Statement by August Schumacher, Jr.
Under Secretary for Farm and Foreign Agricultural Services
U.S. Department of Agriculture
House Ways and Means Committee
Subcommittee on Trade
February 12, 1998
Mr. Chairman, members of the Committee, it is a pleasure to appear before you with Ambassador Scher to discuss U.S. efforts to reduce barriers to trade.
American Global Competitiveness
First let me start by saying that by all measurable accounts, U.S. agricultural trade policy has helped put our food and agricultural sector on the road to success. Recent trade liberalization agreements such as the North American Free Trade Agreement (NAFTA) and the Uruguay Round Agreement on Agriculture are landmark accomplishments that lay the groundwork for long-term growth in U.S. agricultural trade. These bipartisan efforts have helped free American producers from some of the most egregious trade barriers and have allowed them to do what they do best--produce high-quality, economical food, fiber and wood products.
In fiscal year 1997, U.S. agricultural exports reached $57.3 billion, the second highest level on record. Last year also marked the third consecutive year that exports topped $50 billion.
Exports of intermediate products (such as soybean meal and planting seeds) set a record at $12.3 billion. Consumer-oriented products also reached a record level of $20.8 billion, with poultry and fresh fruit leading the way. Exports of bulk products were down 16 percent in value because reduced wheat, corn, and cotton sales offset record soybean and tobacco sales.
Four of 1997's top 10 markets for U.S. agricultural exports rose to new highs. Records were set in exports to our NAFTA partners, Canada and Mexico. Together, these two countries accounted for $11.7 billion in U.S. exports this past year, 20 percent of our total agricultural exports worldwide and greater than our sales to Japan. Records were also set in exports to Hong Kong and Russia. However, we also experienced declines in other top markets with value declines in exports to three key Asian markets--Japan, Taiwan, South Korea--ranging from 10 to 12 percent, in 1997.
The Latin American market continues to grow in importance for U.S. agriculture. U.S. exports to Latin America reached $10 billion in 1997, exceeding the total for all of Western Europe.
As usual, agriculture made a healthy contribution to the U.S. trade balance in fiscal 1997. The agricultural trade surplus (exports minus imports) ended the year at $21.5 billion. With this latest figure, agriculture has now registered trade surpluses in each of the last 37 years.
Trade Policy Challenges
Despite these positive export numbers, trade policy challenges remain. I would like to spend a few minutes outlining our priorities for the next two years.
The Asian financial situation has taught us that ours is indeed a global economy. East Asia is an important market for Americas farmers. Overall, it accounts for 40 percent of our agricultural exports, or $23 billion annually. During 1991-97, Asia accounted for 45 percent of our export growth.
U.S. agricultural exports will be lower in fiscal years 1998 and 1999 compared with what they would have been without the problems in Asia. The cumulative effect will be greater than the Departments initial estimate of $500 million, but it is difficult to say how much more. The effect will depend on many things, including the use of our CCC export credit guarantee programs, the progress in stabilization of Asian economies, and the degree to which these countries implement structural reforms and liberalize their import regimes as called for by the International Monetary Fund (IMF), World Bank and Asian Development Bank reform packages. The imposition of IMF-supported economic reforms is resulting in strides in trade policy and import regimes that will benefit U.S. agriculture. For example, Indonesia, effective February 1, reduced tariffs on imported food products from the 20- to 40-percent range to a top rate of only 5 percent. More than 500 tariff line items have been lowered. As a result, U.S. producers are more competitive.
The IMF structural adjustment package calls for BULOG (Indonesias sole importer of wheat, wheat flour, rice, sugar, garlic, and soybeans) to relinquish monopoly control of imports of wheat, wheat flour, soybeans, sugar, and garlic. Rice will remain under BULOGs control. The lifting of BULOGs monopoly of wheat imports and wheat flour distribution could increase exports of U.S. wheat. In recent years, the U.S. share of Indonesias wheat imports has normally not exceeded 10 percent due to competition from Australia, which has proximity and freight advantages and a monopolistic wheat board. However, two new, smaller Indonesian mills are likely to aim toward quality and specialty markets that require higher protein wheat, potentially boosting U.S. wheat sales to this growing, 4.5-million-ton market.
In addition, the Indonesian government has agreed to dissolve APKINDO, its Hardwood Plywood Marketing Board, effective February 1. This could offer increased opportunities to U.S. exporters of wood panel products over the long term. However, these opportunities may be difficult to seize in the short term, since the sharp devaluation of the Indonesian rupiah has made Indonesian wood products very competitive.
In Korea, the IMF agreement specifically requires Korea to move toward trade liberalization -- a move that would resolve several longstanding problems for the United States.
In January, Korea began to harmonize its standards with international codes, which will increase access for U.S. exporters. Korea has revised pesticide tolerance levels in harmonization with CODEX, which should allow U.S. fresh fruit shipments to enter Korea unimpeded. Under the IMF agreement, Korea agreed to address the problem of import licensing. Elimination of restrictive licensing will provide Korean food industries with needed inputs at lower prices and could lead to the solution of a number of longstanding access problems for U.S. exporters of such items as corn grits, soyflakes, and peanuts.
The outlook for American agriculture is closely linked to our export efforts and the overall recovery of these economies with the benefit of IMF support. Because agricultural exports are so important in terms of producer prices and, ultimately, farm income, we at USDA will be working to do everything possible to keep Americas farm trade flowing to these critical markets.
U.S.-EU Trade Issues
Perhaps nowhere are we facing greater challenges on trade policy issues than in our dealings with the European Union (EU). It is unfortunate that the United States and the EU appeared to be on the verge of trade wars more often than not in the past few years. Free trade, but more importantly fair trade, is important to the United States. However, the EU continues to adopt policies that are unnecessarily restrictive, resulting in serious consequences for U.S. trade. As long as the EU continues to disregard its obligations under the World Trade Organization (WTO), we will do whatever is necessary to protect our trade interests.
Of particular importance is the EUs longstanding hormone ban that has hurt U.S. beef exports to that lucrative market for more than 10 years. On January 16, the WTO Appellate Body released its review of the August 1997 Panel decision on the EUs ban. The most important point is that the appellate report firmly upheld the panels finding that the EU ban is inconsistent with the Uruguay Round Sanitary and Phytosanitary (SPS) Agreement and calls for the EU to bring its measure into conformity with its WTO obligations. This latest report clearly affirms the earlier Panels finding that the EU ban was imposed and maintained without credible scientific evidence. Removing the beef import ban has now become a serious international obligation for the EU, and we expect them to fulfill it.
Biotechnology and Trade
Because of the importance that biotechnology plays in new agricultural products, USDA has recently established a Department-wide working group on biotechnology that will coordinate the Departments efforts in this area. USDA, in coordination with other U.S. regulatory agencies, USTR, and industry groups has initiated harmonization efforts in a number of multilateral and bilateral fora.
The EU Commission has already approved two biotechnology products. However, other products still face a lengthy EU approval process and consumer opposition in several Member States. The U.S. government continues to hold discussions with the EU to encourage the EU to evaluate genetically modified products using scientifically based analysis. USDA is also working closely with the developers of genetically modified products, manufacturers of processed products, and exporters to keep them informed of developments in the EU.
A biotechnology initiative has been undertaken in the Asia Pacific Economic Cooperation (APEC) forum and was endorsed at the recent APEC Ministerial. Bilateral harmonization efforts continue with Japan; Japan has approved 14 products. In addition, USDA has played a prominent role in developing the U.S. position for the negotiation of a Biosafety Protocol under the Convention on Biodiversity.
As we begin to prepare for upcoming WTO agricultural trade negotiations (set to begin at the end of 1999) that will continue the reform process, we are faced with some unfinished business. Some issues currently outstanding will be resolved as the terms of the Uruguay Round Agreements are implemented. However, other areas will require further negotiation in the new talks. Since the conclusion of the Uruguay Round negotiations, our primary trade policy focus has been on ensuring compliance with the terms of the Uruguay Round agreements by our trading partners. We believe monitoring other countries compliance with these and other agreements (NAFTA and numerous bilateral agreements) is vital if the United States is to realize their full benefits.
Through the WTO Committees on Agriculture and Sanitary and Phytosanitary Measures and through consultations and bilateral meetings, we have sought to ensure that all countries understand and implement their WTO obligations. While we have successfully resolved issues, some outstanding disputes remain with regard to implementation in the areas of market access, subsidy commitments, and sanitary and phytosanitary issues.
Market access and subsidy commitments
For the most part, countries are living up to their commitments to eliminate non-tariff barriers, lower duties, open tariff rate quotas (TRQs), and reduce subsidies. However, there are some instances where these commitments have not been kept. For example, Canada is circumventing its export subsidies commitments on dairy products through a system of special milk classes. We have launched a panel request in the WTO dispute settlement body.
We are also concerned that the EU is subsidizing more cheese exports than allowed by the Uruguay Round Agreement on Agriculture. We have held WTO consultations with the EU on this issue. We are now working with USTR to consider additional action, which may include launching a request for dispute settlement through the WTO.
We are also working to improve market access for U.S. rice in Japan. Japanese consumers prefer American rice, as demonstrated by the level of U.S. market share in private simultaneous buy and sell (SBS) tenders that bring U.S. exporters and Japanese users in direct contact.
We are using the dispute settlement mechanism to resolve several cases of importance to U.S. exporters. Two issues that have been addressed are Hungary providing export subsidies at higher levels on a substantially broader group of products (i.e., fruits, vegetables and dairy products) than were included in its WTO schedule of commitments and the Philippines administering its pork and poultry TRQs in a manner that assures that they will not be filled.
In these cases, the United States and other concerned countries first raised the issue as part of the monitoring process in the WTO Committee on Agriculture and followed up by informal consultations under the auspices of the Chairman of that Committee. Because Hungary refused to resolve our concerns about its use of excessive export subsidies, the United States and three other countries requested a dispute settlement panel on the issue. We were able to bring the Hungarians into compliance with the WTO and protect our export interests. We have nearly concluded our negotiations with the Philippines on implementation of revisions to the system of administration of tariff-rate quotas for pork and poultry.
Sanitary and phytosanitary issues
We have placed special emphasis on monitoring and aggressively challenging other countries use of non-scientifically based SPS standards that unfairly restrict U.S. access to foreign markets. In addition, the United States is playing a leading role in the WTO Committee on SPS measures.
A recent GAO report raises the issue of better government coordination of SPS issues. Over the past few years, USDA has taken numerous steps to strengthen how USDA and other agencies address these trade issues. We are working with the other agencies involved to prepare a statement of action that outlines coordinated goals and objectives to respond to SPS issues.
We believe that some countries are using specious scientific claims to support SPS measures that unfairly restrict market access for U.S. agricultural products. While we have resolved a number of SPS issues successfully through the WTO, estimates of lost global trade due to SPS barriers range as high as nearly $5 billion annually.
We are working to resolve U.S. concerns over Japans restrictions on imports of U.S. apples and other fruits, for which Japan is requiring variety-by-variety testing on the efficacy of quarantine treatment for pests. We began formal dispute settlement consultations with Japan on this issue last February. After years of negotiation, last year Japan opened its market to U.S. tomatoes. The potential value of the Japanese tomato market may be as high as $20 million annually. Taiwan also has removed its ban on imports of U.S. tomatoes.
In addition to focusing on WTO implementation, USDA is actively working with USTR and the more than 25 nations that are currently applying to the WTO for full membership in the world trading community. Trading partners such as China, Russia, Taiwan, Vietnam, Saudi Arabia and Ukraine must demonstrate that their trade regimes comply with WTO rules and improve market access for imported agricultural products. We are working to help these countries put into place the disciplines and access commitments commensurate with those made by the 125 countries involved in the Uruguay Round trade negotiations. It is particularly important for us to examine the trading practices of the countries of the former Soviet Union and China to ensure that our agricultural producers are able to compete fairly in those markets and in third countries. As part of this effort, USDA is focusing on the areas of market access, internal support, export subsidies and SPS measures.
The United States has intensified discussion with China, but the ball is now in Chinas court to make the difficult decisions required for WTO membership. USDA and USTR officials have met numerous times with Chinese negotiators and emphasized the importance of a strong commercial agreement with specific commitments to improve market access, discipline subsidies, and apply the WTO rules on sanitary and phytosanitary measures to Chinas trade regime.
It is difficult to mention China without discussing the issue of state trading enterprises, although this issue is not exclusive to China. We are aggressively pursuing the issue of state trading in a number of fora--notably, we have made state trading a top priority in the accession of the countries of the former Soviet Union and China to the WTO.
In the WTO, we are also using the Working Party on State Trading Enterprises to review activities of state trading enterprises to determine if their practices are WTO-consistent, and we are working on strengthening reporting requirements for those organizations so a clearer picture of their activities can be obtained. In the Organization for Economic Cooperation and Development (OECD), we have raised state trading practices in the context of the ongoing negotiations regarding agricultural export credits and credit guarantees. We have also raised state trading in the Free Trade Agreement of the Americas (FTAA) discussions on subsidies and unfair export practices.
Additional Negotiation of Free Trade Agreements
President Clinton has repeatedly stated how important it is to have fast-track negotiating authority so that the United States can negotiate to expand access for U.S. products abroad. We support the Administrations efforts to build consensus for fast track based on the understanding that we cannot influence other countries decisions by backing away from trade with them.
Regional Trading Arrangements: FTAA/APEC
Another major facet of trade policy we must address in coming years is the growing trend toward regional trading groups. The EU continues to grow; South American countries have formed several groupings, including MERCOSUR and the Andean Pact; and our NAFTA partners Canada and Mexico have already negotiated preferential agreements with Chile. In Asia the ASEAN group is taking measures to strengthen its members ties with one another, and Australia and New Zealand are doing the same.
The United States is also participating in regional liberalization through the Asian Pacific Economic Cooperation (APEC) forum and the FTAA processes. In APEC, we are taking part in a number of activities to provide for greater cooperation and transparency on technical issues such as import requirements, plant and animal quarantine, biotechnology and agricultural finance. APEC has adopted the goal of attaining free trade in the Asia Pacific region by the year 2020 for developing countries and 2010 for developed countries. The FTAA process has the ultimate goal of free trade among its members in the Western Hemisphere, with negotiations to be completed by 2005. USDA objectives in the FTAA focus on encouraging the countries of the hemisphere to understand and implement their WTO obligations on SPS measures, and on identifying and developing strategies for reducing trade-distorting export practices affecting agricultural trade in and with the hemisphere.
Future WTO Negotiations: Continuing the Reform Process
As important as the Uruguay Round was for initiating the process of liberalizing world trade in agricultural products, a lot of work remains to be done. WTO members agreed to begin negotiations on the next phase of agricultural trade liberalization at the end of 1999. These negotiations are the best chance U.S. agriculture has for further reducing tariffs, opening new markets, and addressing unfair trade practices on a global scale. Fast track authority was critical in concluding the Uruguay Round, and renewed authority is viewed as essential for U.S. negotiating credibility and success in future WTO negotiations. Several key issues stand out:
Substantial further reductions in tariffs are needed.
Tariff-rate quotas (TRQ's) should be substantially increased or effectively eliminated by cutting the out-of-quota duty.
Export subsidies should be substantially cut or eliminated.
Rigorous disciplines should be imposed on the activities of state trading enterprises.
Tighter disciplines are needed to prevent countries from circumventing their trade commitments through disguised subsidies and nontariff measures.
Rules on sanitary and phytosanitary measures should be tightened so countries cannot disguise protectionist intentions or pander to irrational concerns regarding public health.
We recognize that even with full compliance with WTO rules, global agricultural trade barriers and trade-distorting export practices by competitors remain high relative to other industries. This inhibits U.S. agriculture from reaching its full export potential. We are exploring these issues to determine what they mean for future negotiations. We also will seek input from our private sector advisors and the general public.
As you can see, Mr. Chairman, much work lies ahead, but we are optimistic about the future for U.S. agricultural exports, and we believe U.S. agriculture is up to the challenge. We look forward to working with our partners throughout U.S. agriculture to meet this challenge.