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Brazil Tests Obama Commitment to Trade Enforcement

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On international trade, the Obama Administration has stressed, more than anything else, the need for enforcement.

Brazil has now given the President and his trade advisers the perfect opportunity to prove they mean what they say about enforcing trade law.

With the authorization of the World Trade Organization, the Brazilian government has released a list of 102 American products that would suffer costly trade sanctions if the United States does not soon comply with the final verdict of the WTO in a long-running dispute between the two countries over U.S. cotton subsidies.

In a series of rulings since 2005, WTO jurists have ruled consistently that billions of dollars of annual American cotton subsidies violate WTO rules by depressing global cotton prices and causing "serious prejudice" to the trade interests of Brazil.

Under WTO rules, the United States now has a sovereign choice to make. It can enforce international trade law either by removing the adverse effects of its cotton subsidies or by withdrawing those subsidies altogether, in compliance with these WTO rulings. Or it can bear the economic consequences of lawful trade sanctions by Brazil for so long as it continues to choose not to do so.

These WTO rules on subsidies have not been imposed on the United States. The United States agreed to them in the treaty establishing the WTO. In fact, the United States urged the rest of the world to establish these rules, and it relies on them often today to prevent other WTO Members from discriminating against U.S. agricultural and manufactured goods of all kinds by distorting world trade with illegal subsidies.

Nor have the Brazilians done anything but play by the rules since this dispute began in 2002. Brazil has proceeded appropriately through the lengthy entirety of the agreed dispute settlement process in the WTO, and has prevailed at every legal twist and turn.

The political problem for the Obama Administration is that the Congress of the United States is, to say the least, reluctant to reduce cotton subsidies, and is especially resistant to doing so in response to a ruling by an international tribunal, particularly during an election year.

Mindful of this, Brazil is showing considerable patience by giving the Americans another thirty days before applying the sanctions.

A failure to reach a negotiated solution would be painful indeed for US businesses and workers. The value of U.S. agricultural and manufactured goods on the Brazilian sanctions list is $591 million. Current tariffs would increase between 14 and 100 percent on products ranging from cars to cosmetics, and from fresh fruit to refrigerators to sunglasses.

Additional sanctions against $238 million in U.S. services and intellectual property will also be applied through WTO-authorized "cross-retaliation." These additional penalties could especially affect U.S. patents and trademarks in the pharmaceutical, media, and technology industries.

At a time when he is pushing a new "Export Initiative," President Obama surely does not need these sanctions. And, at a time when American exporters are striving for a true economic recovery, they certainly don't need them. Is the United States willing to pay this high price for the privilege of perpetuating an addiction to illegal, trade-distorting agricultural subsidies?

Secretary of Commerce Gary Locke has been in Brazil trying to find a negotiated solution. United States Trade Representative Ron Kirk has said that, if one is not reached, the Administration will have to find some way to convince the Congress to comply with the WTO ruling.

This is the right attitude and the right approach.

It is consistent with the President's 2009 trade agenda, which stated clearly: "This Administration reaffirms America's commitment to a rules-based trading system.... We shall continue this country's commitment to the World Trade Organization's (WTO) system of multilateral trading rules and dispute settlement."

It is also the attitude and approach that will do the most to reassure the rest of the world that the United States understands that trade enforcement is a two-way street.

If we want other countries to treat our goods and services fairly by enforcing the trade rules on which more than 150 countries have agreed, we must be willing to do so ourselves.