MR. SCHUMACHER: Can you hear me? I think, Earl, this is being recorded so I will take that introduction to my wife and then we'll send your introduction maybe to Ruth as well. I thank you very much. I'm also glad to see so many friends here. Brett Cobb, friend from Tennessee. We have worked very closely together. I've known Brett for a long time. Dan, delighted to see so many friends from Louisiana from the sugar industry. Jack (inaudible), he will be testifying here later. He had me on a sugar harvester and he kept me safe, Jack. I did learn a lot down in Louisiana visiting the sugar industry and the importance of the small farmers, the family ownership of the mills. It was very helpful. The very tough part of our trade was on sugar. We hope to hear some more about peanuts and cotton.

Gentleman (inaudible) and my hometown of Lexington, Massachusetts, Dan, from Memphis. Now he moved down here and represents cotton seed very, very well. Great to see you here as well. As Amy said, we are working very hard across the Department. This did not always happen in the past as Earl said. I'm so happy that Earl is moderating. Earl is the Dean of Agriculture and probably the most respected editor on agriculture issues and most knowledgeable. But we haven't worked in the past, going back a number of decades, as closely (inaudible) our agencies. That's why Amy and your leadership and the leadership of Joe (inaudible) who is now hopefully going on to be deputy secretary treasurer, but he has been terrific on getting the move forward on sanctions and we have more opportunities elsewhere on those operations as well.

Don Landers is here from Arkansas and Dawson is here from the Governor's office. So we have a very broad range of leaders from around the southern part of the United States. What we would like to do is take about 15 or 16 minutes. Jim (inaudible), Katherine McKinley here from my office and Catherine Cornelius did a marvelous job. We have -- this is the third of twelve as Dan just said as you try and get input from farmers, farm groups and farm leaders, farm organizations. When we go to Seattle, we go to Seattle in November, December of this year, we want to be able to say to our competitors that was have listened and have the support of American agriculture and we move forward in getting further access to markets overseas and working through these very important trade issues. So if we start with a few -- the easiest thing is to go through a few slides we prepared which I find very educational myself. Catherine, we can start with the second slide. The key here is -- the critical role that exports play in U.S. Agriculture that -- we're going to be looking at the role that the trade unions played in obtaining (inaudible) export and a lot (inaudible) realize that we had quite a lot of success despite the fall off of exports and as Bob Cummings outlined, what are our goals at U.S. Seattle. Would you like to see some of those modified expanded or amplified. If you go to the next one -- especially here in Memphis with a long history of cotton exports and the role that the river has played, we have had a quite a bit of success. When I started, I think Brett you and I were together about in the early 90's we were bumping along 39, 42 billion in exports. That went up to about 60 billion, the price but also volume in '96, softened a bit in '97, dropped in '98, and in '99 we're predicting about 49 billion. But that seems to have stabilized and we hope that we have now reached the bottom on our value of exports.

Our volume is doing pretty well. We're doing about a million tons of corn exports a year. Those will be picking up with Korea coming back. But we are really, really in our agriculture exports. One in three harvested acres, 25 percent cash receipts, 96 percent of our customers are from overseas.

You can get some flavor if you look at the overall economy, about 11 percent of our overall economy in manufactured export but then look at the agriculture. At one point nearly -- we're nearly 30 percent and now we're down to 26 and we'll see that's likely to pick up in the future.

Now this is our long-term trend. I think my staff put a peak on there, that might be optimistic, but you can see that we expect in our base line projections you see the peak in '96 but you see the softening in '86, so we've had a pretty good run in the decade of '86 to '96. But the Asian crisis, the stronger dollar and we had unusually good weather in most parts of the world over the last three or four years. So we've enjoyed -- normally there is some crisis somewhere but by in large the good Lord was helpful to agriculture in most parts of the world so our competitors, Argentina, Canada, China produced a lot of grain.

But you can see that our economists are indicating that we may begin to bottom out and begin to climb back and exceed, probably by 2004 the '96 levels and should go another five million by 2008.

If we move then to the next slide. This is a busy slide but I think it gives you a little flavor if you go around the country in some sectors how dependent we are on exports. If you look at the sunflower seed oil there, 81 percent of sunflower see oil is export. Almonds, which is a major crop very much in California, 70 percent.

But those of you in Tennessee there is cattle operation. You have a very large cattle operation and 62 percent of the hides that come off of the cattle that you put into feed lots are exported in a significant part to Korea and that collapsed. We had a real problem with cattle hides. That has begun to pick up again. Even in my own state, Massachusetts, lobster, thirty percent of those lobsters go overseas. Mr. Barry's district is rice. That's why Mr. Barry is always calling me about rice. He is encouraging me and counseling me to do more with rice which is what we were doing in our meeting last week.

We see rice 46 percent, rice exported, and wheat 42 percent. Down to cotton, a third of the cotton goes overseas. We're going to have to work hard to get -- a good part of that 18 million bail crop that is exported, animal fats, and so forth.

You see the extraordinary variety of our exports up and the diversification of our exports over the last ten years is quite extraordinary. Now look at it a little differently, you can read the slide at the bottom of the number that we have. For example, six billion dollars of soybeans goes overseas. Corn, soy meal five million. Mexico actually this morning is even weak. Mexico has been one of the real star export commodity despite the falling off in Asia will do well over six billion and four to five years we expect them to do ten billion. Dan and I were talking about that this morning. In Mexico concentrating on coarse grains, soybeans and our meats and to some extent cotton. Cotton is a very important commodity in Mexico. As you can see coming back red meats have grown very rapidly, four billion dollars. Wheat at four billion, of course cotton. Poultry has been a real star and was even higher on Russia's -- if Russia is coming back, we'll see that coming back as well. Then moving along to the rice, billion, and those who do backup business, we are still up particularly in that pack back as four billion as well. We can't promote the backup but our trade policies were active to make sure countries don't discriminate against us. We will explain that later on as well. Fresh fruit, about two million. I think Robert mentioned in China citrus will be do very well with fresh fruit. That gives you some flavor of the volume. Now this is important and somewhat difficult to understand, but you can see the red line is net farm equity, which is on the right scale, and the left is our exports. You can see broadly, broadly, equity in your family by in large tracks the products that you have in exports.

It's interesting up here on the right that we -- we would like to think part of that is because of the efforts made in the conference (inaudible) to buffer us a little bit from the terrible weather problems and economic disaster. But we hope the red line stays going up. We don't see like you saw in the late 70's and early 80's and that's why we need a response from Congress is going to be very important. We're certainly working with Congressman Barry in

leadership of the house. And, second, get a decent budget for agriculture. We have such a surplus. The stock market was up again today, but I don't see much improvement in commodity prices. So the agriculture is the sector of our economy. It is very, very difficult times. I saw an article yesterday in the Memphis paper of the pain in the rural southeast, agriculture. Again, busy slide, but this indicates trade agreements that we're talking about next round have actually helped us in moving exports up in terms of -- we have probably the most significant surplus in any sector. It (inaudible) bill it's come down a little bit as imports come up. Hopefully it will reverse itself. We are a major contributor to the balance and you are a major contributor in keeping our economy strong. However, we need to do a little bit more the next couple of years to get through a difficult time.

The next slide I think is an important slide. I'll take a minute here. Bear with me Earl, that this is the benefits that we've tried to quantify from the trade routes. You can see that the Uruguay Round when it's fully implemented according to our economists will figure an additional five billion dollars in exports.

NAFTA we're already seeing the benefit from NAFTA. We've been two, three billion dollars to Mexico, the tariffs have come down and we have access especially to our meats and some of the course grains. Rick you and I have been working a lot on Christmas trees in some parts, but that's come roaring back and NAFTA now Canada, Mexico together 13 billion dollars in exports. Again beef and citrus here in Tennessee in the trade agreement with Japan back in '80 with Secretary Ling that's given us over a billion dollars in market. Early on Mexico we have the corn gluten market. We're working hard to keep our beef going to Korea. These are all trade agreements and this is an estimate of what we've done in terms. Now for example, I mentioned NAFTA. This is a busy slide. These are all available for you to take back with you. Dan, we're going to get a set of these slides specifically for you here in Tennessee with your name on it because I think t's important if you visit a round that you see these slides and you can tell from them as well. But you can see that NAFTA has really been quite helpful in keeping us alive during some tough times here and continue to grow. We're quite pleased about that. You see NAFTA now coming to 27 percent. Look at the growth from 1980 to 1998. And then Mexico was low, Asia was high and now Asia has come down and NAFTA is picking it up. We're also going to come back to this EU which gives us all heartburn. You can see that dropping to 50 percent. But NAFTA and Asia and South America are certainly -- will continue to be most important.

GATT back in 1948 we had a set of basic rules and then we had a series of GATT negotiations with the President and then Uruguay Round which included agriculture for the time and got disciplines and then, of course, the next round begins in 1999. Jim Urof (phonetic) is here with us and did an enormous amount of work on this last issue which is entitled Sanitary Phytosanitary issues which he developed the language in the Uruguay Round to base our trade on science. That has been very helpful to us because we want to (inaudible) the hormones and other -- the Japanese adhere to them and we do not. We have discussed that.

But to give you some flavor we have market tariffs cut 36 percent, nontariff barriers converted to tariffs. We have export minimum access quotas established. We've got export subsidies coming up, not enough and we've got budgetary outlays cut 36 percent. So this gives you some flavor what we pushed at, but is nowhere near enough.

The key I think, Jim, on the last run was to get agriculture into the Uruguay Round and to get these philosophies down. There were major philosophical breakthroughs that are before you. We need to build on them and amplify them, particularly on export subsidy. We'll come back to that in a minute. This is what we're facing in terms of tariffs. In the past it's been getting tariffs up that no one will go beyond. To give you some flavor, our markets EU trade into sell to 50 percent. EU about 20 percent, U.S. about eight percent. So our next round is we have a long ways to go to get the green down to the yellow. We have some work to do on that. This is the one that many people get quite interested ion and I'm certainly taking tremendous interest in is the export subsidies. Look at the orange. We should really paint that red. Eight billion dollars -- seven billion dollars, 83 percent of the export subsidies in the world are done by our friends, not so great friends, in agriculture from Europe. This is going to be the real challenge. You can see U.S. one percent and south Africa was point five. I think they're down now but look at Switzerland, you can climb the mountains to travel Switzerland and it's costing taxpayers 370 million dollars to preserve those mountains and we had those that (inaudible) we could spend that kind of money. But that gives you some flavor of export subsidies key issue for the next round.

Now domestic subsidies. Again, people criticize that we supported -- the President did veto the initial bill on the disaster four billion. I think Congressman Barry said not enough. We need more. He voted. He was criticized very heavily but the Congress did come back and pass six million dollars so another two billion, 40 percent more. People criticize us but look at what we're facing. It's modest. Look at our service and budget. It's modest compared to domestic support that of EU and Japan.

Summarizing quickly is what we would like you to address in the next few hours. How would you see us prioritizing these initial ideas? We want to reduce further tariffs substantially, eliminate export subsidies, tighten the rules on domestic support, reform the state trading enterprises.

We want to expand access and improve implementation of tariff rate quotas and facilitate trade in new technology biotech products. For example, the soybean producers (inaudible) brought in soybeans that reduced chemical load in agriculture and true yield. We talked to a soybean producer last fall. They call me up on their mobile phones. I tend to take a lot of calls and I said, how are you seeing the soybean levels? It's very, very tacky. Not only it reduces our costs in technology, it's not a pitch for the product but a comment. But your docket was lower. They're trying to get better price at the warehouses and the elevators because much less wheat is coming in than soybeans being harvested and so you need to segregate it and get a better market, better price because of new technology. Our friends in Europe, again, are opposing on that issue. This is the last slide but I think we're actually listening, I think. Amy, Robert and I the numbers are always travelling around (inaudible). How would you see our trade negotiations coming; how would you prioritize what we just started off and what issues do you want to basically leave off the table in the missions here that we feel strongly about and we will be listening.

As Earl said, we need to minimize our comments because we want to hear you as much as possible talk through this, so Dan, Earl, thank you very much for hosting us and it's great to see Bob, Amy and the staff. Great to see some of our friends here. Looking forward to hearing you in the next few hours. Thank you very much.