By Doug Gray, Senior Contributing Reporter

RIO DE JANEIRO – In response to illegal U.S. subsidies granted to domestic cotton farmers, Brazil announced this week a list of American products that would be subject to higher rates of import tax by way of retaliation, and economists have warned of a possible trade war between the two countries.

The U.S. cotton industry has survived on government hand outs that the WTO now deem illegal, photo by House of Sims/Wikimedia Creative Commons License.

The decision has a thirty-day window in which an agreement could still be reached, after which prices of cotton goods, medicines and cars amongst others, will see huge duty increases. This is the first time that the World Trade Organization has allowed a tit-for-tat approach to an international trade dispute, and comes some eight years after the issue was originally brought to their attention.

In that time the U.S. has been overtaken by India in annual cotton production, but leads the way globally in exports. Both still remain some distance behind China, who produces almost the equivalent of the two nations combined.

The subsidies were granted to protect American farmers against the price fluctuations of a cotton market increasingly at the whim of China. The Brazilian cotton industry is dwarfed in comparison, but an agreement could still be reached whereby U.S. technology and techniques are shared in order to boost the South American giant’s production.

It is estimated that without these subsidies the global price of cotton would be 20 percent higher, allowing Brazil a greater competitiveness and therefore a larger share of the market.

A total of 102 articles have been indicated for the increased tariffs which stands to earn hundreds of millions of dollars in extra duty and push up prices dramatically on supermarket shelves. As well as cotton goods, threatened to be subject to 100 percent taxation, tax on cars could rise from 35 percent to 50 percent, nuts and fruits from 10 percent to 30 percent and potato products such as Pringles from 14 percent to 34 percent.

Haroldo Rodrigues da Cunha, head of the Brazilian Association of Cotton Producers, photo by Fabio Rodrigues Pozzebom/ABr.

That there is wide variety of goods targeted is likely to hit America even harder. As Carlos Marcio Cozendey of Brazil’s Foreign Ministry told a press conference; “The idea was to distribute the retaliation broadly in order to maximise pressure.”

The list focuses on products that are also produced in Brazil and for which an easy, homemade alternative is readily available to.

As Haroldo Rodrigues da Cunha, head of the Brazilian Association of Cotton Producers, said in a magazine interview with Dinheiro Rural last year; “It is one of the most complex agricultural issues the WTO has ever had to deal with, but the result is final. America must withdraw the subsidies.”

Hopes do remain that a solution can be found without resorting to the enormous tax hikes, however. Last week the issue was addressed by Hillary Clinton in talks with Foreign Minister Celso Amorim in Brasilia and Gary Locke the U.S. Secretary of Commerce is bound for Brazil to try and hammer out a deal and avoid a trade war that could hit both economies hard.

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