When you starting digging behind the link at Drudge about the latest WTO ruling, you see that the WTO has unlimited time and resources. This 2010 ruling for Brazil is based on subsidies in farm bills in 2002 and 1996! Is it my imagination or does the US always seems to come out on the short end of WTO decisions? If we try to do anything about say Chinese dumping or how Europe does subsidies, don’t we always lose?

This report that was prepared for Congress a year ago sums up all the background to that point. It’s readable by us normal folks for the most part. Page 2 is a one-page summary.

Going back to the FT article linked at Drudge, it’s absolutely crazy – to the point of being criminal as far as I’m concerned – how far this could go.

Under the Brazilian plan, duties would rise most steeply on cotton products. Many that are currently taxed at between 6 per cent and 35 per cent would be taxed at 100 per cent. The tariffs on beauty products would double, from 18 per cent to 36 per cent. Duties on household goods such as cookers, refrigerators, TVs and video cameras would also double, from 20 per cent to 40 per cent. Duties on cars would rise from 35 per cent to 50 per cent.

Brazil is allowed to impose the tariff increases – worth $560m – after winning a case at the WTO last year. Brazil challenged the legality of direct subsidies to US cotton farmers to protect them against fluctuations in global prices and a loan guarantee programme for international buyers of US cotton.

So in addition to wiping out US cotton exports to Brazil, they can put a big dent in some other exports by jacking their prices way up. But it doesn’t stop there – not even close….

Brazil could also impose further penalties – known as “cross-retaliation” – on US intellectual property rights, potentially breaking patents in the pharmaceuticals, technology and media industries.

These bureaucrats in Switzerland, who receive 13.5% of their $175M annual funding from us, can just decide to let Brazil violate patents in any industry? As Family Guy’s Stewie would say, “What the hell man??”

But a negotiated settlement is still possible. The US wants any deal to be related to cotton – gee, imagine that – but Brazil has us by the uh, you know, and anything is possible. Raise your hand if you see Obama in an election year going to Congress saying we need to gut some farm subsidies.

Brazil has made it clear it is open to a settlement before the new tariffs take effect, but officials have stressed that any deal must apply specifically to cotton. One possibility may involve technology transfer from the US to Brazilian cotton producers.

It is unclear how much room for manoeuvre US officials have. Significant changes to the cotton subsidy programme would require changes to the farm bill – and securing congressional approval might be difficult.

“The only way this is not going to turn into a train wreck is if Brazil is offered something meaningful,” says Jon Huenemann, an adviser at Miller & Chevalier. “There are potential ways out of this, but they require a lot of creativity because of the political situation in both countries.”