U.S. cotton farmers have always had more than a passing interest in world trade, but the economic woes of the U.S. textile industry have increased their stake in world trade negotiations considerably.
“For years, we looked for 60 to 65 percent of the U.S. crop to go to our domestic mills,” says the National Cotton Council's Mark Lange. “In two or three short years, we have seen that turn around, and now 60 to 65 percent of the U.S. crop is going to the export market.
“If that doesn't make you nervous, believe me, the guy sitting next to you probably is,” he told participants at the recent Crompton Co.-Uniroyal Chemical Cotton College in San Antonio. Lange said the vagaries of the world market will make selling U.S. cotton far more challenging than it was when farmers could count on U.S. mills buying 10 million to 11 million bales annually.
“Out there in that export world you have all these countries that like to subsidize sales of cotton — just like we do, we subsidize our cotton,” said Lange, the NCC's vice president for policy analysis and program participation.
“But these countries will also turn on and off the valve that says you can import or not import U.S. cotton,” he noted. “So you're growing cotton thinking you can export 8 million or 9 million bales of cotton, and, suddenly, you can export only 7 million bales. That can be a very unsettling situation.”
Lange said National Cotton Council leaders paid careful attention to the trade negotiations that were held by the World Trade Organization in Doha, Qatar a few days before he spoke in San Antonio. “We are always very anxious when it comes to trade discussions for two reasons,” he said. “One is that the United States does have significant subsidies for cotton and other agricultural commodities, and other countries like to point fingers and say the U.S. is causing problems in world markets.
“The other is that we know that every time there's a meeting to talk about world trade U.S. negotiators are more than willing to talk about further opening of the U.S. textile and apparel markets.”
In recent months, he said, the U.S. cotton industry has seen 3.5 million bales of demand “vaporize” due to the financial problems of U.S. textile industry. “And every time they talk about opening more of our markets to foreign competitors, we know that doesn't bode well for demand for U.S. cotton and textile products.”
Too often, he said, the U.S. cotton industry finds itself doing “damage control” when the United States enters into a new trade agreement that opens more U.S. markets to foreign access without any increase in access to foreign markets.
“The reason for that is that if you look at the world the way the trade organizations do, they take what they refer to as the developed countries, the United States, Europe, Japan and a few others, and then they add the rest of the world, which is the less developed countries,” he said.
“The less developed countries get to play by a different set of rules than the developed countries. Amazingly, when it comes to rules governing reciprocal market access, the developed countries have to abide by them and the developing countries don't.” That un-level playing field can have a tremendous impact on the U.S. textile market.
“Three countries — China, Pakistan and India — have two-fifths of the world's population and the largest concentration of the world's textile industry,” he noted. “These three countries have almost half of the world's textile mills. But because they are developing countries they get to play by different rules.”
Lange said it seemed ironic that China could announce, as it did the day he spoke in San Antonio, that they have developed a space program that could put a man on the moon. “But for trade purposes, they are a less developed country.”
Trade negotiations, such as those announced in Doha, can also have an impact on U.S. domestic farm policy, Lange noted. “Today, there is a limit in place on the amount of money the U.S. government can spend in any year for what are referred to as trade-distorting subsidies,” he said. “Trade-distorting subsidies are any subsidy payments that can be tied directly to production or can be tied to price decisions.”
Under the current World Trade Organization rules, Agricultural Marketing Transition Act or AMTA payments are not trade-distorting because they are not tied to production, he said, but loan deficiency payment and the proposed counter-cyclical payments in the House farm bill are because farmers must produce a crop to receive them.
Supplemental AMTA payments, which were issued when farmers began experiencing a combination of weather disasters and low prices in 1998, are considered trade-distorting by USDA because they were tied to prices. The WTO rules limit the United States to spending no more than $19 billion a year on trade-distorting subsidies or it will be in violation of the agreement it signed in 1994 at the conclusion of the Uruguay Round of world trade negotiations.
So far, the United States has not exceeded the cap, but critics of some of the farm bill proposals now under consideration in the Senate have said they contain subsidies that would be in violation of the 1994 agreement.
“Now, on one hand, you have our negotiators, when they were in Doha last week, saying that we would have to go in and reduce trade-distorting subsidies,” he said. “On the other, you have an agricultural economy that has been absolutely devastated by a strong dollar that continually pushes down the value of U.S. commodities.”
Lange noted that in 1996, the year the current farm bill was passed, market returns for the eight major U.S. crops — the seven program crops and soybeans — totaled about $12 billion. “Since then, they have decreased every year, and by USDA's own estimates they probably will be a negative $15 billion to $17 billion this year,” he said. “Without any government payments, the total sum of the earnings of production agriculture in the United States has dropped nearly $29 billion.
“It's virtually a straight line loss over those five or six years, and a whole lot of the loss is due to the strength of the dollar,” he said. “That's something the average U.S. producer can do little or nothing about.”
That was part of the background for the Cotton Council's decision last spring to seek new farm legislation that would provide growers with the same level of returns they received in 1999, an average of 80 cents per pound.
“The farm bill passed by the U.S. House of Represen-tatives got us to 74 cents or close to what we wanted, so cotton farmers have a major interest in getting the House bill or something close to it passed by both Houses and sent to the president,” he said.
When Lange spoke in San Antonio, the Senate had yet to take up its Ag Committee farm bill. He said Council leaders were concerned then about the potential for lack of Senate action on the bill until some time in 2002.
“If we have to wait until 2002 on a new farm bill, we are looking at a very different budget situation than when Congress approved the budget resolution that provided $73.5 billion over the baseline for agricultural spending last spring,” he noted.
“If we go into a new budget cycle with this legislation, we will be lucky to get half that amount.”