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Abstract

Cooperative Exporters and Foreign Technical Standards

Alan D. Borst and

Bruce J. Reynolds

All cooperative exporters must monitor and either comply with or seek to

modify or repeal the technical standards of the foreign markets to which they

export or plan to export.

This report outlines the different types of foreign technical standards (FTS)

and considers the nature of FTS and their impact on cooperatives. Next, the

roles of Federal and State Government and international government organizations with respect to FTS are described. Finally, strategic approaches which

cooperatives may adopt for dealing with FTS are considered, including organizational options for joining with other exporters with a common interest.

Keywords: cooperatives, agricultural exports, technical trade barriers, standards.

ACS Research Report 113

March 1993
Preface

The objective of this research report is to help agricultural cooperative

exporters manage more effectively the costs of dealing with the technical standards and regulations of foreign countries to which they export.

Mention of a private firm or product does not constitute USDA endorsement.

The authors acknowledge the contribution of all cooperative managers and

other professionals who gave their time to be interviewed.
Contents

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Classification of FTS ....................................................................................... .I

Food Safety.. ........................................................................................... .l

Plant Health ............................................................................................ .2

Animal Health.. ........................................................................................ .2

Quality ...................................................................................................... 2

Packaging ............................................................................................... .3

Labeling and Consumer Information.. ..................................................... .3

Protectionist Objectives in Establishing Technical Standards ........................ .3

Variety of Trade Restrictions.. ................................................................. .3

Appraising Protectionist Objectives ......................................................... 4

Impact of FTS on Exporting ............................................................................. 5

Higher Costs ............................................................................................ 5

Cooperatives’ Response to FTS .............................................................. 5

Roles of Public and Private Sectors ............................................................... .6

Monitoring Foreign Governments’ Standards Activities.......................... .6

Conferring With Foreign Government Officials. .......................................6

Product Evaluation................................................................................... 6

Product Certification. ................................................................................ 7

FTS Trade Dispute Resolution ................................................................. 7

Technical Assistance for FTS Compliance .............................................. 7

Federal Government Role .............................................................................. .7

U.S. Department of Agriculture ................................................................ 7

Office of the U.S. Trade Representative (USTR) ..................................... a

Technical Standard Services of State Departments of Agriculture.. ............... .9

Oregon Department of Agriculture-Export Service Center.. ................. .9

Washington State-IMPACT Center.. ...................................................... 9

International Government Organizations and FTS .......................................... 9

Codex Alimentarius Commission (CODEX) ............................................ 9

International Plant Protection Convention (IPPC) ................................ .lO

International Office of Epizootics (OIE). ................................................ .10

Organization for Economic Cooperation and Development (OECD) .. ..lO

General Agreement on Tariffs and Trade (GATT). ................................ .10

Private Sector Approaches to FTS ............................................................... .l 0

Compliance/Acceptance ....................................................................... .ll

Informal Consultation ............................................................................. 11

Formal Challenge.. ................................................................................ .12
Contents

Organizational Options for Coordinating Exporters

Dealing With FTS Issues ....................................................................... 13

Trade Association .................................................................................. 14

Export Trading Company.. ....................................................................

.15

Federated Cooperative.. .......................................................................

.I6

Strategic Considerations Related to FTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Cooperative Experiences With Foreign

Sourcing and FTS Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Future of FTS for Agricultural Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

111
Highlights

Cooperative exporters must adapt their products to comply with the tastes

and preferences of consumers in a targeted foreign market. Complying with the

technical standards of the importing country is an equally necessary part of an

export marketing program. Foreign technical standards (FTS) are a cost which

must be managed, like any other exporting cost.

FTS are implemented to protect the health of citizens, animals, and plants

or to provide some significant economic benefit to the consumers or marketers

of the importing country. Standards also may be used, however, to protect

domestic producers from import competition or to discourage imports to help a

country improve its balance of payments. FTS are less transparent than quantitative trade restrictions-i.e., they are less distinct and visible than tariffs and

quotas.

Cooperatives have a unique interest in working to comply with an FTS or, if

appropriate, to challenge it. Unlike investor-owned exporters of agricultural

products, cooperatives are dedicated to expanding the markets for their members’ products.

Because standards relate to characteristics of products for which commercial firms are responsible and because their status as trade barriers is not as

transparent, dealing with FTS is more the responsibility of the affected

exporters than is the case with quantitative trade restrictions such as tariffs and

quotas.

The public sector plays more of a supporting role with FTS disputes. The

U.S. Department of Agriculture (USDA) has central responsibility for handling

issues related to FTS. The Office of the U.S. Trade Representative gets

involved when a U.S. exporter formally challenges a foreign standard.

Several approaches a cooperative exporter can take in dealing with an

FTS range from accepting the legitimacy of the standard and investing

resources to comply with it to rejecting the legitimacy of the standard and

investing resources to challenge it. The political and economic consequences of

the latter approach should be carefully considered.

A cooperative exporter may find significant benefits from uniting with competing exporters, cooperative or investor-owned, to deal with an FTS.

Cooperative exporters with a common interest may establish an export trading

company or federated cooperative to conduct their export marketing operations

(including FTS-related functions) with limited antitrust protection. Further,

exporters may join trade associations, which can serve their members by consulting with both U.S. and foreign government officials on FTS related matters.

An FTS may help a cooperative exporter to increase its market share in a

foreign country if it can comply with an FTS more effectively than competing

suppliers.
Cooperative Exporters

and Foreign Technical Standards

Alan D. Borst

Bruce J. Reynolds

The adaptation of an exporter’s product to

match the tastes and preferences of a targeted foreign market is a standard part of export marketing

strategy. All exporters must ensure that the quality,

preparation, packaging, labels, ingredients, and

promotion of their products are appropriate to the

customs and laws of the importing country. The

same is true of foreign suppliers of agricultural

products trying to export to the United States.

This is a regular cost of exporting which must

be planned for in a cooperative’s export marketing

plan and budget. Part of this process includes confirming that export shipments comply with all relevant technical standards of the targeted foreign

country. From the standpoint of exporting, complying with foreign technical standards (FTS) may significantly add to costs, in some cases prohibitively.

On the other hand, an FTS may stimulate producers and handlers to improve the quality or configuration of their products. Indeed, as will be discussed in later sections, FTS may actually provide

competitive advantages to a cooperative exporter.

The purpose of this report is not to evaluate

the relative merits and demerits of FTS, but to view

them as a cost of exporting that, like any other cost,

can be reduced with effective management. FTS

require that exporters work closely with Federal

and State Government officials (and perhaps each

other), and that they develop strategies to deal

with the different kinds of FTS and their variable

impacts on exporting.

CLASSIFICATION OF FTS

Since the establishment of the General

Agreement on Tariffs and Trade (GATT) in 1948,

protectionism has often been classified as either

tariff or nontariff barriers (NTB). The NTB designation includes a wide range of methods for restricting trade including quotas and FTS. FTS are distinctive in being product quality restrictions, as

opposed to other methods of restricting trade

which can be regarded as quantitative in nature.

The Multilateral Trade Negotiations

“Agreement on Technical Barriers to Trade” (GATT

Standards Code), completed at the GATT Tokyo

Round in 1979, defines a standard as a written

technical specification that establishes characteristics of a product, such as levels of quality, performance, safety, or dimensions. It may include, or

deal exclusively with, terminology, symbols, testing and test methods, packaging, marking, or labeling requirements as they apply to a product.

Technical standards for agricultural products

may be classified within the following six categories: food safety, plant health, animal health,

quality, packaging, and labeling and consumer

information. A brief discussion and example of

each type of standard follows.

Food Safety

Food safety standards are those related to

human health concerns. Typical food safety standards will require imported agricultural products
to be certified as free of specified contaminants or

prohibited substances.

An example of a food safety standard is

Indonesia’s salmonella restrictions for poultry

imports. In November 1991 the Government of

Indonesia implemented a regulation requiring

“zero tolerance” levels of salmonella bacteria in

imported poultry products. This severely reduced

U.S. poultry exports to Indonesia. USDA officials

have since persuaded the Government of Indonesia

to repeal the zero tolerance regulation.

Another example are the bans that several

countries have implemented since 1989, including

the United States and France, on apples found to

contain Alar, an apple growth stimulant which has

been suspected as being a potential threat to

human health.

Food safety standards and regulations can

result from food scares when consumers are

informed, legitimately or otherwise, about a potential or existing risk related to an agricultural product. The ban on apples with Alar is a good example

of this. Both U.S. and foreign consumer concern

over Alar was heightened when the news media

publicized its risks in the late 1980’s.

Plant Health

Plant health, or phytosanitary, standards are

those which require plants or plant products to be

free from pests or diseases that could threaten

crops or plants in the importing country. Such standards will sometimes only be applied to imports

from a specified region of the exporting country,

while other regions may be recognized as diseaseor pest-free.

The Government of Japan prohibits the

imports of many fresh fruits for fear of infestation

from the coddling moth, blight, and other plant

pests. Many countries prohibit the importation of

grains from areas where smut contaminations are a

problem. The various types of smut are fungal diseases which produce black powdery masses of

spores on affected grains. U.S. grain growers have

lost some export markets because of smut infestation.

Animal Health

Animal health technical standards require animals or animal products to be free from diseases or

pests that could threaten the health of the importing country’s livestock or other animals. As with

phytosanitary standards, animal health standards

are frequently applied to specified regions of an

exporting country where the disease or pest in

question is determined to be present.

Many countries, including the United States,

prohibit the import of animals and animal products

from regions not certified as free of foot-and-mouth

disease. Another example is that the European

Community (EC) 1imits unrestricted imports of

U.S. bull semen to a specified part of the year

because of their determination that imports in

other periods could spread blue tongue and other

diseases. This standard makes exporting to the EC

prohibitively expensive for U.S. exporters during

the restricted periods.

Quality

Quality standards fall within two different

categories-marketplace facilitators serving the

needs of the buyers and sellers of agricultural

products or regulations intended to prevent the

marketing of agricultural products that are somehow judged to be inferior or otherwise undesirable.

Quality standards, and grading classifications

based upon those standards, facilitate marketing

by;

(1) providing a limited number of homogeneous categories under which an individual container of agricultural products may be classified,

thus allowing containers to be substitutable at an

equal price;

(2) allowing communication in the market system about subjects such as preferences, practices,

values, and costs; and

(3) creating price-value relationships among

various containers and qualities of product.

Imported agricultural products may be classified into grades or required to meet some minimum criteria for size, color, the measured level of

some ingredient, or some other measure of condi2
tion. Some U.S. fruit and vegetable marketing

orders establish standards for size, color, or other

attributes with which both U.S. and imported products must comply.

Some quality standards may prohibit the

importation of agricultural products viewed as

inferior. The EC prohibits the use of soy protein in

meats, and the Japanese require testing of apple

juice shipments to ensure their “authenticity.” In

both cases, the regulations seek to prevent the

importation of “adulterated” or “impure” products.

Packaging

Several countries regulate the packaging

materials of products to be sold in their marketsincluding export shipments crossing their borders.

One of the major purposes of such standards is the

public concern about reducing solid waste.

As an example, Germany has extensive new

packaging laws requiring all manufacturers

(including exporters), distributors, and retailers to

recycle their shipments’ packaging materials. With

environmental awareness rising among consumers

in many foreign markets, especially in the EC,

more packaging restrictions may yet be seen.

Labeling and Consumer Information

Many of our major trading partners regulate

the content of labels on imported products. Canada

requires bilingual English-French labels. The EC

recently adopted a directive requiring, among

other things, that food products display “use by”

dates and directions for proper storage. Japan currently requires country of origin information on the

labels of many food products. Significant increases

in labeling costs can arise from such regulations.

PROTECTIONIST OBJECTIVES

IN ESTABLISHING TECHNICAL

STANDARDS

The ostensible purpose of technical standards

is to safeguard the welfare of the importing country. Standards may also be used, however, to protect domestic producers. In some cases FTS have

distinct advantages over other forms of trade

restrictions for accomplishing trade protection.

Quantitative methods of trade protection are more

transparent and are more readily subject to GATT

challenges or bilateral negotiations, while more

complicated FTS may provide some cover for protectionist motives.

Variety of Trade Restrictions

Protectionism need not always support a particular contingent of domestic producers. Many

governments try to achieve trade surpluses in

order to accomplish such goals as changing their

balance of payments or to engender a more production- and less consumer-oriented society. For this

reason, FTS are often used for products that are not

locally produced and have limited substitution

effects on local products. Foods that are either not

used by the local processing industry or are not

indigenous to an importing country are often targeted for FTS.

In general, there are strategic advantages to

using a variety of protectionist methods rather than

relying on one system. For example, a government

may not want to use tariffs or quotas for products

having relatively small import volumes or insignificant local production. In such cases tariff revenue

would be small and internal political support

would be weak. Yet, the cumulative impact on a

country’s balance of trade of numerous products,

each having small import volume, can be significant. For products that compete with those of powerful interest groups in their countries, it may be

more politically and diplomatically expedient for

governments to use more overt quantitative methods of protection.

It is often difficult to use FTS for protectionist

purposes without having a double standard when

there is a large contingent of local producers.

Double standards may exist, however, by means of

selective enforcement. This situation has been

alleged with regard to the EC ban on growth hormones in meat products.

In terms of a protectionist objective, the ideal

circumstance is the existence of some kind of mea3
surable quality or substance, such as a bacteria or

antibody, in the exporter’s products that do not

appear, or appear significantly less, in the domestic

production of the importing country. In these cases;

a technical standard may selectively target imports

without impeding the sale of local products.

EC restrictions on bull semen imports are an

example. Western Europe has effectively eradicated

both infectious bovine rhinotracheitis (IBR) and

blue tongue disease, which are much more prevalent in U.S. cattle. Many bulls have been exposed to

these diseases, and such exposure is identifiable by

antibodies from a blood test. There is no evidence

that these diseases are transmittable from the

semen of a healthy bull. The EC is operating under

the assumption, however, that such transmission is

possible. Furthermore, bulls that have not been

exposed must be kept in isolation from those who

have in order to meet the EC technical standard for

imports.

The ways in which standards are implemented and enforced may also be the complicating factor. A standard may not be objectionable as written,

yet in practice it may be a trade barrier. This may

be the case if paperwork requirements are unreasonably burdensome, enforcement is inconsistent

or discriminatory, the standard is implemented

without appropriate notice to importers, the standard is ambiguous, or products are limited to specified ports of entry that will reduce the competitiveness of the exporter.

A Washington State apple cooperative manager reported encountering the latter with Mexico in

1991 when export shipments of U.S. apples were

restricted to entry across the Mexico-Texas border.

The problem with this port of entry restriction is

that Texas is the furthest section of border from the

Northwest, from which most apples are exported.

This increased the cooperative’s cost of shipping

apples to Mexico.

Food products exported to countries that do

not have local production are often subjected to

FTS that are much different from U.S. standards. In

some cases unfamiliarity with the product might

lead to FTS that seem unreasonable to U.S.

exporters.

Appraising Protectionist Objectives

In developing a response to a trade-restricting

FTS, exporters should make a general appraisal of

potential protectionist objectives, in addition to

addressing the alleged problems for the welfare of

the importing country related to their product.

Such an appraisal may indicate the “durability” of

an FTS-that is the likelihood of being able to

repeal or modify the standard in a way favorable to

the U.S. exporter-which in turn will help guide

producers in pursuing the best response between

compliance and confrontation.

One example of an FTS designed to prevent

the introduction of a substance that causes no

apparent harm, but that has no evident protectionist objective, is China’s rejection of soft wheat from

the Pacific Northwest when it is found to contain

traces of a fungus called TCK smut. Growers and

their associations have documented scientific studies that show no harmful effects to human health

from consumption of this fungus.

Although China is a substantial wheat producer, a protectionist objective is not evident

because they have made substitute purchases of

other U.S. wheat varieties which they desire less. In

addition, China probably has fewer reservations

about using quantitative methods for restricting

trade than many other countries. While China’s

political system is not immune to interest-group

policies, its producers do not have sophisticated

networks of trade associations.

The implication for U.S. growers of soft wheat

is that there is potential to achieve more access to

the Chinese market from overcoming this restraint.

Growers can respond to this barrier either by working on methods of complying or by attempting to

convince the Chinese that TCK smut is harmless,

with reasonable confidence that such actions would

not be followed by new restrictions.

Appraisal of protectionist objectives of an FTS

is important to the process of determining how to

respond and to understanding the respective roles

of government and the private sector. Although

exporters have an incentive to involve their government as much as possible by emphasizing foreign protectionist objectives, it is also strategically

4
necessary to deal with foreign public officials with

an open mind about their concerns.

IMPACT OF FTS ON EXPORTING

Higher Costs

The most significant FTS cost on exporters is a

reduction in trade volume. When FTS do not block

exports, the cost of compliance usually results in

higher prices for importing countries. Even

exporters with food products that comply must

monitor FTS.

The more diversity there is in FTS for different

markets, the higher is the expense of monitoring.

Although substantial progress has been made in

establishing international standards, much variation among countries persists. Given an elastic

demand for many imported high value-added food

products, compliance costs can substantially

reduce quantity demanded.

In some cases the cost of compliance is prohibitive, which effectively excludes the product

from certain markets. When unexpected bans are

imposed, however, as recently occurred with

grapefruit in the South Korean market, supply is

fixed in the short run, and the market adjustment

can only be made by downward pressure on prices

in the markets that remain open.

Some exporters seek to avoid making changes

in their products by providing scientific information to foreign officials in an attempt to have a

standard modified or repealed. Whether attempting to convince an importing country to repeal a

standard or accepting it by making special product

modifications, both courses of action are an

attempt to reduce a larger cost-the impact of FTS

in reducing export volume.

Cooperatives’ Response to FTS

The decision to challenge FTS or to find costeffective methods of adapting to them depends on

how committed exporters or producers are to

expanding the market for their products. Market

expansion is critical from the standpoint of most

farmers. The export operations in their control, primarily cooperative, have an active role in trying to

either challenge the legitimacy of, or to adapt their

products to meet, FTS.

Large investor-owned companies marketing a

diversity of food products and procuring them

from multiple points of origin can often minimize

or spread the burden of compliance with FTS in

ways that are often less readily available to cooperative exporters. In foreign markets such companies

also have more flexible strategic options to develop

substitute products and ingredients or to switch to

products grown in the importing country rather

than concentrating their efforts on the export of

U.S. food products.

Such strategies would conflict with the objective of cooperatives to increase market access for

members’ products. Several cooperatives with

large market shares of particular U.S.-produced

foods have active foreign market development programs. In many instances they have been at the

forefront of efforts to reduce the negative effects of

FTS for particular commodities.

Export potential to a foreign market determines the incentives to either challenge the legitimacy of FTS or develop low-cost methods of compliance. Assessment of export potential can be

complex because many high-value food products

do not have a long enough sales history from

which to identify a trend, particularly in the fast

economic growth markets in the Asian Pacific

region. When FTS are applied to products that are

not well established in the foreign markets, the

extent of lost sales opportunities is uncertain, and

thus it is more difficult to initiate a significant

industry and government response.

There are opportunities to use cooperative

methods of coordinated marketing for developing

strategies to confront FTS. For example, an FTS in

one market may require special adjustments by a

select group of producers. In such cases, a cooperative could coordinate such an effort by operating a

special pooling program.

Standards that promote product improvement

and consumer acceptance are welcomed by cooperatives and other businesses that are committed to

long-term market development. When quality standards exist for imported products, they are fre-
quently established by commercial interests,

importers and food processors, and are not regulated by government authorities. Such standards can

limit or block the entry of suppliers of inferior

quality agricultural products.

ROLES OF PUBLIC

AND PRIVATE SECTORS

Dealing with FTS requires public and private

sectors to work together in ways that differ from

their roles when confronting a quantitative trade

restriction. Removal of quantitative trade barriers

is a goal of free trade, explicit in the GATT, while

qualitative restrictions are accepted as legitimate

policy so long as they address scientifically verifiable safety concerns or significant economic welfare benefits for consumers. Quantitative policy

tools that discriminate against imports will always

be opposed by exporting nations, but such discrimination by FTS is in certain cases accepted as justifiable intervention in trade.

Technical standards relate to characteristics of

products for which commercial firms are responsible. For this reason, response to such qualitative

restrictions is directly, and predominantly, the

domain of the affected commercial firms. They are

responsible for identifying and helping to verify

FTS that fail to meet scientific standards. In addition, producers and exporters are largely responsible for determining whether the costs of compliance are significant in comparison to the combined

cost of government and private sector efforts to

affect a change in an FTS.

The roles of public and private sectors are

affected by whether an FTS is regarded as protectionist or not. In most cases of dealing with FTS,

producers and exporters must carry out an effective program of response, with Federal and State

Governments providing supporting services.

The public sector role in dealing with FTS,

however, is not limited to government-to-government negotiation over protectionist issues.

Government programs facilitate exporter compliance in several ways. Various Federal and State

Government bodies perform the following six tasks

associated with FTS for agricultural products (private sector firms are also active in the provision of

these services in various ways).

Monitoring of Foreign Governments’

Standards Activities

Both current and prospective U.S. exporters

have to be able to identify proposed and existing

foreign standards related to their products. To fulfill this need, USDA has established a centralized

source of such information, with materials translated into English and organized by country and

product. USDA’s Foreign Agricultural Service

(FAS) / Office of Food Safety and Technical

Services (OFSTS) is the official agency where signatories of the GATT Standards Agreement and other

cooperating foreign countries send their notifications of proposed new standards or modifications

of existing standards.

The Oregon Department of Agriculture Export

Service Center also monitors and maintains records

on the standards of a number of countries, with a

focus on Japan, Taiwan, and other Asian Pacific

nations.

Conferring With Foreign

Government Officials

U.S. exporters of agricultural products need to

be able to convey comments related to proposed

standards or changes in existing standards to the

appropriate foreign officials. OFSTS and FAS overseas staff serve as the official channel for conveying

such comments. Such initial communication with

foreign officials responsible for the creation or

implementation of FTS can prevent more expensive

and complicated challenges to the standards in the

future.

Product Evaluation

U.S. exporters need to determine that their

products meet the technical standards of targeted

foreign markets. Product acceptability can be confirmed through three services: (1) a review of product ingredients, (2) chemical analysis of product to

6
--..

verify compliance with foreign standards, and (3) a

review of label format and content.

This evaluation can help cooperative

exporters to narrow their list of targeted foreign

markets. Some countries may seem like promising

markets, yet severely restrict or prohibit imports of

certain agricultural products. In addition, having a

product evaluated for a given foreign market can

help prevent U.S. agricultural exporters from having a customs complication at the border of the

importing country, where the cost of resolving the

situation may be prohibitive.

Product Certification

Beyond the confirmation of general product

acceptability, individual export shipments may

need to be certified as being in compliance with the

importing country’s standards for additives,

preservatives, pesticide residues, and heavy metals

to meet the requirements of the importing country.

Agreements have been reached with some foreign governments to allow inspection and certification to be done in the United States instead of reinspection and customs testing at the importing

country’s border. This may involve either direct

certification of export shipments of agricultural

products by U.S. inspectors or hiring foreign

inspectors to certify shipments at a specified U.S.

location.

An example of the former is the agreement

completed between the Governments of Japan and

Taiwan and the Oregon Department of Agriculture

Export Service Center which authorizes the center

to act as a customs laboratory for the two governments. An example of the latter is the arrangement

between the Government of Japan and a U.S.

export trading company, Northwest Fruit Exporters

(NFE), handling the export of Northwest cherries

to Japan. NFE pays the salaries, travel, and business expenses of Japanese inspectors who come to

the United States during the cherry marketing season to clear cherry export shipments bound for

Japan.

When cooperatives can get their export shipments cleared in the United States for entry into a

foreign market, this can prevent expensive rejections at the importing country’s border. For example, one agricultural marketing cooperative had a

shipment of cooked poultry products rejected at a

Japanese port when officials refused to inspect the

products by container lot, as the cooperative had

requested. Since it was not economical for the

cooperative to transport the $15,000 shipment back

to the United States, the shipment was destroyed.

FTS Trade Dispute Resolution

Channels of communication are available in

the event that an FTS trade dispute arises between

U.S. exporters and a foreign government. Disputes

frequently arise over standards that are judged to

be unfair nontariff trade barriers. The Office of the

U.S. Trade Representative and USDA’s FAS are the

Federal agencies that serve as official channels for

bilateral consultations with foreign governments

on FTS disputes or formal challenges to a foreign

government’s standard.

Technical Assistance for FTS Compliance

To facilitate compliance with foreign standards and minimize trade disputes, U.S. agricultural exporters need assistance with making the necessary adjustments in their export programs or with

developing alternative means of compliance to suggest to a foreign government. The USDA

Agricultural Research Service, several universitybased research centers, and private consulting

firms are all involved in performing such research.

FEDERAL GOVERNMENT ROLE

U.S. Department of Agriculture (USDA)

Responsibility for issues related to FTS for

agricultural products is centered within USDA. A

description of various USDA agencies that perform

some of the functions described earlier for one or

more categories of agricultural products follows:

Foreign Agricultural Service (FAS) FAS agricultural counselors and attaches stationed overseas

may help to settle trade disputes related to FTS for

7
agricultural products through informal meetings

with the appropriate authorities in the importing

country.

In November 1990, FAS established the Office

of Food Safety and Technical Services (OFSTS) to

coordinate activities and respond to issues related

to food safety regulations and barriers that affect

the international trade of U.S. agricultural products. The Office serves as a primary contact for U.S.

companies’ inquiries related to food product labeling and food standards, sanitary and phytosanitary

regulations, pesticide residues, and other technical

requirements for U.S. agricultural products exported to foreign countries.

OFSTS is the official US. agricultural inquiry

point for the GATT Standards Code. In this capacity, OFSTS receives and makes available notifications of proposed new foreign mandatory agricultural standards or modifications of existing

standards notified to the GATT by the 40 signatory

countries. U.S. agricultural exporters may review

these proposed standards and submit comments

where concerns exist about the potential impact on

U.S. exports. OFSTS will forward any such comments received to the appropriate foreign regulatory agency.

Animal and Plant Health Inspection Service

(APHIS) APHIS is responsible for the inspection

and certification of animals, plants, and unprocessed agricultural products to meet health or sanitation requirements for export. Agency veterinarians inspect animals, poultry, and animal products

to assure conformance with health and sanitation

requirements for export as prescribed by the country of destination. At the request of exporters, plant

inspectors certify the sanitation of plants and plant

products in accordance with the requirements of

the receiving nation(s). In addition, APHIS offices

may provide U.S. exporters with import requirements of foreign nations for such products.

Agricultural Marketing Service (AMS)

Exporters or the foreign buyers of their products

may arrange, for a user fee, to have the AMS food

certification service certify that an export shipment

meets contract specifications. Specifications must

be submitted to AMS in advance and must be written so as to be certifiable. Specifications must meet,

and may be based upon, the standards of the

importing country.

AMS also offers services to exporters related

to FTS through its Transportation and Marketing

Division. Economists, traffic management specialists, engineers, and agricultural marketing specialists can assist cooperative exporters with technical

information on international shipping standards

and shipping practices that will help maintain

product quality in transit.

Federal Grain Inspection Service (FGIS)

FGIS inspects and weighs all U.S. grain exports and

certifies compliance with U.S. standards. The FGIS

International Monitoring Staff addresses complaints from foreign buyers about either the quality

or weight of U.S. grain exports. Several additional

tests for grain exports are offered for such things as

atlatoxin levels in corn or protein levels in wheat.

Food Safety and Inspection Service (FSIS)

FSIS certifies that export shipments of meat and

poultry products, at the time of certification, are

sound, properly labeled, and in compliance with

the standards of both the United States and the

importing country.

Agricultural Research Service (ARS) A primary mission of ARS is to assist each of the USDA

action and regulatory agencies-e.g., AMS, APHIS,

FGIS, and FSIS-by developing the information

and technologies they need to establish and implement activities under their jurisdiction. ARS

research programs also provide information on

commodity and product quality, storability, safety,

and procedures to meet quarantine protocals

through technology transfer to exporters and other

marketing associations.

Office of the U.S. Trade

Representative (USTR)

The first step in an FTS trade dispute is for

USDA/FAS counselors and attaches to meet informally with the appropriate officials of the importing nation. If these informal consultations do not

resolve the dispute, then the USTR may open up
bilateral consultations with the importing country.

There is an Assistant U.S. Trade Representative for

Agriculture. USTR officials work with both

Washington, DC, and overseas FAS staff and any

other affected U.S. agencies in attempting to

resolve trade disputes related to FTS for agricultural products.

If the importing country is a signatory of the

Multilateral Trade Negotiations “Agreement on

Technical Barriers to Trade” and no resolution is

found through the bilateral consultations, then allegations of agreement violations may be resolved by

an international forum of technical or trade policy

experts.

TECHNICAL STANDARD SERVICES

OF STATE DEPARTMENTS

OF AGRICULTURE

Most State Departments of Agriculture do not

offer direct assistance related to FTS for agricultural products. Two of the more notable State centers

working with FTS issues-the Export Service

Center (ESC) and the International Marketing

Program for Agricultural Commodities and Trade

(IMPACT) Center-are located in the States of

Oregon and Washington, respectively.

Oregon Department of Agriculture-ESC

The ESC was opened on September 4,1990, as

part of the Oregon Department of Agriculture’s

Laboratory Services Division. Services offered by

ESC to agricultural exporters include product evaluation-ingredient review, product analysis, and

review of label format and content-and product

certification. ESC is approved as an official customs

food laboratory for Japan and Taiwan. In addition,

ESC will consult with exporters to help them comply with FTS, provide product tariff information,

and carry out technically related export projects.

The ESC handles more than 100 products per

month, has served more than 450 clients, and has

worked with the following agricultural cooperatives or associations with cooperative membership:

Agripac, Agway, Cabot Farmers Cooperative

Creamery, Cascadian Farms, Cherry Marketing

Institute, Diamond Fruit Growers, Land O’Lakes,

Norpac Foods, Nulaid Foods, Oregon Cherry

Growers, Sunkist Growers, and Tree Top.

Washington State-IMPACT Center

The IMPACT Center has been open since 1985

on the campus of Washington State University. One

of the center’s three major objectives is to solve

technical impediments to the export of Washington

state agricultural products. IMPACT scientists have

assisted exporters with work on packaging, pest

and disease control, quality control, and other

areas related to FTS. For example, they were able to

increase dairy product exports by getting western

Washington State declared free of blue tongue disease. The IMPACT Center staff have also helped to

harmonize wood standards with Japan.

INTERNATIONAL GOVERNMENT

ORGANIZATIONS AND FTS

Codex Alimentarius Commission (Codex)

The Codex is responsible for issues such as

food additives, pesticide residues, animal drugs,

contaminants, labeling, packaging, and food quality standards. It was established in 1962 as a subsidiary of two United Nations bodies, the Food and

Agricultural Organization and the World Health

Organization and currently has 135 member countries. Standards are created through consensus

within individual Codex committees. Government

regulators, scientists, technical experts, and industry and consumer representatives serve Codex in

both official and advisory capacities.

The mission of the Codex is to:

l protect the health of consumers and to

ensure fair trade practices in the food trade;

l promote coordination of all food standards

work undertaken by international and nongovernmental organizations;

l determine priorities and initiate and guide

the preparation of draft standards through and

with the aid of appropriate organizations; and
l finalize standards and (after acceptance by

governments) publish them as either regional or

global standards.

International Plant Protection

Convention (IPPC)

The IPPC develops plant quarantine requirements and other measures to prevent the international spread of plant pests and diseases. The IPPC

was held in 1951 and currently has 88 signatory

countries. The IPPC is affiliated with the Food and

Agricultural Organization.

The IPPC works mainly through regional

plant protection organizations (PPO’s), such as the

North American PPO and the European and

Mediterranean PPO. Such regional groups develop

guidelines for the certification of plants for export,

fumigation standards, and the testing of pesticides.

The mission of the IPPC and regional PPOs is

to promote international cooperation in preventing

the introduction and spread of pests and diseases

of plants and plant products, including rodent

pests of crops, and to coordinate plant research.

International Off ice

of Epizootics (OIE)

The OIE is concerned with health and sanitary

requirements for the international trade of animals

and animal products. The OIE was established in

1924 and has 114 member countries. It maintains a

worldwide reporting system for livestock diseases.

The OIE develops norms, standards, and diagnostic procedures for detecting, controlling, and

eradicating animal diseases that pose a threat to

animals or humans. The International Animal

Health Code, established by OIE code and norms

commissions, standardizes veterinary export and

import requirements. The Code also includes information on preparation of veterinary regulations for

international trade and certification of animal and

animal product shipments for foreign trade.

Organization for Economic Cooperation

and Development (OECD)

The OECD develops guidelines for the certification of seed and the grading of fresh fruits and

vegetables in international trade. Members include

the United States, Canada, most countries of

Western Europe, Japan, Australia, and New

Zealand.

General Agreement on Tariffs

and Trade (GATT)

The GATT is not directly involved in preparing standards. Rather, the GATT Agreement on

Technical Barriers to Trade (Standards Code) provides the international framework for the 40 signatory governments to exchange information on technical standard activities and to resolve FTS trade

disputes. The GATT Standards Code was concluded at the Tokyo Round of the Multilateral Trade

Negotiations and went into effect in 1980.

In the latest series of GATT negotiations, the

Uruguay Round, a proposed agreement on food

safety and plant and animal health standards is

being considered. The sanitary and phytosanitary

agreement, as proposed, would specify guidelines

and dispute settlement procedures and would

require GATT signatories to recognize the concept

of disease- and pest-free zones.

The proposed agreement would also require

that GATT signatories accept agricultural imports

from other signatories with different technical standards if it can be shown that each country’s standards provide an equivalent level of protection.

The Codex, OIE, and IPPC are recognized within

the proposed agreement as the international scientific organizations that will assist in the resolution

of standard trade conflicts within their respective

areas of expertise.

PRIVATE SECTOR

APPROACHES TO FTS

A cooperative may take a number of

approaches when confronted with an FTS. The

variety of approaches ranges from total acceptance

10
of the legitimacy of the FTS and an investment of

resources to try to meet the standard’s requirements on the one extreme, to a complete rejection

of the standard’s legitimacy and an effort to formally challenge it on the other. In the middle

would be a strategy based on informal consultation

with the appropriate foreign government officials.

A more detailed discussion of various

approaches, from the least to the most confrontational, follows.

Compliance/Acceptance

Working with foreign regulatory officials to

bring the cooperative’s export program into compliance with the standard.-An example of a cooperative that has strengthened its export program

and significantly increased its foreign sales by

working to comply with strict FTS is Tree Top, Inc.,.

an apple and pear processing cooperative in Selah,

Washington. The cooperative has dedicated considerable resources to meeting the requirements of foreign importers.

Tree Top has hired technical services staff and

implemented Quality Assurance programs at both

the plant and corporate level. New, state-of-the-art

equipment was purchased to allow the cooperative

to meet Japanese standards. Two product lines that

Tree Top has aggressively marketed to Japanese

buyers are pure apple juice, in glass bottles, and

fruit juice drinks (10 percent juice), which are sold

in 11.5-ounce aluminum cans. In order to export

the latter, Tree Top set up a high-speed 11.5-ounce

aluminum can production line in 1988.

The Government of Japan has strict quality

standards for fruit juice products. It requires that

apple juice be tested for amino nitrogen and ash

content to ensure product authenticity and purity.

Tree Top management believes that there are better

methods for testing juice purity that would be less

costly, but concluded that working to comply with

existing standards would be the best strategy.

To promote its sales of pure apple juice, the

cooperative sought and received certification by

the Government of Japan as a Japan Agricultural

Standards (JAS)-approved facility, thus allowing it

to display the JAS label on its apple juice bottles.

Tree Top worked closely with its Japanese business

partners, who provided technical information and

advice. With such assistance, Tree Top successfully

met Japanese standards and significantly increased

exports to Japan.

Working to meet these technical standards has

added to Tree Top’s production costs, but it has

also heightened the cooperative’s quality awareness. In the few years since Tree Top has met

Japanese import requirements it has more than

doubled its export volume and has now positioned

itself as a major supplier of apple juice to Japan.

Informal Consultation

Recognizing the legitimacy of the foreign

government’s concerns, but contending that there

are other, better ways for the foreign government

to achieve its objective(s) than the standard in

question.-Prior to 1978, the Government of Japan

prohibited the importation of fresh cherries from

the Pacific Northwest fearing infestation by coddling moths. Several Northwest shippers believed

that cherries could be rendered free of coddling

moth through methyl bromide fumigation. They

established a Webb-Pomerene association,

Northwest Fruit Exporters (NFE), which in 1982

was converted to an export trading company

(under the Export Trading Company Act of 1982).

Cooperative NFE members include Oregon Cherry

Growers, Snokist Growers, Skookum, Diamond

Fruit Growers, and Chief Wenatchee.

NFE met with Japanese Government officials

and demonstrated the effectiveness of their methyl

bromide fumigation technique. Exports of fresh

Northwest cherries to Japan were permitted under

certain conditions. The export trading company has

continued to negotiate with the Government of

Japan over these conditions and other FTS-related

issues.

NFE is currently active from May to July

when a manager and part-time staff are hired. Its

purpose is to coordinate the handling and inspection of Northwest Cherries bound for Japan. NFE

arranges travel and pays the salaries and expenses

of Japanese Government inspectors who come to

11
the Northwest to clear the cherries for export to

Japan.

In 1992 the Japanese Government began to

allow U.S. shippers to export fresh cherries over

their entire season. NFE is concerned, however,

that exports may slow in the future as fears in

Japan are beginning to develop about the safety of

methyl bromide fumigation.

Maintaining that a standard is not applicable

to the cooperative’s export shipment.-Land

O’Lakes (LOL), a dairy processing cooperative in

Minneapolis, Minnesota, encountered an FTS while

exploring the potential for exporting powdered

milk to countries in Eastern Europe. In the aftermath of the Chernobyl nuclear accident in the former Soviet Union, some Eastern European countries began to require that imports of powdered

milk be certified as not being contaminated with

radiation.

LOL has argued that this food safety standard

should not apply to shipments of its dairy products, since radiation exposure has not been a problem in the United States. In fact, it is not even clear

how such a test would be conducted. To date this

FTS issue has not been resolved.

Emphasizing positive consequences for the

foreign government if it repeals, modifies, or

decides not to apply the standard (or negative

consequences if implemented).-In the late 1980’s,

LOL was involved in a development project with

the goal of developing Indonesia’s dairy industry.

As part of the project, LOL planned to export dairy

cows to Indonesia. The Government of Indonesia,

however, had animal health standards that would

interfere with these planned exports.

With the help of LOL’s Indonesian investor

partners and U.S. and Indonesian Government veterinarians, the FTS dispute was resolved through

informal negotiations with Indonesian trade officials. LOL made the case that allowing the importation of the cattle was in the best interest of

Indonesia as it was crucial to the successful outcome of the development project.

Eventually, LOL exported 12,500 dairy cows to

Indonesia in conjunction with the project. By establishing the Indonesian dairy industry in this manner, LOL set up potential export markets for several dairy industry inputs that it markets, including

calf milk replacer, forage varieties, feed concentrates and grains, genetic materials, and animal

pharmaceuticals.

Another example of this approach was the

involvement of the Northwest Horticultural

Council (NHC), a trade association representing

Washington and Oregon producers of apples,

pears, and cherries, in a successful campaign to

open the Venezuelan market for these products. In

1982 Venezuela banned the importation of these

fruits because of restrictions on foreign exchange

and national self-sufficiency goals. The NHC had

not been able to resolve the issue in consultations

with Venezuelan officials.

In 1989, the NHC urged the USTR to make

opening of Venezuela’s markets for these fruits a

condition for U.S. acceptance of Venezuela’s petition to join the GATT. In 1990 Venezuela joined the

GATT and removed its restrictions on the importation of these tree fruits:

Formal Challenge

Formally challenging an FTS as an unfair

trade barrier.-If informal meetings with foreign

government officials fail to resolve an FTS dispute,

the next step is formal bilateral standards consultations between the United States and the foreign

government. Failing resolution at this stage, if the

foreign country is one of the 40 GATT Standards

Code signatories, an international panel of technical and trade policy experts may be convened to

settle the issue.

Also, any U.S. exporter can seek relief from an

unfair trade barrier under Section 301 of the U.S.

Trade Act of 1974 by filing a complaint with the

USTR Office of the General Counsel. Section 301 of

the U.S. Trade Act of 1974 empowers the President

to take all appropriate action, including retaliation,

to obtain the removal of any act, policy, or practice

of a foreign government which violates an international agreement or is unjustified, unreasonable, or

discriminatory, and which burdens or restricts U.S.

commerce.

While no U.S. cooperatives have yet formally

challenged an FTS, the following examples illus1 2
trate a cooperative initiation of a challenge to a

nontariff trade barrier and a trade association’s

challenge to an FTS.

Blue Diamond Growers and almond exports to

India.-While not involving standards, this is an

example of a U.S. agricultural cooperative that had

some success in challenging an unfair foreign trade

barrier. In the mid-1980’s, India severely limited

the importation of almonds through restrictive

licensing practices and prohibitively high tariffs.

Blue Diamond Growers, an almond marketing

cooperative in Sacramento, California, had been

trying to develop a market in India for its almonds

since 1977. Frustrated by the trade barriers, Blue

Diamond filed a Section 301 trade complaint

against the Government of India. The U.S.

Government accepted the case on behalf of the

cooperative in February 1987. Blue Diamond maintained that if India did not open its markets to U.S.

almonds, the U.S. Government should set up retaliatory trade barriers to Indian cashews.

In response to this action, the Indian

Government sought to negotiate a settlement with

the U.S. Government. It initially offered to increase

import access in the dried fruit and nut category as

a whole. Eventually the Government of India

agreed to create a separate import category for

almonds and to increase allotted sales to $20 million. Blue Diamond had sought open licenses that

would have allowed unrestricted market access,

but was satisfied with the settlement and withdrew

its complaint.

One of the lessons to be drawn from this

action was that trade disputes can threaten parties

that are not directly involved. U.S. handlers of

cashew nuts were disturbed that Blue Diamond

sought to cut off their imports as a retaliatory measure. Any cooperative challenging an FTS would be

well advised to consider the consequences to itself

and other parties, intended or otherwise, that could

result from such an action.

Another lesson to be drawn from this experience is the critical role of political support in the

event of such a legal challenge. Blue Diamond

actively sought and received the support of its

Senators, Congressional Representatives, and other

politically significant allies. This support was decisive in pressing the case against the Government of

India.

Restrictive Building Codes and Testing Standards

for U.S. Forest Product Exports to Japan.-While not

involving cooperatives, this is an example of a successful challenge to an FTS. Exporters of U.S.

forestry products attempting to sell to Japan had

encountered several serious trade barriers, including restrictive building codes and testing standards

that precluded the use of modern wood applications in construction on the grounds of fire safety.

The National Forest Products Association, a

federated trade association representing the wood

products industry, worked closely with the U.S.

Departments of Commerce and Agriculture in

studying these trade barriers. Information emerging from this work won broad congressional support for challenging these various trade barriers.

On May 26,1989, the USTR listed Japan’s

unfair trade barriers to U.S. forest products as a

high priority for “Super 301” negotiations, as

authorized by the 1988 Omnibus Trade and

Competitiveness Act. This Act requires USTR to

annually designate a few specific unfair trade practices of targeted foreign countries as U.S. trade liberalization priorities.

Japanese officials entered into a series of bilateral market access talks with the United States. The

result of these talks was an announcement by Japan

of a package of measures to improve market access

for U.S. exporters. Part of this agreement was that

the Government of Japan would ease its restrictive

building codes and testing standards. U.S. forestry

industry sources have estimated that when the

complete agreement is implemented it could

increase annual U.S. forest product exports by $1

billion.

ORGANIZATIONAL OPTIONS

FOR COORDINATING EXPORTERS

DEALING WITH FTS ISSUES

An agricultural cooperative exporter may find

it advantageous to unite with competing exporters

that have a common interest in resolving a given

13
FTS issue-whether they be U.S. or foreign, cooperative or investor-owned. A potential advantage of

organizing such a consortium is the possibility of

realizing significant economies of scale resulting

from the ability to:

l share fixed costs and eliminate redundant

costs;

l employ and more fully utilize specialized

technical staff and equipment than could a single

cooperative;

0 generate more capital;

l lower procurement costs through volume

discounts and greater buying power; and

l obtain better control over pricing through

greater coordination of supply and marketing.

Depending on the functions, there are three major

organizational alternatives under which such consortiums could be organized-trade associations,

export trading companies, and federated cooperatives. Each one has distinct purposes and characteristics.

Trade Association

An agricultural trade association is a nonprofit organization of competing agricultural businesses with the mission of assisting its members and

their industry in dealing with common business

issues-including those related to FTS trade complications. Trade associations working with FTS

issues are likely to be commodity (e.g., apple, corn)

or industry (e.g., fresh produce, grain) specific in

membership. There are dozens of agricultural trade

associations ranging in size from State or regional

up to national or international. Most significant

cooperative exporters are likely to be affiliated with

one or more associations.

Northwest Horticultural Council and Northwest

Tree Fruit Cooperatives.-One of the trade associations most active in dealing with FTS issues is the

Northwest Horticultural Council (NHC). Based in

Yakima, Washington, NHC represents the

Washington and Oregon tree fruit industry on federal and international policy issues. Founded in

1947, the NHC addresses issues common to its

members, including technical export problems and

trade agreement negotiations, and also consults

with both U.S. and foreign governments at different levels on standards and regulations affecting

the tree fruit industry.

The NHC has seven member trade associations including the Washington State Apple

Commission and the Washington State Fruit

Commission. Several tree fruit marketing cooperatives belong to these member associations and are

actively involved in the NHC, including Skookum,

Diamond Fruit Growers, Trout, Snokist Growers,

Wenoka Sales, and Chief Wenatchee.

The NHC has worked to eliminate unfair foreign trade barriers, open new markets, and maintain access to existing markets for Northwest

apples, pears, and cherries. The Council has dedicated considerable resources to resolving FTS trade

disputes. In 1989 the NHC hired a vice president

for scientific affairs to strengthen their expertise in

the standards area, and in 1990 they expanded their

export manual to include more information on foreign standards.

The NHC is experienced in dealing with FTS

complications. For example, in 1987 Swedish

National Food Administration officials found that

pears imported from Washington and Oregon

exceeded the allowable residue levels for mancozeb. NHC staff flew to Sweden, met with the officials, and were able to isolate the pears that were in

violation of the standard. In this case, the majority

of the shipment was cleared for import and losses

were minimized.

Dissension Among Trade Association Members

Over FTS Issues .-While the larger national associations are usually the most active in the standards area, in some cases, regional and relatively

local organizations are also involved. FTS often

affect producers differently, particularly when

there are varietal differences or a wide geographic

dispersion of production. Such variations in the

impact of FTS lead to differences of opinion as to

appropriate courses of action that industry trade

groups should follow.

The problem of developing a unified position

toward FTS has reinforced a pattern of regional

associations, with membership in national federa14
tions, having to assume responsibility for specific

cases. These responsibilities include contact with

foreign and U.S. Government officials and support

for testing and research.

For example, the TCK smut problem for

Northwestern soft white wheat, while involving

U.S. Wheat Associates, has been an issue in which

the wheat commissions and grower organizations

of the Northwestern States have assumed the lead

role in coordinating an industry response.

In some cases, one group of U.S. producers

may benefit from an FTS that is creating a trade

barrier to another group in the same industry. For

example, the EC will only accept kiln-dried lumber

because such treatment effectively exterminates the

pine wood nematode. Kiln drying is not done in

most timber areas of the Western United States,

which gives the EC market to eastern producers.

Due to the special significance of this issue to

western lumber producers, the Western Wood

Products Association, a regional member of the

National Forest Products Association, has assumed

responsibility. In this case, a federated structure

allows for both national coordination and local

focus for handling issues that might otherwise

bring geographically dispersed members into conflict.

Another point of contention has been differences of opinion over whether or not to accept a

foreign government’s terms in a standards negotiation. Some exporters are concerned that acceptance

of a standard that is not based on scientific evidence could establish unfavorable precedents,

while others are more concerned with entering the

market, with less concern about the standard

terms.

An example of this situation is the ongoing

negotiations over the conditions under which U.S.

apples may enter the Japanese market. Currently,

U.S. apples may not enter Japan because of phytosanitary concerns. Japanese officials have offered

terms which some U.S. apple industry figures reject

as being scientifically unjustified while other interested U.S. parties argue for their acceptance.

Export Trading Company (ETC)

An ETC is an organization designed to facilitate the export of U.S. goods and services. It can be

either a trade intermediary, providing export-related services to producers, or an organization set up

by producers themselves. Cooperative exporters

have used both arrangements effectively.

Through either organizational option, cooperative and non-cooperative exporters with common

interests can share the costs of export marketing,

including costs associated with FTS. ETC’s can

allow competing U.S. exporters to take advantage

of economies of scale for many functions related to

FTS including labeling, packaging, inspection,

fumigation, and dealing with foreign regulatory

officials.

One major advantage of an ETC is that it can

reduce the uncertainty over the application of U.S.

antitrust law to export operations. Under the

Export Trading Company Act of 1982, if an ETC’s

export trade activities and methods of operation

are found not to substantially lessen domestic competition or restrain trade, the ETC may receive a

Certificate of Review from the U.S. Department of

Commerce (with concurrence from the Department

of Justice). This certificate will grant the ETC significant protections from antitrust litigation.

The following are two examples of ETC’s

which work with cooperative exporters. The first

case is an intermediary doing the international

marketing for a group of cooperatives, and the second is an organization set up by both cooperative

and investor-owned exporters.

World-Wide Sires and artificial insemination (AI)

cooperatives-World-Wide Sires of Hanford,

California is an ETC exclusively handling the

export sales of frozen bull semen for several U.S.

artificial insemination cooperatives-Federated

Genetics, KABSU, NOBA, Select Sires, Sire Power,

Tri-State Breeders Cooperative, and 21st Century

Genetics. The firm is a trade intermediary which

acts as an agent for its cooperative clients. WorldWide Sires handles all of these cooperatives’ export

sales except those to countries in North and South

America, which are handled by the individual

15
cooperatives. It has received a Certificate of Review

to cover its export operations.

The artificial insemination (Al) industry has

encountered a substantial number of FTS, including those mentioned earlier that the EC has

imposed which selectively affect U.S. exporters but

not its own industry. Unlike some agricultural

industries, FTS for Al have generally imposed the

same cost burden on all U.S. firms. As a result, this

industry is unified in supporting the National

Association of Animal Breeders (NAAB) in

responding to FTS. World-Wide Sires has worked

closely with NAAB and USDA/APHIS staff in

dealing with FTS issues related to bull semen.

Twenty Al cooperatives have about a 70-percent share of the market. Industry participants

believe that FTS have significantly increased in

recent years and may accelerate in the future. This

and other changing conditions in the Al market

have led Al cooperatives to establish common marketing associations, such as World-Wide Sires.

These associations serve as an organizational

means for planning and managing specialized

responses to new marketing demands, including

those related to FTS. As more restrictions become

imposed, federated associations can provide coordinated planning so that Al cooperative exporters

will not create needless duplication in making

adjustments for FTS compliance.

For example, the impending EC requirement

that bulls without exposure to certain diseases

must be isolated from other animals to be certified,

will impose substantial costs for each cooperative

to build separate barns. Much duplication, however, could be eliminated by means of coordinated

planning and cost sharing.

Northwest Fruit Exporters and Northwest Tree

Fruit Cooperatives- NFE, as previously described,

is an ETC with both cooperative and investorowned members that manages export sales of cherries to Japan. In this case, the joint investment by

these exporters in an ETC had three benefits.

1. The establishment of the ETC allowed the

members to present a single, united front to the

Japanese Government. Japanese officials prefer this

situation to one where many smaller competitors

try to negotiate separate arrangements. The

Government of Japan has recognized NFE as the

exclusive exporter for the Northwest cherry industry, and NFE has continued to consult with

Japanese officials on the standards and conditions

under which cherries may be exported to Japan.

2. It alleviated the free rider problem inherent

in the financing of any venture to modify an FTS

that adversely affects more than one exporter. Since

all Northwest cherry exporters may potentially

benefit from the opening of the Japanese market,

the costs must be spread among them. Otherwise,

exporters would be hesitant to invest in opening

the market for fear of competitors reaping the benefits of increased exports to Japan without having

shared in the costs of such a venture. Given their

exclusive marketing relationship with Japan and

the equitable sharing of costs among NFE members, the free rider problem has been largely eliminated.

3. The joint investment by NFE members

resulted in gains from a realization of economies of

scale. The costs of NFE facilities and equipment,

the funding of the Japanese inspectors, and other

expenses are all equitably split among members.

Assuming that individual exporters could have

negotiated deals with Japanese officials, they

would still have faced greater

costs individually and could not have used the

resources with the same efficiency as NFE.

Federated Cooperative

This type of cooperative is owned and controlled by its members, which are themselves grower-owned cooperatives. A variation on this organizational form is a “mixed” cooperative, whose

membership is composed of both grower-owned

cooperatives and individual agricultural producers.

Advantage Over ETC-The major advantage of a

federated cooperative over an ETC for performing

export marketing functions is that the limited protection from the application of U.S. antitrust laws

applies to a wider range of jointly undertaken marketing activities, including those that affect domes16
tic competition. Unlike an ETC, however, which

allows both cooperative and investor-owned firm

membership, only cooperatives (or individual

growers) can be members in a federated agricultural cooperative.

An example of a federated cooperative organized to coordinate and streamline the international marketing operations of its cooperative members

is AMCOT. This federated cooperative is jointly

held by four large grower-owned cotton merchandising cooperatives--CALCOT Ltd., Plains Cotton

Cooperative Association, Southwestern Irrigated

Cotton Growers Association, and STAPLCOTN.

AMCOT has reduced selling costs for its members

through centralized utilization of sales personnel,

facilities, and equipment.

AMCOT staff have established a global network of textile mill contacts and regularly track

world cotton markets. The federated cooperative

has both U.S. and foreign sales offices which keep

in continual contact with the member cooperatives

to stay current on available supplies, pricing, and

sales policies. AMCOT serves its members as a consolidated international extension of their individual marketing operations.

Reflecting the size and diversity of production

among its members, AMCOT provides buyers, i.e.,

textile mills, with access to large volumes of cotton

in all varieties and in all different quality standard

classifications. Moreover, AMCOT works to educate textile mill personnel on cotton quality standard classification through seminars.

This option could be adopted by any group of

competing cooperative exporters facing a mutual

FTS problem. As with an ETC, such an arrangement could potentially reduce the costs of complying with an FTS by leading to more efficient use of

staff, facilities, and equipment necessary for compliance. As an example already discussed, NFE

could have been organized as a federated cooperative and had a wider degree of antitrust

protection if all of its members were grower-owned

cooperatives.

Limitation-This last point, however, is the major

limitation with such an approach. In many international marketing situations, including those related

to FTS, it is more important to work with competing investor-owned exporters than to obtain broader antitrust protection. This is one reason why there

are so few federated cooperatives primarily or

exclusively organized for international marketing.

STRATEGIC CONSIDERATIONS

RELATED TO FTS

How an FTS Can Help an Exporter increase

Market Share

1. When an input that is restricted or banned

by a foreign government is not used by all competing exporters of an agricultural product.

Two examples of this situation are EC restrictions on wax sealants for apples, and meat products produced with hormones. Some EC countries

regulate the wax sealants that may be used on

imported apples. Packers of conventionally grown

apples frequently apply waxes while packers of

organically grown apples do not. Apple cooperatives handling significant volumes of organic or

wax-free conventional apples are thus free to

export these apples without the complications of

these regulations. Indeed, the subsidiary of one

cooperative is exporting substantial volumes of

organic, wax-free apples to the EC.

In January 1989 the EC banned the import of

meat products produced with hormones. As a

result, U.S. meat product exporters lost about $100

million in annual sales to the EC. This ban had a

much more drastic effect on U.S. producers, whose

grain-fed cattle are almost all raised with hormones, than on producers in countries such as

Argentina, Australia, and New Zealand, whose

range-fed cattle are mostly raised without hormones. Hormone treatments are more cost-effective

with grain-fed cattle than they are with range-fed

cattle.

Also, U.S. producers of hormone-free beef

have been able to expand their exports to the EC. In

fact, EC buyers have offered significant premiums

for their product. Some cooperatives producing

hormone-free beef products could potentially benefit from this situation.

2. When a cooperative can better adjust to an

FTS than rival suppliers.

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Cooperative marketing requires a commitment to long-term development and expansion of

markets for member products. Through vertical

integration, cooperatives establish product testing

and sorting to meet special customer demands and

to provide feedback to members on market valuations for different qualities. On the basis of this

operational experience, cooperatives are positioned

to effectively adjust to many types of FTS, and, in

some cases, may derive competitive advantages.

Blue Diamond Growers is an example of how

commitment to product quality and development

can lead to competitive advantages when confronted with commercial standards and FTS. Its distinctive ability to provide a large and uniform size of

almonds has positioned the cooperative to be the

predominant supplier to many European confectionery producers. Situations have arisen where

Spanish almond packers have had to buy almonds

from Blue Diamond in order to fulfill contracts that

required the special qualities that the cooperative

has promoted in the market.

A potential FTS for almonds that would be

linked to a quota is being put up for consideration

to EC trade policy authorities. Several California

almond exporters have been able to supply

Western European markets with a grade of

almonds and packing method that competes directly with the type of product that Spanish producers

make.

Spanish producers have proposed an EC

quota that would be applied to this particular quality and type of almond shipment. Such regulation

would not reduce Blue Diamond’s sales because

they have developed a market segment that does

not directly compete with Spanish producers. Yet,

such a regulation could be costly to its California

competitors.

3. When a cooperative teams up with an especially influential and supportive foreign trading

partner.

Cooperatives may be able to strengthen their

market positions by allying themselves with powerful and supportive importers. Several cooperative export managers interviewed for this research

stated that their trading partners had frequently

taken the lead in dealing with FTS complications

and had been a critical source of information on

FTS. Tree Top, for example, has secured a solid

position in the Japanese apple juice market with

extensive help from its Japanese business partners.

Cooperative Experiences With Foreign

Sourcing and FIS Compliance

Large investor-owned exporters of fresh fruits,

vegetables, and specialty products are typically

able to procure fresh product from all over the

globe and thus offer large volumes of supply all

year at competitive prices. In contrast, many cooperatives have not been able to obtain a large

enough volume from their current membership to

keep pace with global market opportunities.

Having to forego certain markets, either seasonally

or because of insufficient supplies, has enabled

competing exporters to fill these gaps.

Many cooperatives have developed extensive

expertise in the handling and marketing of specific

agricultural products. These cooperatives have

been able to capitalize on this expertise by establishing strong trademarks and a reputation for

being suppliers of consistently high-quality product. These marketing resources, however, can

become underutilized when a cooperative is confined to domestic member business.

As competitors improve their marketing capabilities, an issue of long-term economic survival

may become a justification for admitting foreign

grower members or increasing nonmember business. The best method of resolving these issues

from the standpoint of maintaining consistency in

applying cooperative business practices is to

expand foreign membership.

One potential problem for cooperatives that

procure from foreign producers is maintaining the

quality and consistency of their product. Foreign

producers may not be able to meet the quality standards of the cooperative, or, for that matter, the

technical standards of an importing country.

Experience shows, however, that cooperatives have

been able to overcome such quality problems.

Blue Anchor, a fresh fruit marketing cooperative in Sacramento, California, has several members in Mexico and has succeeded in transferring

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production and packing techniques that meet the

standards that it has developed with its customers.

Calavo Growers of California, a fresh fruit marketing cooperative in Santa Ana, California, has also

marketed fresh product from Mexico. Calavo’s

experience with Mexican avocado producers, however, has proven to be challenging both in maintaining the cooperative’s quality image and with

member acceptance.

Although there are phytosanitary restrictions

on the importation of fresh Mexican avocados into

the United States, Calavo has used Mexico as a

source for supplying its Japanese and European

customers. Calavo has a stake in maintaining its

quality image for avocados. Some of the cooperative’s members were concerned that lower cost

Mexican avocado producers could increase their

share in foreign markets with the assistance of

Calavo’s marketing expertise. Calavo provided

technical assistance, however, to help the Mexican

avocado packers to overcome these problems, and

has successfully maintained its quality image while

ensuring that its Mexican fruit has met the required

FTS of importing countries.

FUTURE OF FTS FOR

AGRICULTURAL PRODUCTS

Both cooperative and investor-owned U.S.

exporters of agricultural products will increasingly

encounter technical standards in the foreign markets to which they sell. These standards will

increase their export marketing costs, in some cases

prohibitively. This increasing prevalence of standards will result from several trends.

First, in many foreign countries food safety,

environmental, and food quality issues are getting

more public exposure and becoming potent political issues. Grower groups in several foreign countries have conducted promotion campaigns to discredit the safety and quality of U.S. food products.

Regulations such as Germany’s restrictions on nonrecyclable packaging materials are the result of

increased environmental awareness on the part of

many foreign governments and their constituents.

These issues are just as powerful within the

United States, as is demonstrated by the 1989

media attention given to Alar, the March 1989 discovery of cyanide in Chilean grapes being exported

to the United States, and the U.S. ban on the importation of tuna caught with technology that killed

too many dolphins.

The second important trend is the increasing

substitution of tariffs, quotas, and other more

transparent trade barriers with far more complicated and less regulated technical standards that are

more difficult to challenge. Establishing that a standard is an unfair trade barrier is difficult. That is

why the sanitary and phytosanitary section of the

Uruguay Round agriculture agreement will be so

important, as well as the revised GATT Agreement

on Technical Barriers to Trade.

Another important trend is the increasingly

technical nature of agricultural production and

food manufacturing systems. Advances in biotechnology, animal and plant sciences, and other relevant fields have resulted in the introduction of

many new chemical production inputs, postharvest

treatments and handling methods, and food ingredients.

The technical ability of food inspectors and

certifiers has also advanced. Indeed, some contaminants of food can now be detected for the first time,

while other contaminants that could only be measured in the parts per thousand can now be measured in parts per billion. Certifiers of food quality

and safety now have both more elements and qualities of food products to search for and better tools

and methods for which to conduct the search.

On the other hand, the U.S. Government is

seeking to reduce the adverse impact of technical

standards on international agricultural trade

through both multilateral and bilateral trade negotiations. Among these objectives are U.S.

Government efforts to:

l establish more uniformity between the standards of different countries,

l out better international guidelines for establishing standards,

l establish reciprocity of inspection procedures,

l obtain acceptance of different techniques

for complying with a given standard that are

demonstrated to have equivalent results, and

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l strengthen the international framework for

challenging a standard.

These and other issues have been discussed

during the Uruguay Round of GATT multilateral

trade negotiations, the North American Free Trade

Agreement negotiations with Mexico and Canada,

and within the three major international food standard organizations-the Codex, the IPPC, and the

OIE.

REFERENCES

Bernhardt, Katrin. “Germany’s New Packaging

Laws: The Green Dot Arrives.” Business

America. Washington, D.C.: U.S. Department of

Commerce. February 24,1992. pp. 36-7.

Campbell, Dan. “Unlocking India.” Almond Facts.

Sacramento, CA.: Blue Diamond Growers. v. 53,

Sept./Ott. 1988. pp.lO-12.

Forsythe, Ken and Lynch, Lori. Effects of a Free

Trade Agreement on U.S. and Mexican Sanitary

and Phytosanitary Regulations. Washington,

D.C.: U.S. Department of

Agriculture/Economic Research Service.

Agricultural Information Bulletin No. 649.

Nichols, John P., et. al. “Food and Agricultural

Commodity Grading.” Federal Marketing

Programs in Agriculture. Danville, IL.: The

Interstate Printers & Publishers, Inc. 1983. pp.

59-90.

U.S. Department of Agriculture. “Market Updates”

and “Trade Policy Updates.” Agricultural

Trade Highlights. Foreign Agricultural Service,

Washington, DC., selected monthly issues.

Food and Agricultural Export Directory 1991.

Foreign Agricultural Service, Washington, DC.,

Miscellaneous Publication Number 1497.

20
U.S. Department of Agriculture

Agricultural Cooperative Service

P.O. Box 96576

Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of

farmers and other rural residents. It works directly with cooperative leaders and

Federal and State agencies to improve organization, leadership, and operation

of cooperatives and to give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop cooperatives to

obtain supplies and services at lower cost and to get better prices for products

they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve

services and operating efficiency; (4) informs members, directors, employees,

and the public on how cooperatives work and benefit their members and their

communities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues Farmer

Cooperatives magazine. All programs and activities are conducted on a

nondiscriminatory basis, without regard to race, creed, color, sex, age, marital

status, handicap, or national origin.