously optimistic that China will offer reasonable concessions on dairy products. The U.S. dairy industry is seeking final bound tariff levels of no more than 10 percent for dairy products, particularly cheese and ice cream, in these negotiations. However, significant gaps still remain between the United States and Chinese tariff negotiating positions for some of these products. It is important that China show additional flexibility in its accession package for dairy products.
China is one of the import target markets identified by a newly formed, broad based coalition of companies interested in achieving additional access for U.S. dairy products through trade policy efforts. The coalition, the American Dairy Trade Alliance (ADTA), comprises dairy industry organizations, dairy food manufacturing companies, multinational food service companies and related business interests.
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Monitoring WTO accession negotiations and bringing the dairy industry's views into those negotiations whenever possible will be one part of the coalition's strategy. A second approach will be creating opportunities for bilateral negotiations to address problems that limit access to important markets. The coalition is in the process of establishing a list of top priority countries and a workplan. We envision coordinated action by member companies and by the coalition acting as an entity, representing the entire dairy industry from cow to consumer. The specific ADTA objectives will vary by country, but the overall goal is to gain greater access to key foreign dairy product markets.
Mr. Chairman, Asian nations are good customers for U.S. dairy companies. The dairy industry is working diligently to develop better markets in those countries for U.S. products. Much of the effort is undertaken by the dairy industry but, as I have pointed out, there are many issues where U.S. government involvement is necessary for the industry to compete. At least until such time as world dairy markets are no longer distorted by the intervention of any government, the U.S. Government must remain a partner to our industry in its export development activities.
I appreciate the opportunity to testify and I will be happy to answer any questions the committee may have. Thank you.
Testimony of Dryden Spring
Mr. Chairman, my name is Sir Dryden Spring and I am the chairman of the New Zealand Dairy Board based in Wellington New Zealand. The Dairy Board is the chief exporter of dairy products from New Zealand. It is one of the leading exporters of dairy products in the world. I am accompanied by the Board's Chief Executive Officer Warren Larsen and External Policy Manager Fiona Cooper.
Importance of Trade Negotiations. We are delighted to be here today to follow up the very useful discussions we had in December when members of the House Agriculture Committee visited New Zealand. The subject of international trade negotiations is of vital importance to the Dairy Board given that exports—unsubsidised exports—are our reason for being. Trade negotiations are also a key matter for the wider New Zealand and U.S. economies. The foreign exchange earnings of both countries depend to a significant degree on agricultural exports. Both countries recognise that many trade barriers remain to be dealt with and we typically stand shoulder to shoulder in confronting them.
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The Uruguay Round Was a Good Start. By bringing agriculture within multilateral trade rules for the first time, the Uruguay Round made a good start in addressing trade barriers of concern to us. We welcomed the introduction of disciplines on export subsidies and the improvements in market access made in some countries. But we must look ahead.
But Severe Market Distortions Remain. Unfortunately a host of restrictions on international dairy trade still exist. In fact the dairy sector probably remains the most protected of all agricultural sectors in the international economy. The distortions are of such magnitude that it is difficult to talk of a world dairy market. Instead there is a series of markets each with its own regulatory regimes, often with prices well above those ruling elsewhere, protected from outside competition by restrictions on imports.
Consider the main features of dairy markets as we experience them daily around the world.
Export subsidies continue to be the dominant factor in setting the prices of products entering international markets. We face competitors who get more of their revenue from export subsidy payments than from their customers.
Access to many key markets continues to be impeded or blocked by high tariffs, small quotas and domestic content requirements to name a few barriers. And we face highly complex systems for administering those modest amounts of tariff quota access that are available.
Farmers in many countries continue to receive high levels of income support which inevitably increases the local price of milk and contributes to a siege mentality on the part of local producers, and many policy makers, in regard to imports. All too often, the surpluses generated by such policies are shipped to world markets with export subsidies in order to maintain a semblance of market balance at home.
NZDB Negotiating Objectives. No wonder then that the New Zealand Dairy Board considers that there is a great deal to be done in the next negotiating Round. We want to see substantial forward movement in all areas where restrictions remain. And we want to work closely with the U.S. dairy industry and the U.S. Government to achieve that objective. We will be more effective if we present a common approach to those who would seek to slow the pace of trade liberalisation or stop it altogether. We will continue to stay in touch with your dairy producer and processor leaders, to share information with them and to develop our policy thinking together in the lead up to the next agricultural Round. We are already working together fruitfully in the WTO Dispute Settlement Body in regard to Canada's special milk classes export subsidy programme.
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Our objectives for the next agricultural negotiations are, we think, very similar to those of your own dairy industry.
Market Access. For example we want significant improvements in market access. To do that, the process of tariffication must be taken to the next level. Not only do we want to see tariffs reduced across the board but very high peak tariffs must also be dealt with. Tariffs on dairy products of 200, 300 and even 500 percent are common. Depending on the reduction formula chosen in the next Round, it could be many years before trade could occur over those peak tariffs. That is why we favour the search for an agreement on a maximum tariff. In addition we want to see the expansion of tariff quota volumes as well as simpler more transparent methods of tariff quota administration.
Domestic Support. We also want to see a meaningful reduction in domestic subsidies to farmers. In this regard may I say that we admired the steps taken in the 1996 FAIR Act to phase out the dairy price support programme. That will do much to increase the international competitiveness of your dairy producers. It is the sort of policy that other Governments would do well to emulate if they want to strengthen their agricultural sectors and enable them to better compete at home and abroad.
State Trading Enterprises. The matter of State Trading Enterprises is now on the U.S. trade agenda and it is a subject of interest to us too. We agree that the rules on STEs could do with some strengthening and that greater transparency is desirable. We are working with you on these matters in the WTO Working Party on STEs in Geneva.
As a farmer co-operative with no government involvement, we have nothing to hide or to fear from greater transparency. Our STE label is a technicality. We are captured by the WTO definition of STEs purely by virtue of our legislative underpinning. That does not mean that we act in ways that distort markets. In fact we are entirely commercially driven.
But we are conscious that some STEs do not operate commercially and can distort markets as a result. The rules to prevent this could do with being tightened up. Lets work together on STEs but lets focus our energies where it is really needed—on those STEs which distort markets, principally in the import sector.
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Export Subsidies. Last but certainly not least, we want to see the elimination of export subsidies. An ambitious objective perhaps but nonetheless crucial for improving the prosperity of all whose livelihoods depend on trade. We admired the leadership the United States showed on this issue in the Uruguay Round. I regret to say, however, that since then we have had more reason to criticise than to admire what you have done with the Dairy Export Incentive Programme.
The DEIP. We are sorely disappointed at the decision taken last week by the administration, urged on by Members of Congress, to allow the rollover of significant DEIP volumes from previous years. This hurts in two ways—in practice and in principle. Obviously we will be hurt by competition from additional subsidised product from the United States. But there is also a wider issue involved. Since the Uruguay Round, New Zealand and the United States have stood together in opposing the desire of the Europeans to preserve the rollover option. Up till now, U.S. officials have firmly maintained that rollover is against the spirit, if not the letter, of the Agriculture Agreement. I am afraid that the reputation of the United States as a leading defender of the Uruguay Round subsidy disciplines, and as a leader in the crusade against export subsidies, is today rather less shiny for having taken this decision for the sake of short term expediency.
New Zealand Dairy Industry: Background. Agricultural products account for more than half of all New Zealand exports. The dairy industry alone earns one fifth of New Zealand's total export income. It is New Zealand's No. 1 export industry.
Our dairy industry is small by international standards but it is highly efficient and overwhelmingly export oriented. This year the New Zealand dairy industry will produce around 24 billion pounds of milk, close to 95 percent of which will be exported. In comparison U.S. milk production stands at around 156 billion pounds, only a small percentage of which will be exported.
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Our competitive advantage lies in our pasture-based dairy farms which produce milk seasonally rather than all year round. This is a low cost method of farming made possible because New Zealand has a temperate climate and good rainfall most of the year so that we usually need little in the way of supplementary feed. In effect we match grass growth with milk production.
We have a highly efficient co-operatively based manufacturing dairy sector comprising, at present, 11 independent dairy product manufacturing companies. That number is falling in light of ongoing industry rationalisation.
A key part of New Zealand's co-operative approach to milk production and marketing is the New Zealand Dairy Board. While some 5 percent of New Zealand milk is sold by the co-operatives in competition with each other on the domestic market, almost all the remainder is exported by the New Zealand Dairy Board.
The Dairy Board has a co-operative shareholding structure. Our 14,700 dairy farmers own shares in their co-operative dairy processing company in proportion to the amount of milk which they supply. Each co-operative in turn owns shares in the New Zealand Dairy Board in proportion to the amount of milk they put through the Board. Thus the Board is controlled and financed by the dairy farmers of New Zealand. The Board operates within a legal framework known as the Dairy Board Act (1961, as amended), set up by the New Zealand Parliament because of the importance of dairy exports to the New Zealand economy. But the Board is not run by the Government, nor does it receive any Government funding.
Although the Dairy Board has a unique structure, its operations are strictly commercial. The Board's mission is to maximise the sustainable income of New Zealand dairy farmers through excellence in the global marketing of New Zealand origin dairy products. Its commercial activities are funded directly and exclusively by the dairy farmers of New Zealand. The costs are paid for by the Board from its sales revenues before the disbursement of those revenues to the manufacturing dairy companies and, through them, to individual dairy farmers.
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There are no Government subsidies for the production of milk, the processing of milk or the export of dairy products from New Zealand. The price that farmers receive for their milk is completely market determined. It is a direct function of the value which can be obtained from the products made from their milk in the international market, less, of course, the costs of marketing, transportation, processing and milk collection. Because of variable prices on the international market milk prices to farmers tend to fluctuate sharply from year to year.
The domestic New Zealand market has no Government intervention and imports take place over very low tariffs (including zero tariffs for butter and cheese). The Dairy Board has no role in relation to dairy imports into New Zealand.
New Zealand - United States Trade in Dairy Products. I would also like to comment on New Zealand's trade with the United States in dairy products. This is characterised by the same dichotomy as New Zealand's dairy trade generally, namely, it is significant from New-Zealand's perspective but not nearly so substantial when viewed from the perspective of the consuming market. The United States market is mostly supplied from its own production, with the role of imports from New Zealand quite limited. In the 1990's exports to the United States account for about 10 percent by value of total New Zealand dairy exports. Total NZ exports to the United States in 1996 were 71,700 tonnes (worth U.S. $227 million) and 92,800 tonnes (worth U.S. $258 million) in 1997.
New Zealand's largest exports to the United States are casein, caseinates and other specialised milk protein products which are free of trade restrictions. We are the principal supplier of these products to the U.S. market. Cheese is also a major item but is under quota. Imports of cheese from New-Zealand represent just 0.6 percent of total United States cheese consumption. The remainder of our trade comprises relatively small volumes of butter and other products such as non fat dry milk.
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United States dairy exports to New Zealand are minimal. That is perhaps not surprising given the relatively small size of our market and the laws of competitive advantage—after all no one is surprised that New Zealand's trade in aircraft to the United States is zero! But the key thing is that our market is entirely open and the United States could export dairy products to New Zealand if it wanted to.
Working Together. The United States dairy industry had an inward focus for many years. This is not surprising as only a small percentage of its consumption comes from exports and a small percentage of its production goes to export markets. However with the reduction in direct Government support for the dairy industry, and in particular the removal of price support from the end of 1999, a more outward looking approach is being developed by dairy industry leaders. We welcome that development.
It is a fact of life that in some markets, New Zealand and the United States are competitors. In future there will be more competition between us. We do not shrink from that prospect. The flip side of the competition coin is that it helps to build a greater common interest between our respective industries. As exporters we share an interest in more open markets and in reducing distortions such as export subsidies.
New Zealand and the United States are already working together on trade issues of mutual interest. For example, at the behest of both dairy industries, our Governments are pursuing WTO action over the Canadian special classes scheme. We both believe it to be a thinly disguised export subsidy scheme.
My aim here today has been to set out the New Zealand Dairy Board's position on current and future international trade issues. There is much at stake in the next Round of agricultural negotiations. We all know that, to succeed, those negotiations will need the strong leadership of the United States. We are heartened by the strong positive attitude being shown by the U.S. dairy industry to the opportunities offered by those negotiations. We hope the Congress will be able to support the administration with the passage of fast-track legislation in the near future.
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I see the next trade round as an opportunity to strengthen the sense of partnership on policy issues between the New Zealand and United States dairy industries. Together we can work towards a future where trade restrictions are very much less than they are today.
Thank you Mr Chairman.
Statement of Terry Wolf
Mr. Chairman, and members of the committee, I am Terry Wolf, a corn and soybean producer from Illinois. Thank you for this opportunity to testify on behalf of the U.S. Feed Grains Council.
This private, non-profit corporation brings together over 100 producer groups and agribusinesses to invest, with government, in global export market development. With operations in 80 countries, the Council is the only organization developing export markets specifically for U.S. sorghum, corn, and barley.
Based on strategic assessments, we concentrate much of our program in Asia, where the Council has 37 years of hands-on expertise. Last year the top three U.S. export markets for corn were Japan, Taiwan and Korea. Our customers there bought 1 billion bushels of U.S. corn—the equivalent of Nebraska's entire crop—plus 42 percent of U.S. sorghum exports and 36 percent of U.S. barley exports.
We see Asia continuing as the largest, and most promising, region for exports of U.S. feed grains. The large population base, long-term potential for continued economic growth, and shifts in consumer food preferences will generate opportunities for all U.S. agricultural exports, even though exceptionally high economic growth rates cool off somewhat.
Further advances in trade negotiations are critical to achieving these markets.
The Uruguay trade agreement has already brought significant advantages to U.S. producers. With the WTO, global agricultural trade achieved at least some discipline—we now have some rules and a forum for creating new rules.
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And we're seeing practical benefits. As countries meet WTO commitments to reduce trade barriers, U.S. grain producers have growing sales and developing export opportunities where they didn't exist before—countries like Morocco, Tunisia, Korea and the Philippines are buying more U.S. grains and markets like Pakistan and India are progressing toward purchases.
I want to make it clear that we're not complaining about the WTO—we're saying we need for it to do more.
The progress made in the Uruguay round did not solve all trade problems—and new barriers have arisen since 1994.
As new trade talks begin, the Council recommends that the U.S. agricultural agenda focus on four areas: (1) improving market access, (2) reducing domestic supports, (3) eliminating export subsidies, and (4) creating international standards for sanitary and phytosanitary measures.
Market access is our largest constraint in Asia, where some tariffs range from 50 to 100 percent on feed grains and co-products. Dramatically reducing tariffs could help markets like the Philippines move from current corn imports of 20 mbu to purchases of over 60 mbu. This is ultimately a win-win situation—more exports for U.S. producers and better diets for Philippine consumers.
Tariff-rate quotas need to reflect true consumption needs. Some Asian countries have TRQ's too small to allow their grain users to import grains economically. Additional tariff-free access must be granted.
Competitive feed products need equal, or similar, tariffs. Some Asian countries with high tariffs on imported corn also have very low on other grains and substitutes.
In Japan and Korea, negotiators need to look at channeling rules that require grains to follow very specific channels to be imported. Any corn imported outside of that system is taxed at a prohibitive level.
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Another problem is the application of domestic value-added taxes to imported feed grains. The WTO's Anational treatment@ provision requires importing countries to treat imports the same as domestic products. Some Asian countries impose value-added taxes equally on domestic grains and imports, then give unofficial rebates to end-users who buy domestic grains.
We need to end export subsidies.
The Council recommends the complete abolition of export subsidies by the year 2000, as an up-front commitment to continue progress in this area. I'd like to note that the Cairns group of agricultural exporters has also called for their abolition.
We must also look at domestic procurement policies which act as de facto export subsidies. At least two Asian countries have exported grains at a price below their cost of production. Currently this kind of export subsidy is not subject to reduction commitments under the WTO.
Another Asian problem is the use of quasi-governmental State Trading Enterprises to market grain—another de facto export subsidy that operates by pooling prices, cross-subsidizing commodities, and long-term supply arrangements. These mechanisms are not addressed by the current WTO agreement on export subsidies.
I am submitting for the record the Council's policy on State Trading Enterprises and on the People's Republic of China's accession into the WTO.
Our third concern is the need to restrict internal support measures.
The last round of trade negotiations failed to define reduction commitments effectively for domestic support measures.
Many Asian countries still encourage self-sufficiency in production, discouraging imports and ignoring economic realities. The result is grain production where it would not occur without Federal treasury payments. Trade talks need to examine more carefully what constitutes a domestic support measure. The list of green box allowable subsidies needs to be reduced.
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Further, by encouraging excess domestic production, government procurement policies also produce periodic export dumping. In more and more cases, subsidies intended to assist domestic producers are distorting export markets in which the United States competes.
Finally, the negotiations need to harmonize sanitary and phytosanitary standards.
When the WTO provided for countries to restrict market access to protect human, animal or plant life based on scientific principles, it did not establish any system for agreeing on those principles. The international regulations that exist today are not automatically accepted in WTO disputes. The result is the growth of phytosanitary barriers that are actually designed to prevent trade. U.S. feed grains exports face these barriers on a daily basis.
The next WTO agreement should provide for establishing harmonized health standards for agriculture that are similar to the harmonized standards other industries enjoy. The Council advocates the use of CODEX, OIE, and IPPC as the accepted international standard setting organizations for human, animal, and plant health, respectively.
The SPS Committee in Geneva has begun its initial reform process this year. The Council has commented on the SPS process and looks forward to quick implementation of steps to expedite the standard setting and dispute settlement mandate of that committee.
We believe the WTO system has accentuated the positives and negatives in different agricultural systems. When Brussels announces restitution awards, it affects Brazilian and U.S. barley prices faster than before. Beijing's procurement price for Chinese corn affects the Chicago Board of Trade quicker than before.
While this system has succeeded in reducing export impediments, it has also accentuated the need for immediate policy reform in additional areas.
We have gained dramatically from the WTO's trade liberalization. But with access and opportunities we never had before—and a need to rely on the marketplace that we haven't seen in over 60 years—U.S. producers now see more clearly how international policies on market access, export subsidies, internal supports and phytosanitary regulations are producing serious trade distortions in agriculture.
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The Uruguay Round did not produce comprehensive agricultural reform, despite its advances. Now we need prompt, thorough agricultural reform in the new trade negotiations.
Statement of Dana R. Hauck
NCBA works closely with other meat industry organizations to address many trade issues and we commend the committee's continuing efforts to improve the export outlook for U.S. agricultural products. We are pleased that Chairman Smith and the committee are holding hearings regarding agricultural trade issues with Asia and the Pacific to be addressed in the 1999 round of World Trade Organization (WTO) multinational negotiations.
As indicated in testimony presented to this committee during its March 18, 1998, hearings expanding access to international markets is critical to the economic growth of U.S. agriculture. For our industry alone, 1997 beef exports accounted for approximately 8 percent of total U.S. production and 12 percent of beefs total wholesale value.
The beef export market in Asia and the Pacific is critical to continued health and well being of the U.S. beef industry. During 1997 nearly 60 percent of U.S. beef export tonnage and. 70 percent of the value of U.S. beef exports were sold in the Asian market. The economies in many of these important markets are currently caught up in the Asian financial crisis and are in varying degrees of economic duress ranging from recession to extreme depression. Establishing order and credit-worthiness in these markets is critical to maintaining short-term U.S. presence and establishing long-term trading relationships in these growing markets.
There is general agreement that future growth in trade and access to emerging markets is important to the future well being of U.S. agriculture. One of the underlying premises of the 1996 Freedom to Farm bill was that aggressive pursuit of growing export markets would be critical as part of the strategy to replace the safety net of traditional farm programs. Secretary Glickman has been quoted as saying, ''for American agriculture, it is export or die.''
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We appreciate the efforts of those members of this committee who worked hard to secure adoption of fast track negotiating authority to ensure the necessary tools were in place to achieve the goals set forth in Freedom to Farm. We look forward to working with the leadership of this committee to expand support among Members of Congress both on and off of the committee.
NCBA supports the WTO and free trade. Not in a starry-eyed, ideal-driven manner, but because cattlemen understand that the growth market for agricultural products is beyond U.S. borders. We need enforceable global trading rules that grant market access, settle disputes on the basis of science and reduce tariffs. Cattlemen, as do most Americans, expect to experience the rewards of winning when they are declared the winners, just as we are expected to be good losers.
A perception exists among many cattlemen that the U.S. does not have the will to retaliate or to demand enforcement subject to repercussions. Many are asking why the U.S. continues to participate in a system that does not provide a clear and prompt resolution to trade disputes. This growing loss of confidence, increasing distrust and dissatisfaction has resulted in declining grassroots support for trade and trade negotiations, in general.
TRADE-RELATED ACTIONS NEEDED
Demonstrate Leadership in 1999 WTO Negotiations: The 1999 negotiations must maintain and expand access in emerging agricultural markets. NCBA and other meat industry groups support the following specific points to be addressed during the 1999 round of WTO negotiations:
Assure that the EU is not successful in rolling back progress made during the previous GATT agreement.
Ensure that science remains the only method for resolving SPS issues and that issues like environment, labor and social issues (including the structure of agriculture) are addressed in side agreements separate from trade.
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Assure acceptance of scientifically approved safe technologies, most recently Genetically Modified Organisms (GMOs), but also including beef growth promotants and other technologies that enhance production efficiency or food safety.
Negotiate elimination of State Trading Entities (STEs) and increased access to wholesale and retail trade in importing countries (especially relevant in China, but this issue also applies to the Australian and Canadian Wheat Boards).
Negotiate reduction and eventual elimination of production-distorting price supports and export subsidy programs.
Negotiate continued reduction of tariffs and expansion of Tariff Rate Quotas (TRQs).
Increase GSM Funding: Before the main impact of the Asian financial crisis became evident, Korea was the fourth largest export market for beef and beef variety meats. During 1997, exports of these products to Korea totaled more than $300 million, an increase of more than 18 percent compared to 1996. NCBA is confident that Korea remains a long-term growth market for beef that is being disrupted by short-term currency fluctuations and financial circumstances.
Swift, decisive and bi-partisan action will be required to minimize effects of the Asian financial crisis on the U.S. beef industry and the broader U.S. agricultural economy. NCBA and other meat industry representatives met with USDA officials early in the crisis to request that GSM funds be made available for credit guarantees to Asian customers. The industry's original request was for $500 million in credit for exports of beef and pork to Korea. To date, USDA has allocated $160 million for beef, pork and poultry products out of a total $1.5 billion GSM funding for Korea. Another $1 billion of GSM funding is available to other Asian countries.
All GSM credit guarantee funding available for meat has been exhausted. USDA must now work to ensure that Korea purchases product and utilizes these funds. NCBA urges USDA to allocate additional funding for GSM credit guarantee resources targeted for export of beef and other value-added meat products and to assure that these funds are not committed to trading companies that do not purchase and ship U.S. product. Australia has announced a credit guarantee program for Korea, and other competitors are sure to follow. Increasing the allocation for GSM credit guarantees now will build additional loyalty among Korean customers and increase future U.S. market share.
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Approve IMF Funding Package: IMF-led financial assistance plans in Thailand, Indonesia and Korea are critical to the success of GSM credit guarantee packages. The impact of the Asian financial crisis on U.S. agricultural exports will depend on the success of IMF efforts to stabilize the Asian economies and bring about structural reforms and trade liberalization. In the short term, the IMF-mandated trade and investment reforms will help stabilize the Asian banking system and help ensure the financial stability. In the long term, IMF-mandated structural reforms will help ensure economic growth and greater access to those markets.
The IMF plans to improve financial stability help make it possible for importers from Asian countries to utilize the GSM export guarantee program. The IMF plan, combined with the GSM export credit guarantees, will enable the United States to keep servicing those markets and ensure that the United States is seen as a reliable supplier of beef and other agricultural products. Without the IMF package, the GSM credit program would be of little use in resolving the Asian economic crisis.
Initiate Market Reforms: NCBA urges the administration to continue pressuring the Asian countries to improve access for U.S. products into markets in countries receiving IMF and GSM assistance. We have provided a list of access issues and tariff rates in each of the affected countries (attached) to USDA and Treasury officials and to Congressional agricultural committee staff.
During negotiation of the Uruguay Round multilateral trade agreement, Korea was allowed to avoid the 1997 liberalization of its import market for beef by committing to import certain quantities each year until full liberalization was completed during the year 2001. It is now a matter of public record that Korean imports fell below the level agreed for 1997 by more than 5,000 metric tons. It is also clear that Korea will not import the full quota for the current year. We believe this shortfall gives the United States and other suppliers grounds on which to initiate negotiations with the Koreans leading to early liberalization of beef imports, acceleration of beef import duty reductions and duty reductions significantly below the commitments made during the Uruguay Round Agreement.
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NCBA recently signed letters to Ambassador Barshefsky and Secretary Glickman urging that necessary action be taken to get negotiations underway and to follow through on liberalizing the Korean market at the earliest possible date.
Some will likely question and criticize U.S. assistance to Asian businesses. It is important that Congressional leaders and U.S. business interests work to educate the public that this assistance—i.e., these long-term loans—is designed to alleviate short-term credit shortages.
Experience suggests that this type of loan has an excellent record of being repaid with interest. It is also important for the public to understand that including market reforms as a condition for these loans helps eliminate restrictive trade barriers for U.S. agricultural products. The reform packages not only increase demand for U.S. goods, but also benefit consumers in the affected countries by providing a greater supply of food at a lower price.
Reinstate Fast Track Negotiation Authority: Only 4 percent of the world's population lives within U.S. borders. Population demographics suggest that the United States generally, and agriculture specifically, need to aggressively prepare to seize opportunities to market products in countries with younger, fast-growing populations with increasingly disposable incomes. A recent independent analysis of potential export markets indicates that of approximately $10 trillion projected to be added to world GDP during the next decade, 48 percent will occur in Asia and 23 percent will occur in Europe, followed by 19 percent in the United States. Access to emerging markets in regions of economic growth will be critical to expanding global demand for U.S. agricultural products.
IMF stabilization packages and GSM credit guarantees will help reduce the impacts from the Asian financial crisis on U.S. agriculture. But even with these measures fully funded and in place, it is likely that U.S. agricultural exports to the Asian region during the next several years will decline. For example, beef exports to Korea declined nearly 76 percent during the first 2 months of 1998 compared to the same period in 1997.
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Realistically, it will take 2 to 5 years for the Asian economies to recover. In the case of Mexico, U.S. beef exports declined by approximately 60 percent during 1995, the first year after devaluation of the peso. Beef exports to Mexico recovered part of that loss during 1996 and, during 1997, U.S. beef exports to Mexico were on target to reach record levels. Recovery in Asia will depend on the willingness and political ability of the various governments to implement economic reforms—closely associated with the willingness of international lenders to extend credit—and the extent to which competitive devaluation of international currencies continues.
Additional Veterinary Agreements: NCBA and other meat industry organizations have repeatedly requested that USDA enter negotiations to establish veterinary agreements with China and Central and Eastern European countries to facilitate access for U.S. meat products. USDA has claimed that not enough resources are available to form a team dedicated to negotiating veterinary agreements to facilitate U.S. participation in emerging markets. The Canadian government more than one year ago added an additional team of veterinarians dedicated to developing veterinary agreements. Consequently, Canada has established a presence and is developing customer loyalty in emerging international markets (including China, Central and Eastern Europe and Latin America) where the United States is unable to participate. NCBA urges Congress to coordinate with USDA to assure that adequate resources are allocated to negotiating veterinary agreements.
An additional key to sustaining export market growth is gaining and maintaining access to emerging international markets in Europe and Latin America. Access to these markets will be increasingly critical to help off-set expected declines in historically important Asian export markets. The U.S. must continue to be aggressive in gaining access to new markets around the world. Fast Track authority is a critical element of that strategy.
The U.S. must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. NCBA appreciates the initiatives that have been undertaken to gain access to international markets and to resolve lingering issues that restrict the ability of the U.S. beef industry to offer its products to international consumers. Without fast track authority, the United States will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.
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The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. Attached is a summary of trade issues with Asian countries that need to be resolved. NCBA looks forward to providing additional input as the United States addresses other trade issues, including accession of China to the WTO, resolving a host of access issues with the European Union and passing Fast Track legislation to provide authority to negotiate additional trade agreements. Thank you for the opportunity to present this information.
Statement of Wine Institute
On behalf of Wine Institute, we thank you for the opportunity to comment on agricultural trade policies affecting the wine industry. With the 1999 World Trade Organization Agriculture negotiations quickly approaching, Wine Institute would like to offer assistance in the preparation for the discussions.
Wine Institute is the public policy advocacy association of California wineries. We bring together the resources of some 450 wineries and affiliated businesses to support legislative and regulatory issues, international market development, media relations, scientific research, and education programs.
Wine Institute's home office is in San Francisco. We also have offices in Sacramento, Washington DC, six regions of the United States and seven foreign countries. Eighty California vintners provide guidance for the Institute as members and alternates of our Board of Directors.
Despite a shortage of wine, continued high tariffs in major markets, restricted marketing opportunities in the European Union, exchange rate difficulties in Canada and Asia, and decreased promotional funding by the Foreign Agricultural Service, wine export sales increased by 30 percent in value and 26 percent in volume in 1997.
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The Uruguay Round Agreement of the WTO calls for a round of agriculture negotiations to begin in 1999 to further reduce the tariff and non-tariff barriers currently imposed on trade in agriculture products around the world. While the United States took major steps to reduce its tariffs, there was no commercially meaningful reduction in foreign markets. The Wine Institute is preparing for the 1999 talks with the belief that WTO countries should now be required to reduce their tariff and non-tariff barriers to the U.S. level before there is any discussion about further U.S. concessions. The following is a description of some of the barriers restricting the further success in increasing wine exports.
TARIFFS
Although many multilateral and bilateral agreements have aimed to reduce tariffs for many industries, the wine industry is still experiencing extremely high tariffs in foreign countries compared to U.S. rates. In the WTO agriculture negotiations beginning next year, we are requesting the administration to pursue the reduction of wine tariffs to the U.S. level in all WTO signatory countries.
In the Uruguay Round, most countries only reduced their tariffs from the bound rate. There was little reduction in the applied rates. For example, both Japan and the EU reduced from higher than applied rates and we still have not seen any actual reduction in tariff rates from the pre-Uruguay Round levels. By contrast, the United States reduced its tariff by 36 percent from the applied rate. Our objective in the next round of negotiations is to reduce the bound rates on wine to the U.S. level.
Despite the overwhelming share of the world wine export market controlled by the EU, EU tariffs remain at 7.5 percent to 31 percent where the U.S. rate is only 3 percent . As of April 1998, the United States holds 3 percent of the world wine export market. The EU still contends that they need to apply higher tariff rates to sustain control over its own market and to keep its payment of $1 billion in subsidies it provides to its wine industry from going higher. Nevertheless, in 1997, the United States exported over $201 million worth of wine to the fifteen member nations of the European Union. Sales to the world's largest wine market expanded by 36 percent, while the volume of wine exports increased by 30 percent. U.S. wine sales rose in virtually every EU member country, including many of the traditional wine producing countries such as France, Germany, and Italy. Nienteen ninety-seven marks the 10th year for increasing U.S. wine sales to the EU. Sales to the EU represent over 48 percent of the value of total U.S. wine exports, a slight increase over 1996. This success will be even greater when tariffs are reduced to the U.S. level, illegal subsidies eliminated, and non-tariff barriers removed.
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Under the Israel-Unied States Free Trade Agreement (IFTA), Israel's tariffs were supposed to be reduced to zero in the tenth year of implementation of the Agreement. It is now the 12th year and tariffs remain at 46 percent. According to Israel, the Uruguay Round allows them to continue to impose the high duties because the conversion of its quotas to tariffs during the Round supercedes the Free Trade Agreement. Quotas under the IFTA should have been eliminated. To allow those quotas to be converted to tariffs and then remain as a barrier to wine imports is not free trade. Another objective of the Wine Institute in these next negotiations is to remove these artificial tariffs so there is in fact, free trade.
NON-TARIFF BARRIERS (NTBS)
Another fundamental element of the WTO Agriculture Agreement important to the wine industry is the reduction of NTBs, specifically in Europe, Asia and Latin America. The purpose of the WTO's Agreement on Sanitary and Phytosanitary Measures (SPS) is to allow governments to protect human health and safety, as appropriate, while ensuring that such measures do not result in unnecessary barriers to trade. SPS measures that restrict wine trade need to incorporate sound scientific data that proves potential harm to human life or the environment.
Many countries are implementing SPS regulations with no scientific proof that foreign products are unsafe to domestic consumers. For example, while the EU has agreed to accept specific winemaking processes used in Australia, the EU will not grant permanent recognition for those same practices used by the U.S. wine industry. The EU prohibitions are without merit. The United States and other countries' wine producers have used these winemaking practices for years without any harm to consumers. Such protectionist actions should be identified and eliminated.
In Asia and Latin America, there are problems with monopolies (manufacturing and distribution), unfair licensing and certification requirements, labeling, and unnecessary pre-shipment inspection requirements. Again, we will work with the administration and this committee to identify those barriers so that our negotiators can seek their removal.
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On behalf of Wine Institute, we appreciate the committee's efforts to support agriculture and the U.S. wine industry. We encourage the committee to continue its oversight of this process. We also request that the members of the committee seek opportunities to establish a common ground with colleagues in other countries under the auspices of these negotiations.
Our efforts have met with some success despite the barriers described in these comments. U.S. wines are among the very best in the world. It is our goal to give consumers around the world the opportunity to verify that fact.
"The Official Committee record contains additional material here."
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