Segment 4 Of 4 Previous Hearing Segment(3)
SPEAKERS CONTENTS INSERTS
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WESTERN HEMISPHERE
WEDNESDAY, JULY 22, 1998
House of Representatives,
Committee on Agriculture,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:00 a.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith, (chairman of the committee) presiding.
Present: Representatives Barrett, Ewing, Doolittle, Goodlatte, Smith of Michigan, Lucas, Chenoweth, Hostettler, Bryant, Chambliss, Moran, Blunt, Thune, Stenholm, Peterson, Clayton, Minge, Pomeroy, Baesler, Thompson, Baldacci, Goode, McIntyre, Etheridge, Johnson, and Boswell.
Staff present: Paul Unger, majority staff director, Lynn Gallagher, senior professional staff; Michael Neruda, Jason Vaillencourt, Andrew Baker, Wanda Worsham and Calista Bisek, clerks.
The CHAIRMAN. Good morning. The hearing will come to order. I have a statement, and Mr. Stenholm has a statement. And then we'll get right to our witnesses, recognizing that all members have the privilege of entering an opening statement for the record should they choose to do so.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Today's hearing is the fourth in a series of four hearings that Mr. Stenholm and I determined should be held on the 1999 WTO negotiations. Our previous hearings focused on trade with Europe, Asia and the Pacific, Africa, and the Middle East. The purpose of this hearing today will be to focus on trade with countries in the Western Hemisphere and the 1999 WTO negotiations.
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The three previous hearings we thought were very productive. Secretary Glickman and Ambassador Scher presented the administration's goals for the 1999 World Trade Organization negotiations for agriculture. Both cited the need for a future reduction in tariffs. Worldwide tariffs now average 56 percent, while United States tariffs average 5 percent. They also cited, of course, continued reductions or elimination of export subsidies.
Other goals included rigorous disciplines on state trading enterprises, improved rules on sanitary and phytosanitary measures to ensure more fair competition, and access for U.S. farmers and ranchers to the technology that allows them to become more productive.
Our other witnesses supported that agenda and provided the committee with additional suggestions.
Most of the witnesses appearing before the committee to discuss agriculture trade issues between the United States and Europe also raised the issue of fast track. There are many agriculture associations in this country, including 80 at the last count, that support fast track, that also support IMF, that also support normal relations with China and that assisted us in lifting sanctions against Pakistan. That, the very next day, resulted in more than 300,000 metric tons of wheat purchases by Pakistan from the United States.
As you may know, on June 25, the Speaker announced that the House would consider fast track legislation in September of this year. In addition, yesterday the Senate Finance Committee reported a bill, and among other items, that provides the President with fast track negotiating authority. That bill was reported favorably. I consider this to be most encouraging.
The United States farmers and ranchers can prosper only when there is free and fair trade. In order to secure trade agreements that provide for this free and fair trade, fast track, and the others mentioned must be passed by the Congress.
In order to bring more votes to the table, I've suggested an amendment in order to secure passage of fast track legislation. This proposal states that the U.S. trade representative, with regard to any negotiations or agreements on agricultural trade, must consult closely with members of the House and Senate Committees on Agriculture and allow them to see the agreement immediately before signing it. This means that before the final act, the Committees on Agriculture in the House and the Senate will have an opportunity to view the agreement and to determine whether it's good for agriculture or it is not. I intend to pursue my efforts with this language and with the help of Mr. Stenholm and all of you to make this a top priority.
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Countries in the Western Hemisphere accounted for about 30 percent of the United States agricultural exports in 1997. Over the past 10 years, U.S. exports to this part of the world more than tripled. The reasons for this growth, of course, can be attributed to economic and population growth in the region and trade liberalization, despite those who believe that NAFTA is not a good agreement. They are not looking at the numbers.
And just to give you an example, the worst debacle that could have occurred, occurred in, of course, Mexico in 1995 where our trade was about $3.8 billion. Today, gaining ground and through that difficult time, our trade with Mexico is now $5.1 billion. With our two largest trading partners, we have a positive balance of trade with Mexico and a slight deficit with Canada.
In 1999 the WTO negotiations offer a platform for further reduction in barriers to trade and further expansion of our agricultural trade opportunities. There is no question that countries in this region present unique opportunities and challenges to the upcoming WTO negotiations. These include issues relating to state trading enterprises; access especially to Canada for U.S. dairy, poultry, and eggs; high duties on U.S. exports, and sanitary and phytosanitary disputes. Our witnesses will address these issues, and I look forward to hearing from them and for their suggestions as we approach the 1999 WTO negotiations.
Most of the witnesses appearing today before the committee will talk about trade issues between the United States and Canada and Mexico, but I think also will raise the question of fast track. So we will continue to support those kinds of efforts for expanded trade.
U.S. farmers and ranchers, since the passage of the Freedom to Farm Act, look to marketplaces to sell their products. It is our responsibility, it seems to me, as part of the Government to make sure there are no artificial impediments in the way of agricultural sales. This means that our Government must work to open markets around the world and keep them open. We can help United States farmers and ranchers in these difficult times by providing for expanded trade opportunities around the world, and especially with Canada and Mexico.
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At this point, I'd yield to the gentleman from Texas, Mr. Stenholm.
OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. STENHOLM. Thank you, Mr. Chairman. And I would like to begin by commending you for your efforts to open world markets for our farmers and ranchers, which is exemplified by this fourth and final hearing in our series to review the 1999 WTO agricultural trade negotiations.
Our review has been thorough, methodical, and persistent. This has been consistent with your overall approach on trade, and I believe this approach is beginning to produce results.
Only a week ago, we passed sanctions reform legislation that, hopefully, will be the first step in a thorough review and revision of our national policy on sanctions. Our farmers and ranchers cannot continue to bear the burden of ineffective, unilateral sanctions, which serve only to punish our producers and the consumers of other countries.
I am hopeful that the second corner of the square deal for agriculture, as you outlined it a few weeks ago in a news conference that I was happy to attend with you with the leadership of the House, the second corner of the square deal, normal trade relations with China, and I hope that all of us in agriculture will never, ever breath another three letters of the alphabet other than NTR, because normal relations sounds better than the other three letters. And this, I hope, will be passed today.
I would yield to the chairman to explain to his side what the other——
[Laughter.]
The CHAIRMAN. It may take too long. [Laughter.]
Mr. STENHOLM. We'll take care of it later, Mr. Smith. [Laughter.]
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We must absolutely maintain normal trade relations with China until we can reach a commercially-viable agreement on Chinese accession to the WTO. Simply put, we cannot replace a $2 billion market for agriculture.
The third corner of the square deal, IMF funding, will require a bit more persistence. Last week, the Appropriations Subcommittee reported out a bill that provided only a small portion of the $18 billion needed for the IMF. Today we have learned that the Speaker is having second thoughts about providing all of the funding required by the IMF to shore up those very important agricultural markets in Asia.
And, Mr. Chairman, you and I joined 2 weeks ago in emphasizing the square deal for agriculture requires four corners. And this is something that I'm hopeful that we can get worked out.
With new and necessary IMF commitments to Russia, we are seeing the beginnings of the scenario Chairman Greenspan warned us about in his testimony before this committee. If that scenario plays out as he suggested, we stand to lose the Latin American market we are here to discuss today, markets that have doubled to about $10 billion in the past 10 years. And I cannot overly emphasize the importance of IMF. That is the most important corner of the square deal as pertains today. We have got to find a scenario in which we can bring that to a successful vote in the Congress.
The fourth corner of the square deal for agriculture is fast track. And there is no region that better demonstrates why we need fast track than the Western Hemisphere. In 1995, after implementing NAFTA, we turned our attention to Chile and the free trade area of the Americas. Those discussions were suspended as Congress continued to deny the President the fast track authority needed to negotiate an agreement.
In 1996, Canada negotiated a free trade agreement with Chile. In the same year, Chile became an associate member of MERCOSUR, the largest preferential trade agreement in Latin America, representing over half of Latin America's gross domestic product.
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Chilean companies can now buy duty-free from trading partners in Canada and Brazil, while they pay 8 percent tariffs on goods from the United States. As a result, U.S. companies lost $500 million in sales to Chile last year alone.
I would add that, as we pursue fast tracking negotiating authority, we should keep in mind the ultimate goal: a level playing field for our farmers and ranchers. With this in mind, we in agriculture should remember the lessons of the past, avoid unilateral disarmament, and speak with one voice.
And, Mr. Chairman, the language that you are promoting on fast track, I think, is critical, not only to the so-called negotiations but to the end result. One thing that I have learned in my years here in the Congress, every time we start a trade discussion, agriculture is at the top of the list. But when we complete the negotiations, it somehow has found in administration after administration a way to slip to a secondary or third level of importance.
The language that you suggest, I think, is absolutely critical to an industry as important to trade and to every single citizen of the United States of America, because if you eat, you're involved in agriculture. We should never, ever allow agriculture to slip to a secondary role again, and the language you are suggesting, I think, will go a along way towards seeing that that will not happen.
I was disappointed to learn that yesterday in the Senate Finance Committee a provision was added to unilaterally reduce the tariff on wool fabric, stripping away the last level of protection for wool producers in America competing in a heavily-subsidized world market. Now somehow, some way, we have got to get a message over to our colleagues that unilaterally disarming our producers in the international marketplace does not work. Many of us in this room witnessed the devastating effect on wool producers when the wool program was abruptly terminated, without even the benefit of transition payments that would later be provided to other commodities under Freedom to Farm.
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I would also note the testimony that has been submitted by the American Sugar Alliance, detailing the heavy subsidies in Europe and elsewhere against which our producers must compete. As we pursue the next round of negotiations, we must stand together if we are to achieve a level playing field for all of agriculture.
Mr. Chairman, one more time, I want to speak about fast track. Somehow, some way, we have got to help ourselves understand that fast track is simply whether or not we are going to go to the negotiating table and attempt to negotiate a way those things other countries are doing that are having a devastating effect on our producers' ability to compete in a free and open market. That's all a fast track is about.
And as long as we in the Congress refuse to pass fast track, that we refuse to provide the 218 votes in the House and the 51 votes in the Senate, what we are doing is saying to the rest of the world, we are not going to participate in any negotiations to do any of the good things that we want. We've got to quit looking to the past; we have got to look to the future.
And, again, the language you suggest, Mr. Chairman, is something that I hope that every member, both sides of the aisle, that are interested to whatever degree in foreign trade and its importance to agriculture will see.
Mr. Chairman, I will conclude by seconding your appreciation of the fine work done by Charles Hanrahan and Remy Jurenas of the Congressional Research Service. The documents and briefings that they have prepared and conducted before each of our four hearings have added significantly to the content of our hearings. I thank them, as you did, Mr. Chairman, and I thank you.
The CHAIRMAN. I thank the gentleman for an excellent statement, and I want to recommit to him publicly, as I have done privately all along, that I do agree with him and with others that this Congress must act on IMF. It must act favorably upon IMF and it must act on fast track. And hopefully, today, another corner of the square deal will be enacted. And that, of course, will be the normal relations with China. So it's healthy and proper for him to push on these issues, and together, we will find a way to pass all of these issues for the good of agriculture in this country.
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Members who have statements may submit them for the record at this point.
[The prepared statement of Mr. Barrett follows:]
"The Official Committee record contains additional material here."
The CHAIRMAN. We are delighted today to have with us several excellent witnesses. Mr. Daniel Dye is the vice-president of North American Grain, Cargill Inc., representing the National Grain Trade Council; Mr. Chandler Keys is vice-president of public policy, National Cattlemen's Beef Association; Ms. Janet Nuzum is vice-president and general counsel for the International Dairy Foods Association. Welcome all; good morning.
Mr. Dye, we'd be delighted to hear from you.
STATEMENT OF DANIEL DYE, VICE-PRESIDENT, NORTH AMERICAN GRAIN, CARGILL INC., REPRESENTING THE NATIONAL GRAIN TRADE COUNCIL
Mr. DYE. Good morning, Mr. Chairman. We appreciate this opportunity to share with you our views on key trade issues. I'm Dan Dye, and I'm vice-president of Cargill's North American Grain Division of the World Grain Trading Group. I am also vice chairman of the National Grain Trade Council on who's behalf I appear before you this morning.
Let me begin by saying thank you for the extraordinary effort made last week to allow sales under the GSM Export Credit Guarantee Program to resume to Pakistan and India. Your quick action and swift implementation by the administration was good news for American wheat farmers.
Those events underscored the importance of trade to U.S. agriculture. U.S. farm income is closely tied to the ability of agricultural producers and processors to reach customers here and overseas. In fact, there is no other sector of the economy where the link between trade and prosperity is clearer than agriculture.
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Because of that reliance on exports, American agriculture has become one of the most proactive sectors in support of trade liberalization—fast tract negotiating authority maintaining China's normal trade relations status and sanctions reform. Because the international monetary fund is vital for stabilizing economies in crisis and enables them to reenter world markets for food, U.S. agriculture also has supported replenishment of IMF funds. These are critical for U.S. agriculture's long-term standing.
Although Asia's lingering financial crisis has cut into export revenues for the United States, a bright spot in our export picture has been with our NAFTA partners and within the Western Hemisphere. Together, Mexico and Canada will account for about 20 percent of our total agricultural exports. Trade with South America also is growing, although not as quickly as it does where we have preferential trade treatment. For instance, the United States has captured well over 90 percent of Mexico's feed grain imports since the implementation of NAFTA. U.S. soybeans have dominated Mexico's import needs in recent years. Virtually all of Canada's corn and soybean imports have been filled with U.S. supplies.
Conversely, when there are trade agreements we have not joined, we have faced competitive disadvantages. For example, Chile, which was mentioned earlier, has a free trade agreement with Canada. Because that agreements waives the usual 11 percent import tax for Canadian durum, U.S. durum would price into Chile 11 percent higher, all other factors being equal. In order to sell, we must have a level playing field as well as market access and fair rules of trade.
While NAFTA has caused U.S. exports to increase, we have to remember that trade is a two-way street. U.S. agricultural imports from these countries also are on the rise. The net effect of this two-way trade has worked overwhelmingly to the advantage of the United States, but those aggregate effects sometimes mask the difficulties that occur in localized markets.
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A visible case in point has been Canadian wheat shipments to the United States. Since the United States is a major wheat producer, it strikes many as odd that the United States would import grain. There are several reasons why Canadian wheat flows into the United States. In a broad sense, Canada is a large wheat producer, and most of the population centers of North America lie south of the United Staes-Canada border. Thus, Canadian wheat moves south to urban demand centers. Another reason for wheat imports has been specific supply and demand and balances. One other factor is that processors may be looking for wheat with specific characteristics to meet the needs of their customers.
We are strong supporters of free trade and open commerce with Canada. There are, though, some reasonable questions for policy makers to ask in the next round of trade negotiations. Canada maintains a fairly rigid marketing and distribution system for grain that is not nearly as open as the U.S. system. There should be localized situations, for example, where Montana barley would move across Alberta feedlots if there were reciprocal and open access between the two nations.
As we consider the situation in agriculture markets today, it is important to remember that although the marketplace is cyclical, U.S. agriculture can serve global demand as efficiently and economically as any system. To make this happen, farmers need the Government engaged and working on their behalf. One of the debates occurring today is how that should be. We recommend that Federal farm policies remain focused on providing the environment in which U.S. agriculture may compete and prosper in the years ahead.
Although there is legitimate concern about low prices, we have learned in an increasingly global market, our Government cannot alter world market conditions. It can, however, help build stronger demand for U.S. agricultural products by expanding world trade opportunities. That means our Government should negotiate new trade agreements and resolve trade disputes.
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Fast track legislation is necessary for the United States to lead in moving multilateral trade negotiations forward. Also needed is legislation assuring China normal trade relations, funding the international monetary fund, and reforming U.S. policies that prevent exports of agricultural products to an ever-growing list of countries around the world.
We need to focus the next round of WTO talks on free and open trade within the Western Hemisphere region and beyond. This area is an overall surplus supply situation, and that leads to some of the tensions we see in trade within the region. But more importantly, trade outside the region is critically important, and these trade negotiating meetings are critically important to build on that trade.
These measures, coupled with the Fair Act, which supports farm income through direct payments, we believe can best position the United States to grow and prosper for the long term.
Thank you for your time.
[The prepared statement of Mr. Dye appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Dye.
Mr. Keys.
STATEMENT OF G. CHANDLER KEYS III, VICE-PRESIDENT, PUBLIC POLICY, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
Mr. KEYS. Thank you, Mr. Chairman, and members of the committee.
The cattle industry in the United States of America takes a back seat to no one on supporting free trade within agriculture. We've been there for many years. But I will tell you, Mr. Chairman, and members of the committee, I just got back from our mid-year meeting in Denver, where over 1,500 producers, leaders of the cattle industry met. And there's concern in the country right now about trade. There's people that are wondering where the free trade is and how we can make it work. There's pro-forces of trade, of course, in agriculture, but there's also a lot of people in the country within agriculture wondering about how trade is helping them on the farm and ranch.
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I just thought I'd start with that because it did strike me at our meeting to see those competing forces. So that means we need to tone it up, tune it up, and get fast track done, and help with IMF, make sure that we get rid of the sanctions for agricultural products, and do normal trade relations with China. We need to show those actions to the American producers that we're serious about trade, and the United States is going to continue to be a leader in liberalizing trade.
Going into the WTO negotiations, some of the major concerns of the cattle industry are the SPS issues. We see that the Europeans and, now, even possibly the Japanese are willing to go back and look at the SPS and put social or economical issues into the SPS agreements. That is a very dangerous precedent, particularly, when you look at issues like the hormone ban where we've just beat the Europeans to death on this issue through the WTO. And they continue to come back and say they cannot implement this because of social issues within their countries.
If we're going to make the WTO work, this is a clear case where we have to make sure that the Europeans abide by it, because if they don't and they get away with it, through hook or crook—which they're very good at doing—then other countries are going to follow their lead. And then it will weaken our position when we get into the WTO and the SPS agreements.
Clearly, that the row crop people in and around the country are seeing the problems with their bio-tech and with their problems with Europe, is clearly just another case of following along with the hormone ban.
We also would like to see the elimination of the state trading entities. This is clearly a case in Canada where the Canadian cattle feeders are enjoined basically as a transportation subsidy on buying their barley. It allows them to feed their barley a lot cheaper. We can't get the same barley without paying that transportation cost. That clearly is a subsidization that is helping the Canadians.
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I want to move into two issues: one with Canada, one with Mexico. I'll start with Canada.
There's an issue right now that's boiling that you all are going to have to handle, or help the Appropriations Committee handle, because in the Senate, there was an agreement in the appropriations bill to call for import labeling of meat coming into this country—lamb and beef. This is a very volatile issue with our producers. Right now, Canada moves approximately 1.3 to 1.4 million head of slaughter cattle into this country, and carcass beef. They can bring it in, truck it in. Take it right to our kill floors, along with the carcasses, and get a USDA roll, and basically becomes a U.S.A. product. We are asking the United States Congress to stop this. This is laundering beef.
As we move to try to build a brand-like identity for beef, and quality and consistency, the consumer has no idea of what they're buying and what other country it's coming from. Now we understand the complex issue of ground product and how we deal with that, and then this amendment to the bill clearly states that we need to do a study and figure out how to make that work. But clearly, we can segregate whole-muscle meats, and we believe that we need to do that immediately.
The reason this is a real ticklish issue in the country is that the Canadians over the years, because of what we believe are non-tariff trade barriers and scientific reasons, have not allowed feeder cattle to go north. We've almost only sold into their country 40,000 head of feeder cattle. This just has to end.
The other issue is the Mexican market. It's a huge market for U.S. beef. But now, the Mexican cattle growers have filed an anti-dumping case against our product going into their country. We need this committee to convince the Mexican Chamber of Commerce not to accept that anti-dumping case.
Other issues that are in my testimony are vet agreements and regionalization. The Canadians have worked diligently in putting teams together to go overseas and get vet agreements so their products, particularly beef and pork, can get into foreign countries. Our FSIS just doesn't have the teams. They don't view their role as helping us open up markets overseas for export. They're too focused, as they should be, very focused on scientific data bases, but they also need to be supporters, and they need to be aggressive on that.
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And I will end that the U.S.A. needs to be tough, as Mr. Stenholm mentioned, on negotiating these issues. We can't allow our negotiators to spend time on sexy issues because, let's face it, beef livers are just not as sexy as Barbra Streisand's property right on her CD's. We need to make sure that we're just focusing on big-ticket items and not just high-tech sexy items.
Thank you.
[The prepared statement of Mr. Keys appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Keys.
Ms. Nuzum, vice-president and general counsel, International Dairy Foods Association, welcome.
STATEMENT OF JANET NUZUM, VICE-PRESIDENT AND GENERAL COUNSEL, INTERNATIONAL DAIRY FOODS ASSOCIATION
Ms. NUZUM. Thank you, Mr. Chairman, members of the committee.
My name is Janet Nuzum; I'm vice-president and general counsel of the International Dairy Foods Association, the trade associations for processors, manufacturers, marketers, and distributors of all types of dairy foods.
The $70 billion-plus domestic market for dairy products has historically been the primary focus of sales by the U.S. dairy industry. U.S. exports of dairy products, however, are growing, last year exceeding $900 million. And with 96 percent of the world's consumers outside the United States, the U.S. dairy industry is increasingly focusing its attention on international markets as a critical source for its future growth.
We are, consequently, very pleased that, under the leadership of Chairman Smith, this committee has given agricultural trade issues such a prominent place on your agenda.
The focus of today's hearing is on the upcoming round of multilateral trade negotiations on agriculture in the WTO. My written statement goes into greater depth on a number of these issues, but I would now like to highlight just a few points. I'll touch upon the implementation of existing commitments, the new WTO dispute settlement mechanism, and identify priority objectives for the U.S. dairy foods industry in the upcoming WTO round. Finally, I will express our support for negotiating a free trade area of the Americas with the rest of Latin America, and also urge the Congress of the need for renewal of fast track negotiating authority.
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With respect to the existing WTO, we are now well into the fourth year of implementation of the Uruguay Round agreements. Most countries appear to be abiding by their WTO commitments. In the area of dairy tariffs, we have identified a couple of problems. Specifically, two countries—Egypt and Thailand—appear to be exceeding their tariff bindings with respect to cheese. We must have confidence that all WTO member countries are living up to their commitments under existing trade agreements and are hopeful that corrective action will be forthcoming on these items.
Another enforcement matter of major concern to the U.S. dairy industry has to do with Canada. As you may know, Canada recently altered its producer-financed export subsidy to a two-tiered milk pricing system called Special Milk Classes which, nevertheless, subsidizes dairy exports. Canada is administering the program without any regard for the export subsidy limits and reduction schedules that are included in the WTO agriculture agreement. They are also refusing to allow in any commercial imports of fluid milk, or cream, notwithstanding their commitment of a specific tariff-rate quota.
In response to these actions by the Canadians, the U.S. industry has filed a section 301 petition. An investigation is pending, and WTO dispute settlement is underway. We are generally pleased with the administration's support for our view against the Canadian practices. However, we have some disappointment with certain aspects of the dispute settlement process. In particular, a lot of time has been taken simply on the establishment of the panel. Almost 4 months have passed since the WTO specifically authorized establishment of a panel; yet one has not been appointed.
We are working closely with USTR and USDA to make sure that as we move forward, once the panel is established, we present all the facts and arguments necessary to win this case. And we invite this committee's close oversight of the case in light of its precedent-setting nature for the rest of the agriculture agreement.
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With respect to negotiating objectives on the upcoming WTO round, the highest priority objective for the U.S. dairy industry is the complete elimination of export subsidies. The United States is the largest country producing cows milk in the world, accounting for nearly 19 percent of the world's milk production, but only 3 percent of world dairy exports. The EU, on the other hand, collectively produce about 32 percent of the world's milk, but has captured 45 percent of exports. The primary reason is export subsidies.
The Uruguay Round Agreement on Agriculture began a process of reducing export subsidies, however, the changes that were required, particularly of the EU, started from a very high protected base. Even at the end of the implementation of the current round, inequities and distortions from export subsidies still exist, and these must be fixed. Without trade distorting subsidies, world market dairy prices will be higher, and international market share can be based on fair competition.
The U.S. industry is confident that we will be able to increase our exports significantly, and be a reliable world supply of quality, safe, and nutritious dairy foods.
Elimination of subsidies alone, of course, is not enough. We must also do much more to reduce and remove tariff barriers. In the dairy sector, as a result of the tariffication of highly restrictive import quotas around the world, we see particularly high tariff peaks. These must be harmonized and reduced in the next round.
One area, however, that we do not believe belongs on the negotiating agenda, is renegotiation of the SPS agreement. The principles embodied in the current SPS agreement are sound. We believe SPS measures must be based on sound science and risk assessment, not consumer preference or other subjective criteria.
The Western Hemisphere is already an important market for U.S. dairy products. North America is our largest regional market, taking in about a third of total dairy exports. When you add in the Caribbean, Central and South America, this rises to about half of total dairy exports. Nevertheless, we are still a small supplier into the Latin American region. Our major competitors are New Zealand and the EU. The main focus for our increased access into the Western Hemisphere is particularly in the area of tariffs. Dairy product tariffs in that region are well above U.S. counterparts, three or four times higher than the U.S. levels.
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As we move forward with the WTO negotiations on agriculture, we must pay particular attention to working concurrently with our Latin American neighbors to achieve the elimination of export subsidies and reduction of tariff barriers. In particular, some of the Central American markets that are seeing rapid growth, albeit from a very small base, offer very high potential for future growth of dairy exports.
One area, however, that is a concern is that without fast track authority, additional trade alliances within the Latin American region are benefitting the Latin American countries, not the United States. For example, in the area of the MERCOSUR agreement, we see shifts in cheese supplies from the EU to other MERCOSUR partners. We need to have fast track authority renewed so that the United States can aggressively pursue increased market access opportunities, through initiatives like Free Trade Area of the Americas, and capture much of that growing and expanding market.
The U.S. dairy industry has much to gain from additional trade liberalization around the world. In order to continue making progress in this direction, however, trade negotiators must be armed with the congressional mandate that comes from fast track authority.
We particularly appreciate the efforts of Chairman Smith and Mr. Stenholm in trying to forge a bipartisan consensus in the House for renewal of fast track authority. We urge the committee to continue moving in this direction and reflect the strong support that exists in the food and agriculture industries by similarly identifying a very strong bipartisan base within the committee for fast track renewal.
I'd be happy to answer any questions. Thank you, Mr. Chairman.
[The prepared statement of Ms. Nuzum appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much, and thank you all.
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I have one question that I'd like to pose to each of you. Ms. Nuzum, you have, I think, answered a part of it. Which priority would you place as the most important issue to your industry and going into the WTO and giving directions to our negotiators in 1999. You've identified, I think, export subsidies. Several members of this committee are going to go to Egypt later on in August, and we will carry your message on cheese. And we will want to discuss that privately with you. But it seems to me that we lost the panel with Canada on dairy, poultry, and eggs, which was a disaster, leaving them with something like a 300 percent advantage. It seems to me that that ought to be in the high priority of your position in 1999, despite the question of your section 301 effort. We need to carry that as a country to the negotiation table, it seems to me.
I'd like your comment on that.
Ms. NUZUM. Yes, Mr. Chairman. I would certainly agree with all of your comments. It is a grave disappointment to our industry that we lost the NAFTA panel that specifically challenged the tariff rates on the Canadian market in the dairy, poultry area.
As to the issue of tariffs and market access, we would continue to emphasize it is a very important part of the upcoming WTO negotiations, and I did not mean to suggest in any way that that it is not a priority. We do, however, believe that particularly given the heavy subsidization rate of the EU in the dairy sector and their domination of world dairy markets, as a result of those export subsidies, that it is critically important that the WTO negotiations really try to eliminate—not just reduce, but eliminate—all of those export subsidies in the agriculture area.
Our concern is that even if we obtain reduction or elimination of tariff barriers, whether it's in Canada or in Latin America, if the Europeans are allowed to continue to subsidize their exports, even without those tariff walls, they're going to have an unfair advantage against our products competing in those open markets. And so it is critically important that we eliminate the export subsidies. The market access and tariff barriers can be—there should be progress in the WTO. There are other avenues for progress in that area as well, and the FTAA, in particular, offers those opportunities for both North and South America.
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Now I would like to add that Canada not only has succeeded in exempting dairy and poultry out of the Canada Free Trade Agreement, but when they went and negotiated a free trade agreement with Chile, they continued, even though they call it a free trade agreement with Chile, to keep dairy and poultry off the table.
Canada is clearly following a strategy of trying to exempt its dairy and poultry sectors, and at the same time, characterize its relationships with a number of countries as free trade relationships. We should not allow them to get away with that. And we must make sure that, in the negotiation of free trade area of the Americas, that dairy and poultry, along with all of agriculture, is part of that agreement, and market access is opened for all of the countries in the Americas.
The CHAIRMAN. Thank you. We understand very well the problems with the EU, and they certainly ought to be addressed. It seems, however, if you eliminated tariffs, you would eliminate much of the need for export subsidies. However, the European Union spends $10 billion in export subsidies today. By the way, New Zealand spends nothing; they're pure competitors and doing quite well. But we—as Mr. Stenholm mentioned—we ought not to unilaterally disarm ourselves. And we either have to trade in a much tougher sense or we're going to leave many of our agricultural groups in a horrible deficit trade situation.
Thank you very much.
Mr. Keys, I agree with you on hormones. Throughout our travels, we have made the point that there's no purpose, it seems to me, for a world trade organization, if indeed there's no finality to its decisions. In this case, the World Trade Organization has agreed with our position on beef hormones—as well as bananas, by the way. And there has been no fruition to either one. So why should we start a new round of trade negotiations when the last decisions have never been finalized nor carried out? I assume that would be a higher priority with the National Cattlemen's Association, the Uruguay Round correction for hormones?
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Mr. KEYS. Mr. Chairman, Ambassador Barshefsky said it best: We need to clear the clutter out from the last go-round, and make some of this stuff that we agreed to work before we start negotiating again. It scares us to death that we're going to have to go into the next round rearguing the SPS agreements, because we have these unfinished issues as the EU. I mean the French Agriculture Attache told me the other day at a meeting that it would be over their dead body for us to win this hormone ban issue. And it's just ridiculous. This is hard to go out to tell cattlemen, cattle producers, that it's been 10, 12 years, as long as we've been trying to get this resolved. And they wonder if this thing is going to work or not.
The CHAIRMAN. Would you oppose the European Union labeling hormone-treated animals coming into Europe?
Mr. KEYS. We approached the subject——
The CHAIRMAN. Be careful of the answer, now.
Mr. KEYS. Well, I know. We approached the subject of labeling with the Europeans, but they're going to have to tell us what they want. And every time they mention labeling, and we say let's talk, then they back up, because they know we might strike something there. And they just don't want our product in their country.
Look, when those guys can sell beef at over $100 a hundredweight of live cattle, and we're only getting maybe $58 a hundredweight, they're scared of world trade because they don't want to have to live with those prices, as we don't want to have to live with them.
The CHAIRMAN. Thank you.
Mr. Dye.
Mr. DYE. I think from a grain standpoint, there are couple of issues. Clearly, the whole issue of removing barriers and subsidies to open the borders is critical to trade agreements that are being entered into without the United States are very important as we go forward. We've talked about Chile and MERCOSUR and others.
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One thing that is of critical importance, I think, especially to this Western Hemisphere area, is the area of the IMF funding. Because as we build up the demand base for agriculture, a lot of that is still based in Asia. And we've lost a lot of that; today, we're feeling the effects of that.
And as we go forward, the Western Hemisphere is an area of surplus. And we need to be prepared, removing the barriers, being in a position to take advantage of that growth when that does rebound, because it will rebound. And it's critically important because of the surplus area, not only in the United States but in the whole Western Hemisphere region, to have those doors wide open and helping support that demand base and get it back up and running. It's hard to prioritize one because they all weave together and they're all important, but open barriers and removal of subsidies, obviously, on the grain side are critically important as well.
The CHAIRMAN. I might report to you, Mr. Dye, as you may know, we were very insistent when we were in Chile that they open their wheat market to us. They use karnal bunt as an excuse, and we were able to convince them that there is no karnal bunt problem, especially in the kind of wheat they buy. As you know, they buy soft white wheat from the Pacific Northwest. The result of that, we knew it was a $100 million market. To date, since they've dropped their karnal bunt argument, they have purchased $5 million worth of wheat from us. However, they do have a fair trade agreement with Canada. I'm trying to get the numbers on what business they're doing with Canada. I think it might be revealing. Likely, they're going to do more business with their free trading partner than they will with us, even though they prefer our soft white wheat, which is available in Canada as well.
But I think the point remains that the advantage is in a free trade agreement with countries, even Chile, which I think most agree would be one of the top priorities of the first free trade agreement in the Southern Hemisphere.
Mr. DYE. No question.
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The CHAIRMAN. Mr. Stenholm.
Mr. STENHOLM. You know, Chandler, you said it and we hear it. There is a little concern out in the country—beef cattle producers, wheat producers, corn producers—you name it today, concerning trade and whether or not it's working or not working because of the current dilemma. And I believe, Mr. Chairman, we have a hearing in this room, July 30, at which I guess will be on the state of agriculture? Is that correct?
The CHAIRMAN. Yes, that is correct.
Mr. STENHOLM. Yes, that is confirmed, in which we will be talking about what's working and what's not working with current farm policy. And many of the concerns expressed today, at some point in time, are going to have to be negotiated or discussed in the world as it is, not as we wished it would be, as some time saying. Because free trade sounds good, but when you have situations like, Ms. Nuzum, you point out in dairy, in which the United States produces 19 percent of the world milk but only has 3 percent of the world market. The European's, 32 percent of the world's milk and have captured 45 percent of the market, and they're doing that with subsidies. How long can we be that stupid, to continue to allow that to happen without at least using some of the things in our arsenal that we could use?
I've always said that in trade it's important to recognize there is no such thing as free world trade. And I doubt we're going to see it any time in my lifetime, but it's something that we all would be better off if we strove for. And that is where the next round of WTO is going to be absolutely critically from an agricultural perspective that we're in on the takeoff, and the flight, and on the landing. And that is critical to us.
Along this line, Chandler, I want to ask you a question. About a year ago in the context of a dispute over labeling requirements for genetically modified organisms, Charlene Barshefsky and Dan Glickman sent a letter to the European Union Commissioner, Franz Fischler, and the letter stated, ''In the United States, labeling requirements are essentially related to the attributes of the food, itself, such as nutritional composition, ingredients, special safety consideration, the presence of allergens, any required handling and conditions of safe use.''
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Now my question is, would you agree that adoption of a mandatory country-of-origin labeling requirement might undermine U.S. arguments against trade restricting, labeling requirements for genetically modified organisms, and other concerns that we've already had heard here expressed today?
Mr. KEYS. I thought I was going to get that. [Laughter.]
I think, the NCBA thinks, and the cattle industry believes that when you take a product like a grain or something that's just very raw that is co-mingled and mixed in, it becomes very difficult to mark country-of-origin or imported. And that's why we put the study in for ground beef. But on whole-muscle meats, we believe that's a finished product. That's something that the customers buy. And if you bring that product into the United States, and you take advantage of the United States grading system, the United States propensity for beef, you're taking advantage of the system.
I mean if the Canadians label their products in Japan and compete right with our product on Japanese shelves with the U.S., we'd label our product there; we don't understand why they don't want to do it here.
And we also don't understand, and it's very hard for cattle producers to understand, how they can bring carcasses down here and get a roll. And then they also come to the table and want us to ship U.S. graders north to grade in their plants. Yet, we can't get more than 40,000 head of feeder cattle going north. I mean if this is going to be a free trade beef market and cattle market for the North Americas, then it's got to be a two-way street.
And right now, the Mexicans, while they bring feeder cattle up here and have forever, the Mexican cattle producers are questioning our ability to ship beef south.
So, somewhere or another, we need to come to some kind of resolution here. And we're willing to sit down with the Canadians at any given point. But right now, they're taking advantage of a system that's one-way.
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Mr. STENHOLM. I appreciate your very candid answer. I think I'm a little bit nervous about us unilaterally imposing a label requirement. It seems to me that that should be discussed in the context of the next WTO round or in the Canadian-North American, and then South American market context, because I do worry that we lose some of our leverage in some very important market opportunities if we unilaterally make some of these decisions. It's not just beef; we're having the same concerns raised in other products. And where I personally kind of lean towards the general philosophical answer that you gave to me regarding what I would like to see, I hope we don't unilaterally make some decisions right now that end up hurting us in the bigger picture. And I guess that's why I asked you the question and why I hope that your association and others might take another look at timing regarding this question and seeing whether or not it might be better utilized in negotiations rather than us unilaterally doing something that might give an excuse to an already recalcitrant European community in particular to say, ''Well, you all are doing it, and what's the difference here?'' And we'll spend another 2 or 3 years negotiating.
Mr. KEYS. You're right.
The CHAIRMAN. Mr. Smith.
Mr. SMITH of Michigan. Thank you, Mr. Chairman.
Following up on Mr. Stenholm's question, we have half a dozen or more bills in Congress now for country-of-origin labeling. Help me with some background information. Has that been an issue in past trade talks? Either the WTO or NAFTA? Does anybody know? Charlie, do you know? Has that been a subject? And the question is, it seems to me that as the EU and some of these other countries look for excuses to keep out our product to protect sectors of their agriculture, that if this country goes ahead because of the catalyst of the hepatitis A outbreak from supposedly strawberries coming in or other problems with fresh fruits and vegetables has given the impetus to maybe enact country-of-origin labeling, it seems to me that we might end up being the big loser as other countries are searching for excuses to protect their pretty particular agricultural sectors. Do any of you have any reaction to that?
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Mr. KEYS. Since we seem to be in the firestorm of this thing, I'll start. We believe if the Europeans are going to label—if we ever get into that market, they are going to require labeling. There's no doubt about it. The New Zealanders require labeling of whole-muscle meats on their imported product into their countries. We don't see it as a non-tariff trade barrier; we think it's just the consumers right to know, particularly on a finished product. Any time you go into any store, you pick up—I've got a whole host of things in my office that have been labeled, you know ''contains,'' ''product from,'' ''X'' number of countries, be it juice or any kind of finished product that's in the food shelves. I think it's a consumers right to know.
Hey, if the Canadians produce a more quality and consistent product, and they get it down here, and they beat our butts in the marketplace, fine. I mean that's the deal.
The Argentines don't have a problem labeling their product. They want to label it here because they think they have a niche market. So they're labeling voluntarily.
We just believe that the Canadian system right now—the Canadians are trying to utilize the U.S. beef system as an advantage. They don't want—I guess maybe they think Americans don't like them or something. I think they like Canadians. I think they'd buy Canadian beef; they just don't know.
Mr. SMITH of Michigan. Ms. Nuzum.
Ms. NUZUM. Yes. The issue in most of the legislation that you're talking about does not directly affect dairy products. But IDFA has been quite concerned about the proliferation of proposals to add new or impose more restrictive requirements in the area of country-of-origin labeling on food products. In particular, we should keep in mind that there's already, under U.S. law, a country-of-origin requirement for labeling all products as they come across the U.S. border. And that's already been a part of U.S. law, and food products are not exempt from that. The difficulty is that once it crosses the U.S. border and comes into the United States, and U.S. processors and food manufacturers, and packagers, and retailers, and distributors start doing other things to that product, it changes the nature of the product and, therefore, the country-of-origin labeling does not necessarily have to carry forward with each and every component or ingredient that goes into a finished product.
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Mr. SMITH of Michigan. Well, with fruits and vegetables without changing the component, it still isn't implemented down to the consumer level.
Ms. NUZUM. But it is required to be labeled when it comes across the Customs border. And the trade agreements generally relate to the Government-imposed requirements as they are enforced at the border.
The trade agreements that we are party to generally will allow country-of-origin labeling, but there is some question as to whether or not the county-of-origin labeling can be used in a manner that really is designed to be protectionist and construct a non-tariff barrier. And some of the proposals that appear to be advocated start to broach in that direction, and that is the concern that IDFA has and a number of other members of the food industry.
Mr. SMITH of Michigan. Let me get your quick reaction, Mr. Dye.
Mr. DYE. I was just going to say, from a grain standpoint, the issues are a little bit different in terms of labeling. The challenge that we have today is the fact——
Mr. SMITH of Michigan. Getting a small enough stamp to stamp——
[Laughter.]
Mr. DYE. Yes.
There's been dye tried and a variety of other things, but co-mingling of grain in terms of the efficiency of the transportation systems and everything else, don't lend itself well, as well as the fact that we don't think the barriers should exist. And we're facing it right now with Spanish purchases of corn being in limbo a little bit because of the GMO issue.
Mr. SMITH of Michigan. Let me just quickly get each of your reactions to a maybe a tough question. Some of us feel that we should not go ahead with fast track unless Chairman Smith's legislation giving Ag, helping make sure ag gets a fair shake. What is your position? Do you support that concept of not going ahead with fast track unless ag gets something like Chairman Smith's bill?
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Mr. DYE. I guess we would—we clearly support fast track and think it needs to move forward and think that the bill makes sense. And ag needs to be included; it's a very important part of it from our perspective. So, we definitely feel fast track needs to move forward.
Mr. SMITH of Michigan. But not as—you wouldn't say as far as my position that I'm not going to vote for fast track unless Chairman Smith's bill goes through? You wouldn't go that far?
Mr. DYE. I guess I wouldn't. I haven't seen enough of the specifics to make that broad——
Mr. SMITH of Michigan. Mr. Keys.
Mr. KEYS. I mean if the chairman's not happy, we're not going to be happy, so I mean that's a simple answer. If we put some labeling on that fast track, we'd really be happy. [Laughter.]
Mr. SMITH of Michigan. Janet.
Ms. NUZUM. IDFA has, from the start, been a consistent supporter of fast track, before Chairman Smith's proposal became known. However, if adding Chairman Smith's proposal would get you to vote for it, we would welcome it.
Mr. SMITH of Michigan. You would—yes, I don't know what that means. Thank you. [Laughter.]
The CHAIRMAN. Mr. Peterson.
Mr. PETERSON. Well, thank you, Mr. Chairman.
Ms. Nuzum, going back to this Canadian dairy dispute situation. Just to review the history so I—well, I spent quite a bit of time every year with Canada's parliamentarians, at different inter-parliamentary meetings. In fact, I had two of them in my office again yesterday. And their position is that we should quit complaining about this because we agreed to exempt their dairy and poultry from having to comply with this in the NAFTA. And that's, in fact, what the dispute panel found; that the United States had let them off the hook, very basically. Is that not the facts of where we're at with that? With NAFTA, at least? Is that where we're at?
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Ms. NUZUM. The dispute that is currently underway against——
Mr. PETERSON. Well, I'm not talking about that. I'm talking about the original NAFTA——
Ms. NUZUM [continuing]. Is different than the original. I'm sorry. What was the question?
Mr. PETERSON. Well, the Canadians—I just want to get this straight in my head, because every time I get in an argument with the Canadians about this, they keep throwing this back. Basically, they say ''You guys agreed to this in NAFTA. You let us continue to keep our supply managed sector of the ag economy. And NAFTA preceded the GATT agreement so, therefore, what are you complaining about?''
Is that what we did? I mean I think we did. You know, we knew in the NAFTA agreement that we had let the supply managed products in Canada off the hook. And that's why I voted against it.
And it wasn't any surprise to me when we lost the dispute panel because we let them off the hook. Am I wrong about that?
Ms. NUZUM. Well, I'm not sure I'd use the same words that you've selected, but it is my understanding that in the course of the NAFTA negotiations, the United States did not press Canada to make any fundamental changes in its supply management regimes. This was primarily due to the fact that, at the same time as those discussions, we were also engaged in the multilateral discussions in the Uruguay Round.
So we essentially were deferring any progress because of the fact that the Uruguay Round negotiations were underway. And what the result of that was that, under the terms of NAFTA, there were no finding requirements for——
Mr. PETERSON. Well, I understand. But the truth of the matter is that we wouldn't have got a NAFTA agreement if we would have insisted on that. And so basically, in order to complete that agreement, we gave up. And frankly, I think we got snuckered. And so now here we are in the GATT situation with this dispute panel. And now they won't even appoint the dispute panel. And this isn't really a question so much as a statement is, the reason that I'm not supporting this is because I am sick and tired of this, that agriculture gets left behind in all of these agreements. And I'll go one further on Mr. Smith's proposal; I'm not supporting fast track unless we get a change of rules in the House that gives the Agriculture Committee the same standing as Ways and Means in this process of fast track. And if we don't get that, they don't get my vote. If we do get that, they will get my vote. Because I think the only way that this committee can assure us that we're not going to get snuckered again in these agreements is to force them to deal with us. And if it just says that we're going to consult with us, I think it will be window dressing, and it will end up getting traded off like we do every other time.
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And you know, it's just very tiring for myself, and Earl, and those of us that are on the border with Canada, you know, it's a one thing after another. If it isn't wheat, it's pork, it's dairy, it's cattle. And frankly, the Canadians have made us look like a bunch of buffoons in the way we've negotiated some of these ag deals. And the people out in my district can't understand how come we end up on the short end of the stick all the time.
So, I'm very much in support of what you're doing with the 301, but I just wish that your group and others would have helped us oppose NAFTA in the first place, and forced the Canadians the deal with us on this stuff, and then we wouldn't have to be in this situation. I mean I think we lost the opportunity when we let them off the hook on NAFTA. And I don't know what's going to happen with this panel, but the Canadians are very confident they're going to defeat us on this because of the NAFTA situation.
Ms. NUZUM. I would certainly agree with you that we did get the short end of the stick in dairy with respect to the Canadian negotiations on the free trade agreement. I think we are not, however, willing to give up trying.
Mr. PETERSON. Well, no; I'm, not saying we're going to give up, but——
Ms. NUZUM. But one of the reasons why we believe fast track is so necessary is because some of the existing trade agreements that we've got on the books are not complete. They don't provide us with as much access as we need.
Mr. PETERSON. But we did that.
Ms. NUZUM. So we have to—we can't unilaterally get access to foreign markets. The only way to get it is through negotiations. And they way to get that negotiation is through fast track authority.
Mr. PETERSON. I know.
Ms. NUZUM. We need to have a mandate come from the Congress that Congress clearly supports opening up foreign markets through tough negotiation of trade agreements. And the way to ensure that those future trade agreements are better than the past trade agreements, is to look closely over the shoulder of our trade negotiators, to go to Geneva, to monitor them, and to consult on a regular basis, and require them to report.
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Mr. PETERSON. My time is up, but just let me say I went to every trade negotiation that happened in Geneva myself. I went to Singapore. I don't know how you could look over their shoulders any more, and we ended up with this situation, so I mean you can say that fast track is going to solve this problem. But looking back at what's happened with all of these trade agreements, I would say you'd be hard-pressed to make the case that if fast track means the same kind of thing we've been doing, it ain't going to work.
Ms. NUZUM. Well, fast track——
Mr. PETERSON. And so all I'm saying is that we need to, you know, change this process. And we need to be included, not just as a consulting, but we need to have jurisdiction in this area so that we can, you know, actually be involved and be at the table so this stuff doesn't happen in the future.
Thank you, Mr. Chairman. I appreciate it.
The CHAIRMAN. Thank you, Mr. Peterson.
And as you know, my interest is in having you and every member of this committee view any agreement before it's ever finally signed so you can determine, is it good for agriculture, or is it not? If it's not good for agriculture, you and I both know that no administration can pass another fast track in this Congress or any future Congress unless it has agriculture support. And that's the kind of demand that we will make, and I guarantee you that we will make it.
Earlier I mentioned the Chilean issue. And since we were there, the karnal bunt thing has been lifted. They bought $5 million worth of wheat from us. Then they entered into a free trade agreement with Canada. Last year, they purchased $50 million from Canada. Does that tell the story or not?
Now, Mr. Moran.
Mr. MORAN. Mr. Chairman, I was trying to decide if I had questions. I commend you for this idea. I've never understood why negotiating can be bad, as long as we have the ability to reject the end result. That's where it seems to me that the emphasis of Congress ought to be, is if it's an agreement that's not advantageous to us, let's reject the agreement. But there's nothing wrong with at least talking and trying to find out where two parties can come together on trade issues.
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Although, Mr. Stenholm, I thought said something that I hadn't thought of, at least in the words that he said, about the world the way it is, compared to the way we'd like it to be. And I don't know at what point in time we reached the conclusion that we're not changing the world, because we are at least, from my opinion, suffering from either agreements that we've negotiated that weren't good agreements or not in our favor, or we failed to enforce agreements to our advantage.
And I struggle to try to figure out, based upon my belief, that we ought to be talking and opening up markets, what role I play as a Member of Congress, trying to resolve what appears to me either bad agreements or poorly-enforced agreements. If I have a question, it's, what is it that you would like Congress to do other than the things that we are continually told about approving fast track and favoring most-favored nation status, and funding international monetary fund?
I have three votes to cast that could be helpful or harmful to the position of trade. Are there specific things that we can do with this administration with insisting, encouraging, demanding? What is it that we need to be doing, other than waiting on somebody to bring up a vote that I can either vote yes or no on?
Mr. DYE. I'd just make a general comment in response to that, and that is that I think Mr. Stenholm is correct. We're never going to have a perfect wide open world trading environment as we'd all like. And unfortunately, in the process of trade agreements, negotiations, and so forth, there ends up being compromise. And there ends up being imperfect solutions.
I guess what I would encourage this committee and the Congress to continue to do, though, is to continue to seek opportunities to improve, and not to give up based on that, that we continue to find solutions.
And I think in terms of your specific question, to look at where there are barriers, where there are problems, and address those head-on. And specifically as we can, in an unrelenting way, that says, ''Hey, we are reliant on exports in this country.'' We are a surplus area. We have the most efficient and effective producers, in my view, in the world. And we need that demand base; although our domestic demand has grown as well, also, we need that export demand base for U.S. agriculture to grow and to flourish.
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And unfortunately, I think the answer to your question is, we've got to keep hitting these barriers and problems, you know, one at a time.
Mr. MORAN. For example, what is the incentive for the European community to reduce the level of subsidization that they provide to their agriculture sector? We keep talking about the desire to trade and to negotiate trade, but I can't figure out what leverage we have to overcome this tremendous hurdle between where we are in support for agriculture and where they are in subsidizing their sector.
Mr. DYE. My argument to that is just the overall examples that we have here in the United States and other parts of the world where we've seen reductions in subsidies, removal of subsidies. And we've seen economies flourish, and we've seen positive things happen. I really believe that open world free trade provides increased standards of living, and a lot of those positive things.
Now, the argument comes back, ''Well, things are pretty good here in Europe right now, thank you, and we'd just as soon keep things the way they are.'' I think you have to take this from a long-term view and say we've got to look into the future and say, you know, as a European community, how are we going to really look at and survive in the future without some of these trade agreements. And that is a mind-set change, and it's a very, very difficult one. I don't have an answer for it, but I think we need to continue to try to build that and build on the successes where we've removed subsidies.
And look at what's going on in this country. We have problems; we have a problem right now with farm prices. And yet, in the long run, we have a healthy, vibrant agriculture economy that I think will come back and will be stronger in the future.
Mr. MORAN. I get nervous about good things in the long run.
Mr. DYE. Yes.
Mr. MORAN. Good things in the long-run are good things, but there's a short period of time that we still have to go through.
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Mr. DYE. Yes.
Ms. NUZUM. Congressman, if I could just add that I think that another thing that could be done is simply speaking out about the disadvantages of the European system. For example, the extent to which we are silent about it, it goes relatively unnoticed. With all the changes in Europe and the enlargement issues, there are a number of aspects of the common agricultural policy over there, that are quite complicated and difficult to understand. And I think that the more public figures, such as Members of Congress, speak out and demonstrate an awareness of what some of these programs are and how detrimental they are to the world trading system, we keep the pressure on them.
Mr. MORAN. In my office, as well as in my briefcase, I have a chart that shows a bar graph of the $47.7 billion the European community and $5.3 billion U.S., it is a dramatic difference. And I don't how you convince them; I'm happy to speak out about it, but my audience agrees with me, the audience in Europe apparently does not.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Mr. Moran.
One of the alternatives that we have been discussing, and I think should press, from our point of view, is simply to the Europeans to decouple their subsidies from their commodities. They are very sensitive about their environment; they're very sensitive about their farmland. When you start talking to them about reducing subsidies, that's politically indefensible. But if you suggest to them that the incentive to decouple would be to reduce the cost of living in the European Union by 40 percent, maintain their farmers' support with their payment, protect the environment as we do, by the way, with CRP and other efforts here. I think that's an opportunity for us. It's positive; that gives them, as you say, an incentive to change because the incentive is to reduce the cost to the purchaser of the products and to the cost of living.
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Mr. Minge.
Mr. MINGE. Thank you, Mr. Chairman. I'd like to, again, compliment you for your attention to the trade problems that we face in agriculture. Certainly, all of us agree that export of our agriculture commodities is extremely important to a viable agriculture economy in this country. As I understand it, in Minnesota and the upper Midwest, close to 50 percent of the soybeans are exported, either as beans or meal or meat products that result in the feeding of those beans. So, I don't think there's any disagreement on that aspect of this hearing or of that initiative.
But the problem that I would like to just briefly raise in this context of trade is the problem of volatility. And as I understand it, in most countries with which we trade, we are a residual supplier. We do not have some firm, long-term contract that they will take a certain quantity of American agricultural product, but it depends upon what their domestic production is. It depends upon their domestic economy which is, as we're seeing with Southeast Asia, is volatile. And it depends upon what else is happening in international supply and what the price is.
And the tragic consequence is a situation like we see now with Southeast Asia and not when we have an apparent surplus of feed grains—corn, soybean prices, wheat, barley—are dropping precipitously.
And in my area, when corn is down below $1.95 a bushel, farmers can't break even. And it would be nice to be able to say that the transition payments would take care of the situation, but many of us were critical of the 1996 farm bill because we did not feel the transition payments would really speak to the question of stability, but instead—and this is a quotation from an economic research service publication this winter.
The owners of land and investors, including pension funds, insurance companies, and foreign investors, thus, are the beneficiaries of the announced schedule of transition payments through the year 2002, whether or not they are the operators of the land. In the heady atmosphere of the early to mid–1996 era when commodity prices were strong, the capitalized value of the transition payments may have appeared as a bonus for land owners.
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So the real question is, if that's what has happened to our transition payments, and if we have this problem of volatility, is there some way that we can try to introduce stability in the export market so that, instead of the volatility in the export side, we have some predictability there? And we don't find that our domestic market which for these products is pegged to the international market—is also destabilized, and we have the tragic experience that many farmers faced here in the summer of 1998. Where they see that with their wheat, or their corn, or their soybeans, they can't make a living, and their transition payments have gone to land ownership, essentially, in the form of rent or payments that they are making on land.
And I would just be interested in any suggestions you have as to how we deal with this problem of predictability and stability. And I know that, Mr. Dye, you know, your company is extremely active in this area, and it's very successful. And you're in many different businesses, and stability and predictability are important to Cargill and to the members of the National Grain Board and the cattlemen and all groups.
So I'm just interested in whatever reaction you have to this.
Mr. DYE. I think your point is a very valid and important one because the volatility issue is very real. And as you've pointed out, we're feeling it right now, and the whole industry feels it. It is difficult, throughout the chain when you have a drag on prices, and you have the ups and downs of the supply and demand balances.
I think Mr. Moran made a good point in terms of the long term versus the short term. And I want to be cautious here not to try to give you a long-term answer to a short-term problem. But I do think part of the discussions we're having around fast track, around IMF funding, around trade status with China, and those areas are critically important areas to make sure as we go forward, we take out some of that volatility. Because as we open up the trade, as we let the markets respond to some of the variations, that is going to be a more effective system. That's going to take some of the volatility out.
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I think another part of this is the recognition that we are in an industry that has not only the nuances of world economies and the situations like the Asian crisis, but we also deal with the weather and abnormalities in storms and disasters. And we felt that in your State and in others as well. And those just add to the problems, and those are totally out of everybody's control. And that adds to some of the volatility, also, on both sides.
And so when I look at this from a farmer's perspective, one of the things we're trying to create tools for risk management for better ways to manage through the transitions of volatility. We're working right now, and others are in the industry as well, on revenue guarantee contracts, where a farmer gets some protection against both price and yield using a variety of different tools to manage that risk. Those things can help. And we need to be more aggressive, and this administration is looking at some things on risk management, also.
There's not an easy answer to your question. We will not take volatility out of our markets because of the things we've talked about—all the different factors. When I came into this business, one of the things that absolutely amazed me was the different factors that impacted all those issues you talked about literally around the globe every single day and the changing dynamics of those.
So, I think we have to do both. We have to continue moving forward on the issues we've talked about from a broad, long-term scope because that will help limit volatility long term. And in the short term, we need to help find tools, both as an industry and as individual producers, to try to manage that risk in between. Not an easy answer.
Mr. MINGE. Well, I see my time is up. Let me just make a quick comment. And I don't mean to cut off the other two witnesses, but I also am respective of my colleagues time here.
I had a meeting with farmers on Saturday. And I must say that it's hard to bring them around to an appreciation quite often of the importance of the export market because they see they're losing money on each bushel they're producing and marketing. And they're becoming cynical of our talk about exports.
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So I think that somehow in our negotiations and in our work, we have to search for ways to deal with the problem of volatility and continue to try to provide some framework for stability for our basic feed grains and wheat.
Thank you very much.
The CHAIRMAN. I thank the gentleman.
Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman. On the whole fast track issue, I think if this is going to pass, it's going to have to be a bipartisan vote. There are probably, I would guess, 150 Republican votes, which means that we're going to have to have the votes of people like Mr. Peterson who expressed his concerns earlier about agriculture.
And I would hope that, as we move down that track, so to speak, that the suggestions the chairman has made about conditions as they apply to agricultural agreements that there will be some conditions there, that there will be some strong language that will enable us to get the support, I think that we need among farm State members of either political party.
In terms of how we might apply some of those provisions of past agreements, one of the things that we've experienced, at least in my State, and as people perceived NAFTA—and I'd say, Dan, you'd mentioned that NAFTA was a huge success for the United States and for U.S. agriculture. And have one question I would pose to all of you is, how do you change the perception out there among people that that's true? Because there are many in my State who view NAFTA to have been harmful to the interests of U.S. agriculture and, specifically, in a couple of particular areas in South Dakota.
But I would hope at least as we move toward what I hope will be a successful vote on fast track, that it will include strong agricultural provisions. And one of the conversations that I'd had with the administration when we discussed this last time was taking those strong—what I hope will be strong—provisions and applying them in a retroactive way to previous trade agreements—Canadian Free Trade Agreement, NAFTA—as a case in point.
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But the question is—just generally speaking, I guess—is how do we go about changing the perception among producers that NAFTA, in fact, and that the whole notion of these trade agreements is good for them, as opposed to harmful to them?
Mr. KEYS. I'd just start—I mean there's always been a strong isolationist tendency in middle America. I mean you can track it back as long as you want to an historical—so you have to put this in a historical basis to a certain extent. But you also have to put it in a basis, we've made a decision in the 1996 farm bill that we're deregulating agriculture. And we're deregulating, and that means there's going to be a lot of pressure internally as we shake out inefficiencies. And people are going to reach out and blame entities—scapegoating, whatever you want to call it.
And then the third one is, we haven't—you know, yes, we've done all right on NAFTA. But we have to remember NAFTA was two deals. It was a Canadian pre-trade agreement, and then we did the Mexican. The Canadian deal wasn't done very well. And the Canadians are taking advantage of this situation. And on the northern tier States, they feel it right away. And we don't go after the Canadians for some reason or another. And they see that; people see that.
It used to be the Australians. People out in the country don't get worried about the Australians in beef country anymore; they worry about the Canadians. So it's—they're always looking for somebody, but it is very—I'll tell you, you're right on, Mr. Thune. It is very cynical right now, I mean even with good producers, people that are very knowledgeable and educated about the whole world marketplace.
And the other thing is, on either side here, I have companies. And these companies and the retailers or the processors really push for deregulating agriculture, as do the cattlemen; we've always been supportive of that. But now, Mr. Dye has said it. They're going out and reaching out and helping producers risk manage, coming up with new ideas. I challenge these companies to speed it up, I mean speed it up.
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And I challenge the companies that are already here, particularly in the beef packing industry, to speed it up and make this thing work. Because if they sit back and just rely on just the system of the marketplace to weed out efficiencies without them trying to help these producers deal with it in a very vocal, open manner, this cynicism is going to spread right out of your State all over the country.
And when I was in South Dakota at Mr. Glickman's deal with 1,500 producers, very upset. A lot of them got up and said, ''Maybe the Europeans have it right.'' That's spooky.
Mr. THUNE. I guess what I would say in response to that, and maybe at more that it's a function. There's a skepticism out there that we will enforce the terms of these agreements. which I think it brings me back to my initial point, and that is that we have to have strong agricultural protections, conditions in these agreements if we're going to be able to convince producers that it's in their best interest. I think we all agree from an economical standpoint but, I'll tell you what, when they see those trucks rolling down highway 85 from Canada, they're not convinced that it's a very good deal.
One other question and, Chandler, I know your organization has come out basically in favor of labeling. There is some language that has been attached to the Senate Appropriations bill which, I think, is probably diluted a little bit. There are some bills over here, one of which I'm a co-sponsor, that would actually—it would be more country-of-origin. It would be a stronger labeling provision. That's something that I've been told by producers in my State, that if there is any one thing that you could do to help the livestock in this country, it's country-of-origin labeling.
And just generally speaking, is that something that I'm—based on our previous conversations, my understanding is that you're favorably disposed toward what the Senate did. Is a stronger labeling bill also something that your organization would support?
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Mr. KEYS. The bill in the Senate or the amendment in the Senate is a product of the task force that NCBA put together that modified our position a little bit with input from retailers and packers.
I'll make one comment on the labeling, because Ms. Nuzum made it. You know, if it's all right for a Customs official to know where the beef's coming from, then it ought to be all right for a housewife to know. You know, just because it's at the border and, you know, the Customs guy gets to figure it out; why doesn't the housewife get to be able to figure it out?
I mean those are simple questions that producers ask out there, and they really want to know the answers. And they get these cynical answers back, ''Well, you know, it's processed, and we mix it up, and, you know, we can't do it.'' But, you know, I can get it on a label, and it could tell me how much fat's in it, what kind of, you know, additives are in it, all of this other stuff, but I can't figure out what country is it coming from. If we can't even do something like that, this cynicism is going to grow, appreciatively.
Ms. NUZUM. Well, but, Chandler, we don't have requirements that automobiles that are manufactured in this country contain a country-of-origin label for where all of the steel came from, where the paint came from, where the tires came from, where the leather on the seats came from, every important component that goes into a manufactured product. I mean, you're talking about a whole new area of monitoring, and tracking, and labeling. And those are additional costs that are eventually going to be passed on to the consumer in order to do all——
The CHAIRMAN. We'll have plenty of time to debate labeling as well. [Laughter.]
Mr. THUNE. Yes, I think my time has expired, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. THUNE. I yield back.
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The CHAIRMAN. Mr. Pomeroy.
Mr. POMEROY. I respond to the last comment made. And, Ms. Nuzum, there's one hell of a difference between a pound of hamburger and a Toyota car. I mean, my God, that is a stretched example, if I've ever heard one.
Chandler, you're talking it straight today, and I appreciate very much your testimony.
I would just say on the labeling issue, during the last Congress, when beef prices were at their lowest ebb, I wanted to have an event in Bismarck so I could highlight a business that was selling U.S. beef so we could help our consumers and buy a local product. I went through every restaurant; couldn't find one that could verify they just had U.S. beef. Went through every grocery store; couldn't find one. Went through every butcher shop. And the deal is, they were all supplied by IBP. First of all, that should have been alarming enough, in fact, they have such captive supply. But in addition, none of them had the ability to buy from IBP, a U.S. product. It was all blended at IBP.
You mentioned earlier, yes, country-of-origin coming in we know. But then what happens in the processing? I'm convinced that IBP doesn't want people to know. So they get this cheap import in there, and they mixed it around, and they dilute the U.S. content of it. And then they have it out on their shelf.
By golly, it seems to me that the consumer in Bismarck, ND ought to have the right to know whether they're buying a U.S. product or whether they're not. And I don't think that's runs afoul of any concept or pre-trade or any other thing. It's just basic right to know. And I completely agree with the sentiments of my colleague from South Dakota and have co-sponsored that legislation as well.
We get labeling—for heaven's sake, it's just a basic fundamental right to know. If we can't get that done, this operation has really failed, I think, the American public.
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Let's talk about first things first, in terms of responding to the serious ag crisis that we're seeing in my part of the country. I'd say job one, Mr. Chairman, is getting that emergency disaster bill passed. The Senate added to the agriculture appropriations, $500 million dollars of emergency relief, desperately needed. It's now in conference committee. I hope all of us on this committee, Republicans and Democrats alike, can join in trying to get action on that Conference Committee immediately so that we can vote on that before we go out in August recess. I shudder to think about the message this Congress would send to farmers across the country if we go out on August recess without having taken action on that emergency disaster package now in Conference Committee.
Issue No. 2, it seems to me, is IMF. I think the Senate agrees to that as well. They've passed 26 to 1 full funding of IMF in their fiscal year 1999 Foreign Operations Spending bill yesterday.
Looking at immediate issues before this Congress, would you rank IMF as perhaps the number one thing we can do to expand export opportunity? Or let me say, shore up existing export markets?
Mr. DYE. I think from a grain standpoint, it's critically important. If we look at some of these parts of the world where we have growing demand bases with population and so forth, what we're feeling here with the Asian crisis is the reality that income does tie to food consumption. And as we've seen the Asian financial crisis, we've seen the impact of that on our exports.
And, likewise, the importance of building those economies back up, providing support, providing funding, the full amount is critically important. So, I would agree as making it a high priority.
And I'd also thank you, Mr. Pomeroy, for your support of fast track because I think that's an important part of this process as well.
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Mr. POMEROY. Well, let me ask you on fast track. I don't know where I'm going to be if it comes up in September. There has been nothing but frustration on the Canadian front.
I appreciate the directness of which you addressed that in your testimony. I received from the administration a commitment, when we get an audit of what's taking place in the Canadian wheat board to determine whether or not they're subsidies or not. As you mentioned and allude to, there is no transparency in their pricing, so we wanted an audit—all payments, initial payment, final payment. We're going to audit the payments.
The date the Canadians have given us a direct rebuff. They basically told us to go pound sand. And I think for the United States of America to be in a position of, you know, kind of walking back, hat in hand, saying, ''Well, I guess they won't let us do that. It's just completely unattainable.'' And if that's what our trade agreements are bringing us, there's no stomach in my part of the country for new trade agreements till we fix the last trade agreements.
Now, it brings me the question about fast track. It seems to me—and I worry what will happen to the 1999 WTO round if we don't have authority to negotiate an agreement. But it seems to me two losses in this Congress is worse than one loss; we already had one loss. And there is some skepticism in terms of whether this is about passing fast track or this is about jamming Democrats. I'll be very direct.
And while it is something that, without question, is going to tear our caucus up one side and down the other, as brought up in September; if that's the end game, there can be terrible damage to trade and agriculture if we fail again with fast track, leaving us with two losses this session.
Should they bring it up if they don't have the votes?
Mr. DYE. Well, I guess I'd try to take the optimistic view of getting the votes and then bringing it up. And I hope that can happen. I think it needs to come to a vote. I think we're at a critical time. The example Mr. Chairman gave of Chile and our inability to access that market.
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Those issues today are pressing on us. And I think that from a grain standpoint, we need to bring it forward. We need to get a vote. I agree with you; I think the danger of losing that vote is not good. Again, that's a sign to our own agriculture economy as well, that for years we have given that authority, and we are not able to do that now. And that is a concern, but I think we need to move forward on it.
Mr. POMEROY. I'd like to just—if it's all right, Mr. Chairman; I know it's red.
If you can't get the votes—I'd like to ask the administration or the Congress, if we have to get past the first Tuesday in November to get the votes, can we come back the first part of February and get the votes and pass it? And if it's a political question, then I think we need to just be real honest about it.
But it's not necessarily also just in your caucus. I think they'll be a lot of consternation within the Republican caucus, because it seems to me that this is not a partisan issue, but it seems to be a personal issue, a regional issue, in where you stand.
But we don't want to vote if it's just going to go down in flames, because once people sign on the dotted line, it's hard to get them to pull back, I mean just from a strict lobbying standpoint. But that's up to the chairman and leadership, not me.
The CHAIRMAN. Will the gentleman yield to me on that point?
Mr. POMEROY. Yes.
The CHAIRMAN. Let me to say to the gentleman that I have been involved I believe in every meeting with our leadership on the question of trade. And I admit to being one of those who has demanded that we have the full four corners of our agreement—IMF, fast track, normalization of trade relations with China, and lifting sanctions—as the gentleman knows. Never—and I say to this sincerely to the gentleman—never have I ever heard that this was somehow trying to intimidate Democrats—never. And it's hard for me—I read it in the paper, some of them said that. But it's hard for me to believe that when I have listened to this President advocate fast track openly. He's a Democrat. And we know that the last count, there were some 44 Democrats who were going to support fast track; we need more. But never have I heard this to be a vote or some sort of a sham to embarrass Democrats, never.
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Mr. POMEROY. Mr. Chairman, I have the enormous respect for you. I think you've done so much to heal this committee up after last session and get us operating again as unified advocates for agriculture. I don't know anything about majority leadership discussions; they don't let me into those. All I know is what I read in the paper.
The CHAIRMAN. Yes, well, I know.
Mr. POMEROY. Just to read from today's Congress Daily, for example, Mr. Livingston and a key House GOP aide confirmed that there is some discussion of using the Clinton administration's IMF request as leverage on other funding issues as the fiscal year winds down. ''It certainly may become an element,'' Livingston said. A House Republican aide added, ''It's discussed all the time. I don't know how much leverage is there.''
So you know, we're in this silly season time of this Congress where virtually everything is partisan; everything is political. Everything is geared to the 1998 elections. And while those discussions may not be taking place in front of you, I'd be very surprised if there wasn't a political dimension to the notion of bringing it up in September.
The CHAIRMAN. Well, I have no idea of that. And as I say to the gentleman, whether it's IMF or whether it's fast track, Mr. Stenholm and I sit here and we nudge one another continually because he's pushing you folks for fast track, and I'm pushing my folks for IMF. [Laughter.]
Now, we think we're going to get both. We think we're going to do it. But we ought not to fall into the trap that somehow there's a devious plot here. There certainly is not, and I would know it, and I would tell the gentleman if there was. And that's why I appeal to him and others that we need to devise a method through language that will encourage the gentleman to support IMF, fast track, and all the rest.
I thank the gentleman for yielding.
Ms. NUZUM. Mr. Chairman, if I could just add a comment to this? I won't attempt to get into the discussion of motivations on either side of the aisle.
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But I will say that I think the positions that are taken by the members of this committee will very dramatically influence the ability of fast track to move forward in a positive fashion this September or not. It was widely known at the end of last year that there was not a solid majority of the members of this committee in favor of fast track. And yet, it has been identified over and over again today how important export markets are to the prosperity of the U.S. agricultural sector——
Mr. POMEROY. Do you view IMF or fast track more important?
Ms. NUZUM. I would say they're both important. IMF has a stronger urgency because of the immediacy of the Asian crisis and the depleting of the funding that's been available in IMF.
But IDFA would like to see both enacted into law this year. And I would emphasize, enacted into law, not simply put up for a vote which there's not a great deal of confidence will pass on the floor of both chambers.
Mr. POMEROY. Do you think a double loss is a significant setback?
Ms. NUZUM. Pardon?
Mr. POMEROY. A double loss on fast track is a significant setback?
Ms. NUZUM. Yes, I do. But for that reason, the Ag for Fast Track Coalition has been working very hard to try and continue the need for fast track on the radar screen of members and of the constituencies that you represent. I think that the proposal that Chairman Smith has put forward, if it is going to attract additional support from members of this committee, is a very constructive move. But I think that if there is a fairly early identification of a strong bipartisan majority of the members of this committee who are willing to say they will vote for fast track, that will be enough additional momentum that we could get it enacted into law this year.
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Mr. POMEROY. I'm telling you in open forum, I was, yes. I'm now in doubt.
The CHAIRMAN. Mr. Thompson.
Mr. THOMPSON. Thank you, Mr. Chairman.
Well I was, no. And now I'm in doubt if we can get some other things resolved. [Laughter.]
And one of those issues that a lot of members express—and I'm really talking to, I guess, to Mr. Keys. There was some labor and environmental issues associated with fast track. Some of us were very clear on our concerns about those issues. And in your testimony you more or less indicated that those issues should be negotiated with side agreements for some reason. If you could somehow get those agreements worked into the big agreement, so to speak, there are a lot of people who voted no, who would vote, yes. And we could get those additional votes.
Give me the benefit of why you think it should be a side agreement on those kind of issues and not in the broader agreement.
Mr. KEYS. Well, I'll just be real blunt. We've discussed this at length in our industry because we came at it from the premise that the reason that business was against the side agreements on environment and labor might have been different from where we were coming from. To a certain degree it is, but what we believe is this country or this Government only has so much resources to put toward efforts of making sure that trade agreements are being abided by. And right now, we're having a hard time getting them to abide by the SNP agreements, the tariff agreements, the subsidy agreements. And if they have to then put all this efforts and things in trying to work on agreements as esoteric as labor and particularly environment, then it just won't happen.
So we believe that the first premises of the negotiations should be on economic issues, or deregulating the economic situation, the subsidies for tariffs, and on science questions. And then after we fix those and we start increasing world trade, then we're going to see standards of living and environmental conditions improving overseas.
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But we just don't have faith. We think that a priority has to be set upon the economics and the science issues first. That's basically what our leadership came down on.
Mr. THOMPSON. Well, again, I would say that there are some of us who represent agricultural areas who would look favorably on fast track and some other trade efforts if those things would be included. And I would hope that your industry, along with others represented, could look at that as broadening the tent, so to speak, in getting other people to support it. And not just cut people out because you don't want to go into that area.
None of us want to represent areas of our district to their detriment, but there are some genuine concerns that we have that I think if we can just try to understand each other a little more, we can work to the common good for all of them. So, I would suggest that as a possibility.
That's all I have, Mr. Chairman.
The CHAIRMAN. I thank the gentleman. And I thank the panel very much.
The next panel will include Mr. Kraig Naasz, president and CEO of U.S. Apple Association; Mr. Dennis DeLaughter, chairman of the Texas Rice Producers Legislative Group; Ms. Doreen Brown, president of Consumers for World Trade.
Good morning, lady and gentlemen; welcome. We'd be pleased to hear from Mr. Kraig Naasz, who is president and CEO of the U.S. Apple Association.
STATEMENT OF KRAIG NAASZ, PRESIDENT AND CEO, U.S. APPLE ASSOCIATION
Mr. NAASZ. Thank you, Mr. Chairman.
The CHAIRMAN. Good morning.
Mr. NAASZ. It's a pleasure to be here this morning.
The U.S. Apple Association represents all segments of the apple industry across our Nation. More than 450 individual firms, and 30 State organizations, representing the roughly 9,000 apple growers in our country.
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We strongly support the new round of negotiations of the WTO. And moreover, Mr. Chairman, we strongly support the need for fast track legislation so that the United States can take a leadership role in both the negotiations under the WTO as well as the Free Trade Agreement of the Americas.
Our primary concerns and objectives can be divided into basically three categories in the area of: tariff barriers to trade, phytosanitary and sanitary barriers, and in anti-dumping measures. In addition, our industry has some very important concerns regarding labor and environmental agreements.
The United States apple industry, Mr. Chairman, is the most dominant apple producer throughout the Western Hemisphere. And we produce more apples than our five largest competitors combined. Those are Chile, Argentina, Canada, Brazil, and Mexico.
While our industry has clearly benefitted from the liberalization of trade under the NAFTA—in fact, we've seen Mexico grow into our largest export market for apples—we still face a number of hurdles regarding tariffs to the other countries. In fact, apples are assessed duties of between 15 and 30 percent by most of the countries in Latin America.
Meanwhile, our biggest competitor, Chile, has duty-free access to most, if not all, of those markets through its aggressive negotiation of bilateral and regional trade agreements. As their production, storage, and marketing capacity continues to be enhanced, we find that our window of opportunity throughout Latin America shrinks at the expense of Chile's gains. That's why we strongly endorse the need for equal access and the complete elimination of all import duties and tariff-rate quotas throughout the hemisphere as a primary goal of the next WTO round of negotiations.
In the arena of phytosanitary and sanitary measures, our industry has worked long and hard with representatives of the U.S. Department of Agriculture, the U.S. Trade Representative's Office, and Members of Congress like yourself, to gain access to markets throughout the Western Hemisphere.
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Despite our efforts, several markets remain closed to a significant portion of our industry including Mexico, Argentina, and Chile. Still other markets have temporarily denied access to our industry during a given period of time over the last 5 years including Colombia, Ecuador, and Brazil due to so-called phytosanitary measures.
As we look to the 1999 round, our industry supports strong adherence to the WTO Sanitary and Phytosanitary Agreement, and its requirement that these types of measures be based on sound science and not motivated by protectionist interests.
In the arena of anti-dumping measures, our industry favors a modification to the WTO's anti-dumping code that would exempt perishable agricultural products from anti-dumping statutes.
This last March 1997, Mexico imposed a 101.1 percent compensatory duty on our industry as a result of an anti-dumping case brought by its domestic apple industry that brought to a screeching halt all apple shipments to that country, our most important market. It took us a year to resolve that situation. And I have to tell you, it wasn't resolved satisfactorily. Based on the belief that we would see a final determination from Mexico's Secretariat of Commerce that would maintain that high duty, we were forced in a negotiations on a suspension agreement that now requires our product be sold for no less than $13.72 a 42-pound carton of apples, which essentially means we have to forfeit half of the access we once enjoyed to the Mexican market.
Similarly, we've battled but lost two separate cases in Canada, and are similarly faced with the minimum import price on Red Delicious apple sales to that country.
During the course of these three cases, given the toll of legal costs and the toll of lost sales to our industry, we've come firmly to the decision that we must modify these anti-dumping laws to exclude perishable agricultural products like apples. It's our hope this issue can be addressed.
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Finally, Mr. Chairman, I might say members of our industry in Washington find themselves in a surprising and unwarranted position of being the subject of a labor complaint filed by several labor unions in Mexico. And although we're still sorting out our role, it does present the possibility we may lose access, or at least have some of our access to the Mexican market negatively affected.
As a result of our experience with that, we believe that these agreements should be void of labor and environmental agreements.
I'd be happy to answer any questions when my turn arises.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Naasz appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
Mr. DeLaughter is the chairman of the Texas Rice Producers Legislative group. Welcome.
STATEMENT OF DENNIS DeLAUGHTER, CHAIRMAN, TEXAS RICE PRODUCERS LEGISLATIVE GROUP
Mr. DELAUGHTER. Thank you, Mr. Chairman, and members of the committee. I'm privileged to be here today.
My name is Dennis DeLaughter; I am a rice farmer and also the owner and president of Progressive Farm Management of Edna, TX. I currently serve as chairman of the Texas Rice Producers Legislative group, and as a member of the Board of the U.S. Rice Producers Association.
I appear before the committee today on behalf of the U.S. Rice Producers Association, an association formed by the rice farmers in the States of Mississippi, Missouri, and Texas in order to provide rice producers with a farmer-friendly organization that truly represents the interests of rice producers.
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Our association commends this committee for its foresight in holding this series of hearings to review the many issues raised by the upcoming 1999 multilateral negotiations on international trade. And we are hopeful that by working with this committee and other policy makers, we can avoid the oversights that have been made during prior trade negotiations that have allowed the discriminatory treatment of certain types of U.S. rice, specifically, rough rice.
Rough rice, sometimes referred to as paddy rice, is rice in the form as it is harvested, the form in which it leaves the farm gate and the form in which it is sold by producers.
While sales of milled and total U.S. rice exports to virtually all regions of the world have been reduced this season, sales of rough rice, particularly to the Western Hemisphere, have grown dramatically. Rough rice now accounts for approximately 30 percent of total U.S. exports. That compares to 15 percent last season. Alone, the Western Hemisphere will make a market for about 1.5 million metric tons of U.S. rice in this marketing year. Major purchases include Mexico, Brazil, Colombia, and Central America. And 95 percent of these purchases are rough rice.
In order to nurture and develop this very promising market, it is essential that the United States guard against the adoption or implementation of any trade policy that will constrain future sales and market development of rough rice.
Consultations between our Government and the rice industry during and since the Uruguay Round of GATT, have centered on the interests of those rice industry officials whose primary interest has been to enhance the exports of milled rice. There are, however, a number of export markets that present opportunities that are specific to only rough rice. Unfortunately, in the past, rough rice has been overlooked, and mainly because of producer noninvolvement in the issues, but that is changing.
For example, the management system initially proposed by the United States rice milling industry for tariff rate quotas, or TRQ, which were granted to the United States by the European Union under the U.S.-EU Enlargement Agreement of 1996. That system did not adequately provide for provisions to address rough rice exports.
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Fortunately, the Department of Agriculture, along with many members of this committee, worked closely with our association and rice exporters to ensure that the final TRQ management system was farmer-friendly and did not discriminate against rough rice exports.
Similarly, the U.S. rice milling interest played a pivotal role in negotiating with the European Union, the current CRS Program, the Cumulative Recovery System for EU rice imports. The end result of the miller's negotiation was, the sales of rough rice to the European Union have been completely stopped, and it's basically not possible.
Fortunately, the rice CRS Program is a temporary policy that is currently under reconsideration, and we urge this committee and policy makers to ensure that the CRS is revised such that it does not discriminate against rough rice sales to the European Union.
Rice farmers have learned a hard lesson from the experiences regarding TRQ and CRS issues. We know that the lack of direct farmer participation and the formulation of rice trade policies has allowed rice processors to occupy the policy field. We now understand that it is naive to expect that rice millers will have any real incentive to promote exports of rough rice, as it only reduces and drives up their cost of raw inputs.
However, rough rice sales and exports are a key to the profitability of American rice farmers. And our trade policies and export programs need to reflect this simple reality.
Mr. Chairman, in my written testimony, I have several policy goals that we would like to see adopted. And I would like to mention just a couple of them.
We recommend that this committee closely consult with organizations such the U.S. Rice Producers Association that truly represent the interests of rice farmers. This goal could be facilitated by the inclusion of rice producer members on the Department of Agriculture's Agriculture Policy Advisory Committee and Agricultural Technical Advisory Committee.
Also, policy officials need to be cognizant and reminded that rice is not a homogeneous commodity. Price initiatives affecting rice need to carefully consider all forms of rice—rough, brown, milled, hard-boiled, and broken—along with the types of rice which is long, medium, and short grain.
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Also we would like to see for the fight of liberalization of tariff regimes in regional trade blocks that disadvantage U.S. rice producers. For example, Brazil allows the duty-free import of rice from the MERCOSUR countries, while U.S. rice is assessed duties of up to 22 percent.
And, of course, we would like to see fast track enacted. We believe that that policy will help officials gain concessions for U.S. farmers from countries and regional trading blocks that would otherwise be reluctant to negotiate with U.S. officials.
In conclusion, America's rice farmers are not asking for anything more than equitable treatment in any international trade discussions. Our rice producer members ask only that the United States Government work aggressively with us to maintain and expand similar open markets for all forms and types of U.S. rice in the Western Hemisphere and around the world.
Thank you, Mr. Chairman, for the opportunity to meet before your committee.
[The prepared statement of Mr. DeLaughter appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you very much.
We are pleased now to hear from Ms. Doreen Brown, president of the Consumers for World Trade, and accompanying her is John Schnittker, Public Voice for Food and Health Policy. Welcome to you both. Please.
STATEMENT OF DOREEN BROWN, PRESIDENT, CONSUMERS FOR WORLD TRADE
Ms. BROWN. Thank you very much.
Consumers for World Trade is a national, non-profit organization a national, non-profit, non-partisan organization that was established in 1978 and is dedicated to promoting the consumer interest in international trade policy through advocacy of trade liberalization and through education, particularly at the grassroots level.
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As a point of reference, I have served on the President's Advisory Committee for Trade Policy and Negotiations, and I am a member of the U.S. delegation to the annual North America-European Union agricultural conferences. Those are private sector conferences.
I'd like to emphasize—I'm going to be talking about sugar in my statement—but I'd like to emphasize from the start that CWT believes strongly in the need for renewal of clean fast track negotiating authority and urges Congress to enact the necessary legislation as expeditiously as possible. Without fast track, the 1999 WTO agriculture negotiations and the FTAA negotiations will not be very productive for the United States.
With fast track, our country can negotiate in good faith and from a position of strength with countries in the Western Hemisphere and around the world.
In the Western Hemisphere, the largest marketplace for all U.S. exports, countries outside of the NAFTA are experiencing rapid economic growth spurred by the reduction of trade barriers, the privatization of state trading enterprise, and the liberalization of investment and services policies. Most of these countries have or are acceding to the WTO, and most of them belong to regional trade agreements. If the United States is to be a meaningful player in the hemisphere, it is imperative that we achieve a strong free trade alliance between the Americas.
However, the U.S. sugar program is putting a damper on some of the economic efforts being made by these countries. In the FTAA negotiations, if the U.S. tariff rate quota on sugar is maintained, other countries will expect concessions to protect their sensitive commodities. And if this is done, our sugar program will exacerbate the U.S. farmers' current financial difficulty.
The Freedom to Farm bill, the NAFTA, the Uruguay Round—none have brought any meaningful reform to the sugar program, even though internal support and supply management programs have been phased out and reduced for most of the other agricultural commodities. The existing trade barriers keep the price of domestic raw sugar at double the world market price, including the price in most Western Hemisphere countries, and constitute a major impediment to our negotiations of trade liberalization. This preferential treatment for sugar in trade agreements is detrimental to American interests in many ways.
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As president of CWT, I object strenuously to consumers having to pay the bill for the $1.2 billion annual cost of the sugar program that benefits less than 1 percent of American farmers. In addition, the highly competitive food industry has to compete with foreign products that are made with world market sugar at half of our domestic price. From a trade standpoint, I object to our maintaining a special interest program that violates in principle that which we are trying to accomplish in agricultural trade liberalization.
As we near the time for the WTO agricultural negotiations, we cannot afford to have any commodity off the table. Special interest exemptions like the sugar program will tie the hands of our negotiators and undermine their credibility. How can we expect our neighbors to the south to buy U.S. agricultural products or consumer goods and technology if we do not give them more access for sugar? How can we effectively push for global free trade and insist on substantial reform of the EU's Common Agricultural Policy, if we continue unwarranted protection for sugar?
There are a couple of charts that are attached to my full statement, Mr. Chairman, that will show that the countries with the highest internal prices are among those with the most restrictive sugar policies—the EU, the United States, and Japan—and that several of the world's largest sugar exporters have the least internal supports or export subsidies—Brazil, Australia, South Africa, Colombia, and Russia.
As mentioned by the previous panel, the leadership of the committee has indicated its support for a four-point program to help American farmers compete in the world market—fast track, IMF funding, exempting agricultural commodities from unilateral trade sanctions, and approval of normal trade relations with China. Each of these proposals are designed to increase our trading opportunities, and it will enable us to diversify our export markets so that we are no longer substantially dependent on one major market. It will prevent another sharp decline in prices and will remove the temptation to return to the discredited supply management policy of the past.
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But the U.S. sugar program is a very damaging policy that hurts American consumers, American business, American workers, and American agriculture, and our trading partners in developing countries as well. It is a policy that has to be changed, especially as we prepare to take our seats at the WTO negotiating table with the expectation and the opportunity of opening up new world markets for American agricultural products.
Thank you.
[The prepared statement of Ms. Brown appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you very much.
Mr. Schnittker.
STATEMENT OF JOHN SCHNITTKER, SENIOR ECONOMIST, PUBLIC VOICE FOR FOOD AND HEALTH POLICY
Mr. SCHNITTKER. If I may, Mr. Chairman, I'll make a short statement.
My name is John Schnittker; I'm senior economist for Public Voice for Food and Health Policy.
Public Voice is a non-profit that works on food and agricultural issues from the consumer perspective. Our position is that fair and open trade will benefit consumers.
The favorable treatment that the U.S. sugar program receives may well hurt efforts to increase the overall export market for our agricultural products. If we are working toward a successful farm policy that is fair to both farmers and consumers that is a market-oriented agriculture, reform of the sugar program is a way to help grow and diversify the market for U.S. agricultural products.
I wish Congressman Stenholm was here; I'll send him a copy of this, because I agree with him on the next point to a degree.
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It's important to recognize that we don't live in a perfect world. Free and fair trade remains a theoretical concept for all U.S. agricultural commodities. However, other producer groups have accepted this fact and decided that market orientation, not protectionist policies, is the proper course. We must not let the actions of other nations be an excuse not to reform our own sugar program.
Action taken now by U.S. policymakers to reform or end the U.S. sugar program is an unqualified step in the right direction. If we remove the monopoly profits sugar growers now enjoy, we will create a more efficient U.S. sugar industry and, more importantly, remove the burden of over-priced sugar and sweetened products that consumers now bear and open the door for increased exports of agricultural commodities in the Western Hemisphere and around the world.
Thank you.
[Mr. Schnittker did not have a prepared statement for the record.]
The CHAIRMAN. Thank you both very much. As you both know, sugar and tobacco and peanuts were part and parcel of a Freedom to Farm bill—which you can argue were affected or not affected—but all of which will disappear in the year 2002. And I would ask both of you—and you're very influential in consumer's affairs—if consumers and agricultural producers and agribusiness and generally people support fast track, we ought to pass it. And I would ask you, and make the point, that if indeed the sugar issue is to be changed, it may well be changed because of our ability to negotiate in the WTO in 1999 because everything will be on the table.
So first things first, help us pass fast track, and then to get at the sugar issue, that is the best way. Without fast track, it is likely that the efforts to discuss sugar internationally will not be as opportunistic.
Ms. Brown.
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Ms. BROWN. I couldn't agree with you more. We have worked diligently in coalition and alone since day 1 to get fast track through the years. Seeing agriculture expressing a firm support for fast track certainly helps. It's very, very difficult obviously to get the public at large to understand what the ramifications of not having fast track are all about. The wrong word and the wrong images are often sent by people—be they politicians, be they media, be they whatever—within their own counties and their own regions. And the public swallows an awful lot of that without questioning it, unfortunately.
But, as has been said before, I think the more is said at the leadership level on the importance of this and how important trade is to agriculture and to every single individual in the United States as a consumer, the easier the job will be. I feel confident that we can get fast track if we all pull together and don't politicize every little piece of it as much as it has been done in the past.
The CHAIRMAN. Well said, and thank you very much. And you're reaching out to us, and we're reaching out to you. And thank you for that kind of support.
Mr. DeLaughter, I was interested in your statement. And you pointed that Brazil has a 22 or 23 percent tariff, I believe, on rice.
Mr. DELAUGHTER. Twenty-two; yes, sir.
The CHAIRMAN. You know they're part of a MERCOSUR, as you well know, group including Argentina, Paraguay, and Uruguay, and its very difficult for us to penetrate that market since they buy from each other and are very partial to buying from South America. So my question would be—and I'll ask from Mr. Stenholm's question—what steps do you recommend that we make to give consumers really what they want? And they want a fair opportunity to buy rough rice. What can this committee do to help you make sure that that is an opportunity as well as other forms of rice, but not overlooked?
Mr. DELAUGHTER. Mr. Chairman, one of the things that we really agree with your recent proposals for fast track is that as an industry as producers who have been basically overlooked in submissions. It's not that the milling industry went out to get us. It's just that things fell through the crack. And the ability for this committee to review the fast track process, I think, is imperative. And we strongly support that and think that it's very good.
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And those are the kind of things that we feel like that can help us because as you get a chance to review what's coming forth in fast track, in enables us to get a view of it as well.
The CHAIRMAN. Exactly.
Mr. DELAUGHTER. And things that have fallen through the crack in the past, won't have a tendency to do so.
The CHAIRMAN. Good.
Mr. DELAUGHTER. And so we think you're exactly headed in the right direction on that.
The CHAIRMAN. Thank you very much.
Mr. Naasz, are you better off with NAFTA or not?
Mr. NAASZ. Absolutely, Mr. Chairman. Mexico's duty now stands at 10 percent; it was 20 percent before. It will be phased out by the year 2003. It's our largest market, or at least has been. The effects of the anti-dumping case will take a little bit of the shine off, but we're much better off.
The CHAIRMAN. For a quick moment, if we negotiate out anti-dumping opportunities, are we not disarming ourselves against that same procedure from other countries?
Mr. NAASZ. The United States makes greater use of anti-dumping laws than all of the rest of the world's countries combined. We're only speaking specifically about perishable agricultural products which, under the way anti-dumping laws are designed, are always subject to a negative ruling. We sell some products at a premium price, some, at times, unfortunately below our cost of production. Anybody, any domestic industry, can conceivably bring a successful anti-dumping case against someone who otherwise is just trying to compete on fair and equal footing. That's why we propose to have it eliminated as it regards products like apples.
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The CHAIRMAN. OK, thank you.
Mr. Moran.
Mr. MORAN. I have no questions, Mr. Chairman.
The CHAIRMAN. All right.
Anything to add by anyone?
We thank you very much then for your patience and your testimony.
And may I just say in conclusion, I would like to thank—as did Mr. Stenholm—the agricultural staff at the Congressional Research Service for their hard work on this series of four hearings that we've conducted and relating to the next round of the WTO.
The information that CRS has provided, along with the recommendations the committee has received from all of the witnesses at all of our four hearings, will be an invaluable tool, I believe, to the administration and for the next round of agricultural negotiations in 1999.
Without objection, I would like to leave the hearing record open so that the Agriculture Committee staff can compile and submit a summary of all four hearings—Europe, Asia and the Pacific, Africa and the Middle East, and the Western Hemisphere—which will be available by the way to all if they're interested. I think that such a summary of the recommendations to the administration will be an asset for them going into the 1999 WTO round.
Thank you for listening; thank you for attendance. This hearing is adjourned.
[Whereupon, at 12:30 p.m., the committee adjourned subject to the call of the Chair.]
[Material submitted for insertion in the record follows:]
Statement of Daniel P. Dye
Mr. Chairman and members of the committee: Good morning. My name is Dan Dye and I am vice-president of Cargill's North American grain trading group where I am responsible for the eastern U.S. geographic region. Earlier in my career, from 1990 to 1992, I served as merchandising manager for Cargill, Ltd., the Canadian subsidiary of Cargill, Inc., based in Winnipeg, Canada.
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I appear before you this morning on behalf of the National Grain Trade Council. The Council is a national association whose voting members include grain exchanges and grain marketing organizations. The Council's associate members are grain companies and related business. I serve as vice chairman of the National Grain Trade Council.
Let me begin by saying thank you for the extraordinary effort made last week to allow sales under the GSM export credit guarantee program to resume to Pakistan and India. We agree that food should not be used as a weapon to coerce or influence the actions of other nations. In this case, your quick action and swift implementation by the administration was good news for American wheat farmers, allowing sales of 300,000 metric tons of U.S. wheat last week and helping to reaffirm the U.S. commitment to be a reliable supplier of farm products to the world.
TRADE AND U.S. AGRICULTURE
Events of recent weeks have underscored the importance of trade to U.S. agriculture. U.S. farm income is closely tied to the ability of agricultural producers and processors to reach customers here and overseas. In fact, there is no other sector of the economy where the link between trade and prosperity is clearer than agriculture. American farmers and ranchers are twice as reliant on foreign trade as the U.S. economy as a whole.
The importance of trade is not new for our agricultural sector. We learned in the 1970's and 1980's that exports are critical to American agriculture. Because of a series of agricultural export embargoes and a downturn in exports, agriculture experienced the largest financial crisis since the Great Depression just a dozen or more years ago. The seeds of that crisis were sown with our unrealistic expectation that world markets were ours for the taking. When U.S. agricultural exports stalled and then collapsed, farm income dived. Farmers couldn't repay banks' interest charges. Bankruptcies on the farm and in towns soared. Property values plummeted. Whole communities died. It took great resources and a number of years to stabilize the farm economy and get U.S. agriculture competitive again.
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Because of that recent experience, American agriculture has become one of the most proactive sectors in support of trade liberalization—fast track negotiating authority, maintaining China's normal trade relations status and sanctions reform. Because the International Monetary Fund is vital for stabilizing economies in crisis and enables them to re-enter world markets for food, U.S. agriculture also has supported replenishment of IMF funds. These are critical for U.S. agriculture's long-term standing.
To put these issues into perspective: the quantities of agricultural sales put at risk without fast track negotiating authority dwarfs the quantities involved in all the embargoes of the 1970's and 1980's. The potential opportunity loss is many times that! Even though the most recent trade pacts, NAFTA and GATT, have led to a sustained $20-billion increase in farm exports and the best economic times in many years, fast track was deferred, in part because the agriculture community was unable to convey the importance of trade and of this particular trade building exercise to this committee.
Trade agreements do not assure that there will not be droughts, floods, plant diseases and hard times on farms and in agribusiness here and around the world. These are the events that help make agricultural markets cyclical. Prices and trade volumes go up and they go down.
But, market opportunities around the world are growing. Today, there are about 5.8 billion people in the world. By 2005—only 7 years from now—there will be more than 6.5 billion. We are adding more than 80 million people, populations about the size of Germany or Mexico—each year. Also, income is growing in most parts of the world. Globally, real per capita income rose by 32 percent between 1970 and 1995.
The United States knows first-hand what growth in population and income mean for food consumption. Over the past 5 years, U.S. farm exports are up by one-third, reaching a near record $57 billion in 1997 and a positive trade balance of $21 billion, among the largest of any economic sector. U.S. agricultural exports will fall in 1998 as a result of large crops in key production and consumption areas, and the lingering financial crisis occurring in Asia. It is imperative that we do what we can to help Asia's troubled economies get back on their feet.
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The bright spot in our export picture has been trade in the Western Hemisphere. USDA is predicting strong gains this year for our exports to Mexico and Canada—up 19 percent and 8 percent respectively, over 1997. Together, they will account for about 20 percent of our total
exports. We also are seeing increased sales to South and Central America and the Caribbean—up nearly 18 percent over last year.
At the same time, however, trade is a two-way street. U.S. agricultural imports from these countries also are on the rise. The net effect of this two-way trade has worked overwhelmingly to the advantage of the United States, but those aggregate effects sometimes mask the difficulties that occur in localized markets.
UNITED STATES-CANADA TRADE
NAFTA has been a huge success for the United States and for U.S. agriculture. Commerce between the United States and Canada has grown steadily since the Free Trade Agreement was signed in 1989. Canada is the United States' single largest trading partner. The FTA helped
reduce trade barriers between the two nations. These steps to liberalize trade have resulted in economic growth for each nation.
However, increased trade can sometimes lead to friction, and that has been the case with Canadian wheat shipments to the United States. U.S. imports of Canadian wheat reached 75 million bushels in the 1997–98 marketing year. A U.S. all wheat balance table is included as an appendix to this statement.
To put that amount in perspective, 75 million bushels is about 2.5 percent of total U.S. wheat supplies, a little less than was imported the previous year, and around 25 percent less than the record level of 109 million bushels set in 1993–94.
The United States, of course, is a major wheat producer, and it strikes many as odd that the United States would import grain. The thing to remember about liberalizing trade and lowering trade barriers, is that it allows the market to work more freely and grain to flow toward the highest price. So, why does Canadian wheat flow into the United States?
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In a broad sense, Canada is a large wheat producer and most of the population centers of North America lie south of the U.S.-Canada border. Thus, Canadian wheat moves south to urban demand centers.
Over the last several years, U.S. wheat production has steadily declined. There are several reasons for the decline in production: weather and plant disease; corn and soybean production has been more profitable; and the Conservation Reserve Program is idling around 10 million acres of former wheat land.
Wheat imports from Canada for the 1998–99 marketing year are expected to be down from the past year, mostly because of the good U.S. wheat crop. There are still many questions associated with the harvest now unfolding, in particular the impact of scab on Hard Red Spring and Durum wheat production in the upper midwest. If it is a good crop, there will not be a need for a large amount of wheat imports. It now appears that the HRS wheat could be short on protein, which might cause some millers to look to Canadian supplies for higher protein levels.
When we get into discussions with our friends from Canada about wheat imports, they point out there are many other aspects to a trade relationship. Canada notes that their per capita consumption of U.S. agricultural products ($216 in 1997) is much greater than U.S. per-capita consumption of Canadian agricultural products ($31 in 1998). While the U.S. imports a fair amount of wheat from Canada, Canada notes that they import a significant amount of U.S. corn, soybean meal, and other grain and oilseed products.
We are strong supporters of free trade and open commerce with Canada. There are, though, some reasonable questions for policy makers. Canada maintains a fairly rigid marketing and distribution system for grain that is not nearly as open as the U.S. system. There should be localized situations, for example, where Montana barley would move across to Alberta feed lots if there were reciprocal access between the two nations.
There have been efforts by the U.S. and Canadian governments to develop a pilot program that would give U.S. growers more access to Canadian markets. Under that program, a U.S. grower would be able to take his grain to certain Canadian elevators that would handle the grain on an identity-preserved basis.
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We do believe markets do a more efficient job and provide better returns to farmers than government buying agencies. The fact that the United States thinks its system is better than the Canadian system, though, does not mean Canadians intend to change their system. The subject of State Trading Entities (STEs) is a necessary subject for the 1999 round of multilateral negotiations in the WTO.
We compliment the leaders of Prairie Pools, Inc., in Canada and the American Farm Bureau Federation here for developing a dialog between producers on both sides of the border to better understand the issues. There is a conference now in the planing stages for late September in Canada that would bring agricultural leaders from both sides of the border together to talk about common issues. A similar model for dialog was used in the late 1980's, just after the negotiations of the Canada-United States Free Trade Agreement had concluded. In that case, oilseed growers and processors on both sides of the border agreed to accelerated elimination of tariffs in the complex. Since then a vigorous two-way trade has developed, with seeds and products moving either direction in response to market conditions. By finding common ground, there have been no protests at the border. We would like to see a similar situation in grains.
TRADE WITH LATIN AMERICA
Mexico is our third largest country market, and one of the fastest growing. U.S. corn exports to Mexico reached a record 6.3 million tons in 1996, more than twice the amount required under Mexico's tariff rate quota. Mexico also eliminated its import licensing for wheat and agreed to phase out tariffs over a 10-year period. In the years since NAFTA went into effect, U.S. wheat exports have averaged nearly a million metric tons year, with 1996 exports totaling more than 1.5 million—an amount commensurate with this year's Canadian imports. Tariff preferences for U.S. rice helped increase the U.S. market share in Mexico from 40 percent in 1992 to as high as 98 percent in 1997. Meanwhile, Mexico is scheduled to eliminate tariffs on soybean meal and crude and refined soybean oil over a 10-year period. This decade, exports of soybeans and soybean products to Mexico have tripled to nearly 3 million tons.
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Trade frictions with Mexico have increased dramatically as this trade has expanded. Anti-dumping and countervailing duty cases have been brought against a number of U.S. agricultural products. There also have been confrontations at the U.S.-Mexico border. In all cases, the border disputes have been worked out between the governments. The trade cases are in various stages of resolution. The experiences of these cases have underscored the positive role that due process and engagement play in dispute settlement.
Elsewhere in the Western Hemisphere, wheat trade encounters an array of competitive challenges. Sanitary and phytosanitary restrictions affect wheat sales to Brazil and Chile who cite concerns about TCK and karnal bunt, respectively. Throughout the Americas, U.S. wheat trades in competition with Canadian and Australian wheat, both of which are merchandised by state trading companies that do not face competitive disciplines in their acquisition or sales policies.
Meanwhile, the proliferation of regional trade agreements put U.S. wheat at a competitive disadvantage in several key markets. For example, membership in MERCOSUR provides Argentine wheat preferential market access in Chile and Brazil through preferential tariff treatment and exemption from Brazil's transportation taxes. Free trade agreements between Chile and Canada, and Chile and the EU, provides competitive advantages to them that are often impossible for the most competitive U.S. wheat to overcome.
Let me use an example to quantify the competitive disadvantage we face. A Chilean buyer of durum might buy from either the United States or Canada. If U.S. and Canadian durum were bid at exactly the same price FOB, the landed price in Chile would be 11 percent higher for the U.S. durum, thanks to the Chile-Canada agreement that waives the usual import tax for Canadian durum. U.S. exporters have no choice but to forego the competition.
Where the U.S. has trade agreements, we have reaped benefits. The United States has captured well over 90 percent of Mexico's feed grain imports since the implementation of NAFTA. U.S. soybeans also have dominated Mexico's import needs in recent years. Virtually all of Canada's corn and soybean imports have been filled by U.S. supplies.
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Western hemisphere trade in feed grains has expanded, so that U.S. corn exports within the Americas are now at record levels. Canada imported 1 million metric tons last year. Central American imports have grown steadily so that 1997's purchases from the United States of 2.1 million tons were triple 1980's levels. Mexico's purchases of U.S. corn set records in 1996, and in 1997 reached 2.6 million tons. South American countries' imports also were strong, reaching 2.5 million tons. And trade in high-value goods, such as grain-fed meat and poultry products, is growing.
But Argentina is expanding its preferential trading arrangements to include most of South America's corn importers. Already within MERCOSUR, Argentine corn sells duty-free; in comparison U.S. corn faces an 8 percent import tax. Without similar tariffs and market access, U.S. corn sales may be displaced in the expansion of MERCOSUR. U.S. corn, which now faces barriers through the issuance of phytosanitary certificates in some Western Hemisphere markets, has much to gain by strengthening the language included in the Uruguay Round which established sound science as the basis for sanitary and phytosanitary rulemaking. With genetically modified varieties increasing, additional SPS progress is needed to assure that those crops may be traded fairly in international commerce.
Finally, because of the vast productive capacity of a number of Western Hemisphere countries, the U.S. and other American exporters will serve growing markets around the world and compete for sales—especially in Asia. We may also serve each other's needs from time to time. Such business is likely to cause frictions. It underscores the need for discussion and leadership to assure that trade is open and fair and that there are fora to settle differences. It also is a reminder that the global marketplace affects us all, so we must tend to its wellbeing.
FUTURE PROGRESS
The future export prospects of grains depends on the United States being able to maintain and expand market access, ensure fair competition, and further level the international playing field for U.S. producers and exporters. Fast track and other trade promoting legislation is essential. Here, the U.S. needs to be involved and leading discussions in three specific initiatives involving Western Hemisphere trade. Fast track is necessary for all three.
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Free Trade with Chile: Chile has negotiated preferential trading arrangements with Canada, Mexico, Colombia, Venezuela, EU and MERCOSUR, but has no similar arrangements with the United States. The absence of fast track authority also has left the United States unable to negotiate reductions in Chile's sanitary and phytosanitary restrictions.
Free Trade Area of the Americas: Western Hemisphere leaders have committed to complete negotiations on the FTAA by 2005. Preliminary talks are underway.
Without fast track, the United States will not be able to engage effectively in this process. The harmonization of tariffs is a prime area for work. Sanitary and phytosanitary barriers also require reform. Speaking as Cargill, we also would like to see the Western Hemisphere implement a subsidy-free zone. Winning this would leave U.S. producers and processors in a much stronger competitive position and build support for additional progress until complete global elimination of subsidies can be achieved.
The 1999 World Trade Organization agricultural talks: WTO members will convene late next year to continue the process of agricultural trade liberalization begun in the Uruguay Round. In this most important forum, the critical issues of tariff and non-tariff barriers, TRQs, market access and the role of science in regulation must be addressed comprehensively. We also recommend that food safety and food security issues be addressed fully. It is only in this WTO forum that disputes over a number of existing trade frictions can be addressed, including the issues of state-trading and subsidies. Often, this issue has been depicted as ''transparency.'' We believe the issue is broader and deeper than that. Very simply, state trading entities generally do not have to compete in the domestic market to acquire products. This falls short of a truly competitive environment and should be addressed in the WTO talks.
OTHER ISSUES
Because financial instability is a global issue, replenishment of IMF funds also is relevant in the Western Hemisphere. Events in Asia and Russia have riveted attention on their economies, but a number of countries here in the Americas are both IMF candidates and previous success stories.
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Finally, more work is needed in the area of sanctions. Economic sanctions have imposed a terrible toll on U.S. agriculture over the years, measured in lost sales, lost market share and lost opportunities. Numerous studies have shown that unilateral economic sanctions, as a tool of foreign policy, rarely achieve their policy goals. Sanctions encourage countries who rely on food and agricultural imports to adopt policies that make them more self-sufficient and less dependent on the United States for supplies. Rather than encourage the policy shifts sought by the United States, the reliance on economic sanctions leaves the United States with a declining ability to affect the behavior of those who are targeted. We need to find new approaches to building relations that encourage peace and prosperity. We urge Congress to follow through on the step it took last week by using U.S. food and agriculture trade policy to contribute to world food security, feed the engine of economic growth and build the lines of communication to promote engagement with those countries with whom we have disagreements. Cuba would be a candidate country for a new approach.
As we consider the situation in agricultural markets today, it is important to remember that although the marketplace is cyclical, U.S. agriculture can serve global demand as efficiently and economically as any system. Government needs to be engaged to assure that we can reach customers here and around the world. Unfortunately, many of the necessary legislative tools are missing today. Fast-track legislation, funding for the International Monetary Fund, assuring China normal trade relations, and trade sanctions reform are the critical long-term issues for American agriculture. Adequate time should be devoted yet this Congress to forge consensus, secure support from both sides of the aisle and pass these needed provisions. With them in place, American agriculture can compete while setting new standards in protecting our environment. If we're successful, all of us in the food chain and in our communities will reap substantial economic benefits.
"The Official Committee record contains additional material here."
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Statement of G. Chandler Keys, III
Chairman Smith, Mr. Stenholm, members of the committee: The National Cattlemen's Beef Association (NCBA) is pleased to be part of your continued work to prepare U.S. agriculture for the upcoming round of multinational negotiations scheduled to begin next year. We commend your leadership and that of others on the committee for the consistent efforts to ensure that U.S. negotiators have the tools they need to address the complex trade issues and problems facing America's agricultural sector. And, we want to add our thanks to that of many others for your leadership and vision in launching the Square Deal for Agriculture.
NCBA works closely with other meat industry organizations to seek out opportunities to expand access to international markets. Acting quickly and aggressively on these opportunities is vital to the economic growth of U.S. agriculture. For the beef industry alone, 1997 exports accounted for approximately 8 percent of total U.S. production and 12 percent of beefs total wholesale value.
There is general agreement that future growth in trade and access to emerging markets is important to the future well being of U.S. agriculture. This is as critical in the Western Hemisphere markets as it is in the Pacific Rim and European markets. As was stated at the press conference with House Leadership and in a similar venue in the Senate, an underlying premise of ''Freedom to Farm' bill was the aggressive pursuit of export markets as a key component of replacing traditional farm programs.
Cattlemen understand that the growth market for agricultural products is beyond U.S. borders. We need enforceable global trading rules that grant market access, settle disputes on the basis of science and reduce tariffs. To quote Secretary Glickman, ''For American agriculture, it is export or die.'' On behalf of this nation's ranchers and feeders, I want to assure the committee that the U.S. beef industry has no intention dying.
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We strongly support the efforts of those members of this committee who are hard at work to:
Secure adoption of fast track negotiating authority to ensure the U.S. has a seat at the table for the 1999 round of WTO negotiations;
Fund the International Monetary Fund (IMF) ensure the tools are available to assist struggling Asian economies that are vital to U.S. export growth;
Exempt agriculture from unilateral economic and diplomatic sanctions to ensure that America's ranchers and farmers are not used as cannon fodder for foreign policy battles;
Extend normal trade status for China to ensure access for U.S. food and fiber exports.
Reinstate Fast Track Negotiation Authority: The EU has entered into negotiations with Mexico (the second largest export market for U.S. beef during 1997) and with MERCOSUR for ''free trade agreements.'' The U.S. currently has an advantage in Mexico because of the NAFTA, but negotiations with MERCOSUR are hampered due to lack of fast track negotiation authority. The most direct way for U.S. agricultural interests to meet the challenge presented by EU expansion and initiatives is to negotiate further multilateral liberalization in the 1999 WTO round. Additional progress can be made by engaging our neighbors in the Western Hemisphere in broad based negotiations—as in the case of NAFTA—which can go beyond what can be agreed to multilaterally. Fast Track authority is a prerequisite for serious U.S. participation.
Only 4 percent of the world's population lives within U.S. borders. Population demographics suggest that the U.S. generally, and agriculture specifically, need to aggressively prepare to seize opportunities to market products in countries with younger, fast-growing populations with increasingly disposable incomes. A recent independent analysis of potential export markets indicates that of approximately $10 trillion projected to be added to world GDP during the next decade, 48 percent will occur in Asia and 23 percent will occur in Europe, followed by 19 percent in the U.S. Access to emerging markets in regions of economic growth will be critical to expanding global demand for U.S. agricultural products.
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An additional key to sustaining export market growth is gaining and maintaining access to emerging international markets in Europe and Latin America. Access to these markets will be increasingly critical to help off-set expected declines in historically important Asian export markets. The U.S. must continue to be aggressive in gaining access to new markets around the world. Fast Track authority is a critical element of that strategy.
The U.S. must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. NCBA appreciates the initiatives that have been undertaken to gain access to international markets and to resolve lingering issues that restrict the ability of the U.S. beef industry to offer its products to international consumers. Without fast track authority, the U.S. will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.
1999 WTO Negotiations: NCBA and other meat industry groups support the following specific points to be addressed during the 1999 round of WTO negotiations:
Assure that the EU is not successful in rolling back progress made during the previous GATT agreement.
Ensure that science remains the only method for resolving SPS issues and that issues like environment, labor and social issues (including the structure of agriculture) are addressed in side agreements separate from trade.
Assure acceptance of scientifically approved safe technologies, including Genetically Modified Organisms (GMOs), beef growth promotants and other technologies that enhance production efficiency and/or food safety.
Negotiate elimination of State Trading Entities (STEs) and increase access to wholesale and retail trade in importing countries (especially relevant in China, but this issue also applies to the Australian and Canadian Wheat Boards).
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Negotiate reduction and eventual elimination of production-distorting price supports and export subsidy programs.
Negotiate continued reduction of tariffs and expansion of Tariff Rate Quotas (TRQs).
Fund the IMF. IMF stabilization packages and GSM credit guarantees will help reduce the impacts from the Asian financial crisis on U.S. agriculture. But even with these measures fully funded and in place, it is likely that U.S. agricultural exports to the Asian region during the next several years will decline. For example, beef exports to Korea declined nearly 76 percent during the first 2 months of 1998 compared to the same period in1997.
Realistically, it will take 2 to 5 years for the Asian economies to recover. In the case of Mexico, U.S. beef exports declined by approximately 60 percent during 1995, the first year after devaluation of the peso. Beef exports to Mexico recovered part of that loss during 1996 and, during 1997, U.S. beef exports to Mexico were on target to reach record levels. Recovery in Asia will depend on the willingness and political ability of the various governments to implement economic reforms—closely associated with the willingness of international lenders to extend credit—and the extent to which competitive devaluation of international currencies continues.
Country of Origin Labeling: Beef quality and consistency are key issues for U.S. cattle producers. Consumers demand quality and consistency, and producers are continually working to meet consumer demands. With the current system, there is limited ability to identify the source of product that does not meet consumer demands. Country-of-origin labeling will give consumers the ability to make informed decisions when purchasing meat and meat products and the relative value of meat from different countries would be determined through competitive forces in the marketplace.
During 1996 beef imports were equal to about 8 percent of total U.S. beef production. This beef is generally blended into ground beef or processed beef products or sold at the retail meat case without informing consumers that is not produced in the U.S. In addition to beef imports, more than 1.2 million cattle were imported from Canada directly to U.S. packing plants during 1996. Although all of the value-added production took place in Canada, these cattle were processed-in effect they were ''laundered''—and sold as U.S. beef.
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Imported beef is inspected and must meet the same safety and wholesomeness requirements as U.S. beef. Imported beef is labeled by country-of-origin, either on the product or on shipping containers, when it enters the U.S. to facilitate inspection. However, these labels are lost during further processing. Country-of-origin labeling will provide a ''brand-like'' mechanism for the beef industry. Currently most beef is marketed as unbranded generic ''beef'' regardless of where it is produced.
Other countries require U.S. beef to be labeled by country-of-origin. New Zealand requires all muscle cuts sold at the retail meat case to be labeled by country of origin, Japan has required all meat imports be labeled by country-of-origin effective July 1, 1997, and Europe will likely require labeling comparable to that required for domestic product, once access to the European market is achieved.
NCBA Country-of-Origin Task Force recommendations:
Following our convention in Kansas City in 1997, NCBA established a Country-of-Origin Task Force to develop recommendations for import/domestic beef labeling program. Those recommendations included:
Defining ''U.S. Beef'' as all beef produced from cattle slaughtered in the U.S., except those cattle brought into the U.S. in ''sealed'' trucks for slaughter. This definition does not include imported beef trimmings, imported boxed beef, beef produced from imported carcasses or beef produced from cattle imported direct for slaughter in sealed trucks with health testing requirements waived.
All fresh muscle cuts offered for sale at the retail meat case, and not meeting the definition of U.S. beef will be labeled as ''imported.'' The imported label will be required regardless of whether the product is graded with USDA Quality Grade and the identity will be maintained to the retail meat case.
The ''U.S. Beef'' label will be available for ground beef if individuals or firms wish to meet the criteria for the domestic label beef and market accordingly. Otherwise it would be labeled ''blended product,'' or ''blended with imported beef.'' Due to the unique complexity of labeling ground beef, a study should be conducted to test consumer response to, and costs of labeling ground beef as ''imported,'' ''U.S. Beef,'' or percentage of ''imported and U.S. Beef.'' If there is not a significant cost to the U.S. producer, labeling will become mandatory industry-wide.
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Expand Inspection Equivalency Agreements: USDA has claimed that not enough resources are available to form a team dedicated to negotiating veterinary agreements to facilitate U.S. participation in emerging markets. Over one year ago, the Canadian government added an additional team of veterinarians dedicated to developing veterinary agreements. Consequently, Canada has established a presence and is developing customer loyalty in emerging international markets, including Latin and South America, where the U.S. is unable to participate. NCBA urges Congress to coordinate with USDA to assure that adequate resources are allocated to negotiating veterinary agreements.
Argentina Reinspection Protocol: In June of 1997, the USDA Animal and Plant Health Inspection Service published the final rule allowing Argentina to export fresh, chilled and frozen beef to the U.S. NCBA has raised concerns regarding the establishment and operation of the reinspection protocol associated with the importation of Argentinean beef to the United States.
The rule, designed to protect U.S. cattle herds from the possible introduction of Foot and Mouth Disease (FMD), requires Argentina to certify that beef exported to the United States:
Has not been in contact with meat from a region with greater disease risk;
Does not originate from premises where FMD or Rinderpest have been present during the life of any ruminants or swine slaughtered for export;
Does not originate from premises on which ruminants or swine have not been vaccinated with modified or attenuated lives viruses from FMD during the lifetime of any animals slaughtered for export;
Be from animals not vaccinated for other specific diseases;
Be from carcasses that have been allowed to mature at 40 to 50 degrees for a minimum of 36 hours after slaughter and have reached a pH of less than 5.8 in the loin muscle at the end of maturation;
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Be free of all bone, blood clots and lymphoid tissue.
We understand that USDA is working to establish and implement this reinspection process. However, because of cattle diseases present in several regions of South America and because of the potential economic devastation that can occur if these disease are introduced into the U.S., it is vital that USDA work to achieve full implementation of the Argentinean protocol as soon as possible. Such action on USDA's part will not only reassure U.S. beef producers that our herds remain safe from FMD, but will also improve industry acceptance of future regionalization efforts.
Canadian Pilot Project: In October of 1997, the U.S. and Canada announced the implementation of the Northwest Pilot Project—a trade agreement that will waive specific animal health testing requirements to make cross-border shipment of live cattle easier for U.S. cattle producers. This agreement shows how governments and state and national organizations can work together to achieve goals. However, improvements are needed to allow the movement of more U.S. feeder cattle into Canadian feedlots.
Over 1.1 million head of live cattle are shipped from Canada to the U.S. for slaughter each year. This compares to less than 50,000 U.S. feeder cattle that are shipped north. It is hoped this pilot project will provide the lever needed to ensure that cattle trade across the U.S./Canadian border is a two-lane highway.
Studies indicate that potential feeder cattle marketings into Canadian feedlots could exceed 250,000 head per year. It is critical that USDA and Canadian animal health regulatory agencies continue working with beef producers to resolve the remaining roadblocks that are set up in the north-bound lane.
Increase GSM Funding: Before the main impact of the Asian financial crisis became evident, Korea was the fourth largest export market for beef and beef variety meats. During 1997, exports of these products to Korea totaled more than $300 million, an increase of more than 18 percent compared to 1996. NCBA is confident that Korea remains a long-term growth market for beef that is being disrupted by short-term currency fluctuations and financial circumstances.
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Swift, decisive and bi-partisan action will be required to minimize effects of the Asian financial crisis on the U.S. beef industry and the broader U.S. agricultural economy. NCBA and other meat industry representatives met with USDA officials early in the crisis to request that GSM funds be made available for credit guarantees to Asian customers. The industry's original request was for $500 million in credit for exports of beef and pork to Korea. To date, USDA has allocated $160 million for beef, pork and poultry products out of a total $1.5 billion GSM funding for Korea. Another $1 billion of GSM funding is available to other Asian countries.
All GSM credit guarantee funding available for meat has been exhausted. USDA must work to ensure that Korea purchases product to utilize these funds. NCBA urges USDA to allocate additional funding for GSM credit guarantee resources targeted for export of beef and other value-added meat products. Australia has announced a credit guarantee program for Korea, and other competitors are sure to follow. Increasing the allocation for GSM credit guarantees now will build additional loyalty among Korean customers and increase future U.S. market share.
The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the U.S. addresses other trade issues, including accession of China to the WTO, resolving a host of access issues with the European Union and passing ''Fast Track'' legislation to provide authority to negotiate additional trade agreements. Thank you for the opportunity to present this information.
Testimony of Janet A. Nuzum
Mr. Chairman, members of the committee, thank you for this opportunity to appear before you today. My name is Janet Nuzum, and I am vice-president and general counsel of the International Dairy Foods Association (IDFA), on whose behalf I am testifying. I am also a member of the Agricultural Policy Advisory Committee (APAC), which advises the U.S. Trade Representative and the Secretary of Agriculture on agricultural trade policy issues. Prior to joining IDFA last year, I served for 5 years as a commissioner on the U.S. International Trade Commission, the last 2 years as its vice chairman. I appreciate the opportunity to present the views of IDFA on the upcoming WTO negotiations on agriculture.
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The International Dairy Foods Association is the Washington DC-based trade association for processors, manufacturers, marketers and distributors of all types of dairy foods, including milk, yogurt, dairy-based dips, cheese, and ice cream, as well as their suppliers. IDFA is an umbrella organization for three separate associations, the Milk Industry Foundation, whose members process 85 percent of the fluid milk and milk products consumed in the United States; the National Cheese Institute, whose members manufacture 80 percent of the cheese consumed nationwide; and the International Ice Cream Association, whose members manufacture 85 percent of the ice cream and related frozen desserts consumed in the United States.
Sales of dairy products in the United States exceed $70 billion annually. The U.S. market has traditionally been the primary focus of sales for U.S. dairy producers, processors, and manufacturers. U.S. exports of dairy products, however, are growing. Last year U.S. dairy exports exceeded $900 million, according to USDA/FAS figures, an increase of more than 20 percent over the previous year's levels. With 96 percent of the world's consumers outside the United States, the U.S. dairy industry is focusing its attention on international markets as a critical source of future growth. Many trade barriers and trade-distorting practices exist, however, and therefore much work remains to open markets and expand trade opportunities for dairy products. We commend Chairman Smith for his leadership in giving agricultural trade issues such a prominent place on the committee's agenda.
The focus of today's hearing is on the upcoming round of multilateral trade negotiations on agriculture in the World Trade Organization (WTO), and particular issues relating to trade in the Western hemisphere. I will cover the following main points:
1. Implementation of existing commitments and obligations in the WTO is generally going well, although a few countries appear to be exceeding tariff ceilings on cheese products, and Canada is disregarding the WTO disciplines on export subsidies with respect to its ''special milk classes'' program.
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2. The new WTO dispute settlement mechanism is an improvement over the old GATT system, but is still slow and should provide for more expeditious resolution of international trade disputes. The dairy industry is currently pursuing a WTO complaint against Canada, which will have repercussions beyond simply the dairy sector. Our first-hand experience with this case will inevitably influence our views on the effectiveness of the WTO dispute settlement process.
3. In the upcoming round of agricultural negotiations, the highest priority should be achieving the complete elimination of all agricultural export subsidies, and substantial improvements in market access through both expansion of tariff-rate quotas and reduction of tariffs. IDFA supports the administration's proposal of ''no pause'' in agricultural reform, but also urges an expeditious conclusion to the negotiating process.
4. Concurrent to the WTO negotiations on agriculture, which will begin next year, we must also make progress in negotiating a Free Trade Area of the Americas (FTAA) that, consistent with WTO rules, covers ''all or substantially all'' trade in the FTAA region. This means that liberalization of trade in dairy products must be part of the FTAA. Moreover, we must not allow the WTO negotiations to become an excuse for lack of progress in the FTAA, or vice versa.
5. Finally, a strong bipartisan vote of support for fast-track negotiating authority is necessary to strengthen our U.S. trade negotiators' hand in seeking more open rules for agricultural trade.
THE URUGUAY ROUND AGREEMENTS AND THE WORLD TRADE ORGANIZATION
Before turning to the objectives for the next set of multilateral trade negotiations on agriculture, it is important to examine the implementation and enforcement of the existing international trade rules. Well into the fourth year of implementation of the Uruguay Round Agreements, most countries appear to be abiding by their WTO commitments. Notifications by WTO countries of various actions taken are the simplest means of monitoring compliance, and they have been an effective tool. However, there is no sanction or discipline for tardiness in the submission of notifications. Hence, it is sometimes difficult to assess compliance in a timely fashion.
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One of the important achievements of the Agreement on Agriculture was the set of disciplines on market access which set tariff bindings, or ceilings, and a schedule for reductions in tariffs. At this time, two countries appear to be exceeding their tariff bindings on cheese. Egypt's tariff binding on imports of cheese for 1998 is 23 percent , but it is applying a 30 percent tariff on imports of both grated or powdered cheese (HS item 406.20.10) and processed cheese (HS item 406.30.10). Thailand's tariff binding on imports of cheese (same HS items) for 1998 is 48 percent or 16 baht/kg, yet it is applying a tariff of 51 percent or 17 baht/kg. IDFA, along with other members of the American Dairy Trade Alliance, recently brought these concerns to the attention of USTR. We are hopeful that corrective action will be forthcoming. We must have confidence that all WTO member countries are living up to their commitments under existing trade agreements.
As this committee is aware, the dairy industry has another WTO enforcement matter pending. In August of 1995, Canada altered its producer-financed export subsidy system to a two-tiered milk pricing system which subsidizes dairy exports. The new program, referred to as the ''special milk classes,'' is being administered in flagrant disregard of the export subsidy ceilings and reductions required by the WTO Agriculture Agreement. Canada is also refusing to allow any commercial imports of fluid milk or cream, despite its WTO commitment of an identified tariff-rate quota. In response to these Canadian actions, last September, IDFA, the National Milk Producers Federation, and the U.S. Dairy Export Council jointly filed a petition under Section 301 of the Trade Act of 1974, requesting that USTR challenge the WTO-legality of these Canadian practices, utilizing the WTO dispute settlement process.
On March 25 of this year, the WTO Dispute Settlement Body authorized establishment of a dispute panel. Since then, considerable time has been taken in the panel selection process, which unfortunately is not subject to any deadlines. Almost 4 months have passed since the panel was authorized, but it is not yet finalized. Once the panel is formally constituted and begins its work, it has 6 months to issue a panel decision. If the panel is formed by the end of July, therefore, the panel decision will be due at the end of January 1999.
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The importance of the WTO case against the Canadian dairy export regime cannot be overstated. If Canada wins this case, the disciplines on export subsidies in the Agriculture Agreement will be effectively eviscerated. Other countries would be free to subsidize unlimited quantities of exports by converting their export subsidy programs to two-tiered pricing schemes. This would completely undermine the hard-fought gains of the Agreement's export subsidy rules, not just for dairy, but for all agricultural commodities. Because of the importance of winning this case, IDFA is working closely with USTR and USDA to make sure that we present all the facts and arguments necessary to win. We invite the committee's close oversight of this case.
THE NEXT ROUND OF WTO NEGOTIATIONS ON AGRICULTURE
Although the Uruguay Round Agreements were a significant achievement in bringing agricultural subsidies and market access under multilateral discipline, it was just a beginning. The WTO Members themselves recognized the need for further reforms, by including in the Agriculture Agreement itself a provision committing to commence another round of agricultural negotiations by the end of 1999. In May of this year, at the WTO Trade Ministerial, WTO Members affirmed their resolve to begin such a round of agricultural negotiations next year, and to begin preparations for the negotiations in September of this year.
As a member of the APAC, I attended the WTO Trade Ministerial in Geneva, along with numerous other representatives of the agricultural community. The strong support for agricultural trade reform shown by the U.S. delegation—from administration, Congressional and private sector members—was clear and very visible. The United States had the largest delegation of private sector representatives there of any country, and most of that delegation was from the agricultural sector. Ambassador Barshefsky shared her responsibility in heading the U.S. delegation with Secretary Glickman, with Secretary Glickman leading the U.S. delegation on the first day of the two-day ministerial session. The resolve of the United States in placing agricultural trade reform front and center of the negotiating agenda was reinforced by the remarks of President Clinton himself in his address at the special session.
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At the WTO meetings in Geneva, USDA and USTR did an outstanding job of organizing briefings for private sector delegates and consulting with us about the subjects on the agenda for that meeting. Consultations with the private sector have continued on a wide range of trade policy issues. IDFA supports the administration's call for ''no pause'' in agricultural reforms, pending the conclusion of the upcoming WTO negotiations. However, we also would not be satisfied with simply a continuation of the same schedule of reforms as embodied in the current Agriculture Agreement. We must do more, on a more accelerated schedule, in this next phase of multilateral reforms.
The United States is the largest country producing cows milk in the world, accounting for nearly 19 percent of the world's milk, but only 3 percent of world dairy exports. The 15 member countries of the European Union (EU), on the other hand, collectively produce about 32 percent of the world's milk, and have captured 45 percent of world dairy exports. The primary reason for this juxtaposition is the extensive use by the EU of export subsidies. EU dairy policy subsidizes its dairy farmers through a highly protected home market and subsidization of exports. Although the Uruguay Round Agreement on Agriculture began a process of increased market access and reduction of exports subsidies and internal supports, the changes required of the EU started from a very highly protected base. Even at the end of the implementation period, the EU will be permitted to subsidize over 12 percent of its milk production into export markets. By contrast, the United States, which started out with a smaller base, will be permitted to subsidize under 1 percent of its milk production into export markets.
Complete elimination of export subsidies should be the highest priority of the next round of multilateral negotiations on agriculture trade. Export subsidies rob market share away from more efficient producers and generally depress world market prices. Without trade-distorting subsidies, world market dairy prices will be higher and international market share will be based on fair competition. In such a context, the U.S. dairy industry is confident that we will be able to increase our exports and be a reliable supplier of quality, safe, and nutritious dairy foods. On an unsubsidized basis, the competitiveness of the U.S. dairy industry is likely to be surpassed only by Australia and New Zealand, whose industries may enjoy lower costs of production but will not be able to dominate world dairy markets due to size limitations.Of course, elimination of trade-distorting subsidies alone is not enough to achieve open world market conditions. Much more needs to be done to remove tariff barriers to improve market access. One particular problem in the dairy sector is the existence of extremely high tariff peaks—a consequence of the tariffication of import quotas. Greater harmonization and reduction of these tariff peaks are necessary at an early stage, in order to close the gaps among different countries' levels of market access and reduce some of the distortions and inequities. Reducing a 200 percent tariff in half—to 100 percent—is not the same as reducing a 10 percent tariff in half to 5 percent. The former cuts the tariff in half, but does not provide any meaningful access in economic terms. Complete tariff elimination, of course, would solve this problem.
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In addition to the international rules and disciplines on market access, export subsidies and internal supports, a fourth achievement of the Uruguay Round for agricultural trade was the Agreement on Sanitary and Phytosanitary (SPS) Measures. IDFA supports the requirements in the SPS Agreement that SPS measures be based on sound science and risk assessment. Allowing SPS measures to be shaped by consumer preference or other subjective criteria, as has been suggested by some in the EU, is not acceptable. Furthermore, the introduction of new technologies and products which improve the quality, quantity or consistency of agricultural and food production should not be deterred as long as they do not threaten health or safety. The principles embodied in the SPS Agreement are sound, and it should not be opened up for renegotiation as part of the upcoming WTO negotiations.
Finally, a comment on the dispute settlement system. The WTO's Dispute Settlement Understanding (DSU), which provides greater assurance of the final adoption of panel reports, is clearly a substantial improvement over the former GATT dispute settlement system. The fact that so many countries are utilizing the system is itself a testament to its value and success. Nevertheless, certain additional reforms are needed.
In particular, we note that, although the DSU has numerous deadlines, there is no deadline or action-forcing event for selection of panelists. Consequently, a defendant country who wishes to prolong the process may do so by refusing to accept proposed panelists and dragging out the formal establishment of a dispute settlement panel. The 6-month deadline for a panel's work does not begin until the panelists are all selected and agreed upon and the panel is formally established. In the case of our dispute against Canada, which involves not just the United States and Canada but New Zealand as well, the formal establishment of a panel has not yet occurred, although the DSB authorized its establishment almost 4 months ago, on March 25. We understand the importance of developing consensus among the parties on the procedural aspects of a WTO case, but a deadline or action-forcing event would ensure that excessive time is not taken up by procedural steps such the panel selection process.
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We also urge the WTO to consider ways to require implementation of panel rulings more expeditiously, especially in cases where serious commercial harm has already occurred. Under the current system, even if you ''win,'' corrective action comes almost 3 years after initiating the consultation process. It appears that losing countries are automatically taking the maximum time allowed for coming into compliance, regardless of the political or economic circumstances. Moreover, such corrective action merely puts the country that violated their WTO obligations in a position of future compliance; no compensation to the aggrieved industry is provided for the 3 years (or more) of lost sales and market share suffered by the aggrieved industry. It is a costly process for the industry that is the victim of a foreign government's trade violations.
DAIRY MARKETS IN THE WESTERN HEMISPHERE
The Western Hemisphere is an important market for U.S. dairy products. North America is our largest regional market, taking in over $300 million of U.S. dairy products last year, almost one-third of all U.S. dairy exports. The Caribbean Islands ranked as number 4, importing over $47 million in U.S. dairy products, and South America ranked close behind as number 5, just under $47 million. Central America purchased over $26 million in U.S. product, making it the number 9 regional market. U.S. trade in dairy products is primarily export-oriented, although the U.S. is still a relatively small supplier of the region's dairy imports. Our major foreign competitors in the hemisphere are New Zealand and the EU.
The main focus for dairy trade issues in the Western Hemisphere is market access. Many of the countries in the hemisphere are getting out of the subsidy business and adopting more market-oriented policies. However, dairy product tariffs in the region are, on average, well above their U.S. counterparts—in many cases, three or four times higher.
Although subsidies are not a major issue with respect to the dairy producing countries in Latin America, competition in those markets with subsidized exports from the EU is a concern. As we move forward with the WTO negotiations on agriculture, therefore, we should be seeking the support of our Latin American neighbors for elimination of agricultural export subsidies.
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North America—As mentioned above, North America is currently the largest market for U.S. dairy exports. The liberalization of Mexico's market for dairy products, through the NAFTA, has greatly improved access for U.S. dairy exports to that country. Last year, Mexico accounted for almost $170 million in U.S. dairy exports. NAFTA has provided an excellent platform for further improving our dairy trade relationship with Mexico and is an example of how trade liberalizing agreements can lead to significant increases in dairy product trade. NAFTA provisions give U.S. dairy exporters a significant advantage in the Mexican market over other world suppliers of dairy products and have enabled U.S. dairy processors to be Mexico's main suppliers of value-added products, such as ice cream and yogurt.
Access to Mexico's needs for imported milk powder, however, is still controlled by a state trading entity, CONASUPO. CONASUPO requires U.S. exporters of milk powder to supply it at the world price, by obtaining subsidies through the Dairy Export Incentive Program. CONASUPO then sells the powder to its Mexican users at marked up prices. The market power exerted by such state trading entities should be subject to tighter international rules, so that market distortions are not the result.
Central and South America: Like other segments of the food sector, significant opportunities for expansion of dairy product exports lie in developing country markets with high rates of income growth, expanding populations and changing dietary habits. Many of the countries in Central and South America fall into this category. The population in Brazil, alone, is forecast to increase by 42 million people in the next 25 years. The entire Latin America region is expected to grow by 195 million (73 percent of the current U.S. population) over the same period. As a technologically advanced and efficient supplier of high-quality, safe and nutritious dairy products, the U.S. industry has the capability of being a leading world supplier to these foreign markets if trade barriers and trade-distorting subsidies are eliminated.
The five largest dairy importing countries in South America are Argentina, Brazil, Chile, Peru and Venezuela. However, the majority of dairy product imports within the region are sourced from New Zealand and the E.U., and increasingly from other South American countries. Latin America is the second largest destination of dairy exports from New Zealand. Argentina and Uruguay are also fast becoming the major suppliers of dairy products to their Latin American neighbors. The cheese market in Brazil is currently dominated by its neighbors, Argentina with 31 percent, and Uruguay with 34 percent market shares. The duty-free provisions of the MERCOSUR agreement are the primary reasons for the shift in cheese supplies from the EU to MERCOSUR partners.
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Exports of U.S. dairy products to Central American countries, including Costa Rica, Ecuador, El Salvador, Honduras, Nicaragua, and Panama are expanding rapidly, with increases to many of these countries of between 100 percent and 450 percent over year-earlier levels. U.S. exports to these markets are still at relatively small levels, but they hold great promise for growth in sales of U.S. dairy products. The proximity of these markets to the United States and their strong prospects for economic growth, make them a high priority regional market for the U.S. dairy industry.
The need to expand access for dairy products in Central and South America is even greater as sales opportunities in Asia are dampened by that region's recent financial difficulties. In addition to working closely with our Latin American neighbors in the WTO negotiations, IDFA strongly supports the establishment of a hemisphere-wide FTAA. Improvements in market access should not be limited to multilateral reforms alone. Negotiation of free trade agreements—as long as they are truly free trade agreements—should also be pursued to improve market access beyond the commitments made at the WTO. It will be imperative, however, that the FTAA include dairy trade in its market-opening requirements, and not be a repeat of the U.S.-Canada ''Free Trade'' Agreement, which did not provide for free trade in dairy products. Any future free trade area in the Americas must include free trade in dairy.
Finally, with respect to the timing of the FTAA negotiations and the WTO negotiations, we believe that both should proceed concurrently and without undue delay waiting for the other forum's progress. In other words, agricultural negotiations in the FTAA should not wait until the WTO discussions are completed, and vice versa. Each can, and should, proceed of its own accord.
THE NEED FOR FAST TRACK TRADE NEGOTIATING AUTHORITY
IDFA believes that the U.S. dairy industry has much to gain from additional trade liberalization in dairy markets around the world. In order to continue making progress in eliminating existing trade barriers and trade-distorting practices, and preventing new ones from emerging, however, U.S. trade negotiators must be armed with the Congressional mandate that comes from fast track negotiating authority.
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Renewal of fast track is critical for the United States to play a leadership role—which it must—in the upcoming WTO negotiations on agriculture. The European Union has already signaled, through its Agenda 2000 proposals, that it is not interested in serious reform of its dairy policy. It is clear that strong American leadership will be necessary if the upcoming WTO negotiations are to move forward in a timely fashion. IDFA has been a consistent supporter of the renewal of fast track negotiating authority. We urge this committee to reflect the strong support for fast track by the food and agriculture industries with a strong, bipartisan vote in favor of fast track.
The U.S. dairy industry has much at stake in the current and future operation of the international trading system. U.S. dairy policy is moving in the direction of greater market orientation, which facilitates our international competitiveness and transitions our industry to be more successful in an increasingly global economy. Future growth for the dairy industry lies largely in foreign markets. Hence it is critically important that unfair competitive advantages such as export subsidies be eliminated and access to foreign markets for dairy products be improved. The United States must take a leading role in shaping the upcoming multilateral round of agricultural trade negotiations in the WTO. The fact that the United States will host the WTO Trade Ministerial meeting to launch these negotiations will be an excellent opportunity to demonstrate that leadership. The Congress can do its part by ensuring that fast track negotiating authority is enacted into law well before the launch of negotiations next year. IDFA stands ready to help achieve these objectives.
Thank you, Mr. Chairman, for the invitation to participate in today's hearing. I would be pleased to answer any questions you or other Members of the committee may have.
Statement of Kraig R. Naasz
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Mr. Chairman, thank you for the opportunity to testify before your committee concerning the key issues of importance to the apple industry in the United States pertaining to the upcoming round of multilateral negotiations on agricultural trade.
My name is Kraig Naasz and I serve as president of the U.S. Apple Association (USApple). USApple is the national trade association representing all segments of the apple industry. Our members include more than 450 individual firms as well as 30 State apple associations representing 9,000 apple growers throughout the United States.
We fully support a new round of multilateral negotiations on agriculture in 1999 under the auspices of the World Trade Organization (WTO). Moreover, we urge Congress to give swift approval to fast track legislation so the United States can take a leadership role in the upcoming 1999 trade negotiations.
Our industry's primary concerns and objectives related to our agricultural trade with the countries of the Western Hemisphere can be divided into three general categories: tariff barriers to trade; phytosanitary and sanitary barriers to trade; and antidumping measures. In addition, our industry is concerned about the potential negative affect of agreements on labor and the environment. I plan to discuss each of these issues in turn, following a general description of the apple industry in the Western Hemisphere.
GENERAL INFORMATION
The United States is by far the most dominant apple-producing country in the Western Hemisphere. In fact, our industry produces more apples annually than the combined total of our five most significant competitors throughout the region: Argentina; Chile; Canada; Brazil and Mexico.
The countries of the Western Hemisphere are an important export destination for our industry. Apple shipments to Mexico and Canada amounted to 9.5 million (42-lb.) cartons in 1996, placing them at the top of the list of our industry's most significant export customers in the world. Among the countries in South America, Brazil, Colombia, Venezuela, Ecuador and Peru were our most important export customers.
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The most significant exporters of apples to the United States are Chile and Canada, with shipments of 3.8 million cartons and 1.4 million cartons, respectively, in 1996.
TARIFF BARRIERS TO TRADE
The top priority for our industry as we prepare for the upcoming multilateral trade negotiations on agriculture is the elimination of all import duties and tariff rate quotas throughout the Western Hemisphere.
Under the North American Free Trade Agreement (NAFTA), Mexico's tariff on apples is 10 percent in 1998. This duty is being reduced by 2 percent a year until it is completely phased out in 2003. In addition, a safeguard quota of 61,902 metric tons is in effect for 1998. Once apple imports exceed this level, the pre-NAFTA tariff of 20 percent is triggered for the remainder of the year. This tonnage quota is being increased by 3 percent a year through 2003.
While the U.S. apple industry is clearly benefiting from liberalization of trade with Mexico under the NAFTA, our exports to other countries in the hemisphere still face import duties ranging from 15 percent to 30 percent. Meanwhile, Chile—our most significant competitor in the region—enjoys duty-free access to most of its Latin American neighbors due to its successful negotiation of bilateral and regional trade agreements. This is a concrete example of where we have been hurt by the lack of fast track authority. We need fast track to enter negotiations in the Free Trade Area of the Americas (FTAA) and the WTO to correct this imbalance in tariff treatment.
In addition to the tariff differential, our industry also must bear the freight costs associated with the transport of our apples to these distant markets. Together, these factors alone often add 30 percent to 40 percent to the landed cost of our apples when compared to the price of our competitors' apples.
Because U.S. and Chilean production periods occur at opposite times during the year, our industry has been able to surmount these marketing challenges and still profit from the opportunities this counter-seasonal situation has presented. However, as Chile's production, storage and marketing capabilities are enhanced, so too is its respective competitive window of opportunity throughout the region due to the tariff differential it enjoys at the expense of our industry.
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To remain competitive in Latin America, our industry must secure equal access to markets throughout the region through the total elimination of all import tariffs and tariff rate quotas.
PHYTOSANITARY AND SANITARY BARRIERS TO TRADE
Our industry has worked long and hard with representatives of the U.S. Department of Agriculture's Foreign Agricultural Service (FAS), Animal and Plant Health Inspection Service (APHIS), Agricultural Research Service (ARS) and the Office of the U.S. Trade Representative to gain and maintain access to several markets throughout the Western Hemisphere.
Still, several markets remain closed to a significant portion of our industry due to so-called phytosanitary issues of concern. For example, only the States of Washington, Oregon and Idaho are currently able to export apples to Mexico; the cost of the Mexican-imposed certification program prohibits the other producing States of our country from shipping apples to that market.
Moreover, although Argentina in 1994 and Chile in 1998 lifted their respective prohibitions on the importation of apples from the United States, only 5,000 cartons have been shipped to these countries thus far due to cumbersome and costly quarantine requirements. Still other countries, such as Colombia, Ecuador and Brazil, have temporarily denied our industry's access to their markets over the past 5 years due to alleged phytosanitary concerns.
Another of our industry's top trade priorities in the upcoming multilateral negotiations is the adherence to the World Trade Organization's sanitary and phytosanitary agreement, and its requirement that these issues be determined by sound science rather than protectionism. The U.S. should work with other countries in the hemisphere toward equivalent phytosanitary standards as the WTO sanitary and phytosanitary agreement encourages us to do. In order to achieve this goal, it is important for APHIS to continue to provide technical assistance to other countries in the hemisphere in order to minimize trade disruptions and to build confidence in the respective inspection systems.
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ANTIDUMPING MEASURES
Our industry supports exempting perishable agricultural products, such as apples, from application of the World Trade Organization's antidumping code and any individual countries' own antidumping statutes.
As tariff and non-tariff barriers to trade are eliminated, more and more countries are pursuing antidumping measures against foreign commodity producers in an effort to protect their own domestic industries against fair trade.
As an example, the Government of Mexico imposed a 101.1 percent compensatory import duty against all Red Delicious and Golden Delicious apple imports from the United States on March 6, 1997, in response to an antidumping petition filed by that country's domestic apple producers. The duty's imposition brought to a screeching halt all apple shipments to Mexico from the United States.
Despite our industry's submission of verified evidence during the course of the Mexican Government's investigation that proved no dumping had occurred, the duty remained in place for more than one year. Faced with the prospect that Mexico's Secretariat of Commerce and Industrial Development (SECOFI) would soon issue an adverse final determination against our industry that maintained a prohibitively high import duty, we were left with no option but to negotiate a suspension agreement that included the imposition of a minimum price of $13.72 per carton on Red Delicious and Golden Delicious apples from the United States. This measure, which will remain in place for 5 years, penalizes U.S. apple exporters even though we have fully abided by our WTO commitments.
The Government of Canada also imposes a minimum price of $12.99 on Red Delicious apple imports from the United States as a result of a February 9, 1995, antidumping ruling by the Canadian International Trade Tribunal (CITT) against the U.S. apple industry. The present antidumping ruling is the second such ruling to have been imposed against our industry by the Canadian government in the past 9 years.
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Throughout the course of these three cases, as legal costs and lost sales took their combined toll on our industry, it became apparent to us all that antidumping investigations of this kind could too easily be manipulated by protectionist interests within any given country to keep out competitors' products. This observation seems particularly true as it regards perishable agricultural commodities such as apples.
Therefore, our industry strongly supports the modification of antidumping laws to exclude perishable agricultural products. This is clearly an area that needs to be reviewed in the upcoming WTO negotiations.
ENVIRONMENTAL AND LABOR AGREEMENTS
The apple industry opposes the inclusion of agreements concerning environmental and labor standards.
Members of our industry in Washington State presently find themselves in the surprising and unwarranted position of having been made the subject of a petition filed by Mexican labor unions under the North American Free Trade Agreement's labor side accord. That accord, formally known as the North American Agreement for Labor Cooperation (NAALC), outlines a series of lengthy procedures that could potentially lead to a loss of the tariff benefits included under the NAFTA for U.S. apple exports to Mexico.
In May 1998, four Mexican labor groups filed a petition with the Mexican National Administrative Office alleging inadequate enforcement of U.S. labor laws. The complaint stems from the unsuccessful organizing efforts aimed at the apple industry in Washington State by the International Brotherhood of Teamsters in Washington, DC, which now supports the NAALC petition.
Although it is our industry's understanding that official responsibility for responding to this petition rests with the U.S. Department of Labor, the outcome may adversely affect our industry's access to its most important export market. We are still sorting out what role our industry has to play in this proceeding. Do our growers need to spend time and money on attorneys in Washington, DC to protect our industry's good reputation just because of a filing under NAFTA by labor unions in Mexico? It seems to us these agreements promote unneeded friction between countries when they are so open to manipulation by any one side to a given domestic labor dispute.
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The international trade arena is fraught with more than enough challenges, as I believe my testimony conveys, without further complicating matters through the addition of unrelated or misguided labor or environmental agreements.
CONCLUSION
In conclusion, our industry's top priorities as we embark on the next round of multilateral negotiations on agricultural trade favor the removal of all import tariffs and tariff rate quotas, adherence to the sanitary and phytosanitary agreement's science-based provisions, and the elimination of antidumping measures on perishable agricultural commodities such as apples. In addition, our industry opposes the inclusion of agreements pertaining to labor and environmental standards.
Thank you, Mr. Chairman, for this opportunity to present these views on behalf of USApple and the United States apple industry.
Statement of Dennis R. DeLaughter
Mr. Chairman and members of the committee, my name is Dennis DeLaughter. I am a rice farmer, and I also am the owner and president of Progressive Farm Management of Edna, TX. I currently serve as chairman of the Texas Rice Producers Legislative group and as a member of the Board of Directors of the U.S. Rice Producers Association.
I appear before the committee today on behalf of the U.S. Rice Producers Association (Rice Producers). Rice Producers was formed by the rice farmers in the States of Mississippi, Missouri, and Texas in order to provide rice producers with a farmer-friendly organization that represents only the interests of rice producers. The Rice Producers Association is dedicated to providing the Nation's rice farmers—and only rice farmers—with a voice in matters affecting their ability to profitably market their crop.
We commend this committee for its foresight in holding this series of hearing to review the many issues raised by the upcoming 1999 multilateral negotiations on international trade. We are hopeful that by working with this Committee and other enlightened policy makers over the coming months we can avoid the types of mistakes made during prior trade negotiations that allowed the discriminatory treatment of certain types of U.S. rice.
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More specifically, the U.S. Rice Producers Association is concerned that our trade policies discriminate against the export of rice in its most basic form—as rough rice. Rough rice, sometimes referred to as paddy rice, is rice in the form that it is harvested from the field. This is also the form that rice is in when it leaves the farm gate. Thus, the price that many farmers receive for their rice is determined by the demand for rice in its rough form. There is of course an active domestic and world trade for rice in its milled (white) and semi-milled (brown) forms. However, the fastest growing rice export market is for rough rice.
While sales of milled and total U.S. rice exports to virtually all regions of the world have been reduced this season, sales of rough rice—particularly to the Western Hemisphere—have grown dramatically. Rough rice now accounts for approximately 30 percent of total U.S. rice exports, compared to less than 15 percent last season, and substantially less than that in earlier seasons. Due largely to the popularity of U.S. rough rice, the Western Hemisphere has become a market for more than 1 million metric tons of U.S. rice. Major purchasers include Mexico (350,000 MT), Brazil (400,000 MT), Colombia (300,000 MT), Central America (250,000 MT), and Canada (180,000 MT).
In fact, the Western Hemisphere now accounts for roughly one-third of total U.S. rice exports, and it is the only major marketing region that is increasing its demand for U.S. rice. In order to nurture the development of this very promising market, it is essential that the United States guard against the adoption or implementation of any ill-advised trade policy that will constrain future sales and market development.
Consultations between our government and the rice industry during and since the consideration of the Uruguay Round of the General Agreement on Tariffs and Trade have centered on the interests of rice industry officials whose primary interest was to enhance exports of milled rice. While some of the benefits of exports of U.S. milled rice flow through to rice producers, there are a number of export markets that present opportunities that are specific to rough rice. Our trade policies and export programs must accommodate these market realities. Unfortunately, in the past this has not been the case.
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For example, the management system initially proposed by the United States for the tariff-rate quotas (TRQ) for rice that were granted to the United States by the European Union (EU) under the U.S-EU Enlargement Agreement of 1996 did not include provisions to address rough rice exports. Fortunately, the Department of Agriculture worked closely with the Rice Producers Association to ensure that the final TRQ management system was farmer-friendly and did not discriminate against rough rice exporters.
Similarly, the U.S. rice milling interests played a pivotal role in negotiating with the EU the current Cumulative Recovery System applicable to EU rice imports. The CRS imposes a system of tariffs EU imports of U.S. rice that discriminates against rough rice exports. As a result of such short-sighted policies, sales of rough rice to the EU have been curtailed and total U.S. rice exports to the EU are running 100,000 tons behind last season's level. Fortunately, the rice CRS was a temporary policy that is currently under reconsideration. We urge this Committee and other interested policy makers to review this policy to ensure that the CRS is revised such that it does not discourage U.S. rice exports or discriminate against rough rice sales.
Rice farmers have learned a hard lesson from the experience with the U.S.-EU agreements regarding the TRQ and CRS policies. The lack of direct farmer participation in the formulation of rice trade policies allowed rice processors to occupy the policy field. We now understand that it is naive to expect that rice millers have any real incentive to promote the export of rough rice. The successful promotion off rough rice exports would only reduce the supply and drive up the cost of rice miller's raw input. However, such rough rice sales are key to the profitability of rice farmers. Because of their vested interest in receiving the best price possible for rice at the farm gate, rice farmers can be expected to aggressively, effectively promote these sales. Our trade policies and export programs need to reflect this simple reality.
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It is true that there are a number of markets, particularly in the Western Hemisphere, where U.S. rough rice can compete with inexpensive Asian milled rice. Conversely, these same Asian suppliers can undercut U.S. milled rice sales in these markets by as much as $100 per ton. The reasons for this pricing anomaly include Asian export policies as well as Central and South American import policies. The bottom line is that Western Hemisphere rice export markets can best be accessed and maintained by U.S. producers through sales of rough rice.
With these realities in mind, we recommend that this Committee and other policy makers fight for the following policy goals in order to liberalize the trade in rice during the upcoming WTO negotiations:
Closely consult with organizations, such as the Rice Producers, that only represent the interests of rice farmers. This goal could be facilitated by the inclusion of Rice Producer members on the Department of Agriculture's Agriculture Policy Advisory Committee and Agriculture Technical Advisory Committee.
Policy officials need to be cognizant that rice is not a homogenous commodity. Policy initiatives affecting rice need to carefully consider and address all forms of rice (including rough, brown, milled, parboiled and broken rice) and types of rice (including long, medium, and short grain).
Fight for liberalization of tariff regimes in regional trade blocs that disadvantage U.S. rice producers. For example, Brazil allows the duty-free import of rice from other Mercosur countries, while U.S. rice is assessed duties of up to 22 percent.
Strengthen the enforcement of WTO prohibitions against the use of non-tariff trade barriers for rice, such as the imposition of scientifically unsound phytosanitary trade restrictions.
Enact fast track trade authority to empower trade policy officials to gain concessions for U.S. farmers from countries and regional trading blocs that would otherwise be reluctant to negotiate with U.S. officials.
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In conclusion, America's rice farmers are not asking for anything more than equitable treatment from the upcoming 1999 WTO negotiations, or from any other international trade discussions. The United States is now one of the premier rice markets for Thailand, our chief overseas competitor. Thailand has grown to expect open access to markets in the United States and elsewhere for its special aromatic rice. Our rice producer members ask only that the United States government work aggressively with us to maintain and expand similar open markets for all forms and types of U.S. rice in the Western Hemisphere and around the world.
Thank you again for the opportunity to offer the views of the U.S. Rice Producers Association on these very important matters.
Statement of Doreen Brown
Mr. Chairman and members of the subcommittee, I am Doreen Brown, president of Consumers for World Trade. As a point of reference, I have served on the President's Advisory Committee for Trade Policy and Negotiations. I am also a member of the U.S. delegation to the annual North America-European Union Agricultural Conferences. I am accompanied by John Schnittker, senior economist, Public Voice for Food and Health Policy.
Consumers for World Trade (CWT) is a national, non-profit, non-partisan organization, established in 1978, and dedicated to promoting the consumer interest in international trade policy through advocacy of trade liberalization and through educational programs.
I am delighted the committee has chosen to conduct hearings on multilateral negotiations issues on agriculture trade with the Western Hemisphere. There is no subject more critical to the continued prosperity of the American agricultural and agribusiness sector and the welfare of the American consumer than the continued expansion of trade in agricultural products.
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Although my statement today will focus on the U.S. sugar program, I should like to emphasize that Consumers for World Trade believes strongly in the need for renewal of fast-track negotiating authority and urges Congress to enact clean fast-track legislation as expeditiously as possible. Without fast-track authority, the 1999 WTO agriculture negotiations and the FTAA negotiations will not be very productive for the United States.
With fast track authority, our country can negotiate in good faith and from a position of strength with other countries in the Western Hemisphere and around the world. A strong alliance of free trade between North America and South America should be our goal. Right now, the United States and the Western Hemisphere is at a disadvantage when negotiating with the EU and other trade alliances around the world.
The Western Hemisphere is the largest marketplace for overall U.S. exports. Exports to all countries in the hemisphere grew at a rate of 76 percent from 1990 to 1996, and exports to the countries outside the NAFTA grew by more than 100 percent. These countries are experiencing rapid economic growth spurred by liberalization of governmental policies including the reduction of trade barriers, privatization of state trading enterprises, and liberalization of investment and services policies. Almost all of the countries in the hemisphere acceded to the World Trade Organization or are in the process of doing so and are also members of regional free trade agreements such as the MERCOSUR (the Southern Common Market), the CARICOM (the Caribbean Community and Common Market), the Andean Pact , the CACM (the Central American Common Market) and the NAFTA (the North American Free Trade Agreement).
The MERCOSUR (Southern Common Market) consists of Brazil, Uruguay, Argentina and Paraguay and has a population of more than 200 million and a combined GDP of more than $1 trillion. U.S. exports to the MERCOSUR have grown by 177 percent from 1990 to 1996 and the U.S. ran a trade surplus of $7.3 billion in 1996. Brazil is one of the world's largest producers and exporters of sugar. It holds a 14.5 percent allocation of the U.S. tariff-rate quota on sugar imports. Argentina is a significant sugar producer and holds a 4.3 percent share.
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The Andean Pact (Bolivia, Peru, Colombia, Ecuador, and Venezuela) has a population of 100 million and a combined GDP of $260 billion. The Andean Pact countries have a collective 8.4 percent share of the U.S. sugar TRQ. The CARICOM has about 6.3 million people and a collective GDP of about $15.750 billion. Many of the Caribbean countries have relied on sugar production and exports as a main sector of their economies. Collectively, these countries hold a 4.8 percent share of the U.S. sugar TRQ, and the Dominican Republic holds an additional 17.6 percent for a total share of 22.4 percent of the TRQ.
The Central American Common Market (CACM) was created in 1960 and comprises a market of over 30 million people with a combined GDP of over $40 billion. These countries (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) maintain a common external tariff ranging from 5 to 20 percent on most goods and have agreed to further liberalization. These countries hold sugar TRQ allocations totaling 9.4 percent. Panama and Belize participate in CACM summits and collectively hold an allocation of 4 percent of the U.S. sugar TRQ.
The U.S. sugar program has serious disadvantages for the Western Hemisphere countries. The U.S. sugar program harms the economies of the developing countries where there are natural advantages in growing sugar cane. The Commerce Department once reported that the reductions of the imports of raw sugar during the last half of the 1980's had virtually offset all of the benefits of the first 5 years of the Caribbean Basin Initiative. A USDA study in 1990 concluded that with the liberalization of market access for sugar, world prices would have been 10 percent to 30 percent higher than during the period from 1975-1989, and sugar production in developing countries would have been dramatically higher. Thus, the incomes of developing countries would be significantly enhanced if the United States liberalized its trade policies for sugar.
Since the Summit of the Americas in Miami in 1994, the countries of the Western Hemisphere have been engaged in negotiations to create a Free Trade Area of the Americas by 2005. The provisions of the existing NAFTA and the other regional agreements in the hemisphere will serve as the starting point.
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Because agricultural production is an area where the United States enjoys a substantial competitive advantage, it is in our interest to continue to expand agricultural trade by reducing barriers to our exports. In fact, if one looks at the history of U.S. agriculture, it is clear that agriculture is a sector of the economy that has traditionally been in the position of surplus production in need of access to foreign markets. It is these surpluses and the resulting depressed prices in the 20th century that have given rise to all manner of government price support and supply management programs. However, Congress in 1996 took a historic step to remove agriculture's government shackles and encourage it to compete in the world market. This was done with the passage of the Federal Agricultural Improvement and Reform Act of 1996, known as the Freedom to Farm Act.
Unfortunately, there were some notable exceptions in this legislation to provide freedom to farm. Perhaps the most notable was the sugar price support program, which escaped any meaningful reform. The domestic loan program for sugar was continued at the same loan rate for raw sugar that had been in effect since 1985. Thus, the sugar price support program did not contribute to the freedom to farm transition process. More importantly, the high domestic sugar prices mandated by Federal legislation dictate a highly restrictive tariff-rate quota to prevent massive forfeitures of sugar to the Commodity Credit Corporation. This severe trade barrier keeps the domestic raw sugar at a price double that of the world market, including the prices in most Western Hemisphere countries, and constitutes a major impediment to negotiation of trade liberalization.
During the Uruguay round of trade negotiations, the U.S. sugar program was practically exempted. There was no real impact on the sugar program, despite significant reductions of tariffs and export subsidies for virtually all other agricultural commodities and products such as wheat, rice, and cotton.
The former U.S. absolute quota on imports of sugar, which had been severely restrictive since May 1982, was held to be inconsistent with the GATT by a dispute settlement panel in 1988. It was converted to a tariff-rate quota in September 1990. This tariff-quota had an over-quota duty rate of 16 cents per pound. During the Uruguay Round, the United States ''re-tariffied'' the original absolute quota that had been in effect during the base period for market access, despite the GATT ruling against it. The new tariff-rate quotas had higher over-quota tariff rates of 18.075 cents per pound for raw sugar and 19.074 cents per pound for refined sugar. The tariff-rates were agreed to be reduced only at the minimum of 15 percent (10 percent for developing countries) which for U.S. raw sugar imports will yield a final rate of 15.36 cents per pound rather than 13.6 cents per pound, if the existing rate had been used.
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In effect, the real rate of reduction of the over-quota tariff will be only 4 percent, from 16 cents which existed prior to 1995, to 15.36 cents over the six-year transition period. This is the most favorable treatment that was provided for any agricultural crop or product produced in the United States. Sugar was singled out for a 4 percent tariff reduction while every other commodity took cuts of at least 15 percent and most crops had cuts of much more, some as high as 50 percent. A 4 percent reduction is very unlikely to lead to any increased imports of sugar even at the end of the transition period. This means there was no market access liberalization for sugar.
In the NAFTA negotiations on agricultural trade sugar was the most controversial product. Nearly half the text of the NAFTA pertaining to agricultural trade between the U.S. and Mexico concerns sugar. Market access is minimal, what is called a ''minimum boatload,'' unless the exporting country achieves a net surplus production of sugar, in which case it can export the surplus amount subject to a cap. However, all tariffs on sugar will be eliminated by the 15th year. The sugar provisions were so controversial that a ''side letter'' was considered essential to get the Congressional votes to implement the NAFTA. Mexico has challenged the validity of the side letter in formal dispute settlement proceedings under the NAFTA.
In the FTAA negotiations, it is likely that other sugar producing countries in Central and South America will demand access to the premium U.S. sugar market that is at least equal to or better than the access achieved by Mexico in the NAFTA. These countries currently supply more than half the sugar imported into the United States. The United States cannot continue to maintain the current domestic sugar program and negotiate a hemispheric free trade agreement with market access for sugar similar to the NAFTA. If the U.S. tariff-rate quota for sugar is singled out for exceptional treatment, the other negotiators will extract concessions to protect their sensitive commodities from U.S. exports. If this is done, the sugar program will contribute to the financial crisis facing other U.S. farmers who desperately need further market access improvements.
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The preferential treatment for sugar in trade agreements and farm policy is detrimental to American interests for several reasons. As President of Consumers for World Trade, I object to the fact that consumers ultimately pay the bill for the $1.2 billion annual cost of the sugar program that benefits less than 1 percent of America's farmers. As a consumer, I can assure you that this hidden billion dollar ''consumer tax'' is unfair and could even be added to Congress' tax relief agenda. From an economic standpoint, I believe that it is highly injurious to the economy of the United States in several respects. The highly competitive U.S. food industry has to compete with foreign products made with world market sugar that is approximately half of our domestic price. This creates a powerful incentive to move plants and job opportunities to other countries. From a trade standpoint, I object to the maintenance of a special interest program such as sugar which benefits only a privileged few because it is very detrimental to the long-term best interest of the American consumers, of the U.S. economy in general, as well as of the U.S. agricultural sector.
Clearly, the United States economy has the most to gain from continued liberalization of world trade in American agriculture. In fact, many agricultural leaders have pointed out that increased trade opportunities are not only desirable, but absolutely necessary to prevent another sharp decline in farm prices and the temptation to return to the discredited supply management policies of the past.
The leadership of this committee recently outlined their support of a four-point program to enhance American farmers' and ranchers' chances to compete in the international market place:
Approval of Fast Track authority;
Funding for the International Monetary Fund (IMF);
Exempting agricultural commodities from trade sanctions;
Approval of normal trade relations with China.
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We agree wholeheartedly with these proposed actions! In fact, as members of this committee have said many times recently, we must trade our way out of the current commodity price crisis because our domestic demand for commodities in general is not growing nearly as fast as production.
The United States negotiators are ill-equipped to push for expanded market access to other countries as long as we maintain a very restrictive special interest exemptions such as the sugar program. Brazil and Colombia are perhaps the world's lowest cost producers of raw cane sugar. How can we expect our neighbors to the south to buy agriculture products, consumer goods, and technology from the United States until we allow them more access for sugar? We have long maintained that our efficient agriculture production should be rewarded by access to the world. Now we must extend this same access to our markets for the Western Hemisphere. We cannot effectively push for Western Hemisphere or global free trade in agricultural policies if we do not come to the negotiating table with clean hands. The anomaly of the sugar program has already been pointed out by one of our trading partners. The NAFTA panel that decided the Canadian dairy, poultry and egg case pointed to the U.S. sugar tariff rate quota as helping to justify its decision in favor of Canada's protectionist policies.
The defenders of the current U.S. sugar program claim that they are in fact advocates of free trade. They say that they are willing to give up their special privileges if other countries such as the nations of the European Union will give up their sugar subsidies. This is a red herring for two reasons. First, U.S. antidumping and countervailing duty laws protect domestic industries from dumping by foreign businesses and export subsidies by foreign countries. The United States currently has a countervailing duty of 10.45 cents per pound on imports of EU sugar, and as a result, there are no such imports. Moreover, the EU exports refined sugar and the U.S. maintains a tariff-rate quota of only 22,000 metric tons for refined sugar, most of which is allocated to Canada. The remainder would barely fill one small sugar boat. Therefore, there is no danger of European subsidized sugar being dumped on the U.S. market. A second and equally important point is that the United States has not waited on the Europeans or any other nation to eliminate their subsidies on other commodities such as corn and wheat before we eliminated our subsidies on the same commodities. In fact, in those commodities, we have consciously chosen to pursue free market policies and seek to open up world markets, despite the fact that many nations in South America, Central America, the EU, and the rest of the world have substantial subsidies or protection for those same commodities.
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I am attaching to this testimony two charts which show sugar prices and metric tons of sugar traded for the world's leading sugar importing and exporting nations. I am also attaching a summary of the internal government sugar policies for each of these countries.
These data reveal several important facts. Among the leading trading nations, those with the highest internal prices are among those with the most restrictive sugar policies (EU, U.S., Japan). Several of the world's largest sugar exporters have the least internal supports or export subsidies (Brazil, Australia, South Africa, Colombia, Russia).
We have pursued free trade in other agricultural commodities because it is in our national interest. It is in our national interest to also seek to compete in the world sugar market. We can no longer operate on a two-track system, seeking to have a global market that is free of trade barriers on commodities in which we have determined to be competitive, while continuing to maintain a high protectionist wall for a few special interest commodities like sugar and peanuts.
Perhaps it is a little known fact, but most of our domestic sugar farmers are very efficient producers. According to USDA and LMC International, the world's lowest-cost beet sugar producing countries include the United States, along with Chile, the United Kingdom, Belgium, the Netherlands, and Turkey. This means that, with continued safeguards against unfair trading practices, the United States beet sugar producer can be a world class competitor without a artificially high government price support.
In summary, the U.S. sugar policy is a very damaging policy that hurts American consumers, American business, American workers, American agriculture, and even our friends in developing countries. It is a policy that needs to be changed.
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Statement of Carolyn Cheney
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Thank you for the opportunity to submit testimony for this important hearing. I am Carolyn Cheney, Washington representative for the Sugar Cane Growers Cooperative of Florida. I also serve as chairman of the American Sugar Alliance, of which my cooperative is a member. The ASA is a national coalition of growers, processors, and refiners of sugar beets, sugarcane, and corn for sweetener.
I am proud to present the views not only of the Sugar Cane Growers Cooperative of Florida, but also of the American Sugar Alliance.
SUMMARY
The U.S. sugar industry has long endorsed the goal of global free trade because we are efficient by world standards and would welcome the opportunity to compete on a genuine level playing field. Until we achieve that free trade goal, however, we must retain at least the minimal, transitional sugar policy now in place to prevent foreign subsidized, dump market sugar from unfairly displacing efficient American producers. This policy was substantially modified by Congress in the 1996 farm bill, but remains highly beneficial to American taxpayers and consumers.
As the United States approaches the next round of multilateral trade negotiations, there are regional issues that need to be addressed. We appreciate this opportunity to address not only our general concerns regarding the next round, but also to describe concerns specific to the sugar trade and policies of North and South America.
Multilaterally, we are concerned that, while U.S. agriculture unilaterally far surpassed its Uruguay Round commitments through huge government cutbacks in the 1996 farm bill, many foreign countries have yet to even minimally comply with their Uruguay Round commitments.
Regionally, we are facing serious problems with both Canada and Mexico. Canada is exploiting a loophole to circumvent the U.S. tariff-rate quota for sugar and threaten the no-cost operation of U.S. sugar policy. Mexico has taken a number of actions counter to the NAFTA and other trade laws with regard to trade in corn sweeteners and sugar.
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American sugar farmers want free trade. But we have trouble moving further in that direction when past free trade agreements are being ignored, or circumvented, by our trading partners, to the possible detriment of our farmers.
I would like to provide some background on the U.S. and world sugar market and U.S. sugar policy, and discuss the U.S. sugar industry's trade policy goal, concerns, and recommendations, with special focus on North and South American trade issues.
BACKGROUND ON U.S. SUGAR INDUSTRY, POLICY
Size and Competitiveness. Sugar is grown and processed in 17 States and 420,000 American jobs, in 40 States, are dependent, directly or indirectly, on the production of sugar and corn sweeteners. The United States is the world's fourth largest sugar producer, trailing only Brazil, India, and China. The European Union (EU), taken collectively, is by far the world's largest producing region. It benefits from massive production and export subsidy programs.
Despite some of the world's highest government-imposed costs for labor and environmental protections, U.S. sugar producers are among the world's most efficient. According to a study released in 1997 by LMC International, of Oxford, England, American sugar producers rank 19th lowest in cost among 96 producing countries, most of which are developing countries. According to LMC, fully two-thirds of the world's sugar is produced at a higher cost per pound than in the United States.
Because of our efficiency, American sugar farmers would welcome the opportunity to compete against foreign farmers on a level playing field, free of government subsidies.
Unfortunately, the extreme distortion of the world sugar market makes any such free trade competition impossible today.
World Dump Market. More than 100 countries produce sugar and the governments of all these countries intervene in their sugar markets in some way. The most egregious, and most trade distorting, example is the EU. The Europeans are higher cost sugar producers than we are but they enjoy price supports that are 40 percent higher—high enough to generate huge surpluses that are dumped on the world sugar market, for whatever price they will bring, through an elaborate system of export subsidies.
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World trade in sugar has always been riddled with unfair trading practices. These practices have led to the distortion in the so-called ''world market'' for sugar. These distortions have led to a disconnect between the cost of production and prices on the world sugar market, more aptly called a ''dump market.'' Indeed, for the period of 1984–85 through 1994–95, the most recent period for which cost of production data are available, the world dump market price averaged just a little more than 9 cents per pound raw value, barely half the world average production cost of production of over 18 cents. (See chart, Attachment A.)
Furthermore, its dump nature makes sugar the world's most volatile commodity market. Just in the past two decades, world sugar prices have soared above 60 cents per pound and plummeted below 3 cents per pound. Because it is a relatively thinly traded market, small shifts in supply or demand can cause huge changes in price.
As long as foreign subsidies drive prices on the world market well below the global cost of production, the United States must retain some border control. This is our only response to the foreign predatory pricing practices that threaten the more efficient American sugar farmers.
The reformed sugar policy of the 1996 farm bill does retain the Secretary of Agriculture's ability to limit imports, and also provides a price support mechanism, though only when imports exceed 1.5 million short tons. We are currently only 240,000 tons above that critical trigger level.
Effect on Consumers. American consumers and food and candy manufacturers benefit from high-quality, dependable, reasonably priced supply of sugar. Consumer prices in the United States are fully 32 percent below the developed-country average, according to a world survey by LMC International. Compared with consumers worldwide, and taking varying income levels into account, LMC found that in terms of minutes worked to purchase one pound of sugar, American consumers are the second lowest in the world, trailing only Singapore. (See charts, Attachments B and C.)
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No Passthrough to Consumers. Since farm bill reforms went into effect in October 1996, both raw cane and wholesale refined beet sugar prices to producers have dropped dramatically, wholesale refined prices by a painful 12 percent. But at the retail level, not even the price of sugar on the grocery shelf has dropped at all. And prices for sweetened products, such as candy, cereal, ice cream, cakes, and cookies have all risen by 1–4 percent. Looking back to price changes since 1990, the story remains the same: producer prices down, but consumer prices for sugar and products up. The same price disconnect is true for high-fructose corn syrup (HFCS), the principal sweetener in American soft drinks. Wholesale HFCS prices plummeted more than 50 percent last year, but retail carbonated-beverage prices continued to rise. (See charts, Attachments D, E, and F.)
Effect on Taxpayers. Not only has U.S. sugar policy been run at no cost to the government since 1985, but since 1991 it has been a revenue raiser. The marketing assessment burden on sugar farmers will generate an estimated $288 million for Federal budget deficit reduction over the 7 years of the 1996 farm bill.
U.S. SUGAR INDUSTRY'S FREE TRADE GOAL
Because of our competitiveness, with costs of production well below the world average, the U.S. sugar industry supports the goal of genuine, global free trade in sugar. We cannot compete with foreign governments, but we are perfectly willing to compete with foreign farmers in a truly free trade environment.
We were the first U.S. commodity group to endorse the goal of completely eliminating government barriers to trade at the outset of the Uruguay Round, in 1986. We understand we are the first group to endorse this same goal prior to the start of the 1999 multilateral trade round. We described our goals and concerns to the administration in a letter last May to Trade Representative Barshefsky and Agriculture Secretary Glickman. A copy of that letter is attached to this testimony (Attachment G), as is a more recent statement issued by the American Sugar Alliance in conjunction with the Ministerial gathering of the World Trade Organization Geneva last May (Attachment H).
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The U.S. sugar industry does not endorse the notion of free trade at any cost. The movement toward free trade must be made deliberately and rationally, to ensure fairness and to ensure that those of us who have a global comparative advantage in sugar production are not disadvantaged by allowing distortions, exemptions, or delays for our foreign competitors.
SUGAR AND THE URUGUAY ROUND
Little Effect on World Sugar Policies. More than 100 countries produce sugar and all have some forms of government intervention. Unfortunately, these policies were not significantly changed in the Uruguay Round Agreement (URA) of the GATT.
The agreement failed to reduce the European Union's lavish price support level and requires only a tiny potential drop in their massive export subsidies.
Developing countries, which dominate world sugar trade, have little or no labor and environmental standards for sugar farmers, have no minimum import access requirements, and often have high import tariffs. Nonetheless, developing countries were put on a much slower track for reductions, or were exempted altogether.
Important players such as China and the former Soviet republics are not GATT members, and need to do nothing.
State trading enterprises (STE's) that are prevalent in sugar-producing countries were ignored.
Furthermore, many countries have not yet even complied with their URA commitments. For example, the United States just last month in Geneva put forward a paper complaining about many countries' delays in reporting the status of their agricultural policies. The number of countries that have failed even to file even for 1995 include 45 countries' export-subsidy reports and 36 countries' domestic-support reports. The problem is reportedly far worse for 1996 and 1997 reports. We question how we can expect proper compliance with trade commitments when so many countries routinely will not reveal the status of their policies.
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U.S. Sugar Surpasses URA Requirements. The United States is one of only about 25 countries that guarantees a portion of its sugar market to foreign producers and it has far surpassed is URA commitment on import access. The URA required a minimum access of 3–5 percent of domestic consumption. The United States accepted a sugar-import minimum that amounts to about 12 percent of consumption. In practice, U.S. imports the past 2 years have averaged 24 percent —double the promise we made in the GATT, and about six times the global GATT minimum.
All this sugar imported from 41 countries under the tariff-rate quota enters the United States at the U.S. price, and not at the world dump price. Virtually all this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon, and Taiwan) that lack Generalized System of Preferences (GSP) status pay a duty, and that is quite small, about 0.6 cents per pound.
The United States calculated its above-quota tariff rate in the manner dictated by the URA. These tariff levels are totally GATT consistent, and are dropping by 15 percent, as we promised they would in the Uruguay Round.
Formula Driven Trade Strategy. The Uruguay Round's rigid, formula-driven, or one-size-fits-all, approach for trade concessions did not work for agriculture in general, or for sugar in particular. For example, if one country's support price is 40 percent higher than another's, and both were required to reduce supports by 20 percent , they would still be 40 percent apart at the end of the process. Continuing to pursue this approach would:
Fail to reduce the gap in supports between countries—lowering the playing field, but not leveling it;
Again give developing countries a free ride;
Further diminish our negotiating leverage, which was severely reduced through our unilateral concessions in the 1996 farm bill.
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To date, we have led the world in trade barrier reductions and we are disadvantaged as long as the rest of the world fails to follow our example.
We can turn our unilateral concessions to our advantage only if we follow a more pragmatic, more flexible request/offer strategy. Essentially, we provide foreign countries the incentive to reduce their government programs by promising to reduce ours further when, and only when, they have reduced their export subsidies, internal support, import tariffs, and STE or similar practices to our levels.
NORTH AMERICAN SUGAR ISSUES: CANADA
Sugar trade between the United States and Canada, which imports about 90 percent of its sugar needs, was essentially excluded from the NAFTA. U.S.-Canadian sugar trade is governed mainly by the U.S.-Canada Free Trade Agreement and by the WTO.
Currently, Canada is threatening the integrity of U.S. sugar policy by circumventing the quota with a new product referred to in the trade as ''stuffed molasses'' a high-sugar product not currently included in U.S. sugar TRQ classifications. USDA has estimated imports of this product could add 125,000 tons of non-quota sugar to the U.S. market this year. That amount could grow if this loophole is not closed.
NORTH AMERICAN SUGAR ISSUES: MEXICO
Background. During the 1970's and 1980's the U.S. sweetener industry went through an extensive rationalization and restructuring. As lower-priced corn sweeteners replaced sugar in many food and beverage uses—most notably the substitution of HFCS for sugar in soft drinks—U.S. sugar consumption dropped from 10.9 million tons in 1976–77 to 7.8 million tons in 1985–86. Imports dropped dramatically and several cane sugar refineries closed, as well as a number of beet and cane processing operations. During the same period, U.S. corn sweetener consumption rose from about 3 million tons to about 8 million, all of it produced domestically.
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As a result of the rationalization, American consumers have access to an ample, dependable supply of high fructose corn syrup, the most inexpensively produced caloric sweetener in the world. However, the adjustments for the U.S. sugar industry were considerable and painful, with substantial job loss at U.S. cane refineries, as well as beet and cane farms and mills.
Original NAFTA Provisions and Potential Consequences. The original provisions of the NAFTA, as drafted by the Bush administration in July 1992, would have forced the U.S. sugar industry again to bear the cost of a national transition from sugar to HFCS—this time, Mexico's transition.
Though Mexico had been a net importer of sugar for several years, the draft NAFTA increased Mexico's share of the U.S. sugar import quota from about 7,000 metric tons to as much as 25,000 tons in the first 6 years, then permitted all Mexican surplus sugar production to enter the United States beginning in the seventh year of the agreement. Surplus production was defined simply as the difference between Mexican sugar production and consumption. The NAFTA also set Mexico's import tariff for U.S. HFCS at 15 percent , to be reduced to zero over 10 years. Beginning in year 15, the U.S. and Mexico would have free trade with one another in sweeteners.
The draft NAFTA would have encouraged Mexican bottlers and sugar mill owners—often the same enterprises—to convert from sugar to corn sweeteners by providing unlimited access for the resulting Mexican sugar surplus to the preferentially priced U.S. market. Alternatively, the displaced sugar would either have to be stored or exported onto the world dump market at prices well below sugar's cost of production. It would have been a double win for Mexican bottlers/sugar millers: (1) A cheaper ingredient (low-duty U.S. HFCS) for their beverages; (2) A higher (U.S.) price for the sugar displaced.
The substitution would have been rapid, but the benefits short lived. The additional U.S. imports of Mexican sugar—potentially as much as 1.5–2.0 million tons—would have had serious economic and political consequences. Imports of Mexican sugar well in excess of U.S. needs would have: (1) Displaced imports from 40 other quota-holding countries that depend on their share of the U.S. market; (2) Depressed the U.S. price; (3) Caused sugar loan forfeitures to the government and ended the no-cost operation of U.S. sugar policy; (4) Put some sugar-producing regions, both U.S. and foreign, out of business; and, (5) As a result of new government costs and diminished geopolitical support, seriously jeopardized the continued existence of a U.S. sugar policy.
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In the absence of U.S. sugar policy, U.S. and Mexican sugar and corn sweetener producers would be vulnerable to imports of subsidized sugar from the world dump market. Prices on that market have recently been less than 8 cents per pound, low enough potentially to replace not only U.S. and Mexican sugar production, but also U.S. and Mexican corn sweetener production.
When the U.S. sugar industry pointed out in 1992 that rapid substitution of HFCS for sugar in Mexico would create a huge surplus of sugar there, the Bush administration responded that sensitive Mexican consumer tastes would prevent the substitution of HFCS for sugar in soft drinks and that Mexico had no prospect of becoming a surplus producer.
In reality, the substitution has been as rapid as available supplies of HFCS would permit, and Mexico has been a surplus producer every year since the NAFTA began in 1994. According to USDA estimates, Mexican sugar production exceeds consumption this year by nearly 1 million tons.
Final NAFTA Sugar Provisions. The Clinton administration and the Mexican government recognized the folly of the original NAFTA provisions and negotiated new ones in a side letter signed by U.S. Trade Representative Mickey Kantor and Mexican Commerce Secretary Jaime Serra Puche in November 1993. These provisions were contained in the President's transmission of the NAFTA to Congress later that month, which the Congress approved. A table contrasting the original provisions with the side letter is attached (Attachment I).
The new sugar provisions included two important changes: (1) Surplus production would be defined as Mexican sugar production minus Mexican sugar consumption and HFCS consumption; (2) U.S. imports of Mexican sugar would be limited to up to 250,000 metric tons of surplus production beginning in year seven. There was no change in maximum access for years 1–6.
The intentions behind these changes were twofold: (1) Mexico should not be rewarded for achieving surplus sugar producer status merely by reducing sugar consumption; (2) The potential damage to other foreign quota-holding countries and to U.S. producers from increased Mexican imports should be limited.
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There are several points worth noting about the final NAFTA sugar provisions:
Though Mexico was a net importer, and was expected to remain so, when the NAFTA was negotiated, the NAFTA generously grants Mexico than triple its previous access to the U.S. sugar market during the first 6 years, 35 times its previous access in years 7–14, and free trade in sugar with the United States beginning in year 15.
The side letter on sugar did not affect NAFTA provisions on trade of corn or corn sweeteners.
The sugar provisions of the NAFTA were not intended in any respect to discourage the substitution of HFCS for sugar in Mexico. The provisions were merely designed to help prevent all the displaced Mexican sugar from flooding the U.S. market and to prevent the U.S. sugar industry from absorbing the cost of the rationalization of the Mexican industry.
Mexican Assaults on NAFTA Integrity. As Mexican bottlers have begun to substitute HFCS for sugar and sugar surpluses have begun to mount, Mexico has taken steps to either slow or halt that transition, or to attempt again to transfer the cost of the transition to the U.S. sugar industry. Mexico has:
Imposed permanent duties as high as 100 percent on imports of HFCS from the United States.
Entered into a restraint of trade agreement among bottlers and sugar millers to slow the rate of substitution of HFCS for sugar in Mexico.
Alleged the sugar side letter is somehow invalid and initiated a NAFTA dispute settlement procedure aimed at ignoring the side letter and reverting to the original NAFTA sugar provisions.
The American Sugar Alliance is appalled at all three actions, which run counter to the spirit of free trade and to the letter of the NAFTA. The latter development is particularly stunning because the successful conclusion of the side letter negotiations was well publicized both in the United States and Mexico at the time and because the side letter provisions were clearly included in the NAFTA text upon which the Congress voted. We applaud the U.S. administration's efforts to address the Mexican actions though NAFTA and WTO channels and its willingness to consider retaliation under section 301 of U.S. trade law.
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At stake is the integrity of the NAFTA and the United States' ability, or willingness, to enter into the future multilateral or regional negotiations that are needed to achieve the free trade paradigm that is ASA's goal.
Also at stake is the integrity of the North American sweetener market. An excess of Mexican sugar on the U.S. market would weaken the U.S. sugar industry and, in turn, weaken or threaten the existence of U.S. sugar policy. Until we achieve genuine free trade, U.S. sugar policy is the bulwark against subsidized foreign sugar from the world dump market that would replace U.S. and Mexican sugar and corn sweetener production.
In the absence of a strong U.S. policy during the transition to free trade, efficient U.S. and Mexican sweetener producers could be displaced by foreign producers who are less efficient, but generously subsidized. Even the most efficient nutritive sweetener producers in the world, U.S. corn refiners, could not compete with 9-cent per-pound world dump market sugar.
CENTRAL AND SOUTH AMERICAN SUGAR ISSUES AND THE FTAA
Consistent with our desire for genuine, global free trade in sugar, the U.S. sugar industry supports the goal of free trade for the Americas. Because of the uniqueness of sugar, particularly in terms of the highly distorted world market for sugar, and because of problems with the implementation of the NAFTA, a number of concerns must be taken into account as the next trade round and the potential Free Trade Area of the Americas (FTAA) are negotiated.
Compliance with Past Agreements. As noted above, while the United States has far surpassed its Uruguay Round commitments and fully complied with the NAFTA, many other countries have yet to even minimally comply and serious problems have arisen with regard to Canada and Mexico.
Unfortunately, foreign countries' failure to comply undermines the credibility of past agreements and jeopardizes the public's ability to support the negotiation of new ones. Foreign countries must be brought into full compliance with past agreements before the United States considers additional concessions in new agreements.
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It is key that American farmers not be penalized for attempting to lead the rest of the world
toward free agricultural trade. American farmers must be given credit for the reforms they have endured.
Minimum Access Commitment. In the Uruguay Round, the United States agreed it would import no less than 1.26 million short tons of sugar per year. In the NAFTA, the United States agreed it would import up to 275,000 tons (250,000 metric) of sugar from Mexico during transition years 7–14. The U.S. administration has committed that the additional Mexican imports would count toward fulfillment of the URA import minimum.
We are concerned about how any additional access granted under the FTAA would be reconciled relative to our WTO minimum import commitment, and we are concerned about the possible effect on non-FTAA quotaholding countries that have come to rely, economically, on access to the preferentially priced U.S. sugar market.
Labor and Environmental Standards. The gap in government standards—and resulting producer costs—between developed and developing countries is well documented and immense. In sugar, the gap is particularly pronounced because, while the U.S. is a major player, production and exports are highly dominated by developing countries, especially in the cane sector. The contrast is pronounced in the potential FTAA, in which the United States is the only major developed-country sugar producer.
American sugar producers comply with the world's highest standards for environmental protection—at a price. For example, the Everglades Forever Act (EFA) mandates that Florida farmers pay at least $232 million in taxes for Everglades preservation activities—on top of the many costs borne by farmers to monitor and clean water leaving farm areas. In Hawaii, extremely high environmental compliance costs have been a factor in driving two-thirds of the State's sugar growers out of business in the past 10 years. In many developing countries, by contrast, sugar mills face no restrictions, or no enforcement of restrictions, on the quality of water or air emissions.
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American sugar farmers are proud to raise sugar with the highest possible regard for workers and the environment. But we should not be penalized in multilateral or regional trade negotiations for providing these costly protections. And foreign countries that do not provide such protections should not be rewarded. If we are attempting to globalize or regionalize our economy, we should do the same with our food safety and worker and environmental protection responsibilities.
We concur with President Clinton's exhortation to the delegates at the WTO Ministerial meeting in Geneva last May: ''We must do more to ensure that spirited economic competition among nations never becomes a race to the bottom—in environmental protections, consumer protections, or labor standards. We should be leveling up, not leveling down.''
State Trading Enterprises (STE's). STE's are quasi-governmental, or government-tolerated organizations that support domestic producers through a variety of monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrangements, and other strategies. These practices were ignored in the Uruguay Round, but are, unfortunately, common in the world sugar industry. Major producers such as Australia, Brazil, China, Cuba, and India have sugar STE's, but were not required to make any changes in the Uruguay Round.
In addition to Brazil, other FTAA countries allow practices similar to those characteristic of STE's. We are studying the sugar trading systems in these countries, and will share our findings with Congress and the administration. These, and other, foreign trade-distorting practices will have to be taken into account as the FTAA is negotiated.
Treatment of Sugar in an FTAA. Because of the uniqueness of the world sugar market and the huge differences between the nature of the U.S. sugar economy and those of developing nations that dominate the potential FTAA, sugar should receive special consideration, as it did in the NAFTA.
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RECOMMENDATIONS FOR THE 1999 TRADE ROUND
To address these concerns, we would like to make four recommendations for U.S. negotiators in the next trade round.
1. Elimination of export subsidies, the most trade distorting of all practices, and of state trading enterprises, which were ignored previously, must be given top priority in the next trade round.
2. The United States should not reduce its government programs any further until other countries have complied with their Uruguay Round and NAFTA commitments and have reduced their programs to our level.
We recommend that the United States suggest a ''carrot or stick'' approach in the next trade round: Reward those countries that have fulfilled or surpassed their Uruguay Round commitments and punish those who have not.
3. The wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade round, and addressed in a manner that ensures global standards rise to developed-country levels, rather than fall to developing-country levels.
4. We can address the huge disparities in supports among nations and turn the United States' unilateral concessions to our advantage only if we follow a flexible, request/offer type of strategy in the next trade round.
CONCLUSION
In conclusion, Mr. Chairman, thank you for convening this timely and important hearing. U.S. agriculture is extremely vulnerable as we approach new multilateral and regional trade negotiations. If we negotiate carefully and rationally, however, there is enormous potential for responsible American sugar producers to compete and prosper in a genuine free trade environment, free from the need for government intervention. We are anxious to work with you to resolve problems with past agreements, and then move ahead to forge, and enforce, new ones. Thank you for the opportunity to submit our views.
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