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  • 1.5-THE WORLD COTTON MARKET-COTTON IN THE DOHA DEVELOPMENT AGENDA

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  • Cotton in the Doha Development Agenda

    Chapter 1 - The world cotton market - Cotton in the Doha Development Agenda 

     
     

    In June 2003 (one and a half years after the launch of the Doha Round), the Sectoral Initiative on Cotton (Cotton Initiative) was proposed by the Cotton-4 (Benin, Burkina Faso, Chad and Mali), for resolution in the negotiations. The cotton proposal has become representative of the complex trade and development challenges in the Doha Round. Progress achieved, so far, in the WTO response to the cotton proposal, has shown the possibilities and limitations of this trade/development model in a rules-based organization like WTO. Useful lessons have also been drawn from the delivery of development assistance directly linked to a negotiating mandate.

    The Cotton Initiative established a connection between the low and declining price of cotton in the global market and developed country trade-distorting subsidies – a trade factor.* The proponents also argued that the decline of cotton export revenues had adversely affected the sustainability of their poverty reduction programmes, rural welfare, livelihood security, employment and food security. In consideration of the trade and development factors, WTO Members agreed on 1 August 2004 to address the cotton dossier on the two tracks of trade and development. Independent of the trade and development tracks in the Doha Development Agenda (DDA), a third, legal, track emerged with the case brought by Brazil against the United States in United States – Subsidies on Upland Cotton. The cotton issue is, therefore, being addressed in the DDA on the two tracks of trade and development; and also systemically, in the autonomous legal track of the WTO Dispute Settlement Understanding (DSU).

    The dual trade/development model for the treatment of cotton in the DDA is a first. Never previously in the multilateral trading system had WTO Members decided to distinguish between the trade and the development policy aspects of a commodity, and then link them both by a specific coherence mandate within the framework of negotiations.** In the 1 August 2004 General Council Decision, WTO Members instructed the WTO Secretariat to work with the development community to ‘effectively direct existing programmes and any additional resources towards the development of the economies where cotton has vital importance’. The WTO Director-General was given a lead role in the process of implementation and coordinating the mandate for cotton development assistance.

    Distinguished from the development assistance aspects are the trade policy aspects. The General Council placed the latter within the framework of the agriculture negotiations, under the Single Undertaking. Pursuant to this mandate, WTO Members agreed to address the trade-related aspects of the Cotton Initiative ‘ambitiously, expeditiously and specifically’, within the agriculture negotiations, in relation to all trade-distorting policies affecting the sector on all three pillars of market access, domestic support and export competition.

    Members agreed to pursue coherence between the trade and the development aspects. This clarity of commitment in the mandates in relation to a specific commodity in the agriculture sector is unique. The mandates were reaffirmed by WTO Members in the 2005 Hong Kong Ministerial Declaration.

    Progress on these mandates has evolved along process, institutional, operational and negotiating lines. Institutionally, the Director-General established the ‘Director-General’s Consultative Framework Mechanism on Cotton’. This mechanism for cotton development assistance began to function in October 2004. It is the forum for exchange of information; submission of requests in parallel with their in-country submission; notification of activities by the development community; reports on domestic reform by the recipients; and dialogue and exchange of views between donors and recipients. On the trade side, in November 2004 (a month later), the Sub-Committee on Cotton (SCC) was established to prioritize cotton independently from other sectoral initiatives. SCC adopted a work programme in March 2005. Its work is focused on assessing the negotiations in the Committee of Agriculture Special Session (CoA SS).

    In the negotiations, progress has been made on the trade policy aspects, although much of it is conditional on the conclusion of the Doha Round. At the 2005 Hong Kong Ministerial Conference, Ministers agreed that:

    • All forms of export subsidies for cotton would be eliminated by developed countries in 2006.
    • Developed countries would provide duty-free and quota-free (DFQF) access for cotton exports from least-developed countries (LDCs) from the start of the implementation period for the agreed reform in agriculture.
    • Trade-distorting domestic support for cotton production would be reduced ‘more ambitiously than for whatever agreed general formula to be implemented, and over a shorter period of time than generally applicable’.

    Benefiting from the progress made on the trade policy aspects depends on the conclusion of the Doha Round.

    Considerable progress has been made on the development aspect, although challenges remain. In response to the mandate, action has evolved along several interrelated lines.

    At the start, the development community moved to design cotton development assistance programmes and activities. Several of the proponents acted to identify cotton sector priorities. A few embarked on the process of formulating cotton sector-specific projects. As a result of donor-recipient engagement, several of the proponents intensified cotton sector and wider domestic reforms; the purpose being to enhance the absorption and maximization of assistance provided by the development community. In the ensuing exchange of views between the donor community and the recipients, specific priority areas emerged based on needs expressed by the receiving countries and areas of actual and continuing delivery. These merit attention because they are illustrative of assistance needed in a specific sector such as cotton. The areas of assistance also show overlap with areas of broader development assistance. They include:

    • Support for development of national cotton sector strategies.
    • Domestic, including sectoral, reform for increased competition, higher levels of efficiency and productivity.
    • Trade infrastructure: roads and road transportation, railways, irrigation, warehousing, and low-cost, reliable energy.
    • Rapid instrument testing technologies.
    • Systems for testing, classification and labelling.
    • Construction and rehabilitation of testing laboratories.
    • Mechanized harvesters.
    • Support for National Cotton Institutes for Training and Research.
    • Support for food security, rural welfare and livelihoods.
    • Specialized agricultural support and assistance in terms of cotton seed varieties, for adaptation, multiplication and disease-resistant strains, soil-management and entomology programmes, and programmes for bio-safety and training.
    • Cotton capacity building in relation to reform of producer associations, support for ginning companies and training of cotton (agriculture) trade negotiators.
    • Cotton Exporter’s Guide and cotton trade promotion.
    • Debt relief.
    • Macroeconomic budgetary support.
    • Market-based financial instruments to offset commodity price decline and weather risks. These include a range of possibilities, such as the Global Index Insurance Facility, expansion of commodity exchanges, agricultural price and weather risk insurance, hedge instruments, and futures and options.

    This Cotton Exporter’s Guide figures prominently in the range of assistance identified. Of equal importance, since 2004, ITC has maintained active engagement in the entire process and has contributed in no small measure to other areas of delivery. For instance, it has provided support to recipient countries seeking to prepare projects for support by the development community. These areas of assistance are reflected in the ‘Evolving Table on Cotton Development Assistance’ designed by the Director-General in 2005.***

    The Evolving Table is divided into three parts. Part I covers development assistance specific to cotton. Part II encompasses assistance for cotton provided within the overall framework of ‘Agriculture and Infrastructure-Related Assistance’. Part III identifies available resources that can be accessed for the cotton sector if the eligible recipient country identifies the sector as a priority and explicitly decides to allocate a specified amount of the available resources to the cotton sector.

    The Evolving Table presented the concrete basis for the Periodic Report to Ministers at the Hong Kong Ministerial Conference in 2005. The Table has also emerged as the basis for monitoring. Monitoring the implementation of cotton development assistance is a critical preoccupation for both donors and recipients. The purpose of monitoring is to ensure relevant matches between identified needs and assistance on offer; bridge the gap between commitments and disbursements; gauge the pace of operational implementation; and indicate a calendar for commitments, disbursements and operational implementation. This Table is periodically updated,**** and is now the instrument around which the development community and the recipients of cotton development engage. It has emerged as a transparency tool, and the basis for seeking accountability and monitoring implementation. It is work in progress.

    Development assistance in support of the cotton sector in DDA is no ordinary assistance. The difference from normal assistance lies in the direct linkage between development assistance for cotton and the negotiating mandate. This linkage carries the risk of different parties attempting to use either the trade policy or the development assistance aspects to leverage ‘negotiating’ objectives and positions. This has rendered the task of implementing the mandate on the development assistance aspects much more difficult.

    Useful lessons have been learned in implementation. First and foremost is the vital necessity of identifying national priorities in development plans, or strategies for poverty reduction, and moving rapidly to translate priorities into professionally prepared fundable projects by the development community.

    Second, the roles of the donor and the recipients are not free-standing roles, but are interlocked. One role cannot be conceived in the absence of the other. The effectiveness of one role is linked to the effectiveness of the other. And the effectiveness in the implementation of the mandate is tightly dependent on this partnership; in the absence of which the gaps between commitments and disbursements will widen and the acceleration of the pace of operational implementation will be hindered. Director-General Pascal Lamy in his periodic update to the General Council in July 2006 underscored this point when he noted that: ‘The work that had been done so far needed to be taken further, both by recipients and donors. Both had homework to do’.

    Third, within the framework of multilateral trade negotiations, development assistance limited to a few Members generates sensitivities. Non-beneficiaries who are nonetheless eligible consider such limited development assistance as efforts designed to buy off and blunt trade interests. Although the initial starting point was development assistance targeted to the proponents of the sectoral initiative on cotton, the imperative for more broad-based solutions and regional activities – going beyond individual borders – emerged.

    Fourth, coordination and coherence at the level of both donors and recipients remain critical, with wide scope for improvement. Development assistance has spawned dispersed and diffuse structures for identifying priorities, implementation and managing delivery. Vested interests exist and are increasing. These have an impact on efficiency in delivery. The institutional mechanism of the Director-General’s Consultative Framework Mechanism on Cotton has contributed to significantly mitigating these inefficiencies. The Evolving Table on Cotton Development Assistance remains the principal instrument for engagement, transparency and monitoring. Because of progress made in this ongoing process, the mechanism of the Consultative Framework and the instrument of the Evolving Table could be beneficial, if extended to similar areas of capacity building.

    Fifth, an interactive donor/recipient process of verification is necessary for ‘notified commitments’ and ‘declared programmes of assistance’ on the part of donors, and for sectoral and wider domestic reform reported on the part of recipients. This interactive process of verification, though difficult at first, builds mutual confidence, enhances ownership, and contributes to agreed parameters for benchmarking progress. The process also fosters the principles of aid effectiveness. We have learned that banking on one-sided declarations has strong limitations and does not engender ownership. Entries into databases that record development assistance linked to a negotiating mandate indispensably require fact-based discussions and verification. A final lesson reaffirmed is that while needs are infinite, resources are finite. Hence, choices are required by recipients of assistance.

    In March 2007, the Director-General, at the request of Members, convened a High Level Session on Cotton. The High Level Session took stock of progress so far on both the trade and the development aspects of cotton. Several broad conclusions were evident, but what stood out was the unanimous position taken by WTO Members and participants that there would be no outcome in the Doha Round without an outcome on cotton. This position underlined once again the priority attached by WTO Members to cotton in the DDA.

    *Several analyses demonstrate that, in addition to the trade factor, a complex set of factors affect global cotton prices. These include, but are not limited to, changes in technology, extensive productivity gains, price competition from chemical fibres and exchange rate movements.

    **WT/L/579, 1 August 2004 General Council Decision, Annex A, para. 5.

    ***See WT/GC/97, 21 November 2006: pages 15–22.

    ****See WT/L/670, 15 December 2006; WT/L/684: 5 June 2007.