Tuesday, March 9, 2010

More Brazil Cotton - Corrections

As noted in my recent backgrounder, the WTO last August authorized Brazil to impose a little under $300 million ($294.7m) in retaliatory sanctions against the United States as a result of US refusal to comply with the WTO's decisions in Upland Cotton.  Those numbers, however, were based on 2006 trade statistics, and the level of actual retaliation imposed by Brazil this year would be based on more recent statistics, as calculated using a formula sanctioned by WTO arbitrators. (Total retaliation is supposed to equal the amount of the injury that the U.S. subsidies currently impose on Brazil.)  Over the last few months, there have been multiple conflicting reports about just how big Brazil's actual sanctions will end up being, and there have been no public WTO source documents confirming an exact amount.  For this reason, the aforementioned backgrounder used the original WTO numbers (i.e., $294.7m).  However, lost (to me at least) in yesterday's announcement was the official release from the Brazilian Government (translated via Google) giving the number (based on 2008 trade data), and, well, it's a lot bigger than $300 million - almost three times bigger.  Here's the relevant excerpt from the translated release:
The extra charges levied on U.S. products included on the list should represent an additional cost to U.S. exporters $ 560 million, calculated based on the behavior of trade in 2008.

Brazil has set aside another $ 270 million for retaliation in intellectual property rights, which will have more time to implementation. Among the measures supporters within the government are "parallel importation" of products (purchase of products that are protected by U.S. patents in countries that do not pay the patent, such as India) and collection of taxes on royalty payments of audiovisual products like sitcoms and movies of American companies.

A final decision on retaliation in intellectual property, called "cross-retaliation" will depend on meeting the Board of Trade (Camex), which will choose the sectors to be affected and shall submit the decision to public consultation. The government acts with caution, since the right to apply to "cross-retaliation" has been granted so far only two cases of small countries that have chosen not to exercise their right for fear of reprisals.

With the publication of the list of goods subject to trade retaliation to the U.S., the government fixed within 30 days, after which the measures will enter into force. The Brazilian government has been authorized by the WTO to create additional barriers to American products as a result of dispute raised by Brazil against subsidies to cotton growers in the U.S.. At the end of the case, the WTO has estimated $ 830 million annual losses of Brazilian producers with the unfair advantage given to U.S. producers.
So that's a total of $830 million in total sanctions - $560m in tariffs on US goods (paid by American exporters, of course) and $270m in intellectual property infringements.  USTR's information sheet confirms these amounts too.  Yikes.

Second, international policy gadfly Chris Nelson issued a correction to last night's report about which agency in the Obama administration dropped the ball on the negotiations with Brazil:
[I]n last night's Report, we mistakenly placed the main burden for dealing with Congress and the Brazilians on Commerce...our misunderstanding, not our source's.

In fact, informed sources clarify, our basic story is unfortunately correct, that the Administration dropped the ball with Brazil.  But the ball was supposed to be carried by USTR.

Now in fairness, sources note, USTR has been engaged, both with the Brazilians and the US business community.

The mission today by Commerce Secretary Locke is for a long-standing regular meeting of the US-Brazil CEO forum.

However, what is driving everyone crazy is the authorized USG "line" that somehow "the ball is in Brazil's court"...total nonsense, alas.

It's the US that lost the case, finally and irrevocably, with the final WTO ruling last November after years, quite literally, of argument and negotiation.

So you don't need either a law degree or years of trade negotiating experience to grasp that responsibility for movement is entirely on the US side...at least to the extent that a counter-offer should be tabled before the US can complain about Brazil issuing its 30-day warning on tariffs.
So to recap: the White House still deserves heaps of blame, it's just a different part of the White House at fault.  Alrighty then.

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