September 21,2005

Grassley Urges Ag Trade Liberalization to Help U.S. Producers

Statement of Senator Chuck Grassley
Senate Agriculture Committee Hearing on
The Status of World Trade Organization Negotiations on Agriculture
September 21, 2005

I’m pleased to submit this statement for today’s hearing on agricultural negotiations at the World Trade Organization (WTO). As a senator from Iowa, and as a member of the Committee on Agriculture, I have a major interest in seeing that the Doha Development Agenda (Doha Round) negotiations of the WTO benefit the U.S. agricultural sector. Moreover, as Chairman of the Committee on Finance, the Senate committee with jurisdiction over trade legislation, I’m actively involved in trade issues affecting agriculture.

I’d like to begin by emphasizing the importance of international trade to the health of rural America. Approximately one-third of U.S. acres are planted for export. Agricultural exports constitute aboutone-fourth of U.S. farm cash receipts. U.S. farmers and ranchers clearly gain from internationaltrade.

But we can do better than the present. High tariffs imposed by other countries significantly impedemarket access abroad for U.S. agricultural products. At the same time, U.S. tariffs on agriculturalimports are among the lowest in the world. The levels of subsidies provided by some of our majortrading partners are significantly higher than those of the United States. In addition, some WTOmembers – unlike the United States – extensively use export subsidies.

The Doha Round offers a once in a generation opportunity to change this situation. The outcome ofthe Doha talks could lead to the removal of artificial distortions in the international marketplace thatharm U.S. farmers. For this reason, it’s important that the United States remain focused on achievingresults in the upcoming WTO ministerial in Hong Kong that will lead to a successful conclusion ofthe Doha Round by 2007.

But not just any Doha Round agreement will be acceptable to the United States. Such an agreementmust result in real gains for U.S. agriculture. Most importantly, any new agreement must provideincreased market access abroad for U.S. farm products. In addition, any new agreement must followthrough with the goals of harmonizing levels of domestic support and eliminating export subsidiesby a date-certain as provided in the WTO framework of August 2004.

Market Access

The single greatest goal of the United States in the Doha Round agricultural negotiations must beto obtain substantial improvements in market access for U.S. farm products. Any agreement thatdoes not fulfill this objective must be rejected.

U.S. tariffs on imports of agricultural products are significantly lower than those of almost all of ourtrading partners. This is true of our developed country trading partners. According to a 2005 WorldBank report, the average U.S. trade-weighted applied agricultural tariff is 2.7 percent. In contrast,the average trade-weighted applied agricultural tariff for the European Union is 11.8 percent, forJapan is 34.6 percent, and for Korea is 93.9 percent. Accordingly, the average applied tariff of theUnited States is more than four times lower than that of the European Union, over twelve timeslower than that of Japan, and over thirty-four times lower than that of Korea.

Likewise, the average trade-weighted bound agricultural tariff of the United States – 6.2 percent –is much lower than that of most of our developed country trading partners. The average such tarifffor the European Union is 20.5 percent, for Japan is 62.1 percent, and for Korea is 103.5 percent.

The disparity between tariffs of the United States and its developing country trading partners ispronounced as well. According to another 2005 World Bank report, the U.S. trade-weighted averageapplied tariff for agricultural and food products is 2.4 percent (slightly lower than in the other WorldBank report noted above). The average such tariff for Brazil is 5 percent, for Indonesia is 5 percent,for Argentina is 7.1 percent, for South Africa is 8.8 percent, for Mexico is 11.6 percent, for Thailandis 29.7 percent, and for India is 50.3 percent. Significantly, all of these countries are members of theG-20, a negotiating group in the WTO talks that is calling for increased access to the U.S. market.

The average applied agricultural and food tariff of Brazil, a leader of the G-20, is over twice as highas that of the United States. India, another G-20 leader, applies tariffs to agricultural and foodproducts that are over twenty times higher than those of the United States. Before the United Statescommits to even further liberalize its agricultural market, we need strong assurances that thesedeveloping countries will provide greater access for U.S. agricultural products.

In order to ensure improved market access for U.S. producers, the number of products designatedin the market access negotiations as “sensitive” or “special” should be kept low. Tariff peaks shouldbe eliminated, thus leading to more harmonized agricultural tariffs.

Unfortunately, even if tariffs are cut significantly through the Doha Round, exports of certain majorIowa and U.S. agricultural products will not necessarily increase into all markets. For example, theEuropean Union remains essentially closed to imports of U.S. beef, corn, and pork due toscientifically unfounded safety concerns. In the case of beef, the European Union maintains its bandespite a 1998 WTO ruling that this ban violates the European Union’s WTO commitments, and theUnited States is currently challenging the European Union’s moratorium on the approval ofagricultural biotech products, a policy that in effect blocks exports of U.S. corn. Japan continues toban imports of U.S. beef although this product is scientifically proven as safe. The United Statesmust continue to work aggressively to see that non-tariff barriers to U.S. agricultural exports areremoved. Otherwise, gains in market access for some products in certain countries will be largelyillusory.

Domestic Support

Some countries have been calling for the United States to agree to reduce its domestic support beforethey agree to cut their tariffs. But we haven’t seen a reciprocal willingness from them that they’llagree to the necessary tariff reductions in the negotiations. I believe that the United States should bewilling to reduce its domestic support, but only if both developed and developing countries agreeto provide greater market access for U.S. agricultural products.

When negotiating on domestic support, U.S. negotiators should work to see that subsidies arereduced and harmonized through the Doha Round negotiations. This would be in line with theframework agreement of August 2004, which provides that there will be a “strong element ofharmonization” in cuts in domestic support, and that, specifically, “higher levels of permitted tradedistortingdomestic support will be subject to deeper cuts.” Accordingly, the European Union, Japan,and other countries must be willing to signal that they’ll cut their support.

But interestingly, the United States is currently under attack in the WTO negotiations, especiallyfrom the European Union, over our domestic support. It strikes me as odd that the European Unionis going on the offensive over U.S. subsidies. If anything, the European Union, and not the UnitedStates, must be prepared to reduce its subsidies if the round is going to have an element ofharmonization. The European Union is currently able to provide over $60 billion annually in tradedistortingdomestic support. This amount is over three times the $19 billion limit of the UnitedStates. Moreover, the European Union, unlike the United States, uses blue box subsidies, which canbe provided in unlimited amounts.

Regarding the blue box, the European Union is protesting the inclusion of countercyclical paymentsin the “new” blue box as laid out in the framework agreement. From what I understand, the UnitedStates – prior to the reaching of the framework – was seeking to eliminate the blue box. After all,it didn’t seem fair that just the European Union and six other countries have blue box subsidies. TheUnited States dropped its demand to eliminate the blue box, however, after agreement was reachedto include countercyclical payments in the new blue box. If the European Union is now calling forcountercyclical payments not to be included in the new blue box, or if it is insisting that onerousconditions be placed upon them if they are included in the new blue box, I believe that the UnitedStates should revisit the issue of whether a blue box should exist at all.

Export Competition

Export subsidies are the most trade-distorting of all support measures, and I’m pleased that theframework agreement provides that they’ll be eliminated by a date-certain. The European Unionprovides 85 to 90 percent of the world’s total export subsidies. As export subsidies are used by sofew countries, and as they are so trade-distorting, it only seems reasonable that WTO membercountries agree to their elimination. I hope that the United States and its trading partners agree to endthem at the earliest possible date.

On a similar topic, I urge U.S. negotiators to press for the elimination of differential export taxes.Differential export taxes in effect subsidize exports of processed agricultural products. I understandthat three of the four WTO member countries that use differential export taxes – Argentina,Indonesia, and Paraguay – are members of the G-20 and are asking that the United States lower itstariffs to their products and provide reductions in its domestic support. I encourage the United Statesto negotiate with these countries for the elimination of differential export taxes.

On another topic listed under the subject of export competition, I note that I’m wary of calls by theEuropean Union to limit food aid to cash payments. I’m concerned that cash donations would invitecorruption.

Developing Countries

Developing countries are fully involved in the current WTO negotiations, and this is a good sign forthe world economy. Their further integration into the international market will benefit not only theircitizens, but people throughout the world.

I’m concerned, however, by the apparent unwillingness of developing countries to push foragricultural trade liberalization among themselves. Developing countries need to appreciate that thekey to development is not exclusion from liberalization, but liberalization itself. As demonstratedby their high tariffs, developing countries have among the world’s most protected agriculturalsectors. This protection limits market opportunities for agricultural exporters in both developed anddeveloping countries who seek to export their products to developing countries. In addition,consumers in highly protected developing country markets, such as India, are penalized by hightariffs on agricultural and food products. By reducing agricultural trade barriers, developing countrieswould enhance their own competitiveness, and thus enhance their potential for income gains.

I’m also concerned by continued calls from net agricultural exporting developing countries forspecial and differential treatment. Some developing countries have world class, highly advancedagricultural sectors that compete directly, and successfully, with their counterparts in the UnitedStates and other developed countries. Providing special and differential treatment for internationallycompetitive producers in these developing countries is simply unwarranted. I urge U.S. negotiatorsto see that these producers are not provided special and differential treatment that they do not need.

Conclusion

The Doha Round has the promise of expanding trade opportunities for U.S. farmers and benefitingrural America. In order to live up to its promise, any agreement reached through the negotiationsmust provide significant new market access opportunities – in both developed and developingcountries – for U.S. agriculture. Negotiations on subsidies must provide for the reduction andharmonization of domestic support, and per the 2004 WTO framework agreement, U.S. negotiatorsshould make clear that the United States expects that countercyclical payments will be included inthe new blue box. In addition, as called for in the framework agreement, export subsidies shouldindeed be eliminated by a date-certain.

The Doha Round provides a once in a generation opportunity to promote international economicgrowth and prosperity through trade liberalization. The entire world will benefit if we’re able toconclude these negotiations successfully.