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NCC chairman: Brazil's WTO arguments ignore facts

National Cotton Council Chairman Woody Anderson, in a speech made to the board of directors of Lubbock, Texas-based Plains Cotton Growers, Inc., laid a foundation for the industry's rebuttal of a controversial WTO finding that has triggered a flood of criticism of the U.S. cotton program.

Anderson noted that the full text of the WTO decision has not been released and that a ruling on a pending U.S. appeal is still months away. The few details known, he said, highlight several points upon which to question the WTO panel's ruling.

Anderson presented the industry's opinion that the WTO panel's findings were based on a flawed economic analysis that ignored many facts. In dismissing the arguments put forth by Brazil in the case, Anderson expressed astonishment at the dispute panel's ability to accept, without question, the findings of an economic analysis by University of California economist Dan Sumner which was paid for by Brazil.

“I cannot imagine how the dispute settlement panel could agree with the arguments advanced by Brazil concerning decoupled programs,” said Anderson. “Brazil's analysis concerning the impact of decoupled programs runs contrary to almost every economic analysis performed prior to the beginning of the Brazil case.

“The U.S. cotton program was fully coupled to production in 1992 and 1994. Since that time, many of our payments have been decoupled, loan rates have been reduced and target prices have been lowered. How can decoupled payments be inherently trade-distorting?

“These are not the actions of a country that is increasing its support to cotton. The 2004 cotton program does not support cotton at a higher level than it did in 1992.”

Anderson said Brazil claimed the decline in cotton prices from 1999 to 2001 was due solely to the presence and effects of the U.S. cotton program.

“I find it incredible that the soaring value of the dollar, a 25 percent increase in Asian polyester production and a record cotton crop in China with ensuing exports could be ignored during this period,” Anderson stated.

World markets in cotton and textiles have experienced a remarkable shift over the last several years. In recent years the use of cotton by U.S. textile mills has dropped by over 5 million bales annually.

That mill use did not disappear, says Anderson, it shifted away from the United States and resulted in a corresponding increase in U.S. cotton fiber exports. Increasing U.S. cotton exports are not reflective of a growing importance on the world market of U.S. cotton, but illustrate the immense pressures U.S. textiles are facing and the redirection of textile production worldwide. The numbers — when they are not misused — are very clear.

To make its case, Brazil hired Sumner, an agricultural economist with the University of California at Berkley, to conduct the economic analysis of the world cotton market used to gauge the impact of the U.S. cotton program. Sumner's paid analysis asserted that elimination of the U.S. cotton program would reduce U.S. cotton exports by 40 percent and increase world cotton prices by 12 percent.

Anderson pointed to a comprehensive study recently released by independent agricultural economists at Texas Tech University that directly contradict Brazil's assertions and show the results offered by Brazil and adopted by the mainstream press are unsupportable.

Anderson said, “The Texas Tech study indicates that program elimination might reduce U.S. cotton exports by 4 percent to 5 percent and cotton prices would increase by 0.5 to 2 percent. To put this in perspective, we could get that much price movement from a big hailstorm in Gaines County (Texas).”

The Texas Tech study shows results not dissimilar to other empirical research, including reports by the International Monetary Fund and the Australian Cotton Research and Development Corporation, which showed price impacts from the U.S. cotton program of about 2 percent.

“The magnitude of price impacts found by Texas Tech researchers is insignificant in world markets and cannot, under any stretch of the imagination, be said to cause any country serious prejudice,” concluded Anderson.

“I think it is interesting that while Brazil is alleging serious prejudice in the WTO, it is expected to increase cotton production in 2004 by 85 percent over its 2001 production,” said Anderson. He noted that while U.S. production will decline in 2004, Brazil and China are expected to increase production by 7.6 million bales over 2001 — an amount that is almost twice the size of the 4-million bale annual cotton crop in West Africa.

He added that while U.S. market share remains virtually unchanged over the past 30 years at around 20 percent, the combined market share of China and Brazil is expected to climb 6 percent, to 34.5 percent, in 2004 and illustrates that the rhetoric that the United States is responsible for oversupply and overproduction of cotton is clearly inaccurate.

Anderson said West African cotton farmers have been drawn into the issue and portrayed as victims of the United States. He offered the opinion that Brazil and other countries were using them to try and force the U.S. cotton producer out of the picture as they significantly increase their own cotton production.

The only question that remains to be answered is how the U.S. Congress will react to the conclusions of the panel and the implications it sets for how future agreements could be reinterpreted after the fact.

Anderson said the U.S. cotton industry would continue to work with the U.S. government and press the appeal of the WTO panel's decision.

Shawn Wade writes for Plains Cotton Growers Inc.

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