Saturday, March 6, 2010

Brazil Determined to Make My New Briefer on Cotton Dispute Half as Important


BNA is reporting (subscription) that Brazil will - for the third time in less than a month - delay its announcement of a final list of US exports that will face about $300 million in retaliatory tariffs due to US refusal to comply with multiple WTO rulings against American cotton subsidies.  Brazil is delaying the list - originally due in mid-February, then March 1st, then March 8th - because Secretary of State Clinton has promised that the US will work things out:
During a one-day visit to Brazil, Secretary of State Hillary Clinton announced March 3 that in the coming week the United States would send two high-level government officials to Brazil to present compensation proposals to resolve the dispute over U.S. cotton subsidies.

Brazil has threatened to apply sanctions if the United States does not remove its cotton subsidies. The World Trade Organization last year ruled in favor of Brazil in the country's challenge of American compliance with a WTO ruling on cotton subsidies and granted Brazil the right to apply sanctions against U.S. products of up to $294.7 million, although the total could increase....

Prior to Clinton's comments, Brazil's Foreign Minister Celso Amorim told the press conference that on March 8, Brazil will release a list of between 100 and 120 products imported from the United States that could be subject to sanctions. After this, he said that Brazil will wait 30 days before making its final decision....

The Brazilian government's position from the beginning has been that the U.S. cotton subsidies must be removed as part of any negotiated agreement. Government officials have said they favor negotiations over sanctions and would consider compensation offers but are waiting for a proposal from Washington to resolve the dispute. Thus far, they say, no acceptable proposal has been received.
The Heritage Foundation's Daniella Markheim and I recently wrote a web memo on the dispute and its implications for US exporters and US trade policy more broadly.  This latest news makes it increasingly clear that (a) Brazil really isn't keen to retaliate against the US (and you can't really blame them, since such tariffs would hurt Brazilian consumers as much as the targeted US exporters); and (b) the United States and Brazil might "resolve the dispute" without actually ending the illegal US cotton subsidies at issue.  On the latter point, some have floated the idea that a reduction in the steep US tariff on Brazilian sugar ethanol might do the trick - especially after new US renewable energy standards give the product preferred status in the US biofuels market.

So if Brazil doesn't retaliate, problem solved, right?  Well, not exactly.  First, the market distorting subsidies would still be in place and thus continue to harm Brazilian and other global producers, particularly those in poor African countries like Benin and Chad.  Second, and as Daniella and I argue in our brief:
The U.S. has brought 94 trade disputes to the WTO in the trade body's 15-year history.  When the WTO has ruled in America's favor, the U.S. government is quick to laud the decision and demand that the offending party immediately comply. Yet when the WTO rules against the U.S., as it did in Upland Cotton, American officials denounce the ruling, question the WTO's authority, and make every effort to delay or skirt required reforms.

Such hypocrisy undermines U.S. credibility and the WTO's efficacy. The Administration has announced its intention to root out the unfair trade practices of other nations, but such enforcement efforts will fall flat until America cleans up its own approach to trade. Why would other nations comply with WTO rulings when the U.S. so brazenly ignores them?

America's refusal to comply with WTO rulings also erodes U.S. credibility as a free trade champion and weakens America's influence in multilateral trade negotiations. It is time for America to live up to the same high standards it demands from the rest of the world and end trade-distorting support programs, including payouts to King Cotton.
By my quick count, the United States has refused to comply with multiple WTO rulings on its farm subsidies, its antidumping procedures (both "zeroing" and the "Byrd Amendment"), and its ban on internet gambling.  Now, the United States isn't alone it its blatant disregard for global trade rules - the EU and other nations also haven't complied with adverse WTO decisions.  So far, such noncompliance remains the exception at the WTO, but it's definitely been on the rise over the last few years, and it undoubtedly encourages other countries to do the same (especially with the US as one of the most frequent scofflaws).

If these trends continue and the noncompliance exception ever swallows the rule, the WTO is in big trouble.

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