Special Cotton Provisions
Special Program Provisions for Upland Cotton
Special marketing provisions are authorized to keep
U.S. upland cotton competitive on the world market. These
competitiveness provisions were known as Step 1, Step 2,
and Step 3. Step 2 was repealed on August 1, 2006. The
provisions also include a limited global import quota.
Step 1: Further reductions in loan repayment rates
are permitted. Step 1 adjustments may be made by
the Secretary of Agriculture when the adjusted world
price (AWP) of cotton is less than 115 percent of the
upland cotton loan rate, and the weekly average U.S.-Northern
Europe price quotation exceeds the Northern Europe price
quotation.
- The U.S.-Northern Europe price is the weekly (Friday-Thursday)
average price quotation for the lowest priced U.S.
Middling (M) 1-3/32-inch upland cotton, delivered
c.i.f. (cost, insurance, freight) Northern Europe
- The Northern Europe price is the weekly average
of world price quotes for the five lowest prices of
upland (M 1-3/32 inch) cotton delivered c.i.f. Northern
Europe.
The adjustment, if made by the Secretary, is limited
to the difference between the two price quotations and
is based on the U.S. share of world exports, the current
level of U.S. export sales and shipments, or other data
determined to be relevant in establishing an accurate
upland cotton world market price (adjusted to U.S. quality
and location).
Step 2: User marketing certificates or cash payments
were made to domestic users and exporters. Step
2 payments were issued to exporters and domestic
mill users
of U.S. upland cotton in a week following a consecutive
4-week period when the lowest U.S.-Northern Europe
price
quotation exceeded the Northern Europe price quotation
and the AWP did not exceed 134 percent of the U.S.
loan rate.
Payments were made in cash or certificates to domestic
users on documented raw cotton consumption, and to
exporters
on documented export shipments, at a payment rate equal
to the difference between the U.S.-Northern Europe
price
and the Northern Europe price during the fourth week
of the period.
On February 8, 2006, the President signed legislation
that repealed the upland cotton User Marketing Certificate,
or “Step 2” Program. Termination was
effective August 1, 2006, so payments were possible
through the
end of the 2005/06 (August-July) marketing year. Repeal
of the Step 2 Program terminates export subsidies and
import substitution subsidies cited by the World Trade
Organization (WTO) in the findings of a dispute settlement
panel.
Step 3: Special import quotas are permitted to
temporarily increase cotton supplies. Step 3,
as amended, authorizes the President to announce
a special import quota for
upland cotton, if for any consecutive 4-week period,
the weekly average U.S.-Northern Europe price quotation
(adjusted for any certificate value in effect, unless
U.S. supplies are extremely tight) exceeds the Northern
Europe price quotation by more than 1.25 cents per
pound (the 1.25-cent threshold was delayed until
August 1, 2006 by the 2002 Farm Act).
The quota equals 1 week's domestic mill consumption
of upland cotton at the seasonally adjusted average
consumption rate during the most recent 3 months for
which data are available. The quota applies to upland
cotton purchased within 90 days after quota announcement
and entered the United States within 180 days after
announcement. The quantity imported under Step 3 during
any marketing year is limited to 5 week's domestic mill
consumption of upland cotton as established in the first
special import quota of any marketing year.
A limited global import quota is authorized
when the average monthly spot price of base quality
upland cotton exceeds 130 percent of the average price
during the preceding 36 months. The quota equals 21
days of domestic mill consumption of upland cotton at
the seasonally adjusted average rate during the most
recent 3 months for which data are available. The quota
applies to upland cotton entered into the United States
within 90 days after quota announcement.
A special import quota cannot be established if a limited
global import quota is in effect. In addition, the special
import quota and the limited global import quota quantities
are considered to be "in quota" for purposes
of tariff-rate quota provisions of trade agreements,
so they are not subject to over-quota tariffs.
Special Program Provisions for Extra-Long Staple Cotton
Special marketing provisions are also authorized to
keep U.S. extra-long staple (ELS) cotton competitive
on the world market. The ELS competitiveness program,
which began in October 1999, is similar to the former
upland Step 2 program.
The ELS competitiveness program issues payments
to exporters and domestic mill users of U.S. ELS cotton
in a week following a consecutive 4-week period when:
- The lowest Friday-Thursday average for foreign ELS
cotton, quoted c.i.f. Northern Europe, (adjusted to
U.S. quality and location) is less than the Friday-Thursday
average domestic spot price quotation for U.S. ELS cotton
(grade 3, staple 44, micronaire 3.5 or higher, uncompressed,
free on board warehouse), and
- The lowest foreign quote does not exceed 134 percent
of the U.S. ELS loan rate.
Payments are made in cash or certificates to domestic
users on documented raw cotton consumption, and to exporters
on documented export shipments, at a payment rate equal
to the difference between the U.S. price and the Northern
Europe price during the fourth week of the period.
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