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Africa: Cotton Update
AfricaFocus Bulletin
May 14, 2004 (040514)
(Reposted from sources cited below)
Editor's Note
"This system [of U.S. cotton subsidies] pits a typical Malian
producer, farming two hectares of cotton, who is lucky to gross
$400 a year, against US farms which receive a subsidy of $250 per
hectare." - Oxfam. The World Trade Organization (WTO) will soon
issue a formal ruling, in response to a Brazilian and African
challenge, declaring these U.S. subsidies in violation of
international trade rules. This changes the climate for
international trade talks, but no policy shifts that could directly
affect African farmers are yet imminent.
Rich countries are pushing to regain momentum in international
trade talks, and both Europe and the U.S. have recently offered to
be more forthcoming on this issue of agricultural subsidies that
was key to the collapse of talks in Cancun last fall. But there is
still little sign of openness to African demands for separate and
urgent resolution of the cotton issue in particular, The U.S. will
appeal the WTO decision, and further consideration of the issue
will likely be postponed at least until after the U.S. election.
This AfricaFocus Bulletin contains a press release from Oxfam
commenting on the WTO ruling and a summary of an Oxfam report on
cotton released in March. The bulletin also contains the sections
on agriculture and cotton from the Dakar Declaration passed by
trade ministers of Least Developed Countries, meeting in Dakar on
May 4 and 5.
Another AfricaFocus Bulletin sent out today contains excerpts, also
focusing on trade, from an overview of the Economic Commission for
Africa's Economic Report for 2004.
Meanwhile, passage is still delayed for U.S. legislation to extend
exemptions that have permitted expansion of African textile exports
to the U.S. under the Africa and Growth Opportunity Growth beyond
September (see report on congressional hearings
at http://allafrica.com/stories/200405120666.html, and a report on
factories closing in Swaziland at
http://www.africafocus.org/docs04/sw0404.php).
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Oxfam Press Release - 27 April 2004
Oxfam welcomes news of WTO ruling on cotton, US will have to reform
its subsidy program
http://www.oxfam.org.uk/press/releases/cotton270404.htm
International agency Oxfam has welcomed news reports today that
Brazil has won a landmark trade battle at the WTO on cotton
subsidies against the United States.
Oxfam's Make Trade Fair campaign has strongly condemned rich
country subsidy regimes that help distort global trade, leading to
the dumping of below-cost produce and worsening poverty. Oxfam has
been especially vocal against the US, which gave nearly $4 billion
in subsidies to its cotton farmers in 2001-2.
The Brazilian case against the US sought to answer a vital
question: Did these subsidies artificially raise cotton production
in the US, stimulate exports and therefore help depress world
prices?
"According to reports in Brazilian press, the WTO has judged that
these subsidies did depress world prices and violated WTO rules. If
the report is upheld in appeal, the US would have to significantly
reform its cotton subsidy program," said Oxfam spokesperson Celine
Charveriat.
According to the same source, the panel gave six months to the US
government to reform its subsidy program.
West African countries would also be vindicated: they had argued in
Cancun that US cotton subsidies were hurting their farmers and
needed drastic reform as part of the Doha Development Agenda
negotiations.
"This would be a huge victory, not just for Brazil but particularly
for tens of millions of poor African farmers whose livelihoods have
been crippled by unfair competition with highly-subsidised US
cotton," Ms Charveriat said.
Brazil and the US will have a chance to comment on the interim
ruling before it is finalized on June 18th, after which time it can
also be appealed.
White Gold' Turns to Dust
Which Way Forward for Cotton in West Africa?
March 2004
West African farmers continue to face severe deprivation because of
depressed cotton prices. One factor is the dumping of exports from
the USA, where overproduction is the result of government handouts
worth $2.3bn. The US government shamefully disregarded the Africans
when they took their complaint to the WTO, but the issue remains
high on the agenda and is now the critical test of whether the Doha
Round can deliver on development. Aid for West Africa is currently
under discussion, but it must not divert attention from the scandal
of US subsidies.
Summary
Low prices on world cotton markets are driving ten million Africans
deeper into poverty. The crop is typically grown on small family
farms in West and Central Africa (WCA), for whom it provides
essential cash income for basic needs such as medicines, school
textbooks, and tools. In Benin, Mali, Burkina Faso, Chad, and Togo,
which are among the poorest countries in the world, cotton accounts
for 37 to 71 per cent of agricultural export earnings.
There are several initiatives to mobilise the international
community to provide economic assistance to WCA, such as the
WTO-sponsored meeting in Cotonou which starts on 23 March 2004, and
a mid-year donor meeting in Paris. It is vital that these events
generate significant resources which reach down to small-scale
producers. However, Oxfam and its partners in the region are deeply
concerned that the promise of financial aid will be used by
Washington to avoid dealing with the heart of the matter, which is
the damage caused in these impoverished regions by massive
subsidies to US domestic cotton producers.
In the past, West Africans described cotton as 'white gold'; but
the worth of this asset began to decline when prices started
sliding in the mid-1990s, reaching an all-time low by October 2001
and generating both hardship and unprecedented political
mobilisation among producers. Prices have risen recently, but are
expected to fall again once China has recovered from poor harvests.
One major factor in the slump is overproduction and the dumping of
exports by the United States, made possible by handouts to
agribusiness which totalled $2.3 billion in the 2001-2002 season.
Last year, 68 per cent of US cotton was exported, at prices
substantially below true production costs. This avalanche of
cotton, produced by a mere 25,000 US plantations, deprives the
highly competitve African smallholders of markets and pushes down
world prices. Greek and Spanish production, although much less than
that of the USA, has risen sharply as a result of $700 million in
annual CAP subsidies, making it harder for Africa to compete in
Europe, its principal market. Direct losses to West Africa as a
result of US and EU subsidies are estimated at $250 million per
annum.
This system pits a typical Malian producer, farming two hectares of
cotton, who is lucky to gross $400 a year, against US farms which
receive a subsidy of $250 per hectare. The ten largest producers in
the USA, whose government regularly preaches the virtues of free
trade to developing countries, together pocket annual subsidy
cheques for up to $17 million.
The West Africa governments of Benin, Chad, Mali, and Burkina Faso,
supported by active producer associations, have been in the
forefront of efforts to persuade the industrialised countries,
above all the United States, to reduce cotton subsidies and to
provide interim compensation for the damage that their economies
are enduring. They managed to place the issue squarely on the WTO
agenda at the Cancun ministerial conference in September 2003, but
the USA refused to change its policies, proposing instead that
these countries should diversify their farm production away from
cotton. This reaction offended the developing countries and added
to the acrimony of the talks. There has since been no significant
progress on the issue at the WTO, which is only now emerging from
its post-Cancun coma.
The failure of the US government to respond to one of the starkest
examples of rigged trade rules, combined with its willingness to
jeopardise the multilateral system over the issue of cotton, is
disturbing. It demonstrates that US trade policy is vulnerable to
small but powerful domestic lobbies with friends in high places,
and is shockingly indifferent to poverty in Africa. The Europeans
are more prepared to countenance reform of their subsidy regime for
cotton, although their current proposals might not in practice have
a significant impact on production levels. It is vital that they do
scale back production, not least in order to maintain political
pressure on the USA. Both the EU and the USA, regrettably, have
rejected the notion of compensation, no doubt fearing that it would
set a dangerous precedent.
The forthcoming international meetings on WCA's cotton crisis are
both an opportunity and a threat. They could mobilise external
resources to partially alleviate the suffering of rural producers
and repair some of the damage caused to local economies and the
balance of payments. And funds are needed for investment in
longer-term development of WCA cotton sectors, promoting improved
production, local processing and marketing, including exploration
of niche markets such as organic or GM-free cotton. The meetings
should also review the very mixed experience of liberalising
domestic cotton sectors, for example abolishing State marketing
boards, which has often been done at the instigation of the
international financial institutions. But there should be no
illusions: aid will not bring about poverty reduction of the scale
and durability that could be achieved by ending artificial
overproduction and dumping by the USA.
And there lies the threat. The promise of aid, combined with strong
diplomatic pressure, could be a way to push WCA governments to drop
their demands for urgent reform of agricultural subsidies. This
would help the USA to keep its subsidies untouched, and allow the
WTO to kick an awkward and apparently intractable issue into the
very long grass of the agriculture negotiations. Even if the
industrialised countries were to deliver an aid package of
appropriate quality, the structural problem would persist, and
eventual losses for WCA would far outweigh the immediate benefits.
One might in any case ask whether international donors should use
taxpayers' money to foot the bill for US economic vandalism. At a
political level, a retreat on subsidies would weaken the broad
coalition of developing countries that supports WCA on cotton and
calls for deeper and faster reform of world farm trade. It is
therefore essential that aid to WCA or any US or EU offer to pay
compensation for damages, should not be conditioned on such a
retreat and considered transitional. The more enlightened
industrialised countries have a vital role to play in ensuring that
this does not happen.
Unfortunately, the agenda of the WTO meeting to be held in Cotonou
between 23 and 25 March 2004 focuses on development aid and
marginalises the issue of subsidies and compensation. In addition,
participation is restricted to selected governments and
international organisations. Oddly, for an event purporting to
address financing and technical assistance, key stakeholders such
as producer organisations and processing companies are not invited;
nor are key development ministries such as the UK government's
Department for International Development, nor any national and
international NGOs. This raises the suspicion that it may be an
ill-designed exercise in buck-passing, or worse, an effort to put
pressure on WCA countries to moderate their demands. If, indeed,
there are aid proposals forthcoming, it is essential that producer
groups should be invited to comment and later participate in the
transparent management of resources.
Conclusion and recommendations
Oxfam believes that West and Central African countries have a
powerful moral and economic case for their demands for reform of
the cotton subsidy system and payment of interim compensation,
especially by the USA. The challenge is to build a coalition of
developing countries, civil-society organisations, and enlightened
industrialised countries to put effective pressure on the USA and
EU to change their policies. The success of this alliance would
deliver enormous benefits to millions of Africans living in poverty
in rural areas and, at the same time, bring a much-needed sense of
progress and legitimacy to the world trade talks. Oxfam makes the
following recommendations:
- The USA should eliminate all cotton subsidies that affect
international trade, as a matter of urgency. This will include most
domestic subsidies, including those officially classified as
minimally trade-distorting ('green box').
- The aim of EU subsidy reform should be to increase West Africa's
share of the European market, while protecting the livelihoods of
small European producers. The EU should urgently review its current
proposals to ensure that this goal is met.
- As a transitional measure, the USA and EU should agree to
compensate WCA producers for losses caused by subsidies.
- Cotton should continue as a separate issue in WTO negotiations.
If it is merged into the broader agriculture talks, it should be
fast-tracked with an early deadline for deciding commitments on
substantial subsidy reform and rapid implementation.
- Financial and technical assistance should be given to WCA for
short-term needs created by the cotton crisis and for longer-term
development of the sector. This aid should not be conditional on
African governments changing their position on subsidies, should
not add to their debt burdens, and should involve full
participation by all stakeholders.
- Aid could usefully be targeted to establish mechanisms for
stabilising incomes and prices at local and national levels,
improving the quality and grading of cotton, developing 'fair
trade' and organic production, and supporting initiatives to add
value. The experience of domestic liberalisation promoted by the
World Bank should be critically examined.
Dakar Declaration of Third Least Developed Countries Trade
Ministers' Meeting
Dakar, Senegal, 4 - 5 May, 2004
[excerpts on agriculture and cotton only. For full text of
declaration see
http://www.enda.sn/english/dakardec.htm]
We, the Ministers responsible for trade of the Least Developed
Countries, meeting in Dakar, Senegal, from 4 to 5 May, 2004, to
take stock, review progress and exchange views on developments in
the WTO negotiations after the 5th WTO Ministerial Conference which
took place in Cancun, Mexico from 10 to 14 September, 2003,
...
5. Call upon the Members of the WTO to fully take into account the
interests and development needs reflected in the LDCs Dhaka
Declaration, and urge Members to take into account the realities of
LDCs and agree on the following:
AGRICULTURE
6. Agriculture is the backbone of the LDCs economies. This sector
provides employment and a livelihood for over 60 percent of the
labour force, and for some LDCs, agricultural products constitute
more than 70 per cent of exports. LDCs consider that, in view of
the current situation of negotiations, their concerns as expressed
in the Dhaka Declaration are still topical and relevant. Whereas
the Derbez Text takes on board the LDCs concern regarding the
exemption from reduction commitments, we furthermore, submit the
following proposals:
(a) Export subsidies that are provided by developed countries to
products of export interest to LDCs shall be phased out on a
fast-track basis;
(b) Members shall exercise restraint in applying TBT (technical
barriers to trade) and SPS (sanitary and phytosanitary) measures to
products from LDCs. Technical and financial assistance shall be
provided to LDCs for improving agricultural infrastructure,
productivity and diversification for development of facilities and
systems for compliance with the SPS and TBTs requirements for
exporting agricultural commodities;
(c) The consolidation of market access in total duty exemption for
LDCs will be considered;
(d) Developed countries shall provide bound duty-free and
quota-free market access for all products originating from LDCs.
Furthermore developing countries are also urged to extend such
facilities to products from LDCs;
(e) Erosion of preference margins due to MFN tariff reductions
shall be offset by establishing compensatory and other appropriate
mechanisms, including measures that promote exports from LDCs;
(f) The fast and substantial reduction of domestic support measures
which impede the exports of LDCs, shall be achieved through the
establishment of accurate criteria and a ceiling of the green box
as well as phasing out the blue box and the amber box;
(g) Food aid provided by Members to meet emergency situations, and
humanitarian and development objectives, and to address the chronic
food deficit situation in LDCs shall be allowed.
COTTON
7. Cognisant of the role of cotton as a critical industry within
the agriculture sector in the economy of LDCs, particularly those
in the West, East and Central regions of Africa where it
contributes substantially to the GDP, total export earnings as well
as in promoting rural development, employment and poverty
reduction,
8. Deeply concerned about the adverse effects of domestic support
and subsidies granted to the production and export of cotton by
some developed countries that cause distortions in the
international trade of this product and undermine trade
opportunities and worsen economic and social situation of LDCs that
are cotton producers and exporters.
9. We urge Members of the WTO to expeditiously consider adopting
the proposals submitted to WTO by the proponents of the Sectoral
Initiative on Cotton as contained in Document WT/GC/W/516 of the
7th of October 2003. These proposals stress the following:
- The complete elimination of export subsidies over a period of
three years and the elimination of production-related domestic
support over a period of four years, in each case as from 1st
January 2005.
- The setting up of a cotton sector support fund.
- We welcome the results of the WTO Regional Workshop held in
Cotonou from the 23 to 24 of March 2004 and recommend that the
conclusions of this meeting concerning the development aspect of
the Sectoral Initiative on Cotton be implemented expeditiously so
that the cotton sector is reinforced within all cotton producing
LDCs.
- We also strongly believe that the global and effective response
to the request contained in the Sectoral Initiative on Cotton must
also take into account the trade aspects through the adoption by
the WTO of a decision aiming at the elimination of domestic support
and subsidies granted to the production and export of cotton.
- We remain open and flexible to ways and approaches likely to
resolve the various aspects of this issue and we expect, from the
concerned countries, concrete proposals to resolve urgently the
problems raised in the sectoral Cotton initiative.
...
Additional Links on Related Issues
Bridges Weekly Trade News Digest, from the International Centre for
Trade and Sustainable Development, provides regular updates on this
and other trade issues.
http://www.ictsd.org/weekly
For earlier references on cotton and other agricultural trade
subsidies, see
Africa: Commodity Trap
http://www.africafocus.org/docs04/unct0403.php
Africa: Agriculture Strategic, Neglected
http://www.africafocus.org/docs03/fao0311.php
Africa: After Cancun
http://www.africaaction.org/docs03/wto0309c.htm
Africa: Cancun, Agriculture
http://www.africaaction.org/docs03/wto0309b.htm
US/Africa: Trade Wars, 1
http://www.africaaction.org/docs03/tr0306a.htm
US/Africa: Trade Wars, 2
http://www.africaaction.org/docs03/tr0306b.htm
Africa: Crops and Trade, 1
http://www.africaaction.org/docs02/ag0209a.htm
Africa: Crops and Trade, 2
http://www.africaaction.org/docs02/ag0209b.htm
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
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