By Dr. Mark Lange
New trade agreements will remain high priorities of the Bush Administration in the foreseeable future, ensuring that trade continues as a National Cotton Council (NCC) focal point.
The NCC will evaluate trade agreements as to their capacity to serve the entire U.S. cotton industry and will work closely with the administration, Congress and our textile/fiber allies to ensure that new agreements reflect the industry's priorities.
The Doha Round of world trade negotiations hit a roadblock in the Cancun meetings, in part because U.S. officials appropriately refused to separate cotton from general agricultural discussions.
NCC has argued that the U.S. cotton program's effect on world cotton prices is very small compared with a host of other factors, including a weak global economy, enormous overcapacity and aggressive pricing of manmade fibers, currency manipulations, state-owned banks loaning money to state-owned textile and fiber plants and not requiring repayment of loans, a reversal of China policy from raw cotton stock-building to rapid divestiture of stocks, to name just a few.
The WTO chairman is now trying to restart trade talks with a new agenda and U.S. Trade Ambassador Robert Zoellick has joined in the effort by sending a letter to trade ministers of member countries outlining what the United States believes is necessary to make progress during 2004. With respect to agriculture, he stressed that the discussions should focus on export competition, domestic support and market access. The letter also opened the door for exemptions for special products for certain developing countries. The letter specifically references cotton, stating that the U.S. supports cuts in trade-distorting domestic support for agricultural products, including cotton, the elimination of export subsidies for all agricultural products, including cotton, and substantial improvements in market access, for cotton and all other agricultural goods.
The letter also indicates possible support for sectoral negotiations in agriculture, without specifically identifying those negotiations. With respect to market access for industrial products, including textiles, the letter called for "an ambitious formula for cutting tariffs on manufactured goods" and stated the United States "continues to favor the total elimination of tariffs for goods ... perhaps as a second-stage goal ..."
The NCC will continue discussions with administration officials to ensure that negotiations concerning the U.S. cotton program will be conducted within the context of the overall agricultural negotiations and to reiterate NCC's concerns about eliminating U.S. textile tariffs.
A Central American Free Trade Agreement (CAFTA) has reached among four of the five Central American countries - Honduras, Guatemala, Nicaragua and El Salvador - with which negotiations have been ongoing since January 2003. Negotiations with the fifth country, Costa Rica, were expected to have been completed last month.
Because we have not yet seen the agreement's text, we cannot fully evaluate its impact on the U.S. cotton industry. The absence of an agreement with Costa Rica also complicates our ability to fully understand how the agreement may affect us, as does the administration's intent to fold the Dominican Republic into the agreement under terms still unknown.
The U.S. cotton industry's biggest opportunities, as well as risks, relate to textile provisions of the agreement. The textile provisions reportedly include a number of avenues for third country participation, including cumulation, TPLs, a fabric forward rule of origin for certain products and allowances for "single transformation" for a number of others.
We have stated our strong opposition to all forms of third country participation. While most of the attention has been focused on cumulation and TPLs, the single transformation rule would place no sourcing restrictions on either yarns or fabrics used in the applicable end products in order for them to qualify for duty free treatment.
The liberal CAFTA provisions for third-country participation are especially troubling in view of the efforts that were made to develop, for the first time ever, an innovative short-supply procedure that could provide access to third-country fabrics and yarns that are not made by U.S. and regional manufacturers.
In an effort to provide sourcing flexibility where needed while preserving benefits for CAFTA signatory countries, our textile leaders worked in cooperation with Central American apparel manufacturers to fashion an order-based short supply procedure. The intent was to foster the use of U.S. and regional products by implementing a procedure that allows products to be placed on a short-supply list and removed from it on a timely basis and in a way consistent with normal business practices.
Most of the short supply provisions developed by the U.S. textile and Central American apparel leaders are thought to have been written into the agreement.
On the positive side, the agreement includes a fiber-forward rule of origin for trade in yarns and knit fabrics, as did the NAFTA agreement.
We will undertake a thorough analysis of the provisions of the agreement once they are known, and we will, as always, make a decision about whether to support or oppose it based on a thoughtful assessment of the probable effects of the agreement on the U.S. cotton industry's seven segments.
We have expressed our support for implementation of a good CAFTA. As this article is being written, the NCC's delegates are preparing to convene and will have an opportunity to provide policy direction on the CAFTA agreement.
There has been considerable discussion of a free trade agreement that would encompass the entire Western Hemisphere. Indeed, discussions already are under way to extend a NAFTA-type agreement from Canada to Argentina.
For cotton in particular, the nature of any trade agreement with Brazil must be carefully considered. NCC has just completed a thorough analysis of the potential advantages and disadvantages of a FTAA and its findings will be reviewed with industry policymakers during the 2004 NCC annual meeting.
The study will provide highly useful insight into provisions that can be helpful and those that are likely to be harmful. We expect it to be used to guide the industry in working with the administration to fashion an agreement and then to determine whether the industry should support or oppose the agreement that is sent to Congress for action.
Ambassador (Robert) Zoellick has announced a large number of new bilateral trade initiatives in the past year while concluding several FTAs. These bilaterals may well be part of larger strategy to influence the WTO Doha Round of talks. If the Doha Round is not reconvened, then we should expect an expanded effort on the part of the USTR to engage more countries in bilateral negotiations.
There are several bilateral and regional agreements in the Western Hemisphere and elsewhere. Agreements have recently been completed with Singapore and Chile and discussions are under way or planned with Morocco, Australia and the Southern African Customs Union.
There have been informal discussions about initiating agreements with Egypt, New Zealand and Bahrain.
Also, this past June, Ambassador Zoellick went to the Middle East to begin discussions concerning a free trade agreement with that region. In this hemisphere, separate FTA negotiations already are under way with the four Andean countries of Columbia, Peru, Ecuador and Bolivia and these agreements are expected to be integrated into the larger FTAA.
A dispute panel intends to release a preliminary finding in May on Brazil's complaints about the U.S. cotton program under the WTO. Brazil's basic approach has been to aggregate all U.S. cotton program benefits and allege that the total of the payments must have caused added production and therefore lower prices. Those lower world prices, it is alleged, have harmed Brazil.
Further, Brazil claims that the U.S. holds a disproportionate share of the world raw cotton market and our subsidies must remain high because the U.S. is a high-cost cotton producer. The "kitchen sink" approach taken by the Brazilians has made this highly complicated case more complex than any could have expected. This case could well define the parameters of a dispute for the next commodity contested under WTO rules. It also could influence significantly the future of WTO agricultural negotiations.
I believe this challenge ultimately extends beyond the U.S. cotton program and is a fundamental threat to the conduct of U.S. domestic agricultural policy. The NCC will continue to work with USDA and USTR to ensure that every effort is made to defend the U.S. cotton program in the WTO arena.
Trade policy now stands virtually shoulder to shoulder with farm policy in determining U.S. cotton's ultimate success.
I believe the NCC's policy development process has served the industry well, and I look forward to another year of challenges with the knowledge that the commitment of industry leadership is unsurpassed and that USDA and USTR have a full appreciation of the NCC's contributions to trade policy development and implementation.
Throughout 2004, the NCC not only will renew the fight of addressing challenges to the farm bill and other vital programs crucial to U.S. cotton's economic health but work for expanded market opportunities through equitable trade agreements and policies worldwide.
Dr. Mark Lange is president and chief executive officer of the National Cotton Council of America.
