$147 million fund for Brazil's cotton farmers aims to end long-running WTO dispute

American taxpayers may soon be subsidizing Brazilian cotton farmers in order to protect the earnings of U.S. drug companies. That's one way to look at a new agreement aimed at ending a long-running dispute within the World Trade Organization between Brazil and the United States.

It's the first time the U.S. has been penalized over its farm subsidies. But the resolution leaves some agricultural trade experts scratching their heads.

For years, cotton growers in developing countries have complained about U.S. farm subsidies. The U.S. government wants to help sell more American farm products on the world market. So it provides export companies with financial help to lower their prices on everything from grains and soybeans to dairy products and, in this case, cotton. That pushes down the global market price of cotton.

"For farmers in sub-Saharan Africa who are subsisting on very little money, a small reduction in price based on American subsidization is a big deal to them," says David DeGennaro with the Environmental Working Group.

WTO rules against US

In 2002, several African countries joined Brazil and took the United States to the WTO over its cotton subsidies.

They won. That's a first.

But the U.S. didn't end the subsidies. So the WTO said Brazil could retaliate by raising its import tariffs on U.S. agricultural products.

Brazil, however, is a major farm exporter and doesn't buy that many agricultural products from the U.S. "To have more clout with the US, [Brazil] said we don't want to just retaliate in agriculture," says David Orden with the International Food Policy Research Institute.

Brazil wanted to hit the U.S. where it would hurt more: by breaking patents on pharmaceuticals and copyrights on movies and software. The WTO agreed, and gave Brazil the right to $260 million dollars worth of U.S. intellectual property this year.

'Bribing' Brazil

Orden says U.S. officials didn't want that to happen.

"Rather than have Brazil retaliate against us, the U.S. has found a way to bribe Brazil, if you will, to not impose that retaliation in exchange for various things the U.S. says it will do," he says.

The U.S. has agreed to establish a $147 million dollar fund to help cotton farmers in Brazil and other countries improve their production.

U.S. Department of Agriculture undersecretary Jim Miller says the settlement keeps the U.S. from getting shut out of Brazil, a growing market for American exports.

"Given the fact that the level of retaliation next year would likely increase, we have protected the market for a significant level of goods and intellectual property rights going forward," he says.

'A strange situation'

But David DeGennaro with the Environmental Working Group puts it this way: "It's really kind of ridiculous that American taxpayers are going to be subsidizing Brazilian cotton farmers just so that we can keep on subsidizing our own cotton farmers. It's really a strange situation."

Even Dave Salmonsen with the American Farm Bureau Federation — which represents U.S. farmers — is not an enthusiastic supporter of the U.S. aid to Brazil.

"You got into a negotiation, and that was what the Brazilians wanted, and the U.S. negotiators were willing to go along with that," he says. "It's a bit of a groundbreaking thing. Maybe in the future we'll see more of that, but I don't think we've seen this before."

U.S. subsidy programs for maize, wheat, and other crops are very similar to the cotton program. So, the U.S. could be in for another big fight at the WTO unless Congress cuts the subsidies. That would very likely spark a big political fight at home with the powerful farm lobby. But with the U.S. running record deficits, some say farm subsidies could face cuts when the legislation that governs them comes up for renewal in 2012.