Peterson Brings CAFTA Testimony to Ways and Means

(WASHINGTON, DC) - In testimony Thursday before the U.S. House Committee on Ways and Means, Congressman Collin Peterson (D-7th District) addressed concerns with the Central American Free Trade Agreement and its impact on American agriculture.

Excerpts from his remarks follow:

Thank you Mr. Chairman. While we are here today, the Secretary of Agriculture has been visiting farmers in the Red River Valley of Minnesota to try to address concerns about the CAFTA agreement. So far, the feedback I have received about his efforts from the farmers there is that he just doesn’t seem to get it.

America’s agricultural imports have soared in recent years, while the U.S. agricultural trade surplus has plummeted. For the first time in 46 years, the U.S. Department of Agriculture predicts that in 2005, the U.S. will import as much as it exports. So, a surplus that once peaked at $27 billion in 1996 is now projected to be zero this year. Many economists feel poor trade deals like NAFTA have played a significant role in this alarming trend. Yet in the face of these facts, U.S. trade negotiators continue to pursue new, faulty trade agreements.

During the debate on NAFTA, Administration officials promised that the agreement would add 170,000 jobs in the first year alone. According to more recent estimates, the total number of jobs lost because of NAFTA in its first 10 years is about 880,000. This is not surprising if you consider that in the agricultural sector alone, USDA statistics show that our agricultural trade deficit with Canada and Mexico has almost tripled from $5.2 billion to $14.6 billion.

Part of the problem has been the failure of our negotiators to focus adequate attention on the potential downside of trade agreements. An obvious example is the recent decision in the Brazil - US cotton case. Another is the sugar side letter in NAFTA.

When NAFTA was passed, the US and Mexican governments assured US sugar growers that Mexico would remain a deficit sugar producer, as it had been for the 5 years leading up to NAFTA implementation. But when the Mexican market opened up to US high fructose corn syrup, and the Mexican soft drink industry began to substitute HFCS for sugar, Mexico began to export all of that displaced sugar to the US.

Under the side letter, access was limited to roughly 35 times traditional Mexican access for sugar and the definition of surplus producer was changed to protect US growers from imports of this displaced sugar. Mexico has renounced the side letter, and the Administration has abandoned it, leaving us with the current uncertainty for US producers. In the midst of this uncertainty, the Administration has piled on by proposing new access for sugar imports under CAFTA. This is a horrible precedent for future trade agreements. The total sugar export availability (production minus domestic consumption) of potential US Free Trade Agreement candidates is 27 million metric tons, compared with US sugar production of 8 million metric tons. NAFTA remains the only example of a free trade agreement between major sugar producing countries to include sugar. The disaster that has resulted is a clear reason we should reserve for the WTO all negotiations on sugar, which is a commodity that is heavily subsidized around the world.

Another part of the problem is lack of enforcement. Since implementation of the U.S.-Canada Free Trade Agreement in 1988, the US potato industry has sought relief from unfair and discriminatory market access barriers in Canada.

Canada's Standard Container Law prohibits the importation of U.S. fresh potatoes to Canada in bulk quantities (over 50 kilograms), unless a special Ministerial Exemption is granted. The exemptions are granted on a case-by-case basis and only if “there is no domestic (Canadian) production” to supply the order. Because of the restrictive provisions of the law, there must essentially be a shortage of potatoes throughout Canada before an exemption will be granted. The law is applied to potatoes shipped between Canadian provinces in a much less trade restrictive manner, and is in violation of Canada’s obligation to treat imports no less favorably than domestic products. Canada also continues to apply artificially high dumping margins based on old data on potatoes from the US Pacific Northwest.

A 1997 investigation by the International Trade Commission of the competitive conditions between the US and Canadian potato industries confirmed the existence of several trade-distorting Canadian practices that continue to disadvantage US potato growers and processors. Despite numerous U.S.-Canadian bilateral discussions on the issues, many at high levels, there has been no meaningful relief. The US industry estimates that these and other trade restrictions have cost them $87 million annually in lost business to low-priced Canadian imports, and has costs them a potential annual export market worth $25 million.

CAFTA promises

Estimates that forecast sizable trade gains for U.S. farmers and ranchers under CAFTA are even more delusional than the gains predicted from NAFTA. Compared to NAFTA nations’ population of over 138 million and GDP purchasing power parity of $1.9 trillion, the CAFTA countries have a combined population of approximately 46 million people and a combined GDP purchasing power parity of only $205 billion. That’s 1/3rd fewer people with less than 1/9th of the total purchasing power that NAFTA offered.

Given the poor income distribution in CAFTA countries, it is highly unlikely that there will be resources available for increased purchases of agricultural products from the U.S. (such as expensive hotel grade beef). According to the CIA World Fact Book, Nicaragua, for example, has an income distribution that is worse than the countries in Sub-Saharan Africa.

This lack of potential is reflected in the International Trade Commission (ITC) report on CAFTA, which predicts no gains for US wheat and only minimal gains for US rice, corn, and beef. Meanwhile, both the ITC and Farm Bureau predict a huge cost for the US sugar industry. The ITC cites a study predicting a 4.67% drop in US market prices for sugar. The Farm Bureau predicts losses of $80 million for the sugar industry.

This concludes my oral testimony, but I would like to include additional information for the record. Thank you Mr. Chairman.

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