By  on September 27, 2005

WASHINGTON — Millions of dollars in federal subsidies to cotton growers, exporters and textile mills hang in the balance as Congress grapples with a Bush administration proposal to eliminate a 14-year-old federal program ruled illegal by the World Trade Organization.

As the Senate and House agriculture committees consider the administration's proposal this fall, U.S. cotton growers, merchants and textile mills are assessing the potential financial hit they might take if Congress acts to comply with the WTO ruling and scrap the cotton subsidies.

"This is millions of dollars for certain mills that produce cotton yarns and cotton fabrics and it is a major issue," said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. "The cotton program as a whole is important for the entire production chain, and if there are going to be major revisions, it could definitely have a negative financial impact, especially from a mill perspective."

At risk are the U.S. "Step 2" payments, a crucial part of the farm program to cotton farmers, textile mills and exporters, that have amounted to $2.4 billion between 1995 and 2004, according to the Environmental Working Group, a consumer advocacy group opposing agriculture subsidies, based on figures from the U.S. Department of Agriculture. Each year, the amount of subsidies fluctuates based on a formula established by Congress that is intended to offset the higher price of U.S. cotton when the world cotton price average falls.

During the 1995-2004 period, Parkdale Mills Inc., in Gastonia, N.C., the largest U.S. cotton spinner, received the fourth-largest subsidy of $135.4 million from the federal program, while Avondale Mills Inc., of Sylacauga, Ala., received the sixth-largest subsidy of $92.2 million and National Textiles, of Winston-Salem, N.C., received the seventh-largest subsidy of $90.2 million, according to the EWG.

Under current law, U.S. mills must buy U.S. cotton unless the price reaches a certain threshold over a period of four consecutive weeks, at which point a quota limit is triggered and mills can import cotton.

However, the quotas were last triggered in the late Nineties and mills did not have time to build relationships with foreign cotton suppliers, according to Tantillo.

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