PDF _ RL32571 - Brazil’s WTO Case Against the U.S. Cotton Program
16-Oct-2007; Randy Schnepf; 27 p.

Update: Previous releases:
November 18, 2004
September 10, 2004

Abstract: In late 2002, Brazil initiated a World Trade Organization (WTO) dispute settlement case (DS267) against specific provisions of the U.S. cotton program. On September 8, 2004, a WTO dispute settlement (DS) panel ruled against the United States on several key issues in case DS267. The United States appealed the case to the WTO’s Appellate Body (AB) which, on March 3, 2005, confirmed the earlier DS panel findings against U.S. cotton programs. Key findings include (1) U.S. domestic cotton subsidies have exceeded WTO commitments of the 1992 benchmark year, thereby losing the protection afforded by the “Peace Clause,” which shielded them from substantive challenges; (2) the two major types of direct payments made under U.S. farm programs — Production Flexibility Contract payments of the 1996 Farm Act and the Direct Payments of the 2002 Farm Act — do not qualify for WTO exemptions from reduction commitments as fully decoupled income support and should therefore count against the “Peace Clause” limits; (3) Step-2 program payments are prohibited subsidies; (4) U.S. export credit guarantees are effectively export subsidies, making them subject to previously notified export subsidy commitments; and (5) U.S. domestic support measures that are “contingent on market prices” have resulted in excess cotton production and exports that, in turn, have caused low international prices and have resulted in “serious prejudice” to Brazil.

The AB recommended that the United States remove certain “prohibited subsidies” by July 21, 2005, and remove the adverse effects resulting from certain “actionable subsidies” by September 21, 2005. When the United States failed to meet these deadlines, Brazil claimed the right to retaliate against $3 billion in U.S. exports to Brazil based on the prohibited subsidies, and $1 billion based on the actionable subsidies. The United States objected to these retaliation amounts and requested WTO arbitration on the matter. However, in mid-2005 the United States and Brazil reached a procedural agreement to temporarily suspend both retaliation proceedings. The case was resumed on August 21, 2006, when Brazil submitted a request for a WTO compliance panel to review whether the United States had fully complied with the panel and AB rulings. A compliance panel was established on October 25, 2006. On October 15, 2007, the compliance panel released its final report to the United States and Brazilian governments that found, according to news reports, that the United States had not fully complied with the panel and AB rulings. The United States is expected to appeal the compliance panel’s ruling. An unsuccessful appeal could necessitate further U.S. farm program changes or, if no further changes are forthcoming, clear the way for Brazil to request WTO authorization for retaliatory trade sanctions.

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Topics: Agriculture, Economics & Trade, International

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