Brazil wins. Well, sort of. In a ruling issued Aug. 31, the World Trade Organization (WTO) determined that Brazil can retaliate against the U.S. as a result of a cotton subsidy dispute ongoing since 2002.
Brazil can now impose $295 million in annual sanctions against U.S. goods, as a result. The Brazilians originally asked for as much as $4 billion in annual compensation before decreasing the request to $2.5 billion, so the ruling is a hand-slap compared to what it could have been.
U.S. cotton industry leaders are still irritated by it, however. Jay Hardwick, National Cotton Council (NCC) chairman, points out that the WTO decision is based on the 2005 growing season, when U.S. cotton production was high. Since then, the 2008 Farm Bill decreased cotton subsidies and U.S. production dropped 45%. At the same time, Brazil, China and India increased cotton production 20%, Hardwick notes.
"We are unhappy. This makes it difficult for U.S. cotton. If I produced some product exported to Brazil and suddenly found the Brazilians putting a tariff on it because of cotton, I wouldn't be happy about it,” says Mark Lange, NCC president.
Brazil, the world's 6th largest cotton producer, imports little U.S. cotton. That means retaliatory tariffs would have to come on other U.S.-made products.
"Our industry believes once the reduction in supports in the 2008 Farm Bill are taken into consideration, no further changes are needed in the U.S. cotton program. In addition, our reduced production means our ability to influence world markets is down significantly,” Lange says.
Lange applauds efforts in the case by the U.S. Trade Representative (USTR). In a statement issued after the WTO ruling, Carol Guthrie, spokeswoman for the USTR, said, "While we remain disappointed with the outcome of this dispute, we are pleased that the Arbitrators awarded Brazil far below the amount of countermeasures it asked for.”
The USTR is also pleased that the Brazilians cannot take action on U.S. intellectual property or services, and that the WTO denied Brazil's request for an additional one-time $350 million in countermeasures connected with the now-repealed U.S. cotton industry's Step 2 payment program.
After the ruling, Bob Stallman, American Farm Bureau Federation (AFBF) president, said, "The AFBF is disappointed that Brazil was granted retaliation today against the U.S. by the WTO in the Brazil cotton dispute. Based on the findings in the original case and the United States' actions to adjust its cotton and export credit programs, we maintain the U.S. has complied and retaliation is not justified.”
Lange and other U.S. cotton industry leaders would like the WTO to take a hard look at increasing subsidization by India and China.
"India announced this spring an export subsidy program that is inconsistent with WTO commitments. India also purchased more than 12 million bales of cotton, now held in stock. That continues to depress world cotton prices,” Lange says.
China and India have substantial subsidies for polyester production, which hurts market opportunities for cotton, Lange says.
"Their polyester subsidy exceeds half of world polyester production. This deserves the scrutiny of the U.S. government. We have been in discussion with the U.S. government regarding India and China's cotton and polyester policies. At this point the U.S. government has announced nothing but we believe there is concern with what is going on in India and China,” Lange says.
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