In Budget Fight, Brazil Subsidies Divide Lawmakers

WASHINGTON—As lawmakers scour the budget for ways to reduce government spending, the U.S. continues to send millions of dollars to Brazil to subsidize the country’s cotton sector, payments that aren’t touched in the latest round of budget-cutting proposals.

The U.S. payments to Brazil, made in return for the country’s agreement not to levy tariffs on U.S. goods, appears to be safe from budget cutters in Congress despite renewed efforts by some lawmakers this year to stop it. The U.S. is paying $12.275 million monthly to Brazil, according to the agreement between the two countries. Rep. Ron Kind (D., Wis.) is spearheading the effort in Congress to stop the payments.

Brazil took the U.S. to international trade court in 2003 over its cotton-subsidy programs, claiming the U.S. unfairly bolstered its cotton exports and put Brazilian shippers at a disadvantage. Brazil won and even defeated a U.S. appeal by 2005, but the legal wranglings continued over whether the U.S. was complying with the World Trade Organization ruling and abolishing its cotton-subsidy programs.

In June 2010, the U.S. struck a deal with Brazil to make monthly payments of $12.275 million on top of two one-time payments of $30 million and $4.3 million. Total U.S. payments to Brazil should reach $157 million by the end of this month.

Brazil, under the agreement, is responsible for making sure the money is spent only on improving the country’s cotton sector.

Meanwhile, the U.S. Department of Agriculture continues to pay subsidies to U.S. cotton farmers. In 2003, the year Brazil requested a WTO dispute panel, the USDA paid out $2.9 billion to cotton farmers, according to government data. The yearly amount has varied sharply though, reaching $4.2 billion in 2005 and just $872 million last year.

“It is the single stupidest public policy I have ever encountered,” said Rep. Barney Frank of Massachusetts, the top Democrat on the House Financial Services Committee. Mr. Kind said this is a bad example for how the U.S. deals with trade disputes.

A USDA spokesman defended the deal, saying it prevented Brazil from imposing “hundreds of millions of dollars in countermeasures against U.S. trade, including an unprecedented targeting of our intellectual property rights.”

Billions in cuts to agriculture spending are demanded in a budget plan approved by the House earlier this month, but it leaves how those cuts will be made to agriculture committee members. And all but three of the lawmakers on that committee voted in February to continue the payments to Brazil.

Messrs. Kind and Frank have sought to kill these payments earlier this year, and now are renewing their fight as the 2012 budget battle heats up. The House approved a 2012 budget that would slash government spending by $5.8 trillion over 10 years, including significant cuts to Medicare and Medicaid.

The U.S. payments are to convince Brazil not to impose billions of dollars of retaliatory tariffs on U.S. products, but it’s also to protect the U.S. government’s ability to subsidize cotton farmers. Three of the four U.S. subsidy programs that Brazil initially took the U.S. to court over in 2003 are still running under the oversight of the USDA.

The U.S., the world’s largest cotton exporter, is expected to ship about 12 million 480-pound bales this year, according to a USDA forecast. Brazil is predicted to export just two million bales.

Mr. Kind, together with the support of Mr. Frank and Jeff Flake (R., Ariz.) tried and failed to halt the payments to Brazil in February by proposing an amendment to a government spending bill. Their amendment to ban the payments was defeated 246 to 183 on Feb. 18.

House Agriculture Committee Chairman Frank Lucas (R., Okla), and the committee’s ranking Democrat, Rep. Collin Peterson (D., Minn), voted against Mr. Kind’s amendment, along with most of the other committee members. House Budget Committee Chairman Paul Ryan (R., Wis.) voted in favor of stopping taxpayer money from flowing to Brazil.

Mr. Frank blamed its defeat on lawmakers from large, southern, cotton-producing states.
There are a lot of lawmakers now “with a great urging for cutting the deficit,” he said, but not “when it comes to something that puts money into their constituents pockets.”

Mr. Lucas, who opposed Mr. Kind’s amendment, said he understands the U.S. must eventually comply with the WTO ruling against the U.S. subsidy programs and stop paying Brazil.

It may be a hard sell convincing cotton farmers to do without the government support, Mr. Lucas said, even though recent high prices have meant the payments haven’t been needed lately. Market conditions can change rapidly, he said.

“We have to work out a solution that is WTO-compliant and politically palatable,” Mr. Lucas said. “My cotton friends understand that and over the course of the next year we’re going to work through all the options and try to come up with away to address it.”

Mr. Lucas will be a key architect of the next farm bill, a five-year blueprint for U.S. farm policy, and he has said he hopes to have it finished by the end of 2012.
That’s not good enough, though, when the U.S. is paying Brazil more than $12 million per month, Mr. Frank said.

“We’ll have done this for three years,” Mr. Frank said. “If we had done the right thing and cut our subsidies to our cotton farmers, then [the U.S.] would have been saving [hundreds of millions of dollars].”