Senate Banking, Housing and Urban Affairs Committee

Subcommittee on International Trade and Finance


Hearing on the Effects of International Institutions
on U.S. Agricultural Exports

10:00 a.m., Tuesday, May 4, 1999


Prepared Testimony of the Honorable Peter L. Scher
Special Trade Negotiator
Office of the U.S. Trade Representative


10:00 a.m., Tuesday, May 4, 1999

Thank you Mr. Chairman and Members of the Subcommittee. It is a pleasure to appear before you this morning with Under Secretary Schumacher to discuss the impact of the World Trade Organization (WTO) and other international organizations on U.S. agricultural exports.

This hearing is especially timely and important because all of us involved in agriculture --producers, processors, exporters, the Administration, and the Congress -- are focusing on the third WTO Ministerial which will be held in Seattle in November. The 134 member nations of the WTO will begin a new Round of multilateral trade negotiations at Seattle, and agriculture will be very much at the heart of these talks.

This morning I would like to outline the benefits that the WTO has already delivered to U.S. agriculture as well as discuss our goals and objectives for expanding these benefits in the next Round of negotiations.

ADMINISTRATION AGRICULTURAL POLICY

Let me begin with two larger points about the Administration's agricultural policy.

First, this past year has been extremely difficult for some of America's farm and ranch families. As we speak -- with financial crisis overseas, natural disasters at home, and a boom in world production -- thousands of farm and ranch families are wondering whether they can hold on. No farmer could foresee these events -- as the Vice President said to the Farm Journal conference earlier this month:

"Anyone who has spent any time on a farm knows that both the beauty and the tragedy of the land is that it follows a rhythm far beyond our ability to predict or control."

We understand the gravity of this situation, and we are absolutely committed to a response that makes sure Americans have a secure future on the land. The President and the Congress provided a $6 billion aid package along with funding for commodity loans and other initiatives to help address the effects at home. The Administration has proposed supplemental funding for critical USDA loans for farmers, which is awaiting approval by Congress. Secretary Glickman has suggested specific improvements to crop insurance, and the President has pledged to work with Congress to strengthen the farm income safety net. We vigorously support the IMF recovery packages, with their potential to restore health in countries affected by the financial crisis overseas. And in trade we have worked for agreements with major trade partners ­ Canada, China and others ­ which can open new markets and relieve some of the pressure.

Second, looking further ahead, our trade initiatives are just part of our work to ensure a prosperous, secure future for rural America. Thus, our long-term work to open markets and ensure fair trade is inseparable from the fiscal policies which turned a $290 billion federal deficit into a $110 billion surplus; our work to enhance the Federal Agricultural Improvement and Reform Act of 1996 (the 1996 Act) with a long-term safety net; the initiatives in the new highway bill to improve rural infrastructure; and investments in agricultural science and rural schools.

IMPORTANCE OF TRADE AGREEMENTS

It is absolutely critical that we continue to press for more reform of world agricultural markets. The future health of U.S. agriculture depends on sales abroad, and we need to complete the market liberalizing work of the Uruguay Round. This reality is the foundation of our agricultural trade policy. During the Clinton Administration, our work has covered five broad areas. We have sought to:

­ reduce tariffs and other barriers to trade;

­ ensure that sanitary and phytosanitary standards are based on real and not phony science;

­ promote fair trade by reducing foreign export subsidies and trade-distorting domestic supports;

­ ensure greater transparency and fairness in state trading; and

­ help guarantee that farmers and ranchers can use safe modern technologies, in particular biotechnology, without fear of trade discrimination.

While we have much work ahead of us, we can also be very proud of the work we have done so far.

The conclusion of the Uruguay Round negotiations and the establishment of the World Trade Organization (WTO) in 1995 marked the first true reform of the rules governing international agricultural trade. After forty-seven years of developing the global trading system, we began to bring agriculture under its rules.

The Uruguay Round's Agreement on Agriculture helped us reduce export subsidies, improve market access by lowering tariffs and replacing most quantitative import restrictions with tariff rate quotas; control domestic price supports; establish sanitary and phytosanitary (SPS) disciplines and create a tighter, more enforceable dispute settlement mechanism. By the year 2000, the value of global agricultural export subsidies will be about one-third less than when the Uruguay Round Agreements were signed.

Dispute Settlement, SPS Agreement Critical to U.S. Agriculture. Two of the most significant long-term achievements of the Uruguay Round are the dispute settlement system established in the WTO and the SPS Agreement. These two agreements, along with renewed multilateral agricultural negotiations in 1999 and existing domestic trade legislation, form the basis of our attack on the remaining trade barriers facing U.S. farmers and ranchers.

Prior to the Uruguay Round, countries faced little cost within the international trading system if they refused to honor their trade obligations. Today, when countries do not live up to their commitments, there is a price to pay for that failure.

We have not been shy in using the WTO's dispute settlement system. The United States has filed 44 complaints with the WTO. Twelve of them -- just over one-quarter -- involve agricultural products. We bring good cases to the WTO and we have scored significant victories; successfully resolving 22 of 44 U.S. complaints.

Of the agricultural cases we have brought, eight have been settled, all on terms favorable to the United States. Let me review briefly some of our successes as a result of WTO cases:

In almost all cases, the losing parties have acted rapidly to address the problems. We will insist that this remain the case in all our disputes, including those with the European Union on beef hormones and bananas, and with Canada on magazines. At the same time, the U.S. has complied fully with all panel rulings it has lost, although these are few in number.

As we negotiate trade agreements that reduce tariffs, SPS barriers become more visible, relevant, and, to countries seeking to restrict access, attractive. We must guard against the increasing use of SPS barriers as the "trade barrier of choice." Our ability to invoke an agreed set of international principles and rules on protecting plant, animal, and human health -- which we did not have three years ago -- is a key tool in influencing the decisions of many of our trading partners on these issues. Armed with this Agreement, the Administration has made progress in removing unjustified trade barriers and opening the door to increased agricultural and food exports.

The SPS Agreement is an important, effective, tool in our efforts to remove unjustified barriers to U.S. agricultural exports. We will continue to use WTO consultation and dispute settlement procedures, as well as our domestic laws, to remove these barriers.

NEW WTO ROUND

Now, we are focusing on building on the successes of the Uruguay Round in a new round of multilateral trade negotiations which will begin later this year at the WTO Ministerial in Seattle.

Here we will take up the work we began in the Uruguay Round: addressing market access, subsidies, new technology issues, state trading and more. The agenda we develop in these areas over the next few months will shape the trade agenda of the next decade; and success in achieving the agenda is enormously important for our national interests in agriculture.

In the past months, we have developed a broad agenda, which includes reducing tariffs and improving administration of tariff-rate-quotas; eliminating export subsidies; reducing trade-distorting domestic supports; stronger disciplines on the activities of state trading enterprises; and guarantees that decisions on biotechnology will be made on scientific grounds through transparent regulatory processes.

We are now developing specific goals in each of these areas through consultations with agricultural producer and commodity groups; private sector companies, academics and Congress. In an effort to hear what U.S. agriculture is saying about trade issues, we are holding a series of outreach sessions this spring jointly with the Department of Agriculture where we will get out of Washington, D.C. to hear directly from farmers, ranchers, agribusiness and others on the agenda that will help them most. We will issue a news release in the near future with additional details. In addition, we are also working with the House and Senate leadership to establish a congressional WTO advisory committee to work in conjunction with USDA and USTR to formalize our agricultural agenda.

At the same time, we are building consensus with our trading partners wherever possible. Export subsidies are an example, and a case on which we are doing reasonably well. We have the Cairns Group with its 15 members on record supporting this. In Miami, the 34 Western Hemisphere nations engaged in the Free Trade Area of the Americas talks are negotiating a hemispheric export subsidy free zone. Further, at the recent US-Africa Ministerial, Ambassador Barshefsky had a good exchange with 30 African trade ministers about the damage Europe's Common Agricultural Policy ­ which last year made up 85%, or six dollars in every seven, of world export subsidies ­ does to African farmers.

Overall, we are working toward an agreement that this Round can and should be completed rapidly. We believe three years is an appropriate time-table. And rapid results are especially important to agriculture given the expiration of the current commodity program provisions of the 1996 Act, the expiration of the Uruguay Round's peace clause in 2003, and the pressure the financial crisis has placed on so many farm and ranch families.

Agenda 2000 Reforms

Of course, we are watching very closely the EU's efforts to reform the Common Agricultural Policy ­ the so-called Agenda 2000 effort. Reform of the CAP is absolutely critical to providing the EU with the negotiating flexibility necessary to engage in further trade liberalization in the next Round.

On March 26, EU heads of state finalized the Agenda 2000 package of policy reforms and financial plans designed to position the EU for the accession of Poland and other East European countries. Unfortunately, EU leaders substantially weakened what was already a modest reform proposal.

Agenda 2000 moves the CAP down a path in the right direction of market orientation and toward eliminating the link between farm supports and production. The United States moved strongly in this direction with the 1996 Act. We support Agenda 2000's focus on economic efficiency and global competitiveness. More market orientation will bring benefits to European consumers, taxpayers, and the environment. A more market-oriented CAP will also serve to improve our trading relationship and the global trading system that benefits all countries.

However, Agenda 2000 simply does not go nearly far enough. The EU will need more flexibility and more thoroughgoing reform to negotiate substantial reductions in the use of trade-distorting policies in the upcoming WTO negotiations, and we hope that the EU will revisit its reform soon.

CHINA AND OTHER WTO ACCESSIONS

While the WTO has extended the rule of law and spirit of trade reform and liberalization to the agricultural trading relations of its 134 members, about one-quarter of the world population -- 1.5 billion people -- remains outside the system, unaccountable to its rules on market access and standards. The largest group of these is the reforming communist countries: Russia, Ukraine, other former Soviet republics, Indochina, and the world's largest nation, China.

Our goal, ultimately, is to bring all these countries into the system, on the commercially meaningful grounds its present members accept. This is a task of great importance. For these countries, accession to the WTO, with commercially meaningful commitments, will support domestic reform and support long-term growth. This will also complement our political and security policies by giving these nations a greater stake in peace and stability beyond their borders. In a sense, this is the contemporary equivalent of reintegrating Japan and Germany after World War II.

It is also, however, an immensely complex task. The issues we must address in the agricultural talks with China are a perfect example. China's trade barriers include state enterprise control over purchases of bulk commodities. And they extend to unscientific sanitary and phytosanitary standards, high tariffs and restrictive quotas at the border. But as complicated a task as this may be, it is not insoluble. And the progress we have made in the past months with China shows that.

The commitments we have achieved in our WTO negotiations address every one of these layers of trade barriers. In practical terms, they offer immense opportunities to producers. The pork industry estimates completing the accession could mean $100 million a year in sales. Poultry perhaps as much as $500 million. Citrus, $700 million; wheat, $460 million; rice, up to 100,000 metric tons of new exports, and on down the list. Let me review some specifics.

SPS Agreement

First, we reached an agreement on sanitary and phytosanitary standards which is already in effect. With this agreement, China has lifted its longstanding bans on U.S. citrus, beef, pork and poultry, and grain from the Pacific Northwest. Industry estimates that these restrictions have cost U.S. farmers billions of dollars in lost export opportunities over the past two decades.

This agreement also has potential benefits beyond these commodities. It includes provisions for technical cooperation and scientific exchange on a wide range of mutually beneficial topics, which can help us reach consensus with China on some very important issues in the next Round. For example, with over 1.2 billion people to feed, less than 7 percent of the world's arable land, and rapid construction in rural areas, China will benefit immensely from biotechnology and other techniques that raise yields. Thus, in a new Round China may well be one of our allies on these issues.

WTO Commitments

Second, we have made significant progress in the WTO accession. While negotiations remain ahead on several service sectors and other issues, China has already made commitments in agriculture extending to all commodities of interest to the U.S., and all issues from tariffs to quotas, bulk commodities and state trading. To give you a few specific examples:

Tariffs ­ China's agricultural tariffs will decline from an overall average of 22% to an average of 17.5%, and from 31% to14.5% for U.S. priority items. This compares to an average agricultural tariff of 50% for WTO members generally. And all cuts will occur within a maximum four-year time-frame; by contrast, WTO developing countries received ten years. So by 2004 China will cut its tariffs on beef from 45% to 12%; from 40% to 12% in citrus; 30% to 10% in apples; 50% to 12% in cheese; and 65% to 20% in wine. All tariffs will be bound at applied levels ­ that is, unlike many of our developing country trading partners, China will not be able to raise tariffs beyond these levels once it enters the WTO.

TRQs ­ With respect to bulk agricultural commodities -- wheat, corn, rice, cotton and so on -- China will adopt tariff-rate quotas on very liberal terms, with tariffs often in the 1% to 3% range. For example, China now imports about 2 million tons of wheat; after WTO entry, its wheat TRQ will open at 7.3 million tons, and rise to 9.3 million tons by 2004. In all these TRQs, private traders will be guaranteed a share of the TRQ and a right to use unused portions of the share given to state trading companies. This will help establish legitimate private-sector trade in China, and allow American producers to compete at market prices.

Finally, China will agree not to provide agricultural export subsidies. This is an important achievement in its own right, and a major step toward our goal of eliminating export subsidies in the next WTO Round.

Again, we have work ahead to reach a successful conclusion. But we have made very significant progress. We have reengaged with China to address the issues which remain incomplete, and we are hopeful that an agreement will shortly be reached.

CONCLUSION

Let me conclude with a thought about what I see as one of the most serious threats to the success of the next round of agricultural trade negotiations. The biggest threat comes not from other countries seeking to throw up protectionist walls or to replace market forces with state direction but from a lack of public confidence in the benefits of trade. Our greatest challenge is to ensure that as trade grows and becomes more important to our economy and daily lives, that the public will continue to support trade.

We see in the U.S., quite often, a growing distrust of trade and the institutions of world trade, and a growing number of people are quite ready and eager to blame any economic, social or political problem on trade.

But we need to address this problem, because we can not accept the alternative -- a return to protectionism and fear of the global economy. This requires a broader effort to improve public understanding of the benefits of trade. It requires that we ensure that the benefits of trade and technological advance be enjoyed by all countries and all of our citizens, it means reforming the institutions of trade, like the WTO, to make them more open and accessible to the public.

If we can improve understanding, if we can debunk so many of the myths of international trade, then the 1999 agriculture negotiations can fulfill the promise of the Uruguay Round for a world trading system prepared for the 21st century.


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