- International Cotton Advisory Committee
The International Cotton Advisory Committee (hereinafter referred to as ICAC) is the authoritative forum for international discussions on matters related to the cotton economy. It met for the first time in Washington, D.C. in April 1940. Membership in ICAC is open to all members of the United Nations or of the Food and Agriculture Organisation of the United Nations, expressing an interest in cotton (although any other interested government shall be eligible to apply for membership).
Members and accession date (roll mouse over the chart)
As established in Article I of the Rules and Regulations adopted by the 31st Plenary Meeting (June 16, 1972), the functions of ICAC are:
ICAC meets in plenary session ("Advisory Committee")
at least once per calendar year. Between Plenary Meetings, a Standing
Committee represents the Advisory Committee at Washington. The Standing
Committee gives practicable effect to all directions, decisions,
and recommendations of the Advisory Committee. In this connection,
it prepares work programs and monitors their implementation; makes
recommendations for consideration by the Advisory Committee; establishes
practicable cooperation with the United Nations and other international
organisations concerned with matters of interest to ICAC. ICAC Secretariat,
headquartered in Washington, comprises an Executive Director and
World cotton trade and production are highly affected by government policy intervention, notably in the US, China and the EU. Direct support to producers through price interventions is of particular concern as regards the efficiency of the global cotton market. According to ICAC, the aggregate level of direct production assistance across all subsidising countries reached US$2,7 billion in the season 2007/08 against US$5,6 billion in the 2006/07 and US$7,7 billion in 2005/06.
Level of direct assistance provided by governments to the cotton sector through production programs
Level of assistance provided by governments to the cotton sector through border protection
Level of direct assistance provided by governments to the cotton sector through export programs
Level of assistance provided by USA to the cotton sector through its crop insurance program
Source: ICAC, Production and trade policies affecting the cotton industry (November 2008)
It is estimated that cotton subsidies artificially inflated production and depressed world cotton prices, damaging those developing countries that are heavily reliant on cotton exports for their foreign exchange earnings. Many studies have attempted to measure the impact of cotton subsidies, and have estimated the effects of subsidy removal. As highlighted in recent studies mentionned hereunder (GEM, 2007, ODI, 2004), different results are sensitive to different assumptions about the cotton market.
For further information on the impact of cotton subsidies,
please refer to:
For specific information on cotton policies in the European
Union, please refer to:
Within the World Trade Organization ("WTO"), action by developing countries to redress distortions in the cotton market has taken place in two different, although related, contexts: dispute settlement and negotiations.
Disputes: "US - Upland Cotton" (WT/DS267)
In 2003, Brazil was the first country to submit a formal complaint under the WTO dispute settlement mechanism about US cotton subsidies, claiming that they depressed world cotton prices and injured Brazilian farmers. Without the subsidies, according to estimates that Brazil commissioned from an American agricultural economist, United States cotton production would have fallen by 29% in 2001 - 2002 and its cotton exports would have dropped by 41%. According to these estimates, this contraction would have led to a rise in international cotton prices of 12.6%.
In a landmark ruling, the WTO dispute settlement Panel sided with Brazil on certain major substantive claims. The United States and Brazil each appealed certain issues of law and legal interpretations developed in the Panel Report. Finally, the Appelate Body upheld most of the Panel's findings.
The dispute principally concerned United States subsidies in respect of upland cotton (Gossypium hirsutum). The term "upland cotton" here means raw upland cotton as well as the primary processed forms of such cotton including cotton lint and cottonseed. Upland cotton would account for approximately 98 per cent of United States cotton production.
Measures at issue:
It is worh recalling that the WTO Agreement on Subsidies and Countervailing
Measures ("SCM Agreement") creates two basic categories of
subsidies: those that are prohibited, and those that are actionable.
Subsidies contingent, in law or in fact, on export performance ("export
subsidies") are prohibited. Other domestic-support measures fall
in the "actionable" category. They are subject to challenge,
either through multilateral dispute settlement or through countervailing
action, in the event that they cause adverse effects to the interests
of another Member (including "serious prejudice" arising from
Parties' claims (substantive issues):
Brazil claimed, inter alia, that:
The US had countered these allegations by arguing, among other things, that its subsidies did not artificially inflate supply or depress prices because they were "decoupled" from production. Their viewpoint was that farmers did not get extra handouts for extra cotton. They were instead paid according to the number of acres they planted and the cotton they produced in the past.
Ruling in favour of Brazil, the Panel found that the US domestic support
measures contingent on prices (in particular, the marketing loan programme
payments, user marketing (Step 2) payments, market loss assistance payments
and counter-cyclical payments) caused "serious prejudice"
to Brazilian interests by unfairly depressing world cotton prices. Thus,
it was recommended that the United States take appropriate steps to
remove the adverse effects caused to the interest of Brazil or withdraw
The Appellate Body upheld most of the Panel's findings. According to
the report of March, 21, 2005, the United States shall bring its cotton
policy into line with the Panel's ruling within a reasonable time (six
months - September 2005). If it fails to act, it has to enter into negotiations
with Brazil in order to determine mutually-acceptable compensation (if
no satisfactory compensation is agreed, Brazil may ask the Dispute Settlement
Body for permission to impose limited trade sanctions).
Impact of the ruling:
Effective compliance with this ruling would contribute to restore a level playing field for cotton trade and production. This would help to enhance the competitiveness of agricultural exports from some developing countries.
Some commentators stressed that the ruling would increase pressure on the US to reform its national farm programs (the Farm Bill expiring in 2007). In this regard, on February 2005, the US Agriculture Department considered the possibility to set a firm overall limit of $250,000 on subsidies (which can now exceed $1 million in some cases). Such a proposal would cut federal payments to farmers by $587 million, or about 5 percent, in 2006 and, according to some US estimates, might correspond to a diminution of $5.7 billion in the coming decade. In setting a firm overall limit of $250,000, the plan would tighten requirements for the recipients of such payments to be actively engaged in agriculture, and it would generally prevent farmers from claiming additional payments.
The decision could moreover strengthen the case for the reduction and elimination of developed country subsidies in the current Doha round, and weight on developed countries in the talks. It might thus create the necessary momentum in arriving at a successful conclusion of the ongoing agricultural trade talks.
It should also be noted that a number of West African countries, including Burkina Faso, Benin and Mali, are heavily dependent on cotton for the bulk of their export earnings. Nonetheless, African countries did not participate as complainants in the dispute (although Benin and Chad reserved their rights to participate in the Panel proceedings as third parties). The cautious stance of Africa in the cotton dispute has been attributed to political sensitivity (African countries are highly vulnerable to retaliatory action by major trading partners) and lack of resources (disputes are costly and require much legal expertise).
September 1, 2006 Brasil requested the WTO to set up a compliance panel in order to ensure that the United States has taken the appropriate steps to overcome their obligations as stated in the report of March, 21, 2005. Indeed, despite the fact that the US Agriculture Department partly reformed its exports credit garantee program (June, 30, 2006) and the Congress ended its Step 2 program (as of August, 1, 2006), both programs only accounted for 10% of the total amount of subsidies provided to the cotton sector. United States still pay billion of US dollars subsidies to farmers and Brasil ask for deeper reforms.
Access the official documents relating to the dispute:
Negotiations: The Cotton initiative
Despite the fact that West and Central African (WCA) countries did not participate as complainants in the dispute, they continue to be actively engaged in the negotiating process.
The "cotton initiative" (see document TN/AG/GEN/4) was originally launched in 2003 in the build-up to the Cancun ministerial by four WCA countries (Benin, Burkina Faso, Chad and Mali). The proponents called for (i) the phase-out of developed countries' subsidies for cotton production and export and (ii) a compensation mechanism to offset the income loss experienced by the least developed countries pending the phase-out.
Although the original proposal had been conceived as a sectoral initiative on a separate track within the trade negotiations, country members agreed, in September 2004, to make discussion on cotton an integral part of agriculture negotiations. However, cotton remains partially singled out within agriculture talks. In order to "ensure appropriate prioritisation of the cotton issue independently from other sectoral initiatives" (July Package on the Doha Round - WT/L/579), WTO Members agreed on 19 November 2004 to establish a sub-committee under the Committee on Agriculture (CoA) dealing specifically with the issue of cotton. The subcommittee on cotton will meet periodically and report to the Special Session of the Committee on Agriculture to review progress. Work shall encompass all trade-distorting policies affecting the sector in all three pillars of market access, domestic support, and export competition.
For more information, please refer to the following websites:
The final declaration of the Hong Kong Ministerial Conference which was hold December 13-18, 2005 reiterates the commitment of the July package. Thus, it was agreed that cotton export subsidies, which constitute only a small fraction of distortions affecting the sector, would be eliminated in 2006, and developed countries would give duty- and quota-free access to cotton exports from the least developed countries (LDCs). Duty- and quota-free access, however, is already available in some major markets (for instance, under the EU Everything But Arms and the Canadian Market Access initiatives), while Western African countries currently do not export cotton to the United States market. Furthermore, increased market access and the removal of export subsidy can mainly be seen as a plain enforcement of the decision of the WTO dispute settlement Panel on cotton. It was also agreed that trade-distorting domestic support on cotton production would be cut deeper and faster than other trade-distorting subsidies. The Ministerial Declaration, however, does not specify either the amount or the schedule for the implementation of such cuts.
A new request was articulated by the C4 (Chad, Mali, Benin and Burkina Faso) concerning development's aid aiming at deepening relations with donors, bilateral and multilateral institutions in order to find a way to set up a mechanism that will overcome the major losses faced by cotton producers until the end of subsidies. The Director was also invited to establish a mechanism of control which will assure that countries fulfill their obilgations.
For more information, please consult paragraphs 11, 12 and 21 of Doha
Work Programme, WTO Ministerial Declaration (WT/MIN(05)/DEC)
WTO members on 19 November 2004 set up a body to focus on cotton, as required in the 1 August 2004 decision, sometimes called the July Package, covering all the WTO negotiations.
The agreement to create a body to focus specifically on cotton is part of WTO member governments response to proposals from four African countries Benin, Burkina Faso, Chad and Mali to tackle the sector.
In this framework, the African Group has circulated a text (dated 22 April 2005) called "Proposed Elements of Modalities in Connection with the Sectoral Initiative in Favour of Cotton".
For more information on this issue, please consult WTO website.
During the WTO Cotton Sub-Committee on January 31 2006, it was noted that with agreement for developed countries to eliminate export subsidies on cotton by the end of 2006, one of the key proposal of C4 was to set up a way to monitor this accordingly.
Furthermore, a new proposal from C4 (TN/AG/GEN/12) is calling for the reduction in trade-distorting domestic support to be three times higher than the cut agreed for domestic support in general, and the implementation period to be one third as long (meaning 2010).
In order to be able to settle a specific rate of reduction of the AMS (Aggregate Measurement of Support) for cotton, the following formula has been proposed by the "Cotton Four" in the WTO document TN/AG/SCC/GEN/4:
Rc = Rg + ((100-Rg)*100)/3*Rg
Rg = reduction as a percentage; final result for reduction
of the AMS
Source: Proposed modalities for cotton under the mandate of the Hong Kong ministerial decision, March 1, 2006 (TN/AG/SCC/GEN/4)
The EU stressed the fact that it had proposed duty-free and quota-free market access for cotton exports from all developing countries, not only the least-developed.
The US pointed out that the commitment is definite for cotton products even though the more general duty- and quota-free decision (for all products) allows some exceptions for 3% of products for countries facing difficulties.
For more information on latest development related to US cotton trade policy, you may wish to consult the website of the Office of the United States Trade Representative (USTR).