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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).
As established in Article I of the Rules and Regulations adopted by the 31st Plenary Meeting (June 16, 1972), the functions of ICAC are:
1. To monitor developments affecting the world cotton situation;
2. To provide statistics and other information relating to world production, trade, consumption, stocks and prices of cotton and other textile fibres, or of textiles, insofar as they affect the cotton economy;
3. To suggest to member governments of ICAC, as and when advisable, any measures ICAC considers suitable and practicable for the furtherance of international collaboration directed towards developing and maintaining a sound world cotton economy;
4. To be the forum for international discussions on matters related to cotton prices.
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 his staff.
Overview of selected trade and economic policies
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.
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.
Trade disputes and negotiations
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.
Products at issue:
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 export displacement).
The measures as identified in Brazil's request for the establishment of a panel were alleged prohibited or actionable subsidies provided to United States producers, users and/or exporters of upland cotton under various commodity support programmes.
Production and trade policies affecting the cotton industry
- 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.
WTO Cotton Sub-Committee
- 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.
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