During the 1960s, in an effort to address the decline in demand for cotton brought on by competition from synthetic fibers, cotton industry organizations proposed legislation to create a federally authorized, industry-funded program aimed at expanding consumers’ demand for cotton. Subsequently, the Cotton Research and Promotion Act of 1966 authorized the creation of the Cotton Board and charged it with increasing cotton’s share of the textile and apparel market through a research and promotion program. The 1966 act gives the Cotton Board the primary responsibility for administering the cotton check-off program, including developing program plans and budgets. The act also directs the Cotton Board to contract with an organization, governed by cotton producers, to carry out its research and promotion activities. Since 1967, that organization has been a nonprofit corporation called Cotton Incorporated. From 1967 to 1991, all domestic producers had to pay cotton assessments. However, the act allowed producers who were not in favor of supporting the program to request a refund. In the late 1980s, about one-third of the assessments collected were refunded. In November 1990, the Congress enacted the Cotton Research and Promotion Act Amendments of 1990, which was included under title XIX, subtitle G, of the Food, Agriculture, Conservation, and Trade Act of 1990 (known as the 1990 Farm Bill). These amendments authorized two fundamental changes in the funding procedures for the cotton check-off program: (1) the imposition of assessments on imported cotton and cotton-containing products and (2) the elimination of refunds. To become effective, however, these revisions had to be approved in a referendum by at least half of the domestic producers and importers voting. About 60 percent of those voting approved these revisions in July 1991. In effect, the approved changes made the program mandatory for both domestic producers and importers. After the final regulation was issued and other administrative procedures were completed, import assessments on cotton products began to be collected on July 31, 1992. The assessments are collected by Customs and remitted to the Cotton Board through AMS on a monthly basis. Domestic producers pay an assessment when they sell their raw cotton. The current cotton assessment is a fixed rate of $1 per 500-pound-bale plus 0.5 percent of the market value. Based on a market value of 60 cents per pound, the total assessment per pound of raw cotton is about one-half cent. Importers pay an assessment on the raw cotton equivalent of imported textiles and apparel. To calculate the assessment rate for imported cotton products, USDA has established procedures for estimating the amount of raw cotton used to manufacture about 700 different cotton products. (See app. I for examples of how AMS calculates rates for an imported cotton product.) Because the check-off program is federally authorized, the Secretary of Agriculture and AMS have certain oversight responsibilities. The Secretary must approve the Cotton Board’s recommended program plans and budgets before they can become effective. AMS’ responsibilities include (1) developing regulations to implement the check-off program, in consultation with the cotton industry, and (2) ensuring compliance with the authorizing legislation and AMS’ orders and regulations. Generally, the act and AMS’ regulations specify allowable activities, such as the type of promotion or research activities, the level and collection of assessments, the composition of the Board, and the types of allowable expenditures. To ensure compliance, AMS reviews the Board’s budgets and projects to, for example, prevent the Board from engaging in prohibited activities, such as lobbying. However, AMS’ oversight role does not include reviewing the program’s effectiveness. AMS is reimbursed by the Cotton Board for its oversight costs. The assessment on cotton imports and the elimination of refunds have contributed, in large part, to the substantial growth in the Cotton Board’s check-off revenues since 1990. In 1990, the Cotton Board received check-off revenues from producers of about $27.6 million after refunds. In fiscal year 1994, the Cotton Board’s check-off assessment revenues totaled about $56.8 million—$43.2 million, or 76 percent, from domestic producers and $13.6 million, or 24 percent, from importers. The imposition of the cotton import assessment has not prevented increases in the U.S. consumption of cotton. Between 1984 and 1991, the U.S. consumption of raw cotton and cotton products grew from 4 billion pounds to 6.2 billion pounds, an average annual growth rate of 6.6 percent. Following the imposition of the cotton import assessment in 1992, the U.S. market continued to grow at about the same rate through June 1995. The U.S. consumption of cotton may exceed 8 billion pounds in 1995. (See fig. 1.) Government and other experts knowledgeable about the U.S. textile and apparel industry agreed that the imposition of the cotton import assessment beginning in July 1992 has had no significant impact on the long-term growth in U.S. consumption of domestic cotton. They pointed out that the relatively small size of the cotton import assessment—about one-half cent per pound of raw cotton equivalent—is likely to have little effect on retail prices. According to these experts, the primary factor explaining the growth in cotton consumption since 1984 is consumers’ increasing preference for cotton apparel—per capita consumption increased from 17 pounds to 30 pounds between 1984 and 1994. They also said that technological developments, such as wrinkle-resistant cotton fabric and different denim finishes, have further enhanced consumers’ preference for cotton apparel. In addition, these experts said that the cotton check-off program has contributed to consumers’ preference for cotton, although they could not cite any study measuring the extent of the program’s contribution. According to USDA’s Chief Economist, a positive correlation generally exists between increased promotion and increased sales of a particular product. However, he also said that researchers measuring this positive correlation have found that it can vary from small to large, depending on the product, the time period involved, and other factors. As discussed in the conference report on the 1990 Farm Bill, some lawmakers were concerned that while importers would be contributing to the check-off program on an equal footing with domestic producers, they would be denied equivalent access to the U.S. cotton market because of tariffs and quotas. According to the USTR, in 1992 the United States maintained quotas for about 67 percent of imported cotton products. Despite these concerns, quotas and tariffs have not prevented cotton imports from sharing in the growth in the U.S. market. Cotton imports have grown even faster than U.S. consumption, increasing from 1.5 billion pounds in 1984 to about 3.8 billion pounds in 1994, an average annual growth rate of about 10 percent. In addition, imported cotton products accounted for 48 percent of U.S. cotton consumption in 1994, up from 37 percent in 1984. Industry experts attribute the growth in these imports primarily to the growing U.S. market for cotton products and lower-priced apparel manufactured in developing countries with low wages. These experts also pointed out that in the absence of quotas and tariffs, cotton imports would probably have increased at an even higher rate, although they could not say by how much. The experts cited several reasons for the increase in cotton imports, even with quotas. First, not all countries are subject to U.S. quotas. Second, countries subject to these quotas vary in the amount of their quota, and the United States has generally agreed to annual increases in the quotas. Third, not all countries fill their quotas. And fourth, when countries do fill their quotas, U.S. retailers and major textile and apparel exporters have become adept at finding alternative sources of supply in countries that have not filled their quotas. The experts also pointed out that current bilateral quotas negotiated under the Multi-fiber Arrangement will be phased out over 10 years under the Uruguay Round agreement, negotiated under the General Agreement on Tariffs and Trade (GATT). Similarly, as a result of the Uruguay Round agreement, the United States has agreed to slightly reduce textile and apparel tariffs to an average of 15 percent over 10 years. However, experts note that tariffs—currently an average of 17 percent of the value of imported apparel—have not prevented cotton imports from increasing even faster than domestic consumption. This increase has occurred because imported apparel apparently has a substantial cost advantage over domestic apparel. According to USTR’s Assistant U.S. Trade Representative for Agricultural and Commodity Policy and officials from the Foreign Agricultural Service’s Tobacco, Cotton, and Seed Division in USDA, the assessment on cotton imports complies with the requirements of U.S. trade agreements. The primary guiding principle of these agreements for imports is that of “national treatment,” which is established in the GATT, Article III, National Treatment on Internal Taxation and Regulation. This principle holds that imports (1) shall not be subject to internal charges that are higher than those applied to like domestic products and (2) shall be treated, under national laws and regulations, as favorably as like domestic products. According to USDA documents and our discussions with officials from the Foreign Agricultural Service and the USTR, the implications of the cotton import assessment were discussed during USDA’s rule-making process for cotton imports in 1991 and during GATT negotiations during 1992. Officials concluded that the cotton import assessment complies with the principle of national treatment because the assessment imposed on importers is the same as the assessment imposed on domestic cotton producers and the assessment is mandatory for both importers and producers. Furthermore, importers have shared in the growth of U.S. cotton consumption as much as domestic producers, as measured by the increasing import share of the U.S. market. During 1991 and 1992, some major importers and foreign countries objected to the U.S. imposition of the check-off assessment on cotton imports.