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. 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.