Oxfam reacts to WTO judgement on US cotton subsidies

The United States this week has lost a battle in its dispute over cotton subsidies with Brazil at the World Trade Organization (WTO), said international organization Oxfam. The WTO confirmed the injury caused by these subsidies and authorized Brazil to retaliate against the US. “American farm policy is broken and bloated, and now other sectors of the US economy may suffer as Brazil retaliates,” said Gawain Kripke, policy director for Oxfam America. Total direct support to cotton production hovered over $3bn in the 2008-2009 growing season, or an equivalent of 50 cents per pound of actual production, according to the International Cotton Advisory Committee.

“The global trading system depends on countries obeying rules and submitting to orderly dispute resolution,” said Kripke. “Thus far, the US has ignored the ruling of the WTO adjudication and continues large subsidies for cotton production. If the US continues this way, the integrity of the multilateral trade system is at stake.” An Oxfam study found that with a complete removal of US cotton subsidies, the world price of cotton would increase by 6-14%, resulting in additional income that could feed an additional million children for a year or pay school fees for at least two million children living in extremely poor West African cotton growing households.

The longstanding dispute started in 2002. In 2005, the WTO ruled that US cotton subsidies harmed Brazilian cotton farmers and violated WTO rules, but the US did little to abide by the ruling and reduce its trade distorting subsidies. In September 2006, Brazil asked for a WTO “compliance panel” to determine whether the US has done enough to comply with the ruling and the WTO confirmed that the US has failed to reform its agricultural subsidies enough to comply. The recent ruling confirms that Brazil is entitled to start retaliation procedures, and possibly cross-retaliate by lifting intellectual property protections.

Cotton subsidies: US must react to WTO Panel

The US must act immediately to reform its trade distorting cotton subsidies, otherwise its credibility as an international trading partner will be undermined, and significant damage will be done to the multilateral trading system, said Oxfam in response to a WTO panel ruling that confirmed that the US has failed to reform its program sufficiently. The US is still paying billions of dollars of such subsidies to its cotton farmers, despite having lost a WTO case against Brazil in 2005, with no encouraging signs of reform coming from the US Congress. There is little time for the US Congress to make more meaningful reforms to agricultural subsidies in order to comply with international trade rules before facing possible retaliation from Brazil.

"This ruling reinforces the need for reductions in US cotton subsidies in both the context of the Doha Round and the 2007 Farm Bill," said Isabel Mazzei, head of the Geneva office of Oxfam International. "The US cannot continue to ignore the WTO and the effects of cotton subsidies on global markets and, ultimately, the livelihoods of poor farmers in the developing world." In 2005, the WTO ruled that US cotton subsidies violate WTO rules and gave the US until September 2005 to reduce them. In response, the USDA agreed to reform export credit programs to comply with the ruling, and Congress eliminated the Step 2 cotton export subsidy program in 2006. But these programs represent only 10% of the overall cotton subsidy programs and some of the most trade distorting programs, like the counter cyclical payments were left untouched. In September 2006, Brazil asked for a WTO "compliance panel" to determine whether the US has done enough to comply with the ruling. This week, the WTO has confirmed that the US has failed to reform its agricultural subsidies enough to comply.

According to a recent study conducted by Dan Sumner and others at the University of California Davis for Oxfam, reforming US cotton subsidies would increase world cotton prices by 6-14%, resulting in additional income that could feed an additional million children for a year or pay school fees for at least two million children living in extremely poor West African cotton growing households. A typical cotton-producing household in West Africa has about 10 family members, an average life expectancy of about 48 years and an adult literacy rate of less than 25 percent. Cotton is often the only source of cash income for these families who live on less than $1 a day per person.