My recommendation follows the Commission's unanimous determination on February 9, 1999, under Section 201 of the Trade Act of 1974. The Commission found that lamb meat is being imported into the United States in such increased quantities as to be a substantial cause of the threat of serious injury to the domestic lamb industry. The largest increases in imports took place in the most recent two year period. Australia and New Zealand, two traditional suppliers to United States consumers, together accounted for over 98 percent of total imports during the period examined.
There is no allegation of any unfair trade practices by the foreign producers. On the basis of their production efficiencies, product advertising programs, and innovative marketing strategies, the Australian and New Zealand lamb meat industries have fairly and effectively drawn United States consumers to their product in increasing numbers.
Unfortunately, conditions in the domestic lamb industry have not been so positive. The industry has been in declining health, buffeted by many factors beyond its control. For example, demand for lamb has declined due to changing consumer food and clothing preferences, while the industry's income was reduced with the 1995 revocation of the Wool Act subsidies the industry had received over several decades. The industry has not been fully successful in introducing efficiencies and improving the industry's cost structure commensurate with the changes in supply and demand conditions. It has taken some steps to improve its ability to compete more effectively with beef, pork and other sources of protein available to consumers, but much more needs to be done.
The Commission's role now is to recommend to the President the most effective mechanism to facilitate the industry's adjustment to import competition. The remedy must fit the problems faced by the domestic industry. After careful analysis, it is clear that the domestic industry's greatest needs are to reduce its production costs and simultaneously expand demand for lamb.
A tariff rate quota at the levels I have recommended, with my colleagues, provides distinct benefits to the domestic industry without imposing undue harm to the Australian and New Zealand producers. First, the TRQ gives the domestic industry "breathing room," as envisioned by the statute. It halts the surge of imports the industry faced in 1998 and prevents future surges that could injure the industry, further destabilize it or hinder its ability to regain its health. To this end, the TRQ I have recommended will provide a more restrictive level of imports in the first year to provide the domestic industry with greater initial relief. Second, the TRQ I have recommended gives stability and predictability to the domestic industry -- the domestic industry will know with certainty the maximum level of import competition it can expect. Finally, allowing growth of imports over time will not discourage the Australian and New Zealand producers from their continuing efforts to increase lamb consumption in this country, which have substantially benefitted all lamb producers, including the domestic industry.
The second component, and perhaps the most important part, of my recommendation consists of adjustment assistance for the domestic lamb industry. The need for generous industry assistance reflects my own analysis of the industry, and is consistent with the industry's own consultants. In July 1998, the industry's consultants, Price Waterhouse Coopers, identified competition not just from imports but also from beef, pork, and other proteins as central to the industry's recovery program. The consultants recommended steps that were needed to allow domestic producers to compete more effectively with and thus gain market share from other protein meats. The report repeated its earlier recommendation to the industry to focus on programs to raise domestic demand for lamb and lower domestic producer costs. The key recommendation of the consultant's report was to create a check-off industry marketing program, with industry contributions of $5 to $6 million. The marketing program was identified as key to reversing falling demand by targeted marketing, in cooperation with foreign lamb meat suppliers, and other initiatives. The industry's trade adjustment plan, required under the statute, seems to endorse the consultant's recommendations. Our recommendation includes funding from both Department of Commerce and Department of Agriculture, addressing industry needs ranging from marketing to animal health research.
In summary, I have recommended to the President a remedy that creates temporary boundaries to future increases in import competition, providing the industry with badly needed "breathing room," and provides adjustment assistance to help the industry address the problems that have hindered its ability to compete effectively in the meat protein market. In my judgment, it is the most effective action the President can take to "facilitate efforts by the domestic industry to make a positive adjustment to import competition and provide greater economic and social benefits than costs."