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NCC: WTO ruling ignores market realities

National Cotton Council leaders say they have not seen details of a WTO interim Panel ruling in the latest case brought by Brazil against the U.S. cotton program. But, if press reports are true, they say, the panel’s findings are contrary to facts in the world cotton market.

Brazil complained last September that the United States government has failed to fully comply with an earlier WTO panel’s ruling that the U.S. cotton program has caused “serious prejudice” to the economic interests of cotton producers in Brazil. The NCC says the claim is baseless.

“U.S. actions already taken to comply with the first WTO Panel ruling have had a significant impact on U.S. cotton and U.S. cotton producers,” the Council said in a statement.

“Since Congress eliminated cotton’s Step 2 program, U.S. cotton acreage is down 28 percent for 2007; U.S. exports have declined significantly; and U.S. production is predicted to be only around 17 million bales in 2007, the lowest since 2002. It cannot be argued any payments under domestic support programs are causing any country serious prejudice in 2007.”

Following the first WTO panel’s ruling in 2005, USDA made several adjustments to U.S. export credit programs to comply with the panel’s finding. The U.S. Congress terminated the Step 2 export subsidy program effective with the 2006-07 marketing year that began last Aug. 1.

National Cotton Council officials said they find it difficult to understand why the remaining provisions of the U.S. cotton program could be damaging producers in other countries when prices have been on the upswing.

“It is incomprehensible that a WTO panel could make a finding of serious prejudice against the U.S. when the international cotton market is strong; offtake will exceed production; world prices are up; and acreage is up almost everywhere in the world except the United States,” it said.

“Cotton production outside the United States mushroomed and is estimated to be a record high of 97.1 million bales. India is expected to harvest an all-time record crop and has supplanted the United States as the world’s largest exporter to China; world prices are up; and payments under the marketing loan program have decreased to zero. In the face of these facts, the U.S. cotton industry is left to puzzle the basis of such a decision.”

The 2007 farm bill passed by the U.S. House of Representatives July 27 also contains a significant reduction — rather than an increase — in counter-cyclical program payments applied to cotton base acres, the Council noted. (The bill proposes a 2.4-cent reduction in the cotton target price.)

“We would also be surprised by any finding in favor of Brazil when Brazil is harvesting a cotton crop that is 38 percent above last year’s production and actually sold government cotton stocks during 2007 in an attempt to depress cotton prices.”

The NCC listed other developments that make a finding against the United States unsupportable:

• Expenditures in respect of cotton or cotton base acres, without any further changes in any future farm bill, are expected to decline significantly for 2007, 2008 and 2009.

• During much of the 2006 marketing year, cotton produced in India was as much as 5 cents per pound cheaper than comparable U.S. growths.

• Several international organizations have concluded that the variable levy system implemented by China on imported cotton amounts to a multi-billion dollar support system for the production of cotton in China.

• Brazil has often intervened in its domestic market in order to increase the price of cotton for its producers.

Senate Agriculture Committee Chairman Tom Harkin said that, while he would have to see the WTO Panel’s full report, he was concerned that it appeared Brazil could be allowed to retaliate against U.S. exports.

“It would be far preferable to settle these disputes through careful negotiation instead of WTO litigation,” said Harkin, D-Iowa. “While, of course, the United States needs to defend our programs in the WTO, we also must recognize reality, solve the problems in our programs and move on. It is far more important to prepare for the future so American agriculture can succeed in this new century than to continue fighting losing cases before the WTO.”

Sen. Saxby Chambliss, R-Ga., the ranking member of the Senate ag committee, said published reports that the WTO panel ignored the changes Congress made to the cotton program were troubling.

“To say the U.S. cotton program is causing harm to Brazil or any other country, ignores the simple facts and will further enforce doubts farmers and ranchers have in the dispute settlement process in the WTO. With this in mind, the legal process is incomplete and I fully expect the United States to appeal this decision,” he said.

“Let me be very clear, changes to the cotton program will be made consistent with our international obligations. But, we will not gut the safety net for cotton producers despite calls by Brazil and others to do so.”

Asked whether reports of the WTO ruling on the U.S. cotton program could have an impact on the new farm bill, House Agriculture Committee Chairman Collin Peterson said he would be surprised if they did.

“The process will be that the U.S. government will appeal the ruling, which could take three to six months,” he said. “So we’re not at a point where we have to be making a decision. We’ll see what it says and deal with it. We may be done with the farm bill before then.”

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