Déjà Vu: Collapse of WTO Talks Portends Serious Changes for Global Cotton and Textiles

Sunday, August 23, 2009

I originally published the following article back in 2003, but I wanted to resurrect it here to make a point that not much has really changed in WTO circles since the initial collapse of the Doha Round of multilateral trade negotiations all those years ago.

With the collapse of the Doha Round, free traders claim it’s the end of global trading system; developing countries feel they’ve been betrayed; developed countries feel they have given enough and with the current global downturn, they say, enough is enough.

At any rate, hyperbole aside, further trade liberalization in textiles or cotton appears stalled for now, though I am sure renewed efforts to tinker with the global system of tariffs and trade will continue especially once the global economy recovers.

Nevertheless, global textile quotas no longer exist – at least in terms of the comprehensive program implemented by the Multifiber Arrangement (MFA). In turn, the U.S. has dropped some of its cotton subsidies (most notably, Step 2), while exports of textile products to the developed world from China, India, Bangladesh and elsewhere have soared since the end of the MFA.

The spin from negotiators in the Doha Round was that trade-offs were necessary in order for a deal and in particular would involve liberalization of financial markets in the developing world in exchange for concessions on manufactured sectors in the developed world. At the same, concessions in agriculture, so the thinking went, would have to be made by everyone.

So today we find ourselves really no further along on trade liberalization and are now saddled with a broken financial system. I think the so-called promises of the Doha Round ring a bit hollow today …


September, 2003

Although on the surface it may appear that the recent collapse of global trade talks may have blunted the forces of globalization and free trade, but ironically this failure may have done more to promote the expansion of trade than anything else as regional trade pacts (such as the Free Trade Area of the Americas) will take on more significance going forward.

Many governments walked away from the Cancun meetings disappointed with the deadlock that froze developing and developed countries from reaching a consensus on agriculture and market access. Cotton subsidies were clearly one of the deal-breakers, as a group of developing countries led by Brazil stood firm in demanding reductions in U.S. and E.U. subsidies.

In a bitter statement, a clearly frustrated Robert Zoellick, U.S. Trade Representative, said, “Whether developed or developing, there were 'can do' and 'won't do' countries here. The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do'. 'Won't do' led to impasse.”

Zoellick’s sentiments were echoed by Pascal Lamy, E.U. Trade Commissioner, who said, “I do not want to beat about the bush: Cancun has failed. This is not only a severe blow for the World Trade Organization but also a lost opportunity for all of us, developed and developing countries alike. We would all have gained. We all loose.”

At the same time, WTO Director-General Supachai Panitchpakdi said, “There was no hiding the fact that the deadlock [in the negotiations] was a setback.” He further said that he was “disappointed but not downhearted,” and that “it is important to ensure the negotiations are put back on track [because] if the Doha Development Agenda fails, the losers will be the poor of the world.”

Some developing countries now fear that developed countries will wind back the clock regarding textile quotas. For example, Pakistan has already sent a letter to the WTO asking for a written re-affirmation of the end of bilateral textile quotas beginning in 2005 as called for in the Agreement on Textiles and Clothing (ATC). There is distrust in some circles that the U.S. and E.U. have somehow managed to undo the ATC, even though there is no evidence of such an effort.

In Cancun, the U.S. adopted a “sectoral” approach to the cotton negotiations whereby any agreed-to reduction in cotton subsidies by the U.S. would be balanced by corresponding reductions in textile tariffs by developing countries. Ultimately, this approach provided the U.S. team with a degree of political cover with domestic cotton and textile interests, but it proved to be too much for developing countries to accept.

The issue of textile tariff reductions often splits the developing world into two groups, with one group being comprised of competitive producers such as China, and another group being comprised of less competitive producers. It is the second group that balks the most when textile tariff reductions are discussed as they do not fear competition from the U.S. or E.U., but rather they fear stepped up competition from China. This position in Cancun has only fueled fears in some parts of the world.

At the same time, the Bush Administration will be under increasing pressure to take a tougher line on trade as the President faces growing criticism over the loss of millions of jobs in the U.S. since he took office. With an election year forthcoming in 2004, the White House will be looking for ways of sailing a careful course through the rough waters of global trade, thus making it difficult to foresee another round of WTO negotiations being organized before the U.S. election.

To this end, the best way for the White House to address its trade detractors will likely be to carefully pick its fights with individual countries on specific trade topics. In this way, political victories may be handed to certain interest groups, while not harming the Administration’s overall free trade stance. For example, it is likely that the U.S. will use the textile quota safeguard in some measure to address criticism of its textile policies.

The cotton issue was symbolic of the forces at play during the Cancun meetings. It was this issue that helped to galvanize developing world support of resisting developed world market access proposals. Concurrently, it is likely that this interplay between the developed world and developing world camps will influence regional trade negotiations going forward, too. A case in point: will Brazil be as tough with the U.S. in the FTAA negotiations as it was in Cancun where it was a key leader in challenging the U.S. on cotton? This may be the case, as local press reports already suggest that the Brazilian government will push for a narrower scope to the FTAA negotiations than was originally envisioned by the U.S.

One thing is certain – with the collapse of the trade talks in Cancun the hyperbole of politics will take precedence over the substance of true trade.

For textiles, as well as the cotton trade, soaring over-capacity has resulted in mill closures in the U.S., Europe and elsewhere. With U.S. cotton consumption now down to six million bales, what will the challenges be going forward?

Additionally, will the WTO be resurrected and, if so, what will that mean for U.S. growers that will be forced to export more? Subsidies will only become more of a serious issue going forward then. As the global textile industry re-orients itself, there will be significant problems for cotton as well. Concurrently, there will be challenges for the man-made fiber industry as well. Shifts in global textile capacity away from the U.S. and E.U. in favor of China, Vietnam and other Asian suppliers, will place new pressures on global suppliers of cotton and man-made fibers which in turn will result in supply shortages and overcapacity problems in different parts of the world as the traditional supply chains are altered. Further, export markets will emerge, as traditional domestic business withers away.

The U.S.-based National Cotton Council finds itself in the difficult position of defending subsidies against Fourth World countries, an unenviable political position to be in regardless of the merits of their position. It just looks bad and provides the Bush Administration with yet another out in the negotiations. And all of this happens just as U.S. cotton exports reach record levels.

Although it is unlikely that another round of negotiations will occur before the U.S. election in 2004, the economic pressures impacting the global textile trade will continue, further forcing difficult change for cotton growers and consumers around the world.

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