MR. CANON: As my fellow bulldog and friend, Earl Manning just stated, my name is Nolan Canon and I'm a rice farmer in Mississippi, before I get started with many testimony, Undersecretary Schumacher, when you were showing, your graphs and charts up her on the board here before dinner, I couldn't help but remember back to the mid 80's and how at that time I thought that it looked like agriculture, and specifically production agriculture was starting to turn into a poverty issue. Well as Casey Stingle, Yogi Berra one of those Yankee managers said, I'm having dejavu all over again. Anyway we hope that's not the case in the coming years. I currently serve on the board of the Mississippi Rice Producers Legislative Group, the Mississippi Rice Promotion Board, the Mississippi Rice Council and Vice-Chairman of the Board of Directors of the U.S. Rice Producers Group. I appear before the panel today on behalf of the U.S. Rice Producers Association. The rice producers were formed by rice farmers in the States of Mississippi, Missouri and Texas in order to provide all rice producers with a farmer friendly organization that represents only the interests of rice farmers. The Rice Producers Association is dedicated to providing the nation's rice farmers, and only rice farmers, with a voice in matters affecting their ability to profitably market their crop. We commend the USDA and USTR for its foresight in holding these series of public listening sessions around the country in order to review the many issues raised by the upcoming 1999 WTO negotiations.

We are hopeful that by working with this panel other enlightened the policymakers over the coming months, we can avoid the types of mistakes made during prior trade negotiations that allowed discriminatory treatment of certain types of U.S. rice. The recent appointment of members of the U.S. Producers Association on the Department of Agriculture Policy Advisory Committee and Agriculture Technical Advisory committee gives the rice farmer an important voice. Specifically, the U.S. Rice Producers Association is concerned that our trade policies discriminate against the export of rice in its most basic form, as rough rice. Rough rice, sometimes referred to as paddy rice, is rice in the form harvested from the field. This is also the form that rice is in when it leaves the farm gate. Thus, the price that many farmers receive fro their rice is determined by the demand for rice in its rough form.

There is, of course, an active domestic and world trade for rice in its milled (white) and semi-milled (brown forms. However, export markets for rough rice have become increasingly important during the last few years. Discussions between our government and the rice industry during and since the consideration of the Uruguay Round of the General Agreement on Tariffs and Trade have centered on the interests of rice industry officials whose primary interest was to enhance export of milled rice. While some of the benefits of exports of U.S. Milled rice flow through to rice producers, there are a number of export markets that present opportunities that are specific to rough rice. Our trade policies and export programs must accommodate these market realities. Unfortunately, in the past this has not been the case. As an example, the management system initially proposed by the United States for the tariff rate quotas, (TRQ) for rice, granted to the United States by the European Union (EU) under the US/EU Enlargement Agreement of 1996, did not include provisions to address rough rice exports.

Fortunately, the Department of Agriculture worked closely with the Rice Producers Association to ensure that the final TRQ management system was farmer friendly and did not discriminate against rough rice exporters. In a similar case, the U.S. rice milling interest played a pivotal role in negotiation with the EU the current Cumulative Recovery System (CRS) applicable to EU rice imports. The CRS imposes a system of tariffs on EU imports of U.S. rice that discriminates against rough rice exports.

The CRS was introduced for a trial period following the Uruguay Round of WTO negotiations. Like the previous TRQ issue, this system was an attempt to benefit a few rice mills at the expense of others, especially rice producers. Like the TRQ, the CRS was formulated and promoted as an industry endorsed policy. This would not have occurred had all producers known that it completely ignored rough rice. Certain U.S. mills and the organization representing them were apparently convinced that the CRS would allow them to capture more of the EU rice market by converting it from a brown rice to a milled rice market. This mill-oriented artificial system replaced the calculation of tariffs previously levies, based on rough rice with a more artificial one where the reference price is based on brown and now one based on a composite of brown, brown parboiled rice. Due largely to this system, U.S. Rice sales are down considerably and our market share has declined. Rice from Thailand is replacing U.S. rice because of the ability of importers to claim a rebate on Thai fragrant rice, which is not available for most forms of US. rice.

Furthermore, practically no U.S. rough rice is being sold to the EU. Prior to the introduction of the CRS, rough rice could be imported because levies were far lower then and proportional to the cost, quality and degree of milling for levies of other forms being imported. Today the CRS calculated duty on rough rice, for example, is equal to or higher than that for brown rice. Nowhere in the world, or previously in the EU, are duties for rough rice higher than those for brown or milled rice. This is an economic anomaly. According to European trade sources, this disparity occurred because rough rice was not considered separately in GATT negotiations, which constrained rough rice from being a part of the CRS. EU importers complain that such a system makes rough rice imports noncompetitive. By elimination the CRS that discriminates against imported rough rice, some Europeans feel that US. rough rice could displace Thai rice in the EU market. The CRS should be eliminated or modified to include equitable treatment for rough rice. We support a system whereby tariff coefficients for all forms are based on a more transparent rough rice reference price. This would support all forms of U.S. Exports fairly and logically. It would allow U.S. rough rice to compete on a level playing field. It would provide U.S. exporters with a product that can compete with Asian rice supplies. It would eliminate the extensive administrative rigors associated with analyzing invoices in determining CRS rebates, and it would allow us to better service the needs of all buyers, many that feel betrayed by the current system. We urge this panel and other policymakers to review this counterproductive policy.

Rice farmers have learned a hard lesson from experience with the US/EU agreements regarding the TRQ and CRS policies. The lack of direct farmer participation in the formulation of rice trade policies allowed rice processors to occupy the policy field.

We now understand that it is naive to expect that rice millers have any real incentive to promote the export of rough rice. It might also reduce the supply and drive up the cost of the rice miller's raw input. Rough rice sales are key to the profitability of rice farmers. Because of their vested interest in receiving the best price possible for rice at the farm gate, rice farmers can be expected to aggressively, effectively promote these sales. Our trade policies and export programs need to reflect this simple reality. With these realities in mind, we recommend that this panel and other policymakers fight for the following policy goals in order to liberalize the trade in rice during the upcoming WTO negotiations: Policy officials need to be cognizant that rice is not a homogenous commodity. Policy initiatives affecting rice need to carefully consider and address all forms and types of rice; assure that countries with current minimum access commitments for rice, (Japan, Korea and other) as well as countries which may soon have minimum access commitments (China, Taiwan and others) purchase U.S. rice. Arbitrate changes in the EU's rice import policy and insist on equitable treatment for all forms and types of imported rice; strongly oppose GATT/WTO illegal trading arrangements as well as tariff regimes in regional trade blocs that disadvantage U.S. rice producers. As an example of the latter, Brazil allows the duty-free import of rice from other Mercosur countries, while the U.S. Rice is assessed duties of up to 22 percent. Other such regional trade blocs include EU/Turkey and Mexico/Argentina. Strengthen the enforcement of WTO prohibitions against the use of nontariff trade barriers for rice, such as the imposition of scientifically unsound phytosanitary trade restrictions.

In conclusion, America's rice farmers are not asking for anything more than equitable treatment from the upcoming WTO negotiations, or from any other international trade discussions. The United States is now one of the premier rice markets for Thailand, or chief overseas competitor. Thailand has grown to expect open access to markets in the United States and elsewhere for its special aromatic rice. Our rice producers members ask only that the United States government work aggressively with us to maintain and expand similar open markets for all forms and types of U.S. rice through out the world marketplace. Thank you again for the opportunity to offer the views of the U.S. Rice Producers Association on these very important matters. I will try and field any questions the panel may have.

MR. SCHUMACHER: (inaudible) -- it was very clear, very precise and we appreciate it.

MR. MANNING: Thank you. In the interests of time and to get as many comments as possible, there is no break, no official break, scheduled for this listening session, but the coffee is available up in the foyer. Do the panel members need a quick break? (Short break.)