Brazil and the Cotton Case

Well, it appears that the Government of Brazil has decided to play kumbaya, let's all just get along.  Farmpolicy.com has a few comments (here and here) that are probably worth reading if you are interested in the subject.

My take on this development is this:  Brazilian legislators were receiving serious heat from their domestic industries because they knew that the sanctions against the U.S. were ultimately going to hurt their consumers.  So they say: "Hey there.  How's about you put a little money in a pot for compensation for us, and, in exchange, we won't push this issue in a critical election year for you."  To which, our negotiators said: "Uhhh, sure."

So, now, the political hot potato has been passed back from Brazil to the U.S.  But, the fun is just beginning.  Part of the "can't we all just get along" deal is that the Brazilian's require "serious reform" in the next farm bill.  First, and most obviously...seriously??  What could Brazil mean by this?  After all, is this not the same Brazil that has a direct price support for cotton above 72 cents per pound (higher than the U.S.)??  Second, what reform is on the table?  The Step 2 program (the only thing that was deemed illegal under the ruling) was eliminated. 

The remainder of the debate centers on whether the U.S. actually exceeded it subsidy commitments.  To arrive at the conclusion that we had, the WTO relied on an obscure provision that prohibited plantings of fruits and vegetables in order to receive direct payments as the linchpin of our violation.  First, I seriously question whether that had anything to do with cotton production (and excessive production to lower prices).  But secondly, remove the provision and the basis for the case goes away.

So, the Brazilians simply punted the ball and have backed the Congress into a politically dangerous battle when the next farm bill comes up.