Due to the confidential nature of the interim Panel ruling, the National Cotton Council has not seen the reported WTO decision. Initial press reports indicate that the Panel largely sided with Brazil. If the Panel ruled for Brazil on its serious prejudice claims, though, we believe that it would be contrary to the facts in the world cotton market.
U.S. actions already taken to comply with the first WTO Panel ruling have had a significant impact on U.S. cotton and U.S. cotton producers. Since the U.S. eliminated cotton's Step 2 program, U.S. cotton acreage is down 28% for 2007, U.S. exports have declined significantly and U.S. production is predicted to be only around 17 million bales in 2007, the lowest since 2002. It cannot be credibly argued that any payments under domestic support programs are causing any country serious prejudice in 2007 - the first year of their operation without the Step 2 program.
It is incomprehensible that a WTO panel could make a finding of serious prejudice against the U.S. when the international cotton market is strong, offtake will exceed production, world prices are up and acreage is up almost everywhere in the world except the U.S. cotton production outside the U.S. mushroomed and is estimated to be a record high of 97.1 million bales. India is expected to harvest an all-time record crop and has supplanted the U.S. as the world's largest exporter to China; world prices are up; and payments under the marketing loan program have decreased to zero. In the face of these facts, the U.S. cotton industry is left to puzzle the basis of such a decision.
In addition to these changes, the farm bill passed by the House of Representatives contains a significant reduction in counter-cyclical program payments applied to cotton base acres.
We would also be surprised by any finding in favor of Brazil when Brazil is currently harvesting a cotton crop that is 38% above last year's production and actually sold government cotton stocks during 2007 in an attempt to depress cotton prices.
Earlier this year, while Brazil was asserting before the WTO panel that U.S. support payments were causing serious prejudice to its cotton growers, the Brazilian government was selling its government-owned stocks of cotton in order to lower domestic Brazilian cotton prices. Far from being concerned about prices being too low, the Brazilian government was concerned about prices being too high.
We believe there are other facts that also make any finding against the U.S. unsupportable:
- 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 5 cents per pound cheaper than comparable U.S. growths.
- Several international organizations have concluded that the variable levy system implemented by China on imported cotton amounts to a multi-billion dollar support system for the production of cotton in China.
- Brazil has often intervened in its domestic market in order to increase the price of cotton for its producers.
The National Cotton Council of America represents all seven segments of the U.S. cotton industry and serves as the central forum for consensus-building among those segments. Its mission is to ensure the ability of the U.S. cotton industry to compete effectively and profitably in the raw cotton, oilseed and U.S.-manufactured product markets at home and abroad. The Council is the unifying force in working with the government to ensure that cotton's interests are considered.