Brazil will ask the World Trade Organization to impose punitive sanctions on the US for providing illegal cotton subsidies.
With its hopes to negotiate the issue of cotton subsidies under the Doha round of trade talks dashed by the US trade representative Susan Schwab's abrupt departure just before the could come up for negotiations, Brazil is now seeking sanctions under WTO rules against the US for subsidies to its cotton farmers.
Brazil is looking for punitive damages of around $4 billion in trade sanctions on US imports by asking WTO to resume the arbitration process which it had held back, hoping for an amicable solution under the failed trade talks in Geneva.
Brazil, Canada and a host of African nations, were hoping to secure agreements on the US cotton subsidies issue at the Geneva mini ministerial summit in July. With Scwab's abrupt departure, the issue remained unresolved, forcing Burkina Faso's minister to beg to leave if cotton was not going to be discussed.
Since the US is unrelenting on lifting subsidies to its cotton farmers, Brazil sees no option to imposing sanctions to resolve its trade dispute with the US.
Brazil first took its case to the WTO in 2003 claiming that the US subsidies to its farmers were affecting the producers of cotton in Brazil. Despite this, the n subsidies had not been either lifted or reduced, but had risen to $12 billion since 1999, making it American cotton competitive internationally.
Brazil had now made out a case where it says that the US subsidies suppressed global cotton prices and allowed US cotton producers to control a disproportionate share of the market.
Brazil put convincing arguments that even a small drop in prices harms Brazilian producers, given their narrow profit margins, and that the US cotton producer's artificially high market share reflects the impact of these subsidies. The US is the third largest producer of cotton behind China and India, with Brazil being at the fifth.
This was also the first time that the agricultural policy of a developed nation was successfully challenged at the WTO. The disastrous outcome of Doha round of trade talks held in Geneva also highlighted the fact that governments are not willing to sacrifice the livelihoods of voters for the sake of free trade.
Now that the US has lost its final appeal in the case, Brazil has the right to seek WTO authorisation for retaliatory trade sanctions until Washington scraps its cotton subsidies to its farmers.
Even after losing the WTO appeal, the US has raised cotton subsidies to its farmers by passing a legislation offering $2-$4 billion over the next five years. The then US Agriculture Secretary Mike Johanns said that his government would work very hard to maintain payments to domestic cotton producers.
It is estimated that the collapsed Doha trade talks 10 million cotton farmers in West Africa have emerged the worst sufferers, as their produce has to competein the world markets with the subsidised US cotton.
Brazil will now have to walk the tightrope because if it does apply sanctions it has to be ready for retaliatory measures by the US.