That alphabet soup of trade talks and initiatives — WTO, CAFTA, FTAA, AGOA III and others — will continue to be a focal point of the U.S. cotton industry in the foreseeable future, says Mark Lange, president of the National Cotton Council.
Lange discussed the political and economic issues pressuring U.S. cotton during this winter's Georgia Cotton Workshop, held in Statesboro.
The National Cotton Council, says Lange, will evaluate trade agreements as to their capacity to serve the interest of the entire U.S. cotton industry.
“We work to insure that both the Administration and Congress understand the issues affecting cotton and endeavor to influence the specific form of proposed agreements to reflect the U.S. cotton industry's concerns,” he says.
The National Cotton Council's trade agenda is full, he adds, and trade policy now stands virtually shoulder to shoulder with farm policy in determining the ultimate success of the U.S. cotton industry.
Members of the World Trade Organization (WTO), says Lange, continue to seek further reductions in trade-distorting practices affecting agriculture.
“This round of talks, known as the Doha Round, is an attempt to reach further agreements to expand world trade, as calendar 2005 essentially marks the completion of the Uruguay Round commitments that were initiated in 1994.
“The Bush Administration has crafted a Central American Free Trade Agreement, known as CAFTA, and details of the proposal are still unfolding.
We should expect full disclosure of the proposed CAFTA agreement in the next several weeks.
“The Office of the U.S. Trade Representative (USTR) is working on a Free Trade Agreement of the Americas (FTAA), to link to the entire Western Hemisphere in an economic fashion similar to the U.S.-Mexican-Canadian arrangement known as NAFTA,” says Lange.
U.S. Trade Ambassador Robert Zoellick has announced numerous bilateral trade initiatives with countries across the globe, he continues. These free trade agreements (FTAs) have been initiated for a variety of reasons.
“In some of these negotiations, agriculture and textile issues are quite limited by the very nature of the economy of the participating country,” says Lange. “While in other cases, a free trade agreement is considerably more complicated.”
Part of the conclusion of the Uruguay Round of world trade negotiations was an agreement to eventually initiate another round of negotiations in an effort to further expand world trade opportunities, says Lange. This latest round of talks is known as the Doha Round.
A scheduled meeting of trade ministers to the WTO was held in Cancun, Mexico, this past September as a sort of mid-term review of the negotiations. The meeting, however, concluded with no progress and generally was known as the “Cancun Collapse.”
The Cancun meeting, says Lange, saw Brazil, India and China attempt to exert leadership of the “less-developed countries” to oppose initiatives of the developed countries.
Specifically, a group of 21 developing countries called for no further increases in access to their domestic markets or other significant changes in their domestic practices while calling for developed economies to completely eliminate quotas and tariffs and to dramatically reduce their domestic agricultural programs.
“Ever since the United States first proposed an end to all agricultural subsidization way back in 1987, the European Union and the United States each have attempted to leverage developing countries against the other's agenda. That attempt to use the developing countries as leverage leads to a lot of behind the scenes maneuvering and tends to give developing countries a distorted image of their influence within the WTO.”
The African cotton initiative is a case in point, says Lange. In mid-summer, four West African countries floated a proposal within the WTO seeking the immediate elimination of the U.S. and E.U. cotton programs and seeking compensatory payments totaling about $1 billion.
Undoubtedly, he says, the African initiative was encouraged by European interests, primarily as a way to pressure the United States. The initiative itself was primarily the work of Oxfam, an international aid organization that receives heavy funding from some European governments.
“Oxfam waged an effective campaign of misinformation attacking the U.S. cotton program - based primarily on analysis from a critically flawed report issued by the International Cotton Advisory Committee in 2002.
“The United States, not wishing to unduly offend developing countries, did not initially condemn the African proposal. The result was a ‘cotton initiative’ in General Council Chairman Castillo's agenda that, if acted upon, would have singled out the U.S. cotton program for elimination - separate from the general agricultural talks being held within the WTO.
Other press outlets picked up the football, with the New York Times making the U.S. cotton program a favorite target of its editorial pages.”
In Cancun, says Lange, the United States countered the cotton-specific initiative with a broader proposal to examine all trade distorting aspects of fiber production and trade as well as production and trade in textiles and apparel.
“As the Cancun experience demonstrates, every segment of the U.S. cotton industry can be directly affected by discussions within the World Trade Organization. While the Cancun talks failed to realize progress, and our industry breathed a collective sigh of temporary relief, the chairman of the WTO is hard at work trying restart trade talks with a new agenda.
“Fortunately, the ‘cotton initiative’ is no longer part of the new agenda.
Neither is the U.S. counter proposal for comprehensive talks on fiber and textile production and trade.”
There were other reasons for the difficulties in Cancun, says Lange, but cotton had an undeserved, stand-out role there. “This industry has repeatedly taken the position that it is willing to agree to fair rules governing agricultural program and will join other commodities and other countries in agreeing to reductions in agricultural support. But we will not stand by while we are unilaterally and unfairly targeted.”
The Central American Free Trade Agreement, notes Lange, is nearing the final stages of formation. The details of the proposed agreement should be available in the very near future.
“This agreement was hailed as possessing the potential to offset the damage to the U.S. textile sector from soaring Asian and Chinese textile and apparel imports. The rules of origin governing which products are granted preferential treatment in trade are critical to insuring there are gains from the agreement.”
The agricultural portion of the agreement was largely uncontroversial for cotton, he says, but U.S. sugar sought exclusion from the agreement.
Negotiators have reported that virtually all tariffs disappear within 15 years for agricultural products (which includes cotton coming to the United States) with some products enjoying immediate duty-fee access.
Another facet of the rule of origin debate was whether textile products originating in Mexico and then further processed in Central America would receive duty-free access to the U.S. market, notes Lange. This new wrinkle in rules-of-origin has been called “cumulation.”
“If Canada concludes trade agreements with the Central Americans, then the cumulation would extend to Canadian textile products as well. The Council, working with 16 textile organizations, got 169 members of Congress to sign a letter to President Bush urging the President to bring a CAFTA agreement to Congress that would not include TPLs or cumulation.”
According to press reports, the proposed CAFTA agreement has some TPLs and provides for some cumulation. The American Textile Manufacturers' Institute (ATMI) has announced its opposition to the proposed agreement due to the inclusion of the TPLs and cumulation. “The Council is preparing an analysis of the proposed agreement, as currently understood, with respect to U.S.
textile interests and the raw cotton segments. This analysis will be shared with the membership and Council delegates will likely seek to establish a position on CAFTA at the upcoming annual meeting.”
There has been considerable discussion, says Lange, of a free trade agreement that would encompass the entire Western Hemisphere. The idea is to extend a NAFTA-type agreement from Canada to Argentina.
“This is obviously a far more complex integration of trading economies than NAFTA. For cotton in particular, the nature of any trade agreement with Brazil must be carefully considered. Brazil has a large and diverse textile industry, and Brazil's capacity to increase agricultural production appears to be substantial.”
Again, says Lange, a leading principle in considering any trade package would be avoiding third-party participation by constructing appropriate rules of origin for trade in textile and apparel products. “Given the much wider scope of such an agreement, the Council engaged the firm of Jassin and O'Rourke, with the support of the Committee for Cotton Research Incorporated, to study the current structure and potential expansion of the regional textile complex. That study should be released in the very near future.”
U.S. Trade Ambassador Robert Zoellick has announced a large number of new bilateral trade initiatives in the past year while concluding several FTA's, says Lange.
“It has been noted that the U.S. use of 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.”
Brazil has alleged, says Lange, that the U.S. cotton program has violated the WTO peace clause and done “serious prejudice” to Brazilian cotton interests. Brazil also charges that the Step 2 competitiveness provision and the export credit guarantee program violate the export subsidy code of the WTO agricultural agreement. “The time period used by Brazil to define subsidies and damage is 1999 to 2001. This challenge is being heard by a WTO dispute settlement panel of three trade experts. The General Counsel of the USTR is the legal representative of the United States in this case. The WTO panel has stated its intention to release a preliminary finding in the case in May 2004.
“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 Council will continue to work with USDA and USTR to insure that every effort is made to defend the U.S. cotton program in the WTO arena.”