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NCC chairman says Brazil’s WTO economic analysis faulty

LUBBOCK, Texas – The chairman of the National Cotton Council today disputed a study commissioned by the Government of Brazil that claimed elimination of the U.S. cotton program would reduce U.S. cotton exports by 40 percent and increase world cotton prices.

Woody Anderson, a Colorado City, Texas producer, told members of the Plains Cotton Growers Association that the Brazilian study was based on a faulty analysis of the world cotton situation that omitted a number of key factors, including shifting currency values and record Chinese cotton production.

“I cannot imagine how the dispute settlement Panel could agree with the arguments advanced by Brazil concerning decoupled programs,” said Anderson, citing one of the main points in the study. “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 reduced and target prices 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 we did in 1992.”

U.S. officials are now waiting for a translation of the study to be completed. Delivery of the translation starts the 60-day period in which the U.S. government can file an appeal of the three-member WTO panel’s ruling.

In dismissing the arguments advanced by Brazil during the Panel’s deliberation, Anderson said that Brazil claimed the entire decline in cotton prices from 1999 to 2001 was due to the presence of the U.S. cotton program.

“I find it incredulous 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.

Prior to filing its complaint, Brazil hired Dan Sumner of the University of California to conduct an economic analysis of the world cotton market to assess 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.

During his presentation at the Plains Cotton Growers annual meeting, Anderson pointed to a comprehensive study recently released by agricultural economists at Texas Tech University.

“These results directly contradict Brazil’s assertions,” 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 one-half to 2 percent.

“To put this in perspective, we could get that much price movement from a big hailstorm in Gaines County. The results offered by Brazil and adopted by the mainstream press are unsupportable.”

Although the ruling is not official until the translations are released, newspapers such as The New York Times and Wall Street Journal have predicted the imminent demise of the U.S. cotton program as a natural aftermath of the decision.

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

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

"The United States’ share of the world cotton market is virtually unchanged over the past 30 years, hovering around 20 percent,” Anderson said. “Meanwhile, the combined market share of Brazil and China is expected to climb by 6 percentage points to 34.5 percent in 2004 as compared to 2001. The rhetoric blaming the United States for oversupply and overproduction of cotton are simply and clearly inaccurate."

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