ACTIVIDAD INDIVIDUAL 6

Brazil, America and trade

Picking a fight
Brazil fires another salvo in its dispute with America over cotton subsidies Mar 9th 2010

HOW serious is the decision by Brazil's

government, announced on Tuesday March
8th, to raise duties on a number of American-
made imports? The increases are sizeable for
goods such as cosmetics (tariffs will double,
to 36%) and many household wares (tariffs
will also double, to 40%). And the timing is
significant: the news came as America's
commerce secretary, Gary Locke, was due to
arrive in Brasilia to promote an export-
promotion initiative in America's 10th-largest
export market.
Yet the decision is not entirely surprising, as it
relates to a long-running trade dispute. Asked
about the dispute at a press conference last week Hillary Clinton, the secretary of state, said “I feel like I have
walked into a movie that has been going on for years”. Brazil complained to the World Trade Organisation
(WTO) nearly eight years ago about America's counter-cyclical subsidies to its cotton growers, which are
designed to cushion them against fluctuations in the cotton price, and a programme guaranteeing loans for
international buyers of American cotton.
Just over six months ago an arbitration panel at the WTO authorised Brazil to retaliate by imposing additional
duties on American goods, for America's failure to comply with earlier rulings on the matter. The panel specified
that Brazil was entitled to retaliation worth $294.7m, but that this amount would be adjusted in subsequent
years to account for changes in payments to American cotton farmers. Brazil estimates that it is entitled to
impose retaliatory measures worth $829m. The measures announced so far are worth $591m.
The dispute is related to cotton, so it is unsurprising that Brazil has reserved the stiffest tariff rises for cotton
products, lifting them to 100% from current rates of 6%-35%. But a decision to lift duties on cars—a sensitive
product in America—from 35% to 50% suggests that Brazil is doing what most countries authorised to retaliate
against trade partners do, which is to seek to inflict most pain on industries with a strong political voice.
Brazil has another card to play, which software, pharmaceutical and other big American industries may worry
about. The Latin American country may, under the terms of the WTO ruling, “suspend certain obligations” to
honour intellectual property rights (such as patents) if the amount of retaliation that it is entitled to is so high that
it could not reasonably hope to exhaust it by targeting goods alone. Brazil's government says that it intends to
do this with measures later this month, to the value of $238m—the “remaining annual amount of retaliation to
which Brazil is entitled”—which will be applied to intellectual property and services. The WTO has previously
allowed such retaliation, although nobody has ever followed through with such steps. Brazil, if it threats are to
be believed, would be the first to do so.
A spokeswoman for the office of the US Trade Representative said it was “disappointed”, adding that it hopes
to solve the trade spat through negotiation. The Brazilians say they ready for talks, too. The statement by the
Brazilian government emphasised that “trade retaliation does not constitute the most appropriate means” to a
fairer basis for international trade.
That sounds conciliatory, but the Brazilians are still emphasising that negotiations would have to focus on
cotton subsidies. The strength of the farm lobby in Congress makes this an area difficult to reform. But
changing Congress's mind may be exactly what the Brazilians intend: Gary Hufbauer, a trade economist at the
Peterson Institute for International Economics in Washington, DC, says that “Brazil has decided that the only
way to shift congressional opinion is through retaliation”. The two countries now have a month to negotiate a
settlement before the proposed tariff increases go into effect.

1
Actividad individual
Leer el texto “Picking a fight” y realizar las siguientes actividades

1. Translate the underlined words.

Significado
announced timing

Asked surprising

walked running

complained going on

designed guaranteeing

specified imposing

entitled rulings

adjusted unsurprising

announced lifting

related doing

reserved targeting

authorised remaining

applied adding

allowed emphasising

followed changing
through
believed

emphasised

decided

proposed

2. Answer the following questions

1. What does WTO stand for?
2. What did Brazil complain to the WTO about?
3. What was the WTO answer to Brazil’s complaint?
4. Why did Brazil raise taxes on cars?
5. What was America’s reaction like under the light of Brazil’s rough measures?
6. Is Brazil ready to negotiate unconditionally? Yes/No/Why?

ACTIVIDAD EN PARES

2
Read the text “Why Argentina is ending its long debt battle”

1. Who are the “holdout creditors”? Explain their behaviour in 2005 and 2010.
2. Explain (briefly) the terms of the restructurings.
3. What did Griesa decide?
4. What happened at the beginning of President Macri’s term with the defaulted debt?
5. Which are the “dire straits” Argentina faced in 2015?
6. What consequences may adjustments bring about?

Why Argentina is ending its long debt battle

Mar 2nd 2016, 23:48 BY J.R.A.

ARGENTINA'S $82 billion sovereign default in 2001

was the largest ever. More than fourteen years later, the
country is still cleaning up the mess. On February 29th it
agreed to an expensive settlement worth $4.65 billion
with four of the largest “holdout” creditors: those who
rejected debt restructurings in 2005 and 2010 and instead
pursued Argentina for full payment plus interest through
the New York courts (it was under their law that the
original bonds were written). Until recently, Argentina
refused to negotiate with the holdouts, insisting that it
was not prepared to offer more generous terms than those
it had offered to the other creditors. So, what changed?
During the debt restructurings, 93% of bondholders had agreed to exchange their defaulted bonds for new ones,
accepting a haircut of 65%. Unperturbed, the holdouts took their case to Thomas Griesa, a New York judge,
who ordered Argentina to pay them in full. Argentina’s government, led by Cristina Fernández de Kirchner,
refused. In 2012, in an effort to force Argentina to the negotiating table, Mr. Griesa prohibited the country from
paying the holders of its restructured debt unless it settled with the holdouts. The decision infuriated Ms.
Fernández, who branded the judge “senile” and the holdouts “vultures”. Unwilling to pay the holdouts, and
unable to pay the exchange bondholders, Argentina defaulted again in 2014.
But in November last year Argentines narrowly elected Mauricio Macri as president. The first non-Peronist to
inhabit the Casa Rosada in 16 years, he promised to normalise Argentina’s economy after years of
mismanagement by his predecessors. On February 1st finance ministry officials opened negotiations in New
York in an attempt to reach an accord with the remaining holdouts. They made quick progress. On February
2nd a group of Italian bondholders accepted an offer of $1.35 billion. On February 17th two hedge funds,
Montreux Capital and EM Ltd settled for $1.1 billion. But it was the four largest holdouts who represented the
real prize. Their agreement comes at a cost: the $4.65 billion settlement equates to a write down of just 25%,
far more generous terms than were offered to creditors in 2005 and 2010.
Mr. Macri calculates that this is a price worth paying. His predecessor left Argentina’s economy is in dire
straits: in 2015 it ran a 5.8% fiscal deficit; inflation is currently at around 30%. Borrowing on international
credit markets will help him to tackle both. Until now the central bank has been forced to print money to
finance the budget shortfall, driving up inflation. Soon Mr. Macri’s government will be able to use credit to
bridge the gap instead. That gives Mr. Macri more time to cut spending, negating the need for a sharp fiscal
adjustment, which could threaten jobs and growth. Mr. Macri’s economic recovery will take time. But after
fourteen years, Argentina’s abrupt U-turn means it is finally heading in the right direction.