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Step 2 may linger through July '06

As much as the cotton industry would like to keep Step 2 through the end of the current farm bill, that is looking less and less likely to happen, the president of the National Cotton Council, Mark Lange, says.

Step 2, most farmers will recall, is the portion of the U.S. cotton industry's three-step competitiveness program that was ruled illegal by a WTO appeals panel in March. The panel set a July 1 deadline for its elimination, but Congress must change the 2002 farm bill before Step 2 can be dropped.

“The position of the National Cotton Council has been that anything that came out of the WTO should be addressed in the next farm bill,” Lange told members of the American Cotton Producers and The Cotton Foundation at their joint meeting in New Orleans Aug. 5. “But our friends on Capitol Hill tell us they cannot continue to hold the line on Step 2.

“We anticipate that legislation could be introduced during the budget process in September that would require Step 2 to end on July 31, 2006.”

While that date would be too soon for those who think the 2002 farm bill should remain intact until its scheduled expiration in 2007, it would still be preferable to bringing it to an end this year, according to the Cotton Council's CEO.

“The USDA proposal — announced on July 5 — basically said that once legislation was passed, President Bush would sign it, and the next day Step 2 would be gone,” said Lange.

National Cotton Council leaders have urged Congress to consider the “significant disruption” likely to occur within the U.S. cotton industry if Step 2 was ended during the marketing year.

Some industry analysts believe the elimination of Step 2 will cost U.S. merchants millions of dollars in export sales because U.S. prices currently are above the world market. Others say Step 2 has become less of a factor because of changes that make the program less attractive to merchants.

Lange says the NCC is hopeful that Congress will say no to an immediate end to Step 2, and, instead, set its termination by a certain date. “This will not only satisfy the WTO, but also produce budget savings,” he noted.

“That won't be enough to satisfy the Brazilians,” he said. “It's a big thing for us, but the Brazilians will be back, threatening us with retaliation, not against cotton, but in protection of intellectual property or on some other trade issue.”

If Lange's comments seemed somewhat muted, it was with good reason. The morning he spoke in New Orleans, the Wall Street Journal printed another article trying to lay the problem of poverty in Africa's cotton producing countries at the feet of the U.S. cotton program.

The article led with an account of the visit last January by John Pecheu, chairman of the American Cotton Producers and a cotton farmer from Tranquility, Calif., and Deputy Undersecretary of Agriculture Jim Butler to a village in Mali.

“The article was very sarcastic about any efforts of the National Cotton Council to help farmers in Africa,” said Lange. “It's written by the same two guys who attacked (former Cotton Council Chairman) Kenneth Hood two years ago. This one is not so much about John Pecheu personally, but it accuses the NCC of seeking to appear altruistic while trying to protect its subsidies.”

Lange recounted the Council's role in the enactment of the Dominican Republic-Central America Free Trade Agreement, which passed the House and Senate in close votes. The Council was a late supporter of the agreement, getting on board after the Bush administration altered it to make it more palatable to the U.S. textile industry.

“Some of those changes were originated by Gaylon Booker (former NCC executive vice president and trade consultant) two years ago,” he said. “But the administration said they wouldn't work.”

The Council is also monitoring the talks for a new Andean trade agreement in South America and “trying to make sure it does not contain the rules of origin for textile components that caused problems in DR-CAFTA.”

Lange said the Council continues to work with the U.S. textile industry on the filing of petitions for safeguard provisions aimed at slowing the flood of Chinese textile and apparel products into the United States.

“Currently, seven safeguards are in place, and four are actually binding,” Lange said of the provisions that limit the growth of imports in a specific category to 7.5 percent of the amount shipped in the previous year. “China can't ship any more product in those categories until January of 2006.”

Despite its success with the limits in those categories, Lange said, the cotton industry is beginning to throw its support behind a long-term arrangement with China — such as that recently negotiated by the European Union — to handle Chinese textile and apparel shipments through 2008.

The Doha Round negotiations in the World Trade Organization continue to be one of the most worrisome areas of the trade arena, however. And the most worrisome of all may be the cotton subcommittee formed by the WTO in response to the claims by the African cotton-producing countries last year.

“The head staff person for the subcommittee has openly said there will be special treatment for cotton,” said Lange, who, along with other industry leaders, has maintained the subcommittee was established to monitor the negotiations and not to play a role in developing provisions.

“We also continue to hear about an ‘early harvest’ for cotton subsidies,” he noted. “While the negotiators talk about a 10-year phase-out for agricultural subsidies, in general, they're talking about five years for cotton.”

WTO leaders had planned to have much of the Doha Development Agreement finalized in time for the next ministerial-level meeting scheduled for Hong Kong in December. Because negotiators failed to reach a consensus on several areas at their meeting in Geneva last month that may prove difficult to accomplish.

“I'm afraid that we at the National Cotton Council view most of this in Geneva as damage control,” he said. “I'm convinced that nothing good can come out of this for cotton. Other crops, such as soybeans, can see good things if they can achieve greater market access. As a result, they're more willing to talk about reductions in loan rates and counter-cyclical payments.”

The uncertainties surrounding the WTO negotiations and other trade issues are ratcheting up the pressure on the Council staff and its resources, he said.

“Because of what's at stake for us, we have to have a presence in Geneva at the WTO, in Africa, at meetings like the ministerial conference in Honk Kong, and it's eating up a lot of our travel budgets.”


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