May 23, 2001, Wednesday
CAPITOL HILL HEARING TESTIMONY
COMMITTEE: HOUSE AGRICULTURE

TESTIMONY-BY: NEAL FISHER, ADMINISTRATOR OF THE NORTH DAKOTA WHEAT COMMISSION

May 23, 2001
Statement of Neal Fisher
Administrator of the North Dakota Wheat Commission
Before the United States House of Representatives Committee on Agriculture

Thank you Chairman and members of the Committee for the opportunity to appear before you today. My name is Neal Fisher, and my family has a farming and ranching operation in Kidder County, North Dakota, where we raise cattle, wheat and other small grains. I am also the Administrator of the North Dakota Wheat Commission, an entirely producer-controlled organization which represents over l950 North Dakota wheat producers. The North Dakota Wheat Commission was established in 1959 for the purpose of promoting, aiding and developing the orderly marketing and processing of North Dakota wheat. Today, it works to expand worldwide use of U.S. hard red spring and durum wheat through export market development, domestic promotion, research, trade and public information initiatives. And all too often, we also find it necessary to assist our producer members in defending themselves and their markets from the distortions and injury caused by unfair trading practices of some foreign competitors. In this context, this hearing is of great interest to North Dakota farmers. Agriculture is the leading revenue-producing industry in North Dakota, and wheat is the state's chief agricultural commodity. North Dakota typically ranks second in the nation in total wheat production. But more importantly, we continuously rank first in the United States in the production of hard red spring wheat and durum - growing approximately 44 percent of the nation's hard red spring wheat and 70 percent of its durum. Almost half of all U.S. wheat is exported, including more than half of the hard red spring and one-third of the durum crop. Thus, the topic of agriculture's opportunities within the world's largest potential free trade area, the Western Hemisphere, is of great interest to U.S. wheat farmers like myself At her confirmation hearing before the Senate, Secretary of Agriculture Ann Veneman correctly stated that "with 96 percent of the world's population living outside the United States, we need to expand trade and eliminate barriers to access for our products in what is an ever expanding global economy." Given the figures I just mentioned, U.S. wheat producers agree specially export dependent and our long-term survival is dependent upon there being a vibrant, open and competitive international market in which to market U.S. wheat. As an industry, U.S. wheat producers have a lot at stake in expanding trade opportunities and securing those opportunities in fairly negotiated and fairly implemented free trade agreements. I am proud to acknowledge that the North Dakota Wheat Commission, along with U.S. Wheat Associates, the Wheat Export Trade Education Committee, the National Association of Wheat Growers, and many other state wheat organizations have been at the forefront of every major trade debate facing U.S. agriculture. Our experience, awakened by the Canada-United States Free Trade Agreement ("CUSTA") and forged in the bilateral disputes with Canada since 1999, dictates that farmers must remain deeply involved in the development and implementation of U.S. trade policy. We see trade and trade negotiations as dynamic elements of U.S. farm policy. We further believe that it is imperative that we revisit and correct the inequities in the CUSTA and the North America Free Trade Agreement ("NAFTA") as we complete the negotiations for the Free Trade Agreement of the Americas ("FTAA") and move into the next round of multilateral negotiations in Geneva. The United States and Canada are the world's largest wheat exporters. On average, U.S. production of spring wheat at 506 million bushels annually is nearly double the amount used domestically for food, seed and residual purposes. U.S. production of durum averages just over 110 million bushels annually and has outpaced domestic use in all but one of the last ten years. While Canada is a major wheat producer, its domestic market is relatively small. Thus, with its vast quantity of wheat available for export, it has become the acknowledged price setter for wheat in the international market. This places the Canadian Wheat Board in a unique position to inflict injury on foreign competitors who cannot discipline the process in a meaningful way by exporting to Canada. And, the Canadian Wheat Board is a government-sanctioned state trading enterprise, or "STE", which has total control over the export of western Canadian wheat. With a small home market, the main impact of the Canadian Wheat Board's marketing practices is felt in the United States and in other third country wheat markets around the world in which the Board is active. And I am here today to testify that the impact of the Canadian Wheat Board on the average U.S. wheat farmer has been drastically negative. Our problems with the Canadian Wheat Board date back to the negotiations for the CUSTA which did not adequately address the practices of a state-supported monopoly export board and their impact on U.S. producers. Wheat farmers in North Dakota have been particularly vulnerable to these practices not only because we live along the border with Canada, but also because we produce specialty wheats for the same export markets as does Canada. The wheat belt for hard red spring and durum wheats does not recognize the U.S.-Canada border. Since the implementation of the CUSTA in 1989 and the North American Free Trade Agreement in 1994, the tensions across the border over wheat trade have worsened. As the world's largest single wheat exporting entity, the Canadian Wheat Board's monopoly actions distort world grain trade and deflate world wheat prices. Aspects of those unfair practices are not just persistent, but actually growing despite NAFTA. Canada's unfair trade practices have reduced returns to U.S. producers, and as a result have raised U.S. taxpayer outlays in the form of larger loan deficiency payments and emergency government assistance payments. The unfair and market distorting practices of the Canadian Wheat Board which have continued unabated for over a decade have caused a crisis in U.S. wheat trade and are beginning to reduce the once standard support of major factions of U.S. wheat organizations for further agricultural trade liberalization. The United States and Canada compete for world wheat markets in fundamentally different ways. To provide a brief background, these differences led to increased friction over the past decade. As a result, there have been numerous negotiations, a 1994 trade action, and several U.S. government studies and investigations. All have repeatedly recognized an ongoing trade problem concerning the Canadian wheat trade. These actions have consistently found that the Canadian Wheat Board restricts competition, and as a state trading enterprise distorts trade. The Board has argued that these past investigations have purportedly not found any evidence to support the claims of unfair activities by Canada. Nothing, could be further from the truth. In reality, the General Accounting Office, International Trade Commission, Department of Commerce, and even the WTO have tried to get information on the Canadian Wheat Board. But, they have been rebuffed and never able to get sufficient data to reach final conclusions. Lack of transparency makes information about the Canadian Wheat Board almost impossible to obtain, even for its own farmers. We do know that the Canadian Wheat Board is more than a "farmers' marketing agency." It has been given monopoly authority under federal legislation which allows it to control the marketing and sale of wheat. It boasts on its web site that it's "the only game in town" and has publicly admitted that it has the ability to charge different prices in various export markets as part of its export strategy. It uses this policy of international price discrimination to hurt both the domestic and export sales by U.S. growers. Despite the best efforts of the U.S. wheat industry, and more importantly, many members of Congress -- no previous case, investigation or temporary settlement has addressed the fundamental problem of the Canadian Wheat Board: its existence and operation as a monopoly marketing board, especially in a free trade area. Indeed, the Canadian Wheat Board is the largest such entity in the world, controlling annual revenues of some $4.4 billion. Past investigations have never vindicated the Board's activities; instead they have led us inevitably to the moment of truth. Can U.S. and Canadian wheat farmers continue to co-exist in a market where one country's farmers compete in a free market, while the farmers of the other country hunger for the right and freedom to sel wheat on the open market but are forced to turn it over to a government-sanctioned and financed monopoly marketing board? U.S. wheat producers say no. What legitimate role can there be for such an entity at this point in time? U.S. producers are concluding that the answer is none. To allow the Canadian Wheat Board to market wheat in the free trade area created by the CUSTA and expanded in the NAFTA, under its current structure, is inappropriate. As evidenced in the World Trade Organization ("WTO") negotiating positions tabled over the last year in Geneva, the world trading system can no longer tolerate the unfair trade practices of state-trading enterprises, among which the Canadian Wheat Board stands out as one of the most egregious examples. In its July 2000 negotiating proposal to the WTO, the U.S. identified the power of exporting STEs to maintain sole control over the export supply of wheat from their countries combined with their ability to price discriminate among wheat buyers as a de facto export subsidy. In addition to identifying the problem, the U.S. negotiating proposal includes a specific "get tough" framework for dealing with STEs like the Canadian Wheat Board in the WTO negotiations in agriculture. In January 2001, Argentina, Brazil, Paraguay, Uruguay, Chile and Colombia submitted their proposal urging "that, as part of the agricultural negotiations, Members agree to discipline the activities of governmental and non-governmental enterprises and marketing boards which benefit from monopoly import/export rights, with a view to avoiding distorting effects on the market." The European Communities has also submitted a proposal on export competition to the WTO that is extremely critical of STEs. The EC proposal recognizes the current inequity among exporters in the world agriculture market, stating "that there is an urgent need for a more level playing field in export competition since the current provision of the WTO Agreement on Agriculture fully cover only one of the means of support to exports, namely export subsidies." To illustrate this further, the EC notes, "single desk exporters (enterprises with responsibility for domestic and export sales) account for large shares of world trade in certain products: about 40 percent for wheat. ..." Their "'exclusive or special rights or privileges' confer to STEs considerable market power, which can result in unfair competition against other world market traders, STEs can distort trade in several ways and, as a result, they can circumvent the export subsidy disciplines and commitments of the Uruguay Round Agreement on Agriculture." The EC concludes its argument on STEs by saying, "Three highly trade-distorting practices of STEs, i.e., cross subsidization, price discrimination, and price pooling, can be identified as 'hidden' export subsidies." I submit to this Committee that clearly, by its own admission, and from the evidence of past U.S. government investigations, and evidence already presented in the current U.S. Trade Representative's Section 3Ol investigation, the Canadian Wheat Board engages in such export subsidy equivalents. The North Dakota Wheat Commission applauds our government's "get tough" attitude and we agree and support the need for reform in the next round of WTO negotiations. However, there is one major problem, that solution is at best several years away and many of our farmers will not last that long. Action is needed now. Progress and reform of the international wheat market was steady throughout the 1990s, with the notable exception of the Canadian Wheat Board. In 1990, 90 percent of all international wheat purchases were made by governments. That figure is now about 40 percent, and falling. Brazil, Egypt, and even Yemen and Algeria allow at least some private buying. Government-sponsored export monopolies have also declined, with Argentina eliminating its grain boards and South Africa going cold turkey by killing off all its 24 commodity boards. I find it ironic that when allowed to enter the WTO, China will have agreed to more disciplines on its STEs, including the introduction of private-sector imports, than Canada - our major trading partner - has ever entertained. The Canadian Wheat Board has, in the past decade, maintained the facade that its increased exports of wheat to the United States are the direct result of "normal" market forces, and that it does not have the incentive or ability to engage in predatory conduct and market distortion. This line of argument is patently false, and no economic data support it. Even many Canadian wheat growers acknowledge that the Board is not market driven, and have long argued that it should be eradicated or at least subject to market competition. Unfortunately, Canadian farmers have no choice. The Canadian Wheat Board's mandate was originally supply management to the Canadian Government and selling farmers' wheat and barley. However, that mandate has been lost as the Board has increasingly shifted its mission to the self-serving protection of itself and the status quo. In essence, it has become the center of domestic farm policy in Canada. According to one Canadian source, the Canadian Wheat Board is now "dedicated to the cause of single desk selling, pooling and government guarantees. These are its principles - its 'pillars,' as it calls them - and the Canadian Wheat Board will do anything to defend them." As the members of this Committee are aware, on September 8, 2000, the North Dakota Wheat Commission filed a petition under Section 301 of the Trade Act of1974 to seek relief for U.S. wheat growers from trade distorting policies and practices of the Canadian Wheat Board and the Government of Canada. The Section 301 trade action represents a decade of frustration by U.S. wheat farmers who know, day in and day out, that Canada is not being a fair trading partner. Further, the Section 301 trade action is a complement to the U.S. wheat industry's overall trade priorities for the negotiations underway in the World Trade Organization. This case and its outcome may provide our last best opportunity to negotiate a comprehensive and lasting settlement with Canada with respect to its exports of wheat to the United States and third country markets. Such a settlement, now, can serve as a model for solution of the unfair trading practices of export state trading enterprises in the WTO. Unfortunately, it remains unclear whether the Canadian Wheat Board will even submit the necessary data. And, there has not been a sharing of data in section 332 procedures under the auspices of a protective order. Without such sharing, the investigation will be hampered in its ability to benefit fully from the participation of the parties. We harbor no illusion that the Canadian Wheat Board or the Canadian government will alter any of their prior positions on the status and activities of the Board. Although they claim innocence, they have continuously responded by deflecting criticism and making false allegations, and by steadfastly refusing access to relevant information and hard data which would once and for all allow the U.S. government to conduct a full investigation into U.S./Canada wheat trade. If the Canadian Wheat Board truly has nothing of which to be ashamed, then Canada should have no reluctance in releasing information in a confidential manner during the current investigation. Failure of one of our major trading partners to respond to legitimate questions after tens years of repeatedly asking, should be unacceptable to the U.S. government and should result in negative inferences being drawn by the U.S. Trade Representative. I am hopeful that this Committee will fully, and vocally, support U.S. wheat farmers in the current U.S. Trade Representative's Section 3 01 investigation into the Canadian Wheat Board. We cannot allow the Board with all of its resources and immense power to again rebuff or ignore a legitimate U.S. concern in order to maintain the status quo. The language of Section 301 was intended by Congress to provide the President with "negotiating leverage" to "insure fair and equitable conditions for United States commerce" and "to eliminate barriers ... and ... distortions ... on a reciprocal basis." Congress argued that "foreign trading partners should know that the United States is willing to do business with them on a fair and free basis, but if they insist on maintaining unfair advantages, swift and certain retaliation against their commerce will occur." Should Canada again deflect this opportunity to make the Canadian Wheat Board more transparent and to cease certain trade distorting practices in a free trade area, then the language of Section 301 will allow the United States to retaliate, as necessary, to protect America's wheat farmers. The injury to U.S. farmers is significant. The loss to the Canadian Wheat Board of exports to third-country markets detailed in the Section 301 petition is a large problem - the ebb and flow of competition losses in some markets is frequently not made up by gains in others and U.S. producers see their stocks rise due to unfair Canadian Wheat Board activities which limit the ability to increase U.S. exports in large crop years. In addition, the substantial costs of bringing the necessary trade actions to respond to the Canadian Wheat Board's unfair practices are imposing great costs on farmer organizations like the North Dakota Wheat Commission that could otherwise be fully devoted to growing the market and supporting trade enhancement measures like the FTAA. After ten years of grappling with this issue, we need your help and support. Mr. Zoellick needs to hear your voice and understand that U.S. wheat farmers need a resolution of this matter. With strong Congressional support, this investigation will be aggressively pursued, and could present a significant opportunity to reach a solution that provides short-term relief for wheat farmers, and a longer term solution to the problem of a state-run monopoly operating in a free trade area and distorting international trade. I have attached to my written statement, submitted to the Committee for the record, a brief outline of proposed remedies to resolve the unfair activities of the Canadian Wheat Board and certain recommendations as to the negotiating objectives of the U.S. Government. We feel that the proposed remedies are fair and, in essence, put forth objectives and goals that this Committee and Congress as a whole can support. Wheat farmers are not asking for any advantage, we simply want a level playing field, and insisting that the Canadian Wheat Board operate in a fully transparent manner under commercial terms in competition with other exporters of grain and to allow full market access for U.S. wheat in Canada shall go a long way in creating market equality. The North Dakota Wheat Commission appreciates the position of U.S. millers concerning state trading enterprises, and in supporting the U.S. commitment to impose discipline on monopoly STEs under the WTO. Both the National Association of Millers and the North American Export Grain Association have expressed concern over the market distortions which inevitably result given the legislative protection from competitive discipline enjoyed by the Canadian Wheat Board, and that STEs must be forced to accept a larger exposure to competitive market forces. But, again, the WTO negotiations may come too late to be of real value to U.S. wheat producers being damaged by Canada's government grain marketing monopoly. And the irony, if nothing is done, is that U.S. processors and exporters will continue to become increasingly dependent upon a foreign government monopoly for the supply of their principal raw material. I would like to note that the proposed remedies being sought in the current Section 301 investigation will not create any supply shortages for U.S. domestic millers, pasta manufactures or grain exporters. The tariff rate quotas we are suggesting are not meant to shut down border trade. The North Dakota Wheat Commission, with its wheat allies, has focused on the longer-term goal which is the breaking up of the Canadian Wheat Board monopoly. Tariff rate quotas will help U.S. wheat farmers survive in the short- term until the longer-term goals can be achieved. If a tariff rate quota must be implemented, there will be ample domestic supply and carry-over wheat stock so that our domestic millers and exporters are not adversely affected. As such, they should be supportive of our efforts to combat the trade distorting practices and price discrimination engaged in by the Canadian Wheat Board, for resolution of this problem will also be beneficial to their efforts to obtain the highest quality wheat at lower prices once the wheat market is operating openly and freely. Over the last decade, the national wheat organizations have supported the NAFTA, annual XfFN for China, the Uruguay Round Agreement of GATT, PNTR for China, fast-track (now-Trade Promotion Authority), and continued negotiations for agricultural trade reform in the WTO. With the Canadian Wheat Board trade dispute unresolved, it becomes increasingly difficult to convince our rank and file producers how they can directly benefit from these expanded trade opportunities. We respectfully request the full support of this Committee and the entire Congress in our Section 301 investigation and its successful outcome. Our future Res in the expansion of export market opportunities and fair competition for those opportunities. However, before achievement of the Free Trade Area of the Americas, we must revisit and fix the inequities in the Canada-United States Free Trade Agreement and the NAFTA and address continuing trade distorting practices. Expanding the free trade area in which the Canadian Wheat Board can act, without addressing its monopoly position would be folly. I thank you for the opportunity to testify before you today. I look forward to answering any questions you may have on this important agricultural trade issue.

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