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If it is true that these GSM programs can be used for value- 

 added sales, and if it is true there this flexibility in the law to use 

 these programs for value-added sales, why is it we have been so 

 slow to move in that direction? 



Mr. Mendelowitz. I think that the flexibility that you have 

 identified is there. But for a number of reasons, including program 

 regulations, U.S. content requirements, it has been more difficult 

 to use the GSM program for high value-added products. 



But I think that the problem 



Mr. Penny. Before you move on to the problem, and I want you 

 to get to that point, is there something we could do about the con- 

 tent requirement that would not create other criticisms? Could we 

 change that content requirement in some way and still defend the 

 integrity of the program? 



Mr. Mendelowitz. I think that if the committee were to arrive 

 at a consensus on that, it would be quite easy to do. If you look 

 at the U.S. content requirements for exports that benefit from cred- 

 it programs at the Eximbank, you will find that only 50 percent of 

 an item eligible to receive an Eximbank guarantee or loan for its 

 export must be U.S. origin. 



So there are precedents for that. 



Mr. Penny. Now, go on to discuss the real problem. 



Mr. Mendelowitz. I really wanted to focus a little bit on the 

 broader problem, and that is you were highlighting some of the 

 problems with MPP. You were talking about some of the problems 

 with GSM and its application to high value products. 



These are all symptomatic of what happens when you try to take 

 a program which is in all aspects production-oriented and, again, 

 graft on patches to try to redirect the program. It is very hard to 

 do. 



I think it was Dr. Edwards Demming who said insanity is doing 

 something the same way every day and expecting a different out- 

 come. And I think that that in a sense captures the problem, be- 

 cause I think we need to look at the issue in a very fundamental, 

 systemic way. 



We have an Extension Service, which over the years, has proved 

 extremely successful in bringing to the U.S. farmer the best tech- 

 nology with respect to new seeds, new ways of growing crops, new 

 ways of tillage. And the result is that we get highly efficient pro- 

 duction. 



Until we begin to think of the Extension Service as part of an 

 integrated system for helping the farmer decide what to produce in 

 terms of what the market really wants, in addition to how to 

 produce it efficiently, we are still working under the old system. 

 And so if we think systematically about how to reorient the whole 

 operation toward identifying where the markets are and then get- 

 ting the whole system to think in terms of serving that market, in 

 terms of what to produce, quality, distribution systems and so on, 

 I think we will move more quickly in the direction that you would 

 like to go. 



Given the dramatically rising importance of HVP in world agri- 

 cultural trade, it is inevitable that a system that is market-oriented 

 will begin to think in a much more creative way about how we can 

 better serve the HVP market. And that, when you carry it to all 



