Rep. Ron Kind (D-WI) and Rep. Earl Blumenauer (D-OR) are promoting legislation that would force the US to be a scofflaw. Last week, two members introduced legislation that would prohibit the US from making an annual payment of $147 million to Brazil.  They’re outraged that the US makes this payment – a sort of hush-money – to induce Brazil from punishing the US with more painful penalties under a WTO ruling against US cotton subsidies.

A cotton field in North Carolina. Photo: Liliana Rodriguez / Oxfam America

Kind and Blumenauer think it’s absurd to be paying off Brazil when we have a budget crisis, and want to bring pressure on Congress to reform the cotton subsidies rather than make this annual payment.  This would happen through the Farm Bill, which Congress was unable—or unwilling—to pass last year.  The House Agriculture Committee will restart the process on May 15 with a “markup” in the committee.

Even if Congress does pass a new Farm Bill, it’s not clear that it will reform cotton subsidies.  Last year’s draft versions of the Farm Bill didn’t come close, and Brazil could still retaliate.

Strangely, Brazil has been very gentle with the US and has refrained from harsher penalties for years.  When Congress failed to pass a Farm Bill and reform cotton subsidies last year, Brazil meekly agreed to keep the current payment.  They might not get their full payment this year, actually, as US Agriculture Secretary Vilsack may think the budget sequester, which shaves spending all over the government, will apply to the Brazil payment.

Perhaps, Brazil’s patience with the US over cotton subsidies can be explained by the fact that the Brazilian Ambassador to the WTO, Roberto Azevedo, is vying for a new job as head of the WTO. It certainly wouldn’t help his campaign to alienate one of the biggest member states. I’ve met Minister Azevedo and respect and like him a lot, so I don’t mean to impugn him or imply anything unethical.

At some point, the WTO job will be filled and then, perhaps, the US will have run out of leverage and exhausted Brazil’s patience.

Is it better to gain absolutely or relatively?

For example, free trade agreements promise all members economic benefits (absolute gains); although some members will benefit more than others (relative gains).

In terms of poverty, the Millennium Development Goals (MDGs) are a lesson in absolute gains. In sheer numbers, we’ve halved the world’s population living below the $1.25/day poverty line, and millions more joined the ranks of an emerging global middle class.

Yet, the victory of absolute poverty gains masks the pernicious relative inequalities that have grown alongside poverty reductions.

In many countries, poverty reduction and economic growth were unequal. In China, for example, the urban poor along the industrial coast made much greater gains than those in the vast, rural interior. In other places, prejudices and discrimination excluded groups from the benefits of growth and social services because of gender, race, ethnicity, and religion. Globalization and growth accelerated the creation of new, exclusive classes of upper middle and high income earners. Yet, the impact escalated prices on food and essentials, leaving the near poor vulnerable to slipping back below the poverty threshold.

To the right of the tennis courts and swimming pools, is Paraisópolis, a favela or shanty town, outside of São Paulo, Brazil. Translated, its name is Paradise City. Source: Google Maps http://bit.ly/11tbM3X. You can see another view of the area by photographer Tuca Vieira here: http://bit.ly/W7TODA

As we gear up for a post 2015 agenda, our generation is in a unique historical position. Eradicating global poverty is no longer a fantasy. It’s within our reach. However, the next challenge is reducing chronic inequalities between those subsisting just above the poverty line, and those securely apart of the middle class, or higher.

As the UN’s High Level Panel meets in Monrovia this week to discuss the post 2015 agenda, let’s laud the MDGs for helping to deliver the absolute gains made eradicating poverty.

But, let’s not allow world leaders to shy from the difficult challenge of creating relative gains for those heretofore excluded from economic and social opportunities.

US cotton field. The WTO granted Brazil the right to retaliate for unfair US cotton subsidies. Liliana Rodriguez/Oxfam America.

What do ketchup, shaving cream, and Viagra have in common?

They all could be targeted for retaliation by Brazil if Congress doesn’t reform the Farm Bill. US exporters of these products, and hundreds more, could pay higher tariffs or lose their patent rights if the Brazilian government imposes trade retaliation against the USA for violating WTO rules on farm subsidies. Brazil brought a legal case to the WTO complaining about US cotton subsidies in 2002. They won the case, proving that US cotton subsidies were huge and unfair. The USA never fully reformed the subsidies, so Brazil asked for, and was granted, the right to retaliate. Hence, the list of products (English version here).

It’s interesting to think about the political calculations underneath the products chosen. Creating a retaliation list is an exercise in practical political economy. How do you create enough economic and political pain on the United States to force a reform of cotton subsidies? Which industries or companies do you target? Do you try to target specific politicians by hitting products and companies that are from their constituency? Or do you try to gain some economic advantage by raising tariffs on some products? Certainly, there are domestic businesses in Brazil that are eager to hurt their foreign competition and lobby for tariffs in their sector.

The thing about raising tariffs is that it hurts the exporting producer, but it also hurts the importing consumer by raising prices and reducing choice. In order to hurt the US, Brazil also has to hurt some Brazilian consumers of US products.

According to the rules, Brazil can impose more than $800 million in retaliation. But $800m in new tariffs is painful for Brazilians also. So Brazil asked for permission from the WTO to retaliate in a different way. Brazil can suspend intellectual property rights on certain products. This is where the retaliation gets really interesting. Brazil hasn’t published a list, but has identified categories for intellectual property rights retaliation. Products could include patents and copyrights on medicines, agrochemicals, music, videos, and software. These products won’t face new tariffs, but Brazilian producers might be able to manufacture and sell these products without paying royalties or licenses.

Brazil was days away from imposing this kind of retaliation in 2010 when officials from the US Trade Representative’s office flew down to hurriedly negotiate a compromise. The agreement was that Brazil would postpone retaliation and the US would pay Brazil $147.3 million annually until a new Farm Bill was enacted.

So far, no new Farm Bill. Not even close. This week Congress will decide whether to extend the current Farm Bill by three months or by a year. Either way, Brazil will have to decide what the next step is. Brazil is once again preparing to retaliate. Brazil may alter the retaliation list and has convened a technical committee to review the list.

In Congress, a game of bluff and bluster is playing out around the Farm Bill. The issue is whether the leaders of the House Agriculture Committee can cajole or coerce the House Republican leaders to bring the Farm Bill to the floor of the House for approval. Time is running out before Congress goes on vacation, and as the calendar gets short, the chance of passing a new Farm Bill into law gets smaller and smaller.

 The Senate, having passed a version of the new Farm Bill, is waiting. The House Agriculture Committee passed a Farm Bill out, but it is stuck in limbo before it reaches the full House of Representatives. The Committee Chair, Frank Lucas of Oklahoma, and the senior Democrat, Collin Peterson of Minnesota are pleading and pushing to get time on the calendar. But House Speaker John Boehner of Ohio has been coy. And the clock is ticking.

Speaker Boehner once sat on the House Agriculture Committee, but he’s no aggie. In the past, he’s taken on agriculture interests in the name of free-market principles and small-government budget thrift. He recently said, “we have a Soviet-style dairy program in America today” and has a record of voting against Farm Bills in the past.

The author sits on a pile of organic cotton produced in Mali with an Oxfam colleague. Cotton producers around the world complain about the US Farm Bill subsidies for cotton. Credit: Oxfam America

There’s a real question as to whether the Farm Bill has the votes to pass. The bill is unpopular among liberals, mainly because it cuts US food assistance programs for poor people. But the bill causes heartburn for many conservatives because it’s anything but a “free market” solution. A conservative think-tank says about the Farm Bill, “the conservative movement has united against these trillion dollar takeover bills that seek to expand the federal government’s role into nearly every sector of American life.”

With opposition across the spectrum, it may be hard to forge the 218 votes needed to get the Farm Bill over the line in the House. Even then, it will have to be negotiated and merged with the Senate version and then re-voted by the House and Senate. All before January, and with very few working days on the Congressional calendar.

A quiet presence on the Farm Bill has been Brazil. For years, Brazil has been waiting for Congress to pass a new Farm Bill, with the expectation that the new legislation will bring the US into compliance with WTO agreements. Brazil won a legal challenge against US cotton subsidies and has the right to retaliate against the US. The US pays Brazil for their patience to the tune of $147m annually, which is a lot of money, but still less than the $800m+ Brazil is entitled to inflict on the US under the WTO rules.

Seeing that Congress likely won’t pass a Farm Bill this year, US trade and agriculture officials flew down to Brazil last week to make sure Brazil doesn’t rush into trade retaliation. They agreed to extend the current agreement for a few more months or until a new Farm Bill is passed.  

But Brazil is sharpening its sword. Because even when a new Farm Bill is finalized, there’s little chance that it will satisfy them and remove unfair subsidies for US cotton production. In June, Brazil reactivated a technical group to decide which US export products would be taxed if they retaliate and products for which US intellectual property rights would be waived. It would be interesting to be a fly on the wall to listen in to the discussion of that group.