Thank you, Jim, Council delegates and honored guests.
Our intention for this Annual Meeting is to merge the customary Chairman’s report with the audio/visual report of Council activities during the past year. To begin, I will make some brief introductory remarks for the audio/visual report. Then, after the report, I will return to the podium to share my perspective on the challenges that appear to lie ahead for our industry.
As the activities report unfolds this morning, you will observe a rather heavy emphasis on farm and international trade policy. The industry’s determined efforts to improve farm policy came to fruition last May when the new farm bill was ushered through Congress by Chairman Larry Combest and signed into law by President Bush. It was very satisfying to see the policies developed by Council delegates serve as a template for the new farm bill.
Perhaps it was wishful thinking, but some of you might have hoped, as I did, that we could come together at this Annual Meeting having put farm policy behind us for a while and be able to focus our energy and resources on other challenges.
Unfortunately, this is not the case. While initial results of the new farm law provide reason for celebration, we cannot do so without looking apprehensively over our shoulder for the next in a relentless series of attacks on provisions of the new law that are absolutely essential to the cotton industry.
The bill was passed, you will recall, despite strong opposition by some members of Congress and in the face of continuous media attacks, fueled in large measure by false and misleading information circulated by the Environmental Working Group. Normally, such attacks are given a rest following passage of legislation, but it has not happened with this farm bill. The attacks by congressional foes, the media and our competitors abroad have persisted in the months following passage, and still show no signs of fading.
Meanwhile, the Administration, while aggressively pursuing its trade liberalization agenda, has defended the President’s signing of this farm bill. But the defense comes with a simultaneous WTO proposal by US negotiators for major reductions in global agricultural subsidies. Essentially, the Administration is saying, "yes, we approved a new farm bill that authorizes significant support for US agriculture, but we propose to phase down and harmonize global subsidies in the years immediately ahead."
While pressing ahead with WTO talks, the Administration has also maintained an aggressive pursuit of trade liberalization through bilateral and regional trade agreements. As a result, Council activities during 2002 were more heavily focused on trade issues than in previous years.
This heavier involvement in the trade policy arena is in keeping with delegate and board resolutions that call on the Council to increase its leadership role in seeking trade policy consensus among all segments of the raw cotton industry and the various textile interests. You will see evidence in the activities report that the Council has followed through on these directives from leadership.
Market changes resulting from liberalized trade can already be seen in the offtake numbers for cotton lint as well as in textile trade flows. These changes are also being reflected in the way the programs of Cotton Council International are managed.
The report will also underscore our need to take full advantage of technology to achieve cost reductions as well as yield enhancements and quality improvements. As always, the activities report will reveal Council initiatives on a broad front, and I invite your attention to it at this time.
In preparation for this presentation, I will ask the platform committee to move off the platform to my left for his presentation.
(Show NCC staff report video)
One activity noted only briefly in the audio/visual report was the work of a special committee that was appointed to study the future role of the Council in light of our income expectations.
You may recall that, for the 2002 calendar year, management brought a budget for approval that had been reduced by close to a million dollars and recommended that a study committee be appointed to evaluate priorities and make recommendations for still further budget reductions in 2003.
The study committee, chaired by Bob McLendon, did a splendid job of working in concert with management to further trim the Council’s budget without making appreciable reductions in resources devoted to our priority activities and programs.
The budget for 2003 is about $2 million below the budget approved for 2001. Several job consolidations were necessary to achieve these significant spending reductions and they have been completed. The members of the committee and management believe that the budget adjustments position the Council to operate on a fiscally sound basis for the next six to eight years, provided we can keep current farm law in place.
I was privileged to serve on the committee, and I feel very good both about the review process and the end result. We enter 2003 with an experienced, talented staff; we have the financial resources to compete for their continued services; no important program or activity of the Council has been appreciably affected by the spending cuts that were made; and we have the highest aggregate level of membership support in the Council’s 65-year history, despite the severe economic stress our industry continues to experience. This is all especially good news in view of the numerous challenges we face.
At the top of the list of our challenges is finding a way to shape US farm policy and US trade policy that are compatible and equitable in meeting the competition of the international market and complying with our international agreements.
The U.S. cotton industry has undergone a fundamental change in the past two years. We have shifted from a market primarily devoted to the domestic industry, to one that is increasingly focused on the world market. International trade policy has already dramatically affected the members of the National Cotton Council. The Uruguay Round of multilateral trade negotiations resulted in the two most significant events to occur in the industry since the inception of the marketing loan program. There are now international rules designed to limit domestic agricultural subsidies, and there is an agreement to end textile import quotas by 2005. Now, eight years later we are really beginning to experience the impact of these two agreements.
The Bush Administration has been given fast track negotiating authority, meaning that new trade agreements will be brought to Congress for an up or down vote, without an opportunity for amendments. Not only will a new WTO proposal be considered under this fast track protocol, but also numerous bilateral and regional agreements are likely to be concluded. All these agreements will have major implications for the economic viability of our industry.
I said earlier that one of our more important challenges will be to ensure that farm policy and trade policy are compatible. This compatibility objective has to be viewed in a global context, and has to reflect what I believe every member of this audience recognizes full well. That is, that good farm policy and good trade policy must take into account the needs of both the US raw cotton and the US textile industries. For both industries we must deliver a firm and consistent message to US policymakers:
FIRST, Don’t take down our subsidies until other countries bring their subsidies down to our levels;
It is not equitable for the EU, Japan and Canada to be able to spend $67 billion, $31 billion and $23 billion, respectively, for trade distorting subsidies while US spending is capped at $19 billion;
SECOND, Don’t further reduce our tariffs until other countries bring their tariffs down to our levels;
It is not equitable for foreign producers to be able to sell their agricultural products into the US market and pay an average tariff of 12% while US farmers must pay an average of 62% to sell their products into foreign markets;
AND THIRD, Don’t increase access to the US market until other countries provide equal access for our products.
It is not equitable for foreign textile product manufacturers to pay a tariff of less than 9% to sell their products into the US market when US textile manufacturers must pay tariffs typically ranging from 20% to 300% to sell their products into foreign markets.
We must communicate these policy principles, especially to Cotton Belt and Textile Caucus members of Congress. In doing so, we must remind them that there is certainly no compatibility or equity in existing farm and trade policy in the international arena:
The US has proposed substantial reductions in agricultural subsidies as part of its Doha negotiating objectives. The proposal would not fully harmonize agricultural subsidies but would essentially create a world trade framework with closer head to head competition than has been seen since World War I.
Compatible farm and trade policies that address the inequities of current world trade patterns must be a hallmark of Council policy. We must be diligent that agreements arising from the host of new trade proposals are soundly tested against unified Council policy.
At the same time, we must be vigilant in protecting of the benefits in the new farm bill. Senator Grassley has made known his intention to introduce an amendment to further restrict program benefits. He has encouraged the Environmental Working Group to renew their efforts to incite opposition to the cotton provisions.
The cotton program is also under attack by competing nations.
As noted in the video report, in November, the Brazilian government requested consultations with the United States concerning virtually all aspects of the United States cotton program. Friday, the U.S. was formally notified by the WTO that Brazil has requested the formation of a dispute settlement panel.
The Brazilian WTO complaint against the U.S. cotton program is broad and far-reaching. It subjects the export credit guarantee program and the Step 2 competitiveness provision to significant challenges.
The U.S. government has put a strong team together to counter the assertions by Brazil and that team is consulting with Council staff.
Meanwhile, as widely predicted, China is not living up to its WTO accession agreement. The accession agreement calls for China to open an import quota for 3.75 million bales of cotton, of which two-thirds or 2.5 million bales should be open access but China has allocated only 225,000 bales open access. Despite requests from USTR to change the implementation practices, China has announced its intention to administer the TRQ in the very same manner in 2003.
John Maguire, Bill Dunavant III and Tom Smith are meeting today in Washington with Ambassador Zoellick in a follow up to our letter requesting that USTR formally seek consultations under the dispute settlement provisions of the WTO. If these consultations fail to resolve the matter, then USTR should request that a WTO dispute settlement panel be convened. The timing of this meeting provides an extraordinary opportunity for the Council to stress the many facets of TRQ implementation including the national treatment of raw cotton imports, the sizing of commercial lots in quota allocation, and grading protocols that are consistent with universal standards. Ambassador Zoellick is leaving for China next week to participate in regularly scheduled ministerial consultations under China’s WTO accession agreement with the US.
China’s behavior serves as a reminder that we must urge Congress to insist that the Administration make full use of the tools available to leverage compliance with existing agreements before ratifying new agreements. In addition to a new WTO agreement, Congress will be asked in the months ahead to approve bilateral agreements with Chile, Singapore and Australia as well as regional agreements with Central America, and then a still broader Free Trade Area of the Americas.
It will be extremely important for all segments of the US cotton and textile industries to find, or confirm, common ground on core farm and trade policies and to broaden our coalition as much as possible. Then we must work together to ensure that we achieve our dual goals of fairness and compatibility of farm and trade policy. I believe our very survival hinges on it.
In closing, I want to express my sincere appreciation for the leadership role you allowed me to play over the past year. I especially want to thank all of you for the way you have responded to the Council’s action alerts throughout the year.
Serving as Chairman of the Council is not only a leadership role but a learning experience. Among other things, I have learned, in working with other commodity and general farm organizations, that Council members are unsurpassed in their willingness to rally to a cause. When we have called for help, you have certainly been responsive. THAT is the reason we have been able to achieve successes beyond what our numbers would suggest is likely. I have every confidence that we will continue to address our challenges with the same clear VISION, sound STRATEGY and excellent RESULTS that have characterized our initiatives through the years.
