Good morning, Mr. Chairman, and Members of the Committee. I am Ron Heck, a soybean and corn producer from Perry, Iowa, and First Vice President of the American Soybean Association. ASA represents 26,000 producer members on national issues of importance to all U.S. soybean farmers.

We appreciate your invitation to testify today on trade negotiations underway between the United States and other countries – both multilateral and bilateral. The results of these negotiations will be critical in shaping the competitive environment for U.S. agriculture for years to come. In addition, U.S. soybean producers are facing major challenges in international trade that make the success of current negotiations particularly vital. I will first provide some background on the importance of trade to our industry, then address the Doha WTO negotiations, the Free Trade of the Americas Agreement, and the various bilateral FTAs the Administration is currently working on.

Trade has been essential to the growth of the U.S. soybean industry over the past 30 years. From 666 million bushels in 1972, exports of U.S. soybeans and equivalent in the form of soybean meal and soybean oil expanded to 1.4 billion bushels in 2002. Exports of pork and poultry products accounted for an additional 130 million bushels last year. Taken together, exports of soybeans and soy-based products represent fully 53 percent of annual U.S. soybean production.

As our industry has become increasingly dependent on exports, we have actively supported efforts to further open foreign markets through trade negotiations. ASA was a strong advocate for including agriculture for the first time in the Uruguay Round of multilateral negotiations. We endorsed tariffication of quotas and other non-tariff barriers in those talks, and urged sharp reductions in import duties to increase market access for soybeans and soy products. We have seen the benefits of tariff reductions under the Uruguay Round and NAFTA in the form of expanding foreign demand and exports in the years since these agreements were completed.

While the U.S. soybean and livestock industries have benefited greatly from the growth in foreign demand and imports, we have seen rising competition from other exporting countries. Our major competitors in the 1980’s included the European Union and Canada and, to a lesser extent, Brazil and Argentina. In the 1990’s, the untapped potential of South American countries – particularly Brazil – to produce and export soybeans and soy products began to be developed. The vast Cerrados region in Central West Brazil includes an estimated 338 million acres of uncleared land that is available to be brought into production of soybeans and other crops. This area is one and one-third times larger than total U.S. row crop acreage. Moreover, Brazil’s soybean yields now average higher than U.S. yields, their protein content is higher, and land and labor costs are about ten percent of ours. Add the impact of the sharply devalued Brazilian Real, currently worth only 36 percent of its 1992 value, and it is clear that our industry – and U.S. agriculture in general – face an unprecedented challenge in the next several decades.

As we seek to develop strategies to address rising competition, ASA believes current trade negotiations offer several critical opportunities. First, we must substantially increase market access through aggressive reductions in tariffs and elimination or tariffication of non-tariff barriers on soybeans, soy-based products, poultry, pork, beef, and dairy. This is particularly important in populous developing countries in Asia where per capita consumption of animal protein and vegetable oil is low. As global production and exports of soybeans and soy-based products increase in coming years, we must make demand and imports grow as well. Second, we must maintain the availability and viability of our export credit and food aid programs as important marketing tools. Third, we must insist that world class competitors such as Brazil are subject to the same commitments and disciplines regarding domestic support that we are required to meet. Finally, we must maintain an adequate farm income safety net to protect our producers against cut-rate pricing resulting from hidden subsidies, devalued foreign currency exchange rates, and discriminatory trade practices.

I would now like to briefly discuss the Doha agriculture negotiations in terms of how they can address and attain these critical goals. ASA strongly endorsed and continues to support the U.S. proposal first advanced by the Clinton Administration in 1999 and reaffirmed by the current Administration last year. In the area of market access, we believe harmonizing high and low tariff levels using the so-called Swiss 25 formula is an effective way to open up potential demand for our products in key foreign markets. In contrast, the compromise advanced by the chairman of the agriculture negotiations, Stuart Harbinson, proposes much smaller percentage reductions in tariffs, and allows self-designated developing countries to exempt "special products" from any cuts. This approach falls well short of achieving ASA’s goal to offset increasing global production of oilseeds and oilseed products through expanded market access for soy, poultry, pork, beef, and dairy.

In the area of export competition, ASA supports the Administration’s proposal to phase out export subsidies over five years and to establish common rules for export credits and other government-backed financing programs used by all exporting countries. We also support continuing to determine foreign food assistance commitments through the Food Aid Convention rather than bringing these humanitarian efforts under WTO disciplines. Under the text advanced by Chairman Harbinson, the export subsidy phase-out would take place over seven years, and rules governing export credits are similar to the U.S. proposal. However, Harbinson would subject food aid programs to various disciplines, including replacing donations of agricultural commodities and food products with monetary contributions. This approach is not acceptable to ASA and other commodity organizations that view food assistance not only as an important market development tool, but as a means to help feed the poor in other countries that aren’t able to feed themselves.

The U.S. proposal for disciplining domestic support is extremely aggressive – reducing trade-distorting "amber box" programs to five percent of the value of a country’s gross agricultural output. In the case of the U.S., this provision would require a reduction from the current $19.1 billion allowed under the Uruguay Round Agreement to an estimated $9.6 billion over six years. Complying with such a sharp cut in current U.S. farm income supports would require a major redirection of resources through other programs that are considered non-trade distorting. However, applying the same requirement and reduction to the EU and Japan would result in much larger percentage reductions in current "amber box" support levels. The U.S. proposal would also maintain the so-called "de minimis" exemption which allows a country to exclude supports that are non-product specific from being counted as "amber box," and eliminate the "blue box" exemption used by the EU to shelter supports that are tied to production limits.

In contrast to the U.S. approach, the Harbinson text would cut current "amber box" levels for all countries by 60 percent, reduce the "de minimis" exemption by 50 percent, and cap and cut "blue box" supports by 50 percent. It would also provide a blanket exemption for a large number of domestic support programs and activities by self-designated developing countries. ASA opposes continuing the Uruguay Round approach of equal percentage reductions in trade-distorting domestic support, which would preserve the significant advantage enjoyed by the EU. We also find Harbinson’s proposal to allow developing countries, including Brazil, to fund major programs to develop and expand their agricultural production and transportation infrastructure without discipline while subjecting similar "developed country" programs to reductions to be totally unacceptable. We are already seeing rapid expansion of Brazil’s potential and competitiveness. If the purpose of the Doha negotiations is to reduce trade-distorting practices, it should not require sharp reductions in support in developed countries while giving equally- competitive developing countries a blank check to expand similar programs.

ASA and other U.S. agricultural organizations are very concerned that implementation of an agreement that reflects the approaches included in the Harbinson proposal would seriously impair our competitiveness with other exporting countries. However, in the absence of efforts to develop an alternative compromise proposal, it is expected that Harbinson will represent the only "middle ground" and become the negotiating document at the Cancun Ministerial in September. This situation occurred in the Uruguay Round negotiations, when the so-called Dunkel text, which U.S. agriculture groups opposed for similar reasons, was largely adopted in the final agreement. ASA has discussed this issue with staff for both the House and Senate agriculture committees, and we understand the Administration has agreed to provide a briefing on the consequences of implementing the Harbinson proposal for both the U.S. and global agricultural economies. We look forward to hearing the results of the Administration’s analysis.

Our purpose for raising concerns is not to undermine support for reaching an agreement on agriculture in the Doha Round, but to build support for a successful agreement. If neither the U.S. nor the Harbinson proposals is acceptable, it is essential that we determine how one or both can be modified in order to achieve a critical level of political support. Absent this support, failure of the negotiations at Cancun is a distinct possibility. So it is important for the Administration to open a dialogue to assess alternative approaches and to develop a viable alternative to the unacceptable Harbinson proposal.

I also would like to briefly mention other trade negotiations and their impact on the soybean industry. Under NAFTA, U.S. soybean exports to Mexico have doubled. The free trade agreement with Chile that President Bush signed in early June will improve market access for U.S. soybeans. In that agreement, Chile eliminated price bands on soybean products and agreed to tighten piracy and counterfeit laws, which will create a more transparent trading environment.

The Free Trade Agreement of the Americas (FTAA) and Central American Free Trade Agreement (CAFTA) will also be beneficial to the U.S. soybean growers. Soybean product exports to FTAA countries totaled $1.8 billion in FY-2002, despite restrictions on access to 30 percent of markets in the region. The Andean Community pact between key South American soybean producers and importers resulted in a 36 percent decline in U.S. soybean product exports. We also are experiencing adverse trade effects from Mercosur and the European Union trading blocs. The FTAA negotiations will have a critical impact on the future competitiveness of U.S. soybean farmers and our industry in Latin American markets. Specifically, both FTAA and CAFTA agreements need to eliminate tariffs, price bands, export subsidies and differential export taxes, and resolve outstanding SPS issues.

Australia, although an oilseed producer in its own right, is growing in importance to the U.S. soybean industry. Last year, we exported $51 million in soybean products to Australia. The free trade agreement can further expand market access by resolving remaining SPS issues in the livestock and fruit industries.

The Southern Africa Customs Union free trade agreement can be of some benefit to both commercial and humanitarian use of soybean products in that region. Currently, several SACU countries have 15 to 20 percent duties on soy products. Elimination of those tariffs can improve trade in soy flour, meal and oil. Furthermore, the U.S. soybean industry would benefit from provisions on humanitarian assistance and HIV/AIDS relief, if they are included in the agreement. ASA works in southern Africa to improve human nutrition and increase soy protein consumption by malnourished and AIDS-affected populations. We have strongly urged our negotiators to work out a humanitarian assistance provision in the agreement that will allocate funds for nutritional support and nutrition programs in Africa.

Intellectual property issues need to be addressed in all trade negotiations. U.S. soybean producers frequently come across intellectual property rights violations that give unfair advantage to farmers in other countries. For example, it is estimated that Brazilian farmers will receive $160 to $180 million in unfair benefits this year from illegal plantings of RoundUp Ready soybeans. The inability or unwillingness of foreign governments to enforce intellectual property rights needs to be addressed in all FTAs, followed by agreements on stricter laws and violation penalties.

With regard to regional or bilateral free trade agreements, ASA believes that future negotiations should be with countries that offer significant opportunities for U.S. agriculture. We are concerned that some of the most recent agreement (e.g., Singapore, Jordan, Chile) as well as current FTA negotiations offer only very modest export opportunities for our industry and U.S. agriculture in general due to population sizes, GDP, and per-capita income levels. We urge the Administration and Congress to more strategically identify potential FTA candidates to ensure that the candidate country or countries offer significant export volume and growth opportunities for U.S. agriculture.

Finally, while ASA supports regional or bilateral FTA negotiations as a means to improve export opportunities, we urge the Administration and Congress to focus efforts on achieving a meaningful WTO outcome. A successful WTO agreement offers the best prospects for achieving worldwide market access gains and global income growth so critical to U.S. agriculture. Once a meaningful WTO agreement is reached, bilateral or regional agreements to go beyond WTO commitments and completely eliminate market access barriers can be negotiated under a "WTO-plus" approach.

That concludes my statement, Mr. Chairman. I will be glad to respond to questions.