Brazil–United States cotton dispute
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The Brazil–United States cotton dispute was a World Trade Organization dispute settlement case (DS267) on the issue of unfair subsidies on cotton. In 2002, Brazil—a major cotton export competitor—expressed its growing concerns about United States cotton subsidies by initiating a WTO dispute settlement case
DS267
against certain features of the U.S. cotton program. On March 18, 2003, a Panel was established to adjudicate the dispute. Argentina, Canada, China, Chinese Taipei, the European Communities, India, Pakistan, and Venezuela participated as third parties. Focusing on six specific claims relating to US payment programmes, Brazil argued that the US had failed to abide by its commitments in the Uruguay Round Agreement on Agriculture (AoA) and the Agreement on Subsidies and Countervailing Measures (SCM). On September 8, 2004, a WTO dispute settlement (DS) panel ruled against the United States on several key issues in case. The United States is the second-largest producer and world’s largest exporter of cotton. In recent years, the United States has been exporting an increasing share of its annual production, due in large part to a decline in domestic mill use. On August 31, 2009, after a series of recourses by both United States and Brazil, WTO issued a decision on the dispute DS267. The implications of the ruling are that it shows that the US and European Union have used loopholes and
creative accounting Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices, but deviate from the spirit of those rules with questionable accounting ethics—specifically distortin ...
to continue dumping products on developing markets, hurting impoverished developing country farmers. The WTO dispute settlement panel also found that the USA misreported certain programmes as ‘non trade-distorting’, when in fact they were trade-distorting. In October 2014, a mutually acceptable solution to the cotton dispute was reached just before Brazil was set to raise tariffs on hundreds of millions of dollars in American goods. This included cars, electronics, and pharmaceuticals. Under the terms of the agreement, the US granted a one-off payment of US$300 million to the Brazilian Cotton Institute.


Implications for African countries

The
International Cotton Advisory Committee The International Cotton Advisory Committee (ICAC) is an association of governments of cotton producing, consuming and trading countries which acts as the international commodity body for cotton and cotton textiles. Structure and history Founded ...
(ICAC) estimates that subsidies reduce cotton prices by 10% and the World Bank estimates this number at 12.9%. This amounts to an annual revenue loss of $147 million to African countries.
Oxfam Oxfam is a British-founded confederation of 21 independent charitable organizations focusing on the alleviation of global poverty, founded in 1942 and led by Oxfam International. History Founded at 17 Broad Street, Oxford, as the Oxford Co ...
estimates that the removal of U.S. cotton subsidies alone would increase prices 6-14% and thus increase the average household income in West Africa 2-9%-- enough to support food expenditure for 1 million people. According to the ICAC, even though the United States may be the leading exporter of cotton, the cost of production is significantly higher than that of other countries. The average cost of production of a pound of cotton is $0.80 per pound in comparison to $0.35 in the West African country of Benin. According to agricultural economics at the University of California, Davis, the removal of American subsidies would cause a permanent upward shift of the price of cotton. As a result, prices would fluctuate around a higher average price. Furthermore, farm prices are usually set prior to the marketing season each year, which means that farmers do not always feel the full volatility of the price fluctuations. However, cotton subsidies in industrialized countries is not the only reason for the falling cotton prices over the past 50 years. Technological advancement and competition from
synthetic fibers Synthetic fibers or synthetic fibres (in British English; see spelling differences) are fibers made by humans through chemical synthesis, as opposed to natural fibers that are directly derived from living organisms, such as plants (like cotton) ...
(such as nylon). A study, commissioned by ICTSD and conducted by Mario Jales of Cornell University, suggests that cotton prices would have risen over a 1998-2007 base period if the US had cut subsidies that were deemed unlawful by a dispute panel at the WTO, following complaints by Brazil.How would a trade deal on cotton affect exporting and importing countries?
By Mario Jales Cornell University, April 2010.
Farmers in poor countries could have gained from an average 6 percent increase in world cotton prices over the same base period, if the U.S. had accepted proposals made by African nations to slash the subsidies provided to producers in richer countries. Cotton production in the United States could have declined by as much as 15 percent, the study suggests, if African proposals in the draft Doha accord were applied to historical output levels over the ten-year period examined by the study, and production in the EU could drop by as much as 30 percent. However, production volumes could increase by as much as 3-3.5 percent in Brazil, Central Asia and West Africa - with production values growing by up to 13 percent. Similarly, if African proposals that are included in the Doha draft were applied to trade flows over the ten-year period that the study examines, U.S. export volumes would have fallen by 16 percent on average. Average export volumes would have increased dramatically for Brazil and India (12-14 percent), and by a lower but still substantial amount in Uzbekistan, the ‘C-4′ West African cotton producing countries ( Benin, Burkina Faso,
Chad Chad (; ar, تشاد , ; french: Tchad, ), officially the Republic of Chad, '; ) is a landlocked country at the crossroads of North and Central Africa. It is bordered by Libya to the north, Sudan to the east, the Central African Republic ...
and Mali), and
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
(2-2.5 percent).


Resulting Legislation

Under the latest version of the U.S. farm bill, cotton will have the lowest subsidies of all U.S. field crops when it used to have the highest. The Senate and House versions of this bill will eliminate multiple aspects of U.S. cotton subsidies, including direct-payments to farmers counter-cyclical payments. The intention of both of these policies is to increase farmers' income when the price of cotton drops. However, U.S. cotton farmers will still be protected to an extent. The House and Senate bills include the
Stacked Income Protection Program (STAX) ''Stacked'' is an American television sitcom that aired on Fox from April 13, 2005 to January 11, 2006. Premise ''Stacked'' was described as the opposite of ''Cheers'', instead of a smart person in a "dumb" place, it is based on the concept of a ...
, which serves as a form of income protection for the farmers. STAX guarantees cotton farmers that they will receive between 70% and 90% of the expected revenue for their area which is determined by the United States Department of Agriculture (USDA). Federal subsidies cover 80% of the premiums for this insurance program. According to the Congressional Budget Office, the estimated cost of this program is $3.29 billion. The farm bill contains no limit to the payout that any individual cotton farmer can receive under the STAX program. Brazil also agreed to not motion new WTO retaliatory sanctions against U.S. cotton programs while the current farm bill is in action or “against agricultural export guarantees.”


Brazilian cotton industry

Brazil is the fifth largest cotton producer in the world. According to the latest information from USDA, Brazil is the fifth largest cotton producing country and the third largest exporter in the world. Cotton prices have continued to decline - not due to changes in U.S. cotton policy (which is no longer considered a program crop under the 2014 Farm Bill) but rather due to Chinese cotton policy. Today U.S. cotton producers rely only on insurance products (STAX Program) after having eliminated all Farm Bill support mechanisms


See also

* List of WTO dispute settlement cases


References


External links

*
Why U.S. Taxpayers Are Paying Brazilian Cotton Growers
, National Public Radio *
Cotton: What could a Doha deal mean for trade?
, International Centre for Trade and Sustainable Development {{DEFAULTSORT:Brazil-United States cotton dispute World Trade Organization dispute settlement cases Brazil–United States relations Conflicts in 2009 Conflicts in 2002 International disputes