Cotton: African Exporters Seek Subsidy Freeze

16 November 2011

The US and EU should freeze trade-distorting support for cotton at current historically-low levels, West African exporting countries have argued in a WTO proposal. The proposal was discussed informally last Friday among some of the members concerned.

High prices for cotton and other commodities have caused trade-distorting subsidies to drop in recent years, as these support payments are designed to be triggered by low prices. A ‘standstill principle' should apply to these subsidies while a negotiated solution is being reached, cotton-exporting countries in the so-called ‘C-4' group - Benin, Burkina Faso, Chad, and Mali - claim.

The proposal is included as part of a draft decision that the C-4 countries have submitted for trade ministers to agree upon at the WTO's eighth ministerial conference, scheduled for 15-17 December. The text calls for members to implement agreements on cotton that were reached at the global trade body's fifth ministerial conference, held six years ago in Hong Kong.

Under the draft decision, the WTO secretariat would report at each ministerial on progress in eliminating export subsidies for cotton, and in providing duty-free, quota-free (DFQF) access for least developed countries' exports of cotton and cotton by-products. The Hong Kong Ministerial Declaration commits members to take these actions by 2006 and by April 2012, respectively.

While the text would have ministers reaffirm the mandate adopted by the WTO's General Council in 2004 to address cotton "ambitiously, expeditiously and specifically," one official familiar with the proposal told Bridges that the standstill clause was "the main point" of the outline text.

The draft also asks the WTO Director-General to report to each ministerial until a ‘final settlement' is reached.

In addition, in line with the Hong Kong mandate, the draft would instruct negotiating groups to prioritise an outcome that ensures domestic support for cotton is cut more ambitiously than for other products under the ‘general formula' for subsidy reductions in the ongoing Doha talks.

However, negotiating groups have not been meeting regularly since WTO members acknowledged in April that they were unlikely to achieve a previously agreed upon goal of concluding the Doha Round this year (see Bridges Weekly, 4 May 2011).

‘No reaction' from large subsidisers

Members that provide substantial subsidies to their cotton producers - such as the US and EU - have yet to provide an official reaction to the proposal, trade sources told Bridges.

However, one negotiator expressed hope that cotton support might finally be reduced as part of the next US Farm Bill, which is currently being debated in Washington as part of a wider discussion (see Bridges Weekly, 26 October 2011) over cuts aimed at rebalancing the country's budget.

The delegate speculated that, with high prices prevalent in cotton markets, and US government spending being slashed in other sensitive areas, cotton producers might find it harder than before to make the case for maintaining trade-distorting subsidies.

WTO members are still waiting for the US to remove trade-distorting subsidies that were ruled illegal after a protracted dispute settlement case with Brazil. Washington has said that the support programmes are being reviewed and will be reformed as part of the upcoming Farm Bill (see Bridges Weekly, 14 April 2010).

However, sources familiar with the domestic debate in the US questioned whether the C-4 proposal would be able to gain any traction, arguing that the political landscape had not substantially changed since cotton was discussed as part of a package of measures for least developed countries that had been considered by WTO members this summer. The plan for an LDC-focused package was later abandoned after members were unable to reach consensus on what to include in such a mini-deal (see Bridges Weekly, 28 July 2011).

At the time, the US cautioned that it would find it hard to take action on cotton without other issues also forming part of the package.

If Chinese and Indian cotton subsidies are not subjected to further cuts of their own, the US would probably find it difficult to join a consensus on the cotton issue, the source told Bridges. At a June meeting of the Trade Negotiations Committee, which is tasked with the Doha talks, the US took a hard stance on the cotton issue, insisting that all of the major developing country cotton subsidisers - such as Brazil and China - also commit to reducing their distortions (see Bridges Weekly, 22 June 2011).

However, sources familiar with the C-4 proposal nonetheless rejected the notion that developing country farm support would necessarily have to be covered by it.

"It's been a long time since we first raised this question," one trade official said, who argued that the US insistence on including other major subsidisers was a way to "avoid providing a response."

ICTSD reporting.

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