The World Trade Organization (WTO) still needs to take action to solve the outstanding issue of regulating trade-distorting subsidies for cotton in developed nations, which have the detrimental effect of plunging several impoverished cotton growers into poverty. Despite the Hong Kong Ministerial Decision in 2005, which aimed to significantly and promptly eliminate cotton subsidies, the World Trade Organization (WTO) has been unable to fulfil this commitment for over 18 years. Regrettably, the 12th Ministerial Conference represents yet another instance of a World Trade Organization (WTO) conference that still needs to produce a definitive resolution on this assigned matter.
Despite the next 13th Ministerial Conference in 2024, there still needs to be unanimity among members about cotton subsidies. It is crucial to reexamine the significance of cotton subsidies in global trade, particularly within the framework of sustainable development goals. These goals serve as a fundamental premise that shapes ongoing trade talks.
What impact would the provision of cotton subsidies in affluent nations have on the agricultural earnings of impoverished countries? Providing significant subsidies to the cotton industry, followed by subsequent exportation, leads to a decline in global prices. The subsidisation of cotton exports creates a competitive disadvantage for economically disadvantaged nations engaged in cotton production and exportation within the global market. The international spotlight was directed towards cotton subsidies in 2002, following Oxfam’s publication of a report titled ‘Cultivating Poverty’. According to the report, the substantial subsidies provided to the cotton industry in the United States had a detrimental impact on the livelihoods of cotton farmers in Africa. This was mainly attributed to the decrease in international cotton prices, diminishing the opportunities for cotton exports from Africa. The African nations, specifically Benin, Burkina Faso, Chad, and Mali (known as the ‘C-4’ countries), in addition to Côte d’Ivoire, saw the most significant impact from the cotton subsidies provided by the United States. However, it is essential to note that other developing countries also suffered considerable consequences. The substantial subsidies provided by affluent nations bestow an artificial edge on their agricultural sector, resulting in a disadvantage for farmers in developing and least-developed countries.
The global scenario refers to the overall state of affairs worldwide.
India, China, Brazil, and the United States are the primary global contributors to cotton production.
Nevertheless, it is worth noting that the United States has been consistently exporting over 90 per cent of its cotton production to the global market. It is the largest exporter, contributing to a 28 per cent share of the worldwide export market in 2023. Similarly, the C-4 nations, encompassing Cote d’Ivoire among others, exhibit a notable trend of exporting over 90 per cent of their cotton yield, underscoring their significant reliance on the global market. In contrast, India’s cotton production in 2023 was predominantly allocated for domestic consumption, with only 8 per cent being exported.
The United States is home to around 8,100 cotton producers, whose farms have an average size of 624 hectares. Conversely, a substantial disparity exists in the number of individuals involved in the cotton industry between developing and least-developed nations. Furthermore, it is worth noting that the average size of farms in India, China, and African countries often falls within the range of around 0.7 to 2 hectares. In addition, farmers hailing from economically disadvantaged nations encounter many obstacles, including difficulties in marketing their produce, insufficient backing from institutional bodies, meagre agricultural earnings, and overall agricultural misery, among various other issues. Notwithstanding these problems, the cost of cultivation in India and African countries is considerably lower compared to that in the United States, hence conferring an inherent competitive edge upon them.
Nevertheless, the United States has offered significant assistance to cotton farmers through various measures, such as crop insurance, price deficiency reimbursements, and market facilitation programmes. These initiatives effectively counterbalance the inherent competitive advantage of emerging nations. Between 1995 and 2020, the United States allocated a sum exceeding $40 billion towards subsidies for the cotton industry.
During specific years, the number of cotton subsidies exceeded 75 per cent of the overall value of cotton production in the United States. Moreover, it is noteworthy that the per-farmer cotton subsidy in the United States is considerably greater, amounting to $117,494 compared to that of India ($27) and China ($295). In recent years, there has been a significant rise in support for the cotton industry in China, primarily due to the implementation of direct payment schemes. Substantial trade-distorting subsidies have a detrimental effect on the progress of agriculture, the income generated from exports, and the overall well-being of numerous impoverished cotton farmers. Consequently, these farmers become trapped in a relentless cycle of poverty.
The regulations governing the conduct of affairs at the World Trade Organization (WTO) are as follows:
While it is possible for both developing and developed countries to provide subsidies for cotton production, there exist restrictions on the extent of trade-distorting assistance that a nation can offer under the Agreement on Agriculture (AOA) at the World Trade Organization (WTO). According to regulations, most developing countries are limited to providing assistance that does not exceed 10 per cent of their overall cotton output value. If the limit is exceeded, contesting their policy through the World Trade Organization (WTO) is possible. In contrast, this constraint does not apply to industrialised countries.
As an example, it can be observed that in the year 2001, the United States implemented a subsidy for cotton that accounted for 74 per cent of the total value of cotton output. Notably, this subsidy was by the regulations the World Trade Organization (WTO) set forth. In contrast, emerging nations that have imposed limitations on their ability to provide financial assistance to cotton growers are currently facing particular challenges.
Individuals need to experience the advantages above. The World Trade Organization (WTO) restricts the ability of less affluent nations to assist domestic cotton growers while concurrently granting privileged additional flexibilities to wealthier countries.
