Council on Foreign Relations Release No.0101.97 Statement of Secretary Dan Glickman Council on Foreign Relations New York, NY -- April 2, 1997 INTRODUCTION Good evening. Thank you all for inviting me here tonight. I like being first. I am told that I am the first Secretary of Agriculture to be asked before this prestigious audience, at least in modern history. I am honored. I certainly hope I'm not the last. There is no question that China takes food very seriously. As the world speculates on how long China can go on feeding itself, they have grown to consider their agricultural strength to be virtually synonymous with their nation's strength. We in America should not value our own food any less than the Chinese do. For one, agriculture is a central force in our economy. Last year, U.S. ag exports hit nearly $60 billion making agriculture, for the second year in a row, the leading positive contributor to the U.S. trade balance -- more than airplanes, more than pharmaceuticals, more than any other sector of the U.S. economy. To put this in perspective, take the most visible symbol of the U.S. trade deficit -- the American-driven Japanese car. Agriculture's trade surplus more than covers every Honda, Toyota, you name it, that was imported last year -- with $7 billion to spare for Mercedes and BMWs. Agricultural exports support nearly 1 million U.S. jobs, most of them in the cities and suburbs, most of them paying above-average salaries. At the same time, the average American spends only about 11% of his or her income on food, while the average Chinese spends 56%. Just imagine how different our lives would be in America if over half of our disposable income were tied up in food. We in America are truly blessed -- demographically, climatically -- with the earth's most vast and productive agricultural landscape. We can grow almost anything in abundance here. As a result, our people have never known famine, but pockets do know hunger. We are a rare exception around the world. AN HISTORIC OPPORTUNITY The generosity of our land is a godsend for our farmers and our people. But being the world's food powerhouse carries with it some heavy responsibilities. So does being the world's leading democracy. Throughout our history, we have carried the 2 banners in the same hand. Especially since World War II, we have used food as a powerful force for democracy around the world. 50 years ago this June, our great former Secretary of State, George Marshall, stood on the Harvard campus and told America that 'whether we like it or not, we find ourselves, our nation, in a world position of vast responsibility. We can act for our own good by acting for the world's good.' With those words, the United States began its historic effort to rebuild Europe. Central to the Marshall plan was the reestablishment of trade between farmers and cities. This, Marshall called, 'the basis of modern civilization.' He's right. Since the beginning of time, farm trade has forged ties between different peoples. Where food flowed freely, strong, peaceful relations flourished. Marshall knew this. He and other visionaries -- like Harry Truman, George Kennan, Dean Acheson and Averell Harriman -- made it America's mission and the free world's mission to abandon isolationism and move together toward a new era of openness and peace. Soon after the Marshall Plan began feeding Europe and rebuilding its economies, we started GATT. It is no coincidence that it, too, was born in 1947. Then, as Europe stabilized and the Cold War escalated, America reached out to the world -- again, holding food. As countries struggled with their destiny, America's Food for Peace Program was there for them. It was a powerful symbol of democracy's vision for the world -- a free, benevolent community of nations. We won the Cold War on the strength of this vision. It has succeeded beyond our wildest dreams. Russia is now a recipient of Food for Peace assistance, a strong, democratic ally and a growing market for U.S. goods. From South Africa to South America, we see freer markets and freer people marching hand in hand. We can see the same in China. U.S./CHINA OVERVIEW That's why President Clinton chose a policy of engagement. There's no question that our nations have serious differences, none more so than on human rights, and the pace of China's democratization. But the real question is: How do we constructively address those differences? The wrong answer is to walk away. China and the U.S. have a complicated history. But even during the heart of the Cold War, we worked together on many occasions -- in our own interests and in the interest of the world. Today, we have an historic opportunity to do so again. As trade relations replace military relations as our primary means of dealing with each other, few questions are more pivotal than how the world's largest market engages the new global economy. Fundamentally, China must agree to free and fair market reforms. They are fast becoming our biggest trade deficit nation. While the infamous Japanese trade gap is closing, China's is still on the rise. Last year, Americans purchased more than 4 times as many Chinese goods as they bought American, and we have far fewer people doing the buying. Americans bought mostly manufactured goods -- toys, games, shoes and clothes. The Chinese bought primarily from the aircraft and telecommunications industries, with about 1/6 of their purchases in agriculture. President Clinton has made it clear that this is not a sustainable trading relationship. We have got to close the trade gap. All America needs to do that is a level playing field -- for agriculture, as well as CDS and stereos. Trade negotiators always tell us that agriculture is much more difficult -- more cultural and more time consuming. Food issues are the hardest differences to resolve in trade negotiations for an understandable reason. They cut to the heart of deeply held beliefs about how a nation feeds its people. China, for example, is absolutely, in my judgement, fixated on self sufficiency. There is this mentality there -- held over from the Cold War -- that they have got to be able to do it all themselves. I believe that makes less and less sense today. Ultimately, it will hold back their economy. Look at your own circumstances. You, too, need to feed yourself every day. How do you do it? Most likely, you go to work, you earn a paycheck and you go to the grocery store. I'll go even further out on a limb and bet that you do significantly better for yourself buying food through the marketplace with your earnings than if you spent half your time digging up your backyards. Clearly, it's a little more complicated on a national scale, but it's equally outdated. The Cold War's over. If we are to truly replace a fear of mutually assured destruction with the promise of mutually assured peace and prosperity, then we have got to have free agricultural trade. Amid all the high-profile trade issues we are grappling with right now -- freer food trade will leave the most lasting, positive imprint on the world. It will leave a more cooperative, more prosperous and less hungry world. As 2 of the world's most powerful nations, China and America have an obligation to lead. I have a broader perspective on this than you might think. I've been to China twice. The second time, as Secretary of Agriculture. The first, for the House Intelligence Committee which I chaired back in my Congressional days. So I speak today as someone who has closely watched China for decades. I can tell you that personal relationships are absolutely essential to getting things done there. We have seen that in every breakthrough we've made -- from eliminating trade barriers to our apples to defusing the highly volatile issue of North Korea's nuclear capacity. In every layer, ours is an extraordinarily complicated relationship. It would be a mistake to try and simplify it, even worse would be to glamorize its potential. Many folks, when you talk to them about China, you can see the dollar signs light up in their eyes ... the world's largest market ... the fastest-growing economy ... a raging debate over just how long they can feed themselves. As Washington columnist Mark Shields puts it: Many American businessmen are affected by the Q-tip theory' of economics. It goes like this: There are 1.3 billion Chinese ... each with 2 ears. That's 2.6 billion Q-tips. I've heard the same analogy for eggs, chickens, just about everything we sell. But it's based on the Pollyannish assumption of unlimited access and sales in the Chinese market. Nevermind that we've counted our chickens once before with Russia. In the 1970s, we dreamed of an immense, never-ending market for American wheat. We had all these fancy charts and graphs that showed Russian demand would lead to a permanent bonanza for our farmers ... Never happened. That is not to say that there aren't great opportunities. I talked about counting chickens ... Russia is now our biggest chicken market. They buy a little over a third of our poultry exports. That is nearly $1 billion a year ... nearly 30% of America's total exports to Russia. But the Chinese market, much more so than the Russian market which is still in a lot of turmoil, is risk as well as opportunity. Yes, they are the world's largest market. But we cannot afford to ignore that they are also one of our most capable competitors, especially in the high-value consumer goods arena where the most explosive growth in trade is occurring. We cannot forget that China is a net agricultural exporter ... with steady, record increases in grain production ... with plentiful grain stocks, and ample ability to further increase yields. We now also believe that China's agricultural landbase has been about 40 to 50% underreported. This doesn't change our long-term forecast that food demands will eventually exceed China's food production. But I wouldn't hold my breath for a permanent shift to large net imports any time soon. As long as China remains single-mindedly focused on growing grain, it can put off the inevitable for some time. CHINA & WTO MEMBERSHIP But I think a wiser route for them would be to engage the world. A positive accession to the WTO would be a win all around. For the United States, the benefit is obvious -- a more level playing field in the world's largest market, and some greater consistency in a market that has been fairly erratic. Last year, for example, China canceled purchases of 1.4 million tons of U.S. wheat, worth over $250 million. The cancellation occurred after a half-dozen U.S. cargoes were delayed entry at Chinese ports, some for a couple of months. The objection was based on the presence of TCK, a wheat disease. We do not believe the Chinese concerns are scientifically justified. If China were in the WTO, we would have the chance to challenge them on the scientific merits. Since they are not. we have made a TCK protocol one of several deal breakers on China's WTO membership. We can't have a member -- especially one with the size and economic strength of China -- who doesn't play by the same rules as everyone else. Tariffs need to go down. Domestic and export subsidies need to come down. They need to abide by sound science in making health decisions. Also, Americans need to be able to do business in China without going through a centralized government entity. Chinese have that privilege here, and it should be a 2-way street. We are starting to see real progress on that front. China has agreed to let foreign grain traders deal directly with private importers once they are in the WTO. We are also closely watching what happens to Hong Kong -- in terms of human rights, democratization and trade. Hong Kong is an economic dynamo. They are our 8th largest agricultural market, 4th in terms of consumer-oriented products, with much of it headed into China. With a strong port and minimal government intervention, their trade economy is flourishing. We need a smooth transition that nurtures their success and shows good-faith on China's part. BEYOND SELF-SUFFICIENCY Finally, the biggest benefactor of a positive WTO accession is China. China's government needs to take a few steps back from massive intervention in the markets if it is to achieve its full economic potential. I say that from experience. Just a few years ago, many economists said the same about U.S. agriculture. We were not as tight-fisted as the Chinese, but heavy-handed' would not be an inaccurate description of our government's former role in farm policy. We used commodity payments and our conservation programs to control supply and demand. All too often, this left us a day late and a dollar short in keeping up with the markets. So last year, we began phasing out these programs. We turned our conservation reserve into a solidly environmental program, and we told farmers, plant what you want. Follow the markets, and make your own decisions.' The result this year? Record exports, record farm incomes, and what is shaping up to be a new era of farm prosperity and global food security. China could have the same opportunity, if they are willing to rely a bit more on free markets. When grain stocks drew tight last year, the United States categorically refused to follow the Europeans to export taxes. We kept our markets open. We made a 100% commitment to remaining a reliable supplier of grains to the world. That is a permanent commitment. We need to be able to rely more on each other. If China accepts this, they can answer the age-old debate: Can China feed itself? There are basically 2 schools of thought here: One says that technology has always kept pace with demand, and will continue to do so ad infinitum. The other, led by Lester Brown of the Worldwatch Institute, scoffs at that notion and predicts China will be a major drain on global food supplies. I think the truth can be found on its usual stomping ground ... somewhere in the middle. Can China feed its people? Probably, yes, even with urbanization and sensible population growth. They are the world's fastest growing economy. If they embrace freer markets, and free producers to go where they have a comparative market advantage, their economy can grow even more. Through their agriculture and a free global marketplace, they can do an even better job of feeding their people. I believe a closer agricultural trade relationship is fairly inevitable for our nations. As China's economy expands, a growing middle class will want more and more high-value foods. To keep that population happy, China will have to come to rely on a variety of U.S. food products, like meat and poultry, to satisfy their people. Unfortunately, being a net importer of food is still perceived in many countries, including China, as a sign of weakness, despite all the persuasive arguments, many coming from Harvard, that if anyone has the upper hand, it's the importer -- especially when it comes to grains which are 9 times out of 10 a buyers' market. So I am not nearly as concerned with China's ability to acquire food, as I am with fundamental questions of world hunger in general: How do we feed a growing world without destroying a fixed and fragile landbase? Should we control populations? If so, how? Will the world accept new technologies for increasing yields? How do we feed everyone, not just those who can afford it? When I led the U.S. delegation to the World Food Summit last year, I offered some solutions: In the most dire of circumstances, there is and should continue to be direct food assistance. There are new technologies, including biotechnology, which can dramatically increase yields in a sustainable way. Without it, we will have no choice but to rip up fragile land, and use more pesticides, just to feed current populations ... let alone a future world that is expected to add the population equivalent of a new China every decade. And, there is trade -- allowing food to flow freely across borders. We cannot feed a world of isolationist nations. Unfortunately, that is a point we will have to seriously debate. Heading into the 1999 round of WTO agricultural negotiations, which I believe are pivotal, we see member nations dividing into 2 camps: One is led by the European Union and Japan, the other by the United States. The United States wants to push forward with further reductions in barriers to agricultural trade. The EU and Japan, still smarting from the bread lines of post-war recovery, want to put on the brakes. They say, food is different.' I agree. But it takes me to the polar opposite conclusion. Food is the most important trade we do. It should not be inhibited. We should rely on each other. That is the whole point of this 50-year endeavor ... building a world where boats willingly moor together in an international extension of President Kennedy's 'rising tide' -- lifting the world economically, democratically, and peacefully. Whether we use weapons or trade barriers, we should not fight over food. CONCLUSION Ultimately, all this comes down to China. It is China's choice. But it's also in China's interest. As a leading exporter of agricultural products, China will benefit from a rules-based trading system. China is a fierce competitor of ours, exporting $10.6 billion worth of agricultural products (mostly horticultural products and pork to other Asian countries). China is a net exporter of agricultural products with imports of only $9.7 billion. In contrast, Russia is now a major importer of food, especially high valued food. It exports very little. China is already having problems getting their products into other markets, such as Japan and the European Union. China would clearly benefit from further trade liberalization as a WTO member. To join, China needs to make the tough choices: Will they cling to a disappearing world or become a responsible member of a new one? Will freer markets make them a freer society? Will they seek real, long-term food security for their people? Like our nation after World War II, China faces an historic choice: Will it recognize a unique moment in history and act for the world's good and its own? To paraphrase a modern Chinese leader who was asked about the French revolution, It's too soon to tell.' We come from different worlds as to how these decisions are made. If China chooses to lead, ours will be a strange alliance: One nation steeped in a culture that spans millenia, the other a young, idealistic country that is always looking ahead. How we reach across our differences and forge a common destiny will say a lot about the prospects for our world in the 21st century. I would like to close with a word about national security and food. I am sure you have heard a lot of speakers talk about these issues. Maybe I am a victim of my own parochialism, but I believe food security, along with open trade, has been the key to America's strength. No one has done more to reinforce that belief than a young boy -- during the height of the Cold War -- who asked a Congressional colleague of mine about a nuclear submarine. He wanted to know how long it could stay underwater. What happens when they run out of fuel,' he asked. The Congressman explained that the subs run on nuclear energy, and can go for a decade or more. Well, what happens when they run out of water.' The Congressman explained all the different distillation methods they had to make sea water potable. So when do they come up,' the boy asked. Easy,' said the Congressman, when they run out of food.' Thank you. # NOTE: USDA news releases and media advisories are available on the Internet. Access the USDA Home Page on the World Wide Web at http://www.usda.gov