In the context of the on-going Doha Development Agenda negotiations, a number of African countries have requested the WTO to take measures to address the depression in world market prices for cotton. In response to this request, the European Commission is proposing a constructive solution to address the trade aspects linked to the depressed prices in the current world cotton market.
The solution would be part of the overall negotiations to open trade in agricultural products on the three pillar under discussion:
- Market access : the European Commission has already proposed that all Least Developed Countries should received duty free and quota free access to developed countries markets. Eliminating tariffs and quantitative restrictions will open up rich country markets to products from the world's poorest countries.
- Export support : the EU has proposed that all forms of export support be eliminated for products of interest to developing countries. This proposal is included in the EU-US compromise text on agriculture adopted on 13 August 2003. Cotton is an obvious candidate for such a list.
- Domestic support : the EU is committed to a substantial reduction in all forms of trade distorting domestic support. Cotton is part of the agricultural negotiations and will be treated according to the modalities agreed to reduce the most trade distorting forms of support ("amber box").
In the context of the on-going reform of the EU's common agricultural policy, the Commission will propose that the EU de-couples support for cotton from production, so that there is no EU support for cotton under the amber box.
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.