Latin America & Cotton Subsidies

The 2002 World Trade Organization cotton dispute case initiated by Brazil targeted six commitments made by the United States in the Agreement on Subsidies and Countervailing Measures. Brazil argued that the US and European Union were exploiting loopholes and bookkeeping methods to remain competitive and hurt developing markets. Through these loopholes they claimed the US was providing illegal subsidies and distorting trade.

In Brazil’s defense lays many agreements, provisions, measures set in place and agreed upon by the United States and other countries. More specifically, the laws applied were those from the SCM Agreement of the Agreement on Subsidies and Countervailing Measures which the World Trade Organization then used in its decision in the dispute.

According to the Congressional Research Service (CRS), over the past ten years the United States has given about 24 billion dollars’ worth of cotton subsidies despite the fact that the World Trade Organization (WTO) ruled that United States cotton subsidies are illegal.” (Illinois College of Law)

The distorting effects that American subsidies to cotton farmers have on the global market, are what triggered the WTO to formally step in after Brazil’s claims. By encouraging the production of cotton through subsidizing, American cotton farmers were flooding the markets with cotton and therefore bringing the price down. This offset the equilibrium and caused the US to dump its surplus cotton into foreign markets and thus making it almost impossible for unsubsidized farmers to compete. The dumping and American subsidies to cotton farmers were deemed illegal by the WTO. Brazil was given the go ahead to cross-retaliate if the US did not cooperate. This cross-retaliation allows Brazil to seek damages in other methods aside from import, export tariffs. Cross-retaliation allows Brazil to break any media or pharmaceutical patents which could add up to approximately 829 million dollars’ worth of indirect compensation for their losses in cotton exports.

  • However, in response to Brazil’s complaints the US brought to attention both legal and technical rebuttals. For one the United States highlighted the fact that the agreement granted countries involved until 2004 to phase out the forbidden subsidies and export incentives.
  • In addition, the US also showed that many of the claimed illegal programs had expired by the time the WTO formally initiated the process. Therefore excluding many of the claims put forth by the Brazilian foreign affair ministry.
  •  The US government also argued that a select number of subsidies were also permissible under the Agreement of Agriculture. Seeing the WTO case, American cotton farmers also expressed their concern with the stability of the cotton market without subsidies and its impact on prices and consumers. An interesting comment from Charles Stenholm, a Texas cotton farmer also claimed that despite Brazil’s high standing among global economies it still claims itself as a developing economy.
  •  In addition, these subsidies are simply keeping the US competitive and cotton prices down; simply because Brazil cannot do the same does not mean it is wrong. Some US officials have said Brazil’s litigation instead of negotiation has led people to think it is out to eradicate competition instead of competing naturally. However, in reality this seems to be the other way around.
  •  If the subsidies were to be stripped, the US cotton industry would fall flat on its face and thousands of jobs would be lost. It would be nearly impossible to replace those jobs in any timely fashion, and it is hard enough as it is to keep jobs in the US with all the outsourcing that goes on today. As the world’s third leading cotton producer, we are also the world’s number one exporter of cotton, as annual exports exceed $3 billion.
  •  78% of the US subsidies for cotton went to only 10% of the cotton farmers ‘about 2000 farmers.
  •  Before NAFTA there were 40,000 cotton farms, today, there are only 20,000 left.
  •  Only 36% of the US farmers receive all of the crop subsidies. 64% of US farmers receive none. Only 3.6% of the US farmers received 71% of all the government payments. The next 3.6% got 15%, which means that 7.2% of the farms received 86% of all the US subsidy payments.

United States cotton subsidies are not fair and have been distorting the market. Why has the US not taken the proper steps in finding an alternative or solution and have stalled it for so long is a question worth asking. However, in the greater scheme of the global economy, American subsidizing has been hurting foreign cotton farmers by undercutting them and not allowing them to make the profits they should be making.


Work Cited

Daemmrich, Arthur A., and Aldo Musacchio. Brazil: Leading the BRICs? Boston: Harvard

Business School, 2011. Print.

Sunshine, Benjamin. “United States’ Last Chance to Save Cotton Subsidies?” College of Law.      Illinois Business Law Journal, 02 Feb. 2012. Web. 04 Fe