[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]



          RENEGOTIATING NAFTA: OPPORTUNITIES FOR AGRICULTURE

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 26, 2017

                               __________

                           Serial No. 115-11
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                            


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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

GLENN THOMPSON, Pennsylvania         COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
BOB GOODLATTE, Virginia,             DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma             JIM COSTA, California
STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
BOB GIBBS, Ohio                      JAMES P. McGOVERN, Massachusetts
AUSTIN SCOTT, Georgia                FILEMON VELA, Texas, Vice Ranking 
ERIC A. ``RICK'' CRAWFORD, Arkansas  Minority Member
SCOTT DesJARLAIS, Tennessee          MICHELLE LUJAN GRISHAM, New Mexico
VICKY HARTZLER, Missouri             ANN M. KUSTER, New Hampshire
JEFF DENHAM, California              RICHARD M. NOLAN, Minnesota
DOUG LaMALFA, California             CHERI BUSTOS, Illinois
RODNEY DAVIS, Illinois               SEAN PATRICK MALONEY, New York
TED S. YOHO, Florida                 STACEY E. PLASKETT, Virgin Islands
RICK W. ALLEN, Georgia               ALMA S. ADAMS, North Carolina
MIKE BOST, Illinois                  DWIGHT EVANS, Pennsylvania
DAVID ROUZER, North Carolina         AL LAWSON, Jr., Florida
RALPH LEE ABRAHAM, Louisiana         TOM O'HALLERAN, Arizona
TRENT KELLY, Mississippi             JIMMY PANETTA, California
JAMES COMER, Kentucky                DARREN SOTO, Florida
ROGER W. MARSHALL, Kansas            LISA BLUNT ROCHESTER, Delaware
DON BACON, Nebraska
JOHN J. FASO, New York
NEAL P. DUNN, Florida
JODEY C. ARRINGTON, Texas

                                 ______

                   Matthew S. Schertz, Staff Director

                 Anne Simmons, Minority Staff Director

                                  (ii)
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     1
    Prepared statement...........................................     2
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     3

                               Witnesses

Vilsack, Hon. Thomas ``Tom'' J., President and Chief Executive 
  Officer, U.S. Dairy Export Council, Arlington, VA..............     4
    Prepared statement...........................................     5
Frazier, Kendal, Chief Executive Officer, National Cattlemen's 
  Beef Association, Centennial, CO...............................    15
    Prepared statement...........................................    16
Brosch, J.D., Kevin J., Principal, BroschTrade LLC, Woodville, 
  VA; on behalf of National Chicken Council; National Turkey 
  Federation; USA Poultry & Egg Export Council...................    25
    Prepared statement...........................................    26
Gaibler, Floyd D., Director, Trade Policy and Biotechnology, U.S. 
  Grains Council, Washington, D.C................................    30
    Prepared statement...........................................    32
Hammer, Thomas A., President, National Oilseed Processors 
  Association, Washington, D.C...................................    36
    Prepared statement...........................................    38
Brown, Reginald L., Executive Vice President, Florida Tomato 
  Exchange, Maitland, FL; on behalf of Florida Fruit and 
  Vegetable Association..........................................    42
    Prepared statement...........................................    44

 
           RENEGOTIATING NAFTA: OPPORTUNITIES FOR AGRICULTURE

                              ----------                              


                        WEDNESDAY, JULY 26, 2017

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1300 of the Longworth House Office Building, Hon. K. Michael 
Conaway [Chairman of the Committee] presiding.
    Members present: Representatives Conaway, Thompson, Lucas, 
Gibbs, Austin Scott of Georgia, Crawford, DesJarlais, LaMalfa, 
Davis, Yoho, Allen, Bost, Rouzer, Kelly, Comer, Marshall, Faso, 
Dunn, Arrington, Peterson, David Scott of Georgia, Costa, Walz, 
Fudge, McGovern, Vela, Lujan Grisham, Kuster, Nolan, Bustos, 
Plaskett, Adams, Evans, Lawson, O'Halleran, Panetta, and Soto.
    Staff present: Bart Fischer, Darryl Blakey, Jackie Barber, 
Matthew S. Schertz, Rachel Millard, Stephanie Addison, Anne 
Simmons, Liz Friedlander, Mary Knigge, Matthew MacKenzie, Mike 
Stranz, John Konya, Nicole Scott, and Carly Reedholm.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    The Chairman. Good morning. This hearing of the Committee 
on Agriculture entitled, Renegotiating NAFTA: Opportunities for 
Agriculture, will come to order. I have asked G.T. Thompson to 
offer up the prayer. G.T.?
    Mr. Thompson. Thank you, Mr. Chairman.
    Heavenly Father, we just thank You for this blessed day, 
the rest of the night, and this new day. Lord, we come together 
as individuals who share a passion and commitment for 
agriculture, for rural America, and what rural America provides 
to all of America and much of the world. And so Lord, we just 
ask Your blessings over these proceedings. We gather here to 
celebrate all the blessings that You have given us in terms of 
access to bountiful, affordable food and clothing materials and 
building materials and energy, all of the resources that you 
have blessed us with and charged us to utilize. We just ask 
your blessings over these proceedings, and I ask this in the 
name of my savior, Jesus Christ. Amen.
    The Chairman. Thank you, G.T.
    I want to start by welcoming our witnesses today. Thank you 
for taking time out of your schedules to share your thoughts 
with us today.
    As we have noted often, American farmers and ranchers are 
the most efficient, productive and competitive producers in the 
world. Their ability to meet the rapidly-growing and ever-
changing demands both at home and abroad has allowed our 
country to become one of the world's most open agricultural 
economies, supplying our trading partners with a safe and 
affordable food and fiber supply.
    These trade relationships have become an essential part of 
the U.S. agricultural industry, and nowhere is trade more 
important than in our relationships with our neighbors to the 
north and south.
    For more than 20 years, NAFTA has governed trade among our 
three countries, and in that time U.S. agricultural exports to 
Canada and Mexico have nearly quadrupled. Both countries have 
remained essential trading partners for the U.S., accounting 
for roughly 28 percent of total U.S. agricultural trade.
    While Canada and Mexico regularly are two of our top three 
export destinations for agricultural products, they also remain 
the United States' largest suppliers of agricultural inputs. In 
2016, while the U.S. continued to run an overall trade surplus 
in agriculture, we managed to run a trade imbalance with both 
Canada and Mexico, totaling over $6 billion.
    A lot has changed since the 1994 agreement was signed. All 
three economies are much larger and production agriculture has 
evolved and improved, growing to meet ever-changing consumer 
demands and technological advances. And it is against this 
backdrop that the Trump Administration prepares to renegotiate 
the terms of NAFTA.
    I recognize there is a certain level of angst about 
renegotiating the terms of our agreement. But let me reiterate, 
we have no interest in reversing any of production 
agriculture's hard-fought gains, and the Administration has 
made clear that it doesn't either. In fact, the recently-
published renegotiation objectives affirmed the importance of 
maintaining existing reciprocal duty-free market access for 
agricultural goods.
    Whether you are focused on maintaining current market 
access or you are eager for prospects of expanded trade 
opportunities, production agriculture stands to benefit from a 
modernized trade agreement with our neighbors to the north and 
south. As always, we must stay vigilant and all work together 
to ensure we achieve the best deal possible for American 
agriculture.
    [The prepared statement of Mr. Conaway follows:]

  Prepared Statement of Hon. K. Michael Conaway, a Representative in 
                          Congress from Texas
    I want to start by welcoming all of our witnesses. Thank you for 
taking time out of your busy schedules to share your thoughts with us 
today.
    As we have noted time and again, America's farmers and ranchers are 
the most efficient, productive and competitive producers in the world. 
Their ability to meet the rapidly-growing and ever-changing demands 
both at home and abroad has allowed our country to become one of the 
world's most open agricultural economies, supplying our trading 
partners with a safe and affordable food and fiber supply.
    These trade relationships have become an essential part of the U.S. 
agricultural industry, and nowhere is trade more important than in our 
relationship with our neighbors to the north and south.
    For more than 20 years, NAFTA has governed trade among our three 
countries, and in that time has nearly quadrupled U.S. agricultural 
exports to Canada and Mexico. Both countries have remained essential 
trading partners for the U.S., accounting for roughly 28 percent of 
total U.S. agricultural exports in 2016.
    While Canada and Mexico regularly are two of our top three export 
destinations for agricultural products, they also remain the United 
States' largest suppliers of agricultural inputs. In 2016, while the 
U.S. continued to run an overall trade surplus in agriculture, we 
managed to run a trade imbalance with both Canada and Mexico, totaling 
over $6 billion.
    So, a lot has changed since the 1994 agreement was signed. All 
three economies are much larger and production agriculture has evolved 
and improved, growing to meet changing consumer demands and 
technological advances. And it's against this backdrop that the Trump 
Administration prepares to renegotiate the terms of NAFTA.
    I recognize there is a certain level of angst about renegotiating 
the terms of our agreement. But let me reiterate, we have no interest 
in reversing any of production agriculture's hard-fought gains, and the 
Administration has made it clear that it doesn't either. In fact, the 
recently-published renegotiation objectives affirmed the importance of 
maintaining existing reciprocal duty-free market access for 
agricultural goods.
    Whether you're focused on maintaining current market access or you 
are eager for the prospects of expanded trade opportunities, production 
agriculture stands to benefit from a modernized trade agreement with 
our neighbors to the north and south. As always, we must stay vigilant 
and all work together to ensure we achieve the best deal possible for 
American agriculture.
    With that, I yield to the Ranking Member for any opening remarks he 
would like to make.

    The Chairman. And with that, I yield to the Ranking Member 
for any comments he would like to make.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Thank you, Mr. Chairman, and I also want to 
welcome the witnesses to today's hearing. We have a diverse 
group of industry representatives, and they will share their 
opinions on changes in NAFTA.
    I am supportive of efforts to renegotiate NAFTA, but we 
need to make sure that the end result will work for 
agriculture. As well, my producers have said just make sure we 
do no harm with whatever we end up doing.
    I am concerned about some of the issues arising with 
respect to the agriculture exports from Mexico as a result of 
some of the rhetoric and uncertainty around this negotiation, 
but the biggest issue that I have had with NAFTA is the fact 
that Canada has been allowed to continue their supply 
management system for dairy and poultry. When they did the 
original negotiation, they did not have ultra-filtered milk and 
that was not protected under the agreement, and this Class VII 
was established and the market was shopped around to some of 
our producers, and even though it was a month-to-month thing, 
and then Canada figured out this is undermining their situation 
and they stopped it. It is part of the problem we have when 
dealing with them with their supply management system.
    The biggest problem, though, is the number three and number 
five largest dairy companies in the United States are now owned 
by Canadians, and one of those is actually a Canadian co-op. We 
have a Canadian co-op that is bigger than Land O'Lakes and DFA 
and our co-ops, which I am not sure is a good thing for the 
long-term in the United States.
    This is an issue that I have raised with the USTR 
Ambassador, with Secretary Ross. They are both aware of what is 
going on, and they said they would work to address it; but, in 
the last couple of months, I have met with the Canadians, both 
government higher officials and some of the Agriculture 
Committee people, and given their response, I am not holding my 
breath. I hope that in this negotiation we can get some kind of 
path to get this supply management thing so that we have a 
level playing field with the Canadians.
    Our farmers need a good deal, and that is why we are here 
to listen to testimony today. I hope that everybody is 
listening, especially the Administration, as we begin 
renegotiating NAFTA and that, again, whatever we end up doing, 
we don't do any harm to the markets that we have been able to 
establish.
    I yield back.
    The Chairman. I thank the gentleman.
    I would like to now welcome our witnesses to the hearing 
this morning.
    First off, we have the Honorable Tom Vilsack, President and 
CEO of U.S. Dairy Export Council, Arlington, Virginia. Mr. 
Secretary, welcome back. It should be a little bit different 
for you this morning than we have been to you in the past.
    Mr. Kendal Frazier, who is Chief Executive Officer of the 
National Cattlemen's Beef Association, Centennial, Colorado.
    Mr. Kevin Brosch, who is the Principal of BroschTrade, LLC, 
Woodville, Virginia. He is here on behalf of the National 
Chicken Council, the National Turkey Federation, and the U.S. 
Poultry and Egg Export Council.
    Mr. Floyd Gaibler, Director, Trade Policy and 
Biotechnology, U.S. Grains Council here in Washington.
    Mr. Thomas Hammer, who is the President, National Oilseed 
Producers Association in DC.
    And Mr. Reggie Brown, who is the Executive Vice President, 
Florida Tomato Growers Exchange, Maitland, Florida, on behalf 
of the Florida Fruit and Vegetable Association.
    Again, gentlemen, thank you for being here. Secretary 
Vilsack, when you are ready.

  STATEMENT OF HON. THOMAS ``TOM'' J. VILSACK, PRESIDENT AND 
           CHIEF EXECUTIVE OFFICER, U.S. DAIRY EXPORT
                     COUNCIL, ARLINGTON, VA

    Mr. Vilsack. Mr. Chairman, I want to thank you and the 
Ranking Member of the Committee for the opportunity to be here 
today on behalf of the nearly 42,000 dairy operators in the 
United States, the 1,300 plants that process dairy products, 
and over 100,000 employees that are employed as a result of ag 
exports, providing a safe, stable, and sustainably produced 
supply of dairy products.
    Mr. Chairman, I want to emphasize the importance of exports 
to the dairy industry. Since 1994, we have seen an increase of 
$36 billion to the bottom line for producers and processors as 
a result of exports. It has added about $1.25 per 
hundredweight, and one out of every seven tankers today on the 
road is headed to an export market. It is important for us to 
focus on trade, and we appreciate the opportunity to comment 
about the renegotiation and modernization of NAFTA.
    We think this offers an opportunity to preserve what is 
working in NAFTA, to strengthen what can be better, and to fix 
what is currently not working with our trade relationships with 
Mexico and Canada. Let me talk briefly about all three.
    We need to preserve the reciprocal duty free market access 
and opportunity that is presented as a result of NAFTA. We have 
seen the benefit of that, particularly in the Mexican market. 
Nearly \1/3\ of all of our dairy exports go to Mexico. It now 
represents 73 percent of all of the imported dairy products 
that go into Mexico come from the U.S. It is an amazing 
opportunity for us that can grow over time.
    We need to strengthen the SPS provisions of NAFTA to ensure 
that science-based rules continue to be established in a 
transparent way. We need to focus on rules of origin, and we 
need to strengthen the geographic indications provisions 
protecting the use of common names, particularly for cheese 
products.
    Finally, we need to fix, Mr. Chairman, the trade distorting 
practices that have been implemented by Canada to protect their 
supply management and their market opportunities. This offers 
an opportunity and the capacity to enact policies and 
regulations that will encourage and not inhibit imports from 
the U.S. The most recent example of Canadian action is the 
adoption of Class VI and Class VII, which has created a serious 
problem in our dairy industry.
    Mr. Chairman, I appreciate the opportunity to be back here. 
I look forward to the questions from the Committee, and I yield 
back the balance of my time.
    [The prepared statement of Mr. Vilsack follows:]

  Prepared Statement of Hon. Thomas ``Tom'' J. Vilsack, President and 
   Chief Executive Officer, U.S. Dairy Export Council, Arlington, VA
Hearing on the North American Free Trade Agreement
    I am Secretary Thomas Vilsack, President and CEO of the U.S. Dairy 
Export Council (USDEC). USDEC is a nonprofit, independent membership 
organization that represents the export trade interests of U.S. milk 
producers, proprietary processors, dairy cooperatives, and export 
traders. The Council's mission is to build global demand for U.S. dairy 
products and assist the industry in increasing the volume and value of 
exports.
    I very much appreciate the opportunity to testify before this 
Committee today about the importance of the North American Free Trade 
Agreement (NAFTA), its benefits to the U.S. dairy industry, and key 
areas in urgent need of improvement. Today I will share my perspectives 
as someone who has worked within the parameters of NAFTA almost since 
its inception. This important agreement has created both opportunities 
and challenges for myself and the people I have represented as a two-
term farm state Governor, during 8 years as U.S. Secretary of 
Agriculture, and today as leader of a dairy export organization that 
counts Mexico as its largest export trade partner.
    Vibrant growth in dairy exports over the last 10 to 15 years has 
had a net impact of about a $1.25 per hundredweight increased price on 
milk produced in the U.S. That's an additional $36 billion our nation's 
42,000 dairy farmers have received thanks to growth in dairy exports, 
and is further compounded when one accounts for value-added processing 
at our nation's 1,300 dairy processing facilities. More than 100,000 
Americans livelihoods depend on jobs created by expanding markets for 
U.S. dairy exports, which now account for about 15 percent of all U.S. 
milk produced.
Executive Summary of Testimony
    Within the agricultural sector the three NAFTA partners each have a 
unique set of needs and expectations. We operate under different 
economic systems. Yet we all serve consumers who look to the 
agricultural sectors of their own nations and NAFTA partners to meet 
their food, fiber and fuel needs as efficiently as possible. Dynamic 
duty-free North American trade under NAFTA has helped better satisfy 
North American consumer needs since the agreement's inception and that 
has resulted in increased demand for dairy products throughout North 
America. But NAFTA can be made so much better, for the betterment of 
all.
    Within the U.S. dairy sector, NAFTA has been enormously beneficial 
in liberalizing dairy trade with Mexico. Under NAFTA, Mexico has grown 
to become the largest export market for U.S. dairy exports. Through 
close cooperation, the U.S. and Mexican dairy industries have grown 
together in a mutually beneficial manner. They are our brethren in a 
cross-border effort to grow both primary dairy product production and 
consumption, as well as value-added food production for export.
    Canada unfortunately has created a dairy trade relationship with 
the United States that can best be described as heavily strained. 
Whenever the U.S. begins to create a small foothold in Canada's dairy 
market, the Canadian Government creates new classifications, categories 
or standards to make U.S. dairy exports non-competitive with domestic 
product. The most recent manifestation of this practice was witnessed 
earlier this year with Canada's new pricing scheme that essentially 
wiped out an export market for ultra-filtered milk that U.S. processors 
had developed and for which many U.S. dairy farmers had come to rely 
upon as a market for their milk?
    Canada argues that they import large quantities of U.S. dairy 
product. However, what Canada is not transparent about is how these 
imports are coming under a report program that forces the equivalent 
amount of dairy coming into Canada to be re-exported in many cases back 
to the United States. Canada's special class [VII], intended to promote 
their own production of milk powders, goes against any common sense 
discussion. How come a country that has supply management, and has one 
of the highest farm gate dairy prices manages to export product at the 
lowest prices in the world?
    Furthermore, Canada undermine the intellectual property laws of 
their own country as well as international agreements like NAFTA 
through the acceptance of trade-limiting geographic cheese names. In 
short, the United States has a tremendous amount of unfinished business 
with Canada with respect to NAFTA.
    While this hearing will deal with improvements needed to make NAFTA 
more of a true North American Free Trade Agreement with respect to the 
agricultural sector, I cannot overstate both the urgency and importance 
negotiating NAFTA language that addresses the EU's global attempt to 
win further acceptance of geographic indicators. Canada already 
recognizes GIs. The EU is talking to Mexico about GIs. And, just 
recently, Japan struck an agreement with the EU that recognizes 
Geographic Indicators. Geographical indications can and should be used 
when they bring value to the consumer to better define a product, but 
not when they exist solely as a tool for exporters in one country or 
region to create monopolies and price-setting cartels on what are 
otherwise common types of cheeses and dairy goods.
    The U.S. dairy industry is united in its desire to preserve what is 
working under NAFTA with Mexico and to address what is not working with 
Canada. We appreciate the Administration's support for our key 
priorities, as reflected in the recently released NAFTA trade 
objectives, and we look forward to working closely with this Committee 
to help ensure that the United States achieves its stated objectives in 
a renegotiated NAFTA.
Benefits of Trade and NAFTA to U.S. Dairy Industry
    Trade is critical to the U.S. dairy sector. The equivalent of 1 
day's worth of milk production each week now gets turned into products 
that are exported all around the world. The expansion of U.S. dairy 
exports since 2004 has increased our farmers' milk prices by an average 
of $1.25 a hundredweight. In other words, rising exports have increased 
farmers' milk sales income by roughly $36 billion over what they would 
have gotten in that period if exports had held steady from 2004.
    Just as importantly, U.S. dairy exports support up to 100,000 
American jobs and cover every state of the Union. Impairing our export 
sales would therefore deliver a devastating employment hit not only to 
farmers, but also to workers in companies supplying inputs and 
services, and downstream processing plant jobs, as well as cities with 
large port facilities heavily dependent on trade.
    As we look at how to ensure we can continue a positive track record 
of export sales supporting farms and good jobs back here at home, 
NAFTA, and the ongoing discussions pertaining to modernizing it, is 
essential to that goal. Mexico is by far the leading export market for 
U.S. dairy products while Canada clocks in at number two, although a 
sizable portion of U.S. product shipped to Canada is for further 
processing and ultimate re-export outside of Canada, including back to 
the United States.
    Last year the U.S. shipped $1.2 billion worth of dairy products to 
Mexico, up from just $124 million in 1995. For much, if not all, of 
this we have NAFTA to thank. Mexico now is the U.S.'s largest export 
customer, by far. Sales to Mexico are roughly triple those to China, 
our third largest export market, demonstrating just how irreplaceable 
the Mexican market is. For example, in 2016 Mexico accounted for 47% of 
U.S. exports of nonfat dry milk, 31% of cheese, and 38% of butterfat. 
Before NAFTA and before Mexico joined the predecessor to the WTO (the 
GATT) the only dairy-related U.S. exports to Mexico were some non-fat 
dry milk shipments for government feeding programs and a small number 
of breeding cattle.
    NAFTA has been the driving force behind this remarkable growth and 
is the reason the U.S. share of Mexico's total dairy imports is 73% 
today. As mentioned earlier, total U.S. dairy exports support some 
100,000 jobs in the U.S.; our exports to Mexico support roughly a 
quarter of them. Preserving those sales is therefore essential not only 
to American dairy farmers, but also to the workers in companies 
supplying inputs and services, and downstream processing plant jobs all 
across this country.
    Without NAFTA, the duty-free access U.S. companies enjoy into 
Mexico could evaporate and be replaced by WTO Most-Favored Nation (MFN) 
tariff levels. These are the rates that other major dairy exporters are 
currently required to pay. On an applied basis, Mexico's over-quota MFN 
tariffs can currently reach as much as 45% for skim milk powder and 60% 
for cheese (with even in-quota rates for cheese applied at 45%). Mexico 
has the right, however, to raise its MFN rates to considerably higher 
over-quota tariff levels of 125% for both powder and cheese.
    Changes to that preferential tariff situation would dramatically 
undermine a core advantage of U.S. suppliers as the only major dairy 
supplier to Mexico currently benefiting from free trade. As we speak, 
Mexico is negotiating with the European Union (EU) which is actively 
working to secure its own preferential access to the Mexican market 
while New Zealand and Australia discuss with Mexico how to move forward 
with the Trans-Pacific Partnership with the remaining countries. 
Conceivably, all three of our major competitors could see improved 
access to the Mexican market in the coming years.
    That is what makes NAFTA absolutely essential for our industry--it 
currently provides U.S. exporters with uniquely preferential access to 
the Mexican dairy market and, looking forward, is the vehicle the U.S. 
will need to ensure that we remain competitive in that market should 
Mexico decide to use its ongoing FTA discussions with major dairy 
exporting nations to open up new inroads to its market for them.
    Because of NAFTA and Mexico's commitment to a mutually beneficial 
trading relationship, we currently have very few trade problems with 
Mexico in dairy--it is our goal to use these discussions to help keep 
it that way. NAFTA has enabled the development of a partnership with 
Mexico that's benefited not only the U.S. dairy industry, but also the 
Mexican dairy sector.
    Since 1994, Mexican milk production has increased by 58% which has 
helped meet the ever-increasing demand of Mexican consumers and 
visitors to Mexico while at the same time continuing to provide market 
opportunities for American producers as well. Together, Mexico and the 
U.S. have collectively grown consumption for a large variety of 
products offered at affordable prices for both the Mexican and U.S. 
consumer.
Areas for Improvement
    NAFTA has accomplished a great deal over the past 2+ decades, but 
it has also been overtaken by new, unanticipated forms of trade and 
trade problems. Our industry looks forward to working with this 
Committee and with the Administration to explore ways to preserve and 
strengthen NAFTA to address those issues.
    As noted above, NAFTA achieved substantial liberalization in dairy 
trade between the United States and Mexico, and our aim is to ensure 
that that open trade remains in place--both with respect to tariffs and 
non-tariff measures. At the same time, NAFTA left sizable barriers on 
trade between the U.S. and Canada largely untouched. With Canada's 
restrictions already in place, reflected in much higher tariffs facing 
U.S. dairy exports, an imbalance in market access obligations in the 
sector has existed for over 2 decades. Moreover, Canada has taken 
additional steps over the years to limit imports whenever Canada's 
already highly restrictive import restrictions were deemed to be 
insufficiently limiting.
    Here below, I would like to spotlight a few areas on our trading 
relationships with Mexico and Canada that would benefit from 
improvement as we update this critically important trade agreement.
Canada: Removing Trade-Distorting Policies and Opening a Sheltered 
        Market
    Canada's exorbitant dairy tariffs are well known. Over-quota 
tariffs top the charts at 241% for fluid milk, 201% for skim milk 
powder, 298% for butter and 245% for cheese. Among the developed world, 
only the island nation of Japan in addition to countries such as Norway 
and Switzerland have maintained similar dairy fortress walls with the 
U.S. Under NAFTA many are aware of the unfortunate fact that U.S. dairy 
exports are one of the very few sectors that do not enjoy duty-free 
access to the Canadian market.
    What may be less well known by all Members of this Committee is a 
more recent threat that has emerged as a result of Canadian policies 
trialed in Ontario last spring and instituted across Canada this 
February: Classes [VI] and [VII] respectively. These classes are part 
of the new Canadian National Ingredients Pricing Strategy.
    NAFTA modernization discussions are an unmissable opportunity to 
address just that type of unfinished business in order to truly open up 
the North American market and put our dairy exports to Canada on par 
with the vast majority of the rest of the U.S. economy.
    Canada, as a high price country that has refused to enter into the 
global markets with milk prices at global levels, adopted a new pricing 
scheme (Class [VII]) to effectively subsidize protein commodity exports 
without compromising the internal farm price of milk. These new pricing 
regulations and the broader Pricing Strategy have already negatively 
impacted bilateral trade with Canada. Most concerning, however, they 
are poised to unfairly take away the global markets that are our 
industry's lifeblood.
    The new Canadian policies effectively subsidize exports and are 
already being used to undercut U.S. dairy exports of milk proteins not 
just to Canada but even more importantly to a number of other export 
markets around the world. Because the U.S. dairy industry depends on a 
healthy global export market, Canada's strategy poses a very grave 
threat to America's dairy farmers by unfairly underbidding world market 
prices.
    The shift in Canadian pricing tools has been driven by an uptick in 
Canadian demand for butter and cream. Rather than meeting this new 
domestic-demand growth through imports in order to keep its so-called 
supply management system in balance, Canada has used its government-
dictated milk production system to encourage more of its own milk 
production, therefore supplying more butterfat, while simultaneously 
creating a surplus of skim milk, as milk contains both products.
    Since Canada had to find a way to ``solve'' this surplus problem of 
its own creation and rid itself of the excess milk proteins, it has 
been using its government-controlled system to keep domestic milk 
prices at almost double the world and comparable U.S. prices, while 
creating a new scheme to push surplus milk proteins onto world markets 
and push out competition in its domestic market.
    Canada implemented the new Class [VII] pricing system in February 
2017. The Class [VII] establishes a protein price based on the lowest 
of U.S., EU, and Oceania skim milk prices, and then subtracts a very 
generous processor margin. In recent months, this means that Canada has 
priced milk proteins available to its processors under Class [VII] for 
export at approximately 15% less than what U.S. processors typically 
pay. That incentivizes processors to utilize subsidized Canadian milk 
proteins to modernize and expand their protein business.
    Reports to date from various markets around the world indicate that 
product is being offered even below the lowest world market price. This 
below cost pricing avenue applies to the manufacture of skim milk 
powder (SMP), whole milk powder (WMP), milk protein concentrate (MPC), 
ultra-filtered milk (UFM) and similar dairy protein products.
    This recently introduced provision of below market price milk to 
produce the listed dairy products provides an incentive to substitute 
those products for their imported counterparts in Canada while enabling 
the export of Canada's structural surplus of SMP at below the cost of 
production. It flies in the face of common sense that a country with 
one of the world's highest milk prices would be offering a commodity 
product at levels far below those offered by all other major dairy 
suppliers.
    As a result, these pricing schemes have already harmed U.S. exports 
to Canada of ultra-filtered milk and have begun facilitating the 
dumping of milk powder onto the commercial global markets on which the 
U.S. so strongly relies. This is the latest in a series of narrowly 
targeted milk classes that have been created over the past few years 
specifically to displace imports, with the added harm of now also 
displacing U.S. exports to other markets.
    Canada is not alone in having different classes for milk usage and 
the mere existence of milk classes is not an inherent problem. However, 
the way Canada has utilized its milk class system is unique and very 
problematic. Canada's milk class system is regularly evolving in order 
to constrain imports and--in the latest case--provide an incentive to 
export. The new Class [VII] pricing allows processors of non-fluid 
domestic products to allocate or use a proportion of their milk protein 
to the new Class [VII] pricing. That effectively ensures processors 
will now use some of the lower priced skim in lieu of imported U.S. 
milk proteins. We expect that the balance not used internally will 
likely be used to process a reduced-price exportable surplus of 
subsidized protein products such as skim milk powder and dried milk 
protein concentrates.
    These special pricing classes are put in place by the Canadian Milk 
Supply Management Committee (CMSMC), whose voting members are 
provincial boards and provincial governments and which is responsible 
for policy determination and supervision of the provisions of the 
National Milk Marketing Plan. The way in which Canada is operating its 
milk class pricing system indicates a government policy intention to 
erect trade barriers and distort global markets.
    The production and sales data underscore what a pressing concern 
this program poses to the international milk powder market that is so 
critical to U.S. dairy farmers and companies. The full size and scope 
of the threat to the U.S. dairy industry is not reflected only in what 
Canada is doing today through its new pricing programs but rather is 
seen in the sharp surge in production, exports and utilization of the 
new Class [VII] pricing scheme.
    For years, Canada's milk production was relatively stable, a 
situation that should not be surprising for a country that claims to 
manage its supply to meet internal demand. From 2000 to 2010 for 
instance, Canadian milk production rose only 2.5% over that decade. 
However, a distinct upward trend line has more recently emerged with 4% 
growth per year over the last 2 years.
    In some areas this has spiked even further: five leading provincial 
marketing boards in the East of Canada, working in concert, have 
collectively increased their government-dictated milk production quotas 
by an astronomical 12% between August 2016 and July 2017 with the 
latest hike this month being 5%. Were these responses to normal 
commercial market signals--as is the case in the U.S. and in most other 
major dairy producing countries--these may not be problematic.
    In contrast to this, typical milk production growth in the U.S. is 
in a range of 1-2%, even in years with highest prices. In addition to 
its magnitude on a percentage basis, the dramatic Canadian expansion is 
so problematic because it is the direct result of government-run 
programs in a supply management system with some of the highest milk 
prices in the world.
    Likewise, trade data demonstrates a large basis for concern as 
well. Canadian milk powder exports have surged in recent times. 
Canada's 2016 SMP exports set a record at approximately 24,000 MTs, a 
jump of roughly 75% over the prior year's total. (Reminder: Ontario's 
Class [VI], effectively a pilot program for the national Class [VII], 
was put in place in the spring of 2016.) The first 5 months of 2017 
showed a further year-on-year increase in Canadian SMP exports of 271% 
to almost 20,000 MT with over 8,000 taking place in May alone--a new 
monthly record for Canada.
    Those SMP exports are going to various markets around the world 
including Algeria, Mexico, Egypt, Malaysia and Bangladesh, top markets 
for the U.S. dairy industry. In addition to the substantial increase in 
SMP exports, Canada is also seeing a spike in milk protein concentrate 
(MPC) exports with January to May 2017 sales of MPC up 48% over the 
same period in 2016.
    Despite limited information provided by Canada about the Class 
[VII] program, since the February 7 implementation of the pricing 
scheme, the volume of high-priced milk used to make domestic non-fluid 
products has declined, whereas the volume of milk protein going into 
Class [VII] has risen. During February-April 2017, Canada reported that 
24% of the milk volume and 31% of the protein is now allocated to Class 
[VII]. Not surprisingly, the farm price of milk between last year and 
this year (since Class [VII] has been implemented) dropped less than 
one percent despite that sizable shift towards the new lower-priced 
Class [VII]. That's because other prices under Canada's strict 
government-calculated class prices have been raised. This still works 
to the net benefit of Canada's dairy farmers given the surging milk 
quotas the government is granting (thereby permitting that 1% lower 
price to be paid on a much larger volume of milk and so generate 
greater total returns to farmers).
    As a result of the new Class [VII] pricing scheme and a 5% 
expansion in the milk production quota in 2017 to date, Canada is 
poised to create an even more significant exportable surplus of milk 
proteins than we've seen take place to date. Furthermore, taking into 
account not only Class [VII]'s export disposal goal of moving the 
remaining excess protein product onto world markets at cut-rate prices, 
but also its twin goal of import substitution through the displacement 
of U.S. protein exports from its market, the total impact to the rest 
of the world's protein markets will be even greater still.
    What is most concerning here is the trend line, with a harmful 
situation creating greater damage to our producers over time and a 
trend line expected to get even worse as time goes on. That's 
particularly the case if milk quotas continue to be permitted to 
similarly grow over time.
    It is this escalating threat to global dairy markets that united 
ten of the world's leading dairy associations, including USDEC, from 
around the world last month to collectively write to their six 
respective Trade Ministers, including Ambassador Lighthizer, urging 
prompt action to exhaust all available options to put a stop to Class 
[VI] & [VII] in light of their violation of Canada's international 
commitments. As the joint industries letter noted: ``Canada's 
increasingly protectionist policies are diverting trade with attendant 
global price-depressing impacts, and are in conflict with the 
principles of free markets and fair and transparent trade.'' (See 
attached.)
    Examples cited in that letter of united international concern 
included the following:

   ``In December of 2015 at Nairobi, Kenya, Canada became a 
        signatory to the Export Competition Ministerial Decision, 
        thereby undertaking to terminate all scheduled export subsidies 
        by the end of 2020, maintain a quantity standstill at 2003-05 
        levels until then, and refrain from applying export subsidies 
        to new products or new markets. The 2016 Canadian exports of 
        23.7 thousand tonnes, noted above, is an amount in excess of 
        the Nairobi standstill agreement amount.''

   ``As part of the 2003 resolution of the WTO dispute 
        settlement case brought by the United States and New Zealand 
        against Canada's special milk class for exports, Canada agreed 
        `that, for the marketing year beginning 1 August 2003, and 
        thereafter, Canada's exports of dairy products for which export 
        subsidies have been granted will not exceed the quantities and 
        budgetary outlays specified in its WTO Schedule. The upward 
        trend in Canada's exports of SMP, reported above, is rapidly 
        approaching the 44.9 thousand tonnes Uruguay Round annual 
        quantity commitment.' ''

    Canada's National Ingredient Strategy and Class [VI]/[VII] 
contravene the spirit of Canada's World Trade Organization and NAFTA 
trade commitments. After all, does it make sense that a high-priced 
milk producer with a closed domestic market using a government-
sanctioned export program should take market share from countries with 
a commercially-based and lower cost of production, like the U.S.? The 
answer is no.
    We must see a repeal of Classes [VI] and [VII] and steps taken to 
ensure similar programs do not spring up in their place. If Canada 
wishes to retain a government-run system of micro-managing its milk 
supply, that is its prerogative but that does not give it the right to 
use the high returns from that system to disrupt the commercial dairy 
markets on which competitors in the U.S. and elsewhere rely. If left 
unchecked, these Canadian programs will grow to become bigger and 
bigger threats to U.S. exports around the world.
    These latest actions are most concerning because they represent a 
shift by Canada from using policy tools to impede imports into Canada 
to now also disrupting export markets. Altogether, however, Canada has 
for years intentionally tried to shirk its dairy commitments, using one 
policy or regulatory tool after another to chip away at access granted. 
Another example of this consistent trade-distorting pattern was 
Canada's decision in its FTA with the EU to impose new restrictions on 
the use of a number of generic cheese terms (i.e., asiago, feta, 
fontina, gorgonzola and muenster). Canada provided direct protection to 
a number of European GIs that have been common names (in order words, 
generic) in Canada and the United States for decades. By taking this 
action, Canada abandoned any pretense of due process and the integrity 
of its own intellectual property system. NAFTA would offer a prime 
chance to press Canada to hold U.S. companies harmless from this 
unwarranted non-tariff barrier on U.S. cheese exports.
    Given Canada's deliberate creation of an environment of policy 
uncertainty, there can be no clarity on whether or not current dairy 
sales to Canada--nor new sales established under the NAFTA 
modernization process--will be allowed by Canada to take place in the 
future without addressing this underlying problem of Canada's habitual 
use of policy tools to distort trade.
    We greatly welcomed the Administration's NAFTA Objectives' 
recognition of the importance of these issues in its Agricultural Goods 
area in particular.
Mexico: Preventing New Barriers to Trade: Geographical Indications 
        (GIs) and Common Names (CNs)
    As I have stressed above, with respect to Mexico our charge is 
largely to do no harm to market access opportunities. That's relevant 
not only on the tariff side of the equation but particularly important 
on the non-tariff barrier portions as well.
    The latter is a particularly timely concern given ongoing FTA 
extension negotiations between Mexico, the U.S.'s largest and most 
diverse cheese export market, and the EU.
    As it seeks to do through all its FTAs, the EU has been attempting 
to use that process to impose de facto barriers to trade and 
competition on various common name products that the EU falsely claims 
as GIs.
    It is essential that ongoing engagement with Mexico and NAFTA 
modernization discussions make it clear that the U.S. is vehemently 
opposed to the imposition of any new restrictions on the market access 
opportunities for U.S. products relying on common names. We must 
require that Mexico uphold the letter and spirit of its NAFTA market 
access commitments in order to ensure it does not impair the value of 
its prior market concessions to the U.S.
    In parallel to these FTA negotiations, Mexico is also dealing with 
GIs that impact the use of common name products in other avenues as 
well such as through domestic legislation and ongoing court cases. Each 
of these venues is an important forum for shaping how Mexico will 
uphold its market access commitments to the United States.
Mexico & Canada: Improving NAFTA Rules in Key Areas
Improving Upon the WTO-Plus Sanitary & Phytosanitary (SPS) Agreement
    To ensure for predictability of trading conditions moving forward 
and a science-based approach to the development of new regulations 
impacting trade, NAFTA modernization efforts should incorporate work 
done in this area within TPP and build further upon that base of ``WTO 
SPS-Plus'' commitments. This is needed to guard against the prospect of 
future problems and also to ensure that the updated NAFTA text can 
serve as a strong model for future U.S. bilateral FTAs as well. 
Stronger SPS provisions may have prevented a barrier to the export of 
U.S. raw milk for pasteurization that Mexico erected a few years ago 
despite a food safety basis for concern with those exports. We look 
forward to seeing this issue as well as others that arise from 
unscientific foreign requirements addressed through the negotiations.
    Improving upon the existing WTO SPS rules was cited as a key Trade 
Promotion Authority (TPA) priority for negotiations and would help to 
address concerns by agricultural organizations across the board about 
spotlighting the importance of transparency, predictability and 
science-based decision-making on SPS matters. We believe this remains a 
critical area and were glad to see it highlighted accordingly in the 
Administration's recently published NAFTA objectives document.
Establishing Fair Due Process Systems and Market Access Safeguards for 
        Common Names Through Text on Geographical Indications (GIs)
    As noted above, there are unique situations on GIs and Common Names 
issues with both Mexico and Canada that need to be dealt with 
appropriately on a bilateral basis. In addition to those efforts, 
however, NAFTA modernization efforts should incorporate text on the 
issue of GIs and common names, in keeping with the TPA directive to 
address this issue. In order to build upon the progress made to date 
with our trading partners on this issue, the TPP text on GIs should be 
used as a starting point and further improved upon to effectively 
preserve U.S. market access opportunities for common name products 
despite foreign governments' efforts to misuse GIs to erect barriers to 
those products.
    This area too benefited from a clear intended focus in the 
published NAFTA objectives developed by the Administration; we see this 
as a very welcome acknowledgement of the critical importance of this 
issue.
Preserving Dairy Rules of Origin (ROO) Approach to Uphold Integrity of 
        NAFTA Benefits
    The driving goal in NAFTA dairy-specific ROO with Mexico for most 
dairy products was to seek to ensure that high dairy-content products 
traded under the agreement were being produced from milk from the 
exporting country. As such, for instance, the U.S. cannot import milk 
powder from Europe to make cheese and ship that to Mexico, and vice 
versa. Likewise, Mexico should not be able to import concentrated 
butterfat from outside the NAFTA region, add sugar or cocoa to it, and 
sell it into the U.S. as a food preparation. The open trade is intended 
to be between and to benefit the dairy sectors that have opened their 
markets under the agreement--a goal that is particularly important for 
a product that is easily traded in various ingredient forms.
    Given that the lines most clearly associated as dairy such as those 
for cheese, butter and yogurt, all require the product to be made from 
dairy from the exporting country, it is reasonable to insist that other 
processed food lines also should be subject to these same provisions in 
cases where they contain a very high level of dairy content. It is 
important to ensure that Mexico is not a platform for other major dairy 
exporters to ship butterfat simply as a conduit to inappropriately 
access the U.S. market. Based on customs rulings and trade data with 
Mexico and New Zealand this is a reasonable cause for concern.
    In addition to the need for movement towards greater consistency in 
the dairy ROO, we would also encourage negotiators to examine how to 
improve the process for investigating potential ROO violations to make 
it easier to chase down potential violations of the ROO. In our view, 
these measures are a critical element of the agreement and ensuring 
that the effectiveness of the ROO in concentrating the agreement's 
benefits on its Parties that have chosen to open their markets to one 
another is a vital part of ensuring that NAFTA remains such a strongly 
successful FTA.
    We believe that the goals articulated in the Administration's NAFTA 
objectives document would help to address these concerns.
In Closing
    NAFTA is indisputably the most important U.S. FTA. An agreement 
that has done this much good and that supports tens of thousands of 
jobs in the dairy sector alone must be preserved. That is why we 
believe we must ensure that no new trade restrictions arise through the 
NAFTA modernization discussions and that talks are instead focused on 
pursuing improvements to the agreement that preserve our open trade 
relationship with Mexico and address Canada's flouting of its trade 
commitments.
    Even as the U.S. negotiates improvements to this critical FTA, 
however, we believe it's also essential to move forward on other fronts 
as well. Our competitors are very active all around the world in 
negotiating their own agreement. This month's news of the EU-Japan 
agreement in principle is a fresh reminder that the world is not 
standing still. Given that, if the U.S. stands still, we will slip 
behind.
    We urgently need a proactive trade policy agenda with key 
agriculture-importing countries in Asia such as Japan, Vietnam and 
others in order to keep pace in that growing area of the world. In 
order to ensure that U.S. negotiating time is best concentrated on 
agreements likely to yield net agricultural benefits for the U.S. with 
ag-importing countries, we would also strongly caution against sinking 
scarce U.S. resources into negotiations with countries unlikely to lead 
to net dairy and agricultural export gains for the United States. There 
are only so many staff at our government agencies and only so much time 
in the day; we need to focus it where it can yield the most benefits to 
American agriculture.
    As we stand poised to commence NAFTA modernization discussions in 
the very near future, the U.S. Dairy Export Council looks forward to 
working closely with this Committee and with the Administration to make 
improvements to this beneficial FTA so that we can continue to deepen 
our trade relationships throughout North America.
    Thank you for the opportunity to testify before this Committee.
                               Attachment
June 27, 2017

 
 
 
Hon. Steven Ciobo MP,                Cecilia Malmstrom,
Minister for Trade, Tourism and      EU Commissioner for Trade,
 Investment,                         European Commission,
Parliament House,                    Brussels, Belgium;
Canberra ACT;
Hon. Ildefonso Guajardo,             Hon. Todd McClay,
Mexico Secretary of Economy,         Minister of Trade,
Col. Juarez, Del. Cuauhtemoc,        Parliament Buildings,
Ciudad de Mexico. C.P.;              Wellington;
Hon. Robert Lighthizer,              Hon. Miguel Braun,
United States Trade Representative,  Secretary of Trade,
Washington, D.C.;                    CABA, Argentina.
 

    Dear Secretary Braun, Minister Ciobo, Commissioner Malmstrom, 
Secretary Guajardo, Minister McClay, and Ambassador Lighthizer:
Canada: Access for Dairy Products
    Last September the undersigned representatives of the dairy 
industries of Australia, the EU, Mexico, New Zealand and the U.S. wrote 
to you (or your predecessor) to express our concern at Canadian dairy 
policy developments. Specifically, we were concerned that the 
``Agreement in Principle'' that had recently been reached between 
Canada's dairy producers and processors was designed to incentivize the 
substitution of Canadian domestic origin dairy ingredients for dairy 
ingredients imported from our countries, and to position the export of 
Canadian dairy products to unfairly compete against our products in 
third country markets. With Canada's adoption of the new special milk 
Class [VII], that Agreement has become reality; and so too have the 
substitution of Canadian ingredients for our imports and the 
undercutting by Canadian protein exports of our exports in third 
country markets.
    We are now writing, joined by a representative of the dairy 
industry of Argentina, to ask the authorities in Argentina, Australia, 
the EU, Mexico, New Zealand and the U.S. to pursue all avenues 
available to challenge these measures, including WTO dispute settlement 
and bilateral trade agreement relationships. In the absence of such 
efforts Canada's Class [VII] policy will seriously further distort and 
disrupt international dairy trade, causing harm to our fa[r]mers.
Background
    The present structure of Canada's supply managed dairy industry 
dates from the early 1970s. As we noted in our earlier correspondence, 
the system operates by allocating production quotas, setting prices 
that vary through a range of milk classes, and controlling imports with 
tariff rate quotas on imports varying between 200% and 300%. Canadian 
milk production levels were maintained between 74.8 million hectoliters 
in 2000 and 76.7 million hectoliters in 2010, with no discernible trend 
line. However, a distinct upward trend line has now emerged with 4% 
growth per annum over the last 2 years, and 2016 production of 84.7 
million hectoliters being the highest in Canadian history. This might 
not be problematic if there was a market for this additional milk in 
Canada, but that is not the case. The upward trend in milk production 
is the result of production quotas being set on estimated butter 
consumption, which has been growing rapidly. However, the coproduct of 
butter production--milk protein--has not seen a similar increase in 
demand. This has resulted in a structural surplus of milk protein, 
exemplified by excess production of skim milk powder (SMP), ballooning 
to over 100,000 MT per annum.
Canada's Response
    To address this structural surplus a new ingredient milk class--
initially Ontario Class [VI] and now National Class [VII]--was created, 
with milk priced to processors at the lowest world price to produce 
dairy protein ingredients. The impact has been two-fold: first, the 
substitution of Canadian dairy ingredients for imported milk proteins, 
and second, an increase in non-WTO-compliant Canadian exports of milk 
protein. The first is evidenced by the widely reported cancellation of 
contracts by Canadian cheese makers for U.S. sourced ultra-filtered 
(UF) milk. The second, by a review of Canadian exports of skim milk 
powder (SMP), the most easily produced milk protein product.
    Between 2009 and 2014 Canadian exports of SMP increased irregularly 
from 10.1 thousand tonnes to 12.7 thousand tonnes, and again modestly 
to 13.6 thousand tonnes in 2015. The adoption of Ontario's Class [VI] 
in April of 2016 saw 2016 SMP exports jump 74% to 23.7 thousand tonnes. 
The first 4 months of 2017 showed a further year on year increase of 
273% to 11.9 thousand tonnes. Moving this protein onto the thinly 
traded global market of around 2 million MT of SMP per annum will add 
to the already swelling global supply of milk protein and depress 
market prices for farmers around the world.
Canada's Obligations
    The adoption of Class [VII] (and Ontario Class [VI] before it) is a 
measure which is inconsistent with a number of commitments that Canada 
has undertaken. For example:

   In December of 2015 at Nairobi, Kenya, Canada became a 
        signatory to the Export Competition Ministerial Decision, 
        thereby undertaking to terminate all scheduled export subsidies 
        by the end of 2020, maintain a quantity standstill at 2003-05 
        levels until then, and refrain from applying export subsidies 
        to new products or new markets. The 2016 Canadian exports of 
        23.7 thousand tonnes, noted above, is an amount in excess of 
        the Nairobi standstill agreement amount.

   As part of the 2003 resolution of the WTO dispute settlement 
        case brought by the United States and New Zealand against 
        Canada's special milk class for exports, Canada agreed ``that, 
        for the marketing year beginning 1 August 2003, and thereafter, 
        Canada's exports of dairy products for which export subsidies 
        have been granted will not exceed the quantities and budgetary 
        outlays specified in its WTO Schedule. The upward trend in 
        Canada's exports of SMP, reported above, is rapidly approaching 
        the 44.9 thousand tonnes Uruguay Round annual quantity 
        commitment.''
Conclusion
    Our respective dairy industries are firmly of the view that the 
operation of Ontario's Class [VI] and Canada's Class [VII] contravene 
Canada's international commitments. Canada's increasingly protectionist 
policies are diverting trade with attendant global price-depressing 
impacts, and are in conflict with the principles of free markets and 
fair and transparent trade. We therefore request the authorities of 
Argentina, Australia, the EU, Mexico, New Zealand, and the U.S. to take 
all steps available to them to resolve this issue and ensure that 
Canada complies with its international obligations.
            With best regards,
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]             

 
 
 
[Terry Richardson,]                  [Alexander Anton,]
President,                           Secretary General,
Australian Dairy Industry Council    European Dairy Association (EDA);
 (ADIC);
 

                                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                                     

 
 
 
[Benedicte Masure,]                  [Jukka Likitalo,]
Secretary General,                   Secretary General,
European Whey Products Association   European Association of Dairy Trade
 (EWPA);                              (Eucolait);
 

                                    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                                      

 
 
 
[Kimberly Crewther,]                 [Matt McKnight,]
Executive Director,                  Chief Operating Officer,
Dairy Companies Association of New   U.S. Dairy Export Council (USDEC);
 Zealand (DCANZ);
 

                                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                                     

 
 
 
[Michael Dykes, D.V.M.,]             [Jim Mulhern,]
President & CEO,                     President & CEO,
International Dairy Foods            National Milk Producers Federation
 Association Federation (IDFA);       (NMPF);
 

                                      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                                      

 
 
 
[Rene Fonseca Medina,]               [Miguel Paulon,]
General Director,                    President,
Camara Nacional De Industriales de   Centro De La Industria Lechera
 la Leche (Canilec) (Mexico           (CIL) (Centre of the Argentine
 National Chamber of Industrial       Dairy Processing Industry).
 Milk);
 

CC:

    The Honorable Barnaby Joyce MP, Deputy Prime Minister, Minister for 
    Agriculture and Water Resources, Australia;
    Mr. Phil Hogan, EU Commissioner for Agriculture & Rural 
    Development, European Commission;
    Mr. Jean-Luc Demarty, Director-General for Trade, European 
    Commission;
    Mr. Jerzy Bogdan Plewa, Director-General for Agriculture & Rural 
    Development, European Commission;
    The Honorable Nathan Guy, Minister of Primary Industries, New 
    Zealand;
    Mr. Martyn Dunne, Director General, Ministry for Primary 
    Industries, New Zealand;
    Mr. Vangelis Vitalis, Deputy Secretary Trade and Economic, Ministry 
    of Foreign Affairs & Trade, New Zealand;
    The Honorable Sonny Perdue, Secretary, U.S. Department of 
    Agriculture;
    The Honorable Juan Carlos Baker, Deputy Secretary of Trade, Mexico.

    The Chairman. Well thank you, Mr. Secretary.
    Mr. Frazier, 5 minutes.

          STATEMENT OF KENDAL FRAZIER, CHIEF EXECUTIVE
 OFFICER, NATIONAL CATTLEMEN'S BEEF ASSOCIATION, CENTENNIAL, CO

    Mr. Frazier. Good morning. My name is Kendal Frazier and I 
am the CEO of the National Cattlemen's Beef Association, the 
oldest and largest national association of cattlemen. I am 
honored to provide you with our perspective on the importance 
of the North American Free Trade Agreement, and the risk we 
face if the U.S. beef industry is saddled with changes to NAFTA 
that may jeopardize our current access to Canada and Mexico.
    According to USDA, the U.S. beef industry consists today of 
around 900,000 cattle and calf operations, a national herd size 
of about 100 million head of cattle, accounting for roughly 
$67.5 billion in annual farm gate receipts. In 2016, our 
industry sold over $6.3 billion in beef products around the 
world, with exports alone accounting for over $300 per head for 
every fed steer and heifer.
    NCBA strongly supports NAFTA because the terms of NAFTA 
developed Canada and Mexico into two very important export 
markets for U.S. beef. While there may be cause from other 
segments of agriculture and other industries to update or 
renegotiate the terms of NAFTA, we strongly encourage our 
negotiators to focus their efforts on those specific areas and 
leave alone the terms of NAFTA that have greatly benefitted the 
U.S. beef and cattle industry. Quite frankly, it is difficult 
to improve upon duty free, unlimited access to Canada and 
Mexico, and we are pleased to see that USTR announced its 
support for continued reciprocal duty free access.
    Even still, our message remains the same. Please do no harm 
and do not jeopardize our access.
    On average, Canada and Mexico have been two of our top five 
export markets, with approximately $1 billion each in annual 
sales. While Canada has been a high value market for muscle 
cuts, Mexico has proven to be an excellent market for things 
like skirts, tongues, and other cuts that Americans find less 
desirable.
    Now opponents to NAFTA try to paint a dark picture of 
uneven beef trade, saying NAFTA has been our downfall for over 
20 years. Opponents pin all our problems on NAFTA, but they 
fail to acknowledge other key factors that our industry has 
faced, like a BSE case in 2003, severe drought that caused beef 
and cattle shortages, the strength of the U.S. dollar, and 
continuation of tax policies that encourage the break up of 
multi-generational cattle operations. Simply put, opponents 
view NAFTA as a zero sum game and fail to consider important 
factors such as our incredible growth in global exports and the 
value that exports bring to all segments of our industry. This 
view is a great disservice to all producers.
    In addition, the NCBA strongly opposes any attempts to use 
NAFTA as a vehicle to resurrect failed policies of the past, 
such as mandatory Country-of-Origin Labeling, also known as 
COOL. COOL was a U.S. law for over 6 years, and failed to 
deliver on its promises to build consumer confidence and add 
value to our products. Instead, COOL resulted in long battle 
with the World Trade Organization with the United States facing 
the promise of more than $1 billion in retaliatory tariffs from 
Mexico and Canada unless COOL was repealed. Canada and Mexico 
still have the authority to retaliate against the United States 
if COOL is brought back into effect, and rest assured, they 
will retaliate against us if necessary.
    We encourage you to build on the success that current NAFTA 
provisions have given U.S. beef producers. I thank you for 
asking me to appear this morning.
    [The prepared statement of Mr. Frazier follows:]

Prepared Statement of Kendal Frazier, Chief Executive Officer, National 
              Cattlemen's Beef Association, Centennial, CO
    On behalf of the National Cattlemen's Beef Association (NCBA), I 
submit to you the following comments regarding the North American Free 
Trade Agreement.
Comments of the National Cattlemen's Beef Association Regarding 
        Negotiating Objectives Regarding Modernization of the North 
        American Free Trade Agreement With Canada and Mexico
    The National Cattlemen's Beef Association (NCBA) has represented 
America's cattlemen and women since 1898, preserving the heritage and 
strength of the industry through education and public policy. As the 
largest and oldest national association of cattle producers, NCBA 
represents a very diverse beef industry that strives to meet demand in 
emerging markets and increase demand for beef. NCBA appreciates the 
opportunity to provide comments for the Office of the United States 
Trade Representative (USTR) regarding USTR-2017-0006, ``Negotiating 
Objectives Regarding Modernization of the North American Free Trade 
Agreement With Canada and Mexico''.
Brief Summary of U.S. Beef Industry's Position on ``NAFTA 
        Negotiations''
    NCBA strongly supports the North American Free Trade Agreement 
(NAFTA) because the terms of NAFTA have made it possible for the U.S. 
beef and cattle industry to develop two very important export markets 
in Canada and Mexico as well as allowing all sectors of the U.S. beef 
and cattle industry to compete and operate at optimal levels when 
trade-restrictive policies were eliminated and repealed. While we 
understand that there may be calls from other segments of the 
agriculture industry and other industries to update or renegotiate the 
terms of NAFTA, NCBA strongly encourages you to focus and contain your 
efforts on those areas and leave alone the terms of NAFTA that have 
greatly benefitted the U.S. beef and cattle industry. Quite frankly, it 
is difficult to improve upon duty-free, unlimited access to Canada and 
Mexico--two of the top five export markets for U.S. beef. Furthermore, 
NCBA strongly opposes any attempt to use NAFTA as a vehicle to 
resurrect failed protectionist policies of the past including mandatory 
Country-of-Origin Labeling (MCOOL). MCOOL was U.S. law for over 6 years 
and failed to deliver on its promises to build consumer confidence and 
add value to our producers. Instead, MCOOL resulted in a long battle in 
the World Trade Organization with the United States facing the promise 
of $1 billion in retaliatory tariffs from Mexico and Canada unless 
MCOOL was repealed by Congress. We must learn from the mistakes of the 
past and not repeat them. NCBA hopes that negotiations with Canada and 
Mexico will be swift and successful and will build upon the success 
that current NAFTA provisions have given U.S. beef producers.
Overview of Imports and Exports in Beef and Cattle Trade
    Over the past 7 years we have seen a significant growth in U.S. 
beef exports due to the implementation of free trade agreements and the 
lifting of non-science based restrictions on U.S. beef specifically in 
countries in Asia and Latin America. While Canada and Mexico have 
traditionally battled for first and second place among U.S. beef export 
markets, they have been surpassed by growing demand in Japan and Korea 
who currently top the list as top export markets for U.S. beef. 
According to the U.S. Census Bureau the total world population is 
estimated at nearly 7.4 billion people. Of that total the United States 
accounts for 325 million people, Mexico's population is estimated at 
130 million people, and Canada surpassed 35 million people in 2016. 
While North America represents a small fraction of the global 
population, it also represents a strong consumer base for beef. 
Throughout its lifetime, NAFTA has developed all of North America into 
a premium market for U.S. beef sales. Another benefit of NAFTA has been 
the development of an efficient and competitive supply chain that 
allows each sector of the supply chain, from cow/calf producer to feed 
yard to retail, to capitalize U.S. beef sales to the 96 percent of the 
global consumers who reside outside our borders, especially those 
consumers who will pay a premium for U.S. beef products that are 
undervalued in our domestic market. For U.S. beef producers, the value 
of exports alone accounted for $339 per head in the first quarter of 
2017.
Beef and Offal Exports (U.S.$/Hd)


    According to the U.S. Meat Export Federation (USMEF), the top five 
export markets for U.S. beef in 2016:

------------------------------------------------------------------------
           Country                    Sales         Volume (metric tons)
------------------------------------------------------------------------
             (1) Japan            $1.5 billion            258,653 MT
             (2) Korea           $1.06 billion            179,280 MT
            (3) Mexico            $975 million            242,373 MT
            (4) Canada            $758 million            116,266 MT
         (5) Hong Kong            $684 million            112,770 MT
------------------------------------------------------------------------

Beef Industry Export Values
Annual
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Data Source: USDA-FAS, Compiled & Analysis by LMIC; I-N-70, 
        3-22-17.
          Livestock Marketing Information Center.

    The United States is also one of the top beef importers in the 
world. The common misconception is that we import the same ``beef'' 
that we export, but the truth is we export higher-value cuts like 
tongues and other offals while we import grass-finished beef trimmings 
to mix with our fattier trimmings to meet U.S. ground beef demand in 
commercial markets. Without beef imports we could not meet domestic 
demand for commercial ground beef and would likely lose those consumers 
to other lesser-value proteins.
Beef Industry Imports Values
Annual
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Data Source: USDA-FAS, Compiled & Analysis by LMIC; I-N-71, 
        3-22-17.
          Livestock Marketing Information Center.
Summary of Beef Trade with Canada and Mexico
    Without question, the North American Free Trade Agreement (NAFTA) 
has given U.S. beef a strong advantage over other countries in 
competition for North American consumers. Today, Mexico and Canada are 
two of the leading export markets for U.S. beef. Duty-free access, 
close proximity, and our vast transportation infrastructure system are 
a few of the main reasons why Canada and Mexico are such strong markets 
for U.S. beef. According to the U.S. Department of Agriculture's 
Foreign Agriculture Service, the 1993 pre-NAFTA level of U.S. beef 
exports to Mexico was 39,000 tons valued at $116 million. As a result 
of NAFTA, Mexico eliminated its 15 percent tariff on live slaughter 
cattle, its 20 percent tariff on chilled beef and its 25 percent tariff 
on frozen beef. According to USMEF, Mexican consumers purchased 242,373 
metric tons of U.S. beef at a total of $975 million in 2016. Likewise, 
Canadian consumers purchased 116,266 metric tons of U.S. beef at a 
value of $758 million.
    The United States has a significantly larger human population and 
work force, cattle herd, beef-production industrial complex, and a 
vastly superior transportation infrastructure system that allows U.S. 
beef and cattle to move freely and efficiently to meet beef demand all 
across North America. These are a few reasons why approximately 85 
percent of U.S. beef production is destined for the U.S. market. The 
U.S. customer likes our grain-finished flavor profile and is willing to 
pay some of the best prices in the world for U.S. beef. American 
consumers prefer higher value cuts such as tenderloins and ribeyes, and 
we have found that while Canadian customers have similar preferences, 
Mexico has become a high-volume high-value market for cuts like rounds, 
skirts, tongues, intestines, and other cuts that Americans find less 
desirable.
    In 2016 the United States became a net importer of beef from Canada 
and Mexico, one of the rare occasions under NAFTA.

    2016 Beef Export Sales to Canada = $758 million
    2016 Beef Imports from Canada = $1.23 billion
    2016 Beef Export Sales to Mexico = $975 million
    2016 Beef Imports from Mexico = $1.05 billion

    While opponents of NAFTA will point to the recent decline in sales 
as another reason to put in place trade barriers to restrict imports it 
is important to remember that Americans will not absorb the exports we 
would lose to Canada and Mexico. If Americans wanted to purchase these 
cuts it would be evident in the market. Who else will absorb that 
volume and value of beef we export to Canada and Mexico? Furthermore, 
restricting imports from Mexico and Canada would also result in those 
markets becoming restricted for U.S. pork and poultry exports which 
would ultimately come back on the U.S. market and depress protein 
prices even further. Is it worthwhile to jeopardize our access to 
Canada and Mexico? Absolutely not.
    Imposing tariffs or quotas will do nothing to offset the power of 
the U.S. dollar in cross-border trade with Mexico or Canada. It's a 
simple fact that having cheaper currency value makes a country's 
exports more competitive. This is the case for Canada and Mexican beef 
exports to the United States. Restricting trade will only have negative 
repercussions on the U.S. beef industry because it will either lead to 
the imposition of restrictive tariffs or quotas on U.S. beef exports 
and it will encourage Canada and Mexico to trade with other countries 
who may have cheaper currencies than the United States.
    Perhaps we should pay closer attention to the investments that 
Canada and Mexico are making in their cattle feeding and packing 
sectors to become more competitive with the United States. In recent 
years there has been an increased effort in Mexico to transition 
packing facilities from municipally inspected facilities to federally 
inspected facilities. Beef that is produced in Mexico and is packaged 
in a federally inspected facility is eligible for export. The Mexican 
beef industry has invested heavily in building its packing sector and 
expanding feedyard operations in Northern Mexico. The goal is to 
transition from being a low-cost supplier of cattle to the United 
States and develop the feedyard and packing sectors to capitalize on 
higher valued beef exports to U.S. consumers. We cannot afford to have 
protectionist policies that encourage the market consolidation of the 
U.S. feedyard and packing sectors, or we very well may become the low-
cost suppliers of cattle to Canada and Mexico.
U.S. Beef Trade: Mexico
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Source: USDA-FAS.
Monthly Average Exchange Rates: Mexican Pesos per U.S. Dollar
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Source: Pacific Exchange Rate Services.
Exchange Rate
U.S. Dollar Base, Monthly
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Data Source: Pacific Exchange Rate Service[s], Univ. of B.C., 
        Compiled by LMIC; 06/02/17.
          Livestock Marketing Information Center.
Exchange Rate
U.S. Dollar Base, Monthly
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Data Source: Pacific Exchange Rate Service[s], Univ. of B.C., 
        Compiled by LMIC; 06/02/17.
          Livestock Marketing Information Center.
Summary of Cattle Trade with Canada and Mexico
    The United States has been trading live cattle with Mexico and 
Canada for hundreds of years. In fact, most of our western traditions 
are deeply rooted in the traditions of the vaqueros coupled with 
English and American technology and innovation. According to USDA, in 
January 2017 the United States cattle herd totaled 93.5 million head 
while Mexico's cattle herd totaled 16.5 million head and Canada's herd 
totaled 12.1 million head. On average, we import about two million head 
of cattle from Mexico and Canada. This small number of cattle has been 
the source of contention within the U.S. beef industry for decades, but 
before we discuss that, we should consider why we import cattle into 
the United States.
    Simply put, we import cattle from Mexico and Canada to supplement 
shortages in our herds and to help our feed yards and packing 
facilities run at optimal levels. We import these cattle, invest 
American resources in these cattle, and they are slaughtered as 
American cattle, returning value to the U.S. producers who invested in 
them. For example, in 2016 there were 943,043 head of cattle imported 
from Canada at a value of $1,033,960,257. During the same time there 
were 764,970 head of cattle imported from Mexico at a value of 
$584,858,261.

             Top 5 Destinations for Canadian Cattle Imports
------------------------------------------------------------------------
 
------------------------------------------------------------------------
              (1) Washington                      $341 million
            (2) Pennsylvania                      $162 million
                    (3) Utah                      $162 million
               (4) Minnesota                      $102 million
                (5) Nebraska                       $97 million
------------------------------------------------------------------------
              Top 5 Destinations for Mexican Cattle Imports
------------------------------------------------------------------------
                   (1) Texas                      $396 million
                 (2) Arizona                      $138 million
              (3) New Mexico                       $35 million
                  (4) Nevada                       $10 million
              (5) California                      $4.2 million
------------------------------------------------------------------------

    Some of the opponents of NAFTA claim that NAFTA created a massive 
deficit in North American Cattle trade, but if you look at the annual 
imports the total numbers have not changed much since before NAFTA was 
implemented.
Cattle Imports from Canada and Mexico
Annual


          Data Source: USDA-ERS & USDA-FAS, Compiled by LMIC; I-N-13, 
        3/22/17.
          Livestock Marketing Information Center.

    One of the oldest internal battles within the U.S. beef industry is 
rooted in live cattle trade between the United States, Canada, and 
Mexico. For many years there have been small segments of the U.S. beef 
industry who have supported trade-restrictive policies on live cattle 
trade with the argument that restricting cattle imports would somehow 
yield higher prices for U.S. cattle. These protectionists claimed that 
cattle born in Canada or Mexico that enter the United States were 
flooding the market and driving down the cost of live cattle. It was 
there hope that putting in trade-restrictive policies such as MCOOL 
would result in the U.S. beef producer seeing greater prices in the 
long run. MCOOL was also a ruse that was sold to consumer groups as a 
food safety crisis to garner their support and deep pockets. These 
short-sighted efforts did not result in higher values for producers or 
a safer food supply, in some cases their efforts backfired by forcing 
feedyards and some packing facilities to close down permanently, 
leading to further consolidation in the U.S. beef industry and job loss 
in the beef industry. Feedyards and packing facilities are expensive 
ventures that cannot be easily restored once they have been moth-
balled. When they close it means there are fewer people competing for 
our cattle and this consolidation makes it less competitive for the 
cow/calf and stocker sectors. Furthermore, feedyards and packing 
facilities are major employers in rural communities across America, and 
when they are forced to close some communities have a difficult time 
recovering from the negative economic impact.
Learning from Past Mistakes: NAFTA 2.0 Has No Place for MCOOL 2.0
    The proponents of MCOOL see the renegotiation of NAFTA as another 
opportunity to restore a failed law and a failed government marketing 
program that was a waste of taxpayer dollars and a waste of valuable 
time of USTR and USDA staff. MCOOL was neither a measure of food safety 
nor a food safety nor a consumer information program, but rather a 
failed government marketing program that failed to encourage the 
purchase of U.S. beef. The United States has a robust food safety 
system in place to ensure that all beef sold in America, regardless of 
where the animal originated, is safe. Here are a few reminders why 
MCOOL has no place in NAFTA.
    MCOOL was a mandatory, government-run program which required all 
beef sold in grocery stores to be labeled to show where the animal 
(from which the roast below was cut) was born, raised, and slaughtered. 
Grocery stores had the option of using the word ``harvested'' in lieu 
of ``slaughtered''. 
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

    Proponents of MCOOL claimed that adding this label to cuts of beef 
would drive consumers to only buy beef from the United States and, in 
turn, provide a premium price for our product that would be passed back 
to the producer. After 6 years of implementation, that was not the case 
and Congress repealed MCOOL in December 2015. In hindsight, MCOOL was a 
failed government marketing program.
    We believe in the power of the marketplace, therefore we remain 
opposed to mandatory, government-run MCOOL. In fact, the beef industry 
currently has many voluntary, consumer-driven and industry-led 
marketing programs. These programs focus on the fundamentals of 
marketing by creating the specifications for the type of beef they want 
to sell (breed-specific, natural, organic, guaranteed tender, born and 
raised in the USA, etc.). Then, they build a label specific to that 
program which ``brands'' the meat and provides an eye-catching symbol 
recognizable by the consumer, thus building loyalty and demand for that 
brand. Ultimately, the success of that brand results in financial 
premiums paid back to producers who supply the animals. 
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

    The proponents of a mandatory, government-run MCOOL program claim 
that consumers want to know where their beef comes from. We don't 
dispute that. We agree that a random poll asking people if they want to 
know where their meat comes from would show that the majority of them 
would like to know. Polls, however, can show many things depending on 
how the question is asked. Therefore, you can't look at polls alone to 
falsely assume that all Americans want a mandatory, government-run 
MCOOL program. Kansas State University took the study of MCOOL beyond 
just a simple poll. They used several different approaches to determine 
what the consumer actually considers when they go to the grocery store 
to purchase meat. The results were clear, consumers placed quality, 
appearance, and value at greater priority than country-of-origin. And 
another unfortunate blow to the proponents of MCOOL, the Kansas State 
University study ultimately found that demand for meat products had not 
increased since the implementation of MCOOL, and typical Americans are 
unaware of MCOOL and don't look for meat origin information when they 
make their purchase.
    Ultimately, this means that our industry has spent millions of 
dollars complying with a MCOOL law that, after 6 years, the consumer 
doesn't even look for. Cost without benefit is not a smart business 
plan, but it is exactly what you expect from a mandatory, government-
run program.
    The argument that consumers have a right to know where their food 
comes from is an argument that proponents of MCOOL are using to try to 
save MCOOL, but it is a red herring once you consider the exemptions to 
MCOOL. MCOOL only applies to beef sold in grocery stores. It does not 
apply to beef sold in food service, restaurants, or beef that has been 
processed. How can you say it is a consumer's right to know only in the 
grocery store and not when they go out to eat? That argument doesn't 
hold up. In fact, most of the beef imported into the U.S. is sold in 
food service and not in grocery stores. If consumers want to know more 
about their food we have private marketing labels that already address 
their concerns.
    Finally, MCOOL violated international trade laws and led to a WTO 
dispute that nearly resulted in a trade war with Mexico and Canada. 
After implementation of MCOOL, both Canada and Mexico claimed MCOOL 
violated our trade agreements and filed a case against the United 
States with the World Trade Organization (WTO). The WTO found in favor 
of Canada and Mexico. The WTO found in their favor again after the 
United States appealed the first decision. Because of the ruling and 
appeal, the United States was instructed by the WTO to change MCOOL in 
order to come into compliance. The United States failed at multiple 
appeals efforts and ultimately Canada and Mexico were given the 
approval to assess $1 billion in retaliatory tariffs against the United 
States if Congress did not repeal the MCOOL law. The risk of starting a 
trade war with Canada and Mexico compelled Congress to finally repeal 
MCOOL and allowed us to narrowly avoid retaliation. Canada and Mexico 
still have the authority to retaliate against the United States if 
MCOOL is brought back into effect.
Conclusion
    Opponents of NAFTA try to paint a very dark picture of 
disproportionate beef trade as the cause of many wrongdoings faced by 
U.S. beef producers over the past 25 years. Unfortunately many of these 
anti-trade advocates use the same misguided logic and over-simplified 
arguments to push these unsupported claims on an audience that is 
looking for simple answers to complex economic realities. They want you 
to think that we should export more cattle and more beef to Mexico and 
Canada year after year in order for NAFTA to be viewed as a success. 
But to view NAFTA as a zero-sum game does the U.S. beef and cattle 
industry a great disservice because it discounts all the vast benefits 
our producers receive from both exports and imports from Canada and 
Mexico and the role they play in helping us meet global beef demand.
    The opponents of NAFTA fail to realize that walking away from or 
compromising the beef and cattle terms of NAFTA will place U.S. beef 
producers at significant disadvantage to competitors who are currently 
trying to take U.S. market share in the beef markets of Canada and 
Mexico. Canada and Mexico are negotiating trade agreements with our 
competitors in South America and Europe, not to mention the Australian 
and New Zealand producers who are trying to move multi-lateral trade 
agreements without the United States.
    For these reasons, NCBA encourages the U.S. Government to keep the 
renegotiation of NAFTA to a narrow scope of issues that will not 
jeopardize the beneficial parts of NAFTA, especially the beef and 
cattle terms of trade.
    Should you have any questions or desire any further information 
please contact Kent Bacus, NCBA's Director of International Trade and 
Market Access at (202) 347-0228.
            Sincerely,
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

Kendal Frazier,
Chief Executive Officer,
National Cattlemen's Beef Association,
Denver, Colorado.

    The Chairman. Thank you, Mr. Frazier.
    Mr. Brosch, did I mispronounce your name, or is that close?
    Mr. Brosch. That is just fine.
    The Chairman. All right, 5 minutes.

STATEMENT OF KEVIN J. BROSCH, J.D., PRINCIPAL, BroschTrade LLC, 
                  WOODVILLE, VA; ON BEHALF OF
           NATIONAL CHICKEN COUNCIL; NATIONAL TURKEY
          FEDERATION; USA POULTRY & EGG EXPORT COUNCIL

    Mr. Brosch. Thank you. Thank you, Mr. Chairman, and Members 
of the Committee. My name is Kevin Brosch. I am a lawyer here 
who has been practicing international trade law in Washington 
with a concentration in agricultural products for about 35 
years. From 1989 to 1997, I was the Deputy Assistant General 
Counsel at the Department of Agriculture, and I served as 
USDA's legal advisor during the GATT Uruguay Round negotiations 
in the formation of the World Trade Organization. I also 
supervised the legal work and participated in the original 
NAFTA negotiations in the early 1990s. In 1997-1998, I served 
as special trade counsel for the Senate Agriculture Committee 
and its Chairman, Dick Lugar of Indiana. I am here today on 
behalf of the National Chicken Council, the National Turkey 
Federation, and USA Poultry and Egg Export Council. Between 
these three organizations, they represent more than 95 percent 
of all the poultry produced and exported from the United 
States.
    I want to make the point initially that poultry is the most 
world competitive product that we have here in U.S. 
agriculture. We have no government programs. We have no 
government subsidies. We are number one in the world in the 
production of poultry. We have about 20 percent of the world's 
poultry production. We exceed China, which is number two. We 
are currently number one in exports of poultry. Last year, we 
pushed ahead of Brazil once again. We export to more than 100 
countries. We have 300,000 jobs in agriculture, and there are 
1.4 million related industry jobs that are tied to poultry 
production and poultry export. We also are one of the biggest 
exporters of soybeans and corn. Every time we export a 6 pound 
chicken, we are exporting 12 pounds of soybeans and corns with 
feathers on it. We are a great value-added export that assists 
not only the poultry producers and the poultry processors, but 
also, our grain and the soybean people.
    NAFTA has been a godsend for U.S. poultry. We went from 
almost no exports to Mexico--that is hard to believe, but 
before NAFTA, we had almost no exports. We now have more than 1 
million metric tons of exports, if you count all the poultry 
products, chicken, turkey, eggs, duck, together.
    For broiler chicken exports, Mexico is our number one 
market, Canada is our number two market. For turkey, Mexico is 
our number one market, Canada is our number three market. 
Mexico now represents 24 percent of our exports of broiler 
chicken and related chicken products, Canada, 16 percent. We 
have had good cooperation and relationships with both the 
Canadian and Mexican industries, and with their governments. We 
have had ups and downs over the time, but we have managed to 
work through those and NAFTA has provided us with the 
mechanisms to do so.
    Our message is the same as our colleagues from the beef 
industry. Please, do no harm. This is a critical industry for 
United States agriculture, not only for the poultry producers, 
but for our grain suppliers. We have lots of jobs in states 
that you are familiar with: Arkansas and Georgia, Mississippi, 
North Carolina, Iowa, Minnesota. I could go on and on. Those 
jobs depend upon the continued prosperity of these companies 
and their ability to export to markets, and Mexico and Canada 
are the most important ones.
    Thank you.
    [The prepared statement of Mr. Brosch follows:]

  Prepared Statement of Kevin J. Brosch, J.D., Principal, BroschTrade 
  LLC, Woodville, VA; on Behalf of National Chicken Council; National 
          Turkey Federation; USA Poultry & Egg Export Council
    Mr. Chairman and Members of the Committee:

    Thank you for your invitation to appear here today and provide 
testimony on behalf of USA Poultry & Egg Export Council (USAPEEC), the 
National Turkey Federation (NTF), and National Chicken Council (NCC), 
in anticipation of the proposed renegotiations of the North American 
Free Trade Agreement (NAFTA). My name is Kevin J. Brosch. I have been 
practicing international trade law, with almost exclusive emphasis on 
trade in agricultural products, for the past 35 years here in 
Washington. I have done so both in private practice and in government 
service. I began my practice in 1981 at the Washington, D.C. law firm 
of Steptoe & Johnson. From 1989 to 1997, I served as Deputy Assistant 
General Counsel for International Trade at the U.S. Department of 
Agriculture (USDA), and was USDA's legal advisor during the GATT 
Uruguay Round negotiations that concluded in the formation of the World 
Trade Organization. I also supervised USDA's legal work for, and 
participated in, the NAFTA negotiations in the early 1990's. In 1997-
98, I served as special trade counsel to the Senate Committee on 
Agriculture, Nutrition and Forestry and its Chairman, Senator Dick 
Lugar of Indiana. For 12 years, I was a partner in DTB Associates, a 
specialty law and consulting firm concentrating on agricultural trade. 
I currently am the principal in my own law and consulting business, 
BroschTrade, LLC and advise a number of agricultural and horticultural 
clients on matters of international trade and agricultural law.
    NCC is the national association based in Washington, D.C. that 
represents the broiler chicken production industry of the United 
States. NCC member companies include chicken producer/processors, 
poultry distributors, and allied industry firms that account for 
approximately 95 percent of the chickens produced in the United States.
    NTF, also headquartered in Washington, D.C. represents nearly 100 
percent of all turkey processors, growers, breeders, hatchery owners 
and allied companies. It is the only national trade association 
representing the turkey industry exclusively
    USAPEEC is the national association based in Stone Mountain, 
Georgia that represents the export interests of the U.S. chicken, 
turkey, eggs and duck industries. USAPEEC has more than 200 members 
companies--poultry producers, processors, export trading companies, 
cold storage operators, freight forwarders and other associated 
businesses--who account for approximately 95% of our country's very 
significant poultry and egg export trade. The United States exports 
poultry products to more than 100 foreign countries.
    When the term ``poultry'' is used in these comments, it refers to 
all of these products.
    The U.S. poultry industry has perennially been among America's most 
important and successful production and export sectors. In 2015, the 
U.S. industry produced almost nine billion broiler chickens, weighing 
53 billion pounds, live-weight; and more than 40 billion pounds of 
chicken product were marketed. In addition, U.S. poultry production 
includes nearly 5.76 billion pounds of turkey, approximately 100 
billion eggs, and nearly 220 Million pounds of duck. The poultry 
industry employs more than 300,000 U.S. workers directly, and more than 
1.4 million jobs in the U.S. economy are related to poultry.
    Poultry is vital to our farm economy. Annually, U.S. poultry 
consumes more than 49 million MT of the U.S. corn crop, and more than 
26 million MT of U.S. soybean production. In 2014, U.S. broiler chicken 
production, wholesale value, was an estimated $90 billion; table eggs, 
$10.4 billion; turkey $6.7 billion; and duck, $158 million. The United 
States has one of the most efficient poultry industries in the world. 
The U.S. is the largest producer of poultry meat with about 20% of the 
world's production (China is second with approximately 17%).
    The United States is also one of the two leading poultry exporting 
nations. The United States and Brazil each account for about \1/3\ of 
the world's broiler exports. Poultry exports are among the most 
important of all U.S. agricultural exports. In the most recent year for 
which full data is available, the U.S. exported approximately 3.7 
million metric tons of chicken products, with a value of nearly $4.6 
billion, to more than 100 counties; and exports of turkey valued at 
almost $500 million. While the situation in different markets varies 
from year to year, over the past decade two of our five most important 
poultry export markets have been Mexico and Canada.
    In a recent letter to the current Administration, the North 
American Agriculture and Trade Coalition referred to the North American 
Free Trade Agreement (``NAFTA'') as a ``bonanza for American 
Agriculture.'' NCC, NTF and USAPEEC agree with that assessment. NAFTA 
has been particularly important for U.S. poultry exports. NAFTA, of 
course, began as an initiative during the Administration of President 
Ronald Reagan when talks with Canada were first launched in 1984. The 
U.S.-Canada Free Trade Agreement was signed at the end of President 
Reagan's second term in 1988. Talks with Mexico to expand that 
agreement to the entire North American continent began during the term 
of his successor, President George H.W. Bush, and were successfully 
concluded by the end of his term in 1992. The policy of pursuing free 
trade began under President Reagan has been continually pursued during 
the ensuing four Administrations.
    Initially, we must emphasize that with respect to poultry trade, 
there is no trade deficit. The United States is the most efficient 
producer of poultry products in the world. Our comparative advantage in 
producing and marketing these products derives from both our access to 
America's abundant production of high quality feed grain and soybean 
products which are used to feed our chicken and turkey flocks; and from 
America's technological leadership in poultry genetics and breeding, 
feed compounding, and animal health practices. Because of our 
significant comparative advantage in this product, the United States 
exports poultry to more than 100 countries, and imports very little 
poultry products.
    Second, free trade agreements have been the mechanisms that have 
helped to sustain U.S. world leadership in poultry exports. Of the 120 
countries to which we export our products, 20 are nations who are free 
trade partners with the United States. Those 20 countries now represent 
more than \1/2\ of all the sales value of U.S. exports of poultry 
products. As recently as 2007, we had export sales to these 20 
countries of approximately $1 billion--about 28% of our total exports 
sales, which was then nearly $3.6 billion. By 2016, sales to the 20 
free trade partner countries has increased to nearly $2 billion, even 
though our total exports sales had increased more modestly.
    When NAFTA first came into force, the United States had only 
limited exports to Mexico despite that country's immediate proximity on 
our southern border. Although there were initial concerns on the part 
of the Mexican industry regarding free trade with the U.S., we were 
able to bridge that gap by beginning to open trade through an initial 
78,000 MT tariff-rate quota for chicken products; and to gain duty-free 
access to the Mexican market for turkey. Exports to Mexico have grown 
ever since, and it is today by far our largest market for U.S. poultry 
products. [See Figures 1 and 2.] For the most recent year for which 
data is available, U.S. chicken exports to Mexico were 637,888 MT at a 
value of $515 million; egg exports $27 million; and turkey exports were 
152,404 MT at a value of $348 million. Also, Mexico is currently the 
largest export market for U.S. fowl meat, with exports in the most 
recent year of 50,101 MT at a value of $57 million.
    So, as one can see, Mexico is the U.S. poultry industry's most 
important market with an export value of approximately $1 billion 
annually. Our success in the Mexican market is a key component of the 
profitability of our industry, and means many thousands of U.S. jobs. 
The majority of turkey exports go into Mexico for further processing, 
creating jobs on both sides of the border.
    The United States has never obtained totally free access to the 
Canadian market for poultry. Initially when the United States and 
Canada negotiated the U.S. Canada-Free Trade Agreement in the mid-
1980's, Canada reserved its rights, as it had under the General 
Agreement on Tariffs and Trade (GATT), to limit imports of certain 
types of poultry products, including chicken leg quarters, to protect 
its domestic supply control program for those products. When NAFTA came 
into force, the U.S. industry believed that those limits would 
eventually be eliminated, but discovered subsequently that Canada would 
continue to impose its supply-control limitations. The U.S. industry 
has been disappointed that, while virtually all other product sectors 
enjoy totally free trade under NAFTA, poultry remains the exception. 
Nonetheless, NAFTA has also been valuable for the U.S. industry and has 
helped to grow exports to Canada. While certain poultry product lines, 
including turkey, broilers, eggs and egg products are restricted to set 
import quotas (Canada currently limits certain tariff lines of our 
exports to 7.5% of their domestic market plus whatever can be done via 
their re-export program), other types of poultry products--e.g., fowl 
meat and breeding stock--can access the Canadian market duty free. 
Canada is currently the U.S.'s second largest market for poultry 
exports. In the most recent year, U.S. chicken exports to Canada were 
162,777 MT at a value of $436 million; egg exports were $46 million; 
and turkey exports were 5,439 MT at a value of $22 million. Canada is 
currently the second largest export market for U.S. fowl meat with 
exports in the most recent year of were 12,954 MT at a value of $42 
million.
    The benefits of NAFTA to the U.S. poultry industry stand in stark 
contrast to our experiences in other countries where comparable 
agreements were never achieved. U.S. exports to those other markets 
have often been much less successful in the longer run. For example, in 
the 1990's and early 2000's Russia was by far the U.S.'s largest export 
market for U.S. poultry. However, over the past decade, the Russian 
market has virtually disappeared. At the highest point in 2001, the 
U.S. exported 1,119,182 MT to Russia, which represented 36% of total 
exports. In recent years, however, the market has disappeared as the 
current Russian Administration began to subsidize its domestic 
industry, providing government money for a limited number of insiders 
who could profit, and by cutting off imports that might present any 
competition. By 2014, U.S. exports of chicken to Russia were about \1/
10\ of what they had been in 2001. Since 2015, U.S. exports have 
dropped to zero.
    While our Russian export market was beginning to decline in the 
2000's, our market in China was increasing. Our poultry exports to 
China had been just 2,575 MT in 1990; by 2008 we were shipping China 
797,161 MT, at a value of $679 million. Then, in response to U.S. 
safeguard duties on certain tires made in China to afford protection 
for the U.S. tire industry, China imposed high antidumping duties on 
U.S. poultry exports, and the U.S. industry immediately lost its most 
important market, which at that time was approaching $700 million 
annually.
    The U.S. has also been unsuccessful in gaining access to other 
large and potentially valuable markets where there are no free trade 
arrangements. For example, we have no real access to either the 
Indonesian or Indian markets. Indonesia currently has a population of 
260 million, and has the world's fourth largest middle class with 17.3 
million households as of 2014. Middle class purchasing power in 
Indonesia is rising strongly and is projected to reach U.S.$11,300 per 
household by the end of the decade, up from U.S.$6,300 per household in 
2014. India currently has a population of 1.2 billion, and is on track 
to pass China and become the globe's most populous country. India 
currently has nearly 80 million middle class households and both middle 
class numbers and purchasing power are on the increase. These are 
markets with overwhelming potential for a quality, low-cost sources of 
protein like U.S. chicken, eggs and turkey. But there are no free trade 
agreements, and virtually no access.
    The success of U.S. exports of poultry in the markets to which we 
have fair access has been based on the fundamental principle of 
comparative advantage. But it has become clear that U.S. poultry cannot 
succeed even with its significant comparative economic advantages in 
many markets because we do not have the free trade agreements. NAFTA 
has allowed us to be highly successful in Mexico; and has provided 
predictable, even if more limited, market access to the Canadian 
market. Free trade agreements, while not always perfect, are highly 
preferable because they result more often in cooperative and 
predictable trade relations
Modernization of the NAFTA
    As mentioned above, after the United States and Canada entered the 
NAFTA partnership in 1994, it became apparent that one area of 
misunderstanding was the degree to which trade in dairy and poultry 
products would be liberalized. While the United States Government, and 
the U.S. dairy and poultry industries, believed that there would be 
free trade under NAFTA in virtually all products, Canada considered 
that NAFTA allowed Canada to restrict imports in these products to 
accommodate its domestic supply control regimes. As a result, the U.S. 
poultry industry has enjoyed much more limited access to the Canadian 
market over the past 2 decades than most all other sectors. 
Nonetheless, also as outlined above, U.S. exports to Canada have been 
significant in some poultry products, and the U.S. poultry industry 
sees the NAFTA modernization effort as a potential avenue for further 
improvement.
    In our view, the recent preliminary negotiations between the United 
States and Canada in the context of the proposed Trans-Pacific 
Partnership (TPP) agreement has provided indications where those 
improvements could occur. Despite the decision of the current 
Administration to withdraw from the TPP negotiations, the poultry 
industry considers the progress on poultry trade that had been 
envisioned in those preliminary TPP negotiations as potentially 
important components in modernizing the NAFTA in several ways.
    First, Canada and the United States had reached preliminary 
agreement on increasing the quotas for U.S. chicken into Canada. This 
would represent modest improvements in trade liberalization, but would 
not represent threats to current domestic policies or create market 
disruptions. The U.S. poultry industry sees these increases as helpful 
and politically possible on both sides of the border. The U.S. industry 
also believes that there should be similar increases in the market 
access for U.S. turkey and turkey products. Access to the Canadian 
market for U.S. turkey products is currently very small and increased 
market liberalization is warranted.
    Second, significant progress was made in the course of TPP 
negotiations to improve and update the Sanitary and Phytosanitary (SPS) 
rules applicable to free trade agreements. This important work should 
not be lost. The poultry industry joins its fellow agricultural 
industries in urging the United States, Canada and Mexico to consider 
adopting improved SPS provision as a replacement to the SPS chapter 
currently in the NAFTA text.
            Respectfully submitted,

Kevin J. Brosch,

    On behalf of USA Poultry & Egg Export Council, National Chicken 
Council, and National Turkey Federation.
Figure 1--U.S. Broiler Exports to Mexico
(In Million U.S. Dollars)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

Figure 2--U.S. Turkey Exports to Mexico
(In Million U.S. Dollars)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    The Chairman. The gentleman yields back.
    Mr. Gaibler, 5 minutes.

         STATEMENT OF FLOYD D. GAIBLER, DIRECTOR, TRADE
POLICY AND BIOTECHNOLOGY, U.S. GRAINS COUNCIL, WASHINGTON, D.C.

    Mr. Gaibler. Good morning, Chairman Conaway, Ranking 
Minority Member Peterson, Committee Members. On behalf of the 
U.S. Grains Council, I appreciate the opportunity to appear 
before this panel to provide our perspectives on the economic 
impacts and importance of the modernization of NAFTA.
    The U.S. grain sector has significantly benefitted from 
localized trade in the past 30 years, and the Council believes 
in expanding access to export markets will continue to drive 
growth in American agriculture for years to come. In no case 
has that been more apparent than in our trade relationship with 
Canada and Mexico. NAFTA has provided a trade policy basis for 
the most efficient and effective interregional grain and 
livestock value chain in the world. Rising demand for feed and 
food has created new opportunities for grain exports in our 
hemisphere, which are tariff free, thanks to NAFTA. Due to the 
proximity and natural logistical advantages, Mexican feed 
millers and livestock producers have expanded and gained 
significant efficiencies by utilizing a just-in-time inventory 
management system based on our reliable supply of U.S. grain.
    Because our economies have grown and become so intertwined, 
this trade agreement is in particular critical to our members' 
business and during the last several months, it has highlighted 
how important it is to maintain our relationships if we are 
going to continue to grow. Since March, our CEO and Chairman 
has traveled twice to Mexico to meet with their customer and 
government officials. We also invited those same customers to 
the U.S. in May to meet with U.S. industry and Members of U.S. 
Congress, including this Committee. And in fact, in June, our 
Board of Directors went to Mexico in June as well. I can tell 
you from firsthand knowledge, in those meetings both here and 
there, the concerns and resulting impacts are real and 
tangible. They are obviously extremely concerned about what is 
going on, and confirmed that they are looking for alternative 
sources of supply.
    While we have worked to reassure and advocate for our 
customers, we have strong but unconfirmed evidence that Mexico 
is slated to purchase corn from South America beginning in 
August and September, and given the political uncertainty, our 
customers have told us that rather than continue taking future 
positions for grain purchases, they could resort to more 
volatile and risky spot markets. This may sound minor, but as a 
sea change for our industry happening now and that will change 
how the Mexican industry invests in infrastructure and impact 
our demand for years to come, as well as through our value 
chain. This angst is translated into actual impacts with U.S. 
corn exports down seven percent since the 1st of the year.
    Keeping in mind the substantial gains we have experienced 
from NAFTA and the close relationships we have built with our 
customers, both Canada and Mexico, again, I will repeat it is 
imperative that all parties make every effort to do no harm to 
our existing markets as modernization talks begin. Given these 
overriding concerns, though, the Council did recently contract 
to conduct some economic analyses to measure the impacts of 
both improving NAFTA, and if negotiations fail.
    In short, improvements that could help facilitate trade and 
remove non-trade barriers will indeed help yield increased U.S. 
corn production and exports. Conversely, though, we can see 
that if we resort to pre-NAFTA most favored nation tariffs, we 
could see impacts in terms of lower commodity prices, reduced 
profit margins, lower U.S. corn and grain production, higher 
farm program payments, and lower U.S. GDP.
    In addition, we hope that whatever negotiations are 
conducted here that agriculture doesn't end up being caught up 
as a retaliation target. Moving forward, we believe NAFTA 
modernization should build on the provisions and objectives of 
the Trans-Pacific Partnership. TPP included several important 
provisions that would be well-suited for this agreement. 
Obviously, the industry has changed since the early 1990s, and 
we believe NAFTA can evolve with it, and so we support several 
of the provisions I have outlined in my testimony.
    Finally, it is critical for this process, and again, the 
discussion around NAFTA has caused significant uncertainty in 
the market. We need to get that resolved.
    In closing, I would emphasize that U.S. producers pride 
themselves on being the supplier of choice. To continue that 
over time, we must have strong policy across the globe, 
particularly with our closest neighbors and customers. Our 
relationships with Canada and Mexico are telling to the rest of 
the world. If we cannot satisfy our top markets, what does that 
say?
    Thank you again for the opportunity, and I appreciate the 
opportunity to be here.
    [The prepared statement of Mr. Gaibler follows:]

  Prepared Statement of Floyd D. Gaibler, Director, Trade Policy and 
          Biotechnology, U.S. Grains Council, Washington, D.C.
 Statement on the Economic Impacts Regarding the Modernization of the 
        North American Free Trade Agreement with Canada and Mexico
    Chairman Conaway, Ranking Minority Member Peterson, Members of the 
House Agriculture Committee, my name is Floyd Gaibler. I am the 
Director of Trade Policy & Biotechnology for the U.S. Grains Council. 
The Council is a private, nonprofit organization representing U.S. 
producers of corn, sorghum, barley and co-products such as ethanol, 
distiller's dried grains with solubles (DDGS), and corn gluten feed and 
meal, and as well as associated agribusinesses.
    Founded in 1960, the Council now has ten international offices, 
representatives in an additional 15 locations and a network of 
consultants and partnerships that support programs in more than 50 
countries. Our members, leadership and staff fundamentally believe 
exports are vital to global economic development and to U.S. 
agriculture's profitability.
    On behalf of the Council, I appreciate the opportunity to appear 
before the Committee and provide our perspective on the economic 
implications with respect to the modernization of the North American 
Free Trade Agreement (NAFTA).
Importance of NAFTA to U.S. Grains and Ethanol Sectors
    NAFTA has had a profound effect on many aspects of North American 
agriculture. With a few exceptions, intraregional agricultural trade is 
now completely free of tariff and quota restrictions, and the 
agricultural sectors of NAFTA's member countries--Canada, Mexico and 
the United States--have become far more integrated, as is evidenced by 
rising trade in a wider range of agricultural products and substantial 
levels of cross-border investment.
    The U.S. feed grains industry has benefitted substantially from 
NAFTA. Rising demand for feed and food has created new opportunities 
for intraregional trade in grains and oilseeds. Poultry and hog 
producers in Mexico, for instance, rely heavily on imported feedstuffs 
to meet their country's growing demand for meat. Due to the proximity 
and natural logistics advantages, Mexican feed millers and livestock 
producers have expanded and gained significant efficiencies by 
utilizing a ``just-in-time'' inventory management system based on U.S. 
reliability of supply.
    Mexico is the top market for U.S. corn while Canada ranks as the 
ninth largest customer. Mexico and Canada ranked as the top two markets 
for U.S. barley in marketing year 2015/2016. Mexico is the second 
largest market for U.S. sorghum. Mexico and Canada have become the 
second and seventh largest markets, respectively, for distiller's dried 
grains with solubles (DDGS). In the recent marketing year, Canada 
remained the top market for U.S. ethanol while Mexico was the eighth 
largest customer.
    The United States exported more than 29.3 million metric tons of 
feed grains in all forms to Canada and Mexico in marketing year 2015/
2016, valued at $9.9 billion. The feed grain in all forms variable 
accounts for feed grains exported by the United States in either 
unprocessed or value-added forms, which offers a holistic look at 
demand from global customers being met by U.S. farmers.
Preserve and Protect Market Access
    In our communications with the Executive Branch, we exhorted that 
all efforts should be expended to maintaining all existing commitments 
in a ``do no harm'' manner and expanding upon current market access and 
other provisions that enhance U.S. market share in both the Canadian 
and Mexican markets, and that promote economic integration and support 
farm incomes. In addition, it is imperative that other negotiating 
objectives or independent trade policy actions that could result in 
retaliation should be avoided at all costs. Agriculture has 
traditionally been the first target in response to disruptions in 
trading relationships. The 2009 trucking dispute with Mexico and the 
threat of retaliatory duties on U.S. agricultural products as a result 
of U.S. Country-of-Origin Labeling provisions are prime examples of our 
vulnerability.
    Moreover, the recent furor of the proposed Executive Order to 
withdraw from NAFTA has prompted the Mexican Government to look to 
Brazil and Argentina for alternatives sources of corn and other grain 
products. We have strong but unconfirmed evidence that Mexico is slated 
to purchase between seven and eight cargoes of corn from South America 
beginning in August and September. Given the political uncertainty, our 
customers have told us that rather than continue to future positions 
for grain purchase, a strategy key to mitigating price risk to purchase 
corn and co-products, they will resort to the more volatile and risky 
spot market. Those decisions have resulted in a 4% decline in corn 
exports (seven percent in terms of value) since the beginning of the 
year when compared to 2016. We expect further erosion if the shipments 
from South America materialize as we anticipate.
    Since March, our President and CEO Tom Sleight and Chairman Chip 
Councell have traveled twice to Mexico to meet with our customers and 
government officials. The Council also invited our top feed and 
livestock customers to the United States in May to meet with U.S. 
industry as well as Members of the U.S. Congress and the U.S. 
Department of Agriculture. In addition, our board of directors traveled 
to Mexico in June to meet with our customers and government officials. 
We can tell you from firsthand knowledge in participating in the 
meetings both in Mexico and here at home, that the concerns and 
resultant impacts are real and tangible.
Economic Implications of NAFTA Negotiations
    To more concretely understand both the risks of ending NAFTA, and 
the potential improvements from a successful modernization of NAFTA, 
the Council, along with the U.S. Soybean Export Council and U.S. Wheat 
Associates commissioned an econometric analysis led by World 
Perspectives, Inc. and the assistance of Perdue University.
    With zero tariffs for U.S. feed grains and co-products under the 
current NAFTA agreement increased market access depends on facilitating 
trade and the reduction of non-tariff barriers. There is no good 
quantitative measure of the levels of non-tariff protections or trade 
costs that can be reduced via negotiating structures, but it is 
feasible to examine the impact of expanded market access at the margin. 
For example, it is possible to experiment with the impact of increasing 
intra-NAFTA market access by a 1% ad valorem tariff equivalent. In 
other words, take the negative economic impact of Canada and Mexico 
both imposing a 1% tariff on imports of U.S. feed grains and then 
assume the positive equivalent of that economic impact from improving 
the technical terms of trade (rules of origin, customs clearance, SPS, 
etc.).
    The results demonstrate that the U.S. feed grain industry has the 
potential to realize gains from improved terms in a modernization of 
NAFTA, with Mexico a more significant contributor to those benefits 
than Canada. U.S. corn production increases in value by $80 million, 
but less than \1/4\ of that goes into direct export to Mexico and 
Canada. The majority of the increase in U.S. corn exports to Canada and 
Mexico is in the form of value-added products from livestock and other 
foods. So the increase in U.S. feed grain production it utilized under 
an improved NAFTA demonstrated there is the potential for gains from 
further reduced barriers to trade, and particularly for expanding U.S. 
feed grain and grain derived product exports to Mexico.
    Conversely, if the negotiations fail and we quit NAFTA, it is 
unclear what specific future polices would be chosen. But one 
assumption is that all three North American countries would end all 
North American preferences. This potentially means that each country 
reverts to applying their respective most favored nation (MFN) duties. 
The MFN rates are the maximum tariffs that can be imposed based on 
World Trade Organization (WTO) obligations and they vary from country 
to country. Mexico's MFN duty rates range from 20-40%; versus 1-10% for 
the U.S. and Canada.
    The results of the analysis finds that the negative price impact on 
U.S. corn (^$0.02/bushel) is relatively small since exports to Mexico 
are a very small share (0.0012% of total world utilization. U.S. corn 
production falls by an average of 150 million bushels annually, which 
equates to around $800 million in value or about $6/acre. Total U.S. 
grain production falls by $1.2 billion.
    While the changes in U.S. per profit margins appear modest, (2-3 
percent), this is because the model assumes a partial offset from the 
shock in the near term by an annual average of $1.2 billion in farm 
program payments. More pronounced is the large macroeconomic impact 
with U.S. GDP falling by $13 billion.
    Obviously, commodities are fungible and markets adjust over time. 
In addition, impacts extend to other farm product with interlocking 
relationships, such as livestock products. A drop in overall farm 
income can have spillover effects that could lead to changes in farm 
structure, the idling of land or its conversion to alternative uses--
further lowering corn profitability.
Negotiation Objectives and Priorities
    In our formal comments to the Administration, we advocated that 
this negotiation should build on and strengthen the objectives under 
the Trans Pacific Partnership (TPP) that was developed to represent a 
21st century high level agreement that serves as a template for all 
future trade negotiating architectures. At the same time, there were 
positive elements under the Trans-Atlantic Trade and Investment 
Partnership (T-TIP) as well as recent U.S. free trade agreements (e.g., 
Korea-U.S. FTA) that should be considered when developing U.S. 
negotiating objectives. The Council is a member of the U.S. Food and Ag 
Dialogue for Trade and our supportive of their views with respect to 
negotiating objectives.
National Treatment and Market Access for Goods
    The Council urged the Administration for the continued elimination 
of all tariff preferences and/or quotas for corn, corn-co-products 
(corn gluten feed, corn gluten meal, grain sorghum, barley and malt; 
ethanol and dried distiller grains).
    TPP also provided important provisions that addressed major policy 
issues and merit inclusion in a modernized NAFTA agreement including: 
Export Subsidies; Export Guarantees or Insurance Programs; Agricultural 
Export State Trading Enterprises; Export Restrictions--Food Security; 
and Agricultural Safeguards.
Sanitary and Phytosanitary (SPS) Measures
    The NAFTA agreement included provisions to establish a framework of 
rules and disciplines to guide the development, adoption and 
enforcement of sanitary and phytosanitary measures. While perhaps 
suitable at that time, subsequent free trade agreements have made 
significant improvements over the foundational SPS language of NAFTA.
    Protectionist sanitary and phytosanitary measures that lack a 
scientific basis and are not based on a risk assessment continue to 
unjustifiably restrict access for U.S. food and agricultural exports in 
numerous foreign markets. While the WTO Sanitary and Phytosanitary 
Agreement established important science-based principles to challenge 
such restrictions, enhanced provisions are needed to ensure that SPS 
issues are resolved in a timely manner and do not result in significant 
unnecessary delays to our sector's perishable exports.
    TPP provided a strong Sanitary and PhytoSanitary (SPS) Chapter that 
builds on the WTO's 1994 SPS agreement rather than simply reaffirming 
commitments to the WTO SPS agreement. We would support improving these 
provisions, in particular the following areas: Equivalence; Science and 
Risk Analysis; Import Checks; Transparency: Cooperative Technical 
Consultations; and when the CTC mechanism does not resolve a matter, 
parties may use provision's dispute settlement mechanism to enforce 
most of the SPS commitments. In particular the creation of a rapid 
response mechanism, including tighter standards and deadlines for 
adverse import checks will be critical in addressing future SPS issues.
Biotechnology
    While products derived from agricultural biotechnology are grown in 
28 countries and are traded widely, there remains a lack of 
synchronicity between countries, particularly countries that approve 
these products and countries who import them. This unpredictable 
regulatory and trade environment has resulted in trade disruptions that 
have caused economic impacts and delayed opportunities for farmers to 
have access to new technologies.
    The North American Free Trade Agreement (NAFTA) came into force 2 
years prior to the commercialization of the first biotech crops in 
1996. Since that time, biotech acreage across multiple crops has grown 
rapidly because of the increased productivity and, environmental 
benefits associated with this technology.
    Since the NAFTA entered into force, the global regulatory framework 
for biotech crops has expanded, sometimes resulting in redundant 
measures, leading to an unpredictable, and time-consuming global 
regulatory environment, which in turn has imposed high barriers to 
efficient trade. Corn and soybean products often are evaluated for 
their safety by 20 or more governments, all generally following the 
same standards for assessment and evaluating the same data. The timing 
of approval of these products affects the entire crop value chain. If a 
product is commercialized in one plant crop in the absence of globally 
synchronized regulatory approvals, trade disruption may occur in 
multiple crops and processed products used for food, feed and further 
processing, even though the product has completed a risk assessment and 
been approved in one or more countries. Similarly, asynchronous 
approvals have contributed to the delayed introduction of new 
technologies for use by agricultural producers, resulting in lost 
opportunities for farmers and product developers, as well as other 
participants in the value-chain, to capitalize on the introduction of 
new biotech traits.
    Under a modernized NAFTA, the Council advocated efforts that the 
U.S. Government: (1) enter a mutual recognition agreement with Canada 
and Mexico on the safety determination of biotech crops intended for 
food, feed and for further processing, and (2) develop a consistent 
approach to managing low-level presence (LLP) of products that have 
undergone a complete safety assessment and are approved for use in a 
third country (ies) but not yet approved by a NAFTA member. The Council 
is also a member of the U.S. Biotech Crops Alliance and supports their 
position on this issue.
Coherent National Renewable Fuel Standards
    Since NAFTA went into effect in 1994, the U.S. ethanol industry has 
grown dramatically, expanding production more than eleven-fold from a 
modest 1.2 billion gallons in 1994. Today, the U.S. is now the most 
reliable and affordable source for clean-burning, high-octane ethanol 
in the world. Our industry supports more than 340,000 jobs and promotes 
the growth of rural America and the farm economy through the use of 
more than 5 billion bushels of U.S. corn to make ethanol and associated 
coproducts. In 2016, our industry produced more than 15 billion gallons 
of ethanol and 47 million metric tons of distiller's grains, 
contributing more than $30 billion to our nation's economy. In 
addition, we exported over 1.2 billion gallons of ethanol at a value of 
more than $2 billion and 11.3 million metric tons of DDGS.
    Today, Canada and Mexico are two of the U.S. ethanol industry's 
strongest trading partners, with Canada emerging as the destination for 
more than 25 percent of all U.S. ethanol exports, and Mexico recently 
emerging as the top destination for U.S. DDGS exports. Our industry's 
successful entry and trade into the Canadian and Mexican markets are a 
direct result of NAFTA's elimination of tariffs on goods such as 
ethanol and distillers grains.
    NAFTA modernization provides an excellent opportunity to recognize 
and support modernized energy policy, we recommended to the 
Administration that they maintain the current policy of zero tariffs on 
ethanol amongst the three countries. We would also encouraged them to 
work to prevent the introduction of any potential technical barriers to 
trade. Currently, while the transportation fuel markets and ethanol 
blend dynamics differ in Canada, Mexico, and even within the U.S., 
there appear to be few, if any, true barriers to trade. We would not 
want any such barriers to be introduced in the future, as we would like 
to keep these fuel markets as open and as workable as possible for our 
U.S. producers.
Conclusion
    In conclusion, the U.S. grains sector has significantly benefited 
from more liberalized trade in the past 30 years, and the Council 
believes expanding access to export markets will continue to drive the 
success of American agriculture for years to come.
    In no case has this been more apparent than in our trade 
relationship with Canada and Mexico. NAFTA has provided the trade 
underpinnings that has resulted in the most efficient and effective 
interregional grain and livestock value chain in the world.
    But to take advantage of this and other emerging export 
opportunities--and to maintain our competitiveness in the global 
marketplace--trade liberalization must continue at all levels, 
bilateral, regional and multilateral. Trade agreements hold the key to 
opening markets and resolving tariff and non-tariff barriers to allow 
the movement of coarse grains, co-products in all forms and other 
agricultural exports to where they are demanded. With effective 
policies in place and followed, trade works--and the world wins.
U.S. Exports of Corn In All Forms to Mexico and Canada
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

          Source: USDA FAS GATS/USGC.

    The Chairman. Thank you, sir.
    Mr. Hammer, 5 minutes.

  STATEMENT OF THOMAS A. HAMMER, PRESIDENT, NATIONAL OILSEED 
            PROCESSORS ASSOCIATION, WASHINGTON, D.C.

    Mr. Hammer. All right. Good morning, Chairman Conaway, 
Ranking Member Peterson, and Members of the Committee. Thank 
you for calling this important hearing today to discuss 
renegotiating the North American Free Trade Agreement, and the 
opportunities to achieve the best deal possible for American 
agriculture.
    My name is Tom Hammer. I am President of the National 
Oilseed Processors Association. NOPA is a national trade 
association representing 13 members engaged in the production 
of food, feed, and renewable fuels from oilseeds. It is 
noteworthy that our members process over 95 percent of the U.S. 
soybean crush annually.
    My comments will focus on the U.S. soybean sector, but also 
on our most important customer group, the domestic meat and 
poultry sectors.
    Agriculture today represents NAFTA's biggest success story. 
We stand ready, however, to work with the Members of Congress 
and the Administration in identifying ways to renegotiate NAFTA 
to create new opportunities for agriculture.
    NAFTA benefits the U.S. soy sector in two ways. First, by 
increased exports of soybeans, soy meal, and soy oil, but as 
said earlier, also increased exports of meat and poultry 
products that use soy meal as a primary feed ingredient. NAFTA 
has created significant market opportunities for U.S. exports 
of soybeans and soy products. Mexico is our number one export 
market for soy meal, our number one market for soy oil. It is 
our number two market for soybeans, behind China. Canada ranks 
as our number three market for U.S. exports of soy meal, and 
our number nine or ten market for soybean oil.
    However, unlike the tremendous success stories for U.S. 
soy, we are aware that there are some major unresolved market 
access issues for exports of dairy, poultry, and eggs to 
Canada, and I would like to comment on several of the key 
negotiating objectives that are important to NOPA.
    We are still in our initial review process and may have 
more to say on some of the negotiating objectives later, such 
as the retention of investor state dispute settlement and 
dispute settlement chapters. Any renegotiating of the NAFTA 
must preserve current market access levels for U.S. agriculture 
commodities and products, including all tariff and duty 
preferences, and in simple terms, as you have heard already, do 
no harm to our current excellent export positions in Mexico and 
Canada. Resolving the longstanding Canadian policies designed 
to negatively impact exports of U.S. dairy, poultry, and eggs 
would be another top objective for NOPA.
    Also, implementing an expanded sanitary phytosanitary SPS 
plus and rapid response mechanism consistent with and improving 
on the TPP text to ensure that science-based SPS measures are 
developed and implemented in a transparent, predictable, and 
non-discriminatory manner is another objective for NOPA.
    Moreover, adding a new NAFTA chapter on biotechnology, 
which again, was included in the final TPP text, is a major 
objective for my organization. Under a modernized NAFTA, NOPA 
requests that the U.S. Government enter into a mutual 
recognition agreement with Canada and Mexico on the safety 
determination of biotech crops intended for food, feed, and 
further processing, and also to develop a consistent approach 
to managing low level presence of products that have undergone 
a complete safety assessment and are approved for use in other 
countries, but not necessarily in all NAFTA member countries.
    In summary, NOPA welcomes this opportunity to provide the 
Committee with testimony to identify ways to renegotiate the 
NAFTA while preserving the core benefits of this important 
agreement. NAFTA has led to tremendous expansion of the U.S. 
oilseed processing sector with ripple effects that have 
benefitted the broader U.S. economy. Our business sectors have 
grown. People have been hired, and strong supply chains have 
been built based upon the current agreement. As I said, do no 
harm must be the guiding overarching objective of this 
renegotiation. Moreover, a renegotiation of NAFTA should first 
and foremost preserve the current market access, including the 
tariff and duty preferences, but additionally, we ask our 
negotiators to fiercely protect the gains achieved in NAFTA to 
date to ensure that these gains are not eroded and tradeoffs 
for gains to be achieved in other non-agricultural sectors of 
the American economy.
    Thank you again for this opportunity to testify, and NOPA, 
as I said, stands ready to work with the Members of Congress 
and the Administration as we commence this critically important 
renegotiation of NAFTA with our Canadian and Mexican trading 
partners. Thank you.
    [The prepared statement of Mr. Hammer follows:]

  Prepared Statement of Thomas A. Hammer, President, National Oilseed 
                Processors Association, Washington, D.C.
    Good morning, Chairman Conaway, Ranking Member Peterson, and 
Members of the Committee. Thank you for calling this important hearing 
today to discuss renegotiating the North American Free Trade Agreement 
(NAFTA) and the opportunities to achieve the best deal possible for 
American Agriculture.
    My name is Tom Hammer, President of the National Oilseed Processors 
Association (NOPA). NOPA is a national trade association that 
represents 13 companies engaged in the production of food, feed, and 
renewable fuels from oilseeds. NOPA's members process soybean, 
sunflower seed, canola, flaxseed and safflower seed. Our member 
companies process more than 1.8 billion bushels of oilseeds annually at 
64 plants located throughout the country, including 58 soybean 
processing facilities that ``crush'' over 95% of the U.S. soybean crop.
    My comments will focus on the U.S. soybean sector; and, on our most 
important customer group, the domestic meat and poultry sectors.
Agriculture Represents One of NAFTA's Biggest Success Stories
    Agriculture represents one of NAFTA's biggest success stories. 
Since the agreement was enacted, U.S. food and agricultural exports to 
Canada and Mexico have more than quadrupled--growing from $8.9 billion 
in 1993 to over $38 billion in 2016. We recognize that NAFTA is now 
over 23 years old and improvements to the agreement can be made. We 
stand ready to work with Members of Congress and the Administration to 
identify ways to renegotiate NAFTA. However, in so doing, it is 
critical that the core benefits of the Agreement that have greatly 
expanded U.S. food and agricultural trade within North America must be 
preserved.
    The U.S. food and agriculture sector is heavily dependent on our 
current level of access to Mexico and Canada. NAFTA has played a 
significant role in boosting incomes for millions of U.S. farmers, 
ranchers, and allied manufacturers--and continues to provide important 
and profitable markets for our nation's rural agriculture-based 
communities. As the Administration and Congress work together to 
identify constructive opportunities to modernize NAFTA, it is critical 
to preserve what has worked well in the current agreement as a ``base 
line'' and then build upon this base by expanding the market access, 
tariff, and non-tariff provisions.
    NOPA looks forward to working with Members of Congress and the 
Administration to develop and implement a modernized trade policy that 
will promote and expand America's food and agriculture producers' and 
exporters' interests in the important North American market.

    NAFTA Benefits the U.S. Soy Sector in Two Ways:

  1.  Increased exports of soybeans, soy meal, and soybean oil.

  2.  Increased exports of meat and poultry products that use soy meal 
            as animal feed.
NAFTA: U.S. Soy and Soy Product Exports
    Thanks to trade agreements with our North American partners, U.S. 
soy exports have grown significantly over the past 23 years. These 
agreements reduced tariffs and further integrated the North American 
market for soybeans and related products. This improved market access 
allowed the U.S. soy industry to meet Mexico's growing demand for 
proteins.
    In 2016, the U.S. exported $415 million and $2.5 billion of 
soybeans and soy products to Canada and Mexico, respectively. Mexico 
saw the greatest growth, nearly tripling their imports of U.S. soybeans 
and soy products since the implementation of NAFTA.

     U.S. Soy & Soy Product Exports--2016 (CY) Value in Thousands *
------------------------------------------------------------------------
                      Mexico                          Canada
Products ---------------------------------------------------------------
             Value ($)      Metric Tons      Value ($)      Metric Tons
------------------------------------------------------------------------
Soybeans       1,462,600       3,639,647         115,869         304,089
Soybean          800,501       2,128,983         280,865         755,182
 Meal
Soybean          226,820         257,374          18,341          16,369
 Oil
         ---------------------------------------------------------------
  Total       $2,498,921       6,026,004        $415,075       1,075,640
   Soy
   Expor
   ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.


     U.S. Soy & Soy Product Exports--1993 (CY) Value in Thousands *
------------------------------------------------------------------------
                      Mexico                          Canada
Products ---------------------------------------------------------------
             Value ($)      Metric Tons      Value ($)      Metric Tons
------------------------------------------------------------------------
Soybeans         415,723       1,758,386          58,227         231,709
Soybean           58,514         251,641         162,973         655,706
 Meal
Soybean           14,854          33,130          11,345          20,650
 Oil
         ---------------------------------------------------------------
  Total         $489,091       2,043,157        $232,545         908,065
   Soy
   Expor
   ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.

    NAFTA has led to Enormous U.S. Soy Export Gains:

  b Increase in Value of all U.S. Soy and Soy Products Exports to 
        Canada and Mexico from 1993 to 2016: $2.19 Billion.

  b Increase in Volume of all U.S. Soy and Soy Products Exports to 
        Canada and Mexico from 1993 to 2016: 4.15 Billion Metric Tons.
NAFTA: U.S. Meat and Poultry Product Exports
    Because of trade agreements with our North American partners, U.S. 
meat and poultry exports have also grown significantly over the past 23 
years. NAFTA has reduced tariffs and further integrated the North 
American market for meat and poultry products. This improved market 
access allowed the U.S. meat and poultry industries to meet the demands 
for quality food and feed products from Mexico, which are essential to 
meet Mexico's growing demand for proteins.
    In 2016, the U.S. exported $3.25 billion of meat and poultry 
products to Mexico. Exports to Canada of meat products and poultry have 
also grown, totaling In 2016, total exports of meat and poultry 
products were $2.07 billion in 2016. Yet, exports of U.S. dairy and 
poultry products could be higher--this will be discussed later in my 
comments.

        U.S. Meat Product Exports--2016 (CY) Value in Thousands *
------------------------------------------------------------------------
                      Mexico                          Canada
Products ---------------------------------------------------------------
             Value ($)      Metric Tons      Value ($)      Metric Tons
------------------------------------------------------------------------
Pork &         1,355,028         730,314         798,518         205,372
 Pork
 Product
 s
Beef &           974,903         242,374         758,117         116,265
 Beef
 Product
 s
Poultry          924,649         841,940         509,172         184,637
 &
 Poultry
 Product
 s
         ---------------------------------------------------------------
  Total       $3,254,580       1,814,628      $2,065,807         506,274
   Meat
   Expor
   ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.


        U.S. Meat Product Exports--1993 (CY) Value in Thousands *
------------------------------------------------------------------------
                      Mexico                          Canada
Products ---------------------------------------------------------------
             Value ($)      Metric Tons      Value ($)      Metric Tons
------------------------------------------------------------------------
Pork &           112,103          95,345          36,717          15,250
 Pork
 Product
 s
Beef &           163,803          80,314         361,096          94,429
 Beef
 Product
 s
Poultry          204,965         171,091         164,439          65,521
 &
 Poultry
 Product
 s
         ---------------------------------------------------------------
  Total         $480,871         346,750        $562,252         175,200
   Meat
   Expor
   ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.

    NAFTA has led to Enormous U.S. Meat Product Export Gains:

  b Increase in Value of all U.S. Meat and Poultry Exports to Canada 
        and Mexico from 1993 to 2016: $4.27 Billion.

  b Increase in Volume of all Meat and Poultry Exports to Canada and 
        Mexico from 1993 to 2016: 1.79 Billion M/T.

   Animal Agriculture is the Single Largest User of U.S. Soybean Meal
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Conversion Rates = Pounds of Soybean Meal used to Produce One (1) Metric
                               Ton of Meat
------------------------------------------------------------------------
                 Turkey                                 1,618
                   Pork                                 1,508
                Chicken                                 1,156
                   Beef                                   568
------------------------------------------------------------------------

NAFTA Objectives: Trade in Soybean and Soybean Products
    Since NAFTA was signed over 23 years ago and during that time, 
virtually all tariff barriers for trade in oilseeds and oilseed 
products have been eliminated--creating a seamless North American 
market for such products as soybeans, soybean meal and soy oil.
    As I have stated, NAFTA has created significant market 
opportunities for U.S. exports of soybeans and soy products. For the 
past calendar year (Jan.-Dec. 2016), Mexico ranked number two (2) for 
our exports of soybeans, and number one (1) for both soybean meal and 
soy oil. This has been the case for several years running. For the past 
calendar year, Canada ranks number three (3) for U.S. exports of 
soybean meal and number ten (10) for our exports of soybean oil. This 
also has been the case for several years.
    In anticipation of the renegotiation of NAFTA, we recently polled 
NOPA's members to determine if they have experienced any trade 
irritants or non-tariff trade barriers with either Mexico or Canada. At 
this point in time, our members have not identified any major issues or 
disputes that could not be handled between U.S. exporters and their 
importing customers. Thus, it appears that the North American supply 
chain for trade in soybeans and soybean products is operating in an 
efficient and seamless manner.
    Since Mexico and Canada have become our leading export markets for 
soybean meal and soy oil under NAFTA, NOPA's top priority must be to 
``do no harm'' to the positive trading terms we currently enjoy. 
Nevertheless, there are several major opportunities to modernize and 
improve the Agreement.
NAFTA Objectives: Trade in Meat and Poultry Products
    NOPA's members have benefited from the NAFTA in two major ways. 
First, from the greatly expanded trade in soybean meal and soy oil. 
But, also due to the significant growth in U.S. exports to both Mexico 
and Canada of meat and poultry product exports over the past 23 years. 
This is important to NOPA members because American poultry, pork, beef 
and dairy producers and exporters are our principal customers. When 
these customers sell more meat products to Mexico and Canada, by 
definition, they consume more U.S. soybean meal.
    However, unlike the tremendous ``success stories'' that we hear 
from NOPA members about unfettered exports of soymeal and soy oil to 
Mexico and Canada, we are aware that there are still some major 
unresolved market access issues for U.S. exports of dairy, poultry and 
eggs to Canada. These trade barriers stand in sharp contrast to nearly 
all other U.S. agricultural exports which enjoy duty-free and quota-
free access to Mexican and Canadian consumers.

   For U.S. dairy exports, Canada continues to use a variety of 
        unfair trade policies, including the use of trade restricting 
        tariffs and limited in-quota volumes, which impede access to 
        their market and impair the value of the concessions Canada has 
        granted to the U.S. dairy industry.

   While U.S. poultry exports to Canada have been significant 
        and Canada is the U.S. poultry industry's second largest export 
        market, the U.S. poultry industry has had more limited access 
        to the Canadian market than most other sectors. Market access 
        to Canada for highly competitive U.S. chicken, turkey and eggs 
        is limited by restrictive quotas.

    The renegotiation, or modernization, of the NAFTA represents a most 
important opportunity for the further expansion of U.S. dairy, poultry 
and egg product exports, particularly to Canada.
    Therefore, fully liberalizing access to the Canadian market for 
these important agricultural products is a key negotiating objective 
for NOPA.
Specific Negotiating Objectives for the Initiation of NAFTA 
        Negotiations
    On July 17, 2017, the Office of the United States Trade 
Representative (USTR) provided a summary of the Administration's 
specific objectives with respect to the NAFTA negotiations.
    I would like to comment on several of the key negotiating 
objectives that are of importance to NOPA. As these specific 
negotiating objectives have just been made available to the Congress 
and to the public, NOPA is still in its internal review process and may 
have more to say on these negotiating objectives later.
Trade in Agricultural Goods
   Maintaining existing reciprocal duty-free market access for 
        agricultural goods is our number one objective; any 
        renegotiation of NAFTA must preserve current market access, 
        including all tariff and duty preferences. In simple terms, 
        ``do no harm'' to our current excellent export positions in 
        Mexico and Canada is NOPA's main objective.

   Eliminating non-tariff barriers to U.S. agricultural exports 
        including discriminatory barriers, restrictive administration 
        of tariff rate quotas, other unjustified measures that unfairly 
        limit access to markets for U.S. goods is another major 
        objective for NOPA. Particularly, resolving the long-standing 
        Canadian policies designed to negatively impact dairy, poultry 
        and egg trade, and obtaining significantly greater market 
        access for U.S. dairy and poultry exports to Canada, is a top 
        objective.

   Promoting greater regulatory cooperation to reduce burden 
        associated with unnecessary differences should be an 
        overarching goal of NAFTA renegotiation which embraces 
        provisions to foster an open, fair and predictable regulatory 
        environment. This objective will be achieved by promoting the 
        use of widely-accepted good regulatory practices including core 
        principles such as science-based risk assessment, transparency, 
        impartiality and due process paired with coordination across 
        governments to ensure a coherent regulatory approach.
Sanitary and Phytosanitary Measures (SPS)
   Implementing an expanded ``Sanitary Phytosanitary (SPS)-Plus 
        and Rapid Response Mechanism'' consistent with, but improving 
        on the Trans-Pacific Partnership (TPP) text, to ensure that 
        science-based SPS measures are developed and implemented in a 
        transparent, predictable, and non-discriminatory manner is a 
        major objective for NOPA. At the same time, it is important to 
        preserve the ability of NAFTA partner regulatory agencies to 
        take necessary steps to ensure food safety and protect plant 
        and animal health.

   Adoption of expanded WTO SPS-Plus standards should include:

     Creation of a Rapid Response Mechanism, including 
            tighter standards and deadlines for adverse import checks.

     Adoption of cooperative technical consultations and 
            increased reporting, transparency and record keeping.

     Creation of a more robust single inquiry point 
            standard for SPS contacts (including increased transparency 
            of SPS requirements, databases for SPS regulations etc.).

     High standards for risk assessment and risk 
            management, including language that elaborates on current 
            WTO provisions.

     Adopt trade facilitative residue levels and 
            adventitious presence mechanisms.

     Include low level tolerance principles.

     Enhance enforcement mechanisms for unjustified SPS 
            barriers, including potential compensation, three strikes 
            policy or retroactive damages to help enforce and hold 
            trading partners accountable to persistent and unscientific 
            SPS measures.
Biotechnology
   Adding a new NAFTA Chapter on Biotechnology is also a major 
        objective for NOPA.

   Under a modernized NAFTA, NOPA requests that the U.S. 
        Government:

     Enter a mutual recognition agreement with Canada and 
            Mexico on the safety determination of biotech crops 
            intended for food, feed and for further processing.

     Develop a consistent approach to managing low-level 
            presence (LLP) of products that have undergone a complete 
            safety assessment and are approved for use in another 
            country/ies but not yet approved by a NAFTA member.
Other NAFTA Chapters
    Improved and modernized Chapters dealing with such important trade 
issues as: (1) Rules of Origin, (2) Technical Barriers to Trade (TBT), 
(3) Good Regulatory Practices, (4) Transparency, and (5) Dispute 
Settlement are also important objectives for NOPA.
    We will have more to say about these Chapters, and possibly others, 
once NOPA's Committees and its Board of Directors have had adequate 
time to evaluate these important elements of a renegotiated NAFTA.
Summary
    In summary, NOPA recognizes that NAFTA has become outdated and that 
improvements to the Agreement can be made. We welcome this opportunity 
to identify ways to renegotiate the NAFTA while preserving the core 
benefits of the Agreement. NAFTA has led to an expansion of the U.S. 
oilseed processing sector and our domestic meat and poultry customers 
during the past 2+ decades, with ripple effects that have benefitted 
the broader U.S. economy. Our business sectors have grown, people have 
been hired, and strong supply chains have been built based upon the 
current Agreement, so ``do no harm'' should be a guiding, overarching 
objective in the negotiations. A renegotiation of NAFTA should, first 
and foremost, preserve current market access, including all tariff and 
duty preferences. Additionally, we ask that our negotiators fiercely 
protect the gains achieved in NAFTA to date to ensure these gains are 
not eroded in tradeoffs for gains to be achieved in other sectors of 
the American economy.
    Thank you again for the opportunity to testify before this 
Committee. NOPA stands ready to work with the Members of Congress and 
the Administration as we commence this critically important 
renegotiation of NAFTA with our Canadian and Mexican trading partners.

    The Chairman. Thank you, sir.
    Mr. Brown, 5 minutes.

   STATEMENT OF REGINALD L. BROWN, EXECUTIVE VICE PRESIDENT, 
  FLORIDA TOMATO EXCHANGE, MAITLAND, FL; ON BEHALF OF FLORIDA 
                      FRUIT AND VEGETABLE
                          ASSOCIATION

    Mr. Brown. Thank you, sir, and I appreciate the opportunity 
to testify before the Committee this morning. I am Reggie 
Brown. I work for the Florida tomato industry, and I am here 
also on behalf of the Florida Fruit and Vegetable Association, 
producers of fruits and vegetables in Florida.
    Florida and the U.S. specialty crops producers are high-
quality, competitive producers, and we can, in fact, compete on 
a free and fair trade enterprise. We are not opposed to fair 
trade. But we are having a problem in the specialty crop 
industry in this country, and that problem is not limited to 
Florida. It is happening in states like Georgia, with crops 
like blueberries and broccoli. It is happening in Texas with 
crops like watermelons. It is happening in California with the 
desert grape industry. It is happening to the asparagus 
industry in California. All the specialty crop producers in 
this country are having a problem with the current NAFTA trade 
relationship.
    As you have heard this morning, there have been a number of 
folks testify about the positive side of NAFTA. We have a $5.3 
billion trade deficit with NAFTA. That $5.3 billion is 
specialty crops, fruits and vegetables, coming into this 
country. While our friends in the grain and the meat industry 
have fared well with NAFTA, the fresh fruit and vegetable 
industry has been taking it on the cuff from the standpoint of 
unfair competition coming into the country.
    For instance, when we started down the path of NAFTA, the 
tomato industry in the United States produced two out of every 
three tomatoes in this country. We now produce approximately 
one of every three tomatoes in this country. The tomato 
industry has shrunk by some 40 percent in volume. This is 
nationally, not just Florida's problem. And we have had 25 
percent reduction in the acreage of the tomato industry in this 
country, fresh tomatoes. We are the canary in the coal mine. We 
are an example of what is going to happen to many of the 
specialty crops that compete with Mexico, and part of that 
problem is being driven by the fact that the Mexican Government 
has been subsidizing and providing incentives for expansion of 
that industry in Mexico. They also have been trading in product 
prices into this country that would constitute dumping in 
competition with producers in the United States. And they also 
have a tremendous advantage in wage rate. The wage rate in 
Mexico is approximately \1/10\ what the American producer is 
paying for wages in this country.
    The NAFTA renegotiation objectives of the Administration's 
that were shared back on the 17th of this month on improving 
the trade balance and reducing trade deficit within the NAFTA 
countries is a very positive one for us. We are very concerned 
about the provisions for a perishable and seasonable 
application of dumping and countervailing duty cases that would 
allow some of these commodities that are being targeted to be 
competed against, to defend themselves against unfair trade 
practices. We would like to see the trade laws in the United 
States, as does the Administration, for anti-dumping and 
countervailing duty and safeguards being strongly enforced, 
because we are basically an industry under assault. We do 
appreciate the support of the Members of this Committee, as 
well as the Florida delegation in their support letters to 
Secretary Ross concerning these issues, but the reality is the 
expansion of the specialty crop industry in Mexico, for 
instance, in just the last 16 years, strawberry production has 
gone from 16 million pounds to 260 million pounds of 
strawberries. The bell pepper industry, when NAFTA was signed, 
two out of every three bell peppers was produced in the United 
States. Today, one to one, and it is progressively getting 
worse. We have family farmers being forced out of business by 
unfair trade practices coming from our competitors to the south 
with a $5.3 billion deficit in trade of agricultural products 
with this country, and those individuals, once they are gone, 
they will never come back. We are basically witnessing the 
disassembling of the fruit and vegetable industry that competes 
in the environment of the season that Mexico produces product 
from this country. And when those family farms are sold and 
when those businesses are broken up, there will be no capacity 
to grow those fruits and vegetables within the borders of the 
United States of America.
    I thank you for the opportunity to be here this morning.
    [The prepared statement of Mr. Brown follows:]

   Prepared Statement of Reginald L. Brown, Executive Vice President,
 Florida Tomato Exchange, Maitland, FL; on Behalf of Florida Fruit and 
                         Vegetable Association
    Thank you for the opportunity to testify before the House Committee 
on Agriculture concerning Renegotiating NAFTA: Opportunities for 
Agriculture. I am Reggie Brown, Executive Vice President of the Florida 
Tomato Exchange, representing tomato growers in Florida, one of the 
major fresh tomato producing regions in the United States, as well as 
other tomato-growing areas of the country. The Florida Fruit and 
Vegetable Association has also asked that I speak to the concerns of 
Florida's other fruit and vegetable sectors, which are encountering 
issues similar to those confronting Florida's tomato sector. As a 
member of the U.S. Government's Agricultural Technical Advisory 
Committee for Fruits and Vegetables, I have been conveying many of 
these concerns to the U.S. Government since the North American Free 
Trade Agreement (NAFTA) first took effect.
    Mr. Chairman, while a number of our nation's farmers and ranchers 
have benefitted from NAFTA, the same has not been true for Florida's 
fruit and vegetable sector. U.S. Secretary of Agriculture Sonny Perdue 
summed it up well in stating to this Committee in May that--

          ``Certainly I think our vegetables and our produce sectors of 
        agriculture have maybe been the ones that have not benefited as 
        much under NAFTA. Regarding NAFTA negotiations, it is my hope . 
        . . [that] one area we can improve our position vis a vis 
        Mexico is in regards to vegetables.'' \1\
---------------------------------------------------------------------------
    \1\ May 17, 2017, testimony before the House Committee on 
Agriculture.

    Florida and U.S. specialty crop producers grow the highest quality 
agricultural commodities in the world, and can successfully compete in 
a fair market environment. We are not opposed to free trade--however it 
must be fair trade. Unfortunately, the current trade environment under 
NAFTA has not fared as well for many U.S. fruit and vegetable 
producers, as we have heard concerns from many regions around the 
country including growers of Georgia blueberries and broccoli, Texas 
watermelon, California grapes and asparagus and other specialty crop 
producers impacted under NAFTA throughout the nation.
    Even before NAFTA entered into force, the original negotiators 
forecasted that NAFTA could negatively affect Florida and other 
specialty crop regions. Florida and Mexico produce a number of the same 
specialty crops and share a similar growing season. Mexico's known 
unfair advantages made NAFTA a concern. True to forecast, most of the 
growth in Mexico's agricultural shipments to the United States since 
the turn of the millennium has been in the fresh fruit and vegetable 
sector. Mexico's growth in these sectors has resulted in a loss of 
agricultural cash receipts of between $1-$3 billion a year to Florida 
alone.
    Tomatoes are a vivid example of Mexico's explosive growth in 
specialty crops. U.S. imports of tomatoes from Mexico increased from 
1.2 billion pounds in 2000 to 3.2 billion pounds in 2016, a 166% 
increase. By comparison, U.S. tomato production shrank from 27 billion 
pounds in 2000 to 1.7 billion pounds in 2016, a nearly 40% decrease.\2\ 
Despite U.S. trade remedy measures and a long-standing Suspension 
Agreement, Mexican tomatoes continue to surge into the U.S. market at 
unfairly low prices.
---------------------------------------------------------------------------
    \2\ Data from Florida Department of Agriculture and Consumer 
Services.
---------------------------------------------------------------------------
    Other Florida specialty crops have encountered similar adverse 
trends under NAFTA. Since 2000, for example, U.S. imports of Mexican 
strawberries have almost tripled. Imports of Mexican bell peppers have 
grown by 163%.
    Although the United States is one of the world's major agricultural 
producers, Mexico's extraordinary expansion in fruit and vegetable 
shipments to the United States is creating a growing trade deficit in 
U.S.-Mexico agricultural trade. As of 2016, that deficit exceeded $5.3 
billion.
Agricultural Imports from Mexico--Fresh Fruits and Vegetables Growing 
        Faster than other Agriculture and Livestock Products
        
        
    With Florida's fruit and vegetable industry a growing casualty to 
this rising deficit, our industry is in dire need of government help. 
Florida's specialty crop sectors were therefore encouraged by the 
Administration's July 17, 2017, Summary of Objectives for the NAFTA 
Renegotiation, which expressed the Administration's intention to[:]

   ``improve the U.S. trade balance and reduce the trade 
        deficit with the NAFTA countries;''

   ``seek a separate domestic industry provision for perishable 
        and seasonal products in AD/CVD proceedings;''

   ``preserve the ability of the United States to enforce 
        vigorously its trade laws, including the antidumping, 
        countervailing duty, and safeguard laws;'' and

   ``require NAFTA countries to have laws governing acceptable 
        conditions of work with respect to minimum wages, hours of 
        work, and occupational safety and health.''

    Our industry is also grateful to the Florida Members of this 
Committee who joined with numerous other Colleagues in calling on the 
Secretary of Commerce to address Mexico's unfair trading practices, 
which are displacing Florida's production. Their letter to Commerce 
stated that[:]

          ``Florida produces the highest-quality agricultural 
        commodities in the world and can successfully compete in a 
        global market, if it's operating on a level playing field, 
        [but] the current trade environment created under NAFTA is 
        anything but fair, particularly when it comes to policies 
        impacting Florida's specialty crop growers and producers.'' 
        (Letter attached for Record).

    As the many Members signing that letter correctly stated, Mexico's 
specialty crops have only been able to achieve their extraordinary U.S. 
growth with the help of sales prices significantly below costs of 
production, unfair subsidies, and dramatically lower labor costs. The 
U.S. tomato sector again drives home the point. Despite years and years 
of U.S. trade remedy proceedings and a long-standing Suspension 
Agreement, tomato imports from Mexico are still bypassing the 
Suspension Agreement at unreasonably low prices and at volume levels 
that are stronger than ever.
Tomatoes--Domestic Production and Imports from Mexico (USDA)


          Source: Florida Department of Agriculture and Consumer 
        Service.

    As Mexican volumes have soared, and prices fallen, U.S. fresh 
tomato growers have been unable to keep up with rising farm costs. 
Florida farmers have been forced to leave tomato fields unharvested. 
Numerous producers, especially smaller farms, have filed for 
bankruptcy. As confirmed by USDA figures, U.S. fresh tomato production 
is in serious decline, having lost almost 25% of total acreage since 
the inception of NAFTA.\3\
---------------------------------------------------------------------------
    \3\ See USDA National Statistics Service, Annual Survey Data, 
available at https://quickstats.nass.usda.gov/.
---------------------------------------------------------------------------
    Compounding Mexico's unfair pricing practices is a web of unfair 
Mexican subsidy schemes for specialty crops. Those subsidies are aimed 
at increasing yields for ``protected'' specialty crops (greenhouses, 
shade-houses, and on tunnel farms), not only during the winter months 
(November-March), but throughout the year. In 2009 and 2010, Mexico 
spent $189.2 million on 2,500 ha of protected agriculture: 65% for 
greenhouses, 25% for shade-houses, 7% for macro-tunnels, and 3% for 
micro-tunnels. Those Mexican Gove[r]nment programs supported 859 ha of 
tomatoes (41%), 428 ha of cucumbers (20%), 347 ha of bell peppers 
(16%), 274 ha of berries (13%), and additional plantings of zucchini, 
grapes, brussels sprouts, habanero and green peppers, and ornamental 
plants, among other specialty products. Not surprisingly, Mexico's 
productivity improved markedly during this period, even as overall 
planted areas decreased.\4\
---------------------------------------------------------------------------
    \4\ See Wageningen University and Research, ``Mexican Protected 
Horticulture: Production and Market of Mexican Protected Horticulture 
Described and Analyzed,'' (Report GTB-1126, 2011); USDA Foreign 
Agricultural Service, 2012 Tomato Annual, GAIN Report No. MX2036 (June 
4, 2012), at 6.
---------------------------------------------------------------------------
    For FY 2017, Mexico has established at least nine programs and 43 
``components'' to support agriculture.\5\ Its regulations specifically 
authorize greenhouse ``incentives'' of up to $48,000 per hectare.\6\ 
Other reports have found that subsidies for new greenhouse 
installations are as high as $162,000 per agricultural project.\7\ 
Those greenhouse funds can be used in Mexico for the purchase of 
materials, equipment, and infrastructure, and for the management, 
conservation, and processing of greenhouse products.\8\ They can cover 
up to 50% of the cost of investments.\9\ As noted, these benefits, 
which are aimed at promoting year-round production for Mexican fresh 
fruits and vegetables, have already put Florida producers at serious 
risk and in time will compromise all U.S. fruit and vegetable 
production if corrections are not made.
---------------------------------------------------------------------------
    \5\ Government of Mexico website, ``SAGARPA has the Support You 
Need,'' January 14, 2016.
    \6\ Official Diary of the Government of Mexico, ``Rules of 
Operation for the Program for the Promotion of Agriculture of the 
Secretariat of Agriculture, Livestock Rural Development, Fisheries and 
Food for the 2017 Fiscal Year,'' December 31, 2016, Article 12.
    \7\ Id.
    \8\ Id.
    \9\ Id., at Article 10.
---------------------------------------------------------------------------
    The Mexican industry's considerable labor wage disparities only add 
to its unfair advantages. The estimated annual Mexican wage advantage 
in the agricultural sector is $1 billion.\10\ Mexico's farm laborers 
are paid about 10% of what U.S. farm laborers are paid for similar 
work.\11\
---------------------------------------------------------------------------
    \10\ Florida Department of Agriculture and Consumer Services, ``An 
Examination of International Competitive Impacts on Florida 
Agriculture'' (March 2017), at 11.
    \11\ Farmworkers in Mexico typically earn approximately the 
equivalent of $8 per day, while U.S. farmworkers earn approximately 
$10-$12 per hour. Thus, assuming an 8 hour day, a farmworker in the 
United States would earn at a minimum $80, while a Mexican farmworker 
would earn $8, i.e., 10%.
---------------------------------------------------------------------------
    In line with the staggering losses faced by Florida tomato growers 
under these unfair Mexican practices, numerous other Florida specialty 
crops are sustaining growing losses as well. U.S. imports of 
strawberries from Mexico have risen from 76.1 million pounds in 2000 to 
216 million pounds in 2016 (a 184% increase).\12\ That expansion has 
compromised absolute growth and market share for domestic producers.
---------------------------------------------------------------------------
    \12\ Data from Florida Department of Agriculture and Consumer 
Services.

 
 
 
  Strawberry Market Share--Volume    Strawberry Market Share--Volume
    November 2000-February 2001       November 2016-February 2017
 

                                      
                                      
          Source: Florida Department of Agriculture and Consumer 
        Services.
          Note: ``Others'' (gray) is primarily California production 
        that appears to be shifting to Mexico.

    Imports of bell peppers from Mexico have grown from 326.53 million 
pounds in 2000 to 859.77 million pounds in 2016, a 163% increase.
Bell Peppers--Domestic Production and Imports from Mexico (USDA)


          Source: Florida Department of Agriculture and Consumer 
        Services.

    As the Committee knows, the Trade Priorities and Accountability Act 
of 2015 (TPAA) took careful note of the market pressures being faced by 
Florida's fruit and vegetable sectors and established several FTA 
objectives specific to specialty crops, the primary ones being the 
following:

          (J) eliminating practices that adversely affect trade in 
        perishable or cyclical products, while improving import relief 
        mechanisms to recognize the unique characteristics of 
        perishable and cyclical agriculture;
          (K) ensuring that import relief mechanisms for perishable and 
        cyclical agriculture are as accessible and timely to growers in 
        the United States as those mechanisms that are used by other 
        countries; . . . [and]
          (R) seeking to develop an international consensus on the 
        treatment of seasonal or perishable agricultural products in 
        investigations relating to dumping and safeguards and in any 
        other relevant area.\13\
---------------------------------------------------------------------------
    \13\ Bipartisan Congressional Trade Priorities and Accountability 
Act of 2015, Pub. L. No. 114-26,  102(b)(3), 129 Stat. 320, 322-23 
(2015) (``2015 TPAA'').

    The Florida industry hopes these TPAA objectives, together with the 
objectives in the Administration's Summary of Objectives for the NAFTA 
Renegotiation referenced above, will help deliver a substantially 
revised NAFTA that finally enables Florida's fruit and vegetable 
sectors to endure and thrive. We will coordinate closely with the 
Committee, Congress, and the Administration to help achieve that 
result.
    In the meantime, given the extraordinary market pressures Mexican 
suppliers are now creating for our specialty corps, the Florida fruit 
and vegetable industry is also asking the Administration to pursue 
various other near-term remedial and political steps to help reverse 
Mexico's unfair practices as quickly as possible. As these near-term 
solutions take shape, the Florida fruit and vegetable industry looks 
forward to working with this Committee, Congress, and the 
Administration on aligning its near-term solutions with longer-term 
NAFTA specialty crop and trade enforcement reforms. Our aim is to 
achieve all measures necessary--both near- and long-term--that can 
provide the Florida industry with the timely, effective protections it 
critically needs.
    We greatly appreciate this Committee's continuing support for a 
strong Florida fruit and vegetable sector and stand ready to coordinate 
with the Committee on NAFTA and bilateral strategies to achieve that 
result.
                             Attachment [1]
May 9, 2017

via regulations.gov

  Hon. Wilbur L. Ross, Jr.
  Secretary of Commerce,
  U.S. Department of Commerce,
  Washington, D.C.

  Hon. Stephen Vaughn,
  Acting U.S. Trade Representative,
  Office of the U.S. Trade Representative,
  Washington, D.C.

    Re: Docket No. DOC-2017-0003: Omnibus Report on Significant Trade 
            Deficits, Comments Regarding Causes of Significant Trade 
            Deficits for 2016
    Country of Interests: Mexico
    Harmonized System (HS) Categories of Interest: 0702_Tomatoes; fresh 
            or chilled

    The Florida Tomato Exchange (``FTE'') and the Florida Tomato 
Growers Exchange (``FTGE'') appreciate this opportunity to submit 
comments to assist the Department of Commerce and the United States 
Trade Representative in preparing an Omnibus Report on Significant 
Trade Deficits for the President.\1\ The FTE and FTGE represent tomato 
growers in Florida, one of the major tomato producing regions in the 
United States.
---------------------------------------------------------------------------
    \1\ These comments are submitted in response to the request in 82 
Fed. Reg. 18110-11 (April 17, 2017).
---------------------------------------------------------------------------
    Florida tomato growers are particularly concerned with one area of 
trade that has contributed to the United States' trade deficit with 
Mexico: fresh tomatoes.\2\ Florida tomato growers and other fresh 
tomato producers throughout the United States have been seriously 
challenged for decades with an ever-increasing trade deficit with 
Mexico. The Mexican Government provides significant financial support 
for the production of tomatoes with the foremost purpose of pushing 
them into the U.S. market, to the detriment of the U.S. fresh tomato 
industry. U.S. tomato growers' struggle with unbalanced Mexican imports 
has been prolonged by weak enforcement of U.S. trade laws by prior 
Administrations; even though the Department of Commerce has previously 
determined that Mexican tomato exports to the United States are dumped 
at unfair prices.
---------------------------------------------------------------------------
    \2\ If identifying a particular sector, commenters were requested 
to indicate the relevant HS category. 82 Fed. Reg. at 18111. Fresh 
tomatoes fall under category 0702, with various subcategories based on 
the season of importation and the growing environment and type of the 
tomato (greenhouse, cherry, roma, etc.).
---------------------------------------------------------------------------
The Trade Deficit with Mexico in Fresh Tomatoes
    The United States runs a large and growing trade deficit with 
Mexico on this major crop. As shown in the trade statistics in 
Attachment 1 to these comments, in 2016 the deficit on fresh tomatoes 
with Mexico surpassed $1.9 billion. This is virtually all one-way 
trade: with Mexican tomato production mainly focused on exporting to 
the United States while U.S. exports of tomatoes to Mexico have 
remained comparatively non-existent. Further, as shown in the graph 
below, apart from the substantial and growing deficit with Mexico, 
other trade in fresh tomatoes is relatively balanced.
U.S. Trade Balance--Fresh [Tomatoes]


          Sources: trade data from the U.S. International Trade 
        Commission.
The Mexican Government's Support of Production for Export in Mexico
    In Mexico, fresh tomato growers benefit from numerous support 
programs made available by the Mexican Government. Many of these 
programs are aimed at increasing the productivity of Mexican 
production, particularly through the establishment of protected 
agriculture (greenhouses and shade-houses), which dramatically increase 
per-acre production of tomatoes. A 2012 U.S. Department of Agriculture 
(``USDA'') report stated that Mexican Government support programs 
available to Mexican producers can provide as much as 45 to 60 percent 
of the cost of improvements.\3\
---------------------------------------------------------------------------
    \3\ See USDA Foreign Agricultural Service, 2012 Tomato Annual, GAIN 
Report No. MX2036 (June 4, 2012) at 6, included in Attachment 4.
---------------------------------------------------------------------------
    The push for tomato production in Mexico is aimed at exporting the 
product to the United States. The 2012 USDA report explains that in 
Mexico, ``domestic consumption is a residual after exporting.'' \4\ 
Mexican growers do not grow tomatoes for Mexican consumers; they grow 
them to send to the U.S. market. The Mexican Government's support 
programs have the same goal. The USDA report states the ``increase (in 
protected-agriculture production capacity) is largely attributable to 
recent success in exporting to the United States.'' \5\
---------------------------------------------------------------------------
    \4\ Id.
    \5\ Id.
---------------------------------------------------------------------------
    The Mexican Government's programs have distorted trade. The 
government' push for increased production and capacity has led to a 
glut of capacity in Mexico, with many green- and shade-houses sitting 
empty in some areas. One report found that 30 percent of greenhouses in 
major producing areas in Mexico ``were not operating.'' \6\ With 
significant overcapacity and an industry aimed at exporting to a single 
foreign market, the increasing flood of Mexican tomatoes in the U.S. 
market is unsurprising.
---------------------------------------------------------------------------
    \6\ Id. at 4.
---------------------------------------------------------------------------
    From a broader perspective, the devaluation of the Peso since the 
signing of the NAFTA agreement from 3.1 Pesos to the dollar to 
currently 18.5 to 22 has also significantly disadvantaged U.S. growers. 
In real terms (adjusted for inflation), the Peso has lost nearly \1/3\ 
of its value in that time.\7\ This is a particular advantage to an 
export-oriented industry such as the Mexican tomato growers, who are 
able to receive dollars for their goods but in turn pay Peso-
denominated costs. U.S. growers are competitive, but this absolute 
advantage by currency devaluation strongly advantages the Mexican 
industry in their effort to dominate the market.
---------------------------------------------------------------------------
    \7\ Based on Real Effective Exchange Rate data from the IMF, http:/
/data.imf.org.
---------------------------------------------------------------------------
The Impact of the Deficit on the U.S. Fresh Tomato Industry
    Tomato growers in Florida are particularly impacted by Mexican 
tomato exports because the Florida and Mexico growing seasons align: 
perishable tomatoes from both regions enter the market at the same 
times of the year and compete directly. As shown in Attachment 2, since 
1996 the volume of Mexican fresh tomato imports has more than doubled. 
Over this period, the U.S. fresh tomato industry has continually lost 
market share to Mexican product. As shown in the chart below, based on 
USDA production data, Mexican imports have overtaken U.S. production in 
recent years, and in 2016 accounted for over \1/2\ of U.S. consumption. 
As shown in the second chart, for the January-April period, the months 
when Florida and Mexican tomatoes are both most heavily competing in 
the market, the impact of imports has been even more pronounced.
U.S. Market Share


          Source: USDA Economic Research Service, Vegetables and Pulses 
        Yearbook Data 2017, excerpt included in Attachment 3.
U.S. Market Share: Jan.-April period


          Source: USDA Agricultural Marketing Service, Market News 
        Report Data (Movement Report), https://www.marketnews.usda.gov/
        mnp/fv-home.

    The ever-increasing wave of tomatoes crossing the border has 
devastated the U.S. industry. U.S. fresh tomatoes growers have 
struggled as prices, depressed by escalating import competition, have 
failed to keep up with raising farming costs. In the bad years, many 
fields planted in tomatoes have been left unharvested, as market prices 
were too low to sustain even that final step. Many producers, 
especially smaller and family farms, have been forced into bankruptcy.
    Figures reported by the USDA show that U.S. production, shown in 
the number of acres in fresh tomatoes that are harvested, remains in 
serious decline, having lost almost a quarter of the total acreage 
since 1996.
U.S. Fresh Tomatoes--Acres Harvested


          Source: USDA National Statistics Service, Annual Survey Data 
        (data available at https://quickstats.nass.usda.gov/).
The United States' 20 Year Failure to Respond to Dumped Mexican 
        Tomatoes
    Following the surge of low-priced Mexican tomatoes and the 
disastrous effect on U.S. producers in the years following the 
signature of NAFTA, FTE and FTGE were among the domestic parties that 
sought relief from the Department of Commerce and the International 
Trade Commission (``ITC'') by submitting an antidumping petition on 
fresh tomatoes from Mexico in 1996. The ITC preliminary found that 
there was a reasonable indication that Mexican tomatoes were a material 
cause of injury to the U.S. industry.\8\ The Department's investigation 
confirmed that Mexican exporters were dumping their product on the U.S. 
market at unfair prices. The Department preliminarily found dumping 
margins ranging from 4.16 to 188.45 percent.\9\
---------------------------------------------------------------------------
    \8\ See Fresh Tomatoes from Mexico, Inv. No. 731-TA-747, USITC Pub. 
2967 (May 1996) (making a positive preliminary injury determination).
    \9\ Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Fresh Tomatoes From 
Mexico, 61 Fed. Reg. 56608, 56615 (Dep't Commerce Nov. 1, 1996).
---------------------------------------------------------------------------
    However, rather than continuing the investigation and ordering 
final duties on Mexican tomatoes, the Department entered into a 
suspension agreement with Mexican tomato growers (concurrently with its 
preliminary determination).\10\ Suspension agreements are allowed under 
U.S. trade law \11\ but only if foreign exporters agree to terms that 
will prevent injury to the U.S. industry and if most of the unfair 
dumping is eliminated. The type of suspension agreement the Department 
used in this case required that Mexican tomatoes could not be sold to 
the U.S. market at less than an established reference price.\12\
---------------------------------------------------------------------------
    \10\ Suspension of Antidumping Investigation: Fresh Tomatoes From 
Mexico, 61 Fed. Reg. 56618 (Dep't Commerce Nov. 1, 1996).
    \11\ 19 U.S.C.  1673c.
    \12\ In the 1996 agreement, only on reference price was 
established. In later agreements, the different reference prices were 
set for the winter and summer seasons and then for tomatoes grown in 
different production environments.
---------------------------------------------------------------------------
    While the statute permits suspension agreements, Congress made 
clear that it was highly distrustful of such agreements, which it saw 
could be used for political purposes to the detriment of the U.S. 
industry the trade law was intended to protect from unfair trade. The 
statute therefore only allows these agreements in ``extraordinary 
circumstances'', where the Department of Commerce can determine that 
both all injury caused by the imports along and all underselling or 
price suppression in the U.S. market will be eliminated. Additionally, 
in the type of agreement here, 85 percent of the dumping found in the 
investigation must be eliminated for every entry of the product. The 
continued ability of every suspension agreement to meet these stringent 
requirements was intended to be reviewed by the Department at least 
every 5 years in a sunset review.
    In 1996, domestic growers did not oppose the suspension. The 
Department set the 1996 reference price based on market prices from 
earlier years where Mexican tomatoes were not having a detrimental 
effect on the market. The Department did not address how the reference 
price eliminated 85 percent of the dumping, however. But when the time 
came for the sunset review however, the Department did not complete its 
review of whether the agreement continued to meet statutory 
requirements. Instead, in order to avoid these questions, the Mexican 
growers withdrew from the 1996 agreement, terminating it. Those growers 
and the Department then entered into a substantially identical ``new'' 
2002 agreement. To accommodate this, the Department resumed the 
investigation temporarily, terminated the sunset review, and then 
resumed suspension upon concluding the new agreement.\13\ The same 
process occurred again when the next sunset review was due, resulting 
in a 2008 agreement.\14\
---------------------------------------------------------------------------
    \13\ See Suspension of Antidumping Investigation: Fresh Tomatoes 
From Mexico, 67 Fed. Reg. 77044 (Dep't Commerce Dec. 16, 2002).
    \14\ See Suspension of Antidumping Investigation: Fresh Tomatoes 
From Mexico, 73 Fed. Reg. 4831 (Dep't Commerce Jan. 28, 2008).
---------------------------------------------------------------------------
    In 2012, following a disastrous season in which a flood of Mexican 
tomatoes forced many U.S. producers, including the largest U.S. 
greenhouse producer, into bankruptcy, domestic producers sought to end 
this cycle.\15\ The domestic petitioners filed notice with the 
Department that they were withdrawing their petition, seeking to 
terminate the investigation and hence the suspension of the 
investigation. However, the Department declined to recognize the 
withdrawal and instead initiated a ``changed circumstances'' review to 
consider the termination of the suspended investigation.\16\ The 
Department can terminate an investigation or antidumping duty order 
through a changed circumstances review if substantially all of the 
domestic industry (defined as those producers accounting for over 85 
percent of domestic production) declare they have no interests in its 
continuation.
---------------------------------------------------------------------------
    \15\ Between the 1996 and 2008 suspension agreements, the reference 
prices had increased less than five percent. This failed to keep any 
kind of pace with raising costs of production, and allowed prices to 
fall to the unsustainable levels for the U.S. industry.
    \16\ See Fresh Tomatoes From Mexico: Notice of Initiation of 
Changed Circumstances Review and Consideration of Termination of 
Suspended Investigation, 77 Fed. Reg. 50553 (Dep't Commerce Aug. 21, 
2012).
---------------------------------------------------------------------------
    In the changed circumstances review, U.S. growers who accounted for 
over 90 percent of U.S. fresh tomato production submitted letters to 
the Department seeking to have the investigation terminated.\17\ 
Domestic producers also submitted information, including cost studies 
from the Mexican Government, that showed costs to produce in Mexico had 
risen significantly from 1996 and were well above the suspension 
agreement reference prices, so that the suspension agreement would 
allow significant dumping by Mexican exporters even at those reference 
prices. During this period, the Department also initiated a sunset 
review of the 2008 agreement.
---------------------------------------------------------------------------
    \17\ See Fresh Tomatoes From Mexico: Notice of Preliminary Results 
of Changed Circumstances Review and Intent To Terminate the Suspended 
Antidumping Investigation, 77 Fed. Reg. 60103, 60104 (Dep't Commerce 
Oct. 2, 2012).
---------------------------------------------------------------------------
    But once again, the Department allowed the foreign exporters to 
determine how they would be treated under U.S. antidumping law. The 
Mexican producers again withdrew from the suspension agreement, 
terminating that sunset review.\18\ At the Mexican producers' request, 
in February of 2013, the Department entered into yet another suspension 
agreement with the Mexican growers.\19\ The Department never completed 
the changed circumstance review or honored the domestic industry's 
repeated request to end the repetitive suspension. Also, despite 2 
decades having passed since it collected dumping data in its 
preliminary investigation, the Department again did not collect any 
updated information that would allow it to determine what the fair 
market value of Mexican tomatoes would be in 2013, including even basic 
Mexican growing costs. Instead, the Department argued that the Mexican 
exporters would self-monitor their level of dumping. The Department 
then set the new reference prices at the price levels that were on the 
market in the 2012 winter season, a period where the price levels 
devastated to the U.S. industry and lead directly to the U.S. 
producers' attempts to have the suspended investigation terminated.
---------------------------------------------------------------------------
    \18\ See Fresh Tomatoes From Mexico: Intent To Terminate Suspension 
Agreement and Resume Antidumping Investigation and Intent To Terminate 
Sunset Review, 78 Fed. Reg. 9366 (Dep't Commerce Feb. 8, 2013).
    \19\ See Fresh Tomatoes From Mexico: Suspension of Antidumping 
Investigation, 78 Fed. Reg. 14967-79 (Dep't Commerce March 8, 2013).
---------------------------------------------------------------------------
    Because the Department made no effort with the 2013 agreement to 
determine if the reference prices would in fact eliminate dumping and 
set those prices at levels that would not prevent injury to the U.S. 
industry, FTE has appealed the suspension to the Court of International 
Trade (``CIT'').\20\ Four years later, there has still been no final 
court decision on FTE's claims. The CIT remanded the issue to the 
Department in 2015,\21\ but the Department maintained the suspension 
agreement with no changes and returned the agreement to the CIT. 
Following an additional hearing before the CIT in February of 2017, the 
domestic growers await the Court's further decision.\22\
---------------------------------------------------------------------------
    \20\ CIT Case. No. 13-00148, FTE v. United States.
    \21\ The CIT remanded to the Department of Commerce because 
Commerce had failed to disclose certain information regarding its views 
of the suspension agreement to domestic producers before it entered the 
agreement, as required by law. The Court remanded with instructions for 
the Department to properly allow domestic producers to comment on the 
late-disclosed information, but did not address FTE's substantive 
challenges to the agreement at that time. Because the Department made 
no changes to the agreement during the remand, FTE maintained those 
substantive challenges.
    \22\ Additionally, despite continued efforts by the Department of 
Commerce to enforce those reference prices it did put in place in 2013, 
Florida tomato growers remain concerned that importers and sellers of 
Mexican tomatoes have implemented various schemes to circumvent even 
the limited terms of that agreement.
---------------------------------------------------------------------------
Conclusion
    The U.S. fresh tomato industry has repeatedly sought the 
protections intended for U.S. industries under U.S. trade laws against 
dumped products such as Mexican tomatoes. Due to a continued lack of 
strong enforcement of those laws and the Mexican growers' repeated 
gaming of the system to avoid a review of the suspension agreements 
that they have found favorable, nothing has stemmed the mounting flow 
of under-priced tomatoes coming from Mexico.
    The Mexican Government has continued to encourage over-production 
of fresh tomatoes through subsidization of Mexican growers and simply 
pushed the resulting over-production north to land on the U.S. market. 
The result has been a ballooning deficit in trade between the U.S. and 
Mexico and the continuing evaporation of the U.S. industry. On behalf 
of the U.S. tomato growers who have been forced to carry the costs of 
the Mexico's production choices, FTE and FTGE urge the Department and 
the USTR to strongly enforce the U.S. trade laws that were intended to 
prevent exactly this outcome.
            Sincerely,
            
            
Reggie Brown,
Executive Vice President for the Florida Tomato Exchange and the 
Florida Tomato Growers Exchange.
                              attachment 1

                                   U.S. Balance of Trade in Tomatoes (HS 0702)
                       Total Exports FAS--General Imports Customs Value 1996-February 2017
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
     Country          1996          1997          1998          1999          2000          2001         2002
----------------------------------------------------------------------------------------------------------------
                                                           Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
         Mexico   ^578,161,189  ^503,349,419  ^563,174,937  ^484,786,940  ^388,672,545  ^463,492,18  ^540,157,87
                                                                                                  6            2
 Dominican Rep.        ^28,395       ^48,000       ^10,690        ^2,265        ^8,100            0       49,032
      Guatemala              0         5,078             0             0             0       26,842       99,082
    Netherlands    ^42,646,325   ^51,345,257   ^63,684,041   ^56,007,713   ^45,867,130  ^51,054,513  ^44,265,398
    New Zealand        ^21,660        ^5,743         8,800       ^10,039             0        2,560            0
          Spain     ^3,835,513    ^7,698,056   ^10,714,837   ^10,531,358   ^10,418,268   ^9,655,822  ^13,735,286
         Canada     83,097,358    74,304,047    32,547,532       723,205   ^20,607,971  ^27,861,326  ^27,045,957
      All Other     ^3,788,700    ^4,534,148    ^6,132,364       657,809     7,724,336    1,949,885     ^779,045
                 -----------------------------------------------------------------------------------------------
  Total.........  ^545,384,424  ^492,671,498  ^611,160,537  ^549,957,301  ^457,849,678  ^550,084,56  ^625,835,44
                                                                                                  0            4
----------------------------------------------------------------------------------------------------------------
     Country          2003          2004          2005          2006          2007          2008         2009
----------------------------------------------------------------------------------------------------------------
                                                           Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
         Mexico   ^752,246,578  ^729,707,733  ^773,028,530  ^897,698,105  ^925,321,200  ^1,093,463,  ^1,056,665,
                                                                                                636          676
 Dominican Rep.        ^10,025      ^530,640    ^1,216,238    ^3,273,789    ^3,122,752   ^2,886,542   ^2,867,832
      Guatemala         34,189             0             0        ^4,570      ^283,020   ^1,502,360   ^3,981,051
    Netherlands    ^29,692,792   ^25,089,736   ^15,524,085   ^17,792,192   ^15,025,096  ^10,987,861  ^12,499,872
    New Zealand          3,365       ^13,474             0             0       ^31,844      ^26,220      ^92,688
          Spain     ^7,011,515    ^6,023,194      ^819,927    ^4,809,619    ^1,474,126   ^2,423,385     ^195,536
         Canada    ^58,812,731   ^58,458,685   ^63,285,795   ^51,379,448    30,597,018    9,788,702  ^12,247,916
      All Other     ^7,263,934    ^2,180,122     5,160,951     5,066,339     5,230,597    2,853,962    1,710,503
                 -----------------------------------------------------------------------------------------------
  Total.........  ^855,000,021  ^822,003,584  ^848,713,624  ^969,891,384  ^909,430,423  ^1,098,647,  ^1,086,840,
                                                                                                340          068
----------------------------------------------------------------------------------------------------------------
     Country          2010          2011          2012          2013          2014          2015         2016
----------------------------------------------------------------------------------------------------------------
                                                           Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
         Mexico   ^1,415,272,3  ^1,758,712,4  ^1,546,445,9  ^1,610,479,0  ^1,625,325,4  ^1,655,362,  ^1,962,094,
                            53            75            11            30            52          740          088
 Dominican Rep.     ^2,936,463    ^5,490,474    ^4,493,983    ^3,470,008    ^5,122,876   ^5,250,938  ^10,670,845
      Guatemala     ^6,929,854   ^21,962,207   ^12,135,404   ^15,832,207   ^14,221,450   ^9,144,492   ^8,609,038
    Netherlands     ^3,399,560    ^2,044,236    ^2,232,569    ^2,412,992    ^1,755,136   ^1,514,062   ^1,479,547
    New Zealand       ^317,069      ^256,955      ^307,375      ^261,021       ^98,030     ^245,321     ^207,843
          Spain              0             0       408,629             0       ^21,390        3,514      ^97,243
         Canada       ^891,991      ^918,645    ^5,814,019   ^20,532,883    35,423,559   56,713,827   62,543,340
      All Other      4,655,366     4,801,896    11,701,449    13,466,623    11,184,528   10,524,758    9,282,429
                 -----------------------------------------------------------------------------------------------
  Total.........  ^1,425,091,9  ^1,784,583,0  ^1,559,319,1  ^1,639,521,5  ^1,599,936,2  ^1,604,275,  ^1,911,332,
                            24            96            83            18            47          454          835
----------------------------------------------------------------------------------------------------------------
            Country               2016 YTD      2017 YTD       Percent       Percent      Percent      Percent
                                                            Change 2012-  Change 2008-  Change 2002- Change 1996-
                                                                2016          2016          2016         2016
----------------------------------------------------------------------------------------------------------------
                         Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
                Mexico          ^541,427,735  ^354,942,157        26.88%        79.44%      263.24%      239.37%
 
        Dominican Rep.            ^2,988,118    ^2,609,263       137.45%       269.68%  ^21,863.02%   37,480.01%
 
             Guatemala            ^2,237,165    ^2,453,333       ^29.06%       473.03%   ^8,788.80%
 
           Netherlands              ^373,376             0       ^33.73%       ^86.53%      ^96.66%      ^96.53%
 
           New Zealand              ^150,829      ^135,717       ^32.38%       692.69%                   859.57%
 
                 Spain               ^73,040       ^65,736      ^123.80%       ^95.99%      ^99.29%      ^97.46%
 
                Canada            97,295,135    66,363,572    ^1,175.73%       538.93%     ^331.25%      ^24.73%
 
             All Other             1,613,264       744,532       ^20.67%       225.25%   ^1,291.51%     ^345.00%
 
                               ---------------------------------------------------------------------------------
  Total.......................  ^448,341,864  ^293,098,102        22.57%        73.97%      205.41%      250.46%
----------------------------------------------------------------------------------------------------------------

                              attachment 2

                             U.S. Imports of Fresh Tomatoes (HS 0702), 1996-YTD 2017
                                           Tomatoes: for All Countries
                                          U.S. Imports for Consumption
                                  (HTS Number 0702: Tomatoes, Fresh or Chilled)
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
      Country            1996            1997            1998            1999            2000           2001
----------------------------------------------------------------------------------------------------------------
                                                          In Actual Dollars
----------------------------------------------------------------------------------------------------------------
          Mexico      580,348,521     517,048,769     567,442,691     489,587,610    411,795,805    484,922,820
          Canada       37,408,123      58,965,727     100,507,593     119,690,432    160,939,005    166,836,053
  Dominican Rep.           48,395          48,000          35,490           2,265          8,100              0
       Guatemala                0               0               0               0              0              0
     Netherlands       42,646,325      52,908,527      64,487,481      57,170,545     46,364,566     51,054,513
     New Zealand           21,660           5,743               0          10,039              0              0
           Spain        3,879,073       7,828,736      10,893,917      10,686,008     10,723,548      9,684,622
        Colombia                0           3,875           5,893               0         13,200          5,007
         Ecuador                0               0           8,908           7,799              0         10,210
           Italy                0          22,800           3,143               0              0          9,011
          France                0               0         160,498         230,732              0              0
      Gaza Strip          124,740           5,376          20,010          52,970              0              0
         Germany                0          17,625               0               0              0              0
        Honduras                0               0               0               0              0              0
          Israel        3,804,252       6,683,585       8,604,560       8,071,429      7,811,594      7,715,814
       All Other        4,187,325       5,128,954       5,725,270       3,811,711      2,624,738      1,377,505
                   ---------------------------------------------------------------------------------------------
  Total...........    672,468,414     648,667,717     757,895,454     689,321,540    640,280,556    721,615,555
----------------------------------------------------------------------------------------------------------------
      Country            2002            2003            2004            2005            2006           2007
----------------------------------------------------------------------------------------------------------------
                                                          In Actual Dollars
----------------------------------------------------------------------------------------------------------------
          Mexico      552,241,241     760,756,391     749,963,474     781,234,276    918,754,938    960,046,726
          Canada      172,587,391     231,350,010     257,191,469     271,976,608    284,206,268    238,147,767
  Dominican Rep.            2,028          10,025         534,990       1,216,238      3,283,785      3,216,947
       Guatemala                0           4,260               0               0          4,570        283,020
     Netherlands       45,619,918      33,837,082      27,638,236      16,228,725     17,795,731     15,027,895
     New Zealand                0               0          13,474               0              0         35,572
           Spain       13,735,286       7,011,515       6,023,194         819,927      4,809,619      1,474,126
        Colombia                0               0               0               0              0         18,995
         Ecuador                0               0               0               0              0              0
           Italy           12,655               0               0           3,830        171,586              0
          France                0               0               0               0              0              0
      Gaza Strip                0               0               0               0              0              0
         Germany                0               0               0               0              0              0
        Honduras                0               0               0               0              0              0
          Israel        9,236,599      12,212,406       7,915,670       1,251,249      1,652,699        872,755
       All Other        1,807,131       2,179,440       4,306,459       2,387,962      2,729,214      1,374,007
                   ---------------------------------------------------------------------------------------------
  Total...........    795,242,249   1,047,361,129   1,053,586,966   1,075,118,815   1,233,408,410  1,220,497,810
----------------------------------------------------------------------------------------------------------------
      Country            2008            2009            2010            2011            2012           2013
----------------------------------------------------------------------------------------------------------------
                                                          In Actual Dollars
----------------------------------------------------------------------------------------------------------------
          Mexico    1,142,867,790   1,125,527,212   1,487,411,425   1,807,703,157   1,578,590,513  1,637,534,863
          Canada      269,235,986     255,521,195     293,775,123     299,935,801    268,633,873    320,075,231
  Dominican Rep.        2,941,707       2,879,170       2,942,296       5,549,565      4,597,125      3,518,491
       Guatemala        1,502,360       3,981,051       7,384,702      21,962,207     12,135,404     15,839,690
     Netherlands       10,991,229      12,499,872       3,399,560       2,044,236      2,336,249      2,415,792
     New Zealand           26,220          92,688         317,069         256,955        418,723        261,021
           Spain        2,423,385         195,536               0               0              0              0
        Colombia           22,253           7,906               0          22,136         26,732         31,331
         Ecuador                0               0               0               0              0              0
           Italy                0               0               0           3,580              0              0
          France                0               0           2,645               0              0              0
      Gaza Strip                0               0               0               0              0              0
         Germany                0               0               0               0              0              0
        Honduras                0               0               0               0              0         13,770
          Israel          836,234         569,947         956,724         275,438        775,678              0
       All Other          742,320       2,308,132       2,048,560         116,816         90,316         79,418
                   ---------------------------------------------------------------------------------------------
  Total...........  1,431,589,484   1,403,582,709   1,798,238,104   2,137,869,891   1,867,604,613  1,979,769,607
----------------------------------------------------------------------------------------------------------------
              Country                    2014            2015            2016          2016 YTD       2017 YTD
----------------------------------------------------------------------------------------------------------------
                                                  In Actual Dollars
----------------------------------------------------------------------------------------------------------------
                  Mexico            1,660,270,425   1,675,107,907   1,964,305,605    541,599,025    355,990,720
 
                  Canada              283,079,581     247,682,869     277,930,732      3,432,904      4,016,876
 
          Dominican Rep.                5,146,069       5,317,858      10,675,438      2,988,118      2,621,177
 
               Guatemala               14,221,450       9,144,492       8,612,145      2,237,165      2,453,333
 
             Netherlands                1,762,230       1,516,662       1,490,009        383,838              0
 
             New Zealand                   98,030         245,321         207,843        150,829        135,717
 
                   Spain                   21,390          26,520         102,256         73,040         65,736
 
                Colombia                   46,571           3,089          12,142              0              0
 
                 Ecuador                   43,925          15,000          11,385              0          7,771
 
                   Italy                    7,653           4,207          10,261              0              0
 
                  France                        0               0               0              0              0
 
              Gaza Strip                        0               0               0              0              0
 
                 Germany                        0           2,205               0              0              0
 
                Honduras                    6,615          28,755               0              0              0
 
                  Israel                  148,351               0               0              0              0
 
               All Other                        0               0               0              0              0
                                   -----------------------------------------------------------------------------
  Total...........................  1,964,852,290   1,939,094,885   2,263,357,816    550,864,919    365,291,330
----------------------------------------------------------------------------------------------------------------
                              Country                               Percent Change     Percent        Percent
                                                                       1996-2016     Change 2008-   Change 2008-
                                                                                         2016           2016
----------------------------------------------------------------------------------------------------------------
                                  Mexico                                  238.47%         71.88%         24.43%
 
                                  Canada                                  642.97%          3.23%          3.46%
 
                          Dominican Rep.                               21,958.97%        262.90%        132.22%
 
                               Guatemala                                      N/A        473.24%        ^29.03%
 
                             Netherlands                                  ^96.51%        ^86.44%        ^36.22%
 
                             New Zealand                                  859.57%        692.69%        ^50.36%
 
                                   Spain                                  ^97.36%        ^95.78%            N/A
 
                                Colombia                                      N/A        ^45.44%        ^54.58%
 
                                 Ecuador                                      N/A            N/A            N/A
 
                                   Italy                                      N/A            N/A            N/A
 
                                  France                                      N/A            N/A            N/A
 
                              Gaza Strip                                 ^100.00%            N/A            N/A
 
                                 Germany                                      N/A            N/A            N/A
 
                                Honduras                                      N/A            N/A            N/A
 
                                  Israel                                 ^100.00%       ^100.00%       ^100.00%
 
                               All Other                                 ^100.00%       ^100.00%       ^100.00%
                                                                   ---------------------------------------------
 
  Total...........................................................        236.57%         58.10%         21.19%
----------------------------------------------------------------------------------------------------------------

                              attachment 3
Excerpt
USDA Economic Research Service, Vegetables and Pulses Yearbook Data 
        (April 6, 2017)

                                   Table 42--U.S. fresh tomatoes: Supply, utilization, & price, farm weight, 1970-2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Supply                                            Utilization                         Season-average price
                 ---------------------------------------------------------------------------------------------------------------------------------------
      Year                                                                                                                    Current      Constant 2009
                    Production \1\      Imports \2\         Total         Exports \2\      Domestic \3\   Per capita use    dollars \1\     dollars \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Million pounds                                             Pounds                $/cwt
--------------------------------------------------------------------------------------------------------------------------------------------------------
         1970             1,933.4             646.7          2,580.1             89.2          2,490.9             12.1           11.20           49.11
         1971             1,887.7             575.4          2,463.1            107.6          2,355.5             11.3           13.90           58.00
         1972             2,088.5             586.8          2,675.3            136.8          2,538.5             12.1           14.80           59.19
         1973             2,043.1             753.1          2,796.2            150.7          2,645.5             12.5           16.00           60.68
         1974             2,098.1             595.8          2,693.9            161.2          2,532.7             11.8           17.30           60.21
         1975             2,226.4             567.1          2,793.5            202.6          2,590.9             12.0           18.70           59.56
         1976             2,296.7             653.3          2,950.0            212.4          2,737.6             12.6           19.10           57.67
         1977             2,098.7             791.9          2,890.6            169.1          2,721.5             12.4           20.60           58.57
         1978             2,302.3             817.8          3,120.1            215.6          2,904.5             12.9           19.70           52.33
         1979             2,361.2             713.3          3,074.5            248.6          2,825.9             12.4           22.50           55.21
         1980             2,556.7             651.7          3,208.4            275.3          2,933.1             12.8           20.70           46.60
         1981             2,607.0             525.9          3,132.9            269.5          2,863.4             12.3           21.40           44.06
         1982             2,676.9             592.6          3,269.5            249.7          3,019.8             12.9           22.50           43.62
         1983             2,726.2             738.2          3,464.4            286.0          3,178.4             13.5           24.20           45.13
         1984             2,816.3             824.3          3,640.6            263.2          3,377.4             14.2           25.60           46.11
         1985             2,974.0             851.0          3,825.0            271.5          3,553.5             14.9           24.20           42.23
         1986             3,136.1             981.1          4,117.2            288.1          3,829.1             15.8           25.10           42.94
         1987             3,241.4             919.5          4,160.9            284.9          3,876.0             15.8           25.90           43.20
         1988             3,588.9             816.8          4,405.7            254.2          4,151.5             16.8           27.10           43.68
         1989             3,596.2             867.9          4,464.1            298.0          4,166.1             16.8           33.20           51.50
         1990             3,380.0             795.9          4,175.9            293.1          3,882.8             15.5           27.40           40.99
         1991             3,398.8             795.5          4,194.3            300.3          3,894.0             15.4           31.70           45.90
         1992             3,903.3             432.2          4,335.5            367.5          3,968.0             15.4           35.80           50.68
         1993             3,666.3             922.4          4,588.7            345.8          4,242.9             16.3           31.70           43.83
         1994             3,738.7             873.0          4,611.7            340.7          4,270.9             16.2           27.40           37.09
         1995             3,409.8           1,368.9          4,778.7            289.2          4,489.5             16.8           25.50           33.82
         1996             3,363.4           1,625.1          4,988.5            295.4          4,693.1             17.4           28.10           36.60
         1997             3,424.8           1,636.8          5,061.7            341.7          4,720.0             17.3           31.70           40.59
         1998             3,525.6           1,868.0          5,393.6            286.3          5,107.3             18.5           35.20           44.59
         1999             4,026.9           1,633.1          5,660.0            334.3          5,325.6             19.1           25.80           32.22
         2000             4,162.0           1,609.4          5,771.4            410.4          5,361.0             19.0           30.70           37.49
         2001             4,061.1           1,815.6          5,876.7            397.9          5,478.8             19.2           30.00           35.81
         2002             4,289.3           1,894.9          6,184.2            332.3          5,851.8             20.3           31.60           37.15
         2003             3,888.4           2,071.1          5,959.5            314.2          5,645.3             19.4           37.50           43.23
         2004             4,169.6           2,054.2          6,223.8            369.3          5,854.5             19.9           37.40           41.96
         2005             4,196.9           2,098.1          6,295.0            326.5          5,968.5             20.2           41.60           45.22
         2006             4,041.1           2,187.9          6,229.0            317.7          5,911.2             19.8           43.70           46.09
         2007             3,795.6           2,361.1          6,156.7            355.7          5,801.0             19.2           34.80           35.75
         2008             3,554.6           2,460.6          6,015.2            372.3          5,642.9             18.5           45.30           45.65
         2009             3,775.5           2,622.6          6,398.1            375.6          6,022.5             19.6           40.40           40.40
         2010             3,253.8           3,378.6          6,632.4            266.2          6,366.1             20.6           48.20           47.62
         2011             3,508.1           3,287.1          6,795.3            252.6          6,542.7             21.0           36.10           34.98
         2012             3,412.8           3,377.8          6,790.7            258.7          6,532.0             20.8           30.50           29.00
         2013             3,253.8           3,389.5          6,643.4            241.3          6,402.0             20.2           44.60           41.71
         2014             3,386.4           3,418.2          6,804.6            248.7          6,555.8             20.5           41.50           38.18
         2015             3,342.6           3,457.0          6,799.7            214.3          6,585.3             20.5           46.30           42.18
        2016p             3,129.4           3,938.5          7,067.8            186.9          6,880.9             21.3           40.70           36.52
--------------------------------------------------------------------------------------------------------------------------------------------------------
-- = Not available. p = preliminary.
\1\ Source: USDA, National Agricultural Statistics Service. Production was adjusted by ERS for 1970-81 to account for states not included in NASS
  estimates. Includes ERS estimates of domestically-grown hothouse tomatoes after 1996.
\2\ Source: U.S. Department of Commerce, U.S. Census Bureau. From 1978-89, U.S. exports were adjusted using Canadian import data. Imports include
  hothouse tomatoes.
\3\ Editor's note: the submitted table did not include information for table note 3.
\4\ Deflated by the GDP implicit price deflator, 2009=100.
Cwt = hundredweight.
Source: USDA Economic Research Service.

                              attachment 4
GAIN Report Number MX 2036, Mexico Tomato Annual
USDA Foreign Agricultural Service

          This report contains assessments of commodity and trade 
        issues made by USDA staff and not necessarily statements of 
        official U.S. Government policy.

Required Report--public distribution.

  Date: 6/14/2012
  GAIN Report Number: MX 2036
    Mexico
    Tomato Annual
    Early 2012 Supply Spike Leads to Low Prices, Exports Expected 
            Higher in MY 2012/13

    Approved By: Erik Hansen
    Prepared By: Dulce Flores
    Report Highlights: Tomato production for Marketing Year (MY) 2012/
    13 is forecast at 2.1 million metric tons (MMT). Production for MY 
    2011/12 is estimated at an unusually high 2.3 MMT. Tomato exports 
    for MY 2011/12 are expected to reach 1.5 MMT, lower than expected 
    as international prices were very low. Exports for MY 2012/13 will 
    depend on weather conditions and international prices but are 
    expected to be higher than the year before. Production under 
    protected agriculture technology is expanding throughout the 
    country for several horticultural products, particularly tomatoes.
    Commodities: Tomato Paste, 28-30% TSS, Basis Fresh Tomatoes.
Production
    The tomato production forecast for the MY 2012/13 (Oct/Sept) is 2.1 
MMT assuming favorable weather conditions and attractive international 
prices. Although there is no official Government of Mexico (GOM) 
forecast for overall tomato production for MY2012/13, Post estimates 
that tomato production will be lower than the previous marketing year 
as producers from the state of Sinaloa seem discouraged by MY 2011/12 
production and marketing results. The overall tomato production 
estimate for MY 2011/12 is high at about 2.3 MMT as weather was 
favorable and more acreage under protected agriculture entered 
production. However, according to producers, not all tomatoes reached 
the market, as lower international prices resulting from higher 
supplies caused Sinaloa producers to bring tomatoes back from the 
border for resorting, discarding the ones that did not meet supreme 
quality. The spring tomato crop from Baja California and other states 
is expected to be normal. The overall tomato production estimate for MY 
2010/11 was expected to be around 2.0 MMT but, due to weather problems 
and a freeze in Sinaloa that caused a loss of about 30 percent, total 
production was lowered to 1.6 MMT based on official information.
    Total planted area for tomatoes has been declining but yields have 
been increasing due to the establishment of protected agriculture 
(greenhouse, shade-house, tunnel) areas. In 1990, planted area devoted 
to tomatoes was about 85,500 hectares (ha). In 2000, tomato planted 
area was roughly 75,800 ha. In 2011, tomato planted area is expected at 
approximately 57,000 ha. Tomato-producing states like Sinaloa and Baja 
California switched more area from open field production to greenhouse 
production and used less area while increasing yields. Other states 
began to build greenhouse/shade-house infrastructure to grow tomatoes, 
cucumbers, bell peppers, zucchini, strawberries, and flowers (See 
policy section).
    Tomato planted area for fresh consumption for MY 2012/13 is 
forecast to be lower than MY 2011/12 area, at 52,000 ha, due to a 
general tendency to decrease open field tomato plantings in favor of 
using different types of protected agriculture. Also, area planted 
could be affected depending on water availability. The drought that 
Mexico has suffered over the last 2 years has exhausted local dams, 
mainly in the northern states. Private sources indicate that dams are 
currently (May 2012) closed in Sinaloa for agricultural production with 
resources dedicated to human consumption only. Also, overproduction and 
the resulting low market prices (domestic and international) in MY 
2011/12 could encourage some producers to switch to other products 
(peppers, cucumbers) or reduce area planted for MY 2012/13.
    The planting area estimate for fresh consumption for MY 2011/12 is 
54,000 ha and harvested area is 48,900 ha. Low temperatures slowed 
fruit ripening in Sinaloa and Nayarit during December 2011. By January 
2012, the harvest volume spiked creating a large supply overhang. Low 
prices even forced producers to stop sending product to the domestic 
market in late February. Oversupply also lowered the international 
market price, a situation that forced Sinaloa to recall product from 
the border for resorting and reselection with only the supreme quality 
exported to the U.S. market. Tomatoes that did not make grade were 
discarded. Based on official data, the MY 2010/11 planting area 
estimate for fresh consumption is 53,025 ha. However, harvested area 
was lower than expected at 38,003 ha due to bad weather and a freeze in 
Sinaloa where about 13,457 ha were damaged. The Roma variety now 
represents more than 58 percent of total Mexican tomato production as 
demand for this type of tomato has surpassed the round tomato.
    Yields vary depending on production conditions and inputs. Average 
yields have grown from 23 MT/ha in 1990 to 28 MT/ha in 2000 and are 
expected to reach 43 MT/ha or more in 2011. Baja California and Sinaloa 
growers generally achieve the highest fresh tomato yields, 45 MT/ha or 
more, due in part to their pest and disease control programs. In other 
areas of Mexico, growers have significantly lower yields averaging from 
20 to 30 MT/ha. This is primarily attributable to less intensive use of 
inputs. Greenhouse/shade-house yields tend to vary significantly among 
producers, variety, and state. These yields generally range from 150 
MT/ha to 200 MT/ha depending on the technology used.

      Table 1. Mexico: Tomato Production, Area (ha) and Volume (MT)
------------------------------------------------------------------------
                              Estimate MY    Estimate MY    Forecast MY
                                2010/11        2011/12        2012/13
------------------------------------------------------------------------
  Total Planted Area (ha)          56,025         57,000         55,000
   For fresh               53,025         54,000         52,000
   consumption.............
   For processing..         3,000          3,000          3,000
Total Harvested Area (ha)          40,003         49,000         48,000
   For fresh               38,003         46,000         45,000
   consumption.............
   For processing..         2,000          3,000          3,000
    Total production (MT)       1,670,454      2,300,000      2,100,000
   For fresh market     1,630,454      2,210,000      2,010,000
   For processing..        40,000         90,000         90,000
------------------------------------------------------------------------

    Open-field tomato production area has shown a tendency to decrease 
due to pest problems, high costs of production, swings in both 
international prices and exchange rates, and limited water 
availability. The decrease in open field area is more evident in states 
like Sinaloa, Baja California, and Jalisco. In addition, small open 
field producers are switching to other products like corn and beans in 
search of better financial returns. There has also been a gradual 
switch from open field tomato production to protected production. 
Greenhouse/shade-house operations are concentrated in the states of 
Sinaloa, Baja California and Jalisco, but there are also greenhouse 
operations in the states of Colima, Mexico, Hidalgo, Michoacan, 
Queretaro, San Luis Potosi, Sonora, and Zacatecas. According to 
industry sources, there are currently more than 13,000 ha of protected 
agriculture throughout Mexico devoted to tomato production.
    According to sources, protected agriculture is growing in Mexico at 
about 13 percent a year as producers increasingly become aware of the 
benefits in production, quality, pest control, and reduced risk 
exposure to climate change. Moreover, there is growth in protected 
agriculture as the GOM, at various levels, sees the benefits of 
introducing this production method to rural and poorer areas as a form 
of social development. According to the Secretariat of Agriculture 
(SAGARPA) there are about 20,000 hectares under protected agriculture, 
with 12,000 ha of greenhouse type and 8,000 ha of shade-house and 
macro-tunnel type. The state of Sinaloa accounts for 22%, Baja 
California 14%, Baja California Sur 12%, and Jalisco 10% of protected 
agriculture. The main horticultural products produced under this 
technology are tomato (70%), bell pepper (16%), cucumber (10%), and the 
rest are products like flowers, chili peppers, strawberries and papaya.
    In Sinaloa (a winter-cycle tomato producing state) there are about 
15,000 ha devoted to tomatoes of which approximately 2,000 ha are under 
protected production. About 80% of these hectares are under shade-house 
operations as the climate is generally too hot for greenhouse 
technology. Due to strong returns, production has trended towards 
increased use of shade-houses, mainly for products destined for the 
export market. Growers, however, indicate that combining open field and 
shade-house production has been useful for marketing their product. 
Sources point out that less than ideal levels of agricultural 
sophistication (i.e., lack of established marketing channels, 
insufficient capital, and ability to manage weather events), means that 
sometimes growers abandon protected facilities. Through a recent study 
in 2010/11, the Mexican Association of Protected Horticulture (AMHPAC) 
found that of the approximately 9,000 ha of greenhouses existing in the 
northern states of Sinaloa, Sonora, Baja California Norte, and Baja 
California Sur, 30 percent were not operating.
    During the October to May winter season, Sinaloa growers are the 
main producers and exporters of fresh tomatoes. Other significant 
producers include Michoacan, Jalisco, and Baja California Sur. Growers 
in Sinaloa are anticipating that the use of improved and extended shelf 
varieties, drip irrigation, and plastic mulch will help maintain their 
high yield levels. During the summer season (May to October), Baja 
California growers are the main producers and exporters of fresh 
tomatoes. The states of Michoacan, Jalisco, and Morelos follow Baja 
California's production. Producers in Sinaloa and Baja California are 
widely considered more technologically advanced than other producing 
states. As a result, U.S. California tomatoes face direct competition 
from Baja California tomatoes. Tomato growers in Jalisco bridge the 
summer-winter cycle and usually export in October, November, and 
December after Baja California. The states of Jalisco and Queretaro 
have been increasing shade-house planted area. This increase is largely 
attributable to recent success in exporting to the United States.
    Planting and harvesting of tomatoes for processing is largely a 
function of fresh domestic market prices and international tomato paste 
prices. Areas that were previously devoted to planting tomatoes for the 
processing industry have shifted to fresh market, as demand for 
processing tomatoes has declined in the face of high international 
fresh market prices. Area planted in both MY 2011/12 and MY 2012/13 to 
processed tomatoes is estimated at 3,000 ha. Yields for this type of 
tomato range from 30 MT/ha to 40 MT/ha given normal weather conditions. 
If the industry needs to process additional tomatoes, it purchases 
supplies from the open market. Due to the February 2011 freeze in 
Sinaloa, a large portion of the area devoted to industrial tomato use 
was damaged.
    Tomato production costs remain high across the country. Credit 
availability remains a constraining factor for growers since Mexican 
banks do not provide loans for tomato production. In a few instances, 
producers with export contracts can receive some operating capital from 
contracting companies in the United States. According to growers, 
imported agrochemicals, seeds, and fertilizers are the most costly 
inputs. Current depreciation of the Mexican peso vs. the U.S. dollar 
will increase costs of production as the exchange rate reached 13.75 
pesos per U.S. $1.00 in December 2011 but has fallen to 14.20 pesos per 
U.S. $1.00 in June 2012.
Consumption
    The MY 2012/13 final consumption figure will depend on tomato 
exports to the United States, as domestic consumption is a residual 
after exporting. Consumption for MY 2011/12 is estimated to be higher 
compared to the previous marketing year as prices were low due to large 
supplies. Consumption for MY 2010/11 was lower than expected due to 
lower supplies during the winter season, high export volumes, and high 
domestic prices.
    Tomato consumption is price sensitive in Mexico. Thus, marginal 
changes in prices tend to lead to significant changes in demand. 
Although protected production is still limited and tends to be higher 
priced, the market now has the option of meeting more of the domestic 
demand with greenhouse/shade-house tomatoes.
    Local tomato prices tend to rise from March to May because of 
increased exports from the state of Sinaloa, which in turn reduces 
supply in the domestic market. However, during the supply spike of the 
winter season of 2011/12, prices were down more than 50 percent 
compared to 2010/11. Tomato exports also tend to increase from June to 
August, as this is the international market window for tomatoes from 
Baja California. By the end of November and December, tomato prices 
usually rise again, due to the increased export volume from the states 
of Jalisco and Sinaloa.
    The tomato paste industry always buys tomatoes from the fresh 
market in addition to buying contracted tomatoes for processing. 
However, price competition in the fresh market has become a problem for 
the processing industry. Over the past several years, relatively high 
fresh tomato prices have diverted product away from the processing 
market. Thus, there has been very little industry demand for tomatoes 
destined to paste production as it is economically more feasible to 
import tomato paste rather than produce it domestically.
Trade
    Exports for MY 2012/13 are expected to rebound from MY 2011/12 
levels if weather conditions are good and international prices increase 
from last year's levels. Tomato exports for MY 2011/12 are estimated at 
to reach 1.5 MMT. According to industry sources, tomato exports during 
the 2011/12 winter season were lower from Sinaloa as higher supplies 
resulted in very low prices for the international market. In fact, 
according to traders, prices in January 2012 were selling almost at the 
lowest price allowed under the suspension agreement--about U.S.$0.21/
lb. To prevent prices from declining further and to stabilize the 
market, producers in Sinaloa agreed to be more selective in the tomato 
quality for export resulting in a large quantity of tomatoes being kept 
off the market and discarded. However, it is important to note that 
other states like Jalisco, Queretaro, and San Luis Potosi are 
increasing export volumes during this window, crossing the border 
through Texas. Tomato exports for MY 2010/11were lower compared to MY 
2009/10 exports or 1.43 MMT, as Sinaloa reduced exports by roughly 30 
percent due to the freeze. According to the U.S. Census Bureau, 40 
percent of all tomatoes imported into the United States from Mexico 
during MY 2010/11 were shade/greenhouse tomatoes.
    Fresh tomato imports from the United States represent a small 
portion of Mexico's fresh consumption and fluctuate depending on 
international prices and domestic availability. Due to weather problems 
in Mexico, there was an opportunity for higher imports for MY 2010/11, 
where an estimated of 31,058 MT of tomatoes were imported into Mexico 
from the United States. Import estimates for MY 2011/12 are expected to 
be lower as domestic supplies are higher and prices are lower. Most 
imported tomatoes are sold in the northern states of Nuevo Leon, 
Sonora, Baja California, and Chihuahua.
Policy
    Since 2009, the GOM has operated strategic projects for protected 
agriculture where the Federal and state governments participate with 
funds through FIRCO, a Mexican trust fund for shared risk 
(www.firco.gob.mx/). According to SAGARPA, more than $92.7 million USD 
were designated to promote protected agriculture through a Program of 
Investment Support for Infrastructure, which encourages production 
improvements and climate change mitigation. In 2009 and 2010, $189.2 
million USD were destined for the establishment of 2,500 ha of 
protected agriculture--65% for greenhouses, 25% shade-houses, 7% macro-
tunnel, 3% micro-tunnel and three Regional Training Centers 
(production, post-production, and marketing). Supported production 
includes 859 ha of tomatoes (41%), 428 ha of cucumbers (20%), 347 ha of 
bell peppers (16%), 274 ha of berries (13%), and the rest are planted 
with zucchini, grapes, brussels sprouts, habanero and green peppers, 
and ornamental plants. These types of projects have helped to 
consolidate development areas for small producers in the states of 
Oaxaca, Nuevo Leon, Morelos and Puebla. Some of the projects in 
marginal areas are geared first for self consumption within the 
communities. Read more about this program at: http://
www.sagarpa.gob.mx/agricultura/Paginas/Agricultura-Protegida2012.aspx.
    According to SAGARPA, the program for protected agriculture in 2012 
will be very similar, in general, to the 2011 program: support funds 
are $18,018 USD/ha for macro-tunnel, $36,036 USD/ha for shade-house and 
$108,108 USD/ha for greenhouse technology. Only investments for new 
infrastructure and new equipment are supported and funds cannot be used 
to buy land or housing. Support could reach up to 60 percent for highly 
marginalized areas and up to 45 percent for other producers. For 
additional information see the following page: http://
www.sagarpa.gob.mx/agricultura/Documents/
Agricultura%20Protegida%202012/TRIPTICO%202012%20agricultura%20protegida
.pdf.
    Both producers and SAGARPA officials are extremely cognizant of the 
importance of meeting quality standards for fruits and vegetables and 
have implemented programs to comply with U.S. food safety requirements.
    The Tomato Suspension Agreement between Mexico and the United 
States, signed on December 4, 2002, binds participants in the agreement 
to an agreed upon reference price. The reference price for exporting 
fresh tomatoes for the summer season (July 1 to October 22) is 17.2 
per pound and the reference price for the winter season (October 23 to 
June 30) is 21.69 per pound. According to growers, tomato prices for 
MY 2011/12 have been close to the reference price. The U.S. Department 
of Commerce will soon begin the third sunset review of the agreement 
(ending January 2013) to evaluate how well it worked. Low prices over 
the last 6 months have lead to complaints by both Mexican and U.S. 
growers about the functioning of the agreement, with sellers and 
brokers accused of under-cutting the agreement floor price. Producer 
associations have exerted considerable effort combating these bad 
actors.
Tariffs
    Mexico, in general, does not import tomatoes from countries other 
than the United States. Mexico's most favored nation (MFN) applied 
tariff rate for tomato (HTS 0702) imports is ten percent. Countries 
with tariff-free access to Mexico include: the United States, Canada, 
Chile, Costa Rica, Nicaragua, Uruguay, Bolivia, the European Union, and 
Japan. There is an applied tariff rate of 28% for tomatoes from 
Colombia. Fresh tomato exports to the United States as well as imports 
have zero duty under NAFTA. The tomato tariff classification numbers 
are 0702.0001 and 0702.0099. Mexico does notassess an export tariff.
Marketing
    Fresh tomatoes destined for domestic consumption, including 
imported tomatoes, pass through wholesale markets and proceed to large 
supermarkets and retail stores. A few stores import directly without 
going through wholesale marketing channels. This remains somewhat rare, 
however, since most retail operations do not have expertise importing 
or the labor resources to repack tomatoes based on maturity, size, etc. 
before products are showcased to consumers. In the past, promotional 
campaigns for U.S. tomatoes focused on proper tomato handling 
techniques, point of sale materials, and in-store promotions. Most of 
the imported product is destined to border cities and states. Tomatoes 
for the export market are shipped directly from the producing area to 
the United States border.
Prices and Trade

             Table 2. Mexico: Wholesale Round Tomato Prices
                          Mexico City--Pesos/Kg
------------------------------------------------------------------------
                                                              % Change
     Month           2010           2011          2012        2012/2011
------------------------------------------------------------------------
     January           11.05           8.60           8.85          0.11
    February           12.29          15.73           5.12       (67.45)
       March           26.03          24.53           9.88       (59.72)
       April           17.40          30.63           7.76       (74.66)
         May           11.96          14.99           9.64       (35.69)
        June            6.09          13.25            N/A           N/A
        July            7.88          11.80            N/A           N/A
      August           12.00          12.35            N/A           N/A
   September           12.69          11.32            N/A           N/A
     October           14.44          10.92            N/A           N/A
    November           11.84          10.87            N/A           N/A
    December           11.59          11.22            N/A           N/A
------------------------------------------------------------------------


              Table 3. Mexico: Wholesale Roma Tomato Prices
                          Mexico City--Pesos/Kg
------------------------------------------------------------------------
                                                              % Change
     Month           2010           2011          2012        2012/2011
------------------------------------------------------------------------
     January            5.72           8.20           7.26       (11.46)
    February            6.60           9.83           4.96       (49.54)
       March            9.42          10.42           6.38       (38.77)
       April            5.54          16.06           5.63       (64.94)
         May            4.95           7.09           7.72          8.88
        June            4.15           5.51            N/A           N/A
        July            5.76           6.12            N/A           N/A
      August            6.44           5.39            N/A           N/A
   September            8.45           6.23            N/A           N/A
     October           12.19           5.68            N/A           N/A
    November           11.78           5.12            N/A           N/A
    December           10.66           8.15            N/A           N/A
------------------------------------------------------------------------
Source: Servicio Nacional de Informacion de Mercados.
Note: 2011 Exchange Rate Avg.: U.S. $1.00 = 12.42 pesos.
June 1, 2012 Exchange Rate: U.S. $1.00 = 14.30 pesos

Round Tomato Prices Mexico City Wholesale


Round & Roma Tomato Prices Mexico City Wholesale *
---------------------------------------------------------------------------
    * Editor's note: the graphic entitled, Round & Roma Tomato Prices 
Mexico City Wholesale, was cutoff in the submitted document. It has 
been reproduced herein as is.



               Table 4. Mexico: MY2010/11 Tomato Exports and Imports by Volume (MT) and Value ($)
----------------------------------------------------------------------------------------------------------------
          Exports for MY 2010/11 (Oct.-Sept.):                     Imports for MY 2010/11 (Oct.-Sept.):
----------------------------------------------------------------------------------------------------------------
    Destination           Volume           Value 000            Origin             Volume           Value 000
----------------------------------------------------------------------------------------------------------------
          U.S.           1,302,668       $1,732,831.7               U.S.              31,058         $58,714.0
        Canada             127,669          179,154.2
    Others not               3,621            4,922.9         Others not                   0
        listed                                                    listed
                   --------------------------------------                    -----------------------------------
  Grand Total.....       1,433,958       $1,916,908.8       Grand Total               31,058         $58,714.0
----------------------------------------------------------------------------------------------------------------
Source: Global Trade Information Services, Inc. Global Trade Atlas, Mexico Edition, March 2012.


               Table 5 Mexico: MY2011/12 * Tomato Exports and Imports by Volume (MT) and Value ($)
----------------------------------------------------------------------------------------------------------------
         Exports for MY 2011/12 * (Oct.-Sept.):                   Imports for MY 2011/12 * (Oct.-Sept.):
----------------------------------------------------------------------------------------------------------------
    Destination           Volume           Value 000            Origin             Volume           Value 000
----------------------------------------------------------------------------------------------------------------
          U.S.             794,827       $1,059,067.8               U.S.               9,166         $13,470.0
        Canada              31,710           40,583.6              Chile                   0
Others not listed            2,685            3,426.7     Others not listed                0
                   --------------------------------------                    -----------------------------------
  Grand Total.....         829,222        $1,059,068,       Grand Total                9,166         $13,470.0
----------------------------------------------------------------------------------------------------------------
* Through March 2012.
Source: Global Trade Information Services, Inc. Global Trade Atlas, Mexico Edition, March 2012


                            Table 6. Mexico: Monthly Exchange Rate Averages 2008-2012
                                             MX Pesos per U.S. $1.00
----------------------------------------------------------------------------------------------------------------
                           2008               2009               2010               2011              2012
----------------------------------------------------------------------------------------------------------------
       January               10.91              13.15              12.80              12.13              13.46
      February               10.77              14.55              12.95              12.06              12.79
         March               10.74              14.71              12.59              12.00              12.75
         April               10.52              13.41              12.23              11.73              13.05
           May               10.44              13.19              12.71              11.64              13.60
          June               10.33              13.47              12.72              11.80             14.30
          July               10.24              13.36              12.82              11.67
        August               10.10              13.00              12.74              12.22
     September               10.61              13.41              12.82              12.97
       October               12.56              13.24              12.44              13.46
      November               12.31              13.12              12.33              13.67
      December               13.40              12.85              12.39              13.75
                   ---------------------------------------------------------------------------------------------
  Annual Avg......           11.14              12.33              12.62              12.42
----------------------------------------------------------------------------------------------------------------
 As of 1er week of June 2012
Source: Mexican Federal Register.
Note: Monthly rates are averages of daily exchange rates from the Banco de Mexico.

    FAS/Mexico Web Site: We are available at www.mexico-usda.com or 
visit the FAS headquarters' home page at www.fas.usda.gov for a 
complete selection of FAS worldwide agricultural reporting.
    FAS/Mexico YouTube Channel: Catch the latest videos of FAS Mexico 
at work http://www.youtube.com/user/ATOMexicoCity.
    Other Relevant Reports Submitted by FAS/Mexico:

------------------------------------------------------------------------
   Report                                                        Date
   Number                        Subject                      Submitted
------------------------------------------------------------------------
     MX1012   Hard Freeze Damages Sinaloa Corn and Produce     2/14/2011
------------------------------------------------------------------------

    Useful Mexican Web Sites: Mexico's equivalent of the U.S. 
Department of Agriculture (SAGARPA) can be found at www.sagarpa.gob.mx, 
the equivalent of the U.S. Department of Commerce (SE) can be found at 
www.economia.gob.mx, and the equivalent of the U.S. Food and Drug 
Administration (SALUD) can be found at www.salud.gob.mx. These web 
sites are mentioned for the reader's convenience but USDA does not in 
any way endorse, guarantee the accuracy of, or necessarily concur with, 
the information contained on the mentioned sites.
                             Attachment [2]
May 4, 2017

  Hon. Wilbur L. Ross Jr.,
  Secretary,
  Department of Commerce,
  Washington, D.C.

    Dear Secretary Ross,

    We are writing today to raise concerns regarding unfair trade 
practices with respect to Mexico's exports of produce to the United 
States, which are undercutting Florida's specialty crop industry. 
Mexican growers in particular have a long history of flooding the U.S. 
market with tomatoes at below-market prices, a practice referred to as 
dumping. However, it is no longer just tomatoes that are being dumped 
into U.S. markets, Mexico's exports of bell peppers, strawberries and 
watermelon have soared over the past couple of years--which is 
disproportionately impacting the economic vitality of Florida's unique 
agriculture industry.
    Florida's farmers and ranchers provide an economic impact of over 
$120 billion and serve as the foundation for over 2 million jobs. 
Furthermore, Florida is the second largest producer of specialty crops 
in the United States. Our state's special climate and fertile growing 
regions mean Florida is the sole U.S. producer of many fruits and 
vegetables during the winter months before most domestic producers 
begin their harvests.
    Unfortunately, after the implementation of the North American Free 
Trade Agreement (NAFTA) in 1994, imports of many agricultural products 
from Mexico increased substantially and Mexico began dumping tomatoes 
and other specialty crops into the U.S. at below-market prices. Coupled 
with Mexico's inexpensive labor force, its favorable growing conditions 
and expanding greenhouse production systems, the resulting impact has 
been a Mexican growing season that directly competes with Florida's 
specialty crop industry.
    In 1996, Florida growers filed a complaint with the International 
Trade Commission charging that the lower tariff on Mexican tomatoes--a 
result of NAFTA--had caused significant harm to domestic producers. In 
October of 1996, the Department of Commerce reached an agreement with 
Mexican producers and exporters of tomatoes under which Mexican tomato 
growers agreed to revise their prices and set a minimum reference price 
in order to eliminate the injurious effects of fresh tomato exports to 
the U.S. The so-called ``suspension agreement'' remained in place for 
years and was renewed in 2002 and 2008. Another agreement established 
in 2013 raised the reference prices at which tomatoes can be sold in 
the U.S. to better reflect the changes in the marketplace and to 
account for winter and summer growing seasons. However, the lack of 
enforcement of these agreements has intensified conditions allowing 
Mexican produce to once again flood the U.S. market.
    Tomatoes are just one example of how high volumes of these 
commodities are pouring into the U.S. market at prices significantly 
below the cost of production. When the trade framework allows unfairly 
subsidized commodities to be dumped into U.S. markets, it results in 
negative repercussions on U.S. producers and causes disproportionate 
economic injury to Florida's specialty crop industry.
    As Members of Congress representing Florida, we know how 
instrumental trade is to Florida's economy. Our state exports over $4 
billion worth of products to over 170 countries and territories around 
the world each year. Florida is uniquely and strategically located in 
the Western Hemisphere, boasting state-of-the-art economic 
infrastructure, a multilingual workforce and a concentration of 
corporate and financial resources. Specifically, Florida has 15 
seaports, with Miami recognized as the ``trade and logistics hub of the 
Americas.'' Florida produces the highest-quality agricultural 
commodities in the world and can successfully compete in a global 
market, if it's operating on a level playing field. Unfortunately, the 
current trade environment created under NAFTA is anything but fair, 
particularly when it comes to policies impacting Florida's specialty 
crop growers and producers.
    Our country's trade laws provide a variety of avenues to address 
unfair and injurious trade practices resulting from foreign government 
subsidies, dumping, and surging imports. We need to implement a trade 
agenda that will strictly enforce U.S. trade laws and to ensure that a 
fair and level playing field exists for America's farmers, ranchers, 
and businesses.
    We respectfully request that you initiate an investigation into 
Mexico's unfair trade practices and its dumping of specialty crops into 
U.S. markets. Furthermore, as the U.S.-Mexico trade relationship is 
reexamined, we urge the U.S. Commerce Department, the U.S. Trade 
Representative, and the U.S. International Trade Commission to develop 
a new agreement that will protect Florida's domestic agriculture 
industry, a critical pillar of our state's economy, and compel our 
Mexican counterparts to compete on a level playing field.
            Sincerely,
            
            

 
 
 
Hon. Thomas J. Rooney,               Hon. Ted S. Yoho,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Mario Diaz-Balart,              Hon. John H. Rutherford,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Brian J. Mast,                  Hon. Daniel Webster
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Dennis A. Ross,                 Hon. Gus M. Bilirakis,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Darren Soto,                    Hon. Al Lawson, Jr.,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Alcee L. Hastings,              Hon. Charlie Crist,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Kathy Castor,                   Hon. Stephanie N. Murphy,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Neal P. Dunn,                   Hon. Lois Frankel,
Member of Congress;                  Member of Congress;
 

                                     
                                     

 
 
 
Hon. Ileana Ros-Lehtinen,
Member of Congress;
 


    The Chairman. Well thank you, gentlemen.
    The chair would remind Members they will be recognized for 
questioning in the order of seniority of Members who were here 
at the start of the hearing. After that, Members will be 
recognized in order of arrival. I appreciate Members' 
understanding.
    I recognize myself for 5 minutes.
    Mr. Frazier, NAFTA has appeared to have created a supply 
chain between north to south that allows the movement of cattle 
across both borders. There is a chart in your testimony that is 
U.S. beef trade with Mexico, and it basically shows almost a 
break even. Imports and exports to and from Mexico have reached 
a common level. Can you walk us through how that has happened 
and what did NAFTA do to facilitate that?
    Mr. Frazier. Well, first of all, we have a lot of feeder 
cattle that come from Mexico that are fed in feedlots in the 
United States and then processed in our packing plants. And 
yes, that is kind of an equilibrium, but we need to remember 
that a lot of that beef that is produced from those Mexican 
cattle gets exported around the world and goes into the Asian 
markets and all over the world. And it is part of the $6 
billion export market that we have around the world, Mr. 
Chairman.
    The Chairman. Is that balance of trade between the two a 
sharp increase in imports from Mexico during the last 5 or 6 
years, is that part of the drought that we had?
    Mr. Frazier. It is.
    The Chairman. But is that necessarily a bad thing?
    Mr. Frazier. Well it is, and what they are doing is they 
are building infrastructure in northern parts of Mexico. In 
parts of Mexico, there are feedlots that are being built in 
Mexico, and some packing infrastructure that is going into 
Mexico, and that is resolving, and some of that beef coming 
into the United States. But we still import a significant 
amount of feeder cattle into the United States that are 
fattened and then processed and exported around the world.
    The Chairman. Secretary Vilsack, geographical indicators 
continue to haunt us. Obviously, with the bilateral agreements 
where countries decide that they will recognize each other's 
geographical indicators, when they try to do a deal with 
somebody else it has an impact. Parmesan cheese is a big issue 
with dairy. Can you talk to us about the impact that bilateral 
deals with other countries may have on NAFTA's negotiations on 
GIs?
    Mr. Vilsack. Mr. Chairman, the Canadians have entered into 
an agreement with the European Union, which essentially 
grandfathers in existing utilization of common names for 
existing facilities, but prohibits and prevents future 
facilities from being able to use certain cheese names.
    This obviously is of deep concern to our cheese industry. 
If we are going to increase exports and our goal is to try to 
get from 15 percent of our volume to 20 percent of our volume, 
cheese is going to be incredibly important. If we simply allow 
the Europeans to monopolize certain terms of cheeses, that will 
create no market competition. That will make it difficult for 
us to market much of what we can produce in this country.
    Mexico right now is negotiating with the EU for a free 
trade agreement, and what we are concerned about is which 
negotiation gets completed first, the modernization of NAFTA 
that could potentially reinsert the GI protections that were in 
the TPP agreement, or will Europe do what they recently did 
with Japan, enter into a free trade agreement that basically 
restricts Mexican use of GIs? It is a very critically important 
issue, and one that prompts us to encourage bilateral 
discussions and the modernization discussions to proceed 
expeditiously without delay. We can't afford to lose this race 
with the EU.
    The Chairman. Thank you.
    Mr. Brown, on your issue, I am aware that there are certain 
U.S. growers who have built facilities in Mexico and that they 
are importing those products. Can you get any sense as to what 
distortions are actually caused by U.S. producers choosing to 
grow in Mexico and bringing those products into the U.S. versus 
folks who don't have that kind of opportunity to compete? Can 
you break that market down for us?
    Mr. Brown. I can't give you absolutely specific details, 
but it will actually vary with the particular commodity. In the 
case of the tomato industry, there are some U.S. producers that 
are participating in production enterprises in Mexico, but to a 
large part, the tomato industry in Mexico is driven by Mexican 
interest. In the case of strawberries and blueberries and some 
of the fruit crops that are exploding in Mexico as we speak, 
there is a lot of American interest, relocating from California 
into Mexico, in that process. It will vary depending on the 
commodity.
    The Chairman. Thank you. I yield back.
    Mr. Peterson for 5 minutes.
    Mr. Peterson. Thank you, Mr. Chairman.
    Secretary Vilsack, welcome back to the Committee. It is 
good to see you here again.
    As I understand, you went down to Mexico and met with some 
of the folks down there and I guess you had a good result from 
that.
    Mr. Vilsack. We went down and Jim Mulhern from National 
Milk, Michael Dykes from the IDFA, and I went down to Mexico, 
primarily to reinforce the belief that our relationship with 
Mexico is not a transactional buy/sell relationship in dairy. 
It is a much more of a partnership. We are trying to grow 
consumption of dairy products generally in Mexico, which will 
create opportunities for Mexican producers but also create 
opportunities for us on the export side.
    Following our visit, we saw increased sales. Last month we 
were at or near record in terms of our exports to Mexico.
    Mr. Peterson. Thank you, and my question is have you done a 
similar trip to Canada, or do you intend to go up and talk to 
those folks?
    Mr. Vilsack. We have conversed with Canadian officials. I 
haven't gone up to Canada. We have been very clear about our 
concerns about Class VI and Class VII, the impact that it is 
having, not just on our ability to export into Canada, but also 
the impact it is having on powder prices generally. That is why 
ten of the leading trade organizations in the dairy industry 
globally have expressed deep concern about the Canadian 
process.
    Our goal here is to make sure that our Administration and 
the Canadian Administration understand how serious this problem 
is.
    Mr. Peterson. As I said in my opening statement, the 
Canadians' interest up there continue to buy up our processing, 
which I don't know if it is good or bad, but it does seem 
curious what happened with this situation with Grassland where 
Agropur was involved in buying the surplus milk and as I 
understand it, they paid $7 per hundredweight less than the 
pool price. Just so you know, this whole situation that is 
going on, I told the Canadian Ag Committee, they want to know 
if there is anything they can do for me. I said yes. I said get 
me a quota to milk 100 cows in Canada, because that is one of 
the most profitable things you could ever do, if you could ever 
get that quota.
    I don't know how we resolve this. They are going to defend 
this no matter what, and they make so much money up there, they 
can't invest it in their own industry. They are coming down and 
buying us up. It can't be good. I don't know what you guys 
think about it.
    Mr. Vilsack. Well it is not good, and it certainly is 
detrimental not only to American producers, but also Canadian 
consumers who end up paying a significant amount more for their 
dairy products than they would otherwise have to pay if there 
was a freer flow of product across the border.
    Congressman, I don't know that we have all the answers, but 
I would suggest to you that this renegotiation needs to focus 
on significant tariff reduction. It needs to focus on greater 
transparency in the process. The Canadian Government clearly 
manipulates through policy and regulation this market. Whenever 
we make an in-road, then the rules change. You can't ask 
American companies to invest hundreds of millions of dollars in 
a processing facility if there is no expectation that the 
market that they are counting on for the payment of that 
expansion is going to be present 6 months from now because the 
Canadian Government changes the rules. It is clear that this 
process has to be more transparent and more predictable.
    Mr. Peterson. Thank you.
    Mr. Brosch, I was reading your testimony that in spite of 
the fact that they have this export supply management and 
poultry, and the fact that you are somewhat limited in what you 
can export, I guess, but it says in here that Canada is the 
number two export market for the United States.
    Mr. Brosch. That is correct.
    Mr. Peterson. How can that be?
    Mr. Brosch. We have a limited quota for certain products, 
and we have no quota for other products that the poultry 
industry produces. For example, fowl meat, we have a lot of 
spent hens in the United States. Canada is a deficit producer 
for their own market of poultry, and so certain products they 
are going to need no matter what, and those products make it 
into Canada; and turkey, we export turkey to Canada. But they 
are about 16 percent of our exports right now total, if you 
look at all products.
    I understand the Secretary's concern. We have those 
concerns and have had those concerns for years. We would like 
more access to the market. We were hopeful that the 
Administration would pursue the TPP because we thought we had 
some gains locked up in the TPP in Canada. Of course, TPP also 
offered us what we really wanted, which was access to lots of 
other markets. Canada is not going to solve the problems of the 
U.S. poultry industry, frankly. We need all the markets around 
the world to have access, all markets. We would like 
improvements in Canada, but the truth is, right now Canada is 
our number two market.
    Mr. Peterson. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    Mr. Lucas, 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    Mr. Frazier, I think we would all agree that whatever is 
done on NAFTA will likely set the tone for future trade deals, 
particularly as it affects agriculture. Could you expand for a 
moment in this renegotiation process of what would be important 
to the beef industry and other sectors that could happen in the 
future, say, as it might then apply to other countries, Japan 
or China, for instance, as trade deals come together?
    Mr. Frazier. Well, first would be that we have no duties on 
products going into those countries, no tariffs, no duties. 
That would be first. We feel that NAFTA is working for our 
industry. It is providing a lot of value-added products that we 
are able to sell around the world. It utilizes a lot of grain 
products, and we would like to see more of the focus now on 
bilateral negotiations with Japan in the absence of TPP, and 
bilateral negotiations with other countries around the world, 
and replicate some of the things that we think are beneficial 
in NAFTA.
    Mr. Lucas. Is there anything that potentially would come up 
in such renegotiation that you think could be damaging or 
harmful to future trade deals, things we should be concerned 
about?
    Mr. Frazier. I mentioned one, Country-of-Origin Labeling, 
if that gets back on the table. We don't need that back on the 
table again. I guess that would be our biggest concern, and 
anything that would have to do with tradeoffs around duties or 
tariffs put on American beef going into Canada and Mexico.
    Mr. Lucas. Mr. Gaibler, it is my understanding and it has 
been reflected in comments here that as we approach potential 
NAFTA renegotiations, Mexican buyers are shifting to short-term 
contracts and looking at sources perhaps for grain outside of 
North America. That is the way I will word that. And this is 
just based on the potential for change in NAFTA. Could you 
discuss for a moment what the impact would be if this 
renegotiation turns out to be an extended process, what the 
effect could be on your folks, and for that matter, agriculture 
in general? I am looking for justification to move quickly, 
whatever we do.
    Mr. Gaibler. Thank you, Congressman Lucas.
    Well as I said and as is written in my testimony, we 
haven't even gotten to the negotiation, and we have a seven 
percent decline in our sales since the beginning of the year. 
And we did try and come up with some analyses to try and 
measure the potential impacts. I didn't cite them in my oral 
testimony; but, we are talking about some real numbers here. 
Our total grain production could fall by 1.2 billion. We would 
have a loss of about $6 per acre. There would also be increased 
costs because the model imputed that there were probably $1.2 
billion in farm program payments. So that is just a shot or a 
guesstimate of what the potential impacts could be. And if we 
are not getting this negotiation done by the end of the year, 
we anticipate that this erosion will continue and all of us who 
are in the international export business know that once you 
lose market share, even with your best customers, it is very 
difficult to recover it.
    Mr. Lucas. Secretary Vilsack, the last time we went through 
the farm bill process, you sat in a different role and you were 
responsible for the entirety of agriculture. I know you have 
concerns for the entirety, as always. Is it fair to say that as 
we approach 2018 and the next farm bill process, that perhaps 
just as important as comprehensive farm bill policy is, as what 
happens on NAFTA and these trade agreements will make or break 
us as an industry? Your observations?
    Mr. Vilsack. Well Congressman, Canada and Mexico, Mexico is 
our number one market, Canada is our number two market for 
dairy products, so clearly what happens here will make a 
difference to the nearly 42,000 operations that are producing 
product.
    Look: We have to fix what is broken in Canada. This is a 
market that is far too closed. It is not transparent. The rules 
are constantly changing, and there are some serious issues that 
have to be dealt with in these negotiations. And to your point, 
they need to be dealt with immediately. This is not a situation 
where we can have an extended conversation about changes, 
because we are facing competition with the EU and their efforts 
to get free trade agreements with Mexico, and the one that was 
recently done with Japan. It is incredibly important that we 
get this done quickly and we get it done right. And to get it 
done right, we have to preserve what is working. We have to 
strengthen what can be strengthened, and we have to fix what is 
broken.
    Mr. Lucas. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    The Chairman. The gentleman's time has expired.
    Mr. Scott, 5 minutes.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman.
    This is a big issue. It is very important to my State of 
Georgia. Under NAFTA, Georgia has a lot to lose if these export 
markets shrink due to uncertainty, and that is the big word 
here. This uncertainty that is floating. And as we are 
considering this issue, I put myself in Mexico and Canada's 
shoes, and I ask myself what I would do if my largest trading 
partners were thinking of backing out of a deal? I would start 
looking at other countries to trade with in case our deal is 
broken. And this is why I wasn't surprised, panel, when Mexico 
bought five times more corn from Brazil than it imported from 
Brazil last year. And in your testimony, Mr. Gaibler, you 
showed that it may very well be even worse than I had thought. 
And when I hear the Administration saying that they will follow 
a first do no harm strategy, I really can't help but wonder if 
we have already began to see some harm on America's agriculture 
industry? And I also worry about repeating battles.
    And especially, Mr. Frazier, last week the Office of the 
U.S. Trade Representative announced in its negotiating 
objectives in updating and strengthening the rules of origin. 
Now we all have fought this fight over and over again, and can 
tell great stories on it. To repeat this mandatory Country-of-
Origin Labeling on U.S. beef products as we are all aware of, 
Mr. Frazier, can you comment and tell me if you have any 
concerns about this objective that U.S. Trade Representative is 
offering? Are we in any way having to fight this COOL label all 
over again?
    Mr. Frazier. Well I hope not. I am not going to speak for 
the U.S. Trade Representative, but we feel strongly that 
Country-of-Origin Labeling did not work. WTO ruled in favor of 
Canada and Mexico, and our conversations with them, it is very 
clear that if that is brought back on the table, they will put 
in retaliatory tariffs on U.S. beef going into Mexico and 
Canada.
    Mr. David Scott of Georgia. So your answer to that is that 
you are somewhat worried, but you feel we won't have to repeat 
it. Is that right?
    Mr. Frazier. Yes, we would be concerned if there is any 
discussion about it coming back on the table.
    Mr. David Scott of Georgia. Okay.
    Mr. Frazier. We are against that.
    Mr. David Scott of Georgia. All right. Let me go to Mr. 
Brosch for a second.
    One place where I see a possibility of hope is increasing 
the quota access in poultry to Canada. The poultry industry has 
a very similar supply management situation in Canada as the 
dairy industry does. If a U.S. company decides it wants to do 
business in Canada, they first have to build a facility. They 
have to build growing barns. They have to get office space, 
packing, shipping, and processing. And then they have to have a 
purchase quota; however, after all that, they can only purchase 
250 kilos or 550 pounds of import quota. This small amount of 
production assures that no competition can come into Canada.
    Mr. Brosch, can you tell us how was this allowed when NAFTA 
was first negotiated?
    Mr. Brosch. Well NAFTA was first negotiated as the U.S.-
Canada Free Trade under President Reagan in 1984, and I was, 
frankly, a lot younger man than I am today. It actually is 
before my time, but the Canadians essentially retained their 
reservation under the WTO, which they have had for many, many 
years for supply management. And the WTO rules allowed that at 
the time.
    We thought when NAFTA was negotiated that they couldn't 
maintain that, and there was actually a challenge case brought 
by the USTR on behalf of the U.S. dairy industry, and we lost 
that case. As a legal matter, and frankly, I never quite 
understood how we lost that case, but as a legal matter, the 
Canadians were upheld in that dispute settlement case.
    It all goes back to that original negotiation where they 
essentially claimed the right to reservation.
    Mr. David Scott of Georgia. Thank you.
    The Chairman. The gentleman's time has expired.
    Mr. Gibbs, 5 minutes.
    Mr. Gibbs. Thank you, Mr. Chairman. Thanks to the panel for 
being here.
    Secretary Vilsack, you mentioned about the dairy supply 
management in Canada, and some of their policies. Ranking 
Member Peterson talked about the quota is quite profitable in 
the dairy industry up there on your quota, and they are using a 
lot of those profits to buy processing here in the United 
States. I'm not that familiar with how their quota system works 
up there, supply management system works, but is it possible 
for dairy producers in Canada to exceed their quota and then 
move that milk to the United States to the processing plants 
that they own in the United States?
    Mr. Vilsack. Let me give you an example of the Canadian 
system so that you have a better understanding.
    This Class VII, which we have raised concerns about, 
essentially what they have done is they have essentially 
allowed processors to pay about 15 percent less than what they 
would normally pay for a U.S. product to go into their 
processing, and that has created, as a result of a significant 
increase in butter consumption, has created a lot of powder. 
They put the powder basically on the world market at a below 
world market price, which drives the price down for everyone. 
That also would impact Canadian farmers, but they have allowed 
for adjustments on the other classifications of milk products 
and dairy products, so Canadian farmers basically break even in 
this system. Processors benefit from cheaper supply, and powder 
is dumped on the market. And essentially what that has done is 
it has created havoc for our producers, and for that matter, 
for producers in New Zealand and in the EU.
    It is the ability of the Canadian Government to essentially 
manipulate the system whenever there appears to be the need or 
the U.S. is making in-roads, they manipulate the system, and 
that is the problem. And it guarantees a price for Canadian 
producers that is significantly greater than what they would 
get in a market and the consumers end up paying for it in 
Canada.
    Mr. Gibbs. They just created a whole new class, this Class 
VII, that wasn't part of the agreement?
    Mr. Vilsack. Exactly. We were having ultra-filtered milk 
going into the Canadian market, creating the opportunity for 
processors to use our ultra-filtered milk. When we began to 
gain market share, they created a Class VII, allowed the 
processors to basically purchase Canadian product for 15 
percent less than what they would pay for U.S. product. That 
ended the import opportunity for us, the export opportunity for 
us. It created opportunities for processors to profit in 
Canada, and it didn't hurt the Canadian producers because they 
increased in the other classifications so that they could make 
up the difference in other classifications. And the losers are 
U.S. producers and Canadian consumers.
    Mr. Gibbs. Back to the Ranking Member's comments about the 
co-ops that producers in Canada are buying the processing here 
in the United States. Is that happening and where do you see it 
is happening, what is the phenomenon there?
    Mr. Vilsack. Well it is happening, and of course, it 
happens in a number of other industries. But the bottom line 
here is what we really need, and the conversation needs to 
focus on creating a system where the Canadian Government can't 
manipulate the system to impact and affect. We need 
predictability. We need transparency. As I said earlier, you 
can't expect American processing facilities to be expanded or 
built if they are counting on a Canadian market to change every 
2 or 3 months. And this is not the first circumstance. Class 
VII or Class VI are not the first circumstance of changes. They 
change product standards. They change the way in which they 
calculate whether quotas are being met. It makes it incredibly 
difficult and unpredictable for our industry, and so our hope 
is that this modernization conversation allows us to fix these 
problems, because they have been serious----
    Mr. Gibbs. Maybe Mr. Brosch might want to comment. I know 
it is experience mostly about NAFTA, but with TPP gone, 
bilateral agreements that the Administration talks about, it 
seemed to me that the two countries that we ought to be having 
serious discussions with would be Japan and Great Britain. Am I 
correct in that?
    Mr. Brosch. For us, Japan was the big win in TPP. The 
problem, of course, as you realize, Congressman, I did trade 
negotiations for a number of years, is that it is never a one-
way street.
    Mr. Gibbs. Yes.
    Mr. Brosch. And the problem was in the TPP, which is a 
plural-lateral agreement, Japan was getting benefits from open 
markets in other countries, and so there was a tradeoff for 
them. Whether or not Japan is willing to give us access without 
those tradeoffs is going to be the big challenge. And in my 
discussions, I think that is going to be a huge challenge. The 
Japanese Government is going to have a difficult time having a 
benefit in a bilateral agreement.
    Mr. Gibbs. Even though that the United States is by far the 
largest economy in the world, there are benefits in non-ag that 
they would benefit?
    Mr. Brosch. You are asking for my speculation. I think that 
is going to be a difficult sell.
    Mr. Gibbs. Yes, go ahead.
    Mr. Gaibler. Well, I have actually had some discussions 
with Ministry of Agriculture, Forestry and Fisheries in Japan. 
They, clearly, want to keep the TPP alive. They are managing 
the TPP 11 process. They would like to actually leave an 
opening for the U.S. to come in at some later point, but the 
message that we are going to hear from them is that they do not 
feel like they can get into a bilateral negotiation, and 
particularly from their agricultural standpoint, if they have 
to come in and make more severe concessions than they did under 
TPP, they would view that as a net loss and politically would 
not be able to support that sort of process.
    Mr. Brosch. I just would add this, Congressman. I did the 
bilateral negotiations with Japan during the Uruguay Round for 
4 years, and I can tell you, this is not easy. Their 
agricultural sector is pretty sacrosanct. They import about 55 
percent of their food needs in Japan, or at least they were at 
the time. This is a real critical matter of food security, so 
unless there is some big benefit for them, it is a very hard 
push to open agricultural markets.
    Mr. Gibbs. Thank you. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    Mr. Costa.
    Mr. Costa. Thank you very much, Mr. Chairman. I welcome 
this discussion, and I think that the last comments that were 
made about trade being a two-way street where you have to have 
win/wins is right on point.
    NAFTA, I hope, will be modernized and renegotiated, but I 
was very frustrated to see the narrative change over the last 
18 months or so during the campaign year, because it didn't 
accurately reflect the successes of NAFTA, notwithstanding the 
fact that we need to modernize it. California leads the country 
in agricultural revenue, and our producers are twice as reliant 
on foreign trade as the rest of the United States.
    Let me give you some numbers. Our NAFTA partners Mexico and 
Canada account for 22 percent, 22 percent of California's 
agricultural export. In 2015, for that year, Mexico accounted 
for $3\1/2\ billion in agricultural trade, Canada, $1.1 
billion. And I just think it is inaccurate to say that when you 
look over the last 20 years and any objective criteria that you 
measure it by, that it has been a disaster. It hasn't. Or the 
single worst trade deal that has ever been negotiated. It 
hasn't. Yes, it needs to be upgraded and modernized, but we did 
that in TPP as was pointed out, and it was a mistake to walk 
away from it on the first day without having read it or 
examined for what is primarily political purposes.
    Notwithstanding the rhetoric, I think that any objective 
analysis shows that when you look at job loss--and I am very 
sensitive to the job losses and to the situation with our 
friends in organized labor on manufacturing. When you contrast 
it to where we are in terms of the totality and where we want 
to go, the fact is, is that we need to renegotiate this 
successfully. I have serious concerns, as do you, whether or 
not we can do this in the light of a bilateral.
    Let me ask the panel members, is there any chance that a 
renegotiated agreement could lead to improved conditions for 
migrant agricultural workers, which we have in short supply in 
the United States, or is it more likely that the labor force 
will relocate in Mexico if the agreement boosts economic 
productivity there? Who wants to take a whack at that?
    Mr. Vilsack. Congressman, I will just simply say in the 
dairy industry, there is a level of concern and anxiety based 
on the failure for us to actually solve our immigration issue 
in the U.S. We have a broken system, and it is impacting and 
affecting dairy production.
    Mr. Costa. It is affecting all of agriculture.
    Mr. Vilsack. Well, I cannot speak for all agriculture 
today, but I can with confidence----
    Mr. Costa. I understand that.
    Let me go beyond. I mean, we remember clearly in 2010 with 
the Mexican truck driver issue, and then last year with the 
Country-of-Origin Labeling. Each side has leverage. I remember 
it very clearly when tariffs went on table grapes in 2010 and 
cheese production in Mexico, and it took us 18 months to get 
those tariffs removed. And last year, both Canada and Mexico 
were putting the lists together on retaliatory activity if, in 
fact, we didn't take action on the Country-of-Origin Labeling.
    Is it not true that there is leverage on both sides? I see 
head-nodding. Yes?
    Mr. Brosch. I will tell you one of our concerns in the 
poultry industry.
    A number of years ago, one of the companies in Mexico 
brought a dumping case in Mexico against our industry. I 
actually had gone down and testified in that proceeding. We 
were able, through the cooperation of the larger Mexican 
poultry industry and the Mexican Government to get that duty 
suspended. Essentially, they never applied it, but it is 
sitting there. It is sitting there on the books in Mexico, and 
it could be applied at any time. And our concern is that 
something is going to happen in these negotiations in another 
sector----
    Mr. Costa. Well, it has to be a win/win. I mean, if it is 
we win and you lose no company is going to agree to that.
    Mr. Brosch. Right. And we have had experience, 
Congressman----
    Mr. Costa. I mean, that makes good politics, but that 
doesn't make a trade deal, maybe.
    Mr. Brosch. Well, I am just telling you our concern right 
now is that----
    Mr. Costa. I share your concern.
    Let me just quickly go because my time is running out.
    Who was the big winner, in your opinion, when we walked 
away from TPP, and these countries are still trying to go 
ahead?
    Mr. Frazier. China.
    Mr. Costa. China? Do you agree? China? Yes. I think there 
is a consensus there. China was the big winner on this.
    Mr. Vilsack. The EU also won in the dairy, because they 
just recently negotiated an agreement with Japan which gives 
them more market access and some protection in terms of GIs.
    Mr. Costa. Well my time has expired. Thank you, Mr. 
Chairman. Hopefully we will figure out a consistent 
agricultural trade policy in the near future.
    The Chairman. The gentleman's time has expired.
    Mr. Scott?
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    Mr. Brown, as you were talking about Florida tomatoes, I 
couldn't help but remember some of my Georgia tomato growers 
back in 2008 when they had warehouses full of a crop that had 
just been picked, and they couldn't sell them because of a 
Salmonella outbreak that ended up being Mexican peppers. There 
is no telling how many millions upon millions of dollars 
farmers lost through my area before I was in Congress, but I 
remember quite well some of the long-term families that had 
been extremely good farmers and----
    Mr. Brown. We estimated $100 million was lost at that point 
and there has been no way to recover that in several court 
cases where the industry has tried to retrieve that money, but 
we failed.
    Mr. Austin Scott of Georgia. It probably killed some people 
just from the stress, and through no fault of their own, no 
fault of their own. People lost, in some cases, things that it 
took generations to build, because it was literally just 
harvested.
    As we talk about renegotiations of NAFTA, it would be more 
adjustments to an existing framework, but from the standpoint 
of the fruit and vegetable growers, what do the renegotiations 
need to contain to address your concerns on trade?
    Mr. Brown. One of the big concerns that we have, the U.S. 
tomato industries had a dumping case in place for 20 years. 
Many of these other commodities, especially where there is 
seasonal and perishable producers, are producing, for instance, 
our Florida strawberry industry produces about 15 percent of 
the fresh strawberries in the country, but they produce them 
from the period of December until about the 1st of March. They 
cannot avail themselves of U.S. trade law to defend themselves 
against the unfair trade practices such as dumping or 
countervailing duty subsidization on the Mexican side of the 
border. And Mexico has pumped tens of millions of dollars into 
protected culture agriculture, which is exploding the 
productivity of the Mexican specialty crop industry, and it is 
coming back into the U.S. We need to have some way of allowing 
those industries to use the tools to defend themselves and 
create some kind of a carve-out onto the trade law and onto the 
treaty for perishable and seasonable producers to be able to 
join together to defend themselves.
    Mr. Austin Scott of Georgia. Thank you for that, and as we 
go forward, I know we are not here to talk about the farm bill, 
but I know specialty crops is going back to that 2008 scenario 
where the government made a decision that hurt those people, 
basically bankrupted them, and I hope we take a serious look at 
what we can for specialty crops that they participate in.
    There has been a lot of discussion on the chicken issues 
already with regard to Canada, but just one more time. How do 
we achieve greater access into Canada while making sure that we 
don't disrupt the market access that we currently have in 
Mexico, Mr. Brosch?
    Mr. Brosch. That is a good question, Congressman. We 
thought that the key to this was essentially a plural-lateral 
agreement under TPP. We thought that this was our best chance 
to make progress in Canada, because Canada wasn't interested in 
TPP initially until it saw all the countries that were in 
there, and then they realized they had to be at the table or 
they were going to be left out. And this really put the 
pressure on Canada to do something about poultry access, and it 
is unfortunate that we are not in there. We are having a hard 
time seeing exactly what the leverage is at the current time, 
and as I said, we do have a fairly significant market in 
Canada, even though we would like to do better.
    Mr. Austin Scott of Georgia. Gentlemen, thank you for your 
time. Mr. Chairman, I am going to yield the remainder of my 
time.
    The Chairman. The gentleman yields back.
    Ms. Fudge, 5 minutes.
    Ms. Fudge. Thank you very much, Mr. Chairman, and thank you 
all for being here today.
    We all know that there is no perfect piece of legislation, 
so we know that everything should be reviewed. It is time that 
we start to talk about reviewing NAFTA. Although, Mr. Chairman, 
I am somewhat dismayed that there is no one representing labor 
at this table, and I would just say that for the record.
    The Administration has decided that it would like to come 
to some closure on a new NAFTA agreement by sometime in the 
beginning of next year. Now, I mean, that might be good for a 
rose garden photo-op, but it is a much more complicated issue 
than just a few months, as is healthcare, by the way. 
Complicated. It is important that we make sure that the 
interests of U.S. producers are protected in whatever agreement 
we come up with, and so I am hopeful that you are taking some 
time to educate the White House on what you believe should 
happen with a new NAFTA.
    I think that when we sit and talk about trade, we have to 
be sure once again that we protect American interests and not 
other country's interests. We could, indeed, come up with a new 
plan and have serious damage to U.S. producers. I think all of 
you are saying that, and I certainly want to ask you now, what, 
if anything, are you prepared to do to make sure that this deal 
that your position is heard? Mr. Brown?
    Mr. Brown. We are doing everything we can to communicate 
throughout the Administration the concerns of the specialty 
crop industries out of Florida and other parts of the country. 
We have talked with the U.S. Trade Representative's office. We 
have talked with the White House. We have worked with our 
delegation here from Florida, and we have had the opportunity 
to certainly make people aware that all is not well when there 
is a $5.3 billion deficit, and it is on the backs of the 
specialty crop fruit and vegetable industry in this country. 
And it is American farms and American communities that are 
going to be destroyed if we don't take steps to ensure that we 
have a free and fair trade environment where those enterprises 
can continue to feed America here with American products.
    Ms. Fudge. Thank you. We are just going to go down the 
line.
    Mr. Hammer. Thank you. We have been trying to carry the 
message to the new Administration from my member companies 
through our association and through combined efforts of many 
coalitions that we work with.
    A message that you heard throughout here today is while 
there is opportunity for improvements, the message of do no 
harm has been said loudly and clearly from American agriculture 
that is benefitting. My industry, the soy processing industry, 
our increase in value since the beginning of the NAFTA to 
Canada and Mexico, has been over $2 billion in trade this year 
versus trade in 1993. Because of free trade agreements that we 
have in the Caribbean and Canada and Mexico, we own those 
markets. We have them 100 percent of the year. We often are in 
a cyclical market share situation in other markets where South 
America produces at different times than we do, but by serving 
their markets year-round, we are able to keep our processing 
plants open year-round. If we were to lose those markets, we 
would be closing U.S. processing plants. We already know our 
members have gone down there and there is great angst, and we 
have seen our sales of soybean meal in the first 6 months of 
this year in value drop 21 percent from the same period a year 
ago, and in volume drop 13 percent from this period to last 
year. They are making adjustments now. They are telling our 
member companies that they want their contracts to be on much 
shorter contract terms. That is not a good sign for our 
business. We need to send this signal to them that we want to 
continue this supply chain relationship that we have with both 
Canada and Mexico.
    Ms. Fudge. Thank you.
    Mr. Gaibler. Well the U.S. Grains Council that participates 
in this U.S. food and ag trade dialogue, they provided 
extensive comments to USTR. We provided our own extensive 
comments. As I mentioned in my testimony, we have engaged our 
customers, particularly the Mexican livestock and feed 
industry. We have gone down there numerous times. Per their 
concerns, we thought it made sense to have people in Congress 
and the U.S. Department of Agriculture hear those concerns, so 
we brought them up to do that. In addition, we continue to have 
ongoing dialogue with the Administration.
    The Chairman. The gentlelady's time has expired. I will ask 
the other three witnesses to submit their answers for the 
record.
    Ms. Fudge. Which is fine, Mr. Chairman, but everybody else 
went over a whole minute, but I thank you very much. I 
appreciate it.
    The Chairman. Mr. Crawford for 5 minutes.
    Mr. Crawford. Thank you, Mr. Chairman. I will try to make 
up for some of that and just focus on one question.
    Mr. Gaibler, prior to NAFTA, Mexico was a minor importer of 
U.S. rice, typically sourced from Asia. Since the 
implementation of NAFTA, they have become the largest market 
for U.S. rice, particularly important to the mid-South region 
medium and long grain production.
    In the last few years, there has been a little bit of a 
threat that they might revert back to Asian sourcing, and one 
of the deals, for example, is a side deal related to TPP where 
Vietnam could access the Mexican market duty free.
    I guess my question is does the NAFTA renegotiation process 
create any problems for that competitive edge that we have in 
Mexico with regard to rice that might accelerate their decision 
to now start to source from Asia?
    Mr. Gaibler. Well I guess my response would be is that we 
have seen the growth of the Mexican livestock industry and we 
have seen their ability to gain efficiencies, economies, the 
size, and scale. A lot of it has to do because of our 
arrangement with us by giving them reliable supplies. And part 
of what you saw, in the TPP negotiations, was is that Mexico, 
like every other country, is looking to be a net exporter of 
products, including agricultural products, and they view the 
opportunity that they are efficient enough to compete and 
actually export some of those products, the value-added 
products, outside of their markets, and part of it was that 
some of the concessions they gained as part of TPP. But it is 
all under-driven and enlightened by the fact that our system 
with no tariffs and the ability to create the efficiencies have 
made that possible. And I would remind you that Mexico already 
is very aggressive. They have 46 FTAs already, so they know how 
to negotiate trade agreements and get access.
    Mr. Crawford. Thank you. Mr. Chairman, I will yield my 
time.
    The Chairman. The gentleman yields back.
    Mr. Tom O'Halleran, 5 minutes.
    Mr. O'Halleran. Thank you, Mr. Chairman.
    The Chairman. Is that getting close, Tom?
    Mr. O'Halleran. You got it.
    Anyway, back in the Depression, my grandmother and 
grandfather lost their farm, and it is probably still in 
existence, but times have changed. And Mr. Brown, you had 
mentioned about the loss of family farms, and that concerns me 
a lot. But what concerns me also is the entire process that we 
are going through right now. One of you mentioned that you hope 
that we have this done by the end of the year. Well as you 
know, the timeline for this from the Administration goes way 
into next year, and that is without the complexities that have 
been mentioned today and the other ones for other industries. 
That concerns me probably as much as the loss of family farms, 
because it is an ongoing process, and it is going to hurt 
agriculture in America.
    But I guess what I would like to know from Secretary 
Vilsack is you have been down to Mexico, so the political 
environment, I would like to hear a little bit about that, and 
your ideas about the bilateral needing to be done in a timely 
fashion, and if you feel that is going to be accomplished to 
make sure agriculture in America stays competitive. And then if 
you have time, some discussion on what you have identified 
clearly as the EU problem.
    Mr. Vilsack. Where there is an election in Mexico next 
year, which is prompting the Mexicans to want to conclude 
discussions as quickly as possible, but it is correct to say 
that this is a very complex set of negotiations. And the 
Mexicans are skilled at this, and they understand that they are 
on dual tracks. On the one hand, they are negotiating with us 
on renegotiation of NAFTA. On the other hand, they are 
negotiating with the EU on a free trade agreement, and they are 
essentially, in my view, sort of working off each other. In 
other words, they are suggesting to us well maybe the EU will 
have a better deal for us. Maybe we need to conclude those 
negotiations before we conclude NAFTA. They are probably 
telling the Europeans the opposite. And they are looking for 
the best deal for Mexico.
    So it is important and relevant for us to be able to 
conclude this agreement, particularly as it relates to things 
like the GIs, the geographic indications, that we talked about 
earlier. We don't want to give the EU yet another notch, if you 
will, in that effort to try to preserve and protect common 
names and create a due process system.
    We face some serious competition in the dairy industry, and 
we also face an incredibly productive industry. We anticipate 
and expect by the year 2022 that we will have 14 million more 
pounds of dairy product that will need to be exported, or we 
will need to find a market above and beyond what we have that 
will increase domestic consumption. These export markets, these 
trade agreements are incredibly important in order for us to 
sustain the family farming operations that are represented in 
the dairy industry.
    One of the benefits of dairy is that we still have very 
small operations, and we have very large operations, and they 
are mutually coexisting, if you will, because of exports and 
because of increased domestic consumption.
    Mr. O'Halleran. I take it the need for expedited activity 
on the bilaterals is an important part?
    Mr. Vilsack. It absolutely is. I mean, when we took 
ourselves out of TPP, it essentially created an urgency in 
beginning and concluding bilateral discussions, not just in the 
context of NAFTA, but also in the context of some of our Asian 
partners.
    Mr. O'Halleran. Mr. Chairman, I will yield back.
    The Chairman. The gentleman yields back.
    Mr. Davis for 5 minutes.
    Mr. Davis. Thank you, Mr. Chairman.
    Question first, Mr. Gaibler. As in your testimony, you 
mentioned the commercialization of biotechnology that occurred 
after the U.S. ratified NAFTA. And as the Chairman of the 
Subcommittee that has jurisdiction over biotechnology issues, I 
am really interested in hearing your opinion on what can be 
biotechnology's future role in a possible renegotiation? If you 
could expand upon your comments.
    Mr. Gaibler. Well yes, as Tom had noted in his testimony, 
TPP provided some foundational language on biotechnology, which 
was really kind of the first time that I am aware of that 
biotechnology was even addressed in any trade agreement, 
bilateral or otherwise. And it put----
    Mr. Davis. Do you think that is a necessity in future trade 
agreements?
    Mr. Gaibler. Sure.
    Mr. Davis. Lay it out?
    Mr. Gaibler. Absolutely, because the markets, particularly 
China and the European Union, continue to have asynchronous 
biotechnology policies. The other part of what we have proposed 
is that we have tried to explain that there have been over 660 
products assessed over that 20 years. Each government uses 
fairly similar risk assessment processes to do that, and there 
has been an effort to try and come up with ways to share that 
information in a way that, if a country has already adopted the 
proposal and the other country looking to approve it could say, 
``Yes, we will review that documentation. If it meets our 
scientific rigor, we will do that rather than repeating the 
whole process.'' We are trying to get that kind of foundational 
language as well into this North American Free Trade Agreement, 
because, in my view, this will probably be our foundational 
document moving forward on other FTAs, and so we want to build 
on that, what we achieved in TPP.
    Mr. Davis. Mr. Hammer, did you have any comments you would 
like to make?
    Mr. Hammer. As we are both in agreement, NOPA works through 
a coalition called the U.S. Biotech Crops Alliance, which 
represents from the tech company all the way through to the 
exporter, the greens and oilseeds. And we are very, very 
unified on this point that we need to put biotech agreements in 
our trade agreements. This is an excellent example, we wouldn't 
have even contemplated this in 1993, of one of the areas where 
modernization is so necessary, and it does have so much to do 
with the marketability and fungibility of our grain trade 
globally. This is high priority for NOPA, and virtually 
everyone in our value chain.
    Mr. Davis. Well thank you very much for your comments. I 
agree, and I hope that we open up more opportunities for 
biotechnology and its growth as we move forward and have to 
continue to grow more food on less land with a very much 
growing population.
    Mr. Secretary, welcome back. I am glad to see you here. I 
am used to you not being surrounded by anybody and in the 
middle of the table. I just wanted to say welcome back. It was 
great to work with you, a pleasure to work with you over the 
last few years when we sat in different places in this room, 
and I look forward to working with you in your new capacity.
    Mr. Vilsack. Thank you. It is good to be back.
    Mr. Davis. So with that, thank you. I yield back, Mr. 
Chairman.
    The Chairman. The gentleman yields back.
    Mr. Panetta, 5 minutes.
    Mr. Panetta. Thank you, Mr. Chairman, and thanks to all of 
the witnesses for being here. I thank you for your preparation, 
thank you for your testimony.
    I represent the central coast of California, 20th 
Congressional District. As Mr. Davis knows well, it is called 
the salad bowl of the world, based on its number of specialty 
crops. I can tell you, when you are driving through Salinas 
from pretty much April to October, you want to avoid it because 
there is so much production, there is so much traffic going on 
there. However, in the other 5 months, it slows down a little 
bit and there is not that much production during the winter 
months, at least there in Salinas. But let me tell you, there 
are family farms that continue to produce and continue to be 
successful during those winter months. That is because they 
have farms in Mexico, a number of farms in Mexico. And what it 
turns out to be is sort of a complimentary relationship, their 
farms here and then the other winter months they are able to 
produce in Mexico, and so it allows them to continue to be 
successful, continue to make money which they can then invest 
in their farms here in the United States. In fact, especially 
there in the Salinas Valley, which is close to Silicon Valley, 
allows them to invest in mechanization, obviously, to deal with 
the labor issue or lack of labor issue that we are all facing 
here in the United States.
    Most of you except one person said that renegotiating 
NAFTA, you don't want to do harm. You don't want to do any harm 
to the production. And Mr. Brown, you are the only one I didn't 
hear say that, and instead, Mr. Brown, I heard you say 
specialty crops are an industry under assault. And I can tell 
you that in the Salinas Valley, in the salad bowl, they are not 
under assault. They are actually taking advantage and 
benefitting from farm production in Mexico.
    And so I guess my first question to you, Mr. Brown, would 
be have you been to the central coast?
    Mr. Brown. Yes, sir.
    Mr. Panetta. Okay. Have you spoke with family farmers such 
as Bruce Taylor?
    Mr. Brown. I am fully aware of the expansion that is taking 
place, and those expansions, Mr. Panetta, are basically managed 
ventures and investment opportunities in Mexico. What we are 
concerned about is the wholesale subsidization of Mexican 
expansion into other specialty crops that are basically 
creating excess capacity that is being basically grown for the 
U.S. market, pushed into the U.S. market, and it is price 
depressing. Your farmers are managing their supply and making 
their enterprises work as good businesses should, but when you 
release the capacity that is being built in Mexico in the last 
decade and dump it into the U.S. market at whatever price, as 
you well know, produce is sold on whatever the price is today 
is the price, because we can't store it, and if we all operate 
under the premise you either sell it or you smell it, and it 
basically depresses prices for many of these other commodities, 
but it is a different kind of business than you are referring 
to out of the Central Valley.
    Mr. Panetta. That is right. And so once again, have you 
spoken with the specialty crop farmers there on the central 
coast?
    Mr. Brown. I have not personally had that conversation with 
central coast farmers.
    Mr. Panetta. Okay. All right, because they will tell you. I 
spoke with Kevin Murphy of Driscoll's Farm, Bruce Taylor at 
Taylor Farms, Rick Antle, T&A Farms, Dicky Peixoto, Lakeside 
Organics. They will tell you that their production in Mexico is 
benefitting them and benefitting your family and my family by 
allowing us to eat fresh fruits and vegetables year round.
    The question was asked by Mr. Costa, the Mexican production 
that is U.S. owned in Mexico, are you familiar with that 
percentage?
    Mr. Brown. I don't have a percentage and I don't know there 
is a percentage anywhere in existence that I have ever been 
aware of.
    Mr. Panetta. Okay. Does Florida have farmers that have 
farms in Mexico as well?
    Mr. Brown. Generally speaking, no. We have a very limited 
number of farmers that have some tomato operations in Mexico, 
but they are basically Florida-based operations.
    Mr. Panetta. Understood, understood. Thank you. Thank you, 
gentlemen. I yield back.
    The Chairman. The gentleman yields back. Mr. Allen, 5 
minutes.
    Mr. Allen. Thank you, Mr. Chairman, and again, I want to 
thank everyone for being here and talking about the importance 
of trade, particularly as it relates to agriculture and 
obviously, agriculture is the largest industry in my State of 
Georgia, and the largest industry in my district. Of course, we 
grow a variety of things in my district, the famous Vidalia 
onions, and some, obviously, fruits and vegetables, blueberries 
and of course cotton, peanuts, and Georgia is the top exporter 
of peanuts and poultry, and it is the top five exporter of 
cotton, pecans, vegetables, and melons. And according to the 
U.S. Census Bureau, since 2004, Georgia's agriculture exports 
to Canada and Mexico have more than doubled from just less than 
300 million to almost 720 million in 2016.
    One of the things that I hear from my constituents, and one 
objective that I am happy to see in this package is the 
elimination of Chapter 19. While we continue the process of 
renegotiating and modernizing the NAFTA, it is essential that 
we highlight the benefits to the agriculture sector. We need to 
look at the areas which some of our commodities have faced 
challenges.
    Mr. Brown, you have talked about the dumping issue, and of 
course, I was interested in the conversation that we had there 
as far as what California is doing versus say, Georgia, we are 
becoming a big blueberry grower. And what is your suggestion on 
how, as far as if we are talking about NAFTA and we are talking 
about how do we fix this issue where we don't affect, say, 
California, but obviously, it is good for Georgia and Florida. 
Do you have a solution?
    Mr. Brown. Right now in the U.S. trade law, in order for a 
dumping case to be filed, to have standing, you must have 51 
percent of all like product in the country as a petitioner in 
that process. This basically handicaps any regional, seasonal, 
perishable producing entity. For instance, as an example, 
Florida's strawberry industry, which is 15 percent of the 
domestic supply. Most of the rest of the domestic supply comes 
from California, but in the period of the winter months from 
December to March when California is a minor producer, if a 
producer at all, to any great extent, we are competing with 
Mexican product coming into the country at very low prices, and 
it basically is depressing the domestic strawberry market 
during that period of time. A redefinition or a modification 
that would allow for these very specific seasonal, perishable 
products, things that can't be stored, they are going to have 
to be sold in a marketplace and compete in a given time period 
in that marketplace, for those industries to have what every 
other industry in this country has the privilege of having, 
which is the right to defend themselves from unfair trade 
practices. And we are not saying close the border, we are just 
saying if you are dumping stuff in this market at less than 
your cost of growing it, that is an unfair trade practice.
    Mr. Allen. Right.
    Mr. Brown. And without that modification, those pieces of 
American agriculture are going to be ground up.
    Mr. Allen. Yes, okay. Good.
    As far as Mr. Brosch, you mentioned the U.S. poultry 
industry has been among America's most important and successful 
production and export sectors. Of course, in Georgia we are top 
exporter of poultry out of the port of Savannah.
    You mentioned in your testimony the past decade two of our 
five most important poultry export markets have been Mexico and 
Canada; however, Canada has a supply management for poultry. 
Can you give us more of an explanation of that, and how to fix 
U.S. exports for poultry?
    Mr. Brosch. Canada manages the border through limited 
quotas. We don't have tariff-free trade into Canada like we do 
on all other products, except dairy and poultry. They have been 
exempted under their WTO reservation and they have been able to 
maintain that, so we only get a small quota. Our quota is 
something in the order of 7,000 or 10,000 tons into Canada, 
very small. However, we do sell other products into Canada. We 
have managed to sell products that aren't limited by that 
quota. The big one I was talking about, to give you an example, 
is fowl, spent fowl, which goes in the processed product 
category into Canada.
    Despite that limitation, we still have Canada as our number 
two market. It is surprising to most people, but that is the 
way it is. We would like more access into Canada. We certainly 
would like that, and we thought that we were on that track in 
TPP, but unfortunately, we are not there anymore.
    Mr. Allen. Okay. Thank you.
    The Chairman. The gentleman's time has expired.
    Mr. Lawson, 5 minutes.
    Mr. Lawson. Thank you very much, Mr. Chairman. Welcome to 
the Committee.
    Gentlemen, and especially Mr. Brown, I reside in north 
Florida, same as Congressman Dunn, and it gets cold up in north 
Florida, unlike when we talk about some areas in south Florida 
where Mr. Yoho is, central Florida. But we are still able to 
get out about two crops a year, our tomato growers. And when I 
talk to the tomato growers up there, they are really concerned 
about the NAFTA agreement. And so like when Mr. Allen talked 
about in Georgia, we are right there on the border. I have some 
tomato growers who are growing tomatoes in Florida, and then 
they are also growing them on the other side of the line in 
Georgia. How would this NAFTA negotiation help or hurt those 
tomato growers that we have in north Florida?
    Mr. Brown. If we have the ability to improve the capacity 
to enforce trade law aggressively in that treaty renegotiating 
process, there is a dumping case that has been in place for 20 
years for the U.S. tomato industry that was filed a couple of 
years after NAFTA was enacted. If that suspension agreement, 
which is currently in a suspension agreement from that dumping 
case, if there was aggressive enforcement to where we didn't 
have a lot of circumvention and price suppression due to that 
circumvention, it would improve the well-being of those tomato 
growers, and Mr. Williams would enjoy a better marketplace in 
his operation there in Quincy.
    Mr. Lawson. Okay. You know who I am talking about.
    The other thing asked a great deal about is how the 
immigration issue is going to affect them, because they won't 
be able to get the tomatoes out of the field because we can't 
get a lot of the people there to want to go and get these crops 
out of the field, and it directly affects them. Immigration: I 
know the President talks about it a great deal, but it is very 
critical up there in Gadsden County.
    Mr. Brown. It is extremely important that we resolve our 
issue of an agricultural workforce in this country, because 
most all of the fruits and vegetables in this country are hand-
harvested. And without that workforce, which basically puts 
food on the table for America, we are going to have problems, 
going forward, with those agricultural entities surviving.
    Mr. Lawson. Okay, and one other question to the panel, and 
I support the NAFTA, but I am concerned about the focus on 
education and how education with our 1890 institutions can be 
utilized in research to help us attract more individuals into 
the agriculture industry, and what kind of research that can be 
provided to promote the industry where some of the other people 
don't want to go into it, but we need the research in order to 
maybe help these institutions attract more people to it. Can 
anyone elaborate on that with the time that I have left?
    Mr. Brosch. I can tell you one thing that we have done in 
the poultry industry, Congressman.
    We recently renegotiated our access to South Africa under 
the African Growth Opportunity Act. We had trouble getting into 
South Africa, and we recently renegotiated. And part of that 
renegotiation, we agreed to support students from South Africa 
who, especially the historically disadvantaged students in 
South Africa, and we are bringing some of them to agriculture 
colleges in the United States to train. I think that is a good 
model. We could use that model in the future in our NAFTA 
negotiations to look for opportunities that are similar.
    Mr. Lawson. Okay, thank you very much. One thing I am going 
to say, when you are talking about Mr. Williams in Gadsden 
County, he told me this a couple weeks ago that we can't do 
anything with the dumping that is coming in from Mexico. We 
don't have the authority to do anything. I am just going to cut 
to Mr. Brown where you can just say something one more time.
    Mr. Brown. We have had a dumping case in place for 20 years 
and I will give credit to the Mexican Government and the 
Mexican industry. They are a fierce, aggressive negotiators and 
competitors, and we continue to try to ensure that the domestic 
tomato industry survives going into the future.
    Mr. Lawson. Okay. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. Faso, 5 minutes.
    Mr. Faso. Mr. Chairman, thank you, and I appreciate the 
panel being here. It really has been a very timely and 
instructive set of presentations, and I appreciate that.
    Governor Vilsack, I wanted to ask you about a topic that 
you and I also appreciate having an Albany Law graduate here as 
well. There are a lot of people in my marketplace that are 
Albany Law folks.
    Your testimony, you go into great detail about the Canadian 
trade practice on ultra-filtered milk and the barriers, 
Canadians don't call them that, but the barriers, in essence, 
that the Canadians are putting to the import of ultra-filtered 
product from the United States and its impact now on the export 
market to countries that we would typically be exporting to as 
well. What is incomprehensible to me is how Canada can, with a 
straight face, get away with this, and how this doesn't run 
afoul of existing trade agreements that they have adopted. 
Could you expound on this a bit and give us some advice as to 
what you think the Committee should do and what the U.S. Trade 
Representative should do about this topic? And I have 3 minutes 
and 36 seconds left, and if you could give us that answer in 
that time, I would appreciate it.
    Mr. Vilsack. Congressman, I would start by saying that if 
the Canadians were here, they would say ``Well gee, what is the 
problem here? Exports from the U.S. have gone up.'' It is a 
little bit misleading for them to use that talking point, 
because in essence, what happens is product is exported into 
Canada and then re-exported outside of Canada back into the 
United States in a value-added proposition. It is not what we 
traditionally think of exports where you export a product and 
it is consumed in the product that you are exporting to.
    This is an issue where the Canadians have essentially 
evaluated their market and when they see the U.S. making in-
roads, the rules change. They create a new class, they change a 
product specification, they redefine a product so that it will 
now qualify for tariffs as opposed to being duty free. It is a 
constant battle that we have been engaged in, in trying to open 
this market up, and trying to educate the Canadian consumer 
that they are really paying a lot more for their products than 
they would have to if there was a freer trade arrangement.
    It also has an impact because of the incredible increase in 
butter consumption, this has created a glut of powder, milk 
powder, and normally that milk powder in Canada would have been 
fed to livestock, but there is so much of it that what they 
should be doing, obviously, is providing an opportunity for the 
U.S. to export into their country, import into their country. 
Instead, what they have done is they have basically put it on 
the open market at a price lower than the world market, which 
is depressing overall powder. And that is why the ten leading 
dairy global associations have come out and said look, this is 
a problem in New Zealand, it is a problem in the EU, it is a 
problem in the United States because it is depressing unfairly 
the market.
    There can be a lot of conversation about the letter of the 
law, but clearly the spirit of a number of agreements that 
Canada has entered into we think are severely tested by this 
approach, agreements that they have made in the past. And that 
is why this renegotiation is so critically important. Let us 
get a much more predictable, transparent process. Let us get 
more stability in the process, and let's open up the markets. 
Let's take a look at ridiculous tariffs that are currently in 
place in Canada. The over quota tariff for food and milk is 241 
percent. For butter, it is 298 percent. For cheese, it is 245 
percent. I mean, there are multiple opportunities here for us 
to have a much better relationship with Canada as it relates to 
dairy. And if we had that, then there would be greater 
predictability, there would be greater stability for our 
producers, and consumers in Canada would benefit.
    Mr. Faso. And what are consumers in Canada paying for fluid 
milk as compared to the U.S.?
    Mr. Vilsack. Well it is significantly higher, and that is 
why you will see in border communities people traveling across 
the border to essentially purchase in the U.S. Now what is 
interesting about this is there is a quota system, and the 
Canadians are basically saying for fluid milk look, our 
consumers are coming across the border and purchasing milk in 
the U.S., and that satisfies our quota. Well wait. They are not 
even tracking that. They are not even keeping track of that, so 
how can they say it satisfies the quota?
    Mr. Faso. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. Soto, 5 minutes.
    Mr. Soto. Thank you, Mr. Chairman.
    We all know the history of NAFTA, filed and passed by a 
Republican Congress, signed by a Democratic President in 1991, 
and setting aside the manufacturing decline that happened, 
agriculture has really been kind of a mixed bag. We have seen 
the big guys get bigger, the small guys get smaller, even go 
out of business, and a lot of that has to do with the scale 
they are operating on or the ability to really withstand unfair 
trade practices that have occurred over the years through some 
other members of the coalition.
    I want to start out with you, Mr. Brown. First of all, 
welcome. I am no stranger to Maitland. It is just a few miles 
north of our district, and part of that wonderful place we call 
central Florida. I want to go through some specifics based upon 
your report about things that you think there is already 
existing language in NAFTA you could work with, or things that 
need to be changed in your mind.
    First, with regard to subsidies and incentives provided by 
the Mexican Government to their producers, are there sufficient 
provisions in NAFTA, or do we need to look at changing areas 
with regard to helping out our growers in Florida?
    Mr. Brown. One of the important things that needs to be 
addressed, as we talked about earlier, is this seasonable 
perishable issue to where the Florida industry could defend 
itself against those unfair trade subsidies with the 
countervailing duty case. If you had to go to a national 
countervailing duty case, not only do you have to round up all 
the producers, or 51 percent of all the producers of the 
product that is defending itself, but you also have to prove 
injury to that entire body of producers. And many of these 
problems are very specific to time periods of market dumping or 
market subsidization of product going into a specific market. 
So that would be a major adjustment in that process would be 
having the ability to do that, to use those tools that most 
everybody else is entitled to in the country.
    Mr. Soto. Regional standing, especially with the fact that 
we have that window in wintertime that a lot of our fruits and 
vegetables really try to hit that mark. What about with labor 
costs being at ten percent of what we are paying here in the 
United States down in Mexico, and in addition to whether that 
is going to be helpful, do we have to make a change, or are 
there sufficient laws in the books for NAFTA already?
    Mr. Brown. The labor standards that are currently in place 
don't really address the real labor issue for fair working 
conditions and standards of living and this sort of stuff, and 
minimum wages in Mexico like we have here in the U.S., and they 
would make some significant adjustment to that. And in 
addition, there is also the issue of the evaluation of the peso 
over the course of the 20 years to where there is a very strong 
pull of product coming into the U.S. simply because it is 
trading in dollars and working that workforce for pesos and 
buying materials and inputs would devaluate pesos, which is a 
very significant advantage as well.
    Mr. Soto. We are talking about dumping, labor costs, 
currency manipulation, subsidies, these are sort of the nuts 
and bolts of what we are facing right now?
    Mr. Brown. It makes our business a very challenging 
business in Florida.
    Mr. Soto. Absolutely.
    Secretary Vilsack, I know you have a real global 
perspective on all this. Is there a balance we can strike with 
a lot of folks who are succeeding under NAFTA and those who are 
facing some obstacles?
    Mr. Vilsack. There is an instructive example for dairy at 
least in Mexico where we see this as a partnership. The Mexican 
producers have, at times, felt threatened by the U.S., and 
oftentimes there is this belief that somehow U.S. agriculture 
is going to come in and essentially overwhelm the domestic 
agriculture.
    What we have done in dairy is we have said look, we are 
here to try to build demand for product in Mexico, which we 
know will help your producers, but will also create an export 
market for us. And that is precisely what has happened. 
Production in the last decade in Mexico has increased by 58 
percent in dairy, their own producers, but that has been more 
than enough overcome by increases in consumption.
    There is a way in which we can continue to find ways to 
mutually benefit from trade. It has to be a two-way street; 
otherwise, at the end of the day, it is not going to be 
particularly effective.
    Mr. Soto. Thank you, and just finishing up, Mr. Frazier, do 
you think we could strike a balance with cattle as well and 
other big product from our district?
    Mr. Frazier. Excuse me, someone was whispering. Can you 
repeat what you asked?
    Mr. Soto. Well, I guess my time has expired, but thank you 
though.
    Mr. Thompson [presiding.] The gentleman's time has expired, 
but I certainly encourage you to maybe submit that for the 
record so that you would be able to get a response in writing.
    I will take the liberty of my 5 minutes here. Every pun 
intended, I am going to continue to milk the dairy issue with 
you, Mr. Secretary.
    There has been some heated rhetoric on all sides of the 
trade debate in the last few years, and it is important for our 
trade-dependent sectors of the economy to communicate the 
benefits that we have from trade. How do you see the importance 
of trade for the next 10 years for the dairy industry, and what 
do we need to do as a country to help you achieve your goal?
    Mr. Vilsack. In the dairy industry, the U.S. dairy 
industry, the image of the industry around the world 
historically has been one that has been an industry focused 
primarily on the domestic market. Over the last decade or so 
that has begun to change, and in many markets, there is now a 
recognition that U.S. dairy is in the export game to stay. We 
have to continue to increase our presence, both physical 
presence, more people, more capacity in some of these export 
market opportunities, to send the message that we want to 
compete effectively with New Zealand, effectively with the EU.
    It is important and necessary that we obviously have trade 
agreements that are fair, that are transparent. There is a 
classic example here with what is happening in Mexico where we 
see nearly a nine to ten times increase in export opportunities 
for dairy in Mexico versus what is happening in Canada where 
the rules consistently change. If we could get the same kind of 
opportunity in Canada that we have in Mexico, obviously that 
would be beneficial.
    Here is the issue, Congressman, and you know this better 
than anybody because of who you represent in central 
Pennsylvania. Great dairy producers. They are going to continue 
to produce more milk, somewhere between a percent to a percent 
and a half more each year. Domestic consumption can increase, 
but we want the opportunity also to stabilize markets through 
exports. And so if we can increase presence, increase capacity, 
and change the image of American dairy globally and get fair 
trade agreements, we will do very, very well in the next 10 
years.
    Mr. Thompson. Keeping with that theme, and you had 
mentioned about Mexico, Canada, in terms of the whole, you have 
articulated clearly the importance of NAFTA modernization. We 
had that conversation when you first came in. Quite frankly, 
most of my staff were not alive when NAFTA was negotiated, so 
having something that has an element of staying current and 
modernization is important, no matter what the trade agreement 
is, because the world is changing around us. Certainly the 
industry of agriculture changes around us. And you have talked 
about the importance of NAFTA modernization for the dairy 
industry, as well as the value of seizing the moment, 
negotiating additional trade agreements with our potential 
partners around the world.
    I think the two go hand in hand. Would you agree that NAFTA 
modernization process will directly impact our ability to make 
good progress in equally critical areas of the world, such as 
with Japan, Vietnam, and others?
    Mr. Vilsack. Well the hope would be that we would contain 
in NAFTA renegotiation and modernization specific provisions 
relating to SPS, sanitary and phytosanitary rulemaking, the 
ability of making sure that we protect the use of common names 
for cheeses, for example. All of that can have an impact on 
future bilateral discussions. The more market access we get, 
the better off we are to make that case in other, more closed 
market opportunities.
    Clearly, there is a benefit here, and that is why it is 
incredibly important, especially in the absence of the Trans-
Pacific Partnership Agreement. It is incredibly important now 
that we engage very aggressively in bilateral discussions and 
get this renegotiation completed, because our competitors are 
not waiting around for us to act. They are moving forward very 
aggressively.
    Mr. Thompson. Thank you, Mr. Secretary.
    Mr. Hammer, you stated that U.S. soybean exports have grown 
significantly over the past 23 years. Where do you see 
opportunities for growth and trade with Mexico and/or Canada?
    Mr. Hammer. It will be primarily a demand growth, a 
population growth. It is basically unfettered now. In Canada we 
have indicated some opportunity for some poultry, egg, turkey, 
dairy growth. We are growing in the United States' consumption, 
and it will continue to grow. For example, as incomes rise in 
Mexico, you will see them go from maybe an egg diet to a 
poultry diet or on up the line, and you will continue to see 
these opportunities grow with the growth and as the economy 
grows and as the opportunities for the individuals within our 
three countries grow.
    Mr. Thompson. Thank you very much. My time has expired.
    I am pleased to recognize the gentlelady from North 
Carolina for 5 minutes.
    Ms. Adams. Thank you, Mr. Chairman, and thank you, Ranking 
Member Peterson, for hosting this hearing and thank you all, 
gentlemen, for your testimony.
    First of all, free trade agreements inevitably create 
winners and losers in our economy. Some industries like 
agriculture, for example, are able to reap the benefits of 
trade through access to new markets and lower prices, and other 
sectors, like the textile industry in North Carolina comes to 
mind, trade leads to displaced jobs for increased competition 
and offshoring. And North Carolina's textile industry lost 82 
percent of its workforce since the mid-1980s. In Charlotte 
alone, 34,200 jobs were lost in the textile industry since 
NAFTA, and NAFTA had a massive negative repercussion on my 
state's economy. According to the Economic Policy Institute, 
North Carolina was one of the hardest hit states in our 
country, sustaining some of the biggest net job losses.
    Secretary Vilsack, how can we balance these competing needs 
to maximize the benefits for our agriculture sector while 
minimizing harm to manufacturers, to small businesses, and to 
middle class Americans?
    Mr. Vilsack. Well, Congresswoman, one of the hallmarks, at 
least from the dairy perspective, and why we have been able to 
be competitive and maintain a favorable balance is because of 
innovation, the ability of our industry to adapt to the needs 
and specifications of customers around the world. Ninety-five 
percent of the world's consumers are outside the U.S. There 
will be growing populations and growing middle class in many 
parts of the world where it plays to the strength of American 
agriculture. I would say one strategy for dealing with trade 
generally is to make sure that America remains a place of great 
innovation, and certainly in agriculture, that has been true.
    Ms. Adams. Thank you. I know that agriculture is one of the 
few economic bright spots in implementing NAFTA, but I really 
cannot ignore the devastating impact that it has had on my 
state and my state's middle class.
    Of course, this question is to anybody who wants to answer 
it, how you think that Congress can ensure that a renegotiation 
of NAFTA benefits the majority of middle class Americans? 
Anyone can answer this, or all of you.
    Mr. Gaibler. Well, we have already identified some areas 
where we don't want to do any harm, but where modernization and 
improvements are possible. I also think that one of the 
important aspects of the NAFTA will be that we develop very 
transparent dispute settlement mechanisms. In our part of 
agriculture, we worry that Article 19 may be removed because it 
is an insurance policy that we don't have to have unfair anti-
dumping or countervailing duty trade cases brought against us, 
but we have also heard some areas from testimony today where 
our partners on the other side of the border may be using 
unfair trade practices.
    A really robust dispute settlement mechanism to make sure 
that fair competition is taking place is a part of this 
agreement, and to that end, we would certainly not want to see 
Chapter 11 or Chapter 19 removed. Thank you.
    Ms. Adams. Anybody else like to comment?
    Okay. Let me ask then, Mr. Brosch, according to the Wall 
Street Journal, friction between the U.S. and Mexico over trade 
is starting to cut into the sales for U.S. farmers and 
agricultural companies. In the past 4 months, Mexican imports, 
chicken, meat, fell 11 percent, the biggest decline for the 
period since 2003. Do you have faith that the Trump 
Administration will be able to renegotiate NAFTA without 
causing irreparable harm to our agriculture trading 
relationships?
    Mr. Brosch. Congresswoman, we had somewhat the same 
experience that these gentlemen have talked about when the 
President announced he wanted to renegotiate NAFTA. We suddenly 
had a number of buyers who were looking to differentiate their 
supply. Traditionally, I have been told by the folks I have 
dealt with in Mexico that they sort of looked at us as their 
big brother. Their sort of pushy big brother, but their big 
brother, and I have also been told that since that 
announcement, they are not going to look at us the same way 
ever again. But they are looking at Brazil. They are looking at 
other sources of supply, and unless we move quickly, as 
Secretary Vilsack suggested, to get this negotiation closed and 
get this improved and get it back on the books, we are going to 
have uncertainty in Mexico and we are going to have people 
looking at other possible suppliers, even for the things we are 
most competitive for.
    Ms. Adams. Thank you, sir. I am out of time. I yield back, 
Mr. Chairman.
    The Chairman [presiding.] The gentlelady's time has 
expired.
    Mr. Marshall, 5 minutes.
    Mr. Marshall. Thank you, Chairman.
    My first question is for Mr. Frazier. Mr. Frazier, I have 
done about 40 town halls, 20 round tables, been to 30 or 40 ag-
centric operations. And when I went back, I was expecting to 
talk about a farm bill. I think we are going to try to get that 
sometime this year. But the number one issue has been trade. 
Trade, trade, and trade. Nothing more important to my district 
than NAFTA. It is our number one revenue generator in an 
economy that is 60 percent agriculture-related. What is the 
number one concern for the beef industry?
    Mr. Frazier. It would be do no harm in these negotiations. 
Don't do anything that would disrupt, from our perspective, 
trading in beef with Mexico and Canada. Both those markets are 
worth $2 billion a year to our U.S. industry, so that would be 
my number one concern with NAFTA is do no harm.
    Mr. Marshall. But trade in perspective to farm bill--2 
years ago, all the farmers and the ag producers talked about 
was over-regulation. Do you get a feeling that maybe that NAFTA 
is a bigger concern now than even over regulations, your 
industry?
    Mr. Frazier. I would say there is both, concern about both 
of those. Things like WOTUS, some of those types of issues, 
there is a lot of concern about land owners, and obviously, our 
industry owns a lot of land. But trade is also a big issue, so 
I am not going to pick one of those and say one is more 
important than the other. They are both important.
    Mr. Marshall. Mr. Gaibler testified, I believe, earlier 
about that we are actually seeing decreased corn sales already 
because of some of the just concern that our markets were 
dependent on. Are we seeing any of that yet in the beef 
industry with Mexico and Canada?
    Mr. Frazier. Not yet, although in conversations with 
Canadians and Mexicans, they are concerned about some of the 
rhetoric that they hear in the United States about NAFTA.
    Mr. Marshall. Okay. My last question, we have had the 
pleasure to sit down with three different groups from Mexico, 
grain purchasers, meat purchasers. Describe to me again a 
little bit the type of cuts of beef that we are sending their 
way and coming back and forth.
    Mr. Frazier. To Mexico we send a lot of products like 
rounds, skirts, tongues, intestines, products that we 
traditionally have not consumed a lot in the U.S. To Canada, we 
send more of a high quality, ribs, loins, into the Canadian 
market.
    Mr. Marshall. Okay. Mr. Gaibler, you, at least I saw in 
some of your testimony, you talked about the value of the peso 
versus the dollar. Was that your testimony, or was in one of 
your drafts?
    Mr. Gaibler. No, I didn't reference that, though obviously, 
it is an important issue. The fact is, it is part of the reason 
why it is feasible, or at least potentially feasible for Brazil 
to actually potentially export into the Mexican market, because 
they don't have duty free access. Their transportation costs 
are higher. In fact, they have some internal programs that 
subsidize the movement of corn, so I didn't mention it, but it 
is clearly an issue for every one of our industries represented 
here.
    Mr. Marshall. Does anybody want to expand on that a little 
bit?
    Mr. Brosch. Well after the Administration announced that 
there was going to be a renegotiation of NAFTA, the Mexican 
peso fell against the dollar about 25 percent, and that had 
nothing to do with currency manipulation. That had to do with 
the perception of the markets and of what the effect on the 
economy is going to be. Well that makes it much more difficult 
for Mexicans to buy American chicken or American beef when 
their currency falls against the dollar. So yes, that has had a 
big impact.
    Mr. Marshall. Mr. Gaibler, I will follow up with you. I am 
sure you are looking in the future further than I can look into 
it. You have experienced a six or eight percent drop in corn 
sales, you mentioned. Secretary Purdue has been a proponent, a 
strong advocate for trade. Looking into the future, do you feel 
like we are stabilizing that situation or does there continue 
to be a drop in the future with Mexico and corn purchasing?
    Mr. Gaibler. Well, we have done some long-term economic 
forecasting with our economists, and looking 10 years down the 
road, and Mexico shows up as the one or two, depending on which 
assumptions you use of the market, long-term. And so if you 
look at the other countries that show up, some of them we have 
free trade agreements with, but some of them we don't. In 
either instance, for us, our ability to tap into those markets, 
whether we have FTAs or we don't, that is going to be the 
lynchpin here of our success in continued exports of corn but 
also the value-added to products that come from that. Frankly, 
Japan, the EU, and others are going to look at these 
negotiations very closely and make a determination based on 
whether they are successful, or if they go off the rails.
    Mr. Marshall. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    Mr. Dunn, 5 minutes.
    Mr. Dunn. Thank you very much, Mr. Chairman.
    Mr. Brown, I frequently hear from stakeholders around the 
country about the high stakes of losing ground, losing what we 
have gained in NAFTA in the course of a renegotiation. I 
understand their point; however, the fruit, vegetable and sugar 
sectors, sectors that compete directly with Mexico and affect 
us in Florida, have competed on an unlevel playing field for a 
number of years. And as a matter of fact, some of these are 
sort of under an all out assault from Mexico. We share the same 
latitude with Mexico, so Florida is at greater risk with 
seasonal variation than other states in other parts of the 
country would be. Would you share with us some of the special 
vulnerabilities that Florida has and how you see that affecting 
us?
    Mr. Brown. Well that seasonal overlap, Mr. Dunn, is very, 
very critical to the fact that Florida was identified 24, 25 
years ago when the treaty was originally negotiated as the 
state that was going to lose the most in the fruit and 
vegetable industry, and I can attest to you that we have.
    But the reality is with the investment that has been driven 
by the Mexican Government in the last 10 years in protected 
culture, greenhouses, tunnels, various kinds of saran shades, 
they have simply expanded their season on both edges to where 
historically we competed with them from December to March. Now 
the competition from Mexican tomatoes, in particular, which I 
am very familiar with, is now a year-round competition with all 
the tomato producers in the United States. And that is why the 
domestic industry has lost 40 percent of its volume that it had 
in production when NAFTA was signed, and why we have lost 25 
percent of the acreage of fresh tomato production in this 
country to that competition. It has basically been supported, 
and it is fundamentally targeting the U.S. market with that 
product, trying to build up that rural economy in Mexico, and 
we are suffering from it.
    Mr. Dunn. Thank you very much.
    I understand there are portions, and I want all of you to 
be thinking about this, portions of the TPP may be a template 
for the NAFTA renegotiations, so I want to know in your various 
sectors; and we will start with you, Mr. Brown, that what 
language in the TPP that might guide the Administration as they 
work to address the concerns of first fruits and vegetables and 
cattlemen and poultry and whatnot. So take it away, 2\1/2\ 
minutes.
    Mr. Brown. Well basically the directive was basically in 
the Trade Parties Accountability Act of 2015 or addressing the 
issues and eliminating practices that adversely affected trade 
in perishable and cyclical products while improving import 
relief mechanisms to recognize the unique characteristics of 
perishable and cyclical agriculture. Ensuring that the import 
relief mechanisms for perishable and cyclical agriculture are 
as accessible and timely to growers in the U.S. as those 
mechanisms that are used by other countries, and seeking to 
develop an international consensus of the treatment of seasonal 
or perishable agricultural products in investigations relating 
to dumping and safeguards----
    Mr. Dunn. He was prepared for that question, wasn't he? 
Let's ask the cattlemen if they have some specific wording in 
the TPP over the renegotiation of NAFTA.
    Mr. Frazier. From our perspective, TPP, the greatest 
benefit to the beef industry in the United States was taking 
down tariffs in Japan and letting us be more competitive with 
the Australians and New Zealand. We already have zero duties 
and tariffs on products going into Mexico and Canada, so I 
really can't think of anything.
    Mr. Dunn. Very good. Mr. Brosch?
    Mr. Brosch. Well, like the beef industry, we were 
interested in Japan. Japan was the big win for us. We were also 
interested in improvements of the SPS text. We don't think that 
the TPP SPS text is perfect. There are a couple of things that 
we don't like about it, but overall, we think it has some real 
promise for improvements in the NAFTA, and then we thought that 
we would have some additional access into Canada as well as a 
result of that negotiation, as I have mentioned before, but 
that seems to not be an opportunity anymore.
    Mr. Dunn. Anybody have, yes, Mr. Secretary?
    Mr. Vilsack. Yes, geographic indications was basically 
dealt with in the TPP agreement that provided a due process and 
a protection for common names. That would be something that we 
would like to see placed in this modernized NAFTA agreement.
    Mr. Dunn. Thank you very much. Mr. Chairman, I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. LaMalfa.
    Mr. LaMalfa. Well thank you, Mr. Chairman. Thank you, 
panelists, for being here today. I wanted to come from another 
hearing, as is fairly typical.
    So modernizing NAFTA would be very helpful. The ag economy 
has prospered pretty well under it, so I hope we can be 
optimistic about the discussions underway. So let me go to Mr. 
Frazier.
    In terms of the benefits, what gains in NAFTA negotiations 
would you be looking for, notably important for beef 
specifically, that may come from future deals, future 
negotiations for open access?
    Mr. Frazier. Well as I said in my testimony, Congressman, I 
really think that we are in a good place in the beef industry 
and NAFTA right now, because we don't have tariffs on products 
going into Mexico and Canada. They are two of our top five 
markets for beef in the world. We have good relations with both 
those countries. We have good relations with importers in those 
countries, so in any renegotiation, I just think we are in a 
really good place right now.
    Mr. LaMalfa. Do you think anything in future negotiations 
could be harmful? Do you see much threat of that?
    Mr. Frazier. I mentioned one, if there was an effort to 
bring Country-of-Origin Labeling back on the table that could 
be, because that would result in the Canadians and Mexicans 
putting tariffs on our products.
    Mr. LaMalfa. Yes, believe me, we have heard all about that. 
That was a difficult deal.
    Well, I think that pretty much does it. The magnitude of 
additional trade and export for the industry, it seems as if it 
is just taking off more and more on international trade. Can 
you touch on that just a little bit?
    Mr. Frazier. Sure. We feel really good about it. Right now, 
we are exporting about 13 percent of our production overseas.
    Mr. LaMalfa. Fourteen?
    Mr. Frazier. Thirteen to fourteen percent. It varies month 
to month. We think over the next 5 to 10 years we could move 
that over 20 percent, maybe even to 25 percent. China just 
opened to U.S. beef. Now there are some restrictions on the 
kind of product that we can send to China, which limits some of 
that, but we think long-term that is a great market. It has a 
lot of potential for us.
    Mr. LaMalfa. They have opened up to rice too, so I am 
seeing this as a pretty good partnership. We can move those 
potato guys aside a little bit.
    Mr. Frazier. We just think that there is a growing middle 
class around the world that desires U.S. beef. We have a unique 
product. It, as we all know, it tastes great. Consumers around 
the world, when they get to experience it, they love it. We 
just think it is a great opportunity for U.S. cattlemen in the 
future.
    Mr. LaMalfa. Okay, thank you. Well I hear a lot of talk 
about stakeholders, but you are the kinds that I like, so thank 
you very much.
    I am going to yield back, Mr. Chairman.
    Mr. Frazier. Okay, thank you.
    The Chairman. The gentleman yields back.
    Mr. Yoho, 5 minutes.
    Mr. Yoho. Thank you, Mr. Chairman. I appreciate the panel 
being here, and your endurance of being able to stay this long.
    NAFTA: there have been some wins with that and there have 
been some losses with that. And I come from Florida, and we 
went down to Homestead, Florida, and we visited the tomato 
region. And we used to get two to three crops. We produced 
about 60 percent of the tomatoes in the nation, and NAFTA 
really hurt the specialty crops. Florida is a specialty crop 
state with over 300 different specialty crops. And as we 
negotiate NAFTA, and Mr. Brosch, it sounds like you have done a 
lot of the negotiations.
    I had the opportunity to go down to Mexico and we met with 
the finance minister currently that had negotiated NAFTA, and 
we were talking about some of the wins and some of the losses. 
And what we saw were the losses in the tomato industry where 
the farmer's grandson up in America wanted to take over the 
business, but there wasn't a business to take over. And we got 
in a little bit of a heated debate down there. And the other 
thing was the sugar policies where Mexico dumped sugar on it, 
and the minister admitted that they did dump and he apologized 
for it.
    As we go forward and as you negotiate, and Mr. Hammer, you 
brought up to have robust reforms in there so that we can 
negotiate and settle these disputes, these trade inefficiencies 
better. What is your recommendation to put into the new NAFTA 
to where we can call people out when we know they are cheating 
or doing unfair practices? What would you recommend that we put 
in there to make it a lot more efficient so it doesn't drag on 
for years?
    Mr. Hammer. Well I just think that has to be a focus, 
because I think that is going to be the hallmark. I know at one 
time there was a group of us that had lunch on a monthly basis, 
and we were commodities that had all faced what we thought was 
frivolous anti-dumping or countervailing duty cases from 
Mexico. They were unsubstantiated, but they were brought 
basically because they were trying, it was apples. It was 
corn----
    Mr. Yoho. Corn syrup.
    Mr. Hammer. Corn syrup, right. It was meat. We were being 
looked at as soybean meal. And we were kind of a group that 
commiserated with one another. We met for lunch monthly and 
said what are you doing to stop this? We can look at some of 
the history of that and learn from that.
    Mr. Yoho. Well, and I have heard over and over again that 
Mexico is very astute and very sharp at trade. I hope that we 
have those things in place.
    I want to go to you, Mr. Brown. We have talked extensively 
on the tomato issue. What does it cost you to produce a box of 
tomatoes here domestically?
    Mr. Brown. Domestically in the Florida production cycle, we 
are looking at a cost of about $10 for a 25 pound box.
    Mr. Yoho. That is the cost of the box, the labor, the 
tomato itself?
    Mr. Brown. That is put the box on the back of the truck.
    Mr. Yoho. What is Mexico selling a box of tomatoes here 
for?
    Mr. Brown. Right now under the suspension agreement, they 
are not supposed to be selling a 25 pound box for less than 
$8.30 at the border.
    Mr. Yoho. What are they selling it for?
    Mr. Brown. The problem we have is because of circumvention 
and erosion of the enforcement process, you will see Mexican 
tomatoes in our terminal markets for $5 or $6 at various 
periods of times a year.
    Mr. Yoho. That is almost under the cost of production, 
isn't it?
    Mr. Brown. It is significantly less than the cost of 
production; however, in addressing the issue of enforcement and 
how dumping agreements work, the Commerce Department in the 20 
years of the case have never actually collected the cost of 
production from the Mexican industry, and the industry has 
refused to provide it to the Commerce Department.
    Mr. Yoho. And that is a safeguard that needs to be in the 
next NAFTA negotiation.
    Mr. Brosch, I want to come back to you because as labor, 
yes, go ahead.
    Mr. Brosch. What he is talking about isn't changes to 
NAFTA. He is talking about changes to domestic law. We don't 
have a dumping mechanism in NAFTA. What we have is we have a 
recognition of the ability of countries to use their domestic 
law. What Mr. Brown is really talking about is changing the 
domestic dumping law and dumping procedures, not about----
    Mr. Yoho. Here domestically?
    Mr. Brosch. Yes, I mean, that is the only way you can do 
it.
    Mr. Yoho. Okay.
    Mr. Brosch. I mean, legally that is the only way you can do 
it.
    Mr. Yoho. And then when we negotiate these, they are 
supposed to have fair labor practices and the L.A. Times did a 
great expose in 2015 about the slave labor in Mexico, and we 
know that is going on. And if we are buying from them and it is 
negotiated in NAFTA they are not supposed to use child labor. 
Under the age of 14, there are roughly 100,000 in the field 
documented. How do we get out of those kind of trade deals?
    Mr. Brosch. Well, no one wants to see anything like that 
Congressman.
    Mr. Yoho. I know.
    Mr. Brosch. I agree with you, and I am going to confess 
right here, I am no expert in the labor area at all.
    Mr. Yoho. Okay. I appreciate your time. I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. Arrington, 5 minutes.
    Mr. Arrington. Thank you, Mr. Chairman. The Chairman tells 
me he saves the best for last, and I am going to take him at 
his word.
    This is a big deal to ag producers all over the country. It 
is especially a big deal in terms of our trade partners with 
Mexico if you are from Texas. By the way, thank you all for 
coming, and Mr. Secretary, thank you for your service to our 
country. Also on a side note, Mr. Secretary, thank you for your 
support for cotton with the ginning assistance in 2015. We 
needed it, and we desperately need more of it to bridge us to 
the farm bill and get cotton back in as a title I commodity. 
But anyway, I really appreciate that. And any help you can give 
us with the current Secretary in this Administration for 
ginning assistance to follow, we would appreciate it.
    Do you all agree that we can improve on NAFTA, 
understanding that the sort of do no harm principle applies 
from the outset? But do you agree that for your industry, your 
sector of the industry that we could improve on NAFTA, we could 
enhance it in some way, some form or fashion? Yes, sir.
    Mr. Hammer. Well, as I said earlier, for soybeans, soy 
meal, and soy oil, we face no duties or no tariffs of any kind. 
It is seamless. But there are always possibilities for 
technical barriers to trade, things that can come up, it can be 
paperwork, red tape, e-commerce and things like that we weren't 
contemplating 23 years ago, and there are definitely areas 
where trade is taking place in different ways and different 
terms than it did 23 years ago, as it will 10 or 20 years from 
now. Yes.
    Mr. Arrington. Sure, and Mr. Frazier, the opening the China 
market to U.S. beef, that is a big deal, right?
    Mr. Frazier. Oh, yes.
    Mr. Arrington. I mean----
    Mr. Frazier. We have been locked out of the China market 
since 2003 when we had our first case in BSE. We believe long-
term that it offers a great opportunity for American cattlemen.
    Mr. Arrington. It is a big win for this Administration and 
for our negotiator in chief to do that. Fourteen years not 
being able to enter that market, the largest market in the 
world. I don't know. I mean, I get it. We have to be real 
sensitive to how we posture and this President needs to be 
sensitive about that, but I have tremendous confidence in our 
Administration and in our negotiator in chief to get a better 
deal for American producers and manufacturers. I think that is 
his heart. I think that is his intent.
    Like you said, Mr. Brown, about Mexico. I think you said 
it. They are fiercely competitive, and they are fierce at the 
negotiating table. I want American negotiators to come and 
negotiate from strength. I am very sympathetic to your industry 
and the story you have told. I mean, cotton, that resonates 
with me because some of the similar dynamics with cotton and 
China. I am for all American producers having an even playing 
field to compete, because I believe we will win.
    I have a few points on where reforms could apply and 
enhance the NAFTA deal. One is reducing redundant regulations. 
Could you highlight one redundant regulation that would make 
the biggest impact on this deal and the positive for your 
industry? Anyone? No. Okay. I will have to take that up with 
the Farm Bureau then. That is one of theirs that they listed.
    What about expediting transit across border? Is that an 
area that we could improve on? Anybody want to talk about that?
    Mr. Hammer. We did poll our members and ask that question, 
and we haven't come up with anything, but we are early in this 
stage and we are going to continue to try to drill down and see 
if we can find areas where trade could be more seamless. But as 
of today, I wasn't able to bring you any examples, Congressman.
    Mr. Arrington. Okay. Well, we have to get it right, but 
this is a great opportunity. I am very optimistic about it, but 
we need to hustle and we need to get it done, and all the 
things you all brought up, I really appreciate it. I listened. 
I have learned, and I appreciate your time very much.
    Mr. Chairman, I yield back.
    The Chairman. The gentleman yields back.
    Gentlemen, thank you very much for being here this morning. 
We appreciate the perspectives you have brought for each of 
your organizations and more importantly, the producers and 
growers and men and women behind those association titles that 
you bring to us are real people, and they are really impacted.
    I had a conversation with Secretary Ross before Ambassador 
Lighthizer came in. I asked him point blank if the deals that 
were negotiated on TPP with respect to those countries, if we 
could consider that the floor of any bilateral deals that we do 
with each of those countries, from ag's perspective. He said, 
``Yes, it would be the floor, and that negotiations from there 
would be better than that.'' I know our production agriculture 
folks are excited.
    We have talked mostly this morning about NAFTA, but the 
Administration needs to be going after not only the NAFTA 
renegotiations, but also all of those other bilateral deals 
that created an opportunity for when the Administration walked 
away from TPP. As Mr. Brosch mentioned, bilateral deals are 
hard because you don't have trades you can make with other 
folks to get a better deal, but we are looking forward to 
getting them done.
    Time is of the essence. You have heard the comments over 
and over about the impact that the anxiety over this deal being 
renegotiated, which is an appropriate thing to do, how that 
anxiety is affecting our trading partners and potential trading 
partners. I encourage the Administration to push forward, not 
only on NAFTA, on an expedited timeframe, but as well these 
bilateral deals because China is benefitting, the UK is 
benefitting, the EU is benefitting from our lack of being in 
the markets fulsomely.
    With that, I appreciate each of you being here. Under the 
Rules of the Committee, the record of today's hearing will 
remain open for 10 calendar days to receive additional material 
and supplemental written responses from the witnesses to any 
question posed by a Member.
    This hearing of the Committee on Agriculture is adjourned. 
Thank you.
    [Whereupon, at 12:28 p.m., the Committee was adjourned.]

                                  [all]