Prepared Remarks of U.S. Senator Chuck Grassley
Thank you for inviting me to be with you. Iowa is the home of many accomplished people in the field of agriculture. I’m glad to meet some of you today. Your interests of agriculture and international trade are also my interests.
I’m the senior Republican on the Senate Committee on Finance, which has a major role in the development of U.S. trade policy. I’m also a farmer and a senior member of the Senate Agriculture Committee.
The link between trade and economic strength, both in Iowa and around the world, is crystal-clear. America’s farmers benefit a lot from international trade. The United States is the world’s largest agricultural exporting country. Iowa is the second-largest agricultural exporting state.
In 2007, 60 percent of the value of Iowa’s soybean production, and 25 percent of the value of its corn production, were attributable to exports.
In 2007, exports contributed about $24 to the value of each hog, and $106 for each beef steer, produced in Iowa.
China plays a major role in the success of U.S. agricultural exports.
China is currently the fifth-largest export destination for U.S. farm products. Since 1992, U.S. agricultural exports to China have increased by 15 percent annually. While the United States runs an overall trade deficit with China, we consistently have an agricultural trade surplus with that country. This surplus hit $8.8 billion in 2008.
China’s growing economy has provided important export opportunities for U.S. agriculture.
At the same time, China is also a major food exporting country.
But China faces significant constraints that could change its status as a major agricultural producing and exporting country. With the average farm size just above one acre, much of China’s agricultural sector lacks economy of scale. Chinese farmers are at a disadvantage in achieving efficiencies when compared to producers in Iowa where the average farm size is 356 acres.
China’s agricultural production is threatened by the country’s rapid economic growth. Farmland is being lost as housing and industrial parks are being built on land converted from agriculture. Environmental degradation and diminishing water resources could significantly restrain Chinese agricultural production.
While China’s agricultural sector faces challenges due to growth constraints, the dietary expectations of Chinese consumers are also changing. China’s population is eating more meat. This is
the result of
China’s recent rapid economic growth.
The Chinese consumers who have more money want a more varied diet. Consumption of food grains, such as rice and wheat, is declining in China.
China joined the World Trade Organization in 2001, and that also affected Chinese agriculture.
China agreed to reduce its average tariff on agricultural products to 15 percent.
Most reductions were made by 2004 and must be completed by 2010.
Also, China’s agricultural health and safety measures that impact imports must be based on science. China’s entry into the WTO was followed by a fast increase in U.S. agricultural exports to China.
With restraints on the growth of Chinese agriculture, increased meat consumption in China, and China’s membership in the WTO, the prospects are good for increased exports of Iowa farm products to China. So far, one Iowa commodity is benefiting significantly from trade with China.
China is by far the largest market for U.S. soybean exports. According to the U.S. Department of Agriculture, China’s demand for soybeans will probably increase because of growth in animal production there. So U.S. soybeans, through their use as livestock feed, are playing a role in filling demands in the Chinese market for meat.
While soybean exports to China have benefited Iowa farmers, this trade has had some problems. U.S. exporters have run into delays in obtaining import permits and confusion over biotechnology regulations.
Despite these problems, trade remains strong.
U.S. pork exporters have also benefited from exports to China. The United States is the largest exporter of pork to China. U.S. pork shipments to China were especially strong in 2008. China was the largest importer of pork in history that year. This was because of disease conditions in China, severe snowstorms, and the earthquake, which possibly killed millions of pigs. It’s unlikely that U.S. pork exports in 2009 will exceed those of 2008. Still, the U.S. pork industry sees a lot of potential in China.
Unfortunately, U.S. exports of pork to China are limited due to scientifically unjustified sanitary barriers. China restricts imports of U.S. pork due to concerns about a veterinary drug that is commonly used in pork production in the United States. This drug has been approved for use in the United States since 1999 and is registered for use in 26 countries. Yet China has set a zero tolerance level for this item but has not even conducted a risk analysis for it. If this barrier were removed, U.S. exports of pork to China would likely be much higher given that country’s increased meat consumption.
U.S. beef faces an even bigger problem. U.S. beef is prohibited from entering the Chinese market because of concerns about BSE, also known as “mad cow disease.” The World Organization for Animal Health sets benchmark standards for food safety at the WTO. It recognizes that U.S. boneless and bone-in beef from cattle of all ages can be traded safely. Yet China’s regulations do not reflect these standards.
Also, since millions of people in the United States and other countries eat U.S. beef each day, I don’t see how Chinese officials can really doubt the safety of this product. If allowed entry into the Chinese market, U.S. beef could help to fill China’s growing demand for animal protein.
China is a relatively large producer of corn. While the United States exports some corn to China, in some years Chinese corn exports compete with U.S. exports in Asia. I anticipate that U.S. exports to China of corn and corn products, such as distiller’s dried grains with solubles, will grow as the U.S. industry works to develop the Chinese market. Also, as corn is a land intensive commodity, resource constraints in China could lead to increased future imports of corn.
The question going forward is what the United States and China can do to resolve our agricultural trade differences. One way is to communicate. This can be done at high government levels, such as through the United States-China Joint Commission on Commerce and Trade and the new Strategic and Economic Dialogue. Agricultural trade disputes can be avoided, or resolved, through such talks. But dialogue does not have to occur just at the highest levels of government.
I was pleased to speak last year here in Urbandale at the closing events of the U.S.-China Agricultural Biotechnology Exchange. This exchange brought together members of the scientific and agricultural communities of Iowa and China – as well as government officials – to discuss the issues. I understand that participants agreed on the importance of basing biotechnology regulations on science. The discussion helped to maintain the positive trade relationship between the two countries, especially on soybeans and corn.
China also should provide better market access for U.S. agricultural products by lowering tariffs. China’s tariffs on U.S. agricultural products are, on average, over three times as high as U.S. tariffs on Chinese farm products.
Negotiations of the Doha Round of the WTO offer the possibility of China opening its market further to Iowa agricultural exports. But the United States and China remain far apart in these talks. I’m disappointed by a proposal backed by China on a potential “special safeguard mechanism” for developing countries. Such a mechanism would actually provide less access for U.S. agricultural products into the Chinese market in some years than is currently the case. I continue to back Doha Round negotiations between the United States, China, and other WTO member countries, but one thing is clear: I will not support any new WTO agreement unless the United States can obtain improved market access for our farm products, as well as our services and manufactured products, in China and other countries.
The WTO also provides a means through which agricultural trade disputes between the United States and China could be resolved. Now that China is a WTO member, China must live up to its WTO obligations.
I was pleased that President George W. Bush initiated dispute settlement proceedings at the WTO against China over several non-agricultural products. The United States must be prepared to do the same with certain agricultural products if other options fail. But the WTO process is long and sometimes unpredictable. So it’s better to resolve trade disputes outside of the WTO process if possible.
One dispute involving an Iowa agricultural product was handled in this way. Following the detection of BSE in a cow in Washington State in December 2003, China banned the importation of not only U.S. beef, but also U.S. porcine proteins. Porcine proteins are a major Iowa product. Chinese authorities justified their ban over concerns that porcine proteins might be commingled with bovine proteins. But certain plants in Iowa and other states are dedicated solely to producing porcine proteins. So it was clear to me that Chinese concerns regarding commingling were not science-based. I was convinced that China was out of compliance with its WTO obligations. The Chinese government, officials at the Office of the U.S. Trade Representative and the U.S. Department of Agriculture, and I communicated extensively on this subject. As a result, and after Chinese officials conducted audits of Iowa porcine protein facilities, China agreed to lift its ban. Porcine proteins from Iowa were allowed back in the Chinese market.
This success shows that it’s possible to resolve agricultural trade disputes with China without resorting to the WTO's dispute settlement process.
The experiences of Iowa agricultural commodities in the Chinese market are mixed.
In the long term, the potential for exports of all the major Iowa agricultural products to China is significant. Resource constraints in China and the growing demand of the Chinese population for a more varied diet could result in increased demands for Iowa farm products in that country.
The United States should use all the tools available to us to see that the Chinese market remains open to existing Iowa exports. We should also use these same tools to see that China removes its existing barriers to imports of Iowa farm products.
Thank you, and I’ll be glad to take your questions.
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