Farm Bill Impasse Won’t Hurt Cotton Agreement with Brazil, Official Says

Posted September 26, 2012 at 12:00am

U.S. officials say stalled congressional action on a new farm bill should not unravel an agreement with Brazil that has kept the country from levying nearly $1 billion in retaliatory tariffs on American goods because of subsidies in the cotton program.

But they plan to consult Brazilian officials to make sure everyone is on the same page.

The deal between the two countries focuses not on the expiring farm law, but on “successor” legislation, an official with the U.S. Trade Representative’s Office said this week.

“As such, the framework to reach a resolution with Brazil can continue,” the USTR official said. The trade office and the Agriculture Department “are currently working to confirm with the Brazilian government that they share this understanding and look forward to continuing our discussions on the cotton dispute.”

Last week, Congress left for recess without a final farm bill, and it is becoming more likely that lawmakers will pass an extension of the 2008 farm bill (PL 110-246) during the lame-duck session set for November.

That means the current law expires Sept. 30 without a replacement that addresses the 2009 World Trade Organization (WTO) ruling that an Agriculture Department program put Brazil’s cotton growers at a competitive disadvantage.

Each country is required to provide sufficient notice to the other if it plans to withdraw from the agreement.

“We have to work with the Brazilians to assure them that some point in time, in the near future hopefully, there is going to be a resolution of this,” Agriculture Secretary Tom Vilsack said Tuesday.

Vilsack said both sides need clarity.

“We don’t want the retaliation that Brazil would be entitled to trigger under the [WTO] decision, which would be very devastating to our economy,” Vilsack said.

Brazilians agreed in June 2010 to wait for Congress to produce multi-year farm legislation addressing the WTO ruling or some other mutually agreed upon resolution. The agreement also requires the United States to revise an export credit program. The arrangement halted $560 million in penalty tariffs scheduled to take effect that month.

As part of the deal, the United States agreed to make annual payments of $147 million to the Brazil Cotton Institute for technical assistance and other items. The United States has paid $353.5 million so far, and the September monthly payment of $12.2 million is scheduled to go out this week, the USTR official said.

According to a White House fact sheet, the United States exported $62 billion in goods and services to Brazil in 2011, led by machinery, aircraft and parts, electric machinery and plastics. These are all areas that would be affected if Brazil followed through with higher import taxes on items ranging from wheat to medicine to cars.

In 2009, WTO gave the South American nation the authority to levy up to $820 million in retaliatory tariffs on U.S. goods, services and intellectual property after ruling that the American upland cotton program distorted trade and put the Brazilian cotton industry at a competitive disadvantage. In March 2010, Brazilian authorities identified 102 U.S. products that would be subject to doubled and tripled tariffs. They agreed to put any actions on hold until a new farm bill clears.

In particular, Brazil said it wanted modifications to countercyclical and marketing loan programs for cotton. WTO ruled that payments under both programs violated trade commitments. The WTO also ruled against guarantees issued for credit that U.S. banks or exporters extend to approved foreign banks for purchases of cotton and other U.S. agricultural exports. Brazil is in discussions with the United States to make adjustments.

The Senate passed a farm bill (S 3240) in June, and the House Agriculture Committee approved its version in July. The House has not voted on the committee bill because of differences within the Republican caucus over the level of cuts to the nation’s largest domestic food aid program, the Supplemental Nutrition Assistance Program. At a Sept. 21 news conference, Speaker John A. Boehner told reporters that the House “would take up the issue of the farm bill,” but said he did not say in what fashion.

News reports indicate that Brazilian officials don’t believe either bill fully addresses their concerns. Both bills replace the cotton countercyclical program with versions of the Stacked Income Protection Program — known as STAX — proposed by the National Cotton Council. That plan would create a revenue protection insurance program to apply to small losses by cotton farmers not covered by crop insurance.

The House bill includes a reference price or a minimum price level and keeps the current cap of $5.5 billion for export guarantees from fiscal 2013 to 2017. The Senate version of the cotton proposal has no reference price and sets a cap of $4.5 billion over the same period for the export credit program.

Vilsack said it might be difficult to convince the Brazilian government that lawmakers will act in the lame duck or early in the next Congress.

“It’s going to be complicated. We’re basically counting on people who haven’t been able to solve these significant problems in two years being able to do it in three to four weeks,” Vilsack said.