Cotton is an important agenda for discussion in the World Trade Organisation (WTO) negotiations. In the WTO, negotiations on cotton revolves around two issues viz. one related to its trade aspects e.g. how to remove trade-distorting subsidies, and the other one relates to development assistance for cotton value chain. In fact, the issue of cotton gained momentum in 2003 in Cancun during the 5th WTO ministerial conference (MC5). It was related to Benin, Burkina Faso, Chad, and Mali – also known as Cotton-4 countries or C-4. These four African least developed countries (LDCs) are the major cotton producers and constitute 8 per cent of the global cotton trade. Further, MC6 held in Hong Kong in 2005 decided to reduce cotton subsidies, but did not deliver. Also, the 2022 ‘Geneva Package’ of MC12 failed to address this concern. Thus, the collective demand of the C-4 and others to discipline trade-distorting cotton subsidies is yet to reach any conclusion. Here, we highlight some of the key issues of C-4 and probable outcomes from the upcoming MC13 scheduled next week in Abu Dhabi.
First, it is the issue of subsidy. Both developed and developing countries can provide subsidies for cotton production. However, there is a limit to it. According to WTO regulations, the majority of developing countries can offer support generally within a threshold of 10 per cent of their overall value of cotton production, while for developed countries, the threshold is generally 5 per cent. The highly subsidised cotton profoundly impacts the global prices and has repercussions on some of the African economies as well such as Chad and Mali. Both these countries are highly dependent on cotton production and trade. Interestingly, the per farmer cotton subsidy is significantly higher in the United States as compared to developing countries such as India and China. The four African countries engaged in cotton exports formally introduced their cotton initiative through a written communication to the WTO director-general in April 2003. Subsequently, they presented the initiative to the WTO Trade Negotiating Committee in June 2003. Since the 2003 Cancun WTO Ministerial meeting, the C-4 countries are consistently soliciting to curb the trade-distorting cotton subsidies by the developed countries.
Second, developed countries have shown reluctance in removing trade-distorting cotton subsidies. This largely and effectively displaces cotton exports originating from the LDCs. Despite deliberations on the matter concerning the C-4 on cotton subsidies in multiple MCs such as the Bali Round in 2013 and the Nairobi Round in 2015, any substantive advancement in the cotton subsidies negotiations has been difficult to gauge. In fact, multilateral trade rules have not been able to restrict trade-distorting subsides by developed countries. In fact, highly subsidised cotton when exported can create a dip in the international prices, and has major repercussions for low-income countries. Cotton exports from LDCs become uncompetitive because of high subsidies offered by developed countries.
Third, in recent times, due to Covid19, there has been adverse impact on the cotton value chains. The reduced demand for apparel product ultimately impacted the price of cotton as well. This has been coupled by order cancellations and reduction in trade for African LDCs. Interestingly, at a WTO event in July 2020, the C-4 clearly emphasised that as a result of the Covid19 crisis around 70 per cent of the fibre meant for exports remained in either factories or transit hubs. These countries also showed that apart from the impact on cotton production, Covid19 caused direct repercussions on livelihood of farmers – especially the small farmers.
In fact, given the context of multilateral trade negotiations, Chad, serving as the coordinator for the C-4 group, along with Côte d’Ivoire, expressed dissatisfaction with the limited progress in reducing trade-distorting domestic support. Within the cotton program, collaborative efforts between the WTO and Fédération Internationale de Football Association (FIFA) are being explored. This would enhance the involvement of the C-4, Côte d’Ivoire along and few other interested countries in the global football apparel value chains based on WTO-FIFA collaboration. Africa currently exports majority of its unprocessed cotton and simultaneously relies on imports for cotton fabrics and yarn. There exists a potential for enhanced export capabilities in cotton garments if the intermediate stages of the value chain were being established regionally – within the African Union. Now, it is to be seen whether and how MC13 brings out key deliverables on its cotton agenda.
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