End to US cotton subsidies is WTO at best

Mike Johanns, the US agriculture secretary, has announced that the US will phase out cotton subsidies after Brazil challenged the US subsidies in the World Trade Organization. American cotton farmers currently receive more in subsidies than the entire GDP of Burkina Faso – a country in which more than two million people depend on cotton production; over half of whom live below the poverty line. In 2002, the US government spent three times more in subsidies than the entire USAID budget for Africa’s 500 million people. This is very welcome news for cotton producers in developing countries. According to Oxfam, the losses to Central and West Africa as a result of these subsidies amounted to about $300m a year. Eight cotton-producing countries in West Africa accounted for approximately two-thirds ($191m) of overall losses. The Oxfam study found that the small size of the countries concerned and their high level of dependence on cotton magnify the effect of US policies. For individual countries, US cotton subsidies led to economic shocks of the following magnitude:

  • Burkina Faso lost 1 per cent of GDP and 12 per cent of export earnings.
  • Mali lost 1.7 per cent of GDP and 8 per cent of export earnings.
  • Benin lost 1.4 per cent of GDP and 9 per cent of export earnings.

These losses have generated acute balance-of-payments and domestic budget pressures, and pushed several countries to the brink of a renewed debt crisis. The economic losses inflicted by the US cotton subsidy program far outweigh the benefits of its aid. Mali received $37m in aid in 2001 but lost $43m as a result of lower export earnings. The cotton subsidy program has also undermined the Heavily Indebted Poor Countries (HIPC) Initiative, costing countries such as Benin, Burkina Faso, and Chad more than they have received in debt relief. It is scandalous that it has taken more than a decade to force the United States Government to agree to withdraw these subsidies. The fact that they are now doing so is a reminder of the importance of having a strong and effective World Trade Organisation capable of cajoling even the world’s only super-power to make politically unpalatable changes to policy. Without a strong, multilateral body like the WTO, there is no way that the Americans would have backed down on cotton subsidies. The so-called anti-globalisation protestors who complain about the WTO should bear this in mind: the world is a better place with it than without it.

1 thought on “End to US cotton subsidies is WTO at best”

  1. I wouldn’t say that the WTO “forced” the administration to make the decision. I suspect the WTO “enabled” them to make the change.

    Not many politicians really want to hand money over to cotton growers, and the WTO decision gave them the cover they needed. And it means that subsidies can not be used to buy votes – everyone can point at the WTO and shrug, “I can’t do anything about it”.

    Quite handy, really.

    But your point remains valid.

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