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Covering trade & transport, with tips on using import-export data to advantage

Brazil-US Trade: Trouble Brewing?

Category: Markets, Trade Policy

House bill challenges 2010 agreement that settled cotton dispute

by Bill Armbruster, blog anchor

In my last column, about Brazil’s surprising spike in demand for US ethanol and cotton,  I noted that the way had been cleared for shipments of $328 million worth of US cotton in first-half 2011 by an agreement reached between the two countries in June 2010.

The agreement settled a dispute over US cotton subsidies dating back to 2002. The World Trade Organization ruled for Brazil and against the subsidies in 2002, the US failed to comply fully, and in March 2010 Brazil gave the US 30 days to negotiate a corrective agreement – or face stiff retaliatory tariffs on a list of 102 items.  An 11th hour agreement was reached. In exchange for Brazil’s agreement not to impose countermeasures, the US agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building. (See Clock Stops on Countdown to Tariffs.)

Now US politics could put a damper on trade between Brazil and its top source for exports. The House Agricultural Appropriations bill covers the key provision in the bilateral framework.

The farm bill, sponsored by Rep. Ron Kind, a Wisconsin Democrat, would bar the transfer of $147 million in compensation to Brazilian cotton farmers. Charles Parker, chairman of the National Cotton Council, warned that adoption of the legislation would renew the threat of retaliation, a view echoed by Diego Bonomo, senior policy director of the Brazil-US Business Council. However, there is no comparable bill in the Senate.

Brazil traditionally imports a wide range of US-made products, from intermediate goods to capital goods to consumer goods, Bonomo told me in an exchange of e-mails. He attributed the growth in US exports to Brazil’s booming middle class and the appreciation of its currency, up 16% against the dollar since September 2009. While Brazil offers great opportunities, it also poses serious challenges for US exporters. Chief among these are red tape and the complexity of the Brazilian tax system, Bonomo said. “Brazil remains a fairly closed economy,” added Riordan Roett, a Latin America specialist at the Johns Hopkins School of Advanced International Studies.

A trade and economic agreement signed by President Obama and Brazil President Dilma Rousseff during his visit there in March aims to expand bilateral trade and reduce barriers. The first initiative was the launch of a strategic energy dialogue in August, followed by a green trade mission to Brazil at the end of the month. Twenty-one representatives from 14 companies participated.

Despite the growth in its exports to Brazil, the US is likely to soon lose its position as the top supplier to China, whose exports to Brazil in the first half of this year totaled $14.7 billion, up from $10.8 billion last year. Electronic parts and components, such as cell phones and semiconductors, are by far the leading exports.

Not everything looks rosy for the Chinese, however. China’s growing presence in Brazil, including its takeover of large swaths of territory for soybean farming, has triggered resentment. In December, Brazil raised a duty on imported toys to 35%, up from 20%, after local manufacturers complained they were being harmed by a flood of cheap, Chinese-made goods. In addition, complaints from Brazilian unions and industry groups, including textile producers, have led its government to enact 30 anti-dumping measures aimed at Chinese-made goods.

But Brazil has a healthy trade surplus with China, its leading foreign market, thanks to China’s voracious appetite for raw materials to meet the demands of its expanding economy. Iron ore, soybeans and crude oil are the leading exports.

Commodities exports have helped fuel Brazil’s economic growth, and the nation’s rising stature as an economic powerhouse was symbolized by its selection as host of the 2014 World Cup and the 2016 Olympics. The world will turn its attention to Brazil for those events – and so should US companies eager for new markets.

Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected].

The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.

Date posted: September 30, 2011


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