The Doha Round negotiations on agricultural subsidies.

• Author: Kennedy, Kevin C.

For the past seven years the international trade community's attention has been fixed on the issue of agricultural subsidies, both at the on-going Doha Round negotiations and in recent World Trade Organization (WTO) dispute settlement proceedings. But the issue of agricultural subsidies is not strictly speaking just a trade issue. Reform of agricultural subsidies in developed countries embraces the broader issue of economic development in developing countries and a humanitarian concern for the poorest countries in the world, especially those in sub-Saharan Africa.

I would like to discuss the specific issue of cotton subsidies. What is the likelihood of a commodity-specific agreement on cotton and cotton subsidies as part of the Doha Round negotiations? If the Doha Round fails, will litigation replace negotiation as the default mechanism for reforming farm subsidies? My short answer to the first question is that a commodity-specific agreement on cotton is out of the question unless WTO reforms are achieved within the agricultural sector as a whole. My short answer to the second question is that in the absence of such WTO reforms, WTO dispute settlement proceedings could end up replacing negotiation as the mechanism for reforming government subsidies to the farm sector.

Let me begin by briefly reviewing the critical role that agriculture, in particular cotton production, plays in the economies of a large group of least-developed countries located in sub-Saharan Africa. Thirty-four of the world's fifty poorest countries, the Least Developed Countries (LDCs), are located in sub-Saharan Africa. (1) Farming plays a leading role in the work force and the overall economies of LDCs in sub-Saharan Africa (SSA), with the balance primarily in the extractive industries of mining and oil. (2) With the exceptions of Cape Verde and Lesotho, agriculture employs at a minimum more than 50 percent of the total labor force in all SSA LDCs. (3) One of the most important crops grown in sub-Saharan Africa is cotton. (4) As a percentage of total world merchandise trade, raw cotton's share is miniscule (approximately one-tenth of one percent). (5) Nevertheless, cotton is one of the most important textile fibers in the world, accounting for over 40 percent of total world fiber production. (6) While some eighty countries produce cotton, cotton production is concentrated in a handful of countries (see Table 1).

The world's four largest producing and consuming countries are China, the United States, India, and Pakistan, with the United States, China, and India together providing over half the world's cotton. As Table 2 illustrates, the world's largest importer is China, consuming 40 percent of the world's total production.

The world's largest exporter of cotton is the United States, which ranks second to China in cotton production, accounting for 40 percent of global trade in raw cotton (see Table 3). In fact, 70 percent of cotton grown in the United States is for export.

Table 4 lists the ten largest producers of cotton in sub-Saharan Africa for 2003/04-2006/07. In the West and Central African (WCA) countries of Benin, Burkina Faso, Chad, Mali, and Togo (the Cotton Four), cotton production accounts for up to 10 percent of gross domestic product. (10) Over 90 percent of the cotton produced in the WCA countries is for export. (11) Exports from these WCA countries are dominated by cotton, which represents approximately 30 percent of total export earnings and over 60 percent of earnings from agricultural exports. (12)

Collectively, the WCA countries are the seventh largest global producer of cotton after China, the United States, India, Pakistan, Brazil, and Uzbekistan. With approximately a 15-percent share of global exports, the WCA countries collectively are the second largest exporter after the United States. (14) Although cotton plays only a minor role in the economic activities of industrialized countries, it is of vital importance in many WCA countries. Over 10 million people in the region--where people earn less than a dollar a day--depend directly on cotton production, making it possible to improve the physical and social infrastructure in cotton-producing regions, including roads, schools, and health centers. (15) Cotton occupies a strategic position in the development policies and poverty reduction programs of the WCA countries. Cotton accounts for 5-10 percent of GDP in Burkina Faso and Benin, but less than 0.1 percent in the United States. (16)

With at least a dozen countries around the world subsidizing their cotton producers, including China and the United States which subsidize their cotton growers up to 20 percent and 50 percent of world prices, respectively, world prices for cotton have been suppressed due to overproduction. (17) In an attempt to correct this situation, a joint proposal was submitted by the four West and Central African nations of Benin, Burkina Faso, Chad, and Mali at the 2003 WTO Ministerial Conference in Cancun, Mexico, requesting that all subsidies on cotton be eliminated immediately. (18) Their proposal, commonly known as the Cotton Initiative, contends that WCA countries have undertaken internal market reforms in order to make their respective cotton sectors more competitive globally, but that these reforms have been virtually nullified by the subsidies given by other WTO members to cotton farmers. (19) The Cotton Initiative proponents argue that if these domestic and export subsidies were eliminated, "cotton production in WCA countries would be highly profitable and could act as an important catalyst for poverty reduction in the countries concerned." (20)

The joint proponents of the Cotton Initiative (popularly known as the "Cotton Four") have called for a "complete phase-out of support measures for the production and export of cotton." (21) Countries that subsidize their cotton growers were expected to agree to a total elimination of domestic and export subsidies "immediately" and independent of any other commitments from other WTO members on other agricultural issues. (22) Until such time as cotton subsidies are completely eliminated, the Cotton Initiative requests that cotton growers in LDCs receive compensation offsetting income lost as a result of such subsidies. (23)

In July 2004, a group of ninety developing countries championed the Cotton Four's cause by insisting that cotton subsidies be dealt with as a stand-alone issue and outside the agriculture negotiations. (24) The G90's position was met with stiff resistance from former U.S. Trade Representative Robert Zoellick, who was adamant that the issue of cotton subsidies be negotiated within the broader context of the agriculture negotiations. (25) The European Union and the WTO Director-General supported Zoellick's position. (26) In the end, perhaps knowing that Brazil would keep pressure on the United States on the issue of cotton subsidies, the G90 and the Cotton Four backed off from their demand that cotton be dealt with as a stand-alone item. (27)

Following weeks of intense negotiations, preceded by months of stalemate, the WTO General Council reached an eleventh-hour framework agreement on agricultural negotiations in late July 2004 that included a compromise reached between the United States and the Cotton Four. (28) The cotton provision of the WTO General Council's August 2004 Doha work program provides that (1) cotton will be addressed "ambitiously, expeditiously, and specifically" as part of the Doha Round agriculture negotiations; (2) a subcommittee on cotton will be created that will meet periodically with the WTO Committee on Agriculture ensuring "appropriate prioritization of the cotton issue independently from other sectoral initiatives;" and (3) the WTO Director General is to work with international organizations to direct additional resources towards development of economies where cotton has vital importance. (29)

The Cotton Initiative languished thereafter for more than a year. At the December 2005 Hong Kong Ministerial Conference language was included in the Ministerial Declaration that reiterates that reform of trade-distorting cotton subsidies is to go farther and faster than reforms on subsidies for other agricultural commodities. (30) The Ministerial Declaration provides that:

** All forms of export subsidies for cotton be eliminated by developed countries in 2006.

** On market access, developed countries give duty and quota free access for cotton exports from least-developed countries (LDCs) from the commencement of the implementation period.

** Trade distorting domestic subsidies for cotton production be reduced more ambitiously than under whatever...