Brazil Ponders on How to Retaliate Against US Cotton Subsidies

Brazil has won an important battle against US subsidies. Last Monday, June 16, the WTO (World Trade Organization) condemned the US government for subsidies favoring cotton producers in the US. The decision could allow Brazil to apply commercial sanctions against the US, cancel royalties and interrupt the commerce of cotton-related products.

The WTO considered US actions an attempt to disrespect international commercial regulations.  Reports by that organization indicate that "the subsidies were inconsistent with international regulations, drastically reducing prices, which represented serious damages for Brazil."
 
Daily newspaper O Globo reported that in the last few years, the White House has been trying to convince Southern US states, that the Republican party will not abandon the cotton farmers, who are one of the most important sectors for political support in the United States.
 
The legal battle started back in 2003, when Brazil informed the WTO that US subsidies to their cotton farmers were affecting Brazil's cotton producers. Yet, the number of subsidies has not yet been reduced, and Brazil foreign relations department requested the intervention of the WTO.
 
Itamaraty – Brazil's Foreign Relations Department – affirms that illegal subsidies distort prices and affect Brazil exports. According to the Itamaraty, the US has given close to US$ 12 billion in subsidies to cotton farmers since 1999, explaining why American cotton products are so competitive internationally.
 
According to the WTO, guaranteeing credit lines to favor exports should be considered an export subsidy. According to daily newspaper O Estado de S. Paulo, Washington has responded that the WTO is completely mistaken in their analysis, and that the US is acting in accordance to international laws.
 
The case is still very polemic. Brazil has not initiated any retaliation yet, and the Lula administration once again will have another delicate decision to make. Haroldo Cunha, president of Abrapa (Brazilian Association of Cotton Producers) since May, hopes that Brazil will adopt a firm position: "This is an important victory, which the government cannot ignore," he says.
 
According to him though, if Brazil applies sanctions in the production of goods sector, it could affect important American import sectors, since the US could retaliate.

"Everything will need to be evaluated carefully, to avoid putting the foot in our mouth," stated Cunha.
 
It is not clear yet, whether the matter will be resolved right away. Brazilian cotton producers are hopeful that the dispute will be resolved before the WTO 2008 Doha Conference on Financing for Development takes place from November 29 till December 2. in Doha, Qatar.

Specialist Pedro Camargo Neto believes that perhaps the only route is to apply intellectual sanctions. "I hope the government will retaliate with intellectual property rights, which would really bother Washington," he concluded.
 
Edison Bernardo DeSouza is a journalist, having graduated from the Pontifical Catholic University in São Paulo, Brazil. He lived in the US for close to 10 years and participated in volunteering activities in social works agencies. DeSouza currently lives in São Paulo where he teaches English as a Second Language, and is pursuing further advancements in his career. He is particularly interested in economics and human rights articles.