The ink is barely dry on the new law governing U.S. farm subsidies, but already the measure faces a legal challenge on the grounds that it violates international trade rules.
Brazil says farmers in other countries will suffer as a result of unfair protection given to U.S. producers in the new Farm Bill that U.S. President Barack Obama signed February 7.
Brasilia has announced plans to reopen a case before the World Trade Organization - a case that the new agriculture legislation was supposed to resolve.
The United States has been paying Brazil $147 million per year to ward off harsher measures that the WTO authorized when the U.S. lost the last of its appeals in a long-running dispute over cotton subsidies.
Unfair farm payments
That dispute began in the early 2000s. Global cotton prices had been sinking through the late 1990s, and farmers in Brazil and other developing countries were struggling.
Meanwhile, American farmers were receiving substantial subsidies.
“There were times when U.S. cotton growers were getting more than half their revenue from the U.S. government,” said University of California at Davis agricultural economist Daniel Sumner. “These other countries said, ‘Gee, how can we compete with that?’”
So in 2002, Brazil brought the United States before the WTO. Sumner helped make the economic case.
The U.S. lost. On appeal, the U.S. lost again. Twice.
Since the U.S. had failed to fix its subsidy program, the WTO said Brazil could retaliate. That usually means raising tariffs on imported goods.
“Brazil looked at this and said, ‘We don’t actually want to put tariffs on products coming in from the U.S. That actually hurts our economy,’” Sumner said. Higher tariffs mean higher prices for Brazilian consumers.
“But we need to find some way to get the attention of the U.S. government,” Sumner said.
Instead, Brasilia threatened to suspend hundreds of millions of dollars’ worth of intellectual property protections on U.S. companies' software, pharmaceuticals, movies and more.
That brought the U.S. to the negotiating table.
In 2010, the two sides reached an agreement. The Farm Bill would be up for renewal soon, and the U.S. promised the new version would fix the subsidy problems. Until then, U.S. taxpayers would pay $147 million in subsidies to the Brazilian cotton industry.
The new Farm Bill does change the subsidies. Under the old system, U.S. farmers received payments when cotton prices fell below a certain level. Under the new law, farmers buy insurance that protects most of their income when crops fail or when markets drop. U.S. taxpayers cover most of the cost of the insurance policies.
The U.S. stopped its payments to Brazil last September as the new Farm Bill neared completion.
Brazil’s cotton producers association, ABRAPA, says the legislation has resolved nothing.
In a statement, ABRAPA said, “More than not paying what you owe to Brazilian producers for subsidies deemed illegal by WTO judges, the United States passed a new farm bill that is likely to cause major distortions in international cotton prices.”
ABRAPA said retaliation is in order, but Brazilian ministers decided to take the case back to the WTO first.
The U.S. growers’ association, the National Cotton Council, responded in a statement saying the insurance plan “was developed specifically to bring the United States into compliance with the (WTO) decision.”
Insurance programs are allowed under WTO rules, the NCC says, adding that this and other changes "are significant, and we believe the matter is resolved.”
Even if the matter is resolved, there may be others. The new Farm Bill offers similar protections to other agricultural products. In addition, for some crops, Congress strengthened programs that pay farmers when prices fall below a certain point. That’s one type of support that put the U.S. in trouble with the WTO in the first place.
Farm groups note that the WTO permits governments to pay their farmers limited amounts of subsidies, and say that under the new law, the U.S. is unlikely to exceed those limits.
Intellectual property industries are assuming the best at this point. "We expect [Congress] knew what's at stake, and we hope the Farm Bill is in compliance" with WTO rules, said spokesman Mark Grayson with the Pharmaceutical Research and Manufacturers of America.
Economists describe the new Farm Bill as a step backward, potentially inflicting more harm on developing world farmers than the old bill did.