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CHINA AND U.S. AGRICULTURE: SANITARY AND

PHYTOSANITARY STANDARDS, A CONTINUING

BARRIER TO TRADE?

ROUNDTABLE

BEFORE THE

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 26, 2004

Printed for the use of the Congressional-Executive Commission on China

(

Available via the World Wide Web: http://www.cecc.gov

CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

LEGISLATIVE BRANCH COMMISSIONERS

House Senate

JIM LEACH, Iowa, Chairman

DOUG BEREUTER, Nebraska

DAVID DREIER, California

FRANK WOLF, Virginia

JOE PITTS, Pennsylvania

SANDER LEVIN, Michigan

MARCY KAPTUR, Ohio

SHERROD BROWN, Ohio

DAVID WU, Oregon

CHUCK HAGEL, Nebraska, Co-Chairman

CRAIG THOMAS, Wyoming

SAM BROWNBACK, Kansas

PAT ROBERTS, Kansas

GORDON SMITH, Oregon

MAX BAUCUS, Montana

CARL LEVIN, Michigan

DIANNE FEINSTEIN, California

BYRON DORGAN, North Dakota

EXECUTIVE BRANCH COMMISSIONERS

PAULA DOBRIANSKY, Department of State

GRANT ALDONAS, Department of Commerce

LORNE CRANER, Department of State

JAMES KELLY, Department of State

STEPHEN J. LAW, Department of Labor

JOHN FOARDE, Staff Director

DAVID DORMAN, Deputy Staff Director

(II)

(III)

C O N T E N T S

Page

STATEMENTS

Fernandez, Peter, Associate Administrator, Animal and Plant Health Inspection Service, U.S. Department of Agriculture, Washington, DC ...................... 3

Carlson, Merlyn, Director of Agriculture, the State of Nebraska, Lincoln,

NE ......................................................................................................................... 6

Dickerson, Paul, Vice President of Overseas Operations, U.S. Wheat Associates, Washington, DC .......................................................................................... 9

APPENDIX

PREPARED STATEMENTS

Fernandez, Peter ...................................................................................................... 30

Carlson, Merlyn ....................................................................................................... 32

Dickerson, Paul ........................................................................................................ 33

SUBMISSION FOR THE RECORD

Response to question for the record for Peter Fernandez from Senator Gordon

Smith ..................................................................................................................... 38

(1)

CHINA AND U.S. AGRICULTURE: SANITARY

AND PHYTOSANITARY STANDARDS, A CONTINUING BARRIER TO TRADE?

FRIDAY, MARCH 26, 2004

CONGRESSIONAL-EXECUTIVE

COMMISSION ON CHINA,

Washington, DC.

The roundtable was convened, pursuant to notice, at 10 a.m., in

room 2255, Rayburn House Office building, John Foarde (staff director) presiding.

Also present: David Dorman, deputy staff director; Susan R.

Weld, general counsel; Selene Ko, chief counsel for trade and commercial law; Dale Nellor, agricultural legislative assistant, Office of

Senator Chuck Hagel, and Carl Minzner, senior counsel.

Mr. FOARDE. Good morning, everyone. My name is John Foarde.

I am the staff director of the Congressional-Executive Commission

on China. I would like to welcome everyone to this issues roundtable of the CECC.

On behalf of Congressman Jim Leach, our chairman, and Senator

Chuck Hagel, our co-chairman, and all of the 23 members of the

CECC, welcome to our panelists and to all who are coming to listen

this morning.

The topic that we are going to examine today may seem a little

bit unusual for a commission with a mandate such as ours which

concentrates on human rights, but also development of the rule of

law. So it is probably worth taking a minute to say that, in our

view, the development of the rule of law includes transparency and

includes commercial rule of law development, particularly WTO implementation and compliance on the part of the People’s Republic

of China [PRC]. So, these issues are a big part of our work.

Among the many implementation issues that we have been looking into for the last 2 years are questions relating to the implementation of the agricultural commitments in the WTO and the related

bilateral agreement that we signed in 1999 with China.

As the recent U.S. Trade Representative [USTR] report shows,

China’s record on implementation has been mixed. So, today we

wanted to examine a key commitment, the WTO commitment on

sanitary and phytosanitary standards [SPS].

I can see from the group here in the audience that everyone is

familiar with those terms, but not everybody reading the record

will be. So I will take a minute to say that I think we all understand what the word ‘‘sanitary’’ means, but ‘‘phytosanitary’’ may

not be so quickly understood.

2

Unless I misunderstand, and I am sure the panelists will correct

me if I do, phytosanitary measures means steps that pertain to

plant quarantine, that is, activities designed to prevent the introduction and spread of quarantined pests or to ensure their official

control. For short, we call these measures ‘‘SPS measures’’ when

we talk about the SPS commitments in the WTO.

A word of context, though, before we get started. China continues

to be an important market for U.S. agricultural products. We exported $3.5 billion worth of farm products to China in fiscal 2003,

and our estimates, I think, from the USDA for 2004 are somewhere

in the neighborhood of $5.4 billion. So at that level, China would

be our fourth largest market for U.S. agricultural products.

Soybeans, hides and skins, cotton, poultry meat, soybean oils,

and red meats are the principal products that we are sending to

China. So China’s compliance with this WTO SPS agreement really

matters to U.S. farmers and to the agricultural industry in the

United States.

To help us examine these issues today we have three distinguished panelists. I will introduce them in more detail before they

speak. We have Dr. Peter Fernandez, the Associate Administrator

of USDA’s Animal and Plant Health Inspection Service [APHIS];

Merlyn Carlson, Director of Agriculture for the great State of Nebraska; and Paul Dickerson, Vice President of Overseas Operations

for U.S. Wheat Associates.

We will conduct this roundtable the way we have been doing

them for the past 2 years. Each of our panelists will have 10 minutes to speak. After 8 minutes, I will just remind you that you have

2 minutes left. Inevitably, you will run out of time before you make

all the points you would like to make, but we hope that we can pick

up those points in the question and answer session afterward.

When all three of you have spoken, we will recognize the staff

experts here at the table for 5 minutes each to ask a question and

hear the answer, and we will go until we run out of steam, or until

11:30, whichever comes first.

In a few weeks, we will have a transcript to you for correction,

and this will eventually be not only printed as an official committee

print of the Commission, but also the transcript will be online on

our website.

Anyone who does not know how to find our website at

www.cecc.gov, now knows how to find it. You will find the statements from this session, as well as others, there, and eventually

the complete transcript.

A final duty. The office of Senator Gordon Smith has asked us

to pose a question for the record. I understand that USDA will

come back to us formally with a reply. So let me ask the question.

‘‘China has yet to respond to a U.S. request for a pest risk assessment [PRA] for Pacific Northwest pear exports to China. The

United States submitted a pest list in 1995. We understand that

USDA is unwilling to push this issue with China until the U.S. industry provides research on fireblight transmission on pears. The

industry has started this research. However, a request for research

prior to receiving a PRA documenting a country’s concerns is like

putting the cart before the horse. When will China provide a PRA

3

on Pacific Northwest pears? ’’ So, for the record, we would appreciate USDA’s response to that for Senator Smith.

[The response appears in the appendix.]

Let me then recognize Dr. Peter Fernandez, the Associate Administrator of APHIS. He serves as a U.S. delegate to the Office

International des Epizooties, the international animal health

standard-setting body, and is a member of the Senior Foreign Service. He was APHIS Regional Director for Mexico from 1995–1998,

and also the Regional Director for South America from 1998 to late

2000.

Dr. Fernandez, thank you very much for sharing your expertise

with us this morning.

STATEMENT OF PETER FERNANDEZ, ASSOCIATE ADMINISTRATOR, ANIMAL AND PLANT HEALTH INSPECTION SERVICE, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

Mr. FERNANDEZ. Thank you very much. Thank you for asking me

to take part in this roundtable discussion this morning. My name

is Dr. Peter Fernandez and I am the Associate Administrator of the

U.S. Department of Agriculture’s [USDA] Animal and Plant Health

Inspection Service [APHIS].

Within USDA, APHIS is charged with protecting the health of

U.S. agriculture. In doing so, our agency works to prevent foreign

agricultural pests and diseases from entering the country through

regulatory controls, development of sound animal and plant health

policies, and anti-smuggling programs aimed at keeping risky agricultural products out of the United States.

The agency also conducts domestic surveillance and monitoring

programs for serious pests and diseases and works with state and

industry cooperators to eradicate economically significant ones.

These activities allow us to ensure that U.S. agricultural products

are healthy, abundant, and welcomed in the international marketplace.

As the primary Federal agency that addresses animal and plant

health issues, APHIS also plays an important role in international

trade. Officials with our agency convey information to U.S. trading

partners regarding the pest and disease status of U.S. livestock,

meat products, plants, and plant products.

In turn, we also evaluate the same information submitted to our

agency by other countries when they want to export a new agricultural product to the United States.

APHIS evaluates such requests by analyzing the information

submitted to us; working to collect and evaluate related scientific

data; preparing risk assessments that evaluate any potential pest

or disease risks to U.S. agriculture; and then, if appropriate, conducting public rulemaking to change our import regulations to

allow the animal or commodity to enter the United States in such

a way that any pest or disease risks are mitigated.

In a nutshell, this is how APHIS conducts our business when it

comes to international trade, and, generally speaking, it is how our

trading partners operate. I am able to say this because APHIS, as

well as our counterparts in many other countries, all work under

terms outlined in a very important international trade agreement,

4

the World Trade Organization’s Agreement on Sanitary and

Phytosanitary Issues.

As was mentioned earlier, in the international trade arena, sanitary and phytosanitary issues, commonly referred to as SPS issues,

are the technical terms for animal and plant health issues.

The SPS agreement is critical to APHIS’s work because it allows

us and our trading partners to speak a common language when discussing trade issues. The SPS agreement encourages cooperative,

instead of competitive, work. It has been our experience that the

agreement is a highly useful and effective tool for opening new

markets and making other important agricultural decisions.

The agreement allows governments to take necessary protective

measures with regard to imports of agricultural products based

upon sound science. However, it also provides the rules and structure to prevent the arbitrary use of such measures to impede trade.

As I said a moment ago, APHIS officials have the needed technical expertise and regulatory authority to address SPS issues. For

instance, APHIS personnel with our Veterinary Services, Plant

Protection and Quarantine, and International Services programs

assist U.S. agricultural exporters by negotiating the plant and animal health requirements for U.S. products destined for foreign

markets. They also review the scientific merits of other countries’ agricultural health requirements and issue the necessary health

certificates to accompany U.S. shipments.

APHIS also meets constantly with our counterparts on a bilateral

basis to help negotiate resolutions to technical disputes, and we are

also active participants in international agricultural standard-setting bodies like the International Plant Protection Convention and

the International Office of Epizooties.

APHIS’s trade support activity has increased tremendously in recent years as a result of trade liberalization and international

trade agreements. Quite simply, agricultural health issues are important to every nation’s ability to seek and maintain international

trade markets.

Through trade agreements, the United States strives to open

markets for U.S. producers. However, as trade agreements open

the potential for trade, agricultural health issues emerge as critical

hurdles that need to be cleared if active and reliable trade is to

occur.

This is precisely APHIS’s job, to supply the technical agricultural

health information that our colleagues with the U.S. Trade Representative’s Office, USDA’s Foreign Agricultural Service, and

other Federal agencies need.

APHIS officials work on critical SPS issues during trade negotiations with other countries, and also during interruptions to trade

caused by domestic situations in the United States.

As I am sure you all know, international agricultural markets

are highly sensitive to pest and disease outbreaks, and such situations can significantly affect access to those markets. Take, for example, the impact that the detection of Bovine Spongiform

Encephalopathy [BSE] in the State of Washington in December has

had on U.S. beef exports, not to mention the impact of the recent

detections of avian influenza have had on the U.S. poultry export

market.

5

Considerable USDA efforts and resources have been committed

to addressing these diseases domestically, as well as to conducting

export negotiations to retain market access for U.S. poultry and

poultry products.

With that background, I will now turn to the SPS issues APHIS

is working on with regard to China.

China’s accession to the WTO in November 2001 was accompanied by a great deal of excitement: new export opportunities

were expected to emerge, with significant gains particularly in the

area of fresh produce. Almost 3 years later, some of these new market opportunities have been realized by U.S. producers, but others,

due to SPS concerns expressed by Chinese officials, have stalled.

To meet these SPS challenges, APHIS has actively engaged our

Chinese counterparts at the technical level. In 2003, our interaction with the Chinese increased significantly as we relocated our

regional office for Asia from Tokyo to Beijing.

APHIS now has two Foreign Service officers working in Beijing

and is slated to post a third Foreign Service officer at a new office

in Shanghai. The new Shanghai office will be specifically responsible for monitoring the status of plant and animal pests and diseases in Chinese ports and production areas that ship agricultural

products to the United States.

Also, last year, USDA’s Under Secretary for Marketing and Regulatory Programs, Mr. Bill Hawks, and APHIS’s Administrator,

Mr. Bobby Accord, hosted the first U.S.-China Plant and Animal

Health Regulatory Symposium in Beijing.

This symposium was designed to begin consistent, effective dialog between regulatory officials from the United States and China.

Agenda topics included a range of different issues related to agricultural health and trade, and the meeting was very successful.

In addition to our annual SPS bilateral meetings with China,

APHIS is also working to schedule routine monthly meetings with

appropriate technical counterparts from China to help resolve outstanding SPS issues in a timely manner.

We believe strongly that regularly scheduled monthly bilateral

technical meetings will be an effective way to sustain our dialog

with China and help bring about mutually agreeable resolution to

outstanding SPS technical issues.

In the last several years, working in this way, we have achieved

some notable accomplishments. U.S. citrus—with continuing dialog

on China’s prohibition on imports from four counties in Florida—

and tablestock potatoes from Alaska are now shipped to China. In

terms of imports, APHIS has approved the entry of longans and

lychees from certain areas of China.

Under Secretary Hawks likes to say that agricultural trade is a

two-way street. In similar fashion, APHIS’ experience in working

with China on SPS issues has been that our accomplishments have

been equaled by a number of significant challenges.

We are working very hard to convince China to ease their restrictions on U.S. beef and poultry, and we also continue to supply

China with information attesting that U.S. stonefruit and potatoes

from the Pacific Northwest do not present any pest risk to domestic

Chinese agriculture.

6

For their part, Chinese officials have requested that APHIS consider allowing imports of Chinese apples, and China expressed a

great deal of concern after APHIS suspended the Ya pear export

program last fall due to detections of an exotic Alternaria on imported fruit being sold at commercial markets.

We all know that, in terms of SPS issues, China is a work in

progress. As in any trade relationship, there has been progress

with China on SPS issues and there have also been a number of

setbacks.

But with these thoughts in mind, APHIS is staying engaged with

our Chinese counterparts and will continue to encourage China to

participate fully in international agricultural health forums by becoming full members of the International Plant Protection Convention [IPPC] and the World Organization for Animal Health [OIE].

We feel very strongly that these steps will help improve our relationship with China on SPS issues.

With that, I will turn things over to other participants and look

forward to any questions that you might have.

[The prepared statement of Dr. Fernandez appears in the appendix.]

Mr. FOARDE. Dr. Fernandez, you are clearly an experienced panelist, because you have been remarkably well disciplined. I appreciate it.

I would like to now recognize Merlyn Carlson, who is the Director of Agriculture for the State of Nebraska, and past president of

the Mid-America International Agri Trade Council. Merlyn is also

the past chairman of the U.S. Meat Export Federation [MEF] and

has served on the MEF Executive Committee. He has also served

as president, and on the Executive Committee and Board of Directors of the National Cattlemen’s Beef Association.

Welcome, Mr. Carlson. Thank you for sharing your views with us

this morning.

STATEMENT OF MERLYN CARLSON, DIRECTOR OF

AGRICULTURE, THE STATE OF NEBRASKA, LINCOLN, NE

Mr. CARLSON. Thank you very much for inviting me to address

you today. It is a privilege to speak to you on this important topic.

I have been asked to share with you information about the effects of the Chinese ban on U.S. beef imports following the finding

of a single case of BSE in the United States.

Like over 50 other countries, in late December, China chose to

shut its borders to live bovine and any related products from the

United States. Our U.S. negotiators have been working to reestablish trade, and we applaud their efforts. It is important to say that

the system has worked, but now is the time to move forward.

However, we are told that the Chinese officials continue to indicate they will take their cues from Japan in the opening of their

market. I do not believe that this is in the best interests of China.

Japan has made animal testing demands that are not based on

science or practical experience, and negotiations are ongoing. While

Chinese trade negotiators look to Japan for cues, consumers in

China have indicated they still desire and want United States beef.

The Nebraska Department of Agriculture’s Ag Promotion and Development Administrator Stan Garbacz returned just last Friday

7

from a trip to Beijing. While there, he had numerous opportunities

to visit with beef importers, restaurant owners, and Chinese

consumers.

Mr. Garbacz summed up his trip by saying it was ‘‘depressing

and frustrating.’’ On the positive side, he said he was unable, during his numerous appointments, to find anyone that is concerned

about potential health issues connected to consumption of U.S.

beef. Instead, he found individuals who believe in the safety of our

food supply and are asking for, if not demanding, more of our product. The depression and frustration stem from the knowledge that

our customers are ready and willing to accept the U.S. product, but

the Chinese Government will not allow it.

Some of these Chinese companies get over half of their meat

products as imports, and they generally recognize that the United

States has a better quality and more consistent product than other

beef-producing nations. These companies have been allowed to use

U.S. beef product that was in storage prior to December 23, 2003,

but as those supplies have dwindled, these companies are gradually

forced from business. So not only are we unable to service existing

customers, but we are also losing these potential outlets permanently when they close their doors.

I personally also had the opportunity to travel to China earlier

this year. I visited with importers and with Chinese consumers

about U.S. beef. I must tell you, I was pleased with the response

I received. In the wake of the Washington State BSE case, the industry and the Chinese consumers told me that they are hoping

U.S. beef products could be made available again as soon as possible.

Like the company representatives Mr. Garbacz spoke to, these

consumers expressed a belief in our food safety system. They are

comfortable with the safety of our beef product, and they desired

U.S. meat over that of other countries.

So what our experiences tell me is that China must consider the

needs of its own consumers and citizens. The United States should

continue to encourage Chinese Government officials to use science

in its decisionmaking process. It is China’s obligation as a member

of the World Trade Organization, and furthermore, it is what their

citizens want.

As a point of digression, I want to note that the Chinese Government recently highlighted its openness to use these scientific

principles in considering major policy decisions. Just last month,

China announced approval of a permanent safety certificate for a

number of biotechnology crops. This is encouraging. It would be my

hope that a similar route will be followed in addressing the BSE

situation.

If Chinese officials look to science for answers regarding BSE, I

believe they will find that Nebraska, and the United States, can

provide them with the quality and safe beef products that they desire. Even before December 23, the United States had in place a

number of protective measures to lessen the opportunity for occurrence of BSE in our cattle population.

We have had a surveillance program in place since 1990, and we

have banned imports of cattle and bovine products from countries

with BSE since 1989. Most importantly, we have had a ban against

feeding ruminant-derived meat and bone meal to cattle since 1997.

8

Feeding of such products is generally agreed to be the principal

means of transmission of BSE.

In addition to these points of action, since December 23, USDA

and FDA have implemented a number of actions to further bolster

protection against BSE in our beef production system and in our

food supply.

For example, non-ambulatory or disabled cattle and specified risk

material are now banned from the human food supply. Mechanically separated meat also is now prohibited from use in the human

food supply.

Animal feed production rules have been strengthened as well.

For example, to prevent cross-contamination issues, facilities must

have production lines that are dedicated to non-ruminant animal

feeds if they use protein that is prohibited in ruminant feeds.

Just last week, USDA Secretary Ann Veneman announced an enhanced surveillance program as a means of making a thorough assessment of the status of the United States herd. This action was

taken at the suggestion of the international scientific review panel,

which reviewed USDA’s response to the BSE case.

Animals of high risk will be focused upon, with USDA’s goal to

obtain samples from as many of these types of animals as possible.

They will also obtain samples from animals that appear normal,

but are older, since science has shown that these have a greater

likelihood of having BSE than cattle under the age of 30 months.

While the enhanced USDA and FDA activities should serve as

more than enough scientific justification for opening the borders to

trade, States such as Nebraska are moving ahead with their own

efforts at further disease protection enhancements. Even before the

December 23 announcement, the Nebraska Department of Agriculture had stepped up its contact with feed manufacturers and

animal rendering facilities in the State to raise awareness about

BSE issues at the level of the livestock production chain.

The Nebraska Department of Agriculture also has moved ahead

aggressively with the development of a state-wide animal tracking

system. We intend to be compatible with whatever plan will be

eventually implemented nationwide. Our model at present focuses

on the beef industry, although other species will be added later. It

will contain both premise identification and individual animal identification components.

The primary goal of the system is traceability for protection

against and reaction to disease issues like BSE. However, we also

intend to utilize this beef tracking system for marketing purposes.

The idea is to work in conjunction with partners in the beef production cycle to create a closed loop, farm-to-fork tracing system.

Nebraska has chosen to move forward in the animal traceability

arena because, frankly, we have a great deal to lose if foreign country borders remain closed to U.S. beef products. Already, the effects

are apparent. For example, Nebraska generally is known for leading the Nation in commercial cattle harvesting and processing. A

report released just last week by USDA highlights a 7 percent decline nationally in beef production during February 2004, compared

to February 2003.

In that same report, Nebraska slid from first place to second in

total cattle harvested. Our packing plants have had to cut jobs—

9

and some of them hundreds of jobs—as we continue to deal with

the impact of the lost overseas markets.

I believe the beef industry in the United States, and Nebraska,

has shown its desire to provide China and other U.S. beef importing countries the tools necessary to engage in a thorough risk assessment regarding the beef trade.

Given that many countries still have hesitated to recognize our

enhanced animal disease protection measures, China has an important opportunity to distinguish itself as a leader. Clearly, we are

hoping that the country’s officials will recognize this and respond

to the needs and desires of its citizens and its food industry representatives.

Thank you for allowing me to share our Nebraska perspective,

and I welcome any questions that you may have. Thank you.

[The prepared statement of Mr. Carlson appears in the appendix.]

Mr. FOARDE. Thank you, Merlyn Carlson. All very good points.

We will come back to some of them during the Q&A.

Next, I would like to recognize Paul Dickerson. Paul is the Vice

President of Overseas Operations for U.S. Wheat Associates. U.S.

Wheat has a long history in northeast Asia, and certainly in China,

so it is a great pleasure to have you here.

Paul Dickerson was General Sales Manager and Associate Administrator of the USDA’s Foreign Agricultural Service between

1989 and 1991. From 1986 to 1989, he was a consultant and marketing agent with Pacific Northwest. From 1978 to 1986, he was

president and chief operating officer of Columbia Grain, Incorporated in Portland.

Paul, welcome. Thank you for sharing your views with us this

morning.

STATEMENT OF PAUL DICKERSON, VICE PRESIDENT OF OVERSEAS OPERATIONS, U.S. WHEAT ASSOCIATES, WASHINGTON,

DC

Mr. DICKERSON. Thank you. Thank you for this opportunity to

discuss the U.S. wheat industry experience with trade to China.

First, if I may, I would like to give some background on U.S. Wheat

Associates [USW] and my experience in grain trading.

U.S. Wheat does not buy or sell wheat. Our job, since the 1950s,

has been to develop and maintain export markets for American

wheat. We are the marketing arm for the American wheat farmer,

and over the years we have worked in nearly 100 countries. Our

expert staff has a depth of knowledge on wheat issues that is unmatched anywhere else in the world.

We receive a third of our funding from U.S. wheat producers

through checkoffs funneled through our 20-member state wheat

commissions, but the remaining two-thirds of our budget, including

all of our overseas work, depends upon USDA’s Foreign Market Development program and the Market Access Program. We simply

could not do our work without that support.

As Vice President of Overseas Operations for U.S. Wheat Associates, I direct the market development activities of U.S. Wheat’s 15

overseas offices. I joined U.S. Wheat in 1992, first serving as regional Vice President of the South Asian region in Singapore, and

10

then moving to the Washington, DC, office in 1995. I will dispense

with any other comments about my background.

It has been fascinating to be involved from all these angles from

my past experience in the long, difficult history of U.S. trade with

China. As you know, the U.S. agricultural community, including

the wheat industry and the trade, was very supportive of China’s

admission to the WTO. While the outlook for significant wheat export opportunities looked promising, the results were initially quite

disappointing.

Until very recently, the U.S. wheat industry faced continuing

problems. While China reduced its old carryover stocks, which were

more than needed, it used various devices to curb exports from the

United States of quality wheat that its end users could import

without a series of trade barriers.

There were three chief areas of concern affecting access to China’s market:

First, Tariff Rate Quota [TRQ] implementation for the private

sector was inadequate, in that individual allocations were too

small, and there was no transparency. Companies had to combine

TRQs in order to get a commercially viable volume.

Second, licenses that were supposed to be issued by the State Administration of Quality Standards, Inspection and Quarantine for

commodity imports, were given for a limited period of time, which

discouraged purchases.

Third, sanitary and phytosanitary barriers relating to TCK—a

wheat smut—continued to be a problem, despite the Agriculture

Trade Agreement that was reached in 1999, ending a trade dispute

that began in 1972. The story about how this phytosanitary dispute

over TCK evolved and was resolved is a long saga, which I will not

go into today.

Let me just point out that, after decades of the best efforts of scientists from the U.S. Department of Agriculture and the wheat industry, an international panel conducted an independent pest risk

assessment [PRA], following guidelines established by the U.N.

Food and Agricultural Organization. In May 1998, the PRA was

presented to Chinese officials. The public response to the PRA from

he Chinese was, essentially, silence, until WTO talks began.

When negotiations between USTR and the Chinese Government

began in earnest in 1999, we were grateful for USTR’s support on

the U.S. wheat industry’s position: that there could be no WTO

agreement without resolution of the TCK issue.

On April 9, 1999, the USTR announced that the agreement

would allow U.S. wheat imports from any State to enter any Chinese port. The agreement allowed wheat imports that do not exceed

a tolerance level of 30,000 TCK spores per 50 gram sample, a level

that is easily met by U.S. wheat.

That agreement was translated into Chinese, and the USTR and

Chinese officials officially ‘‘confirmed’’ that version in early December 1999, while the two countries were in Seattle for the World

Trade Organization meeting.

Finally, in early 2000, the China National Cereals, Oils, and

Foodstuffs Corporation, [COFCO], the official government buyer,

announced their purchase of U.S. wheat, including wheat from the

Pacific Northwest. It was the first largely unrestricted commercial

11

cargo of northwest wheat to be shipped to the People’s Republic of

China in 27 years.

The bulk carrier ‘‘Miyama’’ left the Columbia River on June 2,

carrying 52,000 tons of wheat, 30,000 tons of soft white wheat, and

10,000 tons each of hard red winter wheat and hard red spring

wheat. The resolution of the TCK issue was absolutely vital to the

U.S. exports of wheat. With the agreement and with Permanent

Normal Trade Relations [PNTR] status with China, the United

States would increase its total wheat exports up to 10 percent each

year.

There is a huge market potential for U.S. wheat in China. Between 1985 and 1995, on average, China imported 10 million tons

of wheat each year—ranging from 4 to over 15 million tons—relying on imports during this time for just over 10 percent of its

wheat needs. But then their domestic wheat production grew dramatically and imports dropped steadily since 1996, until this year.

China has drawn down its wheat stocks in recent years, most recently with domestic sales of nearly a million tons of old crop. They

now produce about 86 million metric tons annually—for comparison

purposes, the United States produced 64 million metric tons during

the current crop year—but China’s consumption is estimated at

105 million metric tons.

These three factors—lower stocks, lower production, and steady

demand—now come together, forcing China to import wheat in

much larger quantities than in the past several years. This ‘‘drawdown’’ in stocks has brought China back to the market as their

domestic prices have increased.

China is buying wheat from the United States, purchasing nearly

3 million metric tons this year and next year, and COFCO representatives say there is more to come. But the question, until recently, was whether they would truly honor the agreement on TCK.

Would they buy from Pacific Northwest ports? Would they ship?

Would they continue to discourage their buyers from purchasing

wheat from the United States? Would they off-load that wheat and

put it into domestic circulation?

Last month, representatives from COFCO conducted a whirlwind

U.S. buying tour. Before beginning its rounds of meetings in Washington, Chicago, and Portland, however, the COFCO team graciously agreed to meet with members of the U.S. media in the

Nation’s Capital. The chairman directly addressed concerns about

whether TCK was still an issue in purchasing decisions, stating

flatly that ‘‘the TCK problem has already been resolved. It is not

a problem.’’ He went on to say that wheat from the Pacific Northwest ‘‘gives us more variety, and provides wheat that China does

not have.’’ Also, he noted, ‘‘we want to cut shipment costs,’’ and

shipping out of Portland is less expensive for China than shipping

from the U.S. Gulf. That freight savings is currently between $20

and $25 per ton. That is over a million dollar difference for a normal 50,000 metric ton shipment.

U.S. Wheat Associates, the industry’s export market development

organization, which has maintained an office in Beijing since 1983,

has worked for years just for this moment in history. Hopefully, the

TCK issue is in the past, but we cannot be certain until volume

12

shipments discharge at ports in China. Until then, it is difficult to

confirm resolution of the issues.

We still anticipate some problems with the private sector licensing and TRQ allocations, and we will continue to work with

COFCO and other Chinese agencies, with the private entrepreneurs in China, and with the dedicated professionals at USTR

and USDA, especially as wheat shipments arrive in China.

In the long term, liberalization of China’s import policies and internal reforms of the grain industry are expected to generate higher imports than at present, with estimates of imports ranging from

5 to 10 million tons. Some estimates go even higher.

The opportunity for the U.S. wheat industry is immense. Under

the U.S.-China agreement, the TRQ for wheat is 9.6 million metric

tons. The tariff is 1 percent, lower than most other Asian countries.

If the U.S. could get 40 percent of those sales, we would increase

the total U.S. wheat annual exports by 10 percent.

Thank you for offering me the opportunity to present today.

[The prepared statement of Mr. Dickerson appears in the appendix.]

Mr. FOARDE. Fascinating. Thank you very much for those facts

and figures.

We are going to let our three panelists rest their voices for just

a minute while I make an administrative announcement. Our next

staff-led issues roundtable will be next Friday morning at 10:30

a.m. in this very room, where we will be looking into commercial

rule of law development in China and how the United States might

step up its activities in supporting commercial rule of law development in China.

We will also have three distinguished panelists to help us

through the issues there. It will be in this same room Friday morning, but at 10:30 rather than at 10 o’clock.

Going now to our question and answer session, each of us will

get a chance to ask a question and listen to the answer. We will

go 5 minutes each and then give someone else an opportunity, and

we will just keep going.

Thank you, by the way, for being so disciplined, all three of you,

because that gives us more time for what I think is the most useful

part of the conversation.

Let me then exercise the prerogative of the chair and begin by

asking a question on wheat trade. This is principally addressed to

Paul, but I would like to hear anybody’s views who has views on

it.

One of the things that is the most exasperating about doing business with China, in my view, is the frequent practice of taking a

small action, but not really addressing the underlying systemic

problems that are causing the difficulty in the first place. I think

all of you alluded to this problem in your statements.

Do you see China’s recent purchases of U.S. wheat as simply a

temporary expedient of this sort intended to reduce pressure on

them on account of a trade surplus with the United States, or as

a real reflection of China’s intention to comply with WTO and bilateral agricultural trade and SPS obligations to the United States?

Mr. DICKERSON. Well, that is a good question that has probably

multiple facets in terms of how I would answer. I am of the opinion

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that there are a number of undercurrents at work in China when

it comes to wheat.

You have the scientific community. I have been involved, by the

way, for over 40 years, so I have watched this thing back to the

1970s. I am convinced that there is genuine concern by the scientific community in China for TCK and what TCK can potentially

do to Chinese production.

There is no danger in TCK on the end use of the product. Their

concern is in possible reduced yields. A country like China, with

over a billion people, and the largest producer of wheat in the

world, has genuine concerns with this. We have gone to a lot of

work as an industry in trying to dispel those concerns because TCK

is not a problem in the United States. We have spent years trying

to convince China of this.

But I think you have generally a TCK scientific concern in some

parts in China, but on the other hand you have people like COFCO

and others who are very interested in living up to the agreements

of the Agriculture Trade Agreement and WTO.

But I think what is happening in China today is that the economics of the situation are overwhelming, if you will. They are

overwhelming the scientific—or what I consider to be non-scientific—concerns in that community. If you look at the graph, you

will see that Chinese wheat stocks are going down. Acreage is

going down in China. It is going to more high-value crops.

Frankly, they simply need to import wheat, whether it is from

the United States, whether it is from Canada, or Australia, or

other origins. They are actually consuming between 15 and 20 million tons more wheat every year than they are producing, so they

have a genuine need.

I think we have been watching this for a number of years. It has

finally happened. If you look at this graph and the handouts that

I presented, it is very clear what is going on. So, it is not an easy

question to answer. It is multi-faceted.

Mr. FOARDE. So it was not until the economics really lined up

that the impetus was given for more of a systemic change. I do not

want to put words in your mouth, but is that where you are going?

Mr. DICKERSON. I think that is my opinion, yes.

Mr. FOARDE. Interesting.

Do either of the other panelists have a comment on that question? Mel?

Mr. CARLSON. I would comment, if I might. It just seems like we

are experiencing a protocol in China as we have seen elsewhere

with other countries and other agreements. I might point out,

issues of TRQs, SPSs, biotech, and licensing are all being used to

restrict markets and set up nontariff barriers. We are seeing the

use of some of these smaller issues to restrict trade. These issues

do need to be addressed.

Mr. FOARDE. We are seeing this also in the human rights area

of the Commission’s mandate. That is really the basis of my question. We have seen, for example, some prisoner releases of highprofile political dissidents and religious prisoners in the last few

weeks, but we are not seeing enough of the systemic changes,

change in the legal regime, change in the way things are done, so

that these people are not incarcerated in the first place. I was just

14

wondering if there were any parallels. So, that is a useful comment.

Let me now recognize my friend and partner, Dave Dorman, who

is the deputy staff director of the Commission and works for Senator Chuck Hagel, to ask a question.

Mr. DORMAN. Well, first, I would like to thank each of you for

coming today and offering your wisdom and insights on these

issues. They are important to the Commission and I know they are

important to Senator Hagel.

I would like, just for a moment, to go to something you said, Dr.

Fernandez, during your opening statement. You mentioned, in

terms of China and SPS measures, that ‘‘it is a work in progress.’’ That is a very interesting and important comment.

We have somewhere between 15 or 20 roundtables a year and as

John has pointed out, we attempt to explore the universe of human

rights and rule of law issues in China. I would have a hard time

counting how many times panelists have said ‘‘it is a work in

progress.’’ Now, why is that important? It is important for a couple of reasons. Number one, you have all pointed out today that this issue

is important to ranchers and farmers in the United States in terms

of trade. But beyond that, attempting to understand this work in

progress and the connections between rule development and rule

implementation in China in one area such as agricultural standards, may help the Commission understand other areas. It is my

experience, in the short time I have been on the Commission staff,

that there are connections between how rules are developed and

implemented across issue areas.

With that context, I would like to ask the panel, beginning with

you, Dr. Fernandez, the extent to which China is looking at ensuring

that SPS measures are applied equally to both domestic products

and imported products. I know that you have a wealth of experience in China, but also globally. It would be interesting to hear

how the Chinese are doing in relation to other countries.

Mr. FERNANDEZ. Yes. As we said, it is a work in progress.

Progress has been very slow. But one of the things we have been

trying to work with our counterparts on, especially in China, has

been this idea of trying to—within WTO, you are very aware that

you cannot require externally of countries something that you do

not require internally. This is one of the precepts of the WTO.

So, as we have tried to bring them in to the WTO, the WTO relies very heavily on two or three resources, the three resources

being what they call the ‘‘three sisters:’’ the International Plant

Protection Convention [IPPC]; Codex Alimentarius for food safety

issues; and for animal health issues, the World Organization for

Animal Health [OIE]. It has been very difficult. I can tell you that

there was a time in the early 1990s when, for example, China had

reported that they had type O FMD [Foot and Mouth Disease]. The

following year, they said they never reported foot and mouth disease. So, the OIE said, ‘‘You mean you did not find it this year? ’’

They said, ‘‘No, we have never reported FMD.’’ They are going,

‘‘Well, this is rather difficult, because last year——.’’ And the Chinese said, ‘‘We do not know who reported it, but we do not have

FMD.’’ So that was the situation we were coming from.

15

Countries can report to the OIE, even if they are not standing

members. I can tell you that this month, for the first time, the Director General of the OIE in Paris made a visit to Beijing and met

with the Premier directly, who assured him that this year China

would send a delegate. So we are hoping that they will truly come

to the table.

Having said that, let me just tell you, I am sure you are aware

of these kinds of things. As you say, our experiences reflect on

probably other things that you are dealing with all the time. What

has been the issue? The issue has been Taiwan’s membership in

the OIE. So for a long time, or at least for the last 5 years, we have

been talking about what name Taiwan would use as a member of

the OIE. The last thing that China said it would want the OIE to

change the status of every country, 164, from ‘‘member country’’ to

simply ‘‘member’’ so that Taiwan would not be recognized as a

member ‘‘country.’’ So here is where we get into this difficulty, trying to deal with the technical issues that we have to deal with

every day. We keep getting caught up in these political issues, in

a sense.

That has been our finding many times, that we go to these meetings and when there are high-level people present, they try to find

quick political solutions. We try to explain to them that our system

does not work that way. We have a very clear regulatory system.

It is very rigorous and complete. We try to expedite it as much as

we can, but I am sure you all know that the regulatory process

here exists for a reason: to make sure that the public, the consumers, and the industries have the opportunity to comment.

So the Chinese sometimes seem to feel that this process can all

be superseded simply by someone whom they have met personally,

and made a personal contact with, and that that can advance the

issue very quickly; ‘‘If you give me this, I will give you that.’’ It is

very difficult. We have tried many times. That is why these

symposia are so important for us to try to explain to them how our

regulatory process works and what we are trying to do here.

We are not trying to find problems with China, we are trying to

find solutions, truly. It is not a game of ‘‘got you,’’ you have got this

and we do not have that. We are trying to find ways that we can

mitigate risks and allow trade. So, I do not know if that answers

your question, but that is some of what we have been finding as

of late.

Mr. DORMAN. Thank you. Any others have a comment in terms

of wheat? Does China have a history of applying the same sort of

SPS measures to domestically-produced wheat?

Mr. DICKERSON. I do not know of anything that I could add relative to SPS issues with their domestic market, really, that would

be of help to you.

Mr. DORMAN. All right. Good. Thank you.

Mr. FOARDE. Let us go on then. Let me recognize Dale Nellor,

who is the Agricultural Legislative Assistant for Senator Chuck

Hagel, joining us this morning.

Over to you for questions.

Mr. NELLOR. I would just like to thank you gentlemen for being

here today. This is very important, not only to U.S. agriculture, but

specifically to Nebraska.

16

Mr. Carlson, you were talking about how the Nebraska Department of Agriculture has been very active in going overseas. I know

China is not the only place you have visited. How do you feel that

your actions and the actions of the industry, as well as within

wheat, have affected negotiations with these countries on these

issues?

Mr. CARLSON. Well, first of all, may I compliment USDA, APHIS,

and our cooperators, USMEF, U.S. Grains Council, and others.

They all have done a tremendous job in promoting and servicing

our markets around the world. Our efforts on the state side hopefully complement their good effort. It is a synergy that works very

well. I just returned from Taiwan. I had the opportunity to work

with cooperators and with our government representatives. I just

cannot say enough in recognition of the cooperation and the synergy that we have found with our government people in those markets. It is important.

For those of us in Nebraska, maintaining and servicing markets

is very important to us. We are a small State in population, but

yet a fairly substantial agriculture-producing State that must depend on a third of our production being sent out of state.

Mr. DICKERSON. Yes. I would certainly add to that in the case of

wheat. U.S. Wheat Associates is known as a cooperator, a cooperator with the U.S. Department of Agriculture. I think globally,

and particularly in China, we have really had a marvelous relationship between USTR, USDA, and Embassy staff in China. We have

an office in Beijing, we have an office in Hong Kong. It really has

been a team effort in all aspects to try to find a resolution to this

SPS TCK issue.

We have been in a position in China to be dealing with, working

with, and talking to the receivers of U.S. wheat and wheat in general, so we know we have been able to identify where problems

have arisen. Doing this, I think, has been helpful to APHIS and to

others who have been part of this process.

Mr. FERNANDEZ. If I could just echo what the other two panel

members have mentioned. I think it is impossible for us to be able

to reflect accurately the good health of animal agriculture without

the participation of our counterparts. In other words, they have

been very quick to help us gather the kinds of information that we

need to make our cases. We cannot make the U.S. case with any

country, whether it be TCK with Brazil or other issues with other

nations, unless the industries are there to cooperate.

The cooperation has been phenomenal on avian influenza, and on

BSE. Even when the counterparts do not respond the way we want

them to, I think our industries realize that we have gone as far as

we can. We have gone the extra mile, as far as we can go technically, with these issues. But, again, if it were not for the very

close relationship with the industry, we would not even be able to

get out of the door, really.

Mr. NELLOR. Thank you.

Mr. FOARDE. Let me next recognize our friend and colleague

Susan Roosevelt Weld, who is the general counsel of the Commission staff.

Ms. WELD. Thank you all very much for coming. A fascinating

topic, which I knew nothing about before reading your testimonies.

17

The first thing that comes to mind is that I remember Mr.

Dickerson said there is a problem with transparency in issuing licenses for certain kinds of imports. So, can the three of you tell me,

in your experience, what are the precise problems in the Chinese

rulemaking process related to transparency? How could it be improved? Are there ways which they are now trying to improve

transparency? Are there ways in which we can furnish the Chinese

with technical assistance?

Mr. DICKERSON. I am not sure how much help you could be on

this end. My own personal opinion was, for whatever reasons of

their own, they were very slow in meeting the government’s obligation to release the TRQ information. I am talking now about the

private sector recipients of the 10 percent of the TRQ. For whatever reasons, and one can conjecture what they might have been,

they were very slow to identify those. They were unwilling, for

whatever reasons, to identify TRQ recipients publicly. They also

were released in very small amounts. It appeared to us—at least,

it appeared to me, personally—as an effort to discourage the use

of those TRQs by the private sector and to discourage them from

importing. In other words, putting up roadblocks.

Now, what we could do to try to change that, other than what

is being done or has been done by USTR, that is another issue. But

I consider it to have been roadblocks to the implementation of an

agreement that they should have gone forward with.

Mr. FERNANDEZ. If I could just respond very quickly. I do not

have a lot of information, but we can get you more information on

this question. One of the key issues that we have actually had at

the top of our list with China is to modify or abolish something we

call Quarantine Import Permitting [QIP]. While these QIPs are not

really SPS measures, they are framed as if they are sanitary/

phytosanitary animal or plant health issues. In fact, they are a de

facto import licensing system.

So it is very difficult with these types of licensing systems. You

come to the table thinking you are going to be speaking about technical issues. You bring up the technical facts, the science behind

the particular product, pests lists that are associated or the diseases associated with it, and you run into these issues that really

have no technical basis, or at least the science is not there. So what

we have tried to do in those cases with other countries—and again,

this is what we are trying to do by getting, for example, China to

come to the OIE and IPPC—before you go to a WTO dispute resolution, both of these fora, especially OIE, offers kind of a consultation

where they act as an arbitrator to listen to both sides, to listen to

the science. They bring together experts.

We used this, I think, with a certain amount of effectiveness with

Japan on avian influenza, where now their actions are not taken

at the entire country level, they are taken at the state level and

then released as a low pathogenic avian influenza. So, we are hoping to use a similar strategy with our Chinese counterparts as well.

Mr. DICKERSON. Could I just maybe add a little more detail to

the whole issue of the TRQ, because it could be, and very likely is,

interwoven with the SPS issues. But it is important to U.S. wheat

and our export effort.

18

The agreement calls for 10 percent of the TRQ to be authorized

and made available to the private sector. That is what we are talking about. As I recall the agreement, at the end of September—it

is either September 1 or the end of September—that portion which

has not been used by COFCO or the government is to be made

available to the private sector.

So what we really were talking about in addressing your question is, ‘‘What happened early on in the year? ’’ These 10 percent

of the TRQs for the private sector were supposed to be announced

in January, early on in the year. Of course, then they were delayed,

and delayed, and delayed. So, the announcements were delayed.

When they were made, there was no transparency. They were not

made public, so you could neither find out if company A, B, or C

got a quota, nor could you find out how much. But they were in

very small quantities which made shipping difficult.

As we look forward over the balance of this year, we are all excited now about how much wheat they have purchased from the

United States, but I want to emphasize that those purchases have

all been made by COFCO. They have all been made by the government. That is fine. We are all happy with that. But as I pointed

out in my testimony earlier, we still are concerned about how these

TRQs will play out, how the licenses may be referred to by the sanitary and the inspection folks who receive this grain in China. So,

we are happy, but we still are very reticent to say everything is all

taken care of and behind us.

Mr. CARLSON. And I might say that in the meat industry, well,

these gentlemen are much more acquainted with rules, regulations,

and transparency than I am, but I might mention that we used to

have to deal with the gray market as an issue. China has

transitioned into a market with much greater definition of protocol

for entry and access even before the shipment leaves the point of

origin. It has been a welcome transition to get away from the gray

market, since it often was a market that was soft and was difficult

to service and maintain.

Mr. FOARDE. Let me now recognize our colleague Carl Minzner,

who is a senior legal counsel for the Commission staff, and looks

into rule of law issues for us.

Carl, questions?

Mr. MINZNER. Thank you very much. Again, I appreciate the

presence of three such distinguished gentlemen as yourselves.

I appreciated all three of you when you were talking about the

relationship with China. You noted that it is a very complex relationship. And all of you had spoken both of the work in progress

as well as advances, but you are still reticent as to certain issues.

As you know, for the U.S. Government, when policymakers have

to contemplate actions to take to address outstanding issues, there

are a range of different actions, including the extreme or the highlevel end. This is, of course, starting the WTO dispute resolution

process. Could you, first, talk generally about principles that you

think should guide the U.S. policy when it comes to deciding

whether or not to employ WTO dispute resolution processes, particularly with regard to agricultural issues?

Then particularly with regard to some of the issues you talked

about here, are there any that you think rise to the level that the

19

relevant people should start thinking about using, or start using

those processes?

Mr. FERNANDEZ. Maybe I can just start. We have worked very

closely with USTR on a number of different trade agreements and

things of this type. What we have always tried to do, and this is

with our other counterparts as well in Asia, tried to find solutions

from the technical perspective. The attempt has always been to try

to make sure that the counterparts that are meeting are technical

counterparts. Then, as we start to see that the technical issues are

not really the issues—in other words, we are not getting very far—

we begin to change the composition of our delegation. It starts to

become maybe more people from the Foreign Agricultural Service.

What we try to do, though, is exhaust the possibility so that

there is not some technical solution that we are overlooking. The

worst thing that could happen is that we start to move it up, and

then we find out that we had not asked something or had not investigated some other option. So we try to do everything we can to

exhaust the technical solutions. But there does come a point where

it is pretty clear that the issue is not technical. There is some political pressure, there is an industry group, there is something that

is keeping it from moving forward. At that point, what we try to

do is make sure that the package that we provide to FAS, to USTR,

is the most complete technical package possible. If they need someone to go with a package to represent it, fine.

I will say one thing. I will tell you the issues that we should be

very careful about bringing to USTR. I think they are very dangerous. An example would be things associated with BSE or food

consumption-type issues.

It is fraught with danger to try to force a country to accept meat

or meat products because you won a WTO dispute. What you may

end up doing is that the public in that country will feel, well, you

may have won technically, but I will not purchase that product

under any circumstances. It becomes adversarial at that point. This

is the very issue we have with Japan now with BSE. Many people

have said, ‘‘Well, why do we not just take Japan to the WTO? ’’ I

mean, there is no foundation for testing animals over 30 months.

The OIE is there. They have been very clear. That would not be

someplace we would really want to go because it might create more

of a problem. They have a confidence issue with their national government. By winning this, our case is not helped.

So, I think those would be the kinds of issues that I think you

need to find other ways of influencing how we move forward. But,

again, I know I am sounding a little like a broken record, but I

think if we can get China to continue to engage in international

setting bodies where they feel commitment and they feel engaged,

it puts pressure on them to actually fulfill their obligations as

members of those organizations.

Mr. FOARDE. Let me recognize now Selene Ko, who is our senior

counsel for commercial rule of law development.

Selene.

Ms. KO. I guess I would start by allowing any of the other panelists respond to Carl’s question. I am very interested in his question

as well.

20

Mr. DICKERSON. Maybe as a follow-up. Of course, the WTO status with China is relatively recent. I think, subsequent to the completion of the U.S.-China Agricultural Trade Agreement, over the

last several years, up until very recently, there were periods where

we were very concerned. We, as the wheat industry, were very

concerned about their living up to their agreements. Clearly, as I

mentioned in my testimony, we felt that the agreement on their

tolerance for TCK smut spores per a 50-gram sample was not being

abided by.

There were cases when some soft white wheat went into China,

and it was being detained in ports with unnecessary delays, treatments, question-mark treatments going on that made those in the

private sector who would otherwise import that wheat very reluctant to do so because they knew their money would be tied up, or

perhaps they would never even receive the wheat. We were becoming very frustrated with this process.

That is, essentially, as of today, in the past. It is past tense. It

got to the point where I am sure some in our industry were prepared to elevate this thing to a WTO issue. Today, in my judgment,

at least, we are going through a phase of great optimism. They

have disclaimed publicly at the highest levels any further concern

about TCK. Are they going to live up to those statements? They

now have made very large purchases of soft white wheat, as well

as hard red spring wheat, to be shipped off the West Coast.

Our position today would be, let us play through this thing and

see how things go. We are not totally convinced that our problems

are behind us, and we want to see that grain arrive in China and

be distributed. We want to see how it is off-loaded, how it goes into

the distribution system, then make further judgment. But right

now we are in a mode of, ‘‘Let us see how this plays out and let’s

give them the benefit of the doubt until we find out where we are.’’ Mr. CARLSON. May I address your question on BSE? It gives us

an opportunity to focus again on science and to urge them to implement a risk assessment just as quickly as they can. Our message

should be: ‘‘Be sure that it is sound, science-based and not ‘political’ science.’’ It gives us a great opportunity to thank APHIS, thank USDA,

and thank FDA for implementing new firewalls and safeguards. We

can absolutely say that our food supply is safe and wholesome, and

that any risk assessment will verify.

I was rather alarmed when I read, in preparation for this hearing, that we have not had any government officials—high government officials—visiting China, urging them to open their borders

and to relax their ban on beef. So, it would be a good opportunity

for us to suggest that high-level USDA officials should visit China

in an effort to open that market.

China is a huge, giant, and growing market and therefore would

be very appropriate that China show its leadership by opening

their market.

Mr. FERNANDEZ. Could I make one final point on WTO dispute

resolution, and also just make a comment with regard to high officials going to China?

One of the things you need to remember is that WTO dispute

resolution always seems like a silver bullet, but you have got to be

21

ready to go for the long slog. The industry has got to be prepared,

and you have to have a pretty good case, air-tight, bullet-proof. So,

it is not as easy as that, sometimes.

Finally, there has been, I know, some discussion about officials

going to China. Our administrator, Mr. Bobby Accord, was in

China in January after the BSE case. He did bring up this issue

on various occasions with our counterparts, tried various ways to

try to get them to separate from the other Asian countries in their

perspective as far as the reaction to our BSE case.

So, we continue to dialog with our counterparts. If they indicate

to us that one of our officials could possibly make a difference, then

a senior official gets on a plane. I mean, there is no doubt about

them going over there. So, just so you know, Bobby Accord retired

this very week, but had gone over there in January.

Ms. KO. Could I ask just a quick follow-up? Are there any issues

that you think that are actually ripe for pursuit through WTO dispute resolution? I know you just emphasized how important it is

to have a very tight argument and being ready for the long haul.

Mr. FERNANDEZ. One of the staff folks has handed me a note regarding fireblight. This is one that has been a longstanding issue,

not just with China, but with various countries. We have been able

to actually resolve it with various countries. It is one of the many

blight diseases that we have. So, this could be one of the diseases

that we might engage or consider for WTO dispute resolution.

Again, before you go to WTO, there are some fora that start to

lead up to formal dispute resolution. So, it is a question sometimes

of starting to elevate the issues to these fora first. Even the fact

that you begin to put together the kinds of information that

USTR—Mr. Dick White, who is here also, helps to put those together—just the fact that you are putting it together starts to attract the kind of foreign government attention that is needed. But

for us, I think that might be one issue that APHIS would consider

for WTO dispute resolution.

Mr. FOARDE. Your comments, Peter Fernandez, dovetail into the

question that I wanted to ask. You mentioned the symposia that

you have been having on a bilateral basis. I wondered if you could

go into those in a little bit more detail and tell us if you think that

either they are, or they might become, a more effective vehicle than

some of the multilateral fora for resolving SPS issues.

Then, without necessarily trying to predict the outcome, because

I know that is tough, tell us if the forum is going to meet in April,

and who might be coming, and what issues might be on the agenda. I think that would be very useful for us.

Mr. FERNANDEZ. Right. As we said, I think these symposia are

extremely important because they do a couple of things. One, they

create a scientific network. The folks that have the technical background in our country begin to develop that network with other

countries that you are trying to work with. I think that one of the

more important things about regulations and regulatory science, if

you would like to call it that, is there needs to be a sense that

there is trust. That is the basis, many times, for how these things

have to work in a practical sense. So, these symposia start to create that camaraderie, that feeling of a network.

22

Obviously, it is a forum to exchange views, technical perspectives, new mitigations that we have developed, processes, regionalization, risk assessment techniques, all of these things. These are

forums in which you can start to begin to create that dialog, and

hopefully they then take it to the next step, which is to start to incorporate those things into the regulatory process. So, we felt that

that was an important way to do that.

With regard to the meetings in April, we understand there are

some meetings in April of the Joint Commission on Commerce and

Trade [JCCT]. That is the meeting you are talking about. Our

understanding is that Secretary Veneman will be leading the U.S.

agricultural delegation. At this time, we have been working to see

exactly what the composition of the delegation is going to be, and

what some of the issues are that we will bring up. I have mentioned some of those issues today. For the United States, the issues

are the QIPs, the Quarantine Import Permitting issues; the request

that China lift the BSE-related ban on non-bovine products and

low-risk bovine products; a request that China regionalize Texas

avian influenza, which we feel would also be in keeping with the

OIE regulations.

They are asking us about various issues, too. I think we need to

be very clear that there are important issues for them, too. For example, removal of U.S. import suspension on Chinese origin Ya

pears, which comes up every time we sit down with our counterparts; finalization of the work plan authorizing importation of five

varieties of Chinese origin tenchin, a growing media. Again, these

are ongoing technical meetings that are in process. The regulatory

process is moving these along.

The Chinese have also asked for market access for chilled poultry

to the United States, and apples and citrus to the United States.

Many times it is very difficult, because we find with our counterparts, they say, ‘‘All right, let us both abide by the OIE,’’ and the

OIE says, ‘‘This is what you need to do for these products.’’ But you

need to go back and say, ‘‘Yes, but our risks for these are different.

We have to start by saying, what are the pests that you have, what

are the pests that we have for these products? ’’ Many times they

feel, well, if you ask for this, then I have to ask for that, not starting

from the point of, we have to first assess our country’s risk status.

Sometimes it is infrastructural, sometimes it is simply bioecologic.

So, that is where we need to start, I think.

One of the other things is that we have a follow-up symposium

coming up this fall. We have a follow-up to the other symposia we

had, and hopefully we will begin to develop that trust and that network so we can move some of these issues forward.

Mr. FOARDE. Our understanding of the JCCT is that Madam Wu

Yi will lead the Chinese delegation overall. Having somebody of

that stature and clout is a way to move some of the political issues

along. So, God willing, you will make progress in your own talks.

Let me recognize Dave Dorman for another question.

David.

Mr. DORMAN. I have a process question that would be very helpful to me, and I hope for others. I will choose the BSE ban as the

starting point.

23

First, a question, just to make sure that I understand things

correctly. As it stands right now, the U.S. beef supply, including ingredients derived from cattle tissues, are in accordance with internationally recognized standards regarding sanitary measures. Is

that correct?

Mr. FERNANDEZ. For BSE?

Mr. DORMAN. For BSE, or in general.

Mr. FERNANDEZ. Yes.

Mr. DORMAN. All right.

Mr. FERNANDEZ. We process beef in a hygienic manner.

Mr. DORMAN. Good. What I am trying to understand is, with that

piece of information, which I am assuming is scientifically-based,

when a country like China, or any country, institutes a ban, do

they do it on the basis of their own domestic health standards?

Does this mean they ignore internationally-recognized standards?

So, that is the first part of the question.

The second part refers back to Mr. Carlson’s comments on Japan

relating to China’s position on its BSE ban. Has USDA also heard

the same sort of response or are there Chinese standards that we

simply have not met?

Mr. FERNANDEZ. Yes. First, with regard to the first part of your

question, it is not just the hygienic manner in which we process the

meat. What has changed was the detection of an imported case of

BSE in the United States. That is what triggered the closure of

meat imports by many countries, especially in Asia, because of

BSE.

So, under those circumstances, what China and many countries

are basically saying is that the risk for BSE in the United States

has changed. We are no longer a country that is free of BSE, but

would fall into some other category. The OIE is very clear about

what the conditions are that you need to meet for being in various

categories. It is up to the country to designate what category they

think you would be in. It has been difficult to get countries to actually do that. Part of the problem is, as has been mentioned by Mr.

Carlson, the issue of surveillance. Many things that we have in

place have been very effective. We have tried to impress upon our

counterparts that, in fact, as the Harvard risk assessment has

shown, we are 44 times more likely to find an indigenous case of

BSE in the United States than an imported case. So our risk, we

feel, is extremely low.

How are we going to settle this issue of BSE? Through this aggressive surveillance program that we have proposed this month.

We feel that this will be the way for us to find a way out of this

issue and put to rest concerns about the true risk that exports from

the United States would pose to any country. Having said that, I

am not implying that we need to wait for that surveillance to take

place. There are mitigations that are internationally recognized

that can be put in place and that the United States, in fact, is trying to incorporate into its regulations to allow safe trade in meat

and meat products to continue. So, I think that is kind of where

we are with the Chinese.

What they are saying to us is not that we are not doing it hygienically. They are just simply saying that our status has

changed. Now what we need to do is tell them, ‘‘Let us go to the

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next step. Here is the information that you need to assess us.

Based on that, you need then to allow us to start to mitigate risks

for the risks you say we might have.’’ That has been the difficulty.

Mr. DORMAN. Is the surveillance system being put into place

based on an international standard or model, or are we exceeding

these standards?

Mr. FERNANDEZ. We, in fact, are exceeding the OIE standard by

quite a bit. What we have tried to do in the past, we had exceeded

in the past by about 40 times the surveillance level. Now, this was

at the level of about 20,000 animals a year, high-risk animals in

the high-risk group.

But I think what happens with many of these issues is that consumers and trading partners begin to feel that the numbers are not

there. So, what we have done is that we have said, ‘‘All right, we

are going to ratchet this up as a result of the risks that we have

had with Canada in May, and now in December with our case.’’ What we want to do is find a level that is based on valid biostatistics. So, in this case we are going to be able to find one case in 10

million animals at a 99 percent confidence level. We do not think

that there are any countries that have actually been this aggressive.

In fact, the international review team, which is made up of many

members from the EU, saw our plan. They approved it and thought

it was very aggressive. They said, ‘‘This will definitely find it. If

you have got cases of BSE in the United States, you will find them

with this plan.’’ That is what we need to give that kind of assurance.

Then we would go the extra step with China, if we could get

them to at least accept some of our products, and say, ‘‘Now we fall

into an even freer category. So whatever we have told you you can

mitigate is not even necessary because our status is even better

than what we told you it was or negotiated before.’’ Mr. DORMAN. Mr. Carlson, did you want to respond?

Mr. CARLSON. I think Peter has done a really good job of explaining it.

Mr. DORMAN. Good. Thank you.

Mr. FOARDE. Dale Nellor, another question?

Mr. NELLOR. Asian soybean rust has become a big issue in Brazil

and it is starting to pick up a lot of ground and print in the United

States. With China’s recent announcement to have certificates for

products in the biotechnology area, how do you see that playing in

the future?

Mr. FERNANDEZ. Soybean rust is an important issue, of course,

to the United States. We take this issue very seriously. It is also,

as it turns out, one of the select agents on our agents of concern

that we have worked on with the Department of Homeland Security and CDC.

We also are aware that—as you all may know—that this is a disease that has been on the move for some time in South America.

We have tried to do various things in the area of research for types

of soybeans that would be resistant. We are looking at modeling for

how it would come into the United States. We know that it will

probably come in to the United States at some point. I make that

point because what we need to be careful of here is that we do not

25

impose regulatory restrictions on soybeans that may come back to

cause problems for us later on.

Everybody probably remembers the karnal bunt situation. We

had put some very strict ideas out there about how to treat countries that have karnal bunt. When we received it, we found ourselves in the very difficult situation of trying to figure out how to

get out from under that self-imposed regime.

I guess what I am saying is that the important thing with soybeans and what we are looking at, the other area that is very important, is how do we mitigate the risks? Soybean meal is not an

issue, but soybean seed and soybeans. Those we feel are the two

riskiest materials that could possibly bring this in through imports.

Imports of soybean meal we still feel, are a very low risk. Of the

different pathways that we could get soybean rust into the United

States, imports of soybean meal are probably very low risk.

Nonetheless, we sent a team just recently to Brazil to work with

our counterparts. This is one of those tricky situations where your

counterparts think you are simply coming over to figure out how

you are going to stop their imports. But we have gotten in

EMBRAPA, which is the Agricultural Research Service’s Brazilian

counterpart, to meet with us. We are trying to work with them. We

are trying to find ways. We are basically saying to them, ‘‘You

trade in soybeans, we trade in soybeans. Let us find a solution to

this so we do not have problems in the future, either of us.’’ How do we do that? We have been working with them on ways

that we can mitigate spores associated with this disease, whether

it be with soybeans, soybean seed, or any of these products. The

preliminary results coming back indicate that there are some methods, some mitigations, 2-week holds, things of this nature, that will

mitigate any risks associated with it. What we have at hand now

is that we allow 2 percent or less green leafy material associated

with soybeans, and that has mitigated much of their risks associated with this. But we are continuing to work on this issue. It is

an important issue.

China is another country, of course, as you bring it up here. They

are another big importer and they are also in the market for soybeans. So, we are trying to make sure that whatever we do is something that is acceptable internationally also.

Mr. FOARDE. Do you have a follow-up?

Mr. NELLOR. Yes.

Mr. FOARDE. Please.

Mr. NELLOR. Thank you for bringing up that point about the decisions that we make, how they can affect us in the future. As relates to the BSE situation, I think there are a lot of countries

worldwide that are in the position they are in today because of

decisions they have made as a result of what happened in Europe.

They may have gone to all extents to keep BSE out of their country, and meat from BSE countries out of their country, and now

they are set up with a situation that they probably never expected

to happen with the U.S. So, that is a very important point and we

need to keep that in mind.

Mr. FERNANDEZ. Yes. BSE is the perfect example of that. I think

we need to also remember, we are sitting here now in 2004, but

in 1989, or the early 1990s, we did not know what BSE was. I

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know that many of us wanted to change the regulations quickly,

because we started to get the kind of science you need to make

those modifications. But we put those in place because we did not

know a lot of the science, so unfortunately our system is rather

cumbersome at times.

Our regulatory system is cumbersome. We were kind of strapped

with this issue. But I think, as you say, we need to make sure that

we can live with the kinds of things we expect from our counterparts because we may very well find those things applied to us in

similar situations.

Mr. NELLOR. Thank you.

Mr. FOARDE. Do either of the other panelists want to comment?

[No response].

Susan Roosevelt Weld, for another question.

Ms. WELD. Thanks, John. Apart from transparency, one of the

things we look on in the development of the rule of law in China

is implementation. You all probably deal with people at the center.

I wonder if you find that some of the agreements made by people

at the center are not implemented by lower level personnel. For example, the anecdote about the ships coming into the port and being

held might be a local decision rather than a central decision.

Is this a problem that you have come across? Is that something

that you have seen?

Mr. DICKERSON. Yes. In the case of wheat, that has very much

been a problem over the last couple of years, where in the Agricultural Trade Agreement provided for, as I told you, the tolerance for

TCK in soft white wheat, or any U.S. wheat, for that matter.

So, at a higher level here was the expectation of an implementation of an agreement, which we expected to be lived up to. But, in

fact, once those cargoes arrived at port, at their ports in China, it

was as though some of the quarantine people, the inspection people

had not heard about that agreement. Why that occurred or why it

did not occur in terms of the coordination, the proper orders coming

in from Beijing to implement this agreement, is open to conjecture.

But certainly it has been a problem with wheat, yes.

Mr. FERNANDEZ. I would just say exactly the same thing. I think

we have found that to be true, that somehow those decisions do not

filter down to the people who actually have to implement them, especially in ports.

That is one of the reasons why we want to put this USDA person

in Shanghai. One of their jobs will be not only to try to help gather

information and try to build infrastructure for surveillance, but

also to try to resolve some of those issues right on the ground, develop the network with the folks that actually are in those different

ports where most of our products come in, to try to quickly resolve

them right there on the spot.

Ms. KO. I just want to ask a question about the international

standards that you addressed, Dr. Fernandez. What kind of efforts

are China’s trading partners and the international organizations

that are producing these standards making to help China understand what their responsibilities are? Are there any efforts to help

China build its capacity with respect to those rules and are they

seen as successful?

27

Mr. FERNANDEZ. Yes, on various fronts. First, in the area of just

trying to become full members. As I said, the director general of

the World Organization for Animal Health, OIE, Dr. Vola, has

made various visits. But this last one, he feels, hopefully will be

the most fruitful visit to try to get them to actually participate. The

OIE is broken up into regions. So, we have an Americas region. I

am the president for the Americas region. The president for the

Asian region is Dr. Gardner Murray. Dr. Murray accompanied Dr.

Vola to China with the express purpose of trying to not only encourage them to join the OIE, but to express to them how we would

help them understand the rules, how to vote, what the issues are,

all of the issues that you need to be able to understand to be a full

participant in the OIE general session in May, and, more importantly, the actual work that goes on behind the scenes to create the

International Terrestrial Animal Health Code during the whole

year.

So, we have also spoken about using our symposia to help in

these efforts also with China. How do we incorporate the international standard setting issues in the actual symposia? Because

that is the basis. That is what we want countries to use. If they

need to turn to someone, we would prefer them not to turn to

Japan and their restrictions, but to the OIE. What the OIE says

should be the rules for how to engage, or disengage, in product exchange.

Mr. CARLSON. I might comment on a level far below these two

gentlemen about Chinese officials that I have an opportunity to

work with. That is, from time to time, I have the opportunity to

meet with representatives of the Ministries of Agriculture and

Commerce of China. That has to help, to bring the issues to them.

We also invite their representatives to come to the United States,

and that is good. It is essential to developing that trust and those

relationships. Relationship-building is not a one-time contact, it is

a 6, 7, 10, or 12 times set of contacts, building that level of trust

and those levels of relationship.

So those are just some of the things that can be done way down

at the level much lower than these gentlemen work on that we try

to work on.

Mr. FOARDE. Very good. We have had a fascinating conversation

this morning. Thank you, all three, for sharing your expertise with

the Commission. This is really going to help us to look at these

issues clearly.

On behalf of Senator Chuck Hagel and Congressman Jim Leach,

our co-chairmen, and the members of the CECC, thanks to Peter

Fernandez, Paul Dickerson, and Merlyn Carlson.

I would remind everyone that we will be back here next week for

a look at commercial rule of law development in China at 10:30

a.m.

We will now bring this session to a close. Thank you all.

[Whereupon, at 11:30 a.m. the roundtable was concluded.]

(29)

A P P E N D I X

30

PREPARED STATEMENTS

PREPARED STATEMENT OF PETER FERNANDEZ

MARCH 26, 2004

Thank you very much for asking me to take part in this roundtable discussion

this morning. My name is Dr. Peter Fernandez, and I am the Associate Administrator of the U.S. Department of Agriculture’s Animal and Plant Health Inspection

Service, or APHIS.

Within USDA, APHIS is charged with protecting the health of U.S. agriculture.

In doing so, our Agency works to prevent foreign agricultural pests and diseases

from entering the country through regulatory controls, the development of sound

animal and plant health policies, and anti-smuggling programs aimed at keeping

risky agricultural products out of the United States. The Agency also conducts domestic surveillance and monitoring programs for serious pests and diseases and

works with State and industry cooperators to eradicate economically significant

ones. These activities allow us to ensure that U.S. agricultural products are healthy,

abundant, and welcomed in international markets.

As the primary Federal agency that addresses animal and plant health issues,

APHIS also plays an important role in international trade. Officials with our Agency

convey information to U.S. trading partners regarding the pest and disease status

of U.S. livestock, meat products, plants, and plant products. In turn, we also evaluate the same information submitted to our Agency by other countries when they

want to export a new agricultural product to the United States. APHIS evaluates

such requests by analyzing the information submitted to us; working to collect and

evaluate related scientific data; preparing risk assessments that evaluate any potential pest or disease risks to U.S. agriculture; and then, if appropriate, conducting

public rulemaking to change our import regulations to allow the animal or commodity to enter the United States in such a way that any pest or disease risks are

mitigated.

In a nutshell, this is how APHIS conducts our business when it comes to international trade, and, generally speaking, it is also how our trading partners operate.

I am able to say this because APHIS, as well as our counterparts in many other

countries, all work under terms outlined in a very important international trade

agreement—the World Trade Organization’s Agreement on Sanitary and

Phytosanitary Issues. In the international trade arena, sanitary and phytosanitary

issues, commonly referred to as SPS issues, are the technical terms for animal and

plant health issues.

The SPS agreement is critical to APHIS’s work because it allows us and our trading partners to speak a common language when discussing trade issues. The SPS

agreement encourages cooperative, instead of competitive, work. It has been our experience that the agreement is a highly useful and effective tool for opening new

markets and making other important agricultural decisions. The agreement allows

governments to take necessary protective measures with regard to imports of agricultural products based upon sound science. However, it also provides the rules and

structure to prevent the arbitrary use of such measures to impede trade.

As I said a moment ago, APHIS officials have the needed technical expertise and

regulatory authority to address SPS issues. For instance, APHIS personnel with our

Veterinary Services, Plant Protection and Quarantine, and International Services

programs assist U.S. agricultural exporters by negotiating the plant and animal

health requirements for U.S. products destined for foreign markets. They also review the scientific merits of other countries’ agricultural health requirements and

issue the necessary health certificates to accompany U.S. shipments. APHIS also

meets constantly with our counterparts on a bilateral basis to help negotiate resolutions to technical disputes, and we are also active participants in international

agricultural health standard-setting bodies like the International Plant Protection

Convention and the International Office of Epizooties.

APHIS’s trade support activity has increased tremendously in recent years as a

result of trade liberalization and international trade agreements. Quite simply, agricultural health issues are important to every nation’s ability to seek and maintain

international trade markets. Through trade agreements, the United States strives

to open markets for U.S. producers. However, as trade agreements open the potential for trade, agricultural health issues emerge as critical hurdles that need to be

cleared if active and reliable trade is to occur. This is precisely APHIS’s job—to supply the technical agricultural health information that our colleagues with the U.S.

31

Trade Representative’s Office, USDA’s Foreign Agricultural Service, and other Federal agencies need.

APHIS officials work on critical SPS issues during trade negotiations with other

countries and also during interruptions to trade caused by domestic situations in

the United States. As you all know, international agricultural markets are highly

sensitive to pest and disease outbreaks, and such situations can significantly affect

access to those markets. Take, for example, the impact that the detection of BSE

in Washington State in December has had on U.S. beef exports, not to mention the

impact of the recent detections of avian influenza have had on the U.S. poultry export market. Considerable USDA efforts and resources have been committed to addressing these diseases domestically, as well as to conducting export negotiations to

retain market access for U.S. poultry and poultry products.

With that background, I’ll turn now to more specific SPS issues APHIS is working

to address with China.

China’s accession to the WTO in November 2001 was accompanied by a great deal

of excitement: new export opportunities were expected to emerge, with significant

gains particularly in the area of fresh produce. Almost 3 years later now, some of

these new market opportunities have been realized by U.S. producers, but others,

due to SPS concerns expressed by Chinese officials, have stalled.

To meet these SPS challenges, APHIS has actively engaged our Chinese counterparts at the technical level. In 2003, our interaction with the Chinese increased significantly as we relocated our regional office for Asia from Tokyo to Beijing. APHIS

now has two Foreign Service officials working in Beijing and is slated to post a third

Foreign Service officer at a new office in Shanghai. The new Shanghai office will

be specifically responsible for monitoring the status of plant and animal pests and

diseases in Chinese ports and production areas that ship agricultural products to

the United States.

Also, last year, USDA Under Secretary for Marketing and Regulatory Programs

Bill Hawks and APHIS’s Administrator hosted the first U.S.-China Plant and Animal Health Regulatory Symposium in Beijing. This Symposium was designed to

begin consistent, effective dialog between regulatory officials from the United States

and China. Agenda topics included a range of different issues related to agricultural

health and trade, and the meeting was very successful.

In addition to our annual SPS bilateral meetings with China, APHIS is also working to schedule routine monthly meetings with appropriate technical counterparts

from China to help resolve outstanding SPS issues in a timely manner. We believe

strongly that regularly scheduled monthly bilateral technical meetings will be an

effective way to sustain our dialog with China and help bring about mutually agreeable resolutions to outstanding SPS technical issues.

In the last several years, working in this way, we’ve achieved some notable accomplishments. U.S. citrus (with continuing dialog on China’s prohibition on imports

from 4 counties in Florida) and tablestock potatoes from Alaska are now shipped

to China. In terms of imports, APHIS has approved the entry of longans and lychees

from certain areas in China.

Under Secretary Hawks likes to say that agricultural trade is a two-way street.

In similar fashion, APHIS’s experience in working with China on SPS issues has

been that our accomplishments have been equaled by a number of significant challenges. As I mentioned a few moments ago, we are working very hard to convince

China to ease their restrictions on U.S. beef and poultry, and we also continue to

supply China with information attesting that U.S. stonefruit and potatoes from the

Pacific Northwest do not present any pest risk to domestic Chinese agriculture. For

their part, Chinese officials have requested that APHIS consider allowing imports

of Chinese apples, and China also expressed a great deal of concern after APHIS

suspended that Ya pear export program last fall due to detections of an exotic

Alternaria on imported fruit being sold at commercial markets.

APHIS will continue to address these SPS issues with China in the way I described a few moments ago—by continuing our dialog and actively engaging our

counterparts on technical issues. APHIS will participate in a U.S.-China Plant and

Animal Health Technical Planning Session next month, followed by technical talks

in China on phytosanitary issues associated with exports of U.S. soybeans. Tentative arrangements have also been made to convene the first U.S.-China Animal

Health Bilateral Technical meeting in May in Ft. Collins, Colorado.

We all know that in terms of SPS issues, China is a ‘‘work in progress.’’ As in

any trade relationship, there has been progress with China on SPS issues, and there

have also been a number of setbacks. But with these thoughts in mind, APHIS is

staying engaged with our Chinese counterparts and we continue to encourage China

to participate fully in international agricultural health forums by becoming full

members of the International Plant Protection Convention and the International OfVerDate 11-MAY-2000 13:10 May 28, 2004 Jkt 000000 PO 00000 Frm 00035 Fmt 6601 Sfmt 6621 93222.TXT China1 PsN: China1
32

fice of Epizooties. We feel very strongly that these steps will help to improve our

relationship with China on SPS issues.

With that, I will turn things over to the other participants. I look forward to

answering any questions you may have. Thank you.

PREPARED STATEMENT OF MERLYN CARLSON

MARCH 26, 2004

Thank you for inviting me to address you today. It’s a privilege to speak to you

on such an important topic.

I have been asked to share with you information about the effects of the Chinese

ban on U.S. beef imports following the finding of a single case of BSE in the United

States. Like over 50 other countries, in late December China chose to shut its borders to live bovine and any related products from the United States.

Our U.S. negotiators have been working to re-establish trade, and we applaud

their efforts. But they have not met with success, and we are told that Chinese officials continue to indicate they will take their cues from Japan.

I do not believe this to be in the best interests of China. Japan has made animal

testing demands that are not based in science or practical experience, and negotiations are ongoing. While Chinese trade negotiators look to Japan for cues, consumers in China have indicated they still want United States beef. The Nebraska

Department of Agriculture’s Ag Promotion and Development Administrator Stan

Garbacz returned last Friday from a trip to Beijing. While there, he had numerous

opportunities to visit with beef importers, restaurant owners and citizens, in addition to his governmental appointments.

Mr. Garbacz summed up his trip by saying it was ‘‘depressing and frustrating.’’

On the positive side, he said he was unable, during his numerous appointments, to

find anyone that is concerned about potential health issues connected to United

States beef consumption. Instead, what he found, were individuals who believe in

the safety of our food supply and were clamoring for more of our product. The depression and frustration stem from the knowledge that our customers are ready and

willing to accept product, but the Chinese government won’t allow it.

Some of these Chinese companies get over half of their meat products as imports,

and they generally recognize that the United States has a better quality product

than other beef producing nations. These companies have been allowed to use U.S.

beef product that was in their freezers prior to December 23rd, but as those supplies

have dwindled, these companies are gradually going out of business. So, not only

are we unable to service existing customers, but we are losing these potential outlets permanently when they close their doors.

I personally also had the opportunity to travel to China earlier this year. I took

it upon myself to visit with consumers there about U.S. beef, and I must tell you,

I was pleased with the responses I received. In the wake of the Washington State

BSE case, consumers told me they were hoping U.S. beef products could be made

available again as soon as possible. Like the company representatives Mr. Garbacz

spoke to, these consumers expressed a belief in our food safety system and desired

U.S. meat over that of other countries.

What our experiences tell me is that China must consider the needs of its own

citizens. The United States should continue to encourage Chinese government officials to use science in its decisionmaking process. It is China’s obligation as a member of the World Trade Organization, and it is what its citizens want. As a point

of digression, I want to note that the Chinese government recently highlighted its

openness to using scientific principles in considering major policy decisions. Last

month, China announced approval of permanent safety certificates for a number of

biotechnology crops. This is encouraging, and it would be my hope that a similar

route will be followed in addressing the BSE situation.

If Chinese officials look to science for answers regarding BSE, I believe they will

find that Nebraska, and the United States, can provide them with the quality and

safe beef products they desire. Even before December 23, the United States had in

place a number of protective measures to lessen the opportunity for occurrence of

BSE in our cattle population. We’ve had a surveillance program in place since 1990,

we’ve banned imports of cattle and bovine products from countries with BSE since

1989 and, most importantly, we’ve had a ban against feeding ruminant-derived

meat and bone meal to cattle since 1997. Feeding of such products is generally

agreed to be the principal means of transmission of BSE.

In addition to these points of action, since December 23rd, USDA and FDA have

implemented a number of actions to further bolster protection against BSE in our

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beef production system and in our food supply. For example, non-ambulatory or disabled cattle and specified risk material are now banned from the human food supply. Mechanically separated meat also is now prohibited from use in the human food

supply.

Animal feed production rules have been changed also. For example, to prevent

cross-contamination issues, facilities must have production lines that are dedicated

to non-ruminant animal feeds if they use protein that is prohibited in ruminant

feeds.

Just last week, USDA Secretary Ann Veneman announced an enhanced surveillance program as a means of making a thorough assessment of the status of the

United States herd. This action was taken at the suggestion of an international scientific review panel, which reviewed USDA’s response to the BSE case. Animals of

high risk will be focused on, with USDA’s goal to obtain samples from as many of

these types of animals as possible. They will also obtain samples from animals that

appear normal, but are older, since science has shown these have a greater likelihood of having BSE than cattle under age 30 months.

While the enhanced USDA and FDA activities should serve as more than enough

scientific justification for opening the borders to trade, states like Nebraska are

moving ahead with their own efforts at further disease protection enhancements.

Even before the December 23rd announcement, the Nebraska Department of Agriculture had stepped up its contact with feed manufacturers and animal rendering

facilities in the State to raise awareness about BSE issues at their level of the livestock production chain.

The Nebraska Department of Agriculture also has moved ahead aggressively with

the development of a statewide animal tracking system that we intend to be compatible with whatever plan is eventually implemented nationwide. Our model at

present focuses on the beef industry, although other species will be added later. It

will ontain both premise identification and individual animal identification

components.

The primary goal of the system is traceability for protection against and reaction

to diseases issues like BSE. However, we also intend to utilize this beef tracking

system for marketing purposes. The idea is to work in conjunction with partners in

the beef production cycle to create a closed loop, farm to fork tracing system.

Nebraska has chosen to move forward in the animal traceability arena because,

frankly, we have a great deal to lose if foreign country borders remain closed to U.S.

beef products. Already, the effects are apparent. For example, Nebraska generally

is known for leading the Nation in commercial cattle processing. A report released

just last week by USDA highlights a 7 percent decline nationally in beef production

during February compared to February 2003. In that same report, Nebraska slid

from first place to second in total cattle processed. Our packing plants have had to

cut jobs—some of them, hundreds of jobs—as we continue to deal with the impact

of lost overseas markets.

I believe the beef industry in the United States, and Nebraska, has shown its desire to provide China and other U.S. beef importing countries the tools necessary

to engage in a thorough risk assessment regarding the beef trade. Given that many

countries still have hesitated to recognize our enhanced animal disease protection

measures, China has an important opportunity to distinguish itself as a leader. We

are hopeful that the country’s officials will recognize this and respond to the needs

and desires of its citizens and food industry representatives.

Thank you for allowing me to share our Nebraska perspective. I welcome any

questions you may have.

PREPARED STATEMENT OF PAUL DICKERSON

MARCH 26, 2004

Thank you for this opportunity to discuss the U.S. wheat industry experience with

trade to China. First, if I may, I’d like to give some background on U.S. Wheat Associates (USW) and my experience in grain trading.

USW does not buy or sell wheat. Our job, since the 1950s, has been to develop

and maintain export markets for American wheat. We are the marketing arm for

the American wheat farmer, and over the years we have worked in nearly 100 countries. Our expert staff has a depth of knowledge on wheat issues that is unmatched

anywhere else in the world. We receive a third of our funding from wheat producers,

through checkoffs funneled through our 20 member state wheat commissions, but

the remaining two-thirds of our budget, including all of our overseas work, depends

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on USDA’s Foreign Market Development program and the Market Access Program.

We simply could not do our work without that support.

As vice president of overseas operations for U.S. Wheat Associates, I direct the

market development activities of USW’s 15 overseas offices. I joined them in 1992,

first serving as regional vice president of the South Asian region in Singapore, and

then moving to the Washington D.C. office in 1995.

I was General Sales Manager and Associate Administrator of the U.S. Department

of Agriculture’s Foreign Agricultural Service between 1989 and 1991. Previous to my

work at USDA, I’ve been a consultant and marketing agent in the Pacific Northwest, and was president and chief operating officer of Columbia Grain, Inc. in Portland, Oregon. I’ve also worked for Cargill and Cook Industries, Inc., both in the

United States and several overseas locations. In total, I spent the first 26 years of

my career in the private sector in various grain trading and management positions.

I’ve been very lucky to view wheat trade from all of these perspectives—from private grain trade, from government, and from a commodity organization. And it’s

been fascinating to be involved, from those angles, in the long and difficult history

of U.S. wheat trade with China.

As you know, the U.S. agricultural community, including the wheat industry and

the trade, was very supportive of China’s admission to the WTO. While the outlook

for significant wheat export opportunities looked promising, however, the results

were initially quite disappointing.

Until very recently, the U.S. wheat industry faced continuing problems. While

China reduced its old carryover stocks, which were more than needed, it used various devices to curb exports from the United States of quality wheat that its end

users could import without a series of trade barriers.

There were three chief areas of concern affecting access to China’s market:

1. Tariff Rate Quota implementation for the private sector was inadequate, in that

individual allocations were too small, and there was no transparency. Companies

had to combine TRQs in order to get a commercially viable volume.

2. Licenses, that were supposed to be issued by the State Administration of Quality Standards, Inspection and Quarantine (AQSIQ) for commodity imports, were

given for a limited period of time, which discouraged purchases.

3. Sanitary and phytosanitary barriers relating to TCK—a wheat smut—continued to be a problem, despite the Agriculture Trade Agreement that was reached in

1999, ending a trade dispute that began in 1972.

The story about how this phytosanitary dispute over TCK evolved and was resolved is a long saga, which I will not go into today. Let me just point out that,

after decades of the best efforts of scientists from the U.S. Department of Agriculture and the wheat industry, an international panel conducted an independent

pest risk assessment (PRA), following guidelines established by the UN Food and

Agricultural Organization and, in May 1998, the PRA was presented to Chinese officials.

The public response to the PRA from the Chinese was, essentially, silence . . .

until WTO talks began.

When negotiations between USTR and the Chinese government began in earnest

in 1999, we were grateful for USTR’s support on the U.S. wheat industry’s position:

that there could be no WTO agreement without resolution on the TCK issue.

On April 9, 1999, the USTR announced the agreement that would allow U.S.

wheat imports from any state to enter any Chinese port. The agreement allowed

wheat imports that do not exceed a tolerance level of 30,000 TCK spores per 50

gram sample, a level that is easily met by U.S. wheat. That agreement was translated into Chinese,and the USTR and Chinese officials officially ‘‘confirmed’’ that

version in early December 1999 while the countries were in Seattle for the World

Trade Organization meeting.

Finally, in early 2000, the China National Cereals, Oils and Foodstuffs Corporation (COFCO), the official government buyer, announced their purchase of wheat,

including wheat from the Pacific northwest. It was the first largely unrestricted

commercial cargo of northwest wheat to be shipped to the Peoples Republic of China

in 27 years. The bulk carrier ‘‘Miyama’’ left the Columbia River on June 2, carrying

52,678 metric tons of wheat: 30,000 MT of soft white wheat and 10,000 each of hard

red winter and hard red spring.

Resolution to the TCK issue was absolutely vital to U.S. exports of wheat. With

the agreement and with permanent Normal Trade Relation status for China, the

United States could increase total wheat exports up to 10 percent each year.

There is a huge market potential for U.S. wheat in China. Between 1985 and

1995, on average, China imported 10 million tons of wheat each year (ranging from

4 to over 15 million tons), relying on imports during this time for just over 10 perVerDate 11-MAY-2000 13:10 May 28, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6601 Sfmt 6621 93222.TXT China1 PsN: China1
35

cent of its wheat needs. But then their domestic wheat production improved dramatically, and imports dropped steadily since 1996—until this year.

China has drawn down its wheat stocks in recent years, most recently with domestic sales of nearly a million tons of old crop. They now produce about 86 million

metric tons annually (for comparison purposes, the United States produced 64 MMT

during the current crop year), but their consumption is estimated at 105 million

metric tons. These three factors—lower stocks, lower production, and steady demand—now come together, forcing China to import wheat in much larger quantities

than in the past several years. This ‘‘draw down’’ in stocks has brought China back

to the market as their domestic prices have increased.

China is buying wheat from the United States, purchasing nearly three million

metric tons this year and next year. And COFCO representatives say there is more

to come. But the question, until recently, was whether they would truly honor the

agreement on TCK. Would they buy from the Pacific Northwest ports? Would they

ship? Would they continue to discourage their buyers from purchasing wheat from

the United States? And would they offload that wheat and put it into domestic

circulation?

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Last month, representatives from COFCO conducted a whirlwind U.S. buying

tour. Before beginning its rounds of meetings in Washington, Chicago and Portland,

however, the COFCO team graciously agreed to meet with members of the U.S.

media in the nation’s capital. The chairman directly addressed concerns about

whether TCK was still an issue in purchasing decisions, stating flatly that ‘‘the TCK

problem has already been resolved. It is not a problem.’’ He went on to say that

wheat from the PNW ‘‘gives us more variety, and provides wheat that China doesn’t

have.’’ Also, he noted, ‘‘we want to cut shipment costs’’ and shipping out of Portland

is less expensive for China than shipping from the Gulf. That freight savings is currently about $20 to $25 per metric ton. That’s over a million dollar difference for

a normal 50,000 metric ton shipment.

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U.S. Wheat Associates, the industry’s export market development organization,

which has maintained an office in Beijing since 1983, has worked for years just for

this moment in history. Hopefully, the TCK issue is in the past, but we cannot be

certain until volume shipments discharge at ports in China—until then it is difficult

to confirm resolution of the issues. We still anticipate some problems for the private

sector licensing and TRQ allocations, and we will continue to work with COFCO and

other Chinese agencies, with the private entrepreneurs in China, and with the dedicated professionals at USTR and USDA, especially as wheat shipments arrive in

China.

In the long-term, liberalization of China’s import policies and internal reforms of

the grain industry are expected to generate higher imports than at present, with

estimates of import levels ranging from 5 to 10 million tons. Some estimates go even

higher.

The opportunity for the U.S. wheat industry is immense. Under the U.S.-China

agreement, the TRQ for wheat is 9.6 million metric tons. The tariff is 1 percent,

lower than most other Asian countries. If the United States could get 40 percent

of those sales, we would increase the total U.S. wheat annual exports by 10 percent.

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SUBMISSION FOR THE RECORD

RESPONSE TO QUESTION FOR THE RECORD FOR PETER FERNANDEZ FROM SENATOR

GORDON SMITH

Question. China has yet to respond to a U.S. request for a pest risk assessment

for Pacific Northwest pear exports to China. The United States submitted a pest list

in 1995. We understand that USDA is unwilling to push this issue with China until

the U.S. industry provides research on fireblight transmission on pears. The industry has started this research. However, a request for research prior to receiving a

PRA documenting a country’s concerns is like putting the cart before the horse.

When will China provide a PRA on Pacific Northwest pears?

Answer. Under normal circumstances, APHIS would request that a country prepare a pest risk assessment for a new market access request from the United

States. Then, once the importing country prepares its pest risk assessment, APHIS

and industry officials would work together to prepare information that refutes the

identified risks, or shows how the risks associated with the commodity can be effectively mitigated by a systems approach or other steps taken during the growing,

packing, and shipping stages. In the case of pears from the northwestern United

States to China, it is known that pear trees are more susceptible to fire blight than

apple and plum trees. APHIS is also aware of reports that fire blight bacteria have

been found on, and inside, pears. Therefore, APHIS and the pear industry agree

that extensive data needs to be generated that shows that pears from the northwestern United States are not a pathway for fire blight bacteria. Even with such

data, however, it will be a challenge for APHIS to convince Chinese officials that

the pears do not pose a pest risk. For this reason, APHIS and the pear industry

have determined that the Agency should not press this issue with China until the

supporting data has been developed and thoroughly assessed. As the question indicates, APHIS understands that industry is currently conducting research on this

issue, and the Agency looks forward to the results of these efforts, as well as continued dialogue with the pear industry. Again, the Agency can request a pest risk assessment from China, provided that industry concurs that such a request is supported by sound scientific information.

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