It was probably not the message the American Cotton Producers wanted to hear, but National Cotton Council President and CEO Mark Lange said he believes the WTO’s Doha Development Round negotiations will start back up this fall.
Many growers breathed a sigh of relief when WTO Director-General Pascal Lamy announced in late July he was suspending the talks because of the lack of any progress by the G-6 countries – Australia, Brazil, the European Union, India, Japan and the United States – in reaching a new agreement.
Deep down inside, however, most farmers figured any reprieve would be temporary and that negotiators would soon be back at WTO headquarters in Geneva discussing ways to accomplish what many believe is an attempt to dismantle U.S. farm programs and, specifically, the U.S. cotton program.
Speaking at the joint summer meeting of the ACP and The Cotton Foundation in San Antonio, Texas, Lange said the impact of those efforts by the so-called G-20 nations led by India and Brazil could be even more draconian than previous reports have suggested.
The problem lies, he says, in the product-specific spending caps the G-20 developing countries, the European Union and other WTO members have been seeking for U.S. farm programs since WTO members approved a framework agreement for the Doha Round in 2004.
“The G-20 countries and the European Union proposed using a 1995-2000 average for the support measures for those products during that period,” he said. “The United States has been proposing 1999-2001. As we have seen, there aren’t many people supporting the U.S. time period, but there are a lot of people lining up behind the other.
“And it’s very clear that the 1995-2000 time period results in lower caps for all U.S. commodities, but significantly lower caps for cotton and soybeans. ($2.07 billion for the 1999-01 average versus $806 million for the 1995-2000 average for cotton and $3.36 billion vs. $1.3 billion for soybeans.)”
Another element of the spending caps that concerns Lange is the amount of support calculated for the dairy and sugar programs in the so-called aggregate measures of support or amber box category of farm programs.
Last October, the Bush administration proposed a 60-percent reduction in AMS or amber box support and a 53-percent reduction in Total Direct Domestic Support to try to help get the Doha Round over another hurdle that threatened to deadlock the negotiations.
The proposal would reduce the current amber box ceiling on those aggregate measures of support – marketing loan gains, dairy, sugar, loan forfeitures and interest subsidies – from $19.1 billion to $7.64 billion. Total TDDS would drop from $47.74 billion to $21.96 billion.
“Dairy and sugar annually don’t cost a lot of money, but they do run programs that, under the WTO rules, have to be estimated as to the producer subsidy equivalents that are generated by the nature of the programs,” said Lange. “For dairy, that will commonly run in excess of $4.5 billion and for sugar in excess of $1 billion.
“They are measures of support although they do not involve direct spending by the government, and they have to be part of the $19.1 billion amber box ceiling.
Lange noted the proposed amber box ceiling of $7.64 billion is a very real constraint, saying “we estimate that with the exception of 2003, every year since 1997 the United States would have exceeded the new proposed ceiling. All commodity programs will be impacted by the lower cap.”
He said members of the audience of leaders of the state cotton producer organizations and the allied industry members who belong to The Cotton Foundation have probably heard the calls for the U.S. government to offer to make further cuts in its farm programs to appease other members of the WTO.
Agriculture groups, including the National Cotton Council and other members of the “Gang of 11” farm groups, have repeatedly told the U.S. Trade Representative, Susan Schwab, that they will not support any more reductions in U.S. domestic subsidies.
The U.S. Trade Representative has held firm to the U.S. position during the agricultural negotiations. The significant market access gains sought in the U.S. agricultural proposal are necessary in order to offset the type of reductions in domestic support outlined by Lange. This points to the market access debate as the focal point in any renewed negotiations.
If the expected resumption of talks produces a new Doha agreement, U.S. farmers could feel it in their pocketbooks, especially if the new agreement includes the lower product-specific spending caps being pushed by the G-20 and the European Union.
A 61 percent reduction in the cotton cap from $2.07 billion to $806 million could reduce the allowed marketing loan gain down to 6.6 cents per pound, compared to the recent average of 9 cents per pound, according to NCC estimates. That assumes an average U.S. crop of 20 million bales or 10 billion pounds,
“We believe that the current proposals could require that CCC loan rates for all crops would have to be reduced by 10 percent to 12 percent,” he said. “For cotton, that would be the loan rate would move from 52 cents to 47 cents. That assumes the amber box contribution of dairy and sugar fall to $2.3 billion to $2.4 billion. Otherwise, loan rates would have to fall even more.”
Target prices for all commodities would probably fall by 7 percent to 10 percent, or, for cotton, from 72.4 cents per pound down to 65-67 cents per pound. (Previous Council estimates had put the potential target price reduction at 4 percent to 6 percent.)
“All of this hinges on the WTO negotiators reaching an agreement this fall or in 2007,” says Lange. “If there is no Doha agreement, then these don’t matter.”