RESTRICTED GENERAL AGREEMENT ON COM.TD/W/57 26 April 1967 TARIFFS AND TRADE Limited Distribution Committee on Trade and Development Working Party on Economic Problems of Chad INTERNATIONAL TRADE IN COTTON AND THE ECONOMY OF CHAD Background Paper Prepared by the Secretariat 1. The Government of Chad requested the GATT, through the Committee on Trade and Development, to consider the effects on the economy of Chad of the present situation in the world market for cotton. During the eighth session of the Committee on Trade and Development at Punta del Este, the representative of Chad introduced document COM.TD/37, a note prepared by the delegation of Chad, describing the impact of the recent developments in the international markets for cotton on the economy of his country. The summary covered the main features of cotton production in Chad, the reasons for its reduced competitiveness on world markets, and the remedial measures taken by the Government to reduce transport and financing costs. The note expressed concern about the effects on the cotton market of the new farm legislation recently adopted by the United States, and called upon the GATT, under the provisions of Part IV, to consider its specific problems. 2. As indicated in the Summary of Conclusions of the Committee on Trade and Development at Punta del Este, COM.TD/39, th^ Committee, having recognized the problem posed for Chad by the recent developments in the international market for cotton, agreed to establish a Working Party under the following terms of reference: "Having regard to the provisions of Article XXXVIII, to study the problems • outlined by the Government of Chad and to make appropriate recommendations to the Committee by its next session." 3. The secretariat was asked to prepare a background paper for the first meeting of the Working Party taking into account the factors raised by the Chad delegation. The background paper, presented in this document, is divided into three parts. Part I discusses recent developments in the international market for cotton, paying special attention to the competition between natural, artificial (cellulosic), and synthetic (non-cellulosic) fibres, and to changes in the cotton policy of the United States. The publications of the International Cotton Advisory Committee have been the main source of material for this part of the paper. Part II describes the position of cotton in the economy of Chad and the reasons for which that ./• economy will continue in the next decade at least to depend on the exports of cotton. The paper concludes, in Part III, with certain observations and suggestions. COM.TD/w/57 Page 2 PART I; RECENT DEVELOPMENTS IN THE INTERNATIONAL MARKET FOR COTTON • ' , 4. Tabic 1 shows the development of world raw cotton supplies and their origin up to the crop year ending 1 August 1966. In the statistical appendix estimates are given for the year 1966-67. 5» Changes in world production, consumption and price of cotton can be fully understood only against the background of the cotton policies of the United States. Producing, in 1964, 29-3 per cent of the world output, shipping 32.5 per cent of the world exports, and holding 47.8 per cent of world stocks of raw cotton, the United States has a dominant influence on the international market. This influence is best illustrated by the close linkage of the average international price for medium staple cottons, which represent about 90 per cent of the world's cotton output to the export price of United States cotton. The developments in the United States cotton policy and their effects on the world market are summarized briefly below. 6. Up to mid-1956, United States cotton was exported at the domestic price which the farm price-support legislation kept at a relatively high level. Other producing countries could thus easily dispose of their export availabilities by selling at a price slightly below the United States price. The net effect of this arrangement was to make the United States a residual supplier to the world, keeping the international price for cotton at a stable level by absorbing excess supply into stocks. 7. At the stabilized price, cotton production in other countries expanded and they increased their share of the world market. Consumption of cotton, on the other hand, grew less rapidly than production, partly because of the continued rapid expansion of the use of artificial and synthetic fibres. 8. In mid-1956 the United States instituted special measures under which cotton was exported at a subsidized price below the supported domestic price. This export programme involved direct sales abroad by the Commodity Credit Corporation at prices determined by competitive bids, and a form of export subsidy in kind which private exporters obtained from the stocks of the Commodity Credit Corporation. In an effort to reduce the large stocks of cotton which the United States held at the time, most of the United States exports in the 1956/57 and 1957/58 seasons were made by direct sales through the Commodity Credit Corporation. Exports under special credit and payments terms, notably under the Public Law 480 programme, also served to reduce United States stocks. Sales under these special terms represented 40 per cent of United States cotton exports in the four years beginning 1955/56; but since 1961 such sales have represented only about one quarter of United States exports. CQM.TD/to/5? Page 3 Table' 1 " COTTON: SUPPLY AND DISTRIBUTION, 1953-1965 I 000 me trie tons! 1 2 5 ! 4 5 Average 1 Average j Average 1953-55 j 1956-60 1 1961-65 19651 Beginning 'stocks - ! United States 1,846 2,215 j 2,296 3,098 Other developed countries 70S 1 688 733 715 Developing countries 1,397 1,201 ! 1,360 1,494 Centrally-planned economies 441 639 622 719 Afloat 98 100 78 65 Total 4,490 ! 4,843 5,089 6,091 1 Production 1 United States •3,23r 2,797 3,251 3,256 Other developed countries 235 130 450 5^7 Developing countries 3,107 3,616 4,326 4,557 Centrally-planned economies 2,558 3,H4 2,780 3,186 Total 9,131 ._ 9,657 10,806 11,546 Consumption • United States 1,9^7 1,857 1,945 2,059 Other developed countries 2,253 2,351 ! 2,565 2,625 Developing countries 1,820 2,321 ' 2,698 2,807 Centrally-planned economies 2,666 3,335 3,180 3,573 Total 8,686 9,864 10,388 11,064 Experts United States - 717 1,351 963 661 Other developed countries 86 35 177 252 Developing countries 1,673 1,640 2,020 2 ,317 Centrally-planned economies 342 389 ! 375 450 Total 2,818 3,415 3,535 3,680 1 Imports i Western Europe_ 1,475 l ,597 ! 1,473 1,473 Japan 471 639 658 670 Other developed countries • I-30- 135 148 166 Far East excluding Japan 225 328 420 362 Other developing countries 69 56 ! 122 208 Centrally-planned economies 431 - • 668 735 883 Total 2,801 3,405 ; 3,556 3,762 ... Crop years, beginning in July cf the first year indicated. COM. To A/57 Page L, x (In per cent) 1 2 3 4 5 Beginning stocks United States 41.1 45.7 45.1 50.9 Other developed countries 15.8 14.2 14.4 11.7 Developing countries 31.1 24.8 26.7 24.5 Centrally-planned economies 9.8 13.2 12.2 11.8 Afloat 2.2 2.1 1.6 1.1 Total 100.0 1C0.0 100.0 100.0 Prodii ^"** "î on ————— United States 35-4 29.0 30.1 28.2 Other developed countries 2.6 1.4 4.2 4.7 Developing countries 34.0 37.4 40.0 39-5 Centrally-planned economies 28.0 32.2 25.7 27.6 Total 100.0 100.0 100.0 100.0 Consumption United States 22.4 18.8 18.7 18.6 Other developed countries 25-9 23.8 24.7 23.7 Developing countries 21.0 23.5 26.0 25.4 Centrally-planned economies 3O.7 33.8 30.6 32.3 Total 100.0 100.0 100.0 100.0 Exports United States 25.4 39.6 27-2 18.0 Other developed countries 3.1 1.0 5.0 6.8 Developing countries 59.4 48.0 57-2 63.O Centrally-planned economies 12.1 11.4 10.6 12.2 Total 100.0 100.0 100.0 100,0 Imports • •- • "'—" •••• •* Western Europe 52.7 46.9 41.4 39--1 Japan 16.8 18.3 18.5 17.8 Other developed countries 4.6 4.0 4.2 4-'r Far East excluding Japan 8.0 9-6 11.8 9.6 Other developing countries 2.5 1.6 3.4 5.5 Centrally-planned economies 15.4 19.6 20.7 23.6 Total 100.0 100.0 100.0 100.0 i . Sources: PAO, Commodity Review, 1964-1966t ICAC, Cotton - World Statistics, 1963-I966, COM. TD A/57 Page 5 9. After the 1957/58 season, the United States changed its arrangement for the export of cotton by setting an export price fixed below the guaranteed domestic price. Simultaneously, the United States acreage under cotton was reduced through the Soil Bank programme and production declined from an average of 3,2^1,000 tons in 1953-55 to 2,797,000 tons in 1956-60. 10. The lower world market price brought about by the fall in the average unit value of United States exports from 82.1 US cents per leg.