Brazil wins cotton war but US cuts no subsidies
By Artur em 02/12/2009 :: Talk wiht us
The estimated $5 billion (R37bn) in subsidies provided each year to US cotton producers is under threat after a recent ruling by the World Trade Organisation (WTO) that will allow Brazil to retaliate against a range of US goods and services.
Given that there is no further scope for the US to appeal the WTO's rulings on the matter, it does seem that the ruling made two weeks ago marks the end of the five-year cotton war between Brazil and the US.
Any reduction or removal of the generous subsidies provided by the US government to the country's powerful cotton farmers will not only benefit Brazilian cotton exporters but stand to benefit tens of millions of cotton farmers in west Africa.
The subsidies have helped to ensure that the US remains the world's largest cotton exporter (followed by Uzbekistan) and the second-largest cotton producer after China.
Long term, they have helped suppress the world price of cotton by just less than 10 percent.
During the five-year legal battle before the WTO's Dispute Settlement Body (DSB), Brazil argued that since 1981 the US had provided billions of dollars of export subsidies to its producers.
These subsidies have been in violation of the WTO obligations of the US since the establishment of the WTO in 1994. According to one of the many WTO reports on the cotton war, Brazil argues that "the subsidies are particularly pernicious in light of their stated objective and performance measure, to open high-risk markets to US commodities and establish the dominance of US exporters by means of prohibited export subsidies, to the detriment of competing exporters".
In a single day, on October 6 last year, the US Department of Agriculture received applications for export credit guarantees worth $3.5bn. This was a result of the global credit markets seizing up.
Brazil argued that the subsidies provided a "pernicious predictability" for US producers and exporters and enabled them to "take for granted that they will enjoy an artificial advantage vis-224-vis other competitors every year".
Meanwhile, other global producers "have their production and investment decisions (hit) in the long term by the chilling effect caused by the permanent availability of the US subsidies", said Brazil.
The global financial crisis heightened the distorting effects because so many other producers struggled to find credit for their operations. The DSB agreed with Brazil that the design, structure and prolonged availability of the subsidies created a "significant trade-distorting impact on the world market in these products".
The value of the countermeasures that can be enforced by Brazil against the US is the second-largest amount allowed by the WTO. More significant is that countermeasures available to Brazil are not restricted to trade in goods but can be applied to services and even intellectual property rights.
But despite winning most stages of a very technical and long-drawn legal battle and despite the WTO's repeated concerns about the US cotton subsidies, there is little certainty the offending subsidies will be cut.
Though the trade-distorting subsidies contravene the US's WTO undertakings, the WTO is unable to force the US to withdraw them. This reflects a fundamental weakness of the WTO, which is that in the face of powerful players such as the US, EU and China, it is forced to rely heavily on moral suasion.
And moral suasion in the face of vested business interests has generally proved ineffectual. Thus since 2005, when the cotton case was first heard by the WTO, the US has challenged every ruling made against it and, while doing so, has made no effort to reduce the trade-distorting subsidies.
This, in turn, highlights one of the weaknesses of the WTO's dispute resolution system, which is that the process can be lengthy, expensive and without obvious benefits. It is for this reason that few developing countries use the system.
Any changes to US policy rely on lobby groups in the country exerting the necessary force. To date, such lobbying has been restricted to development bodies, which have had little effect against the powerful interests in the cotton industry. But the measures to be applied by Brazil to other areas of US trade may result in lobbying by firms adversely affected by such countermeasures.
While the Brazilian cotton producers may enjoy some benefits from any reduction in the US subsidies, it is far from clear that African producers will. In her excellent book, The Travels of a T-Shirt in the Global Economy, economist Petra Rivoli describes how history shows that almost all dominance in world markets is temporary.
"But for more than 200 years, the US has been the undisputed leader in the global cotton industry in almost any way that can be measured, and other countries, particularly poor ones, have little chance of catching up."
So even with Brazil's help, there may be little relief for west Africa's cotton producers.
Source: Business Report
www.busrep.co.za
Given that there is no further scope for the US to appeal the WTO's rulings on the matter, it does seem that the ruling made two weeks ago marks the end of the five-year cotton war between Brazil and the US.
Any reduction or removal of the generous subsidies provided by the US government to the country's powerful cotton farmers will not only benefit Brazilian cotton exporters but stand to benefit tens of millions of cotton farmers in west Africa.
The subsidies have helped to ensure that the US remains the world's largest cotton exporter (followed by Uzbekistan) and the second-largest cotton producer after China.
Long term, they have helped suppress the world price of cotton by just less than 10 percent.
During the five-year legal battle before the WTO's Dispute Settlement Body (DSB), Brazil argued that since 1981 the US had provided billions of dollars of export subsidies to its producers.
These subsidies have been in violation of the WTO obligations of the US since the establishment of the WTO in 1994. According to one of the many WTO reports on the cotton war, Brazil argues that "the subsidies are particularly pernicious in light of their stated objective and performance measure, to open high-risk markets to US commodities and establish the dominance of US exporters by means of prohibited export subsidies, to the detriment of competing exporters".
In a single day, on October 6 last year, the US Department of Agriculture received applications for export credit guarantees worth $3.5bn. This was a result of the global credit markets seizing up.
Brazil argued that the subsidies provided a "pernicious predictability" for US producers and exporters and enabled them to "take for granted that they will enjoy an artificial advantage vis-224-vis other competitors every year".
Meanwhile, other global producers "have their production and investment decisions (hit) in the long term by the chilling effect caused by the permanent availability of the US subsidies", said Brazil.
The global financial crisis heightened the distorting effects because so many other producers struggled to find credit for their operations. The DSB agreed with Brazil that the design, structure and prolonged availability of the subsidies created a "significant trade-distorting impact on the world market in these products".
The value of the countermeasures that can be enforced by Brazil against the US is the second-largest amount allowed by the WTO. More significant is that countermeasures available to Brazil are not restricted to trade in goods but can be applied to services and even intellectual property rights.
But despite winning most stages of a very technical and long-drawn legal battle and despite the WTO's repeated concerns about the US cotton subsidies, there is little certainty the offending subsidies will be cut.
Though the trade-distorting subsidies contravene the US's WTO undertakings, the WTO is unable to force the US to withdraw them. This reflects a fundamental weakness of the WTO, which is that in the face of powerful players such as the US, EU and China, it is forced to rely heavily on moral suasion.
And moral suasion in the face of vested business interests has generally proved ineffectual. Thus since 2005, when the cotton case was first heard by the WTO, the US has challenged every ruling made against it and, while doing so, has made no effort to reduce the trade-distorting subsidies.
This, in turn, highlights one of the weaknesses of the WTO's dispute resolution system, which is that the process can be lengthy, expensive and without obvious benefits. It is for this reason that few developing countries use the system.
Any changes to US policy rely on lobby groups in the country exerting the necessary force. To date, such lobbying has been restricted to development bodies, which have had little effect against the powerful interests in the cotton industry. But the measures to be applied by Brazil to other areas of US trade may result in lobbying by firms adversely affected by such countermeasures.
While the Brazilian cotton producers may enjoy some benefits from any reduction in the US subsidies, it is far from clear that African producers will. In her excellent book, The Travels of a T-Shirt in the Global Economy, economist Petra Rivoli describes how history shows that almost all dominance in world markets is temporary.
"But for more than 200 years, the US has been the undisputed leader in the global cotton industry in almost any way that can be measured, and other countries, particularly poor ones, have little chance of catching up."
So even with Brazil's help, there may be little relief for west Africa's cotton producers.
Source: Business Report
Links referenciados
Business Reportwww.busrep.co.za
www.agrosoftbrazil.com
© 2009 Agrosoft Brazil
Fale Conosco