Testimony of William Sprague--free trade, unilateral and economic trade sanctions

Testimony for William Sprague
President of the Kentucky Farm Bureau Federation

Before the Senate Task Force on Economic Sanctions

September 9, 1998
Mr. Chairman and members of the Committee, I am William Sprague, President of the Kentucky Farm Bureau Federation and a member of the Board of Directors of the American Farm Bureau Federation. The American Farm Bureau represents 4.8 million member families in the United States and Puerto Rico. Our members produce every type of farm commodity grown in America. I want to give you a few facts and figures to stress how important the issue of losing markets through unilateral sanctions is to our industry.
America's farmers and ranchers depend on sales to the export market for over one-third of our production.

American agriculture is more than twice as reliant on foreign trade than the U.S. economy as a whole.
Only four percent of the world's consumers live within the United States borders.
To grow and be economically stable American farmers and ranchers must have free and open access to the 96 percent of the world's consumers who live beyond our borders.
Agriculture, including the wide variety of industries involved in farm inputs and outputs constitutes one of the largest sectors of the U.S. economy. Combined with food processing, marketing and shipping industries that make up our industry, we are the nation's largest employer.
In 1997 the food and fiber industries, which include producers of farm equipment and suppliers, processors, transporters, manufacturers, retailers and the financial and insurance service industries that serve them, comprised 16-17 percent of the gross national product.
As well as being the nation's largest direct and indirect employer, for the past several years the sales of agricultural commodities have provided the only positive return to the U.S. balance of trade.
These accomplishments can only be sustained if our international markets remain open. It has been well documented that unilateral trade sanctions are sanctions against U.S. exports and destroy our reputation as reliable suppliers.
Farm Bureau strongly opposes all artificial trade constraints such as unilateral sanctions. We believe that opening trading systems around the world and engagement through trade are the most effective means of reaching international harmony and social and economic stability.
Agricultural markets around the world are now very unstable. Asia represented over 40 percent of agriculture's export market in 1997. For 1998, USDA has estimated that we have already lost over $40 million in sales to this region and further losses are projected to go even higher. Until this crisis is turned around and these economies are again stabilized, with returned buying power, agriculture is poised to lose in excess of five percent of its export sales per year. Lost exports could reach as high as $3 billion a year.
Our ability to expand markets with our close neighbors to the south is restricted by lack of authority to negotiate new trade agreements while our competitors are doing just that. Europe, our largest single market, is blocking U.S. products produced through the use of genetically modified organisms, which our scientists believe are safe. World prices are low and some sectors will be blessed with excellent yields but no place to sell them. The 1996 farm bill removed traditional production safeguards and at the same time Congress promised our producers the necessary tools to be players in the world market. Times are tight for farmers and we still do not have the tools needed to be strong players in the marketplace.
Unilateral sanctions have become the weapon of the moment to address actions by our trading partners when we as a nation disagree with some action they take. Farm Bureau believes former President Ronald Reagan had the right approach when he said, "the freer the flow of world trade, the stronger the tides of human progress and peace among nations."
By its recent actions India told the U.S. that she was not concerned whether or not we applied sanctions. When we impose sanctions on our customers, our competitors are standing by to take over our markets. Today, our customers can go elsewhere for their food and fiber. Markets were not easy to develop and are even more difficult to win back when our customers see the United States as an unreliable supplier. Let me call your attention to the attached table of agricultural commodities imported by sanctioned countries (see appendix). While these are not huge numbers, U.S. producers are not even able to compete for these sales. These are sales lost to our competitors.
In the last decade, democracy has ascended amidst economic liberation in Taiwan, Korea, Poland, Hungary, Slovenia, the Czech Republic, Chile, Argentina, Bolivia, Peru, Brazil, Uruguay and Ecuador. These are all countries that are markets for American agricultural products, but they are also potential targets for unilateral sanctions. The opportunities for peaceful engagement and the ability to influence our neighbors through trade are greater than ever before and must be safe guarded from unilateral sanctions that destroy these opportunities.
Let me review some Farm Bureau policies that express the deep commitment of our members to opening and keeping open markets-not closing doors as happens when sanctions or embargoes are enacted:
We believe free trade should not be tied to social reforms, labor or environmental standards of other countries.
Farm Bureau believes all agricultural products should be exempt from all embargoes except in the case of armed conflict.

Should a trade embargo or restrictions be declared under such circumstances, the embargo should apply to all trade, technology and exchanges. An embargo should not be declared without the consent of Congress.
The threat of embargoes or other restrictions adversely affects markets and is an inappropriate tool in the implementation of foreign policy. If an embargo or sanctions are enacted, farmers should be compensated by direct payments for any resulting loss.
All export contracts calling for delivery of agricultural commodities or products within nine months of date of sale should never be interfered with by the U.S. government, except following an embargo consented to by Congress. This sanctity of contracts is essential to maintain the United States as a reliable supplier.
Farm Bureau is dedicated to more open trading systems around the world- not more sanctions or embargoes.
For 50 years, the United States has followed a reasonably consistent policy of engagement with the world to promote peace and freedom. Recently, the United States has begun to depart from the long-standing preference for engagement.
In just four years, the United States has imposed 61 unilateral economic sanctions on 35 countries according to the U.S. Alliance for Effective Engagement. These countries, from which the United States is isolating itself, contain about 40 percent of the world's population.
Professor Donald Losman of the U.S. Industrial College of the Armed Forces has stated, "Comprehensive economic sanctions almost always fail to achieve their political goals, while at the same time opening a Pandora's box of economic and international relations headaches. They tend to strengthen offending regimes and policies. Pain without gain is probably the best description."
The Institute for International Economics estimates that unilateral economic sanctions cost the United States $15-19 billion in lost exports in 1995. This translates into the loss of more than 200,000 American export-related jobs. A 1994 Council on Competitiveness report found that eight unilateral sanctions episodes cost the U.S. economy $6 billion in annual sales and 120,000 export-related jobs. Current sanctions are costing U.S. wheat producers up to 50 percent of world markets. To continue to impose sanctions during a time when we are working to secure freer trade through the World Trade Organization (WTO) and international agreements gives our trading partners conflicting signals.
As we move into the next round of the WTO negotiations several of our most important markets such as Japan are expected to use sanctions as a reason to resist opening markets. They will try to protect their markets by declaring that they must be self-sufficient in food production as the world market is unreliable. American farmers and ranchers are the world market they are keeping out.
The Soviet grain embargo in 1980 cost the United States about $2.8 billion in lost farm exports and U.S. government compensation to American farmers. When the United States cut off sales of wheat to protest the Soviet invasion of Afghanistan, other suppliers-France, Canada, Australia and Argentina-stepped in. They expanded their sales to the Soviet Union, ensuring that U.S. sanctions had virtually no economic impact. Russia still appears to restrict purchases of American wheat, fearing the United States may again use food exports as a foreign policy weapon. Unilateral sanctions give our markets up to our competitors.
America's prosperity is tied to our competitiveness in global markets. Export sales move over 30 percent of U.S. agricultural production. Over 12 million working Americans and their families depend upon U.S. exports and access to global markets for their jobs. The United States only accounts for four percent of the world's consuming population. We must maintain access to the 96 percent of our customers who are outside of our borders. Sanctions and embargoes are sanctions against our own people and only serve to disrupt the marketplace on which we depend.
The State Department has identified 78 countries that could be responsible for actions that some would find as reasons for imposing unilateral sanctions. Sanctions against just six of these, China, Egypt, Pakistan, Indonesia, Russia and Saudi Arabia, would cost American farmers and ranchers over $5 billion in lost sales. We cannot continue to provide American consumers with the most economical food supply in the world or maintain a positive return to the national trade balance if we do not have access to world markets to maintain our economic base.
I must stress that when any type of sanction or embargo is imposed, or threatened, either political or economic, agriculture is the first industry to be targeted in retaliation. During the Japan-U.S. automobile parts debate, Japan released its proposed retaliation list in response to the U.S. threat of imposed sanctions on Japan auto makers. Agricultural products led the list. Just the threat of sanctions puts American agricultural exports at risk.

American agriculture, as well as other export dependent industries, is in a critical economic situation largely because of our inability to open new markets due to the lack of fast-track trade negotiating authority and the ongoing fiscal crisis in Asia for which the International Monetary Fund is a major player in resolving this situation. You recognized how critical export markets are to agriculture when Congress passed the exemptions to the Pakistan and India sanctions that allowed for the sale of U.S. wheat under the USDA guaranteed credit loans programs. I want to applaud you for this and urge you to move quickly with the work of this task force which I hope will result in recommending the reasonable monitoring and reform approach laid out in Senator Lugar's bill, S. 1413.
The American Farm Bureau Federation strongly supports passage of S. 1413, the Enhancement of Trade, Security, and Human Rights Through Sanctions Reform Act . This legislation will help prevent future useless embargoes by requiring a reasonable evaluation of the consequences of imposing unilateral sanctions before they are imposed.
There are clearly four actions that the administration working with Congress can take to protect the economic stability of American agriculture as well as for the nation. They are: Congressional approval for the $18 billion needed for the International Monetary Fund, providing the administration fast-track trade negotiating authority, providing permanent Normal Trade Relations status to China, and beginning the process of removing existing unilateral sanctions and preventing future unilateral trade sanctions unless there is a justified reason for them and sound reason to expect the success of the defined policy goals. The American Farm Bureau Federation is committed to working for passage of these actions.
As the leader in world trade, the United States has an unprecedented opportunity to promote its values throughout the world by peaceful engagement. Reaching out through engagement and trade, not withdrawing behind sanctions or embargoes, is the best way to achieve positive change, not by imposing unilateral sanctions.
Senator Lott posed very important issues for the task force to examine. Some of these must be answered by a complete review of existing sanctions and others may have very subjective answers depending on the focus of the responder. Following is Farm Bureau's response to some of the issues posed:
1. "What constitutes a 'sanction' ?" Sanctions may confer authority, approval or permission. However, the issue at hand rests in the application of penalties intended to enforce compliance or conformity with a U.S. belief or policy. Farm Bureau is concerned when economic trade sanctions are imposed on our trading partners to force compliance or to punish them. There are clearly issues that must be addressed that effect national security. These issues need to be clearly defined by the Congress in cooperation with the administration.
Sanctions affecting U.S. commercial activity should not disrupt free market trade or investment, as long as the activities are clearly in compliance with international trade rules. Actions taken unilaterally rarely if ever put pressure on the country intended as there are other suppliers of almost every product produced in the United States. The makers of these goods stand ready to step into the market vacuum created by sanctions.
3. "How should success be assessed in determining the effectiveness of sanctions?" This can only begin to be measured when the sanction is clearly thought out and the potential outcomes identified before it is imposed. Included in the evaluation of the success must be the "cost" to the U.S. economy by imposing the sanction. Just as U.S. agencies are required to provide a cost-benefit analysis on regulations, sanctions should also undergo a cost effectiveness study which would include the likely ability of the sanction to result in the desired behavior change or policy goals.
4. "How should policy goals be defined in considering and implementing sanctions?" If a clear and positive change in policy or political behavior cannot be identified prior to the imposition of a sanctions it would appear that there is little likelihood of a sanction working. The policy goal must have a direct linkage to a definable outcome which should be a political or commercial change. If the sanction is a "punishment" it carries little incentive for the other party to change as opposed to sanctions that encourage positive actions.
5. / 6. "Effective procedures to ensure coordination between the executive and legislative branches and for oversight and compliance seen to be lacking or at least hidden in the depths of legislative history." If the task force does not uncover such procedures and moves to put them in force, the sunset provisions and coordinated review by the Executive branch and Congress called for in the Lugar legislation should be enacted.
7. "Unique Senate floor or committee procedures for considering sanction legislation should be enacted." At a minimum, Senator Lugar's proposal should be considered. Thank you for the opportunity to speak on behalf of American agriculture.

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