Cotton's Week: December 19, 2003

Cotton's Week: December 19, 2003

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CAFTA Agreement Is Reached

The Bush Administration announced that agreement has been reached on a Central American Free Trade Agreement (CAFTA). The agreement was reached among 4 of the 5 Central American countries with which negotiations have been on-going since January – Honduras, Guatemala, Nicaragua and El Salvador. Negotiations with the 5th country, Costa Rica, will resume in January.

Concerning the announcement, NCC Chairman Bobby Greene said, “Since we have not seen the text of the agreement, or even an official summary of provisions, we cannot fully evaluate its impact on the US cotton industry. The absence of an agreement with Costa Rica also complicates our ability to fully understand how the agreement may affect us.”

The US cotton industry’s biggest opportunities, as well as risks, relate to textile provisions of the agreement. The textile provisions reportedly include a number of avenues for 3rd-country participation, including cumulation, Tariff Preference Levels (TPLs), a fabric-forward rule of origin for certain products and allowances for “single transformation” for a number of others.

NCC President and CEO Mark Lange said, “We have stated our strong opposition to cumulation, TPLs and other forms of 3rd-country participation. While most of the attention has been focused on cumulation and TPLs, the single transformation rule would place no sourcing restrictions on either yarns or fabrics used in the applicable end products in order for them to qualify for duty-free treatment.”

Gaylon Booker, NCC consultant on trade policy, said the provisions for 3rd-country participation are especially troubling in view of the efforts that were made to develop, for the first time ever, an innovative short-supply procedure that could provide access to 3rd-country fabrics and yarns that are not made by US and regional manufacturers. “In an effort to provide sourcing flexibility where needed, while preserving benefits for CAFTA signatory countries, our textile leaders worked in cooperation with Central American apparel manufacturers to fashion an order-based short-supply procedure,” Booker said. The intent was to foster the use of US and regional products by implementing a procedure that allows products to be placed on a short-supply list, and removed from it, on a timely basis and in a way that is consistent with normal business practices. Most of the short-supply provisions developed by the US textile and Central American apparel leaders are thought to have been written into the agreement.

The agreement also includes a fiber-forward rule of origin for trade in yarns and knit fabrics, as did the North American Free Trade Agreement.

Greene said, “We will undertake a thorough analysis of the provisions of the agreement once they are known, and we will, as always, make a decision about whether to support or oppose it based on a thoughtful assessment of the probable effects of the agreement on the US cotton industry’s 7 segments. We have expressed our support for implementation of a good CAFTA. However, the benefits of this agreement are not immediately apparent to me.”

In a briefing for commodity and farm groups, USTR and USDA officials reviewed agriculture provisions of CAFTA. US negotiators reported that Central American countries’ tariffs on virtually all imported agricultural products will be phased out over a 15-year period. Some US products will gain immediate duty-free access, while other more sensitive products will have a lengthy phase-out period. Negotiators crafted an agreement on a safeguard mechanism that would be triggered when imports of certain sensitive products exceed 130% of the quantity receiving duty-free access under a Tariff Rate Quota (TRQ). Once the volume exceeds 130% of the TRQ level, tariffs snap back to previous levels. The agreement includes a provision granting US cotton exports to CAFTA countries continued, permanent duty-free access.

Negotiators expect to spend the next 60 days reviewing the agreement and completing negotiations with Costa Rica, following which they will notify Congress of their intent to sign an agreement. Once Congress is advised, the provisions of Trade Promotion Authority dictate the process. The Administration has informally indicated it does not expect Congress to consider the implementing legislation before June ’04 at the earliest. The US also will begin negotiations with the Dominican Republic. If timely agreement is reached, the Dominican Republic could be added to the CAFTA prior to Congressional action.



USDA Issues Proposed Rule for Conservation Security Program

Agriculture Secretary Veneman announced the issuance of the proposed rule for the Conservation Security Program (CSP) authorized by the ’02 Farm Bill. The fundamental intent of CSP is to complement existing conservation programs by supporting ongoing conservation of agricultural working lands and enhances the condition of natural resources.

Because of a budgetary cap, CSP’s limited resources are focused on the most pressing environmental concerns. The rule proposes to prioritize eligibility based on selected priority watersheds. These watersheds would be identified when CSP signup periods (much like Conservation Reserve Program signup periods) are announced.

Under the proposal, agricultural land in cropland, orchards, vineyards, pasture and range will be eligible for CSP regardless of size, location or crops produced. Areas that would not be eligible for CSP include forest land, recently converted crop land (not cropped 4 out of last 6 years) or land enrolled in the Conservation Reserve Program, Wetlands Reserve Program or Grassland Reserve Program.

The payments structure can include 4 components: 1) an annual base component for the benchmark conservation treatment, 2) an annual existing practice component for maintaining existing conservation practices, 3) a one-time new-practice component for implementing additional practices and 4) an enhancement component for exceptional conservation effort. The 3 tiers are capped at $20,000, $35,000 and $45,000 annually and will last for 5 years for Tier I and 5-10 years for Tier II and Tier III.

The NCC will review the proposed rule and submit written comments to USDA. There are tentative plans to have USDA officials lead an overview of the proposed rule at the Beltwide Cotton Conferences. Deputy Undersecretary Mack Gray will offer a similar session at the NCC Annual Meeting.

Comments on the CSP proposed rule may be sent to david.mckay@usda.gov or by mail to Conservation Security Program Comments, ATTN: David McKay, NRCS Conservation Operations Division, PO Box 2890, Washington, DC 20013.

The proposed rule, as well as additional information on CSP and other conservation programs, is available on the Natural Resources Conservation Web site, http://www.nrcs.usda.gov/programs/farmbill/2002/products.html.



Administration, EPA Change Plans for Guidance on Clean Water Act
 

The EPA and the Army Corps of Engineers (Corps) issued a decision on Dec. 17 to not issue clarifying guidance on the definition of a “navigable water” of the US that is subject to federal jurisdiction and the Clean Water Act (CWA). Currently, there is debate in many circuit courts as to whether isolated water bodies such as ditches, farm ponds, etc. are subject to CWA standards and regulations.

With the decision to not clarify the confusion as to the jurisdiction of the CWA, the EPA and Corps have essentially refused to accept the ’01 Supreme Court ruling in the Solid Waste Agency of Northern Cook County v. US Army Corps of Engineers (or SWANCC case) which declared that the presence of migratory birds did not qualify an isolated water body to fall in the jurisdiction of the Corps. There have been several court cases recently which have also gone against the SWANCC decision, such as US v. Deaton (4th circuit) and US v. Rapanos (6th circuit) which declared that if the path of water from an isolated water body (such as a ditch) can be traced to a navigable waterway of the US, then jurisdiction of the Corps is extended to this water body.

However, on the same day that the Administration and the agency issued their decision, a ruling was handed down in the case of US v. Needham (5th circuit) which contradicted rulings in the 4th and 6th circuit decisions, creating a conflict in the circuit courts. In Needham, the 5th circuit specifically asks the EPA for a clarification on the CWA jurisdiction of the Corps, which likely could result in another Supreme Court case to clarify the definitions of a navigable waterway. The definition is of great importance to the agricultural community, as drift and run-off from pesticide applications potentially could become issues subject to citizen suit provisions of the CWA, which are utilized by many environmental groups in an attempt to promote their goals.



Secretary Names 12 to Cotton Board

The appointment of 6 members and 6 alternate members to the Cotton Board was announced by Agriculture Secretary Veneman. The Cotton Board consists of 33 members, their alternates and one consumer advisor representing cotton producers, importers and consumers. The appointments are for 3-year terms ending Dec. 31, ’06.

Tamsin Randlett, San Francisco, was reappointed to the board. Alternates reappointed were William Harris, Benton, MS; Kervin Frysak, Garden City, TX; and Carlos Moore, Vienna, Va.

New members are Kevin Rogers, Mesa AZ; Charlotte Mathis, Moultrie, GA; Tom Gary, Greenwood, MS; Roger Blackwelder, Rotan, TX; and Sonja Chapman, Boonton, NJ.

Newly appointed alternate members are Walter Heiden, Arlington, AZ; George Horne, Doerun, GA; and Janet Ydavoy, Ft. Myers, FL.



Export Sales for Week Ending Dec. 11
 

Net export sales for the week ending Dec. 11 were 254,600 bales (480-lb.), resulting in total ’03-04 sales of more than 8.9 million bales. Total sales at the same point in the ’02-03 marketing year were approximately 6.9 million bales. Total new crop (’04-05) sales are 334,000 bales (480-lb.).

Shipments for the week were 261,000 bales, bringing total exports to date to 3.2 million bales, ahead of the 2.8 million bales at the comparable point in the ’02-03 marketing year.



 

Because of the holidays,
Cotton’s Week
will not be published Dec. 26



Prices Effective December 19-25, 2003

Adjusted World Price, SLM 1 1/16

59.46 cents

*

Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

0.61 cents

Marketing Loan Gain Value

0.00 cents

Import Quotas Open

 1

Step 3 Quotas (480-lb. bales)

 128,590

ELS Payment Rate

0.00 cents

*No Adjustment Made Under Step I
 
Five-Day Average
 
Current 3135 c.i.f. Northern Europe

72.84 cents

Forward 3135 c.i.f. Northern Europe

No Quote

Coarse Count c.i.f. Northern Europe

70.62 cents

Current US c.i.f. Northern Europe

73.45 cents

Forward US c.i.f. Northern Europe

No Quote

 
Weighted Marketing-Year Average Farm Price  
 
Year-to-Date (August-October)

61.75 cents

**

**August-July average price used in determination of counter-cyclical payment

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