March 9, 2005
Source:
BRIDGES Weekly
Trade News Digest - Vol. 9, Number 8
The WTO Appellate Body has
upheld all major findings of an earlier WTO panel that ruled
that US cotton subsidies were in violation of WTO rules on
agriculture and subsidies (see BRIDGES Weekly, 15 September
2004,
http://www.ictsd.org/weekly/04-09-15/story1.htm).
In its 3 March report, the Appellate Body confirmed that certain
US payments to farmers, such as 'product flexibility contracts'
(PFC) and 'direct payments' (DP) amounted to trade-distorting
domestic support. Furthermore, it said that since they were
related to the type of production undertaken, they could
therefore not be categorised as permissible 'decoupled
payments.'
The Appellate Body further agreed with the panel that the
'export credit guarantees' and 'step 2 marketing payments'
offered to US cotton producers were prohibited export subsidies.
The 'step 2' programme pays US cotton producers the difference
between the domestic cotton price and the world market price to
ensure that their cotton can be sold profitably in foreign
markets.
Moreover, the Appellate Body upheld the panel's finding that the
US export and domestic subsidies challenged by Brazil did not
qualify for exemption from WTO challenges under the so- called
'peace clause' under which countries had agreed to refrain from
challenging each other's agricultural subsidies. The US had
appealed virtually all of the panel's findings including the
crucial ones described above.
Brazil, Africa, civil society groups urge US to comply
immediately
Responding to the ruling, US Trade Representative spokesman
Richard Mills said the US would "study the report carefully and
work closely with Congress and our farm community on our next
steps." Mr. Mills also reiterated the US' longstanding position
that the Bush administration was considering all options, and
that negotiation, not litigation, was the most effective way to
address the issue of subsidies in the WTO. Following the release
of the panel report in September 2004, Brazilian officials had
noted that neither the cotton case nor Brazil's challenge
against the EC sugar regime had been initiated with the aim of
impacting the WTO negotiations. However, Brazilian WTO
Ambassador Luiz Felipe de Seixas Correa was reported to have
commented that without these cases, the EC and US "would never
change their policies'' (see BRIDGES Weekly, 15 September 2004,
referred to above).
In a 6 March statement, West African cotton producing countries
Benin, Burkina Faso, Chad and Mali welcomed the ruling and urged
the US to implement the decision in time for the WTO's Hong Kong
Ministerial Conference in December 2005. Speaking to the press,
Samuel Amehou, Benin's ambassador to the WTO, pointed out that
the ruling "confirms that these subsidies are not fair and must
be phased out in a very, very short time." The four countries
reiterated their position that the ruling "confirmed the
validity" of their repeated calls for the total elimination of
cotton subsidies within the context of the Doha Round
negotiations. On this point, Amehou emphasised that "two years
after the submission of our sectoral initiative on cotton, it is
now time to move from the stage of declarations and
clarifications and finally move to concrete actions."
International charity Oxfam, which has repeatedly called for the
US to abolish its subsidies because of their injurious effects
on poor farmers in Africa, has expressed concern over statements
by US government officials that say that no reforms may be
needed to comply with the cotton ruling. Gawain Kripke,
spokesperson for Oxfam's 'Make Trade Fair' campaign in
Washington cautioned that "if the US stalls reform, it will cost
poor Africans farmers the chance to trade their way out of
poverty and perpetuate an unfair system of rules rigged for the
rich." Oxfam also expressed concern that failure by the US to
implement this decision could stall the WTO Doha Round
agriculture negotiations. Within the WTO agriculture talks, a
special sub-committee has been established to deal with the
issue of cotton (see BRIDGES Weekly, 23 February 2005,
http://www.ictsd.org/weekly/05-02-23/story3.htm)
The WTO panel had ordered the US to immediately withdraw the
subsidies it had found to be prohibited export subsidises --
i.e., export credit guarantees and 'step 2' marketing payments
-- at the latest within six months of the date of adoption of
the panel report or by 1 July 2005. Under WTO rules, the cotton
ruling must formally be adopted by the WTO's Dispute Settlement
Body (DSB) by the beginning of April. The US will subsequently
have 30 days to announce its intentions to comply with the
ruling, although it need not reveal the timeframe for doing so.
The implementation deadline will be fixed through negotiations
between Brazil and the US or, failing that, through WTO
arbitration. The arbitration proceedings must normally be
completed within 90 days of the DSB's adoption of the ruling.
College STation, Texas
March 11, 2005
Source:
Texas A&M University
Economists: WTO Ruling Will Lead to
Changes In U.S. Cotton Program
Changes to the U.S. cotton program
could come as soon as July 1 after the World Trade Organization
appeals panel upheld its ruling that subsidies create unfair
trade.
Dr. Parr Rosson, Texas Cooperative Extension economist and
director of the Center for North American Studies, said the
recent decision raises "an even bigger question" about some
provisions of the next Farm Bill.
."It leads us to ask, ‘Who is going to make farm policy in the
United States?'" he said. "It's a sovereignty question. That's
one question Congress is going to have to wrestle with."
Last year, the WTO agreed with Brazil's claim that U.S. price
supports for cotton led to lower world prices. The complaint
suggested the price support system created "serious prejudice"
to Brazilian farmers by depressing/suppressing world cotton
prices.
The WTO appeals panel upheld most of the rulings of the earlier
dispute settlement panel.
Rosson said changes could be made to the current Step 2 payment
system and export credit guarantees as soon as this summer.
The Step 2 provision is one of three cotton competitiveness
provisions intended to keep U.S. cotton competitive in domestic
and export markets. Step 2 calls for subsidies paid to U.S.
cotton users and exporters, which promotes the marketing of U.S.
cotton rather than foreign fiber.
The anticipated changes to the current cotton program will
likely raise producer questions on how to best market cotton if
prices become volatile.
Dr. John Robinson, Extension cotton marketing economist, said
prices could "swing either way" depending on 2005 cotton
production in the United States and China.
"Now more than ever, cotton growers should develop a marketing
plan that provides some downside price protection while allowing
for upside potential," he said.
Robinson suggested some conventional strategies:
-
Purchasing put options on December 2005 futures, preferably
for less than 3 cents per pound. The best time to do this is
in the March to May time frame, Robinson said.
-
Forward
contracting and purchasing call options (March-May time
frame)
-
Selling
in the cash market in the fall and purchasing July 2005 call
options.
Looking ahead, Rosson said other
U.S. support programs such as soybeans could also be challenged.
"Brazil has successfully challenged the cotton program," he said
"And it remains to be seen if other countries, or Brazil, will
challenge other U.S. farm programs." |