African countries call for progress in WTO cotton negotiations
The four African cotton exporters Benin, Burkina Faso, Chad and Mali – collectively known as the Cotton 4 or C-4 – have urged fellow WTO members on 28 November to expedite negotiations on cotton in the wake of the resolution of the standoff over food stocks at the global trade body.
Specifically, the C-4 encourage a swift conclusion of multilateral negotiations to curb the market distorting effects of domestic support schemes, tariffs and export subsidies.
“We truly wish that cotton becomes a priority”, one of the C4-negotiators told Bridges Africa, and added that “now, we have to start negotiating.”
The C-4 made their case for progress in negotiations in the run-up to a discussion of the WTO Committee on Agriculture in Special Session that took place on November 28. China, Argentina, India, Nigeria and Brazil are reported to have supported the African countries’ calls for cuts in domestic support, tariffs and export subsidies. The C-4, for which cotton accounted for up to 60 percent of agricultural export revenues in 2013, were instrumental in establishing a “cotton initiative” within the framework of the WTO during the Cancun Ministerial Conference in 2003.
At the Bali Ministerial Conference in December 2013, the WTO members adopted the Bali Ministerial Decision on Cotton in which they reiterated earlier commitments “to address cotton ambitiously, expeditiously and specifically, within the agriculture negotiations.”
However, until recently, the broader Bali package and hence the cotton negotiations languished because of a stand-off between the US and India over public food stockholding.
On 27 November, after the two countries had announced a deal, the WTO General Council could sign off a set of decisions for the implementation of the Bali package. In this context, a new July 2015 deadline was set for completing a work programme on the remaining Doha Round issues.
Trade officials have been optimistic that these developments will help re-ignite talks at the global trade club (see Bridges Weekly, 27 November 2014).
Formulas and transparency
During the discussions one day after the General Council decision, the C-4 highlighted that any future negotiation on cotton should be based on the revised draft agriculture modalities from 2008 as a reference.
These draft modalities feature detailed formulas for cutting tariffs as well as trade-distorting subsidies and related provisions. Moreover, they are qualified through special and differential treatment provisions to the benefit of developing countries.
One source close to the negotiations conveyed that while the US has showed some reluctance towards the draft modalities, the C-4 clearly envisage them as a basis for discussion.
Also, in line with the decisions taken in Bali, the C-4 insisted on measures to enhance transparency and monitoring in relation to the trade-related aspects of cotton within the context of the bi-annual Special Session meetings. The Bali Ministerial Decision on Cotton mandated WTO members to focus their discussions on “the three pillars of Market Access, Domestic Support and Export Competition”.
Sources familiar with the multilateral talks affirmed that during the Special Session on 28 November developed countries argued that transparency ought to be improved mainly by the emerging countries India and China.
Experts have noted that while farm support payments have declined from historical heights in the US and become less detrimental to third countries in the case of the EU, some developing countries are now among the leading subsidisers.
The risk of trade distortions induced by the support schemes of developing countries has been compounded by changes in the global distribution of cotton production: According to recent data from the International Cotton Advisory Committee (ICAC), an intergovernmental body for cotton and cotton textiles, India and China have become the top cotton producing countries, with individual output levels projected to exceed 6.5 million tonnes in the season 2014/15.
In light of these developments, the C-4 group has invited all countries to put the information they have on farm subsidies on the table and begin negotiating seriously, according to one trade official.
Plummeting prices, stagnant yields
The C-4’s call for expedited negotiations can be interpreted against the background of two trends in the cotton market; falling prices and growing gaps in competitiveness.
With respect to the first trend, the ICAC has estimated that while during the season 2010/11 cotton prices reached a peak at 150 US cents per pound, they will average only 74 US cents per pound over this season. This represents an 18 percent decline from 2013/14.
ICAC attributes the plummeting prices partially to the recent increase in stocks in several countries, which leads to an excess supply and reduced demand for imports. The surplus through stock creation up to this season has reached 13 million tonnes or approximately half of the current annual cotton production.
Uncertainty about what major importers do with their amassed stocks has further exerted a downward pressure on cotton prices. For example, even though China announced a move away from building cotton stocks early this year, the country’s national reserve of 11 million tonnes has still a bearing on the evolution of cotton prices (see Bridges Weekly 23 January 2014).
During the discussions at the WTO on 28 November, the C-4 group cautioned governments against reacting to the falling cotton prices by subsidising domestic production.
Regarding competitiveness, the C-4 warned that their capacity to prosper in the global market place is undermined by differences in the evolution of agricultural yields: While the cotton output per unit of land has stagnated over the last 24 years in West Africa, it has witnessed an increase in the rest of the world, as documented by the ICAC.
Resolved dispute, pending negotiations
Until recently, cotton was intensely debated also in the WTO Dispute Settlement System, based on an complaint against US cotton subsidies lodged by Brazil in 2002 and supported by two C4-countries (Benin and Chad).
In October 2014, the US and Brazil announced the settlement of their long-running trade row, which will now center the focus of attention on the multilateral negotiation process (see Bridges Weekly 2 October 2014).
During the meeting on 28 November, John Adank, the New Zealand chairperson of the negotiations on agriculture and cotton, announced a Special Session of the Committee on Agriculture to take place on 4 December in order to organise the way forward in agricultural negotiations in light of the new July 2015 deadline.
In this context, Adank is reported to have said that “cotton will […] remain an important element of this reflection on the way forward for the work programme related to our unfinished business.”
Sources: WTO 2014 News Items: African producers call for curbs on subsidies as cotton prices fall, 28 November 2014.