THE YEAR IN PERSPECTIVE

Thank you, Bob, Council delegates and honored guests. I truly appreciate the opportunity to share some observations with you this morning as we reflect on our industry's unusual experiences this past year and as we look ahead to what we all hope will be a considerably brighter future.

My year as the Council's Chairman has been an interesting one. It was a year filled with extraordinary frustrations stemming from events that inflicted economic havoc on our industry. But it was also a year that saw our industry coalesce behind common policies that I firmly believe have moved us to the threshold of economic recovery.

During the past twelve months we saw cotton textile imports rise to record levels. We witnessed U.S. textile mill closings at an unprecedented rate. We saw domestic mill consumption drop to the lowest level and carryover stocks rise to the highest level since the mid-1980s. We saw cotton prices drop to the lowest level in more than three decades. The frustrations were both numerous and profound.

Yet it was highly satisfying to see Council leaders come to grips with some potentially divisive policy issues and find the necessary consensus to achieve important program changes that will undoubtedly benefit all segments of the industry. By doing so, the Council was able to maintain the course Bob McLendon laid out in the 2001 Annual Meeting theme - "Today's Vision, Tomorrow's Challenge."

Maintaining a steady course has not been without its trials. The tragic events of September 11 confronted our nation with new national security challenges and new priorities.

In the waning days of 2001 our patience was sorely tested as Congress and the Administration grappled with the convergence of numerous issues, all of which have highly significant implications for the economic viability of our industry. New farm law, economic stimulus legislation, Trade Promotion Authority, renewal of the Andean Trade Preference Act, amendments to the Caribbean Basin Trade Act and the African Growth and Opportunity Act plus thirteen appropriations measures were among the issues on the Congressional agenda as the year came to a close.

It was an assortment of challenges that would put to test the "vision" called for in last year’s Annual Meeting theme. As our nation prepared to fight back against terrorism, how could we press Congress to move ahead with timely passage of new farm law without appearing to be unpatriotic? The same question would be raised as we joined our textile Interest Organizations in opposing a further give-away of our domestic market to U.S. allies as compensation for their assistance in this new war.

Of course with our entire industry on the brink of insolvency, we had no choice but to persevere with our policy objectives – simply doing our best and hoping that policymakers would conclude that the costs of waging war on terrorism should not be borne disproportionately by U.S. agriculture and the U.S. textile industry.

Churchill once said, "It is no use saying, 'We are doing our best.' You have got to succeed in doing what is necessary." With respect to these issues, I believe the Council not only did its best; it also did what was necessary.

As we left last year's annual meeting in San Diego, we were about to plant our sixth crop under the FAIR Act. It is noteworthy that in 1996, when that farm bill was signed into law, the price of cotton on the New York Board of Trade was 81 cents per pound. Since then, we have experienced a steady decline in the price of cotton, with the New York price falling to 30 cents during the harvest season last fall.

The FAIR Act’s inadequacies became apparent with the pervasive four-year free-fall of commodity prices that left cotton farmers with no cropping alternatives and a terribly inadequate income safety net. While more than half of farm income has come from the federal government for the past three years, the FAIR Act provided only a part of that assistance. Emergency economic assistance has provided the necessary additional support to ensure the survival of many farmers.

At the other end of the distribution chain, however, there was no emergency assistance to help our domestic textile industry cope with a virtual avalanche of imports. Driven in large measure by currency exchange rates that saw the value of the dollar rise by 44% over major Asian currencies since 1995, cotton textile imports reached 16.1 million bale equivalents in 2001. As a result, mill use fell 30 percent below 1997's level.

Last year, 124 mills closed with a corresponding loss of 60,000 jobs and some of the biggest names in textiles.

If not for the marked improvement in export sales of raw cotton, our industry would be in even worse shape. U.S. exports are estimated to reach 9.8 million bales this season. If realized, this will be the highest level in 75 years and will boost our share of world cotton trade to 34 percent, compared with the 25 percent we normally capture.

Obviously, an unusually low price is the primary driver in moving this larger volume of U.S. cotton into export markets -- and it comes at a cost to the cotton grower. One way or another, though, the cotton must move to market; otherwise low prices will remain chronic.

The audio/visual report you will see this morning will highlight a number of specific Council activities to address perhaps the most difficult economic situation our industry has faced since the great depression years that prompted the formation of this industry-wide organization. I want to set the stage for that report by summarizing several aspects of the approach we took in implementing the policies that were developed by our delegates in San Diego.

FARM BILL

Of course, at the top of our 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.

With analytical assistance from staff, industry leaders reviewed a number of program options. The review led us to recommend a program that would continue the marketing loan and 3-Step competitiveness provisions but would add a benefit delivery system that relies on a combination of fixed and counter-cyclical payments. We felt this approach would enable us to achieve the highest level of total benefits without running afoul of the spending constraints imposed by the budget resolution and WTO.

Our recommendations were unveiled by Bob McLendon as the lead-off witness before the House Agriculture Committee in February. Eventually – and despite the events of September 11 and opposition by the Administration -- the House of Representatives passed its version of new farm law that in very large measure mirrored the farm policy approach we had recommended.

The Senate got a much later start, and there was considerable doubt about whether this body would return to farm bill consideration after September 11. However, the National Cotton Council and a number of other commodity and general farm organizations joined in urging the Senate to move ahead. Our persistence paid off. The Senate did resume deliberations, but the early farm bill drafts circulated by Senators Harkin and Lugar were a far cry from what the Council had recommended. Senator Lugar’s bill, which had the Administration’s support, was overwhelmingly defeated in Committee. Meanwhile, through the persistence of Cotton Belt Senators, especially Senators Lincoln and Miller, most of our priorities were eventually included in the bill passed by the Senate Agriculture Committee in November.

Cotton’s priorities were also included in a bill offered by Senators Cochran and Roberts and another by Senators Hutchinson and Sessions. Both bills failed.

As the Christmas break approached and Senator Daschle had been unable to attract enough votes for cloture, he turned the Senate to other business.

Last week the Senate resumed farm bill deliberations with an agreement to limit the number of amendments that would be considered. Among the amendments allowed was the one sponsored by Senator Grassley that imposes a means test on farm program eligibility and otherwise applies strict limits on benefits a farmer can receive. The amendment, which was approved by a wide margin, will reduce benefits below the clearly inadequate level in current farm law.

Debate continues this week, and expectations are that a vote on final passage will occur within a matter of days. If the bill passes, workable farm policy will hinge on whether the Conference Committee can undo most of the damage the Grassley amendment would cause. If it does not pass, we must urge Congress to authorize emergency relief for yet another year while efforts are undertaken to draft workable policy for 2003.

TRADE

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 free trade negotiations with textile producing countries, a new round of multilateral trade negotiations and the long-anticipated entry of China into the World Trade Organization.

These are daunting challenges and they demand a strong response.

An agreement among diverse textile and apparel interests on implementation of Caribbean Trade Preferences enabled our industry to speak with a stronger, more unified voice and will hopefully move us closer to getting the benefits promised by that legislation.

With domestic mill use of cotton falling more than 30 percent and many textile manufacturers facing bankruptcy, both the Council and the American Textile Manufacturers Institute completed reports showing that the strong U.S. dollar was dampening U.S. exports and devastating U.S. textiles. We repeatedly urged Congress to eliminate the 1.25-cent threshold in the Step 2 program and pass aggressive measures that would improve the availability of capital for textile companies.

While the House of Representatives moved aggressively forward on several trade expansion fronts, 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 concessions offered by the Bush Administration during full House consideration of Trade Promotion Authority.

This more unified approach also paid dividends in a more focused message to our negotiators that textiles could not be given away in the new WTO round.

The lesson, as always, is that a consistent message brings results.

OTHER ACTIVITIES

As always, the Council’s activities last year were numerous and diverse. While my report has focused on farm and trade policy activities, we have pursued the industry’s objectives on a very broad front.

I invite your attention, now, to the audio/visual report of activities prepared by Council staff that details the scope of our agenda. After it is over, I want to share some brief observations about what I see as the Council’s agenda for 2002.

(NCC Audiovisual Report Shown at this Point)

Thanks to Council staff, and particularly to the Communications and the Production/Audio Visual departments, for that excellent report.

To conclude my remarks this morning, I want to share some observations about several matters that appear inevitable and, if so, they will have unavoidable implications for our industry and the Council in the months and years ahead.

Bob McLendon chairs a study committee that I appointed last fall to evaluate political and economic eventualities with the goal of focusing Council resources on the most pressing needs and those with the greatest potential for payback on our efforts.

I don’t mean to preempt the work of Bob’s committee. However, whatever else the study committee finds, I can’t imagine a scenario that does not keep policy development and implementation as the central mission of the Council. And I’m not thinking just about farm policy. I’m thinking about a melding of farm policy with other national priorities, including international trade policy, social policy, environmental preservation and rural development. We saw these national interests take on a higher priority during last year’s debate on a new farm bill, and we saw advocates for these causes exerting more influence than usual on the allocation of funds earmarked for farm programs.

When the dust settles on the new round of WTO negotiations, agricultural subsidies will still flourish around the world. Therefore, if vitality is going to be restored for U.S. agriculture, we must make sure that our government does not unilaterally discontinue or disproportionately reduce agricultural assistance for our farmers.

Through the initiatives of our own negotiators, we can expect to see a continuation of pressure to reduce agricultural subsidies, especially those that are considered to be trade distorting. In my opinion, farm policy will not be something we engage in every five years or so. Rather, it will be on- going and always linked to international trade initiatives and other national priorities.

As we develop policy for the future, we must not lose sight of these interrelated goals of our nation. Our farm policy recommendations in 2001 were developed with a view toward our existing WTO obligations, and this foresight served us well. In the future, I believe we should become more proactive in integrating farm policy with rural development and environmental preservation. To some extent this simply means that we need to do a better job of making all interests understand that good farm policy should be the leading component of progressive rural development and good farm policy does make a valuable contribution to environmental preservation.

For the immediate future, international trade issues must be among the Council’s highest priorities. Continuing globalization of trade stands as the biggest potential threat as well as the biggest potential opportunity for our industry.

Trade expansion is very near the top of the Bush Administration’s agenda – a priority that is shared by a sufficient majority of Congressional leaders to assure that new legislation and new trade agreements will multiply. The explosion of new agreements during 2001 should remove any doubt about this prospect.

In the months ahead, a new WTO round will occupy our attention; work will resume on renewal and expansion of the Andean Trade Pact; discussions will ensue on a Free Trade Agreement of the Americas. And there will be others. The cotton industry has a major stake in the outcome of these initiatives.

The closing of textile mills over the past year and the shrinkage of domestic mill consumption have elevated the industry’s awareness of the potential adverse impact of trade. While the mill closings and market losses were distressing, I was encouraged to see the growing expressions of concern not only by leaders in all segments of the industry, but by rank-and-file members who increasingly see textile trade as an industry-wide concern that merits industry-wide action.

I began my remarks by saying that I believed we were on the threshold of economic recovery. I do believe that.

There are several reasons to expect near term improvement. Despite the anxiety we all share about Senate approval of the Grassley amendment, I remain optimistic that sanity will eventually prevail and we will be working under substantially improved farm policy. Our immediate objective is to finalize a few farm bill that will apply to this year’s crop and will not impose additional significant restrictions on benefits. I remain optimistic that we can achieve this short-term objective.

Secondly, on the trade front, the commitments made by the Administration to textile area lawmakers in exchange for their support for Trade Promotion Authority are not insignificant. We will not only press hard to see that these commitments are kept, but we will join with ATMI, AYSA and other textile organizations to solidify support for textile trade provisions that are favorable to U.S. manufacturers in every agreement under consideration.

I am pleased that the Council has been asked to be the coordinating organization for the Textile Alliance, a group formed several years ago to foster consensus-building and coordinated action on textile trade issues. To our textile members I would say that we will take that coordinating role seriously and will work very hard to help the organization deliver on it’s defined mission. Our membership has seen first hand what can be accomplished in the farm policy arena when we reach consensus and work together as a united, determined industry. We need that same solid front on trade issues.

Finally, I believe we can expect to benefit from economic recovery, which is looking more promising for the United States. And most observers are expecting more robust economies among other nations in 2002, with the possible exception of Japan.

Council economists estimate that the U.S. retail market for cotton textile products fell by about one million bale equivalents in 2001. That hurt. However, when demand begins to improve, a positive ripple will immediately flow back through the textile and fiber markets. Pipelines are thin, and domestic textile mills and U.S. fiber producers will be the first to benefit from expected improvement in retail demand.

On balance, I believe all these positive influences will put us on the road to economic recovery and improved profitability. We will not get there overnight, of course. There will be a continuing need for the same unity and persistence that have characterized the Council’s approach to solving problems and seizing opportunities for the past sixty-five years.

We enter 2002 with record membership participation in the Council … with exceptional officer, board and delegate leaders … with a clear understanding of the problems we face … and with a stubborn determination to solve them. I look forward to working with you to that end.