Statement of
Lon Hatamiya, Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
Before the House Committee on Agriculture's
Subcommittee on Livestock, Dairy, and Poultry
Washington, D.C.
February 26, 1998

Mr. Chairman, members of the subcommittee, I am pleased to come before you today to discuss the status of livestock products trade with Australia and New Zealand.

Livestock Products Exports Remain Strong

Let me open by saying that overall poultry and livestock exports remain strong. Despite the economic turmoil in Asia, our largest market for these products, the latest export forecast for fiscal 1998, released by the U.S. Department of Agriculture (USDA) just three days ago, shows beef, pork, variety meats, poultry and dairy products off only slightly in value from last year's levels. Hides and skins exports are forecast to decline slightly.

U.S. livestock and poultry exports have been the engine for much of the growth in U.S. agricultural exports. In 1990, we exported about $18 million more meat and poultry than we imported. Today, those numbers are dramatically higher--exports exceed imports by $4.1 billion.

These record exports did not just happen by accident, they are the result of long-term market development work we have undertaken, to which we are truly committed, and on which we work on a constant basis with our partners in the livestock industry. We have increased market access and reduced trade barriers to take advantage of the opportunities that rising world incomes and population growth present to realize the $4 billion increase that I mentioned a moment ago.

Livestock Products Trade With Australia and New Zealand

The United States, Australia, and New Zealand are respectful competitors. We share many similarities and our agricultural industries are more alike than different. In all three countries, agriculture is an important contributor to each nation's balance of trade, and agricultural exports are extremely important to the economic well-being of each country's farmers and ranchers.

We compete in many of the same markets with many of the same products. Sometimes in the heat of the trade battles, our competitive natures spill over, tempers flare, and angry words are exchanged. But in the end, we all share the same goal: building on the work of the Uruguay Round agreement and continuing our efforts to put global agriculture on the road to freer and fairer trade.

Competition for Third-Country Markets

Competition between the United States, Australia, and New Zealand in livestock trade is evident around the world, but nowhere is it more fierce than in Asia. USDA is working diligently to protect our exporters and producers in the wake of the unsettling Asian economic situation. We recently announced an additional $100 million in export credit guarantees to assist U.S. red meat exports to South Korea. Earlier this month, we allocated $100 million in export credit guarantees to assist hides and skins exports to South Korea. Of course, Australia and New Zealand are protecting their trade interests as well. Australia has approved an additional US$300 million in export credit insurance for Korea. We expect beef and wool to be the primary Australian agricultural products to benefit from this program. The New Zealand Government is encouraging firms to remain involved in Southeast Asia and work to maintain their relationships.

In addition to export credit guarantees, the market development competition is fierce. Let me cite just a few examples.

• In Japan, our most important market for beef, Australia spends $20 million on beef promotion, more than three times what the United States spends to promote beef and pork in Japan.

• In Singapore, Australia spends 2-1/2 times what the United States does to promote beef, and New Zealand out spends us nearly 1-1/2 times.

• In Indonesia, Australia out spends the United States three to one in promoting livestock and genetics.

Bilateral Trade and Issues

As opposed to the head-to-head competition we face in third-country markets, our bilateral trading relationship in livestock products with Australia and New Zealand is largely one-sided. The bilateral trade issues that we are currently confronting reflect the fact that we export very little to either of these markets, while importing significant amounts.

Dairy

Both Australia and New Zealand are major dairy product exporters. In fiscal 1997, the United States imported $265 million in cheese and other dairy products from New Zealand and $33 million from Australia. U.S. exports to Australia reached $3.5 million, while U.S. exports to New Zealand totaled $1.3 million.

New Zealand Dairy Board: The New Zealand Dairy Board (NZDB) is a state-trading enterprise with substantial market power in third-country markets and supplies an important share of the U.S. market for imported cheese.

The NZDB has monopoly control over both sales and purchases of dairy exports. Currently, the NZDB commands about 25-30 percent of the total world dairy product exports. The NZDB has subsidiaries, with operations in the United States, the European Union and other key markets that sell New Zealand products domestically and internationally, while at the same time, it protects its low cost source of supply.

There is no evidence that NZDB violates WTO subsidy disciplines or circumvents the disciplines on export subsidies. The NZDB has received no direct subsidies from the government since 1983 and the government eliminated subsidies to the dairy industry in 1984.

However, the NZDB is a focus of U.S. concern for several reasons:

1. NZDB is a major player in the international market.

2. NZDB's control of New Zealand's large volume of exports gives it the ability to sell at prices necessary to penetrate new markets and maintain or expand market share. The New Zealand dairy industry's position as a low-cost producer enhances the NZDB's market power.

3. NZDB's pricing practices in third-country markets may adversely affect U.S. exports.

The WTO does not prohibit state-trading enterprises from charging different prices in different markets, but requires them to act according to the general principles of non-discriminatory treatment and make their purchases or sales solely in accordance with commercial considerations.

Whether the NZDB adheres to these principles can only be determined if we know more about their transactions, so we are pushing for greater transparency in this area in the WTO. Even with such information, the case against state-trading enterprises will not be easy to make and any losses to U.S. producers are hard to quantify.

Australia's Criticism of the Dairy Export Incentive Program: Australia strongly opposes the Dairy Export Incentive Program (DEIP), especially with respect to the strong pace of DEIP-assisted sales to Asia last year. Nonetheless, our decision to expand the DEIP to the Pacific Rim was in accord with the Uruguay Round implementing legislation requirement that the DEIP be administered consistent with long-term U.S. market development and promotion objectives for dairy products, as well as our policies governing country selection under the DEIP that explicitly attempts to avoid harming countries that do not subsidize. Finally, we carefully review prices accepted under the DEIP to ensure DEIP sales do not undercut world prices.

Pork

Neither Australia nor New Zealand are significant producers of pork. Australia currently bans the import of U.S. pork which I will discuss in greater detail. U.S. pork exports to New Zealand, on the other hand, have been growing, reaching $1.4 million in fiscal year 1997. Continuing tariff reductions for imported product and a decrease in domestic production could provide new and greater opportunities for U.S. pork exporters.

Australia's Ban on U.S. Pork: The United States wants access to the Australian market for pork that we estimate to be worth $12 to $14 million annually. However, Australia currently bans the import of U.S. pork due to concerns over porcine reproductive and respiratory syndrome (PRRS) and certain other diseases. There are no international standards for establishing PRRS-free status, and the risk of transmission through meat is negligible, based on a risk assessment conducted by USDA's Animal and Plant Health Inspection Service (APHIS). The other three diseases of concern to Australia are List B diseases under the International Animal Health Code of the Office of International Epizootics (OIE), meaning they are not considered to have the potential for very serious and rapid spread.

We continue to raise these issues at the U.S.-Australia Consultations held most recently in November. USDA is continuing to explore our options for gaining market access for U.S. pork into Australia and we hope this issue can be resolved bilaterally.

Poultry

Neither Australia nor New Zealand are major players in world poultry trade. Australia restricts imports of U.S. live birds, hatching eggs, and uncooked poultry products, so U.S. exports to Australia are negligible--only cooked product. U.S. poultry product exports to New Zealand reached $795,000 in 1997, but we still face a complete ban on imports of uncooked poultry.

Australia's Ban on Imports of U.S. Poultry and Products: Australia bans imports of U.S. fresh poultry and poultry products because of the risk of introducing various poultry diseases. However, the avian diseases common in the United States also exist in Australia. We also strongly disagree with Australia's cooking temperature and time requirements for poultry imports. Products cooked to meet the requirements are not suitable for human consumption. Again, we continue to raise this issues at the U.S.-Australia Consultations. USDA is continuing to review our options for gaining market access for U.S. poultry and products into Australia and hope to resolve this issue bilaterally.

New Zealand's Ban on Uncooked Poultry: In 1996, New Zealand published a qualitative review that characterized the disease risk of imported poultry as negligible. However, objections from the N.Z. poultry industry have prompted the Ministry of Agriculture to carry out a more detailed risk assessment that we expect to be completed in 1998. We are seeking access for this $100 million market.

Sheep and lamb

The United States imports a significant share of lamb and mutton supplies, about 20 percent. Australia and New Zealand supply 99 percent of that amount, $140 million in fiscal 1997, out of total imports of $141 million. The United States exported just $6.4 million worth of lamb and mutton in fiscal 1997.

Beef

U.S. exports of beef to Australia in fiscal 1997 totaled about $636,000, while U.S. imports of Australian beef reached $344 million. The United States is Australia's second largest export market for beef, behind Japan. For U.S. trade with New Zealand, the numbers are equally one-sided. About 80 percent of the beef produced in New Zealand is exported, with about half of that going to the United States. The United States is New Zealand's top beef export market, with sales of $325 million in 1997, while the United States exported only $355,000 of beef to New Zealand.

Proposed Changes to Australia's Meat Inspection System: Last year Australia requested that the United States and other governments consider a proposal to pilot-test a revised meat inspection system. The revised system reorients inspection to focus on pathogenic microorganisms and chemical residues. The Hazard Analysis and Critical Control Points (HACCP)-based pilot program is called Project 2. Of particular interest to the United States was the aspect of the pilot program that replaced traditional Government meat inspection with inspection by plant employees.

USDA's Food Safety and Inspection Service (FSIS) solicited comments on the Project 2 proposal through a Federal Register notice on May 30, 1997. On November 7, 1997, FSIS notified the Australian Quarantine and Inspection Service (AQIS) that meat products inspected under Project 2 would not be accepted by the United States. We are not alone in our assessment of Project 2 inspection. We understand that the European Union has recently rejected the proposal.

A dialogue on modifications to the Project 2 proposal, that would lead to acceptance of products inspected under such a pilot program, has ensued.

Recently, on February 11, 1998, USDA received a letter from AQIS stating that they understood that "FSIS is unable to accept Project 2 in its original form." The letter went on to say that a revised proposal under development would involve a "substantial degree on ongoing Federal Government oversight of meat inspection." Further, "(AQIS) committed to working collaboratively with FSIS during this process."

USDA responded, in writing, the following day. FSIS stated that the Agency is looking forward to continuing our working relationship with the Australian government and collaborating in respective new HACCP-based inspection models.

The dialogue between FSIS and AQIS continues. In fact, FSIS Administrator Tom Billy has been in Australia during the past two weeks, and has engaged in productive discussions on inspection issues with AQIS representatives.

Conclusion

Mr. Chairman, the livestock industry and USDA have worked hard to develop export markets. We have succeeded greatly in some sectors and countries, but in others we are still at the starting line. The competition is fierce, but we are using all of the available tools with which Congress has provided us --market intelligence, market development programs, and trade negotiations--at our disposal, and will work relentlessly to ensure the continued opportunities for growth for the American livestock sector.

Just last week, we announced two trade agreements that should significantly help our livestock industry. Taiwan committed to opening its market at significantly reduced tariff rates to a broad range of U.S. products, including pork, beef, and poultry meat, upon that country's accession to the WTO. Taiwan also agreed to immediate market access for a number of U.S. products, including lifting the import ban on pork bellies and variety meats. In 1997, Taiwan was the 7th largest export market for U.S. red meats by value.

After two years of negotiations, the United States successfully concluded an agreement with the Philippines under which that government agreed to reform the tariff-rate quota administrative regime that had severely restricted access for U.S. pork and poultry meat.

So you can see, Mr. Chairman, that we are working hard to improve prospects for the U.S. livestock producers. Our friends in Australia and New Zealand are worthy competitors and we have our work cut out for us. But, we are optimistic about the future for U.S. livestock product exports, and we believe U.S. producers are up to the challenge. We look forward to continuing our work with them to meet this challenge. That concludes my statement, Mr. Chairman. I will be pleased to answer any questions.

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