WASHINGTON — The U.S. is taking a closer look at China’s practice of stockpiling and subsidizing cotton, and is exploring steps it might take to address what many are calling China’s new trade distorting policies.
U.S. Trade Representative Michael Froman told a Senate Finance Committee hearing Tuesday that the U.S. is engaging with China on the issue, noting that all options are on the table if China does not address the matter.
The Chinese government said in January 2014 that it would begin implementing direct-farmer subsidies in nine provinces, spreading concern around the world that the move would depress global prices of raw material. The shift in policy came as China began abandoning its stockpiling program that had reduced supply and bolstered global prices.
China said in November it would pay farmers subsidies of 2,000 yuan, or $330, per ton of cotton harvested in nine provinces.
Cotton prices have tumbled in recent months. Benchmark ICE Cotton 2 futures were at 59.2 cents a pound on Jan. 20, down from a high of about 86.8 cents a year ago, according to the International Cotton Advisory Committee. The Cotlook A index, the price of cotton delivered in the Far East, was 67.1 cents a pound on Jan. 20 compared with 93 cents a pound a year ago. Sen. Johnny Isakson (R., Ga.), representing a big cotton producing state, raised the concern with Froman, noting that cotton was 80 to 85 cents a pound a short while ago and is now in the range of 55 to 57 cents a pound.
“China is basically hoarding and buying cotton and importing and stockpiling it, and they are subsidizing their producers at twice the world market price,” Isakson said. “What can be done with China to enforce through the WTO or through any other agreements we might otherwise have to keep them from manipulating their cotton prices and suppressing the cotton market?”
Froman said, “The whole pattern of agriculture subsidies has changed a lot in the last 10 or 15 years. When the Doha Round was first started, the focus was on the U.S. and European Union, but in both of those areas subsidies have come down while subsidies in China and India in the agricultural area have increased. By some measures, China is now the largest subsidizer of cotton.
“We had conversations in the last couple of days about that, and we are taking a fresh look at where subsidies are being provided, how it is distorting the market and how it will play into global trade negotiations,” he continued. “It’s important to update our view about subsidies and what impact it has. If you are a poor subsistence farmer in Africa, it doesn’t matter whether the subsidy is coming from the U.S. or from China. It matters that the subsidy exists.” Isakson asked Froman whether there is enough “standing” to bring a dispute case to the WTO. “We are looking at all of our options,” Froman said. “We have not yet determined whether there is a case to be brought in that area.”
He also said the U.S. is hoping to engage China more and create more disciplines around subsidies.
Froman was on Capitol Hill Tuesday for a pair of hearings to make a case for President Obama’s trade agenda, particularly for Trade Promotion Authority and two trade deals being negotiated — the Trans-Pacific Partnership agreement between the U.S. and 11 countries, and the Transatlantic Trade and Investment Partnership between the U.S. and European Union.
While many senators were supportive of advancing TPA, TPP and T-TIP, several concerns were also voiced that could provide some obstacles to the administration’s full-court press for its trade agenda. Trade experts have said there appears to be enough momentum to get the deals through Congress, although opposition from anti-trade Democrats and more conservative Republicans could make it difficult.
Several senators, including Sens. Chuck Schumer (D., N.Y.), Debbie Stabenow (D., Mich.) and Rob Portman (R., Ohio) voiced concern about currency manipulation by Asian countries like China, which is not a part of TPP, and Japan, which is a partner in the TPP negotiations.
Froman indicated the administration is not negotiating a provision addressing currency manipulation in the TPP agreement but is instead addressing the issue through other avenues such as the International Monetary Fund and G-7.
Underscoring how tough it might be for the administration and lawmakers to make the case for TPP and TPA, several protesters disrupted the hearing, holding signs and shouting “No TPP” and “No Fast Track” (now called TPA), claiming that they would lead to job losses.