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

TESTIMONY-BY: COALITION FOR SUGAR REFORM

MAY 23, 2001
STATEMENT OF THE COALITION FOR SUGAR REFORM
BEFORE THE COMMITTEE ON AGRICULTURE, U.S. HOUSE OF REPRESENTATIVES
REGARDING AGRICULTURAL TRADE IN THE WESTERN HEMISPHERE

We appreciate the opportunity to present testimony before the Committee on Agriculture to discuss the implications of the proposed Free Trade Area of the Americas to American sugar consumers. The Coalition for Sugar Reform is an umbrella organization representing some 20 U.S. trade associations, consumer and environmental groups, businesses and taxpayer advocates united in their belief that the U.S. sugar program should be fundamentally reformed. The Coalition commends the Committee for holding this hearing. We cannot emphasize strongly enough the vital importance of increased U.S. market access for sugar to the Administration's overall goal of lowering trade barriers and increasing the level of trade in goods and services in the Western Hemisphere. Simply stated, maintaining the archaic U.S. 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. Through the Free Trade Area of the Americas, we have a unique opportunity to continue the extraordinary period of trade expansion that began with the completion of NAFTA and the Uruguay Round in 1993 and has continued through last summer's approval of Permanent Normal Trade Relations. By any measure, markets around the world are far more open than they were a decade ago, thanks to U.S. leadership. Under the new Bush Administration, we are poised to continue that record of trade expansion through the conclusion of a successful FTAA. However, the inconsistency in the U.S. position created by our domestic sugar program has the potential to jeopardize these future negotiations and will certainly not engender good will from our Latin American neighbors. 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 Agriculture Secretary Ann Veneman recently stated, Expanding trade is the President's top priority for U.S. agriculture. With 96 percent of the world's population living outside the United States, the world market is essential to the future of the American food chain. Nearly one-half of our annual production of wheat and rice, one-third of our soybeans, one-fifth of our corn and two-fifths of our cotton are sold overseas. In addition, we are exporting growing quantities of grains and oilseeds through meat exports, and an increasing volume of other high-value products. Agricultural trade barriers and production-distorting subsidies continue to inflict heavy costs on consumers, producers, and exporters around the world. Recent analysis by USDA's Economic Research Service shows the average global tariff on agricultural products is over 60 percent, compared to about 12 percent for products coming into the United States. Clearly, the U.S. has much to gain from further reform. As trade barriers continue to fall, exports to our NAFTA partners are growing faster than those to other regions of the world. That's why we will continue to work toward regional trade agreements, such as the FTAA. 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 benefited 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. We 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. 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 percent worldwide for agricultural products. TRQs have created some access for imports, but continue to maintain restrictive conditions. The European Union continues to employ 90 percent 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, in recent years every U.S. official has made it crystal clear that a primary goal for the United States in any future trade negotiation was agriculture trade liberalization. Our ambitious objectives are set forth clearly in the "Proposal for Comprehensive Long Term Agricultural Trade Reform" submitted in Geneva last year. 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." There is no doubting the commitment of Congress and this Administration 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 an ambitious list of liberalization objectives. Because the playing field is not currently level, the United States will 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. Against this backdrop, it is quite clear 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 some what 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 percent of its sugar, this contrasts sharply with the 40 percent market share that foreign sugar had in the U.S. market before the current sugar program was put in place in 1981. 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 continues to argue that the decline of the world price of sugar in recent years 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 recently 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. There are few issues, if any, that matter to more developing nations - many included in the Free Trade Area of the Americas - 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, Brazil and Chile. But, it is the highest priority for some of the smallest, struggling economies in our hemisphere: Colombia, Costa Rica, El Salvador, Guatemala, 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. 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. We submit that no one who shops for groceries will take this claim seriously. Our food manufacturers and grocers are intensely competitive, as anyone who compares prices and uses coupons can tell you. The Coalition for Sugar Reform hopes this hearing marks the beginning of a serious discussion of the myriad costs of the archaic U. S. sugar program in the context of future international trade negotiations. Every nation has its sensitive commodities, and sugar is plainly one of ours. But when one sensitive commodity - produced by relatively few growers - is vitally important to the economic well-being of so many other nations in our own hemisphere, it can cause a major imbalance in the international trading system. Reform of the U.S. sugar program would provide a vital boost to the economies of many poor and developing nations in the Western Hemisphere. At the same time, such reform would clearly be a major catalyst in expanding export opportunities for American producers of grains, oilseeds, cotton, meat, processed foods and value-added agricultural products.

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