If the world got rid of its cotton tariffs, and export and production subsidies for cotton, it would be better off. The Doha Round's "Cotton Initiative" could have a nice payoff.
Kym Anderson and Ernesto Valenzeula find that the world could be better off to the tune of about $280 million a year. (The World Trade Organization's Doha Cotton Initiative: A Tale of Two Issues, World Bank Policy Research Working Paper 3918, May 2006).
Cotton exporters tend to gain, cotton importers tend to lose. Several really poor countries in West Africa stand to gain a lot.
Four West African nations have demanded that the World Trade Organization's Doha Development Agenda include a Cotton Initiative that involves two issues: cutting cotton subsidies and tariffs, and assisting farm productivity growth in Africa.
The authors provide estimates of the potential economic impacts of (1) complete or partial removal of cotton subsidies and import tariffs globally, and (2) cotton productivity growth through the adoption of genetically modified (GM) cotton varieties. They use the latest version of the GTAP database and model.
Their results confirm that-unlike for other agricultural subsidies and tariffs-for cotton it is subsidy reductions rather than tariff cuts that would make by far the largest impact. [for agriculture as a whole, tariff cuts have a much larger impact - Ben]
For Sub-Saharan Africa the potential gains are huge relative to the effects on that region of reforming other merchandise trade policies. And they could be more than doubled if that reform provided the cash for farmers to take advantage of the biotechnology revolution and adopt GM cotton varieties. But those potential gains, and the affordability of switching to costly GM seed, depend crucially on the extent to which high-income countries are willing to lower domestic support to their cotton farmers.
This is the abstract, and its been divided into paragraphs to make it easier to read.
Anderson and Valenzuela find that completely eliminating cotton subsidies and tariffs would raise world cotton prices by about 13%. The price rise benefits cotton exporters, and hurts cotton importers.
Gainers include the developed countries (the welfare change for the U.S. is +$429 million/year), Central Asia, China, and Sub-Saharan Africa. The U.S. gains a lot, I assume because she gets rid of inefficient subsidies. These subsidies have been attracting labor, capital and land from more productive uses into growing cotton, and the taxes to fund the subsidies create their own excess burden costs.
Sub-Saharan Africa gains $147 million a year, three-fifths of that accruing to countries in West Africa.
The West Africans gain almost $90 million a year. Most of that comes from ending production subsidies. U.S. production subsidies hurt, but so do E.U. subsidies. Complete tariff and subsidy reform would increase West African farmer incomes by about 40%!!
Not everyone gains. Cotton importers face higher world prices. Net losers include Mexico (-$128 million/year), South Asia (-$96 million/year), Turkey (-$86 million/year), and the East Asian countries of Japan, Korea, and Taiwan (-$85 million/year). In fact, net benefits for developing countries are negative (-$182 million).
The world is unlikely to completely reform. Anderson and Valenzeula, not surprisingly, find that the net benefits from a less ambitious, but plausible, Doha Round reform are less. A plausible Doha reform could generate benefits of about $190 million/year. Benefits to developed countries drop by about 40%, but benefits to Sub-Saharan Africa drop by 76%.
Here's a 2004 report from the Overseas Development Institute on the cotton issue: Developed Country Cotton Subsidies and Developing Countries: Unravelling the Impacts on Africa (May 2004)
Revised July 19.
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