International Trade Policy NCC 2010 Annual Meeting Memphis, TN 1 - - PowerPoint PPT Presentation

International Trade Policy

NCC 2010 Annual Meeting Memphis, TN

1

Good Morning. We prepared a relatively short trade policy report and passed it out this morning. My report today will concentrate on a few issue areas that were prominent during 2009. The Economic Services division of the National Cotton Council helped with the development of this report.

1

Overview

• Arbitration decision announced in Brazil

case

• WTO December Meeting doesn’t create new

movement in Doha Round

• Haiti earthquake will lead to more Haiti

trade preference legislation

• Sluggish economy slowed surge of Chinese

apparel products into US even though safeguards were lifted

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Among the highlights we will be discussing this morning are -- The Arbitration decision in the Brazil WTO case The status of the Doha negotiations; and The call for new legislation providing economic assistance to Haiti

2

Brazil WTO Case

• Retaliation is WTO enforcement

mechanism

• Usually additional duties on imports from

the offending country

• Brazil claimed --
• $1.4 billion retaliation for cotton aspect of

case

• $1.3 billion retaliation for GSM

3

There is a brief background on the Brazil case in the handout. The final step in a WTO proceeding is enforcement. Because the WTO cannot impose its will

• n a sovereign country, the victor in a WTO dispute is authorized to retaliate by putting

extra duties on imports from the ofgending country or taking other, similar economic steps. Brazil claimed it should be authorized to impose $2.7 billion in retaliation against the U.S. - $1.4 billion for cotton and $1.3 billion for the export credit guarantee program. The US disagreed with this calculation and the parties went to Arbitration. The decision was finally reached at the end of August.

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Brazil Arbitration Award

750 1500 2250 3000

Brazil Claim

GSM

Cotton

Brazil C azil Claim GSM $1.3 Billion Cotton $1.4 Billion Total $2.7 Billion

$2.7 Billion

4

I would like to step through the arbitration decision. Brazil claimed a total of $2.7 billion in retaliation authority - as indicated in the slide. This is as good a place as any to remind you that this case has two parts - 1) US cotton policy and 2) the export credit guarantee program which provides credit guarantees on a wide variety of US exports. The latest WTO Compliance Panel held that the export credit guarantee program (or GSM) was a prohibited export subsidy. It also held that the US cotton program caused serious prejudice to Brazil by suppressing world cotton prices to a significant degree -- but the Panel never specified exactly to what degree the US cotton program was suppressing world prices.

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Brazil Arbitration Award

750 1500 2250 3000

Brazil Claim Award 2006

GSM

Cotton

Brazil C azil Claim GSM $1.3 Billion Cotton $1.4 Billion Total $2.7 Billion Award 2 ard 2006 GSM Formula Cotton $147 Million Total $294 Million

$2.7 Billion

5

Brazil’s arbitration award was considerably less than it claimed. For cotton, the Panel gave Brazil about 10% of what it asked for and awarded $147 million in annual retaliation authority. For the GSM or export credit guarantee program, the Panel established a formula to be used to annually calculate the retaliation amount. For 2006, this calculation was $147 million also.

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Brazil Arbitration Award

200 400 600 800

Award 2006 Award 2010

GSM

Cotton

Award Award 2010 GSM $650 Million Cotton $147 Million Total $800 Million

GSM

Cotton

If total retaliation exceeds $400 million, cross- retaliation also authorized

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However, in later years, the US had higher allocations of GSM export credit guarantees with a higher use by Brazilian banks. These two factors will cause the calculation to

• increase. The latest calculation, using the 2008 program, would authorize $650

million of retaliation for 2010 just for the GSM program. Cotton remains frozen at $147 million. Importantly, the Arbitration Panel also authorized Brazil to institute cross-retaliation if the total retaliation amount exceeds about $400 million. (The Panel also established a formula to be used to calculate this trigger amount. While the trigger will move, we do not expect it to move dramatically within the next few years.)

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Arbitration Decision

• GSM award formula based - considers

size of program and other factors

• For 2006 - $147 million
• For 2010 - $650 million
• Cross Retaliation conditionally

authorized

• Total retaliation authority must exceed

$400 million +/-

7

In Cross-Retaliation, Brazil can abrogate intellectual property rights of US companies doing business in Brazil. If the 2010 GSM calculation of $650 million holds, then the retaliation authority for Brazil for 2010 will exceed the trigger for cross-retaliation. The WTO Dispute Settlement Body has determined that the GSM program is a prohibited export

• subsidy. Under WTO rules governing the calculation of authorized retaliation, a member is

granted more flexibility with respect to a finding of a prohibited export subsidy than they are with respect to a rules violation that is based on a finding of a certain injury. In the injury case (like the serious prejudice aspect of this case) the retaliation amount must be more closely linked to an actual economic injury. There is no need to find injury in the case of a prohibited export subsidy. The program itself is the injury.

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Brazil Arbitration Award

400 800 1200 1600 2000 2400 2800 3200

Brazil Claim 2006 2009

$1.3 billion

GSM

Cotton

$1.4 billion

GSM = $650 million GSM = $147 million

8

Putting all of this together, First, Brazil’s award was much less than it claimed; Second, the formula for GSM adopted by the Panel causes a rather small level of retaliation for 2006 to grow to over $650 million in 2009, triggering cross-retaliation and additional pressures on the cotton program and on the GSM program. Third, there are several steps USDA can take to take the GSM number lower, but it will be hard to get the combined GSM and cotton numbers under $400 million.

8

Brazil Case 2010

• 222 articles on Brazil product list
• Cross-retaliation plan not yet

established

• Threatens industries with no link to cotton
• Significant nervousness among

manufacturers

• NCC supports new WTO proceeding

9

In late November, Brazil published a list of 222 items being considered for additional duties under its retaliation authority. Brazil has not formally indicated how it would implement any cross-retaliation. Because of the diffjcult situation the formula approach to GSM creates, the NCC has asked the US Government to call for a new compliance panel. Under Secretary Miller and others at USTR have been somewhat pessimistic regarding this request. But I believe the numbers support the US in a new proceeding - both on cotton and on GSM.

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7,500 15,000 22,500 30,000 2005 2006 2007 2008 2009

US Cotton Production

WTO Ruling Should Be Reviewed

10

While the U.S. cotton program continues to exist in a slightly modified form, the impact of U.S. cotton subsidies on the world market does not currently exist. Subsidies, either introduced or increased in China, India and Brazil, are exerting greater influences on world cotton prices today. Unfortunately, US cotton producers know these numbers all too well.

• There has been a 45% decline in US cotton production since 2005
• There has been an 8 percentage point decrease in world market share attributable to the US since 2005
• The United States is one of the very few major cotton producing countries that has decreased cotton

production (compared with 2005) in the face of weak world cotton prices

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U.S. Upland Cotton Plantings

3,750 7,500 11,250 15,000 2004 2005 2006 2007 2008 2009*

Source: USDA *2009 estimate USDA June Planting Intentions

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US upland plantings are down since 2005, amounting to a 40% decline in US cotton acreage eligible for the cotton marketing loan program.

11

(15,000) (7,500) 7,500 15,000 C-4 & US Brazil, India, China

Cotton Production Comparison 2005 vs 2009

C-4 US Brazil India China

12

This comparison of cotton acreage shows when 2005 production is compared with 2009 production, the US (along with the C-4 African countries) has decreased production 10 million bales or more. While the US decreases production, Brazil, India, and China have stepped in to fill the gap.

12

1000 2000 3000 4000 2005 2006 2007 2008 2009

C-4 Cotton Production

13

The C-4 continues to complain to the world that the US cotton program is destroying their industry and world prices, causing their production to decline -- and their production is also down as compared to 2005.

13

• 15000
• 10000
• 5000

5000 10000 15000 20000 2006 2007 2008 2009

Changes in Cotton Production

China + Braz +India US + C-4

2005 as the base year

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But, as this slide points out again, US production is on an even more significant decline. Yet, as US production declined, no C-4 country stepped in to pick up that lost production. Instead, cotton production in India has soared as has cotton production in China. Even Brazil has seen a cotton production increase in 2009 as compared with 2005. India has introduced new subsidy programs for its cotton

• growers. China has increased the value of its internal price support program, keeping internal cotton prices

significantly above world price levels, thereby encouraging production in the face of lower world prices. In August 2009, domestic prices for cotton in China were approximately 90 cents per pound, while world market prices hovered in the mid-60 cent range. The increased annual production in India and China in 2008 (as compared with 2005) almost perfectly ofgsets the huge decline in annual U.S. cotton production that has occurred over the same

• period. Despite this, Brazil continues to argue injury caused by U.S. cotton producers and C-4 representatives

continue to argue that the U.S. cotton program is the source of their economic diffjculties.

14

13,000 26,000 39,000 52,000 65,000 2005 2006 2007 2008 2009

China Cotton Production India Cotton Production

15

But the US program isn’t the cause of the C-4’s economic diffjculties in cotton because China, Brazil and India produce enough cotton to suppress any price movement.

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• 11,250
• 7,500
• 3,750

3,750 7,500 11,250 15,000 2005 2006 2007 2008

US China India Brazil

U.S. Upland Production 2004 as Base India, China, Brazil Cotton Production - 2004 as Base

Marketing Year (Aug-July) (bales)

16

This chart just shows more of the same, using a difgerent base year. For every one bale that US production declined in 2008 as compared to 2005, Brazil, China and India combined increased their production by 2.4 bales. Using difgerent years results in difgerent ratios, but every year since 2005 shows the same basic result -- the US has become less of a factor on world markets, but prices have not strengthened. Instead, China, Brazil and India have stepped in to fill the gap. Brazil's claimed injury from U.S. cotton subsidies flies in the face of its increased cotton production concurrent with dramatic U.S. production declines. The U.S. cotton program cannot be proven to be suppressing world cotton prices when every bale by which the U.S. decreases production is replaced by a bale produced by India

• r China or Brazil, regardless of the movement of world prices. The U.S. is one of the only major cotton

producing countries that has significantly decreased cotton acreage in response to soft world prices.

16

U.S. Cotton Exports

4,500 9,000 13,500 18,000 2005 2006 2007 2008 2009

17

US cotton exports have also fallen since 2005. Since 2005 the US has terminated Step 2; made a few adjustments in the US program that slightly lowered the efgective loan rate; and fully implemented a renewable fuels policy that has dramatically afgected the impact of the cotton or any other US commodity program by changing the dynamic between competing crops. There have been changes in both the cotton program and US agriculture programs in

• general. And if we cannot argue them; if we are prevented from asserting that this

kind of decline in world presence makes a finding of serious prejudice close to impossible -- we have a seriously flawed system.

17

GSM Changes

• Ended GSM 103 program
• Increased premiums charged based on

risk associated with the guarantee

• 2008 Farm Bill removed 1% cap on fees
• Recent Changes
• 2010 - announced maximum tenor of 30

months

• 2010 will announce allocations by quarter

18

There have been a lot of changes in the GSM program since the last compliance panel as well.

• Increased premiums
• Ended GSM 103 program
• Remove the 1% cap on fees
• USDA has now efgectively lowered the maximum available term available for the credit

guarantee to be efgective We have changes - significant changes -- and they should lead to a difgerent result before a WTO dispute panel.

18

Action by US Government

• Held some discussions with Brazil -

nothing definitive

• Provided Brazil with updated program

calculations

• Will announce GSM quarterly

19

The US Government has discussed the Arbitration decision with Brazil but the two countries have not made progress in their attempts to reach a settlement. The US Government has provided Brazil and the WTO with updated calculations concerning the GSM program. The US has also indicated it will announce GSM allocations quarterly for 2010, instead of announcing 12 months of allocation at once and has imposed additional restrictions on the GSM program. It is also possible that the Department of Agriculture will direct some GSM business away from Brazilian banks, as this will significantly decrease the retaliation amount authorized by the Panel's formula.

19

Peru CVD Case

• Peru Cotton Producers pursued a Cvd

case against US cotton imports

• Peru Government decided against the

complaint

• US imports were shorter staple than

Peruvian production

20

At the 2009 Annual Meeting we reported to this committee that the Government of Peru was moving forward with a countervailing duty case against US cotton imports into Peru. We helped USTR respond to the Peru allegations. Fortunately, the Peru case did not move forward. While US exports of shorter-staple cotton to Peru had increased the past few years, those imports did not directly compete with Peruvian production, which is mainly longer staple cotton that would compete with Pima or ELS cotton. Peruvian offjcials undoubtedly recognized this and ruled against the countervailing duty petition that had been brought by the Peruvian Cotton Producers Association.

20

China Registration

• China established registration program

for importers

• NCC worked with USDA, USTR, ACSA

and embassies

• ACSA & AMCOT representatives met in

China

• Council continues to press for change,

but merchants registered under system

21

In September, China announced registration process for exporters of cotton to China. The process required, among other things--

• Financial Information
• Possible site inspections to evaluate processing capability, quality control, monitoring

capability, packaging & storage management

• Quality credit appraisal

US exporters advised Chinese offjcials of their objections and intention not to register. However to avoid adverse treatment of US exports, shippers and marketing cooperatives did register while working with USDA and USTR to delay implementation and consulting with Chinese offjcials in an efgort to eliminate or modify the registration program. A delegation of ACSA and AMCOT representatives visited Beijing twice during 2009 to discuss the program with US and Chinese offjcials.

21

Doha Round Negotiations

22

While 2008 was a hectic year for the Doha Round, 2009 saw very little meaningful

• activity. There has been little, if any, substantive movement in the negotiating

positions of the WTO members. The "short", 11-page summary of the Doha negotiations prepared for the NCC 2009 annual meeting is still largely accurate. While the negotiating texts haven't changed, the US negotiators have changed and so has the apparent US view of the status of the negotiation.

22

Negotiating Text

• 70% reduction in US ag support ($14.4

billion cap)

• C-4 proposal for 82% cut in US cotton

support still in text

• Excessive Special and Sensitive

Product exemptions to tariff reduction

• Safeguard mechanism for developing

countries

• Excessive NAMA flexibilities

23

The last negotiating text on agriculture would --

• Place a $14.5 billion annual cap on US domestic support - a 70% decrease
• Call for a minimum average of 54% for developed country tarifg cuts
• Call for a maximum average of 36% for developing country tarifg cuts
• Provide exemptions from full tarifg cuts for sensitive products for 4-5.3% of a country’s tarifg lines
• Provide exemptions from full tarifg cuts for special products for 12-13% of a country’s tarifg lines

Safeguard provisions and NAMA tarifg cuts are highly controversial. But no aspect of this negotiation speaks failure like the level of tarifg cut exemptions that would be available for advanced developing countries using the Special Product exemption.

23

No Tariff Cut 86.0% Special Tariff Cut 6.9%

Full Cut Applied 7.1%

Impact of Special Products Exemption on China

24

As these charts demonstrate, the majority of trade - on a value basis - with several advanced developing countries would be largely exempt from full tarifg cuts. For China, 86% of the value of agricultural trade could have no cut; 6.9% of the value of its agricultural trade could have a lesser tarifg cut; and only 7.1% by value of its agricultural trade would be subject to full tarifg cuts under the Doha Negotiating text.

24

No Tariff Cut 87.0% Special Tariff Cut 7.0%

Full Cut Applied 6.0%

Impact of Special Products Exemption on India

25

The story is similar in India, but even more favorable to India as only 6%, by value, of India’s agricultural trade would be subject to full cuts. Fortunately for India, it has much more of a gap between its applied tarifgs and its bound tarifgs. China does not have much of a gap. So even this 6% of tarifg lines would be afgected less than the initial numbers might indicate.

25

No Tariff Cut 78.6% Special Tariff Cut 9.8%

Full Cut Applied 11.6%

Impact of Special Products Exemption

• n Brazil

26

Brazil’s markets would have to open up a little more as 11.6% of its agricultural trade would be subject to a full tarifg rate cut, while 88% would be able to profit from some

• exemption. Also, Brazil, like India, has a significant gap between its applied and bound

tarifg rates.

26

US Agriculture’s Message

The U.S. is proposing to give up $34 billion or more in allowable domestic support while getting virtually no real increase in market access in developing countries in return.

27

The Council argued throughout 2008 that the negotiating text in agriculture did not meet the goals established by the US in its key negotiating proposal issued in October 2005. The Council's evaluation was echoed by the American Farm Bureau and a few others. There is a clear and obvious problem with the Doha negotiations -- the US is being asked to reduce agricultural support by $34 billion annually while getting virtually no increase in agricultural market access to advanced developing countries in return. US exporters also contend there are insuffjcient increases in non-agricultural market access, leaving the US with a lose-lose trade negotiation. If US agriculture is engaged in a Doha Negotiation for increased market access into developed countries -- there are some, minor, gains. But if US agriculture is engaged in Doha for increased market access into developing countries -- there is no “there” there.

27

December 2009 WTO Ministerial in Geneva

28

I was in Seattle when the US and other countries tried to get this negotiating round

• started. The 2009 December WTO Ministerial meeting was the 10th anniversary of the

forgettable events in Seattle, and the protestors managed to do some damage in Geneva. Unlike Seattle, however, the Ministers in Geneva did not expect to come away with a huge breakthrough in multinational trade negotiations, and they did not.

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A Doha outcome that delivers the global economic growth necessary to spur development will require market-opening contributions from all key players - not

• nly developed but also advanced developing countries,

commensurate with their role in the global economy. Ambassador Ron Kirk

29

What the Ministers in Geneva heard from the new US Trade Representative did not generally warm their hearts. Ambassador Kirk clearly challenged advanced developing countries to bring more market opening proposals forward. This Trade Representative has apparently read the current negotiating text and understands the lack of reciprocity in market access that it represents.

29

2010 and WTO

• US promoting bilateral negotiations

focused on market access

• Brazil and EU suggesting a Ministerial

designed to force agreement on remaining issues

• Underlying negotiating text has not

changed

• Therefore difficult to discern a positive
• utcome for the US

30

It appears that the US will be promoting bilateral negotiations focused on market access during 2010. This focus appears to be designed to enable clarification on exactly what level of market access might be available underneath all of the possible exemptions to formula tarifg cuts that exist. Meanwhile, Brazil and the EU are suggesting a Ministerial designed to force agreement

• n remaining issues -- a Ministerial that will increase pressure on the US to agree,

regardless of the chances of getting an agreement passed the US Congress. Until the underlying negotiating texts change, it is diffjcult to discern a positive

• utcome in the Doha Round for the United States.

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Free Trade Agreements & Preferential Trading Arrangements

31

Regional trade preference agreements continue to be vital to the US textile industry’s ability to compete, especially since the removal of quotas for all WTO member countries on January 1, 2005. While in offjce, the Bush Administration was extremely active in negotiating free trade agreements. Several agreements negotiated by the Bush Administration have not been advanced through Congress by the Obama

• Administration. These include agreements with Korea, Colombia, and Panama.

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Response to Earthquake in Haiti

32

The devastation caused by the earthquake in Haiti has prompted Congress to attempt to provide more trade preferences to the country. The Council and the US textile industry is again concerned that outside interests will attempt to use Haiti's moment of crisis as a means to undermine overall U.S. policy in the Caribbean region and to further economic returns to Asian fabric manufacturers.

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Haiti Trade Preferences

• Two recent statutes provide significant

trade preferences to Haiti

• Trading relationship positive for US

manufacturers, but Haiti preferences contain more loopholes for 3rd country fabric

• NCTO in contact with Haiti industry
• Has been apprised of needs

33

According to the National Council of Textile Organizations, more than 75% of the apparel manufacturing capacity in Haiti endured little to no damage during the earthquake. Most

• f these manufacturers are back on line. The bulk of the country’s textile manufacturing

sector is located on the border between Haiti and the Dominican Republic away from Port Au Prince. Also, many of the apparel plants in Port Au Prince are newer and tend to be built to code as required by government standards. NCTO has been in contact with groups and companies who have apparel operations in Haiti and developed a set of recommendations for Haiti relief based on the assessments

• f Haiti-based textile operations. Aid should be focused on humanitarian efgorts and

infrastructure repair and rebuilding and should be directed to the parts of Haiti that need it.

33

Haiti Emergency Bills

• Lot of pressure in Congress to quickly

pass legislation

• S. 2978 (Wyden & Nelson) strikes good

balance

• Contains provisions deemed helpful by

Haiti industry

• Does not contain wide-open loopholes that

would cost US jobs

34

Senators Wyden (D-OR) and Nelson (D-FL) have introduced a bill for Haitian relief that is supported by the US textile industry. The bill concentrates on infrastructure repair and rebuilding while providing some reasonable level of additional rule-of-origin

• flexibility. The bill has several innovative approaches to assist in the rapid rebuilding of

Haitian apparel exports.

34

Haiti Emergency Bills

• NCTO developed 11-point program
• Extend CBTPA program to 2018
• Extend Value-Added Rule to 2014
• Double funding for a full package and

training development center

• Extend reconstruction aid
• Work to prevent 3rd countries from

using tragedy to undermine positive trading relationships

35

An 11-point plan developed by NCTO would focus relief where it is needed in Haiti. Other interests in the United States and Asia are seeking to use the devastation in Haiti as a means to get Congress to remove all caps on apparel made from third-country fabric qualifying for preferential tarifg treatment. They are pushing this agenda despite the fact that Haiti has not been close to reaching the existing caps on apparel made from third-country fabric. Instead of encouraging Haiti to build up its own manufacturing base, this type of legislation would have the efgect of limiting Haiti to purely cut and sew operations using foreign country fabric. It would also undermine the CBTPA preferences that are being utilized by other Caribbean countries.

35

Trans-Pacific Partnership

• Broad, ambitious effort to negotiate a trade

arrangement

• Australia; US; Singapore; New Zealand; Brunei;

Chile; Peru; and Vietnam

• Diverse set of countries, diverse

economies

• Yarn forward rule of origin is NCC priority
• Vietnam poses serious issue as a non-

market economy with textile sector owned by government

36

During his State of the Union speech, President Obama voiced strong support for an evolving Trans-Pacific Partnership that will involve negotiations with several South East Asian countries, including significant textile producers such as Vietnam. The NCC will continue to stress the importance of a yarn-forward rule of origin in any free trade arrangement. The TPP, as it is called, however, poses a special threat to the US textile industry as it includes Vietnam at this point. Vietnam is a non-market economy where the government is heavily involved with its textile sector. It would pose unfair and significantly detrimental competition for the U.S. textile industry.

36

Free Trade Agreements

• Colombia
• President has expressed support
• Panama
• President expressed support
• Korea
• While President expressed support, also

stated that several difficult issues remained

37

The US now has free trade agreements with Canada, Mexico, Israel, Australia, Bahrain, Chile, Jordan, Morocco, Oman, Peru, Singapore, and the countries of the CAFTA-DR – Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

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International Trade Policy

NCC 2010 Annual Meeting Memphis, TN

38

The President's State of the Union speech combined with other rumbles and shifts emerging from the US Trade Representative's Offjce point to a few possible trends for President Obama's trade policy:

• Emphasis on a regional trade strategy involving Southeast Asia
• A new push for growth in exports -- possibly indicating that growth in trade, not necessarily an increase in

trade agreements, may become the yardstick against which the Obama Administration wants to be measured

• A love / hate approach to the Doha Negotiations
• Uncertainty on how to push the Korea, Colombia and Panama free trade agreements through a Democratic

Congress The biggest question is whether USTR Ron Kirk's solid statements on trade policy, which are results-oriented and not lectures on free trade, will become the general emphasis of the Obama Administration.

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