Statement by August Schumacher, Jr.
Under Secretary for Farm and Foreign Agricultural Services
U.S. Department of Agriculture
Before the Senate Finance Committee
Subcommittee on International Trade
March 15, 1999

Mr. Chairman, members of the Subcommittee, it is a pleasure to appear before you with Ambassador Peter Scher of the U.S. Trade Representative’s (USTR) office and Under Secretary of State Stuart Eizenstat to review U.S. trade relations with the European Union (EU) and China.

European Union

The 15 countries of the European Union make up the world's largest multi-nation trading bloc. With a population of 350 million affluent consumers, it is one of the world's most important markets. While our relationship with the EU is not without friction -- our list of trade issues with the EU is quite extensive -- bilateral agricultural trade between the United States and the EU averages more than $18 billion annually.

Although the bilateral balance of trade in these products still favors the United States, the gap is narrowing. U.S. imports of EU agricultural, fish and forestry products have risen every year for the past five years with imports totaling $7.9 billion in fiscal year (FY) 1998, up 30 percent from FY 1993. U.S. exports also have increased from $8.3 billion in FY 1993 to $10 billion in FY 1998. Soybeans and soybean meal and oil make up nearly a quarter of total U.S. agricultural exports to the EU, with sales of $2.3 billion in FY 1998. Other leading exports include feeds and fodders ($650 million), tree nuts ($644 million), hardwood lumber ($519 million) and processed fruits and vegetables ($355 million). In contrast, high valued and consumer oriented foods make up 70 percent of U.S. imports of European agricultural products. Leading the way is wine and beer with imports of $2.3 billion in FY 1998 followed by cheese and other dairy products ($646 million), snack foods including chocolate ($630 million), and processed fruits and vegetables ($405 million).

The EU is second only to the United States as an exporter of agricultural, fisheries and forest products. The EU’s agricultural policy, characterized by high internal price supports, import restrictions and export subsidies, is a frequent cause of tension between the United States and the EU.

Agenda 2000

The EU’s Common Agricultural Policy affects every exporting and importing country. The CAP is dragging us all down. It costs a fortune–some 50 percent of total EU expenditures. The CAP has perverse effects on trade, forcing the EU to use export subsidies to move product overseas and also restrict imports. It presents a major stumbling block to negotiating the next multilateral trade agreement through the World Trade Organization (WTO).

Just last week, the EU agricultural ministers voted on reform of the Common Agricultural Policy. That vote was a disappointment not only to the United States, but to all other agricultural producing nations as well.

The Ministers had an opportunity to make much-needed reforms to their farm policy. This disappointing result makes it even more important that we strive for genuine reform in the upcoming round of multilateral trade negotiations under the WTO.

What the Ministers agreed upon is not much more than maintaining the status quo. For example, it appears there will be no reform of dairy policies for several years and intervention price cuts are modest at best. The failure to act boldly raises serious concerns that the EU will continue to use export subsidies to compete unfairly in world markets.

At this point in the process, the EU still has the opportunity to embrace a more market-oriented farm policy. The more market orientation Agenda 2000 brings to Europe, the better it will serve Europe and the world. The United States believes that the key to restoring farm incomes is not maintaining trade-distorting production subsidies and the accompanying trade barriers, but creating productive, competitive farm sectors with access to foreign markets.

Accessions to the EU

We are also following accessions by Central and East European countries to the EU. While past EU accessions of other countries, such as Spain, Greece, and Portugal, have been economically beneficial to those countries and contributed to European political and economic stability, we remain concerned that EU enlargement could limit U.S. trade potential, and we will seek assurance that our farmers will have continued access to markets in an expanded EU.

EU Restrictions on Beef Imports

Three issues have dominated our discussions with the EU in recent years. I call these the "three B’s" – beef, biotech, and bananas. EU rules regarding imports of beef and bananas have been the subject of two very important WTO dispute settlement body decisions which raise a fundamental question: Are nations going to live by the rules-based system that we agreed to under the Uruguay Round, and which today is the foundation of our world trading system?

The WTO ruled in favor of the United States -- in the original panel decisions and on appeal -- in both the beef hormone case and the dispute over bananas. In the case of bananas, we disagree as to whether the EU has taken sufficient steps to comply with the WTO decision. While I will defer to Ambassador Scher and Under Secretary Eizenstat on bananas, I would like to give you some background on the beef issue.

The Uruguay Round Agreement on Sanitary and Phytosanitary Measures established new obligations and principles for members of the WTO to base their sanitary and phytosanitary measures on science. In maintaining its unscientific ban, the EU does nothing to further the objective of protecting public health, but instead undermines the WTO Sanitary and Phytosanitary Agreement and invites other countries to renege on their international obligations.

U.S. beef is safe. The United States has an extensive regulatory control system to ensure the proper use of these hormones. The U.S. system includes comprehensive food safety standards that are based on sound, internationally recognized scientific criteria. The Food and Drug Administration and USDA work together to provide consumers with a safe food product by ensuring the proper use of hormones in cattle.

The United States has approved six hormones for use in fattening cattle. The three natural hormones (estradiol, progesterone, and testosterone) occur naturally in all humans and in all food animals, and in many daily food products. The three synthetic hormones (zeranol, trenbolone acetate, and melengestrol acetate) mimic the growth promoting effects of the natural hormones. As fattening agents, these hormones have several economic, health and environmental benefits: the resulting beef is leaner; less feed is needed to produce the same amount of meat; and animals produce less waste.

The international community has been studying the use of growth promotants in cattle for decades and has concluded that these approved and licensed products are safe when used in accordance with good veterinary practice. Both the EU Lamming Committee and 1995 EU Conference on Growth Promotants concluded that there was no public health risk from consuming beef from hormone-treated animals. All six approved hormones have been used without negative effects on public health in the United States and many other countries for decades.

The United States is increasingly concerned that the EU shows no visible signs of taking even the first steps to come into compliance -- to remove the ban -- and yet the May 13 deadline for compliance is fast approaching. If we are to avoid another direct confrontation as in the banana case, then the EU must demonstrate soon its commitment to removing the ban.

EU Biotechnology Approval Process and Labeling

The third issue I mentioned, access for products derived using modern methods of biotechnology, has not been addressed in the WTO context, but is equally important.

The world’s farmers and ranchers face two difficult challenges at the dawn of the 21^st century: first, to grow more food at lower cost, higher quality, and greater variety than ever before; and second, to produce this abundance on a shrinking natural resource base amid growing concerns about the effect of agricultural practices on the environment. Many countries, including the United States, are working vigorously on technological improvements to meet the need for food and fiber in the coming years.

U.S. Federal regulatory policy recognizes that safety is the paramount concern with any technology or production process. In 1986, we established a framework for regulating biotechnology. It is a system designed to carefully evaluate products for risks to human, animal, and plant health, and risks to environmental safety. Product approvals are grounded in rigorous scientific assessments so that the risks are addressed before products reach the market.

The U.S. regulatory process is an open and public process. The Federal agencies responsible for these products have all held open public meetings with scientific advisory panels when developing their overall framework and when reviewing specific products. Each agency maintains a web site so that the public can see exactly which products are under review. Unfortunately, other countries have not matched their scientific advances with the necessary policy and regulatory adjustments. This is the case in the EU. We recognize the right of all countries to review the safety of these products. However, we remain very concerned about the ad hoc nature of the EU approval process and EU delays -- for purely political reasons -- in granting approvals for biotech products.

U.S. products from biotechnology face increasing barriers in the EU market. Our problems are primarily two-fold: delays in product approval and burdensome labeling.

While in the United States, on average, a company can secure final regulatory approval for a product of biotechnology within 9 months of a company’s submission; the average EU approval takes 18 to 24 months. The EU approval process has been problematic from the beginning. Political pressure to block products from biotechnology has increased in a number of EU countries and member state objections to individual products have become the norm. As a result, this slow process has ground to a halt.

With the exception of two carnation varieties, no new biotech product has been approved by the Commission since March 1998. Even after EU scientific committee approval of products, member states like France have held up the approval of corn varieties for 6 months, effectively blocking the export of U.S. corn to the EU for most of 1998. As a result, U.S. corn growers lost $200 million in export sales in 1998, and face similar losses in 1999.

Implementation of the EU’s novel food legislation in 1998 is adding to the slowdown. This legislation contains labeling regulations that have added to the confusion. On September 3, 1998, the EU implemented mandatory labeling on foods containing genetically modified corn and soybeans. However, details still have not been provided to food processors as to how the regulation will be implemented: companies still do not know which products will be exempt, testing procedures for detecting products from biotechnology, or de minimus levels. Even companies that are trying to export products that are not genetically engineered are having problems. Since the EU has not established clear testing procedures or de minimus levels, companies cannot demonstrate that their products are not bioengineered.

The United States has raised concerns about the EU’s labeling policy to the EU Commission and in the World Trade Organization’s Technical Barriers to Trade Committee. The United States has questioned the scientific basis of a number of these issues with the EU and finds many aspects of the labeling regulation ambiguous and impractical.

Furthermore, the EU Parliament has recently proposed amendments to relevant EU legislation that, if adopted, could threaten any future approvals. These amendments might put so many restrictions on the import of goods containing biotech products, that agricultural products from the United States and other countries could be severely restricted. This could threaten EU biotech investment, development, and marketing of biotech products, sharply restricting U.S. agricultural exports to the EU.

We continue to encourage the EU to evaluate genetically modified products using scientifically based analysis and to keep U.S. exporters informed of developments in the EU to help ensure that there is no disruption of trade. In addition, we use every opportunity to educate EU officials and others about the U.S. regulatory process and product safety. Our agricultural counselors and attaches discuss these issues on a nearly daily basis with their counterparts, with regulators, the media, and consumer groups throughout Europe. USDA officials have met with EU member state regulators, given speeches at numerous European conferences, and even testified before the British House of Lords. We have invited groups of European decision makers, government officials, scientists, and journalists to come to the United States to meet with government officials, farmers who use the technology, company representatives who develop the products, and commodity buyers and sellers along the food handling process. In this way, Europeans can see for themselves how we regulate products from biotechnology, how broadly the technology has spread in the United States and why segregation of products from biotechnology from non-biotech products would be unnecessary, difficult, and expensive.

For the future, approval of products from biotechnology was one area identified under the Transatlantic Economic Partnership (TEP) process that could be improved through greater cooperation between EU and U.S. regulatory agencies. A TEP Biotech Working Group met for the first time on February 11 to begin discussing terms of reference for a pilot project that would lead to a comparison and, where possible, harmonization, of certain aspects of U.S. and EU member country regulatory review processes for transgenic plants.

China

Ambassador Scher has brought you up-to-date on the progress of our talks with China over its WTO accession. USDA, as a member of the inter-agency team, is working closely with USTR on this accession.

China is an important market for U.S. agriculture -- both as a customer and a competitor. Last year, Greater China (China and Hong Kong) purchased $3.3 billion in agricultural, fish, and forest products from the United States. Chinese demand for U.S. poultry, meat and produce is high, and China has become a major market for U.S. soybeans, oil, and meal. The United States imported about $1.6 billion in agricultural, fish, and forest products from China, with forest products and fish accounting for nearly half of the total. In addition, China is a major competitor in the world markets, especially for bulk commodities. For example, in recent months China has been a major exporter of corn.

Economic reforms in China, combined with a broad-based financial recovery in Asia, could trigger much more rapid growth in demand as a result of rising incomes, a growing middle class, and changing diets. In fact, Chinese leaders recently announced their plans for reform in 1999. The government is planning for 7 percent growth, compared to 7.8 percent last year.

However, future trends in China’s agricultural trade remain something of a question mark, but a very important question mark in the global outlook. Current projections indicate only modest growth in China’s import demand for most bulk commodities, as well as significant potential for boosting Chinese crop yields.

Making long-term projections of China’s agricultural production and trade remains notoriously difficult. Frequent policy changes, lack of good data, and the sheer size of its economy make China the wild card in the international trade outlook. However, we must continue to ensure that U.S. agriculture is well-positioned to take advantage of the many trade opportunities in the Chinese market.

This concludes my statement, Mr. Chairman. I will be glad to answer any questions.