Commenting on the world cotton day and the « cotton initiative » of certain African countries and some NGOs, EU Trade Commissioner Pascal Lamy and EU Farm Commissioner Franz Fischler said «The EU sympathises with concerns about the low cotton prices, and their impact on developing countries. The EU is a net importer of cotton. The EU has no export subsidies for cotton. The EU has no border protection. And therefore has little or no impact on world prices. Europe is not a price-maker, it is a price-taker. With respect to the Doha Development Agenda, the EU fully subscribes to the principle that the cotton problem should be an important part of the overall negotiations. Trade-distorting subsidies should and will be reduced. We are committed to reforming the EU cotton subsidy system and make subsidies more trade friendly.»
The recent fall in world cotton prices has had a serious impact in several West and Central African countries, where cotton is the main source of income for a large population, estimated at about 10 million people. In some of the less developed countries cotton represents the main cash crop and the largest source of export receipts and government revenues. For instance, cotton represented 79% of Malis exports, 65% of Benin's and 56% of Chad's in period 1999-2000.
To get to the bottom of the problem, it should be noted that the world market price for cotton depends on several factors:
- the level of world production and consumption
- the price of synthetic fibre,
- the level of production-linked subsidies in major cotton exporting countries
- the level of border protection.
While all of the above factors play a role, the significant decline of cotton prices in recent years has clearly been demand-driven. The share of cotton in world fibre consumption, in gradual decline since the 1960s, has dropped to just over 40 % of total fibre consumption (down from 65% in the 1960s).
Clearly further reductions in trade-distorting support in the Doha Development Agenda (DDA) would contribute to some improvement in the world market prices, for cotton as well as for other commodities. But this desirable outcome should not lead to simplistic conclusions that shift attention away from the root of the problem.
What is the EU's role in the cotton market?
The impact of the EU on world cotton prices is minor for the following reasons:
- The EU market is wide open to cotton imports, including textiles and clothing: the EU applies a zero tariff on cotton imports from Africa Caribbean and Pacific countries (ACPs) as well as from the world 49 poorest countries (Least Developed Countries LDCs).
- The EU is the world largest importer of cotton. Between 20% and 80% of cotton exports from Mali, Benin, Burkina Faso and Chad reach the EU.
- The EU is a price-taker and not a price-maker: Since the EU is not a net exporter of cotton, but the largest importer of cotton world wide, it has little, if any, influence on world prices.
- EU production represents less than 3% of world production, while EU exports only account for 4% of world cotton exports. The EU is a net cotton importer.
- EU does not have export subsidies for cotton.
- EU domestic subsidies for European cotton growers are subject to a production ceiling: when the quantity is exceeded, the amount of the support is decreased. The support provided by the EU is mostly destined for small cotton growers in rural areas in Greece and Spain.
What are the EU proposals under the Doha Development Agenda?
- Market access: the EU has proposed that all developed countries give duty-free and quota-free access to the world poorest countries, following the EU's “Everything but Arms” (EBA) initiative.
- Export support: the EU has proposed that export subsidies are eliminated for those products of interest for developing countries. It has also proposed that the same be done for all other forms of export support such as export credits and state trading enterprises.
- Domestic support: the EU has proposed to more than halve trade-distorting domestic support.
Furthermore, the EU is currently engaged in a reform of its Common Agricultural Policy (CAP) regarding cotton, tobacco, olive oil and sugar. In line with the reform of the CAP in July, this further reform will go in the direction of cutting trade distorting support, ensuring that the EU's support to its farmers in fully compatible with its international obligations.
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