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Potential impact of WTO agreement on cotton

04 May 2010

A report has been posted by ICTSD publishing the findings of a modelling exercise to ascertain the impact of five different scenarios for reforms in the cotton sector:

  • scenario A is based on the application of the specific provisions on cotton included in the December 2008 revised draft modalities;
  • scenario B is based on the general provisions of the December 2008 revised draft modalities;
  • scenario C models the effects of the implementation of the recommendations of the dispute settlement board’s findings in the US upland cotton dispute;
  • scenario D models the impact of the actual steps taken by the US in response to the ruling;
  • scenario E focuses on the impact of internal reforms in the EU and US, through the 2003-04 CAP reforms and 2008 US Farm Bill.

The model then looks at the impact of these different scenarios, had they been applied over the 1998-2007 period.

The report finds that scenario A would have resulted in an average increase in world cotton prices of 6%, with this ranging from 2 to 10%, and a decline in US and EU cotton production of 9 and 24% respectively. In years of particularly low prices, the decline in US production would have been even more pronounced (-15%). In some years the reductions in US production would have been more than the entire ACP cotton group’s production. Under this scenario, the ACP cotton group’s production would have expanded on average 2%.

Under scenario B, ‘the average world price increase would have been only 2.5%’. The production effects under scenario B would be significantly less than under scenario A (-4% in the US and unchanged in the EU). This suggests that ‘discarding the special cotton provisions from the modalities text would greatly reduce the potential of the Doha Round to deliver lower subsidy levels and higher world prices for cotton’.

Under scenario C, ‘the world price of cotton would have increased on average 3.5%’ in the 1998-2007 period, while US cotton production would have fallen 7% on average.

Under scenarios D and E, the increase in world prices would have averaged only 0.7%, with under scenario E this being attributable entirely to CAP reform measures. The production effects of scenario D would have been negligible, however under scenario E, EU production ‘would have fallen on average 20%’.

Overall, ‘the simultaneous increase in export quantities and world prices would have led to an unambiguous rise in the value of exports for all net exporters except the US’, with the largest effects being felt under scenario A, moderate effects being felt under scenarios B and C, and small or negligible effects being felt under scenarios D and E. Under scenarios A and E, ‘EU import quantities and costs would have increased substantially’.

The author notes that ‘virtually all benefits for cotton in the Doha Round will accrue from the reduction of subsidies … market access will play a marginal role at best’. This arises since duty- free access is already granted by most countries for cotton. Thus, in the cotton sector ‘subsidies should be the heart and soul of the negotiations’.

Editorial comment

The centrality of dismantling domestic subsidies in the cotton sector is once again reinforced by this analysis. However the reluctance of the US to engage effectively in the WTO negotiations and the de facto ‘buying off’ of Brazil in the cotton dispute cast a shadow over the prospects for an early harvest for ACP cotton producers from the WTO process.

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