WHEN IS a victory for the United States not exactly a victory for the American taxpayer? When it’s an international agreement like the one the Obama administration has just reached to settle a long-running dispute with Brazil over cotton subsidies.
The roots of that dispute lie in this country’s history of showering federal funds on crop producers, including cotton growers. That particular business received $32.9 billion from Washington between 1995 and 2012, according to the Environmental Working Group, largely through programs that had the effect of rewarding farmers for increasing production. The extra supply dampened prices on the world market, so, in 2002, Brazil complained to the World Trade Organization, which ruled that U.S. cotton subsidies were indeed “trade-distorting” and authorized Brazil to retaliate against U.S. exports. The United States avoided sanctions — not by reforming its programs but by agreeing in 2010 to pay Brazil’s cotton farmers $147.3 million per year.
In short, the U.S. government bought off Brazil’s cotton farmers so that it could keep on buying off its own. Under the new settlement, announced Wednesday, Brazil agreed to drop its case at the WTO and to forgo any new ones during the five-year term of the farm bill Congress enacted last year. In return, the United States agreed to trim the modest U.S. cotton export credit subsidy program and, most important, to pay Brazil one last dollop of taxpayer cash, in the amount of $300 million.
This is good news to the extent that it fortifies U.S.-Brazil relations on the eve of a new presidential term in that country and that it spares U.S. exporters from the threat of Brazilian retaliation, which could have reached a total of $829 million per year. Yet, in essence, the new deal perpetuates the unhealthy status quo whereby the United States pays Brazil for the right to continue propping up a domestic cotton industry that can and should learn to compete on its own.
How so? Because instead of abolishing the old system of cotton subsidies that the WTO had found to violate international trade rules and leaving cotton farmers to compete in the marketplace like other businesses, the 2014 farm bill abolished the old subsidy system — and replaced it with a lavish new one, known as the Stacked Income Protection Plan, or STAX. Basically, STAX guarantees cotton farmers between 70 percent and 90 percent of “expected” revenue for their area, as determined by the Agriculture Department according to a formula no ordinary American understands. Federal subsidies cover 80 percent of the premiums for this “insurance,” which is how the handout has to be characterized so that it can be portrayed — questionably, to be sure — as WTO-compliant. The new scheme doesn’t take effect until 2015, so cotton farmers get “transition” cash until then, naturally. Ten-year cost, according to the Congressional Budget Office: $3.29 billion. By the way, the farm bill contains no limit to the payout any individual cotton farmer can receive under the program.
In STAX, as always with agriculture subsidies, the deck is stacked against the taxpayer.