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89–043 PDF 2003

THE STATUS OF THE WORLD TRADE

ORGANIZATION NEGOTIATIONS ON

AGRICULTURE

HEARINGS

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

MAY 21, JUNE 18, AND JULY 22, 2003

Serial No. 108–5

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

LARRY COMBEST, Texas

JOHN A. BOEHNER, Ohio

Vice Chairman

RICHARD W. POMBO, California

NICK SMITH, Michigan

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

DOUG OSE, California

ROBIN HAYES, North Carolina

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

DENNIS R. REHBERG, Montana

SAM GRAVES, Missouri

ADAM H. PUTNAM, Florida

WILLIAM J. JANKLOW, South Dakota

MAX BURNS, Georgia

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

CHRIS CHOCOLA, Indiana

MARILYN N. MUSGRAVE, Colorado

DEVIN NUNES, California

CHARLES W. STENHOLM, Texas,

Ranking Minority Member

COLLIN C. PETERSON, Minnesota

CALVIN M. DOOLEY, California

TIM HOLDEN, Pennsylvania

BENNIE G. THOMPSON, Mississippi

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

BARON P. HILL, Indiana

JOE BACA, California

RICK LARSEN, Washington

MIKE ROSS, Arkansas

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

ED CASE, Hawaii

RODNEY ALEXANDER, Louisiana

FRANK W. BALLANCE, JR., NORTH

CAROLINA

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

KEN LUCAS, Kentucky

MIKE THOMPSON, California

MARK UDALL, Colorado

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN KRAMP, Chief Counsel

CALLISTA GINGRICH, Clerk

STEPHEN HATERIUS, Minority Staff Director

ELYSE BAUER, Communications Director

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C O N T E N T S

MAY 21, 2003

Page

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Putnam, Hon. Adam H., a Representative in Congress from the State of

Florida, prepared statement ................................................................................ 4

Smith, Hon. Nick, a Representative in Congress from the State of Michigan,

prepared statement .............................................................................................. 3

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 2

WITNESSES

Veneman, Ann, Secretary, U.S. Department of Agriculture ................................ 5

Prepared statement .......................................................................................... 40

Answers to submitted questions ...................................................................... 51

Zoellick, Robert B., U.S. Trade Representative ..................................................... 10

Prepared statement .......................................................................................... 56

‘‘United States v. European Union’’, Wall Street Journal, May 21, 2003 .... 74

SUBMITTED MATERIAL

Reynolds, Hon. Thomas M., a Representative in Congress from the State

of New York, submitted statement ..................................................................... 5

JUNE 18, 2003

Burns, Hon. Max, a Representative in Congress from the State of Georgia,

prepared statement .............................................................................................. 78

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 75

Smith, Hon. Nick, a Representative in Congress from the State of Michigan,

prepared statement .............................................................................................. 77

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 76

WITNESSES

Bauhan, Hobey, president, Virginia Poultry Federation, Inc., Harrisonburg,

VA .......................................................................................................................... 78

Prepared statement .......................................................................................... 132

Boisen, Doug, chairman, Trade Task Force, National Corn Growers Association, Minden, NE .................................................................................................. 111

Prepared statement .......................................................................................... 156

Camerlo, James P. ‘‘Tom’’, chairman, National Milk Producers Federation,

Florence, CO ......................................................................................................... 104

Prepared statement .......................................................................................... 164

Caspers, Jon, president, National Pork Producers Council, Swaledale, IA ........ 84

Prepared statement .......................................................................................... 179

Greene, Robert W., chairman, National Cotton Council, Courtland, AL ............ 108

Prepared statement .......................................................................................... 202

Heck, Ron, first vice president, American Soybean Association, Perry, IA ........ 110

Prepared statement .......................................................................................... 215

LaVigne, Andrew W., executive vice president and chief executive officer,

Florida Citrus Mutual, Lakeland, FL ................................................................. 122

Page

IV

LaVigne, Andrew W., executive vice president and chief executive officer,

Florida Citrus Mutual, Lakeland, FL—Continued

Prepared statement .......................................................................................... 235

Lee, Alan J., vice chairman, Wheat Export Trade Education Committee,

Berthold, ND ........................................................................................................ 106

Prepared statement .......................................................................................... 220

McDonald, Dennis, International Markets Committee chairman, R-CALF

USA, Melville, MT ............................................................................................... 85

Prepared statement .......................................................................................... 246

Reeves, Ernest S. regional vice president for policy, National Cattlemen’s

Beef Association, Mt. Solon, VA .......................................................................... 82

Prepared statement .......................................................................................... 136

Roney, Jack, director, economics and policy analysis, American Sugar Alliance, Arlington, VA .............................................................................................. 124

Prepared statement .......................................................................................... 253

Stallman, Bob, president, American Farm Bureau Federation, Washington,

DC .......................................................................................................................... 80

Prepared statement .......................................................................................... 143

Thorn, Sarah F., director of international trade, Grocery Manufacturers of

America, Washington, DC ................................................................................... 126

Prepared statement .......................................................................................... 273

Zanger, Joe, Board of Directors, California Farm Bureau Federation, Hollister, CA ................................................................................................................... 120

Prepared statement .......................................................................................... 138

SUBMITTED MATERIAL

Agricultural Coalition on Trade, statement .......................................................... 283

Distilled Spirits Council of the United States, Inc., statement ........................... 148

Gutknecht, Hon. Gil, a Representative in Congress from the State of Minnesota, submitted material .................................................................................. 154

USA Rice Federation, statement ............................................................................ 140

JULY 22, 2003

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 301

Hayes, Hon. Robin, a Representative in Congress from the State of North

Carolina, prepared statement ............................................................................. 303

Smith, Hon. Nick, a Representative in Congress from the State of Michigan,

prepared statement .............................................................................................. 303

Stenholm, Hon. Charles W., a Representative in Congress from the State

of Texas, opening statement ................................................................................ 302

WITNESSES

Clawson, James B., on behalf of the Wine Institute, Washington, DC ............... 326

Prepared statement .......................................................................................... 359

Dudas, Jon W., Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director, U.S. Patent and Trademark Office ........................ 304

Prepared statement .......................................................................................... 349

Hellwig, Frank Z., senior associate general counsel, Anheuser-Busch Companies, Inc., St. Louis, MO ...................................................................................... 328

Prepared statement .......................................................................................... 337

Kole, Patrick J., vice president, legal and government affairs, Idaho Potato

Commission, Boise, ID ......................................................................................... 320

Prepared statement .......................................................................................... 351

Pellegrino, Michael P. vice president, marketing and strategy, Kraft Cheese

Division, Kraft Foods North America, Glenview, IL ......................................... 325

Prepared statement .......................................................................................... 353

Suber, Thomas M., president, U.S. Dairy Export Council, Arlington, VA .......... 321

Prepared statement .......................................................................................... 356

Thorn, Sarah F., director, international trade, Grocery Manufacturers Association, Washington, DC ...................................................................................... 323

Prepared statement .......................................................................................... 345

Page

V

SUBMITTED MATERIAL

Consorzio del Prosciutto di Parma, Parma, Italy, statement ............................... 364

Drewson, Alan, International Trademark Association, statement ...................... 360

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THE STATUS OF THE WORLD TRADE ORGANIZATION NEGOTIATIONS ON AGRICULTURE

WEDNESDAY, MAY 21, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC

The committee met, pursuant to call, at 10:10 a.m., in room

1300, Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives Boehner, Smith, Lucas of Oklahoma,

Moran, Gutknecht, Ose, Hayes, Osborne, Pence, Rehberg, Graves,

Putnam, Janklow, Burns, Bonner, Chocola, Nunes, Stenholm, Peterson, Dooley, Holden, McIntyre, Etheridge, Baca, Case, Alexander, Ballance, Marshall, Pomeroy, Lucas of Kentucky, Thompson of

California, Larsen, and Davis.

Staff present: Bill O’Conner, staff director; Brent Gattis, Lynn

Gallagher, Callista Gingrich, clerk; Jason Vaillancourt, Elizabeth

Parker, John Goldberg, Elyse Bauer, Pam Scott, Kellie Rogers, and

Andy Baker.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review the status of World Trade Organization negotiations on agriculture will come to order.

On behalf of the committee, I am very pleased to welcome our

distinguished witnesses, Secretary Veneman and Ambassador

Zoellick. We are honored to have you both appear before this committee to discuss issues related to agriculture trade and WTO negotiations. I particularly want to thank you both for your work in

taking the WTO action on the European Union moratorium on agriculture biotechnology products.

It is fitting that the committee is holding this hearing in the

week that President Bush proclaimed to be World Trade Week. As

the President said in the proclamation, ‘‘Trade injects new energy

and vitality into the global economy by fostering the exchange of

ideas and innovations among people around the world.’’

American agriculture knows the benefits of free and fair trade.

For American farmers and ranchers, trade is an essential part of

their livelihood. One in 3 acres in the United States is planted for

export, and U.S. agricultural exports account for 25 percent of U.S.

farm income. U.S. farmers and ranchers produce much more than

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is consumed in the United States. Therefore, exports are vital to

the prosperity and success of U.S. farmers and ranchers.

USDA reported that agricultural exports for 2002 were more

than $53 billion, up from a low of $49 billion in 1999, but still

below the 1996 peak of $60 billion. Our agricultural trade balance

for 2002 is estimated to be $12 billion, a positive figure, but one

that is lower than for some periods in the past.

U.S. agricultural markets are open to imports and our tariffs are

low. Agricultural tariffs worldwide average about 62 percent, while

U.S. agricultural tariffs are 12 percent. It is the advantage of U.S.

agriculture that we continue to open markets and remove barriers

to our agricultural exports.

The WTO negotiations offer an opportunity for the United States,

an opportunity to increase agricultural exports. U.S. goals for these

negotiations are to decrease and harmonize tariffs, eliminate export

subsidies, and reduce and harmonize trade distorting domestic support policies.

American farmers and ranchers recognize the necessity of exports for their success. However, confidence in trade agreements

and agriculture’s place in those agreements is weak. The reasons

why include the beef hormone WTO decision affecting U.S. exports

to the European Union and enforcement of the provisions agreed

to in negotiations over China’s accession to the WTO. Greater access to these markets has been elusive, despite promise made.

Problems are occurring in the midst of negotiations on Russia’s

accession to the WTO, especially for U.S. and Virginia poultry

products.

Now we see the current problem of access to Mexico for our agricultural products. Several agricultural organizations advised the

committee of problems with trade with Mexico and also recently

wrote to President Bush. They believe that Mexico is effectively renegotiating NAFTA through questionable methods that restrict

trade or threaten to restrict trade for such U.S. products as rice,

pork, apples, poultry, corn, dry edible beans, high fructose corn

syrup, and beef.

I am concerned about the problems with agricultural trade with

Mexico and its effort to restrict U.S. exports. I am also concerned

about the waning confidence that U.S. agriculture has in trade

agreements and the negotiations for such agreements.

Our two distinguished witnesses will address these issues and

provide the committee with information regarding the status of

WTO negotiations.

It is essential that the voices of America’s farmers and ranchers

are heard in the WTO negotiations and that U.S. agriculture is a

full partner in all negotiations.

At this time it is my pleasure to recognize the ranking minority

member of the committee, the gentleman from Texas, Mr. Stenholm.

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman. I would first like to

congratulate you on the passage of the Healthy Forest Restoration

3

Act yesterday on the floor, and I hope that we can achieve equal

success as we continue to work together on trade issues.

I welcome Ambassador Zoellick and Secretary Veneman and commend you both on the request for consultations with the European

Union on its moratorium on agricultural biotech products. Secretary Veneman, I also applaud your quick response to the news

of what still appears to be an isolated case of BSE in Canada. I

look forward to working with you on this very important issue.

I had prepared a statement mentioning some of the shortcomings

of the Harbinson paper, but upon reading your testimony, I realize

you are well aware of the deficiencies. As we wait for Europe to decide how, but hopefully not whether, to reform the common agricultural policy, for I believe that for the Doha Round to succeed we

will have to see significant reforms in Europe, we have an opportunity to consider how to bridge some of the gaps that have divided

us on agricultural policy.

I note with particular interest Ambassador Zoellick’s suggestion

of combining tariff cuts with safeguards for developing countries

that would enable them to temporarily restrict imports that displace their farmers. The potential problems with this approach are

that it may exacerbate existing inequities and not result in reaping

full increases in market access for U.S. products, and that such a

safeguard may become more permanent than we intend. One problem with the special and differential treatment in general as proposed by Harbinson is that it fails to distinguish between developing countries, either on the basis of the level of development or any

other factors such as whether the country is a net exporter or importer of agricultural products.

It seems contrary to logic that we need to provide special treatment to a country that is already competitive in world agricultural

markets, and I hope that we can develop an approach to special

and differential treatment that acknowledges the differences between various developing countries.

But perhaps the biggest challenge, as Ambassador Zoellick points

out in his testimony, is that with regard to multilateral trade rules,

agriculture is 50 years behind the industrial sector.

I look forward to working with you, Mr. Chairman, Secretary

Veneman and Ambassador Zoellick, to start catching up.

The CHAIRMAN. I thank the gentleman, and the Chair would advise the other members of the committee that both Secretary

Veneman and Ambassador Zoellick need to be away from here

shortly after noon and have obligations very shortly thereafter. So

we are going to cut this off about noon and, as a result of that, we

will ask other members to submit any opening statements they

may have for the record. That will allow the witnesses to give their

testimony and it will allow all of you to have as much opportunity

as possible to ask questions of these two important witnesses.

[The prepared statements follow:]

PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Thank you Chairman Goodlatte and Ranking Member Stenholm for holding this

hearing to review the status of the agriculture negotiations at the World Trade Organization. I would also like to compliment you for moving the Healthy Forest bill

through the House yesterday. Thank you Secretary Veneman and U.S. Trade RepVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\DOCS\1085.000 HAGRI PsN: HAGRI
4

resentative Zoellick for your testimony. As we have heard today, agricultural trade

is vital to the sustainability and profitability of our domestic agriculture industry.

Since agricultural exports account for 25 percent of total U.S. farm income, it is critical that our trade representatives aggressively pursue policies and agreements that

benefit U.S. farmers and ranchers through trade liberalization. As we have heard

today, U.S. agricultural markets are open to imports and our tariffs are low at

roughly five times lower than the average agricultural tariff worldwide. In order to

maintain the viability of our agriculture industry, it is imperative that U.S. farmers

and ranchers continue to increase productivity and be allowed to compete on a level

playing field in terms of tariffs.

Unfortunately, not all of our trading partners believe in fair trading practices. Besides large export subsidies and trade-distorting domestic support policies, some

countries are using non-tariff trade barriers. In particular regulations on genetically

modified food and feed products are a serious form of protectionism. I applaud the

administration’s decision to file a WTO case against the EU’s moratorium on approvals of new biotech products. The EU’s stated concerns over the safety of biotech

products have not been supported by science and have simply been used as a discriminatory trade policy against U.S. products. The EU’s 4-year ban on genetically

modified food crops have cost U.S. producers an estimated $300 million annually in

corn exports alone. Agricultural biotechnology holds great promise for agricultural

profitability and sustainability, as well as human nutrition and health. With the increasing scientific ingenuity and the rapid development of new genetically modified

food and feed products, trade issues involving biotechnology-derived products will

only increase in the future. Thus, it is important for the United States to set a good

precedence and continue to pursue immediate, aggressive actions to eliminate scientifically unjustified trade policies on biotech products that have been shown to be

safe for both people and the environment.

PREPARED STATEMENT OF HON. ADAM H. PUTNAM, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF FLORIDA

Mr. Chairman, I would like to thank you for calling this hearing to review global

trade negotiations in the World Trade Organization. I specifically wish to thank

U.S. Trade Ambassador Robert Zoellick and Secretary of Agriculture Ann Veneman

for their participation in this hearing and their efforts to expand U.S. agricultural

trade opportunities around the world.

The administration’s close communication with Members of Congress and agricultural stakeholders is to be commended as is vital to the ultimate success of trade

negotiations. I appreciate this open relationship and look forward to continuing to

work constructively together to improve our agricultural trading relationships as the

administration endeavors to build trade agreements both multilaterally through the

WTO, and through regional trade negotiations.

Representing the largest citrus growing area in the Nation—a $9 billion industry

throughout the State of Florida, it is particularly critical to work together toward

positive trade objectives that will foster competitiveness, benefit the consumer, and

strengthen the role of U.S. agriculture around the world.

The Florida processed orange industry is the most efficient in the world in production yield per acre. The industry and global market are unique and import sensitive—not for any lack of competitiveness, but because of the dynamics and propagation conditions.

Global orange juice production is concentrated chiefly between only two countries:

Brazil and the United States. Brazil’s five large processors control roughly 80 percent of Brazil’s orange juice production and control nearly all of Brazil’s orange exports. Brazilian processors benefit from advantages brought by past subsidization

and dumping, frequent national currency devaluation that reduces the relative cost

of production inputs, and oligopolic pricing structures.

The U.S. industry that grows oranges for processing is also unique in that it is

one of the most free market-oriented sectors of U.S. agriculture not receiving any

government subsidies. Its only offsetting tools are the tariff and enforcement of existing trade laws.

Any reduction in the citrus tariff in this unique international market will not lead

to the administration’s stated objectives of free trade including greater competition

and consumer choice, lower prices, or expanded overall global economic growth. Tariff reductions would rather result in decreased global competition among nations

with little no benefit to consumers, while seriously jeopardizing the future of the

U.S. processed citrus industry.

For these reasons it is imperative that the administration take into account the

unique nature of the citrus industry as we proceed through negotiations in the WTO

5

as well as regional trade agreements. I look forward to continuing to work with Ambassador Zoellick and Secretary Veneman to achieve trade objectives that will

strengthen and enhance the position of citrus and U.S. agriculture in the global

marketplace.

PREPARED STATEMENT OF HON. THOMAS M. REYNOLDS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEW YORK

Mr. Chairman, I would first like to commend you on your leadership of the House

Agriculture Committee in the 108th Congress. We are all well served by your knowledge and dedication to these important issues. I would also like to extend my thanks

for allowing me to make a short statement for the record on an issue that is very

important to my congressional district.

I have the privilege of representing the 26th district of New York, which boasts

the largest milk-producing county in the State. My area dairy farmers are facing

another disastrous year with milk prices that are currently at a 25-year low. Western New York stands to lose nearly 30 percent of its dairy farmers in the coming

years. As my State’s No. 1 agricultural industry, the loss of these dairy farms will

be detrimental to an already depressed State economy.

One key factor displacing domestically produced dairy is the abundant import of

Milk Protein Concentrate (MPC). In a March 2001 report, the General Accounting

Office released a study on the production, importation, and regulation of milk protein concentrate. The study concluded that MPC imports increased rapidly during

the 1990’s (from 805 to 44,878 metric tons) and even doubled from 1998–99. In

2000, MPC imports reached a staggering 52,677 metric tons.

When the United States first established its trade policies concerning imported

dairy products, the ultra-filtration technology used to produce MPC did not exist.

Prior to the 1994 General Agreement on Tariffs and Trade negotiations, the United

States did impose import quotas on cheese, butter and non-fat dry milk. This was

done because the massive import of these products would clearly interfere with the

domestic dairy price support program.

Now is the time that we must do everything we can to protect domestic agriculture. The new technologies used to develop MPC make it absolutely necessary

to renegotiate trade within the worldwide dairy industry. It is imperative that MPC

be formally reviewed during the World Trade Organization’s Fifth Ministerial Conference in September of this year. I urge the committee to make this a priority and

to do everything within your jurisdiction to see that the United States Trade Representative includes the MPC issue in the next World Trade Organization meeting.

Mr. Chairman, I thank you and the committee members for your time and attention to this matter and look forward to a favorable resolution.

The CHAIRMAN. Let me now welcome them both and Madam Secretary, we are pleased to start with you.

STATEMENT OF ANN M. VENEMAN, SECRETARY OF

AGRICULTURE

Secretary VENEMAN. Thank you very much, Mr. Chairman and

Congressman Stenholm and members of the committee. It is a

pleasure to be here. I would like to echo something that Mr. Stenholm said and thank this committee for their work on the Healthy

Forest Initiative. As you know, it is very important to us and what

we did with our U.S. Forest Service and USDA. So we appreciate

the work of this committee in that regard.

It is a pleasure to be here today with my friend and colleague

Bob Zoellick to discuss trade with you. We work very closely together on matters of trade. Our staffs work closely together, and

I truly think that American agriculture benefits from our close

working relationship on these issues.

Before I begin my prepared testimony today, I want to update

the committee on the events that we were informed of yesterday;

that is, the fact that a single animal infected, or affected by BSE

was found in Canada. We took action in USDA and placed Canada

under our BSE restriction guidelines and temporarily prohibited

6

the importation of ruminant and ruminant products into the

United States. We are sending a team to Canada immediately to

participate in the investigation, and we will put all resources necessary into this investigation. Our internal working group is meeting with Canadian officials this morning via conference call, and

we also met with State departments of agriculture and State veterinarians to brief them on the situation, and we will be updating

the industry and the media as any new information is available.

It is important to note that the risk to humans and the risk of

transmission of this disease to U.S. animals is very low. Preventing

BSE and all foreign animal diseases is an absolute top priority of

our Department. We feel that our system is very strong. To be

sure, we contracted with Harvard University to study our system

and they reported that the risk of BSE happening here is very low.

That study was released in November 2001 and it shows that the

years of early actions that were taken by the Federal Government

to safeguard consumers have helped keep BSE from entering the

United States. However, we cannot let down our guard or lose our

vigilance.

We have worked for over 15 years to put in place multiple firewalls, including a strong surveillance system that more than tripled the number of cattle tested for Bovine Spongiform

Encephalopathy, or BSE. In addition, we prohibited the import of

live ruminants from countries that are considered to be at risk or

have BSE. In 1997, the Food and Drug Administration prohibited

the use of most mammalian protein in the manufacture of animal

feed intended for cows and other ruminants to stop the way the

disease is spread. In response to the Harvard report that we released in 2001, USDA announced a series of actions they would

take in cooperation with the U.S. Department of Health and

Human Services to strengthen our BSE prevention programs in an

effort to maintain our vigilance against this disease.

We have been, I have personally been, in constant contact with

my counterpart over the last 24 hours as we learned of this issue.

As I indicated, we will continue to be very proactive in this investigation of this issue. We believe that the food supply in this country is safe, that there is not a risk, and that consumers should feel

very assured that we do not have this disease in this country. This

is an isolated incident. It shows that the system worked. It was determined that this animal that was not put into the food chain had

a potential, it was tested, and all the herd that was contained will

be completely removed from the food chain, tested, and completely

reviewed.

So we believe, Mr. Chairman and members of the committee,

that we are doing everything we possibly can to handle this situation.

To set the stage for this hearing today, we have given you a series of slides which I hope you have before you. We were not able

to present a PowerPoint this morning, but I want to begin by discussing the importance of trade to agriculture and highlight some

of our markets of substantial importance to America’s farmers and

ranchers.

As you look at slide 2, fundamental to our discussion on current

agricultural negotiations is an understanding of the importance of

7

trade to so many farmers and ranchers. Does everyone have it? I

want to make sure everyone has these charts as I go through them.

As you can see from slide 2, a substantial percentage of U.S. production of many U.S. crops is exported. It is important to recognize

that United States productivity in agriculture has grown about 2

percent per year. At the same time, our domestic demand grows

slowly, only at about the rate of eight-tenths of a percent per year,

which reflects primarily population growth. So over a 10-year period, not accounting for compounding, our capacity to produce increases by 20 percent, while our domestic demand increases by

only 8 percent. If we are to fully utilize our capacity, we have to

continue to look at foreign markets, where 96 percent of the world’s

population lives.

As we look at slide 3, on U.S. agricultural exports, we estimate that in fiscal year 2003, U.S. agricultural exports will reach $57

billion. That compares to about $53.5 billion last year. Now, what does this mean? It creates an additional $84 billion

in supporting economic activities to harvest, process, package,

store, transport, and market those products. High value products

generate even more economic activity than bulk products: $370 million more in value for value-added products for every $1 billion exported. While traditionally, we have export bulk commodities such

as wheat, rice, coarse grains, oilseeds, cotton and tobacco, since the

early 1990’s our exports of high-value products, meat, poultry, live

animals, meals, oils, fruits, vegetables and beverages have expanded rapidly and now exceed the value of bulk commodity shipments, and I think that you can see from this chart No. 3 the increasing value of our high-value exports.

An additional benefit is that with the growth in the livestock exports, we are increasing our utilization of feed grains, so we have

exports of feed grains going out in the form of livestock exports. At

the beginning of the 1990’s, we exported relatively few livestock

products, the equivalent of only 2 percent of all grain and oilseed

production. This year, it is projected that we will export over $9 billion of livestock products, representing the equivalent of fully 5

percent of our entire grain and oilseed production.

Over the last 10 years, many of our major export markets have

grown significantly. In 2002, Canada surpassed Japan as the leading export market for U.S. agriculture with our exports valued at

a record $8.7 billion. Exports to Mexico have reached $7.3 billion,

exactly double the amount the year before NAFTA’s implementation. We also see that China is a strong growth market for U.S.

products.

On slide 4, one of the focuses is if you look to the future opportunities for American food and agriculture, we have a focus increasingly on the markets of developing countries. There are solid, longterm fundamentals for growth in developing countries’ demand for

food. Rising incomes mean expanding demand for more and better

food, a greater variety in people’s diets, more processed and valueadded foods, more livestock, which again requires more feed grains

and proteins. This market shows us an estimated addition of 610

million middle class customers over 10 years in the 10 largest

growing markets. It is important that we focus on the emerging opportunities in these markets.

8

Moving to slide 5, the trade landscape has changed dramatically

over the last decade. In the mid–1990’s, as the NAFTA and the

Uruguay Round agreements were implemented, we saw the decrease in tariffs, the end of import bans, improved market access

under tariff rate quotas, but at the same time our exports were affected by the rise of other kinds of trade barriers, including the use

of sanitary and phytosanitary measures that are not based on

sound science, import licensing schemes, and impediments to the

adoption of new technologies such as biotechnology. It became increasingly important to focus on the development internationally of

science-based regulatory systems.

But as the opportunities for trade expanded, so did the opportunities for impediments to trade. A critical element of the implementation of trade agreements is maintaining the access that we have

already achieved. This is a core activity at USTR and one that we

work very closely with USTR on as we move forward.

Now, going to the next slide, there has been a lot of discussion

about Mexico and what has happened since the NAFTA, and I

thought it would be a good idea to take a look at some of the export

gains since the implementation of the NAFTA. This is a very important market for many U.S. agriculture sectors. First, U.S. agricultural exports to Mexico have doubled since NAFTA was implemented, reaching $7.3 billion in 2002. Mexico is now our third largest agricultural market, and the benefits of NAFTA are distributed

widely across U.S. agriculture. In 2002, we saw record exports of

intermediate products, processed fruits and vegetables, red meats,

wheat, rice, and soybean oil. In addition, two-way agriculture trade

between our two countries has more than doubled since 1994 when

the agreement first went into effect, reaching $12 billion in 2002.

Since NAFTA, the share of U.S. agricultural exports sold to our

two partners has risen from 21 percent to 30 percent.

Last year, in 2002, for the 44 categories of agricultural products

listed in USDA’s monthly reports, the U.S. had record exports to

Mexico for 13 of those categories. At the same time, we had record

exports in 24 of those categories to our other NAFTA partner, and

that is Canada.

Now, this is not to say that we do not have serious trade problems with Mexico, and the chairman has alluded to those. As of

January 1, Mexico reduced substantially all of its tariffs to zero,

providing duty-free access to the majority of U.S. products for the

first time. As a result, implementation issues are affecting trade in

grains, poultry, meat and horticultural products.

As you look at slide 7, this shows what has happened to pork exports in Mexico since implementation of the NAFTA. Mexico is a

pork-deficit country and U.S. exports have increased 188 percent

since 1994. However, on January 1 of this year, the tariff was reduced to zero and there is no tariff rate quota in effect. Mexico initiated an antidumping investigation on January 7. We and our industry are concerned about the reason that this action was taken.

We continue to remind Mexico of our expectation that it must follow its NAFTA obligations.

The next slide shows what has happened with U.S. poultry exports to Mexico since the implementation of the NAFTA. This has

now become our third largest export destination for U.S. poultry.

9

Imports were valued at $174 million last year. The tariff on poultry

imports also went to zero on January 1 and no tariff rate quota impacts trade. Due to Mexican concerns about the volume of imports

of chicken leg quarters in particular, on January 22, a provisional

safeguard was put in place for 6 months. Both governments are

working on a final safeguard as allowed under the NAFTA.

Slide 9 shows the situation with regard to U.S. beef exports to

Mexico since the NAFTA. Mexico similarly is a growing market for

U.S. beef. It is now the second largest export destination for beef

and beef offals from the United States. The value of trade was $829

million last year. This has grown, despite antidumping duties, but

there is a concern that the Mexican industry has petitioned their

government for a global safeguard on imported beef. We see no economic basis for initiating the safeguard investigation and will continue to make this point with Mexican officials. In all of these

cases, U.S. exports have grown in response to Mexico’s demand for

protein. Any trade restrictive activity by the Mexican Government

will harm Mexican consumers as well as U.S. producers.

Slide 10 just simply emphasizes some of the other market maintenance activities that we have been working on throughout the

last several months. We are devoting more and more resources to

this, both at USDA and at us USTR. We have spent substantial

time, for example, addressing the trade issues with regard to Russia. In the longer term, our objective is to have Russia join the

WTO, which will require their participation in a rules-based system. We have spent a great deal of time discussing access for U.S.

poultry and their intended use of tariff rate quotas.

Last month, I met with the Russian Deputy Prime Minister and

Agricultural Minister and we made progress on several high priority issues. We are continuing to voice concerns about Russia’s use

of import restrictions and working with USTR on this matter.

A major focus of our market maintenance work has been with

China as it has implemented WTO commitment concessions as a

result of joining the WTO 18 months ago. We recognize that China

had to adapt many of its laws and regulations to reflect these new

obligations and has gone through some government reorganization

as well. However, it is a top priority for this administration to ensure that China fully implements their obligations. We are working

closely with USTR to monitor this compliance, particularly the administration of tariff rate quotas, the elimination of export subsidies, and the implementation of biotechnology regulations.

I know that Ambassador Zoellick will focus his remarks on the

current WTO negotiations. I hope that the comments I have provided you this morning have set the stage for this discussion, reviewed the importance of trade in agriculture, and some of our high

priority activities to maintain markets.

Mr. Chairman, that concludes my overview that hopefully emphasizes that trade is critically important for U.S. agriculture and

the entire food industry, that we are maintaining markets, that

maintaining these markets that we have requires our constant vigilance and aggressive action to make sure our producers’ interests

are protected, and that other countries keep the bargains that they

have made. We at USDA are devoting more and more resources to

market maintenance and opening new markets. We are working

10

closely with USTR and the industry on trade issues, and we very

much appreciate that cooperative relationship.

Thank you very much, and I will be happy to answer questions

at the appropriate time.

[The prepared statement of Secretary Veneman appears at the

conclusion of the hearing.]

The CHAIRMAN. Well, Secretary Veneman, thank you for that

very informative statement. Before we turn to Ambassador

Zoellick, let me say also in regard to the BSE issue, first that I join

Congressman Stenholm in thanking you and the Department for

promptly addressing this issue, and I know that the Department

is very actively investigating this matter.

Second, I fully agree with you that we have a very safe food supply in this country. And third, I would announce to the members

of the committee and to the public that shortly after the Memorial

Day recess, the committee will hold a full hearing on this issue

after the Department has the opportunity to gather more facts.

With that, we will turn to Ambassador Zoellick. We are delighted

to have you with us today as well.

STATEMENT OF ROBERT B. ZOELLICK, U.S. TRADE

REPRESENTATIVE

Ambassador ZOELLICK. Thank you very much, Mr. Chairman and

Mr. Stenholm. I really appreciate the opportunity to be here with

you and the committee and my good friend, Ann Veneman. As she

was beginning her testimony, I was trying to reflect back. We first

started to work together I think some 17 years ago, shortly after

Ann graduated from high school, and not only is Ann a good partner, but frankly, as all of you know, USTR is a pretty small place,

so we rely very heavily on USDA staff, and they are great. We get

great help all throughout.

I want to thank all of you, frankly, for your leadership on trade.

All of you went through the wars with us to try to get the President’s trade negotiating authority, and we know how important

this committee and the support of the agriculture community was.

Frankly, it helped us regain momentum and get us back on the

table in terms of pushing the interests of American agriculture. I

also want to thank the chairman and Mr. Stenholm. We worked together very closely on this biotechnology issue. The Speaker had a

little event where the chairman took part, and I asked to have distributed to you, I hope it is on your desks, a little opinion piece

that we just published in the Wall Street Journal today that helps

give some of the arguments we are making about the importance

of this to the developing world and nutrition and environmental

issues, as well as productivity.

I prepared a written testimony, Mr. Chairman, and if you find

it acceptable, I will just ask to put that into the record. I put together a little PowerPoint presentation that I would propose to talk

to that I hope is on your table.

The first slide just emphasizes what Ann emphasized, so I won’t

go over it, which is the critical importance of agricultural sales and

income linked to expanding imports. I think she mentioned a number of numbers, but just a couple basics there. When you look at

actually some of the importance for crops, there are many crops

11

where half the production is exported. That is true for wheat and

rice, it is true for a lot of specialty crops, almonds, walnuts, dried

plums, about a third of soybean and meal, about 20 percent of corn

and, all told, about 25 percent of cash receipts for America’s farmers come from our export markets.

Now, the strategy that we pursued you will see described on the

next slide; it is called competitive liberalization. And what this

means is we try to work on multiple fronts: Globally, through the

WTO; regionally through primarily the free trade area, the Americas; but also through bilateral agreements which are with individual countries or small regions. You probably get a lot of questions

on this, so let me just make sure you understand the logic we have

on this.

By moving on multiple fronts, frankly, we expand America’s leverage. We start out with about 25 to 30 percent of the world’s

economy, but the question is how can we use that more efficiently.

Well, we want to be in a position to say, we will move forward with

openness or cutting subsidies if you do, but if you don’t, we will

move forward with those who do. So frankly, it gives us additional

leverage. It keeps openness and free trade on offense. But also,

some of these smaller agreements allow us to break some new

ground and set higher standards. I know that some of you are now

looking at the Singapore and Chile free trade agreements and it is

interesting, if you look at the Chile agreement, you will see that

we were able to get recognition of U.S. dairy inspection so we don’t

have to go through a special inspection process, and they also accepted U.S. meat standards just straight away. So these are some

of the more detailed aspects you can get into with small agreements that we hope set precedents for others.

Finally, going to a point that Mr. Stenholm sort of discussed generally is that with 146 countries in the WTO, part of our challenge

is to build coalitions, and these countries become good partners for

us. They become allies in trying to develop our larger goals in the

WTO.

The next slide I will just headline real briefly. It shows some of

the progress that we have made with your help over the past couple of years. I do believe we have been able to regain momentum

for trade but, in addition, in talking about sort of tariffs and subsidies, we have been able to link it to some of the broader goals

about growth and development, and even after 9/11, some of the security issues. I would not be one to suggest that tariffs are driven

to destruction by poverty but, on the other hand, it is hard to ignore that if a society loses hope, if it fragments, if people really

have no sense of the future, that becomes a breeding ground,

whether it is in the Arab world or whether it is in Southeast Asia

or other parts. So part of what openness in trade does is give people a sense of the future.

I have just listed some of the items here. The Trade Act of 2002,

the Trade Promotion Authority, we launched the Doha Development Agenda, which I will focus most of my remarks on, reversing

what happened in Seattle, completed the accession of China and

Taiwan into the WTO, which will be critical for America’s agriculture in the future. This was a labor of many administrations

over many years but, frankly, there were some of the key multilatVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\DOCS\1085.000 HAGRI PsN: HAGRI
12

eral agriculture issues we still had to resolve during the course of

2001. We now moved the free trade area of the Americas negotiation to a concrete stage, completed Singapore and Chile, launched

new free trade agreements with Central America, Southern African

Customs Union, Morocco, Australia. The enterprise for the ASEAN

Initiative, which is a stage set of developments for some countries,

getting them into the WTO, for others developing a trade investment framework agreement and, finally, the goal would be to move

some of them to free trade agreements, and for American agriculture this is a very growing and important market. So if they are

ready to open up, this is one that we hope to target. And the same

with what the President announced recently, trying to open markets with the Middle East.

Now, I was asked specifically today to try to focus on the WTO

negotiations. I know a number of you have had long familiarity

with this, so I apologize if I am repeating some points. But I wanted to give you a little sense of the structure of how Ann and I have

viewed this. The starting point is the Uruguay Round, which ran

from 1986 to 1994. The reason that is important is that was the

first time, as Mr. Stenholm said, we really started to impose disciplines in agriculture. Since 1947, people had been doing this in

the area of manufactured and consumer goods, but the 1994 agreement was the first time we started to get the agriculture under disciplines and, as the nature of all compromises, it involved getting

some of what you want but, frankly, leaving some inequities in the

system. I will come back to the importance of that as we look

ahead.

So this trade round, the Doha Development Agenda, which Ann

and I were both together in Doha in November 2001, we were able

to launch, it has 146 countries. The next key meeting on the agenda will be in September in Mexico, and I think the chairman is

planning to lead a delegation from the committee down. The target

date for that is January 2005.

Now, the way that we are approaching this is to recognize that

since it takes a number of years to do one of these rounds and it

takes a number of years to implement them, sometimes 10, 15

years, we really should see this as a once in a generation opportunity. We have to be bold, we have to be aggressive and setting

out the mark. And that is frankly what we did in agriculture, consumer industrial goods and services. It has put the United States

in the lead in trying to open markets.

Now, the next slide, page 6, gives you a sense of the core problem

we face in the agricultural trade. Look at on the left the average

WTO allowed tariff. Now, this varies a lot. I mean some of the tariffs for rice in Japan go up to 500 or 1,000 percent. But if you look

at the average, the United States average is about 12 percent. We

have some high ones too, as you know, but our average is 12. EU

is about 30 percent, Japan about 50 percent, and the world about

62 percent. So the challenge, as the chairman said, is how do we

bring that down.

On export subsidies, the little box to the right, you can see that

the European Union has about 88 percent of the world’s export

subsidies; depending on the year, about $2 billion to $3 billion, and

their cap is about $5 billion. We had, in the last year we had the

13

numbers for this, about $15 million and the rest of the world is

about 10 percent. And then the allowed trade-distorting support,

and this is what trade people call the amber box; in other words,

you have different types of domestic subsidies, as all of you know.

If they are decoupled from production, and the Agriculture Department has a lot of these, whether it be for environmental or forestry

or other purposes, so you provide the money but it does not affect

production, that is called the green box. That means it is acceptable under the rules. Then there is something called the amber

box. That means it distorts production, but it is limited, and you

can see on this bottom chart the EU’s numbers in these very little

bit because they are done in their currency, not ours, are about $67

billion, Japan’s is over $30 billion, ours is $19.1 billion, and as bad

as the other two look to us, there is a category that should be listed

here as ‘‘others,’’ which is kind of zero. So our 19.1 looks big to

them.

Now, there is one other—and this is called the amber box. There

is one other colored box here called the blue box and this is primarily something the European Union has. These are subsidies

that affect production, but they are supposed to reduce production.

There are ways of trying to limit it. This has not been restrained.

Frankly, we have had some questions about whether that box really does what they say it does.

So the next slide gives you a sense of the negotiating mandate

that we put together in Doha, and you can see the guidelines are

as follows. We commit ourselves to comprehensive negotiations at:

substantial improvement in market access, those tariff levels you

saw; reductions with a view to phasing out all forms of export subsidies, that big number the European Union had; and substantial

reductions in trade-distorting domestic support, that bottom chart.

Now, the question we had is how do we operationalize that, and

the next chart gives you the heart of our proposal. We proposed

first to eliminate agricultural export subsidies. After all, the mandate said, reductions with a view to phasing out. We also suggested

a rather dramatic cut in tariff proposals that would cut the average

allowed world farm tariff from that number of about 60 percent, 62

percent to 15, and none being greater than 25 percent. And in the

category of domestic trade-distorting farm support, we used a proposal of saying let’s limit it to 5 percent of your total agricultural

production, and that would cut about $100 billion out of this area

globally, and it would close the cap between the United States and

the EU very substantially. And, we said, this should be a step on

the way of agreeing to a date for tariff and trade-distorting support

elimination. In a sense, if you take this language, what it comes

to is the basic principle that the chairman mentioned in his opening remarks. Harmonize, reduce, on the way to elimination. We are

very pleased as we launched this, some of you may know even before we finished trade promotion authority, we got broad support

from agricultural groups and many of the members on this committee.

Okay. So with that as our proposal, what comes next? Well,

when you have 146 countries and everybody has a say, the way the

WTO process works is that the chairs of the negotiating group play

a key role in trying to assemble the information and put forward

14

a draft. Sometimes the draft falls dead, sometimes it becomes the

basis of negotiations, sometimes it has further work.

Well, the chairman of the agricultural group, a man named

Harbinson, put forward a text earlier this year, and I emphasize,

this is not an agreement. In fact, some countries have even refused

to accept it as a basis of negotiation, but it gives you the framework that he felt, after listening to many countries, could give a

basis for negotiation.

So again, to go through these three categories, the first one, export competition, what was positive is he proposed elimination of

export subsidies, as we have argued, and also the elimination of export monopolies, with which I have worked closely with some of

you dealing with the Canadian Wheat Board over the years. On the

negative side, he said to do it over 9 years where we proposed 5,

and there are some open issues that are very important to us that

we have to work through. How do we deal with export credit rules

and food aid rules?

In the category of market access, the positive part was that his

proposal subjected higher tariffs to deeper cuts. That is important

on the whole harmonization principle. He eliminated a special safeguard that existed for developed countries, and something that is

very important to us was that he said there was no justification for

new market access barriers to address nontrade concerns. These

are issues you will often hear from the European Union, Japan,

Korea and others.

The negative part, it wasn’t as ambitious as our proposal. So, for

example, you take that average tariff of 62 percent and bring it

down to 37, where we had proposed bringing it down to 15, and it

allowed monopoly importers to continue, which we do not like, because we want people to be able to compete directly. Then there is

the issue that Mr. Stenholm mentioned where he put in some criteria for a new safeguard for developing countries, and it is very

loose. This is an issue to be discussed and debated and, frankly, an

issue that is even of greater concern was the suggestion that there

would be special products in developing countries subject to marginal tariff cuts. The question about this is how many, how does

it work? Some countries have quickly said, well, our list of special

products include about 100 different products, so the exception eats

up the rule.

Then the third category is domestic support, the amber box. Here

the good news is he would reduce the disparity between the European Union and the United States, cuts about $40 billion from the

EU, cuts $12 billion from us. The blue box he proposed to cap and

possibly eliminate. No cap on the green box, which is important in

preserving our flexibility with farm policies, and said if there are

nontrade concerns, do it through the green box. In other words, you

want to subsidize people, you do it, but you don’t affect production.

This might be something for an animal welfare issue. On the negative side, in our view it doesn’t go nearly far enough in harmonizing the support levels between the EU and the United States, and

it cuts something called the de minimis amount from 5 percent to

2.5 percent. Let me explain what this is.

The rules that were agreed to in the Uruguay Round said if your

support is below a certain level, 5 percent for developed countries,

15

we will not even count it. This is both by product and nonproduct

specific. Frankly, the United States has not used this so much for

product specific items because our programs are either above 5 percent or way below it. But it has used it for some of the nonproduct

specific, whether it be irrigation or other things that cut across

lines. Then, the open issue here of special and differential treatment in terms of domestic subsidies as well.

So where do we go from here? Page 12. Well, the lines are drawn,

and, as I said, this text that I just went through, there is some

countries like the European Union that kind of choke at even discussing working off this, so the question is how we move this forward. And the hearing, and I want to compliment the chairman on

this, comes at a very important point. Because the key issue on the

table right now is what the European Union does with its reform

of its common agricultural program. And what is on the table is

that Commissioner Fischler, Ann’s counterpart, the Agriculture

Commissioner, and Commissioner Lamy, the Trade Commissioner,

my counterpart, have made proposals to the member states of the

European Union to reform the common agricultural program. Now,

they are doing this not primarily for trade reasons, but as many

of you know, the European Union has 15 members, they are going

to expand to 25, they have to start to adjust their policies and also

they, like you, are debating some of those issues about support for

environment and rural. So they have suggested a rather significant

decoupling. So they keep the money, but they don’t do it in a way

that distorts production, and there are some other areas where

they propose some market reforms; for example, dairy.

Commissioner Fischler is trying to get this done by June, and as

I said on two trips to Europe over the past 3 weeks, it is obviously

in their own agricultural interests, but it is absolutely critical if we

are going to move ahead in terms of the Doha negotiations, because

as I outline more in the testimony, the decoupling is fundamental

for us being able to harmonize those domestic subsidy supports. It

would allow the European Union to cut much more, and a lot of

their export subsidies are really a derivative. In other words, they

pay people to produce it and then they have to pay people to buy

it. So we could perhaps work much more closely to our goal of

elimination. Frankly, because I know many of you are always properly concerned about how agriculture fits with some of the other

topics, we have said, look, the cap reforms are critically necessary,

but they are not sufficient. For example, they don’t do enough for

what we need in market access. But what I have been trying to do,

and this is why I was just in Europe twice recently and just met

with a big German business group, is to say, look, there is other

parts of this negotiation; for example, manufactured goods where

our proposals are very similar with what European business wants.

But if European business is going to get the benefits of tariff cuts

for some of these other manufactured goods areas, the European

business has to help us with the member states’ move on agriculture. So we are trying to build coalitions of support within these

countries.

So just to identify some of the key issues working ahead. I

thought it would be useful to put these out so as we talk with the

chairman and the ranking member and members of the committee

16

going forward, you have a sense of some of the topics that we see

on the agenda. One, how do we expand support for ambitious reform? We have to build a coalition. Part of this is simply explaining

to a lot of countries, you realize you have 146 countries, a lot of

them small, it is complicated stuff, trying to explain the issues, and

also listening to their concerns. For example, China, because China

actually made some significant market access openings as part of

its accession to the WTO. They are supporting our agriculture proposal, not the EU’s case.

The second part, and this is the key point that Mr. Stenholm

mentioned, is we have to balance developing countries’ special

needs to a degree of ambition. Let me be very straight with the

problem.

India has 650 million subsistence farmers, so India is not the

most aggressive supporter of agriculture reform, because it is

afraid of what happens when 650 million people march on Delhi.

So the question is, can we try to deal with those sets of problems

while, as Mr. Stenholm said, recognizing that that doesn’t necessarily have to apply to every developing country, including those

that are agricultural exporters, and how do we do it in a way that

does not undermine the system for the future. So that is the exact

sort of issues that Al Johnson and I and J.B. Penn and Ann are

trying to work out in consulting with you and your staff about

some of the ideas.

Another important question is trying to maximize market access

gains in priority sectors and, I might add, countries. In other

words, what I have talked about so far are general formulas. We

also want to get into specifics. We need to know we are going to

make targeted shots: What is most important for American agriculture to try to open up? Addressing this disparity that we have

talked about between the U.S. and EU on domestic support, and

let me give you an example of how this process works.

The way that Harbinson put forward his text in cutting tariffs,

he said, well, let us cut more from a higher band and then a lower

band. Well, the Canadians said let’s do that for domestic subsidies,

too. So you would cut a greater percentage from the EU than you

would from the United States and some more from the United

States than you would from some little players. And then this critical issue of framing disciplines on export credits and food aid, the

text acknowledged the use of export credits which we have in food

aid, but it said these need to be disciplined and we have an objective to that if we can do it right.

So the last point in the slide, as I mentioned, teamwork and support. It is very important as we go along that we move in lockstep

with this committee and your Senate counterpart and, frankly, the

agriculture community. It helps us to understand the priorities.

Ann and I have a formal Advisory Committee on Agriculture that

meets really I guess every 2 months, and then there are specialized

committees in other areas that is set up by law. And of course we

have contact with lots of the different groups informally and formally. But this is a way that we hope we can get some more guidance from you about your priorities.

17

A second point is in terms of promoting the synergies between

trade policy and farm policy. We need to make sure these are mutually supportive.

Third, building farm community and public understanding of the

stakes for trade. From having talked to you, and I know you have

family that still farms and, being a farmer, your God given right

is to complain, whether it is too much rain, not enough rain, farm

exports, imports; but I think the presentation that Ann gave sort

of helps to give an important sense that there are important gains

here, but we have to explain it to people.

Another key point is communicating the U.S. message abroad,

building coalitions abroad. Here again, we need your help. A number of you do travel overseas and I know you are part of different

delegations, and we resonate the message about this overall strategy, how it is a benefit to the developing world as well as us. Because at the end of the day, this is a question of building coalitions,

just as it is in other areas of international life. And whether you

do it with other parliamentary members or whether you do it with

governments you meet, it can be a big help to us.

So I just want to again close by thanking the Chair for suggesting this hearing. It gives us an opportunity to say a little bit formally. Obviously, as I hope you will expect and since it is an open

hearing and I am a negotiator, I have to be a little careful here,

but it gives you some structure of what we are trying to do.

Thank you.

[The prepared statement of Ambassador Zoellick appears at the

conclusion of the hearing.]

The CHAIRMAN. Well, thank you, Ambassador. That certainly was

a very helpful statement.

Let me ask you about these developing countries. The concern

that many of us have is that if you are able to define yourself as

a developing country and thereby postpone implementation of various reforms, particularly in agriculture, that creates some kind of

an unfair advantage. I know that Secretary Veneman, in her chart,

showed massive increases in middle class citizens in a number of

interesting countries, China being the foremost at 525 million middle class citizens. Now, that couldn’t be the same definition we

might use for the middle class in the United States. Do either of

you know what that is based upon?

Secretary VENEMAN. I can’t give you the exact numbers, but we

can get more information to you from ERS. But basically, as you

look at expanding populations, it is basically moving from a very

subsistence lifestyle into one where you have income from productive employment; therefore, you have disposable income to spend

on more food, goods and services. And what we find is when you

look at developing countries and you look at consumers around the

world, that as countries become more developed and there are more

people that are earning incomes, that are living beyond a subsistence kind of existence, that they will first and foremost spend that

on more and better food. And that is why we think that it is so important to understand where these emerging middle classes are,

where the economic development is taking place, because we believe that is where we should focus our marketing and our market

development efforts.

18

The CHAIRMAN. It would be very helpful to have that information.

Ambassador Zoellick, if you could help me out with just how hard

we can push to get to some kind of an objective standard here, so

that as these countries develop the idea that they can somehow

create a continued advantage for themselves, even if their economies are experiencing very significant growth, I think would give

a little more confidence to us in terms of how fairly we are being

treated in our agricultural exports. Can you respond to that?

Ambassador ZOELLICK. Yes, Mr. Chairman. First, let me use the

China example. As Ann mentioned, it probably varies a little bit by

category. I was just in China a couple of months ago and I was visiting a U.S. auto plant. It was quite striking, because one of the

points that the Chinese joint venture partner made, it was a Ford

plant actually, was that given their lower tariff reduction, it turns

out in the auto area, when people start to get around $4,000,

$5,000, $6,000 a year, whatever, you start to see a big boost in auto

purchases, and although this was in the western part of China, in

the coastal provinces, you start to get a large number of people

that can afford that purchase.

Now, what I think you are seeing in the agricultural area and,

frankly, I went to an open market where I saw some Sunkist oranges and others, is that it probably starts at earlier areas where

people start to go to first fruits and vegetables and then as you

have seen in the United States, then you start to get to the meat

products too, the sort of higher value products. So it probably varies by line.

Now, more specifically, Mr. Chairman, one way we have tried to

address that issue, and it was a point you made in your remarks,

is that our overall approaches are trying to harmonize as we reduce. So a lot of the developing countries are at higher levels of tariffs. So if we have a formula as we suggest in tariffs that bring

down the higher levels more, then you are going to get more effect.

Now, within the trade area, there are, depending on the different

types of trade rules, there are different approaches to what qualifies as a country getting special treatment. Let me give you an example. There is one area where in terms of ability to use special

subsidies, it is like $1,000 a year per capita income is the standard,

and this has been used in some of the subsidies areas for special

and different treatment. So that precedent has been set. And the

key point, and I made this as recently as meeting with a number

of trade colleagues at the very end of April, was to say, take Brazil,

which is a very competitive economy. If you want us to do something for some of the Caribbean countries that may be possible, but

I can’t do the same thing for Brazil, which is an exporter. So we

have suggested a number of ideas, whether, as you said, the exporting basis or different per capita income. But it is clear to us,

Mr. Chairman, that if we are going to get openness more generally,

we have to bring others along in this.

Let me just make one other point on this. That is, this is where

we can build a coalition with some of the developing countries.

Some of them are agricultural exporters too, and it is not just a

question of whether they sell to us or we sell to them, but there

is the possibility of the south-south trade. In the area of industrial

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goods, 70 percent of the tariffs that developing countries pay are

to other developing countries, and some of the developing countries

are now recognizing that the proposals that we put forward which

lower developing country tariffs can help them as exporters too. So

there are different ways of getting at that issue, and we want to

use all of them, Mr. Chairman.

The CHAIRMAN. Let me ask you one other question. My time has

expired, but I have a parochial question that a number of members

have contacted me about. I understand you have been working

closely with the U.S. apple industry and the Mexican Government

to conclude an agreement on the apple dumping issue. It is also my

understanding that the Mexican Government is maintaining a regular dialog with the U.S. apple industry and has even helped draft

a possible agreement, but that the talks never came to any conclusion. It seems to be a common affliction in the trade area.

What can we do to conclude an agreement that will remove the

46.58 percent duty that Mexico has imposed on the export of U.S.

apples?

Ambassador ZOELLICK. Well, Mr. Chairman I have learned there

are no such things as parochial questions in the trade world. I just

received a letter from Minister Derbez; timely, given this hearing,

where he has mentioned some of the areas where he is going to

make progress. Of interest to a number of you are dried beans,

poultry, stone fruit and others. But particularly on the apples one,

I had a chance to talk with him this past weekend, and the key

is their rules on this are similar to ours, which is that, as you properly mentioned, our industry has agreed to the terms of a suspension agreement. He has to convince his industry to accept it, just

as we would in this situation. And he has told me that he believes

he can do that and he is working to do that, but he has not done

it yet. So that is one that is not specifically mentioned in this letter, but we are continuing to work with him on.

The CHAIRMAN. The gentleman from Texas.

Mr. STENHOLM. Just a constructive suggestion to your testimony.

When you put in charts that show how much our exports are growing, but the imports. It is one of the big mistakes we have made

on trade over a period of time, is overselling what trade will do for

various industries, and I think it would be very helpful if we always talk about not only the good exports, but also the good imports and how that relates, because many of our trading partners

emphasize the negative of what we consider as positive and vice

versa. So it would be very helpful.

Also, I was in China in January and emphasized over and over

to the Chinese that I don’t know how long America can continue

buying $500 billion from the rest of the world more than the world

buys from us, and in China specifically how long we can keep buying $100 billion from you, and we talked to everybody from then

Chairman Jiang Zemin and then the new leader.

Without the law of economics, are politics taking over? And with

the fiscal conditions of our country today of which the amount of

money we are having to borrow to finance our economic game plan

today, that is a legitimate question. Under the law of politics we

had a one-vote margin that gave you the authority to negotiate.

That is not a very big margin. Therefore, my question on China,

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with their accession into WTO and their agreements of what they

are going to do on a scale of 1 to 10, how much have they accomplished roughly?

Ambassador ZOELLICK. That is an interesting way of asking the

question, Mr. Stenholm. No, I am hesitant to give a number, but

I will say this.

Mr. STENHOLM. Well, they haven’t done much.

Ambassador ZOELLICK. Well, I differ a little bit on that, but I will

come to the areas in agriculture, is that part of this depends on

where they started from, Mr. Stenholm. That is that they have actually gone a long way in terms of changing the laws and rules,

implementing a lot of the changes, and we are seeing a lot more

product or different types of things going in, but recognizing this

was a totally Communist, nonmarket economy, so there is a long

way to go on these issues.

But I think the key point, and I am really delighted you made

it, is the one that you said that you and I am sure others made

in China which I have been making to go my Chinese counterparts,

which is to say, look, I am not one that objects to people bringing

in Chinese exports. A lot of low-income people get good clothes and

go to Wal-Mart and that is fine. But you have to understand, if I

am going to be able to sustain that, you have to be able to give our

people a fair shot. And the main issue that we have on the table

with the Chinese right now, and it is the priority issue, is dealing

with these tariff rate quotas which I know have a real concern in

the cotton area.

Another issue we had was the biotech soybeans. I think we have

that in the right place. We still don’t have it finally nailed down,

but the exports are going up. But their tariff rate quotas have not

been operated in a fair fashion. They have had bias in terms of cotton imports, particularly for export promotion as opposed to just

the regular import rules. They have had sort of noneconomical

quantities, they have lack of transparency.

So when I was there I think in February, I emphasized this is

an issue that we have to get cleaned up fast. And Ambassador

Johnson is ready to go to China when I get a strong sense that

they are going to really solve the problem. I will say that I have

gotten some positive indications that they recognize the importance

of this. And if they do not, Mr. Stenholm, I told them, I said look,

we have got WTO rights and I will not hesitate to pursue those

rights if we have to. I would rather solve the problem and wait 18

months for a case. So that is the key issue right now on our plate

with China.

Mr. STENHOLM. Quickly on the area of food aid. If I ask the question, I take all my remaining time. But from the standpoint of the

food aid discussion with the Europeans, where are we and what are

the chances of making the kind of significant improvements, and

a definition of what is and is not food aid and what is acceptable?

Where are we headed?

Ambassador ZOELLICK. Well, Mr. Stenholm, I would go beyond

the Europeans. It is not just a question in this one of kind of working with the Europeans. It is going to be working with other countries; and I guess what I would say is, first off, we are having technical-level discussions with a lot of countries on that and the export

21

credit topic. But the main one that has to break is the one that I

mentioned in terms of capital form.

But on the specifics, if my recollection serves, there are really

two aspects of this. One is, Harbinson’s text proposed to say that

it would have to be actually in commodity form; and this is a question we are trying to work with them on, related to some of the

Public Law programs, and then the other aspect of it is—let me try

and remember this. It’s a question of whether they go through the

U.N. System.

The draft said that the food aid should go through the U.N.

Agencies. A lot of our food aid does, and this is a question of

whether it is emergency or not, emergency food aid. But we also

have bilateral food programs, and frankly, we would like to be able

to keep those bilateral programs as well.

Mr. STENHOLM. I will submit this and additional questions to you

in writing.

The CHAIRMAN. I thank the gentleman.

The gentleman from Ohio, Mr. Boehner.

Mr. BOEHNER. Thank you, Mr. Chairman. And let me add my

voice to those congratulating both you and Mr. Stenholm for your

great work on the floor yesterday with the healthy forest initiatives.

And, Madam Secretary, thank you for your excellent work in the

Department dealing with the BSE problem.

Last year, this committee spent considerable time and effort redevelop ing a domestic safety net for American farmers, and while

I may not have been enthusiastic about the end product, I think

all of the members on the committee understand that the future for

farmers in America is going to be paced on our ability to export

product. We talked about it for a long time.

We have got the most efficient producers, we have got the right

climate, and instead of always worrying about the safety net, I am

a big believer that we need to get on a real offense in order to provide our farmers an opportunity for real wealth.

I do believe that the bilateral strategy that is being employed is

a good one, and I am a strong believer that if we continue to work

on these bilateral agreements around the world, we do, in fact,

strengthen our hand in Doha.

I will not be one who is overly optimistic about Doha, because in

my view, the Europeans are locked in a very serious political problem in their ability to do what they need to do. For us to ever come

to an agreement with them is limited at best. They have got high

social welfare costs; they have got these huge subsidies. They cannot afford either, but politically I do not know how they are able

to move where they need to move, where we could ever get to an

agreement politically.

So, having said that, I still believe that the best defense is a good

offense; and as we continue to work toward these bilateral agreements, I would suggest we even take more offense.

Now, we have got these agreements with Chile and Singapore;

and, Mr. Ambassador, if you could, for a moment, briefly outline

what you think the agricultural benefits are to those two agreements.

Ambassador ZOELLICK. Well, thank you, Mr. Boehner.

22

In the case of Singapore, since they are not much of an agricultural producer, they have been pretty open and they will lock in

that openness.

I think the one that we are particularly pleased about is what

we are able to do to in the case of Chile. In every overview, over

80 percent of U.S. farm goods, by value, exported to Chile will be

able to be duty free within 4 years of the implementation of agreement, and immediately we move on pork and barley and sorghum

and soybeans and meal. Within 2 years, you have corn and distilled

spirits. Beef tariff s will be removed within 4 years.

And I know that at times we have had some very sensitive issues

on the dairy side. We are pleased; we have got a lot of support in

the dairy community because we are able to deal with that issue

in a fair way.

So we also try to deal with some of the sensitive crops that people have by coming up with a new safeguard mechanism along the

way. So we again—if I looked at the Farm Bureau recently and

number of the commodity groups with soybean. Others have all

been supportive of this agreement; and it makes your larger point,

Mr. Boehner, which is I don’t want to let one country veto America’s trade policy.

And so I know that, when talking with the agriculture community, they are often saying, Hope you are putting attention on the

WTO. Well, we are here, as you can see, and I am, frankly, flying

around the world trying to put coalitions together, but if one country gets up on the wrong side of the bed and holds the thing up,

I do not want to be stopped. The best way to move those countries

is to keep moving with those who will.

And keep in mind, the European Union had some 30 free-trading

customs agreements. When we took office, we had NAFTA, Israel.

Now we have got Jordan. I hope by the end of the year we will

have Chile and Singapore. We have got four more along the way.

A lot of these have some important potential for American agriculture.

I think the other thing to keep in mind with the bilateral agreements is, we will not negotiate our subsidies in the bilateral agreements. It is pure tariffs as market access, so that is another benefit

as we go forward.

As I mentioned, the other part is some of the benefits you have

in terms of dealing with some of these sanitary and phytosanitary

standards.

Mr. BOEHNER. What are the agricultural objectives in our discussions with the Australians, and when can we expect an announcement on discussions, hopefully, with the New Zealanders, the

‘‘kiwis’’?

Ambassador ZOELLICK. Well, to take your first question, the first

issue that Ann and I work very closely on was one of the sanitary

and phytosanitary standards, because a lot of American agriculture

was justifiably frustrated in that Australia is both a continent and

an island. It has treated itself in a way that has been somewhat

restrictive.

We don’t want to negotiate sanitary and phytosanitary standards

because it has to be based on sound science. It is the way we want

it and they want it, but they are now at the point where they are

23

poised to eliminate all their SDS measures on beef. We had a

breakthrough on grapes. We hope to get some movement on Florida

citrus, and we are working on sweet corn and feed grain and pork

and others. That is one element.

More generally in the case of Australia, we know this is a sensitive one, particularly for the beef community, but we found we

get some pretty good support from pork, oilseeds, some of the other

commodities that have a potential market in Australia and New

Zealand.

New Zealand is a challenge, Mr. Boehner. It is a challenge because when we set up the notice on Australia, there was put in a

paragraph that said we sort of take a sense of Congress.

But there really are kind of two issues that have caused some

impediment. One is, just to be frank with the committee, a lot of

their agricultural exports are ones that are very sensitive here; and

we have to bring something back that we can get some broad-based

support on. And if you start thinking about dairy and others, it is

not the easiest thing to be able to carry here.

Then the question is how we can handle that and whether we

can handle it, given the overall relationship; and there are some

things done recently that I think made that a little bit harder for

us to carry.

So we work very closely with New Zealand in the WTO. They are

a good partner, and we continue to talk with them about prospects.

But right now our goal is to move forward with Australia.

Mr. BOEHNER. Thank you.

The CHAIRMAN. I thank the gentleman.

The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Zoellick, yesterday we had a hearing on the state of the

dairy industry. During that hearing, this issue about the 15 cent

assessment on imported dairy products that was put in the farm

bill last year came up; and according to testimony from some people in the industry, they accuse the USDA of being in violation of

the law, and they say that the reason was because you are holding

things up.

So I would like your response to that.

Ambassador ZOELLICK. We are working very closely with USDA

on this. But if one looks closely at the law—and I think this may

come from the gentleman to your right, if I recall correctly—there

is a requirement in that law that the fee be done in a way that

complies with our international obligations; and since this is an

issue that at some point could be part of other international discussions, what we have suggested is to come up with the committee

and the staff and point out some of the issues that we think are

useful to discuss on that topic.

Mr. PETERSON. So that means this isn’t going to happen anytime

soon; is that what you are telling me?

Ambassador ZOELLICK. We have offered to come up at any time

to discuss those topics.

Mr. PETERSON. I think some of us thought that this was going

to happen, that this assessment was going to be put on importers.

You are saying that it is going to be in violation of some agreement; is that what you are telling me?

24

Ambassador ZOELLICK. I am saying that the law has a number

of requirements in it.

Mr. PETERSON. It is a great law here.

Ambassador ZOELLICK. And we have to follow all the law. And

there are some issues there that, as we have discussed with USDA

as we are putting it together, that we think we need to discuss

with the committee staff; and I think then the committee members

would be pleased. And I think if this, at some point, could go to

international dispute, I think it is probably best to do it privately.

Mr. PETERSON. That is fine. Hopefully, we can get that done, Mr.

Chairman, sooner rather than later, if we could bring that to resolve.

I am also going to submit a question to you in writing. I have

been getting some complaints from my dry edible bean people that

were using Great Northern beans instead of cheaper Pinto beans

or other kinds of dry edible beans in our food aid, and I will send

that to you to respond to. I will not take the time here today.

And so on the Australian deal, you are telling us that New Zealand will not be linked to the Australian situation?

Ambassador ZOELLICK. That is my present expectation.

Mr. PETERSON. Okay. And in the Australian negotiations or discussions, what—has there been anything in the area of sugar that

has come up.

Ambassador ZOELLICK. As we prepare to launch the negotiation,

I will just mention that I mentioned to the prime minister and the

various ministers the extreme sensitivity of the sugar issue as we

try to deal with an agreement that should have many other benefits to both countries.

Mr. PETERSON. So they are aware of that?

Ambassador ZOELLICK. They are indeed.

Mr. PETERSON. And lastly, on this whole ramping up on the Doha

situation, I kind of agree with Mr. Boehner that it is—I just don’t

see the Europeans moving on this stuff. What—and apparently we

missed this March 31 deadline with getting some kind of framework for the agriculture thing.

Do you think we are going to have framework by the time you

are in Cancun, if you had to guess?

Ambassador ZOELLICK. I honestly think, Mr. Peterson, we have

a reasonable shot, but it depends on the items that I mentioned.

In other words, if the European Union gets through its common agricultural program changes—and I cannot give you an exact percentage guess on that, but you have got a number of member states

that are quite active in this. The Germans were in town recently

and, they were pushing it very hard; the Scandinavians pushed it,

the British have pushed it.

The main resistance here has come from the French. There are

some signs, some things that the French recognize as some of the

benefits to this change; and so frankly what I have been trying to

focus a lot of my energy on, and quite intensively, is trying to create an environment in which to increase the likelihood of that. But

I can’t say for sure.

Mr. PETERSON. What would happen if we don’t have an agreement by the time we get to Cancun? Is that going to back everything up?

25

Ambassador ZOELLICK. My view—and I have said this to the Europeans and said it to others—is, it is not just a question of the

United States, but it is a question of many other agricultural exporters. If we cannot move forward agriculture, I don’t see how we

can move forward anything.

Mr. PETERSON. Right. Thank you.

Thank you, Mr. Chairman.

The CHAIRMAN. The gentleman from Michigan, Mr. Smith.

Mr. SMITH. Mr. Chairman, thanks. A good series of meetings,

some challenges ahead.

Madam Secretary, first of all, legislation that I have developed

that I would like you to look at, regarding biotechnology, regarding

those—our people in government that are in other countries and

the cooperation of the different agencies, knowing what the scientific information is on biotech, knowing what the safety is. I expressed some concern with our attache’s knowledge and understanding.

But Ambassador, for both of you, the legislation calls on a cooperative effort between USDA and State and Commerce and USTR

and NSF and AID to coordinate and work together; and I would

like to give you that legislation to see if you have any suggestions

on it before we finalize it in terms of where we go on future trade

and do we know, for example, what products we intend to export

at below the cost of production.

Secretary VENEMAN. If I might just comment on your biotechnology issue first, I have not seen your legislation and will be

happy to look at it. But let me say that we do feel very strongly

about the importance of educating people about technologies in agriculture and their importance, and we are working very closely not

only with just USTR and USDA, but Commerce, State and other

interested agencies, the science-based agencies, to advance our policies and our education, particularly in international markets as regards the biotechnology.

If that regard, I think some of the committee knows that I am

hosting an international meeting in Sacramento towards the end of

June which will bring together ministerial-level people.

Mr. SMITH. Good. But do not take too long on this because I have

another 22 questions in my 5 minutes.

Secretary VENEMAN. But we are bringing to these discussions

some of these very issues and will talk about the importance of

these technologies, for the future particularly.

Mr. SMITH. Good. I think we are really gaining momentum, and

I asked the question on, do we know what commodities we are exporting below the cost of production, because it seems important to

me that we should know that. Because if you export a product

below the cost of production, which we have been doing with several of our commodities, then that means something is filling the

gap with that farmer-producer to which there are subsidies quite

often to accommodate the fact that he is still able to exist.

So, Madam Secretary, Mr. Chairman, I would like an effort from

USDA—and I do not know if I should put it in writing or what,

but it seems to me that we should know what the cost of production is for different commodities and what the world market price

on those commodities are.

26

And this leads to a concern, whether we are talking about New

Zealand or Australia with lamb or dairy products. Some countries

are producing at a lower cost than we are producing.

I just returned from Brazil, and as soon as they get some of their

transportation problems completed as far as infrastructure, their

cost of producing soybeans is much less and they have already realized that they have got to have the Roundup ready soybeans meeting with some legislators. They are producing Roundup ready up

to 80 percent of their production in parts of that country already

using Roundup ready.

I met with the Canadaians on the interparliamentary meeting

last week, and some of Canada’s production is a lower cost than

our production.

And so that brings me to the boxes. And, Ambassador, if I were

to send 100,000 Eurodollars to every farmer and define that farmer

as somebody that produces agricultural products, would that be

considered technically—it would not, but actually it is an export

subsidy. If you pay a farmer and you define that farmer as somebody that produces, and so they produce to get that payment and—

sometimes they are going to clear the market at a price lower than

their cost of production, and so to me it becomes an export subsidy.

Just a quick comment maybe.

Ambassador ZOELLICK. Well, your question is actually all interconnected on that. On the cost of production, the first question you

asked, at least directly this would only be ones where we use an

export subsidy, and ours are quite small. I think it is primarily in

dairy; last year it was about $15 million.

That is going to lead to your next question, when you start to

talk about Brazil, which I think is a very fair question and a good

one to look at more generally, farm policy, about how do our other

farm policy supports affect our cost of production whether it is capitalized in land or other aspects.

Because to take the oilseeds issue, my sense is, as a marginal

cost producer, the United States can compete with Brazil. One

question to look at is whether some of the other payments over

time might actually increase the costs over time, some of the payments to U.S. Farmers, and may make us less competitive over

time.

And that goes to your third point which at least in terms of the

Uruguay Round rules, if you give money to somebody and he is

dealing from production, that does not count and that is what we

used under the Freedom to Farm Act and.

Mr. SMITH. That is my point. Eventually, if you are going to send

$100,000 to a farmer and you define a farmer as somebody that

produces agricultural products, so they produce it and they export

it at a cheaper cost than they could otherwise, if the market forces

were all in play without that kind of subsidy, so the box is, I think,

eventually going to be somewhat confusing, and so it is going to be

to our advantage.

Ambassador ZOELLICK. Just on that, Mr. Smith, I guess the catch

would be, there is no requirement that you produce. In other

words, so—at least the way the decoupled payments work is, you

don’t have to produce anything and you certainly do not.

27

What has really been a bad thing is when you have the type of

price support, or something that pays somebody, that makes it a

higher price and then the government or somebody has to buy it

and then—and this has happened in Europe, and then they have

to pay somebody to—they buy it and they have to pay somebody

overseas to buy it; and this is the direct case of export subsidies.

But I do not disagree with the fact that you have got different

degrees of effect. I will say there have been World Bank and other

academic studies done on the green box payments, and they really

are found to have little effect on production.

Mr. SMITH. Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from Louisiana, Mr. Alexander.

Mr. ALEXANDER. Thank you, Mr. Chairman.

Mr. Ambassador, I am from the State of Louisiana and timber

is our No. 1 crop there. On page 6 at the bottom of the page and

relating to timber subsidy in Canada, where would Canada fall on

that chart?

Ambassador ZOELLICK. You are look ing at the written testimony,

or which one? I am sorry, sir. Those subsidies are—I will get you

the precise numbers for Canada’s numbers; they are much less

than ours overall.

Does anybody recall the exact number? We will get you the exact

number.

But that is an issue that, frankly, under the WTO rules, we have

been able to deal with in a different way and that is the question

that we have tried to pursue, some parties have pursued through

a countervailing duty case, as you probably know, which is that because at least some of the Canadian provinces cut timber off crown

lands, we and others have argued they have subsidized it in terms

of the stumpage cost they have given and in other policies that

have made it more economical for somebody to cut timber than

they otherwise would. So that led to a countervailing duty case

that the Commerce Department found both injury and a subsidy

and increased the tariff on that timber coming in.

Now what’s happened since then, as you may well know, is that

the Canadians, particularly in some of the Western provinces, have

continued to cut; and so even though that tariff is put on, the overall price has still come down.

The Commerce Department recently put together some guidelines working with our industry, working with the Canadian provinces, to say, Look, what are the reforms, the end subsidies, that

we would like to have the provinces take so we could remove the

problem of the subsidy, and also eventually remove this added tariff which does not really have any effect as some people thought it

would have anyway. And the key province there actually is British

Columbia, because in Canada the rules are really different by province and the British Columbia government has been willing to try

to do some of these reforms.

And so that is an area where, right now, the state of play is, the

Department of Commerce either has put out or is about ready to

put out those guidelines and if we could get them to remove some

of those subsidies in place, then we need to see if we could work

28

out with the industry some way of removing the tariffs as they

make the changes in policy.

Mr. ALEXANDER. Thank you.

The CHAIRMAN. The gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman and I thank you for

this hearing. And we are delighted to have the distinguished guests

here to talk to us today about trade, because trade is a very important issue as many members have talked about.

We are, though—at the end of the day, we are Representatives,

and we are here to represent our constituencies; and I would remind you that neither one of you are conscripts. Both of you are

volunteers, and it is a tough job.

Yesterday, as has been said, we had a hearing on dairy; and let

me start, though, first, by talking a little bit about China and I

want to associate myself to the comments of Mr. Stenholm earlier.

I think we have been guilty in the past of overselling what the

benefits of Most Favored Nation status are, for example, with

China and what the benefits would be in terms of agriculture, because, to date, we have seen very little. That is something that

farmer s can get their arms around in terms of trade with China.

In fact, I was in Taiwan in January and was surprised to learn

how aggressively the Chinese are trying to export into Taiwan. I

am happy to report, after meeting with some of the agriculture officials over there, that they want to continue to remain America’s

best customer in terms of the percentage of agricultural products

that they buy.

But China is both a huge potential market and a huge competitor, and I think we have to be more honest about what is coming

in and what is going out.

I was surprised to learn, for example, when my wife and I built

a new house, we started looking at furniture, and the manager of

the one of the furniture stores said, Well, over half of the furniture

in her store came from Communist China. And so I think we have

to be honest.

But I want to come back and talk to dairy policy, because I have

an enormous amount of empathy and I think most of the people in

this room have an enormous empathy for our dairy farmers. They

are folks who get up before dawn every day and are usually in the

barns after dark every single day, 365 days a year, and they are

experiencing 25-year lows in terms of what they receive for their

product.

Despite what you may think in terms of the dairy farmers themselves, these generally are not people that complain all that much.

I talk to them a lot. And they are, in my opinion, the salt of the

Earth.

When you look at what has happened in the last several years,

the last numbers we have—and I do not know what the exact numbers are, but we imported somewhere between 5- and 8 million

pounds of MPC and/or caseins in the last year.

I looked at the dairy export subsidies in the European Union in

the last year that I have numbers for; they subsidized their dairy

exports to the tune of $1.3 billion. In that same year, we used dairy

export subsidies to the tune of $8 million.

29

And now they are looking down the barrel of a potential trade

agreement with Australia and New Zealand, and I have to tell you

that my constituents are becoming less and less enthusiastic about

trade every year; and I guess I would just like to have you comment on that. And, tell us, what can we tell our constituents in

terms of what will they benefit from in terms of being dairy producers or even other farmers in our districts?

Ambassador ZOELLICK. Thank you, Congressman, and I appreciate the strength and feeling about this, because I know for those

of you that are making the effort on these trade issues, you get

these tough questions put at home, and I know they are not always

easy to answer.

The first thing I would say is that we used the international system effectively and brought a case against Canada to end their export subsidy, and we did; and we just reached an agreement that

will totally end that. And we have got some pretty complimentary

responses from the various dairy associations.

Second, I would say that we do have some opportunities, for example, in Central America—that is a market where we have got

some very strong interest of our dairy industry, because there are

higher barriers there than we have—and we believe we could open

that market and help on the dairy side.

Third, I would say in terms of export subsidies from the European Union—and you are exactly right, the best way that we can

get at those is not by sitting on our hands but by trying to get this

negotiation done, where our goal is to eliminate their export subsidies.

So on the particular issue of MPC, at least numbers that I have

are that in 1998 it was about $564 million. Then it rose to $653

million in 2000, and it actually came down in the most recent, $533

million. Part of that, as you probably know, is that that is a product that has been increasingly used in some of the fast food or the

energy bars that people have used. So, in a sense, part of the import numbers I think reflect the increase in the development or demand for that product.

Mr. GUTKNECHT. Thank you.

The CHAIRMAN. I thank the gentleman.

The gentleman from Georgia, Mr. Marshall.

Mr. MARSHALL. Thank you, Mr. Chairman.

I suppose this question is addressed to you Secretary Veneman.

I have seen in your testimony that you have been talking with Russia about the problem with poultry imports, and voicing concerns;

and I know the administration is aware that this has been a problem now for over a year.

Last year, rough estimate, cost the industry about $250 million

and the impact overall on the industry was about a billion dollar

hit. Last year, the explanation from Russia was the need to enter

into some mutually satisfactory agreement concerning veterinary

services; and then, in the fall, the word was that we had done so,

that we would enter into the agreement.

Then, as I understand it, in January, Russia simply came forward and said, Look, we are not going to license the poultry imports; we are going to impose quotas.

30

It is clear they are not working with us at all on this issue, and

I know that I and many other Members of Congress sent a letter

to the President some time ago—I have not received a response—

and in that letter we described the problem. It is a very significant

problem for my district and for many producers in my district, and

we asked that the President take action, including retaliation, if

need be.

It seems to me we have gotten to that point. There is enough

talking about this that has gone on. There has been no action that

I know of from Russia, and we simply need to consider responding

in kind in order to get some movement. And so I would just like

you to address more particularly that particular situation and

whether or not retaliation or some other action will be taken by the

administration.

Secretary VENEMAN. Well, Congressman, I can tell you that this

situation with poultry in Russia remains one of the top market

maintenance issues for this administration. Russia is the largest

export market that we have for poultry, and this is our largest export to Russia of any product, nonagriculture and agriculture combined. So this is a very high priority. This is an issue that we have

had people throughout government involved in, talking with their

Russian counterparts about.

We have been able to keep this market open through a series of

negotiations. As I indicated in my opening remarks, the Russian

Deputy Prime Minister and Agriculture Minister Gordeyev were

just here. We have continued to work with them, through USDA,

on the issues relating to inspection questions that they have about

our system, and we have made progress on that. We have inspectors that are now approving the plants, and we expect trade will

continue as it has been under the temporary agreements as a result of the agreement we reached in that negotiation.

At the same time, there is a negotiation going on that USTR is

leading on the issue of the quotas. And we continue to work very

closely in conjunction with USTR to negotiate on that quota issue.

But I can tell you, this continues to be a very high priority for

us and, in fact, has been the—it has been the topic of conversation

several times with Secretary Powell and his counterparts, Secretary Evans and his counterpart, and the President and Mr.

Putin. So it has been a very high priority of this administration.

Ambassador ZOELLICK. If I could add just a little bit to that, just

to distinguish the issues. The first issue we probably have with

them, which Ann was focusing on, was the sanitary and

phytosanitary issues, and that is one we work on very closely with

the poultry industry. We hope, coming out of some recent meetings,

that we have got that one back on track.

But then they came up with a series of quotas, not only for poultry, but also, frankly, for beef and pork and one of the—and again

this goes to system of the other connection—they have argued,

while some of this has to be done in beef and pork, because they

are dealing with subsidized meat from the European Union. We

have made it extremely clear that this is not the way to do business if they expect to get into the WTO, and I met with the deputy

prime minister and finance minister about 3 weeks ago and said,

look, we are trying to help you work into the WTO, but if you atVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 F:\DOCS\1085.000 HAGRI PsN: HAGRI
31

tack our basic agriculture industry like this, we are not going to

be able to go anywhere in this process. And, frankly, like you, Congressman, I believe all options should be open.

Now, Ambassador Johnson went to Russia recently, gave them

some suggestions on how we could make this workable in poultry

and beef and pork, after trying to talk with our industry, and we

have yet to get a response on that. And I emphasized to them most

recently that we are going to need to get a response very quickly

or else this problem, in my view, is going to get one that is out of

control in our overall relationship economically with Russia.

So as Ann mentioned, it is an issue that we have stressed. The

President knows about. He will be meeting President Putin soon,

so I am hopeful we can make some progress here, but if we do not,

we should use the tools at our disposal.

The CHAIRMAN. I thank the gentleman for raising an issue that

has a great deal of interest to me as well and I can assure him that

we are being very vocal on that. I met with the Deputy Prime Minister of Russia just a few weeks ago and we spend most of our time

talking about poultry, and I think they get the message that this

is a considerable import not only because of the fact that it is our

largest export item, as Secretary Veneman notes, to Russia but

also because it is our bellwether as to how they are going to behave

when they do become a member of the WTO, so we will continue

to press that. The President has raised it in the past directly with

the President Putin and I hope he raises it again.

I thank the gentleman for his efforts. The gentleman from Nebraska, Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman, and thank you for

being here. We really appreciate your accessibility. It has been

something that has been noteworthy and also Alan Johnson, we appreciate that greatly.

As both of you here understand, some of us asked in exchange

for our vote on trade promotion authority to support the agriculture issue and I see some encouraging signs in regard to the action against the Canadian Wheat Board. I agree with you on the

Chilean agreement that it is favorable to agriculture. I hope that

we can move forward.

I really have a couple of issues I would like to raise with you that

I hear all the time from people that I deal with in agriculture.

There is a considerable concern right now regarding the antidumping posture of Mexico in regard to pork and beef and my understanding right now is that it is more or less rumblings but maybe

not. How they are formulated I would like to get your views a little

bit more expanded in terms of where that is, and then the second

issue, it is really two questions, is the European Union. And I

know you are working in this area but to me that is the big one

and we have had a ban on hormone fed beef now for a period of

time, no scientific evidence that would indicate that has waned. It

was mentioned in a Wall Street Journal article. The biotech ban

has gone on now for 5 years. The disturbing thing to me this has

not just been European Union, but they have expanded that to Africa and put out some scare tactic s, and to me this has simply

been a tariff barrier and a very real sense. I am not sure that they

completely believe their own information.

32

So I guess what I am asking is an expansion of the discussion

regarding the Mexico issue and then also what are we prepared to

do because after 5 years at some point it seems that we have to

move forward and we have to be very aggressive with the European Union, and I would imagine that the political climate right

now is fairly good for doing something like that. So I would appreciate your comments on those issues.

Ambassador ZOELLICK. Well, Congressman, let me start on the

Mexico issues. The issue where the Mexicans have already had an

antidumping duty in place is live swine, and the letter I just received today confirmed my conversation over the weekend, which

is that Mexico has agreed to lift the duties on live swine effective

May 26 and so that will be moving forward.

The second issue is the pork and that is one where there has

been a request to begin an antidumping investigation, and that decision is to be made by Mexico no later than July. A couple of

weeks ago the Mexican Foreign Minister, who also has the trade

responsibility, was in Washington and we arranged a meeting with

our pork industry because we obviously believe that this case that

is being requested in Mexico has no basis, just an effort to try to

thwart the exports because the tariffs have come down. And the

point that my Mexican counterpart made, and this is an issue that

we have come across frequently, is to say, well, what can our industry do to work with their industry to try to help in the overall

climate and help some of their industry because sometimes these

are getting integrated. And so we have asked our pork industry—

they have been in touch with us aboutthis—about trying to supply

some of that information to see if we could avoid even starting that

case because once you get to that case then you have got to bring

dispute settlement, which we are willing to do. We think they have

got no leg s for it, but we would like to try to head that off.

In the case of beef, there has been two developments. One is

again there is the question about an antidumping order and there

is a NAFTA process moving forward on that that I believe the

NAFTA panel—we have challenged it in NAFTA—is due by June.

Then there is a question, there has been some division in the beef

industry about whether we should go forward in the WTO, let this

NAFTA panel go forward and then, as Ann mentioned, there has

also been some rumblings about a beef safeguard in Mexico which

we believe that there is no basis for. So one of the other issues on

this one is whether it might also be useful for the two industries

to have further discussions about that basis, which we will do at

the governmental level.

On the European beef case, the challenge we have now, Mr.

Osborne, is that because the European Union did not respond to

the WTO’s ruling, the United States has already retaliated. So we

raised tariffs on a number of series of goods and the question that

we faced, and I remember discussing this with some of your colleagues on the committee, is that is there a way where we can try

to open that market that will help the cattlemen and the beef producers separately. So we were trying to explore with the European

Union whether as compensation for this we could get additional

beef exports but they would not be hormone beef and we have been

in discussions about that with the Europeans, and the first step

33

was to make sure that we dealt with their sanitary and

phytosanitary authorities and we made some progress on that. And

then the question is working with the industry to see what number

in terms of tonnage would be acceptable.

So that is an area we are continuing to pursue because in a

sense we have taken the retaliatory step but at the end of the day

that does not get any more beef into Europe. The question we have

had to work with with our industry is it increases their costs and

others if they try to have a herd to make sure it is nonhormone

beef. That is something we have been drawing on from USDA with

some of their organic standards. So it is still our goal to try to get

beef into Europe as opposed to try to retaliate.

The CHAIRMAN. The gentleman from California, Mr. Dooley.

Mr. DOOLEY. Thank you, Mr. Chairman, and I just want to thank

both of you for coming and also thank you for the terrific work that

you are doing on behalf of farmers throughout the country.

Ambassador Zoellick, I really appreciate the presentation you

made and the progress update and you have a lot of accomplishments under your belt, especially the completion of the Singapore

and the Chilean FTAs, which I think are terrific work. But I guess

some of us are concerned that the administration has yet to send

and sign the Chilean agreement and some of us are concerned that

this is in fact a form of retaliation because of Chile’s decision not

to support us in the Security Council, and some of us are mystified

by this because when we step back is that we turn to this FTA

with Chile in order to level the playing field with other countries

that had bilaterals or custom agreements with Chile. And in fact

U.S. workers are losing jobs to Canada because of their bilateral.

We are losing jobs to France and Germany because of their agreement they had with Chile, and so it appears to me that our failure

to move forward with this Chilean free trade agreement that we

have negotiated, if it is a form of retaliation, is that we in fact are

retaliating against U.S. workers and we are providing a continued

advantage with the French and the German workers as well as the

Canadian workers.

And I guess when is the administration, and I hope that you can

give us some indication, is the administration willing to sign this

soon so we can get this process moving through Congress?

Ambassador ZOELLICK. Well, first, Mr. Dooley, there is no one

more than you that has a right to ask that question because you

have done a tremendous amount for trade and agriculture.

Mr. DOOLEY. I kind of enjoyed asking it, too.

Ambassador ZOELLICK. I will make three points. One is I think

we will be able to move forward on resolution on this very soon.

Second, indeed following the advice of some of you who have helped

us a great deal on the trade side, we have gotten a sense that leadership and others would be interested in maybe trying to take

Singapore and Chile together, perhaps even this summer, and I

hope that we will be able to give you the option to do that as well.

But third, I hope you can do what I have done, which is that I

have also heard many voices from Congress urging us to sign the

Chile agreement and bring it up and have asked some of them will

you promise to support us. I know you, Mr. Dooley, but I am not

34

sure all have. I hope when they press on that question you can get

their vote like I am trying to get it.

Mr. DOOLEY. I am confident we will have a strong bipartisan

vote in support of the Chilean as well as Singapore agreement.

The other thing I want to compliment you on, Ambassador

Zoellick, was the tenor of your statements in terms of the status

of the WTO negotiations and that I think that you did identify a

lot of the positive components of the Harbinson draft that really

could provide significant benefits to U.S. agriculture and I think

that is important because while there are some things in it that we

would like to see go further, we cannot lose sight of the fact that

the issue we are facing is do we want to see a continuation of the

status quo and the status quo with Europe right now is ensuring

that they have at least $48 billion additional in aggregate measure

of support than we do in the United States. I mean in a worst case

scenario it was my understanding when the Harbinson draft was

adopted that $4 billion differential would be reduced to $19 billion

differential. It is not the harmonization we would like to have in

a best case scenario, but as a farmer and as a policymaker, $19 billion is still a significant improvement over $4 billion and I guess

as we move forward to Cancun I am interested in terms of what

do you detect is some of the sentiments with some of our other allies who are similarly like-minded countries, in particular the

Cairns group, about what more is it, how much more progress do

we have to see on this, on the Harbinson draft before we can actually begin negotiations to see if we can at least make progress and

an improvement over where we are at today?

Ambassador ZOELLICK. Well, Mr. Dooley, I think you have asked

the critical question here and I am glad you have asked it. I actually put at the end of my written testimony, I think it was on page

8, I said if we are able to get the CAP reforms and we are able

to start to get some more substantial cuts in subsidies, the key

question we need to consider together is this, given the foreign subsidies and market access barriers U.S. producers must contend

with currently and also taking into account our own sensitive sectors, what combination of major reforms can be achieved that represents a successful step forward, and as I add, that is not a question that has an easy or direct answer. We all know that. This is

something we have to try to address together, and I assure you

that I would like to try to do that.

Specifically, where you asked where some other countries stand

on this, it is important to keep in mind that the Harbinson text is

just a text. For all our frustrations with the Harbinson text, I assure you, the Europeans are spitting blood over it much more than

we might be, but that means it is only a reference point as we go

forward. I think a number of agricultural exporters were pleased

with aspects of that text. We have a little bit more of a challenge,

Mr. Dooley, and that is my sense, is that for us to be able to cut

subsidies we have got to do more on market access here as well.

Some of the other countries that do not have subsidies do not really

have that dilemma, but I think if the major move they could see,

if the European Union moves forward would be that could be translated in much more significant domestic subsidies reduction in Europe, and then that I think, I hope could also lead toward elimiVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 F:\DOCS\1085.000 HAGRI PsN: HAGRI
35

nation of export subsidies, get us much closer to that and that has

been a big issue. It is an issue this committee has emphasized. It

is emphasized in the Trade Promotion Authority but we have to

combine that, as Mr. Stenholm and other s will remind me about

market access elsewhere. The question is how can we bring that together, and that really goes to one of the points I tried to emphasize in the testimony. We will press with other countries to try to

get some formula reduction, but then we also need to be much

more effective in term of targeting, well, where do we have a particular interest, because I think this negotiation and other points

will move beyond formulas to a little bit more of sort of bilateral

efforts in the negotiation and then we need to know some of our

priority product and interest. At the same time we have got defensive points.

I want to make this point, it is understandable that people would

say oh, well, this process isn’t going anywhere. I don’t believe that

is true. I can’t tell you for sure that it will, but I can see a path

to get these things done. Maybe by nature I am an optimist, but

I have managed to do a few things in my time, but part of it is

trying to organize the forces together. This is where working together I think we can maximize the focus on the European Union

right now and if we move that step then I think the game is afoot.

The CHAIRMAN. Let me interrupt, we are nearing the end of our

time. Let me ask Secretary Veneman and Ambassador Zoellick do

you have time to do two more, one on each side here? We will do

that and regrettably that will not encompass all the Members here.

That is going to be Mr. Janklow on the Republican side and Mr.

Pomeroy on the Democratic side. And let me suggest that, Mr.

Janklow, do you have a few seconds left to yield them to Mr. Putnam and likewise Mr. Pomeroy, and we will take questions in writing and submit to you as well.

Mr. ETHERIDGE. But for those of us who have been here almost

the whole time can we submit written questions because it is very

disappointing when you sit 2 hours and don’t get a question in.

The CHAIRMAN. We understand. The gentleman from South Dakota is recognized for 5 minutes.

Mr. JANKLOW. I will not take all my time. I will be very, very

brief. I have got quick questions if you can give me quick answers,

and what is the current tariff that we have that our beef faces in

Japan? What is the percentage?

Ambassador ZOELLICK. If you wait 2 seconds, I think it is about

36 percent but I will check for you.

Mr. JANKLOW. I think that is about right under the agreement.

That comes down to about 2 percent a year. So in 1 year the tariff

will be gone, isn’t that correct?

Ambassador ZOELLICK. I don’t think that part is so. I think that

tariff is 38.5 percent and the issue that we face right now is the

question of whether they will try to use this safeguard to increase

it up to 50 percent.

Mr. JANKLOW. So it is not coming down at all?

Ambassador ZOELLICK. Not unless we negotiate it further.

Mr. JANKLOW. OK, where are we at very briefly, sir, with respect

to the WTO issues that the Europeans filed against us that WTO

I believe wrote against us? Is this restricting or inhibiting in any

36

way our ability to negotiate with them with respect to the current

round of things you are trying to do?

Ambassador ZOELLICK. Well, Congressman, actually this is a

good thing about the U.S.-European relationship. We both tried to

deal with this professionally, but we bring cases against them, they

bring cases against us. We don’t let it get in the way of our other

negotiations, but where it could bite, Congressman, is when we lose

these cases then they can retaliate. Just as I mentioned to Mr.

Osborne, we retaliated against beef and so there are some big

cases. The biggest one is the Foreign Sales Corporation case where

right now the European Union had $4 billion of retaliation rights

against the United States and they have said that it is not their

goal to retaliate. They want to get this tax provision fixed and they

are going to review it again towards the end of the year.

So you are hitting on a critical point actually, in that where we

run the risk, sir, is that if we do not fix some of the things where

they win against us we could get retaliated against, including agriculture. I don’t believe that it affects our negotiations with them.

Mr. JANKLOW. Sir, with respect to China, very briefly again, with

respect to China, what is the mechanism that can really get them

to follow up on their agreements? The history of dealing with

China is deals are made and they are never kept. Do they feel as

strongly that we don’t keep deals as strongly as we all feel they

don’t keep the deal?

Ambassador ZOELLICK. Well, that is an interesting question.

Sometimes they do feel that way but what we will be willing to do

is to find out, if necessary, in the WTO if there is a difference. But

Secretary Veneman had some statistics there, including in soybeans, and maybe we should make sure we provide them to Mr.

Janklow and others on the committee. There have been some big

pretty big boosts in American agriculture exports to China.

Having said that, the key issue now for agriculture is making

sure that the soybeans, GMO issue is resolved, and I think we are

well on the way to do that, and then the second issue is these tariff

rate quota issues and there the direct answer to your question is

if they don’t fix the problem at least it would be my recommendation that we take them to dispute resolution. But I would rather

see if I could fix the problem because dispute resolution takes a

longer period of time and I think we have a reasonably good chance

of doing that based on my conversations not only with the Trade

Minister but all the way up to the new Premier.

Mr. JANKLOW. With respect to the GMOs, very briefly, is this

going to get resolved or isn’t it? I mean it has been laying up on

there for a long time now. We are to the point of talking about

some other kind of imports into the country to make up for it. It

is not just an issue that deals with the European Community. As

I understand it from the previous session we had when the Secretary was here, it is a problem with countries in Africa, even to

the point of taking our aid.

Ambassador ZOELLICK. Well, I agree quite vehemently with you.

As people know, earlier in the year I was quite outspoken on this

subject and that is why we finally brought this case. Now the case,

Mr. January, is about the moratorium which to me is the most

egregious thing which they are not even approving the products to

37

come in. Some Europeans argue they will lift the moratorium. If

they don’t live the moratorium, we will pursue the dispute settlement and I have a high degree of confidence that we will win. Now,

after that, then just as in the case s where we lose, they can either

have retaliation or they can take the action.

Mr. JANKLOW. I am talking about Africa, sir, briefly. I am talking

about it is what they are doing to their former colonies and countries where they have great influence, I suspect just an issue that

deals with Europe.

Ambassador ZOELLICK. I totally agree with that and in fact in

this case that I think I put up for you I pointed out that Uganda

was trying to develop some bananas that were more disease resistance and they did not do it because they were afraid they could not

export it, and an equally bad one the Namibians were no longer

buying biotech corn from South Africa to feed their cattle because

they were afraid they could not sell their cattle.

The CHAIRMAN. The gentleman from North Dakota.

Mr. POMEROY. Thank you, Mr. Chairman. I want to commend

Ambassador Zoellick for his action against the Canadian Wheat

Board and his leadership in this area as a state creating enterprise

that we strongly believe had inappropriate subsidizing. About 18

months ago you outlined the steps to take during your tenure and

you and Alan Johnson have followed in each respect what you outlined, and we are beginning to feel some relief from these actions

and look forward to the successful prevailing in the WTO challenge

that has now been filed. Thank you very much for your leadership.

Ambassador ZOELLICK. Thanks, Mr. Pomeroy.

Mr. POMEROY. I want to turn our discussion back to where it

began; that is, on this BSE case yesterday, in light of the significant consequences that had cattle markets falling the limit yesterday and I think the most important thing, Madam Secretary, to

provide stability in this immediate reaction to this isolated case in

Canada was your closing down Canadian imports while we responded to this case situation.

About 70 percent of the cattle come in as imports, and the imports are extremely significant: 1,700,000 head of live cattle coming

in from Canada, 70 percent crossing North Dakota and Great Falls,

Montana. So how long this temporary freeze stays in effect is of

great importance to us. We want your assurance that absolutely

every question is answered, the investigation thoroughly complete,

all indications of safety of food supply satisfactorily resolved before

that trade opens up again. Would you care to comment on that?

Secretary VENEMAN. Well, Mr. Pomeroy, we took the action yesterday because it is in the normal practice of what we do when

there is a finding of BSE in a country. We also committed that we

would work very, very closely with the Canadians, because this is,

as you indicate, in many ways a North American market. And because obviously animal diseases know no border, we want to make

sure that we are a part of this investigation, that we are working

very closely with the Canadians on all actions to make sure that

we ensure that we know what happened here.

We don’t know very much yet. It is very early. We just found this

out. But we believe that there is no significant risk to human

health at all, that people should feel very assured about the safety

38

of the food supply, and as far as the border is concerned, at this

point, it is a temporary measure pending further investigation, and

that is as far as I can go right now because I simply don’t know

how long it is going to take to look into this situation or what the

investigation is going to show. But all indications are this is an isolated incident of one animal that did not enter the food chain.

Mr. POMEROY. Right. I didn’t ask for a time specific. I mean, you

have emphasized temporary. What I emphasize, and I am sure we

don’t have a difference of opinion here, maybe it is just a difference

of emphasis, this doesn’t open—this border doesn’t open until all of

our questions have been answered. I mean, I think that the American consumers need to know there has been—nothing like this has

been found in the United States, the border is closed, it appears

to be an isolated case, it is under very thorough investigation. No

border is opened up until we have absolute assurance that we don’t

have any prospect of this BSE or mad cow coming across the border. That is your position, correct?

Secretary VENEMAN. Well, we want to make sure that we have

good, sound science before we take additional action in terms of the

border. And again, we are going to do everything we can in this investigation to make sure that we can understand everything that

we can. It is a temporary action pending further investigation.

Mr. POMEROY. Well, Madam Secretary, you emphasize temporary. I wish you would emphasize nothing comes across until all

questions are answered.

Let me come to the final point I want to make. You say that animal diseases know no border, but inspection and regulatory regimens do know borders. They are a product of what each government indicates.

Now, you have talked about the provisions that have been implemented in the United States that make certain we do not have a

BSE outbreak, and, in fact, a determination from Harvard University that the prospects here are nominal, minimal, but almost nonexistent in light of the regimen we have put in place.

Now, I think that this makes the case emphatically for why

country of origin labeling is so important to the United States consumer. This hour, more than any other in recent memory, I believe,

shows that today the American consumer wants to go to the grocery store and buy a U.S.-labeled product. This was part of the reason——

The CHAIRMAN. I am going to interrupt the gentleman since we

have gone beyond our time.

Mr. POMEROY. Mr. Chairman, I will wrap up my question. I

would sure like the Secretary’s response.

Doesn’t this show that the company of origin labeling that has

been passed and that you are now charged with implementing is

important to providing consumer assurance at times like this that

the products they have meet the highest standards of U.S. production, and that, therefore, might be the one they want to select as

they prepare their supper for their families tonight?

Secretary VENEMAN. Well, I think it is very important to point

out that we require of our trading partners the same level of food

safety as we have in this country. And Canada’s system is very,

very similar to ours. And I think it is important to recognize that

39

country of origin labeling is information for the consumer, but it

does not imply anything with regard to food safety because any

product that comes into this country has to meet our rigorous food

safety rules.

The CHAIRMAN. I thank the Secretary. I think the gentleman

from Texas had a brief announcement he wanted to make.

Mr. STENHOLM. Just for the record, May cattle that closed yesterday down the limit has been trading above yesterday’s close as recently as 15 minutes ago. So therefore the manner in which,

Madam Secretary, you and your folks have handled this, I think,

is having the desired effect in the marketplace at this time, and we

certainly hope that, as it has been presented, will prove to be the

ultimate fact.

Secretary VENEMAN. Thank you.

The CHAIRMAN. I want to apologize to the other members of the

committee who were not able to ask oral questions.

Mr. PUTNAM. Point of inquiry, Mr. Chairman. Will the record

stay open for our questions and statements in writing?

The CHAIRMAN. Yes, it will, and we would ask both of our witnesses to give particular attention to those Members who submit

questions in writing who were unable to submit them here today.

I want to thank both of you for appearing before the committee

today. The committee is very hopeful that the United States will

succeed in negotiating an agricultural agreement that improves access for U.S. farmers and ranchers to worldwide markets. The

USDA and the USTR must defend the rights of America’s farmers

and ranchers in this current round of WTO negotiations in order

to have a free and fair trading area, and in order to have the kind

of strong support from agricultural America, rural America that we

have given to these trade agreements in the past.

The committee will continue to watch this issue very carefully as

we proceed through the summer. It is my intention, along with Mr.

Stenholm, to lead a delegation of Agriculture Committee members

to Cancun for the WTO ministerial meeting in September, and we

look forward to working with Secretary Veneman and Ambassador

Zoellick through this process.

Our next trade hearing is scheduled for June 18, at which time

the committee will invite representatives of U.S. agricultural organizations and others to discuss past, present, and future trade

agreements and the current bilateral and multilateral trade negotiations.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplemented written responses from witnesses to any questions posed by a member

of the panel.

This hearing of the House Committee on Agriculture is adjourned. Thank you very much.

[Whereupon, at 12:15 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

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USDA ANSWERS TO SUBMITTED QUETIONS

QUESTIONS FROM CHAIRMAN GOODLATTE

Please comment on the participation of developing countries in these negotiations on agriculture. I understand that the Doha Development Agenda

directs that special and differential treatment for developing countries is

to be a part of all negotiations. The real question is what is a developing

country. Is it expected that a country will continue to be able to declare

itself a developing country and thereby have a longer time period to implement reforms to its agricultural program?

Member countries self-declare their status as developed or developing upon entry

into the World Trade Organization (WTO). Although this issue has been discussed

on the margins of the negotiations, there is no strong backing to formally change

this process. Developing countries are actively participating in this round, and special and differential treatment is an important part of the draft texts. Even developing countries, however, recognize that there are vast economic differences among

their group, and some suggest differentiating countries by indicators other than developed and developing. For example, in some instances, there is support for allowing some special and differential treatment to apply only to Least Developed Countries or Net Food Importing Developing Countries.

We are willing to work with Chairman Harbinson’s draft text and other WTO

members to move the agriculture negotiations forward. While key participants may

gain more flexibility to lower barriers to world agriculture, our goal is freer markets

for developing and developed countries alike. We believe that developing countries

have a powerful interest in broad-based reform for all countries. In particular, reducing trade barriers in developing countries will yield benefits through expanded

south-south trade and by increasing market openness in their own economies. We

need to strike the proper balance. We should address special needs of particularly

poor countries or sectors that need sensible transitions while still advancing open

markets for exporters and consumers in all countries, including developing nations.

The United States has shown flexibility on special and differential treatment in

the WTO agriculture negotiations. However, we are concerned with certain special

and differential treatment provisions in Chairman Harbinson’s draft text, which in

our view exempt developing countries from further liberalizing selected commodities. Specifically, we are concerned with the new Special Products category, which

would allow a developing country to take a minimal five percent tariff cut on selected products. We are concerned with the broad language for the Special Safeguard Measure that would allow developing countries to take undefined safeguard

actions against imports. We are also concerned with the broad language on domestic

support provisions that would exempt developing countries’ unlimited use of certain

trade-distorting supports to maintain or even increase production of selected products.

In my opening statement, I mentioned the issue of confidence in U.S

trade negotiations and the fact that it has been undermined by trade problems with the European Union, China, and Russia and now with Mexico.

Will you tell the committee how you believe this issue of weakening confidence on the part of U.S. agriculture can be addressed, both generally

and specifically with regard to Mexican trade barriers.

There is no question that the European Union will continue to impose burdensome requirements on its own producers and on imports, and to use standards as

a basis for restricting trade. That is precisely why we need to deal with these issues

in a multilateral context where we can use other countries to help ensure that the

EU meets its obligations. We have developed a coalition to fight the EU’s restrictive

biotech policies, for example, and will pursue that case aggressively. Earlier this

year we negotiated successfully with the EU to maintain access for our wheat, corn,

and sorghum producers.

The problems we have had with Russia stem largely from the fact that we do not

have a strong trade agreement with them. Their actions over the past fifteen

months have severely hampered their progress toward WTO accession. They are not

bound by the SPS agreement, and we have no binding agreement with them that

requires them to use equivalency rather than compliance as a benchmark. Nevertheless, we have negotiated a solution that is allowing our poultry trade to flow. Neither is Russia obliged to follow WTO rules on safeguards. However, we are currently

evaluating all of our options to defend our valuable trade in poultry products and

ensure it is not overly restricted by Russia’s recently imposed safeguard quota.

Regarding China, while we have had a number of trade-related problems with

China, we are engaging the Chinese by addressing our concerns in a variety of fora,

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both bilaterally and multilaterally. Now that China is a member of the WTO, we

have even greater leverage than before, and more tools at our disposal in addressing

many of these on-going market access issues. I would like to mention that we have

some success stories as well; most notably a record $1.3 billion in soybeans exported

to China this past marketing year. We are also finalizing a date to convene the

U.S.-China bilateral Biotechnology Working Group this summer, in which we will

have a forum to press China on their proposed biotechnology regulations, which

could threaten our soybean trade. We believe that by engaging the Chinese on a

number of levels, we will continue to see an improvement in market access for

American agricultural exports.

We have been engaged at the highest levels working to resolve issues related to

our bilateral trade disputes with Mexico. The U.S.-Mexico discussions have been

constructive—a good sign of both sides taking the issues seriously and in good faith.

We will continue to work hard to try to understand issues (both technical and policy

matters) and pursue resolutions. Despite some bilateral trade disputes with Mexico,

the U.S. Government remains confident that, as the NAFTA trading relationship

matures, U.S. farmers and ranchers will continue to realize the benefits of a more

fully integrated North American market.

QUESTIONS FROM CONGRESSMAN CHARLIE STENHOLM

Food Aid. Europe has argued that surplus-based food aid should be subject to the same rules as export subsidies. Harbinson’s first draft called for

food aid to be provided exclusively in grant form, as untied grants to recipient countries for the purchase of food, except for in-kind food aid provided via UN food agencies.

1. What changes were made in the revised Harbinson paper, and under the revised draft, what are the implications for U.S. food aid programs and what is the

status of your discussions with the U.S. private voluntary community on this issue?

2. What alternatives to the EU and Harbinson food aid proposals have been developed that could address European and other concerns on food aid?

We are pleased to see that the latest draft modalities paper (otherwise known as

Harbinson-II) allows private voluntary organizations to continue regular food aid operations without having to work under the auspices of the United Nations. We see

two remaining issues with the draft modalities text. First, concessional sales e.g.,

[PL 480-Title I] would not be allowed as food aid. Second, the current draft does

not allow for government-to-government non-emergency food aid programs.

In the March 2003 meetings, the United States proposed changes to the modalities text that would allow for government-to-government food aid to be provided to

needy populations that are recognized by a UN agency, and would allow for the continued use of concessional credits. In the latest version of the draft modalities, private voluntary organizations can act independently of the UN, which is important

for many of the U.S. food aid programs and implementing partners.

Our strategy is to continue to educate the WTO Secretariat and other Members

on the way food aid works in the real world. To date, this strategy has yielded positive results. We will continue to work with recipient countries by giving them information on food aid programs active in their own countries, and by encouraging them

to voice their support for the U.S. position during the negotiations.

QUESTIONS FROM CONGRESSMAN BOB ETHERIDGE

I have a question relating to Mexico. Mexico is our Nation’s second largest pork export market and pork recently became North Carolina’s biggest

generator of farm cash receipts, just passing poultry, which was hurting

because of Russia.

I am pleased to see from your testimony that USDA and USTR have sent

delegations to Mexico to address that nation’s impediments to trade. However, my pork producers are telling me that Mexico could soon issue a preliminary determination in a dumping case that could sharply curtail—and

even completely halt—U.S. pork exports to Mexico. I’m also told this case

is not based on an actual material injury, but on the fear of a potential injury that could occur later on.

If Mexico moves forward to block our pork exports, what will be our response? And what assurances can you give that this administration will use

all available tools to ensure that Mexico abides by its NAFTA obligations

and that U.S. pork exports will continue to flow without interruption to

Mexico?

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During our discussions with Mexico, we have made it perfectly clear that the

basis for their anti-dumping investigation on pork has no standing, and we consider

the initiation of this investigation a possible violation of Mexico’s WTO obligations.

Mexico does not produce enough pork to meet the demands of Mexican consumers,

and that is why U.S. exports to Mexico have increased 439 percent since 1995. We

are committed to ensuring that we maintain and grow this important market for

U.S. pork, and we will use all appropriate tools at our disposal to do so.

Mexico has also announced a new sanitary regulation, known as NOM 6,

which will be applied to imported pork, beef, and poultry. I am told that

this is a phony regulation that, if implemented, will significantly raise the

cost of exporting U.S. meat to Mexico. What is USDA doing to make sure

that Mexico stops using bad science and phony regulations to harass U.S.

products at the border?

We are aware that some inspections ordered by Mexico may be unjustified, and

we have made our objections known to the Mexican Government.

We are working with the Mexican Government in a variety of technical areas to

make sure that all inspection procedures follow sound science. In fact, our Food

Safety and Inspection Service visited Mexico last month for technical discussions on

meat inspections.

We will continue to monitor all inspection procedures ordered by the Mexican

Government to ensure they are in compliance with both sound science and their

international obligations.

Both of you in your testimony talked about EU’s efforts to reform its

Common Agricultural Policy (CAP). I understand and agree with you that

if adopted by the EU, these reforms could make it easier for the U.S. and

EU to reach an understanding regarding WTO AG negotiations.

However, my question is, what impact will these reforms have on the

market. I know ya’ll are more familiar with the details of those possible reforms than I am. I’m concerned that at the end of the day, the Europeans

will achieve the same results they do now—cheap agricultural products

that can be dumped on the world market—only through less objectionable

means. Can you talk in greater detail about these possible reforms and

what they will mean to the marketplace?

We still do not know what exact shape the reform of the EU Common Agricultural

Policy might take, or even for certain that it will be concluded. However, one major

component of the proposal is decoupling, i.e., delinking payments to producers from

the actual production of the commodity, in the crop and livestock sectors. Another

major component is the long-term shift of government expenditures from direct support for agriculture to funding for rural development. It is difficult at this point to

assess the specific market effects of such changes, but some shift in crop production

patterns could be expected, possibly making it less likely that the EU will find itself

in the type of surplus production situation that it has frequently seen in the past.

This then could lessen the pressure to use export subsidies to dump surplus commodities on world markets.

If the Europeans reject reform, yet again, the chances of a WTO agreement being reached on agriculture, in my view, are slim unless somebody

backs away from their earlier negotiating period. If progress is made on

the non-agriculture aspects of this WTO Round, you will come under tremendous pressure to surrender your position and accept the European agricultural proposal, which would reduce tariffs and subsidies, but not level

the playing field between our two economies.

I hope you are prepared to resist that pressure, because I promise you

that many of us here on this Committee who traditionally support trade

will abandon you in droves if agriculture again gets the short end of the

stick. Can you give us reassurance that this will not happen to agriculture?

I am strongly committed to reaching an agreement in the Doha Development

Agenda (DDA) that benefits U.S. agriculture. We have not backed off the DDA mandate on agriculture to substantially improve market access, to reduce with a view

to phasing out all forms of export subsidies, and to substantially reduce trade-distorting domestic support. We remain unsure of how far the EU is willing to commit

to reform, even if it continues to work toward the DDA mandate. Fulfilling the mandate, while certainly a challenge, will benefit U.S. agriculture.

QUESTIONS FROM CONGRESSMAN RICHARD POMBO

There has been a lot of discussion about the provisions in the farm bill

that mandate country of origin labeling (COOL) for a variety of products,

including meat, beginning September 30, 2004. I would like to ask you to

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explain to the committee exactly what the statue requires under the mandatory COOL.

The law requires retailers to label muscle cuts of beef, pork, and lamb as well as

ground beef, ground lamb, and ground pork; farm-raised and wild fish; perishable

agricultural commodities; and peanuts as to their country of origin.

Specifically, the law requires beef, pork, and lamb labeled as have a United States

origin be derived from animals that are exclusively born, raised, and slaughtered

in the United States (including cattle that were born and raised in Alaska or Hawaii

and transported for a period not to exceed 60 days through Canada to the United

States and slaughtered in the United States). For farm-raised fish and shellfish labeled as have a United States origin, commodities must be derived exclusively from

fish or shellfish hatched, harvested, and processed in the United States. Wild fish

and shellfish must be derived exclusively from fish or shellfish either harvested in

the waters of the United States or by a U.S. flagged vessel and processed in the

United States or aboard a U.S. flagged vessel. Fresh and frozen fruit, vegetables,

and peanuts labeled as have a United States origin must be derived exclusively

from produce or peanuts grown, packed and, if applicable, processed in the United

States.

The law also requires suppliers of covered commodities to supply information to

retailers indicating the country of origin; it prohibits USDA from using a mandatory

identification system to verify country of origin; and it requires USDA to enforce

country of origin labeling.

Is self-certification for livestock producers allowable under the statute

with regards to the mandatory COOL?

The law requires retail suppliers of covered commodities to supply information indicating the country of origin. This information must address the production steps

included in the origin definition (born, raised, and slaughtered). The law does not

prescribe the method for conveying this information through the marketplace. Although self-certification documents or affidavits may be a part of the chain of custody, records of the production steps are required to verify the origin claims.

Under the mandatory COOL, would it allow you to label meat, only derived from foreign born/raised livestock?

No. The law applies to all covered commodities and specifically identifies the criteria that product of U.S. origin must meetQuestions from Congressman Cal Dooley

As part of the WTO Doha Agenda negotiations on agricultural tariffs, the

administration has indicated a willingness to consider Asectoral initiatives

that would provide for more aggressive tariff cuts and subsidy reductions

for individual agricultural sectors seeking greater liberalization commitments than the across-the-board approach. In California, the fruit and vegetable sector is particularly interested in seeking faster and deeper tariff

liberalization than the general approach that is likely to emerge.

Is the administration currently seeking a sectoral initiative for fruits and

vegetables? If not, would you be willing to work with the private sector interests who support such an approach to build an international consensus

around a more aggressive sectoral initiative? What are the likely challenges and prospects for such a sectoral initiative?

The concept of ‘‘sectoral initiatives’’ has been an element of our approach since

talks started in 2000. As negotiations have progressed, we have intensified our outreach to industries, including fruits and vegetables. Support from other countries

will be key to developing a successful sectoral initiative, and we have raised our interests with other countries in Geneva and encouraged our private sector to begin

building coalitions with private sector interests in other countries. Improvements in

trading opportunities through negotiation are difficult by their very nature, and

these difficulties will be compounded by the complexity of organizing a coalition of

countries willing to reduce support and protection beyond levels required by the modalities. In particular, countries with high tariff and subsidy levels will likely resist

further reform commitments.

QUESTIONS FROM CONGRESSMAN NICK SMITH

How will the U.S.’s recently filed WTO case against the EU’s moratorium

on genetically modified products influence the ongoing WTO agricultural

negotiations? Will this result in delays in the negotiations or trade retaliation by the EU?

We do not anticipate a direct effect on the WTO agriculture negotiations. The core

negotiating issues have been well established and under discussion for a number of

years and are enumerated in the chairman’s first draft of modalities. None of these

issues relates to the dispute settlement proceedings on agricultural biotechnology

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products. Similarly, we do not anticipate this action to precipitate delays or retaliation from the EU: the WTO has a procedure for addressing disputes between members. We expect to move our trade relationship forward despite disagreements over

specific issues.

In the past bulk commodities have accounted for most of U.S. agricultural exports. In the 1990’s the U.S. started to export more high-value products such as meats, poultry, live animals, oils, fruits, vegetables, and beverages. Has this shift in export products influenced how negotiations are

handled?

The United States’ negotiating priorities in the WTO have remained consistent for

over two decades: substantial reduction and eventual elimination of trade-distorting

measures in each of the three pillars of market access, export competition and domestic support. These objectives cover both bulk and high-value agricultural products. While some differences in protection and support apply to various U.S. exports,

such as greater importance of tariff protection and relatively lesser importance of

domestic support and export subsidies for high-value products, trade-distorting

measures in all three pillars impair all U.S. agricultural products.

In pursuing our negotiation goals of increasing market access and eliminating export subsidies and trade-distorting domestic support, we have obviously met divergent views. Some nations (Cairns group) are saying that

the U.S. proposal (Harbinson paper) is not aggressive enough in pursing

these goals, while others (EU, Japan) are saying that our proposal is too

aggressive. In regards to the proposal that has been put forth, where is the

U.S. willing to make concessions and where are we not willing to negotiate?

The U.S. WTO agriculture proposal reflects our core interests in multilateral agricultural reform: substantial reductions in trade-distorting measures and reductions

in disparities across countries in allowed levels of trade-distorting support and protection. Achieving a result that meets these objectives is of fundamental importance

to the United States, but we need to be open to different approaches that achieve

the desired results.

Throughout the WTO negotiations the EU has been reluctant to engage

fully in debate due to its internal process to reform its Common Agricultural Policy (CAP). What is the administration’s strategy to push the EU to

make progress on CAP reform and bring them to the table on WTO negotiations?

The administration has been forcefully advocating a CAP reform package that results in substantial reductions in trade-distorting support in the EU. Engagement

with EU leaders, private sector interests, and the press has all highlighted the virtues of meaningful CAP reform, including the positive effect it will have on the

WTO agriculture negotiations. The U.S. negotiating proposals in Geneva have reinforced this message: the United States has made it clear that the WTO negotiations

must result in substantial reductions in trade-distorting support and tariffs, and

elimination of export subsidies. CAP reform will be a necessary, but not sufficient,

step in achieving this result.

How optimistic is the administration that some sort of agreement will be

reached on modalities by the mid-term review in Cancun, Mexico in September 2003? How about the final deadline of January 2005? How is the nature of the negotiations changing as we are getting closer to the deadlines?

Are countries becoming more willing to negotiate?

Meeting the January 2005 deadline is possible and remains our objective, but will

require focused work and substantial progress over the coming year. The meeting

in Cancun in September is a critical opportunity to reach agreement on some of the

core issues under consideration in agriculture and in other areas. In agriculture,

progress in the near term continues to depend on movement in the EU. If the EU

is able to achieve substantial reform of the CAP and translate that reform into more

focused engagement in Geneva, there is an opportunity to make meaningful

progress on agriculture by the Cancun meeting. Without substantial progress on

CAP reform, it will be difficult to move the agriculture negotiations forward before

Cancun.

QUESTION FROM CONGRESSMAN JERRY MORAN

As you know, Mexico is the U.S. dry bean industry’s largest export market. Dry bean exports to Mexico have historically contributed as much as

$110 million annually to the U.S. agriculture economy.

On January 21 of this year, Mexico closed its borders to U.S. dry edible

beans with no apparent justification. It seems that this action clearly vioVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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lates the North American Free Trade Agreement, as well as trade agreements under the WTO. Mexico has yet to provide a consistent explanation

for shutting down shipments of dry beans from the U.S., and the borders

remain closed.

I understand that this subject has been discussed by USDA and USTR

with their Mexican counterparts. What course of action are you pursuing

to reopen the Mexican market for U.S. dry beans? How soon can shipments

be expected to resume?

After lengthy discussions with Mexican officials at all levels, U.S. dry beans are

now able to resume shipments to Mexico. As of May 26, Mexico rescinded an emergency regulation that restricted imports of dry beans, and has implemented new

regulations that can be met by the U.S. dry bean industry. In addition, Mexico has

allocated the first portion of its annual tariff rate quota to Mexican importers, which

will allow duty free access for U.S. dry beans. We are pleased that Mexico has taken

these actions to resolve this dispute, and continue to monitor the situation to ensure

Mexico abides by its NAFTA and WTO commitments.

STATEMENT OF ROBERT B. ZOELLICK

Thank you Chairman Goodlatte, Mr. Stenholm, members of the committee.

I appreciate the opportunity to be here today with my close colleague and friend,

Secretary Ann Veneman. Working together closely, we have sought to ensure that

the Department of Agriculture and the Office of the U.S. Trade Representative operate effectively as partners pursuing the interests of America’s farmers and ranchers

around the world.

I want to thank you for your leadership on trade. Your hard work has helped propel the U.S. trade agenda forward—and American agriculture is stronger as a result. I look forward to continuing to work with the two of you and the committee

in the weeks and months ahead as agriculture negotiations intensify in the WTO

and other fora.

I also want to thank you, Mr. Chairman, and many others on this committee for

your support of our recent request for consultations in the WTO over the EU’s ongoing moratorium on agricultural biotech products, which is in complete violation of

international trade rules, the European Commission’s rules, and Europe’s own scientific analysis. This case underscores our commitment to enforcing global trading

rules. Upholding standards based on sound science, not irrational fears, is critical

to U.S. agricultural productivity and profitability—and to the lives and health of

poor people around the globe.

Why trade is important to U.S. agriculture. As Secretary Veneman has emphasized, U.S. agriculture must look overseas to generate sales and the expansion

of farm income. U.S. population and consumption growth are relatively flat, which

means growth prospects for farmers and ranchers in our home market are limited.

At the same time, U.S. agricultural productivity continues to climb, driving increased domestic output that can only be sold profitably if we expand overseas markets.

Foreign customers are already critical for U.S. producers and processors. Twentyfive percent of all cash receipts for agriculture are generated by exports. Nearly half

of American wheat and rice, about one-third of our soybean production, and 20 percent of U.S. corn is sold for export. For a number of specialty crops, foreign markets

are even more important: 65 percent of U.S. almonds, nearly 50 percent of U.S. walnuts and dried plums, and a third of U.S. raisins and table grapes are sold overseas.

The importance of exports to American agriculture is certain to rise in the future.

Ninety-six percent of the world’s consumers live outside the United States. Population and food consumption are expanding quickly in the developing world, and

consumers overseas are increasingly demanding the high-value products in which

the United States has a comparative advantage.

Exports of U.S. agricultural products generate additional economic activity that

ripples through the domestic economy. According to USDA’s Economic Research

Service, every dollar of agricultural exports generates another $1.47 in supporting

activities such as processing, packaging, shipping, and finance. The $53 billion

worth of agricultural products that the United States exported in 2002 generated

an estimated $78 billion in supporting activities. Nearly 800,000 Americans, on and

off farm, depend on agricultural exports for their livelihoods.

So we have immediate, tangible interests in expanding export markets for U.S.

producers. But we also have structural reasons for opening markets globally. An

open trading system fosters the development of many of the virtues sparked by

other free market policies: it encourages competition, prompts investment, spurs

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technological innovation, rewards initiative and hard work, and allocates resources

more efficiently. Open markets provide a conducive environment for opportunity,

hope, and development that enables the spread of liberty, democracy, and peace.

For the developing world, free trade for farmers offers a ladder of opportunity to

a better, more prosperous future.

Overview of the U.S. Trade Strategy since 2001. As President Bush made

clear on the day he interviewed me for the post of U.S. Trade Representative, agriculture is at the heart of this administration’s trade agenda. We recognize as well

that America’s farmers, ranchers, and agribusiness have provided the critical momentum for launching WTO negotiations and granting the President Trade Promotion Authority (TPA) as part of the Trade Act of 2002.

Since securing TPA, the President has had the key backing we needed to press

ahead with trade liberalization globally, regionally, and bilaterally. By advancing on

multiple fronts, we are creating a competition in liberalization, placing America at

the heart of a network of initiatives to open markets. If others are ready to open

their markets, America will be their partner. If some are not ready, the United

States will proceed with countries that are.

This competition in liberalization strengthens U.S. leverage, which is already considerable given the size, innovation, and appeal of the American economy. Countries

now knock on our door to ask for free trade agreements. By encouraging a reciprocity in openness, we can strengthen the domestic politics of trade: The United States

is already a highly open economy and the biggest single importer in the world; to

maintain support for trade at home we need to open markets—and opportunities—

for American interests around the world.

We have made important progress over the past two years, including helping

bring China and Taiwan into the rules-based multilateral trading system through

their accession to the WTO; launching a new global trade round at Doha in November 2001; advancing bold proposals and principles in the WTO’s Doha Development

Agenda for free trade in agriculture, manufactured goods, and services; securing

Congressional approval for a Free Trade Agreement with Jordan; completing FTA

negotiations with Chile and Singapore; beginning new FTA negotiations with the

five nations of the Central American Common Market, the five countries of the

Southern African Customs Union, Morocco, and Australia; pressing ahead with negotiations among 34 democracies for a Free Trade Area of the Americas; and

launching regional trade initiatives in Asia and the Middle East that expand access

to U.S. markets for the world’s poorest nations. These initiatives not only create

new opportunities for U.S. farmers, companies, and workers, but also provide greater choices for U.S. families.

The United States is once again seizing the global initiative on trade. This committee and its leaders have been instrumental in this effort.

Our bilateral and regional agendas have the potential to yield major benefits for

U.S. agriculture, even as we work on the WTO negotiations. These initiatives will

allow us to level the playing field where other countries—the EU and Canada in

particular—have already negotiated preferential access that disadvantages American exports. Bilateral and regional agreements can help address specific marketaccess problems—including SPS and other challenging standards issues—in a manner not possible in multilateral negotiations. In the Chile FTA talks, for example,

the United States focused the attention of Chilean regulators on unjustified sanitary

requirements for U.S. dairy and meat exports and made rapid progress by removing

some of those barriers in a way that would have been impossible otherwise. These

negotiations help secure open markets for U.S. agricultural exports while reserving

subsidy reform commitments for the WTO.

Although it is not the subject of today’s hearing, I also want to stress the priority

we place on enforcing existing trade rules. USTR and USDA have been working

hard on issues concerning China, Mexico, Russia, the European Union, and other

countries to ensure that U.S. farm exports get the treatment that has been promised

by our trading partners.

Today, however, I have been asked to speak about the WTO negotiations on agriculture. The remainder of my remarks will focus on the developments to date and

plans for the future.

The Doha Development Agenda in the WTO. The WTO negotiations launched

in Doha in November 2001 are the cornerstone of our trade agenda because the

most important reforms in the international agricultural trading system can only be

attained through substantial changes in global rules. The prior global negotiating

effort—the Uruguay Round (1986–94)—was the first serious attempt to impose reforming disciplines on the world agricultural trade. Yet like many first efforts, the

concluding compromise left much work to do: The agreement’s disciplines came at

the price of the accepting of great differences in subsidy and tariff levels. The WTO’s

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Doha Agenda provides the opportunity to address the barriers and asymmetries in

each of the three key problem areas in the agricultural trade: market access; export

subsidies; and trade-distorting domestic support.

The United States has set a bold mark in WTO agricultural negotiations, pointing

the way towards what should be done by submitting the first comprehensive proposal that set out an ambitious plan for reform. Our goal is to secure substantial

improvements in market access, the elimination of export subsidies, and the reduction and harmonization of trade-distorting subsidies on a path to their elimination.

By negotiating ambitious cuts in tariffs and trade-distorting subsidies, the U.S. proposal lays the foundation for growth in agriculture, lower prices for consumers, and

higher incomes for all.

First, we want to expand market access. In the Uruguay Round, restrictions on

trade were turned into tariffs and capped, and developed countries were required

to cut their tariffs by 36 percent on average, with individual tariff lines subject to

cuts as small as 15 percent. Today, the average WTO-allowed tariff on agricultural

products is still 62 percent—with some peak tariffs ranging from 500 to 1,000 percent.

Bringing these tariffs down—particularly the peak tariffs on priority products in

selected countries—is a principal aim of the U.S. proposal. Utilizing a Swiss 25 formula, the U.S. plan would substantially reduce tariffs in all WTO countries, bringing down the global average by 75 percent over 5 years, from 62 percent to 15 percent. Countries with the highest tariffs would be required to make the deepest cuts.

Second, we seek to increase export competition. Currently, export subsidies and

export monopolies—including state trading enterprises—are permitted by WTO

rules, subject to certain disciplines. These policies distort markets and hurt U.S. export sales and productive farmers in the developed and developing world. The EU

spent about more than $2 billion on agricultural export subsidies in 2000, compared

to U.S. spending of less than $20 million that year.

Eliminating export subsidies has been a core U.S. objective for nearly 20 years—

and we have made progress. The Uruguay Round cut export subsidies by 36 percent

on budgetary outlays and 21 percent on volume. The United States is now proposing

the outright elimination of export subsidies within five years and an immediate end

to single desk exporter privileges. We have also proposed disciplines for export credit and food aid programs to guard against market disruption while maintaining the

viability of these programs.

Third, we want to harmonize and reduce trade-distorting domestic support. The

Uruguay Round only started the job of tackling trade-distorting domestic subsidies.

That agreement allocated domestic subsidies into three categories: green box subsidies, which involved payments decoupled from production incentives, were permitted without limit; amber box subsidies, which includes payments linked to production, were capped at 1986–88 levels and then cut by 20 percent; blue box subsidies, for payments linked to reductions in production, were allowed subject to specific criteria. Furthermore, amber box subsidies below a 5 percent de minimis level

were not counted toward annual limits—that is, if the support is less than 5 percent

of the value of production of a specific commodity, or if the non-product specific support is less than 5 percent of total agricultural production, it does not count against

the ceiling for trade-distorting support.

As a result, the EU’s current limit for amber box is around $67 billion annually,

Japan’s limit is around $33 billion, and the U.S. limit is $19.1 billion. In addition,

the EU and Japan use blue box subsidies. All other countries have much lower levels of amber or blue subsidies, if any.

The U.S. agriculture proposal in the Doha negotiations seeks to build on the first

step of the Uruguay Round by pressing for much more substantial reductions to

achieve a more level playing field. In particular, the U.S. proposal calls for a cut

of over $100 billion in trade-distorting support globally, undertaken in a manner

that harmonizes levels across countries, with the eventual goal of eliminating such

subsidies altogether. The United States proposes maintaining current rules on nontrade distorting support (the green box)—spending in areas such as conservation,

research, food stamps, and the environment—as long as such spending is de-linked

from production incentives. We have also proposed maintaining the current de minimis exceptions.

As members of this committee know, reactions to the far-reaching U.S. agriculture

proposal reflect differing levels of commitment to support fundamental agriculture

reform in the WTO. Many countries have voiced strong support for the ambitious

reforms we are proposing. Others, such as the Cairns group of agricultural exporters, China, Egypt, and Mexico, have offered their own constructive proposals. The

EU, which subsidizes the most—and consequently, would be required to make the

deepest cuts—has proposed cuts along the lines of the Uruguay Round method. (For

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tariffs, the EU proposed a 36 percent average tariff cut, with a minimum cut for

each product of 15 percent; for amber box subsidies, a 55 percent cut; and for export

subsidies a 45 percent average cut in budget expenditures and a substantial but unspecified cut in volume.) Japan’s proposal would actually move agriculture negotiations backward by reducing quotas on imported rice; even though Japan could cut

its subsidy caps and eliminate export subsidies, it remains resistant as it holds out

on rice. Many developing countries have participated in only the most narrow sense,

calling for protection of their domestic markets while pushing for reforms by developed countries.

Negotiations have been complicated by the EU’s and Japan’s insistence that nontrade concerns be specifically addressed in the negotiations. All countries value agriculture for reasons beyond food production, such as national heritage, environmental

quality, rural employment, and so on. These non-trade concerns play an important

role in U.S. farm policy, too. However, we believe they are generally best addressed

through targeted and non-trade distorting measures, which are both more effective

and cause less collateral damage than blanket trade restrictions. The EU, arguing

that it must shield non-competitive producers in the negotiations, has proposed

rules that would allow trade-distorting measures’such as market access barriers and

new subsidies—to achieve its non-trade objectives.

After considering the differences between reformers and resisters, earlier this year

the chair of the WTO agriculture negotiations group, Stuart Harbinson, offered a

draft of modalities to guide the negotiations. (Modalities are the formulas and rules

to structure more detailed negotiations.) Chairman Harbinson obviously faced a difficult task. His draft proposed more substantial reforms than the Uruguay Round—

including the elimination of export subsidies and some use of harmonizing formulas.

This draft largely maintained the current approach to non-trade concerns, leaving

unchanged existing provisions for non-trade distorting support and health and safety measures without opening new justifications for support and protection. We seek

more ambitious reform than that offered in the Harbinson proposal. Many countries,

however, are vehemently opposed to even working with Harbinson’s suggested approach.

Nevertheless, despite the opposition, at this point the Harbinson draft has set the

framework for further discussion. Therefore, it is helpful to draw out five areas of

particular importance in the text:

First, the draft incorporates substantial progress on export subsidies and export

monopolies, including their eventual elimination. The proposed timeframe is disappointing: nine years instead of the five years in the U.S. proposal. There are also

other significant unresolved issues in the chair’s draft. The treatment of export credits in the text, for example, has not been fully specified, and food aid rules will be

tightened with provisions that the chair left for further consideration by WTO members.

Second, the draft proposes some important progress on market access. Improving

access for U.S. exports overseas continues to be our key interest. The draft modalities propose cutting the highest tariffs by at least 45 percent—larger than the Uruguay Round cuts. The chair’s text also adopted the principle we advocated of deeper

cuts for higher tariffs. And it ends the current safeguard provisions for developed

countries.

Yet the chair’s tariff reduction formula is less aggressive than our proposal. For

example, whereas the result of the U.S. plan would be to cut the average agricultural tariff worldwide from 62 to 15 percent, the average under the chair’s proposal

would be reduced to around 36 percent. The draft text does not end the use of monopoly importers, as we sought. Important issues left open in the text are the extent

of special and differential treatment for developing countries, particularly as applied

to the new concepts of a special agricultural safeguard for developing countries and

limited tariff cuts for so-called ‘‘special products’’ in developing countries.

Third, the draft makes proposals to cut domestic trade-distorting support, but

with insufficient harmonization. The draft is much more ambitious than the Uruguay Round agreement in this area: It calls for a 60 percent cut (versus 20 percent

in the Uruguay Round) and substantial reform of blue-box subsidies, yet the draft

modalities do not harmonize subsidies sufficiently to achieve the level playing field

that the United States advocates strongly. To achieve a successful WTO agreement,

we must bring EU trade-distorting subsidies much closer to the levels of the United

States and others.

The draft text would lower the EU’s amber box subsidy limits by $40 billion, in

comparison to a $12 billion reduction for the United States. The draft also proposes

capping and reducing—and possibly eliminating—the blue box. Yet the draft text

would leave the EU amber box cap at $27 billion (plus an uncertain blue box number) and the United States at $7.6 billion. The draft text also cuts the de minimis

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allowance in half. A key open issue in the draft is the extent of special and differential treatment for developing countries’ use of subsidies.

Fourth, the draft’s provisions on special and differential treatment undermine developing countries—potential benefits as exporters and importers. The United

States recognizes that developing countries need special treatment as they make the

transition to open market economies. In some countries, up to 70 percent of the population lives in rural areas, often on small, inefficient farms. In India, for example,

about 650 million people live outside urban centers, and many survive through subsistence farming. If undertaken too rapidly, the economic restructuring could lead

to social and political turmoil.

Yet flexible transitions and special needs should not degenerate into perpetual

protectionism. ‘‘Good intentions’’ that cover up trade barriers raise prices for the

poorest people, profit cosseted interests, increase costs for competitive businesses,

and block exports from productive farmers in other developing countries. The draft

modalities suggest the creation of too many new subsidy loopholes and provide an

unhealthy level of perpetual protection for producers in developing countries. We

need to strike the proper balance: We should address special needs of particularly

poor countries or sectors that need sensible transitions while still advancing open

markets for exporters and consumers in all countries, including developing nations.

Fifth, non-trade concerns cannot be used to justify disguised barriers to trade. The

draft modalities maintain the integrity of current WTO rules on non-trade concerns:

countries have full access to non-trade distorting policies, but possibly trade-distorting measures such as SPS barriers and labeling requirements must be consistent

with WTO requirements. We will continue to advance market-based farm policy, although others will press for wider latitude to interfere with trade to meet non-trade

objectives.

Looking Ahead. As described above, the United States and other major agricultural exporters generally seek greater reforms—more cuts in tariffs and subsidies—

than those proposed by the chair’s draft text. Yet others—particularly the EU,

Japan, and Korea—believe Harbinson’s text is far too ambitious.

In the coming months, we will be pressing to see if we come closer to finding a

way forward. Without substantial reform of the agricultural trading system—as 144

economies pledged in the Doha negotiating mandate—we are highly unlikely to

progress with the rest of the topics under negotiation.

A group of about 25 WTO Ministers are scheduled to gather in Egypt in June to

discuss key issues. In September, all trade ministers will meet in Cancun to assess

progress.

During this period, I would suggest to the committee that two developments are

of special importance.

Reform of the EU’s Common Agricultural Policy (CAP). First, the European Commission has proposed a package of reforms of the CAP to the EU’s member states.

The purpose of these proposals is to prepare for EU enlargement, better support

rural and environmental objectives, and move toward market reforms. A key element of the package is to decouple farm subsidies from production. (Fully decoupled

payments would qualify for the green box, as they do in the United States.) The

Commission is pressing EU member states to approve its proposal by mid-June.

Although these CAP reforms are being pursued for the EU’s own internal reasons,

they offer a second benefit for one action: The decoupling and other reforms would

give the European Commission more flexibility in the Doha negotiations, especially

to cut subsidies.

Without the prospect of substantial movement by the European Union on CAP reform—and then in the Doha agricultural negotiations—we cannot achieve the necessary reforms in the world agricultural trade.

Second, we need innovative special and differential treatment for developing countries. Countries that are seeking to avoid an ambitious result in agriculture will try

to gain the support of developing nations by warning of the difficulties of liberalization and organizing a coalition that favors only modest change. For example, the EU

and some 70 countries circulated a letter advocating the use of the Uruguay Round’s

approach of percentage cuts for tariff reductions rather than harmonizing formulas.

The challenge for the United States and other major agricultural exporters is to

help design special and differential treatment provisions that facilitate reform and

development, not frustrate it. Therefore, we have suggested a discussion of combining ambitious tariff cuts with safeguards for developing countries that enable them

to temporarily restrict imports that displace subsistence farmers. We are also examining special subsidy provisions that would allow developing countries to support domestic industries with minimal market distortions. Striking the right balance is

critical: Developing countries should have their legitimate concerns addressed; at

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the same time, we have made it clear that the negotiations must result in meaningful reforms by all members.

As the negotiating process proceeds, we will be able to better assess the prospects

for CAP reform and the EU’s willingness to reform world agricultural trade, Japan’s

and Korea’s willingness to permit agricultural intransigence to subvert the Doha negotiators, and the developing countries’ willingness to open their own markets while

meeting special concerns. If there is positive movement, the key question we need

to consider together is this: Given the foreign subsidies and market-access barriers

that U.S. producers must contend with currently—and also taking into account our

own sensitive sectors—what combination of major reforms can be achieved that represents a successful step forward? Of course, this is a question without an easy or

direct answer.

Since agriculture was not governed meaningfully by multilateral trade rules until

the Uruguay Round, the industrial sector has had a nearly 50-year head start on

eliminating trade barriers. We need agriculture to catch up quickly, recognizing

carefully and realistically our own interests, given our current position. We will

work closely with this committee, your Senate counterpart, and others in Congress—and with American agriculture—to make a clear-eyed assessment of how to

maximize benefits for U.S. farmers and ranchers and of what is best for the United

States.

In conclusion, I would like to stress again how much we value the support and

guidance that we have received from Members of this Committee. The administration is working hard to promote the interests of U.S. farmers, ranchers, processors,

consumers, and families through global agricultural reform. A close consultative relationship with Congress will be particularly important as we face challenges in the

months ahead.

We also hope that Members of this Committee will help us through your contacts

with foreign government officials, legislators, and opinion leaders—stressing the

message sent by the combination of last year’s farm bill and Trade Promotion Authority: that America’s farmers and Congress back open markets and lower subsidies, but that we expect our trading partners to move with us.

We also appreciate the need to follow through on past trade pacts. We will be

monitoring compliance closely, working to solve problems constructively where possible, and insisting on enforcement of our rights when necessary.

Finally, I want to make a special note of the progress that we have made on concluding trade agreements this year. We will present the Singapore and Chile FTAs

to the Congress this year. We are pleased with the support from farm groups for

approving these agreements. We look forward to continued close cooperation with

this Committee on those two FTAs.

Thank you, and I would be pleased to take your questions.

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(75)

MULTILATERAL AND BILATERAL

AGRICULTURAL TRADE NEGOTIATIONS

WEDNESDAY, JUNE 18, 2003

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, DC.

The committee met, pursuant to call, at 10:11 a.m., in room 1300

of the Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives: Pombo, Smith, Lucas of Oklahoma,

Moran, Jenkins, Gutknecht, Hayes, Osborne, Pence, Rehberg, Putnam, Janklow, King, Nunes, Stenholm, Peterson, Dooley, Holden,

Etheridge, Baca, Alexander, Ballance, Cardoza, Scott, Lucas of

Kentucky, and Udall.

Staff present: Lynn Gallagher, Jason Vaillancourt, Brent Gattis,

Elizabeth Parker, Callista Gingrich, clerk; Elyse Bauer, Kellie Rogers, and Andy Baker.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. The hearing of the House Committee on Agriculture to review multilateral and bilateral agricultural trade negotiations will come to order.

I want to thank you all for participating in this hearing today.

The topic of today’s hearing is a review of the multilateral and bilateral agricultural trade negotiations, and I want to welcome all

our witnesses. We will hear from representatives of major agricultural organizations, all representing the crops grown in the United

States.

It is important to hear their views on the current agricultural negotiations, which include the World Trade Organization and the

Free Trade Area of the Americas. Other negotiations going on that

will have an impact on U.S. agriculture include the Central America Free Trade Area (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua), Morocco, Singapore, the Southern African

Customs Union (Botswana, Lesotho, Namibia, South Africa and

Swaziland), and Australia.

In addition, the administration and the Government of Bahrain

have announced the intention to begin negotiations for an FTA.

Other possible FTA’s include countries in the Middle East and

Thailand.

Just last month the committee heard from Secretary Veneman

and Ambassador Zoellick on issues related to agricultural trade

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and the WTO negotiations. This hearing is a continuation of the

promise I made at the beginning of this Congress that the committee intends to pay very close attention to all trade negotiations and

to listen to U.S. agriculture’s views on this important matter.

This includes ongoing multilateral trade negotiations and all regional and bilateral negotiations. It also includes oversight of past

agreements, such as with China, and other accessions to the WTO,

such as Russia. It means looking closely at problems U.S. agriculture faces regarding sanitary and phytosanitary issues, such as

those with Australia.

I am pleased that the administration has acted regarding the

problems U.S. agriculture has with some exports to Mexico. On

Monday, Ambassador Zoellick announced that the U.S. is filing a

WTO case against Mexico in connection with Mexico’s antidumping

orders on U.S. beef and U.S. rice. Again, the committee will follow

this matter closely, including those issues with other agricultural

exports to Mexico.

United States agriculture depends on exports and a vibrant trade

policy is important to U.S. farmers and ranchers. We want to seek

greater opportunity for our agricultural products and trade negotiations can make that possible. U.S. agricultural markets are already

open to imports and our tariffs our low, agricultural tariffs worldwide average about 62 percent, while U.S. agricultural tariffs are

12 percent. It is to the advantage of U.S. agriculture that we continue to open markets and remove barriers to our agriculture exports.

I know that many of our witnesses will pay close attention both

individually and through organized groups, such as the Agriculture

Policy Advisory Committee and several agriculture technical advisory committees. You should continue to make sure that both

USDA and USTR are aware of the impact of trade agreements and

negotiations on your members back home. This hearing will provide a means to share your views and theirs with me and other

committee members.

Again I thank you all for participating in the hearing, and at this

time it is my pleasure to recognize the gentleman from Texas, the

ranking member, Mr. Stenholm.

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman. I would like to welcome all of the witnesses today. I look forward to your testimony,

which among other things discusses in some detail the many potential problems with the Harbinson approach on WTO agriculture negotiations. You are up continuous to discuss possible compromises

on partial decoupling of farm subsidies, perhaps up to 60 percent

on subsidies on grains, and 40 percent on livestock. Commissioner

Fischler reportedly insisting on at least 75 percent decoupling.

These half measures appear to be aimed at the Harbinson proposal to cap blue box subsidies and reduce them by half. Given the

fact that the United States would not be able to use the blue box,

and that Europe’s blue box subsidies are on top of its amber box

subsidies, which are subject to a limit that is three times the

United States limit, I find it hard to see much reform in the EU

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cap reform. And I think this foot dragging illustrates why I now

like to talk about fair trade as opposed to free trade. Some who

preach Free Trade think that the United States would be better off

if it unilaterally reduced its tariffs, and ended subsidies. I agree

that there are benefits to lowering our tariffs, which are not only

taxes on our competitors, but also taxes on our own consumers. But

I think we have even more to gain by negotiating with our trading

partners for mutual changes in policy.

In his testimony today, Mr. Camerlo mentions the willingness of

our dairy producers to give up export subsidies in exchange for Europe and the rest of the world doing the same. He goes on to say

that contradictory as it may sound, to destroy export subsidies we

must use them, which means using our DEIP program to the fullest extent needed. The same basic philosophy that I thought everyone understood, but there still seems to be those out in the world

that do not understand the rationale of the farm bill that we

passed in 2002.

Everybody talks about us increasing our subsidies, but all we did

was increase the potential subsidization of our agriculture in America by what we are allowed to do by the agreements that we have

already signed. In other words, we now are at the level we are allowed to be under law. And I hope everyone understands that I for

one, and I believe the majority of this committee would gladly reduce all subsidies, if everybody did it. But everybody is not going

to do it any time soon, so I like the approach suggested by Mr.

Camerlo.

I would also like to quickly mention food aid. And I appreciate

Mr. Stallman’s comments on Food Aid in his testimony we will

hear in a moment. I would encourage all of the commodity organizations here today, that have helped to make the U.S. food aid programs the most successful in the world to take a look at attachment 6 of the Harbinson paper which contains reporting requirements on food aid. Article 10–4 of the Uruguay Round already contains provisions adequate to ensure that food aid does not interfere

with trade. Specifically, the Uruguay Round requires that aid not

be tied to commercial sales, not create disincentives to recipient

country production or marketing, and not displace commercial imports in the recipient country. These provisions are enforced by the

Food Aid Convention, and the Foreign Agriculture Organization of

the UN. Let’s leave humanitarian aid to the experts at those agencies, and keep the WTO focused on trade. We do not need new provisions on food aid and the Doha Round.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Stenholm. We would acknowledge any other members who have opening statements. We would

be happy to make them a part of the record.

PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Thank you Chairman Goodlatte and Ranking Member Stenholm for holding this

important hearing to review multilateral and bilateral agricultural trade negotiations.

It is a tribute to our agriculture industry that we will export roughly $57 billion

in agricultural products in 2003. With nearly 25 percent of farm income resulting

from agricultural exports, it is easy to decipher that the success, profitability, and

future of American agriculture is directly dependent upon maintaining existing exVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00082 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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port markets and creating new market opportunities through free trade agreements

like we are discussing here today.

To the groups represented on the panels today, I thank you for your informative

testimony. At past hearings on agricultural trade negotiations, this committee has

heard from representatives from the USDA and USTR. I believe that it is equally

important to hear from groups such as yourselves who speak directly for the producers of these various agricultural commodities.

It is imperative that this administration and Congress continue topursue free and

fair agricultural trade agreements that allow U.S. producers to compete on a level

playing field in the world market. Besides focusing on tariff reduction, export subsidies, and trade distorting domestic support policies, we should aggressively seek

to strike down scientifically-unjustified barriers to trade such as regulations on

GMO products and sanitary and phytosanitary (SPS) measures.

I also believe that it is equally important for both Congress andproducers to take

a hard look at our own domestic support programs toensure that they are not negatively influencing domestic and foreignmarkets, which could in turn hinder our negotiating leverage and waste the opportunity to open new markets for our products

through ongoing and future trade negotiations. Given a level playing field, I believe

that our producers’ efficiencies will allow them to not only compete but profit substantially on the world market.

PREPARED STATEMENT OF HON. MAX BURNS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF GEORGIA

Mr. Chairman, due to markup of H.R. 2210 (Head Start) in the Committee on

Education and the Workforce, I was unable to attend the full committee hearing on

multilateral and bilateral trade negotiations. However, I would like to thank you

and Ranking Member Stenholm for holding a hearing on this important issue to the

future of American agriculture. It is imperative that Ambassador Zoellick and the

USTR increase market access for agriculture producers. I look forward to positive

outcomes from the World Trade Organizations Fifth Ministerial meeting in Cancun,

Mexico, and look forward to working with you in the future as multilateral and bilateral trade negotiations progress.

The CHAIRMAN. At this time we would like to welcome our first

panel of witnesses. Mr. Hobey Bauhan, president of the Virginia

Poultry Federation, in Harrisonburg, VA; Mr. Bob Stallman, president of the American Farm Bureau Federation; Mr. Ernest Reeves,

National Cattlemen’s Beef Association, Executive Committee member, from Mt. Solon, VA; Mr. John Caspers, president of National

Pork Producers Council, Swaledale, IA, and Mr. Dennis McDonald,

Trade Committee chairman of R-CALF USA, in Melville, MT.

I want to particularly note and welcome Mr. Bauhan and Mr.

Reeves, who are from the Shenandoah Valley and the Sixth Congressional District of Virginia. I would like to welcome you all.

Your full statements will be made a part of the record, and we

would ask that you limit your comments to 5 minutes. And we will

start with Mr. Bauhan.

STATEMENT OF HOBEY BAUHAN, PRESIDENT, VIRGINIA

POULTRY FEDERATION, INC., HARRISONBURG, VA

Mr. BAUHAN. Good morning and thank you, Chairman Goodlatte,

Congressman Stenholm, and committee members for this opportunity to present the U.S. poultry producers and processors views

and recommendations regarding the very important issue of international agricultural trade negotiations. The issues for U.S. poultry

are many, and this hearing can serve as an important opportunity

to more fully and successfully address the many issues confronting

agricultural trade negotiations. U.S. poultry companies appreciate

the chairman’s invitation to be part of this very vital discussion. It

is our hope that our efforts can contribute to and be a part of a

satisfactory resolution of these trade issues.

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My name again is Hobey Bauhan, president of the Virginia Poultry Federation. In addition to representing my organization, I am

pleased also to be representing today the National Chicken Council, the National Turkey Federation, and the USA Poultry and Egg

Export Council. My organization, the Virginia Poultry Federation,

was founded in 1925 and represents all sectors of the Virginia poultry industry. A healthy and robust export market is essential, not

only for my member companies, but essential for all poultry companies across the United States.

I would appreciate my entire written statement will be included

in the record of the hearing. And in the interest of adhering to my

allotted time, I will forego presenting the body of my statement,

and use my time to list the recommendations that are presented

near the conclusion of my written statement.

Permit me to highlight these recommendations, they are: to continue to work diligently toward a successful conclusion to the Doha

Round of WTO negotiations; continue to pursue the successful conclusion of bilateral free trade agreements that include acceptable

provisions for poultry trade; continue to work aggressively to have

full and complete compliance by signatories to agreements that

have already been concluded; have trading partner agree to pre-determined procedures for an expedited resolution of sanitary and

veterinary issues; withhold Congressional approval of graduating

Russia from the annual review as provided by the Jackson-Vanik

Amendment until U.S. poultry trade with Russia returns to more

normal levels; withhold support for WTO membership for Russia,

until Russia fully demonstrates it will abide by WTO rules; in the

absence of a resolution for the Russia import quota issue for poultry that trade actions be pursued by the U.S. Trade Representative;

that USDA organize a permanent, dedicated, full-time task force of

USDA technical and scientific experts to be dispatched to trouble

spot countries that are using non-science based sanitary and veterinary measures to disrupt or halt U.S. poultry and red meat exports, and finally provide the U.S. Trade Representatives Office

with a more adequate budget so that more sufficient resources can

be dedicated to resolving existing agricultural trade issues and preventing new issues from occurring.

I realize these issues may be difficult to fully appreciate without

the information presented in my statement. Therefore I would be

pleased to respond to any questions to help clarify and elaborate

upon these recommendations.

Thank you for the opportunity to present our recommendations

regarding agriculture trade negotiations and issues. As you will

note from my prepared statement, U.S. poultry producers have a

number of significant serious issues with a host of countries. It is

my hope, and the hope of my fellow industry men, that U.S. poultry exports can increase in the years ahead. We are confident that

with the support of this committee will help us achieve that necessary goal. I appreciate and look forward to that continued support. Thank you.

[The prepared statement of Mr. Bauhan appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Bauhan. Mr. Stallman, we are

pleased to have you with us today.

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STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN

FARM BUREAU FEDERATION

Mr. STALLMAN. Thank you Mr. Chairman, Mr. Stenholm, members of the committee. It is certainly my pleasure to be here today

to present the views of our farmer and rancher members on the

current status of agricultural trade negotiations.

U.S. agriculture depends heavily on exports. Some farmers and

ranchers would like us to turn our backs on trade and especially

on efforts to expand foreign markets. These folks are understandably frustrated by foreign trade barriers and subsidies, which put

us at a competitive disadvantage in many markets. However, we

need to look for opportunities to improve the situation.

Agriculture’s best opportunity to respond to the array of problems in the global market is the Doha Round of WTO trade negotiations.

The AFBF Board have spent a substantial amount of time discussing the Harbinson proposal. The board voted unanimously that

the Farm Bureau position is that having no WTO agreement would

be better than accepting a poor agreement, and that the current

Harbinson proposal would be a poor agreement for American agriculture. While we have supported freer and fairer trade agreements

in the past, and currently support the U.S. agricultural proposal

for the Doha negotiations, we do not support the current Harbinson

proposal.

However, we do believe it is important to provide a clear indication of our objectives for each of the specific topics to create a better understanding of what constitutes an acceptable agreement. We

are encouraged by several provisions in Chairman Harbinson’s current text:

The complete elimination of export subsidies has been an important an longstanding Farm Bureau objective. The Harbinson proposal is consistent with that goal of complete elimination and

would do so under a mechanism that front load the stated phaseout of those subsidies. We would encourage a quicker phase-out

than proposed.

Mr. Harbinson’s approach to export State Trading Enterprises

forces elimination of their monopolistic practices and increases

transparency in their operations. There should be no wateringdown of this proposal.

Mr. Stenholm commented on food aid. He is absolutely correct.

We are glad the Harbinson proposal revised the initial proposal

that was there, but it is going to involve a lot of monitoring during

the negotiations to be sure that food aid isn’t brought in as one of

the negotiating items.

The text maintains the basic criteria for non-trade-distorting or

(green box) domestic support. We strongly support maintaining

that current criteria and ensuring there are no caps on non-tradedistorting support.

The Harbinson text does not open the Sanitary and

Phytosanitary Agreement. We strongly support that provision and

would adamantly oppose any changes to the SPS agreement. We

urge strong resistance, to any attempts by the EU or others to

allow social or economic considerations to form any basis for applyVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00085 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
81

ing SPS measures in exchange for reduction in subsidies, tariffs or

other negotiating issues.

Farm Bureau does have major concerns with other aspects of the

Harbinson text. Only modest tariff cuts from the bound levels and

the lack of harmonization in trade-distorting domestic supports are

both extremely troublesome. We must truly level the playing field

in this negotiation if we are to gain the support of America’s farmers and ranchers.

And I will talk about some of the Harbinson modalities that

would not produce a positive impact for U.S. agriculture.

Market Access. the Uruguay Round created inequitable, unbalanced access to markets. The Harbinson paper recognizes the problems of those tariff inequities and accepts the need for a mechanism to adjust them. However, he rejected the Swiss formula proposal advanced by the United States which we strongly support, in

favor of a banding approach. The Harbinson approach contains

some degree of tariff harmonization and we would not rule out

such a technique, but it must result in significant improvement in

the percentage of reductions so that the effect is commercially

meaningful access to markets.

On applied tariffs, the United States also proposed that tariff

cuts be implemented from applied rates, rather than bound rates.

The Harbinson text, which proposes reductions only from bound

rates would have almost no effect on the actual opening of many

markets.

On special and differential treatment, GATT and WTO negotiations have traditionally recognized the developing countries, and

particularly least developed countries may require S&D treatment

under trade rules to give them more time to adjust to competition

and to allow mechanisms to address some economic development.

The Farm Bureau does not disagree with the need for S&D treatment, but is quite concerned about the Harbinson proposal which

provides markedly lower levels of commitment and longer phase-in

periods for developing countries.

Any S&D treatment should be temporary, narrowly targeted,

transparent, and based on objective criteria.

On domestic supports, the Harbinson proposal addresses several

Farm Bureau objectives, at least partly, but is woefully inadequate

achieving an acceptably level of overall harmonization.

The blue box proposal does provide an option for elimination

which we would support, however that is contingent upon significant reductions in amber box expenditures as the blue box is rolled

into the amber box to result in a satisfactory level of harmonization.

On the amber box the Harbinson text accepts the European proposal for equal percentage reductions from unequal levels of domestic support that locks in place the disparities that exist now, and

that is unacceptable.

Secretary Veneman characterized it accurately as a perpetuation

of inequities. We have just completed an analysis of the Harbinson

text, and have provided a copy of that to the committee, and I

think it indicates why we need some significant change.

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I will probably in the interest of time, I will let the written

record stand with respect to our Free Trade Agreements and Chile

FTA and FTAA. Thank you.

[The prepared statement of Mr. Stallman appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Stallman. We are pleased to welcome Mr. Reeves. I would note a number of members of the committee staff and the staff of some individual members had the opportunity to visit your farm in Mt. Solon, and we were all very impressed. We are delighted that we are able to have you up here

today as well. Welcome.

STATEMENT OF ERNEST S. REEVES, REGIONAL VICE PRESIDENT, POLICY, NATIONAL CATTLEMEN’S BEEF ASSOCIATION

Mr. REEVES. Thank you Chairman Goodlatte and members of the

committee. National Cattlemen’s Beef Association appreciates the

opportunity to present our views on the current situation regarding

multilateral and bilateral agricultural trade and negotiations. I am

Ernie Reeves, NCBA vice president for policy from Mt. Solon, Virginia.

NCBA supports trade initiatives that reduce barriers to access

for U.S. beef. NCBA and many other U.S. agricultural organizations worked tirelessly for Trade Promotion Authority to support

the administration’s pro-trade agenda. We support this agenda because it is the right thing to do for U.S. agriculture and for the

country. Trade liberalization has been a key to economic growth for

centuries. Nonetheless, there is concern that past negotiations have

given more access than we have received. We need trade agreements that provide opportunities for U.S. beef producers to expand

their ability to export product.

The United States is the world’s largest beef importer and the

second largest beef exporter. In 2002, the U.S. imported approximately $2.8 billion of beef and variety meats and exported $3.2 billion. Due to the unique position of our industry as importer and exporter, NCBA must consider balance, equity, and fairness of proposed trade initiatives to assure that any agreement provides net

access for U.S. beef.

In a world of unlimited trade issues and limited negotiating resources, NCBA strongly prefers focusing on the World Trade Organization’s Doha Round multilateral initiative. Expansion of market

access for U.S. beef during the past decade was directly related to

negotiations during the Uruguay Round. NCBA will not support increased access to U.S. beef market until meaningful access and tariff reduction is achieved in other major beef importing countries.

NAFTA has contributed to a 33 percent increase in per capita income over the last 5 years for Mexico’s 103 million citizens. This

increase in disposable income has led directly to increased Mexican

beef consumption. From an inconsistent market of about 100,000

million metric tons and $200 million prior to NAFTA, Mexico was

our most significant market in terms of tonnage in 2002 of 350,000

metric tons, $854 million.

This is a mutually beneficial trading relationship, as U.S. also

imports around 1 million head of Mexican feeder cattle each year

that have a value of over $300 million. In fact, today’s integrated

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North American cattle market now looks very much like what was

envisioned a decade ago by NAFTA proponents of consumer-driven

economic signals dictating the future direction of this industry.

Increasing trade relationships with Central American countries

will contribute to economic growth, political stability, bolster frontline defenses against the introduction of foreign animal diseases

into North America and have the potential to moderately increase

U.S. exports of high quality beef.

With these negotiations soon reaching a critical phase, NCBA believes there are three key aspects that need to be considered. The

first is that this agreement must not exclude any agricultural product. The second, the five participating Central American Governments must begin to understand that U.S. congressional ratification of this agreement will be difficult and improbable without the

support of U.S. agriculture on Capitol Hill. Third, the beef industry

does not consider it acceptable for the participating countries to increase their tariffs from the current applied rates to the WTO

bound rates prior to harmonization, so as to negotiate down from

a higher level. We expect our Central American trading partners

to negotiate this agreement in good faith—market access negotiations on tariff rate should start at the current applied tariff rates.

The United States is already the most open, least restricted

major beef market in the world and NCBA firmly believes that

there would be no-net benefit for the U.S. cattle industry from an

FTA with Australia. We continue to believe that the multilateral

WTO negotiations provide the best strategy for reducing unfair

trade barriers and opening markets for U.S. agricultural products.

Australia did not fill its TRQ in 2002. Therefore, NCBA does not

believe that increasing Australia’s access to the U.S. beef market

is warranted. Conversely, Australia will never be a market of any

consequence for U.S. beef.

Recent developments regarding the timeline for negotiating this

agreement are very concerning to NCBA. The shadow this situation

casts over our long-time support of trade liberalization can only be

brightened via greater multilateral access negotiated on a parallel

track.

At this moment, NCBA is currently embroiled in challenges in a

relationship with our top two customers: Mexico and Japan. We are

also constantly reminded of our long-standing dispute with the EU,

a case that our industry clearly won but has yet to fully resolve.

The United States must hold its trading partners to commitments agreed to in previous trade agreements and aggressively negotiate access for U.S. agricultural commodities, or risk losing public support for trade and international marketing. NCBA firmly believes that any expansion of access to the U.S. beef market must

be part of an overall package that gains access for U.S. beef exports. NCBA will oppose any agreement that allows a net increase

in access to a U.S. beef market. A strong, clear and irrevocable

message must be sent to Cairns Group and Mercosur beef exporting countries, that no increased access to U.S. beef market will be

forthcoming until meaningful access and tariff reduction is

achieved in other major beef importing countries.

NCBA appreciates the initiatives that have been undertaken to

gain access to international markets and to resolve lingering issues

84

that restrict the ability of the U.S. beef industry to offer its products to international consumers. We look forward to working with

all of our trading partners to address industry concerns about current global disparities in market access, export subsidies and domestic support, as well as maintaining the disease-free status of

the U.S. herd. Thank you for the opportunity to present this information before the committee. I’d be willing to answer questions at

the appropriate time.

[The prepared statement of Mr. Reeves appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Reeves. Mr. Caspers, welcome.

STATEMENT OF JON CASPERS, PRESIDENT, NATIONAL PORK

PRODUCERS COUNCIL, SWALEDALE, IA

Mr. CASPERS. Thank you. Mr. Chairman and members of the

committee, I am Jon Caspers, a pork producer from Swaledale,

Iowa, and currently President of the National Pork Producers

Council.

In 2002, U.S. pork exports set another export record. Much of the

growth in U.S. pork exports is directly attributable to new and expanded market access through recent trade agreements. However,

as the benefits of the Uruguay Round and the North American

Free Trade Agreement begin to diminish, the negotiation of new

trade agreements becomes paramount to the continued growth and

profitability of U.S. pork producers.

While the WTO negotiations clearly offer the single largest opportunity to increase exports, the bilateral and regional negotiations also offer significant opportunity. We support the recently

signed U.S. Chile Free Trade Agreement, and have provided specifics in my written statement.

While U.S. pork producers and others in U.S. agriculture have

benefited significantly from past trade agreements, we must all remain vigilant in protecting the gains made in past trade agreements. It is imperative that the United States act decisively to protect the gains made in past trade agreements in order to retain and

shore up support in U.S. agriculture for new trade agreement initiatives.

Effective May 26 of this year, Mexico terminated its antidumping

duty order on U.S. live hogs. While this is a most welcome development, Mexico’s most recent actions with respect to U.S. pork imperil the livelihoods of thousands of U.S. pork producers.

Like the U.S. and other countries, Mexico has a right to use its

trade laws. However, Mexico does not have license to flaunt WTO

rules and use its trade laws as a tool of protectionism. The antidumping investigation that Mexico initiated against U.S. pork exports on January 7, is probably the greatest abuse ever of WTO

antidumping rules. As underscored by USTR in its discussions with

Mexico, the case is illegally initiated and must be terminated.

In addition to the illegal initiation of an antidumping case

against U.S. pork, Mexico continues to illegally stop U.S. pork production at the border for alleged sanitary concerns. In December

2002, large quantities of U.S. pork were rejected at the border for

unjustifiable sulfamethazine concerns costing the U.S. pork industry millions of dollars in losses. Earlier this year, Mexico slowed

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U.S. pork exports by testing for copper and other metals. And most

recently, Mexico has promulgated new regulations which are clearly intended to restrict U.S. pork, beef, and poultry exports to Mexico.

To make matters even worse, Mexican producers and members

of the Mexican Congress are claiming, based on dubious data that

U.S. pork exports to Mexico have increased in 2003. As detailed in

the table in my written statement, the preliminary Mexican statistics overstate U.S. exports by approximately 38 million kilos, or

499 percent in January 2003. And by approximately 10 million

kilos or 157 percent in February 2003.

This gap between the U.S. and Mexican data is far outside the

historical variance and can only have been caused by incorrect

data. In fact as demonstrated by the official U.S. exports statistics,

U.S. exports of pork are decreasing in 2003. It is imperative that

the U.S. Government convince the Mexican Government to base its

decision in the antidumping case on accurate import data.

The preliminary determination in the antidumping investigation

could be issued imminently. The possibility of an affirmative finding of injury by Mexico with the imposition of trade restricting

antidumping duties, is exacerbated by these suspect data.

The stakes in Mexico are very high for U.S. pork producers and

any interruption of our pork exports to Mexico, whether through a

trade case or through legislative or regulatory means would be catastrophic for the industry. Mexico is the second largest export market for the U.S. pork industry. In 2002, the U.S. exported to Mexico

almost 218,000 metric tons of pork valued at $252 million.

There is no good time to lose a major export market, but U.S.

pork producers are particularly vulnerable at the present time. The

average U.S. pork producer has endured 18 straight months of

losses. If the Mexicans place antidumping duties on U.S. pork or

take other action to restrict U.S. pork exports, U.S. hog prices will

decline and thousands of producers will be forced out of business.

Mr. Chairman, I thank you for the opportunity to present this

statement.

[The prepared statement of Mr. Caspers appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Caspers. Mr. McDonald, welcome.

STATEMENT OF DENNIS McDONALD, INTERNATIONAL MARKETS COMMITTEE CHAIRMAN, R-CALF USA, MELVILLE, MT

Mr. MCDONALD. Yes, thank you Mr. Chairman, ranking member

Stenholm, Congressman Rehberg from Montana, and members of

the committee.

My name is Dennis McDonald, and my wife Sharon, of 26 years

and our four children, own and operate the Open Spear Ranch located in South Central Montana. I serve as International Markets

Committee chairman for R-CALF. I have served for 4 years as a

USDA Trade Advisory Committee member for livestock. And serve

as vice president of the Montana Cattlemen’s Association.

I would like to start by commending USTR on working to expand

agricultural trade and reduce trade barriers around the globe. I

86

also would like to applaud the administration, as our chairman

pointed out earlier, on their stands with Mexico vis-a-vis U.S. beef.

Today, I would like to focus my comments on special rules to address distinct issues associated with perishable, seasonal and cyclical agricultural products.

I am probably a typical cattle producer in Montana, raising a cow

herd to produce weaning calves at around 600 pounds. And then

I background my cattle at the ranch to a weight of 700 to 750

pounds. Thereafter, with varying degrees of success or lack thereof,

I make a judgment on the market and either sell the calves as

feeders, or send them on to a feed lot to be finished as slaughter

ready cattle. Cattle that are fed to a finished rate of 1,250 to 1,300

pounds, must be processed when ready. A producer feeding cattle

has little choice when the cattle are ready for slaughter. When they

are ready, they are ready. I call it gate to plate. To continue to feed

cattle after they have reached their prime, may cost the producer

in quality and added feed costs. Thus, cattle have been properly

classified as a perishable and cyclical agricultural product.

When Congress passed the Trade Promotion Act, Congress addressed the particular problems facing producers of perishable and

cyclical products. Cattle at that time were recognized legally as

such a product. Incorporating changes to WTO rules, recognizing

perishable seasonal and cyclical products is critical to the health of

the U.S. cattle and beef industry.

In March of this year, USTR tabled a paper in Doha Round rules

urging that the WTO members clarify and improve the rules for

antidumping and countervailing duty investigations. While this

was a major solid first step, more needs to be done. R-CALF looks

forward to making the special rules more specific and concrete as

we approach the Cancun Ministerial, which I will attend.

To emphasize the practical need for special rules affecting perishable and cyclical products, I ask you to recall the depressed cattle

prices in the years from 1996 through 1998.

When imports surge causing a corresponding collapse in prices.

During this depressed cattle market, producers suffered greatly as

did our rural communities. This devastating depression in our industry could have been softened and shortened if we had in place

special rules to deal with these special circumstances.

Special rules for perishable and cyclical products. While not the

only approach to alleviate such special problems faced by the perishable agricultural producers, it is potentially the most effective.

An example of a simple fix to the problem is to modify the existing

special safeguard provisions contained in article 5 to tailor them to

apply only to perishable, agricultural products.

And I see my time is about up. So let me make a general statement. I believe U.S. cattle producers can compete in the global

market, despite the fact that our costs of production is often three

and four times that of our foreign competitors because we raised

the best product in the world, the safest, cleanest in an environmentally sound matter. But we need special rules to protect the industry from those rare situations, where surges in imports result

in collapsing prices.

Thank you.

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[The prepared statement of Mr. McDonald appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. McDonald. Let me announce to

the committee members because we have such great interest in

this. Since we have three panels, I am going to strictly enforce the

5-minute rule on questions, including on myself.

I will start with a question for you, Mr. Stallman. You attached

to your testimony a very useful analysis of the proposal from the

WTO Agricultural Committee Chairman Harbinson. It shows the

pluses and minuses for U.S. agriculture and you state that the

Harbinson proposal must be improved, which I fully agree with.

What do you see as the next step in the WTO negotiations, taking

note of the fact that between now and then, there is not likely to

be another Harbinson paper before the next ministerial?

Mr. STALLMAN. Well the next step has to be to come to some

agreement on agricultural modalities. I mean the Harbinson paper

is a text that is out there, but since no one accepts it, that is:(a)

not the only thing out there, but (b) it is not anything that really

is a document they are working from at this point. So prior to the

ministerial in Cancun there will be discussions. If the ministerial

in Cancun provides pressure to move in the direction of an agreement on the modalities, that might create some additional text or

working text. But at this point, the next step is for countries to

agree on what the modalities are.

The CHAIRMAN. Any suggestions about how we move that process

forward in the months before the next meeting in Cancun?

Mr. STALLMAN. Well not by giving in essence to what the other

side wants to do with respect to the negotiations. I think we just

have to stand firm. I think we need to work on the other sectors,

which the USTR is doing to provide some balance. Because a lot

of these countries will have to make political decisions there will

be great benefits in this WTO round beyond agriculture for some

of these countries, and they have to make the tough political decisions to in essence, say OK it is time to reform agricultural trade

in the world, but in return we get benefits from these other sectors.

The CHAIRMANT. Thank you. Mr. Bauhan, I know you have been

following the proposed Russian accession to the World Trade Organization. What recommendations would you have for the administration regarding those negotiations? You cite as one of your recommendations that the U.S. should withhold support for WTO

membership for Russia until Russia fully demonstrates that it will

abide by WTO rules. And given the situation with trade in poultry,

which I have a keen interest in as you do, what would in your

mind demonstrate to you that Russia is abiding by WTO rules and

will in the future?

Mr. BAUHAN. Well obviously, we need to stay on the course with

Russia, and put as much pressure on them as possible. We don’t

know and we supposedly have a resolution of sanitary and veterinary standards, and they have inspected U.S. plants, but we have

not heard their ultimate response on that. And so it is very important that, that be resolved by July 1 or exports are going to shut

down again. In terms of—does that answer your question?

The CHAIRMAN. Well I am curious what you think about the

course of the negotiations that have taken place, and their various

88

on again, off again actions taken by the Russians in terms of my

question about their reliability as a trading partner. If they were

to accede to the WTO, are they going to abide by WTO rules, or

are we going to continue to have the same type of situation, that

we have had for the last several months?

Mr. BAUHAN. Well Mr. Chairman, our key problem that we have

right now is the quota system that has been proposed, which will

limit exports by about one-half to Russia, and as I think 51 Members of the U.S. Senate, and 140 Members of the House have urged

the U.S. Trade Representative to consider pursuing official petition

of action against Russia. I think in terms of a demonstration by

Russia, it would be that exports be allowed to return to the more

normal levels that they were before they were cut off in 2002. And

I think some resolution on this quota issue would help move in

that direction.

The CHAIRMAN. Thank you. Mr. Reeves, very briefly, the Free

Trade Agreement with Mexico, you cite that NAFTA in your testimony has a positive development for the U.S. notwithstanding

some of the concerns we have about Mexican antidumping orders.

Do you see any similar opportunities for other countries in the Free

Trade area of the Americas?

Mr. REEVES. Well we would certainly welcome the opportunity to

increase our exports to any of the countries. And yes, we think

there are 500 million consumers in those countries that have the

potential to possibly increase their imports of the U.S. beef.

The CHAIRMAN. Thank you very much. The gentleman from

Texas.

Mr. STENHOLM. A question for Mr. Reeves and Mr. McDonald. A

recurrent theme in the testimony we will receive today is that because of the Harbinson papers reduces tariff levels from bound

rates, not for tariff rates actually applied, which are lower, many

countries choose not to charge as much as they are allowed to

under the Uruguay Round. The reductions will not help U.S. agriculture producers to increase exports from current levels. A recent

study by FAPRI—Food and Agriculture Policy Research—concludes

that the reduction in tariffs on beef that would be required under

the Harbinson paper would be unlikely to significantly increase exports, specifically because the current world beef bound tariffs average 70 percent. The required Harbinson reduction would be 21

percent, leaving the new bound rate at 49 percent. And right now,

the current applied tariffs are averaging only 20 percent. So the reduction of the bounded rate to 49 percent would not do anything,

according to FAPRI. Do you agree with the FAPRI analysis, and if

so, would a Doha Round agreement based on the Harbinson paper

lead to the type of increased reciprocal access you called for as a

condition of your support for the Free Trade Agreement of the

Americas, and the FTA with Australia?

Mr. REEVES. We do not think the Harbinson paper goes far

enough in the reductions.

Mr. MCDONALD. R-CALF’s position generally we agree with the

basis of the Harbinson paper. But again, market access whatever

the numbers ultimately become, it is only part of the equation.

Again, we would emphasize that the implementation of the thesis

89

of the Harbinson paper without special rules for perishable and cyclical products will put the cattle industry in jeopardy.

Mr. STENHOLM. Thank you very much.

The CHAIRMAN. Thank you. The gentleman from Michigan, Mr.

Smith.

Mr. SMITH. Thank you very much, and gentlemen, thank you for

your studying and your expertise in advising us where we go on

trade negotiations. I am a member of the International Relations

Committee, and as I meet with delegations throughout the world,

often their criticisms are large subsidies from the current Farm

Program Legislation that we recently passed. And it is just I think

important for all of us to remind them that subsidies to agriculture

to farmers under this farm bill is actually less than it was the 3

years prior to the farm bill. But it does bring up a question of how

much we in this country, and how much are other countries going

to protect their agricultural industry?

It is my opinion that any subsidy to farmers is to a certain extent trade distorting. But is also I think most of us agree that Europe is going to play games with us to protect their agriculture, regardless of the current color coding of the boxes that designate

trade distortion.

My question is should we export below the cost of production,

and how, if on a long-range basis? I think my answer is no, we

shouldn’t. The other question is to what extent are direct payments

to farmers trade distorting in your mind, if we do away with what

is currently identified as trade distortion subsidies? And for example—or suppose the EU gives each one of their farmers 1,000 Euros

or 100,000 Euros a piece, as if they are farmers regardless of

whether or not they produce. And then there’s an encouragement

through some other form, say property tax subsidies or something,

that if they produce 90 percent of their livestock or poultry or

crops, they cannot pay property tax. I am just supposing you know

what we might involve into. Just give me your opinion on subsidies, all subsides to the extent of being trade distorting, and are

we going to eventually face a problem where what is currently not

considered trade distorting, are really trade distorting? I don’t

know if I said that clearly enough. That is why I practiced earlier

on. But let’s just go right down the line and start with you, Mr.

Bauhan.

Mr. BAUHAN. OK, thank you. Some of my colleagues here might

be better prepared to discuss direct payments. The poultry industry

doesn’t receive any, but we are certainly very much impacted and

we are very concerned about particularly export subsidies that are

distorting markets and impacting our ability to trade with a variety of countries.

Mr. SMITH. Mr. Stallman.

Mr. STALLMAN. Well, you are right that all public support somehow affects economics to producers, and then therefore would have

a trade impact. But there is a continuum for most distorting to

least trade distorting. And I think the goal of this negotiation is to

move most trade distorting, eliminate or move most of the trade

distorting into a least trade distorting category. I mean, even research, conservation, those kind of things have an economic impact.

But the key is to do away with the worse offenders, like export subVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00094 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
90

sidies, those sorts of things. Moving to decoupled payments is less

trade distorting than having coupled payments, and so those are

the goals of the negotiations.

Mr. SMITH. Any comment that you would have Mr. Stallman on

the policy of exporting below the cost of production on a long-range

basis, which we are in some of our commodities, partially because

of our subsidies?

Mr. STALLMAN. Well, if we had a world in which you didn’t have

the distortions created by various trade and supports, in that case

I would suggest you wouldn’t be exporting below your cost of production very long. But as a mechanism to maintain a production

base in the face of these international distortions and trade, I think

it is something we do in the interim while we move forward to go

ahead and try to negotiate away some of these distortions.

Mr. SMITH. And just briefly, Mr. Reeves, and then Mr. Caspers,

and then Mr. McDonald.

Mr. REEVES. Cattlemen traditionally have not received direct

payments, although we have received cost share help in our environmental measures, and also in meeting some EPA requirements

that we face. So I guess we are only affected to that amount, but

we believe that any help we get, we would like to have in helping

open up markets to our products.

Mr. SMITH. Mr. Caspers, similar in pork?

Mr. CASPERS. Well, thank you. I guess your comments about exporting below cost, I appreciate those. I don’t think we have to export below cost. I think we can be a competitive producer. I think

it is imperative that we take a look though at our industries, and

how Government policies, regulations and things like that continue

to impact our industries. We need to make sure that we remain a

competitive producer of agricultural commodities, if in the longterm we are going to export those products. I think primarily we

are concerned more with many trade distorting subsidies, whether

it is exporter of domestic subsidies that impact our markets, also

import tariffs, and other non-tariff barriers. They more directly affect us now, and there are other ways to subsidize. I am sure we

will see some of those things occur, but if that does, I think we just

need to make sure on the U.S. basis, we are on a level playing

field.

Mr. SMITH. Mr. McDonald, I think my time is up. But your quick

comment?

Mr. MCDONALD. Thank you. As Mr. Reeves said the cattle industry has traditionally not received direct payment, and R-CALF certainly supports the position for the elimination of trade distorting

subsidies vis-a-vis the cattle and beef. But your example is well

taken and points out the need for us to be vigilant in examining

all of these proposals that may be coming forth from the European

Union and others with regard to subsidies.

Mr. SMITH. Mr. Chairman, thank you. My concern is European

farmers get subsidized five times as much as American farmers,

and I don’t—as much as we try, it is going to be difficult to stop

them. Thank you, Mr. Chairman.

[The prepared statement of Mr. Smith appears at the conclusion

of the hearing.]

91

The CHAIRMAN. Thank you, gentlemen. The gentleman from California, Mr. Dooley.

Mr. DOOLEY. Thank you, Mr. Chairman. And following up on

your question to Mr. Stenholm. I guess I am struggling with in

terms of what is the best strategy, and the policy to approach the

Doha Round for agriculture. There is a lot of criticism of the

Harbinson text, which is really in some ways is the starting point

of negotiations, or what could contribute to developing the modalities for the starting point. Mr. Stallman, in your testimony you

folks did an excellent job in identifying, some of the potential impacts. Taking in your testimony, we acknowledge that there is

going to be with the EU alone, which is primarily the problem we

are facing internationally in trade distorting subsidies, is that

there will be 60 percent reduction in their amber box payments,

which would be from $56.4 billion down to $28.8 billion. That

would also be the same amount of money that they would spread

over the expanded EU as I understand it. So it is a further delusion. We would like to see the immediate elimination of export subsidies, but we get what Harbinson is proposing zero for 50 percent

of the commodity, or aggregate spending over 6 years and all total

elimination over 10 years. We have a 50 percent reduction in the

blue box expenditures. Not that is not everything we want, I would

acknowledge that. But are we in a situation where our failure to

even begin negotiations will result in a postponement of the WTO,

the Doha Round, which perpetuates the status quo, which we all

acknowledge is an unlevel playing field today. So I don’t understand exactly when we come to make a decision in terms of we are

better off trying to make some progress in beginning negotiations,

versus the failure to move forward at all, where we perpetuate

what clearly is a unlevel playing field?

Mr. STALLMAN. Well, I would concur that we need to work to

move forward. The question becomes where do you draw the lines

as to what constitutes a good agreement for American agriculture,

versus the status quo? Because it is conceivable that depending on

how the reductions were negotiated for the three pillars, the market access, domestic supports and export subsidies, we could be—

even though you reduce those, at some level we could be relatively

worse off, if we are not careful. And I think that is the challenge,

is to figure out where those lines are. And the way we are looking

at it is number one, exports subsidies are the worse, the EU uses

them the most, and they have to be removed the quickest. And that

is why we characterize the quicker phase-out was absolutely needed. But then you have the trade off between market access and domestic supports. And what we need in market access is commercially meaningful market access, and then we have to balance the

positive economic affects of that, with whatever negatives there are

for reducing domestic supports. And so all of that is what is going

to have to be considered when we go into these negotiations. Something is better than nothing as long as we don’t end up worse than

we are now.

Mr. DOOLEY. I guess where I am still struggling, and I really am

not sure what the right strategy is at this point. But I am very concerned that the Doha Round is on the verge of imploding in part

because of what we have seen with the failure in EU to address

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some of their decoupling proposals, just as recent as the last 3

weeks. But we have a proposal as a starting point that zeros out

export subsidies over 10 years. Maybe we would like it to be a little

more rapidly. Maybe we can negotiate that a little more rapidly.

But yet we have now I hear almost from every agriculture commodity group out there, they are saying we can’t even begin negotiations unless we have a commitment by all the parties that we are

going to have a quicker phase out. Well, we are almost setting ourselves up for us to be the fall guy for the failure to begin negotiations which is going to result in the continuation of the status quo.

And I don’t know as a farmer how that is in our longer term interest. I would agree with your premise here is that we want to make

sure we see progress, but if we can’t even engage in negotiations,

there is no opportunity for progress. And so we end up with what

we have now, and I just, I don’t know where our strategy is moving

forward is we can even create an environment where we can begin

negotiations. And I think right now, we are almost setting the

stage for the United States being the fall guy for the WTO, or the

Doha Round moving forward, and thus all of our farmers are going

to be faced with the same inequities that we currently are trying

to deal with.

The CHAIRMAN. Does anyone have any comments? I think you

have stumped the panel. The gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman. I am going to

change the direction slightly because I have become so involved in

this whole issue of how we deal with different products coming in

and going out from our country. And ultimately, this is a trade

issue. The issue I have gotten involved with is pharmaceuticals.

Now you may say well, what does that have to do with farmers?

It is interesting that many of the farm chemical companies are

owned by the big pharmaceutical companies. And that is where the

tie in comes. Mr. McDonald, you are probably familiar that if you

are close to the Canadian border, that American farmers pay anywhere from 20 to 40 percent more for the same farm chemicals,

compared to what those chemicals are priced at in Canada. Am I

correct?

Mr. MCDONALD. Absolutely, and it puts Montana producers and

U.S. producers generally at a disadvantage right from the beginning. But that is in part what I was eluding to when I was talking

about our cost of production being higher than many of our foreign

competitors.

Mr. GUTKNECHT. Well, the reason I bring that up is I have become very involved in the prescription drug issue. And it is just

amazing to me, the more I learn about it, the differences between

what Americans are forced to pay and what consumers around the

rest of the world are paying.

Mr. Chairman, I don’t know if it is appropriate to submit this for

the record, but I have a chart here of some prescription drugs, and

the difference between what we pay, and what Germans pay for

the same drugs.

It is not just Canada, and it is not just Mexico, it is most of the

industrialized world. And the issue that is always raised by our

FDA, that it is the Food and Drug Administration, is about safety.

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It really is in my opinion nonsense because it is amazing to me to

learn how much food we import everyday. It is literally thousands

of tons of foods of all kinds. But they raise the issue of safety, and

here is the point I want to make. I believe my numbers are correct.

Now I don’t have my actual chart that we got from CDC, but in

1998, 1,468 Americans became seriously ill, and now we don’t know

how many of them ultimately died. But 1,468 Americans became

seriously ill from eating raspberries from Guatemala.

So we suspended raspberries from Guatemala for a short period

of time, but not very long. Because the very next year, 1,160 of our

American citizens became ill again from eating Guatemalan raspberries. The reason I want to make that point is when we start

talking about trade policy, it seems to me we need to talk about

imports and exports. We need to talk about open markets.

Ultimately, Mr. Chairman it seems to me we have a responsibility on this committee to try and ask the question: Why is it that

American farmers are required to pay so much more for many of

their imports than people in other countries? We talk about price

so often and what farmers receive on the output side. But we have

spent precious little time exploring why is it that American farmers

are held hostage. And more importantly, as Mr. McDonald would

probably admit, along the border, they will do everything they can

to keep you from going to Canada to buy your RoundUp, or whatever the chemical is. I just want to make this point for the record

that if we can have open markets, and we are going to see a glut

of Canadian beef coming into our market sooner or later because

of what has happened over the last 6 or 8 weeks. And when that

opens up, I think it is fair to assume that the price of beef here

in the United States is probably going to come down. But if we can

have open markets for pork bellies and beef, why can’t we have

open markets for Prilosec and RoundUp? And maybe perhaps one

of you, wants to talk about that.

Mr. MCDONALD. Well, I would—just on the same theme, it is not

just the farm chemicals. It is the wormers that we use in the cattle

industry, the vaccines that we use, the antibiotics that from time

to time we use; it runs the whole gamut. And again, it increases

our cost of production, which makes it difficult for us to compete

with our foreign competitors.

The CHAIRMAN. I thank the gentleman. The gentleman from Colorado, Mr. Udall.

Mr. UDALL. Thank you, Mr. Chairman. I at this time don’t have

any questions for the panel, but I did want to thank the panel for

being here today. It has been very informative for me and I in part

am going to pass at this point, because on the second panel, we

have a Coloradian. Mr. Camerlo, I am eager to hear what he has

to say.

The CHAIRMAN. I thank the gentleman. The gentleman from

North Carolina, Mr. Hayes.

Mr. HAYES. Thank you, Mr. Chairman, and thanks to all of you

all and the other panel members who will be here. A question first

on Mexico. What is the consensus of the panel on these specifics

you have on are we making any progress resolving the sanitary

issues that are before us?

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Mr. BAUHAN. I think there is some progress that has been made.

There have been some agreements, but we have to be very vigilant

in trying to continue to work with the Mexicans. And we have been

talking about these export subsidies. Well, one of the key issues

that we face in the poultry industry are other countries taking nonscience based actions based on sanitary and veterinary issues. And

we have seen that with Mexico and other countries, and it is going

to be a continuing concern that we are going to have to work very

hard on.

Mr. HAYES. Would anyone else like to comment on that?

Mr. STALLMAN. Well, Mexico is a huge problem right now with

respect to agricultural trade, and that is probably an understatement. But it can get really serious for two reasons. One is the actual effects on our trade and blocking our products at the borders,

whether it is for SPS reasons, or other concocted reasons. The other

difficulty we face is the message it sends to those who have to

make a decision to support more trade or not, because if we have

a NAFTA agreement, it is not being enforced and it is being ignored in many cases, not to mention the WTO rules. Then that sets

the stage if we don’t as a Government work to resolve those issues

and take them to task, then that lessens I think the support for

trade, because our producers say well, what is the use? And incidentally, I am headed down there this afternoon to make the case

in Mexico City that we need to honor the NAFTA agreement. Otherwise, the consequences are going to be bad economically for both

countries.

Mr. HAYES. It didn’t seem like the Mexicans were there for us

in Iraq either. Mr. Caspers.

Mr. CASPERS. Well, Congressman, in a way that is a major concern, and frankly we don’t see a lot of improvement yet at this

point. I think it is imperative that the U.S. Government, USTR,

and anybody else that can help continue to keep pressure on to enforce the NAFTA agreement as we have it. We had the expiration

of all quotas and tariffs January 1 of this year on pork going in.

And in response to that, I think we have seen a lot of political pressure placed on the parties in power there. And we have seen the

Pam Party, the President Fox, and the PRI Party that has been in

power for more than 70 years prior both at other times very supportive of the NAFTA agreement, and now all of a sudden they

seem to be outright pandering to a lot of the commotion in the

countryside that they are claiming that they can’t live under this

agreement, even though there has been huge benefits for Mexico in

general and their economy.

We are concerned about the continuing offering of the new sanitary regulations that they spring on suddenly and intend to enforce

4 days later in violation of trade agreements. They start looking for

heavy metals that are just generally not a concern in the type of

products we are talking about. We continue to see this litany of

things coming out of them, and we don’t say any resolution yet, at

this point.

Mr. HAYES. You raised a very important issue, and that was my

next question. Comment in general or specifically, as it relates your

specific area of expertise, on the continuing problem we have with

artificial trade barriers, both Mexico and other countries.

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Mr. CASPERS. Well, I think it is common to see that just in general, as tariffs come down and as quotas are removed under the

trade agreement, there is certainly a big incentive then to find

other ways to restrict trade without those things, the tariffs in

place. And so it is very common. I think we see it. I think it is why

I think we need to change focus in the trade agreements now to

make sure we enforce our current free trade status in a number of

the countries from the Uruguay Round. But I think we had a good

example here in the recently signed treaty with Chile, the Free

Trade Agreement there. When that negotiation was going on, there

was a side by side companion negotiation on sanitary and

phytosanitary issues, and they have agreed now in Chile to adopt

our U.S. meat inspection system as equivalent to theirs, so that we

won’t have to go through any individual plant inspection and

things like that. I think those kind of things can occur, and they

need to occur up front in the new rounds of trade negotiations that

are really brought forth by our ability to negotiate now with the

passage of trade promotion authority.

Mr. HAYES. Well, thank you again for being here as we look at

future trade potential agreements. Mr. Dooley pointed out some,

but CAFTA and other proposed agreements like that, we really appreciate you all helping us keep our eye on the ball as we negotiate

on behalf of the American farmer and the American consumer.

The CHAIRMAN. Thank you, gentlemen. The gentleman from

Georgia, Mr. Scott, is recognized.

Mr. SCOTT. Yes, thank you. Thank you very much, Mr. Chairman. I am going to ask a question to I think Mr. Stallman, or perhaps someone else may want to mention as well. Given our trade

policies that we have enacted over the last few years, there appears

to be more and more of a dependency of our food chain and our

food products coming from foreign areas. And there is rising concern about the threats of terrorist attack that might be, could very

well be imminent to our food chain, given our trade policies and

our dependency now on more and more nations providing our food

to us and the change on it. And I am wondering what could we tell

the people of America, how safe are we from a terrorist attack on

our food chain, given our dependency so much now on so much of

our food products coming from foreign countries? And particularly,

due to the fact that many of these foreign countries do not have

the level of standards of inspections of their food products that

come into this country that match our own. I use, for example, just

in my own State of Georgia, let’s look at tomatoes. And in this

country now, I understand that 80 percent of our tomatoes are

coming in from Mexico and from other countries that don’t have

that standard. Just how safe is our food chain, and are our trade

policies maybe making us more vulnerable? Then I have a followup question.

Mr. STALLMAN. Well, that question probably extends beyond my

area of expertise, but your first question about is our food safety,

I think in the United States we are fortunate to have one of the

best food safety systems in the world. Our consumers have a lot of

confidence in our food safety system contrast that with the European consumers, who have almost zero confidence in their food

safety system. We are vigilant. We have interacted with the USDA

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and others in protecting our borders from products coming in,

whether they are harmful to consumers for unintentional or intentional reasons. And I think we just have to be ever vigilant. That

is why the role of our inspection border inspection systems is so important. But at the same time I don’t think you can ever guarantee

that there will not be some adulteration at some point, whether accidentally or not. But the point is, you have a food safety system

that is vigilant and that is ready to respond quickly. And I think

we have that in this country, and I think that we are fortunate.

Mr. SCOTT. Let me follow-up for a moment. Mr. Bauhan, you

mentioned in your testimony earlier about the idea of creation of

a USDA task force could be created. What impact would you like

to see this task force have, let’s say on the poultry industry, which

again is a key industry in my State of Georgia?

Mr. BAUHAN. Right. Well, as I mentioned a few minutes ago, we

are having a lot of issues around the globe with countries taking

actions against U.S. poultry products. In some cases, they are just

downright arbitrary actions. And in many cases, they are not based

on sound science and they are intended to protect the domestic

poultry industry of that country. And I think that resolving these

issues needs to be a key component of our ongoing discussions, and

that if we have a task force that could focus in on that, it would

certainly help keep our eye on the ball, and try to get these problems resolved before they can do significant harm to our industry.

And the examples are numerous of the negative economic impacts

to the poultry industry based on unscientific actions that have been

taken.

Mr. SCOTT. Thank you. Thank you very much.

The CHAIRMAN. The gentleman from South Dakota, Mr. Janklow.

Mr. JANKLOW. Thank you, Mr. Chairman. I think I am only going

to have one basic question for you folks. Let me just commend you

all. The testimony you have given, it is unfortunate—and your

written testimony. Frankly it is unfortunate that everybody in

America can’t read and understand this stuff. Only a limited number of us get the privilege to hear it, because it is from this kind

of information people can make decisions. I understand the candidates for office have all of the answers. Once you get in office,

we don’t have that many. But as candidates, we do. I listened to

the testimony. We have got all of these agreements. We have got

our neighbor to the north, Canada. I love the Canadians, and I

mean that. When the rest of the world was sitting by, it was the

Canadian Government and its diplomats that took the American

diplomats that weren’t hostages in Iran, hid them in their basements, and in their embassy, and protected their lives at the risk

of their own lives. When Americans were dying on Omaha Beach,

so were the Canadians. We have got a long history of being friends.

But they cheat in agricultural trade.

It is like a game. When you commit a foul, the referee blows the

whistle and you have got to have a penalty shot. I was the Governor of South Dakota when we banned Canadian cattle in our

State and started a revolution in the ware, on account of the

NAFTA agreements, when other states came in. Chloromycetin

could be used in Canadian cattle, but not American cattle. But you

could import into America livestock that had chloromycetin, which

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can cause sometimes aplastic anemia in human beings. And we

have had the situation where cattle have come down from Canada

to North Dakota in an overloaded truck. North Dakota off-loaded

them into a Canadian truck going back to Canada, and they have

been told they couldn’t go into Canada because they have been in

the United States, and these are North Dakota livestock. The Canadians would change the rules on what size sacks you put potatoes in, so Idaho potatoes don’t meet their standards. We talk

about all of these trade deals, yet we have got Chile and this is

amazing. According to your testimony sir, we have a 2-year agreement stand still with Chile under the new Chilean agreement,

where the Chilean inspection is approved.

Well, excuse me, Chile has given the opportunity for 2 years to

have its poultry inspection system approved as being equivalent to

USDA’s standards and requirements for poultry. Then your next

sentence says, in the meantime, Chile does not recognize USDA’s

inspection system for poultry. U.S. exports cannot ship to Chile, so

they don’t recognize our inspection system. But they are given 2

years under the Chilean agreement in order to come up to our

standards for processing inspection. That is nonsense. The Soviet

Union once again is ignoring agreements that they have made, and

we will forgive them because we always forgive the Soviet Union

when they don’t live up to their agreements. Indonesia won’t follow

its rules. South Africa won’t follow the agreements. Japan won’t

live up to its agreements. Europe doesn’t allow stuff treated with

chlorinated water. I find that interesting, because as a kid I lived

in Germany, and we had to put chlorine pills in the water in order

to be able to drink it because the water was so unsanitary. But I

am glad you can’t process chickens with it, because you could just

drink it without the processing.

France has violated every agreement that it has ever made with

us in agriculture, depending on the success of the French farmers

in any given year. It has nothing to do with the agreements they

make. Now Mexico, as it becomes more prosperous, is having a revolution with its agricultural producers wanting to put up more

kinds of barriers that we are having to knock down. The Argentineans and the Brazilians continuously talk about how safe their

livestock industry is, and then just lie about things like hoof and

mouth disease and other types of diseases they have, where we

need the Panama Canal as a barrier or actually some of the geography in Panama. But they keep their livestock away from causing

these problems.

My question is in recognizing these things are negotiated by an

Executive Branch and approved by the Senate, what can we as a

Congress do to fix the problem of people who are making trade

agreements having to follow them? These games have gone on my

whole lifetime. My whole lifetime. The tariffs on Japanese foods are

up 381⁄2, 39 percent. They are coming down a couple of percent a

year. I am going to be 84 years old before we have a level playing

field with the Japanese in beef, and I just hope I live that long in

order to see it. But do you all understand what I am saying with

my sarcasm? The point that I would like to ask you all is what can

we do to fix the problem? Is there something we can legislatively

do?

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Mr. STALLMAN. Well, I think as the chairman indicated, provide

very good oversight on these negotiations in a consulting role as

you have, and I think that is key. The other thing is to be sure we

have the resources. You talked about all of the trade problems we

have, and we have a multitude—have had and will continue to

have a multitude of trade problems as we enforce these agreements. We need to be sure that we have the resources as a country

to go in and challenge these infractions of the rules, and take these

countries to task in enforcement of the agreements. Unfortunately,

it is never going to be a perfect world, but those two things, the

oversight and providing the resources to fight the battles, I think

are key.

The CHAIRMAN. Did you want to respond to it, Mr. Reeves? Go

ahead.

Mr. REEVES. Yes, I think one possibility would be to continue to

commit resources to USDA, and USTR to fund full-time equipment

to oversee these trade issues and maintain our vigilance in working

for our side.

The CHAIRMAN. I thank the gentleman. The gentleman from

California, Mr. Cardoza.

Mr. CARDOZA. Thank you, Mr. Chairman. I have to tell you that

I have not heard explanation that more fits my philosophy than

what the former Governor of South Dakota just described. I think

that we as a country often forget one of the fundamental rules.

That is if something is not working, you better fix what is not

working, because doing more of the same is not going to get you

a different result. As farmers, my grandfather was a farmer, and

he used to tell me about the first rule of holes. And I know a lot

of you have heard that, but the first rule of holes is when you find

yourself in a hole, you quit digging. And I don’t have a question,

I just have a comment. That I think that we have to seriously look

at changing the direction we are going with some of these trade

agreements and be tougher because we have not had a history of

being tough on our trade partners.

The CHAIRMAN. I thank the gentleman. The gentleman from Indiana, Mr. Pence.

Mr. PENCE. Thank you, Mr. Chairman. And thank you for holding this hearing. I wish to commend the Chair and the committee

for its leadership on this issue. And I would like to thank the panel

for some very thoughtful remarks and look forward to perusing in

more detail your prepared statements. I am as many of you on the

panel know, a strong advocate of trade. I believe that trade means

jobs. I represent a slice of Heartland America and the State of Indiana that is a checkerboard from the air. And I was very proud in

the last Congress to strongly support the new farm bill. And despite my strong conservative instincts, believe that our commitment to American agriculture has to be unwavering. I am also a

very strong advocate of the North American Free Trade Agreement,

the general agreement on trade tariffs. But I have to tell you that

I am very troubled about what is happening in the Mexican market, and am growing increasingly irritated with the lack of cooperation and compliance, the lack of enforcement of the clear principals

and requirements of the North American Free Trade Agreement.

The outright ignoral of rules from the World Trade Organization.

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Just as I sat here waiting to speak, I wrote a list of cities in eastern Indiana that have lost thousands of jobs since I arrived in Congress in January 2001 to Mexico. Richmond, Indiana. Marion, Indiana. Anderson, Indiana, just to name a few. And I have to tell you,

President Fox and the policies of Mexico are doing that which liberals in my 44 years could never accomplish. And they are beginning to change my mind about trade. And I guess I want to be consoled by the pro-trade members of this panel to tell me why, as a

Member of Congress who has strongly supported trade, why I

shouldn’t seriously rethink my commitment to expanding trade, to

considering new agreements and supporting new agreements. I

suspect that as a member of the Deputy Whip Team and a leader

in the Conservative Caucus in this House, I will be looked to in relevant votes to play some important role in a part of this Conference. And I am increasingly reluctant to do that. And I throw

it open as partly just to vent my spleen, but another part to tell

me what apart from some of us in Congress simply withdrawing

our enthusiasm for expanded trade agreements in this hemisphere,

what can we do in this Congress and in this committee to address

this non-compliance with NAFTA. And maybe Mr. Stallman would

start.

Mr. STALLMAN. I don’t know if I can provide a lot of consolation,

Mr. Pence, at this point. But with Mexico—and coming from Texas,

you learn that sometimes dealing with Mexico can be difficult. And

that some degree of patience to successfully deal with them is generally useful. They are now just learning to operate under a two

party system. And they have the elections coming up in July, and

that has created a lot of pressure, as has been mentioned here on

a lot of these trade issues. I think we have to be firm. I think we

have to tell them as a country that they need to get their act in

order and abide by the agreement, and then take them to task and

file challenges when they don’t. But I think we need to gradually

increase that pressure and my hope is, that after July, the situation will improve. So you kind of take Mexico as an isolated case.

But then you look at the other problems we have around the world,

once again, we have to be vigilant. We need the resources to enforce our trade agreements and take countries to task who will not

live up to them.

Mr. PENCE. Anyone else? I have a little more time.

Mr. CASPERS. Yes, Congressman. To give you a little light at the

end of the tunnel, I would say in the case of pork, we have had

11 years of record exports in a row. Every year for 11 years, we

have set a new record in exporting pork. So I think there is a good

story to tell, and I think certainly we would like to continue that

string. Having said that, I think what we see now, as trade agreements live through their life and we see tariffs coming down, and

quotas eliminated, we are seeing more and more trade take place,

and that is demonstrated in our record exports. So at the same

time, when that increase trade comes about, we see more and more

pressures within other countries then that are all of a sudden importing our products to try to do what they can to restrict trade.

Now from what you can do, certainly I think in the future in trade

negotiations, I think certainly some kind of a quicker dispute settlement mechanism in those treaties will certainly be justified. And

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I think just a more willingness I guess to aggressively pursue cases

where countries are not living up to their agreements. Certainly,

I think that is justified.

Mr. PENCE. Thank you, Chairman.

The CHAIRMAN. Thank you, gentleman. The gentleman from

Iowa, Mr. King.

Mr. KING. Thank you, Mr. Chairman. And I would like to thank

the panel for your presentations, your testimony, and for this great

stack of information that I will be able to peruse through in my

non-existent leisure time. A lot of details in here to be absorbed,

and I think it is my responsibility to do that to a larger degree

than I have prior to these hearings. But as I listen to your testimony and listen to the questions and the remarks that are made

around this panel, certain things come to mind. And one of them

is with regard to our allies as Congressman Janklow pointed out,

and also with remarks from Mr. Hayes. That in looking at the administration in Mexico in particular, and recognizing that you are

prepared to head in that direction, Mr. Stallman, then a lot of

things go on around the border there that do not reflect compatible

partnership that we anticipated we would develop when we supported NAFTA, and I was a NAFTA supporter, and I happen to

have the good fortune of being in the gallery in the United States

Senate when it was debated. I do believe that we should—I am a

supporter of free trade, and I think as Adam Smith did. That if you

can buy it cheaper than you can make it, you should buy it. Find

something else you can make that you can compete with. And I believe I agree with you all on this panel that we can compete with

the rest of the world, particularly in our meat production.

But the Mexican border has got pressure on it from a lot of different ways, and the Fox administration is one of them. And their

opposition to our position in France is something that I think

should color the rest of our negotiations with Mexico, and President

Fox’s promotion of dual citizenship, and the Mexican counselor

card, that matricular counselor card. And the very idea that, for example in Iowa, 85 percent of the Meth comes across the border

from Mexico.

All of these things I think are tied into us also trying to get a

free fair trade agreement. And when I listen to the remarks with

regard to disease, and I am thinking about your return back to the

United States from Mexico, I have a red ink pen here, and I would

be willing to wager you a steak dinner that if you write on that

little immigration card—I have been walking on a few dozen farms,

and these are the shoes I wore, and I am going to go to farms in

the United States. I will bet you walk straight through there, and

I don’t think we have the kind of controls we need at our borders

for hoof and mouth disease, or potentially I think that is the biggest risk right now. But I wanted to pose a question to Mr. Caspers.

do you have some knowledge as to the quality of the food inspection that they have for Mexican domestic products, and if so, is

there a way that we can begin to use that in our argument that

USDA approved standards which should be an automatic approval

in Mexico? Do they have standards at all in Mexican domestic meat

and how do they inspect them, and what are the standards and

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how can we match up ours to theirs and take the argument away

from them, if theirs is more dangerous to consume by far then can’t

we use that in our leverage?

Mr. CASPERS. Well, I believe so, and I am probably a little bit out

of my area of expertise. But my understanding is that the U.S.

Government requires individual plants to be inspected on an individual basis for exports into this country, or through this country

into ports for exports to other countries. Generally, their domestic

inspection program has not been found by our Government to be

the equivalent of the U.S. meat inspection system. So that is why

they require those individual plants then to be inspected. And I

have been in some of those plants in Mexico, and while I don’t

know very much about the slaughter industry or processing industry, at least the plants that I have been in that are currently licensed to export into the United States seem to be very well run

and quite clean and sanitary. And so it can be done, but it is only

done on a plant by plant basis.

Mr. KING. And that means then that a significant percentage of

the domestic marketed pork in Mexico would not be inspected in

that standard. And their standards would be I would think then far

lower for the Mexican consumers, which is what we have to point

to as the standard for the Mexican consumers.

Mr. CASPERS. Well, I believe that would be the case, and then

you only have to visit there and smell the smell coming off the web

market to get the idea what really occurs.

Mr. KING. Well, that is the real remark. Mr. Reeves, with regard

to beef, would you have any comments?

Mr. REEVES. Disregard it.

Mr. KING. OK. And also all of you I think have traveled in and

out of the United States, and filled out the little form that says if

you have been on a farm or not. Has anyone ever been stopped or

questioned as to where you have been? Well, I am sure you answer

honestly, and I am sure you have to go to farms when you go. Has

anybody ever been stopped and questioned?

Mr. CASPERS. I had a trip to—wait a minute, if I could comment

on a trip to Canada. We get together with the Canadian and Mexican Pork Producers about twice a year, and last fall we entered

Canada and of course I put down that we had been on a farm and

actually that we were going to a farm. And so they did. I had to

follow a different line through the system, and they quizzed us to

about where we were going, where we had been. They did some

extra x-rays on our luggage and took our shoes and disinfected

them and brought them back in a bag and told us to leave them

in there for 20 minutes. So I was impressed, and I told my Canadian counterparts that I was impressed, and they were thankful to

hear that because they have had experiences like you say where

they have been entering back into the country, and did not have

that. So at times—now when we re-entered the U.S., it was just

like you say; we just walked right back through.

The CHAIRMAN. The time of the gentleman has expired. The gentleman from California, Mr. Nunes. We are going to try to get the

gentleman from Florida, Mr. Putnam, in too. We have three votes

pending.

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Mr. NUNES. Well, I will make my questions really brief. Can you

comment at all on the situation that many of my constituents face,

and that is that we get zero subsidies across the board on many

fruits and vegetables? So otherwise known as chapter 7 and 8,

which I think is grossly unfair and makes it even though we are—

some of my constituents are truly the only free traders in the

United States, because we are really the only ones that are not receiving Government support. So I would like to—and I know many

of the groups that you represent do in some form or another receive

some type of subsidy. But I would like for you to comment on those

industries, that even though you don’t represent them, I don’t know

if anyone has any thoughts on that issue, but I would like to hear

your thoughts. Anyone?

Mr. STALLMAN. Well, we have had extensive discussions internally within our organization about you know what world policy,

whether it is trade or domestic supports effects you know, those

particular commodities. During the course of the farm bill debate,

those groups decided they did not want to try to incorporate some

type of support system, but looked for additional system through

EQIP and other conservation programs. And in addition, a big component of it was to be sure that trade. That we were cautious and

vigilant in trade agreements and enforcing trade agreements, because that is where the real economic has been for those sectors,

has been through trade the imports and through SPS type of

issues. So that has been our focus, has to be been to look at the

trade issues and then look at whatever assistance can be provided

through some of the conservation programs.

Mr. NUNES. Thank you. I know we have to vote Mr. Chairman,

so I will conclude.

The CHAIRMAN. Thank you. The gentleman from Florida, Mr.

Putnam.

Mr. PUTNAM. Let me just say Amen to what Mr. Nunes said, but

to follow-up by asking do you believe, Mr. Stallman, that there

should be a reduction in scope of negotiations for the FTAA? Do

you believe that agriculture should be taken off of the FTAA table

and moved to the WTO?

Mr. STALLMAN. We think our first priority needs to be the WTO

negotiations. But if we are going to have an FTAA actually based

on WTO rules, it is supposedly to cover all sectors, and you are not

supposed to exclude any particular sector. So I think we have to

be in there for agriculture. But once again, I think most of our

problems need to be resolved in the WTO negotiations.

Mr. PUTNAM. And should domestic support programs be a part

of the discussion for an FTAA agriculture sector?

Mr. STALLMAN. Absolutely not.

Mr. PUTNAM. How do you see us moving forward on agricultural

negotiations to lower barriers to trade if domestic support programs are off the table? Who does that leave on the table for an

FTAA discussion, other than fruits and vegetables?

Mr. STALLMAN. It is market access. Market access actually does

affect some of the other commodities too, not to the extent probably

the fruits and vegetables. But our concern is that we rush to an

FTAA agreement before we resolve a lot of these issues in the

WTO. And the WTO is the only place that you can balance those

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domestic support issues and market access issues all together

worldwide.

Mr. PUTNAM. And for any of the panelists, are we spending an

inordinate amount of time on trade agreements outside of the

WTO? Are we spending too much time negotiating bilaterals and

regionals to the detriment of the WTO?

Mr. STALLMAN. We think there are limited resources in USTR

and USDA with respect to agricultural trade negotiations. We do

have concerns that those resources are being stretched extremely

thin by the number of bilaterals and multilateral negotiations outside of the WTO that are occurring, and we have encouraged the

administration to focus and use resources in the WTO, even if that

means not moving forward with some agreements on a bilateral

basis.

Mr. CASPERS. I would add my echo. My concern that we need to

make sure that USTR has the resources to participate in all of

those negotiations, because we think that both WTO negotiations

and any bilateral negotiations we engage in are both. They are

both important, and collectively, the bilateral agreements do add

up to significant business for our industry.

Mr. BAUHAN. From the poultry industries’ standpoint, we would

agree that we need to have more resources, because the bilateral

discussions are very critical.

Mr. PUTNAM. Is it fair to say that agriculture’s unwavering support for free trade agreements has dimmed somewhat as a result

of what some would characterize as a failure to enforce existing

trade agreements? And has American agriculture lost some of its

zeal to open up new trading negotiations, new trade agreements

because of the way the current ones, or the previous ones have

been enforced or have not been enforced?

Mr. STALLMAN. I think that situation has led the American agriculture farmers and ranchers to become more pragmatic rather

than philosophical about trade. And I think that is why we need

to be looking at these agreements one by one. Look at the impacts

and be sure that they are positive for American agriculture.

Mr. PUTNAM. Thank you. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. I want to thank this

panel and we will dismiss you now and resume with the second

panel when we get back from three votes. I want to thank all of

you for excellent presentationa. The committee will reconvene at

12:15, or as soon thereafter.

[Recess]

The CHAIRMAN. The committee will reconvene and we will now

go on to our second panel. We would like to welcome Mr. Tom

Camerlo, chairman of the National Milk Producers Federation from

Florence CO; Mr. Bobby Greene, chairman of the National Cotton

Council in Courtland, AL. I skipped Mr. Alan Lee, vice chairman,

of the Wheat Export Trade Education Committee in Berthold, ND;

Mr. Ron Heck, first vice president, American Soybean Association,

Perry, IA, and Mr. Doug Boisen, chairman of the Trade Task Force,

National Corn Growers Association, Minden, NE.

I would like to welcome all of you and remind you that your full

statement will be made a part of the record. Ask you to limit your

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comments to 5 minutes. And Mr. Camerlo, we will start with you.

Welcome.

STATEMENT OF JAMES P. ‘‘TOM’’ CAMERLO, CHAIRMAN,

NATIONAL MILK PRODUCERS FEDERATION, FLORENCE, CO

Mr. CAMERLO. Thank you, Mr. Chairman and members of the

committee. My name is Tom Camerlo, I am Chairman of the National Milk Producers Federation, Dairy Farmers of America and

the Trade Policy Committee of the U.S. Dairy Export Council. I am

pleased to appear before you today, to testify on the topic of negotiations in the World Trade Organization and bilateral and regional

agreements.

Rural America depends on the survival of the U.S. dairy industry

for its vitality. Not only producers, but also dairy processors add

overall strength and employment to the impact of the industry as

a whole and on the country’s rural economy.

Mr. Chairman and members of the committee, dairy is usually

categorized as an import sensitive commodity. If the sensitivity

arises as a consequence of the huge level of distortion in global

dairy trade. My objective today is to leave you with a clear understanding that the U.S. dairy industry is prepared to negotiate further reform, but we will not do so alone. Balanced trade, not unilateral disarmament is the foundation of our principles, and we believe it should be yours was well.

Rather than give you a long explanation of our WTO position, I

would like to bring your attention to the Principle of Trade booklet.

This document, which is in your briefing books, compiles the unified position of the Dairy Industry with respect to multilateral agriculture negotiations. The U.S. dairy industry is a proponent of harmonizing tariffs, eliminating export subsidies and reducing domestic support in a manner that will not leave U.S. producers at a

competitive disadvantage as compared to other developed countries.

Although the chairman of the Agricultural Negotiating Group,

Mr. Stuart Harbinson, made a worthy attempt to compile divergent

ideas set forward by many member countries, his set of principles

would have a devastating consequence for the U.S. dairy industry.

The Harbinson paper does not achieve harmonization of market access of domestic support. In fact, the Harbinson paper as it stands

today would only slightly reduce the level of disparities which exist

under the Uruguay Round.

Dairy producers will have to re-evaluate their support of the

Doha Round, if the method chosen for reducing tariffs forces the

United States to open its markets, while other WTO members are

permitted to maintain high levels of tariff protection. Also, the

United States should only accept reductions in domestic support as

part of a package that includes elimination of export subsidies and

harmonization of tariffs.

In addition to the three pillars of U.S. dairy trade concerns, the

issues of non-trade concerns, as well as the topic of special and differential treatment for developing countries, they all have the potential for severely damaging the future of dairy trade reform.

According to the EU, geographical indications will be a critical

element of the Cancun Ministerial and WTO negotiations. The attempts by the EU to reclaim use of generic names could threaten

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the exports or production of a number of U.S. products, particularly

cheeses such as mozzarella and parmesan.

The U.S. dairy industry is concerned that the current Harbinson

proposal could allow developing nations to isolate themselves from

global trade for the next 20 years. This goes in opposition to expanding exports and improving the economic well being of the least

developed countries.

Gains due to the Uruguay Round have been limited to Australia

and New Zealand. Neither the United States nor developing countries brought home real gains from opening their markets. As an

alternative to the protectionist tools that the Harbinson paper is

outlining, NMPF proposes that a large portion on whatever new access is gained during the Doha Round be reserved for and given exclusively to the developing countries.

The U.S. dairy industry believes that a Free Trade Area of Americas is long overdue. As history shows, we have lost ground to our

trade competitors who aggressively pursued and continue to pursue

such activities. A particular importance to a balanced trade sector

agreement are the issues of rules of origin. Third party export subsidies and the full inclusion of the Canada, particularly the Canadian dairy industry.

The Australian FTA negotiations have alarmed U.S. producers

and processors. The Australian FTA does nothing to address the

world dairy marketplace and its many inequities. If Australia gains

improved access to our markets, the largest consumer market for

dairy products in the world, it will have much less motivation to

push for a successful WTO Round. Don’t be fooled by the reformist

stance by Australia in the WTO.

The reality is that Australia is committed to open markets in developed countries such as the United States, while being content to

leave developing country tariffs as high as they currently are. One

thing is clear: Australia wants full access to our market and is not

interested in reaching a fair and comprehensive agreement in the

WTO.

Eliminating U.S. dairy tariff rate quotas on imports from Australia without eliminating all global trade distortions in dairy, especially market access and export subsidies, would have a very

negative impact on the employment in the U.S. dairy industry.

NMPF’s economists have calculated that such an agreement

would put at risk roughly 1,170,000 jobs that are generated by the

milk production and dairy processor sectors in the U.S. industry.

For all of these reasons, on behalf of the U.S. dairy producers and

many small and large processors, we urge you to reject any FTA

with Australia that reduces U.S. dairy tariffs.

Finally, the DEIP Program has been used in the United States

primarily to counter European subsidies, as well as for market development. NMPF as well as the industry as a whole wants balanced trade, but again not unilateral disarmament. Consequently,

there is concern that the U.S. Government unilaterally decided to

reduce a number of countries eligible for DEIP awards to only 28.

Contradictory though it may sound, to destroy export subsidies,

we must use them. In this instance, that means using the DEIP

program and using it to the fullest extent that domestic market

conditions warrant.

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I appreciate this opportunity and thank you very much.

[The prepared statement of Mr. Camerlo appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you. Mr. Lee, welcome.

STATEMENT OF ALAN J. LEE, VICE CHAIRMAN, WHEAT

EXPORT TRADE EDUCATION COMMITTEE, BERTHOLD, ND

Mr. LEE. Thank you Chairman Goodlatte, members of the committee. I am Alan Lee. I am a wheat and germ barley grower from

North Dakota. I am also vice chairman, as you said of the Wheat

Export Trade Committee and U.S. Wheat Associates. Today, I am

also speaking on behalf of the National Association of Wheat Growers.

Before I start my comments, I would like to thank on record,

thanking the administration, especially USTR for the active role

that they have played in assisting the North Dakota Wheat Commission, and the Wheat Industry as a whole in our trade dispute

with the monopoly practices of the Canadian Wheat world. They

have made some promises to us, and they have carried them out

very well.

Wheat is a trade dependent commodity. Up to 50 percent of

wheat goes for the export market. So my success and failure as a

farmer in large part hinges on expanding export markets.

The U.S. wheat industry strongly support an aggressive approach in all negotiations up to removing trade barriers worldwide.

Multilaterally and future bilateral trade agreements provide global

opportunities resulting in trade problems. Each of us and the organizations we represent must work to cooperate and to bring workable solutions to the table.

You have before you my extended comments. I wish to highlight

some of our major concerns at this time. Under export credits,

stronger rules are needed to govern export credit activities. Rules

that clearly define permissible practices and that enhance transparency, but do not alter the effectiveness of these important programs.

The export credits are very important to agriculture. Our export

credit programs are important transition tools for developing countries that lack liquidity. These programs offer a reliable source of

food security and can be a key part in moving away from direct

food aid dependency.

On food aid, that you heard earlier. The current food aid language in the WTO is sufficient and continues to work very well. We

are very opposed to any attempt that the Harbinson text would do

to change the food aid convention to require money or grant only

donations.

We would really like to congratulate our negotiators for the excellent U.S. text on State Trading Enterprises. This language

should end the monopoly practices of our trading partners and

allow for more fair competition in wheat markets worldwide. However, the wheat industry remains concerned that monopoly traders

will find ways to circumvent these proposals.

The Harbinson text language in attachment 7,5(b)(i) could invite

exports by the Wheat Board at less than full value from a monopoly that were not phased out. To deal with that problem, the wheat

107

industry urges inclusion of the following language in any negotiations.

It goes, ‘‘to ensure that exports of a product by a government export enterprise do not take place at a price which is less than full

commercial value of the product at the time of the acquisition, producers shall receive full value compensation for the product at the

time of the sale of the commodity to the government export enterprise.’’

Domestic Supports and the Doha modalities paper is totally inadequate as it does very little to eliminate the existing disparities between allowed levels of domestic support for developed countries.

The wheat industry strongly opposed the Harbinson domestic support proposal.

The United States must seek to eliminate the cut in the de

mimimis support level and must demand that there be a balance

or equalization in the levels of allowed domestic support.

And under Domestic Support and the Free Trade Agreement of

the Americas, the U.S. must continue to refuse to negotiate domestic supports within the context of the FTAA. We must not unilaterally disarm within the Western Hemisphere while leaving the European free to continue subsidizing their producers at high levels.

Wheat producers applaud the U.S. Government position that

calls for the elimination of all trade distorting import subsidies

within the hemisphere, in the establishment of a mechanism that

would prohibit agricultural products from being exported to an

FTAA by non-FTAA countries with the aid of export subsidies. We

are also very delighted with the U.S. position that would discipline

state trading enterprises within this hemisphere. The CUSTA and

NAFTA agreements have left unresolved issues between the United

States and Canada, and we must not allow these unresolved issues

to be carried forward into an FTAA. Getting these issues resolved

would greatly improve agriculture’s acceptance.

In all negotiations on sanitary and phytosanitary issues, we must

build upon the Uruguay Round Agreement with respect to plant,

health and safety. These negotiations must establish a risk assessment framework, as well as the creation of an accepted and expedited procedure for addressing sanitary and phytosanitary issues.

We also believe going along that line that many Multilateral Environmental Agreements, such as the Cartagena Protocol on Biosafety, have the potential to severely disrupt trade around the

world. Our negotiators must use all available negotiating opportunities, to ensure that the WTO has the lead in any trade disputes.

Sound science must prevail in disputes over products of biotechnology and other new technologies.

The Free Trade Agreements, the FTAs should be seen as critical

stepping stones to free and fair trade on a worldwide scale. Two of

these negotiations, and for very different reasons, are very important to the wheat industry. The Chilean agreement, which we urge

the Congress to pass, has the ability to once again allow the United

States farmers to enter into the Chile market on a competitive

basis. But the Australian FTA, which is not about market access,

they were asking our negotiators to eliminate the monopoly structured in the Australian Wheat Board. It should not be allowed to

continue in a Free Trade Agreement.

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And finally, as you have heard many times today, U.S. Wheat

has a concern. The wheat industry has a concern that USTR resources are inadequate to address the growing number of trade policy issues confronting the United States, especially for agriculture.

Especially now, as new agreements that must be enforced or negotiated.

The USTR plays a critical role in the U.S. to maintain and expand our agricultural roles. And Ambassador Zoellick and his staff

are doing a very good job, but they are under-funded. We urge you

to provide increased funding for USTR, by an additional 20 percent

fiscal year 2004. Thank you for this opportunity, to speak on behalf

of the wheat industry.

[The prepared statement of Mr. Lee appears at the conclusion of

the hearing.]

The CHAIRMAN. Thank you, Mr. Lee. We appreciate your comments. And Mr. Greene, welcome. Pleased to have you with us.

STATEMENT OF ROBERT W. GREENE, CHAIRMAN, NATIONAL

COTTON COUNCIL, COURTLAND, AL

Mr. GREENE. Thank you. I am Bobby Greene. I am a cotton ginner from Courtland, Alabama, and serve as chairman of the National Cotton Council of America.

Cotton is a raw industrial product with a food component that

adds important value. The economics of cotton production are

linked to textile policy and production, both in the United States

and around the world.

Over the last 2 years, domestic mill use of cotton has declined

dramatically due to increased competition from textile imports. As

a result, the U.S. has gone from exporting one-third of its production, to exporting around 60 percent. Without continued growth in

exports and the turn around in the U.S. textile industry, the entire

U.S. cotton industry will suffer. For the U.S. cotton and textile industries, enhanced trade within the Western Hemisphere provides

the greatest near term opportunity to produce apparel products

that are competitive with Asian imports.

Our priorities in the Central America and South America Free

Trade negotiations are reciprocal market access, effective rules of

origin, no tariff preference levels, strong customs enforcement provisions, and effective rules to protect intellectual property.

The Doha Round of agricultural negotiations appears to be in a

holding pattern. We are glad that Chairman Harbinson tabled a

comprehensive proposal, but it will be difficult to transform it into

an agreement that is beneficial to the U.S. cotton industry, and to

agriculture in general.

The Harbinson text either leaves in tact or aggravates current

trade policy and equities. And the imbalances are not mitigated by

increased market access for U.S. exports. When the 2002 farm bill

ended years of the U.S. cutting agricultural spending far more than

any of its competitors, most of the rest of the world cried foul. The

United States was accused of reneging on its WTO commitments.

The 2002 farm bill did not break any WTO commitment. We believe the real goal of these protests is to convince the U.S. it should

unilaterally concede part or all of U.S. agriculture to the rest of the

world. The protests are designed to divert attention from the cenVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00113 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
109

tral thrust of the U.S. proposal. That all participating countries

should make real cuts in agricultural distortions, they should provide real improvements in market access, and these changes should

be made in such a way that they significantly decrease existing inequities.

Instead of cooperating to continue to move the world toward agricultural reform, some countries are allowing their political objectives to prevent rational and equitable policies from being adopted.

The United States has tabled the most ambitious set of agricultural

subsidy reforms in history, only to see those reform proposals watered down, littered with exceptions and rejected by the majority

of the members of the WTO.

The United States drove the Uruguay Round reform process. It

had submitted ambitious proposals for multilateral, broad-based reform in the Doha Round. We urge the administration to reject the

policies of division being fomented by various countries and certain

international organizations.

In addition to the Doha Round, the U.S. has embarked on an unprecedented number of bilateral and multilateral trade negotiations. In order to be successful, adequate resources must be devoted

not only to the negotiations, but also to compliance with existing

agreements. Farmers need to receive beneficial results from existing agreements to continue to support negotiations leading to new

agreements.

For example, the National Cotton Council has tried unsuccessfully over a year to get China to comply with the market access

provisions of the U.S.-China WTO accession agreement. U.S. trade

officials have been supportive and acknowledge a clear violation by

China, but we have not yet achieved any modifications in China’s

policy. We are hopeful that Ambassador Johnson’s recent discussions with Chinese officials will prove to be more fruitful.

On the other hand, Mr. Chairman, the U.S. textile industry is

facing an economic crisis, mainly attributable to dramatic increases

in imports of textiles from China. Last year, in eight cotton containing textile product categories, imports surged 641 percent. The

United States eliminated import quotas on these products in compliance with the U.S.-China accession agreement. The agreement

also allows the U.S. to review surges in imports of products after

quotas are removed, but it has taken persistent efforts to get rules

published for implementing the safeguard mechanism for this flood

of Chinese imports. A long delay has permitted imports to grow to

levels where the safeguard will be less meaningful.

On a separate note, we applaud the long-anticipated decision to

move forward with the WTO case against the European Union’s

band on biotech agricultural commodities. But we are troubled that

each of these decisions has been long-anticipated. Every delay costs

U.S. agriculture. If agriculture is to continue to support progressive

trade policy as adopted by the administration, we must be assured

that our trading partners will adhere to their agreements.

Mr. Chairman, thank you for the opportunity to provide testimony, and I would be happy to respond to any questions.

[The prepared statement of Mr. Greene appears at the conclusion

of the hearing.]

110

The CHAIRMAN. Thank you, Mr. Greene. Mr. Heck, we are

pleased to have you with us. I understand that you recently have

come back from Brazil where you have observed the situation with

soybean production there. I know some members of the committee

staff were also able to check that out and we appreciate hearing

your views. Welcome.

STATEMENT OF RON HECK, FIRST VICE PRESIDENT,

AMERICAN SOYBEAN ASSOCIATION, PERRY, IA

Mr. HECK. Thank you, Mr. Chairman. I also appreciated your

opening remarks this morning, and also Congressman Stenholm’s

opening remarks. We are pleased to be here today, and thank you

for loaning us a staff member for our fact-finding trip. We appreciate that too.

ASA has actively supported efforts to open foreign markets

through trade negotiations. From 666 million bushels in 1972, exports of U.S. soybeans and equivalent in the form of soybean meal

and soybean oil expanded to 1.4 billion bushels in 2002. Exports of

pork and poultry products accounted for an additional 130 million

bushels last year. Taken together, exports represent 53 percent of

annual U.S. soybean production.

Nevertheless, we have seen rising competition from other exporting countries. In particular, the Cerrados region in Central West

Brazil includes an estimated 338 million acres of uncleared land

that is available to be brought into production of soybeans and

other crops. This area is 11⁄3 times larger than the total U.S. row

crop acreage.

To meet this challenge, ASA believes we must substantially increase market access through aggressive reductions in tariffs and

elimination or tariffication of non-tariff barriers on soybeans, soybased products, poultry, pork, beef and dairy, particularly in populous developing countries in Asia where per capita consumption of

animal protein and vegetable oil is low. Second, we must maintain

the availability and viability of our export credit and food aid programs. Third, we must insist that world class competitors such as

Brazil are subject to the same commitments and disciplines regarding domestic support that we are required to meet. Finally, we

must maintain an adequate farm income safety net to protect our

producers against cut-rate pricing resulting from hidden subsidies,

devalued foreign currency exchange rates, and discriminatory trade

practices.

ASA strongly endorsed and continues to support the U.S. proposal first advanced by the Clinton administration in 1999 and reaffirmed by the current administration last year. In contrast, the

compromise advanced by the chairman of the agriculture negotiations, Stuart Harbinson, falls well short of achieving ASA’s goal to

offset increasing global production of oilseeds and oilseed products

through expanded market access for soy, poultry, pork, beef, and

dairy.

In contrast to the U.S. approach, the Harbinson text would preserve the significant subsidy advantage enjoyed by the EU.

Harbinson would also allow developing countries, including Brazil,

to fund major programs to develop and expand their agricultural

production and transportation infrastructure without discipline

111

while subjecting similar developed country programs to reductions.

This is totally unacceptable. If the purpose of the Doha negotiations is to reduce trade-distorting practices, it should not give

equally-competitive developing countries a blank check to expand

similar programs.

Our purpose for raising concerns is to build support for reaching

an agreement on agriculture in the Doha Round. If neither the U.S.

nor the Harbinson proposals are acceptable, it is essential that we

determine how one or both can be modified in order to achieve a

critical level of political support. Absent this support, failure of the

negotiations at Cancun is a distinct possibility.

I would also like to briefly mention other trade negotiations and

their impact on the soybean industry. Under NAFTA, U.S. soybean

exports to Mexico have doubled. The free trade agreement with

Chile that President Bush signed in early June will improve market access for U.S. soybeans.

The Free Trade Agreement of the Americas and the Central

American Free Trade Agreement will also be beneficial to the U.S.

soybean growers. Soybean products exported to FTAA countries totaled $1.8 billion in fiscal year 2002, despite restrictions on access

to 30 percent of the markets in the region.

The Southern Africa Customs Union free trade agreement can be

of some benefit to both commercial and humanitarian use of soybean products in that region. ASA works in southern Africa to improve human nutrition and increase soy protein consumption by

malnourished and AIDS-affected populations. We have strongly

urged our negotiators to work out a humanitarian assistance provision in the agreement that will allocate funds for nutritional support and nutrition programs in Africa.

Intellectual property issues need to be addressed in all trade ne- gotiations. It is estimated that Brazilian farmers will receive $160

to $180 million in unfair benefits this year from illegal plantings

of RoundUp Ready soybeans. The inability or unwillingness of foreign Governments to enforce intellectual property rights needs to

be addressed in all Free Trade Agreements.

Finally, while ASA supports regional or bilateral negotiations, we

urge the administration and Congress to focus efforts on achieving

a meaningful WTO outcome. Once a meaningful WTO agreement

is reached, bilateral or regional agreements to go beyond WTO

commitments can be negotiated under a WTO-plus approach.

That concludes my statement, Mr. Chairman. I will be glad to respond to questions.

[The prepared statement of Mr. Heck appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Heck. Mr. Boisen, welcome. We

are pleased to have your testimony.

STATEMENT OF DOUG BOISEN, CHAIRMAN OF THE TRADE

TASK FORCE, NATIONAL CORN GROWERS ASSOCIATION,

MINDEN, NE

Mr. BOISEN. Thank you, Chairman Goodlatte, ranking member

Stenholm and members of the committee. My name is Doug Boisen.

I am a board member with the Nebraska Corn Board. I am Chairman of the Trade Task Force for National Corn Growers. I would

112

like to thank the committee for giving me this opportunity to testify and speak today, regarding trade negotiations that are so important to corn producers.

Before I begin, Mr. Chairman, let me take this opportunity to

thank you, ranking member Stenholm, and other members of the

committee for voting in favor of ATRAS 252 last week. The resolution was an important signal to Europe and other around the world

that continue to spread an anti-biotech message.

One out of every five rows of corn planted in the United States

is exported. The exports of value-added corn and co-products add

to the importance of foreign markets for United States corn producers. In 2002, the United States corn exports totaled 47 million metric tons with a value of $4.8 billion. Our two closest competitors in

the international marketplace are Argentina and China with 14

and 17 percent of the world production respectively. It is abundantly clear to me and many of my fellow farmers, that agriculture

lives in a more competitive world than ever before.

The NCGA supports trade agreements that will open markets for

Unites States farmers and increase market development opportunities throughout the world. NCGA trade policy revolves around four

basic objectives. The reduction of trade barriers, reduction of trade

distorting domestic support, elimination of export subsidies, and

the elimination of technical barriers to trade that discriminate

against products derived from biotechnology.

While many of the ongoing and future trade negotiations are important to corn producers, I will concentrate my comments on the

WTO.

NCGA strongly believes that the future efforts to successfully liberalize international agriculture markets hinges on the current

WTO negotiations. We were disappointed when members of the agriculture-negotiating group failed to meet the March deadline to

produce a set of modalities. While technical discussion continues to

proceed, we believe negotiations need to move forward prior to the

September Ministerial meeting in Cancun. Like many others, we

are closely watching events in the European Union regarding CAP

reform. While we hope a breakthrough in Europe will help spur negotiations forward, it is important that a final agreement move beyond incremental reform and lays a bold framework towards redefining international agricultural trade.

While Chairman Harbinson did not provide a document that

fully satisfied NCGA, we believe the text will move negotiations in

the proper direction, and provide a clear message that the Doha

Round must fulfill its original mandate and not hinder further development of international agriculture at the expense of entrenched

interests. The Harbinson proposal is a step in the right direction,

in that it would expand TRQ volumes for many commodities.

In addition, tariff reduction for feed grains related products

should be harmonized so that the same ad valorem duties would

apply to corn, sorghum, barley, and wheat. This would remove any

policy-driven incentive to import one grain over another, and enable feed compounders to utilize each ingredient rationally in response to price changes in the world market.

NCGA is also pleased in the text that reforms state trading enterprises. The negotiations on export credits and credit guarantees

113

should ultimately provide for disciplines on the use of export credits that allow the continuation of U.S. export credit programs as a

viable and effective tool to assist U.S. agriculture exports. One of

the most sensitive yet important aspects of the negotiations will

revolve around reduction of domestic support levels. A successful

agreement will ensure harmonization of domestic support levels

among developed countries.

More important, negotiated modalities need to provide Congress

with the ability to construct a farm program that meets our domestic objectives while complying with international agreements. Let

me emphasize that negotiators must ensure maximum flexibility to

provide agricultural producers with assistance that corrects inequities resulting from governmental incentives vis-a-vis our international competition. The NCGA believes that a national farm program can be constructed that is green box compliant, while meeting

the same objectives provided in the current law. This was and remains a stated objective of NCGA and formed the foundation of our

proposal to Congress 2 years ago prior to the farm bill reauthorization. We remain committed to this goal, and believe it is necessary

to provide corn producers with the tools to remain competitive in

the international marketplace, while promoting rural development

and a vibrant farm sector.

The NCGA Board of Directors will be meeting this week and

plan to discuss this issue more in-depth in an attempt to further

define our objectives and specific recommendations to Congress and

USTR in preparation for Cancun.

As you might expect, our goals in many of the other FTA negotiations are similar to the WTO, with particular emphasis on reduction of tariffs and the use of export subsidies.

Specifically, the United States feed grain industry would benefit

from the elimination, or reduction of the complex system of preferential regional and bilateral trade agreements. This will increase

access to more countries and provide exporters access to markets

comparable to our competitors.

We also believe FTA is needed to fully embrace trade in products

produced through agricultural biotechnology. At a minimum, the

United States should seek agreement from countries that products

of agricultural biotechnology be evaluated solely on the basis of

sound science.

As we look forward to months ahead, the United States Government and organizations like NCGA need to promote the benefits of

trade liberalization in multi and bilateral negotiations. We believe

our future as agricultural producers, is linked to trade and we cannot retreat from any region of the world. We look forward to working with the committee on this and other issues of importance in

the future. I thank you for the opportunity to address the committee, and I would welcome your questions.

[The prepared statement of Doug Boisen appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you very much. Mr. Camerlo, am I pronouncing your name correct yet?

Mr. CAMERLO. Yes, sir, Mr. Chairman, that is great.

The CHAIRMAN. Well, if I am not, please correct me. I noted with

interest your considerable concerns and complaints about the Free

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Trade Agreement being negotiated with Australia right now. I

wanted to throw New Zealand into the picture too, and ask you

whether you thought the United States should include New Zealand in those negotiations or should we negotiate with them separately, or should we negotiate with them not at all?

Mr. CAMERLO. We should negotiate as far as dairy is concerned

not at all. When you are dealing with Australia, you are going to

be dealing with New Zealand too, because the cooperative there

which controls all the milk in New Zealand has recently purchased

and is into Australia companies and it is going to be really one

milk source out of both of those countries. But we believe that if

we start dealing with Australia and New Zealand in free trade

agreements, it is a mistake. We should spend our effort on the

WTO, level the playing field, forget free trade, and as Congressman

Stenholm said, let us look for fair trade, let us level that playing

field and everyone can take a part in it.

The CHAIRMAN. Thank you. Mr. Greene, after the Cotton Council’s experience with access to the China market following WTO accession negotiations, do you have any recommendations for our current negotiations? How can the U.S. ensure that commitments

made during the negotiations will be kept?

Mr. GREENE. Well, I think it is an enforcement issue. Mr. Chairman, as you know, China agreed to 3.7 to 5 million bales of open

access for raw cotton, and they only have granted something

around 20 percent of that to date. And so we don’t feel that they

have lived up to their accession agreement. We understand that

Ambassador Johnson just returned from there, we are not sure

what the outcome of that meeting was, but apparently, USTR is

making efforts to cause China to live up to their agreements. We

hope that progress has been made.

The CHAIRMAN. But if it hasn’t, are there other courses of action

that you would recommend, or are you not to that point yet?

Mr. GREENE. Well, they flooded our country with textile imports,

and we have opened up access to them for their textiles, as we

agreed to in the accession agreement. I don’t now what sort of

thing the Government should do or can do, but certainly the administration should cause China to abide by the agreement that

they made. It is just not right for them to sign an agreement, and

then at some point later on, negotiate that agreement. And that

seems to be what they are doing.

The CHAIRMAN. Fair enough. Let me ask any of you—in fact, I

am going to ask all of you. What country or region of the world represents the best opportunity for the agricultural commodity that

you represent, and what, if any, barriers are there to that trade

right now that you would like to see eliminated? Where are the

best places we ought to be looking for trade agreements and trade

opportunities? I will start with you, Mr. Boisen.

Mr. BOISEN. Thank you. Northern Africa presents some real opportunities for U.S. corn. We are in the process of negotiating a bilateral agreement with Morocco. One of the biggest problems we

have in Africa is the biotech issue with the European Union. And

one way to stay on top of that is keep funding USTR.

The CHAIRMAN. Very good. Mr. Heck.

115

Mr. HECK. Certainly for soybeans, the largest opportunity is in

Asia in general, with the developing countries where they are

about to reach that point in the wealth curve where their consumption of high quality food goes up sharply. And that would involve

soybeans. China, if I had to pick one country, because of the size.

The CHAIRMAN. Very good. Mr. Greene.

Mr. GREENE. Yes, sir. We think the Western Hemisphere is

where our future is. If NAFTA has been good for us, we supported

NAFTA and as a result of the strong origin content stipulations in

NAFTA, Mexico has become our largest trading partner. We think

that can be expanded to the rest of Central America and South

America. But we also see China as a huge potential market for us.

They are not only the largest producers of cotton, but will become

the largest consumers, I think, as their lifestyle and standard of

living increases. But we are very concerned that they don’t seem

to be granting us the access that they have agreed to. So there is

the potential there for them, but they haven’t delivered on that potential.

The CHAIRMAN. Thank you. Mr. Lee.

Mr. LEE. I think for wheat maybe is South America, Mexico, and

Central America all have a potential for a large increase. South

America, in particular Brazil, can be a huge market for us, but

right now Mercosur keeps us out as well as——

The CHAIRMAN. I am sorry, what keeps you out?

Mr. LEE. Mercosur, with Argentina. And the Canadians also continue to undercut us down quite severely. So I think if we can get

FTA with South America, that levels the playing field and makes

it a fair tariffs for all of us, that we all abide by the same rules,

would be a great advantage for wheat industry.

The CHAIRMAN. Very good. Mr. Camerlo.

Mr. CAMERLO. Mr. Chairman, we have made pretty good gains

the last few years in Mexico with dairy products. So we want to

continue that growth. But I think Japan, Korea, the Asian countries. We are looking into China. We think there is some real

growth possibilities there, so I think that is the main area where

we are trying to develop. We are the world’s largest dairy exporter

of whey and whey by-products and we are growing that as we

speak. But we would like to get into some higher priced valueadded products, like some of the cheeses.

The CHAIRMAN. Very good, thank you. The gentleman from

Texas.

Mr. STENHOLM. I thank all of you for your testimony today, and

your interest. And I hope and expect that the world agricultural

community is following these hearings today and listening carefully

to what the witnesses and the members are saying. I know when

I had the privilege of visiting China in January, I had a very interesting visit with a French parliamentarian just the last week. The

chairman and I met with the Braizialn delegation yesterday. Over

the weekend, I spent in discussions with the U.S., Mexico, and

their parliamentary exchange. And in each of these levels and

every opportunity I get, I ask them how long do you think America

can continue to buy $500 billion from the world, more than the

world is buying from us? China, $100 billion, Mexico, $37 billion.

That is the fundamental question that one of these days, the perVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00120 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
116

fect storm is going to be created. We are running fiscal deficits now

that just astound me. It astounds me that my friends on the other

side of the aisle suddenly believe deficits don’t matter, as long as

we can have a tax cut. And most of your members agree with that

out there today. How long can we run $400 billion in fiscal deficits, $500 billion

trade deficits, without something happening? I don’t know the answer to that question. But I do know that pursuing fair trade is

in agriculture’s best interest. With 96 percent of the world’s consumers living outside of the United States, all of our futures in agriculture are in the world market. And the world needs us, because

there is a lot of hungry people out there. And biotechnology most—

and you are talking about Africa. It bordered on criminal of what

the Europeans did regarding the threats to Africa, regarding

whether they could accept our food or not. That really went over

the edge. But as we pursue this fair trade, somehow, some way we

have got to reach some accommodations, as Mr. Dooley was saying

earlier this morning. And we all don’t want to put our cards on the

table too quick. But it is fascinating listening to our parliamentarians from these other countries justify their subsidies by comparing

them to our subsidies. And when we start talking about export subsidies, we think they do a heck of a lot more, and they immediately

say, well, your GSM programs, you are subsidizing. And I say oh,

come on. Credit is not a subsidy. Now if we are selling it at below

interest rate, then there is a subsidy, and then we will credit that.

But the point here that just astounds me is that Europe talks

about our export credits as being something that are—our lending

credits is equal to what they do directly subsidizing, and to it with

a straight face. It is just amazing, but then I am used to that.

I am in politics and I have seen my colleagues every day on both

sides of the aisle do the same thing with a straight face. That is

part of the deal. But somehow, just like the Europeans; I have

watched them really put the britches on America agriculture with

turnkey jobs, poultry is one. I watched them, and they would subsidize it from the feed, to the mill, to the equipment, to everything.

They subsidized it, like they accuse us of doing, just lend the

money. They didn’t really subsidize it, they just lent the money.

They did it the way I wish that we need to do it.

But, Mr. Camerlo, according to my information, in 2000–01 marketing year, the European Union subsidized their dairy exports to

the tune of $309 million for butter, $217 million for cheese, and

$23.9 million for nonfat dry milk, totaling $550 million. How does

this compare to what we spend on beef?

Mr. CAMERLO. Congressman Stenholm, I don’t have the exact answer, but I would say 300 or 400 times of what we spend at least.

We can get you that answer exactly, but——

Mr. STENHOLM. Yes, we had a little trouble getting that figure

too, but let us put that, and I want to put that in the record at

this point just for the fact, because it is going to be considerably

more.

Mr. CAMERLO. It is a huge difference. Yes, sir.

Mr. STENHOLM. Mr. Greene, you talked about China. Are we

doing any better in getting China to live up to what they agreed

to do when we voted to allow them into the WTO, regarding what

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the amount of cotton that they would purchase under tariff rate

quota?

Mr. GREENE. Two years ago, we saw something around 10 or 12

percent of the total that they agreed to allow. This year, we are up

to 20 percent. But that seems to me to be little if any progress. I

would have to say that they are blatantly not living up to their

WTO accession agreement.

Mr. STENHOLM. Thank you.

The CHAIRMAN. Thank you, gentleman. The gentleman from

Michigan, Mr. Smith.

Mr. SMITH. Thank you, Mr. Chairman. Gentlemen, thank you for

being here. I chair the Research Subcommittee in Science, and we

had a hearing last week on biotechnology. And what I am pushing

for, and what I put in my National Science Foundation bill, is that

we start partnershipping with scientists in Africa producing the

kind of biotech products that is going to be most helpful for their

particular country. Allowing a more adequate food supply, allowing

products that can give them the vitamins, the nutrients, the immunization they need. I think maybe one of our mistakes has been we

started out producing the kind of biotech products that maybe reduce the farmers cost a little bit. The only way it helped consumers

and therefore public acceptance is a couple of cents a pound less.

And when I visited with the scientists in Holland, they said, you

guys are pretty dumb. Why don’t you produce something somebody

likes? I hope all of you will help support the effort of developing

the kind of biotech products in Africa that helps particular people

in particular countries, because I think that is the foot in the door

to penetrate Europe and Japan and Australia, and some of these

other countries. You came very aggressively, all of your organizations, maybe not dairy quite so aggressively, insisting that Congress allow China in the WTO. Do you wish now in terms of corn

and cotton and wheat that we had waited a little longer, and been

more insistent on their performance in terms of sticking to their

agreements? Corn?

Mr. BOISEN. No.

Mr. SMITH. You are glad they are in, and we will part to that?

Mr. BOISEN. Yes, I am. We knew going in that they was going

to be a challenge. We knew that not everything was going to work

smoothly, and it hasn’t. But no, I am glad that they are in. It is

going to take some time.

Mr. SMITH. How about cotton?

Mr. GREENE. We were never wildly excited about China’s accessions to WTO, but I didn’t think that there was anything really we

could do to stop it, but rather, we needed to be a part of the process

so that we saw some reciprocal benefit. Unfortunately, we have not

seen the reciprocal benefit. We have given them benefit, but they

have not reciprocated.

Mr. SMITH. Mr. Camerlo, give me your perception of how most

of your members feel about the current Milk Subsidy Program.

Mr. CAMERLO. The Price Support Program that we are under,

Congressman, is across the board in good favor of dairy farmers.

They think it is a fair and equitable program.

Mr. SMITH. In Michigan, my impression, the big farmers tell me

they don’t like it. It doesn’t affect that much of their milk sales.

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The middle sized farmers say it is a program that keeps the small

farmers still in business that adds to the surplus and puts pressure

on their ability to buy replacements. You say that is not true, generally?

Mr. CAMERLO. No, no. I talked about the Price Support Program,

which is a different program. The Milk Program that you are talking about, those have opposition in the field to large producers.

And the way USDA established the rules, it put additional pressure on the herds of three to 700 cow herds. So there is some discontent from which you are——

Mr. SMITH. If all of your members were voting, would they vote

to do away with it?

Mr. CAMERLO. You have to remember that there is a lot more

smaller producers than there are big producers. I would believe the

membership you are asking me personally would vote to maintain

the program, because it is helping a lot of producers in very tough

times in the industry. Those larger producers, Congressman, are

opposed to it, no question.

Mr. SMITH. Mr. Heck, a quick question on Brazil and soybeans.

The papers I read that Brazil produces soybeans at a lower price

cheaper than we do. Their cost of production is lower than ours, if

you don’t include the transportation, once they get the transportation and the waterways into the inland, they will be—they will

produce soybeans at a lesser cost than what we produce them. Is

that—do you guess the same way?

Mr. HECK. Not exactly. They have a lot of hidden subsidies there,

and it may hinge on your interpretation. They receive subsidized

low interest loans that do lower their costs. But if there were no

subsidies, if all of the costs were accounted for, it would be a high

cost production area, and not a low cost production area. Without

subsidies, we would have the advantage.

Mr. SMITH. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you. Gentleman from Kansas, Mr. Moran.

Mr. MORAN. Mr. Chairman, thank you. I have only one question,

I think for Mr. Boisen dealing with Mexico and fructose corn syrup.

We all know the problem. I don’t need to describe what we faced

for the last at least 18 months with the discriminatory tax. My

question is, do you have the sense that we are doing enough? That

USTR is fully engaged in this issue? And then beyond that, what

more can we do to get a fair opportunity to compete and to have

our trade agreements lived up to?

Mr. BOISEN. I think part of the problem with Mexico, and this

is my opinion only, is that we are reaching for implementation of

NAFTA. We are reaching that point. And in every trade agreement,

there is winners and there is losers. And with this being an election year in Mexico, I think the rhetoric gets maybe exaggerated

a little. I think USTR is doing a good job with the resources they

have available, but no, things are not moving fast enough, but they

never do move fast enough. So I think we just need to keep the

pressure on them. I think we need to enforce the agreements that

we have. I don’t think there needs to be any side agreements, and

I think eventually we will get the issue with high fructose corn

syrup, as well as other issues with Mexico resolved.

119

Mr. MORAN. I am glad to hear you are optimistic, although I

guess slightly delayed in your optimism. It is good to know that

you think there is a good end result. Thank you very much. Thank

you, Mr. Chairman.

The CHAIRMAN. Thank you. I believe the gentleman from Texas

has an additional question or two.

Mr. STENHOLM. Not so much a question, but a follow-up comment with the question of Mr. Moran regarding Mexico. And having just spent a weekend visiting with our Mexican counterparts

and some very good discussions, I think there is a general recognition that Mexico did not move as fast as they should have regarding the transition from 8 or 10 million farmers whose average farm

is 5 hectare, 10 hectare. And there is no one arguing that a farm

that size can compete in any market. But that is a problem. That

is a social problem for Mexico that I am certainly sensitive to. And

understand that we were very specific in saying these little what

I call knit-picking things you have been doing with beef and pork

and poultry and rice, and all of the things that the non-tariff trade

barriers, and all of this, you are testing our patience with this, because even no one would argue that it is legal, but it is done in

this. But little did I know, we would have—I knew we were getting

close to a WTO challenge on it, and now we are there which is perfectly the thing to do. But somehow, someway and this committee

and agriculture can be very helpful, and I think the chairman has

already indicated his desire to look into immigration policy. This is

one area we have been derelict in this country. I can be critical of

the Mexicans for not moving as fast as they should to implement

NAFTA in a way that would make it more harmonious, et cetera.

But we can be equally critical as not dealing with our immigration

policy in a forthright manner from this country. It is important to

agriculture. It is important to Mexico, and the fact that we have

literally done nothing, particularly since 9/11/01, is now becoming

a national security problem. But this is one area that can possibly

be the most helpful thing we could do regarding trade opportunities

going both ways in which we have gained in Mexico. Since NAFTA

went in, our exports to Mexico have gone up 100 percent. Their exports to us have gone up 103 percent, which is about as close to

parity as you can possibly get. But I have got a lot of constituents

that don’t believe that right now. But this is one area that as we

continue to negotiate on trade that gets overlooked by too many of

us. And the immigration policy, in trying to seek a good, solid, middle ground approach on that, can be the most helpful for accomplishing the things that you have testified to regarding Mexico

trade that I could possibly mention. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman for his comments and concur. I would like to thank all of the members of this panel for your

contributions. I particularly found useful your perspective that

there are many trade opportunities in various parts of the globe for

each of you. And I hope we can work with our trade representatives to make sure that we focus on those areas and push harder

to open up some markets where there is a lot of importation of agricultural products, and not just negotiate with countries that are

agricultural net exporters. And so we will keep that list and we

will raise it with the administration every opportunity we get.

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Thank you all, and we will now go onto our third panel. Now I

would like to welcome our third panel. Mr. Joe Zanger, Board of

Directors, California Farm Bureau Federation, from Hollister, CA;

Mr. Andrew LaVigne, executive vice president and CEO of the

Florida Citrus Mutual, at Lakeland, FL; Mr. Jack Roney, director

of economics and policy analysis, for the American Sugar Alliance,

Arlington, VA; and Ms. Sarah Thorn, director of international trade

of the Grocery Manufacturers of America. I would like to welcome

all of you. And we will start with Mr. Zanger. I will remind you

as I have the other panels that your full statement will be made

a part of the record. We would ask you to keep your oral testimony

to 5 minutes. Mr. Zanger, welcome.

STATEMENT OF JOE ZANGER, BOARD OF DIRECTORS,

CALIFORNIA FARM BUREAU FEDERATION, HOLLISTER, CA

Mr. ZANGER. Good afternoon, Mr. Chairman. I think I have my

presentation scaled back to 5 minutes. We will see how we do. I

am Joe Zanger, a grower, processor, packer and shipper, retailer,

from the San Jose area. My family business grows prunes, walnuts,

pears, apricots, wine grapes, asparagus, lettuce. To varying degrees

over the last many years, I have been responsible for the farm activities for the family business for the last 23 years.

Today I am presenting testimony on behalf of the California

Farm Bureau Federation, as a member of its Board of Directors

and Trade Advisory Committee. I also serve on the Fruit and Vegetable Aid Tack, the pleasure of doing that. And also, I have been

on the California Farm Service Agency State Committee for the

last 9 years, so that gives me a little additional perspective on the

program perhaps.

The California Farm Bureau is the State’s largest general farm

organization representing more than 90,000 member families. Although California Farm Bureau is actively monitoring and negotiating progress and potential impacts of bilateral trade agreements, my comments today will focus on fruit, nut, vegetable, and

other specialty crop interests in the WTO negotiations.

As a proponent of Trade Promotion Authority, California Farm

Bureau is every supportive of the administration’s efforts to secure

broad and meaningful agricultural reform in the WTO talks. We

believe an aggressive approach is necessary by our negotiators in

this round, since past trade agreements have provided more benefits to U.S. specialty crop importers, as opposed to U.S. specialty

crop exports. Significant reform is needed if the agreement is to

make a difference in the future prospects for California and U.S.

specialty crop growers.

In an effort to secure such reform, the California Farm Bureau

is working with other state and national interests, as well as with

our international trading partners to advance a sectoral initiative

within the WTO agricultural talks for fresh fruits, vegetables, nuts,

and other specialty crops as defined in chapters 7 and 8 of the tariff code.

Mr. Chairman, I would like you to divide my remarks into three

sections; market access, export subsidies, and domestic supports.

And I will explain why our sectoral initiative what it is proposing

in each of these areas.

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Market access. Average nominal (bound) tariffs in the United

States, the EU, and Japan generally fall between zero and 25 percent. Globally, however, average tariffs on fruit, nuts, and vegetable products are much higher, ranging from 30 to 50 percent, and

some ranging well above 80 percent. Many of the countries that

offer the greatest potential for U.S. specialty crop exports are those

that maintain the highest tariffs, such as China, Egypt, the EU,

India, Israel, South Korea and Thailand. Examples of excessive tariffs include India’s 105 percent tariff on raisins, Saudi Arabia’s 100

percent on dates, South Korea’s 136.5 percent tariff on onions.

The trade-inhibiting effects of tariffs and quotas on agriculture

are well documented. In my written testimony I give two examples;

one with table grape exports to Indian, and another with citrus exports to Korea. They are startling what those tariffs do, and also

it is the impact, the additional sales we could have, should tariffs

were relieved.

Both the Harbinson and EU Doha Round modality proposals

would allow these high tariffs to remain. Harbinson less so than

the EU. The U.S. Doha Round modality proposal would ensure that

tariffs are reduced to a maximum of 25 percent. But even with the

U.S. proposal, market access opportunities for U.S. fruit and vegetable exports would still be disadvantaged.

For this reason, the California Farm Bureau and other organizations in the planned coalition will be requesting that an agreement

be negotiated that would upon implementation cut tariffs on most

fruit and vegetable and nut products included in the chapter 7 &

8 tariff code, beyond what is agreed to in the WTO framework,

using a reduction formula that would zero out tariffs over a 5-year

period in equal installments.

Export subsidies. While most WTO member countries, including

the U.S., do not use export subsidies for specialty crop products,

the EU in 2000 had expenditures on exports for these products totaling approximately $42 million. And in 2002, approximately $40.6

million is budgeted. While these subsidies are within the EU’s

WTO commitments, they nevertheless distort the market for U.S.

specialty crop exports, and increase unfair competition in third

markets where the U.S. and the EU products directly compete. Our

sectoral initiative would immediately prohibit the use of export

subsidies.

Domestic support. This committee is fully aware that while the

U.S. provides some domestic support to its growers, the disparity

between the U.S. and European levels of support is striking. For

the most part, U.S. fruit, nut, vegetable and other specialty crop

producers do not receive any amber box payments. Amber box payments as you know are the trade distorting internal support payments. By contrast, the EU in 1999 subsidized its fruit and vegetable sector to the tune of $11 billion, including lemons at $426 million, grapes at $213 million, and tomatoes at a whopping $4.15 billion.

The disparity in the level of support provided to U.S. and EU

producers must be rectified in the current negotiations. Given the

vast disparity between the levels of subsidization, the emerging coalition is proposing to prohibit all amber box supports for most

fresh fruit vegetables commodities within chapters 7 & 8, it would

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eliminate them, and it would limit the de minimis support to 2.5

percent of production value.

Summarizing, there is significant tariff, export subsidy, and domestic support issues that must be addressed if the U.S. specialty

crop producers are to see meaningful reform in the Doha Round.

And to this extent, California Farm Bureau is communicating with

members of Congress, and has been working with USDA and

USTR to ensure that a sectoral initiative for fresh fruit and vegetable products is advanced during the Doha Round. Again, this initiative would serve as a zero-for-zero contract for countries. Zero out

tariffs, zero out use of export subsidies, zero out use of amber box

supports.

And I see I am way over, so I thank you for the time and perhaps I can answer questions afterwards.

[The prepared statement of Mr. Zanger appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Zanger. Mr. LaVigne, we are

pleased to have your testimony.

STATEMENT OF ANDREW W. LaVIGNE, EXECUTIVE VICE

PRESIDENT/CEO, FLORIDA CITRUS MUTUAL, LAKELAND, FL

Mr. LAVIGNE. Chairman Goodlatte, Mr. Stenholm, members of

the committee, I am Andy LaVigne, executive vice president and

CEO of Florida Citrus Mutual. And I am pleased to present today

this testimony on the status of future negotiations affecting the agricultural trade policy. Particularly, the proposed Free Trade Area

of the Americas and the Doha development agenda of the WTO.

These negotiations will determine nothing less than the continued

existence of the Florida citrus industry and the composition of the

world’s citrus markets. Mutual is a voluntary cooperative association whose membership accounts for more than 90 percent of Florida’s citrus growers and as much as 80 percent of all oranges

grown in the United States for processing into juice and other citrus products.

In order to correct a common misunderstanding, Mr. Chairman,

Florida orange varieties are grown for processing, and not suitable

for the fresh marketplace. I want to emphasize at the outset that

Florida’s growers, the most efficient in the world, measured by

yield per acre, understand that our future economic security lies in

the expansion of world markets for processed citrus products. I

threw this in. We do not object to the improvement of U.S. economic ties in the hemisphere and the world through stronger trading relationships. And, in fact, we have supported many such programs and agreements over the last year, such as CBI, Singapore

and others.

However, new market expansion beneficial to unsubsidized U.S.

growers is a long-term objective, which cannot be achieved quickly

under current global conditions, especially for crops that are just

citrus, which is a perennial tree crop. Efforts to stimulate such expansions through traditional tariff cutting stimulus, which would

be disastrous for U.S. growers and consumers, and possibly even

the intended beneficiaries within foreign industries.

Our industry in global marketplace are highly unique and import

sensitive. Not because of any lack of competitiveness, but because

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of the dynamics and history of this sector. The global orange juice

industry is dominated by five huge producers in Brazil. The U.S.

tariff does not ensure survival, as many of the bankrupt Florida

growers can attest, but it counteracts some of the extreme pricing

pressure inflicted by frequent evaluations of Brazil’s currency, the

predatory pricing behavior, the Brazilian orange juice oliogopoly,

and the sheer market power of a highly concentrated industry selling globally, a dollar denominated commodity, made with progressively devalued local inputs.

Furthermore, the tariff gives Florida growers a fighting chance

to make a living in a country that properly places tremendous

value on costly worker rights and environmental integrity.

World orange juice consumption is concentrated chiefly in only

two regions; the United States and the European Union. Global orange juice production is also located chiefly in two countries, Brazil

and the United States, principally Florida. Brazil’s five large processors control roughly 80 percent of Brazil’s orange juice production

and control nearly all of Brazil’s orange juice exports.

It must be noted that Brazil’s production of oranges is for the

processed marketplace. And essentially, 99 percent of that processed product is exported to the world market. The large Brazilian

processors benefits from advantages brought by past subsidization

and dumping, lower environmental and labor standards, frequent

national currency devaluation, which reduces the relative cost of

production inputs and provides false incentives to overproduce, and

oligopoly price manipulation.

Florida orange growers are not the only U.S. agricultural industry pitted against the unfair advantages of Brazil’s agricultural exports; however, they are one of the few industries that the U.S.

FTAA proposal threatens with demise. While U.S. farm support

programs are used to help level the playing field for agricultural

industries whose top markets are abroad, tariffs are used to level

the field for industries like orange juice, whose top markets are in

the United States. The U.S. industry that grows oranges for processing is unique among U.S. agricultural industries in that it does

not receive any production or trade distorting domestic subsidies.

Its only offsetting tools are the tariff and enforcement of unfair

trade laws.

Any reduction in the U.S. orange juice tariff applying to Brazil

would critically damage the entire Florida citrus industry. The economic impact of which has recently been estimated that $9.13 billion in industry output, $4.18 billion in value-added activity, and

89,000 jobs. It would also put at risk the environmental viability

of over 800,000 acres of commercially planted citrus.

In order to get a glimpse of the likely impact of tariff reductions

in the market, one need only look at the record of bulk juice prices,

return to growers, and prices to consumers over the past 10 years.

As the Uruguay Round tariff cut of 15 percent was forced on the

market between 1994 and 2000, the global bulk juice price fell by

21 percent. And average returns to Florida growers declined by 38

percent for the early and mid-season varieties, and 16 percent for

the late season or Valencia variety. At the same time, the price of

the finished prices to consumers rose by 19 percent for the frozen

concentrated product and 24 percent for chilled and reconstituted

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juice, seemingly disconnected from the underlying wholesale prices

being paid to the grower. And the reason is that a dramatically

concentrated global industry with almost limitless cheap resources

will take full advantage of any declining constraint on its power

represented by tariff cuts, to minimize its competition and maximize its profit at the expense of the consumer, and the livelihood

of Florida’s growers.

Since the Florida industry is Brazil’s only competitor of global

significance, its demise would not bring cheaper orange juice to the

U.S. breakfast table, but would eventually permit even higher consumer orange juice prices.

For all of these reasons, Mutual strongly opposes any reduction

in the U.S. tariff on orange juice under the FTAA, or any other

trade agreement in which Brazil would be a party.

Mr. Chairman, I appreciate the opportunity to testify today, and

we would be more than happy to answer any questions.

[The prepared statement of Mr. LaVigne appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. LaVigne. Mr. Roney welcome, we

are pleased to have your testimony.

STATEMENT OF JACK RONEY, DIRECTOR, ECONOMICS AND

POLICY ANALYSIS, AMERICAN SUGAR ALLIANCE,

Mr. RONEY. Thank you Mr. Chairman, and Mr. Stenholm. I am

pleased to present the U.S. sugar industries views on the WTO and

FTA’s, with some focus on the Harbinson text that is the current

basis of the WTO negotiations on agriculture.

American sugar producers are efficient by world standards, with

costs of production below the world average. We would welcome the

opportunity to compete on a level playing field, free of all Government intervention.

Unfortunately, the world sugar price is highly distorted by a vast

array of Government subsidies and practices—so distorted, that the

so-called world market price for sugar has averaged barely half the

world average cost of producing sugar for the past two decades.

The only way to achieve the goal of free trade in sugar is to address all of these practices in all countries through comprehensive,

multilateral negotiations, in the WTO.

The distorted world sugar market cannot be corrected through bilateral or regional free trade agreements. FTAs leave distortions in

the rest of the world untouched. FTAs leave the free trade area

vulnerable to the harmful effects of subsidies and other trade distorting policies outside the region. FTAs undercut our efforts to remove such policies in the WTO.

The administration has recognized some of these dangers and

wisely decided not to address domestic price supports in FTAs, but

rather to reserve price support negotiations for the WTO. To our

dismay, however, the administration plans to treat sugar differently.

U.S. sugar policy, unlike other U.S. commodity programs, is

based upon import tariffs. It is a no-cost policy, with no price or

income support payments to American sugar producers. But the administration is proposing FTAs that would eliminate U.S. sugar

import tariffs and undermine the U.S. sugar price support system,

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without addressing sugar-price supports and other subsidy programs in the other countries.

How foolish it would be for us to reduce our import tariffs while

foreign exporters are still subsidizing—and put efficient American

sugar producers out of business. Globally, there is ample precedent

for excluding sugar market-access disciplines from FTAs. Sugar

has been excluded from the U.S.-Canada FTA; the Mercosur FTA,

among Brazil, Argentina, Paraguay, and Uruguay; Mexico’s FTAs

with other Latin American countries; and the European Union’s

FTAs with Mexico and with South Africa.

There is one exception: the U.S.-Mexico portion of the NAFTA.

The controversy surrounding the sugar and corn sweetener provisions of the NAFTA has been enormous, and a severe strain on

U.S.-Mexico relations. This, and compliance issues on other commodities, have left many American farmers questioning the value

of FTAs in which the only concessions that appear to be enforced

are the concessions made by the United States.

The United States is already one of the word’s largest sugar importers. All the sugar from 41 countries enters at the U.S. price,

not the world dump market price, and virtually all duty free. Forcing the United States to import more sugar than it needs, as the

FTAs would do, would over-supply our market. These potential

FTA countries export over 27 million tons of sugar per year. That

is nearly triple U.S. sugar consumption. The results would be disaster for domestic producers and for foreign suppliers. Prices would

fall, driving more American sugar farmers out of business.

Low prices would also cause forfeitures of sugar loans to the Government, contrary to the Law Congress just passed in the 2002

farm bill. Low U.S. sugar prices would harm the economies of the

countries that normally export to the U.S. All but two of the 41

quotaholding countries are developing countries.

Clearly, the only way to address the world of trade-distorting

practices in sugar is comprehensively and globally, in the WTO, not

piecemeal and regionally in the FTAs. But even in the WTO, we

must be cautious. The Harbinson text falls dreadfully short of providing global sugar reform.

Its major shortcomings: Harbinson does too little to harmonize

domestic supports. It will lock in rather than narrow the vast differences in price support levels. Harbinson does too little on export

subsidies. It provides too long a phase out period, much longer than

that provided for import tariff cuts.

Harbinson does far too much for developing countries, virtually

excluding them from any serious disciplines. This is an enormous

concern for sugar. Developing countries account for three-quarters

of the world sugar production and trade. Exclude these countries,

and you have no real reform.

In conclusion, Mr. Chairman, U.S. sugar industry is prepared to

compete in a global environment, free of Government distortions.

But the only way to achieve this goal is through carefully structured, comprehensive and effective reforms in the WTO, and not in

FTAs. We must not allow ourselves to be rushed into flawed agreements that could have disastrous results for our industry and for

the rest of U.S. agriculture. Thank you.

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[The prepared statement of Mr. Roney appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you very much, Mr. Roney. Ms. Thorn, we

are very pleased to have you with us today. We know that the Grocery Manufacturers have held meetings in my district for many,

many years, and we are glad that you do that, and hope you continue. And we are glad to have your opinion expressed up here

today, as well.

STATEMENT OF SARAH F. THORN, DIRECTOR OF INTERNATIONAL TRADE, GROCERY MANUFACTURERS OF AMERICA

Ms. THORN. Thank you, Mr. Chairman and Mr. Stenholm. My

name is Sarah Thorn and I am the director for international trade

at the Grocery Manufacturers of America. It is a pleasure to be

here today to offer our views on the status of multilateral and bilateral agricultural trade negotiations. GMA is in a unique position

of supporting all current trade negotiations, as we reap benefits

from both the increased export and import opportunities these new

agreements provide.

GMA is the world’s largest association of food, beverage and consumer product companies. Our industry remains a significant and

increasingly important component of the U.S. agricultural sector.

In fact, consumer food exports account for a higher percentage of

U.S. agricultural exports than bulk commodities, making them a

key export gateway for many farm products, if there are significant

tariff and non-tariff barriers that limit future growth in this sector.

For these reasons, the food industry has placed a priority on the

successful outcome of the WTO agricultural negotiations.

Our primary objective in the WTO is to improve market access

for processed food products and primary agricultural products

through comprehensive negotiations that reduce or eliminate tariffs

and TRQs on all products, even sensitive ones. To achieve this objective, we believe it is necessary to have a complex formula for tariff reductions that cuts higher tariffs faster than low ones, and harmonizes all tariffs to the already low U.S. schedule.

GMA, like many agricultural groups, was disappointed by the

lack of ambition in the Harbinson text on core issues, such as tariffs and subsidies. We are also quite concerned about the extremely

generous special and differential treatment provisions afforded to

developing countries. We believe, however, that the Harbinson text

should not be discounted outright, as it does provide a general road

map for the harmonization of tariffs and the elimination of export

subsidy, and the reductions of trade distorting domestic supports.

The text, therefore, should be considered as a baseline from which

to pursue greater reforms, and does in itself represent a significant

movement forward in agricultural trade liberalization.

The Harbinson text also wisely ignores many of the EU’s protectionist demands on non-trade concerns, such as precaution, labeling

and geographical indications. GMA is extremely concerned about

the escalation in EU demands for increased protections for geographical indications, in return for movement on agricultural liberalization.

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As you may know, in the agricultural negotiations, the EU is proposed to create a register of GIs in order to give their producers

the exclusive use of many famous agricultural product names, such

as Pilsner, Fetta, Parmesan, Balsamic vinegar, and many others.

GMA is adamantly opposed to these new negotiations on GIs. We

believe that sufficient rules already exist to guarantee that GIs are

protected, and that new commitments in this area are not needed.

The new rules may only serve to confuse consumers and represent

a direct threat to trademarks and brands that are essential to the

future growth of the food industry. Concessions on GIs will likely

have an enormous negative consequences, not just for agriculture,

but for a wide variety of industries that rely on strong intellectual

property protections to market their products globally.

Now let me quickly turn to our views on the many bilateral and

regional negotiations that have been recently launched by the

United States. GMA supports these negotiations and believes that

they are a necessary compliment to multilateral negotiations. Bilateral and regional negotiations allow for greater integration of markets, and provide the opportunity to enhance existing WTO commitments in key areas such as intellectual property rights and

technical barriers to trade. GMA believes that the Chile agreement

is in many ways an excellent model for future trade negotiations,

as it is comprehensive and includes state of the art commitments

in many chapters. We applaud the comprehensive nature of the

agreement.

However, we caution that in order for commitments to be truly

commercially meaningful, rules of origin and other limiting rules

must not be used to deter trade in sensitive commodities. For example, while we were pleased that all commodities were included

in the Chile FTA, we were disappointed that sugar trade is subject

to both a net surplus requirement and restrict the rules of origin

that would effectively preclude any meaningful trade in sugar. On

a similar note, it is clear that the confusing and contradictory requirements for sugar trade in the NAFTA have only led to increased trade frictions as opposed to trade facilitation. These trade

limiting provisions should clearly not be modest for future trade

negotiations.

GMA also supports the Chile-FTA language that codifies the

principal of first in time, and first in right are exclusivity of trademarks. This language will help to defend trademark protections

from the EUs ambitious and geographical indications.

GMA also believes that negotiators should build on the U.S.-

Chile TBT chapter in future free trade agreements. For example,

we recently submitted a proposal to USTR to enhance TBT disciplines within the U.S.-Australia FTA, to address our concerns

about mandatory labor and regimes, such as those for biotechnology and unjustified technical barriers to trade.

Thank you for the opportunity to be here this morning. I would

be happy to answer any questions.

[The prepared statement of Ms. Thorn appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Ms. Thorn.

Mr. LaVigne, in your testimony, you talk about narrowing the

scope of the Free Trade Agreement of the Americas negotiations

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are to reduce political friction among other things. Can you give us

some more specifics about that? What would you recommend to the

negotiators as to how that scope should be narrowed?

Mr. LAVIGNE. Well, I guess, Mr. Chairman, we were looking at

that more from the standpoint of what we have seen in the media,

and in discussions with the various negotiators following Ambassador Zoellick’s trip to Brazil recently with respect to how we look

at either the Mercosur countries in negotiations with a 4 plus 1

issue, or with just narrowing the focus of a FTAA. Taking the subsidized commodities off the table and just looking at market access

unfortunately draws a bead on the citrus industry and several

other commodities, one that will remain unnamed at this table, but

is sitting right to my left, that we feel would be unfair in this kind

of a situation. We would be the fruit basket in the middle of the

table, while everyone around the table, hi-tech services and everything else, would be shooting at us to straighten us away, out to

get whatever they needed. And if that becomes the issue, Mr.

Chairman, I think we would push extremely aggressively to also be

rolled over into the WTO, if that focus was narrowed.

The CHAIRMAN. Well, we share your concern about agriculture

being traded away for other commodities.

Mr. Roney, you may want to comment on that, but I would also

like you to comment on the current European Union negotiations

within the EU on its own Common Agricultural Policy and its possible impact on the world sugar market.

Mr. RONEY. Thank you, Mr. Chairman. The fact that the EU is

the world’s second largest sugar exporter and had been the leading

exporter for a number of years, and has a price support program

that provides a price structure 40 percent higher than ours, suggests that the EU sugar subsidies must be addressed. And our concern, of course, is that FTAs won’t even touch those, so we are

making ourselves vulnerable to European sugar subsidies. Even in

the WTO context, the CAP reform that the EU is considering now

and working on as we speak does not include sugar. So we have

concern that even the CAP reform we may see emerging from the

European Union in the coming weeks will not have a significant effect on EU sugar subsidies. So it is something that we cannot address in the FTAs, but we need to address in the WTO, and I think

we need to be very careful on that and watch that very carefully,

and I appreciate your bringing up that set of subsidies.

The CHAIRMAN. I thank you. Let me ask of this panel the same

question I asked the last panel with regard to the countries or regions of the world that best represents and opportunity to export

our agricultural products, particularly the commodities that you

represent. And what, if any, particular barriers concern you about

the ability to take advantage of those markets. Start with you, Mr.

Zanger.

Mr. ZANGER. Yes. When it comes to fresh fruits and vegetables,

basically any consumer is our market, and especially countries that

have the wherewithal of their population, and the wherewithal to

afford fresh fruits and vegetables. It is more cost associated with

fresh fruits and vegetables in terms of shipping, its perishability

so—and the handling is more expensive. So you need a country

that does have some net wealth in order to afford our product. But

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incremental sales, we believe, are our long-term solution, so no sale

is too small of a sale because they will all add up. And we find that

6 or 7 percent of additional supply causes a situation where we are

over supplied and the market is depressed. So rather than producing less, because that is just not going to happen, we are always

going to produce more because we need to get the efficiencies up.

If we don’t produce, someone else will produce. It is just the matter

of getting greater distribution, getting more people throughout the

world eating more fruits and vegetables, not five a day, 7 a day,

as we are promoting here in the United States. All of this incrementally helps, and so I would say each and every country, to answer your question.

The CHAIRMAN. All right. The world is our fruit basket.

Mr. ZANGER. Yes.

The CHAIRMAN. All right. Mr. LaVigne.

Mr. LAVIGNE. Mr. Chairman, that is the discussion that we have

had quite extensively with the administration. When we look at the

unique nature of orange juice, it is not a product that you can take

to every country in the world. Unfortunately, any of the areas the

previous panel discussed in Northern Africa or South America don’t

have the economical wherewithal of the—or structure to be able to

use the product, put it in refrigeration and those kind of things and

the basics on it. Unfortunately, as we look at the current trading

situation with our tariff, elimination of the tariff or reduction of the

tariff won’t allow us to take advantage of any market growth down

the road in any of these potential arenas, whether they be China

or other areas as they develop. By the time those markets develop

enough for us to take advantage of them, there wouldn’t be a Florida citrus industry, so we would prefer to look at those kind of opportunities down the road at the next round, whatever they call it.

Mr. RONEY. Mr. Chairman, the American sugar producers are efficient by world standards. We are net importers in this country,

and in fact, we are required to be so by WTO and NAFTA concessions that force us to import an amount of sugar that amounts to

about 15 percent of our market year after year. Our only hope to

eventually move into export markets, which I think our industry is

efficient enough to be able to do, would be to have genuine global

sugar reform through comprehensive negotiations in the WTO. It

would knock out the less efficient producers, and raise the world

dump market price to reflect the actual cost of producing sugar.

Since our costs of production are below the world average, then we

could compete. But only if we have that global comprehensive reform.

The CHAIRMAN. Everything, nothing, nothing. Ms. Thorn, please

help us out with some great targets for grocery manufacturers to

export your finished products.

Ms. THORN. Absolutely. In fact, we are very excited about the

Western Hemisphere and Asia. These are markets that are a growing populations where income is growing, and as income rises, people tend to go from commodity crops to processed food and higher

value products. So just looking at our experience with the NAFTA

where our exports actually doubled after NAFTA implementation,

we feel very strong about the Western Hemisphere. Some of the

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riers on processed food products, as well as the non-tariff barriers

to trade. A lot of this is export requirements, mandatory labeling

requirements, things that effectively preclude our entry into markets, even if we get the tariffs down.

The CHAIRMAN. Thank you very much. The Chair recognizes the

gentleman from Texas.

Mr. STENHOLM. Mr. LaVigne, I believe you are the first witness

today that has talked about currency values, and the difficulty that

your industry has competing with the Brazilians when the real is

35 cents on the dollar.

Mr. LAVIGNE. Yes, sir.

Mr. STENHOLM. That is a message that we need to get out to the

general public, particularly those who have a negative attitude

about our farm bill, of us attempting—of us, being the United

States Government, attempting to stand shoulder-to-shoulder fairly

with our producers in the international marketplace. Because when

you are competing against a 35 cent real, it is pretty difficult to do,

and that goes for every other commodity and it goes for every other

production. It goes for airplanes, it goes for everything when you

have a difference in currency, and therefore, to me it has always

been one in which I with a straight face can justify us attempting

to meet that subsidy of currency with something we do to help our

own industry, competing in the international marketplace. That is

another form of export subsidy that governments can do, and it is

difficult to compete with it.

Ms. Thorn, you mentioned the EUs attempts to make processed

based labeling, such as labeling for biotech products more immune

from WTO challenges. What is the affect of our adoption of country

of origin labeling on our credibility and arguing against processed

based labeling?

Ms. THORN. Well, I think it undermines our credibility. We have

lobbied strongly against those provisions during the farm bill debate. We don’t think that the country of origin has any bearing on

the quality or the safety of imported products. And we believe that

it potentially could be a technical barrier to trade that we would

be vulnerable on. We are working hard to see how that those provisions may actually be implemented in a way that they are workable. We think that this committee would be wise to review those

provisions to see the actual impact on farmers, ranchers, and food

manufacturers, because we don’t think that they are going to meet

the stated objective.

Mr. STENHOLM. The Chairman informs me we will be holding a

hearing in this committee on—next week, and I think it is very

timely. I should have mentioned this with the first panel today,

with the BSE having been discovered in Canada and some now are

believing that we really need country of origin labeling period now,

because of BSE. I urge caution on everyone in this endeavor. Be

careful what you ask for when you ask for protections, because if

the next case of BSE should turn up in the United States, heaven

forbid, then we will have excluded ourselves from every potential

market in the world. And we are learning that now with wheat,

with carnal bunt where we have a zero tolerance, and this is something that some of the previous questioning of other witnesses has

led that we tend to get a little overly exuberant of whether or not

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those countries who compete with us have equal food safety standards that we do. And as most of us know, we do a pretty good job,

a pretty darn good job of making sure that all of our food include

that which is imported is safe. Now we can do a better job, but it

is awfully important that we be careful of what we ask for because

sometimes when you ask us to do something for you, which none

of you have done. Well you have too, in this. But be careful is what

we say. Mr. Roney, a FAPRI analysis concludes that Harbinson

would reduce bound tariff rates on sugar from about 92 percent to

54 percent since the applied tariff rates are lower at about 25 percent. Would U.S. sugar benefit from the tariff reductions contemplated in the Harbinson?

Mr. RONEY. On the contrary, Mr. Stenholm. We would be made

more vulnerable by that. You would see absolutely no progress on

foreign import tariffs. However, with our import tariff the bound

and applied are the same. But to make matters worse, we are looking at a 5-year phase down on our import tariff, while there is a

10-year phase down on foreign export subsidies. So we would be

bringing down our import tariff far more rapidly than foreign export subsidies are being phased out. So we literally would be opening our market to subsidized foreign sugar.

Mr. STENHOLM. Another point just for the record today that I

think we are going to hear more of. In fact, there could very well

be a bill introduced very soon regarding individual animal identification. Instead of labeling, trace back of which becomes very important, and here I think you know the Canadians can be commended for the manner in which they were able to track that one

animal. And as much as we hate to see these kind of things coming, I think from a standpoint of maintaining the credibility of our

food supply in which I can, and I say this quite often, we are

blessed to have the most abundant quantity of food, the best quality, the safest food supply at the lowest cost to our people of any

other country in the world. And that doesn’t happen by accident.

It is because we recognize, you do, certainly, Ms. Thorn, the people

you represent understand that if a product that you sell causes a

problem, you are liable. And the same is true for every one of you

at the table. If it is your product that causes a problem, you are

liable. And then in this day in age in which we have got the sueitis,

it is important to note who caused it, and it is important that both

us and our competitors are able to do that. So I think you are going

to see more and more discussion of this, and hopefully we will

move in a way that will be cost effective and efficient. That we

don’t put another noose around our own producers neck in costs

that are unsustainable, that can’t be received back from the marketplace. And that is a real challenge that we are going to have,

but it is one that we better face up to with the biotechnology, which

we have got to get the rest of the world to accept, for the good of

the starving people of the world. And that is something that we

need. I know you do in the fruits, vegetables area, and which

through biotechnology, you can do wonderful things with the product. And it would be a shame to deny the consumers of the world

that because somebody decided it was unhealthy, without any scientific evidence whatsoever. But we thank you very much for your

attendance here today, your testimony, and look forward to workVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00136 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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ing with you and with the administration in trying to get a successful Doha Round completed. That is awfully critical to everybody

that has been here today.

The CHAIRMAN. I thank the gentleman. And I thank all of you,

as well, for your contribution today. It has been very valuable. And

we are going to continue to watch this issue very, very closely. It

is my intention, along with Mr. Stenholm, to lead a delegation of

Agriculture Committee members to the WTO Ministerial meeting

in Cancun to be present and to speak up, and to watch closely what

is going on. We also hope to do the same thing for the Free Trade

Area of the Americas Ministerial in Miami, Florida in November.

We look forward to working with American Agriculture and with

the administration as they proceed, and the Congress proceeds to

go through each of these negotiations. Our next trade hearing is

scheduled for late July, at which time the committee will invite the

administration and representatives of the U.S. agricultural

organizationd and others to discuss what I find to be a very, very

important issue that is not getting as much attention here as it is

in Europe and other places. That is the issue of geographical indicators, in relation to trade and the implication of the European

Union’s WTO proposal on agriculture.

At this time we will close our hearing. Without objection, the

record of today’s hearing will remain open for 10 days to receive

additional material and supplementary written responses from witnesses, to any question posed by a member of the panel. And with

that, this hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 2:03 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF HOBE BAUHAN

Good morning and thank you, Chairman Goodlatte, Congressman Stenholm, and

Committee Members for the opportunity to present the U.S. poultry producers/processors views and recommendations regarding the very important issue of international agricultural trade negotiations. The issues for U.S. poultry are many, and

this hearing can serve as an important opportunity to more fully and successfully

address the many issues confronting agricultural trade negotiations. U.S. poultry

companies appreciate the chairman’s invitation to be part of this very vital discussion. It is our hope that our efforts can contribute to and be part of a satisfactory

resolution of these trade issues.

I am Hobey Bauhan, president of Virginia Poultry Federation. In addition to representing my organization, I am pleased to also be representing today the National

Chicken Council, National Turkey Federation, and USA Poultry and Egg Export

Council. My organization, the Virginia Poultry Federation, has since 1925 represented all sectors of the Virginia poultry industry. We work closely with other

poultry organizations to promote a positive business environment for poultry and

eggs. A healthy and robust export market is essential for my member companies to

be successful.

The National Chicken Council (NCC) represents companies that produce and process about 95 percent of the young meat chickens (broilers) in the United States.

NCC works very actively with Congress and the administration to help promote an

expanding export market for U.S. poultry.

The National Turkey Federation (NTF) represents more than 95 percent of the

turkeys produced in the United States, including all segments of the turkey industry from breeders and hatcheries to growers and processors. Like the other poultry

organizations, NTF has strong membership support from companies allied to the

poultry business.

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ers, processors, further processors, export brokers, shipping companies, and other

related firms and organizations.

My statement consists of four parts. These are:

• on-going World Trade Organization’ multilateral negotiations of the Doha

Round • bilateral free trade agreements between the United States and certain other

countries • other trade concerns of important interest to U.S. poultry producers/processors • recommendations to address certain agricultural trade issues

Basics. Before commenting on agricultural trade negotiations, however, permit me

to note certain fundamentals about the U.S. poultry industry and the marketing situation. More specifically for young meat chickens (broilers), the 50 or so verticallyintegrated companies that produce, process, and market broilers will sell into the

market-place this year about 32 billion pounds, measured on a ready-to-cook weight

basis. About one-half or 16 billion pounds of this production will be the front half

of the broiler, basically breast meat, and one-half or another 16 billion pounds will

be the back half of the bird, basically, leg quarters. American consumers through

their purchasing decisions express an overwhelming preference for breast meat,

which is usually sold as boneless, skinless breast meat or products directly made

from this meat. Due to the imbalance of consumer demand between the front half

and the back half of the chicken, it is critical that export markets be found for the

part of the chicken less preferred by the American consumer. Fortunately, except

for North America and, perhaps, certain parts of the Western Europe, consumers

around the world have a decided preference for leg meat relative to breast meat.

While this situation offers great competitive opportunities for U.S. chicken exporters, it also, at the same time, causes U.S. chicken exports to be criticized as receiving subsidies. While it is true that the price of U.S. chicken leg quarters is quite

attractive to buyers, the charge of subsidies is baseless. The U.S. government does

not provide any export subsidies for U.S. poultry.

In 2001 exports accounted for over 18 percent of total U.S. broiler marketings.

With the disruption in the Russian market in 2002, that share decreased to 15 percent. This year we hope it will recover to at least 17 percent. In short, the export

market must take about one of three pounds from the back half of the broiler for

the overall market to be in good balance and provide the necessary underlying support for a healthy broiler market.

This brief explanation may help in understanding why U.S. poultry exporters face

a very difficult overall market when a sufficient share of chicken leg quarters cannot

be exported. When adequate market access for U.S. chicken leg quarters is not possible in foreign countries, the back-up in supplies on the domestic U.S. market not

only negatively impacts chicken, but also the problem spills-over and depresses producer prices for hogs and cattle.

WTO Doha Round Negotiations. Progress on the current World Trade Organization’ Doha Round of negotiations has been limited and the outlook for future

progress is uncertain. Only those who did not appreciate and understand the difficulties of the previous round of multilateral trade negotiations would expect the

Doha Round to be any less difficult or protracted. In fact, the consensus was that

these negotiations would undoubtedly be much more difficult and time-consuming

because there are more players involved now and the issues are tougher to address

both technically and politically.

We encourage U.S. negotiations to stay the course and work to improve market

access, eliminate export subsidies, and reduce internal domestic support programs

that distort production and trade. At the same time, it must be recognized that even

with full, successful achievement of these goals, U.S. poultry exports will not expand

unless there is the removal of non-science based sanitary and veterinary provisions

that are used to limit and block our overseas sales. The examples of these provisions

damaging U.S. poultry exports are many and the economic impact is very significant.

Some have criticized the U.S. position and stance on agriculture trade negotiations as lacking flexibility and an unwillingness to meet in the middle. In short, it

is our judgment that a bad agreement just to achieve an agreement would be worse

than no agreement. If continued WTO negotiations prove frustrating, we encourage

our negotiators to re-double their efforts to enforce agreements that have already

been implemented but lack full adherence and compliance by other signatories to

these agreements. Of course, non-compliance should be aggressively pursued in any

event, but we also recognized that the U.S. Trade Representatives Office has limited

resources and cannot pursue all the many problems at the same time.

Bilateral Free Trade Agreements. Since it is proving difficult to move forward on

agricultural issues in the Doha Round, we encourage U.S. negotiators to step-up

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their efforts on bilateral free trade agreements. Bi-lateral free trade agreements do

offer the possibility of increasing trade in poultry and other agricultural commodities. But, as in the WTO negotiations, while import tariffs and import quotas may

be reduced or even eliminated, the sanitary and veterinary provisions are proving

to be the critical hurdle to overcome.

For example, the U.S./Chilean Free Trade Agreement was signed earlier this

month and in the near future will be presented to Congress for consideration and

possible approval. Under this agreement, there is an acceptable tariff rate quota and

over quota tariff rate for poultry. However, there is also a two year standstill time

period while Chile is provided an opportunity to have its poultry inspection system

approved as being equivalent to USDA’ standards and requirements for poultry. In

the meantime, since Chile does not recognize USDA’ inspection system for poultry,

U.S. exporters cannot ship to Chile. Although this two-year standstill is not a preferred position, we understand the realities of the situation. While more immediate

access to the Chilean market would be much preferred, we are, nonetheless, supportive of the agreement. We look forward to the time when poultry trade with

Chile can be conducted in a more normal and free environment.

An ambitious timetable has been set to achieve another free trade agreement. We

understand the United States and five Central American countries plan to have a

free trade agreement reached by the end of 2003. Poultry, especially chicken leg

quarters, is a priority agricultural issue for all parties involved in a possible U.S./

CAFTA. We also understand the Central American poultry industry may be looking

to the U.S./Chilean FTA for a template on how to address the leg quarter issue. We

believe acceptable arrangements can be found that all facilitate and eventually enhance a more robust poultry trade with Central America.

With respect to another possible free trade agreement, we find Australia’ stance

on U.S. poultry quite curious. In brief, Australia has a poultry disease called Infectious Bursal Disease (IBD), as does the United States. Although both countries

would prefer not to have IBD, it is a manageable disease in both countries. Interestingly, Australia argues that its strains of IBD are different than the U.S. strains

of IBD and, therefore, they cannot risk importing uncooked poultry from the United

States for fear of having these U.S. strains of IBD transmitted to their poultry

flocks. An unofficial risk analysis estimates the chance of this transmission occurring at no more often than once in every 30,000 years. Apparently, anything other

than a zero risk is unacceptable to Australia. Since it is not possible for the United

States to prove there is a zero risk, Australia will continue to overly-protect its poultry industry from imports. U.S. negotiators must insist that Australia adopt a more

reasonable level of risk that will lead to U.S. poultry being permitted in the Australian market.

Other Trade Issues. Almost as curious as the Australian situation for U.S. poultry

is the Eruopean Union stance on U.S. poultry. Despite exporting poultry to Western

Europe since the early 1950’s which was prior to the inception of the European Economic Union, the European Union determined that in 1997 poultry that had been

processed in chlorinated water to reduce pathogens was unacceptable and such poultry would be banned. It was during the effort to achieve a U.S./EU Veterinary

Equivalency Agreement that U.S. poultry was banned. Thus, the very effort to eliminate the use of non-scientific provisions to stop trade actually resulted in U.S. poultry being prohibited. Recently to the EU’ credit there has been expressed a willingness to possibly consider allowing the use of other antimicrobials during the processing of poultry in lieu of chlorine. It is important that U.S. poultry again become eligible for export to the EU not just for export to the EU, but, more importantly, to

be able to continue to export to countries that are joining the EU and having to

adopt the EU rules on poultry. As the EU grows in future years, the damage to U.S.

poultry exports will be exacerbated, unless a resolution is soon found.

Russia is the United States largest export market by a significant measure. This

market in 2002 accounted for 32 percent of total U.S. chicken exports, and the year

before in 2001, Russia’ share was 42 percent. As this Committee is aware, actions

by Russia last year caused a substantial disruption to U.S. poultry exports. Our

chicken exports were off 35 percent in volume and 43 percent in value. Russia said

in early 2002 that they found Salmonella in U.S. poultry and thus exports would

be halted until U.S. poultry processors could demonstrate they could meet new Russian inspection and veterinarian requirements. Russian actions in 2002 were not

unlike their actions in 1996 when they previously disrupted U.S. poultry exports.

We are most appreciative of this Committee’ support on the U.S./Russia poultry

trade issue. In fact, much of the House and Senate have expressed support for this

issue. We are also most appreciative of President George Bush’ attention and support. He has raised the poultry problem with Russian President Valdimir Putin over

the past year with the most recent discussion taking place during President Bush’

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meeting with President Putin in St. Petersburg earlier this month. This strong support is needed to reach a long-term resolution to the current situation.

Earlier this month the ten Russian veterinarians completed their inspection of

341 poultry processing plants and related facilities. We are hopeful that these establishments will be approved by Russia. We are anxious to hear their determinations

because on July 1, 2003 all U.S. plants become unapproved unless Russia decides

otherwise.

If plants are approved, their remaining issue is Russia’ imposition of import

quotas for poultry. This quota was implemented May 1, 2003. The quantity of poultry permitted under the quota will cut U.S. chicken leg quarter exports by at least

one-half from the level in 2001. Such a drastic decrease in the quantity of poultry

imported by Russia is unacceptable. We have asked the U.S. Trade Representative

with the support of 140 Congressmen and 51 Senators to consider taking trade actions against Russia if a more fair arrangement cannot be reached.

Regarding Mexico, the U.S. and Mexican governments are working toward a

unique Safeguards agreement. We support the U.S. Trade Representatives’ efforts

to help avoid major market disruptions for U.S. poultry. We encourage USTR to continue pursuing the Safeguard with full vigor. At the same time, it is important that

sufficient political pressure is applied to counter Mexico’ tenacity for erecting trade

barriers that are not scientifically justified.

Regarding South Africa, we continue to look for a resolution to our long-standing

dumping case. Although South Africa has indicated a certain willingness to consider

a ‘‘change of circumstance review’’ that could possibly provide relief, we have yet to

see progress.

Perhaps, the most blatant trade disruption to U.S. poultry is the defacto import

ban placed on U.S. chicken parts by Indonesia. Such a totally arbitrary ban must

not be tolerated.In brief, it seems prudent to us that some or all of these outstanding, lingering trade problems be resolved before turning most of our government’ attention to tackling new trade agreements. There either must be a better balance between the old and new or there must be more resources made available for accomplishing the full trade agenda.

Recommendations. We recognize that agriculture trade negotiations are difficult,

complex, and never-ending. We also recognize we do not have all the answers to successfully resolving the many tough problems. However, we respectively suggest that

the following recommendations be considered. These are:

• continue to work diligently toward a successful conclusion to the Doha Development Round of WTO negotiations

• continue to pursue the successful conclusion of bi-lateral free trade agreements

that include acceptable provisions for poultry trade

• continue to work aggressively to have full and complete compliance by signatories to agreements already concluded

• have trading partners agree to pre-determined procedures for an expedited resolution of sanitary and veterinary issues

• withhold Congressional approval for graduating Russia from the annual review

as provided by the Jackson-Vanik Amendment until U.S. poultry trade with Russia

returns to more normal levels

• withhold support for WTO membership for Russia until Russia fully demonstrates it will abide by WTO rules

• in the absence of a resolution for the Russia import quota issue for poultry that

trade actions be pursued by the U.S. Trade Representative

• that USDA organize a permanent, dedicated, full-time task force of USDA

technical and scientific experts to be dispatched to trouble spot countries that are

using non-science based sanitary and veterinary measures to disrupt or halt U.S.

poultry and red meat exports, and

• provide the U.S. Trade Representatives Office with a more adequate budget so

that more sufficient resources can be dedicated to resolving existing agricultural

trade issues and preventing new issues from occurring.

Conclusion. We again thank the committee for the opportunity to present our recommendations regarding agriculture trade negotiations and issues. It is our hope

that U.S. poultry exports can increase in the years ahead so that farmers and poultry company employees will have greater opportunities to benefit from the economic

activity generated by a dynamic U.S. poultry industry. We look forward to working

with the committee as this goal continues to be pursued.

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STATEMENT OF ERNIE REEVES

Chairman Goodlatte and members of the committee; the National Cattlemen’s

Beef Association (NCBA) appreciates the opportunity to present our views on the

current situation regarding multilateral and bilateral agriculture trade negotiations.

I am Ernie Reeves, a NCBA Regional Vice President for Policy from Mt. Solon, Virginia and this morning I would like to provide an overview of our philosophy and

position regarding the significant number of challenges and opportunities before us

regarding U.S. beef trade.

NCBA supports trade initiatives that reduce barriers to access for U.S. beef.

NCBA and many other U.S. agricultural organizations worked tirelessly for Trade

Promotion Authority (TPA) and support the administration’s pro-trade agenda. We

support this agenda because it is the right thing to do for U.S. agriculture and for

the country. Trade liberalization has been a key to economic growth for centuries.

Nonetheless, there is concern that past negotiations have given more access than

we have received. Future trade agreements must provide favorable access for U.S.

agricultural products. We need trade agreements that provide opportunities for U.S.

beef producers to expand their ability to export product.

The U.S. is the world’s largest beef importer and the second largest beef exporter. In 2002, the U.S. imported approximately $2.8 billion of beef and variety meats

($887 million from Australia) and exported $3.2 billion. Due to the unique position

of our industry as importer and exporter, NCBA must consider balance, equity, and

fairness of proposed trade initiatives to assure that any agreement provides net access for U.S. beef. Perceptions in some parts of the industry are that this has not

always been the case. Indeed the U.S. is the most open, least restricted major beef

market in the world. At the same time the U.S. beef industry has witnessed firsthand the value of market opening trade agreements.

Multilateral Market Access. In a world of unlimited trade issues and limited negotiating resources, NCBA strongly prefers focusing on the World Trade Organization’s (WTO) Doha Round multilateral initiative. The expansion in market access for

U.S. beef during the past decade was directly related to our negotiations during the

Uruguay Round. The Doha Round will again provide us with a tremendous opportunity to reduce impediments to beef trade around the world and we must not

squander it. Furthermore, NCBA will not support increased access to the U.S. beef

market until meaningful access and tariff reduction is achieved in other major beef

importing countries.

Like most, NCBA is impatiently waiting for the EU to resolve its outstanding

issues related to its enlargement from 15 to 25 countries and reform the Common

Agricultural Policy so it can get to the WTO negotiating table. We loudly applaud

any and all administration and Congressional efforts to persuade the EU to actively

engage in the WTO negotiating process as soon as possible.

A Bilateral Parallel Track. When it comes to bilateral agreements, the U.S. beef

industry instantly thinks of the remarkable success story that is the North American Free Trade Agreement (NAFTA). Those who sought this agreement nearly a

decade ago never imagined that one day Mexico would be our number one (or two)

market for so many agricultural commodities.

The NAFTA, has contributed to a thirty-three percent increase in per capita income over the last five years for Mexico’s 103 million citizens. This increase in disposable income has led directly to increased Mexican beef consumption. While Mexico’s domestic beef production has struggled to expand and meet this demand in recent years due to drought, U.S. beef and variety meat exports to Mexico have grown.

From an inconsistent market of about 100,000 mt and $200 million prior to NAFTA,

Mexico was our most significant market in terms of tonnage in 2002 of 350,000 mt

and $854 million. (Despite its BSE crisis of late 2001, Japan remains our best market with 2002 beef and variety meat exports totaling $1.028 billion.)

This is a mutually beneficial trading relationship as the U.S. also imports around one million head of Mexican feeder cattle each year that have a value of over $300

million. In fact, today’s integrated North American cattle market now looks very

much like what was envisioned a decade ago by NAFTA proponents with consumerdriven economic signals dictating the future direction of this industry. The challenge

before us in future bilateral agreements is to improve upon the NAFTA and negotiate with countries that offer the best opportunities for the U.S. economy as a

whole, U.S. agriculture and the U.S. beef industry.

US-Chile Free Trade Agreement. The U.S.—Chile FTA appears to demonstrate

solid improvement in many areas since the NAFTA. It should serve as a model for

the Central American agreement (CAFTA) and others as well as an eventual Free

Trade Agreement of the Americas (FTAA). A critical element of this agreement is

Chile’s recent acceptance of the U.S. meat grading system as equivalent to Chilean

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‘‘Norms.’’ NCBA also strongly supports the agreement’s system-wide approval of

each country’s inspection systems. We recommend that meaningful oversight be continued by our government to ensure that equivalency is achieved and maintained.

In addition, the agreement provides phased-in duty free access that becomes unlimited during the fourth year of the agreement. Chilean beef also enjoys the same

phase-in access to the U.S. market.

U.S.-Central America Free Trade Agreement (CAFTA). Increasing trade relationships with Central American countries will contribute to economic growth, political

stability, bolster front-line defenses against the introduction of foreign animal diseases into North America and have the potential to moderately increase U.S. exports of high quality beef. NCBA stands ready to lend our support in any way necessary to achieve that end.

The U.S. and Central America have an established track record in jointly eradicating animal diseases and pests such as FMD and the screwworm from Central

and North American livestock populations. Central America serves as the buffer

zone between North American and South America, where these diseases and pests

are still prevalent. The Darien Gap in Panama is where this front line of defense

against reintroduction exists today.

Only a few countries in Central America currently export beef to the U.S. under

the 64.81 thousand metric ton Other Countries TRQ. However, only 35 percent of

this quota has been utilized in recent years. There is also potential to export moderate quantities of high quality U.S. beef for Central American restaurants and

tourism.

With these negotiations soon reaching a critical phase, NCBA believes there are

three key aspects that need to be considered. The first is that this agreement must

not exclude ANY agricultural product. Secondly, the five participating Central

American governments must begin to understand that U.S. congressional ratification of this agreement will be difficult and improbable without the support of U.S.

agriculture on Capitol Hill. Third, the beef industry does not consider it acceptable

for the participating countries to increase their tariffs from the current applied rates

to the WTO bound rates prior to harmonization, so as to negotiate down from a

higher level. We expect our Central American trading partners to negotiate this

agreement in good faith market access negotiations on tariff rate should start at the

current applied tariff rates.

US-Australia FTA. The U.S. is already the most open, least restricted major beef

market in the world and NCBA firmly believes that there would be no net benefit

for the U.S. cattle industry from an FTA with Australia. We continue to believe that

the multi-lateral WTO negotiations provide the best strategy for reducing unfair

trade barriers and opening markets for U.S. agricultural products. Beef markets in

other developed countries remain virtually closed to U.S. beef (EU) or protected by

relatively high tariffs (Japan at 38.5 percent and Korea at 41.4 percent).

Australia filled its quota for the first time ever during the week of December 5,

2001. Product was placed in bonded storage during December 2001 and released

after January 1, 2002 causing front-loading of imports from Australia during 2002.

In early October 2002, the Australian Government announced the implementation

of a tariff rate quota management system, which controls the amount of product

that each exporter can send to the United States to manage the remaining allocated

TRQ. However, cattle slaughter has markedly declined in Australia due to droughtreduced supplies.

Australia did not fill its TRQ in 2002. (See attachment 1) Therefore, NCBA does

not believe that increasing Australia’s access to the U.S. beef market is warranted.

Conversely, Australia will never be a market of any consequence for U.S. beef.

Recent developments regarding the timeline for negotiating this agreement are

very concerning to NCBA. The shadow this situation casts over our long-time support of trade liberalization can only be brightened via greater multi-lateral access

negotiated on a parallel track.

Free Trade Area of the Americas (FTAA). NCBA is closely following FTAA negotiations and does not outright oppose an FTAA. It makes no sense to ignore the

more than 500 million consumers that inhabit the Americas outside the United

States. Again, however, our position is that we will only support initiatives that are

conducted on a parallel track with multilateral WTO negotiations and result in a

net increase in U.S. beef exports. We note that both the Doha development agenda

and the FTAA are to be concluded by 2005, meaning that at this time both negotiations are proceeding on a parallel track.

Future FTA Countries. NCBA supports the concept of establishing criteria to

evaluate future countries that are interested in an FTA with the US. U.S. agriculture urgently needs a win with the bilateral component of our trade agenda and

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we look forward to an opportunity to engage Congress in the development of a set

of criteria and priorities for future bilateral FTAs.

Maintaining Existing Agreements. Our trade expansion goals also mean that we

simply cannot let existing trading relationships slip or be taken for granted. A firm

commitment to existing agreements by industry stakeholders and the U.S. government must be maintained. This includes a constant fostering of relationships with

our trading partners and constant vigilance with respect to maintaining compliance.

Both the Market Access Program (MAP) and the Foreign Market Development

(FMD) Program are very import to the beef industry in that they are the primary

avenue by which producers are able to build and maintain relationships with importers, retailers and others who use our product in the beef importing markets of

the world. For FY 04 the MAP and FMD programs are authorized respectively at

$125 million and $34.5 million. We request that these programs be funded at the

fully authorized level through the appropriations process as they are essential to the

viability of the U.S. beef industry.

Implementation of this strategy also means that our government needs to be adequately staffed. That means we need more full time equivalent employees (FTEs)

devoted to trade agreement maintenance at both USDA and USTR. A letter we recently submitted requesting these FTEs is attached to this testimony. (Attachment

2) Our future success depends upon our ability to properly manage both new and

existing trade agreements.

At this moment, NCBA is currently embroiled in challenges in our relationship

with our top two customers: Mexico and Japan. We are also constantly reminded

of our long-standing dispute with the EU, a case that our industry clearly won but

has yet to fully resolve.

Market Access. The U.S. must hold its trading partners to commitments agreed

to in previous trade agreements and aggressively negotiate access for U.S. agricultural commodities or risk losing public support for trade and international marketing.

NCBA firmly believes that any expansion of access to the U.S. beef market must

be part of an overall package that gains access for U.S. beef exports in Europe (EU

as well as aspiring EU members), Japan, Korea and other existing and emerging

international beef markets. NCBA will oppose any agreement that allows a net increase in access to the U.S. beef market. A strong, clear and irrevocable message

must be sent to Cairns Group and Mercosur beef exporting counties—major U.S.

beef suppliers—that no increased access to the U.S. beef market will be forthcoming

until meaningful access and tariff reduction is achieved in other major beef importing countries.

SUMMARY. The National Cattlemen’s Beef Association is focused on meeting our

trade objectives by participating in the process of evaluating critical trade issues

within the beef industry. NCBA looks forward to providing additional input as the

U.S. advances its proposals at the WTO, negotiates bi-lateral and regional agreements and resolves a growing list of SPS issues with the European Union, Russia

and other trading partners.

A recent analysis of future trends shows U.S. beef production growing 14 percent by 2012 and a subsequent 28 percent (or roughly $900 million) increase in U.S. beef

exports. Clearly, our industry’s future growth is dependent upon our ability to export.

NCBA appreciates the initiatives that have been undertaken to gain access to

international markets and to resolve lingering issues that restrict the ability of the

U.S. beef industry to offer its products to international consumers. We look forward

to working with all of our trading partners to address industry concerns about current global disparities in market access, export subsidies and domestic support as

well as maintaining the disease-free status of the U.S. herd. Thank you for the opportunity to present this information before the committee.

STATEMENT OF JOE ZANGER

Good morning Mr. Chairman and members of the committee. I am Joe Zanger,

a grower, processor, packer, and retailer of fruits and vegetables in Hollister, California. Today I am presenting testimony on behalf of the California Farm Bureau

Federation (CFBF), as a member of its Board of Directors and Trade Advisory Committee. The California Farm Bureau is the State’s largest general farm organization,

representing more than 90,000 member families.

I appreciate the opportunity to address this committee on the issue of multilateral

and bilateral agricultural trade negotiations. Though CFBF is actively monitoring

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ments today will focus on fruit, nut and vegetable interests (specialty crops) in the

World Trade Organization agriculture negotiations.

As a promoter of Trade Promotion Authority, CFBF is very supportive of the U.S.

administration’s efforts to secure broad and meaningful agricultural reform in the

WTO talks. We believe an aggressive approach is necessary by our negotiators in

this round, since past trade agreements have provided more benefits to U.S. specialty crop importers than U.S. exports. Primarily because of continued high tariffs

in many countries and substantial foreign subsidies—while our competitors enjoy

the ease of exporting their product into the U.S. because of our low tariffs. Significant reform is needed if the agreement is to make a difference in the future prospects for specialty crop growers in California and many other parts of the United

States.

In an effort to secure such reform, the California Farm Bureau Federation is beginning to work with representatives of other state and national interests, as well

as with our counterparts in other countries, to advance a sectoral initiative within

the WTO agricultural talks for fresh fruits, nuts, vegetables and other specialty

crops as defined in Chapters 7 & 8 of the tariff code. A sectoral initiative is a negotiating concept originally introduced by the U.S. that disciplines trade beyond the

framework agreement. This initiative would, in effect, serve as a Zero-for-Zero Contract for Countries. Let me explain.

Mr. Chairman, I would like to divide my remarks into three sections—market access, export subsidies, and domestic supports—and explain what our sectoral initiative is proposing in each of these areas and how it will hopefully lead to decreased

tariffs, decreased subsidies and increased trade for U.S. specialty crop producers.

Market Access. Average nominal (bound) tariffs in the United States, the EU, and

Japan generally fall between 0 to 25 percent. Globally, however, average tariffs on

fruit, nut and vegetable products are much higher ranging from 30-50 percent on

many commodities and some reaching well above 80 percent. Indeed, many of the

countries that offer the greatest potential for U.S. specialty crop exports are those

that maintain the highest tariffs. Among these are China, Egypt, the EU, India,

Israel, South Korea, and Thailand. Examples of excessive tariffs include India’s 105

percent tariff on raisins, Saudi Arabia’s 100 percent tariff on dates, and South Korea’s 136.5 percent tariff on onions and 368 percent tariff on garlic.

The trade-inhibiting effects of tariffs and quotas on agriculture are well documented. For example, in its 2003 submission to USTR for the National Trade Estimate (NTE) report on foreign trade barriers, the California Table Grape Commission reported that India’s 30 percent tariff and other taxes on imported table grapes

present a significant impediment to competitive access in one of the world’s largest

consumer markets. The Commission reported that in 2001, U.S. grape exports to

India totaled $3.3 million, but the market could become a $10 million market if India’s tariff and tax barriers were removed.

South Korea is another market where U.S. products face stiff tariffs and other

trade barriers. In their 2002 submission to USTR, Sunkist Growers outlined the effects of both high duties and a tariff-rate import quota controlled and administered

by the Korean citrus industry. In 2000-2001, the quota for orange imports to Korea

was 40,000 metric tons. The in-quota tariff applied to orange imports was 50 percent, while the above quota tariff was 64.7 percent. Other citrus fruit faces similarly

restrictive tariffs, including a 36 percent tariff for grapefruit and lemons and an outof-quota tariff of 148.8 percent on specialty citrus. Sunkist estimates that if these

market access barriers to Korea were removed, citrus exports from California and

Arizona would grow $40 million to reach $100 million.

Both the Harbinson and EU Doha Round modality proposals would allow these

high tariffs to remain and while the U.S. proposal would ensure that they are reduced to 25 percent, market access opportunities for U.S. fresh fruit and vegetable

exports would still be disadvantaged.

For this reason, the California Farm Bureau Federation and the other organizations in the planned coalition will be requesting an agreement be negotiated on most

fresh fruit, nut and vegetable products (included in Chapters 7 & 8 of the tariff

code) that would, upon implementation, cut tariffs beyond what is agreed to in the

WTO framework by a reduction formula that would eventually zero out tariffs over

a five-year period, in equal installments.

Export Subsidies. While most WTO member countries, including the United

States, do not use export subsidies for specialty crop products, the European Union

in 1998 subsidized 40 percent of its fresh fruit and vegetable exports (as well as 28

percent of its processed fruit and vegetable exports). In 2000, EU expenditures on

export refunds for such products totaled approximately $42 million (46 million

euros). And, in 2002, approximately $40.6 million was budgeted for fresh and processed fruit and vegetable subsidies. While these subsidies are within the EU’s WTO

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commitments, they nevertheless distort the market for U.S. specialty crop exports,

and increase unfair competition in third markets where U.S. products compete directly with those from Europe.

Our sectoral initiative would, upon implementation, immediately prohibit the use

of export subsidies.

Domestic Support. This Committee is fully aware that while the U.S. provides

some domestic support to its growers, the disparity between the U.S. and European

levels of support is striking. For the most part, U.S. fruit, nut, vegetable and other

specialty crop producers do not receive any amber box trade-distorting internal support payments. By contrast, the EU in 1999 subsidized its fruit and vegetable sector

to the tune of more than $11 billion, including lemons at $426 million (84 percent

of production value), grapes at $213 million (13 percent) and tomatoes at $4.15 billion (19.4 percent). These dollar figures are approximate given the conversion from

euros to dollars.

The disparity in the level of support provided to U.S. and EU producers must be

rectified in the current negotiations. However, even if the U.S.-proposal was adopted, the agreement would only require that overall average levels of support be

equalized. It would be possible, therefore, for the EU to reduce expenditures on

some commodities much more than on others, in effect enabling some commodities

to continue being subsidized at high rates.

Given the vast disparity between the levels of subsidization, the emerging coalition is proposing to prohibit all amber box supports for most fresh fruit, nut and

vegetable commodities within chapters 7 & 8, and would limit de minimis support

to 2.5 percent of production value (per four-digit tariff number).

To summarize, there are significant tariff, subsidy, and domestic support issues

that must be addressed if U.S. specialty crop producers are to see meaningful reform as a result of this round of WTO negotiations. To this extent, the California

Farm Bureau Federation has been communicating with members of Congress and

working with the U.S. Department of Agriculture (USDA) and the U.S. Trade Representative’s (USTR) office to ensure that a sectoral initiative for fresh fruit, nut

and vegetable products is advanced during the current WTO agricultural talks. In

specific terms, this initiative would serve as a Zero-for-Zero Contract for Countries

on products as defined in Chapters 7 & 8 of the tariff code that would specifically: • Cut tariffs beyond what is agreed to in the WTO framework by a reduction formula that would zero out tariffs in equal installments over a 5-year period. • Prohibit the use of export subsidies, and;

• Eliminate all amber box domestic supports, and cap the de minimis exemption

to 2.5 percent of production value.

I hope that you will agree that this sectoral approach to the negotiations is fair

and equitable and will hopefully lead to decreased tariffs, decreased subsidies and

increased trade for U.S. fresh fruit, nut, vegetable and other specialty crop producers. I will conclude my remarks with a thank you to Agriculture Negotiator Allen

Johnson and his team at USTR for their untiring work and their sincerity in reaching out to communicate and work with industry. Their accessibility and openness

is to be commended. Considering the broad U.S. trade agenda, USTR has quite a

task ahead. I would encourage our negotiators to prioritize the WTO agenda, address outstanding trade issues prior to setting aggressive deadlines on the numerous regional and bilateral negotiations and lastly, resolve sanitary and

phytosanitary barriers that impede trade before finalizing future agreements.

I would also like to thank the representatives, specifically from California and

others, who have taken a leadership role in trade matters and helped raise the

awareness of the needs of U.S. specialty crop producers in trade negotiations.

Members of the committee, this concludes my comments. On behalf of the California Farm Bureau, thank you for your time and attention.

STATEMENT OF THE USA RICE FEDERATION

The USA Rice Federation appreciates the opportunity to provide a written statement for the record concerning the committee’s hearing on multilateral and bilateral

agricultural trade negotiations.

USA Rice Federation is the national advocate for all segments of the rice industry,

conducting activities to influence government programs, developing and initiating

programs to increase worldwide demand, and providing other services to increase

industry profitability. USA Rice members produce 80 percent of the U.S. rice crop,

and are active in all major rice-producing states: Arkansas, California, Florida, Louisiana, Mississippi, Missouri, and Texas. The U.S. Rice Producers’ Group, USA Rice

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Council and the Rice Millers’ Association are charter members of the USA Rice Federation.

The U.S. rice industry is open to the world market 55 percent of production in

the current marketing year will be exported, and imports will account for eleven

percent of domestic consumption. The United States is regularly the third or fourth

largest rice exporter in the world, and the economic health of rice farmers and the

rice milling sector in the South and in California is tied to maintaining and expanding access in foreign markets.

Import protection is virtually non-existent in the United States, but meaningful

commercial market access is restricted in key foreign markets like Mexico, Central

America, the EU, Japan, Taiwan, and Korea. Extremely high domestic production

supports in Japan, the EU, and Korea, for example, force those governments to restrict imports, while nearly all countries in Central America protect their domestic

milling industries by prohibiting the import of milled rice.

Signing new trade agreements mean little to U.S. rice producers and exporters if

existing trade agreements are not enforced. Mexico’s imposition of anti-dumping restrictions on U.S. milled rice is a prime example of efforts to turn back the North

American Free Trade Agreement. The need for targeted enforcement by the administration of existing trade agreements must go hand-in-hand with new negotiations.

Key Negotiating Objectives:

USA Rice urges administration negotiators to seek the following objectives for rice

in multilateral and bilateral trade agreements: • Equal market access for all types and forms of rice; • Immediate, substantial reductions, leading to the elimination, of import duties; • Elimination of export subsidies; • Tighter disciplines on trade-distorting domestic subsidies; • Reliance on scientific standards when evaluating new technologies and implementing sanitary and phytosanitary trade measures; • Enforcement of SPS import restrictions on the basis of sound science only; • Tighter disciplines on the administration of tariffs and tariff-rate quotas to

eliminate the discriminatory effect of price bands, import licensing regimes, and reference price regimes; • Tighter disciplines on the operation of state-trading enterprises, particularly

import STEs, in order to increase transparency; increase participation by the private

sector in import and export transactions; and ensure that importing STEs provide

access to all segments of commercial demand in a market; • Increased food security for importing nations by obtaining a commitment

among WTO members not to restrict or prohibit the export of agricultural products.

As a major exporter of milled, brown, and rough rice, U.S. exports will benefit

from a combination of equal access for all types and forms of rice and a sharp reduction and eventual elimination of import duties on rice. Many countries have discriminatory tariffs for one type or form of rice versus another in order to protect

or subsidize domestic industries. This discourages the importation of U.S. rice based

on market fundamentals, and hampers the overall market development effort of the

U.S. industry. Unequal duties on an ad valorem basis are especially discriminatory

towards value-added rice (the majority of U.S. rice exports), which is exported from

the United States at a higher per unit price reflecting the value added in the milling

process.

The administration of tariff-rate quotas (TRQs) and the continued existence of

non-tariff barriers are a substantial impediment to U.S. rice exports. Today, many

countries have administered TRQs in such a manner as to prohibit or severely reduce imports of rice. Some problems include the discriminatory use of import licenses, making the operation of TRQs dependent on utilization of the domestic rice

crop, lack of transparency, and price-distorting mark-ups. In the upcoming negotiations, the United States should seek to eliminate TRQs as tariffs become low and

approach zero, and, in the interim, address the problems noted above.

Domestic support. The reliance by some countries on trade-distorting domestic

support regimes for producers severely limits their flexibility to liberalize import

barriers. Rice is particularly disadvantaged by these domestic supports. According

to an OECD report, rice received the third highest level of producer support among

all commodities surveyed among OECD members in 2002 -- the equivalent of $22.6

billion. Japan, Korea, and the EU provided much of this estimated domestic support

for rice in 2002. Each of these markets maintains high market access barriers (especially Japan and Korea) in order to support the domestic price of rice. As a result,

the price of rice overall in OECD countries in 2000-2002 was estimated at about five

times higher than the world price. High, trade-distorting domestic supports in highincome countries like the OECD deny sales to U.S. rice that is marketed at the

world price.

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Science-based trade policies. USA Rice believes that the SPS Agreement has benefited U.S. rice exports. The U.S. government should resist efforts to reopen the

Agreement for negotiation in general, and, specifically, should continue to support

in all bilateral and multilateral negotiations, the primacy of science as the basis

upon which countries may institute SPS-based trade restrictions.

The United States should encourage food security for importing nations by avoiding sanctions on food exports combined with a commitment within the World Trade

Organization not to restrict or prohibit the export of agricultural products.

Japan—Limited Access to Consumers; Import STE. U.S. rice exports to Japan are

constrained by a highly protectionist tariff rate quota and by the Japan Food Agency

whose actions as a monopoly importing state trading agency greatly limit the ability

of U.S. rice exporters to market directly to Japanese consumers.

The Japan Food Agency (JFA) manages imports within the TRQ through periodic

tenders for imported rice and by imports through the simultaneous-buy-sell (SBS)

program. In both programs, the activities of the Food Agency lack transparency and

less than one-half of one percent of rice imported from the United States reaches

Japanese consumers as an identifiable product of the United States. Imports of U.S.

rice under the periodic tenders, for example, are destined for government stocks or

re-exported as food aid.

U.S. negotiators should press for substantial liberalization of Japan’s rice import

market. Long-term improvement in market access will not occur, however, absent

reductions in the amount of domestic support made available to rice producers and

the manner in which this support is provided.

European Union—Complex & Discriminatory Tariffs. Despite its position as the

fifth largest export market for U.S. rice, the EU has a highly complex tariff regime

for rice that discriminates among types and rice and among foreign suppliers. The

import duty in the EU on milled rice, for example, is nearly double the rate for

rough rice; the only substantial U.S. market access in the EU is for brown rice.

The EU also provides significant tariff concessions for specific types of rice or rice

from certain origins not enjoyed by U.S. rice. For example, basmati rice from India

and Pakistan; rice from the OCT/APT countries; and rice from developing countries

have or will enjoy by the end of this decade substantial tariff preferences.

The current EU import regime facing U.S. rice has been the source of debate and

frustration in the EU and the United States since it was implemented as a result

of the Uruguay Round. While the current import regime has allowed traditional levels of U.S. exports to continue, the effective duty-free access for rice from U.S. competitors like India, Pakistan and, by 2009, countries covered by the EU’s Everything

But Arms (EBA) policy, threatens to effectively shut U.S. rice out of Europe.

USA Rice believes that zero tariffs in Europe for all types and forms of rice and

the prohibition of EU export subsidies for rice are the only viable objectives in the

current trade negotiations that will preserve current access and allow for market

expansion.

Latin America—High Duties, Non-Tariff Barriers. The U.S. rice industry sees tremendous growth potential in Latin America. Consumption in the region will continue to outstrip production in the foreseeable future, and the United States is well

placed geographically to meet the region’s demand. However, bound duties are very

high (ranging from 25 percent to 130 percent) and discriminate against milled rice;

and the region makes extensive use of non-trade barriers and questionable SPS restrictions.

Market access for U.S. rice is threatened in several countries by non-transparent

and inconsistently applied import requirements. Government officials, most recently

in Costa Rica, Panama, and Guatemala have refused to issue import permits or instituted last-minute SPS requirements in connection with the sale and shipment of

U.S. rice. These actions are taken without justification and are inconsistent with the

obligations of WTO members. Additionally, they greatly disrupt trade, cause financial loss to U.S. exporters, and adversely affect the long-term marketing of U.S. rice

in the region.

USA Rice recommends that the United States seek the following trade objectives

with regards to Latin America in:

• Substantial disciplines on the operation and transparency of TRQ administration and licensing regimes, including enforcement of SPS import restrictions on the

basis of sound science only.

• Immediate low and equal tariffs on all types and forms of rice, with all tariffs

eventually falling to zero.

• Elimination of the use of price bands and absorption agreements.

Enforcement Must be a Priority. U.S. rice producers and exporters, along with

nearly all U.S. agriculture, greeted the conclusion of the NAFTA and the Uruguay

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Round Agriculture Agreement with optimism. The promise of agricultural trade between Mexico and the United States without barriers was attractive to many U.S.

producers. The Uruguay Round further raised expectations as agriculture was for

the first time brought within the disciplines of international trade. New markets

were opened, like Japan and Korea for rice, and agriculture was set on a path towards liberalization in tariffs, trade-distorting domestic supports, and export subsidies.

Agriculture’s optimism for trade agreements has been tested of late as countries,

most visibly Mexico, resist making the adjustments to market forces implicit in the

trade agreements they have signed. The administration must commit to enforcing

existing trade agreements at the same time that U.S. trade negotiators carryout an

aggressive agenda of bilateral and multilateral trade negotiations.

Mexico is an illustrative example of the importance of enforcement. On paper,

Mexico’s import duties on U.S. rice ceased to exist on January 1, 2003, following

a 10-year phase out under the NAFTA. During this phase out, annual U.S. rice exports to Mexico rose steadily from just over 250,000 tons to 730,000 tons in 2003.

Mexico is now the number one export destination for U.S. rice. NAFTA has clearly

benefited U.S. rice producers and exporters.

However, last year rice joined a growing list of U.S. commodities subject to unjustified import restrictions by Mexico that, cumulatively, are a direct threat to the

NAFTA and to the pro-trade consensus of U.S. agriculture. Mexico announced punitive anti-dumping duties on most exporters of U.S. long grain milled rice in June

2002. This action was taken following a preliminary determination of no injury from

imports of U.S. long grain milled rice and no evidence of dumping. The U.S. rice

industry believes strongly that basis exists in fact for Mexico’s action, and has spent

considerable resources to defend itself.

The announcement earlier this week by the administration that the United States

would ask for consultations with Mexico to address the anti-dumping orders against

rice and beef as well as recent changes in Mexico’s foreign trade law is a welcome

and much needed step. This action sends a message that Mexico must live up to

its international obligations, and demonstrates to U.S. agricultural export interests

that enforcement of trade agreements is a priority.

The U.S. rice industry appreciates and thanks the administration for taking this

important step in support of U.S. agriculture. The support of many in the House

and Senate was instrumental as well in educating the administration on the need

to act.

As the administration moves on from the U.S.-Chile and U.S.-Singapore Free

Trade Agreements (FTA) to negotiate FTAs with Central America, Morocco, Australia and others as well as to complete talks for a Free Trade Area of the Americas

and the WTO multilateral negotiations, our negotiators must not lose sight of enforcement and follow-up. We have learned that it is simply not enough to conclude

an agreement and move on to the next negotiation. The difficult domestic political

decisions inherent in implementing trade agreements mean that we must tend to

the welfare of existing agreements while moving forward.

STATEMENT OF BOB STALLMAN

Good morning. I am Bob Stallman, President of the American Farm Bureau Federation. I appreciate the opportunity to provide the views of our farmer and rancher

members on the current status of the agricultural negotiations in the Doha Round

of World Trade Organization (WTO) multilateral trade negotiations as well as the

Free Trade Area of the America (FTAA) and other pending Free Trade Agreements.

U.S. agriculture depends heavily on exports. Some farmers and ranchers would

like us to turn our backs on trade and especially on efforts to expand foreign markets. These folks are understandably frustrated by foreign trade barriers and subsidies, which put us at a competitive disadvantage in many markets. This frustration cannot be allowed, however, to cause us to turn inward and forgo opportunities

to improve the situation. To do so, would cause economic harm to our producers and

would play into the hands of our biggest competitors.

DOHA ROUND OF THE WORLD TRADE ORGANIZATION NEGOTIATIONS

Agriculture’s best opportunity to respond to the array of problems in the global

market is the Doha Round of WTO trade negotiations. This negotiation includes 146

countries and covers virtually every type of measure that countries now employ to

impede trade or gain an unfair advantage. We appreciate this opportunity to provide

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you with our analysis of the current proposal on modalities by WTO Agriculture

Committee Chairman Harbinson.

The AFBF Board spent a substantial amount of time at their Board meeting a

few weeks ago discussing the Harbinson proposal. The board voted unanimously

that the Farm Bureau position is that having no WTO agreement would be better

than accepting a poor agreement and that the current Harbinson proposal is a poor

agreement for American agriculture. AFBF has supported freer and fairer trade

agreements in the past, as well as supporting the U.S. agricultural proposal for the

Doha negotiating round released last summer. However, we do not and will not support the current Harbinson proposal.

We believe it is important to provide a clear indication of our objectives for each

of the specific topics because the overall agreement will not be acceptable if our specific objectives are not adequately met.

We are encouraged by several provisions in Chairman Harbinson’s current text:

Export Subsidies—The complete elimination of export subsidies has been an important and longstanding Farm Bureau objective. Export subsidies are recognized

as the most trade-distorting measure in trade and have been banned for manufactured products from the inception of the GATT/WTO. Currently the European Union

(EU) spends between $2 billion and $5 billion a year on export subsidies and is allowed to spend as much as $8 billion under the previous WTO agreement. The EU

accounts for about 90 percent of all export subsidies and uses them on many products of export interest to the United States. The Harbinson proposal is consistent

with Farm Bureau’s goal of complete elimination and would do so under a mechanism that ‘‘front loads’’ the staged phase-out of those subsidies. The chairman has

suggested such a front-loading mechanism because he allows nine years to completely eliminate these subsidies. Farm Bureau supports the Harbinson proposal to

eliminate export subsidies, but we would like the Bush administration to pursue a

quicker phase-out. In addition, we are concerned by the provision in the text that

allows for countries to choose which export subsidies to phase-out in five years and

which in nine. This would allow countries to maintain their most sensitive subsidies

for nine years.

State Trading Enterprises (STEs)—Mr. Harbinson’s approach to export STEs

forces such enterprises to operate in a competitive environment by eliminating their

monopolistic practices and increasing transparency in their operations. Farm Bureau believes that the goal of these new requirements should be to make it impossible for STEs to export at unfair prices into the world market. There should be no

‘‘watering-down’’ of this proposal.

Food Aid—The original Harbinson proposal would have mistakenly, and probably

inadvertently, eliminated programming of food aid directly through non-governmental organizations (NGOs) in non-emergency circumstances. This proposal would

not have advanced the causes of eliminating trade-distorting exports and protecting

indigenous producers. Rather, it would have unnecessarily prevented humanitarian

organizations from carrying out aid programs that in no way impede commercial

production and trade. We were pleased that Mr. Harbinson’s proposal was revised.

We will continue to monitor the negotiations on this subject carefully.

Green Box Domestic Supports‘‘The text maintains the basic criteria for non-tradedistorting (green box) domestic support. Non-trade-distorting support generally consists of measures de-linked from production incentives, such as food stamps, research, extension, pest and disease control, and de-linked direct payments to producers. We strongly support maintaining the current criteria and ensuring there are

no caps on non-trade-distorting support. We believe more countries should move

away from trade-distorting government payment programs and instead make greater use of ‘‘green box’’ programs to achieve their policy objectives.

Sanitary and Phytosanitary (SPS) Agreement—The Harbinson text does not open

the SPS agreement. We strongly support that provision and would adamantly oppose any changes to the SPS agreement. We urge strong resistance to any attempts

by the EU or others to allow social or economic considerations to form any basis

for applying SPS measures in exchange for reduction in subsidies, tariffs or any

other negotiating issue.

Non-Trade Concerns—The Harbinson proposal does not include provisions for certain ‘‘non-trade concerns’’—such as compulsory labeling, multifunctionality or the

precautionary principle—in the agriculture negotiations. The EU has made proposals on these subjects that, if adopted, would substantially offset any gains we could

hope to obtain through reductions in tariffs and subsidies. In our view, the EU proposals appear to be, in large part, a blatant attempt to introduce permanent nontariff barriers into trade in agriculture. The EU proposal does provide for producer

costs for animal welfare regulations offset by government payments to be included

in the green box. Farm Bureau believes that, in general, non-trade concerns should

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not be included in the agricultural negotiations. However, we believe that animal

welfare concerns could be accommodated in the green box, as long as such payments

were limited to the extra cost of complying with the regulatory requirements (as

currently required of environmental programs).

Geographical Indications (GIs)—In the agriculture negotiations, the EU has suggested expansion of the types of products given special protection by geographical

indications. The EU’s proposal calls for taking back the names of many famous

products such as pilsner, feta, Parmesan and balsamic vinegar. These EU ambitions

could seriously compromise the export opportunities of many primary agricultural

products such as rice and possibly animal and plant names (fruits, vegetables and

other grains) that originate outside the United States. The intent of the European

proposal is to give producers in the EU exclusive, monopolistic rights to make and

market many products that U.S. producers have spent time and money to make famous. Chairman Harbinson’s text does not support this initiative. We strongly oppose expansion of GIs.

Farm Bureau has major concerns with other aspects of the Harbinson text. Modest tariff cuts from the bound levels and the lack of harmonization in trade-distorting domestic supports is extremely troublesome. If implemented, those countries

that began with high barriers and large subsidies will still have high barriers and

large subsidies. Those that began small will end up somewhat smaller. We must

level the playing field in this negotiation to make trade fairer and more equitable.

To be succinct, farmers and ranchers are unwilling to support ‘‘more of the same’’

in this negotiation.

The following Harbinson modalities would not produce a positive impact for U.S.

agriculture:

Market Access—Though converting all non-tariff measures to tariffs was critical

for agriculture during the Uruguay Round, it created inequitable, unbalanced access

to markets. The commitments in the last round permitted many members to isolate

their markets entirely, beyond the negotiated minimum access, while countries like

the United States provided significantly more net access. Current WTO rules require all countries to cap the maximum tariff that can be applied on any product.

While tariffs have come down in recent years, the level of allowed tariff is often substantial. The world average on agricultural products is 62 percent while the U.S.

average agricultural tariff is 12 percent.

The United States proposed the use of a harmonizing formula for reducing all agricultural tariffs so that high tariffs would be reduced more than low tariffs, thus

reducing the gap between high-tariff and low-tariff products. The Harbinson paper

recognizes the problem of tariff inequities and accepts the need for a mechanism

that would result in greater tariff harmonization. However, Mr. Harbinson rejected

the ‘‘Swiss formula’’ proposal advanced by the United States—which Farm Bureau

strongly supports—in favor of a ‘‘banding approach.’’ The Harbinson approach contains a degree of tariff harmonization—and we would not rule out such a ‘‘banding’’

technique but it must result in significant improvement in the percentage reductions so that the effect is commercially meaningful access.

Applied Tariffs—The United States also proposed that tariff cuts be implemented

from applied rates rather than bound rates. The impact of tariff reduction is likely

to be very limited since many countries maintain bound rates far above actual applied rates. This means the Harbinson text would have almost no effect on opening

many markets. Market access negotiations should use the lowest applied rates rather than the higher bound rates when negotiating tariff reductions.

Sensitive Products—Under the Harbinson proposal, members would be required

to make average cuts in their farm import tariffs along with more modest minimum

cuts on every tariff line, thus giving members flexibility to shield more sensitive

products from deeper cuts. A similar approach was adopted in the Uruguay Round

where members were obligated to cut their tariffs by an average of 36 percent while

reducing tariffs on all agricultural goods by a minimum of 15 percent.

Special and Differential Treatment (S&D)—GATT and WTO negotiations have

traditionally recognized that developing countries, and in particular least developed

countries, may require S&D treatment under trade rules to give them more time

to adjust to competition and to allow mechanisms to address economic development

needs. Farm Bureau does not disagree with the need for S&D treatment, but is

quite concerned about the Harbinson proposal. The Chairman’s proposal for S&D

treatment for developing countries provides markedly lower levels of commitment

and longer phase-in periods. Since more countries that are WTO members are developing countries this produces a real lack of reform.

Any S&D treatment in agriculture should be temporary, narrowly targeted, and

based on objective criteria. Obligations for developing countries must be commensurate with the level of a country’s development and, in particular, commensurate

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with a country’s level of development in a given product sector. Some developing

countries are actually highly developed and competitive in certain products and it

makes no sense for those countries to receive special treatment in such commodities.

A good example would be soybean production in Brazil.

Objective and transparent criteria should be established for determining whether

a country is developing or developed and whether it is developing or developed within a given product sector. Such criteria are used to determine which countries are

‘‘least developed’’ and there is no reason that countries should be able to ‘‘opt out’’

of WTO obligations by self-designating themselves as ‘‘developing.’’ Farm Bureau is

also concerned that the Harbinson proposal grants developing countries the right to

impose temporary import restrictions on certain sensitive farm products. This would

in essence allow them to continue protection for their agricultural products and

avoid further liberalization. The focus must be much more narrow and must be

transitional so that those countries are able to assume greater obligations in the future.

Special Safeguard—The Harbinson text allows developing countries to designate

certain strategic products essential to their needs for food security, rural development or livelihood security. These special products would be subject to less substantial tariff reductions and benefits from other S&D provisions. Products designated

as special products would be subject to a 10 percent average tariff cut and a five

percent minimum cut.

Special safeguards for developed countries are eliminated. Without a special safeguard, the U.S. market would be extremely vulnerable in the event that the reforms

envisioned by Chairman Harbinson are not effective or that countries are not compliant with their obligations in the future. Farmers and ranchers are frustrated

with current compliance with trade agreements and are fearful this will continue

in the future.

Domestic Supports—Mr. Harbinson’s proposal addresses several Farm Bureau objectives, at least partly, but is woefully inadequate in achieving an acceptable level

of overall harmonization.

Blue Box. The Harbinson text forces reductions in blue box expenditures. The EU

and Japan (to a far lesser degree) are the only trading entities that provide tradedistorting supports under programs (payments based on production controls) that

are considered blue box. Harbinson offers the EU two options for reducing such expenditures: cut them by 50 percent, or eliminate the blue box exemption and incorporate such expenditures in the amber box, which would then be reduced by 60 percent. Farm Bureau strongly supports elimination of the blue box exemption and supports the second Harbinson option as long as reductions in amber box expenditures

result in a satisfactory level of harmonization.

Amber Box—The Harbinson text accepts the European proposal for equal percentage reductions from unequal levels of domestic support that locks in place the safety

net advantage currently held by the EU and Japan. We agree with Secretary

Veneman’s characterization of this proposal as a perpetuation of inequities. Mr.

Harbinson’s requirement that amber box expenditures be cut by 60 percent over five

years would require the EU to cut such trade distorting supports from $67.2 billion

to $26.9 billion and the United States to cut its supports from $19.1 billion to $7.6

billion. This maintains the inequity in domestic supports we currently face. While

domestic supports are reduced, the EU will continue to be able to provide its producers 3.5 times more trade distorting support than the United States provides its producers. The Harbinson proposal does not sufficiently address the need for harmonization of amber box supports among key countries. Our negotiators must obtain significantly more harmonization in trade-distorting domestic support expenditures before agriculture can support an agreement.

De Minimis—The Harbinson proposal cuts the de minimis provision by 50 percent. The U.S. proposal would retain the de minimis provision unchanged and Farm

Bureau supports the U.S. position. We are also concerned that the Harbinson text

prohibits subsidization under the de minimis classification if there was no assistance for that product from 1999 to 2001.

Aggregation—As under the Uruguay Round Agreement, amber box subsidy reductions should be made on an aggregated basis rather than a commodity specific basis.

Countries should be provided the flexibility to shift subsidies between products on

an annual basis.

The reductions suggested by Chairman Harbinson in trade-distorting domestic

supports may not have any actual impact on several countries. The percentage of

trade-distorting domestic support actually used by various countries will not require

them to reduce domestic supports at all under the Harbinson text.

Mr. Chairman, Farm Bureau has just completed an analysis of the Harbinson text

on nine commodities and the impact of the Harbinson proposal on each commodity

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for our top three markets and our top three competitors. We have attached that

analysis to the testimony. The analysis makes the point very clearly that the

Harbinson proposal needs to be significantly improved before Farm Bureau can support the agreement.

FREE TRADE AGREEMENTS

The U.S. administration has proposed an ambitious trade agenda in the midst of

current WTO negotiations. We have recently seen the completion of Free Trade

Agreements (FTA) with Singapore and Chile and the continuation of negotiations

on the Free Trade Area of the Americas (FTAA), Central American Free Trade

Agreement (CAFTA) and the Australia, Morocco and Southern African Customs

Union (SACU) Free Trade Agreements. At the same time the administration is planning to move forward on agreements with other countries. While we believe these

FTAs are important in promoting and creating new trade relationships, our top priority is the current negotiations of the WTO. We believe that any FTA currently

in negotiation or planned for the future should meet the same goals and objectives

that have been set out by the United States in the WTO negotiations.

The United States is a large and open market for foreign farm and food products.

Current tariffs on agriculture products entering the U.S. market are often well

below our bound tariff rates established in the WTO Uruguay Round. For U.S. agriculture to be successful in the FTA process, the U.S. government must be dedicated

to removing tariffs and other forms of barriers to U.S. products in FTA countries

that tend to be much more restrictive. U.S. agriculture is looking for partners in

agriculture trade that can be expanded for both countries.

As new partners are selected for FTAs the trade impacts on our domestic agriculture industry must be taken into account. We strongly encourage the administration, as a part of its strategy in seeking future FTA partners, to seek negotiations

with countries that will lead to benefits for U.S. agriculture. We understand that

agriculture is not the only sector being discussed in these negotiations, but agriculture should not be used as the trade-off for increased benefits in another sector.

Agriculture must have input into this selection process and we are willing to work

with USTR and USDA/FAS to find those markets that will improve trade for our

industry.

AFBF Negotiating Principles On FTA Negotiations: Market Access—Negotiations

on FTAs should start from a point in which all agriculture products are on the table

for negotiations. Negotiations on market access must take place from the point

where each country has categorized all of its commodities for tariff elimination.

USTR must work with agriculture to determine the best negotiating position on import sensitive products and how they should be categorized within the agreement.

We believe that any negotiation on agriculture tariff rates should be done from

the applied rate, not the WTO bound rate. In many cases the tariff rates at which

U.S. products are entering other markets are well below the WTO bound rates. Negotiating at rates higher than what are actually applied could lead to lost opportunities and place many sectors at a disadvantage in the negotiations.

All FTA negotiations must provide for adequate transition periods for the elimination of tariffs and other protective measures, as well as workable safeguards to

respond to disruptive import surges. Import sensitive commodities should receive

the greatest transition period available under the negotiations to provide producers

with the opportunity to adjust for the time at which tariffs will be eliminated on

their products.

Sanitary and Phytosanitary (SPS) and other Barriers—In the area of SPS, we believe that major SPS concerns should be resolved prior to the conclusion of all FTA

negotiations. True access is contingent on resolving these issues.

We also see the FTAs as an opportunity to expand foreign understanding and acceptance of U.S. regulations and standards, i.e. inspection and biotechnology, and

will work to have these considered as principles included in a final agreement.

Domestic Support—We oppose the negotiation of domestic support in any FTA.

Domestic support should only be negotiated in the WTO due to continued subsidization by non-FTA countries.

U.S.-Chile FTA: The American Farm Bureau Federation supports the U.S. Chile

FTA. We remain concerned regarding the SPS issues involving poultry. We understand that the poultry industry has accepted an agreement that will establish a 2-

year standstill on poultry sale between the United States and Chile during which

time the United States and Chile will work to resolve their concerns. We will closely

monitor these efforts in the hope that the United States can begin the export of U.S.

poultry to Chile.

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In addition we commend USTR for resolving SPS concerns regarding equivalency

of the U.S. meat inspection system. The government of Chile signed and published

a final decree granting immediate access to U.S. processed beef, as well as all lamb

and pork products from federally certified U.S. plants.

Benefits For U.S. Agriculture: Market Access: Three-quarters of U.S. farm goods

will enter Chile duty-free within four years with all duties on U.S. products being

phased out over 12 years. Phase-out on duties falls into four stages; four, eight, 10

or 12 years.

Export Subsidies: Both countries agreed to work together in the WTO negotiations

to eliminate export subsidies and the agreement eliminates the use of export subsidies on U.S-Chile farm trade, but the United States preserved the right to respond

if third countries use export subsidies to displace U.S. products in the Chilean market.

Agriculture Safeguard Measures: The agreement provides safeguard measures for

trade sensitive agriculture products. A country may impose these safeguards on

products if the import price of the goods is below the trigger price. The trigger price

varies for each commodity eligible for the safeguard, and was determined by the negotiators based on past price levels of those commodities.

Agriculture Marketing and Grading Standards: Agreed to provisions for recognizing grading, quality or marketing measures.

Price Bands: Phases out the Chilean price band over 12 years.

Free Trade Area Of The Americas (FTAA):

The American Farm Bureau Federation remains committed to seeing a successful

and positive negotiation for agriculture in the Free Trade Area of the Americas

(FTAA). Trade in agricultural products among the nations of the Western Hemisphere could be expanded substantially, if the many and varied forms of impediments to that trade were eliminated. Our free trade agreement with Mexico demonstrates how farmers can benefit from freer trade. U.S. agricultural exports to

Mexico and U.S. imports from Mexico have both more than doubled since 1993 as

a result of the North American Free Trade Agreement (NAFTA). The benefits of this

trade to the consumers in each country—in the form of more variety, reduced costs

and often better quality food products—also extend to the economy as a whole in

the form of added disposable income and new employment opportunities.

U.S. agricultural exports to non-NAFTA FTAA countries totaled $14.6 billion in

2002, about 27 percent of total U.S. farm exports. U.S. imports of agricultural products from non-NAFTA FTAA countries totaled about $14.9 billion in 2002, about 36

percent of our total agricultural imports.

In many cases, our tariffs are already or will soon be free for products from FTAA

countries under various special arrangements (e.g., the Caribbean Basin Initiative,

the Andean Trade Preferences Act, the Generalized System of Preferences, NAFTA

and the Chile FTA). As a result, the average tariff applied by the United States on

imports from FTAA countries is certainly substantially less than the average 12 percent the United States applies on imports from the world. Tariffs and other forms

of barriers to U.S. products in FTAA countries tend to be much more restrictive.

As tariffs and other trade barriers are gradually removed by all of the parties to

the agreement, trade will expand both between the United States and the other

FTAA participants and among the other FTAA countries. The fact that markets are

being opened and shared among 34 countries will help to ensure that any single

country does not become a dumping ground for other countries exports. More open

import regimes and the economic growth the FTAA will bring to the Western Hemisphere will generate greater demand in more countries for products that might otherwise flow to the United States.

Export Subsidies—The FTAA member countries should agree to ban the use of

export subsidies in agriculture trade within the region, both on internal trade and

on imports from non-FTAA countries.

Price Band—We support elimination of the price bands that some FTAA countries

currently have in place.

STATEMENT OF THE DISTILLED SPIRITS COUNCIL

I. INTRODUCTION

Over the past decade, the export market for U.S. distilled spirits products has become increasingly more important to the U.S. distilled spirits industry. In fact, since

1990, U.S. exports of distilled spirits worldwide have doubled, growing to over $550

million in 2002. While the Uruguay Round Negotiations produced significant benefits for U.S. distilled spirits exporters, numerous barriers still remain. Therefore,

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the U.S. distilled spirits industry actively supports the U.S. Government’s efforts to

seek the elimination or reduction of these remaining barriers within the context of

the ongoing World Trade Organization negotiations, and in other multilateral and

bilateral trade negotiations. Improving market access for U.S. distilled spirits products worldwide is necessary in order to ensure the continued growth of the U.S. distilled spirits industry.

II. WORLD TRADE ORGANIZATION: DOHA DEVELOPMENT AGENDA

The Distilled Spirits Council has had a long and active involvement with the

World Trade Organization (WTO), and remains a strong supporter both of the organization and its ongoing work program, as well as the Doha Development Agenda

negotiations. The Distilled Spirits Council and its member companies are enthusiastic supporters of efforts to liberalize international trade and to strengthen the rulesbased multilateral trading system administered by the WTO.

Unquestionably, the U.S. distilled spirits industry has benefited significantly from

the leadership role the United States government has assumed in the WTO. The

tariff elimination commitments on distilled spirits, secured during the Uruguay

Round and subsequent negotiations under the WTO’s auspices as part of the U.S.

Government’s ‘‘zero-for-zero’’ initiative, have paved the way for a significant increase

in U.S. spirits exports. The industry has reaped the rewards of the WTO’s dispute

settlement mechanism, which the United States government has used to challenge

successfully the discriminatory excise tax regimes of Japan, Korea and Chile. The

provisions of the Agreement on Trade-Related Aspects of Intellectual Property

Rights (TRIPS Agreement) include important protections for geographical indications for spirits, including Bourbon and Tennessee Whiskey, which are essential for

the protection of these distinctly and exclusively American products. And the reporting mechanisms established by the Agreements on Technical Barriers to Trade (TBT

Agreement) and Sanitary and Phytosanitary Standards (SPS Agreement) have, in

many cases, at least given the industry some advance notice of significant regulatory changes that could have significant—and sometimes adverse—effects on the

industry.

The improvements in market access achieved under the auspices of the WTO—

and before it, the General Agreement on Tariffs and Trade—have led directly to a

sharp increase in U.S. spirits exports. For example, since the Uruguay Round agreements entered into force in 1995, U.S. exports of Bourbon—the leading U.S. distilled

spirit export—have increased 57 percent over their 1994 levels, reaching $351 million in 2002.

A. Market Access Negotiations—Agricultural Products

Distilled spirits are processed agricultural products classified under HTS headings

2207.10.30 and 2208, and fall within the scope of the ongoing negotiations on agriculture. As noted previously, distilled spirits (HTS 2208) were included in the Uruguay Round’s zero-for-zero negotiations and yielded significant benefits to the industry. However, participation in the spirits zero-for-zero agreement has been limited.

Until recently, only the United States, the European Union, Japan and Canada,

were participants in the agreement with respect to most categories of spirits. More

recently, Taiwan joined the spirits zero-for-zero agreement upon its accession to the

WTO in January 2002. Macedonia has also agreed to phase out its 48 percent tariff

on distilled spirits in connection with its WTO accession.

Notwithstanding the progress that was achieved during the Uruguay Round and

more recent accession negotiations, however, the U.S. distilled spirits industry continues to face pervasive—and in some cases prohibitive—tariffs in a number of the

industry’s most important markets. This is particularly true with respect to emerging markets. For example, in India imported spirits are assessed a base tariff of 166

percent ad valorem. As noted below, the central government also levies an additional customs duty on top of the base tariff, which results in effective tariffs rates

ranging from 240 percent to 578 percent ad valorem. In addition, although South

Africa applies a tariff of 5 percent ad valorem (arguably a ‘‘nuisance’’ tariff) on imported spirits, its bound rates are exorbitant, ranging from 67 percent for bottled

brandy, whisky, rum and gin to an astronomical 597 percent for vodka and liqueurs.

South Africa represents a potentially lucrative market for U.S. distilled spirits exports, and is itself a significant producer of distilled spirits products. Moreover, pursuant to its recently-concluded free trade agreement with the European Union,

South Africa will reduce and eventually eliminate (by 2012) its tariffs on imports

of EU-produced spirits. Thus, one of the U.S. spirits industry’s objectives in the

Doha Round is to secure South Africa’s commitment to bind its tariff on spirits at

zero.

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Furthermore, in some developed country markets the tariff burdens on imported

spirits are significant, which add significantly to the costs of doing business. For example, Australia also applies a ‘‘nuisance’’ tariff of 5 percent ad valorem, which, despite being relatively low, imposes a high tariff burden: more tariffs were assessed

on the importation of U.S. spirits into Australia ($2.7 million) in 2001 than were

assessed by any other government. Similarly, New Zealand applies a tariff rate of

zero on imports of whisky, brandy and rum, but assesses a 5 percent ‘‘nuisance’’ tariff on liqueurs and a 6.5 percent tariff on vodka and gin.

Moreover, since the conclusion of the Uruguay Round, the U.S. spirits industry

has encountered setbacks in a number of its priority markets:

• The margins of preference extended to distilled spirits produced in the European

Union (EU) by a number of the Central and Eastern European countries in the process of acceding to the EU have progressively increased, putting U.S. distilled spirits

at an even greater competitive disadvantage. For example, Bulgaria’s tariff on EU

spirits is approximately half the rate applied to U.S. spirits. EU spirits enter the

Czech Republic subject to duty rates that are 40 percent-70 percent lower than the

rates applied to U.S. spirits. In Poland EU spirits are assessed tariffs ranging from

52.5 percent to 73.5 percent (within a quota of 3,000 liters of pure alcohol), while

U.S. spirits exports face tariffs ranging from 75 percent to 105 percent.

We have seen a significant improvement, however, in Romania, where the import

tariff on Bourbon was reduced recently from 70 percent ad valorem to 35 percent

ad valorem, which is the same rate that is currently applied to whisky imported

from the European Union (EU). The action was prompted, in part, by a Distilled

Spirits Council petition seeking the withdrawal or suspension of Romania’s benefits

under the Generalized System of Preferences (GSP) program. (The petition, therefore, was subsequently withdrawn.) Unquestionably, this successful result would not

have been possible without the persistent efforts of the U.S. government.

When India lifted its quantitative restrictions on distilled spirits on April 1, 2001,

it simultaneously imposed additional duties on spirits imports, on top of its already

prohibitive base tariff. Currently, additional tariffs ranging from 25 percent to 150

percent ad valorem or US$40 to US$53.20 (depending on the case price) apply to

imported spirits, on top of India’s base tariff of 166 percent ad valorem. Thus, the

current effective tariff on imported spirits ranges from 240 percent to 578 percent

ad valorem. When India fully phases in its Uruguay Round commitment in 2004,

the base tariff will still be an exorbitant 150 percent, wholly apart from the additional customs duties imposed in April 2001.

• The EU’s free trade agreement negotiations with the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) continue to move forward, with the prospect

that EU spirits will at some point enter these markets duty-free. U.S.-produced spirits will continue to face significant tariffs (applied rates currently range from 13.5-

21.5 percent). The Distilled Spirits Council strongly supports the ongoing negotiations for the Free Trade Area of the Americas (FTAA), but also urges the United

States government to make reductions in the Mercosur countries—spirits tariffs, on

an MFN basis, a high priority.

In the current Doha Development Agenda negotiations, the industry seeks the

broadest possible participation in the spirits zero-for-zero agreement, and views

those developed countries whose spirits tariffs constitute, in essence, ‘‘nuisance’’ tariffs (including Australia, New Zealand and Switzerland) as prime candidates. China,

Korea, and Thailand should also be encouraged to join the zero-for-zero agreement,

just as Taiwan and Japan have done. Although U.S. negotiators secured significant

tariff concessions from China in the spirits sector (a reduction from a base rate of

65 percent to 10 percent over five years) in the context of its WTO accession negotiations, the next logical step—and one that is consistent with China’s role as a major

spirits producing- and consuming-nation—is full adherence to the zero-for-zero

agreement. Both Korea and Thailand are also major spirits producers. Korea’s current applied rates range, however, from 15–20 percent, while its fully-phased in

bound rate is 30 percent ad valorem. Thailand currently applies a complex tariff,

with an applied rate of 55.2 percent or 59.8 Baht per liter, whichever is higher, on

gin, and a rate of 60 percent or 120 Baht per liter, whichever is higher, on all other

spirits. (Thailand’s bound rate on gin is 55.2 percent or 59.8 Baht/liter, whichever

is lower; for other spirits, the bound rate is 62 percent or 124 Baht/liter, whichever

is lower.)

In parallel with these objectives, we seek the U.S. government’s support in ensuring that the Central and Eastern European countries implement the EU’s common

external tariff on spirits—zero—immediately upon their accession to the EU. Ten

of the EU-accession countries are scheduled to accede in May 2004, while others are

not currently scheduled to join until 2007 at the earliest.

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With respect to the industry’s other priority countries, the Distilled Spirits Council seeks significant cuts in the effective tariff rates, i.e., reductions that will yield

rates that are substantially below the currently applied rates. Anything short of this

goal would fail to achieve any real improvements in market access. We continue to

urge that negotiations be conducted on the basis of applied, rather than bound,

rates, and applaud the U.S. government’s success in the FTAA negotiations to proceed largely on the basis of applied rates.

In the context of the Doha Development Agenda, we understand that certain

countries whose current applied tariffs are below their bound rates have objected

to this approach because they fear that they will not be given credit in the negotiations for having undertaken unilateral tariff liberalization. In order to address this

concern, a method could be developed whereby the country in question could receive

credit toward its overall tariff-reduction commitment in the agriculture sector for

any such unilateral tariff cuts that occurred before the beginning of the new round.

If it is not possible to negotiate on the basis of applied rates, a formula should be

employed whereby cuts in bound rates translate immediately into commensurate

cuts in applied rates: without such an approach, there will likely be no real improvements in market access in countries maintaining the highest tariff barriers, as was

the case for distilled spirits products in the Uruguay Round. At the very least, we

urge that the U.S. government insist that WTO members adopt a benchmark measure for real market access that would quantify the actual improvements in market

access—i.e., a quantitative assessment of the differences between the rates applied

at the beginning of the Doha Development Agenda negotiations and the bound rates

agreed at the conclusion of the Round—in order to provide a more accurate assessment of actual improvements in market access. Indeed, one of the agreed goals of

the market access negotiations should be to seek a significant improvement in this

real market access indicator.

For the U.S. distilled spirits sector, the following goals for the WTO agriculture

negotiations are of paramount importance: • a minimum reduction of 50 percent or more for each line item;

• a ceiling rate for all line items once reductions are phased in, e.g., 20 percent

for developing countries; 5 percent for industrialized countries; • elimination of current ‘‘nuisance’’ tariffs of 10 percent or less;

• no exceptions for individual products or participants;

• a 5-year maximum for staged implementation; and

• the binding of tariffs at the intermediate stages, as well as at the final stage.

The Distilled Spirits Council also strongly believes that any ‘‘special and differential’’ treatment accorded least developed countries should be reflected in longer implementation periods, rather than by exempting these countries altogether from

their obligations to improve access to their markets.

B. Geographical Indications—Agriculture Negotiations

The Distilled Spirits Council and its member companies have a direct and significant interest in the negotiations under Article 23.4 of the TRIPS Agreement on the

establishment of a multilateral system of notification and registration of geographical indications (GIs) for wines and spirits. Although the inclusion in the TRIPS

Agreement of provisions specifically mandating the establishment by all WTO member countries of a legal means of protecting GIs associated with distinctive distilled

spirits was, in our view, a major achievement of the Uruguay Round, protection of

internationally-recognized GIs remains uncertain in many WTO member countries.

Accordingly, our objective in the ongoing negotiations is to secure more certain

recognition and protection, in all WTO member countries, of internationally-recognized GIs for spirits such as Bourbon and Tennessee Whiskey. We are concerned

that certain proposals currently under review will do little to achieve this goal,

while other proposals appear to incorporate complex and cumbersome procedures

that may impose significant additional and unnecessary costs on industry. Moreover, we are concerned that the effort on the part of certain WTO member states—

in the context of the agriculture negotiations—to extend the TRIPS Agreement’s

current enhanced protection of geographical indications for wines and spirits to

other products has unfortunately deflected attention from the negotiations on wines

and spirits, which were specifically mandated by the Doha Declaration.

The Distilled Spirits Council and its members stand ready to work with the U.S.

negotiating team to design a system that would secure more certain protection for

internationally-recognized GIs for spirits without constructing cumbersome and costly new procedures for doing so.

C. Non-tariff Barriers

With respect to non-tariff measures, the Distilled Spirits Council urges that particular attention be given to seeking improvements under GATT Article X (transparency). In that connection, the Distilled Spirits Council and its members have witVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00156 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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nessed a proliferation of new and proposed regulatory measures concerning, e.g.,

product labeling requirements and food safety standards. Although the TBT and

SPS Agreements incorporate basic notification and consultation obligations, a number of these new regulatory proposals are simply never notified, or are notified well

after they have entered into force, thus nullifying the benefits of any existing notification obligation. We urge the U.S. government to ensure that the Article X negotiations embrace improvements in the TBT and SPS notification and consultation procedures.

III. OTHER MULTILATERAL AND BILATERAL TRADE NEGOTIATIONS

The Distilled Spirits Council and its members also strongly support the United

States’ efforts to further open markets within the context of the negotiations towards a Free Trade Area of the Americas (FTAA), and in the ongoing bilateral negotiations towards free trade agreements (FTAs) with Australia, Central America, Morocco, and the Southern African Customs Union. Pursuing these negotiations provides an unparalleled opportunity to liberalize further these markets for U.S. distilled spirits products.

The objectives of the U.S. distilled spirits industry for these regional and bilateral

negotiations are consistent with those identified above for the Doha Development

Round. These include, for example, securing the immediate elimination of the import duties on distilled spirits products from the United States. As stated above, the

United States has already eliminated tariffs on nearly all spirits products from all

countries. In contrast, U.S. spirits currently face tariffs ranging from, for example,

5 percent to 40 percent in Central America, and up to 133 percent in some Caribbean countries. Securing the immediate elimination of these duties will enable U.S.

spirits entering these markets to be accorded the same tariff treatment as spirits

from these countries entering the United States. Furthermore, since some of these

countries have already concluded free trade agreements that include tariff preferences for spirits products, U.S. spirits exports are currently at a competitive disadvantage vis-a-vis, for example, spirits products from the EU (in South Africa),

Canada (in Costa Rica) and Mexico (in Colombia and Venezuela). Thus, securing the

elimination of these tariffs on U.S. spirits products will place U.S. spirits exports

on a level playing field with our competitors.

Second, the Distilled Spirits Council and its member companies place a very high

priority on securing certain protections for Bourbon and Tennessee Whiskey as distinctive products of the United States within the context of regional and bilateral

negotiations. Such protection will ensure that only spirits produced in the United

States, in accordance with the laws and regulations of the United States may be

sold as Bourbon and Tennessee Whiskey.

Third, these negotiations provide an opportunity to address the specific technical

barriers to trade affecting imports of U.S. distilled spirits products into some of

these markets. These include, for example, certain technical standards in, inter alia,

El Salvador, Nicaragua, South Africa and Australia, labeling requirements in Australia and Morocco, and burdensome brand registration, certification and import licensing requirements in some Central American countries. These negotiations,

therefore, provide a significant opportunity to seek the elimination of these practices

that impede trade in U.S. spirits products.

Finally, the Distilled Spirits Council and its member companies enthusiastically

support the prompt entry-into-force of the free trade agreements with Chile and

Singapore, which will bring about significant and measurable benefits for U.S. sprits

exporters. The agreements eliminate several of the barriers that U.S. spirits exporters currently face in these markets. Prompt implementation of the FTAs will permit

U.S. spirits exporters to benefit from improved market access to Chile and Singapore, thus contributing to the continued growth of the U.S. distilled spirits industry.

IV. SUMMARY

The U.S. distilled spirits industry views the Doha Development Agenda as providing the industry with its best—and in some cases only—opportunity to address a

broad range of significant market access problems that continue to impede U.S. exports of distilled spirits. As described in greater detail above, our principal objectives for the WTO market access negotiations on agricultural products are:

• elimination, where possible, or, at a minimum, significant reductions in both

bound and applied tariffs on distilled spirits products, including through an expansion of the zero-for-zero agreement;

• improvements in regulatory transparency through focused negotiations targeting

procedural improvements in the TBT and SPS Agreements; and

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• more certain recognition and protection of geographical indications associated

with distinctive distilled spirits.

Similarly, the industry’s goals within the context of the FTAA negotiations and

the various bilateral free trade agreement negotiations are to:

• secure the immediate elimination of import duties on U.S. distilled spirits products;

• obtain certain protections for Bourbon and Tennessee Whiskey as distinctive

products of the United States; and

• remove the technical barriers to trade that unnecessarily impede the import of

U.S. distilled spirits in these markets.

We stand ready to work with the Congress and the administration to ensure that

these goals are achieved in the multilateral and bilateral agriculture negotiations.

Thank you very much for your consideration.

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GEOGRAPHICAL INDICATIONS IN THE WORLD

TRADE ORGANIZATION NEGOTIATIONS

TUESDAY, JULY 22, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The committee met, pursuant to call, at 10:05 a.m., in room 1300

of the Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives: Pombo, Smith, Moran, Jenkins, Gutknecht, Ose, Hayes, Osborne, Rehberg, Burns, Rogers, Musgrave,

Nunes, Stenholm, Peterson, Dooley, Etheridge, Alexander,

Ballance, Scott, Pomeroy, Boswell, Lucas, and Thompson.

Staff present: Lynn Gallagher, Jason Vaillancourt, Callista Gingrich, clerk; Kellie Rogers, Elyse Bauer, Ryan Weston, Andy Baker,

and John Riley.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review geographical indications in the

World Trade Organization negotiations will come to order.

The purpose of our hearing is to receive testimony concerning the

issue of geographical indications and the potential effect of proposals by countries in the World Trade Organization agricultural negotiations on United States agriculture and food exports.

Geographical indications are a means by which producers of a

product, including an agricultural product, can identify such a

product as originating from a particular region and a product’s

quality or characteristic is attributed to that region. Many countries, including the United States, offer protection for geographical

indications. However, proposals before the WTO in the agricultural

negotiations could have the result of altering current systems of

protection to the disadvantage of U.S. producers.

The committee will be interested in hearing from our witnesses

concerning the ramifications of changes or expansions to the system of protection of geographical indications.

Currently, the United States provides protection for geographical

indications through our trademark system, a rules-based method

that is open and includes fair treatment and enforcement mechanisms. For example, European Union products that are protected

include Parma, for ham from Italy; Roquefort, for cheese from

302

France; and Swiss, for chocolate from Switzerland. Other geographical indications include Florida citrus and Idaho potatoes.

The U.S. system is one that works, and in fact, other countries

also have trademark-like systems in place. Conversely, the EU

wants to change this system to one in which a country could arbitrarily select a geographical indication and claim it for its own and

thereby deny a long-time user of such names the ability to market

and sell its products.

Some of these generic terms could include parmesan cheese, balsamic vinegar, edam cheese and salami. Some would consider this

all to be just bologna, but that, too, is one of the generic terms that

the EU may want to claim for its own exclusive use.

This is a very important matter, especially in light of the EU’s

various proposals for geographic indications in the context of the

WTO negotiations. The EU wants to set up a system of lists of

names of products that cannot be used by outsiders, as opposed to

a system of rules that protect producers and manufacturers of such

products.

The agriculture negotiations in the WTO are very difficult and

the various proposals are diverse, but for the most part do address

the three major elements of the Doha Declaration, that is, market

access, export subsidies and domestic support. However, the EU

has taken its position on agriculture negotiations to a place in

which it will deny access to products from around the world that

it deems to belong to Europe. That is wrong.

The agricultural negotiations must continue with vigorous debate

and should not be sidetracked. An important event is coming up in

September, when the WTO 5th Ministerial will take place in Mexico. Several members of the committee will be joining Mr. Stenholm

and me when we go to Mexico for this event. It will be important

for the countries participating in the WTO negotiations to show

progress and not regression through adoption of artificial trade barriers.

This hearing will provide a full opportunity for the committee to

hear from witnesses on this subject.

And at this time, it is my pleasure to recognize the gentleman

from Texas, the ranking member, Mr. Stenholm.

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman, and thank you for

holding this hearing today. It is very important for the United

States agriculture community to fully understand the implications

of Europe’s attempts to enhance protections for geographical indication.

It is equally important for Europe to understand that we do not

intend to allow the issue to distract us from the real work of the

WTO agricultural negotiations, export competition, domestic support and market access. Europe’s attempt to create enhanced WTO

protections for products such as parmesan cheese are simply not

included in the Doha round mandate for agricultural negotiations.

In point of fact, Europe has failed to produce a serious negotiating

proposal on the issues that are included in the Doha mandate.

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Under these circumstances, it seems premature to begin discussions on what we can offer Europe that will make agriculture reform more palatable to the Europeans. With that, Mr. Chairman,

let me simply say I look forward to hearing from our witnesses and

to working with you on this issue and the issues covered by the

Doha mandate for agriculture.

The CHAIRMAN. I thank the gentleman. The committee will make

a part of the record any other opening statements that Members

might have.

PREPARED STATEMENT OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Thank you Chairman Goodlatte and Ranking Member Stenholm for holding this

hearing to review the World Trade Organization negotiations on geographical indications. Also, I would like to thank the witnesses for providing this Committee with

their input and concerns on this important issue.

When regulated and applied properly, geographical indications are an asset for

both consumers and producers. For consumers, they offer protection from deceptive

labeling as well as more information on which to base their choice of products. For

producers geographical indications are commercially valuable as they protect the

uniqueness of their products in the market. I believe that the U.S. should continue

to protect geographical indications in a fair and reasonable manner, as we have

through our trademark laws. The fact that the U.S. system for recognizing geographical indications applies equally to both domestic and foreign products demonstrates the U.S.’s willingness to protect geographic indications in a fair and flexible manner.

Unfortunately, the EU’s demands for tougher restrictions on the use of geographic

indications are unreasonable and are merely another example of leverage to their

willingness to deal with the agricultural negotiating issues of domestic support, export subsidies, and market access.

The EU’s lack of substantial CAP reform, the various hurdles they are creating

for genetically-modified products, and now their demands for expanded protection

of geographic indications, demonstrate their reluctance to open markets and support

more free and fair trade. During the current round of multilateral trade negotiations, I believe that in regard to geographical indications the U.S. and other countries should stand firm that the existing levels of protection for geographical indications are fair, flexible, and adequate.

PREPARED STATEMENT OF HON. ROBIN HAYES, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NORTH CAROLINA

Thank you all for being here today to discuss the very important issue of geographical indicators. This important type of intellectual property must be preserved

as we move forward in WTO trade negotiations.

Like many of you here today, I am extremely concerned with the European

Union’s push to ‘‘claw back’’ generic terms like ‘‘FETA’’ and ‘‘Gorgonzola’’ for cheese

and ‘‘port’’ and ‘‘sherry’’ for wine. My understanding is that this is a key agenda

item for the EU to call for termination of most generic terms to describe food and

wine products unless those specific products come from the region or location specified. This could have a disastrous effect on our producers and consumers.

I am also very concerned with the EU holding agriculture negotiations hostage

until the issue of geographical indicators is revisited. This begins to remind me very

much of the way the EU has unfairly treated our GMO products.

Again, I look forward to hearing from all of you on this delicate issue, and I can

assure you that I will continue to monitor this situation as we continue to move forward with WTO negotiations.

The CHAIRMAN. And at this time, we are pleased to welcome and

invite to the witness table our first panel, Deputy Under Secretary

of Commerce for Intellectual Property and Deputy Director of the

U.S. Patent and Trademark Office, Mr. Jon Dudas.

I am especially pleased to welcome Mr. Dudas, who is a former

staff member of the House Judiciary Committee, on which I also

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serve and which has a great deal of interest in the subject matter

as well.

Under Secretary Dudas, welcome, we are delighted to have you

with us today.

STATEMENT OF JON W. DUDAS, DEPUTY UNDER SECRETARY

OF COMMERCE FOR INTELLECTUAL PROPERTY AND DEPUTY DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE

Mr. DUDAS. Thanks very much, Mr. Chairman.

Before I begin testifying, I want to acknowledge as well, I spent

about 6 years on the Judiciary Committee and a year in the Speaker’s office, and the first bill I ever worked on that was signed into

law was a bill that you sponsored, a trademark bill; and as I was

reminiscing about my time as a staffer on Capitol Hill, I remember

I had gotten a reputation sometimes of slipping notes to Members

for particularly aggressive or tough questions, and I want to acknowledge publicly the error in my ways that sitting here now,

alone, that was the wrong thing to do and commend those Members and staff that told me at the time.

But on a more serious note, I do thank you, Chairman Goodlatte,

Ranking Member Stenholm, members of the committee and staff.

I thank you for this opportunity to testify today on an important

but little-known type of intellectual property known as geographical indications.

While the phrase geographical indication is hardly a household

term, its real-life incarnations, such as Florida for citrus, Idaho for

potatoes and Wisconsin for cheese are a common presence in millions of American households, restaurants and stores every day.

They play a key role in promoting U.S. trade and consumer identification and awareness. Today’s hearing is especially timely, because the United States’ equitable and time-tested system for protecting geographical indications has been threatened. In fact, some

of our trading partners are even going so far as to take a position

that would deprive U.S. trademark owners, producers and U.S.

consumers of commonly-known food terms such as feta, parmesan,

champagne and believe it or not, bologna, as you mentioned.

Mr. Chairman, if these proposals are adopted, they will take

away from Americans our right to make a champagne toast with

Virginia or California wine, or enjoy the champagne of beers, as is

shown in this popular trademark in the United States.

The United States has a successful, systematic approach that

provides robust protections for geographical indications whether domestic or of foreign origin, and that is an important note. The

United States system for geographical indications provides protection whether you are a domestic entity or a foreign entity.

We have provided today just a few examples of the hundreds of

foreign GIs protected right now in the U.S. via our GI certification

mark system, including Colombian for coffee, Parma for ham from

Italy, Darjeeling for tea from India and Roquefort for cheese from

France. These two displays will show you some of the foreign geographical indications protected in the United States.

While the United States provides a level playing field for GI registrants, the United States is not afforded similar protection in reVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00309 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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turn. In fact, as you can see from our other poster, not a single

American GI, not Napa, not Sonoma for wine, not Vidalia for onions, not Florida for oranges, nor Wisconsin for cheese, is currently

protected in the European Union. To add insult to injury, the EU

is demanding in the WTO GI discussions that its producers be

given exclusive worldwide rights to certain common food terms

such as feta, parmesan, burgundy, chablis and bologna. They claim

that these common food terms used by Americans are owned by

European producers. This so-called ‘‘claw back’’ agenda is being advanced by the EU and other likeminded countries as a serious negotiating item within the WTO at the TRIPS Council meetings and

at the WTO Agriculture Committee meetings. If the EU is successful, U.S. producers would have to rename, relabel and repackage

their products. U.S. trademark owners would lose the use of their

trademarks that contain these terms and U.S. consumers would no

longer be able to buy familiar products with the names that they

have grown used to for decades or scores of years.

In various fora, the EU has emphasized that it has prepared a

list of 40 terms, the majority of which we understand to be wine

terms, for which it will seek absolute exclusive worldwide protection. If burgundy, chablis, champagne and sherry and similar wine

terms are on this list, the EU will have effectively bypassed our ongoing bilateral negotiations between the United States and the EU.

If accepted by WTO members in September at the WTO Ministerial

in Cancun, this would provide EU producers with absolute protection, exclusive protection for generic wine terms, while offering no

compensation in the form of fair market access for U.S. wines.

Make no mistake, what the EU is asking for is not fair treatment, it is preferential treatment. It is nothing less than the subsidy of European agricultural interests through claw back of generic terms. If adopted, the EU’s demands could undermine the

world’s systematic approach to intellectual property protections,

and not just for GIs. If the EU insists that we must protect exclusively and in perpetuity a specific list of its so-called geographical

indications, what will come next? Will it be another list of 40 geographical indications and terms? Will it be 40 of their most popular

trademarks or patents?

Unless there is a systematic approach to protection of intellectual

property and respect for the rule of law that supports it, the world

will quickly understand the negative aspects of these so-called positive lists.

Mr. Chairman, Ranking Member Stenholm and members of the

committee, the United States is deeply concerned by the efforts of

the EU and others to substantially restructure the standards for

protecting geographical indications. If adopted, these proposals will

harm U.S. domestic and international commerce in food and wine,

and at the very least, result in great confusion among consumers.

I am hopeful that today’s hearing will shed much-needed light on

these ill-conceived proposals and help preserve strong and equitable protection for geographical indications and trademarks

throughout the world and certainly in the United States.

Thank you for this opportunity.

[The prepared statement of Mr. Dudas appears at the conclusion

of the hearing.]

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The CHAIRMAN. Thank you, Secretary Dudas. Can you describe

to us how the current status of trade negotiations interacts with

the procedure that we have in the United States through the U.S.

Patent and Trademark Office for protecting geographical indicators

through trademarks, and what effect these trade negotiations are

having on that?

Mr. DUDAS. Absolutely. In the TRIPS Agreement, there is protection for geographical indications, something that took more than 8

years of negotiations, give and take, among nations, so there is protection for geographical indications, and the way that we have handled that in the United States is by effectively mirroring our trademark system.

We handle over 250,000 trademark applications a year, and a

geographical indication is very much like a trademark. It has certain—it indicates a certain reputation for a good. The United

States has a systematic approach that it has employed because of

TRIPS. It is an approach that, again, allows for geographical indications of foreign nations.

Under the current regime, there are certain trading partners, including the European Union, that would like to extend protection

for geographical indications, which is troubling for a number of reasons. One is that the European Union right now does not protect,

as this chart shows, there is not a single U.S. geographical indication that is protected under the current TRIPS Agreement. The

way it is integrating and working with the trade environment right

now, is it is an issue that is being raised both in WTO TRIPS

Council, it is an issue that has been raised in the Agriculture Committee at WTO and certainly in bilateral negotiations, and my understanding, I am not a part of the Trade Representative’s office,

but my understanding is that the Agriculture Committee is being

held up because of these issues, that a number of major agricultural issues are being held up because of the geographical indications issue.

The CHAIRMAN. Now, how does this interact with the general

rules regarding the trademarking of a name that becomes generic

in its use? We have many examples of that through U.S. history,

where companies have essentially lost the trademark on their

name because they did not protect it. For example, there are things

right now in the marketplace that seem to be on the Europeans’

list of things they would like to have a geographic indicator agreement on. For example, parmesan cheese. Virtually every American

has a canister of parmesan cheese in their refrigerator, and I would

venture a guess that it has become quite generic in its use, and

people do not associate it with it now, if they ever did, with Parma,

Italy. Would that be something that could be trademarked, or

would under our trademark laws, it be struck down?

Mr. DUDAS. Parmesan would not in and of itself likely be

trademarked, because it is considered generic in the United States,

but it is certainly incorporated within trademarks of other—for example, mozzarella, there is a trademark for Grande Mozzarella in

the United States. Mozzarella is considered a generic term, but

Grande Mozzarella is one that could be trademarked, and has been

trademarked in the United States.

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Your point is well taken. For people who understand our intellectual property system, terms like linoleum and escalator were once

trademarked. Because they became generic, those terms were lost,

but terms like parmesan and feta, et cetera, are terms that have

been used in the United States for scores of years and in some

cases, hundreds of years, and they are at this point in the United

States generic.

Under the EU proposals, there would be an effort to claw back

these terms that have been become generic in the United States

and in many ways, have become popular because of their generic

status in the United States, to take back these terms, give them

a proprietary value and deprive U.S. trademark owners from using

those terms within their trademarks, and perhaps more importantly, deprive consumers from buying a can of parmesan cheese,

as you mentioned, with that term.

The CHAIRMAN. In fact, the real value of that term has not come

from anything that has been done by the citizens of Parma, Italy,

but rather, the millions of dollars spent by cheese processors in the

United States, Kraft obviously being the leading one with the issue

of parmesan. But there are many other companies that also

produce parmesan cheese and put that on the label of the canisters

that they produce. They have spent millions of dollars creating a

value, which if the European Union were successful in these negotiations in their claw back, that is a very accurate description, they

would be clawing back the benefit of those many, many tens or

hundreds of millions of dollars that have been used to create the

public awareness and support for those particular names of products that are not trademarked but are identified by the public as

something that they prefer and something they use.

Mr. DUDAS. And that is absolutely correct. On the way up, we

tried to decide what the jingle, ‘‘My bologna has a first name. . .’’

What would we call it, ‘‘My ‘circular pink meat’ has a first name,

it’s O-s-c-a-r. . . ,’’ so absolutely, and that is an argument the

United States has made very effectively throughout the world is

that many of these terms were brought over long before there was

a geographical indications regime in Europe and elsewhere. These

were terms that were brought to America, they were used throughout America, and in fact, the value of those terms are because of

the marketing and because of the use in America and throughout

the world.

The CHAIRMAN. And if a country or a community does take steps

in a timely fashion to trademark a name before it gains this kind

of wide, generic acceptance, they can do that right now through the

Patent and Trademark Office.

Mr. DUDAS. Absolutely.

The CHAIRMAN. Am I correct that there are many examples of

that? For example, when I was a kid, my father loved putting

Roquefort cheese on his salad and other things, and today, Roquefort cheese, because it is a trademarked name, is protected, and

you can buy Roquefort cheese. It is generally viewed as being a

higher end bleu cheese, but the generic term, that is more widely

used, is bleu cheese, spelled b-l-e-u, until the French get a hold of

that through generic indications, is that not correct?

Mr. DUDAS. Right.

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The CHAIRMAN. All right.

Mr. DUDAS. And I note, Roquefort cheese has been registered and

protected in the United States since 1953, registered and certainly

could have been protected under common law before that, and you

point out parmesan cheese is generic in the United States, but

Parmigiano-Reggiano is a protected geographical indication.

The CHAIRMAN. Is that a brand of parmesan cheese?

Mr. DUDAS. It is a type of parmesan cheese that comes from a

region in Italy, and that is protected. In fact, they have recently

settled a case with folks who used a variation of the term

Parmigiano-Reggiano, was Parma Reggiano, so there is robust protection in the United States for geographical indications that are

not generic.

The CHAIRMAN. Thank you very much. The gentleman from

Texas.

Mr. STENHOLM. The EU has already negotiated agreements with

Canada and Australia to limit the use of generic terms such as burgundy and port. What are the potential effects of these agreements

on U.S. wine sales in Australia and Canada and what are our

rights under the WTO?

If Canada decides to enforce elimination of generic terms on imports from countries that are not part of a bilateral agreement with

Europe, could the United States enforce its right to sell a wine described as burgundy to Canada?

Mr. DUDAS. The practical effects of the Australia and EU wine

agreement and the recently initialed Canada/EU Wine Agreement,

as I understand them, I don’t have the language with me, but as

I understand them, is that terms like burgundy and chablis are to

be used only exclusively in those nations that made the agreements, Australia and Canada, by EU producers, and in fact, I even

understand that if you use a term that is in those lists, like burgundy or chablis, even a trademarked term that is not associated

with the wine term, we showed earlier, the champagne of beers for

Miller, a situation like that that would also be excluded.

I am not certain of what the practical effects to the wine industry

would be, and maybe folks who are testifying later would be able

to talk about what the markets are, but from a practical and legal

effect, I think what it means for U.S. wine producers presumably

is that they can no longer use the term burgundy or chablis when

they export to Australia and when they export to Canada, and in

fact, if the EU continues, the net effect of the current proposals

under the EU would be that those terms would not be able to be

used in any nation, including in the United States.

It is important to note that for all the industries involved, there

was a misnomer at one point that this only affected exports for

U.S. businesses and industries, but if the EU is able to get their

positions across, it will mean that these terms will no longer be

available to U.S. producers and consumers within the United

States.

Mr. STENHOLM. I realize some of the questions I am asking

should be more probably directed to the U.S. Trade Representative’s Office, so I would appreciate their helping you give the answers for the record to those that I will submit in writing, as well

as those that I am asking.

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What specific reference was made in the Doha Ministerial Declaration to expanding the debate on geographical indications beyond wine and spirits? Was there any implicit or explicit agreement to negotiate GIs for agricultural products?

Mr. DUDAS. I am going to get the specific language. The short answer is no. Let me find the specific language before I quote. Yes.

Paragraph 18 of the Doha Ministerial Declaration states that:

Issues related to the extension of the protection of geographical indications provided for in article 23 to products other than wines and spirits will be addressed

in the Council for TRIPS, pursuant to paragraph 12 of this Declaration.

Further, paragraph 12 talks about addressing, the TRIPS Council should address the extension issue ‘‘as a matter of priority’’ and

report to the Trade Negotiations Committee by the end of 2002 for

‘‘appropriate action.’’

What that all means is debate and discussion about geographical

indications is one thing. It is not a mandate for negotiation. So we

are not aware at the USPTO of any implicit or explicit mandate for

negotiation, either from Doha or at any other place. The U.S> Government, the USTR, has made repeated and adamant interventions

in the TRIPS Councils to make this point that there is no mandate

for negotiations on geographical indications, and I thank you for—

I will convey your questions as well to colleagues at USTR who are

on this issue.

Mr. STENHOLM. Would you go a little further in discussing why

the Trade-Related aspects of Intellectual Property Rights Agreement, or better known as TRIPS is the most appropriate forum

within the WTO to discuss GIs?

Mr. DUDAS. Absolutely. As the Deputy Under Secretary for Intellectual Property, it is important for me to note that TRIPS treats

geographical indications as a form of intellectual property protection, and so that 8 years of negotiations occurred at TRIPS prior

to the recent discussions, the geographical indications, where there

were substantive experts on intellectual property.

Just as it is unfair to ask intellectual property experts to explain

terms like green box and blue box and amber box, which are terms

I couldn’t explain to you right now, but understand to be important

agricultural terms, it is equally unfair to ask substantive agricultural international experts to try to pore through intellectual property terms that are technical and that they are not used to, so the

TRIPS Council is where geographical indications was negotiated for

8 years. It is where people understood what the compromises were,

and it is where it is best suited to have that discussion.

Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

Montana, Mr. Rehberg.

Mr. REHBERG. Thank you, Mr. Chairman. Just a real quick question as far as enforcement. First of all, thanks, Mr. Chairman for

the committee hearing. This is something that is important to me,

because we got sued a number of years ago using the name Montana Knits, come to find out that a gentleman by the name of

Claude Montana, who said he owned the name Montana. It turned

out he did. We lost, but he went bankrupt, and we were happy for

that, but the question I have to ask is if this occurs, who will enforce it? Will the Federal Government step forward and help people

310

like myself, who are up against a fellow in France who says he

owns the name Montana? The State of Montana said that they

didn’t have the money to defend a case like that. Who ends up defending American business who are up against the EU saying that

they own Idaho and Wyoming and North Dakota?

Mr. DUDAS. Well, in the instance of an international event along

the type that you are talking, if another nation claims something,

then certainly, the United States Trade Representative is the place

to go where they can bring a case, they can bring an international

case. They can have consultations or formal negotiations, or they

can bring a dispute settlement.

In addition to that, under the United States system, we have a

very tried and true and well established system for protection of intellectual property, whereby the owner of the mark, whether it is

a GI certification mark or a trademark has the ability to determine

how can they go about doing this, taking care of it in the courts,

we have a very expansive, tried and true, again, systematic approach to protecting intellectual property through the courts,

through appeals processes, et cetera.

Mr. REHBERG. OK, so then, based upon the expected number of

items on the list, have you been able to put any kind of a cost value

to what it is going to cost you to try and defend American business

against all the various potential violations there would be?

Mr. DUDAS. We haven’t put together that estimate. I think folks

from the industry might be able to better tell you how much value

they have in their trademarks, how much value they have, et

cetera. We think in terms of cost to the government, taking a European Union system approach, where the government only is allowed to enforce the rights and there isn’t the ability for the owner

of the trademark or the geographical indication to take it, we don’t

have an estimate for how much it will cost, but basically, we will

have to establish an entirely new system to check all goods that

come through the border, relabeling and repackaging requirements

that don’t exist for agriculture products.

Mr. REHBERG. I would think that based upon the potential, the

economic impact on our free enterprise system in America would

be phenomenal.

Mr. DUDAS. Yes.

Mr. REHBERG. I might point out, Mr. Chairman, he was pretty

slick in the way we did it, we have a Made in Montana brand, and

he had Made in Montana with a little Claude before Montana on

all of his knit products coming into America, so he was fully taking

advantage of our marketing of Made in Montana products. Thank

you, Mr. Chairman.

Mr. DUDAS. Seeing as he went bankrupt, I don’t want to take

over a trademark, and I apologize to the ranking member, but I

guess it is ‘‘Don’t Mess With Montana’’ as well.

Mr. REHBERG. We now have the trademark, but he is back in

business.

The CHAIRMAN. The gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. I have to admit I

didn’t know much about this TRIPS Council, but apparently, it

only applies to wine and spirits, is that the deal?

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Mr. DUDAS. Well, there is a requirement under article 23.4 under

TRIPS that there needs to be a voluntary registration and notification system put in place for wine and spirits. The EU has argued

that that needs to go beyond that and into agricultural goods, and

they are promoting extending protection for geographical indications beyond that.

Mr. PETERSON. Right. Well, what I was wondering is you have

been meeting for 8 years, you said?

Mr. DUDAS. There were 8 years of meetings prior to TRIPS.

Mr. PETERSON. OK.

Mr. DUDAS. And that was back in 1995.

Mr. PETERSON. Well, that sheet there where there is no, apparently you haven’t gotten very far with the Europeans in terms of

getting the U.S. interests.

Mr. DUDAS. That is right.

Mr. PETERSON. Right. Can you tell me what the—I know you are

not from the Trade Office, but do you know what the status of the

discussions in the WTO about this are? Are our people rejecting

this?

Mr. DUDAS. Well, the status of negotiations are they are lively,

they are ongoing and they are polarized, but the position of the

U.S. Government has been to avoid this type of claw back. Certainly on timing and strategic decisions, I would have to refer that

to colleagues at USTR, and certainly would, but my understanding

is that both—I am not as familiar with the WTO Agriculture Committee, but in following that, it is clear that it is an issue that has

held up a number of very important agricultural issues. Certainly

at TRIPS Council, it is a big issue, and what we are coming up to

in Cancun, this will be an important issue.

The United States has—we have offered substantive and technical expertise, and certainly offered our opinion politically about

what should be done, but there has been strong resistance from the

United States to the attempts by the EU to without any form of

compensation whatsoever try to claw back these terms.

Mr. PETERSON. Well, apparently, the chairman of the WTO agriculture negotiations, Stuart Harbinson, has asked the WTO member countries if, I quote: ‘‘Agriculture modalities should contain

provisions for a limited number of geographical indications.’’ So is

our position we are against that, do you know?

Mr. DUDAS. I think again, offering my expertise from an intellectual property point of view, it is our responsibility to make sure everyone in the administration understands the negative aspects to

these positive lists. In an intellectual property system, you have to

consider a number of things before you propose a new system, such

as terms that are already available, what rights exist right now,

the public’s right to use common terms. There has been resistance

in the past to this from the United States. As far as what strategic

decisions are being made right now, I would have to refer to USTR,

but certainly, the United States has been resisting this claw back

and the idea of having a positive list.

Mr. PETERSON. Well, it seems to me the Europeans don’t want

to deal with their underlying issues and they are kind of trying to

change the subject here.

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The other thing, we have had on the floor and in this committee,

we have had hearing on this, and we had an action on the floor

on this country of origin labeling issue. I mean, it seems like what

we are talking about here has got some of the same issues that we

have in that, in terms of us labeling in this country, U.S. origin

beef or whatever.

Are you familiar at all with that, and are the Europeans and others looking at that kind of the same way we are looking at this?

Do you have any——

Mr. DUDAS. I am not as familiar with the labeling requirements

here, but I can talk a little bit about what we think kinds of labeling requirements would occur. Certainly, with wines and spirits,

one of the advantages, and one of the reasons during the TRIPS

negotiations that the United States was amenable to discussing different protections for wine and spirits is because we have ATF or

now TTB who handles certain labeling requirements. One of the

big issues that will occur, if these generic terms are taken back, is

how will we—and the burden is put again—our trademark system

puts both the motivation and the responsibility and ability on the

owner of the trademark or the geographical indication, the person

who is in the best position to decide whether or not to litigate or

how to enforce the rights, if this burden is placed entirely on the

government, we will have to reconsider how we handle labeling,

within Customs, how we handle labeling at the border, and what

government agency has the ability to——

Mr. PETERSON. Just one last thing, like for example, Angus beef

has got a big promotion. Is that protected under your trademark

or not, or are they just doing that, you know?

Mr. DUDAS. I am not certain if Angus beef—let me ask some of

my colleagues who are more familiar with some of the registrations. I don’t know, we certainly can get back to you about Angus

beef.

Mr. PETERSON. I would be interested in whether they have taken

the step to protect this under your jurisdiction or not.

Mr. DUDAS. Absolutely.

Mr. PETERSON. Thank you. Thank you, Mr. Chairman.

Mr. DUDAS. Thank you.

The CHAIRMAN. The gentleman from North Carolina, Mr. Hayes.

Mr. HAYES. Thank you, Mr. Chairman. I have no questions at

this time, but would like to submit a statement for the record.

The CHAIRMAN. Without objection.

[The information appears at the conclusion of the hearing:]

The CHAIRMAN. The gentleman from Tennessee, Mr. Jenkins.

Mr. JENKINS. Thank you, Mr. Chairman. I am sorry I missed the

gentleman’s testimony, but I know that it sounds as though we are

going to get out of the realm of agriculture and back into the legal

realm with respect to many of these negotiations, and I will simply

say that with Mr. Dudas having part in that, I hope he is representing us in it, because he is a very able, capable young man,

and I feel very confident to be under his representation as we go

through this—what apparently is going to be an unbelievable process that we never anticipated, perhaps, when we got into this.

Thank you, Mr. Chairman.

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The CHAIRMAN. I thank the gentleman. And the gentleman from

California, Mr. Dooley.

Mr. DOOLEY. Thank you, Mr. Chairman. I just want to perhaps

clarify, Secretary Dudas, on the position of the administration,

which you are not obviously in the USTR, but from the U.S. Patent

and Trademark Office, you have communicated the opinion that

the proposal by the EU that would deal with the claw back as well

the positive listing would create significant challenges and problems with your operations.

Mr. DUDAS. From the perspective, an intellectual property perspective, we see a number of policy and substantive problems with

a positive list. Our system is based on individual rights and market

principles.

Mr. DOOLEY. Now, has your office gone as far as to issue an opinion about whether or not the administration should be in any way

receptive to the inclusion of these issues as one of the modalities

in the Doha Round?

Mr. DUDAS. I don’t think we have issued anything along those

lines. We have certainly had conversations within the administration in giving advice on those issues.

Mr. DOOLEY. Now, is that something that is—would not be consistent with precedent and past practices, or is your office—would

consider issuing a very strong statement that based on existing law

and practices in the United States, that it would be inappropriate

to accept as one of the modalities, the EU proposal.

Mr. DUDAS. That would probably be somewhat inconsistent with

the role of our office as far as a participant in the administration.

Certainly, commenting on policy, et cetera, is something that is

perfectly consistent with what our office does, but making the ultimate decision from a trade representative perspective or on behalf

of the United States would come out of the USTR and those conversations are ongoing and certainly, even in testimony today we

have commented about how the policies are problematic from an intellectual property perspective.

Mr. DOOLEY. Now, from an EU or even a U.S. perspective, in

terms of when you made the distinction between the part of the

parmesan that is from a specific area, if somebody in the United

States took it upon themselves to register a product that had a geographic identifier in order to try to carve out a little bit of a market

niche, your office quite likely would do an analysis and would not

approve that if you determined that this was, in fact a unique

product from a specific region.

Mr. DUDAS. That is correct.

Mr. DOOLEY. So you make value judgments in how you approach

this in terms of whether or not a product has become identified as,

or perceived as being a generic product, versus something that is

unique to a specific region?

Mr. DUDAS. Absolutely. That is correct, and we have about

258,000 applications a year, about 164,000 registrations occur, and

this is in trademarks and includes geographical indications, but

you can see that a number of attempted registrations never make

it, because they are either confusing or generic, or they have already been trademark, so that is exactly why our system in the

United States works so well. We already handle volume like that,

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and can handle that, and the value judgments are made by our

roughly 250 examiners.

Mr. DOOLEY. Now, I might be mistaken, but I thought I read, too,

where in Canada, there was an attempt to register Parma ham as

a trademark. That obviously created some concerns with some of

our friends in the EU. Do you know, did that in fact happen, and

how would that have happened if that was attempted to be registered in the United States?

Mr. DUDAS. I am not certain if that happened. That is apparently—it has happened in Canada, and that is an ongoing case in

Canada, and of course, it is country by country, but in the United

States, if someone tried to get a trademark for Parma ham, our examiner would presumably find out that there already exists a

mark, a geographical indication owned by the Council, or from

Italy, and would reject on that basis.

Mr. DOOLEY. Now, under the TRIPS, would Canada, could they

be subject to a dispute resolution with the—if they did trademark

or patent the Parma ham?

Mr. DUDAS. If the Italian government wanted to raise a case with

Canada, they could.

Mr. DOOLEY. But they would have to raise a case.

Mr. DUDAS. Right. Thank you.

The CHAIRMAN. Thank you. The gentleman from California, Mr.

Ose.

Mr. OSE. Thank you, Mr. Chairman. I want to follow up on something here. In 1999, we asked for consultations with the EU over

regulations for geographical indications for wines, spirits and agricultural products, and then we revised that request in April of this

year.

Have any consultations taken place, and if not, what is the problem? Why are they taking so long to occur?

Mr. DUDAS. I think certainly, we have been trying to understand

in the United States the geographical indication system in Europe,

and it has been fairly difficult to understand, how the protection

occurs and what their system is. In part, as I mentioned, we can

show very clearly how the United States system works. As we look

at the European system, we view what we see as a problem, that

there are no American geographical indications there.

The European Union revised their own regulation, 2081/92 in

April of this year. The United States asked for formal consultations, USTR asked for formal consultations, which were concluded

in May 2003 and at this point, we have much more information

about their system, and beyond that, I certainly would need to ask

USTR or consult with them about what their latest plan or strategy is.

Mr. OSE. Well, that does beg the question. If the consultations

with the EU took place in May, that is your testimony, what is the

action that you are proposing or that anybody is proposing?

Are we just sitting here in abeyance until it rains or something?

I don’t know.

Mr. DUDAS. Well, I think the next procedural step would be to

seek formal dispute resolution, which would be a decision that

could be made by USTR, or certainly at every procedural step and

following every procedural step, there are often bilateral negotiaVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00319 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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tions and discussions. So for instance, after formal consultations

and gaining more understanding, it may be that right now, USTR

and the United States and the EU are discussion if there isn’t some

answer to the problem, but the next formal step would be a formal

dispute resolution.

Mr. OSE. Ambassador Zoellick makes that determination.

Mr. DUDAS. Yes.

Mr. OSE. All right. And is there any timeline that has been laid

out for either what I would call a drop dead date on that determination?

Mr. DUDAS. Not that I am aware of.

Mr. OSE. Thank you.

Mr. DUDAS. Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

Iowa, Mr. Boswell.

Mr. BOSWELL. Thank you, Mr. Chairman. Just briefly, I apologize

for not being in on the whole brief, so if this has been covered, I

will stop, but I continue to be concerned about the complications

we have with Europe on our genetically modified, if you will, as

this gets into the science and the running argument we have started with them. I think Mr. Stenholm and some of the rest of us, we

went out to the Seattle WTO, we got into that discussion with our

friends from Europe that time. You might remember that, Charlie,

and they didn’t have much of a story to tell. It was pretty weak.

In fact, it didn’t amount to anything. It was just an excuse or a

ruse, and we managed to point that out, and I just wondered if that

has adjusted any, or what could you say about it, and maybe it is

not germane, Mr. Chairman, to this discussion, but it is a concern

that a lot of us have felt, and I got lots more I could say about it,

but I will just stop there. Could you comment on where we are at

in that part of——

Mr. DUDAS. I can acknowledge that I think it is certainly germane to the discussion, because it looks at the agricultural issues

overall. Unfortunately, I have a dramatic lack of understand of

that particular issue, so while it is, I think, germane to the issue

of—it is something outside the expertise I have from an intellectual

property perspective.

Mr. BOSWELL. Thank you for saying that, because we learned

while we were out in Seattle, what was it, 3 years ago, whatever

it ways, population hit 6 billion a year ahead of time in the forecast, which 20 years ago, they said that is not going to happen,

they kind of pooh-poohed it. Now, they tell us it is going to double

that in the next 20, 30 years, and we have got to develop the

science, and of course, a lot of that goes on in my State, at Iowa

State University, as at other places across the country, and we are

pretty proud of it, and we do it pretty openly, it is kind of under

glass, and we made that comment to the person that I engaged

with across the table in that little powwow, if there is something

wrong with our science, tell us. We want to know, too. Well, meanwhile, just because you have got a mountain of whatever agriculture product and you don’t want us to compete with you, don’t

make up a story, and I just—I would hope that somebody down

there in your area could pursue that and report back to us, because

I think it continues to be a concern.

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Mr. DUDAS. I will share that with the colleagues that know

the——

Mr. BOSWELL. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from Nebraska, Mr. Osborne

Mr. OSBORNE. Thank you, Mr. Chairman. I have one rather brief

question here. It seems that many developing countries are supporting the EU proposal of extending geographical indications to

other products, such as cheese, meats, teas and coffees. Why is

this? Do you have any comment on that?

Mr. DUDAS. I do. In fact, I think it is probably a lack of education

on the issue, and perhaps, who approached them first.

I can tell you, we had sponsored a symposium along with the

World Intellectual Property Organization a few weeks ago dealing

with geographical indications, and I had the opportunity, along

with several members of the staff from PTO, to talk with leading

folks in governments from developing nations, who came from the

perspective of we need to begin bilateral negotiations to discuss

how we can protect the one geographical indication we have for

wine or water in our country.

These are developing nations from Asia and South America, and

it was very interesting when I said the first step you need is not

a bilateral negotiation, but just register your mark with the Patent

and Trademark Office, and you had talked to some of your colleagues from India and others that are here that have done so, and

find out what kind of protection they have had, and they were

heartened by that, so we have really—the United States has

worked with a number of nations, developing and other, to come together with a consensus and we now have several South American

nations, Japan, Australia and Canada, working together to inform

other nations as well, so I think it is an issue of education. The

more developing nations see how our process and system works in

the United States, how it is fair to their country, that they will understand more why it is an important issue and why that is the

better system to adopt.

Mr. OSBORNE. Thank you, and I yield back.

Mr. DUDAS. Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

Georgia, Mr. Burns.

Mr. BURNS. I have no questions. Thank you.

The CHAIRMAN. Thank you. I believe the gentleman from Texas

has an additional question he wanted to ask.

Mr. STENHOLM. Part of the answer that you just gave to Mr.

Osborne there, but let me phrase it again. The EU has proposed

a multilateral notification registration for GIs associated with

wines and spirits. What are the implications of expanding this system to all products, and then how would individuals protect their

valid, existing trademarks from being undermined under the new

system, and then the following question is do WTO member countries, or how many WTO countries have systems in place to review

new registration proposals?

Mr. DUDAS. Thanks for the question.

The ramifications of extending the protection beyond wines and

spirits would be dramatic, in that especially when you look at the

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proposals that are out there right now. Again, we talked about

TRIPS being something that was negotiated and agreed upon several years ago, and it was negotiated 8 years before that, but what

we find most troubling is that again, if you look at our chart here,

the European Union does not already enforce the existing geographical indications regime to protect foreign geographical indications, so the implications are potentially dramatic.

They may lead to—right now, under one European Union proposal, would suggest that you list out geographical indications that

you think should be protected. If they are not challenged, or successfully challenged, not challenged within 18 months and not ultimately successfully challenged, then those geographical indications

go into protection, exclusive protection forever. So your question

about how would individuals protect their trademarks, if they had

a trademark, an individual, and we talked a little bit about that

earlier, wouldn’t have the ability under the European Union system. They would have to rely on the government, in this case the

U.S. Government for our industry, would have to rely on the government to look at hundreds if not thousands of geographical indications to determine which ones are worthy of going further, or

which ones they should take on to discussions and bilateral negotiations, literally sitting down country and country and going over

hundreds or thousands of geographical indications and determining

which ones should be disputed.

You have to rely on the government to do that. You don’t have

the ability, again, after you have spent hundreds of thousands or

millions of dollars, to find relief yourself through the courts, et

cetera. That is especially problematic, I think you alluded to, for

developing nations, who—we have had conversations with some developing nations that understand the value of intellectual property,

but don’t have the funds or resources to even establish an office

that can inspect and register intellectual property. So the EU has

not given a lot of guidance about how you would set up a system

such as that. They do have the Lisbon Agreement, looking at appellations of origin in the EU. France has over 400 different geographical indications they want to look at right there, so that, for

us, it is very problematic, and again, it is inconsistent with the system in the United States, whereby you place the ability and the responsibility in the hands of the person who has developed the

trademark or the geographical indication, and you use market principles to determine how you will enforce it.

Mr. STENHOLM. Thank you. Chairman.

The CHAIRMAN. If I might, I want to follow up on that myself.

In fact, they are being quite inconsistent within Europe, are they

not? Because cheddar cheese, from Cheddar, England, or swiss

cheese from Switzerland is not on their list of geographic indications, and the reason is that cheddar cheese isn’t just manufactured in the region around Cheddar, England, and swiss cheese

isn’t just manufactured in Switzerland in Europe. It is manufactured all across Europe, and they have decided not to tackle the

difficulty of taking away the right to use that name for all kinds

of cheese processors all over Europe for those indications. They

have been quite selective in selecting brands that they think there

is the greatest trade benefit to clawing back into Europe, like parVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00322 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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mesan cheese, which has been promoted very widely by U.S. cheese

processors. Is that not an accurate assessment of the European inconsistency on this whole issue and why this should be relegated

to the realm of intellectual property and patent and trademark offices around the world and not to trade negotiations?

Mr. DUDAS. Yes, I would agree with that point. It is something

that has confused us as we look at it from an intellectual property

perspective, and again, we have a systematic approach. When you

come to the United States, what you are facing, you have a legal

regime, exactly what is expected, what the process is, what your

remedies are, and in Europe, we have been confused by the issues

you have just raised. Also, the fact that waters will be removed

from the geographical indications regulation. There is a number of

different potential reasons why water may have been removed, two

leading possible reasons. One is that there are too many waters,

different waters that might get geographical indication protection

that the system couldn’t handle it. Our system handles over

250,000 applications a year of trademarks and GIs included in

that. The second reason could well be along the same lines that you

talked about, that maybe some European producers are worried

that they have a valid trademark throughout the world for a particular water, and they don’t want to see other producers producing

it.

The CHAIRMAN. You wouldn’t be referring to that wonderful

French water, Perrier, would you, which comes from Perrier,

France, but is trademarked by one French company, so that other

companies in the region of Perrier would not be able to use that

name as a geographical indication? Is that not correct?

Mr. DUDAS. That is correct, and that is an example.

The CHAIRMAN. There is a great deal of hypocrisy here. The gentleman from Minnesota had an additional question.

Mr. PETERSON. Well, I am still a little confused. This discussion

they had about taking these issues to a dispute mechanism in the

WTO, I thought we hadn’t actually agreed to anything here, so

how—I mean, have we given this issue standing by saying that we

think this is a valid issue? I didn’t think we had gotten to that

point yet.

Mr. DUDAS. Well, the current issue is about the extension of geographical indications protection. There is currently in the TRIPS

Agreement protection for geographical indications that the United

States negotiated and is in the TRIPS Agreement.

Mr. PETERSON. But that is only on wine and spirits.

Mr. DUDAS. Well, it actually includes the protection for geographical indications is for any geographical indication. There is a

separate discussion ongoing, so there is already a layer of protection in TRIPS that the United States has agreed to and supports

for geographical indications of all types.

Mr. PETERSON. So that is what puts it on the table, with the

WTO?

Mr. DUDAS. That is what puts in the table, for instance, that

there is a discussion right now, and that there was a request for

formal consultation with the EU for the question of why are U.S.

geographical indications not being protected in Europe.

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Mr. PETERSON. Well, I understand that, but because we agreed

to this TRIPS thing, that gives the Europeans the standing to

bring up all these other issues.

The CHAIRMAN. No. Would the gentleman yield on that point?

What the TRIPS Agreement agreed to was a formal protocol that

goes through our U.S. Patent and Trademark Office to recognize

geographic indications as a trademarkable, under certain circumstances, product. Is that not correct?

Mr. DUDAS. Yes, the current system talks about protection for

geographical indications generally, and the U.S. system handles

that by going through the registration system.

The CHAIRMAN. What is currently being discussed is simply put

on the table in a trade agreement the ability to agree in that trade

agreement that certain indications are to be protected.

Mr. PETERSON. But my question is, and I don’t know who can answer this is, is that we haven’t agreed to that yet, and so how can

that be brought to a dispute mechanism if we haven’t agreed to it?

Mr. DUDAS. That couldn’t be. If there is something we haven’t

agreed to, it can’t be brought to a dispute mechanism. We do have

certain—the U.S. in engaging the European Union in dispute resolution under the existing TRIPS Agreement, and then there we are

talking sometimes in terms of hypotheticals of what kind of dispute

resolution would there be under the EU proposal.

The CHAIRMAN. The new proposal is taking it a whole new realm.

Mr. PETERSON. Yes, right.

The CHAIRMAN. Out of the realm of intellectual property law and

into simply we will trade you this for this.

Mr. PETERSON. But we haven’t agreed to that.

The CHAIRMAN. We have not for specific geographical indications.

We hope that that certainly will not be the case because it will be

very costly for the United States and a great many products made

by very many companies. Are there any other questions of this witness?

Well, Mr. Dudas, we thank you very much.

Mr. DUDAS. Thank you.

The CHAIRMAN. This has been very enlightening, I am sure, to

a great many Members, and it is a very important issue, and an

important element of our trade discussions that is not getting the

kind of attention in the United States that it is in Europe, so we

thank you for the focus that the PTO has placed on this.

And we again thank you for your testimony.

Mr. DUDAS. Thanks, Mr. Chairman.

The CHAIRMAN. We would now like to invite our second panel to

the witness table. Mr. Patrick J. Kole, vice president of legal and

government affairs, Idaho Potato Commission; Mr. Tom Suber,

president, U.S. Dairy Export Council; Ms. Sarah Thorn, director of

international trade, the Grocery Manufacturers Association; Mr.

Michael Pellegrino, vice president of marketing and strategy, Kraft

Cheese Division; Mr. James B. Clawson, on behalf of the Wine Institute; and Mr. Frank Hellwig, senior associate, general counsel,

Anheuser-Busch Companies.

I would like to welcome all of the witnesses today, and point out

to them that their full written statement will be made a part of the

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utes, and we will start with you, Mr. Kole. We are very pleased to

have you with us.

STATEMENT OF PATRICK J. KOLE, VICE PRESIDENT, LEGAL

AND GOVERNMENT AFFAIRS, IDAHO POTATO COMMISSION

Mr. KOLE. Thank you very much, Mr. Chairman, members of the

committee. I appreciate the opportunity to testify here this morning. My name is Patrick Kole. I am assistant to the executive director and vice president for legal and government affairs for the

Idaho Potato Commission. The Commission is a self-governing

State agency of the government of the State of Idaho. It was created in 1937. It is funded by a tax on potatoes. Those taxes over

the last several years have generated over $100 million that have

been used to promote consumer awareness and consumer recognition of the term Idaho potatoes.

Similar programs are in existence in Florida, where they have

spent even a larger amount of money than has been spent in Idaho,

in Georgia, in Wisconsin, in California. Many people recognize the

term California raisins or Virginia ham. These are examples of a

successful utilization of the U.S. trademark system to create recognition through certification marks. More importantly, certification marks, besides creating consumer awareness, operate to create consumer protection and to prevent fraud. This is a very important part of preventing deceptive trade practices.

The heart of the matter that I am testifying about here is the

inherent unfairness that exists between the open, transparent and

rule of law based system present in the United States as opposed

to that which is presented in the European Union. In the European

Union, there is no protection to holders of certification marks like

Idaho potatoes or Florida citrus. We are simply shut out. We cannot register and will not be able to register unless our government

is willing to cave in, and by cave in, what the Europeans are demanding from us is that, under the principle that they call reciprocity, that we agree to create in our system a parallel system to

theirs, and this, we believe, violates the national treatment principle that was negotiated and agreed to by the EU as part of the

TRIPS Agreement.

Their failure to act in good faith to allow our registrations has

produced a corresponding problem for us, and that problem is simply this. We are now aware of at least nine different registrations

for the term Idaho in the European Union. There is nothing that

we can do to prevent these registrations. We are powerless to stop

them. We have spent several thousands of dollars retaining attorneys in France and in England and in Germany, asking them if

there are any steps we could take to stop the use of the term Idaho

by these other companies in Europe. The answer has uniformly

come back no. There is nothing you can do, because in the EU,

membership has its privileges.

Now, I would like to turn to the second point in my testimony

very briefly. This principle of membership having its privileges also

extends to the approach the European Union uses in phytosanitary

matters. For several years, we were able to ship Idaho potatoes to

our commissaries and our military facilities, but when the EU rewrote their regulations in the year 1999/2000, our ability to do so

321

stopped. We cannot, under the United States Government or any

interested party, cannot initiate a review of those phytosanitary

trade barriers. The only person who can do it is a plant health director for an EU member State. Thus, what was once a lucrative

trading opportunity for exports in Idaho potatoes to our military facilities has come to a halt.

In conclusion, Mr. Chairman, members of the committee, we are

here because we have asked the USTR to move forward with this

dispute resolution on the national treatment principle. We hope

that this committee will also urge the USTR to move forward, because the EU should now, at this time, unconditionally and without

hesitation, allow the registration of certification marks within the

EU system.

Thank you very much, Mr. Chairman.

[The prepared statement of Mr. Kole appears at the conclusion

of the hearing.]

The CHAIRMAN. I thank you, Mr. Kole. Mr. Suber.

STATEMENT OF THOMAS M. SUBER, PRESIDENT, U.S. DAIRY

EXPORT COUNCIL

Mr. SUBER. Mr. Chairman, members of the committee.

Thank you for an opportunity to offer my views on the impact of

the proposals regarding geographical indications tabled by the EU

in the World Trade Organization talks.

My name is Tom Suber, and I am president of the U.S. Dairy Export Council, which represents the export trade interests of U.S.

milk producers, dairy cooperatives, proprietary processors and export traders. Today, I am also speaking on behalf of the National

Milk Producers Federation, which represents a vast majority of the

milk producers in the United States.

America’s dairy industry is the country’s second largest agricultural sector, providing a livelihood for 80,000 dairy farmers in

every State of the Union. Dairy’s impact on the economy is substantially compounded by our processors, who turn our milk into

cheese, butter, ice cream and milk powder.

I am here today because our members avidly support substantial

trade reform during the Doha Round along the lines tabled by the

U.S. Government. We would gain much from reforms that create

a harmonized outcome for the so-called three pillars of agricultural

trade. Conversely, U.S. dairy processors and farmers would suffer

greatly from a poor outcome that keeps the present inequities in

world dairy trade. Therefore, we strongly believe that efforts by the

EU to expand the rules pertaining to registering geographic indications for wines and spirits, or protecting existing generic names

under claw back provisions would either collapse the Doha Round

or undermine any benefits that reform of three pillars would bring.

We think the committee should find it especially worrisome that

negotiators are spending any time on this issue, since the subject

lacks a mandate from the Ministerial Declaration that launched

the round.

Mr. Chairman, my written testimony outlines the definition of

GIs, the current role that they have within the WTO, how the EU

proposes to expand WTO member obligations in this area during

the current Doha Round.

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In my oral comments, I will focus on the damage that EU mischief in this area would bring to the U.S. dairy industry. The dairy

industry in the United States clearly had its origins in Europe.

When the citizens of England, Italy, the Netherlands, Greece and

elsewhere in Europe left their native land to become citizens of the

United States, many brought an expertise in their local foods to

their new country. In dairy products, they used the same methods

as in the old country, to produce cheddar, feta, parmesan, mozzarella, gouda, swiss and some of the other cheeses noted on this

table. These were not imitations of the originals. These were faithful renditions by skillful cheese makers. Over time, over many generations, through steady promotion and adherence to quality,

Americans grew into enthusiastic and loyal consumers of these

cheeses which now represent generic categories of cheese.

In fact, U.S. companies so successfully created consumer that

Americans now consume more cheese than any other country in the

world. American consumers understand the nuanced differences

that exist within generic cheese varieties made by different suppliers, whether these suppliers are domestic or foreign. Therefore, for

European negotiators to insist that only their strict interpretations

of GIs can save the consumer from confusion is simply disingenuous. In fact, adopting the EU proposal would itself lead to substantial consumer confusion, as they would no longer be able to recognize the cheeses they have eaten for decades due to the requirement for new descriptors. The result would be less consumption of

a healthful and tasty product. Less consumption would mean substantial losses for the cheese manufacturers of those

disenfranchised varieties and the many dairy farmers who supply

the milk.

A quick survey of small and medium U.S. manufacturing plants

shows that 22 make parmesan and feta. Another 20 or so make

swiss cheese. The effects of disenfranchisement would be substantial in, of course, Wisconsin, but also California, Idaho, Ohio, Illinois, South Dakota, Utah, Iowa and Pennsylvania, just for these

cheese varieties.

My American colleagues and I have frequently asked our counterparts in Europe exactly which cheese varieties they believe require such extraordinary protection. Our motive is to determine if

any common ground exists to seek an agreement. Their lack of

specificity by knowledgeable industry or government leaders leads

us to conclude that their goals are very far-reaching, so far-reaching into cheese products that are so clearly generic that the motive

can only be to force a collapse of the Round, thus leaving Europe

in possession of massive export subsidies and high supports and access barriers, or to create monopolies for their domestic industry

that undermine any trade reform.

When I speak to U.S. industry groups about this EU gambit, it

seems so ridiculous and outlandish that they have trouble believing

the reality of the threat. Mr. Chairman, I hope this committee and

your colleagues do not assume the same. The reality is underscored

by the recent actions of Director-General Supachai, who has created and taken personal leadership of a taskforce to study and provide recommendations on this issue to WTO members. It is possible

and desirable that the Director-General’s action will allow this

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issue to be properly handled under WTO precedents while still allowing movement on key agricultural issues. However, it is also

very possible that EU will remain intransigent on agriculture,

where many nations have required fundamental reforms before

they negotiate on non-ag issues. The Director-General then facing

the prospective collapse of the entire Round, may succumb to the

tremendous pressure and surrender to the European Union.

Mr. Chairman, I respectfully urge this committee to recognize

the substantial damage that would be that result and not let our

U.S. negotiators accept such a decision.

Thank you once again for the opportunity to express my views.

I would be pleased to answer any questions you might have.

[The prepared statement of Mr. Suber appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Suber. Ms. Thorn, we are

pleased to have you with us today.

STATEMENT OF SARAH F. THORN, DIRECTOR OF INTERNATIONAL TRADE, GROCERY MANUFACTURERS OF AMERICA

Ms. THORN. Good morning, Mr. Chairman and members of the

committee. My name is Sarah Thorn, and i am the director for

international trade for the Grocery Manufacturers of America. It is

a pleasure to be here today to offer our views on the impact of EU

proposals in the WTO to increase protections for geographical indications. We are extremely pleased that the committee is investigating this issue since, if realized, these proposals could seriously

harm food manufacturers by forcing us to rename and relabel

many famous brands and could lead to the corruption of trademark

protections that are essential to the continued growth of the U.S.

food industry.

GMA is the world’s largest association of food, beverage and consumer product companies. We represented branded food companies

who rely on trademarks to protect their product names. In many

ways, the brand is the most valuable asset our companies possess.

Brands inspire consumer loyalty because they tell the consumer

something about the product’s quality and consistency. Companies

stake their reputations on the integrity of their brands and invest

heavily to promote and protect their names. Any infringement on

a branded product represents a direct threat to a company’s survival in the marketplace. For these reasons, we are extremely

alarmed by the European Union proposals to repatriate or claw

back many common food names. The products you see displayed

are only a rough sample of the many products that might have to

be relabeled and remarketed to consumers should the EU prevail.

The cost to our industry of this type of undertaking are staggering. For example, the national launch of a new cereal brand in the

United States can run as high as $160 million. Now consider that

the EU proposal would allow 146 countries to protect upwards of

40 names. We would have to multiply the costs on a global basis

and add the expense of educating consumers around the globe

about our new brands. This proposal is nothing short of the expropriation of private rights and must not be allowed to go forward.

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It is important to realize that our concerns go well beyond the

loss of commonly known names. We are equally alarmed if the EU

proposals could lead to the weakening of trademark protections

that are so vital to our companies. Under EU proposals, trade negotiators would be given the ability to pick and choose arbitrarily

which products would be granted globally enforcing naming rights.

Moreover, under the EU’s proposals, preexisting trademarks could

be canceled outright with no legal redress for the trademark holder. We firmly believe that consumer demand in the marketplace

should assign value to products, not political whim.

Any system for the protection of geographical indications must

explicitly protect the fundamental principles of priority and exclusivity of trademark rights. Another basic reason for our resistance

to the EU proposals is that we simply do not trust the Europeans

to play fair on this issue. In the Uruguay Round, the EU held up

the final deal until they were granted higher protections for wines

and spirits. Now, they deem those protections insufficient and are

demanding not only a global registry of all GIs but a list of protected generic products in the agriculture negotiations. We have to

wonder where their demands will end. Will the EU continue to demand greater and greater protections for their products, their production methods, their bottle shapes, their labelers and even their

adjectives on a global scale? Given their limitless ambitions on GIs,

we believe that any concessions towards the EU proposals could

lead to the ultimate fortress Europe for food products.

Mr. Chairman, we are deeply concerned that the EU proposals

on GIs could undermine the benefits we hope to realize from a successful completion of the WTO agriculture negotiations. We believe

that these proposals are a danger not only to food manufacturers,

but to all industries that rely on adequate intellectual property protections to market their products globally. They are also a danger

to many agricultural producers, whose products’ names may originate outside the United States, since many countries wish to protect not only food names but plant varieties, like basmati and jasmine for rice. For these reasons, we believe that the EU proposals

must be firmly rejected at the next Ministerial meeting in Cancun.

WTO agricultural negotiations are too important to be held hostage for the EU’s protectionist agenda. These negotiations should

facilitate trade and increase choice for consumers. The current EU

proposals will do neither.

Finally, we caution that concessions on GIs will only embolden

the EU to again delay progress in the agriculture negotiations until

they achieve all their so-called non-trade concerns, such as precaution and non-science-based labeling, both of which can unravel

fundamental WTO commitments.

Thank you for the opportunity to present our views on this important subject. I would be happy to answer any questions.

[The prepared statement of Ms. Thorn appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Ms. Thorn. Mr. Pellegrino, we are

pleased to have you with us.

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STATEMENT OF MICHAEL P. PELLEGRINO, VICE PRESIDENT

OF MARKETING AND STRATEGY, KRAFT CHEESE DIVISION,

KRAFT FOODS NORTH AMERICA

Mr. PELLEGRINO. Mr. Chairman, members of the committee.

Thank you very much for this opportunity to appear before you

today to discuss the issue of geographic indications. I am Michael

Pellegrino, vice president of marketing and strategy for the Kraft

Cheese Division. With me today is Ms. Jacqueline Leimer, chief

trademark counsel for Kraft Foods.

Kraft is one of the world’s largest producers of parmesan cheese.

Our ability to continue to sell parmesan cheese and other Kraft

products is jeopardized by initiatives being aggressively advanced

by the European Union in the ongoing Doha Round. Although the

EU promises that its list of protected products will be short, it has

yet to identify the specific foods for which it would propose to extent GI protection that now apply to only wines and spirits.

Cheeses and meats invariably are mentioned as two of the food

classes likely to contribute the most candidates. Within the cheese

category, most consider parmesan cheese a prime target. This year,

Kraft will manufacture and market about 60 million pounds of parmesan cheese under the Kraft and DiGiorno brands, absorbing

nearly 1 billion pounds of U.S. produced milk. We also produce and

market Athenos feta cheese and Grey Poupon dijon mustard. Both

of these products could also fall victim. Throughout the U.S. food

industry and across the food industries of the entire Western Hemisphere, scores of food names are vulnerable. If the EU achieves its

stated objective, and if the three products I just mentioned are

among those designated by the EU for GI protection, Kraft would

no longer be permitted to sell parmesan, or feta cheese, or dijon

mustard, using the terms that the U.S. Patent and Trademark Office considers generic in the United States and therefore ineligible

for trademark protection. Parmesan is even a recognized standard

of identity under FDA regulations. WTO rules would supercede national rules and the right to market these products would be reserved to producers in Parma, Italy for parmesan cheese, Greece

for feta cheese and Dijon, France for dijon mustard.

Kraft has been selling parmesan cheese for nearly 60 years. We

have been producing and marketing feta cheese for two decades

and Grey Poupon dijon mustard has been a well-known product in

the United States for well over two decades. Denied use of these

names, Kraft would have to convince each of our consumers that

the Kraft grated cheese being sold under an unfamiliar name is the

same high quality cheese they have been serving for decades as

Kraft parmesan cheese. Ditto for our Athenos feta cheese and Grey

Poupon dijon mustard. Retooling would likely require millions of

dollars in packaging costs and an extensive multimillion dollar

marketing campaign just to preserve existing sales, funds we would

prefer to use to grow demand for our products.

These marketing challenges would not be unique to just Kraft.

Even with major investments in maintaining the parmesan category, there would be significant risk of consumer alienation, either

because they do not hear or do not believe that we are still selling

the same products they have come to trust. Lost sales for Kraft and

others in the industry are likely to be high. The economic loss

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would inevitably ripple through the supply chain and seriously impact manufacturing facilities and dairy farms and the people who

depend on them for their livelihood.

We regard the threat to our business and to those of other food

processors and producers as real, substantial and immediate. After

reaching agreement on the fundamental reforms in the CAP, EU

officials are now insisting on equivalent concessions from other

countries, specifically the United States and Cairns Group’s countries before they will agree to lock these reforms into any WTO

agreement on agriculture.

EU officials have made clear that their list of must-haves includes geographic indications for foods. This is not a Kraft issue

nor just a cheese issue, nor just a food processor issue. Any shrinkage in demand due to consumer confusion or erosion of confidence

will inevitably impact producers. In our case, every pound of lost

sales of parmesan cheese means that 15 pounds of U.S. milk must

find another use, and if the EU succeeds in establishing GI protection for foods, in the future, there could be even larger efforts to

expand that protection to categories much bigger than parmesan,

like cheddar or mozzarella cheese, with even more dramatic consequences for the entire dairy industry.

As a substantial buyer of raw agricultural products and major

processor and marketer of consumer food products, Kraft’s business

is heavily influenced by changes in agricultural and trade policies.

We benefit from the 1995 Uruguay Round of agreements and we

favor continued worldwide reductions in agricultural support and

protection. Kraft strongly endorses efforts to achieve that objective

in the ongoing Doha Round. However, new GI protections for foods

will devalue any progress made in the Doha Round in reducing levels of farm support and protection. The Doha Round should be

about expanding trade opportunities and broadening consumer

choice. The negotiations should not be used to internationalize policies that impede trade and narrow consumer choice.

On behalf of Kraft Foods, I urge the committee to give this critical matter its full attention. At the upcoming Cancun WTO Ministerial Conference, the United States should firmly reject EU efforts to extend GI protections.

Thank you for the opportunity to speak today.

[The prepared statement of Mr. Pellegrino appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Pellegrino. Mr. Clawson, we are

pleased to have you with us from the Wine Institute.

STATEMENT OF JAMES B. CLAWSON, ON BEHALF OF WINE

INSTITUTE

Mr. CLAWSON. Thank you, Mr. Chairman and members of the

committee. My name is Jim Clawson. I am CEO of JBC International and have been the international trade counsel to Wine Institute for about 20 years, and as one of those products that has

been subject to geographic indication regulation over the years, I

want to ask that my written testimony be included in the record

and that I will just speak here briefly, asking the committee a couple of important points.

327

First and foremost, I would ask you to join with all of those that

you hear hearing on the panel today in encouraging USTR and the

administration to oppose, and I mean not just waiting until

Cancun, tell them now, because I think they are trying to cut deals

before they get there. I know that Mr. Zoellick and Mr. Lamy have

been meeting on this issue because the Europeans, as you have

heard, have said this is the single issue that they have to have as

a precondition to negotiating agriculture.

They need to be told now that that is not good. We cannot have

that. We oppose it, for all of the reasons that are in the written

testimonies and that we will go into here, we need to tell the administration now that they must oppose this proposal by the EU,

and the second one we need to do is to encourage them to not feel

that there can be a deal made somehow where you can do half a

loaf. You can give them part of this and not others, because our experience with wine for the past 50 years with the European Union

on geographic indications is that whenever you give them something, it is never enough, and that they then want more and will

go further, and the thing that we find most amusing, and I have

to be careful, I guess, choice of words here, because I am told about

how you say things and how you refer to them, the most recent is

they have protected the term aged 5 years for the use of the Portuguese only, and this is a traditional term that is related to the

geographic indication for port, so while we talked for years, going

back and my days in the Treasury Department in the early 1970’s

about the semi-generic terms for wine, like champagne, burgundy,

chablis, as a type and class for wine, and there have been ongoing

negotiations since the early 1980’s with the Europeans on that

issue, when in reality they don’t want just the use of those geographic terms. They want everything related to it in a marketing

sense. Trademarks, point of sale materials, any kind of type or

class or like, anything related to it they want protected, so this becomes a competition policy issue in many respects.

We don’t look it at that way as in agriculture, but we ought to,

because basically what they are asking to do is to create monopolies, exclusive use for not only GIs but everything related to marketing to a small group of producers in exchange for the elimination of the subsidies that they have received for the past 30, 40

years in their market. They know they are going to have to reduce

those subsidies, but in order to do that, they have to give them

something, and as we are told by the Europeans themselves in

their internal documents, and what we want to give you is market

access to the rest of the world for the exclusive use of your products, be they cheese, meats, wines, spirits, whatever, and so I think

what we are facing here is a very smart, on their part, and a very

calculated plan to substitute one set of subsidies for another, and

that it will not give us greater market access, as the South Africans and the Canadians and others have found when they enter

into these bilateral agreements and then find that the other terms

that they had planned to use for port, they can’t use tawny or ruby,

because they are restricting those as well, so they have no way to

describe the product. Even if you could, as my colleagues have said

here, go through a big campaign to further describe the product,

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they are going to stop that as well, because they really don’t want

your product sold, in the bottom line.

So my message really to the committee today, and I think to others, is that from the history of wine and the experiences we have

been through going back even to the International Intellectual

Property Organization Conventions, the Madrid, the Lisbon, the

Berne, all of those that they have had and TRIPS, which give them

the kind of protection that they deserved, if you will, in an intellectual property sense, it is never enough. They do want to not pay

for the invalidation of trademarks that are owned. There is an estimate that has been done in the United States for our semi-generic

terms alone, and that is their 13 terms that are used on wine, it

is about a $20 billion cost to the industry.

Now if, in fact, you invalidated any of the trademarks that may

have those terms, it is almost incalculable. I mean, we are talking

about the billions of dollars in wine that we are talking about, that

we are looking at, that could result from their proposal in agriculture, when in essence, would mandate the protection for all of

these terms, regardless of whether or not you owned an intellectual

property right in it.

So, in summing up, I would encourage this committee to take the

position strongly opposing the proposals in agriculture for the

WTO, and I thank you for this opportunity.

[The prepared statement of Mr. Clawson appears at the conclusion of the hearing.]

The CHAIRMAN. I thank you, Mr. Clawson. Mr. Hellwig, welcome.

STATEMENT OF FRANK Z. HELLWIG, SENIOR ASSOCIATE

GENERAL COUNSEL, ANHEUSER-BUSCH COMPANIES, INC.

Mr. HELLWIG. Good morning. Mr. Chairman and members of the

committee, I thank you for the opportunity to testify on this very

important subject.

I am Frank Hellwig, senior associate general counsel for Anheuser-Busch. I am charged with the protection of the intellectual

property rights of Anheuser-Busch, including the world-famous

Budweiser trademark. I am an industry advisor to the U.S. Government and an adjunct professor of intellectual property law at

Washington University in St. Louis.

I am here today to describe to you a threat that arises from the

clear preference the European Union gives to geographic indications over trademarks and their efforts to impose their system on

the United States and other countries through the WTO negotiations. If they succeed, they will have changed the core principles

of our intellectual property system and expropriated the

trademarked property of U.S. companies.

We have no problem with the concept of GIs. They are a legitimate form of intellectual property that should be protected like all

other forms of intellectual property. Our problem is that under the

EU proposals, and indeed, under the current regulations, GIs are

treated as superior to other intellectual property rights.

The U.S. trademark protection system is built on the principles

of priority and exclusivity. Priority means that a sign, such as a

trademark or GI that is protected first takes precedence over a

later attempt to protect the same or similar sign. The prior right

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is the superior right. By obtaining priority, the right holder is then

given the right to exclude all third parties from using similar designations. This is the principle of exclusivity, and it is exclusivity

that gives any property right meaning. As Justice Scalia said in

speaking about trademark rights: ‘‘The hallmark of a protected

property interest is the right to exclude others.’’ That is one of the

most essential sticks in the bundle of rights that are commonly

characterized as property.

Exclusivity encourages investment in reputation and quality by

allowing only the trademark owner to enjoy the fruits of his or her

labor. Exclusivity is equally important to consumers by ensuring

that they are not confused about the source of a product bearing

that designation. U.S. law treats trademarks and GIs equally. The

principles of priority and exclusivity apply to both. We believe that

is only fair.

Under the current EU regulations on GIs, by contrast, a GI can

be registered in spite of the fact that it conflicts with an earlier

protected trademark. This later protected GI is then allowed to coexist in the marketplace alongside the same or similar earlier protected trademark, compromising the trademark owner’s right to exclude others from using the same or similar designation. We believe that this regulation violates the WTO TRIPS Agreement and

the USTR has initiated a challenge against this regulation 4 years

ago, which challenge is ongoing today.

This EU regulation is a matter of particular concern to us. We

anticipate that a particular company located in the Czech Republic

will avail itself of this regulation in an effort to protect and use

Budweiser as a GI, even in those EU countries where he, Anheuser-Bush, currently own a registration and where we currently

maintain exclusivity with respect to the Budweiser trademark. The

EU support for coexistence means that despite what is guaranteed

in the TRIPS Agreement, the EU may endorse the Czech company’s efforts to put a beer on the shelf next to ours, both labeled

with Budweiser. This will not be good for Anheuser-Busch, this will

not be good for the consumers, who will undoubtedly be confused.

The Uruguay Round raised the protection for all intellectual

property rights to unprecedented levels. The EU proposals are a retreat from those achievements in that they are seeking to increase

protection for one form of intellectual property, GIs, at the expense

of another, trademarks, which would necessarily result in an expropriation of property rights.

Please understand that any WTO agreement that does not include the concepts of priority and exclusivity means compromising

core principles of our legal and economic system. Expediency at the

expense of property should not be tolerated. To do otherwise would

reverse over a century of progress that has made the trademark

property right one of the pillars of a thriving free trade economy.

In conclusion, we urge the committee to take the following actions. Do not bow to the proposals made by the European Union

to subvert the core principles of priority and exclusivity, which

would be tantamount to endorsing the expropriation of U.S. trademark property rights, and encourage the administration to insist

that the European Union bring its regulations into conformity with

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these principles of priority and exclusivity as required by international law.

Thank you.

[The prepared statement of Mr. Hellwig appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Hellwig. I found recently an article about geographic indications in the Virginia Lawyer magazine,

which indicates the Czech Republic has successfully cancelled Anheuser-Busch’s trademark registrations for Budweiser and Bud in

several European countries, including Austria, France, Germany

and Greece. If the EU position regarding geographic indications

prevails in the WTO negotiations, would the U.S. trademark you

now have be worth anything?

Mr. HELLWIG. Let me begin by saying that as to the United

States and the rest of North America, our rights are secure, and

we are not particularly concerned about losing any rights here in

the United States or in North America, but yes, the trademark

would be worth something, but the value of the brand would be diminished. What we risk is being on the shelf next to an identically

identified product, such as these two products right here. Any time

your trademark appears next to another product labeled the same

way, it is going to lead to confusion in the marketplace. The consumer approaching these two products on the shelves will not know

which one to pick if they are trying to choose the one produced by

Anheuser-Busch.

That, of course, will diminish the value of the trademark, and it

would be determined on a country by country basis where we will

be force to coexist, but it would be a huge blow to the trademark

that would be forced to coexist in such a fashion. The trademark

would be worth something, but it certainly would be diminished.

The CHAIRMAN. Are both of those other beers or one of those

yours?

Mr. HELLWIG. This one is ours.

The CHAIRMAN. OK, got you. I was going to say, because even

from this distance, that one looked remarkably like your standard

label. Now, if geographic indications were allowed to be recognized,

what the European Union is asking for is recognition of those geographic indications worldwide, and if the town in the Czech Republic from which this name emanates were to be successful in getting

that name on such a list worldwide, which obviously, you would

battle and I assume the United States would battle, too, but if we

were to go down that path, wouldn’t there be the ultimate risk that

you could lose the right to use the name altogether?

Mr. HELLWIG. We have two safeguards in that respect, the first

of which is we have a contract with the Czech company. The Czech

company is Budejovicke Budvar from 1939, where they agree not

to use the Budweiser trademark in North America. The second

safeguard is we believe that under U.S. laws, if our trademark was

taken away in any fashion through such an agreement, that it

would be an expropriation of our property and would be against the

U.S. laws and Constitution.

The CHAIRMAN. But you are hanging on by a few legal arguments, not the value of a name that you have built up and the protections of the existing U.S. system, and what you thought was the

331

existing European system. What kind of business does Budweiser

do in France and Germany and Greece and Austria, the countries

that you just referred to?

Mr. HELLWIG. In those countries, we don’t do a huge amount of

business. We do sell in Greece under the Bud trademark. We do

sell in France under the Bud trademark. In Austria, we have been

prohibited from selling under Bud or Budweiser. In Europe as a

whole, however, we have been fairly successful, and we sell about

21⁄2 million barrels of beer every year. This should be compared to

the Czech company’s total exports of about 400,000 barrels. So it

is about 400,000 barrels of export from the Czech Republic, that is

causing us this problem in Europe.

The CHAIRMAN. Thank you very much. Mr. Clawson, I think you

correctly hit the nail on the head with your testimony. The USTR

has indicated, quote its willingness to negotiate on the issue of

phasing out semi-generic names on non-EU wines, like burgundy,

chablis, champagne, within the U.S. regulatory framework. Does

the Wine Institute share this view?

Mr. CLAWSON. Well, we have been in those negotiations since

1998, and the answer is yes, but what we have been seeking is

compensation, as you would in any intellectual property discussion.

We would want compensation from the Europeans for the phaseout of those terms as type and class. To date, there has been no

successful result.

We believe part of the reason for the proposal in the agriculture

is because they are not able to give us the compensation we would

demand, therefore, they want to end-run those negotiations and

put them in agriculture, where they can just make the whole bilateral negotiation over our use of those terms moot, because it would

be, then, a matter of government to government agreeing to eliminate them, regardless of any compensation to the winemakers who

are producing it.

The CHAIRMAN. Thank you very much. We have a series of votes

pending. We are going to stand in recess, and we will resume the

hearing as soon as these series of votes are over.

[Recess]

The CHAIRMAN. The committee will reconvene. Since I am the

only one here, I am going to proceed with some questions. Mr.

Kole, in your view, are U.S. trademark laws adequate to provide

protection from misleading or deceptive uses of the Idaho potato

certifications?

Mr. KOLE. Mr. Chairman, the statutory format of the Lanham

Act is adequate. There are very few court cases that have interpreted the laws relative to certification marks, and so that is always an open issue as to what the courts will do with what Congress has done, but the laws as it is written and the statutory

framework is very good.

The CHAIRMAN. Compared to the circumstances you find yourself

in Europe, where the Europeans are apparently not even honoring

the TRIPS Agreement regarding setting up a mechanism for you to

proceed there, what kind of experience have you encountered in the

United States with the U.S. system?

Mr. KOLE. Generally, it has been very positive, Mr. Chairman.

The laws are clear, they are transparent and they are rule-based,

332

and that provides a marked contrast to the European system,

where you can’t even get in the door.

The CHAIRMAN. Thank you very much. The gentleman from

Texas is with us and we will recognize him.

Mr. STENHOLM. In the United States, legitimate GIs are fully

protected under trademark law, which you have testified each of

you have. There seems to be a lack of consistency worldwide in

having the kind of laws that we enforce here and the agreements

that we have agreed to, so I guess my question, are U.S. trademark

laws adequate to provide protection from misleading or deceptive

use of the trademarks and brand names owned by the companies

or producers you represent, and then, how well protected is your

intellectual property in other countries? Any of you that want to

chime in on that one.

Mr. HELLWIG. The U.S. laws, I think, are extraordinary in terms

of granting us the protection we need to protect the Budweiser

trademark. In terms of other jurisdictions, our trademarks are protected very well in those jurisdictions that appropriately recognize

the principles of priority and exclusivity with respect to trademarks

versus geographic indications. In those jurisdictions where those

principles are not understood or adopted, our trademark rights are

in peril, for example, the European Union does not recognize that

principle in its GI regulation. Consequently, there are risks to our

trademarks there.

Mr. STENHOLM. Anyone else?

Mr. CLAWSON. Yes, I think very similar is that certainly for the

wine folks, the trademarks in the United States and even GIs in

the United States are very well protected and do very well, and I

think it depends—it is spotty, it goes from country to country as

to how well it, and the kind of regime that they have. Some of

them very well, some of them not, and as you saw, we have no GIs

protected for wine in Europe, but we do have trademarks that are

registered and protected in Europe, and that is one of the concerns

is because those trademarks are at peril as a result of this proposal

in agriculture, because should we agree, the EU will then turn

around and invalidate all of those existing U.S. wine trademarks

that are in Europe that have been, many of them, for many years,

from the Mondavis and Kendall-Jacksons, and Wentes and all

those other folks could easily be invalidated if they had something

in their trademark that could be confusingly similar to a GI. Thank

you.

Mr. STENHOLM. For each of you, what is the single most offensive

element of the proposals? Mr. Kole.

Mr. KOLE. Mr. Stenholm, I would say that the effort made to renegotiate what has already been a done deal is the single most offensive part of these proposals that are under consideration.

Mr. SUBER. I would venture that the single most offensive aspect

is trying to claw back generic categories that have existed in this

country for generations and that U.S. companies have created considerable demand for both here and worldwide.

Mr. PELLEGRINO. Kraft’s point of view is it is definitely the claw

back proposal. As I stated in my testimony, we have been marketing parmesan, for example, for over 60 years, and to have to

change the generic name, which you can see clearly is very promiVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00337 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
333

nent on these packages, and come up with a new name and take

our valuable resources and our suppliers’ valuable resources to

educate consumers, we feel is not consistent with what we like to

do in the category, and that is to create innovation and grow demand. This would be to merely protect all of the existing sales that

we have, and again, this product alone represents 1 billion pounds

of U.S. produced milk, and despite what would be a very aggressive

attempt to maintain our current user base, the risk of consumer

alienation on any name change is likely to be great, and that would

ripple through not only our manufacturing facilities, but to the

dairy producers as well. Thank you.

Mr. CLAWSON. It is the claw back and the continual request for

more and more and more. If I can be so bold as to remember your

story about the duck and the sarsaparilla, the wine folks are the

bartender in this case, and the Europeans are the duck that keeps

coming in and asking if we have sarsaparilla, and they are just

really getting to us, and we would nail their feet to the floor if we

could get away with it, because we are just tired of them coming

back, it is just over and over and over again, that they want more.

Mr. HELLWIG. The most offensive portions of the proposals are

those that would give geographic indications prior over existing

trademark property rights, which would result in an expropriation

of those trademark rights. Thank you.

Ms. THORN. If I could just clean up. We are in the middle. We

are offended by the proposal to claw back generics. We are extremely alarmed about the precedent this could set for intellectual

property protections and trademark rights, and I think it is extremely alarming that this is outside the mandate of the Doha Declaration. This is not the subject that was agreed to be negotiated,

and the reason you have a mandate is to limit the agenda so you

can have meaningful reform, and this is just incremental creep and

I am really afraid that if we give on this issue, it is just going to

be one more thing that we are not going to be able to complete the

Round for.

The CHAIRMAN. The gentleman from California, Mr. Dooley.

Mr. DOOLEY. Thank you, Mr. Chairman. Mr. Clawson, I would be

interested in understanding better with the bilateral that the EU

negotiated with Canada, I guess it was on wines and geographical

indicators there. Has that been in place long enough so that we are

understanding what the implications are for California products

going into Canada?

Mr. CLAWSON. It has not. It is new, and this is another of a series of similar bilaterals that the EU has negotiated with Australia,

Chile, South Africa, now Canada, and they are not all the same.

They vary a bit. Some of them are done in the context of a free

trade agreement. Some of them are strictly wine negotiations, and

this is a wine agreement with Canada. A pure reading of the text

when it goes into effect, it has been initialed and it has to now be

ratified by both parties, but when it goes into effect, in 10 years,

would eliminate both for type and class, which is the description

of the wine, and in trademarks, the use of any of their geographic

terms, they being the Europeans, in the Canadian market.

What is unclear, and there has been some discussions and we

have asked these questions directly of the Canadian government

334

authorities and they have not been able to answer, does that only

apply to Canadian producers or does it apply to all third country

imports as well, which would be from the United States, and they

are currently being very vague on that point, because I think they

know that they are certainly under the U.S/Canada Free Trade

Agreement, which is part of NAFTA now, there may be some risk

to them that if they cut off our sales of those products that that

would be a violation of that agreement, so they are being very

vague, and of course, we won’t know until the 10th year if they decide they are going to cut it off or not, so we can continue to sell

there for 10 years, and so this is sort of a disconcerting agreement

in the sense that we would like our government and others, and

they are working on it, this is early days yet, but it has not yet

gone into effect, and the ramifications are not clear, Mr. Dooley.

Mr. DOOLEY. And is the scope of this agreement, for the EU/Canadian agreement, in terms of the geographical indicators as it pertains to wine, I mean, is it, from your assessment, again, is it

something that would cause us great difficulty?

Mr. CLAWSON. Yes, and it is, and to me——

Mr. DOOLEY. Give me an example. Like, are they going as far as

a particular varietal of wine that they are——

Mr. CLAWSON. No, it is not varietal. This is all geographic and

traditional terms related to those geographic indication, and that

is where we are saying as a model, don’t be fooled by this list that

they are talking about that would be their only list in the agricultural talks, because they will come back, for instance, in the traditional expressions, the Canadian agreement says that you can’t call

it port, but you also can’t use the word tawny or ruby on your

label, because those are traditional expressions that relate to port,

so if you are doing champagne, you can’t call it brut or other—I

mean, they want to take away whatever other descriptors you may

have for the product, and I think therein is the great concern, is

that, and that is why I was using the duck analogy, is that they

don’t stop at just their first list. The creep and the continue just

keeps going.

Mr. DOOLEY. What is the motivation for the Canadians to negotiate this agreement?

Mr. CLAWSON. Well, we have wondered about that, since we have

been in discussions with them and they are part of a wine trade

group that we run. Their answer is that they got some market access for their ice wine which they could not get in Europe and is

a product that they think that they can sell in Europe in a significant manner, so that is why they did it.

Mr. DOOLEY. Now, with the negotiations going on with other

major wine-producing countries, Australia and Chile, certainly they

have similar concerns as we would have in the United States, in

terms of how far you go.

Mr. CLAWSON. Oh, they do, and for instance, in the Chilean

agreement, the Chileans have specifically said it only applies to

Chile, the United States could continue to sell product in Chile. We

don’t sell a lot in those countries, but we would continue to sell

with the geographic terms that we currently are using, so they

would not restrict third party imports. They only agreed with the

Europeans that they would stop doing it. That is the same with

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Australia. South Africa, they don’t allow in third parties. They are

like the Canadian.

Mr. DOOLEY. Mr. Kole, on the certificate of origin program, such

as Idaho potatoes, would you be precluded or a retailer be precluded from marketing a product, or potatoes, that Idaho potatoes.

I didn’t quite understand just in terms of what the practical impacts.

Mr. KOLE. A producer is not precluded from doing anything other

than telling the truth, which is it is a genuine Idaho potato means

that it was grown in Idaho, and if it is labeled as such, that would

be correct.

Mr. DOOLEY. And you could still, though, market that in the EU

under those provisions.

Mr. KOLE. If we could gain access to the market, yes, but we are

currently locked out of the market.

Mr. DOOLEY. And that is for, I mean, is that a market access

issue, related to tariffs, quotas, sanitary?

Mr. KOLE. It is twofold, phytosanitary and because we are not a

member state, we cannot petition to put in place mitigation measures to meet their phytosanitary requirements, and then second,

we would be very reluctant in a civil-based system like the EU,

where you could not create a common law certification mark, to

market the product there naked and unprotected.

The CHAIRMAN. To follow up on that, Mr. Kole, and right now,

there are other producers in Europe that are producing under the

name Idaho potato, is that not correct?

Mr. KOLE. We understand that there is a registration for processed potatoes that does include the word Idaho, correct.

The CHAIRMAN. Do you have any questions, the gentleman from

Nebraska? All right, I have a couple more I would like to ask. Mr.

Pellegrino, you referred to equivalent concessions that the EU is

demanding in return for its reform of the EU Common Agriculture

Policy. Do you believe these equivalent concessions include allowing rules on geographical indications to be applied to agricultural

products such as cheeses and meats?

Mr. PELLEGRINO. Yes, and that is our major concern about the

expansion of GIs. As everybody has indicated, the current U.S. Patent and Trademark Office process for GIs, we feel, is a very, very

good process, and to have that as part of the equivalent concessions, we think, would be very bad for the dairy industry as a

whole.

The CHAIRMAN. And I would like to ask both you and Mr. Suber

if you agree with Mr. Clawson’s assessment that basically, what is

going on here is that the Europeans are simply trying to trade one

protectionist scheme that they currently have in place, and then

get another protectionist scheme in its place so that we really

haven’t made any real progress in terms of what we in the United

States consider to be free trade and open markets, which is our

number one complaint with the Europeans today?

Mr. SUBER. I would in fact agree with that, and it goes farther,

because more than simply limiting our export opportunities, it in

fact would radically change our domestic market in a way that the

existing domestic suppliers would be much more damaged without

even the import of more product. They simply would be

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disenfranchised from product descriptors that they can currently

use.

The CHAIRMAN. That is a good point, that really what is behind

this is the very vast U.S. market and if this agreement were to

take hold, not only would we be talking about barriers to the European market, but we would be radically changing our own market

for a whole host of products in which companies have invested a

great deal in the use of various names. Mr. Pellegrino, did you

want to add to that?

Mr. PELLEGRINO. I agree with Mr. Suber. Thank you.

The CHAIRMAN. Ms. Thorn, the EU currently has a system in

place that protects EU geographical indications within the EU. Can

you describe that system, and is there any protection provided to

non-EU products in the EU presently?

Ms. THORN. The EU system is sort of a list-based or a statist approach. They have a list of protected geographical indications. It is

actually interesting how that list was put together, because it was

really put together in a very political way. There is no place in the

EU, for example, called Feta, yet somehow, feta managed to get on

the list through the normal EU political process. We are not allowed, as has been discussed, to register geographical indications

under that system. This is the point that Mr. Kole is being made,

because we don’t have an equivalent system to the EU, or deemed

equivalent system. And I think the point that should be made is

it is governments that protect geographical indications in the EU,

as opposed to under our trademark system, where private actors

have those as private rights and protect those as private actors.

The CHAIRMAN. Thank you very much. I have a closing statement. Does the gentleman from Texas have anything to add?

First of all, I want to thank all of our witnesses who appeared

before the committee today. Your contribution has been very valuable. I would like to include for the record a letter to Ambassador

Zoellick signed by 25 agricultural organizations concerned about

the European Union’s position on geographical indications in the

WTO.

I would also like to include a Washington Post article, which I

don’t have in my possession right at the moment, but we will make

that a part of the record as soon as we can find it.

I would also like to express my deep concern, in fact. All right,

here it is, it is an article dated May 21, 2003, entitled ‘‘Naming

Rights: Is America the Home of the Free but not of the Brie,’’ and

it talks about this from the perspective of a very small dairy producer who produces a number of different types of cheeses on her

farm in Virginia, and the impact that it would have on her ability

to market a wide array of different types of products, very high

quality products, I might add, but which she simply could not use

the traditional names that have become in generic use here in the

United States.

This is of grave concern to me, both from the protectionist standpoint that the European Union is obviously taking with this tactic,

but also from the broader standpoint of the grave damage it will

do to the great success that the United States has had in promoting the protection of intellectual property and from promoting a

rules-based system of protecting intellectual property around the

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world. This is a dagger at the heart of that system because instead

of following a rules-based system, the Europeans simply want to

put these various names and phrases on the trading block and say,

we want to protect these various items. They are worth millions,

hundreds of millions, perhaps billions of dollars to us, and we want

to seize them away, claw them back from the United States, from

other countries around the world, and we might trade you something else from our protectionist system in exchange for that, but

we want to continue protectionism, and the price for that isn’t just

the protectionism. The price is also the rule of law, the importance

of having a rules-based system that should be recognized worldwide that should allow geographic indications, which are a legitimate concern, for companies and communities around the world to

avail themselves of, where it is appropriate, but not where it is inappropriate, not where the name has become so generic that it

can’t be clawed back.

The only protection against that is a rules-based system, which

our U.S. Patent and Trademark Office recognizes. This concludes

the committee’s series of three trade hearings we had in preparation for the committee’s trip to the WTO Ministerial in Cancun,

Mexico in September.

We heard from USTR Ambassador Bob Zoellick and Secretary of

Agriculture Ann Veneman, and we heard from many U.S. agriculture producer and processor organizations about agricultural

trade issues in the WTO.

Additionally, the committee met in executive session three times

for full discussions on agricultural trade matters with Secretary

Veneman, Ambassador Zoellick, Secretary Evans, and USTR Agriculture Ambassador Allen Johnson.

The committee also recently met with WTO Agriculture Chairman Stuart Harbinson. The committee takes these issues very seriously, and we look forward to a positive agricultural agreement in

Cancun. As I have said many times, the committee will travel to

the Cancun Ministerial to be certain that U.S. agriculture is well

represented.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member

of the panel, and this hearing of the House Committee on Agriculture will stand adjourned.

[Whereupon, at 12:28 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF FRANK Z. HELLWIG

Mr. Chairman and members of the committee:

Thank you for providing me with the opportunity to express my views on the effect that proposals by the European Union and other countries in the current round

of World Trade Organization (WTO) negotiations would have on U.S. companies

that hold valuable trademarks on their products around the world.

I am Senior Associate General Counsel of Anheuser-Busch Companies, Inc. Within our General Counsel’s office, I am responsible for Anheuser-Busch’s entire intellectual property portfolio, which includes responsibility for world-wide protection for

the BUDWEISER and other Anheuser-Busch trademarks. I have served in a number of positions in the Government and the private sector that have given me broad

exposure to trademark law, practice and policy. Before joining Anheuser-Busch, I

was a trademark examining attorney in the U.S. Patent and Trademark Office. I

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now serve as a representative on IFAC–3 the U.S. Government’s Industry Functional Advisory Committee on Intellectual Property Rights for Trade Policy Matters.

IFAC have a voice in U.S. trade policy formulation through the Industry Consultations Program, which emerged from the 1974 Trade Act as a way to ensure that

trade negotiators were coordinating with the private sector during trade negotiations. In addition to my duties with Anheuser-Busch and IFAC–3, I am an adjunct

professor of intellectual property at the Washington University School of Law in St.

Louis. Anheuser-Busch is the proud producer of BUDWEISER, the number one selling beer in the world. We employ 24,000 people throughout the United States, and

have invested literally hundreds of millions of dollars to protect the BUDWEISER

trademark and to develop it into one of the most valuable intellectual properties in

the world. If you watch the World Cup, the World Series, the Super Bowl or a myriad of other sporting and entertainment events held world-wide, you know our

brand and its association with Anheuser-Busch. Our trademarks function as they

were intended—they provide a clear link between our company, our products and

our customers.Summary of Position

Geographical indications are used to identify a good as originating in a particular

place where the quality, reputation or other characteristic of the good is essentially

attributable to that place. Under the WTO’s intellectual property rules, WTO Members must provide legal means for interested parties to prevent use of a geographical indication that misleads consumers about the origin of a good.

In the new round of multilateral trade negotiations taking place at the WTO in

Geneva, the European Union has made three proposals that will aggrandize the protection afforded geographical indications under WTO rules at the expense of established trademark rights. Under WTO rules, trademarks are signs capable of distinguishing a good or service of one undertaking from goods or services of other undertakings, and trademark owners are granted the exclusive right to prevent any other

person from using an identical or similar sign in a way that is likely to confuse consumers about the identity of the manufacturer of a good or service.

The first proposal tabled by the European Union calls for the extension to all

products of the absolute protection currently provided by WTO rules to geographical

indications associated with wines and spirits. As a result of E.U. pressure in the

last round of WTO negotiations, WTO rules regarding wine and spirit geographical

indications are particularly strict. Those rules prohibit a company located outside

the geographic area from labeling its product with, for example, a trademark similar

to the geographical indication, even if it is without dispute that the trademark

would not mislead consumers about the origin of the company’s product. The second

proposal calls for a global system for the registration of geographical indications

that, once registered, would enjoy absolute protection world-wide, without regard to

territorial limits. The third proposal seeks to claw back from the public domain

those names that have for many years been declared generic, and are no longer subject to intellectual property protection at all, as well as those names that have been

previously protected as trademarks.

Mr. Chairman, let me be absolutely clear that in my view and the views of my

company, geographical indications are a legitimate form of intellectual property

right due the level of protection provided in the WTO rules. Consistent with those

rules, U.S. law provides rigorous protection for geographical indications, prohibiting

the use, including in a trademark, of a name that misleads the public about the origin of the good bearing that name. What the European Union seeks, however, is

a virtually boundless extension of the current rules. The European Union’s proposals amount to the export of E.U. domestic law, which recognizes the superiority of

geographical indications over trademarks, and which grants absolute, unqualified

protection to geographical indications at the expense of all other forms of intellectual property, including trademarks. Given a number of inconsistencies with the

WTO rules, the U.S. Trade Representative has in fact for some time been pursuing

formal WTO dispute settlement proceedings against the E.U. regime for the protection of geographical indications. Consultations have not resulted in any settlement

acceptable to U.S. interests, and we are hopeful that USTR will soon request the

establishment of a WTO dispute settlement panel to confirm the incompatibility of

the E.U. regime with the TRIPS Agreement.

The E.U. proposals, and its domestic law, are diametrically opposed to the core

principle of U.S. trademark law embodied in WTO rules—the principle of exclusivity

for earlier established rights. This principle, if properly implemented, assures a

property owner—in this case a trademark owner ‘‘quiet, exclusive enjoyment of its

property. If accepted in the WTO negotiations, the E.U. proposals would lead to anything but quiet title. The E.U. proposals would, if accepted in full, lead to the effective confiscation of U.S. companies’’ intellectual property rights—particularly those

trademarks owned by U.S. food and beverage companies. If the European Union

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succeeds with its proposals, U.S. food and beverage companies will find their products excluded from markets worldwide under names they have long used and legitimately protected under trademark law, but that are successfully registered by European producers as geographical indications.

Mr. Chairman, I would like to ask you and the other Members of this Committee

to help ensure that this theft does not occur. I ask that you and the committee urge

the U.S. Trade Representative to seek a consensus in the negotiations in Geneva

that will not sacrifice core principles of private property law, and the core principles

of priority and exclusivity embodied in the U.S. trademark system and WTO law

in the pursuit of a negotiating advantage or a concession in another area.

EXCLUSIVITY OF PRIOR RIGHTS AS THE FUNDAMENTAL PRINCIPLE OF TRADEMARK

PROTECTION

Along with ensuring holders of intellectual property rights non-discriminatory

treatment via national treatment and most-favored-nation clauses, the WTO’s landmark Agreement on Trade-Related Aspects of Intellectual Property Rights—the

TRIPS Agreement—sets minimum standards for the protection of intellectual property rights in all WTO Member countries. The TRIPS Agreement was negotiated in

the last round of multilateral trade negotiations—the Uruguay Round—and took effect for most WTO Members on January 1, 1996.

With respect to trademark law, the TRIPS Agreement largely exported to other

WTO Members what had already been U.S. law for nearly a century. This important

accomplishment means that U.S. companies are now entitled to the same treatment

for their non-U.S. trademarks that they and foreign companies have long enjoyed

for their U.S. trademarks. U.S. trademark law, like the TRIPS Agreement, is built

on the fundamental pillars of priority and exclusivity.

Under Article 16.1 of the TRIPS Agreement, [t]he owner of a registered trademark shall have the exclusive right to prevent all third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods

or services which are identical with or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion. The

core feature of a trademark, therefore, like that of private property rights generally,

is the right of the owner to prevent all third parties from using the protected property. In trademark law, the prohibited use is defined as the use of any confusingly

similar sign in the course of trade for identical or similar goods or services.

As Justice Scalia has stated:

The hallmark of a protected property interest is the right to exclude others.

That is one of the most essential sticks in the bundle of rights that are commonly

characterized as property . . . interests notably, its provisions dealing with infringement of trademarks, which are the property of the owner because he can exclude

others from using them.

In short, the value of the right to use is the attendant right to exclude. It should

be noted that the hostility to trademark rights reflected in the European Union’s

proposals for the WTO negotiations put forward by the European Commission is not

the uniform view in Europe from either a legal or a policy perspective. Advocate

General Jacobs, arguing before the European Court of Justice in 1990, reinforced

the importance of exclusivity to trademark rights in stating that:

[a] trademark can only fulfil that role if it is exclusive. Once the proprietor is

forced to share the mark with the competitor, he loses control over the goodwill associated with the mark. The reputation of his own goods will be harmed if the competitor sells inferior goods. From the consumers point of view, equally undesirable

consequences will ensue, because the clarity of the signal transmitted by the trademark will be impaired. The consumer will be confused and misled.

Clearly, as will be more fully explained below, the European Commission is not

pursuing the proper and orderly development of intellectual property law. Rather,

they are pursuing additional barriers to trade to protect their own domestic producers in the agricultural sector.

The rights of priority and exclusivity granted to a trademark owner are not only

indispensable for the proper functioning of a trademark system; it is also an expression of the fundamental right to private property embodied in the U.S. Constitution

and other nations’ constitutional systems. The intellectual property right in a trademark is just as exclusive as any tangible property right would be. This is no less

so in the European Union than it is in the United States. Article 17(2) of the 2000

European Charta of Fundamental Rights states, quite simply, that ‘‘Intellectual

Property shall be protected.’’ The very essence of a private property right is that

it grants the legal possibility to exclude others from its use.

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PROTECTION OF GEOGRAPHICAL INDICATIONS

More than any other type of intellectual property, the protection of geographical

indications has been improved exceptionally by virtue of the TRIPS Agreement.

While the principles of trademark law I discussed earlier pre-date the TRIPS Agreement by over a century, a comprehensive, global system encompassing minimum

standards of protection for geographical indications did not exist until the 1996 effective date of the TRIPS Agreement. Both the Paris Convention and the 1891 Madrid Agreement on False Designations of Origin deal with the protection of geographical indications, but only in a limited sense. While the Lisbon Agreement for

the Protection of Appellations of Origin and their International Registration offers

a broader scope of protection than the TRIPS Agreement, it suffers from limited

membership.Protection for geographical indications was similarly limited on the national level. Geographical indications were protected through a patchwork of bilateral agreements, sui generis registration systems, certification or collective trademark protection, unfair competition laws, labelling laws and the like.

The TRIPS Agreement dramatically altered the landscape. Article 22.1 of the

TRIPS Agreement defines geographical indications as indications which identify a

good as originating in the territory of a member or region or locality in that territory

where a given quality, reputation or other characteristic of the good is essentially

attributable to is geographical origin. Under Article 22.3, geographical indications

that meet this definition are protected against misleading use. The provision reads

as follows:

A Member shall, ex officio, if its legislation so permits or at the request of an interested party, refuse or invalidate the registration of a trademark which contains

or consists of a geographical indication with respect to goods not originating in the

territory indicated, if use of the indications in the trademark for such goods in that

Member is of such a nature as to mislead the public as to the true place of origin.

While this protection is broad, it is restricted by the concept of territoriality.

Under Article 22.3, whether a competing use is misleading must be separately assessed in each country in which it is alleged that consumers are misled by the use

of a designation similar or identical to the geographical indication at issue. While

a particular designation may qualify as a geographical indication in its country of

origin, it may well be a generic term in another country. If consumers perceive the

designation as generic, they will not see it as an indication of the geographical origin of the product at issue. As a result, they will not be misled about the origin

of the product. Likewise, if the designation is protected and perceived by consumers

as a trademark, it will be seen as a reference to the manufacturer and not to the

geographical origin of the product.

The United States protects geographical indications and trademarks in the same

manner. A geographical indication can be registered with the U.S. Patent and

Trademark Office in the form of a collective or certification trademark. Certification

marks specifically include those to certify that goods or services originate in a specific geographic region. As a result of intense lobbying by the European Union during the Uruguay Round, the TRIPS Agreement provides special, heightened protection for geographical indications for wines and spirits. Under Article 23.1 of the

TRIPS Agreement, geographical indications for wines and spirits are not only protected against misleading use, but are also secured against any use for products not

originating in the place indicated by the geographical indication, even if the true

origin of the goods is indicated, the geographical indication is used in translation,

or is accompanied by expressions such as kind, type, style or indication. The registration of a trademark for wines or spirits that contains or consists of a geographical indication must be refused or invalidated unless the wines or spirits bearing that

trademark originate in the place indicated by the geographical indication. In practical terms, this protection is absolute.

CONFLICTS BETWEEN TRADEMARKS AND GEOGRAPHICAL INDICATIONS

The TRIPS Agreement specifically addressed one of the issues that had stood in

the way of the further development of protection for geographical indications; namely, how to treat conflicts between geographical indications and other intellectual

property rights, particularly trademarks. As the first multilateral agreement tackling both kinds of intellectual property rights at the same time, the TRIPS Agreement struck a delicately calibrated balance between geographical indications and

trademarks, granting priority and exclusivity to the earlier of the two rights on a

country-by-country basis.

With respect to geographical indications not related to wine and spirits, this balance is recorded in Articles 22.3 and 24.5 of the TRIPS Agreement. You will recall

my earlier description of Article 22.3, which provides for the invalidation of (or reVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00345 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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fusal to register) a trademark that contains or consists of a geographical indication,

and is misleading with respect to the origin of the product. Determining whether

consumers will be misled is necessarily a country-by-country inquiry. For wine and

spirit geographical indications, protection is absolute a trademark for wines or spirits that contains or consists of a geographical indication must be refused or invalidated unless the wines or spirits bearing that trademark originate in the place indicated by the geographical indication, even if the true origin of the goods is indicated

and consumers are not misled.

Article 24.5 of the TRIPS Agreement provides grounds on which to restrict the

scope of protection for geographical indications otherwise granted by the TRIPS

Agreement. Under Article 24.5, a law adopted by a WTO Member to implement the

geographical indications section of the TRIPS Agreement may not prejudice eligibility for or the validity of the registration of a trademark, or the right to use a

trademark, on the basis that such trademark is identical with or similar to a geographical indication. This protection applies as long as the trademark was acquired

in good faith either before the effective date of the TRIPS Agreement, or before the

geographical indication at issue was protected in its country of origin. This so-called

grandfather clause prevents a WTO Member from prejudicing trademark rights in

all situations in which a trademark is identical with or similar to a geographical

indication, whether or not the trademark is misleading as to geographical origin.

As I discussed earlier, under U.S. law, trademarks and geographical indications

are protected in the same manner, which makes dealing with conflicts between two

individual rights quite straightforward. Under the principle of priority and exclusivity, an earlier-filed trademark or geographical indication gives those who own the

trademark or have the right to use the geographical indication the right to prevent

others from registering or using a similar or identical sign. This principle applies

for all geographical indications, whether or not related to wines and spirits.

The situation in the European Union is very different, and raises particular concern for trademark holders like Anheuser-Busch. The European Union’s system explicitly makes rights associated with geographical indications superior to trademark

rights. For example, under the E.U. wine regulation, a trademark can be invalidated

if it is found to be confusingly similar with a geographical indication, even if the

geographical indication is not first-in-time. In other words, the trademark would

have to be expunged from the register and its use would be enjoined despite the

fact that it had been validly registered, in good faith, before the geographical indication. Mr. Chairman, this is nothing short of expropriation, and the E.U. regulation

does not provide for any compensation. The European Union has exported this concept, forcing it on its trading partners in bilateral trade agreements.

Under the E.U. regulation regarding geographical indications for agricultural

products and foodstuffs, trademark rights are also compromised. Under this regulation, earlier-filed trademarks are forced to co-exist with geographical indications

that are later-filed and later-registered.

This is a matter of particular concern to Anheuser-Busch. Based on the protocol

setting out the terms for accession by the Czech Republic to the European Union

in March 2004, we understand that a Czech brewery from the Czech city of Ceske

Budejovice will once the Czech Republic accedes to the European Union and has at

its disposal the E.U.’s geographical indications regime likely try to avail itself of the

Regulation and begin using Budweiser even in those jurisdictions where AnheuserBusch currently enjoys exclusivity with respect to the Budweiser trademark. Although Anheuser-Busch has pre-existing, exclusive trademark rights in many E.U.

member states covering this terms, the E.U. regulation would force our trademarks

to co-exist with the Czech geographical indication. This means that despite what is

guaranteed in the TRIPS Agreement, Anheuser-Busch would not be able to halt the

Czech brewery from putting its product on the shelf next to our own, both bearing

the words ‘‘Budweiser.’’ This is not ‘‘co-existence’’ but ‘‘non-existence’’ from the perspective of the trademark owner as the exclusive right to exclude use that gives rise

to a likelihood of confusion would be lost.

This situation is intolerable, as it undermines the value of our trademarks, and

the fundamental principles of priority and exclusivity. It allows the Czech company

to free ride on the reputation of our brand, and to mislead consumers about the

identity and the qualities of the product it brings to market. This amounts to confiscation of the rights hard fought in the Uruguay Round and guaranteed by the

TRIPS Agreement.

We have tried to resolve this matter for a number of years, both directly, in negotiations with the European Commission, and with the assistance of the U.S. Government, through USTR and the Patent and Trademark Office. What we are seeking

is very simple. We want to maintain the existing trademark rights we have in Europe and any other WTO Member and a fair chance to obtain more, and to prevent

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a situation in which our trademarks will be forced to ‘‘co-exist’’ with rights that are

later acquired by the Czech brewery.

As simple, straight forward and fair as this concept is, I am unable to report to

you that any progress has been made. The U.S. Trade Representative has been pursuing formal WTO dispute settlement proceedings against the E.U. regime, given

this and other inconsistencies of the E.U. regulation with the TRIPS Agreement.

Consultations have not resulted in any settlement on acceptable terms, and we are

now at a crossroads. We are hopeful that USTR will soon request the establishment

of a WTO dispute settlement panel to confirm the incompatibility of the E.U. regime

with the TRIPS Agreement. Taking this step should be a central part of the United

States’ strategy to undermine the European Union’s bullying tactics on geographical

indications in the WTO negotiations.

THE EUROPEAN UNION’S FLAWED PROPOSALS

As this WTO dispute demonstrates, when it comes to bringing its domestic geographical indications regime into conformity with obligations currently imposed by

the TRIPS Agreement, the European Union does not have its own house in order.

Nonetheless, the European Union has the audacity to demand from its trading partners new concessions on the geographical indications front, launching an aggressive

campaign to further aggrandize geographical indications at the expense of the core

principles of trademark rights—priority and exclusivity—that I addressed earlier in

my statement.

Extension. The European Union’s first proposal calls for the extension to all products of the absolute protection currently provided by WTO rules to geographical indications associated with wines and spirits. You will recall that under Article 23 of

the TRIPS Agreement, the rules regarding wine and spirit geographical indications

are particularly strict, as a direct result of E.U. demands made during the Uruguay

Round. Article 23 prohibits a company located outside the geographic area from labeling its product with, for example, a trademark similar to the geographical indication, even if it is without dispute that the trademark would not mislead consumers

about the origin of the company’s product. The European Union’s so-called extension

proposal calls for this same treatment to be extended to all products.

The impact on trademark holders and users of generic terms is potentially enormous. Owners of earlier-in-time trademarks registered or established in good faith

could face outright confiscation of their property rights, laying waste to the principle

of exclusivity addressed earlier in my statement. Long-time users of generic names

the examples most often used involve names for cheeses could find their products

excluded from markets under those names.

Apart from these costs are costs to consumer welfare. Although the European

Union justifies its extension proposal as necessary to ensure that consumers know

the true origin of the product they are buying, its proposal will in fact harm consumer welfare. Extending the heightened geographical indication protection associated with wines and spirits to all products will restrict the ability of trademark

owners and users of generic terms to sell their products under names that they have

developed into well known brands or that they have long used as the common name

for such goods, which will ultimately limit consumer choice and create additional

barriers to trade.

All of these costs, and for what benefit? While the E.U. proposal heralds the benefits to consumer welfare, under the current protection afforded geographical indications not associated with wines and spirits, trademarks that are misleading with respect to origin must be refused registration or invalidated. As long as consumers

are protected against misleading indications of origin for a product, what added benefit do they achieve from protection against indications that are not misleading with

respect to the origin of a product?

Unlike the multilateral system for wine and spirit geographical indications, which

I will discuss momentarily, there is no mandate from the WTO Membership whatsoever to negotiate on the extension issue. At the last meeting of WTO Ministerial

meeting in November, 2001 in Doha, Qatar, trade ministers agreed to submit the

extension question to discussion in the WTO’s TRIPS Council. The European Union

has recently parlayed these discussions into open-ended consultations facilitated by

WTO Director General Supachai. Unlike other issues such as trade and investment

that linger in WTO working groups for years or decades before securing a negotiating mandate, the European Union is doing its best to bully WTO Members into accepting a mandate to negotiation extension immediately following the upcoming

WTO ministerial meeting scheduled for September 10–14 in Cancλn.

In the weeks that remain before the ministerial meeting, and at the meeting

itself, we need the U.S. Government to remain vigilant, and to prevent trade minVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00347 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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isters, looking for ways to salvage the negotiations and emerge from Cancλn with

some success, from reaching an unacceptable compromise that will sacrifice the ability of U.S. food and beverage companies to continue to use names that they have

long used and legitimately protected under trademark law or used as the common

or generic term for goods.

Multilateral system. The European Union’s second proposal concerns the establishment of a multilateral notification and registration system for geographical indications associated with wine and spirits. Establishment of a multilateral system is

called for by Article 23.4 of the TRIPS Agreement, and is legitimately the subject

of a negotiating mandate, currently being carried out by WTO Members in a special

session of the WTO’s TRIPS Council. While the negotiations are limited to a system

for wine and spirit geographical indications, the reality is that if the European

Union succeeds in securing the extension to other products of the heightened protection currently associated with wine and spirit geographical indications, whatever

system is established will in future also apply to products other than wine and spirits. The stakes, therefore, are very high.

Three main proposals have emerged. On one end of the spectrum is the U.S.-led

proposal, which suggests the establishment of a non-binding system to which WTO

Members can elect to notify their geographical indications. The WTO would collect

and maintain the multilateral system, basically as a source of information for WTO

Members. The U.S.-led proposal would encourage WTO Members to refer to the

database when taking a decision on the registrability or validity of a trademark or

the enforcement of the geographical indication. The advantage of the U.S.-led proposal is that it would leave enforcement to each WTO Member and its court system.

Under this proposal, U.S. trademark owners, for example, would retain the right to

argue before a U.S. court that a geographical indication contained in the WTO database does not meet the requirements for protection, is generic, or conflicts with a

prior trademark.

On the other end of the spectrum is the E.U.-led proposal. The E.U. proposal essentially holds out its domestic geographical indication regulation as a model for the

WTO, and calls for a full multilateral registration system that would result in indefinite protection for registered geographical indications. Under the E.U. proposal,

when a WTO Member notifies a geographical indication to the WTO, other Members

will have 18 months to challenge and oppose registration for four reasons: (i) that

the term does not meet the definition of geographical indication included in Article

22.1 of the TRIPS Agreement; (ii) that the indication is not protected as a geographical indication in its country of origin; (iii) that the indication is generic; or

(iv) that use of the geographical indication would be misleading with respect to origin.

The E.U. proposal suffers from three major flaws. First, registration of a notified

geographical indication cannot be opposed on grounds that it is identical or similar

to an earlier-established trademark. In this respect, the E.U. proposal undermines

altogether the core principle of trademark law addressed earlier in my statement

exclusivity.

Second, oppositions can only be made by WTO Members, and not by individual

users of generic terms or prior trademarks. This necessarily limits recourse to such

oppositions to those individuals and organizations that have the wherewithal and

resources to work through the U.S. Government to initiate and maintain such an

opposition proceeding. Such oppositions should be left to the affected parties individuals or organizations to pursue directly rather than through the intermediary of a

government agency.

Third, the E.U. proposal affords no opportunity to challenge registration in national courts under national laws that memorialize WTO Members’ sovereign rights

to set their own specific requirements with respect to eligibility, validity and enforcement of intellectual property rights. To put it simply, the European Union

would require a WTO Member to accept and protect any geographical indication entered in a global registry, even if consumers in that Member’s territory make absolutely no connection between a particular product and its place of origin.

The third proposal was recently submitted by Hong Kong. While this proposal

would accord geographical indications registered at the WTO a presumption of validity, it would permit rebuttal of that presumption in proceedings before a WTO

Member’s national courts. This aspect of the proposal is an important feature that

is absent from the E.U. proposal, since it leaves to national courts and national laws

the decision whether a geographical indication is misleading, or constitutes a generic term.

A major flaw in Hong Kong’s proposal, however, and one reason that it is simply

not an acceptable compromise, is its failure to state whether a prior trademark enjoys the exclusivity guaranteed by Article 16.1 of the TRIPS Agreement, or instead

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could be forced to co-exist a later-in-time geographical indication at the national

level. Without a clear rejection of co-existence, this proposal cannot be accepted by

U.S. negotiators.

For all of these reasons, I ask the committee to help us ensure that the negotiations taking place in Geneva go no further than the U.S. proposal for a non-binding

system that leaves judgments regarding the validity of trademarks and the generic

status of particular names to individual WTO Members and their courts. The U.S.

proposal acknowledges the benefits of a multilateral system, but preserves the balance between trademarks, geographical indications and generic terms set out in the

TRIPS Agreement.

Claw back. In its third and final proposal, the European Union seeks to claw back

for use by its own agricultural producers certain geographical indication names that

it considers have been usurped by producers that have been using those names for

products not originating in the places indicated by the geographical indication. The

E.U. proposal would claw back these names even where they are currently considered generic, or are the subject of trademark protection. More specifically, the European Union proposes, in the context of the WTO agriculture negotiations, to establish a list of geographical indications that would be exclusively reserved to the agricultural products originating in the place indicated by the geographical indication

in question. According to the European Union, this proposal is complementary to the

proposals it has made in the TRIPS negotiations, and is intended to guarantee fair

market access opportunities to those wines, spirits and other agricultural and foodstuff products whose quality, reputation or other characteristics are essentially attributable to their geographical origin and traditional know-how.

Once again, this proposal undermines the principles of priority and exclusivity of

trademark protection that I introduced earlier in my statement. The proposal undermines the principles of priority and exclusivity by effecting the ultimate breach invalidating otherwise valid trademarks altogether. There is no clearer example of a

taking of property without compensation prohibited by the U.S. Constitution. Moreover, the E.U. proposal replaces a WTO Member’s judgment about the validity of

a trademark right with the judgment of a market access negotiator sitting at a table

in Geneva. This is not acceptable.

Mr. Chairman, I cannot overstate how inappropriate it is for a discussion regarding the confiscation of established private property rights to proceed as a market

access issue in the WTO agriculture negotiations. Any attempt to negotiate market

access rights to the use of a specific designation that involves invalidating a prior

third party trademark right must, at the very least, involve negotiations with the

trademark owner. It should also involve a more careful consideration of the implications to intellectual property norms and constitutional protections of property rights

in the U.S. and around the world. Were the implications of the E.U. proposal not

so serious, I would be tempted to disregard the proposal itself as foolhardy. But the

implications are very serious indeed, Mr. Chairman, and I ask that you and the administration act with force and resolve to defeat yet one more attempt by the European Union to effect confiscations of U.S. companies private intellectual property

rights.

The European Union has tabled three bold proposals that will, if accepted in the

WTO negotiations, upset the carefully calibrated balance between trademarks and

geographical indications achieved in the TRIPS Agreement, and in so doing lead to

the wholesale confiscation of U.S. companies private property rights. To bully its

trading partners into accepting these proposals, E.U. officials have expressly hinged

concessions in other areas of the WTO negotiations (namely, rules regarding trade

in agriculture) to success on the European Union’s geographical indications agenda.

The European Union is, therefore, calling for a compromise. Please understand

that this compromise is nothing short of a surrender of the fundamental property

rights that are at the heart of our Constitution, laws, and economic system. The

Uruguay Round achieved unprecedented levels of protection for private property

rights on a global scale. The E.U. proposals call for a retreat from those achievements. As importantly, they are an assault on our legal system, the result of which

would be no less than a confiscation of property rights. Let us not unknowingly

make that sacrifice.

The Committee’s interest in and concern about these developments in the WTO

negotiations is encouraging. As we move toward the September 10–14 meeting of

WTO Members’ trade ministers in Cancλn, we are entering an important period in

the negotiations. Any guidance this Committee is able to offer the Office of the U.S.

Trade Representative as it confronts E.U. demands regarding geographical indications will be critical to U.S. companies, like Anheuser-Busch, with global trademark

interests.

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Mr. Chairman and members of the committee, thank you for the opportunity to

express my views. I would be pleased to answer any questions you have.

STATEMENT OF SARAH THORN

Good morning, Mr. Chairman and members of the committee. My name is Sarah

Thorn and I am the Director for International Trade at the Grocery Manufacturers

of America (GMA). It is a pleasure to be here today to offer our views on the implications of EU proposals in the World Trade Organization (WTO) to enhance the protections for geographical indications (GI). New negotiations on geographical indications have the potential to undermine potential gains in the WTO agriculture negotiations and could have far reaching negative economic implications for farmers and

food manufacturers alike. As such, GMA would like to thank the committee for convening this very timely hearing, given that the GI issue is likely to be heavily debated at the upcoming WTO Ministerial in Cancun.

GMA is the world’s largest association of food, beverage and consumer product companies. With U.S. sales of more than $500 billion, GMA members employ more

than 2.5 million workers in all 50 states. The organization applies legal, scientific

and political expertise from its member companies to vital food, nutrition and public

policy issues affecting the industry. Led by a board of 42 Chief Executive Officers,

GMA speaks for food and consumer product manufacturers at the state, Federal and

international levels on legislative and regulatory issues. The association also leads

efforts to increase productivity, efficiency and growth in the food, beverage and consumer products industry.

Overview of GMA Position on Geographical Indications. GMA is opposed to any

new negotiations on enhanced protections for geographical indications. We are

alarmed by European Union (EU) proposals to enhance protections in the Trade Related Aspects of Intellectual Property Rights (TRIPS) Council and to repatriate

names of commonly used generic products in the WTO Agriculture Negotiations. We

believe that these proposals, if accepted, will undermine trademark protections and

lead to the expropriation of brand name products with no commensurate compensation. Furthermore, EU proposals represent an attempt to overhaul intellectual property rights and obligations, and will have far reaching consequences on all sectors

that rely on adequate intellectual property protections to market their products

globally.

Importance of Brands to the Food Industry. In many ways, brand names are the

most valuable assets that food manufacturers possess. Brand names are a critical

marketing tool for companies since they inspire consumer loyalty by conveying the

quality, consistency and reputation of a product. As such, consumers will pay a premium for branded products and companies continually make significant investments

to build and protect their brands. Manufacturers rely on trademarks to protect these

brands against copies or confusingly similar names that may diminish the value of

these brands. These trademarks are clearly a private right of companies who are

responsible for defending their rights against any abuse or fraud. In fact, many

GMA members that are now large multinational companies owe a significant part

of their success and growth to the adequate protection of their trademarked brands

around the world.

Globalization of the Food Industry. It is important to recognize that food is, and

has always been, a product of multicultural influences. For example, the first American immigrants brought with them the technical knowledge of how to make many

of the foods they enjoyed in their home countries. Naturally, they named these products and the land around them after familiar names and places. Over time these

products have evolved and have become part of our cultural fabric and, not surprisingly, many brands have been developed around these foods. Today, our industry

is still evolving and changing to meet the needs of increasingly diverse consumers

and a global marketplace. U.S. demographics have changed significantly in the last

century with many Hispanic and other ethnic groups growing in size and economic

purchasing power. The food industry has responded to this demand and has tailored

new products to the diverse tastes of the new American consumer. For example, we

now see a variety of products such as frozen tacos and enchiladas and even

guacamole flavored potato chips that were not in the market twenty years ago. As

in the past, many of the new products we offer have their antecedents outside of

the United States. However, they will be made and marketed in a way that clearly

identifies them as unique branded products. It is just this kind of innovation that

could be stifled by EU demands for new protections for geographical indications.

Definition of Geographical Indications. Geographical indications are defined in the

WTO as indications which identify a good as originating in the territory of a MemVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00350 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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ber, or a region or locality in that territory, where a given quality, reputation or

other characteristic of the good is essentially attributable to its geographic origin.

The TRIPS agreement obligates member countries to protect GIs such that they

cannot be used in a manner that deceives or misleads consumers as to the true origin of a good, or that is contrary to honest practices in industrial or commercial

matters.

Wines and spirits, however, are offered higher levels of protection than GIs for

other products. Under this higher level of protection, any use by a third party of

a wine or spirit GI belonging to another is prohibited, even if the true origin of the

good is demonstrated (e.g. New York State Bordeaux). The use of ’kind’, ’type’,

’style’, ’imitation’ or other such words or translations of the GIs is also prohibited.

For example, in many countries it is not permitted to call sparkling white wine

‘‘champagne-style.’’

The TRIPS Agreement contains important exceptions that are fundamental to

maintaining the territorial nature of the application of TRIPS commitments. Article

24 (6) of the TRIPS does not require that a WTO member extend protection to a

GI if it is a generic name for a product in the Member State. For example, in the

United States, dijon is used to refer to any sort of spicy brown mustard and as such

is a generic term for a type of mustard. In addition, the TRIPS Agreement, under

Article 24 (5), provides an exception or grandfathering clause for a trademark that

may be identical or similar to a geographical indication if the trademark has been

used in good faith either before the implementation of the TRIPS Agreement or before the GI was protected in the country of origin. Under the existing TRIPS Agreement, individual member states retain the ability to determine whether a product

is generic or whether a trademark may exist that would preclude GI registration.

This is a fundamental concept as it has allowed member states to develop unique

systems for GI registration that are compatible with domestic laws.

EU Proposals on Geographical Indications. Several countries, led by the EU, have

asserted that the higher level of protections afforded to wines and spirits must now

be granted to other food products as well. In addition, they have coupled their demands for new protections with the mandated negotiations on a new system of notification and registration of geographical indications for wines and spirits. The EU

and their allies have submitted expansionist proposals for this system and wish, in

effect, to create a multilateral register or list of names with legally binding effect

on all Member States. Although the system is meant to be limited to the notification

of GIs for wines and spirits, the EU has also now stated that the system must be

open to all geographical indications.

In the WTO Agriculture Negotiations, the EU is demanding absolute protection

for GIs regardless of whether these products are currently generic (e.g.; feta, parmesan, dijon mustard, etc.) or whether there is an existing trademark on the product. They have proposed to create a list of products that are protected by all WTO

Member States that would be subject to dispute settlement procedures if they were

used unfairly. In essence, the EU is proposing to have the exclusive right to make,

market and distribute products that have long been produced in many countries

around the world, and have never been protected as GIs in those countries. In so

doing, they are essentially proposing to override the existing TRIPS commitments

by invalidating the critical exceptions for generic and trademarked products.

GMA Views on EU Proposals. Agriculture Negotiations. Perhaps the most alarming of all the EU ambitions is their proposal to claw back and terminate the use

of generic names for food products outside of Europe. If the EU is successful, GMA

companies would have to re-package, re-brand and re-market products on a global

scale for which they created the current market value. The costs of this type of proposal to our industry are staggering. While the cost of a brand roll-out depends very

much on the product and the market, generally, however, the national launch of a

new cereal brand can run as high as $160 million, spent over about 18 months to

two years. A new mustard roll-out, which has a more limited audience than a cereal,

can run from $5 million to as much as $30 million. These figures are based on national averages in the U.S. market. Imagine the costs to our companies that have

global brands at risk. We believe that the EU is simply too late to the game to demand protections for products that we, and many other countries, have used without interruption for hundreds of years. If these products were so important to their

producers, it was incumbent upon them to protect these names before they became

part of the general lexicon for food products.

The EU proposal is, in its most basic form, a proposal to expropriate or confiscate

the private property of many food companies. Although the EU has yet to publish

their list, EU producers have made it clear they wish to repatriate terms like parmesan, feta, and many other cheese, wine and beer products. As noted above, many

GMA member companies have built successful global brands around these same

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products. The products are no longer geographical indications as they do not indicate the source of a product and are thought of by consumers as a type or style of

cheese or meat. Rather, they are the private intellectual property rights of manufactures that should not and cannot be treated as public goods for agriculture negotiators to trade away in favor of concessions in other areas.

GMA could not be more steadfast in our opposition to this proposal. In fact, the

very idea of a global list of protected geographical indications raises serious concerns

about the consistency of protection for all intellectual property rights. No such legally binding, WTO-sanctioned list exists for trademarks, patents, copyrights or

other forms of intellectual property rights. We urge negotiators to consider the ramifications that such an imbalance of rights will create as a precedent for future negotiations. Will developing countries insist on a list of genetic resources that must be

considered the property of indigenous people? Should copyrights be eliminated so

that all countries can have easy access to literature and entertainment and ease of

technology transfer? Intellectual property rights are limited monopolies that exist

for a valid reason, so that innovation and technical achievement are encouraged and

rewarded. We are extremely concerned that the EU proposal for geographical indications could be the first step to unraveling these important and necessary protections.

On a practical level, the idea of a list of protected product names also presents

enormous difficulties. First, would all Member States be granted an equal number

of protected products? In an organization of 146 members, even a small list of protected products would grow to an unmanageable size very quickly. Second, many

countries now employ the argument that there is an imbalance in the TRIPS protections for wines and spirits and that all products should benefit from equal treatment. A new list of protected products would create yet another, higher level of protections in the hierarchy of GI commitments. It is highly likely, therefore, that there

will be new demands to increase the list to afford all products equal protections in

subsequent negotiations. Finally, we believe it is inappropriate for politicians to pick

and choose arbitrarily which products should benefit from this type of protection.

Consumer demand in the marketplace not political whim should assign value to

products.

Given the EU’s seemingly insatiable demands for GI protections, we are skeptical

that they will be satisfied with a small list of products. We can all but guarantee

that they will hold the next round of negotiations hostage in return for an expansion

in their list of protected products. It is likely that they will also demand that traditional expressions and the method of production of their products (slicing and packaging) also be protected. To this end, we believe that creation of any kind of list

is an enormous concession that should not be granted merely for political expediency

in the heat of the next Ministerial.

Article 23 Negotiations and the Multilateral Register. GMA is equally concerned

about proposals in the TRIPS Council to extend the enhanced protections for wines

and spirits (Article 23 protections) to other products and to open up any future multilateral register on geographical indications to all products. As noted above, the EU

proposal would create a binding list of registered products that would have the presumption of legal effect in all WTO member countries. This type of registry naturally raises similar concerns to those expressed above relating to an exclusive list

of protected products in the agriculture negotiations. Furthermore, this type of system will clearly limit our ability to use the existing exceptions to the TRIPS Agreement for generics and trademarked products in third country markets.

Our opposition to Article 23 extension to products other than wines and spirits

is further reinforced as a result of our experiences with the implementation of existing TRIPS commitments in the EU. Specifically, we are concerned that the EU has

interpreted existing TRIPs commitments to mean that geographical indications

should be superior to trademarks regardless of when the GI was first protected or

indeed invented. According to this interpretation, a GI created or protected later in

time than a trademark could invalidate that trademark on a global basis. Food companies have absolutely no way of knowing whether there is a small town, region,

township or village somewhere producing something that just might resemble a

branded product. A key trademark might be cancelled or be forced to coexist with

a geographical indication at some future date because the new product resembles

the established brand. Once trademark holders are forced to share their rights, the

value of that trademark diminishes as copies may be allowed that compete for market share on the back of the trademark holder’s established reputation.

It sounds extreme, but trademark piracy has indeed happened in the past to GMA

member companies and easily could happen again. To illustrate, let’s suppose a company invents a new fruit drink called Nice and invests billions of dollars to promote

it. Under the EU system, a manufacturer in the city of Nice, France could produce

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a similar juice and sue to cancel the trademark of the branded Nice juice product.

Such trademark violation is absolutely contrary to current practice and would stifle

innovation in the food industry. In a world where food is produced to meet the needs

of multicultural societies, food manufacturers must have the ability to innovate to

meet the needs of ever changing consumer demands.

We find it hypocritical for the EU to advance proposals seeking new TRIPS commitments, since their domestic GI laws are inconsistent with existing TRIPs requirements. For example, U.S. GI holders are unable to register their GIs in the

EU which is a violation of the national treatment principle enshrined in the GATT

and TRIPS. New rules should not be negotiated until existing commitments are adequately implemented and enforced.

Existing TRIPS Commitments are Sufficient. Our resistance to the EU proposals

further stems from the fact that they have yet to explain adequately why the existing levels of protections for geographical indications are insufficient. What is often

overlooked in the WTO discussions is that the U.S. and many other countries

around the world already have systems in place that offer excellent protections for

geographical indications. For example, in the United States many EU GIs such as

STILTON, PARMIGIANO-REGGIANO and ROQUEFORT are granted protections

through the U.S. certification and collective mark system. This system is transparent and fair, and is open to all producers equally, unlike the EU system.

The EU and other smaller producers have argued that this system is too costly

and cumbersome to meet the demands of small farmers and producers. They note

that their producers simply do not have the resources to defend their certification

marks against misuse and, therefore, they need the absolute protection only a global

list or registry can provide. We would counter that there is nothing that precludes

a government from applying for and defending a certification mark on behalf of its

producers. Instead of requiring all governments to protect certain select GIs, interested governments might simply be encouraged to assist their smaller producers in

obtaining protections that exist today. In this manner, a new system is not necessary, just assistance to smaller producers to utilize existing systems.

Conclusion. The EU’s insistence on new negotiations on geographical indications

is a blatant expansion of the Doha mandate. In Doha, the EU refused to accept the

agriculture text until they were granted concessions on many controversial subjects,

such as the relationship between Multilateral Environmental Agreements and the

WTO, environmental labeling, and commitments on future consideration of new

rules on competition policy and investment. At the time, they justified these demands as necessary to ensure balance in the WTO negotiations. The resulting Doha

Declaration was a careful compromise that included major concessions by the U.S.

and our allies. The EU now wishes to override this agreement and has stated that

they wish to be paid up front with concessions on GIs before they will begin to negotiate on the agriculture negotiations. We believe it is self-defeating to continually

give concessions to the EU just to get them to the negotiating table on agriculture.

We caution that concessions on geographical indications will only embolden the EU

to again delay progress in agriculture until they achieve all their non-trade concerns

such as precaution and non-science based mandatory labeling.

The current discussion in the WTO over expansion of new commitments on geographical indications is a serious issue with broad implications for both food and agricultural products. Decisions taken with respect to food products could have enormous consequences for all agricultural products. Currently, due to the vague nature

of the definition for geographical indications, many countries are arguing for increased protections for kinds of rice (jasmine and basmati), tea (celon) and other

plant and animal varieties. If the demandeurs are successful, it is possible that commonly used names for beef cattle (Angus), apples (fuji, gala) and other recognized

plant and animal names could be the subject of expropriation by foreign producers.

Geographical indications are the ultimate slippery slope of trade negotiations and

must be resisted so that food and agriculture producers can enjoy the promised benefits of agricultural liberalization.

GMA is a strong supporter of the WTO Agriculture Negotiations and the broader

Doha Development Agenda. We believe that trade liberalization will lead to a more

reliable, diverse, safe and affordable food supply for all consumers. The current proposals on geographical indications could undermine these potential gains since they

would allow bureaucrats to decide arbitrarily which manufacturers will be granted

economic benefits. We believe that the best system for the protection of geographical

indications is one that is equitable and transparent and allows for the market to

work efficiently. For these reasons we strongly urge our negotiators to continue to

resist calls for EU-style protections for GIs and to promote a fair system that facilitates the protection of all intellectual property rights.

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Thank you for the opportunity to present our views this morning. I would be

happy to answer any questions.

STATEMENT OF JON W. DUDAS

Chairman Goodlatte, Ranking Member Stenholm, and Members of the committee:

Thank you for this opportunity to testify today on an important type of intellectual property known as geographical indications. As you know, certain of our trading partners at the World Trade Organization are calling for the immediate termination of U.S. usage of commonly known food terms such as Feta, Parmesan, Burgundy, Chablis, Champagne and Bologna.

While hardly a household term, geographical indications have been the subject of

a number of articles in publications ranging from the Wall Street Journal to the

Dallas Morning News. This growing attention is fitting, given that geographical indications are a key feature on many agricultural and food product labels and are

valuable business interests that play an integral role in promoting U.S. trade and

consumer awareness. The heightened publicity is also warranted in light of the efforts underway by some of our trading partners in the World Trade Organization

(WTO) to undermine these valuable intellectual property rights by treating geographical indications solely as trade interests and ignoring intellectual property

principles. Such efforts, if successful, would seriously impact our domestic producers, consumers, and trademark owners. In short, the subject of today’s hearing is

particularly timely, and I commend the committee for focusing attention on this important matter.

A geographical indication (GI) is a sign used to indicate the regional origin of particular goods or services. The WTO’s 1994 Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPs Agreement) defines GIs as indications which

identify a good as originating in the territory of a Member, or a region or locality

in that territory, where a given quality, reputation or other characteristic of the

good is essentially attributable to its geographic origin. GIs are not just place

names: they are signs that indicate to consumers some important characteristic of

the goods or services that is attributable to their geographic origin. Examples of geographical indications from the United States include Florida for oranges, Idaho for

potatoes, Washington State for apples, and NAPA for wine.

The United States protects geographical indications through our trademark system because, like trademarks, GIs are source-identifiers, indicators of quality, and

business interests. As with trademarks, geographical indications are eligible for relief from acts of infringement and unfair competition.

At the international level, GIs fall under the purview of the TRIPs Agreement.

The TRIPs Agreement establishes the minimum standards for the protection of geographical indications within WTO Member countries. The TRIPs Agreement and,

thus, the TRIPs GI standards, are the result of trade negotiations during the Uruguay Round. In other words, the provisions and exceptions contained in the text

were part of an overall package of balanced trade decisions—an appropriate give

and take.

The TRIPs Agreement requires WTO Members to provide the legal means for interested parties to prevent the use of a GI that: (1) indicates or suggests that a good

originates in a geographical area other than the true place of origin in a manner

which misleads the public as to the geographical origin of the good; or (2) constitutes

an act of unfair competition.

Because some European countries wanted a higher level of protection for geographical indications for wines and spirits, a provision was negotiated in TRIPs that

requires WTO Members to provide the legal means for interested parties to prevent

the use of GIs for wines and spirits that do not originate in the place indicated by

the GI, even if the public would not be deceived by its use.

The United States agreed to the European demands for this provision for wines

and spirits because the TRIPs Agreement includes exceptions which protect our industries. For example, the TRIPs text contains an exception that protects U.S. wine

and spirits producers who use generic terms to describe their goods. TRIPs does not

require that a WTO Member extend protection to a GI if that GI is the generic

name for the goods in the Member. For example, in the U.S. the word Chablis is

often used to refer to various types of white wine. Since Chablis is a generic term

in the U.S., we can continue to permit use of word CHABLIS as a synonym for

white wine. Similarly, Champagne is considered a generic term and in the U.S.

means any light-colored wine with bubbles.

In addition to exceptions for using generic terms, the TRIPs Agreement offers important protections for U.S. trademark owners who use and/or register marks in

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good faith, in the instance that a trademark happens to conflict with a geographical

indication. A trademark that has been used or registered in good faith in one jurisdiction cannot be preempted by a later established GI that conflicts with the trademark. In fact, the later in time geographical indication cannot even be used if it

conflicts with an earlier-established, good faith trademark. For U.S. producers, this

means French cheese producers do not have a basis to cancel U.S. trademarks that

contain terms protected in France merely because the goods do not come from

France.

Geographical indications are well understood in the United States because we protect GIs through our trademark system as certification or collective marks, which

are types of trademarks. Because the trademark system is well understood and well

established, we have a successful systematic approach to protecting geographical indications, allowing domestic parties, foreign parties, governments, and even individuals the legal means for creating, maintaining, asserting, defending and challenging

rights in GIs. That understanding is not shared worldwide. There is very little international consensus on the appropriate framework of protection for GIs. While the

TRIPs Agreement sets out minimum standards, it does not dictate the system that

WTO Members must implement to protect GIs.

In the absence of consensus, some WTO Members are attempting to advance a

framework of protection that would deprive U.S. producers, trademark owners and

consumers of the benefits negotiated in the TRIPs Agreement in 1994. For example,

within the WTO at the TRIPs Council meetings and at the WTO Agriculture Committee negotiations, the European Union (EU) is demanding exclusive use for EU

producers of certain commonly used wine terms such as BURGUNDY, PORT and

CHABLIS. The EU is claiming that these common wine terms are GIs and are misleading on any wine that does not originate from the EU in the area named. Other

like-minded countries are also advancing this so-called claw back agenda. Furthermore, those attempting to undercut U.S. interests by renegotiating the obligations

in the TRIPs Agreement are arguably not fulfilling their current obligations under

TRIPs.

In the ongoing U.S. EU wine negotiations, the U.S. government is working closely

with our wine industry to reach a negotiated settlement that would adequately compensate U.S. wineries in return for voluntarily giving up the use of generic wine

terms the EU claims as its own. Compensation could include adequate protection

for U.S. geographical indications, as well as mutual acceptance of U.S. winemaking

practices, reductions to EU wine tariffs and subsidies, and the removal of market

restrictive EU certification and labeling requirements. To allow U.S. companies time

to adjust, any eventual phase out of generic wine terms would take years to complete.

Disposition of the geographical indications issue is part of the Doha Development

Agenda, on which Ministers will focus in September at the WTO Ministerial in

Cancun, Mexico. At the Cancun meeting, the EU will likely call for worldwide termination of certain generic terms to describe food and wine unless those products come

from a specific geographic region in Europe. If the EU is successful, use of generic

terms which could include feta and gorgonzola for cheese and port and sherry for

wine terms now considered generic in many WTO member nations and not just in

the U.S.—would be prohibited in the U.S. and in all of our export markets.

Quite simply, the United States may be facing demands to give away our WTO

entitlements in exchange for nothing. For example, from an intellectual property

perspective, it is unclear that those requesting claw back at the WTO and in bilateral negotiations are offering any protection for U.S. geographical indications. We

are particularly concerned because U.S. GI owners appear to face systematic discrimination in the EU. Significantly, not one U.S. geographical indication is currently protected in the EU under the EU’s Agriculture Regulation. The United

States has requested consultations in the WTO over this issue alleging,—among

other things,—that EU regulations appear to be inconsistent with the national

treatment and MFN provisions of the GATT. Just as troublesome is the fact that

U.S. trademarks, such as Budweiser and Bud, are being subject to termination in

various Member States of the European Communities because the EU believes that

Budweiser and Bud are geographical indications for beer from the Czech Republic.

In contrast, the United States provides robust protection for geographical indications, whether of domestic or foreign origin. Examples of GIs protected under the

U.S. certification mark system include: Banshu Somen for noodles from Japan; Colombian for coffee from Colombia; DARJEELING for tea from India; Jamaica Blue

Mountain, for coffee from Jamaica; Parma for ham from Italy; ParmigianoReggianO for cheese from Italy; Roquefort for cheese from France; and Swiss for

chocolate from Switzerland.

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It appears that the EU is asking the U.S. Government, U.S. producers, and U.S.

consumers to subsidize EU producers through this claw back of generic terms so

that EU producers can charge monopoly prices for their products. Why should U.S.

consumers subsidize EU producers? We see no basis for our producers, trademark

owners, and consumers to be asked to stop the use of generic terms. And what system that promotes fairness for trademarks and geographical indications is being

proposed by the European Union to protect our trademarks and GIs abroad?

Mr. Chairman, the United States is deeply concerned by the efforts by the EU

and others to substantially restructure the standards for protecting intellectual

property rights in geographical indications. I am hopeful that today’s hearing will

shed much-needed light on the EU’s proposal and, in so doing, help preserve strong

and equitable protection for geographical indications and trademarks in the U.S.

and throughout the world.

STATEMENT OF PATRICK J. KOLE

Good morning, Mr. Chairman, Committee members, distinguished members and

guests. Thank you for the opportunity to appear here today. My name is Patrick

Kole. I am the Assistant to the Executive Director of the Idaho Potato Commission,

and Vice President for Legal and Governmental Affairs.

The Idaho Potato Commission is a self-governing agency of the government of the

State of Idaho. It was created in 1937. Some of the important purposes of the IPC

are to set grade and quality standards for Idaho potatoes, to promote the sale of

Idaho potatoes, and to protect consumers by making sure that only genuine Idaho

potatoes are put in Idaholabeled bags. Other similar programs are in place throughout the nation. These include programs operated by the Florida Department of Citrus and the Vidalia Onion Committee in the State of Georgia.

An essential component of these programs is to create customer awareness of the

commodity in question. Florida and Idaho have been quite successful in this effort.

So have many other programs. It is not unusual for consumers to associate cheese

with Wisconsin, ham with Virginia, raisins with California, and so on. These positive connections are the result of the hard work of many people, including the dedicated growers, shippers and processors working through commodity groups over the

past sixty years. These agencies have worked hard to insure that quality standards

set for their products are met, for products uniquely associated with their states

often have standards that are set higher than those minimally required by other

bodies.

An important common bond exists between these commodity groups. This bond is

the registration and use of ‘‘certification marks,’’ as provided for in the Lanham Act.

Specifically, section 4 of the Lanham Act, 15 U.S.C. §1054, permits the registration

of certification marks that indicate regional origin. Registration is an important tool

that provides access to statutory remedies. These remedies provide additional clout

in the effort made by holders of certification marks to prevent product substitution,

misrepresentation and fraud.

The hearing today concerns Geographic Indications (GI’s), Trademarks, Certification Marks, and the ongoing discussions concerning agricultural policy in the

Doha Round of the WTO Member States negotiations. Other witnesses have provided the committee with definitions for each of the above terms, and of the status

of the WTO negotiations as the September 2003, Cancun, Mexico session nears. So

my testimony will instead focus on the substantive problems faced by Idaho Potato

Growers in particular, and other U.S. agricultural producers in general, when they

seek protection for their important intellectual property rights. I will describe the

inherent unfairness that results from the special treatment given to EU nationals

by the European community who can obtain protection for their GI’s in both the EU

and other countries, while no protection is given to U.S. agricultural producers in

the EU. This disparity in treatment we believe is in violation of the national treatment principle of the WTO TRIPs Agreement.

My testimony is about how the EU’s approach of protecting GI’s is in stark contrast to the certification mark system that is in use in the U.S. and other countries.

In most countries, the certification mark system used is an open and transparent

registration system accessible to all, whether they are citizens of the particular

country where protection is sought or not. The EU system, however, is not accessible

to non-EU nationals upon the same terms as an EU national. Instead, it requires

all non-EU countries to have in place a system for the protection of EU GI’s identical to that of the EU before it will grant access to the EU registration system. Secondly, I will point out how the practice of limiting non-EU nationals access to the

EU registration system and only allowing EU member states to take certain actions

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has been extended into the phytosanitary arena. This limitation has been used to

create a trade barrier preventing the import of U.S. potatoes into the EU, and in

fact, is even preventing U.S. potatoes from being shipped to our military facilities

in the EU.

The Idaho Potato Commission has diligently followed the international trade in

Idaho potatoes. Where the product has gone, we have sought, and largely succeeded,

in registering the word Idaho when used with potatoes, and the Grown in Idaho

logo. Canada, Mexico, Japan, Korea and Great Britain are just a few of the countries where protection has been achieved for the Idaho certification marks. These

countries, unlike the EU, have allowed the Idaho Potato Commission to register its

marks within their national systems for the protection of intellectual property

rights. They have afforded the same protection to us as they have to their own citizens. We register our marks in these other countries because there are exciting opportunities opening up in the international arena for potato products. In the EU, for

example, we have been contacted by interested parties who would like to use a

baked Idaho potato as part of a western steak house type of dining format. Other

parties in the EU have expressed interest in using the unique potatoes we grow in

Idaho for fresh cut French fries. We believe that there is a real opportunity for a

niche to be filled in the EU with Idaho potatoes. We also register our marks to protect our hard-earned reputation and to prevent others from trading on that reputation to our detriment. For example, the Idaho Potato Commission has encountered

infringement problems in South Africa, Great Britain and Thailand, just to mention

a few.

While we have been able to obtain registration and protection for our certification

marks in the U.S. and many other countries, the picture is much different in the

EU. To initiate any kind of application for GI protection in the EU, two general avenues are provided. The first path is for EU nationals, and nationals from those

countries that are in the process of becoming members of the EU. The second venue

is for everyone else, which includes Idaho potato producers and other U.S. agricultural producers.

The path for EU nationals begins with an application to a Member States competent authority in which the national seeking protection is located. Following review, the application is forwarded to the European Commission for further review.

If accepted, the application is published in the Official Journal of the Commission.

A direct opposition procedure to the registration is only available to EU Member

States. Private parties must file opposition papers with the European Commission

that are sent to the Member State, who then forward the opposition on to the European Commission after examination by the competent authority of the Member

State. This process is not available to non-EU members.

This second avenue to protection for a GI is founded upon the principle of reciprocity. This is the path that a U.S. agricultural producer would have to follow in

order to obtain protection in the EU. What reciprocity means, at the simplest level,

is that for a U.S. GI to become protected in the EU, the U.S. government must be

willing to negotiate a bilateral treaty with the EU. But it is not just any sort of

treaty that must be negotiated. Rather, the treaty must pass the muster of the EU:

the treaty needs to show that the country seeking GI protection for its nationals has

essentially adopted the EU system for protecting GI’s. This puts the EU in the position of evaluating the laws of another WTO member, and then making a determination that their system for protecting GI’s is reciprocal to the laws of the EU. In

short, protection of GI’s for non-EU nationals is premised on reciprocity, not equal

treatment. Reciprocity is anathema to national treatment obligations. To condition

enjoyment of intellectual property protection by nationals of one WTO member by

requiring that member’s laws be the equivalent to its own violates the national

treatment obligations set forth in the TRIPs agreement.

Let me put this in plain terms. In order for the Idaho Potato Commission to obtain protection for its certification marks in the EU, it would have to convince the

U.S. government to negotiate a bilateral treaty with the EU. That treaty would require the U.S. government to adopt the equivalent of the EU system for the protection of GI’s. The existing U.S. certification mark system is not, in the view of the

EU, sufficient. In short, there is no way for U.S. agricultural producers to register

and protect their certification marks given the current impasse.

While holders of certification marks in the U.S. have been unable to file and obtain protection in the EU, EU organizations have freely availed themselves of the

ability to register their GI’s in this country. As a result, they have enjoyed the benefits that come with registration: access to the U.S. court system and the enhanced

statutory protections afforded to a registrant under the Lanham Act. The ability to

back up a cease and desist letter with a viable promise to initiate court proceedings

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is a powerful tool. But even a registration alone can, in this day of due diligence

and pre-use searching, head off infringement upon one’s intellectual property rights.

In the meantime, what has happened across the Atlantic Ocean in the EU? We

are aware of at least ten registrations in the EU for the word Idaho, two as Community Marks, and eight registrations with the French Trademark Office. The Idaho

Potato Commission tried to register its marks in France. After considerable time

and expense, we were only permitted a trademark registration. That registration,

however, specifically excluded potatoes. We have also looked into registering our certification marks within the Community Trademark Office. Further, the attorneys we

have retained in the EU to investigate and advise us of any recourse that might

be available to us have all reached the same conclusion: the EU system has simply

shut us out. We are powerless to protect our name in the EU, but EU nationals are

free to register and use our name.

The second point of my testimony is to show how the violation of the national

treatment principle has extended into phytosanitary trade-related issues, thereby

ending fresh potato exports from the U.S. to the EU. According to USDA APHIS

reports provided to the National Potato Council, when the EU harmonized its plant

legislation pursuant to 2000/29/EEC, a procedure was put in place requiring a special derogation to be initiated before the EU will allow U.S. potatoes into Europe.

This is also required for U.S. military facilities. The derogation is essentially a work

plan that sets forth mitigation measures in order to insure unwanted pests from entering into the EU. However, only Member State plant directors can bring this up

for consideration. Like GI’s, membership has its privileges.

My final point concerns the reports that there is a trade-off under discussion as

part of the upcoming negotiations in Cancun, Mexico. The EU would reform its programs of subsidies to agriculture in exchange for enhanced protection of GI’s. The

Idaho Potato Commission would urge this Committee, and our negotiators, to view

any such proposal with extreme caution. Trade barriers are multi-tiered, deeply

imbedded and almost impossible to negotiate away. When unrelated concepts like

agriculture reforms get linked to GI’s, the intended result of fair and free trade can

be thwarted by other impediments, like the phytosanitary procedure outlined above.

It is far better to deal with each issue on its own merits.

There are productive discussions underway, that, given the impetus of this Committee, and a willingness of those who have intellectual property rights, whether

GI’s, certification marks or trade marks, that can lead to a fair and equitable resolution of this matter. A good starting point that should require no negotiation is this:

The EU should allow U.S. certification mark holders to register their marks immediately and unconditionally.

The points that have been presented today identify issues of broad concern. They

also provide the framework for a solution to the conflicts raised by all of the various

stakeholders in this debate. We, of course, are willing to work with all interested

persons and organizations and would welcome any questions or suggestions that

they or this Committee may have.

STATEMENT OF MICHAEL PELLEGRINO

Mr. Chairman, members of the committee, I am Michael Pellegrino, Vice President of Marketing & Strategy, Kraft Cheese Division of Kraft Foods North America.

With me today is Ms. Jacqueline Leimer, Chief Trademark Counsel for Kraft Foods.

She is also Executive Vice President, International Trademark Association, although

she is here today on behalf of Kraft, not INTA.

Thank you for inviting me to appear before you to discuss an initiative in the ongoing Doha Round of multilateral trade negotiations to extend to foods the geographic indication protections that were established exclusively for wines and spirits

in the Uruguay Round. This is an issue of vital importance—not only to my company, but also to many other U.S. food manufacturers and to thousands of American

farmers who supply high quality raw materials to the U.S. food processing industry.

Even though the operations of my company are directly and continually affected

by policies developed in this room, our appearances before this Committee are relatively infrequent. Accordingly, a few words to familiarize you with the scope of

Kraft’s activities may be appropriate: Kraft Foods Inc., a proud member of the Altria

family of companies, is celebrating its one hundredth anniversary this year, tracing

its origin back to the days when James L. Kraft rented a horse and wagon and

started selling cheese in Chicago. The company launched and built by J. L. Kraft

is now the largest branded food company in the U.S. and the second largest in the

world. With annual sales of $30 billion last year, our products are sold in more than

145 countries around the world.

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Kraft products can be found in 99 percent of American households. In addition

to our flagship cheese brands, we take pride in producing and marketing many

other popular foods, including Ritz crackers, Post cereals, Maxwell House coffee,

DiGiorno pizza, Oreo cookies, Planters nuts, and Oscar Mayer meat products.

Kraft buys $7 billion worth of agricultural commodities annually. We are one of

the world’s largest buyers of dairy products, sugar, meats, coffee, oils, and nuts. We

also purchase large quantities of wheat, rice, corn, and soy and other crops.

One reason we are here today is that Kraft is one of the world’s largest producers

of parmesan cheese. We believe that our ability to continue to sell parmesan cheese

(and other Kraft products) may be at risk due to an initiative being aggressively

advanced by the European Union (EU) in the ongoing Doha Round of multilateral

trade negotiations conducted under the auspices of the World Trade Organization

(WTO).

This issue was summarized well in a recent Wall Street Journal article: Over the

centuries, Europe has given the world some of its favorite foods. Now the Continent

wants the names of many of them back. If European negotiators at the World Trade

Organization get their way, numerous food names associated with specific regions,

from the United Kingdom’s cheddar cheese to the Czech Republic’s pilsner beer to

Italy’s balsamic vinegar, will be reserved exclusively for companies located there.

With a number of developing countries following the EU’s lead, that could mean

that hundreds if not thousands of products could have to be renamed when they are

made in places like the U.S. and Australia.

The EU promises that its list of protected products will be short. However, it has

yet to identify the specific items for which it would propose to extend WTO geographic indication protections, notwithstanding media speculation. Cheeses and

meats invariably are mentioned as two of the food classes likely to contribute the

most candidates. Within the cheese category, most consider parmesan cheese to be

a prime target. Over the past several months, we have watched with growing concern as parmesan cheese has become the unofficial poster child in the debate surrounding EU efforts to extend to foods the higher level of geographic indication (GI)

protection established in the Uruguay Round for wines and spirits.

This year, Kraft will manufacture and market over 60 million pounds of parmesan

cheese, under the Kraft and DiGiorno brands—made from nearly a billion pounds

of U.S.-produced milk. We also produce and market Athenos feta cheese and Grey

Poupon dijon mustard two other very popular products valued for their authentic

flavors. Both of these products could also become victims if the Doha Round results

in an agreement to extend the GI protections that now apply only to wines and spirits to foods. Throughout the U.S. food industry, and across the food industries of

the entire Western Hemisphere, scores of food names are similarly vulnerable.

If the EU achieves its stated objective—and if the three products I have mentioned earlier are among those designated by the EU for geographic protection—

Kraft would no longer be permitted to sell parmesan or feta cheese or dijon mustard

using terms that the U.S. Patent and Trademark Office considers generic in the

U.S. and, therefore, ineligible for trademark protection. Parmesan is even a recognized standard of identity under FDA regulations. Under the EU proposal, WTO

rules would supersede national rules, and the right to market these products would

be reserved to producers in Parma, Italy (for parmesan cheese); Greece (for feta

cheese); and Dijon, France (for dijon mustard).

Kraft is very concerned that it would be prohibited from using terms that are integral to the identity of brands we have been building for decades. Our company

has been selling parmesan cheese for nearly sixty years, winning favor with generations of consumers. We have been producing and marketing feta cheese in the

United States for two decades. Grey Poupon dijon mustard has been a well-known

product in the U.S. market for more than two decades.

If Kraft no longer has access to our long-standing product names, it will be faced

with the prospect of convincing each of our consumers that the Kraft grated cheese

being sold under a new and unfamiliar name is the same high quality cheese that

has been served in their household for decades as Kraft parmensan cheese. The

same would be true for our Athenos feta cheese and Grey Poupon dijon mustard

brands. This would likely require millions of dollars in packaging costs and an extensive and multi-million dollar marketing campaign just to preserve, rather than

grow, our existing level of sales. Consumers will be confronted with new and unfamiliar names at the grocery shelves, and Kraft and others in the industry would

have to spend huge sums just to educate them that only the words on the package

have changed. We would be expending funds that could be better used for other important purposes, such as building further dairy product consumption. Once again,

these marketing challenges are unlikely to be unique to Kraft.

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Even with this investment in maintaining the parmesan category, we believe it

is likely that there would be a significant risk of alienating our consumers, either

because they do not hear or do not believe that we are still selling the same products they know and trust. This would almost certainly result in lost sales for Kraft

and others in the industry. This would inevitably ripple through the supply chain

and have a serous impact on manufacturing facilities and dairy farms, and the people who depend on them for their livelihood.

We regard the threat to our businesses, and to those of other U.S. and other nonEU food processors and producers, as real, substantial, and immediate. In the aftermath of the June 26 announcement that EU agriculture ministers had reached painful agreement on fundamental reforms in the EU’s Common Agricultural Policy, EU

officials have made it clear that they will insist on equivalent concessions from other

countries specifically the U.S. and the Cairns Group countries—before they will

agree to lock these reforms into any WTO agreement on agriculture. The Washington Post reported on July 7, 2003, that At a meeting in Palermo, Italy, ministers

of the 15-nation EU agreed to call for the United States to limit its own farm subsidies, criticized commodity monopolies on wheat, dairy and sugar trade in Canada,

New Zealand and Australia, and argued that World Trade Organization rules protecting wine and spirits should be extended to all other agricultural goods. Further,

the Bureau of National Affairs (BNA) reported on June 19, 2003, The European

Union’s top official in Geneva warned June 11 that a World Trade Organization

agreement on further liberalization of agriculture will not be possible without a

commitment to provide expanded protection for geographical indications (GIs) beyond wines and spirits. According to the BNA, the EU Ambassador to the WTO said

the GI issue was one of the few offensive interests the EU has in the current Doha

Round trade talks on agriculture.

It must be emphasized that this is not just a Kraft issue, nor just a cheese issue,

nor is it just another trans-Atlantic difference of opinion with the potential to affect

only EU and U.S. interests. And it certainly is far more than simply a food processor

issue. Any weakening in demand due to consumer confusion or erosion of confidence

will inevitably impact the farmer. Imagine if dairy processors could no longer call

milk milk, or cheese cheese. Consumers would understandably be suspicious and

confused about the new products on the market. Funds currently expended to grow

demand for these items would have to be reprogrammed to reassure consumers that

they could trust these new products and use them for the same purposes they formerly used milk and cheese.

An article in the most recent edition of the USDA Economic Research Service

Amber Waves notes that cheese consumption has been steadily growing. U.S. per

capita consumption of cheese during 2001 was 30 pounds, more than twice as much

as in 1975. Currently, the milk from one out of every three U.S. dairy cows is used

to make cheese. (For reference, we buy about 15 pounds of milk—or 1.7 gal.—to

make each pound of parmesan cheese.) While there are many reasons for the increase in demand for cheese, we believe industry marketing and promotion efforts

deserve some credit. To the extent our efforts to promote cheese consumption are

frustrated or reversed by any new WTO GI protection rules, U.S. cheese consumption would be adversely impacted.

There are broader implications for the U.S. agri-food industry from any expansion

to foods of the current WTO geographic protections that now apply to wines and

spirits. For example, the right to designate protected products will not be reserved

to the EU and the few other advocates of this policy. Currently, there are a total

of 146 members of the WTO. Another 27 countries are currently in the process of

joining the organization. All WTO members would have the opportunity to designate

protected products. This suggests that the registry proposed by the EU could conceivably include hundreds of food products if not thousands. Under its existing internal system, the EU protects geographic origin indications for hundreds of products, including 149 kinds of cheeses, 63 meat-based products, and 16 types of table

olives.

Although we have focused on parmesan and feta, the current EU internal register

includes a number of other cheeses recognized as generic in the U.S. gorgonzola, romano, and provolone from Italy alone. Moreover, once established, any list of protected designations would be subject to expansion. Even if fixed under a Doha

Round agreement, any list would be subject to renegotiation and extension in the

next round of WTO negotiations. If GIs are established for a limited number of

cheeses in the current round of talks, the list could grow in the next round, and

the next. Other cheeses that are considered generic in the U.S., like cheddar, mozzarella, and provolone could become EU targets. Switzerland may want to protect

swiss cheese. The prospects for consumer confusion and disruption of dairy markets

presented by the loss of the name parmesan would be small compared with the loss

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of these other names, which represent a substantial share of U.S. cheese sales and

domestic milk usage. As there are now efforts to extend coverage from wines and

spirits to all foods, there could be future interest on the part of some WTO members

in further expanding GI coverage to include downstream and upstream food-related

areas, like animal breeds and/or restaurant/bakery cuisine.

In addition, there could be efforts to further tighten any origin protections for food

that might result from the Doha Round. For example, to the extent the EU’s underlying motivation is to create an international system that mirrors its internal policy,

a recent ruling by the EU Court of Justice may be relevant: In response to complaints filed by the producer of Grana Padano cheese in Italy and the Cosorzio del

Prosciutto di Parma, the EU Court of Justice ruled on May 20, 2003, that maintaining the quality and reputation of Grana Padano cheese and Parma ham (both EU

protected designations of origin) justifies a rule that product must be grated or

sliced in the region of production. As a result of this ruling, any Grana Padano grated, or any Parma ham sliced, outside the region of origin even within the EU—cannot maintain the EU protected designation of origin.

I want to emphasize that EU and other non-U.S. producers who believe that a

mark of geographic origin confers value to their product and want to protect the integrity of such designations are not without effective recourse in our market. They

have the ability to register and protect such marks through the U.S trademark system. Section 4 of the Trademark Act provides for the registration of certification

marks, including indications of regional origin. In fact, Roquefort (cheese from

France), Darjeeling (tea from India), Parma (ham from Italy), Swiss (chocolate from

Switzerland), and Stilton (cheese from the United Kingdom) are all examples of geographic indications protected in the U.S. as certification marks under the U.S.

trademark system. Further, Parmigiano-Reggiano is a U.S. registered mark certifying that cheese carrying this mark is a product of the Parma-Reggio region of Italy.

Holders of the certification mark have exercised their enforcement rights to protect

their mark against U.S. manufacturers producing products with names deemed to

encroach on the Parmgiano-Reggiano mark.

As a substantial buyer of raw agricultural products and major processor and marketer of consumer food products, Kraft’s business is heavily influenced by changes

in agricultural and trade policies. As a buyer and a seller in the global food market,

we benefit from the impact of the agreements made as part of the Uruguay Round

and the creation of the World Trade Organization in 1995. Kraft strongly favors continued worldwide reductions in agricultural support and protection, and we encourage efforts to achieve that objective established for the Doha Round by the 146

WTO-member countries.

The EU sees new rules on GIs as a way of softening the impact on European

farmers of further cuts in agricultural protection and support. The reverse is true

on this side of the ocean: New GI protections for foods will devalue any progress

made in the Doha Round reducing support and protection levels.

The Doha Round should be about expanding trade opportunities for all countries

and broadening choices for all consumers. The negotiations should not be used to

internationalize policies that impede trade and narrow consumer choice. On behalf

of Kraft Foods Inc., I urge the committee to give this matter your full and sustained

attention. At the upcoming Cancun WTO Ministerial Conference, U.S. officials

should firmly reject efforts by the EU to extend GI protections to foods and hold

progress on the issues that are at the core of the WTO agriculture negotiations hostage to its GI demands.

Thank you for your attention. I will try to answer any questions you or other

Members of the committee might pose.

STATEMENT OF THOMAS M. SUBER

Mr. Chairman and Members of the committee:

Thank you for the opportunity to offer my views on the potential impact of the

proposals regarding geographical indications that have been tabled by the European

Union in the World Trade Organization (WTO) multilateral trade negotiations taking place in Geneva. I am the President of the U.S. Dairy Export Council, a nonprofit, independent membership organization that represents the export trade interests of U.S. milk producers, dairy cooperatives, proprietary processors, and export

traders. The Council’s mission is to increase the volume and value of U.S. dairy

product exports. Today, I also speak on behalf of the National Milk Producers Federation, which represents the vast majority of milk producers in the United

States.The U.S. dairy industry is the second largest agricultural commodity sector

in the United States, measured by farm cash receipts of $20 billion per year, and

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is one of the top three agricultural sectors in fully half of the fifty states. In addition, dairy processors peg the annual retail value of their industry at $70 billion a

year. Internationally, in 2002 the United States was the world’s largest single country producer of cow’s milk, with production of 170 billion pounds. Impressive as

those numbers are, they represent only the milk producer side of the industry.

Dairy processors, which turn milk into cheese, butter, ice cream, yogurt, milk powders and designer milk proteins and package the products, add tremendous value

to milk after it leaves the farm. This further processing adds overall strength to the

industry and adds jobs to the nation’s economy.The Protection of Geographical Indications. With the conclusion of the Uruguay Round, WTO Members accepted broad

obligations regarding the protection of intellectual property. Those obligations are

contained in the Agreement on Trade-Related Aspects of Intellectual Property

Rights—commonly called the TRIPS Agreement. One type of intellectual property

right that profited exceptionally well from the conclusion of the TRIPS Agreement

is that of geographical indications. While a network of earlier international, bilateral agreements, and national laws provided some protection, the TRIPS Agreement

offered, for the first time, comprehensive, global minimum standards for the protection of geographical indications.The TRIPS Agreement defines geographical indications as ‘‘indications which identify a good as originating in the territory of a member or region or locality in that territory where a given quality, reputation or other

characteristic of the good is essentially attributable to its geographical origin.’’

There are two different standards of protection for indications that meet this definition, depending on the product involved.

For geographical indications associated with wines and spirits, the European

Union insisted in the Uruguay Round on an especially high level of protection. Wine

and spirit geographical indications are protected against any use for products not

originating in the place referred to by the geographical indication. This protection

is absolute, and applies even if the true origin of the goods is noted, the geographical indication is used in translation, or if the indication is accompanied by expressions such as kind, type, style or indication. Wine and spirit geographical indications are protected unconditionally, even if the labeling of the goods in question

would not mislead consumers .

For all other products, the TRIPS agreement requires WTO Members to have national rules that provide interested parties with the legal means to prevent the use

of any designation that suggests that a product originates someplace other than its

true place of origin in a way that misleads consumers. Members must also maintain

rules providing interested parties with legal means to prevent use that constitutes

unfair competition, a term in intellectual property law that means, among other

things, acts that create confusion about a competitor’s goods.

At the same time, the TRIPS Agreement allows WTO Members to leave unprotected those geographical indications that are considered generic terms that are

identical with the term customary in common language as the common name for

a product. Although the TRIPS Agreement establishes minimum standards of protection, countries have retained the right to establish their own specific requirements regarding eligibility, validity and enforcement of intellectual property rights.

As a result, each WTO Member can decide for itself whether a term is generic.

This treatment is very important, because a term that is generic in one country

might not be generic in other countries. For example, while the use of the term feta

on a cheese produced in the United States and/or in Denmark might be seen as infringing the rights of some Greek producers about the origin of the product, it will

not mislead consumers in the United States, in Denmark or pretty much anywhere

else in the world, since in the United States or in Denmark the term feta is simply

a common, generic name for a tasty, salty, crumbly white cheese that bears no association, in the minds of consumers, to the product’s place of origin. As you can see,

Mr. Chairman, the ability to make country-specific judgments regarding the generic

nature of cheese names is particularly important, since the European Union claims

that U.S. and other producers have usurped European names for a number of

cheeses that should qualify for protection of geographical indications, but that the

United States and other countries consider to be generic. Dangers of the European

Union’s ProposalsThe current threat is an energetic and coordinated effort by the

European Union to eliminate the ability a WTO Member now has to decide for itself

whether a name is generic, through a series of three inter-related proposals that it

has tabled in the on-going WTO negotiations in Geneva. Allow me to explain precisely how. The first E.U. proposal seeks the extension to all products of the absolute protection currently afforded geographical indications associated with wines

and spirits. As I have already discussed, the TRIPS Agreement provides heightened

protection for wine and spirit geographical indications. The rules provide an absolute prohibition against labeling wines or spirits with a name similar to a geoVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00362 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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graphical indication, even if use of the name would not mislead consumers about

the origin of a product. This heightened level of protection for wines and spirits is

an exception from the general rule that arises out of the unique history of those

products. The general rule, as noted above, requires protection against uses of geographic terms that are misleading or constitute an act of unfair competition. In

other words, the European Union wants the exception to swallow the general rule.

The European Union contends that even if a new agreement extends heightened

protection to products other than wine and spirits, Members would still retain the

right to deem certain names generic, and as a result to withhold geographical indication protection for those names. Its second proposal eliminates this option, however. Disguised as a way to guarantee fair market access opportunitie for products

‘‘whose quality, reputation or other characteristics are essentially attributable to

their geographical origin and traditional know-how,’’ the European Union’s so-called

claw back proposal calls for a list of geographical indications that would be exclusively reserved to the agricultural products originating in the place indicated by the

geographical indication in question. The E.U. proposal would claw back these names

even if they are considered generic. If the extension of heightened geographical indication protection to products other than wine and spirits carries with it an opportunity to exempt generic names, therefore, the list established by the E.U. claw back

proposal would erase that opportunity.

The third E.U. proposal concerns the establishment of a multilateral notification

and registration system for geographical indications associated with wine and spirits. The negotiations are limited to a registry for wines and spirits, but given the

debate on extension described earlier, the European Union’s intent is for the system

to one day apply to all products. The E.U. proposal would create a full registration

system that would result in uniform, world-wide protection for registered geographical indications. While one could raise an objection to a registration in the case of

a generic name, a private party would have to rely on its government to raise this

objection, since the E.U. proposal does not provide for direct objections by private

parties. Once a geographical indication is registered, its status could not be challenged in national courts on the basis that it is generic. In addition, the U.S. could

raise an objection about a geographical indication, but many developing countries

may not have the systems in place to routinely review new registration proposals.

Consequently, the U.S. could in fact lose the ability to export the new registered

geographical indication (e.g. parmesan) into the markets of those developing countries that did not oppose the registration. Furthermore, the E.U. proposal would require a WTO Member to protect a registered geographical indication, even if the indication is considered generic in that country. Again, therefore, even if the European

Union’s extension proposal would permit a WTO Member to deny protection to a generic name, the E.U. registry proposal would take that discretion away.

Costs of the European Union’s Proposals. The costs involved for each WTO Member to adopt a system that would provide and enforce absolute protection for geographical indications for all products would be inordinately high. The costs to consumers would also be significant. While the European Union tries to sell its proposals as a benefit to consumers by ensuring that they know the origin of the product

they are buying, under the system envisioned in the E.U. proposals, consumers will

in fact have fewer choices and pay higher prices than they do today. If protecting

consumers is the European Union’s real goal, we need to ask why the current

TRIPS rules for geographical indications not associated with wines and spirits are

insufficient. Those rules require WTO Members to maintain measures that will prevent the use of names that mislead consumers about the origin of a product. If consumer protection is the objective, the current rules are sufficient.

The European Union’s motivation is clear—and it is not consumer protection. As

E.U. agricultural producers continue to lose their competitive edge in markets

around the globe as it slowly ratchets down its hugely expensive support and export

subsidies, the European Union has frantically sought a new way to skew the playing

field in favor of E.U. agricultural products. The real beneficiaries of the E.U. proposals will be European agriculture producers, who will enjoy the price premiums associated with monopoly use of names that have long been generic throughout the

world. The impact on users of generic terms is potentially enormous. If the European Union’s proposals are accepted in full, names that are considered generic in

the United States will no longer be available for use by U.S. agricultural producers.

For example, U.S. producers, processors and traders of cheeses with names such as

feta, mozzarella, parmesan, brie, cheddar, havarti, muenster and gouda, many of

them displayed before this committee, would no longer be able to use these names

to market their products either at home or abroad. This would sharply disrupt domestic and export sales of U.S. cheeses with a commensurately negative effect on

their U.S. processors and the dairy farmers who supply them. These sales would

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only recover, if at all, through massive investments to make consumers familiar

with new names for cheeses that are unchanged in taste and composition from what

they have long known and appreciated. In a business with historically tight margins

at both the wholesale and farm level, such unnecessary investments could be ruinous to processors and co-operatives alike.

Mr. Chairman, the U.S. Dairy Export Council and the National Milk Producers

Federation have made numerous attempts to understand and even contemplate a

potential understanding on Geographical Indications that would allow the U.S. to

achieve substantial trade reforms in the Doha Round, along the lines currently proposed by the U.S. government negotiators. However, we must express complete disillusionment with the EU’s total disregard for trade reform, trademarks and generic

names. There should be no doubt to this Committee the EU will not rest until their

past is protected, regardless of the years of efforts by U.S. producers and processors

in promoting and producing these products. We are mindful of our duties regarding

Doha and Cancun. There should be no mistake; we have worked hard to find a resolution. However, this seems to be unreachable at this time due to the unreasonable,

anti-competitive requests by the European Union.

We must remain cognizant of the fact that the WTO Members have issued no

mandate to negotiate the extension to other products of the heightened protection

currently granted wine and spirit geographical indications. The negotiation of a

multilateral notification and registration system is the subject of a mandate, but

only for wine and spirits. The European Union offers this ambitious bid for a full

registration system in the clear hope that that system will at some point apply to

all products. And the European Union’s only nod to market access in the agricultural negotiations is not a concession, but rather a new anti-trade requirement, as

demonstrated by its proposal to claw back a list of terms from the category of generic names. Its recent, much ballyhooed CAP reform proposal fails even to hint at

any potential market access concessions.

As we head toward the September 10–14 WTO ministerial meeting in Cancλn, the

threat of E.U. success on its aggressive geographical indications agenda looms large.

The European Union has made clear that the only way it will make significant concessions in the agriculture negotiations is if it gets what it wants on geographical

indications. It has already succeeded in elevating TRIPS Council discussions on the

issue of extension into more focused consultations chaired by WTO Director General

Supachai. Unless the U.S. government and its allies are firm in their opposition to

the E.U. agenda, we fear that our interests will be sacrificed to keep Cancλn from

becoming the next Seattle. As I have discussed, handing the European Union success on its geographical indications agenda will mean putting at risk the U.S. dairy

industrys success, along with the many U.S. jobs it creates across the country. Mr.

Chairman, I ask the committee’s help in making sure that this does not occur.

Thank you once again for the opportunity to express my views. I would be pleased

to answer any questions you have.

STATEMENT OF JAMES B. CLAWSON

Mr. Chairman and distinguished Members of the House Committee on Agriculture, my name is James B. Clawson and I am the Chief Executive Officer for JBC

International, a Washington business and trade consulting firm. I also serve as the

international trade advisor to Wine Institute, a trade association of over 600 California wineries, representing more than 80 percent of the U.S. wine industry and 95

percent of all U.S. wine exports.

It is a pleasure for me to be here today and I applaud you, Chairman Goodlatte,

for holding this hearing. During my career in the U.S. government and as a business advisor I have been providing strategic advice about geographic indications

since 1973. The issue of geographic indications and how they should be protected,

if at all, needs more review and discussion. While there was attention given to the

issues surrounding the use of geographic indications as an intellectual property

right during the development of the Trade Related Aspects of Intellectual Property

Rights Agreement (TRIPS) in the Uruguay Round of World Trade Organization

(WTO) negotiations, the use and protection of geographic indications as a means to

provide producers the monopolistic use of those terms has not received enough international exposure.

The ramifications of some of the current proposals developed in both the World

Trade Organization (WTO) could severely hamper the marketing of U.S. wine in the

U.S. and in foreign countries. The proposals as put forth by the European Union

(EU) in the TRIPS Council and the Agriculture negotiations will eliminate the use

by U.S. producers of many terms that are used today to describe their products to

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the consumer. In addition, their proposals will seek to invalidate any existing trademark that could be considered similar to a geographic indication. In effect, this proposal seeks to establish an anti-competitive monopoly for EU wine producers and

other European agriculture interests by excluding the use of many generic and common terms legitimately used by producers in the United States and elsewhere.

THE TRIPS AGREEMENT AND GEOGRAPHICAL INDICATIONS

The TRIPS agreement defines geographical indications as: ‘‘Geographical indications are, for the purposes of this Agreement, indications which identify a good as

originating in the territory of a Member, or a region or locality in that territory,

where a given quality, reputation or other characteristic of the good is essentially

attributable to its geographical origin.’’

Provisions are already made for goods where:

• the use geographic indications is used in good faith

• geographic terms are customary in common language

• geographic indications cease to be protected by the country of origin

Article 23.4 of the TRIPS Agreement calls for WTO members to establish a system of ‘‘notification and registration’’ for geographical indications for wines and spirits. In the Doha Ministerial Mandate, ministers agreed to conclude negotiations on

this register by the WTO Fifth Ministerial meeting in Cancun, Mexico in September

of 2003. The WTO TRIPS Council Special Session is current negotiating such a system of notification and registration for wines and spirits.

There has been discussion amongst WTO members concerning the extension of

such a system of notification and registration to products other than wines and spirits. The position of Wine Institute is simple: any discussions related to the question

of extension must be kept separate from the mandated discussions on the notification and registration system called for in TRIPS Article 23.4.

Agriculture Negotiations. A great concern for U.S. winemakers is the EU push to

include geographical indications as part of the WTO Agriculture negotiations. The

EU has prepared a list of over 40 geographical indications they want all WTO members to agree to protect as part of the WTO agriculture negotiations, the vast majority of the terms being for wine. The EU’s position is that geographic indications

should have superior standing over trademarks and other intellectual property with

governments being obligated to enforce those rights.

The EU is including protection of geographical indications as a mandatory part

of the WTO agriculture negotiations and have indicated they will not move forward

on other agriculture negotiations (tariffs, subsidies, etc.) unless WTO members

agree to protect their geographical indications.

There is nothing in the TRIPS Agreement that provides greater protection for geographical indications over any other form of intellectual property such as trademarks. As a result, will owners of patents, trademarks and copyrights be entitled

to similar protection by all WTO member governments? And why just agriculture

geographical indications? Will owners of any business be protected by its governments against the use of its trademark or brand name?

Enforcement and Enforcement Regimes. Non-EU countries, particularly the US,

should be most concerned with the practical enforcement called for under the EU

plan to protect geographic indications. The EU has proposed a list or register system

that when a term is placed on the register, all WTO countries are then obligated

to protect that term’s exclusive use in their country. The EU has in place an infrastructure to administer its own wine and agriculture geographic indications. It does

not have in place a system to protect other country geographic indications. Members

of the WTO should be concerned with their ability to sustain such a regime. If the

EU cannot manage a system to protect terms from 130 countries, how will developing countries manage that new obligation? The cost will be prohibitive.

Wine

Since the 19th century the member states of the EU have tried to obtain intellectual property rights for wine geographical indications and to make those terms superior to trademarks. More importantly, these countries have tried to make geographical indications a government enforced public right rather than an owner-enforced right as with the case of other forms of intellectual property. The historic government obligation to private intellectual property rights holders is to create the

regulatory and judicial ‘‘rule of law’’ environment where those private right owners

can enforce and protect their rights. Nevertheless, current EU law provides that geographic indications for wine are enforceable by the government and are superior

to trademarks, even existing trademarks (unless they are over 100 years old).

Experience has shown that efforts to change these rights from private rights to

government or public rights enforced by government action at the international level

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have not been successful. Various international conventions, such as the Lisbon

Convention, created by the French and other European countries address international protection for geographical indications but only a few countries, mostly European, ever became signatories to the conventions.

The EU had tried to push a system for geographical indications protection in the

World Intellectual Property Organization (WIPO). Their proposals met resistance

from WIPO member states. Being unsuccessful in the WIPO in selling their concept

of government enforced intellectual property rights to the rest of world, the EU

brought its position to the WTO in the Uruguay Round TRIPS negotiations. They

successful obtained intellectual property status for geographic indications but were

not successful in making those rights superior to trademarks or enforceable by governments. WTO members did not agree that geographic indications should have

greater rights than other intellectual property private rights. By raising geographic

indications in the agriculture talks the EU is now making another effort to advantage its agriculture sector even though it has failed in its previous attempts.

For the wine sector the EU’s initiatives and positions in trade negotiations have

been even more blatant in their effort to provide advantages to EU producers. Some

of these initiatives have included implementation of regulations on labeling that restrict the use of terms like ‘‘table wine,’’ and other information to only EU producers; introducing restrictions on the use of ‘‘traditional terms’’ like ‘‘chateau’’ and

‘‘ruby’’; eliminating the use of generic geographic indications; and providing to geographic indications greater intellectual property rights than trademarks, i.e. ignoring first in time first in right principles.

The EU has also conducted negotiations with or imposed pressure on wine producing and traditionally non-wine producing nations to adopt EU standards and labeling practices that will exclude other wine producing countries’ products. As compensation in bilateral negotiations with wine producing countries, the EU has provided for guaranteed access to the EU market through waivers of the non-tariff barriers the EU created in their winemaking regulations that should not have been allowed in any event under WTO obligations. In exchange for this market access, the

EU has demanded that these countries provide protection for the thousands of EU

geographical indications for wine and provide for exclusive use of geographical indications even over pre-existing trademarks. Processed High-Value Agriculture Products

The introduction of the debate over the use of geographic indications in the WTO

agriculture talks is in keeping with similar efforts made by the EU in the past to

provide for protection of its high-value agriculture products in international markets. EU initiatives for wine, cheese and other high-value products have included

the provision of domestic and export subsidies, maintenance of high import duties

to protect domestic producers, and the enforcement of unnecessary and cumbersome

standards and labeling restrictions. Further concern has risen from the debate over

practical barriers caused by the EU’s so called ‘‘precautionary principle,’’ where import restrictions are based upon standards that are not always grounded on WTO

health or safety standards.

Knowing that it must give up its trade distorting subsidies and other protections,

and knowing that its product standards and labeling requirements are under attack

as being contrary to WWTO rules, the EU’s current push to reserve the use of

terms, such as geographic indications and ‘‘traditional expressions’’ is an attempt to

create another mechanism to compensate domestic producers for the loss of its current protection. The EU proposal includes protection for the use of geographical indications like feta cheese for Greece and so-called traditional expressions. Many of

the terms that the Europeans are now claiming exclusive us of have become generic

among world consumers in which the name describes a product that is produced in

a certain style. For the so-called traditional expressions, the European Union is

seeking exclusive use of terms that may be described as adjectives that have no link

to a geographical place name.

CURRENT DEBATE

The ramifications of some of the current proposals developed in both the World

Trade Organization (WTO) could severely hamper the marketing of U.S. wine in the

U.S. and in foreign countries. The proposals as put forth by the European Union

(EU) will eliminate the use by U.S. producers of many terms that are used today

to describe their products to the consumer. In addition, the proposals will seek to

invalidate any existing trademark that could be considered confusingly similar to

a geographic indication. In effect, this proposal seeks to establish an anti-competitive monopoly for EU wine producers and other European agriculture interests for

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the use of many generic and common terms to the exclusion of legitimate use by

producers in the United States and elsewhere including use of existing trademarks.

For the past several years the EU and a number of its trading partners have embarked on a clear international strategy to further the competitive advantage both

domestically and internationally for their high-value agriculture sector. This strategy is most easily identified in current EU bilateral negotiations concerning wines

and spirits with a number of wine producing countries including Canada, Chile and

South Africa. The recent EU-Canada wine and spirits agreement provides for the

elimination of the use of geographic European terms that had previously been found

to be generic terms by Canadian courts. It is not clear what affect this agreement

will have on U.S. wine sales in Canada since the Canadian authorities have not said

if they intend to enforce the elimination of the use of those terms on third country

imports. If they do, there will be a loss of sales in the Canadian market for U.S.

wine.

With their proposal for geographic indications in the Doha Development Round

agriculture talks, it appears that the EU is pushing its internal policy to WTO members which will govern geographical indications for agricultural products. While government policy to promote its products is understandable, some of the techniques

and methods being used are not fair nor do they seem to conform to agreed international obligations.

The EU’s strategy to negotiate this issue in the agriculture talks provides them

ground for a higher degree of leverage within the context of the Doha Development

Round. EU officials are well aware that access to its agriculture market is key to

obtaining support from the developing countries in reaching a successful conclusion

to the Doha Round. To strengthen their leverage, EU officials are imposing the condition that it will not negotiate any agriculture concessions unless WTO members

agree to protect a list of European geographic indications in the agriculture negotiations. This demand is in addition to the European demands for a mandatory system

of notification and registration for wine and spirits and other products in the TRIPS

negotiations. Thus, if developed and developing countries want access to the EU

consumer market, it must first grant the EU agriculture producers the monopoly

they want on the use of descriptors of their products worldwide. This condition is

unacceptable and should be rejected.

To restate what we described above, the debate over geographic indications is a

push to provide additional leverage to construct market access barriers and protect

domestic producers in those countries wishing to protect their domestic industry. It

is also indicative of a larger clash between traditions of a government-controlled

economy and the consumer-driven demand of today’s more open global economy.

The implications of the EU proposal over geographic indications reach farther

than wines, spirits and cheeses. Economic blocks, like the EU, and developing countries understand the potential to influence the global marketplace by inhibiting consumer driven demand for products commonly recognized by consumers. European

country officials have stated that it is time to reclaim their rights to certain terms.

It has been stated a restaurant claims to be an Italian restaurant the all of the

products served must come from Italy. Following this logic all French Roast coffee

must be roasted in France. Does this mean that all Chinese Food must come from

China?

In the international arena, the Europeans and their partners on this issue are

trying to frame the debate concerning geographical indications as either supporting

protection or not supporting protection of geographical indications.

From the U.S. wine industry perspective, we strongly support and value our geographical indications. Some of the most beautiful and well-known wine regions of

the world are located in California; Napa, Sonoma, Monterey, etc. have all become

synonymous with high-quality wine.

The issue is not whether or not to protect geographical indications. The issue is

how to provide protection for geographical indications.

WTO members are obliged to develop a system of notification and registration for

wine and spirit geographical indications (TRIPS Article 23.4). We can develop a

workable system but we need to be cognizant of the fact that nothing in the TRIPS

agreement or any other WTO agreement provides for greater protection for geographical indications over any other form of intellectual property such as trademarks or brand names.

And in order for such a system to really work it cannot be too burdensome or infringe upon other intellectual property rights. The U.S. wine industry strongly supports the U.S., or Joint, proposal in the TRIPS Council for a system of notification

and registration.

Furthermore, we vigorously object to the European Commission demand that protection of geographical indications be included as part of the WTO Agriculture negoVerDate 11-SEP-98 10:32 Sep 03, 2003 Jkt 089043 PO 00000 Frm 00367 Fmt 6601 Sfmt 6601 F:\DOCS\1085.000 HAGRI PsN: HAGRI
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tiations. The issue of protection of geographical indication is currently taking place

within the TRIPS Council. The members of the TRIPS Council are familiar with

international laws and regulations governing geographical indications and other

forms of intellectual property.

We thank you very much for the opportunity to comment and to share our views

with the committee. If you should have any questions or need more information, I

welcome you to contact me at any time.

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STATEMENT OF ALAN C. DREWSEN

Dear Mr. Chairman:

The International Trademark Association (INTA) is extremely pleased that the

House Agriculture Committee is holding hearings on the issue of geographical indications (GIs) and respectfully requests that this letter be made part of the record.

We also would like to say that the combination of your knowledge, Mr. Chairman,

of both agricultural and intellectual property issues presents a rare opportunity to

bring leadership with a unique perspective on the major factors that impact the current negotiations on geographical indications during the World Trade Organization’s

Doha Round.

Since the start of the negotiations of the Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS), INTA has been heavily engaged in trying to

find a balance between the protection of trademarks and the proper protection of

geographical indications. We have produced numerous analyses of the issue through

reports and articles, and have held educational forums around the world. INTA was

selected by the WTO to organize and moderate the geographical indications session

during the Doha Symposium in 2002. INTA believes that GIs are an intellectual

property right and should be fully recognized and protected as such. Protection of

GIs and trademarks within a single jurisdiction is possible, as long as conflicts between these rights continue to be resolved pursuant to the well-established intellectual property principles of territoriality (i.e., the right needs to be established in

each individual jurisdiction where protection is sought), exclusivity (i.e., the right

holder may prevent others from using the exact or similar designation), and priority

(i.e., the first to obtain the right through creation, use or registration is entitled to

its benefits).

In the wake of the November 2001 Doha Declaration, three key issues regarding

geographical indications are now the focus of intense debate: creation of a multilateral system for notification and registration of geographical indications; the extension of additional protection provided for wines and spirits to other products; and

the claw-back of certain GIs originating in the European Union. As these issues will

no doubt be discussed in great detail during the hearings, let me briefly provide

INTA’s point of view.

Multilateral System

It is extremely important to understand that in what may be called the geographical indications camp of WTO Member States, there is a definite bias that geographical indications, which are a collective right often used by several holders, are therefore a public right that is superior to private interests. Therefore, under this concept

of superiority for geographical indications, pre-TRIPS systems of protection emanating from Europe and provided internationally under treaties such as the Lisbon

Agreement, regionally as in the European Union’s wine and agricultural/food stuff

regulations, or nationally, allow for the actual abolition of prior registered trademark rights that conflict with later-established geographical indications. During the

TRIPS negotiations, however, this superior or extra protection was only applied to

geographical indications for wine and later expanded to spirits. This means that

geographical indications for wines and spirits under TRIPS Art. 23 are not only protected against misleading use as is the case for all other geographical indications

under Art. 22, but also against any use for products not originating in the place indicated by the geographical indication in question. However, an exception was allowed under TRIPS Art. 24 (5) for prior existing trademarks.

In the current WTO negotiations to establish a multilateral system for notification

and registration of geographical indications for wines and spirits, the European

Union (EU) has proposed a WTO-level multilateral register for GIs, based on the

principle of absolute protection that INTA believes would amount to the confiscation

of rights of other IP owners and would expressly violate the principles of

territoriality, exclusivity and priority. As currently proposed, the designations in the

multilateral register would enjoy protection in all WTO Member States that have

not challenged registration of a GI after the expiration of an 18-month period.

Under the EU proposal, the possible grounds for opposition available to interested

parties are very limited and do not include grounds based on similarity to prior

trademark rights. Also, since only member nations can act at the WTO level, under

the EU proposal, owners of prior trademarks would have no individual right to oppose confiscation of their pre-existing rights, due to protection of a geographical indication at the WTO level. In addition, there is no legal remedy available to ensure

that a later geographical indication does not prejudice a prior trademark. The owner

of a prior trademark would at the very least lose the exclusivity of its earlier right

and be forced to coexist with the GI. Further, the owner of a prior trademark might

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lose the trademark entirely (i.e., mandatory phase out of use), without any legal

remedies available to prevent such an inequitable result.

There are two alternate proposals being considered in the negotiations that attempt to balance the rights of trademark owners. The first is a non-binding multilateral system proposed by a group of WTO members led by the United States that

would have the WTO maintain a database as a source of information for other Member States when deciding on the registrability or validity of a trademark or the enforcement of the geographical indication. This permits the WTO Member States, relying on established laws and procedures, to adjudicate the competing claims with

trademark owners having the ability to oppose either through administrative tribunals or the national courts. The downside to the proposal is that it is quite likely

that the courts of the Members States will presume that designations contained in

the WTO database are indeed legitimate geographical indications, thus shifting the

burden of proof to the trademark owner without any legal remedies available to prevent an entry into the WTO database. Even if the trademark owner succeeds in a

particular case in a Member State in arguing that the GI conflicts with his prior

trademark, the entry on the database remains, raising the possibility of future objections upon renewal or other changes to the mark.

The other alternative model for the system being considered in the negotiations

is a proposal by Hong Kong that would create a voluntary registration system at

the WTO level. Notification of the geographical indication by Member States would

be examined only on formal grounds. An entry on the register would create prima

facie evidence of ownership, that the indication is within the broad TRIPS definition

of geographical indications, and that it is protected in the country of origin. While

the proposal does respect the principle of territoriality of intellectual property rights

and allows for court review, it is silent on the issue of priority or exclusivity. Thus

a prior trademark may be forced to co-exist with a later geographical indication at

the Member State level.

Given the deficiencies of each of the three main proposals, and faced with the reality of a deadlock in the negotiations thus far, INTA submitted to the WTO Secretariat a proposal to be posted to the WTO homepage for Member State consideration. INTA believes that the new multilateral register for wines and spirits geographical indications should not deviate from the experience gained under other intellectual property systems such as the Patent Cooperation Treaty (PCT) and the

Madrid System for the international registration of marks that are administered by

the World Intellectual Property Organization (WIPO). For example, the Madrid Protocol, which the United States will join in November, is essentially a filing system

whereby WIPO accepts and formally examines the application, collects the fees,

issues an international registration, and then notifies the designated member countries for which protection is sought, who then either approve or reject the request

for protection based on their national law.

In line with such systems, the ultimate decision on the protection of a geographical indication must rest with the competent authorities of the participating states,

rather than at the WTO level. Legal remedies must be available for the users of

generic terms and, in particular, the owners of prior intellectual property rights.

INTA believes that any other system would be incompatible with Part III of the

TRIPS Agreement. INTA’s recommendation is that the system adopted for the establishment of a GI Register should follow a Madrid-like or PCT-like approach and

include the following key elements:

• Notification/registration through an international body to the participating

states.

• Ex officio examination of protectability in the country of protection.

• Refusal/opposition on the basis of prior (trademark) rights.

• Availability of a challenge of the registration to the national courts.

INTA strongly believes that a system built on these concepts will facilitate the

equitable protection of geographical indications, as the Madrid System facilitates

the protection of trademarks and, similarly, the PCT facilitates the protection of

patents. At the same time, it will recognize that geographical indications meet the

TRIPS definition of an intellectual property right, clearly establishing that the importance and value of a GI is equal to the rights afforded to trademarks, copyrights,

and patents.

Absolute Protection for Other Products

The second major issue of concern to trademark owners is the push by the EU,

with the support of several other WTO members, to extend the additional protection

for wines and spirits under Art. 23 to other products such as cheese, beer and rice.

These discussions are taking place outside of the negotiations on the multilateral

system for notification and registration of wine and spirit geographical indications

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and have been termed informal by the WTO Director General who is leading the

consultations.

What would happen if absolute protection is extended to all geographical indications? In many cases it would restrict the ability of trademark owners and users

of generic terms (including those who combine a trademark with a generic term) to

sell in WTO member countries products that they have developed into well-known

brands. This in turn would severely limit consumers’ choice and would create additional barriers to trade. The confusion would be exacerbated due to the lack of any

international consensus as to what terms might be eligible for protection as a geographical indication. The extension could lead to loss of trademarks, loss of generic

terms, and imposition of burdens on trademark owners such as renaming, rebranding, re-labeling, loss of common terms and company names, and changes to shipment routes, as well as potential loss of markets domestically and abroad. Extension

of absolute geographical indication protection could affect for instance generic terms

that are widely used such as pilsner for beer, sardine for fish and Lippizanner for

horses. For many years, INTA, in conjunction with the USPTO, has administered

an international program to object on an informal basis to the registration of generic

words as trademarks, and we certainly do not want generic words to receive protection through the back door of a WTO-level GI system. Confiscation

Finally, there is the claw-back issue that has been introduced in the agricultural

negotiations under the Doha Round in which the EU is seeking the exclusive use

of certain geographical indication names, even where they are currently considered

as generics or trademarks in other WTO Member States. Under the EU proposal

a trademark such as PARMA, one of Mexico’s leading brands for ham and sausages,

would have to be cancelled even though it was registered in good faith and not geographically descriptive in Mexico when it was applied for. Clawing-back GIs means

confiscating trademarks without any compensation and without the trademark

owner concerned being heard during the Doha negotiations. INTA strongly opposes

this approach.

Conclusion

Mr. Chairman, INTA supports creating a balance between valid trademarks and

valid geographical indications, enabling conflicts between the two to be decided on

the basis of priority under national and international law. Neither intellectual property right should be given special and greater protection over the other. Under the

priority principle, a validly registered prior mark should prevail against a later geographical indication and vice versa. Forcing prior trademarks to coexist with a later

geographical indication is not a solution. Coexistence, especially in the same market,

deprives the trademark owner of the core of its intellectual property right, namely

the right to exclusivity. Coexistence is injurious for both holders of geographical indications and trademark owners since both are entitled to exclusivity based on the

priority principle. The establishment of a multilateral system for the notification

and registration of geographical indications for wines and spirits, as well as the possible extension of art. 23-type protection to other products will therefore have to

guarantee the exclusivity of validly registered prior intellectual property rights, in

particular trademarks. This objective may be achieved through a Madrid-type notification and registration system as well as clarification of certain TRIPS provisions

regarding the scope of protection afforded to geographical indications and the resolution of conflicts between valid trademarks and geographical indications.

Finally, Mr. Chairman, INTA believes that these hearings and the increased participation in this debate by the U.S. agricultural community and the food and beverage industries is vitally important to finding a balanced solution to these issues.

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