Statement of Janet A. Nuzum
International Dairy Foods Association
September 30, 1999
Mr. Chairman, Members of the Committee, I appreciate the invitation to appear before you today to present the views of the International Dairy Foods Association on U.S. preparations for the upcoming round of trade negotiations in the World Trade Organization(WTO). These negotiations are of tremendous importance to the U.S. dairy industry and we welcome the Committee's attention to the critical role of the United States in these global talks.
The International Dairy Foods Association (IDFA) is an industry trade association representing the interests of dairy processors and manufacturers whose products are sold in U.S. and foreign markets. IDFA members' products account for 85% of the dairy products consumed in the U.S. market, valued at $75 billion retail. Products include a variety of commodities and value-added products, including beverage milk, cream, yogurt, dairy-based dips, cheese, and ice cream and frozen novelties. As an umbrella organization, IDFA also has three constituent associations that focus on the interests of specific segments of the dairy industry: the Milk Industry Foundation; the National Cheese Institute; and the International Ice Cream Association. IDFA member companies, which total nearly 600, range from single plant operations of family-run businesses to publicly traded corporations with facilities across the United States and abroad.
As Vice President for International and Government Affairs and General Counsel of IDFA, I manage the associations' international affairs, including international trade policy. Prior to joining IDFA, I served as Commissioner and Vice Chairman of the U.S. International Trade Commission. During the launch and early years of the Uruguay Round of GATT negotiations, I worked on the professional staff of the Committee on Ways and Means of the U.S. House of Representatives and served as a congressional advisor to U.S. trade negotiators. I currently serve as a private sector advisor on trade matters as a member of the Agricultural Policy Advisory Committee.
Overview and general comments
IDFA strongly supports the launch of a broad-based round of trade negotiations that will further discipline trade-distorting practices and open foreign markets for dairy and other agricultural products. U.S. trade in dairy products is modest compared with trade in other agricultural products, but steadily growing. Although the domestic market continues to be the largest market for our products, our industry members recognize that long-term opportunities for growth of dairy product sales are largely abroad. For this reason, there is broad support in the U.S. dairy industry, among both producers and processors, for the upcoming round of multilateral trade negotiations.
The last round of multilateral trade negotiations, the Uruguay Round, made important advances -- particularly in agricultural trading rules -- but much remains to be done to achieve truly open markets in all countries and sectors. With the foundation of the Uruguay Round Agreements in place, this next round presents an important opportunity for further strengthening the multilateral trading system and making substantial advances towards truly open markets and equitable trading rules for agricultural products.
Meaningful results, however, will require strong leadership from the United States. It is very clear from recent actions -- or, more accurately, non-actions -- by the European Union (EU) on the Agenda 2000 reforms that there will be great resistance to continued progress in agricultural trade liberalization. The EU is not alone in this negative attitude; Japan also appears to be unwilling to engage in true reform. These forces of protectionism, however, should not be allowed to stultify the opportunities presented by a new trade round. Many other countries are looking to the United States, both as economic superpower and as host of the upcoming Ministerial, to provide the bold, effective leadership that will carry this next round forward successfully. We must not be timid or equivocal in our call for open markets and nondiscriminatory rules of trade.
U.S. agricultural producers and processors have much more to gain than we have to lose from ambitious goals and results. The U.S. dairy industry's opportunities in world dairy markets are distorted and hampered by foreign subsidies, extraordinarily high tariffs, unrealistic licensing restrictions and other technical barriers. In particular, IDFA supports the following priority objectives for the agricultural negotiations:
Private sector preparations for the new round and the Seattle Ministerial
Over the past six months, the U.S. private sector has been gearing up for the launch of new trade negotiations in Seattle. In addition to focusing specifically on the dairy industry's objectives for the new round of trade negotiations, IDFA has been actively supporting several coalition efforts to build common positions among affected U.S. interests.
The Seattle Round Agricultural Committee (SRAC) is a coalition of organizations in the U.S. agricultural community working to ensure a successful WTO Ministerial in Seattle. Initially brought together to share information about the logistics of the meeting in Seattle, the coalition members set themselves to the difficult task of developing negotiating objectives on both process and policy issues which could be broadly supported in the U.S. agricultural community. This effort was successful in identifying 14 objectives which are endorsed by approximately 80 agricultural organizations. SRAC is also planning program events that will take place in Seattle to broaden public understanding of the issues affecting U.S. agriculture in this next round.
The U.S. Alliance for Trade Expansion (nick-named "US-Trade") is a broad-based coalition of U.S. agriculture, consumer, manufacturing, retailing and service organizations promoting the benefits of the WTO and a rules-based trading system. US-Trade was formed earlier this year to build public awareness of the benefits of international trade and a rules-based multilateral trading system. Its agenda includes Congressional outreach, public events and communications efforts around the United States, as well as outreach to the international community. More than 220 organizations are currently members of US-Trade.
In addition to the broad coalitions, IDFA has actively worked in concert with other U.S. dairy organizations to develop, as much as possible, common views within the dairy sector on the priorities and objectives for the next round. A common position paper endorsed by five U.S. dairy organizations was submitted to the Administration in July of this year. Most priorities are endorsed equally by dairy producers and processors alike. Our greatest foes are dairy industries in foreign countries which benefit from, and seek perpetuation of, subsidies and trade barriers.
The negotiating process: duration, scope, structure of the negotiations
Duration. Strong international support appears to exist for a 3-year deadline for the upcoming round of negotiations. IDFA supports this timetable, which we believe is both necessary and achievable. A 3-year deadline is necessary to generate and sustain strong support from the private sector. Businesses cannot be expected to set a high priority on a slow negotiating process ending 6 or 8, or possibly more, years from now. A long, drawn out negotiating process will not generate the commitment and enthusiasm from the private sector that is needed for successful U.S. leadership.
Furthermore, a 3-year deadline is achievable because the framework for further negotiations has already been established in the Uruguay Round Agreements. Some skeptics say that agricultural discussions are always politically difficult and likely to drag on and languish to the eleventh hour. However, in this case, we are starting with a strong framework already in place, and preparatory steps are being taken in advance of the launch of negotiations. Furthermore, the expiration of the "peace clause" (scheduled to expire at the beginning of 2004 under current WTO rules) should provide further incentive for concluding the agricultural discussions by 2003.
Scope. IDFA strongly supports the upcoming round to be a broad-based negotiation including the built-in agenda (agriculture and services), industrial or non-agricultural market access, plus any other subject which offers the likelihood of producing agreement within the 3-year negotiating period. Within the scope of agricultural negotiations, we support comprehensive coverage of all commodities and sectors, and all countries. There should be no exceptions from coverage, rules or disciplines. With respect to issues beyond agriculture, services, and industrial market access, sectors outside of agriculture, we welcome discussions on any subject that moves multilateral rules and disciplines towards open markets, provided that the subject offers realistic prospects for consensus within the 3-year period. Subjects that are not yet ripe for serious international negotiations within this timeframe should not be added to the agenda, as they will jeopardize our ability to achieve success. The challenge, of course, is being able to identify the ideal mix of subjects that will provide a balance of vested interests and provide the necessary critical mass for a strong package of results.
Structure. As do most members of the U.S. food and agricultural community, IDFA supports a negotiating process which concludes with a single undertaking, not ad hoc or sector-by-sector agreements. This is extremely important for meaningful results in the agricultural area, as WTO members with very high agricultural support and protection (such as the European Union) will likely need to obtain concessions in other (non-agricultural) areas to balance the concessions they must make in agricultural reform. Segregating issues or finalizing agreement on certain issues ahead of others would lose the leverage and balance we will need for a successful comprehensive result. Moreover, if we commit to a reasonably short period of negotiation, such as 3 years, then no one sector or subject would need to wait an unreasonable period of time for implementation through a single undertaking.
Export subsidies must be eliminated and prohibited
Elimination and prohibition of all agricultural export subsidies is our single highest priority for this next negotiating round. Export subsidies artifically distort world market prices and rob market share away from more efficient producers. This is particularly true in the dairy sector, where the extensive export subsidies of the European Union have enabled its dairy products to capture over 40% of world dairy trade. Without export subsidies, world market dairy prices would be higher and more efficient dairy producers, including the U.S. dairy industry, would enjoy a higher share of international markets.
Although the WTO Agriculture Agreement provides important new limits on agricultural export subsidies, the permissiveness of export subsidies in the agricultural sector -- as opposed to the prohibition on export subsidies in the non-agricultural area -- is no longer justified. Export subsidies for any product, agricultural or non-agricultural, should be prohibited. We strongly urge the adoption of WTO rules to eliminate all export subsidies within 5 years of the Uruguay Round commitments. After that, there should be no differentiation between rules on agricultural export subsidies and non-agricultural export subsidies.
Moreover, it is important that the next schedule for elimination of export subsidies be rigorous, providing for continuous, progressive reductions. Therefore, we propose elimination of the current rules which authorize carryforward, swing, or rollover of unused export subsidies from one year to the next. These rules allow countries such as the European Union to perpetuate and even increase export subsidies through creative management schemes. We need to ensure that all WTO countries are consistently reducing export subsidies over time.
Trade-distorting domestic supports should be continually reduced and eliminated
With respect to the agricultural rules on domestic support, IDFA supports continued reduction and eventual elimination of all trade-distorting domestic supports, including elimination of the "blue box.". Domestic support policies which artificially stimulate or restrict production, or ensure inefficient production, can have significant effects on international market conditions. Without equally strong WTO rules on domestic support as on export subsidies, some of our foreign competitors would likely just shift their policy instruments and continue to impose distortions on world market conditions. With elimination of the U.S. dairy price support program already part of U.S. law, the U.S. dairy industry only stands to gain from further reductions and disciplines on foreign support programs.
Moreover, with respect to the existing "peace clause," that insulates certain subsidy programs from countermeasures, we support its scheduled expiration at the end of 2003 and non-renewal.
Substantial market-opening commitments must be achieved
Elimination of trade-distorting practices such as subsidies affects competition for sales, but does not open specific markets which are protected by tariff or non-tariff barriers. Consequently, we must also achieve substantial new commitments on market access.
Of particular concern in the dairy sector are the extremely high tariffs in certain countries -- which are in some cases a consequence of the tariffication of import quotas at the conclusion of the Uruguay Round. Greater harmonization and reduction of these high tariffs are necessary at an early stage, in order to close the huge gaps among different countries' levels of protection. However, achieving a fair and commercially meaningful result will require a multi-faceted approach.
IDFA supports a formula approach for the tariff negotiations, rather than a request-and-offer approach which enables high peaks in protection to be traded off the negotiating table. We do not recommend, however, a simple, uniform percentage cut for all products and all countries. For example, reducing a 200% tariff in half to 100% is not the same as reducing a 10% tariff in half to 5%. The first example may cut the tariff in half, but does not provide any meaningful access in economic terms. Complete tariff elimination on all products for all countries, of course, would solve this problem. For this reason, IDFA supports the eventual elimination of all tariffs.
Recognizing that there are different ways to work towards eventual elimination of all tariffs (including elimination of tariff-rate quotas), several approaches are worthy of support in the agricultural tariff negotiations.
First, we urge the immediate elimination of all in-quota or lower-tier tariffs on products subject to tariff-rate quotas. This should be easy to achieve, as after all, the true means of border protection for products subject to tariff-rate quotas is through the over-quota tariff.
Second, we urge substantial, rapid reduction of high tariffs (including over-quota tariffs) towards a more harmonized level, to be followed by progressive reduction aimed at eventual elimination of all tariffs. We suggest that these tariff reductions be implemented by means of a harmonizing formula cut (i.e., higher tariff rates would be required to be cut at faster rates than lower tariff rates), rather than a simple formula that applies the same percentage cut across the board. A more complex (harmonizing) formula approach would be fairer to those countries whose markets are already less protected, and reduce the degree of inequities and gaps in current regimes.
Third, we urge the elimination of special safeguard duties, which are unduly complicated and only provide additional layers of protection.
Fourth, we urge the simplification of tariffs and tariff-rate quotas by converting all specific tariff rates and combination tariff rates to straight ad valorem rates. Dairy tariffs consist of a wide array of both specific (i.e., a certain number of cents or dollars per unit volume) and ad valorem (i.e., a certain percentage of the import value) rates with many products consisting of a combination of both at the same time. This complexity decreases transparency and makes it particularly difficult for businesses to assess the true size and economic value of the tariff barrier. Marketing and commercial decisions become unnecessarily complicated. Both transparency and access would be improved by tariff simplification.
Finally, we urge the promulgation of stricter obligations to administer tariff-rate quotas (while they continue to exist), in a manner that actually provides effective and commercially realistic market access. This means the elimination of burdensome or commercially unmeaningful requirements, such as some of the EU rules on import licensing procedures for in-quota shipments.
Market access must not be undermined by non-tariff barriers
Market access does not mean only tariff barriers. Nontariff barriers to trade must also be eliminated. Reducing or eliminating tariffs will be of little value if non-tariff barriers impede meaningful opportunities to sell in foreign markets. Of particular concern is the increasing use of labeling requirements and sanitary regulations to impose restrictions which are not related to legitimate health and safety concerns. The basic principles of the WTO Agreement on Sanitary and Phytosanitary Measures which insist on sound science and risk assessment should be effectively upheld and enforced. Burdensome and unjustified labeling requirements or other technical barriers, whether aimed at genetically modified organisms or country-of-origin attributes, must be prohibited. Technical barriers to trade threaten to be increasingly used as tools of protectionism as tariff barriers move towards elimination. We must ensure that WTO rules and enforcement mechanisms do not allow the instruments of protectionism simply to shift from one form to another.
Increased transparency and disciplines on state trading enterprises should be pursued
On the subject of state trading enterprises (STE), the dairy industry supports strengthened disciplines in the WTO, including transparency rules, to ensure that import STE's do not inhibit market access and that export STE's do not engage in trade-distorting practices. With deregulation of state sanctioned single-desk monopolies in the dairy industry occurring in some important dairy-producing countries, the STE issue is important but perhaps less pressing than some of the other priorities for the dairy industry.
Domestic dairy policy reforms
Finally, we wish to emphasize the need to tread carefully on any domestic agricultural policy reforms during this time. Some of our trading partners - particularly the European Union - have little interest in further opening agricultural markets as part of this next round of trade talks. Moves on the part of the U.S. Congress to reverse recently-announced reforms in milk marketing orders or to increase domestic milk prices are likely to be cited as hypocritical actions by the United States, inconsistent with the direction we are urging upon other countries. We should not give these foreign countries any more ammunition or excuse for shooting down ambitious reforms in the agricultural negotiations. IDFA urges Senators not to support counterproductive legislative proposals on the eve of launching such important international negotiations.
Conclusion
IDFA commends this Committee for its continuing interest in agricultural trade policy and in expanding opportunities for U.S. exports of agricultural products. We appreciate your interest in our views, and ensuring that our views are taken into account by the Administration as well. If the United States is to be successful in achieving substantial benefits in this next round of trade negotiations, there must be a strong consensus -- bipartisan, bicameral, and across the executive and legislative branches -- as to what our principal objectives are. A strong signal of support would, of course, be reflected in renewal of "fast track" trade negotiating authority. Absent such legislative action, a public process of forging a harmony of voices articulating common objectives for the U.S. negotiating team would help build a mass of support. We believe such unity is both possible and necessary. The success of the next round of WTO negotiations, especially on agriculture, depends on strong U.S. leadership. The world trading community must believe that the United States is seriously and strongly committed to a multilateral trading regime that is comprehensive, effective, and market-oriented.
Thank you for the opportunity to appear before you today.