The Wall Street Journal editorial Friday (“The Madness of Cotton“) on resolution of the U.S.-Brazil Cotton dispute overlooks completely the most salient and important point – that the U.S. deal with Brazil forestalled the imposition of ruinous retaliatory duties not only on American manufactured products and agricultural goods, but on the key currency of America’s best hopes for 21^st century economic growth and innovation – intellectual property rights (IPR).

The United States was found to be in violation of subsidies on cotton by the World Trade Organization, and Brazil was authorized to retaliate against American products because those subsidies still exist. However, in a precedent-setting decision that should send chills down the spine of every advanced manufacturing nation on earth, Brazil was also given the right to retaliate against our IPR. Break patents, steal licenses, refuse payment of royalties – this is far from the standard practice of tariff retaliation that follows some WTO dispute settlement decisions.

Can you imagine the economic devastation to American companies that would have resulted from a billion dollars worth of retaliation against American IPR by Brazil? The ability to generate new ideas and new products, new processes and innovations is at the heart of America’s manufacturing competitiveness. Facing a very real threat to this key element of our economy, the Office of the U.S. Trade Representative and the U.S. Department of Agriculture should be commended for reaching a deal with Brazil.

Keep in mind, this is a stop-gap deal. If we could prevail upon Congress to immediately make changes to this particular subsidy, Brazil would lose its rights to retaliate. However, that won’t happen, and the best place for alterations is the next Farm Bill. Until we can get the necessary changes made, we’d be facing enormous retaliation on manufactured goods AND IPR by Brazil. Rather than have more than a billion dollars worth of U.S. goods and IPR face retaliation, USTR and Agriculture signed this shorter-term agreement. It’s the right move, it’s the smart move, and the business community strongly supported it.

In that deal, the United States agreed to provide funding for agricultural research in Brazil for a short time period while we reform the underlying cotton subsidy practices in the 2012 Farm Bill that resulted in the WTO judgment against us. That’s how the WTO works – an unfair trading practice is identified and most often immediately or quickly modified. The U.S. Congress will need to examine these subsidy programs and modify them to prevent future trade disputes.

But this is a far less onerous task than to watch the innovations, inventions and uniqueness of our manufacturers’ intellectual property rights be taken and used against us. Retaliation against our goods and farm products would have been bad enough – we’ve been watching it happen in the Mexico trucking dispute for over 14 months. But to have IPR targeted would have been a terrible precedent that, in the future, would have emboldened China, India and other nations to action as well.

The Dallas Morning News on Sunday does its own story on the anniversary of Mexico’s tariffs retaliating against the United States for violating NAFTA, also reporting on Brazil’s WTO-sanctioned tariffs retaliating against the U.S. cotton program, “Companies caught in the middle of U.S.-Mexico trucking dispute“:

“We have heard from American exporters,” U.S. Trade Representative Ron Kirk said Tuesday. “We understand the sense of urgency. We will work as quickly as we can to see if we can’t come up with an acceptable solution.”

Transportation Secretary Ray LaHood has assured exporters that he’s hopeful a deal can be reached soon. But he said the same thing a year ago.

“We have not yet floated any proposals with Mexico and look forward to consulting with members of Congress,” the department’s Federal Motor Carrier Safety Administration said Thursday in a statement.

The Mexican embassy in Washington issued a news release last week:

We continue to seek every opportunity for dialogue and engagement with the Administration and Congress on this issue, and we urge the former to come forward with a specific proposal to resolve the cross-border trucking impasse.

In the meantime, Mexico will continue to exercise all legal means available to achieve full compliance by the United States with its commitments under the NAFTA. The safety of Mexican carriers and drivers operating in the United States has been well documented by an Independent Evaluation Panel, the Inspector General of the U.S. DOT and the Congressional Research Service. Mexico is the United States’ second-largest export market and the second largest buyer of US exports. It remains a steadfast supporter of free and fair trade, and will continue to work actively and responsibly with Congress and the Administration to find a solution.

The Morning News story highlights the impact of the Mexican and Brazilian tariffs on Texas-based Mary Kay, the personal care products company that has paid $5.4 million in Mexican tariffs over the last year.

As for the Brazilian retaliation…

• Bloomberg, “Brazil Raises Tariffs on U.S. Goods, to Break Patents“
• Capital Press, “Brazilian tariffs could stall exports,” reporting on the consequences to the ag sector.
• The Economist, “Picking a Fight“

Here’s the list of U.S. products and tariff percentages applied by Brazil, from the Brazilian Embassy. We’ll also put the list in the extended entry section below.

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