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U.S., Brazil Reach Accord on Cotton

The U.S. and Brazil reached an agreement Tuesday that will delay sanctions set to start today on millions of dollars of U.S. exports.

WASHINGTON — The U.S. and Brazil reached an agreement Tuesday that will delay sanctions set to start today on millions of dollars of U.S. exports and seek a permanent negotiated resolution in their long-running dispute over cotton subsidies.

This story first appeared in the April 7, 2010 issue of WWD.  Subscribe Today.

The World Trade Organization authorized Brazil to impose sanctions last September because the U.S. failed to end cotton subsidies the WTO said were in breach of global trade rules. The WTO issued a series of findings between 2005 and 2008 that said U.S. cotton subsidies violated its regulations because they give U.S. growers an unfair advantage by allowing them to sell at a lower price than their competitors.

The list of products that would have been hit with retaliatory tariffs included raw cotton, woven fabric, men’s and boys’ cotton pants and shorts, women’s and girls’ cotton pants and shorts, some jewelry and some beauty care categories. The list of goods targeted was valued at $591 million, according to Brazil.

As part of the talks to put off the sanctions, the U.S. agreed to some changes in its cotton export credit guarantee program and to work with Brazil to establish a fund for that country’s cotton industry. The office of the U.S. Trade Representative Ron Kirk said the U.S. will work with Brazil to establish a $147.3 million fund to provide technical assistance and capacity building for the Brazilian cotton industry. The fund will operate until the next U.S. Farm Bill or until the cotton dispute is settled.

The countries will aim for a consensus in the next 10 days on how the fund operates. They will work toward a longer-term solution to the dispute in the succeeding 60 days. The export guarantee program, which Brazil said was basically a subsidy for U.S. producers, promises payments if buyers default.

The U.S. also agreed to take steps to address rules that affect Brazilian meat exports to the U.S.

“I am pleased that our teams have been able to make substantial progress toward the goal of a negotiated settlement, which would avoid the imposition of countermeasures against U.S. trade, including U.S. exports and intellectual property rights,” Kirk said. “We now have a clear path forward, one that is in the best interest of both the United States and Brazil. As a result of our discussions with Brazil, we have avoided imposition of higher tariffs against hundreds of millions of dollars in U.S. goods exports.”

Eddie Smith, chairman of the National Cotton Council, said that the preliminary agreement was a “positive development” and added that it “provides a road map for the two countries to come to a long-term solution regarding this trade dispute without resorting to harmful retaliation.”

“The U.S. cotton industry is committed to work with the U.S. and Brazilian governments over the course of their discussions on this issue,” Smith said.