Brazil case may break stalemate on trade
Elizabeth Becker/NYT NYT
Saturday, January 24, 2004
WTO panel to rule if subsidies give rich nations unfair edge
WASHINGTON An international court in Geneva may soon break the stalemate that is blocking nearly every major trade negotiation when it decides the first case on whether rich countries have an unfair trade advantage when they give their farmers billions of dollars of subsidies.
Brazil is challenging American cotton subsidies in the case before a dispute settlement panel at the World Trade Organization that experts say could set a decisive precedent. Angry developing countries have long argued that the wealthy world's farm payments help flood the world with cheap commodities and wreck their chances to climb out of poverty.
That dispute over agricultural subsidies helped undermine global trade talks in Cancún, Mexico, last year and is at the heart of the Bush administration's negotiations over free trade agreements for the Western Hemisphere and with countries like Australia. Independent international organizations such as the World Bank and the Organization for Economic Development have released studies showing that these subsidies have deepened poverty in the developing world and led to starvation in the worst instances.
In the closed hearings, Brazil has aggressively asserted that the United States broke trade rules by using its average annual $1.54 billion in cotton subsidies to grab a larger share of the export market, pushing down world cotton prices, according to documents submitted by both countries.
To the consternation of the administration and the American cotton industry, Brazil has relied almost exclusively on data from the U.S. Department of Agriculture as well as American agricultural experts to make its case.
This week, in a sign that Washington has had enough of Brazil's tactics, the administration stonewalled the panel and refused to turn over documents that could bolster its own defense, saying the information would compromise the identity of farmers who receive the money.
The tactic, several observers say, could bolster the chances of a ruling against the United States in a case that all parties see as explosive. But with so little precedent in this new global legal arena, experts are watching the case carefully, anxious about its consequences.
"This is a groundbreaking case - a whole new area - and a tough case for the United States," said Claude Barfield, director of trade studies at the American Enterprise Institute and a trade advisor under President Ronald Reagan. "Even though I am very much opposed to the existing farm subsidies of the United States and Europe, I worry about the potential here for a substantial backlash. This is a highly political and volatile issue."
In moving its battle to the courtroom, Brazil knew that it was raising the stakes. Robert Zoellick, the U.S. trade representative, sent letters to more than 100 trade ministers this month saying he wanted to revive global trade talks that would require progress on these agriculture issues. But a ruling in this case could upset those talks.
"You have to understand we are fed up with these farm subsidies and hearing for 25 years that things will get better," said Alusio De Lima-Campus, economic advisor at the Embassy of Brazil in Washington. "The only way to deal with it is to turn this into a make-it or break-it proposition."
Brazil, along with China, India, South Africa and a dozen other developing nations, altered the global trading balance last year by banding together at trade talks in Cancun as a bloc determined to reduce farm subsidies by rich countries. They argued that the subsidies not only hurt their exports but also ruin the livelihoods of their poorer peasants and farmers, creating huge social and political as well as economic problems.
Cotton became the symbol of this argument at the Cancún conference. Supachai Panitchpakdi, the director-general of the WTO, highlighted the complaints of four poor African nations that American cotton subsidies were destroying their economies. It costs 68 cents to grow a bale of cotton in the United States, or nearly three times as much as in Burkina Faso, one of these countries.
For its part, Washington is defending the cotton subsidies that have made the United States the world's top cotton exporter with more than 40 percent of the world market.
The U.S. cotton industry describes the case as the "center of the storm" threatening their livelihood and the entire American farm subsidy system.
"If this panel finds against the United States, it may force radical revisions in U.S. commodity programs," said William Gillon, legal counsel to the National Cotton Council, a trade group.
Gillon and the Bush administration were especially critical of the work of Daniel Sumner, professor of agricultural economics at the University of California at Davis and the former assistant secretary of economics at the agriculture department under President George H.W. Bush, the current president's father.
In one of the thick documents submitted by Brazil, Sumner created an economic model that he said showed that American cotton subsidies did lead U.S. farmers to plant more cotton and did push down world prices. Had the farmers not received the subsidies, he wrote, U.S. exports would have declined on average by 41.2 percent and the world price of upland cotton would have increased by 12.6 percent.
The United States countered with its own critique of Sumner's analysis, calling it faulty and saying it failed to factor in the normal ups and downs of the world market.
Several members of the cotton industry met with Sumner and told him he was a turncoat.
"One person told me that if this were a military question, what I did would be treason," said Sumner, who said he stood by his work.
"I don't come at this sort of thing for any reason but that the best possible evidence is entered in this dispute process," he said. "I am a very strong supporter of multilateral efforts. and I want the dispute process of the WTO to be as fair as possible."
Joining Brazil in the WTO case as third parties are Argentina, Australia, Benin, Canada, Chad, China, the European Communities, India, New Zealand, Pakistan, Paraguay, Taipei and Venezuela.
The New York Times
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