Statement of John Hardin, Jr., Pork Producer, Danville, Indiana,
and Past President, National Pork Producers Council

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on Free Trade Deals:  Is the United States Losing Ground
as its Trading Partners Move Ahead?

March 29, 2001

Mr. Chairman and members of the Subcommittee:

I am John Hardin, Jr., a pork producer from Danville, Indiana. I am a past President of the National Pork Producers Council (NPPC) and a past chairman of the United States Meat Export Federation. I currently serve on NPPC's Trade Committee and am a representative on the Agricultural Policy Advisory Committee to the United States Trade Representative and the Secretary of Agriculture. I very much appreciate the opportunity to appear here on behalf of U.S. pork producers to express our views on the importance of continued trade liberalization.

I. INTRODUCTION

The National Pork Producers Council is a national association representing 44 affiliated states that annually generate approximately $11 billion in farm gate sales. According to a recent 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.

Pork is the world's meat of choice. Pork represents 47 percent of daily meat protein intake in the world. (Beef and poultry each represent less than 30 percent of daily global meat protein intake.) As the world moves from grain based diets to meat based diets, U.S. exports of safe, high-quality and affordable pork will increase because economic and environmental factors dictate that pork be produced largely in grain surplus areas and, for the most part, imported in grain deficit areas. However, the extent of the increase in global pork trade - and the lower consumer prices in importing nations and the higher quality products associated with such trade - will depend substantially on continued agricultural trade liberalization.

U.S. pork producers were ardent proponents of the Uruguay Round Agreement and the North American Free Trade Agreement. The industry strongly supports further trade liberalization measures. As the low-cost producers of safe, high-quality pork, these trade agreements permit U.S. pork producers to exploit their comparative advantage in international markets. However, even with the progress made in the Uruguay Round, much more needs to be done. The U.S. pork industry still is either locked out of many markets, or has only partial access to markets, due to high tariffs, non-tariff trade barriers, and subsidized competition.

II. TRADE PROMOTION AUTHORITY SHOULD BE RENEWED

U.S. pork producers are major beneficiaries of the Uruguay Round Agreement and NAFTA. Our industry needs prompt renewal of trade promotion authority so that further trade agreements may be consummated. These trade agreements permit U.S. pork producers to exploit their comparative advantage in international markets. The future of the pork industry rests, in large pork, on the ability to expand exports.

Since 1995, when the Uruguay Round Agreement went into effect, U.S. pork exports to the world have increased 55 percent in volume terms and 40 percent in value terms. In 2000 the U.S. exported a record 566,900 metric tons of pork valued at $1.316 billion. ⁽¹⁾ Pork exports from the U.S. to Mexico exploded in 1994 when NAFTA went into effect. Even with the devaluation of the peso U.S. pork increased market share in Mexico -- this never would have happened without NAFTA. Mexico is now the pork industry's second most important market behind Japan.

Pork exports generate wealth and create good paying jobs that contribute significantly to the economic well being of rural America. According to a study by CF Industries, exports were so important to the industry in 1997 (when cash hog prices were close to current prevailing levels) that cessation of exports (due for example to an embargo or animal disease outbreak) would have caused cash hog prices to plummet by $15.73 per head. Research conducted by the Economic Research Service of the United States Department of Agriculture (ERS) indicates that for each dollar of value-added agricultural exports such as pork, $1.63 in additional U.S. economic activity is generated. Moreover, ERS calculates that every billion dollars in pork exports creates an additional 23,000 new jobs in the U.S. economy.

During the past decade the number of hogs processed in the United States increased from 85 million to 101 million while the pork derived from these hogs increased from 15.4 billion pounds to 19 billion pounds. While not all of this increase is attributable to exports, much of it is. As a consequence of this increased production, more people are employed in the supply and processing industries. This means that packers and processors will operate at higher levels of capacity and/or build new facilities. More U.S. inputs, such as corn and soybeans, and more U.S.-made machinery will be utilized. More packaging supplies are used and more shipping services are consumed. Exports contribute to the well being of rural America through such growth. Given that 96 percent of the world's population resides outside the United States, it is exports that will drive the future growth and viability of the industry. In the short term, the benefit will be higher prices. In the long run it will be a larger and growing, vibrant industry.

Indeed, the Cross-Commodity Analysis conducted by the Foreign Agricultural Service of the United States Department of Agriculture (FAS) underscores the important contribution of pork exports to the U.S. economy. The report states that:

The shift toward greater exports of high-value foods such as meat instead of feed grain has major beneficial implications for the U.S. rural economy. First, expanding exports of red meat and poultry expands domestic demand for feed grain and oilseed meal. Second, the income multiplier effect from high-value exports is greater than from bulk commodity exports (2.88 versus 1.86). This means dollar-for-dollar, high-value exports generate more jobs than exports of bulk commodities.

Further, another study by FAS points out that if the U.S. exported meat instead of the feed grains used to produce meat in foreign markets, U.S. agricultural employment would increase by approximately 50 percent.

The United States is uniquely positioned to reap the benefits of liberalized world pork trade. U.S. pork producers are the lowest cost, large scale commercial suppliers of the safest, highest quality pork in the world. But without the renewal of trade promotion authority for the Executive branch by Congress, U.S. pork producers and the rest of U.S. agriculture will be forced to remain on the sidelines while other countries continue to negotiate new trade agreements at a staggering pace. According to a report prepared for the Office of the U.S. Trade Representative, about one-third of total world exports are covered by EU free trade and customs agreements, compared to only 11 percent for U.S. free trade agreements. Of the approximately 130 free trade agreements in the world the United States is a party to only two, the NAFTA and the U.S.-Israel FTA.

In order to expedite the WTO agriculture negotiations, U.S. trade officials need trade promotion authority. The longer the U.S. goes without renewing trade promotion authority, the longer the WTO agricultural negotiations will drag on. Trade promotion authority is also needed so that the U.S. can pursue trade liberalization regionally with our Western Hemisphere neighbors in the Free Trade Agreement of the Americas initiative (FTAA) and regionally with the countries of the Asia Pacific Economic Cooperation forum (APEC). Finally, trade promotion authority is needed so that the U.S. can pursue bilateral free trade agreements with countries such as Chile and Singapore.

The U.S. pork industry is disadvantaged by the failure of the United States to keep up with the pace of trade agreements in the world. The rapidly expanding Brazilian pork industry -- a key competitor to the U.S. industry -- now has preferential access into many markets to the detriment of U.S. producers. For example, the U.S. pork industry recently obtained access to the Argentine pork market. We are disadvantaged selling into Argentina because of the preferential access that Brazilian pork exports receive by virtue of the MERCOSUR customs Union. Specifically, the U.S. faces a 34.5% duty on pork exported to Argentina while Brazil enjoys duty free access on its pork exported to Argentina. The U.S. pork industry currently is trying to obtain access to the Chilean pork market, another market in which Brazil has preferential access. Canada, which probably is our most significant competitor in pork, has gained preferential access into Chile through a free trade agreement. Mexico, which has some world class pork operations and counts Japan among its pork export markets, has negotiated close to 30 free trade agreements. If left unchecked, Mexico will dominate a number of Western Hemisphere pork import markets to the detriment of the U.S. pork industry. The export-competitive Chilean pork industry, which like Mexico counts Japan as one of its export markets, has preferential access into many Western Hemisphere pork markets to the detriment of the U.S. pork industry. While the United States sits idly by, Mexico, Chile, and Canada have wrestled away from the United States the mantle of the Western Hemisphere's trade leader.

In Europe, the European Union continues to cut trade deals with the countries of Central and Eastern Europe (CEE). In these so-called double zero agreements, the EU and the CEE country typically agree to offer duty free quotas for a specific quantity of a given agricultural product, such as pork, while anything above the quota is subject to duty. Further the EU and the CEE country agree not to use any export subsidies for the given agricultural product. For example, in July 2000, Hungary and the EU signed a double-zero agreement. The agreement calls for reduced tariffs and an end to export subsidies for 72 percent of Hungary's exports of unprocessed agricultural products to the EU and 54 percent of the EU's agricultural exports to Hungary. The agreement established three lists of goods. For the first list, accounting for a third of Hungary's agricultural exports to the EU, all tariffs were abolished. For the second list, tariffs were abolished for exports up to a given quota, provided exports above the quota are not subsidized. This second list includes pork. The duty-free quotas on pork are to increase by 10 percent per year.

The U.S. pork industry is disadvantaged in two ways by these double zero agreements. First, the EU gets better market access in CEE countries for its pork exports. Second, the EU is able to conserve its pork export subsidies for other markets outside Europe where we have to compete with them. Even with a small CEE country such as Estonia, the EU expects to 'save' around 3,500 metric tons in pork export subsidies. Total EU shipments of pork to CEE countries are about 220,000 metric tons, an amount equal to about 40 percent of total U.S. pork exports.

The EU, Mexico, Chile, and Canada are gaining the benefits of trade for their citizens while the U.S. engages in a negotiation with itself about the benefits of trade. Our comparative advantage in pork is increasingly being offset by the failure of the U.S. to get into the free trade game.

III. THE U.S. SHOULD PURSUE A ZERO FOR ZERO ON PORK IN THE WTO AGRICULTURE NEGOTIATIONS

NPPC believes that the United States should adopt as a primary negotiating objective in the World Trade Organization agriculture negotiations the total elimination in the shortest possible time frame of all tariffs, all export subsidies and all trade-distorting domestic support for pork and pork products. The U.S. industry is ready to compete in a free and open environment; we believe that pork producers in a number of other countries are willing to do the same. Indeed, the Canadian pork industry has also asked its government to pursue a zero-for-zero initiative on pork and pork products and there is strong interest in this initiative in a number of other countries. The United States should use its negotiating leverage to push this objective with our more reluctant trading partners in order to ensure that we are afforded the opportunity to take advantage of our natural competitiveness.

NPPC Urges the Following Negotiating Objectives For Agriculture in the WTO

Fundamental liberalization in the pork industry can be most easily achieved in the context of an ambitious overall agreement in agriculture. NPPC supports an aggressive approach to this trade round which goes beyond the consensus Seattle Round Agricultural Coalition (SRAC) policy statement. Among other things, NPPC advocates the following points as general U.S. negotiating objectives for agriculture:

1. Tariff Reductions Must Be Accelerated

Notwithstanding the progress made in the Uruguay Round, tariffs on agricultural products remain very high. U.S. agricultural commodity tariffs, which according to the Economic Research Service of USDA average only about 12 percent, are dwarfed by the agricultural tariffs of other nations, which range on average from 50 to 91 percent. Foreign tariffs on pork, beef, and poultry average about 80 percent according to ERS.

The best way to achieve such comprehensive liberalization is through the use of a tariff cutting formula that is applied to every product without exception. There are an infinite number of formulas that could be devised to cut tariffs, the "best" formula obviously depending on the results desired. NPPC prefers an approach like the Swiss formula used in the Tokyo Round negotiations, which resulted in substantially larger cuts in higher tariffs and had the effect of dramatically reducing the disparities in levels of protection. In addition, countries could engage in request/offer negotiations to achieve deeper-than-formula reductions for specific products. This segment of the negotiation would provide the opportunity to pursue the zero-for-zero objective in the pork sector.

2. The Administration of Tariff Rate Quotas Must Be Improved

In most instances, creating a TRQ satisfied the minimum access commitment for tariffied agricultural products in the Uruguay Round. Unfortunately, in some cases, the administration of TRQ's has been used as an instrument to thwart imports. In the upcoming trade negotiations, rules on TRQ administration must be clearly delineated. In addition, ceilings must be established for over-quota duty levels.

3. Export Subsidies Should Be Eliminated

Data compiled by USDA shows that during GATT year 1998/1999, the EU subsidized more than 750,000 metric tons of pork exports, a subsidized tonnage that exceeds our entire amount of exports. NPPC supports the complete elimination of all export subsidies and the complete elimination of all trade distorting domestic support.

4. Trade-Distorting Domestic Support Should Be Further Disciplined

The pork industry recognizes the complexities of agricultural politics and acknowledges that farm programs often are designed to meet social as well as economic objectives. Nonetheless, it is essential for the next trade round to accomplish much stricter disciplines on trade-distorting domestic support programs than was possible in the Uruguay Round. The 20 percent reduction in the Aggregate Measure of Support (AMS) achieved in the Uruguay Round did not go far enough. We need to see further significant reductions. Moreover, those reductions should be applied on a commodity-by-commodity basis, rather than a sector-wide basis, as was the case under the Uruguay Round agreement. For pork, all trade-distorting supports should be eliminated, and all tariffs and export subsidies abolished as part of the zero-for-zero initiative.

The U.S. advocated commodity-specific domestic support reduction commitments until the final stages of the Uruguay Round negotiations. The sector-wide approach was the result of a Blair House compromise with the EU. As a consequence of this change, countries such as the EU and Japan, both of whom have AMS limits over three times that of the U.S., have had significant flexibility to shift support between commodities and avoid painful reductions.

Of course, commodity-by-commodity commitments could also lead to changes in U.S. domestic programs. However, the potential gains in the world market from achieving disciplines on EU and Japanese policies justify the acceptance of more discipline on U.S. policy making. We have acknowledged this to be the case with respect to export subsidies and import barriers, and it is just as true for domestic subsidies. Without stronger disciplines and greater reduction commitments, our major trading partners will continue to be permitted to subsidize their producers at a significantly higher rate than the U.S.

5. The Peace Clause Should Not Be Extended

One of the most promising sources of meaningful leverage for the United States is Article 13 of the Uruguay Round Agreement on Agriculture - the so-called Peace Clause. Article 13, which was included in the Agreement at the insistence of the European Union, suspends until January 1, 2004, the application to agricultural products of certain WTO disciplines, the most significant of which are Articles 3, 5 and 6 of the Agreement on Subsidies and Countervailing Measures. With the expiration of Article 13, the EU would immediately be in breech of its obligations under Article 3 of the Subsidies Agreement, which prohibits export subsidies (Article 13(c)(ii)). At the same time, the U.S. would be in a position to begin dispute settlement proceedings under Article 6 against any domestic or export subsidies that are causing serious prejudice to U.S. exports in third-country markets (Article 13(b)(ii)). Obviously, these are powerful disciplines.

The Peace Clause expires automatically. The only way to extend it would be to negotiate a new agreement that includes similar protections. The EU, in particular, will have a strong incentive to achieve such an agreement and will presumably be ready to pay a high price for it. It should be much easier to achieve an agreement within three years that includes a phased elimination of export subsidies and meaningful disciplines on trade-distorting domestic subsidies if the EU is facing, in the absences of such an agreement, the immediate application of even stronger measures.

The United States should do everything possible to take advantage of the leverage offered by the Peace Clause. As a first step, the U.S. should publicly declare its willingness to allow the provision to expire. More important, the United States should begin preparing dispute settlement cases now against the European Union. The United States should be ready to file these cases against the EU under the Subsidies Agreement on January 1, 2004.

Of course, U.S. programs could also be challenged if the peace clause expires. However, the U.S. is much less exposed than the EU. AMTA payments, which account for a significant portion of U.S. support, would almost certainly be considered non-product-specific, and therefore non-actionable, under the Subsidies Agreement. Product-specific programs in the U.S. are much less significant than those in the EU, and it is difficult to demonstrate a link between U.S. programs and level of U.S. exports.

More importantly, using peace clause leverage could actually reduce U.S. vulnerability to an eventually challenge. Doing so increases the likelihood of achieving a good agreement on agriculture before the end of 2003. Without such an agreement, the peace clause would inevitably lapse. In the context of such an agreement, the peace clause could be extended.

6. Export Credits Should Be Disciplined in the OECD

Under the Uruguay Round Agreement the United States committed, along with other WTO members, to negotiate disciplines on export credits and credit guarantees in the OECD. Unfortunately, the OECD talks have not yet produced an agreement. Now some countries are talking of developing disciplines in the WTO rather than the OECD.

The OECD has experience in the area of export credits, having administered for many years an agreement on export credits for industrial products. It is the proper place to develop disciplines for credit programs for agricultural products. Despite the fact that the United States is currently the biggest user of such credits, we have a long-run interest in imposing disciplines to guard against future abuses by our trading partners.

7. The S&P Agreement Should Not Be Reopened

The pork industry does not support opening the SPS Agreement for further negotiation in the next trade round. It is working well.

8. The U.S. Must be a Reliable Supplier of Agricultural Products

Trade liberalization is not a one-way street. If we expect food-importing countries to open their markets to U.S. exports and rely more on world markets to provide the food they need, we should at the same time commit to being reliable suppliers. Current WTO rules permit exporting countries to tax exports whenever they choose (GATT Article XI.1), and to prohibit or otherwise restrict exports to relieve domestic shortages (GATT Articles XI.2(a) and XX(i) and (j)). These provisions should be eliminated in conjunction with the phasing out of import barriers. Such a move would not affect the ability of the United States to impose trade sanctions for reasons of national security; that right would be preserved under GATT Article XXI.

IV. THE U.S. PORK INDUSTRY STRONGLY SUPPORTS THE FTAA PROCESS AND BILATERAL INITIATIVES WITH CHILE AND SINGAPORE

Given the strong support of the U.S. and Canadian pork industries for a zero-for-zero approach on pork in the WTO agriculture negotiations and the likelihood that Brazilian producers also will embrace this initiative, the FTAA process should provide fertile ground for the thorough liberalization of the pork sector in the western hemisphere. However, if the Congress does not pass Trade Promotion Authority and the FTAA process languishes, the United States pork industry and other sectors of the U.S. economy will be forced to continue to sit on the sidelines and watch as the Mexicans, the Canadians, the Chileans and others continue to cut trade deals in what once was considered the domain of the United States.

The U.S. pork industry also supports bilateral initiatives with Chile and Singapore. Comments regarding each of these initiatives are attached as appendices to this statement.

[The Attachments are being retained in the Committee files.]

1. The volume of U.S. pork exported in 2000 is a record amount because 1999 pork export data have been revised. USDA does not count as an export the approximately 50,000 metric tons of pork that was shipped to the Russian Federation as food aid in 1999.