Global Policy Forum

Break Through the Cotton Barrier


By Anwarul K. Chowdhury*

International Herald Tribune
March 26, 2004

The re-opening of WTO talks on agricultural trade issues this week in Geneva allows an opportunity to remove an injustice against millions of people in some of the world's least developed countries, while also rationalizing economic policies in the rich countries and getting stalled trade negotiations moving again. At issue are subsidies that distort the world cotton market at the expense of poor producers.

Cotton is one of the world's most heavily subsidized crops. US cotton that was exported at 37 cents a pound in 2002 cost agricultural firms 86 cents to produce, even before shipping, according to US Department of Agriculture figures. The difference was made up by the US government, underwritten by American taxpayers. In 2001, the payout of subsidies by the United States for cotton alone soared to $3 billion, before settling down to $1.7 billion in 2002, the most recent year for which consolidated totals are available.

These subsidies, placed on cotton by Europe as well as by the US, form a barrier to a number of poor countries trying to work, and trade, their way out of abysmal poverty.

Cotton figures as a significant export item for at least 20 of the 50 nations designated as least developed countries (LDCs) by the United Nations. Most of these 20 countries – where life expectancy averages about 50 years, and most of the population is living on one dollar a day or less -- are spread across western and central Africa. Not only are they competing at home and in the world market with the advanced technology of agro-business in the North; they have to contend with subsidized exports that, from the US in 2002, were being sold at an average of 61 per cent below the cost of production.

Last year, in the run-up to the WTO ministerial meeting in Cancun, a plea against the system of cotton subsidies was issued by four African LDCs – Benin, Burkina Faso, Chad and Mali. Cotton is a major component of the economies of these countries, constituting between 35 and 56 per cent of their total exports, over the second half of the 1990s. These countries are among the lowest-cost producers of cotton in the world; if it were left to the market, the West and Central African regions would produce cotton more competitively than countries of the North. Cotton subsidies from the US alone, according to Oxfam, are costing African farmers $300 million a year due to artificially low prices on the world market.

The four countries proposed that the EU and US should embark on a three-year phase-out of cotton subsidies, and set up a transitional mechanism to offset the losses incurred in the meantime.

Since the breakdown of trade talks in Cancun last September, there has been some attention but too little action directed toward the problems of cotton growers from poor countries.

The European Union promised in February to further open its markets to West African cotton and to lend technical assistance to producers there. But subsidies on its own cotton remain at levels even higher than those set on the other side of the Atlantic, albeit with less impact because Europe's volume of production is much lower than that of the US.

For his part, US Trade Representative Robert Zoellick has proposed that subsidies and tariffs for cotton, including cotton textiles, should be cut substantially as part of a comprehensive agricultural agreement. But so far he has not been clear on whether all domestic as well as export subsidies should be cut. And by positing that this action need await agreement on all other agricultural issues (as well as on the complex can of worms of textiles) his proposal is likely to push action on cotton into an unforeseeable future.

As the talks on agricultural trade issues reopen, I believe it is time to revisit the proposal of Benin, Burkina Faso, Chad and Mali. As WTO Director-General Supachai Panitchpakdi said at the time it was made, these countries are not asking for preferences, but for a correction of trade distortions.

In addition, there should be assistance for the development aspects of cotton production – improving technical capacity, infrastructure and the ability to bring cotton products with greater value-added to the markets. A meeting on these aspects, which will be attended by the WTO Director-General, is taking place this week in Cotonou, Benin.

A commitment taken to bring about a full phase-out of cotton subsidies in the near term would respond to UN Secretary-General Kofi Annan's call for economic justice for poor farmers made at last year's meeting of the UN Economic and Social Council. With 75 per cent of the people in the poor and developing countries living in rural areas, this issue is critical to the international fight against poverty.

Such a move would not only open up economic opportunity in some of the world's poorest countries, it might also be the confidence-building step needed to jump start progress in other areas of agricultural trade disputes, which in turn are perhaps the single largest obstacle to progress in the so-called Doha Round of trade negotiations. If that happens, the whole world would benefit.

*UN Under-Secretary-General Chowdhury, formerly Ambassador of Bangladesh to the United Nations, is now the UN's High Representative for the Least Developed Countries.

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