Trade With Japan

Mr. Chairman, members of the Committee, I am pleased to come before you today with my colleagues from the Department of Treasury and the Office of the U.S. Trade Representative to discuss trade with Japan.

Importance of Exports to U.S. Agriculture

My focus today is the agriculture and food sector of our economy.  I will discuss the importance of agricultural exports to our economy, trade issues with Japan, and Japan’s role in the agriculture negotiations in the World Trade Organization’s (WTO) Doha Development Agenda.

Agriculture long has been a true bright spot in our nation’s trade balance.  For the past 45 years, agriculture has posted a positive trade balance.  U.S. sales abroad have grown from $4.5 billion in 1960 to a record $62.4 billion in 2004.  This year, we foresee still strong sales of $62 billion, just shy of the record.  We now are forecasting yet another record -- $63.5 billion –for 2006.  And, I should add that these estimates reflect the fact that several major markets – including most notably Japan – with additional sales of some $3 billion remain unjustifiably closed to the United States.

The benefits of agricultural exports extend far beyond the farmgate.  Last year’s sales of $62.4 billion generated $158 billion in overall economic activity.  These sales support additional services to harvest, process, package, store, transport, and market the products.  High-value fresh and processed foods and beverages – which have become a bigger share of our overseas sales – now represent more than 40 percent of total export value, and they generate more additional economic activity than bulk commodities.

Agricultural exports also mean jobs.  Our research indicates that every billion dollars in agricultural exports supports 15,300 jobs -- in trade, transportation, services, food processing, and other manufacturing sectors.  That means our total exports support nearly one million jobs.  These are good jobs – with one third in rural areas and two thirds in metro areas.  In our rural communities, agricultural exports generate more employment benefits than any other export industry.  

I cannot emphasize enough that the future financial health of American agriculture depends on its success in the international marketplace.  Historically, we have been the world’s largest agricultural exporter.  U.S. farmers last year earned 27 percent of their total cash receipts from foreign customers.  For many products, the dependence is far greater – up to 70 percent for some items.  And, increasingly, we are exporting more livestock and horticultural products, high-value products that further stimulate our economy.

Trade with Japan

Now, let me turn to Japan which long has played an important role in American agriculture’s success story.   In the early post-war years, Japan was a U.S. food aid recipient, but soon grew to be the top export market for our farmers and ranchers.  It remained there for over 20 years, but recently has been replaced by Canada and Mexico, our two partners in the North American Free Trade Agreement.  In fiscal year 2004, Japan purchased $8.5 billion worth of U.S. food and agricultural products.  This year, sales to Japan are forecast at only $7.7 billion, reflecting in part lower prices for corn and soybeans.  

While we highly value Japan as an important market, we have had major difficulties in maintaining the market and mixed success in trying to enable it to reach its full potential.  The source of many difficulties is the arbitrary use of sanitary and phytosanitary (SPS) regulations.  This has resulted in many disputes, some very protracted, over the years.

Reopening the Japanese Market to U.S. Beef

 None of the disputes has been of the magnitude nor of the intensity as one still pending before us.  That, as everyone here today well knows, is the closure of Japan’s market to our beef and beef products owing to the discovery of BSE in the United States in 2003.  Japan was the leading market for U.S. beef, buying some $1.4 billion worth in 2003.  

This issue has received the highest attention in our government, involving the President on several occasions – and has commanded the full attention of Secretary Johanns and his predecessor Secretary Veneman, Vice President Cheney, Secretary of State Rice and her predecessor Secretary Powell, U.S. Trade Representative Portman and his predecessor Ambassador Zoellick, and many other high-level officials. Many Members of Congress, including some on this committee, have been very actively involved in the issue, as well.

We have worked diligently from the outset to restore this market.  We have responded to numerous requests for information, hosted several technical teams, and traveled extensively to Japan for countless meetings.  We have emphasized the role and guidelines of the international standard-setting body, the World Animal Health Organization (OIE) and the need for science-based decision-making.  We have urged the Japanese Food Safety Commission to complete its review of import rules expeditiously and the Government of Japan to take prompt action to reopen the market to our beef.  

We have repeatedly told the Japanese government that it is critically important to resolve this issue so that we can eliminate this source of friction between our countries and instead focus on broadening and deepening our overall trade and economic relationship.  The Japanese assure us they are working through the process to reopen their market to safe U.S. beef.  As time quickly passes, those assurances ring hollow – the time to act is now.

Official Control

Beyond beef, let me address another trade priority, and that is Japan’s official control policy that frustrates our ability to ship a variety of fruits and vegetables.  This policy, which calls for fumigating pests that are not being eradicated or contained in Japan as required by international standards, has been an issue of longstanding concern.  This particularly affects fresh fruits and vegetables such as citrus and lettuce.  

In December 2004, Japan’s official control policy was raised at the Regulatory Reform Dialogue, an economic reform initiative launched by President Bush and Prime Minister Koizumi.  These talks resulted in Japan agreeing to bring its official control policy into compliance with international standards.  

As a result of raising this matter through the Regulatory Reform Initiative, this year we have seen some progress toward changing the quarantine status of these pests, a critical first step toward eliminating unnecessary fumigations.   In April, Japan removed fumigation requirements for certain citrus pests, a priority issue for our citrus industry.  This action significantly reduced fumigation costs for citrus traders and will enhance product quality, greatly improving consumer acceptance in the local market.

Japan also has agreed to assess certain pests associated with lettuce production, with the aim of minimizing the need for fumigation.  Japan confirmed earlier this year that it is conducting a pest risk assessment for several different pests, including Western Flower Thrips, one of the most frequently intercepted pests on lettuce. We will continue to press for improved market access for U.S. lettuce into the Japanese market.

USDA also remains active in addressing market issues for many other products.  For example, we work closely with our rice industry to ensure that Japan meets its WTO commitments for market access.  To date, they have purchased the required amounts.  However, we are seeking to secure improved access, particularly to reach Japanese consumers more directly.

Fire Blight

I can report one success among our many, long-standing efforts to open Japan’s market.  As you know, we were successful in our WTO challenge of Japan’s fire blight restrictions against our apples to bring its restrictions into conformity with the WTO SPS agreement.  

On August 25, Japan published the detailed rules for U.S. apple imports, which comply with the WTO fire blight ruling.  We have reviewed the work plan described in the rules and can confirm that the work plan will be in operation for the upcoming season.

Japan’s compliance with the WTO decision is a clear victory for the United States, for our apple industry, and most importantly for the credibility of the international trading rules.  As a result, the Japanese market now is open to our apples under reasonable and science-based terms.  This outcome also signifies the importance of WTO SPS obligations and the need for commitment from WTO members to adhere to science-based, risk-based import and export standards and to apply them equitably without discrimination.

Doha Negotiations

 Before concluding, I want to mention the WTO negotiations and Japan’s role in the talks.  Throughout the summer, despite the best efforts by many, little progress was made on key issues in the negotiations.  It is my perception that Japan has taken a protectionist approach, especially on market access, and thus has not helped move the process forward.  

As in past negotiations, Japan appears primarily interested in protecting its agricultural industries from import competition.  It has actively lobbied for continued use of safeguards and to expand product eligibility for the safeguards currently available to members.  In contrast, the United States and other countries with high ambition would like to eliminate developed countries’ use of such safeguards.

We also differ on use of “sensitive products”.  We want to limit the number of products a country may identify as sensitive, while Japan wants to maximize the use of such products.

We also have significant differences in the approach to tariff reduction.  Our agricultural tariffs only average 12 percent in contrast to Japan’s average of 51 percent.  Japan strongly opposes use of any type of progressive tariff-cutting formula and any tariff cap.  It still prefers the old fashioned, go-slow approach of the Uruguay Round.  In sharp contract, we advocate an aggressive formula that cuts the highest tariffs the most,  and we insist upon a cap on tariffs that are unreasonably high.  

We have made very clear what we are seeking. We simply want to level the playing field for our farmers and ranchers. Our markets are relatively open, and yet, we have stepped forward and put our domestic supports on the table.  We insist upon substantial progress in all three pillars of the negotiations:  market access; trade-distorting domestic support; and export competition.  We are encouraging Japan to constructively engage in the negotiations, to work with us in obtaining a Doha outcome that will underpin our continuing, mutually advantageous trading relationship.

Conclusion

 Mr. Chairman, Japan is an important market for U.S. farmers and ranchers – our number three market in calendar year 2004.  We highly value that commercial relationship – and we want it to contribute to a further strengthening of our overall bilateral relationship.

 To accomplish this, for our mutual benefit, we want to find ways to expand our cooperation with Japan – to focus on our bilateral relationship and also to find ways to cooperate more effectively in the international arenas.  As we move forward in the Doha talks, we intend to aggressively seek additional market access gains, including important markets like Japan.

 Mr. Chairman, that concludes my statement.  I would be pleased to answer any questions.