Brazil's victory in cotton trade case exposes America's wasteful subsidies

Thursday, June 3, 2010

AMERICAN taxpayers owe Brazil and its cotton farmers a thank-you. That may sound odd, given that the Obama administration recently agreed to pay the Brazilians $147.3 million a year to settle their international trade case against U.S. cotton subsidies. Indeed, the net effect of the payoff is to enable Washington to continue supporting American cotton farmers to the tune of about $3 billion per year. So what's to be thankful for? Brazil's case laid bare the truth about the U.S. cotton program: Not only is it a wasteful sop to special interests, but it's also an obstacle to free and fair trade that needlessly complicates U.S. relations with the rest of the world. Reform -- or, better, repeal -- is long overdue.

The federal government has spent more than $50 billion propping up cotton growers since 1991, with subsidies averaging more than $3 billion per year over the past decade. Most of this aid supports large, politically connected agribusinesses in the Sun Belt -- although the Arkansas Department of Corrections' operation, manned by convicts, has also received some of the cash. Thanks partly to the subsidies, U.S. producers can outcompete lower-cost producers on the world market; American farms account for about 40 percent of global exports. In 2002, Brazil complained to the World Trade Organization about this, arguing that the U.S. programs violated international free-trade agreements that the United States itself had championed. It took a while, but the WTO has agreed, authorizing Brazil to retaliate by levying tariffs against other American products. Brazil's threat to use that authority against U.S. goods, from wheat to software, forced the Obama administration to buy a truce last month.

In short, the U.S. cotton industry's dependence on subsidies that violate international trade agreements turned it from a mere waste of taxpayer money into a threat to other American exporters and the jobs they support. As four House members, Democrats Ron Kind (Wis.) and Barney Frank (Mass.) and Republicans Jeff Flake (Ariz.) and Paul D. Ryan (Wis.), put it in a recent letter to the president, the cotton program is "quickly becoming a liability for future trade growth. Instead of effectively reforming our programs, we are electing to pay $147.3 million annually to Brazilian agribusiness so that we can continue to pay around $3 billion a year to large U.S. agribusiness." Of course, the federal government must borrow much of the $147.3 million and the $3 billion. If this sorry episode doesn't shame Washington into ending this fiasco, nothing will.

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