[Senate Hearing 107-1056]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 107-1056

                      CANADIAN WHEAT 301 DECISION

=======================================================================

                                HEARING

                               before the

     SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE AND TOURISM

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 19, 2002

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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                            WASHINGTON : 2003
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
      Jeanne Bumpus, Republican Staff Director and General Counsel
                                 ------                                

          SUBCOMMITTEE ON CONSUMER AFFAIRS, FOREIGN COMMERCE 
                              AND TOURISM

                BYRON L. DORGAN, North Dakota, Chairman
JOHN D. ROCKEFELLER IV, West         PETER G. FITZGERALD, Illinois
    Virginia                         CONRAD BURNS, Montana
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
BARBARA BOXER, California            GORDON SMITH, Oregon
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 19, 2002...................................     1
Statement of Senator Burns.......................................     4
Statement of Senator Dorgan......................................     1

                               Witnesses

Broyles, Gary, President, National Association of Wheat Growers..    43
    Prepared statement...........................................    44
Fisher, Neal, Administrator, North Dakota Wheat Commission.......    32
    Prepared statement...........................................    36
Hunnicutt, Charles A., Counsel, North Dakota Wheat Commission....    50
    Prepared statement...........................................    54
Johnson, Ambassador Allen F., Chief Agriculture Negotiator, 
  United States Trade Representative.............................     4
    Prepared statement...........................................     7
Miller, John C., President, Miller Milling Company...............    58
    Prepared statement...........................................    60
Rogowsky, Robert A., Ph.D., Director of Operations, United States 

  International Trade Commission.................................    12
    Prepared statement...........................................    14
Terpstra, Ellen, Administrator, Foreign Agricultural Service, 
  U.S. 
  Department of Agriculture......................................    10
    Prepared statement...........................................    11

                                Appendix

The North Dakota Wheat Commission, prepared statement............    77

 
                      CANADIAN WHEAT 301 DECISION

                              ----------                              


                         FRIDAY, APRIL 19, 2002

                                       U.S. Senate,
    Subcommittee on Consumer Affairs, Foreign Commerce and 
                                                   Tourism,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:31 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Byron L. 
Dorgan, Chairman of the Subcommittee, presiding.

  STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR FROM NORTH 
                             DAKOTA

    Senator Dorgan. The hearing will come to order. This is a 
hearing of the subcommittee of the Commerce Committee. I am 
joined by my colleague, Senator Conrad Burns from Montana. I 
have called this hearing today because we want to consider and 
evaluate the activities dealing with the 301 trade, was an 
action that required an investigation of the practices of the 
Canadian Wheat Board.
    I want to as I begin this morning say that the United 
States and Canada share a long border, we are good friends and 
good neighbors, and while we have some differences in trade 
from time to time, we work closely with the Canadians, they are 
friends of ours, and especially today, given the tragedy that 
has occurred in Afghanistan with respect to the death of a 
number of Canadian soldiers. Our hearts go out to the 
Canadians, to the Canadian people. We grieve with them. Our 
soldiers and the Canadian soldiers are linked together in 
fighting terrorism.
    I have been to Afghanistan within the past several months 
and have seen the soldiers there, not just from the United 
States, but soldiers from the United States joined by our 
allies, including the Canadians. Again let me say that the 
tragedy that occurred this week with respect to the Canadian 
soldiers is a tragedy that all of us in this country regret 
deeply and we grieve for those Canadians, their families, and 
their loved ones.
    I indicated that we are two countries with a 4,000-mile 
border, we have a great deal of things in common between our 
countries, and occasionally some disagreements. Those 
disagreements extend especially in the last decade or so from 
the U.S.-Canada Free Trade Agreement and in my judgment include 
disagreements dealing with the grain trade from Canada.
    I say to my colleague Senator Burns, I was on the House 
Ways and Means Committee when the U.S.-Canada Free Trade 
Agreement was negotiated. It passed the House Ways and Means 
Committee by a vote of 34 to 1. The one vote was mine. I voted 
against it because I was convinced it was negotiated in a 
manner that would injure the interests of American agricultural 
interests, especially family farmers.
    I was convinced an avalanche of Canadian food would flood 
into our country from a state trading enterprise that would be 
illegal in the United States, the Canadian Wheat Board, and do 
it in a way that would undermine the interests of United States 
farmers. That happened almost immediately and has been 
relentless now for over a decade.
    The North Dakota Wheat Commission, supported by North 
Dakota farmers and farmers from our region, filed a 301 
petition asking for an investigation. The USTR investigation 
took 16 months to complete and here is what the U.S. Trade 
Ambassador's Office had to say about the practices of the 
Canadian Wheat Board. They said: ``The Canadian Wheat Board has 
taken sales from U.S. farmers and is able to do so because it 
is insulated from commercial risks, benefits from subsidies, 
has a protected domestic market, special privileges, and has 
competitive advantages due to its monopoly control over a 
guaranteed supply of wheat. The wheat trade problem with Canada 
is longstanding and affects the entire U.S. wheat industry.''
    I welcomed that finding because it confirmed what our wheat 
farmers have been saying for many years: The Canadians are not 
playing fair with respect to grain trade. I had hoped that the 
USTR would take appropriately aggressive action to remedy this 
problem. The USTR has the authority under Section 301 to apply 
a broad range of remedies, including tariff rate quotas, so 
that the North Dakota Wheat Commission and others who had 
requested it would see some satisfaction with respect to a 
remedy. So I was disappointed when the USTR announced it would 
not apply tariff rate quotas because it feared the Canadians 
would take us to the WTO or NAFTA as a response.
    I was especially frustrated when I saw the reaction of the 
Canadians to the USTR announcement. The President of the 
Canadian Wheat Board, Greg Arason, issued a statement saying: 
``Since the United States did not impose tariffs, we have 
successfully come through our ninth trade challenge.'' Once 
again, the Canadians shrug off a challenge to their unfair 
trade practices and our family farmers keep getting hammered by 
unfair trade.
    The point is I appreciate that the USTR has found that the 
Canadians are not playing fair, but I believe that USTR has 
stopped short of the finish line. The finish line here is to 
provide a remedy for this trade that I believe is unfair trade.
    Let me say that the USTR has taken other actions, for 
example applying tariff rate quotas on steel imports following 
a Section 201 investigation. I support that. I believe the 
steel industry is also aggrieved by unfair trade. So even 
though I support the steel decision, although I think it has 
some loopholes in it, I believe that similar remedies should 
have been applied with respect to wheat.
    How do we explain to a North Dakota family farmer that a 
steelworker in Pennsylvania or West Virginia or a steel company 
gets help in the face of unfair trade, but a family farmer does 
not?
    Now, the USTR has said it is committed to exploring other 
trade remedies. It mentioned four. The first is to take the 
Canadians to the WTO. I am all for that and I support that 
action. But I believe that it is unlikely that our great-
grandchildren will see the results of that action. The WTO has 
never been known for speeding and think that consigning this 
dispute to the WTO will consign it to having a decision perhaps 
decades in the future.
    The second remedy is to impose or to examine the 
possibility of filing a U.S. countervailing duty and 
antidumping petition. I am encouraged that the USTR has already 
identified key elements necessary to have the administration 
self-initiate such a case. I know that self-initiation is 
unusual and requires evidence of injury to a U.S. industry and 
of unusual circumstances.
    It seems to me that the administration, after a 16-month 
investigation, has already identified a basis for such cases to 
be launched, and I hope that that perhaps will be done, 
although I must say both through Democratic administrations and 
Republican administrations going back now 12 years I see very 
little aggressive action in this area.
    The third remedy is to identify specific impediments 
preventing U.S. wheat from entering Canada and to present these 
to the Canadians. Frankly, that has been done time and time 
again.
    The fourth remedy proposed by USTR is to seek a solution to 
the problem at WTO agricultural negotiations scheduled to be 
completed by 2005.
    My point is this. I personally have gone to the U.S.-
Canadian border in a 12-year-old orange truck with 200 bushels 
of durum. All the way to the border we had Canadian trucks 
coming south hauling Canadian wheat into the United States, and 
when Earl Jensen and I arrived at the border in his little 
orange truck we could not get American wheat into Canada. It is 
fundamentally unfair.
    We have asked time and time again to have this remedied. I 
asked the GAO, the investigative watchdog of the Congress, to 
investigate this. They went to Canada and in effect the 
Canadian Wheat Board thumbed their nose at GAO and said: We are 
not going to give you the information; you have no right to the 
information; we will not disclose our information. So we have 
no information about Canadian wheat sales. My understanding is 
even with the ITC investigation we did not have access to that 
information.
    It is in my judgment wrong for us to sit back and do 
nothing in the face of unfair trade. Family farmers deserve a 
remedy. They deserve for our government to stand for them, 
stand with them, and say that we will compete anywhere in the 
world, but when the competition is unfair our government will 
take effective and decisive action to remedy it. The failure to 
do that in my judgment is a failure, and it has been a failure 
of Democratic administrations and Republican administrations, 
and we have the opportunity and in my judgment we have the 
responsibility to end that failure now.
    So that is the purpose of having this hearing, to discuss 
all of these issues. Let me call on my colleague Senator Burns 
from Montana. Senator Burns.

   STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA

    Senator Burns. I have no opening statement, Mr. Chairman, 
and thank you for calling these hearings. I look forward to the 
testimony of the witnesses and the give and take in the 
conversation we might have with them. Thank you very much.
    Senator Dorgan. Senator Burns, thank you very much.
    Our first witness is Allen Johnson, the Chief Agricultural 
Negotiator, Ambassador rank, USTR. I hope you did not swallow 
any gum you were chewing at my opening statement, Mr. Johnson. 
You know the passion I have about this. I have been fighting 
this battle for years and years and years and years, and am 
weary of it.
    You are the Chief Agricultural Negotiator. You were 
involved intensively in the 301 decision. Earlier this month 
you visited North Dakota. I appreciate that. The Bismarck 
Tribune, however, quoted you as saying that ``tariff rate 
quotas are not an option.'' I was disappointed by that and 
perhaps we can talk about that.
    Let me thank you for being here to testify and tell you and 
the other witnesses that your entire statement will be made a 
part of the record and we would ask you to summarize. Then we 
will have a series of questions and answers. Ambassador 
Johnson, thank you for being here. Please proceed.

        STATEMENT OF AMBASSADOR ALLEN F. JOHNSON, CHIEF 
          AGRICULTURE NEGOTIATOR, UNITED STATES TRADE 
                         REPRESENTATIVE

    Ambassador Johnson: Well, first of all thank you for having 
me. I fortunately was not chewing gum at the time of your 
introduction, but had I been doing it I would not have 
swallowed it anyway, because I think I found myself in 
agreement with a lot of the things that you said. When it comes 
to the passion of wanting to do something about the Canadian 
Wheat Board, I can assure you that both in public and private 
meetings with Ambassador Zoellick he feels very, very strongly 
about this subject.
    The second point I would like to make is to associate 
myself with your comments regarding the losses of Canada in 
Afghanistan.
    Again thank you for the opportunity to testify. Canada is 
the United States' largest trading partner and we are committed 
to ensuring two-way trade is fair, transparent, and in 
accordance with international obligations. In the area of the 
wheat trade, however, Canada's single desk state trading 
enterprise, the Canadian Wheat Board, and Canada's impediments 
to market access for U.S. wheat into Canada distorts trade and 
is a disadvantage to U.S. wheat farmers.
    The first week of April, as you pointed out, I went to 
North Dakota to hear first-hand from farmers and elevator 
operators about their concerns on the Canadian Wheat Board and 
their interest in increasing access of U.S. wheat into Canada. 
I met with the North Dakota Wheat Commission and other U.S. and 
North Dakota farm organizations to discuss resolution of this 
longstanding issue.
    Those discussions were useful and provided valuable 
perspective on the critical issues addressed. Again, I think it 
is obvious from our efforts that there is no doubt that 
Ambassador Zoellick and I share the same objectives of the 
North Dakota Wheat Commission and the U.S. wheat industry 
regarding the Canadian Wheat Board.
    As you know and you described, on February 15th USTR 
announced an aggressive, multifaceted approach to press for 
comprehensive, meaningful, and fundamental reform of the 
Canadian Wheat Board and to level the playing field for U.S. 
wheat farmers. This administration is committed to resolving 
once and for all the Canadian Wheat Board's unfair trade 
advantages. USTR's 16-month investigation under the 301 was 
truly unprecedented in terms of the efforts taken to examine 
the North Dakota Wheat Commission's allegations, gather 
important information, and fully engage all parties in an open 
and transparent process.
    I would like to also make an observation that in my view, 
and I think it is shared by most of the people in government, 
the North Dakota Wheat Commission really provided a great 
service to North Dakota farmers and wheat farmers across the 
country in focusing our attention through this vehicle, the 
301, which helped to provide information and allowed us to 
pursue the options that I will go into and you mentioned.
    On February 15th the USTR announced the findings that for 
over 10 years the acts, policies, and practices of the 
government of Canada and the Canadian Wheat Board were 
unreasonable and burden and restrict U.S. commerce. USTR found 
that the Canadian Wheat Board can unfairly benefit as a single 
desk monopoly through subsidies, protected domestic markets, 
and special benefits and privileges sanctioned by the Canadian 
government. Accordingly, the CWB can make sales at low prices 
without any risk to financial position or incurring losses.
    In looking into what we would do next, the North Dakota 
Wheat Commission identified seven objectives in its petition. 
The United States administration is aggressively pursuing six 
of those seven objectives, recognizing however that we need to 
use all available vehicles as we choose to undertake actions 
that go beyond--we chose to go beyond the actions requested by 
the North Dakota Wheat Commission in their petition.
    Our view is that everything that we do at this point needs 
to be mutually reinforcing and maintain the focus on the 
Canadian Wheat Board and its practices if we are to create 
fundamental reform.
    First of all, the USTR is examining taking a possible 
dispute settlement case against the Canadian Wheat Board in the 
World Trade Organization. As we did in the 301, we have spent a 
significant amount of time and effort. In fact, I can say in 
the time I have been at USTR there is no issue we have spent 
more time on and put in more effort, and we will continue to do 
so in researching the legal options in the WTO.
    The fact that there are actually no precedents in 
international law shows that we need to move very judiciously 
and carefully, but it also shows the seriousness with which 
this administration takes this issue, that we are willing to 
pursue this option.
    Second, the administration is working with the North Dakota 
Wheat Commission and the U.S. wheat industry to examine the 
possibility of filing a countervailing duty and antidumping 
petition. In addition to USTR, I know the industry has met 
several times with the Department of Commerce and the ITC in 
the last several weeks in exploring this option.
    Third, working with industry, the USTR is identifying 
specific impediments to U.S. wheat entering Canada and will 
present these to the Canadians to ensure the possibility of 
fair two-way trade. This is one of the major reasons I went to 
North Dakota, because I wanted to hear first-hand from the 
farmers the impediments that they were facing. As you just 
pointed out, I had heard that you had run into similar 
problems. I look forward to hearing about your experience as we 
put together and prepare ourselves for these consultations.
    Fourth, these short-time actions I just described are 
complemented by the administration's ongoing commitment to 
vigorous pursuit of fundamental, comprehensive, and meaningful 
reform of state trading enterprise and the WTO negotiations. 
Now, with the launch of the Doha Development Agenda in November 
of 2001, the United States really has an unprecedented 
opportunity to pursue permanent reform of the Canadian Wheat 
Board through the development of new disciplines and rules on 
STEs that export agricultural goods.
    I should point out that that vehicle was not available when 
the 301 petition was filed in October of 2000. So we want to 
make sure that we make the most of it.
    USTR shares the goal of the WC in the CWB's single desk 
trading status, to enhance its transparency and end government 
backing of this institution. These were important priorities to 
the North Dakota Wheat Commission's petition. They were also 
very evident in my discussions while I was in North Dakota as 
still being the priorities.
    As recently as the last week of March, the U.S. WTO 
negotiating team succeeded in having export competition 
including state trading enterprises, placed first on the 
negotiating schedule for the launch of intensive negotiations 
after Doha. The next year is going to be critical in developing 
an international coalition to support meaningful rules and 
disciplines on STEs with the deadline of next March to agree on 
modalities for the agriculture negotiations.
    I would just like to point out, we are not alone in going 
after the Canadian Wheat Board. Japan, Europe, and others have 
expressed an interest in this and we continue to work for that.
    I would just like to make a comment. In weighing the North 
Dakota Wheat Commission's seventh objective--as I mentioned, we 
are doing six out of the seven that they outlined--to impose 
immediate tariff rate quota on imports of Canadian wheat--our 
overriding objective was to ensure that we achieve reform of 
the Canadian Wheat Board. Canada and other countries would have 
seen the TRQ as a violation of the U.S. WTO and NAFTA 
obligations. Unilaterally imposing a TRQ on imports of Canadian 
wheat would significantly undermine our mutual objectives by 
distracting us and our potential allies' focus during the exact 
same period that we are seeking to build international 
consensus in support of our objectives of reform in the WTO.
    So in conclusion, USTR shares the goal of North Dakota 
Wheat Commission and U.S. wheat farmers in seeking meaningful 
and permanent reform of the Canadian Wheat Board. This is 
echoed, by the way, by demands from Canadian farmers, including 
some of which commented on the 301 petition that they want to 
see the Canadian Wheat Board reformed. We are building 
international coalitions to seek this reform. USTR's actions 
are mutually reinforcing to each other in the ultimate goal of 
this reform and thereby achieving permanent relief for U.S. 
wheat farmers from the unfair trade practices of the Canadian 
Wheat Board.
    The positive comments made by the North Dakota Wheat 
Commission and the wheat industry after the February 15th 
decision I think sent a clear message around the world that, 
particularly north of the border, that this administration and 
our industry and working with Congress are going to make great 
strides and have firm resolve in resolving this issue. I look 
forward to a few years from now sitting down at a coffee shop 
in North Dakota and discussing how we caused this fundamental 
change that our wheat farmers in this country are benefiting 
from.
    So thank you, Mr. Chairman.
    [The prepared statement of Ambassador Johnson follows:]

 Prepared Statement of Ambassador Allen F. Johnson, Chief Agriculture 
                 Negotiator, U.S. Trade Representative

    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity today to meet with you and provide an 
update on the U.S. government's actions related to wheat trade with 
Canada. Canada is the United States' largest trading partner, and we 
are committed to ensuring that two-way trade is fair, transparent and 
in accordance with international trade obligations. In the area of 
wheat trade, however, Canada's single desk state trading enterprise, 
the Canadian Wheat Board (CWB), and Canada's impediments to market 
access for U.S. wheat into Canada distort trade and disadvantage U.S. 
wheat farmers. The CWB has unfair competitive advantages that hurt U.S. 
wheat farmers and undermine the integrity of our trading system.
    The first week in April, I went to North Dakota to hear first hand 
from farmers and elevator operators about their concerns with the CWB 
and their interest in increasing access for U.S. wheat into Canada. I 
met with the North Dakota Wheat Commission (NDWC) and other U.S. and 
North Dakota farm organizations to discuss resolution of this long-
standing issue. Those discussions were useful and provided a valuable 
perspective on critical issues to be addressed. There should be no 
doubt that Ambassador Zoellick and I share the same objectives as the 
NWDC and the U.S. wheat industry regarding the CWB.
    As you know, on February 15, the United States Trade Representative 
(USTR) announced an aggressive approach to press for comprehensive and 
meaningful reform of the CWB and to level the playing field for U.S. 
wheat farmers. This Administration is committed to resolving once and 
for all the CWB's unfair trade advantages.
Background
    On September 8, 2000, the NDWC submitted a petition to the U.S. 
Trade Representative (USTR) under Section 301(b) of the Trade Act of 
1974. Section 301 provides a means for businesses, farmers and workers 
in the United States to seek the aid of the U.S. government to gain 
relief from foreign unfair trade practices and policies.
    On October 23, 2000, USTR initiated an investigation under Section 
301 of the wheat marketing practices of the CWB, a government trading 
enterprise with exclusive single desk export authority as well as 
exclusive rights to procure domestic supplies.
    The NDWC alleged that the CWB's special privileges and benefits as 
a government-sanctioned single desk state trading enterprise have 
provided the CWB unfair competitive advantages in the hard red spring 
and durum wheat markets for many years. The petition states that the 
CWB--as a single desk seller--maintains the ability to price 
discriminate among buyers. The petition alleges that the CWB has 
substantial discretion in pricing grain due to its operating system. 
The CWB enjoys exclusive access to western Canadian wheat supplies, 
makes initial payments to producers based on a portion of the price 
that the CWB anticipates it can obtain for the grain, and is able to 
pool wheat sales revenues. The margin between the initial payment and 
final payment permits the CWB maximum pricing flexibility. The CWB also 
enjoys the financial backing of the Canadian Government, freeing the 
CWB of certain financial risks.
    The petitioners also alleged that the CWB provides standing offers 
to undersell U.S. wheat in third markets. The petition alleges that 
these practices have resulted in the CWB taking traditional U.S. 
markets. The petitioners also highlighted that the CWB operates in a 
protected domestic market with cumbersome regulatory procedures that 
act as a barrier to imports of U.S. wheat.
USTR Investigation
    USTR's 16-month investigation under Section 301 was unprecedented 
in terms of the efforts taken to examine the NDWC's allegations and 
USTR's efforts to fully engage all interested parties. On November 16, 
2000, USTR requested public views, including comments on the 
methodology to be used in conducting the investigation. For the first 
time ever, and in light of the NDWC's request that USTR gather 
extensive market data, on March 30, 2001, USTR asked the U.S. 
International Trade Commission (ITC) to conduct an exhaustive 
investigation.
    As part of its investigation, the ITC held a public hearing, 
invited public comment, and issued questionnaires, backed by the ITC's 
subpoena power, to wheat buyers and sellers in the United States. In 
addition, USTR and the U.S. Department of Agriculture (USDA) sent 
questionnaires to buyers in third-country markets and to the CWB. The 
ITC obtained a comprehensive set of data on sales of Canadian wheat in 
the U.S. market through its questionnaires. The ITC also obtained some 
information from U.S. firms that sell Canadian wheat in third-country 
markets. Due to the refusal of the CWB to respond to our 
questionnaires, the investigation did not yield a comparable set of 
data on sales of Canadian wheat in third-country markets.
    On September 27, 2001, the NDWC requested a 90-day extension of the 
original 12-month investigation to enable the U.S. government 
sufficient time to examine all the facts of the case. USTR granted that 
request on October 16 extending the investigation until January 22, 
2002. The ITC issued a public version of its report on December 21, 
2001. USTR solicited public comment on the issues raised in the ITC 
report in a Federal Register notice issued on the same day. To permit 
as much public input as possible, as well as to provide sufficient time 
to fully consider all comments, USTR subsequently extended the 
investigation to February 15, 2002.
Investigation Findings
    On February 15, USTR issued its findings of the investigation and 
announced a multi-pronged approach to address the trade distorting 
effects of the CWB and the lack of market access into Canada.
    USTR did find that for over ten years, the acts, policies and 
practices of the Government of Canada and the CWB are unreasonable and 
burden or restrict U.S. commerce. The investigation played a critical 
role in developing important information. USTR found that the CWB can 
unfairly benefit as a single desk state trading enterprise through 
subsidies, a protected domestic market, and special benefits and 
privileges sanctioned by the Canadian government. Specifically, the 
investigation found that:

   The CWB is insulated from commercial risk because the 
        Canadian government guarantees its financial operations, 
        including its borrowing, credit sales to foreign buyers, and 
        initial payments to farmers.

   The CWB benefits from subsidies and special privileges, such 
        as government-owned rail cars, government-guaranteed debt and 
        below market borrowing costs. Considerable monies from the 
        Canadian federal government at below-market interest rates 
        resulted in a cost benefit, according to the ITC, of Can$107 
        million (approximately US$66 million) in 2000, 24 percent less 
        than what a private borrower would have paid.

   The CWB has a competitive advantage due to its monopsony 
        control over a guaranteed supply of wheat that western Canadian 
        farmers are required to sell to the CWB, and sole control to 
        export western Canadian wheat. These advantages allow the CWB 
        to enter into forward contracts without incurring commercial 
        risks and provide other benefits.

   The Government of Canada's burdensome regulatory scheme 
        controlling the varieties and segregation of wheat marketed 
        domestically result in de facto restrictions on imports of U.S. 
        wheat.

    The ITC report supported allegations in the NDWC petition that the 
CWB has greater pricing flexibility than private grain traders. This 
flexibility arises from the fact that, by law, all western Canadian 
farmers must sell their wheat to the CWB for an initial payment equal 
to only a portion of full market value, and the farmers must wait until 
beyond the end of the marketing year to receive full payment. In 
addition, the Government of Canada guarantees initial payment to 
farmers. Accordingly, the CWB can make sales at low prices without any 
risks to its financial position or of incurring losses, with the only 
consequence being the reduction in the end-of-the-year wheat pool 
return. The CWB also has a lower cost of capital than private firms, 
because the Government of Canada guarantees CWB borrowings.
USTR Actions
    In its September 2000 petition under Section 301 of the Trade Act 
of 1974 and in subsequent submissions, the NDWC identified seven 
objectives for addressing Canadian wheat marketing practices and the 
CWB. The United States is committed to aggressively pursuing six of 
those seven objectives. Recognizing, however, that we need to use all 
available vehicles to address the CWB's special privileges and 
benefits, we chose to undertake actions that go beyond the NDWC's 
requests.
    Ambassador Zoellick announced on February 15 a four-pronged 
approach to level the playing field for American wheat farmers.

   First, USTR is examining taking a possible dispute 
        settlement case against the CWB in the World Trade Organization 
        (WTO).

   Second, the Administration is working with the NDWC and the 
        U.S. wheat industry to examine the possibility of filing U.S. 
        countervailing duty and antidumping petitions, with a special 
        emphasis on applying our trade remedy laws to the unique 
        factual circumstances arising from the CWB's single desk 
        status.

   Third, working with industry, USTR is identifying specific 
        impediments to U.S. wheat entering Canada and will present 
        these to the Canadians so as to ensure the possibility of fair, 
        two-way trade. At our request, Canada has agreed to 
        consultations to discuss various issues surrounding two-way 
        wheat trade.

   Fourth, these short-term actions are complemented with the 
        Administration's ongoing commitment to vigorously pursue 
        comprehensive and meaningful reform of state trading 
        enterprises in the WTO agriculture negotiations.

    With the launch of the Doha Development Agenda in November 2001, 
the United States has an unprecedented opportunity to pursue permanent 
reform of the CWB through the development of new disciplines and rules 
on state trading enterprises that export agricultural goods. USTR 
shares the goal with the NDWC to end the CWB's single desk trading 
status and enhance the transparency of this government-backed 
institution. The goals are important priorities for the NDWC and were 
highlighted in my meetings in North Dakota.
    In the WTO, the United States seeks:

   To end exclusive export and domestic procurement rights to 
        ensure private sector competition in markets controlled by 
        single desk exporters;

   To eliminate the use of government funds or guarantees to 
        support or ensure the financial viability of single desk 
        exporters; and,

   To establish WTO requirements for notifying acquisition 
        costs, export pricing, and other sales information for single 
        desk exporters.

    As recently as the last week in March, the U.S. WTO negotiating 
team succeeded in having ``export competition'', including state 
trading enterprises, placed first on the negotiating schedule as we 
launch intensive discussions following Doha. This next year will be 
critical in developing an international coalition to support meaningful 
rules and disciplines on STEs with a deadline of next March to agree on 
modalities for the agriculture negotiations.
    In weighing the NDWC's seventh objective to impose an immediate 
tariff rate quota (TRQ) on imports of Canadian wheat, USTR's over-
riding objective, supported by the NDWC, was to ensure that we achieve 
reform of the CWB. Canada and other countries would have seen a TRQ as 
a violation of U.S. WTO and NAFTA obligations. Therefore, unilaterally 
imposing a TRQ on imports of Canadian wheat would significantly detract 
from our mutual objectives of eliminating the CWB's special privileges 
and improving the transparency of its operations during the same time 
we are seeking to build an international consensus to support these 
objectives.
Conclusion
    USTR shares the goal of the NDWC and U.S. wheat farmers in seeking 
meaningful and permanent reform of the CWB, echoing demands from some 
Canadian farmers for reform. We are also building international 
coalitions to seek reform of the CWB in the WTO.
    Through this aggressive strategy, USTR is pursuing actions which 
mutually reinforce each other in the ultimate goal to reform the single 
desk, government-sanctioned CWB and improve U.S. wheat access to the 
Canadian marketing system, thereby achieving relief for U.S. wheat 
farmers from the unfair trading practices of the CWB.

    Senator Dorgan. Mr. Johnson, thank you very much. We 
appreciate that.
    Next we will hear from Ellen Terpstra, who is the 
Administrator of the Foreign Agricultural Service at USDA. You 
may proceed.

          STATEMENT OF ELLEN TERPSTRA, ADMINISTRATOR, 
       FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF 
                          AGRICULTURE

    Ms. Terpstra. Thank you very much, Mr. Chairman, Senator 
Burns. I appreciate the opportunity to be here today to talk 
about this important matter. USDA fully supports the U.S. Trade 
Representative's decision to seek relief for our wheat farmers 
from the trading practices of the Canadian Wheat Board. The 
findings from the Section 301 investigation clearly establish 
that the trade-distorting practices of the Canadian Wheat Board 
and Canada's restrictions on imports of wheat adversely affect 
the U.S. wheat industry.
    The four steps outlined in the decision will help us move 
toward removing this longstanding barrier between the United 
States and Canada. State trading enterprises with exclusive 
export rights are a particular concern because they do not have 
to answer to the market and they have the inherent ability to 
distort trade. Much of this concern arises from the lack of 
transparency in the practices of state trading enterprises, the 
special privileges of single desk sellers that result in unfair 
advantages, and financial backing from the governments.
    This is why the United States will be working in the WTO 
negotiations to produce disciplines that will force fundamental 
reform of such organizations. As we continue to pursue remedies 
through trade negotiations, we are also working bilaterally 
with Canada to resolve some of the thorniest agricultural 
issues between our nations. Early next month, Secretary Veneman 
will travel to Ottawa, where she will meet with Canadian 
officials to press them on the need to improve trading 
conditions between the two countries.
    In the long run, however, global trade liberalization 
offers us the best opportunity to boost U.S. agricultural 
export sales. As Secretary Veneman said at the launch of the 
Doha Development Agenda, expanding global markets for our 
farmers is vital to the long-term prosperity of our highly 
productive agricultural and food sector. Our farmers are ready 
to compete for business and it is our job to do everything we 
can to ensure that the competition is fair.
    That completes my statement, Mr. Chairman, and I will be 
happy to answer questions.
    [The prepared statement of Ms. Terpstra follows:]

     Prepared Statement of Ellen Terpstra, Administrator, Foreign 
          Agricultural Service, U.S. Department of Agriculture

    Senator Dorgan, Members of the Committee, I appreciate the 
opportunity to appear before you with Ambassador Johnson to discuss the 
results of the Section 301 investigation of the trading practices of 
the Canadian Wheat Board.
    The U.S. Department of Agriculture's Foreign Agricultural Service 
(FAS) has been working closely with the U.S. Trade Representative's 
office on this issue since the North Dakota Wheat Commission first 
filed its petition in September 2000. Of course, our wheat analysts and 
trade specialists have been addressing wheat trade issues with Canada 
for many years, as part of our primary mission to maintain export 
markets and expand export opportunities for the U.S. food and 
agricultural sector. This effort is critical to our wheat industry, 
which typically exports about half of its production.
    USDA is fully supportive of the U.S. Trade Representative's 
decision to seek relief for our wheat farmers from the trading 
practices of the Canadian Wheat Board. The findings from the Section 
301 investigation clearly establish that the trade-distorting practices 
of the Canadian Wheat Board, and Canada's restrictions on imports of 
wheat, adversely affect the U.S. wheat industry.
    We are working closely with Ambassador Johnson and others at the 
U.S. Trade Representative's office as they:

   pursue comprehensive and meaningful reform of single-desk 
        state trading enterprises (STEs) in the World Trade 
        Organization (WTO) agriculture negotiations;

   examine taking a dispute settlement case against the 
        Canadian Wheat Board in the WTO;

   work with the North Dakota Wheat Commission and the U.S. 
        wheat industry to examine the possibilities of filing U.S. 
        countervailing duty and antidumping petitions with the U.S. 
        Department of Commerce and U.S. International Trade Commission; 
        and

   identify specific impediments to U.S. wheat entering Canada 
        and present them to the Canadian government.

    USDA agrees that the actions outlined in the decision will help 
move us towards removing this long-standing barrier in U.S.-Canada 
relations. We are committed to working with Ambassadors Zoellick and 
Johnson to reform permanently single-desk state trading enterprises 
during the WTO negotiations.
    Negotiations on STEs could be particularly important to the U.S. 
wheat industry since both wheat exporters and importers benefit from 
STEs. The Canadian Wheat Board and Australia's wheat board (AWB, Ltd.) 
are the major STEs involved in wheat exports. Together, these two 
organizations control roughly one-third of world wheat exports. 
Countries that use STEs to regulate or control wheat imports include 
Japan, China, India, Egypt, and some countries outside of the WTO such 
as Algeria and Iran.
    State trading enterprises with exclusive export rights are a 
particular concern because they do not have to answer to the market and 
they have the inherent ability to distort trade. Much of this concern 
arises from the lack of transparency in the practices of such STEs, the 
special privileges of single-desk sellers that result in unfair 
advantages, and financial backing by their governments.
    WTO negotiations should produce disciplines that will force 
fundamental reform of such organizations--the best way to permanently 
assure that U.S. producers are treated fairly in the world market.
    As we continue to pursue remedies through trade negotiations, we 
also have been working with Canada to resolve some of the thorniest 
agricultural issues between our nations. The 1998 Canada-U.S. Record of 
Understanding contained several provisions relating to grain trade. Our 
two countries have been holding quarterly grain consultations that 
provide us with an early indication of Canadian shipments to the United 
States.
    The In-Transit Program for Grains is a good example of the benefit 
of these ongoing discussions. This program provides transportation 
alternatives to U.S. grain shippers by facilitating the shipment of 
U.S. grains through Canada to final destinations in the United States. 
Last year (calendar year 2001), more than 1 million tons of U.S. wheat 
and barley were transported through the western Canadian rail system to 
end users in the western United States. More than 80 percent of that 
was wheat. North Dakota accounted for about 70 percent of all the grain 
shipped under this program.
    In the long run, trade liberalization offers us the opportunity to 
boost U.S. agricultural export sales by expanding existing market 
access and opening new markets. As President Bush and Secretary Veneman 
have said, we cannot afford to sit on the sidelines while other 
countries negotiate preferential trade agreements. For example, Canada 
and Chile implemented their free trade agreement in 1997. As a result, 
Canada now enjoys duty-free access for its wheat, while U.S. exporters 
face a 7 percent duty.
    We need Trade Promotion Authority to maintain U.S. leadership in 
initiating and writing new agreements; without it, other countries will 
write the future rules of trade--rules that will be made without taking 
into account our interests. American farmers, workers, and consumers 
will eventually pay the price for inaction. As Secretary Veneman said 
at the launch of the Doha Development Agenda, expanding global markets 
for our farmers is vital to the long-term prosperity of our highly 
productive agriculture and food sector. Our farmers are ready to 
compete for business and it is our job to do everything we can to 
ensure that the competition is fair.
    That completes my statement, Mr. Chairman. I will be glad to answer 
any questions.

    Senator Dorgan. Ms. Terpstra, thank you very much for your 
testimony.
    Next we will hear from the Director of Operations of the 
International Trade Commission, Mr. Robert Rogowsky.

STATEMENT OF ROBERT A. ROGOWSKY, Ph.D., DIRECTOR OF OPERATIONS, 
          UNITED STATES INTERNATIONAL TRADE COMMISSION

    Dr. Rogowsky. Thank you. I am also pleased to have the 
opportunity to discuss the work the U.S. International Trade 
Commission recently completed and published as ``The Wheat 
Trading Practices: Competitive Conditions Between the U.S. and 
Canadian Wheat.'' That investigation concerned the acts, 
policies, and practices of the Canadian Wheat Board and the 
government of Canada. I would also like to take a second to 
commend Cathy Jabara and John Reeder, who are with me and who 
in very tight circumstances did what I think was an excellent 
study.
    USTR's request of the ITC for this investigation was to 
help provide a factual informational base to supplement work by 
the Inter-Agency Section 301 Committee as it pursued its own 
investigation. The commission made no determination or findings 
and it had no part in the ultimate decision making of the 
Section 301 Committee.
    In order to gain this information, the commission developed 
two survey questionnaires based upon sample questions submitted 
to USTR by the North Dakota Wheat Commission and in 
consultation with that group USTR, the U.S. Department of 
Agriculture, and domestic milling and grain exporter groups. 
The commission sent the mandatory purchaser questionnaires to 
U.S.-based firms that milled, imported, purchased, or processed 
hard red spring or durum wheat. The respondents accounted for 
all the U.S. imports of these two classes of wheat in marketing 
year 2000-2001 and for a high proportion of domestic milling of 
these two wheats.
    To ensure that our data were as complete as possible, the 
commission for the first time in its long history employed its 
subpoena authority in a Section 332 investigation. The 
commission sent the mandatory exporter questionnaire to U.S.-
based firms exporting U.S. or Canadian durum of hard red spring 
wheats to eight selected foreign countries that accounted for 
about one-fifth of the world wheat imports in recent years. The 
20 respondents to the exporters questionnaire accounted for 
virtually all exports of U.S. hard red spring and durum wheat 
in these markets. The respondents also accounted for about 61 
percent of exports of Canadian hard red spring and a portion of 
Canadian durum in these same eight markets.
    I would like to take a few minutes and just highlight some 
of the things that we found in the questionnaires. With nearly 
60 percent of the world trade in durum wheat in crop year 2000-
2001, Canada is almost three times larger than its closest 
competitor, the United States. Most U.S. purchasers of hard red 
spring and durum wheat indicated that they price negotiation or 
bid-offer process was much the same in the United States as in 
Canada. The Minneapolis spring wheat contract was by far the 
most commonly cited contract on which the Canadian Wheat Board 
reportedly relies in price negotiations.
    It was reported that Canadian durum normally commands a 
premium over the Minneapolis price of 5 to 10 cents a bushel. 
There were very few differences in the terms of U.S. versus 
Canadian wheat--terms of sale, excuse me. Firms that purchase 
wheat directly from the Canadian Wheat Board for delivery 
reported more forward than spot contracting, but none reported 
multi-year contracts. Slightly longer delivery terms were noted 
for a large portion of sales of Canadian wheat--a larger 
portion of sales of Canadian wheat than of U.S. wheat.
    Direct comparisons between contracted and delivered prices 
for U.S. and Canadian wheats were not possible owing to 
differences in reported contracting terms. Given these data 
issues, the commission conducted two analyses of the price data 
set, an analysis of the contracted or largely gateway prices of 
comparable wheat and an analysis of delivered wheat prices in 
the Minneapolis area.
    For contracted prices in the U.S. market, reported Canadian 
durum prices were above U.S. prices for all comparable months 
except one. For number 1 hard red spring wheat, price 
relationships were mixed, with some Canadian prices equal to or 
above U.S. prices and others below. Prices of number 2 Canadian 
western red spring wheat were generally higher than those for 
number 2 hard red spring wheat, with most contracts reported 
after January 2000.
    The analysis of delivered prices could not be reported 
publicly due to confidential business information, but followed 
roughly the same pattern.
    Data supplied by reporting firms showed declining U.S. 
exports of durum and hard red spring wheat and increasing 
exports of Canadian durum and western red spring wheat in 2000-
2001. The data also showed exports of Canadian durum wheat 
overtaking exports of U.S. durum and hard red spring wheat in 
2000-2001.
    Over delivery of protein occurs in exports of both U.S. and 
Canadian wheat. Most overdelivery was found to be small, equal 
to or less than .2 percentage points over contract 
specifications. However, a higher frequency of protein 
overdelivery and a higher range was found for Canadian red 
spring wheat. Data did not allow comparison of overdelivery in 
durum wheat.
    Several U.S. firms reported that price competition with 
Canada was an important issue and six had lost sales to Canada 
competition. For the Venezuela market, the only export market 
for which adequate data were available, export prices of number 
2 Canadian western red spring and number 2 U.S. hard red spring 
generally moved in the same pattern.
    These are just a few of the highlights and we could talk 
about the more, and I would be happy to answer any questions. 
Thank you very much.
    [The prepared statement of Dr. Rogowsky follows:]

     Prepared Statement of Robert A. Rogowsky, Ph.D., Director of 
        Operations, United States International Trade Commission

    I am pleased to have the opportunity to discuss the work the U.S. 
International Trade Commission (Commission) recently completed and 
published as Wheat Trading Practices: Competitive Conditions Between 
U.S. and Canadian Wheat. The Commission instituted this investigation 
at the request of the United States Trade Representative (USTR) on 
April 12, 2001.
    USTR indicated in its request letter that it had initiated its own 
investigation under Section 301 (foreign practices affecting U.S. 
exports of goods or services) of the Trade Act of 1974. That 
investigation concerned the acts, policies, and practices of the 
Canadian Wheat Board (CWB) and the Government of Canada. It was 
precipitated by a petition filed in October 2000 by the North Dakota 
Wheat Commission (NDWC). In its petition, the NDWC alleged that the 
CWB, a state trading enterprise with a near monopoly on Canadian wheat 
sales, engaged in unfair practices in its export sales of wheat to the 
U.S. market and to certain third country markets of interest to U.S. 
exporters. \1\
---------------------------------------------------------------------------
    \1\ In December 2000, an estimate by the petitioner further 
quantified the unfair trading practices as price undercutting of 
approximately 8 percent of CWB wheat under U.S. wheat, over-delivered 
protein content in the Canadian wheat, and other transportation (rail) 
benefits. The petitioner recommended a tariff-rate quota on Canadian 
imports into the United States as a remedy for these practices.
---------------------------------------------------------------------------
    USTR's request to the ITC for a fact-finding study under Sec.332(g) 
of the Tariff Act of 1930, was to help to provide factual information 
to supplement work by the interagency Section 301 Committee as it 
pursued its investigation. The Commission made no determinations or 
findings, and had no part in the decision-making of the Section 301 
Committee. Instead, ITC's role was as an objective and impartial 
gatherer of facts.
    In its request, USTR asked the Commission to survey the industry. 
Specifically, the ITC was asked to provide to USTR the following 
information, to the extent possible:

   a summary of a survey of U.S. Hard Red Spring wheat and 
        Durum wheat purchasers, including wheat millers, as to the 
        conditions of competition between U.S. and Canadian wheat 
        during the 5 most recent years, including such data as quantity 
        and prices, technical considerations in the purchase and sale 
        of U.S. versus Canadian wheat, and other relevant factors of 
        competition;

   a summary of a survey of U.S. Hard Red Spring wheat and 
        Durum wheat exporters as to conditions of competition in key 
        foreign markets in Latin America, the Philippines and other 
        significant markets, between U.S. and Canadian wheat during the 
        5 most recent years, providing such data as quantity and 
        prices, lost sales of U.S. wheat versus Canadian wheat, 
        technical considerations in the purchase and sale of U.S. 
        versus Canadian wheat, and other relevant factors of 
        competition; and

   a summary of the current conditions of wheat trade between 
        the United States and Canada, including relevant information on 
        prices, exchange rates, transportation, marketing practices, 
        U.S. and Canadian farm policies, and other significant economic 
        factors that might be relevant.

    The Commission held a public hearing on June 6, 2001, gathered 
evidence, and issued separate exporters' and purchasers' questionnaires 
to U.S. companies during May to June 2001. \2\ In addition, Commission 
staff conducted field visits in Minnesota, North Dakota, and the State 
of Washington to gather information from U.S. wheat millers, grain 
elevator operators, State officials, domestic farm organizations, U.S. 
wheat exporters, and U.S. importers, as well as from representatives of 
the Minneapolis Grain Exchange, the principal trading point for U.S. 
Hard Red Spring (HRS), Canadian Western Red Spring (CWRS), and Durum 
wheat. Staff also traveled to Canada to meet with CWB officials to 
discuss operations relevant to this study.
---------------------------------------------------------------------------
    \2\ The Commission sent purchasers' questionnaires to firms that 
milled, imported, purchased, or processed Hard Red Spring (HRS) or the 
directly competitive Canadian wheat, Canadian Western Red Spring 
(CWRS), Durum, or both classes of wheat, from the United States, from 
Canada, or from both countries, during any part of June 1, 1996, 
through May 20, 2001. Respondents ranged in size from the major 
multinational grain companies to small firms that purchase limited 
quantities and types of wheat. Most firms were either grain companies 
or millers, or both. Four other firms were manufacturers of pasta or 
other products. Most purchased both U.S. and Canadian wheat. 
Respondents accounted for nearly all U.S. imports of Durum and CWRS 
wheat in the marketing year 2000/01. The Commission also sent 
questionnaires to U.S. firms exporting Durum, HRS, and/or CWRS wheat to 
eight selected markets: Algeria, Brazil, Colombia, Guatemala, Peru, 
Philippines, South Africa, and Venezuela. The responses were obtained 
from U.S. firms only, and therefore do not directly cover the pricing 
and/or export behavior of the CWB in world wheat markets. The responses 
do provide U.S. exporter views on CWB behavior and on the 
competitiveness of U.S. and Canadian wheat in the selected markets. 
Although these markets account for an important share of the world 
market for these products, the data and other analysis should not be 
construed to represent the CWB's activities in other third-country 
markets. The Commission received responses from 20 firms covering most 
of the market. However, responses for specific shipments were limited 
(or subject to different terms of sale) and therefore direct price 
comparisons were not possible for several markets.
---------------------------------------------------------------------------
    This report presents information in the following areas: the 
structure of the U.S. and Canadian industries and markets for Durum and 
HRS/CWRS wheat; pricing practices in the U.S. market and selected 
foreign markets; the influence of rail transportation on U.S. and 
Canadian industry competitiveness; product quality issues; and Canadian 
trade programs.
Structural Differences Between Durum Wheat Markets
    In the United States, the Durum market is more narrow and more 
heavily dominated by Canada than is the HRS wheat market. Durum has no 
close substitutes and has only one principal end use: pasta production. 
HRS wheat has several substitutes (of varying quality) and is used in 
the manufacture of an array of breads and other bakery goods. With 
nearly 60 percent of world trade in Durum in crop year 2000/01, Canada 
is almost three times larger than its closest competitor, the United 
States.
    One advantage the CWB has in the Durum market is the ability to 
forward contract for future delivery, as substantiated by the responses 
to the Commission's purchasers' questionnaire. \3\ Because there are 
now few futures contracts traded for Durum wheat on the Minneapolis 
Grain Exchange (MGE), \4\ and even the volume of cash Durum trade is 
spotty and thin, the process of price discovery in U.S. and world Durum 
markets is much more opaque than that for HRS or Hard Red Winter wheat. 
In this market environment, the CWB can forward contract Durum to U.S. 
and/or third-country purchasers in a way that no U.S. Durum supplier 
can do given the high level of risk and price volatility facing small 
suppliers in a thinly traded market.
---------------------------------------------------------------------------
    \3\ Eight firms responded to the Commission's purchasers' 
questionnaire that the CWB Durum future delivery was of value to them; 
six firms (three of which did not engage in importing) said the future 
delivery was not of value. See Chapter 4, ``Contract Structure.''
    \4\ The Durum wheat futures contract volume on the MGE fell 
from16,000 contracts in 1998 (the year it was first introduced) to 559 
contracts in 2000, and to 67 contracts during Jan.-Apr. 2001, according 
to data of the MGE. See also Monte Vendeveer and C. Edwin Young, ``The 
Effects of the Federal Crop Insurance Program on Wheat Acres,'' USDA, 
ERS, Wheat Situation and Outlook Yearbook, March 2001.
---------------------------------------------------------------------------
    The demise of the Durum futures contract on the MGE is partly 
related to the presence of the CWB. The U.S. market is dominated by a 
few large suppliers and a few large domestic purchasers, but relatively 
low volumes. The other factors that undermined the use of futures 
contract in the U.S. included the difficulty in specifying contract 
delivery terms and annual protein and quality variation. \5\
---------------------------------------------------------------------------
    \5\ Ibid. Also Commission interview.
---------------------------------------------------------------------------
    In contrast to Durum, Canada supplied only 17 percent of global 
non-Durum wheat exports in the 2000/01 crop year and accounted for only 
5 percent of world production. The United States supplied 28 percent of 
world wheat exports other than Durum in that year, and produced 10 
percent of world output.
Structural Differences Between U.S. and Canadian Industries
    The wheat producer and user sectors in the United States and Canada 
are generally similar in structure. The main difference between the two 
nations' industries lies in the middleman sector, between the producers 
(farmers) and users (millers or foreign buyers). In the United States, 
the middleman sector consists of numerous producer cooperatives and 
small and large grain trading companies. In Canada, the entire 
middleman sector consists of the CWB, which is empowered with both 
monopsony and monopoly power in the marketing of western Canadian 
wheat.
    Market power is only one of the CWB's notable structural 
characteristics. The Board is in all significant respects an arm of the 
Government of Canada, with Government approval and backing of its 
borrowing and other financing, which reduces its costs and insulates it 
from the commercial risks faced by large and small U.S. grain traders.
    Further, the CWB's producer pool system (by which Canadian wheat 
producers are remunerated) gives the CWB flexibility in marketing 
beyond the ability to forward contract. Producers receive a Government-
approved and -guaranteed initial payment early in the crop year, with 
subsequent interim and final payments as the crop is harvested and sold 
on world markets. Not only are such subsequent payments payable only to 
the extent the CWB makes money on its sales, but they are subject to a 
variety of CWB-determined deductions for freight and other expenses. 
Some of these deducted expenses are ``phantom'' expenses (expenses not 
actually incurred by the CWB). The resulting surplus revenue gives the 
CWB a price cushion in its negotiations with domestic and foreign 
buyers.
    The lack of price transparency within Canada gives the CWB an 
inherent marketing advantage over U.S. competitors. This is 
particularly true in Durum markets, but also in HRS markets. The CWB's 
basing-point price system (using Vancouver, British Columbia, and 
Thunder Bay, Ontario, as base pricing points) for producer remuneration 
enables the CWB to adjust output prices for both domestic sales and 
direct Prairie sales to the United States (i.e., all shipments that do 
not go through either basing point) to meet its local competition. 
Pricing practices are the subject of the following two sections.

Pricing in the U.S. Market
The U.S. price as a basis for the Canadian price
    Most U.S. purchasers of HRS and Durum wheat indicated that the 
price negotiating (bid-offer) process was much the same in the United 
States as in Canada. One firm reported that there is greater liquidity 
in the U.S. market owing to the presence of more sellers. Other 
respondents stressed the importance of price in the purchasing decision 
and stated that negotiated prices for CWRS wheat are based on U.S. 
prices, which in turn are negotiated using futures prices or cash 
market prices.
    In questionnaire responses, the Minneapolis Spring wheat contract 
was by far the most commonly cited contract on which the CWB reportedly 
relies in price negotiations. Even in the pricing of Durum wheat, one 
firm reported that the CWB's prices are expressed in relation to 
Minneapolis Spring wheat futures. Normally, it was reported, Canadian 
Durum wheat commands a premium over the Minneapolis price of $0.05 to 
$0.10 per bushel ($1.84 to $3.67 per metric ton). Most firms were 
unable to specify whether the CWB's pricing practices in the U.S. 
market differed between exchanges.
    Canada's large share of the U.S. and the world Durum markets 
suggests to some U.S. industry members the possibility that the CWB's 
actions can affect Durum prices on U.S. exchanges. \6\ In this view the 
CWB is not entirely a price-taker in the U.S. Durum market but has some 
effect on prices by its decisions on how much to market.
---------------------------------------------------------------------------
    \6\ Commission interviews.
---------------------------------------------------------------------------
Terms of sale between U.S. and Canadian wheat in the U.S. market
Discounts and premiums
    There are few differences in the terms of sale of U.S. versus 
Canadian wheat, according to questionnaire respondents. A few 
purchasers of Durum wheat reported that contracts for U.S. wheat 
specify quality discounts for grade factors that do not meet contract 
specifications, while Canadian contracts generally do not. Generally, 
it was reported, Canadian contracts specify only the protein level and 
grade, the latter to be determined on the basis of Canadian grade 
standards. Grade No. 1 (# 1) CWRS wheat generally commands a premium of 
$0.03 per bushel over # 2 CWRS wheat, which reportedly is the same 
price differential applied to the equivalent U.S. wheat.

Delivery terms
    Firms that purchased wheat directly from the CWB for delivery 
reported more forward than spot contracting, but none reported multi-
year contracts. Slightly longer delivery terms were noted for a larger 
portion of sales of Canadian wheat as compared to U.S. wheat.
    Transportation costs are generally either paid by the CWB or split 
between the CWB and the customer. However, respondents were generally 
unable to report average transportation costs between the principal 
Canadian origin points and principal U.S. destinations, because the 
price for Canadian wheat is often referenced to a ``gateway'' or entry 
point in the United States, with Minneapolis being the most frequently 
cited.

Price comparison of U.S. and Canadian wheat
    Eighteen firms provided 785 individual price contracts for the 60 
months during the marketing years 1995/96 to 2000/01. Direct 
comparisons between contracted and delivered prices for U.S. and 
Canadian wheats were not possible owing to differences in reported 
contracting terms as noted in Chapter 4. Given these data issues, the 
Commission conducted two analyses of the price data: an analysis of the 
contracted (largely ``gateway'') prices for comparable wheats (U.S. and 
Canadian # 1 Durum, # 1 HRS and # 1 CWRS, and U.S. # 2 HRS and # 2 
CWRS) during 1996/97 to 2000/01, and an analysis of delivered prices in 
the Minneapolis area.
    Regarding contracted prices (largely through the ``gateway'') in 
the U.S. market during 1996/97 to 2000/01, reported Canadian Durum 
prices were above U.S. prices for all comparable months except one. For 
# 1 CWRS/HRS wheat, price relationships were mixed, with some Canadian 
prices equal to or above U.S. prices, and others below. Prices for # 2 
CWRS wheat were generally higher than those for # 2 HRS wheat, with 
most contracts reported after January 2000. These observed time series 
relationships are consistent with previous responses from firms 
regarding the CWB's use of grain exchanges for pricing wheat in the 
U.S. market.

Exports to Third-Country Markets
Level of export sales to subject markets
    Data supplied by reporting firms on their exports of U.S. and 
Canadian Durum, HRS, and CWRS wheat to the eight markets covered in the 
survey show declining U.S. exports of Durum and HRS wheat and 
increasing exports of Canadian Durum and CWRS wheat in 2000/01. The 
data also show exports of Canadian Durum and CWRS wheat overtaking 
exports of U.S. Durum and HRS wheat in 2000/01.

Export marketing practices
    Questionnaire respondents indicated that there are no material 
differences in transportation costs, seasonality of delivery, or use of 
futures or spot markets that affect the relative competitiveness of 
either nation's wheat in the eight subject foreign markets. Respondents 
also reported no quality discounts and reported no other special 
discounts from the CWB.
    The analysis of protein delivery in exporter contracts for U.S. # 2 
HRS and # 1 and # 2 grade CWRS wheats \7\ shows that over-delivery of 
protein occurs in exports of both U.S. and Canadian wheat. Most over-
delivery was found to be small, equal to or less than 0.2 percentage 
points over contract specifications, and this level of over-delivery 
occurred in both U.S. and Canadian contracts. Since most contracts have 
penalties for under-delivery of protein, it is likely these differences 
are due to actions by exporters to ensure that the minimum delivery 
requirements are met. However, a higher frequency of protein over-
delivery in the higher ranges was found for the CWRS wheats. For 
example, the comparable Canadian export contracts had protein over-
delivery of 0.8 percentage points or higher.
---------------------------------------------------------------------------
    \7\ Data were not sufficiently available to analyze protein over-
delivery in U.S. and Canadian Durum export contracts.
---------------------------------------------------------------------------
    The Commission's questionnaire responses from exporters also showed 
that delivered prices of both U.S. and Canadian wheat are often not 
adjusted upward in the event of protein over-delivery, although, as 
noted above, most over-delivery was found to be small in the reported 
data. However, among the wheats/grades analyzed, price increases were 
found to be more frequent for the higher grades of wheat (# 1 CWRS and 
U.S. # 1 HRS), as compared to the # 2 grades of these wheats.

Lost sales for U.S. wheat exporters
    Three out of 20 responding firms indicated that price competition 
with Canadian wheat is an ``important'' issue and that they had to cut 
prices to avoid losing export sales of U.S. wheat. Six responding U.S. 
firms reported that they had lost sales to Canadian competition. One 
firm reported it had difficulty competing with direct sales by the CWB.

Export price comparisons
    Comparable export price data were evaluated for the Venezuelan 
market. These price comparisons, for export shipments to Venezuela for 
# 2 CWRS and # 2 U.S. HRS wheat, show that export prices for the two 
wheats generally moved in the same pattern during 1996/97 to 2000/01.
Rail Transportation
    Rail transportation is one of the most important factors in wheat 
industry competitiveness. \8\ Railroads have typically been regulated 
in both their rate-setting and their operation of trunk and branch 
lines, both of which are important to wheat industry competitiveness.
---------------------------------------------------------------------------
    \8\ In addition to the economists' studies submitted to the 
Commission by counsel for the North Dakota Wheat Commission and for the 
Canadian Wheat Board, see The Hon. Willard Z. Estey, ``Grain Handling 
and Transportation Review: Final Report,'' submitted to the Minister of 
Transport (Canada), Dec. 21, 1998; USDA, ERS, ``Effects of Railroad 
Deregulation on Grain Transportation,'' Report ERSTB1759, 1989; and 
William Coyle and Nicole Ballenger, eds., ``Technological Changes in 
the Transportation Sector--Effects on U.S. Food and Agricultural 
Trade,'' ERS Miscellaneous Publication No. 1566, 2000.
---------------------------------------------------------------------------
    In recent years, the U.S. rail industry, unlike the Canadian rail 
industry, has been fully deregulated: U.S. rail rates for all 
commodities, including wheat, are now set by railroads in negotiations 
with individual shippers. Only if there are disputes over rates, or 
proposed mergers that might restrict competition and raise rates, does 
the U.S. Government (the Surface Transportation Board) become involved.
    In August 2000, the Canadian Government implemented new regulations 
for the movement of CWB wheat by the two main railroads, Canadian 
National and Canadian Pacific. These new regulations place ``caps'' on 
the overall revenues received by these railroads from the transport of 
CWB wheat and other grains (see Chapter 3 for details). Shipments to 
the eastern and western ports for overseas export are regulated--rates 
are below comparable commercial rates--as are domestic shipments to 
Armstrong or Thunder Bay, Ontario.
    Significantly excluded from the revenue cap is western wheat 
shipped to the U.S. market. \9\ U.S.-bound shipments from Canadian west 
coast ports are excluded, and rates for such shipments are free to be 
negotiated between railway and shipper (the CWB is the shipper of 
record for all wheat to the United States).
---------------------------------------------------------------------------
    \9\ Canadian Transport Agency, ``Western Grain: Railway Revenue 
Cap,'' retrieved Aug. 2, 2000, from http://www.cta-otc.gc.ca.
---------------------------------------------------------------------------
    According to a report commissioned by the Canadian Department of 
Transportation, the CWB provides railcars to railroads ``without 
charge.'' The North Dakota Wheat Commission and North Dakota State 
University have suggested that this is partly to compensate railroads 
for the lower rail rates for CWB grain.
    The CWB asserts that higher U.S. versus Canadian rail rates are due 
to ``greater railway monopoly concentration'' in the United States. 
\10\ However, with an equal number of Class I railroads servicing 
shippers of the subject wheat, and a roughly equal layout of short 
lines, there is no clear evidence that railroad concentration is higher 
in the United States. More broadly defined (i.e., including alternative 
transport modes such as trucking or riverine transport) transport 
concentration may be lower in the United States, although it is hard to 
measure precisely such concentration. The reason for lower Canadian 
rates appears instead to be greater railroad regulation in Canada, at 
least with respect to the transport of western grain. \11\
---------------------------------------------------------------------------
    \10\ CWB, prehearing brief, p. 8.
    \11\ See Chapter 2. Indeed, the CWB concedes as much: ``The 
Canadian railway transportation system is more highly regulated than in 
the United States and results in lower freight rates for all goods 
carried, not just wheat and barley.'' CWB, prehearing brief, p. 8. 
However, the CWB's conclusion likely is correct only with respect to 
grain, not ``all goods.'' See Transport Canada, Vision and Balance, 
Final Report of the Canada Transportation Act Review Panel, June 28, 
2001, p. 29. (``The National Transportation Act, 1987, freed railways 
and their customers to negotiate charges and conditions for moving 
products, except for grain.'') Available on the Internet at Transport 
Canada's website: http://www.reviewcta-examenltc.gc.ca/english/pages-/
finalreport.htm.
---------------------------------------------------------------------------
    An additional rail rate issue, discussed in Chapter 3, is the 
freight charge the CWB deducts from its reimbursements to individual 
Canadian producers, and how that charge compares with the rate the CWB 
actually pays to Canadian railroads. The Commission did not obtain 
actual rail costs of shipping wheat from Canada to U.S. destinations 
from its questionnaire.

Product Quality Issues in the U.S. Market
Protein ``over-delivery''
    Most respondents to the Commission's purchasers' questionnaire 
reported that to their knowledge, the CWB's deliveries of wheat 
exceeding contracted protein specifications are considered minor and 
not generally anticipated. In fact, respondents reported that 
deliveries from both U.S. and Canadian suppliers tended to exceed the 
minimum contracted protein level in both the U.S. and export markets. 
To assess the extent of over-delivery of protein content in domestic 
wheat purchases, the Commission analyzed differences in contracted and 
delivered protein in 615 Durum, HRS, and CWRS wheat contracts reporting 
both sets of data. For all but # 1 CWRS wheat, most contracted 
purchases were shown to have a tendency toward over-delivery of protein 
content. However, all contracts for all comparable wheat grades and 
classes tended to meet or exceed the contracted protein specification 
for final delivery of the product. Out of 510 reported U.S. shipments 
of HRS and U.S. Durum wheat, 65 percent reported protein over-delivery, 
while 54 percent of 105 reported CWRS and Canadian Durum contracts 
reported over-delivery of protein. Most of these differences were found 
to be within a 1.0 percentage points range above the contracted protein 
specification, and nearly all were within 1.5 percentage points, for 
both U.S. and Canadian wheat.
    Generally, firms reported that, to their knowledge, no adjustments 
to prices were made when the delivered protein content of wheat, from 
either U.S. or Canadian sources, exceeded contract specifications. The 
Commission's analysis of actual price and purchasers shipment data 
revealed that when the delivered protein content exceeded the contract 
specification, the delivered price also exceeded the contract price in 
about one-fifth of the reported purchasers contracts.
    For both U.S. and Canadian wheat, firms reported that prices are 
generally reduced when the delivered protein content falls below 
contract specifications. Some firms indicated that price adjustments 
for variations in protein levels are handled on a case-by-case basis, 
and that a load could be rejected for not meeting the protein 
specification.

Dockage
    ``Dockage'' is the foreign or undesirable matter in wheat, such as 
straw, weeds, pests, and broken hulls. Dockage levels are commonly 
included in contract specifications. Many firms reported that the CWB 
delivers below-dockage wheat (i.e., ``cleaner'' than called for in the 
contract); in fact, all reporting firms indicated that 95 to 100 
percent of their CWB shipments were delivered below the contracted 
dockage level by more than a 0.2 percentage point.

The Effects of Canadian Trade Programs and CWB Pricing on U.S. Exports 
        to Canada
    The U.S. industry has indicated that Canadian regulations and laws, 
as well as operations by the CWB, have virtually precluded marketing of 
U.S. milling grade wheat or milled flour to Canadian mills and buyers. 
As shown in Chapter 2, U.S. exports of wheat into Canada are 
negligible, amounting to less than $50,000 in 2000/01. Canadian trade 
policies and programs, particularly the varietal registration program 
and end use certificates for U.S. wheat, have been reported by U.S. 
exporters as adversely affecting the level of U.S. wheat exports to 
Canada. Information supplied by both U.S. industry interests and the 
Canadian Government indicates that the Wheat Access Facilitation 
Program is no longer in use. The program was implemented by the United 
States and Canada as part of the Record of Understanding in 1998, to 
facilitate exports of U.S. wheat directly to Canadian elevators.
    Additionally, the CWB sells wheat to domestic Canadian millers 
using a North American pricing policy that ensures that its selling 
prices to Canadian millers are competitive with U.S. prices. According 
to U.S. interests, the CWB will lower its price to Canadian wheat mills 
in order to eliminate any possibility of U.S. wheat or flour coming 
into Canada. \12\
---------------------------------------------------------------------------
    \12\ According to these interests, the disparity in westbound U.S. 
and Canadian rail rates resulted in the CWB paying the Canadian wheat 
mills a bonus.

    Senator Dorgan. Mr. Rogowsky, thank you very much. Just a 
quick question on your testimony. Mr. Rogowsky, were you able 
in your evaluation to compare directly any U.S. and Canadian 
contracts for wheat to make the direct comparison on the 
contracts?
    Dr. Rogowsky. The direct comparisons on the contracts for 
U.S. and Canadian? We tried the get the data on the U.S. 
contracts, but it was very hard to make direct contract 
comparisons.
    Senator Dorgan. Why is that?
    Dr. Rogowsky. Mostly because we were having trouble getting 
the data. We had a very difficult time getting the data.
    Senator Dorgan. Let me ask, Mr. Rogowsky, did you seek data 
from the Canadian Wheat Board?
    Dr. Rogowsky. Yes, we did.
    Senator Dorgan. What was the response?
    Dr. Rogowsky. Well, actually, we did not. We did not 
because USTR had already asked for that data and had been 
refused. We did not have that Canadian data.
    Senator Dorgan. So in your investigation you went out to 
purchasers, but you were not--you did not use any data from the 
Canadian Wheat Board? You did not have any access to their data 
on who they were selling to, at what price, and so on?
    Dr. Rogowsky. No. We have in previous studies tried to get 
that. USTR had tried to get it. We did not try to get it.
    Senator Dorgan. You did not try to get it this time because 
you failed to get it in previous occasions?
    Dr. Rogowsky. Correct.
    Senator Dorgan. And because the USTR tried to get it and 
they failed?
    Dr. Rogowsky. Correct.
    Senator Dorgan. They failed because the Canadians refused 
to cooperate?
    Dr. Rogowsky. As far as I know, they refused to cooperate, 
that is correct.
    Senator Dorgan. They refused to cooperate with you 
previously?
    Dr. Rogowsky. Previously. We did not ask them this time.
    Senator Dorgan. And they refused to cooperate now, in your 
judgment, with the USTR.
    The reason I ask the question is, if you are going to 
compare everything here you really have got to--you have to 
have all the source data and you were hamstrung in the 
investigation because you could not get source data from Canada 
because, they did to you what they did to the GAO, they did to 
you what they did to the USTR and everybody else. They said: Go 
take a hike; we do not intend to give you any of that 
information.
    Well, Mr. Johnson, let me just say, I should have said that 
I think the are two glimmers of hope after well over a decade 
of dispute: One, when Mickey Cantor imposed a tariff rate quota 
and, two, when USTR announced, by Mr. Zoellick, that the result 
of this investigation was that our government believed that 
Canada was not playing by the rules. Both were glimmers of 
hope.
    The Cantor decision was actually more than a glimmer 
because he imposed TRQs and in that year there was a 
substantial difference in the movement of grain from Canada to 
the U.S. But having said that I think Ambassador Zoellick has 
done a service by creating this record, I then said that I am 
disappointed that we did not go the next step.
    So let me ask some questions about a tariff rate quota. We 
have previously applied a tariff rate quota on the Canadian 
sale of grain in our country, and that existed for only 1 year. 
Now, the administration, including USTR, applied a tariff rate 
quota to steel just recently, a different case, I understand. 
But it is a remedy you are familiar with and a remedy you have 
been prepared to use.
    Let me ask, why are you not prepared to use it in this case 
and why did you choose not to use a tariff rate quota?
    Ambassador Johnson: First of all, a point of clarification, 
if I am not mistaken the Canadians put a voluntary restraint on 
their exports to the U.S. under threat of a potential TRQ. So 
in other words, there was a law available at that time, Section 
22, that allowed for Ambassador Cantor to basically threaten to 
do a TRQ, the Canadians were concerned about that and came to a 
voluntary restraint as a result of it, which, as you pointed 
out, lasted for basically 1 year.
    In terms of--I am actually glad you asked the question 
because the issue came up when I was in North Dakota about 
steel and about--I will even jump ahead and talk about Canadian 
lumber. That was another one that came up. Regarding steel, 
that was the result of a safeguard law. Now, I know to some 
extent when you are in North Dakota, as I was and you are every 
weekend, I am sure, trying to explain the differences and 
nuances of our trade laws is probably more frustrating than 
enlightening.
    But the imposition of a safeguard in the case of steel is a 
temporary measure basically to allow the industry to adjust to 
imports, increasing imports of steel. The 301 case was in a 
safeguard action. The Canadian lumber case was actually an 
industry-initiated antidumping CVD case that again allowed for 
additional duties to be placed on Canadian lumber on a 
temporary basis, with I think the final ruling occurring in 
May.
    So they are different. Now, at the same time, as we pointed 
out and both of us have mentioned, in looking at the options 
that we considered in moving forward, we looked at not just 
what the North Dakota Wheat Commission has asked us to, but we 
actually looked beyond that. So we responded to the five points 
they wanted. We are pursuing those in the WTO. The access to 
the Canadian market we are working with them. We went to North 
Dakota to get more information on that, and we will be having--
have and will be having consultations with the Canadians on 
that.
    But then we added two more. One was the WTO case, as you 
mentioned. The other was the antidumping CVD, which again is 
what was used in the case of Canadian lumber. Now, in the case 
of a TRQ what we are really looking for here is a permanent 
relief for farmers. We are not looking for a temporary measure. 
We want to see the Canadian Wheat Board fundamentally reformed.
    Our concern is, unlike when the North Dakota Wheat 
Commission filed their petition, we did not have a Doha Round 
going at that time, and this is a very critical period in the 
WTO negotiations because basically between now and next March 
we are to determine the modalities, the framework of the 
negotiations. We are going about as we speak of building 
coalitions to support our position in reforming the Canadian 
Wheat Board, and a TRQ would have clearly been WTO and NAFTA-
inconsistent and then the focus would have been on us instead 
of on the Canadians, which is what we want to do in the next 
year.
    Senator Dorgan. But Mr. Johnson, your answer tells me that 
when farmers ask us why there is not a remedy, your answer 
suggests, well, because we are involved in international 
negotiations and if we do something that would upset the 
Canadians it would injure our ability to create a coalition 
with them to do other things. You know, that is not an answer 
farmers understand. They see this: one, there is unfair trade; 
two, there ought to be a remedy to stop it.
    Now, the first hearing that I held on this was about 10 
years ago. So I am a little impatient here. I am not nearly as 
impatient as the farmers who are losing money every single day 
because of unfair trade. You are talking about things that are 
not going to occur for some long while--reforming the Canadian 
Wheat Board. The fact is the Canadian Wheat Board existed in 
the 1980's, did it not?
    Ambassador Johnson: I do not know exactly when it started. 
I know this problem has been in existence for many years.
    Senator Dorgan. Well, the point is before NAFTA, before the 
U.S.-Canadian Free Trade Agreement, we did not have this 
problem of an avalanche of grain coming down, we just did not. 
It happened after we negotiated a trade agreement with Canada 
and Mr. Yeuter gave, regrettably, some concessions that were 
not disclosed for a couple of years. We discovered later that 
there were secret concessions in terms of what the acquisition 
cost would be, how it would be computed. The acquisition cost 
would not include all of the payments to the Canadian farmers 
from the government. I believe it was only the first GRP 
payment.
    So we did not even know that when the negotiation was done. 
In the first hearing we held on this, a USTR official lied to 
us on that subject, regrettably. But that is not on your watch. 
That was a decade ago.
    My point is this: We have been seeking relief now for 
almost a decade. I want to show you a couple of charts, if I 
might, because the charts describe the quantity of grain that 
has been coming across. I think you can see this chart. A 10-
year average, and incidentally this really--this would not 
exist prior to that, in the 1980's. We did not have a problem 
at all.
    But the 10-year average of Canadian grain exports, to the 
U.S. this is spring wheat and this is durum. This is the 
current crop year, by the way, which is why there is a 
substantial bubble of pressure again, as has been the case now 
for a decade.
    But you can see what is happening to us. It is a relentless 
intrusion into our market. There are two issues here. One is 
grain coming into this country and the second is underselling 
us in an unfair way into third world markets, northern African 
markets and so on.
    But let me just for a couple of minutes ask questions about 
how our farmers can expect some relief and when. Can you give 
me any time estimates on when our farmers might see some action 
that you are describing that would result in real relief for 
them? Any time estimate?
    Ambassador Johnson: Well, let me first say, in terms of 
when I was talking about coalition-building, it was not 
building coalitions with the Canadians. It was building 
coalitions with other countries to isolate the Canadians and to 
cause reform.
    I will just go through the different options. In terms of 
the antidumping CVD case, again, as I mentioned, I know that 
Canada has met at least three times in the last month or so, 
with the Commerce Department, with the ITC in terms of 
determining how that might go forward. That is a quasi--it is 
not really our area, but those----
    Senator Dorgan. Would you agree that is an unlikely remedy?
    Ambassador Johnson: No, I would not agree.
    Senator Dorgan. How often has such a case been self-
initiated?
    Ambassador Johnson: Well, I do not know that the issue is--
again, having not been party to those discussions, I do not 
know that the issue is just self-initiation or not. But in 
terms of antidumping CVD cases being pursued, as we just 
pointed out, the softwood lumber folks have pursued one and 
succeeded in getting temporary relief.
    Senator Dorgan. What are the odds of our seeing a case, and 
if you think the odds are good--if you tell me you think that 
the odds are good that we will see a case, when might such a 
case exist?
    Ambassador Johnson: Well, I would not be giving you odds. 
It is not my place to be giving odds as to whether or not that 
would move forward.
    Senator Dorgan. Well, why?
    Ambassador Johnson: Because it is really up to the industry 
and the regulatory agencies that are involved in that decision, 
not USTR.
    Senator Dorgan. What is your opinion of it? Do you think, 
given what you know of the investigation, do you think such a 
case has merit and should proceed?
    Ambassador Johnson: Well, we felt that the reason why we 
put it on the list of things that should be explored was 
because we felt that the North Dakota Wheat Commission in their 
petition and in the 301 investigation had raised additional 
information and given that market circumstances had changed, 
that at least was something worth exploring.
    So again, it is not for me to prejudge how that quasi-
judicial process should proceed, and frankly I think it would 
be counterproductive if I did.
    Senator Dorgan. I understand. But my own view is I think 
that is an unlikely result, and I think if it did happen it 
would be long into the future. Do you disagree with me about 
that?
    Ambassador Johnson: Again, I would not want to prejudge as 
to what the time lines would be or what the probability is. I 
am not dodging your question as much as it is not my 
responsibility and I think it would be doing a disservice to 
the process if I did do that.
    Senator Dorgan. But could you cite me one instance in trade 
in which the Federal Government has been speeding along here, 
in which we have seen in these kinds of cases an expeditious 
result?
    Ambassador Johnson: Well, no, I cannot cite you one case, 
but that does not mean that there is not any.
    Senator Dorgan. Well, I cannot cite one either.
    Ambassador Johnson: In terms of the WTO case, again, 
because we are going into a legal area that really is 
unprecedented in terms of international law and we are very 
interested in doing that, in challenging state trading 
enterprises, again the nuances of the legal case we would not 
want to be discussing in public, but I can tell you that our 
folks have been working very hard, as they did on the 301 
investigation, in creating the strongest case possible and in 
terms of presenting--the first step in that process is really 
requesting information through the WTO from the Canadians, 
information that, as you just heard, they have not been 
forthcoming with in the past.
    We anticipate we will be moving forward with that request 
in a matter of weeks.
    Senator Dorgan. But Mr. Johnson, if this were 1995 or 1996 
instead of 2002 and we were holding the hearing six, seven 
years ago, whoever the witness would have been would have said 
the same thing that you are saying: We are going after STEs, 
state trading enterprises are sanctioned monopolies that ought 
not exist, we are going to go after them.
    My point is everybody says that. They have been saying that 
since we started this fight and no action, really no progress.
    I am going to have to recognize Senator Burns in just a 
moment, but would you pick out, of the remedies, the potential 
remedies you suggested, pick out for me the one that you think 
might provide the shortest route to a remedy that farmers could 
say, all right, someone has taken action now to help us? What 
is the one that has the shortest route to that result?
    Ambassador Johnson: Well, my argument would be that we are 
taking action to help them right now in the steps that we have 
taken, both in February and since February, in building a case 
along each one of the lines that we have identified. One of the 
things that was a concern when I went to North Dakota, I know, 
is, well, what has happened since February? You had a big press 
release and then what have you done?
    I identified when I was there the actual activities that we 
have been under in all four of the areas. I think that we have 
shown a record that we are not sitting still on this and we are 
moving forward. In terms of again how the antidumping CVD 
process works is not my role to call. That has the potential 
for doing something. The WTO case, we are moving forward as 
aggressively as possible.
    In the WTO negotiations, we have already met with some 
success. At the end of last month we were able to get the 
export competition, including state trading enterprises, as the 
first agenda item to be discussed by the negotiators. In terms 
of the access to the Canadian Wheat Board, or Canada, we have 
already started the consultative process with Canada.
    Now, I know your answer to that is, well, we have started 
and missed that several times in the past. But at least we are 
very interested in pursuing that option. I think that, again, 
the message that came on February 15th and since on the part of 
the industry and on the part of the administration is that we 
are committed to working together to fundamentally resolving 
this issue once and for all. We are not looking for a 1-year 
solution; we are looking for a permanent solution.
    Senator Dorgan. Mr. Johnson, with due respect, let me say 
that having consultations with Canada on the Canadian grain 
shipments to the U.S. and the underselling of the U.S. in other 
markets is like taking a long afternoon walk in the desert 
without a map. I have heard this--in fact, usually I get a call 
before somebody goes to Canada to do consultations, just 
because they want us to understand they are doing something.
    But the fact is nothing has ever resulted from it. Every 
consultation that has been done in the Clinton Administration, 
the first Bush Administration, resulted in nothing. The 
Canadians simply thumb their nose at us and say: Look, we have 
a Wheat Board, that is the way we do business, we do not intend 
to give you a shred of information; if you do not like it, 
tough luck. That has been the result of every single 
consultation.
    So I guess my question is when will our farmers see 
something that is tangible in terms of a penalty that is 
imposed on those that are violating trade laws, in this case 
the Canadians?
    Let me come back to you. If you want to respond to that you 
may, but Senator Burns obviously would like to ask questions 
and I do not want to monopolize this.
    Senator Burns. Thank you, Mr. Chairman.
    I just have a couple of questions. On time lines, Mr. 
Johnson, we could compare the action taken by this action and 
also on softwood lumber. It did not take you very long to make 
a decision on that. So I think there is a comparison there as 
far as the activity of your office is concerned.
    Ms. Terpstra, what would be our estimated total production 
of durum wheat in the United States this year? Have we got an 
estimate on that? I am getting estimates anywhere from 110 to 
150 million bushels.
    Ms. Terpstra. I understand our estimate is 80 million 
bushels.
    Senator Burns. 80?
    Ms. Terpstra. 80 million bushels.
    Senator Burns. That is as low as it has been in quite a 
while; is that correct? What was our carryover from this last 
year? Do you have those numbers?
    Ms. Terpstra. Roughly 30 million.
    Senator Burns. Roughly 30 million.
    It just seems like to me when we start talking about 
domestic production, and our miller friends are coming up with 
all kinds of numbers, why they should not have access to the 
Canadian market under certain circumstances, that we have to 
figure out a way. It is pretty obvious to me we have been 
trying to deal with the Canadians on their grain board and the 
way they market their wheat and grain, okay.
    If they are not going to change, should we not start 
changing the way we have to deal with them? In other words, are 
there actions that we can take or things structurally that we 
can do in our marketing, because I will tell you we have not 
looked at grain marketing in this country for the last 100 
years. It has never been a question, the role that the grain 
companies play in this country. In other words, the Continental 
Grains and the Cargills and all the people that maybe when it 
boils down to it--I know at one time there were only five and I 
think there are less now in reality.
    Now, the independents, they say they are formidable in the 
competition of bidding on this grain. But we have never looked 
at the way we market our grain. Maybe it is time that we make 
some changes domestically in order to deal with the government-
sponsored monopolies that other countries do. Am I not correct, 
Australia has a national grain board, do they not? New Zealand, 
I think. Does not New Zealand have a grain board? I am not 
sure.
    Ms. Terpstra. No, New Zealand does not, but Australia does.
    Senator Burns. But Australia does. In other words, if you 
take Canada and Australia, which is two majors--how about the 
European Union?
    Ambassador Johnson: No.
    Senator Burns. No? In other words, they are all individual 
and marketed through cooperatives; is that correct?
    Ambassador Johnson: Companies.
    Senator Burns. Well, what I am saying is that I think--and 
I have very few questions. I have got quite a few questions for 
the next panel. But I think it is time that we look on how we 
deal with government-sponsored monopolies and take that to the 
negotiating table, that we are going to deal with these on a 
different basis than we do if you have got an open market or a 
bidded market.
    Let us change our way, the way we approach that whenever we 
go into negotiations. We have not questioned, never once have I 
seen in the Ag Committee and I do not think the chairman has 
either of anybody questioning the practices or the actions 
taken by the major grain companies that buy and export American 
grain. I know they are big and I know they are powerful.
    So when I look at what our domestic production is and what 
our domestic demand is, that gives me a little insight on what 
we should be doing here as far as positioning our farmers in 
the market to where they can take advantage of a stronger 
market, not necessarily maybe from the imports. I know the 
Canadians. The Canadians are masters at putting up non-tariff 
barriers. My God, we have faced them--I have lived in Montana. 
We have faced them and I have gone both ways on that line.
    Now we are moving some feeder cattle across the line up 
there now. But I am telling you, any time they stop my truck 
and say, well, your wheel base on the tractor of this truck is 
over 244 inches, you have to sit right here--and nowhere in the 
manual it says, what is 244 inches on a wheel base of a truck, 
the tractor that is on the front of that semi? Or they can 
throw up little things all the time.
    Do we do that in return? I do not think we do. I have not 
heard of it. Maybe I do not get the same reports, it is a 
little bit slanted. But I think we have to look into those kind 
of situations and be able to respond to them.
    So I just want to know the production and those type 
things, because I think we have to start looking at a different 
way we deal. If a country is going to maintain a government-
sponsored monopoly, then that is going to put them in a 
different category than countries who open their markets or the 
markets are similar to others around the world. I think we have 
to take a look at that. I really do. I think they have to be 
treated a little bit differently.
    If they continue to do that, then they are going to be 
dealt with in a different light.
    So the sermon is over. I will pass the plate.
    Senator Dorgan. Senator Burns, thank you.
    We were computing, Ambassador Johnson, what you were 
alluding to in terms of the period--you heard from farmers 
about the period from your announcement to now. In the two 
months following the announcement we had the equivalent of 
13,400 18-wheelers come down from Canada, 13,400 truckloads, 
18-wheeler trucks, of Canadian grain in the two months.
    I guess the question--I am continuing to ask this question 
because I think farmers need to have an answer. They filed an 
action. That is not inexpensive. It required them to put some 
money together through the Wheat Commission, the State, and so 
on. They took the initiative. They filed an action.
    Yes, it is true that Canada has not been playing fair. We 
also now understand once again that Canada will not open its 
information or its books and records from the Wheat Board to 
us. But nonetheless, we believe Canada is not playing fair and 
we have said the equivalent to them: You better watch it. Well, 
so what? We have been telling them that for a decade.
    When and how might our farmers in Montana and North Dakota 
see some remedy in the form of a penalty with respect to those 
who commit unfair trade or unfair trade with our country?
    Ambassador Johnson: Well, first of all, just to clarify in 
terms of what we have said to the Canadians, and I think again 
it is a chorus of industry and government together, is we have 
not said you better watch it. We said: We are going after you. 
That has been very clear. I think in terms of the WTO context, 
they are basically becoming more and more isolated and trying 
to protect that in the negotiations. Our goal is to keep that 
pressure and that focus on them.
    As you look at the different remedies that we are pursuing 
or the different options that we are pursuing, again--and I 
should have clarified this on your earlier question before you 
went to Senator Burns. Part of our consultations with the 
Canadians is not just what they are doing in our market and 
what they are doing in third country markets, although that is 
obviously a concern, but it is also what they are doing in not 
allowing us to have access to their market.
    Some of the things the Senator described is one of the 
reasons we went to, one of the important reasons we went to 
North Dakota, was to try to find out what those impediments 
are. I would like to again hear more about your experience on 
that, because that has a potential. I met with one of the 
farmers that was there who only lived five miles from the 
border with Canada, another one that lived 25 miles away, and 
they took that seriously as being an opportunity and an 
opportunity in a couple of different ways: in terms of the 
transportation system that exists in Canada, that there was a 
feeling that if we could have access to the transportation 
system there could be more efficient access, not just to 
Canada, but third country markets, if we are treated fairly and 
equally with Canada wheat.
    There was an interest in terms of putting, basically 
putting a crack in the dike of the Canadian Wheat Board. So 
there was a lot of interest in that and we are very interested 
in pursuing that. I have actually brought this up with Mr. Van 
Cleef on a phone conversation with him when we talked about it.
    So I think--now, we have done that before. Your note is 
taken. But I think they also need to recognize that we are 
hitting on multiple, as Ambassador Zoellick describes it, 
multiple bullets in the gun. So all these things are moving 
forward, not just one.
    Secondly, on the CVD antidumping case, I should have said 
this earlier, that the way this works is that there is a 
preliminary determination, as there is in the softwood lumber 
case, that puts in a temporary tariff while they produce a 
final finding. That process can take a matter of months, so it 
is not necessarily as--I think you alluded to earlier it can 
take until your children or grandchildren are involved. These 
are processes that can move fairly quickly.
    In terms of the WTO negotiations, as I said, the modalities 
are to conclude next year, but the negotiations themselves are 
to conclude in just over two and a half years. So that again 
our focus is not--is that we want to make sure that everything 
we are doing are complementary and mutually reinforcing, both 
short-term measures and long-term measures, with the ultimate 
objective being permanent reform and permanent relief for the 
wheat farmers in this country.
    Senator Burns. Mr. Chairman, if I might.
    You mentioned that people who look at an advantage, who 
live in near proximity to the border. We have farmers that farm 
both sides of the line. Mr. Johnson, we have--I think probably 
you go to Botineau, North Dakota, and I think you have got 
farmers that farm in Canada, they own land in Canada, and they 
also own land in the United States and they are operating under 
two different systems. They do not know from one day to the 
next exactly where they stand as far as when they market grain.
    You are right, there are a lot of folks who farm on the 
prairies of Canada that want to do away with the Wheat Board. 
But you get from Winnipeg east and that is not the general 
consensus. Now, something tells me in that case that this is a 
political question and probably a question that Ottawa feels 
like that it wants to continue to control and it is not in the 
hands of the individual farmers.
    Ambassador Johnson: Well, I think you raise an excellent 
point. In fact, one of the farmers that I met with, he was not 
currently, but had farmed on both sides of the border. It was 
actually very helpful in hearing his experiences and the 
comparisons. As I said, we are putting together our 
consultations as we speak.
    So as you know other farmers as well as your own 
experiences, please get them to us, because now is the time.
    Senator Burns. Well, we have a man that sits on our FSA 
board in Montana is one of those kind of farmers. So any time 
you want to visit with Jerry Thusen, and I am sure Mr. Broyles 
is here, he knows him very well. He is a good man to visit with 
whenever you start talking about both sides of that border.
    I am sorry to intrude here. I have taken far too much 
liberty here.
    Senator Dorgan. No, no, no, no.
    The dilemma is that our farmers, given a period, a long 
period of collapsed prices, are trying to survive in the short 
term and all of the solutions you describe are solutions you 
are trying to negotiate in the long term.
    Let me ask this question. Is there any evidence, any 
evidence that one can cite, that the Canadians have altered 
their behavior since the announcement several months ago?
    Ambassador Johnson: Well, the short answer is I have not 
looked for evidence. We have been looking at what we are going 
to be doing with them. In terms of--again, I must not be doing 
a very good job of explaining it. Both the antidumping CVD 
option could be a shorter period than years and, depending on 
what our consultations with Canada could do, have the potential 
of making some progress.
    I think again that that is consistent with what our long-
term objective is, and by long-term I do not mean decades. I 
mean a few years, not decades. I know you are concerned. I 
appreciate it, and I heard it when I was in North Dakota. But 
we do not think that it would be constructive to impose a TRQ 
that would ultimately be challenged, we would lose, and not 
only would we have lost that TRQ and lost that case, but it 
will have overlapped exactly with the same period of time that 
we are trying to build an international coalition.
    Senator Dorgan. Why do you say we would lose, Mr. Johnson?
    Ambassador Johnson: Because with our WTO obligation since 
the Uruguay Round and our NAFTA obligations, that our ability 
to impose tariffs that are above, with this action that are 
above our bindings, would be WTO-inconsistent.
    Senator Dorgan. Even in the teeth of unfair trade?
    Ambassador Johnson: But again, that is why an antidumping 
CVD case is something we can do, because that is a vehicle for 
addressing those issues, as it was in the softwood lumber case.
    Senator Dorgan. Except that the antidumping is being 
negotiated away, as I understand, as well in these talks. But 
aside from that, let me just put up a chart. You talked about 
the U.S. exports to Canada, which are very small; Canadian 
wheat exports to the U.S., quite large. I want to put this up. 
This is what the Canadian Wheat Board President said: ``Since 
the United States did not impose tariffs, we have successfully 
come through our ninth trade challenge.''
    That is why farmers look at me and look at Conrad Burns and 
you and they say: Wait a second, the Canadians claim victory 
and they have not through a decade been required to disclose 
one shred of evidence that exists in the bowels of the Wheat 
Board with which we could make better judgments about this. 
They have come through it. You have said: Canada, you are 
guilty, but, by the way, there is no remedy.
    So the Canadians are gloating about this. They have come 
through this again. From your testimony, I guess I can only 
conclude that you cannot give me any time estimate of any kind 
of a remedy that might exist. Consultations, I am just telling 
you, buy the plane tickets in bulk and just keep consulting, 
but nothing will happen and you and I know it. A year from 
now--in fact, if Senator Burns would like we will schedule 
another hearing a year from today, and we will ask you, what is 
the evidence that your consultations with the Canadians have 
been able to bear fruit? Because no one in your position in the 
last 10 years has been successful.
    Unless you use real levers and real remedies, the Canadians 
are not going to respond. I mean, the only way that we can do 
this, it seems to me, is to say to the Canadians: Either you 
play fair or you ship that durum to Newfoundland. Then when you 
decide that you are willing to play fair, then let us have 
reciprocal open markets with fair trade.
    So I do not want to keep you much beyond this, but can you 
give our farmers any hope that there is any remedy that they 
might see in the next two months, six months, twelve months, 
and if so what might that be?
    Ambassador Johnson: Well, first of all, when it comes to 
the Canadians gloating over this decision, my sense is that 
they understand, and I can speak with a fair amount of 
confidence that they recognize, that this is not business as 
usual, that we are going aggressively after them. We do have 
the WTO process, we did launch a round, they are isolated. You 
had mentioned that the Canadian-U.S. Trade Agreement had 
allowed for them to continue in operation. Well, we took a 
lesson from that experience. Next round, we are not allowing 
them to continue operations as normal, which was a very 
important message I heard when I was in North Dakota.
    Again, at the risk of sounding redundant, there are 
measures that we are taking, including the possibility of an 
antidumping CVD investigation, which the Commerce Department 
and the ITC are discussing with the industry, that is a matter 
of months if that is decided to be pursued by the industry in 
their wisdom that that is something that would be constructive 
for their purpose.
    So there are possibilities out there. But again, we want to 
see permanent relief, and having the Doha round, having this 
vehicle available to us, with the aggressive time lines that we 
are dealing with, the last thing that we want to do is create a 
focus on us and what we are doing that is WTO-inconsistent 
versus what we think the Canadians are doing WTO-inconsistent. 
And either it is WTO-inconsistent in the terms that we are 
taking the case, it is WTO-inconsistent in terms of if the 
rules are not strong enough, which I think is what you are 
arguing, then we need to strengthen them when it comes to the 
export state trading monopolies.
    We are pursuing both of those options very, very 
aggressively and, regardless of what they might say in the 
press, I think the Canadians understand that.
    Senator Dorgan. But every trade ambassador that I have 
talked to in a decade has said exactly the same thing. Charlene 
Barshefsky said it, they all said it, Republicans and 
Democrats. I could put a blindfold on and simply listen and 
could not tell you the difference between any administration in 
the last 12 years, and they all say it. Look, I wish you well. 
I hope you succeed in everything that you describe today.
    As I said when I started, I think there is a glimmer of 
hope that you at least--this administration, Mr. Zoellick and 
you have at least said, look, Canada, you are engaged in 
trading that is unfair. But you stopped short of the finish 
line, Ambassador Johnson. The finish line is to say: you are 
guilty of unfair trade and we are imposing a penalty. I want 
you to get to the finish line. I want to help you get there, 
not next year and not five years from now, but I would like you 
to get there next week.
    Ambassador Johnson: Well, the only comparison I would make 
is we are not finished, and we are going after this. I am not 
unrealistic. I recognize that this problem has existed for at 
least a decade, if not decades, and we are committed to doing 
this. We are going to have to build up our record of 
confidence. There is a lot of disillusionment, I think is a 
safe description, as you were describing, in the countryside 
regarding trade in general, but in particular the Canadian 
Wheat Board.
    Senator Dorgan. No, they are furious. I mean, 
disillusionment--Charlene Barshefsky went to Minot as well. 
Farmers are just furious about this, because they know it is 
unfair and they cannot get anybody to take notice to demand 
that we have fair trade, and if our trading partners will not 
give us fair trade then you slap penalties on. They are furious 
that that does not happen.
    Sorry to interrupt you.
    Ambassador Johnson: No, that is fine. But from our point of 
view, we know that just by me sitting here or me showing up in 
North Dakota that the is not going to make everyone go to bed 
and sleep better at night, thinking, well, good, they are on 
the job, they have solved the problem, or we can be sure that 
it is going to solve the problem.
    We are going to have to build a record of success. If you 
call a hearing a year from now, I am sure I will be here at 
your request and would be able to outline at that point the 
things that we are doing right now. As I said, as far as I am 
concerned we have not passed the finish line. We are just 
starting on what we are going after.
    I think the Canadians recognize that.
    Senator Dorgan. Ambassador Johnson, I am going to call a 
hearing six months from now, mid-October. That is six months. 
Then let us talk in six months, what has happened between now 
and then. If in two months we have 13,500 18-wheelers bringing 
grain south during that period, how much additional grain is 
coming there? They are at a record pace, as you know. I want to 
know what has happened in six months.
    I hope that you will go back and tell the folks you work 
with, Mr. Zoellick, Ambassador Zoellick and others, that it is 
time to slap a TRQ on these folks, and if there is a risk to do 
that, let us take some risks for a change on behalf of our 
farmers. Just take some risks and demonstrate to the rest of 
the world that we are interested in expanded free and fair 
trade, but, by God, this country is no longer going to sit back 
and allow companies and individuals to be injured by unfair 
trade.
    So you are good to come and testify today. Let me again say 
that I took heart in the announcement a couple of months ago. 
That is something that others did not do and should have done. 
So thank you for that. But as I said, you stopped short of the 
finish line and I want to help you get there in a hurry. I am 
going to ask that we have another hearing in six months, and I 
hope that you can work furiously between now and six months and 
that we will have testimony we will see substantial progress.
    Ambassador Johnson, Ms. Terpstra and Mr. Rogowsky, thank 
you very much for being here today. We appreciate it.
    If we can excuse these witnesses, we will ask the second 
panel to come forward: Neal Fisher, Administrator, North Dakota 
Wheat Commission; Gary Broyles, President, National Association 
of Wheat Growers--he is a farmer from Montana--Charles 
Hunnicutt, counsel at the law firm of Robins, Kaplan, Miller 
and Ciresi; and John Miller, President of the Miller Milling 
Company.
    If you would please come forward and take seats, we would 
appreciate having your testimony.
    Senator Burns. I might add, Mr. Chairman, that as Mr. 
Broyles makes his way to the table, he has got something on his 
ranch, grain farm out at Rapplegee, Montana, that he has not 
had in the last four years.
    Senator Dorgan. What is that?
    Senator Burns. Mud.
    Senator Dorgan. If we could have the door closed, we will 
begin. Let me ask Mr. Fisher to begin. Mr. Fisher is the 
Administrator of the North Dakota Wheat Commission. Neal, thank 
you for being with us. Why do you not proceed, and we will 
accept your entire statement as a part of the record and you 
may summarize.

  STATEMENT OF NEAL FISHER, ADMINISTRATOR, NORTH DAKOTA WHEAT 
                           COMMISSION

    Mr. Fisher. Thank you, Mr. Chairman and Senator Burns, for 
this opportunity to appear here today. I have some charts that 
are attached to the testimony and I may make some reference to 
a couple of other charts as we move forward. But again, thank 
you for this opportunity.
    My name is Neal Fisher. My family has a farming and 
ranching operation in central North Dakota in Kidder County, 
where we raise cattle, wheat, other small grains. I am also the 
Administrator of the North Dakota Wheat Commission, an entirely 
producer-funded, producer-controlled organization that 
represents over 19,500 North Dakota wheat producers.
    Today's hearing, as you might guess, is of great interest 
to North Dakota farmers. The U.S. wheat industry has been at 
the forefront of every major trade debate facing U.S. 
agriculture. Our experience with the U.S.-Canada Free Trade 
Agreement, with NAFTA, and the bilateral disputes that have 
occurred since 1989 dictates that we stay very deeply involved 
because we know that our futures rest heavily on trade 
negotiations and the dynamic nature of U.S. farm policy, and it 
affects ultimately our farm incomes.
    The United States and Canada are the world's largest wheat 
exporters and, while Canada is a major wheat producer, its 
domestic market is relatively small. So with this large 
quantity of wheat, it has tremendous market power to set prices 
and also to create havoc in the market. It places the Canadian 
Wheat Board in a unique position to inflict injury on producers 
like our own in North Dakota and Montana and other foreign 
competitors, as Ambassador Johnson has pointed out.
    The Canadian Wheat Board is a self-professed government-
sanctioned state trading enterprise or STE. It has total 
control over the exports of all western Canadian wheat. The 
main impact of the Wheat Board's marketing practices is felt in 
the United States and in other third country wheat markets 
where the board is active. We compete head to head for market 
share.
    The effect of the Wheat Board on the average U.S. wheat 
farmer has been drastically negative. I think that has been 
well-documented in the case. Wheat farmers in North Dakota and 
Montana are particularly vulnerable to the situation, not only 
because we live on this common border that was described this 
morning, but that we also produce high-quality specialty market 
wheats that are very similar in application.
    Since the implementation of the Canada-U.S. Free Trade 
Agreement in 1989 and the North American Free Trade Agreement 
in 1994, the tensions across the border have only worsened. As 
the largest single wheat exporting entity, the Canadian Wheat 
Board's monopoly actions have distorted the world grain trade 
for years. They have deflated world prices and they have 
reduced returns to U.S. and in my case--I represent the North 
Dakota producers--definitely taken money out of the pockets of 
North Dakota producers.
    I would like to take a break, Mr. Chairman, from the 
outline of my prepared remarks and just highlight some of the 
impacts on our industry and on North Dakota farm families like 
my own, if I might. I have some charts that I will refer to, 
but an immediate concern of mine right now is my 22-year-old 
son, who is a fifth generation farmer and rancher in North 
Dakota and he hopes to carry on the dream of his great 
grandparents. He, like me, is concerned about his future, and I 
think there is good reason for that.
    Attached to my testimony there is a chart that shows North 
Dakota wheat plantings and the history of it. What you will 
find here is a 30 percent decline in the last six short years 
in that commitment of North Dakota producers to wheat. That is 
not of their own accord. It is because they have been 
discouraged from doing so by the practices of the Canadian 
Wheat Board, and I think we will point that out as we go 
through the testimony.
    The most recent report from USDA indicates that there is 
another 6 percent decline in acres in North Dakota. Most of the 
producers think it is the result, in part at least, of a 
conscious effort on the part of the Wheat Board to demoralize 
production and their producer attitude.
    I think that chart also measures the impact of the abuse of 
the monopoly power granted by the Canadian government to the 
Canadian Wheat Board: this guaranteed borrowing authority that 
was well documented in the case, and the generous freight 
advantages that they have. These powers and privileges have 
resulted in non-commercial operations of the Wheat Board and 
have created this downward spiral in our wheat production in 
the U.S., particularly in the spring wheat and durum region.
    Some producers have called this a self-fulfilling prophecy, 
if you will, that the Wheat Board targets you as a market, 
depresses prices and replaces you as a supplier. It has been 
documented very well in the U.S. You increase the imports. That 
depresses prices. It creates this disillusionment with planting 
wheat. Production goes down. Some would then justify additional 
imports, and you start the cycle all over again.
    If you do that enough times, pretty soon the U.S. industry 
is dependent totally on a foreign government for its source of 
raw material.
    I have also some additional charts that show the plantings 
of durum in the United States. I know that the USDA report is 
only a prediction at this time, but it does not show the kind 
of response that one would anticipate or one would think would 
show up on the basis of the shorter world wheat situation and 
the world durum situation. We have not seen the producer 
response that we would anticipate.
    If you look at the chart that shows the Canadian 
production, also attached, we see a very different situation. 
We did see a 20 percent increase in durum plantings in Canada 
this year. We think that may be related to the import picture, 
which shows again, if you extrapolate from the first 9 months 
of this marketing year, record levels of imports. We may very 
well come close to eclipsing the record year of imports of 
Canadian wheat into this country.
    Also notable on this chart I think is the gap that we see 
back in the 1995-1996 period when the TRQ was in place and 
actually had some impact on import levels and produce 
responses. You will notice that the equivalency or the adequacy 
of U.S. durum and spring wheat availability also tracked very 
well with that. We did see a producer response.
    If we look at another chart that I have in hand here, that 
we will again attach to our testimony, it shows the adequacy 
level of U.S. wheat and the lack of need, if you will, for 
Canadian imports. It shows that in fact some of the years when 
Canadian imports were the highest we actually had the greatest 
availability of U.S. supplies.
    So I think it is an inconsistent message we sometimes hear 
from our critics on this issue. I have other documentation that 
will support that.
    One last reference that I would like to make is, I am 
holding a stack of documents which represents 100 days trade at 
the Minneapolis Grain Exchange, 100 days of trade, and you find 
only 9 active bids for durum. The under-the-table long-term 
contract deals offered by the Canadian Wheat Board to 
processors here and around the world have taken away the need 
for price discovery at the Minneapolis Grain Exchange. The 
trade goes on without having to be documented anywhere.
    If I may, I will return to some more organized comments at 
this time. The trend in imports of Canadian spring wheat and 
durum since the implementation of the free trade agreements, as 
we have said, has grown dramatically, but a temporary reprieve 
was accomplished when we did have the tariff rate quota. The 
recent trends and the impacts they are having on U.S. producers 
are indeed startling.
    We had a decline in domestic stocks this year, a slight 
decline, and we thought that would bring the producers running. 
Instead they have been sufficiently demoralized so that they 
have not responded to the signals.
    As another example of the market issue, simply put, the 
noncommercial, non-transparent operations of the Canadian Wheat 
Board have led to a dysfunctional market in our country.
    We were encouraged by the cataloguing and the confirmation 
of all of these allegations that we have made for so many years 
in the Section 301 investigation and that the result was the 
affirmative finding on February 15th. Unfortunately, on 
February 15th we were also disappointed, as you indicated, 
Senator, that tariff rate quotas were not going to be a part of 
the remedy at that time.
    The TRQ was the preferred choice of our growers in the U.S. 
wheat industry for several reasons. It provides that immediate 
relief that was being discussed earlier this morning. But 
probably fitting into everybody's discussion, it also provides 
the best leverage to bring the Canadians to serious 
negotiations. I think that is something that Ambassador Johnson 
and everyone would want to see, is a serious negotiating 
position offered by the Canadians.
    The position of the North Dakota Wheat Commission and the 
majority of North Dakota wheat farmers is cautious optimism for 
the U.S. Trade Representative's plan. We were deeply 
disappointed, as I said, that Ambassador Zoellick chose not to 
impose the tariff rate quotas, but we are pleased with this 
sort of get-tough dialogue that we are hearing.
    But there are some problems here. Under the current USTR 
plan, a solution, as you said, is many years away. Many of our 
farmers may not last that long.
    So, Mr. Chairman, time is not on the side of the American 
wheat farmer. We need immediate relief to offset the ongoing 
injury. We harbor no illusions that the Wheat Board is going to 
change any of its position any time soon, but we need to hear 
your voice, the voice of the committee, certainly as we have 
this morning on this issue.
    The North Dakota Wheat Commission also appreciates the 
position of the U.S. Millers concerning state trading 
enterprises. We were encouraged that they were supporting the 
U.S. commitment to impose discipline on these monopoly state 
trading enterprises. But we have also been disappointed that 
the millers and the North American Millers Association have not 
supported or stayed on the sidelines, as it were, as this case 
progressed. Instead their position might be a bit self-serving. 
It is a beneficial commercial position that they have with the 
Canadian Wheat Board in many instances.
    The imposition of a tariff rate quota would not threaten 
their access to sufficient quantities. The depictions in the 
charts that I have here will support that. Instead, The millers 
have sacrificed the long-term benefits that could be gained 
from true reform of the Wheat Board and the free and fair trade 
that might result from that.
    One of the ironies of all that is that I think if nothing 
is done U.S. millers and exporters will continue to become 
increasingly dependent, as I said earlier, on a foreign 
government and its supply monopoly for the supply of their 
principal raw material, if you let that self-fulfilling 
prophecy play out.
    Maybe I have covered enough of the position of the North 
Dakota Wheat Commission at this time. I think we will have some 
additional interesting producer comments from Mr. Broyles. I do 
appreciate the opportunity to testify before you here today, 
and I cannot stress the urgency enough in the hearts and minds 
of all of our producers on this very serious issue.
    Thank you.
    [The prepared statement of Mr. Fisher follows:]

 Prepared Statement of Neal Fisher, Administrator, North Dakota Wheat 
                               Commission

    Thank you Mr. Chairman and Members of the Committee for the 
opportunity to present this statement today. My name is Neal Fisher, 
and my family has a farming and ranching operation in Kidder County, 
North Dakota, where we raise cattle, wheat and other small grains. I am 
also the Administrator of the North Dakota Wheat Commission, an 
entirely producer-controlled organization that represents over 19,500 
North Dakota wheat producers. The North Dakota Wheat Commission was 
established in 1959 for the purpose of promoting, aiding and developing 
the orderly marketing and processing of North Dakota wheat. Today, it 
works to expand worldwide use of U.S. hard red spring and durum wheat 
through export market development, domestic promotion, research, trade 
and public information initiatives. And all too often, we also find it 
necessary to assist our producer members in defending themselves and 
their markets from the distortions and injury caused by unfair trading 
practices of some foreign competitors.
    Today's hearing is of great interest to North Dakota farmers. I am 
proud to acknowledge that the North Dakota Wheat Commission, along with 
U.S. Wheat Associates, the Wheat Export Trade Education Committee, the 
National Association of Wheat Growers, and many other state wheat 
organizations have been at the forefront of every major trade debate 
facing U.S. agriculture. Our experience, awakened by the Canada-United 
States Free Trade Agreement and forged in the bilateral disputes with 
Canada since 1989, dictates that farmers must remain deeply involved in 
the development and implementation of U.S. trade policy. We see trade 
and trade negotiations as dynamic elements of U.S. farm policy and 
ultimately farm income.
    The United States and Canada are the world's largest wheat 
exporters. On average, U.S. production of spring wheat at 506 million 
bushels annually is nearly double the amount used domestically for 
food, seed and residual purposes. U.S. production of durum averages 
just over 110 million bushels annually and has outpaced domestic use in 
all but one of the last ten years. While Canada is a major wheat 
producer, its domestic market is relatively small. Thus, with its vast 
quantity of wheat available for export, it has become the acknowledged 
price setter for wheat in the international market. This places the 
Canadian Wheat Board in a unique position to inflict injury on its 
foreign competitors who cannot discipline the process in a meaningful 
way by exporting to Canada. And, the Canadian Wheat Board is a 
government-sanctioned state trading enterprise, or ``STE'', which has 
total control over the export of western Canadian wheat. With a small 
home market, the main impact of the Canadian Wheat Board's marketing 
practices is felt in the United States and in other third country wheat 
markets around the world in which the Board is active.
    The impact of the Canadian Wheat Board on the average U.S. wheat 
farmer has been drastically negative. We trace our problems with the 
Canadian Wheat Board back to the negotiations for the CUSTA which did 
not adequately address the practices of state-supported monopoly export 
boards and their impact on U.S. producers. Wheat farmers in North 
Dakota have been particularly vulnerable to these practices not only 
because we live along the border with Canada, but also because we 
produce specialty wheats for the same export markets as does the 
Canadian Wheat Board. The wheat belt for hard red spring wheat and 
durum does not recognize the U.S.-Canada border.
    Since the implementation of the Canada-United States Free Trade 
Agreement in 1989 and the North American Free Trade Agreement in 1994, 
the tensions across the border over wheat trade have worsened. As the 
world's largest single wheat exporting entity, the Canadian Wheat 
Board's monopoly actions distort world grain trade and deflate world 
wheat prices. Aspects of those unfair practices are not just 
persistent, but actually growing under NAFTA. Canada's unfair trade 
practices have reduced returns to U.S. producers, and as a result have 
raised U.S. taxpayer outlays in the form of larger loan deficiency 
payments and emergency government assistance payments.
    I have seen firsthand the injury suffered by United States wheat 
growers, particularly North Dakota producers, from the unfair trading 
practices of the Canadian Wheat Board. The impact of the Board's 
discriminatory pricing and market practices are having a devastating 
effect on our farming economy.
    As the series of charts attached to my statement illustrate, the 
negative impacts have been lost domestic market share, reduced prices 
and lost acres. The first chart shows a loss of one-third of the wheat 
acres in North Dakota since 1996. Low market prices due to the ever 
increasing influx of Canadian wheat imports continues to move producers 
out of wheat production. Unfortunately, it is becoming a self-
fulfilling prophecy. Our domestic milling and pasta industries are 
becoming more dependent on a foreign source for its product needs in 
hard red spring wheat and durum .
    The milling and pasta industries are quick to incorrectly point to 
alleged inefficiency on the part of U.S. producers or lack of adequate 
production. However, you can clearly see that supplies of both durum 
and hard red spring wheat have been more than adequate to cover 
domestic needs. It is simply because U.S. millers and pasta producers 
are continually receiving unfairly priced and marketed Canadian Wheat 
Board wheat and durum. This is not healthy economically for U.S. 
consumers or U.S. workers, in addition to the loss it is creating 
across farm enterprises in North Dakota.
    The trend in imports of Canadian spring wheat and durum since 
implementation of the Canada-United States Free Trade Agreement has 
grown dramatically. A temporary reprieve occurred in the mid-1990s when 
a successful U.S. Section 22 investigation brought about tariff rate 
quotas. This tariff rate quota was successful in bringing about true 
market signals to both U.S. producers and end-users. As some of the 
later charts indicate, this resulted in a fair market price and 
increased acres and production which provided end-users with more 
stable supplies to draw on. Since the elimination of the tariff rate 
quota however, Canadian wheat and durum imports are once again on a 
dangerous upward trend. This year, current trends will take us to 18.5 
million bushels of durum and 44 million bushels of spring wheat. This 
would be the second highest level of durum imports ever from Canada and 
will mean the loss of 25 percent of the U.S. domestic market in durum 
and 15 to 20 percent in hard red spring wheat.
    The impact these recent trends are having on U.S. producers is 
startling. This year domestic stocks of durum were projected to be 
drawn down to tight levels of 25 million bushels, compared to more 
recent years of 50 million bushels. This should have provided stronger 
market prices as end-users rationalized the tighter supplies. This has 
not happened however. Instead, cheaper priced Canadian durum imports 
have kept prices low and reduced market returns for U.S. producers. The 
result of all this--U.S. producers may not respond with higher planting 
intentions this year. The March 2002 U.S. Department of Agriculture 
producer survey showed acres could fall by 2 percent in the U.S. and 5 
percent in North Dakota. As I mentioned earlier, in the past, a normal 
functioning market should bring about higher prices to entice 
production when stocks are drawn down. Producers then respond with 
increased plantings the following year to meet domestic needs. Why is 
that not happening this year? As I mentioned earlier, it is becoming a 
self-fulfilling prophecy. The U.S. end-user will become increasingly 
dependent on a foreign source for its raw material as Canadian Wheat 
Board predatory pricing pushes U.S. producers out of production.
    To better show the impact on our market, I have with me a stack of 
Minneapolis Grain Exchange price quotas from last November. Despite 
more than five months of price quotes, there are minimal quotes for 
durum. How can there not be an impact on our market? The non-
transparent nature of the Canadian Wheat Board in the U.S. market has 
eliminated all typical market signals. There are two sides to every 
market, a buyer and a seller. When the buyers do not even need to put 
forth bids because of the under-the-table offers they are getting from 
the Canadians, U.S. wheat producers have no way to respond. Instead 
they see U.S. Department of Agriculture forecasts for tight domestic 
stocks lead to lower and lower prices. Simply, the non-commercial 
operations of the Canadian Wheat Board have led to a dysfunctional 
market.
    The Canadian Wheat Board is more than a ``farmers' marketing 
agency.'' It has been given monopoly authority under federal 
legislation which allows it to control the marketing and sale of wheat. 
It boasts on its web site that it's ``the only game in town'' and has 
publicly admitted that it has the ability to charge different prices in 
various export markets as part of its export strategy. It uses this 
policy of international price discrimination to hurt both the domestic 
and export sales by U.S. growers. All of these practices were 
catalogued and confirmed in the Section 301 investigation which 
resulted in the affirmative finding.
    Indeed, the Canadian Wheat Board is the largest such wheat trading 
entity in the world, controlling annual revenues of some $4.4 billion. 
Past investigations never vindicated the Board's activities as it 
claims. Instead they inevitably led to the Section 301 investigation 
and to this moment of truth. Can U.S. and Canadian wheat farmers 
continue to co-exist in a market where one country's farmers compete in 
a free market, while the farmers of the other country hunger for the 
right and freedom to sell wheat on the open market but are forced to 
turn it over to a government-sanctioned and financed monopoly marketing 
board? U.S. wheat producers say no. And significantly, the U.S. Trade 
Representative has now agreed.
    Unfortunately, on February 15th, the Office of the U.S. Trade 
Representative determined that tariff rate quotas were not an 
appropriate remedy to deal with the Canadian Wheat Board at this time. 
The tariff rate quota was the preferred first choice of our growers and 
the U.S. wheat industry for several reasons. In particular, it would 
provide an immediate and much needed remedy; but, also because it would 
provide leverage against the Canadian Wheat Board which will lead to a 
negotiated outcome. Instead of the tariff rate quotas, the U.S. Trade 
Representative has recommended a multipronged strategy designed to 
accomplish our shared goal--the elimination of the CWB.
    The position of the North Dakota Wheat Commission and the majority 
of North Dakota wheat farmers is cautious optimism for the U.S. Trade 
Representative's plan. We are disappointed that Ambassador Zoellick 
chose not to impose tariff rate quotas, but we are pleased that our 
government has finally committed to resolving this ongoing trade 
dispute.
    The North Dakota Wheat Commission applauds our government's ``get 
tough'' attitude and we agree and support the need for reform in the 
next round of WTO negotiations. However, there is one major problem, a 
solution is at best several years away and many of our farmers will not 
last that long. Mr. Chairman, time is not on the side of the American 
wheat farmer. We need immediate relief to offset the ongoing injury 
inflicted upon us by the CWB and the Government of Canada.
    The Canadian Wheat Board has, in the past decade, maintained the 
facade that its increased exports of wheat to the United States are the 
direct result of ``normal'' market forces, and that it does not have 
the incentive or ability to engage in predatory conduct and market 
distortion. This line of argument is patently false, and no economic 
data support it. Even many Canadian wheat growers acknowledge that the 
Board is not market driven, and have long argued that it should be 
eradicated or at least subject to market competition. Unfortunately, 
Canadian farmers have no choice. The Canadian Wheat Board's mandate was 
originally supply management to the Canadian Government and selling 
farmers' wheat and barley. However, that mandate has been lost as the 
Board has increasingly shifted its mission to the self-serving 
protection of itself and the status quo. In essence, it has become the 
center of domestic farm policy in Canada. According to one Canadian 
source, the Canadian Wheat Board is now ``dedicated to the cause of 
single desk selling, pooling and government guarantees. These are its 
principles--its `pillars,' as it calls them--and the Canadian Wheat 
Board will do anything to defend them.''
    We harbor no illusion that the Canadian Wheat Board or the Canadian 
Government will alter any of their prior positions on the status and 
activities of the Board unless the U.S. and the international community 
demand a change. Although they claim innocence, they have continuously 
responded by deflecting criticism and making false allegations, and by 
steadfastly refusing access to relevant information and hard data which 
would once and for all allow the U.S. government to conduct a full 
investigation into U.S./Canada wheat trade. If the Canadian Wheat Board 
truly has nothing of which to be ashamed, then Canada should have no 
reluctance in releasing information in a confidential manner. Failure 
of one of our major trading partners to respond to legitimate questions 
after tens years of repeatedly asking, should be unacceptable to the 
U.S. trade officials.
    The injury to U.S. farmers is significant and longstanding. The 
loss to the Canadian Wheat Board of exports to third-country markets 
detailed in the Section 301 investigation is a large problem--the ebb 
and flow of competition losses in some markets is frequently not made 
up by gains in others and U.S. producers see their stocks rise due to 
unfair Canadian Wheat Board activities which limit the ability to 
increase U.S. exports in large crop years. In addition, the substantial 
costs of bringing the necessary trade actions to respond to the 
Canadian Wheat Board's unfair practices are imposing great costs on 
farmer organizations like the North Dakota Wheat Commission that could 
otherwise be fully devoted to growing the market and supporting trade 
enhancement measures like the Free Trade Area of the Americas.
    After ten years of grappling with this issue, we need your help and 
support. Ambassador Zoellick needs to hear your voice and understand 
that U.S. wheat farmers need a resolution of this matter. With strong 
Congressional support and oversight, this trade problem will be 
aggressively pursued, and could present a significant opportunity to 
reach a solution that provides short-term relief for wheat farmers, and 
a longer term solution to the problem of a state-run monopoly operating 
in a free trade area and distorting international trade.
    U.S. wheat farmers are not asking for any advantage, we just want a 
level playing field, and are simply insisting that the Canadian Wheat 
Board operate in a fully transparent manner under commercial terms in 
competition with other exporters of grain and to allow full market 
access for U.S. wheat in Canada shall go a long way in creating market 
equality.
    The North Dakota Wheat Commission appreciates the position of U.S. 
millers concerning state trading enterprises, and in supporting the 
U.S. commitment to impose discipline on monopoly state trading 
enterprises under the WTO. Both the North American Millers Association 
and the North American Export Grain Association have expressed concern 
over the market distortions which inevitably result given the 
legislative protection from competitive discipline enjoyed by the 
Canadian Wheat Board, and that state trading enterprises such as the 
Canadian Wheat Board must be forced to accept a larger exposure to 
competitive market forces.
    Thus, we have been greatly disappointed that millers and the North 
American Millers' Association, have not supported, or at least stayed 
on the sidelines, in this investigation. This trade matter is not a 
threat to the U.S. milling industry's supply of wheat. Their argument 
that they need access to Canadian wheat for quality purposes was shown 
to be false throughout the investigation. NAMA's position during the 
Section 301 investigation, and likely continuing today, is simply a 
selfserving commercial position because U.S. millers know they can buy 
their wheat cheaper from Canada. The web of influence of the Canadian 
Wheat Board is vast and NAMA's position has proven this. Despite an 
official NAMA position paper which calls for an end to discriminatory 
and distorting trade practices and state trading enterprises in 
agriculture, the NAMA and its member millers were afraid to bite the 
hand that has been feeding them underpriced wheat for the past decade. 
Despite our assurances that any action we would ask the U.S. government 
to take against the Canadian Wheat Board--even the imposition of tariff 
rate quotas--would not threaten their access to sufficient quantities 
of quality wheat, they sacrifice the long-term benefits that they would 
gain from true reform of the Board, and free and fair trade, for the 
short-term benefit of cheap, underpriced Canadian wheat. And the irony, 
if nothing is done, is that U.S. millers and exporters will continue to 
become increasingly dependent upon a foreign government monopoly for 
the supply of their principal raw material.
    I would like to once again stress to them that the short-term 
remedies we continue to seek from the U.S. Trade Representative will 
not create any supply shortages for U.S. domestic millers, pasta 
manufacturers or grain exporters. The tariff rate quotas we are 
suggesting are not meant to shut down border trade. The North Dakota 
Wheat Commission, with its wheat allies, has focused on the longer-term 
goal which is the breaking up of the Canadian Wheat Board monopoly. 
Tariff rate quotas will help U.S. wheat farmers survive in the short-
term until the longer-term goals can be achieved. If a tariff rate 
quota is implemented, there will be ample domestic supply and carry-
over wheat stock so that our domestic millers and exporters will not be 
adversely affected. As such, they should be supportive of our efforts 
to combat the trade distorting practices and price discrimination 
engaged in by the Canadian Wheat Board, for resolution of this problem 
will also be beneficial to their efforts to obtain the highest quality 
wheat at fairly established prices once the wheat market is operating 
openly and freely.
    Mr. Chairman, over the last decade, the national wheat 
organizations have supported the NAFTA, annual MFN for China, the 
Uruguay Round Agreement of GATT, PNTR for China, fasttrack (now-Trade 
Promotion Authority), and continued negotiations for agricultural trade 
reform in the WTO. With the Canadian Wheat Board trade dispute 
unresolved, it becomes increasingly difficult to convince our rank and 
file producers how they can directly benefit from these expanded trade 
opportunities. To a certain degree that sentiment has been exacerbated, 
not lessened, with Ambassador Zoellick's affirmative finding. With the 
injury we have incurred over the past decade, our producers are 
frustrated that their government has recognized an injury, but will not 
at this time provide the short-term relief we need in order to stem the 
ongoing damage caused by the unfair practices of the Canadian Wheat 
Board. While we appreciate and support the actions and overall goals 
cited in the February 15th finding, our U.S. trade officials must 
realize that without short-term relief many of America's wheat farmers 
will not survive long enough to benefit from resolution of this trade 
problem which under the U.S. Trade Representatives current plan of 
action is years away.
    I thank you for the opportunity to testify before the Committee 
today and look forward to answering any questions which you may have.








    Senator Dorgan. Mr. Fisher, thank you very much.
    Next we will hear from Mr. Broyles, the President of the 
National Association of Wheat Growers. Senator Burns will 
return. He had to go away for a few minutes. Mr. Broyles, why 
do you not proceed.

 STATEMENT OF GARY BROYLES, PRESIDENT, NATIONAL ASSOCIATION OF 
                         WHEAT GROWERS

    Mr. Broyles. Good morning and thank you on behalf of 
American wheat farmers. I am Gary Broyles. I am a wheat, 
barley, and cattle producer near Rapplegee, Montana, and 
currently serve as the President of the National Association of 
Wheat Growers. Today I also speak, besides for the national 
Wheat Growers, on behalf of the Wheat Export Trade Education 
Committee and U.S. Wheat Associates.
    The national wheat organizations fully supported the North 
Dakota Wheat Commission's Section 301 petition before the U.S. 
Trade Representative and are pleased that the affirmative 
positive finding issued by Ambassador Zoellick heartily 
acknowledged that our wheat farmers, what they have long known, 
and that is that the Canadian monopolistic wheat trading system 
disadvantages American wheat farmers and undermines the 
integrity of our trading system.
    While we are disappointed the administration did not 
provide the tariff rate quotas as North Dakota requested, we 
are very supportive of the actions which were announced. We are 
also encouraged by the strong commitment expressed by 
Ambassadors Zoellick and Johnson to find a way to end the 
trade-distorting practices of the Canadian Wheat Board. Their 
commitment to aggressively pursue a level playing field for our 
wheat farmers is critical.
    A permanent resolution to the problems of the Canadian 
Wheat Board and its injurious effect on U.S. wheat farmers must 
be accomplished. The problems and unfair trade practices of the 
Wheat Board date back to 1989 and the implementation, as we 
have stated earlier, of the Canadian-U.S. Free Trade Agreement. 
I have attached to my written statement a chronology of the 
Canadian wheat issues that I believe is very enlightening. This 
chronology highlights both the lengths that U.S. wheat farmers 
have gone to in attempting to resolve this trade problem as 
well as the actions of the Canadian Wheat Board in its effort 
to stonewall any efforts which may lead to true reform.
    The fact that the North Dakota Wheat Commission on behalf 
of U.S. wheat farmers had to once again bring a trade action 
against the Canadian Wheat Board speaks to the disregard that 
Canada has to open and fair trade. The case also speaks volumes 
to our commitment to resolving this longstanding problem, and 
we simply seek a permanent resolve to this matter.
    This case is not an attach on Canadian wheat farmers. It 
is, however, verification of the Canadian Wheat Board's 
practice of undercutting prices and its negative impact on our 
farmers. With the continued trade-distorting practices of the 
Canadian Wheat Board, it becomes increasingly difficult to 
convince U.S. wheat farmers that they have benefited from wheat 
agreements.
    Again, a prompt resolve to this problem will facilitate, I 
believe, our success in future negotiations for free trade 
agreements and in the next round of WTO negotiations. One of 
our priorities in the WTO agriculture negotiations is the 
elimination of monopolistic export trading. This priority is 
also part of the formal U.S. negotiating position in both the 
WTO and the Free Trade Area of the Americas. We ask you to 
encourage the USDA to use export enhancement programs to 
provide the needed short-term relief to create sufficient 
leverage to bring the Canadian Wheat Board to the negotiating 
table and then to engage in meaningful reform.
    The EEP is a very effective tool that must be implemented 
at times like this to resolve trade inequities. EEP will be 
helpful also in gaining access to the stonewalling and the 
withholding of information that is closely guarded by the 
Canadian Wheat Board.
    In the long term, rules must be rewritten in the WTO that 
discipline how STEs operate. The U.S. must play a strong role 
in making these changes a reality. The U.S. wheat industry asks 
for the backing of Congress for a critical element of support, 
which is legislation granting the administration trade 
promotion authority. TPA will help create new opportunities to 
sell U.S. wheat around the world and granting TPA will send a 
strong signal to Canada as well as the world that the U.S. is 
committed to maintaining an aggressive leadership role in 
promoting free and fair trade.
    I believe that with the elimination of trade distortions 
created by the Wheat Board and the passage of TPA that the 
administration, working in partnership with Congress, will be 
empowered to aggressively negotiate positive trade agreements. 
The trade industry is committed to working with you and the 
administration to see that these things come together and work 
for America.
    Thank you for this opportunity and I look forward to our 
questions later.
    [The prepared statement of Mr. Broyles follows:]

     Prepared Statement of Gary Broyles, President of the National 
                      Association of Wheat Growers

    Good morning, Mr. Chairman, it is a pleasure for me to be here and 
I'm grateful for the opportunity to speak with you today on behalf of 
the U.S. wheat industry on a topic that is of increasing importance to 
America's wheat farmers.
    My name is Gary Broyles. I am a wheat, barley, and cattle producer 
from Rapelje, MT and currently serve as the President of the National 
Association of Wheat Growers. Today, I am also speaking on behalf of 
the Wheat Export Trade Education Committee and U.S. Wheat Associates. 
On behalf of all of our constituents, thank you Mr. Chairman for 
conducting this hearing.
    I want it clearly understood that we in the national wheat 
organizations fully supported the North Dakota Wheat Commission's 
Section 301 petition before the U.S. Trade Representative and are 
pleased that the affirmative finding issued by Ambassador Zoellick 
finally acknowledges what our wheat farmers have long known--that 
Canada's monopolistic wheat trading system disadvantages American wheat 
farmers and undermines the integrity of our trading system. While we 
are disappointed the Administration did not provide the tariff rate 
quotas as North Dakota requested, we are very supportive of the actions 
which were announced. We are also encouraged by the strong commitment 
expressed by Ambassadors Zoellick and Johnson to find a way to end the 
trade distorting practices of the Canadian Wheat Board.
    Their commitment to aggressively pursuing a level playing field for 
our wheat farmers is crucial. A permanent resolution to the problems of 
the Canadian Wheat Board and its injurious effect on U.S. wheat farmers 
must be resolved. As you well know, Mr. Chairman, the problems and 
unfair practices of the Canadian Wheat Board date back to 1989 and the 
implementation of the Canada-United States Free Trade Agreement.
    Much of the problem with Canadian wheat trade practices has 
resulted from the rendering of an inadequate definition of the term 
``acquisition price.'' To ease concerns that the Canadian Wheat Board 
would sell wheat into the United States below the Canadian farmers' 
cost of production, language in the Canada-United States Free Trade 
Agreement specified that neither country could sell agricultural 
products to the other at a price ``below the acquisition price of the 
goods plus any storage, handling or other costs incurred by it with 
respect to those goods.'' This provision did not resolve concerns of 
the United States, however, since the agreement did not define 
``acquisition price.''
    In May of 1992, the United States, believing that Canada was 
offering wheat export prices below the cost of acquisition, requested a 
dispute resolution panel under provisions of the Canada-United States 
Free Trade Agreement. The panel, in its final report, determined that 
``acquisition price'' is defined to include only the Canadian Wheat 
Board's initial payment. This definition ignores the interim and final 
payments to Canadian farmers, their subsidized transportation system, 
grading and inspection fees, and Board administrative costs.
    A review of the Canadian Wheat Board's mechanism for paying farmers 
underscores the inaccuracy of this definition. Before each marketing 
year, the Board, in consultation with the Canadian Government, makes 
initial payments to farmers for the delivery of grain to elevators. The 
initial payment acts as a minimum guaranteed price to the wheat farmer. 
At the close of the marketing year, final payments are made to farmers 
reflecting receipts minus all fees for transportation, handling, 
administration and initial payment. Thus, the full return that the 
Canadian producer receives, i.e., the full acquisition price, is not 
paid until the final payment at the end of the marketing year, and 
sometimes not even until the next marketing year. In other words, the 
aggregate of the initial, interim and final payments plus the costs, 
constitutes the real total acquisition price. The initial payment 
methodology adopted by the panel gives the Canadian Wheat Board 
tremendous flexibility in manipulating prices without regard to the 
market value of the wheat being exported. This interpretation has 
continued to aid Canada's destructive export strategy, which damages 
U.S. wheat farmers.
    The United States Government over the past decade has repeatedly 
studied the Canadian Wheat Board's activities and recognized an ongoing 
trade problem through separate trade actions and government 
investigations. These actions have consistently found that the Canadian 
Wheat Board restricts competition and as a monopoly state-trading 
enterprise distorts wheat trade. I have attached to my written 
statement a chronology of the Canadian wheat problem that I believe is 
very enlightening, and I would ask that it be made a part of the formal 
record of this hearing along with my statement.
    Mr. Chairman, this chronology highlights both the lengths U.S. 
wheat farmers have gone to in attempting to resolve this trade problem, 
as well as the actions of the Canadian Wheat Board and its blatant 
efforts to stonewall any efforts which may lead to true and meaningful 
reform of its operations. The General Accounting Office, Department of 
Commerce, the Department of Agriculture, the U.S. Trade Representative, 
and even the World Trade Organization have tried to get detailed 
information and data from the Canadian Wheat Board but have been 
rebuffed on every occasion. The United States has never been able to 
get clear and accurate data. Despite the best efforts of the U.S. 
International Trade Commission in an investigation which did lead to 
substantial new and damaging information about the Canadian Wheat 
Board, a close look at the International Trade Commission's final 
report reveals that once again the pricing data and contract 
information that is necessary for a conclusive review by our government 
officials was not forthcoming from the Board.
    Not only has the Canadian Wheat Board refused to lift the veil of 
secrecy on its activities, the chronology reveals that it enters into 
negotiations concerning its activities and then refuses to implement 
any of the agreed upon actions. For example, in 1995, the Canada-United 
States Joint Commission on Grains released a final report that 
recommended, among other things, reciprocal access to the other 
country's grain handling infrastructure, continued deregulation of 
Canada's rail transportation system, and the standardization of our 
countries grain inspection methods. The Canadian Wheat Board chose to 
ignore and not implement most recommendations.
    Again in 1998, United States and Canadian officials entered into a 
Record of Understanding in an attempt to resolve some of these 
longstanding issues. Again, the Canadian Wheat Board has refused to 
meaningfully implement many of the issues agreed to under this Record 
of Understanding, including market access.
    This is a sad chronology of events, Mr. Chairman. The fact that the 
North Dakota Wheat Commission, on behalf of all U.S. wheat farmers, had 
to once again bring a trade action against the Canadian Wheat Board, 
speaks volumes to the total disregard one of our major trading partners 
has for open trade and fair trade not only in the free trade zone of 
North America but in third country markets as well. The case also 
speaks volumes to our commitment to resolving this long-standing trade 
problem. We strongly urge the U.S. Trade Representative address the 
matter once and for all and negotiate, from a position of strength and 
with force if necessary, a long-term and meaningful resolution of this 
matter.
    The perfect place to start working towards achieving this goal was 
the Section 301 trade case against the Canadian Wheat Board. We 
believe, it has provided the necessary proof, and should provide the 
tools and leverage to bring the Canadian Wheat Board and the Government 
of Canada to the negotiating table; forcing them to enter into serious 
discussions to reform the discriminatory practices of the Board or face 
unilateral action under U.S. law for the damages and the burden they 
have placed on our wheat farmers.
    This case has not been an attack on Canadian wheat farmers. It has 
been, however, verification of what farmers and many Members of 
Congress already know or have suspected about the Canadian Wheat 
Board's price undercutting and its negative impact on U.S. farmers. The 
Western Canadian Wheat Growers Association, whose wheat is controlled 
by the Board, has long cried out for true reform of the Canadian Wheat 
Board.
    Previous trade agreements, including the Uruguay Round Agreement on 
Agriculture, have fallen short in their ability to effectively 
discipline the anti-competitive practices of state trading enterprises, 
like the Canadian Wheat Board. This oversight has long aggravated our 
fellow farmers in North Dakota, but it has also bedeviled wheat farmers 
all over the world. The Board, a government-sanctioned state trading 
enterprise, uses its monopoly power to distort trade in North America 
and third country markets.
    Progress and reform of the international wheat market was steady 
throughout the 1990s, with the notable exception of the Canadian Wheat 
Board. In 1990, 90 percent of all international wheat purchases were 
made by governments. That figure is now about 40 percent, and falling. 
I find it ironic that when allowed to enter the WTO, China agreed to 
more disciplines on its state trading enterprises, including the 
introduction of private-sector imports, than Canada--our major trading 
partner--has ever entertained. It is time for the Canadian Wheat Board 
to commit to negotiating a fair resolution of this wheat trade 
distortion. If this does not occur, they must face unilateral action by 
the U.S. government.
    With the Canadian Wheat Board trade problem unresolved, it becomes 
increasingly difficult to convince our wheat farmer constituents how 
they can directly benefit from expanded trade opportunities. Past 
failures to address this trade problem have undermined farmers' 
confidence in trade negotiations. It is only appropriate that U.S. 
wheat farmers expect a fix to the inequities in past trade agreements 
by addressing the trade distorting practices of the Canadian Wheat 
Board. While our future lies in the expansion of export market 
opportunities, and fair competition for those opportunities, we must 
revisit and fix the inequities in the Canada-United States Free Trade 
Agreement and the NAFTA and address continuing trade distorting 
practices. Expanding the free trade area in which the Canadian Wheat 
Board can act, without addressing its monopoly position would be folly.
    I hope this Committee and Ambassador Zoellick concur with such a 
view. Certainly, a prompt resolution of this problem will facilitate 
success in future negotiations for free trade agreements and the next 
round of WTO negotiations. We contend that it is inappropriate to allow 
the Canadian Wheat Board to market wheat in the free trade area created 
by the Canada-United States Free Trade Agreement and expanded in the 
NAFTA, under its current structure. It is outmoded thinking. As 
evidenced in the WTO negotiating positions tabled over the last year in 
Geneva, the world trading system can no longer tolerate the unfair 
trade practices of state trading enterprises, among which the Canadian 
Wheat Board stands out as one of the most egregious examples. In its 
July 2000 negotiating proposal to the WTO, the U.S. identified the 
power of exporting state trading enterprises to maintain sole control 
over the export supply of wheat from their countries combined with 
their ability to price discriminate among wheat buyers as a de facto 
export subsidy. In addition to identifying the problem, the U.S. 
negotiating proposal includes a specific ``get tough'' framework for 
dealing with state trading enterprises like the Canadian Wheat Board in 
the WTO negotiations in agriculture.
    In January 2001, Argentina, Brazil, Paraguay, Uruguay, Chile and 
Colombia submitted their proposal urging ``[t]hat, as part of the 
agricultural negotiations, Members agree to discipline the activities 
of governmental and non-governmental enterprises and marketing boards 
which benefit from monopoly import/export rights, with a view to 
avoiding distorting effects on the market.'' The European Communities 
has also submitted a proposal on export competition to the WTO that is 
extremely critical of state trading enterprises. The EC proposal 
recognizes the current inequity among exporters in the world 
agriculture market, stating ``that there is an urgent need for a more 
level playing field in export competition since the current provision 
of the WTO Agreement on Agriculture fully cover only one of the means 
of support to exports, namely export subsidies.'' To illustrate this 
further, the EC notes, ``single desk exporters (enterprises with 
responsibility for domestic and export sales) account for large shares 
of world trade in certain products: about 40 percent for wheat . . . '' 
Their ```exclusive or special rights or privileges' confer to STEs 
considerable market power, which can result in unfair competition 
against other world market traders, STEs can distort trade in several 
ways and, as a result, they can circumvent the export subsidy 
disciplines and commitments of the [Uruguay Round Agreement on 
Agriculture].'' The EC concludes its argument on state trading 
enterprises by saying, ``Three highly trade-distorting practices of 
STEs, i.e., cross subsidization, price discrimination, and price 
pooling, can be identified as `hidden' export subsidies.'' I submit to 
this Committee that clearly, by its own admission, and from the 
evidence of past U.S. government investigations, and evidence presented 
in the Section 301 investigation, the Canadian Wheat Board engages in 
such export subsidy equivalents.
    One of the wheat industry's priorities in the WTO agriculture 
negotiations is the elimination of export state trading monopolies. It 
is also part of the formal U.S. position submitted for the negotiations 
in both the WTO and the Free Trade Area of the Americas. While this 
objective remains a high priority, it is becoming clear that once again 
the Canadian Wheat Board will do all in its power to maintain the 
status quo. In late March of this year, a director of the Board went 
before the Canadian House of Commons Agriculture Committee and insisted 
that the Government of Canada resist all efforts by the United States 
to restrict the activities of state trading enterprises in negotiations 
through the WTO and the FTAA negotiations. Thus, I fear that even if 
the Canadian Government indicates a willingness to enter into 
negotiations on the trade distorting activities of the Canadian Wheat 
Board, the Board will again use any power at its disposal to thwart 
efforts to bring true and meaningful reform to its activities and 
operations.
    The only time the Board has restricted its unfair practices was 
after the 1994 Section 22 investigation--and it only acquiesced to 
limited imports once it knew the U.S. Government was serious and that 
import quotas would be forthcoming. The U.S. Trade Representative must 
act with equal resolve in this current dispute--as the Canadian Wheat 
Board operates from a position of power they will only respond to an 
opponent who operates from an equal basis of power.
    The multi-prong approach that Ambassador Zoellick set forth in the 
Section 301 Finding is impressive, and again, we are supportive of this 
approach. But, there must be movement on these matters soon and on all 
fronts.
    Furthermore, Congress can play a significant role in showing the 
Canadian Wheat Board that this time around the matter will be resolved. 
In the short-term the National Association of Wheat Growers, Wheat 
Export Trade Education Committee and U.S. Wheat Associates urge you to 
encourage the Department of Agriculture to use the Export Enhancement 
Program to provide the needed response to Canadian Wheat Board pricing. 
The EEP program can be useful in gaining access to information so 
closely guarded by the Canadian Wheat Board and will help bring Canada 
to the negotiating table.
    Mr. Chairman and Members of this Committee, since wheat is an 
export dependent commodity, our options are limited to one--to be fully 
engaged in efforts to make world trade free and fair. We believe in 
free trade so long as it encompasses fair trade. The Canadian Wheat 
Board's monopolistic practices are not fair trade.
    In the long term, the WTO must discipline the way in which STE's 
are allowed to operate. If the U.S. is to have a strong role in making 
these changes a reality, the U.S. wheat industry believes they must 
have the backing of the U.S. Congress. One key element of support is 
legislation granting Trade Promotion Authority (TPA). TPA will enhance 
opportunities to sell quality U.S. wheat around the world. Granting TPA 
will send a strong signal to Canada and the world that the U.S. is 
committed to maintaining an aggressive leadership role in promoting 
free and fair trade. We need every tool available to make the markets 
work for us and you can provide some of those tools.
    While we support the need for reform of state trading enterprises 
in the next round of WTO negotiations, it is clear that action is 
needed now on the Canadian Wheat Board's activities, in order to save 
the livelihood of our farms. We urge the Administration and Congress to 
continue their support for trade liberalization by providing short-term 
relief remedies as we all work towards the changes ultimately needed in 
the WTO.
    Thank you, for this opportunity to appear before the Committee this 
morning. I look forward to answering any questions you may have.


                                 ______
                                 
Chronology of the Canadian Wheat Problem
Jan.1989 The Canada-United States Free Trade Agreement addressed the 
            pricing of wheat, Canadian transportation subsidies, market 
            access, and import restrictions. To ease concerns that the 
            Canadian Wheat Board (``CWB'') would sell wheat to the 
            United States at below Canadian farmers' cost of 
            production, Congress sought specific language in the 
            agreement stating that neither country could sell 
            agricultural products to the other at a price ``below the 
            acquisition price of the goods plus any storage, handling 
            or other costs incurred by it with respect to those 
            goods.'' This provision did not resolve concerns of the 
            United States, however, since the agreement did not define 
            ``acquisition price.''
June 1990 The U.S. International Trade Commission undertook a Section 
            332 investigation on the conditions of competition between 
            the U.S. and Canada durum wheat market. The finding was 
            that it was not demonstrated that prices paid by U.S. 
            processors during 1986 to 1989 for Canadian durum wheat 
            were significantly different than prices paid for similar 
            quality U.S. durum. The investigations did conclude that 
            Canada's subsidized transportation for the CWB was 
            problematic.
June 1992 A GAO study confirms that the Canadian government had 
            backfilled huge deficits in the CWB pool account amounting 
            to $428 million in 1990 and $575 million in 1991 due to 
            insufficient income from wheat export sales to cover 
            initial payments to producers. This report firmly linked 
            the CWB to Canadian government support.
May 1992 The United States, believing that the CWB was continuing to 
            offer wheat export prices below the cost of acquisition, 
            requested a dispute resolution panel under provision of the 
            CUSTA. The panel, in its final report, determined that 
            ``acquisition price'' is defined to include only the 
            initial payment. This ignores the interim and final 
            payments to farmers, the subsidized transportation system 
            Canada provides, grading and inspection fees, and CWB 
            administrative costs. Thus, the full return that the 
            Canadian producer receives, i.e., the full acquisition 
            price, is not paid until the final payment at the end of 
            the marketing year. In other words, the aggregate of the 
            initial, interim and final payments plus the costs 
            constitute the real total acquisition price. This initial 
            payment methodology gives the CWB tremendous flexibility in 
            manipulating prices in export markets without regard to the 
            market value of the wheat being exported.
Jan. 1994 Contrary to appeals from U.S. wheat farmers, the North 
            American Free Trade Agreement (``NAFTA'') retained the 
            previously negotiated CUSTA market access provisions 
            affecting Canada and the United States. Thus, in addition 
            to adding new bilateral commitments on agriculture between 
            the two countries and Mexico, the flawed definition of 
            ``acquisition price'' remained in effect.
July 1994 At the President's request, the U.S. International Trade 
            Commission initiated an investigation under Section 22 of 
            the Agricultural Adjustment Act to determine whether wheat, 
            wheat flour, and semolina were being imported into the 
            United States under such conditions and quantities as to 
            ``render or tend to render ineffective, or materially 
            interfere with, the price support, payment and production 
            adjustment program conducted by'' the U.S. Department of 
            Agriculture for wheat. Given that Canada was the principal 
            source of wheat imports into the United States, the 
            Commission focused on such imports. This investigation 
            resulted in a decision that wheat was being brought into 
            the United States under such conditions and quantities to 
            materially interfere with United States wheat
Sept.1994 As a result of the Section 22 investigation, Canada and the 
            United States reached a negotiated settlement and signed a 
            Memorandum of Understanding. Under the memorandum, the 
            United States applied a new schedule of tariffs on the 
            importation of wheat and set tariff-rate limits on Canadian 
            wheat exports to the United States for a twelve month 
            period. Thus, a tariff-rate quota system was created in 
            1994. Since 1994, the governments of Canada and the United 
            States have monitored exports on a quarterly basis, 
            although no effort has been undertaken by Canada to 
            implement the recommendations of the Joint Commission on 
            Grains, which was also part of the 1994 settlement.
Aug. 1995 The Government Accounting Office (``GAO'') released a report 
            to Congress providing information about the nature of state 
            trading in other countries and the treatment of state 
            trading enterprises (``STEs'') in the General Agreement on 
            Tariffs and Trade (``GATT'') and the World Trade 
            Organization (``WTO''). This report highlighted problems 
            with discipline, the lack of enforcement, and lack of 
            sufficient transparency surrounding the activities of STEs.
Oct. 1995 The Canada-United States Joint Commission on Grains released 
            a final report addressing policy coordination, cross-border 
            trade, grain grading and regulatory issues, infrastructure, 
            and domestic and export programs. The report noted that, 
            ``The use of discretionary pricing by governments, directly 
            through their programs or entities, had led to trade 
            distortions.'' It recommended that the countries 
            ``eliminate the excessive discretionary pricing practices 
            of their institutions; and . . . modify their domestic 
            agricultural policies to remove trade distorting effects . 
            . . .'' Other recommendations included:

   That both countries pursue the long-term goal of providing 
            reciprocal access to the other's grain infrastructure.

   That Canada continue deregulating its rail transportation 
            system, and that the ownership of its grain car fleet be 
            managed in a non-trade distorting manner.

   That the grain inspection authorities in both countries 
            standardize their methods and develop a common basis for 
            the science of measurement.

Unfortunately, the CWB chose to ignore and not implement most 
recommendations.

June 1996 The GAO reviewed state trading enterprises in Canada, 
            Australia and New Zealand. Regarding Canada, the report 
            specifically focused on the CWB. The GAO concluded that: 
            (1) the board benefitted from the Canadian government's 
            subsidies to cover periodic operational deficits; (2) the 
            board benefitted from a monopoly over both the domestic 
            consumption and export wheat markets; and (3) the board 
            benefitted from pricing flexibility through delayed 
            producer payments.
July 1996 The Western Grain Marketing Panel, appointed by Canadian 
            Minister of Agriculture, released a report concluding that 
            a growing number of farmers wished for more options and 
            flexibility in marketing their wheat, and that there was 
            mounting concern of Canadian farmers about the CWB's lack 
            of accountability and inflexibility in its operating 
            policy.
Oct. 1998 The GAO issued another report concerning Canadian grain 
            exports to the United States. This report focused also on 
            the operations of the CWB and the trade remedies applicable 
            to the activities of state trading enterprises. This report 
            acknowledged that the CWB is currently the largest grain 
            marketing board in the world, handling about 20 percent of 
            the world wheat and barley trade. It confirmed prior 
            governmental reports finding that the CWB is a ``state 
            trading enterprise with a monopoly on certain Canadian 
            grain sales and receives Canadian government subsidies in a 
            number of direct and indirect ways.'' The report concluded 
            that available information regarding CWB contracts is 
            insufficient to determine whether it is complying with 
            existing trade laws. Nevertheless, in responding to a draft 
            of this 1998 GAO report, the Department of Agriculture 
            stressed that the CWB, ``as the sole buyer of Canadian 
            wheat for domestic human consumption and for export, is 
            able to engage in trade-distorting actions.
Dec. 1998 U.S. and Canadian government leaders reach a Record of 
            Understanding in an attempt to resolve some the 
            longstanding trade issues between the two countries. The 
            agreement was to provide farmers in North Dakota and 
            Montana with easier access to some Canadian elevators. In 
            reality, Canadian Wheat Access Facilitation Program 
            requires that sellers complete a compliance agreement and 
            obtain a phytosanitary certificate to truck wheat into 
            Canada. Any participating Canadian grain company in Canada 
            must arrange for a representative of the Canadian Grain 
            Commission to be available at the elevator at the arranged 
            time of delivery to monitor the unloading of the grain and 
            to take a sample for information purposes. The CGC must 
            ensure that the elevator does not commingle U.S. and 
            Canadian wheat. There were only 27 elevators in Canada on 
            the participating list when the program debuted in 1999.
 Another component of the ROU allowed U.S. grain with a certificate of 
            origin from North Dakota, Montana and Minnesota to be 
            shipped on the Canadian rail system to U.S. west coast 
            ports. The transshipment item could have been helpful if 
            U.S. wheat were bestowed the same discounted rates applied 
            to grain grown in western Canada. Rail car access also 
            remained an outstanding issue since the vast majority of 
            rail cars in Canada are owned by the provinces, the CWB or 
            the Canadian government. Again, the cars are for western 
            Canadian wheat only.
Mar. 2000 The 2000 National Trade Estimate Report on Foreign Trade 
            Barriers, released by the United States Trade 
            Representative, indicated that despite recent changes in 
            its organization, ``the CWB continues to enjoy government-
            sanctioned monopoly status as well as other privileges that 
            restrict competition.'' Since prior Canadian government 
            action had done nothing to result in competition (ending 
            monopoly privileges or financial links to the government), 
            the report stated that the United States is calling for the 
            WTO agriculture negotiations to create disciplines for 
            state trading enterprises that ``would provide for greater 
            openness, allow for greater competition in the marketplace, 
            and reduce or eliminate the trade-distorting effects of 
            monopoly STE's, like the Canadian Wheat Board.''
June 2000 The United States submitted to the WTO its proposal for 
            Comprehensive Long Term Agricultural Trade Reform to 
            correct and prevent restrictions and distortions in world 
            agricultural markets. In the section of the proposal 
            concerning state trading enterprises, the United States 
            sought (1) to end exclusive export rights to ensure private 
            sector competition in markets controlled by single desk 
            exporters; (2) to establish WTO requirements for notifying 
            acquisition costs, export pricing , and other sales 
            information for single desk exporters; and, (3) to 
            eliminate the use of government funds or guarantees to 
            support or ensure the financial viability of single desk 
            exporters.
July 2000 Administrator Timothy Galvin of the U.S. Department of 
            Agriculture's Foreign Agricultural Service informed the 
            President of the CWB that substantial academic studies 
            supported his recent Congressional testimony stating that, 
            ``There's every indication that the Canadians . . . are 
            essentially giving away quality or giving away protein . . 
            . By that, I mean those factors are not fully reflected in 
            the prices that [CWB] charge[s].'' Mr. Galvin's statements 
            reflect continuing acknowledgment by the United States 
            government that the CWB's lack of transparency in pricing, 
            monopolistic practices, and predatory trade practices 
            continue unabated.
Oct. 2000 The U.S. Trade Representative initiates a Section 301 
            investigation into the wheat trading practices of the CWB 
            in order to determine whether certain acts, policies or 
            practices of the Board with respect to wheat trading are 
            unreasonable and burden or restrict U.S. commerce.
Mar. 2001 The 2001 National Trade Estimate Report on Foreign Trade 
            Barriers, released by the United States Trade 
            Representative, indicated again that ``the CWB continues to 
            enjoy government-sanctioned monopoly status as well as 
            other privileges that restrict competition.'' The report 
            confirmed that the U.S. would press for the WTO agriculture 
            negotiations to create disciplines for STEs.
April 2001 The U.S. International Trade Commission, at the request of 
            the U.S. Trade Representative, initiated a fact finding 
            investigation pursuant to Section 332 of the Tariff Act of 
            1930 concerning the conditions of competition between the 
            U.S. and Canadian wheat industries in the U.S. and third 
            country markets. The investigation's findings are to be 
            submitted to the USTR in the Fall of 2001.

    Senator Dorgan. Mr. Broyles, thank you very much.
    Next we will hear from Mr. Hunnicutt. Mr. Hunnicutt.

STATEMENT OF CHARLES A. HUNNICUTT, COUNSEL, NORTH DAKOTA WHEAT 
                           COMMISSION

    Mr. Hunnicutt. Thank you, Mr. Chairman. It is always a 
pleasure to appear before you. I'm Charles Hunnicutt, Counsel 
for the North Dakota Wheat Commission.
    As you and some of the others have already mentioned this 
morning, trade relations are an important part of our bilateral 
relationship with Canada. Good faith discussions can help us 
resolve longstanding issues, but yesterday's tragic events 
should underscore that these discussions take place between 
friends and allies.
    That having been said, the United States and Canada compete 
for world wheat markets in fundamentally different ways. These 
differences have led to increased friction over the past 
decade. Mr. Broyles has already provided this Committee with 
the long, sad history of this tragic problem and the defiance 
of the Canadian Wheat Board.
    However, despite the best efforts of the U.S. wheat 
industry over the past decade, no previous case, investigation, 
or temporary settlement including the Section 22 tariff rate 
quotas or voluntary restraint, as Ambassador Johnson preferred, 
has addressed the fundamental problem of the Canadian Wheat 
Board. That is, the existence and operation of a monopoly 
marketing board, especially in a free trade area.
    I did want to take this opportunity this morning after you 
heard from Mr. Rogowsky to commend the U.S. International Trade 
Commission and its staff for the Section 332 investigation that 
you discussed earlier. They worked very hard and under 
difficult circumstances, where parties opposing the action 
either would not cooperate or had self-interest which biased 
their responses. The Commission's final report added 
significantly to the evidence against the Canadian Wheat Board.
    I would like to mention briefly the pricing analysis issue 
that was discussed by Mr. Rogowsky. With all due respect to the 
Commission, while the report includes some attempts at pricing 
comparisons between U.S. and Canadian spring wheat and durum 
sales, they are unfortunately of very questionable value 
because, once again, the Board, as you pointed out in your 
questioning, refused to provide specific pricing data and 
contract information.
    This is not a poor reflection on the U.S. International 
Trade Commission, but rather reflects that the Board continues 
to hide behind a veil of secrecy. In the Section 301 
investigation, the Board was given every opportunity to fully 
participate. We even offered to enter into a protective order 
so that information could be confidentially exchanged. At every 
turn they refused to cooperate.
    The lack of genuine efforts by the Canadian Government and 
the Canadian Wheat Board to modify its unfair pricing practices 
led to the Section 301 petition and has now led to the 
affirmative finding issued by Ambassador Zoellick. Ambassador 
Zoellick said: ``We agree with U.S. wheat farmers that Canada's 
monopolistic system disadvantages American wheat farmers and 
undermines the integrity of our trading system.'' Our 
government and its top trade officials have now on the record 
acknowledged that the Canadian Wheat Board is harming our 
farmers and the affirmative finding commits them to using all 
effective tools at their disposal to stop the monopolistic 
Canadian Wheat Board from hurting U.S. farmers and distorting 
trade.
    As you know, Mr. Chairman, Ambassador Zoellick committed 
the U.S. government to aggressively pursue multiple avenues to 
seek relief. Some of these have already been discussed this 
morning. I can report to you from my experience that 
Ambassadors Zoellick and Johnson have a good faith intention to 
see these matters through.
    My concern is that the Canadian Wheat Board in its 
arrogance does not believe that the United States will 
ultimately push for a resolution of this trade problem. As you 
pointed out, it continues to believe that in stonewalling and 
rebuffing the U.S. Trade Representative the status quo will be 
maintained. Frankly, who could blame them? The chronology of 
events that Mr. Broyles presented to you reveals that the Board 
has an excellent track record in this area.
    Thus, the strategy proposed and pursued by the U.S. Trade 
Representative must be aggressive and needs to send a clear 
signal to the Board and the government of Canada that the 
United States Government is now fully on board with the plight 
of U.S. wheat farmers and that this matter is not going to go 
away until meaningful reform is achieved.
    To date, I am pleased that Ambassador Johnson remains open 
to a dialogue and exchange of ideas on the issues surrounding 
the Section 301 investigation and they are indeed keeping their 
word to work with us to pursue a resolution of this problem. As 
was pointed out, we have met numerous times with the U.S. Trade 
Representative, Department of Commerce, USDA, and USIT 
officials since the Section 301 decision and we too appreciated 
Ambassador Johnson and USTR and USDA staff taking the time to 
visit North Dakota wheat farmers.
    We have been assured that under the provisions of Article 
XVII an information request will shortly be submitted to the 
Canadian Wheat Board, and that was reiterated this morning. We 
have also been working with U.S. Trade Representative officials 
to strengthen the WTO case. We have made clear to them that a 
WTO Article XVII complaint against the Canadian Wheat Board is 
acceptable as part of the long-term resolution of the wheat 
trade dispute, but that it does not address short-term problems 
facing U.S. wheat producers or the fundamental structure of the 
Canadian system.
    The U.S. Department of Commerce has also begun to consult 
with us to examine the possibility of pursuing U.S. 
countervailing duty and antidumping cases, with a special 
emphasis on applying U.S. trade remedy laws to the unique 
factual circumstances arising from the Canadian Wheat Board's 
monopoly status. In our meetings with the Department of 
Commerce, we are encouraging the self-initiation of any 
antidumping case against the Board. We believe the special 
circumstances required for self-initiation are present in this 
matter due to the findings set forth in the ITC report and the 
affirmative finding of the U.S. Trade Representative that ``the 
acts, policies, and practices of the government of Canada and 
the Canadian Wheat Board are unreasonable and burden or 
restrict U.S. commerce.''
    Ambassador Zoellick has confirmed injury. Now the U.S. 
Government needs to follow up by sending a message to U.S. 
wheat farmers that our government will stand with them in 
defending against unfair trade practices and to also send a 
strong message to the Canadians that this matter must be 
resolved.
    In answer to your timing questions regarding antidumping 
and countervailing duty, as farmers are currently purchasing 
seed and making planting decisions, even with a preliminary 
determination after the filing of a potential antidumping and 
countervailing duty case, it will be too late for farmers to 
base this year's planting decisions on any potential action in 
the dumping-countervailing duty area. It will have to come from 
some other action.
    Allow me to turn briefly to our disappointment in 
Ambassador Zoellick not agreeing to implement tariff rate 
quotas at this time. There is clearly a need to immediately 
address the injury U.S. farmers continue to suffer. Mr. Fisher 
provided the committee with specific details of the injuries 
the farmers are suffering. Such injuries will continue for as 
long as the Canadian Wheat Board is allowed to engage in its 
unfair practices in the United States and third country 
markets.
    U.S. wheat farmers have suffered for the past decade. How 
much longer must they deal with the injuries caused by the 
Board before they see relief? Perhaps Ambassador Zoellick's 
multi-pronged approach to pursuing the Canadian Wheat Board 
will convince the Canadian government that this time the United 
States means business and that the issue is not going to fade 
away. I remain hopeful. But if the arrogant and defiant press 
releases and statements issued by the Board since February 15th 
are any indication, I do not think it has yet gotten that 
message.
    Thus, Ambassador Zoellick must be willing to soon revisit 
the issue of providing short-term relief to America's wheat 
farmers if the Canadians refuse to begin cooperating--and I 
mean true cooperation and negotiation, not the facade of 
consultations and vaguely responding to queries, as the Board 
and the Government of Canada did in the Section 301 
investigation.
    This problem has been ongoing for over a decade and our 
farmers are suffering greatly. After turning to the Office of 
the U.S. Trade Representative for help by filing the Section 
301 petition, it would be a tragedy leading to greater 
skepticism and anger by U.S. wheat farmers if the U.S. Trade 
Representative remains insistent that, while there is a 
violation of Section 301 that merited a clear affirmative 
finding of injury, this Administration will forego the most 
effective and immediate remedy because it assumes that a WTO 
panel might some day find against the United States in a matter 
never to date adjudicated by the WTO.
    If that remains the case, I would plead with this Committee 
that any construction of a statute or treaty that results in a 
violation without a remedy must be fundamentally flawed and 
could not be a correct reading of the intent.
    All of the avenues that have been proposed by Ambassador 
Zoellick to date are applauded by wheat farmers, but the 
results of such actions are years away and we need relief now. 
Failure to provide some short-term remedy will allow the 
continuation of the escalating injury Mr. Fisher just described 
to you. After years of competing against the unfair practices 
of the Board, U.S. farmers require and merit interim short-term 
relief in addition to the longer term effort being currently 
initiated, even if the U.S. Government must develop a creative 
solution for a unique problem of Canada's making.
    I thank you for holding this timely hearing. I would be 
pleased to answer any questions.
    [The prepared statement of Mr. Hunnicutt follows:]

Prepared Statement of Charles A. Hunnicutt, Counsel to the North Dakota 
                            Wheat Commission

    Mr. Chairman and Members of the Committee, it is a pleasure for me 
to appear before you this morning to discuss our ongoing and hard-
fought battle against the unfair trading practices of the Canadian 
Wheat Board. My name is Charles Hunnicutt, and I am counsel to the 
North Dakota Wheat Commission in matters involving the unfair trading 
practices of the Canadian Wheat Board.
    The United States and Canada compete for world wheat markets in 
fundamentally different ways. These differences have led to increased 
friction over the past decade. Most, if not all, of this friction is 
the direct result of the fact that the Canadian Wheat Board is a 
government-sponsored state trading enterprise with monopoly power to 
market and sell western Canadian grain. The power of the Board is 
immense, and the preferences and subsidies it receives from the 
Government of Canada make it even more powerful, while also protecting 
it from the pressures and risks facing any commercial wheat producer. 
The Canadian Wheat Board is the world's largest exporter of wheat and 
its monopolistic powers allow it to engage in unfair pricing which 
distorts the world wheat trade market.
    As a result of the Board's unwillingness to enter into good faith 
negotiations to resolve this trade problem over the past decade, there 
have been numerous negotiations, our successful 1994 trade action, and 
several U.S. government studies and investigations. All of which 
repeatedly recognized an ongoing trade problem concerning the Canadian 
wheat trade. These actions have consistently found that the Canadian 
Wheat Board restricts competition and as a state trading enterprise 
distorts trade. I also represented the North Dakota Wheat Commission in 
the 1994 Section 22 case which was a definitive defeat of the Board. 
Unfortunately, our farmers relief in that instance was short-lived. The 
United States and Canada reached a negotiated settlement in which a new 
schedule of tariffs was applied on Canadian wheat coming into the 
United States for only a 12-month period. Afterwards, the Canadian 
Wheat Board was back to its old habits and practices.
    The Board has argued for the past sixteen months that the Section 
301 investigation is simply harassment by U.S. wheat interests since 
all past investigations have purportedly not found any evidence to 
support the claims of unfair activities by Canada. Nothing, as you well 
know Mr. Chairman, could be further from the truth. In reality, the 
General Accounting Office, International Trade Commission, Department 
of Commerce, and even the WTO have tried to get information from the 
Canadian Wheat Board which would assist in resolving this issue once 
and for all but have been rebuffed and never able to get sufficient 
data. Lack of transparency makes information about the Canadian Wheat 
Board almost impossible to obtain.
    Despite the best efforts of the U.S. wheat industry over the past 
decade, no previous case, investigation or temporary settlement has 
addressed the fundamental problem of the Canadian Wheat Board. That 
is--the existence and operation of a monopoly marketing board, 
especially in a free trade area.
    So, on September 8, 2000, the North Dakota Wheat Commission took 
the lead and filed a Section 301 petition pursuant to the Trade Act of 
1974. Section 301 may be used to enforce U.S. rights under 
international trade agreements and may also be used unilaterally to 
respond to unreasonable or discriminatory practices that burden or 
restrict U.S. commerce. For quite some time that clearly has been the 
correct description of the practices of the Canadian Wheat Board.
    As detailed in our original Section 301 petition to the U.S. Trade 
Representative, the Canadian Wheat Board has a longstanding history of 
questionable practices aimed at systematically creating and developing 
a competitive advantage on a non-commercial basis in United States and 
third country wheat markets. Recognizing that such practices are 
controversial and subject to challenge under statutes such as Section 
301 of the Trade act of 1974, the Canadian Wheat Board is anything but 
transparent. Its transactions, discounts, and discriminatory pricing 
are veiled in secrecy and complicated by indirect discounting via 
artifices such as over-delivery of protein and the provision of longer-
term forward (i.e., future) pricing that have real value in the 
marketplace, but for which the Board does not require appropriate 
compensation.
    I want to take this opportunity to commend the U.S. international 
Trade Commission and its staff for its Section 332 report requested by 
the U.S. Trade Representative as part of the Section 301 proceeding. 
They worked diligently and under difficult circumstances where parties 
opposing the action either would not cooperate or had self-interests 
which could bias their responses. As Ambassador Zoellick acknowledged, 
the Commission's final report added significantly to the evidence 
against the Canadian Wheat Board.
    Among some of the reports critical findings are that:

   U.S. exports to eight foreign markets are down 48 percent 
        during the last five years, primarily due to Canadian activity;

   The Canadian market is essentially closed to U.S. wheat;

   The Canadian Wheat Board has a competitive advantage in 
        contracting for sales of durum wheat for future delivery. This 
        has contributed significantly to the lack of a viable futures 
        market on U.S. grain exchanges;

   The Canadian Wheat Board benefits from substantial 
        transportation preferences.

   The Board is essentially an arm of the Government of Canada

    With all due respect to the Commission, while the report includes 
some attempts at pricing comparisons between U.S. and Canadian spring 
wheat and durum sales, they are unfortunately of questionable value 
because once again the Canadian Wheat Board refused to provide specific 
pricing data. This is not a poor reflection on the U.S. International 
Trade Commission, but rather reflects that the Board continues to hide 
behind a veil of secrecy. In the Section 301 investigation, the 
Canadian Wheat Board was given every opportunity to fully participate. 
We even offered to enter into a protective order so that information 
could be confidentially exchanged. At every turn, they refused to 
cooperate. It's obvious why the Board is afraid to release pricing 
data. Unlike its private sector competitors, the Canadian Wheat Board 
is not required to ever turn a profit or maximize Canadian grower 
returns. Instead, as a state trading enterprise, it simply passes its 
sales discounts on to Canadian farmers in the form of lower returns 
than they would otherwise receive.
    As the Board cries out that our continued efforts to address this 
unfair trade practice is yet another attempt by U.S. wheat farmers to 
harass and interfere in Canada's wheat trade, it has no one to blame 
but itself. The lack of genuine efforts by the Canadian Government and 
the Canadian Wheat Board to modify its unfair pricing practices led to 
the Section 301 petition and have now led to the affirmative finding 
issued by the U.S. Trade Representative on February 15 of this year.
    Despite our frustration that Ambassador Zoellick refused to 
implement tariff rate quotas, the affirmative finding is a victory for 
U.S. wheat farmers. A lot of hard work went into presenting the factual 
arguments in our case, and for the first time in this longstanding 
trade dispute, the U.S. Government has formally recognized that the 
Canadian Government grants the Canadian Wheat Board special privileges 
which give it unfair advantages that hurt U.S. wheat farmers. Unlike 
some of the past investigations, this cannot be construed as an 
inconclusive finding. Despite their galling effort to do so, the 
Canadian Wheat Board cannot with any credibility crow about a U.S. 
investigation finding that it is a fair trader. Ambassador Zoellick 
said, ``We agree with [U.S.] wheat farmers that Canada's monopolistic 
system disadvantages American wheat farmers and undermines the 
integrity of our trading system.'' Our government and its top trade 
officials have now, on the record, acknowledged that the Canadian Wheat 
Board is harming our farmers, and the affirmative finding commits them 
to using all effective tools at their disposal to stop the monopolistic 
Canadian Wheat Board from hurting U.S. farmers and distorting trade.
    As you know Mr. Chairman, Ambassador Zoellick committed the U.S. 
Government to aggressively pursue multiple avenues to seek relief for 
U.S. wheat farmers. Among the approaches, four were included in the 
findings:

   First, a dispute settlement case against the Canadian Wheat 
        Board in the World Trade Organization;

   Second, the possibilities of filing U.S. countervailing duty 
        and antidumping petitions with the U.S. Department of Commerce 
        and U.S. International Trade Commission;

   Third, working with the U.S. wheat industry to ensure access 
        for U.S. wheat into Canada; and,

   Fourth, combining these actions with the Administration's 
        ongoing commitment to vigorously pursue comprehensive and 
        meaningful reform of monopoly state trading enterprises in the 
        WTO agriculture negotiations.

    I can report from my experience that Ambassadors Zoellick and 
Johnson have a good faith intention to see these matters through. My 
concern is that the Canadian Wheat Board, in its arrogance, does not 
believe that the United States will ultimately push for a resolution of 
this trade problem. It continues to believe that in stonewalling and 
rebuffing the U.S. Trade Representative, the status quo will be 
maintained. And, frankly, who can blame them?
    Thus, strategy proposed and pursued by the U.S. Trade 
Representative must be aggressive and needs to send a clear signal to 
the Canadian Wheat Board and the Government of Canada that the U.S. 
Government is now fully onboard with the plight of U.S. wheat farmers 
and that this matter is not going to go away until real and meaningful 
reform of the Board's practices are implemented.
    As a result of the U.S. International Trade Commission's 
investigation and report and its own investigation, the U.S. Trade 
Representative has found that the acts, policies and practices of the 
Government of Canada and the Canadian Wheat Board are unreasonable and 
burden or restrict U.S. commerce. The U.S. Trade Representative has 
finally concluded that the Board unfairly benefits as a monopoly state-
trading enterprise through subsidies, a protected domestic market, and 
special benefits and privileges sanctioned by the Canadian government. 
If the Canadian Wheat Board wishes to continue to play games with our 
trade officials, I think it does so at its own peril. Even the Western 
Canadian farmers who are forced to sell their wheat to the Board have 
recently stated that ``it's time to face reality.''
    From the U.S. wheat farmer perspective, as a result of the 
affirmative finding the U.S. Government now has a policy condemning the 
activities of the Canadian Wheat Board and the benefits it receives 
from the Canadian Government. We will hold them to this. After a decade 
of trying, I hope we now have the attention of U.S. trade officials. 
But, more importantly, I think they now fully understand this issue and 
have indicated that they are on our side and will work with us to 
address the problems with the Canadian Wheat Board. With continued 
Congressional pressure and industry insistence on aggressively pursuing 
the approach that Ambassador Zoellick has laid out, I believe we will 
see the end of the unfair practices of the Canadian Wheat Board.
    To date, I am pleased that Ambassador Johnson remains open to a 
dialogue and exchange of ideas on the issues surrounding the Section 
301 case, and they are indeed keeping their word to work with us to 
pursue a resolution of this problem. We have met numerous times with 
U.S. Trade Representative, Department of Commerce, Department of 
Agriculture, and U.S. International Trade Commission officials since 
the findings were issued on February 15th, and Ambassador Johnson and 
staff from U.S. Trade Representative and the U.S. Department of 
Agriculture took the time recently to visit North Dakota to meet with 
and discuss the concerns of our wheat farmers.
    We have provided the U.S. Trade Representative with additional 
information regarding a dispute settlement case against the Canadian 
Wheat Board before the WTO. They believe that our Section 301 case 
uncovered significant new information which proves that the Canadian 
Wheat Board engages in certain non-commercial actions which are 
actionable under the existing WTO agreement. Furthermore, it has been 
made abundantly clear that Ambassador Zoellick is very eager to 
undertake such a WTO case which would allow the U.S. Government to 
build a coalition of allies from nations which are already on record as 
opposing the trade distorting activities of the Canadian Wheat Board. 
We have been assured that under the provisions of Article XVII an 
information request will shortly be submitted to the Canadian Wheat 
Board in Geneva. This information request is a means to seek documents 
and data which we know to be in the sole possession of the Canadian 
Wheat Board and which the Board has refused to ever release in any past 
U.S. investigations of its activities.
    In working with U.S. Trade Representative officials to strengthen a 
WTO case, we have also made clear to them that a WTO Article XVII 
complaint against the Canadian Wheat Board is acceptable as part of the 
long-term resolution of the wheat trade dispute, but that it does not 
address short-term problems facing U.S. wheat producers or the 
fundamental structure of the Canadian system.
    The U.S. Trade Representative has also indicated it will work to 
pursue permanent reform of the Canadian Wheat Board through the 
development of new WTO disciplines and rules on state trading 
enterprises that export agricultural goods. Therefore, in all future 
WTO agriculture negotiations, we have been told that the U.S. will 
continue to press the following: (1) for an end to exclusive export 
rights to ensure private sector competition in markets controlled by 
single desk monopoly exporters; (2) the elimination of the use of 
government funds or guarantees to support or ensure the financial 
viability of single desk exporters; and, (3) the establishment of 
requirements for notifying acquisition costs, export pricing, and other 
sales information for single desk exporters such as the Canadian Wheat 
Board. Again, we support this but would add that this same position 
must be emphasized in all relevant trade negotiations, such as the 
U.S.-Chile Free Trade Agreement, and the Free Trade Area of the 
Americas. No future free trade agreements should be entered into by the 
United States if the agreement does not limit the area in which the 
Canadian Wheat Board may engage in its unfair trade practices.
    The U.S. Department of Commerce has also begun to consult with us 
to examine the possibility of pursuing U.S. countervailing duty and 
antidumping cases, with a special emphasis on applying U.S. trade 
remedy laws to the unique factual circumstances arising from the 
Canadian Wheat Board's monopoly status. The latter part of that last 
sentence is important, for the Board does present unique problems if 
pursued under ``cookie cutter'' antidumping/countervailing duty 
methodologies. We have made it very clear that use of these provisions 
of U.S. trade law will only be helpful to U.S. wheat farmers if the 
methodologies used in these cases can be adapted to the specifics of 
our situation and accommodate some of the unique aspects involved in 
trading a commodity such as wheat. Furthermore, the Section 301 case 
uncovered significant new information despite the Canadian Wheat 
Board's unwillingness to release data and information in its 
possession, and any further U.S. investigations must make use of the 
information gained by the U.S. Trade Representative.
    In our meetings with the Department of Commerce, we are encouraging 
the self-initiation of any antidumping case against the Canadian Wheat 
Board. We believe the ``special circumstances'' required for self-
initiation are present in this matter due to the findings set forth in 
the U. S. International Trade Commission's report, and the affirmative 
finding of the U.S. Trade Representative that ``the acts, policies and 
practices of the Government of Canada and the Canadian Wheat Board are 
unreasonable and burden or restrict U.S. commerce.'' Ambassador 
Zoellick has confirmed injury, now the U.S. Government needs to follow 
up by sending a message to U.S. wheat farmers that our government will 
stand with them in defending against unfair trade practices, and to 
also send a strong message to the Canadians that this matter must be 
resolved now. I believe our meetings with Department of Commerce 
officials on this issue and other antidumping/countervailing duty 
matters have shown that they are serious in their desire to consult 
with us and seek our input on how best to proceed.
    Finally, U.S. Trade Representative officials have indicated that 
they want to quickly proceed in identifying specific impediments to 
U.S. wheat entering Canada so they may press the Canadian Government to 
rectify the situation. The U.S. Trade Representative investigation saw 
the Canadian varietal control and wheat grading systems, their end-use 
certificate program, and the so called Canadian Wheat Access 
Facilitation Program for what they are--unfair hurdles for U.S. wheat 
growers who may wish to export to Canada. In any negotiations with the 
Canadian Government, the U.S. Trade Representative's position must be 
to demand full, effective market access and national treatment for U.S. 
wheat entering Canada and to demand that access for U.S. growers and 
their grains to Canada's transportation system be extended on the same 
basis it is granted to the CWB and Canadian grains. But, again as with 
the Article XVII WTO Complaint, we have cautioned the U.S. Trade 
Representative that addressing these non-tariff trade barriers will not 
alone be sufficient to remedy the unfair practices of the Board in the 
U.S. and in third country markets, and that pursuing this remedy must 
be part of their overall strategy to confront the Canadians on multiple 
fronts.
    Lack of any movement by the Canadian Government and the Canadian 
Wheat Board to quickly agree to negotiate and engage in meaningful 
discussions which move the Board toward true reform, must be met with 
stiff resistance by our government and, should this occur, we will be 
demanding that the U.S. Trade Representative implement unilateral 
relief for U.S. wheat farmers.
    Allow me to return briefly to our disappointment in Ambassador 
Zoellick not agreeing to implement tariff rate quotas at this time. 
There is clearly a need to immediately address the injury U.S. wheat 
farmers continue to suffer. Such injuries will continue for as long as 
the Canadian Wheat Board is allowed to engage in its unfair practices 
in the United States and third country markets. U.S. wheat farmers have 
suffered for the past decade. How much longer must they deal with the 
injuries caused by the Board before they see relief?
    Having worked with the North Dakota Wheat Commission over the past 
decade on this frustrating, but resolvable, trade problem, I know how 
the Canadian Wheat Board operates when it comes to negotiations with 
the United States. And, unfortunately, the only thing they will respond 
to is direct action. The U.S. Trade Representative will have to bear 
down on them and force them with every possible tool to leverage the 
Board into discussing a meaningful and long-term resolution of this 
matter. Part of that strategy is forcing the Canadian Wheat Board and 
the Government of Canada to realize the pain--the economic pain--they 
will suffer if negotiations are not held in good faith and agreement is 
not reached on ways in which the Board's practices and policies will be 
reformed.
    Perhaps the Ambassador's multi-pronged approach to pursuing the 
Canadian Wheat Board will convince the Canadian Government that this 
time the United States means business and that the issue is not going 
to fade away until it is fully addressed. I remain hopeful, but if the 
arrogant and defiant press releases and statements issued by the Board 
since February 15th are any indication, I don't think it has yet gotten 
the message.
    Thus, Ambassador Zoellick must be willing to soon revisit the issue 
of providing short-term relief to America's wheat farmers if the 
Canadians refuse to begin cooperating. And I mean true cooperation and 
negotiation, not the facade of cooperation and vaguely responding to 
queries, as the Board and the Government of Canada did in the Section 
301 case.
    We will continue to respectfully disagree with the U.S. Trade 
Representative on the legality of implementing tariff rate quotas. 
Certain trade-related issues fall outside of the existing international 
trade regime currently embodied in the WTO, yet clearly fall within 
U.S. trade laws such as Section 301. In such circumstances, it is 
neither within the scope nor competence of the WTO to resolve such 
issues.
    The Canadian Wheat Board is a government-established and maintained 
anti-competitive monopoly that distorts the international wheat trade 
and harms U.S. wheat growers both in domestic and overseas markets. The 
non-commercial, predatory, discriminatory pricing in which it engages 
is a type of unfair, anti-competitive activity not covered by the WTO. 
There is no question that unilateral action by the U.S. on the basis of 
this type of price discrimination is permitted and justified under 
Section 301. This is a competition policy action and the WTO as 
currently constituted does not address competition policy.
    Thus, the U.S. has no obligation to rely on the WTO in the 
particular matter raised in the Section 301 case. Indeed, trimming the 
issues at hand to those which are addressed under the WTO--subsidies, 
dumping, and/or violations of prior commitments with regard to state 
trading enterprises undertaken by Canada--may deprive U.S. wheat 
farmers of the opportunity to address the fundamentals of the matter 
and vitiate the rights of the United States to enforce its own laws in 
ways that are consistent with the WTO.
    This problem has been ongoing for over a decade and our wheat 
farmers are suffering greatly at the hands of the Canadian Wheat Board. 
After turning to the Office of the U.S. Trade Representative for help 
by filing the Section 301 case, it would be a tragedy leading to great 
scepticism by U.S. wheat farmers if the U.S. Trade Representative 
remains insistent that while there is a violation of Section 301 that 
merited a clear affirmative finding of injury, this Administration will 
forego the most effective and immediate remedy because it assumes that 
a WTO panel might some day find against the United States on a matter 
never to date adjudicated by the WTO.
    If that remains the case, I would plead with this Committee that 
any construction of a statute or treaty that results in a violation 
without a remedy must be fundamentally flawed and could not be a 
correct reading of the intent. Telling U.S. wheat farmers they have a 
right without giving them a remedy is unacceptable. All of the proposed 
avenues of remedy put forth by Ambassador Zoellick to date are 
applauded by wheat farmers, but the results of such actions are years 
away and America's wheat farmers need relief now. Failure to provide 
some short-term remedy will allow the continuation of the escalating 
injury. After years of competing against the unfair practices of the 
Board, U.S. wheat farmers require and merit interim, short-term relief 
in addition to the longer-term effort being currently initiated, even 
if the U.S. Government must develop a creative solution for a unique 
problem of Canada's making.
    Mr. Chairman and Members of the Committee, I thank you for holding 
this timely hearing and would be pleased to answer any questions you 
may have.

    Senator Dorgan. Mr. Hunnicutt, thank you very much.
    Finally, we will hear from Mr. Miller. Mr. Miller, you may 
proceed.

 STATEMENT OF JOHN C. MILLER, PRESIDENT, MILLER MILLING COMPANY

    Mr. Miller. Good morning, Mr. Chairman. My name is John 
Miller. I am President of Miller Milling Company, with mills in 
Fresno, California, Winchester, Virginia, and Sonora, Mexico. 
These three mills grind about 62,000 bushels of durum and hard 
red spring wheat each day. Miller Milling Company is also a 
minority owner of New World Pasta Company, the largest branded 
pasta company in the United States.
    I am here to testify today on behalf of the 42 member 
companies of the North American Millers Association, NAMA, of 
whose board of directors I am a member. These companies operate 
165 wheat, corn, oat, and rye mills in 38 States. Their 
collective production capacity of more than 160 million pounds 
each day represents 90 percent of the industry capacity. About 
80 percent of that production is wheat flour.
    U.S. millers buy Canadian durum primarily because the 
United States does not produce enough durum wheat of the 
quality our customers, U.S. pasta makers, require. This has 
been the case since we built our first durum mill in 1986 and 
is remains the case today. Competitive access to Canadian durum 
allows us to fulfil our obligations to supply U.S. pasta makers 
with the quality and quantity of semolina they require to 
satisfy U.S. consumers and compete with imports. Canadian durum 
is a necessary supplement to U.S. production of high quality 
durum, especially in years where adverse weather or farmer crop 
choices further reduce production of high quality durum.
    If we did not have access to Canadian durum to supplement 
U.S. production, the following would occur in the short term. 
The limited supply of U.S. high quality durum would need to be 
blended with lower quality or non-durum flours to satisfy 
quantity demand. This would result in pasta quality that would 
be noticeably lower than current consumer expectations and less 
than the quality readily available in imported pasta.
    Imported pasta as well as competing foods, such as rice and 
potatoes, would take market share and volume away from U.S. 
pasta producers. Also, pasta companies who tried to maintain 
high quality raw materials would be at a significant price 
disadvantage to imported pasta or competing foods. Demand for 
U.S.-produced durum wheat would decline.
    In the longer term, production of both semolina and pasta 
would move offshore, where adequate supplies of high quality 
durum wheat are available at competitive prices. The mill our 
company recently completed in Sonora, Mexico, is an example of 
the kind of adaptation that would increasingly occur in 
response to limitations on our ability to source enough high 
quality durum in the United States. Once again, demand for high 
quality durum in the U.S. would decline and the owners and 
employees of Miller Milling Company would be damaged.
    In the 20 years or so that I have been a durum miller, the 
attempt to prevent U.S. durum millers and pasta companies from 
having competitive access to Canadian durum production has 
become a nearly annual event. I have testified before about 
durum wheat and I have filled out lots of detailed 
questionnaires. In every case, my testimony and the data I have 
provided confirms that Canadian durum is offered to us at 
prices reflecting the price of durum in the U.S. market.
    We attempt to make U.S. and Canadian sources compete for 
our business and terms of price, quality, service, and terms. 
On many occasions the only offer we have for durum in a 
particular delivery period is from Canadian sources. On other 
days the Canadians are unwilling to lower their prices to be 
competitive with U.S. offers. I do not perceive any continuing 
differences in buying from Canadian or U.S. sources. They are 
all tough negotiators, trying to sell their durum for as much 
as they can.
    My experience has been confirmed by the studies and 
investigations that have taken place over these many years, 
including the recent investigation by the U.S. International 
Trade Commission. If the Canadians are selling durum at less 
than market prices or better than market terms, I am not 
getting any of it.
    In closing, let me say the North American Millers 
Association applauded the announcement by the United States 
Trade Representative in February that it will not impose 
restrictions on wheat entering the United States from Canada. 
At the same time, NAMA encourages the Trade Representative to 
seek more access to the Canadian market for U.S. growers. Free 
trade in both directions was the admirable goal of NAFTA and 
the realization of that goal should be a priority.
    Thank you for your time and the opportunity to testify 
today.
    [The prepared statement of Mr. Miller follows:]

Prepared Statement of John C. Miller, President, Miller Milling Company
    My name is John Miller. I am president of Miller Milling Company 
with mills in Fresno, California, Winchester, Virginia and Sonora, 
Mexico. Those three mills grind about 62,000 bushels of durum and hard 
red spring wheat each day. Miller Milling is also a minority owner of 
New World Pasta Company, the largest branded pasta company in the 
United States.
    I am here today to testify on behalf of the 42 member companies of 
the North American Millers' Association (NAMA) of whose Board of 
Directors I am a member. Those companies operate 165 wheat, corn, oat 
and rye mills in 38 states. Their collective production capacity of 
more than 160 million pounds each day represents 90 percent of the 
industry capacity. About 80 percent of that production is wheat flour.
    U.S. millers buy Canadian durum primarily because the United States 
does not produce enough durum wheat of the quality our customers, U.S. 
pasta makers, require. This has been the case since we built our first 
durum mill in 1986 and it remains the case today. Competitive access to 
Canadian durum allows us to fulfill our obligation to supply U.S. pasta 
makers with the quality and quantity of semolina they require to 
satisfy U.S. consumers and compete with imports. Canadian durum is a 
necessary supplement to U.S. production of high quality durum, 
especially in years where adverse weather or farmer crop choices 
further reduce production of high quality durum.
    If we did not have access to Canadian durum to supplement U.S. 
production the following would occur in the short term. The limited 
supply of U.S. high quality durum would need to be blended with lower 
quality durum or non-durum flours to satisfy quantity demand. This 
would result in pasta quality that would be noticeably lower than 
current consumer expectations and less than the quality readily 
available in imported pasta. Imported pasta as well as competing foods 
such as rice and potatoes would take market share and volume away from 
U.S. pasta producers.
    Also, pasta companies who tried to maintain high quality raw 
materials would be at a significant price disadvantage to imported 
pasta or competing foods. Demand for U.S. produced durum wheat would 
decline.
    In the longer term, production of both semolina and pasta would 
move offshore where adequate supplies of high quality durum wheat are 
available at competitive prices. The mill we recently completed in 
Sonora, Mexico is an example of the kind of adaptation that would 
increasingly occur in response to limitations on our ability to source 
enough high quality durum in the United States. Once again, demand for 
high quality durum in the U.S. would decline and the owners and 
employees of Miller Milling Company would be damaged.
    In the twenty years or so that I have been a durum miller, the 
attempt to prevent U.S. durum millers and pasta companies from having 
competitive access to Canadian durum production has become a nearly 
annual event. I have testified before about durum wheat and I have 
filled out lots of detailed questionnaires. In every case my testimony 
and the data I have provided confirms that Canadian durum is offered to 
us at prices reflecting the price of durum in the U.S. market. We 
attempt to make U.S. and Canadian sources compete for our business in 
terms of price, quality, service and terms.
    On many occasions the only offer we have for durum in a particular 
delivery period is from Canadian sources. On other days the Canadians 
are unwilling to lower their prices to be competitive with U.S. offers. 
I don't perceive any continuing differences in buying from Canadian or 
U.S. sources. They are all tough negotiators trying to sell their durum 
for as much as they can. My experience has been confirmed by the 
studies and investigations that have taken place over these many years, 
including the recent investigation by the U.S. International Trade 
Commission. If the Canadians are selling durum at less than market 
prices or better than market terms, I'm not getting any of it.
    In closing, let me say the North American Millers' Association 
applauded the announcement by the United States Trade Representative in 
February that it will not impose restrictions on wheat entering the 
United States from Canada.
    At the same time, NAMA encourages the Trade Representative to seek 
more access to the Canadian market for U.S. growers. Free trade in both 
directions was the admirable goal of NAFTA and the realization of that 
goal should be a priority.
    Thank you for your time, and for the opportunity to testify today.

    
    
           Office of the United States Trade Representative

                RE: Federal Register, Volume 66, Number 246
                                      Docket Number 301.120

Dear Madam/Sir:

    These comments are in response to the request for public comment on 
the wheat trading practices of the Canadian Wheat Board. The North 
American Millers' Association (NAMA) has 44 member companies operating 
166 wheat, corn, oat and rye mills in 38 states and 150 cities. The 
aggregate production capacity of NAMA's membership is more than 160 
million pounds of product daily, which is about 90% of the total U.S. 
capacity.
    This letter includes discussion of the 301 petition, the reasons 
Canadian wheat enters the U.S., the likely effect of the remedy 
proposed by the petition and NAMA's recommendations for USTR actions.
301 Petition
    The primary question before you is not the existence or operations 
of the Canadian Wheat Board (CWB). It is already the position of the 
United States Government that the monopoly powers of State Trading 
Enterprises (STE) should be eliminated and the STE placed at risk of 
profit or loss in the marketplace. NAMA strongly supports that 
position.
    The primary question is what remedy, if any, should the U.S. seek 
as a result of the petition. The petitioners have requested tariff rate 
quotas be levied against wheat entering the U.S. from Canada. Let us 
consider that proposed remedy in light of USTR's request for comments 
regarding ``appropriate action under Section 301 which could be taken 
in response.''
    The petitioners make two major claims about CWB sales:

    1. The CWB engages in predatory pricing, and

    2. The CWB delivers quality in excess of that specified in the 
contract.
1. Predatory pricing
A. Domestic sales
    The report submitted to USTR by the International Trade Commission 
(ITC) states that ``Regarding contracted prices in the U.S. market 
during 1996/97 to 2000/01, reported Canadian Durum prices were above 
U.S. prices for all comparable months except one. For #1 CWRS/HRS 
wheat, price relationships were mixed with some Canadian prices equal 
to or above U.S. prices, and others below. Prices for #2 CWRS wheat 
were generally higher that those for #2 HRS wheat.''
    If the price of Canadian wheat sold in the U.S. is nearly always 
higher than the price of comparable wheat from the U.S., that cannot be 
an example of predatory pricing. Therefore, granting the petitioners' 
proposed remedy or any other which restricts sales likewise cannot be 
considered ``appropriate action.''
B. Export sales
    On the other hand, if the USTR believes the CWB has engaged in 
predatory pricing in overseas markets, the proposed remedy is even more 
inappropriate. It makes no sense to damage U.S. millers and their 
employees as a punishment for something in which they had no role and 
from which they did not profit.
2. Over-delivery of quality
    The petitioners allege the CWB gives away protein for free, 
inferring such practice puts U.S. sellers at a disadvantage. In fact, 
according to the ITC report, both countries give away protein in small 
amounts. This is to be expected as buyers' contracts routinely specify 
financial penalties for under-delivery. In other words, it should be 
expected that over-delivery of quality occurs in nearly 100 percent of 
shipments. Further, the report states (page xxi) 65 percent of U.S. 
shipments over-delivered protein while only 54 percent of Canadian 
shipments over-delivered protein. If over-delivery of quality is 
expected, and the U.S. engages in it as much or more, then trade 
restrictions are not appropriate.
Reasons Canadian wheat enters the U.S.
    The most important reason U.S. millers occasionally buy wheat from 
Canada is due to insufficient production here in the U.S. That may seem 
counterintuitive given the tremendous productivity of U.S. producers. 
However, for the two classes of wheat in question, it is undeniable. In 
15 of the last 15 years, U.S. durum production was insufficient to meet 
total usage.
    That would be true even if every bushel of durum were of milling 
quality (grades No. 1 or No. 2 Hard Amber Durum). However, recent data 
published by the Cereal Science Department of North Dakota State 
University for the North Dakota Wheat Commission, Montana Wheat and 
Barley Committee and U.S. Wheat Associates show that the portion of the 
2001 crop that was of milling quality was 49 percent. While this was an 
improvement from the 2000 crop of which only 43 percent was milling 
quality, the total crop size was 25 percent smaller. These data are 
available at http://www.ndwheat.com/wi/durum/cropqual/
quality_report.asp.
Effects of restrictions on wheat trade
    As a practical matter, restricting shipments of wheat to the U.S. 
would be a counterproductive remedy. If USTR implements the proposed 
remedy, the wheat it prevents from entering the U.S. would simply be 
diverted to overseas sales, displacing U.S. wheat sales to markets 
about which the petitioners care so much. That would also have a 
depressing effect on the world wheat market to the detriment of 
growers.
    Wheat milling in the U.S. is a very mature industry. Despite that 
maturity, market forces have resulted in the permanent closing of mills 
comprising more than 8.0 percent of the industry capacity in the last 
year. Restrictions would have the immediate effect of further damaging 
U.S. companies, not because of market forces but rather because of 
government intervention. It would also make the U.S. an even more 
attractive target for highly subsidized imported pasta to the detriment 
of growers.
    The United States Government should not take actions which make 
mill employees collateral damage in a dispute in which their employer 
had no role.
Recommendations
    First, USTR should press negotiations in the World Trade 
Organization for the elimination of the monopoly powers of STE.
    Second, NAMA believes there has not been sufficient progress in 
opening the Canadian market to delivery by U.S. growers. Due to simple 
supply and demand considerations, Canada is not likely to ever be a 
major market for U.S. wheat. However, in those years when market 
conditions are more favorable to such shipments into Canada, that trade 
should occur freely without restriction.
    To that end, NAMA makes the following recommendations. Note that 
each of these recommendations was made by the 1995 Canada-United States 
Joint Commission on Grains but to varying degrees have not been fully 
implemented.
A. Varietal control
    Canada has a system of varietal control for wheat classes. This 
restricts the ability of U.S. growers to deliver non-approved varieties 
into the Canadian marketing system. The Commission recommended ``Canada 
examine the issue of non-registered varieties of grain with the intent 
that such varieties when grown or received are priced to market value, 
and that registered and non-registered varieties from U.S. and Canadian 
producers can be received, handled and transported in the Canadian 
system in a manner that ensures varietal integrity.'' NAMA supports 
this recommendation.
B. Infrastructure
    n recommended ``both countries pursue the long-term goal of 
providing reciprocal access to the other's grain transportation and 
handling systems.'' NAMA supports this recommendation.
C. Grading and regulatory regimes
    The Commission recommended ``the grain inspection authorities in 
both countries standardize their methods and develop a common basis for 
the science of measurement.'' NAMA supports this recommendation.
D. End-use certificates
    Canada requires that U.S. wheat be accompanied by an end-use 
certificate as a means of ensuring that varietal controls are 
maintained. The U.S. also requires end-use certificates for imported 
wheat from Canada to prevent that grain from being re-exported with the 
benefit of programs supported by the U.S. government. As the commission 
reported, end-use certificates have little functional usefulness, raise 
costs and are a visible irritant to wheat trade. Since the Commission 
reported that the U.S. will continue its end-use certificate 
requirement so long as Canada does, NAMA recommends the elimination of 
end-use certificates by both the U.S. and Canada.
Summary
    U.S. millers occasionally buy Canadian wheat for specific milling 
or baking properties and to supplement the insufficient U.S. crop. This 
is consistent with NAFTA, the purpose of which was to facilitate the 
flow of goods and services. To punish participants in that commerce 
would not be appropriate.
    We encourage USTR to reject the petition and its proposed remedies, 
and look to NAMA's recommendations as possible appropriate actions.
    Thank you for your consideration of these views.
        Sincerely,
                                                 Betsy Faga
                     President, North American Millers' Association
                                 ______
                                 
                               NAMA NEWS
 The North American Millers' Association Supports Continued Free Trade 
                  in Wheat between the U.S. and Canada

    WASHINGTON, D.C.--January 3, 2002--The North American Millers' 
Association (NAMA) is encouraged by the report released by the U.S. 
International Trade Commission (ITC)--Wheat Trading Practices: 
Competitive Conditions between U.S. and Canadian Wheat, which supports 
continued free trade in wheat between the U.S. and Canada. The report 
was requested by the U.S. Trade Representative (USTR) in response to a 
petition filed by the North Dakota Wheat Commission alleging Canadian 
Wheat Board (CWB) prices unfairly undercut the market. As a remedy the 
petitioners have asked the U.S. government to restrict shipments of 
Canadian wheat to the U.S.
    ``If the petitioners are alleging predatory pricing in overseas 
markets, they should challenge the monopoly powers of the CWB through 
the World Trade Organization negotiations, and we would support them. 
However, since U.S. millers have no knowledge of, nor stake in, those 
sales it makes no sense to damage them as a response to a problem in 
which they had no role,'' said NAMA chairman Bernard J. Rothwell III.
    ``On the other hand'' Rothwell continued ``if the petitioners are 
alleging predatory pricing in the U.S., the ITC report clearly states 
the price of Canadian durum sold in the U.S. was actually higher than 
the price of U.S. durum in 59 of the last 60 months. If U.S. millers 
have to pay a higher price to get Canadian wheat, that surely can't be 
considered predatory pricing.''
    NAMA encourages the U.S. Trade Representative to decide the case on 
its merits and not impose restrictions on free trade in wheat and wheat 
products between the U.S. and Canada.
    U.S. millers occasionally buy Canadian wheat for specific milling 
or baking properties and to supplement the U.S. crop. The durum crop 
was insufficient to meet demand in 15 out of the last 15 years. The 
hard red spring wheat crop was insufficient in 12 of the last 15 years.
    NAMA has 44 member companies operating 166 wheat, corn, oat and rye 
mills in 38 states and 150 cities. The aggregate production capacity of 
NAMA's membership is more than 160 million pounds of product daily, 
which is about 90% of the total U.S. capacity.
    Hill Contacts: For a list of NAMA members go to http://
www.namamillers.org/a_mbr.html.
    For a list of the cities and states where mills are located go to 
http://www.namamillers.org/a_mill.html.
    Media Contacts:
    For background information go to http://www.namamillers.org/
is_briefs.html.
    For talking points go to http://www.namamillers.org/
is_301talkingpoints.html.
    For a bio on Bernard J. Rothwell III go to http://
www.namamillers.org/is_Rothwell.html.

    Senator Dorgan. Mr. Miller, thank you very much.
    Mr. Miller, let me start with a question for you. You have 
a different set of interests, obviously, than those who have 
presented testimony preceding you.
    Mr. Miller. Senator, might I interrupt? Actually, I think 
between us we have more in common than we have in difference.
    Senator Dorgan. I understand, but if you were able to 
access Canadian durum in unlimited quantities at 50 percent of 
the acquisition cost, you would not be here complaining, would 
you, if it would enhance your profitability? You are not 
concerned about the conditions under which the grain comes 
across, whether it is fair to a producer in the U.S. or not. 
You are interested in availing yourself of a supply of the 
grain that you want at the cheapest possible price; is that not 
the case?
    Mr. Miller. In the short term I would agree with that. In 
the longer term, we have concerns about the instability of 
supply from Canada, partly because of political considerations. 
But in the short term I would say that is correct.
    Senator Dorgan. Mr. Fisher, Mr. Miller seems to say that 
the problem of Canadian imports is your fault, the American 
farmer's fault. What is wrong with that argument?
    Mr. Fisher. Well, sometimes there are circumstances which 
might make one have to do a little more research. But the 
research has been done and I think that the charts that are 
depicted or depict the situation with supply and availability--
and I have some other statistics that run a little deeper than 
what the charts might explain. I find it ironic that in the 
years when--often in the years when we find the heaviest 
importations of Canadian that we actually have the greatest 
availability of U.S. supplies. That is a problem for me to 
understand, the dependence.
    So a lot of the analysis that has been performed by 
economists, independent economists at NDSU and other places, 
would suggest that the imports are neither necessary nor always 
of the highest quality. That is borne out by some of the import 
documents.
    Senator Dorgan. Mr. Miller makes the point, and I will 
concede the point, that you have common interests in some 
respects, but with respect to the origin of the grain, the 
miller cannot be very interested in whether a producer in North 
Dakota is a victim of unfair trade circumstances in my 
judgment.
    But the purpose of this hearing is really to discuss USTR's 
judgment that Canada is violating certain elements of trade 
laws, but there shall be no penalty for it at this point. We 
will instead begin considering longer term issues, and that is 
of great concern to me because, as I indicated, farmers are 
trying to survive in the short term and negotiators are trying 
to negotiate in the long term. The long term for us has been at 
least 10 years now, with very little result.
    Mr. Broyles, let me just observe to you, I may be wrong 
about this and if I am I should apologize before I say it, but, 
having voted against the U.S.-Canada Free Trade Agreement, 
having voted against NAFTA, I recall that it was a pretty 
lonely time back then because we did not have much support, 
those of us who believed this was going to create unfair trade 
circumstances, negotiate away Section 22 and the various 
enterprises, weaken 301, and a whole series of things--we did 
not have much support from anybody, certainly not commodity 
groups. Farm organizations, they just put on their bathing 
suits and jumped in the pool and said: Yeah, let us approve 
this.
    So 10 years later, in retrospect I think most of us 
understand at this point we set ourselves up in some ways. In 
your testimony, I do not have a page number, but you talk about 
a May 1992 event and it is central to the point I am making 
about all of the groups that were absent in trying to fight 
these things when we had the fight.
    In May of 1992, believing the Canadian Wheat Board was 
continuing to offer wheat exports below the cost of 
acquisition, we requested a dispute resolution panel under the 
provisions of the Canada-U.S. Free Trade Agreement. The panel 
in its final report determined that the acquisition price is 
defined to include only the initial payment, that is the GRP 
payment in Canada, only the initial payment.
    I alluded to that earlier with the Trade Ambassador. That 
was an agreement that was made between Ambassador Yeuter and 
the Canadians. Until a hearing was held in 1992 or '3, that 
remained undisclosed to the United States Congress. Even when 
those of us in Congress, myself especially, inquired about it, 
the USTR denied it. It turns out that that denial, of course, 
was not accurate at all. They lied to the Congress.
    But in this action is where we discovered that a separate 
agreement, previously undisclosed to U.S. farmers and to the 
U.S. Congress and to the Wheat Association and others, a 
separate agreement said, oh, by the way, the judgment of 
whether trade is fair or unfair shall be evaluating whether it 
is sold into our marketplace at below the acquisition cost, and 
by the way the acquisition cost shall include only the initial 
GRP payment.
    In other words, they cut away a portion of the cost of 
production and said, that is the basis on which we will 
evaluate whether this is fair.
    I have not asked you a question. I have said that only for 
therapeutic reasons, because it was so frustrating to see most 
organizations abandon the good fight on behalf of producers, 
saying let us stand up for producers so that there are remedies 
available here when we confront the problems of unfair trade.
    But your statement is a good statement, Mr. Broyles. I 
think on behalf of producers what you are saying is we need 
more than sympathy, we need a remedy. Is that not the case?
    Mr. Broyles. Yes. And by the way, I share your therapy with 
that statement. I was not a part of the National Wheat Growers 
at that point in time, but we have laid out this as a 
chronology. It is certainly part of our disappointment. It is 
certainly more than sufficient evidence to the stonewalling 
that has taken place and, to be honest with you, I think we 
just good schnookered really good back there.
    Senator Dorgan. We will be debating, we will be debating 
trade again within the next month or two, and most of the 
commodity groups and farm organizations will say to us: Why do 
you not pass fast track and why do you not let them negotiate 
an agreement, them the trade negotiators, negotiate another 
agreement, and they can do that pretty much in secret, and 
bring it back here and put your handcuffs and because you are 
not allowed to offer any changes to it under any circumstances.
    I am guessing that when we have that discussion within the 
next couple of months that most of the organizations whose 
members are injured by what we have seen in the last decade 
will regrettably not join me in the fight against fast track. I 
did not believe President Clinton should have it. I do not 
believe President Bush should have it.
    Let me just ask one other question and I am going to ask 
Senator Burns to ask questions or to inquire. Mr. Fisher, you 
have been at this almost as long as I have, I guess. This 
started--I, as I said, had a hearing in the Ways and Means 
Committee of the U.S. House almost 10 years ago, almost 
immediately after the U.S.-Canada Free Trade Agreement. Just 
prior to the agreement, there was very little durum, for 
example, coming into our country from Canada, just a trickle of 
durum coming in.
    I guess I would ask you and Mr. Miller, if it is the case 
that the millers need access to that Canadian marketplace and 
that we actually do not produce what they need in sufficient 
quantity and therefore that is why they have accessed it for, 
Mr. Miller said, some 20 years, why was it not the case that 
just prior to the U.S.-Canada Free Trade Agreement that there 
was substantial durum coming into this country from Canada?
    Mr. Fisher. Mr. Chairman, I think that, first of all, I 
will hold up the chart again that I think supports your 
statement certainly that prior to the implementation of the 
CUSTA agreement there was virtually no durum moving into the 
United States. I have actually been monitoring those numbers 
since 1982 and there was none in that time frame.
    So I think that the two are related. As you know, the 
tariff that existed at that time, which was some 21 cents on a 
bushel, began to decline in 10 percent increments over that 
time frame, and we saw the escalation follow that pattern.
    We have--I think this whole theory of the self-fulfilling 
prophecy has a lot of credibility. It is something that the 
producers, the U.S. durum growers, came up with, that there is 
a deliberate attempt on the part of the Canadian Wheat Board to 
demoralize the industry and the producers and to replace them 
in their own domestic market. Certainly, with all due respect 
to the millers and to Mr. Miller, he and I do truly agree on a 
lot of these things, that we are better off having a strong 
U.S. industry, and I think that is why they have the support 
for the long-term goals of remedying the situation to the 
extent that it would affect the longer term aspects.
    I think they are rather protective of the cross-border 
movement at this point.
    Senator Dorgan. Senator Burns.
    Senator Burns. I want to kind of go down that track, too. 
Mr. Miller, I read your testimony. I did not hear it. Thanks 
for coming today. I am not going to beat up on you too bad.
    Your three mills grind about what, 20 million bushel a 
year, something like that?
    Mr. Miller. Give or take.
    Senator Burns. That is almost a fifth of the total 
production in the United States. But what is the total 
domestic, what demand do you think there is for durum wheat in 
the United States?
    Mr. Miller. 85, 90 million bushels a year, something like 
that.
    Senator Burns. The thing about it is, I have said this for 
a long time: There ain't nothing wrong on the farm excepting 
the price.
    Mr. Miller. Can I answer that, Senator?
    Senator Burns. Yes.
    Mr. Miller. It is a little bit back to my friend Neal, you 
know, who, we have been in these fights for many years and I 
know that Neal understands very well the difference in quality 
grades between 1, 2, 3, and 4 hard amber durums, and in fact 
earlier this week we were together at the Pasta Association 
meeting talking about strategies to try to increase the amount 
of research and support for funding for diseases in durum and 
that sort of thing. I think Neal in his passion perhaps forgot 
what he has heard a dozen times, and as I think he knows, too, 
because North Dakota actually owns a durum mill that competes 
with our mills. The State itself is involved in the business, 
so they know very well as well.
    All of the durum produced in the United States is not 
necessarily acceptable or usable to make pasta.
    Senator Burns. Well, I am aware of that. I know that.
    Mr. Miller. To say that we have adequate supplies because 
we have 85 million bushels produced in a year when we consume 
that misses the point that, even if you accept 2 hard amber 
durum as the milling quality, you are still in the last several 
years less than 50 percent of the crop available for U.S. durum 
millers.
    Senator Dorgan. If you will yield on that point, tell us 
about the 1980's, then? How were you able to access the supply 
of durum in the 1980's without accessing the Canadian supply?
    Mr. Miller. I am not an ag economist and I am not a 
statistician. My recollection of that period was that, first of 
all, we did not face some of the disease issues that perhaps we 
face in North Dakota at this time. The production areas of 
North Dakota have shifted dramatically in the last 15 years as 
a result of some of the problems of disease in North Dakota.
    Senator Dorgan. The disease issues are of relatively recent 
vintage. That does not answer the question of 1990, 1992, 1994. 
But thank you.
    Senator Burns. I guess the point I am getting to is this: 
we are trying to get, Mr. Miller, we are trying to get our 
share of the consumer dollar back to the farm. That is where it 
is at. We do not mind you going out there and grinding, and you 
can buy it wherever you want to. I just want--in other words, 
what you strive for is quality, quantity, and delivery date. 
Those are the three challenges that you have to stay in 
business.
    Mr. Miller. Fairly said.
    Senator Burns. Is that not so?
    Mr. Miller. Fairly said.
    Senator Burns. That is simplified. Now, you have got to 
deal with me on a fourth grade level because that is about as 
far as I got. But the point I am making is that if I could come 
in there and guarantee you delivery date, quality, and 
quantity--what did you give for the last--do you know what the 
market was on your durum the last time you wrote a check to buy 
durum on the open market?
    Mr. Miller. I bought durum yesterday. Yes, sir, I know what 
I paid for it.
    Senator Burns. How much was it?
    Mr. Miller. Okay, fair enough. I think we paid yesterday, 
obligated ourselves for wheat that will be delivered some time 
in the future, $4.75 a bushel basis Minneapolis. And we bought 
one hard amber durum.
    Senator Burns. What do you mean, ``basis Minneapolis''?
    Mr. Miller. Meaning delivered. So that if we then move that 
to Winchester, Virginia, or some other location, we will incur 
additional freight cost to get it there. But delivered into 
Minneapolis basis, about $4.75 a bushel.
    Senator Burns. You have a plant in Winchester, you have got 
one in California?
    Mr. Miller. Fresno, and one in Mexico.
    Senator Burns. Why would you pay Minneapolis basis?
    Mr. Miller. Most of the durum that is moving, most of the 
northern tier durum that is moving in the United States moves 
either through Minneapolis or close to Minneapolis. So 
Minneapolis has become a reference point for pricing of durum 
in the United States. That does not apply to durum produced in 
Arizona, California, Mexico, but most of the northern tier 
Canadian and U.S. durum is priced in a reference point to 
Minneapolis.
    Senator Burns. Okay. I can remember, I go back to old fuel 
oil days when everybody said everything is basis Tulsa. 
Remember those days? That is how we priced our gasoline all 
over the country. We priced it that way.
    But anyway, and we still do winter wheat. When we sell cash 
wheat, we always have winter wheat off of the Kansas City 
market and spring wheat off Minneapolis, and less our delivery 
and that type of thing. Of course, we are also faced with a 
captive shipper thing that me and Mr. Dorgan are also involved 
with.
    Now, whenever you sell your pasta or your flour that makes 
your pasta, if I could come down there and just absolutely 
guarantee you, guarantee you quality, quantity, and it would be 
clean, and delivery date, is it worth more than four dollars a 
bushel?
    Mr. Miller. If you removed all of the risk of execution and 
financial risk of delivery and every other thing, if you became 
a profoundly perfect deliverer, yes, you would probably gain a 
premium in the market to shippers that, no matter who they are, 
we entail some risk. I will give you an example. Part of the 
reason I think that we frequently pay more for U.S. wheat is 
that we are more secure in the logistics streams of wheat 
coming out of North Dakota and Montana than we are from Canada. 
It is a single railroad move rather than multiple railroad 
moves. The delivery stream is probably shorter.
    And with U.S. deliverers we are able to negotiate, I might 
say, more advantageous terms for ourselves in terms of specific 
quality factors and delivery terms than we are from Canada. So 
the majority, the vast majority of wheat that we buy, comes 
from the United States, and for the reason----
    Senator Burns. I would assume that, yes.
    Mr. Miller. For the reason that, all things equal, the 
other factors are more desirable from the United States.
    Senator Burns. What would that be worth to you? Have you 
ever done your cost accounting----
    Mr. Miller. Every shipper that we have has a different----
    Senator Burns. Look, I am talking about production off the 
farm. I am talking about production off the farm. That is where 
we are lacking.
    Mr. Miller. That is a theoretical that I have never really 
had to consider. If God delivered durum, he would get a premium 
because it would be perfectly secure and safe and he would 
control all events. But that is not the world we live in. There 
is risk and other factors in everybody that sells us durum, 
some more than others by location or financial stability or 
their ability to control quality. So you have to make an 
individual decision in each case.
    Senator Burns. Well, what I am saying is that I am going to 
deliver you quality, quantity, and on the day that you want it, 
and there are certain risks for me, me as a producer. What I am 
trying to do, I am trying to filter another 30 cents a bushel 
to the farmer, is what I am trying to do. There are farmers 
that want to take responsibility for that; did you know that?
    Mr. Miller. If you can raise the price of all the products 
that we compete against as well----
    Senator Burns. Wait a minute, wait a minute. I see what 
you--I understand markups.
    Mr. Miller. Well, no, not markups, but markets. For 
example, if I pay you 30 cents more a bushel for durum than my 
competitors are paying for durum, either in the United States 
or in foreign countries, well, I will quickly be out of the 
business. Additionally, if all durum, if all durum millers and 
pasta producers had to pay an elevated price for durum relative 
to competing crops--rice, potatoes, other things--then as an 
industry we would decline.
    So it is a theoretical question, could we absorb an 
artificially high durum price in North Dakota relative to the 
rest of the world? The answer to that is clearly no.
    Senator Burns. Nothing against the North Dakota farmers, 
but I am more concerned about my Montana folks.
    Mr. Miller. Jerry Thusen's a good friend of mine and I 
think Jerry would agree with me on this instance, anyway.
    Senator Burns. I bet he would.
    Well, we are just trying to work our way through this 
thing----
    Mr. Miller. May I make one point?
    Senator Burns. Yes.
    Mr. Miller. We agree on so many things and our association 
has taken a position on the Wheat Board, and we agree that the 
U.S. is not allowed to be competitive--I mean, I as a flour 
miller am not allowed to be competitive in a lot of parts of 
the world because of artificial government-supported subsidies 
and non-tariff trade barriers in many countries. We agree 
absolutely with them on this issue--free trade, exporting even 
of pasta. We export no pasta virtually out of the United States 
because we are not allowed to compete against foreign producers 
who have subsidies and trade barriers.
    What we are saying in this instance perhaps is in your 
solution you may actually kill the patient. The medicine may 
kill the patient here. If you cut off our access arbitrarily to 
Canadian durum, you will be damaging the best customer that you 
actually have, the one that is most dependent on your supply, 
the one that is here every single day trying to buy your wheat. 
We are saying, in your search for a solution to the broader 
issues that you are dealing with, many of which we agree with, 
do not take one little instance here and say, well, we are 
going to stop Canadian wheat from coming in or we are going to 
make it artificially high so it is unavailable.
    You will in effect then damage the very customers who you 
are so dependent on. That is our plea.
    On the other issues, the Canadian Wheat Board is a state 
trading enterprise and all those things, first of all, they are 
way over our head. We are just flour millers and stuff. That is 
for others smarter to talk about. But we are not here to defend 
the Wheat Board. We are here to say we really do have to have 
access to this.
    For whatever reasons and since however long--you have been 
going back to the eighties, Senator--the fact of the matter is 
that they do not produce enough to satisfy our demand, and a 
restriction on it will damage us, and I do not think that is 
your intent.
    Senator Burns. It is not, it is not. I am just trying to 
figure some way that we can, in the marketing apparatus, 
somewhere that--you know, we used to live a long time ago, Mr. 
Miller, in all my experience with agriculture, we always lived 
within about 15 to an 18 cents out of every consumer dollar 
getting back to the farm and ranch. Now we are around a dime or 
less.
    Now, we know where our money is going. It is just how we 
recover that.
    You are right, you are exactly right. We have got to be 
very, very careful we do not kill the patient. I would agree 
with you wholeheartedly on that. I am sort of a free trader 
myself. I think we can go out and compete. But we cannot 
compete with one arm tied behind, and especially whenever we 
have a limited amount of folks that are actually in the 
business of buying our product and understanding the psychology 
of the market.
    So you can see where we have become very despondent. I will 
tell you what we do. We grab for straws and sometimes they are 
the wrong straw, and we are all guilty of that, as you well 
know.
    Senator Dorgan. Let me say first of all, this is about 
trade. It is about trade, and it becomes a self-fulfilling 
prophecy if an industry in this country buys from abroad in a 
manner that reflects unfair trade and that injures our domestic 
industry and then comes to us and says, oh, by the way, the 
domestic industry is not able to supply the quantity we need. 
So this is about trade, the fundamentals of fair trade.
    I understand the issue of what percent of the food dollar 
goes to the farmer and so on. But this is about a question of 
will we have a durum industry left in this country if, Mr. 
Miller, you have the opportunity to buy from an exchange in 
this country at posted prices or buy from a monopoly in Canada 
called the state trading enterprise, the Canadian Wheat Board, 
at secret prices, who say to this country, it is none of your 
business what Mr. Miller did with us, we have no obligation to 
tell you, and you have no obligation to see it.
    So that is the issue here.
    Now, Mr. Fisher, why do you not tell us about the issue of 
whether we can supply durum for our millers in this country.
    Mr. Miller. Before that, could I just respond to the one 
thing that you said?
    Senator Dorgan. Yes.
    Mr. Miller. Again, I think passions overcome Mr. Fisher, in 
that I am chairman of the Minneapolis Grain Exchange and the 
reason that the durum contract on the Minneapolis Grain 
Exchange failed was that the producers have not used the 
contract. Consequently it had no liquidity, consequently the 
contract--it had no volume and it failed.
    It was not because the industry did not attempt to use it. 
The industry, millers and pasta makers, are the ones that 
pushed the durum contract in the first place. It was in fact 
the producers and the resellers that they represent that 
actually did not participate in that contract and that is why 
it failed.
    Senator Dorgan. Yes, well, Mr. Miller, our producers have 
been busy getting clobbered by unfair imports from Canada and 
that is what the hearing is about.
    Mr. Miller. I understand. I just wanted to correct what----
    Senator Dorgan. I understand. It is just that our producers 
have been a little busy trying to defend themselves against 
unfair trade for about 10 years.
    Mr. Fisher.
    Mr. Fisher. Mr. Chairman, I guess I have a couple of 
comments there. One is on the liquidity issue at the 
Minneapolis Grain Exchange, and Mr. Miller is a member of the 
board, I believe, there, so----
    Mr. Miller. Chairman.
    Mr. Fisher. I think still chairman.
    I do not claim to have any more knowledge than he does on 
that, certainly. However, I think that the actions of the 
Canadian Wheat Board did reduce the ability of anyone to make a 
conscious effort at using the contracts there, that everyone 
has been disadvantaged by that.
    A couple of other points I think that need to be made. 
Again, I do not want to overdo it on charts, but this 
particular chart shows U.S. durum acreage and production over 
the long haul. Up until the time when we had the reduction in 
the tariff at the border or the implementation of the Canada-
U.S. Trade Agreement, we saw price response or producer 
response to price increases and we saw an uptrending durum 
industry in the United States--a better ability to supply those 
domestic and export needs.
    After that time frame, we saw a relatively flat picture and 
I submit that that is largely due to a blunting of those price 
signals as Canadian penetration increased. Now, that is not 
entirely the reason, but I think definitely the case can be 
made for that scenario, that we have taken the price incentives 
out of those good years, as our producers would say, and 
flattened since CUSTA their ability to really read clear market 
signals. We made some reference to that in the earlier 
testimony, so I will not belabor that.
    The other issue at hand here is the TRQ levels. Those that 
were proposed in the Section 301 and the remedies, the seventh 
remedy that Ambassador Johnson referred to, were at a level 
sufficient to allow the current trade in durum to continue. So 
there was no attempt on the part of producers, while sending a 
strong signal to the administration, while sending a stronger 
signal to the Canadian Wheat Board that this administration 
here was serious, producers were serious, it did not intend to 
restrict Mr. Miller or any other miller's ability to access 
Canadian durum at that point.
    It would in extreme cases certainly have done that and 
inflicted----
    Senator Dorgan. It would require them to pay more. I am the 
one who said that they ought to ship it to Newfoundland. But my 
point is, Mr. Miller, a tariff rate quota will not prevent you 
from accessing Canadian grain. It will simply require that you 
pay more. You do not want to do that. If I were a miller I 
would not want to do it.
    But our point is about fair trade and that is why we are 
trying to get some remedy here. Getting this remedy is not in 
your interest. I understand that.
    Mr. Miller. In the short run, yes, we would pay more, and 
in the short run we would compromise quality. In the longer 
term----
    Senator Dorgan. Why would you compromise--wait a second. 
What do you mean, you would compromise quality?
    Mr. Miller. We would not be able to compete with people 
that were not dependent on northern tier durum if we were 
paying a price that was artificially high relative to them. For 
example, Italian and Turkish pasta companies would not be 
limited in their access or forced to pay a higher than world 
durum prices. Consequently, they would have a price advantage 
over us and they would exploit it.
    Our mill in Mexico would become even much more active in 
shipping semolina into the United States because it would then 
have a price advantage relative to mills that are dependent on 
northern tier durum. Our mill in California, which is not 
dependent on Canadian or North Dakota durum, would have a price 
advantage and it would become a larger volume shipper.
    That is why I say that the medicine may kill the patient. 
If you try to artificially maintain a North Dakota durum price 
that is not market competitive with world prices or either 
other prices available in North America, you will shift 
production of pasta away from areas that are tributary to 
northern tier durum.
    In the short run, you are correct, you would see the spike. 
In the longer run, the marketplace will cause us to accommodate 
that.
    Senator Dorgan. You talk about killing the patient. I tell 
you what is going to kill--your companies I am sure are very 
interested in the new global economy, accessing foreign 
markets, moving your goods around the world. I tell you what is 
going to kill this global economy. It is that governments 
refuse to stand up and exhibit a little backbone when you see 
unfairness in trade.
    If you are not willing to correct problems, ultimately the 
people who are out demonstrating out here today and elsewhere 
with respect to this trade issue are going to get the upper 
hand, because they are going to say, and producers will agree, 
that even when there is fundamentally unfair trade no one is 
willing to stand up and do anything about it.
    My point is, and I do not want to dwell on this, my point 
is your interest is different than the farmers who are victims 
of unfair trade. You would like to access the best quality 
durum you can for the lowest price, and if it comes in under 
the guise of unfair trade that is fine with you. It does not 
matter to you because it does not affect you. It affects a 
group of producers, and that is the point of this issue.
    Now, Mr. Fisher, are you trying, as Mr. Miller seemed to 
suggest, to get a premium or unfair price for northern tier 
durum? Is that what you are doing?
    Mr. Fisher. Mr. Chairman, we are not trying to extract a 
premium price different than anywhere else in the country. It 
is interesting. I have a letter from Southwestern Durum 
Producers who, in the desert area of Arizona and California, 
say that they would for a little bit of a premium--and that 
would affect the whole market, not just northern--they would be 
very ready to increase production in the Southwestern United 
States. They have come from about 30 million production down 
there to 16 million, just enough to maintain rotational needs.
    I also would submit that there are two patients in this 
hospital. One is the producer, the other the processor, and I 
think we have to be careful that we take care of livelihood and 
the wellbeing of both of them.
    Senator Dorgan. I know what is killing the patient at the 
moment. I mean, the fact is our farmers are going out of 
business hand over fist in North Dakota and being victims of 
unfair trade and seeing price collapse in these grains is 
causing these people to be patients that are not surviving.
    So we need to have a remedy here, and I think the purpose 
of this discussion is to describe support for the announcement 
that we have finished an investigation, Canada is guilty of 
unfair trade, but also to establish pressure for a remedy.
    Senator Burns.
    Senator Burns. I would like to get some kind of an 
observation from either one of you or all of you. How much in 
our exports, how much is the strong dollar really hurting us as 
far as exporters are concerned here in the United States? Mr. 
Broyles?
    Mr. Broyles. Just like the rest of us, I am not an 
economist. But I will tell you what, since the dollar has 
gotten very strong, I think it is very healthy for our economy 
as a whole, but for those of us in the wheat industry that are 
dependent upon shipping 50 percent of our crop to another 
country, it has hurt us a lot. I think it is well documented by 
our decrease in market share, export market share around the 
world.
    I would like to reiterate what the chairman has said. This 
is not against trade. It is a matter of fair trade. It is a 
matter of price discovery. Certainly the millers will have 
access to Canadian grain, but it will be at a discovered price, 
a price at which there has been market risk involved by the 
merchandiser in Canada, not a case where they are able to 
secure the entire production up there and just get rid of it, 
just dump it on our market.
    I think when that happens we will see the durum industry 
and the spring wheat industry recovering in the United States. 
It does not mean that we are not able to bring it in from 
Canada, but it means it will come in at a discovered price, and 
that is what we need.
    In this time of globalization, the place for an STE no 
longer exists and it cannot exist in this globalized trade, and 
we must do what it takes right now. I will tell you that the 
wheat industry, and as a representative of that, we intend to 
keep Congress and the administration's feet to the fire until 
something is resolved here, and I hope we come back in six 
months and we can see that there has been some significant 
steps taken place, and if there has not we will continue to 
holler about it until it is done.
    Senator Dorgan. We will have another hearing in six months.
    Senator Burns. Anybody else want to comment on the strong 
dollar? It is an advantage to Mr. Miller.
    Mr. Miller. We do no exports, sir.
    Senator Burns. I know, but you buy on a foreign market and 
that strong dollar is pretty advantageous to you; is that not 
correct?
    Mr. Miller. If there is an advantage to buying Canadian 
wheat because of the strong dollar, we do not get it because we 
buy at the Canadians' to us price relative to the U.S. market.
    Senator Burns. All right.
    Mr. Hunnicutt. Senator, the only thing I would say, and I 
may be saying the same thing Mr. Broyles just said in a 
different way, and that is I think there has been a lot of work 
recently that demonstrates that exchange rates have a 
differential impact on agricultural commodities than they have 
on the manufacturing sector, and that could be an issue here. 
That issue, however, is separate from the impact of the 
activities and the pricing practices of the Canadian Wheat 
Board, which, regardless of the impact of the exchange rate, 
would still be injuring U.S. growers in terms of its effect on 
the U.S. in third country markets.
    Senator Dorgan. I want to thank all of those who have 
testified today. We appreciate your testimony. I have to run 
out. I have to be somewhere at 11:45.
    Senator Burns. I want to go to lunch. I have never missed a 
meal and I am not going to start now.
    Senator Dorgan. A good Montanan.
    But let me thank all of you. We will leave the record open 
for other testimony for two weeks and this hearing is 
adjourned.
    [Whereupon, at 11:42 a.m., the Subcommittee was adjourned.]


                            A P P E N D I X

        Prepared Statement of the North Dakota Wheat Commission
    The North Dakota Wheat Commission (``NDWC'') appreciates this 
opportunity to provide additional information for the hearing record on 
the issue of the recently concluded U.S. Trade Representative's 
(``USTR'') investigation of the Canadian Wheat Board (``CWB'' or 
``Board'') under Section 301 of the Trade Act of 1974.
    During his testimony on April 19, 2002, Mr. Neal Fisher, 
Administrator of the NDWC, referred to numerous charts submitted to the 
Committee. Enclosed, at Tab 1, is a brief description of each chart as 
well as a summary of the significance of what each chart reveals in 
terms of the drastically negative impact of the CWB's unfair practices 
on U.S. and North Dakota wheat producers. These additional descriptions 
should assist in further illuminating the damage and injury being 
inflicted upon U.S. wheat producers by the Board.
    In December of last year, the U.S. International Trade Commission 
(``USITC'') published its Section 332 report on competitive conditions 
between U.S. and Canadian wheat. That report provided strong support 
for the allegations of CWB predatory activity detailed by the NDWC. 
Yet, despite the findings of this report, the U.S. Trade Representative 
failed to implement the modest tariff rate quotas on durum and hard red 
spring wheat proposed by the NDWC--ones that would have allowed most 
Canadian tonnage to enter duty-free.
    The failure to enact tariff rate quotas on durum and hard red 
spring imports from Canada is costing U.S. farmers lost domestic sales 
and lost income every day. We have run the USITC's own COMPAS model 
with current wheat data and the results indicate that the tariff rate 
quotas would have increased durum revenue by up to 19.6 percent and 
hard red spring wheat revenues by up to 13.4 percent. This would have 
translated into $144 million in additional revenue and $57 million in 
additional income in 2002 for the long-suffering producers of these 
classes alone.
    The failure of USTR to adopt the NDWC proposal has already cost 
U.S. farmers more than $43 million in lost sales to date in 2002, and 
more than $17 million in lost farm income (based on 2000 data for 
income and returns updated to reflect current price levels). Currently, 
Canadian wheat imports are running well ahead of last year's pace, 
prices remain extremely low by historical standards, and U.S. wheat 
producers continue to earn far less than they should and far less than 
they would had the U.S. industry's request for tariff rate quotas been 
heeded. Had these tariff rate quotas been in place for the time period 
1996 to 2001, based on the USITC's COMPAS model and using the 2002 
percentage figures referenced above, our wheat farmers would have 
received additional revenues in the area of $427 million for durum, and 
$919 million for hard red spring wheat. Clearly, the unfair activities 
of the CWB have driven down wheat prices, and drastically impacted U.S. 
wheat producers.
Reported USITC Pricing Data Are Inadequate for Meaningful Price
        Comparisons
    The USITC's efforts in conducting the Section 332 investigation 
concerning the competitive conditions between U.S. and Canadian wheat 
and in preparing the final report released last December were helpful. 
The report and testimony in this hearing confirm a lot of what 
America's wheat producers already know--that the CWB is insulated from 
commercial risk, benefits from subsides and special privileges, and has 
a competitive advantage due to its monopoly control over a guaranteed 
supply of wheat. But, unfortunately, due to factors outside of the 
USITC's control, the investigation came up short when attempting to 
conduct a pricing analysis.
    The Section 332 investigation by the USITC uncovered a plethora of 
examples where the Board causes injury to competition and gross market 
distortions in U.S. and foreign wheat markets. Where these and all past 
investigations of the CWB have not been as fully informative, however, 
is in regard to the long-elusive goal of establishing definitive price 
comparisons. While the USTR assumed responsibility for soliciting 
pricing data from the CWB through its questionnaire, the USITC was 
responsible for collecting other data and for compiling a comprehensive 
report. And while the USTR shared the CWB questionnaire response with 
the USITC (See USITC Report, Chapter 1, p. 3, footnote 7), it is 
apparent from both the tables and the text in its report that the USITC 
failed to benefit from the access to and information contained in the 
CWB submission. Furthermore, Mr. Rogowsky has confirmed that the USITC 
did not separately attempt to obtain data from the Board. Stonewalled 
again, the USITC resorted to making the best of data gathered from 
purchasers which in itself is sparse and woefully inadequate to derive 
meaningful price comparisons. Furthermore, the USITC was apparently 
unable to reconcile the purchaser data, by adjusting pricing values for 
protein differences and other differing financial terms of sale, in a 
fashion that might allow adequate comparisons. The CWB's provision on a 
non-commercial basis of futures contracts alone is a substantial 
difference.
    The crux of the USITC's problem is that the largest single seller 
of wheat in the world, the CWB, has sole control of the data that would 
allow appropriate ``apples-to-apples'' price comparisons that would 
address the full nature and extent of the Board's price discrimination 
and predatory pricing, and their consequent impact on U.S. and world 
wheat markets. Differences in the terms of sale and the product 
actually delivered are quantifiable and have a direct and measurable 
impact on the market price and decisions made by purchasers. These are 
not the non-price differences typically ignored in USITC underselling 
comparisons. Rather by all accounts, including those of the CWB itself, 
the market sets values for protein levels and terms of trade, including 
forward contracts exclusively available from the CWB. As demonstrated 
in numerous NDWC filings during the course of the Section 332 
investigation and on the CWB's own website, the Board compensates its 
farmers based on the protein levels of the deliveries they make to the 
CWB, with specific compensation levels, by wheat class, for each 0.1 of 
a percentage point of protein content.
    It must be noted that from the outset of the Section 301 
investigation, over-delivery of protein and the non-commercial offering 
of futures contracts were among the core elements underlying the 
predatory price discrimination engaged in by the CWB. Lacking the 
necessary data, the USITC instead furnished unadjusted price series 
that were not adequate for the very purposes of the investigation. 
Those data in many instances seem to indicate higher pricing by the CWB 
in the U.S. market. This is not surprising, however, given the failure 
of the Board to provide the data actually necessary for the task. Thus, 
the unadjusted pricing data taken on their own reveal nothing 
concerning the presence or absence of the unfair anti-competitive 
actions which were at issue in the investigation.
    The USITC report itself is replete with statements which highlight 
the inadequacies of the pricing data. For example:

   ``Data were not sufficiently available to analyze protein 
        over-delivery in U.S. and Canadian Durum export contracts.'' 
        (Executive Summary, p. xviii, footnote 7);

   ``Moreover, the Commission was unable to directly compare 
        prices of individual contracts for corresponding U.S. and 
        Canadian wheat products without more detailed knowledge of 
        differences in individual contract pricing structures, even if 
        the purchases occurred in the same month or if deliveries 
        occurred in the same month.'' (Chapter 4, p. 22);

   ``Most price data were reported on a cost-plus-freights 
        (c&f) basis onward to the facility, as requested by the 
        Commission, but some prices were reported freight-on-board 
        (f.o.b) basis from the point of origin and numerous `c&f' 
        prices, particularly the contracted prices, were reported 
        relative to the U.S. `gateway' point rather than onward to a 
        firm's facility. In such cases, without more detailed knowledge 
        of price-component breakouts for individual contracts, it would 
        be difficult to correlate delivered `price adjustments' with 
        differences between contracted and delivered prices and 
        characteristics.'' (Chapter 4, pp. 21-22); and,

   ``Too few observations on the average transportation costs 
        between principal Canadian purchase points and final U.S. 
        destinations were reported by firms to be considered a 
        representative sample of the transportation costs of Canadian 
        wheat purchases.'' (Chapter 4, p. 11, footnote 7).

    In addition, the USITC's data coverage is exceedingly modest 
compared to the full coverage that might have been achieved with the 
assistance of the CWB. Eighteen purchasers provided 785 individual 
contracts for the various months. (See USITC Report, Chapter 4, p. 21). 
This provides only about 9 percent of the full set of observations for 
the five year period of the investigation. (A potential full set of 
observations would have covered 18 firms x 60 months x 8 wheat class/
grade categories, for a total of 8,640 observations). The quantity of 
wheat represented by the USITC purchaser data set is only 26 million 
bushels of Canadian wheat, around 8.5 percent of the wheat imported 
from Canada over the five year period of investigation. These facts 
raise inevitable questions concerning the sufficiency and adequacy of 
the USITC's purchaser data set. Furthermore, purchasers have made clear 
they do not believe it is in their short-term interests to assist the 
USITC in accumulating data that may be used to limit their access to 
unfairly low priced Canadian wheat imports.
    Inadequacies with the USITC data extend beyond the problem of 
sufficient coverage. The USITC report cites contract prices by class/
grade and average delivered prices for each month of the period of 
investigation. Instead of calculating price adjustments to reflect the 
over-delivery of protein and other characteristics, the USITC reported 
only the relative frequency and level of over-delivery. This 
information conveys nothing about the effect of over-delivery on 
pricing. Furthermore, the USITC did not compare contracted and 
delivered prices, because many prices were reported to it on an F.O.B. 
basis from the point of origin instead of the cost-plus-freight onward 
to the facility. The USTR questionnaire to the Board would have 
addressed this problem. Additionally, many of the cost-plus-freight 
contracted prices were reported relative to the U.S. gateway point 
rather than onward to a purchaser's facility. The USITC has 
acknowledged that these shortcomings prevented it from correlating 
``delivered price adjustments with differences between contracted and 
delivered characteristics and prices.'' (See USITC Report, Chapter 4, 
p. 22).
    Variations in contract structure prevented the USITC from making 
comparisons of monthly contract prices. For instance, when purchase 
prices are specified relative to a futures market, then price 
differences will necessarily reflect the choice of the futures contract 
month. (See USITC Report, Chapter 4, p. 22). The USITC did not have 
information for individual contracts, and hence simply plotted points. 
This approach failed to account for the noncommercial provision of 
long-term contracts by the CWB, a significant trade-distorting practice 
that the USITC report confirmed.
    The USITC reported the share of shipments with over-delivery of 
protein, and sorted them by magnitude. The USITC noted that most were 
within 1.5 percentage points of the contracted amounts. The CWB, 
however, compensates its farmers on the basis of tenths of a percentage 
point. The 1.5 point margin aggregates 15 discrete levels of payment in 
Canada; one may presume such differences to have real significance in 
the U.S. market rather than dismissing them as inevitable. The USITC's 
delivered price comparisons, thus, do not reflect protein over-
delivery. Nor do they reflect dockage, test weight, or vitreous kernel 
count.
    Also, while the data are not statistically significant given the 
volume of both U.S. and CWB wheat contracts to third country markets, 
the USITC report was able to determine that ``a higher frequency of 
protein over-delivery in the higher ranges was found for the CWRS 
wheats.'' (See USITC Report, Executive Summary, p. xviii). On a 
percentage basis, the data available to the USITC revealed that ``67.1 
percent of available contracts for the Canadian wheat reported over-
delivery . . . .'' (See, USITC Report, Chapter 5, p. 15). While the 
exact percentage is deleted in the public version of the USITC report, 
it appears that a significant percentage of the CWB contracts for CWRS 
had protein over-delivery of 0.8 percent or more. (See USITC Report, 
Executive Summary, p. xviii). This amount of a protein over-delivery 
beyond what the contract specifies is significant because it more than 
accounts for standard differences in testing and sampling error that 
can be plus or minus 0.2 percent. It is obviously intentional over-
delivery at 0.8 percent.
    The frequency of price measurements is critical for appropriate 
comparisons, especially for commodity items with large markets and many 
transactions. The USITC has encountered this challenge in other 
investigations of commodity items. For instance, in Softwood Lumber 
from Canada (USITC Investigation Nos. 701-TA-414 and 731-TA-928), much 
of the pricing data was collected and/or submitted not merely on a 
quarterly basis, but also on a weekly and even daily basis. Averaging 
over longer periods obscures what is actually occurring in head-to-head 
competition. The best analysis requires comparisons of product 
offerings that are identical or very similar in specification, 
location, and timing.
    The CWB was purposefully misleading in its public pronouncements 
and filings during the Section 301 investigation. It confused 
appropriate comparisons by offering only annual averages and ignoring 
differences in delivery attributes and terms. The Minnesota Grain 
Exchange (``MGE'') offers detailed data that reveals what otherwise 
lies hidden in longer term averages. Tab 2, attached, graphs the MGE's 
one-week forward contract price for spring wheat on a weekly basis for 
2001. Each week shows a significant range of prices between the high 
and low of approximately three to five percent. The week-to-week 
variation is also significant. Thus, underselling comparisons between 
pricing just a week or two apart would often prove meaningless or 
misleading. The CWB knows this well and intentionally made appropriate 
underselling comparisons impossible during the investigation.
    Finally, it should be highlighted that absolute proof of 
underselling is not required for the CWB's unfair trading practices to 
cause injury. As discussed below, the CWB's compensation practices have 
significantly increased and distorted the amount of Western Canadian 
acreage in high protein wheats, including durum. Thus, the CWB year-in 
and year-out does the only thing it has the incentive to do and is 
expected to do--sell this over-production in the U.S. and third country 
grain markets, employing price discrimination, rail subsidies, 
government guarantees, and other subsidies and preferences. The 
Canadian wheat industry, including but not limited to durum wheat, is 
producing more than it would absent these unfair, anti-competitive 
practices. Its prime competitor, the U.S. wheat industry, has been made 
smaller and poorer as a result. The systematic and durable nature of 
this harm is evidenced in the ability of Canada to maintain and expand 
its share in the U.S. and third country wheat markets, while the share 
of U.S. growers declines. While underselling is not a prerequisite for 
this scenario, persistent CWB price discrimination and over-delivery on 
specifications coupled with the unremitting efforts by the Board to 
hide its detailed shipment-specific data (on prices, wheat 
characteristics, and delivery terms) indicate that it is present.
Quality, Quantity and Protein: The Argument of the North American 
        Millers' Association Is Seriously Misleading
    Despite their argument throughout the Section 301 investigation, 
resolution of this trade matter is not a threat to the U.S. milling 
industry's supply of wheat. Their argument that they need access to 
Canadian wheat for quality purposes was shown to be false throughout 
the investigation. The NAMA's position during the investigation, and at 
the April 19 hearing, is without a doubt a self-serving commercial 
position because U.S. millers know they can buy their wheat cheaper 
from Canada. While they are correct in stating that the U.S. wheat 
industry and U.S. millers agree on about ninety percent of issues of 
combined concern, the NAMA's stance on this issue is becoming an 
affront to U.S. wheat producers. On the one major issue of concern 
which affects the very livelihood of our wheat producers, and which if 
not resolved will continue to affect the already declining production 
of U.S. wheat, the NAMA sides with the CWB--the very entity that has 
been found to be causing injury to U.S. wheat producers.
    Despite an official NAMA position paper which calls for an end to 
discriminatory and distorting trade practices and state trading 
enterprises in agriculture, the NAMA and its member millers are afraid 
to bite the hand that has been feeding them underpriced wheat for the 
past decade. Despite our assurances that any action we would ask the 
U.S. government to take against the Canadian Wheat Board--even the 
imposition of tariff rate quotas--would not threaten their access to 
sufficient quantities of quality wheat, they have chosen to sacrifice 
the long-term benefits that they would gain from true reform of the 
Board, and free and fair trade, for the short-term benefit of cheap, 
underpriced Canadian wheat. And the irony, if nothing is done, is that 
U.S. millers and exporters will continue to become increasingly 
dependent upon a foreign government monopoly for the supply of their 
principal raw material.
    The hypocrisy of the NAMA argument that they must have access to 
Canadian wheat since there is not a sufficient quantity of quality U.S. 
durum can be further highlighted. Assuming, for the sake of this 
argument, that their line of reasoning is true regarding the 
relationship between U.S. durum production and necessary durum imports 
from Canada, one could then also presume that U.S. retailers buy pasta 
from Italy, Turkey and other sources because U.S. pasta manufacturers 
do not produce enough quality pasta at a price that consumers are 
willing to pay. Is this correct? Of course not. And just as there are 
foreign government subsidies affecting the import of pasta, so too are 
there subsidies and special government-granted privileges that lead to 
the import of Canadian durum and hard red spring wheat. Those subsidies 
and privileges were highlighted by the USTR in the affirmative finding 
of February 15, 2002. Duties have been placed on imports of pasta to 
allow U.S. pasta manufacturers to more readily compete. This suggests 
that a similar duty or tariff rate quota on durum imports would help 
U.S. farmers to better compete and, in doing so, there would soon be 
available a more plentiful supply of high quality U.S. durum.
    Nevertheless, the NAMA and the CWB continue to claim that U.S. 
durum and hard red spring wheat are not competitive in quality and/or 
is not provided in the quantity and quality desired by the customers. 
The U.S. wheat industry demonstrated throughout the Section 301 
investigation that this is a distorted argument that ignores how 
markets actually work. The NDWC's economic expert undertook an analysis 
and prepared a brief report entitled ``Do Normal Market Forces Explain 
U.S. Imports of Canadian Durum Wheat?'' (This was submitted to the USTR 
with our May 10, 2001 filing, and we are attaching it for your review 
at Tab 3). The CWB has long contended that its exports to the United 
States were driven by market forces, such as higher U.S. prices and 
allegedly higher Canadian quality. Our experts used a simple model, 
consistent with economic theory to test this hypothesis, and used the 
best available data. The results did not support the Canadian argument. 
In fact, the tests indicated a disturbing negative correlation between 
relative U.S. prices and Canadian wheat exports. Thus, it becomes clear 
that U.S. millers' support the lack of quality/quantity line of 
argument solely to advance the economic benefits they receive by 
purchasing unfairly priced Canadian wheat.
    Wheat classes are traded as commodities, but they have 
distinguishing grade and non-grade attributes like protein content, 
test weight, moisture content, dockage, vitreous kernel count, 
circumstances of delivery, etc. which are specified in contracts. In 
virtually all instances, these attributes for any specific wheat class 
are subject to price premiums and discounts as the processor attempts 
to achieve the desired performance parameters in the most cost 
effective fashion by blending wheat from various sources and making 
other adjustments. U.S. wheat competes head-on with the wheat classes 
sold by the CWB. The Board can mask its price discrimination by 
offering on a non-commercial basis extra protein, greater cleaning, or 
even the security of what amounts to a privately arranged forward 
contract, in markets such as those for durum where such contracts are 
not commercially provided. In each case, the CWB manipulates quality 
attributes provided versus those specified in the contract to make its 
price more attractive.
    Furthermore, the Board's off-budget subsidies from the Government 
of Canada have necessarily increased the overall size of Canadian wheat 
crops by artificially reducing costs and prices below competitive 
levels. This standard effect of subsidies has been exacerbated by the 
CWB's protein compensation policy, which has according to the Board's 
own studies resulted in the excess planting of high protein wheats in 
Canada. (See Gord Flaten, David Przednowek, and Don Flaten, ``Protein 
Profits in the Market Place: Watch for the Signals,'' www.cwb.ca/
publicat/profits/index.htm at 1-19. See also a joint study by the 
Manitoba Rural Adaptation Council Inc. and the CWB, ``MRAC Study: The 
Market Competitiveness of Western Canadian Wheat,'' www.cwb.ca/
publicat/mrac/index.htm (January 1999)). (We have attached these 
studies to this submission for ease of reference. See Tabs 4 and 5).
    The USITC Section 332 investigation developed helpful information 
on the reasons behind many U.S. millers' use of Canadian wheat. In the 
end, NAMA's continuing support of the CWB can be explained by their 
dependence on the Board as a supplier. NAMA's economic rationale and 
testimony before this Senate Committee do not square either with the 
way markets behave or with obvious miller interest in dismantling the 
monopoly power of the largest single player among suppliers.
    The U.S. Census Bureau has been collecting data on the quality 
parameters of imports from Canada for the last several years, since the 
Record of Understanding between the Governments of the United States of 
America and Canada entered on December 1, 1998. Data on the quality of 
Canadian red spring wheat and durum imported during the 1999 and 2000 
calendar years confirms that a large share of imports are of less than 
optimum quality.
    Data is now available on imports from Canada for the 2000-2001 crop 
year and the numbers continue to show that quality is not the driving 
force behind Canadian sales to the United States. (See Tab 6). Only 21 
percent of the red spring wheat imported during this period is No. 1 
grade, and only 29 percent of spring wheat imports had a protein 
content greater than 14.2 percent, while 27 percent had a content of 
13.5 percent or less. In the case of durum, the Census Bureau data 
shows that 50 percent of imports were lacking in one or more of the 
factors needed to meet top milling bid requirements. In the U.S. durum 
market, milling requirements generally are No. 1 grade; minimum 88 
percent hard, amber vitreous kernel content; and, minimum 13 percent 
protein content. The U.S. Census Bureau data illuminates that it is CWB 
price offers and its forward contracting ability, and not quality per 
se, that are the key factors behind sales into the United States, which 
is a net exporter of identical classes of wheat.
    All of the data and evidence submitted during the Section 301 
investigation point to one conclusion: U.S. quality and quantity 
shortages are not the impetus behind imports of Canadian wheat. The CWB 
offers other attractions to customers such as price discounts and 
longer-term contracts with which it is impossible for the U.S. free 
market system to compete. The CWB is only able to engage in such 
tactics because of its exclusive procurement and export rights, and 
other inequities such as transportation subsidies.
    We hope this additional statement clarifies and responds to the 
issues and questions which arose during our panel's testimony at the 
April 19, 2002 hearing. Should you need any further information please 
do not hesitate to contact us or our counsel. *
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    * The charts, tables and memorandums referrred to, in this prepared 
statement, have been retained in Committee files.
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