US lawmakers are getting closer to bringing American cotton subsidies in line with global trade rules, a move that would help to level the playing field for cotton farmers in the developing world. The potential changes come after many years of intense pressure from Brazil, which won an international trade dispute against US cotton subsidies in 2004.
"Cotton now will have the lowest subsidies of all US field crops, when it used to have the highest," says Harry de Gorter, a professor of economics at Cornell University and author of a report (pdf) on the potential effects of the new cotton policies, which are being debated in Congress. "Instead of a poster child for bad behaviour, [cotton] is now the poster child of policy reform."
The changes have been proposed under the latest version of the US farm bill, a five-year, $500bn piece of legislation that regulates farm subsidies, domestic nutritional assistance and overseas food aid, among other programmes.
The Senate has been debating the bill since mid-May; a vote is expected in early June. The House of Representatives should begin debates on the bill in the next few weeks. Committees in both houses have already passed drafts of the bill that include substantial changes to the cotton programme.
As they stand, both the Senate and House versions of the farm bill would eliminate several of the most trade-distorting aspects of US cotton subsidies, including direct payments to farmers and counter-cyclical payments, which prop up farmers' incomes when prices drop. Both versions of the bill would also require farmers' loan deficiency payments to fluctuate with market prices, a change from the past.
The House and Senate bills include a new policy, the stacked income protection programme (Stax), which would effectively serve as a form of income insurance for cotton farmers. Stax could skew the international market, De Gorter says, but overall the programme is "less pernicious" than the measures that are being phased out.
"In good faith, the United States has changed their programme substantially," says De Gorter. "It's possible that [Brazil] wouldn't win if they reopened the dispute based on the way the legislation stands right now."
The changes come after more than a decade of pressure from Brazil, which launched a suit against US cotton subsidies at the World Trade Organisation's (WTO) dispute settlement body in 2002. A panel ruled largely in Brazil's favour in 2004; five years later, a WTO panel granted Brazil the right to "retaliate" against US products as recompense for the damage caused by America's illegal cotton subsidies.
Brazil came "very, very, very close" to imposing sanctions, which would have targeted US intellectual property, says Pedro Camargo Neto, who was serving as secretary of production and trade at Brazil's ministry of agriculture when the WTO case was brought in 2002. The threat of sanctions, which would have lifted patents on American goods such as films and pharmaceuticals, was enough to bring US officials to the negotiating table, Camargo Neto says.
Under terms that were negotiated in an 11th-hour meeting to prevent sanctions taking effect, US officials agreed to pay the Brazilian government $147m annually, money that is passed on to Brazilian cotton farmers. They also agreed to make immediate changes to one of the most egregious subsidy policies.
That agreement, which was struck in April 2010, was enough to delay Brazilian sanctions in the short term, but only a new farm bill can end the dispute. The current draft of the legislation is promising, says Camargo Neto.
"You never know until the last day – you know how Congress is – but it looks like everything is going to be OK," he says. "It's a pity that it took so long."
US cotton subsidies have long been a delicate topic of negotiations in the WTO's Doha round trade talks, but years of pressure from Brazil and cotton-producing African nations – Benin, Burkina Faso, Chad, and Mali – have produced no tangible changes to the subsidy programme. Ultimately, it took a dispute – and the threat of sanctions – to force the hand of the US.
Despite the delay, other cotton-producing countries in the global south would gain from the changes that may soon be introduced to American cotton subsidies, says Aisha Moriani, the economic counsellor at Pakistan's mission to the WTO in Geneva.
"I think that all cotton-producing countries have benefited" from Brazil's WTO case against the US, says Moriani. "We would very much like that no one would subsidise cotton, because we don't have the money to subsidise cotton … If prices fall, everyone should feel the pressure the same way."