The US has not fully implemented WTO rulings in Brazil’s cotton subsidy challenge, a compliance panel found in December.
According to the compliance ruling made public on 18 December, US subsidies continue to cause ‘significant price suppression’ in the world market for cotton. The elimination of the Step 2 programme, which compensated processors and exporters for using US cotton, did not “affect the price suppressing effects of [continued US] marketing loan payments and counter-cyclical payments in the world market for upland cotton,” the panel found. It further argued that without such payments the level of US cotton acreage and production would be considerably lower, and world prices therefore higher.
The panel also upheld Brazil’s claim that US export credit guarantees constituted export subsidies since they were provided at ‘well below’ OECD minimum premium rates and were not designed to cover the long-term operating costs and losses of the programme. It therefore concluded that the payments amounted a circumvention of US export subsidy reduction commitments under the Agreement on Agriculture, as well as violated provisions of the Agreement on Subsidies and Countervailing Measures.
US Appeals, Avoinding Imminent Cross-retaliation Threat
As was widely expected, the US appealed the compliance panel verdict on 13 February. The appeals process can take upto three months.
If the Appellate Body confirms the compliance panel ruling, Brazil can reactivate its 7 October 2007 request for authorisation to take countermeasures. In that request, Brazil argued that the asymmetries between the two economies were so great that simply imposing additional import duties on US products “would have a much greater negative impact on Brazil than on the United States.”
It therefore sought the right to ‘cross-retaliate’ to ‘the extent necessary’ through the suspension of intellectual property protection obligations (in copyrights, trademarks, patents, industrial property rights and the protection of undisclosed information), as well as the suspension of concessions in several services sectors. Brazil requested the Dispute Settlement Body to grant it authorisation to take such countermeasures in the annual amount of US$1,037 billion. The US has contested both the amount and the need for cross-retaliation, and asked the WTO to arbitrate matter.
Even if Brazil ultimately wins the compliance challenge, it will probably not be able to apply the sanctions until next fall at the earliest given the timeframes necessary for first the appeal and then the arbitration of the proposed countermeasures. Brazil’s initial request for consultations in the cotton subsidy dispute dates from October 2002.
New Panel Established on US Agricultural Subsidies
In related news, a single dispute settlement panel was established on 17 December to look into Brazil and Canada’s allegations that, with the exception of 2003, the US exceeded its spending limit on the most trade-distorting subsidies every year between 1999 and 2005. Both countries argue that some US support has been improperly calculated as non-tradedistorting. Brazil also specifically named US export credit guarantees as part of its complaint.
Canada has openly admitted that part of its motivation in launching the dispute is to influence the direction of the US farm bill, which is currently nearing full congressional debate. The US told the Dispute Settlement Body that its farm programmes were designed to be WTO-compliant, and that some of the challenged measures had ceased to exist five years ago.
All parties have agreed that panel meetings in the dispute will be open to the public.