Truce in the Cotton War

The dispute between Brazil and the United States due to American cotton subsidies could eventually culminate in a reasonable agreement. After receiving a concrete proposal for new negotiations, the Brazilian government decided to postpone until the 21st the application of sanctions authorized by the WTO. Grants paid by the U.S. Treasury were considered incompatible with international standards and sentenced after a long process. As Washington has decided, nevertheless, to continue subsidizing the exporters, Brazil remains on the course of retaliation, a procedure now postponed.

The U.S. government was slow to react, although Brazilian authorities have always made clear their preference for a negotiated solution. While no alternative for further talks appeared, the Board of Foreign Trade (CAMEX) prepared two complementary actions of retaliation.

First, a list of American products subject to punitive taxes on imports was compiled. For the second part of the sanction, a range of sectors were selected, including the pharmaceutical and film sectors, as well as the suspension of intellectual property rights. The U.S. government only gave clear signs of reaction when Brazil made the move against patents and copyrights.

U.S. authorities initially tried to get the advance of retaliation without providing a well-defined compensation proposal. The Brazilian government continued preparing the list of sanctions, which should come into force today.

Washington had sent three proposals. 1. Create a fund of $147.3 million annually for projects of interest to Brazilian cotton. 2. Negotiate new terms for an American program of credit guarantees for export of agricultural products. 3. Recognition of Santa Catarina as an area free of Foot and Mouth Disease without vaccination.

Bids will be discussed until the 21st and, if the result is satisfactory, the retaliation will be suspended for 60 more days, in an attempt to settle. The main interest of the Brazilian government is still, officially, a complete elimination of illegal subsidies for American cotton. But the next step of the U.S. government could pave the way for an acceptable solution, if it weren’t just an attempt to gain time.

The mere imposition of import barriers would result in little or no advantage for Brazil. Taxation would be increased for 102 products, mostly of little importance to bilateral trade.

The penalty would be sprayed and the effects would be less for U.S. producers. Furthermore, Brazilian producers and exporters of cotton would gain nothing from it. The cross-retaliation? With the suspension of intellectual property rights, it would be more painful for Americans, but it would not help improve bilateral trade, nor strengthen the cotton economy of Brazil.

The Brazilian government could not simply renounce the retaliation after a long process with the WTO, which would become, in practice, a victory in defeat. And that would be demoralizing to the international trading system. The higher cost of that demoralization would be to developing countries and developed economies, but small, and of insufficient magnitude to affect the major powers. The choice of cross-retaliation, with suspension of intellectual property rights, gives some efficacy to the Brazilian action.

If Brazil accepts the compensation offered by Washington and suspends the sanctions, there will have been in practice at least a partial victory. A complete victory and that would be more compatible with international trade rules would be the suspension of U.S. policies condemned as illegal. But President Barack Obama can hardly gain political support in the short term for such a significant change. And the Brazilian authorities will not give up their stance without at least staging a longer fight.