A general equilibrium analysis of the effects of Doha Round Declaration and African Cotton Initiative on Zambian cotton sector

Cotton plays a strategic role in the development policies and poverty reduction programs of a number of African countries. Several African countries have introduced reforms in the cotton sector to improve its quality and competitiveness. The impact of these reforms has been virtually nullified because the WTO members continue to apply support measures and subsidies that distort global market prices. These are the arguments behind the African Cotton Initiative (ACI) proposed in 2003 and 2006 WTO Ministerial meetings. Specifically, the ACI proposed (a) phasing out the rich countries' cotton domestic supports; (b) duty and quota free access for African countries' cotton to developed countries' markets; and (c) removal of rich countries' cotton export subsidies. In contrast, the Doha Round Reductions agreed upon in 2005 WTO Ministerial meetings in Hong Kong are (a) all forms of export subsidies for cotton will be eliminated by developed countries; and (b) developed countries will give duty and quota free access for cotton exports from the least-developed countries (LDCs). This paper uses a computable general equilibrium (CGE) model of the Zambian economy to study the impact of the Doha Round (DR) agreement and the ACI proposal on the cotton sector in Zambia and to contribute to the analysis of further agricultural trade liberalization and its implications for poor countries. The results show that Zambian cotton export price and exports rise, respectively, by 4.23% and 11.12% in the DR scenario and 15.65% and 43.2% in the ACI scenario. The labor employment in the cotton sector increases by 12.52% and 52.06% in the DR and ACI scenarios, respectively, which is highly beneficial as Zambia is enduring 50% unemployment rate. Liberalization in the cotton world market also increases the GDP and rural household welfare.