Africans Penalised by US Foot-Dragging on Cotton Subsidies, Study Finds

21 April 2010

African farmers would have benefited from a boost in world cotton prices if the US had moved quickly to implement the recommendations of a WTO dispute panel, according to a new study from the International Centre for Trade and Sustainable Development.

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 the subsidies that were deemed unlawful by a dispute panel at the WTO, following complaints by Brazil. (ICTSD is the publisher of Bridges Weekly.)

A recently announced deal to resolve the dispute, which came 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 US$ 150 million in compensation to Brazil's private sector - 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 would 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 that Washington offers its domestic producers.

Cotton production in the US would have declined by as much as 15 percent, the study suggests, if African proposals in the Doha Round of trade talks had been in place over the ten-year period examined by the study. Production in the EU would have dropped even more dramatically under the same scenario, falling by as much as 30 percent. Meanwhile, however, production volumes would have increased by as much as 3-3.5 percent in Brazil, Central Asia and West Africa - with the value of production growing by up to 13 percent.

Similarly, if African proposals that are included in the Doha Round draft agriculture text had been in place during the ten-year period that the study examines, US export volumes would have fallen by 16 percent on average. Meanwhile, average export volumes would have jumped between 12 and 14 percent for Brazil and India, and edged upwards by 2-2.5 percent in Uzbekistan, the ‘C-4′ West African cotton producing countries (Benin, Burkina Faso, Chad and Mali), and Australia.

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

He concludes that "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."

The paper is available online at http://www.ictsd.org/themes/agriculture/how-would-a-trade-deal-on-cotton-affect-importing-and-exporting-countries-draft

ICTSD reporting.

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