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UNITED STATES – SUBSIDIES ON UPLAND COTTON (WT/DS 267)

UNITED STATES – SUBSIDIES ON UPLAND COTTON (WT/DS 267). INTRODUCTION TO U.S- BRAZIL COTTON CASE. GATT WTO Provisions Process. COUNTRIES INVOLVED:. Complainant: Brazil Defendant: United States

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UNITED STATES – SUBSIDIES ON UPLAND COTTON (WT/DS 267)

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  1. UNITED STATES – SUBSIDIES ON UPLAND COTTON (WT/DS 267)

  2. INTRODUCTION TO U.S- BRAZIL COTTON CASE • GATT • WTO • Provisions • Process

  3. COUNTRIES INVOLVED: • Complainant: Brazil • Defendant: United States • Third Parties: Argentina; Australia; Benin; Canada; Chad; China; Chinese Taipei; European Communities; India; New Zealand; Pakistan; Paraguay; Venezuela; Japan; Thailand

  4. THE MAIN ISSUES • #1 ISSUE US Domestic and Export subsidies for Upland Cotton Producers specifically the: • Farm Security and Rural Investment Act of 2002 • Did US Farm Bills in 1999 and the subsequent farm bills that targeted funds to support US prices for domestic cotton production and exports break WTO agreements on Subsidies or did Article 13 of the GATT 1994 preclude rules on subsidies? • #2 ISSUE Compliance • Once WTO ruled US cotton subsidies broke WTO rules Brazil requested another panel to ensure that US had complied with the ruling.

  5. SPECIFIC US BILLS CONTESTED BY BRAZIL IN WT/DS267 • Step 2 payments - subsidies designed to enhance competitiveness of US cotton exports, by providing payments to buyers of US-grown cotton when its price exceeds a European benchmark price. • Export credit guarantees - government guarantees for short-term export financing for cotton and other agricultural commodities. • Marketing loan payments -a loan program that allows farmers to use cotton crops as collateral for a non-recourse government loan and to repay the loan at a lower rate when the world price for cotton falls below a certain threshold. • Counter-cyclical payments - payments proportional to a farmer's cotton production on "base acres" during a past period, triggered when the market price for cotton falls below a target price.

  6. CONTEXT OF THE CASE:BRAZIL POSITION • Brazil claims the United States Farm Bill of 1999-2000 and 2002 contravene WTO rules on Subsidies and Countervailing Measures and the Agreement on Agriculture • Brazil argued that the US was responsible for driving down world cotton prices, consequently causing harm to Brazilian farmers while increasing the US share of the global cotton market.

  7. CONTEXT BRAZIL POSITION • “Brazil requests consultations with the Government of the United States regarding prohibited and actionable subsidies provided to US producers, users and/or exporters of upland cotton.” - From Brazil’s letter of consultation March 10, 2002 • Articles cited in letter: • AGR 08 ; AGR 09.01 ; AGR 10.01 ; AGR 19 ; DSU 04 ; DSU 04.04 ; GATT 1994 III.04 ; GATT 1994 XXII ; SCM 1994 03.01.a ; SCM 1994 03.01.b ; SCM 1994 03.02 ; SCM 1994 04.01 ; SCM 1994 05 ; SCM 1994 06.03 ; SCM 1994 06.03.c ; SCM 1994 07.01 ; SCM 1994 30

  8. CONTEXT OF THE CASE: US POSITION • US argues that Brazil claims are warrantless because US subsidies are within their rights pursuant to Article 13 of the Agreement on Agriculture that exempts certain subsidies for nine years after GATT 1994. These exemptions in Article 13 insure against complaints and are known as “peace” provisions, also know as Green Box exemptions. • Article 13 Agreement on Agriculture • “Peace” provisions within the agreement include: an understanding that certain actions available under the Subsidies Agreement will not be applied with respect to green box policies and domestic support and export subsidies maintained in conformity with commitments; an understanding that “due restraint” will be used in the application of countervailing duty rights under the General Agreement; and setting out limits in terms of the applicability of nullification or impairment actions. These peace provisions will apply for a period of 9 years.

  9. CONTEXT CONT’DUS POSITION • Initial Brief of the US on questions posed by the panel. June 5, 2003 “…Article 13 (the “peace clause”) precludes the Panel from considering Brazil’s claims under Article XVI of the GATT 1994 and the (ASCM) since the US support measures at issue conform with the Peace Clause. “

  10. CONTEXT CONT’DUS POSITION • Comments of the US on comments by Brazil on questions posed by the Panel. – June 13, 2003 • …” the interpretation of Article 13 advanced by Brazil is deeply flawed…Brazil fails to read the Peace Clause according to the customary rules of interpretation of public international law….It’s interpretation… would lead to an absurd result…”

  11. LEGAL BASIS FOR BRAZIL CASE: • Brazil complained that United States Violated the following WTO Agreements: 1.Articles 4.1, 7.1 and 30, of ASCM 2.Article 19 of the AA 3.Article 22 of GATT 1994 4.Article 4 of DSU In short this is violation of subsidies agreements

  12. WTO ARTICLES INVOLVING THE CASE • AA 3.3- No subsidies above the scheduled level of specified goods (scheduled goods) in article 9 of AA • Export Subsidy Commitments 1.   •        The following export subsidies are subject to reduction commitments under this Agreement:   • “the sale or disposal for export by governments or their agencies of non-commercial stocks of agricultural products at a price lower than the comparable price charged for the like product to buyers in the domestic market”(AA9(b)) • AA 8- No export subsidies for unscheduled products • AA 9.1-supposed to reduce the level of direct subsidies payment. • AA 10-Prevention of Circumvention  of Export Subsidy Commitments

  13. Articles Cont’d • ASCM Art. 3 - no subsidies based on export performance- In case of U.S export credit guarantees • ASCM Arts 5(C)-Serious prejudice to the interests of another Member • ASCM Arts 6.3 (C)- Subsidy which cause the market price to be suppressed causing serious prejudice to Brazil’s interest within meaning of article 5 (C)

  14. TIME LINE OF THE CASE: • Consultations Request: September 27, 2002 • Consultations held: December 3, 2002 & January 17, 2003- Failed. • Brazil requested Panel February 6, 2003 • March 18, 2003 Established of a panel • Panel Report : September 8, 2004 Circulation of the Panel Report- both countries appealed ruling • AB report: March 3, 2005- Upheld panel ruling.

  15. Time Line Compliance: • August 21, 2006 Brazil requested WTO compliance panel • December 18, 2007- Panel- U.S did not comply • February 2008- U.S appealed compliance panel ruling • June 2008- AB upheld the panel ruling

  16. PANELS AND AB FINDINGS: IN FAVOR OF BRAZIL • Two U.S programs were found to operate as prohibited • The two step payment and export credit guarantees • Further more the Panel found that the export-subsidies aspect does not just apply to cotton but also other commodities that benefit. • Panel recommended the United states remove all subsidies.

  17. PANEL AND AP FINDINGS: IN FAVOR OF UNITED STATES • Brazil has not made a prima facie case that the effect of marketing loan and counter-cyclical payments provided to US upland cotton producers pursuant.

  18. U.S RESPONSE TO PANEL AND AB RULLING • After losing, U.S announced it intended to fully comply with recommendation • In July 2005 U.S instituted a risk based export credit guarantee

  19. BRAZILS RESPONSE TO U.S COMPLIANCE • Brazil charged the United States had neither take nor announced any specific initiative for price-contingent programs deemed to cause prejudicial impact to brazil trade interest • Brazil requested to impose $ 1 billion retaliation against the united states • The United states requested WTO arbitration of the level of proposed sanction

  20. BRAZIL REQUEST FOR COMPLIANCE PANEL • On August 21, 2006 Brazil requested the establishment of WTO compliance panel to review weather the United States had not fully complied with panel and AB report • December 18, 2007 the compliance panel released the final report ruling the united states had not fully complied

  21. UNITED STATES RESPONSE TO COMPLIANCE PANEL RULLING • In February 2008 the United states appealed the compliance panel ruling • In June 2008 the TWO Appellate Body upheld the compliance panel ruling.

  22. SUMMARY • Process worked • Constructive manner • Conformity • Rules, not Power

  23. SOURCES • 1. http://www.ustr.gov/ • 2. http://www.wto.org/ • 3. http://www.gao.gov/ • 4. http://www.ustr.gov/assets/Trade_Agreements/Monitoring_Enforcement/Dispute_Settlement/asset_upload_file243_5697.pdf • 5.

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