U.S. Senate Finance Committee
Hearing on U.S. Trade Policy Agenda
January 27, 2015
National Cotton Council of America
Statement for the Record
Thank you Chairman Hatch, for the opportunity to share the concerns and priorities of the National Cotton Council of America (NCC) within the U.S. trade agenda. This hearing occurs during a crucial moment for the cotton industry, where we face twin threats on the international front from Chinese cotton policy and Turkey's unfounded antidumping investigation of U.S. cotton. Impacts of these trade actions will be felt throughout the chain of production and distribution. A loss of markets in China and Turkey means a loss of thousands of American jobs and economic productivity.
The NCC membership includes producers, ginners, cottonseed processors and merchandizers, merchants, cooperatives, warehousers and textile manufacturers, in seventeen states, stretching from California to Virginia. Farms and businesses directly involved in the production, distribution and processing of cotton employ almost 200,000 workers and produce direct business revenue of more than $27 billion.
Turkey is a major export market for U.S. cotton, in recent years ranking as the 2nd or 3rd largest export customer with exports valued at $850 million. By erecting damaging trade barriers that reduce U.S. exports, U.S. cotton farmers will suffer due to lower prices. An adverse finding by Turkey would compound the already critical price situation facing U.S. cotton farmers, which is being driven by distortive agricultural policies administered by the Chinese government, discussed in detail below. For these reasons, the NCC and its member companies were surprised and concerned when the Turkish government self-initiated an anti-dumping investigation of U.S. cotton on October 18, 2014.
The case appears to have been filed as political retaliation against the United States on matters unrelated to U.S. cotton exports. Shortly after the U.S. imposed anti-dumping and countervailing duties on Turkish steel during the fall of 2014, Turkey's Minister of Economy publicly warned they would retaliate against the U.S. by imposing three obstacles against U.S. exports for every one imposed on Turkish exports. The Turkish authority then self-initiated the anti-dumping investigation of U.S. cotton despite no Turkish cotton producers being on record alleging any kind of injury due to U.S. cotton imports. Although it is within Turkey's rights under the WTO to self-initiate, they must present "special circumstances" justifying the investigation. Turkey's initial report does not provide a description of such circumstances, and in fact is heavily redacted. It is entirely unclear as to what data they relied upon or where the data originated from to present a threshold case for conducting an investigation.
Turkey's self-initiation filing included a number of other "red flags" that are worrisome, such as blatantly disregarding actual U.S. data and ignoring lower import prices and increasing market shares from other countries. Turkey also ignores price data from the U.S. cotton market based on an erroneous claim that U.S. price subsidies cause U.S. market prices to be an unreliable indicator of market conditions. The U.S. cotton futures market is widely used by international cotton traders and international textile mills for price discovery and risk management.
Contacts in Turkey have said that the Turkish government is considering a "provisional" antidumping duty, even though they have not yet finished processing the initial industry questionnaires. Again, this raises WTO concerns: the WTO only permits a provisional duty upon a preliminary determination, which must rest on an assessment of adequate evidence of dumping and injury – but Turkey's fact-finding effort is still at a very early stage.
The U.S. cotton industry will show that the antidumping investigation has no merit. The NCC has been accepted as an "interested party" to the investigation and has already submitted a preliminary injury analysis in efforts to forestall a provisional duty. A detailed injury argument will be submitted to the Turkish authority in coming weeks. U.S. companies have responded in good faith to the Turkish government's detailed questionnaires, and will continue to cooperate by providing additional information and even hosting site visits, if requested. We are confident that the data will clearly demonstrate that no dumping is occurring, if analyzed in an objective manner. When comparing like qualities of cotton, cotton offered to Turkish mills is priced in the same manner as cotton offered to U.S. mills or mills in other countries.
We appreciate the efforts of the office of the U.S. Trade Representative, the Department of Commerce, the Department of Agriculture, and the Department of State. To date, all of these agencies have met with the NCC and its member companies and provided helpful guidance to the industry's efforts. The State Department delivered a demarche to the Turkish government and USDA submitted comments for the record, both documents emphasizing the importance of transparency and following the WTO process for antidumping investigations, and the mutual importance of the Turkey-U.S. trading relationship. We encourage the U.S. government to remain firmly engaged and to discourage the continuation of this retaliatory investigation.
Members of Congress have also provided valuable support to the industry by raising the profile of this investigation through letters to the Administration and the Turkish Ambassador.
We value the vibrant and growing economic ties between Turkey and the United States, but it can only continue to develop and flourish in accordance with the existing WTO rules governing international trade. USTR is key to impressing this message upon the Turkish government.
As the world's largest cotton producer (27% of global production in 2013) and also the largest processor of raw cotton (32% of global mill use), China's cotton policy has an enormous influence on the global cotton markets. China has been U.S. cotton's largest export market, with approximately 35% of total U.S. production delivered to its mills. However, recent changes to China's cotton policy are likely to disrupt this relationship.
Over the past four years, China has significantly increased its domestic support levels well above its WTO commitments. In 2011, China began a stockpiling reserve program through government purchases of domestic cotton at rates well above global prices. These support prices translated to product-specific support worth between 19 – 31% of the value of China's production, while China's WTO commitments only allow product-specific support at no more than 8.5% of the value of production. China now holds an estimated 63 million bales in stocks with more than 50 million bales sitting in government-owned reserves. In contrast, all other countries hold just 39 million bales, combined. Under WTO rules, China is required to provide notification of domestic support levels but has not done so since the 2008 crop.
China controls imports of raw cotton through policies that are restrictive, opaque and unpredictable. China's WTO minimum TRQ requirement is set at 4.1 million bales, but it supplements imports variously throughout the year. The process for determining additional quota is unknown and non-transparent. China's imports under the additional quota are also generally subject to a variable level duty ranging between 5% and 40%.
China recently revised its cotton support programs and will drastically reduce its imports of U.S. cotton. The support price for the largest cotton-producing province is set at a level more than twice the world price of cotton. Other provinces benefit from market support offered by the existing import policies, as well as a direct subsidy of $0.15 per pound.Together, these programs translate to product-specific support worth at least 25% of China's value of production; and as much as 44% if calculated at current market conditions. Moreover, the allocation of the import TRQ and import licensing scheme for 2014 – as well as the disposition of the 50 million bale government reserve – remains uncertain.
The NCC strongly encourages the Administration to challenge China's cotton policies in all avenues offered within the WTO. Its current policies raise serious concerns regarding China's WTO obligations under the GATT, the Agreement on Agriculture, the Subsidies Agreement, and China's WTO Accession Protocol. It is important to our industry that the U.S. government utilize all available legal tools to enforce against countries that unfairly support their domestic products to the serious detriment of U.S. farmers.
Trans Pacific Partnership
As the Administration continues the ongoing negotiations in an effort to conclude to the Trans Pacific Partnership (TPP) agreement, the U.S. cotton industry is unified behind the inclusion of a yarn forward rule of origin in TPP or any other international trade agreement. A yarn forward rule of origin requires that any product made with yarn produced in a country that is a party to the trade agreement may receive the benefits accorded to partner countries under that agreement. Failure to maintain a yarn forward rule of origin will damage the entire hemispheric textile trade that has been built under NAFTA and CAFTA-DR, which both contain the yarn forward rule of origin. The inclusion of Vietnam in the current TPP negotiations underscores the importance of a yarn forward rule of origin as a means to protect against textile products produced outside the partner countries from gaining preferential access to the U.S. market, thus resulting in severely negative impacts to the U.S. textile manufacturing sector.
Mr. Chairman, thank you again for holding this timely and important hearing, and for accepting our comments for the record.China and Turkey remain the two most important international markets for U.S. cotton, and it is vital to the U.S. cotton industry that those markets remain open and competitive. Although we appreciate the U.S. government's efforts to maintain strong trading relationships with Turkey and China, more work is needed. And we urge that the remaining negotiations on the TPP agreement ensure that there is a strong yarn forward rule of origin in place for textile products produced in the countries that are part of the TPP agreement. We would be pleased to provide any additional information or answer any questions regarding the information provided here. Reece Langley with NCC can be contacted at email@example.com or 202-745-7805.