The US government missed a Sept. 21 deadline to remove US cotton subsidies and now it apparently is seeking to ease tensions with Brazil before retaliatory measures eat away at millions of dollars in US profits.
US Trade Representative Rob Portman met in Washington with Brazilian Minister of Development, Industry and Foreign Trade Luiz Fernando Furlan on Sept. 26, and met with Brazilian Foreign Minister Celso Amorim the next day, and made remarks to the US-Brazil Business Council. Is that schedule, which is rather packed with Brazilian ministers, a mere coincidence?
“No,” said John Flanagan, a cotton trader at Flanagan Trading Corp. in North Carolina, while another source said the US government, “is trying to make nice.”
Pressured by its cotton industry, the Brazilian government said Sept. 22 it intended to request before the World Trade Organization the right to apply sanctions against US imports, which could include breaking patents on US pharmaceuticals, computer programs and CDs. Those sanctions potentially could result in the loss of millions of dollars for US businesses.
However, Brazil’s announcement took no one by surprise.
“It didn’t surprise us,” said Gary Adams, chief economist with the National Cotton Council in Memphis, of Brazil’s threat.
The US government “would have done the same thing,” said Flanagan, adding that this was a procedural measure and Brazil had previously said it would request permission to retaliate if the US failed to comply with the WTO ruling.
Since then, much effort, including back-channel diplomacy, has been placed on easing these tensions and preventing retaliatory actions.
Cass Johnson, president of the National Coalition of Textile Organizations, is among some cotton industry members who sees the retaliatory measures as “unnecessary conflict, unnecessary tension.” He opposes the elimination of cotton subsidies.
In Brazil, local farm leaders and the Brazilian Agriculture Minister Roberto Rodrigues called on the Brazilian government to enforce the WTO ruling by condemning US cotton subsidies and by following through with retaliatory sanctions.
The WTO ruled in March that the US government had until Sept. 21 to implement a plan to cut approximately $3 billion in cotton subsidies, which were deemed as distorting prices on the international market.
Brazil is the world’s fifth largest cotton producer, but expects to see shipments rise sharply should US subsidies end as well as US exports subside.
On July 5, the US Department of Agriculture, in response to the WTO ruling, proposed legislation to comply with the WTO judgment, including a cut to the controversial Step-2 cotton subsidies. In spite of this, the proposal remains before Congress.
Keith Williams, press secretary for the Senate Committee on Agricultural, Nutrition and Forestry, said, “We think Brazil understands certainly that moving in a matter of months in WTO terms is pretty quick.”
The Step-2 cotton subsidy, one of the cotton subsidies the WTO ruled against, is a cotton-user marketing certificate program for both exporters and domestic mills, according to the USDA. The government offers subsidies to US cotton producers and exporters as an incentive to buy US cotton, which is more expensive than foreign cotton.
Brazil filed a complaint with the WTO in 2003, claiming that the US cotton program hurt world cotton prices and created “serious prejudice” for Brazil’s cotton producers.
Congress busy with other events
The sudden, unexpected disaster caused by Hurricane Katrina, and to a lesser degree Hurricane Rita, as well as the nomination of Supreme Court Nominee John Roberts, means Congress “has other things in front affecting the legislative process,” Adams said.
Katrina has “certainly slowed down the legislative process,” said Ken Cook of the Environmental Working Group, whose organization works to eliminate cotton subsidies in lieu of more environmentally conscious alternatives.
While Chairman of the Senate Committee on Agricultur