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94–053 PDF 2004

AGRICULTURAL TRADE

NEGOTIATIONS

HEARINGS

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 28 AND MAY 19, 2004

Serial No. 108–29

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Printed for the use of the Committee on Agriculture

www.agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

JOHN A. BOEHNER, Ohio

Vice Chairman

RICHARD W. POMBO, California

NICK SMITH, Michigan

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

DOUG OSE, California

ROBIN HAYES, North Carolina

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

DENNIS R. REHBERG, Montana

SAM GRAVES, Missouri

ADAM H. PUTNAM, Florida

MAX BURNS, Georgia

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

CHRIS CHOCOLA, Indiana

MARILYN N. MUSGRAVE, Colorado

DEVIN NUNES, California

RANDY NEUGEBAUER, Texas

——— ———

CHARLES W. STENHOLM, Texas,

Ranking Minority Member

COLLIN C. PETERSON, Minnesota

CALVIN M. DOOLEY, California

TIM HOLDEN, Pennsylvania

BENNIE G. THOMPSON, Mississippi

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

BARON P. HILL, Indiana

JOE BACA, California

RICK LARSEN, Washington

MIKE ROSS, Arkansas

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

ED CASE, Hawaii

RODNEY ALEXANDER, Louisiana

FRANK W. BALLANCE, JR., NORTH

CAROLINA

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

BEN CHANDLER, Kentucky

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

MIKE THOMPSON, California

MARK UDALL, Colorado

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

PROFESSIONAL STAFF

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

KEVIN KRAMP, Chief Counsel

STEPHEN HATERIUS, Minority Staff Director

ELYSE BAUER, Communications Director

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C O N T E N T S

Page

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

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

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

of Texas, opening statement ................................................................................ 4

WITNESSES

Veneman, Hon. Ann, Secretary, U.S. Department of Agriculture ....................... 6

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

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

Prepared statement .......................................................................................... 46

MAY 19, 2004

Ballance, Hon. Frank W. Jr., a Representative in Congress from the State

of North Carolina, prepared statement .............................................................. 84

Davis, Hon. Lincoln, a Representative in Congress from the State of Tennessee, prepared statement ................................................................................. 82

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

of Virginia, opening statement ............................................................................ 73

Ose, Hon. Doug, a Representative in Congress from the State of California,

prepared statement .............................................................................................. 80

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

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

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

of Texas, opening statement ................................................................................ 75

WITNESSES

Anderson, Woody, chairman, National Cotton Council, Colorado City, TX ........ 87

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

Beckendorf, Charles, chairman of the board, National Milk Producers Federation, Tomball, TX ................................................................................................. 141

Prepared statement .......................................................................................... 237

Caspers, Jon, immediate past president, National Pork Producers Council,

Swaledale, IA ........................................................................................................ 117

Prepared statement .......................................................................................... 271

Frederickson, David J., president, National Farmers Union, St. Paul, MN ....... 139

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

Gertson, Dan, vice chairman, U.S. Rice Producers Association, Lissie, TX ....... 92

Prepared statement .......................................................................................... 172

Graham, Lawrence T., steering committee coordinator, Coalition for Sugar

Reform, Vienna, VA ............................................................................................. 113

Prepared statement .......................................................................................... 174

Jones, Terry, president, American Sugarbeet Growers Association, Powell,

WY ......................................................................................................................... 109

Prepared statement .......................................................................................... 180

Lee, Greg, chairman, National Chicken Council, Springdale, AR ....................... 84

Prepared statement .......................................................................................... 153

Levinson, Ellen, executive director, Coalition for Food Aid, Washington, DC ... 145

Prepared statement .......................................................................................... 259

Submitted material .......................................................................................... 267

Lyons, Jan, president, National Cattlemen’s Beef Association, Manhattan,

KS .......................................................................................................................... 115

Prepared statement .......................................................................................... 199

Page

IV

McDonald, Dennis, trade committee chairman, Rancher-Cattlemen Action

Legal Fund, United Stockgrowers of America, Melville, MT ........................... 119

Prepared statement .......................................................................................... 176

Molpus, C. Manly, president and chief executive officer, Grocery Manufacturers of America, Washington, DC ......................................................................... 143

Prepared statement .......................................................................................... 320

Ruth, Bart, past president, American Soybean Association, Rising City, NE .... 90

Prepared statement .......................................................................................... 169

Smith, Squire president, Florida Citrus Mutual, Eagle Lake, FL ....................... 111

Prepared statement .......................................................................................... 188

Vaughan, Dee, president, National Corn Growers Association, Dumas, TX ...... 88

Prepared statement .......................................................................................... 324

SUBMITTED MATERIAL

Agricultural Coalition on Trade, statement .......................................................... 293

American Farm Bureau Federation, statement .................................................... 287

Gallagher, Stewart, president, Ocean Spray International, statement .............. 320

Rietow, David G., president, Hawaii Macadamia Nut Association, statement .. 308

Tipton, Constance E., president and chief executive officer, International

Dairy Foods Association, statement ................................................................... 310

Wheat Export Trade Committee, statement ......................................................... 315

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AGRICULTURAL TRADE NEGOTIATIONS

WEDNESDAY, APRIL 28, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, DC.

The committee met, pursuant to call, at 10:05 a.m., in room 1300

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

Present: Representatives: Boehner, Pombo, Smith, Lucas, Moran,

Jenkins, Gutknecht, Hayes, Johnson, Osborne, Rehberg, Putnam,

Burns, Bonner, King, Chocola, Musgrave, Nunes, Neugebauer,

Stenholm, Peterson, Dooley, Holden, Etheridge, Hill, Baca, Ross,

Case, Alexander, Ballance, Marshall, Chandler, Pomeroy, Boswell,

and Davis.

Staff present: Lynn Gallagher, Brent Gattis, Jason Vaillancourt,

Matt O’Mara, Christy Seyfert, Ryan Weston, Callista Gingrich,

clerk; Matt Schertz, Teresa Thompson, and Andy Baker.

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

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review agricultural trade negotiations will

come to order. I have an opening statement.

On behalf of the committee, I welcome our distinguished witnesses, Secretary Veneman and Ambassador Zoellick. We are honored to have you both appear before this committee to discuss

issues related to agricultural trade negotiations.

This has been a busy year for both of you in the area of agricultural trade and will, in all likelihood, become much busier as the

year progresses.

I note that the WTO has issued a preliminary decision on the

matter brought by Brazil concerning U.S. farm programs, and reports indicate that the administration intends to appeal that decision. I support that action. To the extent you can, I hope, Secretary

Veneman and Ambassador Zoellick, that you will discuss this matter.

Under the WTO rules, countries are permitted to support their

farmers in ways that are the least trade distorting, and WTO rules

govern the amounts countries may provide their farmers. The

United States abides by the WTO rules, and is, and has been in

accord with its rules on agriculture.

World trade in agriculture is highly competitive, and barriers,

such as high tariffs, are rampant. Countries regularly deny access

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for U.S. agricultural products for many reasons, including non-scientific barriers for U.S. beef, grains, poultry, and fruits and vegetables. I have said repeatedly that gaining access for U.S. agricultural products is the most important objective of the ongoing WTO

negotiations. Our agricultural tariffs are low; the average is 12 percent, while worldwide agricultural tariffs average 62 percent.

Changes to countries’ agricultural policies should come through

the give and take of negotiations, not through decisions that do not

appear based on WTO rules.

Regarding trade negotiations, agreement has been reached in the

Morocco, CAFTA, Dominican Republican, and Australian negotiations, and talks are still going on in the South African Customs

Union and the Free Trade Area of the Americas, although very

slowly. Free trade negotiations are beginning in Thailand, Panama,

the Andean countries, and Bahrain. However, I encourage the administration to work towards initiating trade agreements with

countries with larger populations that offer greater opportunities

for U.S. agriculture exports.

On top of all that, there are trade disputes with several other

countries. For example, the European Union has a moratorium on

approval of biotechnology products, will not accept U.S. beef, and

wants to take away U.S. trademarks and certification marks that

are properly registered, and allow EU companies to claim such

products as their own.

Mexico has passed a tax on products containing U.S. high fructose corn syrup, assessed anti-dumping duties in questionable investigations on U.S. apples, rice, and beef.

China has not kept its WTO accession agreement on access to its

market for U.S. cotton, pork, and poultry. Now, especially with regard to China, I know that Secretary Veneman and Ambassador

Zoellick have worked under the auspices of the U.S-China Joint

Commission on Commerce and Trade to help resolve these issues,

and I anticipate hearing from them this morning.

United States agriculture depends on exports and a vibrant trade

policy is important to the United States farmers and ranchers, and

to all of agribusiness. We want to see greater opportunity for our

agricultural products, and trade negotiations can make that possible. We want to see markets open around the world.

U.S. agricultural markets are already open to imports, and our

tariffs are low. Agricultural tariffs worldwide average about 62 percent, while U.S. agricultural tariffs are 12 percent. If you look at

this chart, the European Union, 31 percent, Japan 51 percent,

Korea 66 percent, and India, a whopping 114 percent, are indicative of what we face when we attempt to export our products. It

is to the advantage of U.S. agriculture that we continue to open

markets and remove barriers to our agriculture exports.

The overall U.S. trade deficit in 2003 is $489 billion. This means

U.S. borders are open and U.S. consumers have significant access

to foreign goods. Our borders are open, we import significantly

more than we export, and countries around the world know this,

and on a daily basis successfully sell their products in the United

States. How about the EU? Its trade deficit for 2003 is $14.8 billion. And if you look at the figures for 2002, you will find that the

EU has a trade surplus of $10 billion. What does that tell you? It

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tells you that U.S. farmers and ranchers experience barriers to

beef, poultry, and other U.S. products, and they continue to exist

in the EU.

These barriers come from high tariffs, the EU’s geographical indications policy, and other non-scientific barriers, such as those related to biotechnology and beef hormones.

In 2002, the U.S. trade deficit with the European Union was $82

billion and the U.S. trade deficit with Japan was $70 billion.

Trade negotiations offer an opportunity for the United States to

increase agricultural exports. U.S. goals for these negotiations are

to decrease and harmonize tariffs, eliminate export subsidies, and

reduce and harmonize trade distorting domestic support policies.

Just look at the status quo. The EU is allowed to spend more

than three times as much as the U.S. in domestic agricultural payments. Japan is allowed to spend one and a half times the amount

the U.S. is allowed to spend under the Uruguay Round Agreement.

That chart reflects that disparity.

It is wrong to continue the Uruguay Round kind of reductions in

domestic support. That is, just applying a percentage reduction to

allowable spending. The disparity in spending among the U.S., the

EU, and Japan must be reconciled, and harmonization must be a

central part of the agricultural negotiations. The U.S. and the EU

have similar agricultural output, and yet, the EU can spend significantly more than the U.S. under the current WTO agreement.

Japan has fewer acres dedicated to agriculture than the U.S. and

they also can spend in excess of the U.S.

American farmers and ranchers recognize the necessity of exports for their success. However, I am concerned that confidence in

trade agreements and agriculture’s place in those agreements in

weak. The reasons why include the beef hormone WTO decision affecting U.S. exports to the European Union, and enforcement of the

provisions agreed to in negotiations over China’s accession to the

WTO. I am also concerned about the problems with agricultural

trade with Mexico and its efforts to restrict U.S. exports.

Our two distinguished witnesses will address these issues and

provide the committee with information regarding the status of agricultural negotiations.

I made a promise at the beginning of this Congress that the committee intends to pay very close attention to all trade negotiations

and to listen to U.S. agriculture’s views on this important matter.

Last year, the committee held hearings on agricultural trade, biotechnology, and geographical indications. The committee will continue to follow these issues.

This includes ongoing multilateral trade negotiations and all regional and bilateral negotiations. It also includes oversight of past

agreements, such as with China, and other accessions to the WTO,

such as Russia. It means looking closely at problems U.S. agriculture faces regarding sanitary and phytosanitary issues, such as

those with Australia.

Again, I welcome our witnesses and look forward to their testimony. At this time, it is my pleasure to recognize the ranking

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

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OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman, and I join you in welcoming Secretary Veneman and Ambassador Zoellick to our discussion this morning.

The chairman is right about the Brazil case. We are entitled to

support our farmers under the rules agreed to in the Uruguay

Round. We have designed our programs in our compliance with

those rules, and will not abandon our farmers in the face of decisions that appear to ignore those rules.

And let me take this opportunity to commend both of our witnesses for their continuing commitment to opening markets for

U.S. agricultural products.

Secretary Veneman, you mentioned at our May 2003 hearing,

about a third of our production capacity is devoted to export sales.

In that testimony, you also pointed out the Harbison draft, which

had been issued only two months before, would leave too much

trade distorting support concentrated in one member, the European

Union. As you mentioned under Harbison, the EU would be allowed to provide about three times the support the United States

is permitted. You also mentioned that Europe and Japan were both

considering reforms on domestic support, and as a part of today’s

discussion, I look forward to discussing the results of those reform

efforts, and whether Europe and Japan have gained enough flexibility in their negotiating mandates to get us beyond the 3 to 1 scenario on domestic support the chairman has just demonstrated.

Ambassador Zoellick, thank you for taking the initiative in the

Doha Round with your letter of January the 11th, and the 32,000

mile trip to meet with representatives from 40 countries to discuss

the Doha Round. That is where we ought to be settling our trade

disputes. As you know, most in agriculture believe that the multilateral negotiations in the WTO provide the best opportunity to increase U.S. agricultural exports and all world exports. I believe

that priority is reflected on page 2 of your overview of the U.S.

trade agenda, with ‘‘a global WTO agreement,’’ at the top, followed

by regional initiatives, ‘‘bilateral FTAs, enforcement of trade laws

and agreements, and worker adjustment and education.’’ I would

just add that if those are intended to be listed in the order of priority, I would move enforcement of trade laws and agreements to the

top of the list.

Ambassador Zoellick, I would also like to thank you for a couple

of points in your January 11 letter. First, that cotton was not specifically mentioned in the Doha mandate, and for reaffirming our

intention to include cotton in the broader negotiations on agriculture. Second, for calling for a common methodology providing for

substantial, and again I quote, ‘‘substantial openings in markets of

developed and developing countries, especially those that are competitive in sectors of agriculture and with stronger economies.’’ As

you may be aware, Brazil has increased production of cotton, soybeans, broilers, pork, corn, and beef by 25 to 75 percent since the

late 1990’s.

Reuters recently reported that the Chinese government is study- ing the potential investment of between $3 billion and $4 billion in

infrastructure projects in Brazil. Brazil’s Agriculture Ministry said

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last February that China was interested in building railways and

other infrastructure in Brazil in exchange for commodities like soybeans, cotton, and cane-based ethanol. In fact, a deal could be

signed this month. With a deal like that in the works, it is difficult

to see why Brazil needs special and deferential treatment for its

agriculture sector.

In closing, I would like to quickly address Ambassador Zoellick’s

comment that the United States could live with commodity-specific

limits on aggregate measures of support, as proposed by Derbez

text presented in Cancun. Such limits might prevent another WTO

member from lowering support for one commodity so that they

could raise support for another, but it could also make our farm

programs more vulnerable to conditions outside the United States,

such as adverse policy decisions by other countries.

I would like to address this point further in my questions and

give our witnesses a chance to respond. Thank you, Mr. Chairman,

and I look forward to hearing from our witnesses.

The CHAIRMAN. I thank the gentleman. In order to proceed directly to our witnesses, and allow Members the maximum amount

of time to be able to question the witnesses, we will put other

Members’ opening statements in the record. At this time, we would

welcome again Secretary of Agriculture Ann Veneman.

Mr. STENHOLM. Mr. Chairman, I have a new Member.

The CHAIRMAN. I am going to suspend that, because we do have

another important activity to acknowledge. The gentleman from

Texas.

Mr. STENHOLM. Thank you, Mr. Chairman. I would like to introduce the newest member of the House Agriculture Committee on

our side, Ben Chandler, from the Sixth Congressional District, the

heart of Kentucky bluegrass country. He served as Kentucky State

auditor and attorney general, well versed in agricultural policy, has

a solid reputation as an independent thinker throughout his distinguished career in public service. He is also serving on the Homeland Security and International Relation Committees, and I join

and I hope the whole committee joins, Ben, in welcoming you to the

House Agriculture Committee.

The CHAIRMAN. I too would like to welcome Congressman Chandler, and tell him that I spent a couple of days in his district, just

about 10 days ago, and it certainly is beautiful in and around Lexington, KY. So you are very fortunate to represent a great part of

the Bluegrass State. Would the gentleman care to say anything?

Mr. CHANDLER. Thank you, Mr. Chairman. I am very pleased to

have the opportunity to serve on the Agriculture Committee. I am

very much looking forward to it. I hope that you managed to go to

a race while you were in the Bluegrass. This is a good time of year

to be in central Kentucky, and we would invite you back often. Mr.

Ranking Member, thank you very much for that kind introduction,

which of course is well beyond my due, but I look forward to being

a useful, contributing Member to this committee, and I appreciate

the kindnesses that have been displayed to me.

Thank you very much.

The CHAIRMAN. I thank the gentleman for his kind words, and

for his invitation to come back. I probably will, since that time, I

didn’t leave much behind.

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Mr. CHANDLER. That is good.

The CHAIRMAN. And now, we will turn to our distinguished witnesses, Secretary of Agriculture Ann Veneman, and United States

Trade Representative Robert Zoellick.

We are pleased to have both of you with us, and we will start

with Secretary Veneman.

STATEMENT OF HON. ANN M. VENEMAN, SECRETARY, U.S.

DEPARTMENT OF AGRICULTURE

Secretary VENEMAN. Thank you, Mr. Chairman and members of

the committee. I appreciate the opportunity to appear before you

today. I would like to add my words of welcome to Mr. Chandler,

and to the committee and to the Congress.

I am very pleased to be appearing, once again, with my good

friend, Bob Zoellick, who does an outstanding job as Trade Ambassador, and is a strong partner with USDA in advancing agricultural trade interests. And I appreciate, Mr. Chairman, the importance that this committee has placed on international trade, and

the interest that you and other Members of the committee have

shown in the trade issues.

We share your concern about the news of the Brazil cotton case

that was announced just this week, and Ambassador Zoellick will

be addressing that in his opening comments. The importance of exports—Mr. Chairman, I do have a longer statement, which I would

ask that be included in the record. The importance of exports to agriculture simply cannot be overstated. Exports solidly underpin

farm income and support almost 900,000 jobs, of which 40 percent

are in rural areas. It is estimated that every additional $1 billion

in exports adds another 15,000 jobs on farms, facilitating trade in

processing, in manufacturing, in transporting commodities and food

products.

Let me begin by briefly noting the current global supply/demand

situation. In short, the position we are in today is a historic one.

Our farmers and ranchers are benefiting from strong prices across

most of the agriculture sector. For the major grains, global consumption continues to outpace production, and we are experiencing

the lowest carryover stocks in relation to utilization since records

have been kept.

Our agricultural exports are clearly benefiting from this situation, reinforced by the lower valued U.S. dollar, accompanied by

stronger growth in U.S. and world economies. In 2004, Gross Domestic Product growth in the world economy is expected to grow

about 3.6 percent, a clear improvement, but the pace is expected

to be even more rapid in some of the faster growth markets for our

agricultural products.

I am pleased to say that we are forecasting near record agricultural exports for fiscal year 2004, at $59 billion. This is $2.8 billion

above the fiscal year 2003 export values. This is also in spite of the

one case of bovine spongiform encephalopathy, or BSE, in the state

of Washington, which disrupted our beef exports originally forecast

this year at $3.81 billion. Without this negative factor, our exports

easily would have surpassed the 1996 record of $60 billion, although we remain optimistic that a new record might be set.

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Let me update the committee on the current outlook for our most

important export markets. First, Canada is our largest export market, and we forecast sales for the fiscal year at $9.9 billion, up $9.1

billion from last year, a 9 percent increase. Our second largest market is Japan, with sales now forecast at $7.8 billion. This number

is lower than the $8.8 billion of last year, due to the halt in our

beef sales and the interruption of our poultry sales. Our third largest market is Mexico, now forecast at $7.7 billion for fiscal year

2004, which is slightly more than last year. However, we expect

this to be larger now that Mexico has lifted nearly all of the restrictions on U.S. beef following the BSE incident.

Finally, our fourth largest market, the European Union, has fore- cast sales of $6.7 billion, up from $6.1 billion last year, or a 10 percent increase. Despite the adversities of animal diseases, this is

still an extremely bright export sales outlook. There are also two

particular market areas that merit special mention, our NAFTA

partners and China.

As you know, this year marks the 10th anniversary of NAFTA.

We recognize that there are still issues about this trade agreement,

but it is proving advantageous in all three countries. It certainly

has greatly benefited U.S. farmers. Before NAFTA, our food and

agricultural exports to Canada and Mexico together were only

equal to Japan, which was then our No. 1 export market. While

sales to Japan are down slightly from 10 years ago, exports to our

NAFTA partners this year have increased to more than double our

sales to Japan, or an unprecedented $17.6 billion to NAFTA partners, versus $7.8 billion to Japan.

The second area that deserves special mention is China. This is

an extremely bright spot in the agricultural trade horizon, and it

could well be the world’s top agricultural growth market over the

next decade. Our sales last year of $3.5 billion to China moved it

to our fifth largest market. Sales this fiscal year are now forecast

to be a record $5.4 billion, triple the amount in 2001, when China

joined the WTO.

China accounts for nearly 10 percent of our agricultural export

sales, and has quickly become our No. 1 market for our soybeans,

cotton, and our hides and skins. In addition, it is now our sixth

largest market for wheat, and our analysts continue to speculate

that corn purchases could also be in the offing.

China’s GDP this year is expected to grow more than 9 percent,

or an additional $540 billion in spending power. While the trade

figures are impressive and encouraging, they do not take away

from the fact that China must fully implement the commitments

it made upon joining the WTO.

This administration is aggressively working with China to implement its WTO commitments. China has made great strides, to be

sure, in modifying over 3,000 laws and regulations in the past

three years to comply with the accession agreement, but we continue to be vigilant to ensure that it lives up to its previous commitments. Our recent meetings here in Washington were focused

on that task. Last week, on April 19, I met with Minister Li, of the

Quarantine and Inspection Ministry, to review several specific SPS

issues, and to seek ways to improve our cooperation and prevent

trade disruptions.

8

Then, on April 21, I participated along with Ambassador Zoellick

and Secretary Evans in discussions with Chinese Vice Premier Wu

Yi and a large delegation of high ranking officials from some 12

Chinese ministries. In preparation for the agriculture portion of

these talks Under Secretary Penn had been into China only days

before to emphasize our issues. We have had numerous discussions

with their policymakers, for example, concerning biotechnology. It

is extremely important that China has approved the biotech crop

varieties that are grown in the United States to avoid disruptions

in trade. In February, China approved some key products, such as

Roundup Ready soybeans, and in recent days, approved additional

biotech varieties for both U.S. corn and canola.

This year, China has already purchased more than 300 million

bushels of soybeans, valued at $2.4 billion, accounting for 44 percent of total sales. There are two pending corn varieties that we

now expect Chinese authorities to consider in May. One of the challenges China faces is becoming familiar with our regulations and

our procedures, as well as improving its overall capacity to deal

with sanitary and phytosanitary issues.

To help meet this challenge, Minister Li—who heads the Ministry with jurisdiction over these matters—and I agreed to develop

a memorandum of understanding that will provide for professional

exchanges, seminars, and training, and joint research projects to

increase our mutual understanding in these areas. In the long

term, such increased cooperation and communication should help to

both facilitate our trade and prevent sporadic disruptions.

A top priority for the Department since December 23 of last year

has been reopening export markets that suddenly were closed after

the finding of a single case of BSE in Washington State. We are

engaged with our major export markets, one by one, to personally

assure them of our robust safeguards, and to indicate that trade

can safely resume.

I have personally engaged with my counterparts in a number of

foreign governments, including Secretary Usabiaga in Mexico, Minister Speller in Canada, Minister Kamei in Japan, and Secretary

Lorenzo in the Philippines, to assure them of the safety of our food

supply, and to work with them toward resumption of trade. We

also dispatched high level delegations to Mexico and our Asian

trading partners on several occasions for more extensive personal

engagement. The Vice President raised these issues during his recent trip to Japan, Korea, and China.

All of this support has proved to be instrumental. This past

weekend, Under Secretary Penn led a policy level delegation to

Japan, and we are very pleased with the progress that has been

made in our most important beef market. There now is agreement

to a process, which we believe will lead to the full resumption of

our trade in our No. 1 market some time this summer.

Our experts will begin discussions with their counterparts on

technical issues almost immediately. Our second largest beef export

market is Mexico, and that has now reopened trade for more than

90 percent of U.S. beef, variety meats, veal, and tallow products.

Last year, these products accounted for about $1 billion in sales

from the U.S. to Mexico. This is an extremely positive step, and we

9

continue to work with our Mexican colleagues to restore trade to

full normal levels.

In Korea, our third largest market, we continue to have high

level consultations, and to provide extensive information on the significant new actions we have taken to further ensure the safety of

U.S. beef. We expect a technical team from Korea to visit in the

next two weeks to further this information exchange.

We now have the market with Canada moving toward normalcy,

and our policy officials are working diligently to harmonize our regulations to reflect the current economic realities. Canada now permits the entry of beef and beef products from cattle aged 30

months or less, live cattle destined for immediate slaughter, dairy

products, and other selected ruminant byproducts. These four countries account for roughly 90 percent of our beef and beef product

trade, but let me assure you that we are pursuing the elimination

of restrictions imposed by a large number of other countries as

well.

I will now quickly update you on the status of poultry exports

since the disruptions that resulted from the outbreaks of both low

pathogenic and high pathogenic avian influenza earlier in the year.

Those exports had reached $2.3 billion in the fiscal year 2003. The

incidents earlier this year of low pathogenic avian influenza in the

mid-Atlantic states, and then our first case in 20 years of high path

avian influenza in Texas, have shown how important it is for us

to have strong safeguard systems in place.

Our transparency and swift responses to eradicate these diseases, especially in the high path avian influenza in Texas, served

to reassure many of our trading partners of the high value we

place on the safety of our food products, and the strict control of

animal disease. The top two destinations for poultry meat exports

from the U.S. are Russia and Canada, and those two countries continue to receive our product from AI-free states. On April 6, shortly

after the announcements that high path avian influenza was eliminated from Texas, Canada immediately recognized the United

States as free of the disease, and resumed trade entirely.

After numerous discussions with our Mexican counterparts at all

levels, the ban was lifted on selected poultry meat products from

non-AI states, and unnecessary testing requirements were dropped.

Our focus is now on Hong Kong, China, Japan, and Korea, which

accounted for 22 percent, or $435 million of our poultry meat exports last year. These countries maintain bans on all products from

all the states, and we are working to reduce this immediately.

Two weeks ago during meetings on a number of issues, Under

Secretary Penn met in Beijing and Hong Kong with his counterparts to fully inform them of our actions to press for high path

avian influenza free status. We continue to exchange technical information with their experts, and are optimistic trade will be resumed soon.

We have invited technical teams to visit our scientists and to inspect U.S. processing operations firsthand. We are extremely gratified by the wholehearted cooperation of our industry in all of these

endeavors.

Mr. Chairman, let me summarize by noting that the outlook for

our exports is positive this year. We expect to continue that to be

10

the case in the next year as well. And it will remain true over time,

if we can continue to open up lucrative markets in the fastest growing parts of the world that want to buy U.S. agricultural and food

products.

Thank you again for the opportunity to talk with you today about

our trade situation and prospects. Ambassador Zoellick will complete the picture with specifics on the status of WTO, the FTA negotiations, and discuss the cotton case.

I look forward to our subsequent discussion. Thank you very

much.

[The prepared statement of Secretary Veneman appears at the

conclusion of the hearing.]

The CHAIRMAN. Thank you, Secretary Veneman. Ambassador

Zoellick, welcome.

STATEMENT OF ROBERT B. ZOELLICK, U.S. TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Mr. ZOELLICK. Thank you very much, Mr. Chairman. I would like

to begin by thanking Mr. Chairman, Mr. Stenholm, all the Members of the committee, on both sides of the aisle, because you have

given us a lot of good support and advice, not only over the past

year, but over the past three years, and I really appreciate the

chance to work with you. I know we have had a number of informal

sessions as well as formal ones, which I think are very helpful for

us, to have a sense of your priorities. Al Johnson and I have had

a chance to talk with probably almost everybody on this committee,

if not all of them, about their individual concerns, but it is really

important for us, as we go around the world, to make sure we

know your priorities.

And I want to thank Secretary Veneman and her staff. They are

excellent partners. The President sets us with a direction. He is

emphasizing the importance of agricultural trade for him and his

administration, but in many countries around the world, the trade

and the ag teams don’t work as well as ours do, and I just want

to thank them and take this opportunity to do that publicly.

I prepared a longer statement for you, but what I was going to

do today, Mr. Chairman, if you would just agree to enter that in

the record, is just to take you through this PowerPoint presentation. It may be a little easier.

Just a starting point, again, as an overview, as Mr. Stenholm talked about, we have about $59.6 billion of agricultural exports,

and that amounts to about 26 percent of cash sales for the American farm community. What does that mean? Well, in row crops,

it means about 1 out of every 3 acres is exported. 15 percent of

poultry. Pork and beef are now up to almost 10 percent. And the

horticultural exports, which Mr. Dooley will remind me is important, were up to about $6 billion worth.

So, this is a growing part of what we do in American agriculture,

and as Mr. Stenholm mentioned, it is a combination of activities.

Our top priority on the trade side is the WTO agreement, and then

how the regional and bilateral FTAs support them. Enforcement, as

you probably say, Mr. Stenholm, is a critical aspect of everything

we do. And then I also mention, because whether it is for the agriVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\10829 HAGRI PsN: HAGRI
11

cultural community or others, we know this is an adjustment process, and if we are going to have change, you have to help people

adjust.

The next page emphasizes, this committee gave us very strong

support in the Trade Act of 2002 in getting trade promotion authority. I just wanted to give a brief report of how we have tried to use

the past couple years to put it to good use.

With your help, we have completed and passed the free trade

agreements of Singapore and Chile. We have now launched and

completed free trade agreements with Australia, five countries of

Central America, plus the Dominican Republic and Morocco. We

have in progress free trade agreement negotiations with the five

countries of the Southern African Customs Union, Bahrain, and

just this week, starting Panama. We are about to start with Thailand and a number of the Andean countries, and going to a point

that I think the Chair mentioned, one of the reasons these were

high on our list is the ag community emphasized these as being

very good, important markets. They are growing markets. They

have high agricultural consumption. They are good opportunities

for the future, and they have both got high barriers, too, as a matter of fact.

The Miami framework to advance the Free Trade Area of the

Americas, and then the Doha negotiation, which we were able to

launch at the end of 2001, a number of you were with us in

Cancun. I think there is a sense around the world that it was a

missed opportunity, but our key point is that 2004 need not be a

lost year.

Now, picking up on the point of enforcement, because I know it

is the point that is raised with many of you and with us by your

constituents, I just wanted to emphasize how we approach this.

Some people talk about litigation, but as you see, I noted at the

bottom, there is really a range of tools here. There is the case of

persuading, for example, in Mexican beef. If we had brought a case

on BSE, that would have taken a year and a half. Secretary

Veneman and I worked very closely with different ministries, emphasizing that Mexico was frankly having a much higher cost for

protein because of the blockage for beef and for poultry.

An explanation case, India. Many countries, their ministries

frankly, some of their customs ministries aren’t as informed about

the trade rules. So India recently stopped our almond exports because of some methyl bromide requirements. It is about $70 million

of exports of almonds, and we probably just had to explain to them

what the rules were.

Building local support, part of our effort with Japan is, frankly,

to get the consumers in Japan to emphasize how the loss of American beef is very important to them.

Other incentives. Before we launch these free trade agreements,

we put a lot of emphasis on countries of cleaning up problems, so

whether it be a problem with Colombia, or another SPS issue, we

try to get things cleaned up before we do.

Providing assistance. For a lot of developing countries, they are

willing to abide by the sanitary and phytosanitary rules, but they

don’t really have the capabilities to do so. We work with AID and

12

others to try to emphasize that. And then of course, ultimately, negotiate and litigate.

So you see a little bit of the record here of brief times in terms of the $935 million market for beef. We felt our progress with Mexico was not sufficient, so we brought the case that the chairman

mentioned with high fructose corn syrup. I mentioned the almond

case, and a lot of people are unaware. We now have about $1 billion of almond sales around the world, so this is a very important

area for us. And cotton and soybeans, this is an area that obviously

we work closely with Mr. Stenholm, Mr. Chocola, Mr. Hill, and others, and the numbers, in terms of the China market, that Ann was

referring to, that is now at $2.9 billion of sales of soybeans.

So I was talking to Mr. Peterson about the price of soybeans being about $10 a bushel, and a lot of that, thankfully, can be

traced to the demand in China. And cotton, $740 million of sales,

and in the first two months of this year, our sales of cotton to

China were about $500 million. And so we hope this is even going

to be a much bigger banner year on this.

In poultry, pork, and beef, we negotiated with Russia an access

agreement, and this is one that we worked closely with the chairman on. He wrote us about this, particularly with the poultry market. And in next month, Al and I hope to be finalizing some of the

details of that with our Russian counterparts. Again, the apples

case. Mr. Larsen isn’t here, but he worked very closely with us on

this, about the case against Japan. Hogs, I know it is an interest

to a lot of you, Mr. Etheridge particularly was focusing on this case

with us with Mexico and opening the market.

So, if you actually look, Mr. Chairman, at our WTO cases we

filed in this administration, over half of them are agriculture, so

this is very high on our list.

Now, to go to the negotiations. The challenge is trying to get 147

economies to develop a consensus to move forward. And as I mentioned, the sense that we had by December was that in the aftermath of the Cancun breakdown, a number of countries were seeing

this as a lost opportunity, but they didn’t really have a sense of

how to move back to the table. And that is what prompted us to

send out the letter that I sent to all my ministerial colleagues, followed with a trip, and we have now had meetings in Geneva in

March and April. And in fact, I am leaving this afternoon to another session, to try and push this forward ahead by the summer.

Our focus, which is the focus that you have guided us towards

in this committee and the ag community has had, which is the key

three pillars. We want to eliminate export subsidies by a date certain. That has been a big goal for U.S. agriculture, and frankly, I

think it is a goal that is now within reach. The European Union

is getting a lot of pressure on this, and for a lot of products. About

a third of their agricultural export subsidies go to sugar, beef, and

dairy. It makes a big difference around the world. I am sorry, about

90 percent of their subsidies go to those three.

And as both the chairman and Mr. Stenholm mentioned, looking

back at that chart that the chairman had, is that the Uruguay

Round left us with a real asymmetry in terms of those overall numbers, and so our goal is not just to cut domestic support, but to do

it in a harmonized fashion. And that is another area, Chairman,

13

that I think, following up on the CAP reform, that we have some

acceptance even by the European Union that we will have to do

that.

Now, there are some other areas that we have dealt with like the

Blue Box, which we have emphasized if Europe is going to keep it,

we are going to need to keep it in an equal way, and which I think

will also help.

But also, a key point is market access to both developed and

major developing countries. With your support and the support of

the Agriculture Committee, we are willing to cut, if we can get others to cut, but it is critical that we get others to move with us. And

I have mentioned some of the other items here that are part of

this, but agriculture will be the core of these negotiations, for us

and others going forward.

The next page duplicates some of the points that the chairman

mentioned, so I won’t go over them, but I will just even point out

that because of exchange rates, the numbers that the chairman

mentioned, I think he used about $67 billion for the EU, their

bindings are in euros, so as the euro value changes, that is actually

up to about $80 billion now, in terms of dollar amount, and for

Japan, about $37 billion. But you can see, just as the chairman had

on the chart, the U.S. average tariff level in agriculture is about

12 percent. The world is 62 percent. Export subsidy expenditures,

the chart to the right. 88 percent of that comes from the European

Union, 2 percent from the United States, and then you have a domestic support chart, like the chairman had.

Now, we do complement this by trying to move in regional areas.

With the Free Trade Area of the Americas, we have settled on an

approach for the Enterprise for ASEAN Initiative. This is really a

pathway to try to move through countries in Southeast Asia. A lot

of these countries are good potential agricultural markets. The incomes are going up, the populations are up. Their tariffs are relatively high, and that is what led us to start with Singapore, move

on to Thailand, and then try to create some momentum.

And we are taking a similar approach in the Middle East. Now,

I get a question, and I am sure many of you get it, about well, why

does the United States do bilateral agreements? Obviously, the biggest bang for the buck is in the case of Doha. That is definitely

true, but when you have to move something along with a consensus

with 147 players, we decided we don’t want to let somebody hold

us up. We don’t want to give somebody a veto of us, over us, so we

want to try to use some leverage.

Just to give you a little basis of our new impending free trade

agreement partners, and these are just the players we have had

since you helped us pass TPA. That is 300 million people. That is

the same size as the United States. It amounts to the world’s sixth

largest economy, fifth largest market for U.S. agricultural exports.

$4.2 billion in U.S. agricultural exports today, but these are growing markets, so I would expect that to move ahead.

And I mentioned Thailand. Mr. Dooley has been one of our cochairs of this effort with the Thai Caucus in Colombia. One of the

reasons we focused on these is that in the case of Thailand in 2003,

we had record U.S. agricultural exports, including beef, pork, horticulture, and soybeans. And because of various trade preference proVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\DOCS\10829 HAGRI PsN: HAGRI
14

grams that have been in place for many years, 99 percent of Thailand’s agricultural exports already come into the United States

duty-free. But Thailand’s bound tariffs, not necessarily their applied level, but the ones they could go up to, are about 35 percent,

and they have tariff rate quotas on a lot of products. So frankly,

if the other guy has got 99 percent of his product coming in dutyfree, and we are limited with a 35 percent tariff, you can see the

benefit of opening this market.

Same in the case of Colombia. That is already the largest market

for U.S. ag products in South America, including corn, wheat, soybeans, and cotton. If you take Colombia, Peru, and Ecuador together, and we are trying to resolve some investment issues to

move ahead with Peru and Ecuador, that is almost a $1 billion ag

market for us.

Now, looking at some of the agreements we have concluded,

starting with the Central American Agreement and the Dominican

Republic, again, you have the same phenomenon that I mentioned

for Thailand. Today, 99 percent of these countries’ farm goods enter

the United States duty-free, and we don’t have reciprocal U.S. access, so our free trade agreement is the best way to level the playing field.

What this agreement does is take more than half of current U.S.

farm exports and make them duty-free immediately, so that is

product as varied as apples, French fries, soybeans, wheat, and cotton. Did analysis of the agreement and said it could mean another

$1.5 billion for U.S. farms. Now, we know we have sensitive products, and the most sensitive one is sugar. The way we handled

sugar was very important. We made no change in the above quota

tariffs, which all of you know are actually quite high.

The only thing we changed was the quota amount, and the increased access amounts to 1.3 percent of U.S. production. That increase is about one day’s production. Now, some of you from sugarbeet or sugar cane states say why did you have to do anything, and

the reason I would answer, or what I would say in an answer is

you have to look at the rest of the columns to be able to get the

addition for pork and beef and corn and wheat and other things.

We had to do some opening for your sugar, but we did it within

the bounds of the sugar program that the Congress has created.

This agreement also includes some strong labor and environment

provisions which we believe will also help these countries enforce

the rule of law and have better protections.

Now, let me move to the Australia Free Trade Agreement. On

this one, all U.S. farm exports will enter duty-free from day one.

That is about $400 million of trade. That benefits processed foods,

oilseeds, oilseed products, fruits and juices, vegetables, nuts. We

worked with Mr. Nunes about, I know, it is a sensitive one, is distilled spirits. Sensitive products, and so we work very closely with

the ag communities, and Members of this committee on these topics. In the area of dairy, we did the same approach that we did for

sugar in CAFTA. We didn’t touch the above quota tariff. And so

what we did is put a modest quota increase that amounts to about

2 percent of the value of U.S. production.

In beef, we put in a quota that grows very, very slowly, over the

course of 18 years. The quota is only for manufactured beef, which

15

is a complement for a lot of the corn-fed beef that we have. The

above quota tariff phases out over 18 years, and it is back loaded.

The tariff reductions don’t even start until year 9. And we were to

able to have safeguards not only during the 18 years, but a price

based safeguard after the 18 years going forward.

Sugar, no change, and then for our sensitive products like avocados, cotton, peanuts, and tobacco, we worked with our TRQ system.

Now, another important element that the chairman and others

have emphasized is moving ahead with sanitary and phytosanitary

commitments with Australia, because they have had a more restrictive system. Here, we not only affirmed the process in the

WTO, but we established a special structure working with USDA

to try to get through these problems and resolve them on a scientific basis. And again, I think we share the view with this committee, we don’t negotiate SPS issues. We have sensitive subjects

that we want to make sure are done as a science-based method. We

want to make sure that people do them fairly and quickly, and not

use this as a reason to drag out, and so we have already moved

ahead with risk assessments on track. There is one most far ahead

on pork, stone fruit, poultry, and Florida citrus.

The Morocco Free Trade Agreement. Here is one where we managed to get some benefits that are really going to help us compete

with Canada and the European Union. Beef and poultry, obviously,

give poultry important to the Chair, but Mr. Hayes, I know, was

here, just came back, is a very important issue we worked on with

him. This was formerly a closed market to us. We now have new

tariff rate quotas that could mean a five times increase in wheat

exports, two times increase for almonds. Significant tariff cuts for

corn, soybeans, corn and soybean products, immediate duty-free access for cranberries, pistachios, pecans, whey byproducts, processed

poultry products, and pizza cheese. Zero tariffs within 5 years for

walnuts, grapes, pears, and cherries. And again, we try to deal

with some of the sensitive subjects. Mr. Nunes and I were deeply

involved with this issue of olives, trying to deal with the most sensitive tariff line and put in a very long phase-out.

Trade with China. As Secretary Veneman mentioned, this is a

major market today, and it is going to become an even more important market in the future. U.S. agricultural exports grew 140 percent from 2002 to 2003. This is already our fifth largest export

market for agriculture, and if you include the fishery and the forestry products, it is $5.4 billion of exports.

U.S. soybeans to this market are already bringing home more

money than you get from sales of U.S. airplanes, $2.9 billion, and

in this JCCT meeting that we just had a week or so ago, we managed to elevate the dialogue by involving a Vice Premier that supervises a lot of the ministers, to try to bring forward some good

results, and again, this shows, I think, some of the payoff of the

work with your help that we do with China, as all of you know,

we have had biotech issues, and we are pressing the Europeans in

a suit, but we solved these problems with China with soybean,

corns, canola, cotton, and the last two corn ones, we expect to get

in May. That is a real big benefit to be able to get a major developing country to back us on biotech.

16

We had problems in transparency in TRQ administration, but Al

Johnson, and J. B. Penn, and the Secretary have made progress

with these cotton, and indeed, we made additional progress where

just over the past couple of weeks, they give our people the list of

the people who get the quotas, so they can be able to do the deals

directly. And then commitments in other areas important for the

U.S. economy, in IPR, trading distribution rights, high tech.

Just a concluding point, looking ahead, we recognize that American agriculture is as much a part of this as any other sector of our

economy. We have got technological changes. We have got big

changes in terms of population growth around the world. So we

have to manage this in a way that takes advantage and seizes advantage for American farmers and ranchers.

One thing we know won’t work, and that is economic isolation- ism, raising barriers. You have got almost $60 billion of exports

around the world, and you start to raise our barriers, well, what

do you think people are going to do to us? Trade benefits more

Americans through more markets, more choices, lower prices. So,

our strategy has been to open new markets for products and services through trade agreements, but at the same time, emphasizing

a level playing field, with full enforcement, cutting hidden import

taxes that hurt American working families, and also, on the side

that many of you in your districts, from the business side, trying

to create an environment here where we can in-source jobs with investment, and also helping people adjust with change, whether it

be through education, worker training, portable pensions, helping

people save their own hard earned dollar.

Let me just close with a point on cotton, because given that this

case came down, the chairman’s point, I just wanted to share with

you, we had some chance to—Al, I think, had a chance to talk with

some of you yesterday and brief your staff. But let me just tell you

where we are on this.

What the WTO panel issued was called an interim report, some

375 pages long. At this point, it is supposed to be confidential—but

you always start to see leaks about the nature of it—until midJune. Now, the reason why it is in a confidential state is we and

the other party has an opportunity to review the report and make

suggestions before it is made final in mid-June, which we are clearly doing.

The key point that I want to emphasize that guides our direction

on this is the point that the chairman and Mr. Stenholm started

with, which is we believe U.S. farm programs are fully consistent

with the WTO rules. Now, if this panel comes out in final form, in

a similar pattern as the interim report, you can be 100 percent

sure we are going to appeal this and press this all along the way,

as the chairman and Mr. Stenholm urged us to do.

There is no immediate impact for farmers and ranchers around

America, because this litigation process will continue, and this

could last months and possibly a year or years. Now, depending on

the result, we will need to work with you, because this can have

opportunities and problems, both offensively and defensively, related to our trade policy, related to our relations with the WTO, related to our farm policies. So, of course, one of our key efforts, and

in that way, this hearing is very timely, is to work closely with you

17

formally and informally to make sure, as we analyze it and see the

results, that we can get the guidance of this committee. As Mr.

Stenholm mentioned, and I didn’t realize he was a citrus district,

but sometimes you can make lemonade out of lemons, as he told

me, and I think there may be some opportunities for that, too.

The key point here is to stress what we have always emphasized,

which is unlike some countries, the United States has been willing

to negotiate its subsidies and willing to negotiate its tariffs. We

were the country that put forward a very bold offer after we

launched the Doha negotiation, to eliminate export subsidies, to cut

domestic support, and frankly, cut tariffs very significantly. And we

haven’t changed in that position. That is one of the reasons why

I sent the letter that Mr. Stenholm referred to. We want to get people back at the table to move forward.

But as the chairman and Mr. Stenholm mentioned, we are not

doing it by ourselves. Everybody has got to come to this party and

play, because of the numbers that the chairman put in his chart.

And my message is that I think it would be a very big mistake to

try to solve these very complex agricultural issues through the

process of litigation country by country. It will be piecemeal, it will

be uneven, it is going to be very drawn out, it is going to be long,

and in my view, it is going to be contentious and ultimately counterproductive. I don’t believe that approach is going to lead to a

sustainable solution, and that means that it is going to be very important for everyone to be willing to negotiate together. And what

I want to assure this committee is to make no mistake, that we are

going to fight to defend U.S. ag interests, regardless of the forum,

whether it be litigation or negotiation. I would see this decision as

one stage in the process. This is a marathon. It is not a sprint. And

this is an early mile in this process, and as we go forward, we will

be working with this committee to keep pace with you.

Thank you.

[The prepared statement of Mr. Zoellick appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Ambassador. In that light, let

me introduce to the committee another distinguished visitor that

we have with us this morning, and that is the new Ambassador to

the United States from Brazil, Ambassador Roberto Abdenur.

Ambassador, we are pleased to have you with us to listen to our

side of the story. In that regard also, Ambassador Zoellick, and Secretary Veneman, I am pleased to hear that you will consult with

and keep the members of this committee fully informed of all activities related to this case, and that you will aggressively pursue

all possible appeals in this case, so that we can maintain our farm

programs, that were designed to be and are fully consistent with

our WTO obligations.

Secretary Veneman, in that same regard, I wonder if you would

comment on the participation of developing countries in the negotiations on agriculture. I understand that the Doha Development

Agenda directs that special and differential treatment for developing countries is to be part of all negotiations.

The real question is what is a developing country? Is Brazil? I

have been to Brazil. We are not talking about small farms, inefficient processes. We are talking about very large, massive farms. I

18

visited one company that raises 500,000 acres of soybeans, and has

developed quite an infrastructure in the country for the export of

this product. They are a very modern and advanced and very competitive country when it comes to agricultural products. They are

the world’s largest exporters of soybeans, citrus, the world’s largest

exporters of coffee and tobacco, and the world’s largest exporters of

sugar. Is it expected that a country will continue to be able to declare itself as a developing country with no opportunity for any

other country to object, and thereby have a longer time period to

implement reforms to its agricultural program without being challenged on that basis?

Secretary VENEMAN. Well, Mr. Chairman, thank you for the

question, and certainly, as you know, developing countries are playing a key role in this round of WTO negotiations, hence the Doha

Development Agenda. The developing countries, as I said, be they

in Africa or around the world, have been very proactive in the discussions, and certainly I think when you joined us in Cancun, you

saw the significant role that they are playing.

But the question you raise is a very, very important one, and one

that we have continued to press in the negotiations as well, and

that is that while countries may be deemed to be developing countries generally, many times in agriculture, that is not the case. And

particularly in the case of a country like Brazil, where they are

very developed from an agricultural perspective, and we don’t believe that Brazil and countries like it should be deemed to be developing countries for purposes of their commitments under a WTO

agreement.

This is a point of negotiation, but certainly something that we in

the United States feel very strongly about.

The CHAIRMAN. Thank you. Ambassador Zoellick, can you update

the committee on the issues related to geographical indications and

the WTO agricultural negotiations? I understand that the European Union included provisions in its market access proposal for

agriculture that could, if adopted, harm exports of U.S. products

such as meats and cheeses. I would appreciate if you would bring

us up to date on the issue of geographical indications as related to

the current WTO negotiations, and the USTR’s recent action to

seek consultations in the WTO over the European Union’s action

on geographical indications.

As you know, this is already a problem for U.S. companies in Europe, and now they want to extend that to the United States and

elsewhere around the world. I am sure everybody in the room is

very familiar with this green can that contains Parmesan cheese.

Most Americans have one in their refrigerator, and they do, not because of anything that anybody in Parma, Italy did, but because of

the marketing efforts of Kraft and a great many other food processing companies in the United States and elsewhere in the world.

In Europe today, we found this in Europe on my last visit. This

is what Kraft is reduced to. They must sell it under the name

Pamesello Italiano. It does not allow them to use the name Parmesan because of rules in Europe, and I would appreciate your

comments on that.

And on a brighter note, I was also pleased to learn that you have

been advised that the EU will not allow the Czech Republic to use

19

the terms they listed as GIs in their accession treaty to the EU in

translation, which means that they will not be able to translate

their terms to Budweiser. This is obviously an important American

trade name as well and one that has been talked about as being

excluded from being able to be used in Europe, so we thank you

for those efforts.

I wonder if you would comment on the subject in general.

Mr. ZOELLICK. Well, Chairman, you will appreciate knowing that,

and the committee may be interested, when I had lunch with the

chairman, and he brought out the Parmesan cheese, I thought it

was for my salad, but I realized it was now a larger point being

made. And I keep it in my office, and sometimes some people from

other countries say why do you have that there, and I point out the

importance of the issue.

A couple points, Chairman. First, in terms of trying to get the

WTO negotiations back on track. This issue hasn’t really changed

since you last left it, and our position has remained as it has been,

which as you know, in the area of wines and spirits, we are willing

to negotiate a voluntary register, but we do not want this to become a new device for protectionism.

One way we wanted to drive home that point is the second issue

that you mentioned, which is that there is a real irony in the European Union’s position, because we believe the European Union’s

treatment of other countries’ geographic indicators violates WTO

rules, because they are not allowing national treatment.

You can only register a name if it is based on an EU place name,

or unless you accept their system, which is a reciprocity requirement, not national treatment, and so, we thought this is a way of

combining a case with our larger point.

And then third, as you said, we had been working closely with

the European Union as the Czech Republic came in. They managed

to protect three Czech names. We wanted to make sure that the

translation to Budweiser wasn’t something accepted, and we were

just able to verify that in the past day or so.

The CHAIRMAN. Well, thank you. We are inclined to call all this

a bunch of bologna, but then we find that that is indeed another

name that the Europeans want back and don’t want to allow us to

use in this country. So we appreciate your efforts, and hope you

will persist in that.

It is now my pleasure to recognize the gentleman from Texas,

Mr. Stenholm.

Mr. STENHOLM. Thank you, Mr. Chairman. I think it would be

important to reiterate the comments, Mr. Chairman, you made,

and both the Secretary and Ambassador made regarding the importance of world trade. And also, for the world to begin answering the

question as to how long you believe that the United States of

America can keep buying $540 billion from you every year, more

than we buy from you, without the law of economics taking over,

or politics. And that is what the WTO round, the Doha Round, is

all about, is attempting to open markets, all markets. And as has

been pointed out, ours is relatively open. But we are not perfect,

and in being not perfect, that means you negotiate through good

faith negotiations to do something about it.

20

You know, something my colleagues in the Congress had better

start thinking about is when we buy this $540 billion from the rest

of the world, what happens to the money? Thank goodness these

same folks that we sometimes criticize are buying our debt, because if they were to stop buying our debt that we are running up

at an even more alarming rate, we would have real problems. And

it is time that we start thinking about that, other than doing what

we are going to be doing on the House floor later today, just building up more debt, and saying it doesn’t matter.

I think my colleagues on this committee particularly ought to

start thinking about that a little more than we do. China, right

now, buying a lot of cotton, and we are very appreciative of that.

But the question is are they going to buy it next year? Are they

going to live up to their WTO agreement? I hope so. That is the

critical to all of this. As the chairman has made it very specific,

this committee, certainly I will speak only for myself, but I believe

that in a very bipartisan way, we will live up to our agreements,

and we believe to the best of our ability that the 2002 farm bill did

live up to our agreement, that which was negotiated.

Now, we are facing with the potential, it is allegedly, it is hypothetical, we don’t know, as I understand, Ambassador, you pointed

out what came out in the papers is an initial report. We do not

know any specifics of what we are talking about as yet, and therefore, will not comment on that which we do not know. By June, we

will know. But I think we can safely say this, we now know that

we have got a new dimension in our trade negotiations. It is called

litigation. And it is very difficult to be in the courts litigating at

the same time that you are going to be having good faith negotiations.

That is something that we all need to think. It has certainly gotten me to thinking, because the bilaterals that you spoke about,

each of them have got some problems of their own merit, but one

of the strengths of agriculture, and one of the great strengths of

this committee, for as long as I can remember, has been we work

together. We don’t have Republican and Democratic ideas on this

committee. We have agricultural ideas. And I know as one that is

now saying, taking a look at these bilaterals, we have got a new

dimension that has been thrown in that is going to cause at least

this one Member to sit back for just a moment until we can fully

analyze what this WTO finding really means, because we, I know,

once we find out what it really means, we will address it. But by

doing that, I have always been a little nervous about us negotiating

bilaterally until we can get some of the multilateral deals made.

You have caused a lot of criticism, Mr. Zoellick, because of the

exclusion of sugar from the Australian agreement. Well, my question to you is isn’t that fairly normal in negotiations that something gets excluded?

Mr. ZOELLICK. Mr. Stenholm, it certainly is. When I was in

South Africa on this trip that—pushing the WTO—I was talking to

my South African counterpart, and he was saying how delighted he

was that some 45 percent of their agriculture was covered in their

free trade agreement with the EU, and the Mexicans covered about

45 percent of their agriculture, they told me, with Japan.

21

Now, we do try to be comprehensive. Now, in the NAFTA, actually, many people forget, with Canada, we excluded sugar and

some dairy, and some eggs, so we have already done this. The reason we try to be comprehensive is because we need to get other

people to put their items on the table, and in the case of Central

America, for example, there was a very strong export interest to

the United States in agriculture, and to draw out their positions

on a number of these items, corn, soybeans, beef, poultry, and others, we had to be able to say we will be able to discuss everything.

But then what we tried to do was deal with sugar very sensitively. Frankly, in the case of Australia, we felt there was enough

diversity in this agreement, and there was enough interest, and we

knew there was enough sensitivity in the agriculture community,

we had to deal with beef, dairy, and sugar in special ways, and

that is what we did. That is why I think it is a good agreement

on the manufacturing as well as the agriculture side.

Mr. STENHOLM. My time has expired, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from

Michigan, Mr. Smith.

Mr. SMITH. Give us the timeline as you see it on the followup on

this interim decision of the WTO judges on cotton.

Mr. ZOELLICK. As Mr. Smith and I were talking a little bit before

the hearing, the final report should be due out, I think it is June

18, about the middle of June. After that, assuming that it comes

down in somewhat similar to the form we saw the interim, we will

definitely appeal. There is not a definite time for appeal, but basically, look towards the end of the year, sort of a period for appeal.

Then, depending on what happens under appeal, then at least

under WTO rules, a party can determine, it has a time to come into

compliance. And now, we are starting to get very hypothetical, Mr.

Smith, because we don’t know what will happen at the final ruling,

what will happen in terms of an appeal, but there is a period, and

this also depends on what the elements are. There may be some

elements that we could meet them, if there have to be changes,

with rather modest changes. It is really starting to be very hypothetical.

But I think the key, Mr. Smith, is the one that I think all of us

have mentioned. And this is important to also know, is that we can

decide not to meet them, in which case other parties can retaliate

against the United States. That path, in my view, is a destructive

path for the world economy, and that is why the key path, and I

hope that the countries that are bringing these cases recognize that

could get us into a spiral that could get——

Mr. SMITH. So how is this going to affect WTO negotiations, with

that sticking out there with this issue, some of the concern and

some of the failure at Cancun, how is this going to affect WTO negotiations?

Mr. ZOELLICK. Well, from the U.S. part, it doesn’t change the

commitment that we have shown from the start. In other words,

we have said if we can get others to cut their subsidies, eliminate

export subsidies, cut the tariffs, particularly some of the major developing countries as well, we want to go forward. But we are now

looking at a—we potentially are looking at a new definition of what

is an export subsidy.

22

Mr. SMITH. If this goes through. Is that right?

Mr. ZOELLICK. Well, it depends on—in some ways, it is a little

preliminary to say exactly how that is going to come out, but that

is a subject that we are negotiating right now, Mr. Smith. In other

words, right now, as we have been committed to eliminating export

subsidies, the European Union has a cap of about $5 billion, they

use about $3 billion. As part of that, we have said that we are willing to take the subsidy element out of export credits, which deals

with the maturity and the aspects of the fees that you pay and others, because frankly, that is a very good deal for American agriculture, to wipe out pure subsidies, as opposed to the subsidy aspect of export credits.

But the key point I want to come back to, Mr. Smith, is the real

effect this has on the Doha decision will depend on other countries,

because if other countries decide to stand back and litigate their

way as opposed to negotiate, I think it is going to be a very complicated and nonproductive result for everybody.

Mr. SMITH. Switching gears a little bit, what is our trade deficit,

$500 and how many billion?

Mr. ZOELLICK. It is about $500 billion. It depends if you use current account or the number the chairman uses a little, it is about

$530 with goods. It is about $503 with goods and services.

Mr. SMITH. Now, what that means, and Mr. Stenholm started

talking about a little bit, is these other countries make a decision

what to do with those extra American dollars, and there is $500

billion that they have decided not to buy American products, but

decided to buy Treasury bills, and buy some of our businesses

through equities. And at that—I mean, at this point, they consider

that a better investment than buying more of our products. If the

glow of the investment opportunity in the United States diminishes, does that mean they will look for other countries to invest

in and take money out of the United States, or does that mean they

will buy more American products?

Mr. ZOELLICK. I am not sure I could say for sure what their

choice would be, and it would probably be a combination of both,

Mr. Smith, and let me explain at least one reason why.

If they start to take money out of U.S. securities, that means the

demand for dollars goes down. That means the value of the dollar

will go down. That probably means our goods are cheaper relative

to theirs, so they will probably be buying more U.S. goods, so that

is where the exchange rate aspect fits in.

So, it is pretty—it is a hypothetical question. I can’t—that is

something I just couldn’t——

Mr. SMITH. Yes, I asked it pretty much just to call to everybody’s

attention the dilemma this country is going to be in if we continue

to have deficit spending, continue to make promises without the

money to pay for them, and unfunded liabilities, and the disaster

that can occur if the United States ceases to be a good place to invest money.

So thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. I would say, Mr. Ambassador, I speak for myself, I know Mr. Stenholm, and I suspect most

of the Members of the committee, we strongly support your efforts

to fight these attacks on our programs, and we have said that all

23

of this is subject to negotiation, and that if we can accomplish

major reductions in European export subsidies and domestic subsidies elsewhere in the world, and most especially in tariffs, that

we are prepared to negotiat. But we are not prepared to unilaterally disarm and receive nothing in exchange for what is already the

most open agricultural market in the world.

At this time, I would like to recognize the gentleman from Minnesota, Mr. Peterson.

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

you have consistently stated that you will not negotiate domestic

support programs in either the bilateral or regional free trade

agreements, and you have said, I think, that domestic support programs should be reserved for the WTO, and I concur with that, and

I can also tell you that my farm groups concur with that. Am I correct in characterizing your position on that?

Mr. ZOELLICK. Yes, but where you are going is to say we can negotiate tariffs or quotas, and that is not my position.

Mr. PETERSON. I wasn’t going to say that that was your position,

but anyway, what I am concerned about is that I think that with

some of these commodities, we have a different situation. Sugar,

which is an important product in my area, is a different situation,

with the $7.17 sugar market today, there isn’t anybody in the

world that can produce sugar for that. The Europeans are screwing

this up, mostly, as you know, with their export subsidies. I understand the pressure you have got in CAFTA from the Guatemalans.

The reason for that is because their cost of production is $0.10, and

whatever they can get out of us, in an $0.18 price, is going to benefit them considerably. So I understand that.

But the problem is that I don’t see with these bilaterals how we

are going to get where we need to get. We are just going to further

erode our situation, and then whenever we do get to the WTO, we

are going to have less of an industry here in the United States. We

have 700,000 tons of surplus sugar right now, we just put on market allocations, because we have 300,000 tons too much this year.

We have a world market that is not a real market, a dump market,

and it just seems to me that it is not fair or consistent that you

make market access concessions in CAFTA and in the Dominican

Republic, because what it is going to do, it is going to undermine

our domestic sugar program. That is the only possible outcome of

this.

And 1.3 percent is not an insignificant amount. It is equivalent

to closing one of the sugar plants in the United States, and if we

continue, and I commend you what you did with Australia, but this

is a big deal not only in sugar, but in dairy, 2 percent in the dairy

market, which is what the Australia agreement is, will collapse the

dairy market to price supports. We have seen that happen time

and again over the last number of years, as this thing has gone up

and down. So it doesn’t sound like very much, but in the past, 2

percent has been the difference whether we are at supports, or

whether we are at $15.

My question is, and I guess you probably won’t agree that this

isn’t going to undermine our domestic situation, but we have got

this surplus now. We have got 700,000 tons stored. We have got

24

market allocations. How can you say that this isn’t going to put

pressure on to change our domestic program?

Mr. ZOELLICK. No, it is a good question, Mr. Peterson, and I appreciate it. I know a number of you and your colleagues have had

this concern. Let me put it in the context we are trying to work

at.

You know, nationwide, sweeteners and sugars are about 1 percent of U.S. farm cash receipts. I know it is very important, but it

is 1 percent of what we are dealing with. And it is about less than

one-half of 1 percent of U.S. farms. In the case of Minnesota, you

probably still have family farming, it is 2 percent of the farms in

Minnesota are sugar beet producers. It is about—the total cash receipts in Minnesota were $7.5 billion, of which $400 million were

for sugar. That is 5 percent. The top 5 commodities just in Minnesota are corn, hay, soybeans, cattle, and oats. So how do we help

all those people, and most of the farmers that are in the United

States, while, and this is the key point, while dealing sensitively

with the sugar issue.

And there is no hard and fast rule on this, as you said. We kept

sugar out of Australia, because of the overall, the balance. In the

case of the CAFTA agreement, there would have been no way that

we would have been able to get an agreement that the Farm Bureau thinks would boost our farm position by $1.5 billion, and help

a whole bunch of commodities, unless we opened up some with

sugar.

So what we did is not undermine the fundamental program created by dealing with the tariff, which normally you do in a free

trade agreement, and we just expanded the quota. Now, how did

we come to that determination? Well, frankly, it was based on the

program that the Congress has decided about how much has been

allowed in to still preserve the price level that you have in sugar,

and we are well under that amount. And the 1.3 percent of production rises over 15 years to 1.9 percent, so over 15 years, we have

still kept this very, very much under control.

I understand the sugar industry doesn’t want to open up anywhere to anything. But the challenge I have, Mr. Peterson, is I

have also got to watch out for your soybean farmers and your corn

farmers and your wheat farmers and your beef producers and your

pork and poultry and others that all want to export. And so, we try

to strike a balance there within the rules, and I think we, frankly,

struck a pretty good balance overall.

Mr. PETERSON. Well, my folks don’t agree in the Red River Valley, you are going to get 25,000 signatures on petitions here in the

next week or two. And in the Valley, the only people making money

are the sugar beet farmers. Most of the soybean guys that sold

their crops at $6, so hopefully, they will have soy, the price will be

there next year.

Mr. ZOELLICK. I don’t want to comment on the Minnesota soybean farmers, but they sold at $6 and it is now selling for $10,

but——

Mr. Peterson, if I could just say one thing on this. Where—I realize that you all have a difficult issue with this, too. If you could

help us, there has been a lot of stories out there, and I know in

the Red River Valley, about how this is going to undermine the

25

sugar program. It isn’t, and we will be happy to look over the numbers. It won’t. One of the things I know you have to deal with and

I have to deal with is people get scared out there when people put

things out, but that isn’t what is going to happen to the sugar program.

And there is a lot of other agricultural interests in this room, including in Minnesota, that are going to benefit from this.

The CHAIRMAN. I thank the gentleman. The gentleman from

Florida, Mr. Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman. And I thank Secretary

Veneman and Ambassador Zoellick for all the work that you have

put into these efforts, to these issues. And I think that the exchange between you and the gentleman from Minnesota highlights

the complicated tasks that both of you have in balancing the needs

of all agriculture and weighing the consequences of trade negotiations on existing farm policy and domestic support and things like

that.

And so I use that complicated discussion to make the point that

there is a great deal of American agriculture that is very uncomplicated, because it receives no domestic support, no assistance, no

safety net. There are no unintended consequences. It is a pure free

market enterprise, just as other pieces of our capitalistic system,

and so when you take domestic support off the table and push it

only to the global round, that is fine, that makes a lot of sense for

a lot of American agriculture. But it leaves very vulnerable remnants of American agriculture that are no net cost to the American

taxpayer, and I appreciate the effort that you have put out for

produce producers, for fruits and vegetables, and I just continue to

remind you that the unintended consequence of moving domestic

support issues to the global level are that at the regional and bilateral level, we are the only ones left on the chopping block. And that

is a very sensitive issue.

The Australian agreement did have some precedent in there as

it related to sugar, and you have commented on that to a great

deal. Is the Derbez draft still the underlying document, and does

it still provide for certain sensitive commodities to be excluded for

purposes designated by those nations?

Mr. ZOELLICK. Well, thank you, Mr. Putnam, and as you and I

know, I had a wonderful chance to talk to the growers in Polk

County, and get it directly from them, so I know the balance you

are trying to strike, too. The Derbez text is the general working

draft, but not all countries have formally said they are willing to

work from it in all aspects. And the part that you are focusing on,

Mr. Putnam, deals with the market access aspect, and there was

an element of there that divided the market access into two categories, one for sensitive products, and then another category—and

in the sensitive products, they would use more modest tariff decreases and tariff rate quota increases, and then for the rest, would

use what American agriculture was pushing us very hard, a harmonizing formula, a Swiss formula. That is still very much a subject of debate, but I would suggest this is that I think there will

remain in any result a need to treat certain sensitive products with

care.

26

Now, we as a country, Mr. Putnam, because of many of the interests in this room, are trying to be as aggressive as possible, and

as you know, most of our agriculture interests have said if everybody can move, they will move. But my best judgment is there is

going to be sensitivities in certain countries, like rice and others in

Japan, and so we will have our sensitivities, and that is why it is

important we stay in close touch with you and others on those

products.

Mr. PUTNAM. Well, I think that it is very important to stay in

close touch, and certainly, there have been very open lines of communication between you and Ambassador Johnson and the Secretary’s office, and everyone else. Let me just move—change gears.

The chairman raised this issue of the definition of a developing nation. Do we—have we attempted to come up with an alternative

definition of a developing nation, something that moves beyond per

capita income, perhaps whether they are net exporters of a particular commodity. Whether a particular commodity in that nation represents a threshold of percentage of world production, or some alternative approach to defining developing nations, even if it is a

sliding definition that—where they may be a developing nation for

some pieces of the agreement, but not qualify for special consideration in other pieces of the agreement. Is that something that we

have come up with some alternatives on?

Mr. ZOELLICK. There are some precedents for that in the WTO,

dealing with countries like the least developed countries, and a

group called IDA, which is related to the World Bank definition of

what a particularly poor country is. But I think on the issue that

you and the chairman are focusing on, our approach has been not

to get lost in endless debate of that, because it may vary by country

and product and frankly, I am worried it will just lead us to, in

some ways, just to a dead end, where the debate will get locked on

this.

We have tried to make the more basic point that all of you are

making, which is that particularly for some of the mid-level competitive developing countries, they have got to also ante up. I have

been, in the letter that Mr. Stenholm referred to and others, I have

referred to these generally, but I have referred to them in other

contexts, we are not trying to ask much of the poor country in Africa, or the poor country in the Caribbean, but some of the major

Latin American economies, southeast Asian economies, south Asian

economies, and even the case, take India as an interesting example. India has about 600 million people in a rural area that are

very much subsistence. And that will be a challenge to deal with,

because that, in some ways, fits a category of special and differential. But it also has a couple hundred million people that are an

emerging middle class, so we need to have a way to be able to sell

into those markets. So, in a way, I think the way we are trying to

address your question is to focus on the countries individually, and

say if we are cut our subsidies and cut our tariffs, you are going

to have to open up some of your markets, too. And we know which

of those countries are, and we work closely with American agriculture in terms of targeting the markets of opportunity.

Mr. PUTNAM. Thank you.

27

The CHAIRMAN. I thank you. The gentleman from North Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you. Thank you, Mr. Chairman. And let

me welcome both of you, as others have, Secretary Veneman and

Ambassador Zoellick. We appreciate having you here.

This has been covered to some extent, but I want to touch it

again, Mr. Ambassador and Madam Secretary. If the WTO Dispute

Panel ultimately should rule against us, we hope it won’t, and I

know you are working hard to make sure that dose not happen.

But I sense that there would be a lot of erosion among farmers and

producers very quickly on trade agreement, that is already, as you

have already heard and know, is declining to some extent, but I

think it would decline very quickly overnight. And I think if that

should happen, it would be unfortunate, because then, I think, it

would be—all the works gone, and I think it would be ultimately

almost a waste of time to bring the FTAA before this body. I think

it would be awful hard to be able to get the kind of votes we need

for a trade agreement that would reward Brazil, a nation that has

attacked one of America’s valuable agricultural exports, cotton, and

continues to be an obstacle, in my opinion, to the progress of the

WTO agriculture talks. I think it would be hard to get something

done.

I know your team is working hard to ensure the ruling does not

go that way, and I applaud you and thank you for your efforts, because you have got some tough decisions ahead. Decisions about

whether to ask Congress to vote on trade agreements that you have

already worked on, decisions on where to focus your resources regarding negotiations of future FTAs. The consequences of a bad

WTO decision this summer, even if not a final decision, I think

would impact the administration’s trade agenda for the rest of the

year, and I know you don’t want to have to get prepared for that

today.

So my first question to you, Mr. Ambassador, and it deals with

the criteria for deciding with whom we negotiate free trade agreements. Australia and Chile are understandably given, because of

their—are given the kind of look they are because of their outlook

on trade and generally, which is similar to ours in this country.

But I wonder about some of the administration’s other choices,

Bahrain, Panama, Morocco, Colombia, Peru, Ecuador, Thailand,

Southern Africa Custom Union. Of these nations, I believe only

Thailand is among the top 25 trading partners. You alluded to this

earlier.

And I want to support trade agreements that not only make economic sense, but also are with nations that truly believe in fair

trade with us and others as well. No one wants to reward a nation

with access to the best market in the world if they obstruct the

progress of WTO.

What can you tell us about the behavior in the WTO and the

trade principles of the nations with whom we are currently negotiating FTAs, and are they members of the coalition working for

freer, fairer trade in that body, or are they obstructionists, like

some other nations?

Mr. ZOELLICK. Well, thank you, Mr. Etheridge, and let me thank

you for your support, and I know together we worked on a lot of

28

these poultry issues together, and I am very pleased with the success with the Secretary and others, we have made on that. We

know, particularly with the avian influenza, it is an ongoing issue,

but we will keep at it with you.

First, let me address the size issue. Because of our NAFTA

agreement, we already have free trade with about a third of our

trading partners. Because I get asked this question a lot, and I am

glad you gave me the opportunity to come back to it. We would

pleased to try to have free trade with Europe, Japan, and Korea,

but they are not willing to put agriculture on the table, and just

so this committee knows, many other groups say to me, why don’t

you do free trade and leave agriculture out? We are not going to

leave agriculture out. So, when you take those countries and

China, and state out, and look at the rest of the world, our free

trade agreements amount to about a third of that market, not even

including the Free Trade Area of the Americas. As we have seen

in a lot of things, particularly in votes, right, small numbers add

up. So some of these do create opportunities for us.

Second, in terms of the criteria we use, Mr. Etheridge, we look

first to Congressional guidance. Some of the laws are passed, like

on the Caribbean Basin Initiative, urged us to move forward with

free trade agreement with Central America. The African Growth

and Opportunity Act urged us to move forward with Southern Africa countries. Then we look at business and agricultural interests,

and this is where particularly, working with this committee, that

Colombia and Thailand, we see as important, big markets.

Special product sensitivities, and some of you have touched on

them, we have to be able to bring something home that we can get

passed, so that is an issue. The seriousness of a partner to engage

in a free trade agreement, and this goes to part of your points, Mr.

Etheridge. We often work with them in advance. We try to work

with them on an earlier process. I mentioned trade and investment

framework agreements. See where they clean up some problems

with intellectual property and customs issues, their record on reforms, and then their cooperation with us in the FTA and the WTO

and larger negotiations. And here, I would say all countries are

going to have their differences, but by and large, the countries we

have as free trade agreement partners are committed to that process, and in some ways, as we really liberalize with our free trade

agreements, which are much deeper openness than you get in the

WTO, they become good partners on a number of issues.

But then other issues we have to look at is whether we can try

to support economic reform and development. We have environment and labor provisions, will they go along with those items. And

there is an element, obviously, you mentioned the Middle East,

where we do have some larger goals here. This country has a lot

at stake in the Middle East, and if we can try to help Morocco and

Jordan and some of the countries in the Gulf region move towards

more openness and parliamentary systems and rule of law, that

also has a long range benefit for us.

So, it is a combination, but this type of a dialogue that we have

with this committee is a critical element. We listen very closely

where you see the priorities are. But one point we often can’t address, Mr. Etheridge, is sometimes many of you have said why

29

don’t you negotiate a free trade agreement with Japan or Korea?

I can’t, because they are not willing to open up their ag market.

Mr. ETHERIDGE. Thank you, Chairman.

The CHAIRMAN. I thank the gentleman. The gentleman from

Texas, Mr. Neugebauer.

Mr. NEUGEBAUER. Thank you, Mr. Chairman, Madam Secretary,

Ambassador Zoellick. So many questions, so little time. First,

quickly, to Secretary Veneman. Where do you think we are in the

process, a lot of the beef producers in my area are wondering, the

opening up Canada again to beef coming into our country from

Canada? Live cattle, I guess, more particularly.

Secretary VENEMAN. Thank you for that question. We have been

engaged in this issue of BSE since, obviously, the Canadian find on

May 20, so it has been nearly a year now. Following that find, we

cut off all beef exports from Canada. We then opened up to a limited amount of low risk products. We subsequently put out a proposed rule for live animals and some other products, primarily that

live animals under 30 months would be allowed. The commnet

perioid for the proposed rule was scheduled to close on January 5.

In the meantime, as you know, we found our own case of BSE, and

so we allowed the rule to close, and then reopened the rule on

March 7, and it closed on April 7.

We are now in the process of evaluating over 3,300 comments

that we have received on this rule. In the meantime, we have had

some court actions filed, in terms of some of the actions that we

have taken, and we are evaluating and dealing with that as well.

It is impossible for me, at this point, to anticipate or tell you an

exact time frame. I can tell you we are evaluating those comments

as quickly as possible and working to write the final rule based

upon what was proposed, and the comments that we received.

Mr. NEUGEBAUER. And I appreciate your work on the whole

issue, and I, just to encourage you as you begin to look at that, to

do it in a way that is least disruptive to the marketplace as possible.

Ambassador Zoellick, where are we with China in respect to—I

get a lot of comments on the fact that China is manipulating their

currency, and that in many ways hurts our ability to increase our

exports there. Can you comment on that a little bit for me?

Mr. ZOELLICK. I have to be a little careful on this one, in that

this is really the Secretary of the Treasury’s area, and they get real

anxious when I talk about exchange rates. But what I will say is

that the President well over a year ago, focused on this issue, and

Secretary Snow has been having discussions with his counterparts

in the Central Bank and others about moving to a more flexible exchange rate. And this was the good news, even over the weekend,

he has also got the G7 countries, all the other countries, pushing

China on this.

China has—the leadership has said they want to move to a flexible exchange rate, and the question is when and how. And their

challenge is going to be that if you start to open up what they call

a capital account, let money go in and out, you really have to have

a banking system that can take it, and they don’t have that yet.

So I think they share the goal, and actually, Secretary Snow also

appointed a special emissary to work directly with them on it.

30

There may be some reasons of their own, while they may want to

adjust that currency system. You have probably read some of these

articles about China overheating a little bit. Well, what is associated with that is to keep the currency peg where it is, they actually

have to use their currency, the renminbi, and buy dollars. And as

they do that, they are expanding their money supply. So there may

be a domestic reason also working with that as well.

And so one doesn’t have a sense of the exact time frame, the good

part is they accept that is where they have to go.

Mr. NEUGEBAUER. Are there any efforts by the U.S. to modify

and to move into CAFTA now, I know I am moving around a little

bit, but to modify some of the textile agreements portion of the

CAFTA agreement, particularly where I think some think that we

have opened up the door for third parties to introduce their goods

into the U.S. through some of the trading partners in CAFTA.

Mr. ZOELLICK. Well, that is one of the aspects that actually we

worked very hard to limit in CAFTA, and let me explain. In some

agreements, most of our textile trade is focused on what is called

the yarn forward rule. They have to use our yarn and fabric and

they do the sewing. And actually, that is one of the potential benefits of our industry in the future to compete with China, is to get

an integrated business with Central America and Mexico.

In past agreements, we have had a certain amount of third party

fabric that came in. We didn’t allow that in this agreement, except

a limited amount for Nicaragua, and it phases out over time. And

so, actually, one of the topics I have talked with Mr. Ballenger

about, who has got a strong interest in this industry, knows it well,

is we have got to get some of our people to understand this is probably one of the best ways they are going to have to compete against

China when the quotas come off at the end of 2004 for textile and

apparel, is to have an integrated business with Central America.

Mr. NEUGEBAUER. Well, and I appreciate that. I don’t think they

are totally convinced at this point in time, and I encourage you to

continue to work with them, and if we are not communicating, let

us communicate. But if there are some issues that—we are still unresolved, I encourage you to try to see if we can work those out.

The CHAIRMAN. I thank the gentleman. The gentleman from Hawaii, Mr. Case.

Mr. CASE. Madam Secretary, Mr. Ambassador, good morning.

Aloha. Aloha means Hawaii, Hawaii means sugar. Sugar in the

context of being the major agricultural product in Hawaii. Sugar in

the context of being the largest employer on the agricultural front.

Sugar in the context of not having soybeans, not having some of

these other products. So when we are talking about the concerns

that a place like Hawaii has with the sugar negotiations, Ambassador, I appreciate the comment that I have to look at my colleagues, and basically ask, am I also helping export products.

Yes, I am willing to do that, but it is a very hard thing to swallow that I would do that at the expense of the No. 1 industry in

my district, and so—and my state. And so, although I am in solidarity with the other jurisdictions, the impact, proportionately, is

much larger. So what I want to do is follow up on some of your

comments and thoughts, which I definitely appreciate and understand, and make a couple of comments in response.

31

First of all, from the perspective of the off-limits-ness of some of

the domestic support programs, and the comment that you made

to my colleague from Minnesota along the lines of not putting those

on the table, I would suggest to you that sugar is really no different. It is another form of government action. It just doesn’t happen to be a support program. It happens to be an import control

issue.

I would suggest to you that although one could argue that

CAFTA did not undermine the fundamental sugar program, at

some level, of course, increasing imports does, in fact, undermine

the fundamental program offered for sugar in our country, because

as you increase those imports, you are in fact destroying the program. The program is one of imports. The program is not a support

program. It is an import program, no different in intent, really.

I think the third thing I would suggest to you is that although

I sense in your testimony and perhaps some of the other remarks

you have made, some comment that we have got some room still

to negotiate from an import perspective. I am not sure that that

is true, given that in some countries, I think Mexico is the primary

example of that, we haven’t really maxed out the imports, and so

the definite concern of the sugar industry is that you would have

permissible imports maxed out, adding on to the top of it CAFTA,

and where would you go from there?

So as the sugar industry well knows, CAFTA is not probably,

probably, we don’t know this, not in and of itself going to bring

down the entire sugar industry of our country, although it may

well bring down some of the producers. In combination with some

further negotiating along these lines, it could. It is definitely of

great concern, again, particularly for a place like Hawaii, which is

an exclusive arrangement. The impact there would be incredibly

devastating. So I think the question I have, we have got CAFTA.

We have got it on the table. You have done what you have done.

I understand why you did it. You gave just a little bit, enough to

get some of these exports on the table. There was an impact on the

industry, a clear impact on the industry, and they are scared about

it. You took it off the table in Australia. I think everybody is happy

about that. What is next? Because you have got some negotiations

coming up down the road with some major sugar producers, and

you have got the FTAA, you have got the Andean countries. You

have got Panama, Thailand, South Africa, any one of which if you

follow the same CAFTA model and took it to the proportional level,

would, in fact, have, no question, a major impact on the industry.

So I think the basic question is No. 1, what are you thinking about

doing next on sugar, and No. 2, why not just take it off the table

altogether until you do it on a Doha level, just as apparently, we

have chosen to do with the outright sugar support programs?

Mr. ZOELLICK. Well, I appreciate the thoughtful way in which

you asked the question. I know it is very important for you and

your district on it. You made one comment saying I think it would

please everybody if we took it off. As many of your colleagues

around the table, I actually came under extreme criticism from the

rest of the farm community for taking it off, and from much of the

other people who want to try to move forward on free trade. So

that is the balance that we have to try to strike.

32

Mr. CASE. Well, they are willing to bargain it away for their exports, and——

Mr. ZOELLICK. Well, even in the case of Hawaii, I was looking at

the numbers here, I know that it is an important overall product,

but when we look at, I think I had about 17 farms, but they are

big. It is about 12 percent of your cash receipts, but the last time

I was in Hawaii, which is a beautiful state, I had a chance to visit.

I saw the beef cattle business, and so there are other businesses

that—agriculture businesses that benefit from these.

But to go to your question. The way we tried to approach this

was that under the current farm bill, Congress had a trigger of

about 1.4 million metric tons of total imports. And in 2003, the

U.S. imported about 1.1 million metric tons, OK. Now I know the

industry doesn’t like the idea of a 300,000 metric ton cushion, but

I am trying to work with what I had with the farm program, and

what it gave us to try to look at the parameters of this overall. And

so in that context, you could see that under CAFTA, if one just

takes those numbers from the Congress’ own program, the initial

amount is about 107,000 tons, and over 15 years, it rises up to

about 150,000 tons. Now, Mexico you mentioned, Mexico is not now

a net sugar exporter. It is a net sugar importer, overall. So, the

best way I could answer your question on other negotiations is we

are highly sensitive to the points that you mention. Obviously, in

one negotiation, we left it out. In others, we tried to do it in a modest way, and we tried to work within the bounds of the farm program going forward, and we will continue to discuss with the industry and members that have a particular interest in it. Because

we know it is a sensitive commodity and we know it is one that

matters for a lot of members.

The CHAIRMAN. I thank the gentleman. The gentleman from

Iowa, Mr. King.

Mr. KING. Thank you, Mr. Chairman. I would like to thank the

Ambassador and the Secretary for your testimony here today, and

your attention to the details of these issues as they unfold, and I

would—I have a series of disconnected questions that I would like

to bounce around on.

Initially, I would like to thank you for the free trade agreement

with Australia, and from an Iowa perspective, it has the potential

to put almost 100 percent of our exports into Australia duty-free.

That is an important thing to the people in my state, and of course,

that reflects across the country.

I direct my first question to Secretary Veneman, with regard to

pork, though, entering Australia, and the import risk assessment,

and with regard to pork. It is my understanding there is a chance

that we can get that opened up, and what kind of time frame could

we anticipate?

Secretary VENEMAN. As you indicate, in referring to an import

risk assessment, the issue with Australia, like many of the issues

that we have in agriculture with Australia, is very restrictive sanitary and phytosanitary measures.

We are in the process of working with Australia on a number of

these issues. I can’t give you an exact time frame in terms of the

risk assessment with regard to pork. We may be able to get you

some more specific information.

33

Mr. ZOELLICK. Let me just reach in on that beat. That is one

where the bio-Australia issue, the final risk assessment, in February, but there have been a bunch of court cases filed against it,

and so that is the part of uncertainty. But they have taken the step

that would open at least part of the pork market that we wanted

to try to get, and obviously, then, we want to keep working on

other aspects, in terms of some of the fresh pork, too. But right

now, it is held up by the court cases that they have.

Mr. KING. Thank you, Mr. Ambassador, and Secretary. Then, Mr.

Ambassador, could you just speak a little bit to the issue of G21

and where they are today, and where they potentially might be in

the next round of trade agreements?

Mr. ZOELLICK. Well, that group, which refers to a number of developing countries, I think has mixed interests. And we have some

interests in common with them. They want to try to cut subsidies

and eliminate export subsidies, which is what we would like to try

to do with Europe and Japan.

Our major concern is that we think it is also important to have

market access, to be able to open their markets, and open markets

in major developed countries, Japan, Europe, as part of the negotiation. And the nature of that group deemphasized that, unlike

the Cairns Group, which was a broader group of developed and developing countries. Now, since the time of Cancun, the Cairns

Group has been working more with the G20, and so if out of that

you get a group that, again, emphasizes overall agricultural liberalization, that could be a positive thing.

But that chapter hasn’t been written yet, because we know people want to reduce subsidies, and we are partly for that, too, if we

can get others to reduce subsidies. The part that we have to emphasize is we also need to get at some of those tariff numbers that

the chairman was focusing on, and for people who are concerned

about developing countries, what the research all shows is the biggest effects are actually the effect of tariffs, and what people are

missing is there is a lot of what people call South-South Trade.

Over 50 percent of Argentina’s exports are developing countries. So

by keeping those tariffs high in the developing world, they are

hurting each other, too.

Mr. KING. Thank you, Mr. Ambassador. And then, Mr. Stenholm

and Mr. Smith both addressed the imbalance in trade, and those

numbers being between $540 billion or down to $503 billion, the

number that you gave for goods and services. That is the number

I have been using for some time, and I appreciate that precision,

exactly. With the discussion of the relative values of currency affecting our foreign trade being part of it, I would raise this issue,

and I would like to know from a trade perspective, if we are able

to do what I think we should do, and that is eliminate our taxes

on—eliminate the IRS, eliminate the entire Code, and go to a national retail sales tax base, we are able, then, with competition, to

take the costs of our goods and services down about 22 percent on

average. That would affect our export markets as well. It would

discount our export prices accordingly, and that research is there.

There are $22 million worth of research that supports what I have

just said, but how does that affect your negotiations with trade,

34

and how do you think that affects our imbalance in trade, if we are

able to discount our export products to that 22 percent on average?

Mr. ZOELLICK. Well, now we are getting in a real dangerous area,

because not only deal in with currency policy, which is the Treasury, but you are getting me into tax policy, which is the Treasury.

So I guess, what I had best say on this one is anything that is a

combination of tax, regulatory, health care, that makes America

more competitive is going to help us and help our producers here.

And the one point, just though to bring it back to the current account, the other side of the trade imbalance is what people call the

capital account. As Mr. Smith mentioned. People are investing

here, making up that gap, and so, the other issue, though, is as you

make the United States a better place to invest, you could actually

increase that number, because you are investing capital into the

United States. But for the long run of the United States, the combination of tax policies domestically that make us more productive

and competitive have got to be good.

Mr. KING. And does it cause you any trade negotiations difficulties if we should implement that policy?

Mr. ZOELLICK. Well, I am not sure exactly, but if you are talking

about basically the domestic tax changes that you are talking

about, no, that wouldn’t interfere with our negotiations.

Mr. KING. Thank you. Thank you, Mr. Chairman. I see I am out

of time.

The CHAIRMAN. Excuse me, the gentleman from North Dakota,

Mr. Pomeroy.

Mr. POMEROY. Thank you, Mr. Chairman. Mr. Ambassador, good

to see you again. Madam Secretary. Mr. Ambassador, I think that

you have impressed all of us with the sheer force of energy you

have brought to trade negotiations. I have never seen the Trade

Representative work harder to get trade deals done. On the other

hand, I haven’t seen a Congressional majority more disinterested

in bringing them up for consideration and action.

Do you have any sense in terms of whether or not there will be

consideration and possibly a vote on either the CAFTA agreement

or the Australian agreement before the election?

Mr. ZOELLICK. Well, thank you for your kind words, Mr. Pomeroy, and you have been a good colleague to work with, and we

have made some headway, I think, on some of the issues for your

state, I hope. I think the President is very strongly interested in

trying to move forward the Australia agreement. We obviously

need to work with the leadership. We understand it is a schedule

that has to be worked with here, and there is limited calendar in

an election year. From what I have seen the reports of, the environment of that one has improved, but I don’t want to be definite

about it.

And part of our challenge, Mr. Pomeroy, under TPA, after we

complete the agreement, we have to give a 90-day notification before we can sign the agreement. So we can’t sign that agreement

until the middle of May, and so that is a close window, and we understand that, but we would like to try to get that through.

Morocco we can’t sign until early June, so we even have a smaller window, but I don’t see a lot of anxiety about that agreement.

It is just a question of the calendar. And in terms of CAFTA and

35

the Dominican Republic, I think our key point is we want to make

sure the agreement gets passed at the appropriate time, and here

we have to work with the leadership and both sides of the aisle to

see where we can get the support of that.

It is a good agreement. My sense is Australia is probably ahead

of it in the queue, but that is a decision that the leadership will

also have to determine, given the schedule you have.

Mr. POMEROY. The sugar issue is perhaps the largest concern I

have about everything that is pending. It has been quite well covered in the earlier series of questions, by both sides of the aisle.

But I would ask you this, I think you could do a great deal to alleviate concern about the CAFTA agreement if you could indicate

that there won’t be any more sugar imports coming in any other

agreements that you might negotiate.

You have correctly said this is an amount that they ought to be

able to live with. In and of itself, it isn’t fail, but I have discussed

this as a possible threat of one cut in the death by a thousand cuts.

We can’t take a lot more in a lot of other agreements, and if I were

some of the other countries in the queue waiting to enter negotiations, having seen the opening for CAFTA, I would be most interested in demanding, as a condition precedent to a deal, that I have

additional sugar access as well, so you want to make us all feel better this morning by saying no more sugar in any other trade deal?

Mr. ZOELLICK. Mr. Pomeroy, let me answer it this way. One of

the challenges about this energetic position, as you describe it is

that I negotiate, I am talking in public fora, and I am also negotiating in private fora. And the best thing that I can try to say is what

we try to signal to that very sensitive constituency is, is that we

know they are sensitive. In one agreement, they were left out. In

one, they were put in, but without dealing with the tariffs in a

quota form, and as we go forward, we are keenly aware of that sensitivity, and pleased to discuss it with them, but I can’t negotiate

in public fora. You wouldn’t want me to.

Mr. POMEROY. I would have been pleasantly surprised had you

answered my question. There is presently a WTO decision relative

to the Canadian Wheat Board. It was certainly not the full victory

that we wanted, because we believe that the Canadian Wheat

Board has been determined, in certain respects, is operating illegally to the advantage of their farmers and the disadvantage of

ours. Have you made a determination in terms of whether you will

appeal the decision?

Mr. ZOELLICK. Yes, we have, Mr. Pomeroy, and it was in my long

written statement, but I didn’t draw it up, but we, following your

encouragement, that of the chairman and others, have decided we

will appeal.

Mr. POMEROY. Great. Great. Thank you. Madam Secretary, the

issue of getting our beef markets back has been a very tough challenge for you. I appreciate the efforts you and your team have

made to try and get our former major markets for beef exports to

consider this matter based on science, another product in. It seems

to me that before we do much more by way of consideration of additional imports from Canada into the United States, we ought to

make certain we get our product, our own export markets back. It

seems to me your burden of proof would increase significantly if we

36

are talking about a blended North American market you are trying

to get in, as opposed to just the United States market, subject to

the response you have made to the whole BSE matter.

I have written a comment to that effect among the 33,000 comments that you are evaluating, but I would like your response to

that line of thinking.

Secretary VENEMAN. Thank you, Mr. Pomeroy, and it is 3,300,

not 33,000.

The CHAIRMAN. I thank the gentleman. The gentleman from

California is the last questioner. If you would like to ask some before you go. But I have voted, and you haven’t, by way of full disclosure.

Mr. NUNES. Can she——

The CHAIRMAN. I don’t think she got a chance to finish.

Mr. NUNES. Thank you.

The CHAIRMAN. If you want to yield to him to allow him to answer the question, that would be fine, but time had expired.

Mr. NUNES. Sure. I actually had the same question from the Secretary, so——

Secretary VENEMAN. Let me briefly review what we have been

doing to reopen our beef markets. As you know, we did have most

of our markets cut off as a result of the BSE find in the United

States on December 23. Our largest—first of all, it is important to

point out and to recognize that 90 percent of the beef that we

produce is consumed domestically, and we have maintained consumer confidence in this country, and we have not lost any market

in the United States. That is No. 1.

Insofar as our export markets are concerned, which takes about

10 percent of our total production, or did take about 10 percent.

Our No. 1 market is Japan. We have worked very, very hard to try

to reopen the Japanese market. As you know, I sent a team to Asia

within three days after the find. They left over the weekend, between Christmas and New Years, and began the discussions with

our Asian trading partners. There have been a whole series of exchanges. We have made proposals. There have been a lot of discussions. It is a sensitive issue in Japan, primarily because of the way

their consumers have responded to the BSE finds they have found

in their own country, where they saw a significant drop in demand

after they first discovered BSE on September 10, 2001.

As a result of Dr. Penn’s—and his team, which was an interagency team, including USTR, FDA, State Department, and so

forth this past weekend, we have a process now in place, and people are beginning to work in technical teams to determine how we

can best open that market. We expect to have those discussions

continuously throughout the next few months.

Our No. 2 export market is Mexico, and we have succeeded

through extensive discussions with our counterparts in Mexico to

reopen that market over 90 percent. We have also worked closely

with Mexico and Canada to look at the entire North American market, and to determine how we can best harmonize our regulations,

because it is a North American market, before the—certainly the

disruptions.

And so we have been working in technical groups to try to harmonize to the greatest extent possible our regulations. The most

37

important thing is that we use science in all of our decisions, and

that the harmonization group is looking at the science and comparing the science. And that ought to be the guide as we seek to open

up markets, both whether it is an import market or an export market.

Our third largest market is Korea. We have continued discussions with them. As I indicated in my remarks, we are hoping that

we may have a team from Korea come as early as the next couple

weeks.

The CHAIRMAN. I think both the gentleman who started the question and the one who finished it are gone. But the gentleman from

California has voted, and so we will recognize him as our last questioner. When the next bells go off, that will be a signal for a five

minute vote, and he and I will depart very rapidly when that occurs.

The gentleman from California.

Mr. DOOLEY. So you will be saved by the bell, so to speak, once

again. I want to thank both of you for taking the time to come up,

and also commend you for the work that you have done on so many

issues that are important to U.S. agriculture. In reference to the

WTO apparent decision on cotton, I think I agree with pretty much

the statements that have been made by a lot of my colleagues, but

there is a little bit of a nuance here, I think, is that we can, in our

appeals, I think, be on solid ground with our contention that they

are fully consistent with our WTO commitments and rules, but

also, the European Union can back up their Common Agricultural

Program and their export subsidies as being consistent with WTO

rules. Japan can contend that the 500 percent tariff they have on

rice, it is totally consistent with WTO rules.

But what is also true is that that is totally inconsistent with our

ability to make progress in the Doha Round of the WTO. And that

is where I think we have somewhat of a decision to make here, in

terms of where are we going to be placing the resources of the

USTR, as well as the Department of Agriculture?

Is it to play defense and to primarily try to protect some of these

programs that we also recognize, I think, as the proposal that we

have made to some of our trading partners, that they need to be

reformed? Or how can we use this, perhaps, as an opportunity to

make progress in restarting the Doha Round?

And Ambassador Zoellick, I am very complimentary of the work

that you have done over the past few months in trying to demonstrate the U.S. is clearly willing to engage. The only other—and

that is more of a commentary, obviously. But my question is, is

that—and I know that there were some officials and the Ambassador of Brazil that was here. You won this case, it appears. You

are probably also going to win the case with sugar against the EU,

which actually some of us hope you do, but this is also a little bit

analogous to the dog catching the car here, is that you have to be

a little careful on what do you do with it when you achieve this.

And I think one of the critical components here, not only is the

EU and the U.S. making reforms of our domestic programs and our

export subsidies, but also is the market access piece, which Brazil

and the G20 were not necessarily as committed to in Cancun.

38

And Ambassador Zoellick, in your conversations and maybe Secretary Veneman, have you seen any evidence that Brazil is providing the leadership among some of the developing countries to ensure that they add the market access component to their proposals

at the Doha Round, which is absolutely going to be critical to making progress?

Mr. ZOELLICK. Well, Mr. Dooley, I will let you know after the

weekend, but the point you are making is absolutely critical, in my

view, is that—and I like your analogy about the dog catching the

car here. As you know, and you have been a leader in this, and the

chairman has, and you know our position, we are a big developed

country, but we are ready to reform. That isn’t the case for all the

other developed countries. And we are willing to cut those subsidies. And goodness sakes, we are willing to take all our tariffs

down to a top tariff of 25 percent, a very drastic cut. But we are

not going to do it on our own, and if people think they are going

to litigate their way to a solution, it is going to be a long time, and

it is never going to be fully done, as we have seen how this works

in courts, whether domestic or international. The United States

has got lots of equities around the world. It is not going to be pretty.

And so what I hope the message of this is, is that countries realize, take us up on the offer. And the key point, as you have emphasized, is it is not just a question of subsidies. We would like to get

that cut, too. We have got to get some of the market access open

for some of the middling developing countries.

I will share this with you. When I took this trip around the

world, the South Africans were pretty much of this view. They are

a key G20 player, although I just learned this morning my South

African counterpart is moving to a different portfolio. And I think

Brazil recognizes the issue, whether it will show the leadership, we

will have to see over the next coming months.

India is obviously another key player in here, and this, we need

to deal with the sensitivity of the 600 million very rural subsistence farmers, and an economy that we have seen elsewhere as

being quite globally competitive. So, we are going to need to succeed in this task. We are going to need some of the developing

countries, China, India, Brazil, South Africa, to play a leadership

role, and frankly, that is exactly what I am trying to do, Mr.

Dooley. I am trying to move forward, and get that group and say

we are willing to move. Just believe what I say for once. We will

take these steps if you move. But we can’t do it alone, and a litigation route—and it is easy for people to say now, because they will

say, oh well, it looks like the case has been lost at least at this first

round. But I truly mean it, I just think of litigation of something

as complex as all these subsidies, it will just end up being a circle.

It will be a cul-de-sac, and it won’t get us where liberalizers want

to go.

Mr. DOOLEY. Well, yes. I think it would be of interest to the

chairman, too, is I wonder if you would give me a little bit of an

update on another issue, which is really the GMO issue with the

EU. We filed the action there. They appear that they are making

some progress in terms of approval of some commodities, but we

39

still have the traceability and labeling, and if you could just give

us an update on that.

Mr. ZOELLICK. Well, we are following the two tracks. We were all

kind of patient, because we didn’t want to go a litigation approach,

but when we saw absolutely no movement, we have gone the WTO

route on that limited issue of the moratorium. The panel has been

formed. There will be the arguments over the course of the spring,

and I expect a decision sometime later this year on that one and

the GI one, Mr. Chairman, that you have a particular interest in.

Meanwhile, what I think we have seen in the paper, Mr. Dooley,

is that the member states still haven’t agreed on ending the moratorium, but now it goes back to the Commission. The Commission

has certainly said they want to end the moratorium, and then

there may be another step again back with the member states, that

I would have to check on. I asked about that this week, actually.

But the other point is that, as you suggested with the

traceability and labeling rules, it is not only a question of ending

the moratorium, it is actually allowing the product to come in. And

that one, it is too early to tell, because they have just started to

institute the traceability and labeling rules. But this is where I will

come back to the point on China that the Secretary mentioned, too.

It is no small thing that we have now gotten China, one of the

major players, to back us on biotech, and to go forward with these

products, because eventually, one thing I am quite convinced of, the

world will recognize, biotech is the key, not only to dealing with

questions of productivity, but also nutrition and a lot of other

issues related to health. It will be a long slog, but I am quite convinced where the conclusion will eventually be. Scare tactics won’t

work, ultimately.

The CHAIRMAN. Thank you. I want to reiterate what Ambassador

Zoellick said, and I think Mr. Dooley, that this litigation is the beginning, not the end, of the process. And it is certainly not the end

of farm programs. But I want to reiterate my concern that if these

kind of things are not negotiated at the table, we are going to find

that it could be the end of the ability to negotiate deals at the

table. We thought we had a deal. Now we are told there may be

a different rule to abide by, and the farm community, which has

provided great support for trade negotiations for trade promotion

authority and so on, is going to be concerned about that.

That is our warning that we have 5 minutes to go, so let me

thank both Secretary Veneman and Ambassador Zoellick for appearing before the committee today. We look forward to continuing

to work with you. We will continue to watch these issues carefully

as we proceed through the summer.

On May 19, the committee will hold another trade hearing, and

farmers and ranchers representing various farm organizations will

testify. We want to hear the agriculture community’s reaction to

agriculture negotiations, as they are completed, and as they are

being discussed.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member

of the panel. I don’t see anybody here to object.

40

This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 12:15 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF ANN M. VENEMAN

Mr. Chairman, members of the committee, I appreciate the opportunity to appear

before you today with Ambassador Zoellick to discuss food and agricultural trade.

The importance of exports to our agricultural industry cannot be overstated. Exports solidly underpin farm income and support 888,000 American jobs, of which 40

percent are in rural areas. Each $1 billion in agricultural exports supports, on average, 15,000 jobs on farms, facilitating trade, in processing and manufacturing, and

transporting commodities and food products.

EXPORTS AT NEAR RECORD; OPPORTUNITIES ABOUND

I am pleased to report a projected near-record $59 billion in export sales in fiscal

year 2004, which is critical for our producers. In the United States, our agricultural

production capacity far exceeds domestic demand. To keep our agricultural economy

growing, we must build overseas markets. The forecast for fiscal year 2004 sales is $2.8 billion above fiscal year 2003. The

discovery of one case of Bovine Spongiform Encephalopathy (BSE) in Washington

State has disrupted our exports of beef and certain beef products, valued at $3.81

billion last year. Without this negative factor, our exports would have easily exceeded the fiscal year 1996 record of $60 billion.

Agricultural exports have been helped by the U.S. and world economies recovering

from the sluggish growth of Calendar Year (CY) 2001 through early 2003. In 2004,

gross domestic product (GDP) growth in the United States is forecast to be well over

4 percent, and the world economy is expected to grow about 3.6 percent.

• China is expected to experience rapid and extensive GDP growth of 9 percent.

• Overall growth in developing countries in Asia led by China, Thailand, and

India is forecast at 6 percent. • Argentina and Brazil are expected to expand GDP around 4 percent.

• Mexico’s GDP is forecast to be up, to 3.8 percent.

• Growth for Russia is forecast at 5.8 percent.

• The overall average for African countries is expected to be 3 percent.

• GDP growth in the European Union (EU) and Japan is forecast to exceed 1 percent. The world’s population is estimated to grow by 25 percent in the next 20 years

an additional 1.4 billion customers, many of whom are located in these countries

with expanding economies. As incomes rise for these consumers, their demand for

higher-value products will increase, and much of this demand will be satisfied by

our farmers and ranchers.

Even today we see the benefits of such growth in the expanding purchases of

some of our fastest growing trading partners—Mexico and China. Today, roughly 20

years after joining the international trading community by acceding to the General

Agreement on Tariffs and Trade (GATT), Mexico is our third largest export market.

Last year, Mexico had the world’s seventh largest expenditures on food $93 billion

and that was double the amount in 1995. The U.S. has supplied 75 percent of each

additional dollar spent on food in that country.

This year marks the 10th anniversary of the North American Free Trade Agreement (NAFTA), the United States’ banner trade agreement with Canada and Mexico. There is probably no better example of the success of trade liberalization and

trade agreements than NAFTA. If we measure results by growth in sales, access,

and market share, NAFTA is working to the advantage of all three countries and

has greatly benefited U.S. farmers.

Before NAFTA, U.S. food and agricultural exports to Canada and Mexico together

equaled sales to Japan, then our top export market. While sales to Japan are down

slightly from 10 years ago, exports to our NAFTA partners this year have increased

to more than double the sales to Japan (or an unprecedented $17.6 billion to

NAFTA partners, versus $7.8 billion to Japan.)

Looking at each market separately, our exports to Mexico have doubled in the last

10 years, reaching $7.9 billion. We sell 39 percent more of consumer-oriented products to Mexico now than we did 10 years ago with red meats and processed fruits

and vegetables leading the way. And U.S. agricultural exports to Canada have inVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 F:\DOCS\10829 HAGRI PsN: HAGRI
41

creased fivefold since the implementation of the U.S.-Canada Free Trade Agreement

in 1989, making Canada our No. 1 export destination, today valued at $9.3 billion.

U.S. consumer-oriented export sales to Canada have increased by 70 percent in the

last 10 years with fresh and processed fruits and vegetables and snack foods best

sellers. We expect these trading relationships to grow even further and projected

economic growth for our NAFTA trading partners translates to benefits for U.S. producers.

CHINA

China is a very bright spot on our agricultural trade horizon and is expected to

be the world’s top agricultural growth market over the next decade. In CY 2003,

U.S. agricultural exports to China were $5.0 billion, making it our fifth-largest overseas market. USDA’s forecast for U.S. agricultural exports to China, which is done

in fiscal years, projects a record $5.4 billion in agricultural sales to China in fiscal

year 2004. This is triple the amount in 2001, when China joined the World Trade

Organization (WTO), and accounts for nearly 10 percent of our projected agricultural export sales.

China is now our No. 1 market for soybeans, cotton, and hides and skins, and our

sixth-largest market for wheat.

• China purchased $2.9 billion worth of soybeans in CY 2003, a 200 percent increase over export levels prior to its WTO accession.

• China imported $737 million worth of cotton in 2003, up by 1500 percent from

2001.

• China purchased a record $457 million worth of hides and skins, a 15 percent

increase over two years.

• And recently China has committed to purchase nearly 3 million tons of U.S.

wheat, valued at $500 million, over this and the next marketing year. China will

be our sixth-largest wheat market; this is a tenfold increase from 2 years ago.

This remarkable upswing in sales to China is due to the increased prosperity that

trade has brought to China and the market access the United States negotiated

with China as a condition of WTO accession in 2001. As China’s economy grows,

incomes rise, and its policies become more trade-supportive, we anticipate evergreater opportunities to supply Chinese consumers with food and agricultural products.

While these trade figures are impressive and encouraging, they do not take away

from the fact that China must fully implement the commitments it made upon joining the WTO. The administration is aggressively working with China to implement

its WTO commitments. In the last two years, it has had to modify over 3,000 laws

and regulations to comply with its accession agreement. Progress is being made.

On April 21, I participated with Ambassador Zoellick and Secretary Evans in

talks with Chinese Vice Premier Madam Wu and a large delegation of high-ranking

officials from some 12 ministries. One of our priorities has been encouraging China

to adopt internationally recognized, science-based guidelines. An area of focus has

been in biotechnology, where we have engaged their policy makers in frequent discussions with ours. China has just approved additional biotech varieties for U.S.

corn and canola, adding to those announced in February. We now have approvals

for Roundup Ready soybeans, two cotton varieties, six corn varieties, and seven

canola varieties. There are two pending corn varieties that Chinese authorities will

consider in May.

We also encouraged China to improve its compliance with WTO rules affecting import licenses. It committed to improved transparency and efficiency in its quarantine import permit system, and for licenses to be valid for 6 months rather than

three.

We requested that China become active in the World Organization for Animal

Health (OIE), to better understand the international guidelines for trade impacted

by incidences of animal diseases. It agreed to follow and adopt these, a substantial

change in policy.

One of the challenges China faces is becoming familiar with our regulations and

procedures as well as improving its capacity to deal with sanitary and phytosanitary

issues. To help meet this challenge, I signed a letter of intent to enter into a memorandum of understanding with Chinese Minister Li, who heads the ministry with

jurisdiction on these matters. We propose to have professional exchanges, seminars

and training, and joint research projects to increase our mutual understanding in

these areas. In the long term, increased cooperation and communication will facilitate our trade.

42

MAINTAINING OUR CURRENT MARKETS

USDA devotes a great deal of time and diligence to market maintenance, assuring

that our trade partners adhere to their WTO commitments and follow sound scientific practices to guarantee food safety. Conversely, when our crops or livestock

suffer from disease and trading partners stop importing our products, we must provide them with factual assessments of progress in controlling any outbreak and with

the science-based steps that lead to a clean bill of health. We have been challenged

this year with diseases reducing our exports of beef and beef products and poultry

and related products.

EFFORTS TO RESUME U.S. BEEF EXPORTS

A top priority has been the reopening of our export markets after the finding of

a single, imported case of BSE in Washington State December 23. USDA has a

transparent process for providing information and reassuring the public. It has been

very satisfying that demand for beef has not diminished in the domestic marketplace. It demonstrates that Americans have faith in their government’s ability to

regulate the food supply and to respond swiftly and effectively when food crises

arise.

But for trade, we are in uncharted territory that is still evolving. In CY 2003, the United States exported $3.9 billion of beef and veal, beef variety meats, and processed beef products. About 90 percent of our exports are to Japan, South Korea,

Mexico, and Canada. We exported an additional $3 billion of products such as meat

and bone meal, gelatin, cattle semen and embryos, tallow, and pet food to a range

of countries.

Very quickly after BSE was discovered in the State of Washington, our export

markets were shut off to varying degrees for these items. We are estimating export

levels of beef and beef products in the current year to decline 83 percent below CY

2003 levels. Among the most affected items were beef and live cattle exports. Both

items remain banned in the majority of the top 10 markets and export values of

both declined over 90 percent in the first two months of this year. Exports of meat

and bone meal, sausage casings, and fats and greases also declined. Bans on U.S.

pet food are mixed and CY exports through February were valued at $102 million,

a decline of nearly 30 percent from average years. On the other hand, U.S. exports

of tallow and hides and skins have been up for this time period.

Since immediately after finding BSE, I have personally engaged with my counterparts in foreign governments—in particular Secretary Usabiaga in Mexico, Minister

Speller in Canada, Minister Kamei in Japan, and Secretary Lorenzo in the Philippines— to assure them of the safety of our food supply and to work with them

toward the resumption of trade. We sent high-level delegations to Mexico and our

Asian trading partners on several occasions. The Vice President also raised this

matter during his recent trip to Japan, Korea, and China.

Shortly after we found BSE in one cow, USDA announced aggressive actions to

further assure the safety of our beef banning downers from the human food chain,

and prohibiting air injection stunning, mechanically separated beef, and specified

risk material from animals over 30 months. We have also moved to accelerate the

implementation of a national animal ID program.

One key milestone was the U.S. Government’s response to the report of an international review team that assessed the BSE situation in the United States. At the

recommendation of the review team, USDA ramped up the surveillance of the higher-risk cattle population. We will test a significant proportion of this population with

recently approved rapid tests to detect whether BSE is present in the U.S. herd and,

if so, at what prevalence.

The re-opening of a market often requires extensive efforts. We are approaching

our major export markets, one by one, to personally assure them of our robust safeguards that allow for safe trade in U.S. products. We have informed our key trading

partners of the aggressive and extensive measures we have taken against BSE and

to request their cooperation in lifting import restrictions on U.S. beef and bovine

products. We have hosted technical delegations from Japan and Mexico and expect

South Korea will be sending a team shortly. Overseas, our FAS and APHIS staff

keep agricultural officials in 90 markets updated on the steps we have taken to assure the safety of our beef products, and have discussions with foreign governments

on how to re-open markets.

It is very important that we re-open our top markets as soon as possible. A prolonged delay could result in longer-term diminished demand for U.S. beef, displacement by alternative products, substitution of suppliers, and permanent shifts in consumer-purchasing patterns. It may also have ripple effects on other agricultural sectors, such as the feed grain and oilseed sectors.

43

We are making some progress. Our second largest beef export market, Mexico, has

reopened trade for more than 90 percent of U.S. beef, beef variety meats, veal, and

tallow products. In CY 2003, these products accounted for $1 billion. This is a substantial positive step.

Canada currently permits the entry of beef and beef products from cattle aged 30

months or less, live cattle destined for immediate slaughter, dairy products, and

other selected ruminant byproducts.

In January I met with Minister Speller and Secretary Usabiaga to discuss BSE

and the policies and regulations that affected trade. We agreed to implement a coordinated North American policy on BSE, to work toward harmonizing our regulations and policies in light of our integrated markets and as a model to our trading

partners. This is an on-going process that is actively engaging USDA at senior policy levels. Together, we are encouraging the OIE to further clarify risk classifications based on sound science.

This past weekend, Under Secretary Penn led a policy-level delegation to Japan,

and we are very pleased with the progress that was made in our most important

beef market. There now is agreement to a process, which we believe will lead to the

full resumption of trade in our No. 1 market by this summer. Our experts will begin

discussions with their counterparts on technical issues almost immediately.

Poland, Saudi Arabia, and Venezuela also have opened their markets to a variety

of U.S. products.

Our experience highlights the importance of increasing awareness of and support

for internationally recognized guidelines for trade in products impacted by animal

diseases. We have been encouraging countries, at every opportunity, to take the

OIE’s science-based standards for BSE into account when establishing import conditions for U.S. ruminant animals, beef and other ruminant products.

U.S. POULTRY MEAT EXPORTS RETURNING AFTER AVIAN INFLUENZA OUTBREAKS

The incidences earlier this year of low pathogenic avian influenza (AI) in the MidAtlantic States and then the first U.S. case in 20 years of highly pathogenic AI

(HPAI) in Texas have shown how important it is for us to have strong safeguard

systems in place. Our transparency and swift response to eradicate these diseases,

including the HPAI in Texas, have reassured many of our trading partners of the

premium we place on the safety of U.S. food products and control of animal disease. A substantial amount of U.S. poultry meat and product exports, valued at $2.3

billion annually, was immediately disrupted by bans. However, about one-fifth of

our traditional trade was not. And, foreign governments importing nearly half of our

poultry meat exports (valued at $942 million a year) only banned product from affected areas rather than the entire country, following much more closely the OIE

guidelines.

The top two destinations for poultry meat exports, Russia and Canada, continue

to allow in product from AI-free states. On April 6, shortly after we announced that

HPAI was eliminated from Texas, Canada immediately recognized the U.S. as free

of the disease and resumed trade entirely. After numerous discussions with our

Mexican counterparts at all levels, Mexico lifted its import bans on selected poultry

meat products from non-AI states and recently agreed to discontinue unnecessary

testing requirements.

Our focus now is on Hong Kong, China, Japan, and Korea, which accounted for 22 percent, or $435 million, of the U.S. poultry meat export market in CY 2003,

where import prohibitions remain on products from the entire United States.

Earlier this month, Under Secretary Penn met in Beijing and Hong Kong with

his counterparts to discuss a variety of issues, including an update on our actions

to eliminate HPAI. We are continuing to exchange technical information with their

experts, and are optimistic that trade will be resumed soon. We have invited technical teams to visit our scientists and see U.S. poultry operations and expect these

to occur in the coming weeks.

Trade resumption to Japan is covered by a protocol between our nations; trade

should resume in June.

Despite these outbreaks, domestic prices have remained strong, thanks in part,

to consumption of poultry in high protein diets and tighter world supplies of poultry

meat.

THE IMPORTANCE OF TRADE LIBERALIZATION

Besides assuring the economic health and prosperity of our agricultural sector, expanding markets serve the best interests of trading partners in both developed and

developing countries. The Bush administration has mapped out an ambitious course

in the pursuit of global trade liberalization.

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The United States has stepped up to the plate and taken a leadership role in negotiations, and is keeping the pressure on all members to achieve success. Ambassador Zoellick will discuss our current efforts in detail.

For agriculture, free trade agreements are critical, because they address tariff

phase-outs and duty-free, quota-free access for all agricultural products. They also

establish mechanisms for easing trade differences, such as SPS issues, that can

arise between trading partners.

As trade is opened to farmers around the world, it can also help raise standards

of living. As consumers in these countries become more affluent, they will buy more

of our products.

TRADE AGREEMENTS—IN THE WORKS AND COMPLETED

Important as WTO negotiations are, we have to move forward on many fronts.

The bilateral and regional agreements we have negotiated since this administration

took office will give our agricultural producers increased access to 119 million consumers, with a combined annual GDP of $820 billion. Current agricultural trade

with these countries is valued at $2.8 billion.

Negotiators recently concluded talks for adding the Dominican Republic to the

proposed Central America Free Trade Agreement (CAFTA), which includes Guatemala, Honduras, Nicaragua, El Salvador, and Costa Rica. This market of 45 million

customers purchased $1.65 billion worth of U.S. agricultural products last year. Our

sales to these countries have been growing at a pace of $70 million per year.

This FTA levels the playing field, and in many cases, creates preferences for U.S.

agricultural exporters over other suppliers, including those in Canada, Europe, and

South America. Commodities expected to gain and in some cases regain market

share lost to countries with existing trade preferences include apples, pears, cherries, corn, rice, soybean products, poultry, beef, and dairy products.

We also concluded negotiations for an FTA with Morocco in March, which covers

all agricultural products and offers new opportunities for exports of beef, poultry,

wheat, feed grains, and many fruits and vegetables.

The recently completed U.S.-Australia FTA negotiations will give U.S. farm exporters duty-free access from day one to 20 million, high-income consumers. Ambassador Zoellick will tell you more about this year’s negotiations with Thailand, Panama, Bahrain, Colombia, Ecuador, and possibly Peru.

We have been implementing two other agreements as well. In our own hemisphere, the free trade agreement (FTA) with Chile provides important immediate

tariff reductions for our agricultural exports. In four years, three-quarters of U.S.

products will enter Chile tariff-free; after 12 years all products will be duty-free. As

a result of technical discussions held in tandem to the FTA negotiations, we also

obtained new market access for U.S. citrus, Northwest stone fruit and processed

dairy products.

Another recent agreement with Singapore locks in their zero-applied tariffs for ag- ricultural products. U.S. exports to Singapore, now valued at $266 million, have

been rising over the past three years. Organic and other value-added agricultural

products from the United States are gaining shelf space in Singapore groceries. Our

trade with Singapore is singular because two-thirds of our agricultural exports there

are high-value products, a trend that provides our agricultural industry with increased profitability and creates more jobs here at home.

EXPANDING OPPORTUNITY THROUGH SCIENCE AND TECHNOLOGY

Along with negotiating efforts, USDA is helping developing countries to participate more fully in the trade arena. These countries represent our future growth

markets. To help achieve this, we also must commit to the reduction of hunger and

poverty around the world.It is a sad irony that acute poverty and hunger are worst

in many areas where agriculture is the predominant way of life.

About one billion of the world’s poorest people depend on agriculture for their livelihood. Many of them are trapped in a life of subsistence. In many developing countries, 90 percent of the food consumed is locally grown. It follows that people who

are hungry are less able to feed themselves and to be productive members of society.

The global ramifications of hunger are hard to overstate, not just for people in

the least developed countries, but also in nations with greater wealth. Persistent

hunger causes human suffering and death. It results in lost productivity and the

unrealized potential of entire nations and regions. It leads to political instability,

economic stagnation, civil unrest, and war. It limits economic growth and trade opportunities in other countries.

A recent analysis by the International Food Policy Research Institute suggests

that an annual productivity increase of just three to four percent in Africa would

45

triple per capita incomes. It would reduce the number of malnourished children by

40 percent.

As ministers gathered in Rome two years ago to discuss ways to speed the pace

of hunger reduction, there was agreement that science and technology play a key

role in accelerating agricultural productivity. It was in Rome that I announced the

United States would host a Ministerial Conference on Agricultural Science and

Technology, which was held last June in Sacramento, California.

The Sacramento ministerial was a next logical stop on a road that took us

through Doha, where developing countries became a major focus of international

trade negotiations, to Monterey, Mexico, and the International Conference on Financing for Development, to Rome and the 2002 World Food Summit, and to Johannesburg and the World Summit on Sustainable Development. It was one of the largest and most diverse gatherings ever of decision-makers from around the world to

address global hunger with more than one thousand participants, including 119

ministers of agriculture, science and technology, health, environment, and commerce.

We looked at technology’s role in helping feed the hungry and provide nutrition

to the malnourished and lift those in need out of poverty. The application of science

and technology, along with supportive policies, can help achieve all of this by raising

agricultural productivity in an environmentally sustainable way. Raising productivity will not merely reduce hunger, it will provide a whole host of additional benefits,

including higher incomes and economic growth.

This story has been repeated over and over throughout history, most recently in

Asian countries that have been transformed from subsistence economic into

powerhouses of manufacturing and high technology. We can make great strides by

helping developing countries adopt and develop their own appropriate agricultural

technologies, from the conventional to the state-of-the-art.

In order to achieve many of our goals, the building of additional partnerships between and among nations, academia and industry will be critical. The momentum

and enthusiasm that were generated in Sacramento are still continuing today. Already we are working to build on these efforts. A Central American regional conference is now scheduled in May in Costa Rica. An African conference will take

place in June in Burkina Faso.

The United States is committed to finding solutions to global hunger and poverty.

We are by far the largest contributor to the World Food Program, accounting for

more than 50 percent of donor funds.

USDA has been working hard in many areas to support that agenda. We help administer the international food-assistance programs, which are budgeted this year

at nearly $1.6 billion. This includes $50 million for the new McGovern-Dole International Food for Education and Child Nutrition Program for 2004, and the President’s fiscal year 2005 budget provides a 50 percent increase in funding. This program is based on a pilot that provided school meals to nearly seven million children

in 38 countries. Food for Education not only encourages greater numbers of children

to attend school, but it also enhances the performance and learning ability of students in the classroom.

We are also looking for ways in which our experts can help replicate our own successes in the developing world. For instance, our Food and Nutrition Service is providing guidance for domestic food-assistance programs in other countries. The Zero

Hunger initiative in Brazil is based on our own Food Stamp program. USDA also

has a close partnership with the 1890 Land-Grant Institutions, which are addressing nutrition and food assistance in Africa.

IRAQ AND AFGHANISTAN

When we consider the need for food security in the world, it is critical to consider

the agricultural economies of Iraq and Afghanistan. Last November I traveled to

these countries to learn about our current activities in the regions and what more

we can do to help.

Overall, we found that people in both countries are tired of conflict, abuse, repression, insecurity and neglect. They are eager to build better lives for themselves and

thankful for the opportunity for stability and normalcy.

There is one common theme that was evident: Agriculture policy plays a very important role in the economic and social lives of a majority of the people and is a

sector suffering in every case from hostilities, but also serious neglect, whether it

is under-investment, poor policies or exploitation.

As I met with many of the agriculture leaders and university presidents, and even

the farmers in Iraq, several things emerged as important next steps:

46

First, they are in desperate need of information. They feel as if they have been

left behind in learning about the kinds of changes that have taken place in every

sector, especially agriculture. They want more extension, teacher exchanges, and

student exchanges. They do not have use of the Internet, which in many instances

precludes them from getting the latest information on research, practices and technology.

Regarding U.S. trade, Iraq was once a significant commercial market for U.S. farm products, with sales approaching $1 billion in the 1980’s. It has the potential

once again to be a significant commercial market as its population with growing incomes enriches its diet. USDA is active is assessing ways to establish export credit

guarantee programs to help U.S. exporters re-enter this market at the right time.

The Export-Import Bank’s Board of Directors has approved a $500 million short

term insurance facility to support trade financing from the Trade Bank of Iraq,

which could include agricultural products. In the interim, USDA and U.S. agricultural groups have sponsored technical seminars with Iraqi buyers to help familiarize

them with our products. In May, a group of Cochran fellows from Iraq will be visiting the United States. Rice and wheat industry associations will help sponsor their

visit.

In Afghanistan, people are tired of years of repression, exploitation, Soviet-era

rule, factional fighting of warlords, and the Taliban. They want an opportunity for

stability and to develop their lives the best way they can.

Our PL–480 program is donating soybean oil with proceeds earmarked for rural

development projects. The first group of Afghan women sponsored by the Cochran

program will be coming to America in June. USDA has employees on the ground

to help in the Afghan reconstruction effort. Short-term advisors are being sent to

assist the Afghan Conservation Corps in implementing soil, water, and forestry conservation projects. This puts money into the hands of the rural population that desperately needs income.

In both Iraq and Afghanistan, USDA has and will continue to play an important

role in helping citizens rebuild their agricultural economies, improve their domestic

capacity to produce and buy food and agricultural products, and help U.S. exporters

sell and market U.S. product into these markets. In both countries, our government

is working hard to foster change that will benefit not only Iraq and Afghanistan,

but America and the rest of the world.

CREATING OPPORTUNITIES FOR THE FUTURE

I have talked today about the many fronts we are working on to continue to improve export opportunities for the American food and agriculture sector. To emphasize the importance of our agricultural trade, consider this:

• The United States is the world’s largest agricultural exporter.

• Agriculture is two times more dependent on trade than other sectors in the U.S.

economy. We estimate about 27 percent of farm sales will come from exports this

fiscal year.

• Long term, exports are growing at twice the rate of domestic sales.

• Every dollar of exports creates $1.60 in supporting economic activity and over

90 percent of U.S. exporters are small firms, which employ three of every four workers in America.

• With 96 percent of the world’s consumers living outside the United States, access to international markets for U.S. agricultural products is all the more critical.

Thank you for providing me with the opportunity to talk about foreign trade with

you today. Ambassador Zoellick will complete the picture with specifics on the status of WTO and other FTA negotiations. I look forward to your questions.

STATEMENT OF ROBERT B. ZOELLICK

Chairman Goodlatte, Congressman Stenholm, members of the committee:

I appreciate the opportunity to be here with Secretary Veneman. She and her

team at USDA have been excellent partners in our efforts to expand opportunities

for America’s agricultural trade and to enforce agreements vigilantly.

It is a pleasure to be with you again. I want to start by thanking all of you—

from both sides of the aisle—for the support and advice you have provided us, not

only over the last year, but for the past three years.

The leadership of this committee has been invaluable in shaping our trade agenda

as well as in bolstering our capabilities in key ways that empower us to advance

the interests of U.S. farmers, ranchers, and the agriculture industry overseas. Your

47

important support has been vital to turning tough negotiations and hard compromises into the reality of new opportunities for all those involved with agriculture

from our small rural communities to the Nation’s largest agribusinesses.

In particular, I would like to thank you for your strong support of our enforcement

efforts. Strong enforcement and ground-breaking trade agreements are two sides of

the same coin. Our enforcement efforts grow stronger when we negotiate world-leading agreements with solid and specific commitments by our trading partners. With

clear enforceable commitments in hand, we can ensure that our trading partners

live up to their promises or suffer a losing hand in litigation. Only when wielded

in unison can the tools of negotiation and enforcement reach their full potential.

As we move forward in all these areas, we will continue to consult with the agricultural community as well as the members of this committee. We understand that

sometimes our farmers and ranchers do not face a level playing field, and we are

committed to keeping those sensitivities in mind as we have in all our recent trade

agreements.

INTRODUCTION: THE CHALLENGE AHEAD OF US

Together we are accomplishing some important results for America. Yet I know

the benefits of trade are a subject of debate.

Just read a week’s worth of headlines and one thing is clear: Even at this stage

of an economic recovery and even after good news like the 308,000 jobs created last

month, Americans are concerned about how trade influences the lives of their family, friends, and neighbors. Americans are concerned about pressure on jobs, enhanced productivity, and the threat of unfairly subsidized foreign competition and

trade barriers.

But we need to consider these apprehensions carefully and not take actions that

will undermine American economic strength and kill jobs. Sometimes the economic

isolationists who fear trade and change claim that those who advance the cause of

open trade rely on blind faith in economic theories while farmers and workers must

live with the hard day-to-day reality.

Only people who fail to understand the history of America’s farmers and ranchers

could peddle such defeatism. It is farmers’ and ranchers’ openness to international

trade and the competition that goes with it that has made American agriculture the

most productive in the world.

Consider this fact: Seventy-five years ago, Americans spent 20 percent of their incomes to put food on the dinner table. Today we spend only one out of fourteen dollars. And today’s table is arrayed with vastly improved food: safer, fresher, better

tasting, more nutritious, endless in variety, and freed from the harvest calendar.

Why? Because, for 200 years, the tradition of American farming has been a spirit

of inquiry, improvement, and adaptation. The constant efforts to become more productive by adopting the newest methods and best technologies are not something

born with the global agricultural business, but rather with Washington’s and Jefferson’s experiments with seeds and plantings, the cast iron plow patented in 1797,

the first grain elevator built in 1842, barbed wire thirty years later, the all-purpose,

rubber-tired tractor in the 1930’s, and advanced hybrids and bio-tech more recently.

Two hundred years ago, U.S. farmers could do little more than feed themselves

and the ten percent of the population that did not work the land. Today, every

American farmer feeds more than 100 people, including vast numbers overseas.

When America’s domestic markets were protected by insurmountable tariffs, agricultural exports measured only a few million dollars. Today U.S. farm exports are

at near record levels in the tens of billions, with a growing trade surplus. The value

of U.S. soybeans surpasses airplanes as an export to China.

The forward-looking tradition of America’s farmers and ranchers is not only a

powerful example for the rest of the U.S. economy; agricultural productivity is part

of the reason the rest of the economy exists. When industrialization was isolated

and fragile, farmers’ surging productivity freed workers for the mines and factories

of the industrial revolution. Technology-hungry farmers were the consumers for

many new industrial goods.

When a newer technological age arrived with the peeps from Sputnik’s low-Earth

orbit, growing productivity allowed more educated workers to populate expanding

industries such as financial services and aerospace while others built new industries

that would spread from behind garage doors to desktops around the globe.

Whether Americans are selling Boeing 777s or Sun Microsystems networking

products to overseas customers, they should thank farmers.

As we have learned from farmers and ranchers, isolating America from the world

is not the answer to economic challenges. We need to open markets for Americans

to compete in the world economy, so we can create new jobs and build economic

48

strength at home. When we work with the world effectively, America is economically

stronger and more secure.

Ninety-six percent of the world’s customers live outside our borders. The fastest

growing populations and economies are outside our borders. We need to open those

markets. America’s farmers and ranchers simply cannot afford walls that stymie

global trade and development.

Opening foreign markets to U.S. products and services is vital to economic

growth, and an expanding economy is the key to better-paying jobs. U.S. exports accounted for about 25 percent of U.S. economic growth during the last decade and

supported an estimated 12 million American jobs.

Although we have opened many markets, too many foreign countries still will not

let us compete on an equal footing. They keep our products out, they use dubious

science to block food behind a facade of ‘‘safety’’ concerns or construct elaborate export subsidies that warp international markets. We want to make sure our agricultural products get a fair chance to compete, and to be vigilant and active in enforcing our trade agreements so that Americans have a level playing field.

Recent U.S. trade agreements have cut hidden import taxes and saved every

working family in America as much as $2,000 a year, and our newest agreements

could add more to these savings. Arguing for trade barriers is like arguing for a tax

on single working moms, because that is who pays the highest percentage of household income for food. Our goal is to cut those hidden import taxes—while other

countries cut theirs too—to give working families a boost. Not only do families get

a tax cut through the products they buy, but they also earn better paying jobs in

industries that export products and services.

Today’s economic isolationists, like those of yesteryear, want to retreat, to cut

America off from the world. But we need to remember that what goes around, comes

around: If we close America’s markets, others will close their markets to America.

And the price of closing markets is larger than economic isolationists recognize.

Over the last decade, trade helped to raise 140 million people out of poverty, spreading prosperity and peace to parts of the world that have seen too little of both.

Americans will not prosper in a world where lives of destitution lead to societies

without hope.

America’s farmers and ranchers know this best because they are among our most

vibrant international traders. When we put up walls, the first place foreign countries retaliate is agriculture. And with a near-record $59 billion in exports, U.S. agriculture is a big target. Economic isolationists should know that every one of their

proposals is aimed squarely at the wallets, jobs, and communities of farmers, ranchers, and agriculture-related industries from packaging to bio-tech.

That’s why President Bush’s vision is of a world that trades in freedom—a world

where America’s agricultural communities can prosper and thrive.

STRATEGIC OVERVIEW

Three years ago, to support growth, innovation, development, and engagement

with the world, the Bush administration outlined a trade strategy for America. At

the heart of our effort has been a plan to pursue reinforcing trade initiatives globally, regionally, and bilaterally while enforcing our current agreements. Through an

ambitious trade agenda, the United States is working to secure the benefits of open

markets for American families, farmers, ranchers and agriculture-related businesses. By pursuing multiple trade initiatives, we are creating a Acompetition for

liberalization that provides leverage for openness in all negotiations, establishes

models of success that can be used on many fronts, and develops a fresh dynamic

that puts America in a leadership role.

This strategy is producing results.

With the strong support of this committee, the President secured congressional

approval of the bi-partisan Trade Act of 2002.

The United States was instrumental in defining and launching a new round of

global trade talks at the World Trade Organization (WTO) at Doha in late 2001.

That same year we completed the unfinished business of China and Taiwan’s entry

into the WTO, working from the bilateral trade terms established by the Clinton

administration, so as to establish a legal framework for expanding U.S. exports and

integrating China’s economy into a system of global rules. Also in 2001, the administration worked with Congress to pass a Free Trade Agreement (FTA) with Jordan

and a basic trade accord with Vietnam. After the 2000 election, President Clinton

had announced an interest in FTAs with Singapore and Chile, and this administration negotiated state-of-the-art accords in 2001–02 and gained Congressional approval in 2003.

49

A critical aspect of the Trade Act of 2002 was the renewal of the President’s trade

negotiating authority. In 2003 and early 2004, the administration put that authority

to good use, promoting global negotiations in the WTO, working toward a Free

Trade Area of the Americas (FTAA), completing and winning Congressional approval of free trade agreements with Chile and Singapore, launching bilateral free

trade negotiations with 15 more nations (concluding talks with eight of them), announcing its intention to begin free trade negotiations with five additional countries,

and putting forward regional trade strategies to deepen U.S. trade and economic relationships in Southeast Asia and the Middle East.

These interlocking efforts have kept the pressure on WTO members to find a way

forward. And, as WTO negotiations continue, the newly completed FTAs with eight

more countries create the equivalent of the world’s 6th largest export market for our

agricultural products.

PRESSING FORWARD IN THE WTO

At key points, the United States has offered crucial leadership to launch, prod,

advance, and reenergize the Doha Development Agenda, the global trade negotiations at the WTO. At the same time, we have emphasized that in a negotiation with

148 economies seeking consensus, others must also work constructively with us.

After the Doha launch, the United States proposed the global elimination of tariffs

on consumer and industrial goods by 2015, substantial cuts in farm tariffs and

trade-distorting subsidies, and broad opening of services markets. We are the only

major country to put forward ambitious proposals in all three core areas. These proposals reflect extensive consultations with Congress and the private sector.

At the Cancun WTO meeting in September, however, some wanted to pocket our

offers on agriculture, goods, and services without opening their own markets, a position we will not accept. Since Cancun, I believe many countries have concluded the

breakdown was a missed opportunity that serves none of our interests. That recognition is a useful starting point for getting the negotiations on track.

Only a few weeks after Cancun, more than twenty diverse APEC economies—encouraged by the United States and joined by some of our free trade partners—called

for a resumption of WTO negotiations, using the draft Cancun text as a point of

departure. In December, the WTO General Council completed its work for the year

with an important report by its Chairman on the key issues that need to be addressed if the Doha Development Agenda is to move forward.

By late December, we sensed many WTO members were interested in getting

back to the table, probably working from the draft text developed at Cancun, but

U.S. leadership was essential. So in January, I wrote a letter to all my WTO colleagues putting forward a number of common sense suggestions to move the Doha

negotiations forward in 2004. I emphasized that the United States did not want

2004 to be a lost year. The letter suggested that progress this year will depend on

the willingness of Members to focus on the core agenda of market access for agriculture, manufactured goods, and services.

In agriculture, we believe that WTO Members need to agree to eliminate agricultural export subsidies by a date certain, substantially decrease and harmonize levels

of trade-distorting domestic support, and seek a substantial increase in real market

access opportunities both in developed and major developing economies. We emphasized that the United States continues to stand by its 2002 proposal.

Finally, we are asking that countries not permit the so-called Singapore Issues

to be a distraction from our critical work on market access. We need to clear the

decks. Based on extensive consultations in Africa and Asia, I believe we can move

forward together on trade facilitation, which cuts needless delays and bureaucracy

at borders and ports and is of vital importance to U.S. agriculture. I have urged my

colleagues to drop the other topics.

The initial response to this initiative has been encouraging both from overseas

and among domestic constituencies. To follow up the January letter, in February I

traveled some 32,000 miles—around and up and down the world—to meet with representatives of over 40 countries to hear their ideas and encourage their commitment.

In March, USTR’s Chief Agricultural Negotiator, Ambassador Allen Johnson, traveled to Geneva for discussions with more than 70 countries intended to move the

Doha Round forward. While no specific major breakthroughs were achieved, Ambassador Johnson was able to foster a more focused and cooperative environment with

key WTO members on the core issues.

As a result, I believe we are regaining some momentum, although the road ahead

is marked by risks. Our ability to make notable progress by this summer depends

principally, in my view, on two steps: one, reconciling the conundrum of the SingaVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 F:\DOCS\10829 HAGRI PsN: HAGRI
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pore Issues by agreeing to focus solely on trade facilitation; and two, by concentrating on the draft agriculture text to see if we can agree on specific frameworks for

reform. To secure movement on agriculture, all countries will need to agree to eliminate export subsidies, including the subsidy element of export credits, to end state

trading enterprise monopolies, and discipline food aid in a way that still permits

countries to meet vital humanitarian needs.

The framework will also need to show a strong basis for meaningful reductions

in trade-distorting support and real improvement in market access. Such moves will

create the opportunity to address our long-standing objectives of eliminating export

subsidies, making substantial reductions in trade-distorting domestic support that

results in greater harmonization, and gaining substantial new access to markets.

With this new momentum, and decisions by the European Union, Japan, Canada

Australia and key developing nations such as Brazil, China, India, and Korea to

make strong new commitments to the WTO, a completed framework for progress is

possible by July. Of course, methods for addressing unique agricultural sensitivities

like those in the United States as well as the needs of hundreds of millions of subsistence farmers around the world must also be found as the process moves forward.

PUSHING THE WTO FORWARD WITH POWERFUL ALTERNATIVES

The American agriculture community believes that the Doha Round of WTO negotiations should be the centerpiece of our agenda. They are right.

But the surest way to let Doha falter is by negotiating in a vacuum. By moving

forward regionally and bilaterally, as well as globally through the WTO, we remind

the world that the United States is committed to achieving trade liberalization. If

some countries stand in the way of one opportunity, we will find another. Only

steady trade-opening progress can infuse momentum into Doha.

Remember that in the WTO, it takes only one member to derail the process. We

do not want to be held hostage to any one of 147 economies. Farmers and ranchers

know this instinctively. No businessperson wants to be selling to only one buyer.

If a potential buyer makes unreasonable demands, a farmer and rancher would

move on to someone more willing to work together.

Equally important, our progress outside the WTO provides important opportunities for American agriculture. Since the Doha Round was launched, we have initiated or completed negotiation on FTAs representing the fifth largest market for U.S.

agricultural exports.

Consider the Central American Free Trade Agreement alone: Currently, 99 percent of food and agricultural products exported by CAFTA countries enter the U.S.

duty-free + without reciprocal access. Only after Congress approves the agreement

and it is implemented will U.S. farmers and ranchers have a level playing field. A

broad coalition of agricultural trade groups reports that CAFTA and the DR will

grow our exports of feed grains, wheat, soybeans, poultry, pork, cotton, beef, and

dairy products, among others, with projected gains of almost $1 billion.

There are numerous specific benefits for U.S. farmers and ranchers in each of our

most recent FTAs:

• In CAFTA, more than half of current U.S. exports will become duty-free immediately, including high-quality beef, cotton, wheat, soybeans, key fruits and vegetables, processed food, and wine. Central America will also work to resolve sanitary

and phytosanitary barriers to agricultural trade.

• In the Morocco FTA, our farmers and ranchers are gaining new tools to compete

with Canada and the EU, among others. Our beef and poultry producers will get

new access to a market that was formerly closed. Tariff rate quotas for durum and

common wheat could lead to five-fold increases in U.S. exports over recent levels.

Almond exports could double under a new TRQ. Moroccan tariffs on sorghum, corn,

soybeans, and corn and soybean products will be cut significantly or eliminated immediately. Morocco also will lift its duties immediately on cranberries, pistachios,

pecans, whey products, processed poultry products, and pizza cheese. Tariffs on

some other products will be phased out in five years, including on walnuts, grapes,

pears, and cherries.

• In our Australian FTA, every American agricultural export will receive immediate duty-free access and there are new mechanisms to smooth cooperation between U.S. and Australian officials on sanitary and phytosanitary barriers.

A static analysis only captures part of the benefit. Our trading partners’ economies grow faster after they have joined an FTA with the U.S. That means more export opportunities across economic sectors as their incomes rise.

Even while negotiating these strong benefits for agriculture, we keep import sensitivities foremost in mind. In the Australia agreement, for example, some U.S. tarVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 F:\DOCS\10829 HAGRI PsN: HAGRI
51

iffs remain in place or are phased out over 18 years while safeguards remain in

place for sensitive horticultural products and beef.

One-on-one negotiations also provide opportunities to implement innovative solutions to old trade problems or adopt unique new disciplines that can foster trade.

For example, the Chile FTA recognizes U.S. beef grading and inspection, while language in the Australia and Morocco FTAs advances our goal of global export subsidy

elimination and our goals on state trading enterprises at the WTO. The Australia

FTA and CAFTA provided leverage to reform sanitary and phytosanitary barriers.

Once good ideas are put into practice and their success can be observed from around

the world, the best ideas can be exported to other FTAs and the WTO negotiations.

As we push the WTO forward regionally and bilaterally, we are targeting markets

that offer the biggest opportunities to our agricultural exporters. We chose Thailand

and Colombia to be among our newest negotiating partners knowing of their commercial significance to our agricultural producers.

We would like to pursue FTAs with the largest markets around the world, including the European Union and Japan among others. But right now, those countries

are unwilling to move forward. As a result, we are pushing for the liberalization of

their markets through the WTO. At the same time, as another facet of competitive

liberalization, we hope our progress on other FTAs will encourage these important

markets to reconsider their stance.

ADVANCING NEGOTIATIONS IN THE FREE TRADE AREA OF THE AMERICAS

Since taking office, the administration has been working to transform years of

general talks about a Free Trade Area of the Americas (FTAA) into a real marketopening initiative, with a focus on first removing the barriers that most affect trade.

When complete, the FTAA would be the largest free trade zone in the world, covering 800 million people with a combined GDP of over $13 trillion. It would expand

U.S. access to markets where tariff barriers are high and non-tariff barriers are

abundant. Since many of these countries already have enhanced access to the U.S.

market through our preference programs, U.S. farmers stand to gain the most since

the U.S. has few trade barriers left to remove.

As we proceed in the FTAA, we will continue to take into account not only the

export opportunities this Agreement offers our farmers, but also the particular sensitivities they have to certain agricultural imports from our FTAA trading partners.

We will also continue to insist that the WTO, and not the FTAA, is the place to

negotiate on domestic supports, export credits and guarantees, and food aid.

SPANNING THE GLOBE WITH BILATERAL FREE TRADE AGREEMENTS

In 2003, the United States signed free trade agreements with Chile and Singapore, and those agreements won strong bipartisan majorities in Congress. These

comprehensive, state-of-the-art FTAs set modern rules for 21st Century commerce

and broke new ground in areas such as intellectual property protection, transparency and anti-corruption measures, and enforcement of environmental and labor

laws to help ensure a level playing field for American workers. They also built on

the experience of prior free trade agreements and will serve as useful models to advance other U.S. bilateral free trade initiatives in 2004.

In Latin America, for example, the long-sought FTA with Chile took effect on the

tenth anniversary of NAFTA, and only two weeks after the administration concluded a U.S.-Central American Free Trade Agreement with El Salvador, Guatemala, Honduras, and Nicaragua. In January, we finalized CAFTA by resolving a few

remaining issues with Costa Rica, and on February 20, the President notified Congress of his intent to enter into that agreement. Last month, we completed negotiations for the Dominican Republic to join CAFTA. The expanded agreement would

create the second-largest U.S. agriculture export market in Latin America, behind

only Mexico.

Just this week, the U.S. launched FTA negotiations with Panama. Later this

spring the United States intends to launch similar negotiations with Colombia and

possibly Peru and Ecuador, while continuing preparatory work with Bolivia. Added

together, the United States is on track to gain the benefits of free trade with more

than two-thirds of the Western Hemisphere (not counting the United States)

through state-of-the-art, comprehensive sub-regional and bilateral FTAs.

In February, we concluded a landmark free trade agreement between the United

States and Australia. All U.S. farm exports—more than $400 million per year—will

go duty-free to Australia. At the same time we have been able to ensure that our

import sensitive areas of agriculture such as beef, dairy, and sugar are treated carefully.

52

In Southeast Asia and the Middle East, the President has announced initiatives

to offer countries a step-by-step pathway to deeper trade and economic relationships

with the United States. The Enterprise for ASEAN Initiative (EAI) and the blueprint for a Middle East Free Trade Area (MEFTA) both start by helping non-member countries to join the WTO, strengthening the global rules-based system. For

some countries further along the path toward an open economy, the United States

will negotiate Trade and Investment Framework Agreements (TIFAs) and Bilateral

Investment Treaties (BITs). These customized arrangements can be employed to resolve trade and investment issues, to improve performance in areas such as intellectual property rights and customs enforcement, and to lay the groundwork for a possible FTA.

President Bush announced the Enterprise for ASEAN Initiative in October 2002.

Significant progress was made in 2003, and the stage has been set for further

achievements in 2004. With the newly enacted Singapore FTA to serve as a guidepost for free trade with ASEAN nations, last month we began to prepare for upcoming free trade negotiations with Thailand. At the Cancun WTO Ministerial last September, Cambodia was offered accession to the World Trade Organization, so it

could take another step toward active participation in the global rules-based economy. Spurred by the progress of its neighbors, Vietnam is also working toward WTO

membership, building on the foundation of a basic bilateral trade agreement with

the United States that was approved by Congress in 2001. The United States signed

a bilateral trade agreement with Laos in 2003. The United States is using TIFAs

with the Philippines, Indonesia, and Brunei to solve practical trade problems, build

closer bilateral trade ties, and work toward possible FTAs. Malaysia also now wants

to proceed towards a TIFA with the United States.

The Middle East Free Trade Area initiative, announced by the President in May

2003, offers a similar pathway for the Maghreb, the Gulf states, and the Levant.

In addition to helping reforming countries become WTO Members, the initiative will

build on the FTAs with Jordan, Israel, and now Morocco; provide assistance to build

trade capacity and expand trade so countries can benefit from integration into the

global trading system; and will launch, in consultation with Congress, new bilateral

free trade agreements with governments committed to high standards and comprehensive trade liberalization.

The U.S.-Jordan FTA entered into force in December 2001 after close bipartisan

cooperation between the administration and Congress.

In 2003, the administration launched free trade negotiations with Morocco, which

we are pleased we completed last month. Our terms with Morocco provide immediate cuts in Moroccan trade barriers to wheat, corn, and soybeans, and new access

for U.S. beef and poultry.

In January 2004, the United States began free trade negotiations with Bahrain.

Agricultural products that could benefit from the FTA include meats, grains, fruits

and vegetables, and dairy products.

Morocco and Bahrain have been leaders in reforming their economies and political

systems. Our market opening efforts with these two Arab states are part of the administration’s broader goal of fostering prosperity, encouraging openness, and deepening economic and political reforms throughout the region.

In 2004, the United States will continue its efforts to bring Saudi Arabia into the

WTO and will expand its network of TIFAs and BITs throughout the region. The

United States now has nine TIFAs in the region, most recently signing agreements

with Saudi Arabia, Kuwait, Yemen, Qatar, and the United Arab Emirates. As additional countries in the Middle East pursue free trade initiatives with the United

States, the administration will work to integrate these arrangements with the goal

of creating a region-wide free trade area by 2013.

In Africa, the United States launched FTA negotiations with the five countries of

the Southern African Customs Union (SACU): Botswana, Lesotho, Namibia, South

Africa, and Swaziland. The U.S.-SACU FTA will be a first-of-its-kind agreement

with sub-Saharan Africa, building U.S. ties with the region even as it strengthens

regional integration among the SACU nations. Farmers would gain expanded opportunities in wheat, rice, and poultry.

The bilateral FTAs we have concluded or are pursuing constitute significant markets for the United States. U.S. goods exports to these countries were $66.6 billion

in 2003. This would have made them the third largest U.S. export market behind

only Canada and Mexico, and ahead of Japan. Our $4.2 billion in agriculture exports in 2003 made them our fifth largest market. The economies of these countries

totaled $2.5 trillion in 2002 at purchasing power parity exchange rates, which would

rank them as the world’s sixth largest economy. And most are developing countries

that offer significant growth opportunities in years to come. We are laying free trade

foundations for win-win economic ties between America and these partners.

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ENFORCEMENT: A CONTINUING TASK

The vigilant enforcement of existing trade agreements is no less important than

producing new ones. Indeed, enforcement is inherently connected to the process of

negotiating new agreements. Without determined enforcement, new agreements will

serve as a source of disappointment and frustration instead of an opportunity to create new jobs for workers and new opportunities for business. We need to assure the

American public, and forewarn our trading partners, that we are determined to use

all available resources and remedies to combat unfair trade practices and secure a

level playing field for American workers, farmers and businesses.

Over the past three years, we have been aggressive in ensuring that the interests

of U.S. farmers and ranchers are vigorously protected.

Some of our efforts on behalf of farmers and ranchers include:

• Reopening the Japanese apple market. We won a case against Japan in which

the WTO overruled unscientific claims that U.S. apples could carry fire blight and

damage Japanese agriculture. As a result, Japan has agreed to reissue import rules

for U.S. apples by June 30th

• Winning a WTO case against Canada’s discriminatory grain handling practices.

Canada must now reform extra hurdles placed in the way of U.S. wheat exports including rules against mixing U.S. and Canadian grain as well as preferential pricing

rules for transportation. We intend to appeal the remaining issues.

• Filing a WTO case against Mexico’s illegal high fructose corn syrup taxes. We

attempted to settle this dispute through negotiations, in close consultation with our

industry. Unfortunately, the negotiations did not resolve the matter, so now we will

enforce our rights under the WTO.

• Reopening the Indian market for American almonds. With a dubious scientific

basis, in January, India instituted fumigation rules that blocked our almond exports. Before the regulations could stifle $70 million of U.S. exports, we convinced

India to hold off until June to allow time to work out a long-term solution that will

not undermine U.S. farmers’ 2nd most important export to India.

• Reopening the Mexican market to American beef. Mexico has lifted restrictions

on 91 percent of U.S. beef products, a $935 million market in 2003. In another Mexican beef issue, a NAFTA dispute panel recently handed down a ruling that should

pave the way for the reconsideration of some anti-dumping duties on U.S. beef exports to Mexico.

• Pressing our geographical indicators case against the EU. In February, the WTO

created the dispute panel to address the fact that the EU’s regulations do not provide national treatment for agricultural products and foodstuffs GIs and fail to protect pre-existing trademarks. We expect a decision this fall.

• Convincing China to certify biotech foods, including soybeans. In March, after

two years of working together, China issued permanent safety certificates for

biotech soybeans, corn, canola, and cotton assuring that the quick-growing multi-billion dollar market will remain open to our farmers. Soybeans reached a record last

year and so did our agriculture trade surplus with China. China has said decisions

on other products’ safety certificates will follow.

• Winning a WTO case against Canadian dairy export subsidies. In May 2003,

USTR followed up the WTO victory by signing an agreement between the United

States and Canada that Canada would not export subsidized dairy products to the

U.S. We are carefully monitoring Canada’s compliance with the WTO ruling and its

NAFTA obligations.

• Continuing to push our WTO challenge to the EU’s biotech moratorium. On

March 4, the WTO dispute panel was created and we expect a final report by October. USTR is also working with industry to evaluate whether filing another WTO

objection to the EU’s new biotech traceability and labeling regulations is the best

course to address the issues.

There are many other examples because our day-to-day, bread-and-butter work at

USTR is to work with American agriculture—and other U.S. exporters—to solve

problems. We have worked to ensure exports of beef, pork, and poultry to Russia

and Mexico. We have protected dry bean growers from Mexican restrictions, rice

farmers from Taiwan’s unjustified trade barriers, and kept EU markets open for our

wheat farmers.

These efforts will continue. For example, we are working closely right now with

Secretary Veneman to remove new barriers against U.S. beef, related to BSE, and

restrictions on U.S. poultry exports caused by recent outbreaks of avian influenza.

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ENSURING A LEVEL PLAYING FIELD WITH CHINA

In the future, few relationships will be as important to U.S. farmers and ranchers

as our trade ties with China. Since China joined the WTO, it has become America’s

5th largest agricultural export market. Total U.S. exports to China grew 75 percent

over the last three years, even as U.S. exports to the rest of the world declined because of slow global growth.

In 2003, senior administration officials met frequently with Chinese counterparts

to address shortcomings in China’s WTO compliance. We delivered a clear message:

China must increase the openness of its market and treat U.S. goods and services—

including agricultural products—fairly if support in the United States for an open

market with China is to be sustained.

As a result, China has taken steps to correct systemic problems in its administration of the tariff-rate quota (TRQ) system for bulk agricultural commodities, and relaxed certain market constraints in the soybean and cotton trade, enabling U.S. exporters to achieve record prices and sales. Approval of biotech soybeans, cotton,

canola, and corn earlier this year—and promised additional approvals—has created

greater certainty for U.S. exporters.

Nevertheless, China must do more. We continue to stress the need for structural

change that ensures ongoing, open, and fair access—not reliance on one-off sales

and market access granted only after high-level political intervention.

U.S. farmers and ranchers are already benefiting from trade with China. Growth

in exports to China of agricultural products has been robust; for example, U.S. exports of soybeans reached an all-time high in 2003 of $2.9 billion and cotton exports

were $737 million, up almost 430 percent over 2002. Exports of hides and skins

were $460 million in 2003. In addition, China has committed to buy $500 million

of wheat. After growth of 140 percent between 2002 and 2003, China is the destination for 8 percent of all U.S. agricultural exports.

Since China is a growth market, particularly as the nation’s middle class grows

into the hundreds of millions, we are working to ensure that China becomes an integral part of the international trading system. China must not only import from the

rest of the world, but also accept the practices and rules that create a level playing

field.

Earlier this month, Commerce Secretary Don Evans, Secretary Veneman and I

met with Chinese Vice Premier Wu Yi as part of the U.S.-China Joint Commission

on Commerce and Trade (JCCT). The JCCT focused on many issues. In the area

of agriculture, China agreed to implement new transparency procedures, announce

approvals for several new biotech canola and corn products, ease the way for agriculture exports into China by providing the names of domestic quota holders and

lift some of the BSE-related restrictions on U.S. beef exports.

Our attention remains focused on China to resolve new issues as they come up.

With the help of new appropriations from Congress we have established a new office

and added new staff to deal more specifically with China. At the same time, we reorganized our North Asia office to focus on Japan and South Korea, two critical agricultural markets.

In 2004, the administration will concentrate on ensuring that: U.S. firms are not

subject to discriminatory taxation; market access commitments in areas such as agriculture and financial services are fully met; standards are not used—whether for

technology or farm products—to unfairly impede U.S. exports; China’s trading regime operates transparently; and promises to grant trading and distribution rights

are implemented fully and on time. The administration will consult closely with

Congress and interested U.S. stakeholders in continuing to press China for full

WTO compliance, and will not hesitate to take further action to enforce trade rules.

During 2004, we will continue to push forward, step-by-step, toward the vision set

out by President Bush of Aa world that trades in freedom. It is a vision of a world

in which a Virginia turkey farmer, a Texas rancher, a Minnesota corn farmer, a

Washington State apple grower, and a North Carolina poultry farmer can sell his

or her products or services in Costa Rica or Australia or Thailand or Morocco as

well as across America. It is a vision of a world in which free trade opens minds

as it opens markets, supporting democracy and encouraging tolerance, thereby making Americans more secure. It is a vision of a world in which a working family can

save money at the grocery store because trade agreements have cut hidden import

taxes. And it is a vision of a world in which hundreds of millions of people are lifted

from poverty through economic growth fueled by trade. It is the vision that builds

a future for America’s farmers and ranchers.

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REVIEW OF AGRICULTURAL TRADE

NEGOTIATIONS

WEDNESDAY, MAY 19, 2004

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The committee met, pursuant to call, at 10:00 a.m., in room

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

Present: Representatives Pombo, Smith, Lucas of Oklahoma,

Moran, Gutknecht, Ose, Hayes, Pickering, Osborne, Rehberg, Putnam, Burns, Rogers, King, Musgrave, Neugebauer, Stenholm, Peterson, Dooley, Etheridge, Hill, Baca, Case, Alexander, Ballance,

Scott, Chandler, Pomeroy, Boswell, Udall, and Davis.

Staff present: Brent Gattis, Lynn Gallagher, Jason Vaillancourt,

Ryan Weston, Matt Leggett, Christy Seyfert, Callista Gingrich,

clerk; Teresa Thompson, and Andy Baker.

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

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review agricultural trade negotiations will

come to order.

On behalf of the committee, I welcome our distinguished witnesses representing agriculture from around the United States,

from Arkansas to Wyoming. We are honored to have you all appear

before this committee to discuss issues related to agricultural trade

negotiations.

Last month, the Secretary of Agriculture and the U.S. Trade

Representative testified before this committee about the status of

agricultural trade. This month, we will hear from those who are

most affected by agricultural trade, both the positive and negative

aspects of trade.

There is an ambitious program in place regarding trade, especially agricultural trade. Agreement has been reached in the Morocco, CAFTA, Dominican Republic and Australian negotiations;

talks are still going on in the Southern African Customs Union and

the Free Trade Area of the Americas, although very slowly.

In fact, the U.S.-Australia Free Trade Agreement was signed by

Ambassador Zoellick yesterday, and CAFTA will be signed on May

28. The timetable for consideration of these agreements by Congress is as yet undetermined.

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Free trade negotiations are beginning in Thailand, Panama, the

Andean countries, and in Bahrain. However, as I said last month

to the administration’s representatives, I encourage them to work

toward initiating trade agreements with larger populated countries

that offer greater opportunities for U.S. agriculture exports.

Over the past couple of weeks, the Doha Development round negotiators have noted some progress in these agricultural negotiations. On top of ongoing negotiations, there are trade disputes with

several other countries. For example, the European Union has had

a moratorium on approval of biotechnology products for the past 6

years, will not accept U.S. beef or poultry, and wants to take away

U.S. trademarks and certification marks that are properly registered and allow EU companies to claim such products as their

own.

Just to note on the biotechnology issue, I have seen reports that

some time this month, the EU may approve an additional use of

a corn biotechnology product so that canned sweet corn or other

similar products can be sold to its consumers. However, it still will

not allow this product to be grown in the EU. The EU policy is illogical. This same corn product is sold in the EU for animal feed

and the high fructose corn syrup delivered from it is used for fruit

products, all ending up in products available for consumption by

EU consumers. So people in the EU already consume biotech products and have for years, but they will not allow U.S. biotech products into European countries.

Mexico has placed a tax on products containing U.S. high fructose corn syrup, assessed antidumping duties in questionable investigations on U.S. apples, rice, and beef. There are concerns remaining that China is not abiding by its WTO accession agreement on

access to its market for U.S. cotton, pork and poultry. United

States agriculture depends on exports, and a vibrant trade policy

is important to U.S. farmers and ranchers and to all agribusiness.

We want to seek greater opportunity for all our agricultural products, and trade negotiations can make that possible. We want to

see markets open around the world.

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

tariffs are low. Agricultural tariffs worldwide average 62 percent,

while U.S. agricultural tariffs are 12 percent, as indicated by the

chart. It is to the advantage of U.S. agriculture that we continue

to open markets and remove barriers to our agricultural exports.

These barriers come from high tariffs, the EU’s geographical indications policy, and other nonscientific barriers such as those related to biotechnology and beef hormones.

Trade negotiations offer an opportunity for the United States to

increase agricultural exports. U.S. goals for these negotiations are

to decrease and harmonize tariffs, eliminate export subsidies, and

reduce and harmonize trade-distorting domestic support policies.

Just look at the status quo. The EU is allowed to spend more than

three times as much as the United States in domestic agricultural

payments. Japan is allowed to spend 1.5 times the amount the

United States is allowed to spend under the Uruguay Round agreement.

It is wrong to continue the Uruguay Round kind of reductions in

domestic support. That is, just applying a percentage reduction to

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allowable spending. The disparity in spending among the United

States, the EU, and Japan, must be reconciled and harmonization

must be a central part of the agricultural negotiation. The U.S. and

the EU have similar agriculture output, yet the EU can spend significantly more than the United States under the current WTO

agreement. Japan has fewer acres dedicated to agriculture than the

United States, and they also can spend in excess of the United

States.

I made a promise at the beginning of this Congress that the committee intends to pay very close attention to all trade negotiations

and to listen to U.S. agriculture’s views on this important matter.

Last year the committee held hearings on agricultural trade, biotechnology, and geographical indications. The committee will continue to follow these issues. This includes ongoing multilateral

trade negotiations and all regional and bilateral negotiations. It

also includes oversight of past agreements such as with China and

other accessions to the WTO such as Russia. It means looking

closely at problems U.S. agriculture faces regarding sanitary and

phytosanitary issues such as those with Australia.

Before I close, I read an April 28 editorial in the New York

Times concerning a preliminary decision on a case brought by

Brazil concerning U.S. farm programs, specifically cotton. I do not

often take advice from editorial boards of the New York Times, and

this is no exception. They suggest that the United States concede

its so-called loss at the WTO and dismantle our agricultural programs. I strongly disagree, and I said last month, reports indicate

that the administration intends to appeal that decision, and I support that action.

Under the WTO rules, countries are permitted to support their

farmers in ways that are the least trade-distorting, and WTO rules

govern the amounts countries may provide their farmers. The

United States abides by the WTO rules and is and has been in accord with its rules on agriculture. Changes to countries’ agricultural policies should come through the give-and-take of negotiations, not through decisions that do not appear based on WTO

rules, no matter what the opinion of the New York Times.

With that, it is my pleasure to recognize the ranking member of

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

OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. STENHOLM. Thank you, Mr. Chairman. As we move towards

a framework for negotiations on agriculture in the Doha Round, I

am concerned that we do not move too far away from the negotiating principles we set out at the beginning of the process.

Three important principles were put forth in the negotiating proposal of June 2000: the elimination of export subsidies; the reduction or elimination of disparities in tariff levels among countries,

which, Mr. Chairman, you have just shown us; and the harmonization of trade-distorting domestic-support allowed levels.

On the subject of food aid, the U.S. position called for a renewal

of the Uruguay Round commitment to food aid, including the disciplines in article 10.4 of the Agreement on Agriculture. As we approached the Cancun ministerial, trade ministers attending a

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World Trade Organization meeting in Montreal, asked the United

States and European Union to work together on developing a compromise for negotiating agriculture farm in the Doha Round.

In order to rekindle the negotiations, the United States and the

EU reached a compromise and put forth a proposal. According to

many in the U.S. agricultural community, however, the compromise left the EU with too much flexibility on domestic support.

We pressed on in the negotiations, hoping that a U.S. demonstration of the willingness to compromise on the issue of harmonizing

domestic support would inspire others to follow suit on other issues

like market access. But in Cancun, there was no compromise to be

found. In fact, it seemed to me like we took a step backwards, with

many countries giving no ground on market access, and some making new demands for special treatment.

Most recently, there has been some encouraging news. The EU

has said it is willing to talk about an end date for export subsidies.

This is not very surprising, given the fact that the EU is the

world’s largest user of export subsidies and is isolated on the issue.

In addition, the demands made in the EU’s statement are also not

surprising. The EU wants elimination of the de minimis exemption,

which would have a greater effect on the United States than on

Europe. It wants new rules to prevent the transfer of subsidies between boxes, just after Europe has finished such a transfer. It

wants early action on cotton, an important export crop for the

United States, but not for Europe; and it wants new disciplines on

humanitarian assistance which the U.S. provides in the form of

food aid and Europe provides largely in grant form.

Meanwhile, the world still awaits a new offer on market access

from the so-called G–20 led by Brazil. Coincidentally, the Financial

Times reported the following last month:

As part of a preferential trade agreement, the EU is offering concessions on market access to farm products from members of the Mercosur customs union, namely

Argentina, Brazil, Paraguay and Uruguay. It hopes, thereby, to split the ranks of

those pushing for agriculture liberalism in the Doha Round of trade negotiations.

Brazil is the world’s eighth largest economy, and yet it calls itself

a developing country. It is difficult to anticipate what will come

next from a group led by such a nation. Amazingly, Brazil maintains a trade surplus with the United States of $1.1 billion in agriculture alone, and despite its strength as an agricultural exporter,

it deliberately subverted negotiations on agriculture in Cancun and

seems to prefer litigation over negotiation.

Now, despite these discouraging developments, I am still waiting

to hear what our trading partners have to say about market access.

I just hope we do not have to wait too long, because the window

of opportunity will soon be closed.

The CHAIRMAN. I thank the gentleman.

The Chair advises the other members of the committee that we

will make your opening statements a part of the record. We have

a lengthy list of witnesses, and we will get to them right now.

[The prepared statements of Messrs. Smith, Ose, Davis, and

Ballance follow:]

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PREPARED STATEMENT OF HON. FRANK W. BALLANCE, JR.

Mr. Chairman, thank you for holding this hearing. Many farmers from North

Carolina are watching these proceedings very closely, and I welcome this opportunity.

Mr. Chairman, it would be imprudent to create solutions where problems do not

exist. Today’s American cotton industry is as strong and vibrant as ever despite the

many crises it faces. Cotton prices are over 70 cents a bale, and domestically produced cotton is having tremendous success in the international markets. Self-regulation has brought about the highest quality fiber product in the world. Domestically

produced cotton is highly competitive internationally.

Tinkering with this successful system is simply unwise. The programs in place

have kept farming viable and allowed amazing new technologies to develop. By tinkering with this system we risk losing our farms and the many jobs that depend

on them, and as a result we risk future dependence on foreign nations for yet another domestic need...America simply cannot outsource food or fiber production.

Today, when a textile company goes bankrupt, its equipment is sold to pay creditors. Among the items sold is the infrastructure of the company—the advanced textile machines and equipment that so many companies around America have bought

in recent years to offset competitors’ advantage of cheap foreign labor costs in

China, Pakistan, Vietnam, and India. The buyers waiting for this advanced equipment to hit the auction block are from China, Pakistan, Vietnam, and India. They

buy equipment at pennies on the dollar and ship it half way around the world

where it is used to compete with remaining textile companies in the United States.

We call this an export, but I call it an outrage.

Mr. Chairman, I do not support payment limitations, or a wholesale change in the

program as proposed by our friends in Brazil and the World Trade Organization.

Competing nations such as China and Brazil devalue their currencies to create de

facto tariffs as high as 40 percent against our products. Not even in the worst of

all crop years do subsidies reach 40 percent, yet they keep tens of thousands of

American family farmers productive and competitive against severe trade-distorting

practices.

I strongly support the appeal of the WTO decision and a cooperative effort to create effective trade agreements that complies with WTO rules and allows the U.S.

cotton program to maintain its level of effectiveness process.

Thank you, Mr. Chairman

The CHAIRMAN. I would like to welcome our first panel, Mr. Greg

Lee, chairman, National Chicken Council, Springdale, AK; Mr.

Woody Anderson, chairman, National Cotton Council, Colorado

City, TX; Mr. Dee Vaughan, president, National Corn Growers Association, Dumas, TX; Mr. Bart Ruth, past president, American

Soybean Association, Rising City, NE; and Mr. Dan Gertson, vice

chairman, U.S. Rice Producers Association, Lissie, TX.

Gentlemen, we welcome all of you. Your complete statements will

be made a part of the record. We ask that you limit your oral remarks to 5 minutes, and we will start with Mr. Lee.

STATEMENT OF GREG LEE, CHAIRMAN, NATIONAL CHICKEN

COUNCIL, SPRINGDALE, AR

Mr. LEE. Good morning and thank you, Chairman Goodlatte,

Congressman Stenholm and committee members, for the opportunity to present the National Chicken Council’s views and recommendations regarding international trade issues. Please be assured U.S. poultry companies appreciate the chairman’s invitation

to be a part of this very vital discussion.

My name is Greg Lee, chief administrative officer and international president of Tyson Foods, and current chairman of the National Chicken Council. NCC works very actively with Congress

and the administration to help promote an expanding export market for U.S. poultry. This committee’s leadership on international

trade issues is recognized and appreciated.

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Having a vigorous, robust, and expanding export market for

chicken is critically important to the chicken industry. Whether one

of these companies exports directly or relies entirely on the domestic market, the prices received and the economic well-being is heavily dependent on the health of the export market. American consumers, through their purchasing decisions, continue to increasingly express an overwhelming preference for breast meat. Therefore, it is critical that export markets be found for the dark meat

of the chicken less preferred by the American consumer.

Last year exports accounted for over 15 percent of the total U.S.

broiler marketings. In terms of share of total market, the highest

level was in 2001 when 5.6 billion pounds were exported, or 18 percent of total marketing. This year, exports will slip for the first

time in 20 years. In 2004, the quantity exported is likely to be 4.6

billion, or less than 14 percent of total marketings. In a normal

market situation, the export market must take the leg quarters

from one in three chickens for the overall market to be in good balance. When adequate foreign market access for U.S. chicken leg

quarters is not possible, the supplies of leg quarters tends to back

up on the domestic U.S. market and negatively impacts overall

chicken prices, but also creates an imbalance in overall supply of

competing meats and affects the market value of pork and beef.

Thus, I hope that Congress and the administration can now take

appropriate and needed actions to lessen or even prevent a continued erosion of U.S. chicken exports.

It is good to see that negotiations involving agriculture in the

World Trade Organization’s Doha Round have begun again. It is

most important to U.S. poultry exporters that greater market access is achieved. Actually, the market access provisions needed are

not the ones primarily being negotiated in the current round of

multilateral talks. Having no import quota restrictions nor high

import duties are important basic requirements. However, as tariff

and quota protections have been reduced, the nontariff protective

measures have increased measurably. More and more countries are

using poultry health issues such as avian influenza and veterinary

requirements to restrict or control U.S. poultry access to their markets. The issue of nontariff barriers is where U.S. poultry exports

need the most help.

Russia is the United States’ largest export market for chicken by

a significant measure. This market in 2003 accounted for 30 percent of total U.S. exports. In 2002, it was 32 percent, and in 2001,

it was 42 percent. Russia has recently imposed an import quota for

poultry. Although we were not pleased to see a price, we hoped

that this restriction on exports would lessen Russia’s disruptive activities with regard to our exports. We were wrong. Before the Russian veterinary team came to the United States last year to inspect

U.S. poultry plants and related facilities, the Russian Minister of

Agriculture publicly predicted that only 70 percent of the U.S.

plants would pass Russian inspections.

Not surprisingly, that is exactly what transpired. Their findings

for delisting plants, in our opinion, were arbitrary and without

merit. Since then, Russia’s Ministry of Agriculture has claimed to

have tested U.S. poultry and found product from 11 different U.S.

plants to be positive for certain pathogens. Russia has delisted

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these plants without an opportunity for the USDA or the industry

to respond to the findings. Recently, Secretary of Agriculture

Veneman has made repeated requests to her counterpart in Russia

to have a Russian veterinary team come and inspect the delisted

plants. Much delay has occurred in trying to get a response to her

requests. Because the list of approved plants is relatively short,

and becoming shorter with these delistings, the import quota for

Russia is not being filled. Failure to fill the quota jeopardizes our

agreed-upon percentage. We find ourselves in a difficult situation

and Russia is not responding to help.

When the low-pathogenic avian influenza outbreak first occurred

in Delaware this year, more than 60 countries banned U.S. poultry.

China and Hong Kong represent the second largest export market for U.S. chicken. Earlier this month, Hong Kong finally partially lifted its import ban. However, since 85 percent or more of

the chickens exported to Hong Kong is transshipped to China, and

the fact that we have not opened China really makes the Hong

Kong partial approval of little benefit to the U.S. chicken industry.

The main point of discussing this situation is to better explain

that despite trade agreements, whether bilateral or multilateral

through the WTO, countries will continue to use veterinary and

sanitary issues to restrict and halt trade.

The National Chicken Council recognizes that agriculture trade

negotiations are difficult. Nonetheless, we respectfully suggest the

following recommendations: work diligently towards a successful

conclusion to the WTO negotiations and assure better market access. Continue to work on successful conclusions of bilateral free

trade agreements that include provisions for poultry; continue to

have full and complete compliance by signatories to trade agreements that are already concluded and encourage U.S. Trade Representative’s office to respond appropriately and timely when these

provisions are violated; have trading partners agree to predetermined procedures for expedited resolution of sanitary and veterinary issues; postpone negotiations for Russia’s accession to the

WTO until Russia fully demonstrates it will abide by the agreements; encourage USDA to organize a more permanent and dedicated task force to work with countries that are using nonsciencebased sanitary and veterinary measures that result in disruptions

or halt U.S. poultry and red meat exports; and provide more funding to the USDA/Foreign Agricultural Service’s Foreign Market Access Program and Foreign Market Development program; and more

funds to USTR, with a more adequate budget so we can have sufficient resources to try to resolve agricultural trade issues.

I would like to thank the committee for the opportunity to

present the National Chicken Council’s views.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Lee appears at the conclusion of

the hearing.]

The CHAIRMAN. I am pleased to recognize the gentleman from

Texas for the purpose of making some introductions.

Mr. STENHOLM. Thank you, Mr. Chairman. I am delighted to

welcome my neighbor from Mifflin County, Mr. Anderson, here

today; good to see you here, and also Mr. Vaughan and Mr.

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Gertson. Noting the majority of this panel are Texans, I move the

vote on the question.

The CHAIRMAN. Not hearing a second, we will recognize Mr. Anderson.

STATEMENT OF WOODY ANDERSON, CHAIRMAN, NATIONAL

COTTON COUNCIL, COLORADO CITY, TX

Mr. ANDERSON. Thank you, Mr. Chairman. Thank you for having

this hearing today.

My name is Woody Anderson, and I am a cotton producer from

Colorado City, TX, and currently serve as the chairman of the National Cotton Council of America. The success of the cotton industry is directly affected by trade policy developments, as well as

overall supply and demand conditions in world fiber markets.

Approximately 80 percent of the yarn and fabric produced by our

textile industry leaves the United States for further processing. It

is also the case that many of these exported products are manufactured into consumer goods abroad and returned to the U.S. retail

market for final consumption. Imported textile products constitute

over 90 percent of U.S. retail sales.

Over the past 6 years, a dramatic decline in the U.S. textile industry has forced U.S. cotton producers to rely on the much more

volatile export market. U.S. textile mills are now consuming about

one-third of U.S. annual production. The U.S. share of world production has essentially been unchanged, but our exports of raw

fiber account for more than 60 percent of the total U.S. offtake.

China continues to expand its already significant role in the

world cotton market and is now the largest importer of U.S. cotton.

China purchased over 21⁄2 million bales in 2003 and has announced

supplemental increases in its tariff rate quota for 2004. The United

States must remain vigilant and continue to push for China to reform its TRQ system. The ‘‘processing trade’’ distinction in China’s

import system essentially requires that apparel made from imported cotton be reexported. This distinction is not the market access required by the terms of the U.S.-China WTO assessment

agreement. Should internal pressures to purchase foreign cotton

subside within China, the private ‘‘processing trade’’ distinction

will once again become a significant barrier to U.S. exports.

Preferential trade agreements and free trade agreements are

having a greater impact on our trade situation than ever before.

From a cotton-fiber perspective, these agreements are generally acceptable. However, while the cotton and textile industries have

worked to achieve agreements that would help the U.S. industry,

many of the recent agreements have contained rule of origin exceptions that are not in the best interests of cotton farmers or textile

manufacturers in the United States or partner countries. The

United States has agreed to allow an essential amount of third

country fabric to qualify for preferential access to the U.S. market.

This is detrimental to the U.S. cotton and textile industry and discourages the development of production capabilities in the participating countries.

The National Cotton Council is encouraged by Ambassador

Zoellick’s efforts to get the Doha Round restarted. Since Cancun,

our industry has been working to open a dialog with several West

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African countries. This is a small step, but reflects our belief that

there is more than enough room in the world cotton market, more

than enough room in the world cotton market for African production, and we can work together to increase consumption and returns to all farmers.

The developed versus developing country dichotomy advanced by

some in Cancun was a clear attempt to move the Doha Round negotiations away from reciprocity. Additionally, under the current

structure of the WTO, which allows self-designation, Brazil claims

the same economic position as Mali, and China claims the same exemptions as Nigeria. We fully support the efforts of Ambassador

Zoellick to plug this loophole in the WTO.

Truly less developed countries should receive concessions within

the WTO agreements, but countries that are competitive in world

agricultural trade cannot have it both ways.

Speaking of Brazil, it has been a frustrating few weeks for the

U.S. cotton industry. We have heard and read reports in the news

that the WTO panel initially ruled against the United States. The

confidential report has not been shared with the National Cotton

Council, so I cannot comment with precision concerning this apparent ruling. We appreciate the statements and support offered by

the chairman and ranking member of this committee and by other

members. They have had a calming effect in the country during

planting time.

We also appreciate Ambassador Zoellick’s commitment to appeal

this decision if it is as adverse to U.S. interests as is being reported

in the press. What concerns us most is that the U.S. cotton program in 1992 and 1994 were fully coupled to production and had

a higher loan rate and start price than any cotton crop subject to

the 2001 farm bill. The United States has moved toward decoupling, slightly reduced loan rates and reduced the start price, yet

today’s program was somehow ruled to support cotton at a higher

level than in 1992.

Other aspects of the decision reported by the press indicate that

the panel interpreted the Uruguay Round differently than the

United States could have expected. For example, the panel apparently ruled that the export guarantees are, in fact, covered by the

reduction and commitments under the agreement on agriculture,

and that the green box programs are not exempt from actions

under the subsidy codes.

Mr. Chairman, this concludes our statement and comments before the committee, and once again, we thank you for the opportunity to deliver these comments.

[The prepared statement of Mr. Anderson appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Anderson.

Mr. Vaughan.

STATEMENT OF DEE VAUGHAN, PRESIDENT, NATIONAL CORN

GROWERS ASSOCIATION, DUMAS, TX

Mr. VAUGHAN. Good morning, Chairman Goodlatte, Ranking

Member Stenholm, and members of the committee. My name is

Dee Vaughan, and I am a farmer from Dumas, TX, and president

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of the National Corn Growers Association. I would like to thank

the committee for allowing me to testify here this morning.

Trade is vital to the future of corn growers as we search for new

markets and provide grain that is more abundant and of better

quality. Over 20 percent of the domestic corn crop is exported, and

USDA estimates that U.S. corn exports are up 50 million bushels

this year. As a result, corn farmers are enjoying the benefits of the

commodity boom. However, we need to ask ourselves, how long will

this price streak last and how do we ensure that farmers are in a

position to favorably take care of this competitive international

marketplace?

We believe trade is a vital component in the farm economy and

we support trade agreements that will open markets for U.S. farmers and increase market development opportunities throughout the

world. We reaffirm our commitment to an aggressive trade agenda.

However, farmers and ranchers have already expressed frustration

with free trade agreements and import-sensitive commodities are

rallying against efforts to lower tariffs and expand market opportunities. In order to maintain the confidence of our grass-roots producers, we need to evaluate our successes and our failures. For

corn growers, Mexico represents our greatest success and our

greatest failure of U.S. trade policy.

In the 10 years since the NAFTA passed the Congress, U.S. corn

exports to Mexico have grown from 1.1 million metric tons in 1992

to 5.6 million metric tons in 2003. Mexico is now our second largest

export market as the domestic livestock industry in Mexico continues to grow.

However, as you know, the U.S. corn industry has been embroiled in a trade dispute with Mexico for more than 7 years over

high fructose corn syrup. This sweetener dispute has exacted a

heavy toll on this sector.

NCGA is currently engaged with the Corn Growers Association,

the U.S. sugar industry, and the Mexican sugar industry in an effort to craft a proposal for our respective governments that we hope

will resolve this dispute and restore trade in HFCS.

Future efforts to successfully liberalize international agricultural

markets hinges on the Doha development agenda. Exports and

trade liberalization are vital to global economic development and to

U.S. agriculture’s continued profitability. We applaud the efforts of

Ambassadors Zoellick and Johnson and remain hopeful that negotiations will yield a framework by July.

Regardless of the approach agreed to for lowering tariffs, developing countries need to be full participants and meaningfully liberalizing import tariffs in order to facilitate trade. They cannot retrench behind rhetoric and ignore the benefits of liberalization.

Higher tariffs not only hurt exporting countries, but agricultural

producers around the globe.

Perhaps the most sensitive topic for U.S. producers will be domestic support. A successful agreement will ensure harmonization

and shift levels away from trade-distorting mechanism to green box

alternatives. Even with lower tariffs, international competition in

feed grains will not be fair if U.S. farmers are denied an agriculture safety net.

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While the WTO negotiations and Doha Round are the top priorities of NCGA, we do support bilateral free trade agreements with

significant and emerging free trade partners. Generally, the list of

candidates provide benefits to feed grain producers, but we need to

ensure the administration selects partners that represent significant future potential for economic activity and trade. By and large,

this is the case. The CAFTA, Morocco and Dominican Republic

FTAs provide tangible benefits to the feed grain sector, whereas

the Australia FTA does not.

We understand the United States Trade Representative utilizes

a variety of measures to select negotiating partners, but of paramount importance are the economic benefits resulting from a free

trade agreement. The current list of perspective partners offers

some, but not a significant, benefit to corn and feed grain producers. We encourage USTR to proceed cautiously to ensure agricultural benefits from future FTAs, while maintaining strong support

from farmers and ranchers.

Trade issues related to biotechnology continue to be of great concern to corn producers. With 46 percent of this year’s corn crop

being planted to biotech varieties and the corn production industry’s willingness to be early adopters of this important technology,

the U.S. Government must do everything it can to ensure that

other countries are not imposing unworkable and non-tariff trade

barriers to inhibit their sale to U.S. trading partners. Corn growers

are optimistic about the future and are working with our cooperators and other agricultural organizations and grower markets.

Mr. Chairman, we appreciate the strong support of the committee. We look forward to working with the committee in the future,

and again, thank you for allowing me to be here this morning.

[The prepared statement of Mr. Vaughan appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Vaughan.

We are now pleased to have Mr. Ruth. Welcome.

STATEMENT OF BART RUTH, PAST PRESIDENT, AMERICAN

SOYBEAN ASSOCIATION, RISING CITY, NE

Mr. RUTH. Good morning, Mr. Chairman, and members of the

committee. I am Bart Ruth, a soybean and corn farmer from Rising

City, Nebraska. I am a past president of the American Soybean Association, which represents 25,000 producer members. We commend you, Mr. Chairman, for holding this hearing to review the

broad agenda of issues involved in agricultural trade. Those issues

have changed considerably over the past decade, as have our strategies for addressing them.

Soybean and soy product exports alone are currently valued at

$8 billion to $10 billion, which makes our industry the largest positive contributor to the national trade balance. World demand for

soy-related exports, particularly high-protein soybean meal and

livestock products, is growing rapidly. U.S. farmers need to compete for these expanding markets. To do so, we need to bring down

tariffs on soy-related products in importing countries and prevent

their replacement with nontariff barriers. We must require both developing as well as developed country competitors to comply with

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port programs that we must meet, and we must eliminate the distorting effects of our own domestic farm policies in discouraging

soybean plantings when market signals indicate otherwise.

Against this background, let me now comment on ASA’s position

on the Doha WTO trade negotiations. We have supported making

significant reductions in trade distorting domestic support provided

that countries with comparatively higher levels of support, particularly the European Union, make proportionately greater reductions

and that developing country exporters are subjected to similar disciplines, and we have agreed to discipline our export credit program, provided all export subsidies in similar credit programs are

treated in the same manner.

The market access proposal advanced by the U.S. and the EU

last August which was incorporated in the Derbez text would blend

the Swiss approach that we favor with across-the-board tariff cuts

for an unspecified number of products and would also reduce tariffs

on other products to zero. Until we know how many products countries would be able to protect by making this simple percentage reduction in bound tariff levels, we will not know how effective this

blended approach will be in expanding market access.

We are concerned that if countries are able to protect all or most

of their sensitive import commodities from meaningful tariff cuts,

we will not see the expansion of markets for soybeans and soybean

products needed to justify accepting substantial reductions in domestic support and changes to our export credit program.

Finally, while we understand and support proposals to exempt

the least developed countries from moving their agricultural economies to outside market forces, concessional market access terms

should not be offered to more advanced developing countries, particularly those that are significant agricultural exporters.

Of particular concern to ASA is the failure of the various negotiating texts to distinguish between least developed and advanced

developing countries by allowing self-designated developing countries to exempt themselves from disciplines required of developed

countries. Clearly, countries that are world class producers and exporters of soybeans and other commodities like Brazil should not

be allowed to exempt themselves from meaningful market access.

As a producer, I can tell you that soybean farmers will not be

able to support a new WTO agreement if our major competitors in

developing countries remain exempt from disciplines on domestic

programs that subsidize production and exports.

Let me now comment briefly on export competition issues in the

WTO negotiations. ASA was pleased by the EU’s recent decision to

agree to a date certain for eliminating export subsidies. We are

working closely with U.S. negotiators to ensure that the export

subsidy component of our GSM credit guarantee program is reduced in a parallel manner with export subsidies.

We continue to be concerned by efforts to eliminate nonemergency foreign food assistance provided under PL–480, title I

and other foreign aid programs. Assistance in the form of food is

essential to help developing countries alleviate poverty, combat diseases such as HIV/AIDS, and develop economically. ASA continues

to be concerned by indications that the European Union intends to

ignore its requirements under the Blair House Agreement. ASA

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and other U.S. oilseed organizations believe the EU must be reminded of its Blair House obligations which have been bounded in

the EU’s WTO commitments.

Regarding free trade agreements, we support passage of the Central America Free Trade Agreement, the Dominican Republic and

Morocco FTAs, as well as the Australia FTA, despite some lingering concerns to SPF issues. We hope negotiations with the Andean

countries will result in the elimination of price band systems and

reductions in tariffs to allow U.S. soybean farmers to fairly compete

in these potentially large markets.

That concludes my comments, Mr. Chairman. I would be pleased

to respond to questions that you or other members of the committee may have.

[The prepared statement of Mr. Ruth appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you very much, Mr. Ruth.

Finally on this panel, we have Mr. Dan Gertson. Mr. Gertson,

welcome.

STATEMENT OF DAN GERTSON, VICE CHAIRMAN, U.S. RICE

PRODUCERS ASSOCIATION, LISSIE, TX

Mr. GERTSON. Thank you. Good morning, Mr. Chairman and

members of the committee. I am Dan Gertson, a third-generation

rice farmer from Lissie, TX and vice chairman of the board of the

U.S. Rice Producers Association. Thank you for the opportunity to

testify on behalf of the U.S. Rice Producers Association and the

U.S.A. Rice Federation. I am accompanied by a rice producer from

Arkansas and a board member of the U.S.A. Rice Federation. If the

committee will indulge me, I would like to introduce my grandson

who just graduated from Texas A&M University.

The U.S. rice industry supports agricultural trade liberalization.

Nearly one-half of U.S. rice production is exported, but imports still

account for 12 percent of domestic rice consumption. In contrast to

the open market, U.S. rice faces high tariffs, unfair trade practices,

and discriminatory treatment in nearly every major export market.

Our members have also suffered from trade sanctions imposed by

our own Government that have eliminated major markets in countries like Cuba and Iran. The embargo in Iraq has been lifted, but

it will take many years to rebuild what was our largest market for

U.S. rice. To be successful, this effort must be a partnership between the rice industry and the government.

U.S. rice exports in 2003 were 50 percent higher than 10 years

ago. The composition of U.S. rice exports has evolved. Rough or unprocessed rice now accounts for 45 percent of U.S. rice exports, up

from less than 20 percent in the mid 1990’s.

Mexico has emerged as our single largest export market, as

rough rice sales grew steadily with the NAFTA. New markets for

U.S. brown and milled rice have been created in Japan, Korea, and

Taiwan through our membership in the WTO.

The U.S. rice industry’s key objectives in the WTO negotiations

and other free trade talks include the eventual elimination of tariffs on all types and forms of U.S. rice, the elimination of U.S. export subsidies, and the maintenance of an adequate farm safety net

for U.S. producers. The best way to provide equal opportunity for

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all U.S. rice exports is to eliminate tariffs, but real gains in market

access must be made before our producers and processors can seriously consider any reduction in U.S. farm programs.

Our trade negotiators who worked on the central American Free

Trade Agreement are to be commended for balancing many competing interests. Our large market for U.S. rice in Central America

was preserved, while guaranteeing access, although small, but secure, for U.S. milled rice.

We support the enactment of a CAFTA agreement. It is critical

that the Doha Round and WTO negotiations be ambitious. A fundamental reassessment of the special and differential treatment to

developing countries must also occur. We salute this committee and

the administration for supporting a strong defense of our farm and

export financing programs in response to the reported WTO panel

report on the challenges of the U.S. program.

The U.S. trade agenda must also include a real commitment of

resources to ensure the enforcement of trade agreements.

We commend the administration for the firm stand it is taking

against Mexico’s attempt to restrict the export of commodities, including rice. Mexico’s action severely restricts the ability of the

United States to grow the mill rice market. The European Union’s

proposal to replace the MOP with tariff rate quotas, a move that

would seriously impact our existing brown rice trade. Our trade negotiators must stand firm for an import system in EU that, at a

minimum, maintains current access for brown rice.

We export about 335,000 tons of brown rice and mill rice to

Japan each year, but the Japanese government prevents our rice

from reaching the Japanese consumers as an identifiable product

of the U.S.A. We support efforts to encourage Japan to further liberalize its rice import market. Cost-share programs like MAP and

FMD have been critical to growing the market for rice in Mexico,

Central America, the EU, and Japan.

As market access increases, we are asking the Congress to provide in-house funding to provide market developed countries to assist in building new markets for U.S. rice. We urge this committee

to help us to ensure that the WTO agriculture negotiations deliver

on the promise of real market access that has alluded U.S. agriculture, without sacrificing the safety net provided by U.S. programs.

Thank you again for the opportunity to testify. I would be

pleased to address any questions.

The CHAIRMAN. Thank you, Mr. Gertson.

[The prepared statement of Mr. Gertson appears at the conclusion of the hearing.]

The CHAIRMAN. We want to hear from you on a number of different subjects, but I also want to look ahead. I know a number of

agreements have been negotiated by the U.S. Trade Representative. He is also in the process of negotiating with some countries,

and it is helpful to hear from you ahead of time so that they can

have the benefit of your concerns or your respective opportunities.

What I would like to ask you about is the FTA negotiations with

Thailand. Recently the Congress was notified regarding a trade initiative with that country. The U.S. exports about $600 million of

agricultural products to Thailand and imports almost $900 million.

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So I would like to ask each of you what would be your recommendation to Ambassador Zoellick on this? What do you think

of this negotiation? And if you had to pick a country you would like

to see us get negotiations going on, what would that be? Mr. Lee?

Mr. LEE. Well, sir, I think that in behalf of the National Chicken

Council, I would respond to you in this manner. We are believers

in free trade. We are supportive of WTO activities, and we are supportive of these bilateral trade agreements. It is very important to

us that when negotiating these agreements, they are constructed in

such a manner that we are on a level playing field, that there is

consideration from the standpoint of tariffs that they be properly

addressed, as well as, as I had indicated in my prepared remarks,

we are very concerned about the issues that continue to arise with

the existing agreements with regard to enforcement of them, particularly around sanitary and phytosanitary issues.

So we want to make certain that they address those and address

a methodology, hopefully an international standard for being able

to arbitrate any potential issues that might arise out of those questions.

Beyond that, we are not necessarily going to stand up against

any particular country. Are there those that we might have a

greater concern about it having a competitive effect on our industry? Yes, sir, we are. But as long as we make sure that everybody

plays, let’s say by legitimate rules, we are basically free trade believers.

The CHAIRMAN. So no particular countries you would like us to

focus on?

Mr. LEE. Well, we would like access to Europe. That has been a

real problem for an extended period of time. Every time we seem

to be moving in that direction, they move the target.

The CHAIRMAN. I am with you on that.

Mr. Anderson.

Mr. ANDERSON. Thank you, Mr. Chairman. The cotton industry

has a big concern about access for our fiber, on the fiber side. We

export some cotton to Thailand. On the textile side we are concerned that the rules of origin exceptions find their way into that

agreement, and we would be concerned about third party participation.

The CHAIRMAN. Thank you. Any countries you would like to see

us negotiate with?

Mr. ANDERSON. We too are free traders, Mr. Chairman, as I said

in my comments earlier, 90 percent of our product is exported back

into this country. We just feel like that the level playing field, the

discussion in our written comment should be safeguarded in any

agreement that is negotiated.

The CHAIRMAN. Thank you.

Mr. Vaughan?

Mr. VAUGHAN. Thailand is a net exporter of corn in most years,

so the real benefit to us as far as Thailand is negligible, but we

would support negotiations with that nation, from the standpoint

that occasionally they do have a shortfall because of bad weather

or what have you and we could pick up some exports to that Nation. As far as a region of the world or a country, maybe deferred

to a region, the Middle East as a whole, they have trouble because

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of lack of water, producing enough feed grains. They have a growing population, a young population, an expanding middle class, and

because of that, there is a potential growth there for meats and for

meat production. So we would see that area as a prime candidate

for negotiations.

The CHAIRMAN. Thank you.

Mr. Ruth.

Mr. RUTH. Specifically in regard to Thailand, I am not familiar

with the size of that market that we currently possess in Thailand.

But Southeast Asia as a whole has been the driving force behind

the Soviet industry as far as consumption. Over the past several

years, Japan is consistently No. 2 or No. 3. So that is an area of

the world that is extremely important to us. As the rest of the

panel has stated, we have been strong advocates for free trade and

market access in the case of soybeans, with half of our product

being exported yearly, market access is extremely critical to us,

and anything we can do as far as bilateral agreements with other

nations is extremely important to the future of the soybean industry.

The CHAIRMAN. Thank you.

Mr. Gertson.

Mr. GERTSON. We support free trade with Thailand, the U.S. rice

growers.

The CHAIRMAN. And do you have any particular places in the

world that you view as good opportunities for your product?

Mr. GERTSON. Yes. We would like for the European market to open up and Mexico to open up. The European market has a $330

duty on our rice going into the EU and we are for enforcing agreements between Mexico and Japan and Korea and for FTAs; let us

get a good WTO agreement and enforce the agreement we have.

The CHAIRMAN. Thank you very much. The gentleman from

Texas.

Mr. STENHOLM. Thank you, Mr. Chairman.

Mr. Anderson, U.S. cotton and textile producers have provided

vital support for numerous U.S. trade agreements. At the beginning of negotiations on CAFTA, you requested a NAFTA-like rule

of origin to ensure that the benefits of the agreement accrued to

the parties of the negotiation and not the third countries.

What effect will the administration’s insistence on including

trade reference levels and cumulation in CAFTA have on the level

of support for that agreement and future trade agreements for the

producers you represent?

Mr. ANDERSON. Thank you, Mr. Stenholm. The National Cotton

Council has worked with all parties in an effort to promote negotiation of a CAFTA agreement that would benefit farmers, manufacturers, and all of our partners. Unfortunately, our analysis of the

current CAFTA agreement allows too many exceptions to the rules

of origin, and the TPLs that are included in that agreement we feel

like would provide preferential treatment to those nonsignatory

parties to the agreement. The exceptions to the rule will undermine

the benefits of any future agreements if this weaker CAFTA rule

of origin is implemented, rather than a NAFTA-type rule of origin.

Mr. STENHOLM. Thank you. Mr. Gertson, not too long ago, a

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timated that the potential food and agricultural exports from Texas

to Cuba could reach $57 million, generating another $132 million

in related business and 1,500 new jobs in the next 3 to 5 years. Do

you and your industry agree with that assessment?

Mr. GERTSON. Yes, I do agree. I do agree with $57 million in agriculture products to Cuba is reasonable. On a national basis, we

expect rice to reach 600,000 tons per year in Cuba, with a variety

of over $200 million annually. Based on history, we would expect

the U.S. rice to capture at least half of this market and much of

this rice would be from Texas.

Mr. STENHOLM. Mr. Anderson, in your written testimony, you

mentioned your outreach to four West African countries, including

some informational exchanges and your support for an exception in

the U.S.-Morocco Free Trade Agreement that will benefit those

countries. Would you tell us a little bit more about these efforts?

Mr. ANDERSON. Thank you, Mr. Stenholm. Following the Cancun

meeting, the council made an effort to reach out to several West

African countries to initiate a dialog on a number of issues. We had

that first exchange in February and had what proved to be a very

beneficial first meeting. We set up an opportunity for additional dialog. I am going to be participating with Secretary Veneman in late

June in a technical conference, and we have invited the West African representatives to come and be part of a delegation to tour portions of the Cotton Belt in July.

On areas that we have a common interest, how we promote consumption of cotton products, in areas of technology and in marketing systems are a couple of the areas that we hope to look at. We

hope to host this delegation at Texas A&M University and look at

some of the 1890’s projects while they are traveling around the

Cotton Belt. So we are looking forward to that trip, looking forward

to working the producers in those West African countries to develop areas that we have a mutual interest in.

Mr. STENHOLM. I commend you for that proactive outreach approach. I think it is exactly what we need to be doing more of in

regard to countries that sometimes are tempted to join with other

groups, other interests that may be counterproductive to their own

interests. And the only way that we can truly explore that is by

visiting with our counterparts, our competitors, but mainly the producers in those other countries. I think that is a very positive happening.

Mr. Lee, I would just associate myself with your remarks, talking

about the fighting the constant sanitary problems that we have and

the need in these negotiations to see if we can’t come up with a

little better way to avoid these kinds of market disruptions that we

constantly get in other countries that deal not only in your industry of poultry, but also straight across the board, and thank you

for bringing that up.

The CHAIRMAN. The gentleman from Minnesota, Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman. And thank you all

for coming today. I probably should say on behalf of all of my colleagues, we have an awful lot of other things going on, and thank

you to the chairman and the staff for assembling such a distinguished group to testify before the Congress today.

97

Trade and particularly agricultural trade are extremely important all over, and I always tell my constituents that trade is important, because we cannot eat all that we can grow, and we have to

work with folks like you to open up markets around the world.

I want to pose a couple of points and perhaps get you to respond

to them. One is that you mentioned, someone mentioned expanding

markets in Europe. And I think that is important, but at the end

of the day, the market in Europe is not growing very fast. It strikes

me that the reason we see the prices we see today for corn and soybeans, and I apologize to the rice and cotton producers as we do

not grow as much of that up in my part of the world, so we do not

pay as much attention, but for most of the commodities, we are seeing record prices and part of the reason, it seems to me, is that we

are seeing expanding markets, particularly in Asia.

It also strikes me that at the end of the day, that is where the

real market opportunity is for the U.S. agricultural producers.

And part of that is happening because we have seen dramatic

economic growth in those areas, and as people see the incomes rise,

one of the first things that they do is improve their nutrition. And

if we can get more of those people eating more meat and more protein, it strikes me that that is where we are going to see real opportunities, and I would like, perhaps, to have you respond to that

The second thing is that over the last number of years, we have

seen literally beginning—and this has happened under administrations of both Republicans and Democrats, but we have seen a propensity of American leaders to want to use food as a political weapon, and one of the things that we have been discussing—I have

been discussing with leaders of parliaments from other countries

around the world is coming up with some kind of a world food treaty, whereby any of the participants or signators to that treaty

would agree in advance that we would not use food as a diplomatic

weapon, because it seems to me that the only people that really

lose in that bargain are the poorest people of that country and our

own farmers, and I wonder if you could respond, first of all, as to

the importance of emerging markets in places like India and China

and Asia in general, and as a result of the economic growth that

they have seen, what the impact is today and what it will be in

the future to American farmers.

And then second, about the possibility of us beginning to start

serious negotiations with other countries about a world food treaty.

Mr. LEE. Congressman, thank you for that question. I think you

have made a couple of very, very important points. With regard to

the chicken industry, we have a considerable amount of activity in

the Asian markets. That has clearly been one of our fastest growing, in fact, the fastest growing area for new product sales over the

last very few years. China has the potential to be a very, very significant market for us.

We like many other industries in the United States continue to

experience problems in sustaining shipments to China.

In fact, I can tell you with regard to the chicken industry that

our sales have gone down about 65 percent, not even talking about

the current absolute ban associated, and not scientifically sound

ban associated with AI, but even prior to that, once they became

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a member of the WTO, our business went straight downhill, and

we lost about 60 percent of our sustaining volume.

I won’t bore you with all the different issues that have arisen

during the last 3 or 4 years, but I can tell you very honestly that

our market has deteriorated significantly, and now, again, we have

zero trade, because of the ban. It is clear to us that China has another agenda other than what has been offered as concerns about

sanitary and phytosanitary issues.

But the fact of the matter remains that Asia does represent a

tremendous growth market for us. We are anxious to see our governments work aggressively together to make those markets available. China is one of better examples, but there are certainly other

countries that we have had experience in selling and do believe

that there is significant opportunity for.

Europe, I might add, the reason I brought up Europe, is the fact

we do, on paper, at least have access to China. We don’t have access to Europe. It represents a lot of people, and there could be

some significant potential for us to gain share there. Thank you,

sir.

Mr. ANDERSON. On the expanding market side as I said in my

opening comments, the cotton industry on the raw fiber side market has shifted substantially in the last 5 or 6 years. We have already seen a significant amount of cotton sales into the Asian market, into China. China bought 2.5 million bales in 2003, and we anticipate additional sales there.

On the textile side, on the finished good side, we feel like that

an effective CAFTA in our central American partners would be an

opportunity for growth for our yarn spinners, and so we are looking

aggressively to try to find a CAFTA agreement and work with the

administration and USTR to develop a CAFTA agreement that we

can support, primarily because of our textile industry.

On the food as a political weapon side, cotton doesn’t really have

a dog in that fight, but we would support any efforts, I am sure,

not to use food or fiber as a political weapon in any future negotiations.

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

Mr. DOOLEY. Thank you, Mr. Chairman. And the majority of you

represent our program crops, which are receiving some level of support in this country, but I would be interested, is there a recognition that what has been the greatest impediment for us to make

progress in the Doha Round multilateral and perhaps, in fact, to

achieve even greater trade liberalization and market access in our

free trade agreements has been because of the recognition by a lot

of the developing countries that our level of subsidies by the U.S.

as well as by the EU creates an unlevel playing field, and until the

United States and the EU is going to be willing to reduce our domestic subsidies and the EU reduce their domestic subsidies and

export subsidies, we will not be able to make progress in the Doha

Round which could provide greater market access for all of agriculture, including the 80 percent that doesn’t get any subsidies

whatsoever.

And I guess, Mr. Gertson, with the rice industry, do you folks

agree with that or recognize that, or do you have a different interpretation?

99

Mr. GERTSON. Speaking of the WTO and our trade policies in the

U.S., we cannot survive without our programs. At the same time,

our costs are totally different than costs in emerging countries, like

Brazil, for instance. I don’t know if I answered your question or

not.

Mr. DOOLEY. Mr. Ruth.

Mr. RUTH. Well, certainly in the case of soybeans, we are relative

newcomers to program support. In fact, the last farm bill is really,

when it first became a program crop as far as payments, but market access certainly is something that is important to our industry,

and it is one of those situations, though, where you can’t unilaterally disarm on the domestic support until you know you have the

market access, and that is the real challenge in this whole process

is making certain that you get the gains that are necessary for

your industry.

I think as you talk to producers, they are always more interested

in being compensated by the marketplace more so than recipient of

a government subsidy, so I think it is important we keep a balance

there and not give up the support and not get the gains on the

other end, and it is conceptually much easier to put together than

to heal put into practice.

Mr. DOOLEY. Mr. Vaughan, in your testimony, I had the chance

to read, I saw where you felt that because we had exempted sugar

from the Australian agreement as well as did not provide much

trade liberalization for central American sugar in the CAFTA

agreement, that that limited gains that we could have achieved for

increased market access for corn. Would you subscribe to that same

theory that we are going to have to be willing to work with the EU

to reduce our domestic subsidies in order to have a successful Doha

Round?

Mr. VAUGHAN. Well, what we have supported all along is the

U.S. agenda to reduce trade-distorting domestic subsidies, as well

as the other two pillars of a negotiation.

We believe that wholeheartedly we can reduce those trade-distorting subsidies and convert those into either green box or some

other form that would be an adequate safety net to our producers,

but at the same time allow us to be WTO-compliant.

Trade is a long-term investment. We very much, as Mr. Ruth

said, we would like to see our reward come from the marketplace

rather than from U.S. Government programs, but at the same time

we have to realize that as we move toward increasing market share

around the world, opening new markets, we have to have a safety

net that protects us, because the law of economics still applies. We

will overproduce at times, and we have to have a safety net.

Mr. DOOLEY. Mr. Anderson, I just want to compliment you and

the Cotton Council in terms of how you responded to the WTO ruling on our cotton program, and that I think that you have taken

a very constructive approach, and you could have had other reactions to it. And I just want to commend you for that, because I

think your recognition that we are going to have to comply in some

way, and hopefully it is a negotiated settlement that we can

achieve through some trade agreement, I just want to commend

you for doing that.

100

Mr. Lee, you also referenced your concern about summating the

Australian FTA agreement, and because of the restrictions I guess

for sanitary and phytosanitary reasons for access to that market.

Are there ongoing negotiations with Australia dealing with what

you would refer to as the nontariff barriers to poultry?

Mr. LEE. Yes, sir. That is my understanding, sir, but they to

have a history of having some sort of prohibitive positions with regard to those issues that make no sense, and they certainly need

to be addressed if we are going to establish an FDA with them.

Mr. DOOLEY. You, though, in no way, are any worse off by the

agreement that we have negotiated with Australia? It is not putting you in a worse position than you currently are in, though.

Right?

Mr. LEE. That would be one way to look at it yes, sir.

Mr. DOOLEY. So you are not harmed necessarily.

Mr. LEE. We are not harmed, but in real terms, we would not

be benefited. Obviously, we are in the business of trying to get benefited.

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

Smith.

Mr. SMITH. Mr. Chairman, anyway, thank you and thank you to

the ranking member for holding this hearing.

Here is my take on it as a chap that has been a lifelong farmer

and worked in USDA for 4 years and have been very active in agricultural policy.

Most countries are going to want to protect at least a reasonable

amount of agricultural production in their country. Sometimes that

means keeping other products out by hook or by crook. Sometimes

it means not making farmers pay tax on their diesel fuel or other

property tax considerations, but it seems to me that most all subsidies and benefits, either by the State or by the Federal Government, that keep that farmer farming and producing are, to some

extent, trade-distorting.

And so as we make these arguments and negotiations with other

countries, I think we have to realize and—realistic is probably a

better word—in terms of the fact that we are going to protect in

this country like every other country of the world, some security in

our ability to continue producing food and fiber in this country as

opposed to increasing our dependency on imported products, but

every other country is going to do that also.

As we look at our subsidy programs, for our commodities, for

rice, for cotton, for wheat, I said in my opening statement that

American farmers have been the most efficient producers and can

compete on a level playing field with most any other place in the

world. I still want to make that statement, but I also think that

it is reasonable for the farm groups and the commodity groups to

also—with our maybe overconcentration on farm subsidies over the

past several years, I think it is also necessary to take a sharper

look at the overzealous regulations, from environmental regulations

to now we are going to cleaner diesel tractors and equipment in our

fields.

The commodity organizations need to look at some of the overzealous regulations that tend to push our competitiveness, compared to other countries, down. We need to look at the kind of

101

taxes that we are charging farmers, whether it is property tax or

sales tax or use tax or the Federal income tax that also tends to

put our farmers at somewhat of a competitive disadvantage.

In the long run, we still are going to have to compete on a level

playing field with farmers throughout the world, and so that has

got to be part of our goal. And if any of the witnesses have any

reaction to that, I would be glad to hear it.

Mr. LEE. I might have just one remark. With regard to the chicken industry, we are really not a subsidized industry, but I will say

that 60 percent of our product cost is represented by the value of

corn and soybean meal. So the assurance that we are going to have

an abundant supply and competitively priced corn and soybean

meal is a cornerstone to our ability to be able to profitably compete

and aggressively compete in international markets. So we are very,

very mindful of that. It is an important component of our cost

structure. So we are very supportive of trying to do the right things

to be able to make certain we can compete on worldwide basis.

Mr. SMITH. Mr. Chairman, just let me conclude—unless there is

any of the other witnesses that would like to comment.

But I guess what I am suggesting is that most all subsidies have

at least some influence on being trade-distorting subsidies that

keep farmers on the farm producing, where without that subsidy,

they might be less willing to produce. I just returned from China.

The bad news from China they are take away some of our manufacturing jobs. They are driving up the price of steel and copper

and some of the other elements they need to expand their industry,

but when some of these countries give that revenue, the first thing

they want to do is buy protein, and that is part of what is keeping

our commodity prices up. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from North Carolina, Mr. Etheridge.

Mr. ETHERIDGE. Thank you, Mr. Chairman, and let me go one

other and say thank you for this hearing, because I think you put

together an excellent panel and we are glad to have you.

Let me go back to an a couple of questions. Mr. Lee, let me go

to you first, if I may, with a question, but before I do, let me echo

some of the comments my colleagues have said, because I think as

we take this challenge and responsibility as I see it in this committee, we in America produce a lot of food and fiber. No question

about that. But it is done by so few people, that the decisions we

make have to be very careful, because we don’t want to give away

the goose that laid the golden egg as some of our other products

have blown offshore on a host of other reasons, and we certainly

can’t put ourselves in the position to compromise our food and

fiber. We would be in a tough situation.

And I happen to agree, Mr. Lee, with your comments regarding

Russia and that Nation’s need to straighten up, I think, their situation as it relates to our poultry exports. And my concern also extends to some other countries, who once they get the agreements

they want, they tend not to want to live up to part of their agreements, and some others here have mentioned China a few minutes

ago.

I think if we are going to enter into agreements and then we are

going to enforce them, we would encourage our folks to get inVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00105 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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volved, and once they are involved and they get what we want, we

get what some said—as the old song goes, we get the shaft and our

farmers wind up over the long haul either going bankrupt or going

out of business or both.

You recommended that negotiations to allow Russia into the

WTO and consequently gain PNTR status should be postponed

until Russia demonstrates that it will abide by the understanding

and agreements regarding poultry.

Given Russia’s propensity for breaking agreements as some of

our other partners have, shortly after they have been made, how

long would you recommend that these negotiations be postponed?

In other words, how long should Russia be on its best behavior to

satisfy your thinking as it relates to your product and the other

poultry producers before we seriously consider allowing that country into the WTO?

Mr. LEE. Well, I guess I have never really actually thought about

it in the context of time. I think that is a valid question, but we

certainly have experienced problems with them standing behind

the agreements, and that has been very disappointing to our industry.

I guess to give you an honest answer, we would certainly like to

see at least a year of—sort of a commitment to a deal as evidence

that they would stand behind an agreement, something on that

order.

I would like to make the comment that you have alluded to, with

China, they are in the WTO and really things worsen significantly

post that. And I am afraid that the Russians are probably not unaware of that, so we need to really consider the fact that we have

got to get interagency support to really aggressively hold these

countries to their agreements.

Mr. ETHERIDGE. Let me follow that up, because I think that is

a critical piece in this. It is one thing to negotiate a deal and get

people to sign off in passing. Would you comment on what you

think we need to do to make them live up to the agreement? Because at the end of the day, all of us are losing when we do that,

because we lose our capacity ultimately over time, and then we are

worse off as a result of it.

Mr. LEE. I hate to say this, but I think the reality is that it is

the very nature of the United States to play by the rules. So once

we establish a relationship and it outlines what parties are supposed to do or not do, we are going to hold up our end of the stick,

so to speak, and unfortunately some of these other countries don’t

seem to evidence that same type of commitment.

It makes it difficult for us to take what might be necessary retaliatory steps. They have to see some tangible penalty to not adhere

into the agreement, and I think that is proving difficult for us to

do, so we will try to appeal to them to do the right thing, but there

doesn’t appear to be a commensurate commitment to saying if you

don’t, you stand to lose X.

Mr. ETHERIDGE. Our time lines are too long and we try to pull

them in.

Let me move to one other final point, because you mentioned the

SPS issue earlier as it related to Australia and others, because that

is a big issue as relates to having some stuff, and I see my time

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is up, but do you see us making any movements in the Australian

market as pork is done to be able to work that out?

Mr. LEE. I must tell you I don’t have the exact details at hand.

I know it continues to be worked on, but there is a fair way to go

before it really will be beneficial to our particular industry.

Mr. ETHERIDGE. I hope you will keep us in that loop on that.

Mr. LEE. Yes, we will, Congressman. Thank you.

Mr. ETHERIDGE. I yield back.

The CHAIRMAN. I thank the gentleman.

The gentleman from Iowa, Mr. King.

Mr. KING. Thank you, Mr. Chairman. I appreciate you holding

this hearing today, and I appreciate the testimony of the witnesses.

A number of things sparked my attention as I listened to your

testimony, and first I would want to make a short statement about

the European Union and access to their markets, and I will direct

my question to Mr. Lee.

And that is that even though I don’t disagree with the gentleman

from Minnesota that it is not a growing market in Europe, I think

it is an essential market, and I see the European market as a market that when we are able to compete in an effective way and export our high-quality egg products into Europe, as we should be

able to do, that becomes a competitive battle zone for us in a way

that takes some of the pressure off the rest of the world.

The European Union has been playing offense for a long time,

and I would rather have them be playing defense there with their

protectionism than I would have them playing offense around the

rest of the world with their domestic subsidies.

So with that in mind, then, Mr. Lee, you mentioned that they

have moved the target on you, and I would ask you to expand on

that thought a little bit for the committee.

Mr. LEE. It is been our history that there have even been periods

of time that the Europeans would represent that all we needed to

do was to meet a certain requirement with how you perhaps flow

a product in a producing plant, whether you have showers and

lockers for your team members or something of that nature that

would be very particular to how you ran an operation, and then

once you would set out to try to meet those requirements, then the

next thing you know, you have got a whole host of other requirements. And so it is a moving target, and it makes it cost-prohibitive in many instances to do it, particularly when you have no certainty about where this is going to stop.

So it has been a problem for our industry, and I do agree with

your summation of why Europe is an important market to gain access to. We badly need a broader array of destination markets. We

need to be able to diversify our customer base and be less reliant

on a few people, particularly when those don’t always want to play

by the rules.

Mr. KING. Mr. Lee, I would characterize it as playing pin the tail

on the donkey, being blindfolded, spun around and then have them

move the donkey.

Mr. LEE. Yes, sir.

Mr. KING. Thank you. And Mr. Vaughan, with regard to the corn

sweetener issue in Mexico and this ongoing saga that we are continually with—and I think you acknowledged it late this year we

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would like to see some direction towards a resolution of that matter, and there is significant frustration on the part of the corn producers, I know, and yet I am just asking you this question. In a

sense maybe it is hypothetical, but if you can take a position, I

would like to know.

If we are faced with these kind of barriers and continually that

target has been moved too, if we are faced with these kind of barriers continually and had we known this going into NAFTA, what

might be different with the position of the corn growers we thought

were going to be facing this kind of trade barrier to get our product

into Mexico?

Mr. VAUGHAN. You mean as far as would the producers have supported NAFTA if they had known they were going to have this

problem?

Mr. KING. Correct.

Mr. VAUGHAN. Well, it is difficult to say. Like I say, it is our

greatest success and our greatest trade policy failure all rolled into

one, because we have seen Mexico move from way down the list as

far as a bulk corn customer to No. 2 spot as far as bulk corn sales.

But at the same time, they have done this deal with HFCS where

they basically file countervailing duties in 1997, restricted our exports to that area of HFCS, and then in January 1, 2002 they took

away the countervailing duties. They finally lost enough duties

that they conceded but then they came right back and took the beverage tack off.

So it is like you said, it is spin around and move the donkey, and

we can’t quite get there to solve the problem, but it is a black eye

as far as the producer goes. These things like that happen. If we

can’t get resolution, it causes the producers out there to question,

well, why are we doing trade agreements if we can’t get enforcement. So, yes, I would have to say back in hindsight we probably

were still supported NAFTA, but we would have worked hard on

trying to ensure these sweetener regulations were more strict.

Mr. KING. Thank you, Mr. Vaughan, and we are looking at FSC/

ETI in this Congress too, and that is about a $4 billion concession

made by the United States, and I don’t see it is any different than

the issues—it looks to me like we are paying out both ways, losing

both sides of this argument.

I will just make the point quickly, as I see my time conclude

here, that I would eliminate all income tax on all of our producers

and everybody else in this country and replace it with a national

sales tax.

And by the way, with regard to domestic subsidies, not to make

Mr. Anderson’s day, I would be starting to remove those, too, and

I would show less preference towards the nonfood items so that you

know my position, Mr. Anderson.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

I believe the gentleman from Hawaii does not have any questions, so we will return to this side and go to the gentleman from

Texas Mr. Neugebauer.

Mr. NEUGEBAUER. Thank you, Mr. Chairman. In reference to

that safety net, I think there is some good news for your constituents as we believe we are going to vote on a budget resolution

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today that does keep the 2002 farm bill intact, and the issue on

payment limitations has been removed from that conference report,

so I think that is some good news you can take back.

Mr. Anderson, recently I had Ambassador Johnson and then last

week Mr. Spooner had come over and talked about this balance between the fiber and the textile as we move forward with our trade

policy, because like you, I am concerned about the fact that we are

exporting more cotton, which is good, and sometimes at the expense of our textile industry.

And one of the things that I said to him was it is important that

we have your groups and other groups at the table to come up with

some solutions.

What are some of the things that as we move forward with that,

that we are doing right and what are some of the things of concern

to you so that we do move forward with agreements that are a winwin?

Mr. ANDERSON. Let me just start by saying we have had a very

good working relationship with Mr. Johnson and Mr. Spooner and

have had very good discussions as we have tried to work through

the development of some of these trade agreements. I alluded to it

a little bit earlier in my opening remarks about CAFTA and some

of the progress that we felt like we had made there and then some

of the frustrations as the final agreement was being drafted. I

think you are right on target in suggesting that USTR include industry as they develop those trade agreements.

Of course, in particular relationship to the CAFTA agreement,

we felt like we gave away a little too much on TRQs, and that we

would like to have seen a more realistic number. We weren’t purporting to do away with them in their entirety, but we felt like 100

square-meter equivalent TRQ was a little excessive and was going

to cost our industry upwards of 50,000 bales.

So I guess probably the give and take in that dialog with our negotiators probably needs to be a little more open and frank in understanding what it is going to do to an individual industry when

we negotiate those kind of TRQs.

Mr. NEUGEBAUER. One of the issues that keeps coming up also—

when it comes to the textile industry—is the fact that our textile

industry is diminishing all attributed to our trade, and does some

of that have to do with the fact that it is just being more difficult

to do business in America today with the second highest corporate

income tax rate in the world, very regulatory environment in our

country and then of course the litigation and all of those things

that we have developed in this country making it more difficult for

companies to stay in our country an compete on a global basis?

How much would you say would you attribute the textile diminishing to trade, and how much of it just to the competitive environment of operating in this country?

Mr. ANDERSON. That would probably be hard for me to estimate,

but the majority of our textile problems of late over the last 4 to

5 years I would attribute to the measure of imports into this country from China and their failure to adhere to their WTO commitments.

I agree with your statement and what Mr. Smith said earlier

about the overall number of developments that effect our industry

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in doing business, like regulatory and tax issues. It has made it

tougher on all of us, even as producers, to continue to compete in

this country.

So I think it is a hodgepodge, but I think the vast majority of

our textile problems, at least over the last 4 or 5 years have been

trade-related.

Mr. NEUGEBAUER. Thank you. Mr. Vaughan, you had mentioned

that one of the big impediments for corn is some high tariffs in

some other countries. What are some of the countries where you

think that there is a large potential for corn that have particularly

exceedingly high tariffs that are keeping corn out of those countries?

Mr. VAUGHAN. Well, specifically probably India would be one that

comes to mind. They have high tariffs. Many of the Asian nations

have high tariffs as well, and as has been pointed out earlier today,

that is where a large part of the world’s population is centered,

around India and around China and in that area of the world, so

there is a lot of market potential, but there is a lot of high tariffs

and trade protectionism there.

Mr. NEUGEBAUER. I see that my time is expired. I also want to

extend my congratulations to this great panel and also to welcome

my fellow Texans to DC.

The CHAIRMAN. I thank the gentleman.

The gentleman from North Carolina, Mr. Hayes.

Mr. HAYES. Thank you, Mr. Chairman, and thank you for holding

this hearing. Let me quickly add these hearings are vitally important, but they couldn’t be possible without the participation and

the preparation of our many witnesses and the folks that support

them. So thank you all very much for your cooperation and your

input.

Mr. Lee, my first question is to you, and it concerns lifting the

Mexican ban on poultry. We have got to continue to fight for market access. It is imperative that we work these countries to make

sure we are receiving fair treatment. Right now we are not. We

have all alluded to that. We play by the rules of WTO and have

average tariffs of only 12 percent. The world average is 62 percent.

We have got to gain more access for our agricultural products.

What actions are being taken and will be taken on the producer’s

side to fight to increase access, particularly in Russia, for our poultry farmers? And anybody else that would like to comment would

be welcome.

Mr. LEE. Mexico is an important market to the U.S. poultry industry, and we have had a lot of issues with regard to sustaining

market access in Mexico over the last number of years, most recently with the AI situation, and we really lost complete access to

the market, in our view are very arbitrary about how they approached that, was not really science-based.

Now, we have made a significant amount of progress here in the

very short, short term, and I guess one might say, at least from a

historical measure, we have complete access to the market under

the existing agreement we have with them. You may be aware that

we actually rolled the NAFTA agreement back with regard to the

chicken industry and reinstated the TRQ program that was supposed to have gone to zero, if I am not mistaken, at the end of

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2002. I may be off a year there, but we voluntarily, if you will,

working in association with the USTR rolled that back and reset

it to the previous 5-year high. And that sounds obviously counter

to what you would normally want to approach, but we were having

so many phytosanitary problems, nontariff barrier issues, that to

try to sustain access to the market, we decided this was in our better interest and we choose to do it. And until very, very recently,

I guess one might say that had worked in our behalf.

The industry has worked very, very closely with USDA. Has

worked very, very closely with USTR. In fact, was in Mexico almost

en masse last week meeting with the Mexican authorities and trying to continue to develop dialog with them, better understanding

between our two countries and the industries and show support for

a good working relationship with them.

In one sense, maybe that he is an example of some of the things

we need to do in other markets, but it has been characterized with

a lot of frustration, particularly I would say in the last 3 to 4

months or around their handling of the AI. It is particularly problematic for some of the States and our turkey-producing brethren

when they just were very arbitrary about cutting some States off,

even after having gone back and relooked at it for things that happened 2 and 3 years ago that made absolutely no sense whatsoever

from a food safety or an animal health manner.

But in our view, it has worked very closely the USDA and the

USTR and any of the agencies that could help us work with the

Mexican government and the Mexican industry and try to sustain

market access.

Mr. HAYES. Thank you, sir, and while I have got you, would you

detail your concerns with the Australian free trade agreement for

the record?

Mr. LEE. I probably should have better prepared for this very

specific question, but it has to do with some—in part, at least, on

some of the requirements on cooking product and temperature requirements, and it really comes down to the fact that if you adhere

to that, you have got nothing to sell. But I will make certain that

you are provided with more of complete information than what I

am giving you, Congressman Hayes.

Mr. HAYES. Thank you, sir. And Mr. Anderson, as you are aware,

I was extremely disappointed with the WTO dispute panel decision

on the Brazilian cotton case and I am pleased to hear that Ambassador Zoellick’s comments during our last hearing that he intended

on vehemently fighting this decision, will appeal the fine in the future. I want you to be aware of my and our support and let us

know if we can be of more help on this issue.

And finally, Mr. Chairman, I join the others in my—I won’t say

disgust, but my continuing frustration over the European Union artificial trade barriers, withholding and really from starving peoples

around the world. Our good science and genetically manufactured

products and crops. So again, I appreciate your effort to continue

the fight and do need to call attention to everyone’s participation

with Mexico and other issues. Bill Hobson helped resolving getting

our products back into turkey. Mr. Chairman, thank you very

much. Mr. Chairman, thank you.

The CHAIRMAN. I thank the gentleman.

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The gentleman from Montana, Mr. Rehberg.

Mr. REHBERG. Thank you, Mr. Chairman, for putting together

such a fine panel. I will feel better about the completeness of this

kind of a meeting when I finally get my industry of Kashmir goats

represented at the table. Seeing as Montana is not particularly renowned for its cotton or rice, I will save my comments for the next

panel. Thank you.

The CHAIRMAN. That was fast.

Mr. REHBERG. That is everything I know about cotton.

The CHAIRMAN. The gentleman from Nebraska, Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman. I would like to offer a

special welcome to Bart Ruth from Rising City, NE. Glad to have

you here.

And one thing, I get tired of people coming to deals like this and

making a speech, so I am going to make a very quick one and then

maybe ask one question.

But one thing that I am most concerned with, of course, is corn,

rice and soybean price. Right now we see those are high. Part of

the reason they are high is because we have had a very long, persistent drought in the upper Midwest affecting Nebraska, places

like that, which has cut the supply and driven up the price. And

so we hope that the members of the committee will bear this in

mind, because it looks like we are right in the grips of that thing

for the fifth straight year now.

Also as the chairman has pointed out, the farm bill has been

much less expensive. We thought it would be about $50 billion

through this first 3 years, and instead it is going to be about $35

billion. So it appears the farm bill is working. I think the drought

has been part of that.

And I guess particularly to Mr. Ruth and Mr. Vaughan, since I

missed your earlier statements, I am sorry. I was in another markup. Can you comment briefly on how you feel the Australian or

CAFTA would affect the corn and soybean markets? Do you have

any thoughts on that right now?

Mr. RUTH. In the case of the Australian FTA, the benefits to the

soybean industry are relatively minor, if there are any benefits at

all, but I think we have been supportive of it in spite of some concerns about the SPS issues, just because we are supportive of the

entire process going forward with the trade agreement.

I mean, obviously every trade agreement that you negotiate does

not necessarily provide tangible benefits for your industry, but I

think the concept as a whole deserves our support. Obviously, if

there is things that harm your industry, you are going to be opposed to it, but if it is relatively neutral towards your industry, I

think we need to be supportive of those efforts.

Mr. VAUGHAN. We have not taken a position on the Australian

free trade agreement. There is not a lot of benefit to feed grain producers, corn producers here in the United States. They do not import a lot of corn into Australia. They are pretty self-sufficient in

that area. Occasionally we might have the opportunity when they

have drought or something like that, but the SPS issue that has

not been resolved pretty much eliminates U.S. corn from moving

into that market.

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So we have not taken a position on the Australian. We do have

some concerns the way it was negotiated. We feel like it probably

provides a bad precedent, in that a lot of these were excluded. And

corn is a sensitive commodity in many places of the world, and we

did not want corn taken off of the table in agreements, and so we

don’t support taking anything here in the United States off as well.

We feel like everyone should be at the table.

As far as the CAFTA agreement, of course we are very supportive of that. We see a strong potential to increase market in that

area. As the incomes rise down there, especially. They have been

a relatively strong market for us in the past. We have a sizable

market share, and so we support CAFTA. It is also going to be good

for our meat sector, so there again, that is a value-added opportunity here for the United States.

Mr. RUTH. As far as CAFTA, we have been very supportive. Colombia, for example, if we have free access to market would become

our fifth largest trading partner in soybeans in consumption, so it

is a very important market to us and we have easy access to Central America, so it makes a lot of sense for us to be down there.

Mr. OSBORNE. Thank you. I just hope our wheat people can feel

the same about CAFTA as you guys do, but it does appear to be

somewhat of a mixed bag, but I appreciate your thoughts and appreciate you being here today and, Mr. Chairman, I yield back.

The CHAIRMAN. I thank the gentleman.

I want to thank all of the members of this panel for your contribution. This has been very helpful, and we thank you.

With that we will move to our next panel.

I would like to welcome our second panel to the witness table.

Mr. Terry Jones, president of the American Sugarbeet Growers

Association from Powell, WY.

Mr. Squire Smith, president, Florida Citrus Mutual, Eagle Lake,

FL; Mr. Lawrence T. Graham, steering committee coordinator, Coalition For Sugar Reform, Vienna, VA; Ms. Jan Lyons, president,

National Cattlemen’s Beef Association, Manhattan, KS; Jon Caspers, immediate past president, National Pork Producers Council,

Swaledale, IA; Dennis McDonald, trade committee chairman,

Rancher-Cattlemen Action Legal Fund, United Stock Growers of

America, Melville, MT.

I will remind all the members of the panel that their full testimony will be made a part of the record and ask them to limit their

remarks to 5 minutes, and we will start with Mr. Jones. Welcome.

STATEMENT OF TERRY JONES, PRESIDENT, AMERICAN

SUGARBEET GROWERS ASSOCIATION, POWELL, WY

Mr. JONES. Thank you, Mr. Chairman. My name is Terry Jones,

and I am a fifth generation family farmer from Powell, Wyoming.

I am the president of the American Sugarbeet Growers Association

and speak today on behalf of the growers and processors of the U.S.

beef cane sugar industry.

It is important to know that we are primarily a grower-owned industry. Our market is already oversupplied, and we are the fourth

largest net importer of sugar in the world. More than 146,000

sugar jobs across the Nation generate more than $9.5 billion to our

economy.

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We provide a variety of products to our customers at fair price,

and we do it all at no cost to the taxpayer. It is a record we are

proud of, but bad trade agreements that harm our industry put

that record in jeopardy.

Sugar in the world’s most historic commodity market. The government in every country that produces sugar intervened in the

market in some way. As a result, world market prices have averaged barely half the world outreach than the cost of production

over the past two decades.

The sugar subsidy problem is a global problem, and it must be

addressed globally in the WTO. And comprehensive multilateral

negotiations with all countries, all programs.

Our industry applauds Ambassador Zoellick’s efforts earlier this

year to restart the WTO process. We must identify and eliminate

all subsidies, both direct and indirect, and we must not allow large

exporting developing countries, like Brazil, to get special treatment.

Piecemeal market access concessions in bilateral and regional

free trade agreements will not solve the global subsidy problem.

Such concessions could, however, put our industry out of business

while foreign subsidies and other trade-distorting policies continue

unabated.

The Bush administration has rightfully refused to negotiate domestic farm policy in the FTAs, but the U.S. sugar policy is unique

among commodity program, in that it can only operate if imports

and domestic production are controlled to balance the U.S. market.

Therefore, negotiating tariffs or increasing imports is, in fact, negotiating our domestic policy.

It is inconsistent with stated administration policy and could

doom our industry. We are most concerned with negotiating FTAs

with countries that export sugar. For this reason, we categorically

oppose any agreement that requires additional access to our own

market and threatens our domestic policy.

If our market needs more sugar than already required by the

WTO and NAFTA, we should import it from our FTA partners but

on an as-needed basis.

In the Australia FTA, the administration got it right. Australia

is already the fourth largest supplier to our market, with minimum

imports at more than $40 million. If our market needs more imports, Australia will automatically give us greater access as part of

an expanded tariff rate quota.

This sweetener provision between the U.S. and Mexico and the

NAFTA have been a disaster. After 10 years, the sweetener dispute

between our two countries rages on, without a negotiated solution,

there will be a cultural exchange of legal challenges and threats of

retaliation. A team of representatives from the U.S. sugar and corn

and Mexican sugar industries have been working intensely to resolve this complex problem. We hope to provide the administration

with some agreed recommendations in the near future that will

serve as a basis for resolving this dispute in an equitable way.

We strongly oppose the sugar provision in Central America and

the Dominican Republic free trade agreement. The 109,000 tons of

additional access will likely trigger out marketing allotments. If

this occurs, 700,000 tons of domestic production currently blocked

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from sale would immediately become available to the market. Domestic prices would plunge, causing severe damage to producers

and generating huge forfeitures to the Government.

We strongly object to the destruction of our industry. Just so that

others can gain access for such a small economy. After all, the combined gross domestic product of the CAFTA and DR is less than

that of the metropolitan area of New Haven, Connecticut.

Twenty one countries exporting 23 million a year, which is more

than double the U.S. consumption, are lined up in FTAs with the

U.S. If we include sugar in these FTAs, our market will be

swamped with subsidized corn sugar, our industry will be destroyed, and we will not have addressed any foreign subsidies,

which can only be done in the WTO.

We are asking Congress to insist that the administration concentrate its efforts on comprehensive trade liberalization in the

WTO, not in piecemeal efforts in FTAs, and give efficient American

sugar farmers a chance to survive. Thank you.

[The prepared statement of Mr. Jones appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Jones.

Mr. Smith, we are pleased to have your testimony now.

STATEMENT OF SQUIRE SMITH, PRESIDENT, FLORIDA CITRUS

MUTUAL, WINTER HAVEN, FL

Mr. SQUIRE SMITH. Thank you, Chairman Goodlatte and members of the committee. I am Squire Smith, CEO of SGS, Incorporated. I am a citrus grower and grove caretaker in central Florida, the president of Florida Citrus Mutual.

I am pleased to be here today to present testimony on how the

ongoing regional and multilateral, international trade negotiations

affect the U.S. and Florida citrus industry. Florida Citrus Mutual

is a voluntary cooperative association with a membership of more

than 11,000 Florida growers for citrus for processing and fresh consumption. Its membership accounts for more than 90 percent of

Florida’s citrus grower and as much as 80 percent of all oranges

grown in the United States for processing into juice and other citrus products.

Mr. Chairman, we are at a critical juncture in the life of the

Florida citrus industry. When I appeared here last fall before the

subcommittee on livestock and horticulture, the nearby futures

price for FCOJ had fallen to 67.3 per pound of solids, the lowest

price at that time in 3 years.

The situation has worsened dramatically. The futures price as of

Monday was 57 cents per pound of solids, the lowest in 27 years.

This is a more reliable indicator of the U.S. wholesale price of orange juice, which is the strongest determinate of the price growers

are paid for oranges for processing.

Many of our members will finish this season at a financial loss.

Those that survive will spend the next several years trying to recover.

As an unsubsidized agricultural industry facing essentially a single larger higher concentrated foreign competitor, our need is very

straightforward. The tariff on orange juice must not be reduced or

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eliminated under the Doha Round, the FTAA or any other agreement to which Brazil is a party.

Opening new export markets and growing the U.S. market are

certainly important goals which we have been working steadily towards since the middle 1980’s, but they are goals which cannot be

met in the near future under any condition, since most of the world

juice is produced in only two countries, the U.S. and Brazil, and

consumed in the U.S. and western Europe.

Another unique reality of the global orange juice market is that

Brazil historically exports 90 to 95 percent of its production each

year. Furthermore, five major orange juice producers in Brazil control 80 percent of the Brazilian processing, 49 percent of the Florida processing, 55 percent of the world processing and 60 percent

of the world FCOJ trade. Controlling a significant portion of the

world production in sales. With full access to the U.S. markets already, the devastation of the Florida citrus industry through tariff

reduction or elimination would neither benefit the U.S., consumers

nor foreign producers.

Also decisions about planting citrus groves in both Florida and

Brazil have long-term consequences which are not easily reversed

by economic and trade policy. If future returns in the U.S. are depressed further by anticipated tariff cuts, the support industries

will also see negative impacts.

Likewise, any anticipation of increased production in Brazil will

result in additional plantings that will yield excessive levels of fruit

and depressed prices for many years to come.

These factors must be borne in mind when evaluating the current progress of trade negotiations. U.S. negotiators continue today

with considerable efforts to reach compromise agricultural negotiating language that were expended in the Cancun ministerial. The

efforts are directed towards achieving a framework understanding

this summer using Cancun, as a starting point. However, we understand that efforts for including even the very modest accommodations for import-sensitive situations like citrus are under fire

by our trading partners including Brazil. We urge the committee

to send a clear message to our trade negotiators, unsubsidized, import-sensitive agricultural industries will not be sacrificed on the

altar of subsidized commodity export enhancement.

The opportunity must remain in any time framework agreement

to develop countries to provide for unique situations like citrus.

The FTAA negotiation citrus risked being the odd man out as the

U.S. takes the position that subsidies cannot be negotiated in a

reasonable context without the EU at the table.

While this is certainly a reasonable position, Brazil will surely

press even more vigorously for tariff cuts on commodities that are

not subsidized. This is an unacceptable position and would spell

the end of the Florida citrus industry as we know it.

While subsidies are used to help level the playing field for U.S.

agricultural industries whose top markets are abroad, tariffs are

used to level the field for industries like orange juice whose top

markets are in the United States. The administration’s FTA proposal on agriculture is lopsided to the extent that it puts all U.S.

agricultural tariffs on the table, while leaving all domestic subsidies off of the table. In doing so, the administration proposal efVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00116 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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fectively, unwittingly singles out the agricultural industry for demise based exclusively on the location of their markets without

consideration of the effect on the U.S. economy. Not only is this an

unsound approach to trade policy, it also is guaranteed not to meet

any of the stated objectives of trade liberalization, which are foreign industrial growth, lower prices to the consumer and increasing

living standard.

Furthermore, it completely undermines any domestic policy benefits which might be targeted to such an unsubsidized sector

through elimination of a trade policy equivalent of a domestic policy support program.

In conclusion, the U.S. citrus industry is just as concerned about

developing export markets as producers of any of the program

crops which appear regularly before this committee, but we cannot

unilaterally disarm and assume that we will see an explosion of

due demand. That takes time. With only two major world suppliers, the elimination of one would leave world consumers without a

choice and the Florida economy in shambles. The orange juice tariff

on Brazilian imports must be maintained in all multilateral and regional negotiations, and I appreciate the opportunity to be here and

would entertain any questions you might have. Thank you.

[The prepared statement of Mr. Smith appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Smith.

Mr. Graham.

STATEMENT OF LAWRENCE T. GRAHAM, STEERING COMMITTEE COORDINATOR, COALITION FOR SUGAR REFORM, VIENNA, VA; ACCOMPANIED BY TOM EARLY, PROMAR INTERNATIONAL

Mr. GRAHAM. Thank you, Mr. Chairman. My name is Larry

Graham. I am president of the National Confectioners Association.

This is an association that represents the U.S. candy, chocolate and

gum industries.

I am also chairman of the Coalition for Sugar Reform. This coalition includes trade associations like mine representing companies

that use sugar and confectionery dairy products, grocery manufacturing and baking. It also includes taxpayer advocacy groups, environmental organizations and the consumer groups, and we thank

you for the opportunity to testify.

With me is Tom Earley of ProMar International, an agricultural

economist organization.

The debate over sugar trade often seems to center around imports. However, it is also an export issue. U.S. food companies compete in a global market and ship their value-added products

abroad. Since 1994, U.S. exports of all consumer-oriented products

have risen from $17 billion to almost $24 billion, an increase of 37

percent.

Consumer-oriented products represent an increasingly large

share of our exports. Processed foods, including snack foods, breakfast cereals, dairy products, confections manufactured by our coalition member companies and other U.S. firms, are an important

part of this trade picture.

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We know that this committee is interested in expanding agricultural exports, whether in bulk or in value-added form, and we applaud your leadership. We know that you understand the need for

two-way trade.

To buy our products, our customer countries must have foreign

exchange to pay for what they buy. For many countries, one of the

products they want to sell to us is sugar. Of course, their ability

to do is so is limited by U.S. sugar policy, and we think that U.S.

sugar policy harms agricultural trade in three ways, two related to

exports and one to imports. First the sugar import quotas limit the

ability of our customer countries to generate foreign exchange that

they would obtain if the U.S. sugar market were more open. Second, the politics of sugar quotas encourages other countries to withhold trade concessions, and we have seen that, that might benefit

efficient U.S. farm sectors.

Third, current U.S. sugar import policies have the ironic effect of

encouraging more imports of processed products. In the confectionery, my industry, about 10 years ago, 5 percent of our sugar

products, meaning nonchocolate products, about 5 percent were

made elsewhere, were not made in the United States. It is somewhere between 30 and 40 per certainly of all sugar confections are

now made outside of the U.S., and that is continuing and that will

continue to grow.

U.S. farmers and ranchers are increasingly aware that keeping

sugar out of trade agreements is harming their interests. Among

the groups that wrote President Bush in support of including sugar

in the U.S-Australia Free Trade Agreement were the American

Soybean Association, the California Farm Bureau Federation, the

National Corn Growers Association, the National Pork Producers

Council, U.S. Wheat Associates, the U.S. Grains Council, the U.S.

Poultry and Egg Export Council, USA Rice, and the Wheat Export

Trade Education Committee.

An official of the Illinois Farm Bureau said, ‘‘Proposals to exclude

sugar have met with significant opposition from a broad array of

U.S. agricultural groups who are tiring of the uncompetitive U.S.

sugar industry seemingly hijacking agreements that would provide

significant benefits to other agriculture sectors.’’

Not my words, Mr. Chairman; that is from one of the largest

farm groups in the Midwest.

We believe that the gradual liberalization of sugar trade through

both multilateral and bilateral agreements will bring multiple benefits to the United States.

Some supporters of the Sugar Program have attacked the sugar

provisions of CAFTA. That is ironic, since CAFTA’s negotiators

went out of their way to make sugar provisions modest. In its first

year, CAFTA will permit the import of an additional 109 metric

tons of sugar. This is less than 1 percent of the total supply in the

current 2003, 2004 marketing year.

If an import supply increase of less than 1 percent is going to

threaten the survival of an entire industry, then that says something about the competitiveness of that industry. In fact, of course,

the amounts of sugar in CAFTA do not even remotely threaten the

U.S. sugar industry or the Sugar Program. We should carry out our

agriculture trade policies with due regard for the needs for all comVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00118 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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modities, including sugar, but we should not allow a single commodity to hold back the rest of U.S. agriculture.

We encourage this committee to support the inclusion of all commodities in all trade agreements so that all parts of our national

food and farm industries can benefit.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Graham appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Graham.

Ms. Lyons, welcome.

STATEMENT OF JAN LYONS, PRESIDENT, NATIONAL

CATTLEMEN’S BEEF ASSOCIATION, MANHATTAN, KS

Ms. LYONS. Thank you, Chairman Goodlatte, Mr. Stenholm and

members of the committee. I am Jan Lyons, a beef producer from

Kansas where, with three generations of my family, I manage our

ranch in the Flint Hills tall grass prairie south of Manhattan, KS.

Today I would like to focus on why our members believe that the

WTO negotiations are so critical to the future growth of our industry and why trade is the key to all U.S. beef producers’ future success.

We supported trade promotion authority in the President’s trade

agenda because it is the right thing to do. We believe that the

greatest trade liberalizing benefits to our industry can be obtained

via the multilateral WTO process, rather than a string of bilateral

agreements. Our future is tied to our ability to sell our product to

the 96 percent of the world’s population that live outside the U.S.

We know there are folks out there who are disillusioned about

trade out of the country, but, last year, the U.S. enjoyed a record

$2.2 billion beef and beef product trade surplus, with an average

per pound value of exports at $1.66 per pound versus imports of

$1.21 a pound. Such success in the export market is nearly unprecedented in any agricultural commodity, especially considering that

the U.S. beef industry also experienced record domestic prices in

2003. We have always been the world’s largest beef importer, and

we are usually the second largest exporter. Last year, we imported

$2.6 billion value in beef and exported a record $3.86 billion in beef

and beef variety meats.

Due to the unique position of our industry as importer and exporter, NCBA must consider balance, equity, fairness of proposed

trade negotiations and initiatives to assure that any agreement

provides a net increase in access for U.S. beef. I will tell you that,

since December 23, we now have a much greater appreciation of

the value of our export markets.

Earlier this month, the entire industry returned to a point of

profitability since the first time since that first case of BSE in the

United States. Yet it has been the tremendous resilience of U.S.

consumer confidence and demand that has seen us through this crisis. Now we have to get our export markets reopened.

If former chairman and Senator Pat Roberts were here, he would

remind me of a tune that goes ‘‘you don’t know what you’ve got ’til

it’s gone,’’ but we have to get it back, and we have to get it back

based on sound science.

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Japan has a 50 percent bound and a 38.5 percent applied tariff

on beef imports; and South Korea, a 40 percent bound and 30 percent applied tariff on beef imports. Increased market access via tariff reduction is the core mechanism by which U.S. beef producers

can better their position in the global marketplace.

The inability to reduce these tariffs in the WTO negotiations

would constitute a failure of these negotiations in the eyes of U.S.

beef producers, as we receive no domestic supports or export subsidies.

Beyond reform of the EU’s Common Agricultural Policy, however,

WTO members and particularly developing countries must get beyond this contradiction that trade liberalization is somehow good

for developed countries’ agricultural support mechanisms but is not

appropriate policy for the developing world.

U.S. beef producers have greatly benefited from NAFTA’s opening of the Mexican beef markets, yet we are still being hit with

antidumping duties on the market. China’s 12 percent tariff on

beef via the WTO was a groundbreaking agreement that should

serve as a starting point for future FTAs; and we also support

CAFTA, the Dominican Republic FTA, the Moroccan FTA, and the

Russian WTO accession agreement.

NCBA will oppose any FTAA that does not address concerns such

as Brazil’s currency devaluations and credit subsidies to its agricultural sector. Such unsustainable macroeconomic practices trigger

inflation and government deficits which are ultimately being offset

by loans from entities such as the International Monetary Fund.

NCBA’s primary objective in the Australian FTA negotiations was

to prevent any potential negative impact on U.S. producers which

would be caused by this FTA before we would have an opportunity

to increase our ability to export beef via the WTO liberalization

process.

The inclusion of a transitional quantity-based safeguard and the

permanent price base safeguard at the end of the transition period

are critical components of this agreement as we see it.

As we look toward the future, we are excited about the market

potential of Thailand, Colombia, Panama, Peru, but any agreement

must include a commitment to improve cooperation to eradicate

foreign animal disease, particularly due to the widespread occurrence of foot and mouth disease in South America. Right now,

though, our top priority is reopening those export markets that remain closed for our product. Those markets are worth about $1,500

a hundredweight to the price of a fed steer, or $172 a head.

After all of these years, however, we cannot sell our product into

the EU market. That is a real concern to us. U.S. grain-fed beef

has a unique place in the global food economy; and U.S. producers

know that, as a result of our investments in technology and

science-based animal health and inspection systems, we produce

the highest, safest beef in the world. We insist on the complete harmonization of BSE regulations in North America to maintain credibility with our trading partners as we ask them to reestablish

trade. And while it is an economic fact that lower tariffs benefit the

importing country as well as exporting nations, we do not believe

that the playing field is level, as NCBA will not support increased

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access to our U.S. beef market unless meaningful access and tariff

reduction is achieved in other major importing countries.

Let me just sum up and say our members know that the future

of ourselves and our families depends on the viability and growth

of our industry. We also recognize that the greatest opportunity for

such growth hinges on our ability to market our safe, wholesome,

quality beef around the world. We applaud the team of negotiators

for their efforts to date, but they certainly need to be fully funded.

We look forward to working with this committee as we put in place

agreements today that set the stage for U.S. beef producers and future success.

Thank you.

[The prepared statement of Ms. Lyons appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Ms. Lyons.

Mr. Caspers, welcome.

STATEMENT OF JON CASPERS, IMMEDIATE PAST PRESIDENT,

NATIONAL PORK PRODUCERS COUNCIL, SWALEDALE, IA

Mr. CASPERS. Thank you, Mr. Chairman and members of the

committee. I am John Caspers, immediate past president of the

National Pork Producers Council and a pork producer from

Swaledale, IA. I operate a nursery-to-finish operation, marketing

approximately 18,000 hogs per year.

While U.S. pork producers and others in U.S. agriculture have

benefited significantly from past trade agreements, we must all remain vigilant in enforcing U.S. trade laws and protecting the gains

made in past trade agreements. This is particularly the case when

considering our NAFTA trading partners. There is strong evidence

to suggest that Canada’s pork producers are receiving illegal subsidies that are allowing them an unfair advantage over U.S. producers, thus inflicting financial harm on the U.S. pork producers

who have lost money for 28 of the past 34 months.

The Canadian herd had not posted a year-over-year quarterly decline since 1997. All of the reduction in the North American swine

breeding herd has been accomplished by U.S. producers.

In the period after the market collapse in the fall of 1998, the

average Canadian pork producer had an income of $44,000, of

which $43,000 came in the form of government payments. The Canadian producers’ failure to respond to economic signals appears to

be directly related to the receipt of billions of dollars in subsidies.

Consequently, on March 5 of this year, the National Pork Producers Council, along with the State pork producer organizations and

individual U.S. producers, filed trade cases against live hogs from

Canada.

There is also cause for concern in Mexico as well. Mexico illegally

initiated an antidumping investigation against U.S. pork in January of 2003 and has not yet terminated its case.

There are a number of important points with respect to the illegality of the pork antidumping case.

First, the Mexican association that requested the investigation,

the CMP, does not represent the Mexican pork industry and, therefore, did not have any legal right to make the request.

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Second, the CMP created the appearance that U.S. exporters are

dumping pork in Mexico by comparing apples and oranges. The

CMP compared prices for our sales to Mexico of fresh hams to

prices for our sales to Japan of pork loins. Although any consumer

knows that fresh hams have a lower price than tenderloins, the

CMP nevertheless concluded that this comparison was proof that

we are dumping pork in Mexico.

Third, the CMP claimed that it was threatened with harm by imports of pork from the United States but did not provide any proof

about the financial condition of Mexican producers.

The WTO already has found in other cases that each of these errors, taken alone, is sufficient to negate the entire case.

The most important trade initiative now under way for U.S. pork

producers is the negotiation of the new WTO agreement. Having

said that, NPPC supports the negotiation of regional and bilateral

trade agreements.

For example, U.S. pork producers will benefit greatly from the

implementation of the free trade agreements with the five central

American countries and the Dominican Republic. Although negotiations were difficult, in the end, U.S. pork producers obtain a good

result in the negotiations with the 5 Central American countries

and the DR that will result in significant market access when implemented.

Prior to congressional action, we expect each of these nations to

undertake the work needed to pave the way for recognition of the

U.S. meat inspection system and to resolve sanitary and licensing

issues that currently restrict U.S. pork exports to that region.

As another example, Australia has had a de facto ban on U.S.

pork for quite some time based on unjustifiable animal health concerns. NPPC is pleased that the government of Australia announced on May 10 of this year that results of its import risk analysis on pork would be implemented. The U.S. pork industry soon

will be able to ship processed pork or unprocessed frozen pork for

further processing in Australia.

The Australian import risk analysis was greatly flawed in not

permitting unprocessed fresh or frozen U.S. pork to be sold at retail. However, given the estimate of Iowa State economist Dermot

Hayes that the U.S. can ship $50 million worth of pork annually

to Australia, even with these restrictions NPPC decided to accept

partial market access today and fight for full market access tomorrow. A few administrative details need to be worked out over the

course of the next 1 to 2 months but, by midsummer, U.S. pork

should be flowing to Australia.

Also, there are significant and increasing market potential for

U.S. pork exports in the Andean nations, particularly Colombia, as

well as in Panama, Thailand, and southern Africa. However, very

little of this potential can be realized until high and unpredictable

tariffs, complicated by import licensing systems, unfair inspection

fees, unjustified sanitary restrictions, and costly quota bid systems

are acknowledged.

Mr. Chairman, I thank you for the opportunity to present this

statement.

[The prepared statement of Mr. Caspers appears at the conclusion of the hearing.]

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The CHAIRMAN. Mr. Caspers, thank you very much.

Our next witness is Mr. Dennis McDonald. Thank you for being

here.

STATEMENT OF DENNIS MCDONALD, TRADE COMMITTEE

CHAIRMAN, RANCHER-CATTLEMEN ACTION LEGAL FUND,

UNITED STOCKGROWERS OF AMERICA, MELVILLE, MT

Mr. MCDONALD. Thank you. Chairman Goodlatte, Ranking Member Stenholm, and Dennis Rehberg, our lone Montana representative, my name is Dennis McDonald. I am from the small town of

Melville, MT. My wife, Sharon, of 27 years and our four children

operate a diversified cattle, horse, and small grain operation. We

have an annual horse production sale; and, on the cattle end, we

have a cow/calf operation and a feeder operation.

I am here representing R-CALF USA as their international markets chairman and have served for the past 6 years on the Trade

Advisory Committee for Livestock.

I would like to start by commending Ambassador Zoellick and

the USTR staff and Members of Congress on some recent major

trade breakthroughs that are potentially beneficial to U.S. agriculture. I am mindful that Ambassador Zoellick testified here several weeks ago, and I support much of his testimony.

R-CALF strongly supports USTR’s efforts to move forward and

conclude the Doha Round of the WTO negotiations. In fact, we feel

strongly that many of the issues which lead to trade-distorting

practices must be addressed at the WTO level before we move forward with new bilateral trade agreements.

R-CALF has long advocated and continues to support efforts to

open up U.S. beef export markets by reducing global tariffs to those

levels existing in the U.S. We also support efforts to eliminate and

prevent proliferation of nontariff barriers to beef trade such as the

use of health regulations to unjustifiably block these exports. The

ongoing impasse of the European Union, as has been noted here,

is familiar and frustrating to us all. The U.S. must work to prevent

the proliferation of these types of protectionist tools, and the WTO

is the only place where effective action can be taken. Likewise, the

subsidy issues must be addressed, as well as the issue of state

trading enterprises should also be addressed at the WTO level. I

have made reference to those statetrading enterprises in my written testimony.

When Ambassador Zoellick testified here, I respectfully suggest

he omitted one very important issue that must be addressed within

the WTO and with our trading partners. That is the recognition of

certain agricultural products as perishable, seasonal, and cyclical

products. Our Congress recognized the classification and directed

USTR to provide special rules for such products in the Trade Promotion Act of 2002. Special rules for such products must be made

a part of all bilateral FTAs, and the basis for such special rules

must be addressed in the WTO negotiations.

Turning from the WTO matters for a moment and looking at the

bilateral trade liberalization of agriculture markets, it is a delicate

balance that the U.S. Congress must follow. If USTR and, ultimately, the Congress liberalize markets where the U.S. cattle industry is likely to fare poorly and it is unable to simultaneously

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open major consuming markets to our products, the U.S. cattle industry, where we might do reasonably well, then we are put in a

position where we will lose market share globally, not because we

are not competitive but because we expand market access in the

U.S. far ahead of equitable access abroad. Free trade agreements

that do not address these distortions will result in worsened longand short-term outcomes for the U.S. cattle producers and, indeed,

all of agriculture.

The proposed Australian Free Trade Agreement is one such example. To enter such an agreement with a broad-based agriculture

producer with limited market potential for our agricultural product

makes no sense. Further, the agreement does nothing to eliminate

the trade-distorting practices of the Australian Wheat Board. Thus,

in conjunction with the massive distortions generated by actions of

other major trading partners, coupled with the lack of market access in other overseas markets, the U.S.-Australian Free Trade

Agreement will exacerbate an existing acceptable market situation

for U.S. cattle producers and, indeed, for agriculture generally.

In conclusion, may I just say that we support this committee’s efforts to support our cotton producers. We are concerned that various WTO panels have undertaken to enlarge commitments which

were never negotiated. So, again, we see the WTO process as the

major thrust of our trade policy.

Thank you.

[The prepared statement of Mr. McDonald appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. McDonald.

I have a question that will liven things up. I recently received

a letter from the Chocolate Manufacturers Association and others

asking that two of their objectives be given top priority by the U.S.

Trade Representative in future negotiations with Thailand, the Andean countries and the FTAA countries and the South Africa Customs Union. The two objectives are, first, include sugar in all

agreements; and, second, the immediate elimination of tariffs by

FTA partners on U.S. chocolate and sugar confectionery exports.

I would like to ask both Mr. Jones and Mr. Graham if they would

address their views on these two suggestions and assess the impact

on their respective industries. Mr. Jones.

Mr. JONES. Yes, I would like to address the talk about eliminating tariffs. Our system is set up——

The CHAIRMAN. They didn’t say that. They said the elimination

of tariffs on exports of their products from other countries.

Mr. JONES. And the first part of your question——

The CHAIRMAN. The two suggestions are, elimination of tariffs by

other countries on their U.S confectionery products, chocolate and

other things, going into those other countries; and including sugar

in all trade negotiations.

Mr. JONES. Sugar has so many different subsidies in so many different countries, when you have 140 countries out there, each one

of them has various sorts of subsidies, from export subsidies, nontransparent subsidies and what have you. We feel that the only

way to address all of those subsidies is in the WTO negotiations,

not in the FTA negotiations. I do not think that we address any

of the issues on what goes on in the sugar industry in the United

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States when we allow more access from these other countries coming in to give them access.

The CHAIRMAN. Thank you. Do you want to say anything about

their barriers to our products from the U.S. continuing to——

Mr. JONES. I would like to not respond to that, because I am

really not knowledgeable about it.

The CHAIRMAN. Thank you.

Mr. Graham.

Mr. GRAHAM. Thank you, Mr. Chairman.

On the second part of the question, certainly on the tariffs, there

are many countries that have very high tariffs on our sugar products and our chocolate products going into those countries, whereas

products coming into this country generally are at 4 or 5 percent

tariff. There are countries that have 20, 30, 40 percent tariffs on

our confectionery products going into various countries, so certainly

we would like to see those reduced and equal to ours.

On access to sugar, since our member companies are paying double the price for refined sugar—as I mentioned in my testimony, we

have an awful lot of our companies moving their factories to Canada, Mexico, and elsewhere solely to take advantage of world

sugar; and we think, again, that we could be a far more competitive industry if we had access to world sugar.

The CHAIRMAN. Let me ask each member of the panel if they

could describe the steps that their industry has taken over the past

year to increase exports and in what area of the world have those

initiatives been taken?

We will start with Mr. McDonald at the other end.

Mr. MCDONALD. Thank you.

R-CALF has taken the position, in supporting the trade agreement with Singapore, we think there is great opportunities in Asia

to increase our beef trade. Likewise, we supported the trade agreements in Morocco, Thailand and negotiations with Bahrain, Jordan

and all of the Middle East countries. We just emphasize again that

the basic trading rules must be negotiated at the WTO level prior

to entering into further bilateral trade agreements, especially with

our South American friends.

The CHAIRMAN. Thank you.

Mr. Caspers.

Mr. CASPERS. Well, really, over the last year, we have been engaged fairly heavily in working with USTR’s office in the negotiation of all of the regional bilateral agreements that are being

worked on and that have been completed. Chile and Singapore, but

more importantly for the pork industry, Chile was probably the

first example I think of what we thought was a good agreement

that was going to give us better access—our top priority, really, to

reduce tariffs, to get better access around the world. We face high

tariffs all around the world, much higher than really a lot of other

agriculture products. So we think, in the absence of a WTO agreement, these regional bilateral agreements are extremely important.

Now, certainly, we think that the conclusion of the WTO agreement certainly holds the most promise. In the absence of that, we

depend heavily on these.

Now, Chile is a good example. We have good access into there

now. They have agreed to accept our U.S. meat inspection system.

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We have worked out that in a companion negotiation, going along

at the same time as the trade negotiation, and we expect that to

be a pattern for all of the other negotiations going on.

We think we have a good result out of the CAFTA, the Central

American Free Trade Agreements, along with the Dominican Republic. We are going to get immediate access for additional pork

products, and we are going to have TRQ on a number of other

products that will grow and expand over a period of time.

So we think that is going to be good, and we are going to have

additional access into many of the other countries we have mentioned in our testimony.

The CHAIRMAN. Thank you.

Ms. Lyons.

Ms. LYONS. Thank you, Mr. Chairman.

Certainly one of the things that our organization has spent an

inordinate amount of time on this year has been addressing BSE

and the aftermath. Certainly the closing of the export, the borders

was one of the big issues that we are dealing with. We see it as

critical to get that open.

We have worked very hard on harmonizing the Canadian border

for health requirements. We feel that science must be used in that

effort as we go about reopening those borders. We worked with the

international community and encouraged that the model that be

taken, as you look to the fact that as we are opening this, what

goes around, comes around, and what we are seeing is that what

we do to others will be what is done to us in the area of trade. So

we have worked very hard to make sure make sure that those requirements are—that the standard is based on science and that

that be applied in the international community as we go to reassessing and reopening those borders.

The CHAIRMAN. Thank you.

Mr. Graham.

Mr. GRAHAM. Thank you, Mr. Chairman.

Although we represent about 400 candy and chocolate manufacturers and while we have some big players in the industry, the

overall profile of our industry is small family companies. One thing

that has been particularly beneficial to them is the Market Access

Program in a variety of countries around the world.

I would say we have made some very significant progress in Asia

and in many developing countries, because, as countries develop,

they begin having the income for various snack and confectionerytype products. So we have done particularly well in Asia and in

some countries in South America.

The CHAIRMAN. Thank you.

Mr. Smith.

Mr. SMITH. Yes, sir. We made attempts throughout the last few

decades to improve our exports into countries such as China and

Korea. We would like to see our NFC products recognized globally

as a superior product that would have a place in the marketplace

in those markets. However, because of the perishability of our

product, because of the income levels in some developing countries,

we struggle in those efforts. That is certainly not to say that we

will not prevail at some point in time, but because of the challenges

that those things create it is a very slow process to our industry.

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The CHAIRMAN. Thank you.

Mr. Jones.

Mr. JONES. As I said before when we were talking about the various subsidies, we have no export subsidy and our subsidy does not

really give us an opportunity to be into the world market. We are

efficient in our own country and we are efficient with them, but not

against their subsidies. So we really do not have an export market

for sugar.

But, if I may, I would like to respond to Mr. Graham talking

about the exports of chocolate and candies into those other countries.

The CHAIRMAN. Certainly.

Mr. JONES. We do have a reexport program where sugar is taken

out of our market and they can use that sugar to move offshore,

and then that sugar is eventually replaced back into the system.

The CHAIRMAN. Thank you very much.

Mr. Stenholm.

Mr. STENHOLM. Thank you, Mr. Chairman.

Ms. Lyons, Mr. McDonald, what do we need to be doing additionally to get our foreign markets reopened because of the BSE scare?

Ms. LYONS. Thank you, Mr. Stenholm.

One of the things that I would say very clearly is that we need

to give it a high priority at all levels. We need to support the efforts of government-to-government negotiations that are taking

place with our trade team. We need to make sure that we fully

fund those efforts and that they be ongoing. Finally, I would say

that we need to be very cognizant that we are establishing an

international model that will be used for the future, as this particular incident will happen again in other countries. So we certainly

must apply and appeal to the international community and the Organization of International Epizootics and Applied Science as we

make those determinations.

Mr. MCDONALD. R-CALF’s position is and has been that we need

to work diligently to open that Japanese market; and, in doing so,

it seems to me we need to pay attention to what our customer is

requesting.

The primary issue presently is a percentage of cattle slaughtered

in this country that will be tested for BSE. To date, it has not been

acceptable to the Japanese. I have been very concerned that at

least two private packing enterprises in the United States have

wanted to test 100 percent of the cattle slaughtered at their facility

and, therefore, gain access to the Japanese market. Through bureaucratic problems at USDA, the determination has been made

not to allow private enterprise to undertake to comply with those

requests.

I also agree that our decisions must be made on sound science.

One of the difficulties we have had with the opening of the Canadian border, and as Judge Cebull concluded in his recent decision

out of the Federal district court in billings, that good science was

ignored in setting forth some of the rules that would allow the expansion of Canadian beef into the United States. So, yes, we need

to strictly adhere to sound science in making these decisions.

Mr. STENHOLM. I agree with both of you on that aspect very

strongly. I would implore you and your members to be careful what

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you ask for regarding the sound science and its application in the

North American hemisphere as what we ask for in this hemisphere

will, in fact, become the rule for international trade; and some of

us are getting a little bit on the edge of doing things that are not

what we say we should be doing.

But I also want to agree with both of your statements and make

this in the form of a statement within a question, the importance

of continuing to focus on multilateral rather than bilateral negotiations. Bilaterals tend to divide our industry; and when we become

divided, we do not do well. Even in the testimony today we find

that, because of the different nuances of different industries, we

have a little different way that we would negotiate. But we always

do better as a country when we stick together as agriculture and

do not cut and run on one versus the other.

That leads into sugar, one of the real remaining controversial

items, and cotton is the one that has been on everybody’s mind.

But today, just in my remaining minute here, again, I was in Mexico over the weekend, and the international press seems to have a

difficult time understanding when I say all of our subsidies are on

the table, as far as this Member is concerned. What part of all do

you not understand, speaking to the press. But we will not unilaterally disarm our producers in any industry, and that is the problem we have.

When you look at sugar and you look at the European Union, depending on whose numbers you use, the Europeans are spending,

according to some, $450 a ton on export subsidies. Now, Mr.

Graham, you rightfully complain—and I do not challenge. You have

a difficult time with the costs imposed upon you, et cetera, et

cetera. But the solution is not to unilaterally destroy the industry

in this country. The solution is to have negotiations that deal with

these export subsidies, which we are that close to doing now. My arithmetic shows that Europe spends $50 per ton exporting their sugar. We explain, you explain, rightfully, about $360 per ton

as being too high. Well, what is wrong with that picture? Everybody knows what is wrong with that picture. Until we can find a

way to stick together, and we are that close, and the Doha Round

needs to be completed, I am very, very concerned about continued

bilaterals that cause us to split, as we will hear today from various

witnesses, those that support the Australian, those that oppose the

Australian, those that support—we are not at our best in the international marketplace and in negotiations when we are split.

I would behoove each of you and your associations to spend a little more time in making sure that we stick together: pork and beef

and sugar and cotton and rice and citrus. And in all of those areas

we all say, and I believe, that we want a level playing field. Level

is in the eye of the beholder. And our real enemy, if we have one—

and I hate to call the European Union an enemy. They are our

friends and allies. But, in this case, they are the ones that create

the problems for a lot of us in this room today. We need to find

a way to work together.

Again, Ms. Lyons, your statement was—I found myself in almost

total agreement with what you were saying. The moment, though,

you mentioned Pat Roberts, your credibility on some of the other

things kind of went south on me.

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Ms. LYONS. I hesitated to do that.

The CHAIRMAN. I thank the gentleman.

The gentleman from Montana, Mr. Rehberg.

Mr. REHBERG. Thank you, Mr. Chairman.

In fact, I did write that quote down: ‘‘you don’t know what you’ve

got ’til it’s gone.’’ I entirely agree with that comment; and perhaps

my discussion will center on the fact that we have systematically

destroyed our oil industry in America and, as a result, we are relying upon OPEC. We have systematically destroyed all of our timber

industry because of environmental activism within the inner mountain west and, as a result, our value-added home industry is upset

with us, and they feel like they are being gouged by Canada’s high

prices.

Philosophically, Mr. Graham, I guess I really do not understand

how you think either moving to a different country or sticking with

the people that provide the resource to you so that you can have

a cheap product gets us any further to a better position in the

world market.

So I guess the question that I have, first of all, for Mr. Jones,

is, does Canada subsidize their sugar production?

Mr. JONES. Yes, all countries.

Mr. REHBERG. You are going to have to answer faster because I

only have 5 minutes, so answer fast.

Mr. JONES. I am sorry. Yes, they do subsidize.

Mr. REHBERG. Does Mexico?

Mr. JONES. Mexico subsidizes their sugar production.

Mr. REHBERG. Mr. Graham, you are willing to move offshore, and

I do not get that, or to the north or to the south. So the question

becomes, are you prepared to help destroy the sugar production industry in the United States to move offshore or to the north or the

south and then become dependent on their prices so that once we

do, in fact, end that gouging through WTO, you are going to end

up in a different financial position with your product?

Mr. GRAHAM. Well, we do not want to destroy the domestic growers and the domestic sugar industry. But, in the meantime, what

is happening is manufacturing in my industry is moving overseas.

It is moving away from here because of the tremendous competition

demanded by the retailers. They cannot meet some of the prices

that come from foreign-made candies made with world sugar

prices.

Mr. REHBERG. Mr. Jones, what is the number that the Bush administration included in the CAFTA agreement as far as the percent influence on the sugar industry? 1.4 percent? Somewhere

along in there?

Mr. JONES. As far as the trade ambassador, he said about 1 percent of cash crop.

Mr. REHBERG. Which he considered to be an insignificant number.

Mr. JONES. We consider that to be small. We consider it to be

closer to 4.

Mr. REHBERG. Mr. Graham, in your comment, in your testimony

you suggested not opposed to alternative means of supporting producer incomes, meaning helping out the sugar industry?

Mr. GRAHAM. Yes.

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Mr. REHBERG. Would you give us some examples of what you

consider to be supportive of producer incomes? What would you be

willing to support?

Mr. GRAHAM. Well, I think that is sort of a complicated answer,

but I think we cannot change the program overnight. I think that

would hurt the sugar growers. I think that whatever has to happen

has to be a phaseout, and I certainly agree with Congressman

Stenholm that it has to be a level playing field around the world.

So I think what is happening in the WTO, we would support the

direction that they are headed there.

Mr. REHBERG. Well, I think the difficulty perhaps, Mr. Graham,

then is that you are cutting and running before we solve the problem. Would it not be better if you stayed here and tried to solve

the issue of WTO, and doesn’t the chicken come before the egg or

vice versa?

Mr. GRAHAM. Well, the businesses right now, if you look at a

candy product, they use a tremendous amount of sugar. They have

to pay twice the world price of sugar to compete with anybody else

outside of the United States. Therefore, they are moving their manufacturing to where they can get the cheapest ingredients right

now. They do not want to do that, they would rather stay here, but

it is the nature of the Sugar Program right now.

Mr. REHBERG. Ms. Lyons, I noticed a difference in numbers or a

conclusion between you and Mr. McDonald in the trade balance or

imbalance. Your numbers suggest there is a net export balance;

and, Mr. McDonald, you suggest there is a net import imbalance.

Could I ask you real quickly to answer the question, which is it?

And if you cannot or if you stick with your numbers, would you

both provide me with additional numbers so I can try and compare

apples to apples? Ms. Lyons.

Ms. LYONS. Yes. We are at a net surplus. We enjoyed a record

$2.2 billion of beef and beef product trade surplus last year. That

is significant. That is actual. That is actual dollars.

Mr. REHBERG. Mr. McDonald.

Mr. MCDONALD. Well, I set forth the numbers in my written testimony.

Mr. REHBERG. Yours is pounds, and hers is dollars, and you

ended up with different conclusions.

Mr. MCDONALD. Yes, that is where I was going. I suppose it depends on the portion of the elephant the blind man is feeling. But

when you look at it just in terms of quantity, for every pound of

beef, veal and cattle we export, we import 2, and that has led to

some crisis that we felt in the cattle industry over the last several

years.

Mr. REHBERG. Mr. Chairman, could I ask that the two witnesses

provide the committee with additional information so that we can

try and compare the two to make a determination on our own?

The CHAIRMAN. The record of the committee will be kept open for

witnesses to provide additional information.

Ms. LYONS. We would be very happy to provide that.

Mr. REHBERG. Great. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Minnesota, Mr. Peterson.

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Mr. PETERSON. I want to associate myself with Mr. Stenholm’s

remarks about doing these things in the WTO.

Mr. Graham, yesterday we went and purchased some hard candy

down at the local drugstore that you talked about in your testimony. They were made in the U.S., Canada and Germany. They

sold for $2 a bag; and, as near as I can tell, it had U.S. prices. Less

than 5 percent of the total cost of those candies were sugar, between 6 and 91⁄2 cents, using current U.S. prices. As I understand

it, a roll of Lifesavers has 1.7 cents of sugar in a 44-cent Lifesaver

package.

Now, as I understand it, the relocation that you are talking

about in the case to Canada, they went to nonunion factories, and

the Canadians were paying for their health care. In Mexico and Jamaica, we have substantially lower wages. It seems to some of us

that if we gave you the sugar for free, I do not think it would

change the price of candy here in the United States. In this market, so-called world market in sugar, today and the future price,

near-term future price is 6.9 cents a pound. There is not anybody

in the world that can produce sugar at that price.

I was in Guatemala 2 months ago. Their cost of production is 10

cents. They are probably the lowest-cost producer next to Brazil.

But this is not a real market. This 6.59 cents is not a real market,

and I think everybody needs to understand that.

In your testimony you argued that if we made these changes and

you could sell more sugar to the U.S., this would give these countries additional foreign exchange that they could then use to buy

other agriculture products. And I understand that your members,

you do not want to drive down the sugar prices, and they want to

increase their income. But given the fact that we have this market

of 6.59 cents, if we drove this market down to that price, what you

are going to do is you are going to put not only all of the sugar

producers in the United States into a loss situation, you are going

to put the sugar producers in every other country in the world into

a loss situation, given what the Europeans are doing.

So I just do not understand the logic of that. I mean, I think

what you are going to do is you are not only going to bankrupt the

industry in this country, you are going to do it every place in the

world, except for probably Europe.

So can you explain to me how you think this is going to give foreign exchange to——

Mr. GRAHAM. Well, I think there have been various studies that

have indicated that if there was a free market for sugar, it would

not destroy the U.S. market. It would bring the U.S. price and the

world price closer together. I think our companies—if you look at

some of the sugar, the sugar products in our companies, they are

90 percent sugar and corn syrup. It has a tremendous impact on

the cost of making their product. It is the primary reason why they

build factories in Canada and Mexico and elsewhere.

Mr. PETERSON. It is less than 5 percent.

Mr. GRAHAM. In some products, it is less than 5 percent; in some

products, it is significantly more. It depends on the product.

Sugar is the main ingredient in sugar candy, and if you have to

pay twice the world price for it and, meanwhile, the retailers here

are trying to look for the best quality products at the lowest posVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00131 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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sible price, it is very difficult for our guys to compete. These are

not big companies that are moving to other countries. These are

family companies that are trying to make a good product at the

best price possible.

Mr. PETERSON. I understand that, but you cannot tell me that it

is only sugar that is causing this.

Mr. GRAHAM. Well, I think if you look——

Mr. PETERSON. You cannot sit there with a straight face and tell

me that, I do not think.

Mr. GRAHAM. Well, first of all, a lot of the companies are moving

to Canada; and I think there are not significant labor benefits

there.

Mr. PETERSON. But the one I checked on is a nonunion shop.

Mr. GRAHAM. In some places, it is; and in some places, it is not.

On the chocolate side of our industry, the chocolate products,

they are not moving. They do not use as much sugar. Their statistics are more close to what you cited. They are not using as much

sugar; and, therefore, they are not moving their factories to Canada

and Mexico.

So if you look at those two statistics, you see that a significant

reason for the move is the price of sugar. It is not the only reason,

but it is a significant reason.

Mr. PETERSON. I still do not understand how you think we are

going to get to a different world market price, given that the Europeans are spending $500 a ton, or whatever the number is, $450

a ton. Given that situation, 75 percent of the cost of that is the cost

of what they give their producers is being paid in export subsidies.

So if we allow that to continue, there is no way this world market

is ever going to be anything but 6.59 cents, and we cannot live with

that. Nobody can live with that.

Mr. GRAHAM. Well, again, I think these negotiations have to be,

as Congressman Stenholm said, these really have to be multilateral. I think if America moves on its own——

Mr. PETERSON. But we are doing CAFTA, we are doing Thailand,

we are doing all of these—I have gone by my time.

Mr. GRAHAM. Well, I think they have to be both. They have to

be bilateral and multilateral, because we think it creates the precedent to move in that direction for sugar policy.

The CHAIRMAN. Mr. Osborne.

Mr. OSBORNE. Thank you, Mr. Chairman.

I would like to thank all of you for being here today. I have several questions, and I will move pretty quick here.

Mr. Jones, I hear from a lot of my sugarbeet people being very

much opposed to CAFTA. Is that pretty much in line with your organization’s thinking, or is this an aberration, just a regional feeling?

Mr. JONES. Our opposition to CAFTA?

Mr. OSBORNE. I am asking about the national organization. In

the part of the world where I come from, a lot of our beet growers

are against it. I wondered what your opinion was.

Mr. JONES. Our association is definitely against the CAFTA

agreement for several reasons. Number one is because of the additional access of 109,000 tons. Some people will say, well, what is

the big deal with the 109,000 tons? The problem with that is, is

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it triggers off our allocation. As I said before, our market is based

on both domestic control as well as imported control. Once it triggers off our domestic markets, there are 700,000 ton of block stock

sitting up there that is going to come down. So what we end up

dealing with is 800,000 tons instead of 100,000 tons, because that

comes in under the WTO and NAFTA commitments.

Mr. OSBORNE. All right. Well, I appreciate that.

Mr. Caspers, I missed your earlier testimony. Are pork exports

up or down?

Mr. CASPERS. Well, in 2003, we set another record, a little over

750,000 metric tons of pork export and for the first time exceeded

a little over $1.5 billion in value in 2003. We are up substantially

again in 2004 so far.

Mr. OSBORNE. Just glancing at your testimony, I gather that you

are concerned about Canada, some of the subsidies of our pork producers there, as being in violation of NAFTA, is that right?

Mr. CASPERS. Absolutely. We have suspected for some time and

done a lot of research over the last couple of years. I guess we have

come to the conclusion that the reason that the Canadian producers seem not to respond to the same economic signals that our producers have by cutting back in the breeding herd, while our producers seem to be responding we think responsibly by cutting back

in response to low prices and low profits, the Canadians seem to

continue to expand. And we think a major reason for that is the

fact that they receive subsidies for their production. So early in

March of this year, we brought two cases against the Canadians;

and we continue to work those through the system. We have gotten

a couple favorable rulings, and we continue to work on those.

Mr. OSBORNE. OK. Thank you.

The last two questions are very quick, to both Ms. Lyons and Mr.

McDonald.

I gather that, Ms. Lyons, just looking at your testimony quickly,

that you are OK with CAFTA and the Australian agreement. Mr.

McDonald, I did not really hear where you guys were on that.

Then, also, if each of you could comment on animal ID, how you

feel that fits into the trade picture, whether you feel that is a good

thing, a bad thing, whether it is necessary for trade. That is throwing a lot at you, but I would appreciate an answer, because I did

not hear all of your testimony earlier, and I apologize.

Mr. MCDONALD. That is fine. I appreciate the opportunity to respond.

With regard to both CAFTA and the Australian Free Trade

Agreement, we have the same situation. With very limited market

available to our agriculture products, as opposed to large agricultural bases in all of those countries, it is difficult to see how that

is beneficial, particularly to the cattle industry but also to agriculture in general.

Mr. OSBORNE. So you are in opposition to both then?

Mr. MCDONALD. Correct.

Mr. OSBORNE. OK. Could both of you comment then on animal

ID? It may be a little bit out of the box here, but it appears like

it is coming, and I just want to get your thoughts on that, whether

that would be beneficial to trade or not. Ms. Lyons?

Ms. LYONS. Did you want me to talk about ID or the CAFTA?

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Mr. OSBORNE. The ID. I think I understand where you are on

CAFTA.

Ms. LYONS. Yes, as far as the animal ID, we certainly see that

there is an urgent need for that from an animal health disease surveillance perspective. We see that that is coming, and we believe

that our producers out there in the country are beginning to understand that need as well, of tracking of animal disease and animals.

So we are supportive of that process. We intend to be involved in

that process as far as making sure that producers’ concerns about

confidentiality and some of those other issues are addressed as we

go forward, and we applaud the efforts that have been done in that

area so far.

The CHAIRMAN. Thank you.

The gentleman from California, Mr. Dooley.

Mr. DOOLEY. Thank you, Mr. Chairman.

I think one of the problems we face in terms of Mr. Stenholm’s

comments where he thinks that all of agriculture should hold together is that we already have about 80 percent of agriculture that

receives no subsidies in the United States, meaning domestically

and internationally today without any subsidies. By using the

standard that we ought to hold together is that we are precluding

and impeding the ability to open up additional markets for that 80

percent of agriculture that currently is interested in competing

internationally. That is what I find a little bit frustrating here.

This economy in the United States was built primarily on the

concept of relative advantage. We have prospered domestically and

internationally because we are better at doing a lot of things than

many other people throughout the world. And we have heard from

the beef industry today, we have heard from the pork industry, we

heard from the corn industry, we heard from the poultry industry,

and I might be leaving out a couple of others, but they are willing

to embrace the CAFTA agreement that was negotiated primarily

because they recognize that they have a relative advantage over

the producers of those products in Central America. Thus, we

ought to have the opportunity to access those markets.

But here we have a situation that sugar is adamantly opposed

to increasing whatever it is, 1 percent of our domestic consumption,

maybe it is a little more than that, because you do not want to

compete with Guatemala who can produce sugar for 10 cents a

pound. Mr. Jones, how do you kind of rationalize this challenge,

where your industry almost has the capability of denying a market

opportunity for a significant portion of U.S. agriculture that has

the ability to compete internationally and has the ability to gain

financial opportunities in Central America? How do you rationalize

that, when you are unwilling to?

Mr. JONES. OK, sir. Thank you.

Let’s get back to the basics here. We talk about we have all of

these subsidies in all of these countries. They are not cutting back

on anything.

Mr. DOOLEY. What kind of subsidy does Guatemala have?

Mr. JONES. With sugar? I am sorry.

Mr. DOOLEY. With Guatemala, what kind of subsidy do they

have?

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Mr. JONES. I am talking about with Guatemala. There have not

been any restrictions on their sugar production.

If sugar is to come into our markets and completely destroy our

market, we do not have the national security we should have, because sugar is a special ingredient in the food chain. We have gone

and moved on into the era of—the agriculture community has gone

belly up, because this is an important commodity in certain areas

of the rural areas. Sixteen States, we are talking about almost $9.5

billion worth of economy. It is something that you cannot just put

under.

As I was stressing earlier, the 100,000 ton might not seem too

much, but when you are talking about the 700,000 ton that is sitting up here and can come crashing down, then you have a real

problem with depressed prices, you have a market that is fragile,

you have processing companies that cannot get in and get out of

the business. We have to have a processing plant to stay in business. That is my basic argument.

Mr. DOOLEY. Well, I find it somewhat remarkable that one of the

arguments that you are advancing is the fact that we have a Sugar

Program that in the past has been so screwed up that we got

700,000 tons that the Government now owns, or has control of, I

should say, that you are worried about them releasing if we have

a slight increase in sugar coming in from Central America.

Mr. JONES. Sir, could I correct you on the 700,000 tons? That is

held stock privately by various companies because they cannot

market that sugar.

Mr. DOOLEY. But the Secretary is the only person that can authorize its release, correct?

Mr. JONES. No, that is not correct, sir. Can I explain? The

700,000 tons of blocked stock——

Mr. DOOLEY. If somebody said today they wanted to release this

sugar that is in private hands, could they voluntarily do it?

Mr. JONES. No, they could not. They have to hold it at their own

expense because we are under——

Mr. DOOLEY. And who can authorize the release of this sugar?

Mr. JONES. No, we cannot.

Mr. DOOLEY. Who has to authorize the release of the sugar?

Mr. JONES. The only way the sugar can be released is if the allocations were lifted, lifting our marketing allocations.

The way they would be lifted is if imports increase over 1.53 million ton.

Mr. DOOLEY. That is where I get back to my basic contention, is

that here we have a problem that we have created because we have

moved this industry further away from being market-oriented so

that we are more in supply and demand in balance, and then we

are worried about we can’t even allow Guatemala, a poor country

that can produce sugar more than we can, we can’t allow them to

have even a limited market access. So we are in a situation of our

being producers, and a lot of other folks out there that want to gain

this market, we are not allowing to make progress.

My concern is the sugar industry comes up and they say, well,

we have got to negotiate this all through the WTO, and my challenge to you is—let’s say in the WTO, theoretically, if we had a negotiated settlement there that resulted in an agreement that we

132

would be basing our Sugar Program on the framework that Australia is using today, would you folks be willing to accept that?

Mr. JONES. No, we won’t.

Mr. DOOLEY. And why not? Because we would have a level playing field.

Mr. JONES. Australia plays with a state trading enterprise which

is nothing more than a monopolistic——

Mr. DOOLEY. We could adopt that state trading enterprise. What

I am saying is, is that we would do that instead of what we have

in place now. So everybody in the world that was producing sugar

would say, well, let’s do this and we will create a level playing

field. Will your industry support that?

Mr. JONES. If we could create a level playing field, it would eliminate all of these subsidies across the board. We are efficient, and

we could survive. The sugar in the world is half the price of the

cost of production worldwide. We can produce sugar——

Mr. DOOLEY. He wants me to quit.

I just want to state one statistic that I find remarkable. Prior to

1980, the United States was producing 55 percent of their domestic

consumption of sugar. The EU was a net producer prior to 1980.

Today, the EU is the second largest exporter of sugar internationally, and the U.S. is now producing 89 percent of their domestic

consumption in sugar. This was not because we have a relative advantage. It is because we have got some programs that are distorting the marketplace, and the industry has got to step up and be

willing to change them.

The CHAIRMAN. The gentleman’s time has expired.

The gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Thank you, Mr. Chairman.

Along these lines and Mr. Casper’s, I know you have concerns

with the Australian free trade agreement that is coming. What, if

anything, can be done before we move this to the House that could

gain your support? Are there any mechanisms that you know that

would address your concerns and who would we here on the Hill

encourage in the U.S. Trade Representative or with our trade negotiators and within the administration towards those concerns?

My second question is for both of you—and third question would

be—what is your view on WTO negotiations?

And, third, how do you see the China market and issues in

China—what we could do to give greater access to that market for

both of your centers?

Thank you, Mr. Chairman.

Ms. LYONS. Thank you for the question.

I would say, to remind you, that on July 17 our organization sent

a letter to Ambassador Zoellick informing him that we did not support bilateral kind of agreements. We supported multilateral agreements and felt that it should be best addressed in that way. However, as those went forward, we felt that it was imperative that we

participate in the process so that there cannot be any net negative

effect on our producers as we look toward and continue to look toward those multilateral agreements.

We did participate in that process, and I would tell you our analysis from our economists have projected that certainly in 10 years

133

out there would be no net negative effect on cow prices after 10

years.

So we feel that the agreement that has come forward is very

positive for our industry, and it could have been a lot worse, but

we made a conscious decision to participate in that process rather

than to continue to hold the line, if you will, on the multilateral

agreements.

You will not, however, see us lobbying, I believe, on that issue

for that agreement, because our policy is set by our members; and

our members very clearly have told us they want us to continue to

encourage the multilateral process of addressing these issues

through the WTO.

Mr. PICKERING. I just want to clarify. Is it more of a process versus multilateral versus bilateral versus a substantive agreement?

Ms. LYONS. Yes, it is. It is a historical belief, if you will, tradition. Our members are steeped in tradition, and certainly they believe firmly that the best way to address these inequities with different countries is through that multilateral process, so that would

be basically why that would be. Certainly, as you understand, producers out in the country have different feelings about that, so that

our membership has voted, has taken a position, and we represent

that position as we go forward.

As to the China agreement, I would tell you that we see great

opportunities in that agreement, because, obviously, with that low

tariff, we see an opportunity to provide a high-quality, safe product

to that country, and we look forward to that agreement.

Mr. CASPERS. Yes, sir. In response to your question about Australia, I guess we hold great hope that that agreement is going to

be beneficial. We think potentially there is a significant large opportunity for U.S. pork in Australia. I guess we are pleased that

we are going to—it appears that we are going to be getting some

access, although somewhat limited at this time, but at least better

than we have had in the past.

I guess we hope to be supportive of that agreement. We think

there is some remaining issues regarding meat inspections and procedures, transparency and import licensing, things like that that

need to be worked out, but we expect that we are going to be supportive of that agreement, and hopefully at some time in the not

too distant future we will actually have shipments beginning to

flow to Australia.

In regard to China, I think just improving the procedures for imports, for exporting the product out of this country into China, I

think more transparency in some of their procedures, some of their

meat inspection issues, I think those are probably the biggest, really, physical barriers that we have to exporting products.

I didn’t quite understand your question about WTO. I guess we

see the WTO agreement really as the best place to work out and

really expand access around the world, which is our No. 1 priority.

In the absence of that, such an agreement, though, or negotiations,

I think we said bilateral, regional agreements are extremely important.

Mr. PICKERING. Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Hawaii, Mr. Case.

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Mr. CASE. Thank you, Mr. Chairman.

Hawaii’s third most important agricultural crop and the most important agricultural crop on one of the four counties, the county of

Hawaii, is macadamia nuts. I have a statement from the president

of the Hawaii Macadamia Nut Association expressing views of the

industry on agricultural trade negotiations in general and the Australian negotiation in particular, which I would ask be included in

the record.

The CHAIRMAN. Without objection.

Mr. CASE. Thank you, Mr. Chairman.

Mr. CASE. Mr. Graham, you heard I represent Hawaii where

sugar has been grown for 150 years, where it has been the No. 1

agricultural crop for all 150 of those years, where it is one of the

largest employers in two out of the four counties of Hawaii, key to

the economies of two out of those four counties, as well as the entire State. With all the high productivity that Hawaii brings, it is

in fact the highest productivity in sugar in the world, I believe; and

it also sustains the same labor and environmental costs as all other

U.S. sugar producers do.

Directly to you, sir, can you assure me that a piecemeal, countryby-country approach to the negotiation of sugar throughout this

world will not result in the outright demise of sugar in my State?

Mr. GRAHAM. I think, first of all, it is our industry’s interest not

to decimate or hurt the sugar growers. What our guys want is to

be able to compete in the marketplace, and what is happening with

the candy industry is the sugar growers are being protected, but

the candy industry is not being protected.

Now there are studies that show that if this market was opened

up that the impact on the U.S. sugar industry would be about a

reduction of about 6 percent, would not decimate the industry.

What is happening now is if a retailer says to one of my member

companies, OK, this box of candy canes is $1.79, but a box of candy

canes made in Canada or Mexico is $1.59, they are going to buy

the $1.59 product. That is why our companies are being hurt, and

that is why they are moving their factories overseas.

Mr. CASE. I understand that, but, unfortunately—if you want to

come to our State and make up for the demise of the sugar industry by manufacturing candy chocolates or gums, please come and

do that. But the question was, can you assure me that the result

of these country-by-country bilateral negotiations, which basically

take a bite out of sugar each time, are not going to lead to the demise of sugar in my district, in my State? I hate to say this, but

yes or no.

Mr. GRAHAM. I don’t think that it is going to lead to the demise

of sugar in your State. These are modest, very small amounts of

sugar that are being asked for in these bilateral agreements. I

don’t think it is going to hurt——

Mr. CASE. Well, it is a bilateral agreement at a time. We have

got some big ones coming up. You support those big ones, don’t

you? You would like to see sugar negotiate in South Africa, Thailand, whatever?

Mr. GRAHAM. Sure. Worldwide, we would like to see a level playing field for us and for the sugar growers.

135

Mr. CASE. OK. I just want to get a very clear clarification. Does

your industry, does your trade association favor putting everything

on the table all at once in the WTO in the Doha Round? Is that

your No. 1 choice? If you could get that, would that be what you

wanted?

Mr. GRAHAM. We would favor that. I don’t know if it would be

our No. 1 choice, but we certainly would favor that. That is where

the long-term solution is——

Mr. CASE. What have you done to advocate for that particular

approach to international trade negotiations in agriculture?

Mr. GRAHAM. Well, we have supported our trade representative

in that; and we have supported the WTO talks, including sugar in

those talks, and to make this a multilateral, worldwide situation.

Yes, we would certainly support that. Now there hasn’t been a lot

of—I am sorry. Go ahead.

Mr. CASE. Let’s assume we got into that, which I think we all

want. Would you support eliminating subsidies or sugar wherever

they may exist in the world?

Mr. GRAHAM. Absolutely.

Mr. CASE. Would you support enforcing environmental requirements just as we do in this country?

Mr. GRAHAM. Absolutely.

Mr. CASE. When you talk about a level playing field, you benefit,

don’t you? Your industry benefits today. When you talk about moving all those factories overseas, you are benefiting from those subsidies, you are benefiting from those environmental labor weaknesses, everything, right?

Mr. GRAHAM. No, they are just benefiting from a free market

price. That is what they are benefiting——

Mr. CASE. No. First of all, I don’t believe that there is a free market in sugar, any more than we can say there is in this country.

There are subsidies out there, whether they are direct or indirect.

I think there are subsidies directly in Canada, right?

Mr. GRAHAM. There are subsidies in Canada.

Mr. CASE. Would you favor elimination of those subsidies?

Mr. GRAHAM. Sure. Absolutely.

Mr. CASE. So putting everything on the table, right?

Mr. GRAHAM. Yes.

Mr. CASE. Well, I was just getting wound up, and now I am out

of time. Some other time, Mr. Graham.

Mr. GRAHAM. Thank you, Congressman. We have some good

candy manufacturers that are also in Hawaii.

Mr. CASE. We would like you to expand that presence, because

we have got thousands of employees in the sugar industry that

would be looking for somewhere to work if the sugar industry went

down.

The CHAIRMAN. I thank the gentleman.

The gentleman from North Dakota, Mr. Pomeroy.

Mr. POMEROY. I thank the chairman.

Pursuing a very interesting line of questioning by Mr. Case, it

just seems to me, Mr. Graham, that what you are asking for basically is to pull the plug on the Sugar Program, allow your members, the confectioners of this country, to have access to global

dump price and to heck with the consequences to the U.S. domestic

136

industry. Although you have indicated you would like a resolution

that was a level playing field for the growers, a level playing field

for you, I don’t know that that is possible in a global market where

we are dealing with subsidizing practices by virtually every other

producing country.

Do you have a win-win scenario you can paint for us, or are we

left to understand this as it has been presented in other years, basically you win or the domestic sugar industry wins, but somebody

is going to come up short?

Mr. GRAHAM. I think Mr. Jones made the point that they would

certainly be willing to have a free market if the rest of the world,

particularly the European Union, was. We favor that. But, right

now, the situation is, is that sugar growers are protected from competition. Candy manufacturers are not, and that is unfair to us. It

is hurting our industry. It is making our guys, who don’t want to

do this, move factories overseas in order to get world sugar price

to make their products. Because it is the largest ingredient in

many of our products, particularly in the sugar side. But we are

not trying to——

Mr. POMEROY. What is the largest cost in the component production, raw material costs?

Mr. GRAHAM. Probably labor costs.

Mr. POMEROY. Labor costs. How does the United States compare

in labor costs to these other countries?

Mr. GRAHAM. It depends on the country, but in Canada there

isn’t much labor cost being——

Mr. POMEROY. How about the Caribbean. How about the CAFTA

countries?

Mr. GRAHAM. I don’t know offhand. There is a lot of candy made

there.

Mr. POMEROY. I know that our labor costs are considerably higher, and so essentially you have laid up for the committee here—if

we don’t get the cost of the sugar down, we are going to have to

go where you have just told us the biggest component of the price

of your product is labor; and we know that there is very powerful

inducements to relocate offshore, chasing lower labor costs.

In fact, industry after industry that has nothing to do with sugar

have relocated, they have outsourced, they have shipped jobs everywhere chasing that lower labor production. So I believe you have

actually presented a simplistic and I am not sure wholly accurate

view of the considerations before confectioners in terms of where

they will locate their manufacturing.

Mr. GRAHAM. In the chocolate side of our industry—I was primarily talking about the sugar confection—there is chocolate

candy, and then there is nonchocolate candy. In the chocolate side,

where they don’t use as much sugar, factories have not been moving overseas. They have not been moving to Canada and to Mexico.

If the labor costs were there, they would be moving at the same

pace as sugar——

Mr. POMEROY. Not necessarily, Mr. Graham. Their markets are

in the United States. Their principal market is here.

Mr. GRAHAM. Same with the sugar manufacturers. The sugar

candy manufacturers, that is their principal market.

137

Mr. POMEROY. Are there differences in shipping chocolate versus

hard candy?

Mr. GRAHAM. There are some differences.

Mr. POMEROY. I don’t want to get into it here. We don’t have

time.

But there is a whole lot of things at play here beyond the U.S.

Sugar Program. I believe we can end U.S. domestic production,

which would be the consequence, by the way, of what you are urging this morning, and we are still going to have other economic

considerations, including labor costs and other issues relative to

where these jobs are located.

Now in terms of just what is a good trade-off here, it is not a

good deal in my view to trade off domestic sugar production in exchange for the uncertain incentive that it would provide to the confectioner industry to keep production here.

I have got another issue I want to direct at Ms. Lyons and Mr.

McDonald before my time expires. As we try to get our markets

back, it seems to me, Ms. Lyons, between what you have suggested

and my friend Charlie Stenholm has suggested, our biggest impediment to getting into those other markets is proving that we are

dealing on a sound science basis with the issue of Canadian imports. I take issue with that. I fundamentally disagree with that.

I believe we have to show these other markets that the U.S. livestock industry, hoof to finished product, meets their consumer safeguard—their consumer safety specification.

Now by bringing live cattle back down from Canada again it

seems to me that, as we try to get those markets back, we not only

have to prove up the U.S. system, we have to prove up the Canada

system. I am all for sound science, but it seems to me we have got

a hard enough burden of proof that has not been successfully discharged just trying to prove the United States system without commingling U.S. and Canada again to try and get these markets back.

I am done with my question, but, Mr. Chairman, I would ask

leave if Ms. Lyons and Mr. McDonald could respond.

Ms. LYONS. Yes. And I be happy to respond to that.

As you know, both Canada and the U.S. have worked very closely

on these issues since back in May when Canada had their first case

of BSE, and so I would tell you that those regulations and requirements are very similar. They are harmonized, and we have worked

closely to make sure that it is based on sound science, that those

regulations are.

So I would take issue to the fact that we have not done a good

job of telling people about that. Because you look at consumer confidence and where it is in this country, and it is very high. That

is because people know that they can trust the regulations that are

in place, that the Government has done a really good job of not

only putting those in place but adhering to those as well. So we are

very pleased that consumer confidence in the safety of beef is still

at 89 percent acceptance on last count.

Mr. POMEROY. I was talking about the skepticism of these markets we are trying to get back, not the U.S. market.

Mr. McDonald.

Mr. MCDONALD. I think your point is well taken, and I happen

to believe it is as simple as listening to your customer. Our cusVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00141 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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tomers are telling us they want certain safeguards in place. We

have private enterprise here in this country that wants to comply,

and USDA regulations thus far have prohibited them from doing

that. It is nonsensical.

Second, we are not totally harmonized with Canada on safeguards. We haven’t adopted and put in place the same regulations

vis-a-vis Canada and their BSE problem as we have with other

markets worldwide, and that is exactly what Judge Cebull found

when he ruled what USDA’s offer to allow increased beef imports

from Canada entailed.

Finally, the Japanese wanted a system of labeling—mandatory

labeling that they could rely on so if they were buying U.S. beef,

they knew it was U.S. beef, and we couldn’t comply. So it is just

another area where USDA needs to listen to our customer and let’

see what we can do to accommodate their request.

The CHAIRMAN. I thank the gentleman.

We are about to get a vote here, but before I thank and dismiss

this panel, I want to ask one more question of Mr. Smith.

Do you think that U.S. negotiators should agree that a country

like Brazil—and I have been to Brazil and I have seen the agricultural output, their citrus, their sugar cane, their soybeans, coffee

and so on and they lead the world in all those areas in exports—

should be considered a developing country? What criteria should

determine developing country status?

Mr. SQUIRE SMITH. I don’t know that I can address the criteria,

but Brazil, I think it was stated earlier here today, is the eighth

largest economy. Certainly it is very progressive, very dynamic,

very successful in agricultural arenas. Citrus in Brazil is controlled

basically by four or five families there. Their heavy ownership in

the Florida processing and certainly the largest growers in the

world—and I don’t consider them to be novices at what they are

doing.

The CHAIRMAN. Not developing. They are pretty well there,

aren’t they?

Mr. SQUIRE SMITH. Yes, sir.

The CHAIRMAN. All right. Well, I can tell you one criteria that

I think should be—and that is that the country shouldn’t be able

to self-declare themselves to be a developing country. I think it

could be some kind of a discernible standard that I don’t think

Brazil meets.

Mr. SQUIRE SMITH. Well, of course, the most pragmatic and compelling part of our agreement is that because of the two producers,

you hand a country like that that is certainly not an underdeveloped monopoly in the world market for citrus and that doesn’t

achieve any of the objectives for the trade agreements that are

going forth at any level.

The CHAIRMAN. Thank you.

I thank all the members of this panel. This has been very interesting, and it is good to hear some competing views on some very

difficult issues. So we thank you all.

We do have one more panel, and we are going to go ahead and

get started, although I think the vote is going to interfere with

that.

139

I would like to welcome our final panel: Mr. David J.

Frederickson, president, National Farmers Union, St. Paul, MN;

Mr. Charles Beckendorf, chairman of the board, National Milk Producers Federation, Tomball, TX; Mr. C. Manly Molpus, president

and CEO of the Grocery Manufacturers of America, Washington,

DC; and Ms. Ellen Levinson, executive director, Coalition for Food

Aid, also Washington, DC.

We want to welcome all of you.

We will begin with Mr. Frederickson. I will remind you once

again that your complete statement will be made a part of the

record, and we would ask that you limit your comments to 5 minutes. Mr. Frederickson.

STATEMENT OF DAVID J. FREDERICKSON, PRESIDENT,

NATIONAL FARMERS UNION, ST. PAUL, MN

Mr. FREDERICKSON. Thank you very much, Mr. Chairman and

Mr. Pomeroy. Good to see you, both of you.

I am Dave Frederickson, president of the National Farmers

Union. It is a pleasure to appear before you today to discuss agricultural trade negotiations.

I don’t believe there is any question but that farmers are skeptical about the impacts of globalization, market concentration and

trade agreements on their individual operations. Time and time

again we have been told that prosperity based on free trade is,

frankly, just around the corner. As producers, we never seem to be

able to make it to that corner.

Free trade proponents lead one to believe that without trade

agreements U.S. agricultural commodities would not move in world

commerce. However, from 1985 to 1994, U.S. agricultural exports

grew by nearly 41 percent. From 1994 to the year 2003, after ratification of the WTO and the NAFTA agreement, our exports increased by only 34.4 percent, while imports rose a little over 86

percent.

Trade advocates are quick to point out the percentage of farm

sales that are derived from exports. For example, in her written

statement to this committee last week, Secretary Veneman reported, and I quote, ‘‘We estimate about 27 percent of farm sales

will come from exports this fiscal year.’’

This misrepresents the value of agricultural trade to the incomes

of farmers first. The 27 percent represents about $59 billion or so

in projected agricultural exports for 2004. It does not account for

the approximately $43 billion of competitive agricultural imports.

Second, export values are reported on a pre-alongside ship basis

which reflects the price for products including processing, transportation to place, finished goods alongside the carrier at the export

point. We estimate American producers likely receive less than 60

percent of the reported export value as a portion of their gross income.

In the year 2003, net farmgate exports accounted for about $13

billion, just over 6 percent of total crop and livestock sales by producers, not 27 percent.

The U.S. is pursuing a multilateral trade agenda through the

WTO and a number of free trade agreements. Many sectors of production agriculture are justifiably concerned that these agreements

140

will simply add to the level of price-depressing imports in our domestic market.

For example, Cargill, a large multinational company

headquartered in my own State of Minnesota, has announced plans

to take advantage of the CAFTA and the Caribbean Basin Initiative by investing in facilities in Central America to process ethanol

in order to avoid the 54 cent per gallon tariff on exports to the

United States.

While most of the proposed FTAs are with countries that provide

relatively small market opportunities for U.S. farmers, we are encouraging even more competition in our domestic and third-country

markets. Is this simply the unintended consequences of FTAs or a

plan to undermine our domestic agricultural production economy?

In principle, the National Farmers Union supports many of the

U.S. objectives in the WTO negotiations, including efforts to

achieve greater harmonization of tariffs, better discipline in the use

of nontariff barriers and the elimination of export subsidies. We

also support differentiation among developing nations based on the

level of development of their agricultural sector, and we back the

position of the administration to appeal the likely decision in the

challenge of our cotton program.

We are concerned, however, that the negotiations have failed to

identify mechanisms to achieve what we believe should be three

goals of agricultural trade negotiations: first, recognition that agriculture is unique in its economic, social and political importance;

second, improving the economic returns to farmers worldwide so

that the need for trade-distorting practices of all types are reduced,

if not eliminated; and, third, providing the policy flexibility and encouraging cooperation to fully address food safety and security, particularly for the world’s 800 million people who suffer from inadequate diets.

Furthermore, the Doha Round lacks scope, because major agricultural trade issues are not being considered. These include exchange rate policies, provisions to harmonize and enforce environmental and labor standards and consideration of the effects of agricultural integration and concentration.

Attached to the submitted testimony are interviews, recommendations presented to an international farmer meeting held

during the Cancun Ministerial.

In summary, our proposal suggests an alternative to the destructive race to the bottom in commodity prices fostered by current

trade rules and practices that are costing developed countries billions of dollars each year and jeopardizing the ability of developing

nations to provide an adequate standard of living for their citizens.

As a general farm organization, it is difficult for the NFU to support these agreements, when the goal of improving the economic returns to producers is not a priority in any of the negotiations and

important unfair competition issues are ignored.

Mr. Chairman, thank you so much for the opportunity to participate in this hearing, and I would be happy to stand for any questions.

[The prepared statement of Mr. Frederickson appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Frederickson.

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Mr. Beckendorf, welcome. We are pleased to have you with us

again.

STATEMENT OF CHARLES BECKENDORF, CHAIRMAN OF THE

BOARD, NATIONAL MILK PRODUCERS FEDERATION,

TOMBALL, TX

Mr. BECKENDORF. Mr. Chairman and member of the committee,

thank you for having me here today. My name is Charles

Beckendorf. I am a fourth generation dairy producer from Tomball,

TX. I currently serve as chairman of the National Milk Producers

Federation. NMPF works closely with the members of USDEC, the

U.S. Dairy Export Council, on issues of trade policy that promote

U.S. dairy export.

In contrast to much of U.S. agriculture, the dairy sector is not

particularly dependent on trade. However, small changes in supply

and demand for milk and other dairy products have a radical effect

on U.S. dairy markets and their prices. This is the reason why the

most important message I want to convey to you today is that the

U.S. dairy industry cannot continue down the road of unilateral

disarmament. Balanced trade, not unilateral disarmament, is the

foundation of our principles; and we believe it should be yours as

well

Among the current trade policy initiatives, the Doha Round of

WTO negotiations is by far the most critical in terms of importance

for our industry. NMPF and USDEC want to see the swift elimination of export subsidies. We are willing to consider reductions in

trade-distorting domestic support, but cuts must bring about greater equity along all developed as well as large developing countries

we have heard about today.

Finally, it is imperative to see reductions in tariffs by a harmonizing formula that would require bigger cuts for the higher tariffs.

We are optimistic that the negotiating framework will be breached

in July. However, we must be extremely judicious in developing

this framework. If its methodologies do not make great strides toward eliminating the current disparities in dairy markets throughout the world, the U.S. dairy industry will have to reevaluate its

support of the Doha Round.

Let me draw your attention to the statistics on page 3 of my

written testimony. This compelling data shows just how open our

markets are compared to those of other major developed countries

as well as those in large developing countries.

Mr. Chairman and members of the committee, at the end of the

negotiations, we cannot be in a situation where Canadian and European markets remain isolated from international market forces

while we in the United States continue to serve as a dumping

ground for the world’s suppliers.

Turning to an issue that has not gotten much attention lately,

although we are encouraged by Commissioner Lamy’s letter on

May 9, 2004, which, by the way, lacks a direct reference to geographical indicators, we know that GI has continued to be a priority for the EU.

Chairman Goodlatte, we thank you for the active role you have

played in defending the generic names against the EU’s attempts

to advance claw-back provisions. Under no terms should the U.S.

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Government agree to a trade-off between GIs and progress in agricultural negotiations.

Moving from the multilateral format to the regional, 1 year ago

National Milk testified that we strongly supported the FTAA in its

ability to finally bring the Canadian dairy industry to the global

system and to open a number of markets for U.S. dairy markets.

Unfortunately, we are seriously concerned that the FTAA process

has been tainted by Brazil’s insistence on including certain economic sectors. If these new provisions lead to the exclusion of dairy

markets in Brazil and Canada, the FTAA becomes undesirable for

the dairy industry.

Another trade initiative concern we have is with the Australian

Trade Agreement. NMPF has opposed this agreement in the past

and continues of oppose it today due to the unnecessary access

given to Australia by the U.S. Government.

Nevertheless, Members of the Congress and those in the USTR’s

office, particularly Ambassador Zoellick, need to be commended for

listening to our concerns and protecting our overquoted tariffs.

We encourage the administration and members of this committee

to support provisions in the implementing bill that would result in

an offset of any income lost by dairy producers. In particular, the

administration should use all WTO-permitted allocations available

under the Dairy Export Incentive Program.

On a more positive front, thanks to the successful inclusion of

dairy in this CAFTA agreement, U.S. dairy producers and processors across the country can look forward to benefiting from increased trade opportunities within the region. We urge the administration and Congress to place a higher priority on passing CAFTA

than on any other trade agreement.

With respect to ongoing FTA negotiations, the U.S. dairy industry supports all the trade initiatives currently under way. On negotiating these bilateral and regional agreements, a fundamental concept must be establishing rules of origin to avoid transshipments

and third-party benefits.

With regard to our ability to grow these new markets, amazingly,

since 1995, only 16 percent of all available butterfat DEIP awards

have ever been used, regardless of the low U.S. market prices that

dairy farmers were receiving. Despite numerous pleas from this

committee and other Members of Congress, USDA never made

available all the butterfat DEIP awards last year when prices were

at their lowest level in 25 years and had been there for almost 2

years.

Let me finish by thanking many of the committee members for

being sponsors on H.R. 1160 and Senate bill 560, which seeks to

close import loopholes and provide a fair and more level playing

field in the dairy trade. Indeed, the ITC report the MPC released

yesterday clearly demonstrates the importance of this legislation in

order to correct current inequities.

I appreciate the opportunity to testify before you today on behalf

of the members of the National Milk Producers Federation and

their dairy farmer members.

[The prepared statement of Mr. Beckendorf appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Beckendorf.

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We have a long series of votes, five votes. So rather than keep

you sitting here, you might care to go down to the cafeteria or get

some lunch or something. We will stand in recess until 2:15, or

when we get back from the last vote, which could be a little later

than that, but we are hoping it will be around that time.

So the committee will stand in recess.

[Recess.]

The CHAIRMAN. When last we left off, we were looking forward

to Mr. Molpus’ testimony. So we will start with you, and welcome.

STATEMENT OF C. MANLY MOLPUS, PRESIDENT AND CEO,

GROCERY MANUFACTURERS OF AMERICA

Mr. MOLPUS. Thank you very much, Mr. Chairman. We are delighted you came back.

The CHAIRMAN. And brought the whole committee with me,

right?

Mr. MOLPUS. We are always delighted to see them.

I do want to compliment you on having these hearings on the

broad scope of agriculture and the food industry that you are hearing from and the variety of perspectives, because trade and the

economy are terribly much, obviously linked together, and I think

it is very good to have this kind of dialog, and I commend you for

your leadership in that.

I want to talk today for a few minutes about why GMA strongly

supports the multilateral and bilateral free trade negotiations

which we believe will yield significant benefits for the food industry

in terms of new opportunities for exports and increased access for

imports of key raw materials.

Very briefly, I would like to talk about why GMA is committed

to these negotiations in terms of the potential gains for our member companies that are impacted on the process food sector. Exports of processed foods provide significant benefits to the larger

agricultural community, since the food sector is fast becoming the

engine of growth for agricultural exports. For some time now, the

value of exports of consumer-oriented agricultural products has exceeded that of bulk commodities. Processed foods act as an export

gateway for these commodities by offering exports in a value-added

form.

In fact, exports of processed food products provide greater economic returns to rural communities. For example, ERS estimates

that the exports of $1 billion of processed food products supports

16,700 jobs; whereas. The same dollar value of exports of commodities supports 12,700 jobs, a 4,000 job gain.

Export markets also clearly matter to GMA companies. If you

think about it, our companies were among the first to go abroad,

searching for access to foreign consumers. At the time, companies

had to move their operations abroad to find markets since both

transportation costs and tariffs were prohibitively high and access

to raw materials was limited.

Today, we live in a very different world, with access to first-class

global distribution and abundant raw materials. Our access to global markets is still limited, however, by prohibitively high tariffs

that impede trade in the process sector. It is amazing to us that

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144

cent globally, while industrial tariffs have been lowered just under

10 percent. In today’s global market, these high tariffs have become

one of the main obstacles to a more sufficient supply chain.

Tariffs are only half the story, though. Processed food exports are

also hampered by a variety of non-tariff barriers to trade. Examples include overly restrictive labeling requirements like mandatory labeling rules, inconsistent food standards and regulations,

and overly burdensome import certification requirements. We certainly compliment the U.S. Government’s efforts to harmonize

these diverse food regulations globally, but we believe there is need

for a renewed focus on these non-tariff barriers and free trade

agreements so that we can achieve more efficient free trade and

food and consumer products.

For these reasons, the food industry has placed a priority on the

successful outcome of the WTO negotiations. We were deeply disappointed by the failure in Cancun and are hopeful that the next

few months will yield an ambitious framework for liberalization in

the agriculture sector.

As in any negotiation, however, getting the framework right is

more important than simply getting a framework. And for GMA,

success means arriving at a market access formula that will deliver

ambitious results in lowering the tariffs that impede access to global consumers. We believe it is important that the formula not only

harmonize tariffs to the already low U.S. level, but also that it is

comprehensive so that all tariffs will be substantially reduced. Any

formula that appears to shelter sensitive sectors in developed countries will not promote reciprocal liberalization by the remaining

WTO members.

GMA believes that bilateral and regional negotiations can serve

as a complement to the ongoing WTO negotiations, provided that

they are comprehensive and maintain high standards in all negotiating areas.

For example, our companies have benefited greatly in the 10

years since the NAFTA was signed. Our exports have more than

doubled, and the North American market for food manufacturing is

increasingly integrated. We expect the same kind of benefits from

the CAFTA agreement. Recent studies estimate that our companies

will save nearly $9 million in tariff reductions in year 1 of the

agreement.

In addition, our exports are projected from $359 million to $662

million annually, an 84 percent increase, as a result of CAFTA. So

we hope the recently proposed Andean and Panama FTAs will result in similar style agreements so that we might one day have a

seamless market in the Western Hemisphere.

We remain concerned that our future export gains could be jeopardized by calls for exclusions of certain products from negotiations. One of the primary reasons that the CAFTA holds such potential for U.S. food and agriculture sectors was that the U.S. was

willing to open up its sensitive sectors in order to achieve reciprocal liberalization in the CAFTA countries.

Finally, let me say a brief word about Geographical Indications

which has been the subject of much discussion in this committee.

Although the EU has recently been conspicuously silent on the

issue, we have no reason to believe that they have abandoned their

145

ambitious goals on GIs. We remain opposed to any new negotiations on Geographical Indications, since threats to our trademarks

could undo the potential market access gains that the WTO negotiations could provide. We thank this committee for your continued

support and interest in this issue.

Thank you for the opportunity to be here today, and we certainly

will welcome the chance to take any questions. Thank you.

[The prepared statement of Mr. Molpus appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Molpus.

As you can see, I brought my props with me, and we will talk

a little more about Geographic Indications shortly.

First, we will be delighted to hear from Ms. Levinson.

STATEMENT OF ELLEN S. LEVINSON, GOVERNMENT

RELATIONS DIRECTOR, CADWALADER, WICKERSHAM & TAFT

Ms. LEVINSON. Thank you very much for this opportunity to testify.

My name is Ellen Levinson and I am government relations director of the firm Cadwalader, Wickersham & Taft. I am also executive director of the Coalition for Food Aid. I will focus today on food

assistance and particularly the Doha Round negotiations.

The Coalition for Food Aid is comprised of 16 U.S. charitable organizations and cooperatives such, as Catholic Relief Service,

CARE, World Vision. And they conduct international food aid and

other assistance programs around the world. I have submitted for

the record a letter that the Coalition sent last year to Mr. Stuart

Harbinson when he was chair of the Agriculture Committee for the

Doha Round. And it discusses some particular issues of concern

that they had with the first draft of the modalities on agriculture.

The U.S. Food Aid program began soon after World War II. This

year marks the 50th anniversary of the Food for Peace Program.

With bipartisan and broad support of the public since 1954, the

Food for Peace program has provided 72 million metric tons of U.S.

agricultural commodities worldwide to combat hunger and to promote growth and security in the developing world. Former recipients include Hong Kong, Korea, Taiwan, Philippines, Thailand,

Malaysia, Singapore, Mexico, Greece, Poland, a wide range of countries that have graduated and are now trading partners.

While the United States can be proud of its record on food aid,

there are challenges ahead. Sadly, today, over 800 million people

in the world do not get enough to eat. Chronic needs are growing

due to the prevalence of HIV/AIDs and setbacks caused by natural

disasters, war, civil strife, and economic downturns. So if food aid

programs are reduced, millions of people will suffer.

Food aid is subject to the Doha Round trade negotiations, because it involves the export of commodities. Even though it is substantially a— food aid is basically an economic development program and a humanitarian assistance program, it is looked at because it does involve the export of agriculture commodities. Food

aid is not considered an export subsidy and is permitted without

limitation if it meets the requirements under article 10.4 of the

Uruguay Round Trade Agreement.

146

Under article 10.4, food aid is considered legitimate if it does not

create a disincentive to agricultural growth in the recipient country, if it does not interfere with commercial trade with that country, if it is not tied to commercial exports to the recipient country.

In addition, it has to meet the terms and conditions of the Food Aid

Convention, which is a multilateral international agreement among

donor countries where they make commitments to provide minimum amounts of food aid each year. Under the Food Aid Convention, non-emergency food aid is allowed, as well as emergency food

aid. Agreements may be made between a donor country and a foreign government, a donor country and an intergovernmental agency, such as the United Nations World Food Program, or between

the donor country and a charitable organization, such as CARE,

Catholic Relief Services.

So I believe and my members believe that article 10.4 strikes a

fair balance between protection of commercial trade and assuring

adequate amounts of food aid are available in the world.

But right now, they are under discussions at the Doha Round

discussions on agricultural changes to article 10.4 that will endanger particularly non-emergency food aid. The current draft that is

being considered calls for additional disciplines on food aid to assure non-interference with commercial trade. It is unclear what additional disciplines mean, but if you look over the record of the discussions for the past year in Doha and recent comments by the various members, it is clear that at least it would get rid of what we

know as the Title I Program, P.L. 480 title I, which are

concessional loans from the U.S. Government to a foreign government for the purchase of commodities. It would also eliminate any

other government-to-government agreement. So in other words, the

United States could not donate directly to a foreign government.

It may also encompass other types of non-emergency programs,

such as those through private voluntary organizations. We believe

this is very dangerous and have a great deal of concern. In recent

meetings that I had in Geneva, it became apparent that a lot of the

negotiators from other countries do not understand the nature of

U.S. food programs and have assumptions that we are interfering

with international trade, while we are not.

So I would like to just quickly say that our goal and what we

hope is the goal of the United States going forward in the negotiations is to protect continued food aid, both for emergency and nonemergency programs. Bilateral agreements, government-to-government, or through nongovernmental organizations also should be

protected. And if there are concerns about interference with commercial trade, that should be handled through the U.N. organization FAO which has a subcommittee that handles those issues

right now and is the appropriate body to discuss those matters and

try to contain any problems. Thank you very much.

[The prepared statement of Ms. Levinson appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you very much.

I share your concern about Public Law 480. In fact, Tony Hall,

our ambassador to the U.N. Food and Agriculture Organization,

raised the same concerns, and I think we need to speak up more

about that.

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Can you tell us what some of these misconceptions are that the

Europeans and others seem to have about our food aid programs?

Ms. LEVINSON. Well, in discussions with the European Union agricultural trade negotiators, I understand, first, they do not believe

that it is possible to provide commodities overseas for food aid

without interfering with trade. They just do not believe you can do

it. They believe it always has some kind of a commercial benefit.

So part of it is perception.

Another reason is that, in the European Union, they made a decision years ago that they will no longer provide what they call inkind food aid. Instead, they provide cash, mainly through the

World Food Program or to a recipient country. And that country

can buy the food. They believe that is the appropriate way to provide food aid.

They also think that food aid interferes with domestic production

in the recipient country.

But underlying all of it is a great distrust, quite honestly, between the European Union and the United States. The European

Union just does not trust the motives of the United States and also

feels that they do not want to get rid of their export subsidies, so

they have to offer up something as a counterbalance to it. So food

aid is used as a counterbalance for export subsidy negotiations.

The CHAIRMAN. As I understand it, they do not provide near the

amount of food aid relative to their wealth, their GDP, that the

United States does. We provide well over half of the total amount

of food aid provided in the world, and we are only a quarter of the

world’s economy.

Ms. LEVINSON. That is right. We are—without the United States’

food aid, really, there would be very small amounts of food aid

available around the world.

The CHAIRMAN. If they give cash to people, how do they hold

them accountable, that that food is actually getting into the stomachs of people who need it as opposed to the cash being used for

other purposes?

Ms. LEVINSON. Well, the cash is given to countries that are dependent on food imports, because they are poor countries, and they

have to import food. They do not produce enough food, so they can

buy food for the market, oftentimes, or they can also use it in order

to buy for distribution.

It was interesting when I talked to some of the developing countries that are recipients or have been recipients, they are very suspicious of giving cash instead of directly giving the food, because

they think that that would be open to corruption.

The CHAIRMAN. Right. Very good.

Mr. Molpus, I promised that we would talk about Geographical

Indications, and we will.

I have seen reports that the EU says that they expect to see consideration of Geographical Indications in response to their proposal

regarding elimination of export subsidies. So they have more than

just food aid on their list of things they want in exchange, and this,

to me, is a very protectionist measure. It is simply replacing one

form of protectionism with another.

It bothers me further that we have established some principles

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nationally. We honor those. We protect a number of European

Union Geographical Indications. I am not aware of a single one

from the United States that they recognize in Europe, like Vidalia

onions or Idaho potatoes or Virginia hams or citrus products, Florida citrus and so on.

I had this up here earlier, but the point I always like to make

is that this familiar green can that everybody has in their refrigerator is the value that they want to—and we call it clawing

back—they want to claw back. It is not something that they created. It is not something that Parma, Italy, did to make the virtually worldwide acceptance of this name which has become generic

in its use. It is companies like Kraft and a great many other food

processors who have made products like Parmesan cheese a household word.

Under those principles that we have established, and that the

Europeans have agreed to, there are tests that are applied, not just

to food products, but things like escalators and Q-Tips. And you

name it, there are lots of things, some of which are entitled to be

protected if a company takes the necessary step to protect it or if

a region does the same thing. And others are recognized to have

fallen into generic use.

So I wonder if you are as concerned as I am. In your testimony,

you mentioned that they had not brought it up in a while. I heard

that they just again brought it up in the most recent round of discussions that took place in Europe. That was shared with me by

the Australian trade minister who shares our concern about what

is going on in Europe on this issue.

Mr. MOLPUS. Well, we have not felt that the Europeans at all

have given up on the idea of Geographic Indicators. They have

been a little silent lately. If they have had something to say more

recently, then that really just confirms our view that they are very

determined on this issue.

I think it is very important that our Government—and you have

indicated an excellent understanding of the issue—that we very

forcefully resist this. It does not have any place in negotiations. It

is pure protectionism.

As you well point out there, we could have a whole table full of

products here. Our companies have spent literally hundreds of millions of dollars over the years building up these brands and building up consumer awareness of these products. We have to—I think

our Government—and they have been—but we have to be very

forceful in saying that this is just a non-starter. It is just not going

to happen, period.

The CHAIRMAN. I think we need to continue to reinforce that

with the Trade Representative or else we are all going to wind up

putting Parmasello cheese on a variety of food products.

As you have all heard me say before, I think that is a bunch of

baloney, but then again, that is another name that they want back.

We just need to keep the profile raised, that this kind of interference with free trade is not an acceptable alternative to the protectionist measures that they are seeking to trade away. They simply want to get a replacement number of protectionist measures.

Mr. MOLPUS. Absolutely. Thank you.

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The CHAIRMAN. At this time, I am pleased to recognize the gentleman from California.

Mr. DOOLEY. I apologize, Mr. Chairman, for not being here.

Mr. Frederickson, I have not had a chance to read your testimony, but what is the position of the NFU on the CAFTA agreement?

Mr. FREDERICKSON. Mr. Chairman, Congressman Dooley, we oppose the CAFTA agreement.

Mr. DOOLEY. And why is that? I mean, the American Farm Bureau, I think, made a statement that they came out in support of

it, I believe. What distinguishes you from the Farm Bureau’s position, I guess, as it relates to CAFTA? I mean, they said, on balance,

it works well for U.S. agriculture.

Mr. FREDERICKSON. Our position has been and continues to be

that, until everything is put on the table—in terms of any of the

agreements, whether it be the WTO or other agreements—until everything is put on the table, we just have a very difficult time supporting moving forward.

So everything, and by everything, we have historically meant

currency fluctuation issues and all of the issues that go into determining profitability, particularly for producers.

Mr. DOOLEY. I was reading, in part of your testimony, I did read

where you cited you had significantly increased growth in exports

and a significantly larger trade surplus in agricultural goods in the

early 1990’s. Have you ever, has your organization ever done a correlation on how much of that was attributed to the low value of the

dollar during that period of time?

Mr. FREDERICKSON. I am not sure if we have, but I will certainly

get back to you if we have.

Mr. DOOLEY. The only reason that I bring this up, to some extent, is that currency valuations can work both ways, and we have

to be careful about, I think, and cautious about going down that

path, because while we have had a relatively strong dollar in recent times, if we are not careful and we try to create a policy that

involves some type of domestic supply or pricing response to that

it could come back to haunt us at some point, is one of our concerns

that I think we have to maintain there.

The other thing I am a little bit worried about is when we have

a lot of the agricultural groups that come in—and they are generally groups that are more aligned with the program crops than

the specialty crops—that say we have to wait until we can do these

in a comprehensive fashion. What do you say to the specialty crop

industry that is out there today—that is all the tree fruits and the

vegetables and the nuts and the meat product, the poultry and the

beef, the pork—they do not have any subsidies today that have a

lot to benefit by moving forward with the trade agreements which,

in those sectors, I think everyone has come out in support of the

CAFTA agreement?

Is it a little bit unfair to say to them that those of us who are

receiving taxpayer subsidies today or have some type of market

quotas in place, that we do not want to see any progress under any

trade agreement that might benefit a significant portion of agriculture, in fact, a majority of agriculture, until those of us who are

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getting subsidies are addressed in a worldwide international agreement? Are we not holding them back?

Mr. FREDERICKSON. Well, again, we are a general farm organization, and we fully understand and support the idea that specialty

crops will be at the table as we negotiate a new farm bill further

on down the road.

One of the ways that we have addressed trying to increase the

opportunity to sell product in other markets is looking at the issue

of willing buyer/willing seller as it relates to Creek Stone Farms,

for instance, today. And I think that you would advocate that same

position. You have a willing buyer, you have a willing seller, let us

allow them to move forward.

So I do not know, Congressman, if that answers your question.

Is it a little disingenuous for us to stand up for program crops? I

think we stand up for all farmers across the board.

Mr. DOOLEY. Mr. Molpus, I understand your organization has

reservations with the Australian agreement, and that is primarily

predicated because of the exemption for sugar?

Mr. MOLPUS. That is right, Congressman.

As you know, we have supported, I think, practically all of these

agreements. One of our fundamental principles has been the no-exclusion policy. We think that the no-exclusion policy is the way to

go into these agreements. And if you start taking things off the

table before the agreement negotiations even start, you are just

headed down a road toward reciprocal action from the other countries.

So we were keenly disappointed in this agreement, that it did not

allow this exclusion to take place. I think it is one of these issues

where I suspect you and the chairman have confronted where there

are things you would really like to vote for, you would like to be

for it, but it violates some core principle that is just hard for you

to get over.

So we are not offering our support, but we are not actively opposing it.

Mr. DOOLEY. Mr. Beckendorf, on the issues related to milk protein concentrates, is there any concern within the industry, the

U.S. industry, that if we are not careful here, that we are going to

create a policy that is going to encourage substitution to other proteins, maybe soy-based proteins?

I contend, and I have a hard time finding anyone in the dairy

industry that can really tell me with a straight face, that if it was

not for the Government Purchase Program as it relates to butter

and powder, that if we did not have that in place, is that we would

have a milk protein concentrate industry in the U.S. today.

So there are some proposals out there saying that we ought to

expand this program out there so that we provide some level of

subsidy into the MPCs. We ought to restrict their ability to be imported into the United States. Are we running the risk, much as

what happened with the sugar industry, where we created a situation that was financially conducive to the development of a corn

fructose sweetener industry which displaced a lot of our traditional

sugarbeet and cane? Is there not a threat out there that we are actually creating another significant market opportunity for other

151

proteins to be developed, because there is going to be a market opportunity?

Mr. BECKENDORF. Congressman, I do not think so. You probably

saw this flyer come across your desk over the last day or two, but

we at National Milk put this out several days ago, even before the

ITC report came out. And we hit all three of the points that they

came out and said.

You will understand as well as anyone the complexity of pricing

milk. Only the skim milk powder or the nonfat powder does not set

the price of milk. We have always said that we did not think the

MPC imports were directly affecting the dairy farmer’s price that

he got on the farm, that the farm gave.

But by displacing the product, our powder products, yes, we are

having a problem. And we are affecting those prices.

When we put in these tariff rate quotas, MPC or milk protein

concentrates were not being used as much as they are today. That

has really grown as a process or as an ingredient, both in sports

foods, in baking products. And one of the things maybe we slipped

up on when we did the tariff rate quotas, we should have seen far

enough down the road to see what was happening.

Probably our biggest problem today is the blends that are coming

in, calling themselves milk protein concentrates and displacing our

skim milk powders and nonfat dry milk.

Mr. DOOLEY. Just one final question, Mr. Chairman.

When you use the term ‘‘slipped up’’ was it really a question of

slipped up, or was it more of a function that when you knew you

had the market there, the Government Purchase Price with the

powder and the butter, that there was not as much of a financial

incentive to respond to clearly a growing consumer demand out

there? I mean, we had a consumer demand in the U.S. to the point

that you even had Land O’ Lakes and other co-ops in this country

that were purchasing imported MPCs which, clearly, they had the

raw product to develop themselves. And they did not choose to develop that product and meet an obvious growing consumer demand

in the United States.

Why was that the case? I mean, are you saying that the Government programs that we have in place for milk had no impact on

a failure of the domestic U.S. dairy industry to invest in the production of milk protein concentrates?

Mr. BECKENDORF. No, sir. When we put these tariff rate quotas

in, since that time, the consumption of those milk protein concentrates has ballooned and grown greatly.

And we do not have—well, today, we have one plant that has

started producing milk protein concentrates in this country. We believe in the industry that we need to build an industry to produce

those. There is a need for them. There is a demand for them, and

we need to produce them locally.

The best thing we can say about that is that, when we produce

those, we produce the high-grade milk protein concentrate and not

a blend or a lower protein product. So that is what the cheese-makers and the sports-shake-makers want, is a high-grade milk protein

concentrate to go into those drinks and product.

The CHAIRMAN. I thank the gentleman for his questions.

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Mr. Beckendorf, just to follow up on Mr. Dooley’s question, do

you have any recommended changes in our dairy policy that would

encourage the production of things that are in demand, like milk

protein concentrates, that we did not foresee back up the road a

ways and to discourage the over production of some of the things

that we seem to have in abundance that we are not using, like

powdered milk?

Mr. BECKENDORF. We do have an idea that we would like to put

together a dairy proteins package or program that would subsidize

the production of milk protein concentrates for a period of time.

The subsidy would go away after a period of years.

The CHAIRMAN. Do you have a way to pay for that? Is there a

way to pay for that?

Mr. BECKENDORF. We think——

The CHAIRMAN. To try to get away from paying for programs to

produce things we are not using?

Mr. BECKENDORF. Well, we have a disagreement with CBO that

we think will offset those costs or those subsidies by not buying

powder from the Government or with the Government dollar.

Mr. DOOLEY. Just a follow-up on that one plant that is in production now, which I understand is actually a joint venture I believe,

is it not, with Fonterra, has anyone done the financial analysis of

that to demonstrate that it actually needs a subsidy, a taxpayer

subsidy, in order to be competitive in the marketplace?

Because I had some conversations with the folks from Fonterra,

and obviously, they have an interest in maybe maintaining on the

import side. But they are saying they do not think they need to

have a subsidy on that plant that they have in place in the United

States.

Mr. BECKENDORF. Well, Congressman, there are two things

there. One of them is, they have the only plant in the country right

now. And they do not want the competition. We have other co-ops

in National Milk that want to be able to put those plants together

and produce that product.

The other thing about that particular plant in Portalis is that it

is a balancing plant, it is a balancing facility for the southwest

agency. So we take milk from New Mexico, all the way from Arizona to east Texas and from western Kansas south. So that

milkshed feeds that plant. That helps us keep from hauling milk

out and selling it at distressed prices.

The production that we have seen in New Mexico, western Kansas, that is fueling that plant has not enabled Fonterra to make

as much milk protein concentrate there as they want to, because

it takes a little bit longer to do that process. And with all of the

milk trucks sitting at the door, they have had a hard time making

that product.

The CHAIRMAN. Well, thank you. I want to thank each and every

one of you for your contribution this afternoon. This has been a

very enlightening day, and we will press ahead with our efforts to

get the WTO on track, because I think that is our best prospect,

however difficult it is to negotiate with so many countries, it is our

best prospect for making some progress in this area. Because it is

only if we get access, greater access to other important markets,

153

like Europe, Japan, China and so on, that we can move toward a

greater free market economy.

Mr. Beckendorf?

Mr. BECKENDORF. I want to thank you for holding this hearing,

in particular the comments that you and Mr. Stenholm made about

where we are going with this trade package. Thank you.

The CHAIRMAN. Thank you. Thank you all.

I want to thank all of the witnesses for appearing before the committee today. The committee believes that the United States’ trade

negotiations will continue to defend the rights of American farmers

and ranchers and will seek the best deal possible.

The committee will continue to watch this issue very carefully as

we proceed through the summer, especially as the World Trade Organization negotiations move forward.

Without objection, and I do not believe I am going to get any, the

record of today’s hearing will remain open for 10 days to receive

additional material and supplementary written responses from witnesses to any question posed by a member of the committee.

This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 3:12 p.m., the committee was adjourned.]

[Material submitted for inclusion in the record follows:]

STATEMENT OF GREG LEE

Good morning and thank you, Chairman Goodlatte, Congressman Stenholm, and

committee members for the opportunity to present the National Chicken Council’s

views and recommendations regarding certain very important and timely international agricultural trade issues, especially those relating to poultry. U.S. chicken

companies are confronted by many trade issues that restrict and even halt U.S. exports. This hearing can serve as an important opportunity to more fully and successfully address these many issues. Please be assured U.S. poultry companies appreciate the chairman’s invitation to be part of this very vital discussion. It is our hope

that our efforts can contribute to and be part of a satisfactory resolution of these

trade issues.

I am Greg Lee, chief administrative officer and international president of Tyson

Foods and chairman of the National Chicken Council. A vigorous and robust export

market is essential to the success of my company and the many other member companies of the National Chicken Council. The National Chicken Council (NCC) represents companies that produce and process about 95 percent of the young meat

chickens (broilers) in the United States. NCC works very actively with Congress and

the administration to help promote an expanding export market for U.S. poultry.

This committee’s leadership on international trade issues is recognized and most appreciated.

IMPORTANCE OF EXPORTS

Having a vigorous, robust and expanding export market for chicken is critically

important to the 45 vertically-integrated companies that comprised the federally-inspected chicken industry. Whether one of these companies exports directly or relies

entirely on the domestic market, the prices received and the economic well-being is

heavily dependent on the health of the export market. This year (2004) more than

33.7 billion pounds (ready-to-cook weight basis) of chicken will be marketed, a

record amount. About one-half or almost 17 billion pounds of these marketings will

be the front half of the broiler, basically breast meat, and one-half or another 17

billion pounds will be the back half of the bird, basically, leg quarters. American

consumers through their purchasing decisions continue to increasingly express an

overwhelming preference for breast meat, which is usually sold as boneless, skinless

breast meat or products directly made from boneless/skinless meat. Due to the imbalance of consumer demand for the front half and the back half of the chicken, it

is critical that export markets be found for the one-half of the chicken less preferred

by the American consumer. Fortunately, except for North America and, perhaps,

154

certain parts of the Western Europe, consumers around the world have a decided

preference for leg meat relative to breast meat. While this situation offers great

competitive opportunities for U.S. chicken exporters, it also, at the same time, is a

source of arguments by other countries that U.S. chicken exports are receiving subsidies that allow leg quarters to be priced so competitively. Although it is true that

the price of U.S. chicken leg quarters is quite attractive to oversea buyers, the

charge of government subsidies is baseless and totally without merit. The U.S. Government does not provide any export subsidies for U.S. poultry.

Last year (2003) exports accounted for over 15 percent of total U.S. broiler marketings. In terms of share of total marketings and quantity exported, the highest

level was in 2001 when 5.6 billion pounds of chicken were exported. This quantity

represents 18 percent of total marketings. This year (2004) exports will slip for the

first time in 20 years. In 2004, the quantity exported is likely to be 4.6 billion accounting for less than 14 percent of total marketings. In a normal market situation

the export market must take the leg quarters from one in three chickens for the

overall market to be in good balance and provide the necessary underlying support

for a healthy overall market. When adequate foreign market access for U.S. chicken

leg quarters is not possible, the supplies of leg quarters usually back-up on the domestic U.S. market and not only negatively impact overall chicken prices but also

the imbalance in supply causes problems that spill-over and depresses producer

prices for competing products, such as hogs and cattle.

As I noted, in normal times the negative impact of significantly reduced exports

coupled with near-record high feed costs that may reach record levels before the

next crops of corn and soybeans are harvested would most certainly cause a very

difficult financial situation for the U.S. chicken industry. Fortunately, and I am not

sure of all the reasons, the current market situation is not normal. However, the

laws of economics have not been repealed and at some point in the future, market

conditions will return to a more normal situation. At that time, the loss of exports

will compound the financial problems of U.S. chicken companies. Thus, I hope that

Congress and the administration can now take appropriate and needed actions to

lessen or even prevent a continued erosion of U.S. chicken exports.

WTO DOHA ROUND NEGOTIATIONS

It is good to see that negotiations involving agriculture in the World Trade Organization’s Doha Round have begun again. Much progress is needed on many issues,

but it was reassuring to see the European Union agreeing to at least make the first

steps toward eliminating export subsidies. While having foreign competitors eliminate export subsidies and removing unfair domestic supports for their poultry producers will help level the competitive playing field, these actions are not the most

important from a U.S. poultry perspective. More important to U.S. poultry exporters

is greater market access. Actually, the market access provisions needed are not the

ones primarily being negotiated in the current round of multilateral talks. Having

no import quota restrictions nor high import duties are important, basic requirements. However, as tariff and quota protections have been reduced, the non-tariff

protective measures have increased measurably. More and more countries are using

poultry health issues, such as avian influenza and veterinary requirements, such as

bogus testing for pathogens, to restrict or ban U.S. poultry from their markets. This

issue of non-tariff trade barriers is where U.S. poultry exporters need the most help

by Congress and the administration.

BILATERAL FREE TRADE AGREEMENTS

When the administration determined it was going to be difficult to move forward

in a timely manner on agricultural issues in the Doha Round, we agreed with the

position that U.S. negotiations should step-up their efforts on bilateral free trade

agreements. For the most part, the bilateral free trade agreements that have been

concluded do offer the possibility of increasing U.S. trade in poultry. The U.S.-Australian FTA is a notable exception, however. While import tariffs and import quotas

may be reduced or even eliminated in the bilateral FTAs, the method of addressing

and resolving sanitary and veterinary provisions in the recent bilateral agreements

will require close monitoring and attention. At the same time, it is fair to note and

give credit to U.S. negotiations and the other countries in the recent bilateral agreements regarding the sanitary and veterinary issues. For the most part, these issues

have been fairly well addressed. The U.S.-Australian Free Trade Agreement, however, in this regard for U.S. poultry stands out as a clear exception to this conclusion.

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RUSSIA

Russia is the United States largest export market for chicken by a significant

measure. This market in 2003 accounted for 30 percent of total U.S. chicken exports, and in 2002 the share was 32 percent and 2001 Russia’s share was 42 percent. On May 1, 2003 Russia imposed an import quota for poultry. For 2004 Russia

declared the total quota would be 1.05 million metric tons with 73.5 percent or

771,900 metric tons assigned to the United States. Although we were not pleased

to see a ceiling placed on the quantity of chicken we could export to Russia we

hoped that this restriction on imports would lessen Russia’s activities that disrupt

U.S. poultry exports. We were wrong. Before the Russian veterinary team came to

the United States last year to inspect U.S. poultry plants and related facilities, the

Russian Minister of Agriculture publicly predicted that only 70 percent of the U.S.

plants would pass Russian inspections. Not surprisingly, when the inspections were

complete, about 70 percent were approved. Their findings for delisting plants in our

opinion were very arbitrary and without merit. Since then Russia’s Ministry of Agriculture has claimed to have tested U.S. poultry and has found product from 11 different U.S. plants to be positive for certain pathogens. Russia has delisted these

plants without an opportunity for USDA or the U.S. poultry companies to respond

to the findings. U.S. Secretary of Agriculture Veneman has made repeated requests

to her counterpart in Russia to have a Russian veterinary team return to the United

States to reinspect delisted plants. Much delay has occurred in trying to get a response to the Secretary’s requests. It is my understanding that a telephone discussion of these issues between Secretary Veneman and the Russian Minister of Agriculture has been scheduled for today. I am hopeful this discussion will lead toward

a resolution of the plant inspection issue. Because the list of approved plants is relatively short, and becoming shorter with the periodic delistings by Russia, the import quota for Russia is not being filled. Failure to fill the quota jeopardizes the

United States keeping its 73.5 percent share of the total quota. We find ourselves

in a very difficult situation and Russia Ministry of Agriculture seems unwilling to

help resolve the problem.

CHINA-HONG KONG

When the low-pathogenic avian influenza outbreak first occurred in Delaware earlier this year, more than 60 countries banned U.S. poultry, usually from the entire

United States. Some countries did just restrict poultry from Delaware and later the

other states that experienced avian influenza (AI). Unfortunately, most countries

over-reacted to the AI situation.

China-Hong Kong represent the second largest export market for U.S. chicken.

Earlier this month Hong Kong finally lifted its import ban on U.S. poultry, except

from the states of Delaware, Maryland, and Texas. The removal of the ban is appreciated but since 85 percent or more of the chickens exported to Hong Kong is transshipped to China, the relief has not been complete. USDA officials and scientists are

continuing to discuss with the Chinese government the reopening of the market to

U.S. poultry. However, it is obvious that China has an international trade agenda

beyond the issue of whether or not U.S. poultry poses a risk to their poultry flocks.

We are appreciative of the work USDA is doing to reopen the Chinese market and

are hopeful that the efforts will soon prove fruitful. Once China again permits U.S.

poultry, we believe Japan, Korea, and a number of other countries will begin to unwind their import bans on U.S. poultry.

The main point of discussing this situation is to better explain that despite trade

agreements, whether bilateral or multilateral through the WTO, countries will continue to use veterinary and sanitary issues to restrict and halt trade. Countries

need to recognize agreed-upon standards for poultry diseases, such as avian influenza, and then properly follow the international standards and procedures. The Organization for International Epizootics (OIE) is the focus of trying to make progress

on these issues. We are hoping OIE can become a more important organization for

managing these issues. However, there appears to be a very long timetable for

achieving the necessary progress.

RECOMMENDATIONS

The National Chicken Council recognizes that agriculture trade negotiations are

difficult, complex, and apparently never-ending. We also recognize we do not have

all the answers to successfully resolve the many tough problems. Nonetheless, we

respectively suggest that the following recommendations be considered by this committee. These are:

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• Work diligently toward a successful conclusion to the current round of WTO negotiations, especially better market access issues;Continue to pursue the successful

conclusions of bilateral free trade agreements that include beneficial provisions for

poultry trade;

• Continue to work aggressively to have full and complete compliance by signatories to trade agreements already concluded and encourage the U.S. Trade Representatives Office to respond appropriately and timely when these provisions are

blatantly violated;

• Have trading partners agree to pre-determined procedures for an expedited resolution of sanitary and veterinary issues, whether poultry diseases or findings of food

safety issues;

• Postpone negotiations for Russia’s accession to the WTO until Russia fully demonstrates it will abide by the agreements and understandings involving poultry;

• Encourage USDA to organize a more permanent, dedicated, full-time task force

of Department technical and scientific experts to be available to be dispatched to

trouble spot countries that are using non-science based sanitary and veterinary

measures that result in disruptions or halt U.S. poultry and red meat exports;

• Provide more adequate funding and resources for USDA’s Foreign Agricultural

Service’s Market Access Program and Foreign Market Development program; and

• Provide the U.S. Trade Representatives Office with a more adequate budget so

that more sufficient resource can be dedicated to resolving existing agricultural

trade issues and lessening the possibilities of new issues occurring.

In conclusion, I again thank the committee for the opportunity to present the National Chicken Council’s views and recommendations regarding agriculture trade negotiations and issues impacting our business. It is my hope and the hope of my fellow poultry producers that U.S. chicken exports can reverse this short downward

turn and increase in the years ahead. By doing so farmers who provide chickens

and farmers who provide feedgrains and oilseeds to feed the chickens will have

greater opportunities to benefit from the economic activity generated by the dynamic

U.S. chicken industry. The National Chicken Council looks forward to working with

the committee as this goal continues to be pursued.

STATEMENT OF WOODY ANDERSON

Mr. Chairman, thank you for having this hearing today. My name is Woody Anderson. I am a cotton producer from Colorado City, Texas, and currently serve as

the chairman of the National Cotton Council of America.

The National Cotton Council is the central organization of the United States cotton industry. Its members include producers, ginners, oilseed crushers, merchants,

cooperatives, warehousemen, and textile manufacturers. While a majority of the industry is concentrated in 17 cotton producing states, stretching from the Carolinas

to California, the downstream manufacturers of cotton apparel and home furnishings are located in virtually every state.

The industry and its suppliers, together with the cotton product manufacturers,

account for one job of every thirteen in the U.S. Annual cotton production is valued

at more than $5 billion at the farm gate. In addition to the fiber, cottonseed products are used for livestock feed, and cottonseed oil is used for food products ranging

from margarine to salad dressing. While cotton’s farm gate value is significant, a

more meaningful measure of cotton’s value to the U.S. economy is its retail value.

Taken collectively, the retail business revenue generated by cotton and its products

in the U.S. economy is estimated to be in excess of $120 billion annually. Cotton

stands above all other crops in its creation of jobs and its contribution to the U.S.

economy.

Any review of the impact of international trade policy on cotton should be undertaken with the understanding that cotton is a raw, industrial product. The economics of cotton production are inextricably linked to textile policy and production, both

in the United States and around the world.

The importance of trade to the U.S. cotton industry has never been greater. At

some stage of processing, ninety percent of the U.S. cotton crop moves into export

channels. In recent years, exports of raw fiber account for more than 60 percent of

total U.S. disappearance. Furthermore, approximately 80 percent of yarn and fabric

produced by our textile industry leaves the U.S. for further processing. It is also the

case that many of these exported products are manufactured into consumer goods

abroad and return to the U.S. retail market for final consumption. In fact, imported

textile products constitute 19 million bales of our 21 million-bale retail market. The

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success of the U.S. cotton industry is directly impacted by trade policy developments, as well as overall supply and demand conditions in world fiber markets.

This dependence on the export market has been a recent and rapid change for

the cotton industry, precipitated by dramatic decreases in U.S. textile production.

Cotton producers must now rely on the much more volatile export market as U.S.

textile mills only consume about one-third of U.S. cotton production.

TRADE POLICY DISCUSSION; U.S.-BRAZIL WTO DISPUTE SETTLEMENT

It has been a frustrating few weeks for the National Cotton Council and the U.S.

cotton industry. We have heard and read the news reports that the Panel hearing

the U.S.-Brazil cotton dispute initially ruled against the United States, but we have

been unable to read the confidential report. It is, therefore, impossible for me to

comment with great precision concerning this apparent ruling.

If the reports I have read are accurate, the Panel ruled against the United States

on most of Brazil’s substantive points, namely, that the U.S. violated the Peace

Clause; that the Step 2 program constituted a prohibited subsidy; that the export

credit guarantee program constituted a prohibited subsidy; that the direct payments

we consider to be ‘‘green box’’ do not qualify as green box; and that the domestic

cotton program caused ‘‘serious prejudice’’ to the interests of Brazil.

There are different reports as to whether the Panel found a threat of serious injury in the future, so we are completely unsure how to evaluate that component of

the decision.

I don’t need to tell this committee how significant this decision may be. We are

disappointed, somewhat surprised, and certainly not enjoying the avalanche of editorial writers across the United States using this decision to paint a target on U.S.

cotton producers. A bevy of newspaper editorial boards felt obligated to suggest the

WTO Panel got it right and the U.S. should just go ahead and offer up the U.S.

cotton program to the World Trade Organization, like an old-fashioned sacrificial

lamb.

We, of course, strongly disagree. The appeal process will take several more

months and even then parties are given a reasonable amount of time in which to

conform programs to the WTO ruling. There should be no immediate changes to the

U.S. cotton program. It is far too early to begin to speculate what changes will ultimately be considered.

Our industry has been heartened by the statements of support offered by many

members of this committee, the Congress and the administration. We agree with

Ambassador Zoellick that we are in the first stages of a marathon—a race that involves both this dispute settlement action and the ongoing Doha negotiations. We

should not and cannot unilaterally disarm under these circumstances.

One article, however, did peak my interest. A Washington Post story on the Panel

Report tried to frame the negative decision in the context of the overall agreement.

It pointed out that while the decision may appear contrary to U.S. agricultural interests, other parts of the WTO agreement are beneficial to the United States in

general and U.S. agriculture in particular.

The cotton industry in the United States has just been dealt a major blow by a

decision we believe is incorrect. However, we fundamentally understand the value

of the WTO and the agreements that brought it to life. We will fight this decision

and its ramifications, but we will also work to ensure that the U.S. cotton program

complies with WTO disciplines. A rational, rules-based international trading system

is superior to the alternative. We will do our part, working with this committee and

the administration, to maintain an effective U.S. cotton program that complies with

WTO rules.

What concerns us the most is that the U.S. cotton program in 1992 and 1994 was

fully coupled to production and had a higher loan rate and target price than any

cotton crop subject to the 2002 farm bill. We moved toward decoupling, we slightly

reduced loan rates and we reduced the target price, yet today’s program somehow

was ruled to support cotton at a higher level than we did in 1992. We are perplexed

by that result.

We are further concerned with reports that production flexibility payments and

direct payments are not considered to be ‘‘green box’’ under the Agricultural Agreement. We do not know the Panel’s rationale here, but the U.S. submissions indicate

that Brazil essentially argued that no payment program is minimally trade distorting and therefore no payment program is truly green box. This seems clearly contrary to our intent in the Uruguay Round Agreement.

We are troubled that this Panel apparently found a way around clear language

in the Uruguay Round Agricultural Agreement exempting agricultural credit guarantee programs from its provisions.

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And we are disappointed that a part of the cotton program that was enacted as

a part of the loan program back in 1990 and had always been notified to the WTO

as an amber box program was determined by this panel to be a prohibited subsidy

and improperly classified.

Most significantly, we are disturbed that parts of this ruling force us to conclude

that either the United States does not know what it is agreeing to in the WTO or

the WTO agreement is being interpreted contrary to the intent of the contracting

members.

In 1993 Sam Hollis, a former President of the National Cotton Council and a cotton warehouseman from Memphis, was in Geneva at the conclusion of the Uruguay

Round. Sam was a member of the Agricultural Policy Advisory Committee. As the

last parts of the agreement were being concluded Sam asked U.S. negotiators directly whether Step 2 was to be classified as an export subsidy or as an amber box

program. He was told clearly and directly that Step 2 was not an export subsidy

but was an amber box program.

In the statement of administrative action accompanying the WTO legislation,

Congress was told that the ‘‘Export Credit Guarantee Program, one of U.S. agriculture’s most effective tools, is among the programs exempt from reduction commitments under the Agreement on Agriculture.’’

I can’t help but speculate what Congress’ reaction to the Uruguay Round agreements would have been if it had known that———

export credit guarantees were in fact covered by reduction commitments under

the Agreement on Agriculture;

green box programs are not exempt from actions under the subsidies code; or

that cotton’s Step 2 program would not be classified as an amber box subsidy.

I am not asserting that any one of our negotiators or the officials establishing

policies for those negotiators tried to mislead Congress or U.S. agriculture. There

is also nothing partisan in this observation. The Uruguay Round was a bi-partisan

negotiation.

I am suggesting, however, that the apparent decision in the Brazil case should

raise a caution flag for this Congress, for our current negotiators and for the private

sector. It will be very difficult for the U.S. cotton industry to accept at face value

interpretations of proposed trade agreements that are not supported by an abundance of clear evidence that will be recognized by the WTO.

It has been the case until now that we have given our negotiators the benefit of

the doubt until the final language is completed. Unfortunately, when the final language is completed, we are usually told there can be no changes. If Doha does move

forward and we are presented with a new negotiating text, we should make every

effort to parse the language and avoid unsupported interpretations. The job of drafting an agreement that should pass muster in the U.S. Congress just got a lot more

difficult.

Mr. Chairman, I would be remiss if I did not commend the efforts of the U.S. defense team in this case. They have been led by very capable attorneys from the Office of the U.S. Trade Representative and the Department of Agriculture General

Counsel’s Office. Joe Glauber in the Office of the Chief Economist at USDA and

many other professionals at the Department of Agriculture, in FAS and in ERS,

have worked on the U.S. arguments. Their efforts belie the usual portrayal of bureaucrats. These people have cared about this case and their work, and they have

gone the extra mile.

CHINA; IMPLEMENTATION OF WTO

The Council has raised serious concerns with the way in which the People’s Republic of China has implemented its market access commitments under its WTO accession agreement. As a result of our concerns, the U.S. Trade Representative’s Office has conducted numerous discussions with China officials in an attempt to get

China to modify its implementation of the tariff rate quota (TRQ) for cotton. Our

primary objection has been China’s allocation of a significant portion of the cotton

TRQ to the ‘‘processing trade.’’ By allocating quota to the processing trade, China

is requiring that apparel made from that cotton be re-exported. Essentially, the

processing trade category is not true market access as required by the terms of the

U.S.-China WTO accession agreement.

In 2003, China announced revisions to its regulations governing imports of cotton

under the TRQ. While those revisions were an improvement and an attempt to simplify procedures, it appears that the processing trade category still exists and that

it can still become an impediment to U.S. cotton exports.

However, other events in U.S.—China cotton fiber trade must be noted. China has

grown to be the largest importer of U.S. cotton in the world, purchasing over 2.5

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million bales in 2003. China announced an additional 2.3 million bales of import

quota for 2003 and an extension of the 2003 quota year to June 2004, and has recently announced an additional quota amount for 2004 that reportedly raises the

2004 quota to 8.7 million bales total. The U.S. will undoubtedly provide a large portion of the cotton purchased in China over the next year.

This level of trade with China is beneficial to the U.S. cotton industry and relieves

some of the immediacy regarding changes in China’s tariff rate quota implementation. China is increasing its cotton tariff rate quotas due to the Chinese textile industry’s demands for greater access to the world cotton supply.

Despite this beneficial trade, the United States and the U.S. cotton industry must

remain vigilant and continue to push for reform in the TRQ system as required by

the WTO agreements. Should internal pressures to purchase foreign cotton subside

within China, the private/processing trade distinction that is a part of China’s TRQ

implementation will once again become a significant barrier to U.S. exports and will

exacerbate an ever widening U.S. trade deficit.

China—Quality issues

The Council continues to monitor the manner in which China is instituting a new

set of quality standards applicable to cotton fiber sold in China. This new standard

would test all cotton for its short fiber content and its nep count to ‘‘prevent fake

and bad quality cotton from flowing into the market and to fight deceptive practices

in the trade.’’ The U.S. cotton industry has concerns about this new test and believes that there are no cost-effective, reliable tests for short fiber content and nep

count.

China has recently announced its plans to totally revamp its cotton handling, inspection and grading systems. There are plans for a specialized government classing

agency, the use of HVI classing, maintenance of a central database, permanent bale

identification, standard bale sizes, specialized warehouses, a replacement of outdated gin presses, etc. The program is ambitious and calls for it to be phased in

over a number of years. It is significant that this program is focused on internal

cotton classification and handling and does not appear, at this time, to be targeted

to imports.

China—textile safeguards

In late December 2003, the administration formally requested consultations with

China under the special textile safeguard provisions contained in the U.S.—China

WTO accession agreement. The request for consultations automatically triggers the

quota provisions on three categories of textile products that had been the subject

of a safeguard petition filed by the textile industry. The three categories are knit

fabric, dressing gowns and brassieres.

The China specific safeguard allows the United States and other WTO Member

countries that believe imports of Chinese origin textile and apparel products are,

due to market disruption, threatening to impede the orderly development of trade

in these products to request consultations with China with a view to easing or

avoiding such market disruption. Upon receipt of the request, imports from China

may be restricted to a level no greater than 7.5 percent (6 percent for wool product

categories) above the amount entered during the first 12 months of the most recent

14 months preceding the request for consultations. The import quotas may last up

to one year. China-specific safeguard petitions are filed with the Committee on the

Implementation of Textile Agreements (CITA).

The NCC believes the imposition of these import quotas will have virtually no impact on the raw cotton supply/demand situation in China for the 200304 marketing

year. The average increase in imports from China in knit fabric and nightgowns was

more than 800 percent in 2002.

AFRICA

The U.S. cotton program was the target of a well-orchestrated campaign asserting

that the U.S. cotton industry is hurting African nations that depend on cotton as

a means to earn export income. Using seriously flawed analysis, several extreme

international organizations convinced a few African countries to take on this cause.

The President of Burkina Faso took the unprecedented step of addressing a negotiating group of the WTO to urge it to require the United States to end its cotton

program during the summer of 2003.

The attack reached a crescendo when the chairman of the WTO singled cotton out

in the agenda he prepared for the Cancun Ministerial meeting. The cotton sectoral

initiative demanded by the four African countries was an immense burden for the

process. The publicity generated was excessive. The time that had to be spent by

the WTO and by the U.S. delegation in fighting that initiative was excessive.

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It was hard to understand why and how cotton was singled out in Cancun.

Through its agricultural proposals, the U.S. cotton program had been on the negotiating table from the outset. Instead of joining with the United States to move

Doha forward in Cancun, most developing countries used the Africa proposal and

other issues to stop progress. The WTO Chairman’s unfortunate decision to bring

his office into the issue raised hopes among the four African countries. Ultimately,

it became clear that these countries were seeking some sort of compensation from

the United States or from the WTO and both parties were completely unwilling to

do anything that smacked of compensation.

U.S. negotiators took a firm stand against the initiative arguing that any discussion about distortions in world trade in cotton fiber had to be broadened into a sector-wide approach, including man-made fibers and all textiles and had to include

discussions on market access for textiles.

As the United States began its attempts this year to re-ignite the Doha Round,

the African proposal, while still being discussed, seems to have moved back into the

general agricultural negotiations, which is where it belongs.

In the meantime, the National Cotton Council has worked independently and with

the administration to open a dialogue with Benin, Burkina Faso, Mali, and Chad.

We have organized informational exchanges with some of these countries. Officials

have met with cotton industry executives to better understand the central forces

driving investment in cotton and cotton textile production. Efforts are underway to

ensure these countries have the opportunity to benefit from biotech-enhanced cottonseed if they so desire. The Council also worked with the administration to provide a small exemption for African cotton in the rules of origin contained in the Morocco free trade agreement.

These are small steps, but are reflective of our belief that there is more than

enough room in the world cotton market for African production and there are meaningful steps these countries can take to reform their systems, increase markets and

enhance the returns available to their growers.

The U.S. cotton industry has reacted to the African proposals by looking at the

true reasons underlying their complaints, namely, international prices so low that

these countries were losing money. We knew that low prices were prevalent for virtually every internationally traded commodity, agricultural and non-agricultural,

from 1998 to 2002. This low price phenomena was not associated with any one country’’s foreign or domestic policies.

We hope we have made progress, and we continue to talk to these countries. I

will be traveling to Burkina Faso in June. We intend to host an African delegation

to cotton country in July.

We do not intend to offer false hope. We are not seeking to buy off African concerns with fictitious ‘‘reforms’’ of the U.S. cotton program that do not result in true

change. We will continue to work with our negotiators in the Doha Round in attempting to achieve additional disciplines on agricultural subsidies in a multilateral

context.

FREE TRADE AGREEMENTS

The U.S. continues to pursue an ambitious schedule of free trade negotiations.

Several are awaiting Congressional consideration at the present time. Reciprocal

market access, effective rules-of-origin, no tariff preference levels, strong Customs

enforcement provisions and effective rules to protect intellectual property remain

the cotton industry’s priorities in any free trade agreement.

With respect to cotton fiber imports into the United States, these agreements tend

to provide for the immediate elimination of import duties on in-quota cotton fiber,

with duties applicable to imports outside the WTO-negotiated tariff rate quota to

be phased out over an extended length of time. From a cotton fiber perspective,

these agreements are generally reciprocal and are generally acceptable.

However, the U.S. cotton industry must evaluate each free trade proposal from

an agricultural and an industrial raw material perspective. Textile and apparel provisions may have as much or more of an impact on the U.S. cotton industry than

do the agricultural provisions.

The North American Free Trade Agreement (NAFTA) remains a true success

story for the U.S. cotton industry. It has helped our textile industry compete with

low-priced Asian textiles. It is not the answer for long-term U.S. competitiveness in

cotton products, but it has been a boost to the U.S. cotton industry from its inception.

The Council has worked for other free trade agreements that would provide benefits to the U.S. textile industry. The key is a rule-of-origin for textile and apparel

products that is no less restrictive than those in the North American Free Trade

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Agreement. A rule-of-origin based on NAFTA-type rules ensures that workers and

companies in the United States and the partner country are the beneficiaries of the

agreement, not entities in third countries. Anything less opens the U.S. cotton and

textile industries to unfair, unbridled competition from countries that will transship

textile products in order to take advantage of quota-free, duty-free access to the U.S.

NAFTA rules-of-origin provide generally for a yarn-forward rule for cotton textiles

and a fiber-forward rule for cotton yarn.

Although the Council has consistently argued against the inclusions of so-called

tariff preference levels (TPL’s) and other exceptions that undermine the basic ruleof-origin in free trade agreement, most of the agreements have contained some level

of TPLs. Some of the more recent awards of exemptions from the applicable rules

of origin are excessive.

The Australia agreement contains no TPLs. The Central American Free Trade

Agreement (CAFTA) and the Moroccan agreement do contain TPLs.

So far, the United States has agreed to allow third country fabric to qualify as

originating goods in an amount equal to 18 percent of total U.S. apparel production.

This is 18 percent of an industry that seems to decline every year. This 18 percent

free ride is not being granted to fabric made in the countries that negotiated the

free trade agreement. It is a free ride being granted to other countries—like China,

India and Pakistan—and discourages the development of spinning and weaving capabilities in the participating countries.

When the administration began negotiating the CAFTA, it stated that there

would be no TPLs in this agreement. No free rides for third country fabric. The National Cotton Council and organizations representing the U.S. textile industry supported that stance and worked to achieve a Central American Agreement based on

the U.S. position. In the end, that is not the agreement that is going to be signed

and presented to Congress for its approval. In place of no exemptions, the agreement includes significant TPLs and ‘‘cumulation’’ for Mexico, undermining the applicable rule of origin.

The National Cotton Council continues to believe that good free trade agreements,

particularly in this hemisphere, can help the U.S. textile industry and the U.S. cotton industry. However, the tendency of the United States to agree to provide free

trade agreement benefits for textiles from countries that are not part of the deal

continues to undermine any potential benefit for the U.S. cotton industry.

A significant economic study performed in conjunction with the National Cotton

Council recently concluded that the greatest bearing on the economic future of the

U.S. textile industry and, therefore, on the amount of cotton sold to U.S. textile

mills, will be (a) the source of textile products imported into the U.S. market, and

(b) the source of yarns and fabrics from which the products are made. The only realistic, significant opportunity for improving the economic outlook for the U.S. textile

industry is to achieve provisions in trade agreements that foster the use of U.S.

yarns and fabrics in textile products that are cut and sewn in this hemisphere. Tariff preference levels achieve the opposite result. They hurt the U.S. textile industry

and the U.S. cotton producer.

WORLD TRADE ORGANIZATION

As the United States works to advance the Doha Round of multilateral trade negotiations, the National Cotton Council wishes to reiterate its priorities and comment on several aspects of the draft ministerial text that was developed in Cancun.

IMPROVED MARKET ACCESS

From the outset of the Doha Round, the National Cotton Council has supported

a negotiation that would provide timely, effective and reciprocal access to foreign

markets for U.S. raw cotton, U.S. manufactured textiles, and U.S. cottonseed and

products. We have sought real increases in market access. We are concerned that

achievement of these goals is hampered by 1) statements by the United States that

it is willing to obtain less than reciprocal market access in non-agricultural products; and 2) an unwillingness of countries with high bound tariff rates to begin reductions from their applied tariff levels.

For many countries, the tariff reductions being discussed would result in no new

market access for United States exports. For many countries, the discrepancy between bound tariffs and applied rates under the WTO makes tariff reduction commitments in agriculture virtually meaningless. Real increases in market access for

cotton fiber and cotton products should be predicated on tariff reductions from applied rates.

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TARIFF RATE QUOTA IMPLEMENTATION MUST BE IMPROVED

The Office of the U.S. Trade Representative is well aware of the manner in which

tariff rate quotas have been implemented in several countries. Often this implementation does not conform with WTO obligations and does not result in the agreed

upon levels of market access. While TRQ implementation was a part of initial U.S.

Doha proposals, it has faded into the background in recent discussions. The Council

urges the U.S. government to ensure that TRQ implementation remains on the

Doha agenda and that more clear rules governing the implementation of TRQs be

included in any agreement.

DEVELOPING VS. DEVELOPED

The developed versus developing country dichotomy advanced by some in Cancun

was a clear attempt to move the Doha Round negotiations away from reciprocity.

While we are sensitive to the needs of many less developed countries, we are not

willing to broadly grant liberal, one-way concessions to countries that are as competitive as the United States in world agricultural trade.

Under the current structure of the WTO Brazil claims the same economic position

as Mali; China claims the same economic position as Nigeria; and India claims to

be in the same stage of economic development as Burkina Faso. We fully support

the efforts of Ambassador Zoellick to plug this loophole in the WTO. Truly less developed countries should receive concessions within the WTO agreements. But countries that are competitive in world agricultural trade must stop having it both ways.

TRADE DISTORTING DOMESTIC SUPPORT

The United States exhibited a willingness to make substantial reductions in trade

distorting domestic support in Cancun and has demanded these reforms since the

inception of the Doha Round. The unambiguous position of the United States was

largely ignored in Cancun, however, as the U.S. approach requires the rest of the

world to make corresponding changes in their trade policy.

Recent draft texts covering the agricultural negotiations have introduced new approaches to disciplines on domestic support that have not yet been fully discussed

among United States commodity producers. The draft ministerial text introduced

commodity specific limits on amber box support into the negotiation. The U.S. cotton

industry needs to achieve a better understanding as to how the United States anticipates such a new discipline would be implemented. We have concerns that product

specific amber box limits could detrimentally impact commodity program flexibility

from year to year. Such a restriction may cause a difficult adjustment for U.S. agriculture as commodity markets are inherently not stable from year to year.

In addition, recent draft texts also call for a review of green box programs suggesting that these non-trade distorting subsidies may be significantly restricted in

a new WTO agreement. As with the prospect of a commodity-specific AMS ceiling,

the cotton industry is concerned that unwise changes to the green box classification

could also negatively impact U.S. commodity programs and restrict the ability of the

United States to carry out effective domestic agricultural policy.

Certainly, the final decision in the Brazil—U.S. cotton case could have a significant impact on the U.S. negotiating position.

SINGLING OUT COTTON FOR SPECIAL TREATMENT

The U.S. cotton industry believes that a beneficial WTO agricultural agreement

will contain substantial market access improvements, an agreement to phase out export subsidies, and significant reductions in, and greater harmonization of, domestic

supports by all countries.— The U.S. cotton industry is fully prepared to negotiate

significant reductions in trade distorting domestic supports as a part of an overall,

beneficial agreement. While every product and policy must be on the table for negotiation in the Doha Round, we object to efforts to single out cotton for special treatment. These efforts are unwarranted and undermine a negotiation supposedly dedicated to overall reform.—

The United States has correctly observed that trade distortions in cotton are

broader than just the production of cotton fiber, encompassing policies regarding

manmade fiber and all textiles and apparel. Any meaningful effort at worldwide reform of policies affecting trade in cotton fiber must necessarily include all of these

intertwined products. Other countries, however, seem unwilling to truly seek reform

in the overall trade in fiber, textiles and apparel, preferring instead to unfairly target U.S. cotton. The strategy of singling out one U.S. commodity for special treatment must be met with a consistent message, namely, that targeting U.S. cotton

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will not help advance a Doha Round agreement. It will make it more difficult to

obtain.

The U.S. cotton industry has not asked for special treatment in this negotiation.

It is fully prepared to participate in a meaningful negotiation that contains beneficial concessions by all parties. Feigned complaints that U.S. cotton will escape discipline should the world reach a new agricultural agreement in this round of negotiations should be regarded as what they are—diversionary tactics designed to lead

the Doha Round away from a broad-based, reciprocal agreement.

EXPORT SUBSIDIES

The cotton industry supports the U.S. push to eliminate export subsidies in agricultural trade.— Export subsidies are no doubt the single most trade distorting

mechanism in agricultural trade, causing adverse effects for all non-subsidizing exporting countries, and especially for least developed country exporters. We see no

reason for the elimination of export subsidies to be limited to those commodities

that are most important to developing countries as we believe different developing

countries will have different economic interests. It would be better to eliminate

these very distorting subsidies outright.

At the same time, improvements need to be made in WTO rules with respect to

downstream subsidization of agricultural products, the use of export taxes to reduce

prices of processed products, content requirements for exports and exemptions from

taxes for exported products. The refund of special value-added-taxes (VAT) on processed products that are exported is used in many textile exporting countries to subsidize textile and apparel exports. This activity should be classified as an export

subsidy, and prohibited.

TEXTILES

The Trade Act of 2002 set out the principal negotiating objectives of the United

States with respect to trade in textiles and apparel articles. It stated that the U.S.

is to obtain competitive opportunities for United States exports of textiles and apparel in foreign markets substantially equivalent to the competitive opportunities

afforded foreign exports in United States markets and to achieve fairer and more

open conditions of trade in textiles and apparel.

The health of U.S. cotton producers has been inextricably tied to the health of the

U.S. textile industry since the early 1900’s. The U.S. textile industry is not healthy

today. Increasing competition from imports has cut the size of the U.S. textile sector

almost in half over the past five years. The apparel sector has shriveled beyond recognition.

The Uruguay Round Agreements provided for worldwide textile quotas to be completely phased out by January 1, 2005. Five years after that agreement was negotiated, China was made a member of the WTO and will be able to take full advantage of the quota phase-out.

It is critical that U.S. negotiators take the textile negotiating objectives seriously

in the Doha Round. They must return with an agreement that provides competitive

opportunities for U.S. exports of textiles and apparel substantially equivalent to the

competitive opportunities afforded textile imports into the United States. In order

to achieve this objective———

• foreign tariffs should be made comparable to US tariffs. There should be no further reduction in U.S. textile tariffs until textile tariffs are equalized worldwide;

• non-tariff barriers, which are being increasingly erected to block imports, should

be eliminated;

•tariff rate quota implementation should be improved; and

• developing countries that are competitive in international markets with respect

to certain commodities or products should be made to conform to trade disciplines

that are equivalent to those adhered to by developed countries.

China has stated that because it is a recently acceded member to the WTO it

should be given longer time frames in which to implement any future market liberalization under the Doha Round. We disagree. China insisted on being included in

textile quota phase-out within the same time frame as countries that were members

of the WTO in 1994, essentially upsetting the economic foundation of the Uruguay

Round textile agreement. China may face significant transitional issues, but it chose

to reap the benefits of WTO membership without delay. It should also shoulder its

responsibilities in the same time frame.

Other NCC Objectives in the Doha Round

The following is a summary list of other objectives the National Cotton Council

supports in the Doha Round negotiations:

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Stop the erection of non-tariff trade barriers against agricultural biotechnology

products.

Improve the ability of the WTO to address managed and/or manipulated exchange

rates.

Improve disciplines applicable to the state trading of agricultural commodities.

Maintain strong U.S. rules to protect against unfair trade practices.

Do not weaken U.S. countervailing and anti-dumping laws.

Maintain the ability of the United States to enter into beneficial regional trading

arrangements.

The Council supports the new farm bill and believes the policies contained in that

bill are consistent with U.S. WTO obligations. Obviously, we disagree with the dispute settlement Panel in this regard.

EXPORT CREDIT GUARANTEE PROGRAM

The export credit guarantee program has been an important component of U.S.

agricultural policy for well over 20 years. For the past two years the Council has

worked with a group of interested trade associations to provide input to USTR and

USDA in regard to export credits and export subsidies.

The degree to which the US should accept disciplines on GSM programs depends

upon the extent to which the export subsidy programs of the EU and other countries

are eliminated, the degree to which monopoly practices of State Trading Enterprises

(STEs) are eliminated, and the degree to which real market access is achieved.

Negotiations must start from the commitment in Article 10.2 of the Uruguay

Round Agreement on Agriculture to establish disciplines to govern the use of credits

which clearly distinguishes between the treatment of credits and export subsidies.

Disciplines must cover the full range of credit programs, e.g. export credit insurance, and practices (including those of State Trading Enterprises) for many of which

there is a substantial lack of information and transparency that must be addressed.

Any negotiated disciplines should be transparent, clearly understood, implemented

equitably and with relative ease, and monitored effectively and should prohibit credit programs and similar financial practices that do not comply with WTO rules.

One final point must be made. It is essential that the Doha Round Negotiations

continue to be a single undertaking in which the full WTO negotiation is completed

prior to implementation of any specific provisions, including disciplines on agricultural export credits.

MARKETING ACCESS PROGRAM

The Market Access Program and the Foreign Market Development Program continue to be critical components of an effective cotton trade policy. The combined investment of private and public funds, coupled with industry marketing expertise, results in innovative, forward-looking programs that leverage money into high impact

campaigns and promotional efforts.

Unfortunately, funding under the FMD program, in particular, has not kept pace

in the last two years and needs to be strengthened. We also would encourage the

committee to continue its support for a MAP program funded at its 1992 level of

$200 million.

We must continue to support and fully fund crucial U.S. export programs including the Market Access Program and the Foreign Market Development Program if

we are to fairly compete effectively in today’s global marketplace.

TEXTILE TRADE POLICY

The National Cotton Council continues to work with Congress and the administration to find ways to enhance U.S. textile competitiveness, whether through appropriate changes in costly regulations or through well-designed regional trading arrangements. Despite these efforts, the ability of China to sell textile and apparel

products at extremely low prices may shortly swamp the U.S. industry and damage

textile industries in other producing countries.

We believe it is important that the textile producing countries of the world evaluate the worldwide impact likely to occur in January 2005 and determine what steps

need to be taken in order to ensure the orderly development of world markets in

textile and apparel. We have asked the administration to participate in an international meeting to consider the impact on textile producing countries should the

fourth stage of product integration for textiles and apparel occur as scheduled on

January 1, 2005. Textile and apparel groups from more than 33 countries around

the world, including the United States, have called for this discussion.

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BIOTECHNOLOGY

Briefly Mr. Chairman, the Council has been disappointed in restrictions on the

products of agricultural biotechnology that have been imposed by several countries

around the world. We are convinced that biotechnology is a key component to a

more efficient and environmentally conscious agricultural sector. We are actively

supporting the efforts of the United States and other agricultural trade associations

to ensure that countries do not continue to erect or maintain unfair restrictions on

the importation of the products of agricultural biotechnology.

ECONOMIC OVERVIEW—COTTON AND INTERNATIONAL TRADE, OUTLOOK FOR U.S. RAW

COTTON EXPORTS

Since the late 1990’s, the U.S. cotton industry has experienced a tremendous shift

between domestic mill use and exports. In the 1997–98 marketing year, domestic

mill use of 11.3 million bales constituted 60 percent of total disappearance. Now,

just six years later, mill use for the current 2003–04 marketing year is expected to

be no higher than 6.3 million bales. Over that same period, exports have increased

from 7.5 million bales in 1997–98 to an estimated 13.8 million bales for the current

year. If realized, exports would be at an all-time high, surpassing the previous

record by almost 2 million bales. Since 2001, exports have constituted more than

60 percent of total U.S. disappearance.

There are a number of factors behind the dramatic shift in off take of the U.S.

cotton crop. Changes in trade policy, China’s accession to the WTO, and the

strength of the U.S. dollar are just a sample of forces that have accelerated the relocation of cotton spinning from developed to developing countries. To understand the

implications for U.S. raw fiber exports, it is important to first evaluate the dynamics

in major cotton countries around the world.

CHINA

As the world’s largest producer and consumer of raw cotton, it is difficult to overstate China’s influence on the world cotton market. Due to their sheer size and the

uncertainty surrounding their actions, China tops the list of factors determining

world prices and ultimately the price our growers receive.

For 2003–04, USDA estimates that China will spin 31.5 million bales of raw cotton, which is roughly one out of three bales of world consumption. Since 1997–98,

China’s consumption has grown by 12.4 million bales while all other countries have

experienced a net decline of 1.6 million bales. The tremendous growth in their textile industry is fueled by a number of factors. Foreign investment and continued access to credit, even in the cases of non-performing loans, have allowed facility expansion and purchases of new equipment. China also has the advantage of a large

supply of low-cost labor. The growth in their cotton mill consumption and textile

production has largely occurred due to the expanded access to international markets

due to their entry into the WTO in late 2001. China’s retail consumption of cotton

textile products has been slightly declining in recent years due to intense competition from manmade fibers.

China’s growth in mill consumption has not been met with a corresponding increase in cotton production. In 1997 and 1998, China produced approximately 21

million bales and consumed 19 million. By the end of the 1998–99 marketing year,

stocks of raw cotton reached an astounding 23 million bales. Since that time, production has fallen short of consumption in each of the last five years, stocks have

fallen, and imports have increased. For the current marketing year, poor yields put

China’s production at 22.4 million bales despite a significant increase in acreage.

With production falling 9 million bales below consumption, stocks have declined further and imports are expected to total 8.5 million bales. With 5 million bales of U.S.

cotton purchased in this crop year, China has emerged as our largest export customer.

In response to stronger prices, China is expected to increase 2004 cotton acreage

in the range of 5–10 percent. Assuming normal yields, production will recover to between 26 and 28 million bales. While this represents a significant increase over last

year’s level, it will still be well below the expected consumption of 32 to 34 million

bales. Assuming no major changes in stock levels, then imports for the 2004–05

marketing year would be in the 5 to 6 million bale range. While lower than the current year, imports are still high by historical standards. Longer term, China is expected to generally be a net importer of raw cotton, although actual levels will be

quite variable depending on the size of their own crop.

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INDIA

India devotes more land to growing cotton than any other country in the world,

but due to low yields, is only the third largest producer behind China and the

United States. For 2003, growers in India produced 12.6 million bales, an increase

of 2.0 million bales from the previous crop year. In recent years, their production

has consistently fallen short of consumption, leaving them as a net importer on the

world market. With their domestic mill use stable between 13.0 and 13.5 million

bales, imports range between 1.0 and 2.0 million bales with exports between 40 and

100 thousand bales. The U.S. share of their imports has been quite volatile, ranging

from a low of 2 percent in 1998 to a high of 52 percent in 2001.

For 2004–05, both production and consumption are expected to increase with little

change in the overall trade position relative to the current marketing year. India’s

position in the world cotton market during the coming years will be dependent on

their ability to improve yields through the adoption of biotechnology and more effective water management.

PAKISTAN

Cotton is the backbone of Pakistan’s economy, and the government continues to

rely heavily on cotton production as a major source of employment and foreign exchange. With an 8 million bale crop, Pakistan produces the world’s fourth largest

cotton crop. The government continues to play a large role in Pakistan’s cotton industry through various support measures.

Pakistan is also one of the few countries with a growing textile industry. The

spinning and weaving industries continue to invest in new equipment as well as to

renovate existing equipment. Industry sources generally report that the textile industry is seeking to improve quality as well as to diversify production to include

more value-added products, rather than to rely mainly on lower-value yarn exports.

As a result, domestic mill use has grown from 7.0 million bales to 9.6 million bales

over the past 6 years. The result has been a scenario where imported cotton is needed to supplement domestic production. For 2003–04, USDA estimates that imports

will reach 1.9 million bales. Pakistan is currently the largest customer of U.S. pima

cotton, and all U.S. cotton constitutes about 40 percent of their purchases.

The higher prices should induce additional acreage in 2004, and with average

yields, Pakistan’s cotton crop will approach 9 million bales. However, this will be

below expected consumption, which could reach 10 million bales. Strong export demand for textile products is underpinning the increased mill use. Despite the increase consumption, Pakistan’s is likely to be a smaller net importer in 2004, with

total imports of approximately 1 million bales.

BRAZIL

Brazil is emerging as a significant cotton producer as acreage expands into the

Mato Grosso region. Production for 2003–04 is estimated at 5.4 million bales, a level

twice that of just 5 years earlier. Cotton consumption by Brazil’s textile industry

remains relatively stable, between 3.6 and 4.2 million bales. In the late 1990’s,

Brazil imported 1.5 to 2.0 million bales of cotton. The expansion of their domestic

production has lowered their imports to less than 500 thousand bales, and subsequently allowed exports to increase. For the current marketing year, USDA estimates that Brazilian exports will reach 1.4 million bales.

Based on current cotton prices relative to soybeans, acreage expansion for the

coming year should be fairly modest. If so, then favorable growing conditions will

lead to a crop between 5.5 and 6.0 million bales and allow Brazil to maintain its

net-exporter position.

In the coming years, available land and favorable growing conditions will allow

cotton production to continue to expand. It is also expected that their production

will expand at a rate faster than their consumption, allowing much of the additional

production to enter export channels.

UZBEKISTAN

Cotton has traditionally been the primary cash crop in Uzbekistan and an important source of employment and foreign exchange. At the same time, the environmental effects of years of cotton production have caused an environmental and

health crisis in the country. Production in 2003 fell to 4.2 million bales, down from

4.6 million the previous year. Although the government’s target is 5.5 million bales,

actual production continually falls below that level.

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Recently, the government initiated a major program to reform the cotton sector,

aimed mainly at improving fiber quality. Also, the state determines the area, sets

production targets and prices, supplies inputs and procures and markets the bulk

of the crop. With continued support of the government, production in 2004 should

climb to approximately 4.5 million bales.

There are also efforts underway to enhance the domestic textile industry, and

thus spin more of the crop domestically. For the 2004–05 marketing year, only modest growth is expected in their domestic use, and the bulk of production will enter

the export market. Longer term, the stated goal is for the domestic textile industry

to consume 50 percent of their cotton production. If realized, this would lead to a

decline in raw cotton exports.

TURKEY

Turkey consistently produces approximately 4 million bales of cotton. However,

within the country, there have been regional shifts as environmental problems reduced area in traditional growing regions and new irrigation infrastructure has allowed expansion in new areas. Stronger prices in 2004 are expected to contribute

to additional acres, and production could approach 4.3 million bales. Longer term,

production growth will be limited due to competition from high-valued crops.

Turkey’s domestic mill use has experienced steady growth in recent years and is

estimated at 6.2 million bales for 2003–04. As a result, imports range between 1.8

and 2.8 million bales. Since 2001, Turkey has been a steady buyer of U.S. cotton,

with 50–60 percent of purchases being U.S. growths.

AUSTRALIA

Australia produces high-quality cotton that completes directly with growths from

California’s San Joaquin Valley. Prior to a severe drought in 2002, Australia’s production averaged 3.4 million bales with 95 percent moving into the export market.

The past two crops have been at 1.7 and 1.4 million bales, respectively, due to a

sustained drought.

Recent rains have improved the coming year’s production outlook but concerns remain. While production is not expected to reach historical levels, a level of 2.0–2.5

million bales is attainable. This will allow exports to recover but still stay below historical levels.

WORLD TOTALS & U.S. EXPORTS

Over the past two years, world production has fallen short of consumption by

more than 15 million bales, resulting in a significant decline in stock levels. The

tighter balance sheet, coupled with China’s increased imports, has led to stronger

prices since mid–2003. The stronger prices are expected to increase world cotton

acreage by 3–7 percent in 2004, with the degree of increase limited by stronger

prices for competing crops. Normal yields would lead to a world crop between 100

and 102 million bales, which would be an all-time high.

Global consumption is not expected to show similar growth and will likely total

between 98 and 99 million bales. Continued competition from manmade fibers remains a constraining factor on global demand. Longer term, the greatest challenge

facing the world cotton industry is the competition from manmade fibers. With only

5 percent of world population, the United States, with 20 percent of global consumption, represents the largest retail market for cotton textile products. For much of

the remaining 95 percent of the population, per-capita consumption of cotton textiles

has been flat or declining while purchases of manmade fiber products are on the

rise.

With the recovery of global production, ending stocks will rebound by the end of

the 2004–05 marketing year.

One of the determinants of U.S. cotton exports is the deficit in the foreign cotton

situation, i.e. the amount by which foreign consumption exceeds foreign production.

In 2002 and 2003, the deficit was 20.3 and 17.0 million bales, respectively, resulting

in significant import demand for U.S. cotton. Obviously, a portion of any shortfall

can also be satisfied by reducing stocks, which occurred in both years. Assuming no

major weather problems, the gap between consumption and production will fall for

the 2004–05 marketing year, and U.S. exports are also likely to decline from this

year’s high of 13.8 million bales. Our expectation is for exports between 11 and 12

million bales, which would constitute 65 percent of this year’s expected U.S. crop.

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OUTLOOK FOR U.S. TEXTILE TRADE

Increasing textile imports over the past several years have devastated the U.S.

textile and apparel industries. Despite a retail market that has grown by more than

3 million bales since 1997, U.S. mill use has fallen by 5 million bales over that same

period. In 2003, imports of cotton goods topped 19 million-bale equivalents, and further growth is expected in 2004.

Evaluating the textile trade situation and its impact on the U.S cotton industry

is complicated by the two-way trade that occurs with certain countries. The U.S. exports between 4.5 and 5.0 million-bale equivalents of textile products, primarily in

the form of yarn, fabric, or piece goods. The majority of these exports go to NAFTA

and CBI countries for further processing before coming back to the U.S. in the form

of finished goods.

U.S. COTTON PRODUCT IMPORTS

With 14.1 million bale equivalents in 2003, apparel is the largest category of imported cotton goods when compared to yarn, thread and fabric, and home furnishings. Imports of cotton home furnishings increased by 20 percent in 2003 to 2.1 million bale equivalents. Cotton yarn, thread and fabric imports decreased in 2003 to

2.7 million bales, down 9 percent from the previous year.

Once again, countries in the NAFTA and CBI represented significant sources of

imported cotton goods in 2003. Imports from Mexico in 2003 totaled 2.5 million

bales, down approximately 4 percent from the previous year. This marks the third

straight year in which imports from Mexico have declined. Imports of cotton goods

from Canada also decreased slightly to 564 thousand bales in 2003, down almost

2 percent from the previous year. Imported cotton goods from CBI for the year are

estimated at 3.4 million bale equivalents. This is up more than 10 percent from the

previous year. Combined, the NAFTA and CBI countries accounted for 34 percent

of total U.S. cotton product imports in 2003, down from 36 percent in 2002. Other

top sources of imported cotton goods in 2003 were Pakistan, China, India, Hong

Kong, Bangladesh, Vietnam, and Turkey.

For the second consecutive year, the source of imported cotton goods into the U.S.

market showing the greatest rate of growth was China. For calendar 2003, cotton

product imports from China contain the equivalent of 1.9 million bales of cotton

fiber. This is up from 858 thousand bale equivalents in 2001, the final year prior

to their WTO accession. It appears likely that China will overtake Mexico in 2004

as the largest supplier of imported product.

For 2004, imports of cotton textile products from all sources are expected to surpass 20 million bale equivalents. Once again, imports are expected to increase at

a faster rate than total retail consumption, putting further pressure on the domestic

textile industry. However, the greater concerns of the textile industry are reserved

for January 1, 2005, when all import quotas are scheduled to be removed.

U.S. COTTON PRODUCT EXPORTS

Calendar 2003 marked the second consecutive year of modest growth for exports

of U.S. cotton textile and apparel products. Exports grew by 6 percent in 2003 to

4.8 million bale equivalents. The majority of the increase in exports is due to an

increase in cotton yarn, thread, and fabric. Exports of home furnishings increased

slightly over the previous year, while exports of apparel declined for the second consecutive year.

The top customers of exported U.S. cotton textiles and apparel in 2003 were once

again the NAFTA and CBI countries, with 93 percent of exports moving into these

countries. Exports to the NAFTA countries last year totaled an estimated 1.9 million bales, down 6 percent from the previous year. Exports to the area accounted

for 40 percent of all U.S. cotton product exports. Exports to the CBI countries totaled 2.6 million bale equivalents or 53 percent of all U.S. cotton exports in 2003.

This is up 18 percent from 2002 exports of 2.2 million bales, and almost 46 percent

higher than 2000 cotton product exports to CBI.

In 2004, exports of cotton textile products should show modest gains, but still fall

below the peak of 5.1 million bales in 2000. Exports to Mexico, our largest customer

for textile products, have declined in recent years, but are expected to stabilize in

2004. Growth markets will continue to be countries such as Honduras, El Salvador,

and Colombia. Looking forward, cotton product exports into Western Hemisphere

countries are critical to the future of the U.S. textile industry.

The apparent decision by the Panel hearing the Brazil—U.S. cotton dispute serves

as a reminder that international trade agreements have real and significant impacts

on U.S. industries and on policies carried out by Congress. But we cannot turn back

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economic forces. The U.S. cotton industry depends on the international market

today more than ever before. We know that a rational, rules-based international

trading system is superior to the alternative. We will do our part, working with this

committee and the administration, to construct effective trade agreements and to

maintain an effective U.S. cotton program that complies with WTO rules.

STATEMENT OF BART RUTH

Good morning, Mr. Chairman, and members of the committee. I am Bart Ruth,

a soybean and corn farmer from Rising City, Nebraska. I am a Past President of

the American Soybean Association, which represents 25,000 producer members on

national issues of importance to all U.S. soybean farmers. ASA appreciates the opportunity to appear before you today.

We commend you, Mr. Chairman, for holding this hearing to review the broad

agenda of issues involved in agricultural trade. These issues have changed considerably over the past decade, as have our strategies for addressing them. I would like

to first present a brief overview of the current situation, and then comment on soybean priorities in the WTO and Free Trade Agreement negotiations and several

other important trade issues.

OVERVIEW AND BACKGROUND

Since the 1970’s, the U.S. has exported one-half of each year’s soybean crop, either

as whole soybeans, as soybean meal and oil, or in the form of livestock products.

Soybean and soy product exports alone are currently valued at between $8 to $10

billion, making our industry the largest positive contributor to the national trade

balance.

World demand for soy-related exports, particularly high protein soybean meal and

livestock products, is growing rapidly. Expansion of developing economies has been

accompanied by rising demand for and ability to afford a more nutritious diet. With

96 percent of the world’s population living outside our borders and most of its

growth in countries with low per capita consumption of soy products, our foreign

market will only continue to expand.

U.S. farmers need to compete for these expanding markets. To do so, we need to

bring down tariffs on soy-related products in importing countries, and prevent their

replacement with non-tariff barriers. We must require both developing as well as

developed country competitors to comply with the same disciplines on production

and trade-distorting farm support programs that we must meet. And we must eliminate the distorting effects of our own domestic farm policies in discouraging soybean

plantings when market signals indicate otherwise.

Each of these goals will be addressed during negotiations the agriculture community faces over the next three to four years. Current talks to reach agreement on

a framework for agriculture as part of the Doha Development Agenda will reach a

critical point at the mini-Ministerial in late June. Even if a framework is reached,

actual commitments will need to be negotiated, and the time frame for completion

will be uncertain. The Doha talks will also impact debate on the next farm bill,

which will begin in 2006. And clouding the outcome of both of these negotiations

will be the status of the recent WTO panel decision on the U.S. cotton program, the

likelihood of an appeal, and the possible filing of similar cases.

STATUS OF THE DOHA WTO NEGOTIATIONS

Against this background, let me now comment on ASA’s position on the Doha

WTO trade negotiations. We were an early and strong supporter of proposals by

both the last and the current administration to require countries to improve market

access by bringing higher tariffs down faster than lower tariffs using the so-called

Swiss formula approach. We have supported making significant reductions in tradedistorting domestic support, provided that countries with comparatively higher levels of support—particularly the European Union make proportionately greater reductions, and that developing country exporters are subjected to similar disciplines.

And we have agreed to discipline our export credit program, provided all export subsidies and similar credit programs are treated in the same manner.

As efforts accelerate to reach a framework agreement on modalities by July, it is

unclear whether these goals will be achieved. The market access proposal advanced

by the U.S. and the EU last August, which was incorporated in the Derbez text,

would blend the Swiss approach we favor with across-the-board tariff cuts for an

unspecified number of products, and would also reduce tariffs on other products to

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zero. Until we know how many products countries would be able to protect by making simple percentage reductions in bound tariff levels, we won’t know how effective

this blended approach will be in expanding market access.

We are concerned that, if countries are able to protect all or most of their sensitive import commodities from meaningful tariff cuts, we won’t see the expansion

of markets for soybeans, soybean meal, and livestock products needed to justify accepting substantial reductions in domestic support and changes in our export credit

program that will dramatically decrease its effectiveness. A formula must be found

that will ensure a significant increase in market access for U.S. soy and livestock

products, as well as other key U.S. agricultural commodities. If a blended approach

is maintained, we believe increased market access will need to be assured through

expanding tariff rate quotas (TRQs) that are tied to some percentage of domestic

consumption.

Moreover, various texts put forward by the WTO agriculture negotiating committee would continue to allow developing countries to exempt import-sensitive Special

Products from any tariff reduction, and to invoke Special Safeguards to restrict imports, regardless of whether there is evidence of injury to domestic producers. These

proposals remain undefined, and could negate efforts to improve market access in

developing countries with more advanced economies. Simply put, developing countries represent the largest growth markets of the future for U.S. agriculture and

largely exempting these countries from market-opening efforts would result in a

Doha Round that provides limited market access gains.

Finally, while we understand and support proposals to exempt the least developed

countries identified by the OECD from opening their agricultural economies to outside market forces, concessional market access terms should not be offered to more

advanced developing countries, particularly those that are significant agricultural

exporters. In addition, the recent proposal by the EU to provide a ‘‘free Round’’ to

all ACP and African countries, would allow countries like South Africa, Egypt, Morocco and Kenya to avoid market-opening measures. We oppose such a broad definition for market access exemptions.

On domestic support, the extent to which reductions in trade-distorting Amber

Box programs will be required also remains undefined, and there is no evidence the

EU has agreed to make a proportionately greater reduction in these programs than

the U.S. We are concerned by the provision in the Derbez text that would

disaggregate Amber Box support in favor of commodity-specific support. While we

understand the interest of some countries to ensure that support for certain commodities is capped or reduced, we want to be sure that soybeans are not disadvantaged in the selection of a common base period for all commodities.

It is also unclear whether other countries will accept the U.S.-EU proposal to redefine the Blue Box to include our counter-cyclical income support program, or to

exempt ‘‘de minimis’’ non-product specific support from discipline. In this regard, the

EU’s recent proposal to eliminate the ‘‘de minimis’’ provision is not acceptable to

ASA.

Of particular concern to ASA is the failure of the various negotiating texts to distinguish between least developed and advanced developing countries by allowing

self-designated developing countries to exempt themselves from disciplines required

of developed countries. Clearly, the least developed countries, as defined by the

OECD, have Equally clearly, countries that are world-class producers and exporters

of soybeans and other commodities—like Brazil—should not be allowed to exempt

themselves from meaningful market access commitments or have the unlimited ability to implement trade-distorting domestic support and export policies. These advanced developing countries that are world-class exporters should be required to implement similar or identical commitments to those undertaken by developed countries.

ASA has been working to identify programs provided by the Brazilian Federal and

state governments that subsidize increased production and exports of soybeans and

soy-related products. At the request of interested Members of Congress, the Foreign

Agricultural Service has found a number of credit programs with heavily subsidized

interest rates that are financing farm operations and purchases of land, equipment,

and fertilizer. FAS has also identified a tax levied on idle land which encourages

landowners to bring more acreage into crop production. We are continuing our efforts to define and quantify the impact of these and other subsidies on Brazil’s agricultural production and exports.

ASA and other farm organizations have asked U.S. negotiators to include provisions for differentiating between developing countries that are major, world-class agricultural exporters and those that are not. We strongly believe that Brazil and

similar countries must be subject to the same disciplines that we must face and,

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grams that we must make. They must not be given unbridled ability to implement

highly trade-distorting domestic support and export policies, as has been proposed

under both the Harbinson and Derbez texts. As a producer, I can tell you that soybean farmers will not be able to support a new WTO agreement if our major competitors in developing countries remain exempt from disciplines on domestic programs that subsidize production and exports.

Let me now comment briefly on export competition issues in the WTO negotiations. ASA was pleased by the EU’s recent decision to agree to a date certain for

eliminating export subsidies. We are working closely with U.S. negotiators to ensure

that the export subsidy component of our GSM credit guarantee program is reduced

in a parallel manner with export subsidies. We do not believe that reform in our

CCC credit programs should go beyond eliminating the interest rate subsidy.

We continue to be concerned by efforts to eliminate non-emergency foreign food

assistance provided under P.L. 480 Title 1 and other food aid programs. Assistance

in the form of food is essential to help developing countries alleviate poverty, combat

diseases such HIV/AIDS, and develop economically. U.S. food aid programs are already complex enough, and channeling each food aid project decision through a third

party (such as the U.N.) or decreasing the ability of the private voluntary organizations (PVOs) to provide non-emergency food aid will only hurt those we attempt to

help. We recommend that any disciplines on food aid be considered separately from

reforms in export-related programs, and urge that experts in this area, including

from the WFP and the PVO community, be included in future negotiations.

THE BLAIR HOUSE AGREEMENT

Finally, Mr. Chairman, ASA continues to be concerned by indications that the European Union intends to ignore its requirements under the Blair House Agreement,

reached as part of the Uruguay Round Agreement. Under Blair House, the EU

agreed to restrict subsidized oilseed area, and to limit production of oilseeds for industrial purposes on so-called set-aside land. After several reforms of the Common

Agricultural Policy, the EU now maintains that its oilseed supports are either not

crop-specific or that support has been decoupled and, as a result, the Blair House

acreage restrictions no longer apply. At the same time, they have initiated a carbon

credit program to subsidize production of energy crops, including rapeseed for biodiesel. ASA and other U.S. oilseed organizations believe the EU must be reminded

of its Blair House obligations, which have been bound in the EU’s WTO commitments. The United States must be prepared to aggressively challenge the EU if it

breaches its obligations.

FTAS AND REGIONAL TRADE AGREEMENTS

Regarding Free Trade Agreements, we support passage of the Central America

Free Trade Agreement (CAFTA), Dominican Republic, and Morocco FTAs. We are

also supportive of the Australia FTA provided that the pork phytosanitary issues

are resolved. We are anxious to see the conclusion of the Southern African Customs

Union (SACU) FTA, in which we hope our soy protein feeding program will be used

as a model for supplementary feeding of people receiving anti-retroviral drugs to

combat HIV/AIDS, as well as supplementing local diets to fight malnutrition and

low productivity.

We welcome the start of the Andean FTA negotiations. Andean countries have

preferential pricing and tariff systems which allow our competitors from South

America to export soybeans, soybean meal, and other soy products at duties much

lower than apply to U.S. exports, even though we are closer geographically and can

provide higher quality products. We hope negotiations with the Andean countries

will result in elimination of price band systems and reductions in tariffs to allow

U.S. soybean farmers compete fairly in these potentially large markets. Colombia,

for example, could become a larger export market than the Dominican Republic,

which is the fifth largest customer for U.S. soybean meal.

EU BIOTECH REGULATION

Finally, Mr. Chairman, I would like to comment about our ongoing effort—together with the rest of the U.S. agricultural community—to confront the growing

challenge to our farm exports by non-science-based claims regarding food and environmental safety. This challenge is focused on decisions by the European Union that

restrict the availability and competitiveness of food products derived from U.S.

biotech commodities by imposing stigmatizing labeling and onerous traceability requirements. Unless the U.S. and other biotech producing and exporting countries

challenge the EU’s T&L regulation, we will continue to lose foreign markets, not

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only in Europe but in other countries that choose to or are pressured to follow the

EU’s example.

Following formal adoption of the T&L regulation by the EU, ASA and 21 other

major national trade associations sent a letter to Ambassador Zoellick and Secretary

Veneman expressing these concerns and requesting initiation of a dispute settlement proceeding under the WTO. We have been working to develop private sector

support for the legal work required to mount a WTO case. We ask the committee

to join our effort to confront these policies, which set a very negative precedent for

stigmatizing and restricting without a scientific basis the trade in products that

have passed rigorous safety reviews.

That concludes my comments, Mr. Chairman. I would be pleased to respond to

questions you or other members of the committee may have.

STATEMENT OF DAN GERTSON

Mr. Chairman and members of the committee:My name is Dan Gertson. I am a

third generation rice farmer from Lissie, Texas. Many members of my family are

also involved in farming, including four sons and two sons-in-law. I am currently

serving as vice chairman of the board of the U.S. Rice Producers Association.

It is a pleasure to appear before the committee today to present the views of rice

producers, millers, and exporters on agricultural trade negotiations, a topic of vital

importance to our industry. I wish to commend the committee for holding this hearing and thank you for the opportunity to testify. I am also pleased to be here representing the views of the U.S. Rice Producers Association and the USA Rice Federation. It is particularly an honor for me because this is the first time that I have

ever testified before Congress.

The U.S. rice industry is a strong supporter of agricultural trade liberalization.

Frankly, we have no choice. The United States has one of the most open rice markets in the world. Nearly one-half of U.S. rice production is exported, and the

United States is the world’s third largest rice exporter. Imports account for 12 percent of domestic U.S. rice consumption, which reflects, in large part, our extremely

low import duties. In contrast to the open U.S. market, some form of U.S. rice—

whether rough, brown, or milled—faces high tariffs, unfair trade practices or discriminatory treatment in nearly every major export market.

Our members have also suffered greatly from unilateral trade sanctions imposed

by our own government that eliminated once vibrant markets in countries like Cuba

and Iran. We now find ourselves playing a form of catch-up in appearing before the

committee today. The rice industry is urging a full-blown effort by the U.S. government to open foreign markets while we labor to rebuild markets that were denied

us through unilateral U.S. trade sanctions.

Past trade agreements, coupled with substantial market development expenditures by industry and the U.S. government, have opened new markets, especially

in Latin America and Asia. But inadequate attention to enforcement has canceled

some of these gains and raised serious questions about the benefits of trade agreements. Rice producers are justified in being skeptical about the promise of improved

market access in the face of real cuts in farm programs being proposed by the administration in the current WTO negotiations.

TRADE BENEFITS U.S. RICE SECTOR

For more than a decade, the rice industry has benefited from trade agreements

that reduced tariffs and other trade barriers, and allowed many customers to choose

what types and forms of rice to be imported. Several years of declining prices also

supported increased foreign demand.

U.S. rice exports in 2003 of 4.5 million tons were 50 percent higher than sales

10 years earlier. The composition of U.S. rice exports has also evolved over the past

10 years. Rough, or unprocessed, rice now accounts for 45 percent of U.S. rice exports, up from less than 20 percent in the mid 1990’s.

Mexico emerged as the single largest U.S. export market by quantity as rough rice

sales grew steadily with the North American Free Trade Agreement. New markets

in Japan, Korea and Taiwan for U.S. brown and milled rice were created as a benefit of U.S. membership in the World Trade Organization.

FOCUS MUST BE ON MARKET ACCESS AND ENFORCEMENT

Despite the impressive growth in total exports, much work remains to be done to

remove preferential and discriminatory practices of foreign governments that stymie

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U.S. rice exports by preventing the clear transmission of economic signals between

foreign buyer and U.S. seller. Aggressive negotiating on market access in ongoing

trade negotiations and rigorous enforcement by the administration of existing trade

agreements are essential.

The U.S. rice industry’s key objectives in the current WTO negotiations and the

ongoing bilateral and regional free trade talks are straightforward:

• The eventual elimination of tariffs on all types and forms of U.S. rice;

• The elimination of export subsidies; and

• Maintenance of an adequate farm safety net for U.S. producers.

Rice is produced in all of the major U.S. rice export markets. As a result, U.S.

rice exports face a complex matrix of trade barriers, tailor-made by each importing

country. While the overall effect restrains aggregate U.S. export opportunities, there

are immediate impacts on certain segments of U.S. exports depending on the market. The best way to provide equal opportunity for all U.S. rice exports is to move

toward tariff elimination.

The Central American Free Trade Agreement was a good first step in this direction. The existing large market for U.S. rough rice was preserved, thereby protecting

the investment of substantial promotional dollars and years of effort on behalf of

the U.S industry. U.S. negotiators were also able to secure for the first time guaranteed access, albeit small, for U.S. milled rice. The relatively long phase-in period to

free trade in rice under the CAFTA—18 to 20 years—is twice the phase-in period

under the NAFTA. CAFTA puts us on a path to letting Central American customers

choose the type of U.S. rice they want free of government distortions.

Our trade negotiators at the Office of the U.S. Trade Representative and the Department of Agriculture are to be commended for balancing difficult issues and

reaching a comprehensive agreement. A similar balancing act will be necessary in

negotiating other trade agreements. The U.S. rice industry supports congressional

approval of the CAFTA.

Going forward, it is critical that the Doha Round of WTO negotiations be ambitious. It’s our understanding that the negotiations are being handled in a broadbased fashion and we support this approach. Import regimes that lockout milled and

rough rice from the EU, or that deny consumers access to U.S. rice in Japan and

Korea, for example, must be corrected.

A fundamental reassessment of special and differential treatment to developing

countries must also occur. Developing countries have special needs that can and

should be accommodated in the negotiations. However, the current self-certification

rules allow many countries with strong industrial and export sectors to claim the

trade benefits of a developing country. This is simply not fair.

The trade agenda of the rice industry is ambitious, and we realize that others will

ask for disciplines in exchange on ‘‘trade-distorting’’ U.S. farm programs. We accept

this challenge, but it is not a trade-off to be made lightly. Administration negotiators will have to show real, measurable progress in bringing home significant

market access gains before our producers and processors can seriously consider any

reduction in U.S. programs.

In this regard, we salute your unambiguous position, Mr. Chairman, as well as

and that of Congressman Stenholm, the committee, and the administration, to appeal the expected adverse WTO panel report on the Brazilian challenge to U.S. programs. A strong U.S. defense of the consistency of U.S. farm and export financing

programs with our country’s WTO commitments is critical to maintaining support

in the countryside for trade negotiations.

ENFORCEMENT MUST BE A PRIORITY

Negotiating good trade agreements frequently solves one set of problems but reveals another. Rice importing countries often devise creative schemes that thwart

trade agreements and keep U.S. rice out. Any U.S. trade agenda must include frontand-center a commitment of resources to ensure the enforcement of trade agreements.

In this regard, we commend the administration for the firm stand it has taken

against Mexico’s attempts to roll back the NAFTA across a range of commodities,

including rice. Mexico’s use of anti-dumping restrictions against imports of U.S.

milled rice is simply veiled protection for Mexican producers and millers. Even

though Mexico is our largest rice export market, where rough rice accounts for over

90 percent of shipments, the administration was right to challenge Mexico in the

WTO’s dispute settlement process regarding its treatment of U.S. milled rice. Mexico’s anti-dumping action severely restricts the ability of the United States to grow

the milled rice market.

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Market access for U.S. rice is also under threat in the European Union (EU). As

part of the Uruguay Round Agreement, the EU granted the United States a trade

concession that allows U.S. brown rice to be competitive in the EU, the so-called

Margin of Preference (MOP). The EU has now proposed to replace the MOP with

tariff rate quotas that would cause serious commercial disruption to our existing

brown rice trade, while doing nothing to improve access for U.S. rough or milled

rice. EU offers of compensation for removing the MOP concession have been inadequate. Our trade negotiators must stand firm for an import regime in the EU that,

at a minimum, maintains current access for brown rice.

Perhaps the ‘‘poster child’’ for the unfulfilled promise of trade agreements could

be Japan. The good news is that the United States has enjoyed steady annual exports of about 335,000 tons of brown and milled rice to Japan. The bad news is that

the Japanese government, the near-exclusive purchaser of U.S. rice, promptly places

the imported U.S. rice in warehouses. Less than one percent of the U.S. rice exported to Japan reaches consumers as an identifiable product of the U.S.A. Japan

is one of the world’s leading economies and major exporters. We support the ongoing

efforts of our negotiators to encourage Japan to further liberalize its rice import

market.

Meaningful market access is also essential to the efficient and effective use of

market development funds provided by the U.S. government and U.S. producers and

millers. Activities under the Foreign Market Development program, the Market Access Program, and related programs have been essential to growing the market for

U.S. rice in Mexico, Central America, the EU and Japan, for example. Market access

and promotion go hand in hand, and limited market access restricts the implementation and effectiveness of market development programs. By the same token, if

market access increases as a result of international agreements, we urge the Congress to provide enhanced funding for market development programs that will assist

producers, millers and exporters to build and maintain markets for U.S. rice in

these new markets.

In conclusion, threats abound to the livelihood of rice producers and millers.

Budget pressures in Washington; trade restrictions overseas; potential legal trade

wars in the WTO; and uncertain support for production agriculture all point to the

necessity of open foreign markets as an important component of an economically

viable rice industry. U.S. rice producers, millers, and exporters can compete if our

export customers are free to make their own decisions about U.S. rice.

We urge the committee to use its influence and expertise to help ensure that the

WTO agricultural negotiations deliver on the promise of real and broad-based market access that has eluded U.S. agriculture—without sacrificing the safety net provided by U.S. farm programs.

Thank you again for the opportunity to testify here today. I would be pleased to

address any questions that you may have.

STATEMENT OF LARRY GRAHAM

Mr. Chairman, my name is Larry Graham. I am the president of the National

Confectioners Association, and also serve as chair of the Coalition for Sugar Reform.

Our coalition includes trade associations like mine, representing the companies that

use sugar in confectionery, dairy products, grocery manufacturing and baking. It

also includes taxpayer advocacy groups, environmental organizations and consumer

groups. Thank you for the opportunity to testify. With me is Tom Earley of Promar

International, a prominent agricultural economist specializing in sweeteners, who is

available if the committee has technical questions.

THE FOOD INDUSTRY: EXPORTS HAVE RISEN

Debate over sugar trade often seems to center around imports. However, it is also

an export issue. U.S. food companies compete in a global market and ship their

value-added products abroad. Apart from years when commodity price spikes temporarily increase the value of bulk exports, the pronounced trend in U.S. farm and

food product trade has been toward a greater share for consumer-oriented products.

That means more value is added in the United States, supplying jobs for our citizens and increasing demand for what our farmers and ranchers produce.

As examples of these trade trends, consider that since 1994:

• U.S. exports of all consumer-oriented products have risen from $17 billion to almost $24 billion, a sales increase of 37 percent.

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• Within that category, U.S. snack food exports grew by 33 percent, reaching almost $1.6 billion.

• Breakfast cereal exports increased 66 percent, ending the period at $484 million.

• Dairy product exports grew to $1.0 billion, gaining 36 percent.

These and other processed foods—manufactured by our coalition’s member companies and other U.S. firms—are an important part of the trade picture. We know that

this committee is interested in expanding agricultural exports, whether in bulk or

value-added form, and we applaud your leadership.

TRADE: A TWO-WAY STREET

We know that you also understand the need for two-way trade. To buy our products, our customer countries must have foreign exchange to pay for what they buy.

One of the ways they generate that foreign exchange is by selling products to us.

For many of these countries—including the developing countries that represent

the most exciting growth prospects for U.S. agricultural exports—one of the products they want to sell is sugar. Of course, their ability to do so is limited by U.S.

sugar policy, which places strict limits on imports. Some 40 countries now hold

quotas to ship defined quantities of sugar—and no more—to the United States every

year.

Our coalition is opposed to the present sugar program (though we are not opposed

to alternative means of supporting producer incomes). We fully recognize, however,

that today’s hearing is not about the sugar program but about trade. Therefore, we

will confine our discussion to the impacts we believe present sugar policies have on

our Nation’s agricultural trade performance.

SUGAR POLICY: DETRIMENTAL EFFECTS

We believe U.S. sugar policy harms agricultural trade in three ways—two related

to exports, one to imports.

First, sugar import quotas limit the ability of our customer countries to generate

the foreign exchange they would obtain if the U.S. sugar market were more open.

Foreign exchange that is never earned cannot be used to buy U.S. products.

Second, the politics of sugar quotas encourage other countries to withhold trade

concessions that might otherwise benefit efficient U.S. farm sectors. For example,

in the Central America Free Trade Agreement, sugar imports will expand but will

always be limited by an annual quota, with shipments above that level subject to

the same prohibitive MFN tariff that is applied to exports from all other countries

(except Mexico). Although our food industry trade associations strongly support

CAFTA, we are concerned that because of politics, CAFTA represents less than full

free trade in sugar. But of course, in trade negotiations every action can produce

a reaction—and it is no coincidence that the Central American countries will maintain perpetual quotas on U.S. white corn exports, instead of fully liberalizing this

trade. When Costa Rica subsequently acceded to CAFTA, it too had products such

as onions that it wanted to keep quota-bound forever, and did.

Third, current U.S. sugar import policies have the ironic effect of encouraging

more imports of processed products. In the confectionery industry, the wide gap between U.S. and world sugar prices has created an incentive to move manufacturing

capacity offshore, use world-priced sugar to make candy, and ship the product to the

United States. It is perfectly legal to import the finished product, but U.S. trade law

makes it impossible to import world-priced sugar as the raw material for that product. Now, advocates of the sugar program usually claim that labor costs are what

drive these decisions. That claim overlooks the fact that almost all the well-publicized relocations of candy manufacturing capacity have occurred among plants that

manufacture hard candies, where the sugar content of the product is highest but

labor costs are not much if any different from other types of food manufacturing

that have not moved offshore. The sugar lobby’s claim also ignores several relocations to Canada—where labor costs are not so different from here, but where you

can easily buy world-priced sugar.

GROWING CONCERN IN THE FARM AND FOOD SECTOR

It is not just food companies and their trade associations who support the inclusion of sugar in trade agreements. U.S. farmers and ranchers are increasingly

aware that keeping sugar out of these agreements is harming their interests.

Among the groups that wrote President Bush in support of including sugar in the

U.S.-Australia Free Trade Agreement were the American Soybean Association, the

California Farm Bureau Federation, the National Corn Growers Association, the

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National Pork Producers Council, U.S. Wheat Associates, the U.S. Grains Council,

the USA Poultry & Egg Export Council, USA Rice and the Wheat Export Trade

Education Committee.

An official of the Illinois Farm Bureau—probably that State’s most influential agricultural group—had a more pointed comment. She said: ‘‘Proposals to exclude

sugar have met with significant opposition from a broad array of U.S. agricultural

groups who are tiring of the uncompetitive U.S. sugar industry seemingly hijacking

agreements that would provide significant benefits to other agricultural sectors.’’

These are not my words, but comments from one of the largest farm groups in the

Midwest.

BENEFITS FROM LIBERALIZATION

We believe that gradual liberalization of sugar trade through both multilateral

and bilateral agreements will bring multiple benefits to the United States. These

benefits will include the following:

• Enhanced competition in the increasingly consolidated U.S. sugar market, where

fewer and fewer vertically integrated sellers control more and more of the available

sugar supplies. • Better export opportunities for those segments of U.S. agriculture that are capable of competing in export markets. For example, it is clear from the negotiating

history of CAFTA that the inclusion of sugar prevented the Central American nations from completely excluding several agricultural commodities of export interest

to the United States, and permitted more rapid and complete trade liberalization

in Central American agriculture. • Potentially positive employment effects, to the extent that any marginal decrease in the artificial gap between U.S. and world prices may serve to reduce incentives to relocate confectionery production offshore in order to take advantage of

world-price sugar.

• The generation of foreign exchange which our trading partners can use to buy

U.S. agricultural and industrial products.

• Benefits to consumers, consistent with previous analytical work by the International Trade Commission, which found substantial welfare losses to the U.S. economy from the sugar program, and net benefits to the economy from reforming the

program.

We favor multilateral liberalization through the Doha Development Round of global trade talks. However, we believe the U.S. farm and food sector also has much

to gain from bilateral or regional agreements. We support the inclusion of sugar in

these agreements as well.

It is ironic that supporters of the sugar program have launched such furious attacks on trade agreements like CAFTA, when the CAFTA negotiators went out of

their way to make its sugar provisions modest and gradual. In its first year, CAFTA

will permit the import of an additional 109,000 metric tons of sugar. This amount

represents:

• Less than 1 percent of total supply in the current 2003–04 marketing year;

• About 7 percent of total imports and 5 percent of ending stocks for 2003–04;

and

• Only about 4 days’ sugar utilization in the United States.

If a supply increase of less than 1 percent threatened the very survival of an entire industry, that would say something disturbing about the competitiveness of that

industry. In fact the amounts of sugar in CAFTA do not even remotely threaten the

U.S. sugar industry or the sugar program.

We should carry out our agricultural trade policies with due regard for the needs

of all commodities, including sugar. But we should not allow a single commodity to

hold back the rest of U.S. agriculture. We encourage this committee to support the

inclusion of all commodities in all trade agreements, so that all parts of our Nation’s

farm and food industries can benefit from expanded trade opportunities.

Mr. Chairman, thank you for the opportunity to testify today.

STATEMENT OF DENNIS MCDONALD

Chairman Goodlatte, Ranking Member Stenholm, members of the committee, I

am Dennis McDonald, Trade Committee Chairman of Ranchers-Cattlemen Action

Legal Fund—United Stockgrowers of America (R-CALF USA). R-CALF USA works

tirelessly on behalf of the American cattle and livestock producer. Our focus has

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been on protecting and promoting the interests of independent livestock producers,

and it is from that perspective that I come before you today. I followed with great

interest the comments of both Secretary Veneman and Ambassador Zoellick when

they testified before this committee several weeks ago concerning international

trade, and I appreciate the opportunity to once again come before you and express

our views on developments in international trade and their impact on American agriculture.

During his testimony last month, Ambassador Zoellick made it clear that the

United States’ No. 1 trade priority was to restart and successfully conclude the

Doha Round of WTO negotiations—R-CALF USA could not agree more. R-CALF

USA has long advocated, and continues to support, efforts to open up U.S. beef export markets by reducing global tariffs to those levels existing in the U.S. for cattle

and beef. USDA and USTR report that the average allowed tariff on beef around

the world is 85 percent, while the U.S. in-quota tariff rate is 0 percent and out-ofquota tariff rate is 26.4 percent. This wide disparity in tariff treatment must be addressed because it severely limits market access for U.S. beef abroad.

We also support efforts to eliminate and prevent the proliferation of non-tariff

barriers to beef trade, such as the use of health regulations to unjustifiably block

U.S. beef exports. For a decade U.S. beef exports have been virtually shut out of

the European Union based on unjustifiable health regulations. Recent reports from

American embassies around the world indicate that the use of these non-tariff trade

barriers has spread to an ever-increasing number of countries. As an example,

USDA counselors in Thailand report that officials there have begun to place more

stringent standards on imported products than domestic products. The United

States must prevent the proliferation of these types of protectionist tools and the

WTO is the only place where effective action can be taken.

R-CALF USA also strongly supports efforts to eliminate global, direct and indirect, subsidies given to beef producers in other parts of the world. For a decade the

European Union’s beef export subsidies have lead to depressed prices for beef

around the world and hurt our ability to penetrate markets abroad. R-CALF USA

strongly agrees with USTR’s goal to eliminate all export subsidies by a date certain.

Next the harmonization and elimination of domestic support programs in the cattle and beef sector must be aggressively addressed by USTR. Cattle producers in

Europe, even under the new CAP ‘‘reforms’’, receive domestic support payments

worth billions of dollars every year. Cattlemen in Brazil benefit from hundreds of

millions of dollars in low interest loans designed to increase cattle production and

productivity in that country. As members of this committee, each of you is no doubt

aware that the only government assistance the American cattle industry receives is

disaster assistance. Domestic support programs around the world distort the true

costs of production and create an uneven playing field for U.S. cattlemen when we

compete for markets abroad. The distortions created by domestic support programs

in cattle and beef must, at the very least, be minimized if not eliminated outright.

R-CALF USA also shares USTR’s goal of addressing the trade-distorting effects

of State Trading Enterprises, like the Canadian or Australian Wheat Boards. RCALF USA believes that by artificially controlling prices for feed grains these State

Trading Enterprises provide an indirect subsidy for Canadian and Australian livestock producers. Indeed, in October 2002, in response to concerns expressed by livestock producers about the high costs of feed grains due to low supplies caused by

drought, the AWB stated that ‘‘the AWB National Pool is currently tailoring its current wheat export program in order to preserve vital grain stocks in drought-affected regions of Australia.’’ While the AWB has ‘‘no legislated market power’’ to set

grain prices in the domestic market, the action I have just described could lead to

lower feed prices in the Australian market, thus benefiting cattle producers there.

USTR must act aggressively to reform or eliminate these institutions.

Finally, Ambassador Zoellick left off one important priority when he appeared before you last month, namely the importance of ensuring that special rules associated

with perishable, seasonal and cyclical agricultural products are incorporated into

the WTO Agriculture Agreement. Neither the GATT nor the WTO has ever examined whether international trading rules, designed for industrial goods, should be

applied on equal terms to perishable, seasonal and cyclical agricultural products.

Perishable, seasonal and cyclical products, such as cattle, cannot be stored like industrial goods or non-perishable agricultural products such as grain or cotton. When

perishable, seasonal and cyclical products are ready for sale they must be sold;

international trading rules designed for industrial goods do not currently take this

into account. As Congress pointed out in the Trade Act of 2002, they should.

The WTO is the only forum in which all of these issues can be effectively addressed. Unfortunately, as Ambassador Zoellick himself noted the Doha Round of

trade negotiations have broken down and talks are only slowly restarting. R-CALF

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USA believes that before the United States enters into bilateral or regional FTAs

with major agricultural producing countries with small internal markets, the major

global distortions caused by tariffs, non-tariff barriers and subsidies must be eliminated. Furthermore, any FTA must address and eliminate internal distortions within the proposed trading partner that impede trade in cattle and beef.

The liberalization of agricultural markets on a bilateral basis is a delicate balance. If USTR liberalizes markets where the U.S. cattle industry is likely going to

fare poorly and it is unable to simultaneously open the major consuming markets

where the U.S. cattle industry will do reasonably well, then USTR will put the U.S.

cattle industry in the position that we will lose market shares globally and domestically, not because we are not competitive, but because we expand market access in

the U.S. far ahead of equitable access abroad. FTAs that do not address these distortions will result in worsened long and short-term outcomes for U.S. cattle producers. Rather than unilaterally removing existing restrictions, the United States

should be exploring ways in which to best address the problems of perishable and

cyclical agricultural producers. If we cannot achieve agreement on special measures

to address perishable and cyclical agricultural products, then USTR should seek

parity of tariffs among our trading partners and ourselves on beef, eliminate all subsidy and non-tariff barrier distortions to trade in beef between ourselves and our

trading partners, and, in the interim, we should maintain current existing TRQs

and Special Safeguards on beef imports.

Despite significant efforts by the administration, such a situation does not exists

with the U.S.-Australia FTA as it does not address internal distortions within Australia that artificially lower production costs for beef in that country. As I noted

above, the AWB provides Australian producers artificial production advantages. In

conjunction with the massive distortions generated by actions of other major trading

partners and the lack of market access in other overseas markets, the U.S.-Australia FTA will exacerbate an existing unacceptable market situation for U.S. cattle

producers and thus R-CALF USA can not support the U.S-Australia FTA.

Likewise, R-CALF USA is also concerned about the proposed FTAA that is currently scheduled for completion in 2005, and which may well provide increased market access for beef from cattle herds in South America numbering well in excess of

200 million head. Markets in major beef producing countries such as Brazil, Argentina and Uruguay offer little possibility of reciprocal beef trade. In addition, the recently completed CAFTA and the proposed Andean FTA allow significant cattle producing countries with relatively small internal markets increased access to the

United States during a period of extreme vulnerability. Such agreements should follow, not precede, global talks to eliminate subsidies, remove tariff and non tariff

barriers to beef trade that distort open markets.

Before I conclude, I would also like to mention that R-CALF USA shares USDA’s

goal of opening up the Japanese market to U.S. beef exports as quickly as possible.

While we may disagree about the best way to accomplish that goal, rest assured

that both USDA and R-CALF USA believe that reopening U.S. exports markets will

help ensure that American cattlemen receive the highest possible value for the superb cattle that we produce in this country. In that regard R-CALF USA fully supports the ultimate goal of the administration in Japan, and we welcomed Secretary

Veneman’s announcement of a new series of intense negotiations between the

United States and our Japanese trading partners and we hope to be as involved as

possible in that process.

I’d like to also say a few words about the impending WTO panel decision on cotton. R-CALF USA has long been concerned about overactive WTO panels creatively

interpreting WTO treaties to create obligations that were never agreed to through

negotiation. We have seen such ‘‘creativity’’ with regard to obligations under the

Antidumping and Subsidies Codes. We oppose such efforts to create new obligations

and thus we stand united with and support this committee’s efforts, and the efforts

of the administration, to defend and preserve the rights of our rural neighbors who

grow row crops. The day when the American agricultural community could be divided against itself has passed.

In conclusion, the United States currently faces a large and growing trade deficit

in terms of our total imports of beef/veal and cattle versus our total exports of beef/

veal and cattle. Before the discovery of BSE in 2003, total beef/veal and cattle exports, as converted to pounds has fallen from 2.9 billion pounds in 2000 to 2.6 billion pounds in 2002 while beef/veal and cattle imports have risen from 4.65 billion

pounds in 2000 to 5.1 billion pounds in 2002. We believe that this deficit illustrates

the need to develop comprehensive solutions to the problems faced by the cattle industry that can only be accomplished at the WTO, and in the Doha Round. In absence of such comprehensive solutions we believe the United States should not agree

to a series of FTAs with major agricultural producing countries with small internal

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markets that will result in the erosion of the American cattle industry with no appreciable benefits. We urge the Congress to see that as a general matter liberalization does not occur in a lopsided fashion going forward where the U.S. agrees to

deals that will hurt the cattle industry but are unable to open large consuming markets abroad. To that end we supported the U.S.—Chile, U.S.—Singapore FTAs last

year as opportunities to expand U.S. exports into consuming countries, and we support for the same reasons the U.S.—Thailand and U.S.—Morocco FTA this year.

Further, if we must enter into an FTA with a major beef producing country, then

it must address and eliminate any internal distortions within the proposed trading

partner that impede trade in cattle and beef while also recognizing the special needs

of perishable producers.

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STATEMENT OF STEWART GALLAGHER

On behalf of the 850 plus cranberry and grapefruit growers of the Ocean Spray

Cranberries, Inc. cooperative, we appreciate the opportunity to submit testimony to

the committee regarding our interest in ongoing bilateral and multilateral trade negotiations. Given the economic difficulties that have recently confronted the industry

as a result of low prices and excess inventories, eliminating both tariff and non-tariff trade barriers are critical to the future health of the US cranberry industry. As

negotiations proceed, Ocean Spray strongly encourages the United States to maintain the high priority it has placed on resolving these barriers in the agriculture

and processed foods sector.

Given the present and future importance of the international marketplace and

current market entry barriers, we are principally interested in efforts that would

reduce the present duties on cranberry products to zero as part of ongoing discussions. This is the key negotiating objective for U.S. cranberry growers, whose primary exports include cranberry concentrate, sweetened dried cranberries, fresh

cranberries and frozen cranberries. We have submitted numerous letters to this effect on the individual bilateral negotiations and welcome the opportunity to help the

administration in any way possible.

After the US, the European Union (EU) is Ocean Spray’s largest market and

therefore its most important international marketplace with numerous opportunities

for growth. However, these opportunities are far more difficult to realize with high

tariff rates, which account for nearly $2.5 million in annual duty expense. For our

growers, this equates to almost $0.50 per barrel (one barrel equals 100 pounds of

cranberries) that could be paid directly to US cranberry farmers. Given the present

disparities between the US and the EU in particular with respect to bound agriculture tariff rates, future opportunities for cranberry producers will not be recognized in this and other key markets unless aggressive actions are taken to level the

playing field.

As the cranberry industry continues to slowly rebound from some very difficult

economic times, market expansion enabled by tariff elimination will to be a crucial

factor in determining the future stability and viability of the industry at large. Toward this end, Mr. Chairman, we greatly appreciate the important oversight role

of the committee and look forward to working with you and the administration to

elevate ongoing efforts to remove the worldwide duty rates on all cranberry products. Please do not hesitate to contact me directly if you have any questions and

again, thank you for the opportunity to comment on this important issue.

STATEMENT OF C. MANLY MOLPUS

Good afternoon, Chairman Goodlatte and Ranking Member Stenholm and Members of the Committee. It is a pleasure to be here today on behalf of the Grocery

Manufacturers of America (GMA) to offer our views on the status of multilateral

and bilateral free trade negotiations. GMA strongly supports these negotiations,

which we believe will yield significant benefits for the food industry in terms of new

opportunities for exports and increased access for imports of key raw materials.

GMA is the world’s largest association of food, beverage and consumer product

companies. Led by a board of 42 Chief Executive Officers, GMA applies legal, scientific and political expertise from its more than 140 member companies to vital

public policy issues affecting its membership. The association also leads efforts to

increase productivity, efficiency and growth in the food, beverage and consumer

products industry. With US sales of more than $500 billion, GMA members employ

more than 2.5 million workers in all 50 states.

OVERVIEW OF PROCESSED FOODS AND AGRICULTURAL EXPORTS

The processed food industry remains a significant and increasingly important

component of the agricultural sector. In fact, consumer food exports now account for

a higher percentage of US agricultural exports than bulk commodities, making them

a key export gateway for many farm products. Moreover, exports of processed food

products deliver greater related economic benefits to rural communities than the export of commodities alone. For example, each dollar in exports of processed food

products generates an additional $1.57 in domestic economic activity as compared

to $0.81 for commodities. Similarly, every $1 billion of exports of processed food

products supports 16,700 jobs, whereas the same dollar value of exports of commodities supports 12,700 jobs.

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Unfortunately, tariffs on processed food products remain among the highest in the

agricultural sector. Although Uruguay Round commitments required countries to

cut tariffs by an average of 36 percent, the high tariffs facing the processed food

sector were left relatively unchanged. There are several reasons for this result.

First, since countries were only required to make simple average tariff cuts, they

naturally chose to take the largest cuts on already low tariffs (e.g., reducing a 4 percent tariff by 50 percent) and only the minimum cut (10 percent or 15 percent) on

higher tariffs. Additionally, in many countries tariffs on agricultural products often

increase with the level of processing, resulting in significant tariff escalation for

many processed food items. Finally, the Uruguay Round tariffication process created

a tariff-rate quota (TRQ) system for many sensitive products (for example, sugar,

dairy, and peanuts) that are the key ingredients in many processed food products.

As a result, processed food products often face complex and prohibitively high tariff

structures that not only assess a duty on the product itself but on its ingredients

by weight and composition as well.

In addition to these tariff barriers, the processed food sector also faces numerous

non-tariff barriers that hamper exports globally. Examples of these types of barriers

are unjustified mandatory labeling policies, burdensome export requirements and

dissimilar standards for packaging and labeling. These barriers are proliferating

most notably in the European Union and are often exported from the EU to other

countries around the world, as in the case of mandatory labeling for agricultural

biotechnology.

GMA GOALS FOR TRADE NEGOTIATIONS

GMA has a consistent set of goals for all trade negotiations. Of utmost importance

is achieving maximum market access for food, beverage and consumer products

through the rapid reduction of tariffs, the expansion of tariff-rate quotas and the

elimination of non-tariff barriers to trade. GMA also looks to secure increased access

to key ingredients such as sugar, dairy and peanuts to enhance the competitiveness

of US manufacturers of food products. Finally, trade negotiations help to ensure a

competitive business environment for US investors and exporters through improved

rules on investment, distribution and intellectual property rights.

World Trade Organization (WTO) NegotiationsFramework Agreement on Agriculture

GMA believes that of all the negotiations in which USTR is engaged, the WTO

negotiations offer the best opportunity for meaningful trade liberalization in food

and agriculture products. We were deeply disappointed by the collapse of the

Cancun Ministerial and believe that the best chance for any real progress in the

WTO lies with achieving a framework agreement by the next General Council meeting in July.

In the agriculture negotiations, it appears that the major outstanding issue remains finding consensus on the market access formula. Given the tariff profile

(peaks and escalation) that characterize the barriers to trade in food products, GMA

strongly supports a formula for tariff reductions that cuts higher tariffs faster than

lower ones and harmonizes all tariffs to the already low US schedule. Ambition in

tariff reductions is a priority for GMA and, as such, we support any tariff formula

that affords maximum market access globally.

We are concerned, however, that the US-supported ‘‘blended’’ formula (part Swiss/

part Uruguay Round) might not deliver the ambitious results that our industry

needs. For example, the combination of formulas could produce a result where countries apply only minimal (Uruguay Round) cuts to the highest tariffs. Not only

would this leave tariff peaks relatively unchanged, but it also could have the adverse effect of creating inverted tariffs globally by leaving the high tariffs on ingredients while reducing the tariffs on finished products. In this instance, global manufacturers would have difficulty sourcing ingredients while facing increased competition on finished food items.

The blended formula could also allow major developed countries (for example,

Japan, EU, and Canada) to shelter their most sensitive commodities from any

meaningful liberalization. It is likely that developing countries would reciprocate by

refusing to open their markets in return. As a result, the blended formula could result in less ambition overall, even though it includes the Swiss formula, which is

designed to produce the most aggressive tariff cuts.

GMA believes that a solution can be found by either accepting a banded approach

or altering the blended formula to strictly define the number of products that would

be subject to the Uruguay Round formula. All formulas should also clearly specify

that any products that receive minimal tariff cuts must be subject to a proportionate

expansion of tariff-rate quotas. GMA urges negotiators to consider a variety of apVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00325 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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proaches that would result in the maximum reduction of all tariffs by the July deadline for a framework agreement.

GEOGRAPHICAL INDICATIONS (GIS)

Prior to the Cancun Ministerial, the European Union placed enormous emphasis

on commencing new negotiations on geographical indications, so that they would

have something to ‘‘take back to their producers’’ as compensation for commitments

in the agriculture negotiations. Since the collapse in Cancun, however, the EU has

been conspicuously silent on their GI demands. In recent meetings at the WTO,

GMA learned that while the EU had not made any new proposals on geographical

indications, they remain committed to their earlier objectives and have continued

to raise the issue in the Trade Related Intellectual Property (TRIPs) Council and

the Trade Negotiating Committee meetings.

In the agriculture negotiations, the EU continues to demand ‘‘absolute protection’’

for a determined list of geographical indications regardless of whether these products are generic (e.g.; cheddar, parmesan, Dijon mustard, etc.) or whether there is

an existing trademark on the product. The EU also continues to insist on new negotiations on the extension of protections for wines and spirits to all products.

GMA remains adamantly opposed to new negotiations on GIs. We believe that sufficient rules already exist to guarantee that GIs are protected and that new commitments in this area are not needed. New rules may only serve to confuse consumers

and represent a direct threat to trademarks and brands that are essential to the

future growth of the food industry. Concessions on GIs will likely have enormous

negative consequences for food and agriculture groups as well as for a wide variety

of industries that rely on strong intellectual property protections to market their

products globally. GMA believes the limited references to geographical indications

in the Cancun text are sufficient and should not be changed in any way to imply

consensus on new negotiations under the Agriculture, Implementation, or TRIPS

Committees.

RECENTLY CONCLUDED NEGOTIATIONS; GOALS FOR REGIONAL AND BILATERAL

NEGOTIATIONS

GMA goals for the regional and bilateral negotiations are largely consistent with

those for multilateral negotiations. In addition, we believe that these negotiations

must be comprehensive, meaning that all products must be subject to meaningful

liberalization. Exempting sectors, even politically sensitive sectors, will not only

hurt US manufacturers and consumers who rely on imports, but will disadvantage

the export opportunities for competitive agricultural sectors. Removing products or

sectors ultimately undermines the value of the agreement to all exporting sectors.

For these reasons, GMA strongly supports the US-Central American Free Trade

Agreement (FTA) and does not support the US-Australia FTA.

US-CENTRAL AMERICAN FREE TRADE AGREEMENT (CAFTA)

Food, beverage and consumer products currently face an average ad valorem duty

of 15 percent into the CAFTA countries and 20 percent into the Dominican Republic.

Some GMA products like cheese and yogurt face prohibitive tariffs well in excess

of 60 percent in many CAFTA countries. Under this FTA, many of these duties will

be eliminated immediately, most within 15 years and a very few dairy products will

receive duty free treatment in 20 years. In addition, all products are covered by the

agreement.

These market access commitments will yield meaningful benefits to GMA companies. A recent GMA-sponsored study by the International Trade Services Corporation estimates that the potential savings from the tariff reductions and quota expansion alone will be nearly $8.8 million in the first year of the agreement. This figure

grows to nearly $28 million annually upon full implementation of the agreement.

The study also measures the potential aggregated increase in GMA exports to the

five Central American countries and the Dominican Republic one year after the

elimination of tariffs on GMA priority products. The trade flow analysis suggests

that upon elimination of tariffs, GMA exports could increase from $359 million to

$662 million annually—an 84 percent increase over current exports to the region.

GMA also expects to see strong growth in particular sectors as a result of the agreement. For example, we predict that exports of snack foods, confectionary products,

and soups could nearly double to about $30 million annually in each category as a

result of the CAFTA.

Although we are excited about these new export opportunities, GMA also supports

the CAFTA because it will provide new avenues for imports of key ingredients for

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food processors. For example, under the agreement the US peanut tariff will be

phased out over a 15-year period, with an initial TRQ of 10,000 metric tons (mt)

for Nicaragua and 500 mt for El Salvador. US manufacturers will also have access

to an additional 153,140 tons of sugar in year 15 of the agreement. GMA regrets

that the over-quota tariff on sugar will never be reduced or eliminated, the only tariff under this agreement that will be preserved. We are pleased, however, that the

sugar quota will continue to grow at two percent annually. The additional access

to peanuts and sugar, although modest, will help to increase the competitiveness of

US companies vis-a-vis other manufacturers who have access to lower cost raw materials.

ONGOING NEGOTIATIONS. FREE TRADE AREA OF THE AMERICAS (FTAA)

As you are aware, Trade Ministers agreed to develop a two-tiered FTAA at the

November Miami Ministerial. Under this new structure, all countries will agree to

a common set of rights and obligations. Others may also negotiate a higher standard

pluralateral agreement, which will be modeled on US bilateral free trade agreements. GMA questions whether the two-tiered FTAA will yield meaningful new

market access in the Hemisphere, given that countries will be likely to limit tariff

concessions in order to provide an incentive for more comprehensive commitments

in other negotiation areas such as services or intellectual property rights in the

pluralateral agreement. While we continue to support a high-standard, comprehensive FTAA, we wonder whether this might be better achieved through the integration of the many bilateral and regional free trade agreements in the Hemisphere.

To this end, we recommend that all agreements in the Hemisphere contain consistent rules of origin for ease of future integration.

FUTURE NEGOTIATIONS

GMA supports all future bilateral and regional free trade negotiations, provided

that they are comprehensive and achieve high standards in all negotiating groups.

In many ways bilateral and regional negotiations allow for a greater integration of

markets and provide the opportunity to enhance existing WTO commitments in key

areas such as intellectual property rights and services. Following, please find comments on select future agreements.

US-Andean Free Trade Agreement and US-Panama Free Trade AgreementGMA

supports new negotiations with the Andean countries and Panama, which are strong

and growing markets for US food, beverage and consumer products. For example,

Colombia is the largest export market in the Central and South America for food

and agricultural products. In addition, although a small country, Panama is a stable

economy with one of the highest per-capita gross domestic products in the region.

Panama’s economy is primarily service oriented and, as a result, roughly 84 percent

of food products in Panama are imported. Average tariffs in the Andean region and

Panama are 20 percent. Immediate elimination of these duties is a priority for GMA

in the negotiations.

US-THAILAND FREE TRADE AGREEMENT

GMA strongly supports the US-Thailand FTA negotiations. Exports of consumeroriented food and agriculture products to Thailand have increased dramatically in

the last 4 years, from less than $51 million in 1999 to over $81 million in 2003.

As tourism rebounds and incomes rise, we expect this exponential growth to continue. Within the consumer-oriented category, some products that experienced substantial growth rates over the 1999–2003 period include breakfast cereals, red

meats, dairy products and pet foods.

There are, however, significant tariff and non-tariff barriers that hamper US exports to Thailand. Most onerous are the extremely high tariffs on processed food

products, ranging between 40 and 50 percent on many items. Eliminating these tariffs over the shortest time practicable is a key GMA goal for the negotiations. In

addition, there are many non-tariff barriers to trade in Thailand such as restrictive

import procedures and burdensome testing requirements that we hope to have addressed in the negotiations.

SUGAR ACCESS

Thailand, Colombia and Panama are all major sugar exporters, and GMA supports inclusion of sugar in all of these agreements. We remain concerned that the

exclusion of sugar could have devastating results on the overall level of ambition

of the agreements. All future FTA partners have many sensitive agriculture sectors

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and will not hesitate to limit our exports if we exclude sugar. In addition, given the

importance of sugar exports to the region, we are concerned that limitations on

sugar imports to the US could limit commitments in other areas such as services

and intellectual property rights, as was the case in the US-Australia FTA. We firmly believe that the exception granted for sugar in the US-Australia FTA must be

viewed as an unfortunate exception and not the rule for bilateral free trade agreements.

Thank you for the opportunity to present our views this afternoon. GMA believes

that it is of critical importance to farmers and manufacturers alike to continue to

expand market access through reduced tariffs and the elimination of barriers to

trade for food and agricultural products. We are very optimistic about the chances

for meaningful trade reform for the processed food sector, which will lead to increased choice and more affordable food for consumers globally. I look forward to

answering any questions.

STATEMENT OF DEE VAUGHAN

Good morning. Chairman Goodlatte, Ranking Member Stenholm and members of

the Committee. My name is Dee Vaughan. I am a farmer from Dumas, Texas, and

president of the National Corn Growers Association. I would like to thank the Committee for giving me the opportunity to testify and speak today regarding trade negotiations important to corn producers.

The National Corn Growers Association (NCGA) was founded in 1957 and represents more than 33,000 dues-paying corn growers from 48 states. The Association

also represents the interests of more than 350,000 farmers who contribute to corn

checkoff programs in 19 states.

NCGA’s mission is to create and increase opportunities for corn growers in a

changing world and to enhance corn’s profitability and use. Trade is vital to the future of corn growers as we search for new markets and provide grain that is more

abundant and of better quality.

MARKET OUTLOOK

One out of every five rows of corn in the United States is exported, and exports

of value-added corn and co-products add to the importance of foreign markets for

U.S. corn producers. In 2003, U.S. corn exports totaled 51million metric tons with

a value of $4.7 billion. This represents approximately 20 percent of total domestic

production, with the U.S. accounting for nearly 65 percent of worldwide production

last year (see attached charts). Our two closest competitors in the international

marketplace are Argentina and China with 12 and 10 percent of world production

respectively.

I am pleased to report that the United States Department of Agriculture (USDA)

recently estimated U.S. corn exports would increase in the 2003/2004 marketing

year to 2.05 million bushels (52.08 million metric tons). U.S. corn exports are up

50 million bushels, largely because of less competition from China. Although global

coarse grain use is up 8 million tons, global coarse grain imports are down just over

one million tons. U.S. and Argentine corn exports are expected to expand while

those of China and Brazil decline.

Across the country, corn farmers are enjoying the benefits of a commodity boom.

Despite the good news, we need to ask ourselves could prices go higher, how long

will this price strength last and how do we ensure farmers position themselves favorably in a competitive international marketplace.

NCGA believes trade is a vital component in the farm economy and supports

trade agreements that will open markets for U.S. farmers and increase market development opportunities throughout the world. We reaffirm our commitment to an

aggressive trade agenda. However, farmers and ranchers are already expressing

frustration with free trade agreements and import sensitive commodities are rallying against efforts to lower tariffs and expand market opportunities. In order to

maintain the confidence of grassroots producers we need to evaluate our successes

and failures. We need to use the lessons learned constructively to achieve comprehensive and beneficial agreements. For corn growers, Mexico represents our

greatest success and failure of U.S. trade policy.

MEXICO SWEETENER DISPUTE

In the ten years since the North American Free Trade Agreement (NAFTA)

passed the Congress, U.S. corn exports to Mexico have grown from 1.1 million metVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00328 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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ric tons in 1992 to 5.6 million metric tons in 2003. Mexico is now our second largest

export market as the domestic livestock industry in Mexico continues to grow.

However, as you know, the U.S. corn industry has been embroiled in a trade dispute with Mexico for more than seven years on high fructose corn syrup (HFCS).

This sweetener dispute has exacted a heavy toll on our sector.

Mexico is a market with an estimated potential of two million metric tons of

HFCS, or half of the supply of sweeteners in that economy. This equates to more

than 133 million bushels of corn grown on over 945 thousand acres annually. However, that production opportunity has been lost for America’s corn farmers and refiners. Shortly after the NAFTA was implemented, we experienced increased market

access to Mexico. And then our troubles on HFCS began and have only intensified

since.

In 1997, Mexico implemented an illegal antidumping investigation. The United

States won five separate World Trade Organization (WTO) and NAFTA panel rulings against Mexico. When Mexico finally lifted its dumping duties on U.S. HFCS

exports, it simply substituted one illegal measure for another.

On January 1, 2002, Mexico implemented a 20 percent tax on all beverages sold

in Mexico that are not sweetened with its own cane sugar. This highly discriminatory tax was aimed squarely at our HFCS exports and the production of HFCS from

U.S. corn by U.S. owned plants in Mexico.

The so-called soda tax shut down our top HFCS export market overnight. And

that was more than two years ago. Never before in recent U.S. history has an industry been shut out of its top export market for this extensive period of time.

NCGA is now engaged in private sector discussions with the Corn Refiners Association (CRA) , the U.S. sugar industry and the Mexican sugar industry to craft a

proposal for our respective governments that we hope will resolve this dispute and

restore trade in HFCS with Mexico.

At the same time, we are pursuing our rights through a WTO dispute settlement

against Mexico’s illegal soda tax. WTO consultations were held with Mexico just last

week. We are confident that Mexico’s tax will be found to be in violation of the important WTO principle of national treatment.

We urge the U.S. Trade Representative (USTR) to expedite the process to enable

an interim ruling of the WTO panel before the end of the year.

Mr. Chairman, we appreciate your continuing support for a solution to this issue

and look forward to working with you and your colleagues to resolve this dispute

once and for all.

CHINA

In recent years, U.S. grain producers and exporters have had serious concerns

about China’s problems living up to the commitments it made upon joining the

WTO, specifically in the areas of export subsidies and administration of tariff rate

quotas.

Of most concern was China’s use of export subsidies to ship major volumes of corn

into markets such as South Korea, Malaysia, Indonesia, Japan and Taiwan. Those

exports came mostly at the expense of the U.S. corn industry. However, the situation has abated recently with declining exports due largely to China’s large drawdown in stocks and surges in industrial use (for production of starch, alcohol, and

other products). Rising domestic consumption and lower stocks continues to put

pressure on prices in the major producing provinces.

It is too early to tell if/when China will become a net importer, but the implementation of policies that will abolish the floor price for corn purchases and moves towards a more open corn trading environment are encouraging. We continue to experience problems with the grain tariff rate quota (TRQ) allocation under the WTO

accession agreement, but progress is being made and the Chinese Government did

release a list of TRQ recipients this year.

WORLD TRADE ORGANIZATION

NCGA still believes that future efforts to successfully liberalize international agriculture markets hinges on the current WTO negotiations. Exports and trade liberalization are vital to global economic development and to U.S. agriculture’s continued

profitability. We applaud the efforts of Ambassadors Zoellick and Johnson and remain hopeful negotiations will produce a framework by July.

For corn growers, key to the success of this round is the extent to which developing country markets are fully integrated into the global trading system. The fastest

growing markets are in developing countries, where an emerging middle class has

increased purchasing power and is consuming more and higher quality foods. The

U.S. farmer has long known that the U.S. feed grain sector benefits when citizens

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in developing countries improve their standard of living—higher incomes translate

into higher demand for protein products, which results in additional demand for

feed grains in those countries to produce meat, milk and eggs.

But lowering those barriers will not only provide a boost for U.S. feed grain exports, but developing countries will benefit from reforms that enhance their own

competitiveness and income growth potential as well. High tariffs in developing

countries curtail economic activity and investment generated by livestock production

and processing. Additionally, high tariffs limit trade among developing countries,

thus limiting their own opportunities to capitalize on their comparative advantages

through export opportunities. After all, it is the developing countries which are

going to represent the largest share of consumption growth over the next decade not

only for the U.S. producer to fulfill, but also their developing country neighbors.

Regardless of the approach ultimately agreed to for lowering tariffs, developing

countries need to be full participants and meaningfully liberalize import tariffs in

order to facilitate trade. They cannot retrench behind rhetoric and ignore the need

and benefits of liberalization. Higher tariffs not only hurt exporting countries but

agricultural producers around the globe.

One example is India. Recently thought of as one of the greatest future export

opportunities for U.S. feed grains, the imposition of a 15 percent tariff on corn in

2000 has lead to the complete cessation of imports. Without an agreement that lowers this tariff and expands the existing 500,000 metric ton TRQ in India, the U.S.

feed grain producer will have to forgo access over the next decade to 15 percent of

the world’s population. On the other hand, India’s poultry industry will not have

the opportunity to fully develop its potential because of continuing high costs of production.

The Doha round must not miss this opportunity to forward trade liberalization

and the process of reform, in both developed and developing countries. If delayed,

the next opportunity for realizing the benefits of a more open trading system will

not be realized for another generation. We must do all we can to ensure a successful

outcome of the Doha round on agriculture not only for U.S. producers, but for consumers around the world.

Perhaps the most sensitive topic for U.S. producers will be domestic support. A

successful agreement will ensure harmonization of levels among developed countries

and shift levels away from trade distorting mechanism to green box alternatives.

Even with lower tariffs, international competition in feed grains will not be fair if

U.S. farmers are denied an adequate safety net.

As we have stated in the past, a final agreement needs to provide Congress with

the ability to construct a farm program that meets our domestic objectives while

complying with international agreements. Negotiators must ensure maximum flexibility to preserve the farm safety-net while at the same time providing an environment where U.S. producers are competitive.

The NCGA believes a national farm program can be constructed that is green box

compliant while meeting the same objectives provided in current law. This was and

remains a stated objective of NCGA and formed the foundation of our proposal to

Congress three years ago prior to farm bill reauthorization. We remain committed

to this goal.

FREE TRADE AREA OF THE AMERICAS

Progress on a Free Trade Area of the Americas is slow and reports from the negotiations are not encouraging. While a more limited agreement would be welcome

news, discussions do not seem to be moving forward.

As stated last year before the Committee corn growers seek the following objectives: 1) overall reduction in tariff levels; 2) elimination of the use of export subsidies for trade in the Western hemisphere; 3) the phasing out of tariff-rate quotas;

4) fair administration of quotas and import permits; 5) eliminate other market access restrictions; 6) disciplines on State Trading Enterprises; 7) science-based regulations pertaining to human, animal and plant health and; 8) an expedited dispute

settlement process.

Two of these objectives deserve special note. Specifically, the U.S. feed grain industry would benefit from increased access to the complex system of preferential regional and bilateral trade that has emerged in the Hemisphere. Tariff reduction,

and ultimate elimination, would ensure that U.S. corn exports gain or retain access

to markets on a basis comparable to that granted to other trading partners.

For example, duties between Mercosur countries are generally zero whereas members apply the common external tariff and statistical tax for imports from the

United States (and other non-member countries). For example, Argentina enjoys a

2 percent tariff for corn exports to Brazil. The comparable rate for U.S. exports is

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9.5 percent. While Brazil has at times in the past announced a tariff reduction for

U.S. exports due to short supplies, it remains difficult for the U.S. to compete in

that region for much of the year, despite some seasonal and freight advantages.

Bilateral Economic Complementary Agreements (ECA’s) also work to our disadvantage. The ECA between Chile and Mercosur members subjects corn from Argentina to a lower import duty (1.8 percent in 2003) than the United States (6 percent in 2003).

Such elimination of feed grain tariffs for our exports similar to those extended

under regional and bilateral agreements would allow United States feed grains to

compete in the Hemisphere under market conditions.

The ‘‘price band system’’ employed by Andean Pact countries continues to protect

domestic agricultural products from imports. Under the Andean Pact’s common external tariff policies, corn imports from non-member countries are subject to a fixed

tariff and a variable tariff based on import prices. The complex variable tariff component keeps internal prices high when world prices are low and declines as world

prices increase, effectively setting a floor on the import price of third-country products. Overall feed grain demand is dampened as domestic markets are insulated at

artificially high price levels, and as a result demand for imported feed grains is diminished. The use of price bands is inconsistent with WTO rules and should be

eliminated as part of the FTAA agreement.

Another top priority for corn growers is to prevent export subsidies from being

used by any member. We seek a commitment from each country to refuse to accept

subsidized exports from third parties. Export subsidies are the most trade distorting

of government policies and severely injure efficient producers. Elimination and prohibition of future subsidies in the FTAA will not only level the playing field for agricultural commodities but also will increase pressure on the European Union to reform its export subsidies in the WTO negotiations on agriculture.

In addition, to better understand the short and long term impacts of tariff liberalization on the feed grain sector, the National Corn Growers Association has commissioned a study to examine the Free Trade Area of the Americas (FTAA). In addition,

study will also examine the impacts on the HFCS and ethanol industries. We believe the study will provide critical information and help us provide good counsel

to USTR and the Congress on this important issue.

Bilateral Free Trade Agreements

While the WTO negotiations and Doha Round are the top trade priority of the

NCGA, we do support bilateral free trade agreements with significant and emerging

trade partners. Generally, the list of candidates provide benefits to feed grain producers, but we need to ensure the Administration selects partners that represent

significant future potential for economic activity and trade.

CENTRAL AMERICA FREE TRADE AGREEMENT

NCGA supports the Central American Free Trade Agreement (CAFTA) and urges

its speedy passage. In 2003 CAFTA countries imported 1.7 million metric tons of

corn with the United States supplying nearly all of that demand. With approval of

the agreement, it is expected that this number will grow and likewise for the United

States.

The agreement will stimulate domestic exports of corn, co-products and valueadded products like gluten, distillers dried grains (DDGs), starches, oils and sweeteners as well as meat and poultry products. All tariffs on corn products (such as

corn flour, corn oil, and high fructose corn syrup) will be eliminated within 15 years.

Tariffs on corn gluten feed/meal and distillers dried grains will be eliminated immediately.

Import duties on yellow corn currently range from 15–35 percent in CAFTA countries other than Costa Rica where it is 1 percent. Under the terms of the agreement,

guaranteed access will total nearly over 1 million metric tons duty free.

The import duty on white corn in CAFTA countries is currently 20 percent. Under

the agreement Costa Rica will drop their duty to zero. The other countries will liberalize access thru a TRQ that will grow at 2 percent per year perpetuity.

Corn usage resulting from the agreement will increase due to favorable provisions

for beef, pork and poultry. Last year, over 500 million bushels were exported from

the U.S. as finished meat and developing countries are a growing market for value

added corn products.

It is important to note that the only two commodities that do not transition to

zero are white corn and sugar. The U.S. and the Central American countries will

receive comparable access on both sensitive commodities and upon implementation;

the United States can ship 83,000 metric tons of white corn duty free to Central

America with reciprocal access for sugar totaling 86,000 metric tons. Our organizaVerDate 11-SEP-98 14:53 Aug 23, 2004 Jkt 094053 PO 00000 Frm 00331 Fmt 6601 Sfmt 6601 F:\DOCS\10829 HAGRI PsN: HAGRI
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tion understands the necessity of this compromise and while not ideal, we believe

it important to ensure the principles and objectives of the trade agreement are met

for the benefit of all sectors of the agricultural economy.

Regarding ethanol, historically, all of the Central American countries have been

grouped with Caribbean countries under the Caribbean Basin Economic Recovery

Act (CBERA), which created the current import rules for ethanol under the Caribbean Basin Initiative (CBI). The current rule, which has been in place since 1990,

allows duty-free status to any ethanol regardless of domestic content up to 7 percent

of the U.S. domestic production total. The ethanol must be dehydrated in a CBI

country. An additional 35 million gallons can be imported to the US duty free if it

contains 30 percent by volume indigenous feedstock. No duties are assessed on any

CBI processed ethanol if it contains 50 percent by volume indigenous feedstock.

Under the current rule, any country within the CBI is allowed to provide the allocation on a first available basis. In practice, at no time since the adoption of CBI in

1990, has the full volume allocation been met.

Under the CAFTA, El Salvador receives an annual country allocation of 20 million

liters to be applied against the current CBI maximum of 7 percent of U.S. consumption provision for ethanol made from non-local feedstock. This 20 million liter allocation to El Salvador grows 25 percent annually, but will never exceed 10 percent of

the 7 percent maximum for U.S. ethanol consumption under the CBI.

The intention of the original CBI and CAFTA provisions seeks to promote economic development, facilitate the utilization of domestic agricultural commodities

and diversify the domestic economies. However, recently we learned a U.S. company

intends to build a dehydration plant in El Salvador for Brazilian ethanol and ultimate transshipment into the United States.

This is of concern to the NCGA because we believe it does not meet the original

intention of the provision. While legal, we believe it serves as a reminder how trade

agreements can sometimes undermine the overriding goals of the agreement. When

this happens, farmers and ranchers become suspicious of free trade and begin to

soften their enthusiasm. This particular incident will undoubtedly have an impact

throughout the countryside and we would encourage the Committee to further investigate this issue.

DOMINICAN REPUBLIC

In mid March, the USTR announced the completion of negotiations with the Dominican Republic, integrating that country into the recently concluded CAFTA. The

terms of the agreement are favorable to corn and feed grain producers and our organization applauds USTR for their efforts.

The Dominican Republic is a minor producer of feed grains, with corn and sorghum production combined totaling less than 100,000 metric tons. In recent years

the country has become an important market for U.S. feed grains as imports of U.S.

corn have grown to more than 1 million metric tons annually. The U.S. currently

has a 100 percent share of that market, and the FTA ensures that at no time will

any other competitor have a tariff advantage over the United States.

Approximately 75 percent of imported corn is used by the poultry industry, followed by the pork industry (22 percent), and the dairy industry (3 percent). Binding

favorable tariff rates will ensure future U.S. feed grain imports are available to the

developing livestock industries at commercial costs.

MOROCCO

This Morocco Free Trade Agreement promises additional access while opening

market opportunities for corn and feed grain producers. Corn growers have been actively building markets in Morocco for many years. The completion of a free trade

agreement between the U.S. and Morocco will further benefit U.S. feed grain exports.

Morocco’s expanding poultry sector is driving the country’s demand for feed

grains. While poultry is the fastest growing meat production sector in Morocco, the

cost of chicken meat production is one of the highest when compared to other middle-income countries. Costs to the Moroccan poultry producers will be significantly

reduced through lower feed grain prices as a result of this agreement.

In 2002, the U.S. accounted for approximately 60 percent of Morocco’s total corn

imports. However, due to stiff competition from Latin America, the U.S. share decreased to only about 10 percent of the over 1 million metric tons Morocco imported

last year. Tariff elimination will give U.S. producers and exporters significant tariff

advantages over these competitors.

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AUSTRALIA

The Australia Free Trade Agreement offers little benefit for corn or other feed

grain producers. Due to stringent Sanitary and Phytosanitary procedures, exports

to Australia and cost prohibitive.

These requirements drive up the cost of U.S. corn to the point where they can

only begin to be competitive in the most extreme drought conditions, such as those

that existed in 2002. Even under those marketing conditions, the U.S. was able to

export 48,000 metric tons of corn. While the drought has eased, Australia will not

likely be in need of imported grain in the near-term. Changes to the import requirements would allow for a greater level of opportunity for the U.S. to access the Australian market in the future. While discussion have been ongoing between the

United States Department of Agriculture (USDA) and Biosecurity Australia (BA)

and the Australian Quarantine and Inspection Service (AQIS), obtaining a solution

is unlikely in the near future.

Furthermore, the exclusion of certain sectors within the agreement is an unfortunate precedent and should not be utilized in future negotiations. If this approach

was used during the CAFTA negotiations, additional market access for corn to Central America would have been denied. Exclusions work against efforts to promote

U.S. agriculture and result in trade agreements that will have long term negative

consequences for the future of rural America.

INTROSPECTIVE FREE TRADE AGREEMENTS

We understand the United States Trade Representative (USTR) utilizes a variety

of measures to select potential negotiating partners, but of paramount importance

are the economic benefits resulting from a free trade agreement. The current list

of prospective partners offers some but not a significant benefit to corn and feed

grain producers. We encourage USTR to proceed cautiously to ensure agriculture

benefits from future FTAs while maintaining support among farmers and ranchers.

THAILAND

Thailand produces roughly 4.5 million metric tons of corn per year and consumes

approximately 4.3 million metric tons. While it has imported as much as 450,000

metric tons in 1999 (none from the U.S.), it typically is a net exporter, exporting

75,000 to 400,000 metric tons per year to Association of Southeast Nations (ASEAN)

countries.

Thailand’s import quota in 2003 was 54,411 metric tons at a 20 percent in-quota

tariff rate for shipment during March 1–June 30, 2003. Meanwhile, the out of-quota

imports are subject to a 73.8 percent tariff rate with a surcharge of 180 baht per

ton. While a Free Trade Agreement (FTA) with Thailand does not represent a significant opportunity for future U.S. corn exports, preferential tariffs could allow for

a competitive advantage in years that Thailand imports feed grains.

BAHRAIN

Bahrain generally imports less than 50,000 MT of corn per year, which typically

goes through Dubai, or as a partial shipment with one of the other GCC countries.

An FTA with Bahrain would yield no meaningful benefits to U.S. corn exports.

COLOMBIA

Colombia is a developing country with 55 percent of its population living in poverty. Agriculture accounts for 13 percent of gross domestic product (GDP), and 30

percent of the labor force is involved in agricultural production. Colombian corn production has remained relatively flat in recent years, increasing from 980,000 metric

tons in the 1996/1997 marketing year (MY) to an estimated 1.2 million metric tons

in MY 2002/2003. Virtually all of the domestically produced corn is used for human

consumption, while 95 percent of the imported yellow corn is used in the animal

feed industry, with the remainder going to wet milling for starch products. Colombian imports of U.S. corn have increased steadily over the years, from 1.3 million

metric tons in MY 1996 to about 1.8 million metric tons in MY 2002, driven primarily by increased demand on the part of feed manufacturers, with most of their

increased feed production going to the poultry industry. Since feed accounts for the

majority of production costs, eliminating the tariff under an FTA would boost demand for U.S. corn by making it cheaper for the poultry and pork sectors to import

corn and ultimately expand production.

Besides tariffs, in the past the primary policy issue affecting U.S. corn exports to

Colombia was an absorption agreement tying imports of corn to purchases of the

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domestic corn crop. The Colombian Government maintained an agreement with the

Colombian Grain Producers Federation under which licenses for imported corn were

only issued if the importer had purchased domestically produced corn at an artificially high price. Under that agreement, importers were required to purchase one

metric ton of domestically produced corn for every 5.2 metric tons of corn imported.

While clearly WTO illegal, Colombia received a waiver under the WTO Agreement

on Trade Related Investment Measures (TRIMS) for the use of this arrangement,

with the waiver scheduled to expire at the end of last year. We are monitoring the

situation to make sure that any alternative measure imposed to replace the absorption policy does not hamper the issuances of import licenses. Colombian corn imports are also subject to the Andean Community Price Band system.

U.S. officials report there have been no trade issues or disputes arising from biotechnology.

SRI LANKA

Sri Lanka is a very small corn market, only importing around 100,000 MT of corn

imports per year. Shipment sizes are generally small, originating in India and

Myanmar, or via Indonesia or Malaysia. Current tariffs on corn are only 2 percent.

Thus, the potential for U.S. corn shipments to Sri Lanka are unlikely, even under

an FTA.

SOUTH AFRICAN CUSTOMS UNION

Corn is South Africa’s single most important crop, serving as s dietary staple

(white corn), a source of livestock feed and an export crop. South African corn production has been volatile in recent years because of drought conditions. The two

most important policy issues now affecting U.S. corn trade with South Africa are

the 1) the upcoming South African Customs Union (SACU) FTA negotiations and

2) South African biotechnology policies as they related to corn imports.

A significant U.S. bilateral market access issue related to corn was addressed in

2000, when South Africa lifted previous restrictions on U.S. corn related to Stewarts

Wilt, a bacterial disease that affects primarily sweet corn.

Regarding biotechnology, industry and public views in South Africa appear relatively favorable. The primary issue is the failure of some technology companies to

file or finalize applications for products that may be planted in the United States.

Because not all U.S. corn events have completed the registration system, corn exports from the United States have temporarily ceased. Beyond the issues of product

approvals, a key to South Africa is the degree it will either influence, or be influenced by its SACU neighbors who have periodically rejected food aid or insisted it

be milled before delivery.

South Africa represents a potential market for 500,000 to 750,000 metric tons of

U.S. corn, with exact levels depending on the domestic production situation. Based

on current South African tariff treatment of feed grains, corn should be a candidate

for early or immediate tariff elimination in the negotiations. The FTA should also

acknowledge the need for science-based regulatory systems for biotech approvals.

PANAMA & ECUADOR

We are working on an analysis for both Panama and Ecuador. When complete,

we intend to submit to USTR to assist their efforts to open these markets. We will

be happy to make that information available to the Committee upon your request.

FUTURE EXPORT OPPORTUNITIES

Over the past ten years, while the percentage of the U.S. corn crop exported has

stabilized, we have seen a shift from traditional markets to new and developing

economies. Japan remains our largest customer but compared to 1994, three of our

top ten markets are new (Turkey, Dominican Republic, and Israel) and three others

moved up in ranking (Mexico, Egypt and Colombia). All but Israel are considered

developing economies and represent some of the most promising markets for corn

growers.

For example, the Middle East Region is heavily reliant on feed grain imports to

produce livestock and poultry to satisfy its demand for protein-based animal products. In 2001–02, total corn imports by countries in the region was approximately

11.6 million metric tons, of which the United States supplied 7.7 million metric tons,

or 66 percent. While imports to the region increased last year, U.S. market share

dropped to 41 percent due to competition from Argentina and China. Despite this,

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U.S. corn imports are rising to historic levels with large purchases recently by

Egypt, Israel, and others.

While many governments seek to increase production of various feed crops, the

region’s climate and scarce water supplies are expected to put these countries in a

situation to rely even more on imports. Growth in income and population are fueling

rising consumption of poultry and to a lesser extent beef, dairy and sheep products.

As a result, we expect the region to be an expanding market for U.S. feed grains

in the future given economic and political stability.

Although red meat, especially lamb, is the preferred meat throughout the Middle

East, the production of beef and mutton has remained static over the past 6 years.

The only exceptions are Turkey and Iran where beef production has declined. The

decline was most dramatic in Iran where production dropped by over 22 percent.

The primary reason for the steady decline is the lack of adequate pastures and

roughage sources in the area. As a result, most of the consumers in the Middle East

are forced to turn to poultry meat, eggs and dairy products to fulfill their requirements of animal protein. This has resulted in the growth of the poultry sector

throughout the Middle East ranging from 7 to 10 percent. It is projected that this

growth will be maintained over the next five years.

Population growth, coupled with increases in consumer disposable income has

translated into increased demand for meat, milk and eggs, and consequently, demands for imported feed grains in the region. For example, this is reflected in

Egypt’s increased corn imports from 1.2 million metric tons in 1990 to 5 million metric tons in 2002. Consequently, Egypt has become our fourth largest corn market.

The other countries in the region, Iran, Syria, Saudi Arabia, Turkey and Israel, are

sizable markets importing nearly or more than one million metric tons of corn per

year. With the exception of Israel, those are also the countries which demonstrate

the most potential for growth in the livestock and poultry sectors and feed grain

imports. The dynamics of this growth is illustrated by demographic changes. Nearly

a third of the population in these countries is below the age of 15 years. In addition,

changing eating habits of younger generations is also impacting the demand of animal products.

FUTURE CHALLENGES—BIOTECHNOLOGY

Trade issues related to biotechnology continue to be of great concern to corn producers. With 46 percent of this year’s corn crop being planted to biotech varieties

and the corn production industry’s willingness to be early adopters of these important production and management tools, the U.S. government must do everything it

can to assure that other countries are not imposing unworkable and non-tariff trade

barriers to inhibit their sale to major U.S. trading partners.

We continue to monitor and watch with interest the case filed by the U.S. government against the European Union (EU)for the illegal moratorium imposed in 1998

against the approval of all new biotech products. While we welcome the progress

the EU purports it is making on restarting a scientifically sound approvals process,

the questions raised in the WTO case have not been addressed, and USTR should

continue to urge a swift determination in the our favor to end these trade distorting

and illegal practices. It should be recognized that even if the moratorium is lifted,

recently imposed traceability and labeling requirements, will have the net effect of

continuing to unduly and illegally restrict U.S. commodity and food trade with Europe.

We believe that USTR should be actively engaged in pursuing further WTO action

against the EU for these recently enacted requirements. The new regulations impose unrealistic, and non-science based, mandatory labeling, onerous paper trails to

accompany shipments of bulk commodities and processed foods. Furthermore, the

regulations treat processing enzymes (primarily used in the EU) differently than

biotech-derived products (primarily produced from U.S. and other export country

commodities). Late last year, 22 organizations representing all segments of the domestic food chain wrote Ambassador Zoellick to urge him to begin trade dispute settlement actions. We are concerned that the Administration is yet to take a decisive

position regarding the new rules on the WTO case itself.

There are a number of other international forums and issues where biotech-derived product trade continues to be of concern. We, in cooperation with other organizations in the food chain, continue to urge the Administration to coordinate activities related to trade of biotechnology across agencies and with input from the private sector to develop strategies that do not result in the disruption of trade of U.S.

bulk commodities and food.

We also believe it possible negotiations can facilitate a process to harmonize approvals of products derived from biotechnology with trading partners. Asynchronous

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approvals already threaten to disrupt grain shipments to foreign markets and undoubtedly force delays in commercialization within the United States of new varieties that have promising agronomic and commercial value. While NCGA policy encourages technology providers to delay commercialization until major trading partners approve varieties, this is a voluntary process and one that is predicated on the

regulatory process in other countries. Free trade agreements can help promote the

utilization of sound science and orderly approval processes with trading partners

and serve as a model for regulatory processes worldwide.

The future strength of the agricultural economy in the United States will depend

on expanding trade opportunities. At the same time we need to continue educating

farmers across the country on the benefits of trade. At times it is hard to articulate

the importance when most farmers never see their grain again once it leaves the

elevator and is transported by barge or train. We must do a better job communicating with our grassroots, but we need the Congress and Administration to negotiate

trade agreements that allow farmers to participate on a level playing field in the

international marketplace.

We look forward working with the Committee on this and other issues of importance in the future. I thank you again for the opportunity to address the Committee.

I welcome your questions.

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