U.S. Subsidizes Brazilian Cotton to Protect Monsanto's Profits

On February 18, Republicans in the House of Representatives defeated an obscure amendment to the House Appropriations bill by a 2-to-1 margin. The Kind Amendment would have eliminated $147 million dollars that the federal government pays every year directly to Brazilian cotton farmers. In an era of nationwide belt tightening, with funding for things like education and the U.S. Farm Bill on the chopping block, defending payments to Brazilian farmers may seem curious.

In order to understand this peculiar political move, one has to look all the way back to 2002, when Brazil filed a case in the WTO challenging U.S. cotton subsidies. In 2004, the Dispute Settlement Body of the WTO found in favor of Brazil, ruling that government subsidies afforded U.S. cotton producers an unfair advantage and suppressed the world market price, which damaged Brazil's interests. After multiple appeals the WTO upheld the original ruling, and by 2009 the U.S. still had not reformed its cotton programs. Brazil then asked the WTO for permission to retaliate against the U.S. by imposing trade sanctions. The WTO decided that Brazil was entitled to impose 100-percent tariffs on over 100 different goods of U.S. origin. Even more importantly, however, Brazil was entitled to suspend intellectual property rights for U.S. companies, including patent protections on genetically engineered seeds.

In WTO language, Brazil was allowed to suspend its obligations to U.S. companies under the Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement. This constituted a major threat to the profits of U.S. agribusiness giants Monsanto and Pioneer, since Brazil is the second largest grower of biotech crops in the world. Fifty percent of Brazil's corn harvest is engineered to produce the pesticide Bt, and Monsanto's YieldGard VT Pro is a popular product among Brazilian corn farmers. By targeting the profits of major U.S. corporations, the Brazilian government put the U.S. in a tough spot: either let the subsidies stand and allow Brazilian farmers to plant Monsanto and Pioneer seeds without paying royalties, or substantially reform the cotton program. In essence, Brazil was pitting the interests of Big Agribusiness against those of Big Cotton, and the U.S. government was caught in the middle.

The two governments, however, managed to come up with a creative solution. In a 2009 WTO "framework agreement," the U.S. created the Commodity Conservation Corporation (CCC), and Brazil created the Brazilian Cotton Institute (BCI). Rather than eliminating or substantially reforming cotton subsidies, the CCC pays the BCI $147 million dollars a year in "technical assistance," which happens to be the same amount the WTO authorized for trade retaliation specifically for cotton payments. In essence, then, the U.S. government pays a subsidy to Brazilian cotton farmers every year to protect the U.S. cotton program--and the profits of companies like Monsanto and Pioneer.

In 2005, I attended the committee meeting of Brazil's foreign trade ministry where Pedro Camargo Neto--a Brazilian trade lawyer and then-president of the Brazilian pork producers association--proposed suspension of the TRIPS agreement as retaliation for U.S. non-compliance with the WTO ruling on cotton. It was a brilliant political tactic, and dramatically shows the power of private firms in both countries to influence trade policy in the WTO. When I interviewed him as part of my dissertation, Camargo said the Brazilian cotton case would never have been launched without political pressure and funding from Brazil's powerful cotton industry. Despite facing substantial resistance from the Brazilian government in launching the case, he said, "the producers were really backing it."

Today in the U.S., taxpayers are bearing the cost of the cotton subsidies and the cost of failure to reform them. Although major news outlets called the payments yet another insane perversion of already insane U.S. agricultural policy, it clearly wasn't just about preserving subsidies. In 2006, Steve Suppan anticipated the use--and drawbacks--of TRIPS suspension as a one of few tools of cross-retaliation available to poorer countries. However, because of the size of the market for genetically modified seeds there, TRIPS suspension was Brazil's trump card. Apparently when the stakes are high enough for American business interests, the government will make sure that American taxpayers subsidize not just agriculture, but intellectual property, too.