U.S. Works for WTO Compliance on Cotton

WASHINGTON - Jul 6/05 - SNS -- Legislation aimed at bring cotton support programs in the United States into compliance with the country's world trade organization (WTO) obligations will be brought before Congress.

Agriculture Secretary Mike Johanns said the proposed statutory changes affect wheat is generally known as the Step 2 cotton program and the export credit guarantee programs.

"By implementing these proposed changes, we are being fully responsive to the WTO decision," said Johanns. "This step is essential for 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. We very much appreciate the close cooperation of the industry groups in developing this approach and will work with the Congress as this proposed legislation is considered."

The proposed statutory changes would eliminate the Step 2 program, remove a 1% cap on fees that can be charged under the export credit programs, and terminate the Intermediate Export Guarantee Program (GSM-103).

Repealing the Step 2 program would remove both the export subsidies and import substitution subsidies that the WTO cited and address issues related to suppression of cotton prices in world markets. Eliminating the one-percent fee cap would make the Export Credit Guarantee Program more risk-based. Terminating the GSM-103 program would reinforce the recent U.S. decision to stop using longer-term export credit guarantees.

On June 30, USDA announced that beginning July 1, the Commodity Credit Corporation (CCC) would use a risk-based fee structure for the Export Credit Guarantee Program (GSM-102) and the Supplier Credit Guarantee Program (SCGP). Fee rates are now based on the country risk that CCC is undertaking, as well as the repayment term (tenor) and repayment frequency (annual or semi-annual) under the guarantee. The new structure responds to a key finding by the WTO that the fees charged by the programs should be risk based.

In addition, the CCC no longer accepts applications for payment guarantees under GSM-103. Any remaining country and regional allocations for GSM-103 coverage under fiscal year 2005 program announcements will be reallocated to the existing GSM-102 program for that country or region.