Cotton subsidies under attack

The IHT is reporting that Brazil is seeking recommendations from the WTO on the application of retaliatory sanctions against the United States, which refuses to abandon its subsidies to cotton farmers. This is a significant development, because the WTO’s Dispute Settlement Understanding (DSU) takes a considerable amount of time to proceed to a point where sanctions are authorized. The DSU process goes something like this: 1.) the two countries try to settle their disputes through consultations. 2.) If no solution can be reached, then a panel is formed and rules on the dispute. 3.) Either the defendant country or the complainant country can appeal the ruling, in which case the Appellate Body reviews the ruling and either upholds or overturns it. 4.) If the defendant country is ruled against (complainants usually win) and does not comply with the adverse ruling after a reasonable period, then the complainant is authorized to apply sanctions. In this case, Brazil first challenged the US all the way back in 2002 (DS267: United States subsidies on upland cotton.)

Having just finished my Master’s dissertation on the WTO’s DSU, this is quite exciting. The cotton subsidies are glaringly inconsistent with America’s WTO obligations, and it would be better for the majority (the interests of American consumers, American taxpayers, international consumers, Brazilian producers vs. the interests of American producers) if the subsidies were eliminated.

It will be interesting to see how much the Appellate Body prices the trade distortion at, and whether or not Brazil’s sanctions have any effect. In my dissertation, I argued that ‘high-value’ disputes such as these tend to emphasize relative power capacities over the legal process in determining outcomes. To put it bluntly, it will depend on whether Brazil can hit the US hard enough with its sanctions to make keeping the subsidies more painful than eliminating them. According to the US Dept of Commerce, American exports to Brazil were worth $24.6 billion in 2007. That ought to give the Brazilians a hefty amount of retaliatory capacity.

Brazil is also considering initiating a trade dispute against American ethanol tariffs. International litigation is hardly an ideal way for America to develop coherent domestic policies. But if the United States is unable to produce farming and energy plans that don’t overly-privilege specific domestic sectors at the expense of the rest of the country, perhaps we can look to our trading partners to sue the hell out of us until we see the light. (That was a joke, but only just…)

(Picture by Brian Hathcock)