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 Mr. Nels Smith
President
Wyoming Stock Growers Association


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

I am Nels Smith, a cattle rancher near Sundance, Wyoming. I am currently serving as president of the Wyoming Stock Growers Association. Having a weakness for public affairs, I also spent 16 years as a state legislator and nearly 8 years as a Public Service Commissioner, which gave me the opportunity to learn from the inside how government agencies really work.

Mr. Chairman, I am here today because ours is a 5th generation family ranch operation on the same land. Whether we, and many other ranches like ours, continue to raise beef cattle, convert to condos, shift our business focus, or in some cases, stay in business at all, can and probably will be affected by the agencies and activities you are reviewing here today.

The IMF, World Bank, and World Trade Organization can and do make a significant difference in our balance (or imbalance) of payments and whether "free" trade is also fair and bi-directional.

When the IMF and the International Bank for Recovery and Development were established in 1944 as a result of the Bretton Woods Conference, their mission was to provide stability and progress in the face of the economic chaos that would otherwise inevitably follow WW II. After 27 years the success had been so great that the mission was outdated. In about 1971 the role of the IMF was changed and fixed exchange rates were abolished, in part because the U.S. dollar was fixed at an unrealistically high value, producing alarming balance of trade deficits. These deficits were minuscule compared to what we are facing today. One of the few bright spots in the picture is agriculture. If the contribution of agriculture, particularly cattle and beef, to a positive balance of trade is to be maintained, some factors and problems need to be addressed. The current EU beef barricade is a prime example. The EU since 1989 has had a ban on the importation of US beef. This non-tariff barrier was based on the invalid allegations that the use of growth promotants made U.S. beef unsafe. In January 1996, the United States filed a formal complaint with the WTO against this non-tariff barrier. Argentina, Australia and New Zealand joined us in that action. Canada filed a separate action. In May 1997, the WTO ruled that the EU ban was not based on sound science and therefore not consistent with WTO obligations. In September 1997, the EU appealed this ruling. On January 15, 1999, the WTO appellate panel released its final ruling that the EU ban on beef produced with growth promotants is a non-tariff barrier and does not comply with global trading rules. A WTO arbitrator upheld the previous rulings and gave the EU until May 13, 1999 to bring its regulations into compliance with WTO guidelines. If the EU does not comply, the U.S. can retaliate. Retaliation could begin as early as June 12, 1999, when authorized by the WTO Dispute Settlement Body, or on July 12, 1999, if the EU appeals the amount of the retaliation. We doubt that the May 13 deadline will be met. As recent as yesterday, the EU continues to bring forth unsubstantiated claims of health threats from these USFDA approved hormones in an effort to avoid compliance with WTO.

I could go on with more specifics, but I would exhaust my time and your patience. Let me list some concerns and potential options.

Concerns

The public lacks confidence in trade negotiations in general. There is a belief that the U.S. meekly complies with adverse rulings and does not vigorously advance the cause of U.S. business and citizens.

There is a strong and growing perception that U.S. taxpayers are putting money into the IMF to bail out international bankers who have made bad loans. The present WTO dispute resolution mechanism, while better than its GATT predecessor, provides no incentives for prompt settlement. In fact, it rewards obstruction or delay.

In our legitimate desire to develop foreign markets some have lost sight of the fact that, for the U.S. to realize a net benefit from these markets, they must be an enhancement to, not a substitute for, our domestic markets. We must vigorously defend that market against imports that are unfair, ruinous, or both. We believe U.S. trade negotiators and regulatory agencies are often focused on developing protocols and regulations to accommodate countries seeking access to U.S. markets rather than working on the removal of tariffs and other barriers in our potential export countries.

Solutions

In addressing trade barriers we need the Carla Hills approach. Those of you who have been around long enough will remember that when she was our U.S. Trade Representative, she said "We’ll negotiate, but if that doesn’t work, we’ll use a crowbar." Not surprisingly, negotiations were more successful following that statement.

Teeth could be put into the rulings of the WTO by requiring the offending party to pay into a compensation escrow account upon the initial ruling retro-active to the beginning of the offense and payable upon final determination an amount at least equal to the total costs to the aggrieved party. There should be no reopening of WTO negotiations until existing disputes and processes under GATT, WTO and NAFTA are resolved. Let me emphasize resolved, not just addressed. People in this town have reached retirement after a career of "addressing" issues without ever resolving even one. When the existing questions are resolved, then, and only then, should we negotiate additional trade liberalization. The members of the Wyoming Stock Growers Association expressed their frustration with the current implementation of our trade agreements when they passed the following resolution in December, 1998: "Although we are not in favor of NAFTA or GATT, they have been forced upon us; therefore, we support strict enforcement of all laws and agreements pertaining to NAFTA and GATT to improve the viability and control of those agreements."

IMF loans and other support from the U.S. become less and less tied to our interests at each link of a very long chain. I recommend that such loans be made only to avert the real and imminent threat of a cascading international economic collapse, or when the interests of a U.S. industry (i.e. U.S. cattle producers) are directly and inviolately linked to the conditions of the loan. This should include the removal of all trade barriers to our exports to those countries receiving loans.

Since the linkage and leverage of IMF related bailouts are so tenuous, I believe U.S. taxpayer dollars would be better used as a passthrough under mechanisms such as the Export Enhancement Program or GSM guarantees. In this way, we insure that the distressed country can buy needed products and that those products come from us.

There are those who contend that fast track authority is the answer to our foreign trade negotiation problems. I cannot accept that the U.S. will be excluded from the table for lack of this authority. As a former legislator, I am reluctant to be placed in a "take it or leave it—no amendments" situation. The Wyoming Stock Growers Association has expressed its opposition to fast track authority for the President through policy adopted in December 1998. If there is any argument for fast track authorization, it should be made only after pending trade issues have been fully resolved.




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