In 1995 the United States exported a record $54 billion worth of agricultural commodities. This is up from $44 billion in 1994 (18% increase from 1994). USDA projects that U.S. agricultural exports will increase in 1996 to an estimated $58 billion.

What is the export situation from an animal products standpoint? According to USDA economists, the total value in FY 1994 of U.S. animal product exports (including beef, pork, variety meats, poultry meat, hides, skins) was $8 billion. In FY 1995 this figure rose to $10 billion. USDA projects exports of these animal products will rise to $11.2 billion in FY 1996.

These increases in U.S. exports we saw in 1995 and we continue to see into 1996 are tied to various factors including:

1. The continued market liberalization which is occurring as a result of multilateral and bilateral negotiations. As tariffs continue to fall under the Uruguay Round, U.S. products will become increasingly affordable and attractive to foreign buyers. This is particularly true in some of the dynamic emerging markets of Asia and Latin America.

2. Success is also tied to policy level efforts to eliminate technical barriers to trade. For example Japan, China, Argentina, and Israel have opened to U.S. fresh apples. U.S. peaches and nectarines are entering New Zealand. APHIS has played an integral role in these bilateral efforts.

3. The Pacific Rim and Latin American countries continue to be a source of strong consumer demand for U.S. high value foods. Rising global incomes generally result in more demand for fruit, vegetables, fresh meat, and other high value foods from around the world, including the U.S.

4. The relatively high value of many Asian and European currencies compared to the dollar has improved the price competitiveness of U.S. products that face tough international competition.

In November 1993, the U.S. Congress ratified the North American Free Trade Agreement (NAFTA). This Agreement, in effect since January 1994, is aimed at reducing and eliminating barriers to trade, investment, and services between the United States, Canada, and Mexico. NAFTA creates the largest free trade area in the world with 360 million people and a gross national product (GNP) totaling $6 trillion.

What has been the NAFTA impact? In the first 9 months of NAFTA, U.S. agricultural exports to Mexico were up 19% compared to the same period the year before. Mexican trade also expanded. For example, agricultural imports from Mexico into the United States rose by 4% compared to the same period the year before. Two of the factors most responsible for this export growth were low U.S. prices and the reduction, under NAFTA, of Mexican trade barriers.

In 1995, U.S. agricultural exports to Mexico totaled $3.7 billion, down from $4.2 billion in 1994. This is a 12% decline. It is likely that the recent peso devaluation will continue to be an overriding macroeconomic factor which inhibits U.S. exports for the time being.

The Uruguay Round of the General Agreement for Tariffs and Trade (GATT), which lasted seven years, came to completion in December 1993. The Agreement was officially signed by member countries in Morocco on April 15, 1994. GATT was approved by Congress effective January 1, 1995.

GATT is aimed at reducing and eliminating barriers to trade, investment, and services between the 100-plus signatory countries. Besides eliminating traditional barriers such as quotas and tariffs, both GATT and NAFTA attempt to control the use of non-tariff barriers, such as unjustified technical health standards. For example, sanitary and phytosanitary (S&P) measures can and have been used for protectionist purposes. With this in mind, GATT and NAFTA negotiators established a set of principles to prevent the use of S&P standards as disguised barriers to agricultural trade. The following are key S&P provisions contained in both Agreements:

• The use of science-based measures (i.e., using risk assessment)

• Recognition of pest and disease-free areas and areas of low pest or disease

prevalence and allowing trade from those areas.

• Participation in the international standard setting organizations and wherever possible

basing import requirements on international standards.

• Recognition of equivalent treatments and quarantine practices to facilitate trade.

• Dispute settlement process which begins with a technical consultations step and

proceeds, if necessary, to the use of a formal dispute settlement system.

To address the above provisions all Signatory countries to NAFTA & GATT face changes in agricultural policies in order to reduce the cost of providing domestic support in a free-trading environment. How producers respond to the changing policies will be one of the primary determinants of trade for the U.S. dairy and livestock industry. U.S. agricultural policy for the next five years will be largely determined by the 1995 farm bill just completed. Generally NAFTA and GATT are expected to have a positive effect on U.S. agriculture by assuring a larger market, expanding high value trade, increasing production efficiency, and increasing overall U.S. agricultural exports and farm cash receipts.

Animal health programs in the U.S. began in 1884 after outbreaks of contagious animal diseases led to the barring of U.S. meat from some European markets. Over 100 years later, U.S. animal health policy continues to be aimed at preventing catastrophic animal disease losses and maintaining our access to domestic and international markets.

Major programs established over 100 years ago included disease research, enforcement of animal import regulations, and regulating interstate movement of animals. Over the years our focus evolved as we turned to policies of "stamping out" or eradicating diseases as well as aggressive exclusion programs at the border in order to achieve the highest level of health possible. Eradication and exclusion efforts eventually took us beyond our borders. In order to protect the animal health status we had established within the United States, we entered into cooperative eradication and exclusion activities in Mexico, Central America, and Panama.

Today, our mission continues to be aimed at protecting the health and marketability of our herds and flocks through regulating the movement of animals. However, beginning in the mid-1980’s the APHIS focus began to shift from disease eradication to an emphasis on disease prevention—investing our resources in building an infrastructure which can provide ongoing surveillance and control services. In other words, APHIS is no longer exclusively oriented to eradicating disease, but istrying to become more prevention-minded by stressing policies and programs which allow us to monitor and respond to changing animal health conditions. This shift was justified once most of the economically significant diseases were eradicated or brought under control. Protecting the health of our animal population became increasingly important given the enormous investments we had been making in earlier years.

In addition, because of dramatic changes in the international trade environment we have had to reevaluate our conservative exclusion policies based on a zero-risk mentality and begin basing our import decisions on scientifically-based and transparent risk assessments.

The dilemma APHIS managers have consistently faced is how to maintain a veterinary infrastructure for the protection and maintenance of animal health when our funding is appropriated to fight specific diseases. Our concern has been that as these diseases are eradicated, our funding, which also supports the health surveillance system, may be altogether terminated or drastically reduced. Our view has been that a budget structure which is based on appropriations to conduct specific disease fighting activities fails to recognize our need to manage new, emerging animal disease issues on an ongoing basis, as well as maintain the basic core structure necessary, even when there are no catastrophic diseases.

The costly trade disruptions caused by disease outbreaks, no matter how small or controlled, in our national herds underscores our need to develop and maintain an infrastructure capable of detecting and responding to animal health issues before they escalate into larger, more costly problems. With this in mind, APHIS administrators over the past 20 years have made consistent efforts to turn the Agency from being an exclusively disease fighting organization to prevention and control. Today, we see these surveillance and monitoring systems as providing confidence in or "value added" to our livestock products because vital information on the health, origin, and quality of U.S. animal commodities is known and documented.

In response to our need for prevention-based policies, APHIS is continuing to develop our Center for Epidemiology and Animal Health which is located in Fort Collins, Colorado. Our goal is to make this facility a key national nerve center for monitoring national health conditions and providing the necessary analysis and recommendations for resolving emerging health and disease issues.

It was no coincidence that at about the same time APHIS recognized the need to invest in a national surveillance system and strengthen our capabilities to analyze emerging health issues, an agreement was established as part of the broader GATT Uruguay Round negotiations. Today, APHIS continues to be at the center of various comprehensive free trade discussions which for the first time seek to reform existing agricultural trade practices.

For example, in 1989 the U.S. signed a Free Trade Agreement with Canada. In 1994 we, along with Mexico and Canada, signed the NAFTA agreement. At the end of 1994 our Congress ratified the GATT Uruguay Round Agreement and President Clinton hosted the Summit of the Americans in Miami. At the Miami Summit, our Administration officially declared our intent to immediately begin negotiations with Chile on its accession to NAFTA. Equally significant, at the Summit of the Americas we along with the other 33 leaders from the Caribbean and Central and South American nations jointly declared our vision to build a free area for the Americas by the year 2005.

In all these current and upcoming trade pacts, the international community has agreed to a new set of rules to guide agricultural trade. As previously mentioned, these new rules require countries to base their import requirements on transparent, scientific risk assessments; recognized pest and disease-free zones for trade purposes; recognize equivalency between our respective S&P measures; and base regulatory measures on international standards.

Given these dramatic changes in the international trade arena and the desired increase in agricultural trade, APHIS recognized the need to improve our access to information about changes in animal health conditions overseas. To this end, one of the actions we took in 1988 was to reorganize our Agency’s foreign service officers into a new, centralized division, known as International Services, to strengthen our communication with our foreign regulatory counterparts. We have approximately 100 agricultural health officials, including veterinary officers, in 28 countries who play a key role in the exchange of information regarding changing agricultural health conditions; oversee preclearance programs which allow us to inspect for potentially harmful diseases and pests at the foreign point of origin rather than at our borders; and provide other services in support of our goal to prevent the spread of pests and diseases which facilitate trade.

In the late 1980’s APHIS began addressing regulatory-trade issues and the need to base regulatory measures on a scientific risk assessment, implement a pest and disease free zones concept, and use, to the greatest extent possible, international standards. The directions we were taking internally on these issues were consistent with the principles being negotiated by our NAFTA and GATT negotiators.

For example, in 1988, APHIS began to address these issues by expanding its risk assessment capabilities through development of quantitative approaches as well as qualitative methods which had been the standard practice in the past. We proceeded on multiple fronts. We directed some of our veterinary staffs to begin planning and designing transparent, risk assessment systems. We also began applying some of these newly developed risk assessment methods to a number of emerging disease issues such as BSE, TB, FMD, E. coli 0157:H7, and others.

In addition to the risk assessment expertise which had been evolving at our Center in Fort Collins, we also created a new planning staff to design risk assessment systems for the Agency’s operational staffs. This new staff, since its inception, has been developing and testing new risk assessment methods, including computer software programs to support new information and risk assessment systems relative to animal and plant health issues.

The requirement that measures be based on science means that import decisions must be based on a risk assessment which uses scientific data and methodologies. GATT and NAFTA describe a number of facts which could be considered in a risk assessment, including:

· Risk assessment methodologies and techniques developed by the OIE, IPPC or regional

standards organizations.

· Relevant scientific evidence.

· Relevant processes and production methods.

· Relevant inspection, sampling, and testing methods.

· Prevalence of disease or pests of concern, including the existence of pest- or disease-free

or low-prevalence areas.

· Relevant ecological and environmental conditions.

· Relevant treatment, including quarantines.

· Relevant economic factors such as production or sales losses and control costs if a

particular disease or pest were to be introduced.

We have been sharing these initiatives with our closest trading partners and have actively participated in the establishment of these fundamental risk assessment principles at the International Organization for Epizootics (OIE).

One of the dilemmas APHIS has encountered in developing more sophisticated tools for detecting changes in the animal health conditions of our own herds is the potential negative trade effects of reporting a health condition or incedent, no matter how limited or controlled. The potential always exists for countries to respond to such reports by closing or restricting their market to exports from our country. Here, we have examples in which trust, based on a history of strong bilateral relationship between the veterinary authorities, has prevailed allowing trade to continue outside the reported quarantined areas. Clearly, the trade benefits are most likely to accrue to countries with advanced veterinary infrastructures and demonstrate record of containing and controlling disease outbreaks. However, a more typical story has been one in which export markets are shut down and tremendous export losses incurred even through strict quarantine measures have been imposed and the risk of transmission is demonstrated to be insignificant.

Restrictive measures have often been taken by countries which do not have the capability for comparable animal health surveillance. Therefore, trade advantages seem to go to those countries which cannot or do not report important health conditions. This situation, however, will be reversed once the principles of NAFTA and GATT are fully implemented. Countries with sound infrastructures and honest reporting will begin to benefit from significant trade advantages.

The trade policy that we have adopted in the Uniteds States, and which most nations seem to have embraced, is to promote an open, rules-based international trading system. The NAFTA and GATT set the foundation for liberalized agricultural trade by establishing basic rules which allow regulatory agencies to impose the necessary health-related controls while guarding against the abuse of such measures for unjustified protectionist purposes.

While a great deal was accomplished by the NAFTA and GATT agreements in establishing a more open trade environment, our work, as regulatory officials, is just beginning. We intend to expedite the development of our internal risk assessment systems so that they are transparent, flexible, and trade consistent. Our goal is the development of a risk assessment process which our domestic industries and foreign veterinary counterparts understand and support. Furthermore, we intend to collaborate as closely as possible with our industries in developing our risk assessment processes in a way which is compatible with the methodologies and approaches being considered by our strongest trade partners.

From the APHIS standpoint the quality of our risk assessments will depend on the information and data generated by existing surveillance and monitoring systems as well as other sources. The challenge will be to find an internationally acceptable way to assess the quality and validity of information presented to us from exporting countries, so that we, as an international community interested in trading as freely as possible, can agree on the data and methodologies used in the risk assessment process and can support the resulting risk management decisions. It is critical that we find common ground on how these assessments will be performed in order to reduce potential disputes.

GATT and NAFTA commit countries to recognizing disease and pest-free areas as well as areas of low pest and disease prevalence. This concept, known as Regionalization, is perhaps the most significant policy and regulatory issue facing APHIS. It is expected to create new opportunities for the United States to export from areas which are demonstrated to be free of particular diseases even though diseases of concern may exist elsewhere within the national territory.

The Agency has been working through the OIE to develop internationally consistent regionalization principles, particularly risk assessment standards. APHIS believes that a standardized and transparent risk assessment process needs to include criteria for evaluating an exporting country’s veterinary infrastructure, including its disease control capabilities, surveillance and monitoring systems, and animal import policies. Such assessments are necessary to help verify disease-free area claims and assure the importing country that the integrity to the specified area can be adequately maintained.

APHIS’ proposed approach discards the notion of an area as being free or not-free, replacing it with the concept of levels of risk. Six levels of risk have been identified, ranging from Risk Class R0 (lowest risk)...R1...R2...R3...R4...and RU (highest risk). Risk factors considered in developing these classes include: (1) proximity of the areas to infected areas, (2) historical disease incidence within the area, (3) vaccination policies and practices within areas, (4) type of physical separation from higher risk areas, (5) type of importation of animal and animal products from higher risk areas, (6) disease surveillance within the area, (7) disease control policies and resources within areas, and

(8) demography and infrastructure within area. This approach of recognizing different levels of risk or health status is consistent with the GATT and NAFTA provision requiring countries to recognize not only disease-free areas, but also areas of low disease prevalence.

Statutory Changes to Implement Regionalization: Until January 1, 1995, the 1930 Tariff Act restricted the Department’s ability to recognize disease-free zones. This Act was changed as part of the NAFTA enabling legislation to allow the United States to fulfill this NAFTA and GATT commitment. In preparing the GATT implementing legislation, the 1930 Tariff Act was again amended to include the concept of recognizing "areas of low-disease prevalence." Both NAFTA and GATT regionalization provisions include both "disease-free" and "low-disease prevalence" concepts.

Clearly, international standard setting bodies, such as the OIE, will become increasingly important entities in the international trade arena in terms of setting future standards and providing a framework of standards which may be used to prevent, or in the worst case, settle disputes. For this reason APHIS sees the need for veterinary officials from around the world to participate more actively than ever before at forums such as the OIE and in other regional health meetings to further the implementation of our GATT and NAFTA sanitary and phytosanitary commitments.

Most importantly, as animal health officials we will have to work together to develop technically feasible and scientifically-sound standards, particularly:

· Standards and methodologies for conducting risk analyses;

· Guidelines for evaluating the exporting country’s veterinary infrastructure and animal

health surveillance systems; and

· Guidelines for developing and assessing regionalization protocols.

Mexico Requests Under NAFTA: NAFTA may provide Mexico with a renewed basis for seeking U.S. approval for the entry of certain commodities into the United States. For example, Mexico has tried vigorously to argue for the entry of avocado and citrus shipments to the northeastern states. Under NAFTA, Mexico may have greater leverage to request a consideration of these issues under new terms.

On the animal health side, Mexico is actively seeking U.S. approval of a hog cholera free-area and/or a cattle tuberculosis-free area similar to the Sonora pest-free zone. APHIS is working with the Mexico Secretariat and Agriculture Canada on recognition of such zones using the NAFTA regionalization provision. Similarly, current APHIS requirements prohibit the importation of poultry products because of VVND. Mexico may also seek U.S. recognition of a VVND-free area or zone.

New U.S. Export Opportunities: APHIS is currently experiencing difficulty in reestablishing trade in U.S. hogs because of Mexico’s claim that U.S. swine present a significant risk of exposing Mexican swine herds to Porcine Reproductive and Respiratory Syndrome (PRRS). Under NAFTA, APHIS can demand Mexico respond to this issue under more favorable time frames and could challenge Mexico’s actions at the NAFTA S&P Committee as well as invoke the dispute settlement process if progress is not achieved at the technical consultations level.

Regionalization: Examples of countries requesting U.S. recognition of disease- or pest-free zones or areas include Mexico’s current effort to gain U.S. approval of hog cholera-free and cattle tuberculosis-free zones within its territory. APHIS must publish criteria and standards which Mexico would have to meet before any importations could take place.

Other examples of pending regionalization requests stem from signed Memorandums of Understanding (MOU) between the United States and Uruguay and Argentina. These MOU’s, negotiated as side agreements to the GATT in April 1994, promise Argentina and Uruguay each a 20,000 metric ton quota of fresh de-boned beef in the U.S. market once these countries meet U.S. sanitary requirements. To this end, the MOU’s commit APHIS to establishing a formal bilateral working group with each country to resolve U.S. sanitary concerns as they relate to their fresh beef exports to the United States.

Bilateral discussions with Uruguay have already resulted in APHIS recognition of Uruguay as FMD free. This enables Uruguay to export live animals as well as animal products to the U.S. Bilateral meetings with Argentina began with a high level USDA delegation visiting (including Uruguay) in July 1994 and have proceeded with technical group meetings according to a timetable set in July. Many countries are watching the United States closely with regard to implementation of these MOU’s.

Beyond NAFTA: The trade agreement with Mexico is considered an initial step in a process for building a hemispheric free trade area (which has been known as the "Enterprise for the Americas Initiative"). At this point Chile is considered the most likely next candidate for a free trade agreement with the United States. Chile’s intense interest in a trade pact should give the United States added leverage to get Chile to resolve existing trade problems including S&P trade issues.

Today, our mission continues to be aimed at protecting the health and marketability of our herds and flocks through regulating the movement of animals. However, beginning in the mid-1980’s our focus began to shift from disease eradication to an emphasis on disease prevention—investing our resources in building an infrastructure which can provide ongoing surveillance and control services. APHIS is no longer exclusively oriented to eradicating disease, but becoming more prevention-minded by stressing policies and programs which allow us to monitor and respond to changing animal health conditions. This shift was justified once most of the economically significant diseases were eradicated or brought under control. Protecting the health of our animal population became increasingly important given the enormous investments we had been making in earlier years.

In addition, because of dramatic changes in the international trade environment we have had to reevaluate our conservative exclusion policies based on a zero-risk mentality and begin basing our import decisions on scientifically-based and transparent risk assessment.

In particular, the Uruguay Round and NAFTA commit countries to recognizing areas of low disease prevalence. It will be necessary to widen and deepen the level of discourse among regulators and veterinary scientists around the world to begin defining prevalence and establishing standard criteria for identifying different levels of risk.

APHIS along with industry will continue to play a vital role in the trade arena by focusing on research which yields new technologies to reduce animal health related risks to levels which allow for safe trade. In particular, emphasis has shifted from "zero -risk" based regulations and decision-making to the more sophisticated risk assessments and the application of risk management strategies to allow for trade in low-risk commodities. Given the shift away from the "zero-risk" paradigm, increasing emphasis will be placed on developing new technologies and strategies to allow for trade while ensuring that health risks are reduced to acceptable levels. The animal health fields will be important contributors to developing these new risk assessment and management tools.