Brazilian trade officials are again making noise about possible WTO-approved retaliation against the United States. The development comes due to Brazil’s growing displeasure with the United States’ handling of a 2010 deal struck over cotton subsidies.

A decision on whether to retaliate, say the Brazilians, will come in late February following public “consultations” in January. Congress is also expected to vote on a new farm bill in January, although conferees have yet to strike a final deal. The Brazilians have already pushed back the date for a decision several times.

Lack of farm bill places record exports in jeopardy

The 2010 U.S/Brazil accord – which calls for the United States to pay $150 million annually to Brazilian cotton-farming interests – became necessary after the South American nation filed a 2002 complaint with the World Trade Organization alleging U.S. cotton subsidies were illegal. In 2004, the WTO agreed with Brazil, forcing the United States to the negotiating table.

Why did the United State agree to pay the $150 million annual penalty? Because the WTO ruled Brazil was able to “cross-retaliate” with $830 million of tariffs a year on all manner of U.S. goods.  

On December 19, Michael Scuse, USDA undersecretary for farm and foreign agricultural services, did his best to tamp down worries.

“Brazil has been very understanding and been working with us and has been very patient until we get a farm bill concluded,” said Scuse, during a press call. “Hopefully, when we do finally have a farm bill it will address the issues that Brazil has raised.

“It’s a bit premature to be talking about any sort of retaliation.”

However, in August, Agriculture Secretary Tom Vilsack –- facing mandated sequester cuts to the USDA budget -- warned that retaliation was exactly what could happen without quick resolution of a new farm bill. Barring action by Congress on the sequester cuts or a new farm bill, Vilsack claimed he was powerless to continue the monthly payments to Brazil. A September payment was the last made.

Will lack of a new farm bill reignite a trade war?

Brazil case continues to stalk cotton industry

At the time, Vilsack said he had "neither the authority nor the money to make any payment in October or thereafter."

He also said his Brazilian counterparts were unhappy with the news and would be considering “retaliatory measures.”

Interestingly, Darci Vetter, President Obama’s recently-announced nominee of chief agricultural negotiator in the Office of the U.S. Trade Representative (USTR), was the lead official in the U.S./Brazil WTO case negotiations.