Not too late to fix the farm bill and avoid trade retaliation

Congress finally seems on track to approve a farm bill in early 2014, but without offering a solution to the decade-old World Trade Organization (WTO) case that ruled U.S. cotton subsidies and export credits illegal.  The subsidies, including government financed crop insurance, make Obamacare seem like a box of cheap band-aids. Yet, over the past decade these subsidies have cost hundreds of millions of dollars in lost revenue to Brazilian cotton growers.

In 2009 the World Trade Organization appellate panel ruled that U.S. cotton subsidies and export credit programs distort and depress world cotton prices. The ruling authorized over $800 million in retaliatory cross measures, including intellectual property.  In 2010 the Brazilian government agreed to suspend retaliation to provide the U.S. more time to pass a farm bill compliant with the WTO ruling while the U.S. government agreed to pay Brazilian farmers compensation for their losses during the interim. 

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This bilateral accord was working well until the U.S. Department of Agriculture stopped payments in October of 2013 right in the midst of Brazilian President Dilma Rousseff’s decision to cancel her State visit to Washington after allegations that the National Security Agency was tapping her telephone. Today, bilateral relations are on the rocks just as the farm bill conference committee promises to move backwards by sweeping the WTO cotton dispute ruling under the rug.  Indeed, Rep. Michael Conaway (R-Texas), head of the House Agricultural Subcommittee on Commodities, warned in his opening statement to the farm bill conference committee in late October, “waiting for a green light from Brazil is a fool’s errand.” Unfortunately, Conaway and many of his colleagues miss the point; failure to comply will degrade relations with one of the most important nation-states in the world today and undermine U.S. credibility in trade negotiations.

Writing in The Hill's Congress blog in 2012, Burleigh Leonard reported that congressional refusal to comply with the WTO cotton dispute ruling would “invite retaliation from Brazil. Movie producers, record labels, book publishers, pharmaceutical companies, and the biotech industry will pay the price for Congressional intransigence — a price that will only increase with the proliferation of cross-retaliation in future trade disputes.”

Out of options, Brazil is now preparing a list of U.S. imports to apply retaliatory measures that could raise tariffs by 100 percent or more and revoke intellectual property rights.

The world is watching precisely at the moment when the Obama government asks for fast track negotiating authority to conclude the Trans-Pacific Partnership and the Transatlantic Trade and Investment free trade agreements. 

Ironically, if Conaway and his Texas colleague, Rep. Neugebauer (R), who both sit on the conference committee, have their way the Lone Star state may be the first to pay the price of such intransigence. Texas exports $10 billion a year in goods to Brazil, one of the state’s largest and fastest growing markets. Most importantly, Texas is the largest exporting-state in the nation and could lose the most from any future trade disputes.

It is not too late to achieve a resolution to the dispute. The National Cotton Council and its Brazilian counterpart (ABRAPA) have maintained a dialogue over the past two years and discussed ways of resolving the case. Earlier this year Roberto Marques, chairman of Johnson and Johnson and a director of the Brazil-U.S. Business Council, testified to the House Ways and Means Subcommittee on Trade:

“Such a definitive resolution of the dispute is within reach… It is important that the United States lead by example, and only be meeting our own trade obligations can we effectively urge all other countries to similarly meet their trade obligations.”

Settling the cotton dispute would likely strengthen international compliance with WTO rules, breath new life into bilateral relations, and allow the U.S. and Brazilian cotton industries to engage in greater collaboration to advance cotton’s sustainability and promotion around the world; all conditions for greater economic growth in Texas, throughout the U.S. and in Brazil.

For decades Brazilian cotton farmers and U.S. taxpayers have paid the costs of federal government payments to U.S. cotton farmers, yet if Brazil moves forward with retaliations authorized by the WTO it may be manufacturers, including Texas exporters, who will bear the burden of a bilateral relationship that needs fixing.  It is time that the U.S. government complies with the WTO decision, a first step toward closer bilateral cooperation to advance agricultural productivity and sustainability in both nations and around the world.

 

Langevin is director of BrazilWorks and international adviser to the Associação Brasileira dos Produtores de Algodão (Abrapa).