TESTIMONY OF IRA S. SHAPIRO
LONG, ALDRIDGE & NORMAN
ON BEHALF OF THE COALITION FOR SUGAR REFORM
before the Senate Committee on Agriculture
July 26, 2000
I appreciate the opportunity to appear before the committee to discuss the important policy issues presented by the U.S. sugar program. I am here today on behalf of the Coalition for Sugar Reform, an umbrella organization representing U.S. trade associations, consumer and environmental groups, and taxpayer advocates united in their belief that the U.S. sugar program should be fundamentally reformed.
Committee members are well aware of the difficult issues posed by this program; you--and your predecessors--have grappled with these issues many times over the years. But the debate over the sugar program acquired increased intensity this year as the costs and contradictions of the program could no longer be denied.
This panel includes an array of witnesses who can provide valuable insight into these issues. But as a former U.S. trade official, I would like to focus my testimony today on another cost of the sugar program. An honest debate about the sugar program should not be limited to the impact on consumers, or products that include sugar, or even its environmental consequences, as important as all these things are. I believe that maintaining the sugar program in anything like its present form will undercut our ability to open foreign markets for a whole range of U.S. products and services, particularly agricultural commodities and value-added products.
This isn't simply about the price of a five-pound bag of sugar, or even the $2 billion extra that consumers spend annually because of our sugar program. It's actually about our ability to deliver on the promise to open markets more fully around the world for our farmers, ranchers, food processors and everyone else who is part of America's food industry. The sugar program is the Achilles heel of U.S. trade policy.
Why do I say that? Let's look at the U.S. record in international trade, and the central challenges facing us.
History will mark the years since 1993 as an extraordinary period of trade expansion. The Clinton Administration came into office committed to opening foreign markets by whatever means possible: multilaterally, regionally and bilaterally--and blessed with the bipartisan support and the opportunities needed to do so. From the completion of NAFTA and the Uruguay Round in 1993 to the vote on PNTR for China and the recent bilateral agreement with Vietnam, the Administration, with the support and the prodding of Congress, has worked on every front to open markets, and to enforce the market opening commitments that other countries have made. By any measure, markets around the world are far more open than they were a decade ago, thanks to U.S. leadership.
The special importance of trade to U.S. agriculture has long been clear; our farmers and ranchers were many years ahead of the rest of the economy in recognizing the vital importance of access to foreign markets. As Secretary Glickman stated in recent testimony to the Finance Committee, "the vast majority of US farmers and ranchers know there is only one direction to go: forward. Twenty five percent of US agricultural sales are for export, 96 percent of the world's consumers live outside of the United States, and agricultural exports account for nearly 750,000 jobs here at home, both on and off the farm. Perhaps more to the point, we export 12 times as much wheat as we import, 21 times as much feed grains, over five times as much rice, twice as much tobacco, nearly 9 times as much cotton; and in the case of soybeans, we exported $4.7 billion worth last year and imported virtually none." Trade is also vital to the growth of value-added and processed foods and feedstuffs. Global trade in processed food is growing twice as fast as bulk commodity trade, and consumer products now account for a greater percentage of U.S. agricultural exports than raw commodities.
The progress in opening markets around the world has undeniably benefitted U.S. agriculture and the food sector. The Uruguay Round was a landmark accomplishment, which finally began to bring agricultural trade under fair and internationally accepted rules. The Uruguay Round Agreement on Agriculture abolished quotas, ensuring that countries would use only tariffs to restrict imports; and went on to reduce and bind those tariffs. It subjected export subsidies and trade-distorting domestic support measures to specific limits, reducing them as well. Through the Agreement on Sanitary and Phytosanitary Measures, WTO members agreed to use science-based sanitary and phytosanitary standards to protect human, animal and plant life and health, taking away, at least in principle, one of foreign governments' most powerful protectionist tools. NAFTA gave our farmers and ranchers preferential access to Mexico as well as to Canada; our agricultural exports to those countries have grown by nearly $4 billion since 1993, and now represent more than one-fourth of our agricultural exports. Ambassador Barshefsky and Secretary Glickman have successfully negotiated numerous bilateral agreements opening up new opportunities in a large range of commodities: tomatoes and apples in Japan; citrus and other fruits in Brazil, Chile, Mexico and other countries; beef in Korea; cattle, hogs, wheat and barley into Canada. China's WTO accession agreement is an historic achievement in many respects, but certainly in terms of dramatic new opportunities for U.S. agriculture. USDA predicts more than a $1 billion annual increase in processed food exports as a result of this agreement, for example.
Despite these achievements, all over the world agriculture remains the most sensitive area--economically, politically and culturally--of international trade. While many barriers have come down, agricultural trade remains substantially restricted and distorted. Tariffs average 50% worldwide for agricultural products. TRQs have created some access for imports, but continue to maintain restrictive conditions. The European Union continues to employ 90% of the world's export subsidies, damaging the interests of our farmers and ranchers, and harming many of the nations of the developing world. Countries still routinely invoke sanitary and phytosanitary barriers to block imports, in the absence of sound science. State trading enterprises still play far too large a role in agricultural trade. The economic health of our agricultural sector depends on getting stronger rules, and breaking down these barriers, to ensure greater access to markets around the world.
For these reasons, both before Seattle, and since, every U.S. official has made it crystal clear the number one priority for the United States in the new round of trade negotiations was agriculture trade liberalization. Our ambitious objectives are set forth clearly in the recent "Proposal for Comprehensive Long Term Agricultural Trade Reform" submitted in Geneva. That proposal "entails reforms across all measures that distort agricultural trade and that once adopted will reduce levels of protection, close loopholes that allow for trade-distorting practices, clarify and strengthen rules governing implementation of commitments, foster growth and promote global food security and sustainable development." The proposal notes that "the United States believes there are compelling arguments for further reform. Too often and in too many countries, the production and marketing decisions farmers make are still driven by government programs and protections from market access barriers, rather than market conditions. As a result, competitive farmers, ranchers and processors are denied sufficient access to markets and face subsidized products and the trade-distorting policies of foreign governments, leaving the world with an agricultural market still far from the WTO objective of a fair and market oriented system."
In my view, there is no doubting the commitment of Congress, this Administration, and the next Administration--Democratic or Republican--to continue opening world agricultural markets. The real question is how we will accomplish that vital objective. Because agricultural trade barriers still proliferate around the world, the U.S. comes to any negotiation with ambitious liberalization objectives. Because the playing field is not currently level, we plan to press other nations to undertake more changes and more market opening than we are prepared to do. Because we are already so open, we have relatively little to use as leverage in exchange for the market opening that we seek. The barriers we continue to maintain include some of the most sensitive commodities and products we have.
Against this backdrop, it is quite clear to me that the U.S. sugar program stands as one of the principal impediments to our hopes for continuing agricultural trade liberalization.
First, the program makes our calls for "a fair and market oriented system" sound hollow and hypocritical. If we saw this program in another country, we would regard it as a major and unacceptable distortion of trade. In fact, OECD estimates distributed by USDA show that this is one commodity where, during 1996-98, U.S. subsidies were actually somewhat higher than European Union subsidies, when expressed as a share of production value. The 1996 Farm Bill ended government controls and phased out payments to farmers of corn, wheat, cotton and other crops. The sugar program is a glaring exception to this progress. USDA continues to tightly control the marketplace through the TRQ, and high price support levels remain in effect. The lower duty applicable to in-quota imports is unchanged, while the over-quota duty rate actually rose initially and has remained at levels that are still prohibitive to imports. Thus, the Uruguay Round Agreement, despite its introduction of important principles for agricultural trade, made almost no progress in altering the basic features of the sugar program. While defenders of the sugar program point out that the United States imports approximately 15% of its sugar, this contrasts sharply with the 40% market share that foreign sugar had in the U.S. market before the current sugar program was put in place in 1981. Why should other nations be expected to end protection and government management of their sensitive commodities, and open their markets, if the U.S. is unable to do so? The answer - readily apparent in Seattle - is that they will not.
Second, worldwide agricultural trade liberalization will occur, if at all, through the combined and determined efforts of the leading agricultural exporters--the United States and the members of the Cairns Group--coming together to overcome the opposition of those nations mostly strongly opposed to liberalization, notably the European Union and Japan. Our sugar program has driven a wedge between the U.S. and one of the leaders of the Cairns Group nations, Australia. In Seattle, the major study released by the Global Alliance for Sugar Trade Reform and Liberalization, organized by Australia, documented the burden placed on the world economy by the sugar programs maintained by the European Union, Japan and the United States. For the United States, the world's leading agricultural exporter, that is not good company to keep. The incongruities in the U.S. position created by the sugar program take the pressure off the European Union and Japan, who can oppose real agricultural liberalization with impunity.
The U.S. sugar industry argues that the European Union's sugar subsidy program is worse than that of the United States; thus, if the U.S. scraps its own sugar program, subsidized EU sugar will pour into the United States and drive U.S. sugar growers out of business. The European Union's sugar subsidy does, in fact, distort markets in ways the U.S. sugar program does not, because it depends on export subsidies. However, even without the U.S. sugar program, dumped and subsidized European sugar would be unable to enter the country due to the anti-dumping duties that have been in place for some time against European sugar producers (Belgium, France, Germany) and the countervailing duties applied to European Union sugar. In addition, the U.S. has deliberately chosen not to follow the European model in other agricultural products in the past, instead attempting to compete in world markets and tear down the trade barriers of other countries.
The sugar industry will no doubt argue that the decline of the world price of sugar over the past year is the result of dumping and is a sure sign of things to come if the sugar program is eliminated. In fact, both world and domestic sugar prices have declined this year due to unprecedented oversupply, stimulated by favorable weather conditions, increases in acreage due to lower prices for other commodities, and contracting markets in Russia and Asia. To the extent that a lower price may be reflective of dumping, however, U.S. antidumping laws provide an effective remedy to a domestic industry that is being injured by less-than-fair-value imports. There is no reason why the antidumping laws and the countervailing duty laws which protect other industries from unfairly traded products will not afford similar protection to the sugar industry, assuming that dumping or subsidizing is occurring and resulting in injury.
Third, there are few issues, if any, that matter more to more nations than increased sugar access to the markets of the developed world. This issue stands close to the top of the agenda of two of the leading developing nations, India and Brazil, as well as several rapidly developing economies, such as Chile, Thailand and the Philippines. But it is also the highest priority for some of the smallest, struggling economies in our hemisphere: Colombia, Costa Rica, El Salvador, Guatamala, Honduras, Nicaragua, and Panama. These developing nations tend to maintain the highest tariffs against our agricultural products. They are potentially among the fastest growing markets for our farmers and ranchers if those barriers can be reduced. We know from Seattle, and the discussions since, that many developing nations believe that they have been shortchanged by the international trading system. Many believe that they made significant market opening commitments in the Uruguay Round and have received too little benefit in terms of reciprocal access to the markets of the developed world. The inequities of the U.S. sugar program compel the conclusion that the grievances of the developing countries are well justified, not just deeply felt.
Our own citizens will benefit from reform of the sugar program, including liberalized imports. According to the General Accounting Office, users and consumers of sugar paid nearly $2 billion more in 1998 for products containing sugar than if there had been no sugar program. Sugar processors and growers, of course, dispute this number. But it is in the range of all the other independent estimates I have seen, including studies by the U.S. International Trade Commission and others. In order to claim that consumers will see no benefit from sugar liberalization, one has to assert that there is no competition in the food industry. I would submit to you that no one who shops for groceries will take this claim very seriously. Our food manufacturers and grocers are intensely competitive, as anyone who compares prices and uses coupons can tell you.
Mr. Chairman, our coalition hopes this hearing marks the beginning of a serious discussion of the costs, benefits and future of the U.S. sugar program. Every nation has its sensitive commodities, and sugar is plainly one of ours. But when our sensitive commodity, which is produced by relatively few growers, is vitally important to the economic well-being of so many other nations, it can cause a major imbalance in the global system. Reform of the U.S. sugar program would provide a vital boost to the economies of many poor nations, and would be particularly beneficial if it helped force the EU and Japan to reform their programs. At the same time, such reform could be a major catalyst in expanding export opportunities for our producers of grains, oilseeds, cotton, meat, processed foods and value-added agricultural products.
.