The United States revised three farm export credit programmes on Friday to comply with a world trade ruling that US cotton subsidies distort world trade, but did not alter its highly criticised cotton subsidy. Some $4.4 billion in credits are offered annually through the credit programs, with repayment terms ranging from 15 days to 10 years.
The credits facilitate sales by assuring lenders they will get their money even if the borrower defaults.
Agriculture Secretary Mike Johanns said the revisions, announced less than two hours before the deadline for action, showed the United States would live by world trade rules and would prod other nations toward freer trade.
"The administration continues to evaluate other steps that could be taken to respond to the WTO cotton decision," said Johanns in a statement.
The US announcement did not touch the so-called Step 2 cotton subsidy, which pays exporters and millers to use higher-priced US cotton. Step 2 was a target in the WTO case and was thought certain to be eliminated. Step 2 payments have ranged from $182 million a year to as much as $640 million.
Any change in Step 2 would require action by Congress, said USDA spokesman Ed Loyd, and a decision would be made "in the near future" on what to do.
The administration was obliged to act by Friday under a WTO ruling earlier this year that lavish US subsidies distorted cotton trade globally. Brazil, one of the world's largest cotton exporters, brought the complaint.
A reduction in export subsidies was a good step but the prize is Step 2, said Elio Tollini, executive secretary of the Brazil Association of Cotton Producers.
"The WTO ruling said the United States must end its Step 2 subsidies. Anything less is not acceptable and insufficient," Tollini told Reuters this week in Sao Paulo.
US agricultural negotiator Allen Johnson told Reuters last month that the new legislation required by the changes could get bogged down in a busy calendar.
"I would suspect other issues, non-ag issues like Social Security, are going to be taking up time. But I think if we and Congress are working together in trying to move it forward we can expect it to move relatively quickly," Johnson said then.
Congress is in recess next week and probably will not be in session most of August.
Brazilian experts say their nation could double its cotton output and displace the United States as the No 1 exporter by 2010 if what they called unfair US subsidies end.
US cotton growers have become increasingly dependent on exports in the past several years as Asia's textile industry boomed and the US textile industry shrank. USDA estimates three-fourths of this year's crop will be sold overseas.
As of Friday, USDA said, the fees for its mainstay export credit program, the medium-term GSM-102 guarantees, will be based on the repayment risk for each country and whether payments are made annually or semi-annually.
No more credit guarantees will be issued through the long-term GSM-103 program for fiscal 2005, ending September 30, USDA said. Remaining credit offers will be moved into GSM-102.
In addition, USDA said the short-term Supplier Credit Guarantee Program would be converted to a risk-based fee system similar to GSM-102.
The GSM-102 programme is generally used for sales of raw commodities, such as grain, to targeted countries and allows repayment from 30 days to three years. Supplier credit guarantees are aimed at consumer-ready products with repayment in 15 days to six months. GSM-103 allows up to 10 years for repayment.