TWN Info Service on WTO and Trade Issues (Mar07/10)

30 March 2007

South countries voices concerns over Northern subsidies to cotton
Published in SUNS #6212 dated 16 March 2007
By Kanaga Raja (SUNS), Geneva, 15 March 2007
The Group of 20 (G20) developing countries at the WTO said Thursday that trade-distorting subsidies from the developed countries are at the root of the critical situation of cotton for developing countries, and is one of the major inequalities in international agricultural trade.

The G20 stressed that a definitive solution that corrects unfair competition in world markets will have a significant influence on the agriculture negotiations in the Doha Development Agenda.

The G20's remarks came during the first day of a two-day (15-16 March) high level session on cotton held within the WTO Director-General's consultative framework mechanism on cotton.

Earlier, in his opening remarks, Director-General Pascal Lamy said that the cotton dossier had acquired systemic importance for the multilateral trading system and that it is one of the priority areas of the Doha Development Agenda.

According to an African trade diplomat who attended the session, at least seven Ministers from the African cotton-producing countries were present at the meeting to highlight their concerns over the cotton issue.

According to trade diplomats, the morning session on 15 March was devoted to discussions on the development assistance aspects of cotton, with donor countries explaining what they were planning to do in this area. The recipient countries on the other hand raised concerns over the level of financial support being provided. The afternoon session was being devoted to a presentation of the situation of world trade in cotton as well as a discussion on the trade aspects of cotton.

The session on 16 March would mainly be on a summing up of the discussions over the two days, according to the trade diplomats.

In its statement, the G20 reaffirmed its full commitment to address cotton ambitiously, expeditiously and specifically, in the context of the Doha Round.
The Group firmly believed that cotton is a crucial element of the overall agriculture agreement in the Doha Development Agenda.

Taking into consideration that cotton comprises high percentages of total exports and GDP for the Cotton-4 nations (Benin, Burkina Faso, Chad and Mali) and accounts for a significant part of rural incomes of poor farmers in the Western and Central African regions, as well as other parts of the developing world, the G20 said that it is concerned about the influence of subsidies on world prices and subsequent influence on the potential of agriculture trade to reduce poverty.

The Group recalled paragraphs 11 and 12 of the Hong Kong Declaration, which stresses ''the complementarity of the trade policy and development assistance aspects of cotton.'' The G20 also noted the necessity of searching for a ''mechanism to deal with income declines in the cotton sector until the end of subsidies'' and establishing cotton-specific assistance and cooperation programmes geared towards enhancing productivity and efficiency in African cotton-producing countries.

The G20 also recalled its proposal (of 12 October 2005) on domestic support. The Group said that the work in the Sub-Committee on Cotton needs to be expedited so that early agreement can be reached on effective measures consistent with all aspects related to cotton, in particular regarding domestic support and assistance mechanism, of the Framework Agreement (2004) and the Hong Kong Ministerial Declaration (2005).

The G20 fully supported paragraph 11 of the Hong Kong Declaration addressing the overall objectives in domestic support: ''... as an outcome for the negotiations, trade distorting domestic subsidies for cotton production be reduced more ambitiously than under whatever general formula is agreed and that it should be implemented over a shorter period of time than generally applicable.''

The Group also supported the Cotton-4 proposal regarding the reduction in the specific measure of support applicable to cotton.

In order to avoid trade-distorting subsidy concentration on cotton, the G20 said that it shared the Cotton-4 objective that product-specific AMS cap applicable for cotton shall amount to one third of the final capping resulting from the historical average for that product. The base period for product-specific AMS caps shall be 1995-2000.

Similarly, said the G20, disciplines on blue box support will ensure that such payments are less trade-distorting than AMS measures and include product-specific provisions. The G20 said that it will work together with the Cotton-4 to address effectively the problem of concentration of subsidies in cotton. Special and differential treatment for developing country Members shall be properly addressed.

The Group also recalled the decision taken in Hong Kong regarding the elimination of all forms of export subsidies granted to cotton by developed countries in 2006.

On the development assistance aspects of cotton, the G20 supported the Cotton-4 position, under paragraph 12 of the Hong Kong Declaration, in particular with regard to: the principle of the creation of a safety net for cotton producing LDCs in Africa; and the decision that Members shall instruct their representatives at the World Bank to seek the organization of a Bank meeting, within the shortest period of time, and to adopt a program along with the necessary financing in time for inclusion in the single undertaking at the end of the Doha Round negotiations.

The supporting mechanism program shall be linked to strengthening the productivity and efficiency of the cotton sector in Africa, said the G20.

In a separate statement earlier in the day, Brazil, on behalf of itself, said that cotton was very important for Brazil as demonstrated by its initiative to bring a case against the US at the WTO. The ruling of the WTO Dispute Settlement Body on cotton was a landmark ruling that must be complemented by results in this Round.

On the development assistance dimension, Brazil said that it is committed to join in the efforts to provide development assistance to the Cotton-4 countries. Brazil is engaged in an important program of cooperation, technical assistance, technology transfer and capacity building with Benin, Burkina Faso, Chad and Mali in the field of cotton.

In his opening remarks, Director-General Lamy said that the systemic importance that Members attach to cotton is reflected in the fact that action is now taking place along three different tracks in the WTO on the cotton dossier: first, the trade policy aspects are being addressed in the context of the agriculture negotiations, as part of the single undertaking; second, the development assistance track was agreed by WTO members, as an integral part of the Doha Development Agenda; thirdly, the dispute settlement track, which is an option that is always available to all Members.

On the Doha negotiations, Lamy maintained that progress is being made, albeit at a slow pace. There is need to accelerate work to bring the Doha Round to a successful conclusion. Lamy remained confident that a breakthrough is achievable in the near term. He also said that the cotton dossier, which is a vital component of the Doha Round, will be key to the success of the Round.

As to what can be achieved at this high-level session, Lamy said that firstly, on development assistance aspects, there is need to take stock of what has been achieved so far and to see what remains to be done.

The meeting must also bring clarity to the domestic cotton sector reforms that are being undertaken by the beneficiary countries, said Lamy.

As regards his consultations with the donor community to explore the possibility of a mechanism to deal with income decline in the cotton sector, Lamy said that his consultations revealed that donors would be more interested in supporting a ''market based approach'' to address this problem. He hoped that this meeting would shed greater clarity on this issue.

On the trade policy aspects of the cotton dossier, Lamy said that a reform of trade-distorting policies is equally critical to the cotton sector's long-term growth and well-being. Lamy also highlighted the importance of the issue of coherence between the development assistance track and the trade policy track.