Wednesday, March 10, 2010

Brazil Retaliates Against USA Threatening New Trade War

Newpaper O Estado de Sao Paulo reports today that Brazil's decision to increase import tariffs on U.S. products, approved by the World Trade Organization (WTO), threatens to provoke a trade war between the two countries, citing the Financial Times.

The Brazilian government announced on Monday a list of 102 American products that will have higher tariffs, totaling about $591M in surcharges. The measure was announced after a favorable decision by the WTO to Brazil on a dispute over subsidies paid by the U.S. government to its cotton producers. The cotton cartel in well known in the US.

The WTO actually authorized Brazil to impose up to $ 829M in surcharges. The measure should come into force next month, but the U.S. government hopes to reach a deal within the next 30 days to reverse it.

The dispute should be subject of discussions between the Brazilian and Gary Locke, U.S. secretary of commerce, as well as Michael Froman, adviser and deputy national security to economic issues, who arrive in Brazil on Tuesday.

"Brazil made it clear he is open to an agreement before the new tariffs come into force, but officials emphasized that any agreement should be specifically applied to cotton. One possibility may involve transfer of technology from the United States to the Brazilian cotton producers.

However, the scope of the U.S. government for negotiations is uncertain, since changes to the program of subsidies for cotton would require changes in agricultural legislation. "Getting the approval of Congress could be difficult," the newspaper said.

The Financial Times commented that "more and more trading partners of the United States react to pressure." Nevertheless, the newspaper notes that the economies of the United States and Brazil "are less dependent on trade than investors may fear." The report cites a survey by the Economist Intelligence Unit under which exports of goods and services in Brazil represents only 14% of GDP, compared with 40% in Chile and China and 30% in Mexico.

The proportion of imports, even having doubled since 1990, is still only 13% of GDP. On the other hand, for the United States to Brazil accounted for only 2.5% of its exports of goods last year.

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