[Ip-health] Guardian: US pushed to reform cotton subsidies in farm bill as Brazil watches

Thirukumaran Balasubramaniam thiru at keionline.org
Fri Jul 20 03:23:15 PDT 2012


US pushed to reform cotton subsidies in farm bill as Brazil watches

Brazil is considering imposing punishing trade measures on the US for flooding the global market with heavily subsidised cotton

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	• Paige McClanahan
	• guardian.co.uk, Thursday 19 July 2012 11.53 BST

US lawmakers have been busy this summer shaping the latest version of the farm bill, the far-reaching legislation that governs how the US treats its farmers and feeds its poor people, among many other things.

Discussions and hearings have been going on for weeks, but there is one topic that few people on Capitol Hill seem to be paying attention to: how Congress's failure to reform US cotton subsidies may hurt millions of farmers in other countries, along with Hollywood, American pharmaceutical companies and the US music industry.

What is the link? It all boils down to one word: trade.

Ten years ago, Brazil challenged the US at the World Trade Organisation (WTO), claiming that heavily subsidised US cotton had flooded the global market, dragging down prices and making it much harder for Brazil's cotton farmers to earn a profit on their exports. The generous American subsidies violated the commitments that the US made when it joined the WTO, the Brazilians argued. The excessive payments were both unfair and illegal, and they wanted compensation.

The WTO agreed. In 2004, the dispute settlement body, the "judicial branch" of the WTO, ruled that the US had to reform its cotton subsidies or face "retaliation" from Brazil. A subsequent panel ruled that, given the most recent cotton trade statistics, Brazil had the right to impose punishing trade measures worth more than $800m (£500m) against the US.

Usually, when countries are given permission to retaliate, their "countermeasures" have to come in the form of higher-than-usual tariffs on imports from the offending country. That was true in this case, but the WTO went a step further: the panel granted Brazil the right to "cross-retaliate" by lifting patent protections on a wide range of American products. That meant patented drugs could be sold as generics, Hollywood films could be legally pirated and American music could be given away for free.

Cross-retaliation is a powerful tool because it allows the plaintiff country to target its attacks on the most sensitive sectors of the offending country's economy. The WTO has allowed cross-retaliation only twice in its history, but no country has ever actually used it. Brazil may well become the first.


For now, though, Brazil's retaliation is being held off by a "framework agreement" that was negotiated by American and Brazilian officials in the spring of 2010. Among other things, the US agreed to tweak one of its most egregious subsidy programmes and donate nearly $150m every year to support Brazilian cotton farmers. Both sides agreed that the framework deal would hold until this year, when the next farm bill would be negotiated. Only then, the US officials said, would they have the chance to make far-reaching reforms to American cotton subsidies.

Fast-forward two years, and the 2012 farm bill is quickly taking shape. But will the new law do anything to bring US cotton subsidies in line with WTO rules?

If you ask Brazil, the answer is a resounding no. The new programmes under discussion "are not enough to satisfy Brazil's concerns", said Roberto Azevêdo, Brazil's ambassador to the WTO. Some of the proposed policies "would leave Brazilian farmers worse off than they are now", he says.


So what will happen if the 2012 farm bill is just like the previous one? Officials in Brasilia are weighing up whether to use their right to cross-retaliate. If they do – and they pull it off – then Brazil could set an important precedent for other countries that are looking to get the attention of the world's biggest national economy.

"[The Americans] seem to only engage when intellectual property comes into play," Azevêdo said.


Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)

thiru at keionline.org

Tel: +41 22 791 6727
Mobile: +41 76 508 0997

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