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Cotton industry battered, but still in Doha Round fight

National Cotton Council leaders say they weren’t surprised by what happened at the WTO’s Hong Kong Ministerial Conference, but, then, the cotton industry has come to expect the worst with anything involving the WTO.

NCC President and CEO Mark Lange said WTO officials tried to play down expectations in the weeks leading up to the mid-December talks because of the European Union’s unwillingness to compromise on market access.

“As pressure mounted on the EU, it again maneuvered to bring other issues to the forefront, particularly issues that were difficult for the United States,” he said. “It was well understood by our leaders that less comprehensive negotiations in Hong Kong meant greater focus on cotton specifically. And that’s what happened.

Speaking at the Beltwide Cotton Conferences in San Antonio Jan. 5, Lange listed three specific actions or objectives in the draft text from the Hong Kong Ministerial that pose serious problems for the U.S. cotton industry:

-- “All forms of export subsidies for cotton will be eliminated by developed countries in 2006.

-- “On market access, developed countries will give duty and quota free access for cotton exports from least-developed countries from the commencement of the implementation period.

-- “Members agree that the objective is that, as an outcome of negotiations, trade distorting subsidies for cotton production be reduced more ambitiously than under whatever general formula is agreed and that it should be implemented over a shorter period of time than generally applicable. We commit ourselves to give priority in the negotiations to reach such an outcome.”

“The U.S. cotton industry is deeply concerned about the ramifications of this text,” said Lange. “But it is also an ominous warning to other commodities. Now that one commodity has been culled from the herd and is being dealt with differently, what commodity will be next?”

An obviously angry Lange said U.S. cotton industry leaders have almost come to expect duplicitous treatment from the European Union and Brazil, China and other so-called developing countries in the Doha Round negotiations.

Despite previous assurances from WTO officials that cotton would not be singled for special treatment, the WTO proceeded to do just that at the Hong Kong ministerial, primarily because of efforts by the European Union to deflect attention from demands that it provide greater access to its markets.

“In November and December, the National Cotton Council’s concerns were heightened with every official pronouncement seeking to reduce expectations for a broad-based agreement in Hong Kong,” he said. “It was well understood by our leaders that less comprehensive negotiations in Hong Kong meant greater focus on cotton specifically.

“Our fears were not unfounded as the amount of time and energy devoted to cotton by the ministers in Hong Kong defies all logic and reason.”

Lange said the Doha negotiations, which began in Doha, Qatar, in 2001 and were scheduled to be concluded this year, have been filled with incongruities, but that some of the language in the Hong Kong Ministerial text borders on the absurd.

“In a strange twist even for WTO negotiations, the text calls for the developed countries to eliminate all forms of cotton export subsidies prior to ratification of any agreement and while negotiations on much of the comprehensive package may not even be finished,” he noted.

“So no one has any idea what achievements will yet be reached on market access, but the developed countries have apparently already agreed to eliminate cotton export subsidies in 2006. This is probably not the best example of negotiating strategy by the developed countries.”

Another incongruity: Although the developed countries spin less than 8 percent of the world’s cotton, the Hong Kong draft text calls for those countries to provide duty and quota free access for cotton exports from the least-developed countries or LDCs upon commencement of the agreement. The so-called developing countries of China, India and Pakistan account for 72 million bales or more than 60 percent of annual world mill use, but do not have to provide duty and quota free access to the LDCs.

The failure of the latter to offer the same access is “an unfortunate outcome that has brought little response from non-government organizations so bent on supporting West African farmers,” said Lange. “In fact, several NGOs criticized the developed countries for not giving something more for cotton, noting that most cotton is consumed in China.”

The Hong Kong ministerial conference also witnessed the resurgence of another term that U.S. and National Cotton Council officials thought they had managed to push to the sidelines: early harvest.

Despite those efforts, the text of the 2004 Framework Agreement Hong Kong ministerial contains wording about intentions to obtain deeper and faster concessions on cotton than other agricultural commodities, a process sometimes referred to as an early harvest by WTO officials.

While the text does not specify a reduction or a speedier timetable, the West African cotton-producing countries, supported by Oxfam and other NGOs, are demanding an 80 percent cut in all domestic cotton support by developed countries in 2006 to be followed by 10 percent in the next two years.

Of all the absurdities in the Doha Round, China’s positioning of itself in the WTO hierarchy may be the most ludicrous. “China has nuclear arms and a space program and yet is permitted to self-declare as a developing country and avoid the disciplines applied to countries such as the United States, the EU members, Japan and Australia,” said Lange.

“This incongruity sustains a situation that grew out of the last round of world trade negotiations” when developing countries thought the phaseout of Multi-Fiber Agreement quotas would help make a great leap in industrialization through textile and apparel manufacturing. Instead, China and India have captured those markets, leaving the rest with no realistic hope of using textiles as a developmental tool.

Rather than being an industrial happenstance or market driven outcome, this situation has arisen, particularly in China, through industrial policies, high border measures, tax incentives and free financing of construction through the deliberate creation of non-performing loans.

“The NGOs that attack the policies and practices of the developed countries seem to turn a blind eye to the stark reality that China’s expansion in virtually all realms of manufacturing has precluded the developing world from most avenues of capital formation and industrialization,” said Lange.

“The world increased its annual use of cotton by 22 million bales between 2000 and 2005, but these three countries expanded their mill use by 27 million bales. They not only took spinning businesses from the most developed countries like the United States, the EU and Japan, but also the least developed countries in Sub-Saharan Africa and other parts of Asia.”

To further compound cotton’s miseries, the Asian countries have been on a man-made fiber binge with China alone producing 45 million bale equivalents of polyester in 2005 vs. 22 million bale equivalents in 2000. The Chinese government financed this expansion with non-performing loans and tax incentives, according to most economists.

“The NGOs wave $2 billion to $3 billion in annual spending for the U.S. cotton program as prima facia evidence of damage,” says Lange. “These are easy numbers to find in USDA reports and then blame the overbearing culturally bereft Americans for all the world’s ills.”

But how much has the Chinese government spent annually over the last seven years to add 25 million bale equivalents of polyester production and 22 million bales of cotton spinning capacity? The staggering investment easily exceeds $2 million to $3 million.

“The NGOs turn a blind eye to massive fiber market disruptions arising in Asia and then want the world to believe that it is the United States that has turned it back on the developing world,” said Lange.

“Ambassador Rob Portman as much as told the African delegates this in Hong Kong, when he said that the analysis he had reviewed did not support their claims. He forcefully stated that it was irresponsible to assert that elimination of the U.S. cotton program would have more than a minimal impact on world cotton prices.

“His recitation of the facts appeared to fall on deaf ears.”

Lange said the Cotton Council will continue to work with Portman, the U.S. trade representative, and with USDA to counter efforts “to further isolate and discipline cotton” when the Doha Round negotiations resume later this month.

“At the same time we will participate with other agricultural interest organizations to insist on the necessary gains in market access that must arise in order to sustain any commitments for reductions in overall domestic support that do not isolate cotton.”

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