Statement by James Grueff
Assistant Deputy Administrator for International Trade Policy
Foreign Agricultural Service, U.S. Department of Agriculture
Before the Senate Commerce Subcommittee
on Consumer Affairs, Foreign Commerce & Tourism
June 19, 1999
Mr. Chairman, members of the subcommittee, it is a pleasure to appear before you with Assistant Secretary for Trade Development Michael Copps of the Commerce Department and Director of the International Trade Data Systems Project Office Bob Ehinger of the Treasury Department to discuss U.S. trade policy that will make our farmers and ranchers more competitive in the new millennium.
The World Trade Organization
Last year, in Geneva, at the 50th anniversary of the world trading system, President Clinton commented on the importance of open and fair trade for all nations. He also highlighted the need for the World Trade Organization (WTO) to provide a transparent and open forum where business, labor, environment, and consumer groups can provide regular and continuous input to help guide further evolution of the WTO. The United States Department of Agriculture (USDA), in conjunction with several other federal agencies, is doing just that through a series of listening sessions around the country and consultations with private sector advisory members from the agriculture industry. In doing this, USDA will use industrys valuable input to shape our agricultural trade policies for the new round of negotiations under the WTO as we enter the new millennium.
As you are fully aware, while our national economy has been booming, it has been a year of struggle and hardship in many parts of rural America. We at USDA recognize that much of agriculture is going through a very difficult period right now. At USDA we are marshaling all of our resources to address this economic situation. We are making sure that emergency economic relief gets to producers as soon as possible, that strengthening the farm safety net is at the top of the agenda, that the consolidations and mergers sweeping agriculture are subject to proper scrutiny and that we continue to press to open new markets for our exports in the new millennium. In order to address these issues, we need to focus on: 1) the critical role that exports already play for agriculture ; 2) the role that trade agreements have played in obtaining the current level of agricultural exports; and 3) our goals for the upcoming WTO round of negotiations.
Exports are Critical for Agriculture
U.S. agricultural exports reached $53.6 billion in 1998. Agricultural exports support nearly 750,000 jobs here in the United States. Products of nearly 1 to 3 harvested acres are destined for overseas. Even in the current economic downturn, about 25% of agricultural sales are export sales, compared with 10% on average for the rest of the economy. The vast majority - - 96%-- of potential customers for U.S. products, including agricultural products, live outside the United States. We must work to increase our opportunities to sell into these global markets in the new millennium. Access to customers in foreign markets is a key factor to the health of U.S. agriculture. Compared to the general economy, U.S. agricultures reliance on export markets is higher and projected to grow faster. Agriculture is already more reliant on exports than the economy as a whole.
Trends in Agricultural Exports
Other factors point to the increasing importance of exports. First, the overall trend has been one of increasing exports for American agriculture. U.S. agricultural exports climbed to nearly $60 billion in 1996 up from $40 billion at the beginning of the 1990s. Exports were downlast year and will likely be slightly down for 1999 as well, due to record world-wide crop production, the Asian financial crisis, and the strong dollar-- agricultural exports in 1998 were $53.6 billion, and we project exports of $49 billion in 1999. However, when the global economy rebounds as we are beginning to see in the Asian economies, the trend of increasing exports is predicted to continue, and exports will account for a larger percentage of farm income.
Second, the 1996 Farm Bill increased the market orientation of agriculture and so to beprosperous in an increasingly competitive market, we must increase our exports in those areas where we have the comparative advantage. A number of agricultural sectors are already exporting more than 60% of production with export sales over the $1 billion threshold annually for a number of food and agricultural products.
Third, U.S. agricultural productivity is increasing while domestic demand for agricultural products is growing slowly. We must therefore develop new overseas markets for our products now and in the new millennium. Another factor pointing to the importance of exports to agriculture is how closely the level of our farm equity has tracked the level of exports over time. Expanding export markets, while certainly not the only tool, is a very important resource for leading us out of the slump in agriculture. We must however be realistic, exports are projected to decline again in 1999 to $49 billion. It is estimated that 45% of the world economy outside theUnited States that is now suffering recession or depression is just showing signs of revitalization until the global economy turns around we will not immediately increase our global customer base. But as a long-term strategy, expanding our export markets in the new millennium is critical.
Trade Agreements that Open Markets Increase Exports
A key to expanding export markets for the new millennium and increasing our access to customers outside the United States is through trade agreements that are good for American agriculture. We would not be at the level of exports we are at today if we had not negotiated trade agreements such as the WTO or the North American Free Trade Agreement (NAFTA). Trade agreements such as these have boosted exports. Soon after the implementation of the Uruguay Round, U.S. agricultural exports reached their highest levels. Now many factors, including exchange rates, factor into rises in exports. But almost all economists agree that lowering trade barriers through trade agreements has been a critical factor to boosting U.S. agricultural exports.
Of course, trade agreements are a two-way street and we must reduce our own barriers as well. However, because the U.S. already has one of the more liberalized markets, we have very little to fear and much to gain from a new international agreement reducing trade barriers. We are an efficient, competitive agricultural producer both domestically and abroad. It is estimated that in 2005 exports including agriculture will be $5 billion more annually than they would have been without the Uruguay Round agreement. Other trade agreements will provide similar benefits.It is estimated that in 1994 we sold $1.29 billion more beef and citrus to Japan than we would have without the trade agreement we successfully negotiated with the Japanese. For export growth to continue, we must move forward with our strategy for opening markets through trade agreements in the new millennium.
NAFTA is also fulfilling its promise for agriculture. Our NAFTA partners, Canada andMexico, have become more important destinations for U.S. products, now accounting for over 25% of U.S. exports sales, surpassing our sales to the European Union (EU). We estimate that in the first three years, NAFTA can take credit for 3% additional exports to Mexico and 7% additional exports to Canada. The 10% growth from 1997 to 1998 in exports to Mexico and Canada was especially welcome as overall exports fell 6%, thus helping to offset the sales declines to several of our leading Asian markets during the economic downturn in that region.
We recognize that although we have achieved many benefits for agriculture from recent trade agreements, the playing field is far from level and there is much work to be done. The U.S. tariffs, on average, are much lower than those of our major trading partners. When it comes to export subsidies, we must work to eliminate the high EU export subsidies. Further, we must continue to work for adequate and accurate health and safety measures that do not act as disguised protection, but are based on science. A major part of our strategy to level the playing field for agriculture is to be successful in the upcoming WTO round of negotiations. The U.S. wants both a free and fair global trading system, and we will continue to pursue that goal in the upcoming WTO and new millennium.
Uruguay Round and the WTO
The most important existing trade agreement for agriculture-- because it covers trade among 134 member countries-- is the Uruguay Round Agreement. The upcoming round of talks must continue and improve on the progress made in the Uruguay Round. While we in the Administration are engaged in many market opening endeavors, now and in the new millennium, the upcoming WTO Round is the centerpiece of our efforts.
To understand where we are going in the WTO, it is important to understand where we have been. The General Agreement on Tariffs and Trade, the GATT, was established in 1948 and set the basic rules for international trade. A number of multilateral GATT negotiations, or "rounds", took place between 1948 and the present, with the most recent round the Uruguay Round-- concluded in 1994. The Uruguay Round established the World Trade Organization, or WTO, which is basically a continuation of the GATT system. The Uruguay Round Agreements opened a new chapter in agricultural trade policy, committing countries around the world to new rules and specific commitments to reduce levels of protection and support that were barriers to trade. Agriculture finally became a full partner in the multilateral trading system.
For the first time, countries had to make across-the-board cuts in agricultural tariffs. For the first time, export subsidies had to be reduced, and internal support policies that distort trade were capped and/or reduced. New rules set a scientific standard for measures that restrict imports on the basis of human, animal, or plant health and safety. And a new dispute-settlement process was adopted - one that the U.S. has successfully used in a number of cases. The option that the WTO provides for solving disputes in a formal, legal setting has been valuable in achievingtangible gains for U.S. agriculture and has also acted as a deterrent our trading partners know that we have this option if they do not live up to their agreements. For example, we recently won dispute-settlement panels against the EUs ban on beef from cattle treated with growth hormones, against the EUs banana import licensing regime, against Japans restrictive quarantine requirements for fresh fruit, and Canadas dairy policy on subsidies. We now must maintain a firm line to ensure that the banana and hormones decisions are carried out so that U.S. exporters have the access determined to be their legal right.
The Uruguay Round agreement was a good start. It has already contributed to increasedU.S. agricultural exports and higher farm incomes as American producers have taken advantage of newly opened markets and new opportunities. But the Uruguay Round was just a start, the first important steps in global agricultural trade reform. We are now planning for the next major step -- the round of WTO agricultural trade negotiations.
Next Round of Multilateral Agriculture Trade Negotiations
The next round of WTO negotiations will be kicked off at a ministerial meeting in Seattle, Washington from November 30-December 3rd of this year. The ministerial meeting will be a major event with representation by most of the 134 WTO-member countries. We also expect and encourage strong private sector attendance. The actual negotiations will start early in 2000. The final scope of coverage of the negotiations is yet to be determined, but agriculture and services will undoubtedly be included. The general expectation is that the negotiations should last 3 years with implementation of the agreement beginning in 2004. In setting the agenda for the agriculture negotiations, we will build on the Uruguay Round accomplishments that yield substantial benefits to our nations farmers and ranchers.
Tariffs were reduced in the Uruguay Round, but they are still too high. Some countries maintain average agriculture tariffs of 50%, while the U.S. tariffs average about 8% on all agricultural products. It is our goal to negotiate the further reduction of tariffs. We also want to expand market access under tariff-rate quotas by increasing the quota amount and decreasing the tariff outside the quota. We also want to see the reduction or elimination of export subsidies, especially for the EU. The EU has outspent the U.S. by more than 20 to 1 on export subsidies ($7 billion to $100 million in 96/97).
Another problem in agricultural markets are state trading enterprises or STEs, government entities that act as monopolies. When a STE has government authority and monopoly power they are able to price-pool by pricing their products artificially low and unfairly increasing their market share. It is important that we develop stricter WTO rules to ensure that STEs operate in a fair and transparent manner. Trade distorting domestic support is being reduced under the WTO rules, but the job is not yet complete. A comparison of the levels of such support shows that globally, including the United States, but particularly in Europe and Japan, domestic support remains high. Our goal for the next round is to make sure that the assistance other governments give to agriculture is provided in ways that do not interfere and/or displace commercial sales of agricultural commodities in world markets.
Goals for the Next WTO Agriculture Negotiations
Trade reform through the WTO provides the biggest bang for the buck. In one agreement, for example, we can get 134 countries to cut tariff barriers on exports. But getting all these countries to agree on major reforms will take a lot more time and effort. It clearly wont be easy. The United States has already completed much preparatory work in Geneva, where the WTO is located. We are using the WTO Committee on Agriculture to identify places where current rules and commitments dont go far enough to open up markets for our exports. At the same time, we are using a less formal process to build a consensus and prepare the ground for the tough negotiations to come.
The Administration is working with industry to make sure their concerns are met as well, as they are critical both at this early stage and in the long-term of the negotiating process. The views and concerns addressed by local farms groups to state government representatives in thelegislature or the executive branch is just one of our means to obtain such advice. Other sources of industry information come from our Agricultural Trade Advisory Committees and producer panels at trade hearings on Capitol Hill. In all our activities, we want to send a clear message to the rest of the world that agriculture is a top priority for the United States and that we remain fully committed to fair trade and open markets both now and in the new millennium. The Administration will continue to seek support and advise from the American farmers and ranchers to ensure that trade agreements continue to work for them and for U.S. agribusiness as a whole.
Mr. Chairman, everyone in this room knows the importance of trade to U.S. agriculture. In the past year, we've been sobered by a global financial crisis that devastated many of the emerging Asian economies and thus softened demand in other countries, many of which are important markets for U.S. agriculture. While we now see some strengthening in the Asian economies we continue to face a global oversupply of many commodities that sent prices plunging to their lowest levels in years. We have learned that our efforts to reform world agricultural trade must continue if our exports are to expand in world markets in the new millennium.
As President Clinton said earlier this month in Chicago, "We ought to continue to expand trade. We ought to enforce our agreements more vigorously. But I do not believe that a country with 4.5 percent of the worlds people can maintain its standard of living if we dont have more customers. We did it for a year last year, but we cant do it over the long run."
To realize the potential of the global marketplace, we have a lot of work ahead of us. We must construct a world trading system where every producer gets a fair shake, where all products, goods and services are traded freely across oceans and continents.
The next round of WTO negotiations later this year will be a turning point in this effort and we will be working hard to help American agriculture realize that potential. This concludes my statement, Mr. Chairman. I will be happy to answer any questions.