Statement by

Paul A. Drazek

Senior Policy Advisor

Powell, Goldstein, Frazer & Murphy LLP

to the

Senate Committee on Agriculture, Nutrition, and Forestry

May 11, 1999

Thank you Mr. Chairman. And thank you for giving me the opportunity to appear before this Committee today. I am appearing today in a personal capacity and not on behalf of any client. Mr. Chairman, the issue of trade sanctions and their effect on American agriculture has been debated far too long. The facts are abundantly clear and it is time for action to be taken statutorily to exempt commercial agriculture exports from current and future unilateral sanctions. Therefore, I would like to express my appreciation to you and the members of the Committee for holding this hearing to consider a bill that would finally accomplish that.

Mr. Chairman, I would like to begin my comments by noting that I have not prepared a new economic analysis to support what I am going to say. Such analyses have been done many times over the years. And virtually all of them buttress what I have observed over twenty eight years of work in the field of agricultural trade policy: unilateral trade sanctions rarely accomplish anything more than to reduce U.S. exports, lower prices, and even drive farmers out of business. I have witnessed this as an agricultural attaché with USDA, as a trade specialist with the American Farm Bureau and, most recently, in my capacity as trade advisor to Secretary Glickman. Indeed, as I will describe in a moment, there can be even worse outcomes for American agriculture when the U.S. decides for policy reasons to block trade in agricultural products.

Although I believe there are legitimate reasons to doubt the wisdom and efficacy of unilateral economic sanctions in general, I will limit my comments this morning to the issue of their effect on the agricultural sector. I think it is important to remember that when we talk about agricultural trade, we are talking essentially about food, feed and fiber. This Committee does not need to be reminded of that. But, unfortunately, the members of this Committee are not who determine when to employ sanctions or what products to include. Food, feed and fiber are very poor weapons in a fight to correct foreign policy problems or social injustices in other parts of the world.

The main reason for this, as you know, is that most farm products are fungible. If you can't buy them from one source, you can generally get them somewhere else. With competition as stiff as it is in world farm trade, and since we can seldom obtain universal support for sanctions, there are always ready and willing sources of supply from other exporting countries. The result, of course, is that the offending country gets what it needs while American exporters have to scrounge for alternative markets. Perversely, the downward pressure on world market prices is bad for us but good for the country we have sanctioned, because it can get the same commodity at a lower cost.

When unilateral sanctions are contemplated, therefore, the costs and benefits both to our citizens and to the offending country should be taken into account. If this is done, as S.566 would require, I believe agricultural products would invariably be exempted. Unfortunately, this has not been the traditional approach.

Because the acts of certain countries can be so egregious, even despicable, and our humanitarian instincts so strong, we are inclined to act swiftly and comprehensively to try redress a wrong. It is only in the following days and weeks that we realize the harm that has been done to our own farmers and ranchers. By then, it is too late and almost impossible to correct. It reminds me of the old television commercial where a man sits up in bed late at night and, in some pain, says "I can't believe I ate the whole thing." In this case, policy makers and farmers start saying "We can't believe we embargoed everything."

This is not to make light of a very serious problem. There are times when sanctions must be employed and times when commercial agricultural exports must be included. Of course, at such times it would be logical to expect the Administration to gain the support of other countries, so that the U.S. action is not unilateral and American farmers are not the only ones to absorb the shock. S.566 takes into account such circumstances by limiting the agricultural exemption from sanctions to those employed unilaterally, and by permitting the President, with congressional oversight, to include agricultural exports for reasons of foreign policy or national security.

Mr. Chairman, as I indicated earlier, sanctions can cause even greater problems for American agriculture than just the immediate impact from the loss of exports to the country in question. The long-term damage to our credibility as a reliable supplier of farm commodities is the worst aspect of unilateral sanctions and is probably impossible to quantify.

I cannot tell you how many times during my career I have been confronted with questions from foreign trade officials about our penchant for using trade as a foreign policy tool. For me, these questions started immediately after the embargo President Nixon placed on U.S. soybean exports to Japan. To this day, that embargo continues to be alluded to in agricultural trade negotiations - more than twenty-five years after the fact. Although the soybean embargo was not a trade sanction, it gave rise to a perception, which has been reinforced with each subsequent foreign policy sanction, that countries should not allow themselves to become too dependent on the U.S. for food.

The consequence is that many countries have resolved to encourage domestic production even when such production is clearly uneconomical. And because such production must be protected from foreign competition, barriers to imports are also erected and maintained. The task of convincing our trading partners to reduce or eliminate such measures in previous trade rounds was made substantially more difficult as a result of their fear of becoming too reliant on the U.S. for food. It is not an overstatement to say that our trading partners remain skeptical about our commitment to them as customers.

So, it will be difficult to argue for steep cuts in tariffs again in the next round unless the U.S. is willing to provide demonstrable assurances that we will indeed be a reliable supplier in the future. I am convinced that, along with fast track legislation, the most important action the U.S. could take to assure a substantial outcome for U.S. agriculture in the next WTO Round would be to pass legislation that explicitly exempts agriculture from current and future unilateral sanctions.

The recent announcement by the Administration regarding changes in sanctions policy for food and medicine is a positive and welcome step. It is not, by itself, sufficient, however. While the announced changes should result in new access opportunities to countries against which the U.S. maintains unilateral sanctions today, the assurances offered by the Administration that agriculture will be exempt from future unilateral sanctions are much less solid. Simply put, a policy changed today can be reversed tomorrow. And our trading partners know this. That is why legislation such as S.566 is so important.

But there is another reason, too. The Administration's new policy is not as forthcoming as it might first appear. It does not substantially change the sanctions situation in Cuba, for example. And the requirement that approval be obtained for commercial exports on a sale-by-sale basis certainly does not level the playing field for our exporters, who are competing with exporters in countries that either automatically license exports or require no license at all. Of course, we all hope that the new policy stimulates new business for our farmers in markets that have been denied them for years. And I expect it will. On the other hand, I also expect there will arise many instances where sales are lost because of delays in gaining Administration approval of a sale or because the importer simply chooses to avoid the hassle.

Even more to the point, however, is the fact that trade in agricultural products is heavily price-dependent and prices can fluctuate significantly from week to week or even day to day. I can imagine that the system envisioned will permit some large one-time sales, but I do not see this approach allowing the development of true ongoing commercial relationships which are the life-blood of our trading system.

Mr. Chairman, I would like to thank you and the members of the Committee once again for giving me the opportunity to appear here today on this important issue, and I would like to express my gratitude to you for having the foresight to sponsor legislation that would, if enacted, remove a serious impediment to our farm exports.