Statement by Charles J. O'Mara
President, O'Mara & Associates
Before the Senate Committee on Agriculture, Nutrition, and Forestry
May 11, 1999
Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify on the Agricultural Trade Freedom Act (S. 566). This legislation gives agricultural producers much needed assurance that U.S. economic sanctions will not disrupt agricultural exports and adversely affect their incomes. It also sets out guidelines for the upcoming 1999 World Trade Organization (WTO) Negotiations which have the potential to substantially reduce agricultural trade barriers around the world.
The Agricultural Trade Freedom Act exempts commercial exports of agricultural products from unilateral economic sanctions applied by the U.S., except for reasons of foreign policy and national security, and requires the President to report to the Congress if an exemption is not made. Freeing agricultural producers, processors, and exporters from the threat of U.S. actions that diminish exports is a step towards more open global trade for agricultural products.
Exclusion of Agricultural Products from Unilateral Economic Sanctions
I support the Agricultural Trade Freedom Act for a number of reasons. In my judgement, unilateral economic sanctions generally are not effective for achieving stated U.S. foreign policy and national security objectives. It is dubious whether unilateral economic sanctions have the intended effect of changing the behavior of the target country. For one thing, there are other exporting countries which can replace U.S. exports to the target country and soften the impact of U.S. sanctions. That is especially the case for agricultural products which are traded in a highly competitive global market. For example, the availability of alternative and willing grain suppliers to the Soviet Union in 1980 substantially nullified the impact of the U.S. grain embargo on the Soviets.
From the perspective of U.S. producers, a unilateral economic sanction has the potential to reduce exports to the target country and cut prices and incomes. The magnitude of the potential economic damage to our agricultural producers depends on many factors and economy-wide effects may be small. The point is that affected U.S. producers can be made worse off as a result of unilateral economic sanctions, regardless of the overall economic effects of sanctions. If producers are harmed, then the issues of equity and fairness are raised.
History shows that when agricultural producers are under economic distress, regardless the cause, the U.S. usually provides some relief. In response to the Soviet grain export embargo, the U.S. provided grain producers a host of compensation measures. These included actions to take wheat and feed grains off the market such as an expanded farmer-owned reserve with higher release and call prices, government grain purchases, and higher loan rates. Whether or not these were effective policy responses is not the issue-they demonstrate the tendency for compensatory public policy for U.S. agriculture. Thus, unilateral economic sanctions that include agricultural products may harm U.S. producers, do little, if any, to achieve overall U.S. objectives, and result in compensation to producers and additional costs to taxpayers.
S. 566 acknowledges the importance of expanded global trade to agricultural producers by its exemption of agricultural products from U.S. economic sanctions. In doing so, it responds to the long-time concern of U.S. agricultural producers that the government not take actions to reduce exports and bring into question the U.S. as a reliable supplier. The concept of reliable supplier dates back to the early 1970s during the turmoil in international grain and oilseed markets when the U.S. took actions to restrict soybean exports. While our experience with limits on U.S. agricultural exports is limited, it is clear to me that unilateral economic sanctions are not good for business. They disrupt current commercial and trading relationships and by doing so can adversely affect future trade as buyers in the target country shift to alternative suppliers. The effects of sanctions on exports can extend beyond the target country as other importing countries question the supply reliability of the U.S.
Unilateral economic sanctions are trade-distorting measures just like other trade barriers. They restrict U.S. exports to the target country and cause changes in trading patterns as other exporting countries adjust. As we approach the 1999 WTO Negotiations to further liberalize global agricultural markets, S. 566 would be a positive U.S. action to remove the trade-distorting measure of unilateral economic sanctions.
1999 WTO Negotiations
The Agricultural Trade Freedom Act establishes guidelines for future agricultural trade negotiations. I commend the Committee for the focus on trade negotiations to expand global market opportunities for U.S. producers. The U.S. exports the production of about 1 of every 3 harvested acres in the U.S. and exports account for 20-25% of farm income. Without export markets, the U.S. agricultural production plant would be operating at a much lower level with idled resources. U.S. agriculture would be far less efficient which would raise costs to consumers, harm all those industries that serve the agricultural industry, and adversely affect the U.S. economy. With 96% of the world's consumers living outside the U.S., it is clear that the greatest potential demand growth is overseas. This is the growth market for now and the future.
The 1999 WTO Negotiations will begin late this year in Seattle and agriculture is on the "built-in agenda". The 1999 Negotiations have the potential to significantly improve market access for U.S. agricultural products and will set international trading rules for the next decade. I believe that it is imperative for the U.S. to aggressively engage in the 1999 Negotiations to achieve the largest benefits for U.S. agriculture.
The U.S. and other WTO Members are working to establish the structure and scope of the 1999 Negotiations to be finalized at the Trade Ministers' meeting in Seattle. In my view, two conditions are necessary to achieve the potential of the 1999 WTO Negotiations.
First, because of the unique framework established by the Uruguay Round Agreement on Agriculture, substantial progress in improving market access for U.S. agricultural products is now possible in the 1999 WTO Negotiations. The Agreement is fundamentally different from the results of past GATT agricultural negotiations. For the first time, the Agreement brings agricultural trade under comprehensive GATT/WTO disciplines through a framework agreement that includes:
In past negotiations when there was no comprehensive framework, the "request-offer" approach resulted in some tariff reductions and trade-offs among commodities, but little improvement in market access or disciplines on trade barriers. A return to a "request-offer" or "exceptions" approach would severely limit the potential of the 1999 Negotiations to improve market access.
Second, agriculture can not be a stand-alone negotiation. Beyond agriculture the 1999 WTO Negotiations should cover the broadest possible agenda. We should avoid a sector-by-sector approach under which individual sectors would be negotiated separately from all others. A single-undertaking would allow WTO Members to negotiate with full consideration of their overall trade interests.
Mr. Chairman, that concludes my comments. I will be pleased to answer any questions.