TITLE III

TRADE

**SUMMARY OF TRADE TITLE REFORM**

***Recommendations In Brief***

Improve farm bill policy to expand and ensure fairness of international
trade.

***Problem***

Developing countries and developed countries alike are increasingly
using unscientific sanitary, phytosanitary, and technical standards as
non-tariff trade barriers to imports of U.S. agricultural products. This
is especially true for specialty crops and meat and poultry products.
This practice has had a significant impact on the U.S. export market.

At the same time, American agricultural productivity continues to expand
at a consistent rate of about two percent per year, while the U.S.
population, and therefore consumption, is increasing by only about one
percent per year. Additionally, 95 percent of the world's population,
the majority of consumers, lives outside our borders. This population
represents market opportunities for U.S. agriculture if we appropriately
respond to unfair practices as well as strengthen our efforts to
revitalize the agricultural sectors in fragile regions.

USDA heard about trade challenges at many Farm Bill Forums. For example,
Dan from Montana pleaded, "We have a huge production machine in the U.S.
ag industry, and it just feels like there's a lot of hidden barriers and
things there that are out of our control as producers."

***Recommended Solution***

The Administration is recommending several proposed changes and new
initiatives to Title III -- entitled "Trade." Following is a list of the
major components of the package.

1.  Expand mandatory funding for the Technical Assistance for Specialty
    Crops (TASC) grant program to \$68 million over 10 years and
    increase the maximum allowable project award to \$500,000. (For
    further information, see the proposal entitled "Expand Technical
    Assistance for Specialty Crops" on pages 67 -- 68.)

2.  Expand mandatory funding for the Market Access Program (MAP) by
    \$250 million over 10 years and focus the additional funds on
    non-program commodities. (For further information, see the proposal
    entitled "Enhance the Market Access Program" on pages 69 -- 70.)

3.  Establish a new grant program investing \$20 million over 10 years
    to further focus resources on addressing international sanitary and
    phytosanitary (SPS) issues for all agricultural commodities. (For
    further information, see the proposal entitled "Grant Program to
    Address Sanitary and Phytosanitary Issues" on page 71.)

4.  Authorize and provide long-term mandatory funding of \$15 million
    over 10 years to enhance USDA staff support for international
    standard-setting bodies, such as the *Codex Alimentarius*, the
    International Plant Protection Convention, and the World Animal
    Health Organization. (For further information, see the proposal
    entitled "Support International Trade Standard Setting Activities"
    on page 72.)

5.  Provide enhanced monitoring, analytical support, and other technical
    assistance to support U.S. agriculture in bringing forward or
    responding to significant trade disputes and challenges. (For
    further information, see the proposal entitled "Technical Assistance
    to Resolve Trade Disputes" on pages 73 -- 74.)

6.  Expand trade capacity, food safety, and agricultural extension
    programs in fragile regions through \$20 million of mandatory
    funding over 10 years. (For further information, see the proposal
    entitled "Trade Capacity Building and Agricultural Extension
    Programs in Fragile Regions" on page 75.)

7.  Reform the Commodity Credit Corporation's (CCC) export credit
    guarantee programs to bring them into compliance with the findings
    of the World Trade Organization dispute resolution panel in the
    Brazil cotton case. Terminate the Supplier Credit Guarantee Program
    (SCGP) due to approximately \$227 million in defaults and evidence
    of fraudulent activity. (For further information, see the proposal
    entitled "Reform Export Credit Guarantee Programs" on pages 76 --
    77.)

8.  Revise the Facility Guarantee Program (FGP) to attract additional
    users who commit to purchasing U.S. agricultural products. These
    program improvements are estimated to increase usage of the program
    by \$16 million over the next 10 years. (For further information,
    see the proposal entitled "Facility Guarantee Program Revisions" on
    page 78.)

9.  Repeal the Global Market Strategy mandate and the Export Enhancement
    Program, which are redundant or inactive, allowing USDA to focus
    resources on priority issues. (For further information, see the
    proposal entitled "Repeal the Export Enhancement Program and Global
    Market Strategy Report" on pages 79 -- 80.)

10. Authorize the use of up to 25 percent of P.L. 480 Title II funds for
    the local or regional purchase and distribution of emergency food to
    assist people threatened by a food security crisis. (For further
    information, see the proposal entitled "Provide Cash Authority for
    Portion of Emergency Food Aid" on pages 81-- 82.)

**EXPAND TECHNICAL ASSISTANCE FOR SPECIALTY CROPS**

***Recommendation In Brief***

Expand mandatory funding for the Technical Assistance for Specialty
Crops (TASC) grant program to \$68 million over 10 years and increase
the maximum allowable project award to \$500,000.

***Problem***

International trade in specialty crops has expanded more rapidly than
trade in other agricultural commodities, especially since the 1980s. For
example, fruits and vegetables have claimed an increasing share of world
agricultural trade, from \$3.4 billion in 1961 to nearly \$70 billion in
2001. However, trade in specialty crops continues to face increasing
challenges especially in the area of sanitary, phytosanitary, and
technical barriers in other countries.

These challenges tend to be complex, multi-region issues that are not
easily addressed. However, current law caps TASC project awards at
\$250,000, which can limit the effectiveness of efforts to address these
complex problems. Greater flexibility in the TASC program to accept
larger, multidisciplinary projects would allow for better quality
proposals and improved assistance to specialty crop growers.

Trade barriers were cited as top concerns by some specialty crop
producers who commented during USDA Farm Bill Forums. Barry from
California said, "...our ability to increase exports is hindered by the
reality of non-tariff trade barriers...our efforts have been assisted by
the existence of TASC...funds and this is an area that should be
expanded."

***Recommended Solution***

In order to increase usage of the TASC grant program, the Administration
recommends increasing the maximum allowable annual project award from
\$250,000 to \$500,000 and allowing more flexibility to allow project
timeline extensions. Additionally, the Administration proposes a
phase-in of enhanced annual mandatory funding for the TASC program
including \$4 million in FY 2008; \$6 million in FY 2009; \$8 million in
FY 2010; and \$10 million thereafter through FY 2015.

***Background***

The 2002 farm bill created the TASC program and authorized the use of
\$2 million of Commodity Credit Corporation (CCC) resources in each
fiscal year from 2002 to 2007.

TASC assists U.S. food and agricultural organizations by funding
projects that address sanitary, phytosanitary, and technical barriers
that prohibit or threaten the export of U.S. specialty crops. For
purposes of the TASC program, a \"specialty crop\" is defined as all
cultivated plants and the products thereof, produced in the United
States, *except* wheat, feed grains, oilseeds, cotton, rice, peanuts,
sugar, and tobacco. These grants may cover activities such as seminars
and workshops, study tours, field surveys, pest and disease research,
and pre-clearance programs.

TASC proposals are accepted from any U.S. organization, including, but
not limited to - U.S. government agencies, State government agencies,
non-profit trade associations, universities, agricultural cooperatives,
and private companies. USDA provides these grant funds as direct
assistance to U.S. organizations. Applicant contributions are not
required, but strongly encouraged.

Each year, USDA announces via the *Federal Register* an application
period for participation in TASC. Funds are awarded to applicants that
demonstrate how their project will overcome trade barriers resulting in
market access retention or expansion for specialty crops. Current law
award maximums are \$250,000 per year for activities of up to three
years. Proposals may target any eligible export market, including single
countries or a regional grouping of countries. No TASC participant may
have more than three projects underway at the same time.

**ENHANCE THE MARKET ACCESS PROGRAM**

***Recommendation In Brief***

Expand mandatory funding for the Market Access Program (MAP) by \$250
million over 10 years and focus the additional funds on non-program
commodities.

***Problem***

Specialty crop production receives very little cash benefit from the
farm bill. More than 90 percent of the commodity program subsidy
payments go to five crops \-- corn, wheat, rice, soybeans, and cotton.
However, specialty crops are now equal in value to these program crops.
During Farm Bill Forums, Secretary Johanns heard frequently about this
disparity from specialty crop producers who made a compelling case for a
more equitable share in the next farm bill, often requesting an increase
in market access efforts. Allison, a strawberry farmer in New York said,
"What I need to stay competitive is more agricultural and marketing
research and promotion -- on specialty crops. There is a tremendous
imbalance between money spent on program crops and money spent on
specialty crops..." Tom from California said, "This program has proven
to be very successful in assisting U.S. fruit and vegetable exports to
be more competitive in world markets, and it is critical that the
Administration and Congress fund MAP at the maximum authorized level."
Dale from Washington State said, "We...hope that the new farm bill will
increase the MAP funding...that helps us open foreign markets and sell
our fruit crops abroad."

While specialty crop producers specifically requested an expansion of
MAP, the program benefits more than specialty crop producers, supporting
the full range of food and agricultural commodities. This support is
important at a time when American agricultural productivity continues to
expand at a consistent rate of about two percent per year, while the
U.S. population, and therefore consumption, is increasing by only about
one percent per year. Additionally, approximately 95 percent of the
world\'s population, the majority of consumers, lives outside the U.S.
borders. This population represents new and expanding market
opportunities for U.S. agricultural products. Currently, agricultural
exports are equal to about 25 percent of U.S. farm cash receipts, so
programs that open new markets and strengthen overall U.S. agricultural
trade are essential. MAP is one such program. It helps to ensure the
U.S. agricultural trade balance remains positive.

***Recommended Solution***

The Administration recommends increasing Market Access Program funding
from \$200 million to \$225 million annually. USDA will apportion this
additional funding to address the inequity between farm bill program
crops and non-program commodities. Additionally, organic agriculture
should be allowed to compete for MAP funding to help develop and
increase the organic export market.

***Background***

The Market Access Program assists in the creation, expansion, and
maintenance of foreign markets for U.S. agricultural products. MAP is
authorized by Section 203 of the Agricultural Trade Act of 1978.

MAP forms a partnership between USDA and non-profit U.S. agricultural
trade associations, U.S. agricultural cooperatives, non-profit
state-regional trade groups, and small U.S. businesses to share the
costs of overseas marketing and promotional activities such as consumer
promotions, market research, trade shows, and trade servicing.

Each year, MAP helps launch and expand sales of U.S. agricultural, fish,
and forest products overseas. MAP uses funds from the USDA\'s Commodity
Credit Corporation to partially reimburse program participants for
foreign market promotion activities. MAP applications undergo a
competitive review process.

The 2002 farm bill authorized MAP at an annual funding level of \$90
million for FY 2001, \$100 million for FY 2002, \$110 million for FY
2003, \$125 million for FY 2004, \$140 million for FY 2005, and \$200
million for FYs 2006 and 2007.

Agricultural cooperatives and small companies can receive assistance for
branded product promotion under MAP, but individual companies must
provide at least 50 percent of the funding to participate. For generic
promotion activities under MAP, trade associations and others must meet
a minimum 10-percent match requirement. Participants are required to
certify that federal funds used under the program supplement - and do
not replace - private sector funds.

USDA has approved MAP proposals to promote a wide variety of U.S.
commodities in almost every region of the world. Among these U.S. food
and fiber products are apples, asparagus, canned peaches and fruit
cocktail, catfish, cherries, citrus, cotton, dairy products, dry beans,
eggs, feed grains, frozen potatoes, grapes, honey, hops, kiwifruit,
meat, peanuts, pears, pet food, pistachios, poultry meat, prunes,
raisins, rice, salmon, soybeans, strawberries, sunflower seeds, surimi,
tallow, tomato products, walnuts, watermelons, and wheat.

**GRANT PROGRAM TO ADDRESS SANITARY AND PHYTOSANITARY ISSUES**

***Recommendation In Brief***

Establish a new grant program investing \$20 million over 10 years to
further focus resources on addressing international sanitary and
phytosanitary (SPS) issues for all agricultural commodities.

***Problem***

Developing countries and developed countries alike are increasingly
using unscientific sanitary and phytosanitary standards as non-tariff
barriers to U.S. agricultural products. Examples include biotechnology
restrictions, maximum residue standards, and restrictions on U.S. beef
due to BSE. USDA needs technical expertise on an ad-hoc basis to address
SPS barriers as they arise and before they burgeon into larger problems.

This problem was highlighted repeatedly during USDA's Farm Bill Forums
and in comments submitted to USDA. Ross from Texas stated, "We must be
able to remove unfair trade barriers in a more timely manner." Paul from
Hawaii said, "Continue to support and increase support for programs that
remove, resolve, or mitigate sanitary and phytosanitary barriers to
trade."

***Recommended Solution***

The Administration proposes creation of a new grant program focused on
SPS issues, supported by \$2 million in annual mandatory funding. This
program would allow for new or expanded focus on such issues as foreign
governments' acceptance of antimicrobial treatments; wood-packaging
material; irradiation; biotechnology; science-based maximum residue
level standards; and testing procedures and controls for mycotoxins.

***Background***

With an increasing number of non-tariff trade barriers in both developed
and developing countries, the SPS issues grant program would be designed
to fund projects that address sanitary, phytosanitary, and technical
barriers that prohibit or threaten the export of U.S. food and
agricultural products, including meat, poultry, and specialty crops. The
grants program would reduce the need to hire technical staff
permanently, bring the creativity of the private sector to USDA
technical problem solving, allow the USDA to commission targeted
scientific reports, or otherwise make use of outside technical expertise
to address technical trade barriers.

**SUPPORT INTERNATIONAL TRADE STANDARD SETTING ACTIVITIES**

***Recommendation In Brief***

Authorize and provide long-term mandatory funding of \$15 million over
10 years to enhance USDA staff support for international
standard-setting bodies, such as the *Codex Alimentarius*, the
International Plant Protection Convention, and the World Animal Health
Organization.

***Problem***

Technical trade barriers that are not scientifically justified are
constraining U.S. agricultural exports. USDA heard about these struggles
at various Farm Bill Forums. For example, Dan from Montana pleaded, "We
have a huge production machine in the U.S. ag industry, and it just
feels like there\'s a lot of hidden barriers and things there that are
out of our control as producers." And Jeremy, from South Dakota, wrote,
"Ag countries around the globe are penalizing or threatening to penalize
our producers with trade barriers."

Increasing U.S. representation in and ensuring full funding of standard
setting bodies at the Food and Agriculture Organization (FAO) and other
similar international agricultural health organizations are critical to
harmonizing multilateral food, plant, and animal safety standards. A
lack of U.S. funding for staff support has led FAO to take a more
Eurocentric approach to its analysis, which may be in conflict with U.S.
objectives.

***Recommended Solution***

The Administration proposes to enhance USDA support for the *Codex
Alimentarius*, the International Plant Protection Convention, and the
World Animal Health Organization - the three respective international
standards setting bodies for food, plants, and animals. This initiative
would close compensation gaps between USDA and international
organizations. Additionally, it would increase funding from \$200,000 to
\$1.5 million to fund up to four Associate Professional Officers a year
to support U.S. sanitary and phytosanitary (SPS) priorities.

***Background***

International bodies establish and harmonize SPS standards and minimize
technical barriers between countries and regional organizations. By
ensuring these international health and safety protection standards are
properly designed and implemented, the U.S. can avoid unwarranted
technical barriers that threaten opportunities for two-way trade.

It is imperative that USDA place seasoned director-level staff in
international organizations that have the experience, background, and
savvy to effectively influence decision-making. Because these positions
are employed by the international organizations, the USDA needs
authority to close the gap between international organization and U.S.
salaries, cost of living adjustments, and accrued service benefits,
which would allow the U.S. to place more senior level personnel in
policy positions.

**TECHNICAL ASSISTANCE TO RESOLVE TRADE DISPUTES**

***Recommendation in Brief***

Provide enhanced monitoring, analytical support, and other technical
assistance to support U.S. agriculture in bringing forward or responding
to significant trade disputes and challenges.

***Problem***

When industries are faced with unfair practices by our trading partners,
they are often at a disadvantage due to limited information and
resources. At the same time, U.S. industries may be challenged by other
trading partners. Although the preferred route to address unfair trading
practices may be to initiate a World Trade Organization (WTO) case, this
may be impossible for limited resource industries. This situation
adversely affects smaller groups and industries much more than larger,
more resourceful entities. Trade dispute cases are typically very
lengthy and resource intensive, often spanning several years. USDA can
provide needed technical and analytical expertise to assist in the event
of such action.

USDA was repeatedly encouraged to focus on lifting trade barriers during
Farm Bill Forums held across the country and in written comments
submitted to the Department. For example, Wendy from Iowa wrote,
"Efforts should be continued to reduce trade barriers, providing a level
playing field for U.S. exports in international markets." Larry in
Missouri, wrote, "...the removal of unfair, legally questionable foreign
interventionist practices and highly-protective tariff and non-tariff
trade barriers are essential for the U.S. industry to be competitive."

***Recommended Solution***

The Administration proposes giving USDA broad discretionary authority to
provide enhanced monitoring, technical assistance, and analytical
support to limited resource agriculture groups if the Secretary of
Agriculture determines that it would be beneficial to U.S. agriculture.

***Background***

As U.S. agriculture has become increasingly part of a global economy,
more and more agricultural industries may face unfair competition or be
challenged by other trading partners. U.S. industries have recourse
through trade remedy laws -- antidumping, countervailing duties, or
safeguards -- to address potential unfair competition. In addition,
trade actions in the WTO are increasing and are another avenue to
address unfair competition. Over the past decade, many U.S. agricultural
industries have brought challenges through U.S. trade laws and worked
with USDA and the U.S. Trade Representative (USTR) to resolve WTO cases.
Conversely, some U.S. agricultural sectors have faced challenges in
either the WTO or by other countries' trade remedy laws. USDA currently
assists in such efforts by providing legal and analytical support, often
working closely with USTR. Such actions are complex, lengthy, and
time-consuming.

The impact of foreign trade competition was discussed at Farm Bill
Forums. For example, Al from Rhode Island said, "Let\'s just try and
keep our farms competitive with farms from overseas." And Tim of
Minnesota added, "We cannot compete, farmer against nation."
Agricultural beneficiaries of the Trade Adjustment Assistance (TAA)
Program have been few and decreasing while USDA operational costs for
the program have been high in comparison to producer benefits. For
example, in fiscal year 2006, TAA expenditures were \$7.9 million,
including \$5.9 million in USDA operating costs (including technical
assistance provided by the Cooperative State Research, Education, and
Extension Service to eligible participants). Direct payments to eligible
producers were only \$2 million. Legal authority for Trade Adjustment
Assistance recently expired. If Congress chooses to re-authorize this
program, the Administration would like to be engaged to ensure this
program is more useful and a better use of taxpayer dollars.

**TRADE CAPACITY BUILDING AND AGRICULTURAL EXTENSION PROGRAMS IN FRAGILE
REGIONS**

***Recommendation In Brief***

Expand trade capacity, food safety, and agricultural extension programs
in fragile regions of the world through \$20 million of mandatory
funding over 10 years.

***Problem***

International economic development is one of the three pillars of U.S.
foreign and national security policy. In recent years, USDA has worked
with the U.S. State Department, the Department of Defense, and the
National Security Council to assist in the reconstruction and
stabilization of Afghanistan and Iraq. Revitalization of the
agricultural sector is essential in fragile regions, particularly those
dependent on agriculture for food and employment. While USDA has
provided technical assistance through agricultural extension programs,
USDA has not received direct funding for such programs, limiting their
reach and effectiveness.

***Recommended Solution***

The Administration proposes providing \$2 million annually in direct
mandatory funding for agriculture reconstruction and extension efforts
for purposes of trade capacity. While USDA is engaged in significant
activities in Afghanistan and Iraq, additional funds should be provided
for future assistance needs in fragile and/or potentially unstable
environments, such as Sudan or Somalia.

***Background***

In recent years, USDA has worked with the U.S. State Department, the
Department of Defense, and the National Security Council to assist in
the reconstruction and stabilization of post-conflict Afghanistan and
Iraq.

Program benefits include:

-   Supporting Presidential commitments to current and future
    international aid, such as agricultural extension projects or
    agriculture knowledge initiatives.

-   Supporting U.S. foreign policy and national security goals of
    reconstruction and stabilization efforts in fragile regions.

-   Preparing for future assistance needs in potentially unstable
    environments, such as Sudan or Somalia, where agriculture is a major
    sector for livelihoods and economic activity.

-   Building bilateral partnerships with strategically important
    countries and agricultural sectors engaged in global trade.

**REFORM EXPORT CREDIT GUARANTEE PROGRAMS**

***Recommendations in Brief***

Further reform the Commodity Credit Corporation's (CCC) export credit
guarantee programs in light of the findings of the World Trade
Organization (WTO) in the Brazil cotton dispute. Terminate the Supplier
Credit Guarantee Program (SCGP) due to approximately \$227 million in
defaults and evidence of fraudulent activity.

***Problem***

The WTO found that the CCC export credit guarantee programs are not
consistent with U.S. obligations under international trade rules.
Although the Administration has taken certain administrative steps to
bring the programs into conformity with U.S. obligations, additional
legislative changes would complement those actions and ensure that the
programs remain WTO compliant. As Kid, from Texas noted at a Farm Bill
Forum, "We have got to abide by those trade agreements that we made."

The Supplier Credit Guarantee Program has incurred a large number of
defaults and has been subject to fraud. Total defaults over the life of
the SCGP (1996 to present) equal approximately \$227 million, with the
largest losses occurring in FY 2004 (approximately \$79 million) and FY
2005 (approximately \$122 million). These recent defaults prompted USDA
to withhold announcement of a SCGP program in FY 2006. Of the \$227
million in default, approximately \$7 million has been recovered.

***Recommended Solution***

The Administration recommends removing the one percent cap on fees that
can be collected under the short-term Export Credit Guarantee Program
(GSM-102) and eliminating the specific authority for the Intermediate
Export Credit Guarantee Program (GSM-103). The Administration also
proposes termination of the Supplier Credit Guarantee Program.

***Background***

In the Brazil cotton dispute, the WTO found that the CCC export credit
guarantee programs are export subsidies provided in a way that is
inconsistent with U.S. trade agreements. The WTO's findings apply not
just to cotton, but also other U.S commodities that receive export
credit guarantees. To comply with these findings, the Administration
took a number of steps in July 2005 to bring the programs into
conformity with U.S. obligations. With respect to the GSM-102 program,
the Administration implemented a more risk-based fee structure that
better reflects country risk ratings and length of guarantee coverage
and eliminated the highest risk countries from the programs altogether.
The Administration further suspended additional guarantee applications
under the GSM-103 program. To complement these actions, the
Administration submitted legislative proposals to Congress in July 2005
and again in March 2006.

The Administration proposes eliminating the cap on GSM-102 fees to
provide greater flexibility and assist USDA in maintaining the
risk-based fee structure adopted in July 2005. Eliminating the specific
statutory authority for the GSM-103 program is consistent with the
suspension of the program in July 2005. Further, participation in the
GSM-103 program has been very low in recent years, and repeal of the
specific authority is likely to affect few, if any, food or agricultural
interests.

The Supplier Credit Guarantee Program is designed to help exporters
offer direct, short-term credit to foreign buyers of U.S. food and
agricultural products. USDA\'s CCC reduces the financial risk to
exporters by guaranteeing a large portion of the payments due from
importers under financing arrangements of up to 180 days. The direct
credit extended by the exporter to the importer for the purchase of U.S.
agricultural products must be secured by a promissory note signed by the
importer. USDA issues the credit guarantee, while the exporter or the
exporter's bank provides the financing. A substantially smaller portion
of the value of exports (currently 65 percent) is guaranteed under the
SCGP than under the GSM-102 program, where the CCC is guaranteeing
foreign bank obligations.

**FACILITY GUARANTEE PROGRAM REVISIONS**

***Recommendation In Brief***

Revise the Facility Guarantee Program (FGP) to attract additional users
who commit to purchasing U.S. agricultural products. These program
improvements are estimated to increase usage of the program by \$16
million over the next 10 years.

***Problem***

Emerging markets often lack the infrastructure to support increased
trade volume. USDA has a credit guarantee program, the Facility
Guarantee Program (FGP), to help meet this need for increased trade
capacity and infrastructure. However, the requirements to qualify for
this program have discouraged its use. Thus, the program needs to adapt
to market realities. As Jeff from Rhode Island said, "(in) the global
economy that we live in...innovation is everything."

***Recommended Solution***

A robust Facility Guarantee Program is needed to facilitate trade in the
CAFTA region. Thus, the Administration recommends expanding FGP loan
authority to allow lower or no down payments, 98 percent principle and
interest coverage, and longer tenor for up to the lifecycle of a
facility's depreciation schedule (not to exceed 20 years). Additionally,
we propose increased flexibility within the facility construction input
origin requirements, including providing authority to the General Sales
Manager to waive these requirements on a case-by-case basis where a U.S.
equivalent input is not available or practical. These changes will make
the program more viable and competitive with similar Export-Import Bank
programs and would not exceed \$50 million in additional subsidy costs.
Project approvals would still be dependent on both the project and
country risk assessment.

***Background***

The USDA Facility Guarantee Program was authorized by section 1542(b) of
the 1990 farm bill. The FGP is designed to expand sales of U.S.
agricultural products to emerging markets where inadequate storage,
processing, or handling capacity limit trade potential. The program
provides payment guarantees for one to 10 years to finance commercial
exports of U.S. manufactured goods and services that will be used to
improve agriculture-related facilities.

Emerging markets often lack the infrastructure to support increased
trade volume. Export sales of U.S. equipment or expertise to improve
ports, loading and unloading capacity, refrigerated storage, warehouse
and distribution systems, and other related facilities may qualify for
facility guarantees, as long as these improvements are expected to
increase opportunities for U.S. agricultural exports.

Under this program, USDA\'s Commodity Credit Corporation (CCC)
guarantees payments due from approved foreign banks to exporters or
financial institutions in the United States. The financing must be
obtained through normal commercial sources. Typically, a guarantee
covers 95 percent of principal and a portion of interest.

**REPEAL THE EXPORT ENHANCEMENT PROGRAM AND GLOBAL MARKET STRATEGY
REPORT**

***Recommendation In Brief***

Repeal the Global Market Strategy mandate and the Export Enhancement
Program, which are redundant or inactive, allowing USDA to focus
resources on priority issues.

***Problem***

The Export Enhancement Program (EEP) is no longer a useful tool for U.S.
agricultural exports. EEP has been inactive for many years; therefore,
eliminating EEP would not materially affect U.S. exports. Additionally,
the utilization of EEP is inconsistent with the U.S. goal of eliminating
export subsidies worldwide.

The Global Market Strategy (GMS) is a redundant mandate to USDA's
existing United Export Strategy and Country Strategy programs. The GMS
is not as useful or timely but carries administrative compliance costs
to produce the report. Administrative costs to comply with the GMS total
approximately \$250,000 for reviewing and auditing the report.

***Recommended Solution***

The Administration proposes repealing the Global Market Strategy mandate
and the Export Enhancement Program because they no longer serve valuable
purposes. These changes would allow USDA to further focus staff and
financial resources on priority issues.

***Background***

The 2002 farm bill requires that within six months after enactment and
every two years thereafter, the Secretary of Agriculture consult with
Congress on formulating and implementing a global market strategy that
identifies growth opportunities in foreign markets for agricultural
exports. However, USDA's existing United Export Strategy and Country
Strategy programs use real-time market analysis and global intelligence,
which more appropriately highlight opportunities for U.S. agricultural
exports in global markets in a timelier manner.

The Export Enhancement Program is designed to help U.S. farm products
meet competition from subsidizing countries, especially the European
Union. Under the program, the U.S. Department of Agriculture pays cash
to exporters as bonuses, allowing them to sell U.S. agricultural
products in targeted countries at prices below the exporter's cost of
acquiring them. The major objectives are to expand U.S. agricultural
exports and to challenge unfair trade practices.

Consistent with its World Trade Organization commitments under the
Uruguay Round Agreement on Agriculture, the United States has
established annual ceilings, by commodity, with respect to export
quantities and budget expenditures. The EEP has been inactive in recent
years, and no allocations were announced for fiscal year 2005 or 2006.
EEP bonuses become available only when USDA announces an operational EEP
initiative for a specific commodity or commodities. Commodities eligible
for EEP initiatives are wheat, wheat flour, rice, frozen poultry,
barley, barley malt, table eggs, and vegetable oil. The 2002 farm bill
established a maximum annual program level for EEP of \$478 million, the
maximum allowable level under the Uruguay Round export subsidy reduction
commitments.

**PROVIDE CASH AUTHORITY FOR PORTION OF EMERGENCY FOOD AID**

***Recommendation in Brief***

Authorize the use of up to 25 percent of P.L. 480 Title II funds for the
local or regional purchase and distribution of emergency food to assist
people threatened by a food security crisis.

***Problem***

The Administration is very concerned about ensuring that food aid and
famine prevention are effective and efficient and address the highest
priority needs. Food purchased in the United States normally takes four
months or longer to arrive at its destination. Food purchased locally,
however, can reach beneficiaries within days or weeks in many cases.

Without the ability to use a portion of Title II for local and regional
purchase, the U.S. is slower and has less flexibility to save lives and
prevent famine. Speed is sometimes necessary when an emergency occurs
with little notice (e.g., a natural disaster), food deliveries are
unexpectedly interrupted (e.g., a pipeline break), or a cease fire
allows rapid access to populations in need.

Under current law, P.L. 480 Title II may only be used to purchase and
ship U.S. commodities. The current program is typically able to provide
timely and effective assistance, but there have been several recent
cases where P.L. 480 Title II could not be procured quickly enough and
the U.S. either could not provide food, provided food late. Two notable
cases in recent years have been Iraq in 2003 and the humanitarian crisis
in Lebanon in 2006. The Administration would also have considered using
this authority for the immediate response to the Asian tsunami in 2004,
in southern Africa and Niger in 2005, and in East Africa in 2006.

***Recommended Solution***

The Administration proposes authorization to use up to 25 percent of the
P.L. 480 Title II request to procure food from selected developing
countries near the site of a crisis. This authority increases
Administration tools to quickly meet emergency needs in the most
effective way possible. Cash food aid will only be used in those cases
where a rapid response is critical to saving lives. The majority of U.S.
food aid will continue to rely on U.S. commodities.

U.S.-grown food will continue to play the primary role and will be the
first choice in meeting global needs. Local and regional purchases will
be used judiciously where the speed of the arrival of food aid is
essential. The Administration will be better equipped to deal with
emergencies if our tools include cash that can be used to provide
immediate relief until US commodities arrive or to fill in when there
are pipeline breaks.

***Background***

The P.L. 480 Title II food aid program, which buys U.S. food to be
shipped to developing countries, is funded through the U.S. Department
of Agriculture appropriation and administered by the U.S. Agency for
International Development. The major use of this program is to address
emergency humanitarian needs, save lives and to address the underlying
causes of food insecurity.

P.L. 480 Title II is the largest U.S. international food aid program.
The FY 2008 request is \$1.2 billion (about \$80 million higher than the
FY 2006 enacted level). Current P.L. 480 legislation requires the use of
U.S. commodities. The U.S. alone currently provides almost half of food
aid distributed by the UN World Food Program. In FY 2007 and again in FY
2008, the increase in the Administration's request compared to FY 2006
is intended to complement the additional flexibility requested.

The Administration began requesting the authority to use a portion of
food aid funding for cash food aid in food security emergencies in FY
2006. In FY 2008, as in FY 2007, the President's budget includes the
request that the Administrator of the U.S. Agency for International
Development (USAID) be granted authority to use up to 25 percent of
appropriated P.L. 480 Title II funds for the local or regional purchase
and distribution of food to assist people threatened by a food security
crisis.

The principal reason for the proposal is to save lives. USAID's
conservative estimate is the authority could feed at least one million
additional people for 6 months and could save at least 50,000 lives in
acute emergencies.

The Administration expects food would be purchased from developing
countries, as defined by the OECD Development Assistance Committee list
of ODA recipients. We do not foresee procuring food from Latin American
countries because commodities usually can be shipped to the region
quickly from the United States. We do not foresee purchasing significant
food from East Asian countries because there are few major emergencies
in the region that require large emergency food aid programs (e.g.,
prolonged conflict or wide-spread droughts affecting millions of people,
as in Africa). We do not anticipate procuring commodities in one region
of the world and shipping them to another distant region because
commodities can likely be shipped from the United States just as
quickly. We would not procure food from developed countries.

This authority would enable U.S. assistance to be more effective and
more efficient. The authority would be used in those instances where the
rapid use of cash for local or regional procurement is critical to
saving lives in response to an emergency. The intention is not to change
the way the United States meets most food aid needs, but rather to
enhance the variety of tools at our disposal to address food
emergencies.