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April 22, 1999

Chairman, Section 301 Committee
Office of the United States Trade Representative
U.S. Department of the Treasury
Room 100
600 17^th Street, NW
Washington, DC 20508

Re: EC – Hormone Ban, Implementation of WTO Recommendations; (Docket No. 301-62a)

Dear Chairman of the Section 301 Committee:

The Food Marketing Institute (FMI) is pleased to respond to the Office of the U.S. Trade Representative’s (USTR’s) request for written comments regarding the action that the USTR should take if the European Communities (EC) fail to implement the World Trade Organization’s (WTO’s) recommendations regarding the EC’s ban on imports of U.S. meat from animals treated with hormones by May 13,1999, the WTO-mandated deadline. 64 Fed. Reg. 14486 (March 25, 1999). On behalf of our members and the nation’s consumers, FMI strongly urges the USTR to pursue settlement of the underlying trade dispute to avoid the imposition of retaliatory tariffs. The proposed 100 percent ad valorem duties on consumer products will inevitably result in higher prices and fewer choices for consumers.

For your information, FMI is a non-profit association that conducts programs in research, education, industry relations and public affairs on behalf of its 1,500 members and their subsidiaries. Our membership includes food retailers and wholesalers, as well as their customers, in the United States and around the world. FMI’s domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $220 billion, which accounts for more than half of all grocery sales in the United States. FMI’s retail membership is composed of large multi-store chains, small regional firms, and independent supermarkets. Our international membership includes 200 members from 60 countries.

A. FMI Urges Prompt Settlement of the Trade Dispute

FMI and its members are very concerned about the current agricultural trade dispute with the EC and the potential for the escalation of retaliatory sanctions from both sides that may eventually threaten basic agricultural trade. Neither American nor European consumers are likely to be very forgiving of their governments, if world agricultural trade is endangered by this process. Accordingly, we urge the USTR to seek an equitable settlement to the dispute quickly.

For the most part, the products selected for sanctions because of the conflict bear little or no relationship to the products in actual dispute. Thus, in the name of supporting specific agricultural producers and suppliers, other equally worthy groups of producers and suppliers will be injured through no fault of their own. Moreover, the lack of direct connection with the actual problem means that American consumers will not understand why popular products with no effective substitutes are no longer available to them for no apparent reason.

Generally, the best way to settle a dispute of this nature is quietly and with a specific focus on the actual products in question. The current posture of the negotiators has created the atmosphere of a high-profile political campaign where there can be only one winner. The result appears to be a hardening of positions on both sides. For the benefit of U.S. consumers and businesses, we urge you to seek a calmer approach that does not put either side in the position of having to admit defeat.

B. FMI Opposes the Imposition of High Tariffs on Food and Floral Products

In the event that the trade dispute cannot be settled promptly, FMI offers the following response to the USTR’s specific request for comments on the types of concessions that may be appropriate, including the USTR’s proposal to impose 100 percent ad valorem duties on selected EC products, and the degree to which increased duties might have an adverse effect upon U.S. consumers.

European food and other edible products comprise the majority of the items on which the USTR intends to impose tariff burdens. Increased duties will have an adverse impact on consumers because the additional tariffs are likely to result in fewer choices of and/or higher prices on the products that are subject to the sanctions. The proposed 100 percent ad valorem duties will prevent many consumers from purchasing these products. Some retailers will be unable to provide the products; others may, but the increased costs will be passed on to consumers.

According to FMI’s "Trends in the United States: Consumer Attitudes and the Supermarket 1998," 90 percent of surveyed shoppers stated that high quality fruits and vegetables are the most important feature in their choice of a supermarket. Similarly, over 90 percent surveyed cited low prices as an important factor. Dramatically increasing the price point of a familiar product as a result of high tariffs would significantly impact customer sales. If the product had no comparable substitute, the product simply would not be available for sale.

Given the broad list of products upon which the USTR proposes to impose further duties, the grocery, meat, floral and produce departments of supermarkets would be adversely affected, as well as the ethnic or "international" sections that many food retailers now offer. Our members have advised that the listed products that are likely to be of greatest significance to consumers and supermarkets are: Holland tomatoes (often sold on the vine year-round), Roquefort cheese, Danish hams, chestnuts, onions, prepared mustards, mineral waters and aerated waters, canned soups and broths, chocolate and other cocoa preparations, prepared or preserved tomatoes (including paste and puree), cut flowers and flower bulbs, and foliage and branches. Therefore, if the USTR cannot settle the dispute and decides to impose tariffs, we recommend that these products be removed from the list of products that will be subject to the additional duties.

In particular, our members advised that Holland tomatoes, which are supplied year-round, vine-ripened and often actually sold "on the vine," have substantial consumer appeal. This is true even in the summer months when local supplies are also available. A limited supply of these products as a result of high tariffs would impose a significant hardship on U.S. retailers and consumers. Furthermore, consumers who have traditions of using certain foods, such as chestnuts, lingonberry or raspberry jam, or Dijon mustard, to prepare authentic family meals, would be adversely impacted if the foods are not available from other suppliers. Many U.S. consumers have developed strong brand loyalty for particular European products, such as European mineral and aerated waters or European chocolate or baking cocoa. Accordingly, consumers may not be able to find a replacement they consider suitable if high tariffs are imposed that effectively prevent food retailers from offering the products to their consumers.

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In sum, we believe that it would be quite unfortunate if U.S. consumers were the ones most harmed by the retaliatory action and we urge that every possible step be taken to avoid this result. We appreciate your consideration of our comments on this matter of great importance to the United States and its consumers.

Sincerely,

Timothy Hammonds
President and Chief Executive Officer