Nº Cotton and Textile Trade Policy. World Trade Organization (WTO) Doha Negotiations. March 2011, Year 12

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1 Nº 1 March 2011, Year Cotton and Textile Trade Policy Gary M. Adams Vice President of Economic and Policy Analysis National Cotton Council Numerous trade policy issues continue to confront the U.S. and global cotton and textile industries. In many cases, the current market situation has only served to heighten the importance of trade as textile mills look to secure adequate quantities of cotton. In other cases, increased cotton prices have led to some recent changes in trade policy. The following summary provides an overview of the key trade policy issues affecting cotton and textiles industries. World Trade Organization (WTO) Doha Negotiations differences that remain between the various negotiating positions. WTO officials indicated that talks in Geneva during the week of Feb among 11 key members representing the main Doha negotiating alliances Argentina, Australia, Brazil, Canada, China, the European Union (EU), India, Japan, Mauritius, South Africa and the United States were conducted in a cooperative spirit but produced nothing which could be cited as concrete progress. As 2011 begins, there are once again renewed efforts by the WTO to push the trade negotiations forward. WTO Director General Pascal Lamy has called for the negotiating committees to engage during the first quarter of 2011 with the intent of releasing new texts in the spring. While Lamy has indicated that 2011 offers a window of opportunity to conclude an agreement, the path forward appears difficult given the 1

2 Officials said the same issues which have stymied progress over the past two-and-a-half years continue to hold up progress. WTO members have set the end of 11 as the target for concluding the Doha Round, now in its 10th year. To accomplish this, the Doha negotiating groups chairs are to produce revised draft texts by April that will reflect progress in the negotiations and serve as the basis for a final push for a deal. With no progress to date, though, diplomats already are warning that the negotiations are running out of time. The current agriculture text, first tabled in 2008, calls for a 70% reduction in the allowable levels of support in U.S. farm programs, and still maintains the language requiring an 82% reduction in cotton support. Market access commitments are not as ambitious, particularly as they relate to developing countries. Exemptions for so-called special and sensitive products could exempt almost 20% of tariff lines from the full tariff reduction. Many countries would be able to shield more than 80% of trade, based on value, from any meaningful increase in market access. continues to express interest in special negotiations for textiles, but opposition by China and India could stymie those efforts. Brazil-U.S. WTO Case In March 2010, Brazil published a list of 102 products that were subject to increased tariffs as a result of the failure of the U.S. to comply with decisions of the WTO Dispute Settlement Body in an ongoing dispute concerning the U.S. cotton program and the export credit guarantee program. The increased tariffs were scheduled to go into effect on April 7, Brazil s announcement indicated that tariffs will be increased on $591 million worth of imports from the U.S., while it plans to retaliate against U.S. goods valued at $238 million in the services or intellectual property sector. The negotiations for industrial-product market access, which includes textiles, achieved less clarity than the agriculture negotiations. Significant differences exist on the ambition of tariff reductions and associated flexibilities for sensitive products. The United States, along with other countries, 2

3 Later in March of 10, Brazil published a list of 21 items under consideration for cross-retaliation through the suspension of patent and intellectual property rights. With sanctions estimated at $238 million, the list included agricultural chemicals and biotechnology products, veterinary medicines, software, books, music and films. Before any retaliation was actually implemented, the United States and Brazil concluded a Framework Agreement delaying trade retaliation by Brazil through the development of the 2012 farm bill and further indicates that a mutually agreed outcome in the next farm bill would provide a long-term settlement of the dispute. Regarding U.S. upland cotton policy, the Framework calls for an annual limit on trade-distorting cotton subsidies that would be "significantly lower" than the average for the marketing years (the years covered by the WTO dispute). Furthermore, the actual level of the limit and the extent to which support counts against the limit would depend on the types of trade-distorting domestic support provided. Finally, Green Box, or non-trade-distorting, support does not count toward the limit. The Framework also provides benchmarks for changes to the U.S. export credit guarantee program that would affect all participating U.S. commodities. Allocations for the program will be announced in two equal installments at the beginning and mid-point of the fiscal year. The export credit guarantee changes call for a reduction in the length of the guarantees by October 2012 to a weighted-average length of no more than 16 months. In addition, fee increases will be based on the use of the program in the previous 6-month period. Program usage greater than $1.5 billion results in a fee increase not less than 15%. Program usage between $1.3 billion and $1.5 billion will result in an 11% fee increase. The Framework also calls for quarterly meetings between the two countries to discuss progress in the 2012 farm bill debate. As long as the Framework is in place, Brazil agreed not to impose trade sanctions. However, Brazil reserved its rights to terminate the Framework Agreement at any time with a 21-day notice. Currently, negotiations are continuing between the two countries. China China is the world s largest producer, consumer and importer of raw cotton and the world s largest textile producer. U.S. cotton exports to China are 30 to 50% of annual total U.S. cotton exports. China continues to influence world fiber and textile markets with their practice of implementing the Tariff Rate Quota (TRQ) system to keep internal cotton prices above world price levels and by allocating import quotas to the "cotton processing sector" which requires an equivalent level of textile and apparel exports to offset cotton fiber imports. Imports of textile and apparel products from China into the United States are no longer subject to a special safeguard mechanism included in the WTO accession agreement. The U.S. has put a monitoring system in place, and the U.S. industry supports initiating countervailing duty action if there is threat of injury from surges of imported products. The 2009 recession dampened demand for apparel in general, causing China imports not to grow as they have in the past. However, with the recovery in the economy in 2010, U.S. textile and apparel 3

4 imports of all fibers increased by 19% over the previous year with imports of textile and apparel from China increasing by 25%. China remains the largest single exporter of textile and apparel products to the U.S. with a 47% market share at the end of India India, the world s second largest producer and processor of raw fiber, is truly a wildcard in the current cotton market. Over the past decade, increased production has allowed India to become the second largest exporter of cotton. However, at a time of recovering world demand, recent policy decisions by India have added to the volatility and uncertainty in the world cotton market. Starting in April 2010, the Government of India has acted in various ways to limit exports of Indian cotton. This has taken varying forms, including an export ban and export restrictions of various kinds (i.e., lately, an export quota, administered by an export licensing, or registration, program). The export ban was initially implemented at the request of Indian textile companies in order help them compete against foreign rivals. India s textile industry has been clear about the reasons for the ban or restriction and has made those reasons public on many occasions. In October 2010, India replaced the export ban with an export quota of 4.3 million 480-lb bales. An export registration process opened on October 1 but was closed on October 10 as registrations exhausted the announced quota. However, as of early March, only a portion of the registered quota had actually been shipped. Future export quantities remain uncertain. Since the close of the registration process, India s prices have remained at a substantial discount relative to the A Index. Since October, India s spot prices have ranged between $1.20 and $1.50 per pound while the A Index has moved above $2.00 per pound. Free Trade Agreements and Regional Negotiations Regional trade preference agreements continue to be vital to the U.S. textile industry s ability to compete, especially since the removal of quotas for all WTO member countries on January 1, Several agreements negotiated by the Bush Administration have not been advanced through Congress by the Obama Administration. These include agreements with Korea, Colombia, and 4

5 Panama. The Obama Administration has announced that it will work to obtain Congressional approval for Korea, Colombia and Panama. On December 3, 2010, the United States and the Republic of Korea reached agreement on a trade deal that resolved outstanding issues related to the United States-Korea (KORUS) trade agreement. The U.S. textile industry has registered their opposition to the U.S. Korea trade agreement. Work continues on a U.S. - Trans-Pacific Partnership (TPP) Agreement that will involve negotiations with several Southeast Asian countries, including significant textile producers such as Vietnam. The fifth round of Trans-Pacific Partnership (TPP) Agreement negotiations between the United States and eight other countries ended in Santiago, Chile on Feb. 18 with continued progress. The next round was scheduled for Singapore in late March. Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam are participating in the talks with the United States. The TPP eventually could act as the foundation for a broader trade agreement among the 21 economies in the Asia-Pacific Economic Cooperation forum. In Santiago, the teams began looking at how best to craft a TPP rule of origin, which will help support development of a regional trade agreement. The countries plan on exchanging proposed product-specific rules of origin in March. The US government would like to wrap up the TPP in time for the next APEC leaders' summit in November in Honolulu. Four other rounds will take place before the APEC meeting, including talks in Singapore in March, Vietnam in June, the United States in September and Peru in October. Trade associations representing the U.S. textile industry have concerns regarding certain aspects of the TPP, with rules of origin and the inclusion of Vietnam being cited most often. Summary Trade issues will undoubtedly remain a focal point of the U.S. cotton and textile industries. With 95 percent of U.S. cotton production moving into export channels either as raw fiber, cotton yarn or fabric, trade policy has a critical influence on the health of the U.S. cotton ecnomy. 5

6 American Denimatrix Plant: 1926 FM 54 Telephone: (806) Fax: (806) Denim sales/marketing: 980 Avenue of the Americas, 2do Piso Nueva York, NY Telephone: (212) Fax: (212) Contact name/number: Mr. Jack Mathews Vice President of Fabric Sales and Product Development Telephone: (212) Fax: (212) List of Senior Management: Mr. Wally L. Darneille, PCCA President & CEO Mr. Bryan Gregory, Vice President of Textile Manufacturing Mr. Jack Mathews, Vice President of Fabric Sales and Product Development History of Company: In business for 33 years, American Denimatrix was acquired in 1987 by Plains Cotton Cooperative Association (PCCA) and is now a part of the cooperative s Textile and Apparel Division. Located in Littlefield, Texas, American Denimatrix operates a vertically integrated denim facility focused on the development and production of value-added fashion denim for its customers, including many of the world's most recognized apparel brands and retailers. PCCA's strong financial statement has enabled American Denimatrix to continually invest in the most modern textile equipment. We recently have added capacity in ring spinning and in core spinning. Our ability to produce yarn in-house allows us to offer short lead times. Consequently, American Denimatrix's state-of-the-art denim manufacturing process can produce 38 million linear yards of denim annually in a variety of styles, shades and weights to meet the needs of each individual customer. American Denimatrix's product development staff also collaborates with customers to develop styles that fit current trends. border and major ports that serve the Caribbean and Latin America. This unique location enables American Denimatrix to reduce transit time and transportation costs for denim shipped to cutting and sewing operations throughout the region. The same geographic location also benefits PCCA and its ability to ship cotton to customers throughout the world. Products Dye shades include a broad range of indigo shades including pure indigos, sulfur bottoms and sulfur tops. In addition to indigo dyes, we also offer denim fabrics in natural, black and grey shades. End Products Supplied Denim fabrics for jeans, shorts, skirts, and jackets 6

7 Antex Knitting Mills 3750 S. Broadway Place Los Angeles, CA Phone: (323) Fax: (323) Contact name/number: Mr. William Tenenblatt, President Ms. Anna McMassey, Vice President of Merchandise and Design List of Senior Management: Mr. William Tenenblatt, President Ms. Anna McMassey, Vice President of Merchandise and Design History of Company Antex Knitting Mills is a vertical knitting, dyeing, printing and finishing company established in Los Angeles in The company produces approximately 1.5 million yards of fabric per week. Its traditional business is to provide fashionable knitted fabrics to the junior, contemporary, and children's markets. Several years ago, Antex added the Antex Premier Performance division to provide technical fabrics to the outdoor and active wear markets. Antex prides itself on its flexibility in servicing its customers' needs in providing competitively priced, high quality fabrics and quick deliveries. It is the company's goal to service the needs of the apparel industry by offering fabrics that appeal to the fashion, lifestyle, and performance driven consumer. Our highly trained staff is up to date on the latest advances in the industry and constantly strives to maintain and improve their level of expertise. Our R&D department can analyze and duplicate any fabric submitted to us. We also have an extensive knit and print line and are constantly creating new and exciting fabrics. Products The Antex knitting department consists of 300 high-speed, multi-feed, state-of-the-art machines. The equipment, ranging from 14 to 38 cut machines, provides the capabilities to produce a wide range of fabrics including: Interlocks, jersey, ribs, thermals, novelties (single/double), yarn-dyed stripes, fleece, french terry fabrics., wet printing on cellulosic fibers (reactive dyes, resist and discharge); on polyamide fibers (acid dyes for swimwear); on polyester fibers (disperse dyes); and pigment printing (all fibers). Finishing processes are: sueding, sanding, brushing, stain release, moisture management, water repellent, anti-microbial, UV protection, flame retardant. End Products Supplied T-shirts, sportswear, dresses, juniors, golf apparel, career uniform apparel, military, performance apparel, base layer underwear, team sports 7

8 Buhler Quality Yarns Corp Athens Hwy. Jefferson, GA Telephone: (706) Fax: (706) Contact Name / Number: Mr. Werner Bieri, President, CEO Telephone: (706) Fax: (706) wbieri@buhleryarns.com Mr. David Sasso,VP of International Sales Telephone: (706) Fax: (706) dsasso@buhleryarns.com History of company With the support of almost 200 years of experience from our parent company, Herman Bühler AG, in Switzerland, Buhler Quality Yarns, USA manufactures yarns of customers with the highest quality requirements. An excellent yarn quality and a perfect customer service are the most important goals in our business. We concentrate on this in our daily work and it guides our company philosophy. Buhler Quality Yarns Corp., USA is leading supplier of medium to fine-count Supima cotton yarns into the US, Canadian, Central American (CBI), South American (ATPDEA) and Sub Saharan Africa (AGOA) markets. Our quality, flexibility, and responsiveness to those markets have helped keep our customers and us competitive in the global market place. Our product offering was expanded in 2007 into other luxury yarns, other spinning technologies, and new application of chemistries to improve fabric performance and value added properties. Our new fiber offerings include Micro Modal and Supima Blend, and 100% Micro Modal. Mr. Victor Almeida, Technical Support Telephone: (706) Fax: (706) valmeida@buhleryarns.com Products 100% Supima cotton combed Ring Spun, Ne, Plied on request List of senior management: Mr. Werner Bieri, President & CEO Mr. Russell Mims, Operations Manager Ms. Linda T. Newton, Sales & Customer Service Mr. David Sasso, Vice-president International Sales Mr. Victor Almeida, Textile Engineer & Technical Support Applications Weaving (warp and Filling) Knitting (Circular, Seamless, Warp) Cotton sewing thread 50% Supima, 50% Micro Modal from Lenzing, Ring Spun, Ne 8

9 Carolina Cotton Works, Inc 14 Commerce Drive Meadow Creek Industrial Park Gaffney, SC Phone: (864) Fax: (864) Contact name/number: Bryan Ashby, Vice President, Sales & Marketing Phone: (864) Fax: (864) Mr. Stacey Bridges, Sales Manager Phone: (864) ext.108 Fax: (864) List of senior management: Mr. Page Ashby, President Mr. Bryan Ashby, Vice President, Sales & Marketing Mr. Hunter Ashby, Operations Manager Mr. Stacey Bridges, Sales Manager History of company Carolina Cotton Works, Inc. (CCW) opened for business in March of Starting out in a new building and all new equipment, we soon earned a reputation of having one of the finest dyehouses in the United States. With continued success each year since, CCW has reinvested in new equipment and systems to allow us to stand alone as the most efficient dyehouse in the country. Although we continue to offer commission bleaching and dyeing services, the growth of our business has proven to be in the finished fabric package business. Experience - Quality - Dependability - Three necessary components of strong customer/vendor relationships have been the key building blocks of Carolina Cotton Works. With the experience of company president Page Ashby, comes knowledge of yarn spinning through cutting. We have built solid relationships with several major yarn spinners and knitters in the United States. We have the resources and technical abilities to become the premier U.S. fabric supplier for apparel producers both domestic and international. Using the above equipment in our 64,000 square foot building, Carolina Cotton Works can produce up to 250,000 pounds per week of bleaching and up to 135,000 pounds per week of piece dyeing. Equipment listing: JEMCO III 2000 CBR; (7) 1000 lb. Scholl Rapidstar Jets; (1) 80 lb. Scholl Sample Jet; (2) Santex Relaxed Belt Dryers; (3) Tubetex Pak-Nit II Compactors; RFG Napper; Tubetex 4-Roll Pad; Santex Pad; (2) Santex Shrinking Calendars Products Jersey, Body Size Rib, Fleece, Pique (collars and welts), Herringbone, Interlock, French Terry, Thermal Performance Fabrics, ANSI Fabrics. End Products Supplied Customers use CCW's fabric to manufacture outerwear products such as t-shirts, rib tops, golf shirts, sweatshirts and sweatpants. Underwear products include briefs, t-shirts and thermal underwear. We also process fabric used for moisture transport performance apparel. 9

10 U.S. and World Cotton Economic Outlook Prepared by: Economic Services - National Cotton Council March 2011 The National Cotton Council released its annual early season planting intentions survey results on February 5, 2011 and revealed that US all-cotton plantings in 2011 of 12.5 million acres (14% higher than 2010) should generate a crop of 19.2 million bales, 18.5 million bales of upland and 671,000 bales of extra-long staple Upland cotton intentions are 12.3 million acres, an increase of nearly 14% from 2010, while extra-long staple (ELS) intentions of 251,000 acres represent a 23% increase. Assuming an average abandonment rate of 11%, total upland and ELS harvested area would be about 11.1 million acres. Applying state-level yield assumptions to projected harvested acres generates a cotton crop of 19.2 million bales, compared with 2010 s total production of 18.3 million bales. The survey, mailed in mid-december to producers across the 17-state Cotton Belt, asked for intended 1011 cotton acreage and intended plantings of other 1011 crops. Responses were collected through mid-january. In the report, National Cotton Council staff said while the cotton market is currently calling for more acres, competing crop prices are also strong. Final acreage decisions will be sensitive to how relative prices move between now and planting time. This, along with a number of other issues, including weather, could cause actual plantings to differ from growers stated intentions. (See table below for regional/state responses.) 10

11 PROSPECTIVE 11 U.S. COTTON PLANTINGS SOUTHEAST Alabama Florida Georgia N. Carolina S. Carolina Virginia MID-SOUTH Arkansas Louisiana Mississippi Missouri Tennessee SOUTHWEST Kansas Oklahoma Texas WEST Arizona California New Mexico TOTAL UPLAND TOTAL ELS Arizona California New Mexico Texas ALL COTTON 10 Actual (Thou.) 1/ 2, , , , , , , Intended (Thou.) 2/ 2, , , , , , ,514 Percent Change 12.8% 14.0% 18.3% 6.0% 26.1% 11.2% 26.9% 18.9% 8.0% 8.9% 24.8% 12.4% 39.5% 11.9% 34.6% 14.4% 11.5% 27.0% 15.8% 38.8% 42.5% 13.9% 23.1% 47.2% 23.6% 28.2% 13.7% 14.0% 1/ USDA-NASS 2/ National Cotton Council 11

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