MR. GALVIN: Thank you, Mr. Blouin. I will keep it short. I also want to say before we get started. I'm from Sioux City, so it's good to be here. I'd like to take just a few minutes as he indicated at this point to help set the stage for today's hearing. I'd like to review the importance of trade in agriculture, the role that previous trade agreements are played (inaudible) for agriculture, and our general goals for the upcoming WTO rounds. Agriculture exports support nearly 750,000 jobs. Production of nearly one in three harvested acres is destined for overseas markets. About 25 percent of agricultural sales are for exports, compared with 10 percent on average for the rest of the economy. As several speakers have said, 96 percent of the world consumers are outside of the U.S., so exports (inaudible) the best way for farm income. Access to these foreign markets is critical because the U.S. agricultural sector is especially reliant on export markets and this dependence is likely to grow. Agriculture is already more relying on exports than the economy as a whole. U.S. agriculture exports climbed to a record of nearly 60 billion in 1996 up from 40 billion at the beginning of the decade.

Export value has declined the past two years and likely will be down for 1999 as well due to record crop production worldwide, the Asian financial crisis, and a stronger dollar. We project exports of 49 billion in the current year despite an increase in export volume of 5 percent, an indication that continued low commodity prices are holding down export values as well. Because the 1996 Farm Bill made agriculture even more dependent on market returns, our export success is likely to be found in those commodities where we have an (inaudible) advantage. With certain agricultural economies, such as cattle hides, we're already exporting more than 50 percent of production. Export sales over $1 million anually for a number of food and agricultural products, especially those major bulk commodities that the U.S. enjoys both production and marketing advantages.

Another factor pointing to the importance of exports to agriculture is the close relationship between farm equity and exports over the years. History shows that when exports rise, so does farm equity and vice versa. Exports are projected to recover, but with nearly 25 percent of the world's economy outside of the U.S. in depression or recession, that recovery is likely to be gradual. However, there are some indications that a turnaround is underway such as in South Korea, for example. The key is expanding export markets and increasing our access to customers outside the United States through trade agreements. Both the URTA and NAFTA agreements have help to expand trade over the past five years. Soon after the implementation of the Uruguay Round, U.S. agriculture exports reached a record high. But, of course, many factors were behind that performance, and as this slide makes clear, exchange rates have a huge influence on export levels, but almost all economists agree that lowering trade barriers through trade agreements has helped to increase trade.

Imports continue to grow as well. But agricultural's positive net trade balance remains large even though it too has narrowed in recent years. It is estimated by the year 2005 agricultural exports will be about $5 billion more annually than they would have been without the Uruguay Round Agreement. Other trade agreements have produced similar benefits. For example, it's estimated that in 1994 we sold $1.3 billion more beef and citrus to Japan because the agreement we negotiated with that country on those two commodities. The NAFTA agreement has also had an impact. Our NAFTA partners, Canada and Mexico, have become more important destinations to U.S. products, now accounting for over 25 percent of U.S. export sales and surpassing our exports to the European Union. We estimate that in its first three years, NAFTA accounted for a 3 percent increase in exports to Mexico and a 7 percent increase to Canada. Last year U.S. farm exports through our NAFTA partners increased by 11 percent to a new record for both countries at the same time that our overall U.S. exports declined by 6 percent mostly because of the Asian crisis.

Although recent trade agreements have produced real benefits for agriculture, we recognize that the playing field is far from level and that much more work needs to be done. A major part of our strategy to level the playing field for agriculture is to be successful in the upcoming trade market. To understand where we're going in the WTO, it is important to understand where we've been. The general agreement on tariffs and trade in the GATT was established in 1948 and assessed the basic rules of international trade. A number of GATT negotiations or rounds took place between 1948 and to the present with the most recent Uruguay Rounds completed in 1994. The Uruguay Round established the World Trade Organization which is basically a continuation of the GATT system. The Uruguay Round Agreement opened a new chapter in agriculture trade policy committing countries around the world to new rules and specific measures to reduce (inaudible) protection and support that were barriers to trade. Agriculture finally became a full partner in the multilateral trade system. For the first time countries (inaudible) while supporting cuts in agricultural tariffs. For the first time, export subsidies had to be reduced and internal support policies that distort trade were capped and reduced. New rules set a scientific standard for measures that restrict imports on the basis of human, animal, or plant health and safety. And a new dispute settlement process was established, one that we have successfully used in a number of cases.

The Uruguay Round Agreement was a good start. It's already resulted in new market opportunities and increased farm exports, but the Uruguay Round was just a start in the upcoming round of the WTO rounds for the next step. The next round will be launched and administered in Seattle on November 30 with nearly 130 countries in attendance. The actual negotiations will start early in 2000. The full scope of the negotiations is yet to be determined, but agriculture and services will definitely be included. The general expectation is that the negotiations will last three years with implementation beginning in 2004.

In setting the agenda for the next WTO round and agricultural negotiations, we will build on the Uruguay Round accomplishments. Although tariffs were reduced in the Uruguay Rounds, they are still too high. Some countries maintain average tax tariffs of 50 percent while the U.S. average is about 8. Our goal is to negotiate a further reduction in tariffs, but we also want to expand market access under tariff-rate quotas by increasing the quota amount and decreasing the tariff outside the quota.

Another top priority is the elimination of export subsidies. The European Union, for example, currently accounts for about 85 percent of the export subsidies used in agriculture worldwide, and they are currently permitted to outspend the U.S. on export subsidies by about 10 to 1. We also want to see discipline brought to the operation of so-called state trading enterprises or STEs which are government- authorized export or import monopolies. This monopoly power allows STEs to price their products artificially low and unfairly increase market share. We'd like to see STEs subjected to greater constitution or reform so they operate in a way that's fair and more transparent. Trade supporting domestic support is being reduced under WTO rules, but those subsidies also remain high. A comparison of such support shows that locally domestic support in Europe and Japan remains higher than in the United States. Our goal for the next round is to make sure that such assistance has a minimal impact in interfering with markets and distorting trade. Programs that encourage farmers to produce surpluses without regard to efficiency or environmental costs are often maintained by domestic import competition and dumping surplus production on world markets.

Other goals for the next round include ensuring that health and safety rules continue to be based on sound science and establishing the rules that allow trade involving new scientific innovations such as trade and products of biotechnology. Again, we appreciate your attention and participation and look forward to hearing your comments today and over the next several months. Thank you.