Food Aid: Agricultural Aid and Development: Alan Tracy's presentation at the South Asian Wheat Buyer's Conference

We are grateful that you could join us for this conference. During the next 36 hours, we hope you will learn more about U.S. wheat and our marketing systems. Hopefully, you will also teach us more about your needs and what the American wheat industry can do to better meet them. But before we launch into the program, I’d like to take this opportunity to recognize Mark Samson and his colleagues from our USW Singapore office.

• Roy Chung, our esteemed bakery consultant, has been a valued partner for many years in our efforts to respond to your companies’ requests for education and assistance. On behalf of America’s wheat producers I want to publicly thank Roy for his dedication, commitment and outstanding professionalism.
• Patricia Tong, our executive secretary in Singapore, is a model of efficiency in supporting all the South Asian activities of USW. We are also lucky to have Pansy Shepherdson and Gek Hua on our staff. Thank you, ladies, for all that you do and all that you are.
• And we get nothing but the best of reports on Mark Samson’s hard work as he continues to fight hard for the programs, information, and professional support necessary to ensure that you get the wheat you need. I want to thank Mark for the excellent job he is doing. I can assure you, from the perspective of the U.S. office, South Asia’s buyers could not have a stronger advocate working on your behalf.
• Of course, Mark is following in the footsteps of Paul Dickerson, who was the USW representative in Singapore several years ago. Paul is here with us today, and I’m sure he is looking forward to renewing old friendships and beginning some new ones during this meeting. Paul represented USW in South Asia for 4 years, and I’d like to thank Asia’s buyers and millers for the education you gave Paul. As our vice president for overseas operations, he now puts to global use what he learned here.

Now, I could approach the topic in any number of ways. I’ve heard presentations where the speaker has bragged about what great programs they have, how concerned they are, and how they have all the answers to market problems. But that often presents a false picture. Or we’ve all had to sit through the speech where the speaker was very authoritative, using all types of official jargon -- “the phytosanitary agreement under WTO, as a result of GATT, should have precedence over any provision developed by OECD, CODEX or the Cartegna protocol” -- but I’d like to leave the technical talk to the technicians.

I ask your permission to speak plainly and openly, as among friends. I want to speak of our disagreements with our competitors in the wheat trade. I’d like to speak frankly of some of the challenges we in America are trying to address, sometimes successfully, sometimes not. And, with your indulgence, I want to take a look forward to the partnerships that CAN HAPPEN if our countries’ leaders have the good sense and courage exhibited by the people they represent.

Let’s talk for a moment about differences in approaches to global wheat trade. Our biggest competitors in the wheat trade are our most stalwart allies in most global matters. It just so happens that we have profound differences of opinion when it comes to agricultural trade.

For instance, I continue to find it so odd that every wheat exporting nation says that it favors free trade -- but then they say that some OTHER COUNTRY is ruining it for everyone else. One of the key objectives of the 1995 WTO agreement on agriculture was to reduce the negative global effects of government intervention in agricultural markets, and yet it becomes increasingly evident how very difficult it is to reach that objective, as countries accuse each other of using “unfair” government supports to distort trade.

Each nation has its own domestic needs, as it perceives them. While one country is focusing on food security and self sufficiency, others are accusing it of using the “excuse” of food security as a way to close its market to global competition, or to artificially keep domestic prices above world prices. There are countries that need to protect rural areas, or meet citizen demands for sustainable agricultural practices, or provide financial relief when crops are destroyed. Yet, in each one of those situations, others may accuse that country of nefarious schemes, even though those practices are allowed under WTO rules.

To be sure, there are unfair practices and there is market distortion. But we must separate fact from fiction, purposeful policy from protectionism. While a policy or program that directly distorts trade is not sound long term policy, not every program that meets domestic needs necessarily distorts trade. Every country has the right and the obligation to work for its own prosperity. The nations of the world might do well to adopt one piece of advice that Sun Yat-sen gave his Chinese countrymen in 1924:

“Gentlemen, we ought to decide at this hour what is to be the fundamental policy for which the nation is to stand, and where our hope and greatness lie.”

There are some issues that go to the fundamental policies for which America stands. These policies have inspired grumbling from our competitors so perhaps I need to take a moment to present our perspective on these programs. As much as I respect the Australian Wheat Board, and especially Australia’s esteemed Ambassador, I hope that I can clarify some of the mistaken allegations that they have made recently against the U.S.

(FOOD AID)

There is an international forum for food aid donors to discuss food assistance to needy countries. The Food Aid Convention, which is a treaty between major food aid donors, plays a critical role in helping to ensure that food aid reaches the world’s neediest people on a regular and predictable basis irrespective of fluctuations in world food prices and supplies. The Convention also recognizes that even lower middle income countries experience food emergencies and also have vulnerable groups within their borders.

Under the very public provisions of the Food Aid Convention of 1999, the U.S. pledged to provide a minimum of 2.5 million metric tons (in wheat equivalent) annually. The EU pledged to provide about half that amount plus 130 million Euros cash. Australia pledged to provide about one-tenth of what the U.S. has pledged.

Given that these food aid pledges and programs were developed through two years and nine rounds of negotiations, it is quite surprising to hear Australia and the EU now criticizing U.S. food donations. One EU spokesman charged that “the United States pretends to be the best benefactor to the world by giving food to developing countries.” Now, I do not presume to claim that the U.S is the “best” anything. We are simply living up to our negotiated commitments and to what we believe are our moral obligations. But I do take serious offense at the implications of the complaint.

Farmers all around the world are trying to answer the cries of hunger -- that’s why your farmers and our farmers are doing their best to produce the most food that they can. Most farmers in the world don’t expect to become rich by what they are doing. They are simply trying to provide for their families, their communities, and their markets. And if America is lucky enough with recent harvests to be able to provide humanitarian assistance to a country that is struggling, because of war or weather or economic troubles, there is no reason not to share. As long as we have surpluses, I think we can all agree that it is far better to provide it to those who need it rather than dump it in the ocean.

There are, to be sure, some things we can do better in our food aid programs, and I’m confident we will.

• Our government should clarify our internal rules on food donation programs, and more clearly differentiate humanitarian aid from market development programs. It’s a complicated hodgepodge at the moment, and some streamlining will make the programs more transparent to our domestic audiences as well as to our trading partners and countries that need assistance.
• Our donation programs need to be more consistent from year to year, and they should be non-commodity specific. That is, a country that needs food aid should not have to beg, nor to wait and wonder, nor should they be given a commodity they do not need.
• We need better documentation to confirm that the aid is not interfering with local commercial markets in the countries to which aid is given.
• The American government has started to examine whether food aid programs should be changed, and ideas will be discussed and debated over the next year or two. In the meantime, the volume on the anti-aid rhetoric should be turned down, and volume of support for humanitarian aid should be turned up.

The primary objective of commercial export credit guarantee programs administered by the U.S. Department of Agriculture is to facilitate trade with countries that do not have access to adequate commercial credit.

Our competitors have complained loud and long about these credit programs. They call them unfair trade subsidies and demand that the programs be scaled back. I couldn’t disagree more. The U.S. should do more -- not less -- to provide credit to the markets that most need it, while meeting its obligations under global trade rules. Rather than scaling back the credit programs, we need to put more flexibility into them.

The largest program, called GSM 102, usually provides about $3 billion in credit each year. In this current fiscal year, the U.S. has provided over a billion dollars of credit guarantees to eligible South Asian countries so changes in the program could have a profound effect on the financing of U.S. wheat purchases in this region.

GSM is a great program for countries with strong banking sectors. Unfortunately, that excludes much of the developing world, which are also the emerging markets for wheat. The U.S. also has another program, called the Supplier Credit Guarantee Program, that provides credit guarantees for sales financed by importers rather than banks in countries where the banking sector may not be completely stable. That program is a great idea for small shipments, but it does not seem to be well suited to bulk commodities.

Rather than scaling back the programs, as demanded by our competitors, we need to broaden our credit program to the extent that it will include emerging markets. Yes, there is some risk in providing credit guarantees to these markets. But U.S. Wheat Associates will continue to urge USDA and others in our government to take a chance on the countries that are trying very hard to enter the global marketplace.

One thing we should look at is developing a range of guarantee rates, adjusted to meet the situation. The coverage and the length of terms should be flexible, depending on the size of the purchase, the credit record of the purchaser, and the future earnings of the importer. In other words, the U.S. government should use the same credit worthiness assessments and tools that are recognized globally in the banking sectors. Or, even better, the USDA could rely on the appropriate banks to help identify and rate foreign partners, and to recommend terms that would meet the needs of the buyer and the seller.

Granted, there’s a lot of details that would have to be worked out. But there has to be a better way to support our marketing efforts in the emerging markets.

And what do we do about the Australian and Canadian objections to U.S. credit programs? As many of you know, they are running their own credit schemes. But, since the AWB and the CWB are secretive monopolies, the trading world has no way to objectively assess their programs. There is no way to measure the impacts of those programs. Until the time that they are willing to put their programs on the table for examination, they cannot expect to dictate to America what our programs should or should not do.

And, besides, we are considerably more interested in meeting your needs as customers than in meeting their needs as competitors.

(TRADE AGREEMENTS)

I spoke a few minutes ago about WTO rules and negotiations, but I don’t mean to put too much emphasis on the WTO. It’s a vitally important organization, and serves its purpose well, but let us not forget that not all of our trading partners are WTO members. 13 South Asian nations do not yet belong to the WTO, yet their rights and contractual obligations as trading partners are just as important. Some of the countries that do not belong to the WTO, do belong to APEC, the organization that is the primary regional vehicle for promoting open trade and practical economic cooperation in the Pacific region.

We value our trading partnerships that are sustained through our working together in those fora.

But, to be candid, the U.S. has been shortsighted when it comes to developing trade relations. We have been almost stagnant when it comes to the development of bilateral or regional trade agreements. I’m not the only one who thinks so. Let me quote from our new U.S. Trade Representative, America’s chief trade negotiator and the principal trade policy advisor. Just last month Ambassador Zoellick told a committee of the U.S. Congress:

“…The United States is falling behind the rest of the world when it comes to trade liberalization… Globally, there are 130 free trade agreements. The United States is a party to just two: one is with Canada and Mexico - NAFTA - and the other is with Israel… We have no one to blame for falling behind but ourselves. And there is a price to pay for our delay… Our inaction hurts American businesses, workers, and farmers, as they find themselves shut out of the many preferential trade and investment agreements negotiated by our trading partners. To cite just one example, while U.S. exports to Chile face an eight percent tariff, the Canada-Chile trade agreement will free Canadian imports of this duty. As a result, U.S. wheat and potato farmers are now losing market share in Chile to Canadian exports.”

U.S. Wheat Associates is strongly urging the U.S. government to approve the bilateral trade agreement between the U.S. and Vietnam. Members of both of our major political parties have asked President Bush to send that agreement to Congress for approval, and the President has agreed. It’s my sincere hope that Congress will approve that agreement this year.

We need more trade agreements between our countries. Judging by how long it is taking to get the Vietnamese agreement signed, however, it could take 10 or 20 years or more to do everything that needs to be done on a country-by-country basis. Our wheat foods industries can’t wait that long.

One possible answer, I believe, is to develop a regional Asian-U.S. trade agreement. With the World Trade Organization, we can all work to reduce trade barriers, but those barriers could be virtually eliminated in a U.S.-Asian Free Trade Area.

Some people probably think it’s a crazy idea. But Confucius said that “the superior man does not set his mind either for anything, or against anything; what is right he will follow.” I ask you, as I ask my colleagues in the United States, to think about whether a free trade area would be right.

A regional free trade agreement could progressively eliminate tariffs and nontariff barriers that restrict trade between us. To ensure that no country is left out or left behind, we could negotiate trade liberalization timetables to facilitate the integration of the less developed economies. We could provide that sanitary and phytosanitary provisions, based on sound science, ensure the appropriate levels of protection for people, plants and animals. We could identify trade-distorting practices and bring them under greater discipline. And the great thing is that we could all this among ourselves. We can do exactly what is appropriate for Asia and the U.S., to meet your needs and ours.

I believe that the time will come -- sooner rather than later -- when others will see that an Asian-U.S. Free Trade Area is worth striving for. It is the right thing to do.

You are in very strong positions here, despite some hard times for some of your countries, economically and politically. Everyone is competing hard for your business. As you know as well as I, the U.S wheat industry isn’t the only one trying to sell you wheat. But we are unique. Our marketing system, as you also know, is dramatically different from the Canadian and Australian wheat marketing systems. They have single desk exporters - the CWB and the AWB - that are government sanctioned monopolies. They do not hesitate to engage in price undercutting to win markets. They do it regularly, persistently and, sometimes, egregiously.

To be honest, I sometimes secretly regret that U.S. Wheat Associates can’t set prices. But I know you understand that the American system is based on a free and open market. Everyone, from the grower to the final buyer, is free to negotiate the best deals and terms that they can. We have no administrative desk telling farmers what to do, and we have no monopoly controlling the supply and price of wheat.

I’ll admit, the U.S. wheat marketing system is sometimes less effective. The way that the AWB can respond to a phone call, turn a ship around, and get an order to a favored customer is admirable. They give up something for that ability, though, and it is something that we can’t give up in America: freedom for our farmers and warehousemen and elevators and transporters and traders. And a free opportunity for our customers to compete for the supplies and the qualities they need, in an open market. Why, our system is so free that even the Australian Wheat Board has an office in the U.S. where they conduct trade with U.S. wheat. I can say with confidence that just about every American believes that without democracy in industry, there is no such thing as democracy in America.

Yes, Australia and the U.S. have different values. But we still value each other. The countries represented here have different values, as well. That is what makes this kind of get together so “valuable.” The more we learn from each other, the more we value and respect the unique situations and the special needs within our industry.

I hope I’ve been able to give you an idea of our perspective on these few trading issues. Please accept our sincere desire to work together, on issues I’ve discussed this morning and on issues that will arise throughout this conference.