WTO Panel Finding Inconsistent with World Cotton Market
The WTO Compliance Panel decision in the Brazil–U.S. cotton case was made public on Dec. 18, and the NCC's initial response is that the ruling is unfortunate, does not adequately consider the changes in the U.S. cotton program that were made, and is inconsistent with both the current world cotton market situation and the U.S. cotton program’s current operation.
MEMPHIS - The World Trade Organization (WTO) Compliance Panel decision in the Brazil – U.S. cotton case was made public today. The National Cotton Council has not had the opportunity to review the opinion in great detail, but believes this ruling is unfortunate, does not adequately consider the changes in the U.S. cotton program that were made, and is inconsistent with both the current world cotton market situation and the U.S. cotton program’s current operation.
NCC Chairman John Pucheu, a Tranquillity, CA, producer, stated, “The U.S. has already taken significant actions to comply with the first WTO Panel ruling, including the elimination of a major component of the U.S. cotton program and a significant revision to the export credit guarantee program. We believe the Panel’s ruling failed to appropriately evaluate the full impact of the elimination of Step 2. More recent trends in the world cotton market demonstrate that the U.S. is not adversely affecting world prices. U.S. cotton acreage fell by 29 percent in 2007 and is expected to continue to decline in 2008. U.S. exports fell significantly in 2006 and have declined overall as a percent of world exports. It is not credible to assert that U.S. cotton is currently causing serious prejudice to anyone in the world cotton market.”
The NCC emphasized that while U.S. cotton acreage is the lowest since 1989, acreage is up in many major-producing countries around the world. Payments under the U.S. cotton marketing loan for 2006 are down more than 40 percent from 2004 and are expected to be zero in 2007. The international cotton market is strong, demand is exceeding production, world prices are up, and exports in countries such as India and Brazil are dramatically rising. Cotton production outside the U.S. mushroomed to 100 million bales in 2006 and is hovering near record levels for 2007. India is harvesting an all-time record crop and has dramatically increased their exports. In addition to the changes already undertaken by the United States, the farm bills passed by the House of Representatives and the Senate both contain reductions in the U.S. cotton program.
“We hope that the U.S. Trade Representative will promptly appeal this ruling as it seems unsupportable to the U.S. cotton industry,” Pucheu stated. “Current U.S. production and export levels, as well as U.S. spending levels, all seem directly contrary to a finding of current serious prejudice against the U.S. cotton program.”
Highlights of certain aspects of the Panel Report (as noted by the NCC):
- The Panel failed to appropriately consider the shrinking international impact of U.S. cotton. Almost 85 percent of world cotton production is outside the United States and more than 95 percent of the world’s textile mill use is outside the United States. The WTO Panel nevertheless concludes that U.S. cotton exports are having significant price impacts, despite declining acreage, declining levels of support, declining U.S. mill use, declining U.S. exports, and increasing production and exports from other major cotton producers. The U.S. share of the world market of cotton fiber was virtually unchanged for more than 30 years, but is now in decline – a trend that contradicts a finding that U.S. cotton is causing international price suppression.
- The Panel effectively ignored U.S. actions taken to comply. The original panel insisted on the elimination of the cotton Step 2 program because, among other reasons, that program contributed to price suppression in the world cotton market. The Compliance Panel, however, in response to the elimination of the Step 2 program, held that “elimination of this subsidy does not affect the price suppressing effects” of the remaining parts of the U.S. cotton program – essentially contradicting the first Panel’s findings on the impact of this program. It made this finding in the face of evidence showing declining U.S. cotton exports.
- The Panel criticized economic analysis presented by Brazil. Brazil and several non-governmental organizations repeatedly cite economic analysis prepared by Brazil’s paid economist as independent confirmation that the U.S. cotton program has had international price impacts. The NCC notes this Panel, like previous Panels, has questioned Brazil’s biased economic work, agreeing with the United States that the Brazil model had no foundation in economic circles and still needed “to earn the confidence of the Panel.”
- The Panel shirked its responsibilities. Despite the fact that the Panel was supposed to determine whether the U.S. cotton program had a “significant” price suppressing effect on the world market, this Panel, like all previous panels, declined to make any finding as to the magnitude of the alleged U.S. program impacts even stating that it “was not in a position to judge the exact magnitude by which world prices would rise” should the U.S. cotton program be eliminated. The credible economic analysis that was before the Panel generally found international price impacts between two and three percent. This hardly rises to the level of “significant price suppression.” It is not a responsible conclusion to find that any possible impact of U.S. agricultural programs must be a “significant” impact.
Market trends subsequent to the Panel’s reference period also undermine a finding of serious prejudice:
- Brazil just recently completed harvesting a cotton crop that is 49 percent above last year’s production and actually sold government cotton stocks during 2007 in an attempt to depress cotton prices.
- U.S. 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 five cents per pound cheaper than comparable U.S. growths.