[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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                            WASHINGTON : 2004
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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

                              ----------                              
                                                                   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

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                          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.

                                 
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