Tag: cotton subsidies

Bribes to Brazil to Continue

An amendment to end what Congressman Barney Frank (D-MA) rightly called “lunacy” failed this afternoon in a depressing show of cowardice on cotton subsidies. The amendment [Amendment No. 89] would have ended payments to Brazilian [yes, sic] cotton farmers that cost U.S. taxpayers $150 million a year.  The House rejected the amendment 183 to 246. 

Republicans – those stalwart fiscal conservatives! – voted 75 in favor and 164 against. The Democrats showed more courage and voted in favor of the amendment 108 to 82. (These numbers are according to C-SPAN; I will post an update if they prove to be incorrect).

The deal on cotton is one of the more shameful aspects of U.S. trade policy. As I blogged last year, U.S. taxpayers are paying millions of dollars to Brazilian farmers in a deal to ward off retaliatory tariffs Brazil has the right to impose on U.S. goods. That right was granted them by the World Trade Organization in the face of the United States’ continued failure to bring its cotton subsidy program into line with its obligations to other WTO members. Rather than cut off the subsidies to the powerful cotton lobby, though, the United States Trade Representative instead opted to do a deal with the Brazilian government.  (No bribes for the poor African cotton farmers also harmed by the price-suppressing effects of U.S. subsidies, though.)

The Hill article (linked to in the first paragraph of this post) points out that some members (presumably the Republicans who voted against the amendment) were concerned that ”the move [to cease the payments to Brazil] could create a trade war if Brazil decided to retaliate.” It doesn’t seem to occur to those concerned members that one way to avoid a trade war would be to abide by international obligations and cease subsidizing U.S. cotton farmers. It would also shave a few million from that huge deficit about which they profess to be concerned.

Republicans Punt on Farm Subsidies. Again.

While I fully agree with my colleagues that President Obama “chickened out” in general in his FY2012 budget proposal, in one area he had the courage to propose some cuts that have proven controversial for ages: farm subsidies.  His plan would lower the income eligibility limits for subsidies (from $500,000 to $250,000 for off-farm AGI per farmer, and an on-farm AGI limit of $500,000, down from $750,000.) It would also lower the cap on annual direct payments that individuals can receive – from a maximum of $40,000 to $30,000.

The administration’s proposal would affect only about 2 percent of the total recipients of direct payments – subsidies that flow every year regardless of prices or farm output to owners of land that may or may not still be used for farming – and it does not by any means go far enough. But at least it is a start.

On the other side of the aisle, the Republicans followed their Republican Study Committee colleagues in failing to propose any cuts to “farm subsidies” as we typically understand them in their FY2011 budget proposal.  To be sure, 22 percent of the $60 billion in cuts they propose would come from the “agriculture function,” and they indeed get rid of entire programs, but they are mainly to the nutrition and conservation areas of the USDA’s responsibilities. Nothing, so far as I can tell, from the commodity programs.

I’m under no illusions that cutting farm subsidies are the key to our ever-growing fiscal mess. But it is telling that the Republicans can find not one dime in our bloated, distorting, regressive, corrupt farm programs to cut, even as farmers’ incomes and wealth soar. 

On the upside,  a group of  legislators is proposing amendments to limit direct payments and put an end to the disgraceful deal on cotton subsidies cooked up by the administration last year. So maybe some reform can come from there.

(This hardly needs to be said, but the farmers’ groups are, of course, maintaining their position that farm programs should be subject to cuts no greater than the cuts to other areas of federal spending.)

Brazil Caves

Notwithstanding the efforts of four brave congressmen, the belated concession to reality by House Agriculture Committee Chairman Collin Peterson, and the misgivings of trade analysts including myself, it appears that the “temporary” deal struck by Brazil and the United States in April to ward off Brazil’s retaliation for WTO-illegal U.S. cotton supports is here to stay:

The government said a deal agreed between the two countries in April to head off up to $829 million in World Trade Organization-sanctioned retaliation against U.S. goods would stay in place until a new U.S. farm bill is passed [in 2012]…

“Brazil doesn’t rule out taking countermeasures at any moment,” Roberto Azevedo, Brazil’s envoy to the World Trade Organization, told reporters in Brasilia. “It is just a suspension of this right”.

He said Brazil could retaliate at any time if the United States did not uphold the agreement, but added that Brazil had no interest in retaliating.

“This process of negotiation and reform is better than retaliation that doesn’t bring benefits to anyone in Brazil’s private sector.” [Reuters]

You will recall that the deal includes about $147 million worth of taxpayers’ money given to Brazilian cotton farmers in the form of “technical assistance,” just so we can continue our own insane cotton support programs without fear of U.S. exporters (including holders of patents and copyrights) being hit by retaliatory trade barriers and unpunished piracy.

Brazil in some senses has the right idea, of course. They recognize, correctly, that retaliation in the form of increased tariffs on American imports only hurts their own consumers, hence their stated desire for “negotiation and reform” instead of santions.  But they sure do have a lot of faith in the willingness of Congress to enact reform without serious pressure from, among others, aggrieved trade partners.

I hope their faith and saint-like patience is rewarded. In the meantime, we have (at least) two more years of subsidizing Brazilan farmers in addition to our own.

The Four Congressmen of the Cotton Subsidy Apocalypse?

Yet another show of that rare commodity, bipartisan efforts to reduce the size of government today. Four members of the House—two Republican and two Democrat—have sent a letter to President Obama, calling on him to reverse the insane policy of bribing Brazilian farmers with subsidies in an attempt to correct, in accordance with the perverse two-wrongs-make-a-right school of logic, for  illegal U.S. subsidies. (There were other questionable parts of the deal with Brazil).

Barney Frank (D, MA), Ron Kind (D, WI), Paul Ryan (R, WI) and Jeff Flake (R, AZ) make compelling arguments for finding a better and more permanent  solution to the dispute than the current (dodgy) deal with Brazil, including arguments about fiscal responsibility, the adverse effects of distorting markets in this way, and the implications for the U.S. economy of continuing to operate the cotton program in its current form.

They also cleverly allude to President Obama’s emphasis on enforcement in his trade policy, pointing out that enforcement runs two ways:

Should we fail to effectively reform [the cotton] program now, American businesses and workers wil pay the price because we refused to write a law that complies with our international obligations. We cannot expect our trading partners to play by the rules if we are not willing to do the same. [emphasis added]

The press release from Rep. Flake’s office contains some great quotes, too. Flake, for example, says, “This proposal takes our federal farm subsidy policy from the impractical to the absurd.” 

But I’ll give the last word to Rep. Frank, who has this gem to offer:

[T]he Obama administration apparently feels compelled to preserve our right to subsidize American cotton farmers by extending that subsidy to Brazilian cotton farmers.  People looking for an illustration of the meaning of the phrase, ‘from bad to worse,’ need look no further.

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.