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COTTON AND THE WTO

UNCTAD/PRESS/IN/2007/022
27 April 2007

Global Initiative on CommoditiesGeneva, 27 April 2007 - Cotton is a critical export for developing countries, particularly for nations in West and Central Africa where it is estimated to account for between 5% and 9% of GDP, and between 35% and 40% of export revenues. The cotton sector employs some 20 million in Africa, and is the largest sectoral source of livelihoods in Burkina Faso, Chad, Mali, and Togo. In fact, economic dependency on cotton as the only cash crop for most families means that these numbers are probably an understatement. In Mali for example, 13 million are estimated to be economically dependent on cotton. (see figure 1)

African cotton is produced without subsidies while other cotton producers around the world are subsidized -- in 2001, such aid amounted to about US$5 billion. It has been argued that cotton subsidies distort the world market by stimulating subsidized farmers to produce more, thus increasing their market share and pushing down world cotton prices. Simulation exercises have shown that if full liberalization in the cotton sector takes place (that is, removal of all distortions, including domestic supports), there will be higher prices for African cotton producers and greater export volumes. For example, an IMF study estimates that world cotton prices would increase by about 6% if trade distortions were removed, and that Africa´s cotton exports would increase by about 13%.

Following a complaint about US cotton subsidies submitted by Brazil in 2003, a WTO panel found that US export subsidies and domestic support measures caused "serious prejudice" to Brazilian interests by unfairly depressing world cotton prices. The panel recommended that the United States take appropriate steps to halt these adverse effects or withdraw the subsidies.

West and Central African countries did not participate as complainants in that dispute. However, they did open a second front in the WTO through the "Sectoral Initiative in Favour of Cotton", launched in May 2003 by Benin, Burkina Faso, Chad, and Mali prior to the WTO´s Cancun Ministerial session. The initiative called for cotton subsidies to be eliminated and for compensation to be paid to cotton producers in Least Developed Countries (LDCs) as long as subsidies remain in place. After the Ministerial´s collapse, the WTO´s "July Package" of 2004 -- a framework intended to put the negotiations back on track - agreed to treat cotton "ambitiously, expeditiously and specifically" and to consider both the trade and development aspects of the world cotton market.

A three-point agreement was reached at the WTO´s Hong Kong Ministerial session in 2005:

  • to eliminate all forms of developed country cotton export subsidies by 2006;
  • to extend duty-free and quota-free developed country market access for cotton exports from LDCs from the beginning of the implementation period of a WTO Doha agreement, once it is achieved;
  • and for more ambitious and quicker reductions of domestic supports on cotton than in the general formula for other products.

Since the vast majority of trade distortions stem from domestic support, this advance was heavily qualified, leaving progress on cotton largely dependent on overall progress in the Doha Round of trade negotiations.

With regard to the development aspects of cotton, bilateral donors and development partners made an estimated 184 separate commitments to provide financial and technical assistance in the sector. While this has been welcome, African cotton producers are anxious not to have the assistance distract from the need to make progress in trade aspects of the cotton business. There is also a large gap between donor commitments and actual disbursements.



ANNEX

Figure

Figure 1. Cotton exports represented about 70% of Benin and Burkina Faso export earnings in 2004

Figure 1. Cotton exports represented about 70% of Benin and Burkina Faso export earnings in 2004
Source: Infocomm computed from Comtrade Statistics




For more information, please contact:

CFC, Charles Jama (Amsterdam)
T: +31.20.575.49.56
E: charles.jama@common-fund.org
Veronica Cassavia (Brasilia)
T: +55 11 8429 2122

UNCTAD, Muriel Scibilia (Geneva)
T: +41 22 917 5725
E: muriel.scibilia@unctad.org
Web: www.unctad.org/press

UNDP, Jean Fabre (Geneva)
T: +41 22 917 8541
E: jean.fabre@undp.org
Joao Paulo Gomes (Brasilia)
T: +55 61 3038 9110
E: joao.paulo.gomes@undp.org.br
Web: http://www.undp.org/

ACP, Viwanou Gnassounou (Brussels)
T: +32 02 743.06.91
E: viwanou@acp.int
Web: http://www.acp.int/



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