Copyright 2000 Federal News Service, Inc.
Federal News Service
March 1, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 2384 words
HEADLINE:
PREPARED TESTIMONY OF THOMAS M. SUBER EXECUTIVE DIRECTOR U.S. DAIRY EXPORT
COUNCIL
BEFORE THE SENATE COMMITTEE ON
AGRICULTURE, NUTRITION AND FORESTRY
SUBJECT - U.S.-CHINA TRADE
AGREEMENT
BODY:
Mr. Chairman and members of
the Committee, I am Tom Suber, Executive Director of the U.S. Dairy Export
Council (USDEC). I am very pleased to appear before you today to testify on the
topic of the U.S./China trade agricultural agreement, in particular its impact
on the dairy sector.
The U.S. Dairy Export Council is a non-profit,
independent membership organization that represents the export trade interests
of U.S. milk producers, dairy cooperatives, proprietary processors, export
traders and industry suppliers. Its mission is to increase the volume and value
of U.S. dairy product exports. USDEC maintains offices in Hong Kong, Shanghai,
Mexico City, Tokyo, Seoul, London, Bangkok, Beirut and Sao Paulo to assist in
the export of U.S. dairy products worldwide.
The Council works closely
and coordinates with other dairy groups on activities of like interest. The
National Milk Producers Federation (NMPF), a national farm commodity,
organization representing dairy farmers, shares the views I am presenting to
this committee. With more than $24 billion in farm cash
receipts in 1998, the U.S. dairy industry is the second largest agricultural
commodity sector in the United States. The industry is not only large, in an
economic sense, but also geographically extensive. Dairy is one of the top three
agricultural sectors in fully half the states, and almost two- thirds of the
members of the Senate hail from one of these "dairy" states. Internationally, in
1998 the U.S. was the world's largest single country producer of cow's milk with
157 billion pounds, followed by India with 78 billion pounds.
Impressive
as those numbers are, they represent only the milk producer side of the
industry. Dairy processors add considerable value to milk after it leaves the
farm. Processors turn milk into cheese, butter, ice cream, yogurt, milk powders
and designer milk proteins that meet the needs of customers abroad. They put it
in the forms and the packages that overseas buyers demand. This further
processing adds overall strength to the industry and adds jobs to the nation's
economy. In addition, we know that our ability to increase production is
virtually unconstrained. This makes our efforts to market U.S. dairy products
for export all the more important to the industry and to the economy.
China Accession to the WTO
The U.S. dairy industry strongly
supports the WTO U.S.-China agreement and subsequently calls for Congress to
grant China Permanent Normal Trade Relations (PNTR) this year.
If we are expected to grow in export markets and support further reform in
global trade, China's accession to the WTO is certainly a necessary step toward
that end.
As outlined below, China's accession to the WTO obliges it to
reform its trading practices in numerous ways that benefit immediate and future
U.S. dairy exports. In joining the WTO, China is granting all the concessions.
No additional access to U.S. markets is provided to China beyond that which it
currently enjoys. Consequently, China's PNTR vote is critical
because if other nations ratify China's accession to the WTO and the U.S. does
not, then U.S. would forego any tariff concessions, while our competitors would
benefit from the hard- fought U.S.-China agreement.
The U.S. dairy
industry has never benefited from huge export subsidies such as those in the EU.
In fact, our dairy industry is relatively new to international trade, and such
trade is still modest in comparison to the size of the domestic market. We
export between four and five percent of our domestic milk production. This share
has been growing in recent years, but dairy export market development is a
long-term process. This reflects dairy's slow and difficult emergence
internationally, as one of the most protected and subsidized industries around
the world.
Precisely because world trade is so distorted, the China
agreement is extremely important. It provides the opportunity for greater market
access into China, but it also provides a precedent for further reform in global
trade. The U.S. dairy industry is at a disadvantage when compared to the
subsidies and tariffs of the European Union (EU), Canada, Japan and other
members of the WTO. For instance, the EU, the world's largest dairy market, is
able under its WTO commitments to impose tariffs and cumbersome allocation
procedures for import licenses that limit U.S. dairy exports. Canada, our
largest trading partner just to the north, and with whom the U.S. has concluded
three major trade agreements in the recent past, is similarly able to impose
tariffs on U.S. dairy products between 200 and 300 percent.
Export
subsidies are still very common in world dairy trade. The WTO agriculture
agreement will still permit almost 60 percent of projected dairy world trade to
be subsidized when the agreement is fully phased in later this year. The
distribution of these subsidy allowances is highly skewed. On a milk equivalent
basis, the EU accounts for fully 72 percent of these subsidy allowances; the
U.S., which produces more than half as much milk as the fifteen nations of the
EU, accounts for just three percent of them.
The China agreement offers
an invaluable opportunity to continue the reform in the WTO. By entering the
WTO, China is making significant concessions, in particular export subsidies and
tariffs. Ideally, China would like to see the elimination of export subsidies
and the reduction of tariffs within the WTO negotiations. Therefore, having
China in the WTO will likely help the U.S. in pressuring countries like the EU
and others to eliminate export subsidies and increase market access. China's
integration to the WTO would also obligate China to play by the rules or be
subject to the WTO's dispute settlement process. The U.S. will no longer be
alone in combating and preventing unfair practices by China. Having China in a
system of rules and disciplines is to the short and longterm benefit of the
United States.
The U.S.-China Agreement
Once China's accession
to the WTO is fully implemented, tariffs for key dairy products will be cut as
much as five-fold, making imported dairy products less expensive to Chinese
consumers.
Key elements of U.S. - China bilateral agreement to join the
WTO
General
- China, not the U.S., is granting tariff
concessions.
- Existing Chinese exports to the U.S., agricultural or
otherwise, do not benefit from this agreement.
- Without U.S.
action, other countries will gain these tariff concessions, not the U.S.
Tariffs* Current Tariff (%) Tariff after five years (%)
Fresh
cheese 50 12 Grated/Powdered Cheese 50 12 Processed Cheese 50 12 Yogurt 50 10
Lactose 35 10 Ice Cream 45 19 Other Food Preparation 25 10 (e.g. infant formula)
*Tariffs reduced to this level over five years in equal increments, upon
China's entry into the WTO.
Unlike other commodities, dairy products are
not subject to Tariff Rate Quotas (TRQ) under this agreement. In addition, other
commodities remain subject to certain State Trading import controls or sanitary
issues. In the case of dairy, neither Chinese State enterprises nor sanitary
issues have prevented sales of dairy products in their market. Therefore, this
agreement ensures that the only obstacle to trade in dairy products between
China and the U.S. will remain solely tariffs.
Export Subsidies
China will eliminate export subsidies for agricultural products once it
joins the WTO. This will provide significant momentum to our effort to seek the
elimination of all export subsidies during the current WTO talks. In fact, China
can become a vital partner in the U.S. efforts to eliminate export subsidies.
Dispute Settlement
Like all WTO members, upon joining China will
be subject to binding resolution of trade disputes.
Distribution Rights
Current Chinese practices often limit the number of companies permitted
to import dairy and other food products. This agreement will permit any entity
to import dairy products, ln addition, over a three- year transition period,
non-Chinese companies will be permitted to engage in full distribution services,
which will likely accelerate this sector's efficiency and lower consumer costs.
Market Potential & Competitiveness
Because of China's
isolation and import barriers, and because large sectors of the population are
relatively poor, dairy consumption in China is among the lowest in the world.
However, this is a market in transition, and as such, offers tremendous
potential to expand dairy consumption.
Currently, our largest dairy
market is for feed ingredients, not for human use. China is the world's largest
importer of whey products, which it uses primarily for pig feed. Though
considered a cheese by- product, whey sales increase plant productivity and
profitability, while also increasing the pressure on prices paid for milk made
into cheese. The United States is the largest single country supplier of whey to
China, with a market share of about 30 percent.
Since the United States
exports more than 40 percent of the whey it produces, it is essential that we
continue to build on the market share we have already won. Since 1995, U.S.
exports of whey proteins to China have grown by 32 percent.
Likewise,
China is currently the largest importer of lactose products. The U.S. is the
second largest supplier with a share of 18 percent, closely behind the EU's 22
percent share. Since 1995, U.S. exports of lactose to China have grown by 86
percent, despite an excessively high tariff of 35 percent. The United States
exports more than 50 percent of the lactose it produces.
Cheese
production in the United States has shown a remarkable growth in the last decade
and will continue to expand rapidly. With the increased production of cheese,
manufacturing of by-products like whey and lactose will become even more
prominent.
Meanwhile, as socio-economic changes take place in China, per
capita dairy consumption is increasing. Urbanization, nutritional awareness,
Westernization of diets, income growth, and product availability all have an
affect on imports. Although the consumption of conventional dairy products such
as cheese and ice cream is limited to several concentrated regions, the
proliferation of fast-food chains is changing the consumption patterns of a
nation.
The fast-food industry in China is poised for tremendous growth.
Pizza, cheese singles, yogurts and ice cream have been driving forces behind
China's increase sales of dairy products. We have confidence that the
prospective new lower tariffs will make these dairy products more affordable to
Chinese consumers, opening the door for U.S. exporters to supply the world's
most populous market.The tariffs described earlier will apply to all WTO
countries, yet the agreement puts the U.S. in a great position to compete for
the Chinese market.
- The cheese categories mentioned earlier all are
areas where we are competitive.
- Shipments of lactose - another
by-product of cheesemaking - have recently grown considerably and would only
accelerate with a tariff reduction. In addition, through our office in China,
USDEC is working with the Chinese feed industry to obtain a faster phase-in
period than 2004. However, that has no chance of success unless this agreement
is ratified.
- Ice cream, frozen yogurt (included under the yogurt
category) and infant formula all have competitive capabilities in the market.
- In addition, the calcium-deficient diet in China has resulted in
additional opportunities for high-value dairy ingredients such as milk minerals.
Exports of U.S. milk minerals to China, almost non-existent two years ago are
estimated at $300,000 today.
USDEC in-country
activities since 1996 have focused on providing ingredient buyers and
researchers with education through newsletters, seminars and individual
consultations with food manufacturers and research centers in China. These
efforts have resulted in numerous new product introductions in the ice cream,
infant formula and nutritional products sectors.
If fully and fairly
implemented, USDEC estimates that this agreement will lead to U.S. dairy exports
of at least $135 million annually in the short-term after
tariffs have been fully phased-down. We believe that this is a conservative
number given the enormous potential of the Chinese market, and its relative lack
of capability to expand milk production.
China WTO Agreement: Don't over
sell it - don't under sell it
Of course, we are aware that not everyone
shares Agriculture's enthusiasm for granting PNTR to China.
Most critics of the agreement are concerned about Chinese labor and human rights
practices. Moreover, reason for caution on the expectations for U.S. trade
potential also exists when considering that expectations have exceeded reality
ever since the West began to trade with China in 1840. Those are all legitimate
concerns.But bringing China into the WTO as a full- fledged member is the best
way to address these concerns. As a member of the international trading
community, China has agreed to honor the rules by which the other 135 members of
the WTO abide. And if regressions occur, we will have the full weight and force
of the WTO to impose whatever enforcement mechanism is necessary. Further, we
are convinced that the increased economic stimulus that trade brings will push
reform on China's economic and labor practices as it has done in the recent
past.
Beyond all the rhetoric and predictions about what will or will
not occur as a result of this agreement, the simple truth is this: China is on
track to join the WTO, whether we approve permanent NTR or not. If we deny
permanent NTR to China, our dairy competitors from the EU, Australia, New
Zealand and Argentina will enjoy the benefits of lower tariffs, and we won't. We
will put ourselves at a competitive disadvantage at the precise instant that the
world's largest market is opening itself up to the world.
It will be a
missed opportunity from which the United States would have a hard time
recovering.
On behalf of the U.S. dairy industry, I urge Congress to
grant China Permanent Normal Trade Relations this year.
We welcome this
Committee's interest in ensuring that the benefits for agriculture are carried
out in connection with this request.
Thank you
END
LOAD-DATE: March 2, 2000
