A new twist to an old yarn - the impact of GATT on sustainable cotton production

Cotton is an important crop in many developing countries, providing a source of foreign exchange and a cash income for many farming communities. It is a major consumer of pesticides, typically accounting for over 10% of global use. The cotton crop has long been associated with unsustainable methods of agricultural production, human poisoning, environmental degradation, loss of biodiversity and insect resistance. Barbara Dinham of the Pesticides Trust [now PAN UK] considers whether new agreements on the textile and clothing and the inclusion of agriculture in the Uruguay Round of the GATT will enhance or diminish the prospects for sustainable cotton production.

The completion of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) (the Final Act) brought agriculture into the Agreement for the first time and laid the foundations for liberalising trade in textiles and clothing through phasing out the Multi-Fibre Arrangement (MFA).  The textile and clothing industry is one of the easiest industries for developing countries to establish in order to add value to primary products. Three of the five major producers-China, Pakistan and India export very little cotton as they need large quantities for their own textile industries and to export as finished products. The other two major producers are Uzbekistan, which exports almost all its production, and the US which is a major consumer but exports between 30-45% of its crop (see 'Cotton Facts'). Of the remaining 65 developing countries which grow cotton, most export the raw material and for many, particularly those in Africa, it is a key source of foreign exchange.
    During the GATT negotiations there were clashes between environmentalists and the negotiating teams over the impact of trade on the environment. While issues were not resolved in the Final Act of the Uruguay Round, a Trade and Environment Committee was established to identify potential areas of conflict, and advise the newly established World Trade Organisation (WTO).

Growing cotton with pesticides
The production of, and demand for, cotton rose steadily through the 1980s, from 14.2 billion tonnes in 1980/81 to over 18 billion by the mid-1980s. As supply outstripped demand, the price farmers received for their crop dropped throughout the 1980s, and the 1992 cotton price was only 61% of the 1982 price, offering farmers-particularly those who were not subsidised by their government-little incentive to produce(1). The high price of oil, making synthetics equally expensive, means demand is likely to continue expanding, and is forecast to rise to over 19 billion tonnes in 1995/96(2).
    Under modern methods of production, pests have proved a major challenge to cotton growers. The fight to eliminate them cost farmers US$2.8 billion in 1994(3) (see Cotton Facts). Herbicides are used on an increasing scale to defoliate the cotton and allow mechanical harvesting. Insects attacking cotton, such as the boll weevil, are legendary and nearly a quarter of global insecticide supplies are used against them (23.9% of insecticide market in 1992(4)). But insects are capable of developing resistance over a relatively short time span, inducing a treadmill effect where more pesticides may be used to control pests, which become increasingly resistant. Although the syndrome is well recognised-the 1950s saw the first cotton crops wiped out as a result of resistance to organochlorines-this has not significantly modified practice. The main pesticides now used on cotton are pyrethroids and organophosphates, the latter being notoriously hazardous to the health of users (see page 23).
    Both China and Pakistan, two of the largest four cotton growers, experienced major losses from pest attacks in 1993. This has pushed the cotton prices to an eleven-year high, reaching 98.8 cents a pound in February 1995, compared with 58 cents three years ago. It last went over $1 a pound in September 1980. Neither country has recovered and Pakistan is expected to buy 200,000 tonnes of cotton this year(5). 
    More sustainable techniques based on integrated pest management (IPM) can be successful, and are widely understood at a research level, but take up is hampered by lack of investment in training to move from experiment to the field. In many areas agrochemical companies, not anxious to see their profits drop, use strong marketing strategies to promote their products. However, the major agrochemical corporations are concerned about insect resistance, which would, in the longer term, threaten their sales. They propose 'IPM', but their approach is broadly based on a rotation of different active ingredients, particularly combinations of organophosphates and pyrethroids, over a longer cycle to delay resistance to any one pesticide.
    Even when faced with a pest crisis, governments have not taken radical action to implement more sustainable production. In Pakistan, the leaf curl virus attack causing the loss appears to have been caused by 'large-scale adulteration of pesticides', stemming from either the suppliers or the dealers. The government has called crisis talks, but has not grasped the opportunity to launch a national IPM policy. To do this would involve investment in supporting and training farmers, but savings on agrochemical inputs.
    The subsidies that farmers have received have encouraged pesticides use. Many developing countries subsidised all pesticide and fertiliser inputs in the past, though these have been largely removed as a result of deregulation forced by World Bank/IMF structural adjustment policies. In industrialised countries, the most common remaining subsidy is for irrigation water, which is essential for intensive cotton farming-this in turn encourages high pesticide use.
    In developing countries, on the other hand the cotton crop is generally taxed as a source of government revenue(6). Typically, the growers of all raw materials receive only a tiny proportion of the final product price, and information is not usually available to farmers to check the farm gate price declared by the government against the world market price(7). Nor would they be in a strong position to negotiate better terms if the information was available.

GATT and agriculture
The Agriculture Agreement of the GATT brought this sector into international trade rules for the first time, and resulted in fierce negotiations between the industrialised countries, particularly the US and Europe (which have heavily subsidised their agricultural production) and the poorer countries. In principle, developing countries were meant to benefit from greater access to industrialised markets for their crops.
    Many want to see an end to the subsidies paid to farmers in industrialised countries which result in over-production, and dumping of surpluses, particularly cereals, in the South, undermining production there. But the agricultural agreement fails to distinguish between subsidies causing over-production and those serving a food security purpose(8).
    However, the European Union (EU) and the US, as the most powerful trading blocs, are unlikely to put the interests of developing countries above their own. Within a year of agreeing to reduce subsidies, the EU has agreed record levels of subsidies to Greek cotton farmers. Support prices which should have ended in 1995-96 have been extended until 1999-2000 and farmers are receiving over three and a half times the normal world price. The total subsidy amounts to 2.6% of the Common Agricultural Policy (CAP) budget, even though cotton accounts for only 0.5% of CAP agricultural production. The decision has been strongly criticised by a UK government Select Committee which notes that "there are many efficient producers worldwide providing good quality cotton, some of whom are highly dependent on export earnings."(9)  The EU Court of Auditors is also high critical of the level of funding under the EU Cotton Regime, partly because it is contrary to GATT, and partly because there has been widespread fraud in Greece, encouraged by the system of payments based on area planted to cotton, rather than production. They also note that the aid destined for genuine small producers has ended up in the hands of larger ones, and that "the scheme is neither efficient, nor economical, nor controllable."(10)
    The key thrust of the World Trade Organisation (WTO) is to liberalise trade to develop greater integration the world economy. Peter Sutherland, outgoing Director General of the WTO, described this as intended to achieve "greater coherence in global economic policy-making."(11) The WTO has a mandate from governments to develop co-operation with the other Bretton Woods Institutions, the World Bank and the IMF for this purpose. To accomplish this, trade negotiations could no longer be carried out on the ad hoc basis of 'rounds', and a permanent and more representative body had to be established capable of exerting more authority.
    Who will benefit most from integration: rich nations or poor, rich or poor within nations? Transnational corporations control 70% of world trade, a proportion which is increasing. The textile and clothing industry is more diverse than some, but the turnover of 20 textile companies amounts to 34% of the total turnover of the top 434 companies (see box)(12). The WTO committee on trade and environment (see below) recognised that the ability of developing country producers to pass on, or internalise, the environmental costs in prices of their exports to consumers in developed country markets is very limited as much of world trade is dominated by intra-firm transactions, which often take place at transfer prices (13). While this does not necessarily apply to raw cotton, it certainly applies to pesticides, where ten companies control 73% of the world market.
    In terms of raw materials, it is the clothing and textile industry which benefits from the low prices and surplus production, being assured of regular and reliable stocks of low priced raw material. Although the situation is different this year with the high cotton price, this is likely to be temporary. More farmers will be encouraged to grow cotton: for example the US Department of Agriculture predicts an 18% increase in area planted to 6.6 million ha in 1995(14).

GATT impact on production
Although the Uruguay Round was only signed in April 1994, the WTO drew attention to sharp price rises in primary commodities in 1994, including cotton. It appeared to imply that buoyant trading conditions have already encouraged greater demand and thus rising prices in a number of raw materials. Indeed, trade in manufactured goods expanded strongly in 1994 and grew faster than global output.
    Simon Shepheard-Walwyn of Kurt Salmon Associates(15), consultants to the textile industry, sees no link: "there is no credit in the WTO claim that these increases are driven by the completion of the Uruguay Round. The major factor is the crop losses causing demand to outstrip supply." Another industry observer, Ray Butler of Cotton Outlook, is equally sceptical. "The WTO has made claims about how [cotton] trade will increase generally, but there has not yet been any analysis to back this up. The changes . affecting textiles may in future influence patterns of trade, and therefore demand in the longer term. But it cannot yet have had any effect on cotton production."(16)
    By itself, a stimulated demand for cotton does not guarantee increasing prices, as shown throughout the 1980s where cotton demand increased, but supplies grew faster and prices dropped. High prices will encourage production followed by a cyclical downturn in price, benefiting industry rather than farmers. The trends to increase the liberalisation of trade may preclude commodity agreements which focus on the needs of farming communities and the balance between food and cash crops. This is one of the many loose ends left unresolved by the Agriculture Agreement. Equally, there was no attempt to develop rules governing international investment to prevent transfer pricing by TNCs, unfair competition, fair trade and labour standards. The environment fared better, and the Final Act acknowledged more work was needed.

Trade and the environment
A hotly contested issue throughout the negotiations was the impact of trade on the environment. The claim of GATT economists that the effect would be positive was  received with scepticism by environment groups. No attempt was made to resolve concerns, but the WTO established a Committee on Trade and the Environment to guide policies.

Trade in prohibited goods
At its first meeting held on 16 February this year the Committee discussed one of the most pressing issues, exports of 'domestically prohibited' (i.e. banned or severely restricted) goods (DPGs), such as pesticides. These discussions could, in principle, proceed relatively smoothly, given the work already developed on the Prior Informed Consent (PIC) procedure. Under PIC, exporters abide by government decisions to prohibit import of certain identified chemicals, and discussions are in hand to develop this into a Convention (see p. 6). However progress on DPGs seems likely to move at snail's pace: the Committee only identified technical work for further analysis, which included looking at the relationship between the GATT/WTO work on the issue and the agreements such as the PIC procedure. There is, in fact, no incompatibility between PIC and GATT unless a government used PIC to prevent imports of pesticides it is using from another source.
    Other work on environmental commodity agreements could be drawn on, such as the International Commodity-Related Environmental Agreement for Cotton (see Resources).
    Some members of the Committee made forward-looking recommendations encouraging the WTO to link to environmental accords. The EU suggested the WTO should consider taking action to reinforcement environmental agreements. For example, if a WTO member did not participate in a future international PIC Convention, goods covered by the PIC procedure and produced in its territory might be covered by the disputes procedure(17).
    However, in the past GATT has ignored international Conventions. International lawyer, Philippe Sands has noted that: "It is the almost complete failure to consider other international legal developments which distinguishes the GATT system from other international bodies."(18) He fears that lawyers working only on trade law see it as distinct from social and environmental impacts, and rule that GATT should prevail. The force of international lawyers disagreeing with this position has yet to be tested, although their work is reflected in many international instruments which give at least equal weight to non-trade values.
    The intergovernmental organisations which have encourage environmental policies (including FAO, UNEP, CSD) have only temporary observer status in the Committee, agreed on a meeting-by-meeting basis. With trade in DPGs only one part of a large agenda and a full work programme to the end of 1995, progress will be slow.

The Agriculture Agreement
The Agriculture Agreement included no acknowledgement of the need for environmentally or agriculturally sustainable perspectives. An objective of the GATT(as noted above) is to encouraged developing countries to integrate further into the world trading systems through joint policy making of the WTO, the World Bank and the IMF.
    The present methods of agricultural production are unsustainable in many cases-including cotton. However, the WTO has not begun to examine how trade rules could encourage IPM or reduced chemical inputs. Nor does it see its remit as addressing such issues as the balance between producing cotton for export, and internal or regional food security in low income countries. The Sahel region, which is expanding as an agricultural region, harvested almost seven times as much cotton in 1984 as in 1961 and imported almost nine times as much cereal grain(19).
    The trade and environment committee could make a serious contribution to environmental (as well as social) concerns by identifying issues for future trade negotiations which would influence ecologically sensitive forms of agriculture. Strategies could be proposed which would require environmental impact assessments for agricultural developments, impose limits on agrochemi-cal inputs or removal of subsidies on pesticides, taxes to discourage environmentally degrading agriculture. On cotton this may mean agreeing a premium on crops produced under IPM systems. Other means of internalising the environmental cost of pesticide use should be explored in the trade and environment context. The polluter pays and precautionary principles, widely accepted in other international agreements, are yet to be taken seriously in the WTO.

Sanitary and phytosanitary measures
Unlike sustainable agriculture, 'sanitary and phytosanitary (SPS)' measures have been acknowldged to protect food safety and animal and plant health, although some developing countries rightly fear that these measures could be used to prevent their exports. Developing countries may need to be compensated for employing more expensive technology to meet standards. It could be argued that SPS measures should be extended to ensure soil, water, air is not contaminated with pesticides, with financial support for implementation of IPM strategies.
    There is much that could be done if the WTO seriously addressed trade and environment issues, but there is little evidence yet that it is prepared to go this far. Without more positive signs, it must be assumed that pressure to produce 'efficiently' as measured by yields per hectare, will encourage greater agrochemical use, in cotton as elsewhere.

The effect of a MFA phase-out
The Uruguay Round agreed a ten-year phase out of the 'temporary' Multi Fibre Arrangement (MFA) which has been in existence for over 20 years as a means of regulating the import to Europe and North America of manufactured textile products from developing countries.
    Textiles and clothing is the single most important category for developing countries as a group, accounting for 22% of total exports(20). Industrialised countries have maintained tariffs against textile and clothing imports from developing countries, and have allowed importation a quota basis. Under the Final Act, the Agreement on Textiles and Clothing (ATC) was established to take over from a phase out of the MFA by 2005. The ATC provided for 16% reduction in quotas by January 1995, 17% by January 1988, 18% by January 2002 and a final phase out by January 2005. A Textiles Monitoring Board under the WTO will oversee implementation.
    Most developing countries hailed the phase out of the MFA as one of the concessions to their interests. Significantly, however, the Final Act provides that all members should take action to improve market and ensure fair and equitable trading conditions and avoid discrimination against imports. The EU and US ensured that a reciprocal attitude to market access was included in the agreement, opening southern markets to their products as well as vice versa. A complex picture emerges, whereby developing countries with an established textile industry and a growing middle class such as India, Pakistan, may be vulnerable to imports of higher value textile products from industrialised countries.
    Simon Shepheard-Walwyn believes that the MFA phase-out may not drive up demand, but would drive efficiency through the textile and garment pipeline, which may result in more garment production shifting to developing countries. This could be beneficial, but Ray Butler of Cotton Outlook warns that "Some less developed countries could experience a loss as a result of the phase out of the MFA as they will lose quota and have to compete openly: the most competitive will therefore benefit most from the phase out and, as the world's largest textile producer, China's decision on whether or not to join the WTO will have a significant impact."(21)

Conclusion
The Agriculture Agreement of the Final Act may not in itself be a major factor influencing the amount of cotton produced.  On the other hand, if failure to agree had brought a global recession, the drop in demand may have affected prices and production.  However, the opening of markets, and the continued pressure from the World Bank and IMF on developing countries to prioritise export oriented agricultural products, will encourage investment in these crops. There is almost no interest in the WTO in promoting sustainable agricultural production. No steps have been taken to link trade and environmental measures to agriculture, even to the extent of endorsing other international initiatives such as the PIC procedure. This would indicate that in the immediate future, there will be no help from the powerful trade institutions in promoting sustainable agriculture. 

References
1. OECD, Agricultural Policies, Markets and Outlook, Paris, 1993, quoted in Jules Pretty, Regenerating Agriculture, Earthscan, 1995.
2. ICAS, Cotton Supply and Use, 24 May 1995.
3. Wood Mackenzie, in British Agrochemicals Association annual report, 1994.
4. Agrow No. 199, 7/1/94, p.17.
5. Financial Times, Cotton prices expected to reach 11 year high, p. 31, 1 February 1995.
6. Financial Times, op. cit. 1 February 1995
7. Eisa, Hamdy M, Shawki Barghouti, Fred Gillham, and M. Tawhid Al-Saffy, Cotton Production Prospects for the Decade to 2005, World Bank technical Paper No. 231, 1994, p. 8.
8. Watkins, K. and M. Windfuhr, and Eds. C. Arden-Clarke and T. Davis,Agriculture in the Uruguay Round: Implications for Sustainable Development in Developing countries, WWF International Discussion Paper, Geneva, 1995.
9. Select Committee on European Legislation (UK), extract from Fifteenth Report of Session 1994-95 HC 70-xv (1994-95), 10 May 1995.
10. Court of Auditors Report, OJ, 16 November 1993.
11. Sutherland, Peter, 'Open for Trade: The first three months of the WTO', address to the Business Council for National Issues, Ottawa, 3 April 1995, GATT press/9, 31 March 1995.
12. Comitextil, List of the textile world's largest textile and clothing firms in 1993, Coordination Committee for the Textile Industries in the EEC, Bulletin 94/6, Brussels, 1994, p. 5.
13. Sub-committee completes preparatory work on trade-environment issues, TE011, 6 January 1995.
14. Mike Buckley and Associates, 1994 Cotton Insecticide Study, San Francisco, US, 1995.
15. Simon Shepheard-Walwyn, Pers. comm. 26 May 1995.
16. Ray Butler, Cotton Outlook, Pers. comm, 24 May 1995.
17. WTO press TE001, 22 March 1995.
18. Sands, Philippe, ' GATT 1994 and Sustainable Development: Lessons from the international legal order', Paper presented at GATT Symposium on Trade, Environment and Sustainable Development, GATT, TE009, 28 July 1994.
19. McNeely, JA, IUCN, 'Trade and Biological Diversity: The internalization of environmental costs', paper presented at GATT Symposium, op.cit.
20. News of the Uruguay Round, NUR 078, 1 December 1993.
21. Butler, op. cit., pers. comm.

[This article first appeared in Pesticides News No. 28, June 1995, pages 20-22]