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Congressional Testimony
May 10, 2000, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 6787 words
HEADLINE:
TESTIMONY May 10, 2000 NICHOLAS D. GIORDANO INTERNATIONAL TRADE COUNSEL NATIONAL
PARK PRODUCERS COUNCIL HOUSE INTERNATIONAL RELATIONS GRANTING
PERMANENT NORMAL TRADE RELATIONS (NTR) STATUS TO CHINA: IS IT IN THE US NATIONAL
INTEREST?
BODY:
National Pork Producers Council
Testimony of Nicholas D. Giordano International Trade Counsel National Pork
Producers Council Before The House International Relations Committee On GRANTING
PERMANENT NORMAL TRADE RELATIONS (NTR) STATUS TO CHINA: IS IT IN THE U.S.
NATIONAL INTEREST? May 10, 2000 Mr. Chairman and Members of the Committee: I am
Nicholas D. Giordano, International Trade Counsel for the National Pork
Producers Council. I very much appreciate the opportunity to appear here on
behalf of U.S. pork producers to express our views on granting permanent normal
trade relations (PNTR) to China. The National Pork Producers
Council is a national association representing 44 affiliated states that
annually generate approximately $11 billion in farm gate sales (although farm
gate sales were reduced to $8.6 billion in 1999 as a result of record low hog
prices). According to an Iowa State study conducted by Otto and Lawrence, the
U.S. pork industry supports an estimated 600,000 domestic jobs and generates
more than $64 billion annually in total economic activity. With 10,988,850
litters being fed out annually, U.S. pork producers consume 1.065 billion
bushels of corn valued at $2.558 billion. Feed supplements and additives
represent another $2.522 billion of purchased inputs from U.S. suppliers which
help support U.S. soybean prices, the U.S. soybean processing industry, local
elevators and transportation services based in rural areas. The National Pork
Producers Council is the co-chair of the Agriculture Coalition for U.S.-China
Trade. This coalition of over 80 organizations is comprised of organizations
that represent farmers and ranchers, food and agriculture companies, and
producers of the tools of agricultural production, in all 50 states (List of
Coalition: Attachment 1). U.S. Agriculture Strongly Supports China's Accession
to the WTO The concessions made by China to the United States in its quest to
become a member of the World Trade Organization are sensational news for U.S.
farmers and ranchers. We commend Ambassador Barshefsky and Secretary Glickman,
and their hard- working staffs. We also acknowledge the efforts of many members
of this subcommittee. Together, you have hit a grand slam home run giving U.S.
agriculture access to an enormous market. This agreement means larger profits
for U.S. farmers and ranchers and stronger rural economies in the United States.
Most sectors of U.S. agriculture have suffered from very low prices during the
past few years. Pork producers just came through a period with the lowest hog
prices ever in real terms. As President Clinton, Secretary Glickman, and many
members of Congress have pointed out, U.S. agriculture is missing out on the
longest period of economic growth and prosperity in our nation's history. For
U.S. agriculture, the importance of consummating this deal with China and
getting China quickly into the WTO cannot be overstated. The United States
Department of Agriculture estimates that the U.S.-China WTO accession agreement
could add about $1.6 billion annually to U.S. agricultural exports of bulk
commodities such as grains, oilseeds and products, and cotton by 2005. U.S.
export gains could approach $2 billion as the Chinese reduce their tariffs on
high value-added products, such as poultry, pork, beef, citrus and other fruits,
vegetables, tree nuts, and forest and fish products. While the United States
gains access to its growing market, China does not gain any greater access to
the U.S. market under the negotiated agreement, making it a win-win for American
agriculture. As discussed in more detail below, even now, China is implementing
the 1999 Agreement on U.S.- China Agricultural Cooperation, and bringing U.S.
meat, wheat, and citrus products into China. As part of it WTO negotiations with
the United States, China agreed to slash tariffs on many food and agricultural
products, as well as for the tools of agricultural production. Indeed, the
tariffs agreed to by China for many of these products are much lower than the
corresponding tariffs in countries such as Japan and Korea. The agreement also
will obligate China to reform its monopoly state purchasing agencies, eliminate
scientifically unjustified sanitary and phytosanitary barriers, and provide
strong provisions against unfair trade and import surges. It requires China to
stop the subsidization of exports, which is a huge concession given the
vociferous opposition we face from the European Union when it comes to the
elimination of agricultural export subsidies. Finally, WTO membership will
require China to play by the same rules and disciplines of the multilateral
trading system as the United States. The United States will have recourse to WTO
dispute settlement mechanisms should China not live up to any of its
obligations, an avenue of recourse we currently do not have. Tariffs China's
agricultural tariffs will fall from an average of 3 1 % to 14% for our priority
items. All cuts occur over a maximum of four years, and will be bound at the
applied levels. To cite a few examples: Current Level Under the Agreement Beef
45% 12% Pork 20% 12% Poultry 20% 10% Citrus 40% 12% Grapes 40% 13% Apples30%10%
Cheese 50% 12% Crayfish 30% 15% Lobster 30% 15% Wine 65% 20% Beer 70% 0%
Tariff-rate quotas (TRQs) -- China will liberalize its purchase of key bulk
agricultural commodities like wheat, corn, rice, cotton and soybean oil, through
tariff-rate quotas - that is, application of very low tariffs (1% for bulk
commodities) on a set volume of commodities. Included in this portion of the
agreement were provisions to maximize the likelihood that these TRQs are filled.
In particular, a portion of each TRQ is reserved for importation through private
traders, and TRQs which have not been filled by a set date will be redistributed
to other end- users with an interest in importing on a first-come, first-served
basis. Export Subsidies China will eliminate agricultural export subsidies. This
is an important achievement in its own right, and a step toward our goal of
totally eliminating export subsidies worldwide. Domestic Support -- China has
committed to cap and reduce trade- distorting domestic subsidies. China also
committed to provide greater transparency to make its domestic support measures
more predictable. Sanitary & Phytosanitary Standards -- China will agree to
apply sanitary and phytosanitary standards based on science. Among other things,
this will give us additional means of enforcing the Agreement on Agricultural
Cooperation and its commitment to lift longstanding bans on American meats,
citrus fruit and Pacific Northwest wheat. Overall, this agreement is
comprehensive, it is enforceable and it levels the playing field in our favor.
In order to realize the benefits of this agreement, the Congress must vote for
permanent normal trade relations for China. If the United States fails to
provide permanent normal trade status to China - which is not special treatment
but the same status that the U.S. provides to other WTO members -- China would
have a right to withhold the benefits of key WTO commitments from the United
States. In such case the U.S. will be greatly disadvantaged as our trading
partners enjoy the benefits of China's entry to the WTO while we are left on the
outside looking in. Danish pork producers, Australian beef producers, Canadian
wheat producers, French poultry producers, Brazilian soybean producers, and
Argentine corn producers ironically would reap the gains from America's
leadership in negotiating strong commercial WTO accession terms. China Presents
Great Opportunity for U.S. Pork Producers The pork package negotiated by the
United States with China has the potential, if fully and fairly implemented, to
transform China into the single greatest export opportunity for U.S. pork
producers. Currently, China has a de facto ban on pork imports. China blocks
pork imports through a system of high tariffs, restrictive import licensing and
distribution practices, and complicated and arbitrary sanitary requirements.
Under the terms of the U.S. - China WTO agreement, China will, upon WTO
accession, phase out its restrictive import and distribution procedures, lower
tariffs on pork, and cut subsidies. Under the terms of a separate bilateral
sanitary agreement negotiated with the U.S., the U.S.- China Agriculture
Cooperation Agreement, China agreed to accept pork from any Food Safety and
Inspection Service (FSIS) approved packing plant. Indeed, after China published
rules concerning the Cooperation Agreement in late March 2000, a Shanghai
retailer in early April imported the first "official" shipment of pork from the
U.S. pursuant to the Cooperation agreement. While the recent shipment of pork to
the Shanghai retailer is significant, China must join the WTO and Congress must
provide China the same status provided to other WTO members - permanent normal
trade relations -- in order to create opportunity for significant volumes of
U.S. pork to move to China. China has an extraordinary per capita consumption of
pork given its level of per capita of income. Simply put, people in China love
to consume pork. One of the most striking things about Chinese consumption
habits is that the parts of the animal least favored by U.S. consumers are those
which are most in demand by Chinese consumers. The internal and reproductive
organs of pigs, what we refer to as "offals" or "variety meats," sell for more
than the muscle meat cuts that we consume in large quantities here such as the
loin and the ham. This is why most of the pork imports smuggled into China today
are feet, stomachs, kidneys, hearts, tongues, ears, and bungs. The important
point here is that the U.S. can add value to existing animal carcasses without
increasing muscle meat prices for the U.S. consumer. According to Professor
Dermot Hayes, an Iowa State economist, the Chinese market, if fully opened to
U.S. 12ork variety meats, would add about $5 per head to each of the 100 million
hogs that we slaughter each year. Over time, China also will become a
significant pork muscle meat importing country. U.S. exports of hams, shoulders,
ribs, and bellies will become more competitive as muscle meat prices in China
begin to rise. Muscle meat prices will rise as backyard farmers migrate to
higher paying jobs and as feed grain prices in China increase. While China is
the world's largest producer of pork, 85 percent of its pork comes from backyard
producers. As incomes continue to rise and consumers demand higher quality pork
and more of it, as well as more beef, poultry, dairy and alcohol products,
commercial production of pork in China will become increasingly costly. This is
because China must achieve this growth in consumption with only 9 percent of the
world's arable land. According to FAO data, China must feed 13.0 people for each
hectare of arable land, whereas Europe must feed 4.1 people, and the United
States must feed only 1.4 people. China is moving from having mid-western U.S.
type corn prices to having Taiwanese and Japanese type corn prices. An important
choice must be made, China must either import feed grains or livestock products
to achieve consumer diets similar to those of the developed world. China is
making the right choice in opening its market to meat imports. Meat should be
produced in grain surplus countries not in grain deficit countries. Countries
that import feed grains must pay a premium over world market prices and feed
grains constitute over 60 percent of the cost of raising hogs. Pork producers in
Japan and Taiwan pay approximately double the amount paid for feed by a Nebraska
pork producer. Thus, China apparently wants to avoid the mistakes made by Japan,
South Korea, and Taiwan. The cost of producing pork in commercial enterprises in
China currently is higher than the cost of producing pork in the United States.
By virtue of the subsidies provided to its pork industry, China has been able to
suppress the demand for imported pork smuggled into the country and maintain its
ability to export pork. If China were to continue to block pork imports and,
instead tried to keep pace with expanding domestic demand through domestic
production, Chinese pork prices would be much higher than would otherwise be the
case. Further, Chinese subsidies and investment in agriculture would keep
capital from flowing to more efficient and remunerative uses. The costs of this
misallocation would increase over time as China tried to extract more and more
pork from a limited source of supply. In time, China, like Japan and Korea,
would be forced to import pork to reduce prices. 4 China Has Implemented the
Bilateral Agriculture Cooperation Agreement In 1999, the U.S. and China signed a
bilateral agreement concerning meat and poultry, wheat, and citrus. The
agreement addresses important sanitary and phytosanitary issues. U.S.
agriculture strongly supports the agreement. Pork The bilateral Agriculture
Cooperation agreement provides that Chinese importers can import pork, beef, and
poultry from any federally inspected U.S. pork plant. This is an extremely
important agreement for the U.S. meat and poultry industries. While most of our
trading partners accept the USDA inspection certificate as the gold standard,
which it is, some countries, such as the European Union, do not accept the USDA
certification. Safe, high-quality U.S. pork is virtually barred from the
European Union due to bogus sanitary barriers and the refusal of the EU to
provide equivalence to our exports and our inspection system. Most of the U.S.
pork that enters China continues to move through the black market. However, some
official trade is taking place and, in keeping with its commitments under the
bilateral Cooperation Agreement, China is honoring the U.S. export certificates.
Wheat With respect to wheat, the National Association of Wheat Growers, the
Wheat Export Trade Education Committee, and US Wheat Associates make the
following joint statement: In April of 1999, Prime Minister Zhu Rongj I
announced China's intention to lift its long- standing restrictions on the
export of U.S. wheat from areas where TCK is known to occur. This agreement
allows U.S. wheat to be exported from any state or any U.S. port to any Chinese
port as long as these imports do not exceed a tolerance level of 30,000 TCK
spores per 50-gram sample. This level can easily be met by U.S. wheat exporters
while acknowledging China's concerns about this disease. Through the
encouragement of the Congress, the Administration and the U.S. wheat industry
the Chinese have now fully implemented this agreement, which represents a sign
of good faith towards their WTO commitments. As a further sign of China's
willingness to resolve any concerns over their desire to implement the
agreements a purchase of 50,000 tons of U.S. wheat comprising of several
different wheat classes is scheduled to be shipped from the Pacific Northwest
this month. The complete statement of the U.S. wheat industry is attached to
this statement (Attachment II). Representatives of the U.S. beef, poultry and
citrus industries also have indicated to me that the agreement is working for
their industries. 5 Establishing Permanent Normal Trade Relations Will Give The
United States A Powerful New Tool For Enforcing U.S. Trade Rights Against China
- Binding WTO Dispute Settlement Rules In the context of China's accession to
the WTO, questions have been raised about the effectiveness of the WTO dispute
resolution mechanism, given the European Union's failure to implement the WTO's
decisions in the U.S. beef and banana cases. Regardless of the EU's actions, the
United States has been very successful in the dispute resolution process,
winning 23 of the 25 complaints that have been filed with the WTO. Although the
WTO's dispute resolution process is not perfect, it is a significant improvement
over its predecessor in the GATT. Prior to the establishment of the WTO, it
often took decades to resolve a dispute because in the GATT the losing party
could block trade retaliation indefinitely. When the U.S. beef industry took
their complaint about the EU to the GATT, their action was blocked. This problem
does not exist in the WTO. Despite European efforts to stall U.S. trade
sanctions in the beef and bananas disputes, the WTO authorized the U.S. to
impose sanctions in a timely, effective manner. The traditional stalling tactics
that were used in the GATT did not work. The USTR has imposed $166.8 million of
sanctions in the beef case and $191.4 million in the bananas case. The U.S.
government will continue to impose retaliatory sanctions against the EU until
they come into compliance with the WTO decision. Charles Schroeder, the CEO of
the National Cattlemen's Beef Association recently gave the following testimony
about this very issue before the House Ways and Means Committee: NCBA strongly
supports continued United States participation in the WTO. Based on our
experience, among the strengths of the current WTO system is the well-defined
process for initiating a dispute case and for determining the final
ruling/settlement. The current system is much improved over 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. On
the other hand, the existing system can be further improved. The primary
weakness of the current system is the absence of an enforcement mechanism to
assure compliance once a ruling is handed down. As Mr. Schroeder recognizes, no
system is perfect. However, this system is a vast improvement over previous
dispute settlement processes, and it will continue to improve through the
experiences of its members. It is far better for American agriculture if China
is a part of the WTO and is subject to these processes, than if the US
government is forced to take unilateral action against the Chinese. The Uruguay
Round constrained the scope for unilateral action under Section 301. A recent
WTO ruling further limits its usefulness by requiring the USTR to administer
Section 301 in a manner consistent with WTO rules, timetables, and procedures.
Section 301 has been used most effectively against small countries that rely on
close trade or security ties with the United States and that were not in a
position to counter- retaliate. China would likely be in a position to 6
counter-retaliate against the United States and therefore less affected by a
Section 301 action. However, it would be extremely difficult for China to
counter-retaliate against all 135 members of the WTO. A multilateral dispute
resolution system is more likely to be effective in the event of a trade dispute
with China, than the existing unilateral options. The U.S.-China WTO Agreement
Will Facilitate U.S. Agricultural Exports Which Contribute to a Positive Trade
Balance The rise in the trade deficit is caused by a combination of strong
demand from U.S. consumers and businesses for imports, weak economies abroad,
large sums of capital flowing into the U.S. economy, and U.S. trade policy. This
suggests that the rise in the trade deficit reflects U.S. prosperity and an
attractive investment climate for institutions and individuals. In the short
term, this is good for Americans. The best way to deal with the trade deficit
while minimizing capital implications is to lower barriers to foreign markets
for American agricultural products, goods and services. The agricultural trade
liberalization engendered by the Uruguay Round resulted in increased
agricultural exports. The U.S. pork industry has been a huge beneficiary of
trade liberalization. Since 1995, when the Uruguay Round Agreement went into
effect, U.S. pork exports to the world have increased by approximately 78
percent in volume terms and 76 percent in value terms from 1994 levels. This
year, the most significant step Congress can take to reduce our trade deficit is
to provide permanent normal trade relations for China. China has agreed to
substantially lower its trade barriers, while the United States gives up
nothing. This increased level of market access will allow American farmers and
ranchers to access China's 1.25 billion consumers. China's market opening
agreement to join the WTO will result in additional U.S. exports to China, not
the other way around. The United States does not have to open its market any
further to Chinese imports. China's total agricultural exports (including fish
and forestry) to the United States reached $1.8 billion in fiscal year 1999
while our exports to China amounted to $ 1.1 billion. This agricultural trade
deficit will be significantly reduced if China joins the WTO and Congress
provides PNTR for China. Indeed, the USDA export projections,
discussed in the first section of this statement, suggest that the trade deficit
with China in agricultural products will be erased. Rule Making In China Will
Become More Democratic and Transparent As the Rule of Law Takes Hold in China
The Committee has asked me to comment on the use of administrative guidance and
generally on the rule making process in China. The U.S. pork industry has no
definitive proof of the use of administrative guidance in China. However, as in
other Asian countries, the use of administrative guidance is believed to be
common. It is the opinion of the U.S. pork industry that the use of
administrative guidance concerning meat imports in China would likely be no more
pervasive than that of other Asian countries such as Korea, Japan, the
Philippines, Indonesia and Thailand. 7 -------- -- Transparency of import
regulations is an issue in China for the pork industry. We were never able to
obtain (and still don't have) written import regulations for meat imports. For
example, MOFTEC always stated that pork was not a banned import item but we knew
from verbal discussions with the China Inspection and Quarantine Agency (CIQ)
that pork could only be imported officially for hotel and processing use (and
hotel imports were discouraged through administrative guidance). As far as we
know, CIQ has never published its import regulations. Recently, things have
improved somewhat as we were able to obtain a copy of the pork import
application form directly from CIQ. Rule making in China is still opaque and
conducted with little public input. However, as China continues to dismantle
unprofitable state enterprises and continues its transformation to a market
economy, the rule making process should improve. China already has a nascent but
prosperous litigation industry with most claims dealing with financial matters.
China's leaders generally sympathize with those that can make money legally and
hold on to it. Entrepreneurs are viewed as a benefit to the economic and social
stability of the country. As trade increases, the U.S. pork industry expects the
opinions of traders and other market players to be increasingly solicited. All
indications are that China is making a serious effort to comply with WTO
obligations. The Chinese leadership views WTO as a way to advance key domestic
objectives - restructuring failing state-owned enterprises and accelerating
long-term economic growth. It recognizes WTO will require major systemic reforms
- that's why it wants to join. Conclusion If China joins the WTO and
PNTR is not approved, the rest of the world will gain access to
the Chinese market but the U.S. will be on the outside looking in. In effect,
sanctions will be placed on U.S. agricultural products that could be sold into
the Chinese market. Congress has approved NTR in recent years with increasingly
wider margins. The annual NTR votes permitted China to maintain access to our
market. Now, we have an opportunity to gain meaningful access to China's vast
market. U.S. agriculture must be given the chance to exploit this opportunity. A
vote against PNTR is a vote against U.S. agriculture. 8
LOAD-DATE: May 15, 2000, Monday
