Brazilian Government Suppressed Prices While Arguing Against U.S. Cotton Program

June 7, 2007

ST. LOUIS, MO – While Brazilian officials were in Geneva arguing that U.S. subsidies were depressing world cotton prices, the Brazilian government was busy selling government-held cotton stocks on the Brazilian market in order to lower internal Brazilian cotton prices according to USDA reports.

“The actions of Brazil’s own government in April and May of 2007, when it sold nearly two-thirds of its government held cotton stocks to drive down prices are clearly incompatible with Brazil’s contemporaneous arguments that the United States was suppressing world cotton prices,” National Cotton Council Consultant Bill Gillon said here today at a joint meeting of the American Cotton Producers and Cotton Foundation. “The Brazilian government was arguing (and the WTO Panel apparently agreed) that the U.S. cotton program was causing price suppression in the world market, even though the Brazilian government was taking action to drive down domestic cotton prices. Brazil’s words to the WTO were blatantly inconsistent with Brazil’s own actions at the time.”

Gillon reiterated earlier statements by the NCC that there is little proof the U.S. cotton program currently is causing price suppression in the world cotton market. “Since the United States eliminated its step 2 program, U.S. cotton exports declined significantly, U.S. acreage dropped 28 percent and production is expected to decline by 20 percent or more for 2007,” Gillon noted. “Cotton production and exports are dramatically up in India and Brazil’s production has also risen since the first Panel decision and world cotton prices are up.”

He stated that while the U.S. did not alter all aspects of its cotton program after the first Panel decision, “the measure of this type of proceeding is not whether the U.S. changed all of its programs, but whether the changes it did make were enough to ensure the program was not causing significant price suppression in world markets. Clearly, with U.S. production down and the rest of the world producing at a record pace, the U.S. program is not causing anyone injury.” Gillon said that when the Compliance Panel report is made public, he hoped it would explain the discrepancy between the apparent decision and the current world cotton market.

“In order for the U.S. to be able to take rational policy steps to adjust to WTO decisions, it must have a clear description of what it is doing wrong,” he said. “So far, while maintaining that the U.S. is causing significant price suppression, no WTO Panel has told us what ‘significant’ means. This Panel had strong evidence before it tending to show that the U.S. program (even before parts of it were eliminated) could have had no more than a two or three percent impact on world prices. If the Panel did not discredit that evidence, we may have a decision by the WTO that a two or three percent movement in prices is ‘significant,’ which seems to fly in the face of common sense.”

Gillon described to meeting attendees Brazilian cotton programs that apparently operate as an export subsidy.

“The PEPRO program operated by Brazil essentially insures that domestic guaranteed prices for cotton in Brazil will not unduly harm the competitiveness of Brazilian cotton, either in domestic or international markets,” he said.

He also stated that a variable levy system restricting imports into China acts as a price support program for Chinese cotton producers – a system that has been equivalent to at least $5.7 billion in subsidized support for 2005 and 2006.

“That program continues to provide support to Chinese cotton producers in 2007,” he added. Citing the recent announcement of one million tons of previously unreported stocks of cotton in China, Gillon stated, “the overall lack of transparency in the Chinese cotton system results in millions of pounds of stocks suddenly appearing within China — undercutting worldwide demand and adding tremendous uncertainty to the world market.”