The End of an Era: Cotton is no Longer Prominent in the WTO

The End of an Era: Cotton is no Longer Prominent in the WTO

Summary: The WTO completed its 11th Ministerial Conference on 13 December in Buenos Aires. The closing statements were remarkable for the omission of any reference to cotton. Cotton as an industry and African cotton producers have had their moment in the diplomatic sun, but that moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are shifting focus back to more generic issues such as women’s empowerment and food security.

The End of an Era: Cotton is no Longer Prominent in the WTO

The World Trade Organization (WTO) completed its 11th Ministerial Conference (MC11) since its founding 1995 on 13 December 2017 in Buenos Aires, and the closing statements were remarkable for the omission of any reference to cotton. (https://www.wto.org)

MC11ended with modest progress on reducing fishing subsidies and pledges to avoid imposing customs duties on electronic transmissions for two years. There was no mention of cotton in the closing statements.

Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda (the Doha Round), and in previous WTO ministerial meetings, cotton was a major issue. MC11 marks the end of an era in which cotton and issues related to cotton were central to international trade negotiations. Now, cotton is just one more commodity again.

The Doha Round of multilateral trade negotiations was launched in 2001 with most countries eschewing sectoral specific initiatives, and if you were to have picked a commodity to serve as the poster for development within the Round, it would probably not have been cotton. The gross value of world cotton production is smaller than for other major crops. For example, the gross value of world cotton production in 2001 when the Doha Round was launched was about $30 billion. In contrast, maize was $87 billion, soybeans $49 billion, sugar cane as well as beets were $52 billion, and wheat was $93 billion. (FAO, 2015). Additionally, cotton is primarily a fiber crop, not a food crop, which means it is not usually associated with food security, a traditional focus of government concern.

Nevertheless, cotton rose to prominence in the Doha Round,which unusually made because the President of Burkina Faso want to attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and in which he demanded that cotton be addressed specifically. Speaking on behalf of Benin, Burkina Faso, Chad and Mali, collectively known in the WTO as the C4, the President of Burkina Faso noted that cotton is the only good of any significant value exported by the C4, and he asserted that subsidies in developed countries depressed world prices thus hindering efforts at income generation and economic development in developing countries. He stated simply that the C4 could not support completion of the Round unless the cotton issue was resolved, an ominous threat in an institution that requires unanimity.

The prominence of cotton became official in 2005 at the next WTO meeting in Hong Kong, when member governments agreed to treat cotton “ambitiously, specifically, and expeditiously within the talks on agriculture” in the Doha Development Agenda, the only commodity singled out for specific treatment. From then until this year, at every WTO meeting in which agriculture was discussed, cotton was a prominent part of each conversation.

The 2011 Geneva WTO Ministerial Conference reaffirmed the commitment of members of the WTO to address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

The Bali Ministerial Declaration issued in December 2013, included a specific “Decision” in which Ministers said again that they would address cotton “ambitiously, expeditiously and specifically”, within the agriculture negotiations.

At the Tenth WTO Ministerial Conference in Nairobi in December 2015, Ministers again issued a specific “Decision” on cotton, with countries pledging to grant duty-free and quota-free market access for exports by Least Developed Countries (LDCs) of cotton-related products and to eliminate export subsidies on cotton.

But, at the 11th Ministerial Conference just completed, cotton was just one of many issues and special interest concerns competing for the attention of government leaders. There were events and activities related to cotton conducted on the margins of MC11, but these were not central to discussions among ministers.

One cotton-specific achievement announced in Buenos Aires was the launch by the WTO and the International Trade Commission (ITC) of a “cotton portal.” The portal is supposed to provide a single online entry point for all the cotton-specific information available in WTO and ITC databases. The Cotton Portal includes information on market access, trade statistics, and country-specific contacts related to cotton market access to make it easier for cotton exporters, importers and investors to contact each other and complete trade deals.As interesting as the launch of the cotton portal is, and not to diminish the work of the ITC, the addition of a new source of data on cotton trade contacts is hardly a major diplomatic achievement. The fact that this was the only cotton-related activity announced at the WTO meeting in Buenos Aires shows that trade officials have grown weary of talking about cotton.

Why Cotton is No Longer a Focus of WTO Talks

The fact that cotton is no longer central to talks in the WTO is partly a reflection of the reduction in subsidies in developed countries. Subsidies for cotton paid to farmers in the EU were mostly decoupled from current production decisions in 2006 and remain smaller than they were previously, and subsidies for cotton in the United States have fallen from between $3 billion and $5 billion a decade ago to about $1 billion today. Thus, subsidies paid to farmers in the EU and United States are no longer major sources of distortion to world cotton production and trade.

In addition, the structure of the world cotton market has changed fundamentally since the Hong Kong Ministerial was held in 2005. China is now the largest consuming country and India the largest producing country and second largest exporter. The major sources of distortion in world cotton production and trade today occur in China (the State Reserve) and India (Minimum Support Prices), but subsidies paid to farmers in developing countries are not a focus of discussion in the WTO.

Another reason cotton is no longer central to the WTO agenda is that the reform of trade policies in the cotton sector, coupled with development assistance (foreign aid) is not helping African farmers anyway. The premise underlying the talks on cotton in the WTO was that subsidies paid to farmers in developed countries led to oversupply and reduced market prices, thus harming the interests of African farmers. However, the Cotlook A Index, which averaged about 55 cents per pound between 2001 and 2005 when the Sectoral Initiative on Cotton in the WTO was launched, is currently above 80 cents. In addition, about $900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa. Despite the rise in market prices and the support given to the cotton sector, the average yield across Sub-Saharan Africa of 330 kilograms of lint per hectare today is the same as it was two decades ago, and total production of about 1.5 million tons is the same as it was when the Doha Round started. So, why bother to focus on cotton if it is not going to do any good?

Implications

Cotton as an industry, and the C4 as a group, have had their moment in the diplomatic sun. That moment is passing. Trade negotiators are tired of talking about cotton. Donors are tired of funding cotton projects that don’t do any good. Multilateral institutions like The World Bank, the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Commission on Trade and Development (UNCTAD) are losing interest in cotton, and in commodity industries generally, and they are focusing on more generic issues such as women’s empowerment and food security.