Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

TRADE: Brazil Determined in Fight against U.S. Cotton Subsidies

Mario Osava

RIO DE JANEIRO, Feb 20 2003 (IPS) - Brazil is proving resolute in its war against farm subsidies wherever they occur, this time demanding that the World Trade Organisation (WTO) set up a dispute resolution panel for its complaint against U.S. cotton subsidies.

The United States moved to block the establishment of a panel, which is within its rights as a WTO member, but can only do so with regard to the first request. The second bid for a panel, which Brazil plans to file next month, cannot be blocked.

The European Union’s subsidised sugar exports are also a target in the Brazilian campaign, a strategy that rules out waiting for the results of the WTO’s new round of global trade liberalisation talks, slated to wrap up in 2005.

Brazil’s cotton and sugar initiatives, which have the support of several other countries that export these commodities, challenge the failure of the major trade powers to comply with previous agreed trade accords.

Brazil’s foreign ministry argues that if existing treaties continue to be violated without penalty, there will be no progress in the new round of international trade talks.

To win a WTO dispute decision in its favour, Brazil would have to prove that the United States increased its cotton subsidies above 1992 levels, and that this caused losses for Brazilian growers.

Brazil’s losses are estimated at 640 million dollars for the 2001-2002 harvest. Disloyal competition by the United States discouraged planting in Brazil and pushed down international cotton prices, say Brazilian commodities experts.

The International Cotton Advisory Committee (ICAC) says cotton prices have fallen to their lowest level in three decades, causing exporting countries combined losses of 14 billion dollars in 2001-2002. The accumulated losses over the last four harvests reach 34 billion dollars.

Founded in 1939, the Washington-based ICAC is an association of countries involved in the production, trade and consumption of cotton, seeking to promote cooperation and foment open discussion on issues related to this raw material of the textile industry.

Cotton is one of the crops most susceptible to disease, particularly to fungus infestations. "But subsidies are another plague that we have been fighting for 50 years, and they haven’t decreased, they’ve only continued to rise," Helio Tollini, executive director of the Brazilian Association of Cotton Producers (ABRAPA), said in comments to IPS.

Tollini, one of the champions of the Brazilian government’s more aggressive attitude at the WTO, expects the panel to be set up at the Mar 18 meeting of the Dispute Settlement Body, or "perhaps sooner".

But he is not optimistic that the outcome will be favourable to Brazil, even though the South American giant has a good case and "opened a front for an important battle" that could ultimately benefit the economies of many developing countries.

Not only are lost cotton export revenues cited in the complaint, but also the loss of jobs resulting from declining production in countries that do not subsidise their farm sectors, among other reasons because they do not have the financial resources that wealthier countries have, said Tollini.

The Institute for Agriculture and Trade Policy, based in the U.S. city of Minneapolis, recently issued a report indicating that the United States engages in "dumping" (selling at prices below production costs) in its international trade of cotton and four other farm commodities: rice, maize, soy and wheat.

U.S. cotton is exported at an average price of 57 percent below the cost of production, according to the Institute’s calculations.

Brazil is assuming the role of leader in a "just" legal action, which paves the way for many countries hurt by U.S. domestic subsidies to take action, says Aluisio de Lima-Campo, economist and Brazilian delegate to the ICAC, in a recent article about the price crisis.

Subsidies are the principal cause of the nearly 50-percent decline in international cotton prices from late 2000 to October 2001, when a pound (0.45 kg) of cotton fetched just 35 cents on the dollar, compared to an average of 72 cents on the dollar over the previous quarter century, notes Lima-Campo.

Prices even fell in the midst of a period of low global production, said the economist, explaining that a restricted supply should have pushed prices upwards.

Losses were relatively greater in countries that are more dependent on cotton exports than is Brazil. Argentina lost 500 million dollars over the last three harvests, Colombia 570 million dollars between 1991 and 2001, and in India losses reached 1.3 billion dollars for the 2001-2002 harvest alone.

But the hardest hit were the African nations. Cotton represents 80 percent of export revenues for Benin, and half of such income for both Burkina Faso and Mali, according to Lima-Campo.

The economist coincided with Tollini that if the current situation continues, the outlook is particularly gloomy because the new U.S. farm legislation, in force since last year, earmarks some 36 billion dollars in subsidies for cotton farmers over the next decade.

As such, all hopes lie with Brazil’s legal action against the United States at the WTO.

Tollini believes the WTO dispute resolution process could produce a binding decision before year-end, though he admits it is impossible to predict results or timeframes for the steps to be taken.

It all depends on Washington’s reaction. But if the United States were to fail to comply with a WTO decision against its practices, another prolonged process would be launched with the multilateral system’s dispute resolution body, he said.