It is a pleasure to be with you this morning and have this opportunity to provide an update on the priorities and activities of the National Cotton Council.

When I met with you last year, I reported that our industry was entering a fourth straight year of low cotton prices, a decline in domestic textile mill use well below 10 million bales and thin margins for crushers resulting in weak cottonseed prices to producers.

Unfortunately, as 2001 progressed, an already poor business climate got even worse. Cotton prices at the farmgate were negatively impacted by the combination of a sluggish U.S. and world economy, a strong dollar, China’s cotton policies, an overabundance of cheap manmade fibers, unused textile capacity, and weak prices for alternative crops.

Last year, we saw cotton textile imports rise to record levels, witnessed U.S. textile mill closings at an unprecedented rate, and saw domestic mill consumption drop to the lowest level and carryover stocks rise to the highest level since the mid-1980s.

Throughout 2001, at the top of the Council’s priority list was getting new farm legislation that retained the best provisions of the FAIR Act and put into place an improved income safety net. We needed to achieve these objectives while complying with an overall spending cap established by a Congressional budget resolution. At the same time, we had to be mindful of our WTO commitment that puts a limit on so-called "trade distorting" subsidies.

While farm program benefits that are coupled to price or production tend to be the most cost-effective and what most of us would characterize as good farm policy, they are called "trade distorting" under WTO rules and cannot exceed a specified spending ceiling. The non-coupled farm program benefits are considered non-trade distorting under WTO, but they are less cost effective and make it more difficult to attain Congressional budget targets.

As Congress struggled to craft new farm legislation, the industry was determined to get lawmakers to recognize that its foreign counterparts heavily subsidize agriculture and contribute to a supply/demand imbalance. The industry’s strong response to the Council’s action requests helped the House pass a farm bill that included most of the Council’s farm policy recommendations.

The Senate’s farm bill deliberations got a much later start and their early farm bill proposals were unacceptable to the cotton industry. Through the persistence of Cotton Belt Senators, most of the cotton industry’s priorities were eventually included in the bill passed by the Senate Agriculture Committee late last year.

Trade issues shared center stage with farm bill activity in 2001. The cotton industry faced surging imports of cotton textiles, sagging textile demand worldwide, challenges to important export assistance programs, new trade agreements with textile producing countries, a new round of multilateral trade negotiations and the long-anticipated entry of China into the WTO.

An effective trading relationship with the Caribbean region has been a primary component of the Council’s strategy to improve the competitiveness of U.S. textiles and we worked for clarification of rules implementing CBI legislation.

We also sought to re-direct the broad move in Washington to expand foreign access to the U.S. textile market.

As expected, the House moved aggressively on several trade expansion fronts during 2001 and before year’s end, they passed Trade Promotion Authority - a key part of President Bush’s trade policy initiatives for 2001.

The Council worked with textile leaders to improve the impact of these bills on the U.S. textile industry. Our combined efforts culminated in a number of promises made by the Bush Administration during full House consideration of TPA.

To summarize several other important Council activities from 2001:

Last week’s tentative farm bill agreement by the conference committee provides reason for optimism. We are very pleased that cotton’s farm program priorities remained intact and that our industry’s Congressional leadership was able to persist throughout a very long and frustrating process to maintain the elements of good farm legislation. I would specifically commend the efforts of House Agriculture Committee chairman Larry Combest and ranking member Charlie Stenholm. Other House conferees, including Chambliss, Pombo, Everett, Lucas and Dooley, played a vital role in this process also.

On the Senate side, a number of Cotton Belt Senators who were not on the Conference Committee played an important role in keeping the Majority Leader focused on cotton’s concerns in the waning days of the conference process. We owe Senators Lincoln, Miller, Breaux, Landrieu, Edwards, Cleland and Carnahan special thanks for their persistence on our behalf.

Also, Cotton Belt conferees Cochran and Helms, although in the minority among Senate conferees, still managed to play an extremely important role.

You may already be familiar with the details of the farm bill agreement, but I will quickly review the agreement’s cotton provisions:

I believe we were all frustrated by the slow-moving process with the farm bill. However, even as the process extended well into the planting season, we were very reluctant to entertain thoughts of switching our priorities from a farm bill to emergency assistance, even though that approach appeared to deliver benefits more quickly. In reality, though, I’m not sure benefits would have been delivered any quicker and it is certain that neither 2002 benefits nor subsequent annual benefits would have been as large as they are under provisions of the conference agreement.

The payment limit provisions were among the most difficult issues to reach consensus on within the farm bill conference. The Council worked very hard to demonstrate that the Senate’s Grassley-Dorgan provision would have had disastrous effects on Southern growers.

A web site sponsored by the Environmental Working Group helped generate what turned out to be overwhelming Senate approval of the Grassley-Dorgan amendment. In a letter to cotton belt Senators, the Council detailed the cotton industry’s concerns with the Grassley-Dorgan amendment and pointed out that data posted on EWG’s web site is both incomplete and highly misleading.

We believe the conference agreement on payment limits, calling for total limits for $360,000 and a means test, instead of the House’s original proposal of $550,000 and the Senate’s $275,000, appears to strike an acceptable balance between payment-limit reform and the need to ensure commercial farming operations can remain viable. However, the Environmental Working Group and the Congressmen who have followed their lead are already putting their highly critical spin on the payment limit compromise.

Fundamentally, the Council's central goal for the remainder of 2002 is the same as last year - to do whatever is necessary to restore industry profitability. Obviously, new farm legislation was an extremely high priority in that quest. However, profitability cannot be fully restored through passage of good farm legislation alone. The economic health of the U.S. cotton industry is inseparably linked to the health of U.S. agriculture as a whole and to the health of the U.S. textile industry.

In addition to our efforts on the farm bill, success with our fundamental mission will depend on our ability to lead a determined and united industry to:

• deal effectively with a host of regulatory issues;
  build new export markets for U.S. cotton; and
• address a growing list of trade initiatives that are high on the Bush Administration’s agenda and that have major implications for all industry segments;

A year ago, there may have been some members of the cotton industry who did not fully understand the implications of trade policy for our industry. I dare say there are none today that don't see that connection, just in viewing almost daily headlines showing another textile mill closing and observing our U.S. mill consumption fall from more than 11 million bales a few years ago to a current rate of around 7.5 million.

The Council has facilitated meetings between sales yarn and vertical textile mill leaders in an effort to find consensus on provisions of legislation to renew and expand trade preferences for Andean countries and related trade issues. To date, our effort to influence trade policy has been hampered by an inability to find the common ground that enables all segments of the cotton and textile industries to speak with one voice. Hopefully, these continuing discussions will result in a meeting of the minds on important trade issues that affect all of us in an increasingly important way.

Our industry must also be more active in ensuring WTO compliance with competing nations. The Council has raised serious concerns about China’s WTO compliance with the Office of the Trade Representative. In our objections, we point out that China used their WTO agreement to further increase their cotton textile exports to the U.S. while shielding their own industry from competition.

The industry’s current economic situation is perhaps as dire as it has been since the Council’s inception during the Great Depression years. The Council must continue to have the kind of broad-based industry support and leadership that have enabled us to deliver against unusual odds for more than 60 years.

In closing, I want to thank you for your support and personal involvement in the Council’s broad program of work. You have been an important part of the Council coalition that continues to be the standard by which other commodity groups are measured. I urge you to continue that support and active involvement. Without it, we cannot maintain the kind of influence we have exerted on farm policy for the past six decades.