Special Assistant to the Secretary for Trade
Before the House Committee on Agriculture's
Subcommittee on Livestock, Dairy, and Poultry
May 8, 1997
Mr. Chairman, members of the subcommittee, I am pleased to come before you today to discuss the status of livestock products trade with the European Union (EU).
Exports of Livestock Products Show Strong Growth
But before I address the subject of today's hearing, I'd like to spend a few minutes reviewing the export performance of livestock products overall. Last year, the value of poultry, pork, beef and variety meat exports increased 8 percent to $6.6 billion, and were twice the 1990 level. Strong sales of poultry and pork led the way. Poultry exports, at $2.5 billion, jumped nearly $500 million, 23 percent, due mainly to the strength of the Russian market, which increased its purchases by $306 million for a total of $913 million. The Department estimates that poultry exports in 1997 will increase another 8 percent.
U.S. pork exports have more than tripled since 1990. For 1996, pork exports increased 20 percent and exceeded the $1 billion mark. USDA projects that pork exports in 1997 will increase by about 44 percent, in large part as demand from Japan increases dramatically due to reduced supply from Taiwan caused by the recent outbreak of foot and mouth disease (FMD) there.
This year, beef exports will account for about 7 percent of U.S. production, up from 4 percent in 1990. Due to lower prices, the value of beef exports declined 8 percent to $2.4 billion; however, exports increased in volume, from 595,000 tons in 1995 to 611,000 tons in 1996. On a volume basis, beef exports have shown steady growth since 1990, rising nearly 75 percent since then, and are projected to increase one percent this year.
Variety meat exports took a slight turn upward in 1996 to $714 million. Total beef variety meat exports were $617 million, 86 percent of total variety meat exports. Exports of variety meat have nearly doubled since 1990, and USDA expects the growth to continue in 1997, although at a lower rate due to smaller supplies.
U.S. dairy product exports declined about 7 percent in 1996, due mainly to limited supplies and weak international demand.
What makes the livestock export figures even more impressive is that they were achieved with limited access to the EU market -- historically one of our larger markets. While U.S. livestock product exports were growing rapidly around the globe, exports to the 15 countries that make up the EU dropped from $140 million in 1986 to $102 million in 1996. While beef and pork exports rose modestly, variety meat exports suffered the greatest decline -- from $109 million in 1986 to roughly $20 million in 1996. Poultry exports showed the greatest increase over the past 10 years, rising from $11 million in 1986 to nearly $55 million in 1996. And now, of course, all of our livestock, poultry and dairy exports to the EU have been affected as the result of technical issues on veterinary equivalence, to which I now turn.
U.S.-EU Veterinary Equivalence Negotiations
Nowhere are we facing greater challenges on livestock trade policy issues than in our dealings with the EU. However, with our agreement on veterinary equivalency, we believe we have made an important first step toward resolving some of the key issues.
Equivalency agreements incorporate the provisions of the Uruguay Round's Sanitary and Phytosanitary (SPS) Agreement. The SPS agreement states that countries may enter into bilateral agreements that recognize the equivalency of specific sanitary or phytosanitary measures. The underlying premise is that most countries do not have identical sanitary measures. Although different, those measures can provide a secure level of protection to public and animal health. Through equivalency negotiations, countries thoroughly review each others' sanitary measures to ensure that the appropriate level of protection is maintained. Equivalency agreements ensure food safety while facilitating trade.
On April 30, after several years of negotiation, we reached agreement with the EU on an overall framework for recognizing as equivalent each other's veterinary inspection systems. This agreement is not a trade agreement in the ordinary sense. Rather it is a technical agreement on the recognition of veterinary and inspection standards that covers over 40 product groups and over $3 billion in bilateral trade. The agreement elaborates on World Trade Organization (WTO) principles on equivalency of meat inspection standards and establishes a process for dealing with remaining and newly emerging veterinary inspection problems.
Mr. Chairman, 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. U.S. poultry is the safest and most wholesome in the world, and we refuse to lower our standards in order to ship to the EU.
The United States will continue to pursue a resolution to these issues under the framework agreement reached last week. 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 under the new Pathogen Reduction/Hazard Analysis and Critical Control Point (HACCP) program. 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 delivery of its appropriate level of protection.
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 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.
EU Hormone Ban
One livestock issue that we have already taken to the WTO is the EU hormone ban. Although I'm sure the Committee is familiar with this longstanding issue, I'd like to take a few moments to bring you up-to-date.
On January 1, 1989, the EU implemented a ban on imports of red meat from animals treated with growth-promoting hormones, cutting off U.S. beef exports valued at about $100 million annually. Most of this (80 percent) was offal for human consumption.
Following years of unsuccessful bilateral discussions, and unproductive WTO consultations in March 1996 (where we were joined by Canada, Australia, and New Zealand), the WTO formed a dispute settlement panel after a U.S. request. The panel consists of three members agreed to by both parties: Thomas Cottier, Switzerland, as chairman; Peter Palecka, Czech Republic; and Jun Yokota, Japan.
Last fall, there were two panel meetings, as provided for in the Dispute Settlement Understanding. In October, Canada also requested a panel to examine the EU's ban. The panelists are the same as for the U.S.-requested panel, and the two panels have shared information, but they are legally separate.
In February, the panel met again, this time with five technical experts appointed by the panel to provide guidance for both the U.S. and Canadian panel proceedings. The meetings were helpful in giving the panel members a much better sense of the scientific, as well as legal, issues involved, and in debunking most of the EU's evidence.
On March 28, the WTO panel issued the descriptive section of its report. The interim ruling is expected this month.
The United States maintains that the EU's ban ignores a vast body of scientific evidence that the veterinary drugs in questions are safe when used in accordance with good animal husbandry practices. The safety of the drugs has been confirmed by the Codex Alimentarius Commission (a food standards body sponsored jointly by the World Health Organization and Food and Agriculture Organization), as well as by the EU's own scientists -- both the Lamming Committee, convened in 1982, and the EU's Scientific Conference on Growth Promotion in Meat Production in late 1995. EU Commissioner of Agriculture Franz Fischler, however, has continued to publicly rule out an end to the hormone ban, stating that economic, environmental and consumer concerns must be considered in addition to the scientific evidence. The EU Council and the European Parliament have also taken this position -- a position that we find indefensible.
EU Dairy Policy
Despite the growing presence of international competitors, primarily Australia and New Zealand, the EU accounts for between one-third to 40 percent of world trade in dairy products. The EU maintains this market share in large part due to its generous use of export subsidies that are needed to move the EU's high-cost products on to world markets.
Only about 1 percent of U.S. dairy production is currently exported. Much of this is facilitated through the Dairy Export Incentive Program (DEIP). The DEIP's principal focus has been to further the U.S. trade policy strategy of opposing EU subsidies and the unfair trade practices of other competitor nations that impede U.S. dairy product exports.
DEIP allocations for the July-June 1996/1997 year are available for sales to 112 countries totaling 100,222 metric tons of nonfat dry milk, 97 countries totaling 9,971 metric tons of whole milk powder, 111 countries totaling 38,611 metric tons of butterfat, and 109 countries totaling 3,669 metric tons of cheese. All of these allocations are the maximum amounts permitted to the United States under the Uruguay Round export subsidy schedule.
As part of our GATT implementation efforts, we are closely monitoring a recent EU regulation that allows the butter and nonfat dry milk ( NDM) components of certain processed cheese to count against the EU's export subsidy schedules for these components rather than against its cheese schedule. The EU is rapidly approaching the limits for subsidized exports of cheese, in contrast to the NDM and butterfat categories where there are ample balances. By implementing this regulation, the EU relieves pressure on its more limiting export subsidy volume limitations for cheese by counting the components against its butter and NDM schedules where there is ample room.
We are concerned that this action appears to be designed to allow the EU to evade its Uruguay Round export subsidy commitments for cheese. We raised this issue at the WTO Committee on Agriculture meeting in Geneva on March 13-14, 1997. We were pleased that our concerns were shared by the delegations from Australia, New Zealand, Canada, Argentina, and Mexico.
The EU rejected the U.S. allegation that their action is a circumvention of Uruguay Round export subsidy disciplines but promised to provide additional information on this scheme. The issue will be taken up more fully at the next Committee meeting in June or September.
Mr. Chairman, as you can see, we have several major outstanding trade issues with the EU that affect our livestock products sector. We are using all available trade policy tools at our disposal, and will work relentlessly to ensure the best resolution for the American livestock sector.
Even with these problems, poultry and livestock exports continue to show remarkable growth. Increased market access, reduced trade barriers and high-quality U.S. products continue to make the livestock sector one of the shining performers in the overall U.S. agricultural export picture.
That concludes my statement, Mr. Chairman. I will be pleased to answer any questions.