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Provisions added
by the Food, Agriculture, Conservation, and Trade Act of 1990 to the cotton
program designed to keep U.S. cotton price competitive in domestic and export
markets. Sometimes referred to as the "three-step competitiveness" provisions.
Step 1 is the discretionary authority for USDA to
reduce the adjusted world price (used in the
cotton marketing assistance loan program) when
world prices are declining to near the adjusted world price, but U.S. prices are
higher than world prices. Though rarely used, the Step 1 adjustment is intended
to make marketing loans more effective in keeping U.S. cotton globally
competitive. Step 2 payments, sometimes referred
to as the "user marketing certificate program," are made to U.S. cotton users
and exporters when U.S. prices are higher than world prices. Step 2 payments are
intended to bridge price gap and keep U.S. cotton competitive. Step 3 mandates
the opening of a "special import quota" when the differential between the higher
U.S. price for cotton and the lower price for foreign cotton extends for a
specified length of time. Its purpose is to allow imports to enter, acting to
lower U.S. prices to bring them more in line with world prices. Step 3 quotas
were in effect in April-May 1995, from late October 1995 through early May 1997,
and were triggered in late February 1999. A step 3 quota cannot be established
if a limited global quota for upland cotton is in
effect, which operates differently and is triggered when other price conditions
are met.
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