US succeeds in softening cotton obligations in ministerial text

HONG KONG - The United States this week succeeded in softening the demands of a draft ministerial declaration with respect to cutting its domestic cotton subsidies after many intense meetings with ministers from five West African countries demanding the elimination of these trade- distorting payments.

The approved ministerial declaration states it is the "objective" of members to reduce trade-distorting domestic subsidies for cotton production more ambitiously than for other commodities and implement these cuts over a shorter period of time.

In contrast, the Dec. 17 draft text opposed by the U.S. said trade-distorting cotton subsidies "will be more quickly and ambitiously reduced than the general formula to be agreed." It also said, "modalities for domestic support will be implemented over a shorter period of time than that generally applicable for agriculture."

In a nod to the decision last year by a WTO panel that U.S. cotton subsidies had injured Brazilian producers, the text also states that the language on cotton is "without prejudice to Members' current rights and obligations, including those flowing from actions taken by the Dispute Settlement Body." The U.S. has yet to implement most of the Brazil cotton decision, but has reached procedural agreements with Brazil to delay trade retaliation.

Deputy U.S. Trade Representative Karan Bhatia announced the U.S. and all five West African countries had reached an agreement at a press conference just before the ministerial closed on Dec. 18. At that time, the ministerial declaration still had brackets around a section of the cotton text, but Bhatia said they would be removed. He also said there would be a few "slight wording changes," compared to the version released on Dec. 18.

At press time, the WTO had yet to release a final text of the ministerial declaration.

U.S. officials emphasized that the final text preserved the U.S. demand that cotton subsidies be negotiated in the context of the overall agriculture negotiations in the Doha round. Even after backing off slightly from their pre-Hong Kong demands, the five African countries had been pushing the U.S. to agree to eliminate all trade-distorting subsidies in cotton by 2010. Initially they had called for this goal to be reached by 2008.

The text also calls for export subsidies in cotton to be eliminated by 2006, and for developed countries to provide duty-free, quota-free access to cotton from least-developed countries. This would cover the five African countries of Benin, Senegal, Chad, Burkina Faso and Mali.
The U.S. and the African countries had agreed to both of these items on Dec. 17, before the final round of talks between the U.S., Benin and Senegal that night, the U.S. official said. The other three countries signed on to the deal after additional consultations on Dec. 18.

Before the final deal was reached, the five African countries indicated they saw elimination of export subsidies by 2006 and tariff cuts for cotton as relatively minor U.S. concessions. Mali Minister of Trade Choguel Kokalla Maiga pointed out at a Dec. 17 press conference that the
2006 date for export subsidy elimination merely reaffirms what is already happening in the United States, where the Congress is poised to approve the elimination of the Step 2 program. Step 2 functioned as an export subsidy program by paying U.S. producers to ensure they could sell cotton on the world market. It also paid U.S. mills to buy U.S.
instead of cheaper foreign cotton.

Maiga also said the U.S. offer to reduce cotton tariffs to zero solved only a tiny part of the problem faced by producers there.

U.S. Trade Representative Rob Portman last week acknowledged the African countries did not believe the export subsidies commitment would have as big an impact as cuts in domestic support, but said it was still important. He said the administration was lobbying Congress to approve the elimination of Step 2, which is part of a controversial budget package.

He noted that the U.S. offer to give the West African countries duty-free access for their cotton came at their request, but acknowledged the U.S. was unlikely to take in substantial African cotton imports. "In terms of market access, the U.S. is not the most logical market for West African cotton," said Portman. He called on China, the largest market in the world for cotton, to open its market to West African cotton.

Portman pointed to studies that show the elimination of cotton subsidies would increase world prices by as much as 12 percent or as little as 2 percent. According to Portman, "all the subsidy reduction in the world is not going to solve the problem" faced by cotton producers in Africa, and it would be "irresponsible" to say so.

Producers in the five West African countries have half the yields of other cotton farmers in the world, and they suffer from a monopoly marketing system that does not return enough revenue to African cotton farmers, he said. Portman said about 80 cents of every dollar of revenue is returned to farmers in the U.S., compared to about 40 cents in the African countries.

The senior U.S. trade official characterized the declaration's language as "politically challenging" for the U.S., but pointed out that administration officials had consulted this week with members of Congress and the cotton industry. He acknowledged their view was that cotton should not be singled out in the talks and emphasized that nothing would happen with cotton subsidies unless an overall agriculture agreement is moving forward.

He also said some members of Congress realize there would be significant gains for the U.S. economy from market openings realized under a Doha agreement and that the U.S. needed to do what it could to move the round forward.

The agreement does not set a precedent in which other commodities could be singled out for special treatment, the official insisted. "We don't believe this opens the door to other sector-specific negotiations," he said. In the administration's internal deliberations on how to handle the cotton subsidy issue, some officials had warned against taking actions that would open the U.S. up for other demands from other countries over different commodities.

A fourth issue agreed by the U.S., Benin and Senegal is the language in the ministerial text asking the WTO's director general to explore the possibility of setting up a mechanism to deal with income declines in the cotton sector with multilateral institutions, the U.S. official said. This language, reflected in the Dec. 18 draft ministerial text, is in response to African demands for an emergency fund to help poor cotton producers injured by low world prices.

Finally, the three countries agreed to ask the director general to set up a monitoring mechanism for these commitments, which reflects another African demand.