How Government Works: A Cotton Case Study

When the government has a problem with spending, they sometimes try to solve it using their default solution; spend.

Such is the case when it comes to cotton, that's right, cotton, the fabric of our lives. Back in 2002, the country of Brazil went to the World Trade Organization (WTO) with a beef about all the pork the U.S. was putting into it's crops, figuratively of course. They argued that the U.S. was illegally subsidizing its cotton farmers. They won. The U.S. appealed the decision, and lost the appeal as well.

The U.S., as part of it's farm bill, subsidizes just about everything under the sun, quite literally since we are talking about crops that grow outside. The issue then arises that because this is written into the law, and until Obama gets his way about the Trans Pacific Partnership, the law of the land still trumps the law of other lands. Meaning it would take an act of congress to actually comply with the WTO ruling. For those of you who have been living in a cave on Mars with their eyes shut tightly and fingers placed in their ears, let me bring you up to speed on how getting something passed in congress works. It doesn't.

Even during the Bush administration, nobody in congress wanted to be tarred and cotton-balled by passing legislation specifically repealing free goodies to farmers in order to comply with an international court, so the law stood. Leaving Brazilians feeling like Alaska during a Presidential election campaign season.

As time went on with no real chance of complying with the WTO ruling, Brazil threatened to retaliate with trade sanctions if the U.S. didn't stop subsidizing cotton.

And so finally, in 2010, U.S. representatives made Brazil the only offer that makes sense to a United States politician, they offered to subsidize Brazilian cotton as well. The subsidies to U.S. cotton farmers will continue for as long as the current Farm Bill is in place. Therefore, until the next Farm Bill passes that agrees with the WTO ruling, the U.S. will pay Brazilian cotton farmers $147 million per year.

$147 million a year, enough to match the revenue of Brazil's most lucrative soccer team, simply given over to Brazil because the alternative would be to stop giving billions to our own cotton industry. Of course when money is paid off to an industry by congress to an American company it's a subsidy, typically when it's paid off to a foreign industry it's called something else. A bribe.

Why would we feel threatened by a trade embargo with Brazil? Because we already have a lot of money and resources vested in the area trying to compete with Chinese state companies over the large oil reserves located in the area. A battle we are already loosing.

But then, last October, the money didn't show up. Tom Vilsack, the U.S. Secretary of Agriculture and former Iowa Governor, says he did warn the Brazilians last summer that the payments were about to stop. That's because the U.S. promised to make the payments until the next farm bill passed, and Congress planned to pass a farm bill last year. Presently, we are operating with no farm bill. No money for us, no money for you, sounds fair right?

Unfortunately, many of the Brazilian trade representatives who have looked at current drafts of the bill say the cotton subsidies are going right back in there, just in a different form (Look to section 1208 of the bill passed in the senate). If that's still the case when the bill passes, the Brazilians will almost certainly take the whole thing back to the WTO and the whole process gets rebooted like a J.J. Abrams Movie.

If that is the case, then there is nothing to prevent this entire cycle from starting over. Congress gives money to farmers to help them sell their wares. Other countries say that's unfair, congress pays them off to stop wining, promising that in 2018, the proposed sunset for the next farm bill, that they will start to play by the rules, billions of dollars exchange hands in the meantime.

Meanwhile, the cheapest cotton shirts are still made in Taiwan.