Deal or No Deal?

It appears that the United States has reached a temporary deal with Brazil over U.S. cotton subsidies, which were deemed illegal under world trade rules many years ago. (Here’s Cato adjunct scholar Dan Sumner on the case and its implications. Bloomberg’s Mark Drajem and the New York Times’ Sewell Chan have more details on the deal.)

This comes not a minute too soon from the U.S. perspective: the deal was reached just one day before Brazil was to begin imposing over $800 million worth of tariffs and WTO-approved intellectual property rights violations against American firms in retaliation for U.S. intransigence in complying. (Snarky aside: where’s your commitment to ”trade enforcement” now, Mr. Obama?)

What’s in the deal, you ask? Well, it is certainly not, as might have been hoped, an end to all cotton subsidies immediately. What it does include are some “interesting” sweeteners to Brazil. First, over $147 million in “technical assistance” to Brazilian cotton growers. In an excellent blog post at SFGate, Carolyn Lochhead makes the obvious-to-everyone-except-policymakers point that now taxpayers are paying for support to Brazilian farmers as well as American ones. 

Second, the United States will make some changes to the export subsidy-esque parts of the cotton program, and promise to address some of the broader issues in contention as part of the next farm bill. (I’ll believe that when I see it.)

The third element, though, is pretty worrying. Apparently the United States has also agreed to evaluate whether a certain area of Brazil is “disease free,” so that farmers from that area can export their beef to the United States.  The reason why I find that a concern is that under the terms of the WTO Agreement on Sanitary and Phytosanitary Measures, recognizing disease-free areas on a scientific basis is an obligation the United States has to WTO members.  The area is either disease free or it is not, and the United States should not be using it as a compensatory tool (nor should Brazil accept it as such) . The International Food and Agricultural Trade Policy Council’s Carlo Perez del Castillo (a former Uruguayan trade minister) put it well, if subtly: “[P]ublically linking what should really be a scientific issue of whether a specific state in Brazil is or is not free of certain animal diseases, to a more political agreement such as this one on cotton, is rather unusual.”

I’m not a trade lawyer, and I have no inside knowledge of Brazil’s long-term legal strategy here. But I sure hope this isn’t the end of the saga. If they have caved in to (1) a bribe that puts money in the hands of U.S. farming consultants, and out of the hands of U.S. taxpayers, (2) a good dose of ”your cheque is in the mail,” and (3) a final insult of “OK, as a special favour to you, we’ll do what we were supposed to have been doing all along,” then it’s a sad day for the WTO’s dispute settlement system.

My good friend, ex-Catoite, trade lawyer, and all around smart fellow Scott Lincicome offers his excellent-as-usual perspective on the deal here.