The 'Cotton Initiative' at the Cancun Ministerial Meet
A
prominent feature of the Cancun Ministerial meet was
a debate about how high subsidies given to cotton
farmers by developed countries is adversely affecting
cotton exporters from some West African countries.
On the first day of the Cancun Ministerial meet, Benin,
Burkina Faso, Chad and Mali pointed out that as a
result of subsidies given to cotton in richer countries,
exports of these four West African countries have
suffered. They argued that subsidies given to farmers
in developed countries induce overproduction of cotton
in those countries. This surplus cotton is dumped
in the international market at an artificially cheap
rate. Excess supply of cotton is driving down the
prices in the international market. Data show that
between 1997 and 2002, international prices of cotton
have declined by 39 percent and cotton prices in 2002
were at a 30 year low (see
accompanying story). Declining international prices
of cotton and increasingly lower price realization
from cotton exports is hurting cotton exporters from
developing countries. The problem is more acute for
Benin, Burkina Faso, Chad and Mali because cotton
is the main cash crop as well as the most important
source of export revenue for these four countries.
Cotton production accounts for 5 to 10 per cent of
the gross domestic product
(GDP)[1] in these four
countries. Together, these countries are also the
second largest exporter of cotton after the United
States. Cotton exports account for around 30 per cent
of total export earnings and over 60 per cent of earnings
from agricultural exports of these countries. Though
these countries produce high-quality cotton and their
production costs are among the lowest in the world,
they argue that very high subsidies given to cotton
in certain WTO member countries, they are gradually
losing their competitiveness in the international
market. According to one estimate given by these countries
[2]support given to the cotton sector by the United
States, China and the European Union was estimated
at US$ 6 billion in 2001/02, which is approximately
equal to total global cotton exports of that year.
An Oxfam report highlights that in USA alone cotton
growers are paid subsidies worth $4 billion a year
which helps to produce the vast surpluses of cheap
cotton [3].
Given this backdrop, Benin, Burkina Faso, Chad and
Mali, in their submission to WTO (WTO document number
WT/MIN(03)/W/2), put forward a set of proposals to
correct the distortions in the international cotton
trade. They proposed:
-
In Cancún, the WTO should establish a mechanism to phase out support for cotton production with a view to its total elimination.
-
WTO should introduce transitional measures in the form of financial compensation for cotton producing LDCs to offset their loss of revenue, until support for cotton production has been completely phased out.
These proposals received support from a large number
of countries include Canada, Australia, Argentina,
Cameroon, Guinea, South Africa, Bangladesh (for least-developed
countries), Senegal and India. Most of these countries
expressed that other products are also facing similar
problems.
However, in their response the US trade representative
tried to reduce the emphasis on subsidies by saying
that, apart from subsidies, factors like general economic
downturn, competition from artificial fibres and increased
harvests due to good weather are also responsible
for the decline of prices of cotton in the international
market. He also argued that to rectify the problem,
the total value-chain for cotton - comprising fibre,
textiles and clothing -should be looked at. He argued
that high tariff and non-tariff barriers in textiles
and clothing are dampening the demand for these products,
which in turn is having a negative impact on the international
demand for cotton. The US proposed discussion on how
to deal with distortions throughout the production
chain, including subsidies, tariff barriers and non-tariff
barriers on cotton, synthetic fibres and products
made from these. The EU, on the other hand, supported
the trade aspects of the proposal and said that its
production and exports of cotton are too small to
have an impact on world cotton prices. The EU representative
also mentioned that it is changing its programme for
cotton producers.
Based on the discussions in the Ministerial, on 14th
September, one day before the end of the Cancun Ministerial,
the WTO issued a draft ministerial declaration which,
in its paragraph 27, included some proposals about
the cotton initiative. It says:
"We recognize the importance of cotton for
the development of a number of developing countries
and understand the need for urgent action to address
trade distortions in these markets. Accordingly, we
instruct the Chairman of the Trade Negotiations Committee
to consult with the Chairpersons of the Negotiating
Groups on Agriculture, Non-Agricultural Market Access
and Rules to address the impact of the distortions
that exist in the trade of cotton, man-made fibres,
textiles and clothing to ensure comprehensive consideration
of the entirety of the sector. The Director General
is instructed to consult with the relevant international
organizations including the Bretton Woods Institutions,
the Food and Agriculture Organization and the International
Trade Centre to effectively direct existing programmes
and resources toward diversification of the economies
where cotton accounts for the major share of their
GDP. Members pledge to refrain from utilizing their
discretion within Annex A, paragraph 1 to avoid making
reductions in domestic support for cotton".
As it is evident from the text, the draft ministerial
text ignored the concerns of developing countries
and closely reflected the US approach towards the
cotton sector. This is so because, first, the draft
does not include any firm commitment on reducing domestic
and export subsidies for cotton. The last line of
the paragraph, which deals with domestic and export
subsidies, is imprecise and vague.
Secondly, the paragraph underplays the importance
of subsidy reduction in this sector and echoes the
US view that distortions present in the trade of entire
value chain of cotton, including cotton, man-made
fibres, textile and clothing should be addressed.
This essentially shifts the focus away from the main
source of distortion of the cotton trade.
And finally, the text instructs the Director-General
to consult with the international organizations like
World Bank, IMF FAO, and International Trade Center
to "effectively direct existing programmes"
toward economic diversification of these countries.
This essentially implies that WTO is suggesting that
distortions of cotton trade are unlikely to come down
in near future and therefore, the West African countries
should not remain too dependent on cotton and should
try to diversify towards other crops. It is surprising
that even with so much evidence against the harmful
effects of high subsidies given by the developed countries,
the WTO draft is effectively exonerating these countries
and putting the blame on lack of export diversification
in the West African countries. It is also notable
that the WTO draft does not mention anything about
transitional compensation mechanism that the African
countries suggested in their proposal. The draft says
that only "existing resources" are to be
used for capacity development in these countries.
Expectedly, most developing countries, including the
four Western and Central African (WCA) countries -
as well as their sympathisers – expressed their
disappointment over the text of paragraph 27. ‘Bridges
Daily Update of the Cancun Ministerial’ indicates
that a group of developing countries, which include
most African nations, suggested an alternate to the
paragraph 27. According to this source,
"this
paragraph would commit Members to take, within three
months, specific measures including the elimination
of export subsidies in three years and the elimination
of production subsidies in four years starting from
2005. In addition, a transitional fund to support
the cotton sector in cotton-producing and -exporting
LDCs would be created, with a working group to be
set up under the WTO Director-General to define the
practical modalities for financing it".
Source:
http://www.ictsd.org/ministerial/cancun/wto_daily/ben030914.htm
Due to the failure of the Cancun Ministerial, no constructive
ministerial declaration was finalized and the draft
proposal which contained the controversial paragraph
on cotton initiative was rejected. However, the language
of the draft proposal released on September 14th once
again highlighted the unwillingness of WTO to impose
strict disciplines on domestic and export subsidies
in developed countries.