The ‘Cotton Initiative’ at the Cancun Ministerial Meet Parthapratim Pal

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:

  1. In Cancún, the WTO should establish a mechanism to phase out support for cotton production with a view to its total elimination.
  2. 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.

[1]   “The contributions of cotton to economies and food security in developing countries”, P. Fortucci, FAO, Rome,
July 2002.
[2]  “Poverty Reduction: Sectoral Initiative In Favour of Cotton” Joint Proposal by Benin, Burkina Faso, Chad and
Mali, WTO Document number TN/AG/GEN/4, dated 16 May 2003.
[3]   http://www.oxfamamerica.org/news/art5629.html