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of tariffs, amounting to 200 percent or more. Now, contrast 200 percent import barriers against our grain in Japan and in Europe of more than double the value of the grain at the American farm, with an average of tariff barriers around only 5 or 6 percent that will remain for manufactured goods exported by American industry when this agreement is fully in effect.
We receive no reduction whatsoever in the barriers against our exports of grain and we did not receive an international agreement to raise grain prices, and we have not yet received action by the Government to raise grain prices, which are now among the very lowest in the world and far below the farmers' cost of production. Thank you, Mr. Chairman.
Senator RIBICOFF. Thank you very much.
Any questions? Senator Nelson.
Senator NELSON. Mr. Lewis, I would appreciate your response to the question I raised with Mr. Starkey on the proportion of the U.S. cheese market held by imports. I made the point that the figure on imports as a percentage of domestic production has remained fairly close to 6 percent or 7 percent for a good many years. Imports have been running along in the 6-percent area, up as high as 7 percent or a little more in some years, but since 1974 the figure has been 6.4 percent at the highest. I would like to know what your view is of the trade agreement, given that it obviously is impossible within the Congress to reject the agreement, impose countervailing duties under current law, and put a quota on cheese out of Australia and New Zealand
This is my question: If the situation remained as it is today, and that is to say continuing the price break system, with the tonnages steadily increasing—having reached 106,000 metric tons last year and probably reaching 111,000 in a year or two-is or is not the dairy industry better off under this new agreement than it would be under the price break system with countervailing duties in suspension?
Mr. LEWIS. Well, the countervailing duty system will be in suspense only until the temporary suspension expires-
Senator NELSON. But under the trade agreement the countervailing duty statute as currently configured would, in effect, remain in suspension.
Mr. LEWIS. Under the agreement it will remain in suspense, that is right. But we are comparing the condition of dairy farmers under this agreement with what they could expect under the existing law and the rights they have under section 22.
Senator NELSON. I understand that and I would think that would be the ideal situation, but of course that is not going to happen. And in fact the farmers union is endorsing that it not happen because they are endorsing the trade agreement. Therefore, if they endorse the trade agreement and it is adopted, there is no countervailing duty. So what I am asking is given the options that are present, not what you and I would like to see representing dairy people, but given the options that are present, are you not better off under the trade agreement than you are under the current law in which it is under suspension and you are using the price break system?
In other words, your organization is endorsing the agreement and therefore there is not going to be any countervailing duty if your position prevails-and it is going to prevail-and therefore, you have to look at where you are at versus where you have been going for the last 15 years?
Mr. LEWIS. Senator Nelson, we endorse the agreement. We think that the world trading system would be dealt a very severe and dangerous blow if we didn't have it.
Senator NELSON. I understand.
Mr. LEWIS. The agreement imposes an unfair burden on dairy farmers. The dairy farmers are being asked to swallow subsidized imports that will take away part of their market and create political pressure on the administration to reduce the level of price support. And that will reduce the dairy farmers' income, notwithstanding what everybody says about continuing to share a growth in that market for cheese.
It is the milk that is displaced that counts.
The processors are more concerned about specific products. But in the last analysis it is milk that farmers are paid for.
I think the dairy farmers are entitled to compensation for approval of the trade agreements, which we feel is in the public interest; but we feel that dairy farmers are entitled to compensation for being forced to pay an unfair share of the price for that benefit to the public interest.
Senator NELSON. Well, that gets around to the dairy support price question.
Mr. LEWIS. It certainly does.
Senator NELSON. Thank you.
Senator RIBICOFF. Thank you very much.
[The prepared statement of Mr. Lewis follows:]
PREPARED STATEMENT OF ROBERT G. LEWIS, CHIEF ECONOMIST AND NATIONAL SECRETARY, NATIONAL FARMERS UNION
The Farmers Union supports passage of the Trade Agreements Act of 1979 S. 1376.
In a statement to Ambassador Robert Strauss, the Special Trade Representative, National President Tony Dechant expressed the views of the Farmers Union in these words:
"The Congress has no realistic choice but to approve the Multilateral Trade Agreements.
"In doing so, it should be recognized that it represents a vote for the continued existence of the world trading system that has been constructed under American leadership in the long decades since enactment of the first Reciprocal Trade Act of 1934, rather than as an expression of satisfaction with the outcome of this particular phase in the development of that system.
"The consequence of rejection of the agreement might very well be to set off a chain of events similar to those that followed enactment of the Smoot-Hawley Tarriff Act of 1928 which led to collapse of the world trading system and to the Great Depression.
"It must be recognized, however, that these agreements fall short of satisfying the needs and the equitable rights of American farmers. Two outstanding and immediate needs must be faced:
"1. The need of American dairy farmers for compensation for the burden placed upon them by the denial of effective enforcement of the countervailing duty law and the large increase in the cheese import quota; and
"2. Positive action to raise the prices received by American grain farmers.
"Both needs can be addressed by action in respect to domestic price support programs of the United States, completely independent of any understandings or requirements of consent from any other country.
"In the longer run, much remains to be done before the rightful role of Amercian farmers in feeding the world's growing population, and to be equitably compensated for their labor, investment, management, and risk, will be properly defined and secured. Approval of the agreements by the Congress is by no means the end of the task. At best, it marks only a beginning."
The appropriate remedy for the injury that will be suffered by dairy farmers under the agreements, we believe, is to increase the price support for milk to 90 percent of parity. This view was expressed by delegates to the 77th Annual National Convention of the Farmers Union in Kansas City, Missouri, on March 11-14, 1979, in these words:
"The trade agreements negotiated under the Multilateral Trade Negotiations (MTN) will provide for permanent suspension of effective enforcement of countervailing duties against subsidized imports of dairy products, and will increase the annual import quota for cheese to approximately 400 percent of the quantity likely to be imported annually if the existing countervailing duty law is enforced in good faith. This severe burden on dairy farmers would not be balanced in any way by other provisions of the MTN agreements, and dairy farmers whose incomes are impaired thereby would not be eligible for any of the trade adjustment payments and other benefits that are available to workers and corporations that would be injured in imports.
"We recommend that the National Farmers Union oppose approval by Congress of any weakening of the present countervailing duty law as proposed in the MTN agreements unless and until the injury to dairy farmers that would result is offset by raising the minimum price support level for dairy products to 90 percent of parity."
Delegates of the Farmers Union's national convention also specified measures which we believe are required in order to overcome the lack of adequate provisions in the MTN agreements in respect to trade in grains.
American grain farmers originate nearly half of American agriculture's huge $30 billion-a-year in export earnings. Tariff duties or their equivalent are imposed on American grain by practically every importing country at up to 200 percent or more of the farm value. American grain farmers receive the lowest level of government price support in the world. Throughout the last three years, the marketing system in our country has held prices received by farmers substantially below the cost of production including a fair return on the farm family's labor and investment. The reserve program and bi-lateral arrangements such as the one in effect already with the Soviet Union are designed and we fear likely to be used so as to suppress the prices received by American farmers even in the face of world shortage.
But our grain farmers received no relief at all from import barriers through these trade negotiations. Neither did they receive the benefit of an international grains agreement to raise the grain export price, which was the approach recommended by the Farmers Union.
In contrast, American industrialists received tariff cuts averaging 46 percent from Japan and 34 percent from the European community, reducing the remaining tariff against their goods to a mi ule average of out 5 percent and to zero for many items.
The remedy for the disappointing failure of the MTN in respect to trade in grains was stated by the Farmers Union convention delegates as follows:
"Negotiations to reach an international wheat agreement have collapsed.
"Farmers Union urgently requests the Congress and the Administration to appoint a commission reach an agreement with Canada, Australia, and Argentina on the world market share of wheat for each country and on a minimum price. This price must be high enough to return to farmers a reasonable profit above the cost of production.
"We call on Congress to provide direction to the President to negotiate for the early establishment of an international commodity agreement affecting international trade in wheat and feed grains. A new international grains arrangement should provide for:
"(a) All trade in grains to be conducted at prices within a range approximating 90 to 110 percent of parity, which would reflect increases in production costs since the negotiation of the International Grains Arrangement of 1967, as well as the costs of maintaining world food reserves and food aid;
"(b) World grain reserves to be maintained by importing and exporting countries; "(c) Expanded and improved food aid programs to be carried out by both exporting and importing countries with the goals of providing for emergencies, promoting economic and market development, and generating employment for the world's hungry; and
“(d) Equitable sharing among exporting and importing countries of the cost of and responsibility for adjusting market supplies to maintain prices, reserve stocks, and food aid.
"We recommend that international commodity agreements be considered also for other agricultural products widely traded in international markets, particularly sugar, dairy products, coffee, cocoa, edible oils, broom corn, sotol, and other fibers." Norwithstanding the desirability of establishing an International Grains Agreement as recommended by the Farmers Union convention, substantial improvement in the level of price support for American grain farmers can and should be made immediately by administrative action under existing domestic price support legislation. Action to raise price supports for wheat and other grains is a matter strictly of domestic price support policy, and does not require the consent nor approval of any other country. We recognize that this is the province of the Executive Branch, and that such a matter exceeds the jurisdiction of this Committee. Nevertheless, we urge Committee members to use their individual influence toward that objective.
In his statement, Mr. Dechant noted that "much remains to be done before the rightful role of American farmers in feeding the world's growing population, and to be equitably compensated for their labor, investment, management, and risk will be properly defined and secured". The NFU convention delegates specified a broad approach to this task which we commend to the Committee for its consideration for future action, as follows:
"We favor negotiation with other countries for measures to further expand international trade. The primary goal of United States farmers and ranches in such negotiations is the expansion of opportunities for the impoverished people of the world to sell their goods and services in the markets of the developed countries to earn foreign exchange so they can buy food and other urgent necessities.
"Expansion of agricultural exports is the primary purpose of Public Law 480 (Food for Peace), of which the full legal title is "Agricultural Trade Development and Assistance Act". The development of two-way trade, as a means of enabling poor and hungry people to get jobs and earn money to buy food, is fully consistent with the humanitarian purposes of the Act.
"We object to allowing the burden of adjustment to trade policy changes to fall exclusively upon the farm/ranch producers or the workers and investors in industries who are partially displaced in our markets by imports, and we favor positive measures of adjustment assistance which will lift this burden and enable them to share equitably in the economic advantages of trade expansion.
"We oppose the use of export restrictions or embargoes on agricultural commodities as a price-depressing measure.
"In the event export embargoes or other restrictions of exports are imposed on any agricultural commodity, producers should be guaranteed prices as much above 100 percent of parity as will be sufficient to offset the shortfall below parity prices of returns to producers during the preceding 12 months."
Senator RIBICOFF. Mr. Robert McLellan.
STATEMENT OF ROBERT L. McLELLAN, CHAIRMAN, INTERNATIONAL TRADE COMMITTEE, NATIONAL ASSOCIATION OF
Mr. MCLELLAN. Thank you, Mr. Chairman and members of the committee.
I am Robert McLellan, vice president of FMC Corp. I am a former Assistant Secretary of Commerce. My appearance here today is on behalf of the National Association of Manufacturers (NAM) as chairman of the NAM International Trade Committee.
I am accompanied by Lawrence Fox, vice president for international affairs of NAM and also a former Deputy Assistant Secretary of Commerce.
My own company is a diversified producer of machinery and chemicals with 1978 sales of over $2.9 billion, including exports of approximately a half billion dollars. FMC's manufacturing operations employ 46,000 people in 33 U.S. States and 14 foreign countries.
From NAM's point of view, the most important objective of the MTN negotiations has been the effort to create rules that, if followed, will establish appropriate conditions of competition in world markets based to the maximum extent on free market competition. In common parlance, this subject generally is referred to under the heading, "Non-tariff barriers" to trade (NTB's).
The heart of the nontariff barriers problem relates to the acceptance by governments of constraints on their actions which alter and distort trade by government fiat. The growth of public sector involvement in the production of goods, and the growth of public sector influence on consumption generally throughout the world, means that, increasingly, governments are making decisions as to what types of goods are bought and sold. Technical specifications, performance standards, purchasing rules and supply subsidies have been designed to favor home producers over competing foreign firms.
Governments have, therefore, acted to strengthen their private sector enterprises in their competitive position, often utiliz ious forms of domestic subsidies to provide capital, improve infrastructure and support research and development. In some instances, Government support of a new industry or the expansion of an existing industry includes assurances of a domestic market and leads to manufacturing capacity well in excess of local needs.
The result, of course, may be the substitution of domestic products for imports and the creation of domestic capacity which can be utilized only through exports which then are often subsidized in various ways by governments, either directly or indirectly.
The codes of conduct negotiated in the MTN are designed to address these problems and, in fact, do constitute a major step forward in establising a world trade system under the General Agreement on Tariffs and Trade (GATT) which recognizes the realities of the role of governments in today's world trade.
NAM recommends that the Congress act favorably on the trade package now before it. With certain reservations, we believe that the codes of conduct negotiated with respect to the major nontariff barriers which confront American trade are sound and represent major improvements n the GATT system. The most important codes concern Government procurement, subsidies and countervailing duties, technical standards, customs valuation, and trade in civil aircraft.
The most important area in which agreement has not as yet been achieved relates to a multilateral import safeguard system under the GATT. A more effective GATT mechanism is required to defend American trade interests against increasingly common trade restrictions. For example, industry-to-industry agreements like the arrangement reached between the steel industries of Japan and the Common Market, currently need not be reported to the GATT.
We are recommending that the GATT rule on import controls be broadened to cover all types of such controls, including orderly marketing agreements and so-called voluntary export controls, and that all existing and future export or import restraints of whatever nature, whether governmental or private in character, be notified to the GATT.