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Cotton’s trade challenges

The cotton industry faces a double handful of trade issues in the near future, including an announcement of damages in the Brazil WTO case that could affect the economic well-being of cotton farmers, ginners and others.

John Maguire, senior vice president for Washington operations for the National Cotton Council, told the joint summer meeting of the American Cotton Producers and the Cotton Foundation yesterday in Nashville that the WTO compliance panel could announce a ruling on damages as early as Aug. 31.

“We have been disappointed in the mindset of the WTO regarding cotton subsidies,” Maguire said. The panel objectives include the finding that the United States is out of compliance and that they will award damages to Brazil.

Just what those damages might entail and how deep they will go is uncertain, but Maguire said the Council is preparing “for all outcomes, small, medium and large damages. When it hits, we’ll get a lot of press attention.”

He said the U.S. trade representatives will argue that we have already made deep concessions with changes in the cotton program. Step 2 has been eliminated and other aspects of the program have been adjusted.

Brazil seeks more than $2 billion in damages, but “the United States will not just write a check, send it to Brazil and have them distribute money to farmers.”

What’s more likely, Maguire said, is for Brazil to ask for cross retaliation and go after intellectual property rights. They also could impose tariffs on U.S. products, but that would hurt their own trade.

If intellectual property rights become an issue, Maguire said cotton may find “more friends at the table.” New parties in the dispute could include electronics manufacturers, the motion picture industry and others.

He said the United States has asked for a new compliance panel and asked that they evaluate the case based on current conditions, from 1999 through 2005.

He said other scenarios may emerge from the Brazil case, including further program adjustments and legislative and administrative changes. “We are preparing for that. We’re doing briefings on the hill and trying to shape the response from the administration, Congress and the private sector.

Maguire said the Council communicates frequently with the U.S. trade representative office, USDA and the State Department. “We still have things we can do. We assume that Brazil will argue that no program is the only satisfaction.”

He said the Chamber of Commerce also threw a monkey wrench into the works by writing a letter asking Congress to fix the legislation to fix the cotton program so the United States would be in compliance. “They did not consult with the Council,” he said.

The Council did consult with the Chamber, however, in a low key meeting to lay out the cotton industry’s position. “They agreed that they should have consulted with us.”

Maguire said the Council expects other responses, especially if Brazil gets cross retaliation as part of the damages decision.

Other trade issues concern Africa’s continued demands “stirred up by the Europeans,” that governments should reduce poverty in Africa by targeting the U.S. cotton program. “We were able to get some of the NCC facts to (U.S.) presenters,” Maguire said. Rep. Collin Peterson met with a delegation and said Congress would not change the cotton program.

NCC also organized a pre-emptive public relations campaign. The message “was picked up by some of the mainline press.”

Maguire said some U.S. trade spokesmen have also taken a harder line on Africa’s demands that the U.S cotton industry should be changed to improve their ability to compete. “Ambassador Kirk said it is a ‘horrible strategy to single out one industry in one country.’”

Maguire also said the ambassador told C4 delegations that it was up to Africa to address strategies, government and corruption and that “the ball is now in Africa’s court.”

“That’s a positive sign,” Maguire said. “We hope it sticks.”

He said food security will be a big issue in Africa and Asia. Help will go through AID. “USDA is gearing up.” Maguire said focus on food security could take some pressure off cotton.

Efforts to restart the Doha round of trade talks also are ramping up with 2010 a completion target.

He said potential WTO non-compliance issues with cotton exist in both China and India. China has instituted registration and performance standards that have become “a market access issue,” Maguire said. “They’ve issued standards that make no sense. The system is in place, but USDA and USTR have been very supportive and the program now seems a little less onerous.

“We are concerned about market access in China and believe some of their supports are in violation of their WTO commitments.”

India also has some questionable practices including new subsidies inconsistent with WTO commitments. For instance, the Indian government has purchased 11.7 million bales of cotton; sales to mills are being made at a discount; they are using an export subsidy; and they are denying access to their textile market.

A few potential pieces of trade legislation also could affect U.S. cotton, Maguire said. Reauthorization of the Customs Facilitation and Enforcement Act encourages customs to be more proactive on enforcement.

Maguire said expansion of the trade preference program is often brought up when countries like Bangladesh and Cambodia ask for preferential trade status. “They are capable of competing on their own.”

A trade policy also permits opportunity zones in certain regions of Afghanistan and Pakistan duty-free access to U.S. markets. “That usually translates into textile products,” Maguire said. But some textile products are more sensitive to markets than others — denim, for instance — and those products are not included on the list.

A law passed three years included excluded products. But manufacturers asked that products be expanded, Maguire said, which would give them access to cheap goods. The Council opposes expansion.


TAGS: Cotton
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