oversight

Assistance Available to U.S. Agricultural Producers Under U.S. Trade Law

Published by the Government Accountability Office on 1997-10-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United Statea
General Acconnthg OfRce
Wtuhiwn,     D.C. 20648
                                                             J s   9ckscJ


B-278366

October 20, 1997

CongressionalRequesters
Subject: AssistanceAvailable to U.S. Agricultural Producers Under U.S. Trade
         Law
Your September22, 1997,letter to us expressedconcern that many F’lorida fi-uit
and vegetable producers believe that existing import relief provisions of U.S.
law do not adequatelyaddressthe problems they have experienced since the
North American Free Trade Agreement (NAFTA) was implemented. As agreed
with your offices, we have outlined (1) the tariff reductions negotiated and
provisions for creation of a private dispute settlement mechanism for these
products under NAFTA, (2) safeguardprovisions available to U.S. producers,
and (3) U.S. antidumping and countervailing duty remedies available to combat
other countries’unfair trade practices. We also discuss assistanceavailable to
workers and communities under two NAFTA-relatedprograms: the NAFTA
Transitional Adjustment Assistance(NAFTA-TM) program and the U.S.
Community AcQustmentand Investment Program under the North American
Development Bank.

SUMMARY

U.S. trade law provides extended tariff phaseout periods for U.S. producers of
certain winter fruits and vegetables;and two means of assistancefor these
producers who are injured by imports, dependingon the product, the volume of
the imports, whether the imports are the result of an unfair trade practice, and
other factors. The two types of assistanceare NAFI’A’s temporary relief Tom
imports by government imposition of “safeguards,”and redress from “dumped”
or improperly subsidizedproducts through increased duties on imports.
NAFTA’s tariff reduction schedulesbuild in an extended tariff phaseout period
for some products (such as fresh tomatoes) that are deemed especia;llyimport
sensitive. These extended tariff phaseout periods provide additional time to
allow farmers to adjust to international competition.




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U.S. producers of agricultural products injured by imports may petition the
governmentfor relief in the form of safeguards. Safeguardsmay be applied
globally, consistent with provisions of the GeneralAgreement on Tariffs and
Trade (GATT), or within NAFTA under either general or special agricultural
safeguards. In a safeguardaction, the International Trade Commission (lTC>
determineswhether a U.S. industry has been seriously injured by increased
imports and, if so, may recommendthat the President temporarily increase
duties or impose quotas on those products. Expedited relief is available for
perishable agricultural products. In addition, under NAFTA, a more limited
bilateral safeguardmay be applied under certain circumstances. A NAFTA
country imposing a bilateral safeguardon another NAFTA country must
compensatethat country suflicient to redress the injury and help the industry
adjust to competition. Finally, a special safeguard,in the form of a tariff-rate
quota, applies to some specific, highly sensitive agricultural commodities,
including two seasonsof tomat0es.l
Second,a U.S. industry can obtain relief from the effects of imports if the
governmentfinds that the imports are being sold below fair market value
(“dumped”) or benefit from improper subsidiesand materially injure the U.S.
industry. ITC determineswhether the injury has occurred, and the U.S.
CommerceDepartment determineswhether and how much relief, in the form of
increased duties on the imports, is warranted.
In addition, NAFTA created two programs to help workers or communities that
might be adverselyaffected. NAFTA-TAAprovides employment and other
services to workers who lost their jobs due to an increase in imports from
Me&o or Canada,or a shift in production to either country. However, NAFI’A-
TAA does not require that NAFTA has causedthe job losses. Another program,
the U.S. Community Adjustment and Investment Program under the North
American DevelopmentBank, helps communities with job losses associated
with NAFTA by providing loans and loan guaranteesto businessesseeking to
locate or expand existing operationsin those areas.

NAFTA’SAGRICULTUREPROVISIONS

Under NAFTA, tariffs on some especiallysensitive agricultural goods-including
fresh tomatoes-will be eliminated over a 5, lo-, or %-year transition period. In
addition, there are plans to develop a NAFTA private dispute resolution system
for problems arising in the fresh fruit and vegetabletrade. However, the plans
have yet to be implemented.


 ‘A NAFTA tariff-rate quota allows a certain quantity of product to enter duty
 free, while anything over this amount will be subject to an overquota tariff.
 There are provisions for growth in this duty-free amount, and the over-quota
 tariff declines to zero over a lo- or &year period.
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Agricultural Goods Tariff Schedule

NAFTA contains provisions for eliminating tariffs and nontariff barriers for %zB
agriculture! products, including import-sensitive commodities. Under NAFTA,
the United States and Mexico negotiated a series of bilateral provisions2to
phase out all tariffs and convert nontariff barriers to tariffs or tariff-rate quotas.
Tariffs were either phased out upon NAFTA’simplementation on January 1,
1994,or will be over 5, lo-, or lbyear transition periods. These transition
periods were agreedupon after U.S. negotiators obtained input from interested
parties on the import sensitivity of various commodities. Those deemed
especiallyimport sensitive were granted extendedphaseout periods, providing
additional time to allow farmers to adjust to international competition.
The negotiated tariff schedulesfor some agricultural commodities to some
extent reflected seasonalproduction to coincide with the marketing period for
domestic U.S. production. For example,prior to NAFTA, there were four
separateseasonaltariff periods for fresh tomatoes, with two different tariff
rates.3 According to Department of Agriculture officials, U.S. negotiators took
steps to ensure that the longest phase out period would apply to the most
sensitive season.
Disuute Resolution Provisions
Consistent with its objective of facilitating trade, NAFTA includes provisions
designedto avoid commercial disputes or prevent them from escalating. For
agricultural goods, NAFTA created an Advisory Committee on Private
Commercial Disputes RegardingAgricultural Goods. The advisory committee’s
mission is to recommend a system for resolving private commercial disputes
that arise in connection with agricultural transactions. The benefit of such a
system would be to avoid delays and other difficulties associatedwith the
adjudication of international commercial transactions by domestic courts-
particularly signi&ant to U.S. exporters of perishable commodities.
The advisory committee’s initial efforts to develop an alternative dispute
resolution system have focused on the fresh fruit and vegetabletrade. At its
first meeting in February 1997,the advisory committee identified the basic
elements necessaryfor a dispute resolution system and identified possible
system designs. At a second meeting scheduledfor late October 1997,the


2Agricultural trade between Canadaand the United States continues to be
governedby the provisions of the 1989U.S.-CanadaFree Trade Agreement.
3TheNAJ?I’AbaselineU.S. tariff rate for fresh tomatoes imported during the
periods March 1July 14 and Septemberl-November 14 was 4.6 cents per
kilogram, while the rate for the periods July &August 31 and November 16-
February 28 was 3.3 cents.
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advisory committee plans to finalize its recommendations. These will be
presentedto the NAFTA Committee on Agricultural Trade for action at some
future date, according to Department of Agriculture officials. The advisory
committee may be reconstituted to addressother commodity interests once it
has made recommendationsfor the developmentof a private dispute resolution
system for the fresh fruit and vegetabletrade, these officials said.
SAFEGUARDAND EMERGENCYACTION PROCEDURES

A second type of assistanceavailableto U.S. agricultural producers is to get
temporary relief from injurious imports through a “safeguard”action, which may
result in an increase in tariffs. When an industry petitions the federal
governmentfor safeguardrelief, ITC investigatesthe matter, and then the
President may grant the relief based on l’lVs recommendation. Under a special
NAFTA safeguardprovision, U.S. producers of certain highly sensitive fruits and
vegetablesare provided relief for a period of tune by limits on the amount of
imports that enter the United States subject to the lowest NAFTA tariff.
GeneralSafeguards
The safeguardclause in article XIX of the GATT allows GATT members to
obtain relief when increasedimports of a product are found to cause or
threaten to cause serious injury to domestic producers of like or competitive
products. The World Trade Organization(WTO) Agreement on Safeguards,
negotiated during the Uruguay Round negotiations, establishesspecial rules for
the application of safeguardmeasures. Under U.S. implementing legislation, LTC
conducts these investigations,generally on the basis of a petition filed by a U.S.
industry.

In making its determination, ITC is required to take into account all relevant
economic factors.4 For example,in determining serious injury, ITC must
consider whether (1) productive facilities in the industry have been significantly
idIed, (2) a significant number of firms have been unable to operate at a
reasonablelevel of profit, and (3) significant unemployment or
underemploymenthas occurred within the industry. In determining the threat
of serious injury, ITC must consider, among other specified factors, whether
there is a decline in sales or market share; a higher and growing inventory of
the product; and a downward trend in production, profits, wages,productivity,
or employment in the industry. ITC is required to consider the condition of the
domestic industry over the course of the relevant businesscycle and to examine
 factors other than imports that may be the cause of the serious injury or the
threat of serious injury to the domestic industry. There is no requirement that
 the increase in imports or serious injury be attributable to an unfair trade
 practice.

419U.S.C. 2252(c)
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If ITC makes an affirmative injury determination, it is required to recommend
the action that would addressthe serious injury or threat to the domestic
industry and that would be most effective in facilitating industry efforts to make
a positive adjustment to import competition.’ ITC is authorized to recommend
to the President relief in the form of new or increasedtariffs, quotas, trade
adjustment assistanceto workers, or a combination of these measures. The
President may then take action consistent with the ITC recommendation or
other action deemedappropriate.6 The Fresident, after taking into account
certain factors that he must consider, may then take action consistent with the
ITC recommendation,other action deemedappropriate, or no action. The
President must report to Congresson the action he has taken. If he takes
action that differs from that recommendedby ITC or pursues no action at all,
Congressmay, through a joint resolution, direct the President to proclaim the
action recommendedby FIX.

In two types of situations, a U.S. industry may obtain preliminary relief from
imports pending completion of the ITC investigative or presidential review
process. An industry producing a perishable agricultural product may request
such “provisional”relief if ITC has had in place a monitoring investigation under
section 332 of the Tariff Act of 1930,as amended,with respect to that product
for at least 90 days prior to the filing of the request. If this monitoring has been
underway for the requisite period and the industry requestsprovisional relief in
its petition, ITC has 21 days to make a provisional relief determination. If the
ITC determination is affirmative, the President has 7 days to decide what, if any,
action to take. In the second situation, provisional relief may also be provided
when critical circumstancesare found to exist7 If an industry alleges critical
circumstances,lTC has 60 days to determine whether the critical circumstances
exist and, if so, to make a recommendationto the President. The President has
30 days to decide what, if any, action to take. Requestsbased on critical
circumstances are not restricted to perishable agricultural products.




‘19 U.S.C. 2262(e).
‘%I addition to these recommendations,ITC may also recommend that (1) the
President initiate international negotiationsto addressthe underlying cause of
the increase in imports of the article or otherwise to alleviate the injury or
threat or (2) the President implement any other action authorized under law
that is likely to facilitate positive adjustment to import competition. (19 U.S.C.
2252(e)(4).)                                            ,
7Critical circumstancesexist if a substantial increase in imports (either actual or
relative to domestic production) over a relatively short period has led to
circumstancesin which a delay in taking action would cause harm that would
significantly impair the effectivenessof such action. (19 U.S.C. 2262(b)(3)(B).)
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These safeguardsare global safeguards;that is, generally they must be applied
to products from all sourceswithout discriminating against any particular
country. NAFTA countries retain their rights under GATT article XIX to use
global safeguards,although NAFTA limits the ability of a NAFTA country to
apply a global safeguardto another NAFTA country. A NAFTA country that
wishes to apply a global safeguardto another NAFTA country must find that the
imports from the NAFTA country account for a substantial share of worldwide
imports of the product in question. It must also fmd that the NAFI‘A country’s
imports contribute importantly to the serious ir@ry or threat to domestic
industry causedby the imports in question.
NAFTA Bilateral EknergencvAction Procedures

NAFTA provides for a separatebilateral safeguardaction in case of injury due
to the reduction or elimination of duties under NAFTA.’ Under U.S. NAFTA
implementing legislation, the process for seekingrelief is similar procedurally to
that for global safeguardinvestigations. An industry petitions ITC for relief, and
ITC conducts the investigations. If ITC finds that, as a result of reduction or
elimination of a duty provided for under NAFI’A’a product from Canadaor
Mexico is being imported into the United States in such increased quantities and
under such conditions that imports of the product, alone, constitute a
substantial cause of serious injury, or the threat of serious injury, to the
domestic industry producing a like or directly comparableproduct, it makes a
recommendationto the President. The President is responsible for making the
 tinal decision on whether to grant relief; availablerelief is limited to an increase
in duty to the lesser of the pre-NAFTArate or the current most-favored-nation
 (MFN) rate. Unlike the global safeguardprovision under GATT, NAFTA
 requires that a party taking such action provide mutually agreedcompensation
 in the form of concessionshaving substantially equivalenttrade effects or the
 equivalentvalue of the additional duties expected to result from the relief
 action. Provisional relief is availableunder these bilateral emergencyaction
 procedures.

NAFTA’s Suecial Provisions for Certain Agricultural Products
In addition to NAFTA’s bilateral emergencyaction safeguards,which are not
product specific, NAFTA provides for a “special safeguard”in the form of a
tariff-rate quota on specific, highly sensitive commodities. These commodities
include two seasonsof tomatoes, eggplant,onions and shallots, chili peppers,
squash,and watermelon. During the NAFTA tariff phaseoutperiod, the United
Statesis to allow a cert&.n amount of these imports (quotas generally based
upon recent import levels) to enter under preferential tariffs, while the amounts

 “As a generalrule, these bilateral actions may be taken only during NAFTA’s
 transitional period (that is, the lo-16 year period during which duties are being
 phased out).
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imported in excess of the quotas will be assessedthe lowest of the prevailing
MFN tariff rate or the MFN tariff rate as of July 1, 1991. The tariff rate quota
level, which will gradually increase,does not restrict trade under normal
cfrcumastances but is in place to cushion the impact of a sudden surge in
imports. NAJTI’Aprohibits NAFTA countries from simultaneously applying both
an overquota tariff under this special agricultural safeguardprovision and any
other safeguard(that is, a global or NAFTA bilateral safeguard).
The U.S.-CanadaFree Trade Agreementprovides conditional, temporary tariffs
to protect importing countries against surgesin low-priced fruits and vegetables
( “snapback”tariffs). An essential difference between the NAFTA safeguardand
U.S.-CanadaFree Trade Agreementsnapbackmechanismsis that the former is
triggered on the basis of import volume, while the latter is triggered by import
price and crop acreage. One of the reasonsnegotiators decided to base
NAFTA’s special agricultural safeguardprovision trigger on import volume was
becauseMexico does not have adequatedata collecting processesin place for
monitoring prices and acreage.’
Section 316 Monitoring Reauirements

Under NAFTA’s implementing legislation, ITC is required to monitor imports of
certain perishable agricultural products in order to make provisional relief
determinations within statutory deadlines. Under section 316 of the NAFTA
Implementation Act, ITC must monitor U.S. imports of fresh or chilled tomatoes
and fresh or chilled chili peppers.” This monitoring requirement, which will
continue until January 1, 2009,avoids the need for tomato and bell pepper
growers seeking provisional relief to formahy request monitoring and also
avoids the X-yearstatutory sunset provision related to ITC monitoring
investigations. If ITC requests,the Secretary of Agriculture and the
Commissionerof Customs are required to provide information to lTC relevant
to this monitoring effort.
U.S. ANTIDUMl’ING AND COUNTERVAILINGDUTY LAWS

U.S. trade.law also allows U.S. industry, including agricultural goods producers,
to petition the governmentto impose additional duties on imports that the
government determines are either dumped or that benefit from improper foreign
government subsidies and that injure the U.S. industry.



@Some  U.S. agriculture industry representatives,however, pressed for
continuance of the import price strategy becauseof concerns that the safeguard
will not protect U.S. fruit and vegetableproducers from downward price
pressuresresulting from the lowering of tariffs.
‘O19U.S.C. 3381.
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Antidumping Investiaations

Dumping is generally defined as the sale of an exported product at a price
lower than that chargedfor the same or a similar product in the “home”market
of the exporter or at a price below cost. U.S. antidumping law seeks to redress
dumping as a form of unfair price discrimination.

The most common antidumpingprocess is under title VII of the Tariff Act of
1930,as amended.” Under this provision, private parties can petition the
Department.of Commerceand ITC on behalf of a U.S. industry to determine
whether a class or kind of merchandiseis being sold in the United States at
dumped prices and whether those imports are injurious. Commerceis to
determine whether sales are at “less than fair value”by calculating the
difference between the normal value of the product (for example, the price in
the home market) and the export price (for example, the price in the United
States). In a parallel investigation, ITC determineswhether a U.S. industry is
materially injured or threatenedwith material injury or whether establishment
of an industry in the United Statesis materially retarded by reason of the
imports determinedby Commerceto have been dumped, using criteria specified
in the a&l2 If the agenciesfind that both dumping and the requisite injury
exist, Commercethen calculatesthe amount of duties imposed on each
importer to offset the price difference between the U.S. price and the normal
value of the imported merchandise.

Some aspectsof U.S. antidumping law have recently been modified as a result
of the Uruguay Round antidumping agreement,which applies to all NAFTA
countries. The Uruguay Round antidumping agreementrequired greater
transparencyfor antidumping actions and establishednew methodological and
procedural rules to govern dumping investigations by national governments.
Important changesinvolve both the method of calculating the export price of
the product under investigation and the method of determining the normal value
to which that export price is compared. The new rules also provide a standard
of review that WTO panels must apply when reviewing challengesto a
member’santidumping measuresunder the WTO’s dispute settlement
procedures.
Countervailina Dutv Investigations
Subsidiesprovided by a governmentor public body may confer benefits on the
recipient that provide an unfair advantagein international trade, such as
allowing a producer to sell his or her products at a lower price than that of the



 “19 U.S.C. 1673et seq.
 I219U.S.C. 1677.
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competition. U.S. countervailing duty laws seek to redress the adverse effects
to a U.S. industry that seeks such relief.
The Tariff Act of 1930,as amended,provides for the imposition of
countervailing duties whenever certain prohibited subsidies are bestowed by a
foreign government or public entity within a foreign country upon the
manufacture, production, or export of any article that is subsequentlyimported
into the United States causingir-@uy.13Subtitle A of title VII of the Tariff Act of
1930,as amended,applies to imports from WTO member countries or from
countries that have assumedobligations substantially equivalentto those of the
Uruguay Round SubsidiesAgreement.14
The process for countervailing duty investigationsis similar to that for dumping.
Commercemust determine whether a country is providing certain prohibited
subsidiesto its industry or group of industries, either directly or indirectly. If
Commercefinds that a prohibited subsidy exists and ITC determinesthat a U.S.
industry is materially injured or threatenedwith material injury or whether the
establishmentof an industry in the United Statesis materially retarded by
reason of the subsidizedproduct, Commercethen calculates the amount of
duties to be imposed on each importer to offset the subsidiesprovided for the
manufacture, production, or export of that product.
Like antidumping law, U.S. countervailing duty law and procedures have
recently changedas a result of the Uruguay Round subsidies agreement,which
all NAFTA countries have signed. The subsidiesagreementset forth the
definition of a subsidy and the conditions that must exist in order for action to
be taken. The agreementcreated three categoriesof subsidies:(1) prohibited
subsidies; (2) actionable subsidies,for example, permissible subsidies against
which remedies can be sought if they are shown to cause adversetrade effects;
and (3) nonactionable subsidies,such as those for research and development.
Countervailing duties may only be unposedwith respect to prohibited or
actionable subsidies as defined in the subsidiesagreement.




1319U.S.C. 1671.
1419U.S.C. 1671et seq.
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            NAFTA’SJOB DISLOCATIONPROGRAMS
            NAFTA’s implementing legislation created two programs to help U.S. workers
            dislocated by trade with or investment in Mexico or Canada.16The NAFTA-TM
            program was designedto assist workers in companiesaffected by U.S. imports
            from Mexico or Canadaor by shifts in U.S. production to either of these
            countries. NAFTA-TAAbenefits include basic readjustment services such as
            employment services;training; job search allowances;relocation allowances;
            and-the feature that most distinguishesthe program from basic unemployment
            insurance-income support for up to 52 weeks after exhaustion of
            unemploymentinsurance when enrolled in training. NAFTA-TAAis authorized
            to continue until September30, 1998.

                 The responsibility for investigating and making a determination on a NAFI’A-
                 TAA petition is coordinated by the Governor of the state where the workers’
                 company is located and the U.S. Department of Labor in Washington,D.C.
                 NAFTA-TAApetitions, which can be filed by a group of three or more workers,
                 are first reviewed by the Governor of the state where the workers’company is
                 located. The Department of Labor makes the final determination to approve or
                 deny these petitions and issues certifications for approvedpetitions. As of
                 September4, 1997,NAFTA-TAAcerti%zationshad been issued for 1,206worker
                 groups located in 48 states. The three states with the most NAFTA-TAA
                 certifications were Texas (12,797),Pennsylvania(12,788),and North Carolina
                 (12,001).
                 Under the NAFTA-TAAprogram, workers may be certified based in part upon a
                 determination that an increase in imports from Mexico or Canadacontributed
                 importantly to the workers’separationor threat of separation. Alternatively,
                 workers may be certified if they become separatedor are threatened to become
                 separatedand there has been a shift in production by the workers’firm or
                 subdivision to Mexico or Canadaof like or directly competitive items. In either
                 case,there is no requirementthat the separationor threatened separation be
                 caused by NAFTA.
                 A second program to deal with NAFTA’sjob dislocation effects establishedby
                 the NAFTA implementing legislation is the U.S. Community Adjustment and
                 Investment Program under the North American DevelopmentBank. The
                 program was designedto provide loans and loan guarantees(up to $22.6
                 million, according to the authorizing legislation) to businessesseeking to locate

                 16Wehave work ongoing regarding NAFTA-TM worker certification for the
                 SenateCommittee on Commerce,Science,and Transportation, and work on
                 broader NAFTA-TAAissues for RepresentativeEvans and Lipinski. In addition,
                 NAFI’A-TAA was discussedin more detail in recent testimony. See North
                 American Free Trade Agreement: Imuacts and Implementation (GACW-NSUD-
                 97-256,Sept. 11, 1997).
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._     k-
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B278356
or expand existing operations in communities with job losses caused by NAFTA.
It was to be implemented by a program office in Los Angeles,two advisory
committees, and an ombudsmanappointed by the President.”

SCOPEAND METHODOLOGY

To develop this report, we reviewed relevant laws; interviewed officials at ITC
and the Commerceand Agriculture Departments;and relied on past GAO work
on NAFTA, the Uruguay Round WTO Agreements,and U.S. trade remedy laws.


We have agreedto meet with your staff regarding additional support we can
provide you on this issue. Pleasecontact me at (202) 61243984   if you or your
staff have any questions concerning this letter. Major contributors to this letter
were Elizabeth Sirois, Anthony Moran, David Genser,Kay Halpern, Richard
Burkard, and MaureenMurphy.




JayEtta q Heckediate         Director
International Relations and Trade Issues




‘GTheTreasury Department issued its first designationof qualifying communities
on August 1, 1997. That announcementdeclared 35 communities in 19 states
eligible for businessloans and loan guarantees. However, during the first 3-I/2
years of NAFI’A, no loans were approved under the program.
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                         LIST OF REQUESTERS

The Honorable Bob Graham
The Honorable Connie Mack
United States Senate
The Honorable Michael Bilirakis
The Honorable Allen Boyd
The Honorable Corrine Brown
The Honorable CharlesCanady
The Honorable Jim Davis
The Honorable Peter Deutsch
The Honorable Mark Foley
The Honorable Tillie K Fowler
The.Honorable Porter J. Goss
The Honorable Carrie P. Meek
The Honorable Ileana Ros-Lehtien
The Honorable Joe Scarborough
The Honorable E. Clay Shaw, Jr.
The Honorable Karen L. Thurman
The Honorable Dave Wedon
The Honorable Robert Wexler
House of Representatives




 (711307)


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                           Trade Law Assistancefor Agricultural Producers
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