Cotton's Week: September 10, 2004

NCC Chairman Woody Anderson said the NCC’s initial review of the decision in the Brazil/US WTO cotton dispute indicates that the Panel "made some surprising assumptions and reached conclusions we believe are not supportable.”

“The National Cotton Council disagrees with the Panel decision,” Anderson said. “We do not believe the United States – or, for that matter, any WTO member - intended that the WTO Agreements would be interpreted as this Panel has done. Now that the report has been publicly released, we are even more convinced that neither the facts, the economics nor the agreements support the Panel's primary decisions. We look forward to a resolute appeal."

Since ’92, Anderson noted, the US cotton program has moved toward decoupling payments from production, has a lower loan rate for cotton and a lower target price. He pointed out that these changes show that the ’04 cotton program does not support cotton at a higher level than in ’92.

Anderson said, "The Panel's finding of serious prejudice seems contrary to 33 years of stability in the share of the world market held by United States cotton and, indeed, a loss of market share in 2002. The decision also runs counter to recent findings by an independent Texas Tech study that showed estimated price impacts from the US cotton program ranging from less than 1/2 of a percent to just over two percent. That's about a quarter of a cent to 1.2 cents per pound. It does not seem possible that these insignificant price impacts could be said to cause any country serious prejudice."

NCC CEO Dr. Mark Lange contrasted the independent Texas Tech analysis to that conducted by Professor Dan Sumner for Brazil in the dispute.

"We do note that the Panel dismissed the outlandish economic model results offered by Brazil's economic expert,” Lange said. “The soundness of Brazil's evidence has been severely undermined by the Texas Tech study and a recent study conducted by the Food and Agriculture Organization. In fact, the FAO study also explicitly questioned and rejected many of the assumptions used by Brazil's economic expert. The economic analysis rejected by the Panel is very similar to the reports constructed by OxFam International that have been picked up by the media and trumpeted as fact."

Dr. Gary Adams, NCC vice president for economic and policy analysis, noted that the Panel’s report will probably intensify the focus on the US cotton program even during the appeal and even as there is record cotton production throughout the world in ’04 led by dramatic increases in Brazil and China. Adams said an 8% increase in acreage outside the United States will result in an unusually large crop. For example, combined, Brazil and China are expected to increase cotton production in ’04 by 8.1 million bales over their ’01 production - an increase that is almost twice the size of the 4 million bale annual cotton crop in West Africa.

Lange added, "Their charges focus on one thing - increased US expenditures under the cotton program. Without a doubt, the US program is costing more than we would like, but these costs are a result of low world prices - not a cause of increased US production."

Bill Gillon, NCC international trade counsel, stated that, “We expect no immediate changes to the US cotton program. The appeal process will take several more months and even then, parties are given a reasonable amount of time in which to comply with any WTO rulings upheld on appeal. It is not appropriate to speculate on possible program changes at this time. We remain hopeful that the initial ruling will be substantially revised by the WTO appellate body."

A Senate subcommittee completed work on the FY05 agriculture appropriations measure. In related action, the House and Senate quickly approved a measure to provide $2 billion for hurricane disaster relief for Florida. Congressional leaders acknowledged that this was a down payment and that another disaster assistance package will be needed.

The Senate agriculture appropriations subcommittee unanimously approved its version of the FY05 agriculture funding bill with only one amendment, which would make it easier to receive permission to travel to Cuba to promote and sell US agricultural products. The subcommittee approved an $83.1 billion measure, the same funding level as the House version, which funds commodity, conservation, nutrition, promotion and research programs as well as the administrative functions of USDA, FDA and the CFTC.

Subcommittee Chairman Bennett (R-UT) noted that the subcommittee had about $1 billion less funding for FY05 than FY04 and that the subcommittee’s approach was to fund existing programs rather than initiate new ones, to be fair, and to refrain from “legislating” on the appropriations measure. Normally the bill would go next to the full appropriations committee for approval, but there is a possibility that some of the 13 annual appropriations measures will be combined into an omnibus bill and be taken directly to the Senate floor prior to the targeted adjournment date of Oct. 8.

The NCC joined with textile and fiber organizations urging the House to reject legislation to provide products assembled in Haiti duty free access to the US textile and apparel market regardless of the origin of the component materials.

Provisions of legislation approved by the Senate immediately prior to the August recess would allow a significant quantity of apparel products assembled in Haiti using components manufactured in any country to be granted duty free, quota free access to the United States. The NCC has joined the textile-fiber alliance in urging Congressional members to oppose legislation, which would seriously undermine existing and growing trade with other Caribbean and Andean nations.

Under trade legislation previously approved by Congress, Caribbean and Andean nations have preferential access to US markets if the products contain components manufactured in the US or the participating country. The Haitian legislation would serve to encourage apparel manufacturers to relocate their operations to Haiti in order to utilize fabrics mainly from China in apparel assembled for export to the United States. This would seriously jeopardize existing operations in the Caribbean which use US cotton, yarn and fabric. In addition, the legislation would encourage displacement of current US exports to Haiti by Chinese products.

Cotton Belt Congressional members are being asked to sign a letter to House leaders expressing opposition to legislation that would provide Haiti with an advantage over Caribbean countries that have become the largest market for US textile exports. A copy of the letter and talking points are available on the NCC’s web site at www.cotton.org/membersvcs/haiti-letter.cfm.

In its Sept. report, USDA gauged US ’03-04 cotton production at 18.26 million bales. Projected mill use increased 190,000 bales to 6.49 million bales. However, exports were unchanged from the Aug. report and remain at 13.80 million bales. As a result, projected total offtake increased 190,000 bales to 20.29 million bales. This generates an ending stocks value of 3.50 million bales. The estimated stocks-to-use ratio is 17.2%.

Upland production in the Westis an estimated 2.48 million bales with harvested area of 857,000 acres and a regional average yield of 1,386 pounds. Expected yields are above the 5-year average in all states of the region. The ELS crop is an estimated 710,000 bales. Harvested area is pegged at 253,000 acres with an average yield of 1,347 pounds.

For the ’04-05 crop year, USDA projected the US crop to reach 20.90 million bales, up 720,000 bales from the Aug. report. US mill use was raised 200,000 bales and exports increased by the same amount to 12.20 million bales for total ’04-05 offtake of 18.30 million bales. Ending stocks for ’04-05 are projected at 6.10 million bales for an ending stocks-to-use ratio of 33.3%.

For the ’04-05 marketing year, USDA projected world production of 107.25 million bales, up 660,000 bales from the Aug. report. World mill use was raised 190,000 bales from the Aug. report to a projected 100.85 million bales. Consequently, world ending stocks for ’04-05 are projected to be 40.03 million bales, for a stocks-to-use ratio of 39.7%.

A coalition of labor and trade organizations filed a petitionrequesting an investigation into China’s fixed currency values. The petition contends that China’s fixed exchange rate (8.3 Yuan=$1 US) is undervalued and is an unfair trade practice in the form of an illegal export subsidy which harms US companies and violates WTO rules.

The China Currency Coalition includes some members of the Fair Currency Alliance, which was formed to promote efforts to convince China and other countries to allow their currencies to be valued by market forces rather than establishing undervalued, fixed rates or intervening in world markets to maintain undervalued rates, which disrupt trade.

In April, the Administration announced it would reject a petition if filed and the Administration rejected the petition hours after it was filed on Sept. 9. The NCC will continue to work with members of the Fair Currency Alliance, Congress and the Administration to explain the adverse impact of an undervalued Chinese currency and to encourage the Administration to take appropriate actions including accepting counterveiling duty petitions on non-market economies and to assist small firms in preparing such petitions.

Net export sales for the week ending Sept. 2, ’04 were 96,600 bales (480-lb.), resulting in total ’04-05 sales of more than 5.3 million. Total sales at the same point in the ’03-04 marketing year were about 3.4 million bales. Total new crop (’05-06) sales are 162,800 bales (480-lb.).

Shipments for the week were 84,200 bales, bringing total exports to date to 870,600 bales, below the 962,100 bales at the comparable point in the ’03-04 marketing year.