    [Senate Hearing 115-694]
    [From the U.S. Government Publishing Office]

                                                        S. Hrg. 115-694

                              PERSPECTIVES ON U.S.
                               AGRICULTURAL TRADE

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

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON AGRICULTURE,
                            NUTRITION, AND FORESTRY

                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 13, 2018

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                  __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    36-553 PDF                  WASHINGTON : 2019

    --------------------------------------------------------------------------------------

               COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                         PAT ROBERTS, Kansas, Chairman
    MITCH McCONNELL, Kentucky            DEBBIE STABENOW, Michigan
    JOHN BOOZMAN, Arkansas               PATRICK J. LEAHY, Vermont
    JOHN HOEVEN, North Dakota            SHERROD BROWN, Ohio
    JONI ERNST, Iowa                     AMY KLOBUCHAR, Minnesota
    CHARLES E. GRASSLEY, Iowa            MICHAEL E. BENNET, Colorado
    JOHN THUNE, South Dakota             KIRSTEN E. GILLIBRAND, New York
    STEVE DAINES, Montana                JOE DONNELLY, Indiana
    DAVID PERDUE, Georgia                HEIDI HEITKAMP, North Dakota
    DEB FISCHER, Nebraska                ROBERT P. CASEY, Jr., Pennsylvania
    CINDY HYDE-SMITH, Mississippi        TINA SMITH, Minnesota

                 James A. Glueck, Jr., Majority Staff Director
                    DaNita M. Murray, Majority Chief Counsel
                        Jessica L. Williams, Chief Clerk
                   Joseph A. Shultz, Minority Staff Director
                   Mary Beth Schultz, Minority Chief Counsel

                                C O N T E N T S

                                  ----------

                          Thursday, September 13, 2018

                                                                       Page

    Hearing(s):

    Perspectives on U.S. Agricultural Trade..........................     1

                                  ----------

                        STATEMENTS PRESENTED BY SENATORS

    Roberts, Hon. Pat, U.S. Senator from the State of Kansas,
      Chairman, Committee on Agriculture, Nutrition, and Forestry....     1
    Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan...     3

                                   WITNESSES

    Doud, Hon. Gregg, Chief Agricultural Negotiator, Office of the
      United States Trade Representative, Washington, D.C............     5
    McKinney, Hon. Ted, Under Secretary for Trade and Foreign
      Agricultural Affairs, U.S. Department of Agriculture,
      Washington, D.C................................................     6
    Johansson, Robert, PH.D., Chief Economist, U.S. Department of
      Agriculture, Washington, D.C...................................     6

                                 ----------

                                    APPENDIX

    Prepared Statements:
        Doud, Hon. Gregg.............................................    38
        McKinney, Hon. Ted...........................................    41
        Leahy, Hon. Patrick..........................................    46

    Question and Answer:
    McKinney, Ted:
        Written response to questions from Hon. Pat Roberts..........    50
        Written response to questions from Hon. Debbie Stabenow......    53
        Written response to questions from Hon. Patrick Leahy........    57
        Written response to questions from Hon. Heidi Heitkamp.......    59
        Written response to questions from Hon. Tina Smith...........    59
    Johansson, Robert, Dr:
        Written response to questions from Hon. Debbie Stabenow......    61
        Written response to questions from Hon. Patrick Leahy........    64
        Written response to questions from Hon. Tina Smith...........    65
    Doud, Gregg:
        Written response to questions from Hon. Pat Roberts..........    67
        Written response to questions from Hon. Debbie Stabenow......    70
        Written response to questions from Hon. Patrick Leahy........    72
        Written response to questions from Hon. Michael Bennet.......    72
        Written response to questions from Hon. Tina Smith...........    75

                              PERSPECTIVES ON U.S.
                               AGRICULTURAL TRADE

                                  ----------

                          Thursday, September 13, 2018

                                  United States Senate,
             Committee on Agriculture, Nutrition, and Forestry,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:11 a.m., in
    room 328A, Russell Senate Office Building, Hon. Pat Roberts,
    Chairman of the Committee, presiding.
        Present: Senators Roberts, Boozman, Hoeven, Ernst,
    Grassley, Thune, Daines, Fischer, Hyde-Smith, Stabenow, Brown,
    Klobuchar, Bennet, Gillibrand, Donnelly, Casey, and Smith.

     STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF
    KANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND
                                FORESTRY

        Chairman Roberts. Good morning. I call this meeting of the
    Senate Committee on Agriculture, Nutrition, and Forestry to
    order.
        The last couple of years have been very busy for members of
    the Senate Ag Committee as we have worked hard to produce a
    2018 farm bill that will provide certainty and predictability
    for United States farmers, ranchers, growers, and everybody up
    and down the food chain.
        As I have traveled Kansas and other areas around the
    country, having a farm bill in place certainly tops the list of
    concerns that I hear about, and the Conference Committee is
    doing our work, our very best to get a bill to the finish line
    as soon as possible.
        Along with that, I also hear about trade. I hear from wheat
    growers about the need for market access to sell what they have
    produced. I hear from beef producers about barriers to trade
    that are preventing their product from entering an export
    market. I hear from producers all across the agriculture
    industry and all across our value chain about how trade
    policies impact their prices, their decisions, and their
    livelihoods.
        These are not new concerns. The United States has long had
    to work to overcome barriers to trade around the world.
    Sometimes those barriers are regulations not based on sound
    science. They might impact specific regions or products.
    Sometimes barriers are foreign governments that consistently
    choose not to adhere to or abide by the same rules to which we
    all have agreed.
        We need to hold our trading partners accountable, but I am
    concerned that some of the trade actions we have seen in recent
    years are causing uncertainty and unpredictability for the
    agriculture industry. On top of already low prices, the
    agriculture sector has seen immediate negative impacts as a
    result of retaliatory trade actions.
        As time goes on without resolution the concern of losing
    long-term market access only grows. I know that Secretary
    Perdue and the Department of Agriculture also recognize the
    need for long-term certainty and have made efforts to provide
    temporary relief to our hardworking producers.
        For years, the United States has worked to establish itself
    as a reliable supplier around the world through domestic
    agriculture policies, like the farm bill, and through strong
    international trade policies. Free trade agreements, including
    CAFTA, Korea, and many others, have boosted the agriculture
    economy and supported broader U.S. economic growth. And, of
    course, there is NAFTA.
        In the early 1990's, as Ranking Member of the House
    Agriculture Committee, I traveled with my dear friend Chairman
    Kika de la Garza of Texas to build support for the brand-new
    North America Free Trade Agreement, or NAFTA. At that time the
    total value of U.S. agriculture exports was $43 billion. Since
    1994, when NAFTA went into force, the value of U.S. agriculture
    exports to Canada has increased by 271 percent, and to Mexico
    by 305 percent, and in 2017, the total value of U.S.
    agriculture exports was over $138 billion.
        Let me repeat that. Over the time that NAFTA has been in
    force, the total value of U.S. agriculture exports has
    increased from $43 billion to over $138 billion. I have been
    encouraged to hear that the effort to modernize and strengthen
    NAFTA has been progressing. The announcement a couple of weeks
    ago that the U.S. and Mexico had reached an agreement that will
    preserve the trading relationship the agriculture industry
    already enjoys was certainly very welcome news--the light at
    the end of the tunnel, if you will. I know that our team at the
    Office of U.S. Trade Representative is working hard, even as we
    speak, to bring our friends from Canada into the agreement as
    well. I hope that we hear news on a strong NAFTA agreement very
    soon.
        Progress on NAFTA is extremely important, but equally so is
    the need for the United States to aggressively continue
    pursuing new free trade agreements all around the world. Simply
    put, the entire food and agriculture value chain relies on that
    effort.
        This was particularly recognized in the last farm bill
    process when Congress, led by this Committee, created the
    position of the Under Secretary for Trade and Foreign
    Agricultural Affairs at the Department of Agriculture. I thank
    Secretary Perdue for implementing this new position, and, Under
    Secretary McKinney, thank you so much for your willingness to
    lead these efforts and for joining us today.
        Ambassador Doud, it is great to have you at the USTR
    working on behalf of agriculture. Welcome back to the
    Agriculture Committee, your former stomping grounds.
        Thank you to Rob Johansson, Chief Economist at the
    Department of Agriculture, for being willing to share your
    expertise this morning as well. I look forward to hearing from
    all of you on your perspectives on U.S. agricultural trade.
        With that, I recognize Senator Stabenow for any remarks she
    might have to make.

    STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
                              OF MICHIGAN

        Senator Stabenow. Well, thank you, Mr. Chairman, for
    holding this hearing to discuss what we know is one of the most
    pressing issues facing agriculture. I also just want to
    indicate my gratitude and thanks for your leadership as we are
    continuing to work hard to get a farm bill done. I appreciate
    very much our working relationship on behalf of the Senate.
        I also would note that even though the Senate completed its
    voting last night, members are here rather than on planes
    because of the importance of this subject. This is critically
    important to all of our producers. So, Ambassador Doud and
    Under Secretary McKinney and Dr. Johansson, welcome. It is good
    to see you again.
        We all know that our farmers are no strangers to
    uncertainty. They experience it every day when they check the
    weather forecasts, when they look at the markets, when their
    crops are challenged by invasive pests and diseases. On top of
    all that, there are now more unknowns around agricultural
    exports and trade.
        Mr. Chairman, you and I have worked together on this not
    only here but as senior members of the Finance Committee, and
    we sit in a lot of meetings where we are bringing agriculture's
    needs forward. Ahead of this hearing, I had a call with
    agriculture leaders from across Michigan to hear directly from
    them, and no surprise, I heard loudly and clearly that our
    farmers need markets in order to be successful, and there are
    impacts that are occurring right now because of the
    uncertainty.
        Agricultural exports add over $8.4 billion to the U.S.
    economy each year, while supporting more than 1 million
    American jobs on and off the farm. We recognized this in the
    Senate farm bill by providing permanent expanded investments
    for critical trade promotion initiatives that open new markets
    to American-grown agricultural products. This kind of long-term
    market development has helped Michigan-grown crops like
    cherries and navy beans make it onto plates all across the
    world.
        However, retaliatory tariffs are putting these trading
    relationships and so many more in jeopardy. It is estimated
    that American dairy farmers will take a $1.5 billion hit this
    year due to tariffs imposed by Mexico and China. That is on top
    of the $40 million that Michigan dairies lost in income last
    year due to Canada's unfair Class 7 pricing system.
        Our farmers are also feeling the impact indirectly. When
    Washington State can no longer ship their apples to China, it
    makes it harder for Michigan apple growers to be able to
    compete at home.
        To address the impact of the tariffs, the administration
    has proposed up to $12 billion in emergency aid for some
    farmers--some farmers--affected. The reaction from many of the
    farmers I have spoken with is not surprising. They want trade,
    not aid.
        While I look forward to hearing more about the details and
    the methodology behind this package, we must acknowledge that
    temporary solutions only go so far. We need to be mindful of
    the long-term impacts for agriculture. Producers in my State
    are concerned that current and future administrative actions
    could result in agriculture permanently losing important
    trading partners. I agree that we need strong, meaningful trade
    enforcement when countries like China break the rules. I have
    certainly been out there strongly and vocally on that. I also
    agree that it makes sense to update--and I also agree it makes
    sense to update NAFTA. A lot has changed since its inception in
    1994. There is certainly room for improvement in a number of
    areas when it comes to certainly dairy in Canada and others.
    However, all negotiations must be done thoughtfully, looking at
    the long-term impact. We also need to get them done so there is
    certainty.
        Mr. Chairman, you and I have urged the administration to
    get it right. American farmers cannot be collateral damage.
    There are many actions this administration can and should take
    now that will help our farmers with long-term stability, not
    just short-term relief, from trade negotiations that affect
    exports to stopping unfair competition from imports. I intend
    to raise several of these issues today as well as in writing to
    each of you.
        The bottom line is that agriculture should not be an
    afterthought when it comes to trade, which is why we are here,
    and all of us care deeply about this. So I look forward to
    hearing from our witnesses, and we are anxious to know how we
    can work with you to ensure our farmers are not left behind.
        Thank you, Mr. Chairman.
        Chairman Roberts. I thank the Senator. Welcome to our panel
    of witnesses before the Committee as of this morning.
        Our first witness is Ambassador Gregg Doud, who serves as
    our Chief Agricultural Negotiator in the Office of U.S. Trade
    Representative. Gregg was raised on a farm in Mankato, Kansas,
    America, and graduated from Kansas State University, formerly
    the home of the ever optimistic and fighting Wildcats. From his
    time working to develop markets for the U.S. Wheat Association
    and later the National Cattlemen's Beef Association, he
    certainly has an understanding of trade's impact on agriculture
    and, finally, he worked on another important issue, something
    called a ``farm bill'' as a staffer on the Senate Ag Committee
    during my time as Ranking Member. With his notable experience
    with global agricultural trade, I am confident that he has and
    will continue to represent the voices of farmers and ranchers
    in his current role at the USTR. Ambassador Doud, welcome back.
    I look forward to your testimony.
        Next we have Under Secretary for Trade and Foreign
    Agricultural Affairs Ted McKinney, who coordinates agricultural
    trade across the Department of Agriculture. Under Secretary
    McKinney formerly served as Director of the Indiana State
    Department of Agriculture under then-Governors Mike Pence and
    Eric Holcomb. He also worked for 19 years with Dow AgroSciences
    and 14 years with Elanco as Director of Corporate Global
    Affairs. Under Secretary McKinney hails from Tipton, Indiana,
    and is a graduate of Purdue University. Ted is no stranger to
    the Committee as he was here for his confirmation hearings
    almost a year ago. Welcome back, Under Secretary McKinney. I
    look forward to your testimony.
        Additionally, Dr. Rob Johansson has agreed to join our
    witness panel as a resource for any question related to trade
    mitigation payments or activities at the Department of
    Agriculture. Dr. Johansson serves as the Chief Economist at the
    Department. Thank you for joining us today. Gregg, why don't
    you start off?

       STATEMENT OF THE HONORABLE GREGG DOUD, CHIEF AGRICULTURAL
     NEGOTIATOR, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE,
                            WASHINGTON, D.C.

        Ambassador Doud. Chairman Roberts, Ranking Member Stabenow,
    and all members of the Committee, thank you for the opportunity
    to join my colleagues from the Department of Agriculture this
    morning in testifying on the administration's agricultural
    trade policy agenda on behalf of President Trump and Ambassador
    Lighthizer.
        It is impossible to testify today without first mentioning
    the renegotiation of NAFTA and the benefits for U.S.
    agriculture. We are working diligently to bring a successful
    closure to NAFTA that fulfills our Trade Promotion Authority
    requirements. We have recently reached an agreement with Mexico
    that improves on NAFTA in almost every way. On agriculture, it
    maintains our farmers' and ranchers' tariff-free access to the
    Mexican market and modernizes the agreement in important ways
    that will cut red tape on our southern border. Currently,
    Ambassador Lighthizer and my colleagues at USTR are working to
    improve our agricultural situation with Canada, particularly in
    the areas of dairy, poultry, eggs, grain, wine, and other
    products.
        When I first testified to the Senate Finance Committee
    during my confirmation process, I discussed how, in terms of
    U.S. agriculture, we play offense. Since the confirmation of my
    fellow deputies and myself, we are undergoing thorough analyses
    of future FTA partners.
        We are looking into the benefits of potential partners in
    Southeast Asia and Africa, and I look forward to working with
    Congress through the TPA process as these considerations
    evolve.
        Increasing our dialog with Japan continues to be a priority
    for us at USTR. A high-level delegation of Japanese officials
    came to USTR last month to discuss ways to expand and improve
    our bilateral trade.
        These discussions are continuing, and we fully recognize
    the importance to U.S. agriculture of expanding market access
    into Japan. We are determined to put our producers and
    agribusinesses on a level playing field with other countries,
    such as Australia, Canada, and the European Union.
        In July, President Trump and European Commission President
    Juncker launched an initiative to promote more free, fair, and
    reciprocal trade. We understand that there are many
    sensitivities surrounding agricultural trade, but including
    agriculture in any negotiations with the EU remains a priority
    for this administration. Currently, the United States runs an
    agricultural trade deficit of over $15 billion with the EU,
    which is partly indicative of the scope of market access issues
    and nontariff barriers for U.S. agriculture into the EU.
        In May, I traveled to Geneva to deliver the United States'
    first ever counter-notification to the WTO's Committee on
    Agriculture concerning India's market price support for rice
    and wheat. Every rice-and wheat-producing country around the
    world should be concerned about the trade effects of India's
    trade-distorting domestic supports.
        At the WTO, we are pushing forward the largest agricultural
    disputes in history against China for its market price support
    policies and unfair administration of its tariff rate quotas.
    We estimate that China has exceeded its de minimis levels of
    domestic support for rice, wheat, and corn by some $100
    billion. We also estimate that if China had administered its
    TRQs for rice, wheat, and corn according to its WTO
    commitments, they would have imported billions more in rice,
    wheat, and corn from all sources. We currently have seven
    offensive WTO disputes exclusively for U.S. agriculture and six
    more on retaliatory duties by our trading partners on
    agriculture and other products.
        Under section 301 of the 1974 Trade Act, USTR launched an
    investigation into China's unfair technology transfer regime.
    In response, USTR implemented tariffs on $50 billion of Chinese
    imports, while another $200 billion is under active
    consideration. These tariffs are intended to address
    longstanding unfair and discriminatory Chinese trade and
    investment practices with respect to intellectual property and
    to encourage China to eliminate its harmful behavior and adopt
    policies that will lead to fairer markets for all citizens.
        The correct response would be for China to change its
    unfair and discriminatory IP practices, and until then the
    President is committed to having the backs of our farmers and
    ranchers by working to address the damage inflicted by China's
    unjustified retaliatory actions.
        Finally, I am disappointed that in recent months our
    trading partners have decided to retaliate against nearly $30
    billion of our $143 billion in agricultural exports following
    necessary actions taken under our trade laws to defend our
    national security or to respond to unfair trade practices. We
    are taking action at the WTO to counter this unjustified
    retaliation.
        I often tell people that the easy issues in agriculture
    were resolved a long time ago. For example, earlier this year
    USTR and USDA announced market access to Argentina for U.S.
    pork and poultry to Morocco. These are longstanding issues.
    Under Secretary McKinney and I will continue to work closely
    together to coordinate our efforts to expand upon our $143
    billion in ag exports, and I thank the members of this
    Committee for their time today, and I look forward to answering
    your questions.

        [The prepared statement of Ambassador Doud can be found on
    page 38 in the appendix.]

        Chairman Roberts. We thank you for your testimony, Gregg.

     STATEMENT OF THE HONORABLE TED McKINNEY, UNDER SECRETARY FOR
      TRADE AND FOREIGN AGRICULTURAL AFFAIRS, U.S. DEPARTMENT OF
                     AGRICULTURE, WASHINGTON, D.C.;

     ACCOMPANIED BY ROBERT JOHANSSON, PH.D., CHIEF ECONOMIST, U.S.
                DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C.
        Mr. McKinney. Thank you, Mr. Chairman, Ranking Member
    Stabenow, and members of the Committee. It is good to be back
    with you.
        I am pleased to appear before you and welcome the
    opportunity to discuss the efforts of USDA on behalf of U.S. ag
    exporters. First, I must thank the President and Secretary
    Sonny Perdue for their faith in me to take on this first-ever
    role as Under Secretary for Trade and Foreign Agricultural
    Affairs and thank this Committee for creating the opportunity
    for this position in the 2014 farm bill, and Secretary Perdue
    for making it happen.
        First, about the mission area I lead, the mission area
    promotes ag exports, works to reduce trade barriers, and opens
    new markets for farm products, all in collaboration with our
    friends at USTR and other agencies. My area includes the
    Foreign Agricultural Service and now the U.S. Codex
    Alimentarius Office.
        As Under Secretary, I embraced the charge from Secretary
    Perdue to be American agriculture's unapologetic advocate
    around the world, and since my confirmation, I have done my
    best to earn that Million Miler Club participant that Secretary
    Perdue expects. I think I am at about 300,000 right now.
        My travels began 2 weeks after the confirmation when we led
    a full ag trade mission group to India. Since then I have been
    to Mexico, Central America, Colombia, Europe, Brazil, Japan,
    Dubai, China, Vietnam, Southeast Asia, and some of these
    twice--all to advance our trade issues and expand exports.
        Last week, as an example, I provided the keynote address at
    Ireland's Ag Science Association, very good and interesting
    group, and prior to that was in Brussels to meet with key
    members of the European Commission. At all of these stops, as
    with all others, I make clear that we seek only free and fair
    two-way trade, always based on science-based decisionmaking,
    and those are all very important.
        Looking ahead, before the year is out, I will lead an ag
    trade mission to South Africa. Simultaneously, my colleagues at
    FAS will lead a similar group to South Africa. Thereafter, we
    will be in the Philippines and Thailand. All told, when the
    year is complete, we will have doubled the number of formal ag
    trade missions from years past, and that does not include the
    bilateral, singular, sort of ``me only'' meetings on bilateral
    trips.
        A bit about ag trade accomplishments. Ambassador Doud
    testified on a couple of these. We are making some headway.
    Last year, these included easing of regulations on U.S. citrus
    into the EU, resumption of U.S. DDGs into Vietnam, reentry of
    U.S. chipping potatoes in Japan, and, very importantly, lifting
    of South Korea's ban on the imports of U.S. poultry.
        In July, Secretary Perdue celebrated the reintroduction of
    pork into Argentina after more than 25 years by slicing a 10-
    pound U.S. honey-baked ham. In August, Ambassador Lighthizer
    and Secretary Perdue announced that Morocco has agreed to allow
    commercial imports of U.S. poultry meat and products for the
    first time ever. We continue to work with Gregg and his
    colleague on NAFTA. At any given time, I have got 6 to 20
    people supporting NAFTA and other negotiations, and glad to do
    it. That does not touch many, many more we hope can be
    announced in coming weeks and months.
        A moment on CODEX. With respect to this office, we have
    strengthened the group in numbers. We will add outreach to the
    regions of the world and always will base it on good science
    but with great vigor. I am trying to earn what I said to you
    would be a happy warrior.
        A little bit about mitigation, and you spoke about this,
    Mr. Chairman. In response to unjustified retaliation by China
    in particular and other countries, the President directed
    Secretary Perdue to craft a short-term relief strategy to
    protect agricultural producers while the administration works
    on free, fair, and reciprocal trade deals. As you mentioned, it
    is a $12 billion, three-part mitigation program. Let me touch
    very quickly.
        The first leg of the stool is the Market Facilitation
    Program administered by my colleague Bill Northey and his team
    at the Farm Service Agency. It provides payments to producers
    of certain crops and livestock that are negatively affected by
    these unfair counter-tariffs.
        The second leg involves the Food Purchase and Distribution
    Program that is managed by my colleague Greg Ibach, Under
    Secretary for the ag marketing area, and deals with affected
    commodities.
        The third leg of the stool, the Agricultural Trade
    Promotion Program, will be administered by my team. This is
    $200 million in cost-share assistance--let me repeat that. It
    is cost-share, which is the hallmark of that program. It will
    be made available to eligible U.S. organizations who have
    suffered damage from these unjustified retaliated trade
    activity. That program will focus on new markets and mitigation
    in select existing markets, but more the former than the
    latter. Areas of work include advertising, PR, points of sale
    demonstration, trade fairs, exhibits, market research, and
    other activities. Our group does this very well through a
    similar programs that you know well, the Market Access Program
    and the Foreign Market Development Program.
        In conclusion, the agricultural exports contribute to
    prosperity in and well beyond rural America. It is a privilege
    to serve as a strong advocate for U.S. agricultural worldwide.
        Mr. Chairman, that concludes my statement. I would be
    interested and pleased to answer any questions.

        [The prepared statement of Mr. McKinney can be found on
    page 41 in the Appendix .]

        Chairman Roberts. Thank you very much Dr. Johansson.
        Mr. Johansson. Thank you, Chairman and Ranking Member. I am
    happy to answer any questions that you may have regarding the
    Marketing Facilitation Programs or on the Food Purchase and
    Distribution Program.
        Thank you.
        Chairman Roberts. If only we had more witnesses like
    yourself.
        [Laughter.]
        Chairman Roberts. Ambassador Doud, I have been pleased to
    hear of progress on finalizing a NAFTA agreement, I hope, that
    preserves the strong trading relationship between the United
    States, Mexico, and Canada, if we can bring them along. There
    has been a great deal of discussion surrounding the success of
    the existing NAFTA agreement.
        Generally for agriculture, the benefits of the agreement
    are without question. There are examples, however, such as
    restrictive policies, more especially with Canada, on grain
    grading standards or dairy where there is room for improvement.
    With ``Do no harm'' remaining the top priority of the ag
    sector, what opportunities do you see for farmers and ranchers
    and growers in a new and improved NAFTA?
        Ambassador Doud. Thank you, Mr. Chairman. You know, the
    first thing you have to do in these kinds of discussions is
    look toward the future and, you know, it has been 25 years
    since NAFTA. We have to think about what things are going to
    look like in another 25 years. I think the first piece of this
    is obviously we keep the tariffs at zero. Obviously, you know,
    the mantra of ``Do no harm'' has been throughout this
    discussion. In sanitary and phytosanitary land, the issues that
    we deal with so very often between USDA and USTR in
    agriculture, we have got to set the stage to improve the
    discussion and the dialog in NAFTA and around the world. I
    think we have done that with the additional ability to have
    conversations with regard to SPS and also, in particular, with
    Ag biotechnology. The goal with ag biotechnology is to not talk
    about current technology, but to anticipate what we have coming
    around the corner in terms of the new gene-editing technology,
    CRISPR, et cetera, and those are the areas that we work very
    hard on with Mexico in this agreement.
        Chairman Roberts. Under Secretary McKinney, beyond
    strengthening current agreements, we should be aggressively
    seeking new trade agreements with countries like Japan,
    Vietnam, and the United Kingdom, and others as well. How do you
    view the strategy on new free trade agreements working
    alongside what we are currently facing in market loss due to
    retaliatory tariffs?
        Mr. McKinney. Thank you, Mr. Chairman. Well, there are two
    or three points.
        First, I think we have already exhibited some success. Most
    of the countries that you heard me cite that we visited are
    ones we have not normally paid a lot of attention to. Let me
    cite the ag trade mission to Guatemala. I went thinking this
    would be a nice trip; we would have some good results. The
    visit to Guatemala, Honduras, and El Salvador set the all-time
    record high in sales of agricultural products from across the
    U.S. in the history of the Foreign Agricultural Service, so
    much so that we had to set the top two aside to validate that
    they got the message to estimate conservatively what their
    sales might look like over the next 12 months. Now, not all are
    this way, but we are seeing record attendance and record sales
    through these trade missions. So that is the first thing.
        The second thing is we look proactively as we go on
    offense, as Ambassador Doud said. You will be pleased to know
    that, as we cited and listed the candidate countries we want to
    go pursue for free trade agreements or bilaterals, the good
    news it was almost identical to the list that Gregg and his
    team cited. I think if we flipped one or two countries, they
    would have been identical. Certainly the top five were in the
    same category. We took that as positive. Many of the countries
    I listed are the ones that we are going to followup later or
    USTR will take the lead on. So we are cultivating those and
    developing them.
        Finally, you know, I think that there is some evidence that
    we are seeing some growth in the countries that we have already
    opened. Beef and pork, for example, into South Korea after the
    KORUS agreement has been at record levels, and this is the
    pattern we would like to emulate across the board.
        So I hope that we are already starting to pave the way with
    many of these countries that we need to go back to. For sure,
    some will be long and arduous. I cite India--great country, one
    we must invest in. I think for a while they are going to be
    very difficult, with a tendency to throw tariffs up, as are
    many others.
        This is where I appreciate the strong hand of the
    President, Secretary Perdue, and Ambassador Lighthizer. People
    know that we mean what we say, that we believe that GSP, for
    example, is a serious thing that cannot be abused, that when
    you introduce nontariff trade barriers, which is very, very
    common, there is a consequence.
        So I think we are rounding a corner, and I am very
    optimistic for the future.
        Chairman Roberts. Do you have any comment on this,
    Ambassador Doud?
        Ambassador Doud. I think Under Secretary McKinney summed it
    up very well, Senator.
        Chairman Roberts. I want to get into trade mitigation here
    for just a moment. The trade assistance package that the
    Department is implementing includes the Agricultural Trade
    Promotion Program. ATP--I beg my colleagues' deference here in
    going over time; I know you will forgive me--will assist
    exporters in market access around the world. What I want to
    know is, this program, does it complement existing export
    programs? You mentioned the Market Access Program or the
    Foreign Market Development Program. How will you ensure
    resources are not duplicative? Real quick, Ambassador.
        Mr. McKinney. Sure, I can be quick.
        Chairman Roberts. Pardon me. Under Secretary.
        Mr. McKinney. That is okay. I have a twin brother, so I
    answer to ``Hey, you.''
        [Laughter.]
        Mr. McKinney. They are highly complementary, and let me
    remind you, if you have not already heard, the Market Access
    Program and now the complementary program that we are
    introducing are beloved. They might just be one of the finest
    creations of U.S. Government. They are that highly regarded.
        What people are looking at is, first and primarily, where
    can these moneys be applied where we have not had the funds to
    invest in the future. I heard that many people lobby you folks
    for additional funds to MAP and FMD. So consider this as an
    opportunity for folks to finally dive into export markets where
    they have not been or at least not at the presence they would
    like to. I think that is the first and primary focus. And, for
    sure, some would like to dedicate some of these new funds--the
    ``surge,'' if I can use that word--into maybe mitigating some
    lost sales or some hurt feelings or whatever the case might be
    in existing markets.
        So as we speak, there is a lot of discussion going with all
    the commodity organizations you might imagine, and they include
    the organizations and the products that come from all the farms
    and ranches in your States, and we are working with them. We
    encourage creativity, new markets, some mitigation, and
    products or programs that will work full-time.
        So certainly this is very much like the Market Access or
    Foreign Market Development Program, but boy, oh, boy, is it
    exciting for them to finally get into some territories they
    have not experienced yet--at least not very much.
        Chairman Roberts. Senator Bennet had to leave in that he is
    booked on a plane to Colorado, but he had this question for Dr.
    Johansson, and, Under Secretary McKinney, you can weigh in if
    you want, which means I have another 2 minutes.
        The largest program in the administration's trade
    mitigation package is the Market Facilitation Program. Can you
    offer some background on how the Department determined the
    methodology and the payment rates for the different commodities
    eligible for the program? I say this, when the Secretary called
    me, Secretary Perdue, indicating that there would be a program
    like this, even though many groups had come to the White House
    and said we do not want aid, we want trade, and that has sort
    of been the hallmark. We do have this mitigation program, and I
    think that is probably the best description. How is the
    methodology and the payment rates for different commodities
    eligible for the program? The reason I ask that is I told the
    Secretary that once you announce a program like this, you are
    going to have a heck of a time stopping it for the next year
    and the next year and the next year, and every possible farm
    organization and commodity group will complain that it is not
    equal to their circumstance, which I have heard virtually from
    every commodity organization and farm organization I know of. I
    think probably everybody here has.
        Could you elucidate on the methodology and how you came to
    that?
        Mr. Johansson. Thank you, Mr. Chairman, and, of course,
    Senator Bennet for his question. I am sure we have heard a
    similar question and ideas about how such a program could be
    designed from a variety of commodity groups, as you can
    imagine, as you mentioned.
        So putting such a program together, we were faced with the
    objective of trying to be fair across commodity groups, as fair
    as possible. We were also constrained a little bit by some of
    the existing tools that we have for developing such a program.
    So, as you know, we utilized authorities under CCC Section 5,
    and that has certain prescriptions on how we should go about
    setting up such programs.
        I think the main point that I want to make today--and I
    will point out that we are going to be publishing a white paper
    today and putting it on the USDA Office of the Chief Economist
    website that explains this fully. You know, we have been trying
    to do that in in-person meetings, but we have written it down,
    and we are going to be putting it out shortly.
        This is a trade program, retaliatory tariffs, that we are
    trying to address. We were not trying to address the vast array
    of other trade issues that have come up already today. This was
    specifically targeted to the 232 and 301 retaliatory tariffs,
    and so we wanted to make sure that our program was able to
    reflect those tariffs and those tariff levels from the
    countries that are levying those tariffs on the specific
    commodities that are listed under those tariff regimes. We
    wanted to do so in, as I mentioned, an equitable and consistent
    manner across the different commodity groups.
        So there are a lot of different models that can be
    developed from an economic perspective to reflect trade damage.
    We wanted to focus on a trade damage approach, which is similar
    to what we would normally use if we were to go and support USTR
    and actions at the WTO in Geneva when we go there to argue that
    a country's actions are unwarranted and we are claiming damage
    from those actions.
        In that sense, we used a trade model that reflects
    essentially, as Senator Bennet pointed out, those commodities
    that were exported to the countries that are retaliating, are
    going to show the highest trade damage effects from these
    tariffs. That is why you see such a large component of the
    program being directed to producers of soybeans since soybeans
    was our largest export to China and, on the other hand, for
    producers of corn, for example, we do not sell as much corn for
    a lot of reasons understandably, to the retaliating countries,
    the EU and China, and that is why the payments to corn
    producers are so much smaller.
        So, essentially, again, we just wanted to be consistent. We
    did know that for the majority of this program, we were going
    to have to do a rulemaking. In that sense, we also needed to
    follow the prescriptions that we would normally have to go
    through in order to publish a rule in the Federal Register and
    incorporating interagency comments from OMB as well as other
    White House offices, USTR included.
        So I will stop there and see if we have any follow-up
    questions from some of the other members here.
        Chairman Roberts. Obviously, Senator Bennet's time has
    expired, but Senator Hoeven just left. He wanted 5 minutes and
    whispered to me the question that he wanted to be answered.
    Senators were up there at the White House on the day that the
    President announced the decision along with the President of
    the European Common Market that they had decided no tariffs
    would be the best policy, and we all applauded that. Then we
    went around the room, and Congressman Newhouse from Washington
    pointed out he was a cherry producer, and he lost his whole
    crop. Then I find there is nothing for cherries. Now, I am not
    here to advocate cherries in particular, but Senator Stabenow
    was on the floor. She gets that from everybody on her side of
    the aisle. I get it from my side of the aisle with regards to
    commodity versus commodity versus commodity.
        So I am very interested in your white paper. I know you are
    doing the best you can, and it is a difficult job. You can
    understand our concern when people come and say, ``Well, wait a
    minute.'' Then, of course, you can get on the exclusion or the
    addition list, whichever one we are talking about, of which
    there must be at least a thousand or two already on that list.
        Senator Stabenow?
        Senator Stabenow. Well, thank you, Mr. Chairman. You do a
    good lead-in because I actually do advocate for cherries as
    well as a wide variety of commodities that we grow in Michigan.
    And, of course, we care about what is happening all over the
    country.
        I do want to say thank you--my question was going to be
    about releasing the methodology and assumptions in calculating
    the amount of trade mitigation, and so I will look forward as
    well, I know my growers do, in terms of seeing the white paper.
        First, for our USTR Ag Negotiator, Gregg Doud, thank you
    for all of your efforts, Ambassador, and I want to thank you
    and Ambassador Lighthizer for considering the cherry industry's
    petition to revoke Turkey's unfair duty-free access for imports
    of cherry juice. We have a huge issue going on right now for
    that industry, as you know. I hope we can expect a timely and
    favorable decision on this critical issue.
        Let me talk about and ask you a question about NAFTA. We
    have heard about the initial agreement with Mexico, which
    contains a zero tariff on U.S. agricultural exports to Mexico.
    However, many of our U.S. agricultural products, including
    dairy and apples and pork, face substantial tariffs in Mexico
    due to the steel and aluminum tariffs. What is the path forward
    and timeline to reach an agreement with Mexico to resolve these
    tariffs in a key export market for our U.S. farmers?
        Ambassador Doud. Senator, I appreciate the question. The
    answer is, first of all, that Section 232 tariffs are
    administered by the Department of Commerce----
        Senator Stabenow. Sure.
        Ambassador Doud.--not by USTR, so that is not really
    something that is in our job jar at----
        Senator Stabenow. I hope you will weigh in, though, because
    of what is happening.
        Ambassador Doud. I appreciate your comments. My
    understanding is that part of the discussion is on a separate
    track and not a part of what we are working on right now.
        Senator Stabenow. Really? Okay. Because, unfortunately, all
    of this is coming together from a producer's standpoint, as you
    know. It does not matter which department, which agency, what
    effort. It lands on them. So they are deeply concerned.
        I want to talk a little bit more and ask Dr. Johansson
    about the Market Facilitation Program, and I am anxious to see
    the methodology and so on. I had send the Department and the
    Secretary a list of the commodities in Michigan and their
    concerns in a number of ways--tariffs, nontariff barriers, and
    a number of things that are happening that I had hoped would be
    considered. They have pushed back on me about the fact that--
    about the fairness of what is happening already, and here is
    what I get asked: Through the Market Facilitation Program to
    assist producers harmed by trade disruptions, USDA is planning
    to provide $277 million in payments to our cotton producers.
    This is despite strong cotton prices in 2018 and recent
    forecasts that cotton prices will continue to increase over the
    coming months.
        In March, USDA used the same CCC charter act authority to
    make $150 million in direct payments only to cotton farmers.
    Certainly, you know, this is not about picking on cotton
    farmers, but we have a lot of folks that have been hit. At the
    same time, commodities that we produce in Michigan--dairy,
    corn, dry beans, fruit, and others--continue to struggle with
    very low prices and receive less help through the
    administration's Trade Assistance Plan.
        So can you explain how USDA determined that a commodity
    with increasing prices that received significant assistance
    earlier in the year should receive more assistance than the
    other commodities who have seen their prices go down?
        Mr. Johansson. Thank you, Ranking Member, for the question.
    Obviously, as I mentioned, there are a lot of different ways
    that we could have used estimation techniques to develop the
    program. This particular program that we are talking about
    today, the Trade Facilitation Mitigation Programs that the
    Department has put together, as Under Secretary McKinney
    mentioned, the three different programs, and some are intended
    to address pieces that the others may not.
        In the case of prices, for example, as you mentioned, a lot
    of the commodity groups have come in to talk to us, have
    pointed at perhaps how much prices have changed since the late
    spring, early summer period when the countries that were
    retaliating announced their activities, and prices have fallen
    dramatically since that point.
        Now, of course, we have seen a lot of other reasons why
    prices may have fallen, whether that be through increased
    production or other activities or weather conditions in other
    countries, for example.
        So when we put this program together, you know, certainly
    one way we could have done it is by keying off of prices. We
    decided not to use the price-driven methodology but to look at
    gross trade damages. Trade damages are going to be simply
    higher for those commodities that have exported significant
    quantities to China or to the other countries that are
    retaliating. And, of course, we sell a lot of cotton to China,
    and that is the reason why we would expect these tariffs to
    significantly impact cotton exports to China.
        So because we use the trade--sort of the WTO approach of
    looking at trade damages and not necessarily looking
    specifically to prices, we show damages from the tariffs to the
    232 and 301 actions to be what they are for soybeans, cotton,
    sorghum, and down the list, including some of the specialty
    crops and fruit and-commodities.
        That being said, going forward into the fall, as we see
    harvests continue and we see market conditions change, as you
    will note, we announced for the Market Facilitation Program in
    particular, the first phase of the program, and the second
    phase if needed will be developed over the coming months and
    announced in December, and that may include consideration of
    other factors such as prices, trade, other tariffs that may
    occur, or as some of the other Senators are likely to ask later
    today, basis effects that you may see in different parts of the
    country.
        So, again, hopefully that answers your question.
        Senator Stabenow. Well, it--sort of. I appreciate the
    answer. I guess I would say I am still confused by an area
    where we see prices continuing to go up, maybe not as high as
    they would have gone, but are still going up, and we have so
    many producers where it is actually going down in real terms.
        I have one more quick followup, though, Dr. Johansson, to
    you. Not every commodity affected by retaliatory tariffs has
    faced the same impacts from trade disruptions. For example,
    many producers of perishable commodities such as dairy and
    specialty crops were impacted immediately while other producers
    may have utilized forward contracting or futures markets to
    sell their crop before prices fell. How were these factors
    considered in allocating assistance under the Tariff Mitigation
    Plan?
        Mr. Johansson. Now, I think your questions are raising a
    lot of the real key considerations that make developing this
    program and launching it in an equitable fashion as possible
    very difficult. There are a lot of considerations such as, you
    know, we wanted to put the program out there in time for
    producers to respond to in a fairly rapid fashion. That is why
    the Secretary announced this program at the beginning of
    September. We could have waited over time to see how sales and
    harvests had been affected, but we wanted to try and get these
    mitigation measures in place as quickly as possible. I would
    say that we are trying to move forward on the perishable
    commodities in a similar fashion. We are working to address,
    for example, almonds and cherries. We are still working on
    those since they were a little bit more difficult to work into
    two of three types of programs that we had. And, of course, all
    of the commodities are eligible and are encouraged to work with
    Under Secretary McKinney and his team on developing new
    markets, and I would maybe ask Under Secretary McKinney if he
    wants to add anything to that effect.
        Mr. McKinney. Just that we have been meeting with I think
    every commodity group known to man and woman alike, and they
    are answering the challenge of being creative and looking at
    those new markets. Again, it is open to all the cooperators who
    have been negatively affected, so that certainly includes,
    well, many--I would say all of the crops that I am familiar
    with in Michigan.
        So we will have to see how they come out because we have
    not finalized and have not received their final proposals.
    Those are due November 2. We will then take until early January
    and then funds will be released. I did not add that in my
    testimony.
        Senator Stabenow. Thank you very much. I will add some
    additional questions in writing, but as you know, it is not
    just retaliatory tariffs that are affecting us, but all of the
    other things that are happening around that. So I would urge
    you to look at all of those impacts. Thank you.
        Thank you, Mr. Chairman.
        Chairman Roberts. Senator Boozman.
        Senator Boozman. Thank you, Mr. Chairman.
        Today's hearing is so important in regard to trade. It is
    all about trying to provide some certainty to our farm
    community that is struggling so, so very much. Then also the
    other thing that we have got going on is the farm bill, and I
    want to thank Senator Stabenow and Senator Roberts of providing
    the leadership that we need to get that done. Again, that is
    all about certainty and trying to put the safety nets in place.
    So we do appreciate you and, even more importantly, your
    staffs, for their hard work. We know who actually does the work
    around here. They are working hard.
        I just got off my ag tour a couple weeks ago, traveling all
    around. We do that every year in Arkansas. Certainly trade was
    right at the top, you know, regarding in the sense that
    always--it does not matter what the situation. We have got a
    very difficult situation now. The retaliatory actions are
    always against agriculture first, and that is the situation
    that we are in.
        So I think, you know, the farmers in Arkansas are willing
    to work with the administration. They understand, you know,
    that we need not only free trade but fair trade. On the other
    hand, they are anxious to wrap this up as quickly as possible.
        The other thing--and our farmers are smart. They understand
    that we have got 95--we have got five customers in the United
    States. We have got 95 all over the world that we need to be
    selling to, people like Japan, people like Cuba, things like
    that.
        So can you tell us, Ambassador Doud and Under Secretary
    McKinney, you talked about the trade relationship with Japan.
    Can you expand on what the next steps should be in regard to
    getting a market like that in place? Do you see an opportunity
    for the U.S.-Japan bilateral free trade agreement to come to
    fruition?
        Ambassador Doud. Senator, this is probably, other than
    NAFTA, top of mind. Our concern is that I believe it is in
    April of next year that Europe, their trade agreement with
    Japan will enter into force. Obviously, Canada and Australia
    have trade agreements with Japan as part of the TPP apparatus.
    So we are right here right now, but sometime next year, those
    three countries' tariffs are going to go down here, and we are
    going to still be up here. The U.S. industries are already
    coming in to see me saying, ``We need to address this.'' Let me
    assure you, we at USTR completely agree. There is not anyone in
    the building that does not want to do a trade agreement with
    Japan. We understand this is a sensitive issue. We understand
    Japan would like us to be a part of TPP. We are committed to
    engaging with this, and I know for Ambassador Lighthizer, this
    is a top priority issue for him and the administration, and we
    are going to continue to work on it. We have got to get there
    at some point, definitely.
        Senator Boozman. What other countries hold the greatest
    potential for getting an agreement worked out?
        Ambassador Doud. When we refer to Southeast Asia, you know,
    the other country that is important to us is Vietnam,
    obviously, and if you do Vietnam and Japan, that is--we have
    agreements with essentially every other country. That is TPP.
        Another country that is quite interesting is the
    Philippines. You know, as the Chairman knows, I am an old wheat
    guy from Kansas. Even I was surprised to learn that the
    Philippines is our No. 3 market for U.S. wheat today. In my
    mind, Senator, the Philippines is a legitimate top-ten market
    for U.S. agriculture. In a lot of ways--and, Ted, you can talk
    about this--it is probably about where Mexico was 25 years ago.
    You know, we are having conversations with Indonesia, not in
    terms of a bilateral but in terms of overall trade discussions.
    We are very interested in Africa and getting something going
    there. Obviously, down the road next year we will see what
    evolves with the U.K. and Brexit.
        I have to tell you, what I appreciate more than anything
    else is my boss, Ambassador Lighthizer, was in Europe this
    week, and he said here in the Senate when he testified, the
    first thing he said to Commissioner Malmstrom when he was over
    there this week is, ``Agriculture has to be a part of any trade
    discussion.'' That to me is just an incredibly important thing
    for U.S. agriculture. As we all know here, dealing with the
    Europeans in agriculture has been a difficult issue for all the
    time that we can remember, and I cannot tell you how gratifying
    it is for the U.S. Trade Representative to say that the first
    thing in these kinds of discussions.
        Senator Boozman. That is excellent. I think I can speak for
    the Committee that we will help you any way we can in that
    regard.
        Very quickly, because my time is out, but the Iraqi tenders
    regarding rice, we had a situation where in the past they have
    disregarded--we have had bids that were actually lower, better-
    quality rice. The Iraqis went with other countries for some
    reasons. We have reached a little bit of an agreement there. I
    guess what I would like is just kind of a yes or no. Will you
    help us hold their feet to the fire in the sense of keeping
    their agreements and making sure that we have a free and fair
    situation in that regard, not only with rice but with whatever
    comes up.
        Mr. McKinney. Yes, always.
        Senator Boozman. Thank you very much.
        Mr. McKinney. I would just in 30 seconds----
        Ambassador Doud. Absolutely.
        Mr. McKinney. You should know that we talk, gosh, at least
    once and usually two or three times a week so that we are
    aligned. Part of the reason for my going to some of these
    countries is we have a little bit more bandwidth, particularly
    with what is going on with NAFTA and all the different other
    countries. So we intend to collaborate fully, still want to
    travel together to one or two locations, and, again, I think--I
    would not want to suggest that there is no business going on in
    some of these countries where we want a new free trade
    agreement or a bilateral or whatever you want to call it. We
    certainly can build on that. So not just the new ones, but I
    tell you, the Guatemala experience that I told you about, there
    are countries where we already have a free trade agreement or
    something of that sort that we can continue to build on. I will
    remind you that when we go in, I tell them that we believe in
    two-way trade. I think there is an intimidation factor out
    there that we have to address. We are most certainly looking at
    two-way trade, and when we get there, I think it is a very
    positive relationship. So we are, once again, looking forward
    to these.
        Senator Boozman. Thank you.
        Chairman Roberts. Senator Klobuchar.
        Senator Klobuchar. Thank you very much. Thank you to all of
    you. I spoke with you earlier today.
        First of all, Minnesota is fourth in the country for ag
    exports. It is very important to us, and certainly being a
    State where we can see Canada from our porch, Canada trade is
    very important. As I have told the Ambassador before, we would
    like to see Canada as part of any NAFTA agreement, so let me
    start with Canada.
        The administration has signaled its intent to prioritize
    ending Canada's Class 7 program, Ambassador, which is
    essentially close the market to U.S. dairy producers as part of
    the NAFTA negotiations. How have you engaged in these
    negotiations to ensure that U.S. dairy producers can once again
    compete in the Canadian market? Is this still a high priority?
        Ambassador Doud. Senator, this is the priority of the
    moment for us in agriculture. I want to take a moment to tell
    you that it has been an extraordinary effort to help Ambassador
    Lighthizer learn dairy. Chairman Roberts, I remember being on
    this Committee and having conversations about learning dairy
    and how difficult that is. Let me assure you that Ambassador
    Lighthizer has--we spent an enormous amount of time working on
    this issue, and in good faith both countries are trying to
    resolve this issue.
        Senator Klobuchar. I understand.
        Ambassador Doud. The challenge is how disparate these two
    systems are between Canada and the U.S., their closed supply
    management system versus our open system. We are working really
    hard to try to manage this, and we are going to do our best.
        Senator Klobuchar. Okay. Turkey, we are No. 1 for turkeys
    in Minnesota. I always like to say that. Are you focused on
    that market as well for turkeys? The other thing would be pork,
    making sure that Mexico and Canada are No. 2 and three markets
    for pork. What is happening with those?
        Ambassador Doud. Yes, Senator, the vernacular in these
    discussions is dairy, poultry, and eggs, and poultry certainly
    includes dairy--or turkey, excuse me. With regard to pork,
    obviously that is a very high priority item as well. It is one
    of our major exports.
        Senator Klobuchar. Good. I know Japan came up earlier, but
    in your testimony you mentioned looking into the benefits of
    potential partners in Southeast Asia, an increasing dialog with
    Japan, a critical market. What is the latest on the
    administration's effort to engage Japan in serious talks about
    a free trade agreement?
        Ambassador Doud. Well, as I indicated in my testimony, we
    had conversations last month. This is an issue that the Vice
    President has directly engaged in, and I believe there will be
    continuing conversations coming up here. This is a very high
    priority issue for us.
        Senator Klobuchar. Okay. The 25 percent duty placed on
    soybeans to China has caused significant disruptions given that
    57 percent of all U.S. soybeans went to China last year. These
    duties have hit my State hard because about 60 percent of our
    State's soybeans are shipped to the west coast. Dr. Johansson,
    when preparing the methodology to determine payments under the
    Market Facilitation Program, was any consideration given to
    regional shipping disparities within each commodity?
        Mr. Johansson. So, yes, that is a great question. Basis
    effects are very obviously complicated to consider, but
    certainly we have been asked to look at that issue. When we put
    the current methodology together, we did not do regional
    effects. There were a number of factors to consider there,
    transportation certainly being one of them; availability of
    storage, storage capacity being another; and availability, as
    you know, of rail shipment capacity to the Pacific Northeast
    relative to barge capacity down to the gulf. Those are all
    factors that we are actively examining and looking at, and we
    will be, you know, continuing to provide the Secretary with
    that type of information going forward.
        Senator Klobuchar. So will you take these unique regional
    impacts into account if USDA determines that a second round of
    assistance is necessary?
        Mr. Johansson. Well, certainly we are continuing to
    consider that. I cannot speak for the Secretary or the
    interagency process, but I would imagine we will bring that
    information to bear in terms of putting together the second--if
    a second phase is required, we will be considering that
    information, yes.
        Senator Klobuchar. Thank you. Under Secretary McKinney, I
    will spare you questions, as my colleagues are waiting, but I
    want to thank you again for your good work and your Minnesota
    connections, which we appreciate.
        Mr. McKinney. Thank you very much.
        Senator Klobuchar. Thank you.
        Chairman Roberts. Senator Ernst.
        Senator Ernst. Thank you, Mr. Chair, and thanks to our
    witnesses today for being here. This is a really important
    topic, as you can tell by the attendance at this Committee.
    Trade is something that we are very, very engaged in here in
    the U.S. Congress, and we want to make sure we are doing the
    right thing for our constituents.
        Since the trade spat turned really more into a trade war,
    we have seen our grain prices drop by anywhere from about 15 to
    25 percent. When we look at pork, we have seen their prices
    drop about 25 percent as well. I do want to thank President
    Trump and Secretary Perdue for their commitment to America's
    farmers by providing some relief, but we have heard time and
    time again today trade, not aid.
        So while a lot of our farmers and ranchers will be out
    there cashing those assistance checks, we have to make sure
    that our markets are being opened. So I am encouraged to hear
    that we are looking at Japan and the EU and others, but we have
    got to get them done, folks. So I await the day when we
    actually see that done.
        Dr. Johansson, many farmers across Iowa were really shocked
    when they saw that mere 1 percent--or, excuse me, 1-cent point
    for our corn for the reimbursement or the payment assistance,
    and through the Market Facilitation Program, despite the
    significant losses that we have seen since the trade tensions
    took hold. So we have seen higher tariffs from China that have
    resulted in a 70-percent tax on U.S. ethanol exports, and prior
    to the tariff increases, U.S. ethanol exports to China had been
    up 57 percent year over year. U.S. ethanol is now essentially
    shut out a growing market while China is transitioning to E10.
    So we are really missing out in that area.
        Can you walk me through how the USDA arrived at the payment
    rate for those corn farmers? Did your model calculate for the
    rate for the lost ethanol exports?
        Mr. Johansson. So those are great questions. I will just
    say quickly on the ethanol side, while we did see some
    increases in ethanol exports, China had already taken some
    actions relative to our ethanol exports there that had reduced
    our exports of ethanol to China prior to the 232 and 301
    actions being taken. Now, of course, they are also listed as
    being affected by the tariffs.
        That being said, the amount of ethanol we do sell to China
    would not have been affected specifically looking at the 232
    and 301 actions to a significant degree, and the programs were
    intended primarily to address producers, farmers, and ranchers
    that were producing primary commodities and not on the process
    side.
        Senator Ernst. But it does have a direct effect for those
    corn farmers, though.
        Mr. Johansson. That is right. It certainly would.
        On the corn side, as I mentioned earlier, we looked at a
    trade model that is keying off of 2017 exports to the affected
    commodities, and I will just provide a highlight here. On
    soybeans, for example, the value of soybean exports that were
    being affected by the tariffs was roughly $13.9, $14 billion,
    and on corn, for example, it was $300 million. So there is a
    significant difference between the amount of soybeans and other
    types of commodities relative to corn, just because corn
    shipments to the countries that are retaliating were relatively
    low compared to those other ones, and the methodology that we
    used for the reasons I talked about earlier were focused on
    being consistent across the commodities. We are teeing off of
    our export values to those countries.
        Senator Ernst. Okay. Well, I appreciate that, and, again,
    we would rather have trade, not aid. So we hope that we do not
    have to see a second round.
        Mr. Doud, just very briefly, I met with some pork producers
    from Iowa yesterday, and they are encouraged by the
    administration's announcement regarding the modernized trade
    agreement with Mexico, and we are a large exporter of pork to
    Mexico. So hog prices are at a 15-year low, and what approach
    are we using to alleviate this pressure on the pork producers?
        Ambassador Doud. Well, Senator, I think the biggest thing
    we can do is get NAFTA wrapped up, and we are working on that
    as aggressively as we can, and obviously, another critical
    market for our pork producers is Japan. The Chinese, you know,
    we exported, I think, $1.25 billion worth of pork to China. My
    understanding is that, you know, they keep ratcheting the
    tariffs up there. Some pork was still getting in over the
    tariff because most of that is variety meats. I would say, you
    know, we have seen some really interesting things occurring
    here recently in the lean hog futures contract related to
    African swine flu in China. I think we all need to keep a very
    close eye on that.
        Senator Ernst. We certainly do, and just in wrapping up,
    Mr. Chair, I was on the production floor of a meat processor, a
    pork processor in Iowa just a few weeks ago, and they are
    currently throwing away some very valuable organs that are
    normally imported to China, but because of the tariffs, all of
    that is going to rendering. So a very unfortunate situation for
    those producers.
        Thank you.
        Chairman Roberts. Senator Bennet, I regret to tell you that
    on your way up, you----
        Senator Bennet. I am here to reclaim my time, Mr. Chairman.
        [Laughter.]
        Chairman Roberts. I have already used 5 minutes of your
    time. But out of the goodness of my heart----
        Senator Bennet. You restore my dignity----
        Chairman Roberts. Out of the goodness of my heart and the
    good neighborly process with Colorado and Kansas----
        Senator Bennet. Thank you, my friend.
        Chairman Roberts [continuing]. and since you are no longer
    in the Big 12----
        Senator Bennet. I will not go over my time. I appreciate
    it.
        Chairman Roberts. I recognize the Senator.
        Senator Bennet. I am grateful to you, Mr. Chairman, for
    holding this hearing. As you can see, there is enormous
    bipartisan interest, and I think that relates to the
    uncertainty that has been created here. And, in fairness, it is
    not just that--Senator Ernst called it the ``trade war.'' It is
    also low commodity prices, and in my part of the country
    drought, that is creating really a huge amount of strain for
    our farmers and ranchers.
        My agriculture commissioner the other day said that you
    only get to be 22 once, and a young farmer only gets the chance
    once to decide whether they are going to stay in the business
    or not. This kind of uncertainty really does not help, and our
    adversaries understand that, which is why they are doing what
    they are doing to us.
        I raised this with Ambassador Lighthizer once, and he said,
    ``Well, your farmers have my sympathy.'' And I said, ``They do
    not need your sympathy. They need you to act rationally and
    reasonably.''
        I appreciate your all being here today. I wanted to ask a
    little bit about not the uncertainty that I just discussed, but
    the opportunity cost that is happening to us since the
    beginning of the Trump administration. There have been 11, by
    my count, free trade agreements that have been signed without
    the United States, and these are opportunities we have missed
    to open new export markets that cause real concern for my
    farmers and ranchers in Colorado. I am deeply worried, and I
    wanted to ask you about this, Ambassador Doud, about the long-
    term consequences as other companies open up to fill these
    markets. Pork exports to China and Singapore are down by 14 and
    40 percent, respectively. Meanwhile, Brazil's soy exports to
    China are increasing, and Brazil is on track to capture more
    market share there. In June alone, China imported 1.6 million
    tons more soybeans from Brazil than in the previous year. Due
    to TPP and Japan's new deal with the EU, U.S. beef annual
    export losses by 2023 are estimated at $550 million.
        Here are some of the headlines from around the world.
    Bloomberg: ``China reaches into Russia's Far East and hunt for
    crop supplies.''
        Reuters: ``Trade spat with Mexico speeds U.S. decline as
    global wheat supplier.''
        Reuters: ``Brazil, China trade to reach new levels in
    global trade spat.''
        It goes on and on. ``While U.S. frets over tariffs, Europe
    and Japan close a trade deal.''
        Reuters: ``Brazil farmers vie for soy contracts during
    U.S.-China trade war.''
        Mr. Doud, the present approach to trade is changing the
    global trade dynamics in agricultural production, and I wonder,
    in your experience are shifts of this magnitude in agricultural
    markets and supply chains only temporary and that everything
    will just go back to the way it was before these kinds of
    shifts? Can you tell us how this trade war ends without
    American agriculture taking a step backward?
        Ambassador Doud. Senator, there are a lot of things to
    discuss there. Let me talk about a couple.
        Senator Bennet. I will give you the rest of my time.
        Ambassador Doud. Thank you.
        Your point about the world being divvied up while we have
    been watching is a point that I have made many, many, many
    times. It is a point I made with Ambassador Lighthizer when I
    interviewed for this job. Oh, by the way, I would comment that
    it took me 49 weeks from the time he offered me the job until
    the time that I got in the job. And that has been valuable time
    that it has cost us in terms of getting aggressive.
        I was recently in Argentina, and my counterpart a young
    guy--his father actually works for JPMorgan in New York City.
    He worked for the Argentine Government. He asked me,
    ``Senator,'' he said, ``How are things going between the U.S.
    and the U.K. in a free trade agreement?'' I said, ``Well, you
    know, we have to see what happens with regard to Brexit.'' He
    said, ``Well, I really hope you guys stumble and fall, because
    if you do, we are going to swoop right in and tell the U.K.,
    ``We can offer you a much better deal. You do not have to do
    something with the U.S.''
        You are absolutely correct, the world is watching. I want
    to make one point here while I have an opportunity with regard
    to China, and we all understand that we export $20 billion
    worth of agricultural products to China. It is our biggest
    market. We also understand that China retaliated against U.S.
    agricultural products, in my opinion, because they viewed the
    power of this Committee and the power of U.S. agriculture
    politically to sway opinion on this. I do not think U.S.
    farmers are swayed, and here is why:
        We have one of the biggest WTO cases in the world right now
    with regard to China and their domestic subsidies. We have
    another one with regard to their tariff rate quota
    administration. They do not buy the wheat that they said they
    would buy when they became a member of the WTO. They do not buy
    the corn. They buy no rice from us. Their tariff on distillers
    grains is 80 percent. Their tariff on ethanol is 70 percent.
    They do not buy any poultry from us because of ``high path''
    AI. We finally got a thimbleful of beef in there after 15 years
    of me personally working on that. The grain sorghum thing is
    difficult, and we are not selling them almost what we think
    would be $1 billion worth of pet food.
        The point being with China is that they need to change
    their behavior, and this is going on not just in agriculture
    but in other things. This is an administration, the President
    has said, ``We need to do something about this.''
        Senator Bennet. I could not agree with you more. I mean, I
    do not need the lecture on that. That is my view. It would seem
    to me that provoking a trade war with Mexico, Canada, and the
    EU, when the issue fundamentally is with China, and when the
    growth for all of our farmers and ranchers in the West is going
    to come from the Pacific Rim, seems insane.
        Thank you, Mr. Chairman.
        Chairman Roberts. Senator Fischer.
        Senator Fischer. Thank you, Mr. Chairman.
        Ambassador Doud, thank you for being in Nebraska earlier
    this week, and we had a great roundtable discussion with about
    50 ag producers and ag business people within the State, and
    they agreed with you and your comments with China. What I hear
    across my State, what you heard on Monday, is, ``It is about
    time.''
        Also, when you talked about the bilateral agreements that
    you are looking for, you heard from a Nebraska cattle feeder
    asking you, ``When are we going to see that happen with
    Japan?'' You kind of touched on that in an earlier question. Do
    you want to elaborate on how you would answer that cattle
    feeder on how we are going to get that Japanese market back and
    be able to grow it?
        Ambassador Doud. Senator, first of all, let me say that as
    you can tell, when we begin to have these conversations, I get
    pretty passionate. These are issues that--you know, I have been
    in town, this is now my 26th year, and the vast majority of
    time has been working on these kinds of things. These are very,
    very difficult issues to resolve.
        When I was in Omaha this week, I gave an impassioned
    speech--or what I thought was, anyway--with our friends from
    Japan in the room and the importance of that relationship
    between U.S. farmers and Japanese consumers. You know, my first
    job out of graduate school was with U.S. Wheat in Portland,
    Oregon, and got to work on that discussion between--involving
    the relationship between our two countries. To me, that is a
    critically important relationship, and it is personal between
    farmer and consumer with the Japanese people. We take that
    very, very seriously, and I hope we have an opportunity here to
    sit down and engage with Japan and really solidify that
    relationship for decades to come.
        Senator Fischer. You know, I had the opportunity the
    opportunity on Monday to also meet with the Japanese Ambassador
    to the United States, and we had a cordial but very frank
    conversation as well. I appreciated, again, you being there
    with a roundtable of Nebraskans and alleviating a lot of their
    concerns about where we are on these agreements and carrying
    that message to the Japanese Ambassador that we are serious
    about these negotiations. There is, as you know, that
    uncertainty out there.
        Ambassador Doud. Yes.
        Senator Fischer. I would ask you, when we are looking at
    the United States and working on bilateral agreements with
    Southeast Asia, people understand that is going to be a great
    new market, and you heard, we all hear about the importance of
    not just maintaining the markets we have but growing market
    opportunities for the great ag products that we have. Can you
    give us any information at this point on what the status is on
    negotiating with countries in Southeast Asia? What are you
    hearing about for issues and possibly concerns? I understand
    negotiations are delicate, but if you can give any kind of
    information to this Committee, I certainly would appreciate it.
        Ambassador Doud. Senator, I would be happy to talk to you,
    I think, privately more about what specifically we are looking
    at, but I can assure you that an enormous amount of ground work
    has been done on this particularly with regard to countries in
    Southeast Asia, and hopefully very soon we will be able to talk
    more about that.
        Senator Fischer. So that was a no?
        Ambassador Doud. Well, we are not quite ready yet, Senator.
        Senator Fischer. I understand. I understand, but I again
    would say to you when these agreements can be reached in
    quickly, that is important for all of our producers, and it is
    important to every citizen in the State of Nebraska because of
    the impact that agriculture has on our economy in the State.
        Mr. Under Secretary, you were also in Nebraska, and I thank
    you for returning to our State. It is important that we hear
    from you, but it is also important that USDA has a seat at the
    table when we have these trade negotiations. That is why
    Congress created your position in 2014 in the farm bill. We
    want to make sure that ag is there and is at the front of any
    agreement.
        Can you tell us if you are working with Ambassador Doud and
    with Ambassador Lighthizer to advocate for market access
    opportunities as this administration works to improve and
    update and negotiate existing and also new free trade
    agreements?
        Mr. McKinney. Well, simply put, yes and yes. Gregg and I
    talk at least once a week, usually it is together, and here
    lately it has been two, three, four times. We have called each
    other internationally to give each a heads-up on things that
    have paid dividends--I will not cite the country, but have paid
    dividends.
        Like I said, because we have got a larger group that does
    policy and all kinds of trade work at any given time. We have
    six to a dozen and sometimes more dairy and NAFTA specialists
    working in support of his team. So I hope we can be a model of
    how the two agencies should collaborate.
        I would add further that Secretary Perdue and Ambassador
    Lighthizer talk frequently, as needed. They are both busy, but
    certainly there is no hesitancy to pick up the phone or pass a
    message or in some way collaborate.
        I would just say that, yes, our team is already hard at
    work. Gregg talked about ground work laid. You can pick any
    number of countries, and we have already begun to lay some of
    the basic work. What are the facts, figures? What would you
    like out of that? We look at their needs. I meant what I said
    that trade has got to be a two-way street; otherwise, it is not
    a very productive relationship.
        So those kinds of work have been going on for some time,
    and when our friends with USTR are ready to reveal those names,
    I bet you will find that we are right there echoing those same
    countries.
        Senator Fischer. Well, I thank you for that. I thank both
    of you again for coming to Nebraska. I thank both of you for
    standing up for ag producers and working hard to get us better
    deals, because we hear a lot of examples of neglect for the
    needs of ag producers, and I am a cattle rancher. I fully
    understand the neglect over the years, and I look forward to
    good deals in the future.
        Thank you.
        Mr. McKinney. Senator, I would like to add one thing. I did
    not touch on the role I played out there. We each gave a bit of
    a keynote talk, and I was with different groups, because you
    and I had been together a few months ago, and I appreciated
    that very much.
        We go out of our way to touch and keep in touch with all
    the Japanese activities, I mean from Cherry Blossom Festival to
    food and ag receptions. I have been to Japan twice--the
    Ambassador, I have met his wife, his daughter. I mean, whatever
    we can do across the board, we are doing to sustain that
    relationship, and I think it is a matter of settling on some
    other negotiations, and then we can get there. We are ready to
    go when the time comes. We are ready to go.
        Senator Fischer. Thank you both.
        Chairman Roberts. Senator Donnelly, I am going to recognize
    you first. I know you are on a very tight time schedule.
    Senator Smith, I apologize.
        Senator Donnelly. Thank you, Mr. Chairman. I want to thank
    my colleague Senator Smith. It is incredibly kind of you. Thank
    you very, very much.
        Ambassador Doud, I get pretty passionate about this as
    well, as do my friends here on the Committee. These are the
    lives and the farms of my fellow Hoosiers that are at stake. I
    was with a group again this weekend. We have friends who are
    going to lose their farms because of what is going on right
    now. They are going to lose their life, the dreams of their
    life, because of what we are dealing with. Secretary McKinney,
    as you well know, these are very, very, very hard times for
    Indiana farmers. We have known each other fairly well for a
    long time. We have both been deeply involved in advocating on
    behalf of Hoosier agriculture.
        Yesterday I had Hoosier pork farmers. They are getting
    crushed. I also had in the hardwood lumber companies. They are
    getting crushed. Frick Services in Wyatt, which you are very
    familiar with, Mr. Secretary, the cash price for a bushel of
    beans this morning, $7.75. The cash price for corn, $3.13. At
    180 bushels, your cost for production is about $3.60. The math
    does not work.
        The question I have for you is: What banker next spring, if
    these prices are still the same, Mr. Under Secretary, is going
    to make a loan for seeds or make a loan for inputs if the cash
    price is $7.75, the cost of production is about $9.20? What
    banker in our home State is going to make that loan?
        Mr. McKinney. Thank you, Senator. Good to see you again.
    Yes, your point is very valid. I think what we are facing here
    is we have been 4 or 5 years with very depressed farm prices,
    and that is for a number of factors. I would characterize a lot
    of them to unfair practices. When I was in front of you at the
    confirmation hearing----
        Senator Donnelly. We were at about $10.70 before this price
    war started. That was the cash price for beans at that time.
        Mr. McKinney. Right. Thank you.
        Senator Donnelly. I am sorry.
        Mr. McKinney. No. That is Okay. Thank you. Yes, we are
    taking some short-term pain with the hopes of long-term gain.
        Senator Donnelly. How do you explain that to the farmer who
    is going to lose everything?
        Mr. McKinney. Well, that is very difficult, and there will
    be some losses. When we talk to the majority of farmers----
        Senator Donnelly. What if you are that person?
        Mr. McKinney. Excuse me, sir?
        Senator Donnelly. You said, you know, we will take some
    losses. What if it is the folks I was with recently in Kokomo
    who took me aside and said, ``Down the road there is a fellow
    who is going to lose everything''? What do you tell his kids,
    Mr. McKinney?
        Mr. McKinney. It is very difficult. The answer I would give
    is that we are trying to make some correction that will fix
    many of the trade issues that we have been suffering from for a
    long time. I can cite many of those. My twin brother was out
    pulling weeds out of soybeans because China has not approved 10
    biotech traits, the longest one has been there 83 months, the
    last one 53. We are trying to right-size this so we can make a
    better day for those future farmers.
        Senator Donnelly. He was able to be in the field pulling
    those soybeans. We have people who are going to lose everything
    unless something changes. We have seen in the last week that
    the administration has said--and you may know when--that they
    are about to implement another $200 billion in tariffs. Then
    there is a third tranche that is coming for $267 billion. My
    farmers keep coming in and asking, and it is about as valid a
    question as you would ever get: ``When does this end?'' Mr.
    Secretary?
        Mr. McKinney. Well, my hope is that the work going on by
    our friends at USTR on things like NAFTA and then Japan, and
    then all the other bilaterals, will bring this back. That is my
    intent, and that is what we are doing to support them.
        Senator Donnelly. So how do we bring this back when we are
    in the process of another $200 billion in tariffs in the next
    month or so? I mean, I do not--they will not tell us the exact
    date when it is coming. That is 200 more. They have said
    another 267 is coming. It seems like the light at the end of
    the tunnel is a train coming at my farmers, and there are
    farmers--because we both know them, care about them, love them.
    They are our friends. They need to know that there is an off-
    ramp or an end to this, because what young man or woman
    graduating from Purdue right now is going to go into farming
    when they look and see that this is the situation?
        Mr. McKinney. It is tough, and I have talked to several,
    and all I can say is we are right-sizing things that should
    have been right-sized over the many years past. When I was in
    front of you, I talked about the slippery slope of sanitary/
    phytosanitary barriers. We are actually making headway in
    changing those, sir, and that is the only answer I can provide,
    is that we have got to right-size this so that that bright
    light is not a train but the bright sunshine of a bright and
    sunny day.
        It is like the 1980's, and I went through those just as you
    were. I hope we found that we right-sized things and made it
    better for farmers.
        Senator Donnelly. Mr. Secretary, with all due respect,
    those are not regrets. Those are our neighbors. Those are our
    neighbors who are losing their farmers, who are losing their
    life's dreams, whose kids are wondering why Dad cannot do this
    anymore or Mom cannot do this anymore. This is completely self-
    inflicted.
        Thank you, Mr. Chairman.
        Chairman Roberts. Senator Thune.
        Senator Thune. Thank you, Mr. Chairman. Gentlemen, thank
    you. I believe we all share the common goal of ensuring that
    U.S. companies and farmers and ranchers are able to compete on
    a level global playing field without being subject to unfair
    trade practices by other countries. As a result of some of the
    attempts this administration has made to correct unfair trade,
    farmers and ranchers who depend on sending much of what they
    produce across our borders are living in an economic nightmare
    because their products have been targeted by retaliatory
    tariffs.
        I am deeply concerned about the impact that today's
    retaliatory tariffs are having on U.S. agricultural products,
    especially considering that farmers and ranchers were already
    struggling with a weak ag economy before the tariffs were
    imposed and commodity prices dropped. My greatest concern is
    not only for the 2018 net farm income drop, but for the next
    year and succeeding years, losses due to lost global market
    share of our agricultural products, which may take years or
    decades to recapture.
        I know there has been some discussion already about the
    potential for bilateral trade agreements. I would ask you a
    question I have asked other members of the administration
    because it seems to me at least that if you want to send a
    message to China, the best way to do that is to start doing
    business with their competitors. You know, under TPP, the
    tariff on American beef going into Japan was going to drop from
    38 percent down to 9 percent. I guess my question is: Is there
    a possibility of rejoining the TPP? If not, when can we expect
    negotiations to begin on a bilateral agreement with Japan,
    which is a substantial market for U.S. beef, among other
    things, as are many of the countries in that region that were a
    part of the Trans-Pacific Partnership? Mr. Doud.
        Ambassador Doud. Senator, I think the answer to that--I do
    not know what the answer is on TPP other than I think the
    President has indicated clearly when I was in the room at one
    point, he said, you know, ``I would rather do a bilateral. I
    get a better deal.'' I think economically speaking,
    theoretically speaking, he is exactly right. So your question
    is: How do we get that down the road with Japan? The question
    is--we are having those conversations, we will continue to have
    those conversations. I think the Vice President is working on
    that. Certainly my boss is working on that. Hopefully we can
    get there as quickly as possible.
        Your point is extremely valid. Other countries have beat us
    to the punch, and we have got to get busy.
        Senator Thune. I appreciate that, and I have heard that now
    for the last couple of years since we decided to pull out of
    TPP, that we are working on bilateral trade agreements. I do
    not see any evidence that we are. Maybe there are discussions
    going on in a back channel way that are not visible to the rest
    of us, but it strikes me at least that these are huge missed
    opportunities from an economic standpoint, from a trading
    standpoint, not to mention the role that the U.S. plays in that
    region of the world, which has national security implications
    among other things.
        So I am just really frustrated, and, obviously, with the
    State of play in agriculture today where June 1st soybeans were
    $10 a bushel, I was in an elevator in South Dakota 2 days ago,
    and they were $7.05 on the board. The basis, the transportation
    cost continues to go up. Most of the farmers tell me that, to
    break even, you need at least about $8 a bushel. If you did not
    forward contract--some of ours did, but a lot of them did not.
    They are having now to look at the prospect of storing a lot of
    their soybeans because this market is just shot for the moment.
    There are no bids coming in from the PNW, which is where 65
    percent of our soybeans in South Dakota go. And so the concern
    and anxiety level is continuing to rise in farm country, and my
    impression is that it seems to fall on deaf ears around here.
    And I know that the attempt--the MFP program is designed to try
    and provide some temporary relief, and perhaps it will again.
    It is nothing more than Band-Aid. We need to open up markets.
    Even the implementation of that, which I have expressed
    concerns about how that is being rolled out and how the
    formulas that are being used, they are using this year's
    production to make the payments to the soybean producers per
    bushel, when, in fact, there are a lot of areas in South
    Dakota, and I am sure other areas of the country, where you had
    drought, you had floods, you do not have bushels this year. And
    we came up with several other ways that we think make more
    sense in terms of determining how those payments might be
    distributed and suggested those to the Department of
    Agriculture, but those two were rejected.
        So just understand that these impacts are real. The economy
    in farm country continues to deteriorate. There will be more
    and more producers who are not going to be able to get
    operating loans next year and are going to be at risk of losing
    their operations. It does not seem to me at least that that
    message, as hard as we have tried, seems to be getting across
    to the administration. We need bilateral trade agreements or
    let us get back into--let us reopen the discussions with TPP. I
    am still at a loss as to why, you know, that is not something
    that is an option that is on the table.
        Thank you, Mr. Chairman.
        Chairman Roberts. Senator Smith.
        Senator Smith. Thank you, Chair Roberts. I would like to
    start out by thanking you for this, you and Senator Stabenow as
    well.
        I want to particularly note in the discussion that we are
    having here about the intense pressures in farm country all
    across this country, and certainly in Minnesota, I am reminded
    about how grateful I am for how hard you and Debbie are working
    to get the farm bill done. You know, it is desperately needed,
    and I do not use that word ``desperate'' lightly.
        I feel that the members of this Committee on--I have had a
    chance to hear comments and answers to questions from all of my
    colleagues on both sides of the aisle, and I detect a strong,
    bipartisan agreement that there is desperation in farm country.
    I am just going to be direct. My sense is that the three of you
    gentlemen understand that very well. Honest to God, I just wish
    the person who sits in the Oval Office understood it as well.
        I think, Dr. Johansson, that you understand that this aid
    package that we have all been talking about is at best a small
    Band-Aid on a very big wound. You are doing the best you can
    with what you are dealing with, but, I mean, I heard that time
    and time again from Minnesota farmers, who said, you know, ``I
    need a hand. This is barely covering a penny on what I need.''
    I know you know that. You know, the two of you, both of you are
    very respected in farm country in Minnesota, and I appreciate
    the conversations that we have had. I also appreciate that this
    is not the time and the place to try to negotiate in plain view
    what you are trying to accomplish with our trading partners
    around the world. I am wanting to convey to you the sense of
    urgency that I hear from the Farm Bureau members from Minnesota
    that are sitting right behind you today and what I heard--I am
    going to go here--from the Farmers Union members that I am
    going to be a little bit late to talk to because I am here.
        So let me just go to something that you said, Ambassador
    Doud, that concerned me a little bit. Senator Stabenow was
    asking about the interplay between the 232 tariffs that
    Commerce is working on and the work that you are doing on the
    ag side to address these retaliatory tariffs. What can you tell
    this Committee broadly about how the administration is working
    together and what plan there is to try to bring this complex
    situation together with some coherence?
        Ambassador Doud. Senator, I will be honest with you. I
    think a lot of that is above discussions that I have been a
    part of.
        Senator Smith. That is probably part of the problem.
        Ambassador Doud. I will tell you, I very much want to
    convey our sense of urgency at USTR on dealing with these
    agricultural trade issues. There is no question about it. My
    sincere hope is that we can get things wrapped up with NAFTA
    here and we can begin to move on to other issues to begin to
    address these issues.
        We are behind the curve. There is no question about it. I
    cannot tell you enough how much I agree with your comments on
    the sense of urgency.
        Senator Smith. With regard to NAFTA and Canada, my
    colleague Senator Klobuchar raised this, but I just want to
    come back to it briefly. As you are working, as you and
    Ambassador Lighthizer are working on this right now, you are
    working--I just want to make sure I understand. I can go back
    to Minnesota and say that you folks are working on Canada's
    Class 7 pricing scheme, and you are working on expanding market
    access, and you understand that we need a situation where we
    have got Mexico and Canada and the United States together?
        Ambassador Doud. Absolutely, Senator.
        Senator Smith. Okay. Thank you.
        Let me just touch on one other thing. Senator Bennet raised
    this concern about the--I think it was Senator Bennet talked
    about how the administration is considering placing tariffs on
    foreign autos and SUVs and auto parts and the impact that that
    would have on agriculture. I am thinking right now of
    Minnesota's pork producers particularly. Can you address
    quickly what is the plan to stop future retaliatory tariffs on
    U.S. agriculture from countries like Japan and South Korea as
    we are pursuing with the other hand these potential retaliatory
    tariffs?
        Ambassador Doud. Senator, again, I do not know--again, 232
    is the Department of Commerce. It is not something that I have
    been involved with. For my part, in terms of agriculture, what
    we are trying to do is get to an opportunity where we can
    increase our access into countries like Japan, Canada, et
    cetera, and we are trying to do that as quickly as possible.
        Senator Smith. I urge you to appreciate, as I know you do,
    that what happens with the one hand over here in Commerce has a
    deep impact on what you are trying to do on the other hand.
        Thank you.
        Chairman Roberts. Senator Hoeven.
        Senator Hoeven. Thank you, Mr. Chairman. I appreciate all
    of you being here today.
        Ambassador Doud, what are the major issues left to resolve
    in terms of getting Canada into an agreement on NAFTA? What are
    the major issues, and how are we doing on getting that done?
        Ambassador Doud. The major issues--they are a priority for
    us, Senator, obviously--are dairy, the grain grading issue, and
    there are some wine issues that we are working on as well.
        Senator Hoeven. On the grain grading--you know, when we
    take our grain up there and it goes to inspection, they
    immediately classify it as feed grain.
        Ambassador Doud. Yes.
        Senator Hoeven. I trust that is something that you are
    going to get--I mean, that is ridiculous, right? And you are
    going to get that addressed?
        Ambassador Doud. That is a top priority issue for us,
    Senator.
        Senator Hoeven. Good to hear. What is your sense that we
    are going to get resolution of this in the near term, for
    example, in time to get Canada in the agreement with Mexico so
    that we can vote on it, you know, before the end of the year?
        Ambassador Doud. Senator, you are asking a lot of legal
    questions and TPA questions that I do not necessarily know the
    answer to. I think our goal at this point here is---my
    understanding of it is that Congress has been notified of the
    intent to bring both Mexico and Canada into this agreement, and
    for my part in this, we are working day and night and as hard
    as we can to bring Canada into this discussion and finalize it.
        Senator Hoeven. There is another issue with table potatoes,
    red and yellow table potatoes, whereby the Canadians have
    restrictions under their Canadian ministerial exemption--and it
    is part of the Canada Ag Product Act--whereby they restrict
    shipment of table potatoes between provinces and, of course,
    our exports to their country. At the same time, they are
    increasingly bringing fresh potatoes down and putting them into
    our market. Are you addressing that in your negotiations?
        Ambassador Doud. Senator, we have just recently become
    aware of that issue, and I believe your staff joined the
    industry in my office to discuss that, and that is definitely a
    priority we are looking at to figure out and resolve, and I
    would be happy to discuss that with you privately on some of
    the ideas that we have.
        Senator Hoeven. Let us do that, because this is a clear
    trade barrier, and there may be subsidies going on as well,
    which would not meet WTO requirements, and as they continue to
    push on dairy and on pork and on poultry, you know, they are
    doing exactly what we are trying to overcome, which are these
    trade barriers. So they have to put all this product into our
    market, and they are putting up restrictions and barriers on
    our products. So I hope you are addressing those, and I believe
    you are. That is what you are telling us here today, that you
    will address those issues.
        Ambassador Doud. We are having some conversations and
    looking into that as we speak.
        Senator Hoeven. And I want to be clear, we have no greater
    ally and they are our friends and neighbors no matter what. We
    want reciprocity in our trade with Canada.
        Again, the sense I am getting from you is that Canada wants
    to get a deal in terms of to be part of a NAFTA vote before the
    end of the year. It is your sense they are working toward that.
        Ambassador Doud. Senator, I can tell you that both side--in
    the conversations that I have been a part of, both sides are
    working very hard together.
        Senator Hoeven. Okay. Secretary, anything you want to add
    as far as those questions?
        Mr. McKinney. Just that we are dedicating resources to help
    these folks with all that heavy lifting, absolutely.
        Senator Hoeven. As you all pushed it to try to NAFTA
    squared away, make progress with the EU, not only does that
    help in terms of our farmers, but I think it puts pressure on
    China. Shifting to China for a minute, our State alone, North
    Dakota alone, sends $1.5 billion worth of soybeans to China
    every year. Just our State. And we have put an incredible
    amount of work into the shipping, both the rail and the
    shipping companies, built up customers, containerized shipping,
    identity preserve--all these things, and when our producers
    cannot ship to China, that creates basis, right? Because now we
    have to try to go down to the gulf or to the east coast. And we
    are behind all the States that are to the east of us.
        As you work on this assistance for the negotiations, you
    need to take that into account. So I do not know if this is
    something for Dr. Johansson, but there are two questions here.
    If it is going to take long with China, where do we move these
    soybeans in the meantime, one? And, two, as you put out the
    second half of this assistance, how are you going to
    accommodate some of that basis which producers have built up
    over many years and is a significant part of the disruption
    that you need to take into account? So those two questions: the
    markets and then the basis on the assistance.
        Mr. Johansson. Thank you, Senator, for the question.
    Certainly, we have been asked to look at the basis issue, and,
    of course, we know that the Dakotas in the past have had basis
    problems with respect to transportation to the PNW, for
    example, in 2014, 2015.
        Senator Hoeven. Be careful here, because I talked directly
    to the Secretary, and he came back to me with a positive
    answer, which I appreciate your looking at this, but that basis
    was overcome by all this work, and that is disrupted by the
    tariffs, so it is not just a locational issue. It is a function
    of the tariff disruption, which is why it needs to be part of
    this calculation.
        Mr. Johansson. That is right. So we have been looking at
    this particular issue to try and take into account regional
    differences by basis relative to previous years' basis. As you
    can imagine, with this many commodities, it is a fairly
    complicated issue. We are looking at regional basis as well as
    differences of those bases across time, so in order to try and
    identify whether and to what extent they are being affected
    most by these tariffs right now, and we will continue to do
    that. And as the Secretary mentioned, we are considering those
    factors as we look to the calculations for a potential second
    round of payments coming later this fall.
        Senator Hoeven. And then, Mr. Secretary, again, how do we
    help move some product here in the meantime, right? Because the
    elevators right now, I mean, it is hard for them to even take
    crop, right?
        Mr. McKinney. No, I would just understand that we--I have
    made two or three notes about basis, regionalization, and
    taking that into account. You raise the point that this is a
    temporary thing. The mitigation plan is not meant to be
    repeated. So I think the best thing we can say is--and it is a
    more intermediate to long-term play, to get those markets
    reopened. If China is a problem, we have got to keep looking at
    other markets, and that is why we are spending so much time in
    Southeast Asia that does feed from and feed to the Pacific
    Northwest markets.
        Senator Hoeven. We need that push on right now as
    aggressively as you can do it.
        Mr. McKinney. Yes. I will just say again, my travels have
    been to Myanmar, Vietnam, soon to the Philippines, Indonesia,
    Japan, of course. So I would say we are focusing on that area.
    Again, that is a more intermediate to longer-term play. I think
    you understand that.
        Senator Hoeven. Okay. Thank you.
        Mr. McKinney. Thank you.
        Chairman Roberts. Senator Daines.
        Senator Grassley. First of all, let me thank you----
        Senator Daines. Senator Grassley, I just wrapped up my 56-
    county tour, Senator Grassley--okay, well, he has wrapped up
    his 99-county tour, I know. He had a DQ Blizzard in Indianola
    when he wrapped up his tour for the 38th time he has done that.
    My last 48 hours, Mr. Chairman, have been--48 hours ago, I was
    in Jordan, Montana, Winnett, Montana, and Hysham, Montana. I do
    a 56-county tour. It is not the 99 counties that the Chairman
    has here, Mr. Grassley, but it is 56 counties in Montana. I can
    tell you I heard a lot about the anxiety and the concern that
    is going on right now on prices in our commodities, pulse
    crops, wheat, barley, we talked about cows a lot. There are
    three cows per person in Montana. Ag is our No. 1 industry in
    our State. That was on Tuesday.
        Today, meeting with the Farm Bureau just this morning,
    meeting with our grain growers, in fact, I cut short my Farm
    Bureau meeting so I could get down here for the Committee. And,
    in fact, the Farm Bureau folks have a lot of things they want
    to talk about, a long list, good issues. And they said,
    ``Senator, get down to that Ag Committee hearing because you
    are talking about trade, and that is our single biggest concern
    we have here today, that and the farm bill getting passed.''
        And with 95 percent of the world's population outside the
    United States, I think our farmers and ranchers, they clearly
    see the incredible opportunity we have before us to get to
    fair, free markets, to reciprocity. That really is the future
    of agriculture, getting access to those markets.
        In the short term, there is a lot of concern, a lot of
    anxiety. This relates to--and I think you have heard that today
    from several Senators who literally it is an existential threat
    to certain operations. As we speak right now, they may lose
    everything related to what is going on right now with prices.
        I think it is critical that we work in concert with our
    allies so that our U.S. businesses, our farmers, our ranchers
    are able to compete on a level playing field abroad. As you may
    know, I spent a lot of time working in international markets. I
    spent 6 years on the ground in China. I had two kids born in
    Hong Kong back in the 1990's as I was working on behalf of U.S.
    business to expand into those markets. And I believe that we
    should continue to reengage on TPP as we think about our
    strategy as it relates to China. And I do see some merit in a
    lot of bilateral agreements. The problem as we see it right now
    in these negotiations, they take a lot of time. They are
    complicated. And in agriculture, as is true in business, time
    is money.
        And so as we step back and look at the big picture, I would
    highly encourage that we rethink reengaging on TPP that will
    serve as a counterweight to China's growing influence not only
    in the region, but around the world. In fact, at a recent
    hearing, Secretary Perdue agreed with me concerning the strong
    benefits of TPP.
        Mr. McKinney, could you summarize some of the tariff
    reductions? And are there benefits that TPP would provide to
    specific American ag commodities?
        Mr. McKinney. Well, I will try to answer that specific to
    any tariff reductions, because, you know, TPP has been here and
    I think is in the wings or going to be replaced by a bilateral.
        My sense is what is going on here is we have been facing
    unfair trade barriers for a long time, and if you are wondering
    whether some of these actions are helping us right-size trade,
    the answer is unequivocally yes. It is true. I have been a part
    of that. That is one of those calls that Gregg and I shared. It
    comes slower than we would like, but there has been no leverage
    for a country that has been misbehaving, particularly on
    sanitary/phytosanitary. And even inside of rules, we have had
    some countries that we won WTO suits and still got rejected in
    terms of trying to right-size that. It is very true, two or
    three.
        So what we are seeing is change. We are seeing change where
    folks are realizing the U.S. is finally very serious about
    this. I will have to turn to others who are doing the
    negotiation, but my hope is that by bringing these tariffs and
    other pressures to bear, we will see changes in behavior, and
    then those tariffs will come down. That is my hope. I am not in
    the middle of the negotiating room, but that is our hope at
    USDA, that some of the pressures that we are placing will
    realize the U.S. is serious and, of course, our tariffs coming
    down. That is our hope.
        Senator Daines. So one of the areas we actually made some
    great progress on fairly recently was removing the ban on U.S.
    beef imports that China had placed and that had been there for
    16 years. I was over in China a year ago. We actually brought
    some Montana steaks to the Premier and had a very good
    discussion, and about 60 days later, that ban on U.S. beef
    imports was removed, the second largest beef import market in
    the world.
        I remain concerned. We made a lot of progress here, but we
    may have a significant setback here and are seeing that with
    China. And I completely understand and appreciate and respect
    the fact we needed to confront what is going on with some of
    the unfair practices in China--intellectual property, unfair
    trading practices.
        Notwithstanding the broader trade dispute with China, do
    you have any updates regarding the existing opportunities and
    challenges that U.S. ranchers would face in China's market and
    the prospects for long-term growth? You spent a lot of time, it
    sounds like, in Southeast Asia most recently.
        Ambassador Doud. Senator, on the beef side of the equation,
    you are absolutely correct, it took us 15, 16 years to get in
    there. We still have some significant issues with regard to
    their requirements regarding hormones and ractopamine. It is
    definitely a step forward, but there is a tremendous amount of
    work that still has to be done here, and I believe the size of
    the Chinese beef market is now somewhere in the neighborhood of
    $4 billion a year in terms of what their imports are, and our
    exports so far have been in the tens of millions. So,
    obviously, we have got an enormous amount of work to do there.
        You know, it is encouraging that there is going to be
    another discussion with China here yet this month. This is the
    issue of our time in agriculture, is to work to build and get
    that relationship with China where it needs to be, because as I
    indicated earlier, there are so many problems with China, and
    beef is just one. But the benefit, if we make progress and get
    issues resolved, is enormous.
        Senator Daines. Well, it is. I am out of time, but my grain
    growers this morning were talking about we were starting to
    make some gains with wheat sales into China. You know how much
    Montana wheat is going to China this year? Zero.
        Mr. McKinney. If I could just add, I think Ag and Energy
    were the only two that have really seriously totally engaged,
    and that is when we were over in June, Gregg and I, and we took
    a whole team to negotiate. And I think progress was made. Not
    enough, not enough, but progress was made.
        When Secretary Mnuchin at Treasury invited some of the
    folks back, we participated. Ag was very much a part of that,
    even though ag was not the focus. And just yesterday, Gregg and
    I co-hosted Vice Minister Han Jun who is the lead ag negotiator
    from China.
        So there are larger issues to solve, but I would like to
    say that I think once we can renegotiate--ag can pick up where
    it left off and pick up and go, and that is what we are looking
    to do whenever that time is right, because there are so many
    issues across all the sectors. As far as ag, I think we have
    done everything we can possibly do and then some to sustain and
    be ready when that time is that we get the green light.
        Senator Daines. Thank you.
        Mr. McKinney. Thank you.
        Senator Daines. Thanks for the comments, and I do think we
    should take into consideration a blend of bilateral and
    multilateral trade agreements as a good strategy going forward
    here, because knocking these pins over one at a time in a
    series fashion is going to take a lot of time and we are
    running out of time right now in farm and ranch country.
        Thank you.
        Chairman Roberts. Thank you, Senator Daines.
        Secretary McKinney, thank you for coming. Ambassador Doud,
    thank you for coming. Dr. Johansson, thank you for coming. Do
    not forget that white paper. You might want to get it up to us
    as soon as you can. You have heard from several Senators their
    concern about that.
        Ted, I know that you are going to work as hard as you can
    to get this thing turned around, if we can, and I know that to
    be the case with Gregg.
        What concerns me most is what--well, ``most,'' that does
    not get it, but I guess equally with regards to restoring our
    markets is the opportunity that we did have, and I hope we do
    not stumble on it, and that is to somehow get back engaged with
    TPP. And the reason I say that, as you just read the news,
    watch the news, if you can stand to watch the news, but in the
    news here you have the Russians extending their Blue Water Navy
    200 miles. You have got the Philippines upset. You have got--
    well, you have got everybody in the South China Sea upset. They
    are holding exercises now with Russia. That falls under the
    national security matter, but also so does TPP. And it seems to
    me that instead of going bilateral, bilateral, bilateral,
    bilateral times 11, to get back into TPP would really send a
    message to China. I have not visited all of those countries,
    but I have visited some, and it has been awhile. Every one of
    them said, ``We would prefer to do business with you as opposed
    to China.'' The next thing they said was, ``Do you still have
    our back?'' And that is absolutely key. And I think the farther
    we drift away from that opportunity--I am not saying that you
    are not trying to get it done--I think we add to our national
    security woes in that part of the world. I think it is that
    important.
        That will conclude our hearing today. Thank you to each of
    our witnesses for taking time to share your perspectives on
    agricultural trade. To my fellow members, we would ask that any
    additional questions you may have for the record be submitted
    to the Committee clerk 5 business days from today, or by 5 p.m.
    next Thursday, September 20th.
        The Committee is now adjourned. Thank you.
        [Whereupon, at 12:10 p.m., the Committee was adjourned.]

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                             QUESTIONS AND ANSWERS

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