MR. HEATWOLE: Good morning. I am a dairy farmer on the Kent/Sussex County line and it's good to be here today. Before I get into the text of my remarks, I enjoy these types of sessions on several counts. I think too often the farmer on the level that I'm at doesn't feel like they have a voice in the process. So I appreciate you coming for that here today.

Secondly, I always learn a lot from these sessions. From the Governor this morning, I learned why I like chicken necks so well. Having spent 15 years in Jamaica, I understand that's where we send a lot of our chicken necks. And it did seem growing up that there did seem to be a lot of chicken foot soup for the few fowl that ran around in the neighbor's yards.

I'm pleased to appear before you today to testify on the topic of DFA's, Dairy Farmers of America, agricultural trade priorities for the upcoming WTO negotiations. DFA as well as the National Milk Producers Federation and the U.S. Dairy Export Council are committed to expanding exports of U.S. dairy products through the reduction of foreign trade barriers and other measures that distort international trade in milk and dairy products.

The U.S. dairy industry is the second largest agricultural commodity sector in the United States, measured by farm cash receipts of 20 billion per year, and is one of the top three agricultural sectors in fully half of the 50 states.

What we have learned in our relatively short export history is that American dairy products can and do perform successfully in markets where there is a level playing field and where trade-distorting practices do not hamper our ability to compete. In our first year last year in operation, we exported over $44 million worth of dairy products. In fact, the industry's slow and difficult emergence internationally stems from the fact that dairy is one of the world's most protected and subsidized industries.

When the Uruguay Round was deadlocked over agriculture, the U.S. dairy industry made many key concessions so that an agreement could be reached. Today agriculture has a history in the WTO and we must ensure that the next round serves first to revise the rules that have not worked.

By the same token, the dairy industry is very supportive of this Administration's effort to further reduce trade-distorting practices in agriculture. While we are prepared to do our part to accomplish that goal, dairy will not give further concessions unless we are given equal treatment.

Obviously, the next round must build on the accomplishments of the Uruguay Round. We believe that the U.S. government in the upcoming round of negotiation should address the following four issues.

Number one, the elimination by a certain date of all remaining use of dairy export subsidies.

Export subsidies are extremely common in the world dairy trade. The use of these subsidies is a primary factor that keeps world dairy prices depressed below domestic prices and hobbles the expansion of sustainable commercial U.S. dairy exports.

Number two, substantial increases in real access through reduction of remaining trade barriers to U.S. dairy exports. Let me give you some examples of the kinds of barriers American dairy products face. The European Union, the world's largest dairy market, is able under the WTO commitments to impose tariffs at a rate of 240 percent against all but very limited quantities of cheese, an important U.S. dairy export product. Canada, our largest trading partner, imposes tariffs on U.S. cheese at 245 percent.

The U.S. maintains tariff barriers against dairy imports but not at levels as high as these. This Administration must guarantee that upon implementation of the next round, countries will cap ordinary tariffs and harmonize tariff rate quotas. The U.S. industry recognizes that it must give access to get access. Yet, unless all countries participate in tariff reductions, especially the highly protected markets that facilitate the very high domestic prices through both small quotas and very high overquota rate, the U.S. will remain the primary market for lower cost suppliers.

Phyto trade negotiations cannot result only in unilateral concessions made by our government. Any further opening of our market must be matched with enforceable and usable access to even more protected markets such as Canada, the European Union and Japan.

Number 3, continued reduction of all production-related domestic supports. The EU already produces up to 15 percent more milk than its domestic market requires, and this large surplus drives its continued heavy use of export subsidies.

We support the U.S. government position to tighten the rules on domestic support in order to ensure that support of rural communities is not used to defend production gluts that distort trade and prices.

Number four, improved transparency and disciplines on the trade-distorting effects of both import and export state trading enterprises. Export state trading enterprises provide de facto export subsidies through their ability to price discriminate between high- and low-value markets and their ability to keep their transactions private. In dairy, the New Zealand Dairy Board is the most conspicuous example.

With regard to the new WTO negotiations themselves, the U.S. dairy industry supports structuring the negotiations as a single undertaking encompassing all sectors, as opposed to a sector-by-sector approach. And it strongly supports renewal as soon as possible of fast-track negotiating authority to achieve a timely outcome that further reduces distortions to international dairy and agricultural trade.

I appreciate this opportunity.

UNDER SECRETARY SCHUMACHER: Thank you very much.

AMBASSADOR BAAS: May I ask one question, please? I was happy to hear that you exported $44 million in dairy products last year. I was interested in knowing whether you can give this to us: What the largest portion of that was in terms of the product and where perhaps it went and did DEP and all enter into your ability to do that?

MR. HEATWOLE: We might have done a little through DEP. We had some pending dehydrated products in DEP but most of it was in whey powders and also in some drink formulations. Ironically, that goes to the Caribbean. In addition to some of their local products, that makes a fine mixed drink, I'm told.

AMBASSADOR BAAS: Thanks.