MR. GIBSON: Good afternoon. I'm Larry Gibson, dairy producer from Texas. We milk about 400 cows. I'm also a corporate director for the Dairy Farmers of America, which is, at the present time, the largest dairy co-op in America, about 20,000 members. DFA also is a member of the National Milk Producers Federation and the U.S. Dairy Export Council, and in the area of trade policy, we work especially closely with those two. I'm pleased to appear today before you to discuss the upcoming multilateral negotiations in the WTO.

Let me start by underlining the importance of the U.S. dairy industry in U.S. agriculture and the economy as a whole. Dairy is the second largest agricultural commodity sector in the United States; it generates farm incomes in excess of 20 billion dollars a year and retail expenditures of about 70 billion dollars a year. Despite its domestic size, our dairy industry is a relative newcomer to international trade, yet our export share has been growing in recent years. One of the primary reasons for U.S. dairy's slow and difficult emergence internationally has been the Fact that dairy is one of the world's most protected and subsidized industries.

For example, the European Union, Canada, and Japan - some of the most important dairy markets - are, under their WTO commitments to impose tariffs -- are able to impose tariffs at rates of 100, 300, 500 percent, compared to less than 100 percent here in the U.S. This is just a small sample of the huge disparity between the U.S. and its major trading partners.

No one disagrees with the achievements of the Uruguay Round Agreement on Agriculture. Nevertheless, the Uruguay Round ultimately amounts to just a starting point of a long process for agricultural trade liberalization, especially in dairy. As stated before, the Uruguay Round left many major trade barriers in place, effectively erected certain new barriers, and resulted in a very skewed trading environment.

I can't stress enough to the Administration that U.S. dairy producers' support of next round of WTO multilateral negotiations is conditional, is conditional on whether these disparities are addressed. We're aware that the U.S. dairy industry has much to gain from successful negotiations, but it could lose its future growth capacity if an incomplete or poorly balanced agreement results.

The elimination of export subsidies is categorically the first and utmost priority for dairy farmers in America. We strongly believe that it should also be the U.S. priority for the upcoming WTO negotiations. With no significant progress in reducing and/or eliminating export subsidies, U.S. dairy farmers would not be able to support negotiations on market access, domestic support, or any other sector.

If the next round doesn't come away with export subsidies -- does away with export subsidies, then and only then would U.S. dairy producers support working with negotiators in creating real access through meaningful reduction of ordinary tariffs and harmonization of in and out quota tariffs. We would also seek the absolute elimination of all remaining non-tariff measures.

I'd like briefly to go over some of the important issues and recommendations we wish you to pay attention to during the upcoming egotiations. Number one, all remaining use of dairy export subsidies must be eliminated by a certain date, within no more than five years. Less is preferable.

European export subsidies are indisputably the primary factor that keeps world dairy prices depressed below domestic prices and prevent the expansion of sustainable, commercial U.S. dairy exports.

We would also caution the Administration about circumvention of export subsidy commitments. Agriculture, and in particular my industry, cannot afford the time nor the resources to bring other countries into compliance. We must strengthen the current rules to prevent other countries from circumventing their commitments following the elimination of export subsidies in the next round.

Number two, tariff inequities must be addressed prior to making any further multilateral tariff reductions or other market access liberalization. When the Uruguay Round was deadlocked, we, the dairy industry, made several concessions so that an agreement could be reached. We feel that we've opened our markets more than any other OECD member has. For instance, except for over-quota tariffs on dairy products, tariff levels in the United States are generally low. It is unacceptable that ordinary tariffs average over 30 percent in many countries, while in the U.S. they are insignificant. With respect to over-quota tariffs, Canada, the European Union, Japan, and others maintain tariffs that range from 100 to 500 percent for such basic dairy products as butter, milk powder, and cheese in. Over-quota tariffs on these same dairy products range from 50 to 100 percent in the U.S.

Given this situation, dairy farmers believe that over-quota tariffs on dairy products subject to TRQ's must be harmonized in the next WTO negotiations through immediate reduction to some maximum bound level prior to making any further reductions. Ordinary dairy tariffs should similarly be reduced and bound immediately at some lower level that would provide the U.S. with reciprocal market access in other countries.

Once again, U.S. dairy farmers cannot accept further revisions to market access lacking a commitment to eliminate export subsidies; neither can dairy farmers support changes to current tariffs that would allow new access to U.S. markets while reducing only the unnecessarily excessive portion of extreme tariffs elsewhere, thus providing no new U.S. export access.

Point number three, seek greater disciplines on domestic supports while ensuring that EU supports do not significantly exceed that in the United States. Overly generous domestic support programs have created continued dairy surpluses in the EU and Canada, which then drive the continued heavy use of export subsidies and/or circumvention of formal subsidy commitments.

We support the U.S. government position to tighten the rules on domestic support to ensure that such programs do not encourage excess production that distorts trade; however, we strongly believe that disarmament cannot be unilateral and we cannot afford to leave dairy farmers at the mercy of European government outlays.

Number four, improve the transparencies of both export and import State Trading Enterprises and impose disciplines on the trade-distorting effects of STE's, like we've mentioned several times today. We U.S. dairy farmers are very concerned with the ability of single-desk sellers, government or private, to price discriminate, keep their transactions non-transparent, transfer the final risk -- or the financial risk to farmers and/or to government.

Similarly, the import single-desk buyers, including STE's, can provide de facto barriers to imports through such devices as restrictive licensing requirements and markups. Dairy farmers favor negotiation on new commitments that would require increased transparency in operations of both import and export STE's, as well as disciplines on the activities of STE's that truly distort trade.

Number five, the WTO-SPS agreement should not be renegotiated. We strongly support maintaining intact the current WTO agreement on the Application of Sanitary and Phytosanitary Measures. The agreement currently requires all such measures to be based solely on sound science.

Number six, scope and timing of the negotiations. The U.S. dairy industry strongly encourages the termination of the new round of negotiations in no more than three years. Finishing negotiations by 2002 would allow countries to make necessary internal changes to accommodate the new agreement. We strongly support renewal as soon as possible of the Fast-track negotiating authority to achieve a timely outcome that further reduces distortions to international dairy and agricultural trade.

Finally, let me reiterate that U.S. dairy farmers are prepared to do their part to accomplish further trade liberalization in world dairy trade; however, we dairy farmers are adamant about what our priorities should be. First and foremost, eliminate export subsidies. Second, successful agreement on export subsidies. We would engage in negotiations on market access that first levels the playing field between the U.S. and the EU, Canada, Japan, and others.

The next round will not be an easy task. In fact, it will require from the U.S. government energetic and forceful leadership to bring a consensus while defending U.S. interests.

Thanks very much for the opportunity to testify.

MR. GALVIN: Larry, thank you. Any questions?

MS. BOMER-LAURITSON: Yeah, I have a question. You identified in your list elimination of non-tariff measures. And I was wondering if you have any specific examples of what some of those might be. I wasn't sure whether you included the STE issue under that category or if there are additional technical types of barriers that are facing dairy exports.

MR. GIBSON: If it would be possible, I would like to have that list compiled and sent to you attached to this.

MS. BOMER-LAURITSON: I would welcome that. I would welcome that.

MR. GIBSON: I know -- I know I really should take the time to run that by National Milk and IP just to see if they have anything they want to add into there. But if that would be agreeable?

MS. BOMER-LAURITSON: That will be fine. Thank you.

MR. GIBSON: Okay.

MR. GALVIN: I think you're right that we have made some progress, but there's an awful lot of work yet that remains to be done. I will say, though, from my standpoint, I think one of the most concrete examples I've seen in the last couple of years of where these trade agreements have worked as intended is in the fact that we've had the Cheese Importers Association come to us pleading that we take the unused cheese import quota from the European Union and reallocate it for other countries so that more cheese can come in here. And I think that the fact that the EU's cheese quota with us is going unused is a real reflection on the fact that the disciplines now in place, the export subsidy disciplines on the Europeans, are really starting to bite so they don't have the room under their WTO discipline to export as much cheese for us. So as a consequence, the importers could not get their hands on as much cheese as they used to be able to.

And by the way, we have not taken that unused quota and reallocated it to other countries. So basically we've seen a decrease in cheese imports as a result, and that is, I think, you know, how the agreement --

MR. GIBSON: That's a positive thing.

MR. GALVIN: -- was intended to work. And we've also seen -- because of that same development, we've seen cases now where increased investment has occurred in the U.S. to produce more European style cheeses here in the U.S. from U.S. milk. And again, I think that's all been very positive.

MR. GIBSON: I agree. Thanks.

MR. GALVIN: Thank you.