Thursday, March 11, 2010

Brazil slaps trade sanctions on US over cotton dispute

Brazil slaps trade sanctions on US over cotton dispute
By BBC News
Tue 09 Mar. 2010, 17:20 CAT

The Brazilian government has announced trade sanctions against a variety of American goods in retaliation for illegal US subsidies to cotton farmers. The World Trade Organization (WTO) approved the sanctions in a rare move. Brazil published a list of 100 US goods that would be subject to import tariffs in 30 days, unless the two governments reached a last-minute accord.

It said it regretted the sanctions, but that eight years of litigation had failed to produce a result.

It said it would raise tariffs on $591m (£393m) worth of US products - from cars, where the tariff will increase from 35% to 50%, to milk powder, which would see a 20% increase in the levy.

US farm subsidies are condemned worldwide. This archaic practice must stop
Carlos Marcio Cozendey Brazil's foreign ministry

Cotton and cotton products would be charged 100% import tariff, the highest on the list.

The Office of the US Trade Representative said it was "disappointed" by Brazil's decision and called for a negotiated settlement.

Critics say the US has given its cotton growers an unfair advantage by paying them billions of dollars each year.

In 2008, the WTO ruled that subsidies to US cotton producers were discriminatory.

"US farm subsidies are condemned worldwide. This archaic practice must stop."

However some analysts say major changes to these subsidies would involve modifying agricultural legislation - a tall order for the US Congress against a difficult economic and political backdrop, says the BBC's Gary Duffy in Sao Paulo.

Our correspondent says the dispute, which began in 2002, is one of the few in which the WTO has allowed cross-retaliation, meaning the wronged party can retaliate against a sector not involved in the case.

He adds that it appears the Brazilian government has deliberately chosen a wide range of products in order to have maximum impact.

Safety net

Cotton producers in the US argue that the system of subsidies has changed since the WTO made its original ruling in 2005.

"The US has made changes in the cotton programme as well as the export guarantee programme," Gary Adams, chief economist at the National Cotton Council told the BBC, adding that US cotton production was now 40% to 45% lower.

Mr Adams said he believed that subsidies were still justified.

"We feel this is a very important financial safety net for producers," he said.

Steven Bipes of the Brazil-US Business Council urged the US to take steps to avoid what he called "damaging" retaliation by Brazil.

"The business community finds it extraordinarily important that countries, including the US, comply with its WTO obligations and otherwise negotiate to find common ground when there are disputes," he told the BBC.

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