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AFRICA AND THE MIDDLE EAST
WEDNESDAY, JUNE 17, 1998
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to call, at 10:05 p.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Combest, Barrett, Ewing, Pombo, Smith of Michigan, Moran, Schaffer, Thune, Cooksey, Stenholm, Dooley, Pomeroy, Holden, Berry, McIntyre, Stabenow, Etheridge, Johnson and Boswell.
Staff present: Paul Unger, majority staff director; Lynn Gallagher, senior professional staff; Jason Vaillancourt, professional staff; Callista Bisek, assistant clerk, Wanda Worsham, clerk; and Andrew Baker, minority associate counsel.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Good morning. The hearing will come to order.
I have a statement that I will submit for the record, and any member wishing to submit their statement for the record is welcome.
First, I have a small statement on another subject, but we will get to this hearing very quickly.
Embargoes or sanctions, whether imposed by the administration or by law, often have unintended consequences that can fall unfairly on United States farmers and ranchers. U.S. agriculture remembers the 1980 grain embargo, the Russian embargo. The one lasting impression left of that embargo is the United States could not be considered to be a reliable supplier of wheat. The past 18 years have been spent attempting to reverse that opinion.
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Iran and Iraq used to be a $5.5 billion market for agricultural products, with the United States as a major supplier. No agricultural exports go to Iran; and, last year, our exports to Iraq were about $50 million, 2 percent of that country's agricultural imports.
Tomorrow, the committee will consider a bill that requires the President to report to Congress on embargoes of agricultural commodities and to set a termination date for any embargo. That is Mr. Ewing's bill. Because of the recent events surrounding wheat sales to Pakistan, I intend to offer an amendment to that bill that will exclude USDA credit guarantee programs and other USDA programs from sanctions applied under the Arms Export Control Act.
While I strongly believe that section 102 of the Arms Export Control Act does not apply to USDA credit guarantee programs, I have come to the conclusion that the committee must act because of the uncertainty placed upon the United States wheat market.
The issue of embargoes and sanctions, as they are applied to United States agriculture, should be considered within the broader context of when and how such sanctions or embargoes should be applied. I commend Senator Lugar for his bill that sets up a framework for consideration of economic sanctions.
The United States farmers and ranchers, since the passage of the Freedom to Farm Act, look to the marketplace to sell their product. It is the responsibility of the U.S. Government to make sure that there are no artificial impediments in the way of agricultural sales. This means that our government must work to eliminate unfair trade practices around the world and must not erect barriers of its own, such as sanctions, embargoes, or other actions that limit competitiveness of our farmers and ranchers.
We can help the United States farmers and ranchers succeed by providing the authority for fast track, by funding International Monetary Funds and by providing ordinary trading status for China and by considering a more rational approach to the applications of sanctions and embargoes.
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I am encouraged by reports of some movement on fast track, IMF and MFN for China. We must act now during this crop season and before this crop is sold so that United States farmers can understand that their government is helping them.
I just want to report in this context a statement by the Australian wheat industry, dated June 11, reported by Reuters, ''The Australian wheat industry is ready to step in to supply Pakistan if agricultural credits are included in U.S. sanctions. . . .''
And, finally, in the same story, with Pakistan importing a total of 4 million tons of wheat a year, Australia is not going to miss out.
Today, our hearing will look at United States trade with countries in Africa and the Middle East. The countries in this region, for the most part, are developing countries. Some have received assistance through title I of Public Law 480, while others make use of GSM credit guarantees. In all cases, it should be the goal of the United States to make full trading partners of these countries and to be a reliable supplier to them.
The countries in these regions have populations totalling 1 billion people. Ultimately, this represents a huge market for U.S. agriculture. It is up to the United States and agricultural exporters to be creative in the process of developing these agricultural trade markets.
I will be interested in hearing from our witnesses about the issues that come up regarding U.S. agricultural trade with Africa and the Middle East. These countries are members of the WTO and are subject to the rules of the WTO, although some are able to implement the WTO agricultural reforms over a longer period of time because of their developing country status.
U.S. agriculture exports to this region totalled about $5 billion in 1997. Egypt, Turkey, Saudi Arabia and Israel represent the major importers of U.S. agricultural products. Egypt is the leading market for United States wheat, representing 16 percent of all wheat exports in the world.
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[The prepared statement of Chairman Smith follows:]
PREPARED STATEMENT OF HON. ROBERT F. (BOB) SMITH
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 Secretary of Agriculture Glickman and Ambassador Scher, from the Office of the U.S. Trade Representative, testified.
That hearing focused on trade with Europe and our other witnesses discussed specific agricultural trade issues with the European Union. Also, the committee held a hearing on May 12, 1998, with a focus on issues related to countries in Asia and the Pacific Region.
Both hearings provided the committee with information concerning the upcoming 1999 WTO agriculture negotiations. Secretary Glickman and Ambassador Scher put forth the administration's goals for the 1999 World Trade organization negotiations for agriculture. Both cited the need for further reduction in tariffs—worldwide tariffs average 56 percent, while U.S. tariffs average 5 percent—and reduction or elimination of export subsidies.
Our other witnesses supported that agenda and provided the committee with additional suggestions.
Fast Track Authority and IMF Funding
Most of the witnesses appearing before the Committee to discuss agriculture trade issues between the U.S. and countries in the European Union, Asia and the Pacific Region also raised the issue of fast track. The Cattlemen's Association, the Oregon Wheat Commission, the American Oilseed Coalition, Monsanto, the North American Export Grain Association, the National Cotton Council, the National Pork Producers, and the National Broiler Council all mentioned the need for fast track authority. Additionally, several witnesses discussed the importance to U.S. agriculture of the International Monetary Fund and supported the funding request before Congress.
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There are many, many more agriculture associations supporting fast track and IMF funding. I intend to continue my efforts, along with Mr. Stenholm, to make sure these issues are a top priority with the administration.
Africa and the Middle East
Our hearing today will look at U.S. trade with countries in Africa and the Middle East. The countries in this region, for the most part, are developing countries and some receive assistance through title I of P.L. 480, while others make use of the GSM credit guarantee programs. In all cases, it should be the goal of the United States to make full trading partners of these countries.
The countries in this region have populations totaling about 1 billion people. Ultimately this represents a huge market for U.S. agriculture products. It is up to the United States and agriculture exporters to be creative in the process of developing these agriculture trade markets.
I will be interested in hearing from our witnesses about the issues that come up regarding U.S. agricultural trade with Africa and the Middle East. These countries are members of the WTO and are subject to the rules of the WTO, although some are able to implement the WTO agriculture reforms over a longer period of time because of their ''developing country'' status.
U.S. agricultural exports to this region totaled almost $5 billion in 1997. Egypt, Turkey, Saudi Arabia, and Israel represent the major importers of U.S. agricultural products. Egypt is the leading market for U.S. wheat, representing 16 percent of all U.S. wheat exports.
The Africa and the Middle East region is the fastest growing region in the world, growing at a rate of 2.5 percent . A number of countries in the sub-Saharan region have achieved rates of growth in real Gross Domestic Product of 5 percent in 1997. With such progress seen in Africa and the Middle East, it is extremely important for the U.S. to continue to lead the way in the areas of global free and fair trade as we approach the next round of negotiations in 1999.
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The major issues between the U.S. and our trading partners in this region include sanitary and phytosanitary measures that are used as non-tariff trade barriers and improved access to the markets of this region.
1999 WTO Negotiations
The 1999 WTO negotiations offer a platform for further reduction in barriers to trade and further expansion of agricultural trade opportunities. The Agriculture Committee will be working closely with the administration, both the U.S. Department of Agriculture and the U.S. Trade Representative, to achieve these goals.
Trade Agreements and Prosperous U.S. Agriculture
I want to see improved access for U.S. agricultural exports; I want to see non-tariff trade barriers eliminated; and, I want growth and expansion of our agriculture trade because it is good for U.S. farmers and ranchers, and all who contribute to providing food for people of our country and the world.
The CHAIRMAN. The gentleman from Texas, Mr. Stenholm, has a statement.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman.
First, just a brief comment concerning tomorrow's markup and bill. I believe that that may be a little bit premature, and I believe that we may find that the administration is very sympathetic to the intent of that legislation and that there will be a satisfactory work-out regarding agriculture embargoes, and that it may not be necessary to have legislation at this time. If there is, then it may be premature to move into this area without a little bit more notice and conferring, at least with this side of the aisle, regarding the intent and that which we are going to do.
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I totally agree with you, as you know, regarding the effect of embargoes on agriculture. That is well known. But in this atmosphere in which we have accusations flowing right and left regarding trade with China and embargoes and all of this other, I most certainly will be here and will be prepared to mark up the bill, but I am a little concerned it may be a little premature from an agricultural standpoint because we may be solving a problem in which there is no problem there. And that is my belief, there is no problem there right now, but we will see.
The CHAIRMAN. Will the gentleman yield?
Mr. STENHOLM. I will yield to the chairman.
The CHAIRMAN. I thank the gentleman for his caution. I want to make sure that we continue to keep the pressure on this issue, that we don't ignore farmers' plights, especially in these conditions of low commodity prices, and I know the gentleman agrees with that.
I am not about to take precipitous action if this situation can be solved. You and I both know that we have requested, and you have been active in requesting, that the administration interpret the law so that it does not impact GSM credits, and that is all I am interested in. I know the gentleman is interested in that as well.
Thank you.
Mr. STENHOLM. I appreciate the chairman's comments on that. Because all I am saying is I believe the administration is going to be just as sympathetic as the chairman and I are regarding that subject.
And, also, I just point out, the embargo hasn't happened yet. The low farm prices we are looking at are a direct result of the Farm Act of 1996, and I don't want us to change our focus all of a sudden conveniently, as some might use, particularly in the atmosphere in which we are now working. That was my comment. But we will see.
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Thank you for holding this hearing, though—and let's get back to the subject of the day—the third in a series of four to prepare for the next round of WTO.
Last month, the President called upon WTO delegates at the Geneva Ministerial to ensure there be no pause in reform of agricultural subsidies and trade barriers. As we approach 1999, we have an opportunity to participate in the negotiations that will continue the reforms process we began in 1994 and establish trading rules for agriculture as we enter a new century.
As you said, Mr. Chairman, without fast track authority, we will be absent as the WTO decides how to address important issues, including rules on trading and genetically altered products, sanitary and phytosanitary restrictions and subsidies.
It is worth noting that the European Union is currently negotiating two free trade agreements in Africa and is considering a third to replace the special cooperation agreement between Europe and her former colonies in sub-Saharan Africa. This is the same cooperation agreement that has kept a U.S. company from servicing the European Union banana market. Without fast track, we are unable to meaningfully negotiate similar agreements with our trading partners in Africa and the Middle East, and on this side of the Atlantic.
And I want to say, Mr. Chairman, I look forward to continuing to roll up my sleeves and to get the leadership of the House of Representatives to schedule a vote on fast track and IMF, and we will certainly be discussing MFN for China. All are critically important to agriculture, just as the question of embargoes are critical to agriculture. We can't separate those four issues, and I would hope that this committee would work extremely hard in getting scheduled the votes and—as I know you are, Mr. Chairman. You made some excellent proposals, and I look forward to working with you on that; and, hopefully, the leadership of the House will be a little flexible with some of the statements I am hearing coming from some within the leadership.
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In the first two hearings of this series, we focused on market access and competitiveness issues. In today's hearing, a major focus will be on distinction between developing and developed countries.
Since 1967, GATT has accorded ''special and differential'' treatment of developing countries. Since three-quarters of WTO members are developing countries, it is clear that these members will have a significant voice in the next round of negotiations.
With steady economic growth of around 3 percent per annum and population growth of about 2.5 percent, the highest in the world, we must look at the region's potential both as a market and as a significant player in WTO politics.
If the WTO is to remain the preeminent legal and institutional foundation of the multilateral trading system, it must continue to offer incentives for developing and developed members alike. Thus, it is critical for us to understand and address, to the best of our ability, the issues that developing countries raise in WTO negotiations.
I look forward to the discussion of those issues by Ms. Levinson, and I commend CRS for its excellent presentation on this issue and the briefing paper that is before members today.
As we prepare for the next round of negotiations, we should also do our best to help developing countries prepare for those negotiations.
One area of particular concern is non-tariff barriers. Many developing countries lack the resources necessary to develop science-based rules on biotechnology and SPS issues. If the United States does not provide the technical assistance and guidance to developing countries, they will likely turn to Europe.
Based on our experience in dealing with Europe on hormones and labeling of biotech corn, I would ask the witnesses here today to help us identify areas where the United States can provide the technical assistance needed to enable Africa and the Middle East to develop market-oriented rules and regulations.
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A second area of concern is subsidies. Many African countries are already following structural adjustment programs prescribed by the IMF and have cut spending on price support programs under these programs. It is for our own benefit that we should support developing nations around the world in their efforts to adopt more market-oriented policies. Let's get our congressional leadership to do the right thing by scheduling a vote on IMF.
Thank you, Mr. Chairman, for your continued leadership on important trade issues and for this opportunity to continue our preparation for the next round of WTO negotiations on agriculture.
The CHAIRMAN. I thank the gentleman for his statement.
Our first panel of distinguished witnesses is seated: Ms. Ellen Levinson and Mr. Thomas Suber.
Ms. Levinson is the executive director of the Coalition for Food Aid. We are pleased to have you here. Please, let's hear your statement.
STATEMENT OF ELLEN LEVINSON, GOVERNMENT RELATIONS ADVISOR, CADWALADER, WICKERSHAM & TAFT
Ms. LEVINSON. Thank you, Mr. Chairman.
My name is Ellen Levinson. I am with the firm of Cadwalader, Wickersham & Taft, and I also serve as executive director of the Coalition for Food Aid. The members of the Coalition are private, nonprofit organizations and cooperatives that design and implement food aid programs overseas as well as a variety of other activities that help to improve the quality of life and economic growth in developing countries. I appreciate this opportunity to testify today on this topic.
All African countries and most Middle Eastern countries, as you noted, Mr. Chairman, that are members of the WTO consider themselves developing countries. Essentially, that means they are lower income countries. The least-developed countries, or LDCs, are the poorest of developing countries. Nearly all African countries are LDCs.
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On the one hand, developing countries recognize that liberalizing world trade could help them gain access to markets, particularly in developed countries, through the phaseout of quotas and reduced tariffs. On the other hand, as lower income countries with limited export capacity and purchasing power, they are very concerned about being marginalized during trade negotiations. Thus, special and differential measures were provided to these developing countries, including African and Middle Eastern countries, as part of the Uruguay Round Multilateral Trade Agreement. The extent to which these measures have been implemented is an important issue for developing countries, and it will affect the positions they take during the 1999 agricultural trade negotiations.
To summarize, the following issues will be important to developing countries, such as those in Africa and the Middle East, as the WTO agricultural trade negotiations get under way:
First, LDCs, in particular, do not believe they are receiving the level of food aid, agriculture and technical assistance and other support that was intended under the Ministerial Declaration on Least-Developed and Net Food Importing Developing Countries, which is part of the Uruguay Round Trade Agreement. For example, worldwide food aid levels have dropped from over 12 million metric tons in 1994 to under 6 million metric tons in 1997.
These issues that are of concern to developing countries could be addressed in several positive ways. First of all, more work could be done by WTO members to engage international financial institutions, such as the IMF and the World Bank, in restructuring the debt of heavily indebted, low income countries.
Second, over the next year, as the Food Aid Convention is being negotiated by its 8 members, WTO members could pledge higher levels of food aid and more countries could get involved in pledging to provide food aid. The United States, for example, could increase its food aid commitments if the current assets of the Food Security Commodity Reserve are used to establish a revolving fund or trust for procuring food for emergencies over the long run.
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Third, the United States and other countries could provide a greater proportion of their aid to LDCs in the form of agricultural and technical assistance to those countries.
A second issue for developing countries is that they believe they may have been adversely effected by the Uruguay Round agricultural agreement in the areas of market access, domestic support, and export subsidies. It is very difficult to analyze trade data to determine whether these effects which they perceive are actually happening due to the Uruguay Round agreement, because there are many other factors affecting developing countries' economies such as weather, droughts, locusts, other government policies in those countries, as well as economic crises and civil war.
Therefore, it is important to seek specific examples from developing countries regarding the factual basis of their concerns and negative impacts. To help these countries produce this information, technical assistance from the WTO and other entities would be appropriate.
A third issue for developing countries is that the very continuation of high tariffs on selected products that governments want to protect for their domestic producers will hurt their access to markets.
A fourth issue for LDCs is that they wish to seek compensation for the loss of preference margins, which are tariff concessions granted by developed countries on imports from certain developing countries. As these preferential rates become the normal rates, developing countries feel they are not reaping special benefits and they wish some sort of compensation.
Last year at the WTO there was a high-level meeting on LDCs; and, at that time, new and additional preferential treatments for LDCs were committed by 27 countries, including the United States. The United States offered to improve access to U.S. markets for the countries of sub-Sahara Africa through the Africa Initiative, which is similar to the House-passed Africa Growth and Opportunity Act. These types of pledges made last year for new preferential treatments for LDCs, if actually implemented, will show that the United States and other countries intend to carry out their commitments made to developing countries during the Uruguay Round, which will create a better climate for 1999 agriculture trade negotiations.
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Thank you, Mr. Chairman, for the opportunity to testify. I will be happy to answer questions.
[The prepared statement of Ms. Levinson appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much for your statement.
Mr. Suber, representing the United States Dairy Export Council.
Mr. Suber, welcome.
STATEMENT OF THOMAS SUBER, EXECUTIVE DIRECTOR, U.S. DAIRY EXPORT COUNCIL
Mr. SUBER. Thank you.
Mr. Chairman and members of the committee, I am Tom Suber, executive director of U.S. Dairy Export Council. The U.S. Dairy Export Council is an independent membership organization whose mission is to assist U.S. dairy product suppliers to increase the volume and value of their exports. I appreciate the opportunity to testify before the committee.
The long-term economic well-being of the U.S. dairy industry will depend on exports because more than 80 percent of the world's total consumption of dairy products is outside the United States. Today I will share with the committee how the United States dairy industry can make progress in developing foreign markets. The dairy industry continues to invest in overseas market development. Government programs and trade negotiations can play a major supporting role, but we know the primary responsibility is our own.
Dairy farmers, through their promotion check-off program, have significantly increased funding of the U.S. Dairy Export Council in recent years. In 1998, this funding amounted to approximately $6.4 million; and our plans include an increase of almost 50 percent in this funding over the next few years. While we are proud of this support, it is sobering to note how modest the Export Council budget is when compared to that of the New Zealand Dairy Board or of the European governments.
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Adding to the check-off funds, the U.S. Dairy Export Council has attracted 68 dues-paying members, cooperators and proprietary companies alike and trading companies, who contribute about three-quarters of a million dollars per year. In addition, USDEC receives about $2.5 million from USDA's Foreign Agricultural Service through the Market Access Program and Foreign Market Development Program.
Our private sector efforts must be matched by government policy initiatives to reduce barriers and eliminate market-distorting subsidies paid by the European Union. The EU export subsidies distort world prices in all countries of the world, including those in Africa and the Middle East.
It is true that the United States operates its own export subsidy programs. However, compared to Europe's arsenal of export subsidies, the U.S. Dairy Export Incentive Program assistance to U.S. exports is quite small, and in terms of price distortions, insignificant. In fact, the United States can subsidize only 1 percent of the volume of cheese that the European Union is permitted to export through its subsidy program.
The U.S. dairy industry looks forward to being able to compete in world markets not distorted by subsidies. With the high quality of a wide variety of products flowing from the U.S. dairy industry, our companies will compete effectively. But until such time, we must use all available tools, including the DEIP program.
While Africa and the Middle East are not currently large markets for U.S. dairy exports, the population growth in those regions could lead to much larger sales in the future. The future for commercial sales, however, may be 2 or more decades away and will only occur if strong development assistance programs are initiated and sustained today.
Africa is home for nearly 700 million people, representing a potentially large opportunity for U.S. dairy exports. The continent contains vast mineral wealth that could spur economic growth. However, the continent's problems are also vast: 70 percent of the people routinely do not receive enough to eat; average yearly earnings are only about $450; population growth is high; foreign debt is formidable; and much of the continent is subject to periodic drought or other weather disruptions.
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These problems will not be solved and may never be solved without creative efforts to stimulate trade and judicious direct development assistance to help improve the quality of life for people.
The U.S. Dairy Export Council is interested in working with USDA and the USAID to develop effective new ways to put America's food abundance to work in helping stimulate economic growth in Africa that can lead to future commercial sales.
The Export Council has begun a dialogue with some of the private voluntary organizations involved in development assistance efforts, especially the Food for Progress Program, with the goal of identifying ways dairy products can be included in those efforts. We welcome the opportunity to keep the committee informed on our progress.
In 1996, Africa commercially imported 9 billion pounds of dairy products, valued at about $1.2 billion. Algeria and Egypt together account for almost half of Africa's total milk equivalent dairy imports.
In 1996, the Middle East imported 8.7 billion pounds of dairy, valued at about $1.4 billion. Cheese imports accounted for 30 percent of the total value of that year's imports. Whole milk powder was second at 25 percent, and butter was third at 16 percent of total value.
Saudi Arabia is a key country market, importing almost one-third of the dairy products bound for the Middle East. Prospects for additional commercial sales will improve as Saudi Arabia becomes a member of the World Trade Organization.
For example, WTO membership will lead to the application of consistent standards for imports. We understand the Saudi Government is planing to reduce shelf life for milk powder imports, attempting to limit product shelf life to only 6 months. By contrast, shelf life of up to 2 years is common in the United States. In addition, the Saudis would also require more than 50 percent of shelf life remain when the milk powder is imported. The combination of these two requirements might have a rated shelf life of only 90 days, which is an impractical standard, which would impede U.S. exports for no sound, scientific reason. The potential loss to U.S. sales would be approximately $1 million annually. The Export Council will be monitoring the situation closely; and if these changes are imposed, we will ask the administration to protest the action.
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Mr. Chairman, dairy export opportunities in Africa and the Middle East are viable today and are likely to grow and the U.S. dairy industry's stake will grow as well. We look forward to supporting efforts to bring about that growth.
The entire dairy industry appreciates the support of the committee that has been provided in the past in the developing world agricultural markets, and we look forward to working with the committee to improve the dairy trade outlook.
Mr. Chairman, I will be happy to answer any questions.
[The prepared statement of Mr. Suber appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman for an excellent statement.
Ms. Levinson, will your organization be a part of the 1999 agricultural negotiations?
Ms. LEVINSON. Personally, I am a member of APAC. So as a member of this USDA an USTR advisory committee, yes.
The CHAIRMAN. I see. Well, I assume the message will be sent by your organization that you represent that food aid is a part certainly of all of these negotiations. But so many times, and I think you mentioned it in your statement, we have heard and witnessed developing countries yield to interior political situations, place huge, high tariffs on any incoming products, trying to protect, in many cases, a nonexistent program, thereby causing their own people to pay exorbitantly high prices because of the duties for foodstuffs. And, you know, if your organization and others could make that point in the Uruguay Round, it ought to be made. Do you agree with that?
Ms. LEVINSON. Yes, sir, I do. I agree that it is not helpful to the long-term development of these countries for them to be placing high duties on imports or for them to really try to implement price controls in their own countries. It limits the access to markets for their own people, and it can also effect their consumers.
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But hand in hand with that, it is very important to recognize that so many of the people in these countries, probably up to 70 percent, aren't really going to have access to what you and I would consider a formal market, nor do they have access to credit. So hand in hand with these types of requests, I believe it is important for the United States and other countries to be continuing with their commitments to help these countries with the really serious problems—access to credit, agricultural assistance, technical assistance.
The CHAIRMAN. And I think that is why you mentioned, as well, the IMF and the World Bank, who also ought to be encouraged to be a part of that effort.
Ms. LEVINSON. Yes, and that is a very big issue. Many of these countries are undergoing structural adjustment programs, and they are lacking in hard currency to buy goods on the market because they have to use that to repay their debts.
The CHAIRMAN. Sure.
Mr. Suber, you know, wherever we go around the world, the one item all countries are angry about is the DEIP program and, as well, the export enhancement program, which they maintain distort markets and unfairly subsidize our own programs.
Do you see any way in the future, let's say in 1999, where we might sit down with those countries who embargo against our products and who have unrealistically high tariffs against our products? Do you see any possibility that we could negotiate DEIP against those barriers of our products?
Mr. SUBER. I think that would be a worthwhile avenue to pursue with those countries. Every effort to balance their concerns about subsidized imports into their market against protection of their industry is a valid one, and we feel subsidized exports generally have distorted prices internationally and have hurt the interests of importing countries. And that is why we seek, as well as almost a majority of the dairy industry, the total elimination of dairy subsidies, export subsidies, which would include our own as well as the European schemes as well.
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The CHAIRMAN. That is an excellent position, and I think an honorable one.
By the same token, I think we all agree that we are not going to withdraw unilaterally either. The DEIP program is very small compared to overall trade in dairy, obviously, as well as EEP. But yet it is one of the very small tools we have left. We hope to begin to engage countries in a realistic reduction of tariffs against our products.
The gentleman from Texas, Mr. Stenholm.
Mr. STENHOLM. Mr. Suber, you mentioned a problem in your testimony with the Saudis and them deciding to change the shelf-life requirements of their milk. Why did they do that?
Mr. SUBER. Candidly, we are not exactly sure. And part of that relates to the fact that the Saudis are not members of the World Trade Organization and, therefore, do not need to notify the WTO's members when they decide to make such changes. That is one of the reasons we are eager that discussions move forward with having them join the WTO, so such things do not come as a surprise and, therefore, we can address concerns they might have as they seek to change their standards.
We are in a dialogue with them now, along with a number of other exporting milk powder countries, to seek to have them revise those standards into something based on more sound science.
Mr. STENHOLM. You also state that in the entire Middle East it is an 8.7 billion pound dairy product import market?
Mr. SUBER. Yes, sir.
Mr. STENHOLM. Who is our biggest competitor in the market?
Mr. SUBER. The European Union and Australia, probably the European Union being the biggest supplier into that market.
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Mr. STENHOLM. Australia and probably New Zealand, too, would they not be?
Mr. SUBER. New Zealand would probably follow it in third, but Australia targets that area more, primarily because of its concentration on skim milk powder; and New Zealand is actually moving away from an emphasis on skim milk powder toward whole milk powder.
Mr. STENHOLM. Can you talk a little bit in plain English as to what kind of an advantage that Europeans are using? I mean, when our dairymen are competing against the European Union dairymen in the Middle East for a lucrative—and this is a cash market. This is not a least-developed country market. This is a market in which, by fact of the oil present, they have the money. How many Europeans beat us when their product costs more to produce than ours does?
Mr. SUBER. The method that they use us to beat us in the Middle East is the same they use in every other market of the world in which they are permitted to do so, and that is by buying down the price of their product through export subsidies. Their cost of milk, as you mentioned, is considerably higher. They do know how to process very well. They do know how to listen to the market. But none of those things would matter if they weren't able to buy down their price through subsidies.
Mr. STENHOLM. You represent quite a broad range of the dairy industry today, and I was looking at some practical examples—and maybe you don't have that, maybe you can furnish this for the record—in which a company or companies or a cooperative in the United States has attempted to break into the Saudi market and has gone in and said, here we have a product, here is the quality thereof, and then lose that market to the European Union. I am curious as to just how that works.
I understand, here in this country, if I am selling my cotton and I offer it for 70 cents and somebody else is selling at 69 cents, I am probably not going to sell my cotton real quick. Can you amplify a little bit more how they go about it and how much the subsidy amounts to?
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Mr. SUBER. First, we will seek to provide more concrete examples for the record later. But let's take the example of food service and pizza chains, specifically. The pizza chains have grown quite a bit around the world and certainly that is the same case as in the Middle East. There are some U.S. companies, one in particular, that make a very specialized product for the pizza chains that are approved for use worldwide. It is well suited for the type of quick applications and long storage life required for that outlet.
The ability to sell that product on a price—on an equal price bases, the United States will win every time and has established good markets for that product in Mexico and in Asia. But in the Middle East, they are continually thrown out of these chains when they cannot match the subsidies that come out of Europe, and in fact, the DEIP program's primary use for cheese in the Middle East is to move some of this type of pizza cheese or mozzarella. Without the use of DEIP subsidies there, this particular U.S. supplier would be out of market and its market development capability there would be stunted for the near term.
Mr. STENHOLM. Ms. Levinson, in your testimony, at page 2, you point out that of nearly 50 disputes before the WTO, none of them involve an African nation, and Turkey is the only Middle Eastern member that has responded in the suit. It is an interesting statistic. Why?
Ms. LEVINSON. Well, what is interesting is that these economies are very small. In sub-Sahara Africa and many of the Middle Eastern countries, they are small economies to start with. So, they probably are not going to be able to gin up the kind of technical and legal expertise in order to take on a dispute. But even more so, they are not in that type of competitive position in the markets with the United States that you would see, for instance, with developed countries, so they are not really out there trying to compete with us head-on on some of these important products. They really aren't in the position to want to go after the United States, and we don't really see them as a threat or as trying to violate some of these trade provisions.
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Also, the way the Uruguay Round was written, in the agreement itself, concessions are made to these countries. They have more leeway in what they can do for instance, in setting tariffs and otherwise. And they have a longer time frame for implementing the trade provisions. So they really aren't going to be violating the trade agreement, even if they are doing certain things that developed countries could not do.
The CHAIRMAN. Mr. Barrett.
Mr. BARRETT. Thank you, Mr. Chairman.
I appreciated, in particular, Ms. Levinson's testimony and a very complete report that we have in front of us. I did notice, on page 5 in which you speak about the special treatment of developing countries. Under the WTO, of course, there is an ability to provide special concessions to these developing countries, but it is my understanding these countries don't always take advantage of this kind of assistance. I wish you would explain that a little.
Ms. LEVINSON. One of the difficulties, when we speak of developing countries, considering 100 of the WTO members are developing countries, is that we really can't look at them en bloc. It is difficult to do that. Some of the countries, such as Tunisia, Egypt and Jamaica and India, are very cogent in their arguments, have bureaucracies that are well developed and are able to bring their cases and their issues to the WTO and to take positions and stances during committee meetings and have a strong presence.
While if you look at Togo or Benin or some of the LDC's—for example Chad is a member, one of the poorest economies of the world they aren't going to have people actively engaged in these committee meetings at the WTO where they monitor implementation of the trade agreement. So you are going to see less activity, partially because of that lack of capacity.
The WTO is taking action. It has a special committee, actually, that does and reaches out to these developing countries to provide technical assistance. Hopefully, that assistance will be implemented more over time; and I think there is a lot of effort being taken at the WTO to try to reach out to these countries.
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Mr. BARRETT. Wouldn't this be a perfect example of a situation in which some of these developing countries could take advantage of the phytosanitary advantages and some of the things that are available out there in terms of their food safety and plant safety and so forth?
Ms. LEVINSON. They could, but a lot of the countries are not sophisticated enough to do so.
Mr. BARRETT. Again, those that are not taking advantage.
Ms. LEVINSON. Yes, and maybe for some of those countries, they wouldn't choose to, otherwise.
Mr. BARRETT. You also indicated the United States could increase its food aid commitments by making the USDA emergency food reserve permanent, I believe you suggested, and turning it into, then, a revolving reserve or a trust. Would this then give the USDA the ability or the advantage to buy commodities for emergencies in a year where prices are low, like we are experiencing now?
Ms. LEVINSON. Yes, that is exactly what it is intended to do. Currently, there is a reserve of commodities, 2.5 million metric tons of wheat held at USDA for emergency food aid purposes only overseas. If that reserve, if those 2.5 million metric tons, could be turned into a revolving mechanism so when it is drawn down it can be refilled, it could be refilled in years when prices are low, such as this year. If the reserve had resources available now, USDA could be buying commodity on the market, when prices are low—in a sense, buying in advance for an emergency.
Mr. BARRETT. Is that being done now?
Ms. LEVINSON. No, it is not allowed under the law as it is currently written.
Mr. BARRETT. Do you think that that is going to change then?
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Ms. LEVINSON. There is a bill introduced in Congress. It hasn't moved anywhere yet. It is H.R. 3636, Africa Seeds of Hope, which would attempt to change the law to do that; and I don't know what Congress is going to do in that regard.
Mr. BARRETT. Thank you very much.
The CHAIRMAN. Mr. Johnson.
Mr. JOHNSON. Thank you, Mr. Chairman.
I want to follow up a little bit on what Mr. Stenholm mentioned about the oil-rich Middle East, in terms of exports to that more modern of the two areas we are talking about, in terms of Africa and the Middle East and Wisconsin with cheese-rich and the oil-rich in the Middle East.
What is the outlook for the exports of our higher-value products, higher-quality cheeses? We are, I believe, in Wisconsin, No. 1, of the States in terms of dairy exports. What is the No. 1 product and what is the best way of getting them into these countries that can afford to buy the high-quality products we have?
Mr. SUBER. The demand for the types of products Wisconsin would ship out would be primarily two—of course, cheese, and then there would be the whey proteins that are a significant part of the after-processing part for dairy. For the specialty cheeses, the markets in the Middle East would be primarily confined to the hotel trade, the so-called HRI trade—the hotel, restaurant and institutional—because that is where the higher value cheeses are appreciated for their taste and for their quality, and they have the incomes there to afford it.
For the other types of cheese supply from Wisconsin, the block-processing cheese that is used primarily for making processed cheese, there is very little processed cheese actually made in the Middle East. They do import quite a bit, and that might be of some value from the United States and specifically Wisconsin. But the block, so-called commodity cheese would probably not have a fertile market in the Middle East right now.
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Mr. JOHNSON. You mentioned some of the hindrances with dealing with the Europeans. Do those hindrances apply in the Middle East in terms of getting our products in there?
Mr. SUBER. Absolutely. The European community is allowed to subsidize over 300,000 metric tons per year of cheeses, and a good portion of that goes to the Middle East in the form of feta, in the form of processed cheese, in the form of some other natural cheeses.
We, on the other hand, are permitted to export under the subsidy approximately 3,000 metric tons of cheese, as I mentioned, less than 1 percent of that. Though our exports of cheese are rising to the Middle East, as they are worldwide, it is fighting an uphill battle there.
Mr. JOHNSON. A question, and I will also ask Ms. Levinson, if you had one or two items that you could get on the table at the WTO talks coming up in 1999, what would they be?
Mr. SUBER. Clearly, the elimination of export subsidies would be at the very top of our list; and then, second, the increased market access by reducing tariffs would be second on the list.
Mr. JOHNSON. Ms. Levinson.
Ms. LEVINSON. I think most important would be the reduction of tariffs worldwide. With tarrification, the next step is to do that, as well as to get rid of tariff rate quotas and to bring everything on a tariff basis equally and bring it down.
Mr. JOHNSON. Any suggestions for this committee or this Congress that would put our farmers or agricultural producers in a better position for exports by the time we get to those talks? I understand the tariff reduction, but other things we might be able to do in terms of policy changes, between now and 1999?
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Mr. SUBER. I can only echo the comments made by the committee leadership. Fast track is vital. Without it, there will simply be no advancement in achieving these goals. You can start these negotiations without fast track. You cannot conclude the negotiations without fast track. And, without that, none of these problems are solved.
Ms. LEVINSON. I agree on fast track. But, second, I also believe there needs to be some action taken in regards to developing country issues, such as provisions in the Africa Seeds of Hope bill and the Africa Growth and Opportunity bill to provide assistance to these countries. This would make a stronger stance, that we are meeting our commitments under the Uruguay Round to provide them with technical assistance and food aid.
Mr. JOHNSON. Thank you very much. I appreciate it.
The CHAIRMAN. Mr. Smith.
Mr. SMITH of Michigan. Maybe just a couple of reactions. I am not sure where we are on our food aid programs, Public Law 480. What has happened over the last 10 years, Ms. Levinson, in terms of the volume of exports under those programs?
Ms. LEVINSON. Congressman, we used to have approximately 8 million metric tons of food aid shipped overseas every year between 1985 and 1993. But that wasn't only under the Food for Peace Program, it included surpluses that were held by the CCC. The surpluses added to the amount of commodity that could be purchased on the market with Public Law 480 appropriated funds, adding about 2 million metric tons a year.
Because farm policy changed in the United States, CCC is no longer taking in those surpluses. What it means is that we are providing 2 million metric tons less of food aid a year overseas just due to that.
In addition, since 1993, Public Law 480 funding has been cut. So Public Law 480 which provided 6 million metric tons a year, is now a little less than 3 million metric tons, and that is our total food aid. It has gone from about 8 million metric tons to approximately 3 million metric tons or under that. This mirrors what is going on internationally. It is not just the United States. Other countries have been cutting back, as there are fewer surpluses available.
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Mr. SMITH of Michigan. Is there any discussion, restrictions on food giveaway programs in the WTO?
Ms. LEVINSON. No, not at all. In fact, food aid is ''green boxed'' and completely allowed.
Mr. SMITH of Michigan. And in terms of dairy, for example, I don't even know where to—tell me where we are, somebody, in terms of our surplus dairy products. Where is our butter and our dried milk supplies?
Mr. SUBER. There currently are no CCC stocks of cheese or butter. But in nonfat dry milk, CCC is purchasing about 6 million pounds per week.
Mr. SMITH of Michigan. And how much of that goes into the Public Law 480 programs or export programs, as opposed to the domestic programs?
Mr. SUBER. Zero go into the food aid programs at this point. There have been a couple items we have spoken with USDA about and are still pursuing those. We have been unsuccessful so far in finding the right application on that.
Mr. SMITH of Michigan. In terms of—just reacting to your terms—on your interest in support of fast track, in terms of the Mideast African purchases of dairy products, is that—are most all of those decisions for purchase, whether it comes from Europe or the United States, based on cost? Are there other factors involved, other than costs, in their decisions to purchase these products? And I assume that fast track has nothing to do with negotiations that are going to result in giving the United States a greater advantage in exporting to those countries, is that right?
Mr. SUBER. I guess I would address two issues on that.
One, in WTO, if you do reduce the export subsidies of Europe, you do increase the export competitiveness of U.S. industry. So that would have an effect in the sense of what goes on there.
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Mr. SMITH of Michigan. But in terms of their purchases, is it essentially all based on price and value?
Mr. SUBER. Credit terms are extremely important under that. That is a cousin to cost, is how much it will cost you for credit, so it is a related but somewhat separate issue. And within a small price variance, certain companies like Nestles, who operate plants in Africa, will pay a premium for higher-quality, consistent products, but their ability or willingness to pay the premium is somewhat limited. It certainly doesn't bridge the gap between the European subsidized prices and our own domestic prices.
The CHAIRMAN. What has been happening—if you were going to make a graph of the last 10 years of U.S. dairy exports, compared to European dairy exports or Australian or whomever else. What has happened in terms of percentage of total purchases?
Mr. SUBER. If you look at all U.S. exports, whether it is by commercial sales or by subsidized or concessionary sales, subsidized or under a food aid program, generally our exports have gone down as a total because our surpluses have gone down.
On a commercial basis, that which we have sold without subsidies in fact are going up. But in the markets we are speaking about here in the Middle East and Africa, that is not where they are really rising. They are rising in other parts of the world, rather than the Middle East and Africa.
Mr. SMITH of Michigan. Mr. Chairman, I have no other questions at this time. Thank you.
The CHAIRMAN. Thank you.
Mr. Dooley.
Mr. DOOLEY. Just touching on the past comments, Mr. Suber. If I understood what you are saying is that the greatest impediment to increasing U.S. dairy exports at the present time is our inability to compete with the dairy exports primarily of the EU?
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Mr. SUBER. Well——
Mr. DOOLEY. Export enhancements?
Mr. SUBER. On a subsidized basis, that is correct. On a quality and position impact, it would be more equivalent. But on a pure price basis, that is correct.
Mr. DOOLEY. Really, the only opportunity we have to negotiate a reduction in the European export enhancement would be for this country and this administration to have the fast track authority to participate in the next round of the WTO?
Mr. SUBER. That is the only way to get the Europeans to stop subsidizing, yes.
Mr. DOOLEY. So for anyone representing a dairy region that is looking for a way to tighten the market by seeing increased market opportunities, supporting fast track would be really one of the only ways to address the European subsidies which are creating an unleveled playing field for U.S. producers?
Mr. SUBER. Yes.
The CHAIRMAN. Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman.
Just a couple of questions, if I might. The northern Plain States, particularly right now there is a tremendous amount of pressure on producers. They are under a great deal of stress because prices are inordinately low, and we are looking for any way we can to help stabilize and increase prices. And I am sort of intrigued—I will direct this to Ms. Levinson. This legislation you referred to, the trust, and I guess I am wondering—and maybe I should know this, and I don't know if you do either—but what revenue impact there would be under the H.R. 3636.
Because it would seem to me, at least, if you had the Commodity Credit Corporation having to, basically, be reimbursed for funds that are for product you would draw down out of the surplus and run through this trust, if you are going to be putting more product out there, that the CCC somehow is going to be reimbursed for that. Has CBO scored that proposal?
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Ms. LEVINSON. CBO hasn't scored it. There is a way CCC is paid back under the way it is currently set up. There are 2.5 million metric tons of commodities currently held. Under current law, when those commodities are drawn down, Public Law 480 funds, either in the current year or in the future, will be used to repay the trust; and that is what generates the revolving fund. So the funds could be held and used to buy commodities on the market when prices are low in the United States. That would be, in a sense, buying in advance for emergencies overseas. So you would always be maintaining a value in the trust by repaying it from Public Law 480 funds.
Mr. THUNE. But, at some point, you are going to have to appropriate, right? I mean, I realize there is a transaction occurring within government accounts there, but at some point I assume there is going to be some initial, at least, is that fair?
Ms. LEVINSON. Actually, it isn't the repayment from Public Law 480, because that happens already, so I don't think that would really be the issue. That is already occurring. We have used this reserve six times since 1980; and, each time, the money has been paid back to CCC for the value of the commodity. So I think that that it would only be the first round of repayment, when it doesn't go back to CCC, that would incur costs. But CBO has not come up with a score yet, and there may be ways to offset this cost with other things that would be happening within there.
Mr. THUNE. I wouldn't anticipate that would be—I mean, I wouldn't characterize it as negligible, but best guess in terms of what the budget impact would be would probably not be all that substantial, is that fair?
Ms. LEVINSON. Right now, that is the view.
Mr. THUNE. It just seems, at least from my point of view, that, in sort of reading through this and analyzing this, that it might make some sense, in terms of what we could do, to buy, then, some of the product that is out there, and that would have some favorable impact on prices for producers, and right now we are looking for any and all ways we can do that.
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One other question which I guess I would ask, and the point was made earlier, the EU is a good case in point, export subsidies are already out there. One of the things in my part of the country is a lot of frustration, the Department of Agriculture hasn't more effectively utilized the EEP program. And as I recollect from having Secretary Glickman here in the past, he has indicated that would invite retaliation from other countries, that they would also do the same thing. But they seem like they are already doing the same thing, and I am wondering if either of you can comment to what extent that you think better utilization of the EEP program would expand our international markets?
Ms. LEVINSON. I am really not an expert in that, so I will pass.
Mr. SUBER. And I have to pass on anything that relates to other than the dairy program, and we are pleased that this committee has supported and the government has enacted fairly aggressive programs under DEIP to use that to which we are entitled under our Uruguay Round commitments, and we believe that that is worth doing. The Europeans understand strength in this area in dairy products, but the dynamics of the other products, I am woefully uninformed on.
Mr. THUNE. That is probably a better question for the next panel, but I was wondering if you had any general observation or comment on that.
I don't have any further questions, Mr. Chairman. Thank you.
The CHAIRMAN. Thank you. This gives me an opportunity to insert for the record—one of our chief competitors in the world is the European Union, and I have before me a chart which I always use to explain exactly what is occurring in world trade with the European Union.
Their total support subsidy in export subsidies are almost $47 billion. Ours are $5.3 billion and moving to elimination by the year 2002. Their export subsidies are $8 billion, and we are talking about $20 million, I believe, or something like that.
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I want to insert that for the record, because this is a subject that we have all been discussing and how unfair it is and how this must change when we revisit the Uruguay Round in 1999.
[The chart may be found in the March 18 hearing, page 149.]
Mr. SMITH of Michigan. May I ask you a question or the panel? Are the European and other countries living totally within their agreement in terms of export subsidies?
The CHAIRMAN. Yes.
Mr. SMITH of Michigan. We allowed this kind of difference——
The CHAIRMAN. The answer is yes.
Dr. Cooksey.
Dr. COOKSEY. Thank you, Mr. Chairman.
Ms. Levinson, do you think these LDCs have really legitimate concerns about the future UR negotiations as from where they are now, where they have been in the past and where they will be in the future? Do you think they will be really adversely affected?
Ms. LEVINSON. I think, looking toward the sub-Sahara African countries or African countries in particular, they do have concerns because they do not produce a lot of commodity for export. What they are producing is very important to them, because that is where they get their limited hard currency. They do not see their economies expanding or growing at a rate where they will be able to take advantage of some of the benefits of having liberalized trade. I think they do have legitimate concerns.
One of their concerns is that there is preferential treatment now that is permitted under the WTO so that, for instance, a country could have a preferential tariff rate for a least-developed country. They think that gives them better access and competitive advantage. It may or may not. It may be very marginal, whether it gives them that much of a competitive advantage.
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In some cases, it may be a 1 or 2 percent advantage over the other competitors. But it is their perception.
I think that they are also concerned because their economies are lagging and, plus, they do not have a lot of hard currency to be buying in the market. They are just going to become marginalized or further behind while other countries move ahead.
I think that is why there is a broader issue to address with them about what types of outside assistance could be given to them—technical assistance buying down their debt, et cetera—in order for them to feel that they will make progress and will benefit in the long term.
Dr. COOKSEY. The second question, do you feel that the EU nations, who I, quite frankly, feel are subsidizing their agriculture sector too heavily, is doing their fair share in the sub-Saharan countries? And do you think they are being fair to the countries that they, quite frankly, colonized at one time?
I specifically have in mind in Portugal, for example. I, quite frankly, was in Mozambique in the last few months of the civil war, and those people are no threat to our farmers or to European farmers. When they are at the end civil war, things are pretty desperate. I notice that in the Public Law 480, title III, you have Eritrea, Ethiopia and Mozambique. I have been to Mozambique, and I know that Eritrea and Mozambique are fighting. I have some real problems there.
Getting back to my original question, do you feel the EU is doing what they should for these countries that were their former colonies that they probably were not fair to at one time?
Ms. LEVINSON. Congressman, I believe there are a couple ways to look at that.
First of all, Portugal is not necessarily such a vibrant economy itself in the sense that is of going to be providing a lot of aid. But there are a lot of personal connections between the European countries and their former colonies. So you do see that.
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More so, you see preferential trade arrangements, France with Western Africa is a good example. So, they help in that sense. They have preferential arrangements in order to guarantee that they will buy commodities from those African countries. In that sense, they are helping to stimulate trade.
As far as assistance goes, foreign aid, the European Union is ahead of the United States in that regard, compared as a percent of their GDP. They provide more foreign aid and they do provide it to their former colonies. So, in that sense, they do provide assistance.
Of course, the United States is also very important in Mozambique, not only with title III aid but title II food aid, extremely important in the restructuring of the rural economy in that country right now, such as bringing in seeds. So the United States is important as well.
Dr. COOKSEY. You stay the EU is a leading contributor in terms of their percentage of their GDP. What about absolute numbers in sub-Sahara? Do the EU nations still lead us in absolute numbers?
Ms. LEVINSON. I am not sure how absolute numbers look. In food aid, they do not. In foreign aid, I am not sure in total. They may be similar.
Dr. COOKSEY. Well, you give good answers, and I appreciate that. Quite frankly, the problem there is they have had bad government.
If you ever get ready to read, read David Lamb's book, ''The Africans'' written 10 or 12 years ago.
The nations that adopted a market economy in the 1960's at the end of colonial times have done fairly well. There are several names that have done fine. All of them have had some degrees of economic progress.
The ones that used democracies as a political market and free market forces or capitalism as an economic model have done fairly well. The ones that adopted socialism, that were Soviet states, I believe the Russians were leaving there in 1991, have the problems that you would expect from a centralized command economy and a political model that did not work. It is interesting to see.
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I do feel very strongly, though, that as the leader of the free world, we should go in and teach these people how to produce their own farm products instead of giving them all their products. Because that track record is proven.
The Kenyans have done a good job. They are a net exporter of food, or were in the eighties when I spent some time over there, and now their political problems are somewhat greater. They have some other problems. But there are good people over there that need help, but they need to learn to run their governments as democracies and their economies as market economies.
Of course, there are people in this country that need to learn that, too.
The CHAIRMAN. With that lesson, we will go to Mr. Moran.
Mr. MORAN. I have no questions of this panel, but I would like to commend you for again highlighting that chart you were talking about as I walked through the door. I saw that in my folder here several months ago. It now has been blown up, hangs on my office wall, and I have been to the House floor to try to show the American people what it is we face in agriculture with this eight times additional support on agriculture by the European community.
I think that chart shows a tremendous story, and that story is what we are experiencing today in Kansas and across the country today in agriculture. Clearly, we have to respond—this administration, has to respond to that disparity. That is a great, telling chart that I appreciate you highlighting one more time.
The CHAIRMAN. I thank the gentleman.
Mr. Pomeroy.
Mr. POMEROY. I will pass for this panel.
The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. One other quick question but also a comment. Kika de la Garza would be proud of you this morning, Mr. Chairman.
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The CHAIRMAN. Yes, he would.
Mr. STENHOLM. Regarding the Mideast market, did the Australians beat us fair and square?
Mr. SUBER. In dairy products? Yes, basically. They compete hard, and they make a good product, and they are committed to the market over the long term. So, yes, basically. They have a price support system they said they will sunset at a certain period of time, and it is important they do that, but, otherwise, it is pretty fair and square.
The CHAIRMAN. I thank the gentlewoman and gentleman very much. I appreciate your being here.
We will call the next panel: Mr. Roy Baxley, representing the National Cotton Council; Mr. William Flory, representing the National Association of Wheat Growers; and Mr. Wallie Hardie, representing the National Corn Growers.
Mr. POMEROY. Mr. Chairman, as this panel is seated, I would like to say a glowing word or two about Mr. Hardie, one of my constituents.
The CHAIRMAN. I yield to the gentleman.
Mr. POMEROY. We are really proud. North Dakota is kind of the uppermost region where you are growing corn in this country, but North Dakota has substantial corn capacity and the potential for even greater corn capacity in the future. Therefore, we are very delighted that a North Dakotan, Wallie Hardie, is serving as leader of the National Corn Growers Association this year.
I can tell you, Mr. Chairman, that when it comes to trade issues in particular, your views and Mr. Hardie's views are right on the money. He is a very effective advocate for the view of increasing ag exports and getting in place fast track authority and the other steps that this country must take to establish that. He has been a good advocate for his association nationally. I am very proud to represent him here.
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Thank you.
The CHAIRMAN. We thank the gentleman.
Mr. Baxley, we would like to hear from you.
STATEMENT OF ROY BAXLEY, REPRESENTING THE NATIONAL COTTON COUNCIL
Mr. BAXLEY. Mr. Chairman, thank you for the opportunity to testify before this committee on the World Trade Organization and trade issues in the Africa region. I am Roy Baxley, a cotton producer from Dillon, South Carolina.
International trade and the treaties that govern it are extremely important to U.S. cotton. The United States exports about 40 percent of our annual production. Our domestic textile mills consume about 11.5 million bales. However, that sector must compete with low-cost cotton textile imports which displace about 11 million bales of U.S. farmers' cotton.
Carefully crafted trade agreements can benefit our industry. We hope a new round of negotiations under the WTO will give our industry greater market access and better ability to combat trade practices by our competitors.
With the passage of the 1996 farm bill, government support was decoupled and phased down. The United States has more than met the domestic and export subsidy reductions required under the Uruguay Round. More than ever before, cropping decisions turn on profitability expectations among competing crops.
Those returns are closely related to conditions in international markets. Our negotiators must make certain our competitors eliminate their market-distorting domestic and export practices or U.S. producers will be unilaterally disarmed.
My written testimony outlines six specific trade policy objectives so, in the interests of time, I will not repeat them.
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Turning to Africa, taken as a whole, cotton produced in the West African or French-franc region is a significant factor in world markets. Production in Mali, for example, has increased dramatically, with 95 percent going to export. In fact, cotton exports from Africa amount to about one-fifth of total world trade, and West Africa is the second-largest exporter of cotton, behind only the United States. West African cotton has consistently been traded below the world average price and is the second-lowest-priced growth in international markets.
We are still learning about production systems in the French-franc zone. It appears that several French-controlled companies have virtual monopolies over cotton production and marketing in several West African countries. Those companies provide input, ginning and marketing services. It is highly questionable whether cotton producers in these countries are compensated in any relationship to the world market price.
The effect of these arrangements is compounded because Africa already enjoys preferential access to the markets of Europe, the United States and Japan under its developing country status.
I should also note that Egypt and Sudan are significant producers and exporters of extra long-staple cotton, similar to the pima cotton grown in Texas, New Mexico, Arizona and California. Our growers must compete with these state-controlled production and marketing practices.
Developing country status within the WTO provides exemptions from many rules governing access, subsidies and discriminatory treatment. The blanket application of developing country exemptions across all sectors of a country's economy, as well as the refusal to relinquish such preferences even after a country's economy has strengthened, often results in unfair competition for the U.S. cotton and textile industries.
While there is no question that most African countries meet the definition of a less-developed country, the U.S. cotton industry urges our WTO negotiators to consider the impact of the type of development as has occurred in the cotton states of the French-franc zone. It may be that this area should make some meaningful commitment to discipline the use of subsidies in cotton production, processing and marketing. When a country becomes competitive in a sector such as cotton or textiles, that sector's special and differential treatment should be ended.
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We are also concerned about provisions of the sub-Saharan African trade bill being considered by Congress. It demonstrates how shortsighted we can become even if well-intentioned.
The legislation, known as the Africa Growth and Opportunity Act, unilaterally grants duty-free and quota-free access to the U.S. market for textile and apparel exports from the countries of sub-Saharan Africa. It effectively turns Africa into a major transshipment point for Asian textile and apparel manufacturers.
With weak rules of origin and no effective deterrent to transshipment, the bill provides limited, if any, incentive for increased manufacturing capacity and employment in the sub-Saharan region. But it puts U.S. farmers, textile employees and industries at risk.
Mr. Chairman, we appreciate your and many members of this committee's concern about the impact of this bill on cotton farmers and textile employees. We believe a trade bill can be constructed that would truly enable countries in the sub-Saharan region to help themselves. We do not believe the legislation that has passed the House is the right bill to accomplish that goal.
A representative of the National Cotton Council reported to this committee a month ago concerning Asia and the WTO. We indicated to the committee at that time that cotton producers are facing serious financial difficulties. We outlined some steps we thought Congress could take to help the situation in the short term.
I want to commend you and thank you, Mr. Stenholm and the members of this committee for their leadership in getting the agricultural research bill passed. That bill is a very important boost to U.S. agriculture. Agriculture certainly needs help, and agriculture research offers opportunities to develop long-term improvements in operating margins for farmers.
We also urge this committee to continue to support the market access program. Funds for that program need to be maintained. We cannot falter on export promotion, particularly given the intense competition that now exists in international markets.
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I would also like to reiterate our support for funding of the International Monetary Fund, given the importance of our Asian markets. The cotton industry needs to see aggressive progress on trade agreements and on trade bills, like the CBI parity legislation. Fast-track authority will help provide that progress.
Mr. Chairman, it has been a frustrating planting season for cotton producers. Prices have been weak thanks to reduced demand in Asia and China's decision to liquidate its surplus stocks while simultaneously restricting our market access.
On the other hand, several areas of the Cotton Belt have had extremely bad weather, resulting in serious crop and financial losses. Commodity prices are at a 4-year low, making farm financing very difficult for many producers.
Mr. Chairman, I truly appreciate the opportunity to appear before you today. I am glad you are holding this series of hearings.
In the global market confronting us, all of U.S. agriculture is beginning to feel the pinch of foreign policy that reduced support faster than required by the Uruguay Round and often faster than our competitors. If we are to survive with decreased government assistance and liberalized markets, we must force our competitors to give just as much. That will be difficult to accomplish. Their barriers are generally much higher than ours, and they have long been isolated from the world market. However, just as our producers are learning to live with reduced government support, so must theirs.
Thank you very much.
[The prepared statement of Mr. Baxley appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you, Mr. Baxley, for an excellent statement.
To all of you, I congratulate you and your organizations for joining with us, and 71 agriculture organizations around the country, probably representing, I would guess, 95 percent of all producers, all farmers and all ranchers, in support of fast track, of IMF, and of MFN for China, because that is a producer matter. We see it clearly as essential for trade, and I thank you and your organizations for that.
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Mr. Flory.
STATEMENT OF WILLIAM FLORY, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS
Mr. FLORY. Thank you, Mr. Chairman and members, and good morning.
I am Bill Flory. I currently serve as the president of the National Association of Wheat Growers and am a barley and wheat producer from northern Idaho.
We eagerly anticipate certainly the beginning of the next round of multilateral trade negotiations and applaud the commitments reached during the May 18 through 20 Ministerial Meeting in Geneva, Switzerland, to begin the preparatory work as soon as possible.
The situation we face in the world wheat market makes it imperative that the negotiations for greater liberalization for global farm trade begin on schedule in 1999. We are particularly interested in the development of disciplines on the anticompetitive pricing strategies of State Trading Enterprises, namely the Canadian and Australian Wheat Boards.
Our other objectives include reform of the EU Common Ag Policy.
Wheat is an export-dependent commodity. Typically, we export more than 50 percent of U.S. production annually. In recent years, the amount of wheat exported has been closer to 42 percent of our production, and our stocks are building.
Our goal is to regain our predominant place in the world wheat market to benefit U.S. wheat producers. While we understand that the world wheat market is complicated, we believe there are two simple explanations why the United States is not faring better: U.S. unilateral export sanctions and unfair pricing strategies of competing wheat exporters. U.S. wheat trade with the countries in Africa and the Middle East are illustrative of this situation.
First of all, sanctions. The United States maintains sanctions against the following African and Middle Eastern countries: Iraq, Iran, and Libya. This trade currently amounts to 10 percent of the world wheat market. Our position on sanctions are well-known, but the record should be restated. The National Association of Wheat Growers opposes all trade embargoes or sanctions which inhibit the free export of all U.S. commodities, whether bilateral, unilateral, or counter-retaliatory, except in an emergency of national origin or state of war. If trade embargoes or sanctions are imposed, compensation should be made to producers in a timely manner based on current market prices.
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Consistent with this position, we strongly support the passage of the Nethercutt-Murray bill clarifying the Arms Export Control Act to assure that GSM credit guarantees are exempt from sanctions leveled against Pakistan and India. This limited exemption for food and ag credit programs assures U.S. wheat producers continued access to our third largest export market. Passage of this legislation is very important to our industry.
We also support the immediate passage of the Lugar-Hamilton Sanctions Reform Bill and Congressman Ewing's bill, the Selective Agricultural Embargoes Act of 1998. In light of the recent developments on Pakistani GSM credits and proliferation of sanctions since the end of the Cold War, we urge this committee to revisit the Trade and Compensation provisions of the 1996 FAIR Act. It must be determined whether and how these provisions can be implemented to safeguard producers against foreign policy decisions that affect them and their livelihood.
Second of all, is unfair trading practices of competing exporters. The EU: Wheat producers in the EU are insulated from the world market and protected from the negative price impact experienced by our producers in the last year. This has led to increased wheat production and resumption of an aggressive export subsidy campaign on their part.
In 1997 and 1998, the United States secured sales to North Africa during the first half of the marketing year when the EU was operating a more measured export subsidy program. In the second half of the year, the EU became more aggressive in the region, displacing a large amount of wheat. A projected record wheat crop in Europe for the coming year could put U.S. exporters at a decided disadvantage in the North African region. The United States needs to address this unfair competition through targeted use of our own legal export subsidy program.
The proliferation of unilateral sanctions by the United States benefits the Canadian and Australian Wheat Boards and permits these competing exporters to change their marketing practices to expand their market opportunities at our expense. This is particularly true in the Middle East and Africa. For example, prior to 1990, Canada exported on average less than one-half million tons of wheat into Iran. However, since 1990, the Canadian Wheat Board wheat exports to Iran have averaged over 1.3 million metric tons per year. The Australian Wheat Board has essentially maintained a lock on the Iraqi and Iranian markets over the last decade due to an absence of our U.S. competition.
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Expanding market share is not the only benefit of U.S. economic sanctions to U.S. competitors. Prices charged by single-des exporters can take advantage of the lessened competition brought about by removal of the United States. Higher-than-prevailing market prices can be charged to sanctioned countries, in turn enabling aboard exporter to charge a lower price in a market where the United States competes, and still maintain an average return. We confront this unfair competition in markets like Egypt and Yemen where the absence of an active export enhancement program has hurt us. NAWG's Wheat Action Plan calls for the immediate reactivation of export enhancement programs to compete with the unfair, discriminatory pricing practices of STEs.
While these problems exist, we are not without opportunities or successes. Despite the aggressive use of EU export subsidies in North Africa, U.S. wheat exports to that region have reached their highest level in the past 3 marketing years. This is a tribute to the long-term market development efforts conducted by U.S. Wheat Associates and the attractiveness and competitiveness of U.S. wheat.
Finally, the ongoing discussion on the effectiveness of U.S. unilateral sanctions. This policy provides our members with an opportunity to address the effect of these sanctions on our competition and our wheat producers. Already, the U.N.-sponsored Iraqi oil for food program has resulted in expanded U.S. wheat exports there. However, it should be noted that our single-des competitors, particularly the Australian Wheat Board, have an advantage in selling over private U.S. exporters under this arrangement. We believe that improved relations with Iran could also result in expanded U.S. wheat exports in the near future. The USDA estimates that Iran will import 5.5 million metric tons of wheat in the coming year.
Mr. Chairman and the committee, thank you for this opportunity to present our views. I look forward to your questions.
[The prepared statement of Mr. Flory appears at the conclusion of the hearing.]
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The CHAIRMAN. Thank you, Mr. Flory.
The CHAIRMAN. Mr. Hardie.
STATEMENT OF WALLIE HARDIE, CEO, NATIONAL CORN GROWERS ASSOCIATION
Mr. HARDIE. Thank you, Mr. Chairman. My name is Wallie Hardie. I raise corn, soybeans, sugar beets and dry edible beans on my farm in North Dakota.
The CHAIRMAN. And you are from North Dakota?
Mr. HARDIE. North Dakota.
The CHAIRMAN. Welcome.
Mr. HARDIE. Thank you. Yes, North Dakota, the leading corn state; right, Congressman Pomeroy?
I serve as chairman of the National Corn Growers at this time. We sure appreciate the opportunity to present our ideas for further reform in agricultural trade and to discuss trade opportunities with the countries of Africa and the Middle East.
Mr. Chairman and Mr. Stenholm, I certainly appreciate your comments on fast track and IMF.
U.S. corn farmers are efficient, productive and competitive in world grain markets. In most years, the value of exports of corn and corn products exceed the value of any other single agricultural commodity. Nonetheless, trade barriers and competitors' export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production.
U.S. policy must clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. This is our objective for the new round of multilateral negotiations on agricultural trade in the World Trade Organization.
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Relatively high tariffs and unfair competition from subsidized European Union exports are only part of the challenge for our relationships with the countries of Africa and the Middle East. Unilateral sanctions against the nations of Libya and Iran cause importing nations to question our reliability as a supplier of grain. The biggest obstacle to exports in sub-Saharan Africa, as has been mentioned earlier, is the abject poverty in much of the region.
The countries of North Africa and the Middle East are important destinations for U.S. corn. Last year, those countries accounted for almost 15 percent of U.S. corn exports. Egypt is our largest corn customer in the region. Actually, last year Egypt was our fifth largest corn customer, followed by Saudi Arabia and Algeria. Other significant export customers include Israel, Turkey, Morocco, Jordan Lebanon, Syria and Tunisia.
We exported 21.5 million bushels of the 1994 corn crop to Iran. Iran ranked 15th among all customers that year. The following year, with sanctions in place, that export market was eliminated for U.S. corn farmers. After 3 years of sanctions, corn ending stocks will be 60 million bushels higher—that is about the production of North Dakota, by the way—than they would be if we simply had normal trade relations with Iran. Since producers bear the full brunt of the lower prices that result from increased carryover supplies, we must insist that the U.S. Government weigh the cost to our own economy before imposing unilateral sanctions around the world. Even when the sanctions are eventually lifted, U.S. exporters will have to rebuild relationships with former customers and will have to convince those customers that the United States can be a reliable supplier.
The developing countries of sub-Saharan Africa imported about one-half of 1 percent of U.S. corn exports last year. The extremely low per capita incomes limit the export potential for corn, which is primarily used for food purposes rather than feed purposes as we know is the primary use of corn. With the support of developed countries, this situation can improve over time. Many countries in sub-Saharan Africa have made real progress towards implementing the structural reform that can lead to economic stability and growth.
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The United States must be willing to help the poorest nations meet basic nutrition, health and education requirements. Targeted food and financial assistance can actually prime the pump in countries that must expand food production and consumption. Most Public Law 480 exports to sub-Saharan Africa were provided under title II, humanitarian and emergency relief.
Although U.S. agricultural organizations have often questioned—and I know we have been guilty of this in the past, of questioning the rationale of assisting countries that may eventually become our competitors, the simple truth is that unless the least-developed countries are able to grow and prosper, they will never be able to improve living standards and purchase more of our agricultural products. The developing countries of sub-Saharan Africa must have the opportunity to establish their domestic industries and must have access to the markets of developed countries to generate the income to import our agricultural products.
The Uruguay Round Agreement on agriculture recognized that developing countries would need more time to establish their productive capacity. The Agreement provides ''special and differential'' treatment for developing countries by giving those counties up to 10 years to implement commitments to reduce tariffs. The least-developed countries must bind tariffs but are not required to make further reductions. The next round of WTO negotiations on agriculture should further efforts to improve market access. All nations should commit to tariff reductions.
South Africa is typically a net exporter of corn. However, in periods of drought-induced shortages, South Africa has imported substantial quantities of U.S. corn. In 1992–93, South Africa was our fourth largest corn customer. The following year, South Africa purchased no U.S. corn. If the South African economy continues to grow, domestic demand for corn is expected to rise and the level of exports would decline.
Under the Sanitary and Phytosanitary Agreement, WTO member nations agreed to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. Developing countries were given additional time to comply with the SPS Agreement.
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The future trade situation for corn is complicated by our use of biotechnology to produce corn. U.S. farmers have readily adopted seed biotechnology as an environmentally sound and cost-effective option to control insect pests and weeds. We are confident that the approval process in the United States ensures the safety of the products in food, in the environment and in our fields. Nonetheless, some of our customers have raised concerns about the new technology.
Some of our trading partners in Africa and the Middle East have participated in negotiations for the Biosafety Protocol. Current draft versions of the Protocol would severely disrupt global trade in corn by requiring what are called Advance Informed Agreements for bulk commodities. The negotiators apparently fail to realize the impossibility of segregating approved varieties from unapproved varieties on a commercial scale. We respect our customers' right to establish standards for products of biotechnology, but we cannot allow unsubstantiated health and safety claims to undermine WTO rules. It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data requirements, review and approval or, alternatively, mutual recognition of approvals.
We want to reiterate our objective that U.S. policy clearly and consistently promotes fair and open global trade to assure U.S. corn and its products full access to world markets. Thanks for this opportunity to express our views, and I look forward to your questions.
[The prepared statement of Mr. Hardie appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, Mr. Hardie, for an excellent statement.
Very quickly, one of your last sentences intrigued me. Do you think that a free trade agreement between South Africa and the European Union, would hurt U.S. corn exports? Obviously, it would.
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Mr. HARDIE. Yes.
The CHAIRMAN. No question about that. We are further hamstringed because we cannot negotiate without fast track.
To each of you, we have been talking about the poorer countries. Let's talk about the richer countries, especially Egypt and Israel. My question to you is, since it is no secret that we export some $5.5 billion every year to both Egypt and Israel, three and two in that mix, three to Israel and two to Egypt, are we getting our share of the corn, wheat and cotton market in those countries in which we are the only country in the world that directly subsidizes, directly sends money to both countries? Are we getting our share of the markets? Mr. Hardie.
Mr. HARDIE. We could always use more, certainly. With the corn prices where they are, I think in my area they are sub $2, I think we certainly need to continue to remind these countries of our good neighbor status; and, hopefully, they will come to the table and buy our products.
The CHAIRMAN. Exactly. Mr. Flory, do you have any numbers?
Mr. FLORY. No, I don't. We would be glad to provide that though, Mr. Chairman.
Mr. FLORY. Certainly those are competitive markets and we have to fight for our market share there and will continue to.
The CHAIRMAN. I am sure. I know we must fight for our market share, but we ought to at least have a cup of coffee, since we sent them $5.5 billion, while we trade, don't you think?
Mr. FLORY. Yes, I do.
The CHAIRMAN. Mr. Baxley, do you have any comment on either Egypt or Israel?
Mr. BAXLEY. Mr. Chairman, as I mentioned in my testimony, Egypt is a direct competitor, particularly with our ELS cotton and with our far western producers. As for Israel, we supply them with the varities and technology to produce cotton and have so for quite some time. There, again, they are another competitor.
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The CHAIRMAN. Well, the reason I am asking each of you, and I would like to have you research that question for me, because I am taking this committee to Egypt, and we are going to be discussing agricultural trade with Mr. Mubarak on down through the Egyptian Government. So I would like to have you report to me in writing as soon as you can.
Mr. Stenholm.
Mr. STENHOLM. All three of you have testified to the importance of the export market, the various hindrances that we have in America in competing in that market with mainly the European Union.
I guess, first off, a statement, Mr. Chairman. It seems to me with the general trend in the testimony today that we have heard that this should be a good starting point for a new, massive effort on the part of this committee in a bipartisan way to convince our colleagues, with your help and the other agricultural organizations that support fast track, IMF, MFN for China and the problems that unilateral sanctions are, in fact, creating for the American farmer when they are made not in the context of multilateral concerns of the free world but in unilateral decisions. That is four general areas in which, if we do not have some significant breakthroughs soon, we are going to have even deeper problems down the line as a result of our commitment to a market-oriented agriculture, which we all support, at least in theory.
Somehow, some way, we have got to convince more of our colleagues, even on this committee, that fast track is important from the standpoint it is not NAFTA, it is not GATT, it is whether or not we are going to have negotiators sitting down soon with full authority of the United States to negotiate away the barriers that are keeping you and those that you represent from competing in the international marketplace. That is all it is.
It is very frustrating to continue to hear some of the opposition to fast track coming from agricultural countries, when we see that really what we are talking about is trying to do away with these, including sanctions.
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This is something that, as I mentioned earlier today, that we need to look in the broad context at, and we need to engage the State Department and we need to engage the other folks that do not understand what you have told us today.
So, somehow, some way—I know that there is either a hearing or a press conference in the Senate, Mr. Chairman, this morning, by the previous occupier of your chair, Mr. Roberts, dealing with this; and I know your sentiments, Mr. Chairman. You have been very eloquent. You have led this committee all over the world in attempting to deal from the Congress of the United States with other legislators and parliamentarians, et cetera, with these problems.
But there are some things we have to do to help ourselves. We can't just sit back and point the finger at somebody else; and we have to be careful what we are saying, too. Because sometimes we say one thing in one context with one audience and then we come back to our farm country and say a different thing in a different context. We have to understand we are in the international marketplace with our words as well as our deeds.
Your testimony is excellent. One or two quick questions.
Mr. Baxley, what is the value of 5 million bales of cotton exported by Africa compared to the value of U.S. exports of 6 to 8 million bales? What is the value?
Mr. BAXLEY. Of course, it would depend on the quality of the cotton and the price assumption. Today, export value for 6 to 8 million bales, would be $2 1/2 billion to $3 billion. In Africa, today, around $2 billion.
Mr. STENHOLM. Then you point out it is questionable whether the cotton producer in West Africa is compensated in any relationship to world price. What do you mean by that?
Mr. BAXLEY. Well, the West African cotton is being produced in a noncompetitive, centrally planned economy. Its price does not reflect the supply and demand, but it is more geared to generate foreign exchange.
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Mr. STENHOLM. You were suggesting that maybe France is involved in this?
Mr. BAXLEY. That is correct.
Mr. STENHOLM. Is it possible or probable or is it really the European Union, the Chairman's charts of the value that some of that European Union money is directly involved in assisting African producers?
Mr. BAXLEY. That is correct. I was mentioning the French-franc zone of Africa. Those growers I think are selling, from information I have here, their cotton for about 41 cents a pound which is considerably less than average world price has been in recent years. This discrepancy would be attributable to the fact that the prices are set by the governments and the farmers have to sell to a state-controlled buying monopoly.
Mr. STENHOLM. Mr. Chairman, that is interesting. Not only do the European Union subsidies affect us directly in the grains but also now directly-indirectly in other countries of the world. It is something we have to be diligent in following as we get into these negotiations.
The CHAIRMAN. I thank the gentleman.
I am sure, Mr. Baxley, you have been in touch with Ms. Barshefsky and Ambassador Scher regarding this particular situation in Africa. You have?
Mr. BAXLEY. I have not.
The CHAIRMAN. I urge you to do so. Let me ask you to make that case to this committee, and we will make sure that it goes downtown to the Ambassador.
Mr. STENHOLM. Mr. Chairman, coming from good cotton country like you do, I know you will help me in making sure that the Ambassador understands that.
The CHAIRMAN. I love tobacco and cotton. I grow a lot of it. [Laughter.]
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Mr. Barrett.
Mr. BARRETT. Thank you, Mr. Chairman.
Mr. Hardie, I really enjoyed your testimony, but I would think that maybe Nebraska and Iowa producers would certainly question North Dakota being the corn state.
Mr. Pomeroy, I would yield to you for a moment.
Mr. EWING. Would you yield to me?
Mr. BARRETT. No, I would not.
Mr. Baxley, I had a moment to skim your statement, and I really appreciated your comments and your support—your continued support for fast track authority. I think we have certainly dropped the ball in this particular area. I know that cotton at one time was one of our major exports and I know there had been a change in that regard or at least I believe there has. I am wondering if trade negotiations, particularly in regard to the WTO, have made it more difficult to export cotton?
Mr. BAXLEY. Well, NAFTA, for example, has opened up some really positive opportunities for us and there are opportunities in the Caribbean basin area.
The other side of that coin is we have textile products coming in from that same region that contain about 80 percent of U.S. grown raw cotton. For example, textile products that come from Asia contain only about 20 percent or less of American grown cotton. But any time we have something, like I said, like NAFTA that opens up another door for us to market our cotton, it is a real plus for us.
As a producer operating under the FAIR Act today—of course, I have said this many times, but exports are crucial to us. Any opportunity we have to open new doors or expand our export markets and, of course, maintain the ones we have now is just absolutely critical.
Mr. BARRETT. Well, with regard to problems in exporting, I am specifically interested, I guess, in genetically modified organisms. Can you elaborate, give me a little feel for that? Is there more difficulty?
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Mr. BAXLEY. There has been. Some of the European nations, for example, I would say they have equated some of the biotech, some of the bio-engineered commodities with, say, mad cow disease. They have kind of shied away from it I think because of that. Those commodities, the bioengineered cotton, soybeans, et cetera, have offered us an excellent tool in production for weed control, reduced pesticide use, reduced herbicide use on our crops, while at the same time offering in most case comparable and in some cases even better yields than conventional varieties.
It is very important that these products are accepted in Europe and sound science is used to judge these products, rather than just opinions that this could be very detrimental to us.
Mr. BARRETT. Thank you.
Mr. Flory, I know that we both have continued concerns about your industry.
Mr. FLORY. Yes.
Mr. BARRETT. I appreciated scanning your comments as well.
In regard to the focus of today's hearing at least, what market development tools would be most effective, in your opinion, for expanding trade into this part of the world?
Mr. FLORY. Well, certainly, as earlier outlined, the GSM program is, as the Secretary has called it, the big kahuna in the world market, as far as moving wheat, has been very successful and has caught some criticism by some of our export competitors around the world, so you know it is effective. I am glad to hear that, and hopefully we will continue to hear that cry from them.
Certainly EEP is another one. I want to go back to an earlier question, if I might, in regard to EEP. Certainly the U.S. wheat industry and National Association of Wheat Growers specifically have supported IMF, MFN and fast track, but some of our members hear some concern about the administration using current tools that they have at their disposal under the FAIR Act that are GATT-legal and fully funded, EEPS, a very specific one with a little more than $120 million left in it. There is some concern on the part of our members to grant the administration fast track authority when they don't use existing tools they have to the full extent that they can legally and that are already funded.
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For me as a producer, $120 million is big money. For my counterparts in the country, it is big money. In town, it is small change here. And according—as the original testimony indicated, that is a small amount of money compared to the EU. So there is some concern on the part of our growers that EEP is a tool and is not being fully utilized.
The third one would certainly be the cooperative program.
Mr. BARRETT. I appreciate that. I am sorry I wasn't here when you gave your testimony. I apologize.
In the brief time I have left, with the sanctions that are now in place in what, 70 countries, including now Pakistan and India, I guess, do you have any idea, any way of knowing what the total economic loss might be to U.S. wheat? Any estimate?
Mr. FLORY. With Pakistan and India added into that, it is in excess of 20 percent of the world wheat market.
Mr. BARRETT. In excess of 20 percent of the world wheat market.
Mr. FLORY. Yes. And certainly that does not bode well for any anticipation around the market prices and expectations down the road.
Mr. BARRETT. Thank you very much.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Barrett.
Mr. Pomeroy.
Mr. POMEROY. Mr. Chairman, I strongly agree with you that we need to legislate the clarification on GSM relative to the Arms Export Control Act. I was very pleased to be an original cosponsor of the Nethercutt bill in the House, glad with the success we had in the Appropriations Committee yesterday. I also think it is prudent for this committee to move forward.
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The CHAIRMAN. We will do that tomorrow. Thank you.
Mr. POMEROY. That is good. Perhaps it can be interpreted administratively, but the fact they are grinding on it so long, it has been called to my attention, may have actually been a drafting error in the Arms Export Control Act itself that is giving them this problem. This ought to be fixed.
I don't care if the issue of the moment can somehow be interpreted away from by the administration, that is terrific, but we have to move legislatively to fix it once and for all.
The CHAIRMAN. If the gentleman will yield, I thank you for that statement, and I underline the emergency of doing this before this season's crop is for sale. We need to do it now.
Mr. POMEROY. We need to do it right now. I am very pleased the administration supports the legislative fix, too. So we are all on board. Let's just do it.
Wallie, I want to show you my arm is healed after the fast track lobbying you engaged in.
Mr. HARDIE. It was bruised at the time.
Mr. POMEROY. Is it the position of all three groups that the IMF replenishment also should move forward as quickly as possible?
Mr. BAXLEY. Yes.
Mr. FLORY. Yes.
Mr. HARDIE. Yes.
Mr. POMEROY. We are really jammed on that one here, and I think that even recent news reports about the Asian mess being a little more complicated, a little more prolonged than maybe originally thought, is having ramifications near and dear to us, the stock market valuation over the last few days, and much more serious concern raised in Russia, Brazil, some of the other developing countries across the globe. Clearly, we need to replenish that IMF as soon as possible. Thank you for your support on that position.
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Mr. Flory, how are your wheat producers doing?
Mr. FLORY. Well, certainly, Congressman, if you have been home lately, you probably know as well as I. My phone rings consistently about, as I referred to earlier, the anticipation around this wheat market. This industry is in a liquidation mode at these prices, and any duration of sales at these prices does not bode well certainly for the lending industry, those around it, the supply industry as well as, ultimately, the producers that I represent.
Mr. POMEROY. Our folks are not getting their production costs in their market price, not even able to cover their costs. Is that the case in Idaho as well?
Mr. FLORY. It certainly is, Congressman, across a number of commodities, the cereals specifically, wheat in this case, without exception, whether it is $2.50 in the panhandle of Texas per bushel or whether it is $2 out in eastern Idaho net to the producer.
Mr. POMEROY. Mr. Chairman, I would encourage you to note the plight of the wheat producer, particularly the cereal grains under present market price conditions. I think it really invites further exploration by this committee in terms of how the existing structure of the farm programs is responding to it or is incapable of responding to it.
I just think we ought to have an agenda. Let's just start having some fact-finding hearings on it. We really have a very important development in the crops that we grow in our area in that, literally, farmers are not getting their costs back in the price, the market price. We are seeing a level of stress on production of agriculture in North Dakota that is the worst I have ever seen in my prior life, just for your advisement.
On to what we might do about it. I agree with you that aggressive embrace of the export tools is critical. I am also disappointed that EEP has not been used more aggressively. However, they tell me back that the Europe subsidy level of wheat in particular has dropped. In fact, it dropped pretty convincingly.
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They also tell me that the relative subsidy dollars they have budgeted versus what we have budgeted is amazing. It would be, in this case, we get in a subsidy war with them, we are going to lose, unless we are prepared to match it about $1 billion a year through the program. So there is some apprehension about starting down the road. When you know you have got like a squirt gun, you don't pick a fight with a guy that has a tommy gun.
I think that some of the creative use of—I will not call it creative—appropriate use of GSM and other trade tools has been pursued rather than EEP for the fear of triggering a trade war, one we are going to lose in light of the existing funding of the program. Your thoughts?
Mr. FLORY. Certainly, that is fairly accurate. We had $150 million in EEP, and certainly less than $30 million of that has been expended. The Australians and the EU, Canadians and EU just recently have worried about engaging in a trade war with the United States. Well, I know that one sale about a month and a half ago of EU barley or EU wheat went out at 66 cents per bushel. That was substantially below market rate.
I would say we have been in a trade war. They have Scuds. We have had an air gun. And the air gun was only shot on a recent 25 million metric ton barley EEP, which—I am a sizeable barley producer myself and was here during that action. I think it is a trade war, but I don't really think that we have even got a BB in our gun, let alone anything powerful to shoot at them, especially when we do not use the EEP that is there.
Mr. POMEROY. That is the issue. These analogies we use, we are outgunned in light of the existing funding put into this program. So do you start down the road in light of the fact that wheat subsidizes in general, with some exceptions, have come down—and we start the fight, especially looking at the significant European stocks to come, they will have tremendous domestic pressure to subsidize the heck out of it regardless of whether we are giving them provocation.
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Frankly, I am of mixed mind. I am disappointed we haven't used EEP more aggressively, and I have pounded on the Secretary to do so. He tells me this back—and I can't discount it as excuse. It actually has some substantive merit, and I am still wrestling with it.
Mr. FLORY. Any day in any market, whether it is a hot day with a lemonade corner stand or wheat in a highly competitive market, any part of a market is anticipation. Certainly on the part of U.S. producers and our customers, there is little anticipation that the U.S. is going to either meet in tough negotiations or current use of tools that are authorized and GATT-legal, that we are going to meet the competition.
Mr. POMEROY. Final question. You are the Secretary of Agriculture. You know you are outgunned. You have $120 million. They have $8 billion. What do you do? Do you throw the long ball and just see if they retaliate? What do you do?
Mr. FLORY. Certainly begin tough negotiations with them under the existing dialogue that has begun. And certainly, heading toward WTO 1999, I would use the $120 million and say, we will retaliate. We will go back to Congress for more, for the $550 million that has been approved by the Senate and I hope is authorized by this House and say, we will meet you head on.
You guys need to—this is a European social policy. This is not a good trade policy. We need to go head on. We are going to go head on with you, and I would put my fist on the table and say, I am going to the President and Congress and going to tell them and get the authority, and you guys are going to quit. And we are going to meet you, if you don't quit, head on with whatever tools we have.
Again, that would change the tenor and the anticipation which you alluded to earlier of being quite negative in the country.
Mr. POMEROY. I have got a lot of sympathy for that viewpoint. The only thing is, you come back with an empty holster if Congress does not appropriate the money. In the meantime, they actively subsidize their exports and the price to our farmer goes down. I mean, there is some significant risk. It is emotionally satisfying, it is politically excellent, but there is quite a bit of substantive risk involved that market prices could actually even go down further.
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The CHAIRMAN. We have to move along. Thank you, Mr. Pomeroy.
Mr. Ewing.
Mr. EWING. Thank you, Mr. Chairman, and thank you for holding this meeting.
You know my interest in trade; and, Mr. Hardie, I want you to know that my friend, Mr. Barrett, had to leave because he was too embarrassed that he left Illinois out of the great corn-producing states.
For South Africa, why the vacillation there? One year, we sold them a lot, I believe you mentioned that, and the next year, none.
Mr. HARDIE. They have huge climatic variations. I mean, if it stops raining in South Africa, they don't have a corn crop. If it rains consistently, they have a big crop.
Mr. EWING. So we filled the——
Mr. HARDIE. They are suppliers, and they had to supply their customers, and we filled it for them.
Mr. EWING. Mr. Flory, I appreciate, in your comments, your support for my trade bill on the embargo, and I hope all of your commodity groups, if you haven't looked at that, will look at it.
I also want the record to be very clear that it is more of symbolism than actually keeping it from happening, but I think it is the right type of symbolism for the administration and for us to set. Because the President, if we pass a resolution, could veto it; and it would be hard to override. But you understand he has to consider that very strongly before he does that veto.
And, finally, Mr. Bereuter and I have a bill on most-favored-nation status for China, and I think if the commodity groups—I would hope they would look at that bill. I am sorry I don't have the number on the tip of my tongue, because I think we need to find a new way to address that problem, and there is the potential for China to come into the World Trade Organization at some time, and if we haven't granted permanent, most-favored-nation status, the rest of the world has the new market, not the United States, or access to try and get our share of it. Are your groups working on that?
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Mr. HARDIE. Certainly.
Mr. FLORY. Yes.
Mr. EWING. I think it is extremely important and the trade bill that we are going to mark up here tomorrow, thanks to the chairman, I also will probably send it to Foreign Relations. And I know that is probably not the place the commodity groups have their strongest influence but we certainly would welcome your support with members of that committee to get that bill out of Foreign Relations and onto the floor for a final vote.
Thank you, Mr. Chairman.
The CHAIRMAN. I thank the gentleman, and I thank the panel. It has been very informative. We were pleased to have you here.
This hearing is adjourned.
[Whereupon, at 12:05 p.m., the committee was adjourned,subject to the call of the Chiar.]
[Material submitted for inclusion in the record follows:]
Statement of Ellen S. Levinson
Mr. Chairman, I appreciate this opportunity to testify before the committee on issues to be addressed during the next round of multilateral trade negotiations particularly in relation to U.S. agricultural trade with African and Middle Eastern countries.
I am government relations advisor at the firm Cadwalader, Wickersham & Taft and I also serve as executive director of the Coalition for Food Aid. The members of the Coalition are private, non-profit organizations and cooperatives that design and implement food aid programs and conduct many other activities in developing countries to improve the quality of life and promote economic growth.The members of the Coalition for Food Aid are: ACDI/VOCA, Adventist Development & Relief Agency International, Africare, CARE, Catholic Relief Services, Food for the Hungry International, Save the Children, OIC International and World Vision Relief & Development, Inc.
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Nearly all of the countries in the Middle East and Africa that are members of the World Trade Organization (WTO) are considered ''developing countries'' in WTO parlance. As lower-income countries with limited export capacity and purchasing power, they are concerned about being ''marginalized'' through multilateral trade agreements. Thus, special and differential measures were provided to these and other developing countries as part of the Uruguay Round (UR) Multilateral Trade Agreement. The extent to which these measures have been implemented is an important issue for developing countries and it will affect the positions they take as the 1999 agricultural trade negotiations get underway.
1. U.S. AGRICULTURAL TRADE WITH THE MIDDLE EAST AND AFRICA
WTO Membership: Only a handful of African countries are not members of the WTO. Of those, Algeria, Sudan and the Seychelles are seeking membership. Several countries in the Middle East are not members, including Lebanon, Syria, Iraq and Iran. Jordan and Saudi Arabia are not members, but they are seeking to join.
None of the nearly 50 disputes before the WTO involve an African country, and Turkey is the only Middle Eastern member that is a respondent in a suit.
Trade with the United States: In the Middle East, Turkey and Saudi Arabia are the largest commercial markets for U.S. agricultural products, while in Africa, Egypt is the largest. In fiscal year 1997, agricultural exports to the Middle East were valued at $2.506 billion and exports to Africa were valued at $2.231 billion. Within Africa, the northern tier of countries imported 65 percent of the total, and the remaining 35 percent was purchased by Sub-Saharan African countries.
Several Middle East and African countries are leading markets for U.S. agricultural exports, particularly wheat exports to Egypt and Iraq, corn to Egypt, Saudi Arabia and Algeria, and cotton to Turkey.
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Food aid purchased on the U.S. market is an important source of commodities for this region. Under the UR Agreement, bona fide food aid is a green box activity, and is therefore allowed without limit if conducted in accordance with international guidelines (set by the Food Aid Convention or FAC).
The purpose of food aid is to provide agricultural commodities either in a grant form or through highly concessional loans to countries that cannot afford to procure, on commercial terms, adequate amounts of foodstuffs to meet basic needs. In FY 1997, the following levels of food aid were provided to this region:
P.L. 480 title I (loans for purchases of U.S. commodities on highly concessional terms or grants through the Food for Progress Program): $20 million to Africa (Angola, Congo, Cote d'Ivoire) and $21 million to the Middle East (Jordan).
P.L. 480 title II (commodity donations to targeted population groups primarily through programs established by private non-profit organizations, cooperatives and international organizations): $340 million to AfricaThe Title II FY 1997 countries in Africa were Angola, Benin, Burkina Faso, Cape Verde, Chad, Cote D*Ivoire, Eritrea, Ethiopia, Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Liberia, Madagascar, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Sierra Leone, Somalia, Sudan, Uganda and Zambia.
and $25 million to the Middle East.The FY 1997 Title II countries in the Middle East were Egypt, Iraq, Jordan, Morocco, Tunisia and Yemen.
P.L. 480 Title III (commodity donations to food insecure, less developed countries): $29 million to Africa (Eritrea, Ethiopia and Mozambique)
Most of the 20 best growth markets for U.S. agricultural exports to year 2000 identified by USDA are former or current P.L. 480 commodity recipients, including, Korea, Hong Kong, Taiwan, Indonesia, Philippines, Thailand, Malaysia, Singapore, Mexico, Turkey, Algeria, Egypt and several European Union (EU) members. Countries that have essentially graduated from the P.L. 480 program purchase about 40 percent of U.S. agricultural exports.
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2. DEVELOPING COUNTRIES AND LEAST DEVELOPED COUNTRIES
Developing Countries: Approximately 100 of the 132 members of the WTO are self-described developing countries. All African-country members and most Middle East-country members consider themselves to be developing countries. They can be described, in general, as lower-income countries with an interest in liberalizing world trade in order to gain access to markets for their products in developed countries through the phase out of quotas and through reduced and bound tariffs. Excluding developing countries that were members of the Cairns Group, the developing countries that were active in the UR negotiations had a 20 percent share of worldwide agricultural exports and a 22 percent share of worldwide imports. When these countries coordinated their efforts, they were able to negotiate some important concessions during the UR.
Least Developed Countries: Least Developed Countries or LDCs are the poorest of the developing countries. Many African countries place themselves in this category. They account for a very small share of worldwide exports and imports. They typically depend on a few export products (such as coffee and cocoa) to bring in needed hard currency, and are therefore very vulnerable to changes in supply and demand.
Their goals during the UR were similar to those of other developing countries. However, it was particularly critical for them to gain agreement from the Ministers that LDCs have special needs for:
financial support to compensate for a loss of preferential treatment for their main exports into the international markets;
food aid to compensate for potential increases in agricultural prices due to declining export subsidies;
technical support to strengthen their capacity to compete effectively in world trade and to integrate into the global economy; and
elimination of tariff and non-tariff measures on products that they export to other countries.
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For LDCs, relying on market reforms and liberalized trade as the engine for economic growth will not suffice. Since most people in these countries live in poverty, targeted assistance is also needed to improve the living conditions and provide basic services. In Sub-Saharan Africa 65 percent of the people do not get enough to eat, the average annual income is below $500, fewer than half of the primary school-age children attend school and adult literacy is 50 percent .
In today's global economy private capital is the dominant source of investment funds, but LDCs attract very little of this private capital. This is largely because of unstable economies and widespread poverty, and a lack of basic financial, legal and physical infrastructure needed to support such investments.
LDCs in Africa are also considered risky because many of them are overcoming years of repression and political instability. Just 40 years ago, there were only seven independent countries in Africa: five in North Africa, Ethiopia and Liberia. During the Cold War, Soviet containment was the foundation of U.S. foreign policy. The economic and military aid that flowed to a handful of African countries was based on strategic alliances, often resulting in support for repressive regimes and centrally-controlled economies, but doing very little for sustained economic growth.
Today, in contrast, many African countries are following International Monetary Fund (IMF) and World Bank (WB) proscribed structural adjustment programs. Hard currency is going toward servicing debts and Federal spending is being cut. Some of these changes, such as phasing out costly price supports, can provide new opportunities through improved market access for producers and market efficiency. Moreover, once these reforms take hold, it should be possible to attract the investment needed to develop the resource base—minerals, hydroelectric power and irrigation for agriculture. However, in the meantime, these countries are seeking development aid and debt restructuring.
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Therefore, for LDCs it very important to gain special treatment under the WTO, including technical assistance to develop policies and practices that will help their integration into the global economy.
3. SPECIAL PROVISIONS IN THE UR AGREEMENT FOR DEVELOPING COUNTRIES
Recognition of Least-Developed and Net Food-Importing Developing Countries: At the close of the UR in Marrakech in 1994, the Ministers recognized that with fewer subsidized agricultural exports, developing countries that are net importers of agricultural commodities may be subject to higher prices for some products. Since this could have a negative impact on these food insecure and poor countries, the Ministers issued a decision on Least-Developed and Net Food-Importing Developing Countries stating that the legitimate food needs of these countries should be monitored by the WTO Committee on Agriculture and certain measures should be taken to provide appropriate aid to such countries. The Ministers agreed to the following measures:
1. To review the food aid levels established under the Food Aid Convention (FAC) and (a) to initiate negotiations to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries, and (b) to adopt guidelines to increase the proportion of food aid provided in grant form or through appropriate concessional terms in line with the FAC.
1. To give full consideration in their aid programs to requests for technical and financial assistance to improve agricultural productivity and infrastructure in these countries.
2. To ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favor of these countries.
3. To consult with the IMF and WB about short-term difficulties some countries may have in financing normal levels of commercial imports and whether these countries may be eligible to draw on the resources of these institutions.
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Special Treatment of Developing Countries: The WTO agreements provide for special concessions to developing countries by developed countries, plus technical assistance and more time is provided to developing countries to fulfill certain WTO commitments. In the agriculture-related agreements, there are some special and differential treatments for developing countries, such as:
1. They are subject to tariffication, with less stringent reduction requirements. The minimum reduction in tariffs is 10 percent (compared to 15 percent ) over a 10-year (compared to 6-year) period, with an average reduction commitment of 24 percent (compared to 36 percent). They may develop a ceiling binding, which is a bound cap on a tariff that can be higher than the existing un-bound tariff rate. LDCs are subject to tariffication, but are exempt from reduction commitments.
2. The quantity of products exported with subsidy must be cut by 14 percent (compared to 21 percent) and the budgetary outlays for export subsidies by 24 percent (compared to 36 percent) over a 10-year (compared to 6-year) period. They are exempt from the reduction commitments for marketing and internal transport subsidies.
3. Internal supports must be reduced by 13 percent (compared to 20 percent) over a 10-year (compared to 6-year) period. They are exempted from reductions in the following amber domestic support policies: investment subsidies generally available to agriculture, support to producers to encourage diversification away from the growing of illicit narcotic crops and agricultural input subsidies to low-income or resource-poor producers.
The Sanitary and Phytosanitary (SPS) Agreement calls for bilateral and multilateral assistance to developing countries to help them strengthen their food safety and animal and plant health protection systems.
4. WTO IMPLEMENTATION OF THE SPECIAL PROVISIONS FOR DEVELOPING COUNTRIES
Trade and Development Committee Activities: The WTO Committee on Trade and Development monitors the implementation of provisions favoring developing countries and seeks ways to provide for increased participation of developing countries in the trading system, include access to technical assistance. WTO members inform the Committee about particular concessions, such as lowering tariffs preferentially for products from developing countries.
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Priority for assistance is given to LDCs. The Subcommittee on Least Developed Countries, which reports to the Trade and Development Committee, develops ways to work with these countries to assist them in meeting the requirements of the WTO, including access to legal assistance and priority access to WTO-sponsored training sessions on trade policy.
Technical Cooperation and Assistance: The WTO holds training sessions on trade policy in Geneva and workshops in various countries. There are two special programs for African countries, the Integrated Technical Assistance Program in Selected Least-Developed and Other African Countries and a series of regional seminars. Funding for technical cooperation and training is provided through the WTO budget, voluntary contributions from WTO members and cost sharing by participating or host countries.
The WTO also created an Internet Trade Reference Center to provide training to countries that enroll. In addition, training and information resources are being made available to developing country trade officials through the Internet, CD-ROMs and diskettes.
High Level Meeting on LDCs: In October 1997, a High-Level Meeting on LDCs was held at the WTO involving six intergovernmental agencies. A series of recommendations were produced to help such countries build their trading capacities, meet their commitments under the WTO and develop the infrastructure needed to attract investment. At the recent WTO Ministerial Conference, in the May 20, 1998 Ministerial Declaration, it was agreed that the General Council will meet in special session in September 1998 and periodically thereafter compete its work on a variety of matters, including following up on the recommendations made at LDC Meeting.
The first result of the LDC Meeting was the endorsement of a trade assistance program, the Integrated Framework, which was first announced at the Singapore Ministerial Conference in December 1996. Under this Framework, an LDC identifies its specific needs and can request participating intergovernmental agencies to develop a program of trade-related technical assistance ( the Integrated Response), which may include:
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human resource training and institution building in trade-related areas (e.g. customs departments, trade promotion councils, trade ministries),
regional groupings that expand the size of potential markets available to investors in LDCs,
giving priority in public sector investment programs to strengthening trade-related infrastructure investment (e.g. transportation and telecommunications networks), and
trade support, business information services and establishing public-private sector partnerships.
A second result was the announcement of new or additional preferential market access measures for LDCs taken or proposed to be taken by 27 developed and developing countries. The United Sates offered to improve access to U.S. markets for the countries of Sub-Saharan Africa through the Africa Initiative, which has similar purposes as the House-passed Africa Growth and Opportunity Act (H.R. 1432). Provisions of this bill that go toward satisfying the WTO's commitments to LDCs, particularly African LDCs, are providing greater access to the U.S. market, including reduced barriers for textile imports, and greater support for investment through the Overseas Private Investment Corporation and the Export-Import Bank.
Implementing the Decision on Measures for Least-Developed and Net Food-Importing Developing Countries: At the 1996 Singapore Ministerial Conference, the Committee on Agriculture put forward an action plan to implement the Ministerial Decision on Least-Developed and Net Food-Importing Countries, which was adopted. The most explicit recommendation is to the parties that will renegotiate the FAC, calling for broader participation of both recipients and donors in the negotiations, allowing greater diversity in the commodity mix, and calling for the establishment of a level of food aid commitments which is sufficient to meet the legitimate needs of developing countries during the trade reform program. It also calls for improving the effectiveness and positive impact of food aid.
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Action is being taken now on this recommendation. Instead of completing the new FAC by June 1998, the current 8 members have agreed to extend the existing FAC until June 1999. This is to give the EU, in particular, additional time to coordinate its positions with its members.
On June 19, 1998 a draft of the new FAC with nearly completed text will be presented to the FAC by the drafting committee. The intent is to report this draft to the WTO Committee on Agriculture and to show it to countries that are not currently signatories of the FAC to seek their participation. This step is critical, since the participation of more countries is needed to increase food aid levels. Such increase would indicate that developed countries are meeting their UR commitments to developing countries.
To participate in the FAC, a country would make a commitment to provide a specific, minimum amount of food aid each year. The U.S. annual minimum commitment is 2.5 mmt, but prior to 1995, its commitment was 4.47 mmt. The total minimum commitment by all 8 signatories is just 5.4 mmt, but it was 7.5 mmt before 1995.
There is also an annual tonnage goal in the FAC of 10 mmt of food aid. Worldwide, food aid levels ranged between 10.2 and 15.2 mmt from 1985 through 1994, so this goal was exceeded. However, since 1994 the level of food aid has declined significantly, falling to less than 6 mmt in 1997. If the 10 mmt goal is eliminated in the new FAC, it will give a signal to recipient countries that developed countries do not intend to increase commitments.
Thus far, current FAC members do not intend to increase their commitments, and some may want to decrease them or to change the way that the tonnage is calculated in order to mask decreasing commitments. Any such actions would be counterproductive for future negotiations on agricultural trade with developing countries. In June 1997, FAC members met with representatives of several countries that are WTO members and also are recipients of food aid. Developing country representatives noted that the Ministerial Decision is an integral part of the WTO Agreement and that its implementation should not be one-sided. Otherwise, there will not be reciprocal commitments by the affected developing countries.
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The United States could increase its annual commitment to food aid if it decided to use the commodities currently held in the Food Security Commodity Reserve (FSCR) as a way to meet urgent humanitarian food aid needs on a continued basis. Commodities held in the FSCR can be drawn down and provided overseas either when (a) the Secretary of Agriculture determines that the domestic supply of a commodity is tight and purchases should not be made on the open market with P.L. 480 funds, or (b) there are urgent humanitarian needs that exceed the emergency allocation under P.L. 480.
The FSCR can hold a maximum of 4 mmt of a mix of commodities (corn, rice, sorghum and wheat), but only 2.5 mmt are currently being held. When commodities are released, they may be processed or fortified, or may be exchanged for other commodities, such as peas, beans, lentils, powdered milk, soybeans and vegetable oil. The Commodity Credit Corporation (CCC) must be reimbursed for the value of commodities drawn down from the FSCR with funds appropriated for P.L. 480. However, under current law such funds just revert to the CCC account and cannot be used to buy commodities to replenish the FSCR when prices are favorable.
Legislation introduced this year, H.R. 3636, would convert the 2.5 mmt of commodities currently held in the FSCR into the Bill Emerson Humanitarian Trust, which would essentially be a revolving fund for providing food aid for emergency needs. When commodities are withdrawn, existing or subsequent year P.L. 480 funds would be used to reimburse the Trust for the value of the commodities. The Secretary of Agriculture would have authority to use the funds held by the Trust to buy agricultural commodities on the market when prices are low. In this way, the Trust will be operated in a business-like manner: commodities for emergency needs overseas could be purchased in advance at reasonable prices, allowing for timely and less expensive responses to humanitarian crises.
Aid and Trade: Another recommendation made by the WTO Committee on Agriculture, which was adopted by the Ministers, is that members should consider increasing the proportion of their foreign assistance provided as agricultural and related assistance in developing countries. H.R. 3636 calls for an increase in the proportion of U.S. aid provided to the agricultural sector and for microenterprise in Sub-Saharan Africa. This type of aid can have synergistic effects when combined with policy reforms to enhance trade.
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For example, lifting government restrictions on agricultural trade can help small-scale processors and traders have access to markets and can decrease food prices for the urban poor. Reducing the influence of government marketing boards can expand access to markets for small farmers, can increase consumers' choices and can increase the amount of fertilizer, seeds and other inputs provided through the private sector.
However, to generate these grassroots benefits, small credit programs and technical assistance are often needed. Nongovernmental organizations can organize such programs. Similarly, agriculture research by international and national institutions and the private sector can help to develop disease-or drought-tolerant seeds and to identify non-traditional export crops, appropriate post harvest technologies and farming practices that help preserve land. The application of this research and technology in the field requires the coordination and outreach of nongovernmental or local organizations.
Further, U.S. assistance programs can (and some currently do) supply technical expertise to agribusiness and promote trade and investment through targeted technology transfer from U.S. experts, firm-to-firm exchanges, farmer exchanges and seminars and peer training sessions. Such market-driven efforts respond to specific requests by companies in developing countries for improving quality, identifying trading partners and comparative advantages, explaining import-export requirements and preparing companies to access foreign private investment.
Finally, the Ministers agreed to encourage international financial institutions to take steps to develop new facilities or to enhance existing facilities for relieving the financing problems of developing countries. Although the World Bank has started a program for heavily indebted nations, only 5 countries qualify thus far and this effort could be greatly enhanced.
5. ISSUES FOR THE 1999 AGRICULTURE TRADE NEGOTIATIONS
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To summarize, the following issues will be important to developing countries, such a those in Africa and the Middle East, as WTO agriculture trade negotiations get underway:
LDCs believe that they may be adversely affected by the UR Agreements in areas of market access, food security, domestic support and export subsidies. However, it would be difficult to analyze trade data to determine which effects are due to the UR Agreements, and which are due to other factors (weather, other government policies, economic crises). Therefore, it is important to seek specific examples from these countries to better understand the factual basis of these concerns. To help countries produce this information, technical assistance from the WTO or other entities would be needed.
LDCs do not believe that they are receiving the level of food and agricultural assistance that was intended under the Ministerial Decision on Least-Developed and Net Food-Importing Developing Countries, which is part of the UR Agreement. Through the FAC negotiations over the next year, WTO members could demonstrate greater commitment to increasing food aid levels. The United States has the potential to increase its food aid commitments if the current assets of the Food Security Commodity Reserve are used to establish a revolving fund or trust for emergencies. The United States can also provide a greater proportion of its aid (particularly to Africa) for agriculture and technical assistance. These actions could place the United States in a more favorable position as it negotiates with developing countries. In addition, more work could be done by the WTO to engage international financial institutions in restructuring the debt of heavily indebted, low-income countries.
Inadequate technical assistance has been provided for developing countries to conform to the SPS requirements. Since implementation by such countries is not required until year 2000, there is still time to provide the needed technical aid.
LDCs are concerned about very high tariffs on selected products (tariff peaks) that governments want to protect for their domestic producers, such as textiles, clothing, fish and fish products. Tariff reduction by developed countries, on average, are actually smaller on products that are mainly exported by developing countries (37 percent ) than on those exported by all countries (40 percent ). This could be a market access issue during the upcoming negotiations.
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LDCs also wish to seek compensation for the loss of preference margins, which are tariff concessions that are granted by developed countries on imports from certain developing countries. As these rates become the normal rates, developing countries are not reaping special benefits.
Mr. Chairman, thank you for this opportunity to testify. I would be pleased to answer any questions you may have.
Statement of Wallie Hardie
Thank you Mr. Chairman. My name is Wallie Hardie. I raise corn, soybeans, sugarbeets and dry edible beans on our farm near Fairmount, ND. I serve as chairman of the National Corn Growers Association (NCGA). We appreciate the opportunity to present our ideas for further reform in agricultural trade and to discuss trade opportunities with the countries of Africa and the Middle East.
U.S. corn farmers are efficient, productive and competitive in world grain markets. In most years, the value of exports of corn and corn products exceed the value of any other single agricultural commodity. Nonetheless, trade barriers and competitors' export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. U.S. policy must clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. This is our objective for the new round of multilateral negotiations on agricultural trade in the World Trade Organization.
Relatively high tariffs and unfair competition from subsidized European Union exports are only part of the challenge for our trade relationships with the countries of Africa and the Middle East. Unilateral sanctions against the nations of Libya and Iran cause importing nations to question our reliability as a supplier of grain. The biggest obstacle to exports to Sub-Saharan Africa is the abject poverty in much of the region.
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NORTHERN AFRICA AND THE MIDDLE EAST
The countries of Northern Africa and the Middle East are important destinations for U.S. corn. Last year, those countries accounted for almost 15 percent of U.S. corn exports. Egypt is our largest corn customer in the region, followed by Saudi Arabia and Algeria. Other significant export customers include Israel, Turkey, Morocco, Jordan, Lebanon, Syria and Tunisia.
We exported 21.5 million bushels of the 1994 corn crop to Iran. Iran ranked 15th among all corn customers that year. The following year, with sanctions in place, that export market was eliminated for U.S. corn farmers. After three years of sanctions, corn ending stocks will be 60 million bushels higher than they would be if we simply had normal trade relations with Iran. Since producers bear the full brunt of the lower prices that result from increased carryover supplies, we must insist that the U.S. Government weigh the cost to our own economy before imposing unilateral sanctions around the world. Even when the sanctions are eventually lifted, U.S. exporters will have to rebuild relationships with former customers and will have to convince those customers that the United States can be a reliable supplier.
SUB-SAHARAN AFRICA.
The developing countries of Sub-Saharan Africa imported about one-half of one percent of U.S. corn exports last year. The extremely low per capita incomes limit the export potential for corn which is primarily used for food purposes. With the support of developed countries, this situation can improve over time. Many countries in Sub-Saharan Africa have made real progress towards implementing the structural reform that can lead to economic stability and growth.
The United States must be willing to help the poorest nations meet basic nutrition, health, and education requirements. Targeted food and financial assistance can actually prime the pump in countries that must expand food production and consumption. Most P.L. 480 exports to Sub-Saharan Africa were provided under Title II, humanitarian and emergency relief. Although U.S. agricultural organizations have often questioned the rationale of assisting countries that may eventually become our competitors, the simple truth is that unless the Least Developed Countries are able to grow and prosper, they will never be able to improve living standards and purchase more of our agricultural products. The developing countries of Sub-Saharan Africa must have the opportunity to establish their domestic industries and must have access to the markets of developed countries to generate the income to import our agricultural products.
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The Uruguay Round Agreement on Agriculture recognized that developing countries would need more time to establish their productive capacity. The Agreement provides ''special and differential'' treatment for developing countries by giving those nations up to 10 years to implement commitments to reduce tariffs. The Least Developed Countries must bind tariffs, but are not required to make further reductions. The next round of WTO negotiations on agriculture, should further efforts to improve market access. All nations should commit to tariff reductions.
South Africa. South Africa is typically a net exporter of corn, however, in periods of drought-induced shortages, South Africa has imported substantial quantities of U.S. corn. In 1992/93, South Africa was our fourth largest corn customer. The following year, South Africa purchased no U.S. corn. If the South African economy continues to grow, domestic demand for corn is expected to rise and the level of exports would decline.
SANITARY AND PHYTOSANITARY (SPS) AGREEMENT.
Under the Sanitary and Phytosanitary (SPS) Agreement, WTO member nations agreed to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. Developing countries were given additional time to comply with the SPS Agreement.
The future trade situation for corn is complicated by our use of biotechnology to produce corn. U.S. farmers have readily adopted seed biotechnology as an environmentally sound and cost-effective option to control insect pests and weeds. We are confident that the approval process in the United States ensures the safety of the products in food, in the environment and in farmers' fields. Nonetheless, some of our customers have raised concerns about the new technology.
Some of our trading partners in Africa and the Middle East have participated in negotiations for the Biosafety Protocol. Current draft versions of the Protocol would severely disrupt global trade in corn by requiring Advance Informed Agreements for bulk commodities. The negotiators apparently fail to realize the impossibility of segregating approved varieties from unapproved varieties on a commercial scale. We respect our customers' right to establish standards for products of biotechnology, but we cannot allow unsubstantiated health and safety claims to undermine WTO rules. It is our goal to assure that the standard for biotechnology is based on sound science. We would like to see harmonized standards for data requirements, review and approval or, alternatively, mutual recognition of approvals.
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Conclusion. We want to reiterate our objective that U.S. policy clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets. Thank you for this opportunity to express our views.
Statement of Bill Flory
Good morning Mr. Chairman and members of the committee. My name is Bill Flory. I am a wheat and barley producer from Culdesac, ID. I appear before you today as president of the National Association of Wheat Growers on behalf of our producer members who, as you know, are increasingly reliant on trade for their living.
We eagerly anticipate the beginning of the next round of multilateral trade negotiations and applaud the commitments reached during the May 18–20 Ministerial Meeting in Geneva, Switzerland to begin the preparatory work as soon as possible. The situation we face in the world wheat market makes it imperative that the negotiations for greater liberalization for global farm trade begin on schedule in 1999. We are particularly interested in the development of disciplines on the anti-competitive pricing practices of State Trade Enterprises (STEs), namely the Canadian and Australian Wheat Boards. Our other objectives include: reform of the European Common Agricultural Policy and its effect on world wheat trade, improved market access through transparent, science-based rules on sanitary/phytosanitary measures, and the viable accession of countries like China into the World Trade Organization (WTO).
Wheat is an export dependent commodity. Typically, we export more than 50 percent of U.S. production annually. In recent years, the amount of wheat exported has been closer to 42 percent of our production and our stocks are building. Moreover, the U.S. share of the world wheat market has dropped from a record high of 42 percent in 1980–81 to 29 percent last year. Nevertheless, U.S. wheat exports in the 1997–98 marketing year ended May 31, 1998 were up 5.6 percent over the previous marketing year. U.S. Wheat Associates, our sister organization, attributes this gain to increased sales to Egypt and Iraq.
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Our goal is to regain our predominant place in the world wheat market to the benefit of U.S. producers. While we understand that the world market is a complicated place to do business, we believe there are two simple explanations for why the United States is not faring better: U.S. unilateral export sanctions and the unfair pricing practices of competing wheat exporters. U.S. wheat trade with the countries in Africa and the Middle East are illustrative of this situation. And we thank you for the opportunity today to discuss this situation.
Sanctions. The United States maintains sanctions against the following African and Middle Eastern countries: Iraq, Iran, and Libya. This trade currently amounts to 10 percent of the world wheat market. Our position on sanctions is well known, but should be re-stated for the record. The NAWG opposes all trade embargoes or sanctions which inhibit the free export of all United States commodities whether bilateral, unilateral, or counter-retaliatory except in a national emergency or state of war. If trade embargoes or sanctions are imposed, compensation should be made to producers in a timely manner, based on current market prices.
Consistent with this position, we strongly support passage of the Nethercutt-Murray bill clarifying the Arms Export Control Act to assure that GSM credit guarantees are exempt from sanctions leveled against Pakistan and India. This limited exemption for food and food credit programs assures U.S. wheat producers continued access to our third largest export market. Passage of this legislation is very important to our industry.
We also support the immediate passage of the Lugar-Hamilton Sanctions Reform Bill (S. 1413) and Congressman Ewing's bill, H.R. 3654, the Selective Agricultural Embargoes Act of 1998. In light of the recent developments on Pakistani GSM credits and the proliferation of sanctions since the end of the Cold War, we urge this committee to revisit the Trade and Compensation provisions in the 1996 FAIR Act. It must be determined whether and how these provisions can be implemented to safeguard producers against foreign policy decisions that affect them.
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Unfair Pricing Practices of Competing Exporters: The European Union: Wheat producers in the European Union are insulated from the world market and protected from the negative price impact experienced by our producers in the last year. This has led to increased wheat production and the resumption of an aggressive export subsidy campaign. In 1997–98, the United States secured sales to North Africa during the first half of the marketing year when the EU was operating a more measured export subsidy campaign. In the second half of the year, the EU became more aggressive in the region displacing, a large amount of wheat. A projected record wheat crop in Europe for the coming year could put U.S. exports at a decided disadvantage in the North African region. The United States needs to address this unfair competition through the targeted use of our own legal export subsidy program.
The proliferation of unilateral sanctions by the United States benefits the Canadian and Australian Wheat Boards and permits these competing exporters to change their marketing practices to expand their market opportunities at our expense. This is particularly true in the Middle East and Africa. For example, prior to 1990 Canada exported on average less than one-half million tons of wheat to Iran. Since 1990, however, CWB wheat exports to Iran have averaged over 1.3 million metric tons per year. The AWB has essentially maintained a lock on the Iraqi and Iranian markets over the last decade due to the absence of U.S. competition.
Expanding market share is not the only benefit of U.S. economic sanctions to U.S. competitors. Prices charged by single-desk exporters can take advantage of the lessened competition brought about by the removal of the United States. Higher-than-prevailing market prices can be charged to sanctioned countries, in turn enabling a board exporter to charge a lower price in a market where the United States competes, and still maintain an average return. We confront this unfair competition in markets like Egypt and Yemen where the absence of an active export enhancement program (EEP) has hurt us. NAWG's Wheat Action Plan calls for the immediate reactivation of EEP to compete with the unfair, discriminatory pricing practices of STEs.
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While these problems exist, we are not without opportunities or successes. Despite the aggressive use of EU export subsidies in North Africa, U.S. wheat exports to that region have reached their highest levels in the past three marketing years. This is a tribute to the long-term market development efforts conducted by U.S. Wheat Associates and the attractiveness and competitiveness of U.S. wheat. As the markets in the North African region continue to liberalize, greater opportunities exist, provided the United States is committed to providing the tools and the desire to maintain and expand these markets for U.S. producers.
Elsewhere in Africa, Nigeria is a bright spot. The installation of a new government there is expected to result in expanded exports of U.S. hard red winter wheat in the coming marketing year.
Finally, the ongoing discussion on the effectiveness of U.S. unilateral sanctions policy provides our members with an opportunity to address the effect of these sanctions on our competition and our wheat producers. Already, the United Nations-sponsored Iraqi oil-for food program has resulted in expanded U.S. wheat exports there. However, it should be noted that our single-desk competitors, particularly the AWB, have an advantage in selling over private U.S. exporters under this arrangement. We believe that improved relations with Iran could also result in expanded U.S. wheat exports in the near future. USDA estimates that Iran will import 5.5 million metric tons of wheat in the coming marketing year.
Thank you again for this opportunity to present our views. I look forward to your questions at the appropriate time.
Statement of Tom Suber
Mr. Chairman and members of the committee, I am Tom Suber, executive director of the U.S. Dairy Export Council. 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.
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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 the nations of Africa and the Middle East.
The chairman of USDEC, Elwood Kirkpatrick, has testified before the committee earlier this year, pointing out that the U.S. dairy industry has a large and growing stake in growing export sales. The long term economic well-being of the U.S. dairy industry will depend on supplying the world's consumers consistently and effectively, because more than 80 percent of the world's total consumption of dairy products occurs beyond the borders of the United States. We are making progress in developing foreign markets and we are committed to making the United States a larger force in international dairy marketing through marketing assistance programs and trade policy. I will use this statement, in part, to share with the committee how the dairy industry believes further progress can take place.
Private sector efforts to develop international dairy markets
First, I think it is important for the committee to understand that the dairy industry continues to invest in market development. While we believe government programs and trade negotiations can play a major supporting role, we know the primary responsibility is ours. I stress this point because recently we have heard questions about the extent of private sector efforts to build international dairy markets. Many people are evidently unaware of the extent of industry efforts to grow foreign markets.
Dairy farmers, through their promotion check-off program have significantly increased their financial backing of USDEC's market development efforts in recent years. In 1998, this funding amounted to $6.4 million. Our plans include an increase of almost 50 percent in this funding over the next few years. While we are proud of the support received from our dairy farmer constituents, it is sobering to note how modest the USDEC budget is, when compared to the efforts of the New Zealand Dairy Board, or the expenditures of the European governments.
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In additional to check-off funds, USDEC has attracted dues-paying members who are major processors of dairy products. These 68 members contribute about three-quarters of a million dollars per year. In addition, USDEC receives about $2 million from USDA's Foreign Agricultural Service through the Market Access Program and Foreign Market Development program.
How are these funds used? We make substantial efforts in the areas of market research, trade servicing and market access. Through a coordinated effort, USDEC plans to facilitate an increase of more than 40 percent in dairy export volume by the year 2001. This ambitious undertaking is necessary because we know that today's export market development activities are essential for the future stability and profitability of the U.S. dairy industry.
Partnership with Government
Our private sector efforts must be matched by Government policy initiatives to reduce barriers and eliminate market-distorting subsidies paid by the European Union. Almost all studies of barriers to increased international dairy trade conclude that 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. The EU export subsidies distort world prices in all countries of the world, including those in Africa and the Middle East.
Under its WTO commitments, in the year 2000, the EU will still be permitted to subsidize the export of 400,000 metric tons of butter fat, 290,000 metric tons of nonfat dry milk, 360,000 metric tons of cheese, and 953,000 metric tons of other dairy products. These subsidies (called export restitutions) depress world prices and displace U.S. exports to many third countries.
It is true that the United States operates export subsidy programs. However, compared to Europe's arsenal of export subsidies, the U.S. Dairy Export Incentive Program assistance to U.S. exports is small and, in terms of price distortions, insignificant. In fact, the United States can subsidize only one percent of the volume of cheese that the EU is permitted to export through subsidies.
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The U.S. dairy industry looks forward to being able to compete in world markets not distorted by subsidies. With the high quality and wide variety of products flowing from the U.S. dairy industry, our companies will compete effectively.
But until such time, we must use all available tools, including the DEIP.
I will repeat the recommendation made by USDEC's chairman at the committee's previous hearings concerning Europe and Asia: reducing theEU's use of dairy subsidies must be the first priority in any new multilateral negotiations on agricultural trade.
Last year, the dairy industry provided general and preliminary comments that outlined objectives for the next round of world trade talks. The National Milk Producers Federation, International Dairy Foods Association, the American Dairy Products Institute and USDEC sent a letter to Secretary Glickman and U.S. Trade Representative Charlene Barshefsky giving our initial views on objectives. The organizations urged USDA and USTR to place emphasis on the following issues:
Ensure compliance with Uruguay Round commitments;
Seek elimination of export subsidy;
Gain greater access for U.S. dairy products;
Impose greater transparency and stronger disciplines on state trading enterprises;
Require elimination of internal agricultural supports in concert with the phase-out of U.S. supports.
Dairy export sales to Africa and the Middle East
While Africa and the Middle East are not currently large markets for U.S. dairy exports today, the population growth in those regions could lead to much larger sales in the future. The future for commercial sales, however, may be two or three decades away and will only occur if strong development assistance programs are initiated and sustained today.
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Africa's potential as a commercial market
Africa is home for nearly 700 million people, representing a potentially large opportunity for U.S. dairy exports. Half of that population is located in 14 countries. The continent contains vast mineral wealth—oil, diamonds, gold, uranium, chrome, et cetera—and could be harnessed to spur economic growth. However, the continent's problems are also vast: 70 percent of the people routinely do not receive enough to eat, average yearly earnings are only about $450, population growth is high, foreign debt is formidable, and much of the continent is subject to periodic drought.
These problems will not soon be solved and may never be solved without creative efforts to stimulate trade and judicious direct development assistance to help improve the quality of life for people.
The U.S. Dairy Export Council is interested in working with USDA and USAID to develop effective new ways to put America's food abundance to work in helping stimulate economic growth in Africa that can lead to future commercial sales. We realize that this will not be an easy or quick process. We also suspect that the process will not be easier or quicker if the needs of millions of people in Africa are continually ignored.
USDEC has begun a dialogue with some of the private voluntary organizations involved in development assistance efforts, and especially the food for Progress Program, with the goal of identifying ways that dairy products can be included in those efforts. We would welcome the opportunity to keep the committee informed on our progress.
With respect to current commercial sales, in 1996, Africa imported 9 billion pounds of dairy products on a milk equivalent, total solids basis. These imports are valued at a reported $1.2 billion dollars. Within Africa, Algeria and Egypt together account for almost half of Africa's total milk equivalent dairy imports. However, the unsettled situation in Algeria makes market development in that country a difficult and distant prospect. Yet as recently as five years ago, Algeria bought roughly half of the total U.S. exports under DEIP.
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By value, whole milk powder, skim milk powder, and butter are the largest dairy product import categories. In 1996, they accounted for 34 percent, 20 percent, and 17 percent, respectively, of the total value of dairy imports into Africa. These are products that the United States can and will supply.
The Middle East's potential as a commercial market
Export sales to the countries of the Middle East are somewhat more promising. In 1996, the Middle East imported 8.7 billion pounds of dairy products as measured on a milk equivalent, total solids basis. These imports were valued at $1.4 billion dollars. Cheese imports accounted for 30 percent of the total value of the Middle East's dairy imports in 1996. Whole milk powder was second at 25 percent , and butter was third with 16 percent of the total value.
Among the Middle Eastern countries, Saudi Arabia is a key country market. Saudi Arabia receives almost one third of the milk equivalent dairy imports bound for the Middle East. The prospect for additional commercial sales will improve if Saudi Arabia becomes a member of the WTO.
For example, WTO membership will lead to the application of consistent product standards for imports. Recently, we understand that the Saudi Government is planning to reduce shelf life for milk powder imports, attempting to limit product shelf life to only six months. By contrast, shelf life of up to two years is common in the United States. In addition, the Saudis would also require that more than 50 percent of shelf life remain when the milk powder is imported. The combination of these two requirements might be a rated shelf life of only 90 days, which is an impractical standard which would impede U.S. exports for no sound scientific reason. The potential loss to U.S. sales would be approximately $1 million annually. USDEC will be monitoring this situation closely and, if these changes are imposed, we will ask the administration to protest the action.
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Mr. Chairman, the dairy export opportunities in Africa and the Middle East are viable today and are likely to grow. As they grow, the U.S. dairy industry's stake will also increase. We look forward to supporting efforts to bring about that growth.
Let me close by saying that the entire dairy industry appreciates the support the committee has provided in developing world agricultural markets and we look forward to continuing to work with the committee to improve the dairy trade outlook.
Testimony of Roy Baxley
Mr. Chairman, thank you for the opportunity to testify before this committee today on the World Trade Organization and trade issues in the Africa region. I am Roy Baxley, a cotton producer from Dillon, SC. I am a former officer of the Producer Steering Committee of the National Cotton Council and a member of the NCC Environmental Task Force.
Trade and U.S. 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 and a half million bales, or 60 percent of annual production. But that industry must compete with the equivalent of approximately 11 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 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.
Cotton is an industrial raw material. 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.
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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 contain raw cotton or textile components 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 profit 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
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 and 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.
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The cotton industry supports fast-track authority, not as a means to obtain free-trade conditions, but rather to enable our Government to enter into trade agreements that will contribute to 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 cotton textiles, must once and for all open their markets to textile competition.
4. We support regional trade arrangements that offer great potential to enhance U.S. textile competitiveness and the demand for U.S. produced cotton.
5. We encourage U.S. policymakers to deal with the trade policies of the People's Republic of China that are causing havoc for the United States cotton industry; and
6. We urge U.S. WTO negotiators to deny a free ride to countries that have made unfair cotton and textile policies a fundamental part of their national economic policy.
Focus on Africa. At least 39 countries in Africa produce significant quantities of cotton. In 1997, almost 8 million bales of cotton were produced on the African continent. More significant is the amount they export as a group. In the French franc zone, commonly referred to as West African cotton, production has been expanding rapidly Particularly Mali.
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with about 95 percent of it going to export. Cotton exports from Africa amount to about 1/5th of world trade in cotton. In 1997, all of Africa exported a little over 5 million bales. The quantity of cotton produced by individual countries may not appear significant, but when taken together, cotton produced in the French or West African region is a significant force on the world market. West Africa, for example, is a distinguished growth of cotton and as such has a separate price quotation in world markets. It has consistently been priced below the world average price and has usually been the second lowest priced growth (second only to the quote for Uzbekistan cotton).
The United States directly competes with West African raw cotton in several markets, particularly in South America, Asia and Europe. We are still learning about production systems in the French franc zone. It appears that several french-controlled companies have virtual monopolies over cotton production in several West African countries. Those companies provide inputs, ginning and marketing services. It is highly questionable whether the cotton producer in these countries is compensated in any relationship to world price.
Further it should be noted that Egypt and the Sudan significantly affect world extra-long staple cotton markets. Cotton production and marketing in both of those countries is controlled by a state marketing enterprise.
Almost all of the countries of Africa enjoy preferential trading status with the major economies of the world. Africa enjoys preferential access to European markets, U.S. markets and Japanese markets. This special status is a result of the developed economies of the world providing assistance to the less developed economies of Africa.
At the same time, Africa has not incorporated similar trade liberalizations within its own economies. Despite the absence of significant trade barriers for its exports, Africa has not met expectations with respect to its economic growth. There are economists who believe that until African countries begin to liberalize their own economies, they will not enjoy significant development. Some of those same economists believe it is the desire to obtain trade concessions that can convince countries to undertake a measure of trade liberalization.
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The treatment of developing countries within the WTO is a primary concern of the U.S. cotton industry. Within the context of the WTO, developing country status provides countries with exemptions from many rules governing access, subsidies and discriminatory treatment. The blanket application of developing country exemptions across all sectors of a country's economy, as well as the tendency of many countries to refuse to relinquish developing country preferences even after their economy has strengthened, often results in unfair competition for the U.S. cotton and textile industries. While there is no question that most African countries meet the definition of a less developed country, the U.S. cotton industry urges our WTO negotiators to consider the impact of the type of development as has occurred in the cotton sector in the French franc zone. It may be that this area should make some meaningful commitment to discipline the use of subsidies in cotton production and processing.
The National Cotton Council urges our negotiators to limit application of special and differential treatment to those countries and those sectors of their economy where they truly are less developed. We have no quarrel with current definitions of developing country status, but believe that when a country becomes very competitive in certain product areas—such as textiles—the continuing application of special and differential treatment with respect to that economic sector puts that country an unfair competitive advantage in world markets.
It may often be difficult for countries in Africa to see great benefit in negotiating trade concessions within the context of the WTO. After all, they face relatively insignificant barriers in most important markets, therefore, having very little to gain and no reason to give up protection.
It is important that African countries begin to liberalize their own economic systems. Otherwise, they will not enjoy the economic growth associated with other countries that engage in trade liberalization under the WTO.
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We see a similar dilemma in the sub-Saharan Africa trade bill being considered by Congress. The bill makes provisions for negotiating a free trade arrangement for Africa, yet, as I indicated earlier, Africa faces minimal trade restraints on its exports into the United States and will face even less after the bill is passed. What incentive is there for Africa to negotiate a free trade arrangement containing concessions to the United States after we have already granted duty-free, quota-free access to our market?
That bill also demonstrates how short-sighted we can often become in the name of charity. The bill unilaterally grants duty-free and quota-free access to the U.S. market for textile and apparel exports from the countries of sub-Saharan Africa. It ignores previous textile trade preference initiatives, such as the Caribbean Basin Parity legislation, and instead utilizes the Generalized System of Preferences to open the doors of the United States to Asian textile and apparel manufacturers which will be able to use Africa as an export platform for transshipping their own textile and apparel products to the United States.
The bill provides limited, if any, incentive for increased manufacturing capacity in the sub-Saharan region, but puts U.S. workers and industries at risk.
The average duty break of 18 percent contained in the legislation creates a huge incentive for Asian countries to transship their products. Even without a special duty break, transshipments are already a several billion dollar problem which U.S. Customs has had little success in bringing under control. Further, the textile provisions contain an ineffective overall rule of origin and lack any rule of origin at all for the component products (the textile fabrics and yarns). The bill contains no workable enforcement mechanisms against fraud.
If our competitors follow their past practice, they will produce apparel articles in Asia (using Asian yarns and fabrics), send them to the sub-Saharan region for labeling and packaging and then export those items to the United States, labeled as being produced in the sub-Saharan region. Labeling and packaging work obviously does not lead to long-term manufacturing capabilities.
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Experience in this hemisphere shows that preferential textile trading arrangements can be drafted in such a way as to benefit our trading partners and the United States as well. Such an arrangement would provide duty-free and quota-free access to the U.S. textile market for apparel articles that had been manufactured in the region using U.S. textiles. By providing duty-free and quota-free access, such an arrangement would give African workers a significant competitive advantage. It was such an arrangement that the primary supporters of this bill in the House refused to even consider.
Mr. Chairman, sometimes charity is not the most prudent road to take in order to provide meaningful economic assistance. We believe an African trade bill could be constructed that would truly better enable countries in the sub-Saharan region to help themselves. We do not believe the legislation that passed the House is the right bill.
Overall Objectives for WTO 1999
The Uruguay Round did not provide a level playing field for international trade in raw cotton and cotton textiles. We must work for improvements. If we are to survive with reduced Government assistance and liberalized markets, we must force our competitors to give just as much.
Mr. Chairman, I am confident that the U.S. level of support for domestic agriculture is well below the caps imposed by the Uruguay Round. I am also confident that, on balance, other signatories have not unilaterally contributed 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;
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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 pry open their market. Mr. Chairman, these countries insist on wide-open access to the U.S. textile market, but manage to steadfastly avoid reciprocity.
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.
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Conclusion
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; our policy with respect to Africa; and our WTO objectives.
I want to conclude by giving you a status report about the U.S. cotton producer. We have faced very low prices throughout the planting season. The result is decreased acreage and significantly decreased production. 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.
Prices have been below costs. Financing is difficult. 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.
I want to commend the members of this committee for their leadership in getting the agricultural research bill passed. It was not easy, but that bill is very important to U.S. agriculture. I trust the increased funding promised by that legislation will be carried out in the appropriations process. After all, that legislation received one of the strongest votes in both the House and the Senate that any agriculture-related measure has received in several years. I think the members were making a statement. They know agriculture needs help and they know agricultural research offers long-term improvements in operating margins for farmers.
We also urge this committee to continue to support the Market Access Program. It is still under duress in the budget process. Funds for that program need to be maintained. We cannot falter on export promotion, particularly given the intense competition that now exists in international markets.
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.
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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. Even so, the jury is still out on the FAIR Act. Cotton's cost/price squeeze is not unique among U.S. agricultural commodities. In the global market confronting us, all of U.S. agriculture is beginning to feel the pinch of farm policy that reduced support faster than required by the Uruguay Round, and often faster than our competitors.
It has been a frustrating planting season for cotton producers. On top of weak prices, several areas in the cotton belt have had extremely detrimental weather. The only thing worse than low prices is not having any crop to sell at any price.
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. You did it on the agricultural research bill. We can avoid another farm crisis by being imaginative and aggressive now.
Statement of California Cling Peach Growers Advisory Board
The following written comments are submitted by the California Cling Peach Growers Advisory Board (the Board) for inclusion in the record of the House Committee on Agriculture's June 17, 1998 hearing on the 1999 WTO agricultural negotiations with particular focus on trade with Africa and the Middle East.
The California Cling Peach Growers Advisory Board is a non-profit quasi-governmental association representing all 750 cling peach producers and 5 cling peach processors in the State of California. Virtually all of the United States' production of cling peaches is found in California. Over ninety-five percent of that production is used for processing, the primary product being canned peaches. California canned peaches are sold domestically, their largest single market, and to export markets in the Pacific Rim, Canada, and elsewhere. The Board's primary role is to assist the U.S. industry in the development of these domestic and export markets. The major trade issue for the Board is the industry's long-standing dispute with Europe over illegal European Union (EU) canned fruit subsidies.
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For nearly two decades, the California industry has been adversely impacted by illegal EU subsidies. The subsidies, which were to have been eliminated under a bilateral Section 301 agreement, have resulted in a glutted world market for canned fruit, depressed world prices, and displacement of high-quality, higher-priced California canned peaches and fruit mixtures by subsidized EU canned peaches in all global markets. The depressed world market for canned peaches has left the U.S. industry highly vulnerable to competition from other world producers both in the U.S. market and in export markets around the world.
Because past bilateral and multilateral efforts, including a GATT action and bilateral agreement, have been unable to resolve the dispute with Europe, the industry is skeptical about any benefits a new round of multilateral agricultural negotiations will yield for the California industry. Accordingly, the industry's position with respect to the 1999 WTO multilateral negotiations is that current trade agreements must be fixed and honored before U.S. Government resources are applied to a new round of negotiations in agriculture. Otherwise, U.S. negotiators will find themselves in the weakened position of negotiating away U.S. tariffs in exchange for solutions to prior disputes that our trading partners have already long been obliged to fix.
Of special concern to the California cling peach industry with regard to trade with African countries is the likelihood of increased competition from South Africa's canned peach industry if U.S. canned peach tariffs are reduced. Because South Africa is a low-cost producer and exporter of cling peach products, California growers and processors have opposed efforts to reduce U.S. duties on cling peach items in favor of South Africa in the context of the Generalized System of Preferences (GSP) and, most recently, in the context of the Sub-Saharan African Trade bill. The preservation of U.S. duties on cling peach products at current levels and the maintenance of the industry's domestic market are matters of survival for the California industry, given that export opportunities for U.S. canned peaches are severely limited by the absence of a competitive world market for canned peaches.
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In the Middle East, Saudi Arabia and other Gulf Cooperation Council member states have adopted onerous and unjustified shelf-life restrictions that have blocked exports of California canned fruit to the region. Removal of these unreasonable shelf-life limitations should be made a condition of Saudi Arabia's accession to the World Trade Organization (WTO). Pressure should also be put on those Gulf member states that are already WTO members to remove their shelf-life restrictions, which cannot be justified by sound science.
The California Canned Peach Industry's Import-Sensitivity is Principally Attributable to Unfair EU Subsidy Practices that Exist in Violation of a Trade Agreement.
Since the 1970's, global competition in the canned peach sector has been heavily distorted by subsidized overproduction in Greece, Chile, South Africa and elsewhere. Greece has been the worse of the offenders.
Under a protected EU regime that has rewarded over-production and encouraged subsidies to both growers and processors, Greek canned peach production and exports have soared, disrupting U.S. canned peach sales in every global market. A series of USDA-developed charts depicting this wide-spread distortion is attached and should be included in the hearing record. The distorted world-market for canned peaches has severely eroded U.S. competitiveness and profitability.
In the export market, subsidized European producers have increased their exports by as much as ten-fold since 1970, while U.S. exports have fallen by nearly 70 percent . During this same period, the U.S. industry not only lost its lead export outlet, Europe, but also faced severe dislocation in its domestic market from foreign competition. Despite relatively good U.S. tariff protection of 18 percent on canned peaches (20 percent before Uruguay Round reductions) and 15.8 percent on fruit mixtures (17.5 percent before Uruguay Round reductions), U.S. imports of canned peaches have increased significantly, from 23,000 cases in the early 1970's to over a million cases in the early 1990's. Because of these trends, the U.S. industry has gone from being a net exporter to being a net importer.
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As a further consequence of import increases and export decreases, U.S. canned peach production has fallen by 30 percent since the 1970's. In contrast, production in Greece has risen by 425 percent , and in Chile by 220 percent . Production in South Africa also has increased. During this same 20-year period, U.S. cling peach acreage declined from 52,000 to 30,000 acres. The number of U.S. processors also fell from 17 to 5.
The U.S. industry and U.S. Government have expended significant resources spanning almost two decades to challenge Europe's trade-distortive canned fruit subsidies, both in the GATT and bilaterally, in order to restore a competitive global market for canned peaches. Despite a favorable GATT ruling and a bilateral agreement intended to limit EU subsidies to that sector, Greek and other EU canned fruit producers receive more aid today than they did before the bilateral agreement was reached. Today Europe is subsidizing its canned peach producers with between $160 million and $213 million annually. The U.S. Government has stepped up efforts to secure meaningful relief for the U.S. industry, including joining forces with other affected WTO-member countries under the authority of the WTO Committee on Agriculture (CoA) to eliminate distortive EU subsidies and restore market competitiveness to the global canned peach industry. We are hopeful that the protests of eleven other WTO-member countries in addition to the United States will create the pressure and resolve needed to force EU reforms. If not, another more forceful strategy is needed. At this juncture, before undue energies are applied to the 1999 exercise, decisive remedial measures should be taken to resolve this and other disputes that the EU is already bound to correct.
Moreover, as Congress considers ways to accomplish further trade barrier reductions—be it through multilateral, regional, or bilateral mean—all necessary precautions must be taken to avoid placing additional pressure on import-sensitive sectors like the California canned fruit industry, which are already in a state of full retreat due to foreign trade practices beyond their control.
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South Africa is a Competitive Producer and Exporter of Canned Fruit and Poses Increasing Competitive Concerns for the U.S. Industry.
The California industry's trade concerns with South Africa and other canned fruit-producing African countries have been in the context of preventing preferential access for those countries under the GSP statute and, more recently, under the Sub-Saharan African trade legislation. Because of the U.S. industry's unique import sensitivity and the trade-distortive effect of EU subsidies on the global canned peach market, the preservation of U.S. tariffs on canned peaches and cling peach products in all forums—GSP, bilateral trade agreements, and multilaterally in the WTO—is of critical importance. As noted below, South Africa poses particular competitive concerns for the U.S. industry because of its increasing presence as a world exporter of canned fruit products.
South Africa is a Competitive Producer of Canned Fruit.
South Africa has long been a competitive producer of canned peaches and canned fruit mixtures for the export market. It is the dominant producer of canned peaches and canned fruit mixtures in the Southern Hemisphere, with almost all of its canned fruit production (i.e., over 90 percent ) targeted to the export market. It is a supplier of predominantly choice quality canned fruit and is, thus, directly competitive with U.S. production. A March 1995 U.S. embassy post report on canned fruit observed that South Africa's ''industry has increased efficiency and is producing an even better product.'' This past year, South Africa was the second leading world exporter of canned peaches behind only Greece.
Although South Africa by far poses the most immediate threat of the African countries to the United States canned peach industry, many of the other Sub-Saharan African countries are fruit producing countries with climates and other conditions conducive to commercial peach production. It is probable that some of these countries, especially those with geographic ties to South Africa, could expand their current production or convert other fruit crops to peaches and become commercial producers.
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Since the U.S. Ban on South African Imports was Lifted in 1991, South African Canned Fruit Has Made Significant Inroads Into the U.S. Market Even With U.S. Tariffs.
South Africa has shown itself to be a competitive exporter of canned peaches and canned fruit mixtures to the U.S. market even with current U.S. tariffs of 18 percent and 15.8 percent . Since July 1991 when the U.S. import ban on South Africa was lifted, South Africa's canned fruit industry has made substantial inroads into the U.S. canned fruit market. South African exports now account for over 40 percent of total U.S. imports of fruit mixtures and 17 percent of canned peach imports. This makes South Africa the leading exporter of fruit mixtures to the United States and the third largest exporting country of canned peaches to the U.S. market. South Africa's industry is predicting that its canned peach exports to the United States will reach the record high levels set prior to the 1986 U.S. import ban. In short, with South African production expected to increase, and with its product quality and production efficiency already on the rise, that country poses a serious threat to California producers even under present market access conditions. Any reduction in U.S. tariffs will not only ensure that this import penetration occurs, it will encourage it at an even faster and greater rate.
Unreasonable Shelf-Life Restrictions in Saudi Arabia and Other Gulf Cooperation Council States Unfairly Restrict Access for U.S. Canned Fruit Exports.
Since 1993, Saudi Arabia and other Gulf Cooperation Council (GCC) member states have imposed restrictive and scientifically unsupportable shelf-life restrictions on canned fruit products, which have severally reduced opportunities for high quality U.S. canned peach and fruit cocktail exports. The maximum shelf-life period for canned fruit is 18 months for canned peaches in cans and 24 months for canned peaches in glass jars. These periods are made more onerous by the fact that the governments refuse entry of any product with less than half the shelf-life remaining at the time of import. Based on an 18 month limit for canned peaches, U.S. canned fruit packed in July must be designated for shipment to the Gulf States within a 6 to 7 month period in order to ensure that the product will be scheduled on a vessel and arrive in Saudi within 9 months of the date of pack. U.S. processors have found this 9-month time frame unworkable. The restriction also puts U.S. exporters at a competitive disadvantage relative to competitors in closer proximity to GCC markets, including subsidized Greek product.
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The GCC member states allege that the shorter shelf-life periods are needed to assure food safety under desert conditions, but have provided no scientific or commercial evidence to support their position. The California industry has urged the Administration to address the lack of scientific support for the shelf-life policies in the context of Saudi's WTO accession. Gulf States that are already WTO members, including Bahrain, Kuwait, Qatar and the United Arab Emirates, should be made to bring their shelf-life requirements into compliance with the WTO Agreement on Sanitary and Phytosanitary Measures before a new round of multilateral negotiations begins.
Conclusion.
The U.S. cling peach industry is an industry that has suffered severe dislocation as a result of unfair EU trade practices for many years. The U.S. Government has recognized the unfairness of these practices and has sought to correct the unfairness through GATT dispute settlement, a bilateral agreement, numerous consultations, and most recently multi-country pressure within the context of the WTO Committee on Agriculture. Until reform of the EU's subsidy regime is achieved and a competitive market for canned fruit restored, U.S. cling peach tariffs should not be reduced.
Moreover, before U.S. Government resources are applied to a new round of multilateral agricultural negotiations, Uruguay Round commitments, including those embodied in the Sanitary and Phytosanitary Agreement, must be honored and fully implemented by WTO-member countries. At this juncture, before a new round starts, U.S. Government energies should be used to encourage Gulf Council member states to eliminate their restrictive shelf-life periods, which unfairly and illegally limit access for U.S. canned fruit exports.
Statement of Arnold W. Donald
Thank you for the opportunity to submit testimony for the record. As a senior vice president at Monsanto Company, headquartered in St. Louis, MO. I am privileged to provide the committee with my view on some of the critical issues confronting private business as we seek to improve and expand our business and trade relationships with the nations of Africa.
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Monsanto is a world leader in delivering health, wellness, and advanced agricultural technology to over 130 countries around the world, including many of the countries of Africa. Monsanto is constantly looking to expand our global presence, developing and creating new markets for agricultural, pharmaceutical and nutrition products and technologies. The developing economies of Africa, with their breadth of needs and resources, provide many trade and business opportunities. We applaud the chairman's interest in, and leadership on, expanding African trade.
Currently, Africa constitutes only 3 percent of the world's trade. Of that 3 percent, half of that trade comes from the Republic of South Africa. As you might conclude then, the other 52 countries of greater Africa represent an area of enormous economic opportunity and investment potential for American business and specifically, American agribusiness. This is an area of vast demographic and population diversity, rich natural resources and pressing need for agricultural advancement. The challenge that both private business and government policy makers face is one of understanding how to best create the conditions that promote and accelerate greater agricultural trade and business development opportunities. While this challenge may be difficult, we believe it is far from impossible.
Having recently returned from a 2-week tour of a number of African countries, I can assure you first hand that I am excited about the potential that Africa represents. To dramatically grow trade with Africa will require strong and sustainable local African economies. We believe agricultural productivity is a key building block towards that end. The focus of this testimony will be to look broadly at the challenges facing American agribusiness corporations as they access the African marketplace.
I, along with my colleagues at Monsanto, look forward to working with you, Mr. Chairman, and the members of this committee in helping unlock the potential of one of the largest and most populous continents on the planet, Africa.
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Background
To state the obvious, today's global business environment is increasingly governed by free trade; global markets are expanding rapidly and are highly competitive. Monsanto's trade experience in over 130 countries of the world demonstrates that capital and international trade flow to countries that create an environment conducive to doing business. At Monsanto, we believe that the market potential for our products and technologies in Africa is immense. Western Africa and sub-Saharan Africa combined have over three times the land area of the United States, with 40–45 percent of that land used for agriculture. The percentage of the Gross Domestic Product attributed to agriculture exceeds 40 percent in Western Africa and over 20 percent in SSA. Compare that to 2 percent in the United States. Approximately 60 percent of the African workforce works in agriculture, compared to just 3 percent in the United States. The use of basic crop inputs is very low in Africa and as a result, yields and crop quality are also low. For example, Africa's corn (maize) yields are just 16 percent of the U.S. average.
Also, demand for agricultural commodities and for nutrition is on the rise. Africa's 700 million plus population ranks at the bottom end of the calorie consumption curve, averaging 1,500–2,500 calories per day, compared to 3,500 calories per day in the United States. This population is also increasing at the rate of 2–3 percent a year. Clearly, the market potential is there. However, as a publicly held corporation whose objective is to return maximum value to its shareholders over the life of the firm, the next important question concerns profit potential.
While profit potential is often more elusive and less immediate in developing countries, Monsanto clearly believes that long-term investment in developing countries makes good business sense. The private sector, in the main, understands this and is often prepared to invest in these markets with a longer view in mind. This strategy of early and significant investment in developing markets is clearly with some risk. While there is no promise of an immediate return on these investments, the future possibility of being on the ground floor of a rapidly developing and expanding market makes the risk more than worthwhile.
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However, it is equally important that companies like Monsanto investing in developing nations have a fair and level playing field. This means having a clear understanding of national interests in any partnership with local governments, a clear understanding of the local decision making process, fair and consistent enforcement of local laws and regulations governing business operations, and of course, an attitude that views any form of corruption as unacceptable.
Finally, global companies, like Monsanto, have limited resources'limited capital, limited people, and limited research capacity, to name just a few. As a result, high growth global companies like Monsanto often find themselves with more global investment opportunities than it is possible to manage, resulting in the need to prioritize these investment decisions on several key factors. These include:
The issue of legal ownership and intellectual property rights;
The need for a science-based regulatory environment;
A clear freedom to operate and an adequate physical infrastructure;
Let's take a look at each of these in more detail, specifically in the context of Africa.
Legal ownership and protection of intellectual property rights
The protection of intellectual property rights must be guaranteed—particularly in the case of high-tech industries like those in which Monsanto participates. We ask that governments acknowledge the need for intellectual property rights and patent protection for companies investing in and developing new technologies. For example, we have made significant investments in developing insect and disease resistant plant varieties. These technologies can be particularly useful to many of the small holder farmers in Africa. However, for Monsanto to enter these markets, it is essential that African nations develop a strong, rational and predictable system of patent and intellectual property protections.
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To develop these products, Monsanto now spends upwards of $1 billion per year in research and development. Without adequate protection, we can neither afford to enter the market nor could we ensure the proper stewardship of the technologies we have developed—an essential element of the management and utilization of these new technologies. Without this protection, we would not be able to realize a return from our financial investments or be able to invest in developing the products of the future. In addition, and perhaps most importantly, without a strong system of intellectual property protection, African countries will be hindered from developing a competitive indigenous agribusiness sector that would facilitate their participation in useful and mutually beneficial partnerships and foreign trade.
A rational and predictable regulatory environment
Three years ago, only 11 countries on the African continent had established regulatory procedures for the introduction and use of agricultural products. Today, 28 countries have established regulatory schemes. For a company like Monsanto, harmonization of these regulatory schemes is strongly encouraged and we applaud efforts to move in this direction.
However, other regulatory challenges remain. For example, in the area of establishing bio-safety protocols for genetically engineered agricultural crops, few African countries have undertaken the necessary steps to develop scientifically based guidelines and implementation plans for the use and deployment of these valuable new crops. Africa suffers from a lack of resources in this area—a lack of biotechnology expertise and a lack of intra-governmental dialogue that hinders development of a science-based regulatory system for transgenic plants. In discussions on this topic, taking place under the auspices of the convention of biological diversity, many African nations are arguing in favor of a biosafety protocol that is not sufficiently science based. This ill-advised approach, we believe, will impede trade with Africa in genetically engineered crops and will constrain both internal and external investments in agricultural biotechnology on the African continent. Monsanto is excited about the possibilities this technology offers for enhancing sustainable agricultural production in Africa, yet is concerned over the lack of progress in this area and the tenor of the ongoing debate on the biosafety protocol.
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Freedom to Operate/Infrastructure
Last, but not least, among the factors that influence our investment decisions are the physical and economic realities of the cost of doing business in a given country. These include factors such as tariffs, import/export quotas, freedom to operate locally, access to local labor and the ability to hire local employees. The physical infrastructure, i.e. roads, safety, utilities, etc. is also very important. Our expectations, however are not to have new roads or new bridges built overnight. What is necessary is a country's recognition of the importance of improving infrastructure in order to attract long-term investment. China, is a great example of this, having recently declared infrastructure improvement as one of their top priorities, pledging to spend over $700 billion on internal improvement
The Agricultural Transformation of Africa
In addition to key policy reforms mentioned above, we believe that the agricultural and economic transformation of Africa involves three key steps, all part of a long-term process. These steps, we believe, are to:
Intensify the use of basic input products such as pesticides, seeds, farm machinery, etc., in order to achieve step-change productivity increases;
Build new partnerships and trade relationships, including those that allow greater access to credit and capital for the African farmer;
Introduce and fully deploy the benefits of advanced plant biotechnology;
Let's take a look at each of these in more detail.
Intensify the use of basic input products
The average application rate of fertilizer in the United States is approximately 1,000 kilograms/hectare, compared to just 130 kg/ha in Western Africa. Historically, throughout Africa, hand weeding and animal/mechanized tillage of the soil have been used. With modern conservation tillage practices, it is now possible to eliminate most, if not all of this mechanical tillage and plant directly into the stubble of the previous crop. This method has significant cost, labor, time, and moisture conservation advantages. More importantly, conservation tillage offers enormous advantages in reducing soil erosion, enhancing soil fertility and providing the crop the ability to better withstand stressful drought conditions.
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Build new partnerships and trade relationships
As a life science company, Monsanto is committed to providing products, services and technologies designed to improve agriculture, nutrition and health. We recognize that the transformation of African agriculture and the African market requires the building of new and innovative relationships. At Monsanto, we are constantly seeking new partnerships with non-governmental organizations, governmental agencies, international institutions, and local marketing entities, to name a few. And, we must remember that the commitment of the African farmer is a fundamental, critical part of the equation.
These relationships are designed to find applicable uses for our products and technology. They are designed to encourage and create sustainable agricultural practices. And they are designed, over the long term, to create wealth. For it is only through successful agricultural practices, practices that sustain individuals, communities and our planet, that African farmers can, and will, become long term, satisfied clients of our products and services.
It is also important to note that technology alone will not be sufficient to transform the agricultural sector in Africa. In addition to fostering a business friendly environment, farmers must have access to credit and capital to fully participate in the marketplace. Monsanto recognizes that microcredit programs (very small loans to farmers and villagers) can play an important role in making the benefits of trade and technology available to farmers and the poor and is actively participating in the microcredit 'movement.' Monsanto is investing in model agricultural and microcredit programs in many areas of the world, including Africa, helping to insure that our local farmers and villagers take an ownership role in the success of their individual enterprise and village as a whole.
Introduce advanced plant biotechnology
Through biotechnology, we can now transfer sophisticated crop protection and enhancement characteristics to the seed itself. In other words, crops can be designed to be insect resistant, disease resistant, and provide a better quality grain, fruit, or vegetable. In addition, the value realized by these crops are scale-independent and, as such, are well suited for deployment on the smaller plots of land typical of greater Africa.
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The use of bio-engineered crops, however, does require appropriate management and product stewardship in order to be utilized effectively. This is especially true in view of ineffective and often declining public extension services, and holds true for Africa as well. At Monsanto, we are committed to ensuring that wherever we sell our products, our customers can capture and sustain the full benefits of our products and technologies.
At this point, I'd like to share with you a specific example of how Monsanto is working in Africa through a partnership with public, private and government organizations to develop the transfer of biotechnology to small holder farmers in Africa.
In 1991, Monsanto formed a unique, collaborative effort with USAID to accelerate research at the Kenyan Agricultural Research Institute to combat the problem of a sweet potato virus called feathery mottle virus—or simply FMV. This virus annually destroys as much as 75 percent of Kenya's sweet potato harvest. As part of this partnership, Monsanto sponsored two Kenyan researchers to come to our research facilities in the United States in order to accelerate the transfer of technology to Kenya. Monsanto's participation in this program resulted in the deployment of state-of-the-art commercial crop technology to the sweet potato, a crop grown by subsistence farmers not only in Kenya but also throughout Africa.
Through the science of gene transfer technology, these researchers have developed African varieties of the sweet potato plant that can resist infection by FMV. Testing is currently underway to evaluate the technology in greenhouse conditions, and both Monsanto and Kenyan scientists are working with the Kenyan Government to take the next step of testing the plants in Kenya.
As a result of this project, Kenyan authorities have recognized the importance of a science-based regulatory system and have taken several key steps to advance the process in order to facilitate this transfer of technology and the beneficial products that will result.
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Mr. Chairman, Monsanto is excited and optimistic about our business potential in Africa and the potential to transfer advanced agricultural technology to the people of Africa. The potential exists, we believe, for advanced agronomic practices and plant biotechnology to help transform Africa into a food and fiber producer capable of not only feeding Africa, but of feeding many other countries of the world. This transformation in agriculture should serve as a powerful foundation for building strong local economies and strong international trade. However, this transformation may never be a reality without some basic conditions being met; a fair and level business environment that allows a clear freedom to operate, local ownership and the protection of intellectual property rights, a science-based regulatory structure, and a clear freedom to operate.
These basic priorities, coupled with innovative partnerships and farmer credit would be a great start in ''fast tracking'' Africa and helping to ensure a high quality of life for all on the continent and to ensure that Africa competes effectively with the rest of the world.
Mr. Chairman, this concludes my prepared statement. Thank you for allowing Monsanto the opportunity to present this testimony.
"The Official Committee record contains additional material here."
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