June 07,2005

Grassley Statement at Agriculture Committee Hearing on CAFTA-DR

Statement of Senator Chuck Grassley
Senate Agriculture Committee Hearing on
The CAFTA-DR: Potential Impacts on Agriculture and Food Sectors
June 7, 2005

I’m pleased to submit this statement for today’s hearing on the potential impact of the UnitedStates-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) on the U.S.agricultural and food sectors. As a member of the Committee on Agriculture and as a senator fromIowa, I have a major interest in seeing that U.S. agricultural policies benefit American farmers.Moreover, as Chairman of the Committee on Finance, the Senate committee with jurisdiction overtrade legislation, I pay particularly close attention to trade issues affecting agriculture.

I consulted frequently with the U.S. Trade Representative during negotiations of the CAFTADRas part of the trade promotion authority process. I know that U.S. negotiators went to greatlengths to see that the CAFTA-DR would be a good agreement for American farmers. Their effortswere successful, and the negotiations resulted in an agreement that is particularly strong for U.S.agriculture. I’m fully convinced that implementation of the CAFTA-DR by the United States is inthe best interests of U.S. agricultural producers, and I urge my colleagues to support it.

Agreement Will Level an Uneven Playing Field

U.S. farmers and ranchers are well aware that the international playing field for agriculturalexports is far from level. Average tariffs of other countries on imports of U.S. agricultural productsare, in the case of most commodities, significantly higher than those imposed by the United States.This unequal situation is clearly demonstrated when examining the current trade relationshipbetween the United States and the CAFTA-DR countries. Over 99 percent of agricultural importsfrom the CAFTA-DR countries currently enter the United States duty-free. In contrast, the averagetariff applied to U.S. agricultural products by the CAFTA-DR countries exceeds 11 percent, and theaverage bound tariff of the CAFTA-DR countries is over 44 percent.

So the current trading relationship between the United States and the CAFTA-DR countriesis not only an unlevel playing field, but also a one-way street: CAFTA-DR farm products don’t paytolls to enter the U.S. market, yet U.S. agricultural products are charged hefty tolls to enter theCAFTA-DR market.

The CAFTA-DR will change this. A downhill one-way street will become a level two-laneroad. Under the Agreement, the CAFTA-DR countries will eliminate tariffs on virtually all products.U.S. tariffs will remain largely unchanged – after all, the vast majority of agricultural products of theCAFTA-DR countries already enter the United States duty-free.

The treatment under the Agreement of the following four major U.S. commodities, whichare of importance not only to Iowa but also to other states, demonstrates how the CAFTA-DR willremove disadvantages faced by U.S. agricultural producers.

Pork: the CAFTA-DR countries currently apply tariffs of up to 47 percent on imports of U.S.pork, and their bound rates reach as high as 60 percent. Under the Agreement, these tariffs of theCAFTA-DR countries will be reduced to zero.

Beef: the CAFTA-DR countries currently apply tariffs of up to 30 percent on imports of U.S.beef, and their bound rates reach as high as 79 percent. Under the Agreement, these tariffs of theCAFTA-DR countries will be reduced to zero.

Yellow Corn: the CAFTA-DR countries currently apply tariffs of up to 45 percent on importsof U.S. corn, and their bound rates reach as high as 75 percent. Under the Agreement, tariffs of theCAFTA-DR countries on yellow corn – the predominant corn variety grown in the United States –will be reduced to zero with the exception of the Dominican Republic, in which case duty-free accesswill be locked-in.

Soybeans: the CAFTA-DR countries currently apply tariffs of up to 5 percent on imports ofU.S. soybeans and meal and up to 20 percent on U.S. soybean oil, and their bound rates reach as highas 91 percent for soybeans, 60 percent for soybean meal, and 232 percent for soybean oil. Under theAgreement, tariffs of the CAFTA-DR countries on U.S. soybeans, soybean meal, and soybean oilwill be reduced to zero.

Increased Access Means Increased Sales of U.S. Commodities

The leveling of the playing field with regard to the CAFTA-DR countries will result in realgains for U.S. agriculture. According to the American Farm Bureau Federation, the CAFTA-DRcould increase U.S. agricultural exports by $1.5 billion in the year following the end of theAgreement’s full implementation.[1]

Following is a breakdown by the American Farm Bureau Federation of gains for several U.S. commodities in the first year following the CAFTA-DR’s full implementation:

Beef    $47,074,500
Butter    $1,297,800
Cheese    $16,998,400
Corn    $58,374,100
Cotton    $27,602,100
Pork    $107,950,800
Poultry   $178,042,900
Rice    $91,510,700
Soybean meal    $56,572,000
Soybean oil    $28,389,600
Wheat    $62,186,900

So the CAFTA-DR will result in dollars in the pockets of U.S. farmers and ranchers.

Wide Support for CAFTA-DR in U.S. Agricultural Community

Recognizing that the CAFTA-DR will profit their members, numerous agriculture and foodorganizations have expressed their support for the Agreement. I have attached a list of almost 80such groups that back the Agreement. These organizations represent producers of diversecommodities produced in various regions of the country. The listed organizations include theAmerican Farm Bureau Federation, the American Soybean Association, the National Associationof Wheat Growers, the National Chicken Council, the National Corn Growers Association, theNational Cotton Council, the National Milk Producers Federation, the National Pork ProducersCouncil, the National Potato Council, the National Turkey Federation, the U.S. Apple Association,and the USA Rice Federation. As the attached list demonstrates, even though some agriculturalgroups oppose the CAFTA-DR, it’s a stretch to claim that U.S. agriculture is divided over theAgreement: there’s clearly strong support behind it.

Moreover, six former U.S. Secretaries of Agriculture – Republicans and Democrats – haveannounced their support for the CAFTA-DR. Former Secretaries Ann Veneman, Dan Glickman,Mike Espy, Clayton Yeutter, John Block, and Bob Bergland noted in a recent letter to Members ofCongress that they back the CAFTA-DR “because the benefits are very significant and the costs areminimal.” I’ve attached this letter to my statement.

Treatment of Sugar in the CAFTA-DR

While most sectors of U.S. agriculture support the CAFTA-DR, I realize that one – sugar –doesn’t. Yet U.S. negotiators went to great lengths to see that the final agreement addressed concernsof the U.S. sugar industry, and they were successful in their efforts.

For example, U.S. tariffs will not go to zero on just one product, sugar.

While tariff rate quotas will expand for sugar imports from the CAFTA-DR countries, theseincreases will be small. In the first year of the Agreement, increased additional access will amountto little more than one day’s U.S. sugar production or 1.2 percent of current U.S. consumption, whichwill grow after 15 years to 1.7 percent of current U.S. consumption. Prohibitive tariffs – of over 100percent – on over-quota imports will remain intact under the DR-CAFTA.

Under the CAFTA-DR, only net surplus exporting countries will obtain increased access tothe U.S. market. Accordingly, the Dominican Republic, currently the largest of the CAFTA-DRcountry sugar exporters to the United States, would not even initially qualify to ship additional sugarto the United States upon implementation of the CAFTA-DR.

It is contended by some that the CAFTA-DR will lead to the suspension of marketingallotments for sugar, and thus to disruption in the U.S. sugar market. But the U.S. International TradeCommission (ITC) states that it’s unlikely that increased CAFTA-DR imports will trigger thesuspension of marketing allotments.

In the unlikely event that the U.S. sugar program is threatened by imports from the CAFTADRcountries, the Agreement includes a compensation mechanism that will permit the United States,at its option, to restrict sugar imports from those countries while providing an alternative type ofcompensation. This arrangement is unprecedented in U.S. trade agreements.

Moreover, some have claimed that the CAFTA-DR might result in U.S. sugar growersshifting production to different commodities, and thus depressing prices of other commodities. Butthe American Farm Bureau Federation has determined that “the DR-CAFTA would not bedevastating to the United States sugar industry, nor would there be any noticeable effects of sugarproducers shifting to other crops.”[2] The Farm Bureau further states that the potential impact of sugarfarmers switching to other principal crops would be “imperceptible.”[3]

CAFTA-DR Countries Sought Numerous Exclusions from Agreement

I realize that the U.S. sugar industry sought to exclude sugar from the Agreement. At thesame time, the CAFTA-DR countries requested exclusions from tariff reductions for severalcommodities -- beef, pork, corn, poultry, rice, dairy, vegetable oil, beans, and onions -- all of whichare major U.S. products. If, in the end, the United States had insisted on a sugar exclusion for thebenefit of the 0.3 percent of U.S. farms that grow sugar crops, the CAFTA-DR countries would’veundoubtedly insisted on the same for their products. Such an outcome would likely have resulted inless access in the CAFTA-DR markets for U.S. agricultural products such as beef, pork, corn,poultry, rice, dairy, vegetable oil, beans, and onions.

While the United States, correctly, did not seek an exclusion for sugar, it’s worth pointingout once again that the United States did obtain provisions in the CAFTA-DR that address concernsof the U.S. sugar industry. These provisions will result in very limited increased access for CAFTADRsugar in the U.S. market. At the same time, by not excluding sugar, the Agreement resulted ingains for the bulk of U.S. agriculture.

This raises a question. If the United States, while going short of seeking a sugar exclusion,had negotiated for even more provisions designed to limit the amount of additional access forCAFTA-DR sugar, would the U.S. sugar industry have supported the Agreement? It appears to methat the answer would be no, and that short of an exclusion, U.S. sugar producers would oppose theAgreement. So what should we do in the future? Should we penalize agricultural exporters in futuretrade agreements by excluding sugar, or should we obtain even better access for them by significantlyexpanding tariff rate quotas for sugar, by accelerating sugar tariff phase-outs, and by agreeing to goto zero duties on sugar, and further, by not including sugar compensation mechanisms inagreements? The opposition of U.S. sugar producers to the CAFTA-DR, despite significant effortsof U.S. negotiators to accommodate their concerns, raises these and other questions.

CAFTA-DR and the WTO Doha Round

While the CAFTA-DR is important in itself for U.S. agriculture, the failure to implement thisagreement could deal a setback to U.S. efforts to liberalize agricultural trade around the world. If theCAFTA-DR fails, and other countries note that the United States is unwilling to implement a tradeagreement that clearly benefits the vast majority of its agricultural producers, our trading partnerswill question whether any new trade agreement will be acceptable to the United States. This situationcould jeopardize the completion of agricultural negotiations in the Doha Round of the World TradeOrganization, negotiations in which the United States is seeking to cut tariffs, harmonize levels ofdomestic support, and eliminate export subsidies.

Conclusion

The CAFTA-DR is a straightforward win for the bulk of U.S. agricultural producers. Acurrent one-way trading relationship will end. The CAFTA-DR countries will dismantle their tariffsto U.S. agricultural products while the United States will provide little additional access for CAFTADRcommodities. This will result in increased sales for U.S. agricultural exporters, sales of up to$1.5 billion a year by the end of the Agreement’s full implementation. Not surprisingly, the CAFTADRis widely supported in the U.S. agricultural community.

The CAFTA-DR is good agricultural policy and good trade policy. I urge my colleagues tosupport it.

[1] The American Farm Bureau Federation provides this year as 2024.
[2] American Farm Bureau Federation, The DR-CAFTA and Sugar, at 3.
[3] Id.