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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:

  1. 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.
  2. A commitment from exporting countries to keep products priced below the cost of production out of world markets.
  3. 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.
  4. 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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