TESTIMONY ON AMERICA'S AGRICULTURAL TRADE AGENDA

Ambassador Charlene Barshefsky

United States Trade Representative

Senate Committee on Agriculture

Washington, D.C.

June 24, 1999

Chairman Lugar, Senator Leahy, Members of the Committee, thank you very much for inviting me to testify on our agricultural trade agenda.

This is a timely hearing. A new Round of global trade negotiations is set to begin this winter, when the United States hosts and Chairs the World Trade Organization's Third Ministerial Conference in Seattle, and agriculture will be at the heart of this Round's agenda. A successful conclusion promises American farm and ranch families significant new opportunities and stronger guarantees of fair treatment in world markets, together with better prices for consumers.

We are now developing negotiating objectives, in consultation with Congress, farm and ranch organizations, consumers, the food industry and others interested in agricultural policy and trade. Thus, I am pleased to appear before the Committee today. My testimony will review our broad agricultural trade goals, place the Round in the context of the progress we have made in the past six years, and outline the process by which we are developing detailed objectives.

AGRICULTURAL TRADE GOALS

Mr. Chairman, American farmers are the most competitive and technically advanced in the world, producing far more than we can ever eat. Thus we have the opportunity to export to the 96% of humanity that lives beyond our borders; and with one in three farm acres now producing for foreign markets, we must export to remain profitable at home.

These realities are the foundation of our agricultural trade policy. Under President Clinton and Vice President Gore, our work has covered five broad areas. We have sought to:

- reduce tariffs and other barriers to trade;

- ensure that sanitary and phytosanitary standards are based on science;

- promote fair trade by reducing foreign export subsidies and trade-distorting domestic supports;

- ensure greater transparency and fairness in state trading; and

- help guarantee that farmers and ranchers can use safe modern technologies, in particular biotechnology, without fear of trade discrimination.

The foundation of this work is its direct benefit to our agricultural producers. But each item on our agenda is also rooted in a broader humanitarian vision.

As American producers benefit from open markets, consumers abroad have more diverse supplies of food, helping guarantee food security and prevent famine during natural disasters.

As we reduce export subsidies, we ensure fairness for American farmers -- and for farmers in developing countries whose governments lack the resources to fight back.

And as we ensure respect for science in food safety and biotechnology, we protect public health and reduce pressure on land, water and wildlife habitat.

ADMINISTRATION AGRICULTURAL TRADE RECORD

These goals have been based upon a bipartisan consensus for open and fair markets in agriculture dating back to the initiation of the Uruguay Round negotiations in the 1980s. Under the Clinton Administration, the results of our work have been substantial.

Opening World Markets

With the passage of the North American Free Trade Agreement in 1994, we won preferential access to our immediate neighbors. As a result, our agricultural exports to Mexico have grown from $3.6 billion in 1993 to $6.1 billion in 1998, a 70 percent increase, and exports to Canada from $5.3 billion in 1993 to over $7 billion in 1998. Together, these two countries -- with a total population of 120 million -- now buy over a quarter of our agricultural exports and provide American farmers with at least a partial shield against overseas economic crisis.

We have also negotiated bilateral agreements worldwide, in a very large range of commodities. Some examples include beef in Korea; apples and cherries in China; tomatoes and apples in Japan; almonds in Israel; a veterinary equivalence agreement with the European Union addressing sanitary issues blocking US live animal and animal products; citrus and other fruits in Brazil, Chile, Mexico and other countries; and the broad agricultural agreement with Canada concluded last December.

And with the completion of Uruguay Round in 1995, after forty-seven years of developing the trade system, we began to bring agricultural trade under fair and internationally accepted rules, in each area crucial to American agriculture:

- We lowered tariffs and are on track to eliminate most quantitative restrictions.

- We reduced trade-distorting subsidies.

- We ensured that all WTO members -- 110 at the time, 134 today -- would use sanitary and phytosanitary standards to protect human, animal and plant health rather than to bar imports.

- And we won consensus on a "built-in agenda" that would mandate further negotiations in agriculture, as well as services, beginning in 1999.

At the same time, our colleagues at the FDA and the Department of Agriculture are intensifying food inspection at the border, to not only maintain but improve our food safety standards. This is especially important as imports have risen in recent years, to ensure that the American public will have the world's safest food supply as we get the benefits of open trade.

Enforcement

With these agreements complete, we have spent considerable time monitoring and enforcing compliance.

In most cases, our trading partners have met their obligations. However, for those cases in which they have not, the U.S. has used the strong dispute settlement mechanism to ensure that WTO members meet their commitments or suffer a penalty for failure. To be specific, we have used the dispute settlement mechanism in the past four years to enforce the Agriculture and SPS Agreements in thirteen separate cases from fruit sales to Japan, to pork in the Philippines, dairy in Canada, and of course the still unresolved banana and beef cases with the European Union.

The banana and beef cases are especially important, since they concern fundamentally important principles and precedents. They are the only two cases -- in agriculture or any other field -- in which defendants have refused to implement panel results. The banana case is the first test of dispute settlement in the General Agreement on Trade in Services; in beef, we are addressing respect for internationally recognized agricultural science. And both involve the confidence we and our public have that our trade partners will live by the results of WTO panel decisions. We expect full implementation of each decision and are taking measures to ensure it, beginning with our authorized retaliation of $191.4 million in the banana case and on the completion of arbitration with a similar retaliation for beef. When members refuse to live by the rules, they will pay a price.

Agricultural Trade Policy and the Rural Economy in 1999

Before I turn to our agenda for the Round, let me say a few words about the importance of our trade initiatives in the context of the situation many farm families face today.

In the past year, a series of unpredictable events - financial crisis overseas, natural disasters at home, and a boom in world production -- have placed many rural communities in great financial stress. The combined effect on American agricultural exports has been severe, with total exports dropping from over $60 billion in 1996 to $52 billion last year.

No farmer could foresee these events -- as Vice President Gore said to the Farm Journal conference earlier this spring:

"Anyone who has spent any time on a farm knows that both the beauty and the tragedy of the land is that it follows a rhythm far beyond our ability to predict or control."

Trade policy forms part of a comprehensive response to this crisis. First, together with the domestic assistance measures undertaken by our colleagues at the Department of Agriculture, and the work of the Treasury Department to support IMF packages aimed at hastening economic recovery overseas, our bilateral trade agreements have created new markets which relieve some of the pressure on farm and ranch families.

To cite one especially important example, since our agreement with Canada gave Montana, North Dakota and Minnesota farmers access to the Canadian rail system, over 303,000 tons of wheat and barley have moved through Canada. That compares to virtually nothing last year. And the total has the potential to grow rapidly -- since Canada has also now, as the agreement required, recognized fourteen U.S. states as free of karnal bunt, eliminating testing and certification regulations in grain. And with 26 states now able to ship feeder cattle to Canada under new animal health regulations, over 51,000 head of cattle have moved north in the 1998-99 marketing year.

At the same time, we have opposed protectionist responses to the financial crisis overseas, notably legislation imposing quotas on steel imports. Such a response would violate our WTO commitments, and likely result in a cycle of protection and retaliation that would claim victims in American farm communities.

THE NEW ROUND

Altogether, then, through the Uruguay Round, our bilateral and regional agreements and enforcement, we have created a foundation of commitments to open markets and respect science. American farm and ranch families face a far more open and fair international market than they did six years ago.

But we are very far from done. In the next decade, we can and should go well beyond the achievements of the 1990s, to make trade more open for our farmers and ranchers; encourage the most advanced and environmentally friendly agricultural technologies; and ultimately to increase the world's food security. And this brings me to the agenda for the new Round, set to begin when we host the WTO's Third Ministerial Conference in Seattle this November.

GOALS AND DEVELOPMENT OF NEGOTIATING OBJECTIVES

Broadly speaking, in this Round our goals will include:

- reducing tariffs;

- improving administration of tariff-rate-quotas;

- eliminating export subsidies;

- reducing trade-distorting domestic supports;

- stronger disciplines on the activities of state trading enterprises; and

- guarantees that decisions on new technologies (such as biotechnology) will be made on scientific grounds through transparent regulatory processes.

In each of these areas, we are developing specific goals through consultations with Congress, agricultural producer and commodity groups and others interested in the Round. We have published, for example, notices in the Federal Register seeking public comment on agricultural and other policy goals in the Round, and are holding hearings on the WTO agenda through the Trade Policy Staff Committee nationwide.

We are also holding a series of Listening Sessions with the Department of Agriculture focusing specifically on agriculture, which began early this month and will continue through July. I am pleased to say, Mr. Chairman, that one is taking place today in Indianapolis, Indiana. In earlier sessions, senior USTR officials and agricultural negotiators have traveled to Winter Haven, Florida; St. Paul, Minnesota; and Memphis, Tennessee to hear directly from farmers, ranchers, agribusiness on the agenda that will help them most. In the weeks ahead, we will hold Listening Sessions in Austin, Texas; Sacramento, California; Richland, Washington; Kearney, Nebraska; Newark, Delaware; Burlington, Vermont; Des Moines, Iowa; and Bozeman, Montana.

Our specific negotiating objectives will flow from these consultations, as well as from discussions with Members of Congress, industry leaders and others. Thus, at this point, it is premature to discuss the precise goals we will set. However, I would like to discuss two key areas the Round will address in some more detail.

COMMON AGRICULTURAL POLICY REFORM

First, inevitably, a central focus of the next Round will be reform of the European Union's Common Agricultural Policy.

The Common Agricultural Policy (CAP), including $60 billion in trade-distorting subsidies and 85% of the world's agricultural export subsidies, is certainly the largest single distortion of agricultural trade in the world, and may well qualify as the largest distortion of any sort of trade.

Reform is in everyone's interest. The combination of high tariffs and subsidies make European consumers pay prices far above the world market rate for food. Export subsidies in particular place an immense and unfair burden on farmers in other countries, especially developing countries in Africa, Asia, Latin America and elsewhere.

While many European governments recognize that reform is essential, internal reforms have brought only minor change in the past two decades. The "Agenda 2000" package adopted by the EU in March is no exception, and in fact represented a retreat from a set of reforms advocated by EU Agriculture Ministers. Clearly, international efforts to bring significant change, including reduction of border trade barriers, domestic supports linked to production, and elimination of export subsidies through the new Round are essential.

BIOTECHNOLOGY

A second key focus will be new technologies such as biotechnology.

Biotechnology has immense potential to develop strains of plants resistant to drought and other natural stresses, to improve yields, and thus to reduce hunger worldwide while easing pressure on land, water and wildlife. American farmers, as leaders in the biotechnology industry, must not suffer trade discrimination as a result of adopting scientifically proven techniques with these benefits.

However, we also recognize that biotechnology also raises some public and consumer concerns about potential unintended effects. This is especially true in Europe, where politicized and non-transparent regulation -- not only in biotechnology but elsewhere -- have led to serious policy mistakes and fears about food safety.

These are fears we must address squarely, through transparent, scientifically based, and accessible regulatory procedures. Such procedures should reveal any potential threats, while allowing farmers, consumers and the environment to win the maximum potential benefit of these techniques. Through the Transatlantic Economic Partnership discussions with the EU, we have agreed to establish a pilot project to enhance transparency and access to regulatory procedures, under which we will strive to agree on common data requirements for the acceptance of biotechnology products.

WTO ACCESSIONS

As we develop our negotiating objectives, we are also setting precedents and developing consensus through WTO accession processes and the regional trade initiatives we have begun in each part of the world. Let me begin with the accessions.

The WTO now has 134 members. But outside the system, unaccountable to its rules on market access and standards, remain about 1.5 billion people - about a quarter of world population. Thirty economies are now applying to enter the WTO, including some of the world's largest nations and traders.

Our goal, ultimately, is to bring all these into the system, on commercially meaningful grounds. In each case, we are requiring high standards in agriculture, including immediate acceptance of the Sanitary and Phytosanitary Agreement, renunciation of export subsidies, improved transparency in any existing state trading arrangements and significant market-opening measures. This has intrinsic benefits for American producers in each individual market, and also helps establish precedents and foundations for broader application in the Round.

Since December, we have completed three accessions (Kyrgyzstan, Latvia and Estonia), finished our bilateral negotiations with Taiwan, and made significant progress with nine other economies: Albania, Armenia, China, Croatia, Georgia, Jordan, Lithuania, Moldova and Oman. In the case of China, which is of course the largest prospective new economy in the WTO, while some services and rules issues remain for discussion, agricultural negotiations are complete and include a very strong set of commitments in market access, renunciation of export subsidies, tariff-rate quotas and other issues.

ROLE OF REGIONAL TRADE INITIATIVES

At the same time, we are working with other trade partners to build consensus and eliminate such disputes as may exist early. The regional trade initiatives we have opened in each part of the world, in addition to their significant potential trade benefits to farmers and ranchers, play an essential role in this process. Several especially significant examples are as follows:

- Western Hemisphere - Talks aimed at creation of the Free Trade Area of the Americas began in Miami last fall. By the end of 1999, they are scheduled to complete an "Annotated Outline" of a prospective agricultural chapter of the final agreement. This process will help us build consensus among Western Hemisphere democracies for our goals in the Round, and has already won consensus for elimination of export subsidies in this hemisphere.

- Asia-Pacific - Asia-Pacific Economic Cooperation (APEC) meetings have allowed us to work toward consensus on issues with our Pacific trading partners. Next week, for example, I will travel to Auckland, New Zealand, for a Ministerial Conference at which I will address issues such as tariff reduction, export subsidy elimination and others.

- Europe - In the Transatlantic Economic Partnership, one of the seven areas of concentration is agriculture, with a special focus on biotechnology. Our goal here is to increase European transparency and work toward development of a sound, transparent regulatory system that will allow timely approval of scientifically proven biotechnology products for the European market. As noted above, during the US-EU Summit this week we reached agreement on a pilot project to help develop such a system.

- Africa - The President's Economic Partnership with Africa has allowed us to engage African countries - which make up 38 of the WTO's 134 members - in a fundamentally improved way. We view agriculture, and in particular elimination of export subsidies, as an area of common interest with Africa, as developing country farmers are more disadvantaged by export subsidies than any other farmers.

CONCLUSION

In summary, Mr. Chairman, our agricultural trade policy throughout the Clinton Administration has created markets for American farmers and ranchers; reduced distorting subsidies; and helped promote the use of science to ensure food safety, consumer protection and fair trade.

The next Round offers us a chance to go further in all these areas. In the months ahead, we will consult closely with you, along with agricultural, consumer and other groups, on the detailed objectives that will serve our nation's agricultural interests best. At the same time, through bilateral negotiations, WTO accessions and our regional initiatives, we will set the precedents and develop the international consensus necessary to ensure successful negotiations.

Although American agricultural producers are living through a very difficult period, when we look ahead, I believe our farm and ranch families can see a very good future. We can realize very significant opportunities through trade in the next three years. These will combine with policies our colleagues at USDA and in the Administration as a whole are advancing at home - an improved safety net; lower interest rates; a better infrastructure; investments in scientific research and rural education. Thus, we can help make sure that America's farmers and ranchers will be able to make the most of their talent and get the full benefit of their hard work; and that their families continue to enjoy a good life on the land.

Thank you.