Disciplining cotton subsidies, a mirage?

For the past fifteen years, support for cotton producers has been the subject of specific treatment in the Doha Round of negotiations at the World Trade Organization. In 2003, the "C4" group, which includes four low-income West African countries that are major cotton exporters (Benin, Burkina Faso, Mali, Chad), succeeded in convincing the international community to seek to discipline the aid that creates the most distortions in this sector, in order to avoid unfair competition. The United States, the leading cotton exporter, is particularly targeted. But it is reluctant to comply with multilateral rules.

For the past fifteen years, support for cotton producers has been the subject of specific treatment in the Doha Round of negotiations at the World Trade Organization. In 2003, the "C4" group, which includes four low-income West African countries that are major cotton exporters (Benin, Burkina Faso, Mali, Chad), succeeded in convincing the international community to seek to discipline the aid that creates the most distortions in this sector, in order to avoid unfair competition. The United States, the leading cotton exporter, is particularly targeted.[1]But they are reluctant to comply with multilateral rules.

Let's remember: in 2002, Brazil filed a complaint with the WTO against the support provided to US cotton producers, accusing them of distorting trade and depressing the world price of this crop. After many twists and turns, Brazil won its case: the farm bill adopted across the Atlantic in 2014 excluded cotton from the general system of subsidies for major crops. More specifically, this legislation eliminated compensatory payments, a major source of market distortion, which were traditionally paid to cotton producers in the event of a drop in prices or sales. In return, Brazil agreed to suspend its attacks at the WTO against US cotton subsidies, as part of a memorandum of understanding (MOU) signed with them in October 2014 and applicable until the end of the farm bill on September 30, 2018.

But the lobbying power of American cotton growers is considerable. In 2016 and again in 2018, they convinced their government to release exceptional aid in their favor, in response to the deterioration of the market. Above all, a year ago, they persuaded Congress to amend the farm bill to reinstate cotton in the support system for major crops, thus reauthorizing the payment of compensatory payments starting with the 2018 harvest. The new farm bill, enacted in December 2019, extended this measure until 2023. The MOU has expired. Will Brazil swallow the snake or reopen hostilities at the WTO?

In Washington's defense, it must be acknowledged that when it comes to cotton subsidies, the United States is not the only troublemaker. Far from it, according to calculations by the International Cotton Advisory Committee.[2]According to the ICAC, in 2017/18, ten countries – China, the United States, Turkey, Greece, Spain, Mali, Burkina Faso, Ivory Coast, Senegal, Colombia – allocated a total of $5.9 billion in support to their cotton producers.[3]. US subsidies represent only 15 % of this amount. The majority of the support (72 %) is granted by China, in the form of direct payments and import protection. However, China provides 48 % of the cotton production of the ten countries studied, compared to 37 % for the United States, which explains why the support granted to Chinese producers, reduced to the tonne, is 3.7 times higher than that paid to their US counterparts (727 $/t compared to 198 $/t). It should be noted, however, that according to the ICAC, the prize in this area goes to European producers (1,102 $/t in Spain, 1,014 $/t in Greece). European Union aid is 8 to 12 times greater than that paid in West Africa (88 to 132 $/t depending on the country), mainly in the form of input subsidies.

All the C4 countries managed to achieve in the Doha Round was the elimination of export subsidies (for all agricultural products, but more quickly applicable to cotton), agreed at the WTO Ministerial Conference in Nairobi in December 2015. No substantial progress has been made on reducing import protection and domestic support. Perhaps African cotton producers will have more success convincing their governments to subsidize—as the United States does—premiums for climate insurance policies. Such insurance already exists in some African countries. And WTO rules provide considerable latitude in this area.

[1] In 2017/18, the United States accounted for 17 billion 300 million tonnes of global cotton production and 39 billion 300 million tonnes of global cotton exports. For all African countries in the franc zone (C4 + Cameroon, Côte d'Ivoire, Niger, Central African Republic, Senegal, and Togo), the corresponding figures are 4 billion 300 million tonnes and 12 billion 300 million tonnes.

[2] International Cotton Advisory Committee, Production and trade subsidies affecting the cotton industry, November 2018.

[3] The ICAC does not calculate the support allocated by India, the world's largest cotton producer. In November 2018, the United States sent WTO members a "counter-notification" stating that India had exceeded the permitted level of support for cotton. The Indian government disputes this analysis.