U.S. Trade Representative Rob Portman made a stop in Burkina Faso in Africa two weeks ago on his way to Asia for meetings on trade policy reforms and the Doha Round negotiations. His purpose was to announce a $7 million West Africa Cotton Improvement Program aimed at cotton production and marketing in Benin, Burkina Faso, Chad, Mali and Senegal. The program is part of an ongoing effort begun two years ago after the Cancun, Mexico WTO Ministerial meeting stalled partly over West African nations’ concerns about subsidizes paid to cotton producers in developed countries.
The aid program for cotton is part of broader efforts to help developing countries deal with production and marketing issues that can make them more competitive in international trade. Other efforts include increased aid through the Millennium Challenge Corporation, debt relief and increased aid agreed to at the G-8 summit this summer and a five-year, $200 million African Global Competitiveness Initiative. Trade development assistance was not part of trade policy negotiations under the GATT (General Agreement on Tariffs & Trade), the predecessor organization to the WTO. With two-thirds of the 149 member countries of the WTO self-identified as developing countries, trade and development issues have become inextricably linked.
As part of the July of 2004 framework agreement on the WTO negotiations a subcommittee on cotton was created to report to the Committee on Agriculture on the concerns of the West African countries. The subcommittee on cotton had its eighth meeting on November 18th. The countries of Benin, Burkina Faso, Chad and Mali suggested that all cotton export subsidies be eliminated by the end of this year, trade distorting cotton domestic subsidies be reduced by 80 percent by the end of 2006 with 10 percent reductions in 2007 and 2008, further disciplines be imposed on other domestic support programs, duty-free and quota-free access be granted for cotton and cotton products from least-developed countries, an emergency fund be created to help deal with low international cotton prices and technical and financial assistance be provided for the cotton industries in Africa. The cotton improvement program addresses the last point.
All of these trade policy changes for cotton are not likely to happen, but they do provide an indication of the approach taken by West African cotton producing countries. Any final Doha Round agreement must be adopted by consensus, and the U.S. will be under intense pressure to work out a deal on cotton that will encourage these countries to support the final agreement.
The aid programs are welcomed, but they sidestep the biggest demands of the West African countries: an end to developed country cotton subsidies, duty-free and quota-free access to developed country markets and creation of a fund to compensate African cotton producers when market prices are low.
The disputes over cotton trade policy are an example of how a more open world trading system impacts producers with widely differing abilities to access technologies and market structures. Developed country cotton producers farm hundreds of acres using modern seed, pesticide and fertilizer technology and large scale equipment. West African producers farm small plots using hand labor and limited supplies of improved seeds and fertilizer. Developed country producers operate in market-based economic systems, while countries like Mali have a state run cotton monopoly that provides seeds and chemicals on credit and buys and exports the cotton. Developed countries have farm to market roads and good port facilities while West African farmers are hampered by poor roads and limited port facilities.
West African cotton producers are effectively using the resources they have available. Land and labor are cheap and the hand picked cotton is unusually clean compared to machine harvested cotton in developed countries. Cotton merchandizing companies based in the U.S. and the EU consider West Africa an integral part of their supply systems. West African cotton accounts for about 12 percent of world exports of cotton compared to 40 percent of the world market for U.S. cotton.
Developed country cotton industries have already felt the effects of textile and clothing trade reforms under the Uruguay round agreement. U.S. exports have increased sharply in recent years because U.S. mill use has declined rapidly. In 1994-96, U.S. cotton mill use averaged 11.0 million bales per year while exports average 8.0 million bales. For the 2005/06 marketing year, domestic mill use is expected to be down to 5.9 million bales, while exports have increased to 15.4 million bales.
When detractors of U.S. cotton policy talk of subsidies they lump all of them together. The only subsidies that should be part of the WTO discussions are those that are trade distorting. Direct payments not tied to production or price and payments for conservation are included in the green box of non trade distorting subsidies. This distinction has been lost in the debate.
Even without subsidies, developed country producers will still have larger farms, better technology, superior marketing systems and more stable economic environments. West African cotton producers will still lack these basic economic conditions with little prospect of achieving them as long as government economic policies are not conducive to economic growth. While the aid programs get the least attention in the political debates over cotton policies, they are important for the long-term income prospects for West African cotton producers. Improved productivity through technology upgrades and economic policies that promote investment are keys to economic growth throughout the world.