Congressman Conte had planned to testify with us this morning, but at the last minute was called to a meeting at the White House. I would request that his statement be made a part of the record of this hearing. Chairman GIBBONS. Yes, it will be accepted for the record. [The statement of Mr. Conte follows:] STATEMENT OF HON. SILVIO O. Conte, a REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS Mr. Chairman, thank you very much for this opportunity to testify in support of H.R. 3795, the Wine Equity Act. As one of the principal co-sponsors of this legislation, I appreciate the continuing attention that you and the other members of this Committee are devoting to the difficulties of the American wine industry in developing potential export markets. When I had the privilege of testifying before this Committee last November, I indicated that my interest in this issue was not motivated by local or parochial concerns. Although Massachusetts does boast at least three excellent wineries, my district in western Massachusetts is not a major commercial grape growing or wine producing area. Rather, like many of the more than 340 co-sponsors of H.R. 3795, I am outraged by the discriminatory treatment that American wines receive at the hands of foreign countries. American wines are fully competitive with their international rivals in terms of price and quality-as long as the competition is fair. But today the game is rigged. The American wine grower seeking to market his product overseas is continually faced with a maze of restrictive and prohibitive trade barriers, including both tariff and non-tariff restrictions. As originally conceived, the Wine Equity Act would have required foreign countries to harmonize their trade barriers with the very minimal restrictions that the United States places on the importation of wine from those countries. To the extent that such countries did not bring their trade restrictions into line with those imposed by the United States, the President would have been authorized to impose tariff and non-tariff barriers consistent with those imposed on American wines by foreign countries. This equitable approach was designed not to protect the domestic wine industry, but simply to provide an incentive for foreign countries to make their markets accessible to American wines in the same manner that the U.S. market is open to foreign wines. In my view, the outcry from our European trading partners over this approach was a good indication that we had hit a nerve. The fundamental fairness of this legislation, and the depth of support for this approach on Capitol Hill, has caused many players in the international community to re-evaluate their positions on the question of export equity for the wine industry. In addition to the Europeans, who have a vested interest in protecting their markets from American wine competition, the major opposition to this measure has come from the Administration and various agricultural interests, particularly the soybean growers. The concerns raised by these interests centered on the possibility that the Wine Equity Act might be inconsistent with our obligations under the General Agreement on Tariffs and Trade (GATT), and might therefore provide an excuse for foreign retaliation against American agricultural exports. I believe that we have met those objections. After lengthy discussions with the Administration and with representatives of the various agricultural interests, we have come up with a substitute measure that is GATT-compatible, and that does not provide any basis for retaliation against American products, agricultural or otherwise. Rather than requiring the imposition of reciprocal barriers as an incentive for other countries to open their markets, the proposed legislation would direct the President to seek reductions in tariffs on U.S. wines through consultations with our trading partners. The legislation also directs the President to use existing trade laws, including section 301 of the 1974 Trade Act, to investigate non-tariff barriers to U.S. wine exports. The measure would provide for action by the President under section 301 if negotiations to reduce foreign tariff and non-tariff barriers on U.S. wine have not proven successful by January 1, 1986. Finally, this legislation would authorize the expenditure of funds to initiate wine export promotion programs with non-governmental trade associations representing U.S. wineries. This proposal should be acceptable to all of the parties interested in this issue. Although it does not go as far as the original Wine Equity Act, it does provide for significant bargaining authority on the question of opening foreign markets to U.S. wines. I thank the members of the Committee for their consideration of this important issue, and look forward to seeing wine equity legislation on the floor in the very near future. STATEMENT OF HON. WILLIAM M. THOMAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Mr. THOMAS. Thank you. Obviously, since the time we were before you last fall, Mr. Chairman, there have been a number of meetings and negotiations taking place. We have what I believe is truly a compromise bill. Obviously the wine producers are in difficulty as indicated by my colleagues. I would just like to emphasize one portion that I don't think has been stressed so far, and that is the wine grape producers are also involved. Obviously you don't make wine without grapes. The problem is that when you are not selling wine you still have grapes and grapes can be used for raisins or for the fresh market. You have various opportunities. I don't want to go into the recent pressures we have had on raisin exports but obviously it all reflects in terms of a problem for the producer of the raw product, the grape. The compromise expands the available countervailing duty remedies for raw agricultural products. They have to meet that material injury test which is a difficult one to meet, but it provides some opportunity for relief for the raw product producer as well. I want to stress this is an industrywide compromise, and, as my colleague from California indicated, the only ones not in agreement are those who would be directly affected by the bill as importers. I would ask unanimous consent that my entire testimony be submitted for the record. Chairman GIBBONS. Certainly it will be placed in the record. [The prepared statement follows:] STATEMENT OF HON. WILLIAM M. THOMAS, A REPresentative in Congress From THE STATE OF California I appreciate this opportunity to appear again before the Subcommittee on Trade to discuss the need to open new export markets for American wines. The need to encourage U.S. wine exports, as well as to expand trade remedies available to U.S. producers of raw agricultural products used to create processed goods, is as acute today as it was when the Subcommittee began its investigation of these matters last September. Now that the U.S. wine industry and other segments of American agriculture have developed the compromise legislation that has been presented to you, I hope we will be able to move legislation forward in the near future. As I testified last fall, U.S. wine makers face a myriad of tariff and nontariff barriers as they attempt to export their products. While Japan recently announced a tariff cut on U.S. wines, we need further tariff and nontariff concessions from all wine consuming countries if U.S. wine producers are to expand their markets. American winegrape producers also require assistance. Winegrapes can be used for a variety of purposes, including wines, raisins and fresh market sales. Recent pressures on U.S. raisin exports and barriers to greater wine exports are making it difficult for grape producers to achieve reasonable returns in their last market for grapes, the fresh market. Make no mistake: grape producers are significantly harmed when wine and raisin sales are affected by unreasonable foreign trade practices. We need to provide grapegrowers and vintners with export opportunities and effective trade remedies today and not sometimes in the future. Foreign trade practices have already put a lot of financial pressure on growers and winemakers and, without relief, many in this relatively new, highly competitive export industry are likely to drop out of the business. We cannot ignore the problem anymore because that would signal the world that our government will not assist new industries having high export potential. The compromise language before you recognizes the need for export expansion and broader access to trade remedies while satisfiying many of the concerns voiced by other export businesses. It provides a modified section 301 trade investigation and consultations designed to identify and eliminate unjustifiable, unreasonable or discriminatory trade practices. The bill also provides for the reduction of foreign tariffs on U.S. wines, and it authorizes up to $10 million in export promotion funding to help our wind industry penetrate foreign markets. The compromise expands available countervailing duty remedies by allowing U.S. producers of raw agricultural products to obtain relief when they can meet the tough "material injury" test required by the General Agreement on Tariffs and Trade. This is an important step because raw product producers often sell on low profit margins at best and frequently are among the first to be significantly injured by unfair foreign export practices. I hope the Subcommittee will give this legislation its full consideration as soon as possible. The language is, as I have said, a compromise produced by various agricultural interests in an effort to give new trade opportunities and remedies to a relatively new export industry without damaging the export position of other farm groups. The compromise has broad support in the wine industry and it alleviates some concerns expressed about the original bill. While the original bill has provided leverage for the Administration to use in obtaining important concessions from other countries, new remedies are still needed if we are to aid an industry already under significant presure at home and abroad. Chairman GIBBONS. Let me say I appreciate the vigor and spirit with which you who represent the wine industry and grape growers have moved on this. I will commit to you that we will have a markup and see what we can do on this and try to do it as rapidly as possible. I don't know how my colleagues would vote on the issues but we will just have to see. I applaud your spirit of working together with the other agricultural interests in the United States to see what can be worked out so that we do not adversely affect their interests. Mr. HORTON. Could I add one more note, Mr. Chairman? Chairman GIBBONS. Go right ahead. Mr. HORTON. You might think that because we represent the States of New York and California that that is mostly where the wine is grown. Chairman GIBBONS. I know they have begun to grow it in Florida now. Mr. HORTON. But it is not just these 2 States, it is probably something like 40 or 42 States that have appreciable wine industries, wineries. I think it would be appropriate if you permit us perhaps we could list, furnish the committee a list of the States. Chairman GIBBONS. We would be happy to have those. [The information follows:] Hon. SAM GIBBONS, Chairman, House Subcommittee on Trade, CONGRESS OF THE UNITED STATES, Longworth House Office Building, Washington, DC. DEAR SAM: During the recent hearings held by your Subcommittee regarding H.R. 3795, the Wine Equity Act, there was a discussion regarding the number of states which produced grapes and had wineries. In that conversation, it was agreed that the Subcommittee would be provided with a list of those states. I have enclosed a copy of the listing of the states in the U.S. which currently have wineries. I would appreciate your including this in the hearing record on Tuesday, July 24, 1984. Again, Sam I would like to thank you for your willingness to hold hearings on this measure. Mr. HORTON. So you would realize this is not just a CaliforniaNew York bill. It includes a lot of States and many States that are in the process now of building up a wine industry. I think for us not to have this type of legislation will kill those industries very quickly. Chairman GIBBONS. Well, you know, there is another big factor out there. I am not going to blame all of our trade problems on this one factor, and that is the huge fiscal deficit we are running. That runs up the value of the dollar because the interest rates have to go up in order to contain inflation. That acts like a subsidy to imports and a penalty to exports. But there are other problems in the wine export area that you all face, and we will try to remedy that through negotiations, through the legislation you presented, which I think is an appropriate manner to go about the problem. Mr. Frenzel, would you like to inquire? Mr. FRENZEL. Yes, Mr. Chairman, I want to thank three gentlemen for their testimony and to apologize to them for arriving late- Mr. THOMAS. Which one do you not apologize to? Mr. FRENZEL [continuing]. And applaud the fourth one for the brevity of his comments. Mr. THOMAS. Oh, all right. Mr. FRENZEL. I would like to ask Mr. Coelho to whose testimony is attached the letter from the American Soybean Association. Will that association contact this committee as it has contacted you? We would like some testimony from them. Mr. COELHO. As I understand, Mr. Chairman, there will be a statement submitted. I am not sure they will be testifying. But they will submit a statement in support of the compromise indicating they are in agreement with what we have here. Mr. FRENZEL. Their original position was that they were nervous about retaliation. Somehow you have quieted those concerns, have you? Mr. COELHO. Yes, sir. Mr. FRENZEL. Agreed to by all their surplus? Mr. THOMAS. Make soybean wine. Mr. COELHO. Their concern is whether or not the legislation was GATT compatible. We have worked on that and we have now made it GATT compatible to their satisfaction. Even individuals at STR agree that it is GATT compatible. I don't know what STR will say today when they appear to testify, but we feel comfortable with that now. Mr. FRENZEL. I guess the problem I have, Tony, is that a set of agreements with other countries where they have negotiated some access to our market and ours to theirs and we have of course never demanded sectoral reciprocity nor in my judgment should we. But your bill provides that the President may, if he doesn't find it out there, may take steps against it. As I understand it that would be one of the problems plaguing the soybean groups and others and it looks to me like you have done a good job of rewriting your bill except you still don't, I think, get at that problem. Would you comment? Mr. COELHO. Basically, Mr. Chairman, what we have done is that Mr. Frenzel, I am sorry, what we have done is made it in effect up to the STR and the President to take actions under certain conditions. All we do, for instance, where we permit the producers to go ahead and take some actions as opposed to the industry as a whole, ITC can do that and has in limited cases. We make this consistent across the board. We do not feel that it violates GATT. Now, the soybean people were obviously very concerned because of the negotiations that they have entered into and the agreements that they have and that they do not want to see retaliation. They would be concerned about that. But, Mr. Frenzel, I would have to also tell you as one who produces in my congressional district 220 different agricultural commodities with a tremendous amount of those commodities going into the export markets that we would not like to see retaliation in my district, either. So we are not looking for retaliation. All we are looking for in this bill is fairness. As you know, with the situation with the dollar today and the problems with the trade deficit, as the chairman pointed out, that becomes a negative factor for exports and a positive factor for imports. But what we have seen in a number of cases is that several of these countries that we try to export to impose unfair trade restrictions on our commodities going into foreign markets. We are not asking for subsidies. We are not asking for any limitations on those products coming into our markets. All we are asking for is reciprocity, or the same restrictions on their products coming here as they place on ours. We don't want anything more than that or anything less than that. It is a very simple bill. Mr. FRENZEL. I appreciate that. I agree it is apparently simple but to me it is not wholly simple. For instance, America protects much of its agricultural produce whether it be rice, cotton, peanuts, tobacco, wheat, corn, dairy, whatever. There are tariff barriers-take my own State-on dairy products. Supposedly we have |