[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
CHINA AND U.S. AGRICULTURE: SANITARY AND PHYTOSANITARY STANDARDS, A
CONTINUING BARRIER TO TRADE?
=======================================================================
ROUNDTABLE
before the
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 26, 2004
__________
Printed for the use of the Congressional-Executive Commission on China
Available via the World Wide Web: http://www.cecc.gov
______
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CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
House Senate
JIM LEACH, Iowa, Chairman CHUCK HAGEL, Nebraska, Co-Chairman
DOUG BEREUTER, Nebraska CRAIG THOMAS, Wyoming
DAVID DREIER, California SAM BROWNBACK, Kansas
FRANK WOLF, Virginia PAT ROBERTS, Kansas
JOE PITTS, Pennsylvania GORDON SMITH, Oregon
SANDER LEVIN, Michigan MAX BAUCUS, Montana
MARCY KAPTUR, Ohio CARL LEVIN, Michigan
SHERROD BROWN, Ohio DIANNE FEINSTEIN, California
DAVID WU, Oregon BYRON DORGAN, North Dakota
EXECUTIVE BRANCH COMMISSIONERS
PAULA DOBRIANSKY, Department of State
GRANT ALDONAS, Department of Commerce
LORNE CRANER, Department of State
JAMES KELLY, Department of State
STEPHEN J. LAW, Department of Labor
John Foarde, Staff Director
David Dorman, Deputy Staff Director
(ii)
C O N T E N T S
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Page
STATEMENTS
Fernandez, Peter, Associate Administrator, Animal and Plant
Health Inspection Service, U.S. Department of Agriculture,
Washington, DC................................................. 3
Carlson, Merlyn, Director of Agriculture, the State of Nebraska,
Lincoln, NE.................................................... 6
Dickerson, Paul, Vice President of Overseas Operations, U.S.
Wheat Associates, Washington, DC............................... 9
APPENDIX
Prepared Statements
Fernandez, Peter................................................. 30
Carlson, Merlyn.................................................. 32
Dickerson, Paul.................................................. 33
Submission for the Record
Response to question for the record for Peter Fernandez from
Senator Gordon Smith........................................... 38
CHINA AND U.S. AGRICULTURE: SANITARY AND PHYTOSANITARY STANDARDS, A
CONTINUING BARRIER TO TRADE?
----------
FRIDAY, MARCH 26, 2004
Congressional-Executive
Commission on China,
Washington, DC.
The roundtable was convened, pursuant to notice, at 10
a.m., in room 2255, Rayburn House Office building, John Foarde
(staff director) presiding.
Also present: David Dorman, deputy staff director; Susan R.
Weld, general counsel; Selene Ko, chief counsel for trade and
commercial law; Dale Nellor, agricultural legislative
assistant, Office of Senator Chuck Hagel, and Carl Minzner,
senior counsel.
Mr. Foarde. Good morning, everyone. My name is John Foarde.
I am the staff director of the Congressional-Executive
Commission on China. I would like to welcome everyone to this
issues roundtable of the CECC.
On behalf of Congressman Jim Leach, our chairman, and
Senator Chuck Hagel, our co-chairman, and all of the 23 members
of the CECC, welcome to our panelists and to all who are coming
to listen this morning.
The topic that we are going to examine today may seem a
little bit unusual for a commission with a mandate such as ours
which concentrates on human rights, but also development of the
rule of law. So it is probably worth taking a minute to say
that, in our view, the development of the rule of law includes
transparency and includes commercial rule of law development,
particularly WTO implementation and compliance on the part of
the People's Republic of China [PRC]. So, these issues are a
big part of our work.
Among the many implementation issues that we have been
looking into for the last 2 years are questions relating to the
implementation of the agricultural commitments in the WTO and
the related bilateral agreement that we signed in 1999 with
China.
As the recent U.S. Trade Representative [USTR] report
shows, China's record on implementation has been mixed. So,
today we wanted to examine a key commitment, the WTO commitment
on sanitary and phytosanitary standards [SPS].
I can see from the group here in the audience that everyone
is familiar with those terms, but not everybody reading the
record will be. So I will take a minute to say that I think we
all understand what the word ``sanitary'' means, but
``phytosanitary'' may not be so quickly understood.
Unless I misunderstand, and I am sure the panelists will
correct me if I do, phytosanitary measures means steps that
pertain to plant quarantine, that is, activities designed to
prevent the introduction and spread of quarantined pests or to
ensure their official control. For short, we call these
measures ``SPS measures'' when we talk about the SPS
commitments in the WTO.
A word of context, though, before we get started. China
continues to be an important market for U.S. agricultural
products. We exported $3.5 billion worth of farm products to
China in fiscal 2003, and our estimates, I think, from the USDA
for 2004 are somewhere in the neighborhood of $5.4 billion. So
at that level, China would be our fourth largest market for
U.S. agricultural products.
Soybeans, hides and skins, cotton, poultry meat, soybean
oils, and red meats are the principal products that we are
sending to China. So China's compliance with this WTO SPS
agreement really matters to U.S. farmers and to the
agricultural industry in the United States.
To help us examine these issues today we have three
distinguished panelists. I will introduce them in more detail
before they speak. We have Dr. Peter Fernandez, the Associate
Administrator of USDA's Animal and Plant Health Inspection
Service [APHIS]; Merlyn Carlson, Director of Agriculture for
the great State of Nebraska; and Paul Dickerson, Vice President
of Overseas Operations for U.S. Wheat Associates.
We will conduct this roundtable the way we have been doing
them for the past 2 years. Each of our panelists will have 10
minutes to speak. After 8 minutes, I will just remind you that
you have 2 minutes left. Inevitably, you will run out of time
before you make all the points you would like to make, but we
hope that we can pick up those points in the question and
answer session afterward.
When all three of you have spoken, we will recognize the
staff experts here at the table for 5 minutes each to ask a
question and hear the answer, and we will go until we run out
of steam, or until 11:30, whichever comes first.
In a few weeks, we will have a transcript to you for
correction, and this will eventually be not only printed as an
official committee print of the Commission, but also the
transcript will be online on our website.
Anyone who does not know how to find our website at
www.cecc.gov, now knows how to find it. You will find the
statements from this session, as well as others, there, and
eventually the complete transcript.
A final duty. The office of Senator Gordon Smith has asked
us to pose a question for the record. I understand that USDA
will come back to us formally with a reply. So let me ask the
question. ``China has yet to respond to a U.S. request for a
pest risk assessment [PRA] for Pacific Northwest pear exports
to China. The United States submitted a pest list in 1995. We
understand that USDA is unwilling to push this issue with China
until the U.S. industry provides research on fireblight
transmission on pears. The industry has started this research.
However, a request for research prior to receiving a PRA
documenting a country's concerns is like putting the cart
before the horse. When will China provide a PRA on Pacific
Northwest pears? '' So, for the record, we would appreciate
USDA's response to that for Senator Smith.
[The response appears in the appendix.]
Let me then recognize Dr. Peter Fernandez, the Associate
Administrator of APHIS. He serves as a U.S. delegate to the
Office International des Epizooties, the international animal
health standard-setting body, and is a member of the Senior
Foreign Service. He was APHIS Regional Director for Mexico from
1995-1998, and also the Regional Director for South America
from 1998 to late 2000.
Dr. Fernandez, thank you very much for sharing your
expertise with us this morning.
STATEMENT OF PETER FERNANDEZ, ASSOCIATE ADMINISTRATOR, ANIMAL
AND PLANT HEALTH INSPECTION SERVICE, U.S. DEPARTMENT OF
AGRICULTURE, WASHINGTON, DC
Mr. Fernandez. Thank you very much. Thank you for asking me
to take part in this roundtable discussion this morning. My
name is Dr. Peter Fernandez and I am the Associate
Administrator of the U.S. Department of Agriculture's [USDA]
Animal and Plant Health Inspection Service [APHIS].
Within USDA, APHIS is charged with protecting the health of
U.S. agriculture. In doing so, our agency works to prevent
foreign agricultural pests and diseases from entering the
country through regulatory controls, development of sound
animal and plant health policies, and anti-smuggling programs
aimed at keeping risky agricultural products out of the United
States.
The agency also conducts domestic surveillance and
monitoring programs for serious pests and diseases and works
with state and industry cooperators to eradicate economically
significant ones. These activities allow us to ensure that U.S.
agricultural products are healthy, abundant, and welcomed in
the international marketplace.
As the primary Federal agency that addresses animal and
plant health issues, APHIS also plays an important role in
international trade. Officials with our agency convey
information to U.S. trading partners regarding the pest and
disease status of U.S. livestock, meat products, plants, and
plant products.
In turn, we also evaluate the same information submitted to
our agency by other countries when they want to export a new
agricultural product to the United States.
APHIS evaluates such requests by analyzing the information
submitted to us; working to collect and evaluate related
scientific data; preparing risk assessments that evaluate any
potential pest or disease risks to U.S. agriculture; and then,
if appropriate, conducting public rulemaking to change our
import regulations to allow the animal or commodity to enter
the United States in such a way that any pest or disease risks
are mitigated.
In a nutshell, this is how APHIS conducts our business when
it comes to international trade, and, generally speaking, it is
how our trading partners operate. I am able to say this because
APHIS, as well as our counterparts in many other countries, all
work under terms outlined in a very important international
trade agreement, the World Trade Organization's Agreement on
Sanitary and Phytosanitary Issues.
As was mentioned earlier, in the international trade arena,
sanitary and phytosanitary issues, commonly referred to as SPS
issues, are the technical terms for animal and plant health
issues.
The SPS agreement is critical to APHIS's work because it
allows us and our trading partners to speak a common language
when discussing trade issues. The SPS agreement encourages
cooperative, instead of competitive, work. It has been our
experience that the agreement is a highly useful and effective
tool for opening new markets and making other important
agricultural decisions.
The agreement allows governments to take necessary
protective measures with regard to imports of agricultural
products based upon sound science. However, it also provides
the rules and structure to prevent the arbitrary use of such
measures to impede trade.
As I said a moment ago, APHIS officials have the needed
technical expertise and regulatory authority to address SPS
issues. For instance, APHIS personnel with our Veterinary
Services, Plant Protection and Quarantine, and International
Services programs assist U.S. agricultural exporters by
negotiating the plant and animal health requirements for U.S.
products destined for foreign markets. They also review the
scientific merits of other countries' agricultural health
requirements and issue the necessary health certificates to
accompany U.S. shipments.
APHIS also meets constantly with our counterparts on a
bilateral basis to help negotiate resolutions to technical
disputes, and we are also active participants in international
agricultural standard-setting bodies like the International
Plant Protection Convention and the International Office of
Epizooties.
APHIS's trade support activity has increased tremendously
in recent years as a result of trade liberalization and
international trade agreements. Quite simply, agricultural
health issues are important to every nation's ability to seek
and maintain international trade markets.
Through trade agreements, the United States strives to open
markets for U.S. producers. However, as trade agreements open
the potential for trade, agricultural health issues emerge as
critical hurdles that need to be cleared if active and reliable
trade is to occur.
This is precisely APHIS's job, to supply the technical
agricultural health information that our colleagues with the
U.S. Trade Representative's Office, USDA's Foreign Agricultural
Service, and other Federal agencies need.
APHIS officials work on critical SPS issues during trade
negotiations with other countries, and also during
interruptions to trade caused by domestic situations in the
United States.
As I am sure you all know, international agricultural
markets are highly sensitive to pest and disease outbreaks, and
such situations can significantly affect access to those
markets. Take, for example, the impact that the detection of
Bovine Spongiform Encephalopathy [BSE] in the State of
Washington in December has had on U.S. beef exports, not to
mention the impact of the recent detections of avian influenza
have had on the U.S. poultry export market.
Considerable USDA efforts and resources have been committed
to addressing these diseases domestically, as well as to
conducting export negotiations to retain market access for U.S.
poultry and poultry products.
With that background, I will now turn to the SPS issues
APHIS is working on with regard to China.
China's accession to the WTO in November 2001 was
accompanied by a great deal of excitement: new export
opportunities were expected to emerge, with significant gains
particularly in the area of fresh produce. Almost 3 years
later, some of these new market opportunities have been
realized by U.S. producers, but others, due to SPS concerns
expressed by Chinese officials, have stalled.
To meet these SPS challenges, APHIS has actively engaged
our Chinese counterparts at the technical level. In 2003, our
interaction with the Chinese increased significantly as we
relocated our regional office for Asia from Tokyo to Beijing.
APHIS now has two Foreign Service officers working in
Beijing and is slated to post a third Foreign Service officer
at a new office in Shanghai. The new Shanghai office will be
specifically responsible for monitoring the status of plant and
animal pests and diseases in Chinese ports and production areas
that ship agricultural products to the United States.
Also, last year, USDA's Under Secretary for Marketing and
Regulatory Programs, Mr. Bill Hawks, and APHIS's Administrator,
Mr. Bobby Accord, hosted the first U.S.-China Plant and Animal
Health Regulatory Symposium in Beijing.
This symposium was designed to begin consistent, effective
dialog between regulatory officials from the United States and
China. Agenda topics included a range of different issues
related to agricultural health and trade, and the meeting was
very successful.
In addition to our annual SPS bilateral meetings with
China, APHIS is also working to schedule routine monthly
meetings with appropriate technical counterparts from China to
help resolve outstanding SPS issues in a timely manner.
We believe strongly that regularly scheduled monthly
bilateral technical meetings will be an effective way to
sustain our dialog with China and help bring about mutually
agreeable resolution to outstanding SPS technical issues.
In the last several years, working in this way, we have
achieved some notable accomplishments. U.S. citrus--with
continuing dialog on China's prohibition on imports from four
counties in Florida--and tablestock potatoes from Alaska are
now shipped to China. In terms of imports, APHIS has approved
the entry of longans and lychees from certain areas of China.
Under Secretary Hawks likes to say that agricultural trade
is a two-way street. In similar fashion, APHIS' experience in
working with China on SPS issues has been that our
accomplishments have been equaled by a number of significant
challenges.
We are working very hard to convince China to ease their
restrictions on U.S. beef and poultry, and we also continue to
supply China with information attesting that U.S. stonefruit
and potatoes from the Pacific Northwest do not present any pest
risk to domestic Chinese agriculture.
For their part, Chinese officials have requested that APHIS
consider allowing imports of Chinese apples, and China
expressed a great deal of concern after APHIS suspended the Ya
pear export program last fall due to detections of an exotic
Alternaria on imported fruit being sold at commercial markets.
We all know that, in terms of SPS issues, China is a work
in progress. As in any trade relationship, there has been
progress with China on SPS issues and there have also been a
number of setbacks.
But with these thoughts in mind, APHIS is staying engaged
with our Chinese counterparts and will continue to encourage
China to participate fully in international agricultural health
forums by becoming full members of the International Plant
Protection Convention [IPPC] and the World Organization for
Animal Health [OIE]. We feel very strongly that these steps
will help improve our relationship with China on SPS issues.
With that, I will turn things over to other participants
and look forward to any questions that you might have.
[The prepared statement of Dr. Fernandez appears in the
appendix.]
Mr. Foarde. Dr. Fernandez, you are clearly an experienced
panelist, because you have been remarkably well disciplined. I
appreciate it.
I would like to now recognize Merlyn Carlson, who is the
Director of Agriculture for the State of Nebraska, and past
president of the Mid-America International Agri Trade Council.
Merlyn is also the past chairman of the U.S. Meat Export
Federation [MEF] and has served on the MEF Executive Committee.
He has also served as president, and on the Executive Committee
and Board of Directors of the National Cattlemen's Beef
Association.
Welcome, Mr. Carlson. Thank you for sharing your views with
us this morning.
STATEMENT OF MERLYN CARLSON, DIRECTOR OF AGRICULTURE, THE STATE
OF NEBRASKA, LINCOLN, NE
Mr. Carlson. Thank you very much for inviting me to address
you today. It is a privilege to speak to you on this important
topic.
I have been asked to share with you information about the
effects of the Chinese ban on U.S. beef imports following the
finding of a single case of BSE in the United States.
Like over 50 other countries, in late December, China chose
to shut its borders to live bovine and any related products
from the United States. Our U.S. negotiators have been working
to reestablish trade, and we applaud their efforts. It is
important to say that the system has worked, but now is the
time to move forward.
However, we are told that the Chinese officials continue to
indicate they will take their cues from Japan in the opening of
their market. I do not believe that this is in the best
interests of China. Japan has made animal testing demands that
are not based on science or practical experience, and
negotiations are ongoing. While Chinese trade negotiators look
to Japan for cues, consumers in China have indicated they still
desire and want United States beef.
The Nebraska Department of Agriculture's Ag Promotion and
Development Administrator Stan Garbacz returned just last
Friday from a trip to Beijing. While there, he had numerous
opportunities to visit with beef importers, restaurant owners,
and Chinese
consumers.
Mr. Garbacz summed up his trip by saying it was
``depressing and frustrating.'' On the positive side, he said
he was unable, during his numerous appointments, to find anyone
that is concerned about potential health issues connected to
consumption of U.S. beef. Instead, he found individuals who
believe in the safety of our food supply and are asking for, if
not demanding, more of our product. The depression and
frustration stem from the knowledge that our customers are
ready and willing to accept the U.S. product, but the Chinese
Government will not allow it.
Some of these Chinese companies get over half of their meat
products as imports, and they generally recognize that the
United States has a better quality and more consistent product
than other beef-producing nations. These companies have been
allowed to use U.S. beef product that was in storage prior to
December 23, 2003, but as those supplies have dwindled, these
companies are gradually forced from business. So not only are
we unable to service existing customers, but we are also losing
these potential outlets permanently when they close their
doors.
I personally also had the opportunity to travel to China
earlier this year. I visited with importers and with Chinese
consumers about U.S. beef. I must tell you, I was pleased with
the response I received. In the wake of the Washington State
BSE case, the industry and the Chinese consumers told me that
they are hoping U.S. beef products could be made available
again as soon as possible.
Like the company representatives Mr. Garbacz spoke to,
these consumers expressed a belief in our food safety system.
They are comfortable with the safety of our beef product, and
they desired U.S. meat over that of other countries.
So what our experiences tell me is that China must consider
the needs of its own consumers and citizens. The United States
should continue to encourage Chinese Government officials to
use science in its decisionmaking process. It is China's
obligation as a member of the World Trade Organization, and
furthermore, it is what their citizens want.
As a point of digression, I want to note that the Chinese
Government recently highlighted its openness to use these
scientific
principles in considering major policy decisions. Just last
month, China announced approval of a permanent safety
certificate for a number of biotechnology crops. This is
encouraging. It would be my hope that a similar route will be
followed in addressing the BSE situation.
If Chinese officials look to science for answers regarding
BSE, I believe they will find that Nebraska, and the United
States, can provide them with the quality and safe beef
products that they desire. Even before December 23, the United
States had in place a number of protective measures to lessen
the opportunity for occurrence of BSE in our cattle population.
We have had a surveillance program in place since 1990, and
we have banned imports of cattle and bovine products from
countries with BSE since 1989. Most importantly, we have had a
ban against feeding ruminant-derived meat and bone meal to
cattle since 1997. Feeding of such products is generally agreed
to be the principal means of transmission of BSE.
In addition to these points of action, since December 23,
USDA and FDA have implemented a number of actions to further
bolster protection against BSE in our beef production system
and in our food supply.
For example, non-ambulatory or disabled cattle and
specified risk material are now banned from the human food
supply. Mechanically separated meat also is now prohibited from
use in the human food supply.
Animal feed production rules have been strengthened as
well. For example, to prevent cross-contamination issues,
facilities must have production lines that are dedicated to
non-ruminant animal feeds if they use protein that is
prohibited in ruminant feeds.
Just last week, USDA Secretary Ann Veneman announced an
enhanced surveillance program as a means of making a thorough
assessment of the status of the United States herd. This action
was taken at the suggestion of the international scientific
review panel, which reviewed USDA's response to the BSE case.
Animals of high risk will be focused upon, with USDA's goal
to obtain samples from as many of these types of animals as
possible. They will also obtain samples from animals that
appear normal, but are older, since science has shown that
these have a greater likelihood of having BSE than cattle under
the age of 30 months.
While the enhanced USDA and FDA activities should serve as
more than enough scientific justification for opening the
borders to trade, States such as Nebraska are moving ahead with
their own efforts at further disease protection enhancements.
Even before the December 23 announcement, the Nebraska
Department of Agriculture had stepped up its contact with feed
manufacturers and animal rendering facilities in the State to
raise awareness about BSE issues at the level of the livestock
production chain.
The Nebraska Department of Agriculture also has moved ahead
aggressively with the development of a state-wide animal
tracking system. We intend to be compatible with whatever plan
will be eventually implemented nationwide. Our model at present
focuses on the beef industry, although other species will be
added later. It will contain both premise identification and
individual animal identification components.
The primary goal of the system is traceability for
protection against and reaction to disease issues like BSE.
However, we also intend to utilize this beef tracking system
for marketing purposes. The idea is to work in conjunction with
partners in the beef production cycle to create a closed loop,
farm-to-fork tracing system.
Nebraska has chosen to move forward in the animal
traceability arena because, frankly, we have a great deal to
lose if foreign country borders remain closed to U.S. beef
products. Already, the effects are apparent. For example,
Nebraska generally is known for leading the Nation in
commercial cattle harvesting and processing. A report released
just last week by USDA highlights a 7 percent decline
nationally in beef production during February 2004, compared to
February 2003.
In that same report, Nebraska slid from first place to
second in total cattle harvested. Our packing plants have had
to cut jobs--and some of them hundreds of jobs--as we continue
to deal with the impact of the lost overseas markets.
I believe the beef industry in the United States, and
Nebraska, has shown its desire to provide China and other U.S.
beef importing countries the tools necessary to engage in a
thorough risk assessment regarding the beef trade.
Given that many countries still have hesitated to recognize
our enhanced animal disease protection measures, China has an
important opportunity to distinguish itself as a leader.
Clearly, we are hoping that the country's officials will
recognize this and respond to the needs and desires of its
citizens and its food industry representatives.
Thank you for allowing me to share our Nebraska
perspective, and I welcome any questions that you may have.
Thank you.
[The prepared statement of Mr. Carlson appears in the
appendix.]
Mr. Foarde. Thank you, Merlyn Carlson. All very good
points. We will come back to some of them during the Q&A.
Next, I would like to recognize Paul Dickerson. Paul is the
Vice President of Overseas Operations for U.S. Wheat
Associates. U.S. Wheat has a long history in northeast Asia,
and certainly in China, so it is a great pleasure to have you
here.
Paul Dickerson was General Sales Manager and Associate
Administrator of the USDA's Foreign Agricultural Service
between 1989 and 1991. From 1986 to 1989, he was a consultant
and marketing agent with Pacific Northwest. From 1978 to 1986,
he was president and chief operating officer of Columbia Grain,
Incorporated in Portland.
Paul, welcome. Thank you for sharing your views with us
this morning.
STATEMENT OF PAUL DICKERSON, VICE PRESIDENT OF OVERSEAS
OPERATIONS, U.S. WHEAT ASSOCIATES, WASHINGTON, DC
Mr. Dickerson. Thank you. Thank you for this opportunity to
discuss the U.S. wheat industry experience with trade to China.
First, if I may, I would like to give some background on U.S.
Wheat Associates [USW] and my experience in grain trading.
U.S. Wheat does not buy or sell wheat. Our job, since the
1950s, has been to develop and maintain export markets for
American wheat. We are the marketing arm for the American wheat
farmer, and over the years we have worked in nearly 100
countries. Our expert staff has a depth of knowledge on wheat
issues that is unmatched anywhere else in the world.
We receive a third of our funding from U.S. wheat producers
through checkoffs funneled through our 20-member state wheat
commissions, but the remaining two-thirds of our budget,
including all of our overseas work, depends upon USDA's Foreign
Market Development program and the Market Access Program. We
simply could not do our work without that support.
As Vice President of Overseas Operations for U.S. Wheat
Associates, I direct the market development activities of U.S.
Wheat's 15 overseas offices. I joined U.S. Wheat in 1992, first
serving as regional Vice President of the South Asian region in
Singapore, and then moving to the Washington, DC, office in
1995. I will dispense with any other comments about my
background.
It has been fascinating to be involved from all these
angles from my past experience in the long, difficult history
of U.S. trade with China. As you know, the U.S. agricultural
community, including the wheat industry and the trade, was very
supportive of China's admission to the WTO. While the outlook
for significant wheat export opportunities looked promising,
the results were initially quite disappointing.
Until very recently, the U.S. wheat industry faced
continuing problems. While China reduced its old carryover
stocks, which were more than needed, it used various devices to
curb exports from the United States of quality wheat that its
end users could import without a series of trade barriers.
There were three chief areas of concern affecting access to
China's market:
First, Tariff Rate Quota [TRQ] implementation for the
private sector was inadequate, in that individual allocations
were too small, and there was no transparency. Companies had to
combine TRQs in order to get a commercially viable volume.
Second, licenses that were supposed to be issued by the
State Administration of Quality Standards, Inspection and
Quarantine for commodity imports, were given for a limited
period of time, which discouraged purchases.
Third, sanitary and phytosanitary barriers relating to
TCK--a wheat smut--continued to be a problem, despite the
Agriculture Trade Agreement that was reached in 1999, ending a
trade dispute that began in 1972. The story about how this
phytosanitary dispute over TCK evolved and was resolved is a
long saga, which I will not go into today.
Let me just point out that, after decades of the best
efforts of scientists from the U.S. Department of Agriculture
and the wheat industry, an international panel conducted an
independent pest risk assessment [PRA], following guidelines
established by the U.N. Food and Agricultural Organization. In
May 1998, the PRA was presented to Chinese officials. The
public response to the PRA from he Chinese was, essentially,
silence, until WTO talks began.
When negotiations between USTR and the Chinese Government
began in earnest in 1999, we were grateful for USTR's support
on the U.S. wheat industry's position: that there could be no
WTO agreement without resolution of the TCK issue.
On April 9, 1999, the USTR announced that the agreement
would allow U.S. wheat imports from any State to enter any
Chinese port. The agreement allowed wheat imports that do not
exceed a tolerance level of 30,000 TCK spores per 50 gram
sample, a level that is easily met by U.S. wheat.
That agreement was translated into Chinese, and the USTR
and Chinese officials officially ``confirmed'' that version in
early December 1999, while the two countries were in Seattle
for the World Trade Organization meeting.
Finally, in early 2000, the China National Cereals, Oils,
and Foodstuffs Corporation, [COFCO], the official government
buyer, announced their purchase of U.S. wheat, including wheat
from the Pacific Northwest. It was the first largely
unrestricted commercial cargo of northwest wheat to be shipped
to the People's Republic of China in 27 years.
The bulk carrier ``Miyama'' left the Columbia River on June
2, carrying 52,000 tons of wheat, 30,000 tons of soft white
wheat, and 10,000 tons each of hard red winter wheat and hard
red spring wheat. The resolution of the TCK issue was
absolutely vital to the U.S. exports of wheat. With the
agreement and with Permanent Normal Trade Relations [PNTR]
status with China, the United States would increase its total
wheat exports up to 10 percent each year.
There is a huge market potential for U.S. wheat in China.
Between 1985 and 1995, on average, China imported 10 million
tons of wheat each year--ranging from 4 to over 15 million
tons--relying on imports during this time for just over 10
percent of its wheat needs. But then their domestic wheat
production grew dramatically and imports dropped steadily since
1996, until this year.
China has drawn down its wheat stocks in recent years, most
recently with domestic sales of nearly a million tons of old
crop. They now produce about 86 million metric tons annually--
for comparison purposes, the United States produced 64 million
metric tons during the current crop year--but China's
consumption is estimated at 105 million metric tons.
These three factors--lower stocks, lower production, and
steady demand--now come together, forcing China to import wheat
in much larger quantities than in the past several years. This
``drawdown'' in stocks has brought China back to the market as
their
domestic prices have increased.
China is buying wheat from the United States, purchasing
nearly 3 million metric tons this year and next year, and COFCO
representatives say there is more to come. But the question,
until recently, was whether they would truly honor the
agreement on TCK. Would they buy from Pacific Northwest ports?
Would they ship? Would they continue to discourage their buyers
from purchasing wheat from the United States? Would they off-
load that wheat and put it into domestic circulation?
Last month, representatives from COFCO conducted a
whirlwind U.S. buying tour. Before beginning its rounds of
meetings in Washington, Chicago, and Portland, however, the
COFCO team graciously agreed to meet with members of the U.S.
media in the
Nation's Capital. The chairman directly addressed concerns
about whether TCK was still an issue in purchasing decisions,
stating flatly that ``the TCK problem has already been
resolved. It is not a problem.'' He went on to say that wheat
from the Pacific Northwest ``gives us more variety, and
provides wheat that China does not have.'' Also, he noted, ``we
want to cut shipment costs,'' and shipping out of Portland is
less expensive for China than shipping from the U.S. Gulf. That
freight savings is currently between $20 and $25 per ton. That
is over a million dollar difference for a normal 50,000 metric
ton shipment.
U.S. Wheat Associates, the industry's export market
development organization, which has maintained an office in
Beijing since 1983, has worked for years just for this moment
in history. Hopefully, the TCK issue is in the past, but we
cannot be certain until volume shipments discharge at ports in
China. Until then, it is difficult to confirm resolution of the
issues.
We still anticipate some problems with the private sector
licensing and TRQ allocations, and we will continue to work
with COFCO and other Chinese agencies, with the private
entrepreneurs in China, and with the dedicated professionals at
USTR and USDA, especially as wheat shipments arrive in China.
In the long term, liberalization of China's import policies
and internal reforms of the grain industry are expected to
generate higher imports than at present, with estimates of
imports ranging from 5 to 10 million tons. Some estimates go
even higher.
The opportunity for the U.S. wheat industry is immense.
Under the U.S.-China agreement, the TRQ for wheat is 9.6
million metric tons. The tariff is 1 percent, lower than most
other Asian countries. If the U.S. could get 40 percent of
those sales, we would increase the total U.S. wheat annual
exports by 10 percent.
Thank you for offering me the opportunity to present today.
[The prepared statement of Mr. Dickerson appears in the
appendix.]
Mr. Foarde. Fascinating. Thank you very much for those
facts and figures.
We are going to let our three panelists rest their voices
for just a minute while I make an administrative announcement.
Our next staff-led issues roundtable will be next Friday
morning at 10:30 a.m. in this very room, where we will be
looking into commercial rule of law development in China and
how the United States might step up its activities in
supporting commercial rule of law development in China.
We will also have three distinguished panelists to help us
through the issues there. It will be in this same room Friday
morning, but at 10:30 rather than at 10 o'clock.
Going now to our question and answer session, each of us
will get a chance to ask a question and listen to the answer.
We will go 5 minutes each and then give someone else an
opportunity, and we will just keep going.
Thank you, by the way, for being so disciplined, all three
of you, because that gives us more time for what I think is the
most useful part of the conversation.
Let me then exercise the prerogative of the chair and begin
by asking a question on wheat trade. This is principally
addressed to Paul, but I would like to hear anybody's views who
has views on it.
One of the things that is the most exasperating about doing
business with China, in my view, is the frequent practice of
taking a small action, but not really addressing the underlying
systemic problems that are causing the difficulty in the first
place. I think all of you alluded to this problem in your
statements.
Do you see China's recent purchases of U.S. wheat as simply
a temporary expedient of this sort intended to reduce pressure
on them on account of a trade surplus with the United States,
or as a real reflection of China's intention to comply with WTO
and bilateral agricultural trade and SPS obligations to the
United States?
Mr. Dickerson. Well, that is a good question that has
probably multiple facets in terms of how I would answer. I am
of the opinion that there are a number of undercurrents at work
in China when it comes to wheat.
You have the scientific community. I have been involved, by
the way, for over 40 years, so I have watched this thing back
to the 1970s. I am convinced that there is genuine concern by
the scientific community in China for TCK and what TCK can
potentially do to Chinese production.
There is no danger in TCK on the end use of the product.
Their concern is in possible reduced yields. A country like
China, with over a billion people, and the largest producer of
wheat in the world, has genuine concerns with this. We have
gone to a lot of work as an industry in trying to dispel those
concerns because TCK is not a problem in the United States. We
have spent years trying to convince China of this.
But I think you have generally a TCK scientific concern in
some parts in China, but on the other hand you have people like
COFCO and others who are very interested in living up to the
agreements of the Agriculture Trade Agreement and WTO.
But I think what is happening in China today is that the
economics of the situation are overwhelming, if you will. They
are overwhelming the scientific--or what I consider to be non-
scientific--concerns in that community. If you look at the
graph, you will see that Chinese wheat stocks are going down.
Acreage is going down in China. It is going to more high-value
crops.
Frankly, they simply need to import wheat, whether it is
from the United States, whether it is from Canada, or
Australia, or other origins. They are actually consuming
between 15 and 20 million tons more wheat every year than they
are producing, so they have a genuine need.
I think we have been watching this for a number of years.
It has finally happened. If you look at this graph and the
handouts that I presented, it is very clear what is going on.
So, it is not an easy question to answer. It is multi-faceted.
Mr. Foarde. So it was not until the economics really lined
up that the impetus was given for more of a systemic change. I
do not want to put words in your mouth, but is that where you
are going?
Mr. Dickerson. I think that is my opinion, yes.
Mr. Foarde. Interesting.
Do either of the other panelists have a comment on that
question? Mel?
Mr. Carlson. I would comment, if I might. It just seems
like we are experiencing a protocol in China as we have seen
elsewhere with other countries and other agreements. I might
point out, issues of TRQs, SPSs, biotech, and licensing are all
being used to restrict markets and set up nontariff barriers.
We are seeing the use of some of these smaller issues to
restrict trade. These issues do need to be addressed.
Mr. Foarde. We are seeing this also in the human rights
area of the Commission's mandate. That is really the basis of
my question. We have seen, for example, some prisoner releases
of high-profile political dissidents and religious prisoners in
the last few weeks, but we are not seeing enough of the
systemic changes, change in the legal regime, change in the way
things are done, so that these people are not incarcerated in
the first place. I was just wondering if there were any
parallels. So, that is a useful comment.
Let me now recognize my friend and partner, Dave Dorman,
who is the deputy staff director of the Commission and works
for Senator Chuck Hagel, to ask a question.
Mr. Dorman. Well, first, I would like to thank each of you
for coming today and offering your wisdom and insights on these
issues. They are important to the Commission and I know they
are important to Senator Hagel.
I would like, just for a moment, to go to something you
said, Dr. Fernandez, during your opening statement. You
mentioned, in terms of China and SPS measures, that ``it is a
work in progress.'' That is a very interesting and important
comment.
We have somewhere between 15 or 20 roundtables a year and
as John has pointed out, we attempt to explore the universe of
human rights and rule of law issues in China. I would have a
hard time counting how many times panelists have said ``it is a
work in progress.''
Now, why is that important? It is important for a couple of
reasons. Number one, you have all pointed out today that this
issue is important to ranchers and farmers in the United States
in terms of trade. But beyond that, attempting to understand
this work in progress and the connections between rule
development and rule implementation in China in one area such
as agricultural standards, may help the Commission understand
other areas. It is my experience, in the short time I have been
on the Commission staff, that there are connections between how
rules are developed and implemented across issue areas.
With that context, I would like to ask the panel, beginning
with you, Dr. Fernandez, the extent to which China is looking
at ensuring that SPS measures are applied equally to both
domestic products and imported products. I know that you have a
wealth of experience in China, but also globally. It would be
interesting to hear how the Chinese are doing in relation to
other countries.
Mr. Fernandez. Yes. As we said, it is a work in progress.
Progress has been very slow. But one of the things we have been
trying to work with our counterparts on, especially in China,
has been this idea of trying to--within WTO, you are very aware
that you cannot require externally of countries something that
you do not require internally. This is one of the precepts of
the WTO.
So, as we have tried to bring them in to the WTO, the WTO
relies very heavily on two or three resources, the three
resources being what they call the ``three sisters:'' the
International Plant Protection Convention [IPPC]; Codex
Alimentarius for food safety issues; and for animal health
issues, the World Organization for Animal Health [OIE]. It has
been very difficult. I can tell you that there was a time in
the early 1990s when, for example, China had reported that they
had type O FMD [Foot and Mouth Disease]. The following year,
they said they never reported foot and mouth disease. So, the
OIE said, ``You mean you did not find it this year? '' They
said, ``No, we have never reported FMD.'' They are going,
``Well, this is rather difficult, because last year----.'' And
the Chinese said, ``We do not know who reported it, but we do
not have FMD.'' So that was the situation we were coming from.
Countries can report to the OIE, even if they are not
standing members. I can tell you that this month, for the first
time, the Director General of the OIE in Paris made a visit to
Beijing and met with the Premier directly, who assured him that
this year China would send a delegate. So we are hoping that
they will truly come to the table.
Having said that, let me just tell you, I am sure you are
aware of these kinds of things. As you say, our experiences
reflect on probably other things that you are dealing with all
the time. What has been the issue? The issue has been Taiwan's
membership in the OIE. So for a long time, or at least for the
last 5 years, we have been talking about what name Taiwan would
use as a member of the OIE. The last thing that China said it
would want the OIE to change the status of every country, 164,
from ``member country'' to simply ``member'' so that Taiwan
would not be recognized as a member ``country.'' So here is
where we get into this difficulty, trying to deal with the
technical issues that we have to deal with every day. We keep
getting caught up in these political issues, in a sense.
That has been our finding many times, that we go to these
meetings and when there are high-level people present, they try
to find quick political solutions. We try to explain to them
that our system does not work that way. We have a very clear
regulatory system. It is very rigorous and complete. We try to
expedite it as much as we can, but I am sure you all know that
the regulatory process here exists for a reason: to make sure
that the public, the consumers, and the industries have the
opportunity to comment.
So the Chinese sometimes seem to feel that this process can
all be superseded simply by someone whom they have met
personally, and made a personal contact with, and that that can
advance the issue very quickly; ``If you give me this, I will
give you that.'' It is very difficult. We have tried many
times. That is why these symposia are so important for us to
try to explain to them how our regulatory process works and
what we are trying to do here.
We are not trying to find problems with China, we are
trying to find solutions, truly. It is not a game of ``got
you,'' you have got this and we do not have that. We are trying
to find ways that we can mitigate risks and allow trade. So, I
do not know if that answers your question, but that is some of
what we have been finding as of late.
Mr. Dorman. Thank you. Any others have a comment in terms
of wheat? Does China have a history of applying the same sort
of SPS measures to domestically-produced wheat?
Mr. Dickerson. I do not know of anything that I could add
relative to SPS issues with their domestic market, really, that
would be of help to you.
Mr. Dorman. All right. Good. Thank you.
Mr. Foarde. Let us go on then. Let me recognize Dale
Nellor, who is the Agricultural Legislative Assistant for
Senator Chuck Hagel, joining us this morning.
Over to you for questions.
Mr. Nellor. I would just like to thank you gentlemen for
being here today. This is very important, not only to U.S.
agriculture, but specifically to Nebraska.
Mr. Carlson, you were talking about how the Nebraska
Department of Agriculture has been very active in going
overseas. I know China is not the only place you have visited.
How do you feel that your actions and the actions of the
industry, as well as within wheat, have affected negotiations
with these countries on these issues?
Mr. Carlson. Well, first of all, may I compliment USDA,
APHIS, and our cooperators, USMEF, U.S. Grains Council, and
others. They all have done a tremendous job in promoting and
servicing our markets around the world. Our efforts on the
state side hopefully complement their good effort. It is a
synergy that works very well. I just returned from Taiwan. I
had the opportunity to work with cooperators and with our
government representatives. I just cannot say enough in
recognition of the cooperation and the synergy that we have
found with our government people in those markets. It is
important.
For those of us in Nebraska, maintaining and servicing
markets is very important to us. We are a small State in
population, but yet a fairly substantial agriculture-producing
State that must depend on a third of our production being sent
out of state.
Mr. Dickerson. Yes. I would certainly add to that in the
case of wheat. U.S. Wheat Associates is known as a cooperator,
a cooperator with the U.S. Department of Agriculture. I think
globally, and particularly in China, we have really had a
marvelous relationship between USTR, USDA, and Embassy staff in
China. We have an office in Beijing, we have an office in Hong
Kong. It really has been a team effort in all aspects to try to
find a resolution to this SPS TCK issue.
We have been in a position in China to be dealing with,
working with, and talking to the receivers of U.S. wheat and
wheat in general, so we know we have been able to identify
where problems have arisen. Doing this, I think, has been
helpful to APHIS and to others who have been part of this
process.
Mr. Fernandez. If I could just echo what the other two
panel members have mentioned. I think it is impossible for us
to be able to reflect accurately the good health of animal
agriculture without the participation of our counterparts. In
other words, they have been very quick to help us gather the
kinds of information that we need to make our cases. We cannot
make the U.S. case with any country, whether it be TCK with
Brazil or other issues with other nations, unless the
industries are there to cooperate.
The cooperation has been phenomenal on avian influenza, and
on BSE. Even when the counterparts do not respond the way we
want them to, I think our industries realize that we have gone
as far as we can. We have gone the extra mile, as far as we can
go technically, with these issues. But, again, if it were not
for the very close relationship with the industry, we would not
even be able to get out of the door, really.
Mr. Nellor. Thank you.
Mr. Foarde. Let me next recognize our friend and colleague
Susan Roosevelt Weld, who is the general counsel of the
Commission staff.
Ms. Weld. Thank you all very much for coming. A fascinating
topic, which I knew nothing about before reading your
testimonies.
The first thing that comes to mind is that I remember Mr.
Dickerson said there is a problem with transparency in issuing
licenses for certain kinds of imports. So, can the three of you
tell me, in your experience, what are the precise problems in
the Chinese rulemaking process related to transparency? How
could it be improved? Are there ways which they are now trying
to improve transparency? Are there ways in which we can furnish
the Chinese with technical assistance?
Mr. Dickerson. I am not sure how much help you could be on
this end. My own personal opinion was, for whatever reasons of
their own, they were very slow in meeting the government's
obligation to release the TRQ information. I am talking now
about the private sector recipients of the 10 percent of the
TRQ. For whatever reasons, and one can conjecture what they
might have been, they were very slow to identify those. They
were unwilling, for whatever reasons, to identify TRQ
recipients publicly. They also were released in very small
amounts. It appeared to us--at least, it appeared to me,
personally--as an effort to discourage the use of those TRQs by
the private sector and to discourage them from importing. In
other words, putting up roadblocks.
Now, what we could do to try to change that, other than
what is being done or has been done by USTR, that is another
issue. But I consider it to have been roadblocks to the
implementation of an agreement that they should have gone
forward with.
Mr. Fernandez. If I could just respond very quickly. I do
not have a lot of information, but we can get you more
information on this question. One of the key issues that we
have actually had at the top of our list with China is to
modify or abolish something we call Quarantine Import
Permitting [QIP]. While these QIPs are not really SPS measures,
they are framed as if they are sanitary/phytosanitary animal or
plant health issues. In fact, they are a de facto import
licensing system.
So it is very difficult with these types of licensing
systems. You come to the table thinking you are going to be
speaking about technical issues. You bring up the technical
facts, the science behind the particular product, pests lists
that are associated or the diseases associated with it, and you
run into these issues that really have no technical basis, or
at least the science is not there. So what we have tried to do
in those cases with other countries--and again, this is what we
are trying to do by getting, for example, China to come to the
OIE and IPPC--before you go to a WTO dispute resolution, both
of these fora, especially OIE, offers kind of a consultation
where they act as an arbitrator to listen to both sides, to
listen to the science. They bring together experts.
We used this, I think, with a certain amount of
effectiveness with Japan on avian influenza, where now their
actions are not taken at the entire country level, they are
taken at the state level and then released as a low pathogenic
avian influenza. So, we are hoping to use a similar strategy
with our Chinese counterparts as well.
Mr. Dickerson. Could I just maybe add a little more detail
to the whole issue of the TRQ, because it could be, and very
likely is, interwoven with the SPS issues. But it is important
to U.S. wheat and our export effort.
The agreement calls for 10 percent of the TRQ to be
authorized and made available to the private sector. That is
what we are talking about. As I recall the agreement, at the
end of September--it is either September 1 or the end of
September--that portion which has not been used by COFCO or the
government is to be made available to the private sector.
So what we really were talking about in addressing your
question is, ``What happened early on in the year? '' These 10
percent of the TRQs for the private sector were supposed to be
announced in January, early on in the year. Of course, then
they were delayed, and delayed, and delayed. So, the
announcements were delayed. When they were made, there was no
transparency. They were not made public, so you could neither
find out if company A, B, or C got a quota, nor could you find
out how much. But they were in very small quantities which made
shipping difficult.
As we look forward over the balance of this year, we are
all excited now about how much wheat they have purchased from
the United States, but I want to emphasize that those purchases
have all been made by COFCO. They have all been made by the
government. That is fine. We are all happy with that. But as I
pointed out in my testimony earlier, we still are concerned
about how these TRQs will play out, how the licenses may be
referred to by the sanitary and the inspection folks who
receive this grain in China. So, we are happy, but we still are
very reticent to say everything is all taken care of and behind
us.
Mr. Carlson. And I might say that in the meat industry,
well, these gentlemen are much more acquainted with rules,
regulations, and transparency than I am, but I might mention
that we used to have to deal with the gray market as an issue.
China has transitioned into a market with much greater
definition of protocol for entry and access even before the
shipment leaves the point of origin. It has been a welcome
transition to get away from the gray market, since it often was
a market that was soft and was difficult to service and
maintain.
Mr. Foarde. Let me now recognize our colleague Carl
Minzner, who is a senior legal counsel for the Commission
staff, and looks into rule of law issues for us.
Carl, questions?
Mr. Minzner. Thank you very much. Again, I appreciate the
presence of three such distinguished gentlemen as yourselves.
I appreciated all three of you when you were talking about
the relationship with China. You noted that it is a very
complex relationship. And all of you had spoken both of the
work in progress as well as advances, but you are still
reticent as to certain issues.
As you know, for the U.S. Government, when policymakers
have to contemplate actions to take to address outstanding
issues, there are a range of different actions, including the
extreme or the high-level end. This is, of course, starting the
WTO dispute resolution process. Could you, first, talk
generally about principles that you think should guide the U.S.
policy when it comes to deciding whether or not to employ WTO
dispute resolution processes, particularly with regard to
agricultural issues?
Then particularly with regard to some of the issues you
talked about here, are there any that you think rise to the
level that the relevant people should start thinking about
using, or start using those processes?
Mr. Fernandez. Maybe I can just start. We have worked very
closely with USTR on a number of different trade agreements and
things of this type. What we have always tried to do, and this
is with our other counterparts as well in Asia, tried to find
solutions from the technical perspective. The attempt has
always been to try to make sure that the counterparts that are
meeting are technical counterparts. Then, as we start to see
that the technical issues are not really the issues--in other
words, we are not getting very far--we begin to change the
composition of our delegation. It starts to become maybe more
people from the Foreign Agricultural Service.
What we try to do, though, is exhaust the possibility so
that there is not some technical solution that we are
overlooking. The worst thing that could happen is that we start
to move it up, and then we find out that we had not asked
something or had not investigated some other option. So we try
to do everything we can to exhaust the technical solutions. But
there does come a point where it is pretty clear that the issue
is not technical. There is some political pressure, there is an
industry group, there is something that is keeping it from
moving forward. At that point, what we try to do is make sure
that the package that we provide to FAS, to USTR, is the most
complete technical package possible. If they need someone to go
with a package to represent it, fine.
I will say one thing. I will tell you the issues that we
should be very careful about bringing to USTR. I think they are
very dangerous. An example would be things associated with BSE
or food consumption-type issues.
It is fraught with danger to try to force a country to
accept meat or meat products because you won a WTO dispute.
What you may end up doing is that the public in that country
will feel, well, you may have won technically, but I will not
purchase that product under any circumstances. It becomes
adversarial at that point. This is the very issue we have with
Japan now with BSE. Many people have said, ``Well, why do we
not just take Japan to the WTO? '' I mean, there is no
foundation for testing animals over 30 months. The OIE is
there. They have been very clear. That would not be someplace
we would really want to go because it might create more of a
problem. They have a confidence issue with their national
government. By winning this, our case is not helped.
So, I think those would be the kinds of issues that I think
you need to find other ways of influencing how we move forward.
But, again, I know I am sounding a little like a broken record,
but I think if we can get China to continue to engage in
international setting bodies where they feel commitment and
they feel engaged, it puts pressure on them to actually fulfill
their obligations as members of those organizations.
Mr. Foarde. Let me recognize now Selene Ko, who is our
senior counsel for commercial rule of law development.
Selene.
Ms. Ko. I guess I would start by allowing any of the other
panelists respond to Carl's question. I am very interested in
his question as well.
Mr. Dickerson. Maybe as a follow-up. Of course, the WTO
status with China is relatively recent. I think, subsequent to
the completion of the U.S.-China Agricultural Trade Agreement,
over the last several years, up until very recently, there were
periods where we were very concerned. We, as the wheat
industry, were very
concerned about their living up to their agreements. Clearly,
as I mentioned in my testimony, we felt that the agreement on
their tolerance for TCK smut spores per a 50-gram sample was
not being abided by.
There were cases when some soft white wheat went into
China, and it was being detained in ports with unnecessary
delays, treatments, question-mark treatments going on that made
those in the private sector who would otherwise import that
wheat very reluctant to do so because they knew their money
would be tied up, or perhaps they would never even receive the
wheat. We were becoming very frustrated with this process.
That is, essentially, as of today, in the past. It is past
tense. It got to the point where I am sure some in our industry
were prepared to elevate this thing to a WTO issue. Today, in
my judgment, at least, we are going through a phase of great
optimism. They have disclaimed publicly at the highest levels
any further concern about TCK. Are they going to live up to
those statements? They now have made very large purchases of
soft white wheat, as well as hard red spring wheat, to be
shipped off the West Coast.
Our position today would be, let us play through this thing
and see how things go. We are not totally convinced that our
problems are behind us, and we want to see that grain arrive in
China and be distributed. We want to see how it is off-loaded,
how it goes into the distribution system, then make further
judgment. But right now we are in a mode of, ``Let us see how
this plays out and let's give them the benefit of the doubt
until we find out where we are.''
Mr. Carlson. May I address your question on BSE? It gives
us an opportunity to focus again on science and to urge them to
implement a risk assessment just as quickly as they can. Our
message should be: ``Be sure that it is sound, science-based
and not `political' science.''
It gives us a great opportunity to thank APHIS, thank USDA,
and thank FDA for implementing new firewalls and safeguards. We
can absolutely say that our food supply is safe and wholesome,
and that any risk assessment will verify.
I was rather alarmed when I read, in preparation for this
hearing, that we have not had any government officials--high
government officials--visiting China, urging them to open their
borders and to relax their ban on beef. So, it would be a good
opportunity for us to suggest that high-level USDA officials
should visit China in an effort to open that market.
China is a huge, giant, and growing market and therefore
would be very appropriate that China show its leadership by
opening their market.
Mr. Fernandez. Could I make one final point on WTO dispute
resolution, and also just make a comment with regard to high
officials going to China?
One of the things you need to remember is that WTO dispute
resolution always seems like a silver bullet, but you have got
to be ready to go for the long slog. The industry has got to be
prepared, and you have to have a pretty good case, air-tight,
bullet-proof. So, it is not as easy as that, sometimes.
Finally, there has been, I know, some discussion about
officials going to China. Our administrator, Mr. Bobby Accord,
was in China in January after the BSE case. He did bring up
this issue on various occasions with our counterparts, tried
various ways to try to get them to separate from the other
Asian countries in their perspective as far as the reaction to
our BSE case.
So, we continue to dialog with our counterparts. If they
indicate to us that one of our officials could possibly make a
difference, then a senior official gets on a plane. I mean,
there is no doubt about them going over there. So, just so you
know, Bobby Accord retired this very week, but had gone over
there in January.
Ms. Ko. Could I ask just a quick follow-up? Are there any
issues that you think that are actually ripe for pursuit
through WTO dispute resolution? I know you just emphasized how
important it is to have a very tight argument and being ready
for the long haul.
Mr. Fernandez. One of the staff folks has handed me a note
regarding fireblight. This is one that has been a longstanding
issue, not just with China, but with various countries. We have
been able to actually resolve it with various countries. It is
one of the many blight diseases that we have. So, this could be
one of the diseases that we might engage or consider for WTO
dispute resolution.
Again, before you go to WTO, there are some fora that start
to lead up to formal dispute resolution. So, it is a question
sometimes of starting to elevate the issues to these fora
first. Even the fact that you begin to put together the kinds
of information that USTR--Mr. Dick White, who is here also,
helps to put those together--just the fact that you are putting
it together starts to attract the kind of foreign government
attention that is needed. But for us, I think that might be one
issue that APHIS would consider for WTO dispute resolution.
Mr. Foarde. Your comments, Peter Fernandez, dovetail into
the question that I wanted to ask. You mentioned the symposia
that you have been having on a bilateral basis. I wondered if
you could go into those in a little bit more detail and tell us
if you think that either they are, or they might become, a more
effective vehicle than some of the multilateral fora for
resolving SPS issues.
Then, without necessarily trying to predict the outcome,
because I know that is tough, tell us if the forum is going to
meet in April, and who might be coming, and what issues might
be on the agenda. I think that would be very useful for us.
Mr. Fernandez. Right. As we said, I think these symposia
are extremely important because they do a couple of things.
One, they create a scientific network. The folks that have the
technical background in our country begin to develop that
network with other countries that you are trying to work with.
I think that one of the more important things about regulations
and regulatory science, if you would like to call it that, is
there needs to be a sense that there is trust. That is the
basis, many times, for how these things have to work in a
practical sense. So, these symposia start to create that
camaraderie, that feeling of a network.
Obviously, it is a forum to exchange views, technical
perspectives, new mitigations that we have developed,
processes, regionalization, risk assessment techniques, all of
these things. These are forums in which you can start to begin
to create that dialog, and hopefully they then take it to the
next step, which is to start to incorporate those things into
the regulatory process. So, we felt that that was an important
way to do that.
With regard to the meetings in April, we understand there
are some meetings in April of the Joint Commission on Commerce
and Trade [JCCT]. That is the meeting you are talking about.
Our
understanding is that Secretary Veneman will be leading the
U.S. agricultural delegation. At this time, we have been
working to see exactly what the composition of the delegation
is going to be, and what some of the issues are that we will
bring up. I have mentioned some of those issues today. For the
United States, the issues are the QIPs, the Quarantine Import
Permitting issues; the request that China lift the BSE-related
ban on non-bovine products and low-risk bovine products; a
request that China regionalize Texas avian influenza, which we
feel would also be in keeping with the OIE regulations.
They are asking us about various issues, too. I think we
need to be very clear that there are important issues for them,
too. For example, removal of U.S. import suspension on Chinese
origin Ya pears, which comes up every time we sit down with our
counterparts; finalization of the work plan authorizing
importation of five varieties of Chinese origin tenchin, a
growing media. Again, these are ongoing technical meetings that
are in process. The regulatory process is moving these along.
The Chinese have also asked for market access for chilled
poultry to the United States, and apples and citrus to the
United States. Many times it is very difficult, because we find
with our counterparts, they say, ``All right, let us both abide
by the OIE,'' and the OIE says, ``This is what you need to do
for these products.'' But you need to go back and say, ``Yes,
but our risks for these are different. We have to start by
saying, what are the pests that you have, what are the pests
that we have for these products? '' Many times they feel, well,
if you ask for this, then I have to ask for that, not starting
from the point of, we have to first assess our country's risk
status. Sometimes it is infrastructural, sometimes it is simply
bioecologic. So, that is where we need to start, I think.
One of the other things is that we have a follow-up
symposium coming up this fall. We have a follow-up to the other
symposia we had, and hopefully we will begin to develop that
trust and that network so we can move some of these issues
forward.
Mr. Foarde. Our understanding of the JCCT is that Madam Wu
Yi will lead the Chinese delegation overall. Having somebody of
that stature and clout is a way to move some of the political
issues along. So, God willing, you will make progress in your
own talks.
Let me recognize Dave Dorman for another question.
David.
Mr. Dorman. I have a process question that would be very
helpful to me, and I hope for others. I will choose the BSE ban
as the starting point.
First, a question, just to make sure that I understand
things
correctly. As it stands right now, the U.S. beef supply,
including ingredients derived from cattle tissues, are in
accordance with internationally recognized standards regarding
sanitary measures. Is that correct?
Mr. Fernandez. For BSE?
Mr. Dorman. For BSE, or in general.
Mr. Fernandez. Yes.
Mr. Dorman. All right.
Mr. Fernandez. We process beef in a hygienic manner.
Mr. Dorman. Good. What I am trying to understand is, with
that piece of information, which I am assuming is
scientifically-based, when a country like China, or any
country, institutes a ban, do they do it on the basis of their
own domestic health standards? Does this mean they ignore
internationally-recognized standards? So, that is the first
part of the question.
The second part refers back to Mr. Carlson's comments on
Japan relating to China's position on its BSE ban. Has USDA
also heard the same sort of response or are there Chinese
standards that we simply have not met?
Mr. Fernandez. Yes. First, with regard to the first part of
your question, it is not just the hygienic manner in which we
process the meat. What has changed was the detection of an
imported case of BSE in the United States. That is what
triggered the closure of meat imports by many countries,
especially in Asia, because of BSE.
So, under those circumstances, what China and many
countries are basically saying is that the risk for BSE in the
United States has changed. We are no longer a country that is
free of BSE, but would fall into some other category. The OIE
is very clear about what the conditions are that you need to
meet for being in various categories. It is up to the country
to designate what category they think you would be in. It has
been difficult to get countries to actually do that. Part of
the problem is, as has been mentioned by Mr. Carlson, the issue
of surveillance. Many things that we have in place have been
very effective. We have tried to impress upon our counterparts
that, in fact, as the Harvard risk assessment has shown, we are
44 times more likely to find an indigenous case of BSE in the
United States than an imported case. So our risk, we feel, is
extremely low.
How are we going to settle this issue of BSE? Through this
aggressive surveillance program that we have proposed this
month. We feel that this will be the way for us to find a way
out of this issue and put to rest concerns about the true risk
that exports from the United States would pose to any country.
Having said that, I am not implying that we need to wait for
that surveillance to take place. There are mitigations that are
internationally recognized that can be put in place and that
the United States, in fact, is trying to incorporate into its
regulations to allow safe trade in meat and meat products to
continue. So, I think that is kind of where we are with the
Chinese.
What they are saying to us is not that we are not doing it
hygienically. They are just simply saying that our status has
changed. Now what we need to do is tell them, ``Let us go to
the next step. Here is the information that you need to assess
us. Based on that, you need then to allow us to start to
mitigate risks for the risks you say we might have.'' That has
been the difficulty.
Mr. Dorman. Is the surveillance system being put into place
based on an international standard or model, or are we
exceeding these standards?
Mr. Fernandez. We, in fact, are exceeding the OIE standard
by quite a bit. What we have tried to do in the past, we had
exceeded in the past by about 40 times the surveillance level.
Now, this was at the level of about 20,000 animals a year,
high-risk animals in the high-risk group.
But I think what happens with many of these issues is that
consumers and trading partners begin to feel that the numbers
are not there. So, what we have done is that we have said,
``All right, we are going to ratchet this up as a result of the
risks that we have had with Canada in May, and now in December
with our case.'' What we want to do is find a level that is
based on valid biostatistics. So, in this case we are going to
be able to find one case in 10 million animals at a 99 percent
confidence level. We do not think that there are any countries
that have actually been this aggressive.
In fact, the international review team, which is made up of
many members from the EU, saw our plan. They approved it and
thought it was very aggressive. They said, ``This will
definitely find it. If you have got cases of BSE in the United
States, you will find them with this plan.'' That is what we
need to give that kind of assurance.
Then we would go the extra step with China, if we could get
them to at least accept some of our products, and say, ``Now we
fall into an even freer category. So whatever we have told you
you can mitigate is not even necessary because our status is
even better than what we told you it was or negotiated
before.''
Mr. Dorman. Mr. Carlson, did you want to respond?
Mr. Carlson. I think Peter has done a really good job of
explaining it.
Mr. Dorman. Good. Thank you.
Mr. Foarde. Dale Nellor, another question?
Mr. Nellor. Asian soybean rust has become a big issue in
Brazil and it is starting to pick up a lot of ground and print
in the United States. With China's recent announcement to have
certificates for products in the biotechnology area, how do you
see that playing in the future?
Mr. Fernandez. Soybean rust is an important issue, of
course, to the United States. We take this issue very
seriously. It is also, as it turns out, one of the select
agents on our agents of concern that we have worked on with the
Department of Homeland Security and CDC.
We also are aware that--as you all may know--that this is a
disease that has been on the move for some time in South
America. We have tried to do various things in the area of
research for types of soybeans that would be resistant. We are
looking at modeling for how it would come into the United
States. We know that it will probably come in to the United
States at some point. I make that point because what we need to
be careful of here is that we do not impose regulatory
restrictions on soybeans that may come back to cause problems
for us later on.
Everybody probably remembers the karnal bunt situation. We
had put some very strict ideas out there about how to treat
countries that have karnal bunt. When we received it, we found
ourselves in the very difficult situation of trying to figure
out how to get out from under that self-imposed regime.
I guess what I am saying is that the important thing with
soybeans and what we are looking at, the other area that is
very important, is how do we mitigate the risks? Soybean meal
is not an issue, but soybean seed and soybeans. Those we feel
are the two riskiest materials that could possibly bring this
in through imports. Imports of soybean meal we still feel, are
a very low risk. Of the different pathways that we could get
soybean rust into the United States, imports of soybean meal
are probably very low risk.
Nonetheless, we sent a team just recently to Brazil to work
with our counterparts. This is one of those tricky situations
where your counterparts think you are simply coming over to
figure out how you are going to stop their imports. But we have
gotten in EMBRAPA, which is the Agricultural Research Service's
Brazilian counterpart, to meet with us. We are trying to work
with them. We are trying to find ways. We are basically saying
to them, ``You trade in soybeans, we trade in soybeans. Let us
find a solution to this so we do not have problems in the
future, either of us.''
How do we do that? We have been working with them on ways
that we can mitigate spores associated with this disease,
whether it be with soybeans, soybean seed, or any of these
products. The preliminary results coming back indicate that
there are some methods, some mitigations, 2-week holds, things
of this nature, that will mitigate any risks associated with
it. What we have at hand now is that we allow 2 percent or less
green leafy material associated with soybeans, and that has
mitigated much of their risks associated with this. But we are
continuing to work on this issue. It is an important issue.
China is another country, of course, as you bring it up
here. They are another big importer and they are also in the
market for soybeans. So, we are trying to make sure that
whatever we do is something that is acceptable internationally
also.
Mr. Foarde. Do you have a follow-up?
Mr. Nellor. Yes.
Mr. Foarde. Please.
Mr. Nellor. Thank you for bringing up that point about the
decisions that we make, how they can affect us in the future.
As relates to the BSE situation, I think there are a lot of
countries worldwide that are in the position they are in today
because of
decisions they have made as a result of what happened in
Europe. They may have gone to all extents to keep BSE out of
their country, and meat from BSE countries out of their
country, and now they are set up with a situation that they
probably never expected to happen with the U.S. So, that is a
very important point and we need to keep that in mind.
Mr. Fernandez. Yes. BSE is the perfect example of that. I
think we need to also remember, we are sitting here now in
2004, but in 1989, or the early 1990s, we did not know what BSE
was. I know that many of us wanted to change the regulations
quickly, because we started to get the kind of science you need
to make those modifications. But we put those in place because
we did not know a lot of the science, so unfortunately our
system is rather cumbersome at times.
Our regulatory system is cumbersome. We were kind of
strapped with this issue. But I think, as you say, we need to
make sure that we can live with the kinds of things we expect
from our counterparts because we may very well find those
things applied to us in similar situations.
Mr. Nellor. Thank you.
Mr. Foarde. Do either of the other panelists want to
comment?
[No response].
Susan Roosevelt Weld, for another question.
Ms. Weld. Thanks, John. Apart from transparency, one of the
things we look on in the development of the rule of law in
China is implementation. You all probably deal with people at
the center. I wonder if you find that some of the agreements
made by people at the center are not implemented by lower level
personnel. For example, the anecdote about the ships coming
into the port and being held might be a local decision rather
than a central decision.
Is this a problem that you have come across? Is that
something that you have seen?
Mr. Dickerson. Yes. In the case of wheat, that has very
much been a problem over the last couple of years, where in the
Agricultural Trade Agreement provided for, as I told you, the
tolerance for TCK in soft white wheat, or any U.S. wheat, for
that matter.
So, at a higher level here was the expectation of an
implementation of an agreement, which we expected to be lived
up to. But, in fact, once those cargoes arrived at port, at
their ports in China, it was as though some of the quarantine
people, the inspection people had not heard about that
agreement. Why that occurred or why it did not occur in terms
of the coordination, the proper orders coming in from Beijing
to implement this agreement, is open to conjecture. But
certainly it has been a problem with wheat, yes.
Mr. Fernandez. I would just say exactly the same thing. I
think we have found that to be true, that somehow those
decisions do not filter down to the people who actually have to
implement them, especially in ports.
That is one of the reasons why we want to put this USDA
person in Shanghai. One of their jobs will be not only to try
to help gather information and try to build infrastructure for
surveillance, but also to try to resolve some of those issues
right on the ground, develop the network with the folks that
actually are in those different ports where most of our
products come in, to try to quickly resolve them right there on
the spot.
Ms. Ko. I just want to ask a question about the
international standards that you addressed, Dr. Fernandez. What
kind of efforts are China's trading partners and the
international organizations that are producing these standards
making to help China understand what their responsibilities
are? Are there any efforts to help China build its capacity
with respect to those rules and are they seen as successful?
Mr. Fernandez. Yes, on various fronts. First, in the area
of just trying to become full members. As I said, the director
general of the World Organization for Animal Health, OIE, Dr.
Vola, has made various visits. But this last one, he feels,
hopefully will be the most fruitful visit to try to get them to
actually participate. The OIE is broken up into regions. So, we
have an Americas region. I am the president for the Americas
region. The president for the Asian region is Dr. Gardner
Murray. Dr. Murray accompanied Dr. Vola to China with the
express purpose of trying to not only encourage them to join
the OIE, but to express to them how we would help them
understand the rules, how to vote, what the issues are, all of
the issues that you need to be able to understand to be a full
participant in the OIE general session in May, and, more
importantly, the actual work that goes on behind the scenes to
create the International Terrestrial Animal Health Code during
the whole year.
So, we have also spoken about using our symposia to help in
these efforts also with China. How do we incorporate the
international standard setting issues in the actual symposia?
Because that is the basis. That is what we want countries to
use. If they need to turn to someone, we would prefer them not
to turn to Japan and their restrictions, but to the OIE. What
the OIE says should be the rules for how to engage, or
disengage, in product exchange.
Mr. Carlson. I might comment on a level far below these two
gentlemen about Chinese officials that I have an opportunity to
work with. That is, from time to time, I have the opportunity
to meet with representatives of the Ministries of Agriculture
and Commerce of China. That has to help, to bring the issues to
them. We also invite their representatives to come to the
United States, and that is good. It is essential to developing
that trust and those relationships. Relationship-building is
not a one-time contact, it is a 6, 7, 10, or 12 times set of
contacts, building that level of trust and those levels of
relationship.
So those are just some of the things that can be done way
down at the level much lower than these gentlemen work on that
we try to work on.
Mr. Foarde. Very good. We have had a fascinating
conversation this morning. Thank you, all three, for sharing
your expertise with the Commission. This is really going to
help us to look at these issues clearly.
On behalf of Senator Chuck Hagel and Congressman Jim Leach,
our co-chairmen, and the members of the CECC, thanks to Peter
Fernandez, Paul Dickerson, and Merlyn Carlson.
I would remind everyone that we will be back here next week
for a look at commercial rule of law development in China at
10:30 a.m.
We will now bring this session to a close. Thank you all.
[Whereupon, at 11:30 a.m. the roundtable was concluded.]
A P P E N D I X
=======================================================================
Prepared Statements
----------
Prepared Statement of Peter Fernandez
march 26, 2004
Thank you very much for asking me to take part in this roundtable
discussion this morning. My name is Dr. Peter Fernandez, and I am the
Associate Administrator of the U.S. Department of Agriculture's Animal
and Plant Health Inspection Service, or APHIS.
Within USDA, APHIS is charged with protecting the health of U.S.
agriculture. In doing so, our Agency works to prevent foreign
agricultural pests and diseases from entering the country through
regulatory controls, the development of sound animal and plant health
policies, and anti-smuggling programs aimed at keeping risky
agricultural products out of the United States. The Agency also
conducts domestic surveillance and monitoring programs for serious
pests and diseases and works with State and industry cooperators to
eradicate economically significant ones. These activities allow us to
ensure that U.S. agricultural products are healthy, abundant, and
welcomed in international markets.
As the primary Federal agency that addresses animal and plant
health issues, APHIS also plays an important role in international
trade. Officials with our Agency convey information to U.S. trading
partners regarding the pest and disease status of U.S. livestock, meat
products, plants, and plant products. In turn, we also evaluate the
same information submitted to our Agency by other countries when they
want to export a new agricultural product to the United States. APHIS
evaluates such requests by analyzing the information submitted to us;
working to collect and evaluate related scientific data; preparing risk
assessments that evaluate any potential pest or disease risks to U.S.
agriculture; and then, if appropriate, conducting public rulemaking to
change our import regulations to allow the animal or commodity to enter
the United States in such a way that any pest or disease risks are
mitigated.
In a nutshell, this is how APHIS conducts our business when it
comes to international trade, and, generally speaking, it is also how
our trading partners operate. I am able to say this because APHIS, as
well as our counterparts in many other countries, all work under terms
outlined in a very important international trade agreement--the World
Trade Organization's Agreement on Sanitary and Phytosanitary Issues. In
the international trade arena, sanitary and phytosanitary issues,
commonly referred to as SPS issues, are the technical terms for animal
and plant health issues.
The SPS agreement is critical to APHIS's work because it allows us
and our trading partners to speak a common language when discussing
trade issues. The SPS agreement encourages cooperative, instead of
competitive, work. It has been our experience that the agreement is a
highly useful and effective tool for opening new markets and making
other important agricultural decisions. The agreement allows
governments to take necessary protective measures with regard to
imports of agricultural products based upon sound science. However, it
also provides the rules and structure to prevent the arbitrary use of
such measures to impede trade.
As I said a moment ago, APHIS officials have the needed technical
expertise and regulatory authority to address SPS issues. For instance,
APHIS personnel with our Veterinary Services, Plant Protection and
Quarantine, and International Services programs assist U.S.
agricultural exporters by negotiating the plant and animal health
requirements for U.S. products destined for foreign markets. They also
review the scientific merits of other countries' agricultural health
requirements and issue the necessary health certificates to accompany
U.S. shipments. APHIS also meets constantly with our counterparts on a
bilateral basis to help negotiate resolutions to technical disputes,
and we are also active participants in international
agricultural health standard-setting bodies like the International
Plant Protection Convention and the International Office of Epizooties.
APHIS's trade support activity has increased tremendously in recent
years as a result of trade liberalization and international trade
agreements. Quite simply, agricultural health issues are important to
every nation's ability to seek and maintain international trade
markets. Through trade agreements, the United States strives to open
markets for U.S. producers. However, as trade agreements open the
potential for trade, agricultural health issues emerge as critical
hurdles that need to be cleared if active and reliable trade is to
occur. This is precisely APHIS's job--to supply the technical
agricultural health information that our colleagues with the U.S. Trade
Representative's Office, USDA's Foreign Agricultural Service, and other
Federal agencies need.
APHIS officials work on critical SPS issues during trade
negotiations with other countries and also during interruptions to
trade caused by domestic situations in the United States. As you all
know, international agricultural markets are highly sensitive to pest
and disease outbreaks, and such situations can significantly affect
access to those markets. Take, for example, the impact that the
detection of BSE in Washington State in December has had on U.S. beef
exports, not to mention the impact of the recent detections of avian
influenza have had on the U.S. poultry export market. Considerable USDA
efforts and resources have been committed to addressing these diseases
domestically, as well as to conducting export negotiations to retain
market access for U.S. poultry and poultry products.
With that background, I'll turn now to more specific SPS issues
APHIS is working to address with China.
China's accession to the WTO in November 2001 was accompanied by a
great deal of excitement: new export opportunities were expected to
emerge, with significant gains particularly in the area of fresh
produce. Almost 3 years later now, some of these new market
opportunities have been realized by U.S. producers, but others, due to
SPS concerns expressed by Chinese officials, have stalled.
To meet these SPS challenges, APHIS has actively engaged our
Chinese counterparts at the technical level. In 2003, our interaction
with the Chinese increased significantly as we relocated our regional
office for Asia from Tokyo to Beijing. APHIS now has two Foreign
Service officials working in Beijing and is slated to post a third
Foreign Service officer at a new office in Shanghai. The new Shanghai
office will be specifically responsible for monitoring the status of
plant and animal pests and diseases in Chinese ports and production
areas that ship agricultural products to the United States.
Also, last year, USDA Under Secretary for Marketing and Regulatory
Programs Bill Hawks and APHIS's Administrator hosted the first U.S.-
China Plant and Animal Health Regulatory Symposium in Beijing. This
Symposium was designed to begin consistent, effective dialog between
regulatory officials from the United States and China. Agenda topics
included a range of different issues related to agricultural health and
trade, and the meeting was very successful.
In addition to our annual SPS bilateral meetings with China, APHIS
is also working to schedule routine monthly meetings with appropriate
technical counterparts from China to help resolve outstanding SPS
issues in a timely manner. We believe strongly that regularly scheduled
monthly bilateral technical meetings will be an
effective way to sustain our dialog with China and help bring about
mutually agreeable resolutions to outstanding SPS technical issues.
In the last several years, working in this way, we've achieved some
notable accomplishments. U.S. citrus (with continuing dialog on China's
prohibition on imports from 4 counties in Florida) and tablestock
potatoes from Alaska are now shipped to China. In terms of imports,
APHIS has approved the entry of longans and lychees from certain areas
in China.
Under Secretary Hawks likes to say that agricultural trade is a
two-way street. In similar fashion, APHIS's experience in working with
China on SPS issues has been that our accomplishments have been equaled
by a number of significant challenges. As I mentioned a few moments
ago, we are working very hard to convince China to ease their
restrictions on U.S. beef and poultry, and we also continue to supply
China with information attesting that U.S. stonefruit and potatoes from
the Pacific Northwest do not present any pest risk to domestic Chinese
agriculture. For their part, Chinese officials have requested that
APHIS consider allowing imports of Chinese apples, and China also
expressed a great deal of concern after APHIS suspended that Ya pear
export program last fall due to detections of an exotic Alternaria on
imported fruit being sold at commercial markets.
APHIS will continue to address these SPS issues with China in the
way I described a few moments ago--by continuing our dialog and
actively engaging our counterparts on technical issues. APHIS will
participate in a U.S.-China Plant and Animal Health Technical Planning
Session next month, followed by technical talks in China on
phytosanitary issues associated with exports of U.S. soybeans.
Tentative arrangements have also been made to convene the first U.S.-
China Animal Health Bilateral Technical meeting in May in Ft. Collins,
Colorado.
We all know that in terms of SPS issues, China is a ``work in
progress.'' As in any trade relationship, there has been progress with
China on SPS issues, and there have also been a number of setbacks. But
with these thoughts in mind, APHIS is staying engaged with our Chinese
counterparts and we continue to encourage China to participate fully in
international agricultural health forums by becoming full members of
the International Plant Protection Convention and the International
Office of Epizooties. We feel very strongly that these steps will help
to improve our relationship with China on SPS issues.
With that, I will turn things over to the other participants. I
look forward to
answering any questions you may have. Thank you.
______
Prepared Statement of Merlyn Carlson
march 26, 2004
Thank you for inviting me to address you today. It's a privilege to
speak to you on such an important topic.
I have been asked to share with you information about the effects
of the Chinese ban on U.S. beef imports following the finding of a
single case of BSE in the United States. Like over 50 other countries,
in late December China chose to shut its borders to live bovine and any
related products from the United States.
Our U.S. negotiators have been working to re-establish trade, and
we applaud their efforts. But they have not met with success, and we
are told that Chinese officials continue to indicate they will take
their cues from Japan.
I do not believe this to be in the best interests of China. Japan
has made animal testing demands that are not based in science or
practical experience, and negotiations are ongoing. While Chinese trade
negotiators look to Japan for cues, consumers in China have indicated
they still want United States beef. The Nebraska Department of
Agriculture's Ag Promotion and Development Administrator Stan Garbacz
returned last Friday from a trip to Beijing. While there, he had
numerous opportunities to visit with beef importers, restaurant owners
and citizens, in addition to his governmental appointments.
Mr. Garbacz summed up his trip by saying it was ``depressing and
frustrating.'' On the positive side, he said he was unable, during his
numerous appointments, to find anyone that is concerned about potential
health issues connected to United States beef consumption. Instead,
what he found, were individuals who believe in the safety of our food
supply and were clamoring for more of our product. The depression and
frustration stem from the knowledge that our customers are ready and
willing to accept product, but the Chinese government won't allow it.
Some of these Chinese companies get over half of their meat
products as imports, and they generally recognize that the United
States has a better quality product than other beef producing nations.
These companies have been allowed to use U.S. beef product that was in
their freezers prior to December 23rd, but as those supplies have
dwindled, these companies are gradually going out of business. So, not
only are we unable to service existing customers, but we are losing
these potential outlets permanently when they close their doors.
I personally also had the opportunity to travel to China earlier
this year. I took it upon myself to visit with consumers there about
U.S. beef, and I must tell you, I was pleased with the responses I
received. In the wake of the Washington State BSE case, consumers told
me they were hoping U.S. beef products could be made available again as
soon as possible. Like the company representatives Mr. Garbacz spoke
to, these consumers expressed a belief in our food safety system and
desired U.S. meat over that of other countries.
What our experiences tell me is that China must consider the needs
of its own citizens. The United States should continue to encourage
Chinese government officials to use science in its decisionmaking
process. It is China's obligation as a member of the World Trade
Organization, and it is what its citizens want. As a point of
digression, I want to note that the Chinese government recently
highlighted its openness to using scientific principles in considering
major policy decisions. Last month, China announced approval of
permanent safety certificates for a number of biotechnology crops. This
is encouraging, and it would be my hope that a similar route will be
followed in addressing the BSE situation.
If Chinese officials look to science for answers regarding BSE, I
believe they will find that Nebraska, and the United States, can
provide them with the quality and safe beef products they desire. Even
before December 23, the United States had in place a number of
protective measures to lessen the opportunity for occurrence of BSE in
our cattle population. We've had a surveillance program in place since
1990, we've banned imports of cattle and bovine products from countries
with BSE since 1989 and, most importantly, we've had a ban against
feeding ruminant-derived meat and bone meal to cattle since 1997.
Feeding of such products is generally agreed to be the principal means
of transmission of BSE.
In addition to these points of action, since December 23rd, USDA
and FDA have implemented a number of actions to further bolster
protection against BSE in our beef production system and in our food
supply. For example, non-ambulatory or disabled cattle and specified
risk material are now banned from the human food supply. Mechanically
separated meat also is now prohibited from use in the human food
supply.
Animal feed production rules have been changed also. For example,
to prevent cross-contamination issues, facilities must have production
lines that are dedicated to non-ruminant animal feeds if they use
protein that is prohibited in ruminant feeds.
Just last week, USDA Secretary Ann Veneman announced an enhanced
surveillance program as a means of making a thorough assessment of the
status of the United States herd. This action was taken at the
suggestion of an international scientific review panel, which reviewed
USDA's response to the BSE case. Animals of high risk will be focused
on, with USDA's goal to obtain samples from as many of these types of
animals as possible. They will also obtain samples from animals that
appear normal, but are older, since science has shown these have a
greater likelihood of having BSE than cattle under age 30 months.
While the enhanced USDA and FDA activities should serve as more
than enough scientific justification for opening the borders to trade,
states like Nebraska are moving ahead with their own efforts at further
disease protection enhancements. Even before the December 23rd
announcement, the Nebraska Department of Agriculture had stepped up its
contact with feed manufacturers and animal rendering facilities in the
State to raise awareness about BSE issues at their level of the
livestock production chain.
The Nebraska Department of Agriculture also has moved ahead
aggressively with the development of a statewide animal tracking system
that we intend to be compatible with whatever plan is eventually
implemented nationwide. Our model at present focuses on the beef
industry, although other species will be added later. It will ontain
both premise identification and individual animal identification
components.
The primary goal of the system is traceability for protection
against and reaction to diseases issues like BSE. However, we also
intend to utilize this beef tracking system for marketing purposes. The
idea is to work in conjunction with partners in the beef production
cycle to create a closed loop, farm to fork tracing system.
Nebraska has chosen to move forward in the animal traceability
arena because, frankly, we have a great deal to lose if foreign country
borders remain closed to U.S. beef products. Already, the effects are
apparent. For example, Nebraska generally is known for leading the
Nation in commercial cattle processing. A report released just last
week by USDA highlights a 7 percent decline nationally in beef
production during February compared to February 2003. In that same
report, Nebraska slid from first place to second in total cattle
processed. Our packing plants have had to cut jobs--some of them,
hundreds of jobs--as we continue to deal with the impact of lost
overseas markets.
I believe the beef industry in the United States, and Nebraska, has
shown its desire to provide China and other U.S. beef importing
countries the tools necessary to engage in a thorough risk assessment
regarding the beef trade. Given that many countries still have
hesitated to recognize our enhanced animal disease protection measures,
China has an important opportunity to distinguish itself as a leader.
We are hopeful that the country's officials will recognize this and
respond to the needs and desires of its citizens and food industry
representatives.
Thank you for allowing me to share our Nebraska perspective. I
welcome any questions you may have.
______
Prepared Statement of Paul Dickerson
march 26, 2004
Thank you for this opportunity to discuss the U.S. wheat industry
experience with trade to China. First, if I may, I'd like to give some
background on U.S. Wheat Associates (USW) and my experience in grain
trading.
USW does not buy or sell wheat. Our job, since the 1950s, has been
to develop and maintain export markets for American wheat. We are the
marketing arm for the American wheat farmer, and over the years we have
worked in nearly 100 countries. Our expert staff has a depth of
knowledge on wheat issues that is unmatched anywhere else in the world.
We receive a third of our funding from wheat producers, through
checkoffs funneled through our 20 member state wheat commissions, but
the remaining two-thirds of our budget, including all of our overseas
work, depends on USDA's Foreign Market Development program and the
Market Access Program. We simply could not do our work without that
support.
As vice president of overseas operations for U.S. Wheat Associates,
I direct the market development activities of USW's 15 overseas
offices. I joined them in 1992, first serving as regional vice
president of the South Asian region in Singapore, and then moving to
the Washington D.C. office in 1995.
I was General Sales Manager and Associate Administrator of the U.S.
Department of Agriculture's Foreign Agricultural Service between 1989
and 1991. Previous to my work at USDA, I've been a consultant and
marketing agent in the Pacific Northwest, and was president and chief
operating officer of Columbia Grain, Inc. in Portland, Oregon. I've
also worked for Cargill and Cook Industries, Inc., both in the United
States and several overseas locations. In total, I spent the first 26
years of my career in the private sector in various grain trading and
management positions.
I've been very lucky to view wheat trade from all of these
perspectives--from private grain trade, from government, and from a
commodity organization. And it's been fascinating to be involved, from
those angles, in the long and difficult history of U.S. wheat trade
with China.
As you know, the U.S. agricultural community, including the wheat
industry and the trade, was very supportive of China's admission to the
WTO. While the outlook for significant wheat export opportunities
looked promising, however, the results were initially quite
disappointing.
Until very recently, the U.S. wheat industry faced continuing
problems. While China reduced its old carryover stocks, which were more
than needed, it used various devices to curb exports from the United
States of quality wheat that its end users could import without a
series of trade barriers.
There were three chief areas of concern affecting access to China's
market:
1. Tariff Rate Quota implementation for the private sector was
inadequate, in that individual allocations were too small, and there
was no transparency. Companies had to combine TRQs in order to get a
commercially viable volume.
2. Licenses, that were supposed to be issued by the State
Administration of Quality Standards, Inspection and Quarantine (AQSIQ)
for commodity imports, were given for a limited period of time, which
discouraged purchases.
3. Sanitary and phytosanitary barriers relating to TCK--a wheat
smut--continued to be a problem, despite the Agriculture Trade
Agreement that was reached in 1999, ending a trade dispute that began
in 1972.
The story about how this phytosanitary dispute over TCK evolved and
was resolved is a long saga, which I will not go into today. Let me
just point out that, after decades of the best efforts of scientists
from the U.S. Department of Agriculture and the wheat industry, an
international panel conducted an independent pest risk assessment
(PRA), following guidelines established by the UN Food and Agricultural
Organization and, in May 1998, the PRA was presented to Chinese
officials.
The public response to the PRA from the Chinese was, essentially,
silence . . . until WTO talks began.
When negotiations between USTR and the Chinese government began in
earnest in 1999, we were grateful for USTR's support on the U.S. wheat
industry's position: that there could be no WTO agreement without
resolution on the TCK issue.
On April 9, 1999, the USTR announced the agreement that would allow
U.S. wheat imports from any state to enter any Chinese port. The
agreement allowed wheat imports that do not exceed a tolerance level of
30,000 TCK spores per 50 gram sample, a level that is easily met by
U.S. wheat. That agreement was translated into Chinese,and the USTR and
Chinese officials officially ``confirmed'' that version in early
December 1999 while the countries were in Seattle for the World Trade
Organization meeting.
Finally, in early 2000, the China National Cereals, Oils and
Foodstuffs Corporation (COFCO), the official government buyer,
announced their purchase of wheat, including wheat from the Pacific
northwest. It was the first largely unrestricted commercial cargo of
northwest wheat to be shipped to the Peoples Republic of China in 27
years. The bulk carrier ``Miyama'' left the Columbia River on June 2,
carrying 52,678 metric tons of wheat: 30,000 MT of soft white wheat and
10,000 each of hard red winter and hard red spring.
Resolution to the TCK issue was absolutely vital to U.S. exports of
wheat. With the agreement and with permanent Normal Trade Relation
status for China, the United States could increase total wheat exports
up to 10 percent each year.
There is a huge market potential for U.S. wheat in China. Between
1985 and 1995, on average, China imported 10 million tons of wheat each
year (ranging from 4 to over 15 million tons), relying on imports
during this time for just over 10 percent of its wheat needs. But then
their domestic wheat production improved dramatically, and imports
dropped steadily since 1996--until this year.
China has drawn down its wheat stocks in recent years, most
recently with domestic sales of nearly a million tons of old crop. They
now produce about 86 million metric tons annually (for comparison
purposes, the United States produced 64 MMT during the current crop
year), but their consumption is estimated at 105 million metric tons.
These three factors--lower stocks, lower production, and steady
demand--now come together, forcing China to import wheat in much larger
quantities than in the past several years. This ``draw down'' in stocks
has brought China back to the market as their domestic prices have
increased.
China is buying wheat from the United States, purchasing nearly
three million metric tons this year and next year. And COFCO
representatives say there is more to come. But the question, until
recently, was whether they would truly honor the agreement on TCK.
Would they buy from the Pacific Northwest ports? Would they ship? Would
they continue to discourage their buyers from purchasing wheat from the
United States? And would they offload that wheat and put it into
domestic
circulation?
Last month, representatives from COFCO conducted a whirlwind U.S.
buying tour. Before beginning its rounds of meetings in Washington,
Chicago and Portland, however, the COFCO team graciously agreed to meet
with members of the U.S. media in the nation's capital. The chairman
directly addressed concerns about whether TCK was still an issue in
purchasing decisions, stating flatly that ``the TCK problem has already
been resolved. It is not a problem.'' He went on to say that wheat from
the PNW ``gives us more variety, and provides wheat that China doesn't
have.'' Also, he noted, ``we want to cut shipment costs'' and shipping
out of Portland is less expensive for China than shipping from the
Gulf. That freight savings is currently about $20 to $25 per metric
ton. That's over a million dollar difference for a normal 50,000 metric
ton shipment.
U.S. Wheat Associates, the industry's export market development
organization, which has maintained an office in Beijing since 1983, has
worked for years just for this moment in history. Hopefully, the TCK
issue is in the past, but we cannot be certain until volume shipments
discharge at ports in China--until then it is difficult to confirm
resolution of the issues. We still anticipate some problems for the
private sector licensing and TRQ allocations, and we will continue to
work with COFCO and other Chinese agencies, with the private
entrepreneurs in China, and with the dedicated professionals at USTR
and USDA, especially as wheat shipments arrive in China.
In the long-term, liberalization of China's import policies and
internal reforms of the grain industry are expected to generate higher
imports than at present, with estimates of import levels ranging from 5
to 10 million tons. Some estimates go even higher.
The opportunity for the U.S. wheat industry is immense. Under the
U.S.-China agreement, the TRQ for wheat is 9.6 million metric tons. The
tariff is 1 percent, lower than most other Asian countries. If the
United States could get 40 percent of those sales, we would increase
the total U.S. wheat annual exports by 10 percent.
Submission for the Record
----------
Response to Question for the Record for Peter Fernandez From Senator
Gordon Smith
Question. China has yet to respond to a U.S. request for a pest
risk assessment for Pacific Northwest pear exports to China. The United
States submitted a pest list in 1995. We understand that USDA is
unwilling to push this issue with China until the U.S. industry
provides research on fireblight transmission on pears. The industry has
started this research. However, a request for research prior to
receiving a PRA documenting a country's concerns is like putting the
cart before the horse. When will China provide a PRA on Pacific
Northwest pears?
Answer. Under normal circumstances, APHIS would request that a
country prepare a pest risk assessment for a new market access request
from the United States. Then, once the importing country prepares its
pest risk assessment, APHIS and industry officials would work together
to prepare information that refutes the identified risks, or shows how
the risks associated with the commodity can be effectively mitigated by
a systems approach or other steps taken during the growing, packing,
and shipping stages. In the case of pears from the northwestern United
States to China, it is known that pear trees are more susceptible to
fire blight than apple and plum trees. APHIS is also aware of reports
that fire blight bacteria have been found on, and inside, pears.
Therefore, APHIS and the pear industry agree that extensive data needs
to be generated that shows that pears from the northwestern United
States are not a pathway for fire blight bacteria. Even with such data,
however, it will be a challenge for APHIS to convince Chinese officials
that the pears do not pose a pest risk. For this reason, APHIS and the
pear industry have determined that the Agency should not press this
issue with China until the supporting data has been developed and
thoroughly assessed. As the question indicates, APHIS understands that
industry is currently conducting research on this issue, and the Agency
looks forward to the results of these efforts, as well as continued
dialogue with the pear industry. Again, the Agency can request a pest
risk assessment from China, provided that industry concurs that such a
request is supported by sound scientific information.