MR. CARROLL: My name is Jim Carroll, and I serve on the staff of Dairy Farmers of America. I first want to thank you, the USDA, and the USDR for this forum to express our comments regarding world trade. I also want to thank the members of the listening panel for their time to participate in this event.

Dairy Farmers of America is a milk marketing cooperative headquartered in Kansas City, Missouri, representing over 18,000 dairy farmer member owners in 45 states. We are pleased to appear before you today to testify on the topic of the DFA's agricultural trade priorities for the upcoming WTO negotiations. DFA is also a member of the U.S. Dairy Export Council and the National Milk Producers Federation, and along with those organizations are committed to expanding exports of U.S. dairy products through reduction of foreign trade barriers and other measures that distort international trade in milk and dairy products.

The U.S. dairy industry is the second largest agricultural commodity sector in the United States, measured by farm cash receipts of $20 billion per year, and is one of the top three agricultural sectors in fully half of the 50 states. In addition, dairy processors put the annual retail value of their industry at $70 billion a year. Despite its large size domestically, our industry is a relative newcomer to international trade.

What we have learned in our relatively short export history is that American dairy products can and do perform successfully in markets where there is a level playing field and where trade-distorting practices do not hamper our ability to compete. In fact, the industry's slow and difficult emergence internationally stems from the fact that dairy is one of the world's most protected and subsidized industries.

When the Uruguay Round was deadlocked over agriculture, the U.S. dairy industry made many key concessions so that an agreement could be reached. We also recognized that GATT negotiations had never attempted to control that kind of level of agricultural subsidies, and most of the rules were brand new. Today, agriculture has a history in the WTO and we must ensure that the next round serves first to revise the rules that have not worked.

By the same token, the dairy industry is very supportive of this administration's effort to further reduce trade-distorting practices in agriculture. We are prepared to do our part to accomplish that goal; however, both dairy producers and dairy processors fervently believe that we must first level the playing field with respect to subsidies and market access between the U.S. and other WTO member countries, especially the EU, Canada, and Japan.

Obviously the next round must build on the accomplishments of the Uruguay Round. The U.S. dairy industry strongly supports the next round of WTO multilateral negotiations and believes that the U.S. should focus on these four priorities:

First, the elimination, by date certain, of all remaining use of dairy export subsidies.

Export subsidies are extremely common in world dairy trade. When the current WTO agriculture agreement is fully phased in next year, it will still permit almost 60 percent of projected dairy world trade to be subsidized. And the distribution of these subsidy allowances is highly skewed. On a mild equivalent basis, the EU accounts for fully 72 percent of these subsidy allowances, while the U.S. accounts for just 3 percent of them.

The use of export subsidies is the primary factor that keeps world dairy prices depressed below domestic prices and hobbles the expansion of sustainable commercial U.S. dairy exports.

Secondly, we believe that substantial increases in real access through reduction of remaining trade barriers to U.S. dairy exports must take place.

Let me give you some examples of the kinds of barriers American dairy producers face. The European Union, the world's largest dairy market, is able under its WTO commitments to impose tariffs at a rate of about 240 percent against all but very limited quantities of cheese, an important U.S. dairy export product.

The U.S. also maintains tariff barriers against dairy imports, but not at levels as high as these. Moreover, all in-quota tariffs are low and provide real market access.

This administration must first guarantee that upon implementation of the next WTO round, countries will cap ordinary tariffs and harmonize tariff rate quotas. The U.S. industry recognizes that it must give access to get access, yet unless all countries participate in tariff reductions, especially the highly protected markets that facilitate very high domestic prices through both small quotas and very high over-quota rate, the U.S. will remain the primary market for lower cost suppliers.

In order for U.S. dairy producers and processors to continue their support for the concept of free trade, the U.S. government, working through the WTO, needs to work to promote fair trade. Future trade negotiations cannot result only in unilateral concessions made by our government, and further opening of our market must be matched with enforceable and usable access to even more protected markets such as Canada, European Union, and Japan.

Thirdly, we must pursue continued reduction of all production-related domestic supports.

The EU already produces up to 15 percent more milk than its domestic market requires, and this large surplus drives its continued heavy use of export subsidies.

We support the U.S. government position to tighten the rules on domestic support in order to ensure that rural communities are not used to defend production gluts that distort trade and prices.

Lastly, we must establish improved transparency and disciplines on the trade-distorting effects on both import and export state trading enterprises.

State trading enterprises provide de facto export subsidies through their ability to price-discriminate between high- and low-value markets and their ability to keep their transactions private. In dairy, the New Zealand Dairy Board is the most conspicuous example.

U.S. dairy industry favors negotiation of new commitments that would require increased transparency in the operations of both import and export state trading enterprises, as well as disciplines on the activities of state trading enterprises that truly distort trade.

With regard to the new WTO negotiations themselves, the U.S. dairy industry supports structuring the negotiations as a single undertaking encompassing all sectors, as opposed to a sector-by-sector approach. And it strongly supports renewal as soon as possible of fast-track negotiating authority to achieve a timely outcome that further reduces distortions to international dairy and agricultural trade.

I appreciate the opportunity to testify, and thank you for your time and look forward to answering questions.