Thursday, April 8, 2010

US Bribes, Delays Its Way Out of Cotton Retaliation; American Taxpayers, African Farmers Foot the Bill

There was some big news earlier this week re: the US-Brazil dispute over WTO-illegal American cotton subsidies.  Let's have Reuters explain:
The United States on Tuesday headed off a move by Brazil to impose penalties on a wide range of U.S. goods by offering concessions on a export loan guarantee program and said it would try to negotiate an end to a long-standing trade spat over cotton.

The last-minute proposal came as Brazil was set to impose tariffs and lift protections on $829 million in U.S. goods, which would have been its right after a 2009 World Trade Organization ruling against U.S. cotton subsidies....

Under the plan, the United States pledged to make some short-term tweaks to its export credit guarantees and give Brazil about $147.3 million per year in damages for a "technical assistance" fund.

Brazil will give the U.S. Congress more time to figure out a longer-term solution to programs ruled illegal by the WTO.
The U.S. plan prompted Brazil to delay its planned moves, pending further bilateral talks, which Washington hopes will be complete by June....

Brazil recognized that it was impossible for the Obama administration to make major changes to farm programs without changes in legislation in Congress -- difficult to accomplish quickly in a sharply partisan environment, [former USTR official Jon] Huenemann said.

"The notion of breaking off something for just cotton outside of the Farm Bill process is an extremely tall order, and the Brazilians knew that," he said.

The plan buys Congress time to deal with cotton in its five-year Farm Bill law, due for renewal in 2012....

Blanche Lincoln, chairman of the Senate Agriculture Committee, and her Republican counterpart, Saxby Chambliss, said they were open to looking at changes for the Farm Bill.

"Ultimately, Congress, and the Senate and House Agriculture Committees in particular, are responsible for crafting changes to these programs," the senators noted.

The U.S. National Cotton Council, which represents farmers, also said it was pleased that the negotiations on long-term changes will be handled by Congress in the Farm Bill process.

The USDA announced on Tuesday it would cancel unused export credit guarantees by April 9, and would offer any remaining credits under new rates, with details still to be announced.

The news did not immediately affect cotton futures prices. One trader said the market would watch for further details.

USDA also said it would work to find ways to allow imports of fresh beef from Brazil.
So basically, the deal is as follows: Brazil won't impose almost $900m in retaliatory sanctions on US goods, and in return, the US will give Brazilian cotton almost $150m per year in "technical assistance" money, will slightly expand the US market to Brazilian beef, and will "tweak" its export credit guarantee program.  Meanwhile, US cotton subsidies - which the WTO has repeatedly found are illegal under WTO rules and distort global cotton markets to the detriment of Brazilian and poor African cotton producers - will remain untouched and the dispute will drag on.  And over time, Tom Vilsack, Blanche Lincoln (D-AR) and Saxby Chambliss (R-GA) will  help craft a long-term fix to US cotton subsidies through the 2012 Farm Bill.

What a total crock.

Now, don't get me wrong, the US-Brazil deal is not all bad.  Indeed, I see two good results: (1) it helps US exporters and Brazilian consumers by delaying the imposition of hundreds of millions of dollars in sanctions on US exports to Brazil; and (2) it helps solidify one of my 2010 trade predictions (i.e., "There will be no change to US farm... subsidy policies").

Of course "good" (and I obviously use that term loosely) thing number (2) leads us to the bad things about this deal, and boy are they bad.  First and foremost, the deal does nothing to end WTO-illegal US cotton subsidies that cost American taxpayers $2.8 billion dollars per year, distort global cotton markets, and harm poor cotton producers across the globe, especially in Africa.  Second, it puts US taxpayers on the hook for another $150 million in bribessubsidies - to Brazilian farmers!  Deus meu!  Third, it delays ultimate resolution of an onerous WTO dispute that's been tarnishing the United States' international reputation for years.  And fourth, the deal puts the cotton dispute's long-term fate in the hands of Tom "Subsidy Recipient" Vilsack and two of Congress' biggest cotton subsidizers - Sens. Blanche Lincoln and Saxby Chambliss.

No wonder that the National Cotton Council was "pleased that the negotiations on long-term changes will be handled by Congress in the Farm Bill process."  They're keeping all of their taxpayer cheese, and their top two wolves are guarding the Farm Bill hen house!


Oh, who am I kidding, this whole "deal" is totally believable.  Despite loud pleas from free market advocates and Republican leaders (which Huenemann forgot to mention to Reuters, by the way) to really resolve the US-Brazil cotton dispute by - crazy, I know - actually terminating the WTO-illegal, trade distorting American cotton subsidies, the Obama administration has taken the easy way out.  Of course, only this administration would think that $2.8 billion plus another $150 million in US taxpayer money (that we, of course, have to borrow because we're broke) would be "easy," but hey, that's how this White House rolls, baby.  I mean why tick off agribusiness and its big supporters on Capitol Hill (from both parties) during an election year when you can just stick it to US taxpayers and poor African farmers (or consumers or exporters or...)?

I don't know about you, but I just can't wait to see what June's big bilateral deal will be.  I mean, if this initial fix is any indication, taxpayers are really going to get screwed then.

But hey, at least US cotton farmers are happy.  Ugh.

1 comment:

Anonymous said...

This administration has no clue about economics.

There are so many things we can do without spending a dime to improve our growth rate and this is one of them. Amazing, our solution is to spend more money and keep the inefficiences in place.