to Mexico have increased thanks to the trade liberalization which occurred as a
result of the North American Free Trade Agreement (NAFTA) and the reduction
in domestic producer subsidies for basic grains in Mexico which have accompa-
nied trade liberalization. To allow U.S. grain producers to continue to share
the benefits of NAFTA by exporting U.S. grain to Mexico, overland railroad
services from the U.S. to Mexico must be competitive. As the competitiveness of
railroad transportation to the border declines, our ability to export into Mexico
also declines. Rail service is particularly important to the many small Mexican
feed grain importers because these importers typically cannot handle or afford
the ship-size lots of feed grain available by maritime transportation. USDA has
a special interest in the availability of low-cost, competitive railroad service to
Mexico because it helps underwrite the exports of U.S. grain to Mexico through

the GSM-102 credit guarantee program.

USDA COMMENTS ON THE “CONSENSUS PLAN”

USDA betieves that adequate competition in the cross-border rail traffic
is important for U.S. agricultural exports. After studying the various proposals
offered in this proceeding, including the “consensus plan,” USDA believes that.
wher. evaluating proposals aimed at improving the operations of the Houston
rail complex, the Board should be guided by individuals with appropriate

railroad operating experience. USDA’s specific comments will focus on those


CERTIFICATE OF SERVICE
The undersigned hereby certifies that on September 18, 1998, he caused a copy of the
Department of Agriculture’s comments to be served by first-class mail, postage prepaid, on all

parties of record in STB Finance Docket No. 32760 {Sub No. 26).

eith A. Kfindworth
Program Manager
Marketing and Transportation Analysis
Agricultural Marketing Service


USDA heid a series of “listening sessions” in major grain-producing states. At
that time, agricultural shippers were generally frustrated by the service levels
provided by UP/SP and by the apparent lack of vigorous competition provided
by BNSF over the 4,000 miles of trackage rights it had received in order to
replace service formerly provided by SP. In retrospect, it seems likely that
these concerns were early indications of the service failures that would eventu-

ally force the Board to initiate STB Ex Parte 573.

RAILROAD SERVICE TO MEXICO

In our comments in the UP/SP oversight proceeding on August 15, 1997,
we urged the Board “to begin a careful and public examination of the competi-
tive situation in rail movements from the lower plains to the Gulf and Mexico.”
In Eght of Houston’s role as the epicenter of the service failures, this proceed-
ing seems to be responsive to that call. Houston is critical to the transporta-
tion of U.S. agricultural products. Not only is Houston a port of significant
importance, but Houston lies astride a key corridor linking the United States
and Mexico. Indeed, USDA’s interest in this proceeding stems from our desire
to facilitate the export of agricultural products in general, and exports to
Mexico in particular.

Mexico is an important anc growing market for U.S. agricultural prod-

ucts, including grains and oilseeds. The volumes of U.S. grain being exported

ta


proposais that will expand rail capacity and facilitate agricultural trade with

Mexico. We suggest the following provisions be adopted:

(2)

(3)

The Board should require the Union Pacific Railroad (UP) to sell its
rights to the former Southern Pacific line between Rosenberg and
Victoria, Texas to the Texas Mexican Railway Company (Tex Mex.

To ensure that the trackage rights granted Tex Mex in STB Deci-
sion No. 44 can be adequately exercised, the Board shouid estab-
lish a neutral dispatching authority over the Houston/Gulf Coast
region. This is needed to ensure that dispatching decisions are
made in a fair and equitable manner.

USDA is concerned that lack of infrastructure may have contrib-
uted to the service failures of 1997 and 1998. Therefore, we be-
lieve the Board should consider any proposal that promises to
create additional infrastructure in the Gulf Coast region. In partic-
ular, we believe that the Board should examine the proposal put
forth in the consensus plan that would require the UP to allow the
Tex Mex and Kansas City Southern Railway (KCS) to construct a
new mainline linking Houston and Beaumont.


BEFORE THE

SURFACE TRANSPORTATION BOARD

STB FINANCE DOCKET NO. 32760 (SUB-No. 26)

UNION PACIFIC CORPORATION, UNION PACIFIC RAILROAD COMPANY,
AND MISSOURI PACIFIC RAILROAD COMPANY—CONTROL AND MERGER—
SOUTHERN PACIFIC RAIL CORPORATION, SOUTHERN PACIFIC
TRANSPORTATION COMPANY, ST. LOUIS SOUTHWESTERN RAILWAY
COMPANY, SPCSL CORPORATION, AND THE DENVER AND RIO GRANDE
WESTERN RAILROAD COMPANY
(HOUSTON/ GULF COAST OVERSIGHT]

COMMENTS OF THE

U.S. DEPARTMENT OF AGRICULTURE

Michael V. Dunn

Assistant Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250

Date: September 18, 1998


CONCLUSION

USDA appreciates the opportunity to submit comments in this proceed-
ing. The conditions endorsed by USDA should add capacity to the U.S. rail
network and smooth the path through Houston. This would enable the KCS
and Tex Mex to fulfill the promise of creating a NAFTA railroad, increasing

competition in the border region and promoting U.S. agricuitural expor:s.

Sincerely,

Michael V. Dunn
Assistant Secretary
Marketing and Regulatory Programs
U.S. Department of Agriculture


BEFORE THE

SURFACE TRANSPORTATION BOARD

UNION PACIFIC CORPORATION, UNION PACIFIC RAILROAD COMPANY,
AND MISSOURI PACIFIC RAILROAD COMPANY—CONTROL AND MERGER—
SOUTHERN PACIFIC RAIL CORPORATION, SOUTHERN PACIFIC
TRANSPORTATION COMPANY, ST. LOUIS SOUTHWESTERN RAILWAY
COMPANY, SPCSL CORPORATION, AND THE DENVER AND RIO GRANDE
WESTERN RAILROAD COMPANY
[HOUSTON/ GULF COAST OVERSIGHT]

COMMENTS OF THE

U.S. DEPARTMENT OF AGRICULTURE

AUTHORITY AND INTEREST

These comments are filed on bekalf of the Secretary of Agr:culture.

Under the Agricultural Adjustment Act of 1938 and the Agricultural Marketing

Act of 1946, the Secretary is charged with the responsibility to represent the

interests of agricultural shippers and producers in improving transportation
services and facilities by, among other things, initiating and participating in
Surface Transportation Board (STB) proceedings involving rates, charges,
tariffs, practices, and services. In addition, the U.S. Department of Agriculture
(USDA) is a participant in the markets for agricultural products through the

operations of the Commodity Credit Corporation and foreign commodity


donation programs.

Pursuant to the oversight authority it retained upon its approval of the
UP/SP merger, the Board has requested comments on additional condizions to
the merger for the Houston, Texas and Gulf Coast area. As an active partici-
pant in the UP/SP merger proceeding, USDA submitted comments to the Board
on March 29, April 29, and June 3, 1996. In addition, we submitted comments
on August 15, 1997 in STB Finance Docket No. 32760 (Sub-No. 21), the
original oversight proceeding. In those comments we pointed out that rail
service is critical to the economic well-being of this nation’s rural and agricul-
tural economies. Many agricultural products are produced in areas located
great distances from export and domestic markets. Moreover, agricultural
shippers generally have limited access to cost-efficient, alternative providers of
transportation services because many are located beyond effective trucking
distances from these markets and far from available waterway transportation.
We highlighted the importance of competitive rail service for agricultural
producers and shippers and the entire rural economy and expressed concern
over the increased concentration in the U.S. rail industry and its adverse
effects on U.S. agriculture.

While USDA opposed the UP/SP merger, we were heartened by the STB’s
determination to mitigate any potential competitive harm to agricultural

shippers caused by the merger. In preparation for last year’s oversight filings,

be