Brazil fighting the good fight?

Brazil’s ongoing dispute with the United States over the subsidizing of cotton for producers in the US, looks like it may soon be resolved, as Brazil recently indicated it would hold off on slapping a range of 102 US goods with sanctions, if the US agreed to certain measures put forth by the South American country.

The dispute looked initially as though it may have been settled in 2004, when the World Trade Organization (WTO) ruled in Brazil’s favor and declared the US cotton subsidies illegal. Brazil, along with various West African countries, had brought a class-action suit against the US, claiming that its subsidization measures for cotton producers was depreciating the price of cotton to a level that Brazil and West African countries could not compete with.

They claimed the artificial depreciation of the cotton price was unfair, especially as cotton growing in the US is not a viable industry, it costs more money than can realistically be made back, hence the $3.9 billion subsidies.

In Brazil, the plant can be grown fairly easily, with little artificial interference, but the depreciation in the international cotton price was still creating a situation whereby Brazilian cotton farmers were barely able to break-even.

In 2004, the WTO ruling was unprecedented, because it was the first time a group of developing countries had managed to come together and successfully oppose the actions of a first world nation with immense influence and financial resources.

Although the WTO is democratic in theory, with all countries given a say in discussions, in theory there is much ‘bullying’ of less powerful countries, which made the 2004 ruling on cotton subsidies a huge moral boost for Brazil and West Africa.

But the United States has continued to subsidize cotton, even increasing their subsidies ahead of former President George W. Bush’s re-election campaign.

In 2009 the WTO again ruled in Brazil’s favor, calling on the US to cease the practice of artificially interfering in international trade, but again the US made only minor alterations to the amount of subsidies provided.

Of the cotton producing and exporting countries in the world (China produces mainly for domestic consumption), Brazil was the only country able to stand up to the US in the WTO, and threatened trade sanction against the United States.

The government of Brazil announced that around 102 different types of US goods imported into the country would be subject to a significant import duty aimed at recouping the losses inflicted on Brazilian cotton producers. This step would ultimately make the importing of US goods unfeasible, and force importers in Brazil to look elsewhere.

The threat was worth around $800 million and seems to have forced the United States to finally acknowledge the responsibility it has to play by the rules set forth by the WTO, and not only acknowledge those beneficial to itself.

The US recently acquiesced to Brazil’s demands that it change the credit guarantee program for US cotton farmers, and set up a fund worth $147 million per year to redress the damage done to Brazil’s cotton farming industry.

Under the credit guarantee program in the US, the government guarantees that it will buy from producers any cotton which they are unable to sell, creating an over-supply which further depresses the international price of cotton.

Brazil was given approval last year by the WTO to impose the sanctions after it ruled that the US was acting illegally.

Brazil’s actions are an important indicator for the world of the increasing ability of developed countries to defend themselves and take appropriate action to protect their interests.