Supplementary memorandum submitted by
the Department of Trade and Industry (following the evidence session
of Tuesday 30 November 2004)
COTTON
The Committee asked when the African cotton
producers might see an end to cotton subsidies which EU and US
cotton farmers benefit from. The main driver in this respect will
be progress made in the context of the WTO's Doha Development
Agenda, now thought likely to conclude in early 2007. This contains
explicit commitments on subsidy reductions, including a commitment
to eliminate all forms of export subsidy by a date to be negotiated.
Meanwhile, there have been other developments affecting cotton
subsidies in both the EU and the US.
EU cotton production is small in world terms, around
2% of world total. EU domestic subsidy payments to cotton producers
represent a similar percentage of the Common Agricultural Policy
budget; no export subsides are payable. Nevertheless, African
producers maintain that EU subsidies have a disproportionately
high impact as EU cotton competes directly with African production.
With this in mind, and under strong pressure from the UK and certain
other member states, the EU agreed last April to a reform of its
cotton regime, to take effect from 1 January 2006. The reform
provides for decoupling of subsidy from production (in line with
the 2003 CAP reform agreement) at a rate of 65%. This means that
in future, 65% of aid will be Green box compatible under WTO rules
ie non or, at most, minimally trade-distorting. The remaining
35% will be subject to production constraints, thus falling within
the WTO Blue box (less trade-distorting). Part of the reform
included a commitment by the EU Commission to report on the impact
of EU subsidies on African cotton production before the end of
2009.
US cotton production is much more substantial. The
US is the world's second largest producer and the main exporter
onto world markets. Cotton production benefits from a complex
set of support measures which have been the subject of a recent
WTO Dispute Panel hearing, brought by Brazil. The Panel found
against US on a number of separate counts; the US has formally
appealed these findings. Any implications for the future of US
cotton support must now await the outcome of that appeal, expected
in early March 2005.
SUPPLY SIDE
CAPACITY
You suggest that supply side capacity might be a
unique problem for the uptake of EBA. This is not the case. It
affects developing countries' ability to trade generally, whether
through preference schemes or as a result of greater market access
following the reduction of tariffs that is gained through regional
or multilateral trade agreements. The supply-side response can
be limited by a number of factors, as set out in the Government's
Trade and Investment White Paper (see p 84)[4].
These factors include:
— good macroeconomic policies;
— a functioning domestic market;
— reliable infrastructure;
— the skills base of the population;
— the governance and regulatory environment
(affecting, for example, the ability to attract foreign investment);
and
— capacity in trade-related areas,
such as effective customs procedures.
We believe that there are two additional reasons
why uptake of EBA is low:
1. rules of origin are more restrictive than
under the Cotonou Agreement. This means Least Developed Countries
have less choice over from where they can source inputs and still
benefit from EBA preferences.
2. ACP countries and businesses were used
to trading using the Cotonou Preferences and there was insufficient
incentive to learn how to operate under a different preference
scheme.
The OECD published a study on the "Assessment
of utilisation and motives for under-utilisation of preferences
in selected LDCs" in June 2004 that may be of interest to
the Committee.
Rules of origin
I enclose a copy of the Government's response
as requested.[5]
Please note that the Commission has not, as yet, announced its
response to this consultation process.
Amanda Brooks
Director, Trade Negotiations and Development
4 DTI Trade and Investments White Paper 2004: making
globalisation a force for good. Back
5
Commission Green Paper on the Future of Rules of Origin in Preferential
Trade Agreements: UK Response. Not printed. Copy placed in the
library. Back
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