WTO Public Symposium 2003: Developing Countries and the WTO

The World Bank's Global Economic Prospects report for 2002 estimated that, over a ten-year period, abolishing all trade barriers could increase global income US$2.8 trillion, over half of which would accrue to developing countries, reducing global poverty by an additional 320 million people by 2015. These are rough estimates articulate the confidence of the World Bank and the WTO that freer trade, together with sound domestic legal and macroeconomic policies, will lead to poverty alleviation. Because it is an economic mainstay in developing counties, agriculture has been especially sensitive to trade-related concerns in the Doha Development Round. While more than half of the world’s population is still living on less than $2 a day, subsidies to farmers in OECD countries amount to over a billion dollars a day. The contrast becomes all the more stark in light of the fact that in the United States cotton industry, some 25,000 producers receive almost $4bn a year in subsidies.

The Case of West African Cotton

On the afternoon of June 17th, 2003 at the WTO Public Symposium in Geneva, OXFAM, ICTSD, and IDEAS Centre will organize a discussion on the topic: "Can negotiations on Agriculture deliver pro-development reforms? The case of West African Cotton."

Introduction

Because it is an economic mainstay in developing counties, agriculture has been especially sensitive to trade-related concerns in the Doha Development Round. While more than half of the world's population is still living on less than $2 a day, subsidies to farmers in OECD countries amount to over a billion dollars a day. The contrast becomes all the more severe in light of the fact that in the United States, some 25,000 cotton producers receive almost $4 billion a year in subsidies. As a result, US cotton is exported at an average price of 57 percent below the cost of production.[1]

Cotton is one of the most widely produced agricultural crops in the world. In 2000, about 130 countries produced it, and nearly 170 countries were involved in the export or import of the crop that was planted on 2.5% of the world's arable land.[2] At least 10 million small-scale growers in West and Central Africa who depend upon cotton as the main source of their annual income have suffered as subsidization has continued to facilitate overproduction in rich countries, causing world supply to remain high and prices to linger at all-time lows. Such low prices have accrued to extreme losses in economies heavily dependent upon cotton. Mali, for example, according to the British relief agency Oxfam, received $37.7 million from USAID in 2001, but the country's producers lost $43 million because of American subsidies. African cotton producers in Benin, Burkina Faso, Chad and Mali have recently joined with Brazil in an official complaint to the WTO against cotton subsidies paid in the United States and Europe.

Recent Disputes Concerning Cotton: Brazil and West Africa Challenge Subsidies

For member countries injured by current trade restrictions, low prices or weaknesses in the WTO legal framework, disputes can be essential tools for recognizing violations and stimulating negotiations. For cotton, complaints have been presented at the WTO regarding violations of standards on subsidies by Brazil under the Peace Clause of the Agreement on Agriculture, and by an alliance of four West African countries under the Agreement on Subsidies and Countervailing Measures. Article 13 of the Uruguay Round's Agreement on Agriculture established that special rules regarding subsidies for agricultural products would prevail during an implementation period lasting through January 2003. Until this date, therefore, many export subsidies and domestic supports that were in conformity with the Agreement were countervailable but not actionable multilaterally. After the implementation period, however, the Agreement on Subsidies and Countervailing Measures (Article 21) became applicable to subsidies for agricultural products previously exempted.

Brazil's Case Against the US

Brazil initiated the first stage of the WTO's dispute settlement procedure on September 27, 2002 by asking for consultations with Washington about a variety of domestic support measures provided to its cotton producers, exporters and users. After a settlement failed to be reached within 60 days, the United States moved to block Brazil's appeal for the establishment of a dispute resolution panel for the complaint. As a WTO member, the US is permitted to do so only with regard to the first request. Cotton producers from Benin, Burkina Faso, Mali and Senegal threw their weight behind Brazil's challenge in October. The producers also appealed to their governments and the West African Economic and Monetary Union (WEMU) to file briefs in support of Brazil with the WTO.[3] In March 2003 Brazil filed and was granted its second request for a dispute resolution panel, and the trade ministers of Benin, Burkina Faso, Chad and Mali made the decision on May 2 to separately ask the WTO to look into US and EU cotton subsidies.

Smaller, developing countries tend generally to be less adept at exercising their rights to retaliate in situations where they have been violated, and it is typically only the large players in the organization that will use sanctioning rules to get their way. The actions by Brazil and the West African nations are seminal events in the WTO, and they stand to pave the way for other countries hurt by rich country subsidies to take legal recourse.

West Africa's Case Against the US and the EU

Opponents to the American subsidies protest that, while the US poses itself as a leading advocate of free trade, its massive subsidies render competition nearly impossible for small cotton growers in Africa trying to sell their product on the world market. Cotton producing countries in Africa claim that US, as well as EU and Chinese subsidies are not only anti-competitive, but also ruinous to their economies. Though African cotton has many advantages - extremely high quality and the world's lowest costs of production - cotton grown expensively in subsidizing countries continues to flood the market and depress prices. Francophone Africa produces and exports about a million tons of cotton per year, holding 16 percent of the world's market share.

While Brazil continues to pursue its case against the US, the trade ministers from Burkina Faso, Mali, Chad and Benin are petitioning the WTO to prohibit subsidies in the cotton industry while also asking for compensation from the US, EU and China for losses suffered by African producers. The four countries, on behalf of the rest of West and Central Africa, have circulated a WTO proposal demanding that the cotton question become a central issue in the next round of trade negotiations at Cancun in September. The African ministers behind the petition have stresses that they are not demanding special treatment, but rather a level playing field, for their unsubsidized cotton. They are also pressing for compensation to be paid to African farmers by subsidizing countries during the transition time endured as supports are phased out to a zero-subsidy level. In order to maintain pressure on their economically more powerful trading partners overseas, Burkina Faso, Mali, Chad and Benin may refuse to negotiate other issues before the cotton question has been satisfactorily resolved.

At the G8 Summit in June 2003, President Jacques Chirac of France proposed a moratorium on all subsidies of agricultural goods that are sold in Africa. The plan, however, was not well received Washington, as the US claimed that its export credits should be exempt from such a prohibition. Although the EU provides the most generous assistance to cotton growers, European production (limited to Greece and Spain) is far lower than US levels. It is projected that, over the next ten years, $2.5 billion in American cotton growers subsidies will benefit 25,000 Americans, representing more than three times the total budget of the United States Agency for International Development (USAID) for Africa's 500 million people.[4] 

Last updated June 2003