United States vs. Brazil: Upland Cotton (DS267)

1. United States vs. Brazil:Upland Cotton (DS267) Catlin, Britt Choe, Won Deschauer, Christian

2. Table of Contents • History and Context • Main Issues • U.S. Position • Brazil’s Position • WTO decision • Implementation • Proposal

3. History and Context • Cotton is an important commodity • Uses • Textiles • Industrial • Cottonseed (cooking oil) • Paper (part of cellulose) • Upland cotton is a common name for Gossypium hirsutum • Hardly breed of cotton, suitable for different growing conditions

4. History and Context (continued) • Major component of U.S. agricultural sector • World’s third-largest producer of cotton • World’s largest exporter • Exports as a share of domestic production is 70% • U.S. cotton share in world market has increased • As a result, subsidies have drawn international attention

5. U.S. Subsidies and Support

6. U.S. Subsidies and Support (continued)

7. Brazil’s PositionU.S. Position • Claim 1.) Violation of Peace Clause – excess of 1992 level • Claim 2.) Direct payments do not qualify for exemption • Claim 3.) Step 2 Program functions as a subsidy • Response to 1.) “Exempt from Actions” takes precedence • Response to 2.) PFC and DP programs have no or minimal trade distorting effects • Response to 3.) Step 2 Program payments are for domestic support

8. Brazil’s PositionU.S. Position • Claim 4.) Export Credit Guarantees are export subsidies • Claim 5.) Subsidies have caused “serious prejudice” • Claim 6.) FSC-ETI Act of 2000 is an export subsidy • Response to 4.) Export guarantees are consistent with WTO obligations • Response to 5.) Weakness in world demand is the cause • Response to 6.) No case has been made

10. WTO Dispute Settlement Panel’s Recommendation • Synopsis:The WTO has ruled on two separate occasions that Washington’s cotton subsidies are out of line with the U.S. commitments at the global trade body • The WTO’s Appellate Body upheld Brazil’s complaint that U.S. subsidies to its upland cotton producers violated the country’s world trade obligations

11. Timeline: U.S. – Brazil WTO Dispute Settlement Case 267 • DATEEVENT • Sept. 2002Brazil makes formal “request for consultations” with U.S. • Oct. 2002 to Jan. 2003Brazil and U.S. hold 3 consultation to discuss dispute – unsuccessful • Feb. 20031st request from Brazil for establishment of dispute panel to rule on complaint is vetoed by U.S. • March 2003After 2nd request from Brazil, WTO DSB establishes a panel

12. Timeline: U.S. – Brazil WTO Dispute Settlement Case 267 • DateEvent • May 2003 WTO appoints panelists and grants 6 months to hold hearings and gather testimony before final report • July 20031st meeting with DSB panel. Panel decides to review the peace clause issue and Brazil’s challenge to U.S. cotton subsidies separately • Sept. 2003Panel decides both issues will be decided together • Nov. 2003An extension for the decision is granted • April 2004

13. Timeline: U.S. – Brazil WTO Dispute Settlement Case 267 • DateEvent • June 2004 WTO panel releases final report • Oct. 2004 U.S. notifies intent to appeal 14 points of report to the Appellate Body (AB) • March 2005 The AB upholds most of the panel’s initial rulings. Concurrence of report by DSB and the AB initiates U.S. compliance deadlines*

14. The Final ReportWTO Findings Against U.S. • “Peace clause” violation • U.S. direct payments do not qualify for exemption from reduction commitments as decoupled income support • The Step 2 Program functions as an export subsidy

15. The Final ReportWTO Findings Against U.S. • U.S. Export Credit Guarantees function as export subsidies • U.S. subsidies have caused “serious prejudice” (against Brazil cotton)

16. U.S Implementation of WTO Findings • Withdrawal of prohibited subsidies “without delay” • Prohibited export subsidies • Export Credit Guarantees/GSM-102* • Step 2 Program payments to exporters of upland cotton • Prohibited import subsides • A. Step 2 Program payments to domestic users of upland cotton

17. U.S Implementation of WTO Findings • Withdraw of “actionable” subsidies or removal of their adverse effects • The establishment of a fund totaling $147.3 million USD/annually to finance projects that will benefit Brazilian cotton crops

18. Epilogue • June 2008: WTO says U.S. failed to comply with dispute panel rulings • Feb 2008: Brazil seeks authority for retaliatory trade measures • Aug 2008: Brazil requests resumption of arbitration review of proposed countermeasures • March 2009: Revision of Brazil’s total retaliation request

19. Proposals • African consortium of cotton producers* • Subsidies suppress world price of cotton and harms developing countries • U.S. doesn’t lose much (relatively) • During the Doha Development Round negotiations • Subsidies for agricultural products in developed countries should be removed • In the meantime, similar U.S. subsidies on “principle crops” including wheat, rice, feed grains, soybeans and peanuts should be removed • Similar system of direct payments exist for all principle crops • Could result in similar disputes

20. Questions?

21. Works Cited/Sources Referenced • http://www.washingtonpost.com/wp-dyn/content/article/2010/03/08/AR2010030805359.html • http://www.nationalaglawcenter.org/assets/crs/RL32571.pdf • http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm • http://www.washingtonpost.com/wp-dyn/content/article/2010/06/02/AR2010060204228.html • http://reason.com/blog/2010/06/04/us-cotton-subsidy-shame • http://www.pbs.org/wnet/wideangle/episodes/the-dying-fields/global-cotton-industry/cotton-subsidies-and-the-world-trade-organization/1945/ • http://www.orange.mu/kinews/afp/business/106908/mandelson-charges-us-hiding-behind-smokescreen-on-cotton-subsidies.html • http://www.oxfam.org.uk/resources/policy/trade/downloads/bp64_cotton_dumping_060904.pdf • http://fpc.state.gov/documents/organization/57876.pdf • http://www.iatp.org/tradeobservatory/library.cfm?refID=107376 • http://www.oxfam.org/en/pressroom/pressrelease/2009-08-31/oxfam-reaction-wto-judgement-us-cotton-subsidies • http://www.worldtradelaw.net/articles/benitahexportcredits.pdf • http://www.jstor.org/pss/20456726 • http://www.twnside.org.sg/title2/wto.info/twninfo20080618.htm • http://www.ideascentre.ch/documents/Newsletter85CottonBrazilvsUSA.pdf • http://www.policyarchive.org/handle/10207/bitstreams/2204.pdf • http://ncseonline.org/nle/crsreports/08July/RS22187.pdf