On Wednesday, the U.S./Brazil trade dispute was finally put to bed. The resolution comes after much negotiation between U.S. and Brazilian trade officials following a World Trade Organization ruling that said U.S. cotton subsidies were illegal and Brazil had the right to retaliate in the markets.
The Brazilian case was first brought to the WTO in 2002. In finding for the Brazilians in both 2005 and 2008, the WTO allowed over $800 million in penalties to be filed against a wide variety of U.S. companies. To keep from facing the full heft of the decision, in 2010 the U.S. brokered a deal to pay Brazilian cotton interests $145 million annually.
Last October, that deal broke down when payments stopped being made after Congress dithered on spending bills. This occurred despite Agriculture Secretary Tom Vilsack’s warnings about the potential consequences of not making further payments. Shortly after, Brazilian trade officials said they would again consider placing major tariffs on U.S. products.
The farm bill passed earlier this year assuaged some of those concerns but the deal announced Wednesday takes the pressure off, said Vilsack.
"Through this negotiated solution, the United States and Brazil can finally put this dispute behind us," said Vilsack. "Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year. This removes that threat and ensures American cotton farmers will have effective risk management tools."
Willie Darneille, National Cotton Council chairman, said: “the new U.S. farm bill includes several necessary changes to cotton policy and the GSM export credit program. When compared to previous programs, cotton policy is more market-oriented with the primary safety net conveyed through insurance products that must be purchased by the producer.
“Officials from the Office of the U.S. Trade Representative and the Department of Agriculture are to be commended for reaching a comprehensive agreement that brings the dispute to a close. With the conclusion of the case, the U.S. cotton industry can bring a renewed focus to the challenges that lay in front of us.”
Bob Stallman, president of the American Farm Bureau Federation, also weighed in. “This agreement brings certainty to cotton growers and all U.S. farmers that the current structure of commodity programs will remain intact. Farm Bureau worked diligently with Congress to ensure that the nation’s safety net programs for agriculture were WTO compliant. Today’s agreement validates that approach.”
How will the deal work?
According to a USDA release, over the last several months, “the United States and Brazil have held intensified discussions to resolve the dispute. Today, the two governments have reached an agreement that provides for formal termination of the Cotton case at the WTO Dispute Settlement Body within 21 days. Brazil will also relinquish all rights to countermeasures against U.S. trade. Other terms and conditions are contained in a MOU (Memorandum Of Understanding) that includes new rules governing the fees and tenor for guarantees under the GSM-102 Program, a final transfer of funds to the Brazil Cotton Institute, and limitations on new disputes against U.S. cotton domestic support programs and the GSM-102 program.
“The 2014 MOU provides for additional support for the technical assistance and capacity building activities begun under the 2010 Memorandum of Understanding. The United States will make a one-time final contribution of $300 million to the Brazil Cotton Institute, or IBA. The 2014 MOU also provides for additional uses for the funds, such as research in conjunction with U.S. institutions.”