Score one for free trade in agriculture

In a victory for anyone who believes that distortionary agricultural subsidies should be eliminated, the WTO has ruled against the U.S. over cotton subsidies.

A ruling against the U.S. in a long-running fight with Brazil over American payouts to cotton growers sets an important precedent for developing nations concerned by what they see as excessive U.S. support for farmers.

A World Trade Organization arbitration panel ruled Monday that Brazil is entitled to $295 million upfront, and nearly $150 million a year, for the U.S. failure to eliminate subsidies to the cotton industry.

If the U.S. does not comply, Brazil can retaliate with its own tariffs in completely different industries:

The ruling opened an important door to retaliatory measures that, under certain circumstances, could punish American pharmaceuticals companies and other owners of intellectual property.

The WTO panel said Brazil could target other American goods for retaliation if U.S. cotton supports rise significantly beyond current levels for its 25,000 farmers. Brazil, which has a robust pharmaceuticals and generic-drug industry, has targeted patented U.S. drugs for potential retaliation. That means the country could allow domestic drug makers to manufacture copies of U.S. pharmaceuticals that are still under patent protection.

Let's hope this is a step towards bringing down the existing edifice of American and European agricultural subsidies. Not only would the direct benefit be massive (one FAO study estimated that complete liberalization of agricultural trade would boost global incomes by $165 billion per year), but this would also clear the major obstacle to progress in world trade negotiations, success in which would carry even larger benefits to global welfare.

(with appropriate protections for poor countries, etc. - I am not a blind free trade fanatic, but even lefty economists acknowledge the enormous benefits that freer trade would bring)