Brazil and the U.S. to Continue Bilateral Accord on Cotton

Brazil’s Valor Econômico reports that the governments of Brazil and the United States have reached a temporary understanding to extend the bilateral accord that suspends Brazil’s World Trade Organization authorized retaliations against U.S. imports due to illegal subsidies to U.S. cotton producers.

Accordingly, Brazil has agreed to continue the suspension of over $800 million in WTO authorized retaliations in exchange for the U.S. government’s efforts to make the Farm bill compliant with the WTO decision and continue to pay the Brazilian Cotton Institute (known as IBA) $147 million per year.

The U.S. Farm bill expires on September 30, 2012 and there is no extension in sight, at least until after the November 6^th general elections.  The temporary understanding between the two governments diminishes the immediate tension created by the expiration of the current Farm bill.  However, Brazilian Trade ambassador, Roberto Azevedo, noted that if the current versions of the Farm bill reauthorization are approved, “then Brazil will have to decide how best to proceed.”  Ambassador Azevedo has openly criticized the ongoing direct and indirect subsidies offered by the versions of the Farm bill currently under consideration in the U.S. Congress.  Azevedo remarked that these versions “aggravate” the conflict because they propose even more trade distorting features than the direct payments used in the past but likely removed from the next Farm bill.

Now the two governments must decide whether they will adopt a new written agreement to replace the 2010 accord; or seek to simply modify it.  Most observers believe that the temporary understanding announced yesterday will be reflected in some sort of written agreement.