MEMPHIS, Tenn. – With only 2 million bales of U.S. cotton production staying home to be processed and sold as retail products, trade policy has become just as important as U.S. farm policy in determining the success of the U.S. cotton industry.

This is the assessment of Gary Adams, National Cotton Council vice president for Economic and Policy Analysis, speaking at the Mid-South Farm and Gin Show in Memphis.

“In recent years, we have seen the U.S. cotton industry shift to an export-oriented industry,” said Adams. “Domestic mill use has gone from 11 million bales down to 6 million bales. Our projections for the 2004 crop year are for further declines.

“At the same time, we see exports going in the other direction, in excess of 13 million bales for the current crop year. Two out of every three bales produced in the United States are being exported as raw cotton. So trade policy is going to have a direct impact on the demand that we see for U.S. cotton.”

Trade policy has and will continue to have an impact on domestic textile mills, noted Adams. “Over the last decade, U.S. imports of textile products have surged. For the current calendar year, we figure it to top out at 20 million bale equivalents, which is larger that the entire U.S. cotton crop.”

On the other hand, “much of what is coming back in as textile products is U.S. cotton that went out as raw cotton.”

Adams noted that the United States annually “ships out the equivalent of about 5 million bales of yarn, thread and fabric, with the primary destination being Mexico and other countries of this hemisphere.”

WTO negotiations

The relationship between the U.S. cotton industry and some of its foreign customers is strained at best, especially after the most recent meeting of trade ministers in Cancun, Mexico in September, 2003. “It was supposed to be a mid-term review of the WTO negotiations and to set forth a framework to outline the general negotiating objectives,” Adams said.

“Brazil, India and China emerged as leaders of a group of developing economies, whose purpose was to oppose the proposal put forth by the developed economies,” Adams said. “The groups became known as the Group of 21, who pushed for a reduction in the subsidy or support programs by developed countries without increasing their market access or changing the programs they had in place.

“To complicate the matter, in the weeks leading up to the Cancun meeting, four west African cotton countries floated a proposal within the WTO that sought the immediate elimination of the cotton program in the United States and the European Union.

“They asked for compensatory payment for damages they say were caused by the programs,” he said. “This should have been discarded, but when the agenda was put together for the Cancun session, a cotton-based, stand alone initiative roughly based on what the west Africans were asking for, was included.

“At the same time this was being pushed, there was also an orchestrated campaign in the press from groups attacking the U.S. program and putting out lots of disinformation. Once the press found out that the west African initiative was in the Cancun agenda, other media outlets, such as the New York Times, picked up the ball and ran with it. From the Council’s perspective, we are deeply concerned that there was a concerted effort to single out cotton from the rest of agriculture.”

The Council countered the assault, making sure that the U.S. Congress and other agricultural interests “understood the full scope of the world fiber markets, and that it wasn’t the U.S. cotton program that played the largest role in the developments in the world fiber markets.

“We really found that many countries came to Cancun without the willingness to negotiate. At the end of the day, we’re all aware of what happened.

Talks could be restarted this year, according to Adams. “The chairman is talking about a possible meeting in Geneva in April, to bring ministers back together.

The Brazilian challenge of U.S. cotton programs filed in 2002 is “a kitchen sink approach,” he said. The Brazilians are complaining about crop insurance, the export credit guarantee program, the marketing loan, decoupled payments from both the current and last farm bill, and disaster payments.

“In a nutshell, they’re arguing that the U.S. program payments are not truly decoupled and do distort plantings, and that the presence of these programs has allowed the United States to gain an unfair market share and has subsequently depressed world prices which has harmed the Brazilian cotton industry.”

The challenge was spurred on by low cotton prices in 2002, according to Adams. “We’ve stressed that we’ve seen low prices and at the same time, we’ve seen prices recover substantially, while the U.S. program has essentially remained unchanged. This says that there are a lot of other factors that affect the world cotton markets.

“Three hearings have been held and the best information we have right now is that a decision is expected sometime in May or June.

While outsiders might see the Brazilian WTO complaint as “just a cotton case,” Adams said. “Some of their findings could apply to other commodities down the road.”

China/CAFTA

China’s accession into the WTO created a quota for annual imports of raw cotton of roughly 4 million bales. “Our biggest concern is that they have allocated a significant portion of that quota on the condition that the products produced from that cotton be turned around into the export markets,” Adams noted.

“We also have to be concerned about the surge of textile products from China, which is continuing to undermine and erode what has been U.S. cotton’s largest customer base, the U.S. textile industry. Within the WTO, there is the ability to apply safeguard mechanisms if the increase in imports is disruptive to the market. We are now about 10 months away from all quotas being eliminated, and we do expect the pressure from imports to cause further pressure on the domestic industry.”

According to Adams, one of the concerns the NCC has with the new Central America Free Trade Agreement are loopholes which allow third country participation. “Essentially Chinese products can move through Central America, then enter the United States quota-free.

“We are opposed to CAFTA in its current form, and we are going to work closely with the Administration to address and improve some of the textile provisions.”

e-mail: erobinson@primediabusiness.com