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USA/Africa: Cotton Dumping
AfricaFocus Bulletin
Mar 23 2005 (050323)
(Reposted from sources cited below)
Editor's Note
Pressure to reduce rich-country subsidies for agricultural exports
ratchetted upward this month when the World Trade Organization
(WTO) issued its final ruling that U.S. current payments to cotton
farmers were illegal. The Bush administration's 2006 budget
submitted to Congress proposes reduction in these subsidies by
setting new upper limits on payments. But the outcome in Congress
is uncertain, and African cotton farmers need more than promises of
somewhat fairer terms for their exports in the distant future.
This AfricaFocus Bulletin contains excerpts from a press release
from Oxfam International on the latest WTO decision, calling for
immediate action to eliminate the illegal subsidies as well as
compensatory support for African cotton producers. It also contains
excerpts from a February 2005 briefing by the Institute for
Agriculture and Trade Policy (IATP), on dumping of US agricultural
exports at prices below the cost of production.
The IATP briefing notes, as do Oxfam and other groups, that the
issue of dumping by rich countries, undermining the prospects of
African farmers, applies to other commodities as well as cotton. It
also stresses that prices are depressed below the cost of
production not only by government subsidies in rich countries but
also by the monopoly market power of large commodity trading
companies. Limiting the damage to small farmers requires not only
reducing subsidies but also reviving international systems of
commodity support.
IATP (http://www.iatp.org) has also just released a new report on
the WTO and agricultural trade policy. These policies, including
subsidies, are major sources of contention between rich and
developing countries in WTO talks leading up to a July summit in
Hong Kong. For additional
background, including the declaration of the G-20 group of
developing countries released on March 19 in New Delhi, see
http://www.agtradepolicy.org
For earlier AfricaFocus Bulletins on the cotton trade and related
issues, see
Africa: Cotton Update
http://www.africafocus.org/docs04/cot0405.php
Africa: Trade Talks Background
http://www.africafocus.org/docs04/tr0407.php
Africa: Trade Deception
http://www.africafocus.org/docs04/tr0409.php
Africa: Commodity Trap
http://www.africafocus.org/docs04/unct0403.php
Africa: Trade Update, UNCTAD
http://www.africafocus.org/docs04/twn0406.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
UPDATE
Despite world-wide protests, the lower house of the Indian
Parliament on March 22 passed a new patent regulation making it
more difficult to produce new generic drugs. Passage of the bill by
the upper house is expected today. While this will not apply to
current first-line AIDS drugs already being manufactured,
it is expected to have major negative consequences of
future availability of AIDS drugs worldwide. See
http://www.africafocus.org/docs05/ind0503.php for background.
US cotton subsidies declared illegal by WTO...again
Oxfam says US must now comply to Make Trade Fair for poor country
farmers
Oxfam Press Release - 3 March 2005
[excerpted. full text available at
http://www.oxfam.org.uk/what_we_do/issues/trade/bn_cotton.htm]
Geneva, March 3, 2005 International agency Oxfam calls on the US to
implement swiftly today's final World Trade Organization (WTO)
ruling against its illegal cotton payment programs and agree to new
global trade rules that would stop the dumping of cheap
commodities.
Eliminating cotton subsidies is necessary to fulfill WTO
obligations and bring relief to the millions of struggling farmers
in poor countries. It is crucial that the US signals its readiness
to reform its farm subsidies within current WTO negotiations to
successfully negotiate a new global trade agreement.
"The case against US cotton dumping is overwhelming and now
confirmed yet again by the WTO," said Celine Charveriat,
spokesperson for Oxfam's Make Trade Fair campaign. "The debate is
over. The US must now move quickly to reform its programs and stop
dumping cheap cotton onto world markets that undermines the
livelihoods of poor farmers in the developing world."
In September 2004, a WTO dispute panel found that $3.2 billion in
annual cotton subsidies and $1.6 billion in export credits paid by
the US in cotton and other commodities were illegal under WTO
rules. The case, brought by Brazil and supported by some West
African cotton-producing countries (Benin and Chad), was appealed
by the US in October. Today's appeal decision is final and the US
has until July 1 this year to comply or face possible trade
sanctions by Brazil.
"The US must become aware that small developing countries also have
rights in the global trade system, otherwise they risk a new wave
of resistance from African countries and farmers," said Soloba Mady
Keita, president of the cotton producers association in Kita,
Western Mali.
Oxfam estimates that US dumping caused losses of almost $400
million between 2001 and 2003 for poor African cotton-producing
countries, where more than 10 million people depend directly on the
crop. A typical small-scale West African cotton producer makes less
than $400 a year on his crop. Two million cotton farmers in Mali
were recently pressured to accept a further price drop of 25% -
many of them will not now be able to cover their production costs.
The majority (78%) of US cotton subsidies benefit the largest 10%
of cotton producers. Loopholes in the subsidy rules allow
industrial-sized farms to collect payments in excess of $1 million,
while smaller farmers in the U.S. and abroad are driven out of
farming by low commodity prices and high land costs.
The case has implications beyond cotton. "This case raises deep
questions about the entire US subsidy system. US subsidies have
distorted global markets, failed to save small US farmers, and
promoted environmental damage. The US should see this ruling as an
opportunity for reform," Charveriat said. ...
Who will be left to cheer the end of illegal US cotton subsidies?
Why African cotton farmers cannot afford US inaction on cotton
subsidies
Oxfam Briefing Note
March 3, 2005
[excerpted. full text available at
http://www.oxfam.org.uk/what_we_do/issues/trade/bn_cotton.htm]
"It is very clear that cotton is very important for the development
and success of Benin. It is good to try to diversify, but we have
to deal with the fact that they exist today too." Robert B.
Zoellick, USTR, Cotonou, Benin
"We cannot continue with the current situation. If we have to wait
another 6 or 7 years for a solution, we are being condemned to stop
producing cotton." Tiasse Coulibaly, Cotton farmer, representative
of National Producer Association, AOPP, Mali.
Eighteen months ago at Cancun, rich countries promised African
cotton farmers that the WTO would solve all the problems being
caused by US subsidies. Despite the fine words from US Trade
Secretary Robert Zoellick, nothing has changed for African farmers.
The US has put "cotton" on the WTO negotiating table - but only to
buy time to continue supporting its cotton farmers at the expense
of the world's poorest countries. If agricultural negotiations
proceed as planned, a new agreement could enter into force as late
as 2008. The US might not even have to implement the agreement
until 2013. At this snail's pace, there will be no African farmers
left to cheer the end of US cotton dumping.
US cotton subsidies declared illegal by the WTO.
The final decision released by the WTO appellate body on March 3
will add legal grounds to the African position in these
negotiations and hopefully some impetus toward a successful final
deal. After two-and-a-half years, the WTO has confirmed the
obvious: that US subsidies were causing significant price
suppression of world cotton prices. ...
Since 2001, when the slump in cotton prices started, Africa loses
on average $441 million a year because of trade distortions on
cotton markets. Since the launch of the Sectoral Initiative in
2003, the four West and Central African producers (Benin, Burkina
Faso, Chad and Mali) have suffered export losses of around $382
million because of US inaction. ...
Today, cotton prices are at their lowest levels again down by 30%
between 2004 and 2005, at an average of $48cents/pound. According
to recent ICAC estimates, these prices will stay at very low levels
for the next 5 years, between $48c./pounds and $54c./pounds. This
slump has had a terrible impact on African countries.
More than 10 million people depend on cotton for their livelihoods
in West and Central Africa. There are few alternatives for them to
generate other income. Cotton exports are critically important to
the balance of payments for many African countries, constituting
more than one-third of Benin's total exports and nearly one-third
of Burkina Faso's. Depressed cotton prices have cost these
countries millions of dollars, critical to pay for social services
such as education and healthcare, and to maintain macro economic
stability. ...
The West and Central African governments originally asked for
compensation for the losses incurred as a result of rich country
cotton subsidies, pending the subsidies being phased out. This did
not receive a sympathetic hearing at the WTO's Cancun meeting,
either by the US or the EU delegations. They explicitly ruled it
out.
In the meantime, the price crisis has continued in global cotton
markets. After a brief recovery in 2004, it worsened again in 2005.
While the US has been using every trick in the book to resist
change, cotton companies, government and producers in the world's
poorest countries have all been bearing the costs of world price
declines, for which subsidies are in large part responsible.
The only reason why the West and Central African cotton sector
still exists is because of mechanisms designed to protect producers
and companies from the effects of low prices. These mechanisms have
allowed losses to be partially offset and producer prices
maintained at a minimum level, enabling them to cover costs and
continue producing. ... Governments and producers have now been
pressured to accept lower prices as in Mali where the producer
price will fall by 25% or more for the next 3 years, as a result of
world market conditions. Producer price has also gone down from 15%
in Benin and 6% in Chad over the last 5 years. The economic and
social consequences of this could be dramatic.
Given this background of cumulative losses, the West and Central
African cotton sectors justify a support fund. West and Central
African countries have recently estimated that the cotton sector
will lose $400 million in 2004/2005 because of low prices and
exchange rate problems. This fund could help ensure the
macroeconomic stability of highly cotton dependent countries in the
medium term, and prevent a collapse of incomes for small cotton
producers until US subsidy reform is complete. The support fund
would have to ensure ownership of all stakeholders and ensure that
cotton farmers and their organizations have a degree of direct
control over the money, as well as being direct beneficiaries. The
establishment of such a fund should not be linked to new
conditionality, such as adoption of GMO technologies or cotton
sector privatization.
WTO negotiations proceed at a snail's pace
While almost every WTO member, at some point, has made some
positive declarations about the cotton initiative, nothing is
really moving. ...
Cotton has been folded into overall agricultural negotiations and
the only "special treatment" it has been afforded is the creation
of a cotton subcommittee. West and Central African countries have
had to give up on expecting anything more because the US government
made it plain that cotton was a 'red line' not to cross,
threatening them that a step too far might lead to the collapse of
the whole July framework. ...
The way forward
If the US is serious about concluding the Doha Round by the end of
2006, they must deliver some substantial reforms of their cotton
programs before the next Ministerial in Hong Kong. The US must
implement the WTO appellate body ruling. Negotiations should
complement the ruling rather than become a substitute for it.
The minimum result should be:
- Phase out the use of all trade-distorting cotton subsidies,
including marketing loan programs and counter-cyclical payments,
on a fast-track basis.
- Reform or eliminate direct payments so they are truly decoupled
from production decisions and do not create an implicit
encouragement to grow cotton in the US.
- Finally, a support fund should be launched early in 2005 by the
international donor community to prevent the collapse of cotton
sectors in Africa.
The cotton ruling as clear case for agricultural reform
The panel ruling will have profound political implications beyond
the case of the US and cotton. Some of the findings in the cotton
case are also relevant for other farm programs in the US.
Commodities like soybeans, rice, oilseeds or grains could be
targeted by future WTO cases because they do not comply with the
rules on agriculture negotiated during the Uruguay Round.
The cotton ruling, together with the upcoming sugar appellate body
decision against the EU, established that developed countries
failed to abide by subsidy rules that they crafted during the
Uruguay Round. ...
Oxfam also urges the EU and the US to negotiate in good faith new
rules in the current WTO agricultural negotiations that would put
an effective end to dumping.
This means:
- A credible end date for export subsidies must be agreed to by the
European Union as expeditiously as possible. The United States
should not use smokescreens to refuse elimination of subsidized
export credits and the introduction of disciplines on the
commercial use of food aid.
- Ambitious figures for the reduction of domestic support must be
negotiated, addressing all instruments and commodities, so that
dumping effectively disappears.
Agriculture Export Dumping Booms During WTO's First Decade U.S.
Farm Bills Increase Dumping Trend
February 9, 2005
Institute for Agriculture and Trade Policy, 2105 First Avenue
South Minneapolis MN 55404 USA iatp@iatp.org
http://www.iatp.org
Contact: Ben Lilliston, U.S., 612-870-3416, blilliston@iatp.org
Carin Smaller, Geneva, 41 22 789 0734, csmaller@iatp.org
Minneapolis - Ten years after the enactment of the World Trade
Organization (WTO)'s Agreement on Agriculture, U.S. food
companies are still exporting crops at prices below their cost of
production (dumping) onto world markets, found a new report
released today by the Institute for Agriculture and Trade Policy
(IATP).
IATP's report, WTO Agreement on Agriculture: A Decade of Dumping
United States Dumping on Agricultural Markets, looks at export
dumping from U.S.- based food companies onto world agricultural
markets. The analysis, based on the most recent numbers available
(2003), provides dumping calculations from 1990-2003 for five
commodities grown in the U.S. and sold on the world market:
wheat, corn, soybeans, rice and cotton.
The full report is available at: http://www.iatp.org. "It is
clear that the WTO Agreement on Agriculture is doing nothing to
address agricultural dumping and its severe consequences for
farmers around the world," said IATP President Mark Ritchie. "The
low global prices caused by dumping hurt farmers around the
world, including U.S. farmers. It's time for trade negotiators to
put this issue front and center." Using data from the U.S.
Department of Agriculture (USDA) and the Organization for
Economic Cooperation and Development (OECD), IATP found that in
2003 agriculture exports from U.S. based global food companies
were sold well below the cost of production:
- Wheat was exported at an average price of 28 percent below cost
of production;
- Soybeans were exported at an average price of 10 percent below
cost of production;
- Corn was exported at an average price of 10 percent below cost
of production;
- Cotton was exported at an average price of 47 percent below
cost of production;
- Rice was exported at an average price of 26 percent below cost
of production.
Dumping is one of the most damaging of all current distortions in
world trade. Yet, since its inception the WTO has refused to
address or even acknowledge its negative impacts on rural
economies around the world. Developing country agriculture, vital
for food security, rural livelihoods, poverty reduction and
generating foreign exchange, is crippled by the predatory
competition from major commodities sold at well below cost of
production prices in world markets.
The report found that dumping levels increased significantly for
every commodity after the passage of the 1996 Freedom to Farm
bill. The 1996 bill, followed by the 2002 U.S. Farm Bill,
produced a vast structural, price-depressing oversupply of major
agricultural commodities. This oversupply has driven commodity
prices down worldwide. Both the 1996 and 2002 Farm Bills were
driven by efforts to make them compliant with WTO rules. The
result has been the institutionalization of agricultural dumping
by U.S. farm policy, the report concluded.
Each of the five major export commodities saw a significant jump
in export dumping when comparing the seven years (1990-1996)
prior to the 1996 Farm bill to the subsequent seven years
(1997-2003):
- Wheat dumping levels increased from an average of 27 percent
per year pre-1996 to 37 percent per year post 1996; * Soybean
dumping levels increased from an average of 2 percent per year
pre-1996 to 11.8 percent post-1996;
- Maize dumping levels increased for an average of 6.8 percent
per year pre-1996 to 19.2 percent post-1996;
- Cotton dumping levels increased from an average of 29.4 percent
pre-1996 to an average of 48.4 percent post 1996;
- Rice dumping levels increased from an average of 13.5 percent
pre-1996 to an average of 19.2 percent after 1996.
"Agriculture subsidies are not driving dumping," says Ritchie.
"It is the absence of farm programs that bring production in line
with supply. Without these programs, farmers will over-produce
with or without subsidies, and dumping will continue."
Dumping caused by oversupply and uncompetitive markets:
In the case of U.S. agriculture, market failures cause dumping. A
few transnational agribusiness firms dominate nearly all
agricultural commodity purchasing, transportation and processing
in the U.S., which stifles competition in the marketplace. In the
past, there were tools, such as grain reserves and set aside
programs, designed to help farmers control supply and maintain
some degree of market power. Most of those tools were stripped away
under the 1996 Farm Bill. Today, there is significant
overproduction in major commodities, which drives down prices.
Foreign competition exacerbates the global glut. With little
competition in the market and no controls on supply, prices sink
well below the cost of production.
Dumping hurts farmers around the world:
If farmers can' get a price that covers expenses then it'
difficult to stay in business. Farmers in other countries are
hurt because dumped exports push them out of local markets and
eliminate their ability to export. Poor countries facing hunger are
particularly vulnerable if their farmers are pushed off the land.
As domestic production falls, these countries become dependent on
the fluctuating prices and availability of imports. Additionally,
farmers are a vital part of local rural economies - they generate
local capital and create employment through demand for farm labor
and off-farm goods and services, such as clothing and schools.
The phenomenon of plunging commodity prices, reinforced by
dumping, has also driven U.S. family farmers off the land and has
been an economic disaster for rural communities.
Dumping benefits multinational agribusiness firms:
The largest commodity traders, who now finance trades, process
commodities, ship commodities, etc., are the biggest
beneficiaries of dumping. They are able to buy inputs and
commodities at extremely cheap prices. Low prices in the U.S.,
along with increased global production, help keep world commodity
prices down. Most major agribusiness firms now have facilities in
all the major agricultural exporting and importing countries
including Brazil, China, Australia and India. Nearly all of these
companies have seen their profits skyrocket in recent years.
Dumping is against international law:
Article Six of the General Agreement on Tariffs and Trade, which is
one of the agreements overseen by the World Trade Organization,
sets rules that prohibit dumping. However, the rules make it
complicated, in practice, for smaller, poorer countries, to
establish grounds for anti-dumping duties because of the
requirements to demonstrate harm. Underlying technical challenges
for using the WTO to stop dumping is the political reality of the
multilateral trading system that makes it difficult for small
countries to challenge powerful economic players like the United
States. Governments must amend global trade rules to make it easier
for developing countries to challenge agricultural dumping at the
WTO. Importing countries should have the ability to immediately
impose countervailing and anti-dumping duties to bring the dumping
prices up to cost of production levels.
Recommendations:
These latest numbers on agricultural dumping by
U.S. agribusiness once again illustrate the need for immediate
action at the international level.
First steps include:
- The elimination of visible export subsidies, as well as the
establishment of strong disciplines on export credits and program
food aid, as quickly as possible.
- A commitment from exporting countries to keep products priced
below the cost of production out of world markets.
- The publication of annual full-cost of production estimates
for OECD countries. To fully address agricultural dumping,
governments must develop a more thorough and transparent
methodology to measure the problem and make the relevant data
publicly available within six months of the close of the fiscal
year.
- Agreement on strong international rules to prohibit
restrictive business practices among the oligopolies that
dominate trade in most agricultural commodities.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues,
with a particular focus on U.S. and international policies.
AfricaFocus Bulletin is edited by William Minter.
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