13 EU-Africa partnership in support of
cotton sector development
| (25387)
6471/04
COM(04) 87
| Commission Communication: "Proposal for an EU-Africa partnership in support of cotton sector development"
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| Legal base | — |
| Document originated | 12 February 2004
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| Deposited in Parliament | 24 February 2004
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| Department | International Development
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| Basis of consideration | EM of 3 March 2004
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| Previous Committee Report | None
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| To be discussed in Council | 26-27 April 2004
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate recommended on reviving the Doha Development Agenda negotiations
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Background
13.1 We have reported separately above on a Commission Communication[33]
setting out a Community Action Plan to address the issues which
arise for many commodity-dependent developing countries (CDDCs)
as a result of the volatility and declining long-term trend shown
by the prices of those primary agricultural commodities which
are essential to their prosperity. This document deals specifically
with the problems facing those CDDCs which produce cotton.
The current document
13.2 The Communication notes that the "several major challenges"
facing the world cotton sector also affect developing and least
developed producers, especially in Africa, where cotton plays
a key role. In particular, it notes that, although international
trade in cotton represents a limited share of world production,
it accounts for between 30 and 40% of the export earnings of some
countries, and that the west and central African region accounts
for about 12% of world exports. It also notes that cotton prices
share the long-term downward trend, combined with strong short-term
fluctuations, shown by most agricultural commodities, and that
this has been exacerbated by the subsidies paid in several producing
countries, including in particular the United States, which —
in contrast to the Community —
is a major exporter in this sector, accounting for 30% of world
exports. It comments that concerns about this situation led to
an initiative by four west and central African countries[34]
in the context of the World Trade Organisation (WTO) Ministerial
Conference at Cancun last year, in which it was urged that there
should be a mechanism for phasing out (and eventually eliminating)
support for cotton production, and that, as a transitional measure,
the least developed countries (LDCs) should be offered financial
compensation to offset their lost income.
13.3 The Commission notes the Council's view that
these concerns should be addressed, and it proposes that the Community
should enter into a partnership to support the comprehensive and
sustainable development of the cotton sector in all those African
ACP[35] countries where
it is a key element of the economy. In particular, it suggests
that this should involve obtaining fairer trade conditions on
international cotton markets, and supporting cotton-producing
countries and regions in Africa. It recognises that the latter
element goes beyond the specific request put forward within the
WTO, but believes that both these elements are essential, especially
as the goal of modifying international market conditions can only
be reached in the medium term, and, even then, would require developing
countries to overcome the present shortcomings of their cotton
sectors.
OBTAINING FAIRER INTERNATIONAL TRADE CONDITIONS
13.4 The Commission suggests that the best approach
is to secure an effective and specific solution within the WTO
agricultural negotiations, covering market access, export competition
and internal support. It says that, without unrestricted and
complete market access, the opportunities for cotton production
in Africa will remain limited, and that all developed countries
should therefore follow, as a minimum commitment, the example
set by the Community under its Everything But Arms (EBA) scheme,
and fully open their markets to all products, including cotton
and cotton-based products, from the LDCs. It adds that, since
the most dynamic markets are currently found in the more advanced
developing countries, their contribution is also of the utmost
importance. At the same time, it also stresses the importance
of addressing tariff escalation,[36]
and the extent to which general liberalisation under the WTO may
erode the preferences of African cotton producers. As regards
export competition, the Commission notes that all forms
of export subsidies for cotton have been put on the table at
the WTO, and that, although the Community does not itself make
available any such subsidies, it is important that that those
provided by other major producers, such as the United States,
should be eliminated. The Commission observes that domestic
subsidies linked to output can have a distorting effect, since
they can lead to increased production to the disadvantage of producers
in poorer countries, and it says that it intends to work towards
their reduction within the Doha Development Agenda (DDA). It
adds that, although the Community accounts for only 2% of global
production, and hence has only a marginal influence on world price
formation, it has proposed to reduce any impact further by decoupling
60% of the support granted to Community producers. Finally, the
Commission points out the need to support African countries in
identifying and defending their cotton-related interests, and
says that the Community intends to allocate appropriate resources
for this.
SUPPORTING COTTON-PRODUCING COUNTRIES AND REGIONS
IN AFRICA
13.5 The Commission says that, as outlined in its
separate Communication on agricultural commodities, the overall
objective should be to reduce income vulnerability at both the
producer and macro-economic level by developing national and international
strategies. These would include the implementation of comprehensive
plans for the sustainable development of cotton-producing regions;
supporting options for diversification; strengthening cotton-related
institutions and policies which aim to secure farmers' interests
and stimulate private sector development; encouraging investments
in activities which integrate the cotton chain, so as to enable
Africa to increase the value added of its cotton products; promoting
technological innovation and adaptation; and promoting quality
recognition. The Commission adds that the Community is currently
engaging in negotiations with ACP regions on the establishment
of Economic Partnership Agreements, which will provide another
opportunity to support the development of the cotton sector.
13.6 The Commission suggests that these plans, which
aim principally to consolidate the competitiveness of African
cotton economies, would be complemented by establishing a framework
to mitigate the effects of price volatility. In particular, it
envisages providing support for market-based mechanisms to manage
the revenue risk facing cotton producers; mobilising international
financial institutions to integrate commodity shock provisions
into their current mechanisms; and revising the Flex instrument,
which aims to reduce the adverse effects of instability in the
export earnings of CDDCs.
The Government's view
13.7 In his Explanatory Memorandum of 3 March 2004,
the Secretary of State for International Development (Mr Hilary
Benn) welcomes this initiative as a positive step, which signals
to the developing countries that the Community is taking the problems
of the cotton sector seriously. He comments that, although Community
cotton production is small, recent research suggests that, under
different assumptions about the structure of the international
cotton market, subsidised Community production is responsible
for between 10% and 40% of the loss of west African producers
from the use of cotton subsidies worldwide, equating to £12-29
million annually; and he notes that a study by the World Bank
puts the wider economic gains for these countries at £53-106
million a year.
13.8 He says that the UK believes that the Community
must send a strong positive message and demonstrate its commitment
to delivering a trade round in favour of developing countries
by agreeing to the greatest possible decoupling of its cotton
subsidies from production, and that, although the proposed 60%
decoupling is a step in the right direction, the Community could,
and should, go further, since this figure is considerably less
ambitious than the reforms agreed for other commodities in June
2003. He adds that a meaningful reform package for cotton would
also put pressure on other subsidising countries to reform their
cotton regimes.
13.9 On the developmental aspects of the Communication,
the Minister suggests that diversification and improvement in
the cotton sector involves dealing with wider developmental issues
which should be tackled through existing mechanisms consistent
with national poverty reduction strategies, which provide the
best integrated framework for identifying the role of cotton in
achieving sustainable poverty reduction, and are the means by
which many donors are currently pursuing partnership with African
countries. He adds that national ownership would help ensure
that assistance builds on existing policies and programmes, enhances
cost-effectiveness, and reduces wasteful duplication. On the
other hand, he warns that these strategies have tended to be weak
on trade issues, and that the Integrated Framework for Trade Related
Technical Assistance is an inter-agency programme which can help
integrate cotton issues into national development plans in the
LDCs.
13.10 The Minister says that the UK acknowledges
the negative impact of declining and volatile cotton prices on
investment, government revenues and essential social service spending
in cotton-producing countries in Africa, and that there is an
urgent need to ensure improved access to a wide range of compensatory
financial instruments. He particularly endorses the Commission's
plans to contribute to the consolidation and expansion of the
World Bank's Commodity Risk Management initiative, and says that
the UK will be joining the relevant international task force in
2004. He also welcomes the plan to reform the Flex arrangements,
and says that the UK will be co-operating closely with the Commission
and other Member States in achieving this.
Conclusion
13.11 As we have indicated, this document covers
similar ground to the Commission's more general Communication
on the commodity dependence of many developing countries, but
does so with specific reference to those producing cotton. Since
we have already suggested that the first of these documents would
be relevant to the debate we have recommended on a further Communication
on reviving the negotiations on the Doha Development Agenda,[37]
the same conclusion applies to the current document.
33 (25385) 6454/04: para 12 of this Report. Back
34
Benin, Burkina Faso, Chad and Mali. Back
35
African, Caribbean and Pacific countries which are parties to
the Cotonou Agreement. Back
36
Increasing tariffs as the degree of processing increases. Back
37
(25127) 15529/03; see HC 42-v (2003-04), para 2 (14 January 2004). Back
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