Testimony

On behalf of the

NATIONAL CATTLEMEN'S BEEF ASSOCIATION

In regard to

Trade Injury Compensation Act (TICA)

Submitted to

Senate Agriculture, Nutrition and Forestry Committee,

Forestry, Conservation and Rural Revitalization Subcommittee,

The Honorable Larry Craig, Chairman

Submitted by

Dana R. Hauck

Chairman

NCBA International Markets Committee

September 21, 2000

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Producer-directed and consumer-focused, the National Cattlemen's Beef Association is the trade association of America's cattle farmers and ranchers, and the marketing organization for the largest segment of the nation's food and fiber industry.

Statement of Dana R. Hauck, Chairman

NCBA International Markets Committee

Forestry, Conservation and Rural Revitalization Subcommittee,

Senate Agriculture, Nutrition and Forestry Committee

September 21, 2000

Thank you for hosting this hearing regarding the proposed Trade Injury Compensation Act. NCBA appreciates the opportunity to discuss a long-standing trade dispute with the European Union and to improve how the process might be improved to benefit US beef producers. I am Dana Hauck, a beef producer from Delphos, Kansas, and Chairman of NCBA's International Markets Committee.

The EU Beef Case:

Background -- The EU has essentially banned imports of US beef since 1989. This thinly disguised trade barrier was implemented in the name of consumer protection in spite of ample scientific evidence that production technologies approved by FDA and widely used in the US, but prohibited in the EU were safe. The US government complained in the GATT, but the EU, as was permitted at that time blocked dispute resolution.

After the WTO replaced the GATT the US filed its formal complaint in January 1996, claiming the EU beef ban was a non-tariff trade barrier. Australia and New Zealand joined the United States in the action. Canada filed a separate case, and the final report addressed issues raised in both (US and Canadian) cases. These were, in effect, test cases for the application of the Uruguay Round Agreement on the Application of Sanitary/Phytosanitary Measures.

Following a series of legal actions and appeals a WTO arbitrator upheld all previous rulings and gave the EU until May 13, 1999 to bring regulations into compliance with WTO guidelines. Under WTO procedures the EU was then obligated to modify its regulations by May 13, 1999 to comply with the ruling or the United States could retaliate. Unfortunately the EU was unable to modify its regulations and on July 29, 1999 the US began implementing retaliatory measures against exports from the EU valued at $116.8 million.

The objective of the US beef industry has always been to re-gain access to the European beef market, not retaliation. Retaliation or current proposals for compensation will not benefit the beef industry and these alternatives are viewed only as a means to an end - access to the EU market - and not the primary objective. Based on the criteria of market access as the primary objective, one could say that the WTO dispute settlement process has not worked -- we still do not have access to the EU beef market. However, compensation and retaliation are also possible outcomes for any WTO case and the US has implemented tariffs of 100 percent on $116.8 million of EU goods consistent with alternatives provided in the WTO dispute settlement process. They provide a "burr under the saddle" to push the EU to compliance. From that perspective the WTO dispute settlement process has worked, though the industry has not yet achieved its objective.

Although the EU beef industry has been rocked by "mad cow" disease" and US beef has not caused a single case of this disease in the US or anywhere else, the US beef industry continues to be unfairly shut out of the European market after more than a decade. Since 1988, the United States has shown extreme patience relative to efforts to remove this scientifically, economically, and legally indefensible barrier to US beef. Our patience is gone. US cattle producers have won all rounds in the effort to require the European Union to comply with international trading rules and eliminate its ban on US beef. We are willing to work with Senate and House leadership, with the Administration and with representatives of the EU to exercise our right to sell US beef in Europe.

Objectives:

Safety -- The primary objective for the US beef industry is to produce a safe and wholesome product for domestic and international consumption. Beef producers consume US beef and so do their families. Scientific evidence clearly shows that growth-promoting technologies used by the US beef industry are safe. During the past decade, the EU has not been able to cite scientifically valid reasons for the ban. A scientific conference convened by the EU in 1995 and the WTO panel and Appellate Body have confirmed that our product is safe.

All beef naturally contains hormones. Indeed, three of the hormones in question are essential for life and occur naturally in widely ranging amounts in all plants and animals. The natural levels found in other animal foods, including eggs, milk or butter, are substantially higher than levels found in beef. Plants also produce the equivalent of sex hormones -- soybeans, wheat germ and even broccoli contain high levels of plant estrogens. The other three compounds in question are synthetic alternatives that closely resemble the three natural hormones. These compounds do not leave residues and scientific analysis cannot differentiate between beef produced with and without their use.

Market Access -- Our goal is not retaliation. Our goal is to sell our product in Europe -- an opportunity guaranteed by the WTO rules. The objective of the US beef industry is to re-gain access to the European beef market. Retaliation as currently implemented does not benefit the beef industry, and should be viewed only as a means to an end - market access - not the primary objective. Unfortunately, the EU's track record indicates that it will only seriously consider resolving trade disputes if it is confronted with the reality that retaliation is inevitable and that the US is willing to exercise its rights under the WTO Dispute Settlement Understanding to the maximum extent allowed by law.

Alternatives:

Labeling -- The US beef industry consulted with USTR and USDA and approved an earlier Administration offer to the EU for market access with approved USDA labeling. NCBA supports country-of-origin labeling for beef in the domestic and international marketplaces and is willing to consider various labeling alternatives to inform EU consumers about US beef. At the same time we are not willing to accept labels that would be unduly prejudicial and discriminatory.

It is difficult to see why US beef producers should accept a discriminatory labeling regime in Europe whereby our beef is labeled as having been "treated" with hormones while European beef which -- legally, under EU rules -- may be produced from cattle administered hormones for "therapeutic" purposes. Still, the US beef industry is willing to explore alternative labels that might be acceptable if the EU would negotiate on this point. To date they have not.

Retaliation -- We regret the need for retaliation. We realize that retaliation is contrary to our industry's generally pro-trade philosophy, and that US importers of EU products, and ultimately US consumers are inadvertently impacted. Our strong preference is for the EU to comply with the WTO ruling and grant US beef access to the European market. That said, if the EU continues to refuse to comply with the WTO rule, the entire point of retaliation should be to put a 'burr under the saddle" sufficient to lead the EU member states to reconsider their position. For this reason we have always requested that the retaliation be swift and sure and that the list remain widely diversified with agricultural and non-agricultural products.

The WTO arbitrator approved retaliatory measures against exports from the EU valued at $116.8 million. NCBA continues to believe that this is a very conservative estimate of the injury and that the value of trade would now exceed $500 million annually as can be seen from the percent of increase in US beef exports to the rest of the world. For example during 1999 sales of US beef to Mexico -- a country with one-third the population and one-twentieth the per capita disposable income of the EU -- exceeded $512 million.

"Carousel" Retaliation -- The US beef industry can again speak from experience on this issue. The 1989 retaliation against the EU in this case was suspended when the WTO case was initiated in January 1996. The 1989 retaliation was static and the burden fell mostly on Italy. Although it imposed some economic and political pain on Italy, it hardly affected the other 11 member states. Italy's interests were quickly written-off by the other member states, and there was no significant pressure to change the policy. For that reason, the US remained shut out of the market.

All EU member states carry responsibility for maintaining this illegal policy -- none should be immune from the effects of retaliation. Since each EU member believes other member states will bear the brunt of the US retaliation, there is minimal pressure within the EU to change or withdraw its ban on US beef. With the retaliation in the EU beef case set at only $116.8 million, a static retaliation list has significant impact on the exports of only two or three member states out of the 14 (UK has been exempted from retaliation by the Administration in the beef case).

With this background the US beef industry and others have supported another enforcement tool where the retaliation list is revised periodically -- often referred to as "carousel" retaliation. NCBA and a broad coalition of agricultural organizations strongly supported the "Carousel Retaliation Act," S.1619 with a bipartisan group of over 30 co-sponsors. As you are no doubt aware provisions of S. 1619 passed the Senate as part of the Africa Free Trade bill and were signed into law during May 2000 and we thank members of this Subcommittee for their support.

The Carousel Retaliation amendment was approved at a critical moment, as the EU steadfastly refused to come into compliance with the WTO's Dispute Settlement Body's ruling on the beef case after more than a year of retaliation. Now that the list of affected commodities is subject to change on a random basis, countries and/or commodities are never certain they have escaped targeting. This uncertainty is helping generate constant pressure on all offending parties to come into compliance with the WTO ruling -- and would be more effective if the Administration would implement the law.

EU intransigence has forced the United States to retaliate -- in accordance with WTO rules -- with 100 percent tariffs on selected EU products. Carousel retaliation legislation called for a substantial change in the list of European products subject to 100 percent duties every six months to induce compliance with World Trade Organization (WTO) rulings. As spelled out in the legislation the first date for the Administration to announce a change in the list of products was June 19, 2000, three months ago.

NCBA has been told since late June that an announcement regarding a change in the list is expected "any day." We have been willing to be patient and gave the Administration the benefit of some additional time for the interagency process to reach consensus. Action by the Administration is now three months late and recent news stories regarding Prime Minister Blair's concerns about items on the banana list indicate that there will be further delays. We respectfully request the continued leadership by this Subcommittee on this issue and ask that you contact the Administration and urge immediate release of the new beef retaliation list of EU products subject to 100 percent duties.

Once retaliation is taken, carousel retaliation seeks to ensure that it is applied in a way to best ensure compliance. This approach increases political pressure among EU member states for compliance or acceptable compensation and is uniquely applicable to -- and was conceived primarily for use against -- the European Union because of the EU's one-of a kind policy-making apparatus. Judging from recent comments from leaders in various EU countries carousel retaliation is having it's intended effect of multiplying the 'burr under the saddle" for all targeted EU countries.

TICA -- Another Tool -- As indicated earlier in this statement, retaliation is the least desirable of the three possible outcomes from a WTO ruling, but if we must resort this alternative it should be as effective as possible. Even with assessment of 100 percent duties, some trade continues for some products on the retaliation list. In the beef case $35.65 million of products on the retaliation list have entered the US during the July 1999 through June 2000 period. At 100 percent duty level, this says in effect that some US consumers are willing to pay twice the original price and still purchase these products. It also says that $35.65 million of unanticipated revenue are generated and paid into the US general treasury.

This "leakage" results in total retaliation being less than the $116.8 million authorized by the WTO. In effect the US is authorized to place trade-prohibiting duties on $116.8 million of EU goods, but we are only stopping trade on $81.15 million of goods. Maximum pressure for a change in EU policy is not being generated.

There are two possible ways to address this leakage. First, duties could be increased to truly trade-prohibiting levels -- say 500 or 1000 percent. At those levels, US consumers would likely stop buying -- they would not be likely to pay 5 times or 10 times pay the original price and still purchase the product.

The second alternative brings us to the intent of the TICA legislation strongly supported by NCBA. Instead of punishing US consumers with trade-prohibiting tariffs, trade could be allowed to continue for those consumers who are willing to pay the 100 percent tariff with any tariff revenue generated going to the injured industry. These revenues will compensate the industry for the amount of under-retaliation resulting from leakage due to continuing trade. Contrary to some perceptions, this revenue should not be viewed as a subsidy to the industry. Keep in mind that the industry is allowed to stop $116.8 million of trade and is only stopping $81.15 million. The TICA revenues only bring the total package back to the original amount of retaliation allowed as compensation for under-retaliation -- $81.85 million retaliation and $36.65 million compensation, for a total or $116.8 million.

The proposed legislation provides for a national promotion and research board to administer any revenues generated by TICA for "market development, consumer education and promotion of the beef industry in overseas markets." This provision assures equity across the beef industry. The Cattlemen's Beef Promotion and Research Board are "cattle producers and [beef] importers appointed by the Secretary [of Agriculture] from nominations submitted by eligible State organizations certified" [to meet criteria as set out in the enabling legislation]. Certified State organizations currently include state Farm Bureaus, Farmer's Unions, Cattlemen Associations, Dairy Producer Associations and other organizations. The Board currently funds various promotion, consumer education and research programs (among others) in the domestic US and in international markets, so the administrative and management expertise for any TICA revenues is already in place.

Foreign market development programs currently funded by the Board include consumer information and education programs. TICA funds could be used to educate European consumers about the safety and wholesomeness of US beef, about US production practices, new US production technologies and the FDA product approval process. Other international marketing programs currently being funded also include cooking classes for chefs, product demonstrations, classes for retail meat managers, consumer taste tests, and a wide range of other activities that could be adapted to promote US beef in the EU market.

Opposition to this proposed legislation will likely come from at least two camps and just as well be addressed up front.

First, the Europeans would be expected to object with a wide array of claims. This is very logical. After all they are currently paying a $116.8 million tab with a check for $81.15 million -- a 30.5 percent discount on the total amount owed. In addition, the Europeans can stop the revenue stream from TICA at any time. They just have to bring their regulations into compliance with the original WTO ruling or negotiate an acceptable package of compensation. In either instance all retaliation -- including carousel and TICA generated revenues would end.

Second, some may claim that TICA funds should go directly to cattlemen rather than to a fund for benefit of the total cattle industry. Philosophically this is probably a justifiable argument, but a look at the numbers makes it an impractical alternative. With expected revenues of $35.65 and nearly 1.096 million operations with cattle (January 28, 2000 USDA Cattle Inventory Report), average revenue per operation would be less than $33. Collection, administrative and postage costs would likely exceed the amount of revenue dispersed per operation.

Like other retaliation measures, TICA is not a sliver bullet, it is just another tool in the toolbox and not a final objective. Revenues generated from TICA would help provide equity by compensating the US beef industry for the amount of under-retaliation from any trade that occurs after 100 percent duties are imposed. These revenues could be used on behalf of the entire cattle industry to directly communicate with EU consumers. A board of producers nominated by certified state organizations and appointed by the Secretary would administer programs funded by TICA. When used in conjunction with carousel revenues would change every six months as new products are added and taken off the list and as consumer willingness to pay the tariff and continue to purchase items on the list changes. And TICA will provide another 'burr under the saddle" to help lead the EU member states to reconsider their position. In short, TICA is like other retaliation measures. It isn't perfect, but it is designed to be as equitable to the US beef industry as possible.

Need to Generate Support for Trade:

Despite the overwhelming evidence that the international market must be a focal point for market growth and economic vitality, there is a growing protectionist sentiment at the grassroots level. This sentiment is the result of increased questioning at state and local levels about the impacts of trade on individual agricultural producers and increased skepticism about the willingness of federal officials to aggressively negotiate and then enforce agreements favoring US interests.

The resounding 83-15 approval of the China agreement by the Senate has helped address agricultural concerns about willingness to negotiate and implement agreements favorable to agriculture. Unfortunately, EU cases continue to raise issues about willingness to go to the mat with our trading partners on enforcement. As in recent reluctance to release a new beef retaliation list, agriculture often seems to be left holding the bag. In addition, there is a growing lack of confidence even among "free" traders that our trading partners will live up to their obligations under negotiated agreements and the example of the EU's non-compliance with the hormone ban rulings is often used as an example.

NCBA supports the WTO and free trade because a majority of cattlemen understands that our growth market is beyond US borders. But we need enforceable global trading rules in place and in use that grant market access, settle disputes on the basis of science and reduce tariffs. Developing interagency agreement and focus on aggressive enforcement and negotiated settlements is important for maintaining public support for trade agreements, successfully negotiating increased access to international markets, and ensuring interests of US producers are not compromised.

The National Cattlemen's Beef Association is prepared to participate in the process of evaluating critical trade issues within the beef industry. NCBA looks forward to providing additional input as the US addresses other trade issues, including a new round at the WTO and approving legislation to provide authority for negotiating additional trade agreements. NCBA thanks the co-sponsors of this legislation and I thank you for the opportunity to present these comments.