Sanctions Approved in Brazil Cotton Case

Another strike against U.S. cotton programs came down today when the World Trade Organization announced a formal decision in the Brazil, United States cotton case. The arbitration follows a 2008 WTO ruling that the United States had not compiled with the original findings in the cotton dispute which found U.S. cotton programs distorted world cotton markets.

Brazil is authorized to suspend concessions (“impose countermeasures”) against U.S. trade. The total amount may vary from year to year because part of the award is based a detailed formula set out by the Arbitrators. For the time periods analyzed by the Arbitrators, including fiscal year 2006 for the part based on the formula, the amount would be $294.7 million.

In response to Brazil’s claim that it had an unconditional ability to suspend concessions against U.S. intellectual property and services, so-called “cross-sectoral” countermeasures, the Arbitrators denied Brazil’s claim. Furthermore, the Arbitrators found that Brazil may not impose cross-sectoral countermeasures unless the total amount of countermeasures for a particular year exceeds a threshold calculated for that year based on a subset of Brazil’s imports from the United States. For 2007, that threshold was $409.7 million.

Office of the United States Trade Representative spokeswoman Carol Guthrie said, “While we remain disappointed with the outcome of this dispute, we are pleased that the Arbitrators awarded Brazil far below the amount of countermeasures it asked for. In its first requests for countermeasures in the Cotton dispute, Brazil asked for more than $4 billion in annual countermeasures. During the arbitration proceedings, Brazil argued for more than $2 billion annually. Further, we are grateful that the Arbitrators denied Brazil’s request for unlimited ability to suspend concessions on intellectual property or services. And we are pleased that the Arbitrators denied Brazil’s request for an additional one-time $350 million in countermeasures in connection with the repealed Step 2 payment program for cotton.

Guthrie added, “At this time, we do not know when or if Brazil will move to obtain final authorization to suspend concessions or when or if Brazil would act on any such authorization."

Saxby Chambliss, R - Ga., said he is pleased the size of the award is less than requested by Brazil, "the complexity of the decision with regard to the export credit and cotton programs does not seem to be rooted in the Uruguay Round Agriculture Agreement. The panel report may make it harder to reach an amicable resolution with Brazil in this case and because of the complexity of the Arbitration panel's decision will certainly complicate negotiations in the Doha Round.”

Chambliss said the WTO panel ignored changes Congress and the U.S. Department of Agriculture (USDA) previously made to the export credit and cotton programs administratively and in the Deficit Reduction Act of 2005 and the 2008 farm bill to specifically address earlier concerns of the dispute settlement body. In 2005, USDA implemented a risk-based fee structure to GSM-102 and in the farm bill, Congress repealed authority for the Supplier Credit Guarantee Program (SCGP), the GSM-103 intermediate credit guarantee, and the 1% cap on loan origination fees for the GSM-102 program. In addition, Congress repealed the Step 2 program four years ago while making significant reforms to the cotton program in the 2008 farm bill.

“Since 2005, U.S. production of upland cotton has decreased by 45% and U.S. share of the export market has dropped by almost 20%. " To assume that the U.S. cotton program is causing serious prejudice to Brazilian farmers is not only factually incorrect but defies common sense. In addition, U.S. government data on our export credit programs clearly illustrates that GSM-102 is not an export subsidy, but is in fact providing a net return to the federal government," Chambliss said.

Guthrie said the Administration will be actively consulting within the U.S. Government and with stakeholders on how to move forward. Chambliss added in the coming weeks and months, there will be renewed calls by Brazil, trading partners and critics at home to make additional changes to the export credit and commodity programs. "Calls to do so are premature and would signal the wrong course of action. The U.S. Trade Representative should carefully examine what options are available within the WTO in light of the report."

Chambliss said he will be meeting with Ambassador Kirk in the coming days to discuss options including requesting a compliance panel or an entirely new panel to demonstrate the U.S. has complied with the original decision. "I look forward to the conversation and working with my colleagues in the Senate and Congress on the appropriate response to this decision," he added.