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AGRICULTURAL NEGOTIATIONS IN THE

DOHA DEVELOPMENT ROUND

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 2, 2005

Serial No. 109–19

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

JOHN A. BOEHNER, Ohio,

Vice Chairman

RICHARD W. POMBO, California

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., LOUISIANA

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

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

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

(II)

(III)

C O N T E N T S

Page

Cardoza, Hon. Dennis A., a Representative in Congress from the State of

California, and Costa, Hon. Jim, a Representative in Congress from the

State of California, joint prepared statement .................................................... 74

Davis, Hon. Lincoln, a Representative in Congress from the State of Tennessee, prepared statement ................................................................................. 7

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

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

Holden, Hon. Tim, a Representative in Congress from the Commonwealth

of Pennsylvania, prepared statement ................................................................. 9

Larsen, Hon. Rick, a Representative in Congress from the State of Washington, prepared statement ...................................................................................... 74

Lucas, Hon. Frank D., a Representative in Congress from the State of Oklahoma, prepared statement ................................................................................... 5

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 3

WITNESSES

Butler, Cliff, vice chairman, Pilgrims Pride Corporation, Pittsburg, TX, on

behalf of the National Chicken Council, National Turkey Federation, and

USA Poultry and Egg Export Council ................................................................ 47

Prepared statement .......................................................................................... 106

Caspers, Jon, producer, National Pork Producers Council, Swaledale, IA ......... 51

Prepared statement .......................................................................................... 121

Johanns, Hon. Mike, Secretary, U.S. Department of Agriculture ....................... 9

Prepared statement .......................................................................................... 75

Answers to submitted questions ...................................................................... 98

Kappelman, Peter, producer and chairman, Land O’Lakes, Inc., Two Rivers,

WI, on behalf of the National Milk Producers Federation ............................... 64

Prepared statement .......................................................................................... 115

Metz, Robert, producer and president, American Soybean Association, West

Browns Valley, SD ............................................................................................... 49

Prepared statement .......................................................................................... 100

Phillips, Don, trade advisor, American Sugar Alliance, St. Leonard, MD .......... 67

Prepared statement .......................................................................................... 157

Portman, Hon. Rob, U.S. Trade Representative ................................................... 11

Prepared statement .......................................................................................... 77

Answers to submitted questions ...................................................................... 98

Shaffer, Christopher, producer, Walla Walla, WA, on behalf of the Wheat

Export Trade Education Committee, National Association of Wheat Growers, and U.S. Wheat Associates .......................................................................... 65

Prepared statement .......................................................................................... 104

Tumbleson, Gerald, producer and president, National Corn Growers Association, Sherburn, MN .............................................................................................. 55

Prepared statement .......................................................................................... 112

Willey, Wythe, producer and past president, National Cattlemen’s Beef Association, Cedar Rapids, IA .................................................................................... 53

Prepared statement .......................................................................................... 101

SUBMITTED MATERIAL

American Farm Bureau Federation, statement .................................................... 119

Grocery Manufacturers Association, statement .................................................... 138

McConnell, Lee, chairman, Sweetener Users Association, statement ................. 143

R-CALF, USA, statement ........................................................................................ 148

Page

IV

Tipton, Constance, International Dairy Foods Association, statement ............... 109

(1)

REVIEW AGRICULTURAL NEGOTIATIONS IN

THE DOHA DEVELOPMENT ROUND

WEDNESDAY, NOVEMBER 2, 2005

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The committee met, pursuant to call, at 1:35 p.m., in room 1300

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

Members present: Representatives Goodlatte, Pombo, Lucas,

Moran, Gutknecht, Johnson, Osborne, Bonner, King, Musgrave,

Neugebauer, Boustany, Schwarz, Kuhl, Foxx, Conaway,

Fortenberry, Schmidt, Peterson, Holden, Cardoza, Herseth,

Cuellar, Costa, Salazar, Barrow, Pomeroy, Larsen, Davis, and

Chandler.

Staff present: Lynn Gallagher, Ben Anderson, Bryan Dierlam,

Bill Imbergamo, Tyler Wegmeyer, Ryan Weston, Callista Gingrich,

clerk; Lindsey Correa, Robert L. Larew, Andy Baker, and Chip

Conley.

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

OF VIRGINIA

The CHAIRMAN. Good afternoon. This hearing of the House Committee on Agriculture to review agricultural negotiations in the

Doha Development Round will come to order.

While he has been before the committee in executive session a

number of times, today is the first time that Ambassador Portman

has testified before the Committee on Agriculture. It is my honor

to welcome our former colleague to the committee. Ambassador

Portman has been generous with his time, meeting with members

of this committee on previous occasions to discuss agricultural

trade. We expect that we will be a frequent visitor to the committee. Ambassador Portman was appointed United States Trade Representative by President Bush on April 29, 2005 and was sworn

into office on May 17.

During his time in Congress, Ambassador Portman served as the

chairman of the House Republican Leadership and was the liaison

between the House leadership and the White House. He was also

a prolific legislator known for reaching across the aisle to achieve

results. As a member of the House Ways and Means Committee

and its Subcommittee on Trade, he has been involved with trade

issues and legislation for years. He also served as vice chairman of

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the House Budget Committee. Among other international meetings

and conferences, he attended the Seattle WTO Ministerial in 1999.

On behalf of the committee, I welcome him and Secretary of Agriculture, Mike Johanns. I am pleased that you both are able to appear before the committee today to discuss the status of the agriculture negotiations of the Doha Development Round.

There has been a lot of activity over the past few weeks concerning these negotiations and how they could affect United States agricultural producers. Additionally, I am aware of the recent agricultural proposal offered by the European Union, unfortunately described by them as a ‘‘final offer.’’ This offer looks to be both inadequate as it relates to market access and overreaching as it relates

to other sectors, especially geographical indications.

The purpose of today’s hearing is to hear from the administration

and others on the latest developments in the Doha agricultural negotiations and an assessment of these negotiations as the WTO

Ministerial Conference is set to begin in a matter of weeks. As you

know, WTO Ministerial Conferences are the highest decision making authority and this one is designed to settle a range of issues

so that the final agreement on the Doha Development Agenda can

be reached next year. The committee will be interested in our witnesses’ assessment of what can be achieved in Hong Kong. By my

calculations, it looks like tentative agreements should be reached

fairly soon, by the middle of this month, if there is to be a successful ministerial in Hong Kong.

I firmly believe that these negotiations are the means to achieve

fair trade because some countries support agriculture in ways that

significantly distort trade. Some countries deliberately put up nontariff trade barriers for agriculture, such as denying consumers a

choice, as with U.S. beef or artificial health safety measures, as the

use of biotechnology. The U.S. cannot operate as a free trading

country while other countries do not and therefore, worldwide trade

negotiations are essential. United States agriculture depends on exports and a vibrant trade policy is important to United States

farmers and ranchers and to all agribusiness. 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 are low. Agricultural tariffs worldwide average about 62 percent, while U.S. agricultural tariffs are 12 percent. The WTO negotiations offer an opportunity for the United States. Our goals for

these negotiations are to decrease tariffs, reduce trade distorting

domestic support, eliminate export subsidies, discipline state trade

enterprises and ensure that science, not protectionism, is the basis

for worldwide trade rules. Those of us interested in promoting

United States agriculture around the world believe our farmers

and ranchers can do better in world markets once barriers of all

kinds are reduced or eliminated.

I hope these agricultural negotiations will pave the way for

American agricultural producers to do what they do best, provide

food and fiber for people at home and around the world.

It is now my pleasure to recognize the ranking member of the

committee, the gentleman from Minnesota, Mr. Peterson.

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OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and I thank Ambassador Portman and Secretary Johanns for being with us today. But

I have to say that I was disappointed with the latest U.S. offer on

agriculture in the WTO. I think the message from Congress, in my

opinion, at least, has been clear that the United States should not

and probably will not agree to a change, to change our policy until

the EU gets serious about reducing its subsidies to our level. At

best, under the U.S. offer, even if it were accepted outright, the EU

amber box subsidy limit would remain twice the U.S. limit. Even

with this best-case scenario, the overall subsidy limitation for all

of the boxes would put the United States at a distinct disadvantage

to Europe with an overall limit of $23 billion versus a limit for Europe of $39 billion.

The latest U.S. offer was billed as a way to reinvigorate the negotiations and has been defended by those who think that it is in the

best interest of the United States to lead by example. The policy

underlying the offer has led to the, in my opinion, to the huge disparity in our current subsidy limitations versus those in Europe,

which has wisely avoided showing its hand in WTO negotiations

too early. In fact, the counter offer from the Europeans would be

disastrous for U.S. farmers, demonstrating, I think, the flaw in our

approach.

The EU claims that its offer would result in tariff cuts averaging

46 percent. In fact, by the time the EU gets through excluding 176

tariff lines essential to products, I suspect that the average will be

much lower. Perhaps the biggest problem is that the U.S. offer is

based on a false premise, that we can make up for cuts in domestic

support through increased market access for our exports. This policy has failed U.S. agriculture in the past and our traditional trade

surplus in agriculture has disappeared.

While U.S. subsidy reductions are being offered at Doha, many

subsidy programs in other countries will not be addressed under

our current approach to the WTO. Testimony from the Soybean Association witness notes a number of subsidized loan programs and

tax rebates that subsidize Brazilian farmers. The sugar witness

notes Brazil’s ethanol program, debt forgiveness and currency devaluations that have increased its sugar exports from 1.8 million

tons to about 18.8 million tons annually, since 1990. The corn

growers note many market access barriers that will not be addressed in the current WTO negotiations.

European biotech related restrictions on U.S. corn exports, the

fact that the bound tariff levels in many developing country markets are so high that no actual tariff reductions may occur even

under those most ambitious market access proposals and the nontariff trade barriers to U.S. meat and dairy products, which reduces demand for feed corn. The cattlemen note that they have

been, as we all know, shut out of the biggest market for cattle and

that is Japan, for 22 months. The pork witness cites the EU’s onerous residue testing requirements unnecessary disease related testing and difficult plant approval requirements and you know, how

long will it be before Japan erects similar barriers to U.S. pork?

4

None of these barriers will be addressed in the current round of

WTO negotiations. So I would caution farmers to be skeptical of

the promises made about market access. Why bet the farm on the

willingness of the Europeans and the Japanese to follow the rules?

They haven’t been very good about that, in my opinion, in the past.

Another area that I would like to mention while Ambassador

Portman and Secretary Johanns are here is food aid. The U.S. proposal in this area still has a few shortcomings, in particular, the

section on emergency programs does not specify that the request

can come from intergovernmental or nongovernmental organizations or from governments. The section on other food aid does not

include nutritional needs of a country as an indicator of food aid

needs. Many poor food-deficient countries, such as Bolivia and Guatemala are left out of the least developed country and net importing developing countries category that is exempted from further

disciplines.

It is important that nutritional indicators like signs of chronic

hunger and not just shocks or financial downturns are part of the

proposed commodity import requirements. So I would hope that we

can make some corrections as we move forward so that we can get

to an end result here with this Doha Round that is going to put

the Americans finally on an equal footing with a lot of these other

countries in the world and I thank the witnesses for being here and

thank the chairman for calling this hearing.

The CHAIRMAN. And I thank the gentleman and without objection, all other opening statements will be made a part of the

record.

[The prepared statements of Messrs. Lucas, Davis, and Holden

follows:]

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6

7

8

9

PREPARED STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM

THE COMMONWEALTH OF PENNSYLVANIA

Agriculture is a vital component of the economic health of the northeastern and

mid-Atlantic States. The region’s agriculture base is highly diverse. Dairy, specialty

crops, forest products, and some traditional program crops all forming part of the

farm economy. While agriculture remains a powerful business sector, we must provide and expand on essential markets in order to preserve our regions family farms.

The Northeast is home to more than 135,000 small and midsized farms and has

a total population of more than 60 million (2004 census). The livelihoods of 4 million

people in the region are dependent on agriculture, yet northeastern farmers receive

less than 1 percent Federal agriculture subsidies. The region’s independence has

compelled producers to rely on markets and innovation for survival, most notably

in the specialty crop industry.

My home State of Pennsylvania exports $1.5 billion of food, agricultural, and forest products annually. Specifically, Pennsylvania is a major producer of a great variety of crop and livestock products, particularly greenhouse, nursery, and floricultural products, mushrooms, grains, soybeans, and several kinds of fruits and vegetables, which amount to more than $100 million annually.

Pennsylvania is representative of the importance of specialty crops to the entire

region. Specialty crops represent 32 percent (U.S. average 21 percent) of northeastern agriculture and most States grow a diverse assortment of products, ranging

from apples to mushrooms to squash. Generally, the industry has competed well

with little Government intervention; however, our growers share problems in common with the rest of the Nation, including high energy prices and natural disasters.

They are exploring a variety of methods to reposition northeastern agriculture and

capitalize on current trade negotiations. Production and sale of higher value specialty crops also offers a critical means of compensating for the Northeast’s high agricultural land values, which are 150 percent above the national average.

Agriculture exports means jobs and income for the Northeast. The pursuit of export opportunities and new business ventures is key for the industry. It is important

we do not overlook those who provide us with the safest, highest quality fruits and

vegetables in the world. Increasing market opportunities is a goal for all of us, but

it’s necessary for the future of our specialty crop growers.

The CHAIRMAN. We have three panels of witnesses and we want

to afford the Secretary and the Ambassador as much time as possible, so at this time, we will welcome Secretary Mike Johanns and

Ambassador Rob Portman. Mr. Secretary, we will start with you.

We are glad to have you with us today.

STATEMENT OF HON. MIKE JOHANNS, SECRETARY, U.S.

DEPARTMENT OF AGRICULTURE

Secretary JOHANNS. Thank you, Mr. Chairman. Mr. Chairman,

members of the committee, it indeed is a pleasure for me to be here

today. A good place for me to start my testimony is to talk about

the overall state of our farm economy. Our farmers continue to be

the most productive, innovative and competitive really anywhere in

the world, even as they deal with some real challenges, such as

higher energy costs and higher input costs. Production is near alltime record levels for some commodities such as corn and soybeans.

American farmers have proven over and over again that they can

produce and I know they can compete.

The reality is that while our domestic market is big, it is growing

very slowly. In order to prosper, we just simply need new customers. We must get our products into foreign markets because 95

percent of the world’s potential customers live outside the United

States. A look at the numbers tells us the world wants what we

have to sell. In 2004 we set a new record for U.S. agriculture exports of $62.4 billion. In 2005 we expect to reach $62 billion and

our forecast for 2006 anticipates yet another record of $63.5 billion.

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Our sales are strong now, but we cannot rest on our laurels because competition out there is growing. The world marketplace is

becoming more dynamic and American agriculture must continue

to adapt to compete. The solution is to keep our farmers and ranchers competitive in the global economy. That is why the President,

Ambassador Portman and I believe that trade liberalization will

enormously benefit American agriculture and frankly, the future of

agriculture in this country depends on expanded trade.

It has been 6 weeks since we last met with the members of this

committee. In that time the Ambassador and I have traveled the

globe and visited with other countries in an effort to move the

Doha Round. I have taken an active role in the WTO talks and for

that, I appreciate the Ambassador inviting me, encouraging me to

participate. As you know, there has been some successes and there

have been frustrations in this process. Now with some 40 days remaining before the WTO Ministerial in Hong Kong, the clock is

really ticking. We have to pick up the pace. We are beyond the

point where steps in the right direction will get us there. We need

to set a pace that is more along, a gallop, if Hong Kong is to be

successful. That is the message we have been sending to other parties and we will continue to press forward in our meetings, and I

might mention that both the Ambassador and I will be in London

and Geneva next week on meetings relative to the WTO.

Recently in Geneva, the United States introduced a comprehensive proposal that clearly demonstrated our ambition in the three

pillars. We have been credited with breathing new life into the negotiations by offering a bold proposal. Here are some of the highlights. We called for aggressive tariff cuts ranging from 50 to 90

percent and restricting to no more than 1 percent the number of

products that could be termed sensitive and subject to smaller tariff cuts. We also proposed that no tariff could exceed 75 percent of

value. This proposal indicated the level of market access that we

were looking for in exchange for the cuts in trade distorting domestic support.

We proposed to cut the amber box, AMS, by 60 percent. Our proposal addresses the primary concerns of our trading partners with

significant cuts in the amber and the blue boxes. When the other

reductions in trade distorting supports are included, overall U.S.

levels of allowable trade distorting domestic support would be reduced by 53 percent. Ambassador Portman will go into detail in

just a couple of minutes about the state of play on market access

in export competition. I can tell you this much though, we have a

pretty simple approach to a threshold for success. The U.S. expects

other WTO members to match the level of ambition that we have

put forward. We have shown our leadership, but of course, this

can’t be done alone.

Last week the EU offered a new market access proposal that

does not match the ambition of the U.S. proposal. Our negotiations

continue, but time is clearly running out. This administration is determined to expand economic opportunities for agriculture. We are

aggressively and strategically pursuing free trade agreements. In

addition, we continue to vigorously monitor and enforce agreements

that we have in place. We have heard your concerns loudly and

clearly and we share your frustration that too often sanitary and

11

phytosanitary trade barriers are used unjustifiably to block market

access. I assure you that the USDA, both in Washington and our

attache offices around the globe place top priority on these issues.

As many of you know, I have been traveling throughout our

great Nation to conduct farm bill forums to hear directly from our

farmers and ranchers. We have had forums now in about 40 States.

I have done 20 of those. I will do a couple more this week; one in

Washington State tomorrow and in Missouri on Friday. One thing

continues; we need to develop a farm bill for the future. The forums

have demonstrated that we must be bold. Currently, program crops

represent a quarter of production value, yet they receive virtually

all the funding.

The farmers who raise other crops, two-thirds of all farmers, receive very little support from current farm programs. We must look

to the future and focus more attention on research, promotion, increase sanitary and phytosanitary systems and access to new markets. U.S. agriculture cannot accept the status quo. Our farm programs have been found to be not compliant with current WTO

rules in the Brazil cotton case. We should not allow our policies to

be dismantled piece by piece by one challenge after another. We

must use the WTO to force markets open.

As I have said many times, I believe the 2002 farm bill was the

right policy for the economic conditions of the time. Times are

changing. As Secretary of Agriculture, I will work with you, do everything I can to offer you input in your crafting of the farm bill.

A true safety net is much more than subsidies, however. It must

also be about real market access. It must be inclusive and predictable and beyond challenge.

So in conclusion, our goal is fair trade. We would prefer to

achieve this objective through a successful conclusion of the Doha

negotiations. However, as we have made clear in Geneva, we have

no intention of unilaterally disarming. Our offer to reduce domestic

support is tied to progress in market access. To do otherwise would

not be fair trade. In the meantime, we will continue to pursue our

trade goals through pre-trade agreements and enforcements of

agreements in place. We do appreciate your continued support and

input. It is always appreciated and I will be glad to answer any

questions once Ambassador Portman has finished his statement.

Thank you, Mr. Chairman.

[The prepared statement of Secretary Johanns appears at the

conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Secretary. Ambassador Portman,

welcome.

STATEMENT OF HON. ROBERT PORTMAN, U.S. TRADE

REPRESENTATIVE

Ambassador PORTMAN. Thank you, Mr. Chairman. It is great to

be before the committee in public session. I appreciate the many

conversations and input I have gotten from a number of members

of the committee in my first 5 months on the job and I expect much

more in the future, including some today.

I would like to, Mr. Chairman, if I could to submit my written

comments for the record and instead go quickly through a presentation you should have in front of you which lays out some of the

12

challenges we have on the WTO front. It also goes through some

of our bilateral and regional trade agreements and then some enforcement issues. With your permission, Mr. Chairman, I will focus

on the WTO today, given your opening comments, but at the very

end of the presentation, I would like to spend a moment on compliance and particularly to announce a WTO action that we are taking today.

Mr. Chairman, you started off this hearing by saying that WTO

talks are essential to helping level the playing field for our farmers

and ranchers and that is what it is all about. There is no other way

to achieve the same level of fairness other than through these global trade talks I appreciate the comments of my friend, Mr. Peterson, on his concerns about either the U.S. offer or our approach,

but I will tell you, the status quo is not good and the status quo

disadvantages American farmers and American ranchers. And

again, the way to get at this is through free trade agreements on

a country-by-country basis, for maybe even Central America on a

regional basis, but you are not going to be able to get at these global disparities without doing it through the WTO.

So I think it is a worthy undertaking. It isn’t easy. It is difficult;

148 countries have to get together and decide by consensus how

they are going to move on and as you have seen with the European

offer recently, countries are very good about defending their own

interests. But the U.S. goal ought to be, I think, to push as hard

as we possibly can to try get a WTO agreement that makes sense

for our farmers and ranchers by basically lowering tariffs, lowering

other trade distorting subsidies like export subsidies, 87 percent of

which are European, to be able to be sure that our subsidies are

fair, as Collin Peterson said, and therefore to give our guys a fair

shake.

If you look at the beginning of the presentation where it says

Global Trade Talks, we are in the middle of this 4-year process now

of the Doha Round. It is supposed to end at the end of 2006, in part

because our trade promotion authority expires in 2007 and there

is something called a farm bill coming up in 2007, which means

that, as Secretary Johanns has said very well, we are at a crucial

point. There is a ministerial meeting at the end of the year in Hong

Kong. I know a number of you are planning to come. You have told

me about that and I welcome you. As I just told Mr. Costa, if you

come, you will be put to work. I think we don’t utilize our members

of Congress enough in advocacy for our farmers and ranchers and

if you do decide to come to Hong Kong, I look forward to seeing you

there and having you be part of this discussion.

There are three core negotiating areas in the Doha Round. Some

of you have been involved in all of this, Mr. Pomeroy and others

on the Ways and Means Committee. They are manufactured goods,

services and agriculture. I am not going to spend any time on these

except to say these are incredibly important to our economy, each

and every one. Manufactured goods is 62 percent of our exports

and the manufactured goods area is incredibly important to us because our tariffs here are about 3 percent, on average, on manufactured good, whereas the rest of the world, the average tariff is 30

percent. So reducing tariff barriers to our largest export markets,

and we are the world’s largest exporter of manufactured products,

13

is incredibly important to your districts and to our Nation’s economy.

Second is services. There again, we have more trade in services

than we do in agriculture and we have a comparative advantage.

We had about a $48 billion trade surplus last year in services, incredibly important to each and every one of your districts and incredibly important for our economy.

Agriculture is the third main pillar. And as we have talked about

already today, this committee has a special interest in that, of

course, but it is also very important to our economy and very important to level that playing field.

The next slide shows what our agricultural economy is today.

Bottom line is it is dependent on exports. Twenty-seven percent of

our income comes from exports. Think about if we didn’t have those

markets out there, the effect on pricing and think about the effect

on the fact that 1 out of every 3 acres in my home State of Ohio

and in most States in this country are planted for export now. It

is true that our growth markets are overseas. Our market is pretty

mature here. And we have great opportunities if we can knock

down some of these barriers to our agricultural exports. We have

got some of the most productive land in the world and the most

productive farmers in the world and we ought to let them compete

and compete fairly.

The Doha agenda is laid out here, building on this July 2004

framework. This is something that the United States and the other

147 members of WTO decided on a year and a few months ago and

that is an agriculture agenda divided into three pillars, as the Secretary said. One is market access, two is eliminating these export

subsidies I have talked about; export subsidies as compared to domestic subsidies. And third is to substantially reduce trade distorting agriculture subsidies around the world.

The next slide puts us into WTO speak. A lot of you have heard

about the amber box and the blue box and the green box; some of

you are very familiar with it, some of you are not so familiar. These

are basically categories where you put subsidies; the most trade

distorting would be amber, the least trade distorting would be

green. In fact, we would argue our green box payments are not

trade distorting, at all. One item in there, as an example, would

be the food stamp program. Under the agreement, again, we have

agreed to substantially reduce subsidies and the focus has been on

the amber box, but also on the blue.

Here is a way to look at it graphically in terms of what is going

on today, first pillar being agriculture market access. You can see

the U.S. tariff there at 12 percent, as the chairman said. You can

see the average is 62 percent; that is the global average at the far

right. And you can see what other countries do. The EU is at 31

percent here, for example. It is definitely in our interest to knock

down barriers on the tariff side because we are already relatively

open.

Under export subsidies, here the EU has about 87 percent of

these direct export subsidies, over $2 billion a year. This is something that, again, back in 2004 the members agreed to eliminate,

but didn’t set a date, so we need to push for a date certain and to

14

eliminate these export subsidies that unfairly, again, affect our

farmers and our ranchers.

Finally, last pillar is domestic support. This is what is happening

now and Mr. Peterson talked about this. The gold is the allowed

amount and the yellow is the actual used amount. Allowed is under

the WTO. Under the Uruguay Round, the last round, we were all

asked to reduce our subsidies depending on how much we have and

the Europeans were asked to reduce more than us, but they still

have a lot more than us. As you can see here, it is 41⁄2 times what

we are allowed and they use three times what we use. So they are

allowed to use 41⁄2 times more subsidies than we are under the current rules. So is Japan, incidentally, because this graph, of course,

is based on the absolute numbers as a percentage of their agriculture production. Japan has about 41⁄2 times more than we do,

also.

The next chart shows you what the Europeans are saying, which

is hey, we have already made our changes to our agriculture programs. We have already reduced our subsidies. And under their

cap reform they have reduced some of their subsidies as you can

look see from this chart, this is the last 10 years. The black line

is what the EU has allowed. The black bars are what they actually

used. Red is Japan, yellow is us. In the last 10 years we have increased our subsidies, whereas Japan and the Europeans have reduced their subsidies. That is what has happened over the last 10

years but still, the Europeans have 41⁄2 times what we have in

terms of what they are allowed to use, 41⁄2 to 1 and 3 to 1 in terms

of what they actually use.

Secretary Johanns mentioned the proposal we submitted on October 10. Three weeks ago we did make a bold proposal to break

the deadlock in agriculture. It has helped to shake things up. It

has helped to get us more focused on the real issues, which is market access, subsidies and again, export subsidies. Here is what the

proposal says, just to be clear. Substantial reductions in trade distorting support means a 60 percent cut for us in our allowed

amber. We say there needs to be an 83 percent cut for the EU and

Japan. That is fair. It takes us from 41⁄2 to 1 to 2 to 1. A substantial reduction in tariffs with higher cuts for higher tariffs. This is

a WTO and a Doha principle that the higher tariffs would be reduced the most. Again, you see our cuts are pretty ambitious; 59

to 90 percent cuts with no tariff cap, by the way.

We also limit the number of sensitive products. Under this

framework agreement from 2004 it was agreed that some products

could be kept out of the tariff formula and dealt with as sensitive

products and therefore subject to a tariff quota. We have said we

will live by that, but it has got to be a very small and a very limited number of products. Our proposal is 1 percent of total tariff

lines. And then finally, on the third tier of the third pillar, which

is export subsidies, we set a date, 2010, for total elimination of all

export subsidies. In the second stage, after 15 years, we would

phase out remaining tariffs and trade distorting support as others

do the same.

The next chart shows you where these proposals are currently in

terms of the three pillars. The first pillar, market access. Current

is on the left, the U.S. proposal is next over, then the G–20 proVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
15

posal. This, interestingly, is a group of developing countries led by

India and Brazil, but including a lot of other developing countries,

some of whom have defensive, some have offensive interests in agriculture. They have got a pretty good proposal. Not as good as

ours, but a pretty good proposal on market access and on sensitive

products.

And then there is the EU proposal. As you can see, they do call

for reductions of tariffs and that is why it is a step in the right direction. But my concern, which Mr. Peterson talked about, is that

they provide a huge loophole in terms of these sensitive products,

8 percent, which is 142 product lines in Europe. This is not about

our access to the European market, alone, although it is very important to us. It is also about the framework that will then be applied to the rest of the world. So sometimes the press and so on

have indicated this is a battle between the United States and the

EU and us trying to get access to their market. That is part of it.

But it is also about what will happen in these emerging developing

countries where we see real potential for our agricultural products,

where you have extremely high tariffs and other trade distorting

barriers to our trade. So we have got to be sure that this framework works for us, not just in Europe, but around the world.

The second page on the current proposal shows direct export subsidies. There again, our proposal is elimination. The third pillar

there is domestic support. It is an interesting chart because it

shows where we are now with the allowed, that is the gold. Projected is our actual, that is yellow, and then brown is our proposal.

Again, as you can see, the U.S. proposal is to reduce our trade distorting domestic support, the amber box, but also to have the Europeans and the Japanese reduce theirs more. So you end up, again,

with the 2 to 1 ratio, rather than the 41⁄2 to 1 ratio currently allowed under the WTO rules after the Uruguay Round.

The next chart shows the timetable. We talked about this a moment ago. But you might want to start at the bottom there, which

is the 2007 farm bill. That is when our farm bill expires, when it

is to be renewed. Going up from there, TPA, the Trade Promotion

Authority, under which we can take trade legislation to Congress

without amendments, expires in July 2007. This is why I believe

we need to complete these negotiations by the end of 2006; send

it to you all in Congress early in 2007, and have time to work

through this before TPA expires and before the farm bill.

Mr. Chairman, I said I am going to skip over the free trade

agreements. Let me just say that whether an agreement has been

implemented or is capped or whether they are agreements we have

recently complete, Australia, Chile, Morocco, Jordan, these have all

been beneficial to our agriculture products, our agricultural exports. I believe the ones coming up are, as well. Again, I won’t

spend a lot of time on this because I know you want to focus on

WTO, except to say, with regard to Bahrain, which could come up

soon, this is a good agreement for agriculture. If you look at page

14, you can see that it would be duty-free immediately for 98 percent of U.S. tariff lines, 81 percent of agriculture products to Bahrain. This is not a big market, but it is an important step in terms

of developing more free markets in the Middle East.

16

Bahrain would be another agreement to add to a Middle Eastern

free trade area, which would include, over time, we hope, not just

Morocco and Jordan and Israel, with which we already have free

trade agreements, but also countries like the United Arab Emirates, Oman, which we are close to completing and even Egypt,

which is a country we are talking to right now about a future free

trade agreement. So I hope you will support the Bahrain agreement. If you have any questions about that today or in the future,

I would love to talk to you about that.

Potential free trade partners, again, I won’t focus on this except

to say there are some exciting new opportunities here for agriculture. Korea is a huge agriculture market for us, as is Egypt. We

will only enter these free trade agreements with them and launch

the discussions if it makes sense for both of us, by the way. So we

haven’t launched these yet because we are still working through

some issues on their side, frankly, to be sure they can do what we

require, which is real market access in our free trade agreements.

Our free trade agreements are tough, they are the toughest in the

world. We require them to open their markets and we have got to

make sure they understand that before we launch these discussions.

The final area is enforcement. Again, if you could go to page 17,

we will get into some of the recent enforcement measures. I want

to talk about Turkey for a second. We have had discussions with

Turkey over the past couple of years. I have personally talked to

the trade minister there. We have had plenty of bilateral discussions telling them that we have serious concerns about the way

they restrict our rice exports. They have a licensing requirement

that is frankly unfair for our exporters, including requiring sometimes more than three times the amount of rice being exported and

purchased locally by someone who wants an import license. This is

simply unfair and that is why today we filed a WTO case against

Turkey. And I wanted to announce that here at the committee because I also want to say that I think it is our job at USTR not just

to negotiate free trade agreements and come up with a good Doha

deal for our farmers and ranchers, but also to be sure we are enforcing our laws and enforcing international obligations, which is

what the WTO is. So we will be aggressive with that. We have

been.

We filed a case against the Europeans recently on Airbus-Boeing,

which is the biggest WTO case ever filed. Where we can work it

out outside of litigation, we will, because I think often that makes

more sense. But where it is necessary to litigate, we will not hesitate to do so. Some of these other cases, just quickly, beef hormones, we won that case in 1996. We are retaliating now against

the Europeans. Japan apples, we had a big victory in August of

this year. Just a couple of months ago Japan changed their regulations to conform to the WTO decisions. Again, a lot of these are

SPS issues that we talked about earlier. We need to use the WTO

to our advantage with regard to SPS and other trade barriers.

The high fructose corn syrup case many of you have followed and

corn country follows carefully. We got a victory there back in August of this year, a few months ago. We are working with the Mexicans on implementing that decision now. Even GIs, geographical

17

indications, we had a victory in the WTO on that. We remind the

Europeans of that when they bring up GIs, as they did again, in

the context of their latest proposal. Canadian dairy, the United

States won back in 2003. Canada eliminated their export subsidies

on dairy above its WTO commitment level. Mexican rice anti-dumping. The EU biotechnology suit. I want to mention that because

this is a case we brought in August of 2003. We are eager for that

decision to come out and we expect the interim report to come out

on January 6, 2006. I wish it would come out even sooner. It is a

tough case, case of first impression. The panel is taking their time.

I hope that is good news for us because we believe we have a very

strong case. This is the GMO issue with which many of you have

been involved, with regard to Europe and the first big decision

point will be in January, since that case was brought.

With that, Mr. Chairman, again, I thank you for letting me come

before the committee and give you an update on Doha and several

other activities at USTR and look forward to your questions.

[The prepared statement of Ambassador Portman appears at the

conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Ambassador, and I will start

with the questions. Today is November 2; the WTO ministerial is

scheduled to begin on December 10. We have an offer from the EU

that has been described by them as a final offer. You say, and I

agree, and I know the ranking member agrees and many members

of this committee agree that it is not sufficient market access for

the United States, among other things. If we are to have a successful WTO ministerial by U.S. standards, when must we see improved offers from the EU on market access? And I will ask the

Secretary to answer that, as well as the Ambassador.

Ambassador PORTMAN. As the Secretary said, we will be in Europe on Monday meeting with the EU, also meeting with the Brazilian, Australian, Indian and Japanese trade ministers and agriculture ministers. And Mr. Chairman, my frank assessment is if we

can’t pull it together next week at our meeting in London or our

subsequent meetings Tuesday and Wednesday in Geneva, then I

think it is very difficult to see how we can pull together the other

issues like services and then non-agricultural market access issues

I talked about in time for a successful Hong Kong meeting. So the

pressure is on.

I had a telephone conference call this morning with some of these

same trade ministers and made that point as directly as we could.

The clock is ticking. And again, this is not just about U.S. access

to Europe. This is about the promise of Doha, which is reducing

barriers all around the world; not just our products, but

everybody’s products, which all the economists who have analyzed

this show will have a tremendously beneficial impact on world economic growth. In fact, those who look at it say this is the most likely for us to see real gains in terms of economic growth globally, especially in the developing countries. And the Europeans are talking

about their interest in development. This is a way to show their interest to be sure the Doha Round can be completed successfully.

The World Bank economists have indicated 300 million people

could be lifted out of poverty if we can reduce these barriers, not

just in the developed countries, but in the developing countries, for

18

south to south trade. So this is an opportunity we should not let

pass.

The CHAIRMAN. Mr. Secretary.

Secretary JOHANNS. There isn’t much I can add, because I agree

with the assessment. If we don’t see this thing coming together by

next week, we start to run out of time. Now, things can come together pretty quickly. When we put forward the proposal we did a

few weeks ago, all of a sudden two out of three pillars were taking

shape. Our proposal is contingent on market access. So it can happen, but it will require the really diligent effort by all members and

it will require a better proposal by the EU, in my opinion. But it

can happen.

The CHAIRMAN. A number of critical market access issues appear

to be off the agenda of the Doha Round. For example, the EU approval process for bio-engineered products and its failure to allow

access for U.S. beef, pork or poultry. Is there anything in the

emerging Doha Round agreement that would facilitate resolution of

these kinds of issues?

Ambassador PORTMAN. Like you said it well earlier, Mr. Chairman, the Doha Round ought to have as one of its goals that we do

stick with science and that we not allow ourselves to backtrack on

these SPS issues. As you know, there are proposals to do that. The

U.S. has fought them and we will fight them successfully. But on

the other hand, as you said, the Doha Round is about reducing tariffs and reducing trade distorting subsidies. It is not about reducing

these SPS issues, which are bilateral issues, so we have got to fight

them country by country and issue by issue. I mentioned the

biotech case for that reason because it is right on point of what you

are talking about with regard to corn and soybean exports to Europe. As you know, some of our corn is now going in. Some strains

have been approved, but we still have a major problem.

And we have a major problem with regard to beef hormones. We

are retaliating on that. The EU has countersued us on that, but the

retaliation continues, so they are absorbing increased tariffs that

we now have on their products because of beef hormones. We hope

we can resolve that issue with them. We are talking to them about

it, of course. And then on the processing issues you talked about

with regard to pork and poultry. That is something that the Secretary can probably address better than I can, but these are issues

that we are working very hard on because they do affect real market access. Even if you reduced tariffs and other barriers to our

trade that are directly trade related, if you still have these sanitary

and phytosanitary issues out there, our farmers aren’t getting the

access.

The CHAIRMAN. Let me put it in a different way, Mr. Ambassador. Even if we achieved our goals in the proposal that you put

forward in the negotiations, our five largest agricultural exports,

corn, soybeans, beef, pork and poultry would have no significant access to the European market, the largest consumer market in the

world, of relatively affluent consumers. Mr. Secretary, would you

care to address our concerns on this because it is going to be difficult to marshal the kind of support we need in this committee and

in this Congress from the agricultural sector, from rural America

19

for a WTO agreement if they don’t have confidence that even with

the agreement they are not going to get access to critical markets.

Secretary JOHANNS. Mr. Chairman, to respond directly to your

question, and this predates most of us, but when the Doha framework mission statement was put together, it was about development, but SPS issues really were not part of the structure of the

Doha Development Round. Therefore I will just be very candid. I

don’t see SPS issues being dealt with extensively in the Doha

Round. Now, having said that, that doesn’t, I hope you don’t take

that as an indication that I am playing down these issues. These

are huge issues. As you point out with the European Union, five

of our largest commodities don’t have access in any meaningful way

to this market.

We do have tools out there. They are not as fast as we would like

them, but we are retaliating relative to the European Union’s action. We make an assessment as to whether we should file a complaint, if you will, through the WTO process. Sometimes it makes

sense just simply because there is no other approach. Other times

we make a decision that we can negotiate and work our way

through the process. We went through that with the issue relative

to Japan and beef. But my point is this, it is not like we are completely without tools, it is just that they are cumbersome. I won’t

promise that when we come back from Hong Kong, even with a

successful round, that we will have this massive breakthrough on

SPS issues. We are going to have to continue to work those issues.

The CHAIRMAN. My time has expired, but Mr. Ambassador, I

want to explore one other issue with you before I turn the questioning over to Mr. Peterson. I wrote to you in July regarding the need

for a sectoral initiative in the Doha Round for the forest products

industry including wood and paper products. As you know, competitive pressures on this important industry are tremendous and they

are unlikely to benefit from a simple formula reduction in tariffs.

I would like to know whether you have made any progress in proposing a sectoral initiative for the wood and paper industry and if

not, why not?

Ambassador PORTMAN. We agree with you, as you know, and we

think that the sectoral approach makes sense, not just in wood and

forest products, but a number of other products, as well. It would

take a critical mass of countries to work with us where there is a

mutual interest in this. We have done it before. We have done it

in telecommunications. We are announcing something this week,

incidentally, in the high tech front that is similar to this sectoral

approach. And it is a way to make larger gains than you can make,

I think, through just reducing the tariffs through a formula. As you

know, this is something that we hope to get to in a more constructive way once the agriculture issues are resolved.

From the U.S. point of view, to get to industrial tariffs, to get to

the NAMA issues and non-agricultural market access issues, it is

very much our interest and we are pushing hard for that and we

making some progress with regard to the sectoral approach, including wood and forest products. We also want to get to services, because that is a huge interest of ours. But other countries are saying

we are willing to move on the issues where you have a big comparative advantage, but let us also talk about these agricultural

20

issues first and get those resolved because many developing countries believe they have at least a future comparative advantage in

agriculture, so that is one reason, despite what the EU and the

United States may wish, in terms of moving on to some of these

other issues in parallel, it is tough to get to them until we can resolve this agriculture issue.

And agriculture remains as it was at the outset, as the Secretary

said, central to Doha, and we need to resolve them. And we are

close enough to resolve them. Let me just mention one thing about

SPS. You spent a lot of time talking about this precautionary principle idea of the EU. I just would warn you there are other countries that want to go the other way on SPS and that is what we

will continue to fight and I believe we will be successful in fighting

that. And in the meantime we will be very aggressive at dealing

with these SPS issues one at a time, country by country because

they do affect market access. But it puts all the more pressure on

tariffs, also, Mr. Chairman. If the EU is not willing on its own, unilaterally, to deal with these SPS issues and we have to go through

these lawsuits and all the hard work we are doing, all the more

reason for them to keep these tariffs down, because if they do, we

can’t get access for many of our important agricultural products

and as you say one of our very important markets around the

world.

The CHAIRMAN. I have additional questions, but I will submit

them to you in writing and ask you to respond. The gentleman

from Minnesota is recognized.

Mr. PETERSON. Thank you, Mr. Chairman. Ambassador Portman,

reading your testimony, you mentioned in there that exports have

expanded, I think, quoting you now, ‘‘an astounding 29 percent

from 1994 to 2003.’’ I don’t know if that is astounding or not, it is

about the same rate, it looks to me, as our economy is growing, but

we had this discussion before. There is nothing in the testimony

again, about how many imports are coming into the country, and

my staff tells me that during that same period of time that we had

the exports increase 29 percent, agriculture imports expanded 74

percent, is that correct? And why do we only always talk about how

exports increased and we never talk about the other side of things,

which we need to take into account, I think, if we are going to figure out how we are doing with these things.

Ambassador PORTMAN. Yes, I agree with you and although we do

have a slight surplus in agricultural trade, it is a very slight surplus. Next year we will have another record level of exports in agriculture, but we also have more imports coming in. We still think

there will be a slight surplus. I would just say two things. One, and

this goes to your philosophy and people will differ on this, but my

focus is exports. If the U.S. consumer can get something for a lower

price and a better product, I am not sure we should be standing

in the way, as long as it is fair, as long as we get a shot at sending

our exports overseas.

And you know, what I don’t like about the situation now, not to keep picking on Europe, but they have about a $12 billion surplus

with us and it is primarily processed foods, wine, cheese, some of

which some of you on the committee may enjoy from time to time.

But they ought to then be willing to open up to our commodities

21

and our value added products like pork and beef and poultry, so

I am less concerned about those imports than I am about the exports. I think the key is to open up these markets to our products

and we can compete. We can win, I believe, if we level this playing

field, our farmers and ranchers are the most productive in the

world. I am not afraid of that. But we have got to have the ability

to have more access.

Mr. PETERSON. Well, yes, I just think that we need to have all

this on the table. You know, at one time we had a pretty big surplus in agriculture and it has eroded away and that concerns a lot

of folks, at least in my area. You know, we have been talking

about, some of us, about where this is all heading. I think it is

hard to say exactly what is going to happen in this Doha Round,

whether, I mean in Hong Kong and whether this thing is going to

move ahead or not.

Like a lot of folks concerned in my district, a lot of folks in the

commodity groups that are concerned about this offer that you put

on the table and what happens if we get up to writing the farm

bill and we still haven’t got a deal, are we going to have to try to

write a farm bill without knowing what the potential outcome is

going to be? We are, have been putting together, and are close to

introducing a bill to say that we should not rewrite the farm bill

until we actually get the implementing legislation from the president so we know exactly what we are dealing with.

Now, according to your timeframe here, maybe that is not going

to be an issue because TPA expires and all that sort of thing, but

I can see a scenario where we could be sitting here in the summer

of 2007 and this thing could still be dragging on. The Uruguay

Round drug on way beyond what anybody thought it was going to

and so if we did something like that, introduced a bill, is that helpful or hurtful to what you are trying to accomplish in Hong Kong?

Ambassador PORTMAN. Well, again, you and I discussed this last

night briefly, but I hope we will keep to this timetable for a lot of

reasons. One, as you said, is the fact that Trade Promotion Authority expires and as you recall, Collin, it took us 9 years last time

to reauthorize TPA. I hope that wouldn’t happen again. I hope we

do it immediately, but it is a big risk, frankly. So my goal at this

point is to keep pressure on all of us, including USTR, but also our

foreign partners, our trading partners, to say let us meet this deadline. We can do it, we know the general outlines of what has to be

done here. It is a matter of leveling the playing field and so I would

hope that is what we would do. I don’t know if it would help or

hurt if you did it now. I think you will have plenty of time to make

that decision because a year from now we still will be in a position

where we are still negotiating, I suspect.

Mr. PETERSON. My time is probably over. What happens if we get

to the end of TPA and we don’t have a deal? Are we just going to

say we are not going to do anything?

Ambassador PORTMAN. Well, I don’t know. There have been various approaches taken over the years. You could see a reauthorization of TPA, as a whole. Right away you could see it for a limited

purpose. You do have to submit the legislation in advance, as you

know, 90 days in advance. So the key is to be able to sign that

agreement before TPA expires. Again, I would hope we wouldn’t get

22

into that situation. I would hope that we would be in a position of

pulling this together. It has been 4 years.

Mr. PETERSON. Well, I just hope that everybody understands

that, at least people in my part of the world, are very uncomfortable with this offer we made and they are very uncomfortable with

the idea that they might be asked to jump into a new farm bill

without knowing what the heck is going on and that is, I think, a

legitimate concern and you know, we are, I think, responding to

what we are hearing from our constituents, so I just hope you take

that under advisement.

Ambassador PORTMAN. Well, thank you. I will.

The CHAIRMAN. I thank the gentleman. The gentleman from Nebraska, Mr. Osborne, is recognized.

Mr. OSBORNE. Thank you and Secretary Johanns, thanks for

being here. Nice to see you again. Ambassador Portman, my workout partner, it is good to see you and I appreciate very much what

you are attempting to do here. The question I have is this, when

you look at the European Union and the United States, we are

talking about roughly equivalent economies. I think the European

Union’s about $9 trillion, we are about $11 trillion. And given that

situation, why should they be accorded any advantage? I know you

are saying well, we want the have the European Union reduce

trade subsidies amber box by 83 percent and we are going to go

down 60 percent. But as Mr. Peterson mentioned, that is still a disparity of $15 billion to $7.5 billion. So it still seems that they are

carving out some protected products to a larger degree than we are

and so I know where you are headed and I know what you are trying to do, but why not just say hey, we want a straight across even

break and that is what we are shooting for.

Ambassador PORTMAN. That is what we are shooting for. As you

know, our proposal includes total elimination of all subsidies in the

second stage after 15 years, and so it is in our proposal. But that

first 5 years, it would be nice to get them from 41⁄2 to 1 down to

2 to 1. You all are legislators and you deal with the art of the possible every day, but my point to the farm community, when I talk

to them and we are getting a lot of support, as you know, from a

lot of groups, farm groups, for our proposal, in fact, some enthusiastic support is that it is better than the status quo in a lot of

ways.

One is on the subsidy side that you mentioned, how else are you

going to get the Europeans and the Japanese to reduce their subsidies to the point that there is more fair competition? This is our

forum to do it and as you know, they don’t want to go to 2 to 1.

Their proposal is to go to about, as I read it, about 31⁄2 to 1. They

are at 41⁄2 to 1 now, but they actually use 3 to 1. But second is

market access. How are we going to get the market access if we

don’t do this? How are we going to get the export subsidies eliminated, which is totally in our interest. About 87 percent of that is

used by the EU against us, often, in third country markets.

Finally, how are we going to get more protection for our farmers

and our commodities on the litigation? We saw what happened

with the cotton case, some of you have been very involved in that.

We need some protection and so the status quo exposes us on litigation. It doesn’t get us market access, doesn’t get us the subsidy

23

cuts, it doesn’t get us eliminating the export subsidies. I would like

to take a shot at this. This is worth doing, as the chairman said

at the outset and I agree with you, we ought to have not just parity, but elimination of these subsidies over time and that is part

of the proposal, part of the president’s vision.

Mr. OSBORNE. Well, thank you. And I understand what you are

up against. We were, in Europe, we dealt with this problem to the

same degree that you have.

Ambassador PORTMAN. Thank you for your statement last night,

by the way.

Mr. OSBORNE. Well, did the best I could. I have a couple of other

questions. If we somewhat unilaterally disarm and the European

Union would, for some reason, go along with us, what about Brazil,

places where land very comparable to our best land is $300, $500

an acre, labor is 50 cents an hour. I would have a strong belief that

they are very much in favor of seeing this happen to us and to the

European Union and then a follow-up question is that how do we

ensure compliance because we have had a lot of agreements that

look pretty good on paper, but in actual practice hasn’t worked out

very good and of course, we have talked about the European Union

and beef and all these things, so those are, I guess, my two closing

questions if either of you would care to comment.

Secretary JOHANNS. Your observation about Brazil is correct.

They are a world class competitor, not just in soybeans, but in

other commodities, also, and you know, we can’t hide from that. We

raise a lot of soybeans in this country and we have to take that

issue head on. I think the Ambassador’s comments generally are

absolutely right on target. There are some who argue, somehow

this is going to turn out and the world will be fine if we don’t get

a result from the WTO process, but the reality is the world isn’t

fine today. We are getting challenged on our programs. We saw

that with cotton. Uruguay is looking at rice, Canada is looking at

corn. The subsidies in Europe are about at least what they are authorized, four times what we do and what they are actually using

is about three times.

It truly is the art of the possible and it is moving a big step forward in the first 5 years. We take about 5 years to assess and reassess and then we have another 5 years where we literally bring

these subsidies down to, and tariffs down to, open market access.

I maintain this, if we are given the opportunity to compete, we will

compete with anyone. We are efficient, we have an agriculture system that really is truly second to none, Brazil or anyone. Our difficulty these days is that the playing field isn’t very level in many

parts of the world and so you will only get to these issues through

the world trade negotiations. You don’t get the subsidies in bilateral discussions. It is only by this global approach that we have a

shot at this in really bringing about world reform in terms of how

agriculture is treated in a different way depending upon where you

are at, what country you are in.

The CHAIRMAN. I thank the gentleman. The gentlewoman from

South Dakota, Ms. Herseth, is recognized.

Ms. HERSETH. Thank you, Mr. Chairman, and I would like to

thank the Secretary and the Ambassador for being here today and

if I could begin with you, Ambassador Portman, I appreciate your

24

commitment to taking a shot at this and I appreciate the points

that you made to me a few days ago about the Doha Round being

really the only way we can get at the Canadian wheat port, the

only way we can get at the state trading enterprises in Australia,

but if your meetings next week in London and Geneva do not result

in an improvement of what the EU has put on the table, do we

have the commitment of the administration to withdraw the offer

of a 60 percent cut in AMS or amber box support?

Ambassador PORTMAN. Well, first of all, I differ a little bit from

some of the observers on this. I don’t think it is, maybe this is not

the right approach for negotiating, but I don’t think it is so much

waiting for another EU offer. I think it is getting the EU to come

to a reasonable proposal because most of the rest of the world is

behind us, in other words, building a consensus, so my hope is not

necessarily based on the EU coming up with a great offer; I don’t

know that that is possible, frankly.

But I think it is important that we continue to do what we have

done, I think, very effectively over the last 3 weeks, which is to

make the point that to meet the requirements of Doha, not the U.S.

requirements, but the requirement of Doha, which are significant

improvement, substantial improvement in market access. Substantial improvement in market access is not the EU offer. It is a 39

percent average tariff cut, so that is not high enough, but more importantly to me are these exceptions that Collin talked about earlier.

And so the goal next week is to continue to work with these G–

20 countries I talked about in the developing world, with our trading partners around the world, like Australia, Brazil, Canada and

New Zealand, all of which have stuck with us, with our proposal,

by the way and they should be commended for that, and to try to

be sure that European Union and others who are blocking this understand that they are risking the loss of tremendous benefits to

their economies and to the world economy and as long there is a

serious discussion out there that the U.S. proposal ought to be on

the table, if at the end of the day we can’t get an agreement that

makes sense for our farmers and ranchers, we won’t agree to it.

Ms. HERSETH. I agree and hope that the pressure coming from

the other countries that have been behind our proposal results in

what we all hope will be the outcome here as it relates to the EU,

but let us shift from the EU and if you might, Secretary Johanns,

in response to Mr. Osborne’s question did address Brazil, if you

could explain to the committee how developing country offers on

market access particularly offers from the advanced developing

countries of Brazil, China, even India, do they meet the level of

ambition called for by the United States in its October modalities

proposal?

Ambassador PORTMAN. Was that for me, Stephanie?

Ms. HERSETH. Yes.

Ambassador PORTMAN. I have to be careful about this because a

lot of the developing country proposals aren’t on the table yet and

in our own proposal, we do not flesh out the developing country

proposal in the way we flesh it out for developed countries because

under the WTO there is this rule about special and differential

treatment and special products for developing countries. I have

25

said, I am not sure publicly yet, but I will now, that I am disappointed that the G–20 proposal, which is the proposal that you

are talking about, I believe, does not go far enough in terms of developing countries. And I say that for the simple reason that these

tariffs are extremely high in many of these developing countries.

You saw this on the chart, 114 percent average tariff in India, for

instance.

Then there is a lot of what they call water in the WTO, which

means buffer between what they are allowed and what they actually apply. And so if you cut from the allowed rate, which is what

the WTO tradition has been and what Doha will be again, whether

it is subsidies or whether it is tariffs, often you will see no new

market access for our products or for that matter, for products from

other countries around the world. So to answer your question, I

was disappointed with that offer as I told you the other day; you

follow this stuff closely. You also noticed on the G–20 proposal on

the developed countries it was more ambitious and that is the part

of the G–20 proposal that we have said was a very constructive

offer and we have said that the solution we believe lies somewhere

between that G–20 offer and the U.S. offer that I talked about earlier.

Ms. HERSETH. Thank you. Mr. Secretary, just one question here.

I think my time is about up. Our negotiators have made it clear

to their counterparts that the offer of a 60 percent cut in U.S. farm

support would require fundamental changes in U.S. farm programs, so to follow up on Mr. Peterson’s questioning and the

thoughts that he shared with you about how those from his part

of the country that are similar to those in my part of the country

would support extending the current farm bill. In the event that we

didn’t do that, Mr. Secretary, if you were writing the next farm bill,

what types of changes would you intend? Sharp reductions in marketing loan rates or elimination of those programs or could you just

maybe share some of your thoughts there at this time to the extent

that from the listening sessions, which I commend you for, for

hosting around the country, have shed some light on what types of

fundamental changes you might recommend out of the Department?

Secretary JOHANNS. We haven’t made any specific proposals yet

and I would say we are still months away from that. We are assembling information from the farm bill listening sessions, but I

did give a speech recently to the commodity groups here in Washington and just outlined some general visions and I will make sure

that a copy of that is sent to you. I hear some overall impressions

that I can offer as we have made our way through these listening

tours.

We have done now about 40 States. We will do, when it is all

said and done, I think about 48 States. The only two that we are

not going to do at this time is Louisiana and Mississippi for hurricane reasons. They have got their hands full. We have been from

coast to coast. It is an interesting debate that is going on out there

relative to the commodity programs and here is why, here is the

basis for that debate. Two-thirds of American farmers really receive no subsidies. Ninety percent of our payments to the farm bill

go to five crops; corn, soybeans, cotton, wheat and rice, five crops.

26

Now, I won’t say that when I was out in California those who

grow fruits and vegetables want to become a program crop, but

they are saying that we have real needs here. We have needs for

research, we have needs for emphasis on market promotion, we

have needs for SPS enforcement and so they raised a lot of very,

very interesting issues. If you examine the discussion about the

safety net, that raises another issue. I made the statement recently

that the risk is that staying with the current program is a greater

risk than examining how best to approach the new farm bill. I supported the 2002 farm bill as a governor. I believed it made sense

for the economic times, but times do change.

I would strongly advocate to this committee, you are going to

write a farm bill. We are going to do everything we can to offer our

thoughts and proposals, maybe even a specific piece of legislation,

but I hope that there is focus on writing the farm bill in 2007, setting aside what we may or may not get done through the WTO

process, we really, really owe it to agriculture in the United States

to have a discussion about farm policy and where we should be

headed and what best serves all of agriculture in the United

States.

And then, last thing I would mention, Congresswoman, is that

how we address world trade should also be a factor. I am not saying the WTO should write our farm bill or it should be written in

Geneva or whatever, I am just saying 27 percent of our agriculture

receipts do come from trade. Like it or not, debate it, discuss it and

cuss it, but the reality is 27 percent of our receipts come from

trade. How do we best deal with our support for agriculture recognizing that and then, if there was one very important point to

make, as your Secretary, I will always argue that an economic investment in agriculture makes a tremendous amount of sense for

another whole half hour of reasons I could give you. How we do it,

I think, is really important and how we craft this farm bill and

how we provide for that support, I believe, is just enormously important, but I will always make the case that investment in agriculture is a wise Federal policy, but we have to be thoughtful about

how we do it.

The CHAIRMAN. Thank you. The gentleman from Louisiana, Mr.

Boustany.

Mr. BOUSTANY. Thank you, Mr. Chairman. Secretary Johanns,

Ambassador Portman, good to see you again and thank you for

your prodigious work in trying to open markets for U.S. farmers

and producers. Ambassador, I was pleased to hear your announcement that we are filing against Turkey at the WTO for unfair restrictions on rice exports and along those lines, as well, I understand that Uruguay is considering a challenge to the U.S. rice program within the WTO and it seems to me that challenging another

commodity program so soon after the cotton case and so close to

the Hong Kong ministerial sends a very negative signal or message

to our U.S. agricultural sector and so could you outline what steps

that you might be taking at this time to convince Uruguay not to

file a case or do you plan to address this in Hong Kong?

Ambassador PORTMAN. Thank you first for your help on that case

and helping us with a rice industry petition and your support of

U.S. rice. With regard to Uruguay, it has been helpful to have a

27

proposal out there. In the last 3 weeks, in my view, there has been

a change in attitude in Uruguay. We have had consultations with

them on this very issue you raised and the fact that we can say

our trade distorting support is on the table, not all of it, but some

of it and that we are willing to make some reforms so long as the

rest of the world goes along with the other two pillars; export competition, which is the export subsidies being eliminated and the

market access we talked about, has led them to take a different approach.

So at this point, I will tell you that although I think they have

preserved their right to move forward, they have indicated that

they are not moving forward. But there is some exposure here, obviously and that is one reason I like the idea of resolving some of

these issues of the Doha Round, not just on the export competition

and market access side, but also on the subsidy side and also on

providing some more certainty to our farmers regarding the programs that we have.

Mr. BOUSTANY. Thank you. I also understand that Korea has yet

to implement its commitment to increase market access for rice

that was already negotiated, while at the same time now Korea is

asking to move forward with a free trade agreement. Could you

give us an update on that situation?

Ambassador PORTMAN. Thank you for that. You know, we are in

discussions with Korea about the possibility of launching a free

trade agreement, as I said earlier, and among the issues we are

discussing with them are beef and BSE. They currently have a ban

in place. We think it is important that that ban be dealt with in

a responsible way and in a science-based way. This is not something new. We have been advocating this ever since the ban was

instituted and we are also talking to them about rice. I believe they

are moving forward with some legislation, as I understand it, before the end of the year in that regard, but I will double check on

that and get back to you, Charles.

Mr. BOUSTANY. Thank you very much. That is all I have.

The CHAIRMAN. The gentleman from California, Mr. Costa.

Mr. COSTA. Thank you very much, Mr. Chairman. I thank you

for holding the hearing this afternoon in continuation of trying to

ensure America’s farmers and ranchers have the opportunity to

weigh in as it relates to not only to current trade issues, but certainly the 2007 reauthorization. Question to the Secretary and to

the Ambassador, you described, and let me just make a comment

on your previous statement; I don’t think we should write the 2007

farm bill in reaction, necessarily, to our trade issues, but because

of the very important aspect of those trade issues, I think we would

be derelict if, in fact, we did not take those into account. And for

those of us who are suggesting that possibly in the event that these

timelines that run concurrent are not met, that in fact, we give an

opportunity.

So I think I don’t necessarily, maybe these are strategies, but

certainly, we have to write a 2007 farm bill that looks at the long

term wellbeing of U.S. agriculture and not the short term. Unfortunately, we are not talking about, we won’t have the testimony of

specialty crop growers in here today and I noted that to the chairman, but hopefully in the future we will. As you know, Mr. SecVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
28

retary, as a result of the success of NAFTA, there has been a tremendous amount of export, especially in California, on fruit products, tree fruit products to Mexico. Two years ago it was 2.3 million

boxes and then last year it dropped to 1.3 million. And I know in

your comments you talked about the rough tools that you have to

deal with, but as we all know, in the case of Mexico, it was

phytosanitary standards that was the issue that they raised.

I want to know to what degree the USDA is prepared to deal

with whether they are rough tools or not in which fair trade is

being bypassed for provincial reasons, as I believe was the case last

year with this export to Mexico.

Secretary JOHANNS. We are prepared to do everything we can,

working with you, Congressman, working with your constituents,

working with the trade associations to be as aggressive as we possibly can. The most visible case that we have dealt with, of course,

is the beef issue relative to Japan.

Mr. COSTAS. Right.

Secretary JOHANNS. But these issues, as you know, they pop up

in a given commodity on a fairly regular basis and you know, if I

were to articulate a perfect world, it would be that we would have

good trade agreements and then the ability to aggressively enforce

those agreements. I applaud the Ambassador’s decision to pursue

this rice issue. I just think that is exactly the kind of thing we need

to do and with some countries, the relationship is such that we can

just deal with the issues informally. We can solve problems very

quickly, we engage quickly and many of these never rise to the surface. We get the problem handled even before maybe it comes to

your desk. In other situations, like the one you have mentioned, it

percolates and we just need to be as aggressive, but we are absolutely committed. My direction is don’t let these issues fester. Get

on top of them, deal with them and do everything we can to enforce.

Mr. COSTAS. I think whatever the country may be, in this case

it was with Mexico on phytosanitary standards, but I think they

have to understand that we are prepared, based on sound science,

to stand up for American farmers and ranchers because if fair

trade is going to work, free trade is going to work, it has to be fair

trade.

Ambassador PORTMAN. To touch just briefly on that one, I was

just checking with the team here, because I remembered that we

had had some discussions with Mexico on stone fruit, I think is

what you are talking about.

Mr. COSTAS. Right.

Ambassador PORTMAN. That is the plums, peaches.

Mr. COSTAS. Yes.

Ambassador PORTMAN. And we do have, as you know, I think, a

protocol now for next season and we think we have fixed this particular problem.

Mr. COSTAS. Good.

Ambassador PORTMAN. And you know, the leverage we had included those tools in the toolbox.

Mr. COSTAS. Right.

Ambassador PORTMAN. We didn’t have to pull out and use litigation and in this case I think we have solved it.

29

Mr. COSTAS. Mr. Ambassador, before my time runs out, quickly,

a question to you as it relates to the framework and the negotiations and it is a follow-up of Congressman Peterson’s question on

strategies. I mean, goals and strategies, I think we all share the

same goals and that is to make sure this free trade is fair trade

and that, in fact, we look at the long-term interests of American

agriculture. As it relates to the strategies, what is the harm? It

seems to me and outside of the Congress and Congress being meddlesome, and of course, I suspect when you were sitting here with

us, you didn’t think probably we were being meddlesome, but in

terms of the good cop/bad cop strategy, to let those folks know

whether it is in Europe or whether it is in Hong Kong, that these

folks in Congress are very serious and they are frustrated and they

don’t like being taken advantage of when they have to go home and

talk to their farmers and ranchers, in delaying and not putting the

cart before the horse and saying we want to see what you are going

to do, we have made our offers, we want to see what you are going

to do.

Ambassador PORTMAN. I think it can be quite effective and I

think it is sincere. I think you do have legitimate frustrations that

you hear back home and you bring to Washington and sometimes

express for a resolution or a bill Jerry Moran has done this on beef

in Japan; it has been helpful to me, frankly, I believe, and so I appreciate that. And I know you have got a special interest in this

and you said no specialty crop folks are testifying. You are testifying, so since you are a grower——

Mr. COSTAS. In lieu of.

Ambassador PORTMAN. In lieu of the experts you can represent

them, but you know, you have got a lot of experience and background in this, so when you make a statement, I talked to you earlier about coming to Hong Kong and working on some of these agricultural issues, it does make a difference. I represent your point of

view all the time by saying Congress is serious about this and you

know, they will respond in kind unless something happens and I

am sincere about it, you are sincere about it. I think it is the way

our system works. We have a very representative government. Not

all countries have that. Some countries don’t understand the power

of our legislature. I would point to China as an example, where

sometimes they don’t appreciate the ability of Congress to take action and the inability of the administration to stop some of those

actions. So I think it can be very effective.

Mr. COSTAS. Thank you, Mr. Ambassador. Thank you, Mr. Secretary. And Mr. Chairman, I will submit questions later on for the

record to the witnesses. Thank you.

The CHAIRMAN. I thank the gentleman and in response to the

gentleman’s observation about the witnesses on the ensuing two

panels, let me just say to the gentleman that the hearing has been

on the calendar since October 13, nearly 3 weeks and during that

time we did not ever hear from anybody in the fruit and vegetable

industry requesting to have a witness on either panel. We certainly

value their input and in future hearings they would like to participate, they simply need to let us know. Both the majority and minority’s panel of witnesses did not include them, but that certainly

not a reflection of any feeling on what kind of contribution they

30

could make. It is just that there are scores and scores of different

commodity groups that are interested in trade and we can include

them in the future, but they do need to speak up and let us know

when they see something on the——

Mr. COSTAS. Well, thank you, Mr. Chairman, and we hope in the

future we will be able to include them. They do play an important

role in America’s exports.

The CHAIRMAN. I thank the gentleman. The gentleman from

Michigan, Mr. Schwarz, is recognized.

Mr. SCHWARZ. Mr. Secretary, Mr. Ambassador, thank you very

much for being here this afternoon. The members of the committee

received a letter communication dated October 25 from the Ambassador of Japan regarding beef exports and talking about what I interpret as saying that there is no greater danger from bovine

spongiform encephalopathy from American beef than there is from

domestic beef in Japan and then a list of six caveats which, having

lived in Asia for almost 5 years, I understand that lists of caveats

are sometimes nuanced ways of stalling.

So I would like your comments, Mr. Ambassador and Mr. Secretary, on whether or not you feel the letter, and I believe you have

seen the letter, have you not? Whether the letter from the, His Excellency the Ambassador of Japan, is a positive step, is just kind

of holding the line or finally going to break through and allow

American beef, they are finally going to break through and allow

American beef to be exported to Japan, which I believe is what,

about $1.5 billion, $1.6 billion a year in business for American beef

producers?

Secretary JOHANNS. First thing I would say, just again, to be

very direct in my response to your question, it is a positive step.

Japan has signaled that after months of analysis, that our beef is

equivalent to theirs, relative to BSE safety issues. That statement

alone is worth applause and it is a positive step. The conditions,

I don’t have the letter right in front of me, but the conditions

raised in that letter, we feel we can work with Japan. I have reviewed the letter. I really do believe that finally we are seeing the

light at the end of this tunnel. We are in a comment period here,

I think, for 30 days, but then a decision can be made, as I understand the process. I will also use your question to tell you that our

discussions have gone well with Korea and with other countries

around the world, so I continue to be encouraged by our progress

here, although, as you know, it has been painfully slow.

I would also just offer a comment, and the Ambassador referred

to this, your efforts are appreciated. The president’s efforts are appreciated. We knew that this was going to have to involve everybody and it has and I think we are making a step here that sends

a signal that we are going to trade beef. Last thought, keep in

mind, right before I arrived, we agreed to 20-month and under

product and so that is going to be somewhat limiting, more than

somewhat limiting, but it is a place to start. We will continue to

engage Japan on moving that to the international standard of 30

months, but very definitely, I will celebrate the day that we start

moving beef into these markets, and it looks like we are getting

there.

31

Ambassador PORTMAN. Dr. Schwarz, I would add very little to

what the Secretary has said very well, except to say we have raised

this repeatedly and I have been very critical of the Japanese’ timing and process and I think they have run out of time. They have

now set in motion, through the approval of the Food and Safety

Commission of the subcommittee report today, a public comment

period and then, as the Secretary said, some conditions that the

Secretary believes can easily be met, which means this market

should open by the end of the year. If that does not happen, then

we have a real problem and you know, I think it is overdue, but

I do think it is good news. Then as the Secretary said, the next

thing we start working on is over 20 months, but this is a good day

after a lot of frustration, that we are seeing progress in the right

direction.

Mr. SCHWARZ. I could conclude and the committee can conclude

that in some, we have reason to be encouraged. Thank you. Thank

you, Mr. Chairman.

The CHAIRMAN. Thank the gentleman. The gentleman from

Washington, Mr. Larsen, is recognized.

Mr. LARSEN. Thank you, Mr. Chairman. Mr. Ambassador and

Secretary, thanks for being here today. Mr. Ambassador, this

month the president is going to Korea for APEC, if I am not mistaken. Do we expect a position from APEC to come out with regard

to the Hong Kong ministerial and what do we expect that position

to be, perhaps?

Ambassador PORTMAN. Good question. I hope we will get a strong

statement from the APEC countries through their trade ministers

as part of this meeting. There will be a meeting of the trade ministers of the 21 countries. As you recall, 3 months ago we had a

similar meeting and came out with a very strong statement on

these non-agricultural market access talks saying we ought to

adopt a, what is called a Swiss formula, which reduces highest tariffs the most and is a proposal, frankly, the United States has been

advocating for the last few years, so it could be very constructive

to have the APEC countries once again undertake that kind of an

initiative and we will certainly be promoting that.

Second, the last APEC meeting, we made some progress on intellectual property protection. As you know, that region of the country, or the world, APEC, which is the Pacific Asian region is the

most dynamic economic region in the world. Over half the trade in

the world is conducted by these 21 countries and yet, it is also a

region of the world where there is a lot of piracy and so I am hoping that in addition to the Doha focus, we can also make another

strong statement with regard to intellectual property protection

and getting into the countries in that region. We are focused on

this. It could have a major beneficial impact to our exports because

our knowledge-based exports, in my view, are disproportionately affected by the theft of intellectual property that is currently going

on in that region.

Mr. LARSEN. To be more specific, do you expect an APEC position

on the agricultural proposals?

Ambassador PORTMAN. That is a good question. I am not sure.

Mr. LARSEN. I must be full of good questions.

32

Ambassador PORTMAN. Yes, yes. You know, we didn’t push it

that last time in part because you have such divergent interests at

that meeting. As you know, you have Japan there and China and

Korea and Malaysia and it is a group of countries, some of which

have more defensive interests in agriculture, like Japan, and others, like Korea, have defensive interests in terms of rice. So I will

say that those countries in APEC, in my view, understand the bigger picture perhaps better than some countries.

In other words, they are supportive of Doha to a country and

supportive of the idea of enhancing trade, in part because they

have made a lot of progress in their economies over the last couple

decades doing precisely that. In some cases unilaterally and in

other cases through bilateral regional agreements they reduce their

barriers and it has worked for them. Korea is a great example. People talk about should the United States pull up a ladder and

should we be more protective and I can point to two very contrasting examples. One is North Korea, that has done the ultimate in

that. They don’t trade with anybody and it is a country that has

been impoverished.

And look at South Korea. In the last two decades, they have gone

from truly being a lesser developed country to, I would argue, very

close to a developed country, although for their purposes they still

like to be considered a developing country for the WTO definition,

but truly, it is an incredible story and it is based on trade, so that

area of the world has been helpful and I think we can make a

strong statement on Doha. Whether we can come up with a consensus on agriculture would be difficult, but possible. I will work on

that now.

Mr. LARSEN. Thank you. I want to understand just a few things.

The cuts that we are proposing, the cuts that EU has proposed, are

basically from allowed levels as opposed to actual levels and you

said that is sort of the standard procedure.

Ambassador PORTMAN. That is correct. That is why the 83 percent cut, we think it is important for the European Union because

it is coming from their WTO allowed amount.

Mr. LARSEN. And that would, the 83 percent cut, then, get them

down to a——

Ambassador PORTMAN. A 2 to 1 ratio with the United States.

Mr. LARSEN. Would it start to get into the actual——

Ambassador PORTMAN. Yes. Good point. Another good point.

Mr. LARSEN. Yes.

Ambassador PORTMAN. You are on a roll, Larsen.

Mr. LARSEN. It is a great day, great day. Just to clarify, my last,

the amber box here. The last thing with regard to the developing

countries, the G–20 proposal. I think it to clarify Stephanie’s point

for me, you said it is a positive with regard to south to south relationship, not so much as north to south, south to north relationship?

Ambassador PORTMAN. Well, what I said was with regard to the

developed countries, the formula, we think, is a positive and constructive step. With regard to the developing countries, we don’t

think it is ambitious enough and as you know, in the Doha Round,

there is a distinction between developing countries and developed

with regard to these tariff reductions in all areas. And our interest

33

is not just in these more mature markets like the European market, as important as it is, but is also being in making sure that we

have a fair shake in these emerging economies in the developing

world. India and China and Brazil might be good examples of that.

Mr. LARSEN. Thank you very much. I will quit while I am ahead.

Thanks.

The CHAIRMAN. The gentleman from Texas, Mr. Conaway, is recognized.

Mr. CONAWAY. Thank you, Mr. Chairman. Secretary and Ambassador, thank you all for being here today. I appreciate that. China,

we can export about 4 billion bales of cotton each year to China

with about a 1 percent tariff. Anything over that has upped to a

variable rate of up to 40 percent. Can we expect any kind of help

with China through this round of negotiations in that regard?

Ambassador PORTMAN. Yes, and this would be within the overall

framework we are talking about. China would be required, just as

the United States would be required, to reduce tariffs and they

would be able to select some sensitive products, as we said earlier.

The United States would like to keep that sensitive product exception very limited. The G–20 proposal, by the way, on developing

countries with regard to sensitive products, we think is a very good

proposal. It only has 1.5 percent of tariff lines, so it is more the

tariff issue that I was talking about on sensitive products. It is actually very positive and China would be subject to that. They could

choose to take cotton and use it as one of their sensitive products,

but still they would have to base it on a TRQ that would be relatively generous. So we are hopeful there. China, I think, is the

world’s biggest importer of cotton now, so that would be important

for our markets, for our market access.

Mr. CONAWAY. Could you talk to us a little bit about the specifics

on the U.S. proposal in terms of perhaps moving the counter-cyclical payments out of the amber box and realistically pushing the EU

to give up their export subsidies by 2010?

Ambassador PORTMAN. We are still negotiating on all these

issues, but in 2004 there was an agreement to describe the blue

box type payments in the framework agreement, itself, and that

was quite helpful to us in terms of identifying where counter-cyclical payments might be appropriately lodged. I talked about the

three boxes before, because it described the program that we have

on counter-cyclical to the point of talking about how the price

structure works. Our view is that it is eligible for blue box treatment and right now it is technically not amber box, it is in one of

the two categories outside of amber called de minimus and specifically, it is in the area of non-product specific de minimus where we

have the ability to have up to $10 billion worth of subsidies today

under the WTO. We don’t use all of it. We use, I think, about $7.6

billion in counter-cyclical payments, but it would move from there

to a blue box. The blue box would be limited, so the Secretary can

speak to this much better than I can, but there would have to be

some changes in order for counter-cyclical to operate as it does

today.

Mr. CONAWAY. The EU, getting away from their export subsidies

by 2010? They have agreed.

34

Ambassador PORTMAN. Yes, this is, again, a decision that has already been made that we will eliminate these export subsidies. I

often refer to the comments of Prime Minister Tony Blair, who has

said that they ought to be eliminated by 2010, which is the U.S.

proposal. It is not the EU proposal at this point. Again, we commend the G–20 proposal because they call for elimination of those

export subsidies by 2012, which again, assuming this agreement

gets going in 2008, would be relatively soon. We commend them for

that. We think 2010 is a better date, but the Europeans have yet

to come up with a date and that is one of the things that would

come out of a comprehensive agriculture agreement, that we would

establish a date and it should be done sooner rather than later.

Mr. CONAWAY. And one final question. Any progress on naming

an agricultural negotiator for your shop?

Ambassador PORTMAN. Yes, we have got a great negotiator behind me, Jason Hafmeister, who does a great job for our farmers

and ranchers, and he is a terrific advocate for us. But we have also

got somebody coming through the process, being cleared, who is a

very senior level person who had agriculture experience before. He

has actually been a negotiator before and had this job before, when

it was at USDA. And I think you will be very pleased. He is also

associated with one of the commodity groups now, and has a good

feel for our commodity programs and how they work and how they

could work even better under trade rules that are more to our benefit.

Mr. CONAWAY. OK. Thank you, Mr. Chairman. I yield back.

The CHAIRMAN. The gentleman from North Dakota, Mr. Pomeroy.

Mr. POMEROY. I thank the chairman, and I want to observe that

this has been a very timely and important hearing, and we appreciate very much the senior leadership and the articulate presentations made by the panel this morning.

I will start with you, Ambassador Portman. Peter Algyre, who

has recently taken over as U.S. Ambassador to the WTO, was

quoted, well, I know that sometimes these quotes don’t come out

quite as you mean them. This is a very disturbing quote and I

want you to respond to it. He indicated that, ‘‘In looking at having

discussions that look across all negotiating areas,’’ he states, ‘‘members will not make compromises in areas that will cause them pain,

like agriculture for the United States, unless they know they will

be gaining in other key areas such as services.’’

Now, this looks to me an awful lot like a replay of prior trade

rounds, where we in agriculture feel that we have, as a sector,

been, frankly, taken at the neck to advance the trading position of

the United States in other sectors. Now, the Doha Round, by our

view, was supposed to be the agriculture round, and this is the one

where we were supposed to get our due. And so to say the least,

that quote is disconcerting. Does it reflect the position of the U.S.

Trade Representative that, once again, agricultural will be

swapped off in order to secure gains in other sectors?

Ambassador PORTMAN. No, and I am sure he was misquoted. But

let me just say, if you are from the perspective of a country that

does have high tariffs and high subsidies, 25 come to mind, which

is the EU, not all 25 of them, but many of them, Japan comes to

mind, you may view it that way, because there is not much in the

35

agriculture area that is going to be beneficial to your political constituency. I would argue, it is beneficial to the economy to have

more free trade, actually. But it is a tough decision, isn’t it? I

mean, if you look at the Doha Round, if you are from Europe, it

is, you can have fewer subsidies. You take a hit there in terms of

your political constituency, fewer tariffs, lower market access and

export subsidies. So I think his statement is accurate in the sense

that some other countries in the world are looking at it that way.

Now, they have to look at——

Mr. POMEROY. Well, I think he was referring, and the quote

made it appear as though he was talking about U.S. agriculture

taking a loss.

Ambassador PORTMAN. Yes. But that is not our approach. We

are, I think, blessed in the sense that I can see gains for us in all

areas, every single one of the areas, including agriculture, where,

as I said earlier, we have tremendous opportunities here to expand

market access, which is the key to us being able to expand our agricultural exports. And a relatively mature market here in the

United States is great, but our growth is going to be in these other

markets. And so if we don’t have the Doha Round, we don’t get.

Second, reducing other countries’ subsidies more than ours, we are

not going to get that without Doha.

Mr. POMEROY. Mr. Ambassador?

Ambassador PORTMAN. So I think we have some real benefits

here.

Mr. POMEROY. I am your Democrat fan club in the U.S. House,

so this isn’t personal at all. But you know, we have been on a free

trade track that has us almost in that importer for agriculture for

the United States, as you noted. And it strikes me that Europe possibly could use their weakness, presently, as a negotiating position

of significant strength. You boasted a significant cuts to U.S. agriculture in the anticipation of significant market access gains. Europe is all over the place. They are having great trouble coming to

some unified resolution. We need to have a clear signal from you,

I think, to have any comfort at all as this round commences, if it

commences; that if we don’t get the access, your position on the

cuts is reconsidered immediately.

Ambassador PORTMAN. Well, as I said in response to Ms.

Herseth’s question, my feeling is, we need to figure out a way, not

to look at a particular country to provide the solution here, but to

come together as a group of nations, 148 nations, and provide what

makes sense. And as long as that process is continuing in good

faith, and as long as it is sincere and we are trying to get there,

the United States ought to take a leading role. Cutting tariffs, our

proposal is the most aggressive out there, as you know; eliminating

export subsidies as soon as possible; our date is 2008; knocking

down the barriers that currently exist with regard to, not just agriculture, but these other products we talked about, services and

nonagricultural products; and then on trade distorting subsidies,

having these other countries, like the EU and Japan, reduce relatively more than us. That is a good combination and I guess all

I can say is, I believe so strongly in the benefits of Doha to our

farmers and ranchers at the end day, that I wouldn’t want to

prematurly pull the U.S. proposal back and say, we are going to

36

pack our bags and go home. It is too important, and it is not just

important to us, it is important to the world economy, it is important to the developing countries, as we talked about. This is an opportunity. It is not easy to get there, but it is an opportunity we

should not pass up.

So as long as people are negotiating in good faith, and as long

as we have got people at the table, being willing to talk about these

tough issues, like providing more market access in their countries,

and the G–20 proposal is good step in that direction, as I said earlier. And you know, these are countries, like India, that have a

tough time sometimes with these market access issues, and yet

they are part of the G–20 proposal. I think we are making some

progress and we ought to stay with it and do everything we can,

as the United States, to try to bring it to a successful conclusion.

Mr. POMEROY. I can’t imagine the pressures on your shoulders as

this round would commence, but it seems to me, the basic operating principles of any small town lawyer ought to be foremost on

your mind. Sometimes you can want to deal too badly, and that

getting a deal doesn’t mean you have advanced your interests, and

I really think that, in this case, we need to have that very clearly

communicated to those with whom we will be negotiating, and I

think we look a little too hungry for this deal, in my opinion.

Mr. Secretary, taking the chairman’s lead, and I know I am

going to have to be quiet here, but it strikes me that unilateral disarmament in advance of the trade rounds is probably a bad idea,

and I have not observed any of our significant trading partners, our

negotiating partners, heading into the WTO round, making unilateral cuts in their farm programs, just as we are going to ask our

trade representatives to negotiate these matters. Friday, this committee voted to cut spending in agricultural more than $3 billion.

To me, if that is not unilateral disarmament, I don’t know what is.

Does the administration have a view of the budget reconciliation

package that the House Agriculture Committee voted on on Friday.?

Secretary JOHANNS. Here is what I would offer in that regard.

We really support your efforts to try to bring reconciliation about.

We might debate with you on some of the details. As you know, we

put a proposal out there in January. But just in terms of the effort

that has gone into this to try to bring reconciliation forward, we applaud you, we sincerely do. I will also share with you that my discussions with foreign countries about the budgetary process, everything that the United States has done in this Doha Round has been

received as a real positive, forward-leaning leadership statement by

the United States. And there were questions about the budget

issues, but I have to tell you, not along the lines of being negative.

It was along the lines of them seeing us as forward-leaning and

committed to a Doha Round that would be successful.

If I might offer one other point, Congressman, in references to

your last question to the Ambassador, I think it is unprecedented

that a Secretary has been invited to participate in trade negotiations to the level that I have been. There hasn’t been a single meeting that the Ambassador hasn’t been on the phone saying, I hope

you can be there. I know your schedule is busy, but I hope you can

be there. But most importantly, without exception, the Ambassador

37

turns to me for my thoughts on agricultural issues, and I will just

tell you, I have been very impressed. Your cheerleading is well

placed, because this gentleman to my left is very, very capable and

competent, and he has stood up for agriculture over and over again.

Now, we may debate the final agreement in this, and that is the

nature of a democratic process, but I will tell you, I have been very,

very impressed with the Ambassador. And the other thing I will

tell you, he brings a sensitivity to the issues here in the House and

Senate that I think is very important. So he didn’t need me to say

that on his behalf, but I wanted to offer it, because I do appreciate

being at the table.

Mr. POMEROY. He has always enjoyed high praise. I have noticed

that.

Secretary JOHANNS. Yes.

Mr. POMEROY. Thank you both very much.

Ambassador PORTMAN. Thank you.

The CHAIRMAN. The gentlewoman from Ohio, Ms. Schmidt.

Ms. SCHMIDT. Thank you, Mr. Chairman, and I do agree with

Mr. Pomeroy, that this ambassador is one of the best ambassadors

we could hope for, because he comes from a great State and a great

district. And as Ambassador Portman well knows and brought up,

in our home State of Ohio, fully one-third, or 1 out of every 3 acres

planted, is exported, and I believe that this holds true nationwide

as well. And, Ambassador, I like to talk nuts and bolts with my

voters back home. Could you please expand on the importance of

the Doha to, not just our Nation’s farmers, but those farmers in

Adams and Brown County; and at the same time, talk about the

global economic growth that would occur?

Ambassador PORTMAN. Well, thank you, Congresswoman

Schmidt, and welcome again to this committee and to the Congress.

Jean Schmidt is doing a much better job than Rob Portman did

representing the second district of Ohio. And it is interesting because, now, in this job and learning much more about agriculture

than I ever thought I would, because it has been so central to these

talks, I do think about how it affects the folks back home in the

second district, and it is mixed because most of the farmers back

home don’t receive any subsidies, as you know. The beef farmers,

the cattlemen back home, the pork producers, are not on the subsidy side, so for them, it is a matter of opening markets. And talk

about a win-win. If we can get a deal here that creates new opportunities for them to sell their products abroad, they are going to

see real markets for their products. But significantly, they are

going to see their prices increase, because others, their competitors

will also have these new markets.

For the corn and soybean farmers, and there are some, not so

much in Adams and Brown, but more in Warren County, as you

know, and Clermont County, but you know, what they can see here

is, again, three significant things. One is a more level playing field

with regard to subsidies. The Europeans and Japanese have more

than we do and they compete with us in some third country markets. Second, they will get the market access we talked about. And

Mr. Pomeroy was talking about his State, and I think now, more

than 50 percent of wheat is exported. And with our corn and soybeans in Ohio, he said about a third of our crop is exported. It is

38

a significant opportunity for them. And then, with regard to the export subsidies, again, there is direct competition out there, where

the European product, after having high tariffs and high subsidies,

then gets a boost with export subsidies because the prices are so

high, they won’t have to deal with that. So there is a benefit that

directly contributes to the agriculture economy in southwest Ohio.

But there is a bigger issue here, and that is having a strong

economy, generally. All the studies indicate that this could have a

very positive impact. There is one out recently that shows that

since 1945, the free trade, imports and exports, has resulted in $1

trillion in additional income to American families. And if the Doha

Round were wildly successful, we are able to make the kind of reductions that the president would like to make, the analysis shows

that we add another $500 billion. And it won’t necessarily be a

total reduction of tariffs, but if we can make substantial progress,

even one-third, there is a University of Michigan study out there

showing the average family in America will get a couple thousand

dollars more per annum income.

So you know, this is because trade is a win-win proposition, in

the sense that it helps our economy here at home and it helps the

economies abroad, and helps to create a healthier economy generally, which helps, of course, our agriculture consumption and also

our agriculture producers. So it is an opportunity, and Mr. Pomeroy

said you need to be sure it is a good agreement, but to walk away

from an agreement like this, to pack up our bags and say, unless

everybody else does exactly what we want, we are not going to

stick with it, is in a sense the easiest thing to do, but it is shortsighted. I think we need to stick in there, and the United States

ought to take a leadership role and try everything we can to make

this work. And at the end of the day it all comes together one way

or the other. You all have a vote. You are going to be able to decide

whether you think it is a good agreement or not. But in the meantime, we are going to work hard to try to pull together an agreement that works for America’s farmers and ranchers.

The CHAIRMAN. The gentleman from California, Mr. Cardoza, is

recognized.

Mr. CARDOZA. Thank you, Mr. Chairman. At the outset, I just

wanted to associate myself with Mr. Costa’s remarks with regard

to the participation of the specialty crop industry. I think the committee would, in fact, benefit from hearing from the industry with

regard to trade matters, as my questions I think will illustrate. I

want to start off as well as saying welcome to Ambassador

Portman, who is a great friend and I think a very capable negotiator. We don’t always agree, but I think he does a fabulous job

for the country, and I am pleased the president chose him for the

position.

I want to start off by telling a story, because you mentioned, both

of you mentioned Brazil. And I was recently in Brazil and I was

at the consulate there, and I was talking to the trade representative at the consulate, and he is a very capable individual. And he

was talking to me with regard about what a good job the consulate

was doing in promoting and assisting your office to promote trade

with Brazil and exports to Brazil, and he showed me, he said, I am

sure your district has quite a bit of production that is coming to

39

Brazil. And I said, I don’t think so. And he said, oh, I think so, and

he showed me the list of all the congressional districts and he said,

now, what congressional district are you, and I told him Congressional District 18, and he couldn’t find anything on the list from

Congressional District 18. And then I said, well, why don’t you try

Mr. Costa’s district. He is No. 20. And in fact, he couldn’t find anything on the list from 20.

And so I went down the list of all the agricultural districts in my

area and we couldn’t find anything from the agricultural regions

that was going to Brazil. And in fact, I asked him to give me the

list and he did, and when I went through the list, I looked at what

was being exported to Brazil, and it was the means for production.

I was tractors, it was assembly lines, it was irrigation systems. We

are basically helping them, and which is fine, helping them,

thought, compete against us, and I think that we have significant

challenges with regard to Brazil and other countries. I think that

the equation is a little bit different than what we are talking about.

I don’t think that we can just look on the export side, but we have

to look at what we are importing, and the challenges to American

farmers, and the playing field to American farmers. And I just

make that observation to you, and if you would like to respond, I

would be happy to give you the time to do that.

Ambassador PORTMAN. Yes, I think that is a good point, and I

want the Secretary to respond. He said, earlier, Brazil is a firstclass competitor and they are. If we have these market openings

we are talking about, there will be plenty of room for Brazil and

American exporters, because you will see market openings that will

give both of us opportunities. With regard to imports, I couldn’t

agree with you more, and I thought I made that clear earlier, talking about the fact that we need to see a level playing field and fair

trade and that means aggressively enforcing our own laws against

unfair imports.

But my point to Mr. Peterson was, if you are looking at trade

just in terms of the import/export side and not in terms of our

growth in exports, then I think you may miss a good story there,

which is the fact that, yes, we are bringing in more imports, and

I mentioned the European example. There are other examples

where we bring in, again, products that we don’t even produce

here. And I know India has a trade surplus with us in agriculture,

and it is in spices and teas and stuff like that that we don’t

produce. My focus on India is not so much to ban their imports of

spices and teas, if they are being traded fairly, but it is to open

that market to us in India for our soybeans and for some of our

value-added products, including beef and pork and poultry.

So I would just say it is a different philosophy, I suppose, depending on where you come out on that, but I think our focus ought

to be fair imports, fair trade, absolutely, I couldn’t agree with you

more, but let us open these markets. You know, they have far higher tariffs than we do. I said the average tariff there is 114 percent.

That is not their applied. Their applied is lower than that. But we

have to start somewhere and the WTO starts at that 114 percent

and works it down, and that ought to be our goal. But that is an

interesting point about Brazil. Brazil does provide preferential access to other Latin American countries, as you know, including ArVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
40

gentina and the America’s countries, and we don’t get that same

access because we don’t have that free trade arrangement with

Brazil. Mr. Secretary?

Secretary JOHANNS. Trade is complicated business. You know,

there is somebody out there, probably in some smaller community

in Iowa, who has a job with John Deere, who maybe benefits from

those tractors or whatever—yes.

Mr. CARDOZA. I am not criticizing the exports.

Secretary JOHANNS. Yes. But Congressman Peterson makes a

point and that is that, yes, we have seen a rise in imports, but

when you start slicing through it, part of it is what Americans are

hoping to get in terms of their diet. You know, when I grew up,

you got watermelons in the summer. You know, come September

or October, you didn’t see watermelons until next June or July or

whatever it was. Now people want fresh fruit year round. They

want access to that. They want access to foreign wines and specialty meats, and so we have seen a rise, but in some of the commodities that we grow in bulk here, we are doing very well. We are

doing well in soybeans. We are doing well in corn. You know, there

are some very, very good stories to be told there, too, but the diet

of Americans is more diverse than it was when you and I were

growing up, and that is likely to continue.

Mr. CARDOZA. Mr. Secretary, if I could follow up, because that is

where I am trying to go with this, is that the specialty crop industry is very important to where I come from. It provides, I think,

25 percent of the exports of agriculture from our area. And I want

to ask a question with regard to the Doha Round. And, Mr.

Portman, I want to understand if I heard you right earlier. I believe you said that the SPS issues would not be considered in that

round. The phytosanitary issues, in particular, and the trade barriers, that those bring about two specialty crops, are of grave concern to my farmers, because what happens is, that is where the unfair competition is very hard for them to challenge those. In fact,

currently, California is monitoring access issues with plums and

garlic in China, apples in Taiwan, and stone fruits in Mexico. And

any particular day, you may see new ones pop up, and it is really

the crux of the issue in large part for the specialty crop industry.

Ambassador PORTMAN. That is an excellent point, and as I said

earlier, I don’t want to mislead Members and think that Doha is

about SPS. It is primarily about cutting tariffs, That is the idea,

and trade distorting domestic support and then this export competition, and that is how it was laid out. That is how the Uruguay

Round proceeded as well. I will say the United States has its own

SPS issues, and legitimate ones. I do hear from our trading partners a lot about how they can’t get their specialty crops or fruits

into our market, and other countries, in my view, sometimes unfairly use that. I made the Mexican statement earlier, that I believe we have resolved that particular issue on stone fruit by going

to them and consulting and negotiating and working through the

issue, and the next season we expect that to be the market that

it is to be and should be now. But they will continue to crop up,

and every time they do crop up, we have got to be right on it and

we have got to deal with it, and sometimes we will have to go all

the way to litigation. As I said, sometimes we have been successful.

41

The Japan apple case I talked about, we won this summer. It took

us, what, about a year and a half? About 4 or 5 years from start

to finish, but the litigation, probably about a year and a half and

we won it now, and now Japan has to open up on this SPS issue

with apples, which will help us.

So I just don’t want to mislead you to think that the Doha

Round, this World Trade Organization round, is about SPS. To the

extent it is about SPS, frankly, the United States is in a position

to try to keep other countries from going away from science-based

analysis, and that is what I talked about earlier, and the chairman

has been very active in this area, for a lot of good reasons, including his own poultry production and being sure SPS doesn’t keep

out our poultry exports. But we are, I think, doing well in that regard. We are focusing on science. We are providing good data to

our colleagues. We are being sure that we do not backtrack in

terms of the WTO standards as it relates to SPS, because this

round is about a once-in-a-generation opportunity to reduce trade

barriers. It is also about setting the rules for the next generation,

and we want to be sure that those rules stick to the science-based

approach, just as we, and the Secretary can speak to this much

better than I can, opened up our border to Canada recently on beef.

The United States is going to follow science and other countries

need to do the same thing, and when they don’t, we need to be able

to take them all the way to the WTO, as we are doing with regard

to Turkey today, and as we have done on some SPS cases.

Mr. CARDOZA. And finally, Mr. Portman, and I know I have gone

over my time, but if I could, I know you are traveling to India on

the 11th of November and while you are there, I would just ask

you to work with the Indian government on California almonds, a

$100 million export from our area to that country, and we want to

make sure that California almonds have access to that market.

Ambassador PORTMAN. Well, I thank you very much, Mr.

Cardoza. I have no choice to do that, because your colleague, Mr.

Costa, just presented me with these California almonds to remind

me of this.

Mr. CARDOZA. We are a powerful team.

Ambassador PORTMAN. You are a powerful team. As an almond

grower himself, he keeps me up to speed on that. And no, I will

raise it and I will raise some other issues, too, frankly, because

that is a great potential market for us. And again, I think you can

help India in terms of its economic development, in terms of providing lower priced and higher quality goods to Indian consumers.

Thank you.

The CHAIRMAN. The time of the gentleman has expired. The gentleman from Kansas, Mr. Moran, is recognized.

Mr. MORAN. Mr. Chairman, thank you very much. Mr. Secretary,

Ambassador, thank you for your testimony today. I would be remiss if I didn’t take this opportunity to express to Secretary

Johanns my real faith in his leadership of the Department of Agriculture, and I am pleased with the direction that things are going

and I feel very comfortable with having you as the Secretary of Agriculture, and I appreciate you having one of your listening tours

at the Kansas State Fair in my district earlier this year. I also

want to thank both of you. And, Mr. Portman, let me thank you,

42

Ambassador, for the role that you are playing. I held you in high

esteem as a Member of the House of Representatives, and in many

ways you serve as a role model for what I think is wonderful public

service. But I have been extremely impressed with the way that

you have hit the ground running as the trade ambassador. I think

the issues, the level knowledge required in your position, is amazing and I am greatly impressed by your ability to fill that role and

provide leadership at USTR at a very critical time. So it is coming

and here we go. And both of you, thank you very much for your

help with me and other members of Congress as worked in regard

to Japan and the U.S. beef issue. Mr. Secretary, thank you particularly for the consultation I have been able to have with Secretary

Penn during this long time in which we had been waiting for action

by the Japanese.

Having said that, I do have, I am discouraged about the situation

we face in the world. I look at trade, and I listened to Mr. Osborne

last night on the House floor, and he reminded me of all the things

that the Europeans do to eliminate competition from the United

States and keep our products out of their markets. Yes, we have

had good news, a good first step, maybe, perhaps, a second step in

regard to Japan, but I look at the future and think that we are still

a month or two away from actual import of U.S. beef. And then I

am uncertain as to what happens next in regard to beef that is 24

months old, 28 months old, 30 months old, and what happened to

the market that should be there in totality. And then I look at the

European reaction to Mr. Portman, or Ambassador Portman’s proposals in WTO talks, and their total rejection. I recognize that they

are in negotiating mode, and so I wouldn’t say that the necessarily

mean everything they say, but their reaction is very discouraging,

as far as our ability to accomplish something in the round scheduled in Hong Kong.

A couple of questions. We will be in Hong Kong in a short period

of time, a matter of weeks. I am interested in knowing what your

thoughts are, that should there not be success in Hong Kong, what

is the game plan then? What is next? What do we do to operate

in this world where trade is so important to agriculture? And second, a more, perhaps, philosophical question. But as I look at, in

our subcommittee’s work at the next farm bill, obviously trade is

important for the price my farmers in Kansas and American farmers and other producers receive. But what happens if we would

have total market access? What is the effect upon commodity prices

if you are successful in negotiating total market access for American agriculture? Is it still possible that we would be exporting our

agricultural products at a price less than the cost of production?

And, Ambassador, this goes back in part to my conversation that

I had with you and President Bush back several months ago, is, I

think there is absolutely nothing wrong in negotiating trade agreements that increase market access and reduce barriers, tariff barriers, but what is our plan over time? How do we compete in this

world in regard to labor, land value, chemical costs, environmental

rules and regulations? Do we have a long-term strategy that keeps

American agriculture, not only efficient, but technologically advanced and capable of competing in today’s markets?

43

And I was in California and visited with specialty crop producers, and when they tell me that 80 percent of their costs are labor,

how is it that American agriculture, American producers, can compete in this world if 80 percent of your costs are labor? My question

is a broad one, as I try to think about what the next farm bill

should look like, and perhaps my concern is highlighted today with

the Kansas Association of Wheat Growers delegation in my office

reminding me of what circumstances we face as producers in light

of ever-increasing input costs related to fuel, fertilizer, and natural

gas. How do we compete in this world? So what do we do if it fails

in Hong Kong? And second, the broader question, what is the strategy for us to be a competitive agricultural producing and exporting

country into the future? Thank you.

Ambassador PORTMAN. I would be interested to hear the Secretary’s answer to this longer range questions. Just let me give you

my thoughts, and they are not, again, as well informed as his will

be. But you know, I am actually very optimistic about it for three

reasons. And one is, we are blessed with some great land in this

country. We have some of the most productive land in the world,

as I said earlier. That is not true everywhere. Some countries that

have a very large population to feed don’t happen to have the arable land to be able to feed those populations. And the United

States, I think, has wisely turned to innovation and research in a

way that leads the world, and that is the second advantage that

we have. Not only do we have great land to be able to farm, we

have put a lot of resources and time and effort into being sure that

we are on the cutting edge, and we still are, by the way. Other

countries pick up our innovations pretty quickly.

But I was out in the Dakotas and I told Congresswoman Herseth

this a couple weeks ago, actually, and Mr. Pomeroy’s State, and

you know, the innovation just keeps on coming. And in terms of the

labor costs, you are right, our labor costs are relatively high, although the rest of the world is starting to catch up to us. But our

labor costs in the specialty crops may be that high. It is certainly

not that high in terms of our major commodities that we export,

because labor costs are being taken out, which is a problem in

terms of farm employment, but it makes us more productive. And

so, I guess, in terms of the land, in terms of the research and innovation that we have, and then finally, in terms of our productivity,

I am very hopeful that we can get our fair share of these growing

markets around the world.

The world’s population is increasing dramatically, and 95 of the

consumers live outside the United States. Their diets are improving. They like our products. They want our products. In Japan,

when that market opens up, thanks to your efforts, Mr. Moran, and

others, even for 20 months and under, you are going to see people

flocking to the steakhouses, as they did when that one steakhouse

opened with its inventory of American steak that was left. People

like our products because of their high quality and relatively low

cost. So I think we have a future here, and I think it is a very

hopeful future, if we have a more level playing field. So that is my

view.

Hong Kong, all I can say is, it is a milestone in this Doha Round.

It is not the end of it and never was meant to be. We still have

44

another year to go. In my view, we should end by the end of 2006,

for all the reasons that Mr. Peterson and others talked about. But

this is an important milestone, because you will have the opportunity for, I believe, all 148 countries to be represented, and some

of you to be represented, and so we need to make the most of it

and I think we need to use it, frankly, to put pressure on the system right now so that in the next couple of weeks, even, we can

make some quantum leaps in terms of agriculture and then get

onto these other areas that I talked about. But if Hong Kong is not

as successful as we would hope it would be, we just keep pushing.

I think we set other deadlines, and I think we keep pushing the

process, and I think it is worth it. It is worth it for our farmers

and ranchers and I think it is worth it for our economy.

Secretary JOHANNS. To address your second question. These farm

bill forums have been a great opportunity for me to see American

agriculture and to hear from farmers and ranchers, really, from

coast to coast. It has been great and I appreciate you hosting me

in your district. It was a great forum and as you know, it was

standing room only. We have had unbelievable turn outs at these

forums.

I would offer this thought. We tend to think about the farm bill

every 5 years as defining farm policy, and it is important, believe

me, it is important and I know how important it is. But good farm

policy is so much more than a piece of legislation that is passed,

typically every 5 years. It is good tax policy. I appreciate the debate

on the tax cuts, but it left $4 billion in the pockets of farmers and

ranchers in the United States each year. Environmental policy. You

don’t have to go very far into cattle country before somebody is

talking to you about Federal environmental policy, if you can imagine, how we manage our environment, how we invest in conservation programs; very, very important to agriculture. Our trade policy. Just because the facts are fairly obvious, 27 percent of the receipts do come from trade. We ignore it at our peril. We condemn

it at great risk. It is very, very important to our farmers and

ranchers.

I will just give you one example that I love to cite. We tend to

think of the whole cow as going to Japan or Korea; it doesn’t. When

the cow is processed, it is a bunch of components. And so 70 percent of the hide goes into the export market. What if you don’t have

the export market for that 70 percent? It is not good. So trade is

very, very important.

The farm bill, of course, is important. The right farm policy can

make a huge difference. Research, technology, the investment in

those programs has paid dollars over time and they will pay dollars

in the future. When I grew up, 100 bushels an acre was a big crop

in corn. Today, that is a failed crop from where I come from, where

I grew up. Roads and bridges and waterways, anybody doubt the

importance of trade? Interrupt the flow down the Mississippi for 10

days and see how it ripples across all of America, right into your

district and other congressional districts across the country.

Renewable fuels. Twelve percent of our corn crop goes to ethanol

now. Biodiesel I think is only getting started. I see a good future

for biodiesel. You start putting these things together in good

thoughtful agricultural policy and there is a great future here,

45

there is really a great future. But that is the kind of discussion I

think is important as we address the farm bill. If this farm bill

were just simply reenacted, I think you would miss a great opportunity to really have a long-term vision for agriculture.

And so I am optimistic. You know, I, often end speeches, with

that FFA pledge, I believe in the future of farming. Now they say,

I believe in the future of agriculture. But I do. I see a lot of good

things going on out there. And then the last thing I wanted to mention, because I believe in this so much, our producers are unbelievable, and I have had an opportunity to meet them in State after

State. They are just very good people. They are just really good

people, and that is a difference maker over the long-term.

Mr. MORAN. I thank you both for your answers, and thank you,

Mr. Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from

Texas, Mr. Neugebauer, is recognized.

Mr. NEUGEBAUER. Thank you, Mr. Chairman. First, Mr. Secretary, I thank you for coming to west Texas. I thought we had a

very well attended, a very, very productive listening session. I am

also pleased to hear, and I want to compliment both you and Ambassador Portman about the fact that you are working together

through this process, because I think that is a very beneficial thing

for these negotiations and beneficial to agriculture in general.

Before I get too far, I want to associate myself with the gentleman from Kansas. I am encouraged by the news from Japan, but

I have been encouraged before. And I think sometimes our friends

over there know just about the time to drop a little encouragement

into the mix to keep the dogs, I think, from barking too loud. But

I do want to say to you that I want your resolve to continue, and

I know it has been, to send a message to the Japanese government

that we have jumped through about as many hoops that we are

going to and can, and it is now time for them to open up their market back to U.S. producers.

Along those same lines, we have had discussions, I think, with

both of you about the importance through this process of keeping

our agricultural groups in the loop here in letting them know

where you are headed. And I know that we have a number of

groups here today that will be on the panel. Now, it is my understanding that in the next week or two, that you are going to have

some dialog with the African countries, and I have to assume, because of the cotton being a part of the framework, that cotton may

be a part of those discussions. I would like to here from you one,

or two things, really. One is what kinds of, where you see those

discussions going, and have you been in touch with the cotton folks

to kind of let them know where you are headed with this framework, as it relates to cotton in the African countries?

Ambassador PORTMAN. Yes, thank you, Congressman

Neugebauer, and thank you for your help on these issues. I talked

to you about this when we were in executive session, and the fact

that you have been staying up to speed on the cotton issues, and

helping give me some input that has been helpful as we work

through the Brazilian case. I will make one general comment, then

I want to hear Secretary Johanns’ thoughts on it.

46

Again, after the October presentation on our part of our aggressive proposal and all of the pillars of agriculture, we got a different

response from some of those African countries that have been very

concerned about our cotton program, and also got a different response from Brazil, frankly, on retaliation under that cotton case

that they won. And it is because we are now showing that we are

serious about dealing with trade-distorting domestic support overall, which does affect cotton, particularly the marketing loan program and the counter-cyclical program. But we are doing it only if

we get the access we talked about. And as you know, we talked

earlier about the cotton market in China and elsewhere. There is

a big export market out there for cotton, still. So I feel like things

are going better with regard to those discussions. We will stay in

very close touch with the cotton industry. I have met with the Cotton Council, as you know. As you also know, they have been really

helpful in dealing with this issue, and they have not taken the position that we ought to ignore these concerns, because they know

that this could lead to real problems in the WTO. Instead, they

have been very proactive and have worked with us and directly

with these countries, like Benin and Mali and Chad, Senegal,

Burkina Faso, which are the five countries most interested. And

they have said to these countries we want to help you, in terms of

technology, in terms of marketing, and that has been helpful,

frankly, to USTR. So I commend them and I commend the industry

for being proactive and not just sitting back and being defensive,

but rather taking the offense. And I think, in the end, it could be

a solution that, because of our overall proposal, it could be more

beneficial than many of us have feared even a few months ago. So

that is my thought on it and I would like to hear the Secretary’s.

Secretary JOHANNS. We have met with the cotton countries. Just

recently the Ambassador and I had a meeting, and I think they call

themselves, is it the C–4? The C–4. And the discussions have been

good, as the Ambassador has indicated. The meeting was not to

hammer out any kind of agreement. It was just simply to continue

the dialog, and it was good and they seem committed to seeing the

Doha Round to a successful finish.

Our ongoing discussions with the cotton industry in the United

States have been positive. They are good to work with. As a matter

of fact, I am informed that they are actually going to be at the

USDA again tomorrow. The ruling from the WTO, needless to say,

no one was celebrating that, but our discussions with them were

good. We explained to them what we were going to do administratively and legislatively, and again, I think the relationship there is

a good and strong relationship, and we consult with them a lot.

And again, I do want to thank you for your hospitality when I

was in Texas. We had a great farm bill forum. So many people

were there to testify, as you know, we couldn’t get through the

whole group, but it was a good forum.

Mr. NEUGEBAUER. Thank you both.

The CHAIRMAN. I thank the gentleman. Secretary, I thank you,

and I thank you for your nationwide listening tour to our farmers

and ranchers. That is valuable, not only as we look ahead, but it

is also valuable in these trade negotiations. Your being there to listen to them is important. I want to thank both Secretary Johanns

47

and Ambassador Portman for their testimony today, and they both

have been very generous with their time, more than 2 hours. And

I expect that these consultations will continue and will be in greater depth as the time for the WTO ministerial comes closer. Trade

is important to U.S. agriculture, but reaching an agreement in the

Doha Development Round is not so important that the United

States should dismantle its programs entirely and stop helping our

farmers and ranchers. And I believe that the Ambassador wanted

to say another word.

Ambassador PORTMAN. Well, I just thank you, Mr. Chairman,

again, for giving us the opportunity today to talk about these

issues, and I want to thank Secretary Johanns publicly for what he

has endured with me, which is countless hours of difficult trade

discussions and negotiations. I do call him up and ask him to come

whenever I am going to talk about agriculture, because I want his

expertise. And as you know, USTR is a relatively small, lean but

mean outfit, and we depend on USDA to provide us technical help,

and that has also been very helpful. So I want this committee to

know that your USDA is very actively involved in and being very

helpful in terms of making sure that we have the best case to put

forward. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. I will excuse both the

Secretary and the Ambassador. In a second, I will ask Mr. Moran,

chairman of the General Commodities Subcommittee, to take the

chair, but first we would like to invite our second panel to the

table: Mr. Cliff Butler, vice chairman, Pilgrim’s Pride Corporation

from Pittsburg, Texas, on behalf of the National Chicken Council,

the National Turkey Federation, and U.S.A. Poultry and Egg Export Council; Mr. Robert Metz, who is producer and president of

the American Soybean Association from West Browns Valley, South

Dakota; and, Mr. Moran, when he testifies, I would ask you that

you allow the gentlewoman from South Dakota to say a word introducing him; Mr. Jon Caspers, who is a producer with the National

Pork Producers Council from Swaledale, Iowa; Mr. Wythe Willey,

who is a producer and past president of the National Cattlemen’s

Beef Association from Cedar Rapids, Iowa; and Mr. Gerald

Tumbleson, who is a producer and president of the National Corn

Growers Association from Sherburn, Minnesota. I will now turn the

chair over to Mr. Moran.

Mr. MORAN [presiding]. I welcome the panel and we turn our attention to Mr. Cliff Butler. You may begin your testimony, sir.

STATEMENT OF CLIFF BUTLER, VICE CHAIRMAN, PILGRIM’S

PRIDE CORPORATION

Mr. BUTLER. Thank you, sir. Mr. Chairman and committee members, thank you for the opportunity to present our views and recommendations of the U.S. poultry industry regarding the very important agricultural trade issues involved in bringing the World

Trade Organization’s Doha Development Round of negotiations to

a timely and successful conclusion. Mr. Chairman, Congressman

Peterson and the committee members, your strong interest in and

support of the current round of multi-lateral trade negotiations is

very much appreciated.

48

My name is Cliff Butler, and I am vice chairman of the Pilgrim’s

Pride Corporation. Our company has been in the poultry and egg

business for 59 years. We have operations in Virginia, Texas, Alabama, Arkansas, Georgia, Kentucky, Louisiana, North Carolina,

Tennessee, West Virginia, Arizona, California, Iowa, Mississippi,

Utah, and Wisconsin. Pilgrim’s Pride is a publicly traded company

and listed on the New York Stock Exchange. At Pilgrim’s Pride,

more than 40,000 employees and 5,000 dedicated farm families

work hard each day to help us produce and process chickens, turkeys and eggs that we need to serve our customers here at home

and abroad.

When you combine all the Nation’s poultry and egg companies,

the employees total over 440,000 and the farm families are more

than 40,000. In addition, there are hundreds of thousands of other

workers directly employed supplying our industry, and they are

highly dependent on the continued success of the U.S. poultry and

egg industry.

I, like my fellow poultry producers, am proud to market poultry

that is unsurpassed by any other country in quality and food safety. The tremendous trust and confidence consumers have in U.S.

poultry is a critical component in successfully addressing the current avian influenza concern. I can assure this committee that individual companies, the poultry industry, and the Federal, State and

local governments have stepped up safeguards and firewalls to

minimize any avian influenza problems in this country. We, in the

poultry industry, do not accept the notion that it is inevitable that

the Asian verity of avian influenza will come to the United States.

And if it does, we will successfully limit and control it.

In September of this year, the Ag Trade Coalition issued a set

of principles and trade policy objectives that should be used in the

Doha Round of negotiations. U.S. poultry organizations and more

than 50 other groups support these principles. A copy of these principles is attached to my statement. Most important for U.S. producers and exporters as an outcome of the Doha Round is achieving

greater, improved market access. Cutting high tariffs is not the

only solution. Import quotas, tariff rate quotas, and other non-tariff

trade barriers must also be reduced and eliminated.

Improved market access also encompasses the appropriate application of the provisions of the Sanitary and Phytosanitary Agreement. As trade barriers have come down, unfortunately, nontrade—non-tariff trade barriers, mostly predominantly SPS barriers, have gone up. One example of not following the SPS Agreement is the European Union’s prohibition against the use of

chlorinated water as an antimicrobial during the processing of

poultry. In 1997, U.S. poultry was shut out of 15 countries, but

since then, with the expansion of the EU to 25 member countries,

that number is now 25 countries that we are shut out of.

Rather than follow proper risk assessment based on good science

as required by the SPS Agreement, the EU blocks our poultry shipments based upon this unfair interpretation. Also, we cannot overlook the way some of our trading partners have used worldwide

concern about avian influenza as an excuse to improperly close

their borders to U.S. poultry. These nations keep their borders

closed long after a region where the strain appeared has been cerVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
49

tified as free of avian influenza. It is vital that United States ensure our trading partners conform to the OIE guidelines with respect to avian influenza.

Mr. Chairman and committee members, U.S. poultry producers

and exporters appreciate your support and continued strong interest in achieving a more fair and open international market for our

products. We look forward to you achieving this goal. Thank you,

sir.

[The prepared statement of Mr. Butler appears at the conclusion

of the hearing.]

Mr. MORAN. Mr. Butler, thank you, sir. The chair recognizes the

congresswoman from South Dakota, Ms. Herseth.

Ms. HERSETH. Thank you, Mr. Chairman. It is my pleasure to

welcome Bob Metz to the Agriculture Committee. While he is a constituent of mine in South Dakota, he is quite nearly a constituent

of Mr. Peterson’s in Minnesota as well. That is how close he is to

the border. But he and his wife, Karen, I count as good friends. I

know Karen is combining today, Bob told me earlier, and so given

his extensive experience with South Dakota agriculture and really

agriculture throughout our region, and now nationally as president

of the American Soybean Association, I want to welcome him and

commend his testimony to my colleagues here on the committee.

Thank you.

Mr. MORAN. Thank you, Ms. Herseth, and the chair recognizes

President Metz.

STATEMENT OF BOB METZ, PRESIDENT, AMERICAN SOYBEAN

ASSOCIATION

Mr. METZ. Thank you. Good afternoon, Mr. Chairman and members of the committee. ASA very much appreciates the opportunity

to appear before you today. With your permission, I would like to

summarize my written testimony.

The outcome of the current negotiations of a new WTO agreement is critically important to U.S. soybean producers. One-half of

our annual soybean production is exported either as soybeans, soybean oil, or soybean meal, or in the form of livestock products.

World demand for soybeans is increasing rapidly as developing

countries improve their standard of living and diet. Improving market access in developing countries through meaningful tariff reductions is the key priority to enhancing the profitability of the U.S.

soybean farmer.

Our industry is also facing rising competition from South America, particularly Brazil and Argentina. Over the past decade, these

countries have emerged as world-class exporters, with mature agricultural research, production, and processing infrastructures and

improving transportation systems. Both Brazil and Argentina use

a variety of incentives to encourage production and exports of soybeans and other crops. They have been allowed under the Uruguay

Round Agreement to designate themselves as developing countries,

and to avoid the disciplines of their domestic support and export

programs. It is critically important that in any Doha agreement, require advance developing country exporters to be subject to the

same rules and disciplines as developed countries.

50

I would like to comment briefly on a proposal advanced by Ambassador Portman in Zurich last month. We agree with the administration that the status quo in international trade is unacceptable.

In addition to significant improvement and real market access, we

need a farm program safety net that is beyond WTO challenge. Following the WTO cotton case and expiration of peace clause at the

end of last year, the current situation is not a viable alternative

to a new agreement.

ASA recognizes the proposal advanced by the administration as

a credible signal to the rest of the world that the United States is

prepared to make substantial cuts in trade-distorting domestic support if market access barriers are greatly reduced and export subsidy practices are eliminated. The proposed cuts in domestic support would require fundamental changes in the structure of U.S.

farm programs, including the marketing loan, which has been important in supporting soybean producers’ income when prices fall.

In order to support restructuring current programs, we need assurances that the next farm bill will provide U.S. farmers with an adequate safety net, and that the current imbalance in crop production

benefits will not continue to distort market signals.

On market access, the U.S. proposal does not specifically address

the need for ambitious improvements in market access by developing countries. Developing countries are the markets of the future.

The administration has pointed out that 95 percent of the world’s

population lives outside our borders. We note that 81 percent of

this population is in developing countries. Of the 16 priority countries targeted by ASA for major improvement in market access, 14

of those are in developing countries.

U.S. negotiators must ensure that preferential terms for developing countries, including special differential treatment, identification

on special and sensitive products, and use of special safeguard

mechanisms do not restrict meaningful improvements in market

access. The U.S. must ensure adequate market access to developing

country markets through negotiation of meaningful TRQs, with

phased reductions in quota tariffs.

In addition, the administration’s proposal does not include specific language requiring world-class developing country exporters

undertake disciplines in the three pillars of domestic support, market access, and export subsidy practices. Recent studies indicate

that Brazilian farmers benefit from a national program that offers

credit at an interest of 83⁄4 to 123⁄4 percent, compared with the prevailing commercial rate of 35 percent. Credit provided under this

program increased 48 percent in 2004–05 to $13 billion. Subsidized

credit to modernize Brazil’s farm machinery doubled in the same

year to $5.5 billion. In addition, Brazil has frequently rescheduled

farm debt for up to 25 years at 3 percent interest rates, which in

times of high inflation amounts to giving Brazilian farmers free

money. Finally, Brazil has a land tax system that encourages farm

land expansion by taxing undeveloped land at higher rates. ASA

believes strongly that these policies must be subject to discipline

under Doha negotiations.

We are pleased that the administration’s proposal called for

elimination of differential export taxes which have trade-distorting

effects similar to export subsidies. Both Argentina and Malaysia

51

are major competitors in the export of soy oil, and make extensive

use of differential export taxes to build up their local processing industries.

The EU’s latest WTO proposal on agriculture advanced last

week, falls well short of the ambition of the U.S. proposal advanced

last month. In addition to putting forth unacceptably low reductions in tariff levels, the EU continues to insist on exempting 8 percent of its individual tariffs from cuts that would be required by

reduction formulas. The EU is also trying to—allowing the U.S.

counter-cyclical payment being included the blue box. It is insisting

on further disciplines on export credits and on food assistance. ASA

will not be able to support a new WTO agreement that includes

these conditions.

Mr. Chairman, the U.S. soybean farmer would benefit greatly

from a good Doha Round Agreement; however, we will not support

a poor or lopsided agreement that would require substantial cuts

in U.S. domestic supports without making significant gains in market access in developing countries, and unless domestic and export

practices in world-class developing country exporters are subject to

discipline similar to developed countries. It would be most helpful

if developing countries, that have so much to gain from opening

global markets, would define their priorities in terms of their own

self-interest rather than as part of a broader confrontation with developed countries. We very much hope that this message will prevail as we approach the ministerial meeting in Hong Kong. Thank

you, Mr. Chairman.

[The prepared statement of Mr. Metz appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, Mr. Metz. The chair recognizes Mr. Caspers.

STATEMENT OF JON CASPERS, PRODUCER, NATIONAL PORK

PRODUCERS COUNCIL

Mr. CASPERS. Mr. Chairman and members of the committee, my

name is Jon Caspers and I am a pork producer from Iowa and a

past president of the National Pork Producers Council.

No trade agreement under negotiation is more important than

the Doha Round negotiations. The average global tariff on pork is

77 percent. We fully support the administration’s recent proposal

which has put the focus of the negotiations where it rightfully belongs, on the refusal, to this point, of the EU, Japan, and other

high-tariff countries to offer major improvements in market access.

For U.S. pork producers, increased market access is our top WTO

priority.

The best example of the importance of tariff cuts to the U.S. pork

industry is Japan. Japan is the largest market for U.S. pork exports, however, Japan imposes high duties on pork imports if they

fall below a pre-established gate price. The highest single market

access priority of the U.S. pork industry in this trade round is obtaining a major reduction in the level of the gate price that Japan

applies to pork imports, combined with a major reduction in the

import duties which Japan applies on pork imports that are priced

below the gate price. In addition, it is important that the special

safeguard that Japan applies to pork imports be eliminated in this

52

round. That safeguard creates substantial volatility in the Japanese market, and has in recent years acted as a serious obstacle

to U.S. pork exports.

We expect that many countries will want to make use of the sensitive product designation for pork. For this reason, we fully support the new U.S. proposal, that the sensitive product designation

should be limited to no more than 1 percent of tariff lines, and that

compensation for the sensitive product designation should be required in the form of significantly expanded tariff rate quotas. We

also support the United States proposal for a 75 percent tariff ceiling in developed countries.

The application of special and differential treatment for all countries that meet the broad definition of a developing country, could

have a very detrimental effect on the agricultural market access

negotiations. For example, NPPC does not believe that Brazil, a

middle income country that has seen explosive growth in its pork

exports in recent years, should be allowed to receive special treatment when it comes to market access liberalization for pork.

The U.S. pork industry faces restrictive tariff rate quotas in

many of its primary markets around the world. Under the existing

framework agreement, if a country designates a product as sensitive, it will be obliged to expand tariff rate quotas, or TRQs. Because of the prevalence of TRQs in agricultural trade, it is important that all existing TRQs, regardless of whether or not they are

designated as sensitive, be substantially expanded through these

trade negotiations.

By far the best example of the restrictive impact of TRQs on U.S.

pork exports is the European Union. During the Uruguay Round,

the EU established TRQs on pork that represented far less than 1

percent of domestic consumption. Measured as a percentage of domestic consumption, even developing countries, like the Philippines, did a far better job of offering TRQ opportunities in the

Uruguay Round than the European Union. Such limited access to

the EU pork market is particularly frustrating for our industry,

given that the United States is one of the best markets that EU

has for its own pork products.

Of course, U.S. pork producers face more than just TRQ restrictions in the European Union. The EU maintains onerous residue

testing requirements as well as other unneedy disease-related testing requirements that add significantly to the cost of exporting

pork to the EU. Needlessly difficult and costly, EU planned approval requirements pose yet another major obstacle to U.S. pork

exports. NPPC believes many EU SPS requirements operate in direct violation of the principle of equivalence, as that term is defined

in the WTO SPS Agreement.

In 1985, the EU accounted for 20 percent of total U.S. pork exports. Today, it accounts for less than 1 percent. Almost all of this

decline can be attributed to unfair EU SPS barriers to trade. It is

imperative that U.S. negotiators move quickly to address the EU

SPS issues in an aggressive and systematic way, in order to ensure

that this trade round results in real trade liberalization in the EU.

If price competitiveness and product quality were deciding factors in selling to the EU, Europe would be one of the largest markets in the world for U.S. pork exports. With the EU’s recent exVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
53

pansion, it now represents a market of over 400 million mostly

high-income consumers; however, U.S. pork sales to the huge EU

market remain negligible due to a combination of tight TRQ restrictions and completely indefensible SPS barriers. Thank you.

[The prepared statement of Mr. Caspers appears at the conclusion of the hearing.]

Mr. MORAN. Thank you very much. Mr. Willey, good afternoon.

Mr. WILLEY. Mr. Moran, Mr. Peterson and members of the committee, before I start, I would like to thank Mr. Moran for his leadership and efforts on the Japanese beef issue. You made the cover

of the Cattlemen’s magazine.

Mr. MORAN. Oh, I didn’t know that, but I am not so sure I am

pleased that you are saying that in front of Mr. Caspers. There is

a little bit of rivalry in this issue between pork and beef.

Mr. WILLEY. Well, we get along pretty well. We are from the

same State, as Mr. King knows.

Mr. MORAN. Thank you very much.

STATEMENT OF WYTHE WILLEY, PRODUCER AND PAST

PRESIDENT, NATIONAL CATTLEMEN’S BEEF ASSOCIATION

Mr. WILLEY. Members of the National Cattlemen’s Beef Association appreciate the opportunity to present our international marketing priorities as negotiators prepare for the critical and final

phase of the Doha Round of world trade negotiations, and as you

consider trade in the context of the next farm bill. My name is

Wythe Willey and I am a cattle producer from eastern Iowa, where

I own and operate a cow, calf and feedlot operation. I had the privilege of being the National Cattlemen’s president in 2002 and 2003,

and I am currently on my second term of the president’s advisory

committee for trade policy and negotiations. That committee, as

you probably know, works closely with your former colleague and

the trade ambassador, Mr. Portman.

I would like to focus on our priorities for the WTO negotiations.

And I might say parenthetically that, as I listened to the testimony

of Ambassador Portman and the Secretary this morning, we agree

with just about everything they say, and so I will try to shorten

my remarks, because we are very much on the same page.

But basically, our members in our organization feel very strongly

about the benefits of trade, and we think it can be best obtained

through the WTO multi-lateral process. U.S. grain-fed beef has a

unique place in the global food economy, and U.S. beef producers

know, as a result of the investments in technology and sciencebased animal health and inspection, that we produce the highest

quality and safest beef in the world.

The goal of our agriculture trade policy should be to make our

product as competitive as possible on the world market. The core

mechanism for increased market access is tariff reduction so that

we can better our place in the global marketplace. For our industry, this depends on the amount of tariff reductions. U.S. beef receives no domestic supports or export subsidies. Our litmus test as

to whether we would consider these negotiations a success or failure is really quite simple. A successful outcome mandates a drop

of Japan’s 50 percent bound to air freight, and South Korea’s 40

54

bound tariff freight on beef imports, and some opening of the European market.

The U.S. proposal, Ambassador Portman’s proposal on market

access would meet our goal of bringing Japan’s tariff on beef down

to approximately the same level as the 12 percent duty on beef negotiated as part of China’s WTO accession package. If China can

reduce tariffs on beef from 45 percent to 12 percent, we believe the

EU, with a tariff of 57 percent and a 20 percent in-quota tariff,

Japan, with a current applied tariff of 38 percent, and Korea, with

a current applied tariff of 30 percent, should also be able to reduce

their tariffs to 12 percent.

I would like to address subsidies for a minute. We favor efforts

to significantly reduce worldwide domestic supports and export

subsidies when it comes to beef. The level of government support

for beef globally actually increased from the early 1990’s through

2001. In 2002, the European Union alone accounted for 78 percent

total support levels on beef, with European beef producers getting

most of their gross returns from government rather than the value

of beef and world prices. In 2003, Japan had 30 percent subsidy,

South Korea had 60 percent, and the EU, 78 percent, stand in

stark contrast to the U.S. beef support of about 4 percent. Those

supports stand as a monument of failure of persistently relying

upon taxpayer dollars rather than the market.

American cattlemen remain concerned about the possible recourse the EU may have in its ability to limit reductions in domestic supports for beef producers via livestock payments to be made

on a fixed number of head. One of the most dramatic changes in

recent history of the global beef trade has occurred in the EU. That

group of countries used to be a net exporting region. They are now

a net importing region. They project for this year to import at least

250 metric tons, with forecasts of the next few years of it being at

least a half-million tons of beef imported. As a result, we have been

working with U.S. negotiators to seek a resolution to longstanding

non-tariff areas in that market, as well as an expansion of the

11,500 metric ton tariff rate quota. We also seek the elimination

of 20 percent in-tariff quota rate.

Right now, beef exports are big part of our business. And as you

know, our three biggest markets, Japan, Korea, and the European

Union are all close to us. Think of what this business could be if

we could only open it up. I would also like to mention that we do,

and I know it is not a major part of the negotiations in the Doha

Round, but we feel very strongly that a comprehensive package

that provides for additional market access, eliminates export subsidies, and substantially reduces production subsidies, along with

greater assurances on the part of our trading partners to eliminate

sanitary, phytosanitary barriers to trade. Simply stated, we need

to follow the science.

Mr. Moran, you asked a very good question a little while ago,

how do we compete in this future global market? From the standpoint of the cattlemen, I think we can say that we would choose

to compete. And I would add to the Secretary’s remarks that never

underestimate individual Americans, and particularly, never underestimate individual American farmers and ranchers. They will

figure out a way to compete. If we can just get these export marVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
55

kets open, they will be competitive and it will be better for our own

economy. And thank you.

[The prepared statement of Mr. Willey appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, sir. Mr. Tumbleson.

STATEMENT OF GERALD TUMBLESON, PRODUCER AND

PRESIDENT, NATIONAL CORN GROWERS ASSOCIATION

Mr. TUMBLESON. Good afternoon, Chairman and committee members. My name is Gerald Tumbleson and I live in Sherburn, Minnesota and I serve as president of the National Corn Growers Association. I would like to thank the committee for giving us the opportunity to testify today regarding the Doha Round.

Trade is vital to corn producers. It is important in the traditional

sense that the percent of commodity corn that is exported, provides

a good market for our industry today. But the future for trade is

in the realization that the world is short of two commodities, energy and protein. Corn can provide both. Our corn-based ethanol

industry had doubled in the past 4 years. We are in the energy

business and we will be an important source of energy for our Nation. That energy will replace petroleum imported from other countries; that is important to our trade policy and our Nation’s economy.

Trade is important because the world needs protein, and we can

provide that by adding value to corn in the form of beef, pork, poultry, dairy products, and co-products from our energy program. Our

trade—adding value to corn in rural communities, and turning it

into protein, and having access to the world marketplace is the future of our industry. Our trade policy must provide market access

to the products that the world needs and our Nation’s needs, and

those products should be added in a rural America.

Our organization supports trade agreements that will open markets for U.S. farmers by reducing and eventually eliminating tradedistorting subsidies; therefore, we believe that success in the Doha

Round negotiations is vital to create new business opportunities for

U.S. agriculture. We commend Secretary Johanns and Ambassador

Portman for their leadership in energizing the WTO negotiations.

The new proposal announced by the United States recently was a

bold and significant move. It made it clear that the United States

is willing to show the flexibility necessary to get an agreement if,

and I repeat, if our trading partners are willing to do the same.

The U.S. proposal has applied pressure where it is needed, on the

EU and other countries that have resisted market access liberalization.

At the same time, we must emphasize that our support is conditional. The U.S. proposal on domestic support would require fundamental changes in U.S. farm programs. We can only agree to

such changes in the context of an agreement that offers substantial

improvements in market access for U.S. exports, the elimination of

export subsidies, sustainable reductions in trade-distorting support

by our competitors, and preserving an effective safety net for U.S.

producers.

U.S. negotiators must demand a market access package for agricultural products that is ambitious as the emerging package on doVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
56

mestic support, one that requires real liberalization in both developed and developing countries. Countries like China, Brazil, and

India must be disciplined through the outcome of negotiations so

that they can be effective players in the world marketplace. We

need a commitment from the administration to support effective alternative WTO complaint domestic policies in the 2007 farm bill.

Such policies should include an adequate income safety net, as well

as the programs for infrastructure modernization to improve U.S.

export competitiveness. We need to place more emphasis on programs that increase opportunities in rural America to add value to

basic commodities and to stimulate economic development.

Of course, tariffs are not the only impediments to U.S. corn exports. We also face an array of non-tariff measures, many of which

are related to our planting of corn improved through biotechnology.

The EU’s moratorium on approved new biotechnology trades is blatantly WTO inconsistent because it lacks scientific justification. We

must aggressively defend current and future market access by insisting that trade partners respect WTO rules.

In conclusion, we are pleased that the administration is aggressively pursuing trade liberalization through the Doha Round. We

are prepared to consider changes in U.S. farm policies, but only as

part of an agreement that involves significant, tangible improvements in market access. In addition, we need a commitment from

the administration to support the development of alternative WTOcomplaint domestic policies in the 2007 farm bill, and a more energetic effort to protect U.S. interests, ensuring compliance with

WTO trade rules. Thank you for your attention and I would be

happy to answer any questions.

[The prepared statement of Mr. Tumbleson appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Tumbleson, thank you very much. Would you

expand on what you just said, kind of the last two or three sentences of your testimony, the WTO-compliant farm policies in the

farm bill that we ought to be looking at, and I think you called for,

perhaps, a more aggressive, that wasn’t your word, but effort in regard to the non-tariff trade barriers.

Mr. TUMBLESON. Well, in the non-tariff trade barriers, where

they are, like the biotechnology and those things, those things are

limiting our farmers drastically in our production.

Mr. MORAN. What are you calling on your government, the

United States government, to do in behalf of corn growers in that

regard?

Mr. TUMBLESON. Is to follow the scientific justification, so that

we produce something through these new technologies which all

the farmers in every country I have visited want. So by following

through with those, so those scientific justifications are followed,

then we will be able to produce in that form.

Mr. MORAN. I am curious as to, and this could be a question for

anybody, but what leverage we have in our dealings with other

countries in regard to these non-tariff barriers. Are we using every

tool we have to break down those barriers? Anyone?

Mr. CASPERS. Well, Congressman, we face those barriers in many

countries, and I have sat here before at different hearings and

heard a lot of sad stories. I guess one that comes to mind immeVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
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diately to our south is Mexico. It just takes a phenomenal effort,

at least on the behalf of pork, anyway, it seems to keep that border

open, although, in our case, I guess we have been pretty successful.

I have heard a lot of sad stories in other commodities.

Mr. MORAN. My question is this, I too have heard lots of sad stories, and I want the assurance from you, you who represent those

who are affected, who have those sad stories to tell, are we doing

everything possible, our trade negotiators, our Department of Agriculture, our Secretary of State, is our Federal Government doing

everything that it should be doing in regard to breaking down

those non-tariff barriers?

Mr. CASPERS. I guess, from our standpoint, I think they are

doing as good a job as they can under the current rules. I think

the Secretary stated here earlier that they would like to take a look

at better SPS enforcement issues in the future. And I think, as we

can implement better actions that are more timely, that part of the

problem, and I think you heard him testify that it takes—if you

take 4 or 5 years to resolve some of those problems, that is really

not a very good solution, and I think that there needs to be more

action in the enforcement methods to get those things done on a

more timely basis.

Mr. MORAN. Mr. Willey, thank you very much for your association working with a number of Members of Congress in regard to

the dispute we had with Japan in regard to U.S. beef. How do you

categorize the announcement today, and what do you foresee in the

future? I have concerns that this is, clearly, everyone wants to

claim success, but I worry about what happens next. How do we

get to the 30 months and ultimately to open trade with Japan?

Mr. WILLEY. Well, as I heard earlier today, we have all been excited and optimistic about Japan and then we have been disappointed. But I do think that the announcement today, having the

Subcommittee on Food Safety meet and then the full committee approve their report, we do have a set number of days, I understand,

28 days for comments and then the government will be taking that

issue up. So frankly, I am more optimistic than I have ever been.

But going back to your earlier question, these things take a long

time and we have lost a lot of trade. And you know, there is really

some concern about the good faith that some of our customers have

indicated this kind of an issue, and we have had about as much

help, talking about the beef industry, from you, Congress, the administration and just to every part of the administration that anybody could get, and it is a tough process, but I am optimistic.

Mr. MORAN. Is there a belief within your association, within the

industry, that now South Korea is soon to be an available market?

Does this lend itself toward that occurring?

Mr. WILLEY. Yes. For some reason, South Korea kind of depended on whether Japan came in. That is what we always heard.

And they have made some very supportive announcements. So I

would expect that they will follow pretty closely.

Mr. MORAN. Good to hear. Mr. Metz, my question earlier to the

Secretary and to the Ambassador is one I want to raise with you,

because soybeans in Brazil seem to be the poster child of our competitiveness, our ability to compete, and Mr. Willey indicated, as

did Secretary Johanns, has great faith in our producers and that

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we can compete in this world. But what is it, what policies—let me

ask this differently. I assume that the Soybean Association, on behalf of your producers and your growers, believes that we can compete in the world. If we break down these trade barriers, you have

access to greater markets around the world. But is there a point

in which we have to worry about the competitiveness with a country that has lower land values, lower labor costs, less chemical expense, less environmental regulation? What is it that we can do as

policymakers to make certain that farmers in Kansas and across

the country have the opportunity for those markets, even when the

tariffs are gone?

Mr. METZ. Well, certainly, as you know, Brazil does have much

lower land costs. Their labor is approximately $6 a day. It is a huge

misconception that there are small farms in Brazil. These are huge

mega-farms and they use very cheap labor to operate these farms.

I believe that leveling that playing field, though, and we hear how

the United States has all these subsidies for American farmers. We

really need to take a good look at the subsidies that Brazil has as

well, and really call them on the carpet. When the going rate of interest is 33 to 35 percent, and their farmers are getting it at 71⁄2

to 12, obviously that is a subsidy no matter how you look at it. And

I think, when we make the level playing field, then we will have

the opportunity to compete with them very well. As you know, the

world’s economy is growing and that is very good. And the first

thing that people do when their economy grows is put more meat

into their diet, and they want to eat better. And so, obviously, it

is a growing market. It is actually a concern, we will be able to

produce enough soybeans for the growing world economy? And as

that continues to grow, obviously, I think we will compete very

well.

Having said that, I am always very concerned that we lose our

safety net. We saw the disruption of grain flow for just a couple

of weeks with Katrina. What would happen if we would lose a lock

or a dam, either through a terrorist or through just plain old age

and lose one for 2 to 3 months? What would happen to this country’s agriculture? We need to make sure that we have a safety net.

Mr. MORAN. I actually thought that was one of Secretary

Johanns most important points, at least one that resonated with

me. For those who don’t think trade is important, look what happens when we lose our ports in Louisiana and the consequence. It

is a story that has implanted in my head as far as defending the

opportunities for American farmers to export around the world. We

have seen grain piled on the ground. We have seen prices diminished, all in response to the—all in reaction to the difficult circumstances that we have in unloading barges and getting our grain

to market through the ports of New Orleans. My time is expired.

Ms. Herseth?

Ms. HERSETH. Thank you, Mr. Chairman. And I want to thank

all of those on the panel today. Mr. Butler, I have had a chance

to be in Pittsburg, Texas a couple of years ago. And of course, it

is always nice to hear the testimony of folks from our neighboring

States of Iowa and Minnesota, and from South Dakota.

Just a question for all of you and that is let us just say things

go remarkably well in the next few weeks, and that under a more

59

open, liberalized international trade environment, I would be interested to know from each of you where you anticipate the greatest

opportunities for your particular sector. And depending on your answer there, are you particular concerned with Ambassador

Portman’s response, that the market access issues, as it relates to

the developing countries, have not been quite as ambitious under

the proposal they are going to be evaluating in the coming week,

couple of weeks? How much concern does that cause you, based on

where you see the greatest opportunities for your particular sector?

Mr. BUTLER. Well, I will start from the chicken side. Our greatest opportunity would be to be able to have access to the European

community, a large economy there, where we are just shut out now

because of their sanitary SPS interpretations, that chlorine is not

good enough for them, but it is good enough for 300 million people

in the United States. And the second part of your question, you will

have to restate for me.

Ms. HERSETH. My understanding from Ambassador Portman is

that, under our proposal, we were pretty ambitious, both as it relates to the EU and market access there, but also as it relates to

market access in the developing countries. And given that, for some

commodities, many view the Asian marketplace as a really prime

market for increasing opportunities, but certainly some of the countries throughout that Pacific rim might still be categorized, within

the next WTO meeting, as developing countries. So perhaps, and

certainly I know the EU is of greatest opportunity for the poultry

industry, but perhaps as you look at some other markets, given

that where we are with market access in developing countries right

now, fall short of the ambition that I think Mr. Portman had at the

outset. Does that cause you particular concern?

Mr. BUTLER. I don’t think so. We are already shipping into those

developing countries. And as they develop the foreign exchange to

purchase, we will be ready with a very economical protein source

for them.

Mr. METZ. Certainly from a soybean point of view, Europe is a

very key market and always has been, but we see the opportunity

in those developing countries. As I indicated earlier, about 81 percent of the population is in those developing countries, and as their

economies grow, they want to put meat in their diet.

If I can relate a quick story. While traveling in China with my

wife, on our way out to the Great Wall, I asked the gentleman that

was the head of the tour bus, what is the greatest change you have

seen in China in the last 10 years? And he said, the ability to eat

meat. When you think about all the changes in China, the ability

to eat meat was his greatest change, and I think that is going to

be true of the entire world. And certainly soybean protein will be

part of that diet.

Mr. CASPERS. I guess I would reiterate. I think our biggest opportunity is certainly in the EU, because it is a developed country and

it is a market that we are virtually locked out of today. In regard

to the developing country question, I do believe there is more to be

fleshed in the U.S. proposal, and it is a concern to us, and I think

that will come. This is a development round and that will certainly

be a focus of this. But what we have seen, and I could use Mexico

as an example, Mexico, in 2004, was our largest market in terms

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of tonnage, and that was brought about really from the benefits to

their economy, a growing and more affluent middle class, as the

NAFTA agreement was further implemented.

So I think, as you see economies expand around the world in developing countries, their ability to purchase and trade becomes

greater and significantly so. In a short period of time, relatively,

they have become great markets. Another example would be China.

We have tremendous growth rates of pork variety meats there

today. And frankly, the possibilities are—it almost looks like that

is a black hole as far as a destination for pork products from this

country. And it really is brought about by the agreements leading

up to their accession into the WTO.

Mr. WILLEY. From the beef standpoint, we would expect Japan

and South Korea and the European Union to be our biggest customers if things really were as good as you project there in your

hypothetical question. In fact, if it were there good, we would have

trouble meeting the demand.

But the second part of your question, developing countries, I

think one problem is, the developing countries, in the trade area,

can define themselves. And I think, when I hear talk about Brazil,

to me, in agriculture, Brazil probably isn’t a developing country. So

I think probably some rules apply to the United Nations rules or

something to a country like Brazil so they can’t define themselves

as a developing country to their own advantage. On the other hand,

we would see a lot of trade with less developed countries because

beef is such a varied product. There are a lot of parts of the carcasses, as the Secretary talked about, we just don’t use here anymore or much of, and livers to Egypt and Russia and many part

of the animal to Asia that add, really, to the value of our production. Thank you.

Mr. TUMBLESON. As far as the corn growers, it is amazing because, really, the world is short two things and that is energy and

protein. And if you take the corn and convert it to energy and protein, whether it is pork, beef, poultry, whatever it is, it is an amazing thing what happens in that. We import a billion a day in oil,

1 billion. If we took that to this trade thing and turned that to a

half a billion and then we turned around and converted what we,

when we change our energy, we can have a 60 percent protein on

the backside of that when we take the energy off. The world has

a glut of starch. We do not want to spend $3.50 fuel moving starch

around the world. That is a very high cost.

OK, and then in the developing countries, they can grow starch.

We will supplement that with protein. Now you are not talking a

monster. They are building their economy with their starch and we

are supplementing the protein. We are also converting what we

have to energy at home, which we are short of. So this whole trade

thing could be solved and the incentive package that we get from

our committee here, as they do the farm bill to protect the safety

net, it all adds into one.

Mr. MORAN. The gentleman from Iowa.

Mr. KING. Thank you, Mr. Chairman, and I thank the witnesses

before this panel. I want to raise, I hope, some good news and that

is that having been one of many that have sat around the round

table in Brussels and negotiated with the members of the EuroVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
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pean Parliament on Trade and watched how difficult they may be

to get to a common ground of reason and having watched them diligently working to establish the United States of Europe through

the EU, changes that have been made along the way. This will be

our first ministerial conference at the WTO with the European

Union, that for the first time really doesn’t see a constitution ratification on the horizon. I suspect that that is going to weaken their

resolve to bind together, especially considering the lack of growth

that they have in Europe and I am optimistic that we will be able

to make some significant gains in Hong Kong.

With that in mind, I direct my first question to Mr. Tumbleson

and listening to your testimony, there is a segment there that fit

the pattern pretty closely that I think we are prepared to consider

changes in the domestic farm policies and also, I believe you said

export subsidies in exchange for market access and then I listened

a little more carefully and then I heard some conditions there. As

long as provided we reserve an effective safety net for U.S. corn

producers, adequate income safety net was another phrase; opportunities in rural America was another and then, but you know, as

I listen to that, I am thinking is that bar too high? When you start

defining those terms, is it so high that we really can’t get there together? Because don’t we know that if we are going to reduce domestic subsidies in exchange for market access, eliminate export

subsidies and we get to this ideal world of trade, with these kind

of conditions here, don’t we have to accept some risk with regard

to the producers in exchange for the market access and the reduced

competition from Europe?

Mr. TUMBLESON. Thank you for that. It is interesting because

this has been a discussion for a long time. You suggested that we

reduce. They were saying cut amber box. There is a whole difference in that, what we determine that. The farm bill is not a subsidy to a lot of farmers. The farm bill was an opportunity to develop rural America. I have two sons farming because of the farm

bill. We have pigs. They would not be farming if it wasn’t for the

farm bill because that safety net has allowed them to come back

and invest in pigs and invest in agriculture. That safety net does

not have to be in the amber box. If you know how the other big

businesses like petroleum, those are incentives. This committee,

and I have total confidence in this Agriculture Committee, of

adapting to incentive programs instead of amber box programs that

will work the same as the petroleum industry and we will be able

to do the same thing.

We are not saying cutting, we are saying changing this and what

it does, it develops rural America and the sun is now shining on

a green leaf. That is photosynthesis. Brand new money to the

United States. That is a printing press for money. Any time somebody wants to lay money on the table like that sun does, we want

to use it. That is where the incentive package becomes very valuable. Now here is an example of that. In Minnesota we did the dry

grind ethanol plants and farmers owned them, our legislators in

Minnesota were willing to spend $30 million to each plant. Now,

that is 20 cent a gallon for the first 15 million gallons. They spent

$30 million for a plant that costs $40 million.

62

Now, if you were a taxpayer in Minneapolis, would you accept

that? Not likely. Except they had the wisdom to know that when

they spent the $30 million, Minnesota gained $400 million back

and we have that documented. That was over 10 years. The second

10 years they got the $400 million without any investment. So investment in the United States through agriculture is what the

farm bill is. That is how we are going to do this.

Mr. KING. In exchange for market access there is going to be

profit with regard to that. That profit that comes from market access, do you see that as in any way a savings for the taxpayers of

the United States, get their return on their previous investment in

that fashion?

Mr. TUMBLESON. Yes. When we sell pork, when we sell poultry,

whenever we sell beef, that is going to be the return and we employ the people as we make the pork and the beef and the poultry

and the protein. We employ the people and in employing the people, pays the taxes and we are building rural America. This is a

circle that works out very well.

Mr. KING. Thank you, Mr. Tumbleson. Mr. Willey, I appreciate

your testimony and I thought I knew you, but I read through your

bio here and now I really know you. It is quite a long history in

Iowa and I, living as closely as I have, I didn’t realize that resume

was there. But this maybe a little bit off topic, but I want to direct

this question to you because I know you will know the answer to

it and it looks to me like in about 5 to 6 months the Canadians

are going to have a radio frequency cattle slaughtered up there and

it appears to me that in that period of time, all they need to do

now is segregate those RFID cattle and they are going to be able

to also segregate by age and they will be able to open up a different

kind of a trade negotiation with the Japanese and the Koreans,

more directly, the Japanese, than we have. If we had a livestock

ID plan in place a year ago, can you imagine us not doing business

with the Japanese today?

Mr. WILLEY. Well, as stubborn as the Japanese have been on

this, I don’t think that would have helped that much, but we do

have to acknowledge that the Canadians are ahead of us. They

have a mandatory program; with more serious BSE problems, they

worked a lot harder. But we do have very substantial numbers of

source-identified ID cattle. In your home State, the electronic identification system, back in 1995–96, you might have been in the

Iowa legislature when that passed and became part of the brand

law. So it is official identification, at least in your State. And I

think there are programs in place to put substantial numbers of

cattle in that system, as well as other livestock.

Mr. KING. I would just that I am interested in accelerating that

process. I think it needs to be turned up to the max. I wanted to

save a quick question for Mr. Caspers here and I guess I don’t have

too many members of this committee that are waiting to ask any

questions, so I want to make a comment first and then pose a question. That is, it appears to me that livestock doesn’t have a lot to

give and you want to reduce the tariff barriers that are there and

the artificial barriers that are there, and I am not saying that it

is necessary because there isn’t a lot on the other side of this, except for the 4 percent or so, so what are you, do you have anything

63

to give in these trade negotiations from a livestock perspective, either pork or beef?

Mr. CASPERS. It is probably difficult to identify, since we are essentially unsubsidized. I think that is an issue, but I think the intent they agreed to in the framework last summer, is that countries in general, and agriculture in general, is going to lower the

trade distorting domestic supports in return for better market access. And obviously, our pork industry stands in line and I think

the beef industry, also. That is our No. 1goal, is better market access because consistently, I think the markets where we have made

major inroads and high growth markets today are all brought

about by better access, whether it is through the Uruguay Round,

whether it is through NAFTA or other, new countries assenting to

the WTO and on and on and on. All the countries that we made

export inroads into were all brought about by trade agreements or

better market access into those countries that demand our products.

Mr. KING. I was quite pleased with the Australian free trade

agreement and as I look at the chart here on the acceleration of

the pork exports to Australia and then there in early summer, it

dropped dramatically because of the case of bio-security of Australia’s pork. I think the basis of that was that we would disagree

with them on the science of it. Do you see that as an artificial barrier?

Mr. CASPERS. Well, we long thought it was and there was a risk

assessment that was going on and on forever and finally, was able

to be brought to resolution during the FTA negotiations and they

found in our favor, Australia bio-security and so yes, you mentioned the court case and that has been, at this point, overturned

and so I think we would expect, and I haven’t seen any data because the case is too new, but I think with the overturning of that

finding, I would expect to see imports in Australia accelerate again

and it is becoming a tremendous market. I think our economists

had estimated about a $50 million a year market and then without

the interruption of the court case, I think we are already up to

about $46 million just this year alone, so it has proven to be a tremendous ark of a lot of potential.

Mr. KING. Australia, like really all countries in the world needs

a little help with American sausage, so I thank all the panelists,

thank the chairman. I yield back.

Mr. MORAN. Mr. King, thank you very much. I appreciate the

testimony of our panel, second panel this afternoon

I would now call upon our third panel to join us. Mr. Peter

Kappelman is a producer and chairman of Land O’Lakes in Wisconsin and he is here on behalf of the National Milk Producers

Federation. Mr. Christopher Shaffer is a producer from Walla

Walla, Washington. He is here on behalf of the Wheat Export

Trade Education Committee and the National Association of Wheat

Growers and U.S. Wheat Associates. And Mr. Don Phillips is a

trade adviser to the American Sugar Alliance of St. Leonard, Maryland.

Gentlemen, welcome. We would begin with the testimony of Mr.

Kappelman.

64

STATEMENT OF PETER KAPPELMAN, CHAIRMAN, LAND

O’LAKES

Mr. KAPPELMAN. Mr. Chairman and members of the committee,

my name is Pete Kappelman. I am a dairy farmer from Two Rivers,

Wisconsin. I currently serve as the chairman of the Board of Land

O’Lakes, Incorporated and I serve as a board member of the National Milk Producers Federation. National Milk Producers Federation works closely with the members and staff of the U.S. Dairy

Export Counsel on issues of trade policy that promote U.S. dairy

exports. I am pleased to appear before you today representing National Milk Producers Federation to testify on the status of the

WTO Doha Round negotiations. While historically the U.S. dairy

industry has not been heavily independent on exports, our foreign

sales have been on an upward trend for the past few years. U.S.

dairy producers still watch import levels with caution. However,

given the recent export growth, the U.S. dairy industry believes

that with bigger opportunities overseas, this WTO round could result in a positive outcome for us.

Unlike some other U.S. agricultural sectors, the U.S. dairy industry could face higher levels of sacrifice in each of the three pillars,

whether it is the Dairy Export Incentive Program, DEIP; our relatively low tariffs; or our price support program, the U.S. dairy industry has a significant amount to lose from these negotiations. As

you can see, the U.S. dairy industry could be giving up a very important part of our price support system in each of the three pillars. This is why dairy negotiations must be carefully examined by

this committee to ensure that any concession by the United States

is matched with not only reciprocal movements by other members,

but in many cases we must also see additional concessions from

more protective markets.

If there is one message that the members of the House Agriculture Committee should take away from this testimony, it should

be that the U.S. dairy industry, although supportive of the direction our negotiators are leading us in, we will never commit to unilateral disarmament or an inequitable level of concessions. Markets

need to be opened overseas before we commit to sizeable new openings in our own domestic market. Similarly, other countries must

commit to reducing their heavy subsidies and lower their much

higher tariffs before we take on further commitments.

In order to make the most of market possibilities abroad, we

need a good agreement from our negotiators, one that will usher

in a world without export subsidies, one with equity in tariff barriers and greater access for our products, and one with more equal

levels of domestic support between the United States and the EU.

Any disparities beyond the 2 to 1 ratio are unacceptable. In addition, it is crucial to maintain high enough levels of funding to support U.S. agriculture in both amber and blue WTO colored boxes.

Although a successful Doha Round may require some changes to

U.S. domestic support, the U.S. dairy producers remain interested

in keeping our price support program as the primary dairy safety

net at this time.

U.S. dairy producers will be closely monitoring developments in

the negotiations. Any special treatment given to a foreign country’s

dairy sector will be unacceptable if that special consideration is not

65

provided to the U.S. dairy producers. We just want a fair deal. We

support an agreement without any special treatment for dairy, but

we must warn Congress and our negotiators against granting any

non-reciprocal special concessions to other nations.

In addition to crucial issues related to the three pillars of export

competition, market access and domestic support, one side issue is

of particular importance to the dairy industry, that of geographical

indications. The creation of a worldwide geographical indications

registry, as the EU has proposed, would be devastating for the U.S.

dairy industry. I would urge all members of this committee to vocally communicate their opposition to a global GIs registry to our

negotiators in order to underscore the importance of standing firm

on this issue in the face of strong EU support for its creation.

The Doha Round remains the single best shot we have at trying

to improve the situation our industry faces here and abroad. In

order to best support your agricultural industry’s interests, I urge

the members of this committee to monitor the developments of this

round closely and to communicate their priorities and concerns for

their producers to our negotiators to underscore the messages they

are receiving from industry organizations.

Mr. Chairman, committee members, I appreciate this opportunity

to present comments on this issue. Thank you.

[The prepared statement of Mr. Kappelman appears at the conclusion of the hearing.]

Mr. MORAN. Mr. Kappelman, thank you. Mr. Shaffer.

STATEMENT OF CHRISTOPHER SHAFFER, WHEAT EXPORT

TRADE EDUCATION COMMITTEE, NATIONAL ASSOCIATION

OF WHEAT GROWERS AND U.S. WHEAT ASSOCIATES

Mr. SHAFFER. Thank you, Mr. Moran. Thank you, Mr. Peterson.

I am Christopher Shaffer and I grow wheat and garbanzo beans on

my farm in Walla Walla, Washington. I currently serve as elected

grower/spokesman for the wheat industry to trade talks. I am past

chairman of Wheat Export Trade Education Committee and the

U.S. Wheat Associates. Today I am also speaking on behalf of the

National Association of Wheat Growers.

Producers must look to every tool available to make a profit in

agriculture today. One of the sets of tools that receives little attention day in and day out are the trade rules that create opportunities to develop markets around the world. Let me highlight two

points that are important to wheat producers in regard to this.

First, 96 percent of the world’s consumers live beyond our border

and second, we consistently export 50 percent of our total production. As you can imagine, our success or failure hinges on the ability of the U.S. wheat industry to export around the world.

I believe without question that the Doha Development Round offers us the greatest single opportunity to expand our customer

base. However, at the same time, it poses several challenging dilemmas to you in the legislature and to the U.S. wheat producers.

It is no secret that Trade Promotion Authority clock is running and

the world recognizes the importance of concluding the WTO negotiations before TPA expires. I believe our negotiators want to bring

you to an agreement that is good for agriculture and the entire

U.S. economy.

66

While the U.S. wheat industry has a number of concerns with

the bold approach taken by our negotiators, it is clear that further

progress in this round rests with the European Union and a few

other members. It is amazing that these developed countries are

apparently willing to jeopardize these important negotiations in

order to protect their producers from fair market practices. Our

market is open. We ask for fair access in return. The U.S. wheat

industry has long held a clear set of goals for these negotiations.

Today I appreciate the opportunity to review them briefly. Each of

the three agriculture pillars under the negotiations is important to

the United States wheat industry.

We rely heavily on our domestic support programs and are extremely concerned that other subsidy users are disciplined. To gain

new markets, we must have aggressive action in the market access

tariff lowering pillar. The issues in the export competition pillar

state trading monopolies, food aid and expert credit programs all

impact our ability to be competitive. This offer to remove such a

large portion of support programs comes at a universally difficult

time for American farmers and ranchers. However, it is difficult to

see how we, as growers, can prosper unless we can open markets

and expand our customer base with those beyond our borders.

The U.S. wheat industry has been a strong supporter of the administration’s ambitious agenda to expand world market access,

but we must also be realistic and recognize that there is a need for

access to safety net programs that keep the industry viable. However, one thing is for certain; the U.S. wheat industry is going to

accept painful changes in the U.S. domestic support program, it

must see major results in other areas of the negotiation that are

important to us. It should be apparent from my comments at this

point that obtaining major and proven access to world markets is

a very high priority for us in this area.

The wheat industry is watching closely to make sure the Doha

negotiations result in reform of the trade distorting practices used

by our competitors. Real measurable and parallel benefits must be

achieved in market access along with true disciplines that remove

the monopolistic practices of export state trading enterprises, just

as the Canadian Wheat Board and Australian Wheat Board. U.S.

food donation and useful export credit programs must be protected.

Lowering tariffs is only part of the picture. We not only need greater market access via lower tariffs, but we must also eliminate the

unfair and nontransparent practices of these monopolistic traders

that undercut us to our market share.

Finally, another critical element that we are very pleased to see

in the new proposal is a demand for litigation protection for programs that stay within their commitment. No further agreement

will have any meaning unless there is predictability against future

WTO challenge to programs that meet commitments. There must

be a safe harbor for those countries that abide by their commitments.

In conclusion, I would like to say that we are in a very unique

position where we have the opportunity to change how we look at

agriculture in this world and how we support agriculture in this

country. And I think, as we bring those together with the conclusion of the Doha Round, we truly can set up agriculture to be

67

strong and prosperous in this country for the next 50 years and

longer. Thank you.

[The prepared statement of Mr. Shaffer appears at the conclusion

of the hearing.]

Mr. MORAN. Thank you, Mr. Shaffer. Mr. Phillips.

STATEMENT OF DON PHILLIPS, TRADE ADVISOR, AMERICAN

SUGAR ALLIANCE

Mr. PHILLIPS. Thank you. The American Sugar Alliance is grateful for the opportunity to testify today. The ASA represents 146,000

American farmers, workers and their families in 19 States engaged

in the growing, processing and refining of sugar beets and sugarcane. ASA strongly supported the launching of the Doha Round.

Like other American farmers, we can compete against foreign farmers, but not against foreign government subsidies and predatory

trading practices.

Our objective in Doha is a fundamental reform of the world’s

sugar market, which can only be achieved if all the policies significantly affecting sugar production, direct and indirect, in developing, as well as developing countries are effectively disciplined. This

requires a comprehensive sector-specific approach. We have, however, serious concerns about the current state of the Doha negotiations and its future direction. At this point, it is difficult to see how

the fundamental reform we seek can be achieved and in our view,

U.S. commitments to modify our sugar program, both with respect

to imports and domestic support must be linked to the achievement

of such reform.

We believe our position closely parallels that of other agricultural

producers who are prepared to accept changes in their programs

only if their ambitious objectives in market access and other areas

is achieved. The world sugar market is grossly distorted by a vast

array of trade distorting policies, which induce growers to overproduce and dump their surpluses on the world market. As a result, the world’s sugar market has been transformed into a dump

market. The EU system is the most familiar example of such policies, however, it is just one of many and no longer the most troubling. Fueled by a subsidized and government mandated ethanol

program, massive debt forgiveness and persistent current devaluation, Brazil has increased its sugar exports by more than tenfold

over the past decade.

Among the many other trade distorting policies prevalent in the

sugar sector are state trading enterprises’ internal arrangements

which foster dumping and government ownership and bailouts.

Most of these policies are indirect, nontransparent and not easily

dealt with in the traditional WTO negotiating framework. There is

little reason to believe that the Doha Round, which is focused exclusively or almost exclusively on broad formulas will be effective

in dealing with these diverse policies. The administration indicates

that sectoral approaches can be pursued after modalities are

agreed, but what leverage will be left to do so?

Perhaps even more troubling, the pervasive emphasis on special

and differential treatment for developing countries has persuaded

most of them that they need do little or nothing and if developing

countries, which account for three-quarters of sugar production and

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trade around the world do not undertake obligations comparable to

those of developing countries on sugar, any reform will fail.

As prospects for true reform of the world’s sugar market recede,

we are paying particular attention to the treatment of sensitive

products, in which category we believe sugar must be placed by the

United States. The recent U.S. proposal on sensitive products

would prove devastating to our industry. The proposed expansion

in TRQs would force 750,000 tons of sugar onto the U.S. market

that is already chronically oversupplied and faces disruptive increase of import as a result of existing CAFTA and NAFTA commitments.

We also find the administration’s recent proposal to make drastic

cuts in domestic farm support, cuts which would require fundamental changes in U.S. programs very troubling. The administration

has stated that this proposal is contingent on a very large and ambitious Doha market access package. But will the administration

pare down or withdraw this offer if, as is inevitable, the market access package falls far short of the administration’s demand? Already there are calls for even greater cuts in domestic support.

We, like other farm groups, are also concerned about the lack of

clarity as to the administration’s intentions. What new or revised

programs would be put in place to comply with the WTO commitments it proposes and how would these commitments affect or foreclose the prerogatives of Congress in developing a new farm bill?

In conclusion, the U.S. sugar industry supports global WTO negotiations with the objective of effecting a fundamental reform of

the grossly distorted world sugar market. However, the current

state direction of negotiations gives us little reason to believe that

this goal will be achieved. We have very serious concerns about the

impact of proposals being considered in the WTO on the future viability and prosperity of U.S. agriculture, as well as on the U.S.

sugar industry and our domestic programs. Our sugar beet and

sugarcane farmers have made wrenching adjustments over the past

decade. More than a third of mills and refineries have closed; growers have invested heavily in processing facilities. In Louisiana and

Florida they face the added burden of recovery from severe hurricane damage.

It is getting more and more difficult to explain to them how the

Doha negotiations will benefit them and not make it impossible for

Congress to write a fair and effective new farm bill. Thank you.

[The prepared statement of Mr. Phillips appears at the conclusion of the hearing.]

Mr. MORAN. Thank you. I recognize the gentleman from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman, for letting me—well,

first I have got to run and do another deal. Mr. Phillips, in your

testimony, you have this chart and apparently, now there is 40 tariff lines for sugar products that are protected as sensitive products,

is that correct?

Mr. PHILLIPS. Well, there are 40 tariff lines of TRQ products and

we would think they would need to be designated as sensitive in

order to protect the program.

Mr. PETERSON. Right. And as I understand it, under the U.S.

proposal they are going to limit this to 17, is that true?

69

Mr. PHILLIPS. That is the way the proposal has been explained

to us.

Mr. PETERSON. Well, then how many of those would be available

for sugar?

Mr. PHILLIPS. Well, that is a very good question, since there are

about 200 lines covered by TRQs and there another 200 tariff lines

that have been designated as import sensitive under a report done

by the ITC.

Mr. PETERSON. So we have 400 now?

Mr. PHILLIPS. Four hundred that have been designated as import

sensitive or under that initiative.

Mr. PETERSON. And the proposal is to limit them to 17?

Mr. PHILLIPS. Yes.

Mr. PETERSON. So and then also in their proposal they are going

to raise the TRQ from 1.25 to 2 million tons, is that, do I understand that right?

Mr. PHILLIPS. Yes. The proposal that has been made by the

United States is to increase TRQs by 7.5 percent of consumption.

That works out to 750,000 tons in the United States.

Mr. PETERSON. In addition to that, then, so in addition to that

extra access, the likely outcome would be that there would be even

more sugar because these lines are not going to be protecting everything, sugar-containing products and so forth?

Mr. PHILLIPS. Yes, if they stick with these 17 lines, it is hard to

see how they could have an effective program and wouldn’t have

all sorts of circumvention problems.

Mr. PETERSON. And if they have a 2 to 1 goal, if they are going

to let the Europeans have twice as much subsidy as us, I suppose

that doesn’t necessarily mean it is going to be 2 to 1 on every commodity, but could be. So if the Europeans were allowed to have a

system that is twice what ours is and they do this other stuff, They

are basically going to put us out of business.

Mr. PHILLIPS. Well, I think we not only need to look at Europe,

though. Clearly, Europe is a big problem, but when we look around

the world, I think we find trade distorting policies in many other

countries and they are not being dealt with, at all. The European

program may be reformed, but we see little evidence that any of

the programs——

Mr. PETERSON. Well, I guess what I was getting at, at bottom

line, the dump market is not going to go away, probably.

Mr. PHILLIPS. Exactly. From what we see now, it is hard to see

how it will change.

Mr. PETERSON. Well, if you still have a dump market and we do

this other stuff, it is big trouble.

Mr. PHILLIPS. Exactly. We think it would be devastating to the

industry.

Mr. PETERSON. Mr. Shaffer, I have been meeting with some

wheat growers from my area and other parts of the country and

with these energy costs and everything, some of these guys are telling me they are not going to be able to grow wheat next year. Their

bankers are telling them can’t grow wheat next year. Is that——

Mr. SHAFFER. Well, I think that in the—at the present day today,

I think there is some correctness in that. I think that things do

cycle and quite obviously, at $3 a gallon diesel and $3 wheat,

70

things don’t work real well. But I think that also brings up the conversation of the safety net and how agriculture has changed and

is changing and we have a unique opportunity to maybe take a new

look at a farm bill and maybe some matters that we haven’t looked

at in the past in order to supply that safety net there that will

work without breaking the bank.

Mr. PETERSON. Yes. Well, I think you are exactly right. So I take

it, from that answer, that you are not comfortable that you don’t

think that exports are going to be the total solution?

Mr. SHAFFER. Well, I don’t think that that is the total solution,

no. I mean, we do have a domestic market. I think that as you take

a look at where I come from. I grow soft white wheat, Pacific

Northwest. We export 85 percent of that wheat. They are just basically, the soft white wheat market in the United States is supplied

by Canada because it is on the East Coast where the mills are, so

from a transportation standpoint, we can’t compete, so we export.

Our problems and when you get to the Midwest, where they are

exporting 50 percent of theirs, our biggest problems are state trading organizations because they are a closed, monopolistic system

that can undercut us and we are an open system that they can look

and see what our prices are and see what we are doing. The other

spin-off of that, from a state trading standpoint is that they use

quality of their product in order to undercut the market and gain

market share. And I think, as you take a look at a bulk commodity

like wheat, one place that we could possibly look at some increased

value in value added is with quality. Certain quality characteristics, if you take a look at the Hard Red market and the Winter and

Spring market, it is paid for quality.

Well, there are intrinsic qualities in different wheat grown in different areas that supply specific end-use products in the quality

manner that the consumer wants it. But as long as the STEs are

out there undercutting the market, gaining market share by giving

away quality, it is really tough for us to set up a market where we

can charge for quality. So I think that is another avenue that is

available to us through this conversation on Doha that we are having now and there seems to be a lot of reception in the world to

take a look at the disciplines on the STEs.

Mr. PETERSON. Well, my experience, half of the farmers in Canada agree with you, that they would just as soon get rid of the Canadian Wheat Board. The ones closest to the border would just as

soon eliminate it. So we have some allies up there. Thank you.

Thank you, Mr. Chairman.

Mr. MORAN. Thank you, Mr. Peterson. Mr. Phillips, do you have

the sense that your concerns about sugar are being addressed,

heard, that you have an open opportunity in dealing with USTR in

regard to the Doha Round?

Mr. PHILLIPS. No, I don’t believe that, for example, this proposal,

that we were consulted before the proposal was made and it seems

to really not take into account the concerns we might have and I

think for that matter, certain other sensitive products might have.

Mr. MORAN. I appreciate knowing that and if we can help you

in regard to a better ear at USTR, I would offer that assistance to

you.

Mr. PHILLIPS. Thank you.

71

Mr. MORAN. Mr. Kappelman, you were particularly concerned

about the global GI registry. Your concerns, do you have the sense

that USTR is aware of those adequately interested in addressing

that concern?

Mr. KAPPELMAN. Well, they have been informed. The question is

will they adequately address it? It is in the eleventh hour and that

is what we want to all be aware of.

Mr. MORAN. A number of witnesses, as well as Kansas farmers,

have talked about unilateral disarmament. Do we, and I think, Mr.

Phillips, in particular, talked about this, that do we have the sense

that our administration and USTR is really proposing a unilateral

disarmament or do we understand that the caveats are there and

firmly understood about all the things that need to happen before,

I think, certainly Congress would agree to alter in a significant

way the safety net. Has your message been told and has it been

received? That is addressed to anybody who wants to answer it.

Mr. PHILLIPS. Well, I could comment. I think with respect to

sugar, that is not the case, that we have identified a list of barriers

and trade distorting policies throughout the world that we feel

needs to be addressed and that any changes in our program need

to be contingent on what is achieved in addressing it. The administration has more or less taken the view that that can be done, perhaps, after modalities are agreed. So I don’t think that is the case.

With respect to the more general picture, I think the administration has laid out the notion that there must be a big market access

package, but I think it may not be that easy to pull away from the

60 percent and frankly, I think it is going to be virtually impossible

to get the kind of market access package that the administration

keeps saying they must have. Now, whether that means a complete

deadlock or something else, it is hard to say at this point.

Mr. SHAFFER. I think, from the wheat standpoint, the administration has been very receptive. We have been involved since day

1, before this administration, putting together what was papered at

the Doha Round at the United States Government and I think that

one of the keys things to look at as we look at the Doha Round and

what they are negotiating and what the paper that the United

States just tabled is that yes, they have tabled talking about cuts

blue box and cuts in amber box, but that doesn’t mean that we

can’t come up with new programs to still maintain the safety net

that is needed there.

They may not be the program that we have today, such as the

countercyclical payment or such as some of the other payments

that we have, but that doesn’t mean that we can’t craft a safety

net, that Congress can’t craft a safety net for agriculture that is

there. I mean crop insurance payments. Wonderful mechanism

even though we struggle with it and keep rewriting it, it is a good

program. And there are other programs out there that can fall into

the green box which has no limit on dollars that are spent and I

get a little, I think it is a little interesting sometimes when everybody is talking about cuts in the blue box, cuts in the amber box,

they think that is cuts in the farm program and I think there is

probably some in Congress that want to believe that, too, because

they are looking for money to go somewhere else with, but I don’t

72

necessarily think that that is what it has to mean. It doesn’t have

to mean that, at all.

Mr. MORAN. Mr. Shaffer, your colleagues from Kansas were in to

see me today, the Kansas Association of Wheat Growers and in

large part we talked about the circumstances that farmers in Kansas and across the country face in regard to increasing input costs

with fuel and fertilizer. I would like to raise my question with you

that I raised with Secretary Johanns.

Can we expect that if we are successful in negotiating a satisfactory trade agreement that allows Kansas wheat farmers, American

wheat farmers, market access around the world with the countries

that we are negotiating with, that domestic subsidies are altered

in a satisfactory way, leveling the playing field, export assistance

is altered in the same manner, you can assume what Mr. Phillips

tells me is not going to happen, happens, do you have a concern

about the competitive nature of the business you are in; do we have

to worry about, then—I guess my question is, what is the consequence to the price of a bushel of wheat, in that kind of environment, you expect the price of wheat to go up, to go down? Can’t

tell?

And second, what about the cost of production? Do we have to

worry that the price we received for our bushel of wheat will be

less than the cost of producing that bushel of wheat?

Mr. SHAFFER. Well I think that if we achieve all the things we

need to achieve, obviously there is going to be some changes in how

the wheat industry looks in this country, as well as there will be

changes in the pork industry and every part of agriculture. There

will be some changes, the status quo is not going to stay the same.

It will not look 2 years, 5 years from now the way we look today.

I don’t think that is necessarily bad. I think that we are a country

that is driven by supply and demand and that is our economy and

agriculture has been very good at adapting.

Now, does that mean that there is still going to be 3.5 million

farmers out there? Maybe not. Maybe under the competitiveness

and introduction of technology, which has always given us our leg

up, there may only be 2 million farmers out there. But I think that

agriculture is probably one of the best industries at adapting, making changes and understanding how to make it work, and I still believe in that concept.

Mr. MORAN. It is an interesting point, Mr. Shaffer. As we look

at the next farm bill, it causes me to think what is the goal? Are

we trying to draft a farm policy in this country that keeps the 3

million farmers farming or are we trying to draft a farm policy that

allows for greater profitability by a smaller number of farmers? Are

those things mutually exclusive? I think there is a broad question

as ultimately, I suppose, much of the farm bill comes down to politics, but I think there are some real economic issues here, but before you even get to the economics, it is what is the goal of farm

policy in this country? Is it something different than what we are

pursuing today or is it what you just described?

Mr. SHAFFER. Well, I guess, and I would offer maybe a third position there. Is farm policy a mechanism to keep the fabric, rural fabric of our society profitable and functioning in rural America? So

73

I think I would offer a third to your question and I am not sure

what it is. My sense is it is probably a little bit of all three.

Mr. MORAN. I appreciate the comments of all three of you and

I appreciate the testimony and the time that you have taken to join

us and provide—the gentlemen from California.

Mr. COSTA. Thank you very much, Mr. Chairman. I would like

to direct this question to Mr. Kappelman. In reading your testimony, with regard to any concessions by the United States is

matched not only by reciprocal movements by their members, but

in many cases we must see additional concessions from protective

markets. I think we all conceptually agree with that and you talk

about the domestic support efforts that are there in place currently

to try to provide that safety net; in this case, for the American

dairy industry. My question to you is—I was going to ask it to Secretary Johanns, but time didn’t allow. I intend to submit it to him.

But the effect of the current reduction from 19.1 billion to, and this

includes both dairy and sugar, to 7.6, if additional market access

is required under a new trade agreement, I am wondering what the

dairy industry’s position will be and I want to ask what USDA’s

position will be in terms of what they believe will be a reasonable

level of support to protect or provide that safety net to industries?

Do you care to comment, Mr. Kappelman?

Mr. KAPPELMAN. Yes, certainly, Congressman. Well, first of all,

by creating more market access, while that grants increased market access in our nation, we have the greatest opportunity for access to world markets right now, so what we see is a tremendous

opportunity for us to export products where we currently have no

access. And the unique situation——

Mr. COSTA. Primarily, the EU?

Mr. KAPPELMAN. Well, the EU, yes. There is some of the Oceana

countries that are difficult to get into. One of the——

Mr. COSTA. That is the greatest potential.

Mr. KAPPELMAN. It is, and the unique thing we have going right

now is there are not huge surpluses, stockpile of nonfat dry milk

powder or butter in the United States. Currently, there are none,

almost none and in the EU they are greatly diminished, so the

world market is really fairly close to supply and demand. So as we

see opening markets across the world, there is not going to be an

influx of cheap product coming from any certain nation because

there isn’t a lot of surplus right now.

We also believe that our dairy price support program, even

though it may not be likely to be contained in its current version;

as the world changes, I don’t know if you can continue to keep programs exactly the same.

Mr. COSTA. Nothing ever stays the same.

Mr. KAPPELMAN. But if it were to exist in its current form, we

believe we could fit into the proposed $7.6 million spending criteria

that you mentioned.

Mr. COSTA. All right. Thank you very much, Mr. Chairman. I lost

the balance of my time and I intend to submit questions to the various witnesses.

Mr. MORAN. Mr. Costa, you are welcome to do so. I believe that

concludes our hearing of the three panels today. I am very appreciative of all of our witness’ testimony, including Secretary Johanns

74

and Ambassador Portman. I expect that the consultations with you

and the people you represent, as well as our own Government officials will continue as the time for the WTO Ministerial draws closer. Clearly, trade is important to U.S. agriculture and reaching

agreement is a useful thing, but it is not so important that the

United States should dismantle its programs entirely and stop

helping our farmers and ranchers.

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 committee. The hearing on the House Committee on Agriculture is adjourned.

[Whereupon, at 5:30 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

PREPARED STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF WASHINGTON

Mr. Chairman, I appreciate the opportunity to provide additional comments for

the record. I want to first thank U.S. Trade Representative Rob Portman and Secretary of Agriculture Mike Johanns, for the work they have done on behalf of U.S.

agriculture trade interests. Much work remains to be done on agriculture negotiations between WTO member countries. I am confident that USTR Portman and Secretary Johanns will successfully achieve the best results possible for U.S. farmers

and ranchers.

Although I felt the November 2 hearing was a successful one, I was concerned by

the lack of specialty crop industry representation. I want to provide the committee

with some additional information on the importance of specialty crops to the Washington State and U.S. agriculture export industry. In 2004, Washington State exported nearly $1.9 billion worth of products to foreign markets. Over half of these

exports were fruits, vegetables and other specialty crops.

• Specifically, in 2004, specialty crops exported from Washington State included:

• $533 million in fruit and fruit products, or 14 percent of all U.S. fruit and fruit

product exports

• $522.3 million in vegetables, or 10 percent of all U.S. vegetable exports

Washington State leads the U.S. in production of red raspberries, apples, pears,

sweet cherries, and Concord and Niagara grapes. Washington State also ranks in

the top five States in production of strawberries, cranberries, fall potatoes, all

grapes, apricots, green peas, sweet corn, asparagus and others. Increased foreign exports of these products are vital to Washington State producers and the state agriculture industry as a whole.

Mr. Chairman, thank you for your work on behalf of agriculture and your continued interest in the importance of a sound, effective U.S. agriculture trade policy. I

look forward to continuing to work with you, USTR Portman, Secretary Johanns

and the entire Agriculture Committee to promote U.S. agriculture trade.

STATEMENT OF HON. JIM COSTA AND HON. DENNIS A. CARDOZA

Mr. Chairman, we appreciate this opportunity to provide additional information

to the committee illustrating the value of California specialty crops to U.S. agricultural exports.

California leads the Nation in agricultural exports, sending $9.2 billion worth of

products abroad in 2004. This total accounts for 15 percent of all U.S. agricultural

exports. Chief among these exports are specialty crops of vegetables, fruits, and nuts

which compose 70 percent of all California agricultural exports.

In 2004, specialty crops shipped from California included:

• $2.42 billion in vegetables, or 47 percent of U.S.vegetable exports

• $2.09 billion in fruits and fruit products, or 55 percent of U.S. fruit exports

• $1.73 billion in tree nuts, or 92 percent of all U.S. tree nut exports

In addition to a significant economic contribution, the producers of specialty crops

are innovative leaders in issues that confront 21st century agriculture. Pest management practices, conservation efforts and research nationwide benefit from the

cutting-edge commitment of California producers. For example, the California Table

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Grape Commission has funded twenty-nine projects with world-renowned researchers exploring links between fresh grapes and preventing diseases such as cancer and

heart disease. Also, the commission has invested more than $9 million to fight plant

diseases and pests as well as developed new varieties that can be grown in the most

environmentally responsible ways possible.

Thank you again for your ongoing commitment to agriculture and continued interest in issues of concern to our agricultural community.

STATEMENT OF MIKE JOHANNS

Thank you, Mr. Chairman, for this opportunity to meet with you and members

of the committee to discuss the agricultural negotiations in the Doha Development

Round and our expectations for the WTO Hong Kong Ministerial. I am pleased to

be here with USTR Ambassador Portman today. We have spent quite a bit of time

together and have logged many miles working with other countries to push the

Doha talks forward.

As you know, agricultural policy and trade policy are intrinsically linked. Our

joint appearance today reflects that close relationship as well as the one that exists

between USDA and the Office of the United States Trade Representative.

IMPORTANCE OF TRADE FOR U.S. AGRICULTURE

As we meet for these hearings today, U.S. agriculture continues to enjoy robust

economic health. And, working with you, our objective is to make it even stronger.

Production is near all-time record levels for some commodities such as corn and soybeans and overall utilization continues to be relatively strong. The reality is, however, that our domestic market is mature—it is big, to be sure, but it is growing

very slowly. We can supply it effectively. To grow and prosper—America’s farmers

and ranchers must look elsewhere—to the foreign markets where over 95 percent

of the world’s potential consumers reside. And, more and more of these people are

becoming able to buy our products—their incomes are rising and their standard of

living is moving higher—and we must be in a position to capture a big share of that

growing market.

Let’s be clear. The world wants U.S. agricultural products. In 2004, we set a new

record for U.S. export sales of $62.4 billion. When all the figures are in for 2005,

we expect the total to reach $62 billion. And, our forecast for 2006 now anticipates

yet another record of $63.5 billion.

But we cannot afford to rest on our laurels. Competition is stiff and it is essential

for us to expand economic opportunities for our farmers and ranchers. The reality

is that the world marketplace is becoming more dynamic and American agriculture

must continue to adapt to compete. The solution to keeping our farmers and ranchers competitive in an increasingly global economy is not to withdraw from it. It is

to do what Americans have always done—adapt, innovate, and lead. That is why

the President, Ambassador Portman and I believe that trade liberalization will enormously benefit American agriculture. In fact, expanded trade is critical to the future

of agriculture in this country.

DOHA DEVELOPMENT ROUND

When the United States helped launch the Doha Round in 2001, we knew that

all countries would face political difficulties as the negotiations moved forward.

However, despite those difficulties, we cannot settle for insignificant changes, especially in global agricultural trade. We must keep our eye on the goal of freer markets for both developed and developing countries.

From the beginning of these negotiations, the United States has advocated fundamental agricultural trade reform that would increase significantly market access,

reduce trade-distorting domestic support and eliminate export subsidies. This will

be beneficial for U.S. agriculture. It also is the best means for growing the economies of the developing world, for lifting hundreds of millions of people out of poverty, and for improving the living standards for all of the world’s people.

For example, at the AGOA meetings in Senegal in July, I emphasized that the

United States looks forward to a time when independent, financially secure African

countries participate as full partners in the global community. I reiterated our belief

that freer, fairer trade offers the promise of lifting all of our nations economically.

I have personally taken an active role in these negotiations because I understand

how high the stakes are for our agricultural industry. I have traveled to Europe several times and will be returning to push these negotiations forward. In addition, I

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have visited China, Africa, Central and South America, Australia and New Zealand

to advance our trade liberalization agenda.

BOLD PROPOSAL ON DOMESTIC SUPPORT

Recently in Geneva, in order to get the deadlocked WTO talks moving again, the

United States introduced a comprehensive proposal that clearly revealed our ambition in both the domestic support and market access pillars. This bold proposal calls

for aggressive tariff reductions ranging from 50 to 90 percent and it restricts to no

more than 1 percent the number of products that could be termed ‘‘sensitive’’ and

subject to smaller tariff cuts. And, we also proposed that no tariff could exceed 75

percent of value. This proposal indicated the level of market access that we would

require in exchange for substantial cuts in trade distorting domestic support.

The United States proposed to cut the United States’ amber box Aggregate Measure of Support (AMS) by 60 percent. This proposal addresses the primary concerns

of our trading partners with significant cuts in the amber and blue boxes. When the

other reductions in trade distorting supports are included, overall U.S. levels of allowable trade distorting domestic support would be reduced by 53 percent.

The United States looks for other WTO members to match this level of ambition.

We have shown our leadership, but we cannot do it alone. And we will not settle

for a package that does not increase real market access. To be frank, a new global

pact is in jeopardy unless Europe shows still more flexibility. We are working with

other WTO members and like-minded EU member states to encourage the EU to

come forward with a more ambitious tariff cutting proposal.

Unfortunately, we only have some 40 days to complete the necessary preparatory

work before the WTO Hong Kong Ministerial to make meaningful progress. We

must level the playing field. Our agricultural tariffs average 12 percent; the EU’s

average 31 percent; Japan 51 percent; the world average is over 60 percent. For

India it is 114 percent; and for others, it is even higher.

There also is wide disparity in levels of trade distorting domestic support. This

must be reduced and harmonized. It’s not acceptable for Europe to have four times

the allowable support we have when our agricultural economies are of equivalent

size.

EXPORT COMPETITION

We have made good progress in the export competition pillar, with the EU’s

agreement to eliminate all export subsidies. The remaining issue is when, and we

have proposed 2010. Furthermore, the talks are addressing specific disciplines on

export credit programs with a repayment period of 180 days or less. On State Trading Enterprises, we are seeking disciplines on special financing privileges and underwriting of losses as well as an end to monopoly export privileges. Finally on food

aid, we have agreed to create disciplines that will avoid commercial displacement,

while ensuring that in-kind food aid will continue to be an important mechanism

for meeting growing global food aid needs.

DETERMINED TO GAIN MARKET ACCESS

We are pushing on multiple fronts internationally to ensure that the Doha Round

is a success and that U.S. agriculture reaps market access benefits. We recognize

that U.S. agriculture cannot accept the status quo. In the Brazil cotton dispute,

some of our farm programs have been found not to be compliant with the current

WTO rules. We have taken significant steps to bring our programs into conformance, and are working with interested members of Congress on additional measures.

All of us in agriculture recognize the importance of gaining greater access to foreign markets and of being competitive in these markets. It is incumbent on us to

work together to develop a U.S. farm policy that maximizes economic opportunities

for our producers. In an era of globalization we cannot afford to turn inward. We

must not cede markets to others.

This administration is determined to expand economic opportunities for our agriculture. We are aggressively pursuing free trade agreements where it is strategically advantageous to do so. In addition, we continue to vigorously monitor and enforce agreements that are already in place. We have heard your concerns loud and

clear and share your frustration that too often unjustifiable sanitary and

phytosanitary trade barriers are used to block market access. I assure you that at

USDA, both in Washington and in our attache offices around the globe, we place

top priority on enforcing existing agreements.

Clearly, the most difficult cases have involved access to Asian markets, particularly Japan, for U.S. beef due to BSE. We must insist that other nations follow

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science-based, internationally recognized guidelines for trade. Nations that continue

to use unjustified safety regulations as an excuse to disrupt trade should expect the

United States to defend its interests.

2007 FARM BILL

As many of you know, I have been traveling throughout our great nation to conduct farm bill forums to hear concerns directly from our farmers and ranchers. So

far, I and my staff have held forums in 26 States. While I don’t have all the answers, one message has come through loud and clear—we need to develop a farm

bill for the future. For U.S. agriculture to succeed, we need to export. More than

a quarter of farm cash receipts depend on trade.

I have encountered almost unanimous support for rural development and conservation programs. Our cooperative conservation programs provide farmers and

ranchers with financial support, while protecting our natural resources for today

and the future.

At the same time, the Farm Bill Forums have demonstrated that we must be bold.

Currently, program crops represent a quarter of production value, yet they receive

virtually all the funding: ninety-two percent of commodity program spending was

paid on five crops—corn, wheat, soybeans, cotton and rice. The farmers who raise

other crops—two-thirds of all farmers—receive little support from current farm programs. Interestingly enough, it is these farmers, the two-thirds without current support, who are looking to the future and asking for more focus on research and promotion, increased sanitary and phytosanitary systems, and access to new markets.

As Secretary of Agriculture, I look forward to working with you to craft a farm

policy that provides a meaningful safety net for our farmers and better positions

them to compete effectively in selling their products into expanding markets around

the world.

Let me conclude by reiterating that our goal in the international arena is free and

fair trade. Our preference is to achieve this objective through a successful conclusion

to the Doha Round that brings us additional real market access commensurate with

our bold proposal on domestic support. However, as we have made clear in Geneva,

absent a meaningful outcome on market access, we will not unilaterally disarm with

regard to substantial cuts in domestic support.

In the meantime, we will continue to pursue our trade goals through new free

trade agreements and enforcement of agreements already in place.

We very much appreciate your continued support and close cooperation and look

forward to working with you in the future.

That concludes my testimony, Mr. Chairman. I would be pleased to respond to

questions.

STATEMENT OF ROBERT PORTMAN

Thank you Mr. Chairman and members of the committee for the opportunity to

testify today. I am pleased to be here with Secretary of Agriculture Mike Johanns

to discuss the World Trade Organization (WTO) agriculture negotiations for the

Doha Development Agenda (DDA). As we sit here today, the negotiations are at a

critical stage in the lead up to the WTO ministerial meeting in Hong Kong, China

in December.

Dismantling trade barriers multilaterally holds immense potential for the United

States. From 1994, when the Uruguay Round Agreements were implemented, to

2003, the world economy expanded at an average rate of about 2.6 percent, but U.S.

exports grew at more than double that pace—about 5.5 percent. Even more impressive, U.S. agricultural exports expanded an astounding 29 percent during that same

time period, suggesting real benefits realized from the Uruguay Round for America’

farmers and ranchers.

The WTO’s Doha Development Agenda is an integral part of President Bush’s

strategy to further open markets, reduce poverty, and expand freedom through increased trade among all countries in the global trading system, developed and developing. U.S. leadership in the WTO is a part of this strategy.

The main focus of the negotiations is in six key areas: agriculture; industrial market access; services; trade facilitation; WTO rules (i.e., trade remedies, regional

agreements and fish subsidies); and development. The goal of the DDA is to reduce

trade barriers so as to expand global economic growth, development and opportunity.

The DDA provides us with historic opportunities to achieve agriculture reform

and greatly diminish current market distortions that present barriers to American

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farmers and ranchers. We are also aiming to achieve significant new market access

for our manufactured goods through broad tariff cuts, while working to reduce nontariff barriers to exports of these goods. We are also pressing for ambitious global

market opening for our services industries, where we have a comparative advantage. The WTO negotiations on trade facilitation will result in less red tape, more

efficiency and predictability for moving goods across borders, and less corruption in

customs activities.

LOOKING AHEAD TOWARDS HONG KONG, CHINA—DECEMBER 13–18

We have been pursuing a strategy of moving negotiations forward by building

upon the July 2004 Framework Agreement. This has involved putting in place the

negotiating parameters and ‘‘modalities’’ to enable final negotiations to begin during

the first quarter of 2006. Our objectives for the Hong Kong meeting has been to

have: an agreement on the ‘‘modalities’’ (i.e., detailed negotiating parameters) for

negotiation in agriculture and and non-agricultural market access; an effective negotiating framework for a significant result in services; directions to ensure that WTO

rules remain effective and in some cases are strengthened (e.g., by adding new disciplines to subsidies to deal with overfishing); and the outlines of an agreement on

Trade Facilitation.

WTO Director General Lamy suggested that we need to be two-thirds of the way

to finishing the DDA negotiations by the time members meet in Hong Kong. We are

not likely to meet that objective for Hong Kong unless much greater progress is

made.

With that as background, I would like to describe for the committee the current

situation in the negotiations, focusing on the key to these negotiations: agriculture.

AGRICULTURE

I think it is fair to say that the fate of the DDA hangs in the balance because

of the lack of progress in agriculture, where much of the responsibility for this lies

with the European Union. The Doha mandate concentrates the negotiations in agriculture in three main areas or ‘‘pillars’’: export competition, domestic support, and

market access. Our view and that of the other delegations in Geneva is that the

shape of an agreement in the first two pillars can be achieved by Hong Kong. This

is not true for the third and most important pillar, market access.

Last month, the United States did what many WTO members had asked: we identified in clear and precise terms—with numbers—our level of ambition for the agriculture negotiations, particularly with respect to real reform in the domestic support

pillar. Many of our partners suggested that without a ‘‘signal’’ from the United

States, they would not be able to move forward on the market access pillar.

Building on Uruguay Round commitments and the July 2004 Framework agreement for agricultural modalities, on October 10, 2005, the United States presented

a proposal for bold reform in global agricultural trade to move the WTO agriculture

negotiations forward and unleash the full potential of the Doha Development Agenda. The proposal is not unilateral. It is contingent on comprehensive reform in all

pillars and meaningful commitments by all WTO members, except least developed

countries.

The U.S. proposal calls for reform in two stages:

• Stage 1: Substantial reductions of trade-distorting support measures and tariffs,

along with the elimination of export subsidies, to be phased-in over a five year period. • Stage 2: An additional five year phase-in period that delivers the elimination

of remaining trade-distorting agricultural subsidies and agricultural tariffs.

MARKET ACCESS

The United States calls for WTO members to aggressively reduce tariffs. Using

a ‘‘tiered formula’’ identified in the July 2004 framework and building on the elements proposed by the G–20, the U.S. calls for the following to be phased-in over

five years: • Progressive tariff reduction: Developed countries cut their tariffs by 55–90 percent. Lowest tariffs are cut by 55 percent, with cuts ranging to 90 percent for highest tariffs. • Tariff rate caps: Establish a ‘‘tariff cap’’ ensuring no tariff is higher than 75 percent. • Sensitive products: Limit tariff lines subject to ‘‘sensitive product’’ treatment to

1 percent of total dutiable tariff lines. For these lines that have lesser tariff cuts,

full compensation would need to be provided through large expansion of tariff rate

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quotas, where they exist, and use other means to address sensitive products where

TRQs are not in place.

• Special provisions for developing countries: Create special and differential treatment provisions for developing countries to provide real improvements in access,

while ensuring import-sensitive sectors in those countries are afforded appropriate

protection.

This proposal is consistent with the July 2004 Framework which calls for progressive tariff reductions delivering deeper cuts to higher tariffs. The Framework committed members to substantial improvements in market access for all products, including sensitive ones, to be granted through a combination of tariff quota expansion and tariff reductions. Further, the Framework identified negotiations over a

tariff cap to be part of further discussions and it notes that developing countries

will not be expected to cut tariffs as aggressively as developed economies.

EXPORT COMPETITION

The United States has made clear our strong commitment to rapidly eliminate of

export subsidies. Under the U.S. proposal, the following rules would be phased-in

by the year 2010:

• Export subsidies: Eliminate all agriculture export subsidies.

• Export credit programs: Establish specific disciplines on export credit programs

to bring them in line with commercial practice, including a maximum repayment

period of 180 days.

• Export State Trading Enterprises: Install new disciplines on export state trading

enterprises, such as the wheat boards in Canada and Australia, that end monopoly

export privileges, prohibit export subsidies, and expand transparency obligations.

• Food aid: Continued use of food aid, while establishing disciplines on food aid

shipments that guard against commercial displacement while ensuring emergency

shipments and deliveries to countries with chronic food aid needs. Establish an objective test to identify commercial displacement in other circumstances.

The July Framework commits all members to ensuring parallel elimination of all

forms of agricultural export subsidies by a credible end date. Specifically, members

agreed to eliminate all agricultural export subsidies, eliminate export credits of

more than 180 days, discipline credits of less than 180 days, and eliminate the

trade-distorting practices of state trading enterprises. It was also agreed that additional disciplines on food aid will be negotiated. The Framework states that the future use of monopoly powers by state trading enterprises will be subject to further

negotiation.

DOMESTIC SUPPORT

The United States calls for substantial reductions in trade-distorting domestic

support, with deeper cuts by countries with larger subsidies. The United States proposes the specific elements to be enacted within 5 years:

• Overall goals: Reduce overall levels of trade-distorting support by 53 percent for

the United States and 75 percent for the European Union.

• Amber box: Cut Aggregate Measurement of Support (AMS) by 60 percent for the

United States and 83 percent by the European Union, with product-specific AMS

caps based on 1999—2001 period.

• Blue box: Cap partially decoupled direct payments at 2.5 percent of the value

of agricultural production.

• De minimis: Cut ‘‘de minimis’’ allowances for trade-distorting domestic support

by 50 percent (from 5 percent of the value of production to 2.5 percent).

In the July Framework, members agreed to substantially reduce trade-distorting

domestic support, with caps on support levels for specific commodities. Members

agreed to harmonization in the reductions so that countries with higher levels of

subsidies will be subject to deeper cuts. Under the Framework, in the first year of

implementation, the overall level of trade-distorting support will also be reduced,

with an initial cut of 20 percent. The Framework also requires the blue box support

to be capped at five percent of a Member’ total value of agricultural production, with

further negotiation over criteria to ensure blue box programs are less trade-distorting than amber box programs

The U.S. agriculture proposal changed the dynamic of the negotiations dramatically and positively. It is generally recognized throughout the WTO that our proposal put the second pillar—domestic support—in ‘‘negotiating shape,’’ to use the

phrase of Director General Pascal Lamy. The attention of the negotiations has

moved unmistakeably to the third pillar—agricultural market access.

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The G–20 has responded by elaborating on its earlier market access ideas, limiting substantially the number of ‘‘sensitive’’ products that would be subject to lesser

tariff reductions. The G–20 recognizes that this is essential if deep tariff cuts are

to have real meaning. Specifically, the G–20 offered to limit sensitive products to

no more than one percent of tariff lines for developed countries and 1.5 percent of

tariff lines for developing countries. This proposal is one that the United States can

endorse. Australia underscored its support for this approach, and we welcomed its

contribution.

On the other hand, our partners in the EU have come up short. Last Friday, the

EU presented a revised proposal on agriculture that was disappointing to us and

other members seeking an ambitious result in the Doha Round. While in some ways

the EU proposal is a step in the right direction, and we acknowledge the efforts of

Commissioners Mandelson and Fischer-Boel, we believe that much more needs to

be done. For example, the tariff reductions proposed by the EU appear to be lower

than the proposals from the G–20 developing countries and are far lower than the

U.S. proposal. In addition, the EU’ proposal to allow up to eight percent of tariff

lines to be identified as sensitive products subject to reduced tariff cuts could threaten any real market access that might be provided. Frankly, the EU’ proposal does

not meet the mandate of Doha, and we look to the EU to come forward with a

stronger market access offer.

My focus today has been on the EU and developed country market access. Developing country members of the G–20 have signaled their readiness to move ahead

in the negotiations and to set the targets for reduction for developing countries once

the broad outlines for developed countries are established. Without question, more

work needs to be done to improve the G–20’ proposal to increase market access by

developing countries, but we will also need to be sensitive to the concerns of developing countries with subsistence farmers. Nevertheless, we will never be able to proceed if the EU doesn’t quickly show substantially more flexibility on market access

and help us set an overall parameter for the agriculture negotiations. We are now

just 6 weeks away from the ministerial meeting in Hong Kong, and without very

quick progress on this issue, the outcome of the ministerial meeting, and the entire

Doha Round, may be at risk.

BEYOND AGRICULTURE

EU Commissioner Mandelson rightly observes that the negotiations on agriculture

are only a part of the Doha negotiating agenda and the ‘‘single-undertaking’’ where

nothing is agreed until all subject areas are agreed.

We have learned that while agriculture may be the engine for negotiations, success requires us to secure strong results across the broad range of issues in the

Round. Working with members of this committee we believe we can secure results

that provide new opportunities for America’ farmers, ranchers, workers, service providers, and consumers, and, at the same time, secure a result that strengthens the

rules of the global trading system to meet America’ trade interests.

We know that the global trading system is not perfect, and remains—and perhaps

always will remain—a work in progress. But through American leadership within

the WTO, the core U.S. objectives of promoting open markets and the rule of law

remains the core agenda of the global trading system. The United States, which is

the world’ largest agricultural exporter and is strongly dependent on export sales

to support farm profitability, has been well served by the global trading system. We

will continue to pursue our interests in the DDA with this in mind.

The DDA provides us an historic opportunity that we cannot afford to waste. We

can set a vision for the global economy for the next decades to come and make a

major contribution to development. The United States is already leading by example, and we are firmly committed to our objectives. In making these commitments,

however, we must be certain that we receive the benefit of the bargain by securing

real gains and market opportunities for our farmers and ranchers into the future.

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ANSWERS TO SUBMITTED QUESTIONS TO SECRETARY JOHANNS AND

AMBASSADOR PORTMAN

Today is November 2 and the WTO Ministerial is scheduled to begin on

December 10. We have an offer from the EU that is described by them as

a final offer—that you say is not sufficient market access for the United

States. If we are to have a successful WTO Ministerial—by U.S. standards—

when must we see improved offers from the EU on market access?

The EU must come forward with an improved offer as soon as possible. Commissioner Mandelson says that the EU will not improve their offer on agriculture before

Hong Kong. I hope the EU will work with WTO Members in the weeks that remain

to produce a new offer in Hong Kong that meets the level of ambition agreed in

Doha.

A number of critical market access issues appear to be off the agenda of

the Doha Round, for example, the EU approval process for bioengineered

products, its failure to allow access for U.S. beef, pork, or poultry. Is there

anything in an emerging Doha Round agreement that would facilitate resolution of these kinds of issues?

The Doha negotiating mandate does not include negotiations on new rules regarding sanitary and phytosanitary (SPS) measures. As such, the Hong Kong agenda

will not address SPS and other non-tariff barriers. We are, however, working diligently to address these issues bilaterally within the existing WTO framework. I

have raised, and continue to raise, SPS issues with my counterparts, including in

recent meetings with my colleagues from the EU. We continue to keep all options

open in our efforts to resolve these issues.

In the WTO, countries seem to reach decisions, in the course of negotiations or in other matters, that reflect a consensus and by that definition

can be ambiguous—constructive ambiguity is what it is called. The recent

decision by the WTO Appellate Body, in the case brought by Brazil against

the U.S., seems to fly in the face of the agreements reached in the Uruguay

Round. My conclusion is that the current negotiations will have to be much

more specific or Members will be reluctant to agree, fearing a panel or Appellate Body decision that does not reflect the consensus agreement. Will

you comment on this matter?

The U.S. proposal has clear objectives on all three pillars of the agriculture negotiations. If adopted by WTO members, it would require policy changes in the United

States and in other countries. Key to our proposal is the objective of providing discretion to U.S. policy makers in designing farm programs while at the same time

ensuring significant reductions in trade-distorting domestic support. Our proposal

aims to deliver both the discretion and the reductions by calling for substantial cuts

in the amber and blue box allowances and establishing provisions to protect countries that make these reductions from WTO litigation.

The WTO agricultural negotiations and the Doha Development Round assume a preference for developing countries known as special and differential treatment. For example, reductions in levels of tariffs and domestic

support over a longer period of time for developing countries than that required of developed countries. Additionally, there are special exemptions

from domestic support limitations that are given to developing countries

but not to developed countries. What role will this special and differential

treatment take, especially with countries such as Brazil and India?

The Doha mandate includes the use of special and differential treatment for developing countries, including countries such as India and Brazil. As you have seen

in the U.S. proposal, we envision special and differential treatment providing some

flexibility for these countries, such as longer staging and lesser cuts on market access, but a final agreement should not exempt these countries from making market

access commitments. The final structure of the special and differential treatment

provisions will need to be negotiated once the framework and formulae for developed

countries have been agreed.

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, the EU recently offered

a proposal, described by them as a final offer, in which they demanded an

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international register protecting geographical indications in all countries.

Will you commend on that part of the EU proposal?

We have significant concerns about the EU proposal for an international registry

for GIs, which in effect requires all WTO Members to protect GIs unilaterally registered in an international registry. Indeed, our concerns have increased exponentially as the EU has recently extended its register proposal beyond GIs for wine and

spirits to include all GIs for all agricultural products. The EU proposal would impose significant costs on all WTO Members significant costs of examination, registration and protection of thousands of EU GIs but would primarily benefit only

EU agricultural producers. Further, it would benefit those EU agricultural producers to the detriment of trademark owners, including U.S. trademark owners, who

may have prior rights in the registered terms. The EU proposal would also be to

the detriment of producers of food products that have long been marketed under generic names, because those valuable generic names could now be claimed, under the

register, as the exclusive property of EU producers. Further, the EU proposal, by

mandating protection of registered terms in all WTO Members, would put GIs ahead

of any other intellectual property right, including trademarks, which are generally

established separately in each Member’s territory. It would turn the territorial nature of intellectual property rights on its head. Finally, the EU proposal goes far

beyond the mandate established at the WTO for these discussions.

Another important part of the Doha agricultural negotiations concerns

food aid and the manner in which countries provide food assistance to

needy people in foreign countries. Many have said that the issue of food

aid should not be a part of the Doha agricultural negotiations. Nevertheless

it is important that when discussing food aid in the context of negotiations,

U.S. negotiators must be clear that restricting any country’s ability to help

feed people in poor countries—in a manner that does not distort trade or

inhibit domestic production—must continue.

We have long been concerned about commercial displacement. In fact, U.S. laws

governing food aid are designed to avoid it. As such, we are prepared to work with

WTO Members to negotiate disciplines that guard against commercial displacement.

However, the United States has been clear that we will not accept strict new rules

that would limit our ability to provide aid for those in need.

Secretary Johanns, I notice that the recent Conference Report on the

2006 Agriculture Appropriations bill makes reference to the manner in

which the U.S. provides food aid and admonishes the executive Branch to

refrain from proposals that place in jeopardy the coalition that has served

the interest of international food aid programs over the past 50-plus years.

I concur with that assessment. Do you have any comment on this matter?

Congressman, first I want to assure you that I, and the Administration, share

your commitment to provide the resources needed for the U.S. Government to help

meet international humanitarian needs. My Department works closely with the

Agency for International Development and the coalition of interests, which have

served the interests of international food assistance programs well for more than 50

years, to achieve this goal. We certainly take note of the concerns expressed by the

recent Conference Report and will work with Congress to ensure that the United

States continues to play its leading role in helping the poorest in developing countries.

QUESTIONS FROM HON. STEVE KING

DR-CAFTA was perhaps the most politically polarized trade agreement

vote ever, with only 15 Democrats voting in favor of the agreement. Do you

anticipate similar partisanship in future agreements?

No. The benefits of free trade are widespread, and historically, support for free

trade agreements has been non-bipartisan. I hope that congressional action on future agreements can mirror the past consensus on free trade. I will work hard to

reach out to Democrats and Republicans so that we can hopefully avoid the partisan

politics that surrounded DR-CAFTA.

Does the Bush administration have any proposals to make American

goods more competitive in the world market, such as tax policies like a national sales tax?

Tax policy issues are the responsibility of the Secretary of the Treasury, not the

U.S. Trade Representative.

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STATEMENT OF BOB METZ

Good afternoon, Mr. Chairman and members of the committee. I am Bob Metz,

a soybean and corn farmer from West Browns Valley, South Dakota. I currently

serve as President of the American Soybean Association. ASA represents over

25,000 producer members on national issues important to all U.S. soybean farmers.

We very much appreciate the opportunity to appear before you today.

The outcome of the current negotiations on a new WTO agreement is critically

important to U.S. soybean producers. Let me give you a brief description of the

trade environment we currently face. One-half of our annual soybean production is

exported, either as soybeans, soybean oil and soybean meal, or in the form of livestock products. World demand for soybeans is increasing rapidly as developing countries, which have very low per capita consumption of these products, improve their

standard of living and diet. Many developing countries have high tariffs on soy and

livestock products. As a result, improving market access through meaningful tariff

reductions in developing countries is a high priority to enhance the profitability for

soybean farmers and our industry.

U.S. soybean farmers also are facing rising competition from South American producers, particularly in Brazil and Argentina. Over the past decade, these countries

have emerged as world-class exporters, with mature agricultural research, production, and processing infrastructure and improving transportation systems. Both

Brazil and Argentina use a variety of incentives to encourage production and exports of soybeans and other crops. However, they have been allowed under the Uruguay Round Agreement to designate themselves as developing countries and to

avoid disciplines on their domestic support and export programs. ASA believes that

it is critically important that any Doha Round Agreement must require that advanced developing country exporters, or their world-class export sectors, be subject

to the same rules and disciplines in all three pillars as developed countries.

THE U.S. WTO PROPOSAL

I would like to comment briefly on the proposal advanced by Ambassador Portman

in Zurich last month. We agree with the Administration that the status quo in

international trade is unacceptable. In addition to sharply reduced tariffs and disciplines on advanced developing country exporters, we need a farm program safety

net that is beyond WTO challenge. Following the precedent of the WTO cotton case

and expiration of the Peace Clause that protected our farm programs from challenges under the Uruguay Round Agreement, the current situation is not a viable

alternative to a new agreement.

ASA recognizes the proposal advanced by the Administration as a credible signal

to the rest of the world that the U.S. is prepared to make substantial cuts in tradedistorting domestic support if market access barriers are greatly reduced and export

subsidy practices are eliminated. The proposed cuts in domestic support would require fundamental changes in the structure of U.S. farm programs, including the

marketing loan, which has been important in supporting soybean producer income

when prices fall. In order to support restructuring current programs, we need assurances that the next farm bill will provide U.S. farmers with an adequate safety net,

and that the current imbalance in crop program benefits will not continue to distort

market signals.

On market access, the administration’s proposed cuts in tariffs by developed countries are substantial, and could expand soy and meat exports to these markets.

However, the U.S. proposal did not specifically address the need for equally ambitious improvements in market access by developing countries. Developing countries

are the markets of the future. In making the case for trade liberalization, the Administration has pointed out that 95 percent of the world’s population lives outside

our borders. We would note that 81 percent of this population is in developing countries. Of the 16 priority countries targeted by ASA for major improvement in market

access, 14 are developing countries.

U.S. negotiators must ensure that modalities that provide preferential terms for

developing countries, including Special and Differential treatment, identification of

Special and Sensitive Products, and the use of the Special Safeguard Mechanism,

do not restrict meaningful improvements in market access. The U.S. must ensure

adequate market access to developing country markets through negotiation of meaningful TRQs with phased reductions in in-quota tariffs. ASA will monitor and work

closely with USTR and USDA on this important part of the negotiations.

In addition, the administration’s proposal does not include specific language requiring world-class developing country exporters to undertake disciplines in the

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lar to those required of developed countries. Recent studies by Informa Economics

and the USDA’s Economic Research Service indicate that Brazilian farmers benefit

from a national program that offers credit at interest rates of from 8.75 to 12.75

percent, compared to the prevailing commercial business rate of 35 percent. Credit

provided under this program increased by 48 percent in 2004–05, to $13 billion.

Subsidized credit to modernize Brazil’s farm machinery doubled in the same year,

to $5.5 billion. In addition, Brazil has frequently rescheduled farm debt for up to

25 years at 3 percent interest rates, which in times of high inflation amounts to giving Brazilian farmers free money.

Brazil also exempts or provides refunds for agricultural exports from its interstate

movement tax, and from social welfare taxes, amounting to 21.25 percent of the

value of the exported product. Finally, Brazil has a land tax system that encourages

farmland expansion by taxing undeveloped land at a higher rate than land brought

into production. ASA believes strongly that these policies must be subject to discipline under the Doha negotiations. As with improving market access to developing

countries, aggressive proposals and agreements in this area are key to ASA support

for a WTO agreement.

We were pleased that the administration’s proposal did call for the elimination

of differential export taxes since they have trade-distorting effects similar to export

subsidies. Argentina and Malaysia, both major competitors in the export of soy and

oil, make extensive use of differential export taxes to build-up their local processing

industries and to provide the equivalent of an export subsidy to their processed

product exports.

THE EU’S WTO PROPOSAL

The EU’s latest WTO proposal on agriculture, advanced last week, falls well short

of the ambition of the U.S. proposal advanced last month. The EU proposes to reduce its domestic support by 70 percent, while the U.S. would require the EU to

reduce by 83 percent. On market access, the EU would reduce the highest tariffs

by 60 percent, compared to 90 percent proposed by the U.S. While the EU claims

its proposal would cut its average tariffs by 46 percent, a more accurate assessment

would place the average reduction at 39 percent—barely more than the 36 percent

achieved in the Uruguay Round Agreement. Moreover, the EU continues to insist

on exempting 8 percent of its tariff lines from the cuts that would be required by

reduction formulas. The EU’s proposal has been criticized by all participants in the

negotiations, and will not encourage other developed as well as developing countries

to make significant offers on market access.

The EU is also targeting the U.S. counter-cyclical income support program, claiming it is ‘‘the most trade-distorting’’ U.S. farm payment and should not be eligible

for inclusion in the Blue Box. This is not only incorrect, but it represents a complete

reversal from the EU’s position prior to the Cancun Ministerial, when they agreed

to include the counter-cyclical program in exchange for U.S. support for continuing

the Blue Box. In addition, the EU is insisting on further disciplines on export credits and on food assistance, including requiring non-emergency food aid to be made

in the form of cash grants. Unless these conditions are withdrawn, the U.S. agricultural community will not be able to support a new WTO agreement that contains

such conditions.

Mr. Chairman, U.S. soybean farmers would benefit greatly from a good Doha

Round agreement. However, they would not be served well by or support a poor or

lop-sided agreement that would require substantial cuts in U.S. amber box domestic

support, but would not result in substantial market access gains to developing country markets, and that did not make world-class developing country exporters subject

to similar disciplines as developed countries. It would be helpful if developing countries that have so much to gain from opening global markets would define their priorities in terms of their own self-interest rather than as a broader confrontation

with developed countries. We very much hope this message will prevail as we approach the Ministerial meeting in Hong Kong.

Thank you, Mr. Chairman.

STATEMENT OF WYTHE WILLEY

Producer-directed and consumer-focused, the National Cattlemen’s Beef Association is the trade association of America’s cattle farmers and ranchers, and the marketing organization for the largest segment of the nation’s food and fiber industry.

Chairman Goodlatte and members of the committee: the National Cattlemen’s Beef

Association (NCBA) appreciates the opportunity to present our international marVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00105 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
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keting priorities as our negotiators prepare for this critical phase of the Doha Round

of World Trade Organization (WTO) negotiations. I am Wythe Willey, a beef producer from Eastern Iowa where I own and operate a cow-calf and feedlot operation.

I had the privilege of serving as NCBA’s President in 2003, and am currently serving my second term as a member of ACTPN, President Bush’s Advisory Committee

for Trade Policy and Negotiations.

On behalf of NCBA’s 25,000 individual members and 230,000 affiliate members

through State and breed association affiliates, I would like to focus on our priorities

for the WTO negotiations. NCBA’s members have long believed that the greatest

trade liberalizing benefits to our industry can be obtained via the multilateral WTO

negotiating process. U.S. grain-fed beef has a unique place in the global food economy and U.S. beef producers know, as a result of our investments in technology and

science-based animal health and inspection systems, that we produce the highestquality, safest beef in the world. The goal of U.S. agricultural trade policy should

be to make our product as competitive as possible in the world market. Increased

market access via tariff reduction is the core mechanism by which U.S. beef producers can better their position in the global marketplace. Ultimately, for our industry,

this depends on the percentages of tariff reductions in the agreement, as U.S. beef

producers receive no domestic supports or export subsidies.

NCBA’s litmus test as to whether we would consider these negotiations a success

or failure is actually quite simple. A successful outcome mandates a significant reduction in Japan’s 50 percent bound tariff rate and South Korea’s 40 percent bound

tariff rate on beef imports. The inability to significantly reduce these tariffs constitutes a failure of these negotiations in the eyes of U.S. beef producers.

Unlike free trade agreement negotiations, where Japan’s 38.5 percent applied tariff rate would be reduced to zero over time, the WTO negotiates down from bound

tariff levels. Again, Japan’s bound tariff on beef is 50 percent. NCBA is most

pleased with the U.S. proposal on market access that could potentially reduce Japan’s tariff to around 7.5 to 12.5 percent, assuming Japan would not insist on sensitive product status for beef.

As a result, the U.S. proposal on market access would meet NCBA’s goal of bringing Japan’s tariff on beef down to approximately the same level as the 12 percent

duty on beef negotiated as part of China’s WTO accession package. If China can reduce tariffs on beef from 45 percent to 12 percent, NCBA believes the EU, with a

current tariff at 57 percent and a 20 percent in-quota tariff; Japan, with a current

applied tariff at 38.5 percent; and Korea, with a current applied tariff at 30 percent,

should also be able to reduce their tariffs to 12 percent. In fact, the U.S. offer is

the only market access proposal that meets our criteria. Every effort must be made

to prevent this noteworthy proposal, which provides a real and substantial increase

in agricultural market access, from being watered down. As such, the proposal set

forth by the European Union last week is unacceptable from our standpoint.

Also of critical importance in the U.S. market access proposal is the one percent

limit on the number of tariff lines eligible for ‘‘sensitive product’’ status. NCBA cannot emphasize enough how critical it is that the integrity of this provision be maintained. For an explanation as to why this is so important, an analysis by the World

Bank indicates that any real gain in market access would be lost if the agreement

grants ‘‘sensitive product’’ status for as few as three percent of agricultural tariff

lines. The EU proposal maintains that eight percent of these tariff lines be protected, a drastically unambitious proposal.

As the painfully slow—22 months and counting—process of reopening the Japanese market to U.S. beef continues, we are also reminded that the reintroduction

of U.S. beef will undoubtedly trip Japan’s ‘‘snapback’’ or volume safeguard provision.

Once triggered, Japan’s tariff on all beef imports will automatically be kicked up

to its 50 percent bound rate for the remainder of Japan’s fiscal year, ending March

31. The fact that the total volume of Japanese beef imports will still be significantly

below 2003 levels will be irrelevant. Japan’s ‘‘snapback’’ provision on beef is arguably the most egregious use of such a mechanism anywhere on the planet. NCBA

asks that Congress and our negotiators seek any and all remedies in the WTO that

might move Japan to rescind this ill-conceived obstruction of trade.

Our second priority is to reduce South Korea’s 40 percent bound tariff rate on

beef. Achieving our goal in this instance will undoubtedly be more problematic as

South Korea continues to designate itself as having ‘‘developing country’’ status.

NCBA believes the continued ability by many countries such as Brazil and South

Korea to self-designate their status is detrimental to the cause of global trade liberalization. This appears to be one of the most significant fundamental problems of

the WTO’s organizational structure. The WTO is the only global entity that allows

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operation and Development (OECD) provide guidelines for graduation of status. The

WTO does not.)

Another domestic policy that must be addressed by the WTO is Argentina’s use

of differential export taxes that encourage the exportation of beef rather than grains

and oilseeds.

Research consistently shows that all economies, regardless of their economic stature, actually benefit more from tariff reductions, which lead to increased market access opportunities, than by reductions in agricultural domestic supports or export

subsidies. More importantly, developing countries stand to gain the most from improved market access in global agricultural trade.

Despite the critical importance of gains in market access for developing countries

and the ironic fact that these negotiations are being referred to as the Doha Development Agenda, we have yet to see a serious market access proposal for developing

countries. As a result, we have no ability to evaluate whether or not U.S. beef producers have the ability to achieve our second priority in these negotiations. Our interpretation of an alternative market access formula put forward by the G20 actually provides for almost no additional market access in beef beyond today’s applied

tariff levels in the case of Japan and South Korea. As a result, we categorically reject any such proposal that does not provide for real improvement in market access

for U.S. beef.

This is not to say that we do not greatly welcome efforts to significantly reduce

domestic supports and exports subsidies when it comes to beef. The OECD calculated that Producer Subsidy Equivalents (PSE’s), which are a measurement of the

level of government support to an agricultural commodity sector, for beef farmers

globally actually increased from 61 percent in 1996 to 79 percent in 2001. In 2002,

‘‘the European Union (EU) alone accounted for 78 percent of OECD total support

levels on beef with EU beef producers getting most of their gross returns from government programs rather than the value of beef at world prices.’’ (Source: The Magellan Report.) In 2003, Japan’s PSE of 30 percent, South Korea’s 60 percent and

the EU’s 80 percent stand in stark contrast to the U.S. beef PSE of about four percent.

These EU domestic supports for beef stand as a monument to the failure of persistently relying upon taxpayer dollars rather than the marketplace as a means to

prevent the decline of a once proud industry. NCBA remains concerned with the

possible recourse the EU may have in its ability to limit reductions in domestic supports for beef producers via livestock payments that are made on a fixed number

of head.

One of the most dramatic changes in the recent history of global beef trade occurred in 2003 with the EU’s transition to a net beef importing region. In 2005, the

EU is projected to be a net importer of at least 250,000 metric tons (mt) with forecasts for the next few years suggesting that the EU could well be a consistent 500–

600,000 mt net beef importer. As a result, NCBA has been working with U.S. negotiators to seek a resolution to long-standing non-tariff barriers in that market as

well as an expansion of the 11,500 mt tariff rate quota (TRQ). We also seek the

elimination of the 20 percent in-quota tariff.

In meat trade, high tariffs/TRQs account for more market distortions than domestic support. There are currently 247 TRQs for meat products—second highest after

fruits and vegetables—and the average global tariff rate on beef is 85 percent. This

compares to 77 percent for poultry/pigmeat and a 66 percent overall average of agricultural tariff lines. (Source: FAO)

Beyond reform in the EU’s Common Agricultural Policy, however, WTO members

and particularly developing countries must get beyond this ironic contradiction that

trade liberalization is somehow good for developed countries’ agricultural support

mechanisms but is somehow not appropriate policy for the developing world.

The United States is currently the least restricted and largest beef import market

in the world. While many beef markets around the world remain closed or essentially closed to U.S. beef due to non-tariff sanitary and phytosanitary (SPS) barriers,

the United States has granted other countries 696,420 mt of TRQ at practically zero

duty with a 26.4 percent tariff becoming effective in the almost non-existent instances when countries filled its allocated share of the TRQ.

NCBA will support continued movement towards reduced tariffs and expanded

TRQs, but only as part of a comprehensive package that provides for real and additional market access for U.S. beef exports, eliminates export subsidies and substantially reduces production subsidies. In addition, for U.S. beef producers to get maximum benefit from tariff reduction, greater assurances must be made on the part of

our trading partners to eliminate unjustified sanitary and phytosanity (SPS) as well

as technical barriers to trade.

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Lastly, we believe the United States must continue its strategy of simultaneously

pursuing multi-lateral and bilateral trade agreements. NCBA supports the Administration’s efforts toward 12 new free trade agreements (FTAs), and we anxiously

await the potential benefits of a South Korean FTA that should mitigate any shortcomings of the WTO negotiations. We also applaud efforts to bring new countries

into the WTO and we see Saudi Arabia’s accession agreement as a unique, new and

completely untapped opportunity for U.S. beef producers.

U.S. beef producers understand that the future ability to grow our business depends upon the ability to market our product to the 96 percent of the world’s population that does not live in the United States. We also believe the WTO is the only

mechanism capable of generating the political force necessary to move the agricultural trade liberalization process forward. Without forceful U.S. leadership in this

multilateral context, U.S. beef producers will undoubtedly suffer under the trade

distorting forces of mercantilism and protectionism. We are now at a critical juncture in this process.

I would like to thank the Chairman and committee members for the opportunity

to present our views on this important topic here today, and I look forward to answering any questions at the appropriate time.

TESTIMONY OF CHRISTOPHER SHAFFER

Good morning Chairman Goodlatte, Ranking Member Peterson and members of

the committee. I am Christopher Shaffer. I grow wheat and garbanzo beans on my

farm in Walla Walla, Washington. I currently serve as the elected grower spokes

person for the three wheat organizations for the World Trade Organization negotiations. I am also the past Chairman of the Wheat Export Trade Education Committee and U.S. Wheat Associates. Today I am also speaking on behalf of the National

Association of Wheat Growers.

Like most producers, I must look to every possible avenue to find ways to not only

break even but hopefully, in some years, to show a profit and buy-down my farm

debt. This is becoming harder and harder—and like so many in agriculture, I am

constantly looking for new and creative ways to market my products.

Producers must look to every tool available. One set of the tools that receive little

attention, day in and day out, are the trade rules that create opportunities to develop markets around the world. We in the wheat industry are more closely tied to

our international customers through the overseas offices of U.S. Wheat Associates,

than some other sectors. We strongly support agreements that are fair and expand

our market opportunities.

Let me highlight two points that are important to wheat producers in the United

States when we look at world market opportunities:

• First, 96 percent of the worlds’ consumers live beyond our border. The four percent within the United States cannot consume enough wheat to sustain a viable

wheat industry that offers the variety and quality of products that are now available

to our customers.

• Second, we consistently export nearly 50 percent of our total production.

As you can imagine, our success or failure hinges on the ability of U.S. wheat to

be exported around the world. Trade is a vital component for ensuring the financial

viability of U.S. wheat farmers. Fair and open trade agreements are key to reaching

customers outside of the U.S.

I believe without question that the Doha Development Round offers us the greatest single opportunity to expand our customer base. However, at the same time it

poses several challenging dilemmas to you (the lawmaker) and me (a U.S. wheat

producer).

As a trade-dependent commodity, the success or failure of my industry hinges on

our ability to expand U.S. wheat export markets. At the same time I must be able

to convince my banker that there is a reliable safety net if the markets fail.

The U.S. wheat industry has consistently supported an aggressive approach in all

trade negotiations that remove trade barriers worldwide. Multilaterally through the

World Trade Organization (WTO), the Hemispheric Free Trade Area of the Americas and current and future bilateral Free Trade Agreements provide global opportunities to solve trade problems. With these opportunities come responsibilities. Each

of us, and the organizations we represent, must find ways to cooperate and bring

workable solutions to the table. And I cannot stress strongly enough that NOW IS

THE TIME to make the WTO work for us. The clock is ticking.

It is no secret that the Trade Promotion Authority clock is running and the world

recognizes the importance of concluding the WTO negotiations before TPA expires.

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I believe our negotiators want to bring you an agreement that is good for agriculture

and the entire U.S. economy before TPA expires.

The U.S. has made aggressive attempts to keep the WTO Doha Round alive. It

was the U.S. that caused a viable framework to be developed during the last Ministerial meeting in Doha, Qatar. Once again our negotiators have pushed forward

with a proposal that put the world on notice that the U.S. is serious about these

negotiations and about opening the worlds markets. They are also serious about our

trading partners coming forward with proposals that would provide true market liberalization both in the developed and the developing countries.

While the U.S. wheat industry has a number of concerns with the bold approach

taken by our negotiators, it is clear that further progress in this round rests with

the European Union and a few other members. It is amazing that these developed

countries are apparently willing to jeopardize these important negotiations in order

to protect their producers from fair market practices. Our market is open, we ask

for fair access in return.

Creating trade is a critical step to improving developed and stabilizing developing

economies. I know of no study that shows growth results when markets are closed,

quite the contrary is true. Our Smoot-Hawley Act taught the United States this valuable lesson.

The U.S. wheat industry has long held a clear set of goals for these negotiations.

A copy of our issues paper is included in the written testimony. Today I appreciate

the opportunity to review them briefly. Each of the three agriculture pillars under

negotiation is important to the United States wheat industry.

We rely heavily on our domestic support programs and are extremely concerned

that other subsidy users are disciplined. To gain new markets we must have aggressive action in the market access, tariff lowering, pillar. The issues in the export

competition pillar, state trading monopolies, food aid and export credit programs, all

impact our ability to be competitive.

By its magnitude the administration’ proposal to cut 60 percent from the U.S.

trade distorting domestic support or Amber Box programs, and a cut of 2.5 percent

to the Blue Box cap, certainly surprised the wheat industry. We had been conditioned to think more in terms of a possible 50 percent cut, and even that level did

not have our unqualified support.

This offer to remove such a large portion of support programs comes at a universally difficult time for American farmers and ranchers. It is difficult to envision giving up any programs when faced with yet unknown highs in fuel and other input

costs and low market prices coupled with continued trade challenges from our competitors. However, it is difficult to see how we as growers can prosper unless we

open markets and expand our customer base with those beyond our borders.

The U.S. wheat industry has been a strong supporter of the administration’ ambitious agenda to expand world market access. But, we must also be realistic and recognize that there is a need for access to safety net programs that keep the industry

viable.

We recognize the complexity of creating a new Farm Bill, which can only be written by Congress, and reaching an agreement with our trading partners to open markets that is written in an international arena. Everyone is pulling and pushing in

different directions and some are fighting to hold on to what they have always

known. It will take a lot of intestinal fortitude by all and faith that the good of the

industry is at the heart of any negotiation.

The wheat industry recognizes that there must be change. We depend on our farm

support programs and at the same time we desperately need the opportunity to increase our share of the world market. To make this happen we know that we may

have to accept changes in some of our programs in exchange for others lowering

their tariffs and other barriers that they want to maintain. This may be challenging

to all sides, but it will be necessary if all of us in the WTO are going to have a

chance to grow economically. We look forward to working with you Mr. Chairman

to ensure that whatever changes have to be made will ultimately be good for producers.

However, one thing is for certain: if the U.S. wheat industry is going to accept

painful changes in the U.S. domestic support system, it must see major results in

other areas of the negotiation that are important to us. It should be apparent from

my comments to this point that obtaining major improvement in access to world

markets is a very high priority for us in these negotiations.

With the U.S. having made such a bold move on domestic support, I must say

we were frankly disappointed in the EU response, made public on Friday, October

28, as it relates to market access. The new EU market access proposal does not

come close to the kind of tariff cuts proposed by the United States. In fact it does

not even match the tariff cuts proposed by the G 20, a group of developing countries.

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Most disturbing of all is the EU proposal to allow for 8 percent of tariff lines to be

designated as sensitive products. Such a large sensitive product designation would

effectively wreck chances for any real trade liberalization as part of the Doha Development Agenda. If the EU wants to these trade negotiations to succeed, in our view

their agricultural market access current proposal is simply inadequate.

The wheat industry is watching closely to make sure the U.S. Doha negotiations

result in reform of the trade distorting practices used by our competitors. Real,

measurable and parallel benefits must be achieved in market access along with true

disciplines that remove the monopolistic practices of export state trading enterprises. U.S. food donation and useful export credit programs must be protected.

I am very pleased that the U.S. put forward a comprehensive proposal and remains focused on a single undertaking. There is call for a strong response to the

U.S. proposal on domestic supports. Most of the focus is on market access, but it

is critical remember that all pillars of the negotiations are dependent on the components of the others. This is especially true for the wheat industry.

Lowering tariffs is only part of the picture. We not only need greater market access via lower tariffs but we must also eliminate the unfair and non-transparent

practices of monopoly traders that under cut us to gain market share.

The wheat industry also needs very strong disciplines that eliminate trade-distorting practices that are only practiced by export state trading monopolies. Until this

happens U.S. wheat always stands the risk of being undercut in markets even if

the tariffs are lower. We have no way to counter monopolistic practices that are illegal here

I also must say a word about food aid and the continued call of the EU for cash

only programs. It is unconscionable for the EU, Canada and others who have never

come near the level of humanitarian aid given by the U.S. to demand that we end

programs in the name of eliminating export subsidies. Since the late 1980’s the U.S.

has given nearly 60 percent of all global food aid donations. The average share of

EU donations has slipped from 22.5 percent in the late 1980’s to just over 17 percent in 2000–02.

• The U.S. is the most generous food aid donor by far. Our programs are not subsidies. • We strongly support programs that distribute food aid to those in need without

distorting local markets in the recipient countries. • More not less food aid is needed. One way to make this possible is to repeal

the cargo preference requirements and use the saved transportation dollars on more

food purchases.

We believe that the number of hungry people would only increase if cash only donations were to become a reality. There would be less support from those in the U.S.

who traditionally support our humanitarian programs. We must keep the food in

food aid or more will go hungry.

Finally, another critical element that we are very pleased to see in the new proposal is a demand for litigation protection for programs that stay within their commitments. No future agreement will have any meaning unless there is predictability

against future WTO challenge to programs that meet commitments. There must be

a safe harbor for those countries that abide by their commitments. The cotton case

has proven that there is nothing reliable in an agreement if compliance does not

protect a country’ programs.

In conclusion, the industry depends on export markets for up to fifty percent of

all sales and supports the WTO negotiations as the most effective way to remove

trade barriers. However, it will be impossible for the industry to unilaterally disarm.

In order to accept any package that causes changes in our domestic support structure U.S. wheat growers must see success and harmonization in the all three trade

pillars.

The wheat industry looks forward to working with you and the administration as

the WTO debate, hopefully, moves forward and as the new farm bill is structured

to continue to provide a reliable safety net.

Thank you for the opportunity to appear before you today and I look forward to

your questions.

STATEMENT OF CLIFF BUTLER

Thank you, Chairman Goodlatte, for the opportunity to present the views and recommendations of the National Chicken Council, the National Turkey Federation,

and the USA Poultry and Egg Export Council regarding the very important agricultural trade issues involved in bringing the World Trade Organization’ Doha DevelVerDate 11-SEP-98 14:05 Jan 04, 2006 Jkt 000000 PO 00000 Frm 00110 Fmt 6633 Sfmt 6633 F:\DOCS\109-19 HAGRI PsN: HAGRI
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opment Round of negotiations to a timely and successful conclusion. Mr. Chairman,

Congressman Peterson, and committee members, your strong interest in and vital

support of the current round of multi-lateral trade negotiations is very much appreciated. Today’ hearing will serve to help achieve a beneficial outcome of the trade

talks.

Mr. Chairman, I respectfully request that my entire testimony, including the Ag

Trade Coalition 2005 WTO Policy Statement, be included in the written record of

the hearing.

My name is Cliff Butler and I am vice chairman of Pilgrim’s Pride Corporation.

Our company has been in the poultry and egg business for 59 years. We have operations in the States of Virginia, Texas, Pennsylvania, Alabama, Arkansas, Georgia,

Kentucky, Louisiana, North Carolina, Tennessee, West Virginia, Arizona, California,

Iowa, Mississippi, Utah and Wisconsin. Pilgrim’ Pride is a publicly traded company

and is listed on the New York Stock Exchange under the symbol PPC. More than

40,000 employees and 5,000 dedicated chicken farm families work hard each day to

help us produce and process the chickens, turkeys, and eggs we need to serve our

customers here at home and abroad.

When you combine all the companies together in the poultry and egg industry,

employees total over 400,000 and farm families are more than 40,000. In addition,

there are hundreds of thousands of other workers indirectly employed by our industry, and are highly-dependent on the continued success of the U.S. poultry and egg

industry.

The National Chicken Council (NCC) represents companies that produce and process about 95 percent of the chickens in the United States. NCC works very actively

with Congress and the administration to help promote an expanding export market

for U.S. poultry. Increasing overseas poultry sales builds a stronger, more robust

market for not just poultry producers but also for farmers who supply corn, soybeans, and other necessary feed ingredients. 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. USA Poultry and Egg Export

Council represents companies involved in exporting all types of poultry and egg

products. Members include producers, processors, further processors, export brokers,

shipping companies, port authorities, and other related businesses that benefit from

expanding poultry and egg exports.

I, like my fellow U.S. poultry producers, am proud to market poultry that is unsurpassed by any other country in quality and food safety. The tremendous trust

and confidence consumers have in U.S. poultry is a critical component in successfully addressing the current avian influenza (AI) concern. I can assure this committee that individual companies, the poultry industry, and Federal, State, and local

governments have stepped-up safeguards and firewalls to minimize any avian influenza problems in this country. We, in the U.S. poultry industry, do not accept the

notion that it is inevitable that the Asian-variety of AI will come to the United

States.

EXPORTS ARE VITAL

It is vitally important that consumer confidence not be jeopardized with respect

to U.S. poultry, whether the consumer is here in the United States or abroad in the

more than 100 countries that receive U.S. poultry exports. Exports are critical for

my company, like they are most major poultry companies. Being able to export helps

companies better balance the supply and demand for the front of the chicken with

the back half of the bird. Analysts have calculated that at least 40 percent of the

chicken leg quarters produced must be exported if the U.S. chicken industry is to

have a reasonable opportunity to make a fair return on our investment. For the turkey industry the experience and situation are similar. About 95 percent of all turkey

exports are in the form of cut-up parts, and the overwhelming majority of those

parts are leg meat. To export this level of leg quarters, leg meat and similar products, each and every export market must be fully-serviced so that marketing opportunities are not diminished nor lost. U.S. consumers overwhelmingly prefer chicken

and turkey breast meat while the rest of the world has a great preference for the

back half of the bird. So, exporting leg quarters and other leg meat is critically important in balancing supply with demand.

RECOMMENDED TRADE POLICY OBJECTIVES/MARKET ACCESS

In September of this year the AgTrade Coalition issued a set of principles or trade

policy objectives that should be used in the Doha Round of negotiations. U.S. poultry

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organizations and more than 50 other groups support these principles. A copy of the

principles is attached to my statement. Most important for U.S. poultry producers

and exporters as an outcome of the Doha Round is achieving greatly improved market access. Cutting high import tariffs will better assure U.S. poultry of having improved opportunities to compete in world markets. But, high tariff trade barriers are

not the only issues to be addressed. Import quotas and tariff-rate quotas must also

be reduced and eliminated.

Improved market access also encompasses the appropriate application of the provisions of the Sanitary and Phytosanitary Agreement (SPS). Any restrictive measures on trade with respect to veterinary and food safety issues are to have a sound

scientific basis, according to the SPS Agreement. As tariff trade barriers have come

down, unfortunately, non-tariff trade barriers, most predominantly SPS barriers,

have gone up.

One example of not following the SPS Agreement is the European Union’ prohibition against the use of chlorinated water as an antimicrobial during the processing

of poultry. Since 1997 U.S. poultry has not been permitted to be exported to the EU.

In 1997, U.S. poultry was shut out of 15 countries, but since then with the expansion of the EU to 25 member countries, U.S poultry is shut out of 25 countries. Next

year, if there is no resolution of this issue, U.S. poultry will be shut out of two additional countries, Romania and Bulgaria, when they join the EU. Permit me to note

that EU compensation to U.S. poultry exporters for not being allowed to continue

to export to the ten new EU member states reportedly reached a very unsatisfactory

resolution last month. Although the EU

acknowledged the United States is due compensation for being damaged due to

loss of markets in the ten new EU member countries, the compensation package

from the EU provides little, if any, value in the form of potential, future U.S. poultry exports.

Rather than follow proper risk assessment based on good science as required by

the SPS Agreement, the EU apparently prefers to apply the precautionary principle

for the issue of antimicrobials during the processing of poultry. The fallacy of the

precautionary principle is that no product nor process can be scientifically proven

to have absolutely no risk.

Another example of a market access problem is Canada’ supply-management program for poultry. Since 1980 Canada has overly-protected its 2,400 chicken farmers

by limiting domestic production and tightly limiting imports of poultry. Illustrating

how distorted the supply management system has become for Canadian poultry is

to note that quota for the license to produce a chicken north of the U.S. border costs

over $50 per bird. Thus, if a farmer has production quota for 50,000 chickens, the

value of the quota is more than $2.5 million. Of course, the quota cost does not include the investment needed for the land, farm buildings and equipment necessary

to grow the chickens. It is time WTO negotiations address programs that have become so overly trade-distorted.

Also, we cannot overlook the way some of our trading partners have used worldwide concern about avian influenza as an excuse to improperly close their borders

to U.S. poultry. The Office of International Epizootics (OIE), utilizing overwhelming

scientific evidence, has determined that only H5 and H7 strains of avian influenza

are of concern. Some countries, however, are shutting their borders when a low

pathogenic AI H3 strain appears in a poultry flock, and these nations are keeping

their borders closed long after the region where the strain appeared has been certified as free of avian influenza. H3 influenza poses no human health threat whatsoever and it should not be used as a trade barrier. It is vital that the United States

ensure all our trading partners conform to OIE guidelines with respect to avian influenza.

Another issue that needs full attention by trade negotiators is the issue of special

and differential treatment for developing countries. It is obvious that many developing countries have very developed and advanced segments of agriculture. For example, Brazil’ poultry industry has world-class production and processing with costs

among the lowest in the world, if not the lowest. It is time the WTO rules recognize

that just because a country has determined itself to be developing country, it does

not necessarily mean all segments of its agriculture are in the developing stage.

More than two-thirds of the 148 member countries of the WTO consider themselves

to be developing countries. At the same time, it is recognized that the general theme

of the Doha Round is a ‘‘development’’ round so that more international trade can

help less-developed countries become more advanced. Developing countries have

fewer obligations under WTO policies, but that lower standard of obligation should

not be used to tilt the playing field when such preference is unwarranted.

Breakthrough U.S. Proposal on Agriculture

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Proposals by the United States last month that are somewhat more aggressive

than envisioned even following the July Framework Agreement may provide the

necessary and sufficient momentum to carry agricultural negotiations to a point

where certain outstanding issues can be successfully resolved prior to or during the

ministerial meeting in Hong Kong next month. For this prediction to prove valid,

a number of other countries, especially the EU, must meet the ambitious offering

of the United States with equally ambitious proposals. Although the market access

aspects of the U.S. proposal is most troubling for the EU, it is also the area where

much progress must be made to gain U.S. agriculture support for the outcome of

the Doha Round.

When the Hong Kong ministerial meeting was first arranged it was envisioned

that the convening would be an end point, not another milestone. If the meeting

proves to be just an important milestone on the pathway toward an unspecified end

to the Doha Round, there may be no end point on the horizon. The President’ trade

promotion authority (TPA) expires in mid–2007. It would be accurate to characterize

the U.S. poultry industry’ belief that if TPA is re-approved by Congress it will not

happen without a major, and, perhaps, prolonged effort.

Thank you, Mr. Chairman and committee members. U.S. poultry producers and

exporters appreciate your support and continued strong interest in achieving a more

fair and open international market for our products. We look forward to working

with you to achieve that goal.

STATEMENT BY CONSTANCE E. TIPTON

Mr. Chairman and members of the committee, the International Dairy Foods Association (IDFA) would like to thank you for this opportunity to comment on the

potential we see for the U.S. dairy industry as a possible result of the World Trade

Organization (WTO) Doha Development Agenda negotiations. IDFA and its constituent organizations—the Milk Industry Foundation, the International Ice Cream Association and the National Cheese Institute—represent more than 500 companies that

account for over 80 percent of the dairy products produced in the United States.

Agreement among the 148 WTO member countries on an ambitious and comprehensive agricultural package holds great promise for the U.S. dairy industry. We

believe open consumer driven global markets, both abroad and at home, offer the

best promise for our industry. Accordingly, we view the WTO Doha Development

Agenda as a huge opportunity to position the U.S. as a global dairy supplier meeting the needs of not only the U.S. consumer, but consumers around the world. We

are bullish on the opportunities for U.S. dairy foods and the dairy farming industry

if we are successful in the Doha Round. Accordingly, we strongly support a very ambitious agriculture package that dramatically opens markets, eliminates exports

subsidies and greatly reduces trade distorting domestic support. We therefore applaud and support the recent offer by the administration to reignite the Doha

Round. Only through a broad agreement that accomplishes these objectives will we

enable our industry to become the global supplier we believe possible for the U.S.

industry. Within the scope of the WTO agricultural negotiations, IDFA wishes to

emphasize that continued agricultural reforms should be comprehensive, covering

all products, policies and countries.

If the Doha Round, however, does not achieve an ambitious outcome, we believe

that Congress still needs to reform dairy programs in the upcoming Farm Bill to

position U.S. dairy farmers and processors to take advantage of global market opportunities. Our current complex and antiquated system of government regulation,

price intervention and competing support programs stifles growth and inhibits innovation.

In addition to our obvious interest in dairy reform, our milk processors, yogurt

and ice cream manufacturers also have strong interests in liberalizing sugar trading

rules within the context of the current WTO discussions, and domestically in the

upcoming Farm Bill debate. Sweeteners are an important cost factor in the manufacture of flavored milk beverages, yogurt and ice cream products.

INCREASE MARKET ACCESS

For the U.S. dairy industry and other sectors to benefit from the WTO Doha

Round, substantial new commitments on market access are required. Accordingly,

we are pleased that last month, the U.S. offered a bold proposal in the WTO agricultural negotiations to cut developed country tariffs by 55–90 percent, and establish

a ‘‘tariff cap’’ ensuring no tariff is higher than 75 percent.

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Improvements in market access for U.S. dairy products overseas are of critical importance in the Doha Round. While the Uruguay Round did marginally improve

market access around the world, most major dairy consuming countries have tariffs

which preclude the import of dairy products above the minimum access requirement

of 5 percent of domestic consumption. For example, the average over-quota tariff on

dairy products in Canada is over 100 percent ad valorem, while in the U.S., the average is under 50 percent.

We are also extremely supportive of the U.S. position to limit tariff lines subject

to ‘‘sensitive product’’ treatment to 1 percent of total dutiable tariff lines, and to expand tariff-rate quotas where they exist. We believe that this will severely limit

WTO Member countries’ ability to designate dairy and sugar products as ‘‘sensitive’’

and keep their domestic market protected from U.S. dairy exports. In addition, we

urge the elimination of all in-quota tariffs on products subject to tariff-rate quotas

(TRQs). We also support substantial expansion of all tariff-rate quotas and improved

administration of tariff-rate quota disciplines to ensure that TRQs do not restrict

trade.

Last week, the European Union (EU) submitted a new proposal for the WTO agricultural negotiations. From our early analysis, we are disappointed that EU proposal did not match the U.S. offer. The proposed tariff reductions are far lower than

what the U.S. requested. We are also extremely concerned that the EU would like

a large number of exceptions for ‘‘sensitive products.’’ We urge policymakers to remain committed to the U.S. proposal and to insist that the EU improve its offer on

market access.

We firmly believe that both developed countries and developing economies need

to open their markets to U.S. dairy foods. We understand that as part of the negotiations, the U.S. will also have to open its markets. However, we firmly believe that

in an open global system, the U.S. advantage in dairy productive capacity and processing technology will enable our country to be a principal player in the global dairy

market.

REDUCE DOMESTIC SUBSIDIES

IDFA supports continued reduction and eventual elimination of all trade-distorting domestic programs. We believe that domestic support policies which artificially

stimulate or restrict production or ensure inefficient production will ultimately fail

to be advantageous to U.S. production, will have significant detrimental effects on

international market conditions and are not sustainable because they fail to adequately take into account the needs of consumers. Thus, we support the recent U.S.

proposal to cut ‘‘amber box’’ subsidies by 60 percent and to limit ‘‘blue box’’ spending

at 2.5 percent of the total value of agricultural production, instead of 5 percent as

set in the July 2004 Framework for the WTO Doha negotiations.

We understand that the EU has proposed to reduce their amber box support by

70 percent. In last month’s proposal, the U.S. had requested that the EU reduce its

amber box spending by 83 percent to harmonize the disparity between what the two

countries are permitted to spend in amber box subsidies. In addition, the EU has

stated that it is not willing to reduce ‘‘blue box’’ spending by 2.5 percent. We urge

policymakers to continue to demand that the EU reduce its domestic subsidies.

Under the WTO Uruguay Round rules, the U.S. is permitted to spend no more

than $19.1 billion in so-called ‘‘amber box,’’ trade-distorting domestic support a year.

In its most recent WTO notification for the 2001 marketing year, the U.S. reported

a total of $14.4 billion in total amber box support spending. The dairy price support

program accounted for 30 percent those payments. In contrast, the EU is permitted

to spend $60 billion in amber box support of which 14 percent of its payments are

spent on dairy. This is approximately double of what the U.S. spends on its dairy

industry.

With regard to ‘‘blue box’’ spending, currently, the U.S. does not have any programs that fit into this category. On the other hand, a large amount of EU programs are considered ‘‘blue box’’ subsides and currently, there is no limit to how

much the EU can spend in this category. Thus, it is critically important that the

Doha Round significantly reduce the ability of the EU to fund domestic agricultural

programs at such high levels.

We would like to highlight that the U.S. has not notified the WTO of its Milk Income Loss Contract (MILC) payments, which averaged over $500 million annually

from 2002–05 and are likely to be categorized as ‘‘amber box.’’ Congress allowed the

program to expire on September 30, 2005. If efforts underway to resurrect this program succeed, its enormous government costs will greatly increase the percentage

of amber box payments dedicated to dairy. As the U.S. works to lower trade barriers

for agriculture commodities through multi-lateral trade negotiations, it makes no

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sense to continue this costly and controversial dairy program. We need a more comprehensive review of dairy programs and the creation of one rational safety net program that promotes innovation and growth and positions the United States dairy

industry to take full advantage of our production, processing and marketing capabilities. For example, dairy policy could be modified so that payments would be considered blue box, or even green box

ELIMINATE EXPORT SUBSIDIES

We are pleased that the U.S. has proposed to eliminate export subsidies within

a five-year period. The U.S. dairy industry’s competitiveness in international markets has been greatly hindered by EU export subsidies, which have unfairly enabled

its dairy industry to capture a large percentage of world dairy trade. Without export

subsidies, world market dairy prices would be higher and more efficient dairy producers, including the U.S. dairy industry, would enjoy a larger share of international markets.

While the previous Uruguay Round required cuts in export subsidies for all countries, the EU was permitted to continue using this tool to distort world markets to

a much greater degree than any other country. This was especially true for dairy

products; for example, the EU spends on average over $1 billion on dairy export subsidies per year, while the U.S. has spent on average less than $0.025 billion on the

Dairy Export Incentive Program (DEIP).

It is critical that the elimination of export subsidies be synchronized with the reduction in tariffs and increased market access. As prices increase due to the removal

of subsidized dairy products in the international arena, there will be an incentive

for more dairy exports to enter the global market. To avoid an excess of dairy products flowing to already liberalized markets, countries that maintain high tariff barriers, such as Canada, must also reduce their duties.

Export subsidies need to be eliminated to bring greater opportunities for market

and consumer driven forces to drive global dairy trade and the related domestic

dairy production. Our industry knows how to respond to consumers. We want to be

given that opportunity by governments around the world and at home.

Oppose Expansion of Geographic Indications

Finally, IDFA members are extremely concerned that the EU’s current proposal

to extend to foods, the geographic indication (GI) protections, or its synonym, Protected Designation of Origin (PDO), that were established exclusively for wines and

spirits in the Uruguay Round Agreement on Trade-Related Aspects of Intellectual

property Rights (TRIPS). IDFA is adamantly opposed to extending GI protections

to food products and we urge U.S. policymakers to resist making any concessions

to the EU on this issue.

The EU’s PDO directive restricts the use of certain names (i.e. Parmigiano

Reggiano, Feta, Gorgonzola, etc.) to cheese made or processed in a defined geographic area of Europe. The EU’s PDO concept is currently being debated at the

WTO level. Presently, under the 1994 WTO TRIPS agreement, there is a provision

which protects GI for wines and spirits. The EU is now demanding that the TRIPS

Agreement also include GI protection for the following cheeses: Asiago, Comte, Feta,

Fontina, Gorgonzola, Manchego, Mozzarella di Bufala Campana, Parmigiano

Reggiano, Pecorino Romano, Reblochon, and Roquefort.

Should the EU obtain recognition of its GIs at the WTO level, it is likely that

it and other countries would wish to expand protection to other cheeses such as

Edam, Emmental, Gammelost, Greyere, Mozzarella, Muenster, Neufchatel, and

Swiss. As a result, U.S. cheese manufacturers would be prohibited from using these

names in their exports, or in the U.S. domestic market. U.S. companies would be

forced to develop new and confusing names for their traditional cheese products. We

see this as nothing more than an attempt to limit legitimate trade and protect certain producer interests at the expense of market based competition, which only

hurts consumers here and abroad. Why reduce market access barriers and then take

away that opportunity with the expansion of GIs?

We cannot emphasize enough that we are on the verge of a great moment for the

U.S. dairy industry. If we handle the Doha negotiations carefully, not only will we

open new markets around the world for U.S. dairy producers, but we will position

our industry in a policy environment that can ensure we meet the needs of consumers around the world.

Mr. Chairman, you have taken great steps on behalf of U.S. agriculture by having

this hearing and weighing in on the progress of the negotiations. We urge you to

continue to work closely with the administration and with us to make the most of

this opportunity and start us towards a new era of dairy industry prosperity. With

the current WTO discussion and the upcoming farm bill, we have an opportunity

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to transition our support programs/safety nets towards greater market orientation.

This is one way to support farmers moving forward that is trade compliant and promotes sustainable agriculture.

An essential part of this will be your work during the Farm Bill debate to review

and revise domestic dairy policies to ensure that they provide the opportunity for

innovation and growth in U.S. milk production and processing. The U.S. can and

should be a leader in supplying dairy products and ingredients throughout the

world. Combining our ability to produce an ample supply of high quality milk with

policies that encourage investments in U.S. processing and manufacturing of innovative products and ingredients will truly be a win-win-win scenario for U.S. dairy

farms, processors and consumers. We look forward to working with you to achieve

these important goals.

STATEMENT OF GERALD TUMBLESON

Good morning. Chairman Goodlatte, Ranking Member Peterson and members of

the committee. My name is Gerald Tumbleson. I live in Sherburn, Minnesota and

raise corn and soybeans, and feeding hogs. My wife, Joanne, and I live on the same

farm where I was born and raised.

I serve as President of the National Corn Growers Association (NCGA), a producer-directed trade association headquartered in St. Louis, Missouri, with a second

office in Washington, DC. Its mission is to create and increase opportunities for corn

growers.

NCGA is a federation of state organizations, corn boards, councils and commissions, which develops and implements policies and programs on a State and national level to help protect and advance the corn producer’ interests. NCGA represents over 32,000 individual members in 45 States. NCGA has 25 State affiliated

corn grower associations and 20 State checkoff boards that it works with directly.

I would like to thank the committee for giving us the opportunity to testify today

regarding current agriculture negotiations in the Doha Round and our expectations

from the Sixth WTO Ministerial Conference to be held in Hong Kong in December.

Let me began by saying trade is vital to corn producers. Corn is the most widely

produced feed grain in the United States, accounting for more than 90 percent of

total value and production of feed grains. Around 80 million acres of land are planted to corn, with the majority of the crop grown in the Heartland region. Most of

the crop is used as the main energy ingredient in livestock feed. Corn is also processed into a multitude of food and industrial products including starch, sweeteners,

corn oil, beverage and industrial alcohol, and fuel ethanol. But one out of every five

rows of U.S. corn is exported. Add to that exports of value-added corn and co-products and livestock products raised on U.S. corn, and you get an idea of the importance of foreign markets to the corn industry. NCGA supports trade agreements

which will open markets for U.S. farmers and increase market development opportunities throughout the world.

NEW U.S. WTO PROPOSAL

For that reason, we would like to commend Secretary Johanns and Ambassador

Portman for their outstanding leadership in the WTO. The new proposal announced

by the U.S. recently was a bold move. It was also a necessary move if we are to

have any hope of a successful Ministerial meeting later this year in Hong Kong. It

made clear that the U.S. is willing to show the flexibility necessary to get an agreement if our trading partners are willing to do the same. The result of the U.S. proposal was to put apply pressure where it is needed: on the EU and other countries

that have resisted market access liberalization. We are pleased that the U.S. is

showing such strong leadership.

At the same time, I must emphasize that NCGA support is conditional. The U.S.

proposals on domestic support would require a fundamental changes in U.S. farm

programs. We can only agree to such changes in the context of an agreement that

offers substantial improvements in market access for U.S. exporters, along with the

elimination of export subsidies and substantial reductions in trade-distorting support in competitor countries.

U.S. negotiators seem to be in a good position to achieve their goals regarding

subsidies. The U.S. proposal calls for the elimination of export subsidies by 2010,

and for a partial leveling of the playing field in the domestic support area through

harmonizing cuts in amber box limits. These would be significant accomplishments.

However, negotiations on market access are nowhere near as far advanced. Last

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week in response to international pressure the EU revise its market access offer,

but the result still falls far short of an adequate level of ambition. They increased

somewhat the proposed level of tariff cuts for developed countries, but they undermined the potential value of that increase by continuing to demand the right to designate up to 8 percent of its tariff lines as ‘‘sensitive products’’ that would be exempt

from the normal tariff cuts. That 8 percent would almost certainly include most

products with the greatest market access potential. Moreover, under the formula

they propose for TRQ expansion, the higher the tariff, the smaller the level of expansion. Clearly, they are aiming to avoid any significant liberalization.

The G–20 group of developing countries have proposed tariff reductions for developed countries that are closer to being acceptable—45 percent for the lowest tier,

rising to 75 percent for the top tier. They would also limit the sensitive products

category to only 1 percent of tariff lines. However, their proposal is blatantly selfserving. Reductions for developing countries would range between just 25 percent

and 40 percent. Since the WTO bound rates for many developing countries is much

higher than their current applied rates, these reductions would in many cases be

all but useless. Other developing countries, such as the members of the G–33, are

offering even less.

U.S. negotiators must demand a market access package that is at least as ambitious of the emerging package on domestic support, one that requires real liberalization in both developed and developing countries.

In addition, we need a commitment from the administration to support the development of alternative, WTO-consistent domestic policies in the 2007 Farm Bill. Such

policies should include an adequate income safety net as well as programs for infrastructure modernization to improve U.S. export competitiveness. We look forward to

working with you and your committee, Mr. Chairman, and the administration to develop such programs.

MARKET ACCESS PRIORITIES

Now let me turn for just a minute to market access. I would like to focus on barriers in a few key markets and thereby give you an idea of the type of market access

agreement we are looking for and the potential gains for corn growers from such

a package.

In an effort to provide useful input to U.S. negotiators, NCGA worked with the

U.S. Grains Council to identify market access priorities for the corn industry. In the

developed world, the best example of the potential impact of tariff cuts in developed

countries is the European Union. The EU market is now closed to us because of

biotech related issues, a problem I will address later in my testimony. However, assuming we are able to solve that problem in the future, we believe that a meaningful reduction in the import duties now applied by the EU could generate a significant increase in EU corn imports. Certain non-EU European countries also offer potential opportunities.

In the developing world, where the potential for increased demand is even higher,

the U.S. faces high import duties in a number of key markets. Examples include

Turkey, Indonesia, Tunisia, Malaysia, and Nigeria. Many of these countries actually

apply import duties that are lower than their extremely high WTO-bound tariff

rates. It is critical that the WTO market access negotiations result in cuts in WTObound tariffs that are large enough to force real reductions in applied import duties

in developing countries. This is especially important in ‘‘middle income’’ developing

countries, where

we believe a large part of the growth in foreign demand for feed grains is likely

to take place over the coming decade.

In a number of our top export markets, we face tariff-rate quotas or ‘‘TRQs’’.

These TRQs are a mixed blessing. They offer access at a reduced rate of duty for

a specific quantity of corn, but impede or prevent additional imports beyond that

quantity through out-of-quota duties that are often extremely high. For example in

Japan, our largest single export market for corn, we face a TRQ of 3.75 million MT

for industrial-use corn, with a prohibitively high out-of-quota rate. This TRQ significantly constrains the very substantial demand for industrial-use corn in Japan. We

also face TRQs in China, India, Venezuela, the Philippines and many other potentially large developing-country markets for U.S. corn. For this reason, it is very important that, as a part of the current WTO trade negotiations, we obtain a significant expansion in the size of TRQs for corn in both developed and developing countries.

It is also extremely important that in-quota import duties be eliminated in this

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ample, where the 15 percent duty applied within a 500,000 MT TRQ has blocked

any prospect of U.S. corn exports to that country.

NCGA also supports the development of rules in the Doha Round that would lead

to improvements in the administration of TRQs. If TRQ concessions are to have

value, it is important that the TRQs be administered in a way that does not place

a further restriction on imports.

Corn growers can also benefit from any market access gains for our exports of value-added products from corn processing. Today we export nearly $1.4 billion of

value-added food and feed products produced by industries processing our corn into

starch, sweeteners and ethanol. As with whole grain, we need to seek meaningful

reductions in bound tariffs for these products. For example, we now export nearly

$300 million of high quality, 60 percent protein gluten meal to growing world markets in the poultry, swine and aquaculture industries. Lower tariffs, especially in

Southeast Asia and Latin America will ensure greater exports and strengthen these

industries’’ demand for our corn.

Finally, I want to add a word on the importance that the NCGA attaches to obtaining improved market access for U.S. livestock products as a part of these negotiations. Any increase in international demand for U.S. meat and dairy products is

obviously a good thing for U.S. corn producers, since corn is a major input in U.S.

production of animal products. And it is in the livestock and dairy sectors that trade

barriers remain the highest and potential for demand growth is the greatest in

many markets.

U.S. corn growers know how valuable tariff cuts can be. For illustrations, we only

have to look at NAFTA. Following the implementation of NAFTA, the value of U.S.

corn exports to Mexico increased by 90 percent, from $383 million in 1995 to $728

million in 2004. Moreover, U.S. exports of pork increased by 918 percent, beef by

619 percent, poultry by 102 percent and dairy products by 211 percent. None of

these gains would have occurred without the tariff reductions under the NAFTA.

BIOTECH-RELATED TRADE PROBLEMS AND ENFORCEMENT ISSUES

Of course, tariffs are not the only impediments to U.S. corn exports. We also face

an array of non-tariff measures, many of which are related to our planting of corn

varieties that have been improved through modern biotechnology. As you know, Mr.

Chairman, biotechnology has produced many important benefits—for corn growers,

for consumers and for the environment. Moreover, extensive scientific research has

demonstrated that the biotech products on the market are as safe as they are effective. Nevertheless, several countries around the world have put in place regimes

that restrict imports of certain biotech products.

Here again the problem begins in Europe. Since 1998 the EU has not imported

any U.S. corn because of the use in the U.S. of biotech traits that are not approved

for sale in the EU. This effective ban, which has cost U.S. corn growers over $300

million in annual sales, is the result of the EU moratorium on the approval of new

biotech traits. That moratorium is blatantly WTOinconsistent because it lacks a scientific justification. We were pleased that the

administration eventually decided to challenge the EU actions under the WTO. Unfortunately, the dispute settlement panel that is hearing the case has delayed

issuing its findings several times, and we now do not expect to see the initial ruling

until after the first of the year.

Nevertheless, we are confident of eventual success. We fully expect the administration to use the results of the case to reopen the EU market for U.S. corn and

to prevent other countries from implementing similar restrictions.

In the meantime, however, the EU has erected a new barrier to trade—the socalled traceability and labeling regime. These new rules require documentation regarding the presence of biotech traits in commodity shipments. This requirement

could prove to be as effective a trade barrier as the current ban. In addition, the

rules mandate the labeling of all products containing biotech ingredients. Since food

companies believe that European consumers would perceive such labels as health

warnings, they have reformulated their products to avoid having to label. Therefore,

even if the U.S. is successful through the current WTO case in forcing the EU to

implement a WTO-consistent regime for pre-market approval of biotech traits, access to that market will be seriously impaired by these new measures. Moreover,

we are concerned that other countries might follow the EU example and adopt similar legislation, as they have done in the past.

The U.S. has the tools to address this issue. The traceability and labeling rules

violate the EU’ obligations under the WTO Agreement on Sanitary and

Phytosanitary Measures and the Agreement on Technical Barriers to Trade. A number of groups representing U.S. agricultural producers and processors have called

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on the administration to initiate a second WTO case challenging the EU regime.

However, the administration has not yet responded.

I might add that we and European farmers see eye-to-eye on this issue. In our

meetings with European producers they express their frustration that their own access to the new tools of biotechnology has been blocked by their governments. They

are, after all, farmers like us and in this any many other areas simply want the

freedom to operate in a competitive environment without undue government interference.

Tariff reductions and subsidy disciplines through trade agreements are the crucial, initial step towards providing access to foreign markets for U.S. producers.

However, once the U.S. has secured market access, we must aggressively defend it

by insisting that trading partner respect WTO rules. Otherwise, U.S. producers will

be unable to take advantage of many of the benefits that trade agreements are supposed to deliver.

Let me mention one more enforcement issue that is not related to biotechnology.

U.S. corn growers are suffering from unfair competition from the Chinese government in certain Asian

markets. Between 1995–96 and 2002–03, the U.S. share of the South Korean corn

market fell from 95 percent to 4 percent, and the Chinese share increased from 0.5

percent to 89 percent. Over the same period, the U.S. share of the Malaysian market fell from 48 percent to 0.4 percent, and the Chinese share grew from 3 percent

to 90 percent. There is good evidence that the China uses export subsidies put surplus corn into these markets, in direct violation of its WTO accession commitments.

We are currently consulting with the administration on this issue, and we look forward to seeing them take decisive action to enforce WTO rules and protect the interests of U.S. growers.

In conclusion, Mr. Chairman, NCGA is pleased that the administration is aggressively pursuing trade liberalization through the Doha Round negotiations. We are

prepared to consider changes in our domestic farm policies, but only as a part of

a broader agreement that involves significant, tangible improvements in market access. In addition, we need a commitment from the administration to support the development of alternative, WTO-consistent domestic policies in the 2007 Farm Bill,

and a more energetic effort to protect U.S. interests by ensuring compliance with

WTO trade rules. Congress can help the administration in this regard by ensuring

that the trade and agriculture agencies have the necessary resources to investigate

and resolve non-tariff trade barriers. Thank you for your time and attention. I

would be happy to answer any questions.

STATEMENT OF PETER KAPPELMAN

Mr. Chairman and members of the committee, I am Pete Kappelman, a dairy producer from Two Rivers, Wisconsin; chairman of Land O’Lakes, Inc. (LOL); and a

Board Member of the National Milk Producers Federation (NMPF). NMPF works

closely with the members and staff of the U.S. Dairy Export Council (USDEC) on

issues of trade policy that promote U.S. dairy exports. I am pleased to appear before

you today, representing the National Milk Producers Federation, to testify on the

status of the World Trade Organization Doha Round negotiations.

I applaud the chairman and the ranking member of the House Agriculture Committee for having this hearing today. The scheduling of the hearing is, as you know,

incredibly timely. If adopted, the current negotiating proposals from the U.S. or the

G–20 would have a major impact on current U.S. programs and on the future of

U.S. agriculture, as well as global agricultural markets.

America’s dairy industry is the second largest agricultural commodity sector in

the United States, as measured by farm cash receipts. There are 70,000 dairy producers in the U.S., farming in every State, from Vermont to California, Oregon to

Florida, as well as in Alaska and Hawaii. Dairy is one of the top three agricultural

sectors in fully half of the States, and almost two-thirds of the members of the

House hail from one of these dairy States. Internationally, the U.S. is the world’s

largest single-country producer of cow’s milk.

Impressive as those numbers are, they represent only the milk production side of

the industry. Dairy processors, the companies that turn milk into yogurt, cheese, ice

cream and milk powder, also add overall strength and employment to the impact

of the industry as a whole on the country’s economy. In addition, we know that our

ability to increase production, which in turn impacts employment in both the producing and processing sectors, is almost unconstrained.

While historically, the U.S. dairy industry has not been heavily dependent on exports; our foreign sales have been on an upward trend for the past few years. U.S.

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dairy producers still watch import levels with caution; however, given the recent export growth, the U.S. dairy industry believes that with bigger opportunities overseas, this WTO round could result in a positive outcome for us.

Unlike some other U.S. agricultural sectors, the U.S. dairy industry could face

high levels of sacrifice in each of the three pillars. Despite the fact that in recent

years USDA has not used the Dairy Export Incentive Program (DEIP) in a satisfactory manner that would allow us to even begin to counter EU subsidies, DEIP has

been the only U.S. export subsidy used during that time. On market access, the U.S.

dairy market is the most desirable and easiest to enter when compared to that of

any other desirable dairy market around the world. Unlike Europe and other countries that raise spurious WTO claims to prevent imports (e.g., non-tariff barriers),

the U.S. has used only its tariffs to moderately protect our market from unfairly

subsidized imports. Finally, our domestic price support program has been a vital

part of the U.S. dairy industry and the safety net on which our producers have

counted. As you can see Mr. Chairman, the U.S. dairy industry has a significant

amount to lose from these negotiations. We could be giving up a very important part

of our support system in every single sector of the three pillars. This is why dairy

negotiations must be carefully examined by this Committee to ensure that any concession by the U.S. is matched with not only reciprocal movements by other members, but in many cases we must see additional concessions from more protective

markets.

For these reasons and the potential for huge reforms in the U.S. and globally, the

National Milk Producers Federation is following closely all of the developments related to international trade agreements, but particularly those of the Doha Round,

given its primary importance. We welcome every opportunity to provide input to

Congress and to our trade negotiators. If there is one message that members of the

House Agriculture Committee should take away from this testimony, it should be

that the U.S. dairy industry, although supportive of the direction our negotiators

are leading us in, will never commit to unilateral disarmament or an inequitable

level of concessions.

Markets need to be opened overseas before we commit to sizable new openings

in our own domestic market. Similarly, other countries must commit to reducing

their heavy subsidies and lower their much higher tariffs before we take on further

commitments.

With those concerns noted, however, it’s important to recognize that we’ve reached

a point we’ve been working towards for the past ten years. Since 1995, the U.S.

dairy industry, and in particular the U.S. Dairy Export Council, has worked hard

to develop dairy exports with great success. Our exports have changed from primarily government-assisted to market-driven. We’ve seen success abroad, particularly with table and foodservice cheeses, and whey proteins and lactose. More recently, of course, non-fat dry milk has surged under favorable market conditions,

as well as commitment by U.S. suppliers to serve the export market. This success

was evidenced by record-high exports last year of $1.5 billion, with exports this year

on a similarly heated pace.

NMPF’s Cooperatives Working Together (CWT) program has further complemented the boost to producers’ bottom lines that our exports have helped to support. CWT is a voluntary producer-led program that costs participating producers

a nickel per hundredweight of milk to fund programs intended to help stabilize milk

prices. These programs currently consist of a carefully structured herd retirement

program and an export assistance component. CWT has been instrumental in helping to contribute to the solid prices producers have enjoyed for the past few years.

It is also expected to continue to work hand in hand with the price support program

to provide a greater degree of predictability and sanity to milk prices.

Though the situation facing the U.S. dairy industry has sharply improved in recent years, it would due a disservice to U.S. dairy producers to continue the inequities in the global markets. That’s because two things are certain: (1) our industry

will continue to experience great change and (2) the volatility of the world dairy

market has not yet diminished.

This requires action on the industry’s part. We must continue to innovate and develop new value-added products, including ways to utilize dairy ingredients in a

wider array of products. We also must better explain the benefits of dairy. Our industry must also step up to the plate and fight for market share against traditional

dairy exporting powerhouses such as the EU, Australia and New Zealand, as well

as and up-and-coming dairy industries in countries such as Argentina, Chile and

Uruguay. Both groups are innovating and are eager to participate in the expected

growth in world-wide dairy consumption. Moreover, we must be especially ready to

seize opportunities likely to arise on the world market as a result of a successful

Doha Round.

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In order to make the most of these possibilities, however, we need a good agreement from our negotiators: one that will usher in a world without export subsidies;

one with equity in tariff barriers (greater access for our products) and more equal

levels of domestic support between the U.S. and the EU, while maintaining high

enough levels of funding to support U.S. agriculture in all manner of WTO colored

boxes. Although a successful Doha Round may require some changes to U.S. domestic support, the U.S. dairy industry remains interested in keeping our price support

program as the primary dairy safety net.

The obvious benefits to the U.S. dairy industry from a successful Doha Round are

why we have been supportive of U.S. negotiators’ positions with respect to the direction needed in the Doha Round. We strongly support the drive to swiftly eliminate

export subsidies. We believe that movement towards harmonization of market access levels will be beneficial for our industry. And finally, we recognize that domestic support is one of the three main pillars of these negotiations and as such, its

allowed levels must be reduced. What is vital with respect to this pillar, however,

is that others with higher trade-distorting subsidies than the U.S. be asked to cut

more and that the U.S. is able to continue providing a strong safety net for its producers. This safety net must be able to go beyond simply providing green payments

to include the ability to fund the dairy price support program.

U.S. dairy producers will be closely monitoring developments in the negotiations.

Any special treatment given to a foreign country’s dairy sector will be unacceptable

if that special consideration is not provided to U.S. dairy producers. We just want

a fair deal. Countries where dairy is heavily protected should not be allowed to have

special treatment for their dairy industries, if the U.S. does not obtain the same

privileges. We support an agreement without any special treatment for dairy, but

we must warn Congress and our negotiators against granting any non-reciprocal

special concessions to other countries.

EXPORT SUBSIDIES

By removing excess product from the global market, the elimination of export subsidies would help allow our products to compete with the artificially distorted world

price. Because of this, the U.S. dairy industry is an ardent advocate for swift and

complete elimination of export subsidies. Throughout the elimination period, the EU

should not be allowed to shift its subsidy allowances from one product to another.

Furthermore, phase-out commitments must apply to both value and quantity in

order to assure greater fairness during the implementation period.

MARKET ACCESS

Lower tariffs and higher quotas would also increase export opportunities and introduce more consumers to U.S. dairy products. That’s provided that import levels

are expanded in a fair manner. While we recognize that we will be asked to accept

more imports into the United States, it is only fair that others with more closed

markets make a proportionately larger contribution.

In order to be able to take advantage of market access opportunities, though, it’s

vital that other non-tariff regulations do not stand in the way. We recognize the possibility that new challenges might arise for our industry in the form of sanitary and

phytosanitary (SPS) issues. SPS issues are often used as non-tariff barriers to block

exports in ways even more effective than prohibitive tariff levels. Countries cannot

be allowed to negate their market access commitments by throwing up SPS barriers

that are not based on sound science in their place.

DOMESTIC SUPPORT

Finally, with respect to the third pillar of negotiations, it is imperative that our

government preserve the ability to provide a strong safety net for U.S. dairy producers. We can support reducing the current levels of allowed subsidies under the

Amber box as long as it is done in a manner that brings some equity into the current scenario. The Blue box provisions should be always available to all U.S. producers (including dairy) if they are available to other countries. Green box payments

should remain unrestricted in order not to discourage countries from moving in the

direction of greater use of these non-trade-distorting payments.

Most importantly, however, the United States should only accept reductions in domestic support as part of a package that includes elimination of export subsidies

and proportionally larger market access through some form of harmonization. Unless negotiations reduce serious disparities in the levels of government support and

offer significant market access in all countries, developed and developing, the

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United States must continue its current levels for internal programs that counter

heavy subsidization by Europe and other OECD members.

GEOGRAPHICAL INDICATIONS

In addition to issues related to the three pillars, one ‘‘side’’ issue is of particular

importance to the dairy industry—that of geographical indications (GIs). The creation of a world-wide geographical indications registry, as the EU has proposed,

would be devastating for the U.S. dairy industry. We urge our negotiators to continue to vigilantly flight to protect the well-known product names in which so many

companies here have made significant investments.

However, we are aware that GIs continue to be a priority for the EU. Moreover,

domestically, the EU continues to propose changes on this topic and to challenge

EU member countries that refuse to comply with its internal mandate. This is an

approach that has divided the European continent between those who want to capture and monopolize generic names versus those who believe that generic names,

as well as trademarks, are protected both by laws and by years of marketing and

development.

We must remain vigilant to ensure that the EU does not seek a trade-off between

the elimination of export subsidies and further access in agriculture in exchange for

an unprecedented expansion of GIs protection in the international realm. I know

that Chairman Goodlatte, in particular, is quite well-versed on the dangers of this

proposal by the European Union and is strongly in opposition to it. I would urge

all members of this committee to vocally communicate their opposition to a global

GIs registry to our negotiators in order to underscore the importance of standing

firm on this issue in the face of strong EU support for its creation. Under no terms

should the U.S. government agree to a trade-off between GIs and progress in the

agricultural negotiations.

Finally, I would like to comment briefly on the latest developments in the WTO

negotiations. At the end of last week, the EU released a new agriculture proposal.

Although a lot of focus has been placed on their new market access offer, we must

first point out that the EU’s domestic support offer to maintain the high level of

disparity between the U.S. and the EU in Amber box support is unacceptable.

We view the reduction percentages for developed countries—in the new EU proposal as at least a starting point for negotiations. However, it is the details of the

expansion on markets that are unacceptable from the basis of the U.S. offer.— The

sensitive products aspect of the EU proposal would maintain the inequities that currently exist in the world dairy trade, especially between the EU and the US. Their

new formula is irrational at best; TRQs would be expanded less for the products

subject to higher tariffs, rather than the other way around.

Members of the House Agriculture Committee must focus very carefully on what

the U.S. is prepared to give in both domestic support and market access compared

to what it gets in return. The EU proposal with respect to domestic support and

market access does not reflect a balanced proposal when compared to the recent

U.S. offer.

Also important to note in the EU’s new proposal is its reiteration of the importance of GIs to the Europeans. Again, the U.S. dairy industry will not tolerate a

multilateral GI registry that attempts to ‘‘claw-back’’ the generic product names in

which we have invested so much throughout their many years of use. We hope to

gain new export opportunities from this round, but stringent GI regulations would

impose a tremendous cost on U.S. producers and processors. It would force us to reject such an agreement because of the strong net negative result which would occur.

While we continue to work with U.S. negotiators and Congress on all of these

issues, the U.S. dairy industry will strive to further encourage our industry to become more efficient. Even as we become more competitive, however, we will need

to work hard to ensure that we have a solid dairy producer community that is dedicated to producing quality dairy products both for domestic and international markets. The Doha Round remains the single best shot we have at trying to improve

the situation our industry faces here and abroad. American dairy producers and

processors remain deeply engaged in its negotiations.

In order to best support your agricultural industries interests, I would urge all

members of this committee to monitor the developments of this Round closely and

to communicate their priorities and concerns for their producers to our negotiators

to underscore the messages they are receiving from industry organizations. I appreciate the opportunity to provide comments on this important issue to this committee. Thank you.

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STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

Farm Bureau believes that the World Trade Organization (WTO) is important to

the future of agriculture in the United States and around the world. The trade negotiation, standard-setting and dispute-settlement functions of the WTO strive to provide a stable and predictable world trading environment for U.S. agriculture. With

the production of one-fourth of U.S. cropland destined for foreign markets, U.S. agriculture is strongly export dependent. Our farmers and ranchers know that the best

place to receive the end price for the crops we raise and the livestock we nurture

is the marketplace. A marketplace void of the ability to export our goods will lead

to higher consumer prices and higher risks in our ability to provide consumers

around the world with the highest quality of goods.

Because exports are so critical to U.S. agriculture, we must have a structure to

address the many trade-related issues before the U.S. The 148-member WTO operates to provide that structure through a rules-based environment for continued

growth in markets for America’s farmers and ranchers. At this time, the WTO is

our best chance at resolving differences in global trade.

The recent discussions around the October 10 U.S. proposal have given direction

to the current WTO agriculture negotiations. The proposal seeks to achieve meaningful market access through major reductions in tariffs while reducing spending on

trade-distorting domestic support programs and incorporates crucial linkage between these areas.

Real trade reform must include substantial, ambitious and quantifiable expansion

in access to markets. We recognize that to achieve a successful outcome the U.S.

must do its share in reforming trade distorting domestic support programs while developed and developing countries must do their share in expanding market access

opportunities. Farm Bureau will weigh the outcomes of these negotiations to determine if they provide an overall economic benefit to U.S. agriculture.

Market Access

The world average tariff on agricultural imports is 62 percent while the U.S. average agricultural tariff is 12 percent. The July 2004 Framework Agreement supports

the use of a 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 lowtariff products. The U.S. proposal includes a cap on tariffs of 75 percent and progressive cuts with the highest tariffs being reduced 90 percent. A final agreement

on tariffs must result in significant percentage reductions that provide commercially

meaningful access.

Sensitive Products—The framework agreement allows all countries, developed and

developing, to negotiate a number of sensitive products that will be subject to smaller tariff cuts. Our goal is to assure that the number of sensitive products is limited

so that meaningful market access is achievable as a result of these negotiations. The

recent U.S. proposal to limit the number of tariff lines to one percent would achieve

that result.

Tariff-Rate Quotas—A method to expand market access is to have a nation agree

to a tariff-rate quota (TRQ) for a specific product. A TRQ is a reduced tariff on a

specified amount of imported product. The U.S. would gain increased exports if

countries actually filled their TRQs. The U.S. proposal would provide compensation

through expanded TRQs if countries did not reduce tariffs. This negotiation must

result in a requirement that nations fill their agreed upon TRQs in order to help

accomplish the goal of commercially meaningful market access.

Special and Differential (S&D) Treatment—Developing countries, and in particular least developed countries (LDCs), have received S&D treatment to give them

more time to adjust to competition. While the LDCs clearly require greater protection, the agricultural sector in some developing countries, such as Brazil, are actually highly developed and competitive. It is unreasonable to provide those countries

special treatment. Those countries must assume greater obligations to increase market access.

DOMESTIC SUPPORT

U.S. agriculture will negotiate reductions in trade-distorting domestic supports as

part of an overall agreement that increases market access in both developed and

developing countries. Under the framework agreement, countries must commit to

‘‘substantive reduction’’ in domestic support levels. The recent U.S. proposal could

lead to changes in domestic support programs that will create economic challenges

for some commodities. In the long term, U.S. agriculture will overcome these challenges through the expanded opportunity for exports created by specific and measurable improvements in market access.

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The WTO categorizes domestic support into the amber, blue and green boxes.

Amber Box—The amber box is composed of domestic support programs that are

used to support prices or are directly related to production and are viewed as tradedistorting. An example is the U.S. marketing loan program. The framework agreement calls for substantive reduction in trade-distorting domestic support. The U.S.

proposal adds greater specificity with a 60 percent reduction for the U.S. and an

83 percent reduction for the European Union (EU) and Japan. Any reductions in

domestic support must be balanced against improvements in the area of market access in order to advance export prospects for our farmers and ranchers.

Blue Box— The blue box includes agricultural support programs that are not related to production and are considered less trade-distorting. The July 2004 Framework Agreement includes criteria that will allow U.S. countercyclical programs to

be included in the blue box. We support the framework blue box changes but oppose

any further criteria which would limit U.S. utilization of the blue box. The recent

U.S. proposal includes a cap of 2.5 percent of agricultural output for programs that

meet the blue box criteria for the U.S., EU and Japan.

Green Box—No caps should be placed on non-trade-distorting support. U.S. green

box programs include research, extension, conservation and part of the crop insurance programs. Farm Bureau supports the U.S. proposal which does not include any

changes in green box criteria.

Market access and domestic support negotiations must be directly linked for any

substantive agricultural trade liberalization. While the U.S. uses domestic programs

to assist producers, most nations use high tariffs. Many tariff lines exceed 100 percent to provide import protection for agricultural producers. Both mechanisms of

support tariffs and domestic programs must be addressed together to achieve a successful negotiation.

EXPORT COMPETITION

We support the complete elimination of export subsidies as contained in the

framework agreement. The EU spends from $3 billion to $5 billion a year on export

subsidies and is allowed to spend as much as $8 billion under the current WTO

agreement. The EU accounts for about 88 percent of the world’s export subsidies

and uses them to market products of export interest to the United States. Farm Bureau also supports the framework agreement to phase-out and eliminate of the

trade-distorting practices of state trading enterprises, such as the Canadian and

Australian wheat boards.

The U.S. proposal supports disciplines on food aid to help minimize commercial

displacement and opposes converting all food aid to a cash-only basis.

Reduction in the subsidy component of existing export credit programs should be

implemented in a parallel manner with the phase-out of export subsidies and the

elimination of the monopoly powers of state trading enterprises.

Geographical Indicators

There must be no extension of geographical indications beyond wines and spirits.

Issues of product labeling should be dealt with by the intellectual property system

and not as a part of the Doha negotiation.

Farm Bureau believes completion of a successful WTO Doha agriculture negotiation is the best way to achieve progress in a wide variety of international agricultural trade concerns. A final agreement must build on the July 2004 Framework

Agreement, which calls for substantial improvement in market access, trade-distorting domestic support and export competition. The U.S. proposal adds the specifics

necessary to have a successful WTO ministerial meeting in Hong Kong in December

2005. Any proposals offered by other nations must match the ambition set by the

U.S.

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