Statement by

National Corn Growers Association

before the

Committee on Agriculture, Nutrition, & Forestry

U.S. Senate

September 30, 1999

Mr. Chairman, members of the committee, my name is Kyle Phillips, and I am a corn farmer from Knoxville, Iowa. I am testifying today on behalf of the National Corn Growers Association (NCGA), which represents more than 30,000 members and corn farmers across the country through their checkoff investments. I currently serve as past president of the Iowa Corn Growers Association. Tomorrow I will begin my first term on the NCGA Corn Board. We appreciate the opportunity to present our suggestions for further reform in agricultural trade.

The World Trade Organization (WTO) is scheduled to begin a new round of multilateral trade negotiations later this year. Agriculture is part of the built-in agenda, so we will have the opportunity to build on the progress of the Uruguay Round Agreement on Agriculture (URAA), if the United States is prepared to provide the leadership to achieve further trade liberalization. As a member organization of the Seattle Round Agricultural Committee (SRAC), NCGA supports comprehensive trade negotiations. We have the opportunity to promote global food security by opening markets for U.S. farm exports. We expect Congress and the administration to work together to achieve meaningful trade liberalization for U.S. farmers.

Specifically, we need to expand and strengthen the agreed-upon disciplines in the areas of market access, export subsidies, internal support and sanitary and phytosanitary measures, and we need a WTO commitment not to restrict or prohibit the export of agricultural products.

U.S. corn farmers are efficient, productive and competitive in world grain markets. Over the last four years, the United States has produced an average of 9.4 billion bushels of corn per year while total use has averaged 9.1 billion bushels. USDA estimates that 20 percent of the 1998 corn crop was exported. We have the capacity to export more corn, but trade barriers and competitors' export subsidies prevent the U.S. corn industry from realizing the full potential of our comparative advantage in corn production. While many factors affect export demand, liberalized trading rules and a reputation as a reliable supplier can provide the necessary foundation for long-term growth in corn exports. U.S. policy must clearly and consistently promote fair and open global trade to assure U.S. corn and its products full access to world markets.

Market Access

U.S. corn producers continue to face an array of tariff and non-tariff barriers, unfair trading practices, and preferential trading arrangements in key markets around the world. We have tremendous potential for exports to Central and South America, but we also face stiff competition from Argentina for those markets. Argentina is expanding its preferential trading arrangements to include most of South America's corn importers. Mercosur members Brazil, Chile, Paraguay and Uruguay can buy corn from Argentina duty-free, while U.S. corn faces an 11-percent import tax.

Without consistent access to important markets, it is impossible to develop additional demand, and the United States is left to meet residual needs of importing countries. This was the situation we faced with Mexico prior to the North American Free Trade Agreement (NAFTA). Mexico bought U.S. corn as needed, but it was impossible to generate new demand. As part of NAFTA, Mexico replaced its discretionary licensing system with a tariff rate quota that guarantees access for U.S. corn. Corn exports to Mexico remain strong, but unfortunately, the United States has an ongoing trade dispute with Mexico over high fructose corn syrup.

The European Union (EU) is another example of a market that utilizes high tariffs to keep foreign grain out. Although the EU agreed to reduce tariffs under the URAA, the existing tariffs are still too high to allow meaningful access, with the exception of feed grains imported by Spain and Portugal under the EU enlargement agreement. Admittedly, the European Union's failure to complete reviews of new biotech crops within a reasonable timeframe has essentially eliminated a market for bulk corn exports to Spain and Portugal, but further tariff reductions will be necessary if U.S. corn is to have meaningful access to all EU markets.

Thailand and the Philippines have corn import quotas that are used to protect domestic growers at the expense of livestock feeding in those countries.

India is an emerging market for U.S. corn imports for poultry feeders, but the imports are closely monitored through a government-run company. Private traders and non-feed users such as the starch industry are not permitted to import corn.

Finally, China is projected to export five million tons of corn this marketing year. This represents an increase of 1.5 million tons over the estimate of a month ago. China has the advantage of a state trading enterprise that allows it to subsidize corn exports. If China joins the World Trade Organization under the terms agreed to last spring, China will have to open its market to corn imports and eliminate export subsidies.

Export Subsidies

Export subsidies have cheapened grain on world markets and made it more difficult for unsubsidized grain to compete. Even though the Agreement on Agriculture established maximum ceilings on the quantity of exports subsidized as well as on budgetary outlays, low-quality European feed wheat continues to displace corn in several markets. One of our goals in the next round of negotiations is to eliminate export subsidies.

Internal Support

Internal supports can distort world markets by encouraging production of specific commodities in quantities that exceed market demand. Generally, the NCGA supports market-based agricultural policy and efforts to reduce supports that lead to excess production. However, price declines for corn and most other commodities have cautioned us to carefully consider the need for farm programs that provide a minimum level of support.

The marketing assistance loan program for corn establishes a national loan rate significantly below the cost of production. The relatively low loan rate should not encourage production, but with current low prices, it has become an important component of producers' income and a considerable expense in terms of government outlays. Trade negotiations should not reduce the minimal support provided by this domestic program.

Likewise, the federal crop insurance program should encourage producers to insure adequate revenue to avoid devastating losses without artificially stimulating production. We cannot abandon the safeguards that are essential to the future competitiveness of U.S. producers as long as they do not encourage excess production

Sanitary and Phytosanitary (SPS) Measures

Under the WTO, member nations agree to eliminate import restrictions that are based on arbitrary and unsubstantiated health and safety claims. The trade situation for corn is complicated by the uncertain status of products enhanced through biotechnology. The SPS agreement should be interpreted to include biotechnology without opening the entire agreement.

We respect our customers' right to establish standards for products of biotechnology, but we cannot allow arbitrary and unsubstantiated health and safety claims to deny access to important markets. The WTO must provide for reviews of products of biotechnology that are scientific, risk-based, rational and predictable.

Sanctions

Unfortunately, it is not always a question of other countries' barriers limiting our export opportunities. Far too often, the United States has erected our own barriers by imposing unilateral trade sanctions against our customers. Restrictions and legal impediments deny U.S. farmers access to markets and jeopardize our reputation as a reliable supplier.

NCGA and the Iowa Corn Growers support the elimination of all unilateral sanctions on food and medical supplies. The agriculture appropriations bill passed by the Senate last month would have required congressional approval before the President could impose unilateral sanctions restricting sales of food and medicine and would have eliminated existing restrictions on sales to Cuba, Iran, Libya, North Korea and Sudan.

We are extremely disappointed that House leadership insisted that the conference agreement back away from the Senate provision. We must not use food and medicine as tools to punish other countries. Unilateral trade sanctions represent failed foreign policy. American farmers must have access to markets that are available to our competitors, and we must be able to assure potential customers that the United States will not use food as a weapon.

Conclusion

All of these challenges are future opportunities for U.S. corn growers, if the United States leads the way for trade negotiations that significantly liberalize trade in agricultural products. The United States must advocate a very aggressive trade agenda while defending the domestic programs that provide a minimum safety net for U.S. producers. Other nations will challenge our farm programs. Crop insurance, loan deficiency payments and export credit guarantees - will all be scrutinized for production- or trade- distorting effects. But unless the United States insists on trade liberalization and we make real progress in opening world markets for U.S. corn and value-added corn products, we can expect stocks to continue to build and prices to continue to fall.

Thank you for this opportunity to express our views.