US Cotton Subsidies Current policy implications and recommendations TO: Ron Kirk From: Agricultural Policy Analysts from DOC
Definition of the Problem
U.S. is the second largest cotton producer in the world
U.S. government pays $3B annually to domestic cotton producers
Creates a trade imbalance and international economic inequity
Policy is illegal under international regulations (WTO)
Brazil recently rewarded $300 million annually
Those negatively affected by U.S. domestic subsidies
"Some years ago, cotton was a source of wealth for us. But these days it has become our burden, a cause of poverty." - President of Mali
"White gold" is a main source of sustenance for 20 million people in Africa, mostly West Africa- Benin, Cameroon, Mali, Niger, Nigeria, Mali, Guinea, Ghana, Cote d'Ivoire, Chad, Central African Republic, Senegal, Togo, Burkina Faso, and other regions in the world
The international community’s approach to U.S. agricultural subsidies:
The Brazil cotton case
The African Sectoral Initiative
The role of NGOs and IGOs: Oxfam and ICAC
Disagreements between the EU and the U.S.
“ Arms’ race”: No country wants to reduce their subsidies first
World Trade Organization:
The Doha Development Round
The Doha Round
The Doha Development Round: Agricultural Negotiations
G20, Cairns Group, G10, the E.U. and the U.S.
Repeated failures to reach agreement on agricultural issues
WTO and Domestic Allocation
Domestic support categories
Green Box, Blue Box, and Amber Box
Indirect export subsidies
US export credit guarantees
History of Cotton Case
Bush Administration eliminations
Loss of income
Possible spillover affects
Possible further retaliation
measured by the degree of acceptance by in the US congress.
willingness to accept and implement
How fair is the alternative, in relation to WTO challenges.
Measures the ability of producers to compete in the market.
is this a free market economy?
the foundation of the WTO is based on Neoliberal economics
To liberalize trade means to reduce trade distorting mechanisms
What costs do cotton producers face depending on the alternative
Cost of possible retaliation will be calculated as well
Can they afford to do it?
Follow the recommendations of the African Sectoral Initiative – The proposal calls for an end to all cotton export subsidies and domestic support programs within 4 years, as well as establish a transitional financial compensation mechanism in favor of cotton-exporting developing countries affected by the subsidies.
Political Feasibility Equity Affordability Total Alternative 1 1 4 2 7
Follow the current USTR recommendation to include its cotton program under a comprehensive negotiation regarding export subsidies and domestic support negotiated in the Doha Round.
Political Feasibility Equity Affordability Total Alternative 2 4 1 3 8
Adjust US cotton program to remove “amber” box measures and only include “blue” and “green” box domestic support program with parameters set by ICAC.
Political Feasibility Equity Affordability Total Alternative 3 2 4 3 9