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By Mira Olson, Contributing Reporter

RIO DE JANEIRO—The United States and Brazil reached a provisional agreement last week regarding a long-standing dispute over American subsidies to domestic cotton farmers. The deal was announced on April 6th, one day before Brazil would have begun implementing retaliatory sanctions worth US$830 million.

Brazilian Foreign Minister Celso Amorim expects difficulties in upcoming negotiations, photo by José Cruz/ABr.

Eddie Smith, a cotton producer from Texas and the chairman of the National Cotton Council of America, announced that the agreement is “a positive development in this very long dispute.”

The Brazilian government echoed this sentiment, stating to the press that the preliminary agreement “may establish the basis for a future and final mutually satisfactory solution for the dispute.” Nevertheless, Brazilian Foreign Minister Celso Amorim has stated that he foresees continued difficulty in negotiations.

The World Trade Organization (WTO) had approved Brazilian countermeasures on August 31st of last year after ruling in 2005 and again in 2008 that the US practices were illegal. Brazil had planned to raise tariffs on 102 American products including autos, pharmaceuticals, medical equipment, electronics, textiles and wheat, for a total of US$591 million.

Furthermore, Brazil would have been the first country to violate American intellectual property rights with WTO approval as a retaliatory measure for unfair trade policies. The Brazilian government had threatened to stop charging technology fees to farmers for seeds developed by American biotechnology companies, as well as to break US pharmaceutical patents before the scheduled dates of expiration. These measures would cost US companies US$239 million.

Brazil originally filed the complaint with the WTO in 2002, identifying two kinds of subsidies being used by the US that are inconsistent with global trade regulations: 1) payments to cotton farms under a marketing loan and counter-cyclical program that is used to protect producers from the effects of fluctuations in the global price of cotton; 2) export credit guarantees under the US Department of Agriculture GSM-102 Program that guarantees loans extended by American banks to foreign buyers to purchase American cotton.

US Trade Representative Ron Kirk announced the deal on April 6th, photo courtesy of USTR.

The terms of the agreement reached last week stipulate that in exchange for Brazil not imposing countermeasures, the US will establish a fund of US$147.3 million per year to provide technical assistance and capacity building to the Brazilian cotton industry. The fund will remain active until the passage of the next farm bill by US Congress, tentatively scheduled for 2012, or until a permanent solution is mutually developed, whichever comes first.

Additionally, the US will make some modifications to the export credit guarantee program, and by April 16th the US will publish a proposed rule recognizing that the state of Santa Catarina is free from foot and mouth disease, thus enabling Brazil to export fresh beef to the US.

According to the statement issued by the US Trade Representative, “the United States and the Government of Brazil agreed to continue engagement on these issues, with a view to agreeing on a process by June that will allow us to reach a mutually agreed solution to the Cotton dispute.”

The United States is the second largest cotton producer in the world behind China and is the largest exporter of the material. According to data provided by the Congressional Research Service, US subsidies to the cotton industry total $2.1 billion per year. Eliminating the subsidies would increase the global price of cotton by twenty percent, thus allowing countries like Brazil greater competitiveness and a larger share in the cotton market.

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8 COMMENTS

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