Trade and U.S. Cotton - Facts and Objectives

The economics of cotton production are inextricably linked to textile policy and production, both in the United States and around the world.

The last two years have seen fundamental changes in the U.S. cotton industry. Domestic mill use of cotton has declined from 11.4 million bales annually to less than 7.0 million bales. The U.S. crop of about 18-19 million bales, a decline compared to the 1991-1996 average, has looked increasingly to export markets as domestic textile manufacturers have been driven out of business by cheap textile imports, many of which enter our market illegally or have been spurred by artificially low exchange rates.

The U.S. cotton industry has a significant stake in WTO agreements on agriculture, textiles and apparel, phytosanitary rules, export subsidies and other areas, as well as virtually all the many free trade agreements being negotiated by the Administration. Carefully crafted trade agreements can be of significant benefit, but poor agreements can put the U.S. cotton industry out of business. It is imperative that negotiations under the WTO ensure the industry greater market access and an enhanced ability to combat the unfair trade practices of competitors.

Within the Doha Round of WTO Negotiations, the Administration has proposed broad, far-reaching reforms in international trade. The proposals would require significant adjustments both around the world and in the United States. The U.S. proposal is fair and should be the focal point for the agricultural negotiations. The National Cotton Council understands, however, that the joint framework paper drafted by the United States and European Commission was necessary to stimulate negotiations. The NCC is encouraged that the General Council’s draft Ministerial text incorporated many of the key concepts developed in the U.S.-EC framework paper.

WTO Objectives of the U.S. Cotton Industry

The primary negotiating objectives of the NCC with respect to the Doha Round of Trade Negotiations continue to be as follows:

1. Provide timely, effective and reciprocal access to foreign markets for U.S. cotton fiber, U.S. manufactured textiles and U.S. cottonseed and products.
   - Bound rates of tariffs should be made equivalent with applied rates and then made comparable to U.S. rates;
   - Non-tariff barriers, which are being increasingly erected to block imports, should be eliminated; and
   - U.S. textile and apparel exports should enjoy the same level of market access that textile-exporting countries enjoy in the U.S. market.
2. Improve disciplines applicable to the state trading of agricultural commodities.
3. Ensure that developing countries that are competitive in international markets with respect to certain commodities or products are required to conform to trade disciplines that are equivalent to those adhered to by developed countries.
4. Improve the ability of the WTO to address managed and/or manipulated exchange rates.
5. Reduce trade distorting agricultural subsidies worldwide, but preserve important U.S. domestic and export programs as long as necessary to compete with the treasuries of U.S. cotton’s competitors, including the export credit guarantee program.
6. Improve rules restricting the use of export subsidies, including rules with respect to downstream subsidization of agricultural products, use of export taxes to reduce prices of processed products, content requirements for exports and exemptions from taxes for exported products. The refund of special value-added-taxes (VAT) on processed products that are exported is commonly used in many textile-exporting countries to help subsidize textile and apparel exports. This activity should be classified as an export subsidy, and its use should be prohibited.
7. Maintain the provisions of the WTO Uruguay Round Agreement on Textiles and Clothing establishing a scheduled phase-out of textile quotas; do not agree to reduce tariffs on textile imports into the United States until other countries reduce their tariffs to U.S. levels.
8. Maintain strong U.S. rules to protect against unfair trade practices.
9. Maintain the United States’ ability to enter into beneficial regional trading arrangements.
10. Stop the erection of non-tariff trade barriers against agricultural biotechnology products. The fundamental aspects of the Sanitary and Phytosanitary Agreement (SPS) should continue to apply to trade in agricultural biotechnology products.

The National Cotton Council of America is the central organization of the U.S. cotton industry. Its members include producers, ginners, oilseed crushers, merchants, cooperatives, warehousemen and textile manufacturers. While a majority of the industry is concentrated in 17 cotton producing states, stretching from the Carolinas to California, the downstream manufacturers of cotton apparel and home furnishings are located in virtually every state.

The industry and its suppliers, together with the cotton product manufacturers, account for one job of every thirteen in the nation. Annual cotton production is valued at more than $5 billion at the farm gate. In addition to the fiber, cottonseed products are used for livestock feed, and cottonseed oil is used for food products ranging from margarine to salad dressing. While cotton's farm gate value is significant, a more meaningful measure of cotton's value to the U.S. economy is its retail value. Taken collectively, the business revenue generated by cotton and its products in the U.S. economy is estimated to be in excess of $120 billion annually. Cotton stands above all other crops in its creation of jobs and its contribution to the U.S. economy.