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Congress Scraps Step 2 Cotton Subsidies

By Oxfam

Washington, DC—International organization Oxfam America welcomed yesterday’s vote in the US House of Representatives to eliminate the Step 2 cotton export subsidy program as part of the 2006 budget legislation.

The controversial Step 2 program pays exporters and domestic mills to purchase higher-priced US cotton and has been found to violate WTO rules. Step 2 will continue to operate this year, but will be terminated in August 2006.

"This is a victory, albeit a modest one,” said Raymond C. Offenheiser, President of Oxfam America. “Eliminating Step 2 is a solid step forward for the US Congress, but more is needed to fully comply with international commitments and give struggling farmers around the world a fair chance."

Step 2 payments are highly concentrated among fourteen firms, four of which collected more than $100 million each from taxpayers between 1995-2003. Last year, the World Trade Organization (WTO) found the Step 2 program, along with $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the US in cotton and other commodities, to violate WTO rules. At the WTO ministerial in Hong Kong in December, negotiators agreed that countries must end export subsidies this year, especially those for cotton.

“Agriculture has the potential to lift so many out of poverty, grow economies and build a more prosperous world and now we are just one small step closer, said Offenheiser. “However, the reform of all trade distorting subsidies is necessary to bring relief to the millions of struggling farmers in poor countries.”

Cotton has become a symbol of the inequities of global agricultural trade. As one of the most widely produced agricultural crops in the developing world, cotton is a vital source of foreign exchange, investment and economic growth for some of the world’s poorest countries. But because of trade distorting US cotton subsides, the poor cotton producing countries of West Africa—where more than 10 million people depend on cotton for their livelihoods—lost almost $400 million between 2001 and 2003.

"Even as we celebrate this small victory, Congress took a pass on the opportunity to reform commodity subsides through the budget reconciliation process,” said Offenheiser. “A lot more action is needed to deliver a more equitable and sustainable farm program for America and the world."

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