Statement by Paul Drazek
Special Assistant to the Secretary for Trade
U.S. Department of Agriculture
Senate Committee on Finance
Subcommittee on International Trade
May 15, 1997
Mr. Chairman, members of the Committee, it is a pleasure to appear before you to discuss market access barriers facing U.S. agriculture.
Past Cooperation Leads to Today's Trade Success
Before I address the subject of today's hearing, I'd like to report briefly on U.S. agriculture's export performance. There's no question that U.S. agricultural exports are a bright spot in our nation's trade picture. Fiscal 1996 was another record year for U.S. agricultural exports, with exports reaching $59.8 billion -- the second consecutive year of record export growth.
Today we are the world's leading exporter of agricultural products, commanding a 21 percent share of world agricultural trade. The U.S. agricultural trade surplus was $27 billion in 1996--the largest farm-trade surplus in history--making the agricultural sector the largest positive contributor to the U.S. balance of trade.
The success of U.S. agriculture in the international marketplace reflects a decade of bipartisan efforts to put American agriculture on a level playing field in the global arena. Recent trade agreements such as the North American Free Trade Agreement (NAFTA) and the Uruguay Round Agreements are landmark accomplishments. The continuing profitability and viability of U.S. agriculture depends on the ability of U.S. producers to be competitive in a world market.
Barriers Continue to Hinder Exports
Few dispute the claim that the United States is the world's most competitive producer of food and agricultural products in the world. While the United States has done well in world trade, our competitive edge has not reached its full potential due largely to the high levels of import protection and export assistance that other nations offer their producers.
On the positive side, we have had success working with Korea to change that country's import clearance system and laboratory approval requirements. And just this week we announced new market access for U.S. fruits and vegetables in Chile and China.
But many challenges remain. For example, we continue to work on a whole range of trade issues with the European Union (EU), particularly in the livestock sector.
Just two weeks ago, we reached agreement with the EU on veterinary equivalency, an agreement that we believe is an important first step toward resolving some of the remaining key issues.
This is a good agreement, although not perfect. On the positive side, this agreement should open new trade opportunities for red meat, and preserve most pre-existing trade in products such as petfood, dairy and egg products. In the short-term, we expect the U.S. pork industry to be the biggest beneficiary. As a result of the agreement, U.S. exporters can pursue sales under the EU's 38,000-ton tariff-rate quota (TRQ) for pork loins that was negotiated as part of the Uruguay Round Agreement.
On the negative side, we were unable to resolve all the poultry issues. As a result, the United States could lose up to $50 million in annual poultry meat exports. This is completely unacceptable. As Secretary Glickman has said, the EU's insistence that U.S. poultry comply with every prescriptive EU poultry regulation is out-of-step with the EU's trade obligations.
The United States will continue to pursue a resolution to these issues under the framework agreement. In the meantime, the United States will begin a thorough examination of the EU's poultry inspection system and its ability to meet tough U.S. inspection rules. As of May 1, EU poultry plants are not eligible to ship product to the United States until we are able to conduct appropriate inspections and confirm that the appropriate level of protection is achieved.
So where do we go from here? Even as we begin plant-by-plant inspections for poultry in Europe, we intend to continue to work to reach an acceptable resolution in the coming months, working through the framework agreement.
We're also working with the U.S. poultry industry to use the full resources of USDA to
target opportunities in other markets to make up for sales lost as a result of the EU's actions. In addition, there is nothing in the agreement that prevents us from challenging the EU in the World Trade Organization (WTO). I want to assure the Committee that we are taking and will continue to take strong actions to protect U.S. interests in this area.
The EU hormone ban is one issue that we have already taken to the WTO. We have received the interim report, which is confidential, so I cannot comment on it. However, the United States remains confident that the WTO will conclude that the EU ban is inconsistent with international trade rules.
The European Union has also proven difficult on the important issue of biotechnology. Despite the EU approval of two biotech products (Roundup Ready soybeans and BT-resistant corn), actions of various EU member states are jeopardizing implementation of these approvals and thus U.S. exports of soybeans and corn. USDA will continue to work with other agencies and with U.S. industry to ensure that EU governments use sound science in making decisions, and to address the concerns on the part of uninformed EU consumers.
The United States views biotechnology not as a threat, but as an opportunity. It is an opportunity to improve the environment by lowering inputs use, and an opportunity to raise productivity while reducing the costs of production. The United States has a long history of using technological advances to enhance its international competitiveness. Biotechnology is the next logical step in that process. In fact, productivity gains are not only welcome, they are essential to meet the long-term food security needs of the world's population.
We are working to resolve bilateral issues with other partners as well, such as Indonesia's proposed import requirements for fresh fruits and vegetables and Japan's restrictions on imports of U.S. apples. We are also holding discussions with China, Taiwan, and Russia over their accession to the WTO. These are three of the most important markets for U.S. agriculture. The accession negotiations provide an excellent opportunity for the United States to address specific trade barriers and unfair trade practices while also working with the potential members to bring their trade regimes into conformity with WTO rules. We must ensure that China, in particular, agrees to liberalize its market further as a condition for full membership in the WTO.
Meeting the Competition
In addition to market access barriers, one of our biggest challenges is the stiff competition we continue to face in the export market. Clearly, competitor governments will continue to support their agricultural sectors, and a number of countries have proposed increased funding for their "green box" (or permitted) market development activities. Last year, governments of the EU and 22 other major exporting countries spent an estimated $265 million for non-price promotion activities, activities similar to those under USDA's Market Access Program (MAP) and the Foreign Market Development Program (FMD). Producers in those countries provided an additional $485 million for promotion activities. Recently, for example, Danish hog producers and processors sought increased EU support for market development activities in high-value, third-country markets (Japan and the United States) as compensation for Uruguay Round reductions in export subsidies.
Some exporters, most notably the EU, will continue to use export subsidies at Uruguay Round-disciplined levels and will conduct allowed activities such as credit and credit guarantee programs and non-price export promotion programs. EU export subsidies in 1997 are expected to exceed $7 billion, over $1 billion of which is estimated for grains alone. But what is less widely known is that the EU will spend more to subsidize its fresh fruit and vegetable exports this year -- $115 million -- than USDA will spend on the entire MAP. U.S. exporters also must compete against the monopolistic marketing boards of Australia, Canada, and New Zealand.
To help American farmers compete against subsidized foreign competition, government and the private sector must continue our export expansion and market development efforts. It is imperative that the United States retain its capability to respond to the practices of our competitors to ensure our competitiveness in international markets.
Monitoring Implementation of Trade Agreements
To break down the barriers facing U.S. farm exports, our focus is on ensuring all countries understand and implement their WTO obligations, defending U.S. rights when necessary, and preparing for and negotiating new accords (on bilateral, regional, and multilateral bases). We place special emphasis on identifying and combating other countries' use of non-scientifically based sanitary and phytosanitary standards (SPS) that unfairly restrict U.S. access to their markets.
Monitoring other countries' compliance with the terms of the Uruguay Round Agreements and the terms of other agreements (NAFTA and numerous bilateral agreements) is vital if the United States is to realize the full benefits of these agreements. Even with full compliance, global agricultural trade barriers and trade distorting export practices by competitors (including monopolistic marketing boards) are high relative to other industries. Addressing these issues will require new negotiations including WTO accessions for countries that have not brought their trade regimes under the disciplines of the WTO, new regional trade pacts, and new global trade negotiations to build on the successes of the Uruguay Round.
In the wake of Uruguay Round successes in addressing issues such as de facto import bans and discretionary import licensing, some countries are turning to pseudoscientific and other unfair SPS measures to restrict market access. American agriculture continues to lose export opportunities because of these barriers. USDA has made a substantial effort to deal with these issues and to catalogue foreign import restrictions, so that we can get a better handle on them and work more effectively to resolve them. In addition, the United States is playing a leading role in the WTO Committee on SPS issues, which is to be chaired by an American this year. Estimates of global trade restricted by questionable SPS barriers range as high as nearly $5 billion annually.
More traditional types of trade barriers, such as import bans and export subsidies, were addressed in the Uruguay Round Agreement on Agriculture, and substantial progress was made in opening markets and cutting tariffs. USDA is monitoring compliance with the Uruguay Round Agricultural commitments, both through the formal process of the WTO Committee on Agriculture, and through our network of private sector advisors and attaches overseas. For the most part, countries are living up to their commitments to eliminate non-tariff barriers, lower duties, open tariff-rate quotas, and reduce subsidies. However, there are some instances where these commitments have not been kept. For example, Hungary is providing export subsidies on a substantially broader group of products than is included in its schedule and the Philippines has not provided the access it committed to for pork and poultry meat. In cases such as these, the United States and other concerned countries have first raised the issue as part of the monitoring process in the WTO Committee on Agriculture. Often, this is followed by informal consultations under the auspices of the Agriculture Committee's Chairman. If the problem cannot be resolved at that level, then the formal WTO dispute settlement process can be used. This is currently the situation on Hungary's export subsidies, where a dispute settlement panel is being formed to determine if commitments are being violated. We are hopeful that the formation of this panel will provide the impetus for Hungary to make the changes necessary to reach a settlement of this issue.
Preparing for the Future
Despite the accomplishments of the Uruguay Round, many barriers to U.S. agricultural exports remain. The Agreement on Agriculture includes a provision to begin negotiations on continuation of the reform process by December 31, 1999, which is one year before the end of the implementation period. While this date is still more than two years away, we have begun preparing for these negotiations. At the Singapore Ministerial meeting, we were successful in getting a mandate to begin this process as part of the ongoing work of the WTO Committee on Agriculture. The Committee has agreed that informal meetings will be called, as needed, to allow discussion and presentation of papers on topics related to the continuation of the reform process. These informal discussions will be reported back periodically to the Committee.
USDA has established an internal task force to begin developing strategies and positions for our participation in these discussions. While the group is just beginning its work, there are a few key issues we know we will be focusing on. First and foremost is to identify problems in the implementation of what has already been agreed. For example, the establishment of a TRQ will not result in new access opportunities if it is implemented in a restrictive manner. Therefore, TRQ administration is one of the topics already identified by the Committee on Agriculture as a topic for further discussion.
Similarly, state trading enterprises should not be allowed to circumvent the export subsidy limits. We are seeking greater transparency in the operation of these organizations through more rigorous reporting requirements in the WTO Working Party on State Trading Enterprises. We believe this new information will help to identify practices that may need to be disciplined in future negotiations, both for export and import monopolies.
Then, of course, we will need to decide how to pursue further liberalization and disciplines in export subsidies, domestic support and market access. By 1999, the world will be a very different place than it was when we began the Uruguay Round negotiations in 1986. While the significance of subsidies may have diminished as production policies become more market-oriented around the world, we know that market access restrictions will remain substantial for many of the products we export. The USDA task force will be exploring these issues to determine what they mean for future negotiations. We will also 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. I look forward to continuing our bipartisan efforts to help American agriculture make the most out of our trade opportunities both now and in the future.