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Corn+Soybean Digest

WTO Ruling Could Change Cotton Program

Changes to the U.S. cotton program could come as soon as July 1 after the World Trade Organization (WTO) appeals panel upheld its ruling that subsidies create unfair trading practices.

Parr Rosson, Texas Cooperative Extension economist and director of the Center for North American Studies, says the recent decision raises “an even bigger question” about some provisions of the next Farm Bill.

“It leads us to ask, ‘Who is going to make farm policy in the U.S.?’” he says. “It's a sovereignty question. That's one question Congress is going to have to wrestle with.”

Last year, the WTO agreed with Brazil's claim that U.S. price supports for cotton led to lower world prices. The complaint suggested the price support system created “serious prejudice” to Brazilian farmers by depressing/suppressing world cotton prices.

The WTO appeals panel upheld most of the rulings of the earlier dispute settlement panel.

Rosson says changes could be made to the current Step 2 payment system and export credit guarantees as soon as this summer.

The Step 2 provision is one of three cotton competitiveness provisions intended to keep U.S. cotton competitive in domestic and export markets. Step 2 calls for subsidies paid to U.S. cotton users and exporters, which promotes the marketing of U.S. cotton rather than foreign fiber.

The anticipated changes to the current cotton program will likely raise producer questions on how to best market cotton if prices become volatile.

John Robinson, Extension cotton marketing economist, says prices could “swing either way” depending on 2005 cotton production in the U.S. and China.

“Now, more than ever, cotton growers should develop a marketing plan that provides some downside price protection while allowing for upside potential,” he says.

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