MEMPHIS, Tenn. — The United States and Brazil announced last week the conclusion to a cotton trade dispute in the World Trade Organization (WTO) that stretched more than a decade and prompted a change in U.S. farm bill cotton programs.
The conclusion coincides with major changes to the cotton program in the 2014 bill, which keeps cotton from prior price and income support programs. "When compared to previous programs, cotton policy is more market-oriented with the primary safety net conveyed through insurance products that must be purchased by the producer," said Wally Darneille, National Cotton Council chair.
The primary support for cotton is the Stacked Income Protection Program (STAX), a market-based guarantee calculated within the crop year. The farm bill also reformed parts of the U.S. export guarantee program, also disputed by Brazil in its WTO claims.
The WTO ruled in 2005 and 2008 that aspects of both the cotton crop program and the GSM-102 export guarantee program violated WTO standards. In 2009, the WTO provided a framework for countermeasures that Brazil could undertake against the U.S.
The U.S. brokered a 2010 agreement with Brazil to avoid the countermeasures. The agreement provided the U.S. would change the cotton program in its next farm bill to satisfy WTO. Until that change, according to the agreement, the U.S. would pay $147.3 million annually to a fund providing technical assistance to Brazil’s cotton industry. That amount was based on an estimate of Brazil’s losses from U.S. cotton policy.
Agriculture Secretary Tom Vilsack applauded last week’s agreement, brokered by officials from the office of the U.S. Trade Representative and USDA.
"Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year," he said.
But U.S. Rep. Ron Kind (D-Wis.) criticized the settlement for coming too late and being too big a payout to Brazil. "Our annual payoffs to Brazilian cotton farmers should have been eliminated long ago, but we’re sending them a $300 million payment instead," said Kind, who supports wider farm program changes.
"We need to get our house in order and reform our subsidies programs in their entirety. Sending a huge payoff to Brazil is not the answer."
Farm groups viewed the tweaking of popular export guaranty programs an important win in the cotton agreement. Two main changes in the program, according to the Congressional Research Service, are preventing banks in Brazil from acquiring loan guarantees financing U.S. agricultural exports, and keeping banks from other countries from acquiring loan guarantees when seeking to export to Brazil.
The USDA will continue to operate the GSM-102 export guaranty program, but without subsidizing payment guarantees, according to WTO definitions of such subsidy support. That was applauded by farm groups.
"U.S. wheat growers support the (cotton) settlement because it protects our competitive position in Brazil, preserves the GSM-102 Export Credit Guarantee Program and provides certainty for trade with Brazil," said Shannon Schlecht, vice president of policy with U.S. Wheat Associates.