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Printable version Agricultural policy implementation by the various WTO member countries can generate disputes, even conflicts, when interests diverge or contradict each other. For African countries, cotton is the most illustrative case of a dispute within the WTO.
In Africa, cotton growing has expanded considerably since the 1980s: it doubled between 1985 and 2007. Among the twenty-five African cotton producing countries, those of West and Central Africa account for two thirds of the quantities produced.
At the Africa-France Summit in February 2007, the President of Burkina Faso stated that 20 million people in sub-Saharan Africa are involved in cotton growing, primarily on small family farms. African cotton is produced with relatively few ressources: rainwater, no mechanisation, little-paid household labour. Harvesting by hand yields longer fibres and good quality cotton. When it comes to the quality-price ratio, West Africa has a natural comparative advantage in cotton production.
In the cotton growing regions of West and Central Africa, cotton growing has a significant impact on poverty reduction because it provides the households concerned with cash income and because of the development of infrastructures (roads, schools, health care dispensaries, for example). In addition, cotton production has even helped improve cereal production in the Savannah. Maize production has increased thanks to an appropriate crop rotation system and the fertiliser obtained with cotton-guaranteed credits.
Africa as a whole is ranked fifth among world producers, after China, India, the United States and Pakistan, and before Brazil and Uzbekistan, with other cotton producing countries very far behind when it comes to volumes produced.
Unlike other cotton producing countries such as the United States, China, India and Brazil, most African countries do not process the cotton they grow on their territory, but rather they export it in the form of bales of raw cotton. The largest cotton consuming country is China, by far. Indeed, its local production is unable to meet the growing needs of China’s textile industry, the largest in the world.
The principal cotton producing countries in Africa are, therefore, for the most part, highly dependent on cotton exports, as cotton is often the only (or the primary) product exported. Because of this, the variation in cotton prices on the world market has a very strong economic and social impact on these countries and their populations.
Yet, since the mid-1990s, world cotton prices have been falling sharply, and in 2001-2002 they reached a 30-year low. This drop is caused by an increase in world production that is not absorbed by demand even though demand is rising.
Cotton Outlook Index A, http://www.cotlook.com
This price drop automatically reduces the export earnings of West and Central African countries, which export 95% of the cotton they produce. In response to this price drop, the Ministries of Agriculture in West and Central African countries commissioned a study to assess the harm to their countries. The study estimated African countries’ lost earnings in terms of net export income to be 250 million dollars in 2001-2002. In 2005, this amount was revised to 400 million dollars--much more than the multilateral and bilateral official assistance Africa receives.
The consequences are also considerable for producers themselves. The price paid to producers follows the world price, and the incomes of cotton producing households are falling sharply, increasing poverty in cotton producing regions.
Several factors are behind the drop in cotton prices: competition from synthetic fibres, the sluggishness of the world economy, and above all the increase in production, which reached a record high in 2001-2002. Thus, the quantities sold on the world market followed the trend and prices plummeted. The United States, the world’s largest exporter by far, is the primary country responsible for the increase in exports.
The increase in cotton production in the United States, and to a lesser extent in the European Union, is encouraged by the subsidies paid to cotton producers. These subsidies are estimated to total 4.5 billion dollars, or three quarters of the value of world exports. By encouraging production, the effect of this aid is an increase in exports, and therefore a drop in world prices.
In the United States, farms are highly mechanised. The average production cost in 2001-2002 was approximately 50% more than in the countries in the West and Central African cotton zone where labour is paid less than one dollar a day. There is a striking contrast between the million African households growing two or three hectares of cotton and the few thousand American planters cultivating 1,000 hectares of cotton and providing half of the United States’ production, or twice the production of West and Central Africa.
American subsidies are concentrated on these few thousand American planters. The International Cotton Advisory Committee (ICAC) estimates that 40% of the world’s subsidies go to 25,000 American producers, and that 80% of these subsidies go to 3,000 of them. It should be noted that over the 2002-2004 period, the American government distributed in subsidies the equivalent of the value of the cotton produced. Without these subsidies, American cotton would not be profitable.
All cotton exporting countries that do not subsidise their farmers are confronted with this unfair competition. Both Brazil and African countries have brought the issue of cotton before the WTO, using different strategies.
In September 2002, Brazil filed a complaint with the WTO’s Dispute Settlement Body (DSB) in Geneva (see factsheet 2) against American cotton subsidies because of their effects on international prices. Brazil claimed to have been seriously harmed by the subsidies granted to American cotton producers. Two other countries soon joined Brazil.
Brazil then invited the countries of the CFA franc zone to join it as co-plaintiffs in its dispute with the United States. The African countries initially declined this invitation but, in March 2003, Benin and Chad decided to join the dispute as third parties. This status allowed these two countries to present communications during the procedure to support Brazil’s demands. Nevertheless, the solutions provided to the dispute would only concern Brazil.
Several different stages over several years were needed to eventually see the United States condemned in March 2005. However, the procedure was not complete until June 2007. At Brazil’s request, a compliance panel was formed to assess whether or not the United States had complied with the March 2005 ruling.
Brazil argued that, by providing aid to its cotton producers, the United States had not complied with the WTO’s Agreement on Agriculture, and in this way contributed to the drop in world prices, harming Brazilian producers. In particular, Brazil claimed that some of the aid that the United States had not notified (not declared) to the WTO needed to be classified as export subsidies, and that other forms of aid were declared in the wrong category. The DSB sided with Brazil and decided that American aid needed to be reclassified.
In November 2001, four cotton FOs--the Union nationale des producteurs de coton du Burkina Faso, the Fédération des unions de producteurs du Bénin, the Syndicat des producteurs de coton et vivriers du Mali, and the Maison des paysans de la région du Sud-ouest de Madagascar--published the “Bobo Dioulasso call” (so called after the city of the same name in Burkina Faso). They solemnly demanded that the United States and the European Union end the subsidies they gave their cotton producers that, according to the four FOs, were the cause of the sharp drop in cotton prices on the international market. This was the start of a series of farmers’ initiatives that marked the year 2002 with international mobilisation. This mobilisation among producers pushed their governments to bring the cotton issue before the WTO.
In April 2003, four African countries--Benin, Burkina Faso, Mali and Chad--launched the “Sectoral Initiative in Favour of Cotton”, more commonly called the Cotton Initiative. Benin transmitted the text to the WTO on behalf of all four countries.
Arguing that cotton growing was strategic for their economies given the place occupied by production, and that the harm caused by the drop in world prices was considerable, the four African countries demanded, with this initiative, that the decision be made during the Cancun Ministerial Conference to eliminate all (domestic and export) support paid by developed countries to their cotton producers. This demand mostly targeted the European Union and the United States. In addition, the four countries demanded that they be financially compensated until this decision was applied.
An unprecedented occurrence at the WTO, Blaise Compaoré, the President of Burkina Faso, defended the four countries’ cotton dossier in person during the General Council meeting in May 2003, to show the importance of the subject. The day after the text of the Cotton Initiative was transmitted to the WTO, the cotton producing countries began an international awareness-raising campaign. This campaign was conducted with the support of national and international NGOs and saw the strong mobilisation of African cotton producers.
The proposal was rapidly supported by the Least Developed Country group and by the Africa group. During the first discussion on this subject during the Agriculture committee meeting in July 2003, certain developed countries, such as Norway, New Zealand and Australia, supported the initiative without reservation.
The inability to find an adequate response to the Cotton Initiative was one of the factors in the failure of the Ministerial Conference in Cancun (Mexico) in September 2003. The African cotton producing countries, their farmers’ organisations, and the national and above all international NGOs that supported them were presented as the primary actors in this standoff.
In the framework of the WTO negotiations on agriculture and on the three pillars of the Agreement on Agriculture (market access, domestic support, and export competition), a sub-committee on cotton was created in July 2004 with the goal of “ambitiously, expeditiously and specifically” finding solutions. However, no specific solution for cotton was presented at the Hong Kong Ministerial Conference in December 2006.
In the end, the strong African and international mobilisation on the cotton issue did not shake the United States’ position. Despite the press coverage around the world, the United States continued to support its cotton producers. For its part, the European Union modified its cotton policy in 2003, but given its small weight in the international cotton market, the change did not affect prices. Nevertheless, the African actors new to international negotiations received a considerable education.
Unlike Brazil that filed a complaint, the four African countries chose the path of dialogue and negotiation. African countries did not want to confront cotton producing developed countries directly, in particular since the dispute resolution procedure is long, costly and requires one to present a very solid and well-argued legal dossier.
For Africa, cotton is the most staunchly defended issue at the WTO. It raises the question of developing countries’ farmers’ place in the current globalisation. Yet, if the negotiations have no effect, there is a risk that African countries will ask themselves if they have an interest in continuing to negotiate.
Furthermore, while it is true that the end of subsidies would facilitate the lives of millions of Africans for whom cotton is the only source of income, it will have only little impact on world trade over the long term. Cotton producers may find themselves at the same dead end as coffee and cocoa producers. Indeed, the price of these last two products, even though they are not subsidised, has dropped spectacularly for three decades. The questions of production diversification, dependency on one unprocessed export product, and supply management should be addressed.
African countries’ demand is justified by the need to better adapt the rules of international trade to the development needs of poor countries. The Dispute Settlement Body (DSB) does not change the rules so that the situation in Africa can improve. It only enforces existing rules. Of course, the United States eliminated export subsidies on cotton at the request of the WTO, but it has kept the domestic subsidies that are harmful for developing countries.
Calling on the DSB carries a financial cost that is often beyond the means of most developing countries. The African country group at the WTO has asked that a fund be created to allow these countries, and LDCs in particular, to access the DSB without having to cover the high cost of doing so. This demand was received with little enthusiasm by the United States and the European Union.
The DSB is a mechanism largely reserved for wealthy countries. Some developing countries can find it difficult to initiate a complaint against a major power on which they still “depend” politically, financially and economically.
Finally, the retaliation measures planned as sanctions are often out of developing countries’ reach. Indeed, retaliation measures are based on the right to increase the customs tariffs on imports from the losing country. A country’s weight at the DSB is, therefore, proportional to its import capacity, which works against African states. However, these measures can do serious damage when wealthy countries use them against developing countries.
