By Sean Goforth (co-author of the FPA Latin America blog)
An editorial in yesterday’s Washington Post takes a swipe at American agricultural subsidies. The Obama administration recently agreed to pay Brazilian producers $147.3 million a year to resolve a trade dispute with the Brazilian government, after Brazil threatened WTO-authorized retaliatory tariffs because of unlawful cotton subsidies. The beauty of WTO authorization is aggrieved parties can retaliate by increasing tariffs across an array of industries. Rarely does a country threaten to do so, however, because tariffs on American goods would only spell shortages of high-tech products that can’t be easily replaced. Brazil is in the catbird’s seat though; over the past decade Brazilian industry has emerged as a world leader in sophisticated manufactures, agricultural goods, and biofuels.
Such a strong hand allows Brazil to use its economic heft to address the inconsistencies of American trade policy. WaPo declares, “Brazil’s case laid bare the truth about the U.S. cotton program. Not only is it a wasteful sop to special interests, but it’s also an obstacle to free and fair trade that needlessly complicates U.S. relations with the rest of the world. Reform—or, better, repeal—is long overdue.”
Washington subsidizes cotton producers to the tune of $3 billion a year; much of it goes to large agribusiness with political connections. There are other sacred cows. For instance, Uncle Sam places a $.54 a gallon tariff and a 2.5% duty on Brazilian switchgrass ethanol in order to protect domestic corn farmers from competition. That tariff is so perverse that several Caribbean Basin Initiative countries make a steady profit by importing Brazilian ethanol and then re-exporting it to the United States. Free trade? Indeed. Unfortunately, some trade is more free than others.
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