[Senate Hearing 109-454]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-454
 
  REVIEW THE DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE AGREEMENT: 
         POTENTIAL IMPACTS ON THE AGRICULTURE AND FOOD SECTORS

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                               __________

                              JUNE 7, 2005

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov



                                 ______

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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                   SAXBY CHAMBLISS, Georgia, Chairman

RICHARD G. LUGAR, Indiana            TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
JAMES M. TALENT, Missouri            BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming                DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania          E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota              MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho              KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa

            Martha Scott Poindexter, Majority Staff Director

                David L. Johnson, Majority Chief Counsel

              Steven Meeks, Majority Legislative Director

                      Robert E. Sturm, Chief Clerk

                Mark Halverson, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

Review the Dominican Republic-Central America Free Trade 
  Agreement: 
  Potential Impacts on the Agriculture and Food Sectors..........    01

                              ----------                              

                         Tuesday, June 7, 2005
                    STATEMENTS PRESENTED BY SENATORS

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............    01
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, 
  Committee on Agriculture, Nutrition, and Forestry..............    09
Baucus, Hon. Max, a U.S. Senator from Montana....................    05
Benjamin, Hon. Nelson E., a U.S. Senator from Nebraska...........    08
Conrad, Hon. Kent, a U.S. Senator from North Dakota..............    02
Dayton, Hon. Mark, a U.S. Senator from Minnesota.................    07
Johanns, Hon. Michael, Secretary, U.S. Department of Agriculture, 
  Washington, DC; Accompanied by J.B. Penn, Under Secretary for 
  Farm and Foreign Agricultural Services, U.S. Department of 
  Agriculture, Washington, DC....................................    09
Roberts, Hon. Pat, a U.S. Senator from Kansas....................    07
Salazar, Hon. Ken, a U.S. Senator from Colorado..................    08
Thomas, Hon. Craig, a U.S. Senator from Wyoming..................    04
                              ----------                              

                               WITNESSES

Buis, Tom, Vice President, Government Relations, National Farmers 
  Union, Washinton, DC...........................................    43
Dooley, Cal, President and Chief Executive Officer, Food Products 
  Association, Washington, DC....................................    38
Johnson, Allen F., Chief Agricultural Negotiator, Office of the 
  United States Trade Representative, Washington, DC.............    12
McLendon, Robert E., National Cotton Council of America, Leary, 
  Georgia........................................................    36
Roney, Jack, Director of Economics and Policy Analysis American 
  Sugar Alliance, Arlington, Virginia............................    44
Stallman, Robert, President, American Farm Bureau Federation, 
  Washington, DC.................................................    34
Tantillo, Augustine, Executive Director, American Manufacturing 
  Trade 
  Action Coalition, Washington, DC...............................    46
                              ----------                              

                                APPENDIX

Prepared Statements:
    Harkin, Hon. Tom.............................................    52
    Johanns, Hon. Mike...........................................    56
    Buis, Tom....................................................   132
    Dooley, Cal..................................................   129
    Johnson, Allen F.............................................    62
    Mclendon, Robert E...........................................   122
    Roney, Jack..................................................   135
    Salazar, Ken.................................................    50
    Stallman, Robert.............................................    71
    Tantillo, Augustine..........................................   153
Document(s) Submitted for the Record:
    Cochran, Hon. Thad...........................................   160
    Dorgan, Hon. Byron...........................................   162
    Grassley, Hon. Chuck.........................................   164
    Landrieu, Hon. Mary..........................................   169
    Stabenow, Hon. Debbie........................................   174
    Vitter, Hon. David...........................................   176
    Letters of support for CAFTA-DR.............................179-271
    Letters of opposition for CAFTA-DR...........................   272
Questions and Answers:
    Baucus, Hon. Max.............................................   274
    Salazar, Hon. Ken............................................   284
    Stabenow, Hon. Deborah.......................................   276



  REVIEW THE DOMINICAN REPUBLIC-CENTRAL AMERICA FREE TRADE AGREEMENT: 
         POTENTIAL IMPACTS ON THE AGRICULTURE AND FOOD SECTORS

                              ----------                              


                         TUESDAY, JUNE 7, 2005,

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:38 a.m., in 
room 106, Dirksen Senate Office Building, Hon. Saxby Chambliss, 
chairman of the committee, presiding.
    Present or submitting a statement: Senators Chambliss, 
Roberts, Talent, Thomas, Coleman, Harkin, Conrad, Baucus, 
Stabenow, Nelson, Dayton, and Salazar.

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR FROM GEORGIA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    The Chairman. Good morning. I welcome you all here this 
morning to this hearing to review the Dominican Republic-
Central America Free Trade Agreement, or DR-CAFTA. I appreciate 
our witnesses and members of the public being here as well as 
those who are listening through our website this morning.
    On December 17, 2003, the United States concluded a Free 
Trade Agreement with Central American countries, Costa Rica, El 
Salvador, Guatemala, Honduras, and Nicaragua, and the Dominican 
Republic later joined in March 2004.
    The DR-CAFTA follows agreements such as the Caribbean Basin 
Initiative and the North American Free Trade Agreement by 
lowering tariffs and reducing barriers to trade in the Western 
Hemisphere. Without a doubt, one of the more important and 
effective ways to create jobs in the United States is to 
increase our trading opportunities and open foreign markets. 
That way, we can sell more American products and increase our 
business opportunities overseas.
    The tangible rewards of increased sales makes the 
importance of supporting more open trade clear and convincing, 
and I don't think there is any question but what the future of 
agriculture, which obviously we are concerned with today, 
depends on our ability to market what we know to be the finest 
quality of agricultural products grown by anybody in the world. 
So agreements like this certainly are critically important for 
the future of American agriculture.
    This hearing seeks to assess the impact of the DR-CAFTA on 
the agriculture and food sectors, recognizing both the benefits 
and the costs. As chairman of the Senate Agriculture Committee, 
I have heard from many agriculture and food groups, and I 
acknowledge the benefits of this Free Trade Agreement. In fact, 
recently, a coalition of 78 agriculture and food groups sent a 
letter to the Senate supporting the DR-CAFTA. The list is 
impressive and covers all commodities and sectors of 
agriculture. Without objection, I will insert this letter into 
the record.
    [The letter can be found in the Appendix on page 179.]
    The Chairman. However, this Free Trade Agreement will be 
perhaps one of the most difficult votes in the 109th Congress, 
and as with all agreements, it will have repercussions that we 
cannot fully predict. As elected officials, we need to be 
mindful of how the policies and legislation we pass on a 
national level impact our constituents intimately. We are 
holding this hearing for that specific purpose.
    We also need to better understand the impacts to domestic 
industries resulting from new competition and changes in law. 
One of my major concerns regarding the agreement rests on the 
fact that the agriculture provisions, specifically those 
concerning sugar in this instance, can and likely will 
seriously impair the operations of the sugar program as passed 
in the 2002 farm bill.
    When Congress granted trade promotion authority to 
President Bush in 2001, we understood that each agreement would 
have to be judged on the merits and that some might not pass 
the Congress. Certainly, the effects of a bilateral or regional 
agreement cannot yield the benefits that a multilateral 
agreement, as in the World Trade Organization, can afford and, 
as such, must be judged accordingly.
    The North American Free Trade Agreement illustrates that 
support for more open trade on a national level is extremely 
sensitive to the collection of individual experiences of 
workers in our community.
    I look forward to the testimony of our witnesses today as 
we continue to address the concerns that many of us have 
relative to this trade agreement.
    I am advised that my friend and colleague Senator Harkin 
will be here at approximately 10. If he wishes to make any 
opening comments, we will certainly afford him that opportunity 
at that time.
    I would now turn to my other colleagues who are here and 
present for any comments they might wish to make as an opening 
statement. Senator Conrad?

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA

    Senator Conrad. Thank you, Mr. Chairman, and thank you for 
holding this hearing. It is extremely timely to have this 
hearing given that the Finance Committee may have a markup as 
early as next week, so thank you very much for holding this 
hearing. I think it is very important.
    Let me just go to a couple of charts. Let me first of all 
say I voted for a fair number of these trade agreements and I 
did so on the best advice of so many that came before us and 
told us this was a winning strategy for the country. I voted 
for the WTO. I voted for the China agreement. I opposed NAFTA 
and the so-called Canadian Free Trade Agreement because I could 
see that they were going to do significant harm to my State, 
and indeed, they have.
    Mr. President, as I look at the pattern here of our trade 
deficit, this is where we passed NAFTA. We were told that was 
going to improve things for us. But things got worse. We 
approved WTO here. We were told that was going to improve 
things, but things got much worse. We approved China here. We 
were told that was going to improve things, but they got 
steadily worse.
    It strikes me that we have got to begin to ask the 
question, how many of these successes can we afford, because 
the trade deficit has reached over $600 billion a year. We are 
on track for a $700 billion deficit this year.
    And then I turn to the agreement before us, and we were 
told repeatedly that 80 percent of the goods going into these 
countries that we currently import from Central America and the 
Dominican Republic already enter the U.S. tariff-free, so that 
this is an enormous opportunity for us. Eighty percent of their 
goods come into our country tariff-free. Our goods face high 
tariff barriers. And so there is a significant opportunity 
here.
    One would think that would mean our trade deficit would be 
reduced as a result of this opportunity, but you know what? Our 
own International Trade Commission has reviewed this proposed 
treaty and they say it doesn't make things better, it makes 
things worse. Here we have what is supposed to be an enormous 
opportunity and our own International Trade Commission says it 
makes our trade deficit with the region worse by $100 million a 
year. It increases our trade deficit, not reduces it.
    So I must say, Mr. Chairman and colleagues, I don't get it. 
How can this be classified as a success when it once again 
makes the trade deficit with the region worse?
    And then we are told, well, this is going to help the 
economy substantially, and again, our own International Trade 
Commission, a nonpartisan government scorekeeper in trade 
agreements, has concluded that the impact on the U.S. Gross 
Domestic Product is too small to show up. On Table 4-3 from the 
International Trade Commission, here is what they say the 
effect is on the Gross Domestic Product of the United States. 
It is zero-point-zero-zero. That is zero.
    You know, I really don't know what has happened to us here 
in terms of the use of language. But by any objective analysis, 
this doesn't do anything for the economy. It makes our trade 
deficit with the region worse. And it threatens a very 
important industry in this country. Fundamentally, it threatens 
the sugar industry in the United States, an industry that 
employs 146,000 Americans.
    We have heard, well, it is just a teaspoon of additional 
sugar. No, it is not a teaspoon. This agreement permits 100,000 
tons of additional sugar to come into this country. But that 
misses the larger part of the story, because if you apply the 
same precedent to the other agreements that are being 
negotiated, what you find out, if you apply this same standard 
to South Africa, to Thailand, and to the Andean countries, it 
is not 100,000 tons of additional sugar, it is over 500,000 
tons.
    I held a hearing on this, Mr. Chairman, last year in North 
Dakota. We had economists of all stripes before us, from the 
State university, from the industry, objective sources. All of 
them said that level of additional imports would crush the 
price, would put the price below the redemption price and 
unwind the sugar program in this country, fundamentally 
threatening the sugar industry, which in my State is a $2 
billion industry.
    So, Mr. Chairman, as I look at this proposal before us, 
what I see is an agreement that provides virtually no benefit 
to the larger economy. Our own International Trade Commission 
says it adds zero percent to the Gross Domestic Product. It 
threatens a major industry in our country, the sugar industry. 
And, most remarkably, it makes the trade deficit with the CAFTA 
counties worse according to our own International Trade 
Commission when our trade deficit is already at record levels.
    Again, I don't know if we can afford many more of these 
successes. I said in the Finance Committee hearing, it reminded 
me a little of the German general who said in World War II he 
knew they were in trouble when they kept reporting the 
victories closer to Berlin. This is another one of those 
victories that you really have to wonder, is this going to make 
things better or is it going to make things worse?
    Mr. Chairman, I must say, I regrettably have concluded that 
this agreement, as negotiated, makes things worse, and I will 
be left with no option but to oppose it. I thank the chair.
    The Chairman. Thank you. Senator Thomas?

  STATEMENT OF HON. CRAIG THOMAS, A U.S. SENATOR FROM WYOMING

    Senator Thomas. Thank you, Mr. Chairman, and thank you for 
holding this hearing. I am interested in trade, of course, 
because I am chairman of the Subcommittee on Finance on Trade.
    I think there are some things positive here. I think it 
does strengthen our position on WTO negotiations. It enhances 
U.S. and regional security, and those are things I have heard 
from a number of people. It strengthens democracies in some of 
the places and creates regional trading. There are benefits, of 
course, in most trade agreements. There are also problems in 
most trade agreements, and I think there are some problems 
here, as well. I guess that is not unusual.
    Really, I guess I just need to say, and I will be very 
short, I am a little surprised at the broad support. I met with 
the six presidents from the countries there and they talked 
about security, they talked about their economy, they talked 
about strengthening their governments and all those things. I 
met with the President of the United States and heard the same 
thing again, and so on. So I am a little surprised that in the 
negotiations, if it is that important, if it is that broad, if 
it has that much impact, why we took a little relatively small 
thing like sugar that we have dealt with in the past and put it 
in there and let it become one of the problems in terms of 
passage of something that is quite broader.
    So I met with our sugar folks. I met with them last week. A 
number of them are going to be here this week. Hopefully, we 
can find some ways, either in this agreement or in the future 
for the sugar industry, to do something. But at any rate, we 
need to see if we can't deal with the sugar problem as we go 
forward.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Do any of my other colleagues have an opening statement? 
Senator Baucus?

   STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA

    Senator Baucus. Thank you very much, Mr. Chairman. I will 
be brief here.
    This proposed agreement, actual agreement signed, not yet 
ratified by the Congress, if it is ratified, gives me a lot of 
concern. I strongly believe that trade, fair trade, free trade, 
just more trade, that is fair to all countries concerned and 
peoples concerned makes a lot of good sense. It helps people 
around the world. There is no doubt about that. And I have 
generally supported all trade agreements that have come before 
this body. I pushed hard on China PNTR, for example, and also 
worked very hard to prevent unconditional, or conditional MFN 
extensions for China. I supported NAFTA. I supported the 
Canadian Free Trade Agreement.
    I support trade agreements. I might say, at somewhat 
political expense. For example, I am the only person in the 
State of Montana, only public figure who has. Everybody else 
speaks loudly against them, saying this is bad for Montana, et 
cetera. But I support them, generally.
    I have trouble with this one for several reasons. One, it 
does not help an industry that is important to my State, sugar. 
We all know the sugar problems. And in addition to the points 
that the Senator from North Dakota made, which are very real, 
that is this is essentially the first of many potential 
revisions on sugar, very detrimental to the American sugar 
industry, not just the increased quota from DR-CAFTA countries, 
but also it sets a precedent for Colombia, South Africa, 
Thailand, and so forth. You add that up and that tonnage is 
very significant.
    Add to that Mexico. Under the NAFTA agreement, it is my 
understanding that Mexico will be entitled to export to the 
United States, if it is a net exporter of sugar, you know, 
400,000 or 500,000 tons. Mexico is already a net exporter of 
sugar. That was not contemplated when NAFTA was written. Nobody 
thought that would happen, but it has happened.
    So we add it all together and it is not a teaspoon, it is a 
flood, frankly. And I see no indications from the 
administration to address any of that. The sugar industry, my 
beet growers are just being stiff-armed. They won't pay 
attention to them. That is just the deal. The administration 
seems to want to just shove this agreement through Congress, 
maybe by a one or two-vote margin in the House, without 
addressing the real legitimate concerns of an industry that 
doesn't have much else, other places to go.
    Our beet growers, for example, what else are they going to 
do? You know, these are Montanans. They grow sugar beets. They 
also have an interest in the plant there. If the sugar industry 
goes downhill, there is nothing left for them. There is a lot 
of opportunities for a lot of other people, other businesses 
and so forth, but not for these folks, and I represent them. 
They are very concerned. So it is the cumulative effect which 
is not being addressed by the administration that is causing a 
lot of problems.
    Add to that sort of the lingering concern. We talk about 
trade agreements and the general benefit it provides to people. 
There is a lot of lip service, but only lip service, to 
readjustment assistance to help when the people are displaced, 
not because of something they caused themselves, but because of 
an agreement or because of international trade dynamics.
    There are just no--there is no beef. Where is the beef? 
There is no beef in the administration's efforts to do 
something to help those folks whose jobs are lost on account of 
trade. Let us take the sugar industry. There is nothing. We 
have heard nothing from the administration, no concern. It is 
like there is just a callous disregard, it seems.
    I know within the administration there are some who say, 
well, the heck with that. I negotiated this and so this is what 
is going to be. Others in the administration said, no, no, let 
us do something about this. But so far, what we hear is, forget 
it. This is the deal. Let us jam it through, a one-vote margin. 
We will twist enough arms. The White House has enough power 
just to get it through.
    I think that is a bad approach because it tends to cause 
people in the country to wonder what is in it for them. And I 
don't want to stretch this analogy too far, but look what has 
happened in Europe in the last couple of weeks. The people of 
France, the people of the Netherlands, the people in these 
countries have said, hey, our leadership is too elite. They are 
too patrician. They are not caring enough about us, the people.
    And that is a little of what is happening in this country 
with trade agreements. People are wondering, what is in it for 
us as people? We are sure the companies get a good deal out of 
it. The management does. Stockholders might. But what is in it 
for us? It is beginning a significant resistance in this 
country to trade agreements because of the failure to just 
remedy adjustment problems and to show that the administration 
really cares.
    I see my time is up, Mr. Chairman, but let me just say, I 
have real problems with this agreement. The ITC studies show 
that about 3,000 jobs are going to be lost just with this 
alone, and that is not peanuts, if you will forgive me, Mr. 
Chairman. That is more than a spoonful of sugar. It is just not 
enough addressed here.
    You can go back and renegotiate. I hear all this, oh, we 
can't renegotiate agreements. Yes, you can. Oh, the parliaments 
there have already passed it. So what? This administration, if 
it wants to, can go back and renegotiate, privately give a 
heads-up to the countries down there and say, hey, we have got 
to rearrange things a little bit. They will deal. They will 
figure out a way to deal. There is a lot of creativity around 
here. But no, there is no indication to even begin to open that 
door. One administration official said, well, we asked them, 
could you do that, and they said no. Well, of course they say 
no if you ask them. If you tell them, hey, we have to do this, 
they will find a way.
    And so I have significant reservations about the way this 
is being done, Mr. Chairman. Thank you.
    The Chairman. Senator Roberts?

   STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM KANSAS

    Senator Roberts. Thank you, Mr. Chairman. I apologize for 
being late, and I will be brief. I know that comes as a shock 
to everybody here.
    I am going to save my tirade or my ranting not for the 
Secretary but a question to the Secretary in regards to what 
happens if CAFTA fails and what that means down the road for us 
in other trade negotiations and also what it means in regards 
to stability in those countries we are talking about, more 
especially from the standpoint of national security with 
immigration and drugs and trade and energy and so on and so 
forth.
    I think we are suffering, Mr. Chairman, from something 
called trade fatigue. I think many times we oversell trade 
agreements. I know we do that. I think many times we over-
criticize them. I know we do that. And so now when people like 
myself or the Secretary or anybody here who is privileged to 
serve your farmers and ranchers go out and make a speech, it 
used to be the second thing they used to talk about was exports 
and trade. We don't do that anymore.
    I don't know whether--I don't know what to call it. I don't 
think it is isolationism. I don't think it is protectionism. I 
think everybody is looking out for their own commodity 
interest, and I understand that, but there is a larger issue 
here in regards to not only national security and stability in 
that region. I don't want to go back to the Ortega days. And so 
I think we have to be very careful as we go forward, and I am 
worried about this. I think that there has been an attitude 
change in farm country, even in Montana.
    I am worried about this idea that, stop the world and let 
me off. Let me grow what I can grow and we will sell that, 
except that in Kansas, we have to sell at least a third of our 
product somewhere. The same thing with Nebraska. So I am 
concerned about that.
    So I am going to end with that and I am going to have a 
question for our distinguished Secretary, what he thinks is 
going to happen if CAFTA loses, so that is the softball coming 
at you when it comes to my turn.
    The Chairman. Do any of my other colleagues wish to make 
any opening statement, and if you do, please make it brief.

  STATEMENT OF HON. MARK DAYTON, A U.S. SENATOR FROM MINNESOTA

    Senator Dayton. I will, Mr. Chairman. I just want to thank 
you for this hearing. It is very timely. I also welcome the 
Secretary and his colleagues to our committee here. I will save 
my statement until my questions. Thank you.
    The Chairman. Senator Nelson?

   STATEMENT OF HON. BENJAMIN E. NELSON, A U.S. SENATOR FROM 
                            NEBRASKA

    Senator Nelson. Thank you, Mr. Chairman. I, too, want to 
welcome the Secretary and his staff for being here. I am 
looking forward to this hearing. I obviously am concerned, as 
we all are, about how we handle the diplomacy in the world and 
how we interact with our friends to the South, but it also 
impinges on agriculture and what the future of our sugar 
industry is. I am very anxious to get responses to the 
questions that are up and coming.
    And though I rarely align myself with the comments from my 
Senator from the South, Senator Roberts, this time, I am very 
happy to do so and I appreciate his concise statement.
    Thank you, Mr. Chairman.
    The Chairman. Senator Salazar?

  STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM COLORADO

    Senator Salazar. Chairman Chambliss, first, thank you for 
holding this hearing. Second, I have not yet made up my 
decision with respect to DR-CAFTA. I will study it closely over 
the weeks and months ahead. I think it is important for us to 
put the finger on what it is that we are trying to accomplish 
with DR-CAFTA. Is it really an economic trade agreement or are 
there other issues related to national security and what is 
happening in Central America that are really the drivers to 
this agreement?
    As we move forward, other concerns that have already been 
expressed by my colleagues relative to what happens to sugar 
and our agricultural economy is going to be real important to 
us, as well as the question that I think Senator Baucus raised, 
whether or not the specific question related to the sugar 
industry is something that could be brought back in the form of 
a renegotiated CAFTA, or is the agreement that we are dealing 
with the agreement that we are going to take to some kind of up 
or down decision within this Congress.
    I very much look forward to learning a lot more about this, 
and Secretary Johanns and distinguished members of the panel, 
thank you for being here today.
    [The prepared statement of Senator Salazar can be found in 
the Appendix on page 50]
    The Chairman. Thank you.
    Gentlemen, thank you for your patience out there. Our first 
panel today will be comprised of the Honorable Michael Johanns, 
the Secretary of the U.S. Department of Agriculture. He is 
accompanied by Dr. J.B. Penn, who is Under Secretary for Farm 
and Foreign Agricultural Services, a longtime friend of this 
committee, as well as the Honorable Allen Johnson, the Chief 
Agriculture Negotiator for the U.S. Trade Representative 
Office.
    Secretary Johanns, I just want to tell you, you have been 
in your position now for almost 6 months and I want to 
compliment you for the job you are doing. You have been 
extremely accessible to not just the chairman of this 
committee, but I know to any number of other members of this 
committee as well as to other members of the Senate as a whole. 
You have been very responsive every single time we have called 
your office. So I want to commend you on the job you are doing. 
You have some difficult issues that you are facing, not just 
here today but otherwise, and you have been very forthright in 
addressing those issues and we look forward to continuing to 
work with you in all of those respects.
    I know today you are going to have to leave at 10:30. We 
understand that, and that Dr. Penn will respond to any 
questions that might be asked at that time, once you have to 
exit.
    We have been joined by Senator Harkin. Senator Harkin, I 
was going to turn to the panel for any opening statements, but 
if you wish to make any opening statement, we would certainly 
be happy to hear from you.

     STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA

    Senator Harkin. Mr. Chairman, thank you very much. I 
apologize for being a little late and I will just have my 
statement be made a part of the record. I would rather listen 
to the panel. Thank you, Mr. Chairman.
    [The prepared statement of Senator Harkin can be found in 
the Appendix on page 52]
    The Chairman. Secretary Johanns, we are pleased to have you 
here and look forward to your comments.

 STATEMENT OF HON. MICHAEL JOHANNS, SECRETARY, U.S. DEPARTMENT 
OF AGRICULTURE, WASHINGTON, DC; ACCOMPANIED BY J.B. PENN, UNDER 
  SECRETARY FOR FARM AND FOREIGN AGRICULTURAL SERVICES, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Secretary Johanns. Thank you. Mr. Chairman, members of the 
committee, first and foremost, thank you for those kind words. 
It is my intent to do everything I can to be accessible to this 
committee and to the members of the Senate and the House. If 
you ever see any trail-off in that promise, let me know, 
because we definitely want to work with the committee, and it 
has been a pleasure working with you, Mr. Chairman.
    I do appreciate the opportunity to offer a few words on the 
Central America-Dominican Republic Free Trade Agreement. I have 
submitted a full text of my comments, so I am going to move 
through these comments fairly quickly in the hopes that I can 
at least take a couple questions before I do have to leave.
    To begin our discussion of CAFTA-DR and its importance, I 
hope I can take a moment here to provide some context relative 
to the farm economy, what we are seeing and the importance of 
trade to that economy.
    The U.S. farm economy is strong. Our export sales 
contribute to that. Farm income was the highest ever in 2004, 
actually by several billion dollars. We forecast another record 
for 2005. Income continues to run well ahead of the national 
average and it covers many sectors of the agriculture economy--
the livestock sector, dairy, the crop sector is faring well at 
the same time as livestock, which is unusual in agriculture, as 
you know. There are widespread positive aspects of the economy, 
and we also recognize that there is adversity in some areas and 
in some localized parts of our country.
    Agriculture's balance sheet, I might also mention, is the 
strongest ever, supported by firm land prices. That dates back 
over an extended period of time, actually dating back to the 
late 1980's, and it doesn't show any sign of slowing.
    I cannot emphasize enough that the future strength of 
agriculture does hinge on our success in the international 
marketplace. We set the standard for the world. We are the 
world's largest exporter when it comes to agricultural 
products. We already derive 27 percent of our gross receipts 
from our foreign customers. Every $1 billion of export sales 
creates $1.54 billion in supporting economic activity, and it 
supports nearly 16,000 jobs.
    Now, in terms of the numbers on export sales, in 2004, they 
reached a record of $62.3 billion, despite, I might add, having 
some key markets unjustifiably closed to beef and to poultry 
products. This growth reflects both higher prices and expansion 
of high value added products.
    Our latest forecast for 2005 could well reach the second-
highest level on record, $60.5 billion, and I might add, that 
is still in an atmosphere where we are working to open up some 
key markets, especially in the beef industry.
    There are a lot of discussions about various aspects of 
trade that always pop up when you have a trade agreement. Let 
me offer some thoughts relative to past trade agreements.
    During this fiscal year, 2005, Mexico will overtake Japan 
and become our No. 2 export market. Canada remains our top 
export market. That means some 30 percent of our total exports 
will be from our partners in the North American Free Trade 
Agreement. In fact, trade with our NAFTA partners has doubled 
in 10 years, during the existence of that agreement. We do hear 
criticism, but quite honestly, when it comes to exports, we 
have really set a standard in terms of the amount we are 
exporting into these two partner countries.
    I might also mention that we have our work cut out for us. 
Our ability to produce is growing faster than consumption here 
at home. We need more markets like our NAFTA partners. Remember 
the statistic, 95 percent of all consumers don't live here in 
the United States then live outside of our country. Those are 
our customers today and in the future.
    We work on trade in a number of ways, multilaterally -that 
would be the WTO; regionally CAFTA-DR is an example; and 
bilaterally Australia, Chile, Singapore, those agreements would 
be examples.
    We are engaged in an effort to liberalize trade in many 
areas so we don't put all of our eggs in one basket.
    I do believe that we stand at a crucial crossroads. I think 
Chairman Roberts' comments are accurate. I am talking, of 
course, about the ratification of this agreement. The passage 
of CAFTA-DR is essential. The economic stakes are very high. 
This is a good agreement for U.S. agriculture. The facts 
support that.
    The agreement gives us access to 44 million additional 
customers. I am pleased to report that we are seeing growing 
economies and stable governments; a vast change from what we 
have seen in the past. Without this agreement, our competitive 
position in the markets will diminish. We have already seen our 
share of these countries' imports fall in recent years. In 
1994, we had 52 percent share of their imports. Today, that has 
fallen to 42 percent. Make no mistake, our competitors are 
there. They are very, very competitive. Canada, Mexico, South 
America are all working to gain access. We can regain market 
share with CAFTA-DR, I am confident of that, and again, I think 
the reasons are obvious.
    Look at the history of our relationship with this part of 
the world, and it extends over nearly two decades. Because of 
votes that were taken previously, and in some cases 
overwhelming majorities, bipartisan support for this approach, 
99 percent of the goods from these countries from an 
agricultural standpoint enter our markets duty-free. It was our 
attempt to boost the economy of this part of the world, and 
incidentally, it worked. What you did, or your predecessors 
did, worked.
    But now we need to work on what we can do to level the 
playing field, because our duties are very high when we go to 
sell into those markets.
    Now, if I might just touch on the issue that has been 
mentioned a number of times and that always comes up, the 
impact on sugar. As you know, I come from a State where we had 
sugar beets. We had sugar processing in Scott's Bluff, 
Nebraska. Needless to say, it was something I was going to take 
a close look at and I did. I have repeatedly emphasized, after 
significant study of what we have here, that I do not see an 
impact from CAFTA-DR on the U.S. sugar industry. Quite 
honestly, it is just not enough sugar. It is just simply not 
enough sugar.
    The agreement gives some added access to our market, but 
the additional sugar is little more than 1 day of U.S. 
production. The quantity involved is very small, very small. 
The over-quota duty wasn't changed. It remains prohibitive at 
well over 100 percent. It will not be reduced as a part of this 
agreement, just as the sugar industry requested.
    The sugar program with its guaranteed benefits to American 
producers is really not changed in any way. The farm bill 
passed in 2002 remains the same. We will administer the program 
under that farm bill the same when CAFTA is passed. So the 
overall impact on the sugar industry, we really see as not 
impacting that farm bill.
    I will just wrap up my comments by saying that it is not 
accidental that we have had such broad support from the 
agricultural industry. This is a good agreement for 
agriculture. At my confirmation hearing, I was asked by one of 
the members of this committee, Senator Nelson from my home 
State, where will you be on trade, and I said my goal is to put 
trade front and center.
    Well, today I stand before you, or sit before you with the 
ability to tell you that the current situation is not balanced. 
Ninety-nine percent of the products do come here duty-free. We 
pay very high duties. With the passage of CAFTA, those duties 
come down, in many cases immediately, and in all cases over 
time. That is exactly what I believe the terminology ``level 
the playing field'' means.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you.
    [The prepared statement of Secretary Johanns can be found 
in the Appendix on page 56.]
    The Chairman. Ambassador Johnson?

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

    Mr. Johnson. Thank you, Mr. Chairman, Senator Harkin, 
members of the committee, for this opportunity to discuss the 
Central American and Dominican Republic Free Trade Agreement. 
You have seen my written testimony, which I understand will be 
entered into the record. You have heard Secretary Johanns. You 
will hear from the next panel. You have seen the letter from 
some 80 agricultural groups supporting this agreement, all of 
which points to, overwhelmingly, the agricultural benefits of 
this agreement justify its approval.
    As I thought about my testimony today, I actually thought I 
would focus on something that I have already heard Senator 
Roberts raise, which is what is the role of this agreement in 
our broader agricultural trade agenda?
    This weekend, I had the chance in a few moments to read a 
book called Decisive Moments in History. One of the stories in 
that book was about a guy by the name of Cyrus Field who took 
it upon himself to lay a cable between the United States and 
Europe, some 375,000 miles of single-strand wire that they wove 
into a cable, about the amount you would need to connect the 
earth to the moon.
    They tried on several occasions. The first time, the cable 
broke at 350 miles. The second time, they were hit by a 
hurricane, so they had to return to port. The third time, after 
they basically lost half their investment, they went back yet 
again, risked everything, and actually succeeded in laying the 
cable. And as the American ship approached America, the English 
ship approached England, they radioed to each other through the 
cable that they could see both coasts and a celebration ensued 
and Mr. Field was named a national hero. The cable fell silent.
    Then 5 years passed as the Civil War raged. The project was 
abandoned, and 6 years later, Mr. Field tried again. Again, the 
cable broke, and then finally, in 1866, they succeeded to 
forever connect instantaneously America, the old and the new 
world.
    Now, what we do here is known within seconds around the 
world, and speculation, like seeds in a burst of wind, is known 
instantaneously and is beyond our control. In the next few 
weeks, you will be in the position here to decide what message 
you want to send through the cables of today. What message do 
you want to send to the capitals of San Salvador, Guatemala 
City, Tegucigalpa, Managua, San Jose, and Santo Domingo, where 
just a few years ago they traded blood and bullets across their 
borders instead of goods and services, where they are on the 
front lines of narco-terrorism, narco-trafficking, corruption, 
international organized crime, immigration, and economic and 
political freedom?
    The pro-American political leaders who dared to listen to 
our encouragement to follow their American dream are going to 
be waiting anxiously to hear if they were wrong in opening 
their markets in agriculture and paying a huge political price 
for that in tying their futures to ours.
    In addition, the capitals of Central America's neighbors to 
the South, Bogota, Quito, and Lima, who we are currently 
negotiating with and are fighting against standing armies of 
narco-terrorists as well as the anti-American sentiments being 
promulgated by Venezuela's president, they will be listening to 
hear if the message for these Central American countries who 
took some courageous political risks at home, that those 
decisions were well founded in putting their faith in the U.S. 
as partners.
    In the capitals of Brasilia, Buenos Aires, and Montevideo, 
they will be listening to hear if the message is that we have 
learned the lessons of the past by passing and reaching out 
with this agreement and not turning our back on the hemisphere 
yet again.
    And in the capitals of Havana and Caracas, they will be 
listening to see if they will have new material and a stronger 
voice to justify their anti-American sentiments around the 
hemisphere, or are we going to hush them by reaching out with 
our actions and passing this agreement.
    Unfortunately, due to Mr. Field's cable and its 
technological descendants, the message isn't going to stop at 
the ocean's edge. It is going to go to Asia, Africa, the Middle 
East, where they will be listening to hear that while we are 
promoting democracies around the world, are we supporting them 
in our own neighborhood?
    In Tokyo and Seoul, major agricultural markets of today 
with even greater potential for consuming our agricultural 
products in the future, where there is huge internal resistance 
to agricultural reform and opening the markets to us, and where 
we are currently condemning them because of their policies in 
our access to their beef markets, there is going to be 
protectionists there listening to hear if they get a sigh of 
relief with the news that the U.S. is backing down on trade, or 
are they going to hear the loud and clear message that our 
relentless march toward addressing unfair trade practices 
around the world is not going to cease.
    And then in countries with the capitals of Moscow, Hanoi, 
and Kiev, where we are pushing them hard to liberalize 
agriculture in their WTO accession packages, they are going to 
be listening to see if we lead by example in passing this 
agreement.
    And then in Delhi, where we are constantly lecturing them 
on protecting their billion people behind tariff walls of over 
100 percent duties on agriculture, they will be watching to see 
if we turn down an agreement with great benefits to U.S. 
agriculture that leaves in place, as Secretary Johanns said, 
100 percent tariffs on some products because even the 
quantities involved here, the small quantities involved, is too 
liberal to be approved.
    And probably, if this agreement failed, the most astounded 
of all would be Beijing, who heard repeatedly that their 
textile exports are a threat to U.S. jobs and where they know 
that the U.S. textile industry is lobbying heavily for this 
agreement. Yet, if we turn this agreement down, the very 
agreement that is our best chance to compete against China in 
those same products.
    In Brussels, they will be watching to see if our policy is 
really ``do as I say, not as I do,'' because they are looking 
for reasons to justify, as you mentioned earlier, their 
policies of subsidization and protection.
    And then in Geneva, where there are 148 members of the WTO 
looking to U.S. leadership anxiously -and make no mistake, the 
Doha Round will not move forward without agriculture and 
agriculture will not move forward without U.S. leadership--our 
credibility will be put at stake as to whether or not we are 
going to stand behind this agreement that we have signed and if 
it is going to fail because of some protectionist tendencies 
here.
    So that dream in the WTO of addressing export subsidies, 
where the Europeans outspend us 100-to-one, or the unfair trade 
practices of trade distorting domestic support where the 
Europeans outspend us about three-to-five-to-one, or addressing 
the high tariff barriers around the world where the average 
tariff in the world is about five times ours, those who look 
forward to that are going to be disappointed because we will 
have missed the opportunity to address these unfair trade 
practices if this agreement fails and with it our leadership in 
the WTO.
    Every one of the countries that I just mentioned is of 
interest to U.S. agriculture, and I know that because I have 
people coming through my door every day telling me what they 
want out of each one of these countries and in each one of 
these agreements. But the message that the administration and 
the Congress are divided on the goal of opening markets and 
addressing unfair trade practices will be welcomed by our foes 
and disappoint our friends and would impact every issue that we 
face in our agricultural trade agenda, both large and small, 
including putting at risk our ability to compete against our 
competitors for our customers in markets even close to home.
    But if the Dominican Republic and Central American Free 
Trade Agreement passes, the exact opposite message will be 
sent. The unmistakable message will be that the U.S. is going 
to continue to lead the world not just in democracy, but also 
in trade and economic freedom and the importance to this 
committee that U.S. agriculture is going to continue to lead 
the U.S. trade agenda.
    I like to think that when Mr. Field visualized his cable 
going across the Atlantic, that he envisioned an optimistic 
America, one engaged in the world, reaching out to friends, 
building partnerships, unafraid of competition. I believe that 
is the America that we need to be today. He probably envisioned 
the news going across his cables to be those of good news for 
our future and not retreat, one where we broke down walls, not 
built them higher.
    I share in Mr. Field's optimism, and I know as leaders here 
you realize the American dream yourself and can understand why 
others around the world would be looking to us in trying to 
achieve that with our leadership. And because of that, I know 
that they are not going to be disappointed.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    [The prepared statement of Mr. Johnson can be found in the 
Appendix on page 62.]
    The Chairman. We are going to do something a little bit out 
of the ordinary because we are going to lose the Secretary here 
in a few minutes, and I am going to give everybody an 
opportunity, if you want, to direct a specific question to the 
Secretary. As long as we can keep him here, we will give you 
the opportunity to ask one. Then we will come back after the 
Secretary leaves and go back to our normal questioning process.
    Mr. Secretary, you are right. The most controversial 
provision in DR-CAFTA is that provision regarding sugar. The 
administration has minimized the impacts on the sugar industry 
and maintains that the compensation provision will help manage 
the U.S. sugar program. However, we have not seen any details 
on how this mechanism is going to work. Furthermore, many 
Senators believe that paying the Central American governments 
for surplus commodities or direct appropriations will be 
politically difficult to sustain or justify. While this is the 
first time that this provision has been included in the trade 
agreement, USDA has had over a year to detail the proposed 
mechanisms.
    With a vote imminent in the Senate and the House, can you 
tell us how the compensation mechanism will operate? What do 
you estimate will be the impact on the U.S. sugar program if 
DR-CAFTA is approved by Congress and additional sugar is 
allowed in the United States? And do you think the American 
public will accept taxpayer dollars being given to Central 
American governments, as provided for in this trade agreement?
    Secretary Johanns. Great questions. I would offer a couple 
of thoughts. I have read the discussion about the compensation 
agreement. It has come up, I think, in every hearing that has 
been held relative to CAFTA. The gentleman that actually 
negotiated that and put it in is one of the witnesses today, so 
the Ambassador may be able to offer some specific thoughts, but 
let me offer a thought from our standpoint in terms of 
management of this sugar program.
    Like I said, I have read the discussion with interest, but 
again, as we look at how we discharge the duties you have given 
to us here on the Hill and the broad powers we have over sugar 
in the United States, it just simply doesn't appear that there 
is enough sugar involved here to impact how we manage the sugar 
program during the life of the farm bill.
    And I see the discussion about sugar. I watch the charts. 
But the only way that that case can be made about sugar 
crashing this program is by making assumptions about future 
agreements and future agreements and future agreements and then 
getting to a point where you say, ``See, I told you so.''
    Under what we see here, I have to tell you, I would be 
very, very surprised, and I would be sitting here eating crow 
someday if literally the compensation agreement ever came into 
effect, because we just don't see enough sugar involved that is 
going to impact how we manage this program.
    The Chairman. Senator Harkin?
    Senator Harkin. Thank you, Mr. Chairman. First, just a 
short comment, and then I do have a question.
    Mr. Secretary, it just seems to me that every time one of 
these trade things comes around, we talk about how U.S. 
agriculture hinges on getting more of our goods sold abroad. I 
always go and check the oil prices. I check how much my farmers 
are paying for diesel and gasoline and what they are paying for 
fertilizer right now and the high cost of natural gas for 
making that fertilizer. It just seems to me we are selling more 
and more of our products overseas so we can get some money so 
we can turn around and buy more imported oil.
    I am all for trade. I have supported about every trade 
agreement that has ever come up here. I don't know that it is 
getting us very far. It seems to me what the future of 
agriculture hinges on is recognizing that those fields out 
there and those farms out there can produce the energy that we 
need in this country.
    Trade is fine, but I don't know that the future strength of 
American agriculture hinges--hinges--on our success in the 
international marketplace. I would say it hinges on whether or 
not we are actually going to start using the resources we have 
here to replace imported oil. That is everything from diesel, 
bio-diesel, ethanol, bio-based products, whether it is 
hydraulic fluids or all the different things that can be made 
that we can start replacing. All the plastic things that are 
made out of petroleum products can be made out of, as you know, 
because you have a plant north of Omaha there, that Dow-Cargill 
plant, you can make those things out of starch.
    So it seems to me that is where we have got to be focusing 
our energies. Now, we are doing a little bit of it, but not 
nearly enough. We spend all of our time and efforts on things 
like CAFTA.
    Now, Mr. Johnson, my good friend, says this is a great 
benefit. But as I understand it, the estimate that we have from 
the American Farm Bureau Federation is that agriculture exports 
will be $1.5 billion a year higher by the time the agreement is 
fully effective 15 to 18 years from now. Now, you point in your 
comments that it is a doubling. Well, sure. One to two is a 
doubling. It doesn't say much. That still is about 1.5 percent 
of our expected U.S. agriculture exports for 2005--1.5 percent.
    Now, we talk about the benefits to these people in these 
other countries. I read how we are going to sell them prime 
cuts of beef and pork and all these wonderful things are going 
to go to these countries. But a third of the population lives 
on $2 a day or less in these countries. The average income in 
all the countries is about $2,200 a year. That is not even $200 
a month. How are they going to buy that New York strip steak or 
an Iowa chop on that kind of income?
    So again, my thing is I think we have got the wrong focus. 
I am not saying this is necessarily a bad deal, but I think it 
is the wrong focus to think that we have got to put so much 
effort into this. Where our efforts ought to go is the Doha 
Rounds. This is a $3.3 billion market. Doha Round, if it works, 
opens a $300 billion a year market for our agriculture 
producers in this country. That is where we ought to be 
focusing, and not on this thing.
    By the way, I also add, I was visited, Mr. Chairman, by a 
Bishop Ramizini from Guatemala. I had never met him before. He 
is a Catholic bishop of Guatemala, came to see me specifically 
to talk about the dire impacts that CAFTA would have on his 
people, his poor farmers, his poor people in Guatemala. Now, I 
don't think he has any devious intentions, but he is saying 
that this could really drive his farmers off their land, drive 
them into cities and really hurt their rural population in 
those countries.
    And so, last, it raises the issue about sugar, also. I am 
not so certain that what is going to happen with sugar on this 
is that big of deal right now, but what it does do is it sets a 
precedent for opening up for other countries to come into which 
could devastate our sugar industry in this country. And when we 
are looking at the possibility of using sugar and sugar beets 
or cane, whatever it might be, as a source for energy down the 
road, I am not certain I want to see that go by the wayside.
    So, Secretary, I just wanted to make those statements and 
ask for your rejoinder on that in terms of the impact on poor 
people in Guatemala. Why is Bishop Ramizini wrong in how he is 
looking at this in terms of the impact on his people? And 
second, how is this going to help us export our high-quality 
cuts of beef and pork and everything else when people are 
making $2 a day?
    Secretary Johanns. I don't really have any idea other than 
what you have said about the Bishop's comments, but I would 
offer this thought. Back when NAFTA was being discussed, I was 
a mayor at the time, and I was asked to be part of a delegation 
that went to Mexico, and we actually met with the president, 
the then-president of Mexico, to talk about NAFTA. There were 
some of those same arguments made, that this massive 
agriculture industry in the United States would just dominate, 
and if not annihilate agriculture in Mexico.
    I was just back in Mexico, as Secretary of Agriculture, 
where I met with my counterpart, Secretary Usabiagas, and we 
compared notes. In fairness to NAFTA, we have doubled our 
exports, but they have also doubled their exports. As I have 
said so many times, trade is not only a two-way street, it is a 
superhighway. If they are doubling their exports, then 
obviously they have benefited from that agreement, and this is 
in a very short period of time. We are talking just over 10 
years.
    I fully -#I21Senator Harkin. Excuse me. Are you talking 
about----
    Secretary Johanns. I am talking about NAFTA.
    Senator Harkin. Are you talking only about agriculture 
exports from Mexico or all exports from Mexico?
    Secretary Johanns. I am speaking of agricultural exports.
    Senator Harkin. Just agricultural exports?
    Secretary Johanns. Just agriculture exports. It has been a 
rather remarkable success story, really on both sides, in 
agriculture.
    Now, let us look at CAFTA and see if we can draw a 
comparison there. I do believe you can. It is a market that is 
close to us. They have had a wonderful preference for a lot of 
years--this dates back to 1983, as a matter of fact. On three 
successive occasions, Congress has had an opportunity to 
reaffirm its commitment to this part of the world and said, 
yes, let us leave this part of the world open. Let them export 
their products into the United States duty-free, and they have 
been doing that.
    And what this really does at this point is it allows for a 
leveling of the playing field. But they have a market here. 
Interestingly enough, even with the high duties, we have a 
market there. We exported about $1.8 billion worth of 
agricultural products into these countries in the last year. It 
is that trade and that relationship.
    Senator I will just offer one last comment. When the 
presidents were here, I had an opportunity to mostly sit and 
listen in a meeting where they were there to talk about the 
benefits that they saw in this agreement for their country. I 
just walked out of that meeting very, very proud of my country 
and the commitment that we had made to these countries that 
quite honestly 20, 25 years ago, many would have written off. 
And now, we see presidents that are enthused about their 
economies, enthused about this agreement, excited about the 
opportunity of creating an even better relationship with the 
United States.
    Like I said in my prepared testimony, I believe the right 
thing was done by this Congress over a long period of time, and 
I think it would be very, very unfortunate if, at this point, 
now some 20-plus years into this, if we walked away in the 
final stage. And I think if every president were here before 
you from the CAFTA countries, I feel strongly that they would 
affirm what I just said to you. They want this relationship. 
They want this future. These are countries that have blossoming 
democracies, but they are fragile and they need our help and 
support, and I believe this agreement gets them there and they 
feel strongly about it.
    The Chairman. Mr. Secretary, I know time is short with you, 
but if you would answer one more question, maybe from Senator 
Thomas.
    Senator Roberts. Would the Senator yield?
    Senator Thomas. Yes, absolutely.
    Senator Roberts. I don't mean to perjure the intent or the 
concern of any member here or any commodity organization and 
their obligation to fight for their farmers and ranchers or 
particularly the sugar industry. My question to you, Mr. 
Secretary, is this. If we don't approve CAFTA, if CAFTA is not 
approved, what do you do, sir, personally in regards to your 
public statements and we do from a policy standpoint, hopefully 
with working with the Congress in reference to the Free 
Americas Trade Act, in reference to the WTO, in regards to the 
cotton case and your efforts to open up the beef markets with 
Japan and South Korea? What do you do with the farm bill if, in 
fact, that is the signal we are saying, we are going back to 
acreage controls and higher supports. What are we doing here? I 
think this has ramifications for all of that.
    The distinguished Vice Chairman has indicated that we need 
to become more energy independent, and I am all for biomass. He 
has hit the nail on the head. I am not too sure we can do that 
fast enough in regards to fossil fuel energy vis-a-vis the 
trade act, but I have a glass of ethanol every morning with 
Senator Grassley. It will warm you right up, Mr. Secretary.
    [Laughter.]
    Senator Roberts. But I want to know what you are going to 
do if, in fact, we say, stop the world, let me off, because we 
have this perception of something unfair. What are you going to 
do with all of these things that are lined up next?
    Secretary Johanns. You are a very astute observer of your 
constituency. You are absolutely right. When I ran for Governor 
in 1998, my predecessor, Senator Nelson, had initiated trade 
missions, and they were hugely well received in our State and I 
was repeatedly asked, are you going to continue that? Are you 
going to continue that? I had groups tell me, I don't think I 
could support you if you aren't pro-trade and out there in the 
world. And now it just gets tougher and tougher. But the 
policies are still enormously important and they are the right 
policies.
    I believe if this doesn't pass, we have some real 
challenges. I think we have stepped back, taken a huge step 
back. What do I mean by that?
    Well, the first thing is in the region. We first created 
this partnership, at least in modern times, in 1983, with 
President Reagan's call. But the interesting thing about this 
is that we had bipartisan support for supporting these 
countries. President Clinton also asked for extension of the 
CBI, and those votes were overwhelming. One Senate vote passed 
92-to-nothing. One passed, the House vote at that time passed 
221-to-169. This has been a successive effort to try to 
stabilize these countries and give the opportunity for 
democracy and economies to grow.
    And here we are in this really last important stage, and I 
think if we back away from it, we send such a terrible message 
to these countries and to other countries that are looking for 
us for leadership in the economic realm and in the realm of 
democracy.
    Then you have got the bigger issue. How do you negotiate a 
WTO agreement when you can't get a trade agreement approved 
that is, quite honestly, so one-sided for agriculture? We are 
not giving up anything here. We are not. They already have 
access to our markets. Ninety-nine percent of their products 
are here duty-free. All we are doing is leveling the playing 
field, but it is the relationships we create, the work that we 
do together after this passes that I just think is hugely 
important and is good for agriculture in America.
    So I just think all of a sudden, we are going to have a 
very, very tough time negotiating on a bilateral basis, a 
multilateral basis. We are in a critical stage with the WTO. A 
month ago, that could have easily fallen apart over very 
technical points. And you know the drill on the WTO, sir. You 
move that by consensus. And so, consequently, if you give 
anyone an excuse to back away from the table, you run the risk 
of jeopardizing that.
    I just think it would be a terribly unfortunate signal to 
these countries. Like I said, I will just wrap up with the 
comment I made. I walked out of that meeting with those 
presidents enormously proud to be a member of the President's 
cabinet and proud to be an American, because you know what? 
Many countries would have written these folks off. They were in 
bad shape 20 years ago. We didn't. We stood up for them. And I 
think this is an opportunity for us to do that. After 25 years 
of work here, it would be unfortunate to have such a setback.
    Senator Roberts. I appreciate your comments. Ambassador 
Johnson, I know that you have announced your plans to leave 
your post at USTR. Thank you for your leadership, and thank 
you, Mr. Chairman.
    The Chairman. Mr. Secretary, thank you very much for being 
here. I will tell my colleagues, the Secretary informed us that 
he was going to have to leave at 10:30, so I apologize for 
everybody not being able to give a direct question to the 
Secretary. We will now go back to our----
    Senator Dayton. Mr. Chairman, I must strongly protest. I 
was unaware of that, and I think you have done your best, Mr. 
Chairman, to try to accommodate his schedule, but I believe 
there has been one actual question directed in an hour to the 
Secretary about CAFTA from someone who has reservations or is 
opposed to that agreement. I think it is a disservice to this 
hearing. It is a disservice to those who I represent whose 
economic interests are at stake here when the one hearing this 
committee is having on this issue and the Secretary 
representing the administration is here and doesn't have to 
field any questions about it from anybody who has reservations 
or is opposed to it. I think that is seriously unfair to the 
debate we should have and to the consideration this committee 
should give to it and to those who have their economic 
livelihoods at stake. And I don't fault you, Mr. Chairman, 
because you have done your best, but a lot of time that was 
taken up, unfortunately, that did not give the Secretary a 
chance, as he should have been, to be subjected to questions 
from all of us.
    The Chairman. And that comment will be duly noted in the 
record. We have Dr. Penn here, who as the Secretary told me, 
knows a lot more about this than he does, so Dr. Penn, the 
pressure is going to be on you.
    We will go back to our regular rotation. Senator Salazar?
    Senator Salazar. Let me just ask you the question. I think 
the most vociferous statements that I have heard about a vote 
against CAFTA come from my constituents in Eastern Colorado, 
where there is still a sugar industry where significant 
investments have been made. I heard Secretary Johanns make the 
comment that he thinks that there is a de minimis impact with 
respect to the sugar industry in this country. I heard my good 
friend from North Dakota talk about how if CAFTA moves forward, 
it creates this precedential effect that ultimately will mean 
that it is going to have a huge impact on our sugar industry 
here in the United States.
    So if you were to be answering the concerns that I hear 
from my constituents in the Eastern plains of Colorado, how 
would you answer the concerns?
    Mr. Johnson. I have recently had the opportunity, actually 
in Western Nebraska, in Scott's Bluff, in order to sit in a 
sugar beet plant to answer just exactly those kind of 
questions. And the way I answered it was very basic, which is 
we identified or listened very carefully to the sugar industry 
and the concerns that were raised while we were negotiating 
this agreement, many of which came from NAFTA, their concerns 
left over from the NAFTA agreement. And every single issue that 
we addressed, or that was raised about NAFTA, we addressed.
    They wanted to make sure that the auto-quota duty doesn't 
go to zero, so the auto-quota duty doesn't go to zero. It stays 
at well over 100 percent.
    They wanted to make sure that the quantities were 
manageable, and the quantities that we are talking about here 
is about 100,000 tons in a ten million-ton market, so it is 
about 1 percent of U.S. consumption.
    They were concerned that there not be an opportunity for 
another country, let us say Brazil, to export product to one of 
these countries, thereby displacing their domestic production 
to be sent to us, so we put a substitution provision in that 
addressed that issue.
    And then just as an insurance policy, and the chairman just 
mentioned it, we put in a compensation provision that allows 
us, if we are wrong and this sugar that is coming in, which is 
equal--the economic gain to these countries from this sugar is 
about $30 to $40 million--if that is a threat to the U.S. 
industry, then we can compensate them with something other than 
sugar. It could be money. It could be sugar stocks. It could be 
whatever. It doesn't have to be out of the Treasury. In fact, 
we have used a provision like this in the past in the United 
States in 2001.
    We also have the farm bill itself, which the Secretary 
referred to several tools that they have, which maybe Secretary 
Penn would want to comment on, to address those concerns.
    And then the basic question really comes down to on the 
issue that was raised about the amount of sugar with Mexico 
coming in. Mexico has not qualified over the last couple of 
years to send us any sugar other than their WTO minimum, which 
is about 10,000 tons. And it is not envisioned that they will 
be able to send us in the next few years any amount of sugar 
close to the amounts that are being cited here.
    So we don't see that there is a disruption in the program. 
We didn't change a comma or a word in the farm program. And 
frankly, I think that the sugar industry--the basic challenge 
to the sugar industry, in my view, has always been how can we 
come up with agreements that allows the rest of agriculture, 
the rest of the economy, the rest of our national security 
interest to move forward while dealing with sugar industry 
sensitivity. And what we have tried to do over the last several 
years is come up with a set of tools in our tool box that 
allows us to do that, and I think we have achieved that in the 
CAFTA agreement.
    Now, you just were commenting on Senator Conrad's charts. 
Let me just correct a couple of things. First of all, the ITC 
study shows that actually our trade deficit will go down by 
about $750 million as a result of this agreement because of the 
change in trading patterns that will occur.
    And second, what he assumes is certain precedents, and just 
to give you a sense of what precedent might mean, we closed 
with the Central American, the four Central American countries 
in early December, as the chairman mentioned. Since that time, 
we closed an agreement with Australia that didn't include sugar 
at all. We closed an agreement with the Dominican Republic 
which has the substitution provision that some years, they 
won't be qualified to send us anything at all, and at the 
maximum, 10,000 tons. And we closed an agreement with Morocco 
that the rules of origin prevents them from sending us 
anything. So I don't know that there is a precedent. Each one 
of these agreements stands on their own merits.
    In this agreement, we are 100 percent confident and the 80 
groups of agriculture, agricultural groups that are supporting 
it, are confident that it is a good one for agriculture while 
dealing sensitively with sugar.
    Senator Salazar. Let me ask you just a follow-up question, 
if I may, Mr. Ambassador. Looking at the Australian agreement 
that was negotiated, sugar was left outside of that agreement. 
Would it be possible for this agreement to be renegotiated to 
do the same thing? What would it take to accomplish that and 
how long would it take to try to get that done?
    Mr. Johnson. First of all, the issue related to Australia, 
Australia was a different type of agreement, and you can just 
look at what happened with agriculture in the Australia 
agreement to understand. In this case, they have had 99 percent 
of their agricultural products duty-free to us already. So we 
had a lot of offensive interests. That is why so many 
agricultural groups are supporting this agreement.
    In order to get what we needed in agriculture, this eight-
to-one ratio of increased exports over imports in agriculture, 
we needed to give them something, and what we gave them in this 
case was just a little bit of sugar.
    Australia was different. Australia was--they were basically 
all offense and we were mostly defense. And so to some extent, 
they were trying to give us things so that we could open our 
markets to them in agriculture and even--and obviously the 
industrial side, the non-agricultural side, was very interested 
in this agreement.
    In terms of CAFTA, the deal is what it is. We should expect 
that if this agreement went down, very simply, the anti-
American as well as anti-trade forces in these countries, they 
are going to make headway, and they are running against CAFTA 
right now. I was down in Central America just a couple of 
months ago and on the TV, the anti-American folks are saying, 
aren't you going to be embarrassed when CAFTA gets turned down? 
They are running against this agreement.
    So we should fully expect that, once having spent their 
political capital and taking these risks of giving us an eight-
to-one ratio in agriculture, that these leaders, pro-American 
leaders, won't have the equity, if you want to call it, 
political equity to go back and submit yet another agreement to 
them.
    Senator Salazar. Let me, if I may, just ask this question, 
and I know it is a hypothetical question because I know the 
administration is fully behind CAFTA and I have had 
conversations with Secretary Guitterez and a number of other 
people and I recognize the intense feelings that the 
administration has with respect to moving forward with DR-CAFTA 
in the way that it has been negotiated.
    But hypothetically, if you were to be sent back to the 
negotiating table to look at provisions within DR-CAFTA, is it 
feasible that you might be able to come back within 3 months or 
6 months with a newly renegotiated agreement, from your point 
of view, if that was the direction that the President were to 
give to you?
    Mr. Johnson. My personal assessment is no. I think it would 
be a dead phone on the other end of the line. Remember what we 
are talking about here. Often, we are cited that sugar isn't 
included in a lot of agreements, but remember that those same 
agreements that sugar isn't included in, whether you are 
talking about the EU-South African agreement, also leaves out 
things such as beef and dairy and grains and corn, things that 
are--poultry, things that are important to us. The Japan-Mexico 
agreement leaves out rice, things like wheat and barley and 
other things that are important to us.
    So I think, frankly, that not only would we have a dead 
phone on the other end of the line in terms of the Central 
Americans, I think a lot of U.S. agriculture, we would have a 
dead phone on this end of the line because they wouldn't like 
the precedent that we would have to set for these other 
agreements that they are interested in, whether it is the 
Andean agreement, whether it is Thailand. There has been talk--
some are interested in a deal with Korea, and the WTO. They 
wouldn't like the precedent that their commodity was left out 
in order to pay for what is really provisions that aren't a 
threat to the sugar industry because of the steps we went 
through.
    Senator Roberts. Thank you.
    The Chairman. Senator Thomas?
    Senator Thomas. Thank you, Mr. Chairman.
    Mr. Ambassador, or either of you, I agree with many of the 
things you have said. On the other hand, the point that you 
continue to make is that this is such an insignificant amount, 
you know, one-and-a-half teaspoons a day of sugar for every 
person, and yet you talk about how important this is and the 
people there talk about how important it is. If it is that 
important, why in the world did you negotiate for this one-and-
a-half teaspoons to screw up the whole thing? I don't 
understand that.
    Mr. Johnson. Well, let me try. I know you and I have talked 
about this on a couple of occasions.
    Senator Thomas. Yes, we have.
    Mr. Johnson. Let me try again. One of the things that you 
have to keep in mind, that when Central America came to the 
table on sugar, they didn't come with this deal. When they came 
to the table, they were looking for somewhere between 300,000 
and 400,000 tons. They were looking for the auto-quota duty to 
go to zero. They didn't have any interest in a substitution 
provision. They had no interest in--they never even heard of a 
compensation provision. So from their point of view, they have 
moved huge steps in order to allow this deal to move. And this 
is one of the only issues that they had an offensive interest 
in for obvious reasons. Ninety-nine percent of what they send 
us today is already duty-free.
    And so I think, again, it would be misleading if I were to 
say that having spent that political capital in order to bring 
back a deal that gives the U.S. agriculture an eight-to-one 
ratio of increased agricultural exports over imports, that 
these leaders, these presidents that were just here, would have 
the political capital in a more antagonistic environment toward 
America and toward trade to be able to go back and submit yet 
another deal that is actually worse for them than the one that 
they have already passed.
    Senator Thomas. The thing that makes it difficult is you 
guys go on and on, and I understand, about all the value of the 
agreement, and they do too. I met with their presidents. They 
talked for hours about all--they didn't mention sugar-- the 
good stuff it is going to do for their countries and so on. It 
just seems to me like you had a negotiating position.
    If you add CAFTA provisions to the already existing 
obligations, we exceed 1.5 million tons stipulated by Congress. 
What happens to that sugar now? There is going to be an 
excess--we already have sugar stored in Wyoming because it 
can't be sold.
    Mr. Johnson. Well, a couple of things, and maybe J.B. 
should comment on this from a sugar programmatic point of view, 
because he is the one that manages the program.
    Senator Thomas. Sure.
    Mr. Johnson. But we don't see us exceeding the 1.5 or 1.4, 
depending on whether you are talking metric or short tons, cap, 
and the reason is is because what is included in the number 
that folks assume when they assume that is that Mexico sends us 
the whole 250,000 tons that they could possibly send us. Well, 
Mexico hasn't sent us more than 10,000 tons in the last couple 
of years. They haven't qualified under----
    Senator Thomas. But we are not through resolving the 
letter. Even it is still out there.
    Mr. Johnson. Oh, the side letter. We have stood by the side 
letter----
    Senator Thomas. The dispute is still going on, how many 
years? I am sorry. I am----
    Mr. Johnson. No, I just want to be clear, because we have 
stood by the side letter, and that is one of the points of 
friction between us and Mexico is because we have stood by this 
side letter and they don't think we should. They don't think it 
is justified. In fact--well, I will stop at that. But we don't 
envision, and J.B. could talk about this probably better than I 
could in terms of envisioning these imports coming in from 
Mexico that would cause us to exceed that trigger.
    Senator Thomas. As you know, I would like to see this 
happen, but there are some obstacles in the way and that is 
what we need to do, I think, is to see if we can't do something 
to resolve those.
    I think one of the concerns about many producers is they 
look forward, whether it is Brazil or these other countries 
that are huge producers. How are you going to deal with them if 
you can't deal with these people with this relatively small 
amount? I think they are concerned about the future as much as 
they are this particular one. Do they get any assurance from 
you that they won't continue to have this same kind of problem?
    Mr. Johnson. Well, the thing that I would say is what we 
have done, which is we have created in this administration--
remember, when we came in, there was no such thing as a 
substitution provision. In NAFTA, for example, there is no 
substitution provision. There is no such thing as--we kept the 
auto-quota duty at over 100 percent. That didn't exist in 
NAFTA. We put in place these quantities that were very 
manageable which don't exist in NAFTA. We created--whether you 
wanted to use it or not, it is purely at our option--this 
insurance policy, this compensation provision.
    So we have this tool box of tools that I think if you look 
at past as prologue, the sugar industry should feel very 
comfortable that we have managed each one of these trade 
agreements and allowing the rest of agriculture and allowing 
the rest of the economy and the rest of our national security 
interest to move forward while dealing with them sensitively. 
So I feel very comfortable with that and we would work with 
them very well in the future.
    Now, one thing to keep in mind is that the sugar industry 
with us has a goal of achieving trade liberalization in the 
WTO. That is also enhanced by this moving forward. I can tell 
you, and some of you were in Cancun, when we walked out of 
Cancun, everyone was wringing their hands and gnashing their 
teeth. Well, the United States went to work and closed Free 
Trade Agreements with eight countries in 12 weeks. Within 7 
months, all of a sudden, the rest of the WTO members were back 
at the table and we got a historic framework agreement last 
summer.
    Senator Thomas. Well, there is, as you know, some interest 
in seeking a WTO resolution so that you deal with the whole 
just of things at one time. Where you do it with bilaterals, 
which I happen to favor, well, you never know what is going to 
be next. Cancun was a failure.
    So at any rate, thank you very much. I hope we can find a 
solution. I hope we can find a solution for the sugar people, 
even if you have to go outside of this agreement in some other 
kind of way. Thank you.
    The Chairman. Ambassador Johnson, we have been trying to 
find a copy of that side letter that you and Senator Thomas 
were discussing. Do you all have a copy of that side letter?
    Mr. Johnson. I don't have one with me. The short answer is 
that I am sure that there is one. I don't have one. But let me 
describe, first of all, what the side letter means, because I 
think a lot of people misunderstand what it is.
    What the side letter is is only about the in-quota 
quantities between the time NAFTA started and 2008, when the 
tariff goes to zero. So to some extent, the implications of the 
side letter becomes less and less relevant every year because 
the auto-quota tariff is coming down. It is now, I think, about 
4.5 cents, four cents. On January 1, 2006, it will be a little 
bit around three cents. So every year, the side letter's 
relative importance actually is diminished because, 
theoretically, Mexico could send over-quota sugar and the side 
letter doesn't apply to that.
    The Chairman. That is one of the great mysteries of the 
U.S. Senate today, is this side letter, and we sure would like 
to have a copy of it. So when you get back, if you would send 
us one, we would appreciate it.
    Senator Stabenow?
    Senator Stabenow. Thank you, Mr. Chairman, and welcome to 
our guests. I appreciate the hard work that has gone into 
negotiating this agreement. I do, though, want to raise some--a 
number of concerns and then ask a different kind of question of 
Dr. Penn, if I might.
    Just a general statement, first of all, that, Mr. 
Ambassador, I noticed some of the words that you are using in 
terms of objecting to CAFTA, having those with protectionist 
tendencies. I think it is important for those of us who have 
concerns, particularly about sugar but broader concerns, as 
well, to be able to state very clearly that I think it is a 
very old debate to talk about free trade versus protectionism. 
The Internet can jump any wall we put up. It is no longer that 
string or wire.
    What we are really talking about now is how are we going to 
be smart in the United States so that we keep our food and 
fiber production in the United States, so that we keep our jobs 
here and strengthen American businesses here while taking 
advantage of business around the world. It is the question of 
being smart. And these are old labels back and forth, this idea 
that if we object to how something is enforced or if we object 
to how something is written, that it is protectionism.
    So I think it is important that we clear the way to say--I 
don't think there is anybody here that wouldn't say we want to 
increase our markets for agricultural products. The question is 
how are we going to be smart about it so we aren't losing 
production and aren't losing jobs.
    I think we also all care about unfair trade practices, and 
one of my major concerns is that, in general, we are not doing 
enough to enforce trade agreements that you worked so hard to 
negotiate and others worked so hard to negotiate. I am hopeful 
that legislation that Senator Lindsey Graham and I have 
introduced, bipartisan bill to create a chief trade prosecutor 
within the office of where you work will be able to be passed 
and created so that we actually have folks separate from those 
negotiating to be able to place priority on enforcing those 
agreements, because I think we look rather foolish when we 
aren't tough in terms of enforcement after the good work has 
gone into creating these kinds of agreements.
    So I have supported and voted for most of what you talked 
about in terms of Chile, Australia, the other kinds of 
agreements, but I am very, very concerned that we are not 
enforcing those agreements and it is resulting in job loss and 
trade deficits that are huge. Our trade deficit is much larger 
than our budget deficit, $666 billion this year. So when we 
talk about CAFTA somehow decreasing the trade deficit by $750 
million, that is great, but we are talking about a $666 billion 
trade deficit right now.
    I also, Mr. Chairman, wanted to just for the record 
indicate that while I know there have been positive things from 
NAFTA, coming from Michigan, which is a State that benefits in 
many ways positively and negatively I mean, we have lots of 
different pieces of our economy and certainly there are pieces 
of our economy that benefit by CAFTA as well as those who are 
devastated, I believe, by CAFTA. But NAFTA as an example, just 
overall, if we are looking at the last 11 years, U.S. workers 
have lost nearly a million jobs due to the growing trade 
deficits with our NAFTA partners and real wages not only have 
gone down in America, but in Mexico, as well. And so more and 
more people living in poverty.
    And so when we look at overall, the effect since 1994 with 
Canada and Mexico, we are seeing our trade deficit balloon 12 
times its pre-NAFTA size, reaching $111 billion. So we have got 
some work to do there. We have some work to do about how we are 
going to be smart and benefit from these markets, but be smart 
about how we do that, because lowering our standard of living 
down to theirs is not what I call being smart, and I am afraid, 
Mr. Chairman, certainly in my State, where manufacturing as 
well as many parts of agriculture have been seriously impacted 
by the fact that we don't have a level playing field, we are 
not being smart about what we are doing, we are not creating 
agreements that bring other countries up, we are having 
pressure to bring us down, and that is of great concern to me.
    Let me just specifically -and I do have one question. I am 
concerned right now in this agreement. We are hearing from, I 
know the American Sugar Alliance is going to speak later, 
statistics that job losses in the sugar sector will be 38 times 
greater than job loss in the textile sector as a result of this 
agreement. That is no small thing in my State, of great 
concern.
    Dr. Penn, one quick question because I appreciate my time 
is coming to an end. On a totally different subject that 
relates to the Department of Agriculture within the context of 
this agreement and other agreements, as we increase trade, one 
of the things that we are finding across the country, certainly 
in Michigan, is that we increase our risk of invasive species 
and disease, opening the borders. We certainly have found that 
with China, the emerald ash borer in Michigan, which has 
devastated literally millions of trees. We are losing our ash 
trees as a result of that. We see that in so many areas where 
we are opening trade. Different kinds of species come in, have 
impact that we certainly would not want to have.
    I am wondering what the USDA is planning, as well as APHIS, 
as we look at, in working with Homeland Security, as we are 
looking at preparing for new risks, whether it be CAFTA, 
whether it be other areas. What are we doing in terms of the 
budgets within those areas to make sure that you have what you 
need? What kinds of things are you looking toward?
    I know I have been working with the Secretary and had 
numerous conversations with him about the fact that we are not 
providing the funding in Michigan alone, let alone the other 
surrounding States, related to emerald ash borer and what is 
happening. Those beetles are killing our trees and we are not 
moving fast enough on emergency funds or other funds in order 
to be able to address this.
    I am deeply concerned about what happens as we open up 
other markets and our inability to be prepared to deal with 
unforseen circumstances as it relates to disease and as it 
relates to pests, and I am wondering if you have looked at that 
in the context of what risks may be opened--we may be opening 
ourselves to as it relates to CAFTA or more broadly with other 
countries.
    Mr. Penn. Thank you for the question, and I certainly agree 
that you have identified a very key area that is, in my view, 
going to loom large in agricultural trade in the future. As we 
have had some success in reducing the traditional trade 
barriers, the economic trade barriers, quotas and tariffs, then 
other factors become the new trade barriers or the new trade 
problems of the future, and we are seeing that sanitary and 
phytosanitary issues are becoming more and more important. We 
are seeing that with avian influenza and BSE and other plant 
and animal diseases.
    With respect to looking forward, the Secretary has asked 
each of the mission areas in the Department to look at what 
they want to accomplish in the next 4 years. When we walk out 
the door in 4 years' time, what will we have accomplished? One 
of those big issue areas is exactly the one that you raised. It 
is how will we deal with sanitary and phytosanitary regulations 
in the international trade context.
    So one of our big initiatives is involving the marketing 
and regulatory programs mission area of the Department, the 
food safety mission area, and mine, the farm and foreign 
agricultural services mission area, and we are going to try to 
look at how sanitary and phytosanitary regulations, including 
the increased threat of invasive species, play a role, what 
kind of budget resources we are going to need, what kind of 
organizational, structural changes we are going to need to try 
to deal with those.
    With respect to the emerald ash borer, that falls in Under 
Secretary Hawk's area, as you know, but I do know that APHIS is 
looking at this. There have been discussions about the adequacy 
of the funding, how soon additional funding could be obtained. 
Even the Canadians have broached us about doing some joint 
activity, because I understand there is a threat on their side 
of the border, as well. So it is something that is getting 
attention and you have identified a very important area.
    Senator Stabenow. Thank you, Dr. Penn, and I would just 
indicate that in the case of emerald ash borer, and I am sure 
this is an example of what is coming in other ways, we have to 
move very quickly. Otherwise, the spread becomes extremely 
difficult for us to be able to address. And once we are--and 
Canadians as well as those in Michigan are deeply concerned 
about what is happening. It has gone from Southeastern Michigan 
now up to across the bridge in the UP and Wisconsin, the 
Midwest. I mean, this moves very quickly and I hope that you 
will move as quickly as possible to make sure that we are 
prepared for those things.
    Thank you, Mr. Chairman.
    The Chairman. Senator Coleman?
    Senator Coleman. Thank you, Mr. Chairman.
    Gentlemen, this is an agreement that I would like to be 
able to support. I come from a State that one out of every 
three rows of corn is grown for export. I understand that we 
are now opening up markets for our folks in comparison to folks 
who had had access to our markets. I am chairman of the Western 
Hemisphere Subcommittee on Foreign Relations. I have met with 
all the presidents of these countries.
    To my colleagues who are concerned about the impact on the 
poor, I can tell you that the firm belief of these leaders is 
that this trade agreement offers the best opportunity for the 
poor in those countries to finally have something to reach for, 
to be lifted up. So I understand that and appreciate it.
    I also appreciate the fact that there are some things in 
this, particularly in regard to sugar, that were successful. 
Second-tier terrorists, it kept them in place. The quantities 
are not overwhelming, but still a concern.
    But when I listen to--and I will just put in a personal 
note. The Secretary and I go back to days we have both been 
mayors. I know him, and I know how important this is and he 
believes in this and I trust him.
    But the problem I have is when he talks about the impact 
upon these small communities and the people in the villages and 
towns in Central America, I think of places like Echo, 
Minnesota, near Renville, or Felton, near Moorhead, or Fertile, 
near Crookston. I have got small towns and I have got a sugar 
industry that is important to the State. I must say, I get 
somewhat offended when I hear this phrase, protectionist, as 
somehow we are looking to close our eyes and ears to the 
concerns of people protecting, quote, an industry, and I am 
concerned about people.
    Ambassador Johnson, we have had the conversation, and you 
will say, well, 8,000 sugar growers, and I will tell you I have 
got 40,000 people in my State alone, I believe, whose 
livelihoods, whose lifeblood, whose ability to take care of 
their families is tied to a sugar industry and is impacted by a 
sugar program. It is processors and it is truck drivers and it 
is folks that make equipment and sell product to an industry 
that is the bulwark of Northwest Minnesota.
    So to me, it is not about, quote, protectionist. Yes, I am 
protectionist of the families, of the economic livelihood of 
the underpinning of an industry that is critically important to 
my State, and I can tell you, as you well know, obviously, 
hearing again and again, we are troubled that the assurances 
that are laid out are not providing the level of comfort that 
is needed. As a result, I can't raise my hand and say yes now.
    It would seem to me after all the discussion we have had 
that there are things that one can do if there was really a 
willingness to make this work. And if it is so insignificant, 
then figure a way to deal with the level of anxiety. There are 
a few things that I have kind of laid on the table, and I will 
just kind of lay them out, not for comment now because I don't 
want you to say no and box yourself in. What I would like you 
to do is listen and see if we can come to a level of 
understanding that would provide a greater sense of comfort to 
folks not just in Minnesota, but in Wyoming and throughout this 
country.
    One, an agreement that might ensure that U.S. sugar policy 
would operate as it is intended to be operated by Congress and 
no net cost to taxpayers. Without getting into the details of 
that, Dr. Penn, you understand all that, overall allotment 
quantities. But that can be done, no net cost, which is what 
our growers want, which can be done.
    We can provide that any additional CAFTA-DR access to the 
U.S. sugar market will be introduced on a needs-only basis, 
dedicating any excess supply to other uses so you are not 
impacting the program. The concern that we have, and it has 
been mentioned by a few, if you put NAFTA sweetener dispute, 
resolve that, you have got CAFTA-DR, all of a sudden you have 
got imports over 1.532 metric tons. You have got a problem and 
you have got anxiety. Again, this may be a little thing to some 
folks, but it is not a little thing to the people whose 
livelihood depends on this. They are looking at their economic 
future.
    Sugar--we have talked about this many times--negotiate 
sugar in Doha Round and in future multilateral agreements just 
as supports for other crops in negotiations, but not in future 
bilateral regional agreements. Tell folks that we understand 
the concern about the slippery slope here and that we are going 
to look at sugar being involved in the Doha Round and that is 
what we will do. And you can give people a tremendous level of 
confidence by making that statement, making that commitment. 
And it doesn't hurt anybody to do that.
    And then, four, the industry needs some certainty regarding 
the NAFTA sweetener dispute. There is uncertainty.
    So what you have is, in effect, gentlemen, you are saying, 
I am from the government. Trust me that a compensation 
agreement is not going to come into effect and we are not going 
to do things that impact overall allotment quantities that is 
going to destabilize the program. And I am telling you that I 
have got folks who their economic future is as tied to this, 
they believe, as any of the poor folks living in Central 
America and they don't want to slip back into poverty. They 
have got a good life here. But they have a sense of 
uncertainty.
    And so my plea to you is we are getting to the 11th hour on 
this. We have had discussions in Cartagena, Colombia, over 
dinner talking about this. We have had discussions everywhere, 
and in many places, but we still don't have the measure of 
comfort that is needed, and there are few things, I believe, 
that can provide that. And it is not about protectionist in a 
sense of, well, we are just kind of covering this big sugar. It 
is protecting the little guy, protecting folks whose livelihood 
depends on an industry.
    And if you firmly believe that, in fact, the amounts are 
minimal and that the impact is minimal, help us, and that is my 
plea. Just help us and figure out a way that we can get some of 
these things. You don't have to renegotiate an agreement to do 
that. I understand the impact of having to go back to 
legislative bodies in these countries and I am sensitive to 
that. But we can do some things here that doesn't impact many 
others but provide a level of comfort that then sugar could 
join with the rest of the agricultural community and say, hey, 
we understand there is great benefit to many.
    When you talk about leveling the playing field, sometimes 
when you level something, you bulldoze something under, and we 
certainly don't want to see the sugar program bulldozed under 
and the people whose livelihood depend on it find themselves in 
big trouble.
    The Chairman. Thank you very much. Very good comments, 
Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    The Chairman. Dr. Penn, many times, farmers and ranchers 
will cite chronic disruptions to trade when criticizing 
existing agreements, and NAFTA is a good example of that. Most 
of the commodities represented or listening to this hearing can 
point to market access or sanitary and phytosanitary problems 
with at least one of our two largest trading partners. How do 
we maintain confidence and ensure existing agreements are 
implemented while we are negotiating additional Free Trade 
Agreements with other countries, and do you have the resources 
to do both? If not, do we need to start making difficult 
choices regarding relative priorities?
    Dr. Penn. Well, that is a very good question, Senator, and 
I appreciate it because it is something that we grapple with 
just about every day. We are in sort of a new world. These 
trade agreements are relatively new. People forget, but we got 
the first of the multilateral agreements in the Uruguay Round 
Act. That came into force in the mid-1990's. We got the NAFTA 
agreement at about the same time, the mid-1990's. So we have 
had about 10 years' experience in implementing those agreements 
and in negotiating the additional few Free Trade Agreements 
that we have.
    Now, as I said earlier, as we have had some success in 
removing the economic barriers to trade, other barriers to 
trade have suddenly emerged, and sanitary and phytosanitary 
barriers are one of the main ones that we now confront.
    Also, as we enter into more and more trade agreements and 
as our trade expands over time, we have more opportunities for 
problems. There is just no doubt about it. In 1991, when China 
joined the WTO, we sold about $1.8 billion worth of 
agricultural products to China. This past year, we sold $6 
billion worth. So in just three short years, we greatly 
expanded our trade, and we now see that China has become the 
No. 1 market for cotton, soybeans, and hides and skins, and the 
No. 5 market for wheat. It is our No. 5 market overall. And we 
have a lot more trade problems with China. We hear a lot more 
discussion about difficulties with China. Part of that is to be 
expected. As trade expands, we are going to have more and more 
of these disruptions.
    But what we have to try to do is to minimize the 
disruptions; because they are costly, they greatly affect our 
industries. We have seen that again with BSE and avian 
influenza. So now we are paying a lot of attention to sanitary 
and phytosanitary regulations. We are trying to make sure that 
our regulations are all science-based, as we believe they are. 
We are trying to make them as transparent as we possibly can. 
And we are encouraging other countries to use science as the 
basis for their sanitary and phytosanitary regulations.
    So if we can achieve that and then get some degree of 
harmonization among countries with respect to their 
regulations, then we should be able to reduce these barriers. 
But we are just in the beginning of that. We are on the 
forefront of that, because we are dealing with a lot of 
countries that don't understand the science or they don't have 
the capacity to yet implement the kinds of regulations that are 
needed, or in some cases they are--I hate to use that word 
here--being protectionist. They are just being flat 
protectionist.
    So as we at USDA are working with USTR to try to get new 
trade agreements, negotiate new trade agreements, we are 
spending resources on that. We are also spending resources on 
looking at sanitary and phytosanitary regulations and trying to 
work on getting a science basis there.
    And then our other big activity, what we call market 
maintenance, is trying to make sure that we keep open the 
markets that we have already got open. It takes a lot of 
resources to make sure that people live up to the agreements 
that they have already entered into, and we feel very strongly 
about that. Thus far, we have been able to realign resources to 
be able to shift people around to do things as the priorities 
have changed that have suddenly become more important, and we 
will see how things go.
    At the moment, I think we have adequate resources to do 
that. But if we keep opening new markets, and we keep having 
expanded trade and we keep seeing trade difficulties, then we 
will have to have some additional resources at some point.
    The Chairman. Thank you.
    Ambassador Johnson, you and other administration officials 
have stated that DR-CAFTA will have minimal impact on the U.S. 
sugar industry. My main concern through this whole process is 
that we have seen the jurisdiction of Congress usurped by a 
trade agreement. When you look at the numbers, when you look at 
the farm bill, if imports exceed 1.532 million short tons, then 
USDA would lose its authority to administer the marketing 
allotments. Accounting for the current WTO commitment of 1.256 
million short tons and the NAFTA and DR-CAFTA commitments, 
imports would exceed the statutory cap by approximately 81,000 
short tons.
    Now, that is my problem, and that is why I agree with 
Senator Thomas's question earlier about why should we do that? 
Why would we negotiate something that we know flies in the face 
of the farm bill?
    You made assumptions that Mexico is not going to ever 
achieve their quota of 250,000 tons that they have been 
allotted, and that may be true, but that is an assumption that 
you have to make. Frankly, if we resolved our high fructose 
corn syrup issue with Mexico, I don't know where they would be. 
They would have excess sugar that they are using now that maybe 
they would decide to export to the United States. I don't know.
    But it looks like what you have done is that you have taken 
the difference between Mexico's allotted amount that they can 
export to the United States and the actual amount that they 
have been exporting under the history of NAFTA and you are 
reallocating the Mexican sugar that is not coming into the 
United States now.
    Does this mean that sugar is going to be a part of every 
future bilateral, and if so, are we going to continue to 
reallocate the unused portion of Mexico's allowed amount?
    Mr. Johnson. Well, first of all, because you and I also had 
this conversation, just to reaffirm that we did not change 
anything in the farm bill. We haven't changed a word. We 
haven't changed a comma.
    I know the numbers that you cite make certain assumptions, 
also. They make assumptions that Mexico would fill that whole 
250,000 tons, and you identify the situation, well, what if the 
soft drink tax issue was resolved and then we were sending HFCS 
to Mexico and they were sending sugar here.
    The real question then becomes, first of all, when we look 
at this, and we worked closely with USDA on this, we didn't see 
a scenario where we are going to be exceeding that amount of 
sugar coming in that would cause the trigger to be triggered. 
So we are very confident about that.
    Now, the scenario that you described, if we started sending 
HFCS to Mexico and then they started sending sugar here, that 
is really not even an issue about the 250,000 tons, because as 
we were just talking about earlier, the out-of-quota tariff on 
sugar with Mexico goes down year after year. It ends up at zero 
at 2008. That is not an issue that is relevant to the 250,000 
tons. That is just zero. And CAFTA doesn't change that one way 
or the other. It just doesn't have any impact on that. That 
agreement states that as of today, Mexico can send us over-
quota sugar by paying a four-cent duty by January 1, 2006, a 
three-cent duty, and then it goes down to zero in 2008.
    So the 250,000 tons that you are citing is really sort of a 
number, but it is not a number that under any analysis we think 
is going to be triggered. And if what you are worried about is 
the displacement of Mexican sugar coming here because of the 
soft drink tax issue going away and the zero occurring in the 
over-quota tax, that is not a 250,000-ton issue, either. That 
is the fact that NAFTA goes to zero in 2008.
    So I don't see that as being something that you should look 
at as a violation of the farm bill, because we clearly were not 
and we have left in place all the tools that the farm bill had 
and we have added a few tools in our trade policy that allows 
us to manage this situation should it become a problem.
    And again, it allows us to manage the situation with CAFTA, 
with Central America and the Dominican Republic, either through 
the substitution provision, which would have stopped sometimes 
the Dominican Republic from sending us sugar, or through the 
compensation provision, which I know Ambassador Portman told me 
as recently as this morning that he is looking forward to 
continuing, not just on this issue, but all issues engaging 
with this committee as we move forward with our trade agenda.
    So the NAFTA issue is almost a totally separate issue that 
I know Senator Coleman just mentioned. That is an agreement 
that has nothing to do with CAFTA.
    The Chairman. Well, I guess we can agree to disagree over 
whether or not nothing in the farm bill was changed, because if 
you just look at the numbers and you look at what is provided 
for in NAFTA and what is provided for in DR-CAFTA, and if 
everybody exercises their rights under those two agreements, 
then the trigger in the farm bill is going to be pulled. When 
that trigger is pulled, that is the point in time where the 
sugar industry, in this case, is going to be harmed.
    You know, I don't have a dog in this fight relative to this 
product from a parochial standpoint. My sugar folks, in fact, 
are on the other side of this issue. But as chairman of this 
committee, I think I have an obligation to ensure that the 2002 
farm bill is implemented per the exact language in the farm 
bill. I really do think that you made a mistake in trying to 
legislate a change. Again, you have got to make all the right 
assumptions. Everything has to fall in place maybe for the 
trigger to be pulled, but that is why you have legislation. 
With the possibility of that being in play out there, we are 
obviously having problems in trying to get a consensus and a 
majority of folks in the Senate to support this bill.
    It may be corn next time. It may be peanuts next time. It 
just happens to be sugar this time. But if we continue to 
legislate as we did on the Singapore and the Chile agreement 
relative to the H-1B visas, we are going to continue to have 
problems with these trade agreements.
    Now, you and I have talked about that. Ambassador Portman 
and I have talked about that. I know that he is committed to 
making sure that we have an open dialog between Congress and 
USTR, which I think has been a little bit lacking here to fore. 
This problem could have been totally avoided if there had been 
that open dialog and if we had been made aware from a 
legislative standpoint exactly what was going on relative to 
this issue.
    But be that as it may, I think we have still got some 
further discussion that we are going to have to have relative 
to this issue. I am very appreciative of the comments that 
Senator Coleman made because it is, in your words, it is a very 
small issue, and it is an issue that somehow we ought to be 
able to resolve. I don't think you have to rewrite the farm 
bill to accommodate the sugar industry or the sugar provision 
in the farm bill. By the same token, I don't think you have to 
make any changes in this agreement to be able to come to some 
satisfactory conclusion to this issue along the lines of what 
Senator Coleman just said.
    So we need to continue to work at this and see if we can't 
find some way that we can resolve what you say is a very small 
issue. Let me tell you, it is not a small issue to these folks 
who have been sitting around here today who have to go back 
home and face their constituents who are going to lose their 
jobs if all of the assumptions that they are making are carried 
out, irrespective of the assumptions that you are making.
    So with that, does anyone else have any further comment for 
these gentlemen?
    [No response.]
    The Chairman. Dr. Penn, thanks. You did a good job of pinch 
hitting for the Secretary. You handled yourself well there.
    Mr. Penn. Thank you, Mr. Chairman. Thank you.
    The Chairman. And Ambassador Johnson, I know this may be 
one of the last times we get to put you under oath and cross-
examine you up here. We understand that you may be leaving USTR 
sometime in the near term and we want to tell you how much we 
appreciate your service to our country and we appreciate your 
leadership.
    Thanks to both of you for being here today.
    Our next panel, if you will come forward, Mr. Bob Stallman, 
President of the American Farm Bureau Federation, a longtime 
good friend; Mr. Bob McLendon from the National Cotton Council, 
who happens to be from a place called Leary, Georgia, a 
longtime dear friend of mine; and the Honorable Cal Dooley, 
President and Chief Executive Officer of the Food Products 
Association, another longtime good friend of mine who I had the 
privilege of serving with in the House and working on a number 
of not just agriculture issues with, but other issues with.
    Gentlemen, we are very pleased to have each of you here, 
and Bob, we are going to start with you and go to Bob McLendon 
and then to you, Cal, for any opening comments that you would 
like to make. Welcome, and thanks for being here.

 STATEMENT OF ROBERT STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                   FEDERATION, WASHINGTON, DC

    Mr. Stallman. Thank you, Mr. Chairman, members of the 
committee. We certainly appreciate the opportunity to present 
testimony on CAFTA before the Senate Agriculture Committee. I 
am Bob Stallman, President of the American Farm Bureau 
Federation, and a rice and cattle producer from Columbus, 
Texas.
    As a general farm organization, American Farm Bureau 
Federation has studied the impact of the Central American-
Dominican Republic Free Trade Agreement on all sectors of U.S. 
agriculture and we strongly support passage of the CAFTA-DR. We 
have provided as an attachment to this statement a copy of our 
full economic analysis that describes how the agreement will 
impact the livestock, crop, and specialty crop sectors, as well 
as its effects on the sugar industry. On balance, we believe 
that CAFTA-DR will overwhelmingly be a positive opportunity for 
U.S. agriculture.
    U.S. agriculture currently faces a $700 million trade 
deficit with this region of the world. While the market holds 
potential for U.S. agriculture exports, our products currently 
face high tariffs. At the same time, agricultural products from 
the five Central American nations and the Dominican Republic 
receive mostly duty-free access to the United States. Trade 
preferences provided under the Caribbean Basin Initiative allow 
99 percent of agricultural products from these countries and 
the Dominican Republic to enter the United States duty-free.
    Unless CAFTA-DR is passed, U.S. agriculture will continue 
to face applied tariffs of between 15 and 43 percent. These 
tariffs put U.S. producers at a disadvantage in a competitive 
market. CAFTA-DR, if enacted, will eliminate these barriers.
    This agreement provides balance by allowing U.S. 
agriculture the same duty-free access that CAFTA-DR nations 
already have to our markets. In fact, many of our competitors 
in the region, such as Chile, already receive preferential 
access because of their own trade agreements with the Central 
American countries. When enacted, this agreement would give 
U.S. producers access equal to or greater than that of our 
competitors.
    The American Farm Bureau Federation analysis shows that 
U.S. agriculture would see increased agricultural exports in 
the amount of $1.5 billion by the end of full implementation.
    Looking at some of the major commodities of export interest 
to the United States, the agreement would put the United States 
in a strong position to capitalize on, first, Central American 
growth in imports of grains and oil seed products, which 
relates to both growing food demand for wheat, rice, and 
vegetable oils, and to growing livestock demand for feed grains 
and protein meals. With no wheat and limited rice and oil seed 
production capacity, the region's dependence upon imports is 
likely to grow steadily. The Free Trade Agreement puts the 
United States in a strong preferred supplier position to 
maintain and expand its high market share for items such as 
rice and soybean meal and to build on its lower market share 
for items such as wheat.
    Second, we would capitalize on the expanding regional 
import demand for livestock products related to growth in 
population and per capita incomes combined with their limited 
domestic production potential. Rapid growth in tourism should 
also help to stimulate demand for meats in the hotel and 
restaurant trade, which could be significant on its own. Growth 
in domestic demand for livestock products is likely to outpace 
production despite significantly larger imports of feed grains 
and protein meals. CAFTA-DR would allow the United States to 
use its cost advantages and its wide variety of beef, pork, and 
poultry products to fill a growing share of these markets.
    Third, the United States exports a diverse basket of other 
farm products to the six Central American countries. 
Commodities or commodity groupings of importance include 
fruits, vegetables, tallow, sugar, tropical products, and other 
processed products.
    Assuming that the same pattern of growth is likely as for 
grains, fiber, oil seeds, and livestock products, CAFTA-DR 
would allow the United States to capture a larger share of 
these expanding markets, as well. The added exports in these 
categories resulting from the agreement would likely exceed 
another $845 million by 2024.
    While there are numerous overall benefits for U.S. 
agriculture in the agreement, the U.S. sugar sector may see a 
less-than-positive impact. As a part of the agreement, the 
United States will allow CAFTA-DR countries to import an 
additional 164,000 short tons of sugar above their current 
sugar quota. This is related to a total production of about 9.5 
million short tons. This additional sugar will have a minimal 
impact on the industry, as demonstrated in our economic 
analysis. We expect the U.S. sugar industry to experience about 
an $80.5 million negative impact for an approximately $2.1 
billion domestic industry. This additional sugar translates 
into about 1.5 percent of domestic sugar production.
    In light of the possible, yet minimal, negative effects on 
the sugar industry, our trade negotiators negotiated certain 
protections for the U.S. sugar industry. First, the tariff on 
sugar is never decreased or eliminated. And second, we have the 
compensation provision this committee has already heard about 
and the net surplus exporting provisions.
    It is important to note that if sugar had been excluded 
from the agreement, it could have led to other U.S. commodities 
facing the same type of exclusions by CAFTA-DR country 
negotiators. In fact, these countries had a list of roughly a 
dozen commodities they wished to exclude from the agreement. 
These products included U.S. beef, pork, poultry, and rice. 
And, in fact, we paid a price for the protection provisions 
that are already in there for the sugar industry in the 
potatoes, onions, and white corn. Our products going into those 
countries faced similar treatment as were provided in the sugar 
area. Overall, we believe that these provisions make the 
agreement a fair one for sugar.
    U.S. agriculture will benefit a great deal from this 
agreement. The gains to U.S. agriculture certainly outweigh the 
losses. If this agreement fails, it will be to the disadvantage 
of America's farmers and ranchers. Without CAFTA-DR, these six 
countries retain existing duty-free access to the United States 
while U.S. agriculture will continue to face the same high 
tariffs currently applied.
    In looking at the variety of U.S. commodities that would 
benefit because of increased trade due to a Central American-
Dominican Republic Free Trade Agreement, one can only conclude 
that a ``yes'' vote on CAFTA-DR is a vote for agriculture and 
agricultural exports.
    Thank you, and I look forward to questions.
    [The prepared statement of Mr. Stallman can be found in tge 
Appendix on page 71.]
    The Chairman. Mr. McLendon?

  STATEMENT OF ROBERT E. McLENDON, NATIONAL COTTON COUNCIL OF 
                    AMERICA, LEARY, GEORGIA

    Mr. McLendon. Mr. Chairman, members of the committee, my 
name is Bob McLendon and I own and operate a diversified 
farming operation in Leary, Georgia. I have served as President 
of the National Cotton Council and Southern Cotton Growers. 
Thank you for the opportunity to present the views of the 
National Cotton Council today.
    Mr. Chairman, you know the cotton industry very well, so 
you understand how difficult it is for our organization to 
reach consensus on trade policy. We have growers, merchants, 
and cooperatives who rely on domestic and international 
markets. We have manufacturers who have made investments 
necessary to remain competitive but who are losing markets to 
low-cost imports from China.
    Our decision to support CAFTA was not made lightly or in 
haste. The Council has made every effort to work with the 
textile industry and the U.S. negotiators throughout the CAFTA 
negotiation. Our message was simple. We need an agreement that 
benefits U.S. farmers, manufacturers, and the region, not third 
parties. If we provide preferential access to a product, then 
the components should be sourced in the United States in CAFTA.
    The CAFTA we are supporting is not perfect in that respect, 
but we believe many of the imperfections will be corrected 
during the implementation. These would be important 
improvements to an agreement that already includes a special 
textile safeguard mechanism, enhanced customs enforcement, and 
elimination of duties as high as 18 percent.
    We currently export over 200,000 bales of cotton annually 
to the region. That is about 90 percent of their consumption, 
so it is good business for us. None of the CAFTA countries 
impose import duties on U.S. cotton, but they could, so the 
elimination of duties is important.
    But CAFTA is really about the preservation of our 
manufacturing base. We believe it will provide an opportunity 
for the establishment of a sustainable Western Hemisphere 
platform for the conversion of U.S. cotton into yarn, fabric, 
and apparel that could compete with China.
    In the year 2004, U.S. manufacturers exported yarn and 
fabric that contained 2.4 million bales of U.S. cotton to the 
CAFTA countries. This is up 50 percent from the year 2001. 
Those value-added exports are expected to grow more rapidly if 
CAFTA is approved than would occur if we simply continued to 
rely on the Caribbean Basin Initiative legislation.
    We are pleased that the administration recently took action 
to utilize the special safeguard authorization in China's WTO 
accession agreement to slow the extraordinary growth of Chinese 
textile exports to the United States. Safeguards are important 
short-term measures. Properly applied, they can provide time 
for the U.S. industry to adjust and for CAFTA to work, but this 
is only short-term.
    CAFTA can be an important component of a trade policy to 
preserve the $4 billion a year in textile exports and thousands 
of jobs that depend on these exports.
    Mr. Chairman, international trade in textiles and apparel 
is competitive and complicated. Effective rules of origin are 
one of those complicating factors. But those rules make it 
possible for U.S. manufacturers to partner with firms in the 
CAFTA region in order to strengthen their competitive positions 
relative to China and other low-cost suppliers.
    The Council is joined in its support for CAFTA by the 
National Council of Textile Organizations, the Carpet and Rug 
Institute, the Non-Woven Industry Association, the American 
Fiber Manufacturers, and the American Textile Manufacturers 
Association. The support for CAFTA is not unanimous in the 
textile industry by the membership of the organizations I have 
just mentioned, but they produce a very significant portion of 
the United States production capacity. Their combined sales 
exceed over $100 billion a year in U.S., and 13 percent of the 
U.S. cotton production is currently exported to the region in 
raw cotton and value-added exports.
    As I have said, this agreement is not perfect, but it can 
be a foundation on which to build. With the leadership of the 
U.S. Trade Representative and the Secretary of Commerce, 
combined with the oversight by Congress, we believe it will 
serve our needs. Therefore, I respectfully request that you and 
your colleagues support it when it is presented to Congress for 
approval.
    Mr. Chairman, as a Georgian involved in agriculture, I want 
to close by thanking you for your leadership and your continued 
commitment to support U.S. agriculture. Farm and trade policy 
are tough issues, but I am confident you will continue to lead 
us to the balanced and effective solution. Thank you.
    The Chairman. Thank you.
    [The prepared statement of Mr. McLendon can be found in the 
Appendix on page 122.]
    The Chairman. Mr. Dooley?

STATEMENT OF CAL DOOLEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
           FOOD PRODUCTS ASSOCIATION, WASHINGTON, DC

    Mr. Dooley. Thank you.
    The Chairman. We are glad to have you here, Cal.
    Mr. Dooley. Well, thank you, Mr. Chairman. I am glad to be 
here, and Mr. Thomas, thank you for allowing me to testify. I 
am here as the President and CEO of the Food Products 
Association, which is one of the largest food and beverage 
associations in the United States and certainly the world.
    The Food Products Association, along with the vast majority 
of agriculture producers and other processors, strongly support 
the passage of CAFTA, and the reasons for that are obvious. It 
is clear that this agreement will provide new market 
opportunities for U.S. agriculture products, including 
processed foods and beverages.
    You have heard the statements before that the CAFTA 
countries together represent our 12th largest trading partner, 
and more than 80 percent of the food and agriculture products 
imported into the United States from CAFTA currently enter 
duty-free. By contrast, U.S. exporters to Central America face 
duties of 11 percent, on average, and some of our food 
processing products such as cheese and yogurt face prohibitive 
tariffs in excess of 60 percent in a number of CAFTA-DR 
countries.
    Under this agreement, tariffs on most food products will be 
phased out within 15 years and many food products, like pet 
foods, cereals, soups, and cookies, will become duty-free 
immediately. Others, such as certain canned and frozen fruits 
and vegetables, have immediate or a 5-year phase-out.
    Our colleagues, FPA's colleagues at the Grocery 
Manufacturers Association of America, recently commissioned a 
study to quantify CAFTA-related benefits for processing food 
and beverage products. The study found that the potential 
savings from tariff reductions and quota expansions alone will 
be nearly $8.8 million annually. When the agreement is fully 
ratified or in place, it would amount to $28 million annually 
for food processed products and beverages.
    The study also measures the potential aggregate increase in 
exports to these five Central American countries and the 
Dominican Republic, and the trade flow analysis suggests that 
upon elimination of tariffs, exports could increase from $359 
million to $662 million, an 84 percent increase over current 
exports to the region.
    Listening to the earlier comments, I think sometimes we are 
losing sight of one of the traditional economic concepts of 
relative advantage. It is clear why CAFTA countries had these 
tariffs in place that were harming and impeding the ability of 
U.S. value-added processed food products to enter their market, 
because they did not have a relative advantage there. They 
clearly understood that they would have difficulty competing 
with U.S. producers and processors. This agreement levels the 
playing field, allows us to have access to those markets 
without the burden of these tariffs.
    We need to show some level of intellectual consistency as 
how we approach some commodities which the CAFTA countries 
perhaps have a relative advantage, and that is why the Food 
Products Association, with the vast majority of agricultural 
producers, support the approach that the administration has 
taken as it pertains to sugar, because we cannot allow one 
commodity to impede the ability for those commodities and those 
sectors of our economy that have an interest in competing 
internationally to be impeded from the access to those 
marketplaces.
    Just in closing, I just had the opportunity to visit El 
Salvador just last year, my last year in Congress, with a few 
of my colleagues. One of the most, I think, telling 
opportunities was the chance that we had to go visit a textile 
company called Charles Products. We went down on the floor of 
this textile manufacturer and there was this basically sea of 
sewing machines, a thousand sewing machines, and what was 
remarkable about it was there was not one person that was 
sitting behind those sewing machines. And the reason for that 
was because the company, without the certainty that the tariffs 
were going to be maintained, made the decision to move their 
investment out of El Salvador and into Asia. This 1,000 sewing 
machines that were vacant meant 1,500 jobs for people in El 
Salvador, primarily supporting their families.
    The failure to ratify CAFTA is only going to see a further 
exodus of these type of jobs, and as Mr. McLendon said, that is 
not in the interest of U.S. cotton producers. It is not in the 
interest of the United States in terms of maintaining an 
economic partnership with Central America that can facilitate 
their growth.
    I would be the first to admit that this is not a perfect 
agreement, but you, I think, all know as members of the Senate, 
and from my past experience as a Member of Congress, when you 
do have a policy that comes before you that has the endorsement 
of the Wall Street Journal as well as the Washington Post, 
there must be something in it that has some merit. I would hope 
that we would be able to see the ability to put together the 
bipartisan support that would result in the enactment of this 
agreement, that would provide the economic benefits to many of 
my members in the food processing sector, and would certainly 
provide that helping hand of partnership to our friends in 
Central America.
    The Chairman. Thank you very much, gentlemen.
    [The prepared statement of Mr. Dooley can be found in the 
Appendix on page 129.]
    The Chairman. Mr. Stallman, if this agreement should fail 
to win approval, do you think that U.S. agriculture would be 
put at a disadvantage in any way?
    Mr. Stallman. Well, Mr. Chairman, I do, and I will give you 
a direct example of that. I was in Geneva for a week, the last 
week in April, and obviously talking about the process of the 
WTO negotiations and mind-numbing topics like ad valorem 
equivalents. But the single most consistent question I got from 
the trade negotiators from other countries was what is the U.S. 
Congress going to do with CAFTA? Is the Congress going to pass 
it or not? And there is a high level of interest in, in 
essence, trying to see what our commitment to trade agreements 
is, particularly in the case of agriculture, one that is so 
positive for U.S. agriculture.
    And I do believe, based on that experience and other 
conversations I have had over the past period since this 
agreement has been out there and waiting for a vote and 
approval, what we do on this agreement is going to send a 
really strong message on what we do in other negotiations or 
what other countries will do in other negotiations and 
primarily in the WTO. So it does concern me about the prospect 
of this one not moving forward.
    The Chairman. Your policy is to provide for comprehensive 
trade negotiation. Do you have any feelings about whether or 
not the U.S. ought to exclude any commodities from being placed 
on the table relative to future trade agreements?
    Mr. Stallman. Mr. Chairman, our policy addresses that 
directly. It is a long-held position that we believe that 
everything should be on the table. All commodities should be on 
the table. We have an additional policy that, in essence, says 
import-sensitive products should be considered in negotiations 
and provisions should be put in place to minimize negative 
effects, and that is where we think the CAFTA agreement really 
meets those policy provisions with respect to sugar, given the 
provisions that are incorporated in that agreement to protect 
the sugar industry.
    So we understand that any time in negotiations that you 
take a commodity off the table, other countries want to take 
their commodities of interest off the table, which may be our 
export interest and thus harm the pocketbooks of other U.S. 
producers.
    The Chairman. In this CAFTA agreement, you have heard us 
discuss the possibility of compensation being given to the 
countries that are a part of this agreement from Central 
America in the event that the trigger is pulled and that more 
sugar is indeed purported to be imported into the United States 
from these countries, and in lieu of that, we have the right to 
pay compensation to those countries. What would people in your 
part of Texas think about the Federal Government writing checks 
to Central American countries in lieu of allowing those 
countries to import sugar into the United States?
    Mr. Stallman. Well, I am not sure what they would think. We 
support that compensation provision as one of the tools to 
minimize the negative effects on the sugar industry if it is 
needed. But Secretary Johanns, I think, clearly laid it out in 
the first panel. Given the structure of the domestic sugar 
program, given the control that USDA has on how that program is 
managed and run, I think it is highly unlikely we would get to 
that point. Given the fact that beef, and we will use Texas as 
an example, beef would certainly benefit, as would rice, which 
are both, coincidentally, commodities I raise, I think if that 
became necessary that the benefits still extended to these 
other commodities for the opening of those export markets, they 
would understand and be supportive. But that is speculative.
    The Chairman. And I will have to tell you, we don't grow 
any rice in Georgia, but if rice had been singled out in a 
negative way in this trade agreement, I would be in the same 
position of trying to make sure that the farm bill were carried 
out and that rice receive the protections that it was entitled 
to under the farm bill, and that is where I am struggling, Bob, 
relative to the responses that I have gotten today regarding 
not just the compensation provision, but all of the assumptions 
that have been made.
    Mr. McLendon, are you fully satisfied that the FTA will 
ensure, as you state, a sustainable, effective Western 
Hemisphere platform for the U.S. cotton and textile industry?
    Mr. McLendon. We certainly hope so. I don't think any 
commodity will benefit by this CAFTA more than the cotton 
industry will. And you realize that we have lost domestic 
consumption in the domestic industry. We have gone from 11.5 
million bales down to about 6.5 million bales in 7 years and we 
have lost that market to production in Asia.
    We feel like that CAFTA will give us the opportunity to 
ship raw cotton and also fabric and value-added products to 
Central America so that those products can be brought back into 
the United States and compete with China. If we don't do 
something like that, we are going to fully lose the textile 
industry in this country, and I don't think any commodities 
will benefit as much as cotton will from this CAFTA agreement.
    We don't have consensus. We do in the Cotton Council, but 
we don't have consensus in the cotton industry, particularly 
from manufacturing.
    We would hope that this agreement would turn around the 
loss of the market that we have had in this country. We are 
consuming about 32 million bales of cotton in textile and 
apparel products at retail, but a great deal of this is now is 
coming from China and from Asia. It is cheap sources of 
production that have taken our market. If we don't do 
something, we are going to completely lose the textile industry 
in this country except for niche products.
    The Chairman. You and I know what has happened to the 
textile industry in Georgia over the last ten to 15 years and 
those thousand cut-and-sew jobs that Mr. Dooley referred to as 
moving from Central America to Asia may have moved from Georgia 
to Central America at some point in time. I am just sitting 
here thinking about what drives the purchase of cotton, 
particularly U.S. cotton. Obviously, we know there is no finer 
quality of cotton produced by anybody in the world. What about 
shipping costs, going to Central America versus going to, say, 
China?
    Mr. McLendon. That is one of the biggest advantages we 
have. You can go back to the 17th century. The textile industry 
moved from England to the Northeastern United States because 
there was labor there that was available to produce textile 
products. People needed jobs. It moved to the South because of 
the same reason, and it has moved to Central America, and to 
Asia.
    What we have is a transportation advantage to this CAFTA 
area that will enable us to better compete with Asia for these 
textile products to come back in our country. China is our No. 
1 customer for raw cotton now. It is not a very dependable 
market. I can't depend on that as being somebody that is going 
to consistently buy my cotton. But we have an advantage and we 
can sell the cotton to Central America, the CAFTA countries, 
because they have an advantage buying our raw cotton and using 
our fabric, whereas the transportation cost from Asia is much 
more expensive.
    So that gives us a competitive advantage and we think that 
by utilizing the labor force that is in Central America, we 
will be able to compete with the Chinese textile products being 
brought into this country.
    The Chairman. Mr. Dooley, I notice that the processed food 
exports to the DR-CAFTA countries already account for about 25 
percent of the total food imports and are increasing faster 
than any other agricultural export. What is driving the 
increased demand and who are your main competitors in that 
market?
    Mr. Dooley. I think that the increased demand is oftentimes 
directly correlated to improvements in per capita GDP, is that 
what we see in the example I used with Charles Products is that 
when you see an employment opportunity that provides greater 
discretionary and disposable income by a family is that they 
oftentimes spend a significant portion of that, certainly in 
the developing world, on food and, to some extent, fiber 
products. Their expenditures oftentimes go to products or food 
products that have an additional processing that is included 
into that, which is what the U.S. and U.S. food processors 
excel in and where we have that competitive advantage.
    In terms of where we could see competition, you know, when 
you asked an earlier question in terms of what would be the 
impact if we didn't pass CAFTA to the agriculture sector, it 
brought to mind what we saw happen when Canada entered into a 
bilateral agreement with Chile that preceded the U.S.-Canadian 
bilateral agreement significantly. Canada then became the 
preferred supplier of wheat, became the preferred supplier of 
certainly Caterpillar tractors for their mining industry. In 
some instances, Canada has a very well developed processed food 
industry which they could become the preferred supplier to 
Chile.
    If the United States doesn't ratify CAFTA, we are going to 
create a vacuum, to some extent, that isn't just going to 
remain. Somebody is going to fill it, whether it is going to be 
Chile, whether it is going to be Brazil, whether it is even 
going to be the EU that has been looking to structure 
additional bilateral and regional agreements. And that is where 
I think many of us are concerned, is that if we do not, the 
United States does not maintain the leadership in pursuing even 
these bilateral agreements, is that we are not going to be 
advancing the interest of U.S. companies and also work to the 
benefit of the people they employ.
    The Chairman. Gentlemen, thank you very much for your 
testimony, for your insight in this very complicated issue, and 
we appreciate very much you being here. Thank you.
    Our last panel of the day will consist of Mr. Tom Buis, 
National Farmers Union; Mr. Jack Roney, Director of Economics 
and Policy Analysis from the American Sugar Alliance; and Mr. 
Augustine Tantillo, Executive Director, American Manufacturing 
Trade Action Coalition.
    Gentlemen, we welcome each one of you here today and we 
look forward to your testimony. Mr. Buis, we will start with 
you and go to you, Mr. Roney, and then to you, Mr. Tantillo.

 STATEMENT OF TOM BUIS, VICE PRESIDENT, GOVERNMENT RELATIONS, 
             NATIONAL FARMERS UNION, WASHINGTON, DC

    Mr. Buis. Thank you, Mr. Chairman. It is a pleasure to be 
here and we want to start by commending you for holding this 
hearing. I think there is a lot of interest in trade around the 
country.
    I noted Senator Roberts and Senator Baucus earlier talking 
about if you go out into the agriculture community and you 
mention trade as the solution to your problems, you are 
probably going to get a lot of resistance and a lot of 
criticism. I think farmers are skeptical, increasingly cynical 
about trade because they have often been oversold, basically 
with promises that have never been kept.
    We are always led to believe that we are just one trade 
agreement away from prosperity and we never seem to reach that 
goal. Both NAFTA and the Uruguay Round, China, Australia, if 
you go back and look at the statements advancing those trade 
agreements, the rhetoric is just almost identical, a win-win, a 
win-win-win for agriculture, rosy, optimistic scenarios that 
sound great, but in reality fall short.
    The proponents of these agreements also suggest without 
these agreements, no U.S. agriculture products would move in 
world commerce. However, if you look at the period from 1990 to 
1994, before NAFTA and before the WTO, our agriculture exports 
resulted in an average trade surplus of $23 billion per year. 
Compare that to what is happening after NAFTA and WTO. Look at 
last year. While exports were at a record level, primarily 
because of a falling dollar, a weak dollar against other 
currencies, it just barely exceeded imports. And this year, for 
the first time in a half-century, the United States is likely 
to import more agriculture products than we export.
    It clearly demonstrates what is happening to American 
agriculture as a result of these agreements. We are losing. We 
are losing because our trade negotiators do a great job at 
getting agreements, but an incomplete job of protecting our 
agriculture interests. They are negotiating agreements that 
open our borders to competitive imports without expanding our 
export opportunities. We don't believe this one-way trade can 
be sustained.
    The problem is not that we are negotiating trade. Trade is 
important. The problem is we are only negotiating part of those 
factors. Major trade factors, such as currency manipulation, 
labor, health, and environmental standards are not on the 
table. To U.S. farmers, currency, labor, and environment 
ultimately determine our competitiveness in international 
markets.
    Currency obviously determines the price our products will 
sell in the international market.
    Labor costs, especially in the high-value and value-added 
industry, are often the single biggest input cost for 
producers. Look at the textile industry and what has happened 
with it. It is following cheap labor, not just in the United 
States, but around the world.
    And environmental and health standards are significant 
input cost factors, and a lot of people are surprised to hear 
that coming from a farm organization. But if you stop and 
figure out all the money spent by farmers and ranchers to 
comply with environmental regulations that this country has 
deemed important and all the health and safety factors that are 
deemed important, and the list keeps growing. Right now, we are 
facing animal identification regulations, regulations on the 
handling of farm fuel, even in the back of their pick-ups, the 
regulation of nitrogen fertilizers so terrorists don't use it 
to build a bomb, and a host of other factors. In fact, last 
week in South Dakota, I had a rancher come up to me and he 
estimated that that is about a third of his cost of raising 
cattle, is complying with environmental health safety 
standards. Yet we don't require other countries to do the same.
    The advocates also say that trade agreements are not the 
place to negotiate labor and environmental standards. We 
disagree. If trade agreements can dictate how we farm and what 
our U.S. farm policy should be, then I think the trade 
agreements can dictate how countries treat their workers and 
protect their environment.
    Specifically regarding CAFTA, the Farmers Union is opposed, 
we are unanimously opposed. A resolution was adopted at our 
convention. We hope Congress rejects it. We hope they go back 
to the drawing board and include these factors. We think it is 
a continuation of the failed trade policy that is clearly not 
working for us. It is based on overly optimistic assumptions 
that have not materialized in the past and they are unlikely to 
do so in the future. It is an incremental approach to trade at 
a time--a heavy emphasis on bilateral and regional trade 
agreements when we should be negotiating on the worldwide 
level. And it sets a precedent that could have devastating 
impacts, especially on the sugar industry.
    The argument made by the CAFTA supporters begs the 
question. Which is better, a bird in the hand or two in the 
bush? They are advocating trading our bird in the hand, a $10 
billion U.S. sugar industry, for two birds in the bush that we 
may never catch in the future and way out in the future when 
fully implemented and the optimistic assumptions are minimal.
    In summary, we are opposed and we think this agreement will 
increase, not decrease, the outsourcing of our nation's food 
and fiber production and continue to race to the bottom of 
commodity prices. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    [The prepared statement of Mr. Buis can be found in the 
Appendix on page 132.]
    The Chairman. Mr. Roney?

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

    Mr. Roney. Thank you, Mr. Chairman. I am Jack Roney, 
Director of Economics and Policy Analysis for the American 
Sugar Alliance. I have the privilege of speaking today on 
behalf of 146,000 American farmers, workers, and their families 
who grow, process, and refine sugar beets and sugar cane in 19 
States.
    The proposed CAFTA threatens American sugar jobs in all 19 
of these States. By the government's own estimates, sugar job 
losses from the CAFTA will be far greater than any other 
sectors, 38 times greater than the next biggest job loser, 
textiles. The same International Trade Commission study also 
questions the overall value of the CAFTA to our economy. The 
ITC concluded that the CAFTA will increase the trade deficit 
with that region, not reduce it.
    The lack of evidence of any economic benefit for the U.S., 
or for that matter for the Central American countries, has led 
to widespread opposition to the CAFTA. Sugar is by no means the 
sole opponent. National polls show the majority of Americans 
oppose the CAFTA. Key farm groups oppose, including the 
National Farmers Union, RCAF, the national association of 
independent ranchers, the National Association of State 
Departments of Agriculture, grower organizations for 
commodities that would have to absorb the 2.5 million acres of 
displaced beet and cane, and that includes a number of State 
wheat and corn associations, and several State Farm Bureau 
Federations. Large numbers of labor, environmental, human 
rights, Hispanic, and religious groups in the United States and 
in the CAFTA countries oppose the CAFTA.
    Our sugar growers and processors are among the most 
efficient in the world. Like other American farmers, we can 
compete against foreign farmers, but we cannot compete against 
foreign government subsidies. The world sugar market is the 
world's most distorted commodity market. A vast global array of 
subsidies encourages overproduction and dumping. We support 
correcting this distorted dump market through genuine global 
trade liberalization.
    There is a right way and a wrong way to attack global sugar 
subsidies. The right way: the WTO, all countries at the table, 
all subsidies on the table. The wrong way: bilateral and 
regional FTAs, where markets are wrenched open without 
addressing any foreign subsidies. Virtually every FTA ever 
completed around the world excludes import access mandates for 
sugar. Only the U.S. has ever guaranteed access to its sugar 
market in an FTA, in the NAFTA and in the CAFTA, and these 
agreements are mired in controversy. Sugar must be reserved for 
the WTO, where genuine trade liberalization can occur.
    American sugar farmers know their industry and their policy 
well. We have examined the CAFTA provisions soberly and 
carefully. We regard the CAFTA as a life or death issue. 
American farmers and workers who will lose their jobs are 
insulted by CAFTA proponents who trivialize the potential harm 
from this agreement with cutsey, misleading depictions of 
additional access and teaspoons or packets per consumer per 
day.
    We are already one of the world's most open sugar markets. 
Past trade agreement concessions force us to import upwards of 
1.5 million tons of sugar per year from 41 countries duty-free. 
This makes us the world's fourth largest net sugar importer. 
The CAFTA countries and the DR are already our biggest duty-
free supplier, accounting for a fourth of our imports.
    Unfortunately, our market is already oversupplied. U.S. 
sugar producers are currently holding a half-million tons of 
sugar off the market and storing it at their own expense. Every 
additional ton of sugar we are forced to import from foreign 
countries is one ton less that struggling American sugar 
farmers will be able to sell in their own market. Import more 
foreign sugar, export more American jobs.
    The CAFTA poses both short-term and long-term dangers to 
American sugar farmers and workers. In the short term, CAFTA 
sugar market access concessions on top of import commitments 
the U.S. has already made in the WTO and the NAFTA will prevent 
the USTA from administering a no-cost sugar policy as Congress 
directed it to in the 2002 farm bill. The additional 
concessions will trigger off the marketing allotment program 
that permits USDA to restrict domestic sugar sales and balance 
the market. Absent marketing allotments, surplus sugar would 
cascade onto the U.S. market and destroy the price.
    In the long term, the CAFTA is the tip of the FTA iceberg. 
Behind the CAFTA countries, 21 other sugar-exporting countries 
are lined up like planes on the tarmac, waiting to do their 
deal with the U.S. No doubt, they expect no less than the 
concessions already granted to the CAFTA countries. Combined, 
these 21 countries export over 25 million tons of sugar per 
year, nearly triple U.S. sugar consumption. Obviously, the 
precedent the CAFTA concessions set will make it impossible for 
the U.S. sugar industry to survive future agreements.
    In conclusion, Mr. Chairman, the CAFTA will cost thousands 
of American sugar farmers and workers their jobs. The certain 
dangers of the CAFTA to the U.S. economy far outweigh the 
marginal possible benefits. We respectfully urge that this 
committee reject the CAFTA and focus U.S. trade liberalization 
efforts instead on the WTO, where there is genuine potential 
for progress. Thank you.
    The Chairman. Thank you.
    [The prepared statement of Mr. Roney can be found in the 
Appendix on page 135.]
    The Chairman. Mr. Tantillo?

 STATEMENT OF AUGUSTINE TANTILLO, EXECUTIVE DIRECTOR, AMERICAN 
      MANUFACTURING TRADE ACTION COALITION, WASHINGTON, DC

    Mr. Tantillo. Thank you, Mr. Chairman. I greatly appreciate 
this opportunity to appear before your committee. My name is 
Auggie Tantillo. I am the Executive Director of the American 
Manufacturing Trade Action Coalition. AMTAC is a consortium of 
U.S. manufacturers that come from all points on the industrial 
spectrum, manufacturers of chemicals, tools, plastics, paper 
products, packaging products, and, of course, textiles and 
apparel. In fact, textiles and apparel make up for well over 
half of our membership.
    AMTAC strongly opposes CAFTA because we believe it is a 
flawed component of an overall flawed trade policy, a policy 
that insists on marrying the U.S. market to low-wage, low cost 
of production trading partners, such as those in Central 
America, Free Trade Agreements that pit U.S. workers who are 
making $12 to $15 an hour traditionally in the textile and 
apparel sector, who are being paid health care, who receive 
pension benefits, against workers who are making less than $1 
per hour, who receive no health care, no pension benefits, who 
work under conditions that have long since been outlawed in the 
United States, who work for manufacturers who oftentimes have 
no regard for the environment, and therefore are able to vastly 
underprice exports or products in our own market.
    It is no surprise that because of our current trade policy, 
which insists on Free Trade Agreements with low-cost, low wage-
producing nations, that we now have a $617 billion trade 
deficit and that millions of manufacturing jobs have been 
exported over the past 10 years, factories closed and companies 
bankrupted.
    As I mentioned, Mr. Chairman, a significant portion of our 
membership is textile and apparel related. Our membership 
strongly disagrees with the view that CAFTA is going to be a 
benefit. In fact, we view it as a major detriment that is going 
to cost at least $1 billion in current exports to that region. 
I make that statement because under the current law, which is 
the Caribbean Basin Trade Partnership Act, imports of apparel 
made in Central America--Honduras, Guatemala, Nicaragua, El 
Salvador--come into the United States today duty-free if they 
use U.S. fabric made from U.S. yarn. Under the CAFTA 
arrangement, the requirement to strictly use U.S. components, 
such as fabric and yarn, is removed. In addition to using U.S. 
fabric and yarn, they can use their own yarn and fabric 
produced in that region.
    As if that were not enough to entice the Central Americans 
to sign this agreement, the U.S. negotiating team felt 
compelled to go a major step further and to say that for a 
billion square meters of fabric, those components can come from 
China, India, Pakistan, in some cases Mexico and Canada. And as 
a result, we are going to displace existing exports to this 
very important region due to these provisions that we call 
loopholes or exceptions to the rule of origin.
    These provisions include ideas such as cumulation, which 
means that Mexico can send their fabric to Honduras. That 
fabric can be cut and sewn, sent to the United States duty-free 
in the form of a garment. A tariff preference level with 
Nicaragua, which means that for 100 million square meters of 
cotton trousers, for example, Nicaragua can purchase the yarn 
and fabric from China. Certain products, such as brassieres, 
pajamas, and boxer shorts are exempted from the rule of origin 
altogether. They can get those components from any country in 
the world. There are other items in a garment that the U.S. 
Trade Representative deemed as non-essential--pocketing fabric, 
lining fabric, which can come from any supplier in the world 
and be assembled in Central America and then sent to the United 
States in the form of a garment, again, duty-free.
    It is for that reason, Mr. Chairman, that the two largest 
textile companies in Georgia, Avondale Mills and Miliken and 
Company, strongly oppose CAFTA. We believe it is going to 
displace existing sales to that region and we don't understand 
why the U.S. Government had to conclude an agreement that had 
so many loopholes in it for third-party countries, countries 
that are not part of the region, countries that were not at the 
negotiating table.
    I heard earlier today that the USTR testified that this is 
a bulwark against China. It is an effort to stem the flood of 
textile and apparel imports from China. Well, we have two major 
concerns with that argument. The first is that we don't need 
any more excuses not to deal directly with the China problem. 
It is time for the U.S. Trade Representative to develop a 
rational policy with the Chinese that deals with their currency 
manipulation, their export rebates, their state-sponsored 
subsidies, their nonperforming loans, which are literally 
destroying the U.S. manufacturing base.
    Second, it is illogical to argue that we are going to give 
the Chinese a back-door entry into our market by shipping 
component yarns and fabrics to Central America to be assembled 
and then sent to the United States duty-free. It is illogical 
to argue that that is going to address the China textile trade 
problem. In essence, it is going to give them another half-a-
billion dollars in access, this time under a tariff-free 
arrangement.
    So we ask that this agreement be defeated and that the U.S. 
negotiating team go back to the table and produce an agreement 
that excludes loopholes that allow for third-party countries to 
benefit and ensures that, at the very least, the existing 
exports that go from U.S. textile manufacturers to that region 
are preserved.
    Mr. Chairman, we appreciate the fact that you are digging 
so deeply into this issue and looking for the proper posture in 
regards to this. We ask that the Senate take a strong look not 
only at what the agriculture components are, but what the 
upstream or downstream circumstances are. As you know, the U.S. 
textile industry is a major consumer of U.S. cotton, and we 
consume over six million bales a year. Anything that impacts us 
as seriously as we believe CAFTA will impact us is definitely 
going to have an impact on the U.S. cotton industry.
    Thank you very much.
    The Chairman. Gentlemen, thank you.
    [The prepared statement of Mr. Tantillo can be found in the 
Appendix on page 153.]
    The Chairman. The lack of Senators being here is no 
reflection on their interest in your positions. It has a lot 
more to do with a vote on which the time has now expired that I 
must run to.
    Thank you very much for your testimony. We appreciate your 
being here and we will leave the record open for 5 days for any 
additional items that anyone would like to include in the 
record. Gentlemen, thank you.
    The hearing is adjourned.
    [Whereupon, at 12:20 p.m., the committee was adjourned.]
      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

                              June 7, 2005



      
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                         QUESTIONS AND ANSWERS

                              June 7, 2005



      
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