Secretary of Agriculture
Before the House Committee on Agriculture
May 21, 1998
Mr. Chairman, members of the Committee, I am pleased to appear with Secretary Rubin and Chairman Greenspan to discuss the effects of the financial situation in Asia on U.S. agricultural exports, and our support for funding for the International Monetary Fund (IMF).
But before I begin, I would like to give a few highlights from my trip this week to Geneva for the WTO meeting. President Clinton set the tone for the Ministerial Conference by giving prominence to agriculture in his address to the WTO. He mentioned agriculture first and foremost and called for the further reduction of agricultural tariffs and subsidies and other trade distorting practices, and also called for rules rooted in science to encourage the full fruits of biotechnology and he proposed that even before negotiations near conclusions, WTO members should pledge to continue making annual tariff and subsidy reductions so that there is no pause in reform.
President Clinton is right. We cant wait another seven or ten years for reforms to take place in agriculture, and I am pleased that the President challenged trade ministers to agree to continue to reduce tariffs and subsidies even before the 1999 negotiations are concluded. This would be the fastest way to achieve real progress for our farmers and ranchers.
I also addressed the WTO trade ministers and set forth a number of key objectives the United States will pursue in the 1999 agricultural negotiations, including reemphasizing all the key points the President made, in addition to disciplines on unfair practices of state trading enterprises and tightening rules on technical and health-related trade restrictions.
To emphasize the importance the United States is placing on the next round of negotiations, the President and I invited the WTO to hold its third Ministerial Conference in the United States next fall. Since next years Ministerial Conference will actually launch the negotiations on agriculture, holding this conference in the United States will give added impetus to the process.
ASIAN PROBLEMS SLOW U.S. AGRICULTURAL EXPORTS
Let me now turn to the subject of todays hearing. The United States long has been an important supplier of agricultural and food products to Asia, benefitting both Asia and our farmers and ranchers. Overall, we export about $23 billion worth of U.S. agricultural products to Asia annually, or about 40 percent of U.S. agricultural exports worldwide. During 1991-97, this region accounted for 45 percent of our export growth.
Weaker demand in Asia is taking a toll on U.S. exports, pulling market prices and net cash farm income down in 1998 by about $2 billion less than had there been no crisis and U.S. sales losses are occurring in almost every product category, especially corn, hides and skins, soybeans, cotton, animal feeds, soybean meal, meats, fruits and vegetables, and hardwood lumber. U.S. consumer food exports to the region are also suffering. With five months of fiscal year 1998 complete, U.S. agricultural exports to Korea were down $742 million, or 44 percent, compared to the same period last year. Exports to the ASEAN markets--Indonesia, Malaysia, Thailand, and the Philippines--were down $448 million, or 28 percent. Declines were smaller to Japan, 8 percent; China/Hong Kong, 6 percent; and Taiwan, 7 percent.
The reduction in import demand in Asia is also lowering commodity prices around the world, reducing the value of U.S. exports to non-Asian markets. Current projections for U.S. agricultural exports stand at $56 billion for this fiscal year, down $1.3 billion from last year, and this number could drop further. This reduction is largely the result of: (1) lower U.S. crop and livestock prices due to larger global supplies, lowering the value of exports regardless of destination and (2) lagging demand in Asia.
For fiscal year 1999, the decline in U.S. agricultural exports could be greater; we may begin to see additional declines in exports of bulk commodities such as grain and soybeans. This will be due to three factors: the sharply slowing economies in Asia and their reduced import demand, competitive pressures from Southern Hemisphere producers, and the appreciation of the U.S. dollar relative to the currencies of our competitors. However, after fiscal year 1999, Asias currencies, economies, and import demand are expected to begin to recover.
SUPPORT FOR THE IMF IS CRUCIAL FOR U.S. AGRICULTURE
Given Asias importance as a market for U.S. agricultural products, it crucial that we support the efforts of the IMF. The IMF stabilization programs and reforms are extremely important in continuing U.S. agricultural trade with the Asian countries affected by the financial crisis. Let me explain why.
In December and early January, when the financial crisis was at its worst and there was near panic in Asian financial markets, we wanted to respond in the way that would best preserve our exports to that region, and give the countries access to needed imports of key commodities from the United States. That meant use of our GSM-102 credit guarantees. But GSM-102 has a strict, legislated creditworthiness criterion that needs to be met before we can make allocations. We need to believe that there is a strong probability of repayment.
In the face of the financial turmoil, there was no way we could make this determination based on only what we knew of the dwindling foreign exchange availabilities and other problems in these economies. But the quick action of the IMF in negotiating stabilization packages gave us the confidence we needed to go forward with our program. With the additional resources made available by the IMF, and the economic reforms negotiated with each country, we had a reasonable assurance that the credits by U.S. banks that we were guaranteeing would be repaid when they fall due. We could move forward as we did with $2 billion in credit guarantee allocations, and later increase Koreas allocation by an additional $500 million.
Over $1.1 billion of this has now been used. That is the measure of how much more U.S. exports could have fallen to the affected countries had we not been able to use the GSM-102 program. And, over the longer term, the structural reforms that the IMF has negotiated will advance our trade agenda by increasing competition and transparency within each country.
This combination of IMF efforts and our export credit guarantees were used successfully during Mexicos economic problems in 1994. Today Mexico is our third largest single country market, estimated to buy a record $5.8 billion worth of U.S. agricultural products in 1998.
IMF freer markets in which our products can more readily compete. For example, in Korea, the IMF agreement specifically requires economic reforms that should be positive for U.S. agriculture, and in January, Korea began to harmonize its technical standards affecting food imports with international codes, which should increase access for U.S. exporters. Korea is also moving to revise pesticide tolerance levels in harmonization with CODEX, which will allow U.S. fruit to enter Korea unimpeded. Korea agreed to eliminate restrictive licensing provisions that could lead to the solution of a number of longstanding access problems for U.S. exporters of such items as corn grits, soyflakes, and peanuts. In Indonesia, in accordance with the IMF agreement, the monopoly of Indonesias state trade agency, Bulog, over the importation and distribution of essential food items has been abolished. This action, coupled with the removal of restrictions in importing activities, should provide the opportunity for full private sector participation if the situation there stabilizes because private sector importers are interested in purchasing U.S. agricultural products.
Of course, the IMF cannot do its job without resources, which is why President Clinton on February 2 called on Congress to provide the IMF with additional funds. The Senates vote in March to fund the IMF showed strong bipartisan support for its important role, and we are hoping the full Congress will quickly approve funding. As President Clinton said last month,
"Delay or failure to approve the full IMF requests could undermine our capacity to deal with threats to world economic stability and could leave us unable to protect American workers, farmers, and businesses in the event of an escalation or spread of the Asian financial crisis or a new crisis."
Mr. Chairman, the IMF-led effort in Asia is helping those countries make financial and structural changes that should lay the foundation for their future growth. Helping in this effort is clearly in our interests--in the interests of global financial stability, economic growth, and trade, and certainly in the interests of U.S. farmers, ranchers, and exporters. Agriculture has as much, or more, at stake than any other industry sector in helping these countries get back on their feet and back on the growth path.
Mr. Chairman, that completes my statement. I would be happy to answer any questions.