LOCATION: AROUND THE WORLD
A short story about the cotton problem
The fashion industry and the cotton farmers are having quite a tough relationship these days. After 40 steps in the production chain, a t-shirt can still cost 7 dollars. How is this even possible? One of many answers is the phenomenon of price dumping. For example, some developed countries have used this notorious tool with exports of cotton to win dominant market positions to the developing countries deep concern. According to the legal framework of the World Trade Organization, export subsidies are prohibited.
(Put in easier words; it is when a government gives, in this case, their domestic cotton farmers cash to fully compensate the losses at hand when exporting cotton to other countries to sell there at lower prices – to win market positions.)
The governments of the developing countries producing cotton, does not have the economic assets to give their cotton farmers cash to compensate for keeping the cotton costs down, which eventually leads to the inevitable – the domestic, poor, cotton farmers are outcompeted from their own market. So what do they do instead to keep the cotton price down? Well, child labor, bad working conditions and forcing their citizens to work on the cotton fields.
That is a reason why export subsidies are illegal.
So, is it all just sunshine & rainbows, then? Well, it is reported that some developing countries are claimed to just be changing the names of the subsidies, simply covering them up under other labels to hide from the legal hands of the WTO. And so, the pricedumping game of cotton continues.
All of a sudden, that 7 dollar cotton t-shirt does not feel as soft anymore.