Senate Agriculture Committee Hearing
For questions on the note below, please contact Scott Parsons or Daniel Austin at (202) 547-3035.
Today, the Senate Ag Committee held a hearing entitled “Perspectives on U.S. Agricultural Trade.”
- Ambassador Gregg Doud, Chief Ag Negotiator for the Office of the U.S. Trade Representative (“USTR”), explained that the bilateral deal the U.S. recently reached with Mexico maintains the zero-tariff rate and will also cut red tape. He added that U.S. negotiators are hoping to conclude negotiations with Canada as soon as possible, but several outstanding items need to be resolved, including issues related to: dairy, grain grading, and wine.
- Doud said that a priority for USTR is reaching a trade agreement with Japan. He also said that progress has been made in opening new markets for U.S. ag products in Southeast Asia.
- According to USDA Under Secretary for Trade and Foreign Ag Affairs Ted McKinney, USDA and USTR are working together to develop new trade opportunities for the U.S. ag industry. McKinney also outlined several USDA programs designed to provide aid to various ag producers that have been harmed by retaliatory tariffs.
- USDA Chief Economist Robert Johansson described the USDA’s programs and explained that in determining what commodities were to receive assistance, the agency looked at gross trade damages without using a pricing measure. For example, he said that because the U.S. sells significant amounts of cotton to China, USDA anticipates the U.S. cotton industry will be adversely impacted by China’s retaliatory tariffs.
Opening Statements and Testimony
Although the Committee continues its focus on finalizing a farm bill, I continue to hear the same trade concerns from across the ag industry. I am concerned that recent trade actions highlight the ag industry’s uncertainty and struggle.
As time goes on, the concern of losing long-term market access has grown. Free trade agreements (“FTAs”) have boosted the ag economy and supported broad economic growth. Since NAFTA went into effect, the value of U.S. ag exports to Mexico and Canada has increased exponentially from $43 billion to over $138 billion.
USTR is working hard to integrate Canada into the U.S.-Mexico agreement. NAFTA progress is important, but we need to pursue new trade agreements.
We all know that our farmers are no strangers to uncertainty. There are now, however, more unknowns involving ag exports and trade. Ag exports add over $8.4 billion to the U.S. economy each year while supporting millions of U.S. jobs.
Retaliatory tariffs are jeopardizing our trade relationships. For example, American dairy farmers will suffer this year because of Mexico’s and China’s retaliatory tariffs. We need strong and meaningful trade enforcement.
It makes sense to update NAFTA in a thoughtful way while remaining conscious of its long-term impacts. We need to complete these negotiations, so we can have some market certainty.
The agreement USTR recently reached with Mexico maintains our farmers’ and ranchers’ tariff-free access to the Mexican market and modernizes the agreement in important ways that will cut red tape on our southern border. USTR is also working to improve our ag situation with Canada, particularly in areas of dairy, poultry, eggs, grain, rice, and other products.
USTR is looking into the benefits of potential trade partners in Southeast Asia and Africa. I am optimistic about the potential to enter into negotiations in the near future, and I look forward to working with Congress through the Trade Promotion Authority (“TPA”) process as these considerations evolve.
We understand that there are many sensitivities surrounding ag trade but including ag in any negotiations with the EU remains a priority for the administration. Currently, the U.S. runs an ag trade deficit with the EU of over $15 billion, which partly indicates the scope of market access issues and non-tariff barriers for U.S. ag into the EU.
Tariffs on Chinese products are intended to address longstanding unfair and discriminatory Chinese trade and investment practices with respect to IP and to encourage China to eliminate its harmful behavior and adopt policies that will lead to fairer markets for all citizens.
The Trump administration scored significant government-to-government ag trade victories during 2017, including easing regulations on U.S. citrus into the EU; approving new biotech varieties in China; resuming U.S. distillers dried grains into Vietnam and China; and more.
The U.S.-Mexico agreement is a victory for U.S. farmers and ranchers and provides for locking in tariffs on U.S. ag exports to Mexico at a rate of zero, commitments to work together in the World Trade Organization (“WTO”) on ag trade matters, and more.
In response to unjustified tariff retaliation by China and other countries, the president directed USDA Secretary Sonny Perdue to craft a short-term relief strategy to protect ag producers while the administration works on free, fair, and reciprocal trade deals. Specifically, USDA authorized up to $12 billion for three mitigation programs to assist agricultural producers.
The first program, the Market Facilitation Program (“MFP”) administered by Farm Service Agency, will provide payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy, and hogs. USDA will also run the Food Purchase and Distribution Program through the Agricultural Marketing Service for impacted commodities such as fruits, nuts, rice, legumes, beef, pork, and milk. The third program, the Agricultural Trade Promotion Program will assist in developing new export markets for our farm products.
Robert Johansson, Chief Economist, USDA
[did not provide an opening statement]
Roberts: What opportunities are there for farmers and ranchers in a new NAFTA? Doud: We have kept the tariffs at zero and maintained a do-no-harm approach. We need to focus on the future, including biotechnology advances and what they could mean for the future of ag products.
Stabenow: How can the U.S. reach an agreement with Mexico on the steel and aluminum tariffs, which are also impacting the U.S. ag industry? Doud: The Department of Commerce, not USTR, administers the section 232 tariffs. The aluminum and steel tariffs are not a part of our NAFTA negotiations.
Hoeven (R-ND): What issues remain in getting Canada to sign onto a new NAFTA? Will we be able to vote on a new NAFTA before the end of the year? Doud: The major issues are dairy, grain grading, and wine. USTR has notified Congress of its intent to sign a new deal with Mexico, and we hope to bring Canada into that agreement.
Klobuchar (D-MN): How has USTR engaged with Canada to ensure U.S. dairy producers can compete in the Canadian market? Is USTR focused on promoting U.S. turkey and pork markets? Doud: Dairy is the top priority in our negotiations with Canada. Our talks with Canada also include poultry and pork.
Boozman (R-AR): Can we reach a bilateral trade deal with Japan? What other countries are we exploring deals with? Doud: A bilateral deal with Japan is a priority at USTR because other countries’ and regions’ trade agreements are in effect or will go into effect by next year. The Philippines is a legitimate market for U.S. ag products, and we are also in talks with Indonesia.
Klobuchar: What is the latest on reaching an FTA with Japan? Doud: An FTA with Japan is a high-priority for the administration and USTR.
Thune (R-SD): Is there a possibility of rejoining the Trans-Pacific Partnership (“TPP”), and if not, when can we expect bilateral talks to begin with Japan or other countries that were a part of TPP? Doud: The president has indicated that he prefers bilateral deals. We are working on reaching a deal with Japan.
Daines (R-MT): Are there any updates on challenges or opportunities that U.S. ranchers face in China or Southeast Asia? Doud: It took us years to get access to the Chinese beef market, so our recent progress was a step forward; however, there is significant work to do. Resolving the many issues with China is the most important issue for U.S. ag.
Fischer (R-NE): How can we can grow our access to Japanese markets? What is the status of negotiations with countries in Southeast Asia? Doud: The U.S.-Japan relationship is very important and one we take seriously. We hope to sit down with Japan and facilitate a lasting relationship. There is an enormous amount of groundwork being done to develop our trade relationships in Southeast Asia.
Roberts: How do we pursue new FTAs while at the same time we are losing market access elsewhere? McKinney: We have experienced recent success with countries we previously have not engaged, including several South American countries. USDA and USTR are focusing on many of the same countries to develop trade relationships. We are also seeing trade growth with our current partners.
Bennet (D-CO): What are the long-term effects of the U.S. not participating in other international FTAs? Doud: China retaliated against U.S. ag because of the ag sector’s power and influence in the U.S. China has not fulfilled the promises it made when it joined the WTO; they must change their behavior.
Fischer: Is USDA working with USTR to advocate for market access opportunities? McKinney: Yes, USDA and USTR are working together on developing trade opportunities. Trade must be a two-way street otherwise it is not a productive relationship.
USDA Aid Package
Stabenow: Many have pushed back on the MFP’s fairness, e.g., USDA’s unnecessary payments to cotton farmers, while other sectors continue to struggle with low prices. Explain how USDA determined that cotton should receive more assistance than other commodities. Johansson: There are many ways we could have developed estimation techniques in the program. We decided to look at gross trade damages and not use a pricing measure. We sell a lot of cotton to China, so we anticipate that China’s retaliatory tariffs will adversely impact the U.S. cotton industry.
Klobuchar: Did USDA consider regional shipping disparities for each commodity when structuring the MFP? Johansson: We did not consider regional effects when we put together the current methodology. We are, however, actively examining these factors and providing Secretary Perdue with our findings.
Ernst (R-IA): How did the USDA arrive at the payment rate for U.S. corn farmers, and did the rate calculate for lost ethanol exports? Johansson: China had already taken actions adverse to our ethanol exports prior to our section 202 and section 301 actions. In determining the MFP’s payments, we looked at a trade model that focuses on 2017 exports, and we determined that corn exports to countries that were retaliating were low compared to other commodities.
Bennet: Explain how the MFP payments were determined. Johansson: We have received significant feedback on the MFP’s design. In putting this program together, we tried to be as fair as possible across all commodity groups but were restrained by some of the current tools we have. The program is working to compensate parts of the ag industry impacted by these retaliatory tariffs.
Ernst: How are we alleviating pressure on pork producers? Doud: Concluding the NAFTA negotiations will help our pork producers. Japan is also a huge potential market for our pork products.
Donnelly (D-IN): If prices remain low, how can struggling farmers receive loans? McKinney: We have had several years of depressed farm prices, which I attribute, in part, to unfair trade practices. We are right-sizing things that should have been done years ago.
Smith: How is the administration working together to navigate the complex tariff landscape it has created? What is the plan to stop future retaliatory tariffs? Doud: USTR is hoping to conclude our NAFTA talks soon, then turn to other issues impacting U.S. ag. We are trying to increase our access into other countries as quickly as possible.