By and  on June 21, 2012

WASHINGTON — The Senate passed a $500 billion farm, nutrition and conservation bill Thursday that could have significant implications for many segments of the fashion industry.

The legislation, which passed 64 to 35 and broadly implements farm safety net policies and conservation and food stamp programs over the next five years, seeks to bring U.S. cotton programs in line with World Trade Organization requirements and address a dispute over cotton subsidies with Brazil. It would also continue federal funding through 2017 for a program supporting U.S. textile mills that use domestic and imported cotton.

Under the “Economic Assistance Adjustment” program, the government gives U.S. textile mills 3 cents a pound of domestic or imported upland cotton they use, as long as the money is invested in acquiring, modernizing or expanding land, plants, buildings or equipment.

“This is a capital investment program that creates jobs,” said Sarah Pierce, senior vice president at the National Council of Textile Organizations. “It helps our producers become more efficient and allows them to hire more workers and open more plants.”

A crucial aspect of the legislation is whether it brings into compliance federal cotton subsidy programs that were found to violate WTO rules in a case brought by Brazil dating back to 2002. Brazil has maintained that U.S. cotton subsidies depress global cotton prices. The WTO sided with Brazil and issued a series of findings between 2005 and 2008. The WTO subsequently authorized Brazil to impose sanctions against U.S. exports, ruling the U.S. failed to adequately end cotton subsidies. However, the U.S. and Brazil reached an agreement in June 2011 that forestalled the imposition of sanctions on U.S. exports until this year, when Congress is set to pass a new farm bill that sets federal farm safety net programs.

Under the agreement, which averted $800 million in sanctions, the U.S. agreed to make some changes in its cotton export and credit guarantee program, and to work with Brazil to establish a $147.3 million fund to provide technical assistance and capacity building for the Brazilian cotton industry. Brazil has identified a list of U.S. exports it would sanction, including raw cotton, woven fabric, cotton pants and shorts, and some jewelry and beauty products. The agreement was understood to hinge on Congress making changes to cotton programs to bring them into compliance with the WTO findings.

Terry Townsend, executive director of the International Cotton Advisory Committee, said the Senate bill seeks to establish a new insurance program for cotton farmers, with the federal government covering a percentage of a policy’s premium, eliminate countercyclical payments and modify the export credit guarantee program.

Roberto Azevedo, Brazil’s ambassador to the WTO, said he expects the U.S. to claim the final farm bill legislation complies with its obligations under the WTO.

“Therefore, it’s absolutely critical for resolution of the [cotton] dispute,” Azevedo said. “What Brazil would have to assess is if it fully complies or not.”

“As required under the U.S.-Brazil Cotton Framework Agreement, we continue to work with Congress as it makes changes in the next farm bill to the cotton domestic support and export credit [guarantee] programs to reach a mutually agreed solution with Brazil,” said Carol J. Guthrie, assistant U.S. Trade Representative for public and media affairs. “Payments to Brazil for cotton capacity building and development projects, totaling $147.3 million a year are expected to continue until the next Farm Bill.”

The House must still pass its own version of the farm bill, which will likely differ from the Senate’s legislation, and have to be reconciled in conference.

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