Before I go into the substance of my testimony, I'd first like to acknowledge our strong support for this investigation. When I took my job nearly two years ago, I was surprised to discover the lack of any comprehensive study on our sector, nor any resources dedicated exclusively to processed food trade at USDA. We believe this study will help fill these gaps and will serve as the foundation for future trade policy analysis in the sector. I'd also like to express our appreciation for the excellent work done to date by the ITC staff in charge of this study. We commend the staff on their thorough approach and visible dedication to the project. Needless to say, we very much look forward to the results of the study.

I would like to concentrate my remarks this morning on three main areas. First I would like to talk about the growing importance of trade in the processed food and beverage sector. I will then identify what we see as some of the most significant barriers to trade facing our industry. Finally, I will discuss our recommendations for multilateral and regional trade negotiations, which we hope, will address some of these barriers.

As noted in the original Ways and Means letter initiating the ITC investigation, exports of processed food and beverage products have grown dramatically over the last decade. As the charts before you indicate, consumer foods now account for a larger share of our exports by value than bulk commodities (42% as opposed to 38%). Globally the trend is similar--consumer foods now account for two-thirds of all agricultural trade and eighty five percent of its growth since 1986. When I talk about consumer foods, I must be clear that this includes ready to eat fruits and vegetables. We rely on these charts because, quite frankly, until a year ago there was no definition by HS codes of the processed food and beverages sector. We have been working with FAS over the last year and have come up with our third chart, which shows that the export trend for processed food products is equally impressive. Over the last decade, processed food exports have grown from one fifth to one third of all US agricultural exports.

As an export gateway for many bulk products, processed foods exports also have an important impact on the rural economy. For example, each dollar in exports of processed foods generates an additional $1.57 in economic activity as opposed to $0.81 for bulk products. Similarly, each $1 billion in exports of processed foods supports roughly 16,700 jobs as opposed to 12,700 for bulk agriculture. Let me give you an example. The Procter & Gamble Pringles plant in Tennessee employs over 1,200 people, and uses over $100 million in potato flakes and $40 million in cottonseed and soybean oil a year. The Tennessee plant exports one out of every three cans it makes.

We believe there is enormous potential for growth worldwide for processed food products, especially in markets with rising incomes, a growing middle class and younger populations. Studies have shown that societies with younger, more affluent populations, especially where mothers may work outside of the home, tend to be the most likely to consume non-traditional food products. Accordingly, we are eager to expand our market share in countries like Brazil, India, China and many of the Gulf States.

Unfortunately, there are significant tariff and non-tariff trade barriers that hamper growth in major markets. In our preliminary statement to the ITC we submitted a chart that identified in detail many of these barriers by product and country. Since time is limited this morning, I would like to use a few examples to illustrate the problems our companies face when trading products. As we have stated before, we look forward to a comprehensive analysis of these barriers in order to develop more appropriate strategies to dismantle them.

On average, tariffs on processed food and beverage products are among the highest of any sector. Although tariffs vary by product and country, tariffs in the sector are often above 40% and sometimes, exceed 100%. Additionally, tariffs on agricultural products often increase with the level of processing. For example, in Taiwan, the tariff on bulk corn is 1%, whereas the tariff on corn chips is 45%. Finally, the Uruguay Round tariffication process created a tariff-rate quota (TRQ) system for many sensitive products (for example, sugar, dairy, rice, peanuts) that are the key ingredients in many processed food products. As a result, processed food products often face a complex and prohibitively high tariff structure that not only assesses a duty on the product itself but on its ingredients by weight and composition.

On the issue of sensitive commodities, it is important to note that US policies are as detrimental to US manufacturers as many of the barriers we face abroad. The US sugar program, in particular, inhibits the competitiveness of many GMA exports. The sugar program is designed to keep sugar prices high through a combination of price supports and import restrictions. As a result, US manufacturers must pay two-to-three times the world price of sugar in the United States. This not only places them at a competitive disadvantage in exports, it also undermines market share domestically since many low cost sugar-containing products enter the US virtually duty free. Improving access to world-price sugar is a necessary step for increased competitiveness at home.

GMA member companies also face many non-tariff barriers that keep our products out of foreign markets. We are extremely concerned about overly zealous requirements for export certificates, diverse mandatory labeling requirements globally and unscientific fortification standards. For example, Chile and Canada have passed legislation that essentially bans fortified breakfast cereal products produced in the United States from entering their markets. These regulations are not science-based, and must either be challenged under NAFTA or the WTO or worked out bi-laterally through negotiations. In addition, diverse fortification standards (with no mutual recognition agreement) impede economies of scale for manufacturing facilities throughout the ASEAN region.

Processed food exports are also hindered by a variety of mandatory labeling schemes for biotechnology products. These labels are inherently misleading since they convey that these products are different in a meaningful way from their conventional counterparts and are often perceived as warnings by consumers. Not only do we lose market share because consumers won't buy labeled products, buy we also must bear the cost of complying with these regulations. Moreover, we have seen increased market fragmentation as countries around the world adopt diverse standards. We believe that this sort of discrimination on the basis of production is not in compliance with obligations under the TBT agreement.

GMA strongly supports bilateral, regional and multilateral trade negotiations to address these barriers and open up markets for our products. Let me briefly describe some of our key objectives for these negotiations:

GMA's primary objective for all trade negotiations is to improve market access for processed food products and primary agricultural products through reduced tariffs and the elimination or further liberalization of tariff-rate quotas (TRQs). We support an approach to tariff reductions that would lead to the elimination of tariff peaks and tariff escalation. We also believe that export subsidies on food and agricultural products should be eliminated. Lastly, in order to achieve any meaningful liberalization in agriculture, protected industries and products must not be excluded from the negotiations.

To address non-tariff barriers to trade, GMA encourages a clarification of the agreement on Technical Barriers to Trade (TBT) as it relates to disciplines on mandatory labeling regimes that are related to production methods as opposed to the products themselves. In addition, we encourage the US to adhere to the disciplines of the SPS agreement and look for ways to improve consultations on SPS issues in all future negotiations.

Thank you for allowing me the opportunity to appear here today. We hope that you will continue to view GMA as a resource throughout the investigation. We eagerly anticipate the results of the study and thank you again for all the work that has gone into the report to date. I would be happy to answer any questions.