Brazil?s announcement of wide-ranging trade sanctions against US commodity exports in retaliation for the latter?s incorrigible cotton subsidy regime is a historic move. It can potentially impact US domestic politics, diplomacy and the international trading system.
The volume of penalties against US goods and services that the WTO authorised to Brazil in 2009 was a whopping $829.3 million per annum, a figure calculated on the basis of trade distortion and denial being caused by the US government?s bounties to its cotton farmers for over a decade. This week, Brazil not only released the first list of 102 American goods that will be subjected to tariff barriers of $591 million but added the supplementary threat of another $238 million of non-tariff barriers on US intellectual property to be unveiled later in March.
Typically, WTO decisions that result in a trading giant?s defeat do not lead to slapping of sanctions due to after-court settlements between winners and losers. But the fact that Brazil decided to finally take the bull by the horns and identify specific American exports like automobiles, fruits and sunglasses for duties speaks volumes for its ability to act like a big player on the world stage.
Brazil?s sanctions came right on the heels of a high-profile and lengthy diplomatic tour of Latin America by US Secretary of State Hillary Clinton. Far from succeeding in her purported main mission of convincing Brazil to back United Nations sanctions against Iran, Clinton returned empty-handed to Washington and must have felt the nasty after-effect of seeing the US at the receiving end of Brazilian sanctions!
Although Washington reacted to the setback as a ?disappointment?, Brazil has made its point by speaking for a number of disadvantaged third parties to the cotton subsidies dispute, including tiny West African countries. The head of economic affairs at Brazil?s foreign ministry was blunt enough to remark that ?US farm subsidies are condemned worldwide? and that ?this archaic practice must stop?. At the same time, to avoid sounding abrasive, Brazilian president Lula da Silva has disabused fears of a trade war with the US and expressed confidence that the two nations will enter into a negotiated settlement before the sanctions kick in from April.
What Brazil has achieved through a sophisticated carrot-and-stick manoeuvre is to draw global attention to the iniquitous American agricultural subsidy system and to divide the US internally by spreading the blowback effect to other sectors of the American economy. The ketchup manufacturer Heinz or the struggling carmaker Ford, which are both on the Brazilian tariff list, will now become concerned about the costs and benefits of the US government pampering a few thousand super-rich cotton barons.
The cotton growers? lobby in the US has managed by hook or crook to survive a previous WTO judgement in 2004 and continues to enjoy approximately $3 billion per annum of direct production and indirect marketing incentives, which depress world prices and artificially boost American cotton exports to keep ahead of rivals like Brazil and India. Farm state legislators in the US are notorious for practising pork barrel politics, wherein they obstinately block any attempts to reduce government subsidies to their star constituents. The opacity of campaign financing and the obscenely plutocratic nature of American elections mean that local politicians in the US South and Midwest are always at the forefront of defending massive corporate subsidies to the agri-businesses located in their states.
Barack Obama came into office in 2008 with the intention of phasing out government subsidies worth $9.7 billion to what he condemned as ?millionaire farmers?. But as with healthcare and defence, vested interests in budget committees of both houses of the US Congress have killed Obama?s farm bill reduction targets?to the delight of agrarian unions and chambers.
The National Cotton Council of America is one of the big special interest groups that deploy multiple levers of power and pelf to preserve members? subsidy privileges. It has trained guns on India as a heavy subsidiser of cotton production and a ?major impediment to cotton trade?. This grouse stems from India?s rise as the world?s second largest producer and exporter of cotton over the last decade, and the overtaking of US cotton farmers by their Indian counterparts in income per hectare.
Indians beat the Americans at their own game by adopting genetically modified strains of cotton in 2002 and then doubling cotton production over the past 7 years. The complex play of globalisation has ensured that American biotech firms like Monsanto have enabled Indian cotton farmers to outdo their American peers.
The alarm bells are so dire for the cotton lobby in the US that American farm publications carry articles with doomsday titles like, ?India wants US out of cotton business.? Their seasoned arguments that agricultural subsidies are not confined to the US and other advanced economies but also prevalent in the Global South are, of course, fundamentally flawed because agriculture is a lifeline for poor farmers in the developing world. Cotton, for instance, employs 4-5 million Indian farmers, most of whom use hand labour and have small landholdings. An additional 60 million people from the poorest sections of Indian society depend on the cotton textile industry for survival.
Cotton subsidies in the US are an explosive issue and believed to be the real hindrance snagging the Doha round of the WTO. Brazil?s bold action on the matter has opened a window for non-agrarian exporting sectors of US industry to rally around harmed self-interests and challenge the veto powers of fat cat farmers over American agricultural policy. The cobwebs around multilateral trading rounds may clear if this denouement reaches its logical conclusion.
The author is associate professor of world politics at the OP Jindal Global University