[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
__________
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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
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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
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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\
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\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.
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\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
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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.
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\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.
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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.
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\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
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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.
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\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).
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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.
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\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).
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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,
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\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
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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\
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\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
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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.
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\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.
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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.
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\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.
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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
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\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.
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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.
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\18\ Http://www.dol.gov/ILAB/programs/iclp/about--iclp.htm.
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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.
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\19\ Estimate by economists at Florida Citrus Mutual.
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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.
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\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.
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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.
---------------------------------------------------------------------------
\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.