The Trade Effects of MERCOSUR and The Andean Community on U.S. Cotton Exports to CBI countries

limit which increases over time. The CBI will promote U.S. investment in the Caribbean Basin
and help strengthen the international competitive position of the U.S. textile industry. These
provisions are harbingers of success for U.S. cotton because they will induce increased U.S.
exports of cotton fabric and yarn to the Caribbean and stimulate U.S. domestic consumption of
fabric and thread for export.

Cotton is a major commodity for the U.S. generating about $4-5 billion in annual cash
receipts (Dodson 1995). By value, cotton ranks fifth among agricultural commodities
Furthermore, cotton is a major raw material for the textile and apparel industries creating heavy
dependence by these industries on cotton production. The demand for raw fiber is derived from
consumer demand for textile products where cotton is an important textile fiber (Marseli and
Epperson, 2002). U.S. cotton exports to CBI countries over the past two decades have been fairly
consistent. Following a trend of rapid growth in the early 1990s, there was a slight drop in the
later part of that decade. However, there has been significant increase in the last two years.

The overall objective of this study is to analyze cotton trade among the CBI,
MERCOSUR, and the Andean Community to determine effects of these RTAs on U.S. exports
to the CBI. Specific objectives are to 1) examine factors influencing U.S. cotton exports to the
CBI; 2) econometrically determine whether trade is created or diverted for U.S. cotton exports to
the CBI.

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