Brazil to seek WTO action in cotton dispute
By Adam Behsudi
Idaho potatoes, California raisins and Washington pears are among the items that could see tariffs rise from 30 to 100 percent if the backing of an international panel emboldens Brazil to slap retaliatory duties on U.S. products.
Andre Diniz, a spokesman for the country’s Ministry of Development, Industry and Foreign Trade, said Thursday that his government intends to move forward with a request for a World Trade Organization compliance panel ruling on long-running case over U.S. cotton subsidies — an initial step before proceeding with the retaliatory measures. He did not say when Brazil would make the request, however.
Diniz’s statement contradicted U.S. officials, who told reporters earlier Thursday that Brazil would not make the move.
“I cannot comment [on] any declaration of any American authority, but what I can say is that Brazil is going to open a panel at the WTO about the new farm bill,” Diniz said.
His comments followed a similar statement from Foreign Minister Luiz Alberto Figueiredo, who said Wednesday that his government intended to ask for the WTO panel, but would hold off on the actual retaliation to give the United States a chance to respond, Brazil’s state news agency reported.
“We will continue to negotiate with the United States. The issue of trade retaliation is always on the table,” Figueiredo said, according to an informal translation of the news report. “We are interested above all [to] address this issue in a way that is good for the national interest.”
If Brazil goes through with the estimated $800 million trade retaliation, however, U.S. agriculture isn’t the only sector that could see export costs dramatically rise.
Hundreds of items, including sugar-free chewing gum, lipstick, freezers, ovens, even motor boats, could become more costly to export to the major South American market, potentially allowing lower-cost foreign products to bump American-made goods from supermarket shelves and department stores. Brazil drafted the list of target items in 2010.
In addition to raising tariffs on U.S. imports, the retaliation could deny U.S. companies the ability to collect royalties or fees on patents and copyrights filed in Brazil — the first time that such a punishment would be implemented under a WTO ruling.
But Obama administration officials were unclear over whether or when Brazil would take the initial step of requesting the convening of a WTO panel, which would decide on whether provisions of the recently passed farm policy bill sufficiently addressed the South American countries’ cotton concerns.
Agriculture Secretary Tom Vilsack appeared to be under the impression on Thursday that Brazil would not move forward at the WTO, citing the farm bill’s provisions as a possible solution to the dispute.
“I don’t know if I’d go so far as to say that the issue has been fully resolved,” Vilsack told reporters at a press conference. “I think it’s fair to say that the Brazilian government is willing to enter into … discussions that could lead to a resolution without the necessity of a compliance panel. I take that as a good sign.”
A spokeswoman for the Office of the U.S. Trade Representative said Thursday that Brazil has authorized a request for a WTO panel but has not set a date, and both sides are continuing to consult on the issue.
“We are pleased that the Brazilian government has also indicated it will not request a compliance panel at this time and instead will work with the United States to find a negotiated solution to the WTO cotton dispute,” the spokeswoman said.
The farm bill, which President Barack Obama signed into law Feb. 7, replaces direct payments to cotton farmers, declared illegal by the WTO, with a voluntary insurance program. The law also gives the Agriculture Department leeway to tweak an export credit-guarantee program known as GSM-102 to bring it in line with WTO rules.
A WTO panel found in 2004 that the U.S. cotton subsidies were inconsistent with America’s trade obligations. Washington lost an appeal of that ruling in 2009 and subsequently agreed to make payments of $12 million a month — a stopgap until the officials could correct the illegal subsidies through the farm bill.
But the United States stopped making payments in September, prompting Brazil to renew its retaliation threats.
The Brazilian government was supposed to wait 60 days from the enactment of the farm bill before requesting a panel — a provision of its agreement with the United States that was meant to give Brazil time to analyze the bill. Once established, the panel will have 90 days to present its findings.
Rather than a sign that retaliation will happen, the request for a WTO compliance panel is viewed as a way to provide more legitimacy to Brazil’s complaint, perhaps prompting the U.S. to respond with a solution that Brasilia would find satisfactory.
“I think they want to make absolutely sure that this has been found not compliant within the WTO, they’re giving every opportunity and every chance to make sure the U.S complies,” said Celia Feldpausch, executive director of the Brazil Industries Coalition.
“They want to have the backing of the international community, of the international system that is in place,” she said.
Brazilian cotton growers have balked at the provisions in the farm law establishing the insurance program for cotton farmers, arguing that it could distort world prices even more than the illegal direct subsidies.
Under the program, the U.S. government will subsidize insurance premiums by as much as 80 percent if world cotton prices dip below a certain level, which critics say could incentivize farmers to produce more than the market can bear to continue receiving the payments, further suppressing cotton prices. The Brazilian cotton growers association ABRAPA pressed the argument in a visit to Washington last month.
Brasilia-based attorney Renata Vargas Amaral, who represents the association, said the distortions are “still very strong” in the new farm bill.
“We still think that retaliation was the best option but we are supporting the government decision,” she said.
The U.S. National Cotton Council defended the farm bill’s changes to cotton policy in statement Thursday.
“These changes are significant, and we believe the matter is resolved,” NCC Chairman Wally Darneille said in the statement. “We are encouraged by statements by Brazilian officials which indicate a preference to resolve the case through continued discussions rather than retaliation. We encourage U.S. officials to continue to engage with their Brazilian counterparts to reach a resolution to the case.”