The Brazilian government has announced it would retaliate against the United States through increased tariffs — worth $590 million — on imported goods.

Brazil, which named 102 U.S. goods facing increased tariffs, is allowed to take such action following last year’s World Trade Organization (WTO) decision saying U.S. cotton subsidies had improperly harmed the Brazilian cotton industry. For background see http://southeastfarmpress.com/cotton/world-trade-1120/index.html.

The tariffs — on items as diverse as U.S. cars, medicines, food and cosmetics — will go into effect in 30 days.

A second list of U.S. products facing higher Brazilian tariffs is expected to be released in several weeks. That list could include items that involve intellectual property rights.

“Brazil is taking retaliatory steps even though world cotton prices are more than 50 percent higher than 2005, which served as the basis for the original (WTO) panel ruling,” said the National Cotton Council in a statement. “U.S. cotton harvested acreage and production are down by more than 40 percent, while production in Brazil, China and India has expanded.

“In response to the findings of the original WTO panel, cotton’s Step 2 program was eliminated in 2006. The 2008 U.S. farm bill lowered the upland cotton counter-cyclical target price and made changes in the marketing loan program, effectively lowering the average loan benefit to producers. The costs of U.S. cotton price-related programs are down more than 80 percent from the previous five-year average and are projected to be minimal for the foreseeable future.

“The U.S. cotton program’s share of the retaliation awarded to Brazil by the WTO is relatively small and fixed at $147 million,” continued the NCC statement. “The retaliation damages associated with the export credit guarantee program, which are determined annually using a formula developed by an arbitration Panel, were recently claimed by Brazil at more than $600 million.”

Prior to the tariffs being imposed, Brazilian and U.S. representatives “should engage in discussions to avoid the harmful effects of retaliation, but any resolution must recognize the realities of today’s cotton market and the previous changes in U.S. programs.”

Shortly after the Brazilian announcement, Southeast Farm Press spoke with Gary Adams, NCC vice-president of economic and policy analysis about the situation. Among his comments:

• Please provide a brief history of the WTO U.S./Brazil cotton situation…

“This has been an ongoing trade dispute between Brazil and the United States since 2002/2003. Brazil filed a complaint against certain provisions of the U.S. cotton program as well as the Export Credit Guarantee Program.

“There was then an original WTO panel finding against some of those programs.” As a result, “the United States made a number of changes to both the cotton program and Export Credit Guarantee Program.

“Unfortunately, later, the WTO panel ruled those changes weren’t sufficient to comply with the earlier ruling. The WTO then granted Brazil the authority to retaliate by imposing trade measures against the United States.

“That brings us up to the current point in the dispute.”

• Have you heard rumblings in recent weeks that Brazil would take this action?

“We knew Brazil was considering imposing retaliatory measures. In fact, last November, they published a list of some 200 products they buy from the United States that they were considering for higher tariffs. That’s typically how retaliation occurs.

“After that list was published, things were quite for a while as, I guess, Brazil went through internal deliberations.

“Then, today, we got Brazil’s list of approximately 100 products” that will face higher tariffs. “They also published the new higher tariffs that will be applied to those U.S. products going into Brazil.

• List composition? At one time, I believe they were talking about retaliating against U.S. movies and DVDs…

“There are a couple of aspects to the retaliation. This gets into some of the complexities of the WTO arbitration panel’s decision.

“The panel set a level — referred to as a ‘threshold’ — and if the calculated damages are below that level then Brazilian retaliation is limited to imposing countervailing duties, or higher import tariffs, on products they buy from the United States. If the total level of damages exceeds the ‘threshold’ level, then Brazil will be able to go into cross-retaliation where they could get into things like intellectual property rights.

“The numbers we hear reported suggest Brazil will have some right to go into cross-retaliation. That could get into intellectual property rights on entertainment products, pharmaceuticals and things along that line. They haven’t done that to this point. Apparently, they’re still considering that for some future date.

“What they have done is publish the list of goods and say ‘we’re going to increase tariffs on these products.’ The products listed are a mix of agricultural and manufactured goods.”

• Next step? I know the NCC is calling for talks…

“What’s been announced today won’t go into effect for 30 days. (That lag) is an opportunity for the two countries to engage in further discussions and, perhaps, avert these retaliatory measures from taking effect. I think at the end of the day (such measures) will only cause economic harm to interests both in Brazil and the United States.

“The point (the NCC) has tried to make — even going back to when the arbitration panel first rendered its findings — is the panel looked at events and conditions as they existed in 2005. We’ve continued to say ‘this ruling does not reflect today’s cotton market as well as all the changes already made to U.S. programs. We see no way the current programs are causing any damages to Brazil or any other cotton-producing country, for that matter.’”

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