rade policy’s impact on the U.S. cotton industry increased as international trade negotiations, free trade agreements and even international public opinion influenced the industry’s financial health as never before. In the fall of 2004, the U.S. recorded monthly deficits in agricultural trade - an almost unthinkable situation two years ago. The rise of China in world markets, Brazil’s increasing ability to efficiently produce cotton and other commodities, and increasing competition in the world’s textile marketplace also dramatically affected the industry.
U.S.- Brazil Dispute
Nearly two years after initial consultations, the World Trade Organization (WTO) dispute settlement panel in the U.S.-Brazil issued its ruling. The Panel found against the U.S. cotton program on a number of major points challenged by Brazil, setting the stage for a tense and important appeal for both countries and for the WTO. The Panel found:
- that the “Peace Clause” in the WTO Agreement on Agriculture did not exempt the cotton program from the Brazil challenge. In so doing, the Panel determined that the U.S. could not classify the direct payment program as a “green box” program.
- that the aggregate impact of the U.S. marketing loan, counter-cyclical and Step 2 programs during 1999-2002 caused serious prejudice to Brazil and therefore violated U.S. obligations under the WTO agreements while determining that the direct payment program and crop insurance programs did not harm Brazil's interests.
- the Step 2 program and the export credit guarantee program to be prohibited subsidies under the WTO and called on the U.S. to correct these measures by July 1, 2005.
The industry received strong support statements from many Congressional members and the Administration, and the U.S. filed a broad appeal that challenged almost every Panel finding. The appellate body held oral hearings in December and is expected to issue its decision in March 2005. Throughout the dispute, the NCC worked closely with the Office of the U.S. Trade Representative and USDA in developing arguments and presenting the cotton program defense.
Doha Round
The Doha Round of WTO negotiations was resuscitated as participating countries reached agreement on a Framework document designed to provide the parameters that will govern the remainder of the negotiations. U.S. negotiators were pleased with the so-called “Framework Text” and believe it can lead to a successful completion of those negotiations.
While short on details, the Framework does provide a basis for negotiations to continue. The Framework calls for: 1) the elimination of export subsidies; 2) reductions in domestic support; 3) a redefinition of the blue box category of agricultural support, reflecting a U.S. effort to ensure the counter-cyclical program fits in that category and 4) more product specific caps on domestic support than is contained in the current agreement. Countries with larger subsidy programs are directed to make the largest cuts. Developing countries are to receive special and differential treatment, blunting much of these proposed disciplines’ impact.
The U.S. claimed victory in its fight over European Union export subsidies, but also agreed to phase out any export subsidy component of export credit guarantees. Market access commitments are vague and encompass so-called sensitive products and special products that countries will be able to protect, somewhat, from significant increases in market access.
In a move that sends the wrong message to the other WTO members, the Framework contains four separate references to cotton and raises concerns that cotton may receive unequal and inappropriate treatment in the negotiation. These references are a direct result of proposals tabled by several African cotton-producing countries to eliminate all subsidies for cotton production, a move that has been supported by several international non-profit organizations such as OXFAM International. The cotton-specific references are a troubling sign for the industry as the Doha negotiations continue. Negotiating countries now hope that such an agreement on modalities can be reached in December 2005.
U.S. Cotton Policy and Africa
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While in Memphis, the delegation from West Africa countries Benin, Burkina Faso, Chad and Mali was briefed by industry members and the American Cotton Shippers Association, AMCOT and the NCC. |
The NCC discussed with the Administration potential issues relating to the so-called Bumpers Amendment and indicated it is willing to work with USDA on the issue. However, the initial flexibility being demonstrated by the NCC may be short-lived should the WTO attacks on U.S. cotton continue.
China
Trade Increasing cotton production, mill use and textile and apparel production solidified China’s position as the dominant force in the world’s cotton and apparel markets. China imported almost 9 million bales worldwide in the 2003-04 marketing year. In 2004, China increased itsown cotton production by 32 percent, or 7.2 million bales. Meanwhile, mill consumption of cotton in China continues to increase by about 3 million bales (or more) annually. With that expanded cotton consumption comes dramatic expansion in apparel production as China prepares to dominate world trade in that product.
With significant export purchases and expanded tariff rate quotas (TRQs), appropriate implementation by China of its cotton fiber TRQ commitment was not a priority issue for the NCC in 2004. However, China's refusal to eliminate the so-called “processing” trade, which requires that certain quantities of cotton imports be exported as cotton apparel remains a NCC concern.
China’s larger 2004 cotton crop and falling international prices led to increased concerns regarding defaults on existing contracts with Chinese companies. The NCC continues to monitor new phytosanitary rules issued by China to ensure these rules do not unduly restrict U.S. cotton fiber exports.
To strengthen relations with China, NCC Chairman Woody Anderson traveled to the country for an orientation on its agriculture and textile sectors. He urged Chinese officials to administer TRQs as mandated in their WTO agreement and to engage U.S. counterparts in consultations as provided in safeguard procedures. He also emphasized the importance of working to increase domestic consumption of cotton products in China.
NCC staff also traveled with USDA-Agricultural Marketing Service staff and others to learn more about China’s Cotton Classification Reform plan and encourage the use of standards that will facilitate U.S. cotton exports.
As the January 1, 2005 date for lifting worldwide textile quotas approached, the NCC supported the U.S. textile industry as it focused its attention on the impact that China would have on U.S. textile production and the production of apparel by other countries that traditionally have supplied the U.S. market.
An initiative that began with a March 2004 Istanbul meeting of officials from the American Textile Manufacturers Institute, the American Manufacturing Trade Action Coalition (AMTAC) and the Istanbul Textile and Apparel Exporters Association has, in the ensuing months, resulted in the formation of the Global Alliance for Fair Textile Trade (GAFTT). Now comprised of some 98 organizations, including the NCC, from 54 countries, the group’s request for a special meeting of the WTO to consider the impact of the textile quota phase-out was rebuffed by the WTO, despite being supported by Mauritius, Bangladesh, the Dominican Republic, Lesotho, Mexico, Nepal, Sri Lanka and Turkey. However, the Director General of the WTO noted that the scheduled quota phase-out had become a major issue that needed to be addressed.
Closer to home, a coalition of textile interests, including the National Council of Textile Organizations and AMTAC, with the support of the NCC, developed 12 petitions requesting relief under the textile specific safeguard provision in the U.S.-China WTO accession agreement. The requests asserted that imports from China would increase when the quotas were removed and would threaten the United States with market disruption in the specific product categories covered by the petitions.
The Committee for the Implementation of Textile Agreements (CITA) is authorized to limit imports from China of the specific category to a 7.5 percent growth rate if it determines those imports cause or threaten to cause market disruption in the U.S. textile market. CITA accepted most of the petitions for investigation and was to make a final decision regarding import relief in January or February of 2005.
Other Trade Negotiations
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| USTR Ambassador Allen Johnson takes time out to be interviewed during his tour of Delta farming operations and discussions of U.S. trade policy with Mid-South cotton industry members. |
While the NCC supported the Australia agreement and generally encouraged free trade negotiations with countries in the Western Hemisphere, it has significant objections to provisions in the agreements with Bahrain, Morocco and Central America, which circumvented the traditionally applicable rule-of-origin for textiles. The exceptions threatened to offset potential benefit to the U.S. textile industry.
In addition, Congress hurriedly completed action to extend African Growth & Opportunity Act legislation from its planned 2008 expiration date to 2015. This bill also contained troubling exceptions to traditional rules-of-origin that could, ultimately, harm the U.S. textile industry. The NCC also called Congress' attention to its significant concerns with legislation that would have made Haiti a platform for Asian countries to undercut the U.S. textile and apparel industries.
Despite repeated efforts to achieve compromise with respect to the rule-of-origin exemptions contained in the Central America Free Trade Agreement (CAFTA), the NCC was unable to report progress on the CAFTA, leaving the U.S. cotton industry with an unsatisfactory agreement that likely will be voted on by Congress early in 2005.