Bridges Weekly Trade News Digest • Volume 10 • Number 29 • 13th September 2006
US Blocks Brazil Request For Compliance Panel In Cotton Case
Brazil on 1 September formally requested the establishment of a WTO panel to examine whether the US was in compliance with a series of rulings against its cotton subsidy programmes. The US blocked the creation of a panel at the meeting of the Dispute Settlement Body (DSB). However, WTO rules prohibit it from doing so again should Brazil repeat its request.
In March 2005, the Appellate Body confirmed that some US cotton subsidy and export credit programmes violated its WTO commitments and distorted world cotton prices enough to cause ’serious prejudice’ to Brazil’s trade interests. The DSB set two deadlines — 1 July and 21 September that year — for Washington to rectify the different offending measures (see BRIDGES Weekly, 9 March 2005).
Shortly after each of the two deadlines, Brazil formally asked WTO Members for permission to impose retaliatory tariffs against US exports, amounting to USD 3 billion for one set of subsidies, and USD 1 billion for the other. However, the US and Brazil reached procedural agreements to suspend both of the requests for retaliation, following promises from Washington that it was moving to implement the required reforms (see BRIDGES Weekly, 23 November 2005).
The US now insists that it has complied with the DSB’s rulings. Brazil disagrees. In its request for a panel dated 21 August (WT/DS267/30), it invoked the WTO dispute settlement provisions dealing with a disagreement over compliance, and asked for both sets of subsidies to either be referred to the original dispute panel or to a new one.
At the 1 September meeting, the Brazilian delegation said that "with respect to some of the DSB’s recommendations and rulings, the US has adopted no implementation measures at all, and that the implementation measures it has adopted fall far short of compliance."
The US described Brazil’s request for a panel as "unnecessary and without basis," insisting that it had "fully implemented" the DSB’s rulings. It pointed to its repeal of hundreds of millions of dollars of payments under the ‘Step 2′ subsidy programme, which had been deemed prohibited. These subsidies, which pay US mills and exporters to buy more expensive domestically-produced cotton, were found to lower world prices to the detriment of Brazil.
In its statement, the US added that it had curtailed its export credit guarantee schemes, making those that had not been eliminated more reflective of their long-term operating costs and losses — thus diminishing their illegal subsidy-like effects.
Brazil’s request for a compliance panel described the Step 2 programme elimination as the "only measure taken by the US to comply," and noted that it did not take effect until 1 August 2006, over ten months after the September 2005 deadline. It described the reforms to the export credit guarantee system as inadequate, adding that the US had not altered its marketing loan and counter-cyclical payment programs enough to prevent them from causing serious prejudice to Brazil’s producers. Counter-cyclical payments, which rise when world market prices fall, are ‘actionable’ — i.e., subject to challenge at the WTO. In the now-suspended Doha Round agriculture negotiations, the US had hoped to shelter these payments in a ‘blue box’ category slated for reductions relatively lower than those faced by the most trade-distorting subsidies.
International charity Oxfam says that the US’ reforms have affected only a small proportion of US cotton subsidies, singling out the untouched counter-cyclical payments for criticism. Alleging that US cotton subsidies in 2005 amounted to USD 5 billion for a crop that was worth less than USD 4 billion, it called on Congress to make the reforms necessary to comply with international trade rules. Oxfam believes that developing countries could win cases against many US farm subsidy programmes.
"I don’t think that the WTO negotiations on cotton were ever a serious alternative to dispute settlement," said Brendan McGivern, an international trade lawyer with White & Case in Geneva. "The repeated failure of the WTO negotiations on cotton left few illusions about the viability of making any meaningful progress on this issue at the negotiating table. Dispute settlement has been, and remains, the only realistic means to challenge US subsidies."
Gawain Kripke, senior policy advisor for Oxfam’s Make Trade Fair campaign, offered a similar assessment. "Poor countries shouldn’t have to seek development through litigation, but with the collapse of the Doha Round and the unwillingness of the US to take its international obligations seriously, litigation is one of the few options available."
Brazil can ensure the creation of a compliance panel by making a second request at the 28 September meeting of the DSB.
ICSTD reporting.