With the announcement by Brazilian officials that they intend to initiate retaliatory trade sanctions on U.S. goods and services, and are contemplating additional actions that could impact U.S. intellectual property rights, another milestone has been reached in the Brazil WTO case.
In a statement issued Monday the U.S. cotton industry, through the National Cotton Council, said, "Given world cotton market conditions and the dramatic changes that have been made in the U.S. cotton program, Brazil's latest actions are imposing unwarranted harm on Brazilian and American interests in times of economic hardship for all."
The NCC also noted that as a result of this action, both Brazilian and American firms would find themselves economically disadvantaged by the proposed duties.
Fortunately, the higher import duties announced by Brazil do not take effect for 30 days. The U.S. cotton industry is encouraging the two governments to engage in discussions to avoid the harmful effects of retaliation, but cautions that any future resolution must recognize the realities of today's cotton market and the previous changes in U.S. programs.
In discussing the issues that have brought things to this juncture, the NCC notes that some real and critical changes have occurred since the original World Trade Organization (WTO) panel made its ruling.
The NCC explained that U.S. cotton's Step 2 program was quickly eliminated in 2006 and, more recently, the U.S. Congress lowered the upland cotton counter-cyclical target price and made changes in the marketing loan program that effectively lowered average loan benefits to producers in the 2008 farm bill.
Since the WTO ruling expenditures on U.S. cotton price-related programs are down more than 80 percent from their previous five-year average and are projected to remain minimal for the foreseeable future.
The NCC further noted that world cotton prices are more than 50 percent higher than 2005, the original ruling's base year, and U.S. harvested acreage and production are down by more than 40 percent, while cotton production in Brazil, China and India has expanded.
Plains Cotton Growers Executive Vice President Steve Verett adds that while the WTO case and Brazil's actions are often tied to cotton, it is important to note that when damages were finally awarded the overall amount of relief awarded to Brazil by the WTO related to U.S. cotton programs was relatively small and fixed at$147 million.
Of much larger import, says Verett, is the retaliatory damages associated with the U.S. export credit guarantee program that support other U.S.-produced commodities. He notes the export program portion of the WTO award is determined annually using a formula developed by the WTO, and is estimated by Brazil at more than $600 million.
Also expressing their dismay at Brazil's decision were Senators Blanche Lincoln (D-Arkansas) and Saxby Chambliss (R-Georgia), the Chairman and Ranking Member, respectively, of the Senate Agriculture Committee, who echoed the cotton industry message.
In a joint statement issued shortly after Brazil's announcement, the Senate leaders said, "It is unfortunate Brazil is moving forward with retaliation without first engaging in meaningful discussions towards resolving the dispute.
"The U.S. government continues to express its willingness to have a substantive dialogue and negotiators from the Office of the U.S. Trade Representative and U.S. Department of Agriculture are waiting for Brazil to start the process."
The Senators concluded saying, "While Brazil has chosen to exercise its rights, its future actions will determine the degree to which the administration and the Congress are willing to move forward together in resolving the dispute and others in the World Trade Organization.
This case is an opportunity for Brazil to demonstrate its newly embraced role in the international arena consistent with its emergence as an advanced developing economy. Additionally, Brazil's actions in the case will be a unique and helpful indicator whether it is time to reconsider benefits it receives from U.S. trade preference programs."