By Guest Author Dr Terry Townsend from Cotton Analytics
The World Trade Organization (WTO) completed its 11th Ministerial Conference (MC11) since its founding 1995 at the end of last year in Buenos Aires, and the closing statements were remarkable for the omission of any reference to cotton
Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda (the Doha Round), and in previous WTO ministerial meetings, cot- ton was a major issue. MC11 marks the end of an era in which cotton and issues related to cotton were central to international trade negotiations.
Nevertheless, cotton rose to prominence in the Doha Round because the President of Burkina Faso attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and demanded that cotton be addressed specifically. Speaking on behalf of Benin, Burkina Faso, Chad, and Mali, collectively known in the WTO as the C4, the President of Burkina Faso noted that cotton is the only good of any significant value exported by the C4, and he asserted that subsidies in developed countries depressed world prices thus hindering efforts at income generation and economic development in developing countries. He stated simply that the C4 could not support completion of the Round unless the cotton issue was resolved, an ominous threat in an institution that requires unanimity.
The prominence of cotton became official in 2005 at the next WTO meeting in Hong Kong, when member governments agreed to treat cotton “ambitiously, specifically, and expeditiously within the talks on agriculture” in the Doha Development Agenda, the only commodity singled out for specific treatment. From then, until this year, at every WTO meeting in which agriculture was discussed, cotton was a prominent part of each conversation.
But, at the 11th Ministerial Conference just completed, cotton was just one of many issues and special interest concerns competing for the attention of government leaders. One cotton-specific achievement announced in Buenos Aires was the launch by the WTO and the International Trade Commission (ITC) of a “cotton portal.” The Cot- ton Portal includes information on market access, trade statistics, and country-specific contacts related to cotton market access to make it easier for cotton exporters, importers and investors to contact each other and complete trade deals. As interesting as the launch of the cot- ton portal is, and not to diminish the work of the ITC, the addition of a new source of data on cotton trade contacts is hardly a major diplomatic achievement.
Why cotton is no longer a focus of WTO Talks
The fact that cotton is no longer central to talks in the WTO is partly a reflection of the reduction in subsidies in developed countries. Subsidies for cotton paid to farmers in the EU were mostly decoupled from current production decisions in 2006 and remain smaller than they were previously, and subsidies for cotton in the United States have fallen from between USD 3 billion and USD 5 billion a decade ago to about USD 1 billion today. In addition, the structure of the world cotton market has changed fundamentally since the Hong Kong Ministerial was held in 2005. China is now the largest consuming country and India the largest producing country and second largest exporter. The major sources of distortion in world cotton production and trade today occur in China (the State Reserve) and India (Minimum Support Prices), but subsidies paid to farmers in developing countries are not a focus of discussion in the WTO.
Another reason is that the reform of trade policies in the cotton sector, coupled with development assistance (foreign aid) is not helping African farmers anyway. The premise underlying the talks on cotton in the WTO was that subsidies paid to farmers in developed countries led to oversupply and reduced market prices, thus harming the interests of African farmers. However, the Cot- look A Index, which averaged about US 55 cents per pound between 2001 and 2005 when the Sectoral Initiative on Cotton in the WTO was launched, is currently above 80 cents. In addition, about USD 900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa. Despite the rise in market prices and the support given to the cotton sector, the aver- age yield across Sub-Saharan Africa of 330 kilograms of lint per hectare today is the same as it was two decades ago, and total production of about 1.5 million tons is the same as it was when the Doha Round started. Implications
Cotton as an industry, and the C4 as a group, have had their moment in the diplomatic sun. That moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that do not do any good. Multilateral institutions are losing interest in cotton, and in commodity industries generally, and they are focusing on more generic issues such as women’s empowerment and food security.
Statements in the column “Question Time“ embody the opinion of the respective interview partner and do not represent the position of the Bremen Cotton Exchange as neutral, independent institution.