Blog: Leonie BarrieWho subsidises the subsidies?

Leonie Barrie | 6 December 2005

The issue of subsidies rose its head again this week, with US textile groups protesting (nothing new there then) at the Chinese government’s move to bail out the country’s largest textile company, China Worldbest Group, to the tune of US$618m. They argue that although the deal is described as part of the Chinese government’s “efforts to shift state-owned capital to pivotal sectors,” WorldBest is already a state-owned company. And the move seems to fly in the face of China’s WTO commitment to operate state-owned enterprises ‘in accordance with rules of market economy.’

But when it comes to free market principles is the USA itself squeaky clean? A new report from Oxfam suggests that US cotton subsidies have led to a surge in cheap exports to China, dragged down domestic prices and crowded out local production. The aid organisation estimates that about 870,000metric tons of China’s cotton crop from 2004-2005 was unsold as of March this year – and that the US government is subsidising its cotton farmers in violation of World Trade Organisation rules. The USA is also accused of dumping cotton in West Africa.

Crucially, Oxfam warns that the US must do more to deliver a development deal ahead of the WTO Ministerial meeting on December 13-18 – otherwise it could end up facing a mountain of litigation. The WTO’s dispute settlement mechanism is expensive and complicated, but developing countries could find they are left with no other options.

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