The Case for Cotton

Published in: World Trade Magazine, May 2007.

At around 30 cents per pound, cotton farmers in Mali, West Africa, produce cotton for less than most other producers in the world. Not surprisingly, cotton accounts for more than half of Mali’s agricultural exports. In comparison, U.S. production cost average 68 cents/pound. Yet, the International Cotton Advisory Committee estimated that U.S. exports of subsidized cotton cost Mali some $43 million in lost exports in 2001/02, more than the country received in foreign assistance from the U.S. To Malian cotton farmers, such subsidies are not simply an abstract issue to be negotiated at one of the many Doha ministerial meetings—they are a question of survival.

Between 1992 and 2002, U.S. Department of Agriculture’s direct and indirect subsidies to American cotton producers nearly doubled, reaching about $3.9 billion in 2002. These subsidies took the form of direct payments, counter-cyclical payments, marketing loan payments and export credits. During the same time period, the world market price for cotton dropped from $0.72 to $0.42 per pound and there is plenty of evidence that the U.S. exports of subsidized cotton contributed to this decline. According to data available from the National Cotton Council, the U.S. was the second largest exporter of cotton in 1992 with 5,201,000 bales. In 2002, however, the U.S. exported by far the largest amount, some 11,900,000 bales, more than three times as much as Uzbekistan, the next largest exporter.

The rest of the world took notice. Four West African countries—including Mali—managed to add cotton to the agenda of the 2003 Cancun ministerial discussions. Although no agreement was reached in Cancun, the “Sectoral Initiative on Cotton” warranted a special paragraph in the draft text. The subsequent formation of the Cotton Sub-Committee highlighted the importance of the market distorting subsidies to developing countries in Africa and elsewhere. But the Doha negotiations stalled. Meanwhile, cotton farmers in Mali were feeling the impact. Farmer receipts for cotton remained low, debt incurred to purchase inputs mounted, school fees went unpaid and food security was com- promised.

In 2004, Brazil, fed up with waiting for the slow negotiations, challenged U.S. cotton subsidies before the dispute settling mechanism of the WTO. In 2005, after considering an appeal by the U.S., the panel upheld its ruling declaring U.S. subsidies a contravention of WTO rules and giving the U.S. fifteen month to eliminate these. In 2006, Congress approved the necessary legislation to phase out preferential treatment of domestic cotton after the Bush administration had eliminated two credit programs. In the meantime, the world price of cotton has risen again to nearly 60 cents/pound, providing some relief for Malian farmers. However, U.S. subsidies in 2005/06 still amounted to $3.1 billion according to the ICAC.

Sadly, the lesson here is that waiting for negotiations to succeed is less useful than using the dispute settling mechanism of the WTO. Yet it was Brazil, not Mali, that challenged the U.S. Political power seems to remain the currency of international trade.

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