Brazil has released a list of 102 U.S. products now subject to trade sanctions as a result of Brazil 's successful challenge of U.S. cotton subsidies before the World Trade Organization. The value of the products on Brazil 's sanctions list was estimated by government officials at $591 million based on import figures from 2008.
The products range from food items to luxury products such as cars, appliances and cosmetics. Tariffs on these products would increase from their current levels to between 14 percent and 100 percent. The tariff on cars imported from the U.S. would increase from 35 percent to 50 percent. The highest tariffs would be for raw cotton and woven fabrics.
The tariff hikes include a near doubling of duties (to 48 percent ) on milk and cream, alongside a similar increase for whey. Tariffs on frozen herrings and guts of swine were also hit with big hikes, taking them to 30 percent and 28 percent, respectively, while duties remain at current levels for other trading partners.
Various fruits and nuts –– including cherries, plums, grapes and hazelnuts –– also are targeted by the Brazilian sanctions, while tomato ketchup tariffs are increased from 18 to 38 percent, and all other food preparations face a 16 percent to 36 percent jump.
All non-alcoholic beverages excluding water, fruit or vegetable juices and milk are meanwhile subject to a doubling of duties (to 40 percent).
In most cases, the level of tariffs would be either doubled or tripled if the sanctions take effect. The largest single item in terms of 2008 imports was wheat, which in that year totaled $318 million. The tariff on wheat imported from the United States would triple from 10 percent to 30 percent, according to the sanctions list.
Trade observers believe the tariff retaliation could spur the United States to rethink its trade policy and to prioritize conclusion of the WTO's Doha Round, where the United States is seen by many to be dragging its feet. U.S. cotton subsidies are still a major sticking point in the Doha drafts, and failure to strike a deal in 2008 led Brazil to pursue its cotton concerns through renewed litigation.
Brazil has been fighting to remove U.S. cotton subsidies for nearly 10 years. Brazilian cotton production has doubled over this period and Brazil has gone from a cotton importer to the world's fifth largest exporter. But government officials claim that Brazil could export more were it not for the subsidies granted U.S. cotton producers. These subsidies, Brazil claims, have also lowered international cotton prices.
The WTO ruled in 2005 that U.S. marketing loan payments, countercyclical payments and export credit guarantees caused serious prejudice to the trade interests of Brazil by depressing global prices for cotton. It also ruled that U.S. export credit guarantees for cotton and other commodities such as rice, soybeans and corn under the GSM-102 program constitute illegal export subsidies.
Total trade last year between the United States and Brazil amounted to $35.6 billion, with the United States running a $4.4 billion trade deficit with Brazil during that period.
"The Brazilian government doesn't believe that trade retaliation is the most appropriate means to achieve fairer international commerce," said Brazilian Foreign Trade Secretary Lytha Spindola. "But after eight years of litigation, and in the absence of more concrete options for resolving the dispute, all that's left for Brazil is to make good on its rights as authorized by the WTO, if even only to safeguard the credibility of the system of conflict resolution."
In addition to the increased tariffs, Brazil said it would impose $238 million in other retaliations against the United States , hoping to punish industries such as those involving intellectual-property rights and services. Spindola said that the government would publish another list by March 23 detailing guidelines for retaliation in those areas.
The decree covered a wide range of options including ignoring foreign patents, reducing the validity of domestic patents, delaying the approval of brand licensing requests, and suspending remittances for the payment of royalties.
According to Brazilian Foreign Relations Ministry Economic Department Director Carlos Cozendey, Brazil hopes that sectors in the United States outside the cotton industry will bring pressure on members of Congress to seek changes in subsidy programs.
"We've received indications at several political levels that there's interest in negotiating a solution, but until the moment there hasn't been anything concrete," Cozendey said.
Brazilian officials said that Washington has 30 days to resolve the dispute amicably. If negotiations fail, the sanctions will take effect at the end of that period and in this case would remain in effect until the United States removes its cotton subsidies completely. That is something most analysts believe will not happen.
Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) and ranking member Saxby Chambliss (R-Ga.) issued a statement saying, "It is unfortunate Brazil is moving forward with retaliation without first engaging in meaningful discussions towards resolving the dispute…. The U.S. government continues to express its willingness to have a substantive dialogue and negotiators from the Office of the U.S. Trade Representative and [USDA] are waiting for Brazil to start the process. We cannot negotiate with a partner that is unwilling to voice what it wants."
But, the two add: "To be clear, we have been assured by the administration that U.S. officials attending the upcoming U.S.-Brazil CEO Forum are not carrying a proposal. We believe that doing so would only encourage a process where we end up negotiating with ourselves. Changes to both the cotton and GSM programs can only be done by Congress with the support of the House and Senate Agriculture Committees."
The statement concludes: "While Brazil has chosen to exercise its rights, its future actions will determine the degree to which the administration and the Congress are willing to move forward together in resolving the dispute and others in the [WTO]. This case is an opportunity for Brazil to demonstrate its newly embraced role in the international arena consistent with its emergence as an advanced developing economy."
And, in a parting shot at Brazil, the two say, "Additionally, Brazil's actions in the case will be a unique and helpful indicator whether it is time to reconsider benefits it receives from U.S. trade preference programs."
The U.S. National Cotton Council issued a statement emphasizing that Brazil is taking its retaliatory steps even though world cotton prices are more than 50 percent higher than 2005, which served as the basis for the original WTO panel ruling. And, says NCC , U.S. cotton harvested acreage and production are down by more than 40 percent, while production in Brazil , China and India has expanded.
Noting that the higher import duties do not take effect for 30 days, NCC urges the two governments to "engage in discussions to avoid the harmful effects of retaliation, but any resolution must recognize the realities of today's cotton market and the previous changes in U.S. programs."
