[Senate Hearing 106-973]
[From the U.S. Government Publishing Office]
S. Hrg. 106-973
TRADE INJURY COMPENSATION ACT OF 2000 (TICA)
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FORESTRY,
CONSERVATION, AND RURAL REVITIALIZATION
OF THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
TRADE INJURY COMPENSATION ACT OF 2000 (TICA)
__________
SEPTEMBER 25, 2000
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
U.S. GOVERNMENT PRINTING OFFICE
71-411 WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
RICHARD G. LUGAR, Indiana, Chairman
JESSE HELMS, North Carolina TOM HARKIN, Iowa
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky KENT CONRAD, North Dakota
PAT ROBERTS, Kansas THOMAS A. DASCHLE, South Dakota
PETER G. FITZGERALD, Illinois MAX BAUCUS, Montana
CHARLES E. GRASSLEY, Iowa J. ROBERT KERREY, Nebraska
LARRY E. CRAIG, Idaho TIM JOHNSON, South Dakota
RICK SANTORUM, Pennsylvania BLANCHE L. LINCOLN, Arkansas
GORDON SMITH, Oregon ZELL MILLIER, Georgia
Keith Luse, Staff Director
David L. Johnson, Chief Counsel
Robert E. Sturm, Chief Clerk
Mark Halverson, Staff Director for the Minority
(ii)
C O N T E N T S
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Page
Hearing:
Monday, September 25, 2000, Trade Injury Compensation Act of 2000
(TICA)......................................................... 1
Appendix:
Monday, September 25, 2000....................................... 19
Document(s) submitted for the record:
Monday, September 25, 2000....................................... 51
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Monday, September 25, 2000
STATEMENTS PRESENTED BY SENATORS
Craig, Hon. Larry E., a U.S. Senator from Idaho, Chairman,
Subcommittee on Forestry, Conservation and Rural
Revitalization, of the Committee on Agriculture, Nutrition and
Forestry....................................................... 1
Baucus, Hon. Max, a U.S. Senator from Montana, Ranking Member,
Subcommittee on Forestry, Conservation and Rural
Revitalization, of the Committee on Agriculture, Nutrition and
Forestry....................................................... 3
----------
WITNESSES
Galvin, Timothy J., Administrator, Foreign Agticulture Service,
U.S. Department of Agriculture, Washington, DC................. 10
Moore, Dale, Executive Director, Legislative Affairs, National
Cattlemen's Beef Association, Washington, DC................... 12
Ambassador Peter Scher, Exq., Former USTR Special Agricultural
Trade Negotiator, Partner, Mayer, Brown & Platt, Washington, DC 5
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APPENDIX
Prepared Statements:
Craig, Hon. Larry............................................ 20
Baucus, Hon. Max............................................. 22
Burghardt, Guenter........................................... 48
Galvin, Timothy J............................................ 25
Hauck, Dana R................................................ 40
Scher, Peter................................................. 34
Document(s) submitted for the record:
Letter to Gruenter Burghardt, with enclosure (Daily Human
Estrogen Production) submitted by George Hall, President,
NCBA....................................................... 52
Editorial from Commerce Beef Hormone Retail list Trade Bill,
submitted by Timothy J. Galvin............................. 60
TRADE INJURY COMPENSATION ACT OF 2000 (TICA)
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MONDAY, SEPTEMBER 25, 2000
U.S. Senate,
Subcommittee on Forestry, Conservation, and Rural
Revitalization, of the Committee on Agriculture, Nutrition,
and Forestry,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:37 a.m., in
room SR-328A, Russell Senate Office Building, Hon. Larry E.
Craig, (Chairman of the Subcommittee), presiding.
Present or submitting a statement: Senators Craig and
Baucus.
OPENING STATEMENT OF HON. LARRY E. CRAIG, A U.S. SENATOR FROM
IDAHO, CHAIRMAN, SUBCOMMITTEE ON FORESTRY, CONSERVATION, AND
RURAL REVITALIZATION, OF THE COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
The Chairman. Good morning, everyone. The Subcommittee on
Forestry, Conservation, and Rural Revitalization will come to
order. Of course, this is a subcommittee of the full Committee
of Agriculture, Nutrition, and Forestry.
The Subcommittee today is here to take testimony on S.
2709, the Trade Injury Compensation Act of 2000 known as TICA,
as it is known by most of us, at least, and we will also be
looking generally at the issue of European Union's ban on U.S.
beef.
Since 1989, the European Union has banned the importation
of U.S. beef on what many of us believe is a false premise that
additional naturally occurring growth hormones in U.S. beef
constitutes a health risk to the consumer. This premise is
demonstrably scientifically false, as has been found out by the
World Trade Organization.
In 1999, the WTO authorized $116.8 million in retaliatory
duties. Theoretically, imposing 100-percent duties would block
importation into the U.S. of $116.8 million worth of EU
products targeted with such duties. But the U.S. implementation
of WTO's retaliation authority has not been effective. The EU
ban of all U.S. beef continues and EU goods carrying 100-
percent duties are still being imported into America. USTR
calculates that $35.65 million in EU goods with 100-percent
duty were still imported between July 1999 and June 2000.
To strengthen the retaliation tool, Congress instructed the
USTR in the African-Caribbean Basin Initiative legislation to
impose carousel retaliation by June 20, 1999. We want to know
why USTR has not yet acted to impose carousel.
I am a cosponsor of TICA, which also seeks to make
retaliatory duties more effective. Currently, such duties are
deposited in Treasury general revenue accounts. TICA would
segregate into a trust fund that retaliatory duties collected
by EU goods carrying 100-percent duty that would nevertheless
come into the U.S. The Secretary of Agriculture would then
release the money to a duty-constituted U.S. beef industry
promotion board to promote U.S. beef in foreign markets.
The U.S. beef industry's real goal here is not retaliation
but rather re-access to the European market. Retaliation is
just a means to an end, but if there are duties collected
beyond the 100-percent tariff placed on targeted EU products,
the U.S. beef industry should have the money to lessen the harm
caused by the EU ban. TICA is a good method to accomplish that
goal as we continue to seek total removal of the ban.
The Subcommittee is pleased this morning to have witnesses
with a great understanding in this controversy and we welcome
all of you here today. Because of the scheduling of this
hearing, we had some conflict in getting USTR folks with us,
not their fault because of their schedules and their
involvement in Europe.
In regard to the record, Ambassador Gunther Burghardt of
the delegation of the European Commission was invited to
testify today on behalf of the European Union. Ambassador
Burghardt responded that EU policy barred his appearance before
the U.S. Congress. However, the Ambassador has submitted a
written statement on the subject of compensation and requests
that it be included in the record, which it will be without
objection.
Just a couple of housekeeping notes before I turn to my
colleague, Senator Baucus, for an opening remark or remarks
that he would like to make. The Subcommittee will ask the
witnesses to hold their oral testimony to 5-minutes and then we
will subject you to any questioning and we will also this
morning allow Ambassador Peter Scher to go first. I think he
has got an airplane to catch or something like that, is that
not correct?
Ambassador Scher. That is. Thank you.
The Chairman. A fast ride out of town.
[Laughter.]
The Chairman. Anyway, thank you all very much for being
here. Now let me turn to my colleague, Max Baucus, who really
has played a role in bringing these hearings. He was insistent,
as many of us have been, that we get more information on this
issue to understand why we are not responding in the manner
that we have an opportunity to respond. So let me turn to my
colleague from Montana for any comments he would like to make.
[The prepared statement of Chairman Craig can be found in
the appendix on page 20.]
[The prepared statement of Mr. Burghardt can be found in
the appendix on page 48.]
STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA,
RANKING MEMBER, SUBCOMMITTEE ON FORESTRY, CONSERVATION AND
RURAL REVITALIZATION OF THE COMMITTEE ON AGRICULTURE, NUTRITION
AND FORESTRY
Senator Baucus. Thank you very much, Mr. Chairman. I
appreciate your holding this hearing on a bill which I
introduced to hopefully help the beef industry, which is not
helped at all by current WTO ruling, and more particularly by
European intransigence in not abiding by a WTO dispute panel
decision. I thank you very much, and in particular the beef
industry thanks you. I also thank our witnesses for changing
their schedules. I know it is true, Ambassador Scher had made
schedule changes to accommodate us here today and we very much
appreciate your changing, Mr. Ambassador.
I might point out that this is a bipartisan group in favor
of this legislation, Senators Bingaman, Dorgan, Daschle,
Kerrey, Johnson, Thomas, Ashcroft, as well as you, Mr.
Chairman, and the fellow co-Chairman of the Senate Beef Caucus,
Senator Bond. The legislation establishes a beef industry
compensation trust fund to help the United States cattle
industry and applied to the European Union's illegal ban on
beef treated with hormones and the EU's refusal to abide by the
WTO decision.
Last year, the World Trade Organization approved
retaliation in the amount of $117 million when the European
Union, ignoring a WTO decision, refused to open its market to
American beef. The purpose of retaliation clearly is to inflict
pain on the guilty party so that they will change their rules
and abide by a WTO decision. Yet the EU continues its
recalcitrance. Frankly, I think this is nothing short of
outrageous.
We are forced to enact carousel legislation to revise the
retaliation list every 6-months in the hope that that might
work. In the meantime, we need to take action to press harder
on compliance, and also importantly to give some relief to our
domestic industry.
Mr. Chairman, we have a broader problem here. When the WTO
finds a foreign practice illegal under WTO rules and the guilty
party refuses to take action, the damage to the American
industry continues. The increase in tariffs on selected
European exports to the United States does nothing to help the
beef industry.
It is no different than the so-called ``chicken war''
between the United States and Europe in the early 1960s. The
GATT determined that U.S. chicken farmers were harmed by
European tariffs on poultry. The United States retaliated,
principally with the French and Germans who were major
violators, by increasing tariffs on products such as French
cognac and German Volkswagen vans. The result, U.S. chicken
farmers not helped, French and German chicken farmers still
protected, and innocent German Volkswagen workers and innocent
U.S. Volkswagen purchasers harmed.
It is no wonder trade retaliation is not the most popular
kid on the block. We win the case at the WTO and the guilty
party refuses to make changes. Our injured industry loses
twice. They get no improvement in the market access. They get
no benefit from retaliation.
The Trade Injury Compensation Act establishes a mechanism
for using the tariffs imposed on the EU to aid the injured beef
producers in this country. At present, the additional tariff
revenues received from retaliation simply go to the Treasury's
general fund. That amounted to $36 million between July of last
year and June of this year.
This bill establishes a trust fund so that the affected
industry will receive those revenues as compensation for its
injury. The Secretary of Agriculture would call upon the trust
fund to provide grants to a nationally recognized beef
promotion and research board. The money would support education
and market promotion for the United States beef industry. This
would continue until the EU complies with the WTO ruling.
Now, some critics may complain that this is an improper
export subsidy as defined by the WTO. It is not. First,
according to recent WTO appellate body decisions, receipt of
the money must be contingent upon exports for it to be
considered a subsidy. TICA money can be used for quality
improvement in the United States and that is not export
contingent. Further, market development expenses for
agricultural products are exempted from the categories of
prohibited or actionable subsidies by various articles of the
WTO agreements.
In a perfect world, we would not need this legislation
because the EU would abide by its international trade
commitments, and it is still my hope that the EU will recognize
the dangerous path that they are on and comply with the WTO
dispute settlement rulings so that our beef can be sold in the
EU. Unfortunately, that has not been the case and no resolution
is looming on the immediate horizon. Therefore, the U.S. beef
industry as well as U.S. importers continue to pay the price of
non-compliance.
To summarize, TICA provides a limited financial benefit to
the U.S. industry. It is WTO consistent. It gives an additional
incentive to our foreign competitors to simply cease their
unfair trade practices. And, it helps an industry that is
damaged by an EU trade practice which the Europeans refuse to
fix.
TICA is a means to an end. We all want the Europeans to
comply with WTO dispute decisions. The United States is working
hard to fix a problem that we have with the FSC, Foreign Sales
Corporation. Europe should do the same on beef hormones and
bananas. If they will not, we need to do something to help our
industry.
TICA is a good measure that bridges the gap between
compliance and market access, and I thank my colleagues for
their sponsorship and particularly you, Mr. Chairman, for
holding the hearing. Hopefully, we can get some action on this,
if not this year, very quickly next year.
[The prepared statement of Senator Baucus can be found in
the appendix on page 22.]
The Chairman. Max, thank you for your leadership in this
area.
Let me introduce to the Committee Tim Galvin,
Administrator, Foreign Agricultural Service, USDA, along with
Dale Moore, Executive Director, Legislative Affairs, National
Cattlemen's Beef Association, and, of course, Ambassador Peter
Scher, who is the former USTR Special Agricultural Trade
Negotiator, now a partner in Mayer, Brown and Platt. As I
mentioned earlier, there are some time restraints on you,
Ambassador Scher, so we will allow you to proceed first, if you
would, please.
STATEMENT OF PETER SCHER, FORMER USTR SPECIAL AGRICULTURAL
TRADE NEGOTIATOR, AND PARTNER, MAYER, BROWN AND PLATT,
WASHINGTON, DC.
Mr. Scher. Mr. Chairman, thank you, and thank you, Senator
Baucus. I appreciate your consideration. I am pleased to have
the opportunity to testify this morning regarding the European
ban on U.S. beef and S. 2709 in particular. I have submitted my
full remarks for the record and in the interest of time will
summarize them for the Committee.
Mr. Chairman, I would like to make several points. First,
putting this dispute in the larger context of the WTO dispute
settlement system, in particular to talk about the difficult
balance we have to strike between the issues of compliance with
WTO decisions and the sovereignty of all countries. As both of
you will probably recall, the question of sovereignty was
central to the debate in Congress over U.S. entry into the WTO
in 1994. Perhaps more than any other issue, we were debating
what many of the critics said was an unwise subjecting of our
laws and our own authorities to the jurisdiction of bureaucrats
from Geneva, and the Congress was clear and the United States
was clear that the United States could not order a country to
change its laws.
So even in the face of EU recalcitrance on both beef and
bananas, the painful reality we have to face is that in both of
these cases, the system has worked as it was intended and as
the United States intended. The European Union has the right
under the laws and under the agreements that we negotiated not
to change its rules, and, of course, in response, we the
injured country have the right to impose a penalty.
I want to make no mistake that I am in no way defending the
European Union, because I do believe that their approach to
both the beef and banana cases has damaged the credibility of
the WTO system, particularly true in the beef case. It has
become very apparent that at least at this time, the European
Union lacks the political will to allow the importation of
hormone-treated beef. As much as I and members of this Congress
and I think most of us here would disagree with this view, that
is the reality.
Frankly, I believe it would be better for the system as a
whole for the EU to simply acknowledge their problem, accept
the findings of the panel, invoke its right to maintain its
regulation, and pay the penalties imposed by the WTO. Frankly,
there can be no greater demonstration that the WTO does respect
the sovereign power of nations than such an act. But instead of
this honest and lawful approach, what the European Commission
has embarked on is another effort after literally 20-years of
failure to try to use pop science to justify a ban that has no
scientific or health rationale. In fact, the Financial Times, a
London-based newspaper, last year commented that the EU's ban
is not a scientific ban but a political ban.
The irony of all this is, of course, that the EU was the
prime cheerleader for a new WTO dispute settlement system,
believing that the U.S. had too much power as the judge, and as
they call it, the jury and the executioner of our 301 law and
they believe that the new system would help, hopefully, in
their view, kill that.
Some of you may remember, during the early days, it was the
European Trade Commissioner who came to Washington and lectured
all of us on the need to use the new system to resolve
disputes. Well, we have used that system in the United States,
and even when we have not prevailed, we have taken great
efforts to comply with the results of the panel decisions, even
when not politically popular. Unfortunately, the European Union
has not taken a similar approach.
Mr. Chairman, I will not go through the history of this
dispute. I think we all know that it has gone on for nearly 20-
years and retaliation was imposed by President Bush beginning
in 1989, despite efforts by the U.S. to mediate the dispute.
When the WTO came into effect in 1995, we were for the first
time able to litigate successfully the ban under the new
sanitary and phytosanitary agreement, and so far as you both
talked about the sanctions that we have put in place as a
result of the WTO decisions, have not changed the EU's
behavior.
Mr. Chairman, this dispute holds important lessons about
the WTO dispute settlement process and how we should respond
when countries fail to comply with its ruling. As a starting
point, I think it is important to remember that in the vast
majority of cases, the dispute settlement process has worked
because in most instances, countries found to be in violation
of the WTO amend their trade rules accordingly. And when the
dispute settlement process has not resulted in changed
behavior, it is again important to remember the underlying
reason, that the WTO does not have the power to order changes
in these rules.
Since the EU has yet to lift its ban on hormone-treated
beef, the U.S. has rightfully retaliated, but I think there are
a couple of ways in which the current retaliation system has
probably fallen short, particularly for U.S. beef producers,
and S. 2709, the TICA bill, addresses one of these
shortcomings. TICA seeks to, as you both talked about, ensure
that the injured party in a trade dispute, namely the beef
industry, receives relief. While the current system imposes a
price on the EU, it does nothing to provide relief to American
ranchers.
There is an additional refinement as the Committee
considers this problem that you and the administration may want
to consider and that is the current retaliation practice has
been to impose 100-percent tariffs on goods with the express
purpose of keeping those goods out of the U.S. market. Well,
this approach is sometimes sufficient to force an offending
country to bring its rules into compliance, and, in fact, just
threat of these tariffs has brought countries, including Canada
in a case last year, into compliance. Frankly, it has certainly
moved the EU in the banana dispute a lot farther than we would
have thought.
There are several problems which need to be considered,
some of which, Senator Baucus, you referred to in your
statement. First, we have to deal with the real problem of
harming innocent bystanders. In the case of beef and bananas,
USTR received more than 400 comments seeking the removal of
particular items on the list.
A second issue with attempting to completely block goods
when you are trying to create revenue to compensate an injured
industry is that when you block goods, it creates little if any
tariff revenue. In cases such as this, as the beef hormone
dispute, where countries refuse to comply and some type of
retaliation is already assumed, one thing to consider may be a
lower level of tariff, one which imposes significant penalty,
harms fewer innocent bystanders because it allows goods to be
traded, but generates real tariff revenue which can be
channeled to the aggrieved parties.
For example, instead of 100-percent tariffs no a small list
of goods, we might consider imposing a ten to 15- or 20-percent
tariff on a larger list of goods, which would clearly
disadvantage those imported goods in the U.S. market because
U.S. goods would be traded lower. It would not block those
goods and would, therefore, generate actual tariff revenue
which could provide appropriate compensation for the aggrieved
party in a trade action.
Make no mistake, we should never be cavalier about raising
tariffs, even when authorized to do so, and there is no, I do
not believe, having dealt with both of these disputes, there is
a cookie-cutter approach that we could say, in this case, we
should always impose 100-percent tariffs or we should always
impose lower tariffs. I think we have to deal with the reality
of the situation and when it appears, as in this situation,
that a country is refusing to comply with the decision and our
industry is not finding any relief in those limited number of
cases, we should be thinking about new approaches.
There are clearly no clear-cut solutions to this dispute.
While the current system has proved successful, refinements
such as TICA and possibly adjustments to tariff levels could
make the system more effective, and I applaud both of you, Mr.
Chairman and Senator Baucus, because this hearing is an
important step towards accomplishing that goal. Thank you for
your time.
[The prepared statement of Mr. Scher can be found in the
appendix on page 34.]
The Chairman. Ambassador, thank you very much.
We are going to ask you some questions so you can exit, if
you wish, and then we will take testimony from our witnesses.
You suggested the possibility of spreading, if you would,
dropping the tariff down and spreading it to possibly greater
leverage, greater revenue flows in tariff, whatever might be
the end result. But without it being scored as a budget action,
how would we use these revenues to provide appropriate
compensation for the aggrieved party in a trade action?
Mr. Scher. I think the same way. I think it would have to
be done in conjunction with TICA. I mean, what I am suggesting
is right now, you have 100-percent tariffs imposed on European
goods. While some goods are still traded and still come in and
some importers actually pay that tariff, I do not know what the
current numbers suggest, but it is not a tremendous amount of
tariff revenue. So I think it would be the same approach.
Rather than 100-percent, you would simply have WTO
authorize--WTO does not tell you how much the tariff needs to
be. It could be 500-percent. It could be 5-percent. So in this
case, you would simply to--if one of your aims is to try to
provide relief to the industry, you would try to find a level
that would generate a substantial amount of revenue within the
amount authorized by the WTO.
The Chairman. What are the products on the list now that
have basically had their price doubled by this tariff and are
still being purchased by American consumers?
Mr. Scher. How much is still coming out? Mr. Galvin, I do
not have the specifics on what is still coming in.
The Chairman. We will ask him, then, about it when we get
to him.
Mr. Scher. Tim has that. I know there are some cheeses and
some dijon mustard and some things like that, luxury items. I
know, for example, some of the high-priced luxury handbags, for
example, that have come in, I think there has been tariff
revenue generated by this. I do not have the latest numbers on
what has come in.
The Chairman. USTR data for July 1999 to June 2000 say that
$35.6 million of 100-percent duty EU goods are still being
imported. Do you agree that this means that the U.S. beef
industry last year lost the impact of 30.5-percent of the
$116.8 million in WTO authorized trade retaliation for the
illegal ban on the industry?
Mr. Scher. Well, they certainly have not received any
benefit from--they have lost $116 million in terms of lost
export opportunities into Europe and they have received no
benefit from the results of the tariff revenue generated.
The Chairman. Ambassador, thank you very much. We
appreciate your testimony.
Senator Baucus?
Senator Baucus. I thank you, Mr. Chairman.
Mr. Ambassador, what about the potential challenges to this
legislation? How bulletproof have we made it thus far and how
might we modify it to withstand challenges?
Mr. Scher. I think there will be two challenges. One
challenge, as you talked about in your statement, is does it
create WTO consistencies, or inconsistencies, and I think, as
you said, we would need to make sure that as the fund would be
established to benefit cattle farmers, that it not be tied
directly to exports, and that would be what would create a
problem. But certainly the money could be used for export
promotion, which is not WTO consistent. As you said, it could
be used for quality improvement. I think there are a wide
variety of areas that it could be used.
The other, I think, policy challenge, frankly, that I have
heard in preparing for today's hearing is whether or not we are
creating a precedent in dumping and in other cases where tariff
is generated, for example, dumping cases or CBD cases or 201
cases, and the suggestion is when the steel industry or the
lamb industry or some other industry has tariffs imposed on the
imports of a foreign product, would they be entitled under this
precedent to that revenue?
I would argue that there is a very important distinction in
these two cases. In a dumping case or in a CBD case or a 201
case, the injured industry is receiving relief in this market.
So when the U.S. imposes higher tariffs, for example, on
imported steel, domestic steel producers are benefitted. When
we impose quotas and tariffs on lamb from New Zealand and
Australia, that is designed to benefit the domestic industry.
So I think in those cases, they are already receiving a benefit
from the trade action.
In this case, the beef industry is receiving nothing. We
have had retaliation in effect on and off now for 10-years and
the beef industry has not received any benefit from that
action. So I think that is the second challenge, I think, that
will be----
Senator Baucus. I appreciate that. One frustration,
clearly, is Europe just does not seem to have enough pressure
on it that it does not have to abide by these WTO rulings, that
the tariff just is not enough to force them to do what they
should do. An idea just now occurred to me. What about some
kind of MFN principle here, changes in the WTO. That is, the
effect of the WTO ruling is that the United States is not doing
anything illegal. That is, it is not a trade barrier. It is a
level playing field.
So applying the principles of MFN, if Europe is found to
take an unfair action against the United States and the WTO
dispute panel finds, yes, that is unfair, why should the
penalty not apply worldwide, not just to the United States?
Even though the United States is the defendant, is there some
way, some MFN principle here? I do not know exactly what it
would be----
Mr. Scher. Yes.
Senator Baucus.--but it just seems to me that MFN works one
way but it does not work the other way.
Mr. Scher. Yes. I mean, as a partial answer to that, in
this case, in the beef case, for example, and in the banana
case, other countries do have the right to impose retaliation.
So, for example, Canada--I do not think it was very much. Tim
may remember. I think it was maybe $25 or $30 million worth of
retaliation because Canada was a party to this dispute.
I think it is something that should be explored. The
difficulty is, you want to have a proportional response to the
offense, because the fact is, as much as we all like to whack
the EU around, and I like to do it as much as anyone else, we
are receiving benefits from our trade relationship with them
and I think our agricultural exports are $7, $8, or $9 billion,
so there are some important benefits we are receiving, so we do
not want to, in a sense, throw the baby out with the bathwater,
but we do want to, I think, put serious pressure.
I think one of the problems that we have seen here, and
this is, I think, a big problem in the EU, is this goes to the
whole issue of food safety and the fact that the EU does not
have an independent food regulatory system that people have
confidence in. So what happens is politics replaces what should
be scientific and health decisions, and until the EU actually
establishes such a system and gives people with credibility the
authority to make decisions without political interference, I
think we are going to be facing these problems, particularly in
animal health and in food safety, for quite some time.
Senator Baucus. You sure have been working hard in this
area and I thank you very much, Ambassador.
Mr. Scher. Thank you.
The Chairman. Ambassador, thank you. You are certainly
welcome to leave if you need to.
I am going to have a time crunch in a few moments and will
need to step out. Max, what is going to be your schedule?
Senator Baucus. We are pretty similar.
The Chairman. Here is how we are going to do this, then. We
will take one of you and then we will ask that the Committee
stand in recess for just a few moments and then I will step
back in, we will complete that, and go to questions. I hope
that your time will allow that this morning. With that, again,
Tim Galvin, Administrator, Foreign Agricultural Service, USDA.
Welcome before the Committee. Please proceed.
STATEMENT OF TIMOTHY J. GALVIN, ADMINISTRATOR, FOREIGN
AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE,
WASHINGTON, DC.
Mr. Galvin. Mr. Chairman, Senator Baucus, thank you for the
invitation to be here today. I would like to ask that my full
statement be made a part of the record.
The Chairman. It will be, without objection.
Mr. Galvin. The beef hormone issue has been a long and
frustrating one for the U.S. cattle industry. The EU first
banned beef in 1989, at the time costing our beef producers
well over $100 million a year in lost sales. After years of
negotiations, the U.S. eventually took the issue to the WTO on
the grounds that the EU action was not based on sound science
and, therefore, was in violation of the sanitary and
phytosanitary agreement.
In three separate rulings, the WTO agreed with us that the
EU had produced no new information against the use of hormones.
The WTO eventually decided that the damage to the U.S. totaled
$116.8 million annually, and since July of 1999, the U.S. has
been imposing punitive duties against an equivalent amount of
EU exports to the U.S. Those duties are being felt by EU
exporters today.
The purpose of the retaliatory duties is relevant with
regard to the intent of S. 2709, the Trade Injury Compensation
Act of 2000, introduced by Senator Baucus, yourself, and
others. As we understand that legislation, it would establish a
fund financed by the additional duties imposed under the beef
hormone retaliation list to be used to provide assistance to
the beef industry for market development, consumer education,
promotion in overseas markets, and beef quality improvement.
While we can certainly understand the impetus for the
legislation, the purpose of the retaliatory duties is to bring
about WTO compliance by making trade in the sanctioned items
prohibitive. In other words, the 100-percent duties commonly
imposed in these cases are intended to be so onerous as to
prevent trade from occurring and thereby encourage the losing
party either to eliminate its offending practices or to offer
compensation in some other fashion. If the duties have the
intended effect, then the items would not be imported and,
thus, no duty would be collected. Therefore, a fund established
on the assumption that such duties would be collected would
likely realize far less revenue than implied by the 100-percent
duties.
Despite the current impasse with the EU, we have made
efforts to find an interim solution, including the idea of
labeling U.S. beef for the European market or increasing access
for non-hormone-treated beef from the U.S. The EU rejected the
labeling idea and our discussions on increasing access for our
non-hormone-treated beef were derailed when the EU cut off even
that market for us this past year. However, that program has
recently resumed.
Finally, I would note that despite our problems in Europe,
U.S. beef exports in general have been doing exceptionally
well. For the first 10-months of fiscal year 2000, beef exports
are up by double-digit levels and the current U.S. trade
surplus in beef is over $1 billion per year.
Mr. Chairman, that concludes my statement and I would be
happy to answer any questions.
[The prepared statement of Mr. Galvin can be found in the
appendix on page 25.]
The Chairman. Max, do you have any questions?
Senator Baucus. No, just that, that is really something,
the beef exports. On a net basis, where are we?
Mr. Galvin. On a net?
Senator Baucus. Yes.
Mr. Galvin. It is a positive $1 billion.
Senator Baucus. It was not too many years ago it was
negative by a huge amount.
Mr. Galvin. Just since 1990, we have seen this kind of
growth. It really is incredible.
Senator Baucus. So Canada, Japan--which countries for
export?
Mr. Galvin. Japan, Korea, Mexico. Mexico is number two.
Senator Baucus. Japan is one, Mexico number two----
Mr. Galvin. Then I believe Korea.
Senator Baucus. Thank you very much.
The Chairman. I will ask a question that joins that one.
Have you done any guesstimation when you have seen the growth
in these other areas of the countries you have cited and the
success of the industry in moving those up double digit, what
it would have been if we would have had access to the European
market? I mean, is the $116 million that we talk about a real
figure today or would it be substantially more than that?
Mr. Galvin. We think it would be larger. In fact, if you
recall when we had the discussions in the WTO about the level
of damage, the U.S. side submitted figures in excess of $200
million. So I think something closer to that. If you assume the
trade not just in prime cuts of beef but offal and that sort of
thing, it is quite a large amount.
The Chairman. I am going to ask the Committee to stand in
recess for about 10-minutes and then we will be back. Tim, I do
have a couple more questions of you, so if you would, please
stay, and thank you. Excuse me.
[Recess.]
Gentlemen, thank you very much for accommodating the way we
have had to juggle this, this morning from a time standpoint. I
will bring the Subcommittee back to order and I would ask Dale
Moore, Executive Director, Legislative Affairs for the National
Cattlemen's Beef Association to proceed with your testimony.
Dale, thank you.
STATEMENT OF DALE MOORE, EXECUTIVE DIRECTOR, LEGISLATIVE
AFFAIRS, NATIONAL CATTLEMEN'S BEEF ASSOCIATION, WASHINGTON, DC.
Mr. Moore. Thank you, Mr. Chairman. Chairman Craig, we
appreciate you holding this hearing on TICA. We appreciate
Senator Baucus and all the time he and his staff have provided
in pulling this legislation together and working with us on it.
We certainly appreciate your support of this legislation and
working with Mike and Janie on this, as well.
I am Dale Moore, Executive Director of Legislative Affairs,
and Dana Hauck, our chairman of our International Markets
Committee, extends his apologies and regrets for not being able
to make this morning's hearing.
We appreciate the opportunity to discuss how S. 2709 would
provide an additional trade policy tool to help resolve the EU
ban on U.S. beef, not to mention the temporary benefits that it
would provide to U.S. cattlemen and women should Europe
continue to refuse American access to their market. Regaining
access to the EU market has always been the U.S. beef
industry's primary goal for over a decade. WTO retaliation
measures serve one key role in the WTO dispute settlement
process--that is to provide a burr under the European saddle
that hopefully pushes them toward compliance with the rulings.
They certainly seem to expect rapid compliance when rulings
fall in their favor.
NCBA and the U.S. beef industry have tried to settle this
case and it is important to remember that we did win. The EU
has had 15-months to comply, yet there is little indication
that they are even intending to try to come into compliance. In
efforts to reach an amicable settlement, the NCBA, working
through U.S. negotiators, has proposed to label our products so
that EU consumers could make informed purchasing decisions.
This offer has been declined. NCBA has sent volunteer leaders
to Brussels to meet with EU representatives in Brussels to
explore alternative political solutions to lift the ban. We
have been assured that there are no such solutions.
Using a concept very similar to S. 2709, we offered to
settle for an annual lump sum cash payment from the EU treasury
to the U.S. beef industry in the amount of injury determined by
the WTO. This has been declined. We have offered to accept
interim compensation in the form of elimination of the 20-
percent end-quota duty and a significant expansion of the non-
hormone product quota, but only if meaningful trade of non-
hormone product resumes at the presummer 1999 levels. So far
the response or the counteroffers have not been forthcoming.
The EU's ongoing refusal to work with us led Congress to
enact the carousel retaliation act, which you had mentioned
earlier. This new law spelled out that the first date for the
administration to announce a change in the list of products was
June 19, 2000--3-months ago. We appreciate the efforts of
several members of this committee to urge the administration to
release the new beef retaliation list because we believe
without periodic changes to this list, there is little, if any,
internal political pressure from the offending countries to
settle. Now that the list of affected commodities is subject to
change on a random basis, countries and/or the commodities
impacted can never be certain that they have escaped targeting.
This uncertainty will help generate constant pressure on all
offending parties to come into compliance with WTO rulings,
which brings me to TICA.
Companion legislation similar to TICA is being discussed by
Congressman Jerry Moran and Congressman Cal Dooley in the House
and we urge all members in the Senate who are not yet on this
bill to join. Retaliation is the least desirable of the three
possible outcomes from a WTO ruling. Even with the current
assessment of 100-percent duties, some trade continues for some
products on the list. In the beef case, this is roughly $35.6
million. This means that $35.6 million of unanticipated revenue
is generated and paid into the U.S. general Treasury.
The intent of the TICA legislation is to direct the tariff
revenue generated by retaliation toward the injured industry as
partial compensation. The proposed legislation provides for a
national promotion and research board to administer the
revenues generated from retaliation duties for market
development, consumer education, and promotion of the beef
industry in overseas markets.
This approach would allow the Cattlemen's Beef Promotion
and Research Board members to decide how best to utilize these
funds to improve the beef industry. The board's members who
would make these decisions are appointed by the Secretary of
Agriculture from nominations submitted by eligible State
organizations, including the Farm Bureau, Farmers Union,
Cattlemen's associations, Dairy Producer associations, and
other organizations. The board currently funds various
promotion, consumer education, and research programs throughout
the United States and in foreign markets, and therefore would
have the administrative and management expertise in place to
handle TICA revenues.
The Europeans will likely object to TICA with a wide array
of claims. This is logical. After all, they are currently
paying a $116.8 million fine for noncompliance with a check for
roughly $81 million, a 30-percent discount. TICA would help
ensure the EU pays the full measure determined by the WTO. It
is important to remember that if TICA were in place and if
concerns about its funding source were raised, the EU could cut
off TICA's funding simply by complying.
Like other retaliation measures, TICA is not a silver
bullet, but it would provide another important tool in the
trade toolbox. It would provide equity by taking retaliation
duties and compensating the injured industry in the amount of
retaliation discount that occurs after duties are imposed.
Selfishly, I also enjoy the fact that TICA would allow U.S.
cattlemen and women to use EU funding to promote our product in
Europe should we ever get that door open.
In closing, the objective of the U.S. beef industry is to
regain access to the European beef market. Retaliation does not
benefit the beef industry and is viewed by us only as a means
to an end. TICA would compensate the industry for the amount of
under-retaliation that results when trade continues on some
products. Importers or exporters of product from the EU who are
concerned that retaliation may impact their business should
urge the Governments in the exporting countries to join the
United Kingdom in opposing this illegal ban within the EU
political process.
Mr. Chairman, the NCBA again thanks you and thanks the
cosponsors for this legislation and the opportunity to present
these comments to you. I also appreciate the Committee's
indulgence in allowing me to substitute for Chairman Hauck.
The Chairman. Dale, thank you very much.
Let me get back to a line of questioning that Max and I
were involved in when I had to step out. Tim, I had asked
Ambassador Scher the question of what products or commodities
coming in are at the 100-percent tariff level now. Do you have
a list of those for the record? I would be just curious.
Mr. Galvin. I do have a list. I do not have the exact
dollar amounts, but----
The Chairman. No, the type of product, where it appears the
American consumer is willing to still pay it double the price.
Mr. Galvin. The list I have shows truffles, jams, berry
juice, roquefort, chicory, mustards, and rusks.
The Chairman. What was the last one?
Mr. Galvin. Rusks. Those are those little dried biscuits.
The Chairman. So we really have kind of picked--to me, that
sounds fairly selective to the palate. I am thinking of the
wine set, the grey poupon kind of ad. We have created that into
a market of exclusivity, if you will, instead of going at the
heart of maybe a consumer product.
With that in mind, let me ask this question of you. You
have heard a suggestion that possibly we could lower the tariff
and spread it, 15- or 20-percent across a broader range of
product, or simply take these and bump them up another 100-
percent. Put them at 200-percent. Put them at 300-percent,
somehow to cause the EU to react to something that we believe
and the WTO believes they are now operating illegally in. Your
thoughts and suggestions about that. First of all, just
increasing what we have or lowering them and spreading across a
broader band.
Mr. Galvin. I think, first of all, the idea of raising the
current tariffs from 100-percent to 200-percent is a real
option and a live option right now on some of these products,
and clearly we have authority to do that. The idea is that we
have authority to increase the duties to whatever point is
necessary to absolutely prohibit trade, and there is simply an
assumption right now that 100-percent duties is sufficient to
prohibit trade.
In terms of going, though, to a broader reduced duty that
hits other products, again, I understand some of the sentiment
for going in that direction but I just think it has to be
acknowledged that, that would represent a rather fundamental
shift in the intent of these retaliation lists. I think the
intent would be then, rather to force a policy change by the
offending party, it would be to try to direct some assistance
to the damaged party here in the U.S. and I think that would be
a fundamental change in policy.
The Chairman. Go ahead.
Mr. Galvin. If I may, Mr. Chairman, just on the issue of
how much revenue we are still earning under that trade that is
occurring, you cited the figure of about $35 or $36 million.
That was the figure that we had initially received from
Commerce, as well. We have since received, I guess, some more
accurate figures show that for the last 12-months the total is
closer to $16.6 million.
The Chairman. Would you submit that list for the record?
Mr. Galvin. I would be happy to.
The Chairman. Thank you.
[The information referred to can be found in the appendix
on page 60.]
The Chairman. Tim, TICA would direct that retaliatory
duties on EU products generated by EU ongoing ban of U.S. beef
be collected into a trust fund administered by the Secretary,
who would disperse the funds to a beef industry promotion
board. Under existing law, the 1930-era agricultural marketing
adjustment law known as AMAA, does not the Secretary already
administer industry product promotions boards for eggs, stone
fruits, nuts, citrus, and, yes, beef?
Mr. Galvin. Yes, he does.
The Chairman. So are not TICA and AMAA for the beef
industry analogous since both mechanisms concern beef industry-
generated money used solely to promote beef?
Mr. Galvin. I think they are analogous, other than the
source of the revenue, yes.
The Chairman. Some critics of TICA are concerned that TICA
would generate budget authority for domestic spending programs
outside the normal budget process. Would you comment on that?
Mr. Galvin. I am really not able to comment on that. I do
not know how CBO would react up here and just what some of the
budget problems might be.
The Chairman. NCBA raises an important question in the
battle between free trade and protectionism where the question
in the agricultural community is whether to support free trade
at the grassroots when the EU beef ban situation makes unclear
the U.S. Government's willingness to go to the mat with our
trading partners on enforcement. What can you say to allay the
fears in our producer community that our government is willing
to protect our industry with bad faith trading partners?
Mr. Galvin. Well, I would point out that this was one of
the very first cases that we brought under the WTO after the
WTO was formed, so we have been pushing very hard throughout
the initial case and the appeal and then the discussions on the
level of damage. As I said earlier, we went in with a larger
figure. We were disappointed in the end that it was just $116
million, but nevertheless, that is what we are implementing
today. As you indicated, there is under discussion the new
lists of different products, not just for the beef hormone
retaliation but bananas, as well.
The Chairman. Tim, thank you very much.
Dale, let me turn to you. I regret that USTR witnesses
could not be here today, but Ambassador Frazier submitted a
statement where he states USTR's concern that TICA would
provide the beef industry with a stake in maintaining a trade
barrier, in this case, a retaliatory tariff or tariffs. The
ambassador states that the beef industry's position is
inconsistent with USTR's basic trust in trade policy, open
markets, and lower tariffs.
Dale, I thought the beef industry was the one suffering
from the trade barrier. Does the U.S. beef industry really want
to keep retaliatory tariffs, as the ambassador implies?
Mr. Moore. Mr. Chairman, I can emphatically state that
retaliation, and as our testimony reflects, is a means to an
end, and that end is access to the European market. We would
love nothing more than to have TICA go into effect. If this $16
million figure, and as Mr. Galvin has pointed out from the
numbers that the administration submitted, beef trade potential
in the $200 million range, $16 million versus $200 million in
trade is a pretty easy math for me to work out. We would
certainly prefer to have access. We want to hit Europe with
every retaliatory, every trade policy weapon we have bring them
into compliance. But simply put, no. We would have no desire to
drag this out.
The Chairman. Recently, the EU has begun to soften their
position somewhat and is promoting compensation as a means of
resolving the impasse. I would like to understand the context
of that compensation. Could non-hormonal beef be increased
beyond the 10,000-metric-ton quota by amounts against the
$116.8 million retaliatory duty? That would be one question.
And could you explain to the Subcommittee how that might work
and the likelihood that the beef industry perhaps would live
with such a compromise? You might also want to respond to that,
Tim.
Mr. Moore. I was going to say, Mr. Chairman, I know Mr.
Galvin and Ambassador Scher have both actually worked with us
as we had talked through this several months ago, but the
concept would be--what we had, I guess, proposed was that once
Europe worked with us to reestablish the beef from non-hormone-
treated cattle trade that they had cut off, that once we got
that up to the, what was it, 11,000----
Mr. Galvin. Five-hundred.
Mr. Moore. Eleven-thousand-five-hundred-metric-ton quota,
then we would be willing to talk about a compensation approach
that for every, I guess, dollar, if you will, that we went
above that quota level, that, that could be used to offset the
$116 million in retaliation as a rational approach to the
compensation.
Part of what we have been wrestling with is this moving
target that Europe has set on the non-hormone beef process, and
as a result, we have a 2-year time lag in our industry before
producers can take advantage of that effort, and as such, we
have a lot of our members who are interested. But they want a
little more, I guess, good faith showing on the part of Europe
that this is going to be a consistent and predictable market
before they take the risk of entering that market again.
The Chairman. Dr. Galvin, do you wish to comment to that?
Mr. Galvin. I think Dale has done a very good job of
describing the situation. We have had informal discussions with
the EU about increasing access for our non-hormone-treated beef
and that increased access could be in the form of either the
higher quota beyond the current 11,500-tons or perhaps a waiver
of the current duty on beef, which is about 20-percent in the
EU. If beef then started to flow under either the reduced duty
or if it exceeded the quota of 11,500, then the idea would be
to reduce the retaliation list accordingly.
But as Dale indicated, under the new program for certifying
that our beef is not treated with hormones, it really takes
about 2-years from the time that calf is first dropped in the
pasture until it is out of a feedlot, so there is such a long
lag time in the current system that we would not see any
benefits for some time. And then as Dale indicated, and I think
it is a very good point, there is always a risk in dealing with
the EU because it seems like there is always another issue that
is threatening our trade and the question is whether or not our
cattlemen want to gear up for a program with the understanding
that something could be yanked out from under them.
The Chairman. If there is no compromise on compensation,
how does the NCBA come down on the idea of vastly increasing or
decreasing duties under carousel? Is it better to place, say,
15-percent duties on many more goods and give the revenue to
the TICA trust fund, or would it be better to put 200, 500-
percent type duties on goods to stop absolutely those targeted
goods from coming into the U.S.? Dale, could you react to that
kind of discussion?
Mr. Moore. Yes, Sir, and I apologize if I sound a little
schizophrenic in my answer. We kind of like both approaches. We
like the higher retaliatory levels for, I guess, sort of the
reverse pain and suffering that causes on our EU trading
partners. By the same token, if they are going to remain
stubbornly committed to keeping us out of their market, then
spreading that pain a little thinner over a number of different
products and using that to generate some revenues which TICA
would operate and which we could thereby use some of our
European trading partners' funds to promote our product and
increase our demand. That has some interesting promise to it.
At this particular stage of the game, I would reiterate
that we simply want to get access into that market. If this
helps us get there, fine. If not, we are for putting as many
burrs under their saddle as we can.
The Chairman. If duties were adjusted such that significant
revenues were raised from EU goods coming into the U.S. and the
EU would not lift or compromise the ban, would the U.S. beef
industry reconsider a per capita distribution of revenue or is
that just impractical whatever the total?
Mr. Moore. I would not rule anything out. We have enjoyed a
lot of back-room brainstorming with Mr. Galvin, with Ambassador
Scher, with Ambassador Frazier, and we certainly are not
opposed to taking a look at anything that they or the Europeans
might put on the table. I have to admit, getting into that
level of detail is starting to get dangerously close to
enabling me to display my ignorance as to how some of that
might work.
The Chairman. We all have limitations.
[Laughter.]
The Chairman. I guess maybe one last question of you,
Administrator Galvin. When does the administration plan to
announce the carousel retaliation list that was due in June of
this year?
Mr. Galvin. Mr. Chairman, I simply do not know. I wish very
much I had an answer here for you today, but I do not.
The Chairman. I understand that is a moving target.
Gentlemen, thank you both very much. I think it is obvious
by the concern that we have and the industry has here and the
credibility of the WTO on issues like this and our desire to
make the WTO work that something ultimately has to get done.
That is not suggesting that nothing has been done on this
issue, but there really are some pretty real questions being
asked out there on the ground at this moment amongst producers
as it relates to the viability of these trade organizations,
and, of course, we recognize, I think especially in
agriculture, the importance of trade. It is very difficult to
suggest to our producers that they should allow us to move
freely in the area of trade to expand markets when we cannot
keep them open or open them. Rhetoric and action just have to
coincide, and here we have got that credibility gap looming
against a market out there that appears to want to remain
closed and by intent of the politics of it.
Yes?
Mr. Galvin. Mr. Chairman, if I may, just one last point
where we have clearly gone to bat for beef producers and that
is in Korea, which, as I mentioned, is our number three market.
As you know, the Koreans had a system in place that seemed to
discriminate against imported beef whether it is from the U.S.
or Australia or elsewhere and we took them to the WTO. We won
on that case. It is now under appeal, but I think it is another
indication of where we have gone to bat for beef producers.
The Chairman. I think the figures that we were all just
visiting about a few moments ago, the rates of increase in beef
exportation, as someone who was active in the beef industry for
a good number of years, those are very nice statistics. I think
we were all frustrated, both beef and dairy, that those were
markets out there that were just generally by character of
product not going to be available to us. But obviously, by both
domestic industries moving abroad and using product but by our
efforts, your efforts, the Government's efforts and the
industry's efforts to get into these markets, we can, in fact,
move in those markets and move quite successfully.
So when we talk about potentially a $200 million loss and
you compare a Japanese market against a European market or a
Mexican market against a European market, I think those numbers
are very real. And when you travel in Europe and see the
prices, I think you begin to recognize that the consumer over
there is being tremendously disadvantaged and so is the
producer here.
Gentlemen, thank you very much for your time with us today.
Mr. Galvin. Thank you.
Mr. Moore. Thank you, Mr. Chairman.
The Chairman. The record will remain open for the balance
of the week for any additional information that we would want
to provide or that you have that you would want to become a
part of the Committee record.
With that, the Subcommittee will stand adjourned.
[Whereupon, at 10:48 a.m., the Subcommittee was adjourned.]
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