US Cotton SubsidiesCurrent policy implications and recommendations

TO: Ron KirkFrom: Agricultural Policy Analysts from DOC

ProblemProblem Definition of the Problem

U.S. is the second largest cotton producer in the world

U.S. government pays $3B annually to domestic cotton producers

Creates a trade imbalance and international economic inequity

Policy is illegal under international regulations (WTO)

Brazil recently rewarded $300 million annually

Problem (Continued)Problem (Continued) Those negatively affected by U.S. domestic

subsidies "Some years ago, cotton was a source of

wealth for us.               But these days it has become our burden, a cause of               poverty." - President of Mali

"White gold" is a main source of sustenance for 20 million people in Africa, mostly West Africa- Benin, Cameroon, Mali, Niger, Nigeria, Mali, Guinea, Ghana, Cote d'Ivoire, Chad, Central African Republic,             Senegal, Togo, Burkina Faso, and other regions in the world

BackgroundBackground The international community’s approach to U.S.

agricultural subsidies:

Developing Countries: The Brazil cotton case The African Sectoral Initiative The role of NGOs and IGOs: Oxfam and ICAC

Developed countries: Disagreements between the EU and the U.S. “Arms’ race”: No country wants to reduce their subsidies first

World Trade Organization: The Doha Development Round

The Doha RoundThe Doha Round The Doha Development Round: Agricultural

Negotiations 

Main Themes: Market Access Domestic Support Export Competition Development Issues

Main Parties: G20, Cairns Group, G10, the E.U. and the U.S.

Repeated failures to reach agreement on agricultural issues

WTO EvaluationWTO Evaluation WTO and Domestic Allocation

Domestic support categories Green Box, Blue Box, and Amber Box

Indirect export subsidies US export credit guarantees

Retaliation Trade wars Small economies

Time Issue

US PolicyUS Policy History of Cotton Case

Bush Administration eliminations Panel reconvened Brazil Retaliation

Issues WTO integrity Loss of income Possible spillover affects Possible further retaliation

CriteriaCriteria Political Feasibility:

measured by the degree of acceptance by in the US congress. willingness to accept and implement

Equity: How fair is the alternative, in relation to WTO challenges. Measures the ability of producers to compete in the market. is this a free market economy? the foundation of the WTO is based on Neoliberal economics To liberalize trade means to reduce trade distorting mechanisms

Affordability: What costs do cotton producers face depending on the alternative Cost of possible retaliation will be calculated as well Can they afford to do it?

AlternativesAlternatives

Political Feasibility

Equity Affordability

Total

Alternative 1

1 4 2 7

Alternative 1:

Follow the recommendations of the African Sectoral Initiative – The proposal calls for an end to all cotton export subsidies and domestic support programs within 4 years, as well as establish a transitional financial compensation mechanism in favor of cotton-exporting developing countries affected by the subsidies.

AlternativesAlternatives

Political Feasibility

Equity Affordability

Total

Alternative 2

4 1 3 8

Alternative 2:

Follow the current USTR recommendation to include its cotton program under a comprehensive negotiation regarding export subsidies and domestic support negotiated in the Doha Round.

AlternativesAlternatives

Political Feasibility

Equity Affordability

Total

Alternative 3

2 4 3 9

Alternative 3:

Adjust US cotton program to remove “amber” box measures and only include “blue” and “green” box domestic support program with parameters set by ICAC.

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Criteria ScoringCriteria Scoring

Political Feasibility

Equity Affordability

Total

#1 1 4 2 7

#2 4 1 3 8

#3 2 4 3 9

Final RecommendationFinal Recommendation Alternative 3:

Adjust US cotton program to remove “amber” box measures and only include “blue” and “green” box domestic support program with parameters set by ICAC.