U.S., Brazil Cotton Agreement Protects Trade

The date is Friday, September 27, 2002.

President George W. Bush is less than halfway through his first term in the Oval Office, Democrat Tom Daschle from South Dakota leads the Senate, and Republican Denny Hastert from Illinois serves as House Speaker. Tech giant Apple released its second-generation iPod two months earlier that has a maximum storage capacity of 20 gigabytes for $499. Meanwhile, U.S. consumers pay only $1.44 for a gallon of gasoline and $2.73 for a gallon of milk.

In the Southern Hemisphere, Brazil, a major up-and-coming player in global agricultural production, takes aim at who it perceives as its greatest export competitor — the United States. Brazil files a complaint with the World Trade Organization that U.S. cotton programs have unfairly distorted cotton prices in favor of U.S. producers, and two years later, a WTO panel rules against the U.S. on several key issues. This ruling allows Brazil to levy more than $800 million in sanctions against U.S. companies that extend well beyond cotton — even agricultural — products.

If we fast forward to the start of 2014, the dispute still remains unresolved. The U.S. stalled retaliation from 2010-2013 by making $147 million in annual payments to Brazil, but those payments ended in October 2013 as part of U.S. budget cuts. Brazil, meanwhile, prepares to take action again.

The country has taken a keen interest in the U.S.’ attempts to pass new agricultural legislation, known simply as the farm bill. Should the U.S. not pursue reforms in the new legislation or fail to pass it, Brazil states its intentions to seek further retaliatory action against U.S. exports on more than 200 items, ranging from electronics to chewing gum.

U.S. legislators are tasked with crafting a viable safety net for agricultural producers that disallows Brazil — or any other competing country — from taking profits from American companies. Thankfully, the U.S. cotton industry has no intention of letting cotton programs be the deciding factor in this case.

The House Committee on Agriculture, on which I have the privilege of serving, works closely with the National Cotton Council to reform the 2014 farm bill’s cotton programs to an insurance-based mechanism, known as the Stacked Income Protection Plan (STAX). This mechanism provides a workable safety net for U.S. cotton producers and fiber security for U.S. consumers, but it also hampers Brazil’s assertion that U.S. cotton programs disadvantageously distort cotton market prices.

The farm bill becomes U.S. law on February 7, 2014. Brazil realizes it has few options left to pursue further claims and announces a $300 million settlement with the U.S. on October 1.

While a $300 million payment to Brazil is well short of ideal, it closes a dispute that placed an even greater value of U.S. and First District products at risk. With the claim now behind us, I look forward to pursuing a healthy trading relationship with Brazil that benefits First District cotton and agricultural growers as well as producers of other goods alike.

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