Statement of Neal Fisher, Wheat and Cattle Farmer,
and Administrator, North Dakota Wheat Commission, Bismark, North Dakota

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

Field Hearing in Bloomington, Minnesota, on the
Benefits of Trade to the Medical Technology and Agriculture Sectors

May 14, 2001

At her confirmation hearing before this committee, Secretary of Agriculture Ann Veneman correctly stated that "with 96 percent of the world's population living outside the United States, we need to expand trade and eliminate barriers to access for our products in what is an ever expanding global economy." We agree with the Secretary completely. U.S. wheat producers are especially export dependent. Each year we export approximately 50 percent of what we produce annually. North Dakota producers are no exception, also exporting 50 percent of the high quality hard red spring wheat produced each year and 40 percent of the state's annual durum output. As an industry, U.S. wheat producers have a lot at stake in expanding trade opportunities and securing those opportunities in fairly negotiated and fairly implemented free trade agreements.

I am proud to acknowledge that the North Dakota Wheat Commission's producer Board of Directors has been at the forefront of the debate over every major trade issue facing U.S. agriculture since the negotiation of the Canada-U.S. Free Trade Agreement or CUSTA. Our experience, awakened by the CUSTA and reinforced in the bilateral disputes with Canada since 1989, dictates that farmers must remain deeply involved in the development of U.S. trade policy. We see trade and trade negotiations as dynamic and essential elements of U.S. farm policy. We further believe that it is imperative that we revisit and correct the inequities in the CUSTA and the NAFTA as the negotiations for the Free Trade Agreement of the Americas (FTAA) move forward. Correction of these past flaws will ultimately be positive in FTAA deliberations.

Section 301 Investigation into the Canadian Wheat Board

Our problems with the Canadian Wheat Board date back to the negotiations regarding CUSTA. Unfortunately, these negotiations and the resulting agreement did not adequately address the practices of a state-supported monopoly export board and their impact on U.S. producers. We in North Dakota have been particularly vulnerable to these practices not only because we live along the border with Canada, but also because we produce unique, specialty wheats for the same export markets as does Canada.

Since the implementation of the CUSTA in 1989 and the North American Free Trade Agreement (NAFTA) in 1994, the cross border tensions over wheat trade have worsened. As the world's largest wheat exporter, the CWB's government mandated monopoly actions distort world grain trade and deflate world wheat prices. Canada's unfair trade practices have reduced returns to U.S. producers, and as a result have raised U.S. taxpayer outlays in the form of larger loan deficiency payments and emergency government assistance payments. It is obvious that the CWB's actions distort trade, depress prices and create an environment which is directly counter to what is being sought in the larger scope of global trade negotiations. To allow the CWB to market wheat in the free trade zone created by the CUSTA and expanded in the NAFTA, under its current structure, is unacceptable. As evidenced in the WTO negotiating positions tabled over the last year in Geneva, the world trading system can no longer tolerate the unfair trade practices of state-trading enterprises (STEs) like the CWB.

Prior to 1990, almost 90 percent of all international wheat purchases were made by governments. That figure is now nearer 40 percent and declining, as Brazil, Egypt, and even Yemen and Algeria allow at least some private buying. The presence of Government-sponsored export monopolies has also declined, with Argentina dismantling its grain boards and South Africa abruptly eliminating its 24 commodity boards. It is ironic that when China enters the WTO, this highly centrally-planned country will have agreed to more disciplines on its own STEs, including the introduction of private-sector imports, than Canada has ever even entertained.

Despite our best efforts, no previous case, investigation, or temporary settlement has addressed the fundamental problem of the Canadian Wheat Board. That is, the existence and operation of monopoly marketing board in a free trade zone. Contrary to the vigorous claims of the CWB, past investigations have not vindicated the Board's activities, instead they have led us inevitably to this difficult question. Can U.S. and Canadian wheat farmers continue to exist in an environment where one country's farmers must compete in a free market, while the farmers of the other country hide behind the veil of a government-sanctioned and financed monopoly marketing board?

On September 8, 2000, the NDWC filed a petition under Section 301 of the Trade Act of 1974, to seek relief for the state's wheat growers from trade distorting policies and practices of the Canadian Wheat Board and the Government of Canada. The ongoing section 301 trade action specifically targets the operations of the CWB in the United States and in third country markets. Further, the Section 301 trade action is a complement to the U.S. wheat industry's overall trade priorities for the negotiations underway in the World Trade Organization and the FTAA. This case and its outcome may provide our last best opportunity to negotiate a comprehensive and lasting settlement with Canada with respect to exports of Canadian wheat to the United States and third country markets. We have documented case studies which vividly describe the unfair trade practices of the Canadian Wheat Board, which have led to sharp reductions in U.S. market share in such key, traditional markets as the Philippines, Venezuela, Guatemala and others. A meaningful and lasting settlement in this 301 trade case can serve as a model for solution of the unfair trading practices of export state trading enterprises in the WTO.

The International Trade Commission (ITC) has formally docketed and issued official notice of the procedures it will follow in a general fact-finding investigation into conditions of competition between U.S. and Canadian wheat. The notice states that a public hearing will be held in connection with the investigation on June 6, 2001, at the ITC Building in Washington, D.C. The ITC is assisting with the wheat investigation at the request of the Office of the U.S. Trade Representative (USTR). The ITC will submit a confidential report to the USTR by Sept. 24, 2001.

We have recommended the following negotiating objectives:

(1) Eliminate the CWB's export monopoly. The Board should be compelled to export wheat on commercial terms in competition with other grain exporters.

(2) Eliminate the CWB's supply monopoly. The Board should be required to acquire its wheat in commercial competition with other exporters and processors.

(3) Institute full market access and national treatment for U.S. wheat entering Canada. Currently, Canada maintains a unique form of quality control and sanitary-phytosanitary barriers that effectively prohibit U.S. wheat from moving into Canada's domestic market. This is grossly unfair given the almost completely open access that Canadian wheats have to the U.S. market. We believe this system is designed to perpetuate the supply and export monopoly of the CWB.

(4) Establish full transparency of the CWB's operations. This transparency must include the notification of acquisition costs, disaggregated export pricing and other sales information unique to single-desk exporters. Full transparency would include the terms and conditions of long-term grain agreements, forward pricing contracts, and quality over-delivery.

(5) In the event that a transition period is required to ease the impact of the full elimination of the supply and export monopolies, the Canada-U.S. Free Trade Agreement acquisition price definition must be changed to a percentage that represents the full cost of the grain minus the percentage of the prior year's crop costs accounted for by the CWB's administrative costs. Sales below this adjusted acquisition price should lead to automatic punitive sanctions.

We have also recommended to the Bush Administration and Congress specific remedies in the event that the unreasonable, discriminatory, and burdensome practices of the CWB are not immediately resolved by this investigation. We have asked the Office of the U.S. Trade Representative to establish tariff rate quotas for two crop years. For durum wheat, we recommend no increased tariff for wheat imports up to 300,000 metric tons. Over that amount, the U.S. should levy a tariff-rate of $50.00/metric ton. For other spring wheat, we recommend no change on imports up to 500,000 metric tons. Above that amount, a tariff rate of $50.00/metric ton should be applied. These tariff rate quotas are temporary measures that can be adjusted or eliminated in subsequent years as the fundamental reforms of the CWB are implemented.

Conclusion

Our producers have been unfairly disadvantaged by the continuation of monopoly marketing boards in a free trade area. The inequities contained in the CUSTA were perpetuated in the NAFTA. Moreover, the failure of the Uruguay Round Agreement on Agriculture to adequately address and discipline the unfair pricing practices of STEs like the CWB served as an additional blow to our producers' confidence in expanding free trade agreements.

Over the last decade, the national wheat organizations have supported the NAFTA, annual MFN for China, the Uruguay Round Agreement of GATT, PNTR for China, fast-track (now-Trade Promotion Authority), and continued negotiations for agricultural trade reform in the WTO. With the CWB trade dispute unresolved, it becomes increasingly difficult for our rank and file producers to envision how they can directly benefit from these expanded trade opportunities. We respectfully request the full support of this Committee and the entire Congress in our Section 301 investigation and its successful outcome.

Our future lies in the expansion of export market opportunities and fair competition for those opportunities. Our wheat producers just want to achieve a situation that is "as good" as those that exist for other commodities or U.S. industries. A wealth of experience and disappointment has led us to this point. We now have before us an opportunity to make fundamental changes and improvements to the trade environment which is so critical to the success of our industry. To miss this opportunity would certainly be a big mistake.

I thank you for your attention to my remarks. I look forward to answering your questions at the appropriate time.