Developing World Wins WTO Cotton Against U.S. Subsidies
…From The Global Growth Blog
Two weeks ago, Brazil won a ringing victory at the World Trade Organisation (WTO) throwing out an appeal by the U.S. against the Brazil’s cotton growers. In September last year the WTO, in a landmark decision, ruled that the U.S. had to stop doling out the generous allowances it pays its cotton farmers every year to cushion them against the vagaries of the international market-place.
But the U.S., despite Bush’s free trade rhetoric, and well aware of the central role the subsidy system plays in turning the wheels of its agricultural production juggernaut, were not going to give up without a fight. Under Congressional pressure the U.S. trade representative appealed. The entire appeal hinged on a technicality: that the WTO judges who made the earlier ruling, had wrongly calculated the amount of subsidies that could be deemed as trade-distorting, as laid out by the Geneva-based regulator of global commerce. A dishonourable and shabby tactic, that deservedly failed last week when the WTO Appeals Body, which is something akin to the Supreme Court of the global trade dispute resolution, upheld the earlier ruling. It held that the U.S. subsidy policy was inconsistent with the trade agreements on cotton and freely given U.S. obligations.
The WTO endorsed Brazil’s position that the U.S. practice was inimical to the interests of small-scale farmers and had kept global prices of cotton at uneconomical, throw away levels.
This stance is shared by most Third World cotton producers, including members of Ecowas (Economic Community for West Africa States) like Burkina Fasso, which has bravely spearheaded a consistent and single-minded anti-subsidy crusade in Geneva and beyond, with some success. The latest ruling is significant, not just for its precedent-setting value. It tears at the very heart of the unspeakable injustice that plagues the entire practice of global trade. That even as Third World growers of commodities like cotton, labour in hostile terrain to cut costs and hopefully become efficient and price-effective producers on the global arena, their peers from the West have a clear head-start.
They can always fall back on the strong buffer of subsidies their governments offer to cushion themselves from the contingencies of the market, weather and other variables. It was the Kenyan Trade and Industry Minister, Dr Mukhisa Kituyi, who once likened this scenario to putting a heavyweight boxer and a lightweight competitor in the same ring. He was spot-on. In the case of some countries, the lightweight pugilist might as well be blind.
While U.S. and E.U. trade negotiators are some of the most strident defenders of free trade rhetorically, they continue to shamelessly abet a system that makes a mockery of competition. A farmer in the U.S. or the E.U. wins the global price challenge not because he is a better entrepreneur than his African equivalent, for instance, but because he has in his corner a taxpayer subsidy. The cotton farmer in Mali has no chance of competing with his counterpart from Tennessee on an equal footing.
The prognosis gets grimmer when the rich countries do not limit themselves to offering on-farm subsidies, but stretch their role in the supply chain to the export stage. In the latest case, the clincher was that the U.S. has included export credits, as part of the $3 billion support it gives to its 30,000 cotton farmers a year – as if an average of $100,000 each was not enough.
The Brazilian breakthrough punctuates a flurry of activity in international trade diplomacy as efforts to conclude the so-called Doha Round before the December deadline go into overdrive. Developing countries are pressing for a new order that is sensitive to the economic disparities among the 147 WTO member states, the key demand emanating from Doha was the removal of farm subsidies by the richer countries from the North.
Largely due to Western recalcitrance, progress has been scant and four years later, no agreement has been forthcoming on the so-called Doha Round. But the issue remains as potent as ever and it was the cause for the collapse of the last “ministerial” in Cancun, Mexico in 2003. An emboldened developing world constituency, chose to walk away. Having substantively lost the moral battle, it will be interesting to see how fast Washington moves to adhere to the WTO ruling by ending its illegal subsidies.
Past attempts to have rich countries reduce their payments have resulted in mere tokenism, as they look for ways to disguise the same. And this despite an August 2004, “breakthrough” that was to see these countries immediately cut their payments by 20%.
The E.U. recently changed its notorious Common Agricultural Policy (CAP), replacing its quantity-driven payout system for a flat rate. But it is a case of too little too late, as the rotten corrupt edifice remains intact. Clearly, if the U.S. and E.U. really want free trade, they should be ready to end agricultural subsidies or the deadlock will persist after the 2005 deadline. If you want to make poverty history, make trade free.
As much as I think agricultural subsidies in the EU and the US suck, I think it’s sad that so many developing countries have hinged their hopes on “agricultural exports”. That is a flawed approach to global trade. At least some wise people have written that there is no real reason for a farm product to travel 10,000 miles, be it from the North to the South, or vice versa. Grow enough to meet domestic needs, not to profit out of global trade.
On the other hand, the fastest, or maybe I should say the easiest, route out of poverty seems to be exports driven growth. The world’s economic gurus do not have the spine to say that there are other less competitive and unstable ways. For, to say that is to acknowledge the fallacy of uninterrupted growth. But this fallacy will work out well for us, if there are no nasty surprises. So, one should just ignore the truths, I guess.
Nevertheless, I will say this: The world is not a global village. And the more we attempt to make it so, the more we are going to build instability and inequality into the system. If we look at it as “Instability Vs Poverty”, instability is preferable. But personally, I don’t think that is the case. We have just made it so, and my hypothesis is that largely that’s been caused by the sell out of the US to it’s own financial markets.