Clock Stops on Countdown to Tariffs

Brazil, U.S. reach agreement in 11th-hour talks

Brazil’s threat to impose stiff tariffs on a range of U.S. products and commodities as of April 7 has been withdrawn thanks to negotiations that began April 1 and concluded with an agreement announced April 6.

The tariffs were to be in retaliation for U.S. government subsidies to American cotton growers.

In exchange for Brazil’s agreement not to impose countermeasures, the U.S. 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. Under terms to be agreed by the U.S. and Brazil in a Memorandum of Understanding, the fund would continue until passage of the next Farm Bill, or mutual agreement on a solution to the cotton dispute, whichever is sooner.

The U.S. also agreed to make some near-term modifications to the operation of the GSM-102 Export Credit Guarantee Program, and to take steps to clear the way for U.S. imports of fresh beef from the Brazilian state of Santa Catarina.

Following these initial steps, the U.S. and Brazil will continue discussions with a view to agreeing on a process by June that resolves the cotton dispute. See the full text of the U.S. Trade Representative release at http://bit.ly/auwN0A

Update: 4/21/10 Brazil’s Foreign Relations Ministry announced it will suspend tariff retaliation on U.S. goods 60 days while it studies the U.S. offer of compensation for domestic cotton subsidies.

Brazil's Countdown Continues

Scope of threat broadens
Brazil has broadened the scope of threatened retaliation to include 21 new items, including pharmaceuticals, music and movies (http://bit.ly/cQQ7a8), which would be subject to not only tariffs but also suspension of patents and intellectual property (IP) rights (http://bit.ly/cLNimL). Without concessions from the U.S., the higher tariffs on the original 102 targets are set to go into effect April 7.

Brazil’s Retaliatory Tariffs

After 8 years, 30 days to sanctions

With the approval of the World Trade Organization, Brazil is set to impose tariffs on a range of U.S. products and commodities in retaliation for U.S. government subsidies to American cotton growers.

The trade dispute started in 2002 when Brazil went to the WTO with its complaint against the U.S. subsidies and their impact on Brazilian cotton. The WTO sided with Brazil in 2004 and its decision was upheld on appeal in 2005. In 2006, the U.S. agreed to comply with WTO recommendations; but a 2007 WTO review found the U.S. had fallen short on compliance. A 2008 WTO arbitration panel set the parameters for retaliatory action. (This synopsis is based on a policy statement from U.S. Wheat Associates, a trade group anxious to increase U.S. wheat’s share of the Brazilian market.)

On March 3, Brazilian Foreign Minister Celso Amorim, said the U.S. had 30 days to negotiate a bilateral agreement with Brazil to avoid the new tariffs. On March 8, Brazil published the list of 102 import products on which it intends to levy tariff increases. You can see the complete list here: http://www.bit.ly/bI5OZp. The product descriptions are in Portuguese, but the tariff codes and percentages don’t need translation. Top U.S. import crude oil (see The Datamyne Top 5 Brazil’s U.S. Imports) is not on the list, but #2 passenger motor vehicles is.

Low Expectations

U.S. consumers are pessimistic; confidence is back in Asia, Brazil

The Conference Board Consumer Confidence Index (released Feb. 23, based on a survey of 5,000 U.S. households through Feb. 17) now stands at 46.0 (1985=100), down from a relatively optimistic 56.5 in January. The closely watched indicator, based on a monthly survey by TNS, echoes other measures of the American consumer’s readiness and/or willingness to spend. The Reuters/University of Michigan Surveys of Consumers on Feb. 12 reported its preliminary index of consumer sentiment for February was 73.7, down from 74.4 in late January (but up from 56.3 a year ago).

Is the pessimism universal? The latest Nielsen Global Consumer Confidence Index shows the consumers of Latin America (at 98 on a scale of 0 to 200) and Asia/Pacific (at 91) well ahead of their counterparts in North America (84) and Europe (77) when it comes to confidence, with the biggest gains in the markets recovering fastest from recession — including Hong Kong, China, Singapore, India, and Brazil. [Note: The Datamyne covers China, India and Brazil.]

But post-holiday second-thoughts about what lies ahead can dampen spirits in even the strongest markets. The Getulio Vargas Foundation (Fundação Getulio Vargas), which saw a boost in its Brazilian Consumer Confidence Index in January to 113, now reports [in Portuguese] slippage of 2.2 point in February. The current 110 is still well above the historical average of 107.