Statement of Timothy J. Galvin,
Foreign Agricultural Service
U.S. Department of Agriculture
Before the House Subcommittee on Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies
March 9, 2000
Mr. Chairman, members of the Subcommittee, I appreciate the opportunity to review the work of the Foreign Agricultural Service (FAS) and to present the President's budget request for FAS programs for fiscal year (FY) 2001.
U.S. Trade Prospects
Fiscal 1999 was a mixed year for U.S. agricultural trade. Exports reached $49 billion -- down almost 20 percent from the $60 billion record of four years ago, and we project that U.S. exports will remain flat at $49 billion again this year.
This past year, we actually saw a gain in export volume of about 15 percent. However, four consecutive years of bumper crops worldwide and the slow pace of economic recovery in Asia continue to weigh down prices. As a result, much lower prices caused export value to decline this past year, and they explain why export value will remain flat this year.
Also troubling is the steady erosion in U.S. market share of global agricultural trade over the past two decades. This could culminate in the United States losing out to the European Union (EU) as the world's top agricultural exporter sometime in 2000.
From FY 1981 until the global economic crisis in FY 1998, worldwide trade in food and agricultural products nearly doubled. While U.S. agricultural exports also grew during this period -- especially over the past decade -- the fact is that U.S. export growth lagged behind that of its major competitors, resulting in a loss of U.S. market share, from 24 percent in 1981 to its current level of 18 percent.
The decline in market share seems to defy what we know about the strength of the U.S. food production system. After all, the United States has the world's most efficient producers, processors, and distributors of agricultural products. We have one of the safest food supplies in the world. We have an abundance of high-quality bulk commodities and world class high-value and consumer-ready food products, and we have consistently shared our bounty with less fortunate nations through food aid and related assistance.
However, over the past few years, several factors have contributed to the drop in U.S. agricultural export levels and market share.
First, while U.S. agricultural exports have declined, so has global trade in agricultural commodities. The value of global agricultural trade shrunk from $302 billion in 1997 to an estimated level of $270 billion in 1999. The Asian financial crisis and higher production of basic commodities worldwide resulted in soft world market prices for many agricultural products.
Second, the U.S. dollar remained strong, making U.S. products more expensive relative to competitor countries' products.
Third, our major competitors -- the European Union (EU) and the Cairns Group -- have outspent the United States in both public and private sector market promotion funding by a wide margin. Market promotion activities were not disciplined in the Uruguay Round. Our competitors were quick to take advantage, increasing spending by 35 percent, or nearly $1 billion, in the past three years. Meanwhile, U.S. spending remained flat. Notably, our competitors have directed this increase almost exclusively to the high-value and consumer-ready product trade, where global import demand is growing fastest.
Fourth, direct export subsidies, though disciplined under the Uruguay Round, are still at formidable levels. The EU was by far the largest user of this form of assistance, spending $7.5 billion in 1997, the latest year data are available. U.S. direct export subsidies contrast sharply with the EU's C$121 million, or 1.6 percent of the EU total, in 1997.
FAS Efforts To Support Farm Income
One can only imagine how much worse the situation would be, especially for U.S. exports, if we had not continued the vigorous use of our long-standing export programs. With large surpluses and rock-bottom prices here at home, we have actively used food aid to move commodities out of the U.S. marketplace to needy areas around the world. Under FY 1999 food aid programs, USDA programmed nearly 8 million metric tons of U.S. commodities -- close to five times the previous year's shipments and the largest tonnage in many, many years.
American commodities went to around 50 countries last year -- from the unprecedented assistance package for Russia to food relief for Kosovo refugees, famine victims in North Korea, and hurricane victims in Central America and the Caribbean. Under the authority of Section 416(b) of the Agricultural Act of 1949, as amended (Section 416), CCC donated nearly $800 million worth of commodities, including 5.2 million tons of wheat and wheat products, 274,000 tons of corn, and about 23,000 tons of dry milk. These U.S. surpluses were taken off the market and put to good use, helping to relieve hunger and suffering abroad.
Our export credit guarantee programs facilitated sales of more than $3 billion in U.S. agricultural products. Our GSM-102 program helped U.S. exporters overcome disadvantages in Turkey, and make record sales of over $1.2 billion in Mexico. The program helped U.S. oilseed exporters sell more than $19 million worth of oilseeds to Uzbekistan, traditionally a buyer of South American oilseeds. Our GSM-103 program helped U.S. exporters sell over $14 million worth of wheat to Jordan. The Supplier Credit Guarantee Program was used for the first time by importers in the Baltic Region, Georgia, and Turkey, resulting in sales of nearly $1 million worth of meat products to buyers in the Baltic Region, and about $2.9 million worth of poultry products and $57,000 worth of hides and skins to buyers in Georgia and Turkey.
With the aid of the Dairy Export Incentive Program (DEIP), U.S. exporters sold more than 136,000 tons of dairy products valued at $337 million. USDA awarded more than $145 million in bonuses to help U.S. dairy exporters meet prevailing world prices and develop foreign markets. The Export Enhancement Program was used only sparingly in 1999 because of market conditions, with bonuses of about $1.4 million awarded for sales of more than 2,000 tons of frozen poultry.
We continue to stress the importance of market development. In 1999, we allocated $90 million to 65 U.S. trade organizations, State regional groups, and cooperatives for export promotion activities under the Market Access Program (MAP), and approved marketing plans of $33.5 million for 26 trade organizations under the Foreign Market Development (FMD) program.
FAS introduced record numbers of agricultural policymakers to U.S. products and policies in 1999, and plans to meet and exceed that record this year. Nearly 800 Cochran Fellows from 70 emerging markets participated in short-term courses that introduced them to U.S. products, ranging from wheat to wine. The Cochran Program provides USDA with a unique opportunity educate foreign governments and private sectors not only about U.S. products, but also about U.S. regulations and policies on critical issues such as food safety and biotechnology.
On the trade policy front, USDA worked successfully to open, expand, and maintain markets for U.S. agriculture. For example, after years of negotiations and technical exchanges, Japan lifted its ban on several previously unapproved varieties of U.S. tomatoes. We estimate that Japan could purchase up to $10 million worth of U.S. tomatoes annually as a result.
FAS played a key role in defending the U.S. position against the EU's ban on growth-promoting hormones. FAS directed the interagency effort to calculate and then defend before a WTO Arbitration Panel, the loss of U.S. beef exports caused by the EU's refusal to remove its WTO-inconsistent ban on imports of beef produced with growth-promoting hormones. The Arbitration Panel awarded the United States $116.8 million in damages and the United States suspended trade concessions to the EU of equal value.
The 1999 meeting of the U.S.- Mexico Binational Commission (BNC) succeeded in achieving additional market access for U.S. exports while enhancing long-term market development objectives. Mexico committed to improve market access for exports of U.S. wheat, dry beans and slaughter hogs, and to reduce costly preclearance inspection for U.S. apples and stone fruit. Mexico represents one of the strongest and fastest growing markets for these five commodities, with total U.S. sales estimated at approximately $400 million in 1998.
Last April, the United States and China signed the Agreement on U.S.-China Agricultural Cooperation, an unprecedented step in U.S.-China agricultural trade relations. With this agreement, China finally removes the longstanding bans on exports of U.S. wheat, citrus, and meat and poultry to China. The agreement also calls for China's commitment to the application of sound science, a key principle of the WTO Sanitary and Phytosanitary (SPS) Agreement. The agreement confirms a U.S.- China agricultural partnership in achieving some key objectives: resolving trade barriers, increasing technical cooperation and scientific exchanges and further developing our agricultural sectors.
FAS worked to ensure the successful implementation of the U.S.-Taiwan WTO bilateral market access agreement that was signed in 1998. This agreement, which falls under the Taiwan WTO accession negotiations, provided immediate access for U.S. pork, poultry and variety meat exports. During FY 1999, the United States shipped poultry, which had previously been subject to a ban, worth about $16 million and pork and beef worth an estimated $60 million. These shipments mark the successful implementation of the "down payment" quotas provided for by the WTO Bilateral Agreement signed by Taiwan and the United States. Under the agreement Taiwan also modified its administration of the potato quota. This modification led to the importation of an estimated $10 million in fresh potatoes.
In 1999, FAS negotiators helped to conclude important bilateral agreements that paved the way for Estonia and the Republic of Georgia to join the WTO as full members. The market access agreements require Estonia and Georgia to reduce import tariffs on important U.S. farm products, which will create greater market opportunities for U.S. farmers and ranchers. Both countries agreed to bind tariffs at or below 10 percent on U.S. priority products and committed to not use export subsidies. U.S. agricultural exports to these two countries are expected to grow approximately $3-4 million annually following their accession into the WTO. FAS negotiators also concluded agricultural bilateral accession agreements, worth approximately another $4 million, with Albania, Croatia, Oman and Jordan, and continued to work on two dozen other accessions including Russia, Saudi Arabia, and Ukraine.
FAS continues to monitor aggressively foreign countries' compliance with Uruguay Round Agreement commitments. For example, at the request of the United States, a WTO dispute settlement panel is examining Korea's import and domestic support programs for beef. As part of its Uruguay Round commitments, Korea agreed to liberalize its beef market by January 1, 2001. However, after Korea failed to meet its minimum import quotas in 1997 and 1998, it became clear that numerous market access barriers exist that are inconsistent with Korea's WTO commitments and threaten to inhibit full market liberalization. These impediments include restricted sales of imported beef at the retail level, a government "mark-up" on imported beef, excessive support payments to domestic producers, and limitations on import authority. Korea's imports of U.S. beef reached $319 million in 1995, before dropping to only $140 million in 1998.
At 1999's meetings of the Committee on Agriculture, FAS analysts reviewed and raised questions on over 250 WTO notifications. The value of trade addressed through U.S. vigilance of commitments is over $500 million. This was achieved through questioning member's domestic grain purchasing policies that appeared to violate export subsidy commitments; challenging the discriminatory issuance of import licenses for dairy products, pork and poultry; questioning the WTO-inconsistent execution of a preferential trade arrangement that harmed U.S. apple exports; and questioning low tariff rate quota (TRQ) application for a range of commodities. These efforts contributed to several members halting implementation of or modifying WTO inconsistent practices.
Priorities for 2001
Faced with continuing budget constraints, a strong U.S. dollar and continued aggressive spending on market promotion by our competitors, we must redouble our efforts to improve the outlook for U.S. agricultural exports. We are closely examining why the United States is losing market share in certain markets, and intend to take actions to remedy the situation, consistent with our budget resources. For example, we plan to continue to:
pinpoint constraints to U.S. agricultural, fish, and forest products;
work to remove trade barriers and trade-distorting practices;
safeguard U.S. agricultural interests by advocating U.S. policies in the international community;
help producers, processors, and exporters to strengthen their export knowledge and skills;
ensure that the U.S. farm, forest and fishery sectors and our research community have timely and complete intelligence about emerging market opportunities;
inform foreign buyers about the superior quality and reliable quantities offered by U.S. agricultural producers, and educate them about how to locate U.S. products;
use our export credit guarantee programs to reach new customers for U.S. agriculture;
use our food aid authorities to help needy people overseas and farmers here at home;
use USDA export assistance programs such as the Foreign Market Development Program and Market Access Program to the maximum extent reasonable to pursue export opportunities; and
work with emerging markets and developing countries to promote economic development to help meet the U.S. commitment to reduce by half the number of food insecure persons by 2015.
As we forge ahead, it is obvious that we need to look at new ways of doing business to reduce costs, streamline programs and tap into new technologies. In 1999, FAS received two prestigious Hammer Awards from the Vice President's office for improving the operational efficiency of its programs.
One was awarded for FAS's development and implementation of a "Unified Export Strategy" (UES). This process reinvented the planning and application process for the MAP and the FMD program, dramatically reducing paperwork requirements and improving operational efficiency for both programs. The UES encourages our strategic partners to formulate market-specific strategies for developing or expanding export markets. This approach facilitates a more effective use of FAS' full arsenal of market development programs.
The other was awarded for FAS's streamlining of the process for advancing funds to Private Voluntary Organizations (PVO) for humanitarian food distribution. The streamlined process helped private sector partners initiate Food for Progress program activities with much greater cost effectiveness and time efficiency. The streamlined process resulted in a reduction in average cycle time of transferring funds to a PVO from 41 to 7 business days C an 83-percent improvement in the delivery of this service.
These efforts grew out of our strategic planning process that integrates all the marketing, credit, and trade policy tools that we have available to maximize the market for agricultural products. This process lets us review the competition and all FAS-sponsored efforts in a given market to determine whether we have the optimal mix of programs and funding, given that market's potential as a buyer of U.S. agricultural products. It also allows us to step back and review our efforts regionally as well as globally.
I would like to take a few moments to outline our priorities for fiscal year 2000.
At the top of our list is moving forward in the WTO trade negotiations on agriculture. Although agreement on the framework for a new round of negotiations was not achieved at the Seattle Ministerial, the Seattle meeting is not the end to further negotiations on agricultural trade. Because of the "built-in agenda" for agricultural reform in the Uruguay Round Agreement, work on the new agricultural negotiations is continuing. It is clear that we are on the threshold of a major new opportunity to advance open markets around the world. And as President Clinton has said many times, agriculture is at the center of the next round.
We have been doing a number of things to prepare for the negotiations, including 13 public hearings around the country; numerous meetings with representatives of the broad agricultural sector; periodic sessions of our Agricultural Policy Advisory Committee and our several commodity specific Agricultural Trade Advisory Committees; and of course regular consultations with Congress.
We have heard from the agricultural community and members of Congress, on a bi-partisan basis, that they are supportive of the goals that we have established for the next round: abolishing export subsidies, disciplining State Trading Enterprises, increasing market access through lower tariffs, reducing trade distorting domestic subsidies, defending the sanitary and phytosanitary agreement against those who want to weaken it, and opening the door for new technologies, such as biotechnology.
There are very few calls at this point for turning back the clock or closing our borders. I believe producers recognize that by and large we made progress in the Uruguay Round to begin the process of reducing export subsidies, reducing import tariffs, increasing quotas, and disciplining domestic subsidies. But because the formula chosen to achieve much of this progress relied on percentage adjustments, it left those countries -- such as the EU -- which began the process with higher levels of protection or more generous farm support budgets in a better position as the end of the Uruguay Round implementation period draws to a close. Our farmers clearly understand that reality and, as a consequence, I think most of them will judge the outcome of the next round on whether we have been successful in bringing greater uniformity to the levels of support provided to farmers globally.
Another priority on the trade policy front is how we deal with the issues surrounding products produced through biotechnology. There is a lot to say about what is happening in the biotechnology field and how it is affecting trade, and I could go on at length to describe our efforts at USDA to try to stay on top of the issue or to ensure that government actions on labeling and product approval in the EU, Japan, Korea, Australia, New Zealand, and elsewhere, do not irrationally reduce market access for U.S. commodities.
But I believe that the past few months have made clear that developments in the marketplace are running ahead of where various governments are at this point. The result is that the environment for biotech products is as unsettled as it has ever been during the short commercial life of this new technology. The demand by some users for non-biotech commodities only, the resulting calls for segregation by some handlers, and the indications that premiums and discounts may be appearing for non-biotech vs. biotech commodities are bound to have an effect on farmers' decisions regarding what to plant next year.
The next few months will likely determine whether biotech acreage continues to increase in the United States, or whether there is some retrenchment. Either way, this issue is likely to be a dominant one for U.S. agriculture in the immediate years ahead, whether in the WTO or in our bilateral relationships with customer and competitor nations alike. That is why we have said that when it comes to biotech and the next trade round, our focus will be in making sure that biotech approval regimes, wherever they exist, are transparent, timely, predictable, and science-based.
We also will be working to improve the way we carry out our market development programs. We have had some notable successes in these programs in the past year. For example, last January, the first container of U.S. mohair was shipped to Peru, and the Mohair Council of America (MCA) expects an additional $400,000 worth of mohair to be shipped this year. This initial shipment resulted from a series of FAS and MCA activities, funded partly by the MAP.
A study by the Northwest cherry growers found that for every dollar spent in MAP funds for Northwest cherries, there was a $5.54 return per 20-pound case in terms of state and federal tax revenues in 1998. Northwest cherry export sales for 1998 were valued at $75 million with an impact on the local community of $330 million in tax revenues. In addition, over 18,000 jobs were associated with Northwest cherry exports.
A San Diego-based company used MAP funds to reach out to Mexican consumers. This company saw its export sales grow by 60 percent in 1998 and by 34 percent in 1999. To handle the increased workload created by additional export sales, the business hired two new employees. In addition, local warehouses added employees to keep pace with this higher volume. The company averages 25 truckloads of product to Mexico daily (half by U.S. truckers). These shipments keep a minimum of three truck drivers and three warehouse workers employed yearly.
As part of an extensive trade servicing effort in Latin America, the USA Rice Federation successfully expanded U.S. rice exports to Colombia and Ecuador. Using FMD funds, the federation sponsored visits by Ecuadorian and Colombian rice trade delegations to the United States. The delegations included importers who had not purchased U.S. rice in the past and were not familiar with the U.S. industry. Several importers purchased U.S. rice for the first time. With these new sales, U.S. rice exports to Colombia and Ecuador rose to $74.0 million and $28.0 million, respectively.
These are just some of the successes we have seen through our market development programs. During the next 18 months, we hope to build on these successes by completing the Unified Export Strategy system. The next step is to implement a standardized evaluation process to measure program performance and effectiveness. This will help ensure that program allocations will have the greatest impact. We also will incorporate into the UES data base all FAS and private sector (including universities, profit, and non-profit enterprises) market development efforts and results including those under the Emerging Markets, Section 108 and Quality Samples programs. Together, these steps will provide a comprehensive view of all market development activities funded by FAS and provide a means to evaluate them.
We also expect to review the effectiveness of our first efforts under the Quality Samples Program. We announced the Quality Samples Program (QSP) last November and, to date, CCC has accepted proposals totaling $1.2 million for this pilot program. The QSP provides funds to private sector recipients so they can showcase the quality of U.S. agricultural products to foreign buyers.
We also will continue work on a Clean Wheat Initiative. Under this effort, we asked for public comment on a question first posed by U.S. wheat producers -- whether CCC should finance the installation of grain cleaners at certain elevators around the country. At a January 28th public hearing, testifiers included U.S. wheat growers and exporters -- and more importantly, buyers of U.S. wheat from Brazil, Colombia, and Nigeria.
The hearing was a sobering one, especially as we heard our customers describe the noticeably cleaner wheat offered by some of our major competitors, including countries that clean their wheat at export as a matter of policy.
Just 10 years ago, less than 25 percent of the world's wheat was purchased by private buyers; today that percentage has jumped to nearly 60 percent, or about 25 million more tons than a decade ago. Private buyers tend to have tighter quality and cleanliness specifications on the wheat they purchase, so the question is, are we in the United States going to respond to the apparent demand by our customers?
A number of interesting options were aired at the hearing, including:
1) whether CCC should specify cleaner wheat in making purchases for our humanitarian donations overseas; that could help to set an industry standard;
2) whether the CCC should develop, for the first time, a standard, comparable to that established by Canada and Australia, for the amount of dockage in our wheat;
3) whether CCC should offer, under the EEP program, bonuses for those who deliver cleaner U.S. wheat; and
4) whether CCC should carry out the original proposal to finance the installation of grain cleaning facilities.
These are the options that we will be reviewing as we work toward a final decision.
To further increase our chances of expanding market share, we will continue to seek new partners through our outreach efforts to state government officials, small and minority businesses, and first-time exporters. We must increase the awareness, at all levels, of the importance of trade and increased exports to the health of U.S. agriculture. For example, FAS has encouraged the four State Regional Trade Groups (SRTGs) to increase the number of small companies exporting. Last year, the state groups worked with over 400 MAP participants, educating them about the growth potential of export markets and how to take advantage of the opportunities. By providing export education and sponsoring trade shows and missions, the SRTGs have played a significant role in increasing the number of small firms participating in the MAP branded program. The resulting increases in sales generated by these new exporters have contributed to local revenues and employment.
Together our outreach efforts and the MAP were instrumental in making FOODEX >99, the major food trade show in Japan, a success for the Intertribal Agriculture Council. Five American Indian tribes were represented at the show -- Quinault Pride Enterprise representing traditional smoked seafood products, Seminole Indians of Florida with food seasoning, Gila River Far Board displaying grapefruit and tangelos, Navajo Agricultural Products Industry (NAPI) with pelletized alfalfa and pinto beans, and Yakima Land enterprises showcasing cherries and fresh vegetables. Quinault Pride Enterprise confirmed sales of nearly $200,000 of fresh seafood products and established a new market outlet for a smoked shellfish product with a Tokyo retailer operating 33 upscale sushi restaurants. The Seminole Tribe met with two food distributors who made offers to distribute "Seminole Swamp Seasoning" in their respective supermarket chains.
With the conclusion of bilateral negotiations with China over its WTO accession, our work will shift toward implementation of the agreements and establishing permanent normal trade relations with China. This is our top priority in this region and we will be working tirelessly on this effort. Chinese concessions will be important for improved access opportunities, but we must remain vigilant and work with Chinese officials to ensure market opening.
With more than 1.2 billion people or one-fifth of the world's population, China's accession to the WTO will give U.S. agriculture access to the world's second largest economy in terms of domestic purchasing power. This could result in at least $2 billion in additional U.S. agricultural exports by 2005.
China's WTO accession will strengthen the global trading system, slash barriers to U.S. agriculture, give U.S. farmers and agribusinesses stronger protection against unfair trade practices and import surges, and create a more level and consistent playing field in this market.
In order to realize these gains, we will be vigilant to ensure that China lives up to its WTO commitments, effectively administers tariff-rate quotas, eliminates discriminatory licensing, and fully implements last April's Agricultural Cooperation Agreement reducing phytosanitary barriers for citrus, wheat, and meat.
The full impact of the China accession agreement will be significant for U.S. agriculture by accelerating some of the policy changes apparently already underway in China. If our experience of the past few years has made one thing clear, it is that China is an important factor in the world trading picture. China's relative presence as an importer or exporter has a very direct impact on U.S. sales and on the bottom line of American producers.
China seems to have recognized that the policy of self-sufficiency that it had embarked on for the past many years was costly, wasteful, and not in its own best interests. The result of this new agreement, hopefully, will be a more market-based system and greater opportunities for efficient exporters, including the United States.
The U.S.-China Scientific Cooperation Program continues to be a strong element in our relationship with China, since this program focuses on research issues of mutual benefit to both countries. Among priorities identified at the January 2000 U.S.-China Joint Commission and Science and Technology Meetings were dryland agriculture, water and soil conservation and management, germplasm exchange, and plant and animal disease resistance.
Also in this region, our efforts to monitor and enforce our trading rights continue, especially in markets such as Korea, Japan and Taiwan where we continue to work to prevent the erosion of previous trade concessions.
Finally, our participation in the Asia Pacific Economic Cooperation (APEC) forum supports trade liberalization efforts in this region. While APEC itself is not a negotiation structure, it allows us to work with other members to advance our goals in the WTO and other fora.
Russia and the New Independent States
Our top priority in this region is the implementation of food aid agreements with Russia. As negotiated, last year's final package totaled 3.7 million tons of U.S. commodities valued at $1.2 billion, including transportation costs. We donated more than half the aid, and once completed, Russia will have purchased more than 1.8 million tons under P.L. 480, Title I. We are also undertaking a 500,000-ton humanitarian food aid initiative in Russia this year.
USDA staff continues to closely monitor the final stages of implementation. We also have received a formal request from the Russia government for another substantial food assistance package for this year; this is separate from the humanitarian program mentioned above. A number of considerations have come into play in reviewing this request.
Our assessment of Russian food needs and our experiences with the current program are key. If an agreement is reached on additional aid, we will insist on similar monitoring measures. There are a number of other considerations as well. For example, we have to be careful not to reduce incentives for Russian farmers. We also have an obligation to other trading nations to avoid actions that would disrupt international markets, and we would consult closely with the EU and other major food exporters.
Our trade policy focus in this region is to help a number of these countries join the WTO. While membership in the WTO is a high priority, we will continue to insist that these accessions be made on commercially viable terms that provide trade and investment opportunities for U.S. agriculture. This means that the acceding countries will need to continue the transition from centrally planned to full market economies by implementing new trade policies and regulations that are fully consistent with WTO rules and obligations.
FAS will continue to work with officials in these countries to help them make the necessary changes in their countries' trading regimes. We plan to do this through bilateral and multilateral discussions, as well as direct technical assistance programs. For example, FAS is presently providing assistance to the Ministry of Agriculture in Turkmenistan to encourage that country to move toward open market policies. FAS will place a high priority on compliance with the WTO SPS measures and Technical Barriers to Trade (TBT) Agreements given the growing number of bilateral issues in this area. While we anticipate that these reforms will create new market opportunities for U.S. exporters, we will also emphasize to officials in these countries the importance of the changes in terms of revitalizing their economies, attracting foreign investment, and using international trade as an engine for economic growth.
A more long-term FAS goal is our continued participation in international agricultural research studies to expand and improve crop-assessment resources for estimating wheat production in Russia and Kazakstan.
Within Europe, maintaining market access and trade policy issues dominate our list of priorities. We will continue to monitor the reforms to the EU's Common Agricultural Policy (CAP), evaluating how the current set of reforms will affect U.S. agricultural competitiveness not only inside the EU, but also in third countries. In addition, we are closely monitoring the EU's implementation of bilateral agreements on rice and oilseeds.
After six years of difficult negotiations, the United States and the EU signed the Veterinary Equivalency Agreement in July 1999. The Agreement went into force in August. We expect to have the first meetings of the joint management committee later in 2000. The first issue we expect to be addressed will be the equivalency of the U.S. and EU residue testing programs.
At the request of the EU, a WTO panel was formed in 1999 to investigate the procedures used in establishing the safeguard action protecting the U.S. wheat gluten industry. We are working closely with the U.S. Trade Representative's office to defend this action. In addition, we are evaluating options identified by the International Trade Commission in its mid-quota review that will maintain and increase the effectiveness of the quotas operation.
We continue to work with the European Commission and member state governments on the bilateral market access issues regarding agricultural products produced with biotechnology. Current issues include proposed EU labeling regulations, amendments to the EU approval process, and identification of options to re-open the EU corn market to U.S. exports. Furthermore, we are currently engaged in a pilot project with the EU and member states to compare data requirements for biotech product approvals.
FAS, in cooperation with the Agricultural Marketing Service, will continue to work with the EU and member state governments to fully implement an International Standards Organization (ISO) accreditation program developed by USDA in 1999. This program allows qualified U.S. exporters of organic products to maintain and expand their estimated $200 million in annual exports to the EU.
After opening negotiations in 1999, we continue to work towards negotiating a new bilateral wine agreement with the EU. In addition, we are working closely with other wine exporting countries to maximize opportunities in global market access for wine exports.
In the Baltics, we will continue to deliver an agriculture improvement and agribusiness program under the President's Northern Europe Initiative. We will follow up on our dairy sector improvement seminar with continuing links between participating U.S. universities and the Baltics dairy industry. Additional programs will enhance agribusiness investment and trade opportunities, particularly in the forestry and pork sectors.
FAS will continue to monitor developments as several countries proceed with plans to join the EU. While we support this next round of accessions, the change could have a significant effect on U.S. agricultural exports to the region. The EU is already putting increasing pressure on the candidate countries to adopt EU regulations, particularly in the area of SPS measures and technical barriers to trade (TBT). In response, FAS will continue to work to ensure that the acceding countries do not adopt SPS/TBT policies or regulations that will disadvantage U.S. exporters during the transition period leading to full EU membership. In addition, FAS will focus particular attention on areas where the United States would be entitled to compensation from the EU for market losses attributable to higher border protection resulting from EU accession. We will also look for opportunities during the new round of WTO negotiations to maintain or improve market access for U.S. agriculture in this region.
We are active in negotiations to establish a free trade zone in the Western Hemisphere, under the proposed Free Trade Area of the Americas. The FTAA negotiators are meeting regularly with the goal of achieving a new hemispheric trade agreement by 2005.
Also in this region are two of our three largest agricultural markets -- our neighbors and partners in the North American Free Trade Agreement (NAFTA), Mexico and Canada. Trade into these countries often faces a plethora of policies and programs potentially detrimental to continued access. We will continue to monitor and enforce our rights under the NAFTA and various side agreements as well as coordinate compliance with our obligations under these accords.
Other trade policy activities will include monitoring the tendency of several countries in the region to introduce "price bands" on primary commodities (a form of a variable levy), as well as unjustified phytosanitary restrictions on our wheat in Brazil. We will use the Cochran Fellowship Program to reinforce the U.S. position on these issues to senior level Latin American agricultural policy makers.
We also will continue to alert exporters to the potential of the Latin American market, the fastest growing region for U.S. agricultural exports, by stepping up our marketing activities. Efforts by our offices in this region last year met with great success and high praise from participants.
FAS will continue to build relationships in the Caribbean through its Cochran Fellowship Program, which offers technical assistance and training activities for potential foreign buyers. Following a Cochran training activity in 1999, the U.S. Meat Export Federation reported sales of U.S. lamb to Barbados, a market that has been essentially closed to U.S. food and agricultural products because of its close ties to France.
In Central America, FAS is monitoring reconstruction and agricultural production in the aftermath of Hurricane Mitch. We will improve our monitoring of the reconstruction of the agricultural sectors, which affects regional food security. We will also be providing critical food safety improvement assistance to help these countries build their food distribution and processing centers so that they agree with U.S. standards.
Last year, FAS administered CCC donations of wheat under Section 416(b) totaling 200,000 metric tons and valued at $31 million to the Governments of Honduras, Nicaragua, El Salvador, and Guatemala. An additional 45,000 metric tons of corn valued at $6 million also was donated to the region under Section 416(b). Sales proceeds are being used by the governments for post-hurricane reconstruction efforts.
In Brazil, USDA will monitor and report on the expansion of crop areas into the Cerrados region of Brazil's Center West. Farmers in this region are rapidly expanding soybean area, which will have a substantial effect on U.S. soybean production, prices and trade.
FAS will continue to encourage economic reform, market liberalization, and infrastructure development in the African countries, emphasizing to African officials the importance of meeting their current WTO obligations and commitments. We will also look for common interests during the new round of WTO negotiations and work together to improve global market access for agriculture.
In particular, FAS will address the growing number of sanitary and phytosanitary (SPS) issues with our African trading partners, stressing the important difference between justifiable science-based food safety measures and protectionist non-tariff barriers. Efforts will be made to demonstrate how science-based measures can protect human, animal, and plant health with minimal trade disruption. In addition, we will offer technical assistance on understanding and complying with the WTO SPS Agreement to enable these countries to have improved access to world markets.
FAS will also continue to engage African countries in a dialog on the important advantages of biotechnology in agriculture. We will encourage discussions at several levels, from broad high-level reviews to detailed working-level scientific exchanges.
Of all of the regions of the world, Africa remains the most threatened by food insecurity. FAS has, with USAID and the Department of State, developed a three pronged approach to implement the U.S. Action Plan on Food Security, released in 1999. FAS will initiate a pilot project on food security in Sub-Saharan Africa. This will include providing U.S. technical and policy assistance to Ethiopia/Eritrea to expand the United Nation's Food and Agriculture Organization (FAO) Special Program on Food Security. FAS will also be helping local governments create national food security plans to promote long-term rural development, improve trade, and reduce malnutrition.
On the market development side, FAS plans to expand the Cochran Fellowship Program to three new countries in the Sub-Saharan Region, bringing the total number of Sub-Saharan participants to11. The goals are to develop agricultural systems to help these nations meet domestic food needs, and to strengthen trade linkages with the United States.
These endeavors are paying off in terms of U.S. trade. For the first time in 1999, a Senegalese company imported U.S. frozen chicken and meat. The participant intends to purchase two containers per month, the value of which is estimated at over $200,000 per year.
In Africa, USDA will increase its monitoring of agricultural sectors to enhance the USAID's Famine Early Warning System. This will help us assist these countries make the transition form subsistence to market economies. And we will continue to coordinate our food aid programs with USAID's P.L. 480, Title II programs.
We will continue to foster research and scientific exchanges in this region. Both the United States and countries in Africa benefitted last year from 24 research and scientific exchanges under the FAS-administered Scientific Cooperation Research Program involving U.S. scientists and 11 African countries. Projects include providing alternatives for small farmers; improving seedless mandarins for new domestic and international markets; using natural enemies for biological control of stemborers, which cause more than $1 billion in damages to U.S. crops each year; and preventing introduction of exotic pathogens on the Protea flower in a multi-million dollar industry with tremendous growth potential for farmers in both the United States and Africa.
There is no question that today's budget environment requires us to prioritize our activities. Adjusted for the ICASS base transfer, which was implemented in FY 1998, the level of funding available to FAS has essentially remained unchanged from FY 1997, forcing FAS to again absorb unavoidable wage and price increases in FY 2000. The combined impact of the FY 2000 Federal pay raise and higher overseas costs resulted in a $5.6 million shortfall in the FAS operating budget. Addressing this shortfall required FAS to adopt the following stringent fiscal measures:
Savings of $1.0 million from closing or downsizing six overseas offices. (Closing Bern and Agricultural Trade Offices (ATOs) Milan and Jeddah, and downsizing Ukraine and ATOs Hamburg and Tokyo. Additionally, ATO Singapore will be closed at the end of
this fiscal year which will save $.9 million in FY 2001);
Savings of $1.6 million from a 50-percent reduction in marketing activities conducted through FAS offices overseas;
Savings of $2.0 million from a 25-percent reduction in domestic discretionary spending such as travel, training, supplies and equipment; and
Savings of $1.0 million from up to a 5 percent reduction in current U.S. employment levels to be achieved by continuing a hiring freeze and offering an early retirement opportunity.
Mr. Chairman, the FY 2001 budget proposes a funding level of $117.9 million for FAS, excluding $27.5 million for the Cooperator Program, which is now funded through CCC. In addition to partially funding the FY 2001 pay raise, the budget proposes a modest increase to support several agency initiatives including:
$750,000 and 8 staff years for market access compliance and negotiation activities. U.S. agriculture made groundbreaking progress in the Uruguay Round of multilateral trade negotiations, improving world market opportunities for U.S. agricultural products by an estimated $5.17 billion during the implementation period. However, this has led to a sharp increase in FAS' trade compliance workload including monitoring implementation of numerous trade liberalization provisions by other countries and ensuring their compliance, negotiating agreements with countries seeking to accede to the World Trade Organization, and developing harmonized rules of origin for customs purposes. The onset of new multilateral negotiations on agricultural trade is expected to increase our current market access workload even further.
The requested funds will support additional staffing needed to meet this heavier workload and to fund technical expert participation from other USDA agencies in international consultations, particularly related to food safety and biotechnology issues, and to contract for technical expertise as needed to work effectively with foreign regulators.
$1,500,000 and 12 staff years to open three new ATOs in priority markets that offer significant growth for U.S. exporters over the next 5 to 10 years. These markets include:
Mexico (a new ATO in Monterrey and an ATO satellite office in Guadalajara -- $400,000)
Increased FAS representation in the banking and northern trade center of Mexico will allow the United States to take advantage of U.S. exporters' proximity and the market access provisions of NAFTA. A presence in western Mexico will allow the United States to take advantage of the expanding hotel, restaurant, and institutional trade in the region and in Mexico's second largest city. Mexico is currently the third largest, single country market for U.S. agricultural exports.
Canada (new ATO in Toronto-- $550,000): Significant trade opportunities exist for small-to medium-sized U.S. exporters in our second largest, single country market. This new office would form the hub for an enhanced market development effort targeting new exporters in the United States.
Philippines (new ATO in Manila-$550,000): The Philippines is the 9th largest foreign market for U.S. agricultural goods, importing $730 million of U.S. agricultural products in fiscal year 1999. An ATO in Manila will make further inroads into this major market and protect U.S. interests from major nearby competitors such as Australia.
$618,000 for funding of the FAS attache office in the American Institute in Taiwan (AIT). Citing budgetary pressures, AIT is proposing to shift the funding responsibility for direct and indirect costs to resident agencies that historically have been funded through the AIT contract with the Department of State (DOS). The AIT contract is funded through appropriations made to DOS. Because DOS will no longer fund the costs of other agencies through its contract with AIT, an additional $618,000 will be needed to maintain the FAS Agricultural Attache Office at the AIT.
Responding to conference report language directing the Department to develop a plan for establishing an account to manage overseas currency fluctuations, the budget proposes the establishment of an overseas buying power maintenance account. Under this proposal, up to $2 million of the FAS annual appropriation shall remain available until expended solely to offset fluctuations in international currency exchange rates.
Mr. Chairman, the export promotion, food assistance and foreign market development programs administered by FAS are key to expanding global market opportunities for U.S. agricultural producers. Our program proposals provide the tools to meet these new sales opportunities.
Export Credit Guarantee Programs. The budget includes a projected overall program level of $3.8 billion for CCC export credit guarantees in FY 2001. As in previous years, the budget estimates reflect actual levels of sales expected to be registered under the programs rather than authorized program levels. Of the total program level, $3.5 billion will be made available under the GSM-102 program and $101 million will be made available under the GSM-103 program. For supplier credit guarantees, the budget includes an estimated program level of $150 million and an estimated program level of $40 million for facility financing guarantees.
Foreign Market Development. The budget includes $27.5 million for the Foreign Market Development (Cooperator) Program, unchanged from last year. As a means of providing stability for future program activities, funding for the Cooperator Program is now provided through CCC rather than the FAS appropriation.
The budget also proposes $2.5 million in funding from CCC for the Quality Samples Program. Under this program, samples of U.S. agricultural products are provided to foreign importers in order to promote a better understanding and appreciation of their high quality. The Quality Samples Program is carried out through private sector organizations.
Market Access Program (MAP). The budget provides funding for MAP in FY 2001 at the maximum authorized level of $90 million, unchanged from FY 2000.
P.L. 480. For FY 2001, the budget includes a total program level for all titles of P.L. 480 food assistance activities of $1.017 billion, which is expected to provide approximately 2.9 million metric tons of commodity assistance. As was the case last year, the budget requests no specific level of funding for Title III grants; however, current authorities provide that up to 15 percent of the funds of any title of P.L. 480 may be transferred to carry out any other title.
Export Enhancement Program (EEP). World supply and demand conditions have limited EEP programming in recent years. However, the FY 2001 budget does include a program level of $478 million for EEP, the maximum level authorized by the Agricultural Trade Act of 1978. In addition, proposed legislation will be submitted in conjunction with the budget that will authorize the Secretary of Agriculture, in the last quarter of the fiscal year, to reallocate unobligated EEP funding for use in carrying out U.S. foreign food assistance activities, including P.L. 480 and Food for Progress programs, and for purchasing commodities to replenish the Food Security Commodity Reserve, and to assist the CCC in conducting market development activities.
Dairy Export Incentive Program (DEIP). The budget assumes a DEIP program level of $66 million for FY 2001, below the current estimate for FY 2000 of $119 million. The projected decline in DEIP programming is the result of two factors: full implementation of the Uruguay Round export subsidy reduction commitments and the phase out in June 2000 of the so-called "rollover authority" that allows countries under certain conditions to exceed their annual export subsidy commitments by drawing on unused subsidy authority from previous years.
This concludes my statement, Mr. Chairman. I will be glad to answer any questions.