U.S. loses final appeal in cotton dispute
The World Trade Organization has ruled in favor of Brazil in a six-year trade dispute over U.S. cotton subsidies. Dan Grech explains what the ruling means for U.S. growers.
A worker holds cotton in his hands. (Uriel Sinai/Getty Images)
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Bob Moon : The U.S. government has long been weaving a safety net for cotton farmers. They get a federal subsidy if world cotton prices get too low.
Enter Brazil, which complains the subsidies are unfair. Six years ago, it took the case to the World Trade Organization, and today, the U.S. lost its final appeal. That means Brazil can retaliate with tariffs if the U.S. doesn't change its cotton subsidy program.
From the Americas Desk at WLRN, Marketplace's Dan Grech has more.
Dan Grech: Today's WTO ruling opens the door for Brazil to impose so-called "retaliatory trade sanctions." Basically, that means Brazil could punish unrelated U.S. industries until the U.S. amends its cotton subsidy program.
Economist Bruce Babcock is with Iowa State University. He says Brazil may have several U.S. firms in its crosshairs.
Bruce Babcock: Probably the most important would be the drug companies. Following that would be some seed companies like Monsanto and DuPont.
Retaliatory tariffs from Brazil could cost the U.S. firms upwards of $1 billion a year.
The WTO has consistently ruled that U.S. cotton subsidies encourage U.S. cotton overproduction. That depresses world prices.
With today's ruling, the U.S. has no avenues left for appeal. The Bush administration says it will continue to defend the subsidy program.
Sean Spicer is with the Office of the U.S. Trade Representative:
Sean Spicer: We have tremendous respect for the WTO, but we don't just roll over, especially in this particular case where we believe we're right.
He says the WTO ruling is irrelevant. World cotton prices are too high for subsidies to kick in.
Bruce Babcock says the U.S. should comply with the ruling because it needs a strong WTO.
Babcock: We depend a whole lot on trade and the more free and open the trade there is, the more in aggregate that the United States wins.
But cotton subsidies may be here to stay: Congress just passed a farm bill that extends them for five years.
I'm Dan Grech for Marketplace.
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