US lawmakers have been busy this summer shaping the latest version of the farm bill, the far-reaching legislation that governs how the US treats its farmers and feeds its poor people, among many other things.
Discussions and hearings have been going on for weeks, but there is one topic that few people on Capitol Hill seem to be paying attention to: how Congress's failure to reform US cotton subsidies may hurt millions of farmers in other countries, along with Hollywood, American pharmaceutical companies and the US music industry.
What is the link? It all boils down to one word: trade.
Ten years ago, Brazil challenged the US at the World Trade Organisation (WTO), claiming that heavily subsidised US cotton had flooded the global market, dragging down prices and making it much harder for Brazil's cotton farmers to earn a profit on their exports. The generous American subsidies violated the commitments that the US made when it joined the WTO, the Brazilians argued. The excessive payments were both unfair and illegal, and they wanted compensation.
The WTO agreed. In 2004, the dispute settlement body, the "judicial branch" of the WTO, ruled that the US had to reform its cotton subsidies or face "retaliation" from Brazil. A subsequent panel ruled that, given the most recent cotton trade statistics, Brazil had the right to impose punishing trade measures worth more than $800m (£500m) against the US.
Usually, when countries are given permission to retaliate, their "countermeasures" have to come in the form of higher-than-usual tariffs on imports from the offending country. That was true in this case, but the WTO went a step further: the panel granted Brazil the right to "cross-retaliate" by lifting patent protections on a wide range of American products. That meant patented drugs could be sold as generics, Hollywood films could be legally pirated and American music could be given away for free.
Cross-retaliation is a powerful tool because it allows the plaintiff country to target its attacks on the most sensitive sectors of the offending country's economy. The WTO has allowed cross-retaliation only twice in its history, but no country has ever actually used it. Brazil may well become the first.
Cross-retaliation "will impact much more than goods – it could set an important precedent and harm the US in other cases," Haroldo Cunha, the head of the Brazilian cotton growers' association Abrapa, told Reuters in 2010.
For now, though, Brazil's retaliation is being held off by a "framework agreement" that was negotiated by American and Brazilian officials in the spring of 2010. Among other things, the US agreed to tweak one of its most egregious subsidy programmes and donate nearly $150m every year to support Brazilian cotton farmers. Both sides agreed that the framework deal would hold until this year, when the next farm bill would be negotiated. Only then, the US officials said, would they have the chance to make far-reaching reforms to American cotton subsidies.
Fast-forward two years, and the 2012 farm bill is quickly taking shape. But will the new law do anything to bring US cotton subsidies in line with WTO rules?
If you ask Brazil, the answer is a resounding no. The new programmes under discussion "are not enough to satisfy Brazil's concerns", said Roberto Azevêdo, Brazil's ambassador to the WTO. Some of the proposed policies "would leave Brazilian farmers worse off than they are now", he says.
Both the House of Representatives and Senate versions of the bill include the stacked income protection programme – known as Stax – which was designed by the National Cotton Council, a lobby group for cotton farmers. Stax is effectively a crop insurance policy for cotton growers; it guarantees that farmers' incomes will not fall below the revenues expected in their regions. That is precisely what Brazil does not like.
"In our view, no farm programme can be WTO-compliant and cover 'shallow losses' – thereby insulating farmers from market forces – to the extent foreseen in the [Stax programme]," Azevêdo said in a letter to Congress in January.
US congressman Ron Kind, a Democrat from Wisconsin, has long pushed for more systemic changes to American cotton subsidies, but to little avail. "The excuse for the last three years … was: 'Wait for the next farm bill, and we'll take care of it then'," Kind said. "Well, that next farm bill is today, and I don't see it getting taken care of."
While the US dallies, cotton farmers overseas are still struggling to compete with artificially cheap American exports. That is happening not only in Brazil, but also in poorer cotton-producing countries such as Burkina Faso, Mali, Benin and Chad. "Those are the big losers," said Azevêdo. "Their treasuries cannot compete with the US funds."
So what will happen if the 2012 farm bill is just like the previous one? Officials in Brasilia are weighing up whether to use their right to cross-retaliate. If they do – and they pull it off – then Brazil could set an important precedent for other countries that are looking to get the attention of the world's biggest national economy.
"[The Americans] seem to only engage when intellectual property comes into play," Azevêdo said.
