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May 2, 2004 Sunday F1BZ EDITION
For Brazil -- increasingly a thorn in the side of Washington's trade agenda -- a ruling against American cotton subsidies by the World Trade Organization marks a major victory on the battlefield of commerce.
The preliminary ruling opens the door to a potential full-scale assault on parts or all of U.S. and European Union farm-subsidy programs. American farm payments have been a contentious issue in negotiations for a proposed Free Trade Area of the Americas as well as in world trade talks.
''This is a war that must continue,'' Roberto Azevedo, director of the legal department in Brazil's Foreign Ministry, said in a news conference last week in Brasilia after the WTO ruling's announcement.
Azevedo echoed views, held throughout the developing world, that have set poorer countries on a collision course with the Bush White House. U.S. trade officials pledged to fight a final decision by the WTO against U.S. subsidies to domestic cotton producers.
The WTO ruling that payments to cotton farmers have created artificially low international prices was preliminary. If finalized -- as such decisions traditionally are -- it would tip the balance of global trade negotiations by denying the legitimacy of farm subsidies in the industrialized world.
The decision would weaken Washington's hand while strengthening the position of Brazil, which led the Group of 20 developing countries that torpedoed the world trade talks in Cancun, Mexico, last September. Brazil is also leading the dissent against the FTAA, insisting on a scaled-back agreement that avoids contentious trade issues.
On Friday, President Luiz Inacio Lula da Silva said Brazil could band together with China, India and Russia in an effort to force Europe and the United States to discuss slashing tariffs. Brazil, meanwhile, is increasingly becoming a major agricultural power.
The Bush administration tried to calm the U.S. farm sector after Brazil disclosed the WTO ruling last week.
''There is no immediate impact on our farm program,'' Allen Johnson, chief agricultural negotiator for the Office of the U.S. Trade Representative, said Tuesday in a conference call with journalists.
Some U.S. lawmakers nonetheless hit out immediately at both the ruling and Brazil. Congress approved subsidies in the Freedom to Farm bill in 1996 and formalized the $19 billion in annual payments -- mainly to grain and cotton producers -- in the 2002 farm bill.
IS THE FTAA DOOMED?
A number of legislators face tough races in November in districts hard hit by job losses, partly from surging Asian imports or the outsourcing of technical jobs.
Rep. Bob Etheridge, D-N.C., told U.S. Trade Representative Robert B. Zoellick at a House Agriculture Committee hearing Tuesday that if Brazil were to prevail with the cotton ruling, ''it would be a waste of time to bring the FTAA before this body.''
A final cotton ruling would set a precedent, for it would overturn a long-held U.S. defense that domestic cotton payments and other subsidies in the 2002 law are protected by ''the peace clause'' in the 1994 WTO agreement. Under this clause, countries like Brazil are restrained from challenging agricultural subsidies in industrial countries if those subsidies do not exceed limits set in 1992.
The United States has insisted that its payments to cotton farmers, about $4 billion in 2001-02, were under the limit and did not flood the world market since they were not linked to production.
The three-member WTO panel, however, sided with Brazil, saying the United States was violating trade rules by paying U.S. cotton exporters the difference between lower world prices and higher domestic prices.
''The bottleneck against challenges represented by the peace clause was broken,'' said Brazil's former agricultural trade negotiator, Pedro de Camargo Neto, who helped initiate the dispute.
According to Camargo, now an advisor to Rural Brazilian Society, Brazil's largest farm association, U.S. producers will have to compete without the monetary support of the U.S. taxpayers.
While the U.S. government and some farm sectors balk at any assault on domestic subsidies, Florida sugar growers say they would support a similar decision against European sugar subsidies. Brazil has challenged the European Union's sugar-subsidy program, too, at the WTO.
POINTING TO EUROPE
Florida sugar growers, their production constrained by import quotas, contend that the European program pours cheap beet sugar into the world market.
But Dalton Yancy, Washington lobbyist for the Florida Sugar Cane League, believes that producers are still leery of having a global body rule on domestic laws.
'With the global trade authorities having the ability to change the rules in a country, a lot of people say, 'Who are they to tell us what to do?' '' Yancy said by phone.
With the winds of trade wars blustering through world capitals, some farm experts are urging an overhaul of the agricultural subsidy program in order to boost market prices, spur Third World economic development and stop agricultural dumping, or selling at prices below the cost of the production in foreign markets.
Instead of tinkering with subsidies, you should get to the root of the problem,'' said Ben Lilliston of the Institute for Agriculture and Trade Policy.
The wealthy American grower who gets a fortune for his cotton and the struggling West African cotton farmer have become stereotypes illustrating a tug of war. In reality, the situation is much more complicated.
''If you just slash cotton subsidies, those farmers will go and plant something else,'' triggering overproduction in another commodity, Lilliston said in a phone interview.
Changing world trade has affected the global cotton marketplace: Increased apparel imports from China force U.S. textile mills -- which are required by law to pay high domestic cotton prices -- to reduce their demand for cotton, and U.S. cotton producers increase their exports, especially to the exploding Chinese apparel market.
And while U.S. consumers in turn receive cheaper imports, they as taxpayers pay for the subsidies to cotton producers.
SUPPLY AND DEMAND
So while slashing cotton subsidies may dampen U.S. exports, it won't necessarily turn African producers into beneficiaries.
''This is where we disagree with Brazil and some of the other groups,'' Lilliston said. ''We disagree that the market will settle this problem.''
The Institute for Agriculture and Trade Policy, along with some farm groups, calls for balancing supply and demand by using such tools as inventory-management programs and global contracts that limit production and keep prices high, thus creating profits for producers.
For the moment, though, free-trade advocates, while urging global negotiations, are sticking to free-market solutions.
''Everyone needs to come to the table,'' Zoellick said as he urged countries to avoid a legal assault on U.S. farm payments.Miami Herald:
