August 5, 1999

Thank you Chairman Crane and the Subcommittee for holding hearings regarding issues to be addressed in the 1999 Seattle Ministerial meeting. NCBA commends your continuing efforts to improve the export outlook for U.S. agricultural products. I am Chuck Lambert, Chief Economist for the National Cattlemen's Beef Association.

Importance of Trade: Beef and pork producers have always avoided the traditional supply management and price support programs, and therefore, had the "freedom to farm" as well as "freedom to fail". Livestock producers add value to grain produced by our neighbors by feeding it through our livestock.

Livestock producers are becoming increasingly dependant on the rest of the world to buy our products. Exports of meat and grains make sense for the US, a country that has only 4 percent of the world's population, but a large share of the world's production agriculture. Exports of beef have helped to take up the slack of declining demand for beef at home. We, as an industry, have worked hard to promote beef exports which now account for over 12 percent of the value of wholesale beef sales. On a tonnage basis, we export 8-9 percent of what we produce.

The 1998 calendar year — a year of recession in most Asian markets — was the first time that more than one million metric tons of US beef and beef variety meats have been exported. Compared to 1997, exports of beef and beef variety meats during 1998 increased of 4.75 percent on a volume basis but declined 5.44 percent on a value basis as U.S. beef prices declined and international customers shifted to a lower-price mix. As an industry, we have expanded exports of beef and beef variety meats from about one-half billion dollars twenty years ago, to approximately $3 billion today. During the first five months of 1999, beef exports increased 6.43 percent on a volume basis and 6.56 on a value basis compared to the same time in 1998.

The Seattle Round of world trade talks will be the defining moment for world agricultural trade. The US beef industry has worked hard to expand sales of our product in the younger, fast growing, overseas markets. In spite of record US meat exports and efforts of most commodity organizations to expand exports, prices for nearly all US agricultural products remain very low.

There is a perception among many in agriculture that past GATT and WTO rounds often traded agricultural priorities for other priorities and left US crop and livestock producers facing high tariffs and a host of non-tariff trade barriers in overseas markets while opening US markets to imports. One of the underlying premises of the 1996 "Freedom to Farm Bill" was that aggressive pursuit of growing export markets would be a critical strategy to replace the safety net of traditional farm programs. The pursuit of export markets includes eliminating trade barriers and this must be a successful part of the next round.

Success of the Seattle Round means that the US must take the high road to expanded exports and free trade, with less dependence on government assistance. Failure to follow this course will take us down the road to protectionism — if not isolationism — trade wars and a return to costly government supply management and price support farm programs. The near-agreement with China last April, if finalized, would set a good example for other countries for reducing trade barriers. If the agreement with China — which would be contingent upon approval of permanent Normal Trading Relations — can be finalized it will set the pace for all of the WTO countries to follow in November. The proposed China agreement would allow for:

• a bilateral Sanitary/Phytosanitary agreement for China to accept all USDA approved processing plants as eligible to ship to China. This bilateral agreement has been finalized, but its impacts will depend on finalization of the overall trade package with China. The proposed overall package would allow for the following with respect to the beef industry
• duties on certain beef items to decline from 45 percent to 12 percent over a five-year period
• a commitment not to subsidize domestic agricultural products
• US investment in distribution, wholesaling, retailing, and transportation

Objectives For The 1999 WTO Negotiations: NCBA, in conjunction with nearly 60 other agricultural and food sectors, expressed support for launching a comprehensive round of multinational trade negotiations in an April 1, 1999 letter to President Clinton. The group specified three process objectives for the negotiations, as follows:

• Establish a three-year goal for concluding the negotiations.
• Adopt the Uruguay Round framework for the 1999 agricultural negotiations so there are no product or policy exceptions.
• Conclude with a single undertaking that encompasses all sectors.

NCBA and other agricultural organizations strongly object to the conclusion and implementation of agreements in any other sector until agreements in agriculture are finalized. Many other countries have remained very protectionist of agriculture while negotiating expanded trade in other sectors. Unless there is a reciprocal opening of agricultural markets there will be very little support within the agricultural community for these trade agreements in other sectors.

NCBA and the U.S. beef industry believe that the overall policy objective for U.S. trade is to maintain and increase access to existing markets for U.S. beef, beef by-products and other industry-related products and to gain access in emerging markets for these products. NCBA and other meat industry groups support the following specific points to be addressed during the 1999 round of WTO negotiations:

• Prevent the EU from rolling back progress made during the previous GATT agreement. Enforcement of the strict science-based trading rules established in the Uruguay Round Agreement on Sanitary and Phytosanitary Measures (the SPS Agreement) is critical to continued expansion of U.S. beef exports.
• Ensure that science remains the only basis for resolving SPS issues. To ensure this outcome, the red meat industry does not support opening the SPS Agreement for further negotiation in the next trade round.
• Protect scientifically approved technologies, such as Genetically Modified Organisms (GMOs) and beef growth promotants that enhance production efficiency or food safety by establishing transparent, science-based rules.
• Eliminate State Trading Entities (STEs) and increased access to wholesale and retail trade in importing countries (especially relevant in China, Australia and Canada)
• Reduce and eventually eliminate production-distorting price supports and export subsidy programs. In addition, stricter disciplines and tougher enforcement mechanisms should be established to prevent the emergence of new schemes to circumvent WTO rules.
• Continue to reduce tariffs and expand Tariff Rate Quotas (TRQs). Existing duties in key export markets such as Japan and Korea must be reduced to single digit levels and a target date must be established for reducing all tariffs to zero. Until elimination of duties can be accomplished, existing tariff rate quotas must continue to be expanded to permit continued growth in exports.

From the beef industry perspective the last point may be the most crucial. US beef entering many markets for US beef in Asia (Japan, Korea, and China) still faces close to a 40 percent tariff. Price still drives the effective demand for our product. If one looks at Mexico, you can see what the effects of eliminating tariffs of 20 to 25 percent did in that market after NAFTA was initiated — even with the 50 percent devaluation of the peso in late 1994. While we have done well in the Asian countries, tariff reduction must be one of the main keys to exporting more red meat to countries with high tariffs.

Definition of Dumping: The beef industry is driven by supply and demand and these forces determine the market price for beef. Market-driven industries traditionally run in cycles, and most beef producers periodically sell below the cost of production (at a loss) during the high production/low price periods of the cattle cycle. Indeed, it is these low prices and industry losses that result in herd reduction and declining supplies. These periods of cyclical low prices and producer losses in the beef industry meet the definition of dumping under current WTO rules — even in the absence of evidence of predatory behavior, intention to monopolize, or other intentional efforts to drive competitors out of business.

Producer unrest has resulted from low prices for agricultural commodities and the threat of protectionism is rearing its ugly head. The storm clouds of unrest include calls for dumping lawsuits, blockading borders and other retaliatory measures to restrict trade. The current definition of dumping under WTO rules does not make sense for commodity markets like beef because one of the criteria to file a dumping case is that the commodity must be sold below the cost of production in the importing country.

Under the current WTO definition of dumping, suits were filed against Canada and Mexico in 1998 and in return, Mexican feeders and processors filed a dumping case against the United States. Mexico announced tariffs as high as 215 percent just last Monday (August 2, 1999) for some exporters of some beef products. These cases were the fallout of cyclically low market prices related to supply and demand and had nothing to do with predatory behavior, monopoly practices or the intention of beef producers in one country to drive other producers out of business. The bottom line is that these cases will cost the beef industry scarce resources to defend without addressing the base cause of low prices. Ultimately, these cases will lead to less efficient trade patterns without significantly increasing producer profitability. During future negotiations NCBA supports changing WTO rules that define beef dumping to include factors other than selling below the cost of production.

Maintain Integrity of the WTO — Fortress Europe: Existence of a well-defined process for initiating a case and for determining the final ruling is among the strengths of the current WTO system. The current system is much improved from its GATT predecessor in this respect. The strict science-based rules established for resolving these issues is another major strength of the current dispute settlement process. The primary weakness of the current system is the absence of an enforcement mechanism to assure compliance once the ruling is issued.

The US has been unfairly locked out of the European beef market for more than 10 years by a thinly veiled trade barrier commonly referred to as the EU hormone ban. During the past decade, the EU has not been able to cite scientifically valid reasons for the ban. The U.S. filed its formal complaint with the WTO in January 1996, claiming the beef ban was a non-tariff trade barrier. Argentina, Australia, and New Zealand joined the United States in the action while Canada filed a separate case. Canada and the United States painstakingly followed the WTO dispute settlement process for three and one-half years before retaliation finally began on July 29, 1999. Negotiations continue.

The objective of U.S. the beef industry has always been to re-gain access to the European beef market, not retaliation. No one wins trade wars and that the US beef industry preference is for access. All we ask is for Europe to give their consumers a choice. The industry has agreed to label US beef as a "product of the US" or as "USDA inspected and approved" as negotiating alternatives with no success. The same issues will be raised regarding BT corn, or Roundup-ready soybeans and other technologies that that have been proven safe.

The European response raises the question, "what do we do with a country that has agreed to a set of rules on trade, refuses to live by them, but expects other countries to comply?" If Europe continues to thumb their nose at this science based process, the whole WTO may be in jeopardy of losing its credibility.

Many U.S. cattlemen have a perception that the EU is undermining the current system and has perfected the stall and delay tactic with immunity. Many are asking why the U.S. continues to participate in a system that does not provide a clear and prompt resolution to trade disputes. This growing loss of confidence and increasing distrust has resulted in declining grassroots support for trade and trade negotiations in general.

WTO Dispute Settlement Process Modification: Shortening the WTO dispute settlement process or providing for a mechanism that allows the winning party to be compensated while the losing party delays implementation may be alternatives. Perhaps some type of escrow account or bonding requirement could be established so the defending party would begin paying when the initial ruling is made. Alternatively, the amount of injury could be established at the time that the "reasonable period" is determined with the amount of injury dependant on the length of time it takes for the losing party to come into compliance.

Under the current system, compensation or retaliation only starts once the entire process is completed and the injured party is not reimbursed for losses incurred during or prior to the case. There is no incentive for early settlement by the losing party. In fact, the current system rewards blatant stall and delay tactics. The problem tends to be more with the current dispute settlement process because the losing party only has to pay for future losses and the payments won't begin as long as the process can be strung out.

Another alternative supported by the beef industry and others is for the retaliation list to be revised periodically — often referred to as carousel retaliation. Under the current system, the countries and the commodities that are not affected by retaliation breathe a sigh of relief and there is no further political pressure from these entities for change. If the list of affected commodities were subject to change on a random basis no countries or commodities would be exempt with certainty. Uncertainty would continue to generate pressure from all parties for changing regulations to come into compliance with the WTO ruling.

A Clear Plan: It is clear that Congress and the Administration do not have a unified strategy to systematically attack the trade problems of US agriculture as part of the upcoming negotiations. The inability to secure approval of "fast track" continued negotiating authority prior to the Seattle Ministerial meeting is testimony to this void. Agricultural producers are justifiably concerned about sending a team to the negotiating table that has a more consistent track record of in-fighting among Congressional and Administrative ranks rather than engaging the opposition.

The U.S. must hold its trading partners to commitments agreed to in previous trade agreements or risk losing public support for additional trade negotiation authority. Without fast track authority, the U.S. will lose the initiative in gaining access to emerging markets and enforcing existing trade agreements.

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 U.S. addresses other trade issues, including accession of China to the WTO and approving legislation to provide authority for negotiating additional trade agreements. Thank you for the opportunity to present this information.