[Senate Hearing 108-133]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-133

     THE FUTURE OF U.S. ECONOMIC RELATIONS IN THE WESTERN HEMISPHERE

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

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON WESTERN HEMISPHERE,
                   PEACE CORPS AND NARCOTICS AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 20, 2003

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate



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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

               SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE
                      CORPS AND NARCOTICS AFFAIRS

                   NORM COLEMAN, Minnesota, Chairman

LINCOLN CHAFEE, Rhode Island         CHRISTOPHER J. DODD, Connecticut
GEORGE ALLEN, Virginia               BARBARA BOXER, California
MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        JOSEPH R. BIDEN, Jr., Delaware
                                     JOHN F. KERRY, Massachusetts

                                  (ii)




                            C O N T E N T S

                              ----------                              
                                                                   Page

Boisen, Doug, board member, Nebraska Corn Development, 
  Utilization and Marketing Board and chairman, National Corn 
  Growers Association Trade Task Force, Minden, NE...............    78
    Prepared statement...........................................    80
Casale, Carl, vice president for North American Agricultural 
  Business, Monsanto Company, St. Louis, MO......................    47
    Prepared statement...........................................    48
Doud, Gregg, chief economist, National Cattlemen's Beef 
  Association, Washington, DC....................................    96
    Prepared statement...........................................    98
Frederickson, David J., president, National Farmers Union, 
  Washington, DC.................................................   104
    Prepared statement...........................................   106
Greene, Robert W., chairman, National Cotton Council of America, 
  Courtland, AL..................................................    54
    Prepared statement...........................................    55
Johnson, Ambassador Allen F., Chief Agriculture Negotiator, 
  Office of United States Trade Representative, Washington, DC...    11
    Prepared statement...........................................    14
    Responses to additional questions for the record from Senator 
      Nelson.....................................................   128
LaVigne, Andrew W., executive vice president and CEO, Florida 
  Citrus Mutual, Lakeland, FL....................................   110
    Prepared statement...........................................   112
    Responses to additional questions for the record from Senator 
      Nelson.....................................................   131
McDonald, Jim, chairman, Wheat Export Trade Education Committee, 
  and U.S. Wheat Association, Grangeville, ID....................    33
    Prepared statement...........................................    35
Penn, Hon. J.B., Under Secretary, Farm and Foreign Agricultural 
  Services, United States Department of Agriculture, Washington, 
  DC.............................................................     5
    Prepared statement...........................................     8
    Responses to additional questions for the record from Senator 
      Nelson.....................................................   128
Quackenbush, Jim, board of directors, National Pork Producers 
  Council, Chokio, MN............................................    87
    Prepared statement...........................................    89
Roney, Jack, director of Economics and Policy Analysis, American 
  Sugar Alliance, Arlington, VA..................................    65
    Prepared statement...........................................    67
Ruth, Bart, chairman, American Soybean Association, Rising City, 
  NE.............................................................    39
    Prepared statement...........................................    42
Suber, Tom, president, U.S. Dairy Export Council, Arlington, VA..   116
    Prepared statement...........................................   118

                                 (iii)

  

 
    THE FUTURE OF U.S. ECONOMIC RELATIONS IN THE WESTERN HEMISPHERE

                              ----------                              


                         TUESDAY, MAY 20, 2003

                           U.S. Senate,    
        Subcommittee on Western Hemisphere,
                 Peace Corps and Narcotics Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:38 p.m., in 
room SD-419, Dirksen Senate Office Building, the Hon. Norm 
Coleman (chairman of the subcommittee), presiding.
    Present: Senators Coleman, Enzi, Dodd, and Bill Nelson.
    Senator Coleman. This hearing of the Senate Foreign 
Relations Subcommittee on Western Hemisphere, Peace Corps and 
Narcotics Affairs on ``The Future of U.S. Economic Relations in 
the Western Hemisphere, Challenges and Opportunities for 
American Agriculture,'' will come together.
    And I would like to extend, by the way, certainly a welcome 
to our guests, our panelists, who I will introduce in a second. 
I would also send a special welcome to the Brazilian 
Ambassador. I understand Ambassador Barbosa is here.
    So, Mr. Ambassador, thank you for being here today.
    I will begin with an opening statement, and I expect my 
friend and esteemed colleague, the ranking member, to also be 
here and would give him an opportunity. And then other Senators 
may be here, and then we will introduce our witnesses.
    I want to begin by welcoming you all here today and given 
the number of witnesses who deserve to be heard and the 
ambitious agenda we are about to undertake this afternoon, I 
will be brief in my opening remarks.
    Let me just say that I am excited about the work we will be 
conducting in this subcommittee and certainly honored to serve 
as its chairman. I am especially pleased that my first hearing 
as chairman is on a topic of such importance to the people of 
my home state, the State of Minnesota. The purpose of this 
hearing is to determine exactly what opportunities exist for 
enhanced trade in agricultural products between the United 
States and countries in the Western Hemisphere and what 
challenges and obstacles hinder development of this expanded 
trade.
    I came to the U.S. Senate knowing firsthand the benefits of 
trade because I represent the great State of Minnesota. For 
those who do not know it, Minnesota ranks in the top ten among 
states in nearly every commodity that can be produced in our 
climate and ranks seventh among states for agricultural 
commodity exports. The bottom line is: We produce more than we 
can consume in this country, and so we need access to foreign 
markets if our farm families are to earn a decent living. In my 
view, and I think the view of others here, there is great risk 
in not moving forward and opening up new markets to U.S. 
farmers and ranchers.
    I believe in the promise of trade, but you cannot just sell 
promises. You need to deal with the realities of trade. And 
over the last decade, outright enthusiasm for trade among farm 
families in Minnesota, and I expect all over the country, has 
been tempered by the failure of our trading partners to live up 
to their end of the bargain.
    United States farmers and ranchers had always been the 
bulwark behind trade liberalization. They have always tipped 
the balance in this country in favor of trade. Last year's vote 
on trade promotion authority underscores this point. 
Accordingly, it seems to me that the ability to successfully 
conclude any future trade agreement hinges on two things: 
First, the United States absolutely must hold our current 
trading partners to their word under existing trade 
arrangements. The United States took the right action with 
regard to the European Union's biotechnology policy, and 
President Bush and his trade team are to be commended for that. 
It was the right thing to do.
    Now, a tough response is also warranted against Mexico's 
actions that amount to unilateral renegotiation of NAFTA. 
Senator Grassley and many of the farm groups have made this 
point, and I made the same point last week when I visited with 
a number of Mexican Senators. America's strong relationship 
with our Mexican friends is far too important for the 
deterioration, I fear, would result if there is this breakdown 
in trust.
    Of course, the U.S. Government alone is not solely 
responsible for ensuring that rules are followed. I understand 
that Monsanto Corporation will make an important announcement 
at our hearing today concerning what it plans to do on the 
issue of Roundup Ready patent enforcement in places like 
Brazil.
    We currently have an unacceptable situation. U.S. farmers 
pay anywhere from $9.30 to $15.50 per acre for Roundup Ready 
soybeans. Brazilian farmers, apparently, also use Roundup Ready 
soybeans but pirate the technology, giving them a competitive 
advantage. Testimony today will suggest that an estimated 20 to 
30 percent of soybeans planted in Brazil are Roundup Ready. The 
irony is Brazil then exports soybean products to the United 
States, some of which are surely biotech, in direct competition 
with my farmers who are paying these tech fees.
    Even more ironic, while the EU has a moratorium on the 
approval of biotech agricultural products and seems to actually 
encourage nations in Africa, ravaged by starvation, to reject 
our offer of food aid, the EU is likely buying Brazilian 
biotech soybeans under the guise that they are non-biotech; 
yet, again, giving Brazil a competitive advantage.
    I look forward to hearing Monsanto's announcement during 
this hearing on how it intends to deal with this problem.
    The second thing we need to do to successfully conclude any 
future trade agreements is to make sure we maintain the 
confidence of American agriculture in these negotiations. U.S. 
farmers and ranchers rightfully expect their country's 
negotiators are working to get the best deal for American 
agriculture, that the deal is going to benefit U.S. farmers and 
ranchers, and that their concerns, which we will hear about 
today, are being addressed.
    As we are moving forward on FTAA, CAFTA, and the WTO, it is 
very important that a negotiating team routinely looks back to 
make sure that American agriculture, and those like me who care 
deeply about agriculture and rural America, are still 
following. Fortunately for U.S. negotiators, all our farmers 
and ranchers are asking for is to compete on a level playing 
field.
    I believe President Bush and his very capable 
representatives appearing before us today understand these 
points, and that makes me confident that trade and all the 
promise it offers America's farmers and ranchers will not be 
lost.
    Before I go on and recognize other Senators, it is my 
understanding that the Department of Agriculture has 
information concerning a BSE case in Alberta, Canada. As those 
of us in this room well know, the United States has the safest 
meat supply in the world. We have a pretty rigorous testing and 
inspection system. We also have in place a system where the 
USDA works closely with states to ensure imported meat and 
animals are safe and free of disease. The news today of this 
case only underscores the need to build on this rigorous 
Federal/State system to ensure that our meat continues to be 
the safest and highest quality in the world.
    Accordingly, after my opening remarks but before we move on 
to the topic of this afternoon's hearing, I would like to ask 
Dr. Penn what USDA knows about this situation, and what course 
of action the Department has taken.
    At this time, Dr. Penn, before we begin the substance of 
this hearing, because of the importance of this issue I would 
kind of digress from the schedule, and ask you to please tell 
us a little bit about this case and what course of action the 
Department is taking.
    Dr. Penn.
    Dr. Penn. Thank you, Mr. Chairman. I would be pleased to 
give you a brief update. The Canadian Government this morning 
informed us that they had indeed found a confirmed case of BSE, 
one animal in a 150-cow herd. The remainder of the animals in 
the herd have been slaughtered and are being tested. This was 
an 8-year-old animal. They know where the animal had been for 3 
years prior to its being slaughtered, and they are in the 
process now of trying to trace and find where the other animals 
came from in the herd.
    We think this is an isolated incident, but Secretary 
Veneman announced, just within the hour, that she has 
temporarily closed the border to movement of live ruminants. We 
will await the test results from the other 150 animals. If all 
of those tests prove negative, then we can probably reopen the 
border fairly quickly. If not, then we will have to evaluate 
the situation.
    But that is pretty much, Mr. Chairman, the state of play of 
things right at the moment.
    Senator Coleman. All right. Dr. Penn, we have--it is one 
animal that we are talking about right now?
    Dr. Penn. One animal.
    Senator Coleman. OK. Thank you, Dr. Penn.
    I would like now to turn to my colleague, Senator Enzi, for 
any opening statement.
    Senator Enzi. Thank you, Mr. Chairman. And I particularly 
thank you for diverging here for a moment to get an update on 
that. It is particularly critical to all of the states and our 
state food supply, but also to the future production of 
livestock in the United States that that not make it into the 
United States, and so I appreciate the diligence and will be 
also looking for some followup on that.
    And I thank you for holding this hearing to look into the 
future of economic relations in the Western Hemisphere. I think 
it is clear that the economies of the region have an impact on 
our economy. It has an impact on our confidence in 
international trade, and it even has an effect on our security. 
When an economic crisis occurs, our immediate thought is how it 
will impact our communities.
    Considering the increased globalization of the world, it is 
no wonder that an oil crisis, political upheaval, humanitarian 
emergency, or a natural disaster in the Western Hemisphere 
causes a severe reaction in the United States.
    Today we are hearing from a number of witnesses who 
represent different sectors of the agricultural community. In 
Wyoming, agriculture is an integral part of the state's 
identity. We are known as the Cowboy State. We have that on our 
license plate and we are associated with cattle, and ranches, 
and open space. Some of you may not know that we are also a 
sugar state and a wheat state.
    Agricultural trade within the Western Hemisphere directly 
affects the people of Wyoming. It affects the ability of our 
neighbors and friends to stay in business, and I believe the 
relationships that exist between the countries in the Western 
Hemisphere is key to the future of our region.
    Last January I had the opportunity to travel to Brazil for 
the inauguration of Brazil's new President, Lula da Silva. It 
was a truly international gathering with representatives from 
nations throughout the hemisphere and, in fact, throughout the 
world, but with a concentration from this hemisphere. I was 
there with U.S. Trade Representative Robert Zoellick, and 
Ambassador John Maisto and, of course, our Ambassador to 
Brazil, Donna Hrinak.
    And many heads--so many heads of government attended that 
it became kind of a conference of sorts. We had an opportunity 
every hour, on the hour, to talk to either a head of state from 
one of these countries or members of the cabinet from Brazil, 
and it was a great opportunity to find out what each country 
was doing about challenges facing the region.
    A few of the countries were, Peru, Bolivia, Uruguay, 
Colombia and El Salvador. We talked about many of the trade and 
economic issues that, I am sure, we will hear about today. Each 
nation had its own worries and concerns, but many of their 
issues overlapped and involved each other. And it was a 
tremendous opportunity for us to talk about the World Trade 
Organization meetings and European meetings that would be 
coming up, and the way that this hemisphere could work together 
to solve problems that we have with exporting our agriculture 
to the rest of the world.
    These overlapping issues of trade and securities are a 
reason that this hearing is so important. I really thank you 
for holding this hearing. I look forward to hearing the 
testimony of the witnesses and seeing how they will affect 
agriculture in the United States.
    Senator Coleman. Thank you very, very much, Senator Enzi.
    I would now like to recognize the first panel at the table. 
The Honorable J.B. Penn, Under Secretary for Farm and Foreign 
Agricultural Services at the U.S. Department of Agriculture, 
and the Honorable Allen Johnson, Chief Agriculture Negotiator 
for the Office of the United States Trade Representative.
    Welcome, Dr. Penn, and please begin when ready.

STATEMENT OF HON. J.B. PENN, UNDER SECRETARY, FARM AND FOREIGN 
AGRICULTURAL SERVICES, UNITED STATES DEPARTMENT OF AGRICULTURE, 
                         WASHINGTON, DC

    Dr. Penn. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear before the subcommittee today. And as 
Senator Enzi noted, this is an opportune time for a hearing to 
examine the opportunities and challenges in the Western 
Hemisphere.
    There are numerous forces, some new and some long in the 
making, that today confront the agricultural and food industry. 
How we handle these challenges as an industry, as individual 
producers, and through government policy, will determine the 
health of our industry early in the new century and for years 
to come. These forces include the always larger geopolitical 
and macroeconomic setting over which we have little control but 
with which we must deal since they importantly affect critical 
variables such as access to market and the value of the dollar 
relative to other currencies.
    Other forces more nearly under our ability to influence, if 
not to entirely control, include national policies for the farm 
sectors, new trade agreements, such as the Doha Development 
Agenda, the Free Trade Area of the Americas, the Central 
American Free Trade Agreement, and a spate of bilateral 
agreements; the introduction of several new technologies 
related to computers, satellites, and software that combine to 
enable precision farming, and then, perhaps, the most promising 
technology ever, biotechnology for agriculture.
    The trade and new technology forces are strongly 
interconnected as is clearly illustrated with the difficulty in 
gaining acceptance of biotechnology, especially in the European 
markets. And we are constantly reminded that the business of 
agriculture and food is extremely dynamic. Nothing stays the 
same for very long.
    A few examples illustrate the point: Not many years ago the 
Soviet Union was a major purchaser of grains from the world 
market, and it disappeared a dozen or so years ago. The Black 
Sea region emerged last year as a significant supplier to the 
global grain markets and could well be an enduring presence. 
And in our own hemisphere, Brazil and Argentina now have 
combined to surpass the U.S. in oilseed production. In China, 
the most populous nation, now is a member of the WTO and a 
major force in the global markets both as a buyer and as a 
seller.
    The successful entities in this business are the ones that 
are able to adjust and adapt most to the rapidly changing 
conditions and to these long-term trend shifts.
    I want to focus my remarks today around the trade 
technology competitiveness intersection. At the outset, we need 
to remind ourselves why there is so much focus on trade, 
especially in the food and agricultural industry. And that is 
because it is so critical to the current and future health of 
this industry. We are all generally familiar with the broad 
outlines of the importance of the foreign markets to our 
farmers and the entire Ag sector, but the key points bear 
repeating.
    The output from roughly one of every three acres of major 
field crops is exported. Total export sales this year are 
forecast to be $57 billion. That is well over a fourth of the 
total of $201 billion of gross receipts from all crop and 
livestock sales. And for many individual crops the importance 
of the foreign markets are much greater. We export 54 percent 
of the cotton, 49 percent of the wheat, 44 percent of the rice, 
37 percent of the soybeans, 20 percent of the corn, and for all 
of the specialty crops, like almonds and sunflowers and others, 
the numbers are exceedingly important.
    Well, now, the above numbers are direct exports of the 
commodity itself. We also now export significant grains, grass, 
and oilseeds in the form of livestock products. At the 
beginning of the 1990s, we exported relatively few livestock 
products, the equivalent of only about 2 percent of all of our 
grain and oilseed production. Today, we export over $9 billion 
of livestock products representing the equivalent of fully 5 
percent of our entire grain and oilseed production. In fact, 
the composition of our food and agricultural exports has 
shifted significantly in just the past decade. Today the high-
value and value-added products comprise 63 percent of the total 
sales, with bulk commodities comprising the remainder.
    Having the current combination of domestic and foreign 
markets is critical to both annual farm income and the balance 
sheet of the farm sector. Without the foreign markets and 
without their expansion over time, agriculture and the food 
industry would have significant excess capacity not only in 
farmland, but also in storage, transportation, and processing 
facilities. We would have unneeded assets, assets out of 
location, and certainly assets with declining values.
    In addition to the significant contribution to farm income, 
trade also means jobs. Food and agricultural exports today 
support 750,000 jobs. Every $1 billion in additional 
agricultural exports adds 15,000 jobs. Exports support jobs on 
the farm, in rural areas, and all across the food system. And 
this trade also stimulates economic activity well beyond the 
farm gate. The $57 billion in agricultural exports this fiscal 
year will create an additional $84 billion in supporting 
economic activities, to harvest process, package, store, 
transport, and market all of these products.
    Another dynamic closely related to both current farm income 
and the balance sheet is the constantly shifting balance 
between production capacity and market utilization. Long-term 
productivity growth in American agriculture averages about 2 
percent a year, 50-year trend. That means that we can produce 2 
percent more food each year with a given set of resources. In 
contrast, the domestic market requires only about eight-tenths 
of 1 percent more food each year due to the slow growth of our 
population. So it is very obvious over time that we must have 
access to the growing foreign markets if we are to avoid the 
emergence of significant excess capacity.
    It is against this backdrop, Mr. Chairman, of the 
importance of global trade to U.S. agriculture and the food 
system, that I want to focus more closely on the importance of 
trade with our NAFTA partners, since the focus of this hearing 
is on this hemisphere. The NAFTA was concluded in 1993 and 
implementation began in 1994. We now have a full 8 years 
experience, ample time to see some very clear results.
    Exports of food and agricultural products from the United 
States to our two NAFTA partners reached a record $15.9 billion 
last year, and that is a doubling since the signing of the 
agreement in 1993. In 2002, Canada surpassed Japan as the 
leading export market for U.S. agriculture, with our exports 
valued at a record $8.7 billion. U.S. exports to Mexico have 
now reached $7.3 billion, almost double the amount the year 
before NAFTA's implementation.
    The benefits of NAFTA extend well beyond the direct 
expansion of commercial trade. They extend to economic 
development, political stability, pluralism, and immigration. 
And in the end, consumers in both countries are the ultimate 
beneficiaries with important contributions to price, cost, 
choice, quality, and availability.
    And I see that my time has expired, but let me just make a 
couple of other points in conclusion: One, I think it is 
important that we recognize in the current trade environment 
the necessity to maintain the markets that we have already 
established. As the trade volumes expand significantly, the 
possibilities for commercial and other difficulties arise. This 
is especially true as the traditional barriers of tariffs and 
quotas diminish in importance, pushing new barriers into 
prominence, such as sanitary and phytosanitary regulations, and 
other technical barriers.
    The current difficulties with China over TRQ implementation 
and biotechnology regulations, and our difficulties with Mexico 
over a variety of matters, serve to illustrate this point. We 
at USDA are certainly finding this to be the case. We are 
devoting an increasing amount of resources to this task of 
market maintenance, and we are strengthening our cooperation 
with the private sector in doing this.
    The widely reported difficulties with China and Mexico 
serve to emphasize another point, and that is that we are 
closely monitoring these agreements. We intend to ensure that 
they are enforced. And, Mr. Chairman, as you said a deal is a 
deal, and we expect our trading partners to fully live up to 
their end of the bargain.
    Finally, let me just conclude by making a couple of points 
about competitiveness. The opening of new markets is a 
necessary first step, but we have to constantly strive to 
remain competitive in all of our markets. There is a growing 
concern today throughout the agricultural community as we see 
the emergence of new suppliers, such as the Black Sea grain 
producers, and being competitive is going to be all the more 
important if we are successful in leveling the playing field 
with the new trade agreements.
    This productivity in American agriculture today is due to 
past research and development. It is due to the investment of 
our producers in all of the new technology and management 
techniques. And with our abundant natural resources and 
accommodating climate, American producers have a highly 
competitive unit cost for quality products at the farm gate.
    And then our public sector has made a significant 
investment in infrastructure, our roads, waterways, port 
facilities, that enable the movement of these low-cost products 
from the farm gate to the ultimate consumer. And today, as I 
noted, there is concern about both areas of competitiveness, at 
the farm gate and beyond the farm gate. And we need to pay 
special attention to this if we are to remain competitive in 
the 21st century.
    Mr. Chairman, that concludes my remarks. Thank you again 
for the opportunity to participate in this hearing. And I would 
be pleased to respond to questions when you get to that point.
    Senator Coleman. Thank you very much, Dr. Penn. And I do 
note in your written comments you had some more extensive 
remarks relating to CAFTA and FTAA, and those remarks will be 
included in the record.
    Dr. Penn. Thank you.
    [The prepared statement of Dr. Penn follows:]

  Prepared Statement of J.B. Penn, Under Secretary, Farm and Foreign 
 Agricultural Services, U.S. Department of Agriculture, Washington, DC

    Mr. Chairman, members of the subcommittee, I am pleased to come 
before you today with Ambassador Johnson to discuss the challenges and 
opportunities for agricultural trade in the Western Hemisphere. I would 
like to begin by discussing the importance of trade for U.S. 
agriculture, and the role that trade agreements can play in helping to 
increase export opportunities for our food and agricultural sector 
within this hemisphere.

                        IMPORTANCE OF TRADE

    President Bush has made it clear that agriculture's role in any 
trade agreement is critical. Because maintaining existing export 
markets and creating new opportunities are essential to the prosperity 
of American agriculture, trade issues are paramount and receive the 
highest attention at all levels of the Department. Last month, 
Secretary Veneman hosted the Russian Deputy Prime and Agriculture 
Minister to discuss high priority issues, including a resolution to a 
long-running dispute that severely damaged our poultry exports. 
Recently, Ambassador Johnson and I traveled to Mexico as part of a U.S. 
delegation to address the agricultural community's concerns with that 
country's many impediments to U.S. exports. And later this month, I 
will travel to Brazil to get a first-hand look at the production 
capacity of that key competitor, as well as meet with my Brazilian 
counterparts to discuss issues of mutual concern.
    All of us throughout USDA know that export success is an important 
determinant of our farm sector's annual cash income. Approximately one-
third of our production capacity is devoted to export sales. Exports 
heavily influence asset valuation and the balance sheet.
    Trade stimulates economic activity beyond the farm gate. In fiscal 
2003, U.S. exports are expected to reach $57 billion. This trade is 
expected to create an additional $84 billion in supporting economic 
activities to harvest, process, package, store, transport, and market 
those products. Most of these activities occur in the non-agricultural 
sector of our economy. Traditionally, bulk commodities such as wheat, 
rice, coarse grains, oilseeds, cotton, and tobacco accounted for most 
U.S. agricultural exports. However, since the early 1990's, U.S. 
exports of high-value products--meats, poultry, live animals, feeds, 
hides and skins, fruits, vegetables, processed foods and beverages--
have expanded rapidly and now exceed the value of bulk commodity 
shipments. High-value product exports generate even more supporting 
economic activity than bulk shipments--roughly $1.4 billion for every 
$1 billion exported.
    In addition to its income effect on the farm and food sector, trade 
means jobs. U.S. food and agricultural exports support 750,000 jobs. 
Every $1 billion in exports creates 15,000 jobs. Exports support one-
third of all jobs in rural communities. Some of the jobs are on the 
farm, but most are in trade and transportation, services, food 
processing, and other manufacturing sectors.
    For U.S. agriculture to build on this success, we must recognize 
and adapt to the changing global market landscape. Developed country 
markets, such as Japan and the European Union (EU), are characterized 
by mature food demand and slow import growth. On the other hand, food 
consumption in developing country markets is growing much faster, as 
their demand for food is more sensitive to changes in incomes, and 
their incomes are growing faster than those in developed countries. 
Rising incomes not only mean increased overall food consumption, but a 
greater emphasis on quality and variety. These trends open up new 
opportunities for a wide range of U.S. bulk and high-value agricultural 
exports, particularly for meat and dairy products (which boosts the 
demand for feed grains and proteins), fresh horticultural products, and 
a variety of processed foods and beverages.
    The greatest potential for future expansion of agricultural exports 
lies with the burgeoning middle classes in these developing countries. 
The economic viability of American agriculture will depend upon our 
ability to develop and enhance market opportunities there.
    Nowhere is this more important than in our own hemisphere. In 
fiscal 2002, the Western Hemisphere replaced Asia as the top 
destination for U.S. food and agricultural exports. Countries in this 
hemisphere bought over $20 billion--or nearly 38 percent of our 
exports. Not only are these countries major customers, but they are 
competitors as well. Canada. Argentina, and Brazil are key agricultural 
exporters. We have heard a lot recently about Argentina and Brazil, in 
particular, and how they are not only competitive, but also poised to 
increase their production capacity tremendously over the next few 
years. While some may see only the negative in that, it is important to 
remember that these countries also share our strong commitment to trade 
liberalization and are allies in our efforts to negotiate a fairer and 
more market-oriented trading system.
    To pursue further trade reform, the Administration has an ambitious 
trade agenda, with multilateral, regional, and bilateral priorities. In 
this hemisphere, we want to build on the success of the North American 
Free Trade Agreement (NAFTA), an agreement that has had a huge impact 
on agricultural trade.

                        THE SUCCESS OF NAFTA

    In fiscal 2002, our two NAFTA partners, Canada and Mexico, together 
purchased $15.7 billion worth of U.S. food and agricultural products, 
exceeding our sales to Japan and the EU combined. As recently as 1995, 
exports to Japan and the EU were twice as large as exports to our NAFTA 
partners. Fiscal 2001 marked the first time that our exports to Canada 
and Mexico exceeded our exports to Japan and the EU, and we expect this 
trend to continue. The latest Forecast for fiscal 2003 estimates U.S. 
exports to Canada and Mexico to total a record $17 billion.
    Last year, Canada moved past Japan as our number one export 
destination, with Mexico our third-largest market. And the future is 
bright. Both Canada and Mexico are stable markets, capable of 
purchasing many of the high-value products where we see much of our 
export growth.
    Our trade relationship with our NAFTA partners is working. Since 
NAFTA's implementation, two-way agricultural trade between Mexico and 
the United States and between Canada and the United States has nearly 
doubled. And consumers in all three countries are benefiting by more 
choices and lower prices at the supermarket.
    That is not to say that we do not have a considerable list of 
agricultural trade problems of concern to all three countries. Any time 
you have trade relationships of this magnitude, problems are bound to 
come up. But NAFTA does provide prescribed mechanisms to address those 
problems, and all three countries are committed to working through our 
differences.
    We must continue to work together to achieve a North American model 
for agricultural trade that will serve as an example to the world. By 
collaborating in a way that provides the stability and transparency 
necessary for our private sectors, the North American food chain will 
become more and more integrated. If we succeed, we can develop the most 
productive and successful food chain in the world--benefiting producers 
and consumers alike.

                       THE U.S. TRADE AGENDA

    When NAFTA was implemented in 1994, it was one of the first free 
trade agreements (FTAs) in the hemisphere. Since then, the United 
States has lagged behind our neighbors in negotiating agreements. 
Today, about 20 preferential trade agreements are in effect in the 
Western Hemisphere. In addition, there are nearly 40 agreements that 
provide preferences for specific sectors, and more trade agreements are 
under negotiation or consideration.
    The United States is an outsider to most regional trade agreements 
in the hemisphere. For example, the MERCOSUR customs union--Argentina, 
Brazil. Paraguay, and Uruguay has liberalized trade among the four 
nations, putting U.S. products at a competitive disadvantage. Chile 
already has signed 16 FTAs, including agreements with Canada, the EU. 
and Central America. We must pursue such agreements if we are to 
provide the best opportunities for our food and agriculture sector in 
the region.
    This is the impetus behind our trade strategy in this hemisphere. 
We have completed an FTA with Chile, and are working on the Free Trade 
Area of the Americas (FTAA) and an FTA with five Central American 
countries.

                THE U.S.-CHILE FREE TRADE AGREEMENT

    The U.S.-Chile FTA was concluded on Dee. 11, 2002, and is our first 
agreement with a South American country. This agreement, which Congress 
will now consider, will provide America's farmers and ranchers, and 
businesses they support, with improved access to Chile's market of 15 
million consumers. This comprehensive agreement calls for duty-free, 
quota-free access for all products and addresses other trade measures 
in both countries.
    Since Chile is also a major producer of many of the same products 
that we produce in this country, we made a concerted effort to minimize 
market disruptions over the transition period by addressing concerns 
about sensitive products. At the urging of industry groups, we 
negotiated an agricultural safeguard provision for imports of certain 
Chilean products that is price-based and automatic. We are using a 
variety of tariff reduction formulas to ensure that trade disruptions 
are minimized. We have listened to our food and agricultural industries 
to secure the best agreement possible.

                      FREE TRADE AREA OF THE AMERICAS

    With the FTAA, the United States and 33 hemispheric partners will 
create the world's largest and wealthiest free trade area with a 
population of 800 million and an annual gross domestic product of $13 
trillion.
    At the FTAA Ministerial in Quito, Ecuador, last December, the 
United States pushed negotiations forward to complete the FTAA by 
January 2005. The ministers energized the market access negotiations 
and agreed that the United States and Brazil will co-chair the FTAA 
process through its conclusion. All participants exchanged the first 
market access and tariff offers in February. The next ministerial 
meeting will be in Miami later this year, with another ministerial 
meeting set for Brazil in 2004.

                    CENTRAL AMERICA FREE TRADE AGREEMENT

    In January, the United States launched negotiations toward an FTA 
with five Central American countries--Costa Rica, El Salvador, 
Guatemala, Honduras, and Nicaragua. With a population of 35 million 
people, these countries imported $1.2 billion in U.S. agricultural 
products last year--a new record. The negotiations are focusing on 
three key areas: market access, sanitary and phytosanitary issues, and 
trade capacity building. These negotiations are expected to be 
completed this year.
    An agreement with these countries would put our food and 
agricultural industries on a more competitive footing. For example, 
U.S. fruit producers, who consider Central America a growth market, 
face current tariff rates of 14 to 28 percent. At the same time, Chile, 
a major producer and exporter of fruit, already has duty-free access to 
many of these countries. Not only do our fruit exporters have to 
contend with Chile's shipping advantage, they also are up against a 
significant tariff, a one-two punch that is hard to overcome.

                                 CONCLUSION

    Mr. Chairman, that is a quick summary of our negotiating efforts in 
this hemisphere. In addition to these agreements, we also have 
developed several Consultative Committees on Agriculture--most recently 
with Uruguay and Colombia. These Committees provide a conduit to 
address bilateral trade issues as they arise, share ideas, and better 
coordinate policies to benefit our food and agriculture sectors.
    In addition, we are working closely with our fellow members of the 
Inter-American Institute for Cooperation on Agriculture (IICA) to 
improve regional cooperation on issues such as food safety, sanitary 
and phytosanitary issues, and biotechnology.
    We continue to seek input from our constituents to be sure that we 
respond to their concerns as negotiations proceed. Our agricultural 
trade advisory committees are consulted on a regular basis to bring 
them up-to-date on policy issues and the negotiations, and to seek 
their guidance on the next steps. Just last week, we concluded meetings 
with all six of the commodity advisory committees, as well as the 
Agricultural Policy Advisory Committee, to receive their 
recommendations on our policy efforts.
    We understand there can be legitimate concerns about the effects 
that increased imports have on prices and incomes. That's why our top 
program priority in the trade area is developing and implementing the 
Trade Adjustment Assistance Program for Farmers, a new program 
established by the Trade Act of 2002. Under the program, USDA is 
authorized to make payments to eligible producers when the national 
average price of an agricultural commodity for the most recent 
marketing year is less than 80 percent of the national average price 
for the previous five marketing years, and the Secretary determines 
that imports have contributed importantly to the decline in price. On 
April 23, we invited public comments on proposed regulations for the 
program. Comments are due by May 23.
    Mr. Chairman, I know there are some who question the value of 
negotiating trade agreements. ``The market is too small,'' or, ``That 
is our biggest competitor'' are two frequently heard arguments. But it 
is important to remind ourselves that the United States has one of the 
lowest food and agricultural tariffs, in the world--12 percent. Most 
U.S. tariffs on agricultural imports from the hemisphere are already 
very low or zero, with over 80 percent of U.S. imports from the region 
already qualifying for duty-free treatment, in many cases due to U.S. 
programs such as the Andean Trade Promotion and Drug Eradication Act 
and the Caribbean Basin Initiative. On the other hand, Central American 
countries have tariffs averaging over 50 percent, and South American 
countries have tariffs averaging 40 percent. It is hard to argue that 
maintaining the status quo, and not negotiating tariff reductions, is 
in the best interest of our food and agricultural sector. I believe we 
must continue to pursue these agreements to maintain existing export 
markets and create new opportunities.
    That concludes my statement, Mr. Chairman. I would be happy to 
address any questions that you may have.

    Senator Coleman. Ambassador Johnson.

     STATEMENT OF HON. ALLEN F. JOHNSON, CHIEF AGRICULTURE 
   NEGOTIATOR, OFFICE OF UNITED STATES TRADE REPRESENTATIVE, 
                         WASHINGTON, DC

    Ambassador Johnson. Thank you, Mr. Chairman. I will try not 
to be redundant with what my colleague has said, and I 
certainly could not do it any better than he has. Instead, I 
will focus purely on what we are trying to do with our partners 
in the hemisphere and in trade in the hemisphere.
    First of all, let me just put, from my point of view at 
least, how we need to think about the relationship with our 
colleagues in the Western Hemisphere. First of all, we need to 
look at trade in this hemisphere as not being a zero sum game.
    We believe that we can create economic synergies that 
provide growth for all sides through enhancing this trade 
relationship. Second, we need to recognize that we can create 
partnerships within this hemisphere that allows us to compete 
together to service the market outside the hemisphere and the 
rest of the world. And third, this partnership allows us to 
meet the rest of the world challenges and not just in trade, 
but also in disputes and in negotiations; for example, in the 
WTO, or with the EU, or with other countries where we have 
common interests in trying to resolve trade problems.
    What this administration has tried to do is put forward an 
aggressive package for--strategy for embarking on a competition 
for liberalization; globally, regionally, and bilaterally. The 
reason that is important is simply because we need to send a 
message around the world that if others are not ready to move 
forward in liberalization, we will move forward without them, 
somewhere else. That is not something that countries like to do 
when you consider that the United States is somewhere between 
25 and 30 percent of the global GDP.
    As always, agriculture always tends to be the most 
difficult issue to negotiate and one of the hardest issues to 
implement and enforce. However, we are fortunate in this 
administration that it is one of the President's top trade 
priorities.
    Let me start with the WTO. We are working very closely with 
our colleagues in this hemisphere in trying to create a 
successful round of negotiations in the WTO. And this is 
important to all of us because, simply put, the WTO is the only 
place where all of the trade distorting practices of the world 
are at the table at one time, and all of our potential 
customers are at the table at one time. And all of us look 
forward to a world where these distortions are reduced and then 
eliminated.
    We were successful in working together, particularly 
through U.S. leadership, in launching a round in Doha in 
November of 2001. This round launched into a direction that 
asked for substantial reductions in domestic--trade distorting 
domestic support, substantial improvements in market access, 
and phasing out export subsidies. The United States followed 
the leadership in Doha with leadership, by being the first 
country to offer a comprehensive position in the WTO that would 
call for reduction and harmonization on the way to the 
elimination of these trade distorting practices.
    Specifically, we suggested that we should eliminate export 
subsidies; we should reduce trade distorting domestic support 
by $100 billion in 5 years; and that we should reduce tariffs 
using a formula that effectively would reduce the average 
tariff in the world by about 75 percent.
    The chairman of the negotiations has put forward a proposal 
himself in trying to work with all the different negotiating 
countries. While his proposal is better than the Uruguay Round 
approach, it still needs to go farther, and we have many open 
questions that need to be answered.
    There are three critical points that we will be working 
with our partners in this hemisphere on. One is: We are all 
watching to see what the Europeans do in terms of reform of 
their agricultural policies. If Europe does not, in the next 
couple of months, take some significant steps toward reforming 
their policies, it is going to make it very difficult for the 
Doha Development Agenda to be successful.
    Second, we will be working to define and answer some of the 
open questions that remain in the chairman's draft. This 
particularly deals with market access and some of the special 
and differential treatment issues.
    Third, we will be working together to make sure that the 
next ministerial, which is in this hemisphere in Cancun in 
September, is successful in moving us toward achieving the date 
of finishing these negotiations by January 1, 2005. Second, 
regionally, as part of our competition for liberalization, we 
are negotiating a Free Trade Area of the Americas with the 34 
democracies in this hemisphere.
    Keep in mind that there are $13 trillion in gross domestic 
product in these countries, over 800 million people that is 
projected to grow in the coming decades to over 1.2 billion 
people. And our farmers, our ranchers, our workers, and our 
businesspeople are facing fairly high tariffs in some of these 
countries, and we want to see those reduced and eliminated.
    Similar to the WTO, we have agreed that we should finish 
these negotiations by 2005. That is why I also say these are 
not just competition--not just a competition for 
liberalization, but that these negotiations actually are 
complementary to each other. We are co-chairing these 
negotiations with Brazil, but we look forward to working with 
them as we move toward a ministerial in Miami in November in 
making that successful meeting our time line.
    In February, the countries tabled offers. In June or by 
June we are expecting that all the countries will have put 
forward what their requests are from other countries, and then 
you have what people want and what people are willing to offer, 
and that is when the real negotiations get started after July.
    There are several areas that we are going to be focusing 
on: Eliminating export subsidies, disciplines on state trading 
enterprises and differential export taxes, eliminating price 
bands and discretionary licensing.
    And I should just point out one concern or focus has been 
whether or not the United States will negotiate domestic 
support in a regional or bilateral agreement. We have been very 
clear that we will not for the exact reason that I started 
with. The other subsidizers in the world are the Europeans, the 
Japanese, and some others, and they are not at the table in the 
FTAA or these bilateral negotiations.
    I should also point out that in all these negotiations when 
it comes to sensitive products, we will be looking to provide 
the tools and the longest staging period possible in order to 
allow for adjustment, and on our offensive agenda we will be 
moving those items as quickly as possible.
    As it relates to the bilateral agreements, we are 
negotiating an agreement with the Central American countries--
the five Central American countries. In 2002 our trade with 
them--exports, were about $1.2 billion. That is more exports 
than what we have sent to any European country or South Asian 
country; in fact, more than we send to Russia and France 
combined. Currently, we enjoy about a 37 percent market share 
in Central America. That is more than Mexico, the EU, and South 
America combined in that market.
    Like the FTAA, we are going to be cutting from applied 
rates, which is important because for many developing countries 
the bound rates are much higher than the applied rates, so cuts 
are real. While we are a relatively open economy for the 
Centrals, we have many barriers there we would like to see 
brought down so that our farmers can benefit. We are scheduled 
to finish this by the end of this year. Just last week, we 
shared in-depth tariff offers, and we identified non-tariff 
barriers that we want to see removed.
    Finally, on Chile, which is an agreement that we negotiated 
in December, we think it is a good agreement for U.S. 
agriculture. About 80 percent of our exports will be at zero 
tariffs within 4 years. Phasing is as good or better than what 
Canada or the EU had gotten with Chile, and all tariffs will be 
eliminated in 12 years. We also got a good agreement on a 
related to export subsidies, on the elimination of price bands, 
which Chile had not agreed to do in any of its other bilateral 
agreements. We have created a mechanism for an agricultural 
safeguard for our sensitive products to use.
    And, parallel to this, we had very constructive discussions 
on SPS issues, some of which have been outstanding for many, 
many years. In particular, we found success with the dairy 
inspection system, the meat inspection system, and getting 
recognition of U.S. beef grading standards.
    In closing, I know that there are several issues as it 
relates to enforcement and implementation that you would like 
to see covered. I will not go into that now, because I suspect 
we will get into that in some of your questions, except to say 
that we are working very hard with the industries in the United 
States that are affected, within the administration and with 
the Department of Agriculture, and with Members of Congress, 
such as yourselves, in trying to send the message clearly to 
these countries that we expect for these agreements to be lived 
up to, that each agreement has its rights and obligations. You 
cannot enjoy the rights without meeting the obligations, and if 
you meet the obligations, you have the right to enjoy all the 
rights.
    We are looking forward to working, continuing to work with 
you and the countries in resolving the outstanding issues, and 
we can talk about them more specifically in your questions.
    Thank you, Mr. Chairman.
    [The prepared statement of Ambassador Johnson follows:]

 Prepared Statement of Ambassador Allen F. Johnson, Chief Agriculture 
 Negotiator, Office of United States Trade Representative, Washington, 
                                   DC

                            INTRODUCTION

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to testify today on the issue of agricultural trade in the 
Western Hemisphere. Before I get into the specifics on the Hemisphere, 
I thought it might be helpful first, to give you a sense of how trade 
benefits U.S. agriculture and the broader economy. Second, I will 
describe the Administration's overall approach on trade. Third, I will 
provide some detail on developments in the WTO agriculture negotiations 
and the trade talks we are pursuing in the Western Hemisphere, noting 
the opportunities and challenges for American agriculture. Finally, I 
will touch on our efforts to ensure that our hemispheric trading 
partners fully implement their obligations under existing agreements--
the North American Free Trade Agreement (NAFTA) and the WTO Agreements, 
in particular.

     BENEFITS OF TRADE FOR AGRICULTURE AND THE BROADER ECONOMY

    Trade is important to American farmers, ranchers, and food 
processors. They must look overseas to generate sales and income 
growth, since U.S. population growth and consumption are relatively 
flat, and U.S. productivity continues to follow a significant upward 
trend.
    Foreign markets already are critical customers for U.S. 
agricultural producers and food processors. Overall, one in three U.S. 
farm acres is planted for export. Twenty-five percent of all cash 
receipts for agriculture come from export markets. Nearly half of our 
wheat and rice crops are exported; about one-third of soybean 
production is shipped overseas; and we export 20 percent of our corn 
crop. Dollar for dollar, we export more wheat than coal, more fruits 
and vegetables than household appliances, more meat than motorcycles, 
and more corn than cosmetics.
    Foreign markets will be even more important in the future if we are 
to sustain a vibrant agricultural sector. Ninety-six percent of the 
world's consumers live outside the United States. Population, income, 
and consumption growth is higher in overseas developing markets, than 
in the United States. Consumers overseas are turning to the higher 
value products the U.S. produces competitively.
    Farm exports generate American jobs and additional economic 
activity that ripples through the domestic economy. According to USDA's 
Economic Research Service, every dollar of export creates another $1.47 
in supporting activities to process, package, ship, and finance 
agricultural products. This means that agricultural exports--over $53 
billion in 2002--will generate an additional $78 billion in supporting 
business activities. Moreover, agricultural exports currently provide 
employment to nearly 800,000 Americans, on and off the farm. Finally, 
liberalized agricultural trade means lower food prices and more choices 
for all Americans.

               ADMINISTRATION'S STRATEGIC PLAN ON TRADE

    In the past year, the Bush Administration has restored America's 
leadership on trade. We now are moving forward aggressively to secure 
the benefits of open markets for American families, farmers, ranchers, 
manufacturers, workers, consumers, and businesses.
    With the Trade Act of 2002 in place, and trade negotiating 
authority re-authorized, the Administration is pressing ahead with 
trade liberalization globally, regionally, and bilaterally. We are 
building on the success of the NAFTA and the Uruguay Round Agreements. 
Together, these pacts provide the average American family of four with 
benefits of between $1,300 and $2,000 each year, and NAFTA alone 
provides annual benefits of $350 to $930 to each family.
    Our strategy is to incite competitive liberalization by negotiating 
regional and bilateral trade agreements to complement our global 
strategy in the WTO. If others are ready to open their markets, America 
will be their partner. If some are not ready, or want to complain but 
not lower their own barriers, the United States will proceed with 
countries that are ready. This competition in liberalization 
strengthens the United States' already considerable leverage, including 
in the WTO.
    The President has identified agriculture as the cornerstone of our 
international trade negotiations. We have made important progress in 
the last two years, but the ``heavy lifting'' is still before us.

                   OVERVIEW OF TRADE INITIATIVES

    On the global front, we worked closely with our partners in the 
Western Hemisphere to launch new WTO negotiations in Doha. Our basic 
goals are in alignment: negotiate freer markets for agriculture, 
manufactured goods, and services. Indeed, our partners in the 
Hemisphere know that without U.S. efforts to support a strong 
agricultural mandate, Doha would not have been successful. We now are 
in the lead-up to the September WTO Trade Ministerial in Cancun and 
pressing others on our comprehensive and ambitious agriculture 
proposals.
    This year, we also will work with Congress on legislation 
implementing our Free Trade Agreements (FTAs) with Chile and Singapore. 
In addition, we are advancing negotiations with 33 other countries on 
the Free Trade Area of the Americas (FTAA), and have initiated FTA 
negotiations with the five countries of the Central American Common 
Market (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). 
Outside the Western Hemisphere, we are negotiating FTAs with Australia, 
Morocco, and the countries of the Southern African Customs Union. In 
October, the President announced an important new trade initiative with 
the Association of Southeast Asian Nations (ASEAN) providing a road map 
for ASEAN countries to move toward an FTA with the United States. Most 
recently, the President announced we will establish a U.S.-Middle East 
Free Trade Area within a decade by building on our FTAs with Jordan and 
Israel.
    While pressing for more ambitious disciplines in the WTO and 
negotiating new FTAs, we also are working to ensure that our trading 
partners implement their existing trade agreement obligations.

                       AGRICULTURE IN THE WTO

    Progress in the WTO is fundamental to our trade agenda, 
particularly because of the importance of multilateral reform to 
agriculture. The WTO provides the opportunity to address each of the 
three problem areas in agricultural trade: market access, export 
subsidies, and trade-distorting domestic support. This was reflected in 
the core elements of the mandate established for the Doha negotiations 
in November 2001: ``. . . we commit ourselves to comprehensive 
negotiations aimed at: substantial improvements in market access; 
reductions of, with a view to phasing out, all forms of export 
subsidies; and substantial reduction in trade-distorting domestic 
support.''
    We have taken an aggressive approach to implementing these goals, 
leading the way by submitting the first comprehensive proposal and 
setting an ambitious marker for the level of reform we aim to achieve. 
Our proposal calls for substantial reductions with a harmonizing result 
(narrowing the disparities between countries' trade barriers) on the 
way to elimination.
    The key elements in the U.S. proposal are as follows:
    Market Access: substantial reductions in tariffs in all WTO 
countries, bringing down the global average tariff by 75 percent over 
five years, using a formula that provides for deeper cuts in higher 
tariffs.
    Export Competition: elimination of export subsidies and an end to 
single desk exporter privileges in five years; disciplines on export 
credit and food aid programs to guard against market disruption while 
keeping our programs viable.
    Domestic Support: substantial reductions in all trade-distorting 
support in a way that harmonizes levels across countries, pointing 
toward the eventual elimination of this type of support. This proposal 
would cut over $100 billion in allowed trade-distorting support 
globally, with most of the reform coming from the European Union (EU).
    We have had mixed reactions to our proposal. The EU and Japan have 
not been leading in reform, while we have had a good working 
relationship with the Cairns Group members and many developing 
countries, including those in Latin America. Recognizing that 
differences exist between reformers and conservatives, earlier this 
year, the chair of the WTO agriculture negotiations issued a draft of 
formulas and rules to implement the Doha objectives. While going 
further toward reform than the Uruguay Round, the chair's draft was not 
as ambitious as the U.S. proposal. Influencing future drafts to 
establish more ambitious disciplines will be our focus as we move 
forward in discussions.
    The key to progress lies in what Europe does on Common Agricultural 
Policy (CAP) reform and how special and differential treatment is 
handled. We need to work with you and with American agriculture to do 
all we can to maximize the benefits of an agreement and then make a 
clear-eyed assessment of what is best for the United States.

REGIONAL AND BILATERAL FTAS IN THE WESTERN HEMISPHERE--OPPORTUNITIES 
                             AND CHALLENGES

    The markets of the Western Hemisphere are important ones for our 
agricultural exports. Many of the region's leaders have identified 
trade as a critical element in promoting economic growth and 
development in their economies. That said, U.S. farmers, ranchers, 
businesses, and workers still face many market access barriers in the 
Hemisphere, such as tariffs that are often five times higher than U.S. 
tariffs.
    The U.S.-Chile FTA negotiations provided, and the FTAA and the 
Central American FTA (CAFTA) talks offer, an opportunity to tackle the 
high tariff and non-tariff barriers in the region ``head on.'' More 
than three-quarters of U.S. farm goods will enter Chile tariff-free 
within four years, with all tariffs phased out within 12 years. The 
FTAA will increase our farmers' and food processors' access to markets 
in the Western Hemisphere by creating the largest free market in 
world--with a combined gross domestic product of over $13 trillion and 
800 million people.
    Under our statutory preference programs, the United States is 
largely open to Central American exports, although there are some 
exceptions for sensitive agricultural products. The CAFTA negotiations 
therefore should create new market opportunities for our agricultural 
exports with relatively few adjustments to our tariffs. This is true of 
market access negotiations with some of the sub-groups in the FTAA, as 
well, for example, the Andean and Caribbean countries.
    Our bilateral and regional FTAs in the hemisphere--the U.S.-Chile 
FTA, the CAFTA, and the FTAA--also complement our trade objectives in 
the WTO. They set high standards for trade agreements and spur 
competitive liberalization. They provide a counterweight to the FTAs 
our Western Hemisphere partners have signed with other countries, 
including Canada, Chile, and the EU. Finally, U.S. trade pacts in the 
Western Hemisphere deepen our ties with individual and small groups of 
trading partners--alliances that could help us in the WTO.
    Our efforts to eliminate export subsidies in the Western Hemisphere 
bolster our work in the WTO on these most trade-distorting of 
agricultural payments. In the FTAA and the CAFTA, we are pressing for 
provisions like those in the U.S.-Chile FTA providing that the Parties 
to these FTAs will not only work together in the WTO to eliminate 
export subsidies globally, but also will establish disciplines to 
address subsidies on imports from non-FTA countries.
    In the FTAA and CAFTA tariff negotiations, we will see immediate 
benefits from the tariff cuts negotiated, since cuts will be largely 
from currently applied, rather than WTO bound rates. Developing 
countries usually have ceiling bindings that far exceed their applied 
rates.
    Our approach in the FTAA and CAFTA negotiations is to maximize the 
benefit for our agricultural exports while taking into account our 
import sensitivities. The U.S. market access offers in these talks are 
comprehensive--all agricultural and industrial tariffs are subject to 
negotiation. The goal is free trade, but the tariff offers are 
organized into buckets assigned phase-out periods from immediate to 
more than ten years. The longer categories provide us the flexibility 
to deal with tariffs on our most sensitive products, such as orange 
juice, sugar, sugar-containing products, and peanuts. For our 
agricultural exports, such as beef, poultry, and grains, our objective 
will be to see early tariff phase-outs.
    Among the challenges we face in the FTAA and CAFTA talks are less 
than forward-leaning offers--with product exclusions and too many items 
in the longest tariff phase-out buckets. Also, several countries are 
conditioning their tariff cuts on the negotiation of disciplines on 
domestic supports and export credits/food aid in the FTAA and CAFTA. 
Our unequivocal position is that any disciplines related to domestic 
support and export credits/food aid should be negotiated in the WTO.

        NEXT STEPS IN THE WTO, FTAA, AND CAFTA NEGOTIATIONS

WTO
    Of course, the world will be watching what Europe does on CAP 
reform in June. A small group of WTO members are scheduled to gather in 
Egypt in June. Ministers from all members are slated to be in Cancun in 
September. These meetings will be important to achieve progress in 
agriculture, and other areas, and will set the tone for making progress 
toward our January 2005 deadline.

FTAA
    At the 1994 Summit of the Americas, FTAA Leaders agreed to complete 
negotiations on the Agreement by 2005. The FTAA negotiating groups, 
including that on agriculture, now are preparing for the Ministerial 
the United States will host in Miami in November.
    By June, all countries are to identify their requests for 
improvements in initial market access offers that countries tabled in 
February. In July, FTAA countries will begin exchanging revised offers.
    We have agreed to the elimination of export subsidies affecting 
trade in the Hemisphere. Delegations now are discussing how to deal 
with subsidized imports from non-FTAA countries.
    We will continue pressing for the reform of state trading 
monopolies and the elimination of differential export taxes--higher 
export taxes on commodities than on processed products (to support 
domestic processors). Barriers such as price bands and discretionary 
licensing also are on the table.
    The United States and Brazil have assumed the co-chairmanship of 
the FTAA negotiations. We are coordinating closely with the Brazilians 
to determine a way forward in the run-up to 2005. Given Brazil's 
stature in the region, and its efforts toward closer integration with 
the global economy, cooperation between Brazil and the United States in 
the FTAA and on trade is crucial.

CAFTA
    This negotiation is slated to finish by the end of the year. This 
is an ambitious time frame, given the complexities of the negotiation 
and the sensitivities, especially for the CAFTA countries.
    Just last week, we had our first in-depth discussion of tariff 
offers. We have agreed that no product is to be excluded from the 
negotiations, but specific reform commitments still need to be 
negotiated.
    We also have identified a number of non-tariff measures that we 
would like to see removed, including discretionary licensing, domestic 
purchasing requirements, and price bands. In addition, we have begun a 
process to rationalize sanitary and phytosanitary barriers.

Overall
    USTR and USDA will continue to closely consult with Members of 
Congress, congressional staff, farm groups, and other U.S. agriculture 
interests in developing our negotiating positions.

               IMPLEMENTATION OF EXISTING COMMITMENTS

    In addition to the new initiatives described above, we continue to 
press our Western Hemisphere partners for full implementation of their 
existing commitments on agricultural trade, including in the WTO and 
the NAFTA. Canada and Mexico, two of our three largest agricultural 
export markets, have presented some particular challenges on 
implementation. We also have implementation issues with Brazil.
    On some of these implementation matters, we have made significant 
progress. On others, there is more to be done.

Canada
    In December 2002, the United States won a WTO dispute settlement 
case in which a panel ruled that Canada was continuing to provide 
illegal subsidies to its dairy industry under its Commercial Export 
Milk (CEM) program. On May 9, we announced an important settlement of 
this case, which resulted in major revisions to Canada's subsidy 
programs for its dairy exports. Canada has eliminated the CEM program, 
and consequently, will no longer export subsidized dairy products to 
the United States and will significantly limit subsidized dairy exports 
to third countries.
    To advance the interests of our wheat farmers, we are challenging 
the sales practices of the monopoly Canadian Wheat Board in the WTO. A 
dispute settlement panel has been formed, and we expect a decision 
later this year.

Mexico
    Two-way trade for agricultural products between the United States 
and Mexico has increased from $6.4 billion in 1992 to almost $15 
billion in 2002, a jump of nearly 120 percent. Mexico is the third 
largest market for U.S. agricultural exports. The United States is 
Mexico's single largest market receiving 78 percent of Mexican 
agricultural exports. Over the past couple of years, however, the 
Mexican government has taken a number of actions affecting a broad 
range of U.S. agricultural commodities--including pork and live swine, 
beef, rice, apples, dry beans, and sweeteners. We have tried to work 
constructively with our Mexican colleagues to resolve our concerns, but 
we have made it clear that our concerns must be addressed.
    Undersecretary of Agriculture Dr. J.B. Penn and I went to Mexico in 
April to communicate a clear message that it needs to abide by its 
international commitments to the benefit of not only our bilateral 
trade relationship, but also for the economic well-being of Mexico's 
farmers and consumers. If we do not see an improvement in our 
agricultural trade relationship, we are prepared to take the necessary 
actions to protect our agricultural interests.

Brazil
    Later this month, Ambassador Zoellick will be traveling to Brazil. 
During his visit, he will discuss the Brazilian government's's recent 
decisions to ban new plantings of agricultural biotechnology products 
and to order the compulsory labeling of agricultural biotechnology 
foods. These decisions appear to be the result of mounting pressure 
from anti-biotech interests within the country, but the government has 
not produced any scientific evidence to justify its actions. In 
addition, we know that Brazil harvested Round-up Ready soybeans this 
year and agreed to certify to the Chinese government that these 
products are safe. Ambassador Zoellick will ask the Brazilian 
government for its scientific justification and risk assessments behind 
its recent actions, the reasons for the sudden reversal in policy, and 
how Brazil can justify its actions in light of its WTO obligations.

                             CONCLUSION

    The Administration's trade initiatives in the Western Hemisphere--
regional and bilateral--are pivotal elements in the President's 
strategic plan on trade. Agriculture is central to this plan. Our goal 
in the FTAA and CAFTA negotiations is to maximize the benefits of free 
access to Western Hemisphere markets for U.S. producers and processors. 
We have made solid progress in these negotiations, and are working 
closely with our hemispheric partners to achieve success in the WTO. We 
face significant challenges in bringing these negotiations to a 
successful conclusion, and look forward to working with you and other 
Members of Congress, and with American farm interests, toward this end. 
At the same time, we remain focused on resolving problems our farmers, 
ranchers, and processors encounter when our trading partners do not 
follow through on their existing commitments.
    Again, thank you for the opportunity to testify.

    Senator Coleman. Thank you very, very much, Ambassador 
Johnson and Dr. Penn. Before I go to the questioning, just a 
comment first, sort of reiterating a little bit what I said in 
my opening statement. I come here, you know, to this position 
as U.S. Senator with the belief, a shared belief with the 
vision of what both you gentlemen are talking about, that there 
is great opportunity for our country. The future is going to 
depend upon us expanding markets. Either that or we are going 
to have to eat a lot more per person, and that is not going to 
happen.
    And I want to applaud you. I want to applaud you, 
Ambassador Johnson, for the work that has been done with Chile. 
The ambitious schedule, ambitious schedule, with FTAA; the 
ambitious schedule with CAFTA. I had the great opportunity to 
meet with the five Presidents of the Central American 
countries. They are hungry for progress. In many ways, I think 
our opportunities at developing and growing democratic 
institutions is going to depend on this success.
    So I start with that, and I am bolstered, Dr. Penn, when, 
you know, I hear you say that we are going to closely monitor 
and intend to ensure that agreements are enforced. I also 
understand, by the way, that we have obligations on 
competitiveness, and I think I will address those later with 
some of the other witnesses; things such as, improvement of 
locks and dams, and infrastructure investment that we have to 
make, technology investment, R&D development investment.
    I say that, then, with that being where I come from but, 
again, reiterating that if we do not address these areas of 
concern that I hear very loudly coming back to Minnesota, and I 
would guess that my colleague from Wyoming would be hearing the 
same thing, if we do not address those, my fear is that one of 
the great, kind of, basis to support a free trade of the Ag 
communities is going to move in another direction. And if that 
is the case, it is going to be very difficult to move forward 
with the ambitious agenda on CAFTA and on FTAA.
    So I am going to ask some questions about some specific 
concerns. Again, understand the light in which that they are 
being laid out, and understand that we have to respond to 
these.
    Dr. Penn. Yes.
    Senator Coleman. We have to respond to these.
    Let me start by focusing on the Mexican situation, one of 
which I hear a lot about. And due to the actions of the Mexican 
Government, I will tell you my colleagues, like the chairman of 
the Finance Committee, Senator Grassley, and others talked 
about in terms of illegal, using that phrase, illegal actions 
against a number of U.S. commodities, I understand $3 billion 
in U.S. farm exports are in jeopardy. Of commodities impacted 
including apples, beef, corn, dry edible beans, high fructose 
corn syrup, pork, and rice, six out of seven are produced in my 
state. And I am deeply concerned about the injury to U.S. 
agriculture and the damage it is inflicting on support at home 
for trade. Can you help me, tell me how and when do we intend 
to respond to this serious situation?
    Ambassador Johnson.
    Ambassador Johnson. Well, first of all, let me just start 
by saying on all those products I am doing everything I can to 
consume as many of them as I can personally, but I do not 
suspect that will be enough to make up for the shortfall.
    I have to say that when it comes to Mexico--and I know that 
Dr. Penn shares this view because we just were down in Mexico 
just a few weeks ago. There has been a great deal of 
frustration in the agriculture community which, I think, is 
largely shared by us as ones who have been on the front lines 
of trying to make sure that we enjoy the rights that we have 
under the NAFTA and that both sides complete the obligations 
that we have under the NAFTA.
    Our message, I think, in Mexico is loud and clear. Dr. Penn 
made it clear, which he can comment on in a moment, as to his 
views on it. I made it clear during my presentation that I felt 
that that meeting was a turning point one way or the other. 
Either we are going to start seeing these difficult issues 
resolved, in which case it could be an example of how partners 
work together to fulfill the promise of these sorts of 
agreements and the economic opportunities; or else it could be 
a turning point for the worse, in which case, we are going to 
defend our economic interests and our agricultural community in 
pursuing whatever the options are that we need to, to make sure 
that the agreement is enforced.
    We laid out, in very specific direction, how we were going 
to work through each one of the issues that you mentioned and, 
frankly, and there is more. They are not--you can feel better 
that they are not just all in your state. They are hurting 
commodities in other states as well.
    Senator Coleman. I have some more to ask you about.
    Ambassador Johnson. OK. But we laid out some specific 
steps. We are starting to see some of those issues move toward 
positive resolution, but we are going to be watching very 
closely. I am not going to--one thing that we try to do is not 
over-promise and under-deliver but under-promise and over-
deliver. And in this particular case, I think we need to look 
at it with a great deal of caution while we are preparing 
ourselves to take whatever actions are necessary to make sure 
it is enforced.
    Senator Coleman. Dr. Penn, before you start, let me ask a 
followup, and I think you can both respond because they are 
tied together. But before that, I do want to make note that I 
have a copy of a letter which will be entered into the record, 
and it was sent to the President from the National Corn Growers 
Association, Corn Refiners, National Pork Producers Council, 
U.S.A. Rice Federation, Northwest Fruit Exporters, National 
Cattlemen's Beef Association, National Dry Bean Council, all of 
which have always been strong backers of trade, saying they 
have reached the breaking point because of the Mexico 
situation.
    [The letter referred to follows:]

The Honorable George W. Bush
President of the United States of America
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

    Dear Mr. President:

    It is with profound regret and concern that we are writing to you. 
The NAFTA, our most important free trade agreement, is being 
unilaterally re-negotiated by Mexico. Our industries and growers are 
concerned by Mexico's actions.
    Just as the NAFTA envisioned for industries on both sides of the 
border, Mexico became our number one or two export market and a 
critical component of our sales. Our industries now depend upon the 
NAFTA to protect major elements of our sales opportunities. As a 
result, we believe the Mexico situation is the single most important 
trade and market access issue for the export-oriented agriculture 
community.
    We firmly believe that the U.S. must be prepared to make it crystal 
clear that Mexico will pay a cost for these continued unilateral 
efforts to renegotiate the NAFTA. Otherwise it signals that trade 
agreements are of virtually no value, and as historically very pro-
trade industries, this is not something we assert lightly.
    Mr. President, time is of the essence. The most important step you 
can take to shore up support in pro-trade agriculture for new trade 
initiatives is to demonstrate your eagerness to ensure that the NAFTA 
markets are open. We call upon you to do everything within your power 
to rectify this situation.

            Sincerely,

                    National Corn Growers Association
                    Corn Refiners Association
                    National Pork Producers Council
                    USA Rice Federation
                    Northwest Fruit Exporters
                    National Cattlemen's Beef Association
                    National Dry Bean Council

    Senator Coleman. And, again, my conclusion and the fear 
that I draw from this is unless we address this situation 
quickly, plans for trade negotiations underway could be 
derailed. And I think that would be a terrible thing if we were 
not able to address this and were not able to move forward.
    Ambassador Johnson, just as specifically--I want to go to a 
specific case and you could comment. I understand that Mexico 
will soon issue a preliminary determination in its dumping case 
against U.S. pork that could sharply curtail and perhaps even 
completely halt U.S. pork exports to Mexico. What actions can 
you take to combat a situation like this? What assurances can 
you give us today that the administration will use all 
available tools under NAFTA, the WTO, or other leverage outside 
these agreements that might yield a more timely resolution to 
ensure that Mexico abides by its NAFTA obligations and that 
U.S. pork exports will continue to flow without interruption to 
Mexico?
    Ambassador Johnson. I will answer that, but let me first 
comment on your first observation, which is, we made it clear 
to Mexico that it is unfortunate. Some of the actions that have 
been taken have been against some of their strongest 
supporters, some of the strongest supporters of NAFTA, and some 
of the strongest supporters, frankly, of our trade agenda.
    And as you know and have pointed out, Senator, in your 
introductory statement, the agriculture community is critical 
to the forward movement of our trade agenda, not just in 
agriculture but more broadly, to keep the alliance, the 
coalition together that allows for the aggressive agenda that I 
outlined earlier.
    As it relates specifically to pork, the determination on 
the dumping case that there--is scheduled to be decided, or has 
to be decided by, I think, it is July 16. So we are monitoring 
that very closely. We have made it very clear since the 
beginning, going back to January, with direct connection, 
conversations, as well as letters with the appropriate Mexican 
leaders, that we did not see justification for this case. We 
did not see a reason why it should move forward, let alone be 
concluded in any positive way, and we made it clear that if it 
was, we would take the appropriate action, and we will.
    Senator Coleman. Dr. Penn, do you want to add anything to 
that?
    Dr. Penn. No, I cannot add much, except to say that we view 
this as a very serious situation and, as Ambassador Johnson 
said, we have made the point very clear to the Mexicans that 
this dispute over various food and agricultural trade matters 
threatens to spill over and to seriously affect our entire 
bilateral relationship.
    And everybody in the administration, at all levels, has 
been involved in conveying this same message to the Mexican 
Government; Secretary Powell to Secretary Derbez and on and on. 
Secretary Veneman has frequent contact with Secretary Usabiaga 
and has made this message very clear to him. So as Ambassador 
Johnson said, we think the message has been delivered. We have 
to wait now and see what the response is going to be.
    Senator Coleman. I am trying to get a sense of beyond the 
conveying. Are there tools at our disposal that will provide 
for, if not more expeditious, a more certain resolution of 
this? At times, I think, we have to go beyond the conveying.
    Let me ask one last question and then I will turn it over 
to my colleague, Senator Enzi. And just, again, trying to focus 
on, perhaps, another specific tool: The United States took 
Mexico to WTO for consultations in September 2000 on the live 
hog case. At that time Mexico indicated that it would quickly 
conduct a chain circumstance review of the dumping order on 
live hogs. I understand that Mexico finished its review over 
one year ago but refuses to release its findings. Is it not 
time that we requested a dispute settlement panel, the WTO, in 
order to get rid of this illegal dumping order?
    Ambassador Johnson. First of all, let me just quickly 
comment on the tools question. Depending on--in the list of 
issues that you mentioned, we have different tools available 
depending what they are doing and where it is in the process. 
That could go anywhere from retaliation to requesting a WTO 
consultation, a NAFTA case, or in this case, since we have 
already done the consultations, we can go straight to a panel. 
And we have made it clear that we expect that this thing should 
be resolved, and I do not mean in weeks, but sooner than that.
    And so, if they do not--and we have received encouraging 
signs that they plan on doing that. Obviously, if they do not 
do that, then we will look at moving forward with the panel, 
because that is what we need to do.
    Senator Coleman. Thank you very much, Ambassador.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    The comments have been very helpful, and I served on the 
President's Export Council when President Clinton was in 
office, and I am now on President Bush's Export Council. I was 
at that great battle in Seattle where we did not get to do any 
negotiation. And my observation is that I am really pleased 
with this administration and the priority that they placed on 
agriculture. It is very helpful to have that as a priority and 
have it kind of as the engine pulling the train instead of the 
caboose with the tradeoffs.
    I appreciate the work the administration has done on the 
nonexistent Mexico side letter that passed NAFTA in the first 
place. I know that got lost and there has been some good 
emphasis on that, and I appreciate the way this administration 
has shut down the sugar laundering that was going on with 
Canada.
    All of us are in favor of free trade, but we want it to be 
fair trade. And my experience working with different countries 
is we all want it to be just a little fairer for our own 
country than it is for anybody else. But through these 
meetings, I have noticed that most of our major competitor 
countries exclude sensitive agricultural products from their 
FTAA's and even when we do get them to include them, there is 
kind of ample evidence that they do not live up to their 
obligations. I mentioned Mexico and there are several products 
there.
    Is it likely that we will face the same situation on a 
greater scale when we get the other 30 countries in the FTAA? 
Why should we make concessions on our sensitive agricultural 
products like sugar?
    Ambassador Johnson. Well, let me start by just saying what 
I said in my statement, or my oral statement, which is: We all 
know, and this we just have to take as a given, that 
agriculture is the most difficult area to negotiate. There is a 
lot of sensitivities, a lot of domestic pushback, in other 
countries as well as our own, frankly.
    In that, that is also true when it comes to enforcement and 
implementation. It is a constant maintenance function. Things 
do not--it is not like when you buy a house and as long as you 
make your payments you get to live in the house. People are 
always pushing back and trying to enjoy their rights without 
fulfilling the obligations. And part of our job is to keep 
going after those issues and trying to see them resolved.
    As we said, as it relates to Mexico, we are hopeful that we 
can see these issues resolved but, you know, we will believe it 
when we see it so to speak.
    As it relates to exemptions, which is really, when you talk 
about sugar, it relates to the question of exemptions in this 
context. Our position has been in these bilateral and regional 
agreements that there should be no exemptions. And it is one 
simple reason, which is: If we start exempting products, the 
other side is going to do the same thing. And right in the 
front of that line is going to be livestock, is going to be 
meats, is going to be wheat, is going to be a number of other 
products that I know are near and dear to you as well as other 
members of the committee. So, our position has been that there 
should not be exemptions.
    Having said that, we recognize that some products are more 
sensitive than others, and so we have phasing that allows for 
these products to be in later time lines, and this is reflected 
both in what we are doing in the FTAA, what we are doing in the 
Central American Free Trade Agreement, and what we did in 
Chile. For example, the last basket in the Chilean Agreement is 
12 years for implementation. In addition to that, we have tools 
such as nonlinear phasing so that it is back loaded, the tariff 
reductions. We have a special agriculture--we have a special 
safeguard in the Chilean Agreement that is a price-based 
safeguard. If we start seeing negative price effects, it allows 
us to have some form of tariff snapback to avoid a negative 
impact on our producers during the transition. So those are 
various tools we try to use to deal with the sensitivities of 
our import-sensitive products.
    While at the same time on the offensive side, by not having 
exemptions, it allows us to go aggressively after the products 
that we have a positive offensive interest in whether it is 
wheat, or meats, or poultry, or what have you.
    Senator Coleman. You mentioned that we needed to ask you 
about enforcement and implementation. What are the enforcement 
techniques that will be built into this process? What sorts 
of----
    Ambassador Johnson. Well, in general, if you feel like 
their obligations are not being lived up to, you request some 
consultation to try to discuss it, resolve it. We have 
basically done that, are doing that step to some extent in the 
meetings that J.B. and I had down in Mexico about two or three 
weeks ago.
    And then if it is not resolved, then you go forward with a 
dispute settlement case. If you win the case, then they are 
supposed to fix the problem, if they do not, then you can 
retaliate against them for the amount to compensate you for 
your losses.
    Obviously, the preferred route--and some of the examples 
that you just cited are probably good ones. The preferred route 
is to negotiate and solve the problem, because you may 
retaliate against them, but that does not necessarily help the 
industry that is facing the economic consequences of their 
action.
    So the preferred route is to either negotiate it through 
consultations or, if you win the dispute, have them comply 
because retaliation makes you both feel the same pain, but the 
same industries are not the ones that are benefiting.
    Senator Enzi. A moment ago you mentioned the next thing 
they would want to negotiate on would be livestock and, of 
course, that is a very important area to me, as well. There is 
a special sensitivity to that in the West.
    And when we are considering FTAA, we know that these other 
members are major beef exporting companies. They are not 
countries. They are not major importers.
    Under the potential conditions of FTAA, what provisions has 
USTR made with regard to beef that ensures that the 
sensitivities can be recognized?
    Ambassador Johnson. Well, really as you look at these 
agreements in countries in terms of what our offensive and 
defensive interests are, they sort of change, depending on the 
countries you are talking about.
    There is some offensive interests in Central America, for 
example, in the meat sector. There is some offensive interest--
there was some offensive interest in Chile. That is why we 
actually proposed to the Chileans that we have an immediate 
elimination in beef. They did not want to do that. They 
waited--they wanted to put it at 4 years.
    Beef offal actually are immediate, but--and in the FTAA, it 
is similar. There is differentiation between the Caribbean 
countries, the Central American countries, the Andean countries 
versus the Mercosur countries. And depending on the countries, 
you have a different dynamic in terms of your trade 
opportunities.
    What we did in the FTAA is: What we created in our proposal 
was different offers depending on which region we were talking 
about. So there is four different regions that are being 
addressed. And if you think of it as a matrix--and then within 
that, it also deals with the issue of time lines; so, in other 
words, your most sensitive product to your most sensitive 
countries would be in the longest time line. If that same 
product had an offensive interest to another country, you would 
put it in a shorter time line, because you obviously want to 
have access to that market sooner.
    So it changes depending--if you look at it as a matrix of 
time lines versus countries, they cross, and depending on the 
products, how it is treated.
    Senator Enzi. I will be interested to watch these products 
as they progress. And my time has run out.
    I do have some additional questions I would like to submit 
to them that----
    Senator Coleman. Yes, I am going to do a second round of 
followup actually, Senator, with these witnesses. There are a 
few more areas that I would like to discuss before we move to 
the next panel.
    Just one more question, if I can, on the Mexico situation, 
and it has to do with the HFCS, high-fructose corn syrup, which 
I know there has been, I think, a 7-year dispute with Mexico on 
sweeteners. I understand the U.S. exports of high-fructose corn 
syrup have been completely halted due to the imposition in 
Mexico of a 20 percent tax on all beverage sweetened with HFCS.
    For the 17 months, the corn refining industry has been 
unable to sell any high-fructose corn syrup in what should be 
its largest export market. And without getting into the value, 
the dollar value and the impact that it has certainly on folks 
in my state and for U.S. corn refiners throughout the country. 
Two questions: What stage have we reached in these 
negotiations? And what action does the administration plan to 
take in the coming days and weeks to resolve this impasse?
    Ambassador Johnson. Well, first of all, as it relates to 
the history of this problem, it really goes back--the sweetener 
problems with Mexico go back to the origins of NAFTA and the 
side letter that was mentioned earlier. Really, we have a 
version of NAFTA that includes a side letter, which, of course, 
we believe to be accurate. They have a version of NAFTA that 
does not include the side letter.
    That, in and of itself, has created an environment where we 
have not seen an integration of the sweetener industries 
between Mexico and the United States, particularly in sugar, 
that you would have expected as you moved toward 
liberalization, which is 2008 when there is complete 
integration.
    Our view has been that--and a byproduct of that, has been 
the problems with HFCS, because basically HFCS goes to Mexico, 
which displaces Mexican sugar. Mexican sugar producers believe 
they should have a right to the U.S. market, which is not 
consistent with our view of what the NAFTA is based on what the 
side letter is. So all this, you know, it becomes a pretty 
complicated process.
    But the bottom line is in talking to the industries, both 
the sugar as well as HFCS industries--and corn producers, I 
should point out as well--is that we would like to see a 
negotiated solution to this, because we believe since we have 
really reached the point where trade has broken down. We do not 
see HFCS and corn for HFCS going to Mexico. We do not see sugar 
going to the United States. We are not seeing cross investment. 
And what investment has taken place in Mexico and HFCS has been 
hurting over the last 18 months.
    There have been several dispute settlement cases on this, 
not directly the current problem, but previous problems that 
have inhibited trade.
    In talking to the industries, the real conclusion was is 
that the best way to resolve this is to negotiate a solution. 
We have been talking to the Mexicans about this now for really 
about a year. We think that we have some good ideas on the 
table that could move toward resolution.
    Frankly, it is not completely--it has not reached the point 
that we can either say that we have an agreement or that we can 
say that Mexico is ready to follow through on that, getting 
back to my earlier point. I am not going to make promises that 
I do not know whether I can deliver on or not.
    In terms of what we are prepared to do, we are prepared to 
do what we need to do to defend our interests in this case. 
Again, the industry's preferred solution is to see it 
negotiated, but if they are not ready to negotiate, we will 
look and see what our options are.
    And in this case, since we have had previous rulings, not 
exactly on this current problem, but close to the problem with 
HFCS of being inhibited in the Mexican market, that probably 
gives us a few more tools to look at than we would have 
otherwise. And we are evaluating that now.
    Senator Coleman. Well, thank you Ambassador. And I 
certainly appreciate your attention on this issue.
    Let me turn to the Brazil situation. I understand, Dr. 
Penn, that you plan to journey to Brazil in the not too distant 
future. And I understand that Ambassador Zoellick is traveling 
to Brazil next week for FTAA discussions. So let me raise a 
Brazil issue, you know, with regard to the issue of 
intellectual property rights for biotech soybeans, which I do 
hope would be on Ambassador Zoellick's agenda and then, Dr. 
Penn, on yours.
    The testimony we will hear from Monsanto and the American 
Soybean Association indicates they are preparing a plan to 
collect royalties on exports of Roundup Ready soybeans from 
Brazil to help level the playing field between U.S. farmers who 
pay tech fees and Brazilians who do not.
    What has the administration done to address Brazil's 
failure to enforce Monsanto's patent? Can the administration 
assist Monsanto in enforcing its right in countries where 
Roundup Ready soybeans have patents and that import Brazilian 
soybeans or soybean products, such as the European Union or 
Japan?
    Again, the issue here is one of a level playing field, of 
American growers paying patent protection, the very same 
product being grown elsewhere without paying for that, the 
disparity then in the competitive playing field. Either 
Ambassador Johnson or Dr. Penn.
    Dr. Penn. Well, let me keep Al from being overexposed here, 
and offer a short response, and then he can add to that.
    We are, of course, very concerned about intellectual 
property rights and about the enforcement of intellectual 
property rights and international law and the agreements that 
are reached. And so we are very interested in seeing that these 
patent rights are upheld and that the international agreements 
are honored.
    I only heard about the new Monsanto ASA plan yesterday, so 
I have not had a chance to thoroughly examine that, but I hope 
to do that. And certainly during our visit to Brazil, we will 
be meeting with various government officials, and we are 
certainly going to make them aware of our concerns and of our 
objectives, as I have just stated.
    Senator Coleman. And, Dr. Penn, I do want to add my voice 
to thanking the administration for moving forward on the 
biotech issue as regards to the European Union. And, in fact, I 
think these issues are actually tied together. My understanding 
of it is that Brazil biotech soybeans if they are sold to the 
EU, they are biotech soybeans under the guise that they are 
non-biotech.
    You have the EU in a situation now where they are holding 
off approval of biotech Ag products. You have the EU going 
further than that in regard to some African countries that are 
rejecting U.S. food aid, countries wherein there is a great 
deal of starvation. I think this almost borders on--and I use 
harsh words here--you know, fostering genocide, that you have 
countries that are--that people are dying of starvation and 
they are being encouraged not to buy, not to use, not to buy, 
not to receive, not to take an American product that is 
biotech. And yet you may well have a situation where companies 
that do not pay the royalties and do not acknowledge it even 
though, well, we know that the products are being grown there, 
are being shipped and being used, I think there is a situation 
here that really needs to be dealt with, and that we need to 
ensure our trade agreements include strong enforcement of 
patents.
    And, again, we will hear from Monsanto today, but I just 
think that needs to be on the agenda. It is a very, very, very 
important issue.
    I will yield to my colleague who said that he had a couple 
of followup questions.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    Dr. Penn, the administration has taken a very firm 
position, which I applaud, that domestic support programs 
cannot be negotiated in the FTAA. So my question is: How do you 
propose to deal with agricultural imports that undermine a U.S. 
program adopted by Congress?
    Dr. Penn. Well, Senator, as Ambassador Johnson said, the 
negotiations are being carried forward on three pillars: On 
export subsidies, on market access, and on domestic supports.
    And as he also indicated with respect to the WTO 
negotiations, everything is on the table. All of the 
commodities and all the products are on the table, and that is 
the way it has to be in a multilateral negotiation because as 
has also been noted, it is not possible to deal with domestic 
supports in a bilateral or a regional context. You can only 
deal with those in a multilateral context.
    Market access, of course, you can deal with in the 
bilateral agreements that we are trying to negotiate. So we are 
placing all products, all commodities on the table in the 
bilateral negotiations, and looking to get a balanced package 
so that we make adjustments along with everybody else, and that 
we gain market access that we have not heretofore had.
    Senator Enzi. Thank you. I will go back to Ambassador 
Johnson. I was pleased to see the Department of Commerce's 
recent determination of dumping by the Canadian Wheat Board. I 
know that USTR played an important role in pushing for that 
investigation.
    Can you talk about that role and what the process will be 
from here? What happens next? It fits back in with the 
enforcement that we talked about earlier.
    Ambassador Johnson. Well, first of all, let me just go back 
to about a year ago when--or a year ago last February, when we 
made the determination as to how we were going to proceed with 
the Canadian Wheat Board. We said we were going to do four 
things. We said, first of all, that we were going to 
aggressively pursue the WTO disciplines in exports state 
trading enterprises or, as I like to call them, monopolies, 
such as the Canadian Wheat Board. And we put forward a very 
ambitious proposal, which so far is part of that negotiations. 
It was actually in the chairman's draft, a lot of the 
disciplines that we asked for.
    We said that we were going to do consultations with Canada, 
which we did. We said that we were going to file a WTO case 
against the Canadian Wheat Board, which we did. And we--and 
this is on your commerce question. We have to be careful, 
because USTR is a--that is a quasi-judicial process, so USTRs' 
involvement in it was really just trying to be a facilitator, 
helpful as we can. But the determinations both for AD and CVD 
have occurred, which was the other--that was the fourth part.
    Now, in the coming months, you will see a determination of 
injury, and that will be worked with the ITC, and from that, 
the decision will be made what happens with that.
    In terms of the WTO case, a panel has been formed, and that 
case will be going forward and adjudicated in the coming time, 
through the rest of the year basically. And the WTO 
negotiations I already described.
    Senator Enzi. Thank you.
    Ambassador Johnson. I would like to just make one comment, 
if I could, on your biotech point, which is: On this WTO case 
against Europe on biotech, it is worth noting that a number of 
countries in this hemisphere joined us in this case, including 
Argentina, as a co-complainant in this. So we are looking 
forward to--we have a lot of common interest in the hemisphere 
on this issue. And it is one that, for all the reasons you 
mentioned, we consider to be extremely important, not just from 
a trade standpoint, but as a way of providing for new 
technologies to meet the demands of the world that we are going 
to be living in in the coming decades. Thank you.
    Senator Enzi. Thank you.
    Senator Coleman. Thank you very much, Ambassador Johnson. I 
am going to make one comment before I turn it over to the 
distinguished ranking member for a statement and then an 
opportunity to do some questioning.
    You made a comment, Ambassador Johnson, you talked about 
the administration's position regarding domestic support 
programs essentially should not be negotiated in FTAA but 
rather than in the context of WTO, and we do not want to 
unilaterally disarm our producers, argue counterpoints.
    I do want to make the comment about sugar, and I am not 
going to ask a question here, but I want to raise the issue. 
And we have raised it in private discussion, but I want to 
raise it very publicly that if it is important to maintain a 
current safety net for commodities, receiving domestic support, 
and we all agree on that, should we not also maintain the 
current safety nets for sugar?
    And I would urge the administration to carefully reconsider 
its position relative to sugar, as a matter of consistency with 
its handling of domestic subsidies. I do not need a response on 
that, but I do want to make the statement and make the position 
very, very clear because I think it is important.
    With that, I would turn it over to the distinguished 
ranking member, who has probably forgotten more about Latin 
America than I know. And I do appreciate his being here. I know 
he had some other engagements, but I want to welcome him and 
give him the opportunity to make a statement.
    Senator Dodd. Well, thank you very much, Mr. Chairman. And 
my apologies to the witnesses and other members. We had an 
extended markup of a nominations in the Banking Committee and a 
hearing on the Fair Credit Reporting Act, which is a major 
issue. So I apologize in getting down here an hour late.
    Senator Coleman. Senator Dodd, before you--I know that Dr. 
Penn has indicated he needs to leave sometime shortly after 
3:30, so if he has to leave, it would not be because of 
anything that is in your statement. He has indicated that.
    So, Dr. Penn, if you have to exit at a certain point in 
time you are certainly excused.
    Dr. Penn. Thank you very much, Mr. Chairman.
    Senator Dodd. Yes. We will watch and see exactly at what 
point in my statement you leave.
    Dr. Penn. I have to go now.
    Senator Dodd. Well, first of all, thank you, Mr. Chairman. 
Let me congratulate you on holding this hearing, which is on a 
tremendously important subject matter. And this is obviously to 
focus on the economic issues, the future of economic relations 
in the Western Hemisphere, and the success of the tremendous 
progress that has been made with the emergence of so many 
democratic nations in the hemisphere in the last number of 
years, all directly hinges upon the success of these countries 
to perform economically. And if they do not perform well 
economically, then the likelihood they are going to succeed 
democratically is immediately in jeopardy.
    So this is about as critical a set of issues as you can 
have when you are talking about the region. Certainly, America 
and its neighbors today have made considerable advances toward 
expanding and liberalizing trade relations in our hemisphere, 
which is a key element, obviously, in economic stability.
    Over the past two decades, we have witnessed the 
establishment and implementation of significant initiatives, 
such as the North American Free Trade Agreement, the Andean 
Trade Preference Act, The Caribbean Basin Economic Recovery 
Act. All three have brought increased cooperation and 
communication.
    They have been positive forces, in my view, to promote 
political and economic stability, as well as growth and 
democracy to this hemisphere. Indeed, healthy and strong trade 
relations contribute to the vibrancy of the nation's economy.
    In 2002, the United States' agricultural exports to the 
Western Hemisphere, and I am sure you have already made 
reference to this, were $4.2 billion. If the NAFTA countries 
are included in this calculation, the total amounts to over $20 
billion.
    These statistics are an obvious indication of the 
substantial benefits that accrue to the United States from such 
agreements. As we all are aware, Latin America and the 
Caribbean have many significant problems.
    Throughout the past years, some of our neighbors in this 
hemisphere have been plagued by economic and political 
instability, narco-terrorism, and the public health challenges. 
The illegal narcotics trade and its devastating impacts 
persist. Poverty rates are very, very high. And access to 
education and healthcare remain alarmingly limited.
    From the southern tip, southernmost tip of the South 
American Continent to closer to home in the Caribbean region, 
many of our friends and allies have been struggling to create 
and ensure a safe and secure future for their own people.
    I strongly believe that successful efforts to achieve a 
Central American free trade agreement, and eventually in 2005 a 
free trade agreement of the Americas, will help further these 
goals. As well, the United States stands to benefit along with 
our neighbors, from increased trade relations throughout this 
hemisphere.
    Toward that end, I am encouraged that CAFTA negotiations 
appear to be on track, with the fourth of nine rounds taking 
place just this past week. Hopefully CAFTA will finally be 
finalized according to the current timetable at the end of 
2003. I am also heartened that FTAA negotiations are continuing 
to move forward. And I look forward to the presentation of the 
third draft agreement in the next scheduled meeting in late 
November 2003.
    However, although FTAA and CAFTA are on the horizon, we 
must not neglect individual initiatives, such as the Chilean or 
Chile Free Trade Agreement, which is currently awaiting the 
President's signature. By implementing the Chile FTA, the 
United States will be sending a very clear signal that we are 
going to continue the close and essential relationships that we 
have established with our partners in the Southern Hemisphere.
    Given the many difficulties facing the region, as well as 
doubt over the intentions of the United States with regards to 
FTAA, the importance of a Chile FTA could not be overstated. 
Certainly there are a number of subjects that need to be 
addressed during the FTAA negotiations.
    First, reaching an accord with participating nations on 
agricultural issues will be of prime importance to the success 
of any agreement. As we can already see from the current 
efforts, the successful crafting of agricultural provisions is 
a complicated process. Therefore, it is my hope that the 
administration will work vigorously and together with our 
partners to shape a practical, sensible and viable agricultural 
policy for the future of FTAA.
    Second, I think it is very important that the commitments 
of participating nations to the World Trade Organization in 
matters such as the protection of intellectual property laws 
are maintained. And for those nations that are not currently in 
compliance with WTO standards, I believe it is imperative that 
in the coming years, they take measures to bring themselves 
into compliance. Many nations have already begun this process, 
and it is my hope that this positive trend continues.
    I also understand that certain sectors of the American 
industry have fared less well than others under the increased 
competition brought on by international trade. That is why I 
strongly believe it is imperative that the President implement 
the powers given to him under the Trade Promotion Authority. If 
he takes all the necessary measures to ensure that our trading 
partners comply with important labor and environmental 
standards, not only would this help safeguard the lives of 
workers globally, and the natural resources on which we all 
depend, it will help ensure that American companies can 
successfully compete in today's global marketplace.
    FTAA is the economic future of our hemisphere. The examples 
set by the previous agreements, such as NAFTA, are very clear. 
NAFTA has bound the United States, Canada, and Mexico more 
closely together. It is an important aspect of our close 
relationship with these nations.
    The establishment of FTAA will require that we develop 
similar relationships with our neighbors throughout the 
hemisphere. Such relationships are the key to promoting America 
interests at home and abroad.
    Today's hearing with its focus on agricultural issues, I 
think are going to help us understand the issues that we must 
mutually find answers to in order to ensure that those 
interests are maximized.
    Mr. Chairman, let me just repeat, again, I mentioned the 
Chilean issue before, and I will just repeat it again. My hope 
is--and I know that there are those who are still--``angry'' 
may not be the right word--but disappointed in how Chile voted 
at the U.N. on the U.N. resolutions involving Iraq. But we have 
got to get beyond that here at this point.
    We can express those views in a lot of ways, but these 
agreements are not just favors to Chile or favors to other 
countries. They are very good for us. And so by delaying this 
or by playing games with them, we do not just do any harm to 
Chile; we do a lot of damage to ourselves and in the 
hemisphere.
    So I hope out of this hearing, a message will get through 
to the administration, particularly those who understand these 
economic issues. If you mess around this too long, you are 
going to lose this. We are going to have a tough time; we are 
getting closer to national elections, and if you do not get 
this done, along with Singapore, you are going to miss an 
opportunity, and you will miss it in this Congress. And we will 
be back at it again in a future Congress. And I do not know how 
that comes out.
    So the window is closing. It is closing every single day we 
wait on this. And my hope is the administration will hear that 
message and get about the business of signing that agreement 
and getting it up and getting it moving. If we end up with it 
next fall or next winter, you will not get it, in my view. We 
will not get it. It will not get done.
    I thank you, Mr. Chairman.
    Senator Coleman. Thank you very, very much, Senator Dodd. 
Senator Dodd, you have the opportunity if you want to ask any 
questions, while the Ambassador is here.
    Senator Dodd. Well, I will ask you that one. Where do you 
think we stand on this Chilean thing? What are you telling 
people?
    Ambassador Johnson. I am telling them it is a good deal for 
U.S. agriculture. That is what I am telling them. We went 
through that earlier when you were not here.
    Senator Dodd. Yes. I apologize.
    Ambassador Johnson. But basically we are going through a 
review of that agreement. I know it is under consideration for 
moving forward. As you know, we negotiated the agreement back 
in December and it was notified, the Congress, the intent to 
sign or the intent to enter in an agreement back in January, 
and that has now expired.
    So we can sign it at any time. Although I think--I know 
that our lawyers are working hard at and including interaction 
with some of our advisors in going through and making sure that 
we have got all the I's dotted and T's crossed.
    Senator Dodd. Well, tell them the message up here, because 
these things are hard. I have been around here enough years to 
know how tough these agreements can be. Even the bilateral ones 
are hard. And if they do not get this done soon, this economy 
is not getting better every day. And then the pressures are 
going to grow, and particularly when people are starting to 
demand more at home and layoffs continue--if we end up with 
80,000 job losses every month, and every month hereafter, you 
are going to have an awful time getting these things done. So I 
would hope you would convey that message.
    Ambassador Johnson. Yes, sir.
    Senator Coleman. And certainly, Senator, the Chilean 
agreement can serve as a model for others. So I think the 
message is loud and clear. Across both sides of the aisle, we 
need to get it done.
    With that, we will excuse the witness. Thank you very, very 
much, Ambassador Johnson.
    We would now like to invite the second panel of witnesses 
to the table.
    Mr. Bart Ruth from Rising City, Nebraska, chairman of the 
American Soybean Association; Mr. Carl Casale from St. Louis, 
Missouri, vice president of North America Agriculture for the 
Monsanto Company; Mr. Bobby Greene from Courtland, Alabama, 
chairman of the National Cotton Council; Mr. Doug Boisen from 
Minden, Nebraska, chairman of the National Corn Growers 
Association Trade Task Force; Mr. Jack Roney from Arlington, 
Virginia, director of Economics and Policy Analysis for the 
American Sugar Alliance; Mr. Jim McDonald from Grangeville, 
Idaho, chairman of the Wheat Export Trade Education Committee.
    I understand Mr. McDonald has a plane to catch, and I 
understand how that goes, Mr. McDonald, so what I will do is I 
will turn to you and you may begin.
    Mr. McDonald. Thank you, sir.

    STATEMENT OF JIM McDONALD, CHAIRMAN, WHEAT EXPORT TRADE 
 EDUCATION COMMITTEE AND U.S. WHEAT ASSOCIATES, GRANGEVILLE, ID

    Mr. McDonald. Thank you. Good afternoon. My name is Jim 
McDonald. I am a wheat producer from Grangeville, Idaho, and I 
am the chairman of the Wheat Export Trade Education Committee 
and U.S. Wheat Associates. And today I also represent the 
National Association of Grain Growers.
    The United States generally exports between 40 and 50 
percent of our wheat production. In the Pacific Northwest, 
where I farm, the percentage is much higher. As a trade-
dependent commodity, therefore, our success or failure hinges 
on our ability to expand U.S. wheat export markets.
    The wheat industry strongly supports moving forward 
aggressively in both the World Trade Organization and the Free 
Trade Area of the Americas negotiations. The WTO process is 
important for liberalizing world wheat trade, and the U.S. 
wheat industry has a clear set of goals in this round of 
negotiations. However, just as the North American Free Trade 
Agreement provided great market opportunities and clear 
successes for wheat, the FTAA can extend liberalization beyond 
the level envisioned in the WTO, and holds tremendous market 
growth potential for U.S. wheat producers.
    As an added benefit, alliances gained in the FTAA can carry 
over into the WTO negotiations where there are some extremely 
contentious differences. We believe that a strong commitment in 
the hemisphere can be a very positive force against the 
European Union's protectionist positions.
    The United States, including our industry, is on the brink 
of major opportunities offered by the FTAA. First, however, 
several important issues must be addressed in negotiations: 
market access, state-trading enterprises, monopoly practices, 
export subsidies, and sanitary/and phytosanitary issues. 
Resolutions of these issues must result in freer and fairer 
trade among the countries of the Americas.
    Before I move to the discussion of those issues and their 
effects on the wheat market, let me make an important point on 
what we should not be negotiating. The United States must 
refrain from negotiating on domestic supports within the 
context of the FTAA.
    It would be unwise to unilaterally disarm within the 
hemisphere while leaving the EU to continue subsidizing their 
products at high levels. We concur with the U.S. position 
encouraging the countries within the hemisphere to work 
together in the WTO to substantially reduce and more tightly 
discipline state trade distorting domestic support.
    The benefits of free trade can clearly be seen in the 
dramatic increase in wheat exports following the North American 
Free Trade Agreement. U.S. wheat exports to Mexico have soared 
48 percent over the last 5 years. And this year's record 
exports to Mexico will reach over 2\1/2\ million tons, making 
Mexico our second largest wheat customer in the world.
    The FTAA must be negotiated so that we have duty-free 
access to Brazil, along with all other markets in Central and 
Latin America, and it must give us access on a par with 
Argentina and Canada to the entire hemisphere and the growing 
economies of 800 million people.
    The U.S. wheat industry vigorously agrees with the U.S. 
Government position that calls for the elimination of all 
trade-distorting export subsidies within the hemisphere and the 
establishment of a mechanism that would prohibit agricultural 
products from being exported through the FTAA by non-FTAA 
countries with the aid of export subsidies.
    We are also very encouraged by the U.S. position opposing 
state trading enterprises within the hemisphere. CUSTA and 
NAFTA left unresolved issues between the United States and 
Canada, and we must not allow these unresolved issues to be 
carried into the FTAA.
    U.S. wheat producers agree with the U.S. FTAA negotiating 
position that the tariff methods and modalities agreed to must 
be fair and reasonable to ensure the benefits of free trade are 
broadly distributed. Since the average U.S. tariff on 
agricultural imports is about 12 percent, while the rest of the 
world exceeds 60 percent, reducing high tariffs must be a 
priority in the FTAA discussions.
    We also agree with the U.S. proposal to use the lower of 
either a product's most favored nation applied rate in effect 
during the negotiations or the WTO bound rate at the end of the 
negotiation process. This will ensure that the reduction will 
substantially open markets to U.S. products. Whichever rate is 
used, it should become a bound rate to add stability in the 
region.
    In addition to negotiations on tariffs, action must be 
taken to address problems in tariff rate quota administration 
and price band systems. We are very pleased with the provisions 
of the Chile Free Trade Agreement that eliminate the use of 
price bands, and we hope this sets a guideline for the FTAA 
negotiations.
    The importance of environmental protection and labor 
standards is without question. However, these concerns may be 
more appropriately addressed in other forums and by other 
methods than through FTAA negotiations. The U.S. wheat industry 
is concerned that an effort to link environmental and labor 
concerns to trade may hinder negotiating leverage or impinge on 
the goals of trade liberalizing negotiations.
    We are especially concerned about any proposal to use trade 
as an enforcement mechanism, through the imposition of 
sanctions, in pursuing goals in these areas, however desirable 
the goals may be. We believe that ultimately the most 
successful resolutions to these concerns can only happen if our 
trading partners are assured that the United States does not 
intend to use sanctions to bully them into relinquishing their 
sovereignty with respect to environmental and labor standards.
    The wheat industry is very concerned that the many multi-
environmental agreements [MEAs] may disrupt trade around the 
world. There has been insufficient discussions on how these 
agreements work with, or conflict with, WTO rules. Of immediate 
concern is the Cartagena Protocol on Biosafety, adopted by the 
Conference of the Parties to the United Nations Convention on 
Biodiversity in Montreal on January 29, 2000.
    Our markets are at risk of intended and unintended 
consequences from the growing number of MEAs, and particularly 
those dealing with use of new technology. Our negotiators must 
use all available negotiating opportunities, with the FTAA and 
elsewhere to ensure that the WTO is paramount and that sound 
science prevails in disputes that may arise from use of 
biotechnology and other technologies from MEAs.
    In conclusion, the wheat industry is very pleased by the 
U.S. position on agriculture in the FTAA and for the Doha Round 
of the WTO. We believe that the U.S. trade policy is headed in 
the right direction.
    To recap, our positions, we need duty-free access to 
Brazil. The unfair advantages given to the Canadian Wheat Board 
monopoly must be ended. We cannot allow monopoly actions to be 
legalized in the FTAA. Reducing high tariffs must be a priority 
in the FTAA discussions. Existing price band mechanisms for 
wheat and flour should be eliminated, replaced by a system of 
tariffs, which would be phased out. A risk assessment 
framework, including an expedited process, should be 
established to address sanitary and phytosanitary disputes. 
Environmental and labor issues should not unnecessarily hinder 
our trade opportunities.
    The final agreement must ensure that sound science and WTO 
rules prevail, especially in regards to biotechnology. The 
existing barriers to trade and travel to Cuba should be 
removed. Reconsideration should be given to Cuba's exclusion in 
the FTAA.
    Thank you for this opportunity to speak on behalf of the 
wheat industry.
    Senator Coleman. Thank you very much, Mr. McDonald.
    [The prepared statement of Mr. McDonald follows:]

   Prepared Statement of Jim McDonald, Chairman, Wheat Export Trade 
             Education Committee and U.S. Wheat Associates

    Good Morning, members of the committee. My name is Jim McDonald and 
I am a wheat producer from Grangeville, Idaho. I am the Chairman of the 
Wheat Export Trade Education Committee and U.S. Wheat Associates, and 
today I also represent the National Association of Wheat Growers.
    The U.S. generally exports between 40 and 50 percent of our wheat 
production. In the Pacific Northwest, where I farm, the percentage is 
much higher. As a trade-dependent commodity, therefore, our success or 
failure hinges on our ability to expand U.S. wheat export markets.
    The U.S. wheat industry strongly supports moving forward 
aggressively in both the World Trade Organization and Free Trade Area 
of the Americas negotiations. The WTO process is important for 
liberalizing world wheat trade, and the U.S. wheat industry has a clear 
set of goals in this round of negotiations. However, just as the North 
American Free Trade Agreement provided great market opportunities--and 
clear successes for wheat--the FTAA can extend liberalization beyond 
the level envisioned in the WTO, and holds tremendous market growth 
potential for U.S. wheat producers.
    As an added benefit, alliances gained in the FTAA can carry over to 
the WTO negotiations where there are some extremely contentious 
differences. We believe that a strong commitment in the hemisphere can 
be a very positive force against the European Union's protectionist 
positions.
    The U.S.--including our industry--is on the brink of major 
opportunities offered by the FTAA. First, however, several important 
issues must be addressed in negotiations: market access, state-trading 
enterprises, monopoly practices, export subsidies, and sanitary/and 
phytosanitary issues. Resolutions of these issues must result in freer 
and fairer trade among the countries of the Americas.
    Before I move to a discussion of those issues and their effects on 
the wheat market, let me make an important point on what we should NOT 
be negotiating. The U.S. must refrain from negotiating on domestic 
supports within the context of the FTAA. It would be unwise to 
unilaterally disarm within the hemisphere while leaving the EU to 
continue subsidizing their producers at high levels. We concur with the 
U.S. position encouraging the countries within the hemisphere to ``work 
together in the WTO to substantially reduce and more tightly discipline 
trade-distorting domestic support.''

           AN FTAA OFFERS MARKET OPPORTUNITIES FOR WHEAT

    The benefits of free trade can clearly be seen in the dramatic 
increase in wheat exports following the North American Free Trade 
Agreement. U.S. wheat exports to Mexico have soared 48% over the last 
five years, and this year's record exports to Mexico will reach over 
two and a half million tons, making Mexico our second largest customer 
in the world.
    U.S. wheat exports are doing well in Central America and the 
Caribbean too. During the last five years, U.S. wheat market share in 
the Caribbean has averaged 75-80%. We are posting significant gains in 
Central America, where we currently have a 70% market share, and the 
situation is looking particularly bright in Guatemala and Costa Rica.
    While Mexico, the Caribbean and the Central American region are 
marked by success, however, the South American region is marked by a 
tougher struggle for market access and market share. U.S. wheat exports 
to South America have been about 2 million metric tons (MMT) for the 
past ten years. Conversely, Argentina's exports within the region have 
gone from 1.6 MMT to 8.2 MMT. The total value of wheat exports to the 
region is $1.6 billion, with the total value of U.S. exports amounting 
to just $220 million.
    It is expected that South America will experience a five-percent 
growth rate in wheat imports, and we look to the FTAA to give U.S. 
wheat a more level playing field on which to compete.
    Recently, Brazil has imported almost eight million tons of wheat 
each year. Despite an U.S. logistical advantage to northern Brazil, the 
country has been basically a captive of Argentine wheat because of the 
MERCOSUR arrangement that puts the U.S. at an unfair disadvantage due 
to a tariff differential.
    The U.S. wheat industry also faces difficulties in Guatemala, Peru, 
Columbia and Venezuela as a result of the monopolistic trading 
practices of the Canadian Wheat Board (CWB), an anachronistic state 
trading enterprise. When it has ample stocks, the CWB intentionally 
undercuts U.S. wheat prices in these markets (and others), and is able 
to do so not because of a legitimate competitive advantage, but due to 
unfair trading practice.
    The FTAA must be negotiated so that we have duty-free access to 
Brazil, along with all other markets in Central and Latin America, and 
it must give us access on a par with Argentina and Canada to the entire 
hemisphere and the growing economies of 800 million people.

        EXPORT COMPETITION MUST BE ON A LEVEL PLAYING FIELD

    The U.S. wheat industry vigorously agrees with the U.S. government 
position that calls for the elimination of all trade-distorting export 
subsidies within the hemisphere and the establishment of a mechanism 
that would prohibit ``agricultural products from being exported to the 
FTAA by non-FTAA countries with the aid of export subsidies.''
    We are also very encouraged by the U.S. position opposing state 
trading enterprises within the hemisphere. CUSTA and NAFTA left 
unresolved issues between the U.S. and Canada, and we must not allow 
these unresolved issues to be carried into the FTAA.
    The CWB's state-supported export monopoly controls virtually every 
aspect of wheat production in the western Canadian provinces, including 
varietal control, day-to-day execution of sales contracts and long-term 
market development. It is the largest single grain marketing board in 
the world, with monopoly control of about 20 percent of world wheat and 
barley trade. To put it into perspective, recall the Cargill 
acquisition of Continental's grain business. Together, the two merged 
companies control roughly 20 percent of U.S. wheat exports, or about 
228 million bushels, based on a five-year average. In contrast, the CWB 
controls annual average wheat exports of 680 million bushels, or about 
three and half times as much as Cargill and Continental combined.
    As a government-supported grain monopoly, the CWB uses discounted 
price offers, bonus deliveries, supplemental cleaning, delayed 
payments, indirect transportation subsidies, and other favorable 
contract terms to often undercut U.S. grain prices. Canadian producers 
have little say in marketing their crop, and they receive only about 80 
percent of its value when turned over to the CWB. No private company 
that faces commercial risk and stockholder oversight has such control, 
nor can any offer wheat at whatever price it chooses.
    While we are very optimistic about market growth in the Western 
Hemisphere, U.S. wheat producers have had numerous problems with 
specific provisions of previous trade agreements in the hemisphere. The 
Canada-U.S. Free Trade Agreement of 1988, CUSTA, resulted in 
memorializing trade inequities between U.S. and Canadian farmers. 
Regrettably, CUSTA talks to open the CWB marketing system to 
competition were unsuccessful and, even worse, CUSTA actually gave the 
CWB an advantage over U.S. wheat producers in the U.S. market. Without 
getting too technical, the two sides agreed (very mistakenly) that the 
CWB's cost of acquisition was equivalent to the CWB's initial price. 
(The CWB provides the ``initial price'' to its growers when they 
deliver wheat to the pool.) In truth, according to CWB documents, the 
initial price amounts to about 80 percent of the final price farmers in 
Canada receive for their wheat after all pool accounts are completed.
    We believe that the inequities established in the CUSTA have 
encouraged the injurious surge of wheat exports from Canada to the 
United States. Over the last decade, this issue has been one of the 
single biggest sources of contention along the U.S.-Canada border and 
one that continues today. Despite the urging of the wheat industry, 
NAFTA provided no resolution of the Canadian trade issues.
    In 2001 the North Dakota Wheat Commission filed a Section 301 
petition with the Office of the U.S. Trade Representative. USTR 
initiated its investigation of the CWB under section 301 at the urging 
of the Wheat Export Trade Education Committee, the National Association 
of Wheat Growers, U.S. Wheat Associates, the American Farm Bureau 
Federation, the National Farmers Union and every state wheat 
commission.
    In February 2002, after a review of the investigation, USTR 
released an ``affirmative finding'' that detailed the CWB's 
monopolistic characteristics. The USTR found ``that the acts, policies 
and practices of the Government of Canada and the CWB are unreasonable 
and burden or restrict U.S. commerce.'' Based on the findings, the USTR 
concluded that ``the CWB's subsidies, protected domestic market, 
special benefits and privileges disadvantage U.S. wheat farmers and 
infringe on the integrity of a competitive trading system.''
    With the affirmative finding, U.S. Trade Representative Robert B. 
Zoellick also announced ``that the United States will pursue multiple 
avenues to seek relief for U.S. wheat farmers from the trading 
practices of the Canadian Wheat Board (CWB), a government monopoly 
trading enterprise.'' This included taking a possible dispute 
settlement case against the Board in the World Trade Organization, 
working with the U.S. industry on possibly filing U.S. countervailing 
duty and antidumping petitions, and working towards market access for 
U.S. wheat exports to Canada.
    The U.S. industry has made specific, realistic suggestions for 
addressing the underlying problems with the CWB. Our particular focus 
has been to end the state-mandated monopoly, subjecting the CWB to 
market discipline. The proactive actions taken by the NDWC and the U.S. 
wheat industry were intended to work in conjunction with multilateral 
and regional negotiations on export state trading entities, and any 
final agreement must provide effective discipline over the CWB's 
activities in the hemisphere.
    The national wheat organizations are very pleased at the progress 
that has been made on this long-standing issue. We are especially 
pleased that the Department of Commerce has confirmed that the Canadian 
Wheat Board is dumping into the U.S. market. The Department of Commerce 
will begin imposing an 8.15 percent duty on Durum wheat and a 6.12 
percent duty on Hard Red Spring Wheat.
    The U.S. wheat industry has proven its case and we must not allow 
monopoly actions to be legalized in the FTAA or any future trade 
agreements.

 ADDRESSING MARKET ACCESS ISSUES OF TARIFFS, PRICE BANDS, AND TRQ'S

    U.S. wheat producers agree with the U.S. FTAA negotiating position 
that the tariff methods and modalities agreed to must be ``fair and 
reasonable'' to ``ensure the benefits of free trade are broadly 
distributed.'' Since the average U.S. tariff on agricultural imports is 
about twelve percent, while the rest of the world exceeds sixty 
percent, reducing high tariffs must be a priority in the FTAA 
discussions.
    We also agree with the U.S. proposal to use the lower of either a 
product's ``most favored nation'' applied rate in effect during the 
negotiations or the WTO bound rate at the end of the negotiating 
process. This will ensure that the reduction will substantially open 
markets to U.S. products. Whichever rate is used, it should become a 
bound rate to add stability in the region.
    In addition to negotiations on tariffs, action must be taken to 
address problems in tariff rate quota administration and price band 
systems. We are very pleased with the provisions of the Chile Free 
Trade Agreement that eliminate the use of price bands and we hope this 
sets a guideline for the FTAA negotiations. We would like to see the 
elimination of the existing price band mechanisms for wheat and flour, 
to be replaced by a system of tariffs that would be phased out over an 
implementation period. The tariffs should be reasonable and should not 
constitute new trade barriers. We compliment Chile, the principal user 
of the price band system for wheat, for looking at ways to remove the 
bands in accordance with World Trade Organization findings that their 
bands are illegal.
    Those countries that administer TRQ's do so in a variety of ways, 
from auctioning to allocation of licenses to producer groups, which 
clearly hinder U.S. exports. The duties outside the quotas must be 
targeted for reduction. Additionally, the fill-rate of tariff quotas 
appears to be very low among some countries, resulting in part from bad 
TRQ administration. To correct this problem, the U.S. may want to 
consider an incentive-based system to encourage increased imports where 
fill rates are low.
    We concur with the U.S. market access ``Tariffs and Non-Tariff 
Measures Text.'' This proposes a level playing field by requiring all 
FTAA countries to grant ``national treatment'' to products from other 
FTAA countries, the elimination of import and export restrictions and 
increasing transparency resulting in reductions in the cost of doing 
business in the Hemisphere.

  RISK ASSESSMENT IS NEEDED FOR SANITARY AND PHYTOSANITARY (SPS) 
                                 ISSUES

    The proliferation of sanitary/phytosanitary issues has resulted in 
the slowing or--in some especially egregious cases--the temporary 
cessation of trade with some countries. We must build upon the Uruguay 
Round Agreement on Agriculture with respect to plant, health and 
safety. In particular, negotiations to expand NAFTA into a hemispheric 
agreement must establish a risk assessment framework, as well as the 
creation of an accepted and expedited procedure for addressing 
sanitary/phytosanitary disputes when they arise among signatories to 
the FTAA. We also believe that trade in new technologies is adequately 
addressed in the SPS/TBT agreements of the World Trade Organization and 
should not be revisited in these negotiations.

  LABOR AND ENVIRONMENTAL STANDARDS SHOULD BE ADDRESSED IN OTHER 
                                 FORUMS

    The importance of environmental protection and labor standards is 
without question; however, those concerns may be more appropriately 
addressed in other forums and by other methods than through FTAA 
negotiations. The U.S. wheat industry is concerned that an effort to 
link environmental and labor concerns to trade may hinder negotiating 
leverage or impinge on the goals of trade liberalizing negotiations.
    We are especially concerned about any proposal to use trade as an 
enforcement mechanism, through the imposition of sanctions, in pursuing 
goals in these or other areas, however desirable the goals may be. We 
believe that ultimately the most successful resolutions to these 
concerns can only happen if our trading partners are assured that the 
U.S. does not intend to use sanctions to ``bully'' them into 
relinquishing their sovereignty with respect to environmental and labor 
standards.

                   MEAS SHOULD NOT DISRUPT TRADE

    The wheat industry is very concerned that the many Multilateral 
Environmental Agreements (MEAs) may disrupt trade around the world. 
There has been insufficient discussion on how these agreements work 
with--or conflict with--WTO rules. Of immediate concern is the 
Cartagena Protocol on Biosafety, adopted by the Conference of the 
Parties to the United Nations Convention on Biodiversity in Montreal on 
January 29, 2000.
    The Protocol is designed to contribute ``to the safe transfer, 
handling and use of living modified organisms'' resulting from modern 
biotechnology, ``that may have adverse effects on the conservation of 
sustainable use of biological diversity, taking also into account risks 
to human health, and specifically focusing on transboundary 
movements.''
    As of May 6, 2003, 103 countries have signed and 46 countries of 
the required 50 have ratified the Protocol. We expect that the full 50 
countries will have ratified the agreement this summer, bringing the 
commitment into force within 90 days of ratification. The Biosafety 
Protocol has created many unknowns for traders around the world, the 
most basic of which is the undefined relationship to WTO agreements. 
Included in the written copy is background information on this issue.
    Our markets are at risk of intended and unintended consequences 
from the growing number of MEAs, and particularly those dealing with 
use of new technologies. Our negotiators must use all available 
negotiating opportunities, with the FTAA and elsewhere, to ensure that 
the WTO is paramount and that sound science prevails in disputes that 
may arise from use of biotechnology and other new technologies and from 
MEAs.

          TRADE MUST BE WITH ALL COUNTRIES IN THE AMERICAS

    Finally, to take full advantage of trading opportunities in the 
Americas, we need access to all of our neighboring markets. Congress 
must remove the Cuban sanctions. While no one condones recent human 
rights violations by Fidel Castro, we strongly believe that opening 
travel, trade and dialogue creates the best opportunities for the Cuban 
people.

                             CONCLUSION

    The wheat industry is very pleased by the U.S. Position on 
Agriculture in the FTAA and for the Doha Round of the WTO. We believe 
that the U.S. trade policy is headed in the right direction.
    To recap, our positions are:

   We need duty-free access to Brazil.
   The unfair advantages given to the CWB monopoly must be 
        ended. We cannot allow monopoly actions to be legalized in the 
        FTAA.
   Reducing high tariffs must be a priority in the FTAA 
        discussions.
   Existing price band mechanisms for wheat and flour should be 
        eliminated, replaced by a system of tariffs, which would be 
        phased out.
   A risk assessment framework, including an expedited process, 
        should be established to address sanitary/phytosanitary 
        disputes.
   Environmental and labor issues should not unnecessarily 
        hinder trade opportunities.
   The final agreement must ensure that sound science and WTO 
        rules prevail, especially in regards to biotechnology.
   The existing barriers to trade and travel to Cuba should be 
        removed. Reconsideration should be given to Cuba's inclusion in 
        the FTAA.

    The U.S. wheat industry has worked for over 50 years to expand 
export markets, and we are committed to doing all we can to secure fair 
and open trading practices around the world. We stand ready to work 
with you towards a successful outcome of these negotiations in order to 
realize the market potential of an FTAA and solidify alliances with our 
neighbors.
    Thank you for this opportunity to speak on behalf of the wheat 
industry.

    Senator Coleman. I understand you have a plane to catch. We 
will excuse you. I was going to ask a question. I know you have 
concerns about the Canadian Wheat Board, but we can get into 
that at another time. I thank you for your statement.
    Mr. McDonald. Mr. Nelson is here from the U.S. Wheat Office 
and he would be glad to answer any questions you have 
concerning the wheat industry.
    Senator Coleman. Great. Thank you very, very much, Mr. 
McDonald. I appreciate it.
    Mr. McDonald. Thank you.
    Senator Coleman. Mr. Ruth.

STATEMENT OF BART RUTH, CHAIRMAN, AMERICAN SOYBEAN ASSOCIATION, 
                        RISING CITY, NE

    Mr. Ruth. Good afternoon, Mr. Chairman and members of the 
subcommittee. I am Bart Ruth, a soybean and corn producer from 
Rising City, Nebraska, and chairman of the American Soybean 
Association.
    We appreciate the opportunity to appear before you today, 
as we find ourselves deeply engaged in assessing our 
competitiveness in the world, and particularly with the growth 
in agricultural production and exports from South America. How 
we all decide to address this challenge will affect the 
profitability and prosperity of our national agricultural 
economy, and of the overall U.S. economy, for years to come.
    The expansion of the U.S. soybean industry has been a 
tremendous success story over the past 30 years. From 46 
million acres and 1.3 billion bushels in 1972, U.S. soybean 
production grew to 72 million acres and 2.7 billion bushels in 
2002.
    Prospects for future growth in world demand for both 
soybean meal and soybean oil are quite bright. Our goal is to 
position the U.S. soybean industry to maximize our return from 
the growing global market over the next century. Our industry 
has strongly supported expanding international trade by 
reducing tariffs and eliminating other trade barriers in order 
to increase access and encourage demand for soy and livestock 
products in global markets.
    The rise in competition from South American exporting 
countries, and the certainty that it will increase over the 
next several decades, make aggressive opening of major 
developing country markets in the Doha negotiations essential.
    Let me now briefly summarize the rise in soybean production 
and exports in Brazil and particularly the rapid expansion in 
the central west region known as the Cerrados.
    The Economic Research Service estimated in 2001 that Brazil 
has approximately 338 million acres in the Cerrados region 
alone available for land clearing and new crop production, an 
area which is one and one-third times larger than the total 
acreage devoted to row crop production in the United States.
    Trends indicate that the expansion of land clearing and 
agricultural production in the Cerrados is still accelerating. 
Many agricultural economists expect soy acreage in Brazil to 
total 94 million acres in 10 years, which would greatly surpass 
current U.S. acreage of 72 million acres. Nor are soybeans the 
only crop facing expanding competition.
    Cotton production has nearly doubled in 5 years, and corn 
is up by 23 percent. Brazilian officials also predict a major 
expansion in pork and poultry production. Clearly, our industry 
and others that are dependent on export markets face a serious 
and growing challenge.
    The following are some of our key recommendations for 
responding to this competitive challenge. The United States has 
a distinct advantage over Brazil in transportation costs, and 
it is important that we do all we can to maintain and enhance 
this advantage.
    Approximately 75 percent of U.S. soybeans and soybean 
products are exported via the Mississippi waterway and its 
tributaries. Legislation authorizing and appropriating funds 
for lock modernization and extensions on the Mississippi and 
Illinois waterways should be a key priority for the 
administration and Congress.
    Another priority would be increased soybean research 
funding. While U.S. soybean yields are stagnate or only very 
slowly improving, yields as well as protein and oil content in 
Brazil have improved rapidly through government and private 
sector research, and now surpass U.S. yields and protein 
levels.
    Increased U.S. Federal soybean research funding is needed 
if U.S. soybean producers are to catch up with and keep pace 
with their Brazilian competitors. The Government of Brazil has 
played a key role in the development of soybean and other 
agricultural production in the Cerrados region through policies 
designed to facilitate clearing of the land, expansion of 
production, and the earning of foreign exchange through 
exports.
    Much more needs to be done by the U.S. Government to 
investigate the various policies and subsidies that are helping 
to fuel the rapid expansion of crop and livestock production in 
Brazil. And the results of this investigation should be used to 
formulate appropriate policies and negotiating objectives.
    Weak or non-existent intellectual property protection and 
enforcement in Brazil are benefiting Brazilian growers and 
hurting the competitiveness of U.S. soybean producers. The 
combination of Brazilian growers not paying royalties on 
pirated Roundup Ready soybean seed, along with the economic 
benefits the Brazilian growers receive from Roundup Ready 
technology, gives Brazilian growers an ill-gotten competitive 
advantage over U.S. growers estimated at $20 per acre.
    The U.S. Government and companies holding technology 
patents should actively pursue all possible legal remedies to 
address this unlevel playing field.
    In this regard I would mention that ASA sent letters to 
both the Commerce Department and USTR urging action against the 
unfair benefits that illegal use of Roundup Ready soybean 
technology are providing Brazilian producers.
    In addition, ASA commends and strongly supports Monsanto's 
actions to begin addressing widespread Brazilian piracy of 
Roundup Ready soybeans through a system that collects royalties 
on Brazilian soybeans and soybean meal exports to countries 
where Monsanto has patent protection. ASA calls on U.S. and 
international soybean traders and processors to cooperate in 
implementing this system. Non-cooperation would perpetuate the 
competitive disadvantage U.S. growers and the entire U.S. 
soybean industry face because of the ongoing theft of Roundup 
Ready soybean technology by Brazilian farmers. In addition, 
traders and processors who do not cooperate will be abetting 
continued piracy of a patented product.
    Protecting and enhancing U.S. domestic demand is also key. 
Whether it be maintaining a healthy and competitive domestic 
livestock industry, increasing domestic use through a tax 
incentive that allows biodiesel to be used to help meet our 
Nation's energy needs, or creating new soy uses, the United 
States must enhance demand where it has the greatest 
competitive advantage, in our home market.
    Increasing world demand through market access and income 
growth is a must. The best way to secure worldwide income 
growth is through a comprehensive trade round that creates new 
market access opportunities.
    In conclusion, Mr. Chairman, U.S. soybean producers are 
facing a significant challenge from South American farmers, 
particularly in Brazil. We believe that the opportunity exists 
to address competitiveness issues both at home and abroad. We 
look forward to working closely with you and members of the 
committee to meet these challenges.
    I will be happy to respond to any questions. Thank you.
    Senator Coleman. Thank you very, very much, Mr. Ruth.
    [The prepared statement of Mr. Ruth follows:]

Prepared Statement of Bart Ruth, Chairman, American Soybean Association

    Good afternoon, Mr. Chairman and Members of the Subcommittee. I am 
Bart Ruth, a soybean and corn producer from Rising City, Nebraska, and 
chairman of the American Soybean Association. ASA is a national trade 
association representing 26,000 farmer members on domestic and 
international trade issues important to all U.S. soybean producers. We 
appreciate the opportunity to appear before you today.
    We commend you, Mr. Chairman, for holding this hearing on ``The 
Future of U.S. Economic Relations in the Western Hemisphere: Challenges 
and Opportunities for American Agriculture.'' It comes as U.S. soybean 
farmers, and producers of other crops and livestock as well, find 
themselves deeply engaged in assessing our competitiveness in the 
world, and particularly with the growth in agricultural production and 
exports from South America. How we all decide to address this challenge 
will affect the profitability and prosperity of our national 
agricultural economy--and of the overall U.S. economy--for years to 
come.

                             BACKGROUND

    The expansion of the U.S. soybean industry has been a tremendous 
success story over the last thirty years. From 46 million acres and 1.3 
billion bushels in 1972, U.S. soybean production grew to 72 million 
acres and 2.7 billion bushels in 2002. Much of this increase has been 
the result of rising domestic demand for high protein soybean meal to 
meet the growing popularity of poultry and pork in the U.S. diet, along 
with rising U.S. soybean, poultry, and pork exports. One of every two 
bushels raised in the United States is dependent on foreign markets.
    Prospects for future growth in world demand for both soybean meal 
and soybean oil are bright. As the populations of developing countries 
continue to expand, and as these consumers seek improved variety, 
nutrition, and protein content in their diet, demand for soy and 
livestock products can only rise. Our goal is to position the U.S. 
soybean industry to maximize our return from the growing global market 
over the next century.
    Our industry has strongly supported expanding international trade 
by reducing tariffs and eliminating other trade barriers to order to 
increase access and encourage demand for soy and livestock products in 
global markets. Increased market access was our top priority in the 
Uruguay Round negotiations, and it has only gained in importance in the 
Doha Round. The rise in competition from South American exporting 
countries, and the certainty that it will increase over the next 
several decades, make aggressive opening of major developing country 
markets in the Doha negotiations essential to our industry.

               THE RISE IN SOUTH AMERICAN COMPETITION

    Let me now briefly summarize the rise in soybean production and 
exports in Brazil and Argentina over the last 30 years, and 
particularly the factors responsible for the current rapid expansion in 
the central west region of Brazil. Until recently, the major production 
areas in these countries have been in northern Argentina and the 
southern Brazilian states of Parana and Rio Grande do Sul. It was in 
these states that Japan and other importing countries invested after 
the U.S. restricted soy exports to all destinations because of a supply 
shortage in 1973, and to the Soviet Union in 1980. After thirty years, 
the Brazilian south is considered fully developed, while expansion in 
northern Argentina is still possible, but limited in terms of suitable 
acreage. Also, the scale and costs of production in this area, 
including land values, are similar to those found in the U.S.
    The situation is much different in the Central-West region of 
Brazil known as the Cerrados. This area of rolling scrubland comprises 
much of the states of Mato Grosso, Goias, and Mato Grosso do Sul and 
parts of neighboring states. The Economic Research Service (ERS) 
estimated in 2001 that Brazil had approximately 338 million acres in 
the Cerrados region available for land clearing and new crop 
production, an area one and one-third times larger than the total 
acreage devoted to row crop production in the United States.\1\ In 
January 2003, USDA's Foreign Agricultural Service reported that 
Brazil's potential to expand production through clearing of the 
Cerrados as well as the conversion of existing pastureland had been 
underestimated. FAS conservatively estimates that Brazil could increase 
its total cultivated area by 420 million acres or more if key legal, 
technical, and financial developments occur.\2\
---------------------------------------------------------------------------
    \1\ Agriculture in Brazil and Argentina: Developments and Prospects 
for Major Field Crops; Economic Research Service, USDA; November 2001.
    \2\ Brazil: Future Agricultural Expansion Potential Underrated; 
Foreign Agricultural Service, USDA, January 2003.
---------------------------------------------------------------------------
    However, unlike the southern region, which is near Atlantic ports, 
the Cerrados is 1,000 miles by truck from ports in the south, and 600 
miles by truck--plus 1,200 miles by barge and ship--from the Atlantic 
via the Amazon River. The remoteness of the area, and lack of a 
developed transportation infrastructure, made its emergence as an 
agricultural production center inconceivable until recently. As a 
result, land values are a fraction of those in the south, or in the 
U.S.
    In the past decade, however, a combination of cheap land and labor, 
domestic and foreign investment, and development credits and incentives 
from the Brazilian government and foreign sources, has made the 
Cerrados the new frontier in global soybean production. Soybean acreage 
in Mato Grosso grew from 4.2 million acres in 1992 to 10.6 million 
acres in 2002, and soybean production more than tripled, from 148 to 
470 million bushels. The bulk of the soybeans grown in the Cerrados are 
exported either as whole soybeans or as soybean meal and soybean oil.
    Historically, the pattern of clearing and development of the 
Cerrados had been gradual, with harvested soybean acreage in Brazil 
increasing only 6% over ten years. Brazilian soy acreage expansion 
exhibited a saw-tooth pattern wherein Brazilian harvested acreage 
increased only gradually, climbing slightly for one to three years in 
response to market demands, followed by one or two years of declines in 
production as the increasing world demand for soybeans was temporarily 
satisfied. This saw-tooth pattern of marginally increasing harvested 
area changed starting in 1998/99, with Brazilian harvested acreage 
increasing a massive 12.35 million acres, or 40%, during the four-year 
period from 1998/99 to 2002/03.\3\ It is interesting that this rapid 
expansion in production occurred in conjunction with the lowest 
international prices for soybeans in 30 years. The sharp and sustained 
devaluation of the Brazilian Real that started in 1999 surely has been 
a major factor driving the rapid expansion in Brazilian soybean acres 
in the face of historically low international prices. However, there 
may be other actions taken by the government of Brazil to stimulate 
expansion.
---------------------------------------------------------------------------
    \3\ Foreign Agriculture Service, USDA, Production, Supply, and 
Distribution database.
---------------------------------------------------------------------------
    Trends indicate that the expansion of land clearing and 
agricultural production in the Cerrados is still accelerating. Many 
agricultural economists both in the U.S. and Brazil expect soy acreage 
in Brazil to total 94 million acres in ten years, which would greatly 
surpass current U.S. acreage of 72 million acres. Nor are soybeans the 
only crop facing expanding competition. Cotton production has nearly 
doubled over the past five years, while Brazilian corn production has 
increased by 23%. Local Brazilian officials also predict a major 
expansion in pork and poultry production, fed by the rapidly expanding 
soy and corn industries. Clearly, our industry and others that are 
dependent on export markets are facing a serious and growing challenge.
    Nor is the challenge limited to traditional export markets. In 
2000, Wilmington Bulk, a consortium of livestock companies in eastern 
North Carolina, imported several shipments of soybean meal pellets from 
Brazil. Last year, the consortium completed construction of a $12 
million facility in the Port of Wilmington and imported 95,000 tons of 
soybean meal in September and October. For this year, Wilmington Bulk 
recently announced plans to import 70,000 tons of Brazilian soybean 
meal, 200,000 tons of Argentine corn, and 200,000 of feed wheat from 
the European Union. It also indicated it might import whole soybeans 
from Brazil.

                 FACTORS AFFECTING BRAZIL'S GROWTH

    ASA is actively working to identify factors that are contributing 
to the current surge in Brazil's soybean production and exports. To the 
extent the causes are based on enhanced competitiveness due to lower 
land and labor costs or macroeconomic factors such as currency exchange 
rates, there may be few ways for us to respond. However, to the extent 
Brazilian farmers are receiving subsidized assistance from their 
federal or state governments, or from other sources, ASA believes such 
assistance needs to be investigated more closely by the U.S. 
government.
    A number of factors clearly contribute to Brazil's enhanced 
competitiveness. I mentioned the considerably lower land values in the 
Cerrados--uncleared scrubland is currently selling for $100 to $200 per 
acre, compared to $1,500 per acre for farmland in southern Brazil and 
$2,000 and up for prime land in the U.S. Midwest. A related factor is 
the economy of scale that accompanies the large size of Cerrados 
farming operations. Farms in the 10 to 50 thousand acre range are not 
uncommon, and some operations include 100,000 acres or more. Farms of 
this size are manageable due to the inexpensive cost of labor. A 
Brazilian worker may make $10 per day, plus room and board. Cheap labor 
also reduces the cost of trucking soybeans from the Cerrados to port or 
river barge.
    Another significant factor in Brazil's competitiveness is its 
sharply devalued currency. Since 1996, the Real has lost 64 percent of 
its value against the U.S. Dollar, and the Brazilian government has 
plans to devalue their currency even further. I should add that the 
devaluation of the Argentine peso since its link to the Dollar was 
ended two years ago has been even more severe. Currency exchange rates 
have an obvious impact on competitiveness.
    There is no question that Brazil's national development plan 
includes substantial investment to develop the Cerrados' agricultural 
potential. This investment includes incentives for production, such as 
low interest loans for land purchases and clearing, subsidized 
government interest rates for equipment purchases, and favorable tax 
treatment. ASA is working to identify this network of subsidies to 
determine whether they are consistent with Brazil's WTO commitments, 
and how they can be addressed in the current Doha Round of trade 
negotiations.
    In addition to direct government benefits to producers, major 
efforts are underway to develop the transportation infrastructure in 
Mato Grosso and other Brazilian states. There are several major road 
and rail projects either under construction or in the planning stage 
that would significantly reduce per-bushel freight costs for soybeans 
moving to export markets. We are also aware that substantial investment 
for transportation and processing facilities is coming from 
multinational companies involved in exporting Brazilian agricultural 
products.
    A final factor benefiting the competitiveness of Brazil's farmers 
is their widespread and illegal use of RoundUp Ready biotech soybean 
technology. Brazil approved Monsanto's patent for RoundUp Ready 
soybeans in 1997. Shortly thereafter, a court upheld a complaint filed 
by environmental groups that insufficient data had been received 
regarding the potential impact of RoundUp Ready soybeans on the 
environment. As this case has continued unresolved, Brazilian farmers 
have pirated RoundUp Ready seed over the border from Argentina, where 
it comprises over 95 percent of production. Last year, the prevalence 
of RoundUp Ready soybeans in Brazil was estimated at 20 to 30 percent 
nationwide, including 70 to 90 percent in the southern production 
region. In addition to not paying the $9.30 to $15.50 per acre 
technology fee on patented Roundup Ready soybean seed that U.S. growers 
pay, Brazilian producers who are pirating Roundup Ready seeds benefit 
from the higher yields and reduced pesticide application costs 
associated with RoundUp Ready use, for a total ill-gotten benefit of 
approximately $20 per acre.
    One potentially limiting factor in Brazil's soybean expansion is 
the rapid spread of Asian rust, a fungus that can devastate soybean 
yields. Rust arrived in Brazil from Africa several years ago, and had a 
significant impact in limited areas of the southern production region 
last year. This year, evidence of rust has been found in Mato Grosso, 
and even in a small area north of the Amazon River. It is estimated 
that Asian rust this year cost Brazilian farmers over $1.0 billion in 
spraying costs plus a reduction in production estimated at 3.0 million 
metric tons. This issue is of major interest to U.S. producers, not 
only as it affects Brazil, but as we consider the very real prospect of 
rust spreading to the U.S.--either by wind or via shipments of 
Brazilian soybeans. I will discuss the need to address this threat 
later in my statement.

        RESPONSES NEEDED TO STRENGTHEN U.S. COMPETITIVENESS

    ASA is very concerned by the challenge posed by the rapid growth of 
Brazilian soybean production and exports. In February, ASA led a 
delegation of growers, industry leaders, and Congressional staff to 
Brazil to examine the competitive threat posed by Brazil, and to 
formulate appropriate strategies. The following are some of our key 
recommendations:

   The United States has a distinct advantage over Brazil in 
        transportation costs, and it is important that the United 
        States do all it can to maintain and enhance this advantage. 
        ERS estimated that in 1998 the weighted average cost per metric 
        ton to export position from Center-West Brazil was three times 
        higher than similar costs from the U.S. heartland.\4\ However, 
        Brazil is making major infrastructure improvements that are 
        anticipated to significantly reduce transportation costs. 
        Meanwhile, approximately 75% of U.S. soybeans and products are 
        exported through the Port of New Orleans via the Mississippi 
        waterway and its tributaries. Locks and dams on the Mississippi 
        and Illinois Rivers built after World War II are in desperate 
        need of modernization and expansion to allow barges and tows to 
        pass through efficiently. Legislation authorizing and 
        appropriating funds for lock modernization and extensions on 
        the Mississippi and Illinois waterways should be a key priority 
        for the Administration and Congress.
---------------------------------------------------------------------------
    \4\ Agriculture in Brazil and Argentina: Developments and Prospects 
for Major Field Crops; Economic Research Service, USDA; November 2001.

   Another priority for Congress and the Administration should 
        be increased soybean research funding. While U.S. soybean 
        yields are stagnate or only very slowly improving, yields in 
        Brazil, particularly in the Center-West, have improved rapidly 
        through research undertaken by Brazil's government agricultural 
        research agency EMBRAPA, as well as by private research 
        organizations, and now surpass U.S. yields and protein levels. 
        In 2002/03, the average U.S. soybean yield was 37.8 bushels per 
        acre, compared to 42.1 bushels per acre in Brazil.\5\ Increased 
        U.S. federal soybean research funding is needed if U.S. soybean 
        producers are to catch up with and keep pace with their 
        Brazilian competitors.
---------------------------------------------------------------------------
    \5\ Foreign Agriculture Service, USDA, Production, Supply, and 
Distribution database.

   The competitive threat posed by Brazil is of concern not 
        only to U.S. soybean farmers, but also other crop and livestock 
        farmers including corn, cotton, pork, and poultry. The 
        Government of Brazil has played a key role in the development 
        of soybean and other agricultural production in the Cerrados 
        region through a series of tax, investment, credit, 
        transportation, research, and energy policies designed to 
        facilitate clearing of the land, expansion of production, and 
        the earning of foreign exchange through exports. Much more 
        needs to be done by the U.S. Government to investigate the 
        various policies and subsidies that are helping fuel the rapid 
        expansion of crop and livestock production in Brazil. Congress, 
        the Administration, U.S. trade negotiators, and the U.S. soy 
        industry should use the results of this investigation to 
        formulate appropriate policies, positions, and negotiating 
---------------------------------------------------------------------------
        objectives.

   Weak or non-existent intellectual property protection and 
        enforcement in Brazil also are benefiting Brazilian growers and 
        hurting the competitiveness of U.S. soybean producers. The 
        combination of Brazilian growers not paying royalties on 
        pirated Roundup Ready seed, along with the economic benefits 
        Brazilian growers receive from Roundup Ready technology, gives 
        Brazilian growers an ill-gotten $0.41 to $0.95 per bushel ($15 
        to $35 per metric ton) competitive advantage over U.S. growers. 
        The U.S. Government and companies holding technology patents 
        should actively pursue all possible legal remedies to address 
        this un-level playing field.

   Protecting and enhancing U.S. domestic demand is key. 
        Whether it be maintaining a healthy and competitive domestic 
        livestock industry, increasing domestic use through a tax 
        incentive that allows biodiesel to be used to help meet our 
        nation's energy needs, or creating new soy uses, the U.S. must 
        enhance demand where it has the greatest competitive 
        advantage--in our home market.

   Increasing world demand through market access and income 
        growth is a must. Clearly, U.S. soy producers will be better 
        off if world demand for soy continues to grow and ``soaks up'' 
        increased Brazilian production. The best way to secure 
        worldwide income growth is through a comprehensive trade round 
        that creates new market access opportunities. Importantly, any 
        new global trade agreement must improve access not just in 
        industrialized countries, but also in developing countries 
        since these developing economies offer the greatest potential 
        for demand and income growth.

  ADDITIONAL ACTIONS ON INTELLECTUAL PROPERTY, TRADE, AND SOYBEAN 
                                  RUST

    With regard to the intellectual property rights issues involved 
with RoundUp Ready soybeans, ASA asked in a letter to the Commerce 
Department last December that Brazil's inaction in enforcing Monsanto's 
patent be identified as a major impediment to U.S. exports and domestic 
use of soybeans and soybean products in the Annual National Trade 
Estimates on Foreign Trade Barriers. The recently issued NTE Report 
cites Brazil for illegal production of RoundUp Ready soybeans, but does 
not suggest a negative impact on our industry. We also asked the U.S. 
Trade Representative's Office in February to identify Brazil as a 
Priority Foreign Country under the 1974 Trade Act, and to initiate a 
Section 301 investigation. While USTR's report cites various continuing 
intellectual property rights violations by Brazil, it does not mention 
RoundUp Ready soybeans or propose an investigation.
    ASA commends and strongly supports Monsanto's actions to begin 
addressing widespread Brazilian piracy of RoundUp Ready soybeans 
through a system that collects royalties on Brazilian soybean and 
soybean meal exports to countries where Monsanto has patent protection. 
ASA calls on U.S. and international soybean traders and processors to 
cooperate in implementing this system. Non-cooperation would perpetuate 
the competitive disadvantage U.S. growers and the entire U.S. soy 
industry face because of the ongoing theft of RoundUp Ready soybean 
technology by Brazilian farmers. In addition, traders and processors 
who do not cooperate will be abetting continued piracy of a patented 
product.
    As I mentioned at the beginning of my statement, the U.S. soybean 
industry views the Doha Round of trade negotiations as a critical 
opportunity to significantly expand world trade in oilseeds and oilseed 
products by reducing tariffs and other barriers to market access. The 
prospect of Brazil bringing 20 to 30 million more acres into soybean 
production and export in the next decade means that we need to promote 
an equally substantial increase in global demand for protein and 
vegetable oil. The only such opportunity lies in raising the very low 
per capita consumption of protein and oil-based foods in highly 
populated countries in the developing world.
    ASA has worked within the American Oilseed Coalition in identifying 
market access priorities for the Doha Round. Basically, we are asking. 
that higher tariffs be reduced more rapidly than lower tariffs, so that 
tariff levels at the end of the implementation period are harmonized. 
We have and will continue to make our support for this approach known 
to Administration negotiators. We encourage this Committee to also urge 
strong market access provisions in the agriculture negotiations.
    In addition, we believe that producers in major exporting countries 
that compete with the United States, including Brazil and Argentina, 
must be subject to the same rules and disciplines that we are. We are 
very concerned by the proposed text governing modalities for the 
agriculture negotiations, developed by the chairman of the agriculture 
committee, that would essentially exempt self-declared developing 
countries from any restriction on subsidizing expansion of their 
production and marketing infrastructure. This exemption from domestic 
support reduction commitments would encompass investment and 
agricultural input subsidies, transportation subsidies, on-farm 
employment subsidies, and government assistance for marketing support, 
capacity building measures, and risk management programs. U.S. soybean 
producers are already facing cut-rate competition from South American 
exporters. The Doha negotiations must impose disciplines on these 
countries, not give them a blank check for further expansion.
    Finally, Mr. Chairman, I would like to return to the issue of Asian 
soybean rust I mentioned earlier. ASA has met with officials at APHIS, 
which is responsible for preventing the introduction and spread of rust 
in the United States. They are actively monitoring the situation in 
Brazil and other countries in South America, and have developed a 
response plan to control any outbreak in the U.S. One major concern is 
the possibility that rust spores may to present in foreign material 
included in Brazilian soybean shipments. Our understanding is that 
spores can live on leaves and other plant material for several weeks. 
While there have been no imports of whole soybeans from South America 
to date, ASA had made clear to APHIS that any prospective shipment 
would be a serious concern.

                             CONCLUSION

    In conclusion, Mr. Chairman, U.S. soybean producers are facing a 
significant challenge from South American farmers, particularly in 
Brazil. We believe the opportunity exists to address competitiveness 
issues both at home and abroad. We look forward to working closely with 
you and Members of the Committee to meet these challenges.
    Thank you again for the opportunity to appear before you today. I 
will be happy to respond to any questions.

    Senator Coleman. Before Mr. Casale begins, I would like 
just to welcome Minnesota Agriculture Commissioner Gene 
Hugoson, who is here, and his deputy, Perry Aasness. 
Commissioner and deputy, welcome. They are good friends and I 
am pleased to have them here today. Thank you.
    Mr. Casale.

  STATEMENT OF CARL CASALE, VICE PRESIDENT FOR NORTH AMERICAN 
     AGRICULTURAL BUSINESS, MONSANTO COMPANY, ST. LOUIS, MO

    Mr. Casale. Thank you, Mr. Chairman. My name is Carl 
Casale, and I am vice president of Monsanto Company's North 
American business. And I appreciate the opportunity to meet 
with you today.
    In the written testimony that I have submitted to your 
subcommittee, I have outlined the many benefits of 
biotechnology. I have also outlined in great detail the history 
of Monsanto's attempts since 1997, to gain regulatory approval 
on Roundup Ready soybeans in Brazil. Despite our repeated 
attempts to resolve the situation, the approval of Roundup 
Ready soybeans continues to be on hold, pending further court 
action.
    We find ourselves in a situation that we did not choose nor 
create. However, Monsanto has decided to take action by 
implementing a plan to protect our intellectual property 
rights. We believe our strategy will be fair to American and 
Brazilian growers, is a reasonable system for the grain 
traders, is consistent with Brazilian law, and protects the 
value of our intellectual property.
    Starting with this year's harvest in Brazil, we intend to 
implement a program that will allow us to obtain fair value for 
the use of our technology and at the same time will be fair to 
Brazilian growers. Our plan will allow the efficient export of 
Roundup Ready soybeans from Brazil by those who choose to 
execute an agreement acknowledging our intellectual property 
rights, and the terms of the agreement will provide fair 
compensation to Monsanto for the use of our technology.
    The international grain exporters/importers involved in the 
transactions will secure this fee-bearing license from Monsanto 
if the beans they are shipping from Brazil include above 
threshold quantities of Roundup Ready soybeans.
    There are many details yet to be worked out, which are the 
subject of ongoing conversations with exporters. We are 
absolutely committed to the development of a fair and efficient 
system of collecting licensing fees. However, our ability to 
protect our intellectual property rights and collect fees is 
not solely based upon this plan. There are other avenues that 
we will pursue if necessary.
    Monsanto is also working with the rest of the industry to 
implement this program. And we are also communicating with the 
Government of Brazil.
    The participation and support of the global grain trading 
companies is key to our success of the program as we try to 
address the issues of intellectual property protection and 
recovering value for our investment innovation. We have pledged 
to work in partnership with these grain traders and to make 
every effort possible to address their concerns about the 
program and its implementation. We are optimistic that jointly 
we can implement a system that begins to close the gap in the 
cost of technology between the United States and Brazil.
    We do not believe that such a system will be perfect. We 
are starting from a situation, which is far from perfect.
    We have also met with the American Soybean Association and 
other key stakeholders to outline our intentions, and we have 
found these groups to be supportive of our actions.
    However, we need your assistance. Intellectual property 
rights must be at the heart of any new international and 
bilateral trade agreements. Not only should approval systems be 
based upon objective, sound science, rather than political 
pressure, but patents must also be made available and honored 
for biotechnology products.
    Monsanto has spent billions of dollars on biotechnology 
research, and continues to spend over $1 million a day on new 
research. Monsanto cannot continue to commit resources at this 
level if we cannot be assured of intellectual property 
protection for our products.
    My testimony today is focused on Monsanto's efforts to gain 
formal approval of Roundup Ready soybeans in Brazil. However, I 
will be doing a great disservice to American farmers if I 
create the impression that solving this single intellectual 
property rights enforcement issue will solve the global 
competitiveness issue.
    I want you to know that Monsanto, as a U.S.-based company, 
strongly supports the conclusions drawn by others who have 
spoken before me today regarding the factors affecting greater 
global competitiveness. These factors include soybean quality 
issues, transportation issues, foreign exchange, land prices, 
and cost of production issues.
    We also believe that the future success of the U.S. soybean 
industry will not solely be driven by low-cost commodity 
products, but increasingly by value-added products. We applaud 
the efforts of the United Soybean Board and their commitment to 
bringing those value added products to the American grower. 
That is why Monsanto has donated technology to both the USB's 
Better Bean Initiative and it is also a founding member of the 
Technology Utilization Center. This has helped to further USB's 
goal of developing a soybean with improved oils and protein for 
U.S. producers.
    The failure of the Brazilian Government to protect 
intellectual property rights will create a major disadvantage 
for their country in the future. It will be impossible for 
Monsanto to contemplate bringing other biotechnology products 
to Brazil until intellectual property rights are respected and 
effectively enforced.
    Brazil may miss a greater opportunity to participate in an 
innovative technology that can bring outstanding environmental, 
production and financial benefits to their growers and their 
country.
    Intellectual property protection is important and not just 
for Monsanto, but for the millions of people around the world 
who can benefit from biotechnology.
    Mr. Chairman, we look forward to working together with you, 
the members of this committee, USTR, USDA, and the American 
growers to help find solutions to the complex issues discussed 
during the committee hearings.
    Thank you.
    Senator Coleman. Thank you very, very much, Mr. Casale.
    [The prepared statement of Mr. Casale follows:]

   Prepared Statement of Carl Casale, Vice President, North American 
         Agricultural Business, Monsanto Company, St. Louis, MO

    Mr. Chairman, Members of the Subcommittee, my name is Carl Casale 
and I am Vice President of the North American agricultural business for 
Monsanto Company. I appreciate this opportunity to meet with you today.
    I would like to begin by giving you some background about our 
company and our business. At Monsanto, we are a company of nearly 
14,000 people dedicated to making a positive difference in 
agriculture--one of the world's most important industries.
    Our vision is--``abundant food and a healthy environment.'' We are 
working to deliver products and solutions that help to meet the world's 
growing food needs, while conserving natural resources and protecting 
the environment.
    Monsanto has a long history of turning innovative science into 
successful, high-value products that improve the efficiency of crop and 
animal agriculture.
    Biotechnology is an example of our commitment to agricultural 
innovation. We developed Roundup Ready seeds that have been genetically 
enhanced to provide herbicide tolerance thereby allowing Roundup 
herbicide to be applied directly over the top of the crop in the field. 
This provides outstanding weed control without damaging the crop.
    We believe that biotechnology will be an important tool in helping 
to feed our planet's growing population.
    In the last 60 years alone, the world's population has tripled from 
2 billion to 6 billion. (Source: UN statistics) The United Nations 
estimates there will be another 2 billion people by the year 2020, most 
living in the world's poorest regions.
    With more people in the world, we are going to have to find ways to 
provide more food. According to Nobel Laureate Norman Borlaug, ``You've 
got two choices. Either you improve yields so that you can continue to 
produce the food that is needed on the soil that is well-adapted to 
agricultural production, or you'll be pushed into cutting down more 
forests.''
    We believe that biotechnology will be a crucial part of expanding 
agricultural productivity in the 21st century.

                          BIOTECH BENEFITS

    We believe that innovations in biotechnology will make it possible 
for farmers to triple crop yields without requiring any additional 
farmland. Advances in insect and herbicide-resistant crops are already 
making it possible to reduce the use of chemical pesticides, which 
helps preserve soil and water resources. Future improvements will lead 
to crop varieties specially designed to grow in poor soil and difficult 
climatic conditions.
    Through biotechnology, farmers will be able to produce this 
additional food in a more sustainable way. A recent study from the 
National Center for Food and Agriculture Policy showed that as a result 
of planting biotech crops in the United States in 2001, 46 million 
pounds fewer pesticides were applied by U.S. growers that year. This is 
a significant reduction in herbicide and pesticide use compared to 
conventional crops.
    At Monsanto, our success is determined by the success of farmers. 
Through a combination of chemistry, seeds and traits, Monsanto provides 
farmers with the products and services they need to cost-effectively 
and sustainably produce the highest quality food, feed and fiber.
    Farmers value our technology. In the United States this has 
translated into rapid and widespread adoption of many of our 
technologies. For example, Roundup Ready soybeans now account for 
approximately 80 percent of the planted soybean acres in the United 
States. Planting Roundup Ready soybeans means that a farmer can apply 
less herbicide, increase yields, lower costs, and have more time for 
other aspects of his farming operation.
    Biotechnology can also contribute to the production of biofuels. 
Renewable energy means reduced dependence on foreign petroleum and a 
cleaner environment through reduced emissions. Corn grain and soybean 
oil are the primary feedstocks for ethanol and biodiesel, respectively. 
Biotechnology is an important tool for improving corn and soybean 
yields, helping to reduce production costs. Improvements in yield and 
production efficiency will help growers meet the processor demand for 
feedstocks as the use of biofuels increase.
    Since 1996, a total of 30 countries around the world have approved 
our technology for import or planting as the demand for biotechnology 
and its many benefits grows.

                 MONSANTO INVESTMENT IN TECHNOLOGY

    The challenges faced in the task of development and innovation are 
huge. It takes eight to ten years for a new product to be developed and 
approved. Monsanto has spent billions of dollars developing new 
products through the advancements of biotechnology that increase the 
productivity of farmers through improved crops.
    Effective intellectual property protection is absolutely necessary 
for companies such as ours to continue to bring new innovation to 
growers.
    As you are aware, our technology is being used illegally in Brazil 
and as a result, Brazilian growers are enjoying the advantages of the 
technology without paying for it. U.S. soybean growers are rightly 
concerned about this, and I can assure you that we at Monsanto are 
working hard to address this problem. Illegal use of the technology 
creates an unfair competitive advantage for Brazilian farmers and robs 
Monsanto of revenue that would be used for further technology 
investment.
    It is estimated that Roundup Ready soybeans make up anywhere from 8 
percent to 22 percent of the Brazil's total production. In the southern 
state of Rio Grande do Sul, officials in Brazil estimated that 70 
percent of the 2002 soybean crop was biotech.
    Of course, this will be the topic of much discussion today but 
before I talk about our concerns regarding intellectual property rights 
and protection, I would like to outline the challenges we have faced as 
we have attempted to commercialize Roundup Ready soybeans in Brazil.
    If you have ever had the opportunity to travel to Brazil, you know 
that it is a large and agriculturally diverse country. Monsanto has 
conducted business in Brazil for 50 years. We produce and market 
Roundup herbicide and conventional soybean, corn and sorghum seeds 
there.
    Monsanto is one of the leading companies in Brazil. While we are 
committed to our business there, our experience as we have attempted to 
commercialize our first biotechnology product has been a long and very 
frustrating story.

                   HISTORY OF ATTEMPTED APPROVAL

    First, let me explain the Brazilian regulatory process and our 
efforts at gaining regulatory approval for Roundup Ready soybeans in 
Brazil. In 1995 the Brazilian Congress passed the Brazilian Biosafety 
Law and that same year President Cardoso issued an executive order 
establishing the Brazilian Biosafety Commission (CTNBio). CTNBio was 
given full responsibility for all matters pertaining to biotechnology, 
including product approvals, research permits, policy decisions and 
issuance of regulations and guidelines.
    CTNBio is comprised of 18 representatives. Sixteen representatives 
come from various government Ministries, such as Agriculture, Health, 
Environment, Science and Technology, Foreign Affairs, and Justice. 
There is also one industry representative and one non-government 
organization representative. A second group of 18 people serve as 
alternates to the first group. While the Biosafety Law gives full 
authority for decision making to CTNBio, it also provides for specific 
reviews and approvals from one or more other Ministries if warranted by 
the specific product under consideration. Two Presidential 
``Provisional Measures,'' one in December 2000 under the Cordoza 
government and a second in February 2003 under the new Lula government, 
reaffirmed the authority of CTNBio to perform this function.
    A company seeking approval for a research facility, a field trial 
or a product introduction in Brazil must make a submission to CTNBio 
following their guidelines. Review of the application for approval is 
conducted by CTNBio staff, members of the Commission, and in some 
cases, outside experts. A decision to approve, deny or seek more 
information is made by a vote of CTNBio at one of its meetings, which 
generally occur monthly. A specific finding of particular risk, such as 
environmental or human safety, could trigger a review by the 
appropriate Ministry. Seed varieties are registered and approved by the 
Agriculture Ministry following CTNBio's approval.
    In Brazil, Monsanto gained approval to conduct a field test of 
Roundup Ready soybeans in February 1997. Based on the results of those 
studies, we applied for full approval. The application for approval 
contained a full environmental and human safety assessment based on 
Brazilian data and was comparable to submissions to U.S. regulatory 
agencies and to other countries that have approved the product.
    The approval was granted by CTNBio in September 1998. Immediately, 
groups opposed to biotechnology filed a number of lawsuits, which 
challenged the authority of the government to grant approval. These 
lawsuits also alleged that the government should have followed a full 
Environmental License process. In 1999, a lower court issued an 
injunction suspending the CTNBio approval pending resolution of the 
case on the merits.
    Appellate Court rulings in June and September of 2000 denied 
Monsanto's request to cancel the injunction.
    In December 2000, then President Cardoso issued a Provisional 
Measure restating the Biosafety Commission's authority to approve 
products and reaffirming all past approvals. In mid 2001, the federal 
government asked for an expedited decision at the Appellate Court. In 
the fourth quarter of 2001, the president of the Appellate Court 
assigned the case to a panel of three judges for a final decision.
    In February 2002, the lead judge of the Appellate Court issued an 
opinion stating that the law giving CTNBio authority to approve Roundup 
Ready soybeans was constitutional and voted to cancel the pending 
injunctions. To date, the remaining two judges of the Appellate Court 
panel have not yet issued their opinion, and the case remains 
unresolved.
    Meanwhile the illegal use of Roundup Ready soybeans by Brazilian 
growers continues to grow at a steady rate.
    Resolution of the judicial issues or action by the executive or 
legislative branches is necessary to enable Monsanto to implement a 
commercial plan that would ensure that Brazilian growers would pay a 
fair price for use of the technology. Based on actions taken by the 
Brazilian government in 2001 and 2002, and on the strong opinion issued 
by the lead appellate court judge in early 2002, Monsanto believed that 
the approval was imminent. Unfortunately, it has not materialized.

                        RECENT DEVELOPMENTS

    In February 2003, the Brazilian government issued safety 
certificates to the Chinese government confirming the safety of 
Brazil's soybean exports. The Chinese had insisted on special safety 
certification in order to continue shipments of Brazilian soybeans to 
China. This was required because, although the Brazilians had not 
resolved the approval process in court, their growers continued to 
produce biotech soybeans. Both the Brazilian Ministers of Agriculture 
and Health have issued certificates for Roundup Ready soybeans, 
certifying they are safe for human and animal consumption.
    More recently, the Brazilian government has acknowledged that 
Roundup Ready technology is being used illegally in Brazil. On March 
26, 2003, President Lula issued a Provisional Measure that legalized 
the biotech soybean sales recently harvested from this growing season 
for sales as grain only for domestic uses or for exports. The 
Provisional Measure expires in March 2004. Brazilian growers are 
expected to comply with the current law for the 2003/4 growing season, 
which still does not permit the planting or commercialization of 
Roundup Ready soybeans.
    The approval for the commercialization of Roundup Ready soybeans 
has been a very long process and one that may continue for a long time. 
Meanwhile, Monsanto has committed substantial resources of time and 
people in our attempts to work through the Brazilian process.
    Throughout the process, Monsanto has taken action to try to prevent 
the illegal use of our technology in Brazil. For the past two years, we 
have conducted extensive advertising campaigns and educational programs 
to inform growers that the government has not approved the technology. 
At the same time, we have urged the government of Brazil to take action 
to stop illegal use.
    Monsanto has decided to take action by implementing a plan to 
protect our intellectual property rights. We believe our strategy will 
be: fair to American and Brazilian growers, a reasonable system for the 
grain traders, consistent with Brazilian law and protective of the 
value of our Intellectual Property.

                         MONSANTO PROPOSAL

    Starting with this year's harvest in Brazil, we intend to implement 
a program that will allow us to obtain fair value for the use of our 
technology in the future in Brazil and at the same time will be fair to 
Brazilian growers who want to use our technology. Our plan will allow 
the export of Roundup Ready soybeans from Brazil by those who choose to 
execute an agreement acknowledging our intellectual property rights; 
the terms of the agreement will provide fair compensation to Monsanto 
for the use of its technology.
    The international grain exporters/importers involved in the 
transactions will secure this fee-bearing license from Monsanto if the 
beans they are shipping from Brazil include above threshold quantities 
of Roundup Ready soybeans. Traders who elect not to secure a license 
will be subject to enforcement actions. There are a myriad of 
procedures available to insure fair enforcement. International trade 
need not be halted or disrupted to institute this system.
    Monsanto is communicating with the Government of Brazil about the 
program and we are working with global grain traders and the rest of 
the industry to refine and implement this program.
    The participation and support of the global grain trading companies 
is key to the success of the program as we work to address the concerns 
of the American grower about this unfair situation that exists between 
them and the Brazilian growers who are not paying for the technology. 
We have pledged to work in partnership with these grain traders and to 
make every effort possible to address their concerns about the program 
and its implementation. We know how much the American grower is 
counting on all of us to work together to address this issue.
    In addition, we have met with the American Soybean Association and 
other key U.S. stakeholders to outline our intentions, and we have 
found these groups to be supportive of these actions.
    Our company is working hard both to be responsible stewards of our 
technology, and protect our intellectual property rights given the 
constraints we are operating under in Brazil.

             NEED FOR INTELLECTUAL PROPERTY PROTECTION

    Biotechnology in Brazil is a complex story with many facets. But we 
must address the very real need for adequate and effective protection 
of intellectual property with all of our trading partners.
    Unfortunately, the situation that I have outlined today is not just 
isolated to Brazil. There are other countries around the world, such as 
China, that do not recognize intellectual property rights. This makes 
it very difficult for companies that are technology providers such as 
Monsanto to either successfully commercialize their products or to 
prevent the illegal use of their products in these countries.
    In the near term, Monsanto needs help to alleviate the situation in 
Brazil. It is a very unfortunate problem that our company faces--our 
technology is being used by growers who are not paying for it. This 
puts our customers who pay for the technology at a disadvantage when 
they compete head-to-head with Brazilian growers in the international 
marketplace.
    There is no doubt that intellectual property rights need to be 
addressed in the World Trade Organization (WTO) and other international 
and bilateral trade agreements. Patents must be made available for 
biotechnology products and these patents must be protected. In 
addition, product approval systems must be based on objective risk 
analysis and sound scientific principles, and should not be influenced 
by political pressures.
    We at Monsanto are working hard to gain formal approval of Roundup 
Ready soybeans in Brazil. However, we will be doing a great disservice 
to American farmers if we create the impression that enforcing 
intellectual property rights will solve the global competitiveness 
issue. Even with the Brazilian government's approval, many of the 
problems and challenges presented here will remain. I want you to know 
that as a U.S. based company, Monsanto strongly supports the 
conclusions drawn by American Soybean Association about the factors 
affecting greater global competitiveness. These factors, which have 
been cited in a recent ASA white paper, include: transportation issues, 
foreign exchange, land prices, and cost of production issues.
    We also agree that the future success of the soybean industry will 
not be driven by low-cost commodity products, but by value-added 
products, which was the top priority of the United Soybean Board/
American Soybean Association Export Competitiveness Task Force.
    We applaud the efforts of the United Soybean Board and their 
efforts to bring these value added products to the American grower. In 
fact, Monsanto has donated technology to both the USB's Better Bean 
Initiative and the Technology Utilization Center. This has helped to 
further the USB's goal of developing a soybean with improved oils and 
protein for U.S. producers.
    The technology we have donated is also available to land grant 
universities and even our competitors. We do this because we believe in 
investing in countries where our intellectual property rights are 
respected. In addition, we believe these donations will help position 
American producers to take better advantage of new cutting-edge traits 
that deliver real-user benefits.
    This willingness by the United States to accept biotechnology 
brings me to my next point: I believe the situation in Brazil will 
correct itself eventually.

            SHORT-TERM ADVANTAGE--LONG-TERM DISADVANTAGE

    The Brazilian growers that have free use of our technology may have 
a short-term advantage. However, in the long-term, failure by their 
government to recognize intellectual property rights will create a 
major disadvantage for them.
    Why? Because it is impossible for Monsanto to contemplate bringing 
other biotechnology products to Brazil until intellectual property 
rights are respected and effectively enforced. Brazil may miss a 
greater opportunity to participate in an innovative technology that can 
bring outstanding environmental, production and financial benefits to 
their growers and their country.
    Monsanto is currently researching a promising oilseed crop that 
could produce a vegetable oil enriched with Omega-3 fatty acids. An 
Omega-3 enriched oil could ultimately provide consumers with a new 
solution to fight heart disease.
    This is but one example of how biotechnology can add value 
enhancements to crops--ultimately providing end-use consumers with 
healthier food solutions. But without protection for our intellectual 
property rights and support for the approval of our products in Brazil, 
Monsanto cannot continue to bring new biotechnology products to that 
country.
    Unless Brazil changes its policy on biotechnology, I believe that 
the natural competitiveness in the marketplace will give the advantage 
to the American grower in the long run.
    Brazil will miss not only the future promise of biotechnology that 
I spoke about earlier, but it will miss also the ability to remain 
competitive in the ever-changing global marketplace.
    In the meantime, we at Monsanto, along with America's farmers, are 
looking to Congress for relief in critical matters that will ultimately 
determine the success of American farmers and our products in this 
global marketplace.
    I spoke earlier about the promise of biotechnology. As we look to 
the future we see a world of possibilities about to open up:

   Higher-yielding corn, soybeans, canola, oilseed rape, wheat 
        and cotton.

   Crops that can withstand dry conditions or cold 
        temperatures.

   Corn that not only protects itself against European corn 
        borers and rootworms, but also against wireworms and flea 
        beetles.

   Cotton that will produce a novel protein that protects 
        against a broad range of insects.

    These are but a few of the innovative solutions to challenges 
facing agriculture today. Biotechnology can bring these new solutions 
to growers around the world. But we will not be able to bring these 
innovations forward without strong intellectual property protection.
    It is absolutely necessary that intellectual property rights are 
protected in all world areas and that regulatory decisions are based on 
sound science. Intellectual property protection is important, not just 
for Monsanto, but for the millions of people around the world who can 
benefit from biotechnology. Any assistance this committee could lend to 
ensure that these goals are met would be very appreciated.
    Mr. Chairman, we look forward to working together with you, the 
Members of this Committee, and the American growers to find solutions 
to the complex issues discussed during this committee hearing. Thank 
you for the opportunity to talk to you today about our company's 
experiences in Brazil.

                                Addendum


          BRAZIL ROUNDUP READY SOYBEAN APPROVAL TIMELINE:

   In Brazil, Monsanto gained approval to conduct a field test 
        of Roundup Ready soybeans in February 1997. Based on the 
        results of those studies, we applied for full approval. The 
        application for approval contained a full environmental and 
        human safety assessment based on Brazilian data and was 
        comparable to submissions to U.S. regulatory agencies and to 
        other countries that have approved the product.

   The approval was granted by the Brazilian Biosafety 
        Commission (CTNBio) in September 1998. Immediately, groups 
        opposed to biotechnology filed a number of lawsuits that 
        challenged the government's authority to grant the approval. 
        These lawsuits also alleged that the government should have 
        followed a full Environmental License process. In 1999, a lower 
        court issued an injunction suspending the CTNBio approval 
        pending resolution of the case on the merits.

   Appellate Court rulings in June and September of 2000 denied 
        Monsanto's request to cancel the injunction.

   In December 2000, then President Cordoza issued a 
        Provisional Measure restating the Biosafety Commission's 
        authority to approve products and reaffirming all past 
        approvals. In mid 2001, the federal government asked for an 
        expedited decision at the Appellate Court. In the fourth 
        quarter of 2001, the president of the Appellate Court assigned 
        the case to a panel of three judges for a final decision.

   In February 2002, the lead judge of the Appellate Court 
        issued an opinion stating that the law giving CTNBio authority 
        to approve Roundup Ready soybeans was constitutional and voted 
        to cancel the pending injunctions. To date, the remaining two 
        judges of the Appellate Court panel have not yet issued their 
        opinion, and the case remains unresolved.

   In February 2003, the Brazilian government issued safety 
        certificates to the Chinese government confirming the safety of 
        Brazil's soybean exports. The Chinese had insisted on special 
        safety certification in order to continue shipments of 
        Brazilian soybeans to China. This was required because the 
        Brazilians have not resolved the approval process in court, yet 
        they continue to produce biotech soybeans. Both the Brazilian 
        Ministers of Agriculture and Health have issued certificates 
        for biotech soybeans, certifying that they are safe for human 
        and animal consumption.

   On March 26, 2003, President Lula issued a Provisional 
        Measure that legalized the biotech soybean sales recently 
        harvested from this growing season for sales as grain only for 
        domestic uses or for exports. The Provisional Measure expires 
        in March 2004. Brazilian growers are expected to comply with 
        the current law for the 2003/4 growing season, which still does 
        not permit the planting or commercialization of Roundup Ready 
        soybeans.

    Senator Coleman. Mr. Greene.

   STATEMENT OF ROBERT W. GREENE, CHAIRMAN, NATIONAL COTTON 
               COUNCIL OF AMERICA, COURTLAND, AL

    Mr. Greene. Senator, thank you for holding these hearings 
today. I am Bobby Greene. I am a cotton-ginner from Courtland, 
Alabama, and I currently serve as Chairman of the National 
Cotton Council of America.
    I appreciate the opportunity to present the views and 
recommendations of the U.S. cotton industry on the subject of 
trade in the Western Hemisphere.
    In the last 2 years, total U.S. exports of cotton fiber 
have increased from 7 to 11 million bales, which counts for 
over 60 percent of the annual crop production. Exports have 
increased in part due to increased trade with our neighbors to 
the south. Unfortunately, cotton consumption by U.S. textile 
mills has dramatically declined because of significant 
increases in imports of cotton textile and apparel products 
from Asia, especially China and Vietnam.
    The U.S. cotton industry believes that increased trade in 
the Western Hemisphere is one of the few options available to 
help the industry compete with the alarming increase in low 
cost imports from Asia. The National Cotton Council supported 
NAFTA, and today, Mexico is our largest export market for raw 
cotton, yarn, and fabric.
    Regional trade arrangements with the Caribbean Basin and 
Andean countries have been somewhat beneficial to our industry.
    I would like to summarize the cotton industry's 
recommendations about ways to enhance the benefits of increased 
trade to all regions.
    First, negotiations designed to place disciplines on 
domestic agricultural policies should not be included in the 
hemispheric free trade negotiations. Negotiations on 
agricultural support programs are properly within the purview 
of the World Trade Organization's Doha Round.
    Second, the United States must develop effective approaches 
to dissuade countries from using phytosanitary rules and other 
non-tariff barriers to restrict imports of agricultural 
commodities. The United States should also work to include 
science-based rules for trade and biotech products in every 
free trade agreement.
    Third, no trade agreement will benefit U.S. farmers and 
workers if the participating countries do not abide by its 
terms. We are very concerned that adequate resources may not be 
available to successfully complete USTR's ambitious negotiating 
agenda, and ensure that existing agreements are vigorously 
enforced.
    Finally, future free trade agreements in this hemisphere 
offer potential economic gains to the U.S. cotton and cotton 
textile industries if they include the following provisions: a 
consistent, workable rule-of-origin for cotton fiber and 
textile and apparel products that is no less restrictive than 
NAFTA rules of origin; effective rules to deal with 
intellectual property rights; no preferences for products 
assembled using components from non-participating countries; 
and, that preserves important aspects of trade preferences 
already established with NAFTA, Caribbean, and Andean 
countries.
    Trading arrangements under NAFTA and CBTPA have created 
substantial two-way trade and textile and apparel that benefit 
the U.S. and its partners. But the volume of trade between the 
United States and South American countries is still relatively 
small. Future trade agreements should seek to expand trade in a 
manner that is beneficial to all participating countries by 
enabling them to compete with low-cost Asian goods.
    However, there is also the prospect of significantly 
increased competition. For example, Brazil, which I recently 
visited, has tremendous potential to expand cotton production 
if they are able to successfully address constraints posed by 
the transportation infrastructure.
    I want to make another point about Brazil. Brazil has filed 
a wide-ranging, comprehensive WTO complaint against the U.S. 
cotton program and by inference against all U.S. commodity 
programs. We will vigorously defend the cotton program and are 
confident that it does comply with our WTO obligations. We 
believe both countries would be better served to focus on 
mutual benefits that can be achieved through the successful 
conclusion of the FTAA and the Doha Round.
    In closing, I want to stress the importance of USDA's 
export credit and promotion programs. We believe that more 
should be done to ensure competitive financing tools are 
available to U.S. exporters. The highly effective public/
private partnership market development programs must be 
adequately funded as we work to develop stronger relations with 
our export customers.
    Again, thank you for allowing me to present testimony 
today. I hope you and your colleagues will remain actively 
engaged in urging the administration to negotiate sound, 
mutually beneficial agreements, and to ensure that they are 
vigorously enforced. I would be pleased to respond to your 
questions at the appropriate time, sir.
    Senator Coleman. Thank you very, very much, Mr. Greene.
    [The prepared statement of Mr. Greene follows:]

   Prepared Statement of Robert W. Greene, Chairman, National Cotton 
                           Council of America

    Mr. Chairman, thank you for having this hearing today. My name is 
Bobby Greene. I am a cotton ginner from Courtland, Alabama, and 
currently serve as the Chairman of the National Cotton Council of 
America.
    The National Cotton Council is the central organization of the 
United States cotton industry. Its members include producers, ginners, 
oilseed crushers, merchants, cooperatives, warehousemen, and textile 
manufacturers. While a majority of the industry is concentrated in 17 
cotton producing states, stretching from the Carolinas to California, 
the downstream manufacturers of cotton apparel and home-furnishings are 
located in virtually every state.
    Annual cotton production is valued at more than $5 billion at the 
farm gate. In addition to the fiber, cottonseed products are used for 
livestock feed, and cottonseed oil is used for food products ranging 
from margarine to salad dressing. While cotton's farm gate value is 
significant, a more meaningful measure of cotton's value to the U.S. 
economy is its retail value. Taken collectively, the business revenue 
generated by cotton and its products in the U.S. economy is estimated 
to be in excess of $120 billion annually. Cotton stands above all other 
crops in its creation of jobs and its contribution to the U.S. economy.
    Any review of the impact of international trade policy on cotton 
should be undertaken with the understanding that cotton is a raw, 
industrial product. The economics of cotton production are inextricably 
linked to textile policy and production, both in the United States and 
around the world.
    Trade policy in the Western Hemisphere is of great importance to 
the U.S. cotton industry. In the last two years, U.S. cotton fiber 
exports have increased 57% from an annual average of 7 million bales to 
11 million bales. This increase occurred mainly due to a dramatic drop 
in domestic production of cotton textiles together with benefits of 
increased trade in the Western Hemisphere. U.S. mill use of cotton has 
dropped by more than one-third from almost 11.4 million bales in 1997 
to less than 7.5 in 2003. This loss was due in large measure to 
unfavorable exchange rates, illegal transshipments of textile products 
and the failure of the U.S government to implement WTO safeguards in a 
timely manner.
    Mr. Chairman, the U.S. cotton industry believes that increased 
trade in the Western Hemisphere is one of the few options available to 
help combat the ever-rising tide of Asian apparel imports into the 
United States. With this conviction, the National Cotton Council 
supported the North American Free Trade Agreement--and that agreement 
has been beneficial to our sector. Mexico is the number one market for 
our raw cotton. In turn, Mexico ships almost 3 million bales of cotton 
textile products to the U.S. It is our hope that this favorable 
relationship will continue.
    The cotton industry is following with interest the negotiations for 
a Central America Free Trade Agreement and is working to gain a better 
understanding of the economic impact it can expect from a Free Trade 
Agreement of the Americas (FTAA).
    Likewise, regional preferential trading arrangements with the 
Caribbean Basin countries and the Andean countries are beneficial to 
the U.S. cotton industry, though less beneficial than they could have 
been with less liberal quotas for regional fabrics, especially in the 
Andean agreement.
    Without question, the economic impact of trade in this hemisphere 
is far more significant to the United States than it was 20 years ago 
when so much of our focus was on Europe and Asia. The cotton industry 
welcomes a hemispheric focus to trade policy, but is concerned that 
further progress toward enhanced trade is being jeopardized.
    I would like to quickly summarize the main areas of concern to the 
U.S. cotton industry and then explore some of these areas in greater 
detail.

   Negotiations designed to place disciplines on domestic 
        agricultural programs should not be undertaken within a 
        hemispheric free trade negotiation. Negotiations on 
        agricultural support programs are properly within the purview 
        of the agricultural negotiations being carried out in the World 
        Trade Organization (WTO).

   The United States must develop effective approaches to 
        dissuade countries from using phytosanitary rules to unfairly 
        restrict imports of agricultural commodities.

   No trade agreement is worth the effort to achieve if the 
        participating countries do not abide by its terms. With the 
        tremendous range of negotiations currently being undertaken by 
        the United States, we are very concerned that adequate 
        attention and resources are not being devoted to compliance 
        issues.

   Future free trade agreements in this hemisphere offer 
        potential economic gains to the U.S. cotton and cotton textile 
        industries, but any regional agreement must----

     Contain a consistent, workable rule-of-origin for cotton 
            fiber and textile and apparel products that is no less 
            restrictive than NAFTA rules of origin for these products;

     Include provisions that would establish effective rules to 
            deal with intellectual property rights;

     Disallow preferences for products made with components 
            from non-participating countries; and

     Preserve important aspects of trade preferences already 
            established with the Caribbean and Andean countries.

    I will discuss three of these points in general before turning to a 
more detailed discussion of our negotiating objectives.

         MULTILATERAL NEGOTIATIONS ON AGRICULTURAL PROGRAMS

    Domestic agricultural policy should not be negotiated within the 
context of hemispheric free trade negotiations. The WTO negotiations 
are the correct and most effective forum in which to engage all 
countries of the world in agreements that improve disciplines governing 
world agricultural trade.
    We are increasingly alarmed that several countries in South America 
are using every forum and every media outlet available to attack the 
United States' agricultural programs. These attacks are unwarranted and 
misguided. The United States drove the Uruguay Round Agricultural 
Agreement reform process. The United States has fully complied with its 
Uruguay Round commitments, including those applicable to the U.S. 
cotton program. It has steadily adhered to ambitious proposals for 
multilateral, broad-based reform in the Doha Round.
    The United States has again proposed far-reaching, substantive 
reform for agricultural policy within the Doha Round trade 
negotiations. The WTO is the only proper forum for obtaining 
multilateral disciplines on agricultural programs. The United States 
will place its producers at an extreme disadvantage in world 
agricultural markets should it agree to changes in its domestic 
agricultural programs in order to secure free trade agreements in this 
hemisphere.

                        PHYTOSANITARY RULES

    Increasingly, countries in this hemisphere and around the world 
appear to be using phytosanitary rules to restrict imports of 
agricultural commodities. The United States must address this tendency 
directly and with determination. It stretches the resources of 
individual commodity organizations to their limit and greatly distorts 
trade when new phytosanitary barriers are constantly being erected 
without justification. In this hemisphere, we have most recently 
noticed Brazil changing phytosanitary requirements in an unpredictable 
fashion, threatening U.S. exports to that country.
    Instead of having to respond to each new rule or edict 
individually, the United States should reserve the right within trade 
agreements to broadly withdraw trade concessions when its trading 
partners begin erecting one barrier after another while citing 
unfounded phytosanitary concerns.

                         COMPLIANCE ISSUES

    Mr. Chairman, the United States has embarked on an unprecedented 
number of trade negotiations, with countries within this hemisphere as 
well as on the bilateral and multilateral stage. We are concerned, 
however, that the resources being devoted to ensuring compliance with 
already negotiated agreements is woefully inadequate.
    The U.S. cotton industry has worked for over a year with U.S. 
government officials to make China comply with the terms of the U.S.-
China WTO accession agreement--but China stubbornly refuses to comply. 
U.S. trade officials acknowledge a clear violation of that agreement 
and WTO rules, in general, by China in its implementation of tariff 
rate quotas on agricultural imports. However, we have so far managed to 
achieve no modifications in China's policy. While refusing to open its 
own markets under terms of the accession agreement, China has increased 
its exports of textile products to the U.S. last year by more than 600% 
in eight product categories for which quotas were removed. Yet the U.S. 
has not exercised its right to curb this excessive market penetration 
by implementing safeguards, despite a request that was made by the 
American Textile Manufacturers Institute more than eight months ago.
    We applaud the long-anticipated decision by the Administration to 
move forward with a WTO case against the European Union's rules 
prohibiting importation of biotech agricultural commodities. But, we 
are troubled that each of these decisions has been ``long-
anticipated.'' Every delay costs U.S. agriculture. If agriculture is to 
continue to support progressive trade policy as adopted by the 
Administration, we must be assured that our government will force our 
trading partners to adhere to their agreements.
    The FTAA itself is a monumental undertaking involving dozens of 
countries and thousands of individual issues and decisions. In order to 
be successful, the United States must devote adequate resources to 
these negotiations. We call on Brazil to do likewise. The U.S. cotton 
industry is facing the most comprehensive, wide-ranging WTO challenge 
ever faced by U.S. agriculture in a case brought by Brazil against our 
agricultural programs that clearly comply with the Uruguay Round rules. 
We would urge Brazil to turn its focus and energy towards the tasks of 
co-chairing the FTAA negotiations, and working diligently on the 
ongoing round of WTO.
    Mr. Chairman, we urge Congress to send the strongest possible 
message to the Administration that future trade agreements will not be 
ratified under Trade Promotion Authority until there is clear evidence 
that the U.S. is insisting on full compliance with existing agreements 
by our trading partners.

                     EXISTING PATTERNS OF TRADE

    Trading arrangements under NAFTA and CBTPA have created substantial 
two-way trade in textiles and apparel. The U.S. exports about 4 million 
bale-equivalents of cotton textiles to NAFTA and CBI countries. At the 
same time, the U.S. imports more than 6 million bale-equivalents of 
cotton textile products from these countries. However, to date, trade 
between the U.S. and South American countries is still relatively 
small. Future trade agreements should seek to expand trade in a manner 
that can be beneficial to textile industries in the signatory countries 
while denying benefits to third countries.
    Trade policy in the Western Hemisphere should be designed to 
enhance the ability of the textile industry to compete with the 
onslaught of textile products coming from Asia, in general, and China, 
in particular. Since 1999, the share of U.S. cotton textile imports 
supplied by Western Hemisphere countries has steadily declined while 
Asia's share has increased. The decline was quite pronounced in 2002 as 
textile imports from China surged more than 100%.
    For the United States cotton and textile industries, enhanced trade 
within this hemisphere provides the greatest opportunity to produce 
apparel products that are competitive with Asian imports.
    The one-way trade preferences currently being provided to Caribbean 
countries, and to a lesser extent the Andean countries, have been 
constructed to increase the competitiveness of U.S. textiles. These 
preferences have led to increased consumption of U.S. cotton and U.S. 
cotton textiles.
    In general, trade preference legislation breaks down textile and 
apparel preferences into the following categories:

          1. Apparel that is sewn or otherwise assembled in one of the 
        beneficiary countries from fabric that is wholly formed in the 
        United States from U.S. yarns (U.S. fabric); and

          2. Apparel that is sewn or otherwise assembled and cut in one 
        or more of the beneficiary countries or the United States from 
        fabric that was wholly formed in the United States or one or 
        more beneficiary countries from U.S. or beneficiary country 
        yarns (regional fabric \1\).
---------------------------------------------------------------------------
    \1\ The Caribbean trade preference legislation provides this second 
category of preferences only for regional knits.

    The legislation places ceilings on trade preferences for the so-
called regional fabrics. Only a certain quantity of apparel articles 
that are regionally produced may take advantage of the preference in 
any particular year. That amount tends to increase over time. The Trade 
Act of 2002 clarified that dyeing and finishing of U.S. fabric 
qualifying for these preferences must be done in the U.S.
    With the final revisions made to these preferential arrangements in 
the Trade Act of 2002, the U.S. cotton and textile industries are fully 
committed to developing more trade with the Caribbean and Andean 
countries. It would be detrimental to those economies if a free trade 
arrangement with Central America or South America undermined the 
preferences already in place in this hemisphere.
    The cotton industry, primarily through the efforts of Cotton 
Council International, has already sponsored several trade fairs in 
this hemisphere and aggressively promotes the sale of U.S. cotton in 
the Caribbean region and in Central and South America.

                CENTRAL AMERICA FREE TRADE AGREEMENT

    As noted above, the U.S. cotton industry must evaluate all possible 
trade agreements based on their likely impact on U.S. cotton producers 
and U.S. textile manufacturers. As this Committee evaluates the 
economic impact of a potential FTA with Central America, we urge you to 
be aware of the very strong economic link between the U.S. cotton 
production sector and the U.S. textile manufacturing sector.
    Cotton production in the five countries of the Central American 
Economic Integration System (Costa Rica, El Salvador, Guatemala, 
Honduras, and Nicaragua) was approximately 19,000 bales in 2002, while 
imports of cotton were 255,000 bales and total mill use of cotton was 
approximately 260,000 bales. Without question, a free trade agreement 
with Central America will provide opportunities for U.S. cotton fiber 
exports into the region as textile and apparel products produced in the 
region will be more competitive in the U.S. market.
    However, that same opportunity could result in a negative impact on 
the U.S. textile sector unless effective rules-of-origin are in place. 
It is also important that a separate textile negotiating group be 
established with respect to the Central America FTA negotiation.
    The NCC strongly urges that any FTA agreement with Central America 
contain rules-of-origin applicable to textiles that are no less 
restrictive than those in the North American Free Trade Agreement. 
Anything less will open the U.S. cotton and textile industries to 
unfair, unbridled competition from countries that will transship 
textile products through Central America in order to take advantage of 
quota-free, duty-free access to the U.S. This would have a detrimental 
economic impact on the United States.
    A rule-of-origin based on NAFTA-type rules ensures that workers and 
companies in the United States and Central America are the 
beneficiaries of the agreement, not entities in third countries. With 
an effective rule-of-origin, the increased trade that occurs as tariffs 
are reduced and trade barriers removed will mean increased 
opportunities for workers and consumers in each trading area.
    Mr. Chairman, we also strongly urge that there be no free rides in 
these negotiations. There should not be any tariff preference levels 
(TPLs) and other exceptions that undermine the basic rule-of-origin. An 
effective rule-of-origin will also include a short supply mechanism 
similar to that contained in the Caribbean Basin Trade Preferences Act. 
Effective short-supply provisions eliminate the need for any special 
treatment for products that are not produced in the free trade region.
    Any free trade agreement must offer reciprocal market access for 
both parties. Reductions in tariffs for textiles and agricultural 
products must be reciprocal and concurrent so that no country gains an 
unfair advantage as the agreement is implemented.
    Imports of cotton fiber into the United States are subject to a 
tariff rate quota within the context of the World Trade Organization. 
The North American Free Trade Agreement phased out non-tariff barriers 
to cotton imports from Mexico into the United States over a period of 
years. The Chile agreement, which we support, phased out U.S. tariff-
rate quotas over a period of 12 years. As long as the agreement 
contains effective rules of origin, the cotton industry will continue 
to support similar phase outs of the cotton fiber tariff-rate quota. It 
is, however, important that effective safeguard provisions be in place.
    The NCC strongly urges that the textile and apparel customs 
enforcement measures in the NAFTA and AGOA agreements be included in a 
Central America Free Trade Agreement. These measures include the use of 
production verification teams and the ability for U.S. Customs to 
inspect factories without prior notice and the development of tracking 
systems, including a certificate of origin. In addition, the textile 
customs measures should require annual plant visits, records audits, 
and yearly certification requirements.
    The U.S. Customs Service should also be required to file annual 
reports with the Congress and the President detailing its efforts in 
Central America to ensure that textile and apparel rules-of-origin are 
enforced.
    While free trade agreements tend to contain provisions to bar 
companies that break the rules, they usually do not include provisions 
to bar countries that do not enforce the rules. The NCC therefore urges 
the U.S. to insist upon provisions in an FTA that allow the U.S., upon 
consultations, to remove textiles and apparel from trade preferences in 
the event that the foreign government repeatedly fails to enforce the 
textile rules in the agreement.
    Mr. Chairman, we also are concerned that many countries do not do 
an adequate job of enforcing intellectual property rights. Free trade 
agreements should contain provisions that would establish effective 
rules to deal with intellectual property violations, including those 
relating to designs, copyrights, trademarks and patterns. The U.S. 
textile industry estimates that over $100 million are lost each year 
due to the worldwide pirating of protected textile designs.

             FREE TRADE NEGOTIATIONS WITH SOUTH AMERICA

    Negotiations designed to lead to a Free Trade Agreement of the 
Americas would truly transform the economic structure of this 
hemisphere. Those negotiations offer growing markets in some areas and 
for some parts of our industry, but raise the prospect of significantly 
increased competition in others. The size and scope of the FTAA demand 
that each aspect of such an agreement be carefully considered. The 
National Cotton Council has requested that a separate negotiating group 
on textiles be established within the FTAA negotiations. We urgently 
renew that request. It is important to our industry that our 
negotiators consider the impact of textile negotiations in the FTAA on 
the overall U.S. cotton industry.
    The National Cotton Council is working with a consultant to develop 
a thorough economic analysis of the impact on the U.S. cotton industry 
of an FTAA. That analysis is not complete but we will be happy to share 
it with the Committee when it is finalized. Also, we have joined with a 
coalition urging USDA to conduct a thorough analysis of potential 
impacts of an agreement to help guide negotiators.

                  SOUTH AMERICAN COTTON POTENTIAL

    Before I discuss specific negotiating objectives with respect to 
the FTAA, I would like to emphasize the dramatic difference between the 
South American cotton and textile sector and that sector in Mexico, the 
Caribbean, Central America and the Andean countries. Of all of these 
groups, only Mexico could compete on a size basis with the cotton 
economies of Brazil, Argentina and, at times, Paraguay. Brazil is of 
particular significance.
    There have been significant shifts in Brazil's cotton production 
during the past decade. Land has moved out of cotton in the traditional 
areas of the south and northeast and into cotton in the state of Mato 
Grosso. The climate is very favorable for cotton production, and land 
availability does not appear to be an issue. In fact, it has been 
estimated that there are 160 million acres of virgin grasslands that 
are suitable for crop production. An added incentive for Brazilian 
cotton production is that it provides a very good rotational crop with 
soybeans.
    The expansion of cotton acreage in Mato Grosso came in response to 
the strong prices of the mid 1990's. As I learned in a recent visit to 
Brazil, current prices do not provide strong incentives for additional 
acres. However, if prices rise, Brazil has the potential to 
substantially increase cotton production.
    I should add that increased production is not without its 
constraints and costs. Transportation infrastructure poses a 
considerable hindrance to future growth. New acres brought into crop 
production are further away from the source of demand and subsequently 
have greater transportation costs.

                    FTAA NEGOTIATING OBJECTIVES

    Although NCC's study of the effects of an FTAA on the U.S. cotton 
industry is not yet complete, many of the same principal issues 
discussed above concerning a Central America Free Trade agreement are 
no less applicable to negotiations with South America. Reciprocal 
market access, effective rules-of-origin, no tariff preference levels, 
strong Customs enforcement provisions and effective rules to protect 
intellectual property remain the cotton industry's priorities.
    Effective rules-of-origin are even more important with respect to 
free trade negotiations with South America. The Council continues to 
support rules-of-origin for cotton, cotton textiles and cotton textile 
products that are consistent across all free trade agreements, namely 
that the rule-of-origin be no less restrictive than that applicable to 
NAFTA. As stated above, anything less would open the U.S. cotton and 
textile industries to unfair, unbridled competition from countries that 
will transship textile products in order to take advantage of quota-
free, duty-free access to the U.S.
    It is also very important that there be no tariff preference levels 
(TPLs) and other exceptions that undermine the basic rule-of-origin. 
These exceptions cost U.S. jobs and they are completely out of context 
when we are discussing free trade arrangements with literally dozens of 
countries at the same time. These wide-open exceptions to the NAFTA 
rules of origin came into place ostensibly in recognition of the 
relatively limited scope of the three textile markets involved in the 
NAFTA negotiations--although we would not agree that these markets are 
limited in any way. Nevertheless, that same rationale simply does not 
hold in the context of a Free Trade Agreement for the Americas. 
Further, any rationale that might exist for tariff preference levels is 
undermined by the inclusion of a reasonable, workable short-supply 
provision, which we strongly support.

                      CREDIT AND OTHER ISSUES

    Mr. Chairman, there are a few more general items I believe need to 
be discussed concerning cotton and textile trade in this hemisphere. An 
inability of potential customers to obtain credit is hampering the 
growth of U.S. exports of yarn and fabric. We believe more needs to be 
done to ensure that competitive financing tools are available to U.S. 
exporters of yarn and fabric. Our industry supports----

   Broad financing initiatives for U.S. cotton and textiles 
        that involve current, modified or new programs of the Export-
        Import Bank, Overseas Private Investment Corporation (OPIC) and 
        similar institutions specifically to address export financing 
        constraints faced by those products, including provisions for 
        an asset-based revolving or open line of credit;

   A continuation, simplification (i.e., paperwork reduction) 
        and strengthening of a GSM-102 program that includes U.S. 
        origin cotton, cotton yarn and cotton fabric;

   An effective Supplier Credit Guarantee Program (SCGP) that 
        includes U.S. cotton, cotton yarn and cotton fabrics, and that:

     Provides for approval of a specific line of credit for 
            customers;

     Provides a minimum of 80 percent guarantee;

     Extends the repayment term, where practicable, to 360 
            days; and

     Liberalizes the grace period for payment before a customer 
            is ``blacklisted.''

    Without improvements in financing and credit, the intended 
objective of boosting trade between the U.S. and the countries of this 
hemisphere may not be realized and the expected economic benefits for 
all parties will be constrained.
    Also, we would encourage future trade negotiations in the Western 
Hemisphere to address the need for rules regarding the science-based 
adoption of biotechnology.
    While we encourage the Administration to seek positive trade 
agreements, particularly within this hemisphere, the damage that can be 
done to the U.S. economy by poorly negotiated agreements is 
substantial. The recently implemented trade arrangement with Jordan, 
for example, contained a significant loophole in rules of origin for 
textiles that should have been avoided.
    Further, the continued strength of the U.S. dollar has taken a 
significant toll on U.S. agricultural trade in general, and the U.S. 
textile sector in particular. All trade initiatives undertaken by the 
Administration should take this economic reality into account. The 
impact of currency valuations on trade should not be under-estimated.
    The U.S. is taking the position that domestic support reductions 
can only be achieved in the multilateral context through the WTO. 
However, one communication from the agricultural group cites as an 
objective to ``identify other trade-distorting practices for 
agricultural products, including those that have an effect equivalent 
to agriculture export subsidies, and bring them under greater 
discipline.''
    Mr. Chairman, thank you for the opportunity to testify on the 
potential impacts on agriculture in the Western Hemisphere stemming 
from these various trade initiatives. These comments are, of necessity, 
brief and general, but they reflect the fact that the cotton and 
textile industries in the United States can both gain and lose markets 
through the negotiation of trade agreements. We urge you to continue to 
be aware of the very strong economic link between the U.S. cotton 
production sector and the U.S. textile-manufacturing sector as you 
pursue the economic interests of the United States in the Western 
Hemisphere.












    Senator Coleman. Mr. Roney.

   STATEMENT OF JACK RONEY, DIRECTOR OF ECONOMICS AND POLICY 
        ANALYSIS, AMERICAN SUGAR ALLIANCE, ARLINGTON, VA

    Mr. Roney. Thank you, Mr. Chairman. I am Jack Roney, 
director of Economics and Policy Analysis for the American 
Sugar Alliance, the national coalition of growers, processors, 
and refiners of sugar beets, sugar cane, and corn for 
sweetener.
    American sugar producers are efficient by world standards, 
with costs of production below the world average. We would 
welcome the opportunity to compete on a level playing field, 
free of all government intervention. For this reason, we have 
long endorsed the goal of genuine global free trade for sugar. 
Unfortunately, the world sugar market is highly distorted by a 
vast array of government subsidies and practices. It is so 
distorted that the so-called world market price for sugar has 
averaged barely half the world average cost of producing sugar 
for the past two decades.
    The only way to achieve the goal of free trade in sugar is 
to address all these practices in all countries to a 
comprehensive, multi-lateral negotiations in the WTO. The 
distorted world sugar market cannot, however, be corrected 
through regional free trade agreements such as the FTAA or the 
CAFTA. FTAs mainly affect import tariffs, but not the other 
means of support within the region. How foolish it would be for 
us to reduce our import tariffs while foreign exporters are 
still subsidizing. FTAs leave distortions in the rest of the 
world untouched. FTAs leave the free trade area vulnerable to 
the harmful effects of subsidies outside the region, and 
eliminates the region's leverage to remove those foreign 
subsidies.
    The administration has recognized some of these dangers, 
and wisely decided to reserve negotiation on domestic price 
supports for the WTO rather than address them in the FTAs. But 
all these subsidies and other trade distorting practices are 
closely interrelated. This is why all these practices must be 
addressed comprehensively and globally in the WTO, not 
piecemeal and regionally in the FTAs.
    There is ample precedent just within the Western Hemisphere 
for excluding sugar from FTAs. Sugar was excluded from the 
U.S./Canada FTA. Sugar was excluded from the Mercosur agreement 
among Brazil, Argentina, Paraguay, and Uruguay. Sugar was 
excluded from Mexico's FTAs with other Latin countries, or 
access to Mexico is limited to only when Mexico needs foreign 
sugar. Sugar was excluded from Mexico's FTA with the European 
Union.
    There is one exception. The only major FTA in which sugar 
was included is the U.S./Mexico portion of the NAFTA. The 
controversy surrounding the sugar and corn sweetener provisions 
of the NAFTA has been enormous and a severe strain on U.S./
Mexico relations. This and compliance issues on other 
commodities have left many American farmers questioning the 
value of FTAs in which only U.S. concessions appear to be 
enforced.
    The United States is already one of the world's largest 
sugar importers. All the sugar from 41 countries enters at the 
U.S. price, not the world dump market price. Under our WTO 
obligations, about two-thirds of our imports are already 
guaranteed to come from Western Hemisphere countries, virtually 
all duty free.
    Forcing the United States to import more sugar than it 
needs, as an FTAA would do, would oversupply our market with 
disastrous effects for domestic producers and for foreign 
suppliers.
    One, prices would fall, driving more American sugar farmers 
out of business. Nearly a third of all U.S. beet and cane mills 
have closed just since 1996.
    Two, low prices would also cause forfeitures of sugar loans 
to the government, contrary to law. The Senate passed the sugar 
title of the 2002 farm bill by an overwhelming 71 to 29 margin. 
It directed USDA to operate U.S. sugar policy at no cost to the 
government by avoiding loan forfeitures.
    Three, low U.S. sugar prices would harm the economies of 
the countries that normally export to the United States. These 
are predominantly Western Hemisphere developing countries.
    The United States consumes about 10 million tons of sugar 
per year. Our imports of sugar from 41 quota-holding countries 
have averaged more than 1\1/2\ million tons in recent years. 
Sugar exports from all FTAA countries are over 15 million tons 
per year. That is 50 percent higher than U.S. total 
consumption.
    By far the greatest danger is Brazil. Boosted by decades of 
cane ethanol subsidies, direct sugar producer subsidies in some 
areas, low labor and environmental standards, and strategic 
currency devaluations, Brazil has increased its sugar exports 
from less than 2 million tons a decade ago to a forecast 14 
million tons next year. Simply by diverting sugar cane from its 
government managed fuel ethanol program to sugar production 
instead, Brazil could overrun the United States and virtually 
every other Western Hemisphere country under an FTAA that 
includes sugar.
    In conclusion, Mr. Chairman, the U.S. sugar industry is 
efficient and competitive, and supports the goal of genuine 
global free trade in sugar. But we insist that the only way to 
achieve this goal is through the WTO. Inclusion of sugar in the 
FTAA would spell disaster for the great majority of sugar 
producers in the Western Hemisphere, aside from the subsidized 
producers of Brazil.
    Thank you.
    Senator Coleman. Thank you very much, Mr. Roney.
    [The prepared statement of Mr. Roney follows:]

  Prepared Statement of Jack Roney, Director of Economics and Policy 
                   Analysis, American Sugar Alliance

    Chairman Coleman, Members of the Committee: Thank you for the 
opportunity to testify before you today on a matter of considerable 
concern to the U.S. sugar industry.
    I am Jack Roney, Director of Economics and Policy Analysis for the 
American Sugar Alliance, the national coalition of growers, processors, 
and refiners of sugarbeets, sugarcane, and corn for sweetener.
    I would like to provide you some background on the U.S. and world 
sugar markets and describe the U.S. sugar industry's position on 
multilateral trade negotiations and on the proposed free trade 
agreements (FTAs) with other Western Hemisphere countries B the Free 
Trade Area of the Americas (FTAA) and the Central American Free Trade 
Agreement (CAFTA).

        BACKGROUND ON U.S. AND WORLD SUGAR MARKETS, POLICIES

    Before moving on to our trade policy recommendations, it is 
important to provide some background on the unique characteristics of 
the U.S. and world sugar market and policies.
    Size and Competitiveness. Sugar is grown and processed in 16 states 
and 372,000 American jobs, in 42 states, are dependent, directly or 
indirectly, on the production of sugar and corn sweeteners. The 
industry generates an estimated $21.1 billion in economic activity 
annually.\1\ A little more than half of domestic sugar production is 
from sugarbeets, the remainder from sugarcane. More than half our 
caloric sweetener consumption is in the form of corn sweeteners.
    The United States is the world's fourth largest sugar-producing 
country, trailing only Brazil, India, and China. The European Union 
(EU), taken collectively, is second only to Brazil.
    Despite large U.S. production, the United States' sugar market is 
one of the most open. The U.S. is consistently among the world's two or 
three largest sugar importers.
    The Uruguay Round Agreement on Agriculture in 1995 required imports 
of only 3-5 percent of consumption. But the United States bound its 
sugar imports at a level several-fold higher--a minimum of 1.256 
million short tons, or nearly 15 percent of consumption, essentially 
duty-free. The U.S. actually imported nearly twice the minimum in 1996 
and 1997, and has imported at least the minimum each year since.
    Moreover, the NAFTA requires the United States to import up to 
276,000 additional short tons of Mexico's surplus production. Under 
both agreements, the U.S. must import this sugar whether the domestic 
market requires it or not.
    All but two of the 41 countries supplying sugar to the United 
States are developing countries, many with fragile economies and 
democracies. These countries depend heavily on sales to the United 
States, at prevailing U.S. prices, to cover their costs of production 
and generate foreign exchange revenues. More than half of these 41 
countries produce sugar at a higher cost than U.S. beet and cane sugar 
producers.
    Despite some of the world's highest government-imposed costs for 
labor and environmental protections, U.S. sugar producers are among the 
world's most efficient. According to a study by LMC International, of 
England, and covering the 5-year period ending in 1998/99, American 
sugar producers rank 28th lowest in cost of production among 102 
producing countries, most of which are developing countries.\2\ 
According to LMC, more than half the world's sugar is produced at a 
higher cost per pound than in the United States.
    U.S. beet producers are the second lowest cost beet sugar producers 
in the world. U.S. cane sugar producers are 26th lowest cost of 63 cane 
producing countries, virtually all of which are developing countries 
with dramatically lower labor and environmental costs. American corn 
sweetener producers are the world's lowest cost producers of corn 
sweetener.
    LMC pointed out that the U.S. competitiveness ranking is all the 
more impressive for two reasons: First, most sugar-producing countries 
are developing-country cane producers, with much lower government-
imposed labor and environmental protection costs than the United 
States'. Second, the strong value of the dollar. LMC noted that the 
dollar had soared about two-thirds in the past 20 years against the 
currencies of most other cane-producing countries.
    World Dump Market. More than 120 countries produce sugar and the 
governments of all these countries intervene in their sugar markets and 
industries in some way, the result of which is artificially low world 
sugar prices. Examples abound. Brazil, the world biggest producer and 
exporter, built its sugar industry on two decades of fuel alcohol 
subsidies, which became sugar subsidies, whether the Brazilian cane was 
used for alcohol or sugar. Sugar markets in India and China, the second 
and third biggest producing countries, are carefully controlled by the 
government, and the market in Australia, the world's third leading 
sugar exporter, is managed by a state trading enterprise (STE).\3\
    A recent study by LMC International focused on the trade distorting 
practices among 14 countries or regions that are among the world's top 
sugar producer and consumers. LMC documented that these practices are 
not only numerous, but that many do not fall within the traditional WTO 
disciplines for domestic supports, import tariffs and export subsidies. 
Many are indirect, or less transparent, subsidies and practices that 
are just as distorting, but have not heretofore been addressed in trade 
negotiations. (Figure 2 summarizes LMC's most recent findings on direct 
and indirect subsidies in 14 countries/regions;\4\ Figure 3 summarizes 
an earlier LMC study on trade-distorting practices among the major 
sugar producers of the FTAA region.\5\)
    Producers in the EU, taken as a whole the second biggest producer 
and exporter, benefit from massive production and export subsidy 
programs. The Europeans are higher cost sugar producers than the United 
States, but they enjoy price supports that are 40 percent higher than 
U.S. levels--high enough to generate huge surpluses that are dumped on 
the world sugar market, for whatever price they will bring, through an 
elaborate system of export subsidies.
    World trade in sugar has always been riddled with unfair trading 
practices. These distortions have led to a disconnect between the cost 
of production and the prices on the world sugar market, more aptly 
called a ``dump market.'' Indeed, for the 16-year period of 1983/84 
through 1998/99, the most recent period for which cost of production 
data are available, the world average cost of producing sugar was 16.3 
cents, while the world dump market price averaged little more half 
that--just 9.5 cents per pound raw value.\2\
    Furthermore, its dump nature makes sugar the world's most volatile 
commodity market. In the past 2\1/2\ decades, world sugar prices have 
soared above 60 cents per pound and plummeted below 3 cents per pound. 
Because it is a relatively thinly traded market, small shifts in supply 
or demand can cause huge changes in price. Suggestions by industrial 
sugar users and some foreign governments that world sugar trade should 
be opened ignore this pattern of almost universal market distortion. 
Even the trade laws of the United States were never meant to cope with 
such widespread unfairness in trade.
    Sugar Unique among Agricultural Commodities. In addition to the 
highly residual and volatile nature of the world sugar price, there are 
a number of other factors that set sugar apart from other program 
commodities. These unique characteristics must be taken into account 
when considering domestic and trade policy options for sugar.

   Grower/processor interdependence. Grain, oilseed, and most 
        other field-crop farmers harvest a product that can be sold for 
        commercial use or stored. Sugarbeet and sugarcane farmers 
        harvest a product that is highly perishable and of no 
        commercial value until the sugar has been extracted. Farmers 
        cannot, therefore, grow beets or cane unless they either own, 
        or have contracted with, a processing plant. Likewise, 
        processors cannot function economically unless they have an 
        optimal supply of beets or cane. This interdependence leaves 
        the sugar industry far less flexible in responding to changes 
        in the price of sugar or of competing crops.

   Multi-year investment. The multimillion-dollar cost of 
        constructing a beet or cane processing plant (approximately 
        $300 million), the need for planting, cultivating, and 
        harvesting machinery that is unique to sugar, and the practice 
        of extracting several harvests from one planting of sugarcane, 
        make beet or cane planting an expensive, multiyear investment. 
        These huge, long-term investments further reduce the sugar 
        industry's ability to make short-term adjustments to sudden 
        economic changes in the marketplace.

   High-value product. While the gross returns per acre of 
        beets or cane tend to be significantly higher than for other 
        crops, critics often ignore the large investment associated 
        with growing these crops. Compared with growing wheat, for 
        example, USDA statistics reveal the total economic cost of 
        growing cane is nearly seven times higher, and beet is more 
        than five times higher. With the additional cost for processing 
        the beets and cane, sugar is really more of a high-value 
        product than a field crop.

   Inability to hedge. Program changes dating back to the 1996 
        Freedom to Farm Bill made American farmers more vulnerable to 
        market swings and far more dependent on the marketplace. 
        Growers of grains, oilseeds, cotton, and rice can reduce their 
        vulnerability to market swings by hedging or forward 
        contracting on a variety of futures markets for their 
        commodities. There is no futures market for beets or cane. 
        Farmers do not market their crop and cannot make or take 
        delivery of beet or cane sugar. The hedging or forward 
        contracting opportunities exist only for the processors--the 
        sellers of the sugar derived from the beets and cane. These 
        marketing limitations make beet and cane farmers more 
        vulnerable than other farmers to price swings.

   Lack of concentration. World grain markets are 
        overwhelmingly dominated by a small number of developed 
        countries, but sugar exports are far more dispersed, and 
        dominated by developing countries. This makes the playing field 
        among major grain exporters comparatively level and trade 
        policy reform relatively less complicated than for sugar.

    The world wheat and corn markets, for example, are heavily 
        dominated by a handful of developed-country exporters--the 
        United States, the European Union, Australia, and Canada are 
        four of the top five exporters of each. The top five account 
        for 96% of global corn exports and 91% of wheat exports.

    The top five sugar exporting countries, on the other hand, account 
        for only two-thirds of global exports and three of these are 
        developing countries. Even the top 19 sugar exporters account 
        for only 85% of the market, and 16 of these are developing 
        countries.

   Developing-country dominance. Developing countries account 
        about three quarters of world's sugar production, exports, and 
        imports. Developing countries were, however, not required to 
        make any significant reforms in the Uruguay Round, were given 
        an additional four years to make even those modest changes, and 
        are demanding special treatment again in the Doha Round of the 
        WTO.

             U.S. SUGAR INDUSTRY'S FREE TRADE POSITION

    Because of our competitiveness, the U.S. sugar industry endorses 
the goal of genuine, multilateral free trade in sugar. We have endorsed 
this goal since the onset of the Uruguay Round of the GATT in 1986. We 
are ready, willing, and able to compete with foreign farmers on a level 
playing field, free from all forms of government intervention in the 
marketplace.
    In our view, when all governmental policy distortions have been 
removed, the world sugar price will finally rise to reflect the actual 
cost of producing sugar. Since our costs of production are below the 
world average, we will be able to compete, without the need for a U.S. 
sugar policy.
    We cannot endorse free trade at any cost, nor do we endorse 
unilateral disarmament of U.S. agricultural polices. Progress toward 
free trade must be made on a fair, genuine, and comprehensive basis, 
through sector-specific negotiations. A comprehensive agreement needs 
to address the market distortions of all the producers and be 
implemented in a well coordinated and timely manner.
    As long as foreign subsidies drive prices on the world market well 
below the global cost of production, the United States must retain some 
border control. U.S. sugar policy is a necessary response to the 
foreign predatory pricing practices that threaten the more efficient 
American sugar farmers.
    Genuine liberalization of trade in sugar must address all market 
distortions and circumvention, not just import barriers. This will take 
some doing--the varieties of trade distortions are so widespread, so 
numerous, and so ingrained. Bilateral and regional trade agreements are 
able to address only a fraction of these policies, and, thus, cannot be 
an effective vehicle for reform of the world sugar market.

      U.S. SUGAR INDUSTRY POSITION ON THE FTAA (AND THE CAFTA)

    The U.S. sugar industry recommends that, within the framework of 
the FTAA, and the CAFTA, sugar be reserved for much needed, and more 
far reaching, disciplines in the multilateral, World Trade Organization 
(WTO) context.
    We understand, from contact with the sugar industries of other FTAA 
countries, that a number of these countries are requesting that sugar 
not be included in the regional negotiations.
    The following are the major reasons for, and advantages of, 
reserving sugar for WTO disciplines.

          1. FTAA countries already dominate U.S. sugar imports. With 
        regard to granting FTAA countries preferential access to the 
        U.S. sugar market: We are already there. Forty-one countries 
        share in the U.S. sugar import quota, with essentially duty-
        free access at the preferential U.S. price. Twenty-four of 
        these 41 are FTAA countries. The FTAA countries, aside from the 
        United States, produce 36 million tons of sugar per year, 
        export over 15 million tons, and account for 64 percent of U.S. 
        raw sugar imports, virtually all duty free (Figure 1). If 
        Mexico were to supply its full 276,000 short tons, the FTAA-
        country share of U.S. imports surpasses 70 percent.

          Furthermore, according to LMC statistics, most of the FTAA 
        countries produce sugar at a higher cost per pound than the 
        United States.\2\ Twenty-four of the 34 FTAA countries import 
        little, or no, sugar. American sugar producers feel strongly 
        that their market is already more open than necessary to 
        producers who are predominantly no more efficient, but are most 
        probably subsidized in some significant manner.

          2. FTAA countries likely to be overrun with subsidized 
        Brazilian sugar. Since Brazil is the largest exporter in the 
        world, and represents two-thirds of the economy of Latin 
        America, an FTAA negotiation on sugar will be dominated by the 
        impact of Brazil. Moreover, because of the threat of unfairly 
        produced Brazilian sugar overrunning the Western Hemisphere, 
        growers in all of the sugar-producing countries in the region 
        are threatened by Brazilian market distortions in sugar. 
        Finally, the size and complexity of the Brazilian sugar and 
        alcohol program are such as to make this program very difficult 
        to unwind.

          During the latter half of the 1990's, a period when the world 
        sugar price was dropping from 14 cents per pound to just 4 
        cents, Brazil doubled its sugar production and tripled its 
        exports. It became, by far, the world's leading producer and 
        exporter of sugar.

          Brazil's sugar exports have skyrocketed in one decade from 
        less than 2 million tons per year to a predicted 14 million 
        tons this coming year.\6\ No country has done more than Brazil 
        to depress world sugar prices, harm sugar-exporting countries, 
        and cause severe economic stress to developing countries 
        dependent on sugar exports. No other country comes even close.

          Brazil's sudden expansion had nothing to do with world sugar 
        demand or prices. Brazil's sugar explosion, instead, was the 
        result of decisions by the Brazilian government to reduce 
        subsidies and prices for fuel alcohol (ethanol) produced from 
        Brazilian sugarcane. Brazilian cane processors tend to base 
        their decision on whether to produce ethanol or sugar mainly on 
        ethanol price and subsidy levels. Less than half of Brazilian 
        sugarcane is used to produce sugar. Roughly 60 percent of 
        Brazilian cane goes to ethanol production.

          Brazil's ``Proalcool'' program, established in 1975, 
        subsidized the modification or construction of a massive 
        network of cane mill/distilleries to produce ethanol and reduce 
        Brazil's dependence on foreign oil. Consumer prices for ethanol 
        were subsidized to encourage use. As a result, Brazilian 
        sugarcane production shot up from less than 70 million tons in 
        1975 to more than 350 million tons in recent years. Studies 
        have estimated the value of Brazil's ethanol subsidy at more 
        than $3 billion per year.\7\

          The existence of an enormous infrastructure of mills/
        distilleries, built with government subsidy, enables Brazil to 
        switch easily between ethanol and sugar production, depending 
        on oil prices and government decisions on how much ethanol to 
        produce. The leap in Brazilian sugar production in the latter 
        half of the 1990's, as world sugar prices were plummeting, was 
        the direct result of government decisions to reduce ethanol 
        subsidies and prices.

          The ability to co-produce sugar within the government-
        subsidized infrastructure built for cane ethanol, provides a 
        tremendous savings to the Brazilian sugar industry. LMC 
        International estimates cost savings from co-production--from 
        factors such as sugar house configuration (producing ethanol or 
        sugar from the same mill), molasses by-product credits, 
        extended milling seasons, and economies of scale--at ``almost 
        US$1 billion'' per year.\4\

          Brazil's sugar-export explosion in the late 1990's was also 
        aided by a government decision during that period to reduce the 
        value of the Brazilian currency by nearly 50 percent, 
        artificially keeping Brazilian exports competitive.

          Furthermore, Brazil's sugar producers have benefited, 
        directly or indirectly, from other government assistance, 
        including:

     Debt reductions or cancellations for sugar/ethanol 
            companies.

     Freight and other infrastructural subsidies for sugar, 
            ethanol, and other products.

     Direct subsidies to growers in the Northeast region.

     Labor and environmental practices that are extremely low 
            by most world standards.

     The U.S. Department of Labor and others have documented 
            the widespread and deplorable use of child labor in the 
            Brazilian sugarcane industry, despite Brazilian laws 
            forbidding such practices.\8\ \9\ \10\ \11\ \12\

          3. Sugar is not included in most bilateral and regional 
        agreements. Because of the uniquely distorted nature of the 
        world dump market for sugar and because of a wide range of 
        border control issues, sugar has overwhelmingly been excluded 
        from bilateral and regional free trade agreements. The Food and 
        Agriculture Organization of the United Nations noted last year: 
        ``There are 124 regional trade agreements worldwide at this 
        time, most of which substantially exclude sugar.'' \13\ Some 
        examples:

     Sugar is excluded from the Mercosur agreement among major 
            producers Argentina and Brazil, with Uruguay and Paraguay.

     Though Mexico reportedly has more bilateral and regional 
            trade agreements than any other country, it has excluded 
            sugar from virtually every one, including its recent 
            agreement with the European Union, the world's second 
            largest exporter of sugar. In agreements where sugar is 
            included, Mexico has committed only to import sugar from 
            that country when Mexico needs the sugar.

     Sugar is excluded from the U.S.-Canada portion of the 
            NAFTA, which defers to WTO disciplines instead.

     Sugar is excluded from the EU's free trade agreement with 
            South Africa, also a major sugar exporter.

          NAFTA controversy. Sugar is included in the U.S.-Mexico 
        portion of the North American Free Trade Agreement (NAFTA), but 
        the sweetener provisions are embroiled in controversy. Mexico 
        is blocking imports of U.S.-made corn sweeteners that compete 
        with sugar in Mexico, and Mexico insists on accelerating the 
        NAFTA schedule of its sugar access to the U.S.

          In addition, we have experienced import leakage--of blended 
        product from Canada and above-quota sugar from Mexico.

          Our experience with Mexico in the NAFTA has left American 
        sugar producers highly skeptical of the value and credibility 
        of trade agreements, and more cautious about moving forward in 
        bilateral, regional, or multilateral contexts. The NAFTA sugar 
        dispute must be resolved before the United States contemplates 
        new agreements.

          ``Substantially all'' precedent. WTO rules provide that free 
        trade agreements should cover not all, but rather 
        ``substantially all,'' trade between participant countries. 
        This provision has been invoked by the EU, Mexico, and other 
        countries in the free trade agreements mentioned above that 
        exclude sugar, or, in some cases, most agricultural products.

          The U.S. sugar industry strongly believes that the 
        ``substantially all'' provisions of the WTO should be a 
        critical part of the U.S. negotiating position. Every country 
        in the FTAA process wants to increase its exports to the U.S. 
        But in the unique case of sugar, increased exports would come 
        at the expense of other developing countries and at great cost 
        to American sugar producers.

          4. Increased potential for import-quota circumvention. In a 
        world market so rife with government distortions of markets, 
        the incentive to evade measures for limiting the harmful impact 
        of such unfair trade practices is very high. Many of these 
        evasive schemes depend on exporting dump market sugar to 
        countries that do not produce much or any sugar, where 
        processors blend this dump market sugar with other products 
        that are not subject to the measures that restrain unfair 
        trade.

          Bilateral and regional free trade agreements can make this 
        problem worse, by multiplying the number of such ``blending 
        platforms'' to include virtually all the countries in the 
        agreement. This is especially a problem in the Americas, where 
        so many developing partners are sugar producers.

          These import-quota circumvention problems can be avoided by 
        negotiating comprehensively, in the WTO. Or, the Executive 
        Branch can try to address circumvention practices in regional 
        and bilateral agreements, by explicitly and reliably preventing 
        such schemes to avoid U.S. law.

          5. Danger to no-cost operation of U.S. sugar policy. The U.S. 
        sugar market does not require additional foreign sugar, through 
        the FTAA or any other trade negotiation. Oversupply depressed 
        U.S. prices to 22-year lows during much of 1999-2001 and 
        contributed to the closure of almost a third of all U.S. beet 
        and cane mills during 1996-2002.

          The 2002 Farm Bill restored stability to the domestic market 
        by reinstating the USDA's authority to impose domestic 
        marketing allotments. The sugar title of that Bill, which the 
        Senate passed by an overwhelming 71-29 margin, instructed USDA 
        to operate U.S. sugar policy at no cost to U.S. taxpayers, by 
        maintaining stable producer prices and avoiding sugar loan 
        forfeitures.

          But excessive imports would have either of the following 
        consequences:

     Marketing allotments could be triggered off, negating 
            USDA's ability to manage supplies, defend prices, and avoid 
            loan forfeitures and substantial costs to the government.

     USDA would reduce U.S. producers' marketing allotments to 
            the point where they would lose economies of scale, face 
            higher unit costs, and would likely go out of business.

          Neither outcome is acceptable. In either, or both, instances, 
        the U.S. government faces high costs and American sugar farmers 
        risk being put out of business to accommodate subsidized 
        foreign producers.

                       SUMMARY AND CONCLUSION

    As one of the world's largest importers of sugar, from a highly 
subsidized and distorted world market, the United States must be 
careful in approaching sugar trade negotiations, to ensure that 
commitments it makes in one region do not make achieving results in 
other regions difficult or impossible. This is why issues of market 
access and market distortions for sugar can only be dealt with in a 
comprehensive and effective way in the WTO, where the distorting 
policies of all sugar-producing countries are on the table.
    The U.S. sugar industry strongly recommends that, within the 
framework of the FTAA, sugar be reserved for much needed, and more far 
reaching, disciplines in the multilateral, WTO context. To highlight 
the major reasons for this strategy:

   We are already there. FTAA countries already dominate to the 
        U.S. sugar market--supplying upwards of 70 percent of U.S. 
        sugar imports, at the preferential U.S. price, virtually all 
        duty-free. We accept these imports, under international trade 
        obligations, despite the fact that most of the 24 FTAA 
        countries with shares of the U.S. import quota produce sugar at 
        a higher cost than U.S. producers. The U.S. sugar market is not 
        only the most open in the FTAA, but is already one of the most 
        open in the world--the United States is consistently among the 
        world's top three sugar importers.

   An FTAA that includes sugar would expose all Western 
        Hemisphere countries to being overrun with subsidized exports 
        from sugar-giant Brazil. Under an FTAA, the other 23 countries 
        would likely lose their previously guaranteed share of the 
        preferentially priced U.S. market to Brazil.

   There is ample precedent for excluding sugar. Sugar is 
        unique among agricultural commodities, and for this reason has 
        been excluded from most bilateral and regional trade 
        agreements. The one exception is the U.S.-Mexico portion of the 
        NAFTA, which is embroiled in controversy over disputed U.S.-
        Mexico sugar trade provisions.

   A regional trade agreement exposes countries within that 
        area to unfair trade practices within the region, such as 
        import-quota circumvention sugar-blending schemes, without 
        addressing trade practices outside the free-trade area.

   The U.S. sugar market is currently in balance, but could be 
        tipped back into another disastrous oversupply situation if 
        additional imports are required.

                           RECOMMENDATION

    The ASA urges FTAA, and CAFTA, countries to join together in the 
WTO negotiations and aggressively attack, on a worldwide basis, those 
government policies that have so grossly distorted world trade in 
sugar. Arrangements to liberalize sugar trade within the FTAA should be 
deferred until solid results are achieved in the WTO that will curb or 
eliminate such policies--above all, export subsidies and dumping--and 
restore health to the world sugar market. Given the widespread and 
complex policies affecting the world sugar market, the ASA believes 
that sector-specific negotiations, within the framework of WTO 
agricultural negotiations, are the only feasible way of accomplishing 
these goals.
    Such a sector-specific approach would involve the following 
elements:

   Timely elimination of export subsidies;

   Inclusion of all trade-distorting governmental policies and 
        practices, including indirect or non-transparent policies, 
        affecting sugar in the negotiations;

   Negotiation of commitments to curb or eliminate such 
        policies and practices, in particular those that facilitate and 
        encourage dumping onto the world market;

   Agreement on a well-coordinated implementation schedule for 
        these commitments, encompassing developing countries (which 
        account for three-quarters of world sugar production, 
        consumption, and trade), aimed at maximizing the positive 
        impact on the world market; and

   Careful attention to the importance of existing preferential 
        TRQ arrangements to many of the smaller, economically fragile 
        developing countries, and to the impact of WTO reform on these 
        countries.

    The ASA believes that only through such comprehensive, global 
sector-specific negotiations can the causes of the gross distortions 
and pervasive dumping that have characterized the world sugar market be 
rooted out and a viable basis for liberalization of market access be 
established.

                               References

    \1\ LMC International Ltd., ``The Importance of the Sugar and Corn 
Sweetener Industry to the U.S. Economy,'' Oxford, England, August 1994.
    \2\ LMC International Ltd., ``The LMC Survey of Sugar and 
Production Costs: The 2000 Report,'' Oxford, England, December 2000.
    \3\ LMC International Ltd., ``Sugar Marketing Entities Around the 
World: A Profile of the Competitive Nature of World Trade,'' Oxford, 
England, November 1996.
    \4\ LMC International Ltd., ``Review of Sugar Policies in Major 
Sugar Industries: Transparent and Non-Transparent or Indirect 
Policies,'' Oxford, England, April 2003.
    \5\ LMC International Ltd., ``Sugar Industries and Government 
Policies in the free Trade Area of the Americas,'' Oxford, England, 
July 1998.
    \6\ Export forecast made in speech by Rubens Barboza, Brazilian 
Ambassador to the United States, before the New York Sugar Club, May 
14, 2003.
    \7\ Alberto De Las Carreras, ``Sugar and Alcohol in the Mercosur,'' 
Buenos Aires, 1998.
    \8\ International Sugar Organization, ``An International Survey of 
Environmental Legislation and its Impact,'' London, England, October 
1995.
    \9\ U.S. Department of Labor, ``By the Sweat and Toil of Children, 
Volume II: The Use of Child Labor in U.S. Agricultural Imports & Forced 
and Bonded Child Labor,'' Bureau of International Labor Affairs, 
Washington, D.C., 1995.
    \10\ Peter Buzzanell & Associates, Inc., ``The Brazilian Sugar and 
Alcohol Industry: 2000 and Beyond,'' Reston, Virginia, June 2000.
    \11\ Papers presented on the topic of ``Brazil: The Wakening 
Giant,'' at the International Sweetener Symposium, Napa, California, 
August 11, 1999, by: Simon Harris, British Sugar; Roberto Martins, 
Louis Dreyfus Sugar; and Jorge Zorreguieta, Centro Azucarero Argentino.
    \12\ New York Times, ``Spoonfuls of Hope, Tons of Pain,'' May 20, 
2000.
    \13\ Jennifer Nyberg, Commodities and Trade Division, Sugar and 
Beverages Group, Food and Agricultural Organization of the United 
Nations, ``Overview of Global Sugar Policies versus World Sugar Free 
Trade,'' paper presented at the International Sweetener Symposium, 
Colorado Springs, Colorado, August 2000.









    Senator Coleman. Mr. Boisen.

     STATEMENT OF DOUG BOISEN, BOARD MEMBER, NEBRASKA CORN 
  DEVELOPMENT, UTILIZATION AND MARKETING BOARD AND CHAIRMAN, 
 NATIONAL CORN GROWERS ASSOCIATION TRADE TASK FORCE, MINDEN, NE

    Mr. Boisen. Good afternoon, Chairman Coleman. My name is 
Doug Boisen. I am a farmer from Nebraska. I am a member of the 
Nebraska Corn Board, and I am Chairman of the National Corn 
Growers Association Trade Task Force.
    I would like to thank this subcommittee for giving me the 
opportunity to testify and to speak today regarding the future 
of the United States' economic relations in the Western 
Hemisphere. Today's hearing is very timely, and I commend the 
chairman and the subcommittee for convening it.
    The National Corn Growers Association was founded in 1957 
and represents more than 32,600 dues-paying corn growers from 
48 states. The Association also represents the interests of 
more than 350,000 farmers who contribute to corn checkoff 
programs in 19 states.
    One out of every five rows of corn in the United States is 
exported, and exports of value-added corn and co-products add 
to the importance of foreign markets for United States corn 
producers. In 2002, United States corn exports totaled 47 
million metric tons with a value in excess of $4.8 billion. 
This represents approximately 20 percent of the total United 
States production, with the United States accounting for nearly 
57 percent of the worldwide production last year. Our two 
closest competitors in the international marketplace are 
Argentina and China with 14 and 17 percent of world production 
respectively.
    It is abundantly clear to me and to many of my fellow 
farmers that agriculture lives in a more competitive world than 
ever before. The importance of free trade agreements have never 
been more essential to the future success of our industry. NCGA 
supports trade agreements that will open markets for United 
States farmers and increase market development opportunities 
throughout the world. The Central and South American countries 
represent a large potential market for United States corn 
despite Argentina's presence in the region.
    I would like to spend a few minutes outlining our trade 
priorities in ongoing and future trade negotiations in the 
region. Like many of the commodities at this table, corn is 
experiencing problems with Mexico in terms of its commitments 
under the North American Free Trade Agreement. Mexico is our 
second largest trading partner, importing 5.3 million metric 
tons of bulk corn last year.
    It is essential that Congress and the administration not 
renegotiate NAFTA, and work toward its full implementation. 
Renegotiation of NAFTA would be unwise and unproductive for 
both countries.
    At the center of attention of trade negotiations in the 
Western Hemisphere is the Free Trade Area of the Americas, 
FTAA. Through the FTAA process, corn growers seek the following 
objectives: One, overall reduction of tariff levels; two, 
elimination and use of export subsidies for trading in the 
Western Hemisphere; and three, the phasing out of tariff-rate 
quotas.
    Specifically, the United States feed grain industry would 
benefit from the elimination or reduction of the complex system 
of preferential regional and bilateral trade agreements. This 
will increase access to more countries and provide exporters 
access to markets comparable to other trading partners.
    Another top priority for corn growers is to prevent export 
subsidies from being used by any member. We seek a commitment 
from each country to refuse to accept subsidized exports from 
third parties. Export subsidies are the most trade distorting 
of government policies and severely injure efficient producers. 
Elimination and prohibition of future subsidies in the FTAA 
would not only level the playing field for agricultural 
commodities, but also increase pressure on the European Union 
to reform its export subsidies in upcoming WTO negotiations on 
agriculture.
    Regarding a Central American Free Trade Agreement, the 
domestic feed grain industry looks to gain greater market 
access through the elimination of tariffs. In total, the region 
imports more than 1.6 million metric tons of corn per year, 
with the United States supplying nearly all of that demand. 
While each of the countries applies a different rate, tariff 
rate for corn, immediate tariff elimination should be sought in 
as many of these countries as possible.
    In addition, we feel the FTAA in Central America should 
fully embrace trade in products produced through agricultural 
biotechnology. At a minimum, the United States should seek 
agreement from these countries that products of agricultural 
biotechnology be evaluated solely on the basis of sound 
science.
    Free trade agreements and liberalization will help, but it 
will not solve all of our competitiveness problems in South 
America and around the world. Over the past 50 years, our 
inland waterway system has provided a comparative advantage 
that we have in moving commodities like corn to markets 
throughout the world from Minnesota and other Midwestern 
states.
    Improvements in the United States waterways system are 
urgently needed. While we continue to study the issue, our 
competitors have invested in their transportation 
infrastructure and have captured market share at our expense. 
For example, during the last 9 years Argentina has invested 
$650 million to improve its inland waterway system. As a 
result, it has lowered its cost of shipping grain to global 
markets.
    Brazil also is making similar progress. To their credit, 
the Brazilians are overcoming their transportation 
disadvantages by improving their inland waterway systems to a 
point where they are now the leading exporter of raw soybeans.
    Modernizing the outmoded Upper Mississippi and Illinois 
lock system is absolutely necessary so agriculture and related 
industries can compete in the international marketplace.
    In conclusion, our future as agricultural producers is 
linked to trade. The U.S. Government and organizations like 
NCGA need to promote the benefits of trade liberalization in 
multi and bilateral negotiations. We can not retreat from any 
region of the world, especially the one in our backyard.
    We look forward to working with the subcommittee on this 
and other issues of importance in the future. And I thank you 
again for the opportunity to address the subcommittee.
    Thank you.
    Senator Coleman. Thank you very much, Mr. Boisen.
    [The prepared statement of Mr. Boisen follows:]

    Prepared Statement of Doug Boisen, Board Member, Nebraska Corn 
  Development, Utilization and Marketing Board and Chairman, National 
               Corn Growers Association Trade Task Force

    Good afternoon. Chairman Coleman, Ranking Member Dodd and members 
of the Committee. My name is Doug Boisen. I am a board member of the 
Nebraska Corn Development, Utilization and Marketing Board and Chairman 
of the National Corn Growers Association Trade Task Force. I would like 
to thank the Subcommittee for giving me the opportunity to testify and 
speak today regarding the future of United States economic relations in 
the Western Hemisphere. Today's hearing is very timely, and I commend 
the Chairman and the Committee for convening it.
    The National Corn Growers Association (NCGA) was founded in 1957 
and represents more than 32,600 dues-paying corn growers from 48 
states. The Association also represents the interests of more than 
350,000 farmers who contribute to corn checkoff programs in 19 states.
    NCGA's mission is to create and increase opportunities for corn 
growers in a changing world and to enhance corn's profitability and 
use. Trade is vital to the future of corn growers as we search for new 
markets and provide grain that is more abundant and of better quality.
    One out of every five rows of United States corn is exported, and 
exports of value-added corn and co-products add to the importance of 
foreign markets for United States corn producers. In 2002, United 
States corn exports totaled 47 million metric tonnes with a value of 
$4.8 billion. This represents approximately 20 percent of total United 
States production, with the United States accounting for nearly 57 
percent of worldwide production last year. Our two closest competitors 
in the international marketplace are Argentina and China with 14 and 17 
percent of world production respectively. The United States Department 
of Agriculture (USDA) recently estimated United States corn exports 
would be down in the 2002/2003 marketing year at 1,675 million bushels, 
(42.6 million metric tonnes), the lowest export level since 1997/98. 
United States production will be at the lowest level of worldwide 
production since 1985 or even the late 1960s. This decrease represents 
the rising level of competition we are experiencing in the 
international market from countries like Argentina and China and 
decreased plantings due to weather related problems in the Western Corn 
Belt. The bottom line is that United States agriculture lives in a more 
competitive world than ever before. The importance of free trade 
agreements has never been more essential to the future success of our 
industry.
    NCGA supports trade agreements that will open markets for United 
States farmers and increase market development opportunities throughout 
the world. The Central and South American countries represent a large 
potential market for United States corn despite Argentina's presence in 
the region. I would like to spend a few minutes outlining our trade 
priorities in ongoing and future trade negotiations in the region.

                               MEXICO

    Like many of the commodities at this table, corn is experiencing 
problems with Mexico in terms of its commitments under the North 
American Free Trade Agreement (NAFTA). Mexico is our second largest 
trading partner, importing 5.3 million metric tonnes of bulk corn last 
year.
    As you already know, on April 28, 2003, Mexican President Vicente 
Fox signed a ``National Farm Accord'' that pledges more domestic 
support to Mexican farmers and hints at preliminary steps to initiate 
safeguard actions on dry beans and white corn. In addition, the 
document alludes to the ultimate goal of unilaterally renegotiating the 
agriculture provisions of NAFTA by suspending the issuance of import 
permits (cupos) for white corn except in times of short supply and 
encourages the establishment of domestic production contracts to reduce 
dependence on United States yellow corn imports.
    I do not intend to discuss our problems with Mexico at length. It 
is essential Congress and the Administration not renegotiate NAFTA and 
work towards its full implementation. Renegotiation of NAFTA would be 
unwise and unproductive for both countries. NAFTA is a working 
agreement that provides benefits to Mexico and the United States.

                  FREE TRADE AREA OF THE AMERICAS

    At the center of attention of trade negotiations in the Western 
Hemisphere is the Free Area of the Americas (FTAA). Through the FTAA 
process, corn growers seek the following objectives: 1) overall 
reduction in tariff levels; 2) elimination of the use of export 
subsidies for trade in the Western hemisphere; 3) the phasing out of 
tariff-rate quotas; 4) fair administration of quotas and import 
permits; 5) eliminate other market access restrictions; 6) disciplines 
on State Trading Enterprises; 7) science-based regulations pertaining 
to human, animal and plant health and; 8) an expedited dispute 
settlement process.
    Two of these objectives deserve special note. Specifically, the 
United States feed grain industry would benefit from increased access 
to the complex system of preferential regional and bilateral trade that 
has emerged in the Hemisphere. Tariff reduction, and ultimate 
elimination, would ensure that United States corn exports gain or 
retain access to markets on a basis comparable to that granted to other 
trading partners.
    For example, duties between Mercosur countries are generally zero 
whereas members apply the common external tariff and statistical tax 
for imports from the United States (and other non-member countries). 
For example, Argentine enjoys a 2 percent tariff for corn exports to 
Brazil. The comparable rate for U.S. exports is 9.5 percent. While 
Brazil recently announced a tariff reduction for U.S. exports due to 
short supplies, it remains difficult for the United States to compete 
in that region for much of the year, despite some seasonal and freight 
advantages.
    Bilateral Economic Complementary Agreements (ECA's) also work to 
our disadvantage. The ECA between Chile and Mercosur members subjects 
corn from Argentina to a lower import duty (1.8 percent in 2003) than 
the United States (6 percent in 2003).\1\
---------------------------------------------------------------------------
    \1\ Under the U.S.-Chile FTA, tariffs on corn exports drop to zero 
in the third year.
---------------------------------------------------------------------------
    Such elimination of feed grain tariffs for our exports similar to 
those extended under regional and bilateral agreements would allow 
United States feed grains to compete in the Hemisphere under market 
conditions.
    The ``price band system'' employed by Andean Pact countries 
continues to protect domestic agricultural products from imports. Under 
the Alidean Pact's common external tariff policies, corn imports from 
non-member countries are subject to a fixed tariff and a variable 
tariff based on import prices. The complex variable tariff component 
keeps internal prices high when world prices are low and declines as 
world prices increase, effectively setting a floor on the import price 
of third-country products. Overall feed grain demand is dampened as 
domestic markets are insulated at artificially high price levels, and 
as a result demand for imported feed grains is diminished. The use of 
price bands is inconsistent with WTO rules and should be eliminated as 
part of the FTAA agreement.
    Another top priority for corn growers is to prevent export 
subsidies from being used by any member. We seek a commitment from each 
country to refuse to accept subsidized exports from third parties. 
Export subsidies are the most trade distorting of government policies 
and severely injure efficient producers. Elimination and prohibition of 
future subsidies in the FTAA will not only level the playing field for 
agricultural commodities but also will increase pressure on the 
European Union to reform its export subsidies in the WTO negotiations 
on agriculture.

                CENTRAL AMERICA FREE TRADE AGREEMENT

    Regarding a Central American Free Trade Agreement (CAFTA), the 
domestic feed grain industry looks to gain greater market access 
through the elimination of tariffs. In total, the region imports more 
than 1.6 million metric tonnes of corn per year, with the United States 
supplying nearly all of that demand. While each country applies a 
different tariff rate for corn, immediate tariff elimination should be 
sought in as many of these countries as possible.
    In addition to tariff elimination, internal support measures 
employed by some Central American countries continue to hinder access 
for United States feed grains. El Salvador, Honduras and Nicaragua use 
commodity absorption agreements, which require domestic end users and 
processors to purchase a certain percentage of domestic production at 
high prices before being issued a license to import commodities. 
Typically, domestic production of white corn and sorghum must be 
purchased before import licenses are issued to import yellow corn at 
preferential tariffs. These mechanisms are clearly illegal under WTO 
rules, and should be eliminated under an FTA agreement.
    In addition, we feel the FTA with Central America should fully 
embrace trade in products produced through agricultural biotechnology. 
At a minimum, the United States should seek agreement from those 
countries that products of agricultural biotechnology be evaluated 
solely on the basis of sound science.

                    TRANSPORTATION MODERNIZATION

    Free trade agreements and liberalization will help, but will not 
solve, our competitiveness problems in South America or around the 
world. Over the past 50 years, our inland waterway system has provided 
the comparative advantage we have in moving commodities like corn to 
market throughout the world from Minnesota and other Midwestern states. 
However, after five decades, our waterways are showing their age. 
Without additional investments in our transportation infrastructure, 
United States farmers are at a severe disadvantage as foreign countries 
increase their commitment to developing agricultural export markets.
    The future financial success of corn growers throughout the nation 
is tied to the Mississippi and Illinois Rivers system. For this reason, 
infrastructure improvements that include new 1200-foot locks at seven 
locations are a top priority for our association.
    Improvements in the United States waterways system are urgently 
needed. These aging 600-foot structures no longer can accommodate the 
volume of traffic or the current size of the typical 1100-foot tows now 
employed on the Upper Mississippi River. This results in long delays at 
older locks, averaging three to four hours. It has been estimated that 
the delay due to outdated, inefficient locks on the Upper Mississippi 
River costs approximately $900 per barge. If we are unable to move 
agricultural products in an efficient manner, the United States will 
become less and less competitive in export markets, and we will lose 
domestic markets as well. Eventually domestic agriculture will pay the 
price.
    While we continue to study the issue, our competitors have invested 
in their transportation infrastructure and have captured market share 
at our expense. During the last nine years Argentina has invested $650 
million to improve its inland waterway system. As a result, it has 
lowered the cost of shipping grain to global markets, it has created a 
state-of-the-art soybean crushing industry and is now the largest 
exporter of soybean meal. This has a direct affect on the ability of 
domestic soybean growers to compete in the international marketplace.
    We would be lucky if it were only Argentina. Brazil also is making 
similar progress. To their credit, the Brazilians are overcoming their 
transportation disadvantages by improving their inland waterways to the 
point where they are now the leading exporter of raw soybeans.
    Modernizing the outmoded Upper Mississippi/Illinois lock system is 
absolutely necessary so agriculture and related industries can compete 
in the international marketplace. Our nation wouldn't tolerate driving 
on two lane highways and roads littered with potholes. Nor can we 
accept an inland waterway system that is incapable of meeting the 
transportation needs of the new century. This investment will be a 
watershed achievement for agriculture and the nation as a whole over 
the next 50 years. We have a unique opportunity to make a needed 
investment in farm country and in the future well-being of domestic 
agriculture.

                             CONCLUSION

    No doubt, our future as agricultural producers is linked to trade. 
The United States Government and organizations like NCGA need to 
promote the benefits of trade liberalization in multi and bilateral 
negotiations. We cannot retreat from any region of the world, 
especially the one in our own backyard.
    We look forward to working with the Committee on this and other 
issues of importance in the future. I thank you again for the 
opportunity to address the Committee. I welcome your questions.

    Senator Coleman. I should note my kind of a very uplifting 
sense, in spite of all the challenges that we are talking about 
today, this kind of consistent reiteration of, one, 
understanding that our future is linked to expanding markets, 
and a continued focus on phasing out of tariff rate quotas, 
elimination of export subsidies, overall reduction in tariffs, 
trying to move forward. And I would note a responsibility we 
have to meet the challenge of competition either through 
technology or through infrastructure.
    And I would hope that my colleagues, when they read the 
record catch that, that we have some obligations of things that 
we have to do to simply allow Americans to do what they do 
best, which is to compete if given the opportunity.
    Let me ask a series of questions and just kind of go down 
the list here. Mr. Ruth, you talked about or you mentioned in 
your testimony the issue of weak or nonexistent intellectual 
property protection. And you, I think, said the ASA calls upon 
traders to kind of cooperate, to kind of raise these issues.
    I am interested in what the private sector, what you can do 
as an organization. Does the ASA play a role in discussing this 
with Monsanto, discuss this trade? What can you do to make sure 
that our folks are more attune to these issues and place a 
proper emphasis on them?
    Mr. Ruth. I think producers are well aware of the problem 
with the Brazilian producers not paying the technology fees. 
And our growers have daily interaction with the grain traders 
as they sell their product. So it is important that they 
communicate through their grain traders that it is a continued 
problem that we need to address. Monsanto has presented a 
solution. While as Carl says, it is not perfect, it is a step 
in the right direction, and we need to make sure that they 
understand that American farmers support that.
    We are not happy with the fact that Brazilian producers are 
not paying technology fees, and this is a step in the right 
direction to make certain that we do have a level playing field 
as far as technology.
    Senator Coleman. Can you talk to me a little bit about some 
of the other competitive factors? It is clear that not paying 
the fee gives a competitive advantage. Are there other 
competitive factors that I need to understand, we need to 
understand? And then can you give me a sense of what should be 
done about them?
    Mr. Ruth. Well, there is a whole series of competitive 
factors. As you are aware, American Soybean Association took 
some congressional staffers to Brazil back in February to try 
to get an understanding of what those factors are. Many of 
those are really difficult to get your hands around as far as 
some of the subsidies whether it is transportation subsidies, 
direct subsidies, subsidized financing. It is really hard to 
get solid sound answers to those questions. That is why we are 
calling upon Congress to investigate some of those further. 
There are numerous anecdotal evidence that these things are 
occurring.
    One farm show we attended, we literally saw the signage on 
machinery advertising government subsidized loans at 8\1/2\ 
percent, and this is taking place in a country where inflation 
is at 12\1/2\ percent. And commercial loans are available in 
the 20 percent range. So those are definitely factors that lead 
to competitiveness advantages for the Brazilian producers.
    Senator Coleman. All right. Thank you very much, Mr. Ruth.
    Mr. Casale, I appreciate your emphasis on intellectual 
property rights must be at the heart of any trade agreements. 
And I know that our first panel understands that, and certainly 
we have been part of that discussion. I am interested in trying 
to--I understand the impact of the competitiveness issues we 
talked about here with Brazilian farmers and not having to have 
to pay some of these costs and the difference in price.
    I guess the question I ask is: Looking at U.S. farmers, are 
they in a position where they are going to have to make up that 
cost? Are there any plans to increase the cost of Roundup Ready 
soybeans to U.S. farmers to make up for the difference? How do 
you handle that?
    Mr. Casale. Mr. Chairman, I answer that I guess on two 
different fronts. The first is Roundup Ready soybeans in the 
U.S. market up here and we view it as a total system cost which 
is the cost of the seed, the associated Roundup technology, and 
the Roundup supplied over the top. That system has been very 
competitive. It has trended down 3 to 5 percent perhaps this 
year, is what our early indication would be on a weighted 
average standpoint.
    And our view is that over the long term, farmers that would 
practice no-till in this country because of the relative 
components of those, will continue to become more competitive. 
Conventional soybeans that do not utilize as much Roundup and 
take advantage of lower priced Roundup because the market has 
become more competitive over time are not going to benefit to 
the same extent as those other farmers.
    A point I should make, though, is in terms of 
competitiveness, when we think about no-till as a key enabler 
of efficiency, Latin America has adopted no-till at a rate that 
is at about 2X what it is up here. So we think that that will 
help drive that up here over the longer term.
    The other piece of this, I would say, is more of a 
macroeconomic issue, and it is what happens over the long term. 
We will continue to invest in new technology that makes farmers 
more productive. We will commercialize that technology in 
markets that respect, honor, and enforce intellectual property. 
That market has functioned very well up here.
    Our belief is that over time those benefits are going to 
incrementally accrue to American farmers. We are working on two 
very new exciting pieces of technology in soybeans, for 
example. Omega three fatty acid, which, you know, the heart 
healthy benefits of that are widely known. We are working on 
altering the oil profile of soybeans to look more like an olive 
oil or monosaturated fat profile. It is not inconceivable that 
those benefits would accrue to farmers up here because of the 
way our IP system works.
    Senator Coleman. And to make sure I understand you, for 
those countries that do not respect the property right, the 
patenting, the intellectual property rights, then those 
countries would not be eligible to participate, to partake of 
the benefits of the new technology. Is that correct?
    Mr. Casale. That is correct. It is a company that invests 
over $1 million a day. I mean, it is just economically 
rational. You are only going to take that technology to 
countries in which you can recover your investment.
    Senator Coleman. Outstanding. And I do appreciate your 
comments about the kind of macro global competitiveness, also 
quality transportation, cost of production, everything else. 
And I think we have to take all those to heart. So I appreciate 
that. Thank you very much, Mr. Casale.
    Mr. Casale. Thank you, Mr. Chairman.
    Senator Coleman. Mr. Greene, you talked about CAFTA and 
FTAA may provide U.S. textile industry an opportunity to 
compete with imports, and in fact, you said that is essential. 
Can you help me understand how the agreements benefit U.S. 
textile mills, and cotton farmers? I mean, specifically, where 
do you see the advantage there, and do your members understand 
that?
    Mr. Greene. I think they are understanding that. The cotton 
industry, for quite a while, has embraced free trade. And NAFTA 
is a good example of that, our support of NAFTA. And I think 
NAFTA can be used as a model for other agreements in many 
respects.
    We do believe our future is in trade. I mean, we cannot 
consume all the cotton that is produced in the United States, 
with over 60 percent being exported. And we think that the 
Western Hemisphere is where that future lies. The Asians give 
us great concern, and so we think we should focus on the 
Western Hemisphere.
    Senator Coleman. And yet I understand that you recently 
visited Brazil with the Industry Trade Delegation.
    Mr. Greene. Yes, sir.
    Senator Coleman. Understanding this great potential in the 
Western Hemisphere which is our neighborhood, not our backyard, 
but our neighborhood and I think with great opportunity, can 
you talk about your impressions of Brazil's capacity to 
increase production in export and how that kind of fits into 
the overall vision?
    Mr. Greene. Well, at this point, the Brazilians are not 
large trading partners for cotton. Something less than 10 
percent of what we trade with NAFTA is the number that we trade 
with the Brazilians. They do have just huge potential to expand 
their acreage. They have infrastructure issues that they have 
to cope with, but if they do deal with those positively, and I 
suspect they will over time, they will be a major player in the 
world cotton market.
    Senator Coleman. And I am without another question, but a 
comment, in fact, I may ask one of the others about it, but I 
am just going to raise the issue about limited USTR resources. 
I mean, that has got to be a concern.
    Where would you focus it, I mean, if you had your druthers? 
And maybe some of the others want to address this issue. These 
are big issues and big problems. I mean, if you ruled the 
universe there.
    Mr. Greene. Well, Mr. Chairman, you know, the Chinese--I 
will give you an example of where we are concerned about USTR, 
and trade with China is the issue. The Chinese agreed to 
certain concessions, about 3.75 million bales of open access 
cotton. And they have only exercised a very small fraction of 
that number. And we have addressed that issue with USTR, and 
they have heard us, and I understand that has been addressed 
with the Chinese. But nonetheless, at the same time when they 
have not allowed open access, they have flooded the U.S. 
markets with textiles, very, very low prices. We are very 
concerned with that.
    Senator Coleman. Thank you very, very much, Mr. Greene.
    Mr. Roney, you talked about the need for comprehensive 
multilateral WTO approach. And I have got to--I mean, you 
raised the issues of the impact upon the sugar program, you 
know, should FTAA have a disastrous impact. Jobs, produce 
income, do you have any figures on that?
    Mr. Roney. It is pretty hard to predict, Senator, what the 
impact would be, but from our experience in the late 1990s, 
1999/2000, our market was oversupplied by really only a couple 
hundred thousand tons, and we had a drop in producer prices to 
a 22-year low. There was about a 30 percent drop in prices. Now 
that accelerated the level of bankruptcies that we are seeing 
in our industry, and so that we have lost about a third of our 
mills just over the last 6 years.
    What we would anticipate if we were flooded with sugar from 
Brazil or other Western Hemisphere countries is that our price 
would collapse. It would most likely collapse through the world 
dump market price. And under that scenario, it is impossible to 
see how any U.S. producers could survive up against the heavily 
subsidized producers from abroad.
    Senator Coleman. How do you propose to deal with these 
issues in the WTO? How do we do that in an equitable way?
    Mr. Roney. We want to work with the administration on that, 
Senator. We have supplied the administration with a study that 
we commissioned to help them understand the extent of global 
sugar subsidies. What we have noted is that many sugar 
subsidies fall outside the three traditional pillars that are 
normally disciplined in WTO negotiations--domestic supports 
import tariffs and export subsidies. And what we discovered is 
that there are a large number of indirect or non-transparent 
subsidies such as the cross subsidization of sugar that you see 
from ethanol in Brazil, from import and export state trading 
enterprises, from debt relief, from currency devaluations, from 
infrastructural programs.
    And so, first of all, we are identifying those programs. 
And then we intend to try to work with the administration to 
find the most comprehensive, effective manner to address all of 
those. But I would emphasize again, Senator, that the only 
forum where we can do this is the WTO, and the FTAs are just 
not going to get there because they are aimed at only a couple 
of countries. We are not looking at domestic supports, and we 
are not looking at a myriad of trade distorting practices that 
we can only really tackle in the WTO.
    Senator Coleman. Thank you very much, Mr. Roney.
    And finally, Mr. Boisen, I appreciate your vision about the 
opportunities that trade presents. I wonder if I could kind of 
put some value on that. By increasing access to feed grains 
like corn in Central and South America, what would be the 
expected boost in sales to those countries? Is there any way to 
quantify that?
    Mr. Boisen. In Central America and northern South America, 
there would be some immediate advantages to reducing of tariffs 
and other trade barriers that are restricting to livestock 
production in those areas. As the tariffs came down, the price 
of the meat of livestock products came down. The demand would 
grow. We have virtually that whole market. And there is no 
reason to believe that we would not also continue to fill that 
market.
    In Brazil, that is a little different story. The demand is 
there, but without tariff adjustments to Mercosur, we do not 
stand a chance of supplying Brazil any corn. Should those 
tariffs be adjusted, that might be a different story. And 
Brazil uses a fair amount of corn. In the last few years, they 
have used anywhere from a half-million tons up to almost 2 
million metric tons.
    Senator Coleman. Thank you. Our last question, what are the 
costs associated with not moving forward with FTAA and CAFTA 
negotiations?
    Mr. Boisen. We immediately lose any chance of a market 
share in a very competitive world market. We cannot afford not 
to move.
    Senator Coleman. Thank you. Thank you. That is a good 
answer to end this panel on. I want to thank the panel very, 
very much.
    And now I would like to invite the third and final panel to 
the table. From the great State of Minnesota, Mr. Jim 
Quackenbush from Chokio, vice president of National Pork 
Producers Council, a special welcome to you; Mr. Gregg Doud 
from Washington, DC, chief economist of the National 
Cattlemen's Beef Association; Mr. Andy LaVigne from Lakeland, 
Florida, executive vice president and CEO of Florida Citrus 
Mutual; and another fellow Minnesotan, Mr. Dave Frederickson, 
former Minnesota State Senator, and current president of the 
National Farmers Union, a special welcome to you, Mr. 
Frederickson; and Mr. Tom Suber from Arlington, Virginia, 
president of the U.S. Dairy Export Council.
    We will start with you, Mr. Quackenbush. Please begin when 
ready.

STATEMENT OF JIM QUACKENBUSH, BOARD OF DIRECTORS, NATIONAL PORK 
                 PRODUCERS COUNCIL, CHOKIO, MN

    Mr. Quackenbush. Thank you, Senator.
    I have farmed for the last 30 years with my father and two 
brothers producing pork, corn, soybeans, and wheat. I also 
serve on the Board of Directors of the National Pork Producers 
Council. However, in deference to my fellow Minnesotan, Don 
Buhl, who is the vice president of the National Pork Producers 
Council, that was a bit of a misquote. I do serve, however, as 
chairman of the Market Enhancement Committee, Competitive 
Markets Committee. So I want to clarify that.
    I want to say at the start, as a teenager, I once asked my 
father why he chose to be a farmer, and he said with great 
pride and a considerable amount of emotion, that he realized 
that his generation for the first time in the history of the 
world had the opportunity to really do something about world 
hunger. Now we have heard a great many remarks here today about 
the business of exporting, the business of agriculture, and we 
are often told as farmers that we need to make our decisions 
based on a business decision and on sound economic principles. 
And many of my remarks today will focus on the business of pork 
production and protecting or expanding export markets. But to a 
great many farmers in this country, it is about much more than 
exports, and much more than business.
    In 2002, U.S. pork exports set another record. Much of the 
growth in U.S. pork exports is directly attributable to new and 
expanded market access through recent trade agreements. 
However, as the benefits from the Uruguay Round and the North 
American Free Trade Agreement begin to diminish, the 
negotiation of new trade agreements becomes paramount to the 
continued growth and profitability of U.S. pork producers. 
While the WTO negotiations clearly offer the single largest 
opportunity to increase exports, the bilateral and regional 
negotiations also offer significant opportunity.
    We support the negotiation of the Free Trade Agreement of 
the Americas, and I have provided specifics in my written 
statement.
    While U.S. pork producers and others in U.S. agriculture 
have benefited significantly from past trade agreements, we 
must all remain vigilant in protecting the gains made in those 
past agreements. This is particularly the case when important 
large markets are at stake, such as Mexico, where the U.S. 
agriculture has invested huge amounts of time and money to 
succeed. Pork producers and our colleagues in American 
agriculture simply cannot stomach having these markets snatched 
away and still believe that trade agreements are of any value. 
It is that simple.
    It is imperative that the United States act decisively to 
protect the gains made in past trade agreements in order to 
retain and shore up support in U.S. agriculture for new trade 
agreement initiatives.
    In my written statement, I have provided you with comments 
about the illegal imposition of an antidumping order on U.S. 
live hogs. I want to discuss today Mexico's most recent actions 
with respect to U.S. pork which threatens the livelihoods of 
thousands of U.S. pork producers.
    Senator Coleman. And, Mr. Quackenbush, we will enter your 
entire statement into the record.
    Mr. Quackenbush. Thank you. Mexico is principally using two 
illegal means to advance its protectionist agenda on pork. 
First, Mexico has illegally initiated an antidumping 
investigation against U.S. pork exports. Second, Mexico is 
illegally stopping U.S. pork exports at the border.
    Like the United States and other countries, Mexico has the 
right to use its trade laws. However, Mexico does not have 
license to flaunt WTO rules and use its trade laws as a tool of 
protectionism.
    The antidumping investigation that Mexico initiated against 
U.S. pork exports on January 7 is probably the greatest abuse 
ever of WTO antidumping rules. As underscored by the USTR in 
its discussions with Mexico, the case is illegally initiated 
and must be terminated.
    In addition to the illegal initiation of that antidumping 
case against U.S. pork, Mexico continues to illegally stop U.S. 
pork at the border for alleged sanitary concerns. In December 
2002, large quantities of U.S. pork were rejected at the border 
for unjustifiable sulfamethazine concerns, costing the U.S. 
pork industry millions of dollars in losses. Earlier this year, 
Mexico slowed U.S. pork exports by testing for copper and other 
metals. Most recently, Mexico has promulgated new regulations 
which are clearly intended to restrict U.S. pork, beef, and 
poultry exports to Mexico.
    The stakes in Mexico are very high for U.S. pork producers. 
Any interruption of our pork exports to Mexico, whether through 
a trade case or through legislative or regulatory means, would 
be catastrophic for our industry. Mexico is the second largest 
export market for U.S. pork. In 2002, the U.S. exported to 
Mexico 217,909 metric tons of pork, valued at over $252 
million. There is no good time to lose a major export market, 
but U.S. pork producers are particularly vulnerable at the 
present time.
    The average U.S. pork producer has endured 18 straight 
months of losses. If the Mexicans place dumping duties on U.S. 
pork or take other action to restrict U.S. pork exports, U.S. 
hog prices will remain low and thousands of producers will 
potentially be forced out of business.
    That ends my oral statement, and I thank you.
    Senator Coleman. Thank you very, very much, Mr. 
Quackenbush.
    [The prepared statement of Mr. Quackenbush follows:]

  Prepared Statement of Jim Quackenbush, Board of Directors, National 
                         Pork Producers Council

    I am Jim Quackenbush from Chokio, Minnesota. For the past 30 years 
I have farmed in a family operation with my father and two brothers 
producing pork, corn, soybeans, and wheat. I recently turned the 
operation over to my brothers and have started a consulting business 
assisting other pork producers in the areas of production management 
and business development. I also serve on the board of directors of the 
National Pork Producers Council (NPPC).
    Mr. Chairman, I greatly appreciate everything that you and other 
members of this Subcommittee have done to advance U.S. agricultural 
exports. I strongly believe that the future of the U.S. pork industry, 
and the future livelihood of my family's operation, depend in large 
part on further trade agreements and continued trade expansion.
    I once asked my father why he chose to be a farmer. He said with 
great pride and emotion that he wanted to be a part of ending world 
hunger. The experts today tell us to treat our farming operations as 
businesses and to make our decisions based on sound economic 
principles. Most of my remarks today will focus on the business of pork 
production and protecting or expanding markets. But to almost all of 
the farmers I know its about much more than business.
    The National Pork Producers Council is a national association 
representing pork producers in 44 affiliated states that annually 
generate approximately $11 billion in farm gate sales. The U.S. pork 
industry supports an estimated 600,000 domestic jobs and generates more 
than $64 billion annually in total economic activity. With 10,988,850 
litters being fed out annually, U.S. pork producers consume 1.065 
billion bushels of corn valued at $2.558 billion. Feed supplements and 
additives represent another $2.522 billion of purchased inputs from 
U.S. suppliers which help support U.S. soybean prices, the U.S. soybean 
processing industry, local elevators and transportation services based 
in rural areas.
    Pork is the world's meat of choice. Pork represents 47 percent of 
daily meat protein intake in the world. (Beef and poultry each 
represent less than 30 percent of daily global meat protein intake.) As 
the world moves from grain based diets to meat based diets, U.S. 
exports of safe, high-quality and affordable pork will increase because 
economic and environmental factors dictate that pork be produced 
largely in grain surplus areas and, for the most part, imported in 
grain deficit areas. However, the extent of the increase in global pork 
trade--and the lower consumer prices in importing nations and the 
higher quality products associated with such trade--will depend 
substantially on continued agricultural trade liberalization.

              PORK PRODUCERS ARE BENEFITING FROM TRADE

    In 2002, U.S. pork exports set another export record totaling 
726,484 metric tons (MT) valued at $1.504 billion. Exports to Japan, 
the largest market for U.S. pork exports, increased 5 percent to 
271,129MT. Exports to Mexico, the second largest destination for U.S. 
pork, also continued to grow increasing by 7 percent from 2001 levels 
to 217,909MT.
    Much of the growth in U.S. pork exports is directly attributable to 
new and expanded market access through recent trade agreements. 
However, as the benefits from the Uruguay Round and the North American 
Free Trade Agreement (NAFTA) begin to diminish, the negotiation of new 
trade agreements becomes paramount to the continued growth and 
profitability of U.S. pork producers. For this reason, NPPC led a 
coalition of more than 80 U.S. agriculture organizations in working to 
get Trade Promotion Authority through the U.S. Congress last year. On 
behalf of U.S. pork producers, NPPC is now deeply involved in many 
trade initiatives, including the World Trade Organization (WTO) 
agriculture negotiations. The potential payoff to producers from a new 
WTO agriculture agreement is high. As good as the past trade agreement 
have been, global pork tariffs still average a whopping 77 percent.
    Even in Japan--America's largest pork export market--U.S. pork 
exports are severely limited due to a gate price system and safeguards 
designed to protect Japanese producers. Moreover, the U.S. pork 
industry must compete globally with subsidized pork from the European 
Union and other countries.
    In addition, NPPC continues to be active in bilateral and regional 
trade negotiations. While the WTO negotiations clearly offer the single 
largest opportunity to increase exports, the bilateral and regional 
negotiations also offer significant opportunity. We support the 
negotiation of the Free Trade Agreement of the Americas and I will 
provide additional comments regarding this important initiative later 
in my statement.

             EXISTING TRADE AGREEMENTS MUST BE ENFORCED

    While U.S. pork producers and others in U.S. agriculture have 
benefited significantly from past trade agreements, we must all remain 
vigilant in protecting the gains made in past trade agreements. This is 
particularly the case when important large markets are at stake, such 
as Mexico, where U.S. agriculture has invested huge amounts of time and 
money to succeed. Pork producers and our colleagues in American 
agriculture simply cannot stomach having these markets snatched away 
and still believe that trade agreements are of any value. It is that 
simple. It is imperative that the United States act decisively to 
protect the gains made in past trade agreements in order to retain and 
shore up support in U.S. agriculture for new trade agreement 
initiatives.

           MEXICO IS UNILATERALLY RENEGOTIATING THE NAFTA

    The Mexican government is unilaterally withdrawing concessions that 
it made to the United States in the NAFTA. Mexico is illegally using 
legislative and regulatory means including, the abuse of its 
antidumping laws and the abuse of its sanitary/inspection practices at 
the border, to restrict U.S. agriculture exports. While Mexico has 
utilized these illegal practices for a number of years, the illegal 
activities have reached a crescendo in recent months. Mexico's illegal 
tactics are impacting not only pork producers but a broad swath of 
American agriculture that includes apple producers, beef producers, 
corn producers and refiners, dry bean producers, and rice producers.
    Just as the NAFTA envisioned for industries on both sides of the 
border, Mexico became the number one or two export market and a 
critical component of sales for many sectors of U.S. agriculture. Much 
of U.S. agriculture is now dependent upon the NAFTA to provide 
significant sales and generate revenues. With amazing aggression, the 
market access in Mexico on which we have become so dependent, has been, 
is being, or is now being threatened to be stripped away by actions by 
the government of Mexico. As a result, pork producers and many of our 
colleagues in U.S. agriculture believe the Mexico situation is the 
single most important trade and market access issue for the export-
oriented agriculture community. In fact, it is hurting us more than any 
other single issue.

   MEXICO IS ILLEGALLY BLOCKING THE EXPORT OF LIVE HOGS FROM THE 
                             UNITED STATES

    On October 21, 1998, the Mexican government initiated an 
antidumping investigation of live hogs from the United States. On 
October 20, 1999, Mexico issued its final resolution and ruled that 
U.S. imports were being dumped at a rate amounting to 15.9 cents per 
pound (or 48.33 percent ad valorem) and that the U.S. imports were 
threatening injury to the Mexican hog industry. These duties have acted 
as a de facto embargo on U.S. lightweight hog exports to Mexico.
    During the 1990s the U.S. pork industry began producing and 
processing increasingly heavier hogs. Most of these hogs were (and 
still are) raised in an ``all in, all out'' production system. While 
most of the hogs produced fall within the weight range demanded by 
packers, a small amount are ``lightweights'' and sell at about one-half 
of prevailing U.S. live hog prices. In the late 1990's pork industry 
participants in both the U.S. and Mexico realized the potential for the 
sale of lightweight U.S. hogs to Mexico because of the growing 
disparity in slaughter weights between the two countries. While in the 
United States, the average slaughter weight of a hog is 250 pounds, in 
Mexico the average slaughter weight is about 200 pounds.
    Notwithstanding that Mexico is a hog deficit country and needs to 
import hogs in order to meet the demand of its consumers for pork, the 
Mexican hog producers brought an antidumping case against the U.S. hog 
exports. The law and the facts weighed strongly toward a finding of 
``no injury'' to the Mexican hog producers but, the government of 
Mexico issued an antidumping order that completely halted the export of 
lightweight hogs from the U.S. to Mexico.
    Mexico's decision violates the WTO Antidumping Code for a number of 
material reasons. First, the volume of U.S. hog exports to Mexico 
during the period of investigation was extremely non-injurious at less 
than one-half percent of total Mexican domestic consumption. Further, 
U.S. hog exports could not increase to injurious levels because, before 
and during the dumping case, the Mexican government maintained a ban on 
imported hogs that weighed greater than 110 kilograms (heavy-weight 
hogs), which is substantially below the average weight of U.S.-produced 
hogs. Second, Mexico failed to collect and analyze crucial injury-
related data for the Mexican hog industry.
    The United States notified the WTO Secretariat that it intended to 
request a dispute settlement panel to review the legality of the 
Mexican government's decision. In September 2000 the United States and 
Mexico then engaged in mandatory consultations to determine whether a 
mutually satisfactory solution could be reached in lieu of litigation. 
As a result of these consultations, the Mexican government agreed to 
immediately initiate a Changed Circumstances Review of the antidumping 
duty order and to conduct the review in an expedited manner. The 
objective of this review was to lead to a termination or lowering of 
the duties. The Mexican government also lifted its ban on heavy-weight 
hogs at that time.
    Unfortunately, the preliminary determination in the changed 
circumstances review was not reached until early summer of 2001. The 
preliminary determination left the same level of antidumping duties in 
place. Mexico told USTR during the WTO consultations in September 2000 
that the changed circumstances review would be handled on an expedited 
basis. When USTR confronted Mexico about undue delay in summer 2001, 
Mexico promised to have a final determination in the changed 
circumstances review completed by November 2001. Since that time USTR 
and USDA have repeatedly confronted Mexico about its failure to issue a 
final determination in the Changed Circumstances Review and terminate 
the antidumping order on U.S. hogs.
    As previously remarked, Mexico lifted its ban on the import of 
heavyweight hogs as a result of WTO consultations with the U.S. in 
September 2000. While Mexico will primarily be a market for the export 
of lightweight hogs, there is some demand for U.S. heavyweight hogs and 
some heavyweight U.S. hogs have been exported to Mexico since the ban 
was lifted. However, there have been numerous unfair sanitary/
veterinary restrictions put in place designed to slow the export of 
U.S. heavyweight hogs such as having a veterinarian accompany each load 
of hogs from the border to the final destination.

     MEXICO'S RECENT ACTIONS AGAINST U.S. PORK JEOPARDIZE THE 
            LIVELIHOODS OF THOUSANDS OF U.S. PORK PRODUCERS

    Mexico's most recent actions with respect to U.S. pork imperil the 
livelihoods of thousands of U.S. pork producers.
    Mexico is principally using two illegal means to advance its 
protectionist agenda on pork. First, Mexico has illegally initiated an 
antidumping investigation against U.S. pork exports. Second, Mexico is 
illegally stopping U.S. pork exports at the border.
    Mexico has been phasing-in its market access commitments on pork 
since the inception of the NAFTA. In January 2003 the implementation 
period for pork was scheduled to be completed. However, Mexican pork 
industry representatives have had success in lobbying the Mexican 
government for protection from U.S. pork exports. This is somewhat 
surprising given that there are only 4,475 commercial pork producers in 
Mexico.
    As is widely known, beginning in the latter part of 2002, many of 
Mexico's agricultural organizations started to demand the renegotiation 
of the agricultural aspects of the NAFTA. At first, the Mexican 
government staunchly defended the NAFTA. However, the farm 
organizations threatened to hold massive demonstrations intended to 
close numerous border crossings and otherwise disrupt Mexican commerce. 
With the pressure in Mexico mounting, Mexico's Secretary of the Economy 
announced at a January 5 conference organized by Mexico's National Farm 
Workers Federation that aspects of the NAFTA that ``need to be 
corrected, will be corrected.'' On January 7 Mexico then initiated an 
AD case against U.S. pork.
    While Mexico has resisted a comprehensive renegotiation of the 
agriculture chapter of the NAFTA, Mexican officials have made it clear 
that they will ``armor-plate'' Mexican agriculture by pro-actively 
using Mexico's trade laws and border practices to restrict pork and 
other U.S. agriculture exports to Mexico.
    Like the U.S. and other countries, Mexico has a right to use its 
trade laws. However, Mexico does not have license to flaunt WTO rules 
and use its trade laws as a tool of protectionism. The antidumping 
investigation that Mexico initiated against U.S. pork exports on 
January 7 is probably the greatest abuse ever of WTO antidumping rules. 
As underscored by USTR in its discussions with Mexico, the case is 
illegally initiated and must be terminated. A preliminary determination 
in the case is expected on or before July 16 at which time provisional 
duties on U.S. pork exports could be put into place.
    A number of points with respect to the illegality of the pork 
antidumping case. First, the Mexican association that requested the 
investigation, the CMP, does not represent the Mexican pork industry, 
and therefore, did not have any legal right to make the request. The 
producers of pork in Mexico, the slaughterhouses and the packers, have 
stated that they do not want the investigation to proceed and have 
asked that it be terminated. We understand that the U.S. government has 
refused to begin antidumping investigations of Mexican products under 
similar circumstances, and we do not understand why the U.S. pork 
industry is not being given reciprocal treatment here. Second, the CMP 
created the appearance that U.S. exporters are dumping pork in Mexico 
by comparing apples and oranges. The CMP compared prices for our sales 
to Mexico of fresh hams to prices for our sales to Japan of pork loins. 
Although any consumer knows that fresh hams have a lower price than 
tenderloins, the CMP nevertheless concluded that this comparison was 
proof that we were dumping pork in Mexico. Third, the CMP claimed that 
it was threatened with harm by imports of pork from the United States, 
but did not provide any proof about the financial condition of Mexican 
producers. The World Trade Organization already has found in other 
cases that each of these errors, taken alone, is sufficient to negate 
the entire case.
    In addition to the fatal flaws I just mentioned, the dumping case 
is not based on present material injury but on a threat of future 
injury to the Mexican industry. This is extremely speculative. In fact, 
an injurious increase in exports of U.S. pork to Mexico is highly 
unlikely. The duty on U.S. pork last year was only 2%. The duty has 
steadily phased down over the past ten years and any future increase is 
expected to be incremental as in past years.
    Moreover, the dumping case does not include Canada and Chile. In 
recent years these countries have increased their share of the Mexican 
pork market faster than the United States. Any restriction on U.S. pork 
exports will be offset by increased exports from Canada and Chile at 
the expense of Mexican producers.
    In addition to the illegal initiation of an antidumping case 
against U.S. pork, Mexico continues to illegally stop U.S. pork at the 
border for alleged sanitary concerns. In December 2002, large 
quantities of U.S. pork were rejected at the border for unjustifiable 
sulfamethazine concerns costing the U.S. pork industry millions of 
dollars in losses. Earlier this year Mexico slowed U.S. pork exports by 
testing for copper and other metals. Most recently, Mexico has 
promulgated new regulations (NOM 6) which are clearly intended to 
restrict U.S. pork, beef, and poultry exports to Mexico.
    The stakes in Mexico are very high for U.S. pork producers. Any 
interruption of our pork exports to Mexico, whether through a trade 
case or through legislative or regulatory means, would be catastrophic 
for the industry. Mexico is the second largest export market for the 
U.S. pork industry--in 2002 the U.S. exported to Mexico 217,909 metric 
tons of pork valued at $252 million. There is no good time to lose a 
major export market but U.S. pork producers are particularly vulnerable 
at the present time. The average U.S. pork producer has endured 18 
straight months of losses. If the Mexicans place dumping duties on U.S. 
pork or take other action to restrict U.S. pork exports, U.S. hog 
prices will remain low and thousands of producers will be forced out of 
business.
    The great irony here is that while the average U.S. pork producer 
has been losing money, the average Mexican pork producer has been very 
profitable. While pork production in the U.S. has been flat, pork 
production in Mexico has increased.
    As detailed in the following chart, Mexican pork producers have 
captured about half of the increase in pork consumption in Mexico.



Source: USDA

    Indeed, Mexican Pork Exports Have Doubled in Recent Years. While 
Mexican pork producers demand protection from free and open trade, they 
are a major beneficiary of such trade. As shown in the preceding chart, 
exports from Mexico of pork products have grown 1,100% since 1994. In 
response to pressure by the Mexican pork industry, the Fox 
Administration has made pork exports a centerpiece in the negotiation 
of a free trade agreement with Japan.
    U.S. pork producers urge the U.S. Government to use all available 
means to get Mexico to refrain from its illegal actions against U.S. 
pork and to keep the Mexican market open to U.S. pork exports.

             CHILE IS THE TEMPLATE FOR PORK IN THE FTAA

    Negotiations for the United States-Chile Free Trade Agreement were 
recently completed. U.S. pork producers appreciate the outstanding 
results negotiated by U.S. trade officials on pork and pork products. 
Chilean tariffs on virtually all pork and pork product HS codes will be 
reduced immediately to zero upon entry into force of the agreement. 
Moreover, parallel discussions on sanitary issues were conducted with 
Chile in order to ensure that the U.S. pork industry receives real and 
meaningful access. Chile has published an equivalence rule which, if 
implemented, will authorize the importation of pork into Chile from all 
USDA-approved pork facilities. We understand that the comment period 
for the rule will soon expire. We hope that the rule will quickly be 
implemented.

         VENEZUELA'S RESTRICTIVE IMPORT POLICIES MUST STOP

    Pork producers applaud the Administration for initiating WTO 
consultations with Venezuela. Venezuela's failure to issue import 
permits to U.S. exporters of pork has been a major barrier to trade. 
Venezuela's SASA issues licenses sporadically, if at all, for pork. We 
understand that Venezuelan authorities go so far as to consult domestic 
pork producers prior to issuing these licenses. If WTO consultations 
are not successful in persuading the Venezuelans to drop their 
restrictive import practices. the Administration should seek the 
establishment of a WTO dispute settlement panel. It is important that 
this issue be resolved once and for all. Therefore, it might be useful 
to seek a dispute settlement panel even If Venezuela suddenly begins 
issuing these permits again. U.S. pork exporters, like all businesses, 
need a certain degree of predictability. The looming threat of import 
permit rejections could be enough to discourage U.S. pork exporters 
from conducting business.
    Another WTO-inconsistent practice in Venezuela that has negatively 
affected U.S. pork producers is the implementation of the Andean 
Community's price band for ``sensitive'' agricultural commodities such 
as pork. Although this concern would become irrelevant if all tariffs 
on pork are eliminated, the importance of allowing exporters to 
anticipate any tariffs that might remain should be emphasized. This is 
simply not possible with the current system in Venezuela, under which 
tariffs change frequently and are based on reference prices that are 
often artificially high. Chile recently lost a price band case at the 
WTO. The practice limits trade and must be halted.
    The speedy resolution of these issues in Venezuela is a top 
priority for U.S. pork producers because of the great value of this 
market. Venezuelan processors are often undersupplied with pork 
products and would happily import the affordable quality pork that the 
U.S. can provide if only their government would make this feasible. 
This market easily could be worth tens of millions of dollars in U.S. 
pork exports.

              COLOMBIA UNFAIRLY RESTRICTS PORK IMPORTS

    Problems in Colombia are similar to those in Venezuela as detailed 
above. Whenever Colombia's Ministry of Agriculture determines that 
imports might hurt domestic producers, imports are prohibited for an 
indefinite period of time. Like Venezuela, the price band system causes 
severe problems in Colombia as well, with tariffs on pork sometimes 
spiking as high as 60%. These variations in tariffs prevent all but the 
largest of Colombian importers from being able to withstand the risk of 
importing substantial quantities of pork. The use of excessively high 
reference prices has been a significant problem for U.S. pork exporters 
as well.
    Another prominent trade barrier in Colombia has been its use of 
disguised export subsidies for pork. Colombia has admitted to the WTO 
that a number of its domestic support programs actually constitute 
illegal export subsidies, but the Colombians have not yet confirmed 
that these subsidies have been eliminated.

   THE COUNTRIES OF CENTRAL AMERICA MUST RECOGNIZE THE U.S. MEAT 
                INSPECTION SYSTEM AND ELIMINATE TARIFFS

    Unlike virtually all the countries to which the U.S. exports pork, 
some of the Central American countries do not accept pork from all 
USDA-approved facilities. Rather, like the European Union, these 
countries insist on sending their own inspectors to U.S. pork plants. 
This practice is completely unacceptable. It operates as a non-tariff 
barrier to trade.
    The United States has the most comprehensive and effective system 
of food safety management in the world. The wholesomeness of the U.S. 
food supply is second to none in the world. An integral part of the 
U.S. food safety system is USDA's inspection and certification of U.S. 
meat producing facilities. Each of the Central American nations must 
agree to accept pork from any USDA-approved facility.
    At one point not long ago, China was reluctant to accept pork from 
all USDA-approved facilities. USTR and USDA persuaded China to change 
its position, which is memorialized in the Agreement on U.S.-China 
Agricultural Cooperation. The Central American countries must also be 
persuaded to accept pork from all USDA facilities.

                             COSTA RICA

    There are two major barriers in Costa Rica that thwart U.S. pork 
exports. First, early in 2002 Costa Rica began to require individual 
inspections of U.S. pork plants in order to certify them for export to 
Costa Rica. This requirement had an immediate adverse impact on a 
market that was already extremely protected by the second major 
barrier; exorbitant tariffs on pork which range from 45 to 50 percent. 
The paltry stream of U.S. pork exports to Costa Rica came to a virtual 
halt upon implementation of the plant inspection requirement. U.S. pork 
exports to Costa Rica in 2001 were modest at 173 MT. These then 
decreased almost 50% in comparing the January-November period of 2002 
to the same period of 2001. The de facto ban on imports has created 
hardships for Costa Rica's domestic meat processing industry. Costa 
Rican processors can not get enough pork for their processing 
operations.

                            EL SALVADOR

    Like Costa Rica, El Salvador also appears to be erecting barriers 
to U.S. pork exports in preparation for FTA negotiations with the 
United States. El Salvador has told USDA that it intends to require 
individual inspections of U.S. pork facilities. In addition, the tariff 
on pork was recently raised from 15% to 40%. To add insult to injury, 
El Salvador engages in blatant protection of its domestic pork industry 
by only granting import permits after domestic production is purchased 
at inflated prices, then trying to continue control of the sector by 
only granting permits for the precise amount of product needed 
domestically. This creates extreme unpredictability for potential 
exporters. All three of these restrictions are entirely unacceptable 
and must be resolved. If tariffs are not immediately lowered to zero 
they should begin to phase down from the previously applied rate of 
15%.

                             GUATEMALA

    Guatemala has a tariff rate quota (TRQ) that captures red meat 
imports. The in-quota duty of 15% on increases to a 30% out of quota 
duty once the red meat import quota of 1,595 MT is reached. It is 
especially difficult for one quota to be tied to all red meat, making 
it very hard for exporters to estimate when the quota might be filled. 
The tariff rate quota should be abolished and tariffs should be reduced 
to zero.

                              HONDURAS

    Honduras also has stated its intention to require inspections of 
individual U.S. pork plants. Despite an 18% tariff and frequently 
changing sanitary regulations without WTO notification, 67% of Honduran 
pork imports were from the United States in 2001. Some Honduran 
producers have become upset at the rapid increase in the amount of U.S. 
product in their market, but it is obvious that the quality and 
affordability of U.S. product is what Honduran importers desire. Even 
with ludicrous recent accusations in the press from Honduran producers 
that U.S. pork is possibly contaminated due merely to the amount of 
time it is frozen, this market continues to grow.

                             NICARAGUA

    Like some of its Central American neighbors, Nicaragua also 
recently increased its barriers to U.S. pork exports as FTA 
negotiations approach. Nicaragua raised its tariff on pork from 10 to 
15%.

                               PANAMA

    Panama's imports had been increasing significantly following WTO 
accession, but most of the advances in trade liberalization have since 
been reversed the past few years. Barriers that U.S. exporters of pork 
face now are myriad. Panama recently joined with many of its neighbors 
in requiring individual inspections of U.S. plants. This practice is 
utterly unacceptable. Moreover, tariffs on some pork products are as 
high as 81%, with the average tariff rate on pork is a staggering 
43.3%. In addition, some U.S. exporters have been hampered by Panama 
failing to implement its stated policies. Panama has an official policy 
that a sanitary permit is presumed granted if it is not processed 
within 30 days. Yet in recent years this policy has often been ignored. 
This unpredictability costs exporters much time and money. Panama, 
along with other Central American countries, should eliminate pork 
tariffs and their plant inspection requirements, and also make import 
requirements precise and clear.

      THE CARIBBEAN NATIONS MUST REMOVE ILLEGITIMATE BARRIERS

    The nations of the Caribbean should be a huge market for U.S. pork 
producers given the geographical proximity of these nations and the 
prohibitive expense of producing pork domestically (since nearly all 
feed grains must be imported). However, very little of this potential 
has materialized due to blatant protectionism. There are both 
prohibitive tariffs and technical/sanitary barriers in both the CARICOM 
countries as well as in other nations in the region. Two of the most 
significant potential markets in this region are Jamaica and the 
Dominican Republic. Some specific examples of the many barriers to U.S. 
pork exports in the region are listed below.

                              JAMAICA

    Jamaica maintains an outright ban on imports of fresh pork from the 
U.S. This is due to non-science-based concerns about Pseudorabies Virus 
(PRV), which is also know as Aujeszky's disease. The U.S. is on the 
precipice of eradicating PRV. Regardless of the U.S. eradication 
program, there is no valid scientific reason for restricting pork 
exported from countries which have not yet eradicated PRV. The OIE Code 
chapter on Aujeszky's disease does not include pork in the list of 
commodities to be considered a risk. Virtually the whole world accepts 
U.S. pork without restriction.
    There is also a 40% tariff on pork in Jamaica. This exorbitant 
tariff must be eliminated or reduced to single digit levels.

                         DOMINICAN REPUBLIC

    Over the course of the past few years the level of protection 
afforded the domestic meat industry in the Dominican Republic has 
increased significantly. Specifically, a huge tariff of 25% on pork was 
implemented. But, more troubling, a de facto ban on pork imported from 
the U.S. was instituted by virtue of the government's failure to issue 
import licenses. These restrictive measures were supposedly short-term 
fixes intended to be eliminated within a year. However, more than two 
years later these barriers remain in place. U.S. pork exporters 
continue to have their applications for import permits rejected, with 
no clear explanation for the rejection provided.

   THE MERCOSUR COUNTRIES MUST GIVE U.S. PORK EQUAL MARKET ACCESS

    The members of the Common Market of South America (MERCOSUR) extend 
preferential tariff treatment to each other. This situation severely 
limits the inroads that the U.S. pork industry can make in this region. 
The FTAA agreement should level the playing field and provide U.S. pork 
exporters with the same trade benefits that these nations provide to 
each other.

                             ARGENTINA

    U.S. pork exports to Argentina no longer are banned due to a recent 
sanitary agreement. The current economic climate in Argentina has not 
been conducive to pork exports from the U.S. under the new sanitary 
protocol. However, Argentina's pork processing sector is reliant on 
imports. (Most pork in Argentina is consumed in processed form, not as 
chilled/frozen table meat.) Brazil, a key global competitor to the U.S. 
pork industry, supplies the vast majority of Argentina's pork imports. 
Brazil benefits from significant MERCOSUR tariff advantages on pork. 
The U.S. should obtain the same access as Brazil as part of a FTAA 
agreement.

                               BRAZIL

    Brazil does not currently recognize the U.S. plant inspection 
system, instead insisting on approving U.S. plants individually to be 
eligible to export to Brazil. This is unacceptable. As for Brazil's 
pork industry, in recent years both pork production and exports have 
increased dramatically. Brazil's pork exports increased more than 600% 
in the 5-year period from 1997-2002. The surge in exports has been 
aided by the depreciation of the real. About 80% of Brazilian pork 
exports are to Russia. Many in the international meat community 
question whether the currency devaluation and normal market conditions 
account for the increase in Brazilian pork exports. Brazil utilizes a 
number of localized subsidy programs for pork. It is difficult to 
determine the exact impact of these programs. However, the extremely 
low prices at which Brazil is selling pork to Russia suggest that 
subsidies may be impacting the market. In the process of FTAA 
negotiations this matter should be thoroughly investigated to ensure 
Brazil is meeting its WTO commitments.
    Additionally, fresh and processed U.S. pork products are subject to 
duties of 11.5% and 7.5% respectively in Brazil. This is in contrast to 
MERCOSUR members who are able to ship pork duty free. Brazil's 
production and productivity indexes are comparable to those achieved in 
other pork exporting nations. The Brazilian pork industry is advanced, 
export-focused, and should not be shielded from competition in any way 
in the FTAA agreement.

                              PARAGUAY

    Paraguay currently has a tariff of 13% on pork from the U.S. while 
there is no tariff for their MERCOSUR neighbors. Brazil has certain 
advantages in shipping to this market given the geographical proximity. 
However, on a level playing field U.S. pork producers will be able to 
make export sales.

                              URUGUAY

    The situation for U.S. pork producers in Uruguay is almost 
identical to that in Paraguay. There is no tariff for MERCOSUR members 
and the tariff is 13% for the U.S.
    Mr. Chairman, I thank you for the opportunity to present this 
statement.

    Senator Coleman. Mr. Doud.

STATEMENT OF GREGG DOUD, CHIEF ECONOMIST, NATIONAL CATTLEMEN'S 
                BEEF ASSOCIATION, WASHINGTON, DC

    Mr. Doud. Mr. Chairman, The NCBA appreciates the 
opportunity to present our views on the future relations in the 
Western Hemisphere. We are the association of America's cattle 
farmers and ranchers and the marketing organization for the 
largest segment of the Nation's food and fiber industry. I am 
Gregg Doud, our chief economist here in Washington.
    NCBA supports trade initiatives that reduce barriers to 
access for U.S. beef. Trade liberalization has been a key to 
economic growth for centuries. Nonetheless, there is a concern 
that past negotiations have given more access than we have 
received. We are the world's largest beef importer and second-
largest exporter. Last year, we imported about $2.8 billion 
worth of beef and variety meats, and exported $3.2 billion.
    NCBA is closely following FTA negotiations, and has not yet 
opposed any FTA nor the FTAA, as it makes no sense to ignore 
the more than 500 million consumers that inhabit the Americas 
outside of the United States. However, our position is that we 
will only support initiatives that are conducted on a parallel 
track with multilateral WTO negotiations and result in a net 
increase in U.S. beef exports.
    Current Western Hemisphere economic issues are almost 
entirely centered around two categories: existing and future 
trade agreements. Of course, when we speak of existing 
agreements, this means the NAFTA. And for the U.S. beef 
industry, NAFTA has been a tremendous success story.
    Mexico's 103 million citizens have experienced a 33 percent 
increase in per capita income over the last 5 years. And this 
increase in disposable income has led directly to increases in 
Mexican beef consumption. While Mexico's domestic beef 
production has struggled to expand and meet this demand in 
recent years due to drought, U.S. beef and variety meat exports 
to Mexico have grown. From an inconsistent market of about 
100,000 tons and $200 million prior to NAFTA, Mexico today is 
our most significant market in terms of tonnage, and about 
350,000 tons in 2002 and an $854 million market.
    The tariff on all North American beef trade has been zero 
since 1994. This is a mutually beneficial trading relationship 
as the United States also imports around 1 million head of 
Mexican feeder cattle at about $400 million. In fact, today's 
integrated North American cattle market now looks very much 
like what was envisioned a decade ago by NAFTA proponents with 
consumer-driven economic drivers dictating the future direction 
of the industry.
    The frustration has grown this year as we have received 
news that the Mexican cattle industry filed a petition with its 
government asking for a safeguard due to a surge in imports. 
Details are unclear, but upon hearing the news, we formed a 
coalition to coordinate a legal strategy with the U.S. Meat 
Export Federation and AMI. We expect a decision from the 
Mexican Government soon on whether or not this petition will be 
accepted.
    The Chilean FTA will likely serve as a model for the FTAA 
and a Central American agreement. A critical element of this 
agreement is Chile's recent acceptance of the U.S. meat grading 
system as equivalent to Chilean ``norms.'' NCBA also strongly 
supports the agreement's system-wide approval of each country's 
inspection systems. We recommend that meaningful oversight be 
continued by our government to ensure that equivalency is 
achieved and maintained.
    In CAFTA, two or three countries currently import beef from 
the United States, and only about--this only accounts to about 
35 percent of the quota allocated in recent years.
    As far as animal health, in spite of questionable and ever-
changing status of herd health in South America, many of the 
major beef producing and potential exporting countries there 
continue to press for increased access to U.S. beef market. 
Before this can occur, though, NCBA strongly believes that 
these countries should first conduct a hemispheric initiative 
to eradicate FMD throughout South America.
    The United States must hold its trading partners to 
commitments agreed to in previous trading agreements and 
aggressively negotiate for access for U.S. agricultural 
commodities or risk losing public support for trade in 
international marketing. NCBA firmly believes that any 
expansion of access to the U.S. beef market must be part of an 
overall package that gains us access in emerging and current 
markets around the world.
    NCBA will oppose any agreement that allows a net increase 
in access to the U.S. beef market. A strong, clear and 
irrevocable message must be sent to Cairns Group and Mercosur 
beef exporting countries that no increased access to the U.S. 
beef market will be forthcoming until meaningful access and 
tariff reduction is achieved in other major beef importing 
countries.
    A recent analysis by FAB of future trends shows that U.S. 
beef production will grow by 14 percent by 2012 with a 
subsequent 28 percent increase in beef exports. That is about 
$900 million worth. NCBA believes that future growth in our 
industry is dependent upon trade, and the economics of 
agriculture in the Western Hemisphere are a critical component 
of this future.
    Our trade expansion goal also means that we cannot let 
existing trading relationships slip or be taken for granted. A 
firm commitment to existing agreements by industry stakeholders 
and the U.S. Government must be maintained. This includes a 
constant fostering of relationships with our trading partners 
and constant vigilance with respect to maintaining compliance.
    Implementation of this strategy also means that our 
government needs to be adequately staffed. That means we need 
more full-time equivalents in our government devoted to trade 
agreement maintenance of both USDA and USTR. A letter we 
recently submitted requesting these FTEs is attached to this 
testimony.
    Our future success depends upon our ability to properly 
manage both new and existing trade agreements.
    Thank you for the opportunity to present this information 
before your committee.
    Senator Coleman. Thanks very, very much, Mr. Doud.
    [The prepared statement of Mr. Doud follows:]

Prepared Statement of Gregg Doud, Chief Economist, National Cattlemen's 
                            Beef Association

    Producer-directed and consumer-focused, the National Cattlemen's 
Beef Association is the trade association of America's cattle farmers 
and ranchers, and the marketing organization for the largest segment of 
the nation's food and fiber industry.
    Chairman Coleman and members of the subcommittee; the National 
Cattlemen's Beef Association (NCBA) appreciates the opportunity to 
present our views on the future of economic relations in the Western 
Hemisphere. I am Gregg Doud, NCBA's Chief Economist here in Washington 
DC, and today I would like to focus on trade policy as it relates to 
our trading partners in the Western Hemisphere.
    NCBA supports trade initiatives that reduce barriers to access for 
U.S. beef. NCBA and many other U.S. agricultural organizations worked 
tirelessly for Trade Promotion Authority (TPA) and support the 
Administration's pro-trade agenda. We support this agenda because it is 
the right thing to do for U.S. agriculture and for the country. Trade 
liberalization has been a key to economic growth for centuries. 
Nonetheless, there is concern that past negotiations have given more 
access than we have received. Future trade agreements must provide 
favorable access for U.S. agricultural products. We need a big pro-
trade win for U.S. agriculture at the negotiating table that provides 
opportunity for U.S. producers. NCBA will not support any agreement 
that delivers less.
    The U.S. is the world's largest beef importer and the second 
largest beef exporter. In 2002, the U.S. imported approximately $2.8 
billion of beef and variety meats ($887 million from Australia) and 
exported $3.2 billion. Due to the unique position of our industry as 
importer and exporter, NCBA must consider balance, equity, and fairness 
of proposed trade initiatives to assure that any agreement provides net 
access for U.S. beef. Perceptions in some parts of the industry are 
that this has not always been the case. Indeed the U.S. is the most 
open, least restricted major beef market in the world. At the same time 
the U.S. beef industry has witnessed firsthand the value of market 
opening trade agreements.
    In a world of unlimited trade issues and limited negotiating 
resources, NCBA strongly prefers focusing on the World Trade 
Organization (WTO) multilateral initiative. NCBA will not support 
increased access to the U.S. beef market until meaningful access and 
tariff reduction is achieved in other major beef importing countries. 
Because several South American countries are major beef exporters and 
many major beef importers are in Asia and Europe, this balanced 
objective can only be achieved through comprehensive multi-lateral WTO 
negotiations.
    NCBA is closely following FTA negotiations and has not yet opposed 
any FTA nor the FTAA as it makes no sense to ignore the more than 500 
million consumers that inhabit the Americas outside the United States. 
However, our position is that we will only support initiatives that are 
conducted on a parallel track with multilateral WTO negotiations and 
result in a net increase in U.S. beef exports. We note that both the 
Doha development agenda and the FTAA are slated to be concluded by 
2005, meaning that at this time both negotiations are proceeding on a 
parallel track.

                               NAFTA

    Current Western Hemisphere agricultural economic issues are almost 
entirely centered around two categories: existing trade agreements and 
future agreements. Of course when we speak of existing agreements, this 
means the NAFTA. For the U.S. beef industry, NAFTA has been a 
tremendous success story.
    Since NAFTA, Mexico's 103 million citizens have experienced a 33 
percent increase in per capita income over the last five years. This 
increase in disposable income has led directly to increased Mexican 
beef consumption. While Mexico's domestic beef production has struggled 
to expand and meet this demand in recent years due to drought, U.S. 
beef and variety meat exports to Mexico have grown. From an 
inconsistent market of about 100,000 mt and $200 million prior to 
NAFTA, Mexico is our most significant market in terms of tonnage in 
2002 of 350,000 mt and $854 million. Japan remains our best market with 
2002 beef and variety meat exports totaling $1.028 billion.
    This is a mutually beneficial trading relationship as the U.S. also 
imports around one million head of Mexican feeder cattle each year that 
have an approximate average value of around $400 million. In fact, 
today's integrated North American cattle market now looks very much 
like what was envisioned a decade ago by NAFTA proponents with 
consumer-driven economic drivers dictating the future direction of this 
industry.
    Although the tariff on all North American beef trade has been zero 
since January 1, 1994, Mexico alleged in mid-1997 that beef, beef 
variety meats, and cattle entering Mexico were being sold below the 
cost of production. On April 28, 2000, Mexico's Secretariat of Commerce 
and Industrial Development (SECOFI) issued its final decision on the 
antidumping case against exporters of U.S. beef and beef variety meats 
by imposing a complex set of specific duties on most beef carcasses and 
cuts. These duties are still in place today, which serve to lock some 
U.S. export interests out of the Mexican market even though they may 
not have even existed at the time these trade restrictions were put in 
place.
    Frustration has grown over the last three months as we received 
news that the Mexican cattle industry filed a petition with its 
government asking for a safeguard due to a ``surge'' in beef imports. 
Details are unclear because neither the Mexican government nor the 
Mexican beef industry has officially released anything regarding this 
issue. Upon hearing that a safeguard petition had been filed, the 
National Cattlemen's Beef Association (NCBA), U.S. Meat Export 
Federation (USMEF), and the American Meat Institute (AMI) formed a 
coalition to coordinate a legal strategy, should the Mexican government 
decide to accept this petition. A decision by the Mexican government on 
whether or not this petition will be accepted is anticipated within the 
next few weeks.

                               CHILE

    The Chilean FTA will likely serve as a model for the FTAA and a 
Central American agreement. A critical element of this agreement is 
Chile's recent acceptance of the U.S. meat grading system as equivalent 
to Chilean ``Norms.'' NCBA also strongly supports the agreement's 
system-wide approval of each country's inspection systems. We recommend 
that meaningful oversight be continued by our government to ensure that 
equivalency is achieved and maintained.

                               CAFTA

    Increasing trade relationships with Central American countries will 
contribute to economic growth, political stability, bolster front-line 
defenses against the introduction of foreign animal diseases into North 
America and have the potential to moderately increase U.S. exports of 
high quality beef. NCBA stands ready to lend our support in any way 
necessary to achieve that end.
    The U.S. and Central America have an established track record in 
jointly eradicating animal diseases and pests such as FMD and the 
screwworm from Central and North American livestock populations. 
Central America serves as the buffer zone between North American and 
South America, where these diseases and pests are still prevalent. The 
Darien Gap in Panama is where this front line of defense against 
reintroduction exists today.
    Two or three countries in Central America currently export beef to 
the U.S. under the 64.81 thousand metric ton ``Other Countries'' TRQ. 
However, only 35 percent of this quota has been utilized in recent 
years. There is also potential to export moderate quantities of high 
quality U.S. beef for Central American restaurants and tourism.

                           ANIMAL HEALTH

    The U.S. cattle industry has a long history of cooperation with 
Mexican cattle producers on a wide variety of issues including animal 
health and phytosanitary concerns. NCBA and the U.S. beef industry have 
witnessed the huge economic and social costs that FMD and BSE have 
created in Europe. We are determined that the North American industry 
will not suffer the same fate. Any negotiated agreements must buttress 
our animal health infrastructure and not jeopardize our system.
    Several South American countries have experienced outbreaks of 
Foot-and-Mouth Disease (FMD) since March 2001 and are in the process of 
recertifying their FMD-free status and eligibility to export fresh and 
frozen beef to the U.S.
    NCBA recently returned from a fact finding trip to Uruguay, which 
is seeking to export fresh beef to the U.S. under an FMD free with 
vaccination protocol. Uruguay has demonstrated its full compliance with 
all international animal health reporting requirements. They took 
prompt action when FMD was identified in Uruguay to protect the U.S. 
beef industry. We have confidence they will continue to uphold their 
responsibilities as well as work with us to open markets for beef 
worldwide.
    In spite of the questionable and ever-changing status of herd 
health in South America, many other major beef producing and potential 
exporting countries there continue to press for increased access to the 
U.S. beef market. Before this can occur, however, NCBA strongly 
believes these countries should first conduct a hemispheric initiative 
to eradicate FMD throughout South America. Secondly, we need to work 
together at the WTO to negotiate reduced subsidization and increased 
market access in beef markets around the world.

                           MARKET ACCESS

    The U.S. must hold its trading partners to commitments agreed to in 
previous trade agreements and aggressively negotiate access for U.S. 
agricultural commodities or risk losing public support for trade and 
international marketing. NCBA firmly believes that any expansion of 
access to the U.S. beef market must be part of an overall package that 
gains access for U.S. beef exports in Europe (EU as well as aspiring EU 
members), Japan, Korea and other existing and emerging international 
beef markets. NCBA will oppose any agreement that allows a net increase 
in access to the U.S. beef market. A strong, clear and irrevocable 
message must be sent to Cairns Group and Mercosur beef exporting 
counties--major U.S. beef suppliers--that no increased access to the 
U.S. beef market will be forthcoming until meaningful access and tariff 
reduction is achieved in other major beef importing countries.

                              SUMMARY

    NCBA appreciates the initiatives that have been undertaken to gain 
access to international markets and to resolve lingering issues that 
restrict the ability of the U.S. beef industry to offer its products to 
international consumers. We look forward to working with all of our 
trading partners in the Western Hemisphere to address industry concerns 
about current global disparities in market access, export subsidies and 
domestic support as well as maintaining the disease-free status of the 
U.S. herd.
    A recent analysis of future trends shows U.S. beef production 
growing 14 percent by 2012 and a subsequent 28 percent (or roughly $900 
million) increase in U.S. beef exports. NCBA believes future growth in 
our industry is dependent upon trade, and the economics of agriculture 
in the Western Hemisphere is a critical component of this future.
    The National Cattlemen's Beef Association is focused on meeting our 
trade objectives by participating in the process of evaluating critical 
trade issues within the beef industry. NCBA looks forward to providing 
additional input as the U.S. advances its proposals at the WTO, 
negotiates bi-lateral and regional agreements and resolves a growing 
list of SPS issues with the European Union, Russia and other trading 
partners.
    Our trade expansion goals also mean that we cannot let existing 
trading relationships slip or be taken for granted. A firm commitment 
to existing agreements by industry stakeholders and the U.S. government 
must be maintained. This includes a constant fostering of relationships 
with our trading partners and constant vigilance with respect to 
maintaining compliance. Implementation of this strategy also means that 
our government needs to be adequately staffed. That means we need more 
FTEs devoted to trade agreement maintenance at both USDA and USTR. A 
letter we recently submitted requesting these FTEs is attached to this 
testimony. Our future success depends upon our ability to properly 
manage both new and existing trade agreements. Thank you for the 
opportunity to present this information before the committee.

                                Appendix

    Animal Health: NCBA recently returned from a fact finding trip to 
Uruguay, who is seeking to export fresh beef to the U.S. under an FMD 
free with vaccination protocol. Such an option is supported by the 
International Office of Epizootics (OIE) which has stringent 
requirements regarding beef trade where FMD is present. Since the last 
case of FMD was identified in August of 2001, Uruguay will not qualify 
for this status until August of 2003.
    We are confident that if APHIS determines they are indeed free of 
FMD with vaccination and the mitigating measures are met and verified 
that the importation of beef from Uruguay represents virtually no risk 
to the health of the U.S. cattle herd.
    We encourage APHIS to routinely verify that the serology studies in 
Uruguay continue to illustrate they are free of circulating FMD virus 
and compliance with the mitigating measures is fully documented both in 
Uruguay and upon arrival of product in the U.S. The NCBA may make 
additional site visits to Uruguay to verify compliance as well.
    The NCBA remains committed to taking the necessary science and risk 
analysis based steps to prevent the introduction, amplification, or 
spread of all foreign animal diseases in the United States. We will 
also work closely with other beef producing countries around the world 
to take the steps necessary to eradicate diseases such as FMD. We stand 
by our commitment to work with countries in South America to eradicate 
FMD from the Western hemisphere and we hope APHIS will work with us to 
achieve these objectives.
    Export Subsidies: The U.S. beef industry does not use export 
subsidies and NCBA strongly supports the Administration's proposal to 
phase out all export subsidies within five years. Since the EU and 
other countries seem to be obsessed with U.S. export credits, the U.S. 
beef industry is willing to go zero U.S. beef export credits for zero 
EU beef export subsidies. The EU is by far the largest user of export 
subsidies, however at least two export subsidies must also be addressed 
within the context of an FTAA.

   Argentina provides an export credit to beef and other 
        products through a tax rebate scheme allowing exporters to 
        receive a refund of between 2.5 and 8 percent of taxes paid 
        depending on the product category.

   Brazil offers tax and tariff incentives to promote exports 
        through exemptions of withholding taxes and other tax 
        exemptions.

    Domestic Support: The U.S. beef industry is among the least 
supported U.S. agricultural commodities and among the least subsidized 
international beef industries. NCBA is willing to work closely with the 
administration on strategies to reduce overall domestic support. We 
strongly support the Administration's comments that the U.S. intends to 
live up to its WTO commitments and that circuit breakers in the 2002 
Farm Bill will be triggered if the U.S. exceeds our commitments and the 
proposal to reduce domestic supports to a level five percent of the 
value of agricultural production. NCBA is especially interested in 
seeing that domestic supports in the global beef industry (primarily EU 
and aspiring EU members) are minimized and will consider a zero for 
zero proposal or proposals for substantial reduction of domestic 
supports in the meat sector. At least one export subsidy must also be 
addressed in the context of an FTAA.

   Argentina pays 25 percent of the interest rate charged for 
        credit used for cattle production.

    Access Issues: The U.S. is currently the least restricted and 
largest beef import market in the world. The United States is also the 
world's second largest beef exporter. Beef markets in other developed 
countries remain virtually closed to U.S. beef (EU) or protected by 
relatively high tariffs (Japan at 38.5 percent and Korea at 41.4 
percent). At the same time the U.S. has granted other countries 696,420 
metric tons of TRQ at zero duty with a 26.4 percent tariff becoming 
effective in the rare instances when countries fill their allocated 
share of the TRQ. Of the total U.S. beef TRQ, Australia has 54 percent 
(378,210 metric tons) and New Zealand another 31 percent (213,400 
metric tons) for a total of 85 percent. The remaining 15 percent is 
allocated to countries that would be likely to participate in an FTAA--
Argentina (20,000 metric tons), Uruguay (20,000 metric tons), and 
``Other'' primarily Central American countries and Brazil (64.81 metric 
tons), on the condition that they maintain their animal health status.
    NCBA will support continued movement towards reduced tariffs and 
expanded TRQs, but only as part of a comprehensive package that 
addresses export subsidies, production subsidies and a continuing and 
growing list of SPS and Technical Barriers to Trade (TBT) issues. 
Specifically, NCBA will support tariff reduction and modest expansion 
of U.S. TRQs as part of an overall aggressive trade package that gains 
additional access for U.S. beef in international markets.
    The WTO accession agreement with China establishes an aggressive 
target for beef tariffs by reducing most beef tariffs in China from 45 
percent to 12 percent by 2004. NCBA believes that 12 percent is a 
worthy target and should be the objective for global beef tariffs at 
the conclusion of the next scheduled tariff reduction. If China can 
reduce tariffs on beef from 45 percent to 12 percent, NCBA believes 
that the EU (current tariff at 57 percent with a 20 percent in-quota 
tariff), Japan (current tariff at 38.5 percent) and Korea (current 
tariff at 41.4 percent) should also be able to reduce their tariffs to 
12 percent. The U.S. beef industry (current tariff at 26.4 percent 
above a 696,420 metric ton TRQ, which is not subject to any tariff) 
will accept tariff reduction equivalent to reductions in other 
countries.
    NCBA will not accept any reduction in U.S. beef tariffs unless the 
disparities in access for U.S. beef in the other major developed 
countries is addressed. NCBA would support discussion about 
modifications in trade law in exchange for support from Brazil in 
opening other markets and meaningful tariff reduction in Japan, the EU 
and other trading partners. NCBA will work to ensure that the U.S. beef 
industry is protected from surges in imports and predatory pricing 
activities, especially when unfair trade business practices are 
contributing factors. NCBA supports changing WTO rules to develop 
alternative definitions for ``dumping'' more consistent with the 
practical realities of a cyclical, perishable, agricultural commodity.
    Brazil currently has a beef tariff of 13 percent and Chile has a 
tariff of 11 percent, so there should be strong support from most FTAA 
countries to target reduction in this tariff. The EU has retained a 20 
percent in-quota tariff within its (insultingly small) 11,500 metric 
ton tariff rate quota, and tariffs begin with the first pound of 
product shipped to Japan and Korea where there is no TRQ at zero duty.
    As indicated earlier, only 15 percent of the current U.S. beef TRQ 
is allocated to FTAA countries. Given NCBA's support for negotiating an 
FTAA on a parallel track with WTO negotiations, we believe that any 
movement to expand existing U.S. tariff rate quotas should be made with 
the objective of rebalancing access to the U.S. beef market in the 
favor of FTAA trading partners. Alternatively, some type of inverse 
Swiss formula should be developed to give those countries with the 
smallest TRQs the largest increases. If the existing U.S. beef TRQ is 
expanded as proposed in the U.S. negotiating proposal, NCBA recommends 
that a majority (if not all of) the increase be distributed among 
Central and South American countries that participate in the FTAA. The 
condition that these countries maintain their animal health status, 
including a Foot-and-Mouth Disease free (FMD-free) status, before 
shipping any fresh or frozen product to the U.S. is non-negotiable.
    There are several valid economic and political reasons for 
rebalancing U.S. beef TRQs in the context of an FTAA in parallel with 
multilateral WTO negotiations:

          1. Several of the FTAA countries are currently suffering 
        varying degrees of economic stress and political unrest. 
        Expanding trade through an FTAA will help bring economic growth 
        and political stability to the hemisphere.

          2. Australia and New Zealand are developed countries with 
        adequate resources to develop alternative beef markets. The 
        U.S. market is the path of least resistance and these countries 
        will always prefer to expand access to the U.S. beef market 
        rather than work to expand or develop alternative markets. If 
        U.S. access is not increased, they will work to develop 
        alternative markets (as was recently the case when Australia 
        was denied increased access to the U.S. market and decided to 
        join the U.S. in committing resources to rebuild the beef 
        market in Japan).

          3. South America has a population of 370 million and Central 
        America has a population of 38.4 million, compared to Australia 
        with 19.4 million and New Zealand with 3.9 million. Expanded 
        trade increases economic growth and consumers' disposable 
        income in developing countries. Beef demand increases as 
        disposable incomes increase (witness Mexico, Korea and China). 
        As economic growth in South America recovers in response to an 
        FTAA, an increasing number of middle-class consumers will be 
        able to purchase beef, either from beef producing countries in 
        South America or from the U.S. Expanding access to the U.S. 
        beef market for FTAA countries has a much greater potential 
        pay-off in terms of expanded beef demand than expanding access 
        to the U.S. beef market for Australia and New Zealand.

          4. FTAA countries will be much more likely to support the 
        U.S. negotiating position for opening Europe and expanding 
        access in Japan if the prospect of increased access to the U.S. 
        beef market is part of the FTAA package.

    Access issues to be considered as an FTAA is negotiated:

   Brazil imposes licensing and other bureaucratic 
        requirements, including import financing rules, to importers 
        that limit import volumes.

   The U.S. industry will accept tariff reduction equivalent to 
        reductions in all other countries, including the other primary 
        beef importing countries.

   Brazil has a current tariff rate for beef of 13 percent.

   Uruguay's tariff rate structure includes an 11.5 percent 
        tariff for bone-in beef and a 13.5 percent tariff for deboned 
        meat.

   Cattlemen in Colombia are supporting variable import duties 
        for beef through the Andean Price Band system to restrict beef 
        imports.

                                 ______
                                 
                      National Cattlemen's Beef Association
                                     Washington, DC, April 15, 2003

The Honorable Kit Bond
274 Russell Senate Office Building
Washington, DC 20515

    Senator Bond,

    The National Cattlemen's Beef Association appreciates the effort 
that you have put forth in support of the beef industry. We would like 
to call your attention to a trade-related issue that is of increasing 
concern.
    Over the years, NCBA has supported efforts that liberalize trade 
and allow for increased export opportunities for U.S. beef producers. 
Our industry has seen tremendous increases in exports to many 
countries. For example, Japan, Mexico, Canada and South Korea have 
become very important markets for our product.
    The Administration continues efforts to open markets and liberalize 
trade. Using its authority under Trade Promotion Authority, the 
Administration is working to negotiate a series of bi-lateral and 
multilateral trade agreements. While NCBA supports trade liberalization 
generally, we are concerned the continuing negotiations of additional 
trade agreements are tying up federal staff resources that would 
otherwise be ensuring the proper implementation of current agreements 
and maintaining vigilance over existing disputes.
    The beef industry has been embroiled in a long-standing dispute 
with the European Union over access of U.S. beef. Recently, additional 
beef-related disputes have occurred with Mexico and Japan. Trade of 
agricultural products with Russia continues to be problematic. 
Resources that could be used to manage these disputes are now focused 
on negotiating additional agreements. For example, the USTR Australia 
Free Trade Agreement team now numbers 40 staff persons.
    While NCBA understands the necessity of assigning personnel to 
negotiate additional agreements, we must not do so at the expense of 
implementation and compliance with existing agreements. Given a 
shortage of staff personnel at USTR and USDA-FAS, NCBA requests 
additional funding for personnel at both USTR and FAS to focus on 
current problematic trade issues. We recommend 10 additional personnel 
(6 FTEs at USTR and 4 FTEs at USDA) to focus on these issues.
    We look forward to working with you to make these additional 
resources possible. If we can help you in any way, please contact us at 
202-347-0228.
            Sincerely,
                                                Eric Davis,
                                                    NCBA President.

    Senator Coleman. Mr. Frederickson.

STATEMENT OF DAVID J. FREDERICKSON, PRESIDENT, NATIONAL FARMERS 
                     UNION, WASHINGTON, DC

    Mr. Frederickson. Mr. Chairman, thank you very much. And 
before I go into the testimony, I would like to compliment you 
on a remarkable piece of work, and that is to offer Jeff 
Harrison gainful employment.
    Let me also say that I would like to offer the Minnesotan 
endorsement for that, and steal from Stuart Smalley and from 
Saturday Night Live and say that Jeff is good enough, smart 
enough, and dog-gone-it, people like him.
    Senator Coleman. Thank you, Mr. Frederickson.
    Mr. Frederickson. Mr. Chairman, members, it is indeed an 
honor to appear before you today as president of the National 
Farmers Union. While I understand the committee must consider 
certainly a broad range of topics affecting the U.S. 
relationship with other nations of the Western Hemisphere, I 
will focus my comments on our agricultural prospects.
    By way of background, I believe the committee should be 
aware that farmers and ranchers view the overall U.S. 
agricultural trade agenda with great suspicion across the 
Nation. This is not occurring because the support for trade by 
agricultural produces is waning, but due to the real and 
perceived failure of our trade agreements to improve the 
fairness of agricultural trade and to provide tangible economic 
benefits to producers. It is hardly surprising that farmers are 
a little bit cynical about trade when the free trade rhetoric 
continues the decades-old suggestion that agricultural 
prosperity based on expanding markets is always just around the 
corner, a destination at which producers never seem to arrive.
    The exaggerated claims about our dependence upon trade 
agreements as a means to expand export markets and improve 
production and agriculture's economic well-being is beginning 
to wear just a little bit thin. The only real, sustained 
agricultural market growth we have experienced in nearly three 
decades has occurred in our own domestic market. Unfortunately, 
our trade policy and approach to trade agreements increasingly 
open our markets to our competitors, whether the competition is 
fair or not, while failing to deliver the level of export 
market opportunity that results in enhanced economic returns to 
our producers.
    My organization, the National Farmers Union, is keenly 
aware that the United States must identify and address some 
very significant challenges in the context of our trade 
relations with other nations of the Western Hemisphere if real, 
broadly dispersed, economic benefits are to accrue to our 
country and other nations of the region.
    No other economic segment in the United States may be as 
directly impacted by the trade developments in the Americas 
than those involved in agricultural production. The long-term 
effect of these trade discussions will largely determine the 
economic livelihood and the future viability of many individual 
farm and rancher families.
    I believe farmers are rightly concerned that more trade 
agreements in the region, particularly if patterned after the 
North American Free Trade Agreement model, will only serve to 
increase the level of import competition while providing, at 
best, only modest export market opportunities.
    Agricultural trade among the nations of the Western 
Hemisphere can, and indeed, should incorporate the following 
objectives to provide the foundation for a more rational, 
equitable, and beneficial global trading regime: Ensuring 
consumer access to an adequate, safe, and certainly affordable 
food supply would be one; creating the opportunity for 
agricultural producers to generate reasonable rates of return 
on their labor, their investment, and on their risk-taking 
would be another; addressing all forms of agricultural trade 
and production distorting policies, actions, and interventions 
in a comprehensive and equitable fashion, including the 
traditional market access and subsidy issues as well as 
monetary, labor, and environmental policies that can be 
utilized to convey competitive trade advantages to producers or 
other agricultural sectors; allowing flexibility for individual 
nations to provide economic safety net programs and address 
unforeseen production, market, and trade circumstances; 
encourage a balance of increased and transparent market 
competition by coordinating efforts to enforce limits on the 
concentration of market power; promote the economic and 
resource sustainability, as well as the efficiency of food 
production and distribution systems; and to create an 
effective, timely, and transparent implementation, compliance, 
and dispute resolution process.
    The social, political, economic and even moral significance 
of agriculture in both developed and developing nations 
suggests that while trade rules and disciplines are needed, the 
commercial trade considerations that are applied to other 
sectors may not provide the appropriate model for agriculture.
    Mr. Chairman, I want to thank you for the opportunity to 
share these views concerning agricultural trade opportunities 
and challenges that we must confront and resolve in the Western 
Hemisphere, and am pleased to stand for any questions, Senator.
    Senator Coleman. Thank you very, very much, Mr. 
Frederickson.
    [The prepared statement of Mr. Frederickson follows:]

   Prepared Statement of David J. Frederickson, President, National 
                             Farmers Union

    Mr.Chairman, members of the Subcommittee, it is an honor to appear 
before you today as president of the National Farmers Union. While I 
understand the Committee must consider a broad range of topics 
affecting the U.S. relationship with the other nations of the Western 
Hemisphere, I will focus my comments on our agricultural trade 
prospects.
    By way of background, I believe the Committee should be aware that 
farmers and ranchers view the overall U.S. agricultural trade agenda 
with great suspicion across the nation. This is not occurring because 
the support for trade by agricultural producers is waning, but due to 
the real and perceived failure of our trade agreements to improve the 
fairness of agricultural trade and to provide tangible economic 
benefits to producers. It is hardly surprising that farmers are a bit 
cynical about trade when the free trade rhetoric continues the decades-
old suggestion that agricultural prosperity based on expanding exports 
is always just around the corner, a destination at which producers 
never seem to arrive. The exaggerated claims about our dependence upon 
trade agreements as a means to expand export markets and improve 
production agriculture's economic well-being is beginning to wear thin. 
The only real, sustained agricultural market growth we have experienced 
in nearly three decades has occurred in our own domestic market. 
Unfortunately, our trade policy and approach to trade agreements 
increasingly open our markets to our competitors, whether the 
competition is fair or not, while failing to deliver the level of 
export market opportunity that results in enhanced economic returns to 
our producers.
    My organization is keenly aware that the U.S. must identify and 
address some very significant challenges in the context of our trade 
relations with the other nations of the Western Hemisphere if real, 
broadly dispersed economic benefits are to accrue to our country and 
the other nations of the region. No other economic segment in the U.S. 
may be as directly impacted by the trade developments in the Americas 
than those involved in agricultural production. The long-term effect of 
these trade discussions will largely determine the economic livelihood 
and future viability of many individual farm and rancher families.
    As part of our overall agricultural trade, there is no question 
that the Western Hemisphere is important both to the U.S. as well as 
our trading partners in the region. In 2002, more than 38 percent of 
our total agricultural exports were sold in the ``Americas'', and more 
than 55 percent of U.S. competitive agricultural imports, those which 
compete directly with commodities produced in the U.S., came from this 
region. (Charts 1 and 2) However, as we consider these trading 
relationships, we must remember the region includes many of our current 
agricultural trade competitors for markets both within and outside the 
hemisphere. It also represents a substantial agricultural production 
growth area for a broad range of products from basic commodities such 
as oilseeds, corn and cattle to specialty crops.
    I believe farmers are rightly concerned that more trade agreements 
in the region, particularly if patterned after the NAFTA model, will 
only serve to increase the level of import competition while providing, 
at best, only modest export market opportunities.
    We are not opposed to trade agreements as an important mechanism to 
provide discipline and enhance the fairness of international trade. 
However, I believe we must consider undertaking a broader agricultural 
trade agenda that seeks to address the causes of and needs for the many 
types of distorting practices that characterize agricultural trade. 
These must include the recognition of need to achieve domestic food 
safety and security and the prevalence of a supply/demand imbalance the 
results in inadequate economic returns to producers and concentrated 
market power among a limited number of agricultural market 
participants. Such an agenda should explore new prospects for greater 
harmonization and cooperation among the nations of the region that 
extend beyond the traditional trade considerations of tariff levels, 
border measures, domestic and export subsidies and special and 
differential treatment for developing countries.
    In order to achieve such an outcome, we should focus less on the 
rhetoric of free trade, which creates expectations that generally 
cannot be delivered, and more on agricultural trade as a ``means'' to 
improving individual standards of living, fostering economic 
development and enhancing producer returns.
    Agricultural trade among the nations of the Western Hemisphere can 
and should incorporate the following objectives to provide the 
foundation for a more rational, equitable and beneficial global trading 
regime.

   Ensure consumer access to an adequate, safe and affordable 
        food supply.

   Create the opportunity for agricultural producers to 
        generate reasonable rates of return on their labor, investment 
        and risk-taking by coordinating efforts to reduce dumping, 
        balance supply and demand, share responsibility to guarantee 
        food security and maximize the opportunity for individual and 
        cooperative participation in all segments of agriculture.

   Address all forms of agricultural trade and production 
        distorting policies, actions and interventions in a 
        comprehensive and equitable fashion, including the traditional 
        market access and subsidy issues as well as monetary, labor and 
        environmental policies that can be utilized to convey 
        competitive trade advantages to producers or other agricultural 
        sectors.

   Allow flexibility for individual nations to provide economic 
        safety net programs and address unforeseen production, market 
        and trade circumstances.

   Encourage a balance of increased and transparent market 
        competition by coordinating efforts to enforce limits on the 
        concentration of market power.

   Promote the economic and resource sustainability as well as 
        the efficiency of food production and distribution systems.

   Create an effective, timely and transparent implementation, 
        compliance and dispute resolution process.

    The social, political, economic and even moral significance of 
agriculture in both developed and developing nations suggests that 
while trade rules and disciplines are needed, the commercial trade 
considerations that are applied to other sectors may not provide the 
appropriate model for agriculture.
    We have a unique opportunity in the Western Hemisphere to supplant 
a variety of existing and proposed bilateral and regional trade 
agreements with a new, more comprehensive agricultural trading system. 
A commitment to creating an agricultural trade environment that 
addresses the objectives I have outlined today can result in the 
distribution of both the benefits and challenges of trade more broadly 
and equitably among producers and consumers. At the same time, those of 
us in the Western Hemisphere will be able to establish a new model for 
global agricultural cooperation and competition.
    Thank you for the opportunity to share my views concerning 
agricultural trade opportunities and challenges that we must confront 
and resolve in the Western Hemisphere.





    Senator Coleman. Mr. LaVigne, I suspect you already know, 
but the Senator from Florida would like to hear your full 
testimony. And with that, you may proceed.

 STATEMENT OF ANDREW W. LaVIGNE, EXECUTIVE VICE PRESIDENT AND 
            CEO, FLORIDA CITRUS MUTUAL, LAKELAND, FL

    Mr. LaVigne. Thank you, Mr. Chairman, and it is something 
that Senator Nelson is more than aware of, given as many years 
of representing the industry and especially in one of the key 
citrus producing areas of the state on the coast. So we 
appreciate the opportunity to be here today.
    I am Andy LaVigne, executive vice president and CEO of 
Florida Citrus Mutual, and I am pleased to present testimony 
today on the future economic relations in trade in this 
hemisphere, which is truly nothing less than the future of the 
U.S./Florida citrus industry, as well as the world's citrus 
markets.
    With your permission, I will summarize my statement and ask 
that this whole testimony be accepted into the record.
    Senator Coleman. Without objection.
    Mr. LaVigne. Florida Citrus Mutual is a voluntary, 
cooperative association whose active membership consists of 
more than 11,000 Florida growers of citrus for processing and 
fresh consumption. Mutual's membership accounts for more than 
90 percent of Florida's citrus growers, and as much as 80 
percent of all oranges grown in the United States for 
processing into juice and other citrus products.
    The current focus of economic discourse in this hemisphere 
is on trade agreements, including the Free Trade Area of the 
Americas, the Central American Free Trade Agreement, the U.S./
Chile Free Trade Agreement, and various unilateral trade 
benefits such as the Andean Trade Preferences Act and the CBI 
program.
    The Florida citrus industry does not object to the 
improvement of the U.S. ties in this hemisphere through 
stronger trading relationships. And, in fact, we have supported 
such programs over the years such as CBI and the Chile 
agreement.
    Our industry, in the global citrus market, are highly 
unique and import sensitive; not because of any lack of 
competitiveness, but because of the dynamics in history of this 
sector. The Florida processed orange industry is the most 
efficient in the world in production yield per acre. But the 
simple fact is that any reduction in the current U.S. tariff of 
orange juice will be both economically damaging and anti-
competitive for the world marketplace.
    The global orange juice industry is dominated by five large 
producers in Brazil. The U.S. tariff does not ensure survival, 
as many of our bankrupt Florida growers can attest, but it 
counteracts some of the extreme pricing pressure inflicted by 
frequent devaluations of Brazil's currency, the predatory 
pricing behavior of the Brazilian orange juice oligopoly, and 
the sheer market power of a highly concentrated industry 
selling globally a dollar-denominated commodity made with 
progressively devalued local inputs. Further, the tariff gives 
Florida growers a fighting chance to make a living in a country 
that properly places tremendous value on worker rights and 
environmental integrity.
    The global orange juice industry is, as I said, highly 
unique. World orange juice consumption is concentrated chiefly 
among two regions. The United States and the European Union 
account for roughly 85 percent of world consumption.
    Global orange juice production is also concentrated chiefly 
between two regions. Brazil and the United States account for 
85 percent, or roughly 85 percent of world production. Brazil's 
five large processors control roughly 80 percent of Brazil's 
orange juice concentrate production, and controls nearly all of 
Brazil's orange juice exports. Brazil itself exports 99 percent 
of its orange juice, and consumes less than 1 percent.
    The large Brazilian processors benefit from advantages 
brought by mass subsidization and dumping, lower environmental 
and labor standards, and frequent national currency 
devaluation, and oligopoly price manipulation.
    Florida orange growers are not the only U.S. agricultural 
industry pitted against the unfair advantages of Brazil's 
agricultural exports as you have heard today, Mr. Chairman. 
However, they are one of the few industries that the U.S. FTAA 
proposals threatens with their demise. While domestic support 
programs are used to help level the playing field for 
agricultural industries whose top markets are abroad, tariffs 
are used to level the field for industries, like orange juice, 
whose top markets are in the United States.
    The U.S. industry that grows oranges for processing is 
unique among U.S. agricultural industries in that it does not 
receive any production or trade distorting domestic subsidies. 
Its only offsetting tools are the tariff and the enforcement of 
unfair trade laws.
    The administration's FTAA proposal on agriculture is 
lopsided to the extent that it puts all U.S. agricultural 
tariffs on the table, while leaving all domestic subsidies off 
the table. Not only is this an unsound approach to the policy 
of trade negotiations, it is also guaranteed not to meet any of 
the stated objectives of trade liberalization by the 
administration which are increased competition, lower cost to 
consumers, and increasing living standards.
    Any reduction in the U.S. orange juice tariff applying to 
Brazil would devastate the U.S. industry that grows oranges for 
processing. Furthermore, any tariff reduction would critically 
damage the entire citrus industry which has an economic impact 
on the State of Florida of $9.13 billion in industry output, 
$4.18 billion in value-added activity, roughly 90,000 jobs, and 
risks the environmental viability of over 800,000 acres of 
planted citrus in our state.
    The growth closures would jeopardize the existence of all 
U.S. juice extractors and processors, as well as the upstream 
of suppliers of U.S. orange juice industry. Since the land in 
which processing oranges are grown is ideal for producing 
citrus, there is--the land also has little agricultural value 
outside of that citrus production, and the volume of all other 
fruit juices extracted in the U.S. combined pales in comparison 
to that of orange juice. The upstream industries could not 
exist if orange juice production were no longer viable.
    In addition, because the production of about 75 percent of 
all processing oranges is concentrated in central and south 
Florida, entire counties in these regions would be ravaged and 
their real estate values would tumble as thousands of groves 
would be abandoned with no practical alternative land 
utilization.
    Perhaps even most damaging to the U.S. economy is the fact 
that since this Florida industry is Brazil's only competitor of 
global significance, its demise would not bring cheaper orange 
juice to the U.S. breakfast table, but would eventually permit 
the Brazilian oligopoly to raise U.S. orange prices.
    For all of these reasons, Florida Citrus Mutual strongly 
opposes any reduction in U.S. orange juice tariffs under the 
FTAA or any trade agreement to which Brazil is a party.
    I will be pleased to answer any questions, Mr. Chairman.
    Senator Coleman. Thank you very, very much, Mr. LaVigne.
    [The prepared statement of Mr. LaVigne follows:]

 Prepared Statement of Andrew W. LaVigne, Executive Vice President and 
                       CEO, Florida Citrus Mutual

    Mr. Chairman and members of the Committee, I am Andy LaVigne, 
Executive Vice President and CEO of Florida Citrus Mutual. I am pleased 
to present testimony today on the very critical issue of the future of 
economic relations in this hemisphere, especially as it relates to the 
citrus industry and markets. FCM is a voluntary cooperative association 
whose active membership consists of more than 11,000 Florida growers of 
citrus for processing and fresh consumption. FCM's membership accounts 
for more than 90 percent of Florida's citrus growers and as much as 80 
percent of all oranges grown in the United States for processing into 
juice and other citrus products.
    The current focus of economic discourse in the hemisphere is on 
trade relations and more specifically, trade agreements, including the 
Free Trade Area of the Americas, the Central America Free Trade 
Agreement, the U.S.-Chile Free Trade Agreement, various unilateral 
trade benefits such as the Andean Trade Preferences and the CBI 
program. The Florida citrus industry does not object to the improvement 
of U.S. ties in the hemisphere through stronger trading relationships, 
and in fact we have supported many such programs over the years, such 
as the CBI. However, our industry and global market are highly unique 
and import sensitive--not because of any lack of competitiveness, but 
because of the dynamics and history of this sector. The Florida 
processed orange industry is the most efficient in the world in 
production yield per acre But the simple fact is that any reduction in 
the current tariff of orange juice will be both economically damaging 
and anti-competitive.
    The U.S. orange juice tariff offers the most efficient Florida 
orange growers the opportunity to exist as the sole large volume 
competitor in a global industry dominated by five huge producers in 
Brazil. The tariff does not ensure survival, as many bankrupt Florida 
growers can attest, but it counteracts some of the extreme pricing 
pressure inflicted by frequent devaluations of Brazil's currency, the 
predatory pricing behavior of the Brazilian orange-juice oligopoly, and 
the sheer market power of a highly concentrated industry selling 
globally a dollar denominated commodity made with progressively 
devalued local inputs. Furthermore, the tariff gives Florida growers a 
fighting chance to make a living in a country that properly places 
tremendous value on costly worker rights and environmental integrity, 
in the face of competition from a country that does not.
    The global orange juice industry is highly unique. World orange 
juice consumption is concentrated chiefly among only 2 regions: the 
United States and the European Union. Aside from the United States and, 
to a lesser extent, Canada,\1\ there are no other significant orange 
juice consuming countries in the Western Hemisphere. Thus, the U.S. 
orange juice industry is not in a position to benefit from FTAA trade 
liberalization.
---------------------------------------------------------------------------
    \1\ The United States already enjoys duty-free access to the 
Canadian orange juice market.
---------------------------------------------------------------------------
    Global orange juice production is also concentrated chiefly among 
only 2 countries: Brazil and the United States. Brazil's production is 
controlled by 5 very large processors,\2\ which control roughly 80 
percent of Brazil's FCOJ production. Given that they also operate and 
control Brazil's tank ship distribution system, these companies 
indirectly control nearly all of Brazil's FCOJ exports. The large 
Brazilian processors benefit from advantages brought by past 
subsidization and dumping, lax environmental protection, weak and 
largely unenforced labor laws, frequent national currency devaluation 
(which reduces the relative cost of production inputs and provides 
false incentives to overproduce), and oligopoly price manipulation.
---------------------------------------------------------------------------
    \2\ These dominant Brazilian processors are Cargill Citrus Ltda., 
Citrosuco Paulista S.A., Citrovita Agro Industrial Ltda., LouisDreyfus 
Citrus S.A., and Sucocitrico Cutrale Ltda.
---------------------------------------------------------------------------
    Florida orange growers are not the only U.S. agricultural industry 
pitted against the unfair advantages of Brazil's agricultural exports; 
however, they are one of the few industries that the U.S. FTAA proposal 
threatens with demise. U.S. soybean farmers claim that on account of 
Brazil's currency devaluation, they were receiving 40 percent less for 
their soybeans in 2002 than in 1997, while Brazilian farmers were 
receiving over 36 percent more.\3\ Brazil is the world's second largest 
soybean producer after the United States, so this is very significant. 
However, soybeans are consumed throughout world and new export markets 
are highly sought after by the U.S. industry. So, it makes sense that 
the U.S. soybean industry contends with the unfair advantages of 
Brazil's devaluation chiefly via domestic subsidies. While subsidies 
are used to help level the playing field for agricultural industries 
whose top markets are abroad, tariffs are used to level the field for 
industries, like orange juice, whose top markets are in the United 
States. The U.S. industry that grows oranges for processing is unique 
among U.S. agricultural industries in that it does not receive any 
production or trade distorting (WTO-designated ``amber box'') domestic 
subsidies. Its only offsetting tools are the tariff and enforcement of 
the unfair trade laws.
---------------------------------------------------------------------------
    \3\ ``ASA Emphasizes Importance of Maintaining $5.26 Soybean Loan 
Rate to Help Offset Effects of Currency Devaluations in Argentina & 
Brazil,'' American Soybean Association, January 7, 2002 (http://
www.soygrowers.com/newsroom/releases/2002%2Oreleases/rO10702.htm).
---------------------------------------------------------------------------
    FCM believes that the Administration's FTAA proposal on agriculture 
is lopsided to the extent that it puts all U.S. agricultural tariffs on 
the table, while leaving all domestic subsidies off the table. In so 
doing, the Administration's proposal effectively, if unwittingly, 
singles out agricultural industries for demise based exclusively on the 
location of their markets, without consideration of the effect on the 
U.S. economy. Not only is an unsound approach to the policy of trade 
negotiations, it is also guaranteed not to meet any of the stated 
objectives of trade liberalization: foreign industrial growth, lower 
prices to consumers, and increasing living standards.
    FCM asserts that any reduction in the U.S. orange juice tariff 
applying to Brazil would devastate the U.S. industry that grows oranges 
for processing. Furthermore, any tariff reduction would critically 
damage the entire Florida citrus industry, the economic impact of which 
has recently been estimated at $9.13 billion in industry output, $4.18 
billion in value-added activity, and 89,700 jobs.\4\ Perhaps even most 
damaging to the U.S. economy is the fact that, since this Florida 
industry is Brazil's only competitor of global significance, its demise 
would not bring cheaper orange juice to the U.S. breakfast table, but 
would eventually unleash the Brazilian oligopoly to raise U.S. orange 
juice prices. For all of these reasons, FCM strongly opposes any 
reduction in U.S. orange juice tariffs under the FTAA or any trade 
agreement to which Brazil is a party.
---------------------------------------------------------------------------
    \4\ Alan Hodges. et al, ``Economic Impact of Florida's Citrus 
Industry, 1999-2000,'' Economic Information Report, EIR 01-2, 
University of Florida, Institute of Food and Agricultural Sciences, 
Food and Resource Economics Department, July 2001, p. 3.
---------------------------------------------------------------------------
    U.S. orange juice markets, particularly those throughout the EU, 
have also been increasingly plagued with Brazilian orange juice prices 
that appear to be well below their cost of production. During September 
2000 through April 2001, the price of bulk Brazilian FCOJ in the EU was 
often less than $700 per metric ton (including ocean freight). The 
long-term annual average trend in the price of Brazilian orange juice 
exports has been downward during the past decade and a half. Such 
constant downward price pressure in foreign markets makes the exporting 
of U.S. orange juice nearly impossible. Current levels of U.S. orange 
juice exports are more a function of the export incentives provided by 
the import duty drawback program, than of the ability of U.S. producers 
to earn a fair price in export markets. Even if there existed lucrative 
orange juice markets in the Western Hemisphere outside of U.S. and 
Canadian borders, and even if orange juice tariffs were liberalized in 
these markets, the U.S. orange juice industry would stand little chance 
of competing with Brazil at these extremely low price levels.
    Differences in labor, environmental and health and safety laws are, 
however, not the only reason why Brazil is able to sell its orange 
juice at such low prices. The University of Florida recently calculated 
comparative cost of production estimates for processed oranges in 
Florida and Sao Paulo, Brazil. They estimate that in crop year 2000/01 
labor costs (including wages, salaries and social taxes) were 450/box 
in Florida and only 170/box in Sao Paulo.\5\ A substantial portion of 
this wide discrepancy is due to the many currency devaluations Brazil 
has experienced during the last few decades.
---------------------------------------------------------------------------
    \5\ ``Cost for Processed Oranges: A Comparison of Florida and Sao 
Paulo,'' Ronald P. Muraro and Thomas H. Spreen, IFAS, The University of 
Florida, presented at the Florida Citrus Industry Economics Meeting, 
July 8-9, 2002.
---------------------------------------------------------------------------
    Brazil's orange juice export sales to all markets are denominated 
in U.S. dollars. When the Real is devalued, the cost of labor and other 
domestic production inputs, which are denominated in Real, become 
cheaper relative to the price paid for the orange juice. The cost of 
grove labor as a percentage of the export price of Brazilian orange 
juice shrinks each time the Brazilian Real loses value against the U.S. 
dollar, thus, increasing the profit margin obtained by the Brazilian 
processor. The increase in profits then sends false market signals 
throughout the Brazilian citrus industry causing it to overplant and 
overproduce. The overproduction gives way to lowered international 
orange juice prices, which reduce the value of Florida's processing 
oranges and diminish growers' profits. However, further devaluation 
prevents the Brazilian industry from feeling the squeeze of lower 
international prices, and the cycle continues. This is just one more 
way the developed Brazilian orange juice oligopoly is able to benefit 
from residing in a country with an underdeveloped and inflationary 
economy.
    In an ideal free market world economy where basic and equivalent 
labor, environmental, and health/safety laws exist and are enforced, 
where world production and prices are not controlled by a single 
oligopolistic industry, and where currency devaluations do not tip the 
scales dramatically in favor of the foreign exporters, the law of 
natural advantages might outweigh arguments for tariff protection. 
However, Brazil's advantages are not ``natural'' and the playing field 
is grossly skewed. The tariff is the only offset on which this 
unsubsidized U.S. industry can rely to counter these ``unnatural'' 
advantages.
    If U.S. orange juice tariffs are reduced or eliminated, the price 
of U.S. imports of bulk FCOJ from Brazil, as well as the futures 
contract prices of FCOJ and the U.S. wholesale price of orange juice, 
would fall rapidly. At the same time, the volume of U.S. FCOJ imports 
from Brazil would increase significantly. The supply of U.S. juice 
oranges and orange juice, however, would remain constant in the short 
term, as they are not responsive to price.
    It is important to understand that the U.S. supply of juice oranges 
is highly inelastic, because they are a natural, perishable product 
whose supplies are primarily dictated by the number of productive 
citrus trees in the United States, air temperature, amount of rainfall, 
and citrus tree diseases. Capacity utilization in citrus groves is 
always near 100 percent, because all wholesome citrus fruit is picked. 
Since it takes at least 4-5 years for an orange tree to begin bearing 
fruit and 25 years for it to stop bearing fruit, supplies cannot be 
manipulated in the short-run in response to price. Thus, given the 
inability of orange supplies to respond to juice prices, the U.S. on-
tree price of juice oranges would immediately plummet and, in turn, 
cause grower rates of return to fall well below the break-even point, 
resulting in widespread grove closures.
    The grove closures would leave unemployed over 42,000 citrus grove 
workers in Florida alone, and jeopardize the existence of all U.S. 
juice extractors and processors that depend on domestic citrus. It 
would also have grave consequences for the following upstream suppliers 
of the U.S. juice orange industry:

   nurseries that supply replacement trees to citrus groves,

   suppliers of fertilizer, fungicide, herbicide and 
        insecticide to citrus groves,

   suppliers of irrigation and spraying systems, mechanical 
        harvesters and farm implements,

   financial institutions, especially merchant banks that have 
        citrus exposure,

   insurance companies that serve the citrus industry, and

   freight companies that haul citrus to processing plants.

    Since the land on which processing oranges are grown consists of 
very sandy soil with little agricultural value outside of citrus 
production, and the volume of all other fruit juices extracted in the 
United States combined pales in comparison to orange juice, the above 
upstream industries could not exist if orange juice production were no 
longer viable. In addition, because the production of about 75 percent 
of all processing oranges is concentrated in Central and South Florida, 
entire counties in these regions would be ravaged and their real estate 
values would tumble as thousands of groves would be abandoned, with no 
practical alternative land utilization.

                  ECONOMIC EFFECTS ON THE CONSUMER

    Aside from the impact of unrestrained orange juice imports on the 
U.S. orange growing industry, the most highly touted benefit of free 
trade agreements--lower prices to consumers--would not be realized in 
the case of orange juice. Increasingly, the price of retail orange 
juice has not tracked the declines in processing orange prices nor the 
declines in wholesale and futures prices of FCOJ. On the contrary, 
retail prices have skyrocketed while processing orange and FCOJ prices 
have collapsed. What has happened is that orange juice retailers are 
charging the final consumer what the market will bear, which is 
apparently higher and higher each year, while the processors, 
reprocessors, and blenders, who buy their raw materials (FCOJ from 
Brazil or processing oranges from Florida growers) at plunging prices, 
all share in pocketing the significant juice mark-up. This pricing 
situation benefits the oligopolistic Brazilian processors twofold 
because 1) they now own some of the processors in the United States 
that are benefiting from the mark-up, and 2) their low-priced FCOJ 
exports to the United States depress the prices received by U.S. 
growers thus forcing many of them out of business and expanding the 
Brazilian processors' control over world orange juice supplies and 
prices.
    Should U.S. tariffs on orange juice from Brazil be reduced or 
eliminated, this situation would be exacerbated, as the U.S. 
processors, reprocessors and blenders--the first consumers of imported 
orange juice--would reap the benefits of tariff reduction, while 
Florida growers of processing oranges would take a heavy hit. The final 
consumers of the imported orange juice would never see the price break 
supposedly derived from the tariff reduction. However, as the Brazilian 
processors amass greater and greater global market power, U.S. final 
consumers would eventually suffer the consequences of unrestrained 
orange juice prices.
    In order to get a glimpse of the likely impact of tariff reductions 
in the market, one need only look at the record of bulk juice prices, 
returns to growers, and prices to consumers over the past ten years. As 
the U.S. tariff decline of 15% was forced on the market under the 
Uruguay Round Agreements, the global bulk juice price and average 
return to Florida growers declined steadily over that time, while the 
price of the finished product to consumers rose, seemingly disconnected 
from those underlying factors. The reason is that a dramatically 
concentrated global industry with almost limitless cheap resources will 
take full advantage of any declining constraint on its power 
represented by tariff cuts, to minimize its competition and maximize 
its profits, at the expense of consumers.
    It must be understood that the U.S. citrus tariff is the only form 
of ``assistance'' U.S. orange growers receive, and it costs U.S. 
taxpayers nothing. Furthermore, because most duties paid on U.S. orange 
juice imports from Brazil are subject to duty drawback, the Brazilian 
processors effectively pay only about $1.5 million, or 2.3 percent ad 
valorem, in orange juice duties.\6\ At the same time, non-citrus U.S. 
agriculture is now receiving over $20 billion annually in direct 
government payments.\7\
---------------------------------------------------------------------------
    \6\ Estimated by FCM based on the assumption that duties are drawn 
back on an amount of FCOJ imports from Brazil equal to 90 percent of 
U.S. FCOJ exports. In 2002, U.S. domestic exports of bulk FCOJ 
(2009.11.0060) were 441,664,083 liters. If we assume that 90 percent of 
these exports resulted in drawback, then import duties were drawn back 
on 397,497,675 liters of imports. In 2002, the import duty was 7.85 
cents/liter. Since 99 percent of import duties are drawn back, the 
amount of duties drawn back on 397,497,675 liters of imports would have 
been $30,891,532. In 2002, 411,577,471 liters (valued at $61,658,753) 
of bulk FCOJ were imported from Brazil, and $32,308,827 in duties were 
collected on these imports. So, post-drawback, U.S. Customs netted only 
about $1,417,295 ($32,308,827-$30,891,532) in duties on Brazilian bulk 
FCOJ during 2002. This means that the tariff really only cost U.S. 
importers .34 cent/liter ($1,4l7,295/411,577,471 liters), which equals 
only 2.3% ad valorem ($1,417,295/$61,658,753) in 2002.
    \7\ ``Farm Income and Costs,'' Direct Government Payments, ERS, 
USDA (http://www.ers.usda.gov/briefing/farmincome/data/GP--T7.htm).
---------------------------------------------------------------------------
    It is by no means true that the United States has the highest 
agricultural tariffs in the hemisphere. According the FTAA Hemispheric 
Database, the following figures represent the percentages of tariff 
lines in each country's tariff schedule that have duties equivalent to 
10 percent ad valorem or above: \8\
---------------------------------------------------------------------------
    \8\ FTAA Hemispheric Database online at http://198.186.239.122/
chooser.asp?Idioma=Ing.

Brazil 68%
Argentina 67%
Venezuela 66%
Colombia 63%
United States 11%

                             CONCLUSION

    The U.S. market is by far the most significant market we have. 
Unlike dairy and crop commodities, which are consumed throughout the 
world, orange juice is consumed primarily in the highly developed 
market economies of the United States and Europe. With Brazilian juice 
firmly entrenched in Europe at rock bottom prices, it only makes sense 
to concentrate on sales at home. Our growth in exports of specialty 
products, such as NFC, must necessarily be incremental and secondary to 
the domestic market for FCOJ. While the Florida industry will continue 
to seek out new export markets, both for fresh and processed products, 
it is myopic to think that we are likely to be as large a factor in 
foreign markets as Brazil. We simply do not have the domestic subsidies 
we would need to compete with the Brazilians and Europeans in Europe. 
Furthermore, we cannot be there to develop those new foreign markets 
slowly over the many years it will take them to achieve higher 
disposable incomes, if the Florida industry is forced out of existence 
by the elimination of the tariff. We want to serve the U.S. market and 
we can do so without the huge government payments that other 
agricultural sectors receive. However, the U.S. orange juice tariff is 
necessary to offset the unfair or artificial advantages that lower the 
price of Brazilian juice.
    Florida Citrus Mutual understands that free trade in many 
industries, including many agricultural industries, leads to increased 
competition, eventual price benefits to consumers, and overall global 
economic growth. Unfortunately, free trade cannot deliver these rewards 
to such a concentrated and polarized global industry, especially one in 
which the developing country's industry is, in fact, already the most 
highly developed in the world. Florida Citrus Mutual appreciates the 
opportunity to explain to the subcommittee the unique global structure 
of the orange juice industry and the negative economic effects that 
would occur as a result of U.S. tariff reduction or elimination.
    I will be pleased to answer any questions.

    Senator Coleman. Mr. Suber.

 STATEMENT OF TOM SUBER, PRESIDENT, U.S. DAIRY EXPORT COUNCIL, 
                         ARLINGTON, VA

    Mr. Suber. Mr. Chairman, I am Tom Suber, president of the 
U.S. Dairy Export Council. My testimony today will provide the 
dairy industry's perspective on your topic of the future U.S. 
economic relations in the Western Hemisphere: challenge and 
opportunities for American agriculture.
    U.S. DEC represents the export interests of U.S. milk 
producers, dairy cooperatives, proprietary processors, and 
trading companies. America's dairy industry is the country's 
second largest agricultural sector and provides a livelihood 
for 80,000 dairy farmers in every state of the union. Dairy's 
impact on the economy is compounded by our processors who turn 
milk into cheese, ice cream, butter, and milk powder.
    Last year, the United States exported over $1 billion in 
dairy products; the third consecutive year, the industry 
exceeded that significant benchmark. That number could be even 
larger if not for the price depressing export subsidies and 
high market access barriers of our competitors.
    Our dairy industry supports all U.S. trade initiatives 
currently underway within the hemisphere. We base this on the 
substantial benefits obtained from NAFTA, despite Canada's 
exclusion of its dairy industry from that agreement. Increased 
access to Mexico dairy market, even though full access to that 
milk powder market will not happen until 2008, has increased 
our market share and volumes that we can sell commercially 
without government subsidies.
    The dairy industry also supports the recent introduction of 
Senate bill 403 which would remove existing trading and 
traveling impediments to Cuba.
    I will focus my comments on the FTAA as an indicator of the 
opportunities and threats increased regional trade presents. 
Despite the greater competition we would face, the U.S. dairy 
industry would gain from a balanced and comprehensive FTAA. We 
base that assessment on a substantial net imports of dairy 
products within the hemisphere and the strong role dairy 
products play in regional diets. We believe long-term growth 
and consumption will come from the per capita income growth 
that more open trade brings over time. U.S. dairy products have 
already enjoyed some success in penetrating Caribbean and Latin 
American markets in the face of massive European export 
subsidies and often predatory pricing of imports from Oceania. 
More open market access will only accelerate this trend.
    The Council supports the U.S. goal for facilitating 
hemispheric integration through trade. The challenge will be to 
negotiate an agreement that removes barriers within the 
hemisphere but does not, as a consequence, leave the U.S. dairy 
industry vulnerable to the inequities that would remain in 
world dairy trade.
    Of particular importance are the issues of rules of origin, 
third party export subsidies, and the full inclusion of Canada. 
It is fundamental in a regional trade agreement that economic 
benefits accrue exclusively to its participants. As a result, 
our firm objective is to assure that FTAA establishes strict 
rules of origin. The United States is one of the most 
attractive dairy markets in the world due to its high 
consumption and relatively high domestic price. Without strict 
rules of origin, we can be sure non-party countries will try to 
ship their dairy products through a participating country.
    NAFTA rules of origin appear to have effectively restricted 
transhipments through Mexico, and we believe that similar rules 
of origin were adopted for the FTA with Chile, and must be 
included in the FTAA.
    FTAA negotiations must also address the issue of export 
subsidies. The U.S. dairy industry is prepared to cede its 
export subsidies only if we can ensure that our trading parties 
do not accept subsidized product from others. If Brazil, for 
example, accepts subsidized products from Europe while we have 
traded away the ability to use our DEIP program, the U.S. would 
be at a serious competitive disadvantage.
    Finally, and most importantly, the Canadian dairy industry 
must participate fully in any hemispheric trade integration. 
The U.S. dairy industry is united in agreement that failing to 
bring Canada fully on board would substantially nullify any 
perspective net gains for America's dairy industry. In the 
U.S./Canada FTA, in NAFTA, and in its recent trade agreements 
with Chile and Costa Rica, Canada has successfully kept dairy 
off the bargaining table. In fact, in 1998, an analysis of the 
FTAA by our own USDA's economic research service, used an 
economic model that inexplicably assumed that Canada would 
again successfully exempt its dairy industry from that 
agreement.
    Therefore, the real challenge for our negotiators will be 
finding a way to bring Canada and Canada's dairy industry into 
the agreement. If Canada succeeds in excluding its dairy 
sector, U.S. dairy industry will find little reason to support 
the FTAA.
    In conclusion, we support all U.S. Western Hemispheric 
trade expansion initiatives currently underway. The NAFTA 
agreement with Mexico has substantially benefited the U.S. 
dairy industry, and further benefits would accrue from wider 
agreements such as the FTAA. But a flawed FTAA could severely 
damage our industry. Therefore, to achieve dairy industry 
support, the FTAA must incorporate strict rules of origin, 
surrender the use of U.S. export subsidies within the region 
only if our regional partners refuse to accept subsidized 
products from the outside, and finally, ensure that the 
Canadian dairy industry is fully obligated to participate in 
all trade integration moves.
    Thank you for your invitation, Mr. Chairman, to present the 
dairy industry's views.
    Senator Coleman. Thank you very much, Mr. Suber.
    [The prepared statement of Mr. Suber follows:]

  Prepared Statement of Thomas M. Suber, President, U.S. Dairy Export 
                                Council

    Mr. Chairman and members of the Subcommittee, I am Tom Suber, 
president of the U.S. Dairy Export Council (USDEC). I am pleased to 
appear before you today to testify on the topic of ``The Future of U.S. 
Economic Relations in the Western Hemisphere: Challenges and 
Opportunities for American Agriculture.''
    The U.S. Dairy Export Council is a non-profit, independent 
membership organization that represents the export trade interests of 
U.S. milk producers, dairy cooperatives, proprietary processors, export 
traders and their allied industry suppliers. Its sole mission is to 
increase the volume and value of U.S. dairy product exports. USDEC 
maintains representative offices in Mexico City, Sao Paulo, Tokyo, 
Seoul, Hong Kong, Shanghai, Bangkok, Taipei, London and Lebanon to 
assist U.S. exporters and their customers. The Council receives the 
majority of its funds from Dairy Management, Inc., the organization 
responsible for managing the national farmer-funded dairy promotional 
assessment known as the dairy check-off. The export market promotion 
programs of USDA's Foreign Agricultural Service provide the Council's 
second highest source of revenue, followed by the annual dues of our 60 
members.
    America's dairy industry is the second largest agricultural 
commodity sector in the United States, measured by farm cash receipts. 
The 80,000 U.S. dairy farmers live in every state of the Union, from 
Minnesota to Louisiana, and Vermont to California. Dairy is one of the 
top three agricultural sectors in fully half the states, and almost 
two-thirds of the members of the House hail from a ``dairy'' state.
    Impressive as those numbers are, they represent only the milk 
producer side of the industry. Dairy processors, the companies that 
process milk into yogurt, cheese, ice cream and milk powder, add 
additional strength and nationwide employment to the industry's impact 
as a whole on the country's economy. In addition, our ability to 
increase milk production is limited only by demand, both domestic and 
international. Our ability to access and develop new markets is 
critical to the industry and to the overall rural economy.
    Internationally, the U.S. is the world's largest single country 
producer of cow's milk. In 2002 the U.S. exported over $1 billion in 
assorted dairy products, the third consecutive year the industry 
exceeded that significant export benchmark. While that's an impressive 
number, it could be even larger if not for the price depressing export 
subsidies and high market access barriers of our competitors.

  THE U.S. RELATIONS WITHIN THE WESTERN HEMISPHERE--WHAT ARE OUR 
                             OPPORTUNITIES?

    The U.S. dairy industry supports all trade initiatives currently 
underway within the Hemisphere. Our members--processors, producers, and 
trading companies--are especially interested in the Free Trade Area of 
the Americas (FTAA) and the Central America Free Trade Agreement 
(CAFTA). The dairy industry also supports the recent introduction of 
S403, which would remove existing trading and travel impediments to 
Cuba. For the sake of simplicity, I will focus my comments on the FTAA 
as an indicator of the opportunities and threats that increased 
regional trade presents.
    The Council believes that such trade initiatives within the 
Hemisphere are long overdue, as history shows we have lost ground to 
our trade competitors who aggressively pursued and continue to pursue 
such activities. For years, the United States has failed to profit from 
the potential economic benefits that would arise from greater trade 
links with the Western Hemisphere countries.
    Although growing, U.S. dairy exports to Latin America--excluding 
Mexico--are relatively small. In 2002, we shipped $92 million of 
product into the region, or 9% of our total exports. This compares with 
the $309 million, or 30.3%, that goes to Mexico and Japan. In fact, 
despite our advantageous geographic proximity, EU dairy shipments into 
the region (again, excluding Mexico) amount to just under $400 million, 
more than four times those of the U.S. This extreme imbalance stems 
from two sources. One is the EU's use of massive export subsidies to 
buy control of the market. The other is the use of special trading 
relationships that have built up over time. In addition to the EU's 
overpowering presence, dairy shipments to this region from Australia 
and New Zealand amounting to about another $400 million also present an 
opportunity to tap existing demand by creating closer trading 
relationships.
    The potential for export growth is enormous. Every Latin American 
country except Argentina, Uruguay, Costa Rica and Nicaragua is a net 
importer of dairy products. Of these exceptions, only the first two 
generate significant exportable surpluses. The region as a whole 
imports three-and-a-half times as much dairy products as it exports. 
And the United States produces more milk, cheese, milk powder, whey and 
lactose than the other combined 34 countries in the hemisphere.
    Latin America imports in excess of $2.2 billion worth of dairy 
products every year. The eleven largest countries import the milk 
equivalent of more than 13 billion pounds of milk annually--more milk 
than is produced in the states of Indiana and Minnesota in a year.
    Total cheese imports for Latin America approach a quarter of a 
billion pounds a year, more than a month's output from Wisconsin, the 
largest U.S. cheese producing state. Latin America imports more than a 
billion pounds of milk powder annually, and buys more than 150 million 
pounds a year of whey proteins. These are significant numbers.
    The middle and upper-middle classes are growing throughout Latin 
America--in Brazil, Peru and Chile in particular. Consumers with more 
disposable income are brand-conscious. They are interested in quality 
dairy products--a trait they strongly associate with the U.S., 
especially cheese and ice cream.
    For example, despite being a sizeable milk-producing country, 
Brazilian consumers have a particular appetite for high-quality 
American products such as mozzarella and cream cheese. Meanwhile, in 
Peru, Colombia and Venezuela, food manufacturers use large amounts of 
U.S. dairy ingredients, including whey and milk powders. Additionally, 
the Caribbean islands, with their close proximity and high dependence 
on tourism, are attractive markets for high-value U.S. cheeses.
    More importantly, Canada, our largest trading partner, with whom 
the United States has concluded trade agreements in the recent past, 
will be a significant market should an FTAA eliminate their tariffs on 
U.S. cheese (245 percent), butter (300 percent) and tight quotas on 
other U.S. dairy products.
    Existing measures of per-capita consumption illustrate the 
potential demand for U.S. dairy products in a more open hemispheric 
trade environment. Annual dairy consumption in South America (excluding 
the large production bases in Argentina and Uruguay) averages 229 
pounds per year. In Central America and the Caribbean, the average is 
192 pounds. It is unrealistic to expect these countries to quickly 
achieve the levels of consumption in the United States and Canada, both 
around 585 pounds per year. However, it is realistic to see continuing 
growth as per capita incomes rise and begin to drive consumption to the 
levels that exist in Turkey, Pakistan or Russia (respectively, 321, 403 
and 520 pounds per year). After all, Latin Americans use dairy products 
widely in their local diets and cuisine. Unlike Asian countries, where 
dairy products are rapidly building familiarity among non-traditional 
consumers, increased dairy demand by Latin American consumers is much 
more a matter of increased income and wealth, both factors that 
increased trade will foster.
    We know we can improve our market position with respect to exports 
to the Hemisphere. The current trade imbalance with the EU and Oceania 
results from their heavy subsidies and product dumping, respectively, 
as well as on preferential treatment and long term relationships. We 
know we can change that, given the right tools. As an example, look at 
the development of U.S. dairy exports resulting from the initiation of 
NAFTA. Since 1995, when the NAFTA tariff advantage began its phase-in, 
exports of unsubsidized U.S. dairy products have jumped sharply. U.S. 
cheese exports have grown at an average annual rate of almost 6%, to 
the point where Mexico is now the largest destination for all U.S. 
cheese exports. Exports of whey products to Mexico have grown annually 
by 6.6%, ice cream by 1.1%, and lactose by 3%.

   WHAT ARE THE CHALLENGES?--CRITICAL ISSUES FOR THE U.S. DAIRY 
                                INDUSTRY

    The Council supports the U.S. goal of facilitating the process of 
ongoing hemispheric integration through trade. Furthermore, we support 
elimination of most, if not all, tariff and non-tariff barriers from 
the Arctic Circle to Tierra del Fuego, just as the North American Free 
Trade Agreement (NAFTA) has sought to do with the United States, Canada 
and Mexico.
    The challenge will rest on negotiating an agreement that removes 
barriers within the hemisphere, but doesn't, as a consequence, leave 
the U.S. dairy industry vulnerable to the trade inequities that will 
remain in world dairy trade. Of particular importance to a balanced 
dairy sector agreement are the issues of rules of origin, third party 
export subsidies and the full inclusion of Canada.

                          RULES OF ORIGIN

    A fundamental concept of a regional trade agreement dictates that 
economic benefits accrue exclusively to the countries within the 
region. Consequently, the domestic industry's first and foremost 
objective is establishment of specific rules of origin that ensure 
dairy trade benefits only the signatory countries. The United States is 
one of the most attractive dairy markets in the world, due to its high 
consumption, interest in top quality, innovative products and high 
domestic price. Consequently, dairy suppliers from around the world 
continually explore ways to expand their shipments to the U.S.
    Milk's versatility creates the opportunity for that expansion by 
its great variety of tradable products--almost 400 individual tariff 
lines of the HTSUS include significant proportions of milk and dairy 
components. In the absence of appropriate rules of origin, it will no 
doubt be tempting for non-party countries to attempt to transship their 
dairy products through participating countries.
    It is therefore extremely important to ensure that economic 
integration via the FTAA is restricted to dairy products produced from 
milk and dairy ingredients that originate solely from countries in the 
Hemisphere. The North American Free Trade Agreement (NAFTA) contains 
rules of origin for dairy products that effectively restrict 
transshipments through Mexico. In effect, NAFTA dictates that the milk 
or dairy product must come from a Mexican or American cow to gain NAFTA 
treatment. Products imported from outside the region must undergo a 
specific and substantial processing transformation to qualify for duty-
free movement. Similar rules of origin were adopted for the FTA with 
Chile and must be included in the FTAA.

                    THIRD PARTY EXPORT SUBSIDIES

    FTAA negotiations must address another key issue, that of export 
subsidies. The United States dairy industry is prepared to dismantle 
its export subsidies directed to markets in the Western Hemisphere only 
if we can ensure that our trading partners do not accept subsidized 
product from outside the hemisphere. If Brazil, for example, accepts 
subsidized product from the EU, while we trade away the ability to use 
our own Dairy Export Incentive Program (DEIP) to meet that subsidized 
competition, it will put us at a serious competitive disadvantage.
    Over the past four years, the European Union provided an average of 
$1.44 billion dollars a year in dairy export subsidies, compared with 
an annual average of $91 million for the United States. In its most 
recent report to the WTO, the EU reported spending more than 100 times 
what the United States spent--$955 million versus $9 million. Further, 
in recent years subsidized dairy exports from Europe to all 
destinations totaled more than three times the total volume of butter 
imported by all Latin American nations, and approximately twice the 
total volume of all Latin American imports of cheese, skim milk powder 
and whole milk powder.
    It is critical, therefore, that nations in the Americas agree not 
to accept subsidized dairy imports from outside the hemisphere if the 
United States is required not to subsidize products to compete in 
markets within the Hemisphere. In the absence of such provisions, a 
U.S. agreement not to subsidize into regional markets will effectively 
deny the United States substantial gains from closer trade relations.

  CANADA AS A TRUE PARTNER WITHIN AN INTEGRATED WESTERN HEMISPHERE

    Finally, but most importantly, for the U.S. dairy industry the true 
economic value of Western Hemisphere trade cooperation is the inclusion 
of the Canadian dairy industry in any form of economic or trade 
integration. The U.S. dairy industry is united in agreement that a 
failure to bring Canada on board would substantially nullify any 
prospective net gains to closer regional integration.
    In the U.S.-Canada FTA, in NAFTA and in its recent trade agreements 
with Chile and Costa Rica, Canada successfully kept dairy off the 
bargaining table in order to preserve its supply-management regime. The 
real challenge for FTAA negotiators will be to find a way to bring the 
Canadian dairy industry into the agreement. If Canada succeeds in 
excluding its dairy sector, the U.S. dairy industry would find little 
reason to support an FTAA.

     ECONOMIC IMPACTS OF A POTENTIAL FREE TRADE OF THE AMERICAS

    We believe that the overall, economic net benefits to the U.S. 
dairy industry from an FTAA agreement that adequately addresses the 
issues discussed above would be positive. However, if negotiations do 
not properly address any one of these issues, then the net benefits to 
the industry would be at best negligible and at worst would have a 
seriously negative impact.
    In a 1998 analysis, USDA's Economic Research Service (ERS) used an 
economic model to examine the impacts of a FTAA on individual U.S. 
agricultural commodity sectors. For dairy, the ERS analysis 
inexplicably assumed that Canada would successfully exempt its dairy 
industry from the agreement, commenting only, ``Barring changes in the 
conditions agreed to in the CFTA/NAFTA and the Uruguay Round, U.S. 
access to Canadian dairy markets will remain limited.''
    Using this assumption, and assuming as well that non-parties would 
not exploit or benefit from weak rules of origin and that third-party 
export subsidies were not an issue, the analysis concluded that, 
``dairy trade is unlikely to be significantly affected by an FTAA.''
    On the positive side, the report concluded that U.S. dairy exports 
could displace some Argentine exports to Brazil, if the United States 
received the same free access to the Brazilian market that Argentina 
already has under the MERCOSUR agreement. In addition, the report 
noted, some expansion in markets in Central America is possible, if 
tariffs were eliminated. On the negative side, U.S. imports from 
Argentina could expand. Trade with our largest hemispheric trading 
partner, Mexico, will not likely be affected because U.S.-Mexico 
bilateral trade will already be free under the NAFTA, and most dairy 
exporting nations in South and Central America will have concluded 
bilateral free trade agreements with Mexico.
    If the assumptions outlined in the report are part of the final 
FTAA, we agree with this scenario and analysis. Partly, it shows that 
while we may see some rise in imports, our export potential could far 
exceed the prospective imports. More importantly, it illustrates the 
tremendous importance for our industry of addressing the issues we have 
raised.
    Lax FTAA rules of origin that permit transshipment of externally-
produced dairy components into the U.S. market via FTAA partners would 
have a significant negative impact. The National Milk Producers 
Federation estimates that the quantity of these additional imports--
above and beyond those that truly originate from FTAA members--could 
equal as much as 4 billion pounds per year, on a milk equivalent basis, 
following full FTAA implementation. This approximates the increase in 
total U.S. dairy imports resulting from the Uruguay Round agreement 
market access concessions, but without the roughly equivalent, and 
offsetting, growth in U.S. dairy exports the multilateral trade 
agreement also provided.
    The abuse of rules of origin could lower milk prices received by 
U.S. producers by an average $.60 per hundredweight. Gross dairy farm 
revenues would drop by as much as $1.2 billion per year. Domestic dairy 
processors would also encounter substantial increased competition from 
imported dairy products such as cheese, evaporated milk, milk powder 
and butter, competition that would negatively affect employment and 
capital investment.
    Similarly, if the FTAA provisions permit third parties to continue 
to use export subsidies to supply artificially cheap dairy products to 
FTAA members, then the potential growth in U.S. dairy exports to Brazil 
and Central America would likely not materialize. This would remove one 
of the counterweights to a probable increase of U.S. dairy imports from 
Argentina and Uruguay.
    Today, Canada prohibits the importation of raw milk and commercial 
shipments of processed fluid milk products. It permits packaged fluid 
milk imports only as cross-border purchases by consumers for personal 
use only, and subject to a tariff-rate quota. Canada also imposes 
tariff-rate quotas on cream, concentrated milk, yogurt, buttermilk, 
whey powder, butter, cheese, ice cream, dairy ingredients and food 
preparations containing dairy components.
    Including Canada's dairy industry in the FTAA would remove the 
prohibition on importation of raw milk and commercial packaged fluid 
milk. Among FTAA members, the United States would be the sole 
beneficiary of this liberalized access to the Canadian market. The 
United States would also probably be the major beneficiary of 
eliminating Canada's TRQs on dairy products. At the same time, the U.S. 
market would likely bear the biggest burden of any expanded dairy 
exports from Canada after regional market access barriers are removed.
    Following full implementation of the FTAA, we estimate that the 
United States would gain net dairy trade into Canada amounting to about 
5 percent of Canada's commercial dairy market, equivalent to about 1 
billion pounds of milk. This would boost milk prices received by U.S. 
producers by about $.15 per hundredweight and would increase gross 
revenues received by U.S. dairy farmers by over $300 million per year.

                             CONCLUSION

    In conclusion, the USDA/ERS analysis, combined with other industry 
estimates, indicates that the economic outcomes for the U.S. dairy 
industry from the FTAA could vary widely. Results could range from a 
loss for U.S. dairy producers of well over one billion dollars annually 
from a badly flawed agreement to a gain of over 300 million dollars per 
year from an agreement that fully addresses the issues and concerns we 
have raised in this testimony. The devil is truly in the details, and 
the support--or opposition--of our industry depends on the specifics of 
the agreement negotiated. We look forward to working with U.S. 
negotiators to achieve a good agreement for the FTAA and for the U.S. 
dairy industry, one that we would enthusiastically support.
    Thank you for your invitation to present the dairy industry's 
views.

    Senator Coleman. I have heard it said that if--well, I have 
seen by experience that if you gather five farmers together, I 
typically get six opinions. We have got five various farm 
groups and perspectives here, and I appreciate the diversity 
and perspective.
    I am going to turn to my distinguished colleague, the 
Senator from Florida for his round of questioning. Senator 
Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    I do not know if all of you know that three of you 
represent major industries in our state. Certainly, citrus, 
that everybody is familiar with, also dairy. We have a major 
dairy industry in our state. And you might be surprised to 
know, beef. Florida, I do not know the ranking, but it is 
exceptionally high among all the 50 states in beef production. 
And you are looking at a fellow who grew up on a beef ranch. 
Santa Gertrudis beef cattle was what I raised as my 4-H Club 
project.
    Let me nail down for the record if I may, Mr. Chairman, 
some of the testimony of Mr. LaVigne so that as we approach 
this FTAA, it will just crystallize and underscore some of the 
things that he has testified to. I am given to believe that 
your testimony said that 85 percent of the entire world 
production of concentrated orange juice comes from Brazil and 
Florida.
    Mr. LaVigne. That is correct, Senator.
    Senator Nelson. And about--so 15 percent of the rest of the 
entire world production, of concentrate--is that frozen 
concentrate? That is what we typically think of as concentrate.
    Mr. LaVigne. Yes. It is orange juice. Typically, most of 
that will go to concentrate. Some will be for the not from 
concentrate.
    Senator Nelson. Now of that 85 percent, is it approximately 
50 percent of the world production comes from Brazil?
    Mr. LaVigne. Brazil has a little higher percent of that. 
They have about 45 percent of the 80, and the U.S., depending 
on crop size--obviously it is like any other commodity, we are 
back and forth between 35 percent, but it gets up to the 85 
percent every year. And the rest is made up by the Caribbean 
countries which currently under CBI have no tariff, Mexico, 
whose tariff will go away in 2008, and then other producing 
regions of the world who produce for the fresh market place, 
but they are fresh product that cannot be marketed because of 
appearance, or over maturity, or under maturity, goes into 
processing as eliminations.
    Senator Nelson. So, your testimony is that 45 percent of 
the world production of concentrated orange juice comes from 
Brazil.
    Mr. LaVigne. That is correct.
    Senator Nelson. Now the remaining 35 or 40 percent of the 
world production, that is primarily the domestic U.S. 
consumption, is that correct?
    Mr. LaVigne. Primarily, Senator, again depending on the 
production in Florida each year, it will bring in a little bit 
more, a little bit less from Brazil. But principally, almost 
all used domestically.
    Senator Nelson. And most of that domestic consumption of 
concentrated orange juice, most of that is produced in Florida.
    Mr. LaVigne. That is correct.
    Senator Nelson. So here we have two major world producers, 
namely Florida and Brazil, and Florida's production goes to the 
U.S. market and Brazil is coming into the U.S. market as well, 
as well as the rest of the world.
    Mr. LaVigne. Yes.
    Senator Nelson. Now, Mr. Chairman, the advantages of free 
trade are that we can produce goods, commodities, foodstuffs 
most efficiently in the economic system by getting competition 
and getting where products are produced most efficiently and, 
therefore, most cheaply for the consumer.
    The difference with frozen concentrated orange juice is 
that whereas the parity is now in balance with a tariff that 
protects Florida's and United States' growers, if that goes 
away, Brazil is going to become a monopoly, not a competitor. 
And that is exactly the opposite with what we want to achieve 
with free trade. It would become a monopoly--you tell me if 
this is right--because as you testified, there are about five 
growers that produce most of the production of Brazil.
    Mr. LaVigne. Yes.
    Senator Nelson. And virtually 99 percent of all Brazil's 
production is exported.
    Mr. LaVigne. That is correct.
    Senator Nelson. And so you have not a competition, but you 
have a series of cartels in production that certainly are going 
to have less growers' costs. And if there's not a differential 
with the tariff, what, in your opinion and state it for the 
record, is going to occur to the domestic U.S. production?
    Mr. LaVigne. We believe that the domestic U.S. production 
would experience a 20 percent--as the University of Florida 
Institute of Food and Agricultural Sciences has said, a 20 
percent reduction in return to growers. That essentially brings 
you down either 5 to 10 cents a pound solid below the cost of 
production in the State of Florida. So immediately, whether we 
do a phase tariff reduction or long-term reduction of the 
tariff, or elimination of the tariff, what you do is you start 
to devalue real-estate for groves. You start to lose tax income 
to counties, and growers start to look for other alternatives. 
And in Florida, other alternatives are either abandoning your 
land or trying to find development rights.
    Senator Nelson. OK. Now what does it do to the consumer?
    Mr. LaVigne. Well, for the consumer, it is like any cartel 
that we experience in this country or in the world, it is at 
the whim of whoever controls the supply. So immediately, we 
know that that supply is at the control of the people who 
deliver the product to the consumer. And we think that does not 
benefit the consumer, and prices will likely increase to the 
consumer on this commodity.
    Senator Nelson. So if there is not a parity held by a 
tariff, Brazil has a lower price; it drives the Florida and 
U.S. producers out of business; Brazil then takes over 
virtually the entire market. And once it has the monopoly, then 
what monopolists can do is they can start jacking up their 
price.
    Mr. LaVigne. That is true. And you see in the oligopolistic 
situations where they put such pressure on the marketplace that 
you put the growers out of business, and rock bottom prices for 
farm lands as we have seen across this land, people pick them 
up. And where the Brazilians already control 50 percent of the 
processing in Florida, they will control 50 percent of the 
production because they will buy growers' lands at huge losses 
to growers, or back from the banks or the insurance companies, 
or other people who have to take them because those growers 
will be out of business and it will no longer be a U.S. 
industry.
    Senator Nelson. Is there much orange juice concentrate 
produced in Texas?
    Mr. LaVigne. Again, theirs is elimination, Senator. 
Whenever they produce fresh product for the marketplace, it 
does not meet the grade for the market. It goes to the 
processing plant, but it is not produced for that purpose.
    Senator Nelson. So maybe that is why The White House does 
not understand the fact of what in wanting free trade and the 
advantages for consumers of free trade, that they do not 
understand that this is exactly the reverse. This is going to 
create a monopoly.
    Mr. LaVigne. That is correct. In our discussions with the 
administration, we do not feel that reducing or eliminating the 
tariff will reach their goals of free trade at all.
    Senator Nelson. Tell me, do you see any changes in the 
administration's attitude since they would not even hear of the 
amendment that Senator Graham and I were trying to put on the 
trade bill last year? Has there been any change in their 
attitude?
    Mr. LaVigne. Senator, they have been--I would say they have 
been open in listening to our discussion and listening to our 
concerns. I think as we have heard today from Ambassador 
Johnson, everything is on the table. If they begin to take 
anything off the table, that begins to landslide.
    They are well aware of where we are coming from, and the 
concerns, and the unique nature of our industry in the State of 
Florida and the unique nature of the State of Florida in the 
overall big picture. So I think they have been receptive in 
various meetings that we have been sitting in on, but it is a 
long process that we have to looking to forward to.
    Senator Nelson. And how many years down the road do we 
expect the first attempts at reducing the tariffs?
    Mr. LaVigne. Well, if it follows the schedule, it would 
be--the agreement would be signed sometime in 2005 or early 
2006. And depending on--if it is under FTAA, we are in the 
fourth basket. You are looking at, you know, a phaseout of some 
portion over 12 years or more depending on whether we look at 
Chile or not. So you are looking at probably the beginning of 
the reduction sometime after 2006.
    Senator Nelson. Mr. Chairman, you have been very generous 
and you are very kind so that I could go on to my next meeting. 
And I am grateful to you.
    I will submit a bunch of other things for the record, and 
just conclude by saying that I am a free trader and I vote that 
way. And I articulate that I think it is in the interest of--
generally, it is in the interest of consumers, free trade, 
because of the more quality products at a lower price. But I 
think here is an aberration to that principle because it would 
cause a monopoly. It is not just that I want to protect my 
industry, which I certainly do. I mean, Florida and oranges and 
citrus are synonymous. We even have a picture of an orange on 
our license tags, on all of our vehicles. The orange blossom is 
the state flower. So it is synonymous with Florida.
    But beyond that, if we are looking out for the interests of 
the consumers of America, it would be going exactly in the 
opposite direction to let Brazil achieve a monopoly. And thank 
you very much.
    Senator Coleman. Thank you very much, Senator Nelson, for 
your participation. I greatly appreciate it and it is very, 
very helpful.
    I will do my questioning in reverse order, and I will pass 
on you, Mr. LaVigne. I think Senator Nelson has done a very 
good job of dealing with your testimony.
    Mr. Suber, I appreciate the U.S. dairy industry's support 
of, as you noted, most, if not all, of tariff and non-tariff 
barriers in the Western Hemisphere. You made a particular point 
in talking about the Canadian situation. What do we do to bring 
Canada to the table? What advice do you have for USTR? What 
tools would you use to make that happen?
    Mr. Suber. I thank you for asking that particular question 
because that is the same focus that Ambassador Johnson talked 
about in his discussion and Senator Nelson just had with the 
citrus industry, which in this case is to make sure that Canada 
does not take things off the table. I understand the discussion 
on citrus, but in the area of dairy, Canada has been able to do 
that in every single one of its agreements and we must simply 
be clear that Canada is obliged to include this industry. As it 
wants to push its beef, and its grains, and its lumber exports 
within an FTAA, they must be willing to take reciprocal trade 
in dairy products, and we must just insist that it is included.
    Senator Coleman. I thank you very, very much, Mr. Suber.
    Mr. Frederickson, though you have indicated in your 
testimony, you said the NFO would not be opposed to trade 
agreements, but then laying out a very serious series of 
conditions and qualifications. I just ask very, very candidly: 
Do you realistically see a prospect of NFO--of these conditions 
being met? Where do we go with the trade issue from your 
perspective in a realistic sense?
    Mr. Frederickson. I do not know about the NFO, but let me 
speak from NFU, National Farmers Union, perspective.
    Senator Coleman. Oh, yes. I am sorry.
    Mr. Frederickson. NFU has historically supported bilateral 
agreements as long as they meet the criteria that we have 
established. Farmers do not trade. Somebody else trades. And so 
our position has always clearly been: Show us the benefit to 
American agriculture. Show us that this is a reciprocal 
agreement, that we all benefit from it. And if we can clearly 
see that, I think from a producer perspective, Senator, we 
would be happy to support it.
    Senator Coleman. I am trying to get a sense of kind of the 
realistic and practical side. Do you see it happening?
    Mr. Frederickson. Well, I traveled last week from South 
Africa and spent the better part of a week there with my 
colleagues at the International Federation of Agricultural 
Producers. There were 81 countries gathered around the table, 
and they are all quite interested in trading. However, they 
also have their own private agenda, and they want to move 
product into the country.
    I had a very spirited discussion with colleagues from 
Australia. And when asked point blank if they felt that there 
was an opportunity for American producers to participate 
positively in that agreement, they felt probably not, probably 
not. So they see it as a one-way street. And so if you are 
asking if we can support it, I think absolutely we can support 
it if we can clearly get out of USTR the benefits that we could 
certainly apply to American producers. That is who we 
represent. We represent producers.
    Senator Nelson indicated it is in the benefit or interest 
of the consumer. I am here to represent the interest of the 
farmer. Trading is one thing, but trading for a profit is 
another. And so we constantly are concerned about the race to 
the bottom, of being the lowest cost producer in the world. 
That does not do anything for those small communities that you 
and I represent across the State of Minnesota and across the 
country.
    Senator Coleman. Thank you very, very much, Mr. 
Frederickson.
    Mr. Doud, you talked about NAFTA being a tremendous success 
story for the U.S. beef industry. Do you expect or do we expect 
Mexico to export beef to the United States? Do you see that 
happening?
    Mr. Doud. There is nothing currently that prohibits them 
from doing so, is the answer to that. I think there is a 
certain unwillingness for them to do that at this point. I am 
not sure that there is a whole lot of Mexican beef exported to 
the United States at this point, but discussions I have had 
with them I find very curious.
    In recent discussions and going back there to have 
subsequent conversations is the fact that they do not see the 
marketplace as their salvation and the way for them to, you 
know, drive profitability. They only see protection in a form 
of a tariff as their mechanism for maintaining their 
livelihood. And I think that is a very different philosophy 
than U.S. ranchers have.
    Senator Coleman. A question about NAFTA: I am interested in 
what is it--other than perhaps per capita income increase which 
you talked about, specifically, is there something else about 
NAFTA that has created these export opportunities for the 
United States?
    Mr. Doud. Well, I think what is interesting is the strategy 
that we have used to drive that situation, and Mexico has used 
the food, or the hotel and restaurant industry to drive 
innovation down there. And what is interesting today is they 
have Costco, and Sam's Club, and Wal-Mart in Mexico City just 
like we have in Washington, DC or in Minneapolis. And those 
industries are at the retail level driving innovation and 
change in that market just as they are in this market. And 
consumers are rewarding that.
    And so we see innovation at the restaurant level which is 
driving consumer demand, and we are striving very hard to meet 
the demand of the consumer in Mexico.
    Senator Coleman. Thank you very much.
    Mr. Quackenbush, may I ask you a personal question, if I 
can? Do you have kids?
    Mr. Quackenbush. Yes, I have four.
    Senator Coleman. Because you started your testimony talking 
about your dad, why he chose to be a farmer. Do your kids want 
to farm or are they in farming?
    Mr. Quackenbush. My oldest son is working in the pork 
industry in southern Nebraska. He is actually managing a stud--
--
    Senator Coleman. Is he--are you optimistic about your kid's 
future in the pork industry?
    Mr. Quackenbush. Yes, I guess, as a farmer, I am an eternal 
optimist.
    Most of us have to be. But I think there is opportunity for 
young people, especially in the pork industry. It is one of 
those industries that offers a great opportunity for people to 
enter agriculture.
    Senator Coleman. All right. Your testimony is very clear 
about the vulnerability now. I have seen that certainly in 
Minnesota. I have seen that vulnerability over time. I am not 
going to ask you any questions at this point in time. Clearly, 
I have great concern about the actions of Mexico. I have great 
concern about the antidumping case, about the possibility of 
antidumping duties on U.S. pork exports, and others within this 
body share that concern. So I just want you to know that the 
issues you raised are--we are looking at those. We are raising 
the concerns. We are voicing those. And hopefully, those 
concerns will be addressed.
    So I am optimistic also. I was an urban mayor. My favorite 
quote is David Ben-Gurion, first Prime Minister of Israel who 
once said, ``Anybody that does not believe in miracles is not a 
realist.'' I am always uplifted by the optimism of our 
producers and growers in spite of the great challenges.
    And I think what we have seen today is a vision of 
opportunity if things are done the right way. And the right way 
may be different for citrus than it is for pork, and than it is 
for beef, and across the board.
    I want to thank all for being here. Thank you for appearing 
before the subcommittee.
    And now without objection, the record of today's hearing 
will remain open for 14 days to receive additional material and 
supplementary written responses from witnesses to any questions 
posed by a member.
    This hearing of the Senate Subcommittee on Western 
Hemisphere, Peace Corps and Narcotics Affairs is now adjourned.
    [Whereupon, at 5:45 p.m., the subcommittee adjourned, to 
reconvene subject to the call of the Chair.]
                              ----------                              


            Responses to Additional Questions for the Record


   Responses of U.S. Department of Agriculture, Coordinated With the 
 Office of United States Trade Representative, to Additional Questions 
            for the Record Submitted by Senator Bill Nelson

    Question. Florida growers do not receive subsidies, and rely solely 
on the orange juice tariff to offset the history of unfair advantages 
enjoyed by a small number of foreign producers, all located in Brazil. 
What is the administration doing to address these unique trade 
situations that do not fit the typical ``free trade'' agenda of 
reducing or eliminating tariffs that will increase trade and 
competition, while decreasing costs to the consumer? Is this being 
addressed in the FTAA negotiations and in the Doha round?
    Unlike most sectors, the elimination of the tariff on Brazilian 
orange juice is more likely to have exactly the opposite effect 
intended--cause monopolization of the global citrus industry, and 
higher consumer prices, rather than increasing U.S. exports or lowering 
consumer prices. This is because so few Brazilian producers dominate 
world production, with the vast bulk of consumption centered in the 
United States and European Union. Don't these unique economic factors 
support maintenance of the current tariff in this sector? What has been 
the Brazilian government's response when approached on these issues? 
How do you expect the situation to be resolved? Does this matter have 
the personal attention of Ambassador Zoellick and President Bush?

    Answer:

          CLOSE CONSULTATION WITH FLORIDA CITRUS PRODUCERS

    The Administration recognizes the extreme sensitivity of Florida 
citrus producers to imports of Brazilian orange juice. USTR and USDA 
officials have discussed this issue frequently with representatives of 
the Florida citrus industry. For example, Ambassador Zoellick and USTR 
negotiators have met recently with representatives of the Florida 
citrus producers to discuss our approach to the Free Trade of Area of 
the Americas (FTAA) and other FTA market access negotiations. And, 
Secretary Veneman met recently with the Florida Agricultural Trade Task 
Force (FATTF) to discuss their concerns regarding trade liberalization. 
To ensure that we continue to coordinate closely with Florida producers 
as the negotiations progress, USTR and USDA will continue this dialogue 
with Florida producers, including those represented on the Agricultural 
Technical Advisory Committee (ATAC) on Fruits and Vegetables, the 
Agricultural Policy Advisory Committee, and the FATTF.
    We have tabled comprehensive market access offers on agricultural 
and industrial products in the FTAA and the CAFTA--i.e., all tariffs 
are subject to negotiation. We have made it clear that we expect our 
trading partners to do the same. If we were to ask for product 
exclusions, the market access negotiations would quickly unravel, as 
other countries would exclude their import sensitive sectors, including 
those of interest to U.S. agricultural exporters. This is not in the 
interest of U.S. agriculture (one in three U.S. farm acres is planted 
for export; 25 percent of all U.S. cash receipts for agriculture come 
from export markets), nor is it in the interest of Florida agriculture.

    BENEFITS OF TRADE LIBERALIZATION (INCLUDING IN THE WTO) FOR 
                     FLORIDA'S AGRICULTURAL EXPORTS

    Florida agriculture has an interest in improved access to foreign 
markets. Florida exports over $525 million in fresh and processed 
fruits, including grapefruits and grapefruit juice; nearly $150 million 
in fresh and processed vegetables; over $100 million in meat, live 
animals, and poultry.
    Tariff liberalization in bilateral and regional FTAs is aimed at 
advancing progress on tariff liberalization in the WTO. At a minimum, 
providing more open markets globally for Brazil and others could 
diminish the attractiveness of the U.S. market.
    The U.S. tariff on grapefruit is 14.5 percent and on grapefruit 
juice 24 percent, while the world average is 60 percent on grapefruit 
and 56 percent on juice. Under the Swiss 25 formula, which the United 
States has proposed in the WTO, the U.S. grapefruit tariff would fall 
to 8 percent, and the juice tariff would go to 10 percent, while world 
grapefruit tariff on both grapefruit and juice would fall to 15 
percent. Our WTO market access proposal would bring the 51 percent WTO 
average tariff on orange juice down to 14 percent.

     MULTIPLE TOOLS FOR ADDRESSING IMPORT SENSITIVITIES IN FTA 
                              NEGOTIATIONS

    In comprehensive market access negotiations, we have multiple tools 
for dealing with our most sensitive products, including long tariff 
phase-out periods. In the FTAA, the CAFTA, and the U.S.-Morocco FTA, 
the phase-out periods range from immediate to more than ten years. In 
our FTA with Chile, most of the orange juice lines, including frozen 
concentrated orange juice (FCOJ), are subject to 12-year phase-outs--
the longest phase-out period provided under the Agreement. Long-term 
phase out periods is one of the options in our ``tool box'' for our 
current negotiations.
    In the Chile FTA, FCOJ was subject to non-linear, or 
``backloaded,'' tariff cuts. This is another approach in our ``tool 
box'' to ensure that our producers have time to adjust to new market 
conditions.
    In addition, we included in the U.S.-Chile FTA, and are proposing 
in our current negotiations (FTAA, CAFTA, and Morocco), a special 
agricultural safeguard. This safeguard provides for a temporary 
increase (``snap-back'') in tariffs to protect against unusually low 
import prices during the period when tariffs are being reduced. The 
safeguard is price-based and automatic, thereby providing immediate 
relief for import sensitive products subject to the safeguard. Although 
we have not yet identified our list of products eligible for this 
safeguard in these negotiations, FCOJ would be a logical candidate.
    In our agreement with Chile, we also used a tight rule of origin on 
orange juice (``out of the tree/into the juice'') to ensure that Brazil 
could not benefit from the tariff reductions agreed with Chile. This 
was the rule of origin used for orange juice in the NAFTA, and we plan 
to use this rule in all our FTAs.
    Finally, in all our negotiations, we will reserve the ability of 
the United States to rigorously enforce its antidumping and 
countervailing duty laws. This means that antidumping and 
countervailing duties will not be affected by any market access 
commitments that occur as a result of an ETA, the ETAA, or WTO 
negotiations. In past years, Brazilian exports of FCOJ were subject to 
both a countervailing duty order and antidumping duties. The 
countervailing duty order on Brazilian FCOJ was revoked, effective 
January 1, 2000. The antidumping order, first issued in 1985, is still 
in place.
    We have had discussions with Florida citrus producers on the 
structure of the Brazilian industry and possible changes in that 
structure with tariff liberalization. We will continue to explore these 
matters, including with the Brazilian Government. As stated above, 
Ambassador Zoellick and Secretary Veneman have met personally with 
representatives of the Florida citrus industry.

    Question. Many countries have excluded sensitive products entirely 
from tariff reductions under free trade agreements that comply with WTO 
rules. Isn't it inconsistent for the administration to accept other 
countries' product exclusions from Free Trade Agreements, but also 
insist on all U.S. imports being covered by FTA tariff elimination--
even those that affect efficient and highly import sensitive 
industries?

    Answer. The United States' approach to ETA market access 
negotiations has been and is a comprehensive one, i.e., all tariffs are 
subject to negotiation. If we were to agree to allow product exclusions 
due to our import sensitivity, our negotiating partners would request 
their own exclusions, thereby taking off the table tariff 
liberalization that will benefit U.S. agricultural exports. We have a 
variety of tools within the context of comprehensive ETA negotiations 
for dealing with import sensitivities. For example, we have and will 
continue to make use of the longest tariff phase-out schedule for our 
most sensitive products--more than ten years for the ETAA, CAFTA, and 
U.S.-Morocco ETA negotiations. In our ETA with Chile, our most 
sensitive products are subject to a 12-year phase-out--the longest 
provided for under the Agreement. We also can use other tools such as 
non-linear tariff cuts, an agricultural safeguard, tight rules of 
origin, and rigorous enforcement of our unfair trade laws. These tools 
are aimed at: (1) helping our most import sensitive producers adjust 
over time to changes in market conditions, including by safeguarding 
them against low-priced imports; (2) preventing non-ETA countries from 
benefiting from preferences afforded our ETA partners; and (3) ensuring 
that our most import sensitive agricultural (and other) products are 
traded fairly.

    Question. While the administration delays its decision for the 
location of the permanent Secretariat of the FTAA, other countries like 
Panama, Mexico and even Brazil are jockeying for it. Though Miami would 
be a natural selection, the administration still has not selected its 
preferred site. This has already cost the United States valuable time 
in trying to bring this trade headquarters here, a place that would be 
very friendly to negotiations. Why? When will the administration come 
to a decision on the location of the Secretariat?

    Answer. Successful completion of this Agreement will benefit 
American businesses and workers by providing access to the markets of 
the Hemisphere. The obligations of the Agreement are still under 
negotiation, and an institutional structure required to facilitate 
implementation of those obligations has not yet been proposed. While 
the Administration supports the idea of having the permanent 
secretariat located in the United States, the FTAA Ministers have not 
even begun to discuss the process for selecting the site, nor 
identified the parameters for the institutional structure. It therefore 
is premature for the U.S. to designate one city as the U.S. candidate 
for the home of the permanent secretariat. We do not anticipate our 
making such a choice until after the Ministerial meeting in Miami in 
November.
    In the interim, various cities, including two in the United States, 
have taken opportunities to make their arguments for their candidacies 
as the host of the Secretariat to various senior officials in the ETAA 
governments.

    Question. What is the administration doing to protect intellectual 
property rights in a possible FTAA and CAFTA? What commodities view 
this issue as a most salient one?

    Answer. The intellectual property rights (IPR) provisions in the 
ETAs strive to build upon existing international standards such as the 
WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPs 
Agreement) to ensure that effective IPR protection, including patent, 
copyright, trademark, and trade secret protection is available for U.S. 
products in overseas markets.
    Of particular significance to agricultural interests are U.S. 
proposals that have been developed to ensure fairness in the treatment 
of geographical indications (GIs) and trademarks. A systematic, IPR-
based approach to GIs will ensure that the rights of both trademark and 
GI owners are respected and preserved.

    Question. When will the President send the U.S.-Chile trade 
agreement to the Congress for approval? The perception of the 
international community is that the administration is playing politics 
with this agreement, in effect punishing Chile, an important member of 
the U.N. Security Council, for its past position on the Iraq war. Would 
you comment on that?

    Answer. Ambassador Zoellick and Chilean Foreign Minister Soledad 
Alvear signed the U.S.-Chile ETA in Miami on June 6, 2003. The 
President is required to send Congress a list of changes to existing 
laws that are necessary to comply with the ETA within sixty days from 
the date of signature. On June 10, Deputy USTR Peter Allgeier testified 
before the Ways and Means Committee regarding the approval and 
implementation of the Agreement and on June 17, he also participated in 
a hearing on the U.S.-Chile and U.S.-Singapore FTAS before the Senate 
Finance Committee. We are consulting with the Congress on 
implementation of these Agreements and our plans for submitting the 
implementing bills and supporting documentation for these agreements 
with the objective of obtaining expeditious consideration and approval 
of the bills.

    Question. What unresolved issues exist with respect to U.S.-Mexico 
sugar and tomato situations?

    Answer. Mexico and the United States disagree over the formula that 
determines Mexico's access under the NAFTA to the U.S. sugar market. 
Mexico has also imposed a tax on the use of high fructose corn syrup 
which severely restricts U.S. exports and raises serious questions 
regarding its consistency with Mexico's WTO and NAFTA obligations. The 
two governments remain engaged on these related issues. USTR has 
consulted closely with U.S. sugar producers throughout this process. 
While differences remain, all U.S. sweeteners producers agree the 
issues should be resolved through negotiation. We hope to continue 
discussing these issues with Mexico after its Congressional elections 
in July.
    There are no outstanding issues on tomatoes. A new suspension 
agreement went into effect on November 8, 2002.

    Question. We learned from NAFTA that side agreements, like those on 
tomatoes, are not binding. What can be done to prevent future 
situations with citrus in the FTAA and CAFTA?

    Answer. In the case of NAFTA, we did not conclude a ``side 
agreement'' with the government of Mexico on tomatoes. Rather, USTR 
sent letters to Florida tomato producers making U.S. Government 
commitments on a number of matters. USTR believes that those 
commitments have been fulfilled. Perhaps more importantly, Florida 
growers are satisfied with a suspension agreement with Mexican 
importers that imposes minimum price requirements on imports of most 
Mexican tomatoes.
    Mexico's share of fresh and chilled tomatoes imported by the United 
States fell from 93 percent in 1993, the year before the NAFTA was 
implemented, to 69 percent in 2002.
    With respect to other agreements that the Administration might 
conclude and seek to implement through TPA procedures, the Trade Act 
(section 2105(a)(4)) requires disclosure of any agreement or 
understanding with a foreign government if that agreement or 
understanding is to be considered part of the agreement that Congress 
approves in any implementing legislation.

                                 ______
                                 

   Responses of Andrew W. LaVigne, Executive Vice President and CEO, 
Florida Citrus Mutual, to Additional Questions for the Record Submitted 
                         by Senator Bill Nelson

    Question 1. Please explain the economic impact the Florida Citrus 
industry has on the domestic economy.

    Answer. The economic impact of the Florida citrus industry during 
crop year 1999-00 was estimated by economists at the University of 
Florida at $9.13 billion in industry output, $4.18 billion in value-
added activity, and 89,778 jobs.\1\ The total value-added figure 
includes wages earned by industry employees, income to business owners, 
and business taxes paid. The value-added figure of over $4 billion, 
thus, represents the net economic contribution by the Florida citrus 
industry to the U.S. economy.
---------------------------------------------------------------------------
    \1\ Alan W. Hodges, et al, ``Economic Impact of Florida's Citrus 
Industry, 1999-2000,'' Economic Information Report, EIR 01-2, 
University of Florida, Institute of Food and Agricultural Sciences, 
Food and Resource Economics Department, July 2001, p. 13.
---------------------------------------------------------------------------
    These citrus figures represent approximately 15 percent of the 
output, 14 percent of the value-added, and 14 percent of the employment 
of all Florida agricultural and natural resource industries.\2\ 
Recognizing that Florida is a large agricultural producer with abundant 
natural resources, these percentages are remarkable. Furthermore, in 
some Central and South Florida counties, where the citrus industry is 
concentrated, citrus output, value-added and employment represent 
nearly all of the overall agricultural and natural resource output, 
value-added and employment. Grove closures in these counties would 
prove particularly devastating.
---------------------------------------------------------------------------
    \3\ Alan W. Hodges and W. David Mulkey, ``Regional Economic Impacts 
of Florida's Agricultural and Natural Resource Industries,'' University 
of Florida, Food and Resource Economics Department, revised April 1, 
2003.
---------------------------------------------------------------------------
    The economic impact of the Florida citrus industry is felt well 
outside of the groves. When orange groves fail, the following upstream 
and downstream suppliers to the citrus industry suffer grave 
consequences:

   nurseries that supply replacement trees to citrus groves,
   suppliers of fertilizer, fungicide, herbicide and 
        insecticide to citrus groves,
   suppliers of irrigation and spraying systems, mechanical 
        harvesters, farm implements, and grove clothing,
   financial institutions, especially merchant banks that have 
        citrus exposure,
   insurance companies that serve the citrus industry,
   freight companies that haul citrus to processing plants and 
        packing houses,
   extraction, canning and concentrate plants that process 
        juice from Florida oranges, and
   citrus packinghouses.

    Since the land on which processing oranges are grown consists of 
very sandy soil with little agricultural value outside of citrus 
production, and since the volume of all other fruit juices extracted in 
the United States combined pales in comparison to orange juice, the 
above industries could not exist if orange juice production were no 
longer viable.
    The fact that Florida's citrus land has no practical alternative 
land utilization is demonstrated by the current divergence between the 
value of Florida citrus land and land for other uses. Between 2000 and 
2002, the value of citrus land planted with mature orange trees fell by 
20 percent in South Florida and by 21 percent in Central Florida.\3\ At 
the same time, the value of irrigated cropland increased by 14 percent 
in South Florida and by 16 percent in Central Florida, and the value of 
improved pastureland increased by 23 percent in South Florida and by 22 
percent in Central Florida. While some of this lost real estate value 
may have been caused by the prevalence of citrus canker, especially in 
South Florida, a good portion of the lost value can be attributed to 
the continual pricing pressure caused by the presence of Brazilian 
juice on the global market, as well as the ongoing threat of 
catastrophic tariff reductions under the FTAA.
---------------------------------------------------------------------------
    \3\ John R. Reynolds, ``Citrus Land Values Decline as Other Land 
Values Increase: 2001 Survey Results,'' No. 147, July-August 2001, and 
``Agricultural Land Values Increase as Citrus Land Values Decrease: 
2002 Survey Results,'' No. 150, July-August 2002, Cooperative Extension 
Service, Institute of Food and Agricultural Sciences, Florida Food and 
Resource Economics, University of Florida.

    Question 2. Many U.S. agricultural commodity sectors are seeking 
greater foreign market access in either FTAs or multilateral trade 
negotiations. What makes the citrus industry and market unique with 
---------------------------------------------------------------------------
respect to trade and market access policies?

    Answer. The global orange juice industry is highly unique. World 
consumption of commercially processed orange juice is concentrated 
chiefly among only 2 regions: the United States and the European Union. 
This pattern is dictated by both consumer preferences and disposable 
income levels. In lower income countries, orange juice is often fresh-
squeezed in the household, not purchased. While processors of Florida 
oranges are enthusiastic about the potential for growth in export 
markets, foreign tariff reduction is not a ``silver bullet.'' The 
reduction of foreign orange juice tariffs will not necessarily open the 
gates for U.S. juice exports to liberalizing countries if they have 
historically low demand for commercially processed juice.
    The second unique characteristic of the global orange juice 
industry, which influences our ability to export orange juice, is the 
concentration of orange juice production among only 2 countries: Brazil 
and the United States. Brazil's production is controlled by 5 very 
large processors,\4\ which control roughly 80 percent of Brazil's FCOJ 
production. Given that they also operate and control Brazil's tank ship 
distribution system, these companies indirectly control nearly all of 
Brazil's FCOJ exports, which represent approximately 75 percent of 
world FCOJ exports. The large Brazilian processors benefit from 
advantages brought by past subsidization and dumping, lax environmental 
protection, weak and largely unenforced labor laws, frequent national 
currency devaluation (which reduces the relative cost of production 
inputs and provides false incentives to overproduce), and oligopoly 
price manipulation. The long-term annual average trend in the price of 
Brazilian orange juice exports has been downward during the past decade 
and a half. Such constant downward price pressure in foreign markets 
makes the exporting of U.S. orange juice nearly impossible.
---------------------------------------------------------------------------
    \4\ These dominant Brazilian processors are Cargill Citrus Ltda., 
Citrosuco Paulista S.A., Citrovita Agro Industrial Ltda., LouisDreyfus 
Citrus S.A., and Sucocitrico Cutrale Ltda.
---------------------------------------------------------------------------
    The Brazilian oligopoly dominates the EU orange juice market, 
oftentimes selling at prices that appear to be well below their cost of 
production. The only juice processors in the United States that can 
afford to export to the EU are those receiving U.S. import drawback 
incentives to do so. Typically, these U.S. processors, blenders and 
reprocessors are Brazilian-owned and operated and, therefore, able to 
utilize Brazil's tanker distribution network to transport the juice 
from the United States to the EU. Since the liberalization of EU 
tariffs within a multilateral agreement would benefit the Brazilians as 
well, there is little utility in such liberalization. Any reciprocal 
tariff reduction agreement, even one that includes the EU, will always 
be very limited in value from a U.S. orange juice exporter's 
perspective. In addition, any reciprocal tariff reduction agreement 
that includes Brazil will always be devastating from a U.S. orange 
grower's perspective.

    Question 3. Would tariff reductions in a multilateral or regional 
context create more exporting opportunities for Florida orange juice, 
and create more demand by lowering prices to the consumer?

    Answer. In response to the first part of this question, 
theoretically, the reduction of the EU orange juice tariff is of more 
value than the reduction of Latin American orange juice tariffs, 
because there is far greater demand for commercially processed orange 
juice in the EU than in Latin America. However, as explained above, to 
the extent that foreign tariff reductions apply to Brazilian juice as 
well as Florida juice, they will probably not create significantly more 
exporting opportunities for Florida orange juice. Of utmost importance, 
if the U.S. tariff on Brazilian juice is reduced in the process of 
obtaining any foreign tariff concessions on orange juice, then the 
Florida citrus industry will not survive long enough to reap any of the 
benefits of the foreign tariff concessions.
    In response to the second part of this question, since the mid-
1990s, U.S. wholesale orange juice prices and U.S. import unit values 
of orange juice have not been linked to consumer orange juice prices. 
In fact, they actually appear to be moving in opposite directions. As 
U.S. orange juice tariffs declined 15 percent between 1994 and 2000 
under the Uruguay Round Agreements, the global bulk wholesale juice 
price (represented by the price of the nearby FCOJ futures contract) 
fell by 21% \5\ and the U.S. landed, duty-paid import unit value of 
Brazilian bulk FCOJ fell by 22 percent.\6\ During this same period, the 
price of the finished product to consumers rose by 19% for frozen 
orange juice and by 24% for chilled, reconstituted juice.\7\ The reason 
for this complete disconnect between retail prices and underlying juice 
costs is that a highly concentrated global industry dominated by a 
single country with almost limitless cheap resources will take full 
advantage of any declining constraint on its power, represented by 
tariff cuts, to minimize its competition and maximize its profits at 
the expense of consumers. This is classic monopolistic behavior. Since 
Brazil dominates the entire world orange juice market, we do not expect 
retail consumers of orange juice in the EU, the United States, Japan or 
anywhere else to benefit from tariff reductions. On the contrary, any 
reduction in the U.S. tariff on Brazilian orange juice would eliminate 
the Brazilian oligopoly's last competitor, the Florida citrus industry. 
As Brazilian processors amass greater and greater global market power, 
final consumers worldwide would eventually suffer the consequences of 
unrestrained orange juice prices.
---------------------------------------------------------------------------
    \5\ FCOJ annual average nearby futures settlement prices, New York 
Board of Trade, compiled by FDOC-EMRD.
    \6\ Official trade data from the U.S. Department of Commerce.
    \7\ ACNielsen retail OJ sales in grocery stores with annual sales 
over 2 million dollars.

    Question 4. How does the Florida citrus industry compare to other 
agricultural sectors in the way it is treated under the Farm Bill? Does 
---------------------------------------------------------------------------
the industry receive subsidies?

    Answer. The U.S. industry that grows oranges for processing does 
not receive any WTO-designated ``amber box'' trade-distorting domestic 
subsidies. The most recent WTO notification that the United States made 
on domestic agricultural subsidies showed that, in marketing year 1999 
the United States provided $16.9 billion in production and/or trade-
distorting ``amber box'' subsidies to 29 non-citrus U.S. agricultural 
industries.\8\ According to the Economic Research Service of USDA, 
under the current Farm Bill, non-citrus U.S. agriculture is now 
receiving over $20 billion annually in direct government payments, 
while the citrus industry does not receive any direct government 
payments.\9\ The subsidies that U.S. non-citrus agricultural industries 
receive have ranged above 40 percent of their net farm income for 
several years.\10\ Under the Farm Bill, U.S. citrus qualifies only for 
certain types of ``disaster assistance,'' which is considered a non-
trade-distorting ``green box'' subsidy within the WTO. In the absence 
of trade-distorting subsidies, the tariff is our industry's only means 
of maintaining prices at a level that permits growers' survival. Aside 
from the tariff and enforcement of the unfair trade laws, there is no 
safety net.
---------------------------------------------------------------------------
    \8\ ``Notification concerning domestic support commitments for 
marketing year 1999,'' received from the delegation of the United 
States on December 23, 2002, WTO Committee on Agriculture, G/AG/N/USA/
43.
    \9\ ``Farm Income and Costs, Direct Government Payments,'' ERS, 
USDA (http://www.ers.usda.gov/briefing/farmincome/data/GP--T7.htm).
    \10\ ``Farm Income Forecast,'' ERS, USDA. Source: ``Farm Income 
Forecast,'' ERS, USDA (http://www.ers.usda.gov/Data/FarmIncome/
finfidmu.htm).
---------------------------------------------------------------------------
    FCM does not take issue with U.S. agriculture's receipt of 
subsidies. We know only too well the difficulties involved in competing 
against heavily subsidized EU commodities (e.g., Spanish clementines) 
and unfairly traded Brazilian commodities. However, we believe it is 
unfair to suggest that taxpayer-funded support payments are a more 
acceptable or less distorting means of government support than a non-
taxpayer funded, pro-competitive tariff. FCM believes that the U.S. 
tariff on orange juice is an ``agricultural offset,'' parallel in some 
ways to those that U.S. taxpayers fund directly for other farm 
commodities, but tailored for an industry whose chief market is in the 
United States. The beauty of this ``tariff program'' for orange juice 
is that it does not tap taxpayer dollars. It places a limited burden on 
the unfair or oligopolistic market players, Brazilian processors, which 
is where the burden belongs; and has a net positive impact on the 
federal budget.
    Florida orange growers are not the only U.S. agricultural industry 
pitted against the unfair advantages of Brazil's agricultural exports; 
however, because of their dependence on tariffs as opposed to 
subsidies, they are one of the few industries that the U.S. FTAA 
proposal threatens with demise. U.S. soybean farmers claim that on 
account of Brazil's currency devaluation, they were receiving 40 
percent less for their soybeans in 2002 than in 1997, while Brazilian 
farmers were receiving over 36 percent more.\11\ Brazil is the world's 
second largest soybean producer after the United States, so this is 
very significant. However, soybeans are consumed throughout world and 
new export markets are highly sought after by the U.S. industry. So, it 
makes sense that the U.S. soybean industry contends with the unfair 
advantages of Brazil's devaluation chiefly via domestic subsidies. 
While subsidies are used to help level the playing field for 
agricultural industries whose top markets are abroad, tariffs are used 
to level the field for industries, like orange juice, whose top markets 
are in the United States.
---------------------------------------------------------------------------
    \11\ ``ASA Emphasizes Importance of Maintaining $5.26 Soybean Loan 
Rate to Help Offset Effects of Currency Devaluations in Argentina & 
Brazil,'' American Soybean Association, January 7, 2002 (http://
www.soygrowers.com/newsroom/releases/2002%20releases/r010702.htm).
---------------------------------------------------------------------------
    FCM believes that the Administration's FTAA proposal on agriculture 
is lop-sided to the extent that it puts all U.S. agricultural tariffs 
on the table, while leaving all domestic subsidies off the table. In so 
doing, the Administration's proposal effectively, if unwittingly, 
singles out agricultural industries for demise based exclusively on the 
location of their markets, without consideration of the effect on the 
U.S. economy.

    Question 5. Please explain to the committee the differences in 
labor and environmental aspect of the citrus trade between the United 
States and Brazil? Do these differences affect the prices at which 
Brazil is able to sell juice?

    Answer. There are many differences in labor and environmental 
practices between the United States and Brazil, and these differences 
allow Brazil to sell its juice at rock-bottom prices throughout the 
world. Brazil's orange juice processing oligopoly is a highly 
industrialized, state-of-the-art industry that resides in a developing 
country where it can exploit the underdeveloped economic, political, 
and social conditions that persist there.
    It is a well-documented fact that the Brazilian citrus industry is 
not subject to enforcement of the same child labor laws and other labor 
standards that are enforced in the United States. In its 1998 report to 
Congress,\12\ the U.S. Department of Labor reported,
---------------------------------------------------------------------------
    \12\ By the Sweat & Toil of Children, Volume V: Efforts to 
Eliminate Child Labor, U.S. Department of Labor, 1998 (http://
www.dol.gov/dol/ilab/public/media/reports/iclp/sweat5/).

          The harvesting of oranges also presents its own unique 
        dangers. According to Brazilian welfare groups and unions, 
        close to 150,000 children are employed during the country's 
        six-month orange harvesting season. They pick oranges in severe 
        heat for as long as 12 hours a day. The children's hands are 
        dyed green and their fingertips are sometimes eroded by citric 
        acid from the oranges and toxic pesticides sprayed even while 
        children are in the orange groves. In some cases, damage to 
        their fingertips is so severe that children are later refused 
---------------------------------------------------------------------------
        identification cards due to a lack of fingerprints.[FN]

    The U.S. Department of State reports in its 1999 Country Report on 
Human Rights Practices in Brazil: \13\
---------------------------------------------------------------------------
    \13\ Released by the Bureau of Democracy, Human Rights, and Labor, 
U.S. Department of State, February 25, 2000.

          A report published by the Sergipe state government in 1997 
        stated that 10,000 children and adolescents between the ages of 
        6 and 18 were part of the labor force in the orange-growing 
---------------------------------------------------------------------------
        region, with 54 percent between the ages of 7 and 14.

    Without competition-equalizing tariffs, U.S. orange growers cannot 
and should not be made to compete with an exploitative foreign 
industry.
    Brazil ratified International Labor Organization (ILO) Convention 
No. 138 on the Minimum Age for Employment on June 28, 2001, and ILO 
Convention No. 182 on the Worst Forms of Child Labor on February 2, 
2000. In addition, Brazil's Ministry of Welfare and Social Assistance 
(MPAS) has listed the harvesting of oranges among the ``worst forms of 
child labor'' in Brazil.\14\ However, as of March 2003, legislation 
that would fully implement these Conventions has still not been made 
law in Brazil.
---------------------------------------------------------------------------
    \14\ U.S. Embassy-Brazil, unclassified telegram no. 001439, 
September 18, 2000. Reported by the U.S. Department of Labor at http://
www.dol.gov/ILAB/media/reports/iclp/Advancing1/html/brazil.htm.
---------------------------------------------------------------------------
    There are a few rather weak anti-child labor laws on the books in 
Brazil. For instance, under the Brazilian Federal Constitution, 
employing children under the age of eighteen to work at night or in 
``any dangerous or unhealthy job'', and employing children under 
sixteen, unless they are apprentices, is punishable by a $320 fine.\15\ 
However, the practice of child labor remains rampant in Brazil's citrus 
industry, either because the fines are too low to be a deterrent or the 
laws are simply not being enforced. Even if Brazil eventually 
strengthens its anti-child labor laws, lack of enforcement will render 
the laws powerless.
---------------------------------------------------------------------------
    \15\ ``Child Labor Law Changes in Brazil,'' Global March Against 
Child Labor, Jan. 25, 1999, http://www.globalmarch.org/cl-around-the-
world/child-labor-law-changes-in-brazil.html.
---------------------------------------------------------------------------
    The Western Hemisphere's heads of state agreed at the Third Summit 
of the Americas to ``promote compliance with internationally recognized 
core labor standards.'' \16\ The Inter-American Conference of Ministers 
of Labor (IACML), which was set up to implement the labor-related 
mandates of that Summit, produced the ``Declaration and Plan of Action 
of Ottawa'' during their October 2001 meeting. This Declaration says, 
``We will work to bring all national laws, regulations and policies 
into conformity with this convention [No. 182] and will take immediate 
action to eliminate the worst forms of child labor.'' \17\17
---------------------------------------------------------------------------
    \16\ Statement of The Honorable Robert B. Zoellick, United States 
Trade Representative, Testimony Before the Full Committee of the House 
Committee on Ways and Means, Feb. 26, 2003.
    \17\ ``Declaration and Plan of Action of Ottawa,'' XII Inter-
American Conference of Ministers of Labor, OEA/Ser.L/XII.12.1, COTPAL/
doc.3/01, Oct. 19, 2001.
---------------------------------------------------------------------------
    In addition, the U.S. Department of Labor's International Child 
Labor Program has contributed $112 million, since 1995, towards the 
International Labor Organization's International Program on the 
Elimination of Child Labor.\18\ Rewarding Brazil's exploitative orange 
juice industry with a reduction in U.S. orange juice tariffs would not 
only contradict a decade of effort by the U.S. Department of Labor, it 
would contradict the current Administration's own trade agenda, while 
punishing U.S. orange growers who obey the stringent labor laws of the 
United States.
---------------------------------------------------------------------------
    \18\ Http://www.dol.gov/ILAB/programs/iclp/about--iclp.htm.
---------------------------------------------------------------------------
    The Florida Division of Agriculture and Consumer Services (as 
required by the U.S. Department of Labor) conducted 2,700 Worker 
Protection Standard (WPS) inspections in the State of Florida during 
2000. Approximately half of these inspections were to ensure the 
protection of workers in citrus groves.\19\ The labor standards in 
Florida orange groves are high and heavily regulated by State and 
Federal agencies. Minimum age and wage regulations are rigorously 
enforced. Field workers and harvesters are subject to a schedule of 
routine training to ensure safe operation of mowing, pruning and 
harvesting equipment. They are also trained to ensure safe use and 
mixing of field chemicals such as pesticides and fungicides, etc. They 
are required to wear appropriate protective gear in the groves and to 
observe strict rules for re-entering the groves after chemical 
applications. Grove owners are also required to meet stringent housing 
standards for their field and harvesting workers who require housing, 
such as migrant workers from abroad employed under the H2A program. We 
are not aware of any such regulations being enforced in Sao Paulo, 
Sergipe or other citrus growing regions in Brazil.
---------------------------------------------------------------------------
    \19\ Estimate by economists at Florida Citrus Mutual.
---------------------------------------------------------------------------
    In addition, Florida orange growers are held liable for any 
degradation to the land, water or air that may result from their 
operations. They are required to use field chemicals in compliance with 
the environmental regulations and warnings on their labels. They are 
also responsible for protecting surrounding land and water from 
fertilizers and chemical run-off. Pursuant to the run-off regulations, 
many growers in South Florida must dedicate on average 20 percent of 
their acreage to retention ponds and ditches that prevent run-off and 
allow for the safe treatment of grove water. Brazil's environmental 
standards for citrus groves are considerably more lax, if existent at 
all.
    Florida orange growers are also prevented from using a number of 
generic-brand field chemicals that are readily available in Brazil. In 
the United States, the process of getting generic field chemicals 
registered is much more lengthy and expensive than in Brazil, because 
EPA has more stringent requirements and the chemicals must undergo more 
rigorous testing to ensure their safety than in Brazil. In Brazil, the 
average cost of registering a generic field chemical is about $45,000 
to $100,000. Whereas in the United States, such registration costs are 
in excess of $5,000,000. The end result is that U.S. grove owners are 
forced to use the more expensive brand name chemicals which have 
already been registered with EPA, while Brazilian grove owners are able 
to cut costs substantially by using generic chemicals that have not yet 
been proven safe in the United States.
    Lax, unenforced and nonexistent labor, environmental and health and 
safety laws are, however, not the only reason why Brazil is able to 
sell its orange juice at such low prices. Ronald Muraro and Thomas 
Spreen at The University of Florida recently calculated comparative 
cost of production estimates for processed oranges in Florida and Sao 
Paulo, Brazil. They estimate that in crop year 2000/01 labor costs 
(including wages, salaries and social taxes) were 45 cents/box in 
Florida and only 17 cents/box in Sao Paulo.\20\ A substantial portion 
of this wide discrepancy is due to the many currency devaluations 
Brazil has experienced during the last few decades.
---------------------------------------------------------------------------
    \20\ ``Cost for Processed Oranges: A Comparison of Florida and Sao 
Paulo,'' Ronald P. Muraro and Thomas H. Spreen, IFAS, The University of 
Florida, presented at the Florida Citrus Industry Economics Meeting, 
July 8-9, 2002.
---------------------------------------------------------------------------
    Brazil's orange juice export sales to all markets are denominated 
in U.S. dollars. When the Real is devalued, the cost of labor and other 
domestic production inputs, which are denominated in Real, become 
cheaper relative to the price paid for the orange juice. For instance, 
in marketing year 1996/97, the currency conversion was $1.04 Real = $1 
U.S. As of July 1, 2002, the conversion was $2.84 Real = $1 U.S.\21\ 
Thus, a unit of labor that cost $1 Real or 96 cents U.S. in MY 1996/97, 
would only cost 35 cents U.S. on July 1, 2002. So the cost of grove 
labor as a percentage of the export price of Brazilian orange juice 
shrinks each time the Brazilian Real loses value against the U.S. 
dollar, thus, increasing the profit margin obtained by the Brazilian 
processor. The increase in profits then sends false market signals 
throughout the Brazilian citrus industry causing it to overplant and 
overproduce. The overproduction gives way to lowered international 
orange juice prices, which reduce the value of Florida's processing 
oranges and diminish growers' profits. However, further devaluation 
prevents the Brazilian industry from feeling the squeeze of lower 
international prices, and the cycle continues. This is just one more 
way the Brazilian orange juice oligopoly is able to benefit from 
residing in a country with an underdeveloped and inflationary economy.
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    \21\ International Financial Statistics, International Monetary 
Fund.
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    In an ideal free market world economy where basic and equivalent 
labor, environmental, and health/safety laws exist and are enforced, 
where world production and prices are not controlled by a single 
oligopolistic industry, and where currency devaluations do not tip the 
scales dramatically in favor of the foreign exporters, the law of 
natural advantages might outweigh arguments for tariff protection. But 
the Florida agriculture sector in general, and citrus in particular, 
cannot defer to that logic, because Brazil's advantages are not 
``natural'' and the playing field is grossly skewed. The tariff is the 
only offset on which this unsubsidized U.S. industry can rely to 
counter these ``unnatural'' advantages.

    Question 6. As you know, Florida has had a country-of-origin 
labeling program in place since 1979 in your opinion has the citrus 
industry benefited from the program? Why do you and Florida Citrus 
Mutual support implementing a nation-wide country-of-origin labeling 
system?

    Answer. We believe the citrus industry does benefit from the origin 
identification of fresh fruit at the point of purchase. Florida has a 
reputation for quality which is enhanced when the consumer is able to 
identify the product's origin. Of course, any such origin 
identification requirement should not create unnecessary burdens to 
handlers and retailers, which might increase the cost to consumers. 
Therefore, we support a reasonable national origin labeling requirement 
which does not press significant administrative burdens and handling 
costs on distributors and retailers. Processed citrus juice is likewise 
identified as to country of origin under U.S. Customs regulations. 
Foreign origin juice must be identified on the consumer container, and 
blended juice must identify the origins of all the ingredients on the 
label. This not only permits consumers to educate themselves as to the 
source of their food purchases, but also enhances the commercial value 
of ``Florida'' juice versus juice originating elsewhere.

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