Cotton's Week: March 5, 2004

The Senate Budget Committee completed work on the FY05 budget resolution and accepted a payment limitations amendment offered by Sen. Grassley (R-IA). The final vote on the $2.36 trillion budget was straight party-line 12-10.

During 2 days of debate, Democrats argued that the budget authored by Chairman Nickles (R-OK) favored tax cuts over deficit reduction and funding for schools and infrastructure. The resolution, in an attempt to cut the deficit in half over 5 years, includes a tight cap on discretionary spending and even makes a $7 billion reduction in the President’s defense spending request.

During the debate, the Committee approved an amendment proposed by Sen. Grassley to reduce spending on commodity programs by $1.236 billion over 5 years and increase spending on conservation, nutrition and value-added agriculture programs by the same amount. He would achieve the savings by changing the payment limits in the ’02 farm program. He would establish the following new limits: direct payments - $20,000; counter-cyclical payments - $30,000; and marketing loan benefits - $87,500 (including gains from certificates and loan forfeitures). Operations utilizing the 3-entity rule could continue to use it with the new limits. Operations with a single entity could receive $40,000 in direct payments; $60,000 in counter-cyclical payments; and $175,000 in marketing loan benefits (including certificates and forfeitures). The result is a $275,000 overall limit per crop year.

The amendment, if enacted as proposed, would be effective in October 2004. The Budget Resolution will be debated by the full Senate the week of March 8. Because the Budget Resolution serves as a non-binding blueprint for Congress, the Grassley amendment only would become effective if separate legislation is passed by the House and Senate and signed into law. The House Budget Committee is expected to take up its Budget Resolution the week of March 8.

A report posted on the China National Cotton Exchange’s web site indicates that a new quota of 1 million metric tons (roughly 4.6 million bales) has been allocated for imports of raw cotton. The new quota would be in addition to the initial ’04 amount of 4.1 million bales that was required by China’s WTO accession agreement. The additional quota comes in response to China’s need to import raw cotton due to their production shortfall in the ’03 crop.

The House of Representatives is preparing to mark up its version of the highway reauthorization bill. NCC cosigned a letter with other agricultural organizations, including the National Cotton Ginners Association, to the House Infrastructure and Transportation Committee urging inclusion of language that continues the farm supply/farm commodity exemption to the hours of service (HOS) of drivers’ rules. This exemption ensures that crop input dealers, custom harvesters and farm cooperatives are not hampered in transporting goods to and from the farm during busy seasons.

Over the years, the Department of Transportation (DOT) has continually redefined what qualifies as agriculture as it relates to the HOS exemption. This provision would clarify the agricultural exemption to HOS rules first established by Congress in ’95 and prevents the DOT from diminishing or revoking that exemption.

Several weeks ago, the Senate Environment and Publics Works Committee, chaired by Sen. Inhofe (R-OK), passed its version of the highway reauthorization bill, which included this provision.

According to USTR, “the US-Morocco – Free Trade Agreement is an integral part of the President’s strategy to create a Middle East Free Trade area by 2013.”

The agreement reportedly covers all agricultural products and offers new market access for poultry, beef and wheat, as well as processed foods and specialty crops. Current US exports to Morocco are valued at $475 million including aircraft, corn and machinery, with recent increases in pharmaceutical and fabrics noted. Morocco’s average tariff is 20% while US tariffs average 4%.

The NCC joined with textile interests in urging US negotiators to insist on inclusion of a NAFTA-like yarn forward rule of origin for textile and apparel products to ensure that the US and Moroccan industries, not third parties, benefit from the agreement. Initial USTR releases do not include the specifics on the rule of origin. The Administration did not indicate whether it will ask Congress to consider the agreement this year.

In acknowledging the need for enhancing US cotton’s global competitiveness - including eliminating all potential contaminants - the Joint Cotton Industry Bale Packaging Committee (JCIBPC) instructed NCC staff, in cooperation with the National Cotton Ginners Association, warehouse and regional ginner associations, regional grower associations and USDA, to escalate the industry’s seed cotton and lint contamination prevention program. This included the panel’s recommendation that all woven polypropylene and woven polyethylene bagging materials be fully-coated starting with the '04 crop year.

At its meeting in Memphis, the JCIBPC also approved continued testing for the '04 crop year on: 1) a non-woven, 100% cotton bale bag (200,000 bales), 2) a plastic strapping device for lift-box gin presses, 3) a seamless woven polypropylene bag and 4) two other types of polypropylene bags using modified fabric construction.

In addition, the JCIBPC recommended that NCC staff report to the panel in '05 findings from investigations of: 1) burlap bagging performance and usage, 2) breatheability of polyolefin bagging, both woven and film and 3) refinements of laboratory test criteria to more accurately reflect real-world handling/storage performance of polyethylene film bags.

The NCC will comment on the proposed rulemaking by the Fish and Wildlife Services and the National Marine Fisheries Service that were posted Jan. 30. The rulemaking gives the EPA an alternative means of compliance with their consultation obligations under the Endangered Species Act (ESA).

The rulemaking was prompted by litigation filed by several environmental groups claiming the EPA was not complying with its obligations under ESA to insure the protection of listed species. The lawsuits have resulted in court mandated restrictions on more than 40 pesticides in the Pacific Northwest case, Washington Toxics Coalition v. EPA, which is predicted to cost tens of millions of dollars in lost production this season if some relief is not found.

The regulations will allow the EPA to utilize its existing risk assessment process during the registration of a pesticide to determine effects on a listed species, and apply appropriate mitigation measures to the pesticide to insure the product’s use is “Not Likely to Adversely Affect” endangered species.

The NCC will work with regional organizations and its Environmental Task Force and American Cotton Producers to generate strong support for the proposed rule. The rule would allow for the continued registration of crop protection products with minimal restrictions by ESA consultations, which are not prepared or designed to handle the broad applications and usage of pesticides. NCC members are urged to comment. NCC comments and talking points will be posted on the NCC’s web site upon completion for members to view and reference in their comments.

The Cotton Sourcing Summit highlighted trading opportunities between US importers, retailers, US cotton yarn suppliers and apparel manufacturers from CBI, Andean and Sub-Saharan participating countries.

Held Feb. 22-24 in Miami Beach, FL, the Summit was funded by the Importer Support Group of the Cotton Board and managed by Cotton Council International in a collaborative effort with Cotton Incorporated. It was attended by 350 members of the textile industry, including importers, manufacturers and US mills. The overseas garment manufacturing sector, organized by CCI, was represented by 18 countries from Latin America to Africa.

The event featured interactive panel discussions on sourcing strategies in a post-’04 environment, the impact of China on the world’s textile apparel complex, and US customs and regulatory issues. An excellent opportunity was provided for networking throughout the textile-apparel-retail supply chain and the event’s private trade fairs enabled apparel manufacturers and US mills to showcase their products. Initial reports indicate participants believed the Summit a tremendous success and very useful in preparation for ’05 and beyond.

Net export sales for the week ending Feb. 26 were 158,500 bales (480-lb.), resulting in total ’03-04 sales of almost 11.8 million. Total sales at the same point in the ’02-03 marketing year were about 9.5 million bales. Total new crop (’04-05) sales are 507,900 bales (480-lb.). Shipments for the week were 334,400 bales, bringing total exports to date to 6.4 million bales, ahead of the 5.3 million bales at the comparable point in the ’02-03 marketing year.

The Istanbul Textile and Apparel Exporters Association, the American Manufacturing Trade Action Coalition and the American Textile Manufacturers Institute are calling on the WTO to prevent a global takeover of textile and apparel trade by a few large supplier countries.

In a letter to be sent to the Director General of the WTO, US and Turkish industry officials specifically called for an extension of the textile and clothing quota phase-out process until Dec. 31, ’07.

The initiative also proposes that WTO members undertake a full review of global textile and clothing production to determine whether to finalize the phase-out process on Jan. 1, ’08 or develop an appropriate alternative arrangement.

The groups, saying they will gather support worldwide, called on other textile and apparel associations in affected countries to join them in the crucial fight to prevent global monopolization of this sector. They contend that circumstances associated with the textile and clothing quota phase-out process have changed dramatically since the adoption of the Uruguay Round and the initiation of the quota phase-out process in ’95.

For example, the January ’02 admission of the People’s Republic of China into the WTO represents a severe and disruptive change in circumstances not present during consideration in the early ’90’s of a timetable for the phase-out of quotas.