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Brazil Wins Case Against U.S. Cotton Subsidies & Dumping at the WTO

U.S. Farmers Get a Lesson In Global Trade

By Paul Blustein

It took Texas cotton farmer George Hoelscher a few minutes yesterday to
get his mind around the news that a panel of judges sitting in Geneva,
Switzerland -- one from Poland, one from Chile and one from Australia -- had
issued a ruling that threatened his livelihood.

But upon learning that the judges were with the World Trade Organization,
and that they had ruled U.S. cotton subsidies to be in violation of
international trade rules, Hoelscher began to perceive some dark truths.

"We're losing our sovereignty in a lot of ways," said Hoelscher, who farms
1,200 acres of cotton near Corpus Christi and collects up to $15,000 a year
in federal subsidies, depending on prices. "This is one more way, having
these people dictate to us, along with the United Nations and so forth."

Hoelscher and the rest of the nation's 25,000 cotton farmers are getting a
rude introduction to the rules of the global trading system, courtesy of the
decision issued Monday by the Geneva-based WTO in a case brought by Brazil
against the United States. The WTO panel, in a potentially major blow
against the farm-subsidy programs run by rich nations, found that federal
payments to cotton farmers unfairly depress world cotton prices.

By hitting the interests of people deep in America's heartland, the ruling
drove home the fact that, as a member of the nine-year-old WTO, the United
States has to bow to the organization's decisions -- even when, as in
Monday's case, those decisions go against laws approved by the U.S.
Congress. In return, the United States gets to use the WTO to pry open other
countries' markets to U.S. goods and make them abide by the rules agreed
upon among the 147 member countries.

It is a trade-off that even defenders concede involves some sacrifice of
self-determination, just like any international treaty involving, say, the
banning of biological weapons or nuclear bomb tests. The payoff for the
United States, WTO supporters contend, is that other countries accept
constraints on their sovereign powers as well -- and the value of those
constraints far exceeds what Washington gives up.

"You can't have a workable set of international rules unless the biggest
player in the system is willing to play by them," said David Rothkopf, a
former top Commerce Department official in the Clinton administration. "What
it assures us is that other countries won't do bad things to us" -- no small
matter, he added, "since 95 percent of the world's consumers live someplace
other than the United States."

WTO officials often emphasize that their organization can't force any
member government to change its laws or regulations, and technically that's
true. When one country wins a WTO case against another, the loser has a
choice: It can eliminate the offending law or practice, it can pay
compensation to the winner, or it can accept the imposition of duties
against its products by the winner.

In one big case that the United States won, for example, the WTO ruled
illegal the European Union's ban on imports of hormone-fed beef, and when
the EU refused to open its market anyway, Washington slapped tariffs on a
host of European goods.

In the cotton case, it is far from clear that the ruling will make Congress
change its subsidy program, which paid American farmers about $4 billion in
the crop year that ended July 31, 2002. The full WTO ruling hasn't been
released, and it is subject to appeals that could take until the end of this
year. "There is no immediate impact on our farm programs," Allen F. Johnson,
the chief agriculture negotiator at the U.S. trade representative's office,
said in a conference call with reporters.

But U.S. officials put high priority on compliance with WTO decisions even
when they lose because the whole idea of creating the WTO, from Washington's
standpoint, was to establish a global trade body with teeth. Before the
WTO's founding in 1995, countries often ignored rulings by the General
Agreement on Tariffs and Trade, which under the GATT's rules they were
allowed to do.

So now that a stronger world trade arbiter exists, concerns about
sovereignty have been amplified, just as they were when the North American
Free Trade Agreement was established. One of the most controversial elements
of NAFTA allows special tribunals to protect the rights of investors from
member countries -- giving a Canadian or Mexican company operating in the
United States, for example, the right to seek compensation for the cost of
complying with state environmental regulations that are found to violate
NAFTA rules.

Those sorts of issues have galvanized critics of trade agreements to argue
that the pacts compromise the rights of countries to set their own rules and
regulations, although left-wing critics acknowledged that Monday's WTO
ruling generally pleased them. U.S. agricultural subsidies, they agree,
unjustly enrich a small number of farmers and cause overproduction of crops,
which get dumped on world markets and drive down prices, depriving peasants
in poor countries of income.

"The WTO compromises U.S. sovereignty -- there's no question about that. At
the same time, we're not in all cases opposed to it," said Jason Mark, a
spokesman for Global Exchange, a San Francisco-based group. "Our problem
with the WTO is that when it compromises U.S. sovereignty, it does so in a
framework that only takes into account economic issues, or market values.
Other values, like environmental protection, or human rights, or social
justice, are left at the door."

In the very first case that the United States lost in the WTO, for example,
the trade body ruled in 1996 that certain U.S. clean-air regulations
unfairly discriminated against gasoline imported from Venezuela. Washington
has lost 22 cases brought by other countries, according to the Web site of
the U.S. trade representative's office.

But Washington has won an equal number of cases that it has brought against
other countries, plus 21 more that were "resolved to U.S. satisfaction
without litigation," according to the Web site.

These forced the elimination of foreign practices that kept American fruit
out of the Japanese market, for example. Another decision went against
Canada's subsidies for dairy farmers, which Washington said was leading to
the dumping of cheap Canadian milk in the U.S. market -- a case remarkably
like the one involving cotton, except with the United States in the role of
complaining party.

Boosters contend that the WTO, by creating an enforceable system of rules,
keeps trade disputes from degenerating into destructive trade wars. "You do
give up some freedom of action," said Edward Gresser, a trade expert at the
Progressive Policy Institute. "But we get foreigners to make the same sort
of promises to us." As an illustration, he cited China, which joined the WTO
in 2001.

"In 2000, American cotton farmers earned $46 million from selling cotton to
China," Gresser said. "In 2003, they earned $733 million from selling cotton
to China, and in just the first two months of 2004, they earned $428
million. This is because the Chinese agreed to join the WTO, and made a
series of promises to open their markets to the world's cotton. So [even
for] cotton farmers, there's a pretty big payoff in our being a member of
this organization."

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