Testimony of Henry Jo Von Tungeln, Chairman
U.S. Wheat Associates And the Wheat Export Trade Education Committee
August 2, 2001


Mr. Chairman and members of the Commission. My name is Henry Jo Von Tungeln and I am a wheat and cattle producer from Calumet, Oklahoma. I have been active in state and national agricultural activities for many years.

I have just assumed the role of Chairman of U.S. Wheat Associates and the Wheat Export Trade Education Committee, and I am looking forward to working with these organizations on issues such as the ones before us today.

For our organizations and U.S. wheat producers, the issues posed by this hearing are very important. It's also a case where we have little choice. We face a very competitive world wheat market, and we have to be there or get cut out of the picture.

The wheat industry has paid a high price when our government has invoked sanctions, often unilaterally, to achieve policy goals and attempt to influence another country. These unilateral sanctions have been a disaster for wheat which is a very political, fungible commodity. If the United Sates decides that it will not sell wheat to a country, there are always others that will quickly and happily step into the vacuum to make the sale.

In recent years the China market has been a very volatile one in terms of wheat import levels. China is both the world's largest wheat producer and the largest wheat consumer. During the early 1990's the volume of China's wheat imports was as high as 15 million tons while in recent years it was under one million tons. Chinese wheat production levels increased sharply in the late 1990's, but their policies have recently changed. We expect to see them again become a significant importer with more market-driven polices.

The Agricultural Cooperation Agreement between China and the United States includes a very significant Tariff Rate Quota of 7.3 million tons for China's private sector which will increase to 9.4 million tons. This will be a target for exporters of U.S. wheat, but it will also be the focus of our competitors.

We see no realistic alternative to competing for the Chinese wheat export business. It is in our interest and that of the Chinese as well. Other suppliers will meet China's wheat needs if we are unable or unwilling to do so. While open competition is not without some frustration, we see it as far preferable to confrontation.

When asked recently whether opening the China market under the WTO would enhance the profitability of U.S. wheat producers, I replied "It's our survival."

In response to the specific questions that the Commission raised.

1. Whether our current bilateral trade policies toward China serve the national security interests of the United States and why or why not?

There is an old saying that if trade doesn't flow across international borders, armies will. Yes, the opportunities for trade presented in the U.S. - China agreements both bilaterally and through their membership in the World Trade Organization (WTO) will help foster a cooperative rather than adversarial relationship. These policies will allow the U.S. to fully engage China in a meaningful relationship that will give the U.S. unprecedented opportunities to influence the causes of democracy and economic liberalization within China. A stable and growing economy will help foster economic and political security.

For U.S. wheat producers the provisions in both the Agreement on U.S.-China Agricultural Cooperation and the bilateral agreement for China's WTO membership have clauses that create opportunities for wheat exports on a competitive basis. The tariff rate quota system outlined in bilateral agreement on WTO membership provides for minimum tariff levels (1%) within the quota on fixed levels of imports. The agreement on Agricultural Cooperation removes sanitary and phytosanitary barriers. Both agreements have the potential to boost exports and increase prices for wheat, helping to maintain a market for U.S. wheat and create vital income for U.S. producers.

Additionally, WTO accession would make China subject to the same trade rules that 135 other countries currently abide by, and would give other member countries a multilateral dispute mechanism to address trade concerns. WTO accession would also subject China to trade rules that secure science-based sanitary and phytosanitary standards, transparency and nondiscrimination. The opening of the Chinese market will provide greater opportunity to lead by example and serve U.S. national security interests by promoting economic growth and stability.


2. What accounts for China's huge trade surplus with the United States and whether China bilateral trade relationship with its major trading partners appear to be substantially different from those it enjoys with the United States and if so why?

The United States market is currently open to China; these agreement serves to open the Chinese market to American products and services. This agreement will give U.S. wheat producers a far greater sales opportunity to a country with 1.2 billion consumers, with a potential 10% increase in total annual U.S. wheat exports. This represents almost 20 percent of the world's population. China's accession into the WTO will also continue to spur economic growth within China and increase demand for higher quality U.S. wheat.

Until the trade relationship provides for more-balanced two-way trade the surplus will continue to grow. It is our hope that as access to the Chinese market increases and provides greater opportunity for U.S. products that surplus, over time, will decline. As you are well aware, the strong U.S. dollar and a hearty appetite by U.S. consumers for goods and services also negatively impact our trade surplus. For wheat trade, the potential opening of the Chinese market will give us the opportunity to positively contribute to the U.S. trade balance since China is a net importer. Chinese millers want U.S. wheat. We can provide better quality and cheaper wheat than millers in the large coastal cities can currently buy from domestic production.

U.S. political policy toward China, as opposed to their other trading partners, allows Chinese decision-makers and government officials to perpetuate the perception that the U.S. seeks to slow China's emergence as a major economic power. Such policies that lead to these perceptions are ripe for elimination. The U.S. must drop sanctions related to the Tiananmen incident of 1989. These include, but are not limited to abstentions or nay votes for World Bank loans and selective procedures withholding Export-Import Bank loans and credit guarantees unrelated to economic or security reasons. Generally U.S. unilateral sanctions are largely symbolic, undermined by our competitors, discourage positive business decisions based on uncertainty, causing imports to originate from competitor markets, and maintain the perception the U.S. does not want the emergence of China as an economic power. In the end however, unilateral sanctions only undermine our ability to export goods and services to China. Our competitors gain at the expense of farmers, workers and businesses and the U.S. perpetuates the label of an unreliable supplier.

3. In your view, whether any such differences have any national security implications for the United States?

As national security is partly a function of economic well being, U.S. policies which encourage Chinese government officials and businesses to look elsewhere for imports have a negative impact on the economic well being of U.S. producers and national security. To that extent U.S. competitors in the wheat industry and others gain opportunities while U.S. producers are disadvantaged and potential income lowered. And, we support a policy of engagement which will foster positive changes within China.

4. Your views on China's ability to live up to the bilateral trade obligations it is assuming with regard to the United States and its major trading partners as part of its entry into the WTO.

The response to obligations to employ in the Agricultural Cooperation Agreement is an indication of China's ability to comply. While initially there were difficulties in implementation, such as poorly informed local officials and delays in processing imports, communications with authorities at national levels such as the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the national inspection and quarantine agency received positive responses. While recent wheat purchases have been small, they have entered the country successfully.

China's leadership realizes that recent high economic growth is not sustainable in the long term. The leaders instead now consider the quality of growth as most important with the view that the obligations of WTO membership are the leverage to make the necessary transition. In regard to the TRQ for wheat as part of the bilateral WTO membership agreement, our visits as recently as June 2001 to government officials in Beijing overseeing the industry confirm their intention to implement provisions in acceptable manner.

5. Your views on what actions the United States should take if China fails to live up to its WTO obligations.

The U.S. should first carefully examine failures or perceived failures, approach the appropriate government agencies with responsibility for implementation with regard to particular imports (for example in regard to wheat the State Development and Planning Commission, the State Administration of Grain and the Administration for Quality Standards, Inspection and Quarantine) and the MOFTEC.

If upon consultation there remains a lack of or perceived lack of implementation, the U.S. should approach the WTO for resolution of the case and prepare a list of targeted counter barriers that will substantially impact China's exports to the U.S.

6. Any other views or recommendations you have regarding the overall trade relationship between the U.S. and China and the implications and impact on American farmers, industries and the economy of the U.S.

In the bilateral agreements for agricultural cooperation and WTO membership there are clauses relating to U.S. technical assistance programs. This technical assistance is beyond the scope of individual industries' ability. The U.S. government needs to develop a systematic program to help the Chinese government meets its WTO obligations. These assistance programs can range from training government officials to providing WTO-related legal assistance. While it is necessary to safeguard U.S. industries' competitive interests, it is possible to conduct such programs constructively.

Competitor countries and regions such as Japan, Canada, Australia and the European Union are doing so. The lack of a strong, well coordinated and funded U.S. government program builds upon perceptions in China that the U.S. prefers to maintain and implement tough conditions rather than assisting China's transformation to developed country status and a potentially large and stable consumer market.

Mr. Chairman, we know that China will be a vigorous trade competitor of the United States, but we see no realistic alternative to engagement. The signs are that the Chinese leaders want to join the WTO and be a responsible trading country. We support that accession and have regularly been in touch with USTR and USDA on this process.

I have entertained the Chinese Ambassador in my home, and we have had their trade teams in Oklahoma. It is clear that there has been a serious debate within China over its future direction. In our view, it is in our national security interest to work with and encourage the present direction that China is taking to open up its market and join the WTO. Our organizations see their role as furthering this process and, at the same time, enhancing opportunities for U.S. wheat exports.

Thank you Mr. Chairman. I will be happy to respond to any questions.