Hearing of the Subcommittee on Production and Price Competitiveness of the Senate Committee on Agriculture, Nutrition and Forestry

Federal News Service

HEADLINE: HEARING OF THE SUBCOMMITTEE ON PRODUCTION AND PRICE COMPETITIVENESS OF THE SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY SUBJECT: LEGISLATION TO ALLOW THE EPA TO REGISTER CANADIAN PESTICIDES

CHAIRED BY: SENATOR ELIZABETH DOLE (R-NC)

WITNESSES PANEL I:

SENATOR CONRAD BURNS (R-MT);

SENATOR BYRON DORGAN (R-IL);

PANEL II:

ADAM SHARP, ACTING AGRICULTURE COUNSEL TO THE EPA ADMINISTRATOR, ASSOCIATE ASSISTANT ADMINISTRATOR, OFFICE OF PREVENTION, PESTICIDES AND TOXIC SUBSTANCES, U.S. ENVIRONMENTAL PROTECTION AGENCY;

PANEL III: JIM GRAY, PESTICIDE REGISTRATION COORDINATOR, NORTH DAKOTA DEPARTMENT OF AGRICULTURE, NATIONAL ASSOCIATION OF STAE DEPARTMENTS OF AGRICULTURE, BISMARCK, NORTH DAKOTA; MARK GAGE, PRESIDENT, NATIONAL ASSOCIATION OF WHEAT GROWERS, PAGE, NORTH DAKOTA; JAY VROOM, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CROPLIFE AMERICA

LOCATION: 628 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 10:00 A.M.

BODY:

SEN. ELIZABETH DOLE (R-NC): Good morning. This hearing of the Senate Subcommittee on Production and Price Competitiveness will come to order. Today, the subcommittee will hear from various stakeholders and experts on the proposal to register Canadian pesticides for use in the United States. Specifically, we will focus on 1406, S.1406, as proposed by Senator Dorgan and others.

Senator Dorgan, Senator Burns and other co-sponsors, I know, have long sought legislation to ensure pricing parity across the northern border with Canada. This subcommittee has a responsibility to consider many factors associated with this issue. Certainly, it is important that we evaluate the true price differential data, including currency valuation and pattern considerations. But our responsibility goes beyond comparing prices. We must also look at any new legal liability issues and we need to look at the effect such legislation will have on EPA's ability to ensure that chemicals registered for use in the United States are safe for humans and for the environment.

We have not previously tasked EPA with imposing penalties derived from price comparisons nor have we asked our courts to answer the question of who is legally responsible for damages due to application of a pesticide produced outside of this country. It is my desire to have a full exploration of these issues during today's hearing.

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SEN. DOLE: Thank you, Senator Baucus.

We will hear first from Senator Byron Dorgan, sponsor of the legislation. Welcome, Senator Dorgan.

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SEN. DOLE: Yes, indeed. Thank you, Senator Dorgan. I appreciate your concern regarding this issue, your hard work on it and your excellent presentation. Thank you very much.

SEN. DORGAN: Thank you.

SEN. DOLE: We'll hear next from Mr. Adam Sharp, who is the associate assistant administrator of the Office of Prevention, Pesticides and Toxic Substances of the Environmental Protection Agency. Welcome, Mr. Sharp.

MR. ADAM SHARP: Thank you. Good morning, Madam Chair, members of the subcommittee. I am Adam Sharp, associate assistant administrator, EPA's Office of Prevention, Pesticides and Toxic Substances. I'm also currently the acting agriculture counsel to the EPA administrator. Let me ask first if I can have my full testimony, of course, admitted to the record.

SEN. DOLE: Yes. Without objection, yes.

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SEN. DOLE: Thank you, Mr. Sharp. The proposed legislation requires the Environmental Protection Agency to obtain the confidential statement of formula for any Canadian pesticide proposed for U.S. registration to determine if it is, in fact, identical or substantially similar to a product currently registered domestically. Now, how will EPA determine if a Canadian pesticide is substantially similar in composition to a domestically registered chemical? How will "substantially" be interpreted?

MR. SHARP: Right. We've talked with Senator Dorgan's staff and others about technical advice on this legislation and there is certainly a list of issues that we've provided advice on. This is one of those. In thrust, this is a key one. If the legislation passed, it would have a requirement on us to make a "substantially similar" finding. And I think the way the legislation currently is written, that burden is on EPA to make that decision. Our problem with that is the question that you just asked. Do we have any legal ability to get that information, the confidential business information from a Canadian company to make that finding? The answer to that is no, we don't have any ability to do that. Do we make substantially similar findings? Yes, we do and we do all the time on "me too" types of registrations, types-it's a very specific type of registration activity that we take part of on a constant basis. But that type of decision, the "me too" decision, is based on the confidential statement of formula that we have. If we can't get it, it creates a real problem for us.

SEN. DOLE: Companies registering a product in the United States currently pay registration fees to help generate resources for EPA to conduct the necessary reviews. Now, under the proposed legislation, no such fee would be required. Yet the EPA has to approve or disapprove the application within 60 days. How will this be paid for?

MR. SHARP: It's an unknown. I mentioned, actually, in my testimony as resource constraints. We have and we're very happy to have actually the support of Congress recently in passing the PRIA (ph) legislation, that new fee system and that is, I think, a terrific opportunity for us, for growers, for companies and others to be able to produce the results that folks have been wanting to get, which is more timely assessment of products and registration of products. It also sets up a new fee system and a system of scheduling for moving products through that system. This legislation would be outside that realm. I am not sure how it would actually fold in with the fee system or with our current resources. It would be potentially resource strain on us to have to pull priority into our workloads from priority areas that we currently have and move them into doing this type of work.

So I guess one of our concerns has been, if you move that legislation, without additional resources, it certainly would cause a problem. One of other issues that you mentioned is the 60-day time limit. I mentioned the me-toos a few minutes ago of how we register products that are substantially similar within this country if we have the proper information. One of the challenges that we would have with this legislation is that we currently have 90 days to make that type of finding. This would require 60 days. So you are certainly even pushing the time limits down and the constraints even more so on the agency.

SEN. DOLE: And you're saying it could divert attention away from registering new products?

MR. SHARP: Yes, it could. We currently have priority system set up where we are registering newer, safer products all the time. Methyl bromide alternatives and others have priority standing within our system and that's why we will have to shift probably resources from those to this area.

SEN. DOLE: S.1406 allows EPA to delegate its authority to register a pesticide to a state, possibly resulting in a patchwork of pesticide registrations. At the same time, EPA is bound by NAFTA to work toward harmonization, as you said, at the federal level and is responsible for enforcing treaty obligations intended to result in harmonization throughout the states and territories. How will EPA reconcile these conflicting directives?

MR. SHARP: The legislation has changed a number of times. Certainly, at one point in time, and I'm not sure if it's the current version or a prior version, but one of the prior versions, for sure, has set up this type of a system where the delegation registration would be moved from EPA to a state. That would potentially cause the type of situation where you would have individual states setting their individual standards or making individual regulatory decisions on products that are different from where the federal level is. That --

SEN. DOLE: It ends up with a patchwork there.

MR. SHARP: And create a patchwork. And that's a system or a situation that we don't currently have. We have several states that do extensive work on pesticides but in this type of an arena, this type of situation, we don't have currently and it could be troubling. I guess I look at it as it could actually lead to slowing down registration.

SEN. DOLE: How will the U.S. meet its NAFTA obligation to protect confidential proprietary information supplied in connection with harmonization efforts if it is delegated authority to a state to compel confidential information?

MR. SHARP: Yeah. Obviously, we have protection under FIFRA for protection CBI information, confidential business information. But one of the challenges that I know has come up in the past with this legislation and certainly one of the pieces of advice we've given Congress is that we would be very concerned if you moved the delegation to a state where you do have sunshine provisions and other types of requirements that could have that information moved out of the protected arena. So that has been a concern for us.

We, of course, under FIFRA have certain responsibilities as well when we're looking at information that we're making decisions on, that there are certain types of agreement made with the protection of that information and compensation and other requirements so that we can use that information. So it would raise a lot of questions if you did move that type of an authority to a state as far as protection of information.

SEN. DOLE: And how will EPA coordinate with Customs in processing the commerce of third-party registrant chemicals?

MR. SHARP: That's a question that is unclear to us on how we would answer that if you had this legislation passed because the question on coordinating with Customs currently. We have a system in place where, if you're going to import a pesticide into this country, there is this system set up where the importer notifies the EPA. We check the proper paperwork, we send back documentation that that product is allowed to come into this country and then that paperwork comes with the product into this country.

This legislation, when it talks about any person being a registrant, we're not sure what that means. And who specifically would be the registrant? Who would be responsible for that paperwork movement and how you could coordinate it then with Customs in order to move product across the border. We've talked with-and given our advice on this and that is difficult to understand exactly practically how this could work for an individual to go across the border literally and purchase a product and bring it back, given that it does have to move across an international border. So how that practically could work has been not real clear to us, the way the legislation is currently drafted.

SEN. DOLE: Well, thank you very much, Mr. Sharp. I appreciate your testimony this morning. I look forward to working with you on this and other issues. Thank you very much.

MR. SHARP: Absolutely great. Thank you.

SEN. DOLE: Now, I'd like to call our panel to the front, please. Mr. Jim Gray, pesticide registration coordinator for the North Dakota Department of Agriculture, Mr. Mark Gage, president of the National Association of Wheat Growers and Mr. J. Vroom, president and chief executive officer of CropLife America. Welcome, gentlemen.

Let me begin with Mr. Gray. Mr. Gray, certainly the North Dakota Department of Agriculture is qualified to address some of these registration requirements. What principally do you view as your role under this proposal?

MR. JIM GRAY: Thank you, Madam Chair. My role under this proposal, as a state regulator, would be to work with the EPA on, if it delegated that authority to a state, I would review that package. Otherwise, I would be a stakeholder in this process. Would you like me to present the oral testimony now?

SEN. DOLE: Yes, please.

MR. GRAY: Thank you, Madam Chair. My name is Jim Gray, pesticide registration coordinator for the North Dakota Department of Agriculture. I am here to testify in full support of S.1406. I speak today on behalf of the National Association of State Departments of Agriculture, which represents the commissioners, secretaries and agriculture directors of the State Departments of Agriculture in the 50 states and four U.S. territories.

S.1406 deals with the issue of pesticide price harmonization with Canada, a pressing issue in northern border states with nationwide impact. By granting EPA the authority to issue registrations to those parties that wish to import certain Canadian pesticides, the bill de- segments the U.S. market with Canada, thereby eliminating significant pesticide price disparities.

There are currently barriers in federal statutes that prevent American farmers from legally importing and using Canadian pesticides without the consent of the product registrant even if the products are identical in composition to pesticides already registered with the U.S. EPA. As a result, product registrants have been able to use the U.S.-Canadian border as a real artificial barrier to create two separate pesticide markets. And similar to the situation of pharmaceuticals, these artificially segmented pesticide markets can cause significant pesticide price disparities. Senator Dorgan present many of those price disparities this morning. There is no need for me to go into those again. However, the price disparities are simply a symptom of this system of two segmented pesticide markets.

The system of segmented pesticide markets is simply unfair to U.S. farmers, specially since grain from Canada, treated with those lower cost Canadian pesticides, travel south of the border every day to compete with U.S. grain on the open market. And we cannot continue to ask U.S. farmers to compete on such an unlevel playing field. Furthermore, the current system is a clear violation of Article 102 of NAFTA, which states that the parties shall eliminate barriers to the trade and facilitate the cross-border movement of goods and services between the territories of the parties. It is evident that existing federal statutes pertained to pesticide labeling create a clear barrier to the free trade in cross-border movement of pesticides.

Now the ability to issue registrations for these Canadian pesticides without the consent of the registrants is a component of this bill. State pesticide regulators and farmers have tried to work in the past with registrants to import their pesticides from Canada and so far, not one pesticide company has given its consent to purchase their products in Canada in imported end use of the products. Therefore it is essential that a mechanism be created in which access to these Canadian pesticides is not contingent upon primary registrant consent and this bill provides that mechanism.

I'd also like to suggest two minor changes to the bill to focus efforts as well as to create a real long-term solution to this problem. Mr. Sharp this morning raised some resource concerns with the EPA and the issue with disparate pesticide prices between U.S. and Canada is most prominent with farmers and ranchers in the agricultural sector. Therefore to focus on the most pressing needs of the agricultural user community, I recommend that the scope of S.1406 be limited only to agricultural pesticides.

Second, while S.1406 is a real critical need to address pesticide price harmonization, it is not a long-term solution to the problem. Instead, the long-term solution to de-segment the U.S. market with Canada is to label pesticides with joint pesticide labeling that meets the requirements of both the U.S. and Canada. Labeling products in such a way would negate the need for registrant consent for these products across the border. Instead those jointly labeled products could cross the U.S.-Canadian border freely based solely on market forces.

It is my understanding that the regulatory barriers to the creation of the joint pesticide labeling have been largely resolved. However, use of joint labeling remains a voluntary option for the pesticide manufacturers. Because of this, use of joint pesticide labeling has been virtually non-existent. I suggest that language be added to 1406 mandating the use of joint U.S.-Canadian pesticide labeling in those situations where an identical or substantially similar pesticide is registered for use in both countries. However, such a requirement for use of joint pesticide labeling should become effective only when a similar mandate exists in Canada.

Such language would be a logical complement to the existing bill. S.1406 provides a real workable short-term solution while mandatory use of joint pesticide labeling is the ultimate long-term solution.

American farmers have proven that they can produce the safest high- quality food in the world. However, to compete in today's agricultural economy, they need to be able to operate on a level playing field with their major competition. This bill is one step in the creation of that level playing field.

Thank you.

SEN. DOLE: Thank you, Mr. Gray.

Mr. Gage.

MR. MARK GAGE: Madam Chairman, members of the committee, my name is Mark Gage and I am a wheat, barley and soy bean producer from Eastern North Dakota and I am currently president of the National Association of Wheat Growers. I would like to thank the committee for holding this hearing today to help answer a simple but extremely important question. Why should I, as an American producer, have to pay a significantly higher price for crop protection products than my Canadian counterpart when we are both using the same product on the same crop?

The National Association of Wheat Growers strongly supports S.1406 introduced by Senators Dorgan and Burns as the best means to address this problem. I would urge the committee to favorably consider this legislation as part of any future deliberation. Prices on crop protection products between the United States and Canada have varied over the years for a number of reasons. However, even when taking exchange rates into consideration, many of these products have consistently been priced lower in Canada than their identical counterparts sold in the United States.

Considering the fact that the cost of crop protection products represents anywhere from 10 to 15 percent of variable production costs, minor differences in these prices add a significant amount to the cost of doing business when competing with Canadians to sell our products in a global marketplace. As mentioned in my written testimony, a number of studies have shown that this price disparity exists. I would simply like to quote from a updated study completed in 2003 by North Dakota State University. "The controversy between the U.S. and Canadian chemical prices is over six years old. With the exception of a few herbicides, very little has changed. The overall cost difference in 2002 is about $1.56 per acre. The producers who use Liberty, Puma, Far-Go or Assert are disadvantaged by more than $3 per acre."

Whether the situation is due to market manipulation or other economic factors is undetermined. But the cost difference exists and the cost for North Dakota farmers is over $20 million annually. Therefore, to eliminate price disparity, the U.S. and Canadian herbicide markets must be de-segmented. This bill can best remedy this inequitable pricing structure by allowing the purchase of a less costly Canadian product to be registered for use by EPA in the U.S. if it's identical or substantially similar product already registered for domestic use. This product would remain under EPA regulation. It would not pose a health or environmental risk. It simply brings an additional degree of competitive pricing into the marketplace.

Every competitive edge is needed in a global market. However much is made of the current high commodity prices as if this should serve as some kind of cushion against high production costs, whether they are chemicals, fertilizer or energy. We just currently bring in $3.81 per bushel at my local elevator. My Canadian competitor state trading enterprise can sell at the same elevator and get $3.81. I can't get the Canadian price of $5.80 an acre for certain chemicals. This brings up larger problems affecting all American agriculture.

I attached to my written testimony a Wall Street Journal article dated June 18th 2004 titled, New Farm Powers Sow the Seeds of America's Agricultural Woes. While the focus of this article is on wheat, the implications for all of agriculture is very stark and very real. As the article notes, "America's run as a wheat powerhouse and the dominant player in global agriculture is under attack from a crop of newly emboldened international rivals who are striking out at one of the main pillars of American agricultural might: food exports. U.S. farmers are increasingly under pressure as they compete with commodities including Brazilian soy beans, Indian wheat, Chinese apples, Mexican tomatoes and Argentine peanuts. This farms' race has implications beyond agriculture. America's influence on issues such as international trade owes much to its domination of food."

Madam Chairman, jump starting America's farms race for the 21st Century ought to be the top priority not only for the U.S. agricultural community but also for all of America, providing access to competitive production input costs is crucial, and that is why I strongly urge you to favorably report on the S.1406 Pesticide Harmonization Act of 2004. Thank you and I'd be happy to answer any questions.

SEN. DOLE: Thank you, Mr. Gage.

Mr. Vroom, welcome.

MR. JAY VROOM: Thank you, Madam Chairwoman. Thank you for this opportunity to represent the industry here this morning. I'm Jay Vroom, president of CropLife America, the trade association that proudly represents the manufacturers, distributors and formulators of virtually all the crop protection chemical and crop biotechnology products used by our most valued customer in the entire world, the American farmer.

I want to express my appreciation to you for inviting me to present our views. My remarks will highlight some items out of our written testimony, which I appreciate the inclusion in the record, and also respond to some of the other comments that have already been made this morning. As regards the attachments to our advance written testimony, we have those items on posters. The first one illustrates the notations that have already been made this morning about the fact that the Canadian dollar has strengthened against the United States dollar, and that has contributed significantly to addressing the disparities that have been addressed previously.

This next chart illustrates the fact that American farmers overall are paying much, much less for the same or greater amounts of our industry products in the last 10 years or so. This is driven by the fact that we have more and more competitors, many of our products have gone off patent and the fact that the approximately $1.5 billion that have come off of our total sales earnings by industry in the United States really has gone straight to the bottom line of the American farmer.

This chart illustrates the comparative relativity of the green line across the bottom, which is barely visible, and represents the cost of pesticides as part of American farmers' expense over the last 12 or so years, and the fact that it is essentially a flat line when cast against the larger economics of gross farm income, total farm expenses and the like.

Despite the fact that our industry sales have gone down, our industry's investment in research and development to find newer, better products and defend older product safety has continued. And as Mr. Sharp has indicated in his testimony earlier this morning, the EPA has continued to register more new products of our industry as presented for licensing application in recent years, and the total number of new use products adopted and approved by EPA has also continued to improve. So I think these are important illustrations that provide a backdrop to the discussions that we're having here this morning around S.1406.

My organization has been involved and I have led it in this regard for more than 15 years around these issues related to U.S.- Canada pesticide harmonization. In fact, I and my staff were involved before there was a NAFTA when we called it the U.S.-Canada free trade agreement. And we were very pleased with the support that we got even in the early days of the Canada free trade agreement during the Reagan administration.

As the issue expanded into the controversy of price perceptions across the border six years ago, I've been personally engaged at every stage of the way. I've testified now to each of the four U.S. congressional hearings on the price perception issue. I've engaged in attempts to dialogue, compromise, fix and respond to the 13 separate congressional bills that have been introduced on this subject over these six years. I've represented my industry at two U.S.-Canada summit meetings convened by USDA during the Clinton administration. I've spent countless hours with our industry experts and grower organizations as we partner together with EPA, working in the NAFTA technical working group that Mr. Sharp referred to earlier.

Maybe most importantly, I still own my family farm in Illinois and I have to look my brother-in-laws and cousin in the eye when we talk about these very issues. And after more than 30 years of working in various agribusiness segments in the United States, I take this role seriously. I want U.S. agriculture overall and my personal little part of it to prosper, to compete fairly and succeed.

I mentioned previously that on this U.S.-Canadian legislation we have offered previously to seek common ground, to consider compromise to legislative solutions. That is no longer my position, nor the position of CropLife America. As you can see from our written testimony, we have done the most comprehensive analysis yet of S.1406 and have both more completely articulated the problems with the legislation we previously had pointed out, and have identified a significant host of additional concern areas. Most if not all of these areas I am confident are unintended consequences in Senator Dorgan's drafting, for he would not purposely set out to propose legislation with such negative side effects. But they are problems nonetheless.

The significant list includes five I'd like to lift up in just a few moments. Number one, the legislation does not advance the already substantial progress of regulatory harmonization accomplished under the TWG. In fact, we believe honestly that S.1406 would seriously dilute the continued progress of the TWG and our EPA's ability to advance real regulatory progress. I think Mr. Sharp's comments supported that notion as well.

Number two, we believe that S.1406 is not in harmony with our existing NAFTA and WTO treaty obligations and as such is probably not even the exclusive jurisdiction of the Agriculture Committee. Number three, S.1406 contravenes many crucial U.S. intellectual property laws and international trade obligations. Number four, S.1406 creates potential user safety concerns. And, number five, potential for crop application mistakes and crop risks.

On the latter two points I refer you to several product label examples that we've brought along today that are attached to our written testimony, showing the comparable U.S. and Canadian labels for what have been portrayed by many in this debate in recent years as products that farmers use on both sides of the border and depend on heavily. Concerns of note that these labels illustrate include the fact that labels in the United States are in English only, while Canada requires French companion language presentations on the labels. Number two, U.S. bear measurements in English units; Canadian labels are in metric units. The two countries require different warning pictograms for safety communications. Different product safety question toll free numbers apply on both sides of the border. In fact, you cannot access from most United States telephone exchanges Canadian 800 numbers, raising the question that if in the case of an emergency someone tried to dial one of those numbers, would help not be able to be provided?

Often products that appear to be identical are actually not. Significantly different product formulations are used in the two markets and one might be too strong and damage crops if used in the other market, using practices that farmers in that domestic market were used to employing. Another important point Mr. Sharp alluded to, how would Customs officials figure out if the correct S.1406 supplemental labels applied to the correct Canadian product container when presented for import into the United States? What are the security considerations that follow along that track?

Finally, Madam Chairwoman, we point out that when examined overall and not on the basis of selective price comparisons, any previously existing significant price differentials that disadvantage allegedly North Dakota farmers compared to Canadian farmers have evaporated. In fact, the most recent North Dakota State University study that Mr. Gage just referred to, the 2003 study, shows that overall North Dakota farmers were better off by over a million dollars on the list of 35 products in the chart, as opposed to what Canadian farmers paid.

We do not find anything about S.1406 that we can agree with or suggest a compromise for. Indeed, Senator Dorgan and others who have proposed such legislation these past six years have drawn a great deal of attention to the issues of more fair product availability and cost, and they have been heard by the marketplace and by those who have had the continued impact of progress around regulatory harmonization. The price problem, to the extent that it previously existed, has been extensively addressed.

Senator Dorgan can take credit, just as President Reagan won the Cold War without firing a shot, of helping resolve an issue without having to amend U.S. law. We propose to continue to work with Mr. Dorgan and others on the Hill and in the administration to ensure continued progress around real regulatory harmonization, and that we continue this journey of positive interchange under the context of NAFTA. I look forward to responding to your questions, particularly around some of the product-specific issues that have been raised.

SEN. DOLE: Thank you, Mr. Vroom.

Mr. Gray?

MR. GRAY: Yes?

SEN. DOLE: The legislation allows the administrator of EPA to delegate functions under this subsection to a state. Do you believe that most state Departments of Agriculture have the financial resources and the expertise necessary to carry out such functions as determining that the chemical is identical or substantially similar to a domestically registered pesticide, or obtaining a confidential statement of formula or determining tolerances for food use chemicals?

MR. GRAY: Thank you, Madam Chair. The answer is, "yes." As a pesticide regulator I review confidential statements of formula all the time as part of my state regulatory duties. I would urge the EPA if they did delegate this authority, to delegate it only to those states that they are convinced have expertise and adequate resources and adequate state laws that do protect that data as being confidential. The real process of that review is to lay the Canadian confidential statement of formula side by side with the U.S. confidential statement of formula, to make sure that the products have the same ingredients at comparable concentrations. And most state regulators have that technical expertise.

SEN. DOLE: What are the standards? How is an applicant to demonstrate that a pesticide is identical or substantially similar? What kind of standards --

MR. GRAY: We would need to work with EPA on really developing what that definition of substantially similar means. My definition would be that the Canadian product only contains U.S. approved, active and inert ingredients at the same concentrations. To me, that would be identical or substantially similar. Then you get into questions of what if it's 2 or 3 percent concentration different? Is that substantially similar? We would need some guidance from EPA on that.

SEN. DOLE: I note the legislation limits the liability of both the EPA and the individual registrant. Do you believe there are instances in which a state Department of Agriculture could be held legally liable for injury or damages resulting from use of a Canadian product registered under the new subsection? This assumes, of course, that much of the data used to support the registration will be furnished by the state Agriculture Departments?

MR. GRAY: I don't see liability as being a major issue with this bill. What the bill does limit EPA's liability is as the registering agency, not as the registrant. Now, the supplemental registrant, for lack of a better term for this bill-and for the most part that is not going to be an individual farmer going north of the border to purchase a Canadian product. I envision if this bill passes that the majority of registrants are going to be the major chemical distributors and dealers that are going to source Canadian wholesale sources of these products. Their liability really centers upon those stages of production that are under their knowledge or under their control. The way EPA's enforcement viewpoint works now is that if there's a problem with the formulation or packaging of a product, that party that had the direct control over the formulation or packaging would have that liability.

I don't see that changing with this bill. If there's a problem with the importation or the re-labeling, the secondary registrant would have to assume liability for that.

SEN. DOLE: Okay, thank you very much.

Mr. Gage, under the proposed legislation any person may seek to register a Canadian pesticide, including an individual farmer or farmer cooperative, that might then sell it to other farmers. The registrant or farmer cooperative in this case is responsible for labeling the product appropriately. And I note that the proposal, for example, holds the farmer cooperative harmless if the product becomes adulterated. However, I do not see any protection for mislabeling. Do you think the farmer cooperative could be held liable for any inadvertent crop damages resulting from mislabeling?

MR. GAGE: As I understand the bill, when they pick up the product it would be relabeled at that point. And I do not believe that there would be-there is a problem with mislabeling, and so I don't foresee that problem. So I don't see a problem with-for my local cooperative in liability.

SEN. DOLE: S.1406 does not speak to whether Canadian or U.S. intellectual property laws apply to Canadian pesticides sold in the United States. Are intellectual property laws in the U.S. and Canada the same? And if they're not, which intellectual property laws would apply to Canadian pesticides sold in the United States if 1406 is passed?

MR. GAGE: I really don't know if the intellectual property laws are exactly the same in the U.S. and Canada. And since we're in the United States, I would assume that U.S. laws apply here.

SEN. DOLE: How do your growers feel about a NAFTA label?

MR. GAGE: We're very supportive of a NAFTA label. Ultimately, that will be our ultimate goal. But we need remedies before that takes place. I know there have been examples, say, of how the agencies are working together and passing products through under that format now. But there are things that can happen in that process that can throw that out of line. I personally know of an example of a chemical that was-I was told by a company that was under joint review. And so I was at EPA and I was asking how the registration process was coming on this, because it was under joint review as I understood it. And the EPA told me that it wasn't under joint review. They were sharing some information, but it didn't qualify for joint review because we have regulations on determining what qualifies for joint review.

One of those regulations was that it had to be applied-the registration had to be applied for on the same date in the United States and Canada, and under that particular product the company applied in Canada months before the-earlier than they applied in the U.S. so really it wasn't under joint review, which throws that process out of whack and raises questions with growers. Why are we being penalized? We need something-in the meantime when we're working toward a NAFTA label we need this legislation in the meantime to equalize some of the disparities in prices.

SEN. DOLE: Okay. Thank you, Mr. Gage.

Mr. Vroom, the domestic companies you represent are not seeking to register a Canadian product in the United States. However, under this proposal they must supply EPA with information about the Canadian chemical simply because it's produced by an affiliate. The Canadian affiliate is not bound by U.S. law to provide this information, leaving the domestic company vulnerable to litigation in a situation that they have little control over. It seems that domestic chemical companies carry the entire burden with none of the financial benefits. Could the increased costs associated with this proposal result in the need to raise prices on products that they sell domestically?

MR. VROOM: Senator, I think there's a very real possibility of that and we certainly understand that the litigation question is not theoretical. Our industry faces substantial product liability litigation on an ongoing basis across the country and in fact as we look at our goal in the marketplace, the United States is the most expensive to operate in with regard to the litigation overhead costs, defense, settlement of cases and the like.

SEN. DOLE: Now, I understand that Liberty herbicide is sold in both the United States and Canada. Correct?

MR. VROOM: Yes.

SEN. DOLE: So if a grower were to purchase the Canadian 150 formulation in Canada and bring it to the United States to use on his corn crop, what would be the result?

MR. VROOM: We would anticipate that there would be a very real possibility of crop damage by way of misapplication of the product because of the-what appears to be a slight but a substantial differentiation in the product concentration. We actually have brought props for my presentation, copies of the Liberty boxes and labels. There are two here. I think one of them is on the floor. As you can see, they look very similar in the United States formation, which is this one, to the Canadian one. But in fact the bottles inside are a different size, one being in metric and the other being in English units. The container instructions and language are also different. But we feel that it would be very easy to make a mistake in crop application and damage the crop. And then back to your earlier question, whose liability is that?

SEN. DOLE: Is Liberty more or less expensive in the United States today than in Canada?

MR. VROOM: According to the experts that we've consulted, including the manufacturer of the product, if you compare the like product active ingredient concentrations, the price per gallon in the United States today is lower. Senator Dorgan referred to 2002 comparative data on Liberty. The 2003 data clearly show that that relationship has switched.

SEN. DOLE: So if Liberty is now cheaper in the United States than in Canada on a per gallon basis, what happened in the past few years to effectuate this change?

MR. VROOM: Well, a number of factors as is the case when markets are working. In the case of Liberty I think the manufacturer has heard from their growers and part of that was amplified by the work of Senator Dorgan and Congressman Pomeroy and other proponents of their legislation on the Hill. They've reduced their price in the United States by nearly a third. I can't speak to their other specific reasons for changing pricing, but a result of generic competitors that have come into the marketplace with competing products, the impact of the change in the relationship of currency valuations, and many other factors contribute.

SEN. DOLE: Well, gentlemen, I thank all three of you very much for being here today. And since there are no other questions, I declare this subcommittee hearing adjourned.