By  on July 6, 2005

WASHINGTON — The Bush administration moved on Tuesday to cancel a program that has supported U.S. cotton growers and yarn spinners with millions of dollars of government subsidies and has been ruled illegal by the World Trade Organization.

Congress must first approve the repeal of the program, a crucial part of the farm initiative referred to as Step 2, and opposition can be expected from lawmakers representing agriculture-heavy districts. Step 2 subsidies are triggered when world cotton prices fall below a certain level.

The administration also proposed the removal of a 1 percent cap on fees that can be charged under export-credit programs and the elimination of the Intermediate Export Guarantee Program last week.

Developing nations have argued that such subsidies flood the market with cheap goods and give U.S. producers an unfair competitive advantage. Cotton subsidies, along with other issues, contributed to the collapse of the September 2003 WTO talks in Cancun, Mexico.

"By implementing these proposed changes, we are being fully responsive to the WTO decision," Agriculture Secretary Mike Johanns said in a statement Tuesday. "This step is essential for the United States to continue to be a leader in the WTO Doha negotiations, which are crucial to U.S. market access and the long-term prosperity of our farmers and ranchers."

The Doha negotiations are focused on further liberalizing trade and removing global tariffs among the 148 nations of the WTO.

The administration's action stems from a September 2002 complaint filed by Brazil that maintained the subsidies restrained global cotton prices and were illegal. Brazil said the subsidies cost its farmers more than $600 million in lost sales.

The WTO ruled against the U.S., which appealed. But the WTO ordered the U.S. in March to end the subsidies and to begin the process by July 1.

Cotton farmers, exporters and textile mills received payments of $14.1 billion from 1995 to 2003 under Step 2, according to the Environmental Working Group, which opposes agricultural subsidies. Raking in some of the biggest benefits from the program during the period, cotton spinner Parkdale Mills Inc. received $98 million in subsides, while Avondale Mills Inc. received $86 million, according to the group.

The National Cotton Council said it would make a statement on the administration's move today, but laid out its general position against Brazil's case in a July 2004 statement. Citing a Texas Tech University analysis, then chairman and current adviser Woody Anderson said the U.S. cotton program does not affect world cotton prices by more than 2 percent."This is not a significant impact," Anderson said at the time. "I am not apologizing for the U.S. cotton program. It is well-designed, well-crafted and an important component of the agricultural policy of the United States."

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