The Chairman and Members of the Committee on Agriculture traveled to the European Union (EU), Germany, and France to review agriculture trade relations with the European Union.

The Members of the Agriculture Trade Delegation discussed with government officials and agriculture and food industry leaders, issues of mutual interest aimed at expansion of worldwide agriculture trade and resolution of the difference between the U.S. and the EU on specific matters. These include:

1999 World Trade Organization (WTO) negotiations on agriculture trade

European Union (EU) Agenda 2000 and Common Agriculture Policy (CAP) reform

Biotechnology/genetically modified organisms

Biotechnology approval process in the EU

WTO Panel and Appellate Body decisions on the EU meat hormone ban

WTO Panel and Appellate Body decisions on the EU banana regime

EU export subsidies and domestic support

EU sales of subsidized barley in the U.S.

Bovine spongiform encephalopathy (BSE)

Specified risk material ban

Transatlantic Free Trade Area

Vice President of the European Union Commission, Sir Leon Brittan

Commissioner for Agriculture, European Union Commission, Dr. Franz Fischler

European Union Parliament, Committee on Agriculture and Rural Development:

Hon. Jose Happort, Vice Chairman

Hon. Jan Mulder, Member

European Union Farmers' Union

American Chamber of Commerce in Europe

Europa Bio

Confederation of the Food and Drink Industries of the European Union

Minister of Agriculture, Hon. Jochen Borchert

German Agriculture Committee:

Chairman, Hon. Peter Harry Carstensen

Vice Chairwoman, Hon. Marianne Klappert

Members of the German Agriculture Committee:

Hon. Guenther Bredehorn,

Hon. Ulrike Hoefken,

Hon. Dr. Guenther Maleuda,

Hon. Horst Sielaff,

Hon. Egon Sussert, and

Hon. Dr. Gerald Thalheim

Representatives from the Ministry of Agriculture: Mr. Juergen Detken

and Dr. Horst Willer

Ministry of Economics: Dr. Ulrich Schirmer

Ministry of Health: Mr. Werner Siebenpfeiffer

Ministry of Foreign Affairs

German Farmers Association, Secretary-General Helmut Born

State of Brandenburg Agriculture Minister, Hon. Gunter Fritsch

Visit to German Farm in Schmachtenhagen, Germany

Commission for Production and Trade, National Assembly:

Chairman Andre Lajoinie

Hon. Pierre Ducout

Hon. Jean Paul Charie

Hon. Jean Proriol

Ministry of Small and Medium Business and Consumption:

Hon. Marilyse Lebranchu, Minister

U.S. Market Development Cooperators:

Florida Department of Citrus

Alaska Seafood Marketing Institute

U.S. Dairy Export Council

U.S. Dry Bean Council

Hon. Amy Bondurant, U.S. Ambassador to the Organization for Economic Corporation and Development (OECD)

OECD Director, Mr. Gerard Viatte

French Farm Bureau (FNSEA):

Mr. Luc Guyau, President

Mr. Yves Salmon, General Director

Permanent Assembly for French Chambers of Agriculture:

Mr. Jean-Claude Sabin, Vice President

Mr. Daniel Bigou, Director for International Affairs

Advisor for Agriculture and Fisheries to Prime Minister Lionel Jospin, Mr. Claude Chereau

Commission for Economic Affairs in the French Senate:

Hon. Jean Francois Poncet, Chairman

Members of the French Senate:

The Honorable Jean Bizet

The Honorable Hilaire Flandre

The Honorable Marcel Deneux

Ministry of Agriculture, Director of the Cabinet and Ministry Officials, Mr. Jean-Francois Collin

Deputy Mayor of Reims, Professor Serge Kockman

Visit to French Farm, Lavannes, France

Members cited the importance of the 1999 WTO negotiations to the U.S. The future of U.S. farmers and ranchers depends, in great part, on the rules of worldwide agricultural trade. The 1999 WTO negotiations will be the battleground for writing these rules for the 21^st century.

For American farmers and ranchers, trade is an essential part of their livelihood. Currently exports account for 30% of U.S. farm cash receipts. The U.S. produces much more than is consumed at home; therefore exports are vital to the prosperity and success of U.S. farmers and ranchers. Last year (1997) U.S. agricultural exports totaled over $57 billion and the agriculture trade surplus approached $22 billion.

The future holds greater promise for agriculture exports as world income and economic growth expand. Higher incomes for consumers mean improved and diverse diets, which, in turn, result in a greater demand for meat, fruits and vegetables and other high value products.

The 1999 WTO negotiations offer a platform for further reduction in barriers to trade and further expansion of agricultural trade opportunities. Members stated their belief that the negotiations should not be a forum to re-negotiate the gains achieved in the 1994 Uruguay Round Agreement. Instead, Members cited the need to move forward with liberalization of worldwide agriculture trade.

These negotiations can provide a unique opportunity for United States agriculture to further reduce tariffs, open new markets, and address unfair trade practices around the world. Specifically, among the issues likely to be on the 1999 WTO negotiating agenda are several that were not addressed effectively, or at all, during the Uruguay Round. These include:

• reduction of export subsidies and domestic support programs,
• improved market access,
• trade in biotechnology products,
• the operations of state trading enterprises,
• the administration of tariff rate quotas, and
• the use of safeguards for specific commodities.

Members cited the positive aspects of Agenda 2000's focus on economic efficiency and global competitiveness. The more market orientation it brings to Europe, the better it will serve Europe and the global trading environment. Still, it could go much farther. True market orientation requires movement toward the elimination of agricultural price supports, production and export subsidies and all farm income supports linked to production. The EU's desire to support farmer income is understood. However, the EU can and should break the distorting link between production and government payments.

Agriculture organizations in the EU described the European model for agriculture as "multi-functional agriculture", in which there is linkage between farmers and society. Their goals are to provide consumers with healthy food; to safeguard the countryside; and, to reduce disparity between richer and poorer regions of the EU.

The proposed EU reforms are too conservative. Prior to the 1999 WTO talks, the EU should move closer to a market-oriented agricultural sector by eliminating agricultural price supports, production and export subsidies, and farm income supports linked to production. Future EU enlargement negotiations under Agenda 2000 could require additional reforms or the countries seeking membership in the EU (Poland, Hungary, the Czech Republic, Estonia and Slovenia) may be required to adapt their agricultural policies more to the existing EU model.

The March 18, 1998, approval of the three corn varieties (Bt-corn) was not the last step in the process. The European Commission must adopt the decision of the Member States and then the country sponsoring the proposal (France for 2 corn varieties and the United Kingdom for 1) must issue formal consent.

France has not issued formal consent on its two GMO's and instead will likely ask for a delay in the adoption of approval of the GMO's. France plans on holding a conference with its consumers on biotechnology in June 1998, and intends to wait until after that conference to act on the GMO's. If this happens, the U.S. will be unable to ship corn in 1998 (Spain and Portugal are the markets), historically valued at $300 million per year.

In all meetings with EU, French, and German representatives, Members stressed the importance of completing the GMO approval process for the 3 corn varieties, especially since the EU Member States have issued their approval.

The EU approval process for the products of biotechnology is non-transparent and overly political. The vote by a Member State committee on March 18, 1998, in support of Commission proposals to approve the import of 1 rapeseed and 3 corn varieties temporarily averted a potentially serious confrontation over U.S. exports of corn and corn products to the EU. Members cited the need to work closely with the EU to develop, for future bio-engineered crops, a workable, timely, and transparent approval process.

On January 16, 1998, the WTO Appellate Body upheld the WTO Panel ruling that the EU's hormone ban is inconsistent with the WTO sanitary and phytosanitary (SPS) Agreement. The EU stated it would comply with the WTO decision if further study shows no risk, but it has indicated it could do this only over a 4-year period. Members cited the need to implement the Appellate Body decision in a timely manner and lift the ban in U.S. meat exports to the EU. The EU discussed the political sensitivity in the EU related to this issue. The U.S. expects the EU to abide by the Panel and Appellate Body rulings and come into conformity with WTO guidelines, by lifting its ban.

WTO member countries cannot maintain sanitary and phytosanitary (SPS) measures without sufficient scientific evidence. This is not a case where there is scientific uncertainty. These compounds are among the most rigorously examined by scientists and are routinely used in most beef producing countries.

Members cited the purpose of the WTO, to resolve differences between trading partners, as a hallmark of the Uruguay Round Agreement. A failure by the EU to implement the WTO decision would undermine the principles of science-based risk assessment incorporated in the SPS Agreement and threaten the continued viability of the WTO dispute settlement process.

The United States, along with Ecuador, Guatemala, Honduras, and Mexico, challenged the process by which the EU imported bananas. Preferential treatment was given by the EU to certain Caribbean countries' exports of bananas and the method of EU's administration of the tariff rate quota (TRQ) was brought into question. The U.S. position prevailed at the WTO. The WTO decision is an important precedent for how the WTO will look at TRQ's. Tariff rate quotas are used frequently for agriculture products and can be used as non-tariff trade barriers. While the European Commission has agreed to implement all of the WTO recommendations by January 1, 1999, there are questions concerning the consistency of the EC proposal with the WTO decision.

Members discussed the WTO and the Appellate Body decisions that found in favor of the U.S. and the Latin American countries because the EU rules were inconsistent with WTO rules. Members urged the EU to implement the WTO decision in a timely manner.

Members discussed the issue of export subsidies with government officials in the EU, Germany, and France. Both the U.S. and the EU provide income support to farmers and subsidize exports. However, the EU domestic supports and export subsidies in 1997 were more than 8 times larger than U.S. subsidies. ($46.8 billion for the EU versus $5.3 billion for the U.S.)

Additionally, producer subsidy equivalents (PSE's) measure assistance to producers in terms of the value of transfers to farmers generated by a country's agricultural policy. Such transfers are paid either by consumers or by taxpayers in the form of market price support, direct payments, or other support. (Calculated by the Organization for Economic Cooperation and Development, OECD.) The PSE's for all agricultural products in the EU has averaged around 47% in the 1990's. The PSE's for all agricultural products in the U.S. was estimated at 16% in 1996, down from 30% during the 1980's. While representatives of the EU objected to the comparison of the U.S. and EU export and domestic agricultural subsidies, using any yardstick, the EU subsidizes agriculture more than the U.S. Members also discussed that the EU spends large amounts of money on programs that distort world markets. Members agreed that the EU can spend whatever funds it and its taxpayers determine appropriate to support EU farmers, but urged EU representatives not to link that support to production and thereby distort world markets.

During the Committee on Agriculture trade delegation visit, it was reported that the EU sold 30,000 tons of subsidized barley in California and that this sale was subsidized at the rate of $50 per ton. Members advised European representatives of the damaging effect of such action and recommended that the EU immediately cease such sales. Members also recommended that the U.S. Administration strongly protest the EU action and, if determined appropriate, use the tools available to counteract the EU action.

Members advised representatives of the EU, France, and Germany of the actions taken by USDA to ensure that BSE does not enter the United States through imports of affected animals and animal products. BSE, also known as "mad cow disease," is a progressive, degenerative disease affecting the central nervous system of cattle. BSE has never been detected in the United States and USDA maintains a strong and active surveillance program to monitor for any signs of the disease in the United States. The United States has surpassed the international community's recommendations for surveillance for 5 consecutive years.

The EU has officially begun debate, which will likely last into 1999, on reform of the common agricultural policy (CAP). These changes are necessary given current and future WTO commitments and enlargement of the EU into Eastern Europe.

The U.S. and the EU had two way agricultural trade of over $18 billion in 1997. The EU, as a group of 15 countries, is the United States' second largest export market for food, fishery and forestry products, importing $10.7 billion in 1997. The United States and the EU compete head-to-head in almost all third countries for export sales of agricultural commodities. While there are always a number of contentious trade disputes between the U.S. and the EU, a vast majority of our agricultural trade occurs with few problems.

Many representatives of the stressed that the EU should be allowed time to make policy changes given their agricultural model plans and due to consumer concerns about food safety.

Recently, the U.S. and the EU have made some progress on a number of difficult bilateral trade disputes. The EU moved one step closer to reopening the market for U.S. corn with the recent approval of three new GMO corn varieties. The EU is expected to renew an import quota for traditional imports of U.S. malting barley. On rice, the EU recently opened import quotas that were negotiated when Austria, Finland and Sweden joined the EU in 1996. While all of these issues will require further bilateral consultations, they are moving forward.

Even though the EU's import ban on beef produced with growth promoters was found to scientifically unjustified and inconsistent with WTO commitments, the EU has refused to remove it prior to conducting another risk assessment. On the U.S.-EU veterinary agreement, a number of difficult hurdles must still be passed before it can be signed and implemented.

The EU continues to debate specified risk materials in food, feed and industrial products and restoration of consumer confidence after the BSE crisis. The EU's review of GMO's is still lengthy, unpredictable, and non-transparent.

The U.S. International Trade Commission (ITC) recently found imports of EU wheat gluten were damaging the U.S. industry and has recommended the application of a 4-year TRQ.

The European Commission recently released its proposals for reforming the Common Agricultural Policy (CAP) under the Agenda 2000 initiative. Floor prices for dairy, cereals and beef would be reduced 15, 20 and 30 percent respectively, beginning in the year 2000. These price reductions would be offset by increases in direct payments to farmers. The reforms follow the same path as the reforms in 1992 and can make EU agriculture more market oriented. The EU reforms are proposed to increase internal consumption through lower prices, to provide and easier transition for future eastward enlargement, and to allow the EU to meet current and future WTO export subsidy commitment. However, the reforms are not likely to be as aggressive and wide reaching as the U.S. would like.

The EU has formally opened negotiations with 10 central and eastern European countries and Cyprus. However, Estonia, Poland, Hungary, Czech Republic and Slovenia seem to be the most likely to enter the EU first. In addition, there could be lengthy transition periods for full implementation of all common agricultural policies. There continues to be widespread concern about the affects of enlargement on EU agricultural markets and the cost of extending lucrative agricultural payments to the large number of central and eastern European farmers.

Environmental programs, animal welfare, consumer health and safety will likely be priority concerns and the EU may propose countries be allowed to maintain higher agriculture import protection due to legislation in these areas.

Germany plays an important role in the formulation of EU agricultural policy. Germany is the world's second largest new food importer, after Japan. It is the third leading EU producer in terms of value, after France and Italy. In 1997, German food imports totaled $41 billion, 62% of which come from other EU countries. The U.S. share was 4% ($1.6 billion) and the major products were soybeans, almonds, tobacco, and alcohol.

German agricultural exports totaled $23.6 billion, 68% of which go to other countries in the EU. Sales to the U.S. totaled $700 million and the major products were coffee, beer, apple and pear juice, alcohol, and hops.

In contrast with other EU countries, Germany is not export-oriented. The German government has placed a great emphasis on traditional EU policy approaches: self-sufficiency and high internal prices for food and agricultural products reinforced by a high level of protection against external competition.

The German Ministry of Agriculture opposes the EU's proposed CAP reform.

German farmers generally support using biotechnology, as they are high yielding and require fewer inputs to produce. However, environmental and consumer groups in Germany are outspoken and active in their opposition to uses of biotechnology in foods and growing processes. German farm organizations, consumer organizations, and environmental groups strongly oppose imports of meat coming from cattle treated with hormones.

German agriculture representatives complained about the U.S.-EU Blair House Agreement. They believe this agreement constrains them from participating in the growth market for oilseed products. Additionally, they see EU CAP reform as eliminating the need for the oilseeds portion of that agreement since there would be no separate, higher EU payment for oilseeds.

The EU decision to adopt a tariff rate quote (TRQ) for imports of bananas was not supported by the Germans. The Germans suggest that the TRQ be dropped and replaced by tariffs.

France, the EU's leading agricultural producer and exporter, is also a major U.S. competitor in international trade. The two countries compete in exports of grains, beef, pork, poultry, and dairy products. U.S. agricultural exports to France total $700 million annually, consisting mainly of soybeans, corn gluten feed, tree nuts, seafood, forest products, and numerous value-added products. The United States imports over $1 billion annually of French agricultural products, primarily cheese, wine, and spirits.

The government of French Prime Minister Lionel Jospin revised its proposed Farm Bill (Loi d'Orientation) and expects to submit it to the Parliament in June 1998. A key tool of the proposed law is a program whereby farmers would sign a contract to develop and implement specific projects, i.e., environmental improvements, natural resources preservation, etc., and receive subsidies when the contract is fully implemented.

The EU exports 10 times as much wine to the United States as the United States exports to the EU. However, key differences remain on issues such as mutual recognition of wine making practices, tariffs, and the use of geographical designations (such as Burgundy and Chablis) by U.S. vintners. United States is proposing that there be mutual recognition of wine making practices. Under mutual recognition, when new wine making practices are approved in the United States, they would be accepted in the EU. The major EU argument against mutual recognition centers on differing concepts of "good wine making practices." The United States is also proposing that each side reduce its tariffs to zero. The EU's tariffs on wine are higher than those of the United States.

The major issue for the EU and France is the use of geographical indications by some U.S. vintners. The EU has indicated that it is of critical importance to protect their own geographical indications. Many U.S. vintners have already moved away from using European geographical indications. While several large U.S. companies have stated that the cost of making this kind of change would be unacceptable, they have recently indicated a willingness to phase in such a change over a very long time period in exchange for mutual recognition of enological practices and other concessions from the EU.

France has requested access for fresh, red tomatoes from Brittany. However, because Medfly is endemic in parts of France (mainly in the South), USDA/APHIS requested and received trapping data from France to determine whether Brittany could be a suitable habitat for Medfly infestations. There is no official control program for Medfly in France. USDA/APHIS is concerned that Medfly could spread naturally into Brittany or could spread seasonally under favorable climatic conditions. France maintains that Brittany is not a suitable habitat for Medfly.

APHIS has reviewed the data presented by France and published a proposed rule in the Federal Register on October 16, 1997, to allow imports under certain conditions. USDA/APHIS is reviewing the comments before deciding on a final course of action.

USDA/APHIS conducted a pre-clearance program for apples from France in the 1980's. The program was discontinued in 1988 because of persistent infestations with pear leaf blister moth.

France requested and USDA/APHIS conditionally agreed to port of entry inspections, although APHIS plans to pursue short-term reestablishment of the pre-clearance program with France to ensure that the mitigative measures are effective before the product reaches U.S. ports.

The future of U.S. farmers and ranchers depends, in great part, on the rules of worldwide agricultural trade. The 1999 WTO negotiations will be the battleground for writing these rules for the 21^st century.

For American farmers and ranchers, trade is an essential part of their livelihood. Currently exports account for 30% of U.S. farm cash receipts. We produce much more than we consume in the United States; therefore exports are vital to the prosperity and success of U.S. farmers and ranchers. Last year (1997) U.S. agricultural exports totaled over $57 billion and the agriculture trade surplus approached $22 billion.

The future holds greater promise for agriculture exports as world income and economic growth expand. Higher incomes for consumers mean improved and diverse diets, which, in turn, result in a greater demand for meat, fruits and vegetables and other high value products.

Members discussed the 1999 WTO negotiations and its opportunity as a platform for further reduction in barriers to trade and further expansion of agricultural trade opportunities. The 1999 WTO negotiations should not be a forum to re-negotiate the gains achieved in the 1994 Uruguay Round Agreement. Instead, countries should move forward with liberalization of worldwide agriculture trade.

Members cited the need for review of dispute settlement reforms of the Uruguay Round. In the cases of beef hormones and bananas, dispute settlement reports highly favorable to the U.S. were received. The WTO Appellate Body then affirmed these decisions. However, no action has been taken by the EU to fully implement these decisions. The delay and avoidance of compliance is very troubling and may indicate either a poor dispute settlement system or a breakdown in the process.

The 1999 WTO negotiations can provide a unique opportunity for United States agriculture to further reduce tariffs, open new markets, and address unfair trade practices around the world. Specifically, among the issues likely to be on the 1999 WTO negotiating agenda are several that were not addressed effectively, or at all, during the Uruguay Round. These include:

• reduction of export subsidies and domestic support programs,
• improved market access,
• trade in biotechnology products,
• the operations of state trading enterprises,
• the administration of tariff rate quotas, and
• the use of safeguards for specific commodities.

The EU is debating a proposed reform of its Common Agricultural Policy (CAP).

In July 1998, the EU Commission released its Agenda 2000 report. The report outlined the EU's budgetary guidelines until 2006, proposes changes in the CAP, and highlights the cost of enlarging the EU by five new member states in the next decade.

The Commission proposals extend earlier CAP reforms, implemented in 1992, which started the shift away from price supports in favor of direct payments for both the cereal and livestock sectors. Agenda 2000 calls for a 20% cut in the intervention price of cereals beginning in the 2000-01 season, a 30% cut in beef support prices three stages, and a 15% cut in dairy prices combined with a milk production quota increase of 2%. The sugar and wine sectors are unaffected by the proposed CAP reform. Reductions in price support are partially offset by proposed increases in direct compensation payments to farmers.

EU sources have estimated the reforms will increase the cost of the CAP by about 10%. According to the Commission, compensatory aid is expected to increase agricultural spending by $8.5 billion by the year 2006.

Prior to upcoming WTO talks, Members urged the EU to move closer to a market-oriented agricultural sector by eliminating agricultural price supports, production and export subsidies, and farm income supports linked to production. As proposed, EU support-price reductions, combined with increased payments, aren't likely to achieve net support-price declines over the 2000-2006 period. Furthermore, proposed compensatory payments remain linked to production of certain crops, particularly in the cereals sector.

On January 16, 1998, the WTO Appellate Body upheld the WTO Panel ruling that the EU's hormone ban is inconsistent with the WTO SPS Agreement. The EU has said it may comply with the WTO, but it has indicated it will do this over a four-year time period, and will conduct a risk assessment. Members believe the EU must lift the ban in order to fully comply with the WTO decisions.

Members discussed that a failure by the EU to implement the WTO decision would undermine the principles of science-based risk assessment incorporated in the SPS Agreement and threaten the continued viability of the WTO dispute settlement process.

On April 9, 1998, the U.S. Ambassador to the WTO wrote to the EU representative regarding compliance with the WTO Appellate Body decision on the EU ban on meat hormones. The EU was advised that the U.S. ..."strongly disagree(s) with the premise for the additional time requested for implementation.... As you are fully aware, the international scientific community has repeatedly found that growth-promoting hormones used in cattle production are safe. The Panel and Appellate Body agreed. Accordingly, the idea that the EC will require two years to conduct a series of risk assessments and an additional two years to translate those studies into legislative or regulatory action is totally unacceptable."

On January 1, 1989, the EU implemented a ban on imports of red meat from animals treated with growth promoting hormones, cutting off U.S. beef exports to the Community valued at approximately $100 million annually. Since then, some trade has resumed, as some U.S. plants have been able to ship beef certified as coming from animals not treated with hormones.

The EU's ban ignores a vast body of scientific evidence that the six veterinary drugs in question are safe when used according to good animal husbandry practice. The safety was confirmed by the Codex, as well as by the EU's own scientists.

Following years of unsuccessful bilateral discussions and unproductive WTO consultations, in March 1996 (in which Canada, Australia, and New Zealand joined the United States), the U.S. requested a WTO dispute settlement panel.

On August 18, 1997, the WTO Panel upheld the principles argued by the United States and ruled that the EU ban was inconsistent with the principles of the SPS Agreement.

The EU appealed this finding; however, the WTO Appellate Body upheld the basic WTO Panel findings.

The United States, along with Ecuador, Guatemala, Honduras, and Mexico, challenged the process by which the EU imported bananas. Preferential treatment was given by the EU to certain Caribbean countries' exports of bananas and the method of EU administration of the tariff rate quota (TRQ) was brought into question. The U.S. position prevailed at the WTO and in the Appellate Body.

The WTO decision is an important precedent for how the WTO will look at TRQ's. Tariff rate quotas are used frequently for agriculture products and can be used as non-tariff trade barriers.

The WTO and the Appellate Body found in favor of the U.S. and the other Latin American countries because the EU rules were inconsistent with WTO rules. For example, the EU gave import licenses for Latin American bananas to French and British companies, taking away a major part of the business from U.S. companies. Also, the EU required more burdensome licensing requirements for banana imports from Ecuador, Guatemala, Honduras, and Mexico than those from other countries. The discriminatory allocation of access to the EU market was not based on past levels of trade.

After numerous delays, the Veterinary Equivalency Agreement was finally approved on March 16, 1998, at the EU Council of Agriculture Ministers meeting.

According to the terms approved by the Council, the Agreement will be signed as soon as the United States publishes new animal health regulations to permit imports of live animals and animal products from disease free areas within the EU. USDA expects publication of the new animal health rule within 2-3 months.

A significant problem still remains, because U.S. poultry plants using chlorine treatment are not able to ship to the EU. The study on anti-microbial treatment is underway. If the results are positive, the Commission will submit legislation to the Member States to change its policy. These treatments are an important element in modern poultry and red meat processing because they significantly improve the microbiological quality of the product. The EU committed in the agreement to undertake a scientific study on the use of anti-microbial treatments and that study is now underway. If the results are positive, the Commission has promised to submit legislation reversing the EU policy.

Background

The EU harmonized its animal and public health standards among Member States. In harmonizing these standards, the EU introduced new import controls for animal and animal products, which threatened to disrupt U.S. exports to the EU. In April 1997, Secretary Glickman and EU Commissioner Fischler reached agreement on an overall framework for recognizing each other's veterinary inspection systems as equivalent.

The Agreement is expected to open new opportunities for red meat exports and preserves most pre-existing trade in products such as pet food, dairy, and egg products. Without this agreement, U.S. exports of some products, including egg and dairy products, would have been blocked from the EU market unless U.S. industries invested in costly adjustments to their facilities.

Both the U.S. and the EU provide income support to farmers and subsidize exports. However, the EU domestic supports and export subsidies in 1997 were more than 8 times larger than U.S. subsidies. ($46.8 billion for the EU versus $5.3 billion for the U.S.)

In the U.S., domestic support and export subsidies are concentrated on wheat, rice, grains, and cotton. The EU provides domestic support and export subsidies to a broader range of products, including grains, sugar, oils and fats, dairy products, meat, poultry, eggs, fruits, and vegetables.

Producers' Subsidy Equivalents (PSE's) measure assistance to producers in terms of the value of transfers to farmers generated by a country's agricultural policy. Such transfers are paid either by consumers or by taxpayers in the form of market price support, direct payments, or other support. (Calculated by the Organization for Economic Cooperation and Development, OECD.)

The PSE's for all agricultural products in the EU has averaged around 47% in the 1990's, about the same as those in the 1980's. Products with the highest PSE's are milk, beef, veal, oilseeds, and sugar.

The PSE's for all agricultural products in the U.S. was estimated at 16% in 1996, down from 30% during the 1980's. Products with the highest PSE's are sugar, milk, and wheat.

Members discussed that the EU should end policies that weaken Uruguay Round Agreement's export subsidy commitments. The policies in question include using butter and skim milk powder subsidies to export processed cheese and the 'rolling over' of annual subsidies limits.

The EU is exporting processed cheese under subsidy but is counting these exports against their powdered milk and butterfat subsidy commitments. Australia and Japan joined the United States in challenging this policy in the WTO.

Four out of every ten pounds of cheese traded internationally receives a European export subsidy. U.S. domestic price supports for dairy will end after 1999 and many in the industry see opportunities to continue the growth in U.S. cheese exports beyond the current $100 million (32,000 MT) level.

U.S. canned peach exporters have lost third country market share due to large EU production subsidies. Members expressed concern about excessive subsidies to the EU's canned fruit sector, and the consequent loss of U.S. market share in third country markets.

In May 1998, USDA will be meeting in Geneva with the EU in informal consultations along with 11 other canned fruit producing countries to address EU subsidy issues under the auspices of the WTO Committee on Agriculture.

In 1985, after a GATT panel report supported the U.S. position that the processing aid paid to EU canners nullified and impaired tariff concessions granted by the EU on canned fruit products, the U.S.- EU Canned Fruit Agreement (CFA) was negotiated. At that time, the EU agreed to limit processing aid to a level that would only compensate for the higher prices of domestic raw product.

Although the CFA brought some discipline to processing subsidies, abuses undermine the discipline imposed by the Agreement. In addition, chronic overproduction and high minimum grower prices have insulated EU canners from the effects of supply fluctuations. For the past several years, the U.S. canned fruit industry has been very concerned about these excessive subsidies.

The United States has engaged other canned fruit-producing nations to join in a coordinated effort to seek reform of the EU's canned peach sector. The United States and 11 other countries requested informal consultations with the EU under the auspices of the WTO Committee on Agriculture. These consultations should take place in May 1998.

Members raised concerns about rising imports of wheat gluten from the European Union and the negative effects on our domestic wheat gluten industry.

On January 15, 1998, the U.S. International Trade Commission (ITC), in response to a petition filed by the U.S. Wheat Industry Council, found that wheat gluten is being imported into the United States in such increased quantities that it is a substantial cause of serious injury to the domestic wheat gluten industry. Subsequently, on March 18, 1998, the ITC recommended that, as a remedy, the President impose a quota on imports of wheat gluten for a four-year period, starting at approximately 57,000 metric tons in the first year, with this amount increasing by 6 percent in each of the three following years.

High starch prices in the EU encourage production of starch, which in turn results in increased production of wheat gluten. A variety of supports for starch (production refunds, high import tariffs, and export subsidies) allow the EU to sell gluten at lower prices, both in the EU and overseas. The EU's share of the U.S. gluten market has risen from 18 percent in 1990 to 32 percent in 1996.

The EU opened the tariff rate quotas (TRQ's) for U.S. rice negotiated in the 1995 Accession Agreement.

On July 7, 1996, the United States and the EU signed an agreement to compensate for lost trade when Austria, Finland and Sweden acceded to the EU. Under this agreement, the EU agreed to open a TRQ of: 63,000 metric tons (38,000 metric tons for the United States) for semi-milled and wholly milled rice at zero duty, and 20,000 metric tons (8,000 metric tons for the United States) for husked brown rice at an 88 ECU/ton duty. The EU agreed that the United States could allocate its own portion of the rice TRQ's.

In July 1996, the EU passed a regulation implementing the TRQ's for rice. Because the U.S. rice industry had not yet devised an allocation system, EU Agricultural Commissioner Fischler included the 1996 TRQ's into 1997.

In November 1997, the EU implemented the rice TRQ's for the 1997 quantities of brown and milled rice, with this trade to begin in 1998.

Key differences remain between the U.S. and the EU, preventing progress towards reaching agreement on a new Wine Accord. The U.S. government continues to be interested in working with the EU to resolve differences and to draft a new wine agreement.

The EU exports 10 times as much wine to the United States as the United States exports to the EU. However, key differences remain on issues such as mutual recognition of winemaking practices, tariffs, and the use of geographical designations (such as Burgundy and Chablis) by U.S. vintners.

The United States is proposing that there be mutual recognition of wine-making practices. Under mutual recognition, when new wine making practices are approved in the United States, they would be accepted in the EU. The major EU argument against mutual recognition centers on differing concepts of "good wine making practices."

The United States is also proposing that each side reduce its tariffs to zero. The EU's tariffs on wine are higher than those of the United States.

The major issue for the EU is the use of geographical indications by some U.S. vintners. The EU has indicated that it is of critical importance to protect their own geographical indications. Many U.S. vintners have already moved away from using European geographical indications. While several large U.S. companies have stated that the cost of making this kind of change would be unacceptable, they have recently indicated a willingness to phase in such a change over a very long time period in exchange for mutual recognition of enological practices and other concessions from the EU.

USDA has taken a number of actions to ensure that BSE does not enter the United States through imports of affected animals and animal products. BSE, also known as "mad cow disease," is a progressive, degenerative disease affecting the central nervous system of cattle. The disease belongs to a family of diseases known as transmissible spongiform encephalopathies, which includes scrapie in sheep.

BSE has never been detected in the United States. USDA maintains a strong and active surveillance program to monitor for any signs of the disease in the United States. As of February 22, 1998, APHIS had examined specimens from more than 6,600 cattle in the United States and found no evidence of BSE.

Live ruminants and certain ruminant products have been restricted from countries affected by BSE since 1989. Countries now known to be affected with BSE include Belgium, France, Luxembourg, the Netherlands, Oman, Portugal, the Republic of Ireland, Switzerland, and the United Kingdom.

On December 12, 1997, in the wake of continued detections of BSE in additional European countries, evidence of inadequate surveillance, and new scientific information about infectivity, APHIS restricted imports of live ruminants and certain ruminant products from all of Europe. This suspension will remain in effect pending a comprehensive review of disease risk and surveillance activities in individual European countries. U.S. policy is consistent with standards established by the International Office of Epizootics (OIE).

BSE was first diagnosed in the United Kingdom in 1986; it has never been diagnosed in the United States. USDA has developed an emergency response plan for use in the unlikely event of a BSE introduction. As an additional level of precaution, the Food and Drug Administration now prohibits the use of ruminant and certain other mammalian proteins in ruminant feeds. USDA maintains a strong and active surveillance program to monitor for any signs of BSE in the United States. The United States has surpassed the OIE recommendations for surveillance for 5 consecutive years.

The proposed EU ban on specified risk materials (SRM) would impose significant costs on EU producers and consumers and cause significant disruption of international trade. This threatens U.S. exports to the EU of pharmaceuticals, cosmetics, gelatin, tallow and its derivatives, pet food and many other food and consumer products.

The U.S. maintains it should be exempted from any SRM requirements because there is no documented case of BSE despite a most rigorous surveillance of animals and educational initiatives directed at professionals to identify the disease. Members cited the need for the EU to adopt a plan based on science, consistent with WTO obligations, and not disruptive of bilateral trade between the U.S. and the EU.

The EU Member States on March 17 rejected the European Commission's revised proposal on the prohibition of the use of specified risk material (SRM) as regards transmissible spongiform encephalopathies (TSE). The Council of Agriculture Ministers on March 17 instructed the Commission to submit a new proposal as soon as possible, "taking into account further scientific advice on TSEs, particularly at international level".

Background

On July 30, 1997, the European Commission adopted Commission Decision, commonly known as the SRM ban. The goal of the ban is to avoid health risks related to Transmissible Spongiform Encephalopathies (TSEs), such as, Bovine Spongiform Encephalopathy (BSE or "mad cow disease") or new variant Creutzfeldt-Jakob Disease (nvCJD). The ban prohibits the use of specified risk materials (defined as the skull, including the brain and eyes, tonsils, and spinal cord of cattle, sheep and goats aged over one year and the spleens of sheep and goats) in any products sold in the European market.

If implemented as currently drafted, the ban imposes significant costs on EU producers and consumers, and could cause significant disruption of international trade. The ban threatens U.S. exports to the EU of pharmaceuticals, cosmetics, gelatin, tallow and its derivatives, pet food and many other food and consumer products. The estimated trade impact for the United States exceeds $4 billion in exports and sales of products manufactured in Europe by U.S. companies may also be affected. In addition to the trade impact, U.S. public health agencies are concerned that the measure would cause international shortages of needed pharmaceutical products containing gelatin and tallow, adversely affecting public health.

Members cited the importance of an exemption from the SRM ban based on the fact that BSE does not exist in the U.S., and that US-sourced products are therefore safe.

Separate legislation is underway in the EU on cosmetics and pharmaceuticals. On cosmetics, an amendment exempted tallow derivatives from the SRM ban if produced according to certain pressure and temperature requirements. It is hoped that raw tallow for processing into tallow derivatives will also be exempted from the SRM ban.

In December 1997, the EU Standing Committee on Medicinal Products delivered a favorable opinion on a draft document amending legislation on pharmaceutical products to bring it into line with the prohibition on the use of SRMs. The legislation exempts most pharmaceuticals from the SRM-free requirement for at least a year from the effective date of the requirement for food and feedstuffs. Any product on the shelf as of the April 1 implementation date would be permitted for sale until the expiration date.

The EU approval process for the products of biotechnology is non-transparent and overly political. The vote by a Member State committee on March 18 in support of Commission proposals to approve the import of 1 rapeseed and 3 biotech corn varieties has temporarily averted a potentially serious confrontation over U.S. exports of corn and corn products to the EU. The U.S. will work closely with the EU to finalize approval and develop, for future bio-engineered crops, a workable, timely, and transparent approval process.

The March 18, 1998, approval by the EU Member States of the three corn varieties (Bt-corn) was not the last step in the process. The European Commission must adopt the decision of the Member states and then the country sponsoring the proposal (France for 2 corn varieties and the UK for 1) must issue formal consent.

However France has indicated that it will not give final approval on its two GMO corn varieties and instead will ask for a delay in the adoption of approval of the GMO's. There is no anticipated problem with the UK approval. France plans on holding a conference with its consumers on biotechnology in June 1998, and wants to wait until after that conference to act on the GMO's.

The U.S. will be unable to ship corn in 1998 (Spain and Portugal are the markets.) if this delay occurs. Members strongly urged France to complete the approval process for the 2 corn varieties that the Members States have already approved. They stated that since Members States and the EU Scientific Committee (DG-XXIV) have approved these three corn varieties, further delay by France is not necessary.

The EU adopted the Novel Foods Regulation, implemented May 15, 1997, which governs food safety assessments and labeling for genetically modified foods. The regulation requires labeling of all new processed foods and food ingredients, including those made from GMO's.

In September 1997, a new EU law provided for labeling of foods processed from Bt-corn and Round-up Ready Soybeans. This law became effective November 1 but failed to specify labeling criteria or label wording. In December, the Commission proposed labeling criteria that would require foods containing detectable levels of DNA or protein from genetically modified corn and soybeans to be labeled.

The Commission's December proposal will be taken up by the EU's Internal Market Council in 1998. It is expected that whatever is eventually adopted for corn and soybeans will provide the basis for labeling of other GMO foods.

In meetings with the EU food industry, Members discussed the issue of labeling products produced with GMO's. EU food industry officials discussed voluntary labeling in the EU and displayed labels on products, such as:

"This product has been produced with modern biotechnology."

"This product was made with genetically modified tomatoes."

"The benefits of biotechnology are less waste and reduced energy in processing."

In the United States, production processes do not have to be labeled. That is, companies do not have to label a product simply because it is produced through biotechnology. Rather, U.S. labeling policy requires labeling for safety or health reasons, e.g., when an allergenic gene is transferred into a new product. For the past several years, the U.S. has argued strenuously against labeling of a process. However, most European officials, including those that support biotechnology, have come to believe that "process" labeling (i.e., labeling all GMO's regardless of risk) is necessary in order to ensure consumer acceptance.

Both the EU and the United States have comprehensive review processes for genetically modified organisms. However, completion of the process in the United States can take a matter of months, while EU review can take considerably longer.

The primary difference between the two systems is that the U.S. system is based on a review of the end use of the product, using fixed review periods and procedures. In addition, reviews by the USDA's Animal and Plant Health Inspection Service (APHIS), the Environmental Protection Agency (EPA), and the Food and Drug Administration (FDA) are coordinated. In contrast, the EU review process does not have fixed review periods or procedures, and it focuses on the process by which a product is made rather than the product itself.

Members recommended that the U.S. and EU keep their regulatory systems procedurally compatible, even if they differ substantively. Specifically, the EU should establish maximum timeframes for each step of the review process; ensure that sufficient information is distributed to all reviewing parties and coordinate early in the process;

clarify how the different review mechanisms function together and establish clear pathways for resolution of disagreements; and ensure that new policies or procedures that require additional time, information, or review by different committees are justified, officially adopted, and communicated to the affected industry.

The USDA/APHIS review process for unconfined environmental release involves a maximum 180-day review that includes a 60-day public notice and comment period.

EPA assesses pesticides and the genetic material necessary for their production in genetically engineered micro-organisms and plants for unreasonable adverse effects to humans, nontarget organisms, and the environment. Safe residue tolerance levels are established before the pesticide is registered for sale and distribution.

Food safety and nutritional assessments of genetically modified food or feed products in the United States are conducted based on the FDA's 1992 policy on foods derived from new plant varieties. These reviews can occur any time before use of the product as food or feed.

The U.S. does not require mandatory labeling of genetically engineered foods, food ingredients, feeds, or seeds solely because of their means of production.

In contrast, there is a lack of clarity in the EU concerning requirements and procedures for approval of the release and marketing of genetically modified microorganisms and plants.

One major cause of delay in the EU has been the series of internal policy disputes regarding labeling, monitoring, and resistance management. Predictable and timely procedures for resolution by the Commission of these and similar policy disagreements and disputes between the Member States were clearly not developed when these regulations were developed.

This has made it extremely difficult for companies to plan a viable and reliable commercial timeline--one that takes into account the requirements for commercial scale-up (i.e., planting or fermentation, packaging, labeling, and distribution) and meeting the regulatory requirements of the EU and its Member States.

Agriculture figured prominently in fast track proposals due both the importance of agriculture trade and the problems and barriers that have faced U.S. agriculture in worldwide trade.

Last year farmers and ranchers in the United States exported $57.3 billion of agriculture products. Agriculture has a positive trade balance of $21.5 billion. The reasons for these positive numbers is due to the productivity of U.S. farmers and ranchers, the high quality of their products, and the liberalization of agriculture trade rules achieved through trade agreements.

Those interested in promoting agriculture around the world believe our farmers and ranchers can do even better than was done last year. But unless barriers are eliminated, expansion of United States agriculture trade will be slowed down.

Without fast track authority, the United States will not be able to complete negotiations or fully participate in the 1999 World Trade Organization discussions. Other countries of the world, including major competitors, will participate and the rules for agriculture trade could be written without the U.S.

Other countries are moving ahead to secure trade agreements. Chile has reached trade agreements with Mexico and Canada; MERCOSUR (Paraguay, Uruguay, Brazil, and Argentina) has trade agreements with Chile and Bolivia; and the European Union is seeking agreements with Latin American and Asian countries. All this means that preferential access will be provided to other countries and the United States will be at a disadvantage unless we can fully participate in the negotiations.

Most other countries do not need "fast track" authority because they operate under a parliamentary system of government. In that form of government a proposal by a Prime Minister represents the will of the majority party in Parliament.

In the United States, with the separation of powers, Congress has the authority to modify laws, and virtually all non-tariff trade barriers are matters of law. Since 1934, Congress has, from time to time, delegated to the President the authority to enter into trade agreements with foreign countries. Through successive extensions and reenactments, the trade agreement authority has expanded and become more detailed. Initially, the President was authorized to enter into tariff-concession agreements and implement them by proclamation. Later, the trade agreement authority also included agreements on non-tariff barriers and those establishing free-trade areas. These, however, require implementation through legislation exacted under a special, expedited process, known as "fast track."

The U.S. government is considering the EU's proposal for an enhanced U.S.-EU trade initiative. If such an initiative is pursued, Members insisted that agriculture must be a fundamental part of any agreement.

A major result of the December 1995, U.S.-EU Summit in Madrid was the signing of the U.S.-EU New Transatlantic Agenda and the Joint U.S.-EU Action Plan. The bilateral trade and economic component of the Action Plan is the Transatlantic Marketplace.

Some initiatives envisioned in the Action Plan, such as the negotiations on Mutual Recognition Agreements in various standards areas (e.g., pharmaceuticals, communications), are already ongoing and can easily be continued. Other areas, a joint study on ways to further eliminate trade barriers, tariff reduction and acceleration, government procurement, and the Information Technology Agreement negotiations, have been started nearly from scratch. The transatlantic Business Dialogue (TABD) is a part of the Marketplace in which U.S. and EU business leaders meet (together with the two governments) to discuss identified trade problems.

In March 1998, the EU College of Commissioners approved plans to open negotiations on a new trade agreement with the United States. European Trade Commissioner Sir Leon Brittan's proposal for a "New Transatlantic Marketplace" initiative calls for a widespread removal of technical barriers to trade in goods, a political commitment to eliminate all industrial tariffs by 2010, a free trade area in services and further liberalization in the areas of government procurement, intellectual property and investment. The Commission's proposal includes agriculture only incidentally. Agricultural tariffs are specifically excluded (upcoming WTO negotiations are cited as the reason).

1. Press clippings:

April 20, 1998, liberalize agricultural markets, AGRA

April 16, 1998, subsidized European barley exports; export subsidies, Les Marches

April 14, 1998, subsidized European barley exports; GMO's, Agence France Presse

April 9 and 10, 1998, labeling; Agenda 2000; EU ban on meat hormones, Europe Information Service

April 9, 1998, U.S./EU alliance for WTO negotiations, Agra Europe

April 9, 1998, meetings with Brittan and Fischler; subsidized European barley exports, Agence Europe

April 8, 1998, Trans-Atlantic Market Place, Agra-Facts

April 8, 1998, EU ban on meat hormones; U.S./EU trade agreement, Reuters

April 3, 1998, EU ban on meat hormones; specified risk material, Reuters

2. Letter from Chairman Smith to Hugo Paemen
3. Letters from Chairman Smith to Secretary Glickman, Ambassador Barshefsky, and Dr. Fischler re: EU sale of subsidized barley in the U.S.
4. April 17, 1998, Committee on Agriculture press release
5. April 9, 1998, letter from Ambassador Rita D. Hayes to EU Ambassador re: implementation of the WTO decision on meat hormones.
6. April 22, 1998, letter from Ambassador Barshefsky to Sir Leon Brittan re: genetically modified corn.
7. May 8, 1998, letter from Chairman Smith, etc. to The President re: genetically modified corn.