TWN Info Service on WTO and Trade Issues (Sept09/05)
8 September 2009
Third World Network

Reactions to Brazil's authorization to retaliate in US cotton dispute
Published in SUNS #6765 dated 2 September 2009

Geneva, 1 Sep (Kanaga Raja) -- The World Trade Organization (WTO) on Monday had ruled that Brazil may seek authorization from the Dispute Settlement Body to suspend concessions and other obligations against the United States to an amount totalling $294.7 million annually.

The ruling came in two separate reports concerning arbitration proceedings in the US-Brazil cotton dispute. The ruling was in respect of both prohibited subsidies and actionable subsidies provided by the United States to its cotton farmers.

The Arbitrator determined that the annual level of appropriate countermeasures in relation to GSM 102 payments (prohibited subsidies) for Fiscal Year 2006 amounts to $147.4 million, and that the annual level of countermeasures commensurate with the degree and nature of the adverse effects determined to exist in relation to the marketing loan and counter-cyclical payments (actionable subsidies) amounts to $147.3 million.

The Arbitrator also determined that in the event that the total level of countermeasures that Brazil would be entitled to in a given year should increase to a level that would exceed a threshold (of $409.7 million in 2007), then it could be reasonably concluded that it is not practicable or effective for Brazil to suspend concessions or other obligations on trade in goods alone.

In that event, Brazil would be entitled to suspend certain obligations under the TRIPS Agreement and/or GATS with respect to any amount of permissible countermeasures applied in excess of the threshold. (See SUNS #6764 dated 1 September 2009).

At a media briefing on Monday following the release of the two reports, Ambassador Roberto Azevedo of Brazil, referring to the total of $294.7 million for the year 2006, said that the value in itself is significant. It is the second largest that has ever been authorized in WTO history.

Using projections for US fiscal year 2009 (1 October 2008 to 30 September 2009), he said that the total for both the fixed and variable portions (actionable and prohibited subsidies) would reach around $800 million for this year.

Noting the threshold of $409.7 million determined by the Arbitrator in order to apply the countermeasures under the TRIPS Agreement and GATS, the Brazilian envoy said that according to Brazil's calculations, this threshold for 2009 should be around $460 million.

Using as a basis the $800 million estimate for the year 2009, this would mean that for the first $460 million, Brazil would apply countermeasures for trade in goods, and $340 million would be under GATS or intellectual property rights, he said.

The Brazilian ambassador expressed regret that the US has not yet complied with the determinations of the multilateral trading system after the US subsidies have been condemned four times by panels and the Appellate Body.

Stressing that the present decision of the Arbitrator is definitive and that there is no resort to the Appellate Body, Ambassador Azevedo said that Brazil hopes that the US will promptly and effectively comply with its WTO obligations.

In a statement issued in Washington on Monday, US 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," she added.

Reacting to the WTO Arbitrator's ruling, Gawain Kripke, policy director for Oxfam America, said: "Massive government subsidies for large-scale cotton growers in the United States are unfair and hurt farmers in poor countries. The WTO confirmed today (Monday) the injury caused by these subsidies and authorized Brazil to retaliate against the US."

"American farm policy is broken and bloated, and now other sectors of the US economy may suffer as Brazil retaliates," said Kripke.

"The global trading system depends on countries obeying rules and submitting to orderly dispute resolution," said Kripke.

"Thus far, the US has ignored the ruling of the WTO adjudication and continues large subsidies for cotton production. If the US continues this way, the integrity of the multilateral trade system is at stake."

According to the International Cotton Advisory Committee, total direct support to cotton production hovered over $3 billion in the 2008-2009 growing season, or an equivalent of 50 cents per pound of actual production.

An Oxfam study has found that with a complete removal of US cotton subsidies, the world price of cotton would increase by 6-14%, resulting in additional income that could feed an additional million children for a year or pay school fees for at least two million children living in extremely poor West African cotton growing households.

According to Oxfam, the ruling confirms that Brazil is entitled to start retaliation procedures, and possibly cross-retaliate by lifting intellectual property protections. +