Well done US, EU should follow

Feb 05, 2006

THE decision by the US Congress to scrap major subsidies in the cotton industry should be good news to cotton-producing countries in the developing world.

THE decision by the US Congress to scrap major subsidies in the cotton industry should be good news to cotton-producing countries in the developing world.
Subsidies distort global markets and this was a contentious issue at the World Trade Organisation Ministerial Conference held in Hong Kong in December last year.
Cotton subsidies by the developed countries is particularly damaging to the developing countries who are not allowed to offer any incentives to their farmers. The US Congressional vote means the US exporters and manufacturers will no longer receive incentives for buying their cotton from domestic farmers. This means market forces will now be at play and the US traders can source their cotton from anywhere.
This is good news for the cotton producers in the developing world who have a comparative advantage in agricultural production.
With the US taking the lead, other economic blocs like the European Union (EU) that offers billions of euros in subsidies to their farmers should follow suit. The elimination of these subsidies should also be extended to all the other sectors.
The end date of 2013, when export subsidies should cease is too far.
While this US gesture is welcome, more needs to be done. Export subsidies constitute only a small portion of the nearly $4bn subsidies the US gives to its cotton producers annually.
Domestic subsidies amount to $3.8b or 80-90% of total US support to cotton farmers. Domestic subsidies also make up almost all of the EU cotton subsidies.
As observed in a recent dialogue organised by African Women Economic Policy Network in Kampala, it is trade and not aid that leads to real development. It is well documented that a one per cent increase in Africa’s share of world trade would benefit Africa by over $70b, three times the aid increase agreed at the G8 summit at Gleneagles in Scotland last year. The US has set the pace. Others should follow.
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