Cotton dispute: Africans penalised by US foot-dragging, study finds

Geneva, 15 April 2010
African farmers could have gained from a 3.5 percent average increase in world cotton prices, if the US had moved quickly to implement the recommendations of an international trade panel, a new study finds.

The study, commissioned by ICTSD and conducted by Mario Jales of Cornell University, suggests that cotton prices would have risen over a 1998-2007 base period if the US had cut subsidies that were deemed unlawful by a dispute panel at the World Trade Organisation (WTO), following complaints by Brazil.

A recently-announced deal to resolve the dispute, on the eve of punitive retaliatory trade measures that Brazil was due to impose on the US, could leave African countries dependent on a negotiated settlement at the WTO. Under the bilateral accord, the US will review its export credit programme and provide USD 150 million in compensation to Brazilian producers – leaving cuts to the controversial 'countercylical' payments and marketing loan payment programmes to be discussed in subsequent talks.

The paper also finds that farmers in poor countries could have gained from an average 6 percent increase in world cotton prices over the same base period, if the US had accepted proposals made by African nations to slash the lavish subsidies enjoyed by rich country producers.

Cotton production in the US could have declined by as much as 15 percent, the study suggests, if African proposals in the draft Doha accord were applied to historical output levels over the ten-year period examined by the study, and production in the EU could drop by as much as 30 percent. However, production volumes could increase by as much as 3-3.5 percent in Brazil, Central Asia and West Africa – with production values growing by up to 13 percent.

Similarly, if African proposals that are included in the Doha draft were applied to trade flows over the ten-year period that the study examines, US export volumes would have fallen by 16 percent on average. Average export volumes would have increased dramatically for Brazil and India (12-14 percent), and by a lower but still substantial amount in Uzbekistan, the 'C-4' West African cotton producing countries (Benin, Burkina Faso, Chad and Mali), and Australia (2-2.5 percent).

“There is an urgent need to rebalance existing trade rules that permit developed countries to highly subsidize domestic production, depress world prices, push farmers elsewhere out of production and impair prospects for economic advancement in the developing world”, Jales said.

“The adoption of ambitious domestic support reforms for cotton in the Doha Round would be a significant step towards the establishment of a fair and market-oriented trading system” added Jales.

The study is online at: http://ictsd.org/i/publications/73808/

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Notes to editors:
The World Trade Organization (WTO) is an organisation based in Geneva, Switzerland, which is responsible for liberalising and regulating international trade in goods, services and other areas. It has 153 Members.

The WTO Doha Round of trade negotiations was launched in Doha, Qatar, in 2001. It seeks to reduce trade barriers to a variety of goods and services, but has been plagued by repeated missed deadlines and breakdowns. In agriculture, it aims at “substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade distorting domestic support."

The International Centre for Trade and Sustainable Development (ICTSD) is a nongovernmental organization, based in Geneva, which – by empowering stakeholders in trade policy through information, networking, dialogue, well targeted research, and capacity building – seeks to influence the international trade system such that it advances the goal of sustainable development. www.ictsd.org

The 2005 Hong Kong Ministerial Declaration of the WTO agreed that cotton would be addressed “ambitiously, expeditiously, and specifically”. However, the US has not yet tabled a formal proposal on how cotton should be treated in the talks.

The model used by Mario Jales assumes perfect price transmission, which is unrepresentative of reality in African countries.