WTO Cases • Volume 12 • Number 21 • 11th June 2008
WTO Panel Rejects US Appeal, Upholding Brazil’s Victory in Cotton Dispute
In a ruling issued last week, the WTO’s Appellate Body upheld Brazil’s complaint that US subsidies to its upland cotton producers violate the country’s world trade obligations. Brasilia maintains that the US payments suppress global cotton prices and allow US cotton producers to control a disproportionate share of the market.
The DSB’s ruling, which confirms Brazil’s view after several years of disputes and appeals, marks the first time that a developed country’s agricultural policy has been successfully challenged at the WTO.
In December, five years after Brazil first requested a consultation, a WTO panel issued a report, known as Article 21.5, upholding Brazil’s claim that the marketing loans and countercyclical payments that the US offers its cotton farmers violate both the Agreement on Subsidies and Countervailing Measures and the General Agreement on Tariffs and Trade.
The US appealed that ruling in February, maintaining that its cotton payments fall outside the scope of Article 21.5 and that they do not significantly suppress global cotton prices.
The panel, in its report last week, again sided with Brazil, rejecting the US appeal. It was convinced by Brazil’s arguments that even a small drop in prices harms Brazilian producers, given their narrow profit margins, and that US cotton producers’ ‘artificially high’ market share reflects the impact of these subsidies.
Furthermore, the Appellate Body ruling allows Brazil to retaliate by imposing more than US$1 billion worth of sanctions on US imports each year. The WTO has suggested that this could take the form of a suspension of intellectual property rights.
While the ruling will prove encouraging to developing country trade negotiators, it is far from certain that the US will terminate its cotton subsidies. Indeed, after the issuing of an interim report by the WTO last July, then-US Agriculture Secretary Mike Johanns said that his government would “work very, very hard” to maintain payments to domestic cotton producers. This stance was confirmed in the farm bill passed by the US Congress last month. That legislation offers cotton producers subsidies of US$2-4 billion for over the next five years.
ICTSD reporting. “Brazil claims WTO cotton victory,” BBC NEWS, 27 July 2007; “US loses in cotton dispute at WTO,” BBC NEWS, 2 June 2008; “US loses WTO Brazil cotton appeal,” AL JAZEERA INTERNATIONAL, 2 June 2008.