DP5567 WTO's Doha Cotton Initiative: A Tale of Two Issues

Author(s): Kym Anderson , Ernesto Valenzuela

Publication Date: March 2006

Keyword(s): subsidy and tariff reform , computable general equilibrium modeling , economic welfare , GMOs , cotton biotechnology

JEL(s): D58 , F17 , Q16 , Q17

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5567.asp

Four West African nations have demanded the WTO’s Doha Development Agenda include a Cotton Initiative that involves two issues: cutting cotton subsidies and tariffs, and assisting farm productivity growth in Africa. This paper provides estimates of the potential economic impacts of (a) complete or partial cotton subsidies and import tariffs globally and (b) cotton productivity growth through the adoption of genetically modified (GM) cotton varieties. Use is made of the latest version of the GTAP database and model. Our 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 Sub-Saharan Africa the potential gains are huge relative to the effects on them 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.