U.S. GOVERNMENT PRINTING OFFICE

71–411 CC WASHINGTON : 2001

S. HRG. 106–973

TRADE INJURY COMPENSATION ACT OF 2000

(TICA)

HEARING

BEFORE THE

SUBCOMMITTEE ON FORESTRY,

CONSERVATION, AND RURAL

REVITIALIZATION

OF THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

ON

TRADE INJURY COMPENSATION ACT OF 2000 (TICA)

SEPTEMBER 25, 2000

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CHARLES E. GRASSLEY, Iowa

LARRY E. CRAIG, Idaho

RICK SANTORUM, Pennsylvania

GORDON SMITH, Oregon

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

J. ROBERT KERREY, Nebraska

TIM JOHNSON, South Dakota

BLANCHE L. LINCOLN, Arkansas

ZELL MILLIER, Georgia

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

(II)
(III)

C O N T E N T S

Page

HEARING:

Monday, September 25, 2000, Trade Injury Compensation Act of 2000 (TICA) 1

APPENDIX:

Monday, September 25, 2000 .................................................................................. 19

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Monday, September 25, 2000 .................................................................................. 51

Monday, September 25, 2000

STATEMENTS PRESENTED BY SENATORS

Craig, Hon. Larry E., a U.S. Senator from Idaho, Chairman, Subcommittee

on Forestry, Conservation and Rural Revitalization, of the Committee on

Agriculture, Nutrition and Forestry ................................................................... 1

Baucus, Hon. Max, a U.S. Senator from Montana, Ranking Member, Subcommittee on Forestry, Conservation and Rural Revitalization, of the Committee on Agriculture, Nutrition and Forestry .................................................. 3

WITNESSES

Galvin, Timothy J., Administrator, Foreign Agticulture Service, U.S. Department of Agriculture, Washington, DC ................................................................ 10

Moore, Dale, Executive Director, Legislative Affairs, National Cattlemen’s

Beef Association, Washington, DC ...................................................................... 12

Ambassador Peter Scher, Exq., Former USTR Special Agricultural Trade

Negotiator, Partner, Mayer, Brown & Platt, Washington, DC ........................ 5

APPENDIX

PREPARED STATEMENTS:

Craig, Hon. Larry ............................................................................................. 20

Baucus, Hon. Max ............................................................................................ 22

Burghardt, Guenter .......................................................................................... 48

Galvin, Timothy J. ............................................................................................ 25

Hauck, Dana R. ................................................................................................ 40

Scher, Peter ....................................................................................................... 34

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Letter to Gruenter Burghardt, with enclosure (Daily Human Estrogen

Production) submitted by George Hall, President, NCBA ......................... 52

Editorial from Commerce Beef Hormone Retail list Trade Bill, submitted

by Timothy J. Galvin .................................................................................... 60

(1)

TRADE INJURY COMPENSATION ACT OF 2000

(TICA)

MONDAY, SEPTEMBER 25, 2000

U.S. SENATE,

SUBCOMMITTEE ON FORESTRY, CONSERVATION, AND RURAL

REVITALIZATION, OF THE COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY,

Washington, DC.

The Subcommittee met, pursuant to notice, at 9:37 a.m., in room

SR–328A, Russell Senate Office Building, Hon. Larry E. Craig,

(Chairman of the Subcommittee), presiding.

Present or submitting a statement: Senators Craig and Baucus.

OPENING STATEMENT OF HON. LARRY E. CRAIG, A U.S. SENATOR FROM IDAHO, CHAIRMAN, SUBCOMMITTEE ON FORESTRY, CONSERVATION, AND RURAL REVITALIZATION, OF

THE COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

The CHAIRMAN. Good morning, everyone. The Subcommittee on

Forestry, Conservation, and Rural Revitalization will come to

order. Of course, this is a subcommittee of the full Committee of

Agriculture, Nutrition, and Forestry.

The Subcommittee today is here to take testimony on S. 2709,

the Trade Injury Compensation Act of 2000 known as TICA, as it

is known by most of us, at least, and we will also be looking generally at the issue of European Union’s ban on U.S. beef.

Since 1989, the European Union has banned the importation of

U.S. beef on what many of us believe is a false premise that additional naturally occurring growth hormones in U.S. beef constitutes

a health risk to the consumer. This premise is demonstrably scientifically false, as has been found out by the World Trade Organization.

In 1999, the WTO authorized $116.8 million in retaliatory duties.

Theoretically, imposing 100-percent duties would block importation

into the U.S. of $116.8 million worth of EU products targeted with

such duties. But the U.S. implementation of WTO’s retaliation authority has not been effective. The EU ban of all U.S. beef continues and EU goods carrying 100-percent duties are still being imported into America. USTR calculates that $35.65 million in EU

goods with 100-percent duty were still imported between July 1999

and June 2000.

To strengthen the retaliation tool, Congress instructed the USTR

in the African-Caribbean Basin Initiative legislation to impose car-
2

ousel retaliation by June 20, 1999. We want to know why USTR

has not yet acted to impose carousel.

I am a cosponsor of TICA, which also seeks to make retaliatory

duties more effective. Currently, such duties are deposited in

Treasury general revenue accounts. TICA would segregate into a

trust fund that retaliatory duties collected by EU goods carrying

100-percent duty that would nevertheless come into the U.S. The

Secretary of Agriculture would then release the money to a dutyconstituted U.S. beef industry promotion board to promote U.S.

beef in foreign markets.

The U.S. beef industry’s real goal here is not retaliation but rather re-access to the European market. Retaliation is just a means

to an end, but if there are duties collected beyond the 100-percent

tariff placed on targeted EU products, the U.S. beef industry

should have the money to lessen the harm caused by the EU ban.

TICA is a good method to accomplish that goal as we continue to

seek total removal of the ban.

The Subcommittee is pleased this morning to have witnesses

with a great understanding in this controversy and we welcome all

of you here today. Because of the scheduling of this hearing, we

had some conflict in getting USTR folks with us, not their fault because of their schedules and their involvement in Europe.

In regard to the record, Ambassador Gunther Burghardt of the

delegation of the European Commission was invited to testify today

on behalf of the European Union. Ambassador Burghardt responded that EU policy barred his appearance before the U.S. Congress. However, the Ambassador has submitted a written statement on the subject of compensation and requests that it be included in the record, which it will be without objection.

Just a couple of housekeeping notes before I turn to my colleague, Senator Baucus, for an opening remark or remarks that he

would like to make. The Subcommittee will ask the witnesses to

hold their oral testimony to 5-minutes and then we will subject you

to any questioning and we will also this morning allow Ambassador

Peter Scher to go first. I think he has got an airplane to catch or

something like that, is that not correct?

Ambassador Scher. That is. Thank you.

The CHAIRMAN. A fast ride out of town.

[Laughter.]

The CHAIRMAN. Anyway, thank you all very much for being here.

Now let me turn to my colleague, Max Baucus, who really has

played a role in bringing these hearings. He was insistent, as many

of us have been, that we get more information on this issue to understand why we are not responding in the manner that we have

an opportunity to respond. So let me turn to my colleague from

Montana for any comments he would like to make.

[The prepared statement of Chairman Craig can be found in the

appendix on page 20.]

[The prepared statement of Mr. Burghardt can be found in the

appendix on page 48.]
3

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM

MONTANA, RANKING MEMBER, SUBCOMMITTEE ON FORESTRY, CONSERVATION AND RURAL REVITALIZATION OF

THE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY

Senator BAUCUS. Thank you very much, Mr. Chairman. I appreciate your holding this hearing on a bill which I introduced to hopefully help the beef industry, which is not helped at all by current

WTO ruling, and more particularly by European intransigence in

not abiding by a WTO dispute panel decision. I thank you very

much, and in particular the beef industry thanks you. I also thank

our witnesses for changing their schedules. I know it is true, Ambassador Scher had made schedule changes to accommodate us

here today and we very much appreciate your changing, Mr. Ambassador.

I might point out that this is a bipartisan group in favor of this

legislation, Senators Bingaman, Dorgan, Daschle, Kerrey, Johnson,

Thomas, Ashcroft, as well as you, Mr. Chairman, and the fellow coChairman of the Senate Beef Caucus, Senator Bond. The legislation establishes a beef industry compensation trust fund to help the

United States cattle industry and applied to the European Union’s

illegal ban on beef treated with hormones and the EU’s refusal to

abide by the WTO decision.

Last year, the World Trade Organization approved retaliation in

the amount of $117 million when the European Union, ignoring a

WTO decision, refused to open its market to American beef. The

purpose of retaliation clearly is to inflict pain on the guilty party

so that they will change their rules and abide by a WTO decision.

Yet the EU continues its recalcitrance. Frankly, I think this is

nothing short of outrageous.

We are forced to enact carousel legislation to revise the retaliation list every 6-months in the hope that that might work. In the

meantime, we need to take action to press harder on compliance,

and also importantly to give some relief to our domestic industry.

Mr. Chairman, we have a broader problem here. When the WTO

finds a foreign practice illegal under WTO rules and the guilty

party refuses to take action, the damage to the American industry

continues. The increase in tariffs on selected European exports to

the United States does nothing to help the beef industry.

It is no different than the so-called ‘‘chicken war’’ between the

United States and Europe in the early 1960s. The GATT determined that U.S. chicken farmers were harmed by European tariffs

on poultry. The United States retaliated, principally with the

French and Germans who were major violators, by increasing tariffs on products such as French cognac and German Volkswagen

vans. The result, U.S. chicken farmers not helped, French and German chicken farmers still protected, and innocent German Volkswagen workers and innocent U.S. Volkswagen purchasers harmed.

It is no wonder trade retaliation is not the most popular kid on

the block. We win the case at the WTO and the guilty party refuses

to make changes. Our injured industry loses twice. They get no improvement in the market access. They get no benefit from retaliation.
4

The Trade Injury Compensation Act establishes a mechanism for

using the tariffs imposed on the EU to aid the injured beef producers in this country. At present, the additional tariff revenues received from retaliation simply go to the Treasury’s general fund. That amounted to $36 million between July of last year and June

of this year.

This bill establishes a trust fund so that the affected industry

will receive those revenues as compensation for its injury. The Secretary of Agriculture would call upon the trust fund to provide

grants to a nationally recognized beef promotion and research

board. The money would support education and market promotion

for the United States beef industry. This would continue until the

EU complies with the WTO ruling.

Now, some critics may complain that this is an improper export

subsidy as defined by the WTO. It is not. First, according to recent

WTO appellate body decisions, receipt of the money must be contingent upon exports for it to be considered a subsidy. TICA money

can be used for quality improvement in the United States and that

is not export contingent. Further, market development expenses for

agricultural products are exempted from the categories of prohibited or actionable subsidies by various articles of the WTO agreements.

In a perfect world, we would not need this legislation because the

EU would abide by its international trade commitments, and it is

still my hope that the EU will recognize the dangerous path that

they are on and comply with the WTO dispute settlement rulings

so that our beef can be sold in the EU. Unfortunately, that has not

been the case and no resolution is looming on the immediate horizon. Therefore, the U.S. beef industry as well as U.S. importers

continue to pay the price of non-compliance.

To summarize, TICA provides a limited financial benefit to the

U.S. industry. It is WTO consistent. It gives an additional incentive

to our foreign competitors to simply cease their unfair trade practices. And, it helps an industry that is damaged by an EU trade

practice which the Europeans refuse to fix.

TICA is a means to an end. We all want the Europeans to comply with WTO dispute decisions. The United States is working hard

to fix a problem that we have with the FSC, Foreign Sales Corporation. Europe should do the same on beef hormones and bananas.

If they will not, we need to do something to help our industry.

TICA is a good measure that bridges the gap between compliance

and market access, and I thank my colleagues for their sponsorship

and particularly you, Mr. Chairman, for holding the hearing. Hopefully, we can get some action on this, if not this year, very quickly

next year.

[The prepared statement of Senator Baucus can be found in the

appendix on page 22.]

The CHAIRMAN. Max, thank you for your leadership in this area.

Let me introduce to the Committee Tim Galvin, Administrator,

Foreign Agricultural Service, USDA, along with Dale Moore, Executive Director, Legislative Affairs, National Cattlemen’s Beef Association, and, of course, Ambassador Peter Scher, who is the former

USTR Special Agricultural Trade Negotiator, now a partner in

Mayer, Brown and Platt. As I mentioned earlier, there are some
5

time restraints on you, Ambassador Scher, so we will allow you to

proceed first, if you would, please.

STATEMENT OF PETER SCHER, FORMER USTR SPECIAL AGRICULTURAL TRADE NEGOTIATOR, AND PARTNER, MAYER,

BROWN AND PLATT, WASHINGTON, DC.

Mr. SCHER. Mr. Chairman, thank you, and thank you, Senator

Baucus. I appreciate your consideration. I am pleased to have the

opportunity to testify this morning regarding the European ban on

U.S. beef and S. 2709 in particular. I have submitted my full remarks for the record and in the interest of time will summarize

them for the Committee.

Mr. Chairman, I would like to make several points. First, putting

this dispute in the larger context of the WTO dispute settlement

system, in particular to talk about the difficult balance we have to

strike between the issues of compliance with WTO decisions and

the sovereignty of all countries. As both of you will probably recall,

the question of sovereignty was central to the debate in Congress

over U.S. entry into the WTO in 1994. Perhaps more than any

other issue, we were debating what many of the critics said was

an unwise subjecting of our laws and our own authorities to the jurisdiction of bureaucrats from Geneva, and the Congress was clear

and the United States was clear that the United States could not

order a country to change its laws.

So even in the face of EU recalcitrance on both beef and bananas, the painful reality we have to face is that in both of these

cases, the system has worked as it was intended and as the United

States intended. The European Union has the right under the laws

and under the agreements that we negotiated not to change its

rules, and, of course, in response, we the injured country have the

right to impose a penalty.

I want to make no mistake that I am in no way defending the

European Union, because I do believe that their approach to both

the beef and banana cases has damaged the credibility of the WTO

system, particularly true in the beef case. It has become very apparent that at least at this time, the European Union lacks the political will to allow the importation of hormone-treated beef. As

much as I and members of this Congress and I think most of us

here would disagree with this view, that is the reality.

Frankly, I believe it would be better for the system as a whole

for the EU to simply acknowledge their problem, accept the findings of the panel, invoke its right to maintain its regulation, and

pay the penalties imposed by the WTO. Frankly, there can be no

greater demonstration that the WTO does respect the sovereign

power of nations than such an act. But instead of this honest and

lawful approach, what the European Commission has embarked on

is another effort after literally 20-years of failure to try to use pop

science to justify a ban that has no scientific or health rationale.

In fact, the Financial Times, a London-based newspaper, last year

commented that the EU’s ban is not a scientific ban but a political

ban.

The irony of all this is, of course, that the EU was the prime

cheerleader for a new WTO dispute settlement system, believing

that the U.S. had too much power as the judge, and as they call
6

it, the jury and the executioner of our 301 law and they believe

that the new system would help, hopefully, in their view, kill that.

Some of you may remember, during the early days, it was the

European Trade Commissioner who came to Washington and lectured all of us on the need to use the new system to resolve disputes. Well, we have used that system in the United States, and

even when we have not prevailed, we have taken great efforts to

comply with the results of the panel decisions, even when not politically popular. Unfortunately, the European Union has not taken

a similar approach.

Mr. Chairman, I will not go through the history of this dispute.

I think we all know that it has gone on for nearly 20-years and retaliation was imposed by President Bush beginning in 1989, despite efforts by the U.S. to mediate the dispute. When the WTO

came into effect in 1995, we were for the first time able to litigate

successfully the ban under the new sanitary and phytosanitary

agreement, and so far as you both talked about the sanctions that

we have put in place as a result of the WTO decisions, have not

changed the EU’s behavior.

Mr. Chairman, this dispute holds important lessons about the

WTO dispute settlement process and how we should respond when

countries fail to comply with its ruling. As a starting point, I think

it is important to remember that in the vast majority of cases, the

dispute settlement process has worked because in most instances,

countries found to be in violation of the WTO amend their trade

rules accordingly. And when the dispute settlement process has not

resulted in changed behavior, it is again important to remember

the underlying reason, that the WTO does not have the power to

order changes in these rules.

Since the EU has yet to lift its ban on hormone-treated beef, the

U.S. has rightfully retaliated, but I think there are a couple of

ways in which the current retaliation system has probably fallen

short, particularly for U.S. beef producers, and S. 2709, the TICA

bill, addresses one of these shortcomings. TICA seeks to, as you

both talked about, ensure that the injured party in a trade dispute,

namely the beef industry, receives relief. While the current system

imposes a price on the EU, it does nothing to provide relief to

American ranchers.

There is an additional refinement as the Committee considers

this problem that you and the administration may want to consider

and that is the current retaliation practice has been to impose 100-

percent tariffs on goods with the express purpose of keeping those

goods out of the U.S. market. Well, this approach is sometimes sufficient to force an offending country to bring its rules into compliance, and, in fact, just threat of these tariffs has brought countries,

including Canada in a case last year, into compliance. Frankly, it

has certainly moved the EU in the banana dispute a lot farther

than we would have thought.

There are several problems which need to be considered, some of

which, Senator Baucus, you referred to in your statement. First, we

have to deal with the real problem of harming innocent bystanders.

In the case of beef and bananas, USTR received more than 400

comments seeking the removal of particular items on the list.
7

A second issue with attempting to completely block goods when

you are trying to create revenue to compensate an injured industry

is that when you block goods, it creates little if any tariff revenue.

In cases such as this, as the beef hormone dispute, where countries

refuse to comply and some type of retaliation is already assumed,

one thing to consider may be a lower level of tariff, one which imposes significant penalty, harms fewer innocent bystanders because

it allows goods to be traded, but generates real tariff revenue which

can be channeled to the aggrieved parties.

For example, instead of 100-percent tariffs no a small list of

goods, we might consider imposing a ten to 15- or 20-percent tariff

on a larger list of goods, which would clearly disadvantage those

imported goods in the U.S. market because U.S. goods would be

traded lower. It would not block those goods and would, therefore,

generate actual tariff revenue which could provide appropriate

compensation for the aggrieved party in a trade action.

Make no mistake, we should never be cavalier about raising tariffs, even when authorized to do so, and there is no, I do not believe, having dealt with both of these disputes, there is a cookiecutter approach that we could say, in this case, we should always

impose 100-percent tariffs or we should always impose lower tariffs. I think we have to deal with the reality of the situation and

when it appears, as in this situation, that a country is refusing to

comply with the decision and our industry is not finding any relief

in those limited number of cases, we should be thinking about new

approaches.

There are clearly no clear-cut solutions to this dispute. While the

current system has proved successful, refinements such as TICA

and possibly adjustments to tariff levels could make the system

more effective, and I applaud both of you, Mr. Chairman and Senator Baucus, because this hearing is an important step towards accomplishing that goal. Thank you for your time.

[The prepared statement of Mr. Scher can be found in the appendix on page 34.]

The CHAIRMAN. Ambassador, thank you very much.

We are going to ask you some questions so you can exit, if you

wish, and then we will take testimony from our witnesses. You suggested the possibility of spreading, if you would, dropping the tariff

down and spreading it to possibly greater leverage, greater revenue

flows in tariff, whatever might be the end result. But without it

being scored as a budget action, how would we use these revenues

to provide appropriate compensation for the aggrieved party in a

trade action?

Mr. SCHER. I think the same way. I think it would have to be

done in conjunction with TICA. I mean, what I am suggesting is

right now, you have 100-percent tariffs imposed on European

goods. While some goods are still traded and still come in and some

importers actually pay that tariff, I do not know what the current

numbers suggest, but it is not a tremendous amount of tariff revenue. So I think it would be the same approach.

Rather than 100-percent, you would simply have WTO authorize—WTO does not tell you how much the tariff needs to be. It

could be 500-percent. It could be 5-percent. So in this case, you

would simply to—if one of your aims is to try to provide relief to
8

the industry, you would try to find a level that would generate a

substantial amount of revenue within the amount authorized by

the WTO.

The CHAIRMAN. What are the products on the list now that have

basically had their price doubled by this tariff and are still being

purchased by American consumers?

Mr. SCHER. How much is still coming out? Mr. Galvin, I do not

have the specifics on what is still coming in.

The CHAIRMAN. We will ask him, then, about it when we get to

him.

Mr. SCHER. Tim has that. I know there are some cheeses and

some dijon mustard and some things like that, luxury items. I

know, for example, some of the high-priced luxury handbags, for

example, that have come in, I think there has been tariff revenue

generated by this. I do not have the latest numbers on what has

come in.

The CHAIRMAN. USTR data for July 1999 to June 2000 say that $35.6 million of 100-percent duty EU goods are still being imported. Do you agree that this means that the U.S. beef industry

last year lost the impact of 30.5-percent of the $116.8 million in

WTO authorized trade retaliation for the illegal ban on the industry?

Mr. SCHER. Well, they certainly have not received any benefit

from—they have lost $116 million in terms of lost export opportunities into Europe and they have received no benefit from the results

of the tariff revenue generated.

The CHAIRMAN. Ambassador, thank you very much. We appreciate your testimony.

Senator Baucus?

Senator BAUCUS. I thank you, Mr. Chairman.

Mr. Ambassador, what about the potential challenges to this legislation? How bulletproof have we made it thus far and how might

we modify it to withstand challenges?

Mr. SCHER. I think there will be two challenges. One challenge,

as you talked about in your statement, is does it create WTO consistencies, or inconsistencies, and I think, as you said, we would

need to make sure that as the fund would be established to benefit

cattle farmers, that it not be tied directly to exports, and that

would be what would create a problem. But certainly the money

could be used for export promotion, which is not WTO consistent.

As you said, it could be used for quality improvement. I think there

are a wide variety of areas that it could be used.

The other, I think, policy challenge, frankly, that I have heard

in preparing for today’s hearing is whether or not we are creating

a precedent in dumping and in other cases where tariff is generated, for example, dumping cases or CBD cases or 201 cases, and

the suggestion is when the steel industry or the lamb industry or

some other industry has tariffs imposed on the imports of a foreign

product, would they be entitled under this precedent to that revenue?

I would argue that there is a very important distinction in these

two cases. In a dumping case or in a CBD case or a 201 case, the

injured industry is receiving relief in this market. So when the U.S.

imposes higher tariffs, for example, on imported steel, domestic
9

steel producers are benefitted. When we impose quotas and tariffs

on lamb from New Zealand and Australia, that is designed to benefit the domestic industry. So I think in those cases, they are already receiving a benefit from the trade action.

In this case, the beef industry is receiving nothing. We have had

retaliation in effect on and off now for 10-years and the beef industry has not received any benefit from that action. So I think that

is the second challenge, I think, that will be——

Senator BAUCUS. I appreciate that. One frustration, clearly, is

Europe just does not seem to have enough pressure on it that it

does not have to abide by these WTO rulings, that the tariff just

is not enough to force them to do what they should do. An idea just

now occurred to me. What about some kind of MFN principle here,

changes in the WTO. That is, the effect of the WTO ruling is that

the United States is not doing anything illegal. That is, it is not

a trade barrier. It is a level playing field.

So applying the principles of MFN, if Europe is found to take an

unfair action against the United States and the WTO dispute panel

finds, yes, that is unfair, why should the penalty not apply worldwide, not just to the United States? Even though the United States

is the defendant, is there some way, some MFN principle here? I

do not know exactly what it would be——

Mr. SCHER. Yes.

Senator BAUCUS.—but it just seems to me that MFN works one

way but it does not work the other way.

Mr. SCHER. Yes. I mean, as a partial answer to that, in this case,

in the beef case, for example, and in the banana case, other countries do have the right to impose retaliation. So, for example, Canada—I do not think it was very much. Tim may remember. I think

it was maybe $25 or $30 million worth of retaliation because Canada was a party to this dispute.

I think it is something that should be explored. The difficulty is,

you want to have a proportional response to the offense, because

the fact is, as much as we all like to whack the EU around, and

I like to do it as much as anyone else, we are receiving benefits

from our trade relationship with them and I think our agricultural

exports are $7, $8, or $9 billion, so there are some important benefits we are receiving, so we do not want to, in a sense, throw the

baby out with the bathwater, but we do want to, I think, put serious pressure.

I think one of the problems that we have seen here, and this is,

I think, a big problem in the EU, is this goes to the whole issue

of food safety and the fact that the EU does not have an independent food regulatory system that people have confidence in. So what

happens is politics replaces what should be scientific and health decisions, and until the EU actually establishes such a system and

gives people with credibility the authority to make decisions without political interference, I think we are going to be facing these

problems, particularly in animal health and in food safety, for quite

some time.

Senator BAUCUS. You sure have been working hard in this area

and I thank you very much, Ambassador.

Mr. SCHER. Thank you.
10

The CHAIRMAN. Ambassador, thank you. You are certainly welcome to leave if you need to.

I am going to have a time crunch in a few moments and will

need to step out. Max, what is going to be your schedule?

Senator BAUCUS. We are pretty similar.

The CHAIRMAN. Here is how we are going to do this, then. We

will take one of you and then we will ask that the Committee stand

in recess for just a few moments and then I will step back in, we

will complete that, and go to questions. I hope that your time will

allow that this morning. With that, again, Tim Galvin, Administrator, Foreign Agricultural Service, USDA. Welcome before the

Committee. Please proceed.

STATEMENT OF TIMOTHY J. GALVIN, ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.

Mr. GALVIN. Mr. Chairman, Senator Baucus, thank you for the

invitation to be here today. I would like to ask that my full statement be made a part of the record.

The CHAIRMAN. It will be, without objection.

Mr. GALVIN. The beef hormone issue has been a long and frustrating one for the U.S. cattle industry. The EU first banned beef

in 1989, at the time costing our beef producers well over $100 million a year in lost sales. After years of negotiations, the U.S. eventually took the issue to the WTO on the grounds that the EU action was not based on sound science and, therefore, was in violation of the sanitary and phytosanitary agreement.

In three separate rulings, the WTO agreed with us that the EU

had produced no new information against the use of hormones. The

WTO eventually decided that the damage to the U.S. totaled $116.8

million annually, and since July of 1999, the U.S. has been imposing punitive duties against an equivalent amount of EU exports to

the U.S. Those duties are being felt by EU exporters today.

The purpose of the retaliatory duties is relevant with regard to

the intent of S. 2709, the Trade Injury Compensation Act of 2000,

introduced by Senator Baucus, yourself, and others. As we understand that legislation, it would establish a fund financed by the additional duties imposed under the beef hormone retaliation list to

be used to provide assistance to the beef industry for market development, consumer education, promotion in overseas markets, and

beef quality improvement.

While we can certainly understand the impetus for the legislation, the purpose of the retaliatory duties is to bring about WTO

compliance by making trade in the sanctioned items prohibitive. In

other words, the 100-percent duties commonly imposed in these

cases are intended to be so onerous as to prevent trade from occurring and thereby encourage the losing party either to eliminate its

offending practices or to offer compensation in some other fashion.

If the duties have the intended effect, then the items would not be

imported and, thus, no duty would be collected. Therefore, a fund

established on the assumption that such duties would be collected

would likely realize far less revenue than implied by the 100-percent duties.
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Despite the current impasse with the EU, we have made efforts

to find an interim solution, including the idea of labeling U.S. beef

for the European market or increasing access for non-hormonetreated beef from the U.S. The EU rejected the labeling idea and

our discussions on increasing access for our non-hormone-treated

beef were derailed when the EU cut off even that market for us

this past year. However, that program has recently resumed.

Finally, I would note that despite our problems in Europe, U.S.

beef exports in general have been doing exceptionally well. For the

first 10-months of fiscal year 2000, beef exports are up by doubledigit levels and the current U.S. trade surplus in beef is over $1

billion per year.

Mr. Chairman, that concludes my statement and I would be

happy to answer any questions.

[The prepared statement of Mr. Galvin can be found in the appendix on page 25.]

The CHAIRMAN. Max, do you have any questions?

Senator BAUCUS. No, just that, that is really something, the beef

exports. On a net basis, where are we?

Mr. GALVIN. On a net?

Senator BAUCUS. Yes.

Mr. GALVIN. It is a positive $1 billion.

Senator BAUCUS. It was not too many years ago it was negative

by a huge amount.

Mr. GALVIN. Just since 1990, we have seen this kind of growth.

It really is incredible.

Senator BAUCUS. So Canada, Japan—which countries for export?

Mr. GALVIN. Japan, Korea, Mexico. Mexico is number two.

Senator BAUCUS. Japan is one, Mexico number two—— Mr. GALVIN. Then I believe Korea.

Senator BAUCUS. Thank you very much.

The CHAIRMAN. I will ask a question that joins that one. Have

you done any guesstimation when you have seen the growth in

these other areas of the countries you have cited and the success

of the industry in moving those up double digit, what it would have

been if we would have had access to the European market? I mean,

is the $116 million that we talk about a real figure today or would

it be substantially more than that?

Mr. GALVIN. We think it would be larger. In fact, if you recall

when we had the discussions in the WTO about the level of damage, the U.S. side submitted figures in excess of $200 million. So

I think something closer to that. If you assume the trade not just

in prime cuts of beef but offal and that sort of thing, it is quite a

large amount.

The CHAIRMAN. I am going to ask the Committee to stand in recess for about 10-minutes and then we will be back. Tim, I do have

a couple more questions of you, so if you would, please stay, and

thank you. Excuse me.

[Recess.]

Gentlemen, thank you very much for accommodating the way we

have had to juggle this, this morning from a time standpoint. I will

bring the Subcommittee back to order and I would ask Dale Moore,

Executive Director, Legislative Affairs for the National Cattlemen’s

Beef Association to proceed with your testimony. Dale, thank you.
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STATEMENT OF DALE MOORE, EXECUTIVE DIRECTOR, LEGISLATIVE AFFAIRS, NATIONAL CATTLEMEN’S BEEF ASSOCIATION, WASHINGTON, DC.

Mr. MOORE. Thank you, Mr. Chairman. Chairman Craig, we appreciate you holding this hearing on TICA. We appreciate Senator

Baucus and all the time he and his staff have provided in pulling

this legislation together and working with us on it. We certainly

appreciate your support of this legislation and working with Mike

and Janie on this, as well.

I am Dale Moore, Executive Director of Legislative Affairs, and

Dana Hauck, our chairman of our International Markets Committee, extends his apologies and regrets for not being able to make

this morning’s hearing.

We appreciate the opportunity to discuss how S. 2709 would provide an additional trade policy tool to help resolve the EU ban on

U.S. beef, not to mention the temporary benefits that it would provide to U.S. cattlemen and women should Europe continue to

refuse American access to their market. Regaining access to the EU

market has always been the U.S. beef industry’s primary goal for

over a decade. WTO retaliation measures serve one key role in the

WTO dispute settlement process—that is to provide a burr under

the European saddle that hopefully pushes them toward compliance with the rulings. They certainly seem to expect rapid compliance when rulings fall in their favor.

NCBA and the U.S. beef industry have tried to settle this case

and it is important to remember that we did win. The EU has had

15-months to comply, yet there is little indication that they are

even intending to try to come into compliance. In efforts to reach

an amicable settlement, the NCBA, working through U.S. negotiators, has proposed to label our products so that EU consumers

could make informed purchasing decisions. This offer has been declined. NCBA has sent volunteer leaders to Brussels to meet with

EU representatives in Brussels to explore alternative political solutions to lift the ban. We have been assured that there are no such

solutions.

Using a concept very similar to S. 2709, we offered to settle for

an annual lump sum cash payment from the EU treasury to the

U.S. beef industry in the amount of injury determined by the WTO.

This has been declined. We have offered to accept interim compensation in the form of elimination of the 20-percent end-quota

duty and a significant expansion of the non-hormone product quota,

but only if meaningful trade of non-hormone product resumes at

the presummer 1999 levels. So far the response or the counteroffers

have not been forthcoming.

The EU’s ongoing refusal to work with us led Congress to enact

the carousel retaliation act, which you had mentioned earlier. This

new law spelled out that the first date for the administration to announce a change in the list of products was June 19, 2000—3-

months ago. We appreciate the efforts of several members of this

committee to urge the administration to release the new beef retaliation list because we believe without periodic changes to this list,

there is little, if any, internal political pressure from the offending

countries to settle. Now that the list of affected commodities is subject to change on a random basis, countries and/or the commodities
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impacted can never be certain that they have escaped targeting.

This uncertainty will help generate constant pressure on all offending parties to come into compliance with WTO rulings, which

brings me to TICA.

Companion legislation similar to TICA is being discussed by Congressman Jerry Moran and Congressman Cal Dooley in the House

and we urge all members in the Senate who are not yet on this bill

to join. Retaliation is the least desirable of the three possible outcomes from a WTO ruling. Even with the current assessment of

100-percent duties, some trade continues for some products on the

list. In the beef case, this is roughly $35.6 million. This means that

$35.6 million of unanticipated revenue is generated and paid into

the U.S. general Treasury.

The intent of the TICA legislation is to direct the tariff revenue

generated by retaliation toward the injured industry as partial

compensation. The proposed legislation provides for a national promotion and research board to administer the revenues generated

from retaliation duties for market development, consumer education, and promotion of the beef industry in overseas markets.

This approach would allow the Cattlemen’s Beef Promotion and

Research Board members to decide how best to utilize these funds

to improve the beef industry. The board’s members who would

make these decisions are appointed by the Secretary of Agriculture

from nominations submitted by eligible State organizations, including the Farm Bureau, Farmers Union, Cattlemen’s associations,

Dairy Producer associations, and other organizations. The board

currently funds various promotion, consumer education, and research programs throughout the United States and in foreign markets, and therefore would have the administrative and management expertise in place to handle TICA revenues.

The Europeans will likely object to TICA with a wide array of

claims. This is logical. After all, they are currently paying a $116.8

million fine for noncompliance with a check for roughly $81 million,

a 30-percent discount. TICA would help ensure the EU pays the

full measure determined by the WTO. It is important to remember

that if TICA were in place and if concerns about its funding source

were raised, the EU could cut off TICA’s funding simply by complying.

Like other retaliation measures, TICA is not a silver bullet, but

it would provide another important tool in the trade toolbox. It

would provide equity by taking retaliation duties and compensating

the injured industry in the amount of retaliation discount that occurs after duties are imposed. Selfishly, I also enjoy the fact that

TICA would allow U.S. cattlemen and women to use EU funding

to promote our product in Europe should we ever get that door

open.

In closing, the objective of the U.S. beef industry is to regain access to the European beef market. Retaliation does not benefit the

beef industry and is viewed by us only as a means to an end. TICA

would compensate the industry for the amount of under-retaliation

that results when trade continues on some products. Importers or

exporters of product from the EU who are concerned that retaliation may impact their business should urge the Governments in
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the exporting countries to join the United Kingdom in opposing this

illegal ban within the EU political process.

Mr. Chairman, the NCBA again thanks you and thanks the cosponsors for this legislation and the opportunity to present these

comments to you. I also appreciate the Committee’s indulgence in

allowing me to substitute for Chairman Hauck.

The CHAIRMAN. Dale, thank you very much.

Let me get back to a line of questioning that Max and I were involved in when I had to step out. Tim, I had asked Ambassador

Scher the question of what products or commodities coming in are

at the 100-percent tariff level now. Do you have a list of those for

the record? I would be just curious.

Mr. GALVIN. I do have a list. I do not have the exact dollar

amounts, but—— The CHAIRMAN. No, the type of product, where it appears the

American consumer is willing to still pay it double the price.

Mr. GALVIN. The list I have shows truffles, jams, berry juice,

roquefort, chicory, mustards, and rusks.

The CHAIRMAN. What was the last one?

Mr. GALVIN. Rusks. Those are those little dried biscuits.

The CHAIRMAN. So we really have kind of picked—to me, that

sounds fairly selective to the palate. I am thinking of the wine set,

the grey poupon kind of ad. We have created that into a market

of exclusivity, if you will, instead of going at the heart of maybe

a consumer product.

With that in mind, let me ask this question of you. You have

heard a suggestion that possibly we could lower the tariff and

spread it, 15- or 20-percent across a broader range of product, or

simply take these and bump them up another 100-percent. Put

them at 200-percent. Put them at 300-percent, somehow to cause

the EU to react to something that we believe and the WTO believes

they are now operating illegally in. Your thoughts and suggestions

about that. First of all, just increasing what we have or lowering

them and spreading across a broader band.

Mr. GALVIN. I think, first of all, the idea of raising the current

tariffs from 100-percent to 200-percent is a real option and a live

option right now on some of these products, and clearly we have

authority to do that. The idea is that we have authority to increase

the duties to whatever point is necessary to absolutely prohibit

trade, and there is simply an assumption right now that 100-percent duties is sufficient to prohibit trade.

In terms of going, though, to a broader reduced duty that hits

other products, again, I understand some of the sentiment for going

in that direction but I just think it has to be acknowledged that,

that would represent a rather fundamental shift in the intent of

these retaliation lists. I think the intent would be then, rather to

force a policy change by the offending party, it would be to try to

direct some assistance to the damaged party here in the U.S. and

I think that would be a fundamental change in policy.

The CHAIRMAN. Go ahead.

Mr. GALVIN. If I may, Mr. Chairman, just on the issue of how

much revenue we are still earning under that trade that is occurring, you cited the figure of about $35 or $36 million. That was the

figure that we had initially received from Commerce, as well. We
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have since received, I guess, some more accurate figures show that

for the last 12-months the total is closer to $16.6 million.

The CHAIRMAN. Would you submit that list for the record?

Mr. GALVIN. I would be happy to.

The CHAIRMAN. Thank you.

[The information referred to can be found in the appendix on

page 60.]

The CHAIRMAN. Tim, TICA would direct that retaliatory duties

on EU products generated by EU ongoing ban of U.S. beef be collected into a trust fund administered by the Secretary, who would

disperse the funds to a beef industry promotion board. Under existing law, the 1930-era agricultural marketing adjustment law

known as AMAA, does not the Secretary already administer industry product promotions boards for eggs, stone fruits, nuts, citrus,

and, yes, beef?

Mr. GALVIN. Yes, he does.

The CHAIRMAN. So are not TICA and AMAA for the beef industry

analogous since both mechanisms concern beef industry-generated

money used solely to promote beef?

Mr. GALVIN. I think they are analogous, other than the source of

the revenue, yes.

The CHAIRMAN. Some critics of TICA are concerned that TICA

would generate budget authority for domestic spending programs

outside the normal budget process. Would you comment on that?

Mr. GALVIN. I am really not able to comment on that. I do not

know how CBO would react up here and just what some of the

budget problems might be.

The CHAIRMAN. NCBA raises an important question in the battle

between free trade and protectionism where the question in the agricultural community is whether to support free trade at the grassroots when the EU beef ban situation makes unclear the U.S. Government’s willingness to go to the mat with our trading partners

on enforcement. What can you say to allay the fears in our producer community that our government is willing to protect our industry with bad faith trading partners?

Mr. GALVIN. Well, I would point out that this was one of the very

first cases that we brought under the WTO after the WTO was

formed, so we have been pushing very hard throughout the initial

case and the appeal and then the discussions on the level of damage. As I said earlier, we went in with a larger figure. We were disappointed in the end that it was just $116 million, but nevertheless, that is what we are implementing today. As you indicated,

there is under discussion the new lists of different products, not

just for the beef hormone retaliation but bananas, as well.

The CHAIRMAN. Tim, thank you very much.

Dale, let me turn to you. I regret that USTR witnesses could not

be here today, but Ambassador Frazier submitted a statement

where he states USTR’s concern that TICA would provide the beef

industry with a stake in maintaining a trade barrier, in this case,

a retaliatory tariff or tariffs. The ambassador states that the beef

industry’s position is inconsistent with USTR’s basic trust in trade

policy, open markets, and lower tariffs.
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Dale, I thought the beef industry was the one suffering from the

trade barrier. Does the U.S. beef industry really want to keep retaliatory tariffs, as the ambassador implies?

Mr. MOORE. Mr. Chairman, I can emphatically state that retaliation, and as our testimony reflects, is a means to an end, and that

end is access to the European market. We would love nothing more

than to have TICA go into effect. If this $16 million figure, and as

Mr. Galvin has pointed out from the numbers that the administration submitted, beef trade potential in the $200 million range, $16

million versus $200 million in trade is a pretty easy math for me

to work out. We would certainly prefer to have access. We want to

hit Europe with every retaliatory, every trade policy weapon we

have bring them into compliance. But simply put, no. We would

have no desire to drag this out.

The CHAIRMAN. Recently, the EU has begun to soften their position somewhat and is promoting compensation as a means of resolving the impasse. I would like to understand the context of that

compensation. Could non-hormonal beef be increased beyond the

10,000-metric-ton quota by amounts against the $116.8 million retaliatory duty? That would be one question. And could you explain

to the Subcommittee how that might work and the likelihood that

the beef industry perhaps would live with such a compromise? You

might also want to respond to that, Tim.

Mr. MOORE. I was going to say, Mr. Chairman, I know Mr.

Galvin and Ambassador Scher have both actually worked with us

as we had talked through this several months ago, but the concept

would be—what we had, I guess, proposed was that once Europe

worked with us to reestablish the beef from non-hormone-treated

cattle trade that they had cut off, that once we got that up to the,

what was it, 11,000—— Mr. GALVIN. Five-hundred.

Mr. MOORE. Eleven-thousand-five-hundred-metric-ton quota,

then we would be willing to talk about a compensation approach

that for every, I guess, dollar, if you will, that we went above that

quota level, that, that could be used to offset the $116 million in

retaliation as a rational approach to the compensation.

Part of what we have been wrestling with is this moving target

that Europe has set on the non-hormone beef process, and as a result, we have a 2-year time lag in our industry before producers

can take advantage of that effort, and as such, we have a lot of our

members who are interested. But they want a little more, I guess,

good faith showing on the part of Europe that this is going to be

a consistent and predictable market before they take the risk of entering that market again.

The CHAIRMAN. Dr. Galvin, do you wish to comment to that?

Mr. GALVIN. I think Dale has done a very good job of describing

the situation. We have had informal discussions with the EU about

increasing access for our non-hormone-treated beef and that increased access could be in the form of either the higher quota beyond the current 11,500-tons or perhaps a waiver of the current

duty on beef, which is about 20-percent in the EU. If beef then

started to flow under either the reduced duty or if it exceeded the

quota of 11,500, then the idea would be to reduce the retaliation

list accordingly.
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But as Dale indicated, under the new program for certifying that

our beef is not treated with hormones, it really takes about 2-years

from the time that calf is first dropped in the pasture until it is

out of a feedlot, so there is such a long lag time in the current system that we would not see any benefits for some time. And then

as Dale indicated, and I think it is a very good point, there is always a risk in dealing with the EU because it seems like there is

always another issue that is threatening our trade and the question is whether or not our cattlemen want to gear up for a program

with the understanding that something could be yanked out from

under them.

The CHAIRMAN. If there is no compromise on compensation, how

does the NCBA come down on the idea of vastly increasing or decreasing duties under carousel? Is it better to place, say, 15-percent

duties on many more goods and give the revenue to the TICA trust

fund, or would it be better to put 200, 500-percent type duties on

goods to stop absolutely those targeted goods from coming into the

U.S.? Dale, could you react to that kind of discussion?

Mr. MOORE. Yes, Sir, and I apologize if I sound a little schizophrenic in my answer. We kind of like both approaches. We like

the higher retaliatory levels for, I guess, sort of the reverse pain

and suffering that causes on our EU trading partners. By the same

token, if they are going to remain stubbornly committed to keeping

us out of their market, then spreading that pain a little thinner

over a number of different products and using that to generate

some revenues which TICA would operate and which we could

thereby use some of our European trading partners’ funds to promote our product and increase our demand. That has some interesting promise to it.

At this particular stage of the game, I would reiterate that we

simply want to get access into that market. If this helps us get

there, fine. If not, we are for putting as many burrs under their

saddle as we can.

The CHAIRMAN. If duties were adjusted such that significant revenues were raised from EU goods coming into the U.S. and the EU

would not lift or compromise the ban, would the U.S. beef industry

reconsider a per capita distribution of revenue or is that just impractical whatever the total?

Mr. MOORE. I would not rule anything out. We have enjoyed a

lot of back-room brainstorming with Mr. Galvin, with Ambassador

Scher, with Ambassador Frazier, and we certainly are not opposed

to taking a look at anything that they or the Europeans might put

on the table. I have to admit, getting into that level of detail is

starting to get dangerously close to enabling me to display my ignorance as to how some of that might work.

The CHAIRMAN. We all have limitations.

[Laughter.]

The CHAIRMAN. I guess maybe one last question of you, Administrator Galvin. When does the administration plan to announce the

carousel retaliation list that was due in June of this year?

Mr. GALVIN. Mr. Chairman, I simply do not know. I wish very

much I had an answer here for you today, but I do not.

The CHAIRMAN. I understand that is a moving target.
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Gentlemen, thank you both very much. I think it is obvious by

the concern that we have and the industry has here and the credibility of the WTO on issues like this and our desire to make the

WTO work that something ultimately has to get done. That is not

suggesting that nothing has been done on this issue, but there really are some pretty real questions being asked out there on the

ground at this moment amongst producers as it relates to the viability of these trade organizations, and, of course, we recognize, I

think especially in agriculture, the importance of trade. It is very

difficult to suggest to our producers that they should allow us to

move freely in the area of trade to expand markets when we cannot

keep them open or open them. Rhetoric and action just have to coincide, and here we have got that credibility gap looming against

a market out there that appears to want to remain closed and by

intent of the politics of it.

Yes?

Mr. GALVIN. Mr. Chairman, if I may, just one last point where

we have clearly gone to bat for beef producers and that is in Korea,

which, as I mentioned, is our number three market. As you know,

the Koreans had a system in place that seemed to discriminate

against imported beef whether it is from the U.S. or Australia or

elsewhere and we took them to the WTO. We won on that case. It

is now under appeal, but I think it is another indication of where

we have gone to bat for beef producers.

The CHAIRMAN. I think the figures that we were all just visiting

about a few moments ago, the rates of increase in beef exportation,

as someone who was active in the beef industry for a good number

of years, those are very nice statistics. I think we were all frustrated, both beef and dairy, that those were markets out there that

were just generally by character of product not going to be available to us. But obviously, by both domestic industries moving

abroad and using product but by our efforts, your efforts, the Government’s efforts and the industry’s efforts to get into these markets, we can, in fact, move in those markets and move quite successfully.

So when we talk about potentially a $200 million loss and you

compare a Japanese market against a European market or a Mexican market against a European market, I think those numbers are

very real. And when you travel in Europe and see the prices, I

think you begin to recognize that the consumer over there is being

tremendously disadvantaged and so is the producer here.

Gentlemen, thank you very much for your time with us today.

Mr. GALVIN. Thank you.

Mr. MOORE. Thank you, Mr. Chairman.

The CHAIRMAN. The record will remain open for the balance of

the week for any additional information that we would want to provide or that you have that you would want to become a part of the

Committee record.

With that, the Subcommittee will stand adjourned.

[Whereupon, at 10:48 a.m., the Subcommittee was adjourned.]
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